Canterbury Bankstown Council v General Works and Construction Pty Ltd

1. [1]

   In these proceedings, Canterbury Bankstown Council seeks to set aside an adjudication determination that was made in favour of General Works and Construction Pty Ltd (GWAC) pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

2. [2]

   The Council contends that the determination should be set aside for jurisdictional error, including because it was outside the scope of GWAC’s payment claim; was made without a legal or factual basis; and was illogical or unreasonable.

Factual background

1. [3]

   On 5 July 2022, the Council and GWAC entered into a contract entitled “Contract No. T55022” for the “Supply and Delivery of Pre-Cast Pits, Pipes and Culverts for Appian Way, Bankstown – Culvert Upgrade” (Contract).

2. [4]

   Clauses 6.1 and 6.2 of the Contract provided as follows:

3. [5]

   Clause 8 of the Contract provided as follows:

4. [6]

   Clause 6.5 of the Contract relevantly provided as follows:

5. [7]

   On 8 December 2023, GWAC served a Payment Claim on the Council pursuant to s 13 of the Act. The Payment Claim sought the amount of $907,253.93 (incl GST). This included, relevantly, a claim for:

   1. (1)

      “Production Delay Costs” of $464,735.80 (excl GST). Attachment A to the Payment Claim described this as a claim “for the production delay costs incurred by the Contractor arising from the delays caused by the Council”. The period of the delay was specified to be from 13 December 2022, when the Council issued a “Stop Work Instruction”, until 13 February 2023. The claimed costs comprised overheads and manufacturing standby costs;

   2. (2)

      “Design Costs for the Precast Culverts” of $136,000.00 (excl GST). Attachment C to the Payment Claim described this as a claim for “the design costs and expenses incurred by [GWAC] due to the Council’s Design Instruction”, being an instruction on 27 July 2022 “to appoint a designer to comply with the requirements required by Sydney Water”; and

   3. (3)

      “Escalation Costs” of $162,100.00 (excl GST). Attachment D to the Payment Claim described this as a claim for “additional costs” which had been “incurred” by GWAC “in performing the works under the Contract”, as a result of “the delay caused by the Council”.

6. [8]

   On 22 December 2023, the Council served a Payment Schedule in response to the Payment Claim, pursuant to s 14 of the Act. The Payment Schedule specified an amount of $0 for each item in the Payment Claim, including the Production Delay Costs, the Design Costs and the Escalation Costs. The Council stated that there was no evidence to substantiate the sums claimed in respect of any of those items. Further, the Council set out the terms of cl 6.5(3) of the Contract and stated that this clause did not give any entitlement to GWAC to claim for overheads standby costs (the Production Delay Costs) or any increase in price for completion of the works (the Escalation Costs).

7. [9]

   On 15 January 2024, GWAC applied for an adjudication of its Payment Claim, pursuant to s 17 of the Act. GWAC lodged various documents in support of its Adjudication Application, including:

   1. (1)

      a statement of Mr Jeremy Clarke, Director of GWAC;

   2. (2)

      a Quantity Surveyor’s Report prepared by Ariya Quantum Consultants (QS Report); and

   3. (3)

      two invoices from PMLV Consulting in relation to design work.

8. [10]

   On 18 January 2024, the Third Defendant, Mr Smithies, (the Adjudicator) was appointed by the Second Defendant to determine the Adjudication Application.

9. [11]

   On 23 January 2024, the Council lodged an Adjudication Response. The matters raised by the Adjudication Response included, relevantly, that:

   1. (1)

      the Adjudication Application raised new matters in support of the progress payment which were not contained in, and were inconsistent with, the Payment Claim;

   2. (2)

      the QS Report advanced a method for calculating a progress payment which was not permitted by the Contract, or referable to the value of the construction work or related goods and services provided by GWAC; and

   3. (3)

      there was no evidence from GWAC that it had incurred any of the costs claimed.

10. [12]

    On 5 February 2024, the Adjudicator issued the Determination in favour of GWAC in the amount of $314,230.80 (incl GST), plus the Adjudicator’s costs and interest. The Adjudicator determined that GWAC was entitled to, relevantly, the following amounts (excl GST):

    1. (1)

       $93,095.15 in respect of Production Delay Costs;

    2. (2)

       $136,000.00 in respect of Design Costs; and

    3. (3)

       $51,628.71 in respect of Escalation Costs.

11. [13]

    On 7 February 2024, GWAC demanded payment of the amount determined by the Adjudicator.

12. [14]

    On 14 February 2024, the Second Defendant issued an adjudication certificate to GWAC for the adjudicated amount, plus interest and costs. On the same day, GWAC filed the adjudication certificate as a judgment for a debt in the District Court of New South Wales, pursuant to s 25 of the Act.

13. [15]

    On 16 February 2024, GWAC recovered the sum of $337,013.80 from the Council by way of garnishee order. On the same day, the Council commenced these proceedings.

The Statutory Regime

1. [16]

   The object of the Act is to “ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services”: s 3(1). Section 3(3) provides that:

2. [17]

   Section 8 provides that a person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services is entitled to receive a progress payment. It was common ground that GWAC undertook, by the Contract, to supply “related goods and services” as defined by s 6 of the Act.

3. [18]

   Section 10(2) specifies the manner in which related goods and services are to be valued, as follows:

4. [19]

   Section 13 deals with the making of a payment claim. It relevantly provides as follows:

5. [20]

   It was common ground that the Payment Claim issued by GWAC complied with the requirements of s 13(2).

6. [21]

   Section 14(1) provides that a person on whom a payment claim is served may reply to the claim by providing a payment schedule to the claimant. Section 14(2)-(3) provides that:

7. [22]

   Section 17(1) provides that a claimant may apply for adjudication of a payment claim if the respondent provides a payment schedule, and the scheduled amount is less than the amount claimed. In the present case, this provision was triggered, as the Council’s Payment Schedule specified a nil amount in response to GWAC’s Payment Claim.

8. [23]

   Section 21(2) provides that an adjudicator is to determine an application “as expeditiously as possible”. Underpinning the statutory entitlement to progress payments is an understanding that cash flow is the lifeblood of the construction industry: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 (Probuild) at [40]. Accordingly, the Act imposes “brutally fast” deadlines on the claimant, respondent and adjudicator in order to ensure the prompt resolution of payment disputes: ibid.

9. [24]

   Section 22 sets out what the adjudicator is to determine, and what matters the adjudicator is to consider in making that determination. It provides as follows:

10. [25]

    In the event that jurisdictional error is established, section 32A provides as follows:

The Council’s Issues for Determination

1. [26]

   At the hearing, the Council identified 8 issues for determination in these proceedings. They were as follows:

2. [27]

   The essence of the Council’s contention in respect of issues 1 and 2 is that the Adjudicator made a determination which was outside the scope of the dispute raised by the Payment Claim and the Payment Schedule, and that this was a jurisdictional error.

3. [28]

   In respect of Production Delay Costs and Escalation Costs, the Council contended that:

   1. (1)

      in the Payment Claim, GWAC sought payment for costs which it had incurred as a result of the Council’s delay;

   2. (2)

      in the Payment Schedule, the Council responded that GWAC had not produced any evidence that it had in fact incurred any such costs as a result of the alleged delay;

   3. (3)

      in the Adjudication Application, GWAC did not produce any evidence that such costs had in fact been incurred; and

   4. (4)

      the Adjudicator, instead of rejecting GWAC’s claim, proceeded to award damages for delay based upon the QS Report, which provided estimates for the impact of delay based on experience in the construction industry generally.

4. [29]

   In relation to the Design Costs, the Council contended that:

   1. (1)

      in the Payment Claim, GWAC had sought payment in respect of design work which GWAC itself had allegedly performed;

   2. (2)

      in the Payment Schedule, the Council responded that GWAC had not produced any evidence that it had in fact done any such work; and

   3. (3)

      the Adjudicator, instead of rejecting the GWAC’s claim, proceeded to award an amount in respect of the design work said to have been performed by a third party, PMLV Consulting.

5. [30]

   I do not accept the Council’s contentions. For the reasons set out below, I find that the Adjudicator, in determining that GWAC was entitled to a progress payment in respect of each of the Production Delay Costs, Escalation Costs and Design Costs, was determining a matter within the scope of the dispute raised by the Payment Claim and the Payment Schedule.

6. [31]

   GWAC set out its claim for Production Delay Costs in Attachment A to the Payment Claim. The elements of that claim were as follows:

   1. (1)

      on 13 December 2022, the Council issued a Stop Work Instruction to GWAC, requiring the suspension of works under the Contract;

   2. (2)

      on 13 February 2023, the Council instructed GWAC to recommence works under the Contract;

   3. (3)

      the delay from 13 December 2022 to 13 February 2023 caused GWAC to incur, relevantly, daily overhead costs amounting to $82,202.43 based on the Hudson Formula; and

   4. (4)

      GWAC was entitled to payment of the amount of the costs incurred by GWAC as a result of the delay caused by the Council.

7. [32]

   The Payment Claim did not identify the “overheads” or set out how the amount of $82,202.43 “based on the Hudson Formula” had been calculated. However, this calculation had been provided in an earlier notice of dispute which had been sent by GWAC to the Council on 7 February 2023. A copy of this notice of dispute was attached to the statements which each of GWAC and the Council provided to the Adjudicator. This document included the following statements (emphasis in original):

8. [33]

   The Payment Claim did not specify the provision of the Contract pursuant to which GWAC was entitled to claim this amount. However, the Council recognised that this was a claim made under clause 6.5(3) of the Contract. In the Payment Schedule, the Council set out the terms of that clause, and denied that it gave GWAC the right to charge overhead costs or standby costs to the Council. Further, and in any case, the Council denied that there was any evidence of any such costs having in fact been incurred by GWAC as a result of the alleged delay.

9. [34]

   Accordingly, the elements of the dispute in respect of Production Delay Costs, arising from the Payment Claim and Payment Schedule, were as follows: whether GWAC was entitled to claim for the amount of costs incurred as a result of the delay caused by the Stop Work Instruction, and whether GWAC had provided evidence to substantiate its claim for such costs (and if so, in what amount).

10. [35]

    The Adjudicator determined this dispute.

11. [36]

    First, he determined, contrary to the Council’s submissions, that cl 6.5(3) of the Contract gave GWAC an entitlement to be paid the amount of the costs which it had incurred by reason of the Council’s delay.

12. [37]

    In its Adjudication Application, GWAC had sought costs in respect of two periods of delay: the first being a delay of 52 days caused by the Council’s failure to provide the design documents which were necessary for the works to commence; and the second being the delay caused by the Stop Work Instruction. Significantly, the Adjudicator determined that it was only open to him to consider a claim under cl 6.5(3) for the costs of the second delay, because only the second delay was within the scope of the Payment Claim.

13. [38]

    In respect of this second period of delay, the Adjudicator found that the Council had not established that GWAC was in breach of its obligations to the extent that the Stop Work Instruction was justified. He was “therefore satisfied that [GWAC] has an entitlement to the damages as provided under clause 6.5 of the contract”.

14. [39]

    I do not read this reference to “damages” as a reference to some claim distinct from that which was made by GWAC in the Payment Claim. At the commencement of the section dealing with the Production Delay Costs, the Adjudicator recorded that GWAC’s claim was for “its costs or expenses incurred in connection with” the delay. That is, I read the Adjudicator’s reference to GWAC’s claim for “damages” pursuant to cl 6.5(3) as a reference to its claim for the “costs or expenses incurred” in connection with the delay.

15. [40]

    Secondly, the Adjudicator determined the quantum of costs incurred by GWAC as a result of the delay. He did not award any amount in respect of manufacturing standby costs. However, he did award an amount for “Preliminary Costs” incurred as a result of the delay. “Preliminaries” refers to on-site overheads, that is, overheads that are attributable to this particular project.

16. [41]

    The Adjudicator explained that he determined the amount allowed for such costs by adopting the methodology set out in the QS Report for calculating “‘Preliminary Costs’ that would be incurred on a daily (workdays) basis”, which resulted in a figure of $1,526.15 per day. The Adjudicator multiplied this daily figure by the 61-day period of the delay caused by the Stop Work Instruction, which resulted in an amount of $93,095.15. He concluded: “Accordingly, I determine the value of the Production Delay Costs to be $93,095.15.”

17. [42]

    GWAC submitted at the hearing before me, and the Council did not dispute, that the calculation of Preliminary Costs adopted by the Adjudicator involved the application of the Hudson Formula (being the methodology referred to in the Payment Claim and described in GWAC’s earlier dispute notice, set out in paragraph 32 above). That is, the Adjudicator’s calculation involved multiplying the contract value by a percentage to produce a total figure for Preliminaries; dividing that amount by the contract period, in order to produce a figure for Preliminary Costs being incurred on a daily basis; and then multiplying that figure by the number of days in the period of the delay.

18. [43]

    Having regard to those matters, I am satisfied that the Adjudicator determined the claim in respect of Production Delay Costs that was set out in Attachment A to the Payment Claim.

19. [44]

    Similar points apply to the claim for Escalation Costs. In Attachment D to the Payment Claim, GWAC described the claim for Escalation Costs as a claim for “additional costs” of $162,100 which GWAC had “incurred” as a result of “the delay caused by the Council”. The Payment Claim did not specify (as it had in the case of Production Delay Costs) the “delay” to which this claim for price escalation related. However, it was apparent that it related, at least in part, to the period from June to September 2022, since the Payment Claim stated that GWAC “relied on Corelogic’s Cordell Construction Costs Index (CCCI) and claimed that there was a 4% rise in construction costs between June 2022 and September 2022”. Further, it was apparent that the claim related, at least in part, to the period from around the beginning of January 2023, since the Payment Claim referred to increases in concrete prices that were notified at around that time.

20. [45]

    As was the case with Production Delay Costs, the Payment Claim did not specify the provision of the Contract pursuant to which GWAC was entitled to claim the Escalation Costs. However, the Council recognised that this, too, was a claim made under clause 6.5(3) of the Contract. In the section of the Payment Schedule dealing with this claim, the Council set out the terms of cl 6.5(3); denied that this clause gave any entitlement to GWAC “to claim any increase in price for the completion of the works”; and stated that, in any case, no evidence had been provided to substantiate the “estimate” for such costs given in the Payment Claim.

21. [46]

    In its Adjudication Application, GWAC made clear that it was relying on two separate periods of delay, being the delay caused by the Council’s failure to provide design documents (said to have caused a delay of around 52 days from June 2022), and the delay caused by the Stop Work Instruction (said to have caused a delay of 61 days from 13 December 2023), resulting in a total delay of 113 days.

22. [47]

    In its Adjudication Application, GWAC relied on various alternative bases for calculating the Escalation Costs caused by this 113-day delay. Relevantly, these included the methodology identified in the QS Report. This methodology involved the following steps:

    1. (1)

       identifying that the two periods of delay meant that the Contract would have to be extended by 113 days, resulting in the date for contract completion being pushed back to 22 June 2023;

    2. (2)

       identifying the Contract Amount that had been paid before the second delay in late 2022, and thereby working out the remaining amount to completion of the Contract (being $877,688);

    3. (3)

       calculating the escalation in construction prices between July 2022 (the commencement of the first period of delay) and June 2023 (the extended completion date as a result of the delay) as being 5.88%, by reference to the figures in the “AIQS Building Cost Index”; and

    4. (4)

       calculating the Escalation Costs for the remaining works by multiplying the remaining amount to completion of the Contract ($877,688) by 5.88%, to produce a figure of $51,628.71.

23. [48]

    In its Adjudication Response, the Council did not (as it had in respect of Production Delay Costs) make any submission to the effect that a claim for the costs incurred by the delay in the provision of design drawings was outside the scope of the Payment Claim.

24. [49]

    The Adjudicator determined that the Council had caused delay as a result of the matters upon which GWAC relied (namely, the design delay and the Stop Work Instruction delay); and that “clause 6.5 is sufficiently broad in its meaning to cover the claim for price escalation where the cost increase was due to the delay caused by the actions of the [Council]”.

25. [50]

    The Adjudicator then determined that:

26. [51]

    The Adjudicator concluded that, having regard to those matters, he was satisfied that GWAC “is entitled to the Market Escalation Costs claim, which I determine the value to be that calculated by the QS Report of $51,628.71”.

27. [52]

    Having regard to those matters, I am satisfied that the Adjudicator determined the claim in respect of Escalation Costs that was set out in Attachment D to the Payment Claim.

28. [53]

    Attachment C to the Payment Claim explained that the background to the claim for Design Costs was that while the Contract required GWAC to supply and deliver the culverts in accordance with the drawings and specifications provided by the Council, those drawings and specifications “did not contain sufficient details for [GWAC] to proceed with the works under the Contract”. As a result:

    1. (1)

       “On 27 July 2022, the Council instructed [GWAC] to appoint a designer to comply with the requirements required by Sydney Water” (emphasis added); and

    2. (2)

       This design instruction caused GWAC “to incur $136,000 for the design costs and expenses arising from the Council’s Design instruction”.

29. [54]

    That is, GWAC claimed that there had been a variation to the Contract, whereby the Council had instructed GWAC “to appoint a designer” to carry out certain works; and that, as a result of this instruction, GWAC had incurred costs in the amount specified.

30. [55]

    The Payment Claim did not assert, as the Council suggested, that GWAC had itself performed the design work.

31. [56]

    In the Payment Schedule, the Council contended that GWAC did not have any contractual entitlement to claim the Design Costs and that, in any case, GWAC had not produced any evidence to substantiate the amount claimed.

32. [57]

    As part of the material in support of the Adjudication Application, GWAC provided two invoices from PMLV Consulting for design works, dated 1 December 2022 and 2 February 2023, for a total amount of $117,190 (excl GST).

33. [58]

    The Adjudicator determined that the design was not part of GWAC’s scope of work and that the design work must be considered a variation of the Contract. He was satisfied that the invoices from PMLV Consulting validated the amount claimed for the work. While the total amount of those invoices differed from the amount claimed, the Adjudicator accepted that it was appropriate to include, as set out in the QS Report, an additional amount for GWAC’s overheads and profits (at a rate of 14%). Having regard to those matters, the Adjudicator was “satisfied that [GWAC] is entitled to the claimed amount of $136,000” in respect of Design Costs.

34. [59]

    It should be noted that there is an error in the section of the QS Report regarding Design Costs. The QS Report incorrectly states that the total for the two invoices issued by PMLV Consulting is $120,139 excluding GST (rather than $117,190 excl GST). This error is due to the QS Report summing the figure on the first invoice excluding GST and the figure on the second invoice including GST. As a result, the QS Report mistakenly states that the addition of a 14% margin to the two invoices would produce a total design cost of $136,958.46 (excl GST). In fact, if the correct figures (excl GST) had been used, the total would have been $133,596.60. The Adjudicator did not pick up this error and relied on the figure in the QS Report in concluding that GWAC was entitled to the amount of $136,000 (excl GST) which had been sought in the Payment Claim in respect of the Design Costs. However, the Council did not refer to, or rely on, this arithmetic error and it is, in any case, not a jurisdictional error.

35. [60]

    Having regard to the matters set out above, I am satisfied that the Adjudicator determined the claim in respect of Design Costs which had been made by the Payment Claim.

36. [61]

    It follows that Issue 2 does not arise. Nonetheless, even if GWAC had established (contrary to my findings) that the Adjudicator determined matters outside the scope of the Payment Claim, it would not necessarily have followed that jurisdictional error was established.

37. [62]

    The “statutory task of an adjudicator is to determine the claimant’s entitlement within the framework of the dispute that was propounded by the parties”: Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWCA 215 at [84] per Payne JA (with whom Ward ACJ and Basten AJA agreed). In performing the function conferred under s 22(1) of the Act, the adjudicator is required to consider “the payment claim to which the application relates”: s22(2).

38. [63]

    The adjudicator “is to act upon his or her understanding … of the content of the payment claim”: Icon Co (NSW) Pty Ltd v Australia Avenue Developments Pty Ltd [2018] NSWCA 339 at [16] per Basten JA (with whom Meagher and Leeming JJA agreed). The Act implicitly confers on the adjudicator the power to form an opinion as to “the scope of the payment claim” for the purposes of the adjudication, and the adjudication cannot be set aside because an error of law as to the scope of the payment claim appears on the face of the record, including in the reasons of the adjudicator: ibid.

39. [64]

    In Icon v Australia Avenue Developments at [19], Basten JA said:

40. [65]

    Further, while s 22(2) of the Act only requires the adjudicator to consider submissions “that have been duly made by the claimant in support of the claim”, it is a matter for the adjudicator to determine whether or not submissions have been “duly” made. In this regard, Payne JA said in Ceerose v A-Civil at [31] that it is “now well settled that whether a submission referred to in s 22(2)(c) or (d) has been ‘duly made’ is a matter within the jurisdiction of an adjudicator and error in identifying a submission as having been ‘duly made’ is not jurisdictional”.

41. [66]

    The Council did not dispute these propositions. However, the Council relied on the following comments by Giles JA in Downer Construction (Aust) Pty Ltd v Energy Australia (2007) 69 NSWLR 72; [2007] NSWCA 49 at [65] and [87] (emphasis added):

42. [67]

    The thrust of the Council’s submission was that (to adopt the language of Giles JA) if the Adjudication Application sought “adjudication of a payment claim unrelated to” the Payment Claim served by GWAC, and if the Adjudicator’s determination of the parameters of the Payment Claim was not just “erroneous” but also unreasonable, then jurisdictional error would be established. The Council acknowledged that this would mean that “the scope of the consideration for jurisdictional error is very small”.

43. [68]

    I doubt that Giles JA’s comments were intended to be read in the manner for which the Council contended. In Icon v Australia Avenue Developments, Basten JA quoted with approval (at [17]) the remarks made by Giles JA in Downer Construction v Energy Australia at [87], before coming to the conclusion (at [32]) that “an error in construing the contract or in understanding the payment claim does not constitute jurisdictional error and therefore cannot form a basis upon which the adjudication can be quashed.”

44. [69]

    In any case, I do not need to resolve this issue, as I have determined, in respect of each of the Production Delay Costs, the Escalation Costs and the Design Costs, that the determination made by the Adjudicator was within the scope of the Payment Claim.

45. [70]

    Issue 3 is as follows:

46. [71]

    This issue is raised only in respect of the Production Delay Costs and the Escalation Costs (and not in relation to the Design Costs).

47. [72]

    Issue 6, insofar as it relates to Issue 3, is as follows:

48. [73]

    In written submissions, the Council contended that the Adjudicator undertook the task of assessing what “damages” might arise from a delay in acceptance of goods and services, including by any movement in market prices during the period of the delay. The Council submitted that such an inquiry was “not an inquiry into the value of construction work or related goods and services, nor is it the task was given under the Act of adjudicating the right to a progress payment sought in a Payment Claim, contrary to sections 7(2) and 10 of the Act.”

49. [74]

    Section 7(2)(c) of the Act provides that the Act does not apply to:

50. [75]

    In Edelbrand Pty Ltd v HM Australia Holdings Pty Ltd [2012] NSWCA 31 at [46], Bathurst CJ (with whom McColl JA and Tobias AJA agreed) held that s 7(2)(c) did not apply to the contract at issue in that case because the consideration was calculated by reference to the value of services supplied. His Honour said (at [47]):

51. [76]

    In the present case, the Adjudicator made his determination regarding the Production Delay Costs and Escalation Costs by reference to the terms of the Contract. GWAC claimed a progress payment in respect of additional costs incurred by it in performing the contract works as a result of delays by the Council, relying on the terms of clause 6.5(3) of the Contract. The Adjudicator construed that clause as giving GWAC a contractual entitlement to be paid the amount of such costs:

52. [77]

    On this basis, the Adjudicator concluded that the claim for Production Delay Costs and Escalation Costs was a “claim … contemplated by clause 6.5” and was therefore a claim “for construction work”. The Adjudicator proceeded to determine, on the material before him, the quantum of the increased costs which GWAC had incurred as a result of the Council’s delay.

53. [78]

    In Coordinated Construction Co. Pty Ltd v J M Hargreaves (NSW) Pty Ltd & Ors (2005) 63 NSWLR 385; [2005] NSWCA 228, an adjudicator had awarded an amount on account of “delay damages”. It was argued that it was an error to do so because this was not an amount owing in relation to construction work. The Court of Appeal held that any amount which a construction contract requires to be paid as part of the total price of construction work is an amount due for that construction work, even if the contract labels it as “damages” (at [41], [55], [58]). If the amount so provided for represented, in substance, a payment for “the increased cost” of carrying out the construction work or supplying related goods or services, then it was an amount “for the construction work” or “for related goods or services supplied” (at [43]). Hodgson JA said (at [45]):

54. [79]

    Further, whether an amount is part of the bargained-for price of construction work or part of the supply of related goods and services will necessarily turn on the proper interpretation of the parties’ contract, and the construction of the contract is a matter for the adjudicator: Probuild at [79]-[80]. In Icon v Australia Avenue Developments at [16], Basten JA said that:

55. [80]

    By reason of the construction of cl 6.5(3) which the Adjudicator adopted, there was a basis for him to determine that there was, pursuant to the Contract, an entitlement to the Production Delay Costs and the Escalation Costs. Further, any error in that construction is not a jurisdictional error.

56. [81]

    Issues 4 and 5 are as follows:

57. [82]

    These issues relate only to the Production Delay Costs and the Escalation Costs (and not to the Design Costs).

58. [83]

    Issue 6, insofar as it relates to issues 4 and 5, is as follows:

59. [84]

    It is convenient to start with Issue 6, because it provides the framework for considering issues 4 and 5.

60. [85]

    The Council accepted that findings of fact are matters for the Adjudicator. However, the Council submitted that “the Adjudicator was more than mistaken, but rather that the Determination is so unreasonable or illogical so as to demonstrate jurisdictional error”. The Council conceded that this would require it to show that there was not “a skerrick of evidence” for the findings that were made. The Council’s contention was put as follows in oral address:

61. [86]

    GWAC referred to McNab Developments (Qld) Pty Ltd v Mak Construction Services Pty Ltd [2014] QCA 232 at [37]-[39], where Gotterson JA expressed doubt as to whether any Wednesbury-like unreasonableness could constitute a jurisdictional error:

62. [87]

    GWAC did not, however, advance a contention that Wednesbury-like unreasonableness is incapable of amounting to jurisdictional error (and therefore I do not need to decide that issue). Instead, GWAC contended that any such error could only be established in the most extreme case. In Pinnacle Construction Group Pty Ltd v Dimension Joinery & Interiors Pty Ltd [2018] NSWSC 894 at [90], Stevenson J observed that “it would require a most extraordinary case for a court to find an adjudicator’s decision to be unlawful because it is irrational or fails to disclose a logical connection between the findings made and the evidence”. For the reasons set out below, this case does not satisfy that description.

63. [88]

    Issue 4 asks whether there was “any evidence” of costs incurred which could give rise to an entitlement to a progress payment in respect of the Production Delay Costs and the Escalation Costs, and Issue 5 asks whether the QS report established “any logical basis” for the determination of such a claim.

64. [89]

    In relation to these issues, the Council referred to a letter from GWAC dated 23 May 2023 which stated that:

65. [90]

    The Council provided this letter to the Adjudicator and relied upon it in the Adjudication Response. In short, the Council contended that, given that the manufacture had been subcontracted to Obnova Concrete Constructions, there was no basis to conclude that, as a result of any delay, GWAC had incurred production delay costs (in the form of either overheads or manufacturing standby costs), or that GWAC had been exposed to or had incurred any increased costs as the result of any market increase in the price of materials during the period of the delay.

66. [91]

    The Council submitted that the QS Report did not deal with this issue as it merely provided an estimate of Preliminaries (for Production Delay Costs) and an estimate of price increases for the construction industry over the period of the delay (for Escalation Costs), without explaining why those estimates were appropriate having regard to the circumstances of GWAC, and in particular, the fact that it had subcontracted the manufacturing of the culverts to another entity.

67. [92]

    The Council noted that it had made these submissions to the Adjudicator, but contended that he had not addressed them in coming to his Determination. The Council did not advance any submission that it had been denied natural justice. Nor did it advance any submission that the Adjudicator did not give ‘genuine’ consideration to the matters raised with him. Any submission that the Council had been denied natural justice because of the Adjudicator’s failure to give proper consideration to the Council’s submissions would have faced considerable difficulties: see Downer Construction v Energy Australia at [155]; Ceerose v A-Civil at [52], [62]-[66] and [155]; and Demex Pty Ltd v McNab Building Services Pty Ltd [2023] NSWCA 261 at [32] per Kirk JA (with whom Mitchelmore and Adamson JJA agreed).

68. [93]

    Instead, the Council referred to the Adjudicator’s failure to address these matters in support of its contention that there was no factual basis for the Adjudicator’s determination to award the Production Delay Costs and Escalation Costs and that, in those circumstances, the determination was illogical and liable to be set aside for jurisdictional error.

69. [94]

    For the reasons set out below, I am satisfied, having regard to the materials before the Adjudicator and the reasoning disclosed by the Adjudicator, that there was an evidentiary basis for the determinations made in respect of the Production Delay Costs and Escalation Costs.

70. [95]

    The claim for Production Delay Costs set out in Attachment A to the Payment Claim included, relevantly, a claim for overheads incurred on a daily basis, which were said to be “calculated based on Hudson Formula”.

71. [96]

    In the responsive Payment Schedule, the Council contended that GWAC had provided no evidence to substantiate either the overheads or the manufacturing standby costs which it claimed by way of Production Delay Costs.

72. [97]

    In its Adjudication Application, GWAC set out this submission and its “response”, which included the following: “GWAC refers to the Clarke Statement (Folder B) and the QS Report (Folder C tab 1)”.

73. [98]

    The statement of Mr Clarke identified the matters which had been taken into account in calculating overheads for the period from 13 December 2022 to 13 February 2023, including staff management cost, wages, office equipment and rates and insurances. Mr Clarke provided figures for each such element of overheads on an annual basis and thereby provided a total figure for the financial impact of the period of the delay. In the alternative, Mr Clarke stated that the amount claimed for overheads, based on the Hudson Formula, was $82,202.43.

74. [99]

    The statement of Mr Clarke also annexed GWAC’s dispute notice of 7 February 2023 which identified the overheads which were the subject of its claim for Production Delay Costs, and the manner in which the figure of $82,202.43 had been calculated on the basis of the Hudson Formula (see paragraph 32 above). Those costs included matters such as “executive project management and clerical salaries” and “office occupancy costs (rent, mortgage, services)”.

75. [100]

    While GWAC’s letter of 23 May 2023 stated that the manufacture of the precast culverts would be undertaken by Obnova Concrete Constructions, it also noted that: “All quality assurance and management will remain the responsibility of GWAC”. It can be inferred that the claim in respect of “executive project management and clerical salaries” and other related costs was made in respect of those employees of GWAC who were engaged on such tasks.

76. [101]

    The QS Report was prepared in response to an instruction to provide an “expert opinion as to whether the values of the Claims pressed by GWAC in the Payment Claim are reasonable and an accurate reflection of the costs incurred by GWAC”. The quantity surveyor noted that in the QS Report that he had “been provided with and reviewed the Statement of Jeremy Clarke”.

77. [102]

    The QS Report commenced the section on “Costs Assessment” with the following statement:

78. [103]

    However, it does not follow, from this acknowledgement regarding the absence of primary records, that there was no evidentiary basis for determining the claim in respect of overheads.

79. [104]

    First, as noted above, there was evidence from Mr Clarke that GWAC had incurred overheads in respect of “executive project management and clerical salaries”, “office occupancy costs (rent, mortgage, services)” and other costs. The QS Report stated, consistently with this evidence, that during the period of the delay “GWAC had to still maintain its site office staff & the connected amenities knowing well work could start any day”. The QS Report stated that the costs of maintaining those staff and amenities were “costs incurred by GWAC during the delay days and so could be used as the Production Delay Costs”. That is, the QS Report expressed the view that these ongoing daily costs relating to the project which still had to be paid during the period of the delay represented costs incurred by the delay.

80. [105]

    Secondly, the QS Report identified an evidentiary basis for estimating (despite the absence of primary records) the quantum of these overheads or Preliminaries: namely, by reference to “historical records from quarterly journals such as BCI issued by AIQS and Australian Construction Handbook on Construction Costs by Rawlinsons”. Although the QS Report did not expressly identify the source of the rate of 15% which was used for calculating Preliminaries, it is apparent, from the fact that this figure is cited immediately after the statement about recourse to the specified reference sources, that the figure was taken from those sources.

81. [106]

    This 15% figure was then used to calculate the quantum of the Preliminaries incurred on a daily basis during the delay period.

82. [107]

    The Council did not, in its Adjudication Response, lead any expert evidence to the effect that Preliminaries should be calculated by reference to a different percentage figure or by a different methodology, or to the effect that the methodology adopted in the QS Report was inappropriate having regard to the circumstances of GWAC. Instead, the Council referred to the fact that works under the Contract had been subcontracted to another entity and repeated its contention that there was no evidence to substantiate the claim for Production Delay Costs. Further, the Council submitted that the method of calculation adopted in the QS Report, which was said to involve calculating costs “based upon hypothetical review of previous costings, extrapolated across time to arrive at a figure”, was “a method of calculation which should be rejected as being imprecise, impermissible under the Act and the Contract and respectfully, fanciful”.

83. [108]

    The Adjudicator noted that the Council had referred to the statement in the QS Report regarding the lack of primary records in relation to costs, and the explanation in the QS report as to how the claim for Production Delay Costs had been valued, and had submitted “that the explanation establishes that ‘the calculations undertaken are not by reference to the Contract itself, or the value of the works undertaken / related goods and services supplied’”.

84. [109]

    The Adjudicator concluded as follows:

85. [110]

    That is, the Adjudicator determined that an amount could be claimed costs in respect of overheads, staff and connected amenities which had been incurred as a result of the Council’s delay.

86. [111]

    In determining the value of this claim, the Adjudicator referred to the methodology for calculating Preliminaries set out in the QS Report. He determined that it was “appropriate to use the ‘Preliminaries’ valuation used by the QS Report”. He applied this methodology to the period of the 61-day delay that arose from the Stop Work Instruction. On that basis, the Adjudicator “determine[d] the value of Production De[l]ay Costs to be $93,095.15”.

87. [112]

    It was a matter for the Adjudicator whether or not to accept Mr Clarke’s evidence about overheads and the QS Report’s methodology for quantifying overheads. Further, in considering whether to accept that methodology, the Adjudicator was entitled to draw on his own experience and expertise. In Demex v McNab Building Services at [23]-[24], Kirk JA made the following observations:

88. [113]

    Having regard to those matters, I reject the Council’s submission that there was no evidentiary basis for the determination in respect of Production Delay Costs, or that this determination was thereby so unreasonable or illogical that it was liable to be set aside for jurisdictional error.

89. [114]

    In Attachment D to the Payment Claim, GWAC provided the following information in relation to its claim for Escalation Costs:

90. [115]

    In the Payment Schedule, the Council stated that GWAC had not identified any evidence to support this claim for Escalation Costs.

91. [116]

    In its Adjudication Application, GWAC made the following submissions under the heading “Substantiation” in relation to the claim for Escalation Costs:

92. [117]

    The statement of Mr Clarke referred to the following matters:

    1. (1)

       on 11 July 2022, GWAC put the Council on notice that steel prices were increasing;

    2. (2)

       on 26 October 2022, GWAC received a notice from Hanson Heidelberg Cement Group, “our concrete supplier”, of a price increase effective as of 1 December 2022, and this notice was passed on to the Council; and

    3. (3)

       on 5 January 2023, GWAC issued a notice to the Council that concrete prices had increased, attaching “the advice provided by its subcontractor Hanson Heidelberg Cement Group”.

93. [118]

    Mr Clarke stated that, due to the delays caused by the Council, “GWAC was exposed to a price increase by its suppliers and consequently incurred additional costs … in performing the Contract works”, which he calculated to be in the amount of $162,100 (this being the amount specified in the Payment Claim).

94. [119]

    Mr Clarke went on to explain how he had calculated this amount. In respect of increased concrete costs, he stated that “GWAC averaged production of 4 culverts/day and each culvert weighed an average of 12 tonnes”. He converted tonnes to cubic metres, and applied the price increase per cubic metre to the quantity of cubic metres per day, in order to calculate the total effect of the increase in concrete prices for the delay period of 113 days.

95. [120]

    Mr Clarke next dealt with increases in fuel prices, which were a relatively minor component of the total amount claimed. He then stated the following matters in respect of “labour and steel supply”:

96. [121]

    As set out above, the evidence identified increases in the price of concrete, fuel and steel supply/labour during the period of the delay. In respect of fuel, there is no dispute that GWAC was liable for transportation costs, and therefore had to bear the cost of any such increase. In respect of concrete, there was evidence from Mr Clarke that GWAC “was exposed” to these price increases. This necessarily entailed the proposition that, although the manufacture of the precast culverts had been subcontracted, GWAC had borne or would bear the economic effect of increases in the price of concrete. In respect of steel supply and labour, there was evidence from Mr Clarke that GWAC had itself “paid” the amount of the increase in steel prices (by reimbursing its subcontractor for that cost), and had itself paid for the increased cost of labour for the assembly and delivery of the steel cages to the factory.

97. [122]

    It follows that there was evidence which, if accepted by the Adjudicator (which was a matter for him), provided a basis for determining that GWAC had in fact incurred increased costs as a result of the delays caused by the Council.

98. [123]

    GWAC put forward an alternative to Mr Clarke’s calculation of the Escalation Costs, namely, the calculation in the QS Report. As noted above, the QS Report identified limitations in the record-keeping of GWAC which meant that a precise calculation of the increased costs could not be performed. However, the QS Report identified the following methodology for making an estimate of the additional costs which would have been incurred as a result of increases in the price of “construction resources” (such as concrete and steel) as well as increases in the price of fuel, during the period of the 113-day delay:

99. [124]

    In its Adjudication Response, the Council disputed that the alleged delay gave rise to any entitlement to claim such costs, and stated:

100. [125]

     The Council also referred to the various methodologies put forward for valuing the Escalation Costs, and submitted that “it is obvious on [GWAC’s] own submissions that it is advancing an unspecified amount which it cannot ground in evidence”.

101. [126]

     The Adjudicator set out the Council’s submission that GWAC had subcontracted the works, and any increased costs were not incurred by GWAC, but “were incurred by subcontractors (including Obnova) who actually undertook the works required under the Contract”. The Adjudicator noted that the Council was aware that works had been subcontracted, and that clause 8 of the Contract provided that GWAC would “bear all responsibility for any fees charged by any subcontractor”. Having referred to those matters, the Adjudicator stated that:

102. [127]

     The Adjudicator determined to accept the methodology set out in the QS Report in valuing the claim for Escalation Costs. He concluded as follows:

103. [128]

     The Adjudicator’s finding that increased costs were “incurred due to the delay” was a finding within jurisdiction. Likewise, the finding that the QS Report’s estimate of the amount of those costs was “logically based on a construction price escalation that is supportable” was a finding within jurisdiction.

104. [129]

     GWAC acknowledged in submissions before me that it was “an implicit premise” of the QS Report that the subcontracts were cost-based contracts rather than fixed price contracts, such that the subcontractors were passing on costs to GWAC. GWAC submitted, and I accept, that the Adjudicator must be taken to have accepted this premise and that there was an evidentiary basis for him to do so, having regard to the evidence set out in the statement of Mr Clarke, which included specific examples of GWAC having to pay amounts owing to suppliers or paid by subcontractors to their suppliers. Although those steps in the Adjudicator’s reasoning were not spelled out, any criticism of the brevity of, or gaps in, the stated reasons for the Determination must have regard to the statutory framework and the practical constraints to which the Adjudicator was subject: Ceerose v A-Civil at [62]-[66]. In any case, the Council did not contend that there was jurisdictional error by reason of failure to provide adequate reasons, but rather by reason that there was no factual basis for the decision that was made.

105. [130]

     For the reasons given above, I am satisfied that there was an evidentiary basis for the determination made in respect of Escalation Costs. Accordingly, the Council has failed to establish that the determination was illogical or unreasonable.

106. [131]

     If jurisdictional error had been established in respect of the Adjudicator’s Determination regarding Production Delay Costs, Escalation Costs or Design Costs, it would have been necessary to consider the application of s 32A. This provision permits a Court to identify the part of the adjudicator’s determination affected by jurisdictional error and set aside that part only: Ceerose v A-Civil at [109].

107. [132]

     However, given the findings I have made, Issues 7 and 8 do not arise.

108. [133]

     For the reasons given above, the Council has not established jurisdictional error in respect of the Adjudicator’s Determination.

109. [134]

     Accordingly, I make the following orders:

     1. (1)

        The Further Amended Summons dated 1 March 2024 be dismissed.

     2. (2)

        The Plaintiff is to pay the Defendant’s costs, as agreed or assessed.