The Queensland Court of Appeal in McNab Constructions Australia Pty Ltd v Queensland Building Services Authority1 has confirmed that the Queensland Building Services Authority can require construction managers to rectify defective or incomplete building work, even in situations where the construction manager only provided supervisory services and was not involved in the design or execution of the work.
Failure to comply with a direction to rectify exposes construction managers to fines of up to $25,000 per direction, accruing licence demerit points and being liable for the rectification costs. Construction managers should therefore make sure that appropriate provisions are included in their contracts with owners/principals to deal with this exposure.
Advanced Traders Pty Ltd (Principal) engaged McNab under the Australian Standard Construction Management General Conditions (Management Contract), to manage the construction of a residential apartment building.
Under the Management Contract, McNab’s role was to coordinate aspects of construction, monitor progress, check quality of construction, administer the individual trade contracts and report on these matters to the Principal. Importantly, McNab was not involved in the design or execution of the work. The actual construction of the building was performed by a number of separate trade contractors each of whom was engaged by the Principal.
The Management Contract conferred on McNab only a limited capacity to deal with defective work. McNab could do no more than point out a defect to the trade contractor, request its rectification and report to the Principal. McNab was given no power of sanction in the event a contractor refused to make good its work. That power rested with the Principal who could withhold monies or have defective work repaired by others and set off the cost of doing so against monies it owed the contractor.
The building was accepted as practically complete on 30 November 2006. Following disagreements between McNab and the Principal, the Management Contract was terminated on 29 November 2007.
Between 3 October 2007 and 15 January 2009, the QBSA issued 15 separate directions to McNab to rectify building work under s.72 Queensland Building Services Authority Act. As a consequence, McNab was responsible for rectifying the work and if it failed to do so, faced fines of up to $375,000, demerit points and liability for the cost of having the rectification done by others.
McNab challenged the QBSA’s power to issue the directions against it and the issue came before the Queensland Court of Appeal for determination.
The Court of Appeal considered the construction of s.72, the relevant parts of which provide:
(1) … the [QBSA] may direct the person who carried out the building work to rectify the building work …
(11) (a) a person carries out building work whether the person directly or indirectly causes it to be carried out; and
(b) a person is taken to carry out building work if the person provides advisory services, administration services, management services or supervisory services for the work.
McNab argued that the class of persons covered by s.72(11)(b) was limited to those who are also erecting or designing the building. The Court of Appeal disagreed with McNab.
The Court of Appeal held that such a limitation could not be found. One of the objects of the QBSA Act is to provide remedies for defective building work. It therefore seemed to the Court that limiting the class of persons to whom a rectification direction may be given, to those erecting or designing the building, would be counter to that object.
The Court of Appeal held that so long as there is a connection between the services provided and the building work, the service provider is liable to a direction to rectify. In this case, there was such a connection since the work here was the provision, over some two years, of supervisory, management and administration activities performed directly for the purpose of having the building constructed.
Consequently, the Court of Appeal ordered that the QBSA had the power to issue the 15 directions to rectify to McNab and remitted the matter to the Queensland Civil and Administrative Tribunal for hearing.