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NEC4 Alliance Contract

The NEC has released a draft of a new NEC4 Alliance Contract, for consultation, allowing users to shape the final contract. This consultation process is now open and is expected to close on 30th November 2017. Formal publication is expected in January 2018.
It will be a single standalone contract, one of the NEC suite, consistent with all other NEC4 documents. It is designed for use on major projects or programmes of work, where longer-term collaborative ways of working are to be created. Due to the time investment needed, pre-contract, to create an alliance, it is not envisaged for use on low risk or low complexity projects.

The NEC contracts have always encouraged collaboration (although some disagree with its effectiveness in this regard[1]), with the NEC3 offering an additional partnering option under Clause X12. This option has, however, been criticised for its failure to create a multi-party set of relationships, to provide a basis for early contractor involvement or to provide adequate enforcement mechanisms[2].

These are issues which have been addressed in the PPC (Project Partnering Contract) 2000, which is a suite of standard form contracts developed, in the United Kingdom, for use on construction projects. It is one of a number of tools recommended by Constructing Excellence (a construction industry membership organisation based in the United Kingdom) as a means of helping to implement collaborative working.

Under the PPC2000 Employers (referred to as Clients), their agents such as the Engineer/Project Manager/Principal Agent (referred to as Consultants) and Contractors (referred to as Constructors) all sign a single multi-party contract, which can also accommodate early contractor involvement. The PPC200 has been used to good effect on projects such as the Cookham Wood Young Offenders Institution and North Wales Prison Trial Project in the United Kingdom.

A similar alliance agreement has also been shown to be effective through its use by the Stronger Christchurch Infrastructure Rebuild Team, established to repair roads and underground services damaged by earthquake.

The NEC4 Option X12 is now titled multi-party collaboration, however, the substance of this clause remains similar to Option X12 in the NEC3. NEC contracts allow all members of the supply chain to be engaged on similar terms and conditions, however, these are still two party rather than multi-party contracts.

The NEC4 Alliance Contract, on the other hand, is a single contract form, with a single set of terms and conditions which make provision for shared risks and rewards, that all members of the supply chain sign. It also makes provision for early contractor involvement, which allows budget, time and performance targets to be agreed with more accuracy.

What is envisaged is a cost reimbursable contract (defined cost-plus fee) similar to Main Option E in the other NEC suite contracts.

The members of the alliance then work together as an integrated team, work being allocated on a ‘best for project basis’, with an alliance board managing the alliance on behalf of the members, for the achievement of the alliance objectives, as determined by the Employer. Integrated systems and processes such as an early warning register and information modelling are used to assist the alliance members in achieving their objectives.

Decisions of the alliance board must be unanimous and will bind all members of the alliance. All liabilities are shared and manged by the alliance, except wilful default by one of the partners and third-party claims, which are the client’s risk.

Disputes are resolved by senior representatives or the alliance board, with third party support, if required. There is no provision for traditional dispute resolution provisions such as adjudication or arbitration, and a failure to resolve a dispute brings the alliance, or a partner’s involvement, to an end. It must, however, be born in mind that recourse to adjudication at any time is a statutory right afforded to all those engaged in construction operations in the United Kingdom, per the Housing Grants, Construction Regeneration Act 1996.

  1. Although similar regulations have been published for comment in South Africa, there is no such automatic right in this country yet.
  2. “A perception has emerged that NEC is a partnering or collaborative style of contract. That is an error unless the express Partnering Option X12 is adopted” Phillip Capper, King’s College London and White and Case 
  3. David Mosey “Module C – Collaborative Contracting under Partnering Contracts” King’s College London 2017, page 22 

Author: Michelle Kerr, Senior Associate

“The purpose of using subcontracting arrangements is usually to distance parties from each other rather than to bring them into a direct legal relationship” [Laurence McIntosh Ltd v Balfour Beatty Group Ltd [2006] CSOH 197]

It is a generally accepted principle that a main contractor is fully liable to an employer, for the works and cannot rely upon the default of his/her subcontractor to excuse poor workmanship or delay. [Loots Construction Law and Related Issues Juta & Co Ltd 1995, page 511] This is often re-stated in standard form contracts, such as the GCC 2010, which provides at Clause 4.4.2 that “[t]he Contractor shall be liable for the acts, defaults and negligence of any subcontractor, his agents or employees as fully as if they were the acts, defaults or negligence of the Contractor”.

This principle is applicable to all subcontractors, whether they are domestic, selected or nominated. A distinction must, however, be drawn between delays in nominating or re-nominating a subcontractor and delays caused by a subcontractor’s poor performance.

“It would be a clear breach of contract by the employers if their failure to nominate a subcontractor impeded the contractor in the execution of its work” [Reilly (RM) Ltd v Belfast Corporation [1970] NI 68] and while an employer does not warrant that a nominated subcontractor will not default in the execution of the subcontract, s/he will be liable for a delay in nominating a further subcontractor [Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd 69 LGR 1, (1976) 1 BLR 114 CA].

Delays caused by a subcontractor’s poor performance are subject to the general principle stated above. There are, however, in certain circumstances, arguments available to assist the main contractor, which may be extracted from the English cases.

Firstly, there is the matter of Holland Hannen and Cubitts (Northern) Ltd v Welsh Health Technical Services Organisation & Others (1981) 18 BLR 80, where it was held that the failure of the employer’s agent to issue a variation order, when they discovered that works designed by the nominated subcontractor were defective, breached the employer’s implied duty to ensure that he and his architect do all things necessary to enable the contractor to carry out the works and refrain from hindering or preventing the contractor from carrying out and completing the works.

Secondly, it has been proposed by Loots (at pages 513 and 514) that it may be implied, in exceptional cases, that an employer has entered into a direct contract with a subcontractor. Such exceptional circumstances could arise, as in Wallis v Robinson (1862) 130 RR 841, where the employer’s agent, with the express approval of the employer, requested the subcontractor to perform certain work for which he would be paid extra. It was held that this created a direct contract between the employer and the subcontractor.

As pointed out by Loots (at page 514), a contractor will be entitled to an extension of time for delays caused by another direct contractor employed by the employer.

Primat Construction CC / Nelson Mandela Bay Metropolitan Municipality (1075/2016) [2017] ZASCA 73 (1 June 2017)

The case dealt with the issue of whether a party to a contract, who has elected not to accept a repudiation of the Contract by the other party, may, in the face of persistent and unequivocal intention of the other not to be bound, change its stance and cancel and sue for damages for breach of contract.

The facts of the matter were as follows:

  1. The parties had entered into a contract, pursuant to a tender, in terms of General Conditions of Contract for Construction Works (2004), for the upgrade of roads in Motherwell, Port Elizabeth and Primat was required to attend to the reconstruction of the road and supply materials;
  2. The works were scheduled to commence in April 2010 and end in November 2010, however, as a result of delays including severe storm damage, late payment of an insurance claim to Primat for the damage and non-payment by the Municipality against monthly payment certificates, the completion date was therefore extended to November 2011;
  3. As a result of the non-payment of their certificates, Primat suspended the work. The Employer was not happy with the suspension and wrote to Primat purporting to terminate the contract with immediate effect. It is common cause that the letter did not constitute a proper termination and Primat argued that the letter amounted to a repudiation of the contract by the Municipality and such repudiation was not accepted by Primat.
  4. The Municipality maintained that the contract was terminated and requiring Primat to vacate the site. Primat was adamant that they intend to remedy any alleged breaches by it but they were denied access to the site and despite their continued engagement with the municipality, the Municipality insisted that the contract had been terminated and that they will procure other contractors to finish off the works.
  5. As a result of the Municipality’s persistence that the contract had been terminated, Primat gave notice of its election to now accept such repudiation and cancelled the contract and that they intend to sue for damages in the sum of R22 million.
  6. The Municipality argued that once Primat elected not to accept the repudiation, it was precluded from changing its election and could not therefore cancel and claim damages.

The court found that:

  1. Generally, an aggrieved party must choose between the different remedies and is bound by his or her election. The remedies are inconsistent. The choice of one excludes the other, he cannot approbate and reprobate. Once he has elected to pursue one remedy, he is bound by his election and cannot resile from it without the consent of the other party (Bekazazu Properties (Pty) Ltd v pam Golding Properties (Pty) Ltd 1996 (2) SA 537 (C ) at 542E-F);
  2. However, the court held that the Municipality’s argument failed to take account of the fact that the doctrine of election is not inviolable. An aggrieved party is allowed to claim in the same action specific performance and in the event of non-compliance, cancellation and damages. The aggrieved party gives the defaulting party the opportunity to repent and if the defaulting party refuses or fails to perform, the aggrieved party should then be entitled to change its election, and cancel and claim damages. despite the opportunity to relent, the aggrieved party may elect to cancel;
  3. Where the defaulting party is clearly determined not to purge the breach, and shows an unequivocal intention not to be bound by the Contract, the aggrieved party may abandon his or her futile attempt to claim performance and change the election, claiming cancellation and damages.
  4. The Municipality argued that to allow a change of election would negate the fundamental principle that on breach, an aggrieved party must make an election and is then bound by it.

The court found that, the Municipality persisted in its repudiation and showed in no uncertain terms that it would not comply with its obligations and would not allow Primat to continue to perform. The court confirmed that Primat was therefore entitled to change its election and proceed to cancel the contract and claim damages.

This case highlights a very important point. Had the court confirmed the Municipality’s stance, Primat would be stuck with a contract where they are not able to perform and remedy the alleged breach and sustaining damages that they cannot recover which would not make any sense at all.

Water for thought

Water is a resource that affects all and without it, the reality we face is that businesses and industries will eventually collapse. There will ultimately be very little or no economic growth. The lack of water has a fundamental impact on the construction industry whether we would like to believe it or not.

South Africa has recently been experiencing severe water shortages. The water scarcity has deteriorated to a critical level that requires urgent attention. To prevent long term damage, we urgently need solutions.

We are not alone in South Africa. The global increase in water scarcity has initiated the creation of a panel of high level global leaders by the United Nations. Convened to address global water crises, the panel met for the first time in September 2016 in South Africa to discuss water management and sustainability. The High Level Panel on Water concluded that water governance is inherently complex, with many shareholders or stakeholders across multiple sectors. It is characterised by incomplete data as well as hydrological and administrative boundaries that often conflict. In addition, it requires a “whole society approach”.

To address the water deficit, we need to accept the responsibility of managing our water resources as members of society and private stakeholders in the construction industry. We cannot attribute the responsibility of managing resources solely to the government.

The problems we face are the following:

  1. Investments in water infrastructure and waste management systems are lacking. People are reluctant to invest due to the lack of confidence in the return of the investment and water infrastructure is inherently costly. Private entities need supplement government funding by investing in water infrastructure and developments.
  2. South Africa does not have the infrastructure to manage water usage by industry. Water-intensive sectors include construction, mining, manufacturing, chemical, energy and agriculture. In addition, the waste water produced by these industries needs to be managed. The lack of water management and waste management systems in the construction industry means that we need to implement proper and better waste management systems to treat waste water and eradicate further harm being caused and compromising the quality of water being consumed further downstream.
  3. Ground water and surface water is being affected by acid mine drainage. The water/sludge pumped out by mining companies into local dams, streams and river (water supplies) has a long term impact on the quality of water and may be causing a greater impact than understood – drainage of dams, drying of dams – all of which have a knock on effect in the longer term. We need to prioritise our waste management systems.
  4. There is a lack of desalinisation plants to enable us to utilise sea water in coastal areas to supplement municipal water supplies. The solution is to invest in such plants or test desalination in coastal regions as case studies.
  5. We need to monitor the usage of clean drinking water by major plants and substitute this with grey water for all other uses.

I believe that the lack of suitable infrastructure is the largest contributing factor to the water crises we face today. We need technical solutions that are both functional and sustainable. If we do not develop the infrastructure to properly manage our resources, we will certainly not be able to provide water services that are necessary for future economic development.

I believe that South Africa has ignored this issue over a prolonged period of time and adopted a passive approach to the water crisis which has caused the diminished resources. We need to become aggressively reactive to ensure that the problems we face are effectively dealt with.

In order to ensure that we have an efficient and fully functioning water management system, we need to invest our time and efforts to discover new ways or technologies, in order to progress and become sustainable, so that we do not aggravate the water crises in South Africa. The solutions need to be designed essentially to work collectively with nature and the environment.

Author: Trenelle Moodley, Candidate Attorney

The builder and the lien

A lien is the right of X to retain possession of Y’s property, either movable or immovable. This right arises when X spends money or incurs costs with respect to this property, and comes to an end when the money or cost is reimbursed to X.

Liens may be divided into two general categories:

  1. Enrichment liens; and
  2. Debtor and creditor liens.

An enrichment lien arises when X spends money or incurs cost in preserving or improving the property, in order to maintain or enhance its market value. Y, as the owner of the property, is enriched by X’s actions. An example of this would be repairing a damaged water pipe or upgrading the external facade of an old building.

A debtor and creditor lien arises when X spends money or incurs cost that neither preserves nor improves the property. Y is not enriched by X’s actions and the only way in which X can claim reimbursement is if there is a contractual agreement in terms of which Y agrees to reimburse X for such expenditure. An example would be where a builder incurs expense in mobilising its resources to site, but the contract is terminated before any work can commence.

The main difference between the two types of lien, is that when X has an enrichment lien, the right to retain possession of Y’s property is enforceable against the whole world. An example would be where Y bought property off-plan from a developer, who, in turn, contracted with X to build a house on the property. In building the house, X enhanced the market value of the property. If the developer doesn’t pay X for the cost of building the house, X can hold an enrichment lien over the property, regardless of the fact that Y didn’t actually contract with X.

On the other hand, when X has a debtor and creditor lien, the right to retain possession of the property is only enforceable where Y, as owner of the property, contracted with X for the expenditure. In combining the two examples given above, this would mean that X could not hold a lien over Y’s property, for the cost of mobilisation alone, where X had contracted with the developer and not Y.

When considering holding a lien over Y’s property, X must, therefore, consider:

  1. Whether there is a contract between X and Y? and
  2. If not, whether Y has been enriched at X’s expense?

If the answer to both questions is “no”, then X has no right to retain possession of Y’s property.

If X does have a right to retain possession of Y’s property, then s/he must perfect his/her lien. This means that X must take some special step to show the world that s/he is holding a lien over the property. In the case of a construction site, this would require evidencing possession of the site. For example, this could be done by stationing a representative, in charge, on the site, securing it, putting up signage and generally making it clear that X is in physical control of the site.

If X gives up possession of the site, the lien will fall away. If Y takes back possession of the site by force, X can make application to the courts for a spoliation order, returning possession to him/her.

Y can offer security for the sum claimed by X, pending resolution of any dispute over the matter, in exchange for the return of possession of the site. If X refuses to accept such security, the courts have a discretion, upon application by Y, to order return of possession of the site to Y, in exchange for such security.

The situation is more complicated where public property is concerned as, although it has not definitively been decided, there is some authority for the proposition that a lien cannot be held over public property. [See Loots, Construction Law and Related Issues, 1995, pages 422 – 426]

A wavier is the voluntary giving up of a right. X may waive his/her lien. Certain construction contracts may, in fact, include a clause expressly agreeing to such waiver [See Clause 3.3 of the JBCC Principal Building Agreement, 5th edition and Clause 9.2.1.3 of the GCC 2010].

The waiver of X’s lien does not, however, have to be express. It could also be tacit, meaning that it is conveyed by X’s actions. These actions would have to show a clear and unambiguous intention not to hold a lien over Y’s property. An example would be where X, as a contractor, removes his/her labour, equipment and materials from the site and returns possession of the property to Y.

Author: Michelle Kerr, Senior Associate.

Natural Justice in Adjudication – How is it determined?

When involved with construction adjudication, you often hear and come across the use of the term ‘natural justice’, i.e. the adjudicator is obliged and should always ensure that natural justice prevail. But what exactly does this entail and when is natural justice breached?

A recent UK judgment “Dawnus Construction Holdings Limited v Marsh Life Limited [2017] EWHC 1066 (TCC) (11 May 2017)” (“Dawnus case”), dealt with an application brought by the claimant (Dawnus Construction Holdings Limited) for summary judgment for the enforcement of an adjudication decision and in defending the application, the defendant (Marsh Life Limited) argued that the adjudicator failed to apply the rules of natural justice by failing to consider and deal with certain of the defendant’s defences that was put forward. This article is not intended to deal with the facts of this particular case, but mainly to clarify principles of ‘natural justice’ as was determined by the courts (most of which are from the UK, but can be cited and referred to when dealing with similar issues and disputes in South Africa).

In the Dawnus case, dealing with natural justice, the court referred to a matter, “Hutton Construction v Wilson Properties [2017] EWHC 517 (TCC)” (“Hutton case”). In this case the judge inter alia stated that “the starting point… is that, if the adjudicator has decided the issue that was referred to him, and he has broadly acted in accordance with the rules of natural justice, his decision will be enforced” (Macob Civil Engineering Limited v Morrison Construction Limited [1999] BLR 93), and it was further said that “Adjudication decisions have been upheld on that basis, even where the adjudicator has been shown to have made an error” (Bouyques (UK) Limited v Dahl-Jensen (UK) Limited [2000] BLR 522.). In “Carillion Construction Limited v Devonport Royal Dockyard Limited [2006] BLR 15), the judge stated that “the need to have the ‘right’ answer has been subordinated to the need to have an answer quickly.”

As you note from the above, few matters have dealt with this issue regarding the principles of natural justice.

The Dawnus case further confirmed that the authorities have consistently emphasised that, for a breach of natural justice to be a bar to enforcement, the breach must be “plain“, “significant“, “causative of prejudice” or “material“.

In considering earlier authorities, in “Cantillon v Urvasco [2008] BLR 250” (“Cantillon case”), the applicable principles related to breaches of natural justice in adjudication were summarised to be the following:

a) It must first be established that the adjudicator failed to apply the rules of natural justice;

b) Any breach of the rules must be more than peripheral; they must be material breaches;

c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to have given the opportunity to comment upon which it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant.

d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves the question of degree which must be assessed by any judge in any case such as this.

e) It is only if the adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment on or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd v The Camden Borough of Lambeth was concerned comes into play. It follows that, if neither party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto.”

Based on the above, it does seem straight forward. If you are an adjudicator or looking to become one, stay updated with most recent cases on these type of topics, whether to be found under our own South African law, UK or otherwise. It is important to keep ahead with the game to prevent that you fall subject to a possible review of your adjudication decision/ruling.

Author: Barry Herholdt – Associate

BBB-BEE and the construction sector

An entity’s Black Economic Empowerment (“BEE”) score and recognition status is measured either in terms of the Broad Based Black Economic Empowerment Generic Codes of Good Practice (“BB-BEE Codes”), or in terms of a specific sector code. The main difference between the two is that the BB-BEE Codes address empowerment and transformation for all sectors where there is no sector code. At the same time, the BB-BEE Codes provide guidance regarding the measurement principles to be applied, and incorporated into sector codes. A sector codes addresses empowerment and transformation within a defined sector and is more alive to a sector’s challenges and requirements.

During October 2013, the amended generic BB-BEE Codes of 2013 (“Amended Codes of 2013”) were gazetted, providing for revised principles of measuring transformation and empowerment. In the circumstances, all sector charter councils were required to amend their respective sector codes and submit these to the minister. The construction sector was no different and was required to prepare a draft construction sector code and submit it to the minister, however, failed to do so timeously. As a result, in February 2016, the Construction Sector Codes of 2009 (“Construction Codes”) were repealed.

The consequence of the minister’s decision to repeal the Construction Codes was that all entities previous falling within the scope and application of the Construction Codes would now to be measured in terms of the amended Codes of 2013. As mentioned, in some instances a generic code fails to adequately address sector specific challenges and consider whether it may become onerous to apply it measurement principles in a specific sector.

A draft of the revised construction sector codes (“Revised Codes”), gazetted in terms of Section 9 (5) of the Broad Based Black Economic Empowerment Act 53 of 2003 as amended by B-BBEE Act 46 of 2013 (“the Act”), was issued for public commentary. For a sector code to become applicable to a specific sector, in place of the prevailing BB-BBE Codes, it must be gazetted in terms Section 9(1) of the Act. Until this happens entities falling within construction sector continue to be measured against the Amended Codes of 2013.

The period within which to submit comments to the Revised Code has elapsed, yet the minister has not provided indication of his intention to gazette the Revised Codes under Section 9(1) of the Act. Furthermore, unlike the previous Construction Codes that had a transitional period when they were first published, the Revised Codes propose no transitional period. A transitional period would provide the sector with an opportunity to plan and adjust to the revised requirements prior to being compelled to apply the revised measurement principles. On publication, in terms of Section 9(1) of the Act, all entities falling within their scope of application may be forced to undertaken their measurement of BEE in terms of the Revised Codes. Such a provision has the potential to further stall the progress made by the sector.

The industry remains in an uncertain position, addressing transformation and empowerment in terms of the Amended Codes of 2013 which do not necessarily appreciate the sector’s challenges, similarly, aware that the Revised Codes await the minister’s gazetting whereafter application may be an immediate requirement.

Author: Tsele Moloi, Associate

Transparent and Accountable Public Procurement under the Constitution

The importance of a transparent and accountable public procurement process cannot be understated. It impacts the public, in general, in terms of service delivery and a failure to comply therewith can result in the wasting of tax payer’s funds.

What happens where it is obvious that public officials involved in a public procurement process have been corrupt, grossly negligent or otherwise did not apply their minds during the tender adjudication and arbitration process?

This issue is regularly raised, resulting in frequent referrals to Tender Appeal Tribunals and the various courts for a decision and evaluation of the process followed.

One such case is Westwood Insurance Brokers (Pty) Ltd v eThekwini Municipality (8221/2016) [2017] ZAKDHC 15 (5 April 2017). In short, a company by the name of NC South West Brokers CC (South West) was awarded a tender, by eThekwini Municipality, in the sum of approximately R 81 000 000.00, for the provision of insurance for water loss through underground leaks for individual dwelling units. The Conditions of Tender required that a letter of undertaking from an insurance company licensed to operate in South Africa, accompany the tender, and that the underwriter must be registered with the Financial Services Board (FSB). South West, however, submitted a quotation for professional indemnity insurance from Marsh (Pty) Ltd whose registration with the FSB, as an insurer, had not been established.

The tender award was challenged on this basis. The court found that

“whatever [eThekwini’s] motives were the irrationality of their choice of South West is so obvious and egregious that it ineluctably leads me to conclude that the officials knowingly acted unlawfully, unconstitutionally and unethically”.

When the court considered the far-reaching effects of the decision of awarding the tender to South West (i.e. vulnerable people occupying, for instance, municipal and other sub-economic housing schemes having no insurance for water leaks), the court came to the conclusion that it was not advisable for South West to retain the contract.

The court, however, did not stop there. It considered whether the eThekwini officials, involved in the procurement process, had failed to uphold the values of the Constitution and the guidelines provided to them when considering offers from tenderers. The court also considered the obligation of all persons performing public services, to be accountable and transparent.

The court found that both South West and the officials in question must be held accountable for their actions, by way of being held liable for the costs of the proceedings. As such, the court ordered as follows:

  1. South West was held liable for 50% of the legal costs:
  2. The 16 public officials ranging from the City Manager, Members of the Bid Adjudication Committee, Bid Evaluation Committee, the Head of eThekwini Water and Sanitation, Deputy Head Supply Chain Operations, Divisional Manager for Regional Customer Services Water and Sanitation, and the Contracts Administrator were held liable for the remaining 50% of the legal costs, to be paid out of their own pockets.

This case sounds a warning to all public officials who act unlawfully and unethically to the disadvantage of the general public and other suitably qualified tenderers who would have benefited from the process.

Author:  Nombuso Shange, Associate.

BBB-BEE and the construction sector

An entity’s Black Economic Empowerment (“BEE”) score and recognition status is measured either in terms of the Broad Based Black Economic Empowerment Generic Codes of Good Practice (“BB-BEE Codes”), or in terms of a specific sector code. The main difference between the two is that the BB-BEE Codes address empowerment and transformation for all sectors where there is no sector code. At the same time, the BB-BEE Codes provide guidance regarding the measurement principles to be applied, and incorporated into sector codes. A sector codes addresses empowerment and transformation within a defined sector and is more alive to a sector’s challenges and requirements.

During October 2013, the amended generic BB-BEE Codes of 2013 (“Amended Codes of 2013”) were gazetted, providing for revised principles of measuring transformation and empowerment. In the circumstances, all sector charter councils were required to amend their respective sector codes and submit these to the minister. The construction sector was no different and was required to prepare a draft construction sector code and submit it to the minister, however, failed to do so timeously. As a result, in February 2016, the Construction Sector Codes of 2009 (“Construction Codes”) were repealed.

The consequence of the minister’s decision to repeal the Construction Codes was that all entities previous falling within the scope and application of the Construction Codes would now to be measured in terms of the amended Codes of 2013. As mentioned, in some instances a generic code fails to adequately address sector specific challenges and consider whether it may become onerous to apply it measurement principles in a specific sector.

A draft of the revised construction sector codes (“Revised Codes”), gazetted in terms of Section 9 (5) of the Broad Based Black Economic Empowerment Act 53 of 2003 as amended by B-BBEE Act 46 of 2013 (“the Act”), was issued for public commentary. For a sector code to become applicable to a specific sector, in place of the prevailing BB-BBE Codes, it must be gazetted in terms Section 9(1) of the Act. Until this happens entities falling within construction sector continue to be measured against the Amended Codes of 2013.

The period within which to submit comments to the Revised Code has elapsed, yet the minister has not provided indication of his intention to gazette the Revised Codes under Section 9(1) of the Act. Furthermore, unlike the previous Construction Codes that had a transitional period when they were first published, the Revised Codes propose no transitional period. A transitional period would provide the sector with an opportunity to plan and adjust to the revised requirements prior to being compelled to apply the revised measurement principles. On publication, in terms of Section 9(1) of the Act, all entities falling within their scope of application may be forced to undertaken their measurement of BEE in terms of the Revised Codes. Such a provision has the potential to further stall the progress made by the sector.

The industry remains in an uncertain position, addressing transformation and empowerment in terms of the Amended Codes of 2013 which do not necessarily appreciate the sector’s challenges, similarly, aware that the Revised Codes await the minister’s gazetting whereafter application may be an immediate requirement.

Author: Tsele Moloi, Associate

Transparent and Accountable Public Procurement under the Constitution

The importance of a transparent and accountable public procurement process cannot be understated. It impacts the public, in general, in terms of service delivery and a failure to comply therewith can result in the wasting of tax payer’s funds.

What happens where it is obvious that public officials involved in a public procurement process have been corrupt, grossly negligent or otherwise did not apply their minds during the tender adjudication and arbitration process?

This issue is regularly raised, resulting in frequent referrals to Tender Appeal Tribunals and the various courts for a decision and evaluation of the process followed.

One such case is Westwood Insurance Brokers (Pty) Ltd v eThekwini Municipality (8221/2016) [2017] ZAKDHC 15 (5 April 2017). In short, a company by the name of NC South West Brokers CC (South West) was awarded a tender, by eThekwini Municipality, in the sum of approximately R 81 000 000.00, for the provision of insurance for water loss through underground leaks for individual dwelling units. The Conditions of Tender required that a letter of undertaking from an insurance company licensed to operate in South Africa, accompany the tender, and that the underwriter must be registered with the Financial Services Board (FSB). South West, however, submitted a quotation for professional indemnity insurance from Marsh (Pty) Ltd whose registration with the FSB, as an insurer, had not been established.

The tender award was challenged on this basis. The court found that

“whatever [eThekwini’s] motives were the irrationality of their choice of South West is so obvious and egregious that it ineluctably leads me to conclude that the officials knowingly acted unlawfully, unconstitutionally and unethically”.

When the court considered the far-reaching effects of the decision of awarding the tender to South West (i.e. vulnerable people occupying, for instance, municipal and other sub-economic housing schemes having no insurance for water leaks), the court came to the conclusion that it was not advisable for South West to retain the contract.

The court, however, did not stop there. It considered whether the eThekwini officials, involved in the procurement process, had failed to uphold the values of the Constitution and the guidelines provided to them when considering offers from tenderers. The court also considered the obligation of all persons performing public services, to be accountable and transparent.

The court found that both South West and the officials in question must be held accountable for their actions, by way of being held liable for the costs of the proceedings. As such, the court ordered as follows:

  1. South West was held liable for 50% of the legal costs:
  2. The 16 public officials ranging from the City Manager, Members of the Bid Adjudication Committee, Bid Evaluation Committee, the Head of eThekwini Water and Sanitation, Deputy Head Supply Chain Operations, Divisional Manager for Regional Customer Services Water and Sanitation, and the Contracts Administrator were held liable for the remaining 50% of the legal costs, to be paid out of their own pockets.

This case sounds a warning to all public officials who act unlawfully and unethically to the disadvantage of the general public and other suitably qualified tenderers who would have benefited from the process.

Author:  Nombuso Shange, Associate.