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Eden Construction Pty Ltd v New South Wales (No 2) [2007] FCA 689 (9 May 2007)

Last Updated: 9 May 2007

FEDERAL COURT OF AUSTRALIA

Eden Construction Pty Ltd v State of New South Wales (No 2) [2007] FCA 689



CONTRACT – principles of construction applicable to a written contract – duties owed by a Superintendent’s Representative to the contractor under a civil engineering contract

TORT OF MISFEASANCE IN PUBLIC OFFICE – necessary elements

TORT OF INDUCING BREACH OF CONTRACT OR OTHERWISE INTERFERING WITH CONTRACTUAL RELATIONS – elements of the cause of action – justification

TRADE PRACTICES – application of Part IV of the Act to the respondent – misuse of market power

NEGLIGENCE – misrepresentation causing economic loss – whether a duty of care should be found

Held: conduct of the respondent in placing the applicant’s name on Departmental Contractor Review Lists, which led to adverse advice about the applicant being provided to potential customers of the applicant, did not involve breaches of contract or breach of any tortious or statutory duty for which the applicant contended

Trade Practices Act 1974 (Cth) ss 2B, 2C, 4 and 46(1)(c)
Federal Court Rules Order 29 rule 2
Crown Proceedings Act 1988 (NSW)

Eden Construction Pty Ltd v State of New South Wales [2003] NSWSC 1098
Wigan v Edwards (1973) 47 ALJR 586
Locke v Dunlop ((1888) 39 Ch D 387
Bottomley’s Case ((1880) 16 Ch D 681
Hillas and Co. Limited. v Arcos Limited. ((1932) 147 LT 503
Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd. [1968] HCA 8; (1968) 118 CLR 429
Australian Broadcasting Commission v  Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165
Equuscorp Pty Ltd v HGT Investments Pty Ltd [2004] HCA 55; (2005) 218 CLR 471
Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Timber Shipping Co. S.A. v London & Overseas Freighters Ltd [1972] AC 1
NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481
Elliott v Reading [1999] WASCA 11
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Carlton & United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of New South Wales, Hodgson J, 11 June 1985)
B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266
Butt v M’Donald (1896) 7 QLJ 68
Secured Income Real Estate (Australia) Limited v St. Martins Investments Proprietary Limited [1979] HCA 51; (1979) 144 CLR 596
Fitzgerald v F J Leonhardt Pty Limited [1997] HCA 17; (1997) 189 CLR 215
Martin-Baker Aircraft Co. Ld. v Canadian Flight Equipment Ld. [1955] 2 QB 556
Wintergarden Theatre (London) Limited v Millennium Productions Limited [1948] AC 173
Llanelly Railway and Dock Company v London and North-Western Railway Company (1873) VIII LR Ch App 942
Prints for Pleasure Ltd. v Oswald-Sealy (Overseas) Ltd. (1968) 88 WN (Pt 1) (NSW) 375
Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322
Northern Territory of Australia v Mengel [1994] HCA 37; (1995) 185 CLR 307
Beaudesert Shire Council v Smith [1966] HCA 49; (1966) 120 CLR 145
Sanders v Snell (No 2) [2003] FCAFC 150; (2003) 130 FCR 149
Three Rivers District Council v Governor and Company of the Bank of England [2000] UKHL 33; [2000] 2 WLR 1220
Rush v Commissioner of Police [2006] FCA 12; (2006) 150 FCR 165
Lumley v Gye (1853) 2 E&B 216; 118 ER 749
James v The Commonwealth [1939] HCA 9; (1939) 62 CLR 339
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48; (2004) 219 CLR 90
Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2006] FCAFC 128
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515
Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180
Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562
Tepko Pty Limited v Water Board [2001] HCA 19; (2001) 206 CLR 1













EDEN CONSTRUCTION PTY LTD v STATE OF NEW SOUTH WALES
NSD 833 OF 2004

GRAHAM J
9 MAY 2007
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 833 OF 2004

BETWEEN:
EDEN CONSTRUCTION PTY LTD
Applicant
AND:
STATE OF NEW SOUTH WALES
Respondent

JUDGE:
GRAHAM J
DATE OF ORDER:
9 MAY 2007
WHERE MADE:
SYDNEY


THE COURT:

1. Answers the Questions for Determination separately and before any other questions in the proceedings as follows:
As alleged in the Amended Points of Claim dated 5 May 2006, in respect of or in consequence of the Kremur Street Pumping Station project and the Moruya Heads Sewerage project:

Q.1 Did the Respondent make a negligent misrepresentation at common law by the conduct which is complained of by the Applicant?
A. No.
Q.2 Did the conduct which is complained of by the Applicant, constitute conduct by the Crown in the course of carrying on a business, within the meaning of section 2B of the Trade Practices Act 1974 (Cth)?
A. No.
Q.3(a) Was the relevant ‘other market’ for the purposes of the Applicant’s claims under s 46 of the Trade Practices Act 1974 (Cth) as alleged in paragraph 14 of the Amended Points of Claim?
A. No.
Q.3(b) By the conduct which is complained of by the Applicant, did the Respondent take advantage of its power in the market in which it was engaged for the purpose of deterring or preventing the Applicant from engaging in competitive conduct in the market for tendering for and provision of services in respect of New South Wales Government civil works for sewerage treatment, stormwater drainage and related works in contravention of section 46 of the Trade Practices Act 1974 of the Commonwealth?
A. No.
Q.4(a) Did the Respondent owe any duty of care to the Applicant in respect of carrying out its duties as Superintendent’s Representative under the Kremur Street Contract with the Albury City Council;
A. Does not arise.
Q. and if so
4(b) Did it breach any such duty, by the conduct which is complained of by the Applicant?
A. Does not arise.
Q.5 Did the Respondent engage in deliberate use of unlawful means to wrongfully interfere with the Applicant’s trade or business, by the conduct which is complained of by the Applicant?
A. No.
Q.6 Did the Respondent breach the terms of a written agreement dated 7 January 1994 entered into by ‘Eden Constructions’ and the Respondent, by the conduct which is complained of by the Applicant.
A. No.
Q.7 Was the conduct of the Respondent, in placing the Applicant on:
(a) the provisional Contractors Review List in 1998; or
(b) the Contractors Review List in 2001,
wrongful, within the terms of 1, 3, 4, 5 and/or 6 above.
A. No.
2. Orders that costs of the determination of the separate questions be reserved.
3. Orders that the proceedings stand over for directions on Friday 8 June 2007 at 9.30 am.





















Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY

BETWEEN:
AND:

DATE:
PLACE:

REASONS FOR JUDGMENT

The Issues

1 The primary concern of the parties in this matter is to have the Court determine whether the non-award of a civil engineering subcontract to the applicant, for the construction of gravity and rising mains and pipework at Moruya Heads, can be attributed to wrongful bad-mouthing of the applicant by the respondent’s Department of Public Works or one of its successor Departments (‘the Department’) in respect of the applicant’s performance of a contract with the Albury City Council for the Kremur Street Pumping Station (part of the Council’s Sewerage Works), to a wrongful placement of the applicant on the Department’s Provisional Contractors’ Review List, to a wrongful description by the Department of the applicant as a litigious contractor and as an unsuitable contractor and/or to a breach by the respondent of an agreement made 7 January 1994 said to have arisen from the settlement of a dispute between one of the applicant’s related companies and the Department in respect of a Norah Head civil engineering contract.

2 The applicant’s principal argument is that the respondent breached clause 4 of the 7 January 1994 agreement on or about 2 May 1994 and again on or about 6 May 1994. Thereafter, it is contended that by a number of actions, viewed on their own or taken together, the respondent constructively breached clause 4 of the agreement. These actions are said to have occurred on or about 24 June 1998, 7 August 1998, 11 August 1998, 12 – 13 August 1998, 19 August 1998, 21 August 1998, 23 October 1998, 19 November 1998, 24 November 1998, 18 December 1998, 17 February 1999, 24 May 1999, 28 July 1999, 20 August 1999, 15 August 2000 and 25 January 2001. The last two actions complained of can have no bearing on the non-award of the Moruya Heads subcontract.

By using the expression ‘constructively breached clause 4 of the Agreement’ I understood the applicant to be submitting that the respondent impliedly repudiated the 7 January 1994 agreement by rendering further commercial performance of clause 4 thereof impossible, even though it may not have, by word or conduct, renounced its intention to fulfil its obligations under that clause.

3 The secondary arguments advanced are that the Superintendent’s Representative under the Kremur Street Pumping Station contract breached a duty of care owed to the applicant, that the respondent committed the tort of unlawful interference with the applicant’s trade or business, that the respondent contravened s 46(1)(c) of the Trade Practices Act 1974 (Cth) and that the respondent was guilty of negligent misrepresentation.

The 7 January 1994 Agreement

4 The agreement of 7 January 1994 is recorded in the handwriting of Stephen Hibbert, who was then a partner in the firm of solicitors known as Allen Allen and Hemsley.

5 Mr Hibbert’s evidence is that on or about 7 January 1994 he attended a meeting with Mr Cesare Filardo (‘Mr Filardo’), Ms Karen Harrison, who was from the New South Wales State Crown Solicitor’s Office, and Mr Anthony Barry (‘Mr Barry’), who was then Manager Contracts for the Department. Mr Filardo was, nominally at least, a Director of Eden Constructions (NSW) Pty Limited which had been a party to the Norah Head contract. That company had been registered on 26 June 1984 and was deregistered on 7 July 1995. Between 2 July 1984 and 7 July 1995 its directors had been Mr Filardo and his wife, Immacolata Filardo.

6 The applicant was registered on 28 October 1991. Between 1991 and 30 January 1996, Mr Filardo, who was during that period an undischarged bankrupt, served as the applicant’s ‘project manager’. On 30 January 1996 he became a director of the applicant. Members of his family who formerly owned shares in the applicant were bought out, the former directors resigned and Mr Filardo became the sole director and also the managing-director.

7 At the time of the meeting on 7 January 1994 Mr Hibbert says that ‘Eden’ and Mr Filardo felt that it was very unlikely that they would ever get a contract with the Department again.

8 It would appear that on 30 June 1987 Mr Filardo had written a letter to a Mr Akister at the Department complaining about ‘collusion’ between the Department and the Eurobodalla Shire Council and about ‘bias, inconsistency and improper motivation’ on the Department’s behalf to the disadvantage of Eden Constructions Pty Limited, another company associated with Mr Filardo. This letter had been the subject of some discussion between the Department’s solicitor, Mr Philip Davenport, and Mr Hibbert. Following this discussion Mr Hibbert wrote a letter to Mr Filardo on 9 July 1987 proposing certain alternative courses of action which Mr Filardo could follow. It would appear that, at least so far as Mr Hibbert was concerned, the matter then became dormant.

9 Mr Hibbert says that at the meeting on 7 January 1994 conversation took place to the following effect:

Mr Filardo: ‘As you are aware Tony [referring to Mr Barry] we have a tender in for the Wingecarribee Waste Water Treatment Plant. We are the lowest. Are you going to give me the job?’
Mr Barry: ‘Leave it with me. If the job has not gone too far into its assessment, I will give it to you.’

[In cross-examination Mr Hibbert says that Mr Barry said ‘I’ll have a look at it. If it hasn’t gone too far, then we should be able to give it to you’. In that context there was no addition of any qualifications about process or further analysis. See also Mr Filardo’s letter to the Department of 23 September 1994 referred to below and the Department’s reply of 13 October 1994.]

Mr Filardo: ‘Tony, I’m prepared to pay you the money, provided that I am treated equally and fairly and I am fully reinstated as a major contractor.’
Mr Barry: ‘Yes, once we settle this. Yes we will.’
Mr Hibbert says that he then said words to the effect:
‘Ok, I’ll draft something along those lines so that both parties can sign it.’

10 It is common ground that the manuscript agreement which was prepared by Mr Hibbert and which was signed for ‘Eden’ by Mr Filardo on 7 January 1994 and by Mr Barry ‘for the PWD’ on the same day, included the following:


‘[page 1]

Between 7. Jan. ‘94

Eden Construction S (sic)
&
PWD

re Nora (sic) Head Contract.

The parties agree to resolve all outstanding differences on the following principal terms:

[clause 1 which contemplated a deed of settlement or confirmatory letter was struck out and appears to have no present relevance]
2. Eden shall pay the PWD $50,000.00 in full & final settlement of both its & the PWD’s claims & rights under the contract or arising out of the Nora (sic) Head project.

3. Payment shall be made by:
a) releasing to the PWD the security money in court & interest (estimated at $13500 plus interest) forthwith
b) The PWD will investigate whether progress payment No 6 ($11980) has been received by Eden. If it has not it, plus interest, will be credited against the $50,000. Interest shall be calculated as simple interest, at Supreme Court Rates.
[page 2]
#2
7. Jan ‘94

c) the full $50,000 shall be received by the PWD on or before 31. August 1995
4. Subject to normal prudential requirements by the PWD, the PWD will permit restore Eden to the tender list and to the PWD, & permit Eden to do work for the PWD, provided always all other normal Dept. requirements are satisfied.
5. Each party bears its own costs of all matters to date regarding the disputes & in finalizing this agreement
6. The PWD will release Eden’s Bank Guarantee following receipt of the money from Court the full $50,000.’

11 In an interlocutory hearing in the Supreme Court of New South Wales in these proceedings it was held that the references to ‘Eden Constructions’ and ‘Eden’ were intended as references to Eden Constructions (NSW) Pty Limited (see Eden Construction Pty Ltd v State of New South Wales [2003] NSWSC 1098 at [16]). For reasons which will shortly emerge, it is unnecessary for me to consider whether this construction of the agreement should be adopted by me. This is because on the pleadings, at least so far as the matter presently before the Court is concerned, the respondent has conceded that the applicant is entitled to the benefit of clause 4 of the agreement as if it were a party to it. However, I should say that the reasoning of Einstein J is highly persuasive.

12 On 7 January 1994 Mr Hibbert wrote a letter to the Crown Solicitor’s Office which had been acting for the Department in relation to the resolution of the Norah Head contract issues. That letter provided as follows:

‘EDEN CONSTRUCTIONS AND PUBLIC WORKS DEPARTMENT

Following our meeting today with our respective clients, I confirm that all matters in issue arising out of the Nora (sic) Head Contract performed by Eden Constructions have been resolved.

More particularly:
1. authorised representatives of the each of the parties (sic) executed the attached (copy) handwritten agreement;
2. we shall prepare the necessary orders to have the security monies in Court released to your client, together with any interest, as soon as possible;

3. your client will investigate whether progress payment No. 6 was in fact made (settlement agreement, para 3(b));

4. you might consider whether there are any other procedural steps that need to be taken;

5. it was agreed that a formal Deed of Settlement would not be necessary, but that there would be an exchange of confirmatory letters between solicitors. Accordingly, you might confirm on a copy of this letter, or separately, that the matters have been settled as noted above.’

13 There would appear to be no doubt that at the time when ‘Eden’ and the Department entered into the 7 January 1994 agreement, Eden Constructions (NSW) Pty Limited was indebted to the respondent for an amount well in excess of $130,000 under judgments of the Supreme Court of New South Wales. However, according to Mr Filardo, Giles J’s findings made in 1989 in the Supreme Court of New South Wales provided a foundation for later claims by Eden Constructions (NSW) Pty Limited for an amount of $55,475.26 (an amount that Mr Filardo contended had been certified but remained unpaid) plus interest and a further amount of $110,500 referable to quantities of rock said to have been encountered in executing the Norah Head works. Hence, as at 7 January 1994, there would appear to have been claims both ways. The respondent’s submission that ‘there was no consideration for the contractual promise in clause 4 of the Settlement Agreement’ should be rejected (see Wigan v Edwards (1973) 47 ALJR 586 especially at 594-5).

Construction of clause 4 of the 7 January 1994 agreement

14 This brings me to a consideration of the construction to be placed upon clause 4 of the 7 January 1994 agreement.

The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority cited in Locke v Dunlop ((1888) 39 Ch D 387 at 393), which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley’s Case ((1880) 16 Ch D 681 at 686). Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas and Co. Limited. v Arcos Limited. ((1932) 147 LT 503 at 514) that the court should construe commercial contracts ‘fairly and broadly, without being too astute or subtle in finding defects’, should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v Australian Chilling and Freezing Co. Ltd. [1968] HCA 8; (1968) 118 CLR 429 at 437) (per Gibbs J, as his Honour then was, in Australian Broadcasting Commission v  Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109-110).

15It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon in Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at 179 [40]).
16Actual beliefs and intentions are, generally speaking, irrelevant in the determination of the legal rights and obligations flowing from a written agreement (see per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ in Equuscorp Pty Ltd v HGT Investments Pty Ltd (‘Equuscorp’) [2004] HCA 55; (2005) 218 CLR 471 at 483 [34]).
17Where the language of a contract has a plain meaning evidence of surrounding circumstances is not admissible to assist in the interpretation of the contract (per Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (‘Codelfa’) [1982] HCA 24; (1982) 149 CLR 337 at 352).
18There is no definitive statement in the Australian authorities concerning the regard, if any, that should be given to deletions such as those appearing in clause 4 of the 7 January 1994 agreement.
19In Timber Shipping Co. S.A. v London & Overseas Freighters Ltd [1972] AC 1 at 15 Lord Reid said:
‘If the words were first inserted by the draftsman of the agreement and then deleted before signature then I have no doubt that they must not be considered in construing the agreement.’

In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 at 491, Rogers CJ  Comm D said:

‘More recently in Mottram Consultants Ltd v Bernard Sunley & Sons Ltd [1975] 2 Lloyd’s Rep 197, Lord Cross, with whom Lords Hodson and Wilberforce agreed, clearly endorsed the use of deletions as an aid to the construction of contracts.’

After reviewing the authorities his Honour proceeded to take into account the omission of a specific provision from a precedent, to which regard had been had in drafting a loan document, in order to reach the conclusion that the loan document should be construed as creating a non-recourse loan. His Honour found the inference to be drawn from the omission to be clear.

20In Elliott v Reading [1999] WASCA 11 Ipp J, with whom Malcolm CJ and Pidgeon J agreed, applied the judgment of Rogers CJ Comm D. At [43] his Honour said:
‘... account has to be taken of the fact that, in entering into the Final Deed, the parties deliberately omitted the subject to finance condition contained in the First Deed. In NZI Capital Corporation Pty Ltd v Child (1991) 23 NSWLR 481 Rogers CJ Comm D, held that a deliberate deletion of a clause in a loan agreement expressly providing for repayment by a borrower ousted an obligation, said to be implied, to the effect that the borrower repay the loan. His Honour relied in coming to this conclusion on the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW at 352-353. In my opinion the same reasoning is applicable here. Once the parties agreed to exclude from the Final Deed the subject to finance condition that was contained in the First Deed, it is not open to imply a condition in the Final Deed to substantially the same effect as the one deliberately excluded.’
21In the applicant’s Amended Points of Claim filed 8 May 2006 it asserted that an express and/or implied term of the 7 January 1994 agreement was that the respondent would permit the applicant ‘to do work ..., provided always all other normal Prudential requirements were satisfied.’

In addition an implied term was alleged that the respondent ‘would act in good faith and/or in accordance with its established guidelines in its involvement with the Plaintiff’s [applicant’s] tenders and its involvement in the Plaintiff’s [applicant’s] carrying out of work’.

A further implied term was alleged that ‘the status of the Plaintiff [applicant] and/or its Directors as a suitable contractor would be restored’.

22Terms may be implied in one of four ways (per Heydon JA, as his Honour then was, in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at 164 [28]). These were summarised by Hodgson J in Carlton & United Breweries Ltd v Tooth & Co Ltd (unreported, Supreme Court of New South Wales, 11 June 1985) as follows:
‘(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown [1928] HCA 12; (1928) 40 CLR 540 at 553-4.

(ii) Implications from the "nature of the contract itself" as expressed in the words of the contract: see Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239.

(iii) Implications from usage (for example, mercantile contracts).

(iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337.’
23In relation to the fourth mentioned type of implied term the classic test is identified in the advice of Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel in B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266 at 283 as follows:
‘... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’

The test promulgated by the Privy Council was approved by Mason J in Codelfa.

24The general rule applicable to every contract, that each party agrees to do all such things as are necessary on its part to enable the other party to have the benefit of performance of the contract, is one which arises by implication and is of the second type mentioned above (see Butt v M’Donald (1896) 7 QLJ 68 at 70-71; Secured Income Real Estate (Australia) Limited v St. Martins Investments Proprietary Limited [1979] HCA 51; (1979) 144 CLR 596 at 607 and Fitzgerald v F J Leonhardt Pty Limited [1997] HCA 17; (1997) 189 CLR 215 at 219 and 226).
25One issue that has not been specifically addressed by the parties is the duration of the rights and obligations conferred by clause 4 of the 7 January 1994 agreement. As a commercial agreement of indeterminate duration it seems to me that there would be a presumption against permanence. As McNair J said in Martin-Baker Aircraft Co. Ld. v Canadian Flight Equipment Ld. (‘Martin-Baker’) [1955] 2 QB 556 at 577:
‘The common law, in applying the law merchant to commercial transactions, has always proceeded more on the basis of reasonableness in filling up the gaps in a contract which the parties have made on the basis of what is reasonable, so far as that does not conflict with the express terms of the contract, rather than on the basis of rigidity.’
26Commercial contracts of indeterminate duration would normally be determinable upon reasonable notice (see Martin-Baker at 577 and Wintergarden Theatre (London) Limited v Millennium Productions Limited [1948] AC 173 at 191).
27It lies upon a person who says that a contract is revocable or determinable to show either some expression in the contract itself, or something in the nature of the contract, from which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in some way or other subject to determination. Contracts which involve more or less of trust and confidence, more or less of delegation of authority, more or less of the necessity of being mutually satisfied with each other’s conduct, more or less of personal relations between the parties will fall into the last mentioned category (per Sir W M James LJ in Llanelly Railway and Dock Company v London and North-Western Railway Company (1873) VIII LR Ch App 942 at 950).
28In Prints for Pleasure Ltd. v Oswald-Sealy (Overseas) Ltd. (1968) 88 WN (Pt 1) (NSW) 375 at 383 Macfarlan J concluded that the agreement there under consideration was not one where the parties had said that it was to continue for an indefinite period of time which was not determinable except by breach. His Honour construed it as an agreement that would continue until and when Australian orders for fine art prints under the contract were less than 10,000 per annum. His Honour considered that the provisions of the agreement demonstrated that at the time when the agreement was made the parties had considered the period of time during which it was to continue.
29The applicant eschewed any notion that clause 4 of the 7 January 1994 agreement gave the applicant any special right to be on a pre-tender or pre-qualification list. Furthermore, it does not contend that clause 4 obliged the respondent, through the Department, to award contracts to the applicant. Rather, it was submitted that it required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring any tender so submitted to be rejected.
30It could hardly be said that the agreement was expressed in felicitous terms.
31It uses the word ‘prudential’ in the phrase ‘Subject to normal prudential requirements by (sic) the PWD’. It also uses the phrase ‘provided always all other normal Dept. requirements are satisfied’.

In the Oxford English Dictionary (2nd Ed, 1989) Vol XII the word ‘prudential’ is defined, relevantly, as follows:

‘Of, belonging to, or of the nature of prudence; involving prudence; characterised or prescribed by forethought and careful deliberation.’


In the Macquarie Dictionary (4th Ed, 2005) ‘prudential’ is defined relevantly as:

‘of, relating to, or characterised by prudence.’


‘Prudence’ is itself defined relevantly as:

‘1. cautious practical wisdom; good judgement; discretion
2. the quality or fact of being prudent
3. regard for one’s own interests
4. provident care in management; economy or frugality.’
32In my opinion the phrase ‘Subject to normal prudential requirements by the PWD’ should be construed as:
‘Subject to the normal requirements of the Department, which call for forethought and careful deliberation in protecting the respondent’s interests.’
33The 7 January 1994 agreement was plainly directed at resolving all outstanding differences between Eden Constructions (NSW) Pty Limited and the Department in relation to the Norah Head contract.

It brought about a ‘full & final settlement’ of all claims and rights that the Department had against Eden Constructions (NSW) Pty Limited under or arising out of the Norah Head contract and all claims and rights that Eden Constructions (NSW) Pty Limited had against the Department under or arising out of that contract.

It secured the release of Eden Constructions (NSW) Pty Limited’s bank guarantee in relation to the Norah Head contract.

It also secured an agreement in relation to the burden of costs with respect to the several claims and counterclaims under the Norah Head contract.

34It may be said that the agreement had the effect of ‘wiping the slate clean’.
35In my opinion it could not be contended that clause 4 of the agreement conferred any rights in perpetuity on Eden Constructions (NSW) Pty Limited or, given the respondent’s concession referred to above, on the applicant.

I accept the applicant’s submission that clause 4 relevantly required the respondent to permit the applicant to submit tenders to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring that the tender or tenders be rejected. But the arrangement had no permanence. It simply provided a starting point and an opportunity for a new relationship to be established. Dissatisfaction with any work undertaken by the applicant after 7 January 1994 could properly be taken into account by the Department in relation to any future opportunities for work for which the applicant might see fit to tender thereafter.

Plainly, normal prudential requirements and other normal Departmental requirements entitled the respondent to limit the scope of the work for which the applicant, as a company with which it had not had any prior dealings, could tender. The respondent was not obliged by its settlement with Eden Constructions (NSW) Pty Limited to put to one side its normal prudential and other requirements in allowing a new working relationship with the applicant to be established.

36No question of implication of terms from usage or so as to give the relevant contract business efficacy arise in the circumstances of this case. The only relevant implications are those which arise from the nature of the contract and/or are contained in the express words of the contract itself. These have been addressed in the above observations on the true construction of the 7 January 1994 agreement.
37The applicant acknowledged that, following the 7 January 1994 agreement, it secured the contract with the Albury City Council for the Kremur Street Pumping Station. It accepted that there were ‘some issues’ in relation to the performance of that contract but submitted that it performed it ‘fairly well’.

No evidence of any breaches by the respondent of clause 4

38The applicant’s case was that as soon as the hierarchy within the Department found out that the applicant had been awarded the Kremur Street Pumping Station contract it ‘came down on’ the applicant.
39For reasons that will appear later, I am not prepared to find that any tenders submitted by the applicant subsequent to the award of the Kremur Street Pumping Station contract were evaluated by the Department with a closed mindset, adverse to the applicant, because of events that may have occurred prior to 7 January 1994 i.e. because the Department did not treat the slate as having been wiped clean by the 7 January 1994 agreement. Clause 4 of the agreement was not directed at depriving the Department of the opportunity to exercise its business judgment, against the wishes of the applicant, in circumstances where it considered that performance by the applicant of contractual obligations subsequent to 7 January 1994 had been unsatisfactory.

40 On 14 March 1994 a Consultant/Contractor Manager within the Department, who coincidentally had the name John Eden, prepared a ‘Technical Report on Eden Construction P/L’ for the Asset Management & Construction Policy Division of the Department. The report provided:

‘The above firm has approached Tony Barry to determine the likelihood of a tender from that firm being accepted should they win an open tender for civil works. This approach was made in view of protracted discussions between Public Works and the firm over various past contracts.

I contacted Mr Les Crossman of Kinhill Engineers P/L to obtain comments on the firm’s performance on a $700,000 job. I obtained the following comments.

This first large job undertaken by firm since its reestablishment

Basically job pipelaying, workmanship OK.

Delays at beginning of job with contractor learning processes of ACT Public Works. NO problems with cooperation, just with understanding.

No problems with variations, these negotiated reasonably, job on budget.

Les felt principal of firm was overenthusiastic, did all work himself, including operation of dozer, backhoe etc. Tried to do too much himself. Reluctant to engage other manpower, subcontractors.

Comment made by Les Crossman that firm had some difficulty with cash flow. My thoughts on paragraph above may be because of lack of cash in firm at this early stage of reestablishment.

Problems with separate pipe supply contract, defects in pipe, inspections, as pipe supplier (CSR Humes) had difficulty with plastilined pipes, supply of pipes was separate contract.

18 week contract took 42 weeks, largely due to separate pipe supply contract, though some delay by Eden Constructions as mentioned above due to lack of understanding of ACT PW procedures.

Firm has done other work for ACT Public Works since this contract. Les Crossman would recommend firm for other work.

My conclusion is that the firm has performed satisfactorily and could be given work up to value of turnover ($700,000?) subject to satisfactory financial assessment and subject to one job at a time till firm’s performance proven with Public Works.’

The report continued with a notation for Lyn Worsley to ‘arrange financial report’ and a reference to the ‘Manager Contracts’.

41 On 2 May 1994 Mr Barry as the Manager Contracts endorsed the following handwritten note on the bottom of Mr Eden’s report of 14 March 1994, namely:

‘I don’t agree- This assessment is made Presumably on the basis that one successfull (sic) job (a simple pipelaying job) has been completed – all other jobs are less than $.25m’

42 On 6 April 1994 the Department wrote to the applicant inviting the applicant’s bank to submit information in respect of the applicant’s financial standing. Such information was provided by Advance Bank Australia Limited to the Department on 15 April 1994. In addition, on 19 April 1994 the applicant’s accountants submitted a set of financial statements to the Department. These disclosed net assets of $34,248.37 as at 31 December 1993 and an operating profit for the period 1 July – 31 December 1993 of $36,314.98 on a turnover of $504,155.23.

43 On 3 and 4 May 1994 a number of officers within the Department signed off on a Panel of Assessors’ Agenda item in relation to two Eden companies, namely the present applicant, Eden Construction Pty Limited ACN 054 090 372, and Eden Constructions Pty Limited ACN 008 508 129. No reference was made in that Agenda item to Eden Constructions (NSW) Pty Limited ACN 002 800 544.

The agenda item document was headed:

‘CONTRACTOR: EDEN CONSTRUCTIONS PTY LTD (ACN008 508 129)

CONTRACT: NORAH HEAD OUTFALL ROCK EXCAVATION CONTRACT’

It comprised one section headed ‘BACKGROUND’ and another headed ‘RECOMMENDATION’. It provided:

‘BACKGROUND

1/ Eden Constructions P/L (ACN 008 508 129) of 14 Murray Street Queanbeyan, had as directors, Cesare and Immacolata Filardo.

2/ A liquidator was appointed to Eden Constructions P/L on 18/9/92.

3/ The Contractor was listed on 3/9/93 on the Contractors & Consultant’s Review List because of a debt owed to Public Works following litigation.

4/ Eden Construction P/l (ACN 054 090 372), with registered address 4/4 Gladstone Street Castle Hill NSW, with directors Antonio Grazetto Filardo and Antonio Guiseppe Pisano had not previously done business with Public Works.

5/ Eden Construction P/L has now moved to the address previously occupied by Eden Constructions P/L at Queanbeyan and the directors are now Antonio Filardo and Ralph Filardo. Cesario Filardo is employed as the project manager.

6/ On 7/1/94 one of Eden Constructions P/L two ex-directors, Ces Filardo, reached agreement with the Manager Contracts to facilitate the application of Eden Construction P/L as a registered tenderer with Public Works. (Letter of agreement between Eden Construction P/L (ACN 054 090 372) is attached.

7/ Manager Corporate Finance on 21/4/94 assessed the financial capacity of Eden Construction P/L as sufficient for one contract at a time valued up to $250,000.

8/ To ensure that Eden Construction P/L comply with their part of the agreement of 7/1/94:

* The Eden Constructions Pty Ltd ACN 008 508 129 listing should be retained on the Review List but changed from a business to a financial category; and

* Eden Construction Pty Ltd ACN 054 090 372 should be added to the Review List because of business reasons, until Eden Construction P/L has satisfied all of their obligations under the agreement due on or before 31 August 1995.

RECOMMENDATION

1/ The Eden Constructions Pty Ltd (ACN 008 508 129) listing on the Contractors & Consultants Review List category be changed from business to financial and the company listing be retained until deregistered.

2/ Eden Construction Pty Ltd (ACN 054 090 372) be permitted to tender for work valued below $250,000 and be included on the Contractors & Consultants Review List under a business category until the company has met all of the company’s obligations under the agreement with Public Works of 7/1/94.’

44 It would appear that the agenda item was duly considered at a meeting of the ‘Selective Tendering Panel of Assessors’ within the Department held on 4 May 1994.

45 The Panel of Assessors would appear to have comprised Mr E Shestovsky as Chairman, Mr Barry as Manager Contracts, Mr H Ruckert as Inspecting Engineer and Mr C Crundwell as Inspecting Architect. The meeting appears to have reviewed the performance of five companies including Eden Constructions Pty Limited ACN 008 508 129 and also the applicant. The recommendation of the Panel of Assessors in respect of Eden Constructions Pty Limited ACN 008 508 129 was ‘Retain on the Review List, change from business to financial category’. In respect of the applicant the recommendation was ‘Add to Review List under business category, letter to be sent’.

46 The recommendations of the Panel of Assessors would appear to have been submitted to Mr M J Hannon, the Director Asset Management & Construction Policy within the Department who, by his signature on 6 May 1994, appears to have accepted the Panel of Assessors’ recommendations.

47 In accordance with the Panel of Assessors’ recommendation in respect of the applicant a letter was sent by Mr Shestovsky as the Acting Manager Construction, Asset Management & Construction Policy Division of the Department to the applicant on 9 May 1994. That letter provided as follows:

‘ Re: Norah Head Contract

I refer to the agreement reached between Eden Construction Pty. Ltd. and Public Works on 7 January, 1994 and your letter of 4 March, 1994 seeking registration as a Public Works Contractor.

Based on the technical and financial information provided by Eden Construction Pty. Ltd. indicating its capacity to successfully complete contracts, Public Works is prepared to accept tenders from this Company to a limit of $250,000.

Once Eden Construction Pty. Ltd. has demonstrated its capacity to carry out works under contract at this level then consideration will be given to a reassessment of this limit, based on the company’s performance record and financial position at that time.’
48The 2 May 1994 observation of Mr Barry as the Manager, Contracts within the Department needs to be viewed in the light of Mr John Eden’s Technical Report for the Asset Management & Construction Policy Division of the Department. The reported comment of Mr Les Crossman that ‘firm [referring to the applicant – a company which had only been registered on 28 October 1991] had some difficulty with cash flow’, coupled with the financial position of the applicant as at 31 December 1993, as disclosed to the Department by the applicant, clearly entitled the Department to take a cautious and conservative approach towards the ability of the applicant to undertake major contracts at that stage.
49The Department’s decision of 6 May 1994 to permit the applicant to tender for work valued below $250,000 in the first instance and to place the applicant on the Department’s ‘Contractors & Consultants Review List’ under a ‘business’ category until all of ‘Eden’s’ obligations under the 7 January 1994 agreement had been met, was fully justified and consistent with prudential management of the Department’s affairs. The observation in the last paragraph of the Department’s letter to the applicant of 9 May 1994 was, in my opinion, fair and reasonable.
50Neither Mr Barry’s note of 2 May 1994 nor Mr Hannon’s acceptance on 6 May 1994 of the Panel of Assessors’ recommendations constituted a breach by the respondent of clause 4 of the agreement of 7 January 1994.

Mr Shestovsky’s letter to the applicant of 9 May 1994 is reflective of a fulfilment by the respondent of its obligations under clause 4 of the 7 January 1994 agreement. It is hardly consistent with the applicant’s allegation that the respondent breached the 7 January 1994 agreement on or about 2 May 1994 and again on or about 6 May 1994.

51 On 17 May 1994 the applicant forwarded a cheque for $4,783.61 to the Crown Solicitor for the respondent. The cheque, drawn on an account of the applicant at the 60 Marcus Clarke Street, Canberra City branch of Advance Bank Australia Limited, was accompanied by a note from Mr Filardo reading:

‘This is the balance of payment of $50,000.00 owed to the P.W.D. as result of our meeting on 7/1/94 in Stephen Hibbert’s office at Allen’s.

I would be very greatful (sic) if you could ring Tony Barry by phone to acknowledge the cheque so that the bank guarantee can be released’

52 For present purposes it is unnecessary to trace the history of the applicant and the Department over the ensuing four years. It is, however, appropriate to note the terms of a memorandum issued by the then Premier of New South Wales on 13 November 1991 to all of the respondent’s Ministers in relation to the letting of government contracts. The memorandum (TM91/7) was headed ‘Reform of the Capital Works Planning and Implementation Process in NSW’. The revised procedure for capital works planning and implementation was recorded in an attached paper. All Ministers were requested to ‘ensure that all agencies under their administration are informed of the new arrangements’.

53 The Premier’s memorandum continued:

‘The requirement to use Public Works Department for the private sector interface role will apply to all agencies (expect (sic) those exempted in the attachment [Local Government Councils were not the subject of an exemption]).’

54 The private sector interface role of the Department was to take effect from 1 January 1992. All Ministers were requested to require ‘all agencies under your responsibility to review their Capital Works Strategic Plan and planning processes to ensure conformity with the approach set out in the attached paper’.

55 Under the heading ‘KEY ISSUES’ the attached paper provided:

‘There are a number of issues that flow from the review of the Public Works Department and the forthcoming Royal Commission report that need to be addressed.
...
• the role of Public Works Department:

Public Works Department clearly has the expertise and experience to handle the interface with the Property/Building and Construction Industry, although it will need to train additional personnel in issues such as risk allocation to handle an increased emphasis in this area. From the point of the State’s overall interests, it makes sense for this to occur. However, it is necessary to provide agencies with the choice in those parts of the contracting and project management process that are open to competition, in addition to ensuring that there is a benchmark for PWD’s performance. It is also essential that the role of Public Works be defined as serving the needs of the client and in this regard acting as an extension of agencies’ corporate support function.
...’

56 The attached paper also included a ‘SUMMARY OF REFORMS’ which contained the following:

‘The reforms to the capital works, planning and management process cover the following:-

Budget Sector and Nominated Non Budget Sector Agencies
...

2. Appointment of Public Works Department to undertake in conjunction with client agencies the private sector interface role for all Budget sector and nominated non Budget sector Agencies (including PSG), for capital works over $500,000, (including those funded by the private sector and those associated with property development) on a fee-for-service basis.

In this interface role, Public Works will act as an arm of its client, directly advising CEO’s and their Ministers on capital works procurement issues.
...’

57 On 23 September 1994 Mr Filardo, as the applicant’s ‘Project Manager’, wrote a letter to the Department under the heading ‘Pre-Qualification Criteria for Civil Contracts’. In the letter he wrote:

‘Our understanding of the agreement on 7th January 1994 was that we would pay the Department the sum of $50,000.00 for an end to our differences and that the Department in return would allow us to tender for work. We thought and reasonably expected that projects within $1.0M to $2.0M would be within our grasp.

Mr Barry during negotiations and prior to agreeing to our payment pf (sic) $50,000.00 undertook to investigate and consider our tender for Moss Vale Sewerage Augmentation [a Wingecarribee contract], worth under $3.0M. This was a personal undertaking by Mr Barry to the effect, "Leave it with me Ces. If things have not progressed too far with Moss Vale, I’ll see what I can do for you". This was in the context of our mutual understanding that Eden Construction was the lowest tenderer for the Moss Vale project.
...

We point out, with the greatest respect, that if we knew that we are not to be allowed to tender for projects of similar size such as the Ginninderra Trunk sewer, i.e. around the $1.0M, we would have never agreed to pay $50,000.00 to the Department. It was the premise (sic) of continuing meaningful work that would enable us to recover the $50,000.00 settlement monies, all we wanted was a fair opportunity to restore our financial position through a mutually beneficial work relationship (all other things being equal).

Briefly, recapping Norah Head, we were correct in asserting that we had not been paid our June 87 payment. As a result we were wrongfully drawn into dispute. We were also correct about the amount of work being more than double that documented. As we were wrongly punished by the events as they unfolded, it is distressing that for the third time around, we are now discriminated against and denied the opportunity to offer our services in a meaningful way to the community.

A resume of the Company’s performances was provided, which included projects ranging from $716,000.00 to $265,000.00, plus a number of other minor projects carried out concurrently. We also made the Department and Mr Barry aware that the company is pre-qualified with the A.C.T. Local Government Department namely Electricity & Water for projects up to $1.0M. We provided a copy of Eden’s Quality Assurance Manual.

The Department’s letter dated 9th May 1994 is in stark contrast to the spirit and basis of the agreement of 7th January 1994. It is also worth noting that such assessment came into being apparently to deny us the job at Dora Creek, and to justify once again the Department’s rejection of our just entitlement to tender for such projects.

It appears from discussions with Mr Barry that the Department is excerting (sic) the same routine discrimination as levelled against us in the Tomago Sewerage Dispute. We believe based upon recent past events, that our effort to carry on a normal contracting business are still frustrated despite the January 7th agreement and payment in full of $50,000.00 to the Department.

Should that be the case, as it clearly appears from an independent observer’s point of view, then, the Department is in breach of an undertaking for which consideration was received from Eden. We wish to have this rectified in a manner to reflect and enable us to tender for projects similar at least to the ones we carried out in 1992, for the A.C.T. Public Works & Services.

Furthermore the C.I.D.A. criteria adopted nation wide was used to pre-qualify us for projects up to $1.0M with the A.C.T. Electricity & Water. We are led to believe that similar criteria are going to be accepted and used by other Government Departments for which we have registered an interest in pre-qualification.

As we remain determined to survive as a contractual organisation and perform creditably we ask for your early response.

Alternatively we would be happy to meet with you to discuss the overall issue of our eligibility for equal treatment by N.S.W. working Authorities.’

58 This letter from the applicant to the Department elicited a response from the Department in the form of a letter from Mr Alan Griffin, the Director of the Department’s Policy Division, of 13 October 1994. In that letter Mr Griffin wrote under the heading ‘Re: Prequalification Criteria for Civil Contracts’:

‘...

The quotation ascribed in your letter to Mr Barry in relation to your company’s tender for the Moss Vale Treatment works is not precisely correct. Mr Barry did undertake to ensure that your company’s tender for the Moss Vale Treatment Works would, provided a decision had not been reached, be considered in light of the 7 January 1994 agreement i.e. it would be considered subject to normal NSW Public Works requirements for the review of tenders. These requirements include an examination of the tenderers financial and technical capacity to carry out the works. In the case of Moss Vale your tender was 33% less than the estimate for the work and some 27% below the accepted tender. Your tender showed a serious misunderstanding of the requirements and scope of the specification.
...

NSW Public Works have no pre-registration requirement for civil works other than for Water & Sewerage Treatment Plants. However to prevent your company needlessly preparing tenders which could be unacceptable in terms of NSW Public Works tender assessment criteria, you were invited to submit financial and technical information in relation to your company for review.

Your company’s financial and technical capacity to contract with NSW Public Works has been reviewed on the information supplied by you as agreed in point 4 of the 7 January, 1994 agreement, in accordance with NSW Public Works usual tender assessment criteria.

The results of this review were communicated to you by letter of 9 May, 1994 which determined that your company was acceptable to undertake Public Works contracts up to $250,000.

Your allegation in relation to the generation of this letter of 9 May, 1994 to deny your company "the job at Dora Creek" is spurious and denied. I am satisfied there is no evidence of any discrimination being applied to your company by Mr Barry or any other officer in NSW Public Works.

Should the information provided by your company on which the 9 May, 1994 determination was made be significantly different at this point in time, then a reassessment of your company’s capacity to contract with NSW Public Works may be requested.’

59 Whilst Mr Barry swore an affidavit, it was not, in the end result, read by the respondent on the present hearing.

60 It is appropriate to note that no collateral contract has been pleaded by the applicant in respect of the award of a contract for the Moss Vale sewerage augmentation works, a breach of which by the respondent is said to have occurred. Clause 4 of the 7 January 1994 agreement provided no basis for the thoughts and expectations of the applicant referred to in its letter of 23 September 1994, namely

‘We thought and reasonably expected that projects within $1.0M to $2.0M would be within our grasp.’

and

‘We point out ... that if we knew that we are not to be allowed to tender for projects of similar size such as the Ginninderra Trunk sewer, i.e. around the $1.0M, we would have never agreed to pay $50,000.00 to the Department. It was the premise (sic) of continuing meaningful work that would enable us to recover the $50,000.00 settlement monies, all we wanted was a fair opportunity to restore our financial position through a mutually beneficial work relationship (all other things being equal).’
61Plainly, Mr Filardo proceeded under the misconception that the applicant was synonymous with every Eden organisation that had ever had any dealings with the Department and that its financial standing could be ignored.

62 On 6 July 1995 the ACT government issued a pre-qualification certification to the applicant which was valid until 30 September 1995 relating to the following fields of work:

‘Contractor – Civil
to ACT Department of Urban Services
Suppliers Code CC – 1.0’

63 On 4 December 1996 the ACT government issued a further pre-qualification certificate to the applicant which was valid until 30 November 1997 relating to the same fields of work.

64 On 17 February 1998 the Australian Capital Territory Department of Urban Services wrote to the applicant under the heading ‘PRE-QUALIFICATION FOR CAPITAL WORKS WITH THE ACT GOVERNMENT’ as follows:

‘You will be aware that pre-qualification is required for contractors engaged in work whose project value exceeds prescribed monetary thresholds.

Please be advised that pre-qualification certification for contracting services is being renewed in respect of your firm’s Queanbeyan street address. A certificate to this effect is enclosed, which qualifies you to tender for any value of work "up to $1,000,000" in the prescribed work type category CC to 31 May 1998.’

The letter was accompanied by a ‘pre-qualification certificate’ in similar terms to that originally issued on 6 July 1995.

The Kremur Street Pumping Station contract

65 On 28 January 1998 the applicant, therein referred to as ‘Eden Constructions (sic) Pty Ltd’ entered into an agreement with Albury City Council for the construction of a Kremur Street Pumping Station and all associated mechanical and electrical work for a lump sum price of $2,214,718.46. The contract was signed on behalf of the applicant by Mr Filardo. It is voluminous, to say the least, the Specification (Volume 1) comprising almost 300 pages. The Standard Technical Specifications and Electrical Installations Minimum Requirements (Volume 2), Drawings (Volume 3) and the Geotechnical Report (Volume 4) have not been included in the material which is before the Court.

66 Sections 3 to 23 of the Specification were referred to in the Table of Contents as the ‘TECHNICAL SPECIFICATION’. Section 3 entitled ‘GENERAL’ included a short summary of the ‘SCOPE OF WORKS’ as follows:

‘3.1 SCOPE OF WORKS

The works under this Contract include the supply and delivery of all materials, plant, equipment and labour required for the construction, testing and commissioning of the works in accordance with the requirements of this Specification and as shown on the Drawings.

The main items of the work include, but are not limited to the following:

Kremur St. Pumping Station
• site clearing and earthworks;
• structure housing the pump station and electrical switchroom;
• pits and pipework;
• design, supply and install all mechanical and electrical equipment;
• testing of structures and equipment;
• provision of operation and maintenance manuals for equipment;
• training of personnel;
• commissioning of works.’

67 Clause 3.6 of Section 3 dealt with ‘WITNESS AND HOLD POINTS’. It nominated hold points and witness points for concrete construction, earthworks, pipeline construction, clearing of work area, metalwork, joint sealant, electrical, mechanical, building work and commissioning. Relevantly in relation to concrete construction it provided as follows:

‘3.6 WITNESS AND HOLD POINTS

A "witness point" shall mean a point in the construction or verification process at which an activity is to be observed by the Superintendent. Twenty four (24) hours notice is required to be given by the Contractor for a witness point.

A "hold point" shall mean a point in the construction or verification process beyond which the work may not proceed without the authorisation of the Superintendent.

The Superintendent may, without penalty, convert hold points to witness points on a temporary or permanent basis.

The hold points and witness points shall include the following:-

(a) CONCRETE CONSTRUCTION
Inspection of concrete batching - witness point

Trial concrete mix - witness point

Inspection of reinforcement and formwork - hold point

Placing of concrete - hold point

Inspection of Contractor’s concrete tolerances and
irregularities measurement record after stripping of
formwork - witness point

Water tightness testing - hold point’


In section 4.10.3 of Australian Standard AS 3905.2: 1997 reference is made to the significance of witness and hold points. Inter alia, the standard provided:

‘Witness points provide the customer or nominated authority with the opportunity to watch or inspect a stage of the work for which it may be difficult to obtain timely conclusive quality evidence.

Where a hold point has been identified, consideration should be given to also identifying in the ITP the procedures to be adopted if release of a product under positive recall is to be allowed.’

68 In clause 2 of the ‘GENERAL CONDITIONS OF CONTRACT (AS AMENDED)’ a definition was provided for ‘Practical Completion’ as follows:

‘In the Contract, except where the context otherwise requires –
...

"Practical Completion" is that stage in the execution of the work under the Contract when –

(a) the Works are complete except for minor omissions and minor defects-
(i) which do not prevent the Works from being reasonably capable of being used for their intended purpose, and

(ii) in relation to which the Superintendent determines that the Contractor has reasonable grounds for not promptly rectifying them, and

(iii) rectification of which will not prejudice the convenient use of the Works, and

(b) those tests which are required by the Contract to be carried out and passed before the Works reach Practical Completion have been carried out and passed, and
(c) documents and other information required under the Contract which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied;
...’

69 In relation to practical completion, clause 42.5 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) made provision for the Superintendent under the contract to give to the contractor and to the principal a certificate of practical completion. In relation to the giving of such a certificate and the effect thereof clauses 42.5 and 42.6 provided as follows:

‘42.5 Certificate of Practical Completion.

The Contractor shall give the Superintendent 14 days notice of the date upon which the Contractor anticipates that Practical Completion will be reached.

When the Contractor is of the opinion that Practical Completion has been reached, the Contractor shall in writing request the Superintendent to issue a Certificate of Practical Completion. Within 14 days of the receipt of the request the Superintendent shall give to the Contractor and to the Principal a Certificate of Practical Completion stating the Date of Practical Completion or give the Contractor in writing the reasons for not issuing the Certificate.

42.6 Effect of Certificates.

The issue of a payment certificate or a Certificate of Practical Completion shall not constitute approval of any work or other matter nor shall it prejudice any claim by the Principal.’

70 It would appear that on 29 April 1999 a certificate of practical completion was issued to the applicant. Mr Liu’s Contractor Performance Report of 7 May 1999 certainly refers to 29 April 1999 as the ‘Date of Practical Completion’. The original certificate was replaced by a further certificate stating the date of practical completion as 10 March 1999. The reissued replacement certificate was prepared for signature by the Superintendent by Mr Liu as the Superintendent’s Representative who on 3 September 1999 recommended the issue of the revised certificate.

71 In an office memorandum to the Director, City Services of the Albury City Council of 2 June 1999 reference was made to Mr Liu’s assessment of 29 April 1999 as the date of practical completion. It also referred to the applicant’s claim in a letter of 12 May 1999 that the works were ‘fit for intended purpose’ from 9 March 1999. The author of the office memorandum, Mr D L McGregor, the Council’s Manager, Asset Design Services, noted that ‘pumping to and hence commissioning of the Waterview Treatment Plant commenced on 10 March 1999’. His recommendation was expressed as follows:

‘I believe that ... we would only be able to sustain an application of liquidated damages for the period from the Amended Date for Practical Completion [23 February 1999] ... to the time at which the pump station became operational; that is the period from 23 February 1999 to 9 March 1999 ...’

72 On 3 June 1999 the Superintendent under the contract wrote to the applicant noting the applicant’s claim that the works were ‘fit for intended purpose’ from 9 March 1999, given that pumping to the Waterview Treatment Plant commenced on 10 March 1999. The Superintendent continued:

‘... I am prepared to accept that the Date of Practical Completion was 10 March 1999.

In making this determination I am mindful that under the Contract, the works are subject to Practical Completion only after the successful completion of tests (Clause 2.b) and the provision of documents required for the use of the works (Clause 2.C) and that these matters were not concluded until 29 April 1999.’

73 Subsequently to the Superintendent’s determination the applicant notified the Council by letter dated 12 July 1999 that ‘a difference or disagreement has arisen’. In a letter to the Department of 29 August 2000 the Contract Superintendent, Mr McLennan of the Council, asserted that the ‘subsequent agreement to issue a revised Certificate of Practical Completion was ... based entirely on a need to resolve the dispute with’ the applicant.

74 This attribution of a reason is somewhat difficult to comprehend given that the relevant determination that the Date of Practical Completion was 10 March 1999 was made by the Superintendent on 3 June 1999.

75 Clause 23 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) dealt with the appointment by Albury City Council of a Superintendent. It provided as follows:

‘23 SUPERINTENDENT.

The Principal shall ensure that at all times there is a Superintendent. and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent

(a) acts honestly and fairly;

(b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time;

(c) arrives at a reasonable measure or value of work, quantities or time.

The Principal and the Contractor acknowledge that in the exercise of the functions of the Superintendent involving the giving of a certificate, decision or determination, the Superintendent must act impartially in accordance with the provisions of the Contract.

If, pursuant to a provision of the Contract enabling the Superintendent to give directions, the Superintendent gives a direction, the Contractor shall comply with the direction.

In Clause 23 "direction" includes agreement, approval, authorisation, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement.

Except where the Contract otherwise provides, a direction may be given orally but the Superintendent shall as soon as practicable confirm it in writing.

If the Contractor in writing requests the Superintendent to confirm an oral direction, the Contractor shall not be bound to comply with the direction until the Superintendent confirms it in writing.’

[It is common ground that the tender documents for the contract provided for the deletion of the words which have been ruled out and for the insertion of the words which are in normal type (expressed in italics in the original), otherwise the relevant clause was expressed in standard terms]

76 The GENERAL CONDITIONS OF CONTRACT (AS AMENDED) conferred extensive powers on the Superintendent and, accordingly, the Superintendent’s Representative to give directions within the meaning of clause 23 to the Contractor. These included directions to remove persons employed in connection with the work, who were considered to be guilty of misconduct or to be incompetent or negligent, from the site; approval for work to commence and materials to be delivered; directions to refrain from removing constructional plant or materials from the site; directions to the Contractor to supply particulars of the manufacture and source of supply of materials etc. Importantly, clause 30.2 provided as follows:

‘30.2 Defective Materials or Work.

If the Superintendent discovers material or work which is not in accordance with the Contract, the Superintendent may direct the Contractor to-

(a) remove the material from the Site;
(b) demolish the work;
(c) reconstruct, replace or correct the material or work; or
(d) not to deliver the material or work to the Site.

The Superintendent may direct the times within which the Contractor must commence and complete the removal, demolition, replacement or correction.’

77 Clause 30 also made provision for the acceptance of defective material or work and for related considerations as follows:

‘30.4 Acceptance of Defective Material or Work.

Instead of a direction under Clause 30.2 or 30.3, the Superintendent may notify the Contractor that the Principal elects to accept the material or work notwithstanding that it is not in accordance with the Contract. In that event the resulting increase or decrease in the value to the Principal of the Works and any other loss suffered by the Principal shall be valued under Clause 40.2.

30.5 Generally

The Superintendent shall give either a direction under Clause 30.2 or 30.3 or a notice under Clause 30.4 as soon as practicable after the Superintendent becomes aware that material or work is not in accordance with the Contract. The Superintendent may give the direction or notice at any time before the issue of the Final Payment Certificate under Clause 42.8.

Except to the extent that to do so would be inconsistent with a direction under Clause 30.3 or a notice under Clause 30.4 and notwithstanding that the Superintendent has not given a direction under Clause 30.2, the Contractor shall promptly remove, demolish, replace or correct material or work that is not in accordance with the Contract.

A progress payment, test or failure by the Superintendent or anyone else to disapprove any material or work shall not prejudice the power of the Superintendent to subsequently give a direction under Clause 30.2 or 30.3 or a notice under Clause 30.4.

Nothing in Clause 30 shall prejudice any other right which the Principal may have against the Contractor arising out of the failure of the Contractor to provide material or work in accordance with the Contract.

The Superintendent shall not be obliged to give a direction under Clause 30.3 or a notice under Clause 30.4 to assist the Contractor.’

78 The contract made provision in clause 24 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) for the appointment of a Superintendent’s Representative. That clause provided:

‘24 SUPERINTENDENT’S REPRESENTATIVE.

The Superintendent may from time to time appoint individuals to exercise any functions of the Superintendent under the Contract but not more than one Superintendent’s Representative shall be delegated the same function at the same time. The appointment of a Superintendent’s Representative shall not prevent the Superintendent from exercising any function.

The Superintendent shall forthwith notify the Contractor in writing of:
- the appointment and the name of any Superintendent’s Representative and the functions delegated to the Superintendent’s Representative;

- the termination of the appointment of a Superintendent’s Representative.
If the Contractor makes a reasonable objection to the appointment, the Superintendent shall terminate the appointment.’

79 In clause 2 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) the expressions ‘Superintendent’ and ‘Superintendent’s Representative’ were defined as follows:

‘2 INTERPRETATION

In the Contract, except where the context otherwise requires –
...

"Superintendent" means the person named in the Annexure as the Superintendent or other person from time to time appointed in writing by the Principal to be the Superintendent and notified as such in writing to the Contractor by the Principal and, so far as concerns the functions exerciseable by a Superintendent’s Representative, includes a Superintendent’s Representative;

"Superintendent’s Representative" means a person appointed in writing by the Superintendent under Clause 24;
...’

80 In ANNEXURE PART A to the GENERAL CONDITIONS OF CONTRACT The Superintendent was identified as ‘The Director of City Services, Albury City Council’.

81 In a letter dated 28 January 1998 to the applicant advising it that the Council had accepted the applicant’s tender for the Kremur Street Pumping Station works, the Director of City Services identified the Superintendent’s ‘nominated’ Representative for the purposes of the contract in the following terms:

‘The State Public Works Department have been engaged as the Superintendent’s nominated representative. It would be appreciated if you would contact Mr Trevor Liu, Public Works, on phone (02) 6023 2193 in order to complete the necessary contract documentation as soon as is possible. The Public Works Office is located in the CWA Building adjacent to Council’s Administration Building. Please note that you are required to lodge the necessary Contract Security Sum, provide the required insurance documents and submit evidence of payment of Long Service Levy.’

82 Whilst the contract with the Albury City Council could hardly be described as a contract with the ‘Department’, it is clear that the Department took a significant role in the preparation of the documentation for the Kremur Street Pumping Station contract, in the assessment of the relevant tenders and the selection of the contractor. It is demonstrable that the Department, as the Council’s Construction Manager, permitted the applicant to tender for the Kremur Street Pumping Station works and to undertake that work. In my opinion the award of the Kremur Street Pumping Station contract to the applicant demonstrates that the respondent permitted the applicant to submit a tender to the Department which would be assessed bona fide by the Department without any closed mind being brought to bear requiring that the tender be rejected. Having done so, it could be said that it was then for the applicant to ‘stand on its own two feet’.

83 It would appear that in October 1996 an agreement had been entered into between Albury City Council and the Department in relation to the Albury Sewerage Scheme. The agreement was expressed to be one for the provision of construction management services to the Council by the Department. Under the heading ‘OVERVIEW’ the agreement provided:

‘The ACC [the Council] desires DPWS [the Department] to act as Construction Manager and provide construction management services for the Albury Sewerage Augmentation Scheme ... .’

84 The agreement was to be interpreted in conjunction with:

‘The Brief as set out in Annexure "A"
Services provided by the Construction Manager as set out in Annexure "B"
DPWS proposal – Annexure "C"
Summary Role & Responsibilities of the Project Director and the Construction Manager – Annexure "D"
Project Organisation Structure – Annexure "E"
Project Quality Plan – Annexure "F"
Project OHS & R Plan – Annexure "G"’

85 Annexure ‘B’ entitled ‘SERVICES PROVIDED BY THE CONSTRUCTION MANAGER’ included the following:

‘The Construction Manager is responsible for managing the tender process and construction, commissioning and handover of the project. Reflecting the Construction Manager’s responsibility for incorporating the Client’s requirements, liaison on the project will be between the Project Director and the Project Manager.

The main roles, duties and responsibilities of the Construction Manager are:
...

B.3 CONSTRUCTION MANAGEMENT

3.1 General
• The Client will be the Principal under all contracts.
• The Construction Manager will act as Superintendent’s Representative for all matters under AS2124-1986 except for clauses 44.6 and 46.
...
• Provide services in relation to tender assessment, contractor selection, manage site staff, contract administration, quality assurance, OHS&R, recommendations on claims, preliminary advice on disputes, revise estimates, and reporting.
...’

86 In Annexure ‘C’ to the agreement between the Council and the Department clause 4.2 under the heading ‘EXPERIENCE AND CAPABILITY’ provided:

‘4.2 Proposed Construction Management Team

The key personnel to provide the Construction Management Services are:-

Peter Grove – Project Manager
Trevor Liu – Site Engineer
Albert (Pud) Williams – Works Supervisor
...’

87 The Council’s letter of 28 January 1998 became part of the contract between the Council and the applicant. Clause 24 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) empowered the Superintendent to appoint an ‘individual’ to serve as the Superintendent’s Representative. It is arguable that the applicant acquiesced in the nomination of the Department (the relevant legal personality being the respondent) as the Superintendent’s Representative, the Department’s obligations being discharged by Mr Trevor Liu. Alternatively, it can be argued that the requirement that an ‘individual’ be appointed leads to the conclusion that it was Mr Liu personally who became the Superintendent’s Representative. Mr John Ellwood, the Council’s Chief Engineer, certainly so understood that to be Mr Liu’s position. At a pre-contract meeting with Messrs Filardo and Densley from the applicant and Mr Johnson and himself from the Council on 18 December 1997, Mr Ellwood tabled an apology from Mr Liu who was described as the ‘Superintendent’s Representitive (sic) from the State Public Works Department’.

88 A file note, prepared by Colin Johnson, an Engineering Designer with the Albury City Council, of 24 December 1997 minuted certain aspects of the meeting between Mr Malcolm Densley, the applicant’s Engineer, and Mr Filardo with Mr Ellwood and Mr Johnson of the Council on 18 December 1997. That file note included a reference to Mr Ellwood tabling ‘apologies for Daryl McGregor, Project Manager [with the Council] and Trevor Lui (sic), Superintendent’s Representative from the State Public Works Department’.

89 The file note also referred to discussion on the disposal of surplus excavated material. The file note suggests that the applicant queried what to do with the excavated material (approximately 2,000 m3). The note continued ‘John [referring to Mr Ellwood of the Council] indicated that Eden to take this up with Trevor Lui (sic)’. In the ‘Responsibility’ column against the item, reference was made to ‘Eden Construction & Trevor Lui (sic)’.

90 When cross-examined about his knowledge of the appointment of a Superintendent’s Representative under the contract, the relevant functions having been entrusted to Mr Liu in December 1997, Mr Filardo at first disputed that any mention had been made of Mr Liu’s intended involvement in the contract at the meeting on 18 December 1997. After having his attention drawn to the note of the discussion concerning surplus excavated material, Mr Filardo backed away from his earlier denial that Mr Ellwood had tendered the apologies of Mr Liu for his non-attendance at the meeting on 18 December 1997.

91 Mr Ellwood proceeded to prepare the Council’s letter of 28 January 1998 for Mr McLennan, the Council’s Director of City Services, to sign.

92 Given the functions which the Superintendent’s Representative may perform, the idea that a State may give instructions, authorisations, permissions, rejections with which a contractor may be expected to comply on a ‘jump’ – ‘how high?’ basis, leads me to conclude that Mr Liu, personally, was, until removed, the Superintendent’s Representative for the purposes of the contract between the applicant and the Council for the construction of the Kremur Street Pumping Station. Mr Liu certainly dealt with the Council throughout as the Superintendent’s Representative; for example, on 10 March 1998 he issued Payment Certificate – Valuation No. 1 to the Principal signing same as ‘Superintendent’s Representative’. There was never any demur from the Council or the applicant.

93 It is apparent that the Director of City Services, Albury City Council, could have appointed different individuals to discharge different discrete functions of the Superintendent under the contract as the Superintendent’s Representative. However, he chose not to do so. In the notification of Mr Liu’s appointment, no limitations were imposed upon the functions which were delegated to him such as those contemplated by clause 3.1 of Annexure B to the October 1996 agreement between the Council and the Department. I would conclude that Mr Liu was empowered to exercise all of the functions of the Superintendent under the contract, except where the contract between the applicant and the Council may have expressly provided otherwise. Any limitations upon the authority of Mr Liu springing from the October 1996 agreement between the Albury City Council and the Department could not qualify the rights and obligations of the applicant in terms of its dealings with Mr Liu as the Superintendent’s Representative.

94 Neither Mr Kevin Ellison, who performed the role of Construction Superintendent and was based in Wagga, nor Mr Peter Grove, a civil engineer who served as the Department’s Project Manager and was also based in Wagga, nor Mr Albert Williams, who served as the Department’s Works Supervisor on site in Albury with responsibilities for surveillance on about four Council sewerage projects in 1998-9 including the Kremur Street Pumping Station, could give directions to the applicant as the Superintendent’s Representative. Furthermore, they were without power to direct Mr Liu as to the manner in which he should discharge his functions in relation to the giving of certificates, and the making of decisions or determinations as the Superintendent’s Representative. When Mr Liu was on leave, Mr Grove apparently acted in the position of Superintendent’s Representative. Mr Liu says that he delegated the function of signing off checklists of work to be performed under the contract to Mr Williams, but exercised this power himself in Mr Williams’s absence. Mr Grove says that he had no role to perform under the contract even though within the Department, he was responsible for supervising Mr Liu.

95 No objection was made by the applicant to the appointment of the Superintendent’s Representative in accordance with clause 24 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED).

96 Clause CT-1.01 of the Conditions of Tendering for the Kremur Street Pumping Station works relevantly provided as follows:

‘CT-1.01 CODE OF PRACTICE AND CODE OF TENDERING

All Tenderers must comply with the NSW Government Code of Practice and Code of Tendering for the Construction Industry, July 1996 Edition. Lodgement of a tender will be evidence of the Tenderer’s agreement to comply with the Codes for the duration of any contract that may be awarded. If any Tenderer fails to comply, the failure may be taken into account by the Principal when considering this or any subsequent tender by the Tenderer and may result in such tender being passed over.
...’

Whilst the Conditions of Tendering were annexed to the contract as executed and included in Volume No. 1, they also included the following words:

‘The Conditions of Tendering section will not form part of the Contract.’

97 The GENERAL CONDITIONS OF CONTRACT (AS AMENDED) made provision in clause 40 for ‘VARIATIONS’, in clause 44 for, amongst other things, ‘Default by the Contractor’ and in clause 46 for ‘CLAIMS GENERALLY AND DISPUTES’. For present purposes it is not necessary to detail the relevant provisions.

98 Whilst it may only be of peripheral relevance, it may be noted that in the agreement for construction management services between the Council and the Department of October 1996 certain limits were placed upon the Department’s authority as follows:

‘5. LIMITS OF AUTHORITY
5.1 General
Without the prior written approval of the Client, the Construction Manager will not:
1. Give any direction which may involve the Client in expenditure additional to that for which the Client would be liable in the absence of the direction;
2. Purport to vary a contract or to waive a right of the Principal;
3. Accept defective work or permit omissions.
...

5.4 Variations
For the purposes of administering the contract D.P.W.S’s authority limits for variations regarding the scope and budget are:
• variations in price - $40,000 or 10% of the contract value, on any single variation.
• extensions of time claims up to 26 weeks, other than wet weather where there is no limit or approval.’

99 In ‘SECTION 8 – BUILDING WORKS’ the contract between the applicant and Albury City Council provided in respect of finishes, that the walls of the Kremur Street Pumping Station should be concrete with a finish described as ‘F3’ in accordance with Section 6. One issue in relation to the Kremur Street Pumping Station was whether the finish for the relevant off-form concrete was varied from an ‘F3’ finish to an ‘F2’ finish.

100 In ‘SECTION 6 – CONCRETE’ the contract provided under the heading ‘REQUIREMENTS’:

‘REQUIREMENTS
All concrete shall comply with the requirements of this clause, the Drawings and Section TR2.’

In relation to ‘FORMED SURFACES FINISH’ the Department of Public Works and Services had issued a 23 page document with a Revision Date of 17 July 1995 described as ‘SECTION TR2 CONCRETE (CIVIL WORKS)’. Mr Liu opined that ‘TR’ was a reference to ‘technical requirements’. In clause 1 of that section the following, inter alia, appeared:

‘1.1 CONTENTS

OUTLINE: This Section sets out the technical requirements, for the supply of concrete, mortar and grout, and the construction of marine and liquid-retaining structures.

1.2 MANUFACTURE QUALITY SYSTEM

STANDARD: To AS 9002 and as referenced below.
...’
101Australian Standard AS 9002: 1994 was entitled ‘Quality systems – Model for quality assurance in production, installation and servicing’. It dealt with those elements of quality systems which give the customer confidence that the supplier will deliver what the customer wants. It contains 20 requirement clauses which cover the full process of developing a project or part of a project from design through to servicing. Australian Standard AS 3905.2: 1997 is a guide to the operation of AS 9002: 1994.

Under the heading ‘4.10 Inspection and testing’ Australian Standard AS 9002: 1994 provided:

‘4.10.1 General

The supplier shall establish and maintain documented procedures for inspection and testing activities in order to verify that the specified requirements for the product are met. The required inspection and testing, and the records to be established, shall be detailed in the quality plan or documented procedures.
...’

102 Clause 6 of the Department’s ‘SECTION TR2 CONCRETE (CIVIL WORKS)’ dealt with ‘WORKMANSHIP’. In relation to ‘FORMED SURFACES FINISH’ clause 6.9 provided as follows:

‘6.9 FORMED SURFACES FINISH
REQUIREMENT: Provide one of the following classes as specified.

Class F1 – Acceptance criteria.

- Abrupt and gradual irregularities less than 25 mm.
- AS 3610 – Class 3 finish. Blowholes to Appendix B, Figures B3 (a) and (b).
- Blowhole depth less than 10 mm.

Class F2 – Acceptance criteria.

- Abrupt irregularities less than 6 mm.
- Gradual irregularities less than 12 mm.
- AS 3610 – Class 2 finish. Blowholes to Appendix B, Figures B2 (a) and (b).
- Blowhole depth less than 10 mm.

Class F3 – Acceptance criteria.

- Abrupt irregularities not accepted.
- Gradual irregularities less than 6 mm.
- AS 3610 – Class 2 finish. Blowholes to Appendix B, Figures B2 (a) and (b).
- Blowhole depth less than 6 mm.
DEFINITION: Offsets resulting from displaced or misplaced form sections, from loose knots or otherwise defective forms, to be classed as abrupt irregularities and be assessed by direct measurement.

Gradual irregularities to be measured from a straight template 1.5 metres long.

Bagged surface finish prohibited.’

The relevant cross reference to AS 3610 is a reference to Australian Standard AS 3610 Supplement 1 – 1990 reconfirmed 1995 entitled ‘Formwork for concrete – Blowhole and colour evaluation charts (Supplement to AS 3610-1990)’. The relevant figure B2 within the supplement contains photographic depictions of concrete finishes presented on a scale of 1:5 and 1:1. These photographic depictions are each identified as ‘FIGURE B2 CLASS 2 FINISH (in part)’.

103 It can be seen that an F2 finish may be provided by compliance with less stringent standards than those required for an F3 finish.

104 It is common ground that a meeting was held on 18 December 1997 to discuss certain matters in relation to the applicant’s tender for the Kremur Street Pumping Station works. As indicated above that meeting was attended by Mr Filardo, Mr Malcolm Densley, the applicant’s engineer, Mr John Ellwood, the Senior Design Engineer of the Albury City Council and Mr Colin Johnson, an Engineering Designer from the Council. The meeting took place at about 2.00 pm in an office located at Kiewa Street, Albury either in or adjacent to the Council Chambers. The applicant’s case is that the conversation included a discussion of the proposed finish for the concrete walls of the pumping station. When, according to Mr Filardo, Mr Ellwood said words to the effect, ‘We are concerned about your price for the concrete. Can you do it for that price?’ Mr Filardo says that he responded, ‘We can provide an F2 finish for that price’, whereupon Mr Johnson then said words to the effect, ‘We don’t want a super duper Taj Mahal finish for a pump station.’

105 It is said that the parties then agreed upon an F2 finish. It is common ground that the specification called for an F3 finish and this was not altered when the contract was executed. Mr Filardo acknowledges that a number of opportunities presented themselves pre-contract when, in correspondence between the parties, the applicant could have confirmed what it says was an agreed change to the specification.

106 Mr Filardo says that he simply forgot to do so and that it was a ‘mea culpa’ situation. He acknowledges that no mention of the alleged change was made in his letter to the Council of 22 December 1997, which priced some 19 variations; it was not referred to in the Council’s letter to him of 24 December 1997; he made no mention of it in his letter to the Council of 29 December 1997; the Council did not mention it in its reply of 14 January 1998 and he did not mention it in his letter of 19 January 1998 to the Council. Furthermore, no mention was made of it in the Council’s letter of 27 January 1998 nor was it raised in Mr Filardo’s reply of the same date. When Mr Filardo received the Council’s letter of 28 January 1998 advising that the Council had resolved on 3 December 1997 to accept the applicant’s tender, the claimed agreed change from an F3 finish to an F2 finish was not mentioned either, notwithstanding that mention was made of the meeting on 18 December 1997 in the following terms:

‘I refer to the meeting between Council officers and Eden Construction held on Thursday, 18 December, 1997 to clarify issues in writing and price tabled variations.

The contract sum is to be increased by a further $67,948.63 to account for items agreed in subsequent correspondence and accounts for all design amendments as tabled at the meeting of 18 December, 1997.’

107 Mr Filardo, who was then the Managing Director of the applicant, points out that the variation in the contract sum was referable to ‘all design amendments’ discussed at the meeting of 18 December 1997 rather than amendments referable to ‘finishes’, which he contends was the relevant description of a change from F3 to F2.

108 In support of the applicant’s contention that there was, at least, an oral agreement reached on a change from an F3 finish for the concrete to an F2 finish, Mr Filardo’s diary note of 18 December 1997 is instructive. It records that the meeting took place at 2.00 pm. At the time Mr Filardo was uncertain as to the spelling of Mr Johnson’s surname. He recorded it as ‘Johnston’ followed by a question mark. Under the heading ‘TOPICS’ Mr Filardo’s diary note relevantly records:

‘1. Q.A. [Quality Assurance] Council happy with our manual
2. Concrete price (Council) John is a bit concerned. Told him that an F2 finish is not a problem with our price. John agreed with F2 finish.

3. John to wait until next year before issuing letter of acceptance. No problem.

4. John said that he used to work at Wagga and would check with Mick Rudd.

5. There is a possible variation because Council wants to change the height of the floor? He’ll provide plans and we will give him a revised price. Council would be in touch. ...’
109I am satisfied that the applicant provided a copy of its then 200 page Quality Assurance manual to Mr Ellwood who flipped through it and indicated to Mr Filardo that it seemed okay, whereupon he returned it to Mr Filardo.

110 The suggestion that Mr Ellwood said words to the effect ‘We are concerned about your price. Can you do it for that price?’ at the pre-contract meeting on 18 December 1997 is somewhat perplexing as Mr Ellwood would appear to have expressed concern about the applicant’s tender price for the concrete works back in November and put the matter to rest.

111 On 18 November 1997 Mr Filardo had apparently received a telephone call from Mr Ellwood. Amongst other things Mr Ellwood sought more information in respect of the price of concrete. Mr Filardo told him that no allowances had been made for any extra joints on the walls of the concrete. His observation was that Mr Ellwood was not too worried about that.

112 Mr Filardo’s diary entry for 18 November 1997 provided, in pencil, in respect of his conversation with Mr Ellwood as follows:

‘John Ellwood rang up for more information. He could not contact Greg McTaggart for reference. He also wants confirmation for the price of concrete and the incorporation of the Addendum No 1. I told him that no allowance were made for any extra joints in the price of the concrete. He was not too worried about that. He asked whether I would have another number for Greg McTaggart at O.A.C.’

It may be observed that the diary note makes no mention of an allowance having been made by the applicant in its tender for an F2 finish.

The reference to ‘Addendum No. 1’ in Mr Filardo’s diary note is explained by a circular form of letter which emanated from the Council on 30 October 1997. Under the heading ‘RE: CONTRACT S10/97 – KREMUR STREET PUMP STATION’ the circular letter provided:

‘The following Notice to Tenderers No. 1 describes items of work as listed in Addendum No. 1 which are to be included and will form part of the tender document.

The price submitted is to allow for all work associated with the attached Addendum.’

The circular letter was accompanied by a four page document as described which dealt with ‘Additional work’, ‘Omission of Drawing from original documents’, ‘Water table’, ‘Provision for Flowmeter equipment (conduits etc)’, ‘Pre-Tender site meeting (refer Conditions of Tendering CT-4.04)’, ‘Additional pipework supply and installation’, ‘Roof stormwater discharge’ and ‘Electricity supply (refer Section 20.2(b))’.

113 On 18 November 1997 the applicant proceeded to send a letter by facsimile to the Albury City Council following the discussion between Mr Ellwood and Mr Filardo, in the following terms:

‘Thank you for your inquiry this afternoon, our tender, and in particular our pricing for the concrete works. We wish to advise you that we have scrutinised our tender worksheets and the tender documents and are happy with our price for the works.

We would also advise that the Addendum No. 1 and its contents were fully taken into account and incorporated in our price accordingly.

Trusting the above is in order.’

It may be noted, once again, that no mention was made of the applicant’s intention to provide an F2 finish for the concrete works rather than an F3 finish as required by the specification.

114 Upon a careful examination of Mr Filardo’s diary entry for 18 November 1997 with the benefit of a magnifying glass, it is apparent that part of the record of the telephone conversation between Mr Ellwood and Mr Filardo as originally made on 18 November 1997 was recorded differently from what now appears in the diary. The words ‘of the concrete. He was not too worried about that.’ appear to have taken the place of words that were formerly included in the diary note and erased. Mr Filardo concedes that he made an alteration to the text as originally recorded, but I do not consider the alteration to have any sinister overtones.

115 A tender analysis prepared on 19 November 1997 for a meeting of the Finance and Administration Committee of the Albury City Council on 24 November 1997 recommended that the applicant’s tender be accepted. Under the heading ‘TENDER ANALYSIS’ the following appeared under the subheading ‘Price’:

‘The lowest tender submitted by Eden Construction P/L in the sum of $2,214,718.46 is nearly $300,000 less than the second lowest tender submitted by Colin Joss and Company P/L in the sum of $2,514,518.00. On the basis of price the remaining tenders will not be further considered unless it is demonstrated that the lowest two (2) tenderers are not considered suitable.

In analysing the price submitted by Eden Construction P/L the break up of prices submitted for the lump sum items of work described in the schedules were consistent in comparison with other tenders submitted, with the exception of the pricing of concrete works. Eden Construction P/L have subsequently advised by fax that they have reviewed their costings for concrete works and that their lump sum price holds firm.’

116 In the light of the Council memorandum and the consideration of the applicant’s price for concrete on 18 November 1997 it seems unlikely that Mr Ellwood would again raise a concern of the Council on 18 December 1997 about the applicant’s concrete price.

117 Not only did Mr Filardo fail to take any initiative to cause what he says was an agreed change to the specified concrete finish from F3 to F2 to be incorporated into the contractual documents, at no stage did he contend, in any later correspondence, that Mr Ellwood and he had agreed on 18 December 1997 to such a change.

118 Having said that, no suggestion was put to Mr Filardo by counsel for the respondent that item 2 as recorded under the heading ‘TOPICS’ in Mr Filardo’s diary note of 18 December 1997, or indeed any of the other topics mentioned, was a matter of recent invention or recent modification or devious forward planning. There was no suggestion that the seemingly authentic reference to ‘next year’, i.e. 1998, was inserted after 1 January 1998. There was no suggestion that the reference to a prospective letter of acceptance was inserted after 28 January 1998. Counsel for the respondent did put to Mr Filardo that the diary entry was made ‘considerably later’ than 18 December 1997, but this was rejected. In later questioning by counsel for the respondent Mr Filardo said that the diary entries were made in his car immediately after the conclusion of the meeting. There was no suggestion that he was making this up. The Respondent must be taken to accept that the entry ‘Concrete price (Council) John is a bit concerned. Told him that an F2 finish is not a problem with our price. John agreed with F2 finish.’ was to all intents and purposes a contemporaneous note made by Mr Filardo shortly after the conclusion of the meeting with the Council’s representatives on 18 December 1997. I find that it was in fact made, as Mr Filardo said in his evidence, immediately after the conclusion of the meeting, in his car.

119 Mr Ellwood’s contemporaneous manuscript note made during the course of the meeting with Mr Johnson, Mr Filardo and Mr Densley on 18 December 1997 recorded that alterations would only be agreed if in writing. It made no mention of the concrete finish for which the applicant says that its tender had allowed. Equally, other matters referred to in Mr Filardo’s diary note of matters discussed at the meeting on 18 December 1997 were not recorded in Mr Ellwood’s notes. For instance, Mr Ellwood’s notes make no mention of Mick Rudd and Mr Ellwood’s previous work at Wagga yet he acknowledged that he knew a Mick Rudd and had worked with him previously at Wagga. This evidence provides verisimilitude for Mr Filardo’s diary note.

120 Counsel for the respondent submitted that Mr Filardo gave him inconsistent accounts of the so-called conversation regarding the F2 finish issue. I do not consider this submission to be particularly helpful. The documentary record is, in my opinion, reliable and one does not need to go beyond that.

121 However Mr Liu’s evidence concerning the concrete finishes that were being achieved as the job progressed does suggest an awareness on Mr Filardo’s part that under the contract, he was still obliged to provide a level of finish that was superior to that which was being achieved. Prior to 7 August 1998 Mr Liu said to him words to the effect ‘Your formwork is not going to achieve the specified finish’. I am satisfied that, as Mr Liu said, Mr Filardo, who prevaricated on the issue, responded with words to the effect ‘Don’t worry. I’ll grind back the imperfections at the end of the job.’

122 Notwithstanding Mr Filardo’s extraordinary predisposition towards giving answers to questions followed by mini-addresses from the witness box to justify his answers, and his willingness, in some cases, to ‘recall’ facts in a light favourable to his own case, I accept that at the pre-contract meeting with the council officers on 18 December 1997 the specified contract finish was the subject of discussion and oral agreement. I am satisfied that Mr Ellwood once again said words to the effect ‘We are concerned about your price for the concrete. Can you do it for that price?’ I am also satisfied that Mr Filardo responded ‘We can provide an F2 finish for that price’, whereupon Mr Johnson said ‘We don’t want a super duper Taj Mahal finish for a pump station’ or words to that effect.

I am further satisfied that Mr Ellwood expressed his agreement to the applicant providing an F2 finish for the Kremur Street Pumping Station as noted in Mr Filardo’s diary entry for 18 December 1997.

123 The explanation for the disparity between the two sets of notes of the same meeting seems to lie in the fact that Mr Ellwood did not have a clear understanding of the differences between the various concrete finishes – F2, F3 and so on. A diary note of Mr Ellwood which appears to have followed a meeting on 19 March 1999 at which concrete finishes were the subject of discussion recorded:

‘Contract asked F2
[arrowdown]
F3 finish
[arrowdown]Now deduct See trevor lieu (sic)

check Unit Rates & multiply by the difference.’

124 Mr Ellwood’s evidence is that his understanding at the time when he made this note was that the contract called for an F2 finish. At that time he believed an F3 finish to be of a lesser standard, rather than a higher standard. Because he believed that the lesser (F3) standard had been provided he was concerned to have a deduction made from the contract price of the difference between the value of an F2 finish (a greater amount), which he understood the contract to require, and an F3 finish (a lesser amount).

125 In relation to his references to ‘F2’ and ‘F3’ in his diary note Mr Ellwood said:

‘I may have got those two around ... the wrong way, I ... couldn’t be certain at this point.’

Later he said:

‘... if you ask me right at this point of time what an F2 finish was and what an F3 finish was, I would go to where the words "F2 finish" was written in the contract document. I would look up what those words meant and I would use that to judge what an F2 and an F3 finish was. ...’

He later said that when he made his note on 19 March 1999 he was ‘very strongly of the opinion’ that the applicant had provided a lesser standard of finish than an F2 finish.

126 It is reasonable to conclude that this misunderstanding by Mr Ellwood as to the standard of finish that was required carried through from an earlier point in time. That being the case, it is hardly surprising that Mr Ellwood made no diary note in respect of Mr Filardo’s observation on 18 December 1997 that ‘we can provide an F2 finish for that price’ and now has no recollection of that matter having been discussed at the meeting. I am not persuaded that if at the meeting on 18 December 1997 Mr Filardo indicated, as I find that he did, that he could provide an F2 finish for the price tendered, Mr Ellwood would have interrupted the meeting, searched the draft contract to find the Schedule of Finishes in section 8.9 and then looked for section 6 to find that section 6.1 required all concrete to comply with section TR2 and then searched for section TR2, a Departmental document which did not form part of the Standard Technical Specifications in Volume 2 of the contract documents, to find clause 6.9 thereof which specified the differing requirements for Class F1, Class F2 and Class F3 finishes for formed concrete surfaces.

127 It may also be observed that Mr Johnson has not been called as a witness by the respondent and his absence is unexplained. In the circumstances the Court can more comfortably reach the conclusion that Mr Filardo’s account of the conversation should be accepted in relation to the concrete finish issue. Whether it has any relevant legal significance is another matter.

128 Having executed the agreement with the Albury City Council, the applicant was bound by it unless it was able to rely on a defence of non est factum, or able to have it rectified. The applicant has attempted neither. In Equuscorp, a case where a loan agreement had been executed by the respondents, Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ said at 483 [33]:

‘... Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents’ case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.’ (footnotes omitted)

129 Their Honours continued by explaining the reasons why the law adopted the position just stated as follows, at 483-4 [34]-[36]:

‘34 There are reasons why the law adopts this position. First, it accords with the "general test of objectivity [that] is of pervasive influence in the law of contract". The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions.

35 Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. Different questions may arise where the execution of the written agreement is contested; but that is not the case here. In a time of growing international trade with parties in legal systems having the same or even stronger deference to the obligations of written agreements (and frequently communicating in different languages and from the standpoint of different cultures) this is not a time to ignore the rules of the common law upholding obligations undertaken in written agreements. It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside.

36 The conclusion that the respondents are bound by the written loan agreements may leave open the possibility than an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents’ case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties’ agreement recorded in the writing they executed. It is the written loan agreement which governed the relationship between Rural Finance and each respondent.’ (footnotes omitted)

130 It is the written contract which governed the relationship between the applicant and Albury City Council in the case of the Kremur Street Pumping Station contract.

Exchange of information about a tenderer’s performance

131 The ‘CONDITIONS OF TENDERING’ which arguably form part of the contract between the applicant and the Albury City Council, notwithstanding the words indicating a contrary intention, included under the heading ‘CURRENT POLICIES’ the following:

‘CT-3.04 EXCHANGE OF INFORMATION BETWEEN GOVERNMENT AGENCIES

During the course of the Contract, the successful Tenderer’s performance will be monitored and assessed. Performance assessment reports, including substantiated reports of unsatisfactory performance, can be taken into account by NSW government departments and agencies and may result in future opportunities for NSW government work being restricted or lost.

By tendering for this Contract, the Tenderer authorises the Principal to make available on request to any NSW government department or agency information including, but not limited to, information dealing with the Tenderer’s performance. Such information may be used by the recipients for NSW government purposes including assessment of suitability for registration, pre-qualification, selective tender lists or the award of a contract.

The provision of information by the Principal to any other NSW government department or agency is agreed by the Tenderer to be a communication falling within Section 22(i) of the Defamation Act 1974 (NSW), and the Tenderer shall have no claim against the Principal or the State of NSW in respect of any matter arising out of the provision or receipt of such information, including any claim for loss to the Tenderer arising out of the communication.

In the evaluation of tenders, the Principal may take into account any information about the Tenderer which the Principal receives from any source.’

132 The applicant contends that the authority to provide reports of unsatisfactory performance conferred by this provision was limited to the Principal i.e. Albury City Council and did not extend to the Department or the Superintendent’s Representative.

133 To like effect clause AB-01.9 of that part of the contract entitled ‘SECTION 1: GENERAL CONDITIONS OF CONTRACT AND ANNEXURE’ [which contained various special conditions], which undoubtedly formed part of the contract, provided as follows:

‘AB-01.9 EXCHANGE OF INFORMATION BETWEEN GOVERNMENT AGENCIES
The Contractor authorises the Principal to make information concerning the Contractor available to other NSW government departments or agencies. Such information may include, but is not limited to, any information provided by the Contractor to the Principal and any information relating to the Contractor’s performance under the Contract.

The Contractor acknowledges that any information about the Contractor from any source, including substantiated reports of unsatisfactory performance may be taken into account by NSW government departments and agencies in considering whether to offer the Contractor future opportunities for NSW government work.

The Contractor acknowledges and agrees that the communication of such information by the Principal to any NSW government department or agency is a communication falling within Section 22(i) of the Defamation Act 1974 (NSW).

The Contractor releases and indemnifies the Principal and the State of NSW from and against any claim in respect of any matter arising out of such communications. Without limitation of the above, the Contractor releases the Principal and the State of NSW from any claim it may otherwise have for any loss to the Contractor arising out of the Contractor’s performance under the Contract by the Principal, the communication of information relating to such assessment to any NSW government department or agency, or the use of such information by the recipient.’

Contractor Performance Reporting

134 The Department’s contracts manual document PWM-0601 of July 2002 contained on page 144 under the heading ‘CONTRACTOR PERFORMANCE REPORTING’ the following:

‘5.61 RELEASE OF INFORMATION TO OUTSIDE BODIES

It is Departmental policy to ensure that Contractors know that performance information is systematically recorded and that this information may be given to bona fide external enquirers such as the Contractor reported on and other Government Agencies.

During the course of a contract, the Contractor being reported on is entitled to be given copies of the Contractor Performance Reports. This is essential where adverse performance is being reported: see Section 5.57. If the Contractor requests information on the Company’s performance other than that discussed under Section 5.57, that information is to be made available to the Contractor, following the Contractor’s request in writing to the General Manager Procurement Management, Strategic Procurement Services.’

135 An important date upon which it will be necessary to focus in respect of the Kremur Street Pumping Station was Tuesday 11 August 1998.

136 As contemplated by CT-3.04 of the Conditions of Tendering periodic Contractor Performance Reports were issued by the Department on a quarterly basis. There was a standard report form which contemplated completion by the relevant ‘Reporting Officer’, normally the Superintendent’s Representative. The standard form of Contractor Performance Report comprised three pages. Revision B of the form was dated 9/8/96. The first two and a half pages made provision for the reporting officer’s assessment and comments and also for the reporting officer’s signature and date. The bottom half of the third page made provision for the observations of the ‘Recommending Officer’, following his review of the reporting officer’s assessment and comments. The recommending officer was required to indicate whether the contractor was recommended for future work or not.

137 In the case of the Kremur Street Pumping Station the reporting officer throughout was Mr Trevor Liu, who was based in Albury. The recommending officer was Mr Kevin Ellison, the Department’s Regional Contracts Superintendent in Wagga.

138 Whilst Mr Liu was the ‘Reporting Officer’ for the purposes of the Kremur Street Pumping Station works, he discharged his duties as such as an officer of the Department and not as Superintendent’s Representative under the contract for the execution of those works by the applicant.

139 The standard form of Contractor Performance Report for the Kremur Street Pumping Station provided as follows:

‘Contract Number: 9800075 Bond Number: 37500

DEPARTMENT OF PUBLIC WORKS & SERVICES
CONTRACTOR PERFORMANCE REPORT

For all current contracts over $250,000, reports must be submitted within the first week of February, May, August and November. In addition, reports are required at practical completion, finalisation, termination of contract or when Contractor’s overall performance is patently unsatisfactory;

For contracts less than $250,000, reports are only required to be submitted if the Contractor is not recommended for future work.
Contractor Name
EDEN CONSTRUCTIONS (sic) PTY LTD
Contract Description
CONSTRUCTION OF KREMUR ST PUMPING STATION
Tender Price (value of tender)
$2,214,718.46
Date of Acceptance of Tender
28 JAN 1998
Time for Practical Completion
42 Wks
Note: All Dates & Times refer to Whole of Works, NOT Separable Portions, if any.
Current Status
Report Reason: Unsat. Perf (  ); 3 monthly (  ); Pract. Compl. (  ); Final (  ); Termination (  )
Work Completed at Report Date       %
Total Extensions of Time Approved        working days
Extended Date for Practical Completion 18 NOV 1998
Date of Practical Completion
Liquidated Damages Retained $
Contract as Varied (or current estimate) $
Final Cost for contracts finalised $

Performance Assessment:
Excellent Standard well above the acceptable standard of performance.
Good Standard often exceeds acceptable standard of performance.
Acceptable Generally meets acceptable standard of performance with few weakness (sic).
Unsatisfactory Many weakness (sic)– cannot meet the acceptable standard of performance.

Contractor’s Performance Unsatisfactory Acceptable Good Excellent

Evaluation Items
Evaluation against performance criteria must be a measure of the Contractor’s performance of the contract, after taking into account matters beyond the Contractor’s control.
Time Management [omicron] [omicron] [omicron] [omicron]
• Ability to meet programmed milestones
• progress of the work
• inclement weather
• industrial conditions affecting the work
• latent conditions
• delays caused by the Principal and/or Superintendent, and
• delays by public authorities not caused by the Principal
•

Document PWM-0601 Contractor Performance Report – Page 1 of 3
Revision B 9/8/96

[page 2]
Contract Number: 9800075 Bond Number: 37500
evaluation items (continued) Unsatisfactory Acceptable Good Excellent
Standard of Work [omicron] [omicron] [omicron] [omicron]
• Standard of work as measured against the specification. In addition,
• remedial work required
• conformance with specified performance criteria
• compliance with specified tolerances and finishes, and
• performance during the defects liability period, if applicable.
Quality Assurance [omicron] [omicron] [omicron] [omicron]
• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan
• the results of the Principal’s quality audits
• the number of repetitions of the same non-conformance
Management and Quality of Personnel [omicron] [omicron] [omicron] [omicron]
• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work
• the control of site personnel
• payment of wages on time
• observance of site rules and procedures
• compliance with Code of Practice industrial relations provisions
• suitability of staff, ie. compliance with the requirement set out in the Code of Practice including management, administrative, scientific or industry skills and overall experience relevant to the tasks undertaken.
Coordination of SubContractors [omicron] [omicron] [omicron] [omicron]
Contractor’s ability to manage both off-site and on-site subContractors, consultants and suppliers
• ensuring timely delivery of goods and materials
• ensuring timely payment of subcontractors
Contract Administration [omicron] [omicron] [omicron] [omicron]
• compliance with the Code of Practice concerning timely requests for information or the provision of information or the provision of information such as drawings, reports or other documentation
• timely submission of claims for payment including the adequacy of supporting evidence
• proportion of claims approved for extensions of time
• proportion of variation orders approved (including value)
Occupational Health & Safety [omicron] [omicron] [omicron] [omicron]
• Contractor’s compliance with the Occupational Health and Safety Act and other related Acts;
• compliance with safety issues specifically nominated in the contract and/or the Contractor’s OHS&R Management System for the contract
• the number of infringement notices issued to the Contractor.
Contractor’s Design/Documentation (for [omicron] [omicron] [omicron] [omicron]
D&C, DD&C, DN&C contracts only)
• adequacy of design/documentation in meeting the requirements of the contract
• timeliness

Document PWM-0601 Contractor Performance Report – Page 2 of 3
Revision B 9/8/96

[page 3]
Contract Number: 9800075 Bond Number: 37500

Overall Comments:
The Reporting Officer is to ensure that the aspects of unsatisfactory performance in the report have been discussed with the Contractor at formal site meetings before submitting the CPR to the Recommending Officer.

In my opinion: (address each "unsatisfactory" item on page 1)








Reporting Officer: (Normally the Superintendent’s Representative)

Trevor Liu (Project Engineer) (02) 6023 2193
Name (Print) Signature Date Telephone No


I concur with the Reporting Officer’s assessment detailed in the report.
In my opinion:








Recommending Officer: (Normally the Contract Superintendent)
• I confirm a copy of this report was sent to                         of the Contractor on         
(Name of Contractor Representative)     (Date)
• Contractor recommended for future work YES [omicron] NO [omicron]
• If the recommendation is NO, minutes of meeting and previous related correspondence are attached to this report.
                                                                              /  /                                      
Name (Print) Signature Date Telephone No
Please submit report to: Policy Manager Tendering, Policy Division
Level 3, McKell Building, 2-24 Rawson Place, Sydney 2000.


Document PWM-0601 Contractor Performance Report – Page 3 of 3
Revision B 9/8/96’

140 In relation to the Kremur Street Pumping Station, Contractor Performance Reports were issued on a quarterly basis. Mr Liu said that it was his practice to record important matters that had occurred since the date of the previous report but to omit relatively unimportant matters. On 30 August 1999 he wrote ‘I didn’t want to comment on issues that I felt were "minor" or just my personal opinion’. It was the practice of Mr Liu to make a copy of his section of the report available to the applicant upon its completion and signature by him. His practice was to deliver a copy to Mr Filardo on site at the Kremur Street Pumping Station and to forward a copy of his report by facsimile to the Department’s Wagga office. Copies received in the Department’s Wagga office were invariably delivered to Mr Ellison. He processed approximately 40 quarterly Contractor Performance Reports in relation to various projects with which the Department was associated in mid-1998. Of those 40-odd there was only one project for which Mr Liu was the reporting officer. Mr Ellison could not recall having any prior experience in dealing with reports from Mr Liu referable to other projects.

141 Mr Ellison as the recommending officer was obliged to make a copy of the Contractor Performance Report available to the applicant following its completion by him.

142 Mr Grove contends that Mr Liu was meant to discuss his Contractor Performance Reports in draft before sending them off. He says that after August 1998 this occurred, but it did not up to that point in time. I am not persuaded that Mr Liu departed from his practice with respect to the issue of reports even though the content of them changed dramatically.

143 Mr Liu’s first Contractor Performance Report of 13 February 1998 and the recommending officer’s, Mr Ellison’s, comments thereon of 16 February 1998 were unexceptional.

144 On 19 February 1998 a meeting was held at the Department’s Albury office attended by Messrs Ellwood and Johnson from the Council, Mr Densley from the applicant and Mr Liu from the Department. Mr Liu prepared ‘site meeting minutes’ in respect of the meeting. He acknowledges that no issues were raised suggestive of unsatisfactory performance by the applicant.

145 Mr Liu’s second Contractor Performance Report of 8 May 1998 referred to the work as being 13.1 per cent complete and noted that extensions of time of 4.5 working weeks had been approved, the extended date for practical completion then being 24 December 1998. It also indicated that the contract value had increased to $2,311,447.09. In relation to the contractor’s performance Mr Liu ticked each of the ‘acceptable’ boxes. In his ‘Overall Comments’ Mr Liu added:

‘The Contractor commenced on site work and is generally getting his construction systems up to speed.

While performance on all evaluation items is presently acceptable the Contractor needs encouragement and direction in the following areas.
• Quality Assurance, system still under development and in formative stages.
• Management and Quality of Personnel, conformance to the Code of Practice needs monitoring with respect to Industrial Relations provisions and engagement of site personnel.
• Coordination of SubContractors, further to the item above, continued monitoring.’

146 The recommending officer, Mr Ellison, in his report dated 18 May 1998 in respect of Mr Liu’s report of 8 May 1998 added:

‘your firms performance is only marginal.
The above concerns are considered very serious by this Department.

I would look for a big improvement before the next report due in August.’

147 Mr Ellison’s report concluded that the contractor would be recommended for future work but he added the note ‘Performance to be monitored’.

148 Mr Ellison’s observations as recommending officer are somewhat surprising. He disavowed any personal knowledge of the contractor’s performance as at May 1998 and recorded his comments simply on the basis of what he had read in Mr Liu’s report of 8 May 1998. Mr Ellison described the ‘above concerns’ as the issues which Mr Liu had raised in his ‘Overall Comments’ section of the report. Mr Ellison described the applicant’s performance as ‘only marginal’ and as requiring monitoring because Mr Liu had simply categorised the applicant’s performance as ‘acceptable’ rather than as ‘good’.

149 When Mr Ellison indicated that he would be looking for a ‘big improvement before the next report due in August’ he says that he was simply intending to pass on constructive comments to the contractor.

150 By letter dated 19 May 1998 Mr Ellison, as Contract Superintendent, Riverina/Western region of the Department, wrote to the applicant in relation to the Kremur Street Pumping Station, forwarding a copy of his 18 May 1998 report and saying:

‘As you would be aware, during the administration of contract the NSW Department of Public Works and Services monitors and reports on the performance of its Contractors. It is the policy of the Department to give Contractors the opportunity to comment on their performance reports.

Should you wish to comment on the attached report, kindly do so in writing within ten days of the date of this letter.’

151 The applicant did not respond to the report so provided to it.

152 In May 1998 Mr Filardo made a copy of the applicant’s ‘QUALITY/OHS & R MANAGEMENT SYSTEM’ available to Mr Liu. That 200 page plus document, as it existed in May 1998 (it being subject to periodic revision from time to time) included the applicant’s OHS & R manual, quality assurance manual, system procedures and system record forms. The manual identified the applicant’s goals and objectives in respect of quality assurance and included a quality policy statement signed by Mr Filardo and dated June 1996. That statement included:

‘The implementation of our Quality System will provide clients with the assurance that the materials supplied and construction activities are carried out in accordance with all contractual and regulatory requirements.
...

The effective implementation of the Quality System shall be verified by Quality Audits from time to time. Items found to be non-conforming or deficient in meeting requirements will be remedied through the use of the corrective action system, which shall be subject to regular Management review.
...

The implementation of this Quality System is to ensure EDEN CONSTRUCTION PTY LIMITED achieves a consistently high standard of performance and also to ensure that the products and services provided by EDEN CONSTRUCTION PTY LIMITED comply with the specified standards required by the contract documents.’

153 One of the schedules to the applicant’s tender for the Kremur Street Pumping Station project was Schedule 5, which had been completed by the applicant and signed by Mr Filardo on 14 November 1997. It provided as follows, the applicant’s additions to the form provided being expressed in normal type:

‘TENDER SCHEDULES

SCHEDULE 5
SCHEDULE OF QUALITY ASSURANCE DOCUMENTATION
(Submit when requested by Principal)

Submit the information required in Clause QUALITY ASSURANCE – CONDITIONS OF TENDERING.

Eden Construction Pty Limited is registered with the A.C.T. Department of Urban Services (formely (sic) A.C.T. Public Works & Services, and its Quality Manual and implementation thereof was Audited by Mr Mike Evans of Construction QA who is one Accredited Senior Auditor registered with the N.S.W. Department of Public Works. Eden’s Quality System meets the requirements of any N.S.W. Government Agency.

It was implemented on a project at Penrith with the Olympic Coordination Authority for the Penrith Lakes Sewerage Scheme and most recently with the Wagga Wagga City Council on a project for the construction of 33 mt. clarifier at the Narrung Street Sewage Treatment Works.

Eden’s O.H.S. & R Management System has been Accredited by the N.S.W. R. T. A. (Copy enclosed.

Tenderer’s Signature:
Name (in block letters): Eden Construction Pty Limited
Date: 14th November 1997 ’

154As at 14 November 1997 the applicant’s ‘Quality Manual’ had not been accredited.

155 On 21 May 1998 Mr Liu as the Superintendent’s Representative wrote to the applicant in relation to his review of the quality assurance documentation, which had been provided to him in May 1998, as follows:

‘Your Quality / OH&S Management System Manual has been reviewed by this office.

In general, the Manuals themselves appear to cover the Quality System requirements and would be suitable for use in this project. I have made some comments on your Inspection and Test Plans as well as your standard Checklists.

Please continue to use the draft ITP’s and Checklists on site and Amend and Revise the ITP’s and Checklists in the Manual. The Revised forms should be used as soon as they become available.
...’

156 Mr Liu added suggested alterations to the applicant’s Formwork Checklist, Falsework Checklist, Reinforcement Checklist, Concrete Checklist, Hydraulic Services Checklist and Reinstatement Checklist forms.

157 In Mr Liu’s diary he made an entry for 2 April 1998 which included:

‘-> QA FORMS CHECKLIST ITPS TO BE "SIGHTED" & SIGNED TOMORROW
QA PLAN TO BE AVAILABLE MONDAY’

158 Mr Liu’s diary for 7 April 1998 included an entry:

‘PROVIDES QUALITY+ SAFETY PLANS’

159 The diary entry also included a note:

‘MICK LANE CFMEU/PETER GROVE COMMENTS RECEIVED [REGARDING] EDEN CONST ON SITE
- NO CERT, NO EBA, NO ACCESS TO WORKERS,
- BELOW AWARD WAGES? SHONKY SITE?
ELECTRICAL EXTENSION LEADS – DANGEROUS + ILLEGAL "CCONS WORKERS APPROACHED TO WORK FOR BELOW AWARD"
[therefore] CODE OF PRACTICE NOT FOLLOWED.
ABUSED & SET OFF SITE – BUT WEARING TENNIS SHOES.’

160 Mr Liu’s diary for 8 April 1998 included an entry:

‘Ces [referring to Mr Filardo] ... in office
...

Discussions [regarding] CFMEU – Trying to impose EBA from Canberra on to Eden.
Ces accepts comments [regarding] electric extension leads but refutes breaches of Code of Practice & below award payments’

161 The diary included a further entry for 8 April 1998 reading:

‘MICK LANE – CFMEU. WILL VISIT OFFICE MEETING 10:30 AM NEXT FRIDAY.
WANTS EDEN TO CONFORM + DEMONSTRATE MINIMUM REQUIREMENTS BEING MET! CONDITIONS + WAGES.
"LITTLE GRUB", "SHONKY", KNOCKING OFF WORK OF LOCALS. GB NOT STRICTLY REQ JUST WANTS TO "TALK".’

162 Mr Liu’s diary entries for 5 May 1998 indicate that Mr Liu spoke with Mr Peter Grove, his supervisor within the Department, on that day. His diary entries relevantly included:

‘PETER GROVE – CPR’S DUE
...
- UNION – MICK LANE @ EDEN
WORKS DON’T WANT UNIONS BUT
ML MAY STILL VISIT SITE’

163 A later entry read:

‘MICK LANE 12:45 PM -> EDENS HAVE IMPROVED -> DPWS IR GUIDE 98 PASSED [-] BUT STILL SOME DOUBT OF EMPLOYEE CONDITIONS. IS SUPERANNUATION REALLY BEING PAID. ... ARE HOLIDAYS, TRAVELLING, SICK DAYS, WET WEATHER BEING PROPERLY PAID. WORKERS NEED EDUCATION!’

164 On 11 May 1998 Mr Peter Grove visited Albury. His practice was to do so about once a month, leaving Wagga mid morning and returning, usually, on the following morning. His practice was to meet with Mr Liu in his office in Kiewa Street, Albury adjacent to the Council Chambers and also to spend about a half an hour to an hour and a half on site at each of the sites at which work was then proceeding, including the Kremur Street Pumping Station site.

165 By this stage, the concrete sections of the Kremur Street Pumping Station works were well underway. On 17 April 1998 Mr Williams had signed off on a reinforcement checklist, a formwork checklist and a concrete checklist. In relation to the question ‘Will the class of finish be provided with this form [referring to formwork]?’ Mr Williams had provided a tick.

166 Mr Williams had signed off on a further reinforcement checklist, formwork checklist and concrete checklist on 4 May 1998. He did so again on 11 May 1998, 15 May 1998 and 26 May 1998.

167 On 13 May 1998 Mr Liu made a diary entry:

‘EDEN QA – QUALITY PLAN REVIEWS’

168 Mr Liu says that this was one of the days on which he looked at the applicant’s quality plans.

169 On 14 May 1998 a further ‘Site Meeting’ was held which was described in the minutes of 21 May 1998 as ‘Meeting No. 1’. The meeting took place in Mr Liu’s office in Kiewa Street, Albury. It was attended by Messrs Filardo and Densley of the applicant and Messrs Liu and Williams of the Department.

170 The minutes as prepared by Mr Liu included:

‘2.3.2 CONCRETE PLACING.
DPWS has observed inconsistent practice in Concrete Placing, in particular, dropping Concrete more than 2m, the placing of concrete with vibrators and the over vibration of concrete. Eden Construction’s has agreed that practice will be improved in line with the requirements of their Quality Manual.

The use of a concrete kibble at the last pour was necessary due to the unavailability of a concrete pump. Due to access considerations for the kibble future concrete placing will be only by concrete pump.

2.3.3 QUALITY ASSURANCE.
The programming of DPWS attendance at Hold Points is to be improved to allow sufficient time to examine completed work before "covering up".
...

2.5 CONSTRUCTION PROGRESS AND QUALITY SYSTEMS

2.5.1 PROGRESS
...
• Construction Ahead of Program by
...
2.5.2 QUALITY SYSTEM
• Problems With Quality System Manual being reviewed
...
• Construction Quality Acceptable.
...

2.7 INDUSTRIAL
Following attention from the CFMEU about the Code of Practice for the Construction Industry, Eden Construction has employed Workers formally (sic) engaged as Subcontractors.
...’

171 The minutes of the site meeting were copied by Mr Liu to the Department’s Wagga District office and also to the Albury City Council as well as to the applicant.

172 Mr Liu indicated that if anything important was discussed at a site meeting it would be minuted. He also indicated that he may selectively fail to include in his minutes notes of any unimportant matters that may have been discussed.

173 On 6 June 1998 Mr Mike Evans of Construction QA Services Pty Limited submitted a proposal to the applicant for the provision of a Substantial QA Certification assessment for the applicant.

174 On 9 June 1998 Mr Filardo submitted a Revised Construction Program for the Kremur Street Pumping Station works.

175 On 29 May 1998, 2 June 1998 and 10 June 1998 Mr Williams signed off on a further series of reinforcement, formwork and concrete checklists.

176 Mr Liu’s diary notes for 27 May 1998 included an entry:

‘Pud [referring to Mr Williams] enquires [regarding] F3 U3 concrete finishes’

177 In the week commencing Monday 15 June 1998 Mr Liu was on study leave, his place being filled during his absence by Mr Grove. His ‘HANDOVER NOTES’ of Sunday 14 June 1998 included in relation to the Kremur Street Pumping Station the following entry:

‘KREMUR ST PS – EDENS.
WORK CONTINUES NO MAJOR ISSUES
CONTINUED MONITORING – FORMING + POURING’

Mr Liu’s evidence is that he was satisfied with the work as it was progressing prior to his departure for study leave. He returned to work at about 1.00 pm on the following Friday.

178 In Mr Liu’s absence Mr Grove signed off on a formwork checklist and a concrete checklist on or about 18 June 1998. On the formwork checklist he placed a tick against the question ‘will the class of finish be provided with the form [formwork]?’ and added a note ‘flare at the end of the wall section to be incorporated in the next lift’.

179 Mr Grove described Mr Liu as a ‘pretty independent operator’. He did not receive a lot of phone calls from him. He also considered Mr Liu to be ‘a pretty competent project officer’ who was seen to be handling the project reasonably well both as Superintendent’s Representative and also in relation to his preparation of minutes of meetings, valuations, variations, extensions of time and the running of the Department’s Albury office.

180 When Mr Grove signed off on the concrete checklist on 18 June 1998 he recorded his observations both before and after the relevant pour. He initialled against the words ‘Check type of finish a/Required’ on the basis that the formwork appeared to be satisfactory prior to the pour occurring.

181 In relation to the reinforcement checklist Mr Grove noted ‘some bars to be cleaned and concrete taken off’ i.e. he required the concrete splatter to be taken off the reinforcement bars. This was a relatively minor item.

182 On 20 June 1998 Mr Liu signed off on a concrete checklist and on 30 June 1998 and 6 July 1998 Mr Williams signed off on a series of checklists.

183 Mr Liu’s diary for 24 June 1998 includes a notation suggesting that he had spoken with Kevin Ellison from the Department on that day. His diary note reads:

‘KEVIN ELLISON

-> EDENS ONCE ON BANNED LIST!!
-> LONG SERVICE LEVY’

184 Mr Ellison, a civil engineer with the Department, impressed me as a decent sort of well-meaning person, as indeed did Mr Liu, Mr Grove, Mr Summerhayes, Mr Hetherington and Mr Tonkin, all of whom served the Department for extended periods of time. However, where there is an inconsistency between a contemporaneous documentary record and a distant recollection from 6 or more years ago, I have a strong preference for the reliability of the contemporaneous records. Each of the Departmental officers had different mannerisms and expressions which coupled with their oral evidence suggested to me that much of their ‘recollection’ was no more than reconstruction. By this I do not intend to imply any suggestion of dishonesty.

185 Counsel for the respondent urged me to accept the accounts of past events as recorded in the affidavits of the various Departmental officers. Given the passage of time and the openness of the witnesses in acknowledging difficulties with their recollection I am more comfortable with accepting the mosaic of facts as recorded in the contemporaneous records of the various participants in the relevant events. This is not to say that the significance of the documentary evidence has not been elucidated by the evidence of the participants. Having said this about the Departmental officers, I should say that, in broad terms, I view Mr Filardo’s evidence in much the same way. Given Mr Filardo’s intimate involvement in the relevant events and their significance for him and for his business, my inclination is to the view that he actually has a better natural recall than that of the Departmental officers. The problem with his evidence is that he had a most unhelpful disposition to refrain from providing direct answers to straightforward questions. He constantly wanted to argue the reasonableness of his answers. I have no doubt that on occasions he gave answers which were designed to present the applicant’s case in a favourable light. Nevertheless, I do not believe that he set about deliberately misleading the Court on any issues. He frequently acknowledged that answers he had given were incorrect and apologised unreservedly to the Court for what might have appeared to have been an exercise in deception. Counsel for the respondent asked me to find that he was a liar. Whilst I do not accept much of his evidence, he did not suffer from the degree of unreliability with which he was said, by counsel for the respondent, to be tainted.

186 I have no doubt that, as Mr Ellison said, he would not have used the words ‘banned list’ when speaking with Mr Liu on 24 June 1998. Mr Ellison had no recollection of speaking with Mr Liu on that date. I have no doubt that he did and that during the course of the conversation he disclosed to Mr Liu that at one time ‘Edens’ had been on one of the Departmental contractor review lists, an observation which obviously coloured Mr Liu’s assessment of the applicant thereafter. I should add that the description of the Department’s contractor review lists as ‘banned’ contractor lists was part of Mr Grove’s lexicon (see [355] below at para A(iii)).

187 By 7 July 1998 the value of the works completed at the Kremur Street Pumping Station had reached 24 per cent of the contract sum. Mr Liu’s assessment was that the value of the concrete works that had by then been completed had reached 56 per cent.

188 Mr Liu’s diary entries for 17 July 1998 indicate that Mr Peter Grove from the Department’s Wagga Wagga office was in Albury with his son. Between approximately 10.00 am and 12.30 pm Mr Grove spent time with Mr Liu in Mr Liu’s Kiewa Street, Albury office and also visited approximately six current sites in which the Department was involved. Mr Liu’s diary entry makes reference to ‘check Eden’s – form pressures’ which he says was either an indication that the formwork had been checked or was thereafter to be checked to ensure that it could withstand the pressures which wet concrete would exert upon it.

Mr Liu’s diary also indicates that on 17 July 1998 one of the other contractors who was performing work for the Albury City Council provided a long service leave form to Mr Liu. It then indicated ‘Edens to supply [long service leave form] next Wk’.

189 The next ‘Site Meeting’ was held in the Department’s offices in Kiewa Street, Albury on 23 July 1998. The meeting, described as ‘Meeting No. 2’, was attended by Messrs Filardo and Densley from the applicant and by Mr Liu from the Department. Notes for minutes in respect of the meeting were made by Mr Liu contemporaneously using a copy of the typed minutes for the meeting on 14 May 1998 as a template.

190 Typed minutes of the 23 July 1998 meeting were not prepared by Mr Liu until 11 – 12 August 1998. In the meantime some significant events had occurred. The minutes record that in respect of concrete placing:

‘Improvements have been observed in concrete placing with pumps used to deliver concrete and vibrators being used correctly.’

191 Notes for minutes in respect of Site Meeting No. 2 held on 23 July 1998 indicate that the extended completion date had by then become 7 January 1999. This extended completion date was also included in the formal site minutes signed by Mr Liu on 12 August 1998. In his draft minutes there had been no qualification of the assessment that the construction was then ahead of program.

192 Mr Liu’s evidence is that in respect of the matters raised in the minutes of Site Meeting No. 2 he either had no criticism of the applicant’s work or alternatively any issues which had been raised were satisfactorily resolved by 11 August 1998.

193 In relation to the then estimated date of completion Mr Liu was of the opinion that the extended completion date of 7 January 1999 would be met. The minutes noted the applicant’s estimate of 20 January 1999 but this was an estimate with which Mr Liu disagreed.

194 In relation to quality assurance and industrial matters the minutes in respect of Site Meeting No. 2 recorded as follows:

‘2.2.3 QUALITY ASSURANCE.

The programming of DPWS attendance at Hold Points was improved with better on-site estimates and communication.
...

2.7 INDUSTRIAL

Nil.
...’

195 The minutes of the meeting on 23 July 1998 provide for a number of matters to be attended to by both the applicant and also the Department. Those requiring action by the applicant included:

‘2.2.1 CONSTRUCTION PROGRAM

Construction Program was revised and reissued. DPWS have requested that the construction program be revised to show the planned sequence of events for concrete construction, in particular walls.

ACTION Eden Constructions (sic) is to revise and reissue the Construction Program. The Program is to comply with Clause 33.2 of the General Conditions of Contract and Clause PE-02 of the Specification.
...

2.2.5 CONSTRUCTION ISSUES.
• Drawing M002 has been amended to show the scour stop valve on the inside of the pump station and a non return flap in the collection well.

• Drawing C009 shows Aluminium Stopboards to be supplied, there appears to be a conflict with Drawing C014 for steel reinforcement details. The installation and removal of stopboards was also discussed. DPWS have issued revised drawings for the Wall reinforcement and Stopboard details.
• Flume Overflows. Flows continue to be observed and minor movements of the sheetpiling recorded. It is believed that the flumes themselves continue to occasionally overflow and may be leaking. It is intended that the area will soon be backfilled and the sheetpiling removed, while this will relieve this problem the situation will continue to be monitored.

ACTION Eden Constructions (sic) is to provide survey information concerning the original and current positioning of the sheetpiling.

2.3 NEW BUSINESS
...

2.3.2 LONG SERVICE LEVY.

Further to the letter sent by DPWS, evidence of payment of the Long Service Levy will be provided ASAP. The correct forms and approvals are also to be provided.

ACTION Eden Constructions (sic) is to provide evidence of Long Service Levy Payment.
...

2.3.4 CONSTRUCTION ISSUES.
• Quality System, Non Conformance. As a result of the incorrect placement of steel reinforcing in the pump station suction wells.

ACTION Eden Constructions (sic) is to provide a CAR/NCR on the incident in line with their QA System procedures.
• Major concrete pour, 5m lift formwork. Eden Constructions will check and confirm that the formwork constructed will be adequate for the loads imposed.

ACTION Eden Constructions (sic) is to confirm that the constructed formwork has been checked for structural adequacy.
• Concrete testing. Eden Constructions (sic) will provided (sic) a record of available test results.

ACTION Eden Constructions (sic) is to provide concrete test results.
...
• Pumping Machinery. Eden have advise (sic) that their subcontractor Weir Engineering has provided a proposed layout for the pumps. A meeting needs to be held to discuss the proposal.

ACTION Eden will arrange a meeting with Weir Engineering, DPWS will contact ACC to arrange their participation and get their input on the design.
...’

196 Under the heading ‘2.5 CONSTRUCTION PROGRESS AND QUALITY SYSTEMS’ the minutes of the meeting on 23 July 1998 recorded:

‘2.5.1 PROGRESS
• Work Scheduled to be Completed to Date Concrete Works in Progress
• Work Actually Completed To Date Concrete Works in Progress
• Construction Ahead/Behind of Program by Shown as 33% complete.
• Work Expected To Be Completed by Next Meeting Concrete Works.

Greater detail is required on the current construction program to show the planned construction sequence of the pump station and the interaction with mechanical and electrical services.
• Delays Occurred Since Last Meeting 14 Days Inclement Weather

2.5.2 QUALITY SYSTEM
• Problems With Quality System NCR/CAR to be issued.
ITP’s to be revised and reissued.

Consultant that was been (sic) revising QA Manual is now unavailable and has been uncontactable for 3 weeks. Eden’s are presently briefing and working with a replacement Consultant.
• Outcome Of Last Quality Audit And Action Taken By Contractor N/A
• Construction Quality Acceptable.
...’

197 Mr Liu generally conceded that the matters raised in the minutes were either not intended as criticism of the applicant or referred to issues which were satisfactorily resolved before the minutes were finalised.

198 Mr Liu’s diary notes for 24 July 1998 included:

‘REVIEW EDEN CONC TESTING
- CES LONG SERVICE LEVY – AVAIL [insert appearing between ‘AVAIL’ and ‘NEXT’] -> TODAY [end of insert] NEXT TUE’

199 On 24 July 1998 Mr Williams signed off in respect of a further reinforcement checklist. On 31 July 1998 he signed off on a further formwork checklist and a further concrete checklist. In the formwork checklist against the question ‘What class of finish is specified?’ the words ‘off form’ were added. Then in the concrete checklist signed off by Mr Williams on 31 July 1998 the item ‘check type of finish ... b/Achieved’ was ticked.

200 On 27 July 1998 the applicant issued revisions of its reinforcement, formwork and concrete checklist forms picking up a number of the recommended alterations which Mr Liu had proposed.

201 Mr Liu’s diary notes for 28 July 1998 included:

‘EDEN SUPPLIES LONG SERVICE LEVY FORM’

202 His diary entries for 29 July 1998 included ‘EDEN DELIVERS QA MANUAL 2’.

203 On Tuesday 4 August 1998 Mr Williams signed off on further reinforcement and concrete checklists. On 6 August 1998 he signed off on a further reinforcement checklist. These utilised the revised checklist forms which had been prepared by the applicant.

204 On Thursday 6 August 1998 Trevor Liu made a diary note in respect of the Kremur Street Pumping Station project as follows:

‘EDEN – FAILS TO POUR BASE OF INLET WELL -> NOT DEEP ENOUGH’

The diary note also recorded ‘PG [referring to Mr Peter Grove] in office [referring to Mr Liu’s Albury office]’.

205 Mr Liu’s diary note for Friday 7 August 1998 suggests that a meeting concerning Eden took place between 9.00 am and midday for which his notes read:

‘WEIR [see [195] above]
EDEN MEETING + NOTES’

206 A later diary note read:

‘MD RINGS C [concerning] 90O BEND WRONG FLANGE – DRILLING
EDEN HAVE DEEPENED BASE + POURED TODAY’

207 Mr Liu’s third Contractor Performance Report dated Friday 7 August 1998 had some unusual features. Ultimately there were three versions of it, all of which were nominally dated 7 August 1998 respectively. The second and third versions were in fact issued by Mr Liu on 12 and 13 August 1998 respectively. Mr Liu’s diary for 13 August 1998 included a note:

‘EDENS CPR DISCUSSED + REVISED [insert appearing between ‘REVISED’ and ‘AFTER’] SIGNED [end of insert] AFTER NOTING AMENDMENTS.’

208 In the first version of the Contractor Performance Report under the heading ‘QUALITY ASSURANCE’, and that item alone, Mr Liu had ticked the ‘Unsatisfactory’ box. In his overall comments he said:

‘The Contractor continued on site work. Performance on evaluation items is considered marginal the Contractor needs continued direction and surveillance in the following areas.
• Time, improvements to published program and on site estimates for work production. While initial progress was good current progress is only just acceptable. There have been. some delays due to inclement weather.

• Quality Assurance, system still under development and not being used to control work. Work Standard can be improved, with attention to detail and specification requirements.
• Management of Personnel, in the light of work progress, contractor appears to be under resourced.’

209 Notwithstanding Mr Liu’s assessment of the state of completion as at 23 July 1998 at 33 per cent, the 7 August 1998 report suggested that the work was 25 per cent complete at that date and that seven working weeks had been approved by way of extensions of time, with an extended date for practical completion of 7 January 1999, which extended date accorded with the minutes of Site Meeting No. 2.

210 On 17 August 1998 Mr Liu as Superintendent’s Representative issued Payment Certificate – Valuation No. 6 to the Albury City Council expressing the opinion that the applicant was entitled to receive payment of $133,156.68 as at 10 August 1998. His Valuation No. 6 assessed that the concrete works were then 66 per cent complete. Mr Liu indicated that by reference to a document headed ‘Estimated concrete volumes’ prepared by him on 13 August 1998 the amount of the concrete work completed was 59.55 per cent even though the work completed had been valued at 66 per cent.

211 On 10 August 1998 Mr Williams signed off as the ‘client’s representative’ on formwork, reinforcement and concrete checklists.

212 On Tuesday 11 August 1998 Mr Liu appears to have received a telephone call from Mr Peter Grove, the Department’s Regional Projects Coordinator in Wagga to whom Mr Liu reported. His diary note, which is of considerable importance in relation to the applicant’s claims, reads:

‘PG CALLS – REQUESTS OPS EXCEL SPREADSHEET
FAILED VIA MIME – TRIED AGAIN IN UUENCODE
- LONG SERVICE LEVY FORMS
- CPR EDENS TO BE MORE DETAILED & CRITICAL’

(emphasis added)

The item covered by ‘REQUESTS ... UUENCODE’ is of no present relevance.

By a Memorandum dated 1 September 1999 to the Department Mr Grove confirmed that he had requested Mr Liu to revise his Contractor Performance Report to reflect what he (Mr Grove from the Department’s Wagga office) considered to be the actual performance of the contractor on the job in Albury (see [355] below).

213Mr Filardo’s contemporaneous diary notes for 11 August 1998 included:
‘SEE TREVOR LIU REGARDING THE STAT. DECL. [statutory declaration] HE HAS THE QUARTERLY REPORT READY & WAS NOT GOOD. HE ALSO SAID THAT PETER GROVE RANG HIM UP DURING THE MORNING & TOLD HIM THAT THE REPORT "IS NOT HARSH ENOUGH". HE ALSO COMMENTED THAT WE SHOULD RECOMMEND THAT NO FURTHER WORK SHOULD BE GIVEN TO EDEN. I WAS A BIT ROPABLE (sic) AT TREVOR’S REMARKS & LASHED OUT AT TREVOR FOR THE UNJUST TREATMENT WE ARE GETTING. I SAW TREVOR CONCERNS AT MY FIREY (sic) REMARKS & LEFT THE OFFICE NOT TO UPSET HIM FURTHER.

RING MALCOLM [Densley]. REGARDING THE REPORT.
...’

214 The original report of 7 August 1998 was never signed off by Mr Ellison as the recommending officer.

215 At about 5.25 pm on Wednesday 12 August 1998 Mr Liu provided a revised version of his Contractor Performance Report, still bearing date 7 August 1998, by facsimile to the Department’s Wagga office. This version bore Mr Liu’s signature on the third page thereof, but no signature on the two-page attachment thereto.

216 The second page of the attachment included a sentence reading:

‘Further to issues identified above it would appear that that (sic) the Quality Assurance is system (sic) still under development and not being used to control work.’

217 Mr Liu’s diary notes for Wednesday 12 August 1998 contain entries which suggest that between 9.00 am and 11.30 am he was working on the finalisation of the site minutes for the 23 July 1998 site meeting which he ultimately signed on that day.

218 On, presumably, Thursday 13 August 1998 an officer of the Department in Wagga reviewed Mr Liu’s revised version of the third Contractor Performance Report bearing date 7 August 1998.

219 On 13 August 1998 the typographical errors within the above sentence were drawn to Mr Liu’s attention whereupon he caused the second page of the attachment to be rectified so that the sentence ended up reading:

‘Further to issues identified above it would appear that the Quality Assurance system is still under development and not being used to control work.’

220 After the typographical errors were corrected Mr Liu proceeded on 13 August 1998 to sign a corrected version of the second page of the attachment to the 12 August 1998 version of the Contractor Performance Report, but against the date ‘7 August 1998’. Thereupon, he forwarded the corrected version of the second page of the new attachment by facsimile to the Department’s Wagga office shortly after midday on Thursday 13 August 1998. Whilst the attachment was not brought into existence until 12 August 1998, the corrections to the second page being made on 13 August 1998, it was still given the appearance of having been prepared on 7 August 1998.

221 It would appear that the revised version of the third Contractor Performance Report bearing date ‘7 August 1998’, in the form in which it existed on 12 August 1998 following its transmission by facsimile to the Department’s Wagga office at about 5.25 pm on that day, was submitted to Mr Ellison as the recommending officer for his consideration. The corrected second page of the attachment was not within the report which he considered when he signed off with his remarks in relation to it on 17 August 1998. However, a copy of the corrected revised version of the report signed by Mr Liu against the date 7 August 1998 in the body of the report and at the end of the attachment was provided by Mr Liu to the applicant.

222 It appears that the corrected second page, which was forwarded by Mr Liu to the Department’s Wagga office shortly after midday on 13 August 1998, was directed to Mr Grove in the Wagga office for his consideration. On the corrected second page of the attachment he recorded a note reading:

‘The above report is a fair and reasonable assessment of the contractor’s performance. I feel that the contractor can take these issues and review the work procedures and improve the efficiency of his operation on site’.

223 Following expressions of concern by the applicant about the events of August 1998 in a letter dated 9 June 1999, Mr Liu was invited to express his observations on those concerns which he did in a facsimile sent by him on 30 August 1999. Under the heading ‘SUBJECT: EDEN CONSTRUCTIONS – CONTRACTOR PERFORMANCE REPORTS’ Mr Liu wrote:

‘Further to your fax of Friday 27th August 1999 in which you requested background information to Contractor Performance Reports (CPR’s) issued on Eden Construction and a response to their letter of 9th June 1999.

My comments are as follows.
CPR August 1998. A draft of this report (attached) was indeed given to the contractor prior to the issue of the Superintendents completed CPR [the reference to ‘Superintendents’ was plainly intended as a reference to Mr Ellison as the Department’s Contract Supervisor and not Albury City Council’s then Director of City Services as the Superintendent under the Kremur Street Pumping Station contract]. I do not recall at this time whether I told the contractor that, at the time, that the report was a DRAFT.
Following the issue of the DRAFT I discussed the content and my comments on the CPR with my Project Manager, Mr. Peter Grove.
Following my discussions it was decided to revise the comments of the report to better reflect my experiences. I believe that my DRAFT comments did not fully reflect my on-site experiences with this contractor. I believe that I was not fully objective and had allowed myself to be subjective, in that I didn’t want to comment on issues that I felt were "minor" or just my personal opinion. Following the discussions concerning the value of the CPR to DPWS as an organisation it was agreed that an objective report would be of more value.
...’

Mr Liu’s suggestion that his original Contractor Performance Report of 7 August 1998, which he shared with Mr Filardo, was a draft cannot be accepted. Plainly, it only became a ‘draft’ after Mr Grove called upon Mr Liu to submit a more critical report.

224 In the revised version of the third Contractor Performance Report bearing date 7 August 1998 Mr Liu ticked the ‘Unsatisfactory’ box in respect of ‘Time Management’, ‘Standard of Work’, ‘Quality Assurance’ and ‘Management and Quality of Personnel’. In the first version the ‘Unsatisfactory’ box had only been ticked in respect of ‘Quality Assurance’. Mr Liu’s overall comments as recorded in the attachment to the revised version of the third Contractor Performance Report were expressed as follows (where relevant the earlier version is noted in normal type):

‘The Contractor has continued on site work with some delays due to inclement weather and its effects. Performance on evaluation items listed below is considered unsatisfactory and disappointing. (cf marginal) DPWS has provided the Contractor with continued direction and surveillance in the following areas. (cf the Contractor needs continued direction and surveillance)

Time Management
• progress of the work
Improvements to published program and on site estimates for work production are required. (cf Time, improvements to published program and on site estimates for work production) While initial progress in excavation and concrete construction was good, current progress has slowed and is only just acceptable. (cf While initial progress was good current progress is only just acceptable) There have been some delays due to inclement weather but it is considered that with the current rate of progress the Contractor may not meet the contract period. The contract is 50% through the approved period yet is estimated at 25% complete by contract value and work performed.

Standard of Work
• remedial work required
• compliance with specified tolerances and finishes
Standard or Work can be improved, greater attention to detail and the specification requirements is required. The following incidents are a matter of record. It is felt that the Site Manager must have more control and take responsibility for the work being performed and not simply rely on DPWS surveillance to identify where work is non confirming.
Location of Piles, determination of "Rock" and steel sleeving of Piles.
Floor of Inlet Pit at the wrong level requiring additional excavation, new starter bars, remedial work.
Formwork, quality and stability. Examples.
Formwork not producing specified finishes which will require remedial works.
Formwork with gaps and misalignments that have had to be rectified just before a concrete pour.
Cover to Reinforcement less than that specified in various locations requiring remedial work before concrete pour.
Reinforcement.
Reinforcement placed with insufficient cover.
Reinforcement placed contrary to drawings.
Reinforcement and Starter Bars (for pipe penetrations) omitted and placed during concrete pour.
Concrete Pouring.
Scabbling insufficient in some locations and only done when directed by DPWS.
Scaffolds and Walkway only provided at the direction of DPWS and not planned as a part of the construction process.

Quality Assurance
• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan
• the number of repetitions of the same non-conformance
Further to issues identified above it would appear that the Quality Assurance system is still under development and not being used to control work (cf Quality Assurance, system still under development and not being used to control work). Eden’s Site Manager does not appear to check the work of workers and subcontractors. There have been a number of repetitions of the same non-conformance being detected by DPWS, just prior to concrete pours, despite work being "passed" by Eden Site Management (cf Work Standard can be improved, with attention to detail and specification requirements).

Management and Quality of Personnel
• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work
In the light of current work progress and observations of DPWS Construction Supervisor, it appears that Eden Constructions is under resourced and inefficiently using present resources (cf Management of Personnel, in the light of work progress, contractor appears to be under resourced).
Carpenters have been observed doing the work of labourers (stripping forms) when they could be better employed in preparing forms for concrete pours.
There is only one "crew" working at one time when a number of workfaces could be employed.
Subcontracted Steel fixers, Testing Personnel, Cranes and Concrete Pumps are employed but are sometimes under utilised or left idle (at cost) while other "simple" tasks which could have been planned and completed earlier are finished.’

Mr Liu says and I accept that he was the author of these overall comments in the revised version of the Contractor Performance Report nominally dated 7 August 1998.

225 Mr Liu’s evidence was that the second version of his report for August 1998 did not raise any matters that weren’t covered by his first report of 7 August 1998 that were other than minor matters. It is perhaps unfortunate that the revised report did not make it clear that the fresh matters which were raised were in Mr Liu’s opinion nothing other than minor matters.

226 In respect of the partly signed version of Mr Liu’s revised third Contractor Performance Report Mr Ellison, as the recommending officer, stated:

‘your firm needs to show signifigant (sic) improvement in the areas noted as being "unsatisfactory".
I am aware of CFMEU concerns over your non compliance with Code of Practice issues.

On the advice of the Project Supervisor I will not be indicating that you be given no further work with this Dept. But this will be subject to an improved performance prior to the next report.’

The Contractor Performance Report to which Mr Ellison subscribed these remarks had been signed by the reporting officer, Mr Liu, who referred to himself as ‘(Project Engineer)’. The 13 August 1998 version of the last page of the attachment had been endorsed as indicated above by Mr Grove who did so as ‘Project Manager’. It is uncertain who Mr Ellison had in mind when he referred to the ‘Project Supervisor’ but I would incline to the view that he was referring to Mr Grove as Mr Liu’s supervisor.

It may be observed that Mr Liu made no mention in his report of the industrial organisation known as the ‘CFMEU’ [Construction, Forestry, Mining and Energy Union].

227 Mr Ellison signed his report as recommending officer with a notation that the contractor was recommended for future work ‘Subject to review’.

228 Mr Ellison’s report did not include the normal confirmation that a copy of it had been sent to the contractor on a specified date. However, it would appear that under cover of a letter dated 17 August 1998 Mr Ellison, as the Contracts Superintendent for Riverina/Western Region of the Department, forwarded a copy of the revised, but uncorrected, third Contractor Performance Report, signed by Mr Liu in the body of the standard form of document on page 3, and by Mr Ellison on 17 August 1998 on the same page. Mr Ellison’s covering letter provided as follows:

‘As you would be aware, during the administration of contract the NSW Department of Public Works and Services monitors and reports on the performance of its Contractors. It is the policy of the Department to give Contractors the opportunity to comment on their performance reports.

Should you wish to comment on the attached report, kindly do so in writing within ten days of the date of this letter.

In addition to providing you with a copy of the above report I would also like to take this opportunity to reinforce the need for you to comply with the following contract conditions:-
A) Security of Payment
All subcontracts over $25,000 must have formal agreements complying with the requirements of this clause.
B) Long Service Levy Payment

C) Compliance with the Codes of Practice
Over the next few weeks I will be auditing these requirements on your Contract. Any unexplained non compliances that are found may be grounds to sanction your company for future work with this Department.

Please contact me if you would like to discuss either the report or issues raised above.’

The applicant chose not to provide a written comment on the revised Contractor Performance Report notwithstanding the invitation to do so.

229 In the course of his cross-examination by counsel for the respondent Mr Filardo said that in a conversation with Mr Liu in August 1998 Mr Liu said to Mr Filardo that if the Department had any role at all in the Kremur Street Pumping Station contract, the applicant ‘would never have got the job in the first place’. This assertion cannot be construed as an admission on the part of the Department. Furthermore, it is inconsistent with the facts. The Department clearly had a role in the contract.

230 Mr Filardo’s diary for 14 August 1998 included an entry ‘Trevor & Pud on site to check the floor of the upper chamber of inlet pit’.

231 Mr Liu’s diary for 14 August 1998 included the following:

‘EDEN LETTERS
...

EDEN – CPR POURING FLOOR OF INLET – THINGS STILL TO BE RECTIFIED BEFORE POUR – COVER
– STEEL
DISCUSSIONS [concerning] 250 -> 300 mm WALL
OPTION TO CONSTRUCT [concerning] 2 LIFTS !
CES CITES TIME CONSTRAINTS
CES OFFERS 300 mm WALLS AT NO COST FOR HIS CONVENIENCE-’

232 On 17 August 1998 the applicant provided a ‘Revised Construction Program’ dated 17 August 1998 to Mr Liu.

233 Mr Liu’s diary note for 17 August 1998 included:

‘EDEN PROVIDES NEW PROGRAM – UNHAPPY ABOUT CPR – I DISCUSSED PROGRAM + CPR
...’

234 On 19 August 1998 Mr Williams signed off on formwork and reinforcement checklists. On 20 August he signed off on a concrete checklist. On 2 and 3 September 1998 he signed off on further reinforcement checklists and a concrete checklist. On 8, 10 and 11 September 1998 he signed off on further concrete, formwork and reinforcement checklists. Again on 15 September Mr Williams signed off on formwork, reinforcement and concrete checklists indicating with ticks in each of the ‘yes’ boxes as ‘client’s representative’ that ‘... WE CERTIFY THAT THE ABOVE WORK HAS BEEN COMPLETED IN ACCORDANCE WITH DRAWINGS AND SPECIFICATIONS’.

235 Mr Liu’s diary notes for Wednesday 19 August 1998 included:

‘EDEN FIXING STEEL FOR INLET PIT WALLS - ...’

236 On Wednesday 19 August 1998 Hardy Ruckert, Policy Manager Performance, Strategic Procurements Services Division within the Department forwarded a memorandum to Don Murphy which was endorsed ‘for information and return please’ which appears to have been signed by Mr Murphy on 20 August 1998 and Mr M Hannon as Group General Manager PMG who added the words ‘noted, thanks’ on 21 August 1998. The memorandum provided as follows:

‘DON,

RE: EDEN CONSTRUCTION P/L ACN 054 090 372

FURTHER TO OUR DISCUSSION:

1] THE PANEL OF ASSESSORS DECIDED ON 6/5/98 TO REMOVE THE NAME OF EDEN CONSTRUCTIONS P/L ACN 008 508 129 FROM THE REVIEW OF CONTRACTORS AND CONSULTANTS LIST, AS THE COMPANY HAD GONE INTO LIQUIDATION.

2] EDEN CONSTRUCTION (SINGULAR) P/L WERE AWARDED THE KREMUR STREET, ALBURY, PUMPING STATION (CONTRACT NO. 9800075) ON 28/1/98 FOR $2.2M WITH COMPLETION WITHIN 42 WEEKS

3] EDEN’S TENDER PRICE WAS $300K LESS THAN THE NEXT LOWEST PRICED CONFORMING TENDERER’S. I HAVE NOT BEEN ABLE TO FIND OUT THE PRE-TENDER ESTIMATE.

4] THE CONTRACT NO. 9800075 25% COMPLETION STAGE CPR DATED 17/8/98 RATED THE CONTRACTOR’S PERFORMANCE AS U/S ON:
• STANDARD OF WORK
• QUALITY ASSURANCE; AND
• MANAGEMENT & QUALITY OF PERSONNEL.

5] IN THE CPR KEVIN ELLISON HAS WARNED THAT THE CONTRACTOR WILL NOT BE RECOMMENDED FOR FUTURE WORK UNLESS PERFORMANCE IS IMPROVED, PARTICULARLY ON THE U/S RATED ITEMS.

6] I DISCUSSED THE CONTRACTOR’S PERFORMANCE TODAY WITH TREVOR LIU, SUPERINTENDENT’S REPRESENTATIVE.

7] THE CONTRACTOR’S NAME HAS BEEN PLACED ON THE PROVISIONAL LIST.’

237 The Department appears to have issued its provisional review lists and review lists on a quarterly basis. The 17 June 1998 list published by the Department’s Policy Division was entitled:

‘Review of Contractors and Consultants Provisional List
and
Review of Contractors and Consultants List’

238 The 23 October 1998 issue published by the Department’s Strategic Procurement Services Division was entitled:

‘Contractor and Consultant Provisional Review List
and
Contractor and Consultant Review List’

239 In the October list the applicant was named as one of 28 companies under the heading ‘Contractor & Consultant Provisional Review List’. That list was followed by a ‘Contractor and Consultant Review List’ which recorded the names of 43 businesses. The lists were preceded by a five page preamble. That preamble included the following:

‘Introduction

The Department maintains two registers relating to construction work for monitoring of action taken in response to reports of unsatisfactory contractor and consultant performance and business relationships:
• Contractor and Consultant Provisional Review List (the Provisional Review List)
• Contractor and Consultant Review List (the Review List).

Contractor and Consultant Provisional Review List

Placement on the Provisional Review List

Contractors’ and consultants’ names are initially included on the Provisional Review List as soon as unsatisfactory performance or non conformance with Government or Departmental requirements is reported to Policy Division.
...

These names are retained on the Provisional Review List while the Department’s procedures for dealing with reports of unsatisfactory performance and business relationships are applied.

If the contractor’s or consultant’s actions are considered serious enough, these will be evaluated by the Department’s Panel of Assessors and may result in the contractor’s or consultant’s name being placed on the Review List. The Department’s Panel of Assessors comprises two Branch Managers and one Policy Manager from Strategic Procurement Services Division.

In the event of less serious actions, the names of contractors and consultants will remain on the Provisional Review List until the actions are known to have ceased or for no more than six months after the last adverse report is received by Strategic Procurement Services Division.

Contractors
Contractors’ names will initially be placed on the Provisional Review List when they have:
• been rated as performing unsatisfactorily on one or more of the following performance evaluation items under the Department’s Contractor Performance Reporting System:
* time management * standard of work
* quality assurance * coordination of subcontractors
* management and quality of personnel
* contract administration * OH&S
* design & documentation (for D&C, DD&C, DN&C contracts only).

Any alleged breach by the Contractor of the NSW Government’s Code of Practice for the Construction Industry should be noted in the Contractor Performance Report
The Provisional Review List will also include the names of contractors who:
• have not been recommended for future work with the Department.

• have not complied with the Code of Tendering or Code of Practice [NSW Government Code of Tendering for the Construction Industry, July 1996, and NSW Government Code of Practice for the Construction Industry, July 1996], for example:
* participating in uncompetitive behaviour (Code of Tendering,Section 5.3 refers);
* failing to adopt a cooperative (non adversarial) contracting approach (Code of Practice, Section 2.1 refers);
* not meeting the NSW Government’s Construction Industry OHS&R obligations, (Code of Practice, Section 6 refers); or
* not satisfying the NSW Government’s Construction Industry industrial relations requirements, (Code of Practice, Section 7 refers).

• have experienced problems with their business relationship with DPWS, for example:
*conducting unnecessary, unreasonable or dubious litigation;
* failing to adhere to the contract dispute resolution provisions, including unsatisfactory progression of dispute resolution; or
* having a claims history precluding maintenance of a normal business relationship with DPWS.

• have experienced problems with their financial status, for example:
*late provision of contract security;
*failure to comply with contract security of payment provisions evidenced by subcontractors’ statutory declarations;
* slowing of work not explained by the contractor, or
*complaints about late payment from subcontractors and suppliers not explained by the contractor.

• have been issued with a Show Cause Notice (AS 2124-1986 contracts) or a Contractor’s Default Notice (C21 contracts), or had their contracts terminated or taken over by the Principal (all contracts).
...

Assessment
According to the Department’s procedures for dealing with reports of unsatisfactory contractor or consultant performance and business relationships, the names of such contractors or consultants will be:
• retained on the Provisional Review List and reassessed periodically; then
• removed from the Provisional Review List with no further action being taken; or
• transferred to the Department’s Contractor and Consultant Review List (the Review List).

Conditions for use of the Provisional List
The Department is either prepared to or will continue to do business with the contractors and consultants included on the Provisional Review List. Past and current performance must be taken into account when new business opportunities, including tenders and consultant proposals, are being considered for the contractors or consultants included on the Provisional Review List. (see DPWS Contracts Manual Section 2.54; Consultant Management Manual Section 3.4.6).
...

Contractor and Consultant Review List

Placement on the Review List
Contractors’ and consultants’ names are placed on the Review List, following the decision of the Panel of Assessors, according to the Department’s procedures for dealing with situations when they have:
• experienced problems considered to affect the performance of their work, and as a result have not been recommended for future work, under the Department’s Contractor or Consultant Performance Reporting System, for example, unsatisfactory OH&S, unsatisfactory quality assurance or unsatisfactory time performance;
• not complied with the Code of Tendering or Code or Practice in a substantial way; or
• experienced problems with their business relationship with DPWS, for example unsatisfactory financial status, failure to adhere to the dispute resolution provisions, non-compliance with contract security of payment provisions, have incurred a CPSC sanction or are under investigation by a law enforcement agency.
...

Assessment

StrategicProcrement (sic) Services Division monitors the status of contractors and consultants whose names are included on the Review List. The continued inclusion of the names of contractors and consultants on the Review List is reassessed by the Department’s Panel of Assessors when the status of such contractors and consultants has changed.

The names of contractors and consultants included on the Review List will be removed in accordance with Departmental procedures when:
• the Department’s requirements for resumption of the business relationship have been met;
• following investigation of the reasons for listing, the CPSC or law enforcement agency has decided to take no further action; or
• the contractor or consultant is no longer trading.
Conditions for use of the Review List

Assessment of tenders and proposals
The inclusion of the name of a contractor or consultant on the Review List does not necessarily mean that the Department will not do business with that contractor or consultant.

Staff are to contact the Manager Procurement Management, Strategic Procurement Services Division ... before assessing tenders or fee proposals received respectively from contractors or consultants on the Review List.

External Enquiries
Enquiries from persons or organisations outside the Department of Public Works and Services regarding the record of performance of contractors or consultants on the Review List are to be referred to the Manger Procurement Management, Strategic Procurement Services Division ...’

240 On Friday 21 August 1998 Mr Malcolm Densley of the applicant met with Mr Liu, most likely in Mr Liu’s office, to discuss the August Contractor Performance Report. The meeting took place between about 10.00 am and midday. Mr Liu’s diary entry recorded:

‘MALCOLM DENSLEY DISCUSSES CPR
DISAGREES WITH "SUBJECTIVE" COMMENTS
MADE IN CPR.’

241 Mr Filardo’s diary notes for Friday 21 August 1998 included:

‘Stop work at lunch time the weather is coming in & looks pretty mean.
Rain in the afternoon. E.O.T. [extension of time] 1/2 day.
...

Malcolm [Densley] met with Trevor [Liu] in his office who admitted to Malcolm that the "word" came from Sydney high up "that Ces is a bad boy on the black list & should not had (sic) been given the job at Albury at all."
This is the reason why Peter Grove Trevor & Pud [Albert Williams] are making life very difficult for me.’


The applicant did not call Mr Densley as a witness. It considered subpoenaing him but elected not to do so.

Whilst the diary note may provide evidence as to what Mr Densley told Mr Filardo, it does not prove the terms of Mr Liu’s alleged conversation with Mr Densley. Furthermore, it does not establish anything that may have been said to Mr Liu by officers within the Department. Mr Liu had no recollection of saying anything to Mr Densley to the effect of ‘the word came from Sydney high up that Ces [referring to Mr Filardo] is a bad boy. Eden is on the blacklist and should not have been given the Albury job at all’. He denied having received any such advice form anyone in the Department.

242Minutes of a 25 August 1998 ‘Albury Joint Steering Committee Meeting’ record the ‘Contract Status’ as ‘25% Contractor completed the forming the northern wall of the pump station and is preparing a major concrete pour. Minor delays have been as a result of inclement weather’.
243In September 1998 the Department published a manual identified as ‘Document PWM-0601’. Under the headings ‘Tenders’ and ‘Acceptance/Rejection of Tenders’ appearing on various pages of the manual between pages 244 and 279 the following, inter alia, appeared:
‘The Departments’ policy is to accept the tender most favourable to the Department and the Client. That tender may not be the tender with the lowest tender amount as submitted through the Tender Box. ...
...

Tenders Below Market Value

Caution needs to be exercised in making recommendations for award of tenders which are at a price below a fair market value. Where a conforming tender is at a price more than 10% below the estimate the following action must be taken:
• the tender estimate must be re-evaluated in detail and reconciled with the Tenderer’s price and with that of other Tenderers;

• where, following review of the estimate, it is considered that the tender price of a Tenderer in contention is more than 10% below the fair market value for the work, the Tenderer must confirm in writing that the nature and extent of the contract is fully understood, that the price properly reflects all the contractual obligations and that the Tenderer remains satisfied that the tender price is correct. ...
...

Variations in Price after Tender Closing

The total value of the tender recommended for acceptance can vary from that submitted through the Tender Box for various reasons (e.g. errors in extension; errors in the tender documents; removal of qualifications; conformance with the documents). When these variations occur, they must be fully explained.
...

2.54 ASSESSMENT OF TENDERERS

The assessment of Tenderers is to be carried out at the time of review of tenders to ensure that assessments are effective, timely, minimise risks to the Client and are in line with proper risk management principles. Assessment is to be on the basis of:
1) Satisfactory past performance on contracts of a similar nature and value to the works tendered for; see Past Performance on Contracts below
2) Satisfactory management and technical expertise and resources to complete the work satisfactorily in conjunction with the tenderer’s current workload;
3) Sufficient financial capability to carry out the works tendered for, see Financial Assessment below;
4) The Tenderer is an acceptable legal entity: see Paragraph 2.52
...

Contractor Review List

In line with the NSW Government’s thrust to do business with the best of the private sector, a "Contractor and Consultant Review List" has been established. See Section 5.63 This list contains the names of firms which require further investigation before engagement.

The list is maintained by the Strategic Procurement Services Group and is distributed on a confidential basis to Product Group Heads and Branch Managers with responsibility for Contractor/Consultant performance and Managers of Regions and Project Managers of designated projects. Prior to recommendation of the award of a tender, the list is to be checked to ascertain whether or not the recommended Tenderer appears on the list. Any person proposing to accept a tender must ensure that the Strategic Procurement Services Group is consulted if the recommended Tenderer is included on the List.

Past Performance on Contracts

The assessment of past performance (see Sections 5.55 – 5.61) must be done by an experienced person, using Departmental records. The first step should be examination of the Contractor Performance Reporting System. These records should be supplemented, when necessary, by reference to information held by the office reviewing tenders, other offices currently administering or which have recently administered a contract with the Tenderer and information obtained from other Clients of the Tenderer.

If insufficient information exists within the Department to assess past performance the Tenderer should be requested to submit information in accordance with Precedent 2.54. Both the financial and contract information should be sought at this stage. Submission of details may be requested of a number of Tenderers simultaneously in order to save time in the tender review process. The following factors must be considered:
• value of contracts;
• building and construction competence;
• complexity of the work;
• actual completion time compared to original completion time;
• quality of work;
• claims;
• Tenderer’s contract management and administration skills;
• payment of workers, subcontractors and suppliers;
• safety performance and industrial relations;
• performance during the Defects Liability Period and finalisation;
• apprenticeship policy;
• if the company has been placed on the Contractor and Consultant Review List;
• litigation or arbitration with the Department;
• in the case of unsatisfactory performance, the Tenderer’s response to address the problem; and
• any other relevant factors.


The extent of the checking must relate to the value of the contract and the perceived risks to the Department and the Client.

Resources to Complete the Work

The Reviewing Officer must assess and be satisfied with the recommended Tenderers capacity to complete the work in conjunction with its current workload on contracts for this Department and any other public or private organisation.
...

2.61 BOARD OF ADVICE AND REFERENCE

Definition

The Board of Advice and Reference is an official body comprised of senior officers from the Department and other Government Agencies, and it has the vital role of upholding the long-established and respected tendering system of the Department by ensuring that high standards of tendering and processing of tenders are maintained.
...

Functions

The Board is to deliberate on those matters referred to it from time to time. Primarily, these will be the consideration of recommendations by officers of the Department for the acceptance of tenders. The Board is not delegated the authority to accept a tender. That is the role of the Minister or someone with a delegation from the Minister as set out in the Department’s Authorities Manuals (including those for individual Divisions/Product Groups).

The Board’s functions and responsibilities are:
•To examine tender recommendations to ensure probity, fairness and value for money and to concur or not concur in the recommendation. If it does not concur, it should give reasons and advise what action it considers should be taken. Before refusing to concur, the Board must be satisfied that the recommendation does not take into account, or give due consideration to, important factors. The Board is not authorised to recommend which tender should be accepted but to scrutinise the recommendation.
•To ensure that all tenders have been given fair consideration and that the reasons for passing over any or all tenders appear to be justified and will stand up to scrutiny. If it finds unfairness, dishonesty or favouritism, it must report the details to the Group General Manager, Strategic Procurement Services for investigation.
•To consider if the recommended tender appears to give value for money. This will involve consideration of more than the price of a tender and means that the lowest tender is not necessarily recommended for acceptance.
•To rule whether a late tender should be accepted when a tender submission details reasons for accepting that late tender. This will involve considerations of whether the cause of lateness was circumstances which were beyond the Tenderer’s control and the integrity of the tendering process will not be compromised by accepting the late tender.
•To not substitute its own opinion and recommendation as to which tender should be accepted in lieu of that recommended in the submission, even though the Board may prefer one Tenderer to another.
•To be satisfied that, where the reason for passing over a tender is on technical grounds, the reason appears to be sound. It should not be concerned with technical matters or consider the technical merits of a tender. If it is not satisfied the Board would not concur.
•To be satisfied that the recommended Tenderer has been fully assessed as being capable of completing the work. The person recommending the tender acceptance must have considered the relativity of estimates, current market prices and tender prices. A tender which is considerably below the estimate or current market price should have been carefully scrutinised. The review must have considered the Tenderers managerial and technical ability, current work load, current financial status, previous experience with the Tender and current litigation on arbitration. It is not unfair to take into account the current or previous experience of the Department of Public Works and Services with a particular Contractor.
•To reach decisions by consensus. There can be different opinions on matters raised. Should one member of the Board record a dissentary opinion, the reasons must be carefully examined. Should the Chairman of the Board elect to concur or not concur in a recommendation despite such a dissention, the dissention should be noted in the Minutes of the Meeting.
•Responsibility for a recommendation always remains with the officer making the recommendation. Consideration of the recommendation by the Board does not transfer responsibility from the recommending officer to the Board. The Board’s function is not to recommend a tender but to scrutinise the recommendation to ensure probity, fairness and value for money.
...

2.62 REJECTION AND/OR RECALL OF TENDERS

Regardless of the value of the tender, the concurrence of the Board of Advice and Reference must be obtained to a recommendation to not accept any tender received for a particular contract. The submission recommending that no tender be accepted must detail the reasons for not accepting any tender and must advise if fresh tenders are to be called.

Following concurrence of the Board of Advice and Reference, officers may approve the recommendation to not accept any tenders up to the limit of their financial authority. Approval to recall tenders must follow the procedures for approval to call tenders. An opportunity to submit a fresh tender is to be given to each of the original tenders unless there are sound reasons for not doing so.’
244On 10 September 1998 Mr Evans of Construction QA Services Pty Limited issued a ‘SECOND PARTY QUALITY ASSURANCE EXTERNAL AUDIT REPORT’ on the form provided for use by the Australian Capital Territory Department of Urban Services in respect of the applicant’s Quality Assurance Manual. It was accompanied by recommendations A to H inclusive which provided as follows:
‘No A.
Quality Manual Cl A.1.2.5 requires clarification/revision to match current situation in which the Managing Director undertakes role of management representative. Duty statements need to reflect this and the role of the Quality Assurance Co-ordinator in assisting in this role.
Refers to Qu. 4.1-7 & 18.
No B
There is insufficient evidence of management review, including review of non- conformance trends, corrective action & preventive action.

Q 4.1 – 28. & 4.14 – 12

No C.
There is insufficient evidence of the review and control of distribution of externally generated office level documents. (Eg Register & sign off for standards, Basic Spec etc)
Q 4.5 – 8, 10 and 11

No D
There is no procedure for handling changes to issued documents when such changes are contained in separate documents. (eg the marking up of construction drawings in response to site instructions.)
Q 4.5 – 24

No E
There is no virus checking procedure.

Q 4.5 – 26

No F.
Procedures for IMTE need to cover validation of previous measurements when IMTE is found to be out of calibration.

Q 4.10 – 4.

No G.
Procedures do not cover how subcontractors (including specialist testing subcontractors) are handled to ensure properly calibrated equipment is used when required.
Q 4.10 – 6


No H.
Procedures for quality records needs to include for keeping records for times contractually agreed with the client.
Q 4.16 – [unreadable]’
245Mr Evans’ audit report indicated that certification would be recommended ‘on evidence of actioning comments A to H and conditional on a progress audit in February 99’. In his general comments he said:
‘Whilst there is progress with the documentation & implementation of the quality system, implementation still needs significant strengthening. There are also some specific actions (A to H) required for substantial QA certification.’
246Mr Filardo spent over six hours going through the applicant’s Quality Assurance Manual on 10 September 1998.
247Mr Filardo’s diary notes for 14 September 1998 indicate that on this day he took some quality assurance papers to Mr Trevor Liu for his assessment. Mr Liu’s diary notes for the same day indicate that the applicant provided information to him which he noted as ‘QA CONC TESTS’.
248Between 25 September 1998 and 15 October 1998 various reinforcement, formwork and concrete checklists were signed off by either Mr Williams or Mr J Sarandis as the ‘Client’s Representative’. Thereafter between 22 October and 23 December 1998 Mr Liu, as the client’s representative, signed off in respect of some 40 odd formwork, reinforcement and concrete checklists. These included check lists where Mr Liu had signed his initials against the question ‘Are the forms clean?’ and checklists where he signed his initials against ‘Type of finish a Required’.
249When Mr Liu signed off on the formwork checklist of 22 December 1998 he observed that Mr Filardo had placed a tick against the ‘F2’ box in respect of ‘Class of Finish Specified’. Mr Liu did not initial against that item. Rather he circled the notation ‘F3’ and added the word ‘REQUIRED’ against which he added his initials.
250Mr Liu’s evidence was that each time he inspected the formwork he observed that it was second-hand formwork rather than new formwork. He was aware of the fact that each time he made an observation concerning the formwork he realised that it would only end up producing an F2 finish.
251Mr Liu’s diary notes for 30 October 1998 included:
‘CRAIG SUMMER HAYES (sic). Sth COAST – PIPELINE JOB – EDEN REFEREE REQUIRED.’
252Mr Summerhayes was, at the time, Regional Projects Coordinator for the South Coast office within the Department, based in Nowra. He was responsible for reviewing tenders for the Bamarang to Nowra Hill pipeline for which the applicant had been a tenderer. In his diary under the heading ‘Discussion Trevor Lieu (sic)’ Mr Summerhayes recorded on 30 October 1998:
‘Gradual improvement
QA system some improvement certainly not
substantial implementation
Std of Work generally OK
Mgt & Quality Personell (sic) unchanged
Cec Filado (sic) willing to comply
doesn’t know expectations
communication to subbies
Malcolm Densley M & E
Financial Status?? Cncl Superintendent & called tenders
...
People work better when Cec Filado (sic) isn’t there
Luxury of daily supervision because its nearby
foresees problem
Sometimes requires reminding on OH & S issues
needs to be informed current practice sometimes
eg kickplate on scaffold not provided
need to be very watchful on OH &S issues
...’
253On 10 November 1998 Mr Liu issued his quarterly Contractor Performance Report. It indicated that the contract amount as varied was then $2,311,447.09. The report indicated that the extended date for practical completion was 1 February 1999 and that 50 per cent of the work was completed at the date of the report. Somewhat curiously Mr Liu placed ticks in both the ‘Unsatisfactory’ and ‘Acceptable’ boxes in respect of three of the evaluation items, namely ‘Time Management’, ‘Quality Assurance’ and ‘Management and Quality of Personnel’. By this he intended to indicate that the contractor’s performance was acceptable but marginal. Given the definition in the form of ‘Acceptable’ as ‘Generally meets acceptable standard of performance with few weakness’ and the definition of ‘Unsatisfactory’ as ‘Many weakness – cannot meet the acceptable standard of performance’, it is incomprehensible that Mr Liu could have identified performance that was acceptable but marginal as anything other than ‘Acceptable’. See also Mr Liu’s observation at [254] that performance on these evaluation items was ‘only just acceptable’.

In relation to time management Mr Liu highlighted ‘● progress of the work’. In relation to quality assurance he highlighted:

‘• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan’.

In relation to management and quality of personnel he highlighted the:

‘• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work.’

254In respect of ‘Standard of Work’, ‘Coordination of SubContractors’, ‘Contract Administration’ and ‘Occupational Health & Safety’ Mr Liu had ticked the ‘Acceptable’ box in each case.
255In relation to those items where Mr Liu had, as reporting officer, indicated by one of his two ticks that the item was unsatisfactory, reference was made to an attachment in which he stated:
‘In my opinion: ...
The Contractor has continued on site work with some delays due to inclement weather and its effects. Performance on evaluation items listed below is considered improved from the August Contractor Performance Report but only just Acceptable.

Time Management
• progress of the work
The contract is 77% through the approved period (40 weeks elapsed, 12 weeks remaining). The most recent valuation is for 50% of the contract value. Installation of high cost Mechanical and Electrical packages awaits completion of Civil Works

The Eden Constructions remain confident that work will be completed within the approved Contract Period. On-site work production has continued to average 1 major concrete pour per week. It is envisaged that major civil works will be complete by early December 1998. It is felt that progress of the on-site work can still be improved. In reference to my previous CPR Aug98, work has generally continued employing all workers on one workface at a time.


Quality Assurance
• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan
Quality Systems have undergone continued development and documentation is being produced in parallel with work performed on-site. The Contractor has had 3rd Party Examination and Audit of his Quality System. Basic or Substantial Implementation has yet to be demonstrated, the System is presently undergoing Certification.

It is my opinion that there should be continued surveillance of the witness and hold points of the work performed by this contractor.’
256It may be observed in respect of quality assurance that the contract did not require the applicant’s quality assurance system to reach the ‘Substantial Implementation’ level. Notwithstanding his assessment that the work was 50 per cent completed as at 10 November 1998, Mr Liu’s assessment of the quantity of concrete poured as at 1 November 1998 was that 79.34 per cent had been poured.
257On 19 November 1998 Mr Ellison, as the recommending officer, reported on Mr Liu’s assessment of 10 November 1998 as follows:
‘surveillance of this Contractor is still needed. Some improvement is noted. I reserve my final assessment to the completion of the contract. Keep up the improvement.’
258On 23 November 1998 Mr Ellison forwarded a copy of the completed fourth Contractor Performance Report to the applicant. In his covering letter he said:
‘During the administration of contracts the Department of Public Works and Services monitors and reports on the performance of its Contractors. It is the policy of the Department to give Contractors the opportunity to comment on their performance reports.

Should you wish to comment on the attached report, kindly do so to me within ten (10) days.’

The applicant chose not to provide a comment in writing on the fourth Contractor Performance Report notwithstanding the invitation to do so.

259On 24 November 1998 the Department advised the Hunter Water Corporation to pass over a tender submitted by the applicant for the construction of the Medowie to Raymond Terrace Wastewater Transfer System. The Project Engineer Contracts Group reported that the applicant had ‘recently performed poorly on a project of similar nature’. It was further reported ‘[a] review of the rates submitted suggests that this firm has underestimated the complexity of the work involved in key areas such as the pumping stations’.
260On 25 November 1998 a confidential paper was presented seeking Board approval for the award of the relevant contract. In relation to the applicant the paper stated:
‘... Eden Construction ... have been involved in construction of a major wastewater pumping station for Albury Council which would present similar technical problems.

The Albury contract is still current and is being administered on behalf of Council by DPWS. ... The Superintendent’s Representative has reported that in his opinion the performance of Eden Construction has been unsatisfactory with regards to Time Management, Standard of Work, Quality Assurance and the Management and Quality of Personnel. [It may be noted that these were not observations which flowed from the Contractor Performance Report signed by Mr Liu as reporting officer on 10 November 1998 and by Mr Ellison as recommending officer on 19 November 1998. Their source is the revised version of Mr Liu’s August Report issued on 12-13 August 1998 against the date 7 August 1998]. Based on this report the Albury Superintendent has advised Eden Construction that it will not be recommended for future work with the Department unless performance is improved. [Such a recommendation is not to be found in the Recommending Officer’s Reports of August 1998 or November 1998. The last sentence is quite inconsistent with Mr Ellison’s report as recommending officer of 17 August 1998 where he said: ‘On the advice of the Project Supervisor [referring to Mr Liu] I will not be indicating that you be given no further work with this Dept. But this will be subject to an improved performance prior to the next report.’]

It should be noted that the lump sums tendered by Eden Construction for construction of the two pumping stations are significantly (up to 48%) less that (sic) the pretender estimates and of the lump sums of other tenders. When considered with the above report on the firms performance at Albury these lump sums demonstrate a lack of understanding of the complexity of constructing major pumping stations.

Following receipt of the unfavourable reference further information was sought from DPWS’ General Manager Procurement Mr Don Murphy. Mr Murphy’s responsibilities include management of the tender process and supplier performance for the Department. Mr Murphy has advised that in his opinion Eden Construction is not capable of completing a contract the size of that for the Medowie to Raymond Terrace Wastewater Transfer System.’
261In the same confidential paper under the heading ‘EXAMINATION OF TENDERS’ reference was made to the applicant’s ‘Experience and Technical Capability’. In relation to the Kremur Street Pumping Station works the following notation was included:
‘The Superintendent’s Representative, Mr Trevor Liu, has stated that in his opinion Eden Construction cannot be relied upon to work to the specification. He has also formally reported that in his opinion the performance of Eden Construction with regards to Time Management, Standard of Work, Quality Assurance and the Management and Quality of Personnel has been unsatisfactory.

Based on the report of the Superintendent’s Representative, the Department’s Regional Superintendent has warned Eden Construction that it will not be recommended for future work with the Department unless performance is improved. [As indicated above this involves a misconstruction of Mr Ellison’s 17 August 1998 observations which were added to Mr Liu’s revised Contractor Performance Report dated 7 August 1998 but created on 12 August 1998]
...

As a result of the report of unsatisfactory performance on the Albury City Council contract and lack of relevant experience on works of a similar size and nature, further information was sought from DPWS’ General Manager Procurement, Mr Don Murphy. Mr Murphy’s responsibilities include management of the tender process and supplier management performance for the Department.


The director of Eden Construction Pty Ltd was also the director a company (sic) called Eden Constructions Pty Ltd which went into liquidation in approximately 1992 due to difficulties on an ocean outfall contract with the Department. Mr Murphy has advised that, based on his knowledge of Eden Construction, in his opinion Eden Construction is not capable of completing a contract the size of that for the Medowie to Raymond Terrace Transfer System.
...’
262Later again in the paper the following appeared under the heading ‘Quality Assurance’:
‘Conditions of Tendering Clause 5.2 required that the tenderers submit as a minimum a statement confirming that the Tenderer is registered with the Department of Public Works and Services as meeting Substantial Implementation requirements .... In Schedule 9 Schedule of Quality Assurance Documentation, Eden Construction stated that confirmation of substantial implementation should be sought from Mr Trevor Liu. Mr Liu has advised that Eden Construction has neither submitted documentation as evidence of substantial implementation nor demonstrated that the quality system has achieved substantial implementation.’

263 In relation to Quality Assurance clause PE-04 of the preliminary section of the contract provided, under the heading ‘QUALITY ASSURANCE’ and the subheading ‘BASIC IMPLEMENTATION REQUIREMENTS’:

‘QUALITY SYSTEM ELEMENTS For all work under the Contract, including work by subcontractors, plan, establish, implement and maintain the quality system elements which are a requirement for Basic Implementation as follows:
- Inspection and Testing plus the Inspection and Test Plan requirements of AS 3905.2.

- Control of nonconforming product.

- Corrective and preventive action.
INSPECTION AND TEST PLANS: Plan, document and implement the inspection and test activities for the work. Prepare Inspection and Test Plans in accordance with the requirements in AS 3905.2 Clause 3.3.8 and Appendix B, Clause B1.

Submit Inspection and Test Plans and associated checklists and other relevant quality documents not less than 21 days before the affected part of the work commences. Update the plans as required.

OTHER QUALITY REQUIREMENTS

Document and implement the following quality management tools which derive from, or directly reference, the quality system elements of AS 9002:1994:

- Quality Plan
- Subcontracted Work
- Electrical and/or Mechanical Subcontracted Work’

264 The relevant part of Australian Standard AS 3905.2 dealing with inspection and testing would appear to be section 4.10 entitled ‘Inspection and testing’. Under the heading ‘4.10.1 General’ the following appears:

‘The supplier shall establish and maintain documented procedures for inspection and testing activities in order to verify that the specified requirements for the product are met. The required inspection and testing, and the records to be established, shall be detailed in the quality plan or documented procedures.’

265In valuing the works as at 4 December 1998 Mr Liu allowed the applicant’s claim for further concrete works which had been undertaken since the previous certificate, bringing the total allowed for concrete works up to 90 per cent.
266On 4 December 1998 the applicant issued a Construction Programme which showed 12 February 1999 as the date for practical completion.
267Somewhat inconsistently, Mr Liu expressly signed off in respect of a nomination that the class of finish specified was ‘F2’ on 8 December, 9 December, 14 December and 17 December 1998, amongst other dates.
268On 7 December 1998 Eric Raymond as the Project Manager, Shoalhaven, for the Department made a recommendation to the Department’s Board of Advice and Reference in respect of the award of a contract for the Bamarang to Nowra Hill pipeline for the Shoalhaven City Council and the Department of Land and Water Conservation. The recommendation was that the tender submitted by the applicant be passed over ‘because of unsatisfactory past performance’ and that the contract be awarded to another company, being the second lowest tenderer. The recommendation was signed off by Mr Craig Summerhayes as the Department’s Regional Projects Co-Ordinator on 17 December 1998. It would appear that the Board of Advice and Reference accepted the recommendation on 18 December 1998.
269In the body of the Report the following appeared under the heading ‘EXAMINATION OF TENDERS’:
‘The lowest tender was received from Eden Construction Pty Ltd. This company is on the DPWS "Provisional Review List". When reviewed in detail it was concluded that this tender presents an unacceptable risk (See Appendix B attached). It is recommended that this tender be passed over.’
270Appendix B was entitled ‘REVIEW OF EDEN CONSTRUCTION’. It provided as follows:
‘Eden Construction Pty Ltd is on the DPWS "Provisional Review List".

Inclusion on this list arises from Eden Construction’s performance on a contract at Albury. The company was rated as unsatisfactory in several aspects – Time Management, Standard of Work, Quality Assurance and Management of Personnel. Peter Grove (DPWS Wagga) and Trevor Liu (DPWS Albury) were contacted regarding Eden Construction’s subsequent performance on that contract. They advised that the contract was valued at approximately $2M and was for the construction of a Pumping Station. They advised that subsequent to the unsatisfactory report, there has been minimal improvement in performance, and the contractor was ‘struggling’. [No reference was made to ‘struggling’ in the November Contractor Performance Report]

The current contract requires the preparation and implementation of an Environmental Management Plan. The work runs through relatively remote bushland areas where minimal impact is required. Eden Construction was asked to provide evidence of their ability to prepare such plans. They supplied a copy of the Plan for the Albury Contract, and a Plan they offered for the current work.

The documents submitted indicated no understanding of how to implement specific procedures in order to meet environmental requirements. The Plans were not satisfactory.

The present contract is for a major pipeline. The pipe material is difficult to lay and requires a very experienced contractor. From the information available, Eden Construction has no experience in constructing pipelines of this nature.

Shoalhaven City Council is a major DPWS client, and this contract is a significant component of their water infrastructure development. Completion of two other major contracts is also dependent on timely completion of this contract. A contractor with a current poor record of performance, and lacking relevant pipelaying experience cannot be contemplated.

It is considered that the risk of using Eden Construction on such a critical contract is too high, and it is recommended that they be passed over.’
271On 15 December 1998 the Albury City Council awarded a further contract to the applicant for the construction of miscellaneous earthworks and associated connecting pipework for the applicant’s tendered price of $504,732.63.
272Mr Filardo’s diary entries for 15 December 1998 included the following:
‘MIKE EVANS [of Construction QA Services Pty Ltd] FINISHED HIS AUDITING AFTER 1.00 PM ... HE SAID THAT HE WOULD RECOMMEND SUBSTANTIAL IMPLEMENTATION OF THE QA SYSTEM TO JOHN WILTON [the Chief Engineer in the Australian Capital Territory Department of Urban Services].’
273In response to an application by the applicant for registration as a ‘Prequalified Contractor’ with the Department the Manager, Contracts and Suppliers wrote to the applicant on 23 December 1998 indicating that its application had been rejected in respect of ‘BUILDING-Architectural Construct Only’, ‘TREATMENT WORKS Water Design & Construct’, ‘TREATMENT WORKS Wastewater Construct Only’ and ‘SEWERAGE SCHEMES for SMALL TOWNS Design & Construct’. The reasons for rejection in respect of the first two items were ‘No evidence of Quality Assurance, no works listed, no current accounts’. In the case of the third item the reasons for rejection were ‘No evidence of Quality Assurance, no relevant works listed, no current accounts’ and in respect of the fourth item the reasons for rejection were ‘No evidence of Quality Assurance, limited experience, no current accounts’.
274On 8 January 1999 the applicant recorded its first written protest against the manner in which it was being treated by the Department. Specifically it responded to the Department’s letter of 23 December 1998 concerning registration as a pre-qualified contractor. The response included:
‘... Our application has been rejected on what appear wrongly formed and incorrect opinion by the person or panel that is/are responsible.

We are extremely concerned as it appears your assessment procedure is grossly flawed as those reasons stated in your assessment report schedule are simply false ...
...

We strongly believe that there has been some oversight in your procedures and we respectfully request that our application be reviewed forthwith.
...’
275Mr Liu signed off on several further formwork, reinforcement and concrete checklists on 8 January, 11 January, 18 January, 21 January, 22 January, 28 January, 2 February, 3 February, 5 February, 6 February, 9 February, 10 February, 12 February, 22 February, 23 February, 25 February, 26 February, 2 March, 9 March and 10 March 1999.
276On 26 January 1999 Mr Evans of Construction QA Services Pty Limited wrote to the Australian Capital Territory Department of Urban Services forwarding a substantial ‘QA Certification Assessment Report’ for the applicant.
277The letter continued:
‘The report indicated that Substantial QA Certification would be recommended on evidence of actioning certain comments. This evidence has now been provided and Substantial QA Certification is recommended. The Report has been noted accordingly.

As stated in the report, whilst there has been progress with the documentation, implementation still needs significant strengthening and the recommendation is conditional on a progress assessment in April 1999. ...’
278On 27 January 1999 Mr Liu as the Superintendent’s Representative wrote to the applicant under the heading ‘REQUIREMENTS FOR PRACTICAL COMPLETION’. The letter contained the following:
‘It is also noted that the Concrete Finishes of the External and Internal Walls of the Pumpstation do not yet comply with the requirements of the Specification. Section 6 – Concrete, Clause 6.8 Project Specifics, Surfaces. Internal and Exposed, Formed F3. From Volume 2 – Standard Technical Specifications, TR2 Clause 6.9 Formed Surface Finish.
"F3..Abrupt irregularities not accepted ..... Definition : Offsets resulting from displaced or misplaced form sections, from loose knots or otherwise defective forms, to be classed as abrupt irregularities.....Bagged surface finish prohibited."’
279On 5 February 1999 Mr Liu as reporting officer issued his fifth quarterly Contractor Performance Report. This showed the contract sum as varied at $2,323,527.00 and the extended date for practical completion as 12 February 1999. The ‘Work Completed at Report Date’ was shown as 86 per cent.
280For the second time Mr Liu proceeded to place ticks in both the ‘Unsatisfactory’ and ‘Acceptable’ boxes against ‘Time Management’, ‘Quality Assurance’ and ‘Management and Quality of Personnel’. In relation to each of ‘Standard of Work’, ‘Coordination of SubContractors’, ‘Contract Administration’ and ‘Occupational Health & Safety’ Mr Liu ticked the ‘Acceptable’ box alone.
281By ticking both the ‘Unsatisfactory’ and ‘Acceptable’ boxes at the same time Mr Liu said that he intended to indicate that in relation to the relevant evaluation items the contactor’s performance was, as mentioned above, acceptable but borderline.
282In relation to ‘Time Management’ Mr Liu again highlighted the bullet point:
‘• progress of the work’.
283In relation to ‘Quality Assurance’ he again highlighted the bullet point:
‘• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan’.
284In relation to ‘Management and Quality of Personnel’ Mr Liu highlighted in bold the bullet point:
‘• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work’.
285In his ‘Overall Comments’ Mr Liu said:
‘In my opinion: ...
There has been little change, (in comparison to CPR November 1998), to the performance on evaluation items listed below. Performance is considered to have improved from the August 1998 Contractor Performance Report but only just Acceptable.

Time Management
• progress of the work
The contract is 98% through the approved period (53 weeks elapsed, 1 week remaining). The most recent valuation is for 86% of the contract value. Installation of high cost Mechanical and Electrical packages is being completed. Minor Civil Works remain.

On-site work production has improved to average 2 major concrete pours per week. It was envisaged that major civil works would be complete by early December 1998, works were complete by early January 1999. It continues to be my opinion that progress of the on-site work could have still been improved. In reference to my previous CPR Aug98, work has generally continued employing all workers on one workface at a time. It is felt that work progress during 1998 has placed the Contractor in the position he finds himself in now.

Quality Assurance
• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan
Quality Systems have undergone continued development and documentation is being produced in parallel with work performed on-site. The Contractor has had 3rd Party Examination and Audit of his Quality System. Conditional Certification for Substantial Implementation has been granted by Construction QA Services Pty Ltd of Canberra. Please see the attached letter.

It is my opinion that there should be continued surveillance of the witness and hold points of the work performed by this contractor.

Management and Quality of Personnel
• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work
Further to Time Management, it is my opinion that the number of site personnel and their utilisation has not allowed any improvement in work progress.’
286On 15 February 1999 the Department wrote again to the applicant concerning its application for registration as a pre-qualified contractor.
287On 16 February 1999 Mr Liu visited the Kremur Street Pumping Station site. Later in the day he sent two letters to the applicant concerning ‘work site safety’ and ‘construction progress’.
288Mr Ellison’s diary for 16 February 1999 included an entry:
‘Trevor Liu – Meeting with Eden. 7.00 pm.’
289Mr Ellison’s diary entries for 17 February 1999 included a further notation referrable to a meeting with Mr Liu and Mr Filardo on 16 February 1999. His diary note was as follows:
‘16/2/99
Meeting with Eden Construction
- Trevor Liu
- Ces Filardo
- KE

• Site inspection – Safety issues
– Quality of walls
– untidy

• Met with Ces Filardo
- Provided him a copy of the previous two CPR.
- Advised they had been sent.
- CF complained he was being victimised/discriminated against. Referred to lost project on S/C [South Coast].   I explained his performance was not satisfactory.
He disputed this – I referred him to the CPR ratings.
- I explained we expected Q A to be done to avoid supervision by DPWS. Not case with him
- Discussed program – he stated "2 weeks completed" everything. I expressed my doubts.
- Safety needed improve -> CF
- Defective works – walls unsatisfactory.
- Q A – TL advised not being used on the other project. CF denied this, was surprised.
I stated how can project be going for 6 week?
TL – no requests for witness or testing inspections.
- I advised we would hold CPR until completed.
(changed my mind later)’.
290On 17 February 1999 Mr Ellison signed off as recommending officer on Mr Liu’s 5 February 1999 fifth Contractor Performance Report. In the body of the Report he added the words ‘[t]here is concern with defective concrete work’ against the item ‘Standard of Work’. He also added a comment against ‘Occupational Health & Safety’ reading ‘As inspected 16/2/99, site is not complying to requirements for OH&S’.

Mr Ellison’s notation ‘there is concern with defective concrete work’ against the item ‘Standard of Work’ does not sit comfortably with the numerous instances where Messrs Liu, Grove and/or Williams signed off on the various formwork and concrete checklists. True it is that Mr Liu raised the requirement for an F3 finish on the checklist dated 22 December 1998 and in his letter to the applicant of 27 January 1999, as Superintendent’s Representative.

However, on 5 February 1999 Mr Liu recorded in the quarterly Contractor Performance Report that the standard of work was ‘Acceptable’, as he had done on his previous report of 10 November 1998. The 10 November 1998 report had itself been prepared by Mr Liu approximately three weeks after he had informed the Department’s Regional Projects Coordinator for the South Coast, Mr Summerhayes, that the applicant’s standard of work was ‘generally OK’.

At no stage prior to 14 March 1999 did Mr Liu, as the Superintendent’s Representative, give a direction to the applicant under clause 30.2 or clause 30.4 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) that the work was not in accordance with the contract notwithstanding the requirement in clause 30.5 that such a direction be given ‘as soon as practicable after the Superintendent becomes aware that ... work is not in accordance with the Contract’.

291Mr Ellison recorded his opinion as follows:
‘there is a signfigant (sic) amount of work to be completed prior to Practical Completion. At our discussions of 16/2/99 it was indicated that all works would be completed within 2 weeks – this to include rectification of defective finish to the concrete walls, electrical, site works, completion of pipe work & testing, hydrostatic testing, installation of ventilators and mixers.
- Site safety needs improvement – refer instruction issued by Mr Liu.
- A further report to be prepared at Practical Completion.’
292The Report concluded with a recommendation in the ‘YES’ box against the words ‘Contractor recommended for future work’ but with the words added ‘Subject to satisfactory completion of the works & rectification of defective work’.
293Mr Ellison also initialled and dated the attachment to Mr Liu’s Report under the words ‘[i]t is my opinion that there should be continued surveillance of the witness and hold points of the work performed by this contractor’.
294Under cover of a facsimile dated 17 February 1999 Mr Ellison forwarded to the applicant copies of the Contractor Performance Reports in respect of the Kremur Street Pumping Station works and also the applicant’s other Albury contract. In the text of his facsimile he said:
‘Following our meeting yesterday I have reconsidered my advice to you and I have completed the attached reports. A further report on the pumping station will be completed when you have achieved Practical Completion. From your advice all the works will be completed within two weeks.
At the meeting yesterday I requested that you provide to Trevor a detailed program showing how you are intending to complete all of the remaining works within the next two weeks. This will permit him to monitor your progress and keep the other Contractors informed on when the pump station may become operational.
I would also ask that you provide to Trevor, for approval, the method you are proposing to use the rectify (sic) the defective concrete works on the pumping station.
By now Trevor should also have issued you with a site instruction directing you to rectify the safety issues identified on the site.’
295On 17 February 1999 Mr Ellison appears to have discussed Construction QA Services Pty Limited’s letter of 26 January 1999 with Mr Evans. Mr Ellison endorsed a copy of it with a note ‘This does not indicate compliance with DPWS substantial implementation’.
296Mr Liu’s diary notes indicate that he effected a further site visit to the Kremur Street Pumping Station site on 17 February 1999.
297On 18 February 1999 Mr Ellison sent a facsimile to Mr Liu with copies to Mr Hall and Mr Grove within the Department headed ‘KREMUR ST P/STN EDEN CONSTRUCTIONS (sic)’ referring to his visit to the site on Tuesday 16 February 1999. The facsimile relevantly provided as follows:
‘Following my visit on Tuesday I thought it would be best if I summarise the actions I believe are necessary;

PROGRAM Obtain from Edens,as promised, a program detailing all of the remaining works. Check this to ensure they have included all the requirements of the contract.
DEFECTIVE WORKS Carryout (sic) a thorough inspection of all of the works and list all defective and/or non completed works. Include in this all the spec requirements such as testing, commissioning, WAE and manuals. You can give a copy of this detailed list to Edens if you wish as a guide only, not a definitive list.
OH&S Send me a copy of the site instruction you have issued to Edens following my visit stating the following non compliances;
- Safety Hats not being worn by all site personel (sic)
- Workers working off ladders. Have been given a safe work method statement for the installation of the ventilation pipework?
- Openings in the floors not covered. These being in the electrical switchroom and above the inlet wells (lids must fully cover the openings
- Electrical leads were laying on the ground. All these must be lifted up. Request the contractor to have his electrician confirm in writing that all the leads/mains on the site comply fully with the requirements of Workcovers (sic) guidelines ‘Electrical Practices for construction work’ I believe the lengths of some of the leads and that multiple switching arrangement are suspect.
Request the contractor to show you a copy of his record book for electrical inspections of equipment.
- Has the contractor given you a safe work method statement for working in confined spaces ie inlet wells?
NON CONFORMING PRODUCT Check and confirm to the contractor that the wall ventilators are the wrong colour. Request what actions under his QA system he will be effecting. Findout (sic) if these will be remade and installed within the two weeks.

MANUALS: I may be incorrect but aren’t these to be supplied X weeks prior to commissioning. Check spec. Who is doing the commissioning? Does the contractor have to allow for this in his program? If it is DPWS or others when will this be done.
CPRS: As I sent to you yesterday, I decided to complete the CPRs you provided. We will do another one at DLP.

All of these actions must be completed in the next 24hours or you will loose the "two weeks" you need the contractor to achieve. Try to avoid giving the contractor any extra works, if not essential get Council to do at a later date.

Keep Council onformed (sic) as to progress at the pump stn and discuss with Peter Grove possible contingency plans at the TWKs. From my inspection I do not believe the Contractor can achieve PC in two weeks without taking shortcuts , keep a sharp eye on him. We don’t want any more defective work.

Ensure you have photos of all defective works. They may be useful at a later date.
Keep Peter informed of progress on a daily basis. If you want me to come back for another talk let me know. Action will have to be taken at the end of the month’

298 On or about 22 February 1999 Mr Densley provided draft copies of three pump manuals to Mr Liu for his consideration. These were provided under cover of a memorandum seeking Mr Liu’s comments. Mr Liu handed the three manuals back to Mr Filardo on 19 April 1999 for inclusion in training and O&M manuals. When he did so he did not provide any comments recording any dissatisfaction with the draft manuals.

299On 22 February 1999 Mr Liu issued a Site Safety Instruction to the applicant. In relation to the action required Mr Liu circled the words ‘Improve’, ‘Rectify’ and ‘Remove’ in accordance with the ‘NSW Occupational Health and Safety Act, 1983’. The instruction referred to ‘Earlier memos + letters’ of 16 February. It drew attention to workers without hard hats, electrical leads and boxes incorrectly tagged, excavations greater than 1.5m deep not benched correctly, electrical leads on the ground in trafficable areas and penetrations without warning signs or barricades. The instruction concluded ‘You are directed to ensure that theses issues are rectified + your performance improved immediately’.
300On 23 February 1999 a further Site Safety Instruction was issued by Mr Liu to the applicant supplementary to that of 22 February. It stated ‘Works are still not complete’ and drew attention to penetrations, electrical tags and benching of rising main. The instruction concluded:
‘WORKS ARE TO BE DONE BY 3 PM OR WORKCOVER WILL BE CALLED TO INSPECT SITE.’
301On 25 February 1999 a Site Instruction was issued by Mr Liu to the applicant referring to correspondence of 10 and 16 February 1999 ‘in which construction progress + programming was discussed’. The instruction continued:
‘IT IS NOTED THAT PRACTICAL COMPLETION HAS NOT BEEN ACHIEVED FOR THE WORKS.

YOU ARE DIRECTED TO PROVIDE A FULL + COMPREHENSIVE CONSTRUCTION PROGRAM WHICH SHOWS ALL REMAINING ACTIVITIES AND THEIR PROGRAMMED COMPLETION DATES.

PROVIDE THIS PROGRAM BY 5 PM FRIDAY 26TH FEBRUARY 1999.’
302On 26 February 1999 the applicant wrote to the Department setting out ‘a sequence of events and activities for the final programming and finalisation of the project’.

The letter concluded after listing 10 items which had already been finalised or were to be attended to by 12 March 1999:

‘Further to the above extension of time for these peripheral (yet important) items of works has to be granted by the Superintendent until the 12th March 1999. The aforesaid Items should not hinder the successful and normal operation of the pumping station to be used for its intended purpose whilst the contractor completes minor items of works.’
303On 1 March 1999 Mr Liu issued a further Site Safety Instruction in which he circled the words ‘Rectify’ and ‘Suspend Activity’. In relation to the excavation and benching of the rising main Mr Liu wrote:
‘You are directed to suspend activity on this area until the site is made safe. Particularly benching + barricading of both the road + Kremur St PS sides. Signs are also required to warn pedestrians + motorists.’

Attention was drawn to the earlier instructions in respect of electrical matters, hard hats and penetrations.

304On 2 March 1999 Mr Liu as Superintendent’s Representative wrote to the applicant concerning the then Construction Programme. It was indicated that Mr Liu considered the applicant’s response (as set out in the applicant’s letter to the Department of 26 February 1999) to be inadequate inter alia because it did not provide for ‘Rectification of exposed Concrete surfaces to F3 finish’. The letter concluded:
‘You are directed under Clause 33.2 of the General Conditions of Contract to provide a Construction Program which complies with the requirements of Clause PE – 02 the Specification (sic) by Thursday 4th March 1999.’
305Mr Liu’s diary entries for 3 March 1999 included the following:
‘COMMISSIONING OF KREMUR ST POST PONED UNTIL NEXT TUES UNTIL HYDROSTATIC TESTING OF [diameter] 600 RM [rising main]
EDEN SI’S [site instructions] – TESTING OF RM [rising main] REQUIRED. COMMISSIONING NOT TO HAPPEN UNTIL SITE TESTS COMPLETED & DOCUMENTED – ACTUATORS, COLLECTION WELLS’.
306Mr Liu’s diary notes for 5 March 1999 included:
‘HYDROSTATIC TESTING OF RM [rising main] STILL NOT STARTED – LEAKS U/S [upstream] OF [diameter] 750 SV [stop valve] – FLANGE BEING TURNED AROUND
IAN BAYCE -> FAX TO CONFIRM NEW COMMISSIONING DATE FOR KREMUR STPS.
...
PETER GROVE UPDATE
...’
307On 5 March 1999 Mr Liu forwarded a facsimile to the Department indicating that the applicant had advised that ‘the Pump Station will be ready for commissioning after Monday 8th March 1999’. The facsimile requested:
‘... Electrical and Mechanical staff to be onsite for the commissioning of the Kremur St. Pumping Station on Tuesday 9th March 1999. It is envisioned that the works will require at least 2 days to commission the works.’

308On 5 March 1999 Mr Liu issued a further Site Safety instruction in which he circled ‘Suspend Activity’. Mr Liu’s complaint was that the applicant was using its foreman as an excavator and backhoe operator without the ‘proper certification’.
309Between 25 February 1999 and 7 March 1999 Mr Filardo issued a series of pre-commissioning checklists referrable to the Kremur Street Pumping Station.
310Mr Liu’s diary notes for Sunday 7 March 1999 included:
‘Peter Grove in office Monday
- discussions [concerning] separable portions for Eden Constructions (sic)
- Eden’s acknowledgement of SI [site instruction] – ready for commissioning
...’
311Mr Liu’s diary notes for Monday 8 March 1999 included:
‘PG in office’.
312It would appear that Mr Liu had lunch with Peter Grove and also had a meeting with Daryl McGregor (Albury City Council’s project director for the works), Anthony Foley, Peter Grove and David Larkin. His diary notes include ‘- leak in main – OK – check valves find leak – before commissiong (sic)’.
313On 9 March 1999 Mr Filardo completed a Departmental ‘Construction Work Site Check List’.
314On the morning of 9 March 1999 Mark Barber and Brett Martin, officers of the New South Wales WorkCover Authority, visited the Kremur Street Pumping Station site, issuing five notices to the applicant and two to the Department. Those issued to the applicant related to ‘Use of Existing Work Box and Associated Gear.’, ‘Exposed Concrete Reinforcement Bars’, ‘Electrical Leads and Power Tools’, ‘Exposed and unprotected Cable Trays’ and ‘Open and Exposed Pits’. A report on the issue of the notices was forwarded by facsimile by Mr Liu to Mr Ellison and Mr Grove at about 1.37 pm on 9 March 1999.
315On 9 March 1999 Mr Ellison forwarded a facsimile to the Department’s ‘General Manager, Project Management Group’. His facsimile included:
‘Following continued problems with the Contractor (Eden Constructions (sic)) the Superintendent’s Representative approached Workcover in Albury to inspect the site. An inspection was carried out two weeks ago and several verbal warnings were issued by the Workcover Inspector.

Today, two different Workcover inspectors attended the site for a re-inspection. Subsequently they issued ... seven notices.

The Superintendent’s Representative has been and is continuing to issue instructions on the Contractor to attend to safety issues being identified on the site.
...

The Contractor is taking immediate action to comply with the Notices issued to him. The Superintendent’s Representative is directing the Designer (Environmental Services – Guy Boncardo) to respond to the Notices issued on DPWS. ...’

316On 10 March 1999 the applicant issued a further programme. It allowed three days for ‘grinding & cleaning concrete’.
317It will be recalled (see [70]-[74] above) that the Superintendent accepted, on 3 June 1999, that the date of practical completion was 10 March 1999.
318Mr Liu’s diary notes for Thursday 11 March 1999 included an entry against 8.30 am reading:

3

‘COMMISSIONING OF KREMUR STREET [There is then a note indicating site visits by Colin Johnson, A Foley, John Ellwood and Daryl McGregor].
...

FINISHES & EDEN CLAIMS – RISING MAIN OK’ED
EXTERNAL TREATMENT FOR WALLS – AWNING – WORKCOVER NOTICES.
...’
319A later entry recorded against 3.30 pm on 11 March 1999 indicates that Mr Grove telephoned concerning safety, his enquiry being whether the electrical leads were OK. Mr Liu’s note is ‘phoned back OK’.
320Mr Liu’s diary notes for 11 March 1999 also included against 4.00 pm:
‘commissioning completed Pump Station
Will run on auto for 14 days’
3212 PM

Mr Liu’s diary notes for Sunday 14 March 1999 included the following:

‘41/2 HOURS FROM
EDEN F3 - DEFECTS $55,000 DEDUCTED
VALUATION OF KREMUR ST
EDEN FILING
EDEN GOT CONSIDERATION OF POSSIBLE "DELAY" BY PRINCIPAL
POTENTIALLY DELAY IN COMMENCING COMMISSIONING. DECLARED READY 5 MAR
COMMENCED 9 MAY (sic). 4 DAYS’
322On Sunday 14 March 1999 Mr Liu as Superintendent’s Representative proceeded to forward a letter by facsimile to the applicant under the heading ‘DEFECTIVE CONCRETE FINISHES’. The letter included:
‘Further to my letters EC080000.DOC and EC093000.DOC of 27th January and 2nd March 1999 respectively in which I referred to the rectification of Concrete Finishes to the required standard.

Under Clause 30.1 of the General Conditions I determine that the workmanship and Concrete Finishes of the External and Internal Walls of the Pumpstation do not comply with the requirements of the Specification.

Under Clause 30.2.c) I direct you to correct the work so that it meets the requirements of the Specification within 1 calendar month of this letter.

It is recommended that you provide a sample panel of rectified Concrete Surface for the examination and acceptance prior to the remainder of rectification work so that a clear agreed standard sample is available to all concerned.

Under Clause 42.1 the monies already paid for Concrete Works are considered payment on account only. Under Clause 42.2 I estimate that the cost to rectify the defective concrete works is $55,000 and will take this figure into account when Calculating the Payment due under Progress Claim No.13.’
323On Wednesday 17 March 1999 the applicant wrote to Mr Ellwood of the Albury City Council in the following terms in relation to ‘Prevention of Potential Disputes’ in respect of the Kremur Street Pumping Station contract and the later contract awarded to the applicant by the Council:
‘Further to your conversation with our Mr Densley, we would like to have an informal meeting to avert what we consider a potential cause for dispute between Eden and the Albury City Council. This we believe is brought into being by the very adversarial attitude and conduct of the Superintendent’s Representative, some of the major issue (sic) that we would like to discuss, are; amongst others:-
a) Application of Liquidated damages;
b) Concrete surface finish and what would be acceptable to the Principal;
c) Repair and testing of rising main beyond Eden’s Scope and influence of work;
d) How many Representatives has the Superintendent appointed and what is their function;
e) Cutting of Live mains by Albury City Council.

Please advise of time and venue for the meeting by phone as soon as conveniently possible.’
324On Thursday 18 March 1999 Mr Liu as Superintendent’s Representative forwarded a letter to the applicant under the heading ‘CONSTRUCTION DEFECTS AND OUTSTANDING ITEMS’. The letter included:
‘Further to commissioning activities 9th to 11th March 1999 and various site observations concerning the works required before Practical Completion.

The Attached for your information and action are lists which detail the Construction Defects and Outstanding Items that exist as at 18th March 1999. The lists were compiled during the commissioning activities and from onsite observations.’
325Reference was then made to a ‘Mechanical Report’ where certain items were considered to be ‘design issues that could be addressed by Albury City Council’.
326The list of ‘Construction Defects and Outstanding Items as at 18th March 1999’ included as item 11 a reference to ‘Concrete Project Specifics (sic) – Internal and Exposed Surfaces to be F3’.
327On Friday 19 March 1999 Mr Filardo attended a meeting with officers of the Albury City Council and Trevor Liu. Mr Liu’s diary notes suggest that the meeting ran from 8.30 am until 10.00 am and that the purpose was ‘to avoid dispute/litigation’. The persons in attendance appear to have been Mr B J McLennan, the Superintendent under the contract, Mr Daryl McGregor, Mr Trevor Liu, Mr John Ellwood and Mr Ces Filardo from the applicant.
328Mr Ellwood’s contemporaneous diary notes made during the course of the meeting included under the words ‘the following matters were discussed’:
‘ – concrete Surface finish, we concede it could have been better.
F3 finish. Visual impact Colour,
could have done better,
- inside can’t be seen, Grinding
Painting! options & make decision’.

Mr Ellwood’s evidence is that it was Mr Filardo who conceded that the surface finish ‘could have been better’.

329After the meeting Mr Ellwood made a further note reading:
‘Concrete surface finish <- acceptable to principle (sic);
- grind back joints & coat with Drizaro in standard g
asked to provide sample around back corner above overflow pit with ACC to inspect & approve.
Ok’d for entire building
Ces then Grinded & put 2 coats over
- different textures & accepted’

The note then continued with a reference to one more coat followed by ‘outside finish’.

330Mr Liu’s diary entries for Friday 12 March to Thursday 25 March 1999 include a series of notations referrable to the Kremur Street Pumping Station marked as 1/14 to 14/14. His diary entry for 25 March 1999 reads:
‘KSPS 14/14 FINAL DAY’
331On 9 April 1999 Mr Grove from the Department signed a note recording certain ‘outcomes and actions’ that were said to have been ‘agreed’ at a site inspection at the Kremur Street Pumping Station attended by Mr Densley, representing the applicant, Mr McGregor from the Council and himself on 8 April 1999. His note read:
‘After some discussion the following outcomes and actions were agreed;
i. Grind off all sharp edges and discontinuous surfaces.
ii. Remove bolts, form ties etc that are still embedded in all concrete surfaces and plug.
iii. Stone plug hole filler material back to general surface profile.
iv. Eden Construction to organise trial bag sections on the back section of NE wall for full height and three panels width.
v. Eden Construction to provide list of potential contractors to do bag work.
vi. Council to give approval to contractor to be used for bagging after inspection of past work.
vii. Approved (by Council) binding application to be provided on concrete surface prior to any bag work.
viii. Sample panel of bagging to be ready to start by the 15 April 1999.
ix. Council to approve of sample bag panel section prior to any further work proceeding.’

332As at 16 March 1999 the external appearance of the Kremur Street Pumping Station was not what one might expect of a significant public building where appearance was important. However given the function of the building in this case it could be said to be quite satisfactory, provided one did not have to judge satisfaction by reference to a technical standard found within the contract.
333On 16 April 1999 Mr Liu, as Superintendent’s Representative, sent a memorandum to the applicant with a copy to the Albury City Council under the heading ‘Acceptable Alternative to Specified F3 Finish’. The memorandum identified the bagging treatment which was proposed using a sand/cement mix with binding and waterproofing agents added. The memorandum noted:
‘3. It was agreed that 3 coats of this mix would be accepted as an alternative to the specified F3 Finish.’
334On 7 May 1999 Mr Liu as the reporting officer issued a further Contractor Performance Report being the report due at practical completion. The report indicated that the contract sum as varied had become $2,344,679.00. It indicated that the extended date for practical completion was 23 February 1999 and that the date of practical completion had been 29 April 1999 (which, of course, was later adjusted retrospectively to become 10 March 1999). The work was described as being 98 per cent complete at the date of the report.
335Once again Mr Liu double ticked a number of the evaluation items for ‘Time Management’, ‘Standard of Work’, ‘Quality Assurance’, ‘Management and Quality of Personnel’, ‘Coordination of SubContractors’ and ‘Occupational Health & Safety’. The only item for which Mr Liu simply ticked the acceptable box was ‘Contract Administration’. By ticking both an unsatisfactory box and an acceptable box at the same time Mr Liu was attempting to indicate that the performance in respect of the evaluation item in question was borderline or only marginally acceptable. It may be noted that in respect of ‘Standard of Work’, ‘Coordination of SubContractors’ and ‘Occupational Health & Safety’, Mr Liu’s evaluation had gone from acceptable as at 5 February 1999 to marginal as at 7 May 1999. In relation to ‘Time Management’ Mr Liu highlighted his concerns by highlighting:
‘• Ability to meet programmed milestones
• progress of the work’


In respect of ‘Standard of Work’ he highlighted:

‘• Standard of work as measured against the specification. ...
• remedial work required
...
• compliance with specified tolerances and finishes ...’


In respect of ‘Quality Assurance’ he highlighted:

‘• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan’


In respect of ‘Management and Quality of Personnel’ Mr Liu highlighted:

‘• adequacy of the number of site personnel engaged by the Contractor so as to ensure efficient use of resources in relation to the work
...
• observance of site rules and procedures’


In respect of ‘Coordination of SubContractors’ Mr Liu highlighted:

‘• ensuring timely payment of subcontractors’


In respect of ‘Occupational Health & Safety’ Mr Liu highlighted:

‘• the number of infringement notices issued to the Contractor’

336In the ‘Overall Comments’ section of the report Mr Liu directed attention to a two page attachment in which he expressed the following opinion:
‘In my opinion: ...
There has been little change, (in comparison to CPR February 1999), to the performance on evaluation items listed below. Performance is not considered to have improved from the February 1999 Contractor Performance Report and is not acceptable.

Time Management
• Progress of the Work
Progress of the work was disappointing, it would appear that insufficient time was allowed, (following the completion of Civil works), for the installation and commissioning of mechanical and electrical components.

The contractor’s time estimates and programs have generally not been met. It is recalled that the contractor stated in February 1999 that the works would be fully complete by the end of the month. The works could never have been commissioned by this time. The contractor has never issued a program that fully meets the specification requirements nor has a critical path been shown.

Standard of Work
• Standard of work as measured against the specification.
Standard of work generally is acceptable but there have been instances where remedial works were required and the contractor failed to meet the specified tolerances and finishes.

The concrete finishes were specified as F3. During the course of the works the contractor was reminded that the forms used would not provide a finish specified, the contractor insisted that remedial works would be performed afterwards rather than providing the finish specified from the outset. The contractor has since rectified external concrete surfaces to the satisfaction of the client, no work has been done on internal surfaces. A variation valuing the "loss" to the Principal has been applied to the contract.

Quality Assurance
• the extent of the Contractor’s compliance with the specified quality systems standard and with the project quality plan
Quality Systems have undergone continued development and documentation is being produced in parallel with work performed on-site. The Contractor has had 3rd Party Examination and Audit of his Quality System. Conditional Certification for Substantial Implementation has been granted by Construction QA Services Pty Ltd of Canberra.

Further to my February 1999 report, the Quality system does not appear to have been utilised in the performance of all the works, notably in mechanical supply (pumps and motors, crane, ventilation) and roofing nor has Substantial Implementation been granted by a third party (Construction QA Services P/L).

It is my opinion that there should be continued surveillance of the witness and hold points of the work performed by this contractor.

Management and Quality of Personnel
• observance of site rules and procedures
There have been numerous site instructions concerning workers not wearing hard hats and the maintenance of electrical safety on the site. The contractor’s response to safety has been reactive (to instructions given) rather than proactive in meeting the contract safety requirements.

Occupational Health & Safety
• the number of infringement notices issued to the Contractor.

WorkCover Albury have visited the site and found occasion to issue improvement and prohibition notices.’
337On 12 May 1999 Mr Liu, as Superintendent’s Representative, issued a ‘Variation No. 22 – Restoration of Concrete Surfaces’ in which he observed that following an inspection on 10 May 1999 the rectification work on the external concrete surface was accepted as an acceptable alternative to the specified F3 finish. He noted that rectification of internal concrete surfaces had not been done to meet the specification requirements. Thereupon he determined that there had been a resulting decrease in the value to the principal. He valued the decrease at $9,000.00 being the cost difference to produce an F2 finish in lieu of the F3 finish specified.
338On 12 May 1999 Mr Filardo wrote to the Albury City Council for the attention of the Superintendent. Mr Filardo conveyed his comments on what were then current issues between the applicant and the Council, namely ‘Liquidated Damages’, ‘Work done by Council’ and ‘Repair of busted Rising Main Outside Our Limits of Work’.
339Whilst reference was made in the letter to Mr Grove, who was acting as the Superintendent’s Representative in Mr Liu’s absence, there was no suggestion advanced in relation to any improper involvement in the matter by Mr Grove.
340On 17 May 1999 Mr Liu as the Superintendent’s Representative issued a Certificate of Practical Completion recording the date of practical completion as 29 April 1999.
341On 24 May 1999 Mr Ellison subscribed his remarks as recommending officer on Mr Liu’s Contractor Performance Report of 7 May 1999. Significantly Mr Ellison marked the ‘NO’ box appearing against the words:
‘• Contractor recommended for future work’.


Mr Ellison expressed his concurrence with Mr Liu’s assessment and recorded his opinion as follows:

‘I concur with the comments attached.
At the meeting held with you on site on 16/2/99 you personally assured me that all works would be completed by 30/2/99 (sic) i.e. "2 weeks". Pract. Comp. was achieved (sic) 2 months after this date.
In my opinion this firm does not have the capacity to satisfactorilly (sic) complete a project of this type.’
342As noted above a revised Certificate of Practical Completion was later issued specifying 10 March 1999 as the date on which practical completion had been achieved.
343On 1 June 1999 Mr Liu as Superintendent’s Representative wrote to the Albury City Council for the attention of the Contract Superintendent in relation to ‘CONTRACTUAL ISSUES RAISED BY EDEN CONSTRUCTION’. The letter included the following:
‘Further to the issues raised by the Contractor, Eden Construction (EC) in the meeting of 12th May 1999 and their letter formalizing (sic) claims against the Principal.

The Contractor’s "claims" against the Principal arise because he is rejecting and disputing determinations made by myself in the role as Superintendent’s Representative.

As requested the following report provides background information to the issues raised and the basis for my determinations as the Superintendent’s Representative.
...’
344In the accompanying seven page report Mr Liu stated inter alia:
‘Used for its Intended Purpose.
EC [the applicant] claim that the works were fit for "use for their intended purpose" from 9th March 1999. ...

While it is accepted that the pumpstation pumps could be operated as at 9th March 1999 the following activities had not been performed.
3 day Commissioning by DPWS staff.
14 day commissioning run in which the station is to operate without fault.
Training of Operators.
Provision of Operations and Maintenance Manuals.
Handover of Pumping Station to ACC for continued operation.’
345The applicant had attempted to supply certain manuals and a laptop computer to the Superintendent’s Representative who declined to accept them. At the time in question he was oblivious to the material which the computer contained.

Mr Liu invited the Superintendent to determine whether the Superintendent’s Representative’s decision should be modified, as, indeed, later occurred.

346Daryl McGregor, the Manager, Asset Design Services at the Albury City Council, recommended that the Council could only sustain an application for liquidated damages from the amended date for Practical Completion of 23 February 1999 to 9 March 1999.
347On 3 June 1999 the Superintendent wrote to the applicant in respect of the issues canvassed in the applicant’s letter of 12 May 1999. Mr McLennan said:
‘... I am prepared to accept that the Date of Practical Completion was 10 March 1999.’
348It was not until 3 June 1999 that the applicant took exception to any of Mr Liu’s Contractor Performance Reports made by him as reporting officer and signed off by Mr Ellison as recommending officer within the Department. In his letter dated 3 June 1999 to the Department addressed ‘Att: Mr Kevin Ellison’ Mr Filardo wrote under the heading ‘Re: Contractor’s Reports of Performance’:
‘We refer to the reports issued by your departmental officers and counter signed by yourself on the Kremur Street Pumping Station contact (sic) S10/97 & S9/98 respectively.

We demand that the said reports be unconditionally withdrawn, they are flawed and not representative of the Contractors effort, I firmly believe that they (sic) sole purpose in this instant were to disadvantage me and my Company in more ways than one.

Their detrimental and negative effect caused already I believe, your (sic) are well aware of.’
349Mr Ellison, as Contracts Superintendent for the Riverina/Western Region of the Department responded to the applicant’s letter of 3 June 1999 on 11 June 1999. In his letter he said:
‘The reports provided to you express the opinions of the Departmental officers involved in the administration of this contract.

On 16th February 1999, I held a meeting with you on site to discuss the concerns the Department had identified in the reports up to that date. At this meeting you provided assertions to me that the problems identified with time, safety and quality would be addressed immediately.

The latest report prepared of 7th May 1999 does not reflect that these improvements in performance did occur.

The report will not be withdrawn.’
350The applicant sent a further letter to the Department ‘Att: Mr Don Murphy’ on 9 June 1999 in which it said:
‘Thank you for your letter dated 17th May 1999 received by us on 21st May 1999, in reply to our letter dated 16th April 1999. [the 16 April 1999 letter was not tendered in evidence]

We are disappointed that the issues raised in our letter were not taken seriously enough nor that they were properly and thoroughly addressed. We address your letter in the same chronology of paragraphs for clarity and convenience, we point out however, that should a satisfactory address to the matters raised not be fairly and properly investigated and replied to, we would then have no option, other than to take the matter further to the appropriate forum and venues, so this discrimination embarked upon by Departmental Officers would stop once and for all and that justice be done.

Dora Creek Effluent Main – Contract No.9300154
Your assessment was wrong, we had the appropriate resources to carry it out, the facts were, we had just completed a similar size job in the A.C.T. for the A.C.T. Public Works within the same year as the Dora Creek Project. Your Department was aware but conveniently chose to ignore that information at the time.

Penrith Lakes Regatta Centre – Contract No.9300593
This project was not controlled by the Olympic Construction Authority, the O.C.A. was the Principal but the control regrettably was totally in the hands of the Department of Public Works and Services, and to quote your engineer at the time he made comments to the effect "we are not interest what you have done for the Olympic Authority, we are now in charge"

Your comments are at odds with the Olympic Authority’s attitude and standing towards Eden Construction Pty Limited. To this date, the Authority for its high regard, regularly sends us pamphlets and updates from the Penrith Lakes, simply because we are held in very high regard. Should the Olympic Authority had been (sic) told the truth at the time about us they would have no hesitation whatsoever to award us the contract, as that was clearly not the case, we were of course by passed by your Department.

For the records we enclose herewith, copies of pamphlets and letters of commendation by the Olympic Authority to prove the high regard the Authority has for us as reliable multi-Million dollars (sic) Contractors.

Ganmain Sewerage Augmentation – Contract No.
The findings made in your letter are in stark contrast with the specification for open tenders not only we (sic) met the specified criteria (basic implementation of Q.A. System) we were given the run around and were by passed in favour of another tenderer with similar requirements $200,000.00 or more higher, simply because we were "Eden Construction"

Shoalhaven Water Pipeline – Contract No.9601060
The comments made in the letter dated 8th January 1999, are in keeping with this conspiracy theory that is waged against me and my Company. The letter mentioned the report for the Albury Project ($2,388,945.81) in particular, the "August 1998" report, of which you are no doubt aware. What you may not be aware of is the fact that in August there were two reports issued by Mr Trevor Liu the Superintendent’s Representative.

Mr Liu at the time of issuing the first report (which he gave me a copy) was told by Mr Peter Grove to issues (sic) another report because the first report was "not harsh enough" Mr Liu obliged to his superior’s wishes and issued the "report" upon which the alleged rejection for the Water Pipeline Contract was conveniently based upon. When I approached Mr Liu for explanation for such behaviour he shook his shoulder and said words to the effect, "the Department’s people have long memories about you"

The plot here thickens because your people at the Wagga Regional office were wrongfully pretending to be (or were) the Superintendent for the Albury contracts, and used their position of trust and power not only to make life very difficult for me and my Company. We lost two other projects totalling more than $2.0M. as result of detrimental and adverse comments made to inquiring authorities by your Department on those projects. Those two projects were, one for the Liverpool City Council worth approx. $1.3ml. (coincidently under investigation by ICAC) and the other, the Hume dam Project worth approx. $900,000.00 for the Water Authority & SMEC Victoria, both lost as result adverse comments by Public Works & Services.

As for the rejection of our pre-qualification application, we go no further, as we see no point banging our head against the wall. The truth of the matter is, the Department does not want Eden or Ces Filardo on their list and irrespective of what we or put up (sic), we came to the conclusion that bias and discrimination would prevail and we would never be able to carry out work for the Department of Public Works & Services of New South Wales.

The only thing remaining is fair and proper compensation which we expect from your Department, for wrongfully and deceitfully inducing us in paying money and tendering for work only to be rejected for one reason or another every time. Should you think that these comments are not true and correct, then, would you please point out one (1) single contract awarded to us over the past thirteen (13) years by your Department.

...’
351On 25 August 1999 an agreed settlement was reached between Albury City Council and the applicant in relation to the outstanding claims under the two Albury sewage treatment contracts. On 26 August 1999 the Superintendent under the contracts, Mr McLennan, wrote to the applicant offering $45,000.00 as full and final settlement of the applicant’s outstanding claims totalling $74,091.16 on the basis that an amended Certificate of Practical Completion would be issued in respect of the Pumping Station works recording the date of practical completion as 10 March 1999 as previously advised by the Superintendent.
352It would appear that by facsimile dated 27 August 1999 senior officers in the Department sought background information from Mr Liu in respect of the Contractor Performance Reports issued by him. Part of Mr Liu’s reply, forwarded by facsimile on 30 August 1999, has been recorded at [223] above. It continued:
‘ I believe that the contractor has mis-reported my comments to the effect that "the Department’s people have long memories about you". As I recall I was commenting on the contractors "complaints" concerning his perceived ill treatment by DPWS. The Contractor fully believes that he has been wronged and has been driven to bankruptcy by DPWS, he also believes that he has paid his dues (re some form of financial settlement with DPWS) and is now entitled to be treated fairly by DPWS. He does not see how his own decisions, actions, management and quality of work relate to these issues. For example, the inability of his company to demonstrate Substantial Implementation of the Quality System.
The "loss of contracts" is believed to have occurred during the tender process and information gathering done by the organisations concerned. We have not control over their tendering procedures and control of information. I disappointed that (sic)
1. The contractor is, in effect, holding me responsible for being unable to win work and that
2. That the organisations did not seek to fully defend their information sources when explaining why they passed over Eden’s tenders.
At both times I advised these organisations that my experiences were limited to 2 contracts with Eden Construction and they should seek to verify my reports via other parties.’
353Mr Liu’s proffered excuse for his first report not being an ‘objective’ one, to use his word (see [223]), was that in his report of 7 August 1998 and his May 1998 report he had selectively reported his experiences on the basis that he did not want to be confrontational. He says that he glossed over some issues, trying to ensure that the relationship between himself and the contractor was not disrupted. Accordingly he says in his letter that he refrained from commenting on ‘minor’ matters and matters of personal opinion.
354Mr Liu’s reference to the inability of the applicant to demonstrate ‘Substantial Implementation’ of the applicant’s ‘Quality System’ is somewhat curious in circumstances where the Kremur Street Pumping Station contract did not require the contractor to demonstrate ‘Substantial Implementation’ but only ‘Basic Implementation’.
355On 1 September 1999 Mr Grove forwarded a response to the Department in respect of the applicant’s letter of 9 June 1999 upon which Mr Liu had commented in his facsimile of 30 August 1999. Mr Grove’s comments included:
‘A) General
(i) I have directly supervised or been associated with the supervision of many contracts over many years and consider that I have built a reputation for honesty and fairness in my dealings with contractors.
(ii) I understood that under the C.P.R. system we were obliged to comment on the contractor’s performance without fear or favour and that in return for that freedom to comment the D.P.W.S. would back its staff.
(iii) Prior to the Kremur St Contract I think I had met Mr Filardo once, very briefly, when I was based at Muswellbrook in the early 1980’s. I therefore had no [idea] about Eden Construction as a company or its ability to perform in a contract. I infact did not know that the company had been placed on the "banned" contractor list.

B) Comments on performance in this Contract.

(i) The contractor had basic implementation of a Q.A. system which was required under the contract, but Albury City Council did not insist on that requirement.

(ii) Safety issues were consistently coming up on site and only being resolved after constant reminders.

(iii) Contractor did not achieve concrete quality finish required under the contract despite constant requests for that to improve. The contractor consistently advised that it would be "fixed up". It wasn’t until a deduct vary was imposed ($50,000) [The evidence does not establish that there were ever ‘constant requests for that to improve’. The sign-off by the client’s representative on formwork and concrete checklists tends to indicate a general acquiescence in respect of the finish that was being achieved, but Mr Filardo did agree to grind back imperfections at the end of the job].

(iv) The contractor, through his action of wrong placement of reinforcing starter bars, cost the client $3,000 to have a structural analysis done to ensure structural adequacy of the wall. [this could hardly be seen to be a significant matter].

(v) Works programs were consistently submitted showing that he would finish the contract on time. This did not happen and in fact by this action caused delay to the completion/commissioning of the treatment plant. [There was undoubtedly delayed completion but its extent was relatively minor. Mr Liu’s perception that the works were not practically complete until April would appear to have been a misjudgment on his behalf, although the Contract Superintendent says that he only agreed to the revised earlier March date to achieve a compromise with the applicant].

(vi) At the start of the contract the contractor lied about the number of people employed by Eden Construction. On investigating the position Eden Constructions (sic) had to add two people to their employee list. This action is inconsistent with the Government’s Code of Practice for the Construction Industry.

(vii) At a time much later than when the CPR was submitted, on another contract, on a site adjacent to Kremur St Pump Stn (the works were part of the sewerage scheme) Eden Constructions (sic) blatantly disregarded the soil testing regime required under the contract (without approval of the superintendent).
In regard to the comments about Shoalhaven Water Pipeline Contract I was asked to comment, as was Mr Liu, by personnel from the South Coast region about the Contractor’s ability to complete the work. My comments were, in essence, that I considered that Eden Construction was a typical 1980’s [type] contractor. That is the company could complete the work but would require close, constant supervision. The DPWS does not have this luxury, except on large projects where the supervision fees form a small part of the overall project costs. For example Albury Sge, the supervision costs were 3.6% of the scheme cost.

In conclusion I make the following comments.
(i) I make no apology for my actions regarding my request to revise the C.P.R. to reflect what I considered to be the [actual] performance of the contractor. At that time there was considerable problems (sic) on site regarding safety, quality of workmanship, and the critical problem of the wrong placement of steel, which [led to] additional, unnecessary cost.

(ii) I would suggest that the manager of Eden Construction look at his company’s performance and management structures before he accuses the Department of conspiracy against his company.

(emphasis and comment added)

The Moruya Heads sewerage sub-contract

356On 31 May 1999 Allied Constructions Pty Limited invited the applicant to quote for a pipe laying subcontract for certain works at Moruya Heads in relation to the Moruya Sewerage Scheme.
357On 14 June 1999 the applicant submitted a schedule of prices for the Moruya Heads Sewerage Reticulation Works to Allied Constructions Pty Limited.
358In June 1999 the applicant effected a number of revisions to its Quality Assurance Manual.
359On 26 July 1999 Mel Gillot, Allied Constructions Pty Limited’s estimator, prepared comments on the applicant’s quote in respect of the Moruya sewerage subcontract. The document headed ‘MELS COMMENTS ON THE QUOTE FROM EDEN CONSTRUCTIONS (sic) AND SUBSEQUENT DISCUSSIONS’ included:
‘• QA – Eden are third party certified to 9002 and have been accredited to "substantial implementation" with DPWS.
...’
360On 28 July 1999 Allied Constructions Pty Limited held a meeting with the applicant in relation to the Moruya Heads sewerage project. The minutes of that meeting, apparently prepared by Andrew Burns, record that the parties present included Mr Wilfred (‘Fred’) Brown, Mr A Burns and Mr M Gillot of Allied Constructions Pty Limited and Mr Filardo of the applicant. The minutes record, inter alia:
‘18. Q.A. – Eden are accredited
– have ITP’s and checklists’
361Mr Fred Brown’s diary notes for 28 July 1999 included a reference to the meeting with Mr Filardo. They also included:
‘John Hetherington [the Department’s Regional Superintendent for the South Coast region] rang re Moruya re Eden (42268490)
• passed over on 2 recent projects for pipework due to Edens inability to demonstrate exper. in pipework
• very poor "time" performance at recent project at Albury.
• General performance at Albury unsatisfactory with unsatisfactory performance in 6 of 7 categories.
• Previous dispute with Eurobodalla Shire Council. DPWS would need to talk council around.

But not "barring" them at this stage. Info given is strictly confidential.’

362It would appear that on 28 July 1999 a conversation took place between Mr Fred Brown and Mr Chris Maher of Allied Constructions Pty Limited to the following effect:
Brown: ‘I have just had an interesting meeting with the DPWS. They went through various questions in relation to our tender and asked me who our subcontractor would be for pipelaying. I told them that we had considered a number of contractors but were currently considering Eden. DPWS said they were very unhappy with Eden and that the Eurobodalla Shire Council in particular would be very unhappy if we used Eden.’

Maher: ‘I suggest that you meet Eden and get to the bottom of it.’

363On 29 July 1999 Mr Maher had a further conversation with Mr Brown in which Mr Brown said:
‘I am now very unhappy with Eden. I met with their Managing Director and he said to me that they don’t take crap from anyone and would litigate if they had to. I gained the impression that Eden are very litigious.’
364On 20 August 1999 Mr Chris Maher, the Managing Director of Allied Constructions Pty Limited wrote to the Department ‘Attention: Mr Craig Summerhayes’ submitting a revised tender price for the Moruya Head Sewerage Scheme works which was approximately 25 per cent higher than the original tender amount. In the letter Mr Maher wrote:
‘We regret to advise that as a result of some information obtained subsequent to the close of tenders, we have determined that a subcontractor that we intended to use for the above project is not acceptable to us and can no longer be considered for the Project.

We have subsequently negotiated with other appropriate subcontractors.

As a direct result we have no alternative but to advise that we must increase our Tender Sum by $791,578.00

Our revised Tender Sum is $4,252,155.00.

Should this increase not be acceptable then we have no option but to withdraw our Tender.

It is with great regret and significant concern that we notify you of this increase. We ask that you take into account the fact that we have never before in our long association with DPWS, been forced to take such action.

We trust that you will accept that we cannot proceed with a Contract based on the originally Tendered Sum as we would concede a huge loss to this Company.

With reference to those actions that are required resulting from our meeting of 27 July 1999 we confirm that a full response will be forwarded separately later today.

We again sincerely apologise for this late and significant revision.’
365The principal reason for the increase in the tendered price was the passing over of the applicant as the intended subcontractor and the substitution of Kenoss Contractors Pty Limited who had tendered a higher contract sum for the subcontract works.
366Mr Craig Summerhayes, the Regional Projects Co-ordinator for the Department, prepared a recommendation for a Board of Advice and Reference meeting on 27 August 1999. His recommendation was that the Department proceed to deal with Allied Constructions Pty Limited with a view to awarding the head contract to it. In his report dated 25 August 1999 Mr Summerhayes referred to the client as being ‘Eurobodalla Shire Council’. In relation to the tenders he noted:
‘During the tender review process DPWS became aware of Allied’s intention to subcontract a significant portion of the work to a contractor who had been previously passed over for similar DPWS work and whose performance was unsatisfactory on its most recent DPWS project.

When Allied were informally advised of foreshadowed difficulties in managing this subcontractor, Allied said they would review the subcontractor’s credentials.

In a letter dated 20 August 1999 ... Allied say:
• they have determined that the subcontractor is unacceptable;
• an increase in the tender sum of $791,578 is required to use an appropriate subcontractor;
• Allied will necessarily withdraw their tender if the increased price is not acceptable.
...’

Mr John Hetherington concurred with Mr Summerhayes’ recommendations.

367According to Mr Maher, Mr Brown reported to him in words to the following effect:
‘John Hetherington [of DPWS] came to Allied’s offices and looked at the spreadsheet [of quotes for the Subcontract Works produced by Andrew Burns] to see that the change in our [Allied’s] price was due to the change of subcontractors. He studied the document for approximately 30 minutes and told me that he thought it was worth the money to avoid a litigious subcontract and he thought that DPWS would be willing to pay for it.’
368On 27 August 1999 the Board of Advice and Reference within the Department accepted the recommendation to proceed with discussions with Allied Constructions Pty Limited. In relation to the award of a contract, this was deferred to a future meeting.
369On 30 August 1999 a facsimile was sent by the Manager, Program Co-ordination in the Department of Land & Water Conservation to the Department recording that the Department of Land and Water Conservation had approved government financial assistance to Eurobodalla Shire Council for undertaking the Moruya Heads sewerage works.
370On 13 September 1999 Mr Summerhayes, the Regional Projects Co-ordinator of the Department for the South Coast, prepared a further recommendation for the Board of Advice and Reference in respect of Allied Constructions Pty Limited’s tender for the Moruya Heads sewerage works, namely that the tender be accepted in the adjusted amount of $4,276,655. That recommendation was supported by Mr Hetherington, the Regional Superintendent, and accepted by the Board of Advice and Reference which concurred with the recommendation on 17 September 1999.

Contractor performance reporting and exchange of information between government agencies

371In December 1999 the Department published a report No 99118 entitled ‘Contractor Performance Reporting and Exchange of Reports between Government Agencies’, 2nd edition. The guidelines contained within the report included under the heading ‘Objective’:
‘The objective of performance reporting is to obtain a measure of the contractor’s performance under the contract.

Performance assessments during the course of a contract help both the agency and the contractor to reach a common understanding of the expectations of both parties about the work. They also help to identify areas that the contractor is excelling in and any areas that need improvement. Performance reports are used in the assessment of a contractor for pre-qualification, selective tender list, registration, tender evaluation and – in the event of termination – for unsatisfactory performance under a contract.’

Under the heading ‘Preparation of performance reports’ the report included:

‘Responsibility for completion of performance reports ... should be assigned to the person with delegated authority for the management of the contract who ... is referred to as the Reporting Officer. To be in the position to make factual assessments against evaluation criteria on the contractor’s performance, the Reporting Officer must have frequent and direct liaison with the contractor.

A person experienced in contract management must review the Reporting Officer’s assessment. This person will be referred to as the Reviewing Officer. The Reviewing Officer’s task is to ensure that the report is objective and accurate so that it can be relied upon by an agency making accountable decisions about selection, registration or regrading of tenderers.’
372In the case of Mr Ellison’s discharge of his role as ‘Recommending Officer’ in relation to the Kremur Street Pumping Station works contract, he being the relevant ‘reviewing officer’, applying the terminology of the Department’s December 1999 report, it is arguable that he did not have sufficient familiarity with the works to enable him to ensure that the report was ‘objective and accurate’. He saw his role more as one where his comments should be treated as an exhortation by himself to the contractor to continually seek an improvement in performance.
373Under the heading ‘Contractor’s Response’ the DPWS report of December 1999 included:
‘It is important that the contractor be given feedback on the assessment.

Each performance report must be discussed with the contractor who must be given the opportunity to comment on the assessment. The Reporting and/or the Reviewing Officer must address any issues raised by the contractor and respond in writing. The contractor’s comments and the written response by the Reporting and/or Reviewing Officer form part of the performance report.’
374It can be argued that the relevant Departmental officers did not adhere to these guidelines in relation to the Contractor Performance Reports referrable to the Kremur Street Pumping Station project. They were, however, guidelines as published in the 2nd edition, December 1999, of the respondent’s Departmental Report.
375Under the heading ‘Recommendation for further work’ the December 1999 Departmental Report included the following:
‘An important reason for assessing the performance of contractors is to determine whether the contractor is suitable for further work of a similar type for the reporting agency.

All performance reports include the option of making a recommendation whether a contractor is suitable or unsuitable for further work. The option should be considered where the contractor’s performance is assessed as unsatisfactory.

The final performance report on each contract will be the main source for evaluation of the performance of a contractor and therefore must include a recommendation on whether a contractor is suitable or unsuitable for further work.’
376Under the heading ‘Access to reports’ the Report included the following:
‘Contractor performance reports should be treated as sensitive documents and should be held by a central office within the agency, preferably the office responsible for registration or pre-qualification of contractors. Within the agency, information on a contractor’s performance report may be released on a need-to-know basis to persons with authority, eg. to the convenor of a tender evaluation committee.

It is essential that performance reports are recorded and stored in a way that facilitates efficient handling and easy retrieval and provides confidence that the information is complete. Central co-ordination is therefore recommended.’
377In 1999 the New South Wales government issued a white paper entitled ‘Policy Statement NSW Government Procurement’. In the ‘Foreword’ the Minister for Public Works and Services said:
‘The Policy Statement for NSW Government Procurement is a whole-of-government framework to use the Government’s influential position in the market place to promote its economic and social goals, and obtain best value for the taxpayers’ money.

The initiatives mean a total overhaul of the way government does its procurement to achieve best practice by government agencies and lift the productivity of local business enterprises.
...’
378On 2 December 1999 a meeting of the Panel of Assessors within the Department was held to consider the Department’s ‘Review List’. The meeting was attended by Mr Shestovsky as the Acting General Manager, Procurement Management Services, C Cheung as Project Manager, Procurement Strategies, and C Oh as Manager, Environmental Management, Policy Services. In relation to the applicant the minutes recorded:
‘Panel agreed to issue Precedent 5.63a letter for poor performance on Contract No. 9800075 Kremur Street Pumping Station. Subject to confirmation DPWS risk management role.’
379On 17 December 1999 the Department’s Acting General Manager, Strategic Procurement Services wrote to Mr Filardo stating:
‘The Department has received adverse reports regarding your firm’s performance on this [the Kremur Street Pumping Station] contract. In particular, the following aspects of performance have caused concern:
• Time Management
• Quality Assurance; and
• OHS&R.
Should your company wish to make any comment on the above matters, please do so in writing by 7 January 1999 (sic).
After that time the Department will consider the above matters, together with any response from your company and will determine whether your company will be considered for future contracts.’
380By letter dated 27 December 1999 the applicant replied to the Department’s letter of 17 December which had only been received on 24 December 1999. Mr Filardo, in his letter, expressed concern about the contract that was being referred to, namely Contract No 9800075. That was plainly a Departmental number which was revealed on the various Contractor Performance Reports. The number by which the Kremur Street Pumping Station contract was more consistently identified was Contract No S10/97, which was presumably the relevant Albury City Council contract number.
381In his letter Mr Filardo indicated that he required more information as to what the Department was talking about before he would be in a position to respond. By letter dated 30 December 1999 the Department advised the applicant that the contract referred to was Contract No S10/97 and explained that 9800075 was the Department’s ‘internal reference’. The Departmental letter included:
‘Where the Department has the role of project manager on behalf of another organisation it can prepare performance reports on the contractor’s progress as it did in this case. You acknowledged receipt of reports in you (sic) letter dated 9 June 1999.

The Contractor Performance report dated 24 May 1999 did not recommend your firm for future works based on its performance on that contract.’

The Department proceeded to seek the applicant’s response on its reported poor performance as contained in the Contractor Performance Report of 24 May 1999 being the report issued following practical completion.

382On 21 December 1999 Mr Liu issued a Contractor Performance Report in respect of the applicant’s contract with the Albury City Council for the construction of a Kremur Street Pumping Station ‘Overflow stormwater management and civils 2’ for which the tender price had been $504,732.63, which tender had been accepted on 15 December 1998. The adjusted contract price became $482,985.13. The 21 December 1999 report of Mr Liu was issued following practical completion. It referred to the extended date for practical completion as being 19 May 1999 and that practical completion had been achieved on the same day. In reporting the applicant’s performance under that contract Mr Liu ticked all relevant items in the ‘Acceptable’ box with the exception of ‘Quality Assurance’ which was the subject of indications that the quality assurance was both ‘Unsatisfactory’ and also ‘Acceptable’. The comments of Mr Liu as the reporting officer included:
‘In my opinion ...

Further to my February 99 and May 99 report, the Contractor has not demonstrated third party certification of the Quality System although Substantial Implementation is claimed.’

383The Contractor Performance Report was signed by Mr Ellison as the ‘Recommending Officer’ on 5 January 2000. Mr Ellison included a dash in that part of his report which called for confirmation that he had sent a copy of it to the applicant. In addition it included an indication that the contractor was not recommended for future work. No reasons were proffered.
384On 11 January 2000 SGS International Certification Services Pty Limited issued a certificate of registration certifying that the Quality Management System of the applicant had been ‘assessed and registered as meeting the requirements of AS/NZS ISO 9002’. The date of certification was expressed as being 1 December 1999 and the scope of registration being ‘Civil engineering and general construction’.

Further accusations of discrimination and bias

385On 8 March 2000 the applicant wrote to the Department attention Mr Shestovsky under the heading ‘Re: Discrimination & Bias by the P.W.D. & Services Towards Eden Construction P/L.:’ Mr Filardo’s letter included:
‘1.1 Mr Murphy to this date has not replied to our letter of 9th June 1999, apart from an acknowledgment on 14th July 1999.

1.2 We cannot make an informed comment to the "review" simply because we were not given a copy, nor the right of reply.

2.1 We have already documented evidence of the Department’s biased and discriminatory behaviour over the past fourteen (14) years.

2.2 Indeed we are considering further action to expose, halt and prevent bias, discrimination, collusive and corruptive practices. It is of paramount importance is (sic) that public officers be accountable for any wrongdoings they commit to the detriment of the public they purport to represent.

3.1 The performance report was not prepared in accordance with your guidelines (copy enclosed). The report of August 1998, was at best flawed, intending to put me, my Company and my Project Engineer in the worst possible light. You may not be aware that the impartiality of the (sic) Mr Trevor Liu (the Reporting Officer) was highly compromised. In fact Mr Liu issued two (2) reports the copy of the first was given to us and another copy was sent to Wagga Wagga Regional office. Upon receipt of same Mr Peter Grove, a Senior engineer of the Public Works, who had little or no direct knowledge of the Kremur Street Project, said to Trevor "this report is not harsh enough" and instructed Trevor (somewhat improperly) to issue another performance report putting Eden in the worst possible light. When I asked Mr Liu why he did that and who was Peter Grove or Kevin Ellison for that matter under the contract, he said words to the effect "I know they are no standing under the contract, but I have to follow their instructions because they are my Superior Officers" In the light of the above our performance report was unsatisfactory and from then on life became very hard for us.

3.2 It is indeed a very serious matter. That is what we have been saying for the past ten years.

3.3 The best way to deal with this, would be to convene a meeting between Trevor Liu, Peter Grove, Malcolm Densley, Ces Filardo and John Ellwod of the Albury City Council, and such meeting could be anywhere and could be chaired by an independent person.

3.4 No, the reports reflected Peter Grove’s and Kevin Ellison’s collusive input into it, not Eden’s performance with the Kremur Street project. If that were the case the Council of Albury would had not given (sic) Eden another half Million Dollars worth of extra contract within the star scheme, if they thought Eden was a poor performer. In the eyes of the Albury City Council (Principal) it was certainly not the case.

3.5 We have experienced this first hand already and as a result we were wrongly by-passed over on several projects thanks to the biased input of the Department, since August 1998.

4.1 Our response would be, that those reports should be unconditionally withdrawn, and that the Department, before it destroys people’s lives, ought to take a very hard and objective look at its modus operandi. A meeting as suggested above should take place.

4.2 Please refer to above

4.2(a) With respect we have not been considered for work for the past fourteen (14) years and unless the Department wants to change its attitude and modus operandi we have no reason (unless proven otherwise) to hope for a better future.

4.2(b) If the meeting suggested above is agreed upon perhaps an independent panel can and would be recommending Eden Construction for future work with any government department once our view is allowed to be put across and received objectively.
I believe the meeting would be helpful in clarifying the main issues, and then if necessary more formal comments can be provided to the panel of assessors.’
386On 10 March 2000 Albury City Council issued a final certificate to the applicant in respect of the Kremur Street Pumping Station works. That certificate was due at the end of the defects liability period i.e. 52 weeks after the date of practical completion.
387On 20 March 2000 Mr Ellison as Contracts Superintendent for the Riverina/Western region of the Department forwarded a facsimile to Mr Shevstovsky in response to a facsimile apparently sent by Mr Shevstovsky to him on 17 March 2000. Under the heading ‘EDEN CONSTRUCTIONS (sic) PTY LTD’ Mr Ellison said:
‘I would consider that this issue would be best coordinated by Peter Grove – Project Manager – Albury Sge Project ... Not me.

Who will pay the cost of this meeting? Eden Constructions (sic) have requested John Ellwood from Albury City Council attend, but Why? Brian McLean (sic) was the Superintendent on this Contract, he should be attending to represent Albury City Council if anyone.

What are the attendees going to talk about? What will the meeting achieve? Peter Grove has written submissions to SPS [Strategic Procurement Services] (George Menzies) on this particular issue and I support his comments.

I am concerned SPS are walking a tight line on this issue. I am prepared to say it – this Region believes we are not being supported by SPS and the "meeting" is only camouflage to appease the Contractor.
...

If SPS do not enforce the line of truth in the reporting on Contractors performance then you will undo all the emphasis that has been placed on this in recent training. The contract representatives will not report poor performance for fear of persecution by the Contractor.

Rightly or wrongly, I went to Albury and had a meeting with Ces Filardo and Trevor Liu to discuss the poor performance report. He never responded to my knowledge until well after the completion of the Contract. So he had the opportunity.

Peter Grove had input into the CPR as Project Manager. He was intimately aware of Edens poor performance, if Mr Liu did not have the report correct then it is within Peters’ authority on the project to have it corrected. Mr Liu is a prime example of what I said previously about truth in reporting.

I have discussed your fax with Peter Grove and my Regional Manager and as I was unable to contact you today, I am putting my thoughts in writing.
...’
388It is arguable that the assertion by Mr Ellison that Mr Grove was ‘intimately aware of Eden’s poor performance’ involves a considerable overstatement of the true position. Mr Ellison’s resistance to a meeting being held to be attended by representatives of the Department, the contractor and the Albury City Council is consistent with a Departmental concern that expressions of satisfaction by the Council with the contractor’s performance may not sit comfortably with the Department’s call on 11 August 1998 for the reporting officer, Mr Liu’s, Contractor Performance Reports to be more detailed ‘& critical’. Such a meeting may also have required distinctions to be drawn between matters which Mr Liu, as the Department’s Albury-based Project Engineer, considered to be important and those which he considered to be unimportant or minor. It might also have required a reconsideration of Mr Liu’s and Mr Ellison’s expressions of concern about the contractor’s time management in the May 1999 Contractor Performance Report, which lost their validity once it was recognised that the date of practical completion was 10 March 1999 and not 29 April 1999 as they had thought i.e. the project was 2 weeks late, not 9 weeks late. The meeting may also have required consideration of the Council’s and the respondent’s acquiescence in the provision of a lesser standard of finish for the formed concrete than the contract required.
389In April 2000 the Department published ‘A guide to performance reporting on construction contractors and all categories of consultants’ in respect of which the claim to copyright was made in 1998. The guide included:
‘Objectives

The Department of Public Works and Services has implemented procedures for measuring and reporting contractor ... performance. Its intention is to:
...
• share information on past and current contractor ... performance with other NSW government agencies.
...

2.2 Preparing a Performance Report

The procedures for preparing contractor ... performance reports are similar.

a monitoring
The contractor’s ... performance, in terms of the performance evaluation items, is discussed with the contractor ... and minuted at every formal project meeting. Agreement to the meeting minutes should be obtained.

Assessments made in the Department’s Performance Reports should not come as a surprise to contractors ..., because regular discussions on performance are held.

b reporting
Performance Reports are prepared by the Reporting Officer.

For Contractor Performance Reports, the Reporting Officer is generally the Principal’s Representative ... or Superintendent’s Representative ...
...

The Performance Report should, as far as possible, include objective statements and a copy of documents supporting the ratings given to the various performance evaluation items.

c recommendation
Performance Reports are endorsed by the Recommending Officer.

For Contractor Performance Reports, the Recommending Officer is generally the Regional Contracts Superintendent or Project Manager. For Consultant Performance Reports, the Recommending Officer is generally the Consultant Manager.

positive recommendations
If the contractor ... is recommended for future work, the contractor ... is invited to comment on the Performance Report, and given 7 days to respond.
...

negative recommendations
If it is envisaged that the contractor ... is not to be recommended for future work, the contractor ... is invited to meet with the Recommending Officer to discuss the contractor’s ... performance.

At this meeting, the Recommending Officer will:
• ask the contractor ... for an explanation of the unsatisfactory aspects of performance, and
• seek evidence that action has been taken to address the causes of the unsatisfactory performance.
Subsequently, the Recommending Officer will:
• accept or reject the contractor’s ... explanation
• amend the report, as a result of the contractor’s ... explanation
• sign the Performance Report
• send a copy of the Performance Report to the contractor ... , and
• send the original of the Performance Report to the Manager Contracts & Suppliers, Strategic Procurement Services Group.

If the Recommending Officer accepted the contractor’s ... explanation, the details of the Performance Report will be entered into the Department’s Contractor ... Management System.

If the Recommending Officer rejected the explanation, the Performance Report will be referred to the Department’s Strategic Procurement Services Group Panel of Assessors. ...

2.3 Use of Performance Reports

An overall score for a contract or engagement is generated when the Performance Report is entered into the Departments’ Contractor .... Management System.

When selecting contractors for a tender list, the Contractor ... Management System is accessed to produce a list of consolidated performance scores, in descending order, for all contractors eligible to undertake the job.

This list is used to assist the Department’s Contractor Selection Committee to identify the best performing contractors so that they may be offered more business opportunities.
...

2.4 Exchange of information between NSW Government construction agencies

Compliance by NSW government construction agencies with the contractor ... performance reporting procedures of the NSW Government Capital Project Procurement Manual facilitates the exchange between these agencies of performance information on contractors ...

2.5 Managing unsatisfactory performance or business relationships

This procedure applies:
• after the Recommending Officer has endorsed a performance report to the effect that the contractor ... is not recommended for future work ...
...

a initial assessment
The matter is referred to the Strategic Procurement Services Group Panel of Assessors, which is comprised of the General Manager Procurement Management (Chairperson), the Manager Contracts, and one Policy Manager from the Strategic Procurement Services Group.

The Panel will consider:
• any past and current Performance Reports on the contractor’s ... work on the Department’s projects
• the Performance Report which did not recommend the contractor ... for future work ...
...
The Panel of Assessors will decide whether to:
• take no further action
...
• invite the contractor ... to comment in writing on the unsatisfactory performance ... and then undertake a further assessment.

After the response deadline, the Panel of Assessors will consider the contractor’s ... response, if any, and may decide to:
• take no further action
...
• apply a trading restriction on future business with the contractor ..., or
• determine that the contractor ... cannot be recommended for work with the Department in future, because:
the overall standard of performance was unacceptable, ...
...

The contractor ... will be informed of the Panel of Assessors’ decision by letter.

c adverse assessment outcome
If action is to be taken, the letter will state the Department’s requirements for resuming normal business relations with the contractor ...

The Panel of Assessors will conduct a half yearly review of the status of all organisations ...
...

d review of assessment
If a restriction on future business with the Department has been applied, the contractor ... may, within 30 days of the Department’s letter, request a review of the Panel of Assessors’ decision.

Requests for a review must be accompanied by the grounds for the request, together with supporting information.

The review is conducted by a committee appointed by the Group General Manager, Strategic Procurement Services, comprised of a senior Departmental manager and a senior manager from another NSW government agency who have not been involved with the earlier assessment of the matter.

After reviewing the information provided from the Department’s records, other NSW government agencies’ records and by the contractor ... in the request for review, the committee will submit its report to the Group General Manager, Strategic Procurement Services.

The Group General Manager will:
• decide whether to uphold the Panel of Assessors’ decision
• write to inform the contractor ... of the decision, and
• arrange for the contractor’s ... status to be adjusted, if necessary, in the Department’s records.’
390On about 4 June 2000 Mr Solano, the Department’s Manager Suppliers Systems, recommended that the Department proceed with a meeting as requested by Mr Filardo to be chaired by Mr Solano or someone else from the Strategic Procurement Services section. Before making his recommendation Mr Solano noted that Mr Filardo’s main concern was to discuss the poor Contractor Performance Reports from the Albury project. With respect to one of Mr Filardo’s points Mr Solano noted:
‘... it does appear that established procedures were not strictly followed in some instances however it is highly questionable whether this departure from procedures was to the extent suggested by Mr Filardo and whether this departure is of any significance.’
391Mr Solano also noted:
‘... of the three projects he claims he was passed over due to the poor CPR’s, we are only familiar with the Shoalhaven Pipeline project .... The poor CPR on the Albury project was considered during the tender evaluation for Shoalhaven Pipeline however the BAR [Board of Advice and Reference] report included other reasons for the rejection of the firm including its environmental management experience. ...’
392A meeting would appear to have taken place in Sydney between representatives of the applicant and the Department on 13 July 2000. The applicant was represented by Mr Filardo and the applicant’s then solicitor. The Department was represented by Messrs Ellison, Grove and Solano. It would appear that no invitation was extended to the Albury City Council to participate in the meeting.
393The minutes of the meeting prepared by Mr Solano included:
‘Mr Solano ... stated that the purpose of the meeting was to discuss the adverse contractor performance reports (CPRs) prepared by the Department on Eden Construction Pty Ltd (Eden) during the contract for the construction of Kremur Street Pumping Station for Albury City Council (the Albury Project). ...

... Mr Filardo stated that he would be taking legal action against those individuals involved in the Albury CPR’s (Mr Ellison and Mr Grove). Mr Solano explained that the Departmental officers involved had carried out their duties as required by the Department and there was not a hint of any wrongdoing on their part.’
394Later in the report Mr Solano commented:
‘The Department is satisfied that it had the right to prepare CPR’s on the Albury Project. Notwithstanding this, it may be advisable to review our tender and contract documents (particularly with respect to contracts where DPWS is not the Principal) to ensure there can be no doubt over the roles and responsibilities of all parties involved.’
395Mr Solano’s notes continued:
‘There was some discussion on the specific areas of poor performance by Eden on the Albury Project. Mr Filardo stated that the Departments assessment was incorrect. With respect to the issue of concrete finish, Mr Filardo stated that he was only required to produce a F2 finish and not F3. He stated a change to the finish had been agreed with the Department and he had documentation to support his claims. He also stated that our assessment of his OHS&R performance was incorrect as her (sic) had received positive assessments from WorkCover. Mr Grove disputed Mr Filardo’s comments and recollection of the facts surrounding the Albury Project.

Mr Solano stated that the Department had given Eden numerous opportunities to respond to the CPR however on each occasion he declined to address the contents of the report and chose to attack the integrity of the Department. Mr Filardo acknowledged that he has been given numerous opportunities to respond.

Mr Filardo requested that the Department withdraw the CPR’s. Mr Solano stated that the CPR’s were prepared by the Department in good faith and in accordance with it’s reporting procedures and the CPR’s would not be withdrawn. Mr Solano again explained the Department’s reporting procedures and various levels of appeals available to him to have the reports reviewed however this process required Mr Filardo to furnish evidence to refute the Department’s assessment.
...

In concluding, Mr Solano again offered Mr Filardo the opportunity to formally respond to the contents of the CPR’s from the Albury project and to provide evidence to refute the Department’s assessment. ...’
396Mr Solano’s concluding comment was:
‘It appeared that Mr Filardo is unable to accept that his performance on the Albury Project did not meet the required standard. Despite a lack of any evidence, he is still of the opinion that the Department has treated him unfairly. There does not appear to be any reason for the Department to pursue this issue any further and it would appear that it is up to Eden Construction to either respond to the content of the Albury CPR’s or to initiate some other form of action. ...’
397On 21 July 2000 the applicant wrote to the Department attention Mr Solano under the heading ‘Re: Bias Discrimination & Improper Conduct by PWD’s Officers’, in which he said:
‘Further to our meeting in your office on Thursday 13th July from 2.00 pm we put in the following the reasons and the evidence that negates and repudiates the Department’s stance that it had the right to issue such a damning report. We still maintain that the Department’s objective is purely to destroy my company and my staff, my family and myself.
...

Mr Grove’s admission that he unduly influenced Mr Liu to issue a second report in August 98, because the first was "not harsh enough" was noted by our Solicitor, what was also important, was the fact that John Hetherington from the South Coast office used the second report to deny us our lowest legitimate tender for the Nowra Hill pipeline ($2.5 Mil.). This in our view, is corruptive, collusive and restrictive of fair and reasonable practices within the industries (sic). It should not be tolerated and should be punished so the officers responsible for these corrupt and collusive practises be made to pay out of their own pockets in an endeavour to stop these things from re-occurring ever again. ...
...

... Mr Ellison ... had absolutely no first hand knowledge of the job ...’
398On 14 August 2000 Mr Liu completed a further ‘final’ Contractor Performance Report in respect of the Kremur Street Pumping Station project. Somewhat curiously he recorded the date of practical completion as 29th April 1999. He conceded in his oral evidence that this was not accurate.
399In respect of ‘Time Management’, ‘Standard of Work’, ‘Quality Assurance’, ‘Management and Quality of Personnel’ and ‘Coordination of SubContractors’ Mr Liu again ticked both the unsatisfactory and acceptable boxes at the same time. In relation to the other relevant evaluation items he ticked the acceptable box referable to ‘Contract Administration’ and ‘Occupational Heath & Safety’. His opinion, as recorded in the ‘Overall Comments’ section of his report, read:
‘This is the Final Report for this Contract. Works are presently under the control of the Principal, ACC. The Principal has not advised that the Contractor has improved their performance from what was Reported in May 1999.’
400As it transpires Mr Liu left Albury in November 1999 and had no personal awareness of what transpired in the defects liability period which was administered by Albury City Council. Mr Ellison once again marked the ‘NO’ box in relation to the question of whether or not the contractor was recommended for future work. His comments simply read ‘refer to previous reports for details’.
401On 18 August 2000 Mr Ellison forwarded a copy of the completed final report, signed by him on 15 August 2000, to the applicant. The covering letter included ‘[s]hould you wish to comment on the attached report ..., kindly do so in writing to me within seven days of the date shown on this letter’.
402The applicant does not appear to have responded to the final report, signed by Mr Ellison on 15 August 2000, notwithstanding the invitation from Mr Ellison to do so.
403On 25 August 2000 Mr Ellison submitted a memorandum to Mr Solano with a copy to Mr Grove concerning the applicant. After dealing with certain specific matters Mr Ellison commented in respect of Mr Filardo’s letter of 21 July 2000:
‘The remainder of the letter is waffle. All accusations made are a nullity.’
404On 25 January 2001 the Department’s Panel of Assessors reviewed the applicant’s performance and decided:
‘... to issue prtecedent (sic) 5.63B for poor performance on Contract No. 9800075 Kremer (sic) Street Pumping Station.’
405Mr Menzies’s recommendation to the Panel of Assessors of 25 January 2001 was that the applicant be placed on the DPWS Review List and that it be advised in terms of ‘Contracts Manual Precedent 5.63B’ letter. Mr Menzies’s report included:
‘BACKGROUND

The Panel of Assessors decided on 2 December 1999 to issue Precedent Letter 5.63 to Eden requesting a response for its performance on the Kremur Street Pumping Station contract based on a Contractor Performance Report dated 24 May 1999. However, this was subject to the Department’s right to prepare a report in this case where it was the Superintendent’s Representative for the Albury City Council. ACC was the contract Principal and Superintendent.
...

ISSUES

These three areas in the letter from DPWS to Eden are addressed in the following:

Issue – Time management

Contractor Performance Report states:
1. insufficient time was allowed for the installation of mechanical and electrical components;
2. time estimates and programs generally not met;
3. Contractor did not issue a program that meets the specification requirements nor demonstrated a critical path.
4. (by DPWS Regional Superintendent) the Contractor personally assured the Superintendent that all works would be completed by 30/2/99 ie 2 weeks. Practical Completion was achieved 2 months after this date.

Response by Eden
Eden’s responses are derived from two letters. These are dated 17 June 1999 to ACC Superintendent and 21 July 2000 to SPS. The first letter predates the DPWS request for a response to the report from Eden but is used as it does address some of the issues.
Point 1 above – These letters do not address the mechanical and electrical components.
Point 3 above – These letters do not address the assertions in the report regarding a program nor the submission of a critical path.
Point 2 & 4 above – A major point raised by Eden in letter of 17 June 1999 is that the critical path was affected by a variation (Variation 17) for a pit in that the pit ‘is a integral part of the works ...’. Eden sought an extension of time for Practical Completion from 10 March 1999 to 16 April 2000 which Eden states was the date the pit was completed. In this case liquidated damages would not apply.
Eden’s letter of 21 July 2000 also states that the Final Certificate issued by the ACC Superintendent for the work means that DPWS was wrong to have applied liquidated damages for late Practical Completion. It is noted that the liquidated damages were later remitted by the ACC although ACC state that this was only because it was a part of a settlement agreement.

Letter and Report from Supt Rep (Trevor Liu) to Albury City Council dated 1 June 1999
Point 2 & 4 above – Addresses amongst other things Variation 17 for the construction of the stormwater pit. Claims (at page 4) that this work was detailed and specified as part of the additional works to the contract discussed shortly after the award of contract and the additional work was accepted as a variation as Eden could not have priced the work at the time of tender. States that Variation 17 arose when Eden realised that these works had not been priced and requested payment for its construction.

Importantly, in the context of Time Management, he states that the performance of this variation did not affect the contract’s critical path, the works were performed after commissioning. This is in conflict with the Eden statement.

Point 3 above. – Advises under "Construction program" page 5&6 of his requests for the construction program and the unsatisfactory programs provided. Further, the programs: did not serve the purpose of providing a predicted end date for the works; did not appear to have factored in the completion of mechanical and electrical works; and, did not allow for the modification of the flumes.

Letter and Report from Supt Rep (Trevor Liu) to Albury City Council dated 1 July 1999
Points 2 & 4 above – Also addresses Variation 17 by stating that throughout the contract the Albury sewerage system operated without the flume overflow (a contingency plan was in place) and that the operation of the pump station does not require an overflow main or collection lagoon.

Advised that he had previously determined Practical Completion as at 29 April 1999 and therefore if Eden’s claim to revise the Date for Practical Completion to 16 April 1999 is accepted, Liquidated Damages of $13000 would still apply.

Letter from Albury City Council Superintendent to Eden dated 5 July 1999
Point 4 above – Advised a list of five things that were not completed, but specified to be completed prior to Practical Completion being granted being:
• Provision of Work as Executed Drawings
• Completion of Cleaning Up
• Site Testing and Commissioning
• Operation and Maintenance Manuals
• Personnel Training

{It is noted in AS 2124-1986 pages 6 & 7 that – Practical Completion (includes) the stage in the execution of the works under the Contract when those tests which are required to be carried out and passed before the works reach Practical Completion have been carried out and passed, ...}

States that this work was not complete until 29 April 1999, although Practical Completion was determined in good faith as 10 March 1999 on the basis that the pump station could provide sewerage to the Waterview Treatment Plant.

The Superintendent did not agree that Variation 17 automatically extends the Date of Practical Completion.

Letter from Albury City Council to DPWS dated 29 August 2000
Point 4 above – This letter states that Council adjusted the Date of Practical Completion to 10 March 1999 at the request of Eden but only as part of a settlement of final claims.

Comment
Eden has failed to address the planning of the mechanical and electrical issues together with a construction program in their responses to the Time Management section of the Contractor Performance Report.

The recording of Unsatisfactory in terms of time performance appears appropriate in that there was a significant number of outstanding items incomplete at the Date for Practical Completion (23 February 1999) which were not complete until 29 April 2000 including testing and commissioning which is a major aspect of the contract. This is, however, provided the Contractor should have not have been given an extension of time for Variation 17.

The Superintendent’s Representative, Trevor Liu’s, explanation of the development of Variation 17 appears plausible together with the point that it did not affect the contractor’s critical path. The fact that this work was completed after commissioning means that this work was not on the critical path.

Trevor Liu makes the point that even if Practical Completion was accepted as 16 April 1999 this is still 13 days short of the previous determined Date of Practical Completion of 29 April 1999.

The fact that Albury City Council determined the Date of Practical Completion as part of a settlement agreement as 10 March 1999 does not change the situation that time management was poor.

Overall, Eden has not adequately refuted the unsatisfactory result with respect to Time Management in the Contractor Performance Report. In addition the DPWS and ACC documentation describes Eden’s performance as very poor with respect to time management.

Issue: Quality Assurance

Contractor Performance Report states:
1. quality assurance system developing and used in parallel with work on site;
2. not utilised in performance of all the works notably in mechanical supply and roofing;
3. refers to report by auditor of 26 January 1999 which states that the implementation needs strengthening before Substantial Implementation is given.
4. work needs continued surveillance of witness and hold points.

Eden’s letter dated 17 June 1999 to Albury City Council
Discusses the failure of a main which apparently Trevor Liu said had failed due to unsatisfactory bedding. Claims that Trevor Liu had signed off the bedding checklist based on a visual inspection.

Eden’s letter dated 21 July 2000 to DPWS
Provides copies of formwork checklists signed off by Trevor Liu.

Comment
Even if Trevor Liu had signed off checklists for works inspected it does not absolve the Contractor of performing the works in accordance with the contract.

Eden has not addressed the specific issues 1 to 4 above from the Contractor Performance Report. In particular, Trevor Liu’s statements that Eden’s QA system was not a benefit on the site in producing quality.

Issue: OHS&R

Contractor Performance Report states:
WorkCover Albury has visited the site and found occasion to issue improvement and prohibition notices.

Eden Letter of 21 July 2000 to Albury City Council
States that the WorkCover representative was called even though there was nothing wrong.

Superintendent’s Representative minute dated 9 March 1999
Included Copies of four WorkCover Improvement Notices and one Prohibition Notices (sic). These related to: unauthorised use of workbox, exposed reinforcement bars; some power tools not tested; exposed ends of cable trays; and, some pits not barricated (sic). It is noted that other notices were issued on DPWS in terms of design aspects.

Comment
Eden has not satisfactorily addressed the OHS&R issue raised in the Contractor Performance Report. The unsatisfactory rating appears well founded based on the type of shortcomings in the WorkCover report.

Meeting between Eden and DPWS
Importantly, a meeting was held on 13 July 2000 between the Managing Director of Eden Construction Pty Ltd, Ces Filardo, his solicitor, and Malcolm Van Gelder, Kevin Ellison, Peter Grove, Anthony Solano all of DPWS. The purpose of the meeting was to discuss Eden’s grievances and the facts surrounding the Contractor Performance Reports. The minutes of the meeting do not raise any discussion on the specifics of the Contractor Performance Report. It states "In concluding, Mr Solano again offered Mr Filardo the opportunity to formally respond to the contents of the CPR’s from the Albury project and to provide evidence to refute the Department’s assessment."

Final Contractor Performance Report
It is noted that a further Contractor Performance Report was received on 15 August 2000 to cover the Final Completion stage of the contract. The report had the same ratings together with the not recommended for future work assessment as the 24 May 1999 report and referred to that report for details.

OVERALL COMMENT
DPWS has advised Eden Construction Pty Ltd Managing Director on several occasions both through letters and a meeting that it needs to address the issues raised in the Department’s Contractor Performance Reports in order to have its side of the case fully considered. This has only been done partly. Eden Construction Pty Ltd has not provided a satisfactory response to the Time Management; QA; and OHS&R aspects of the Contractor Performance Report dated 24 May 1999.

Eden’s performance in terms of Time Management, Quality Assurance, OHS&R were on the basis of the documentary evidence unsatisfactory to the extent that an overall a (sic) finding of "not suitable for future work" appears to be justified, particularly as the Final Completion Contractor Performance Report is a repeat of the 24 May 1999 report.’
406Mr Menzies’s assessment of the situation bears little if any correspondence to Mr Liu’s reasons for ticking the ‘Unsatisfactory’ box in respect of ‘Quality Assurance’ in his initial report of 7 August 1998 or the remarks added by him in his revised August 1998 report where he included references to what he considered to be ‘minor’ items or matters of personal opinion.
407In accordance with the resolution of the Panel of Assessors of 25 January 2001 a letter was sent by Mr Shestovsky as General Manager, Procurement Services, Strategic Procurement Services within the Department to the applicant on 31 January 2001 in which he wrote in respect of the Kremur Street Pumping Station contract:
‘The Department’s letter of 17 May 1999 invited a response regarding your firm’s performance in nominated aspects on this contract.

Your firm’s letters on this issue together with issues you have raised in meetings with Departmental officers have now been considered. The Department has decided that the overall standard of performance of your firm in the nominated aspects of this contract is unacceptable. Consequently, your firm cannot be recommended for the award of future contracts.

The Department would be prepared to consider contracting with your firm subject to it furnishing evidence of satisfactory performance for other clients in the future.

Should you consider your firm has grounds to request a review of the above decision you may request a review within 30 days of the date of this letter. A request for review should be addressed to the Group General Manager, Strategic Procurement Services, Level 23, McKell Building, 2-24 Rawson Place, Sydney 2000. Your request must detail grounds for review and give reasons why your request should be granted. Submissions in support of your grounds for review should be accompanied by supporting evidence.’
408In February 2004 the applicant’s name was removed from the Contractor’s and Consultant’s Review List due to an administrative error and shortly thereafter restored to that list. However, by letter dated 16 April 2004 the applicant was invited to apply for review of the listing provided that it satisfied the Department’s requirements for a review. A further letter to like effect was sent by the Department to the applicant on 22 July 2004.
409By letter dated 19 July 2004 to the Department the applicant sought reinstatement as a ‘preferred Contractor’ by the Department, without prejudice to its rights in the current proceedings.
410On 21 July 2004 the Department responded to Mr Filardo’s letter of 19 July 2004 indicating that further information was required for a review of the applicant’s listing by a Panel of Assessors.
411Mr Filardo says that on 2 February 2005 he spoke with Mr Ellwood from the Albury City Council at about 5.27 pm. He made a contemporaneous file note in which he says the following conversation took place:
Ellwood: ‘Hello Ces this is John Ellwood returning your call’

Filardo: ‘Hi John, thanks for ringing back’

Ellwood: ‘What can I do you for?
Filardo: ‘John I have organises (sic) with Tania to meet with you briefly on Friday morning for about ten minutes to discuss a statement that I would like you to have look and sign it if you agree with its contents.’

Ellwood: ‘What is that about?’
Filardo: ‘it is about Kremur Street Project and the 1st meeting we had in December 1997’
Ellwood: ‘Ho yes we discussed few things and various aspect of your tender and we sought (sic) them out and we signed off on most of them’
Filardo: ‘Yes John, the purpose of my calling is specifically related to the concrete price, we discussed and the formwork which we allowed in our price for an F2 finish rather than F1, because of our price being some $200,000.00 below the next tenderer, remember? we also gave you our QA manual and told you that we have basic implementation, and if you recall you said that you were not to fussed about it? remember?’
Ellwood: ‘It was a long time ago, we have had some issues with you and we solved them, we were very happy with the project, and we have no problems with it, but where is this leading to?’
Filardo: ‘regrettably we had to take the Department to task, and the Kremur Street project is on the agenda, because of what they did to me’
Ellwood: ‘If a meeting has to be had, I would not be there unless Daryl McGregor is there to.’
Filardo: ‘Fine, I got no qualms with Daryl, it was Daryl and I over a cup of coffee which we averted a potential dispute and settled the matters at the time’
Ellwood: ‘I hope that you are not giving us a bad name, because I always gave you good reference reports whenever someone sought comments about you’
Filardo: ‘No John, as I said, I have praised the Albury City Council, you, Daryl and Brian McLennan for the fair treatment that had (sic) from you guys, especially Daryl, with whom I set and over a cup of coffee settled what the department dishonestly tried to dispute’
Ellwood: ‘Look Ces, we did not have any problems with you, and I would not like to sign anything unless I will see a solicitor, and I am not willingly sign an affidavit (sic) essentially coming to Court, I won’t do that, I am very busy because I am involved in a $500Ml project and have no time for anything else, let alone Court, unless I am forced to’
Filardo: ‘Look John as I said I have absolutely no qualms with you guys, as matter of fact I praised the Albury Council for being fair and reasonable with me, but if need be we will subpoena you.’
Ellwood: ‘Look Ces, if I am forced to go then I have to come, but I am not coming willing (sic) and as I said we have no problem with you and it is between you and the department, and that should not involve us’
Filardo: ‘John all we want you to do, is confirm what we agreed at the meeting regarding the F2 issue and the relaxed approach you conveyed about the QA, this is also confirmed in a memo by Peter Grove himself to George Menzies and I can show you the document we discovered.’
Ellwood: ‘look Ces, as I said we were happy with the works and we have nothing against you, and I would not like to get involved to testify against the department’
Filardo: ‘John nobody wants you to testify against anybody, all we want is for you to verify the agreement we had regarding the QA basic implementation and the F2 finish for the concrete’
Ellwood: ‘We got the finish we wanted and we thought that this was gone and buried, we do not want to revisit these issues again’
Filardo: ‘John does this mean in essence that you do not want to meet with me for ten minutes on Friday morning?’

Ellwood: ‘Well essentially it is so, we do not want to get involved’

Filardo: ‘OK John, we might have to subpoena you if need be’

Ellwood: ‘If that is so then OK’

Filardo: ‘OK John, thanks for ringing back then and have a good day’

Ellwood: ‘yeah, see you Ces.’
412As at 22 November 2004 the Department’s performance reporting rating for the applicant was 35.74 per cent expressed as an ‘Over All Percentage’ in respect of eleven performance reports.
413Mr Filardo concedes that no formal request for a review of the Panel of Assessors’ decision was lodged by the applicant with the Department. However, he refers to a letter from his then solicitor Mr van Gelder of 6 March 2001 to the Department’s Corporate Solicitor in which the applicant purported to ‘reserve its right to a review’ should that prove to be necessary.

The business of the Department

414A report in respect of the Department as at 30 June 2002 identified it as consisting of five Groups and three Divisions that could be grouped into three functional areas of service, namely:
‘1. Policy and Regulatory Services ...
2. Business services (procurement and business services) – performed by Asset and Environmental Services Group, Corporate and Business Services Group, Project Management Group and e-Business Solutions Group.
3. Corporate Governance Services...’
415The Department’s ‘key business drivers’ were described as centred on ‘delivering maximum value to the NSW government, its agencies and the people of NSW’. Under the heading ‘Business context’ the Department was described as follows:
‘DPWS is an off-budget agency which operates according to commercial principles. Unlike other departments DPWS does not receive direct budget funding support from the Government. DPWS is formally classified by the NSW Treasury as a General Government Non Budget Dependent Agency.

As a commercial business DPWS pays Commonwealth and State taxes or tax equivalents, as well as debt guarantees to offset the competitive advantage provided by Government guarantees.

DPWS is also expected to pay its owner, the NSW Government, a commercial dividend each year. This return is formally negotiated between the Minister of Public Works and Services and the NSW Treasurer as part of DPWS’ annual Statement of Business Intent.

Under its approved operating model DPWS charges a commercial fee for everything it does to fully recover costs. This includes the activities it undertakes for, and on behalf of the Government.’

Separate questions

416 In the foregoing circumstances the parties have identified a number of separate questions for determination in accordance with Order 29 rule 2 of the Federal Court Rules. The separate questions originally ordered on 23 May 2006 were set aside on 2 August 2006. They were replaced by the following separate questions on 2 August 2006, which were themselves modified on 29 August 2006.

‘As alleged in the Amended Points of Claim dated 5 May 2006, in respect of or in consequence of the Kremur Street Pumping Station project and the Moruya Heads Sewerage project:
1. Did the Respondent make a negligent misrepresentation at common law by the conduct which is complained of by the Applicant?

2. Did the conduct which is complained of by the Applicant, constitute conduct by the Crown in the course of carrying on a business, within the meaning of section 2B of the Trade Practices Act 1974 (Cth)?
3. (a) Was the relevant ‘other market’ for the purposes of the Applicant’s claims under s 46 of the Trade Practices Act 1974 (Cth) as alleged in paragraph 14 of the Amended Points of Claim?
(b) By the conduct which is complained of by the Applicant, did the Respondent take advantage of its power in the market in which it was engaged for the purpose of deterring or preventing the Applicant from engaging in competitive conduct in the market for tendering for and provision of services in respect of New South Wales government civil works for sewerage treatment, storm water drainage and related works in contravention of s 46 of the Trade Practices Act 1974 (Cth)?

4. (a) Did the Respondent owe any duty of care to the Applicant in respect of carrying out its duties as Superintendent’s Representative under the Kremur Street Contract with the Albury City Council; and, if so,
(b) Did it breach any such duty, by the conduct which is complained of by the Applicant?

5. Did the Respondent engage in deliberate use of unlawful means to wrongfully interfere with the Applicant’s trade or business, by the conduct which is complained of by the Applicant?

6. Did the Respondent breach the terms of a written agreement dated 7 January 1994 entered into by ‘Eden Constructions’ and the Respondent, by the conduct which is complained of by the Applicant.

7. Was the conduct of the Respondent, in placing the Applicant on:

(a) the Provisional Contractors Review List in 1998; or

(b) the Contractors Review List in 2001,

wrongful, within the terms of 1, 3, 4, 5 and/or 6 above.’

Factual overview

417 The saga as recorded above reveals a hard luck story par excellence.

418 There can be no doubt that:

(a) the Kremur Street Pumping Station Contractor Performance Reports which were signed off by Mr Liu as reporting officer and Mr Ellison as recommending officer after 11 August 1998 led to the applicant missing out on significant civil engineering contract work, including, in about September 1999, the sub-contract for the construction of gravity and rising mains and pipework at Moruya Heads as a sub-contractor to Allied Constructions Pty Limited;
(b) Mr Grove’s instruction to Mr Liu of 11 August 1998 to issue Contractor Performance Reports that were more critical of the applicant in respect of the Kremur Street Pumping Station works led to the issue of reports by Mr Liu which were unduly critical of the applicant’s performance. In his reports Mr Liu failed to distinguish between matters that were important and those that were of minor significance. He plainly misunderstood and misapplied the several gradations by reference to which the applicant’s performance was to be assessed and recorded in the Contractor Performance Report forms. Regrettably, these reports led to the applicant’s listing on the Department’s Provisional Contractor Review List and later its Contractor Review List. It must, however, be recognised that the ticking by Mr Liu of the ‘Unsatisfactory’ box in relation to ‘Quality Assurance’ in the first version of the third Contractor Performance Report of 7 August 1998 was itself sufficient to have the applicant’s name listed on the Provisional Contractor Review List (see [239] above). It must also be noted that Mr Grove had made one of his periodic visits to Albury on Thursday 6 August 1998. Presumably, what he observed at the Kremur Street Pumping Station site on that day was the catalyst for his instruction to Mr Liu to be more critical. Clearly his instruction to Mr Liu should have been to be more detailed and objectively accurate, rather than to be more critical;
(c) Mr Ellison did not have sufficient personal knowledge of the progress of the Kremur Street Pumping Station works to enable objective and accurate reports to be made, upon which a principal could rely when making decisions about the selection of a tenderer, before he signed off on the Contractor Performance Reports as recommending officer. Furthermore, he did not ensure that there had been appropriate discussion with the applicant before he signed off on them. He did not have minutes of any ‘formal site meetings’ with Mr Filardo at which Mr Liu had discussed aspects of unsatisfactory performance as reported by him. Part of the reason for this was, no doubt, the fact that Mr Liu did not conduct such ‘formal site meetings’ with Mr Filardo before submitting his Contractor Performance Reports to Mr Ellison, which noted ‘Unsatisfactory’ performance. On 24 May 1999 when Mr Ellison recommended against using the applicant for future work, he failed to attach any ‘minutes of meeting and previous related correspondence’ to the report containing his negative recommendation;
(d) the Department adopted a ‘get tough’ approach towards the applicant in February 1999 which would appear to have been unwarranted, at least in the manner of its execution, following a visit to the Kremur Street Pumping Station site by Mr Ellison on 16 February 1999;
(e) the criticism of the applicant in the May 1999 and subsequent Contractor Performance Reports was predicated upon a misconception as to when practical completion had been achieved and led to suggestions of gross delay in the completion of the works being made which were unwarranted;
(f) Mr Filardo was his own worst enemy. He failed to have the change from an F3 standard of finish for concrete surfaces to an F2 finish appropriately documented. He did not progress the development of a quality assurance system for the applicant with appropriate diligence. Worse still, he did not accept one invitation from Mr Ellison to respond in writing to a Contractor Performance Report with which he disagreed, until 8 January 1999. Oral complaints about the Reports would appear to have been made on 17 August 1998 and 21 August 1998 (see [233] and [240]-[241] above);
(f) Mr Filardo had no regard for the fact that the applicant was only registered on 28 October 1991 and had no track record of satisfactory performance of civil engineering contract work in which the Department had been involved, as of January 1994.

Was clause 4 of the 7 January 1994 agreement breached?

419 As indicated at [50] neither Mr Barry’s note of 2 May 1994 nor Mr Hannon’s acceptance on 6 May 1994 of the Panel of Assessors’ recommendations constituted a breach by the respondent of clause 4 of the 7 January 1994 agreement. At [39] I indicated that I was not prepared to find that any tenders submitted by the applicant subsequent to the award of the Kremur Street Pumping Station contract were evaluated by the Department with a closed mindset, adverse to the applicant, because of events that may have occurred prior to 7 January 1994.

Having reviewed all the actions that occurred between 24 June 1998 and 25 January 2001 upon which the applicant relies to support a finding that the respondent constructively breached clause 4 of the 7 January 1994 agreement (see [2] above), it is clear that none of those actions constituted a breach of clause 4, an anticipatory breach of the agreement or a constructive breach in the sense in which I have understood the applicant to have used that expression, whether taken individually or collectively.

420 The disclosure by Mr Ellison to Mr Liu made on 24 June 1998 which caused Mr Liu to make the entry ‘-> EDENS ONCE ON BANNED LIST!!’ (see [183]) does not demonstrate that any tender submitted by the applicant subsequent to the award of the Kremur Street Pumping Station contract would be viewed by the Department with a closed mindset, adverse to the applicant, because of events that may have occurred prior to 7 January 1994. In any event, it was factually correct to say that the applicant, which apparently had no dealings with the Department prior to 7 January 1994, had been placed on the Department’s Contractors’ Review List under a business category on or about 6 May 1994 pending payment of the consideration due by Eden Constructions (NSW) Pty Limited to the Department under the 7 January 1994 agreement. As noted above, that consideration was paid on 17 May 1994, 11 days after the listing.

421 In the circumstances, question 6 in the separate questions should be answered in the negative.

The applicant’s secondary arguments (see [3])

422 Given my finding at [92] – [94] that Mr Liu, and not the Department, was the Superintendent’s Representative under the Kremur Street Pumping Station contract, no question arises as to whether, as Superintendent’s Representative under the contract, the respondent owed any duty of care to the applicant.

423 Had question 4(a) been expressed as:

‘Did the respondent owe any duty of care to the applicant in respect of the carrying out by the Superintendent’s Representative of the duties of the Superintendent under the Kremur Street Pumping Station contract between the applicant and Albury City Council?’

I would have answered such a question in the negative.

424 As I understand the applicant’s case, the duty of care which it was propounding was a contractual duty. Clause 23 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) in the Kremur Street Pumping Station contract contained an acknowledgement that the Superintendent ‘must act impartially in accordance with the provisions of the Contract’.

Where the contract enabled the Superintendent to give a direction, that phrase encompassed the making of agreements, the giving of approvals and authorisations, the issue of certificates, the making of decisions, demands and determinations, the provision of explanations, the giving of instructions, the issuing of notices and orders, the granting of permission, acts of rejection and the making of requests or requirements.

425 It is strictly speaking unnecessary to decide whether, upon its true construction, clause 23 required the principal, the Albury City Council, to ensure that the Superintendent appointed by it from time to time would act impartially in accordance with the provisions of the contract. Given that the Superintendent’s appointment was a matter for the principal alone and there was no right of objection conferred upon the contractor to take exception to such an appointment (cf the appointment of a Superintendent’s Representative under clause 24), I would incline to the view that responsibility for actions that were not taken impartially in accordance with the provisions of the contract would rest with the principal subject, of course, to the other provisions of the contract. Such actions would fall outside the scope of the Superintendent’s discretion.

It may be that a Superintendent is the agent of a Principal when exercising the functions of a Superintendent only in a very loose sense and that, when exercising certifying functions in respect of which the Superintendent must act honestly and impartially in the context of a contract incorporating clause 23 of the General Conditions of Contract in its unamended form, the Superintendent will not be acting as the agent of the Principal in a strict legal sense (see per Hodgson JA, with whom Mason P and Stein JA agreed in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322 at 338 [50]).

Clause 46 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED) regulated and limited the right of a dissatisfied contractor to make claims on a principal in respect of acts or omissions of the Superintendent and/or the Superintendent’s Representative under the contract.

426 I am not aware of any claims having been made by the applicant in respect of any acts or omissions of the Superintendent and/or the Superintendent’s Representative, acting as such, under the contract which would fall to be considered under clauses 23 and 46 of the GENERAL CONDITIONS OF CONTRACT (AS AMENDED).

427 Any functions which Mr Liu may have performed as a project engineer working for the Department by issuing Contractor Performance Reports in relation to the applicant’s performance under the Kremur Street Pumping Station contract, were not functions which he discharged as the Superintendent’s Representative. As an officer of the Department, he was entitled to have regard to information which he gleaned as the Superintendent’s Representative, in his preparation of Departmental Contractor Performance Reports (see [131] – [133] above).

428 Insofar as the applicant argues for a duty of care sounding in tort and said to be owed by the Superintendent’s Representative to the contractor because of the role that the Superintendent and, thus, the Superintendent’s Representative performs under the contract, I am not disposed to find that any such duty of care arises. There was a clear mechanism for challenging decisions of the Superintendent and/or the Superintendent’s Representative with which the contractor may have disagreed under the terms of the Kremur Street Pumping Station contract. No relevant case of vulnerability on the part of the contractor can be made out.

429 In the circumstances question 4 should be answered:

(a) Does not arise.
(b) Does not arise.

430 Prior to Northern Territory of Australia v Mengel (‘Mengel’) [1994] HCA 37; (1995) 185 CLR 307 a special action on the case was available, independently of trespass, negligence and nuisance, where a person suffered harm or loss as the inevitable consequence of the unlawful, intentional and positive acts of another (see Beaudesert Shire Council v Smith (‘Beaudesert’) [1966] HCA 49; (1966) 120 CLR 145 at 156).

431 In Mengel the High Court overruled Beaudesert and said that the above statement of principle was unsound and should not be followed. Mengel was a case where some graziers had recovered damages for diminished market opportunities experienced in respect of the sale of certain cattle which was delayed because of quarantine notices unlawfully placed upon the movement of stock from their properties, ostensibly in accordance with a brucellosis eradication campaign. The judgment for the graziers was set aside and a verdict entered for the appellants.

432 At 341 Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ said in Mengel:

‘It is the intentional element of the cause of action described in Beaudesert that has given rise to most concern. More precisely, it is that the principle as formulated permits of liability notwithstanding that there is neither negligence nor an intention to inflict harm. So far as intention is concerned, the cause of action does not depend on an intention to harm the plaintiff, but on the doing of an act which is intentional and the inevitable consequence of which is to cause loss to the plaintiff.’

(footnote omitted)

433 Their Honours proceeded to give consideration to the tort of misfeasance in public office. Such a tort is committed where damages have been suffered as the result of an act done by a public officer with the intention of causing harm to the applicant or which he knows is or ought to know is beyond power and which involves a foreseeable risk of harm. Misfeasance in public office is a deliberate tort in the sense that there is no liability unless either there is an intention to cause harm or the officer concerned knowingly acts in excess of his or her power (per Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ in Mengel at 345).
434In Mengel, the graziers lost their case because although the directions given by the relevant inspectors were beyond power there was no finding that they were acting other than in good faith. Nor were they found to have known that they lacked the relevant power or to have been recklessly indifferent to its availability (at 360; see also Sanders v Snell (No 2) [2003] FCAFC 150; (2003) 130 FCR 149 at 173 [94]).
435In Sanders v Snell at 174 [96] the Full Court gave consideration to the House of Lords decision in Three Rivers District Council v Governor and Company of the Bank of England [2000] UKHL 33; [2000] 2 WLR 1220. At 174 [96] Black CJ, French and von Doussa JJ said:
‘... Lord Steyn identified as the ingredients of the tort (at 1230-1231):
(a) the defendant must be a public officer;
(b) the impugned act must have involved the exercise of power as a public officer;

(c) the defendant must have had the requisite state of mind:
(i) targeted malice – a specific intention to injure a person or persons; or

(ii) knowledge that he has no power to do the act complained of and that it will probably injure the plaintiff. This was said to involve "bad faith" in as much as the public officer does not have an honest belief that the act is lawful.
His Lordship also held that recklessness as well as actual knowledge of want of power and likely harm was sufficient to show the state of mind necessary to make out the tort: "It can ... now be regarded as settled law that an act performed in reckless indifference as to the outcome is sufficient to ground the tort in its second form."’
436In Rush v Commissioner of Police [2006] FCA 12; (2006) 150 FCR 165 at 197 [121] Finn J said:
‘... the tort can take two forms. In one form (that of "targeted malice") it must be shown that the public officer in question has acted as such with an actual intent to cause injury to a person or persons. In its alternate form it must be shown either that the officer has actual knowledge both that his or her action was beyond power and would cause or be likely to cause injury or else that the officer has acted with reckless indifference both to the possibility his or her action was beyond power and to the possibility that that action would cause or be likely to cause injury...’
437My understanding is that the applicant has abandoned any allegation that the respondent committed the tort of misfeasance in public office. In my opinion, any such claim against the respondent would have failed.
438Turning to the tort of inducing breach of contract or otherwise interfering with contractual relations, it may be observed that it enjoyed an extended application after the decision in Lumley v Gye (1853) 2 E&B 216; 118 ER 749. In Lumley v Guy, Erle J took the view that it was wrongful to procure the breach of a contractual duty. Furthermore he adopted the view that the liability involved a principle of which liability for procuring a breach of contract of hiring was only an example or illustration. It fell within the class of cases which rested upon the principle that the procurement of the violation of the relevant right gave rise to a cause of action (see James v The Commonwealth [1939] HCA 9; (1939) 62 CLR 339 at 370). As Dixon J, as his Honour then was, observed in James v The Commonwealth at 370:
‘... the elements of the cause of action are ill defined. Sometimes malice is said to be an ingredient; but this seems to mean no more than that the defendant must have knowledge of the existence of the civil right or of the facts from which it arises and must act without lawful justification. What constitutes a lawful justification is a matter of some difficulty.’
439Dixon J also observed that for a third party, without justification or excuse, knowingly to procure a common carrier to refuse, in breach of his duty, goods tendered to him for carriage would amount to an actionable wrong. An act which would in itself be wrongful as infringing a legal right of another person may be justified if shown to be no more than was reasonably necessary for the protection of some actually existing superior legal right in the doer of the act being a right in real or personal property or a right or duty found in statute (per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ in Zhu v Treasurer of the State of New South Wales (‘Zhu’) [2004] HCA 56; (2004) 218 CLR 530 at 582 [144] and 587-588 [161]-[163]). Where the superiority of right rests in some characteristic of the general law, temporal priority of other purely contractual rights will not suffice (see Zhu at 587 [160]).
440It seems clear to me that, on the facts of this case, no case can be made out by the applicant that any conduct of the respondent or any officers of the Department amounted to inducing a breach of the 7 January 1994 agreement or otherwise interfering with the contractual relations between the applicant and the respondent thereunder. Nor can it be said that the respondent or any of the officers within the Department induced a breach of the contract between the applicant and the Albury City Council or otherwise interfered with the contractual relations between the applicant and the Albury City Council under the Kremur Street Pumping Station contract.
441The intervention by officers of the Department in relation to the award of other contracts following the submission of tenders therefor by the applicant does not correspond with the illustration provided by Dixon J in James v The Commonwealth of an actionable wrong arising from a third party knowingly procuring a common carrier to refuse in breach of his duty goods tendered to him for carriage. The responsibilities of parties to whom the applicant submitted tenders were not equivalent to those of a common carrier.
442In the foregoing circumstances I would answer question 5 in the negative.
443This brings me to a consideration of the applicant’s claim that the respondent contravened s 46(1)(c) of the Trade Practices Act 1974 (Cth) (‘the Act’).
444Section 46 of the Act has no application unless, because the respondent was carrying on a business, either directly or by an authority of the State, it became bound by Part IV of the Act.
445In s 4(1) of the Act ‘authority’ in relation to a State was defined to mean:
‘(a) a body corporate established for a purpose of the State ... by or under a law of the State ...; or
(b) an incorporated company in which the State ... or a body corporate referred to in paragraph (a), has a controlling interest;’

In the same section ‘business’ was defined to include ‘a business not carried on for profit’.

446Section 2B of the Act relevantly provided:
‘2B(1) The following provisions of this Act bind the Crown in right of each of the States, ... so far as the Crown carries on a business, either directly or by an authority of the State ...:
(a) Part IV;
...’

447In the circumstances of this case it is unnecessary to consider any ‘authority’ as, plainly, no body corporate or incorporated company was involved on the State’s behalf. The question then becomes did the activities of the Department fall within the expression ‘so far as the Crown carries on a business ... directly’.

Section 2C of the Act did not define the expression ‘carries on a business’. Rather, it described activities which ‘do not amount to carrying on a business’ (emphasis added). Section 2C relevantly provided:

‘2C(1) For the purposes of sections 2A and 2B, the following do not amount to carrying on a business:
(a) imposing or collecting:
(i) taxes; or
(ii) levies; or
(iii) fees for licences;

(b) granting, refusing to grant, revoking, suspending or varying licences (whether or not they are subject to conditions);

(c) a transaction involving:
(i) only persons who are all acting for the Crown in the same right (and none of whom is ... an authority of a State ...); or
...
(2) Subsection (1) does not limit the things that do not amount to carrying on a business for the purposes of sections 2A and 2B.
...’

448NT Power Generation Pty Ltd v Power and Water Authority (‘NT Power’) [2004] HCA 48; (2004) 219 CLR 90 was a case concerning a statutory authority of the Northern Territory, namely the Power and Water Authority, which regulated and supplied electricity in the Territory. It, amongst other things, generated electricity at stations it operated, owned or controlled and owned and operated electricity distribution infrastructure. It was authorised to license other persons to store, reticulate and sell electricity in the Territory.
449At 110 [52] McHugh A-CJ, Gummow, Callinan and Heydon JJ observed that one matter was not controversial namely that the Authority ‘was carrying on a very substantial business’. At 117 [68] their Honours observed that the Act was seeking to advance ‘the broad goal of promoting competition’.

At 116 [67] they said:

‘It may be accepted that the conduct proscribed by the Act, if it is to fall within s 2B, must be engaged in in the course of PAWA [the Authority] carrying on a business.’
450At 116 [66] their Honours addressed what constituted carrying on business within the meaning of s 2B as follows:
‘66 The legislative context. While the word "business" in any particular context takes its meaning from that context, normally it is a "wide and general" word. Its meaning in the Act is widened by s 4(1), since "business" includes "a business not carried on for profit". The legislation as a whole is remedial; s 2 provides that the object of the Act is "to enhance the welfare of Australians through the promotion of competition ..." The purpose of introducing s 2A, as explained by the Swanson Committee and noted above, was to ensure that the Commonwealth Government should, in its commercial activities, be subject to the same regime as corporations. One of the goals of the legislation recommended by the Hilmer Report was to ensure that the legislation applied to businesses conducted by the governments of the States and Territories to the same extent as it did to those conducted by the Commonwealth. The Second Reading Speech delivered in the House of Representatives when the Reform Act was introduced as a Bill stated that it and the three Agreements of 11 April 1995 represented "a complete response to the recommendations of the Hilmer committee". It was said that the amendments to the Act, taken with State and Territory application legislation, ensured that "the prohibitions against anti-competitive conduct can be applied to all businesses in Australia". It was further said that one of the main features of the Bill was that it "extends the operation of [the Pt IV] competitive conduct rules to currently exempt businesses". Section 2B was clearly a crucial provision in attaining these goals.’

(footnotes omitted; emphasis added)
451In NT Power the Court had no difficulty in concluding on the facts of that case that the Crown in right of the Northern Territory carried on a business by an authority of the Territory.
452The question of the meaning of s 2B of the Act arose only peripherally in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (‘Baxter’) [2006] FCAFC 128. In that case Baxter Healthcare Pty Limited was a supplier of sterile fluids to public hospitals. Exception was taken to a pricing structure whereunder Baxter Healthcare Pty Limited offered to supply sterile fluids on an item-by-item basis at high prices and to offer to supply the same items on an exclusive sole supply basis for substantially lower prices.

It was common ground that the Act did not bind any of the States with whom Baxter Healthcare Pty Limited dealt, it having been conceded for the purposes of the case that none of the States or Territories was engaged in carrying on a business so far as was relevant to the case, notwithstanding that there was a very considerable business involved in obtaining and supplying the States and Territories with the goods in question (see [69]).

In Baxter the issue was whether or not the immunity of the various State governments extended to Baxter Healthcare Pty Limited as the relevant supplier of the sterile fluids to the public hospitals. A Full Court comprising Mansfield, Dowsett and Gyles JJ held that the supplier of the sterile fluids was not bound by Part IV of the Act.

453Whilst the restructured arrangements (see [52]-[56] above) applicable to the letting of government contracts and the execution of public works in New South Wales where government departments or local councils were the relevant ‘agency’ called for such agents to be served by the Department in an interface role with the private sector, it seems clear to me that, by the conduct of the Department, the Crown in right of the State of New South Wales (the respondent) did not carry on a business directly within the meaning of s 2B of the Act.
454True it is that cost recovery arrangements were put in place whereby the Department became funded by the ‘agencies’ which were its ‘clients’. However, this was simply an internal government funding arrangement. It would be bizarre to imagine one government department suing another for non-payment of relevant fees. Under the Crown Proceedings Act 1988 (NSW) such an action would be ‘State of New South Wales v State of New South Wales’!
455Apart from the activities of the Department not having the character of a business, I would also incline to the view that the transactions between the Department and its agencies fell within the exclusion for which s 2C(1)(c)(i) of the Act provided.
456In the circumstances I would answer question 2 in the negative.
457Given my finding in respect of question 2 it is probably unnecessary to address question 3.

Paragraph 14 of the Amended Points of Claim filed 8 May 2006 was expressed as follows:

‘14. Further or alternatively, at all material times the Plaintiff [the applicant] was engaged in tendering for and the provision of services in respect to New South Wales Government civil works for Sewerage treatment, storm water drainage and related works collectively known as civil construction works ...’
458I would not be disposed to so define the ‘other market’ for the purposes of s 46(1)(c) of the Act.
459Virtually no evidence was directed at the definition of the relevant market. Were it necessary for me to decide what the market was in which the applicant was engaged I would describe it as the market for the provision of civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works in New South Wales (see inter alia s 4E of the Act).
460It follows that the answer to question 3(a) should be no.
461Section 46 of the Act relevantly provided:
‘46(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
....
(c) deterring or preventing a person from engaging in competitive activity in that or any other market.’

462Were the activities of the Department in providing construction management services referrable to the letting of government contracts and the construction of public works in New South Wales such as to bring the respondent within the reach of s 46(1)(c) of the Act, I would not conclude that the respondent took advantage of its market power in the government construction management services market, if that be the market in which it was engaged, for the purpose of deterring or preventing the applicant from engaging in competitive activity in the market for the provision of civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works in the New South Wales. The activities in which the Department was engaged were not activities for a proscribed purpose within the meaning s 46. They were protective of the public interest, even if, in the execution, the relevant flawed departmental advice adversely impacted upon the applicant.
463To come within the proscription for which s 46(1)(c) provides, were it to apply to the respondent, it would have to be demonstrated that the applicant would, but for the respondent taking advantage of its market power be likely to have entered the ‘other market’ in competition with the respondent. The respondent was not a participant or potential participant in any market in which the applicant was a participant or potential participant and a likely competitor.
464In my opinion, question 3(b) should be answered in the negative.
465I turn now to the applicant’s claim that the respondent was guilty of negligent misrepresentation.
466The first issue to consider is whether the relationship between the applicant and the respondent at the relevant time in or about 1999 was such that a duty owed by the respondent to the applicant should be found to exist which required the respondent to exercise reasonable skill and care in providing advice as to the applicant’s past performance and suitability for appointment as a contractor to provide civil engineering design and construction services in respect of sewerage treatment, storm water drainage and related works to third parties who may be contemplating using the services of the applicant.
467Claims for damages for pure economic loss present peculiar difficulty (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (‘Woolcock’) [2004] HCA 16; (2004) 216 CLR 515 at 529 [21]).
468Damages for pure economic loss are not recoverable if all that is shown is that the respondent’s negligence was a cause of the loss and the loss was reasonably foreseeable (per Gleeson CJ, Gummow, Hayne and Heydon JJ in Woolcock at 530 [21]).
469In Woolcock the High Court found that no duty of care was owed by an engineering company or its employee project manager to a purchaser to avoid damage in the form of economic loss said to have been sustained as a result of the settlement of the footings of a warehouse and office complex, for the design of which they had been responsible, or the foundation material beneath them or both. At 533 [31] Gleeson CJ, Gummow, Hayne and Heydon JJ said:
‘Neither the facts alleged in the statement of claim nor those set out in the Case Stated show that the appellant was, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building. Those facts do not show that the appellant could not have protected itself against the economic loss it alleges it has suffered.’

470 In many cases, there will be no sound reason for imposing a duty on a respondent to protect an applicant from economic loss where it was reasonably open to the applicant to take steps to protect itself (see per McHugh J in Perre v Apand Pty Limited (‘Perre’) [1999] HCA 36; (1999) 198 CLR 180 at 225 [118]).

471 In Perre McHugh J said at 220 [104]-[105]:

‘104 What is likely to be decisive, and always of relevance, in determining whether a duty of care is owed is the answer to the question, "How vulnerable was the plaintiff to incurring loss by reason of the defendant’s conduct?" So also is the actual knowledge of the defendant concerning that risk and its magnitude. If no question of indeterminate liability is present and the defendant, having no legitimate interest to pursue, is aware that his or her conduct will cause economic loss to persons who are not easily able to protect themselves against that loss, it seems to accord with current community standards in most, if not all, cases to require the defendant to have the interests of those persons in mind before he or she embarks on that conduct.

105 The principles concerned with reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant’s knowledge of the risk and its magnitude are, I think, relevant in determining whether a duty exists in all cases of liability for pure economic loss. In particular cases, other policies and principles may guide and even determine the outcome. But I do not think that a duty can be held to exist in any case of pure economic loss without considering the effect of the application of these general principles.’

472A not dissimilar issue to that presently under consideration arose in Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562. Sullivan was the father of a girl who was taken by her mother to a sexual assault referral centre. The opinion was formed that the child had been sexually abused whereupon the South Australian Department of Community Welfare and the child’s mother took steps to ensure that Sullivan did not have access to the child. Allegations against him were pursued in Family Court proceedings brought by the mother which were ultimately resolved in Sullivan’s favour. Thereupon he commenced proceedings in the Supreme Court of South Australia claiming that those who had conducted the examinations and assessments owed him a duty of care and that the State and its instrumentalities were vicariously liable for their negligence. The Court, comprising Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ found that the duty of care for which Sullivan contended did not exist. At 580-581 [53]-[54] their Honours said:
‘53 Developments in the law of negligence over the last thirty or more years reveal the difficulty of identifying unifying principles that would allow ready solution of novel problems. Nonetheless, that does not mean that novel cases are to be decided by reference only to some intuitive sense of what is "fair" or "unfair". There are cases, and this is one, where to find a duty of care would so cut across other legal principles as to impair their proper application and thus lead to the conclusion that there is no duty of care of the kind asserted.

54 The present cases [Sullivan’s was one of two that the Court was considering together] can be seen as focusing as much upon the communication of information by the respondents to the appellants and to third parties as upon the competence with which examinations or other procedures were conducted. The core of the complaint by each appellant is that he was injured as a result of what he, and others, were told. At once, then, it can be seen that there is an intersection with the law of defamation which resolves the competing interests of the parties through well-developed principles about privilege and the like. To apply the law of negligence in the present case would resolve that competition on an altogether different basis. It would allow recovery of damages for publishing statements to the discredit of a person where the law of defamation would not.’

(footnotes omitted; emphasis added)

473The Departmental procedures in the present case allowed for exception to be taken to Contractor Performance Reports and the listing of contractors on the Department’s Contractor Review Lists. The applicant was not vulnerable in the sense that it was unable to seek redress for what it considered to be inappropriate assessments, which may have founded later adverse comments concerning the applicant, imparted by Departmental officers to others.
474Furthermore, the applicant did not itself rely upon any representations, which were made concerning it, to its detriment (see Tepko Pty Limited v Water Board [2001] HCA 19; (2001) 206 CLR 1 at 16-18 [46]- [51]).
475In my opinion the respondent was not under a duty of care to the applicant as alleged. Accordingly, question 1 should be answered in the negative.
476Given the answers to questions 1 to 6 and the facts and matters referred to above, question 7 should also be answered in the negative.
477The costs of the determination of the separate questions should be reserved.

I certify that the preceding four hundred and seventy-seven (477) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.



Associate:

Dated: 9 May 2007
Solicitor for the Applicant:
J A Cameron of Johninfo Lawyers Pty Limited


Counsel for the Respondent:
R W Hunt


Solicitor for the Respondent:
Bartier Perry Solicitors


Dates of Hearing:
1, 2, 3, 4, 7, 8, 9, 14, 15, 16, 17, 18, 21, 22, 23, 24, 28 and 29 August 2006


Date of Judgment:
9 May 2007

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