Market Overview – Construction & Infrastructure, Queensland 2016

The below market overview was prepared for Doyle’s Guide by Stephen Pyman and the team at CDI Lawyers.  

With 26 cranes (and counting) visible on the skyline from the Brisbane CBD, one could be forgiven for thinking that the “boom times” were back for construction lawyers in Brisbane (if not Queensland).

However, were it not for at least one massive arbitration (perhaps Australia’s largest) and a number of significant disputes involving major resource projects (including one that involves 2 countries, 2 Court of Appeal decisions, 5 security for payment decisions and up to 10 Supreme Court proceedings) some of the constructions practises of larger firms may well have been a little quiet in the past 12 months.

Firms with well-resourced adjudication practises continue to be kept busy by security of payment disputes, as well as the proceedings that typically follow, including applications to set aside unfavourable determinations and proceedings relating to the conversion of security.

Some of the mid- tier and smaller firms have benefited (and may continue to do so for another 8 to 12 months) from the insatiable demand for land, homes and high rise units in Brisbane and the Gold Coast.

Whilst the outlook remains solid, some key points of division are obvious:

1. With at least 13,000 apartments under construction in Brisbane alone, it can be expected that the market will cool in the next 12 to 18 months. The usual suspects (in terms of law firms) were involved with projects under construction or about to commence such as:

• The massive Southpoint/Emporium development comprising some 600 luxury residential apartments, hotel, commercial and retail;
• The 270m Sky Tower project with over 1000 units;
• The new Albert Street tower with more than 700 units;
• The Jewell project on the Gold Coast with some 512 apartments;
• Brisbane’s biggest integrated residential retail and Hotel development at 300 George Street;
• The proposed 80 story project at 171 Edward Street; and
• The proposed 3 residential towers at the Queens wharf project.

 However work of this nature in resource based towns such as Mackay and Central Queensland was down.

2. The construction of hotels in Brisbane, Gold Coast and Cairns shows little signs of slowing down with the Queens Wharf tender being awarded and the following other hotels either completed or under construction:

• Capri on Albert;
• Emporium at Southbank;
• Pullman and Ibis at Brisbane airport;
• Westin at 111 Mary Street;
• 300 George Street.

Again the same (half a dozen) law firms seemed to be involved.

3. Engineering and resource projects continue to slow as the major projects go from construction to production and most of the large adjudication claims arising from those projects have now been, or are nearing finalisation. There is further work involved with the final Federal and State Government approvals having been issued for the Abbot Point Gateway project.
4. However, with the largest dive in commodity prices in 30 years eliminating many of the planned exploration and expansions of resource projects, many predict the next major upswing will involve the legal work associated with the demand for infrastructure and development, such as the $1.16 billion Gateway Upgrade North and the construction associated with the 2018 Commonwealth Games at the Gold Coast. In addition, Cairns has $50 million worth of State Government infrastructure projects and the $90 million Cairns Reef and Research Centre.

Adjudication

5. Most law firms with a major construction presence have ridden the security for payment train for well over a decade. Despite predictions that the December 2015 amendments have changed the playing field, statistics show that adjudication remains a popular option for securing payment.
6. The following figures show what a ‘cash cow’ security for payment act has been for construction lawyers in that field during 2015:

• For the financial year ending July 2015, there were 712 adjudications were lodged in Queensland claiming $2.1 billion and the largest being $360 million;
• For the September quarter of 2015, there were 174 further adjudication applications, with a total claim value of$1.53 billion;

Despite this, a December 2015 report shows that claimant success has reduced to 46% based on a comparison of total claimed vs total adjudicated sum.

Legislation

7. Legislative changes during 2015 have seen:

• The repeal of the Domestic Building Contracts Act and incorporation into the Queensland Building and Construction Commission Act, featuring tighter rules for contractors in relation to contract administration, and generally reducing red tape.
• The extensive amendments to BCIPA that commenced on 15 December 2014 and had their full affect throughout 2015, included  3 main areas of reform:
  • A single adjudication registry with the QBCC to monitor performance of adjudicators;
  • The introduction of a dual–model claim regime with amended timeframes; and
•  The ability for a respondent to introduce new grounds for withholding payment that were not specified in the payment schedule.

Some lawyers maintain that while this has resulted in a more level playing field, there are sometimes lengthy delays in the delivery of adjudication decisions because of the numerous requests by adjudicators for further submissions and extensions. In one large adjudication the decision took four months (the original Act provided 10 business days) after all material was provided.

8. The State government has released a further “security of payment discussion paper” (submissions close 31 March 2016) that foreshadows further legislative amendment to address weaknesses identified in the current system including:

• Retention being used as cash flow;
• Delays in payment; and
• Insolvency and contractual change.

There also remains the potential for the introduction of the Australian Building & Construction Commission as the new workplace relations watch dog in the construction industry, along with the proposed new Building Code 2014 which will have a significant effect on contractor’s ability to secure Government work. Labor and Greens senators have teamed up with the crossbench senators to send the bill to committee which will not report back until 15 March 2016.  The uncertainty around these changes being implemented should be a cause of concern for those contractors who are currently (or soon to be) in EBA negotiations with trade unions.

The courts

9. It has been an ongoing challenge to keep abreast of court decisions on a national basis on the various state building and construction legislation and construction law generally. Perhaps the one thing that can be taken away from recent decisions is that there is a clear reluctance to interfere with the commercial bargain of the parties, notwithstanding (as one Supreme Court Judge said) “there is no doubt that the strict application of the contact terms are harsh – but such an application is not without purpose”.

• The year started off with lawyers still trying to digest the High Court reasoning in the Multiplex case that made it clear that construction lawyers must ensure that contracts adequately protect and define the parties’ rights and liabilities in relation to pure economic loss for latent defects .The High Court made it clear that it was reluctant to alter the freedom of the parties to allocate economic risk in commercial relationships.
• Termination, in particularly termination for convenience, can be used as an offensive weapon to reduce the risk of claims under security for payment legislation where the contract is drafted to achieve this end: Patrick Stevedores, Walton Construction and Lewence Construction.
• The Grocon decision provided clarity on how the penalty doctrine applies to construction contracts, particularly where the definition of practical completion is exhaustive.
• The drastic effect of not having the appropriate QBCC licence, of class of licence: being that you are not entitled to any “monetary or other consideration” nor the right to lodge a BCIPA claim, has now spread to other activities such as electricians and engineers (and presumably architects and other consultants that need to be licensed) under statute. Agripower Australia Pty Ltd.
• Fabrication of equipment overseas which form an integral part of a structure forming part of land in Queensland is considered to be construction work carried out within Queensland and therefore claimable under BCIPA: MMM v WICET.
• In a properly drawn EOT clause (that excludes any discretion by the superintendent to extend time and the prevention principle), an EOT claim made out of time will fail and liquidated damages may be applied- even though the principal may have caused the delay: CMA v John Holland.
• The conversion of security by a respondent immediately after an adjudication decision, which in effect negatives the benefit of the decision in favour of the claimant, does not have the effect of excluding or restricting the effect of the Act. This is because once the adjudication sum is paid, the Act ceases to have any effect on the contractual rights of the parties; Fabtech Australia Pty Ltd.
• The Supreme Court made it clear that notwithstanding the terms of a contract giving a principal an immediate right to convert security – that right will be “precluded” if the appropriate notice has not been given under the QBCC Act (Saipem v Laing O’Rourke (No. 2); Monadelphous v WICET in the Court of Appeal). You may well now see as common place, on hours’ notice oftaking work out of the hands of the contractor, immediate attendance at the bank to convert that security.

The above market overview was prepared for Doyle’s Guide by Stephen Pyman and the team at CDI Lawyers.