Assessing claims during construction can be risky business for quantity surveyors and superintendents. In the recent matter of LM Investment Management Limited (In Liquidation) (Receivers appointed) v BMT & Assoc Pty Limited  NSWSC 1902 (LMI v BMT) the NSW Supreme Court found that BMT were liable for the cost overruns on the project in relation to payment claims that had been approved by BMT and were found to be in excess of the true value of the works.
LMI were the financiers of a development in Sydney for the construction of a warehouse development. The developer and Principal was Greystanes Pty Limited (Principal) who engaged Toro Constructions Pty Ltd (Builder) as the head contractor. Greystanes also engaged Intercapital Consultants Pty Ltd as the superintendent on the development (Superintendent).
BMT were engaged directly by LMI to review the progress claim issued by the Builder, the payment certificate issued by the Superintendent and issue a certificate to LMI advising them to make payment, and in what amount.
Construction commenced in mid-2007, and by early 2009, construction had ground to a halt as LMI refused to make further payments to the Principal or the Builder.
It became evident that the amount of works paid for was in excess of the amount of works that were to be undertaken.
Issue in dispute in LMI v BMT proceedings
LMI submitted that BMT were liable for all damages suffered by them in relation to the overpayment to the Builder. This submission was made on the basis that BMT had been negligent in providing the certificates to LMI as they were considerably in excess of what was deemed to be appropriate.
BMT agreed that they had provided certificates in excess of the works that had been undertaken (on the basis of the experts for both parties agreeing to the amount of overpayment), however, relied upon a proportionate liability claim in an attempt to reduce their potential liability to 10% of the damages awarded. BMT named the Principal as a concurrent wrongdoer sought to offset the claim on the basis LMI had been contributory negligent.
Ultimately, BMT were ordered to pay the full difference between the amount paid by LMI to the Principal and what the experts agreed was the actual value of the works, and amount likely to be in excess of $2 million. This order was made because the Court found that they had negligently prepared the estimates and were liable for the difference (which was a component of the overall damage suffered by LMI).
Interestingly, in the decision His Honour Justice Ball commented that this valuation of damages actually resulted in a considerably lower amount being awarded than if LMI had sought damages on the basis of lost income as the development and construction works would have likely ceased prior to LMI ceasing to make payments to the Principal and the Builder had BMT advised accordingly.
Warning to superintendents and quantity surveyors
The issue arose in these proceedings as a result of numerous errors and a collapse of market conditions, nevertheless it provides a timely reminder that quantity surveyors and superintendents need to be vigilant and thorough in their works and all parties to construction contracts need to be aware of their obligations and requirements.
Superintendents and quantity surveyors need to diligently assess all claims against what the costs should be, including as to variations and material changes in the works, and against any tendered or agreed prices and rates.
If you have any questions around project delivery, tendering and procurement or construction disputes, please contact Nexus’ construction team on +612 9016 0141.
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