INTRODUCTION

The recent decision by the Queensland Supreme Court of Appeal in Built Qld Pty Limited v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd [2022] QCA 266 (Built v Pro-invest) addresses a number of points that will be of interest to construction industry participants, particularly regarding effective administration of delay and EOT with respect of directions from the superintendent, to ensure contract compliance and to properly secure entitlements.  

KEY TAKEAWAYS

The relevant takeaways from the case include:

• Determining whether a direction is for defect rectification or a variation must be done “objectively”, based on the content of the direction and not by its title. Contractor’s should ensure notices and claims are provided in response to directions even in cases where there is a dispute over whether the direction gives rise to any entitlements.
• Where a contract says that the clock starts ticking on a time bar from when the contractor “should have become reasonably aware” of a matter giving rise to a claim, the date of awareness may be later than the date of the event occurring.
• The case clarifies that the ‘as-planned versus as-built’ (retrospective)  delay analysis method is preferred over prospective methods of analysis. It also clarifies that (depending on the drafting of the EOT clause) a superintendent may apply a retrospective method of analysis where the contractor’s claim is based on a prospective method of analysis, that is – it is not bound to the contractors methodology.
• The Court of Appeal provided some guidance on the matters to consider when selecting an appropriate baseline program to use in the delay analysis. This in turn highlights the importance of contractors capturing delay events in contemporaneous programs as early as possible (even if the scope of work of a new delay event is unclear).
• The case clarifies that delay costs should be quantified during the period of actual delay to the critical path, not the period of delay to practical completion.

OVERVIEW

The proceeding concerned the construction of a hotel in Brisbane. In the original Supreme Court proceedings, Built (the head contractor and plaintiff) brought proceedings against Pro-invest (the principal and defendant) seeking payment in respect of an alleged variation, which in turn Built claimed gave rise to an entitlement to an EOT and delay damages. The alleged variation arose from a direction from the superintendent for Built to rectify alleged defects in the air-conditioning system. Pro-invest brought a counterclaim in respect of alleged defective work and liquidated damages. Built appealed the Queensland Supreme Court’s judgment in the Court of Appeal.

The case traverses a number of matters which are relevant to industry participants, particularly those who have responsibility for managing, preparing or responding to claims. In this article, we have provided an overview of some of the key findings of the Court of Appeal.

Direction is to Rectify Defects, or to Carry out a Variation? 

The case usefully dealt with an issue that frequently arises between contractors and principals where: 

• the superintendent directs rectification of a defect, however; 
• the contractor claims that the work complies with the contract and the ‘defects’ direction is in fact a variation direction.

Built v Pro-invest helpfully clarifies that in the above circumstances a direction will be construed based on whether the direction objectively requires a variation or not. In short, it does not necessarily matter how the direction is labelled.

The superintendent gave a direction to the contractor which, on its face, was a direction to rectify a defect concerning the partly installed air conditioning system. The direction was issued under the defect provisions of the contract and was expressly identified as a direction for defect rectification. 

Notably, there was a dispute over what the contract required in respect of the specification of the air conditioning system.

The Court of Appeal ultimately held that the partly installed air conditioning system complied with the contractual specifications. As a result:

• the work performed by the contractor was not defective;
• despite the superintendent’s direction being issued under the defect provisions of the contract (and directing the rectification of defective work), the direction was in fact a departure from the contractual specification; and
• the Court of Appeal determined the superintendent’s direction was, properly construed,  a direction for a variation.

When does the clock start ticking on a time bar?

The defects direction (which was held to be a direction for a variation) was issued on 11 August 2016 at 7:20pm. 

The trial judge held that that the contractor should have been ‘aware’ of the matter on the date of issue of the defects direction. On that basis, the trial judge found that the time bar for providing an EOT claim was calculated from 11 August 2016, as this is the date the contractor should have been aware of the cause of the qualifying cause of delay occurring. This in turn meant the contractor’s EOT claim, issued on 26 August 2016, was provided a day late.

The Court of Appeal rejected the trial judge’s findings and stated the following at [63]:

“…Clause 34.3(b) does not provide that the contractor is to give the superintendent a claim for an EOT within 14 days of a qualifying cause of delay occurring. It requires that the claim for an EOT is given “…within 14 days of when the Contractor should reasonably have become aware of that qualifying cause of delay occurring…”

The Court of Appeal ultimately held that it was incorrect for the trial judge to have found that the contractor “should reasonably have become aware” on the evening of 11 August 2016. The Court of Appeal found that the contractor should not have been aware of the qualifying cause of delay any earlier than 12 August 2016 and as a result the EOT claim was within time. In reaching this decision, the Court of Appeal considered:

• the timing of the Superintendent’s notice (being well after the end of a typical working day); and
• the requirement for Built to review the Superintendent’s notice and form both a technical and commercial opinion that would have allowed Built to reasonably have become aware of a qualifying cause of delay.

These are important points for construction practitioners to consider in circumstances where there is a dispute about the timings of contractual notices.

Method of Delay Analysis

The trial judge was required to consider an appropriate form of delay analysis based on competing views from the experts retained by the plaintiff (who used a time-impact analysis in windows) and the defendant (who used an as-planned versus as-built analysis). The trial judge ultimately held that the appropriate delay analysis methodology was the as-planned versus as-built method. This was also upheld by the Court of Appeal.

The case clarifies that a retrospective delay analysis (such as the as-planned versus as-built method) will be preferred over other methods of analysis, even where the wording of the EOT clause suggests that a prospective delay analysis may be appropriate. This continues a line of cases demonstrating a preference in the courts for analysts to apply retrospective approaches time-distant from the delay event – in particular, the as-planned versus as-built method.

The case also confirms that a superintendent is not obliged to assess an EOT claim using a prospective method where that is the basis of the contractor’s claim – the superintendent may apply a retrospective method if the wording of the EOT clause permits it. The Court of Appeal said at [111]:

“The appellant argued that if cl 34.3 permitted either a prospective or retrospective methodology, the superintendent ought to have assessed delay on a prospective basis because the appellant chose to submit its claim on a prospective basis. We reject that as a general proposition. Having regard to the language used in this contract, if the appellant contractor lodged a claim on the basis of a prospective assessment, it was open to the superintendent to assess it on a prospective basis, a retrospective basis, or on an incremental basis.”

When did the delay start and which is the appropriate baseline program?

The Court of Appeal also considered arguments over the appropriate baseline program to use as a basis for the delay analysis. In short, the Court of Appeal found that the appropriate baseline was a program update prepared more than 2 months after the defects direction was issued. The Court found that between the defects direction (on 11 August 2016) and the relevant program update (on 18 October 2016), the observed slippage to the critical path arose from issues unrelated to the defects direction.

This provides important guidance for contractors and subcontractors – contemporaneous programs should include delay events as quickly as possible after they occur, particularly if that delay event will result in the critical path shifting to a different activity path. Failure to represent this could result in an EOT being reduced if other activity paths are also slipping.  A clear commercial strategy for these updates that is skilfully implemented is of paramount importance.

The period for calculation of delay costs

The Court of Appeal helpfully clarified that the correct period for calculating delay costs (which in this case was comprised of time-related preliminaries, also referred to as on-site overheads) was during the period of critical delay, as distinct from the period of extension to the date for practical completion (i.e. prolongation).

Conclusion

In conclusion, Built v Pro-invest explores a range of topics that are relevant to contract and claims management. 

The case helpfully clarifies that:

• it does not necessarily matter how a direction is titled.
• that in considering when a Contractor should have been reasonably aware of a delay, the Superintendent must have regard to the time required for the Contractor to form both a technical and commercial opinion that would then enable the Contactor to reasonably become aware of a qualifying cause of delay and thus to prepare a notice of delay. 
• a retrospective delay analysis (such as the as-planned versus as-built method) will be preferred over other methods of analysis, even where the wording of the EOT clause suggests that a prospective delay analysis may be appropriate. The case also confirms that a superintendent is not obliged to assess an EOT claim using a prospective method where that is the basis of the contractor’s claim – the superintendent may apply a retrospective method if the wording of the EOT clause permits it. Importantly, Calibrate notes that there are approaches to claim that could incorporate both methodologies in order to take the argument away from the method itself and focus both parties on the facts of the delay itself.

Construction practitioners will find useful, practical guidance in the Court of Appeals findings. 

To learn more about these findings, please contact the author or the Calibrate Consulting office at info@calibrateconsulting.com.au or call +61 9188 7444.