Does failure to strictly comply with the contract always mean you will fail on a claim for a variation or extension of time? 

We often receive calls from contractors and subcontractors who have carried out extra work they have been asked to do and then had their claim for an extension of time or additional payment or both, rejected.

Commonly, the reason given for rejecting the claim is that the contractor or subcontractor has not complied with the contractual requirements which have to be undertaken before a claim can be made.

In our experience, many contractors and subcontractors, particularly the smaller operators, do not even know what they are supposed to do in order to be entitled to claim for an extension of time or additional payment.

However, very commonly contractors and subcontractors have their claims for an extension of time or additional payment turned down on the ground that the contractor or subcontractor has failed to comply with the contractual preconditions for making such a claim.

These preconditions often involve the submission of highly detailed claim documentation, often on very tight timeframes, and often including information which the contractor or subcontractor is not in possession of at the time that the documentation is required to be submitted.

Failure to comply is not always fatal

However, failure to comply with such preconditions is not always fatal. A recent case from New South Wales, Futurepower Developments Pty Ltd v TJ & RF Fordham Pty Ltd t/as TRN Group [2019] NSWSC 1554 (Futurepower), is a recent example where non-compliance did not preclude a claim.

During construction, the contractor discovered areas of uncontrolled fill and asbestos.  On the instruction of one Mr Harding (an employee of the surveyor who had been engaged by the principal), the contractor arranged for the removal of the asbestos contaminated material.

The principal mounted an argument that variations under the contract were required to be approved in writing and because the contractor had not been given an approval of the variation in writing, the contractor had no right to claim the variation (and the extra time/money that went along with it).

That argument was rejected by both an Adjudicator in an Adjudication Application under the Security of Payment Act and in the trial division of the New South Wales Supreme Court when the principal sued the contractor to try to claw-back some of the adjudicated amount it had paid to the contractor pursuant to the Adjudication Decision.

The Court accepted that the principal had indeed directed the contractor to carry out the work, and held that the principal could not rely upon the contractual preconditions to deny payment.

How to avoid having your variations and extensions of time claims refused

There is long-standing authority to support the proposition that a principal or head contractor cannot “blow hot and cold”. Put simply, a person is not entitled to refuse payment in circumstances where they have instructed a person to carry out work, and by their words or actions, have induced the person who carried out the work to not comply with any contractual preconditions for a claim for an extension of time or additional payment, or both.

Of course, by far the better approach is to comply with the contractual preconditions. However, if you are not in a position to comply with those preconditions (often because the principal or head contractor is exerting pressure on you to start work on the variation immediately), then you need to take steps so that you can mount an argument of the type which was accepted in the case referred to above.

To put yourself in the best position to be able to recover payment notwithstanding failure to comply with contractual preconditions you should:

  • Make sure the representative of the principal or head contractor cannot “wriggle out” of what they have instructed you to do. If they ask you to undertake work, make them commit to whether it is a variation, and make them commit to a position as to whether any extra work will entitle you to claim extra time and extra money. Unfortunately, we see too many circumstances in which our client has been disadvantaged because they did not make the representative of the principal or head contractor commit in plain terms;
  • Keep careful notes of any face-to-face meetings. Often it is a good idea to type out your notes in longform and staple or glue those notes into your site diary and, send a copy of those notes (or an appropriately edited version thereof) to the other people involved in the conversation (inviting them to accept the notes as correct). This is particularly important if, during a meeting, the representative of the principal or head contractor concedes that there is a variation, and concedes that extra time may have to be allowed or that you may be entitled to extra money. The same applies where the representative of the principal or head contractor encourages you to start work without first having complied with the contractual preconditions to a successful claim. Again, make notes, include them in your site diary and send a copy to the representative of the principal or head contractor, whichever is applicable; and
  • Send lots of self-serving emails, particularly if you are of the view that what you are being directed to do will amount to a variation, and especially where you are being “encouraged” to start work without first having complied with the contractual preconditions for a claim. Further, if the representative of the principal or head contractor will not commit to a position or sends an email to you which you do not believe to be consistent with any prior conversation, verbal direction or agreement, then you should, as soon as you possibly can, reply with a self-serving email setting the record straight.

If you are specifically “encouraged” to take some action before complying with the necessary contractual preconditions for a successful claim, you should:

  • Ensure that you have contemporaneous notes of the “encouragement”; and
  • Send and keep a copy of a self-serving email from you to the representative of the principal or head contractor, expressly stating that you are only commencing work without first having complied with the relevant preconditions because you have been told to or encouraged to proceed notwithstanding the non-compliance.

Contractors and subcontractors should make sure they know and understand what the contractual requirements are in order to make a successful claim, whether it be for an extension of time or additional payment and do everything possible to comply with those requirements. And, where that is not possible, follow the steps referred to above.

Remember, you are your only line of defence!

Queries
If you have any questions about this article please get in touch with an author or a member of our Building & Construction team

Disclaimer
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

The Authors

Brent Turnbull

PARTNER, BRISBANE

Ian Heathwood

PARTNER, BRISBANE

Nina Thomas

LAWYER, BRISBANE

Key Contacts

Brent Turnbull

PARTNER, BRISBANE

Ian Heathwood

PARTNER, BRISBANE

Richard Hutchings

PARTNER, MELBOURNE

Paul McCann

PARTNER, SYDNEY