In CH2M Hill v State of NSW  NSWSC 963, the NSW Supreme Court (McDougall J) was considering a design and construct contract between a joint venture (CHBM) and Sydney Water of an upgrade to a sewerage treatment plant at West Camden (His Honour that the project was “inevitably and not inappropriately” referred to as “the WC project”). CHBM and Sydney water were disputing whether damage to earthen lagoons in the plant was due to poor design or poor construction.
The substantive design defects argued were:
- failing to specify an anchor trench or other form of perimtere seal;
- failing to specify under-drainage;
- failing to guard against risk of the geosyntheitic liner (GCL) not performing because of cation exchange.
The substantive construction defects argued were:
- failing to install the GCL using an anchor trench …;
- putting spikes through the GCL allowing in moisture;
- failing to construct/maintain with adequate drainage;
- failing to compact the earthworks;
- failing to protect the GCL from the elemants.
CH2M argued that it was an express and/or implied term that the design would be “fit in all respects for its intended purpose”. The government department (DOC) who designed the project initially denied that term formed part of the design contract but ultimately accepted that the term was was at least an implied term.
McDougall J (a very experienced judge in the Construction List) concluded in relation to design that:
- CHBM did not comply with GCL manufacturer’s guidelines requiring an anchor trench, did not seek DOC’s approval in relation to the anchor trench, and merely indicated (after the event) that the anchor spikes used would have the effect of preventing the GCL from moving while concrete was being poured;
- the use of anchor spikes made the GCL susceptible to moisture penetration;
- the substantive damage to the GCL was caused by leaving the GCL exposed to the elements for a considerable time after installation.
McDougall J concluded in relation to the construction:
- CHBM failed to provide adequate site drainage (consistent with general construction practice);
- adequate protection did not end with the provision of the V-drains;
- adequate protection also required measures to prevent standing water from penetrating into the earthen embankments and behind the GCL, and protection of the GCL from the effects of rainfall.
McDougall J concluded that it was not incumbent on DOC to design under-drainage. Under-drainage would not have been required if the construction was adequate, and DOC did not have to design against every potential risk. The risk of accumulation of groundwater was remote to the point where the decision not to include under-drainage was justified. For those reasons, DOC did not breach its design obligations by designing without under-drainage. Further, DOC was entitled to proceed on the basis that its design, if followed, would have included an effective perimeter seal.
McDougall J outlined some matters of principle in relation to the entitlement to corporate overheads:
…. In Banabelle Electrical v State of New South Wales  NSWSC 714, I referred to what Giles J said in Thiess Watkins White, and to what his Honour had said (to similar effect) in Bulk Materials (Coal Handling) Pty Ltd v Compressed Air and Packaging Systems (NSW) Pty Ltd (1997) 14 BCL 109 at 133 – 135. At , I drew from those cases the proposition that:
“it is in principle wrong to make an allowance for recovery of an offsite (or head office, or fixed) overhead, or loss of profit, unless there is a basis for concluding that they could have been recovered or earned through the performance of other profitable work… where the effect of… delay is to prevent the contractor from undertaking other profitable work”.
408 I remain of that view. Further, I remain of the view that the entitlement to corporate overheads is not just a question of principle, but is entirely fact-dependent. It must be shown that the breach of contract for which damages are claimed resulted in, among other things, the loss of opportunity to undertake profitable work, from which further work corporate overheads could have been defrayed.
His Honour ultimately concluded that DOC did not breach its design obligations, the failures of the lagoons were caused by various deficiencies in CHBM’s construction work, including the unjustified omission of an anchor trench to secure the GCL, poor and uneven compaction of the embankments, and prolonged exposure of the GCL to the elements before the concrete panels were cast over it .