Owners, principals and head contractors are likely all familiar with ‘slow down’ tactics of contractors and subcontractors toward the end of a project, often coupled with unexpected variation and time related claims for payment.  In these circumstances, contractual rights are often available to remove work from the hands of contractors.   This approach often achieves more efficient completion of the work, eliminates interim payment disputes and makes contractual security more readily recoverable.  Helpfully, the right to take work back is found in many Australian Standard construction contracts (e.g. AS4000, AS4300, AS4902, AS4903, etc).

When are these rights available?

The right to remove work often arises where a contractor or subcontractor fails to diligently progress the work, finalise incomplete work or wrongfully suspends work. In these instances, subject to principals and head contractors complying with the relevant notice requirements in the contract, and where no reasonable explanation is offered by the contractor, work can be validly removed from the contractor’s scope and all payments suspended.

Once triggered, payments typically remain suspended until the costs to complete the work removed are finalised by a third party and any amounts owing to the contractor (or otherwise to the principal) are reconciled.

Why exercise them?

Removal of work offers significant benefits to owners, principals and head contractors, particularly for projects nearing completion.  These include:

  1. more efficient completion of outstanding work by a third party;
  2. reduced project time spent on interim payment, variation and time related claims – due to the fact all contractual payments are suspended from the date of removal of work[1];
  3. interim protection from BCIPA claims – due to the fact all payments are suspended from the date of removal, and no valid payment claim can be issued under BCIPA until the removed work is complete and reconciled under the contract[2];
  4. contractual security is more readily recoverable – notice requirements under section 67J of the QBBC Act do not apply where work has been taken out of the hands of the contractor[3]; and
  5. avoids the antagonism between the parties of a contract termination, and the usual legal arguments that follow.

Why recover security?

If following the reconciliation of the work removed, money is owed to the principal or head contractor and issues of insolvency of the contractor arise, ready access by the principal to contractual security may be critical to recovery amounts owing by the contractor.  Sidestepping statutory notice obligations before recovering security has obvious benefit.

Standard contracts also provide that where work is removed and money is owed by a contractor, a principal may retain the contractor’s construction plant, related equipment and materials as security for the debt.  At the time of entry into the contract, these security interests should be secured by principals by PPSR registration to ensure that they can be enforced against a liquidator if necessary.

Surprisingly, despite the above benefits, contractual rights to remove work from contractors and subcontractors are not frequently exercised.  If you require any information or assistance in this regard, please contact Julian Troy, Special Counsel in the Thynne + Macartney Construction team at construction@thymac.com.au or ph: 3231 8741 / m: 0481 254 458.

 

[1] Hudson’s Building and Engineering Contracts (12th Edition 2010 Sweet and Maxwell) at 990, Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288 at [92] affirmed by the High Court of Australia in Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2016] HCA 52 at [76] to [78].

[2] Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd [2015] NSWCA 288 at [92] and [152] affirmed by the High Court of Australia in Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2016] HCA 52 at [78].

[3] s67J(4)(a) Queensland Building and Construction Commission Act 1991 (Qld) (“QBCC Act”).

 

This article was prepared by Julian Troy, Special Counsel and acknowledges the contribution of Riley McDermott, Law Clerk in the Thynne + Macartney Construction team.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

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