Key takeaways

With construction costs skyrocketing, Early Contractor Involvement (ECI) contracts are increasing in popularity across the country. When used properly, an ECI arrangement can reduce project costs, increase transparency around pricing, and improve project quality.

The New South Wales Supreme Court, in the case of In the matter of One Mastery Developments Pty Ltd [2023] NSWSC 980, has examined the question of whether an ECI contract is a “construction contract” which attracts the provisions of the SOP Act. Principals and contractors alike should be aware that ECI arrangements may not be immune from the stringent obligations imposed by the SOP Act.

In this case Justice Williams considered the work performed pursuant to and in contemplation of an ECI contract, which included the preparation and revision of estimates, the development of initiatives to be incorporated into the design to achieve cost savings, and participation in programming and costing discussions and design meetings. Her Honour described this work as “design and quantity surveying services” and accordingly was of the view that the ECI contract was a contract for the performance of “related goods and services” as defined in section 6(1)(b)(ii) of the SOP Act. As a result, her Honour concluded that the ECI contract was a “construction contract” which attracted the provisions of the SOP Act.

Whether work is “construction work” or “related goods and services” will often be a factual question addressed on a case-by-case basis, but bear in mind these arrangements could be subject to obligations under the SOP Act.

What happened?

In February 2021, Ceerose Pty Ltd (Ceerose) submitted a tender to Crown Group Holdings (CGH) for the finalisation of the design and construction of buildings that would form part of a mixed high-rise and low-rise development in Waterloo Sydney known as Mastery (Development).

In July 2022 CGH sent a letter to Ceerose stating that Ceerose was the preferred tenderer for the low-rise component of the development, and that CGH wished to engage the plaintiff in ECI for that component (ECI Engagement Letter).

The ECI Engagement Letter described the ECI engagement to include workshopping “value management savings” including savings to be derived from changes to the design and specifications, and stipulated that the resources to be provided by Ceerose would include a project director, chief estimator and design manager.

ECI work was performed from July 2022 to September 2022, after which Ceerose was instructed to cease all further work because a decision had been made not to award Ceerose the tender for construction of the Development.

On 1 August 2022 One Mastery Developments Pty Ltd (One Mastery Developments) was incorporated for the purposes of managing the Development, and was nominated as the entity to which all invoices for work pursuant to the ECI Engagement Letter should be issued.

On 9 December 2022, Ceerose issued an invoice containing a statement that it was a payment claim under the SOP Act. One Mastery Developments failed to issue a payment schedule within the time required by the SOP Act and did not pay the amount claimed.

Ceerose commenced proceedings seeking an order winding up One Mastery Developments in insolvency on the basis that there was a statutory debt under section 14(4) of the SOP Act in respect of the payment claim. Ceerose also contended that the debt remained due and payable by One Mastery Developments and that there was no genuine dispute about the existence or the amount of the debt.

One Mastery Developments sought leave to oppose the winding up application pursuant to section 459S of the Corporations Act 2001 (Cth). In support of its application for leave, One Mastery Developments argued that no statutory debt arose under section 14(4) of the SOP Act on the basis that, among other reasons, the EPI Engagement Letter was not a “construction contract” as defined by the SOP Act.

Justice Williams considered the nature of the work undertaken pursuant to the ECI Engagement Letter, which included the preparation and revision of estimates, the development of initiatives to be incorporated into the design to achieve cost savings, and participation in programming and costing discussions and design meetings. Her Honour described this work as “design and quantity surveying services” and accordingly was of the view that the ECI Engagement Letter was a contract for the performance of “related goods and services” as defined in section 6(1)(b)(ii). Accordingly, there was no serious question to be tried that the work was not “construction work” or “related goods and services” pursuant to the SOP Act.

Her Honour also found that One Mastery Developments had unreasonably failed to apply to set aside the statutory demand in the ordinary way, because it had not put reasonable arrangements in place to monitor mail sent to its registered office.

The application for leave to oppose the winding up application was dismissed.

Further information / assistance regarding the issues raised in this article is available from the author, Sarah Hammond, Partner, Jackson Price, Lawyer, or your usual contact at Moray & Agnew.