Your Contract Could Cost You – Here’s One Trend You Need to Know

The early bird may still get the worm, but the early claim no longer gets the goods. At least that’s the case in the state of Victoria, where a recent Supreme Court judgement reminds us that having a firm grasp of the contract is just half the battle.

BUT FIRST: Got a big project coming up and not feeling entirely confident? Does the contract get your spidey senses tingling? Don’t risk it – we can help. PM me or shoot me an email: [email protected]. 

I often talk about how important it is for contractors to know what’s in the contract, inside and out. To be able to understand its implications and translate these into actionable steps. 

This still stands.

But in the state of Victoria last October, a decision made by the Supreme Court highlighted that it’s the legislation – as interpreted by the decision makers – that gets the final say. 

The tale of MKA Bowen v Carelli Constructions 

MKA Bowen Investments Pty Ltd wanted an apartment block designed and constructed, and brought Carelli Constructions Pty Ltd on board to make it happen. 

Being a lengthy project, Carelli Constructions was entitled to make claims for progress payments – one per month, as per the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act).

According to the contract, these claims were to be made on the 25th day of each month (the reference date). In the event that a claim was made early, the contract said, it would be considered as having been made on the next relevant reference date. 

This wasn’t entirely unusual. In previous cases, it had been determined by the court that a legitimate payment claim could be considered valid, even if it was made early. 

But that was about to change.

The Act doesn’t care about what’s convenient

It was 2018, and the end of the year was approaching. Presumably to avoid having to submit a claim on Christmas Day, Carelli sent one for about $400,000 on the 21st – four days early. After all, the contract had made allowances for this. Fair play?

MKA responded with a payment schedule amounting to just over $7,000. 

Obviously, Carelli wasn’t too happy with this. The case went to adjudication, where it was decided that MKA should pay Carelli closer to $290,000.

MKA wasn’t going to give up. It shouldn’t have to pay, it believed, because the claim hadn’t been made “on or from” the relevant reference date – and so hadn’t actually been served in accordance with the Act. 

The case went on to the Supreme Court, where the adjudication determination was overruled. 

A bitter end for the contractor

The December claim was invalid, said the Supreme Court. It agreed with MKA: as it had been served early, the claim hadn’t been made “on or from” the relevant date. 

But what about the contract? Hadn’t it specifically given early payment claims the green light?

Yes, but the Act was more important, said the court. 

How do we make sure this doesn’t happen to us?

The Security of Payment Act exists for the benefit of contractors. It’s there to make sure that cashflow reaches the right people at the right time. On the flip side, it can perhaps only be of true value if the timing of claims is stuck to. 

I would encourage you – particularly if you’re in Victoria – to make sure that your contract isn’t at odds with anything in the Act. Get some help. Get lots of eyes on the thing. It could make a huge difference to your bottom line. 

Your job – and your team’s job – is to follow the contract. 

...But if the contract is wrong?

It’s not every day you hear someone admit this, but I LOVE contracts – and so does my team. Shoot me a PM or let me know in the comments if you’d like some more info on how we can help.