The Shocking Mistakes Sending Construction Contractors to Court

Want a midweek date with a solemn face and black robes? Then as history tells us, you’ll need to follow these steps. If not – avoid, avoid, avoid. 

 (BUT FIRST: Feeling the pressure? Need a few more resources to help with contracts? I can help – either PM me or shoot me an email at [email protected] and we’ll talk.)

Anyway, on with the show. 

Step 1: Fail to provide a reference date for a progress payment claim

We all want to be paid what we’re owed. But in the game of contracts, determining exactly what we’re owed is never as simple as it should be. 

In 2014, a contractor was working on an apartment complex. As per the relevant SOP Act, it had been submitting claims for progress payments on the eighth day of each month to cover work done up until the seventh. All well and good so far. 

But then, one month, the client gave the contractor notice that the remaining work would be taken away from the contractor. This was accepted by the contractor and the contract was terminated – on the 27th of the month. 

So the contractor submitted one last claim for work done up until the 27th, but didn’t put a reference date – after all, it wasn’t the eighth of the month, so the regular system couldn’t possibly apply here, right?

No deal, said the client. 

The case ended up at the High Court. Even though there wasn’t a reference date that could have applied to this situation, the High Court decided that:

• The payment claim did not have a reference date, and so wasn’t valid; and,
• There was nothing in the contract suggesting that the contractor could claim payment once the contract had been terminated, so future dates weren’t claimable.

So all the contractor got for its trouble was a whole lot of time and money down the drain. 

Avoid this by: not expecting a loophole – even if it seems fair. Instead, channel your inner Chicken Little and predict as many ways that things could go belly-up as you can. Not fun, but useful.

Next, get your contracts team to check that you’re not leaving yourself susceptible to loss if any of these scenarios should actually happen. 

Step 2: Rely on a ‘pay when paid’ clause when getting a subby on board

A contractor engaged a subcontractor to perform part of an apartment construction project. 

As per the subcontract, the subby needed to provide security to the value of 5% of the subcontract sum. This wouldn’t be repaid in full until “365 days after date of CFO” – a year after the Certificate of Occupancy had been awarded to the contractor, along with any other required approvals as defined separately in the contractor’s contract. 

“When we get paid, we’ll pay you,” might make sense in theory. But in the eyes of the law (specifically the Building and Construction Industry Security of Payment Act 2009 (SA)), these so-called ‘pay when paid’ clauses are meaningless.

The subby made a payment claim in February, 2016 that was paid by the contractor – but not in full. The contractor had retained the 5%. The subby wasn’t happy.

The dispute went to Adjudication, then court, and continued to escalate. When it finally landed at the High Court, it was found that yes, that clause amounted to a ‘pay when paid’ provision, and yes, the subby deserved to be paid in full. 

For the contractor it was a long and expensive journey that could have been completely avoided, if it hadn’t been for one single mistake. 

Avoid this by:

Getting your contracts team to specifically ensure that there aren’t any provisions in the contract that could be interpreted as ‘pay when paid’ clauses. If push comes to shove, they just won’t hold up in court. 

Step 3: Rush into Adjudication – and without the other party’s permission

Adjudication isn’t fun, but in the world of contracting, sometimes it’s the only way to get money in your bank account. But barrelling in to the process without doing due diligence? Not a great idea. 

In 2013, a contractor worked for a developer on a project in an NT shopping centre. One thing led to another, and the contractor decided that taking two disputes it had to adjudication was the best approach. Both disputes related to the same contract. 

But there was a problem. Under the relevant Act, adjudication of more than one dispute could not begin without consent of both parties. Unfortunately for the contractor, consent was not obtained at the necessary time. 

The developer wrote to the contractor explaining that it would not give consent. What followed was a lengthy back-and-forth. 

The contractor opted to withdraw both applications in order to submit new ones. 

Uh-oh. Another problem.

Under the Act, an adjudication application couldn’t be submitted for a dispute if the party had already submitted one for the same dispute. The situation ended up in the Northern Territory Supreme Court, with the second and third applications deemed invalid, and hope for adjudication all but lost.

Avoid this by:

Making sure you’re 100% ready before you press ‘go’ on any adjudication applications. Yes, time is money – but then again, so is money. 

Contracts aren’t worth messing up. If you want some support and need to make sure your business is protected, my door is always open. ??