Plaintiff v First Defendant

1. "Value Management Adjustment" is a phrase coined for the purpose of this proceeding and refers to the cost saving estimated by Mitchell Brandtman in relation to 30 items of work identified in the Brandtman Report (i.e. the VMA Work).
2. It is common ground that each item of the VMA Work relates to an item numbered between 1-125 in Part F. The precise relationship between the VMA Work and the clarifications and exclusions itemised in Part F was identified by Henny in a table included in its Adjudication Application.[6] For example:

(a) item 1 of the Brandtman Report concerns a change to the brick tile finish from "Brick snaps, case‑in on Precast panel" to "Brick + rail system". That item relates to item 46 of Part F which provides: "Alternative brick and brick snaps have been allowed for. Samples to be supplied to Architect for review and approval before ordering."; and

(b) item 2 of the Brandtman Report concerns a change to the metal cladding from "standing Seam metal Cladding - 28mm rib height, pan width 180mm, 15mm construction grade substructure" to "Archlad Cliptray - 48mm rib, pan width 275mm". That item relates to item 81 of Part F which provides: "Alternative Nailstrip metal cladding profile in lieu of Standing Seam metal cladding profile".

1. On a plain reading of the Contract, each item of the VMA Work forms part of the agreed scope of work under the Contract. Specifically:

(a) clause 1.2 of the Formal Instrument of Agreement requires Henny to carry out and complete the work under the Contract in accordance with the Contract;

(b) as described above, each item of the VMA Work is a specific clarification or exclusion to the scope of work as set out in Part F. Part F forms part of the Contract. Indeed, clause 2.1 of the Formal Instrument of Agreement lists Part F as second in the order of precedence of contract documents; and

(c) no item of the VMA Work, as articulated in Part F, is expressed to be subject to any further agreement between Little Hardiman Street and Henny.

D.3.2 There are no provisions in the Contract that govern how the Superintendent is to value or account for the Value Management Adjustment - The provisions relied on by Little Hardiman Street are inapplicable to the VMA Work

1. Little Hardiman Street contends that the Contract makes provision for how the Value Management Adjustment is to be evaluated and deducted from the contract sum and therefore the Adjudicator erred in determining otherwise.
2. Little Hardiman Street relies primarily on cl 37.2(b) as set out in the summary of its submissions above.
3. Clause 37.2 forms part of the payment provisions of the Contract. It governs how and when the Superintendent is to respond to a payment claim and also the payments to be made between the parties as follows:

(a) the Superintendent is to issue a progress certificate evidencing his opinion of the moneys due from Little Hardiman Street to Henny pursuant to the progress claim ('Progress Certificate');

(b) the Superintendent is to issue a certificate evidencing his assessment of retention moneys and "moneys due from [Henny] to [Little Hardiman Street] pursuant to the Contract"; and

(c) Little Hardiman Street must then pay to Henny the balance of the Progress Certificate after setting off such of the Superintendent's Certificate as Little Hardiman Street elects to set off. If that setting off produces a negative balance, then Henny must pay that balance to Little Hardiman Street.

1. On a plain reading of cl 37.2(b), giving the phrase "pursuant to the Contract" work to do, it does not empower the Superintendent to create an indebtedness simply by issuing a certificate. Rather, it requires him to certify his assessment of indebtedness arising elsewhere under the Contract. Consistent with this construction, there are a number of provisions which do expressly empower the Superintendent to certify a sum as due and payable. For example:

(a) in the case of liquidated damages, cl 34.7 authorises the Superintendent to certify an amount in liquidated damages "as due and payable to [Little Hardiman Street]";

(b) in the case of early practical completion, cl 34.8 empowers the Superintendent to certify a bonus amount as due and payable to Henny; and

(c) in the case of defects rectified by others, cl 29.3 empowers the Superintendent to certify the cost incurred as "moneys due from [Henny] to [Little Hardiman Street]".

1. In the context of those clauses, in my view, a reasonable business person would have understood cl 37.2 as I have construed it. In any event, this construction was not resisted by Little Hardiman Street.
2. To the contrary, Little Hardiman Street relied on cll 2.1, 29.3, 29.4 and 36.4 of the General Conditions and item 126 of Part F as the provisions governing the valuation and deduction of the Value Management Adjustment. I note that Little Hardiman Street's reliance on these clauses was articulated for the first time at the hearing of this matter. They were not addressed in the Payment Schedule, the Adjudication Response, the Originating Motion or written submissions. Its submissions about this issue are summarised above.
3. For the reasons that follow, I reject those submissions.
4. As set out above, the VMA Work is work recorded in Part F that was agreed by the parties. Henny was required by the Contract to proceed with that work and it is common ground that Henny fulfilled that obligation and performed it.
5. Clause 29.3, relied on by Little Hardiman Street, is by its terms directed to defective work, that is "work done (including material provided) by [Henny] which does not comply with the Contract". That clause can have no application to the performance of the VMA Work, such work being within the agreed scope of work under the Contract.
6. Clause 29.4 operates where the Superintendent directs Henny (as contractor) that Little Hardiman Street (as principal) elects to accept defective work whereupon it will be a deemed variation. Again, cl 29.4 is directed to defective work and has no application to the performance of the VMA Work.
7. Little Hardiman Street relies on cl 36.4 to the extent that the works done are deemed to be variations under cl 29.4. Under cl 36.4, the Superintendent is required to price each variation and then add or deduct the price from the contract sum. Having found that cl 29.4 has no application, it follows that cl 36.4 is not engaged in relation to the performance of the VMA Work.
8. Item 126 of Part F does not assist Little Hardiman. By its terms, it applies to "Value Management Items" proposed by Henny that "are to be agreed by the Principal". That is, it applies to Value Management Items that were not agreed at the time the Contract was entered into. Those items are separate and distinct from the VMA Work which comprises clarifications and exclusions that had been agreed between the parties. That construction is reinforced by cl 2 of the Formal Instrument of Agreement which, while defining the order of precedence, refers to "The Contractor's Exclusions and Clarifications set out in Annexure Part F and any value management items agreed between the parties" and thereby draws a distinction between the "Contractor's Exclusions and Clarifications" on the one hand, and "any value management items" on the other. Further, and in any event, item 126 does not address how any savings are to be evaluated or accounted for.
9. No other provisions were identified by the parties as governing the evaluation of, and accounting for, the Value Management Adjustment or VMA Work. This is unsurprising in relation to work that is part of the agreed scope.

1. I find no error in the Adjudicator's construction of the Contract or his determination of the Adjudicated Amount without deduction of the Value Management Adjustment.

E Issue 2 - Did the Adjudicator fall into error by failing to assess the Value Management Adjustment as a second‑class claimable variation pursuant to s 10A(3) of the SOP Act?

1. While not included in its Originating Motion, Little Hardiman Street alternatively argued that the Adjudicator fell into error by failing to assess the Value Management Adjustment as a claimable second‑class variation under s 10A(3) of the SOP Act. This argument was raised before the Adjudicator, in Little Hardiman Street's written reply submissions, and was addressed by both parties at trial.

(a) If it is incorrect in relation to Issue 1, then the Value Management Adjustment ought to have been valued as a claimable second‑class variation under s 10A(3) of the SOP Act.

(b) Clause 36.1 of the General Conditions defines a variation as including any direction to "change the character or quality" of the work under the Contract, which is perfectly apt to describe the work the subject of the Value Management Adjustment.

(c) Each item of work satisfies the requirements of a second‑class variation under s 10A(3).

1. Section 10A of the SOP Act sets out the classes of variation to a construction contract that may be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of the relevant construction contract.
2. It describes classes of claimable variations. The common requirement for both is that they are a variation. "Variation" is defined in s 4 for the purpose of the SOP Act to mean "a change in the scope of the construction work to be carried out, or the related goods and services to be supplied, under the contract".
3. As set out above, the VMA Work is work within the agreed scope. Therefore, the performance of it did not constitute a change in the scope of the construction work to be carried out.
4. For that reason, the Adjudicator did not fall into error by failing to assess the Value Management Adjustment as a second‑class claimable variation.

1. I propose to order that Little Hardiman Street's application be dismissed. I will hear from the parties as to the form of order and costs.

[1] Building and Construction Industry Security of Payment Act 2002 (Vic), s 4.

[2] JG King Project Management Pty Ltd v Hunters Green Retirement Living Pty Ltd [2024] VSCA 310, [243] (Kennedy JA).

[3] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 ('Mount Bruce Mining'), [46] (French CJ, Nettle and Gordon JJ).

[4] Mount Bruce Mining, [47] (French CJ, Nettle and Gordon JJ).

[5] Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ).

[6] That table was referred to and relied upon by Little Hardiman Street's counsel during the hearing in support of the proposition that Little Hardiman Street had directed the works to be done, without contradicting its content.