What are the potential consequences of a superintendent failing to act impartially, and has the door opened for constructive acceleration claims?
KEY TAKEAWAYS
V601 v Probuild [2021] VSC 849 (V601 v Probuild) is significant for the way it deals with claims that arise from a superintendent’s failure to discharge its roles and functions in accordance with the contract. The findings of V601 v Probuild continue to be a point of interest for claimants, given the continuing prevalence of superintendents performing the ‘dual roles’ of agent and independent certifier.
The key points that will be of interest to construction practitioners include:
- The role and obligations of the superintendent under the contract should be clearly articulated and understood by all parties. If the superintendent fails to act in accordance with the contract, there may be substantial ramifications on contractual mechanisms dealing with time/cost claims and the application of liquidated damages.
- In keeping with a long line of authority, a clear preference was shown for retrospective rather than prospective delay methodologies. Where a contract does not specify a methodology, the retrospective delay analysis methodologies will likely be preferred.
- The requirement under the contract for an extension of time to be demonstrated by reference to the ‘approved contractor’s program’ presents difficulties for both parties when no program is agreed between the parties or approved by the superintendent.
- Where delay damages are not prescribed and calculations are required, the contractor must quantify and substantiate its costs, and consider if apportionment is appropriate. Further, delay costs should be quantified during the period of actual delay to the critical path, not the period of delay to practical completion.
- Probuild was successful in its claim for ‘constructive acceleration’ by arguing that the wrongful rejection of its extension of time claims by the Superintendent constituted a breach by V601 and that it was entitled to recover the mitigation costs expended to overcome and minimise delay.
OVERVIEW
This proceeding concerned the construction of mixed-use development in Melbourne. In the Supreme Court proceedings, V601 (the developer/principal and plaintiff) brought proceedings against Probuild (the contractor and defendant) seeking payment in respect of liquidated damages for late completion of the project. Probuild brought a counterclaim disputing the liquidated damages and claiming delay damages and acceleration costs.
The first finding from the case was that the superintendent failed to act in accordance with the contract and V601 had breached the contract (being the party responsible for appointing and ensuring the superintendent carried out its obligations). Consequently, V601’s claim for liquidated damages in the amount of $4.7m was set aside.
In the counterclaim, Probuild was almost entirely successfully and was awarded all its EOT claims plus costs in the order of $13.8m for delay damages, bonus payments, acceleration costs and a variation.
The case traverses several matters which are relevant to industry participants, particularly those who have responsibility for managing, preparing or responding to claims. In this article, we have summarised some of the key findings from the case.
DETAILS
The Role of the Superintendent Under the Contract
The case usefully dealt with an issue that frequently arises between contractors and principals where the conduct of the superintendent and its role under the contract is called into question.
Under this contract, the superintendent (called the ‘Project Manager’) was externally appointed and required to act as both:
- An agent of the principal for tasks such as assessing the value of completed works, issuing directions and payment certificates; and
- An independent certifier for tasks such as assessing claims (both time and cost), practical completion and liquidated damages.
In respect of being an agent of the principal, the superintendent was required to act honestly but not impartially—standard wording in most contemporary construction contracts. However, as the independent certifier, the superintendent was required to act reasonably having regard to the requirements of the contract and to ignore the commercial interests of both parties.
Probuild was successful in demonstrating to the Court that the Superintendent lacked independence by providing a multitude of examples with reference to a set of tests introduced in Kane v Sopov[1]. These tests outline that where the Superintendent:
- Acts in the interest of one of the parties;
- Allows its judgement to be controlled or influenced;
- Requests the assent of the principal when making determinations; or
- Does not disclose its dealings with the principal,
…then the superintendent is no longer acting independently, fairly or honestly.
Through a process of record keeping and discovery, Probuild was able to demonstrate that:
- The superintendent had proposed to the principal to be remunerated based on a profit share of the project; and
- Had colluded with the principal and willing participated in a strategy to reduce Probuild’s claim entitlements.
Probuild presented evidence during the case that the superintendent issued draft determinations of claims to the principal, which were later altered by the superintendent in response to the principal’s demands. Based on this conduct, the Court concluded that the superintendent’s certification of liquidated damages was unwarranted, resulting in V601’s claim being entirely dismissed.
This finding highlights to principals the need to ensure there is a clear understanding of the superintendent’s role under the contract in the context of agency and/or independence. This is particularly important in circumstances where the superintendent has express obligations in relation to the assessment of items that are likely to be disputed between the parties, including claims for time and/or cost, and the application of liquidated damages.
Constructive Acceleration
As part of its counterclaim, Probuild were successful in its claim for ‘constructive acceleration’. Probuild argued its claim for costs based on three alternatives:
- Acceleration was directed—by virtue of the rejection of Probuild’s EOTs by the superintendent (‘constructive acceleration);
- Reasonable mitigation costs arising from the superintendent’s failure to approve Probuild’s legitimate EOTs; and
- A breach of contract by V601 in failing to ensure the superintendent carried out its duties appropriately.
While the Court did not agree with the first alternative, it found in Probuild’s favour in respect of the second and third alternatives—that is, Probuild was entitled to damages arising from V601’s breach in failing to ensure the superintendent awarded Probuild’s legitimate EOT claims. Because of V601’s breach, Probuild undertook acceleration measures of its own accord to overcome and mitigate the delay. A key element of Probuild’s case was its ability to demonstrate and quantify the acceleration measures undertaken to the Court with support from a quantum expert.
The Court’s findings in respect of the constructive acceleration claim are significant. They set a precedent for contractors to pursue costs incurred for acceleration measures in circumstances were contractors consider that valid EOTs have not been assessed in accordance with the contract or in a timely manner. However, it should be noted that the circumstances of each case will be different, and the success of any claim for constructive acceleration will depend on the specific facts and evidence presented.
Method of Delay Analysis and the ‘Approved Contractor’s Program’
The Court was required to consider an appropriate form of delay analysis based on competing views from the experts retained by V601 (who used a prospective time-impact analysis) and Probuild (who used a retrospective as-planned versus as-built analysis[2]). This was an unusual approach by the parties noting that generally the opposite occurs as a prospective method often inflates the quantification of delay.
The Court held (consistent with many other cases dealing with substantive delay matters) that the retrospective delay method was more appropriate because of the contractual provisions related to delay and the judge’s view that it was:
“more practical and more accurate and sensible to analyse delay and the effect of delay retrospectively, with the benefit of hindsight, and the higher level of assurance now achievable from a retrospective delay analysis utilising the ‘as build’ facts to ascertain how the WUC were actually constructed and actually delayed.”
The case reiterates that a retrospective delay analysis (such as an as-planned versus as-built analysis) 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 considered the requirement within the EOT clause to use an ‘Approved Contractor’s Program’ in the claim and assessment of an EOT. V601 argued that Probuild’s EOT claims should fail on the basis that they did not utilise the ‘Approved Contractor’s Program’ as the starting point for the analysis. Both parties used different programs as baselines with each contending it satisfied the requirements of the EOT clause.
The Court found that that Probuild had been prevented by the superintendent from developing an ‘Approved Contractor’s Program’ by virtue of its conduct and refusal to accept any of the programs submitted by Probuild throughout the project. Notwithstanding this, the Court found that the EOT regime still operated in the absence of an ‘Approved Contractor’s Program’ with the fundamental intent of the contract being that Probuild was entitled to an EOT where critical delay could be factually demonstrated. The Court accepted that the program used by Probuild—as updated—constituted an ‘Approved Contractor’s Program’ and awarded Probuild’s EOT claims in full.
This provides important guidance for contractors and subcontractors in circumstances where there is no agreement between the parties on an ‘approved program’—a common occurrence once time-related disputes arise between the parties. The absence of an ‘approved program’ should not dissuade contractors and subcontractors from continuing to administer, update and submit contemporaneous programs that accurately track the works. Ultimately if matters escalate to a form of dispute resolution, the availability of accurate, contemporaneous and periodic programs will be a key tool in substantiating any delay claim.
Quantifying and Substantiating Delay Damages
The Court found the following in respect of delay damages:
- The period for calculating delay costs (which in this case was comprised of direct labour and time-related preliminaries) was during the period of critical delay, as distinct from the period of extension (i.e. prolongation) to practical completion; and
- Probuild’s practical approach to calculating and apportioning delay costs across the separable portions was preferred over V601’s hypothetical and singular calculation.
The key takeaway is that a practical and substantiated approach to calculating delay costs (in the absence of a prescribed rate) will always succeed over an assumption-based approach reliant on a hypothetical calculation or estimate. As with many claim-based exercises—optics and presentation play a key role in the success of a claim.
CONCLUSION
V601 v Probuild explores a range of topics that are relevant to contract and claims management. Construction practitioners will find useful, practical guidance in the Case 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.
