Over the past year, HopgoodGanim’s Construction and Major Projects team has acted in two significant Security of Payment disputes involving a combined 18 adjudications and four review adjudications in Western Australia, securing approximately $10 million for one client and successfully defending 12 adjudication applications brought against another.
The first dispute arose from engineering works performed across multiple major resources projects under an umbrella agreement. Acting for the contractor, our team developed and pursued a strategy involving six simultaneous adjudications, ultimately securing approximately $10 million through five successful adjudications, including four successful review adjudications.
The second dispute arose from a major telecommunications infrastructure project, where a contractor commenced 12 simultaneous adjudication applications against our client, a principal, on the basis that each purchase order constituted a separate construction contract. Our team successfully defended all 12 applications by establishing that the purchase orders operated within a single integrated contractual framework rather than giving rise to separate contracts.
Despite the similarities in the procurement arrangements, the contractual analysis underpinning each dispute pointed in opposite directions.
The contrasting outcomes illustrate a recurring issue in Security of Payment disputes involving umbrella agreements, framework agreements and purchase order contracting models: what is the contract?
Why contractual characterisation matters under Security of Payment legislation
Security of Payment legislation provides statutory mechanisms for recovering payment for construction work and related goods and services, including through adjudication. However, invoking those mechanisms requires an understanding of the contractual arrangements under which the work was performed and how those arrangements interact with the applicable legislation.
Identifying the relevant construction contract can have significant consequences for the timing, scope and frequency of payment claims, the manner in which adjudication applications are formulated, and the jurisdictional issues that may arise.
These questions become particularly important where substantial volumes of work are performed under umbrella agreements through multiple purchase orders. Whether those purchase orders create separate construction contracts or merely direct work under an existing contract can fundamentally influence the strategy adopted to pursue or defend payment claims.
Although the precise statutory requirements differ between Australian states and territories, correctly identifying the contractual arrangements and understanding their consequences under the applicable Security of Payment regime is critical.
Purchase orders and umbrella agreements
In Acciona Infrastructure Australia Pty Ltd v Holcim (Australia) Pty Ltd [2020] NSWSC 1330, the relevant supply agreement expressly provided that a separate contract came into existence whenever a purchase order was issued. The Court held that a payment claim impermissibly combined claims arising under multiple contracts, resulting in an adjudication determination for approximately $2.95 million being declared void and quashed.
Similarly, in BSA Advanced Property Solutions (Fire) Pty Ltd v Ventia Australia Pty Ltd [2022] NSWCA 82, the contractual documentation also contained language suggesting that separate agreements arose when work orders were issued. However, the New South Wales Court of Appeal concluded that the broader contractual arrangements, considered as a whole, were inconsistent with each work order giving rise to a separate construction contract.
Importantly, the Court of Appeal in BSA also held that any requirement for a payment claim to relate to a single construction contract was not a jurisdictional precondition to the validity of the claim under the New South Wales legislation.
The contractual characterisation of purchase orders must therefore be considered alongside the requirements of the applicable Security of Payment legislation. Similar contractual structures comprising umbrella agreements and purchase orders do not, of themselves, necessarily determine whether separate payment claims or adjudication applications are required.
The distinction between the contractual arrangements considered in these authorities was central to the telecommunications adjudications.
The contractor relied on Acciona to support its position that the purchase orders created separate construction contracts. However, our analysis identified a materially different contractual structure, under which the purchase orders operated within an existing project-wide contractual framework rather than creating separate engagements.
Our team advanced that distinction in challenging the validity of the adjudication applications. The adjudicators accepted the single-contract characterisation, resulting in the dismissal of all 12 applications.
Comparing the contractual structures
Although both disputes involved umbrella-style agreements and extensive use of purchase orders, the contractual arrangements were materially different.
In the resources matter, the express terms of the umbrella agreement established that each purchase order gave rise to a separate subcontract. That characterisation was accepted by all parties and informed the strategy of pursuing six separate adjudications.
In the telecommunications matter, the contractual characterisation was contested and ultimately determined the outcome of the 12 adjudication applications.
The following comparison illustrates the principal differences between the two contractual structures.
| Contractual Feature | Resources Dispute | Telecommunications Dispute |
|---|---|---|
| Overarching arrangement | Umbrella agreement establishing a framework for future project-specific engagements. | Project-wide contractual framework establishing substantive rights and obligations. |
| Contract formation | Separate subcontract formed upon issue and acceptance of each purchase order. | Contractual rights and obligations arose under the project documents before any purchase orders were issued. |
| Function of purchase orders | Mechanism by which individual contractual engagements come into existence. | Mechanism for directing and administering work within an existing contractual framework. |
| Scope of work | Separate packages of engineering and project services, with scope defined at purchase order level. | Integrated project scope established by project-wide documents and technical requirements. |
| Pricing and payment | Scope-specific commercial engagements tied to individual purchase orders. | Project-wide schedule of rates and payment regime, with purchase-order level estimates. |
| Programming, completion and delay | No integrated programme or overarching completion and delay regime governing all engagements. | Integrated project-wide programme, completion milestones, extension of time and delay regime. |
The critical distinction was not the existence of an umbrella agreement or the use of purchase orders, but the function those purchase orders performed within the broader contractual arrangements.
The contrasting contractual structures required fundamentally different approaches to pursuing and defending the respective adjudication applications.
Looking beyond the purchase order
HopgoodGanim Lawyers’ experience across these two disputes demonstrates the importance of identifying the correct contractual structure at the outset to ensure payment claims are properly formulated and an adjudication strategy is developed that maximises the prospects of success.
In our resources matter, recognising that each purchase order created a separate subcontract informed our Security of Payment strategy of pursuing six separate adjudications, ultimately securing approximately $10 million for our client.
Conversely, the potential consequences of getting this wrong are illustrated by Acciona, where a payment claim incorporating amounts arising under multiple separate contracts was held to be invalid, resulting in an adjudication determination for approximately $2.95 million being declared void and quashed.
In our telecommunications matter, the contractor adopted a separate-contract approach, commencing 12 adjudication applications on the basis that each purchase order constituted an independent construction contract. Our analysis identified a fundamental distinction: the purchase orders operated within a single integrated contractual framework rather than creating separate contractual engagements.
That distinction formed the basis of our successful jurisdictional defence and resulted in the dismissal of all 12 adjudication applications.
The critical question is not simply whether purchase orders have been issued, but what contractual obligations they create and how those obligations interact with the applicable Security of Payment legislation.
For contractors, an incorrect characterisation of the contractual arrangements can undermine the strategy adopted to recover substantial amounts owing. For principals, a proper understanding of those arrangements can provide the foundation for an effective jurisdictional defence.