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Sub-Section 33(1)(b) of the Arbitration Act No. 42 of 1965 provides that an arbitration award may be set aside where “[a]n arbitration tribunal has committed any gross irregularity in the conduct of the arbitration proceedings or has exceeded its powers”. The scope of this Sub-Section was recently tested in an appeal to the full bench of the Eastern Cape High Court, in the matter of K H Construction CC v Jenkins N.O. and Another (CA326/2017) [2018] ZAECGHC 37 (22 May 2018).

KH Construction and Mr. Conrad Winterbach, entered into an agreement for the construction of a residential dwelling. A number of disputes arose between the two, regarding whether or not the works had been properly completed and the amount, if any, due to K H. KH claimed R 567 312.00 in terms of its final account. Mr. Winterbach sought damages in the sum of R 851 940.00 for defective works and repayment of R 570 280.00 which he alleged had been overpaid to KH.

These disputes were referred to arbitration before Mr. Dennis Jenkins. During the hearing of the matter, KH produced the evidence of three expert witnesses and its managing member, Mr. Heny. Mr Heny’s evidence was subject to lengthy and exhaustive cross-examination. Mr. Winterbach, on the other hand, gave evidence in chief, but walked out shortly after cross examination commenced, refusing to return even after being offered a further opportunity to do so, alleging that the Mr. Jenkins was biased against him.

Despite this, Mr. Jenkins accepted the evidence provided by Mr. Winterbach, in his evidence in chief, awarding KH the sum of R 399 150.00 on condition that it completed the works to Mr. Winterbach’s satisfaction.

Dissatisfied with this, KH sought an order, from the Eastern Cape High Court, setting aside the award and appointing a new arbitrator to determine the dispute between the parties afresh.

On appeal to the full bench, the court found that Mr. Jenkins had, in terms of Sub-Section 33(1)(b) of the Arbitration Act:

  1. Committed a gross irregularity in the conduct of the proceedings, when he relied upon the evidence of Mr. Winterbach, despite it being untested by cross examination. Cross-examination of evidence is a right, which goes to the root of a fair hearing; and
  2. Exceeded his powers by ordering KH to complete the works. In his defence and counterclaim, Mr. Winterback sought only repayment of the alleged overpayment and damages. He did not ask for specific performance i.e. the completion of the works. The jurisdiction of an arbitrator is limited to matters pleaded and Mr. Jenkins did not have jurisdiction to decide on whether specific performance was warranted or not.

The appeal, therefore, succeeded and the parties were directed to refer the dispute to a new arbitrator for determination. Mr. Winterbach was ordered to pay the wasted costs of the arbitration, the costs of the appeal and the review application before the court a quo.

Author: Michelle Kerr, senior associate

Jurisdictional challenges that can be raised against an Adjudicator

Construction disputes are inevitable. Looking at adjudication as a form of dispute resolution, I thought it might be necessary to refresh and briefly look at some of the jurisdictional challenges which can be raised against an adjudicator and the adjudicator’s decision.

Jurisdictional challenges can be the following:

  • that there is no agreement to refer a dispute to adjudication;
  • that the adjudicator was not properly appointed in terms of the required adjudication agreement;
  • that the dispute, is one not capable of being referred to adjudication;
  • the parties to the dispute, are not the same parties that entered into the contract;
  • the dispute has been previously decided; and
  • breach of natural justice.

It is important (if not crucial), that any jurisdictional challenge should be addressed at the outset as and when it arises. Jurisdictional challenges can be raised at a later stage in the adjudication process by a defeated party, when the victorious party seeks to enforce the adjudicator’s decision. In failing to deal with a jurisdictional challenge, can result in the adjudicator’s decision been found to be null and void, which decision will not be enforceable.

The agreement to refer a dispute

An adjudicator derives his jurisdiction from the notice of adjudication.[1] It is the dispute described in the notice of adjudication that the adjudicator has jurisdiction to determine.[2]

Under the FIDIC, the wording of the Referral Notice should be concise and clearly state what the claimant is asking the DAB to decide. The Referral Notice will define the scope of the dispute and hence the jurisdiction of the DAB.[3]

Appointment of the adjudicator

The adjudicator should confirm and establish that the prescribed procedure for his or her appointment was properly complied with. If not, the adjudicator’s appointment can be challenged.[4]

In Eskom Holdings SOC Limited v CMC-Mavundla-Impregilo JV[5], the adjudicator’s contract was to be renewed on an annual basis. The court found that the adjudicator’s contract terminated when that annual period had expired. Upon such expiration with no renewal of the adjudicator’s term, its jurisdiction ceased to exist and it could not decide on a dispute arising thereafter.

The dispute should be one capable of being referred

The dispute should be one that is capable of being referred to adjudication, which satisfies the requirements of the contract.[6]

In Purton (t/a Richwood Interiors) v Kilker Projects Ltd[7], the judge referred to Court of Appeal case, Percy Trentham[8], stating, “The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter legal relations…”. It was considered that there was substantial “performance” on both sides. While the judge acknowledged that it was theoretically possible for parties to carry out works and receive payments without having entered into a binding agreement, the judge considered that it was unrealistic to suggest that was what happened in this case.[9] The jurisdiction to refer was dependent upon the existence of a construction contract and a dispute arising under it. It was not dependent upon identifying each and every term with complete accuracy.[10]

The JBCC contract requires that a notice of disagreement be issued and only after prescribed period of time, does the disagreement become a dispute. If a dispute was notified before the disputing party followed the process of notifying a disagreement, the adjudicator will not have jurisdiction to decide on the dispute(s) which have not been properly notified.

There is no dispute if the responding party has not had sufficient time to respond to the claim before adjudication was commenced.[11]

Parties to the dispute, the same parties to the contract

The adjudicator should establish that the parties to the dispute, is the same parties that had entered into the contract under which the dispute has been referred.

Dispute previously decided

In Carillion Construction Ltd. v Stephen Andrew Smith[12], the court held that “One needs to consider what is and was the ambit and scope of the disputed claims which is being and was referred to adjudication…One has however to take a reasonably broad brush approach in determining what the referred claims were. The reason for this is to avoid repeat references to adjudication of what is essentially the same dispute.”

In the event the adjudicator is of the view that the dispute(s) referred was already decided on, he/she should rather resign.[13] In the Watkin Jones[14] case, the second adjudicator had resigned because there was no dispute, because it had already been decided.

Rules of Natural Justice:

Audi alteram partem

The extent and scope of dispute referred, is further derived from the applicable procedural rules of the adjudication and the referrals exchanged between the disputing parties.[15] An enquiry into jurisdiction “will usually involve considering the Referral, witness statements and other documents available to the adjudicator at the time that he is making that enquiry.”[16]

In Redwing Construction Ltd v Wishart[17] the court held that an adjudicator had not had jurisdiction to make findings on an issue which was beyond the scope of the dispute referred to him.

Time periods

Time periods prescribed within the adjudication provisions and the procedural rules to the adjudication should be strictly complied with. Failure by the parties and / or the adjudicator to comply with the prescribed time periods, will result in the adjudicator losing jurisdiction. If a referring party fails to issue its referral within the specified / agreed time period then the referral will be irregular and invalid and the adjudicator would have lost jurisdiction to decide the dispute.[18]

However, a failure by the responding party will not necessarily result in a loss of jurisdiction. The adjudicator can still proceed on the referral alone to decide the dispute.[19]


When a party challenges the adjudicator’s jurisdiction, the adjudicator should investigate such challenge at the outset as and when it is raised.

If the challenge has merit, then the adjudicator should refuse to proceed with the adjudication, unless and until it has jurisdiction. If the challenge is without merit, then the adjudicator should notify the disputing parties accordingly and proceed with the adjudication.

The adjudicator should establish the limits of its jurisdiction within the wording of the notice of adjudication, the construction contract, the identity, capacity and authority of the contracting parties, previous decisions and the defences raised during the adjudication. Further, to deal with any jurisdictional objections identified in other documents, such as witness statements.

The adjudicator should not be bias and should adhere to the audi alteram partem principle and give each party fair opportunity to state its case or to respond or comment on important points raised.

The time periods prescribed to the adjudication process (i.e. time for submission of referral/response and the issuing of adjudicator’s decision), should not be undermined to impede the benefit of a speedy dispute resolution process.

An adjudicator who proceeds to issue a decision when his/her jurisdiction limits are not established and complied with, will run the risk that the decision becomes unenforceable. It may even risk the entitlement to any payment of its adjudicator’s fees.

  1. Construction Law Journal 2014, article titled “Construction Act review: jurisdiction – defences and the scope of the dispute referred to adjudication”, authored by Peter Sheridan (pp1)
  2. Ibid
  3. See “The Working of the Dispute Adjudication Board (DAB) under new FIDIC 1999 (New Red Book) by Gwyn Owen (pp 51)
  4. Eskom Holdings SOC Limited v CMC-Mavundla-Impregilo JV (unreported 15 April 2015) [SGHC]
  5. (unreported 15 April 2015) [SGHC]
  6. Radon Projects (Pty) Ltd v N V Properties (Pty) Ltd and Another 2013 (6) SA 345 (SCA)
  7. [2015] EWHC 2624 (TCC); [2015] B.L.R 754 (QBD (TCC))
  8. G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep. 25; (1992) 63 B.L.R. 44
  9. Construction Law Journal, article titled “If it smells like a contract…establishing the existence of a contract and adjudication jurisdiction”, authored by Katie Lee (pp 2-3)
  10. Ibid
  11. Carillion Construction Ltd v Devonport Royal Docks Ltd [2005] EWHC 778 (TCC)
  12. [2011] EWHC 2910 (TCC) (10 November 2011)
  13. Watkin Jones & Son Ltd v Lidl UK GmbH Unreported December 27, 2001 TCC
  14. Ibid
  15. Pilon Ltd v Breyer Group Ltd [2010] EWHC 837 (TCC)
  16. Aedifice Partnership Limited v Mr Ashwin Shah [2010] EWHC 2106 (TCC)
  17. [2010] EWHC 3366 (TCC)
  18. Hart Investments v Fidler and Another [2006] EWHC 2857 (TCC)
  19. Sasol Chemical Industries Ltd v Odell and Another (401/2014) [2014] ZAFSHC 11 (20 February 2014) (FS)



The procedure to be followed when submitting a claim under the GCC 2010, is set out in Clause 10.1 thereof. The process is relatively simple i.e. a written claim must be submitted within 28 days after the events or circumstances giving rise to the claim arose or occurred. If the events or circumstances are on-going, a written notice of intention to claim is delivered within this 28-day period, followed by monthly updated particulars and a final claim, submitted within 28 days after the end of the events or circumstances. The Engineer then has a further 28-day period to provide a ruling on this claim.

Although this may seem simple enough to the uninitiated, submission of a claim/notice of intention to claim and final claim within the relevant period does not automatically mean that the procedural requirements of the contract have all been met. Certain events or circumstances require the submission of preliminary notices by the Contractor, in order to earn the entitlement to claim.

An interesting example of this is the procedure to be followed when claiming for an extension of time and/or monetary compensation arising out of a Variation Order. Variations are dealt with in Clauses 6.3 and 6.4 of the GCC 2010.

Firstly, an instruction from the Engineer does not constitute a Variation Order unless it is in writing and is stated to be a “Variation Order”. If an oral instruction, or an instruction which does not contain the words “Variation Order” on it, is issued, the Contractor has 7 days to confirm, in writing, to the Engineer that it is a Variation Order. If the Contractor doesn’t do so, the instruction will not be considered a Variation Order. If the Engineer does not, in writing, contradict this notice within 7 days of receipt thereof, the instruction is deemed to be a Variation Order.

Once it has been determined whether or not there is a Variation Order in place, the Engineer has 28 days to value the Variation Order. If s/he does not, the Contractor may, with respect to any delay to Practical Completion and/or proven additional costs of giving effect to the Variation Order, make a claim in accordance with Clause 10.1. This claim is only due 28 days after the last date by which the Engineer should have delivered his/her valuation.

If the Engineer does provide a valuation, and the Contractor is dissatisfied with it, the Contractor has 28 days to submit a dissatisfaction claim in terms of Clause 10.2. Clause 10.1 will not be applicable in this instance.

The process is identical under the GCC 2015.

Author: Michelle Kerr, Senior Associate

What does it mean when it is required from an employer’s agent (inter alia an engineer or architect) to act fairly and impartially, and further to afford natural justice.

Numerous construction disputes have raised claims that the employer’s agent had failed to act fairly and impartially when it was required of him or her to inter alia certify payment certificates or to make a ruling or decision on a claim.

Supported by views and guidelines by industry authors, scholars and some court cases, I intend to explain what it means for an engineer (or any other employer agent) to act fairly, impartially and to afford natural justice when it is expressly required or implied in terms of a standard form construction contract, hoping that it would provide clarity, but also, to avoid a possible dispute in the future.

Under the FIDIC contract when there is a dispute and an agreement cannot be achieved, the engineer is required under clause 3.5 to make a fair determination of any claim subject to clause 3.5.[1]

The word “impartially” is not stipulated in the FIDIC contract, although when an engineer certifies payment certificates, it is expected, as a matter of general principle, that it would act fairly and impartially between the parties. [2]

In the very familiar case, Sutcliffe v Thacrah[3], the role of an architect (which is applicable on an engineer) where payments are made to the contractor, was dealt with. It stated that the employer and the contractor enters into a contract with the understanding that the architect (engineer) will act in a fair and unbiased manner.[4] This matter applies to both the NEC3 and the FIDIC contracts. The engineer should not only exercise due care and skill, but should also reach decisions fairly, holding the balance between the employer and the contractor.[5] The engineer in its certifying function, acts administratively and not quasi-judicially.[6]

In Costain v Bechtel[7],this view was held to apply to the engineer. The employer can be in breach of an implied term of the contract with the contractor if the engineer acts in a biased or unfair manner in making assessments or other decisions.[8]

In Amec Civil Engineering Ltd v Secretary of State for Transport[9], it was said that the concepts of independence, impartiality, fairness and honesty are overlapping but not synonymous and imply that the architect (or engineer in this case) must use its professional skills and best endeavours to reach the right decision, as opposed to a decision which favours the interest of the employer. The duty is to act fairly, so long as what is regarded as fair, is flexible and treated together with the particular facts and circumstances.[10]

In granting certificates, the engineer is not obliged to observe the rules of natural justice by inter alia giving the employer or contractor an opportunity to state their case, but is required to act independently, honest and fairly.[11] However, if the engineer’s conduct is in material breach of the contract (i.e. fraud or collusion with one of the parties[12]), it may have the effect that the certificate is not binding because the engineer did not comply with its contractual duties as instructed or there may be grounds for disqualification, which will have the effect that the certificate is not binding.[13]

In the event of a dispute between the parties, it is for the engineer to resolve such dispute to minimise any disruption to the works.[14] Thus, the engineer should have a good understanding and knowledge of the law and contract and should enforce the balance of rights and obligations stipulated therein between the parties.

  1. Keating on Construction Contracts 10th Edition, Chapter 22 – The FIDIC Standard Forms, section 4 – The Engineer, paragraph 012
  2. Ibid
  3. [1974] A.C. 727
  4. Keating on Construction Contracts 10th Edition, Chapter 23 – NEC3 Contract, paragraph 015
  5. Ibid. Further see Sutcliffe v Thackrah [1974] A.C. 727
  6. Hudson’s Building and Engineering Contracts 13th Edition, Chapter 2 – Construction Professionals, paragraph 077
  7. [2005] EWHC 1018
  8. Keating on Construction Contracts 10th Edition, Chapter 23-NEC3 Contract, paragraph 016
  9. [2005] 1 W.L.R 2339 at 2354, CA
  10. Ibid
  11. Keating on Construction Contracts 10th Edition, Chapter 5, paragraph 043
  12. Supra at paragraph 064
  13. Supra at paragraph 038
  14. Keating on Construction Contracts 10th Edition, Chapter 23-NEC3 Contract, paragraph 082

Barry Herholdt, senior associate.


Clause 5.12.1 of the GCC 2010 entitles the Contractor to an extension of time “for circumstances of any kind whatsoever which may occur that will, in fact, delay Practical Completion of the Works” [emphasis added]. These circumstances are limited to what may be termed ‘Employer Risk Events’. The question is often asked, however, how such extensions of time is impacted by ‘Contractor Risk Events’ which occur concurrently.

True concurrent delay is the occurrence of two or more delay events at the same time, one an Employer risk event, the other a Contractor risk event, the effects of which are felt at the same time. True concurrent delay is rare and the phrase “concurrent delay” is more commonly used to mean two or more delay events which arise at different times but have effects which are felt at the same time. [SCL Delay and Disruption Protocol (2nd edition) Guidance on Core Principles, paragraph 10.4]

The GCC 2010 Guide (first edition) (2010) recommends reliance upon the Delay and Disruption Protocol of the Society of Construction Law (SCL) when assessing extensions of time due to the Contractor in terms of Clause 5.12 of the GCC 2010.

Core Principle 10 of the SCL Delay and Disruption Protocol (2nd edition) makes it clear that “[w]here Contractor Delay to Completion occurs or has an effect concurrently with Employer Delay to Completion, the Contractor’s concurrent delay should not reduce any EOT due [emphasis added]. “The Protocol’s position on concurrent delay is influenced by the English law ‘prevention principle’, by virtue of which an Employer cannot take advantage of the non-fulfilment of a condition (for example, to complete he works by a certain date), the performance of which the Employer has hindered”.

This is the position reflected in, among others, the English cases of Wells v Army and Navy Co-operative Society (1903) Hudson’s BC (4th Edition, Volume 2) 346 at 354 – 355, Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32 at 37 and De Beers v Atos Origin IT Services UK Ltd [2011] BLR 274.

Float, which is the difference between the time available for executing an activity and the planned duration to execute it, must be taken into account. [GCC 2010 Guide] Concurrent delay only arises where the Employer Risk Event is shown to have caused delay to Completion or, in other words, causes critical delay (i.e. it is on the longest path) to completion. [SCL Delay and Disruption Protocol (2nd edition) Guidance on Core Principles, paragraph 10.10]

This is good news for Contractors, as far as it applies to extensions of time.

Author: Michelle Kerr, Senior Associate

Fairness and its uncertainty

In recent years, we have witnessed the Constitutional Court developing the law of contract so as to bring the commercial sector in line with constitutional principles such as fairness, equality and dignity. Some academics and legal professionals have criticised this approach for compromising legal certainty.

Let’s consider an example of a recent case where a court has embraced the Constitutional Court’s approach – Beadica 231 CC v The Trustees for the time being of the Oregon Trust & Others[1].

The applicants (the “lessees”) in the Beadica case concluded lease agreements with the first respondent (the “landlord”) as part of a black empowerment initiative. The terms of the lease agreements contained a right to renew the leases, provided the lessees gave notice of their exercise of this option at least 6 months prior to the termination dates – the lessees did not exercise their option within this period. In terminating the agreements and requesting the lessees to vacate its premises, the landlord relied on this non-compliance.

The court held that where the very idea of the agreements between the parties was to promote the interests of historically disadvantaged people, more is required to justify the landlord’s case than that the lessees requested a renewal of their lease in a form that should have been more precise and submitted within specific dates.[2] The court concluded that the option to renew the lease had been validly exercised.[3]

Although equitable, the conundrum of this approach is that it creates a level of legal uncertainty. No longer can one merely rely on the written terms of their agreement. Even if those written terms are unmistakeable, they may be determined as being inapplicable should they result in unfairness to either party.

Wallis JA has raised concerns with the Constitutional Court’s approach[4], including that the approach renders the law unpredictable and dangerously enforces commercial relationships purely as a matter of discretion. What is “fair” is often an obscure concept that academics have clashed over. Wallis JA uses an apt example of how this approach may be desirous in concept but impracticable in reality, when he states that judges of the Supreme Court of Appeal may be able to determine what is “fair” but how can your average person, or even magistrates, be expected to grapple with and enforce the concept daily.

So how does all of this affect those who are parties to a construction contract? Well, in terms of this approach, contractors that could not reasonably be expected to know any better could get out of the strict timing requirements of notices of claim for example. Or perhaps, contractors could wriggle their way out of strict compliance with quality requirements.

It is expected that parties to construction contracts will begin to seek to rely on the principles of fairness and good faith in their interpretation and enforcement of contracts more and more, and as and when it suits their case. However, as construction disputes are rarely heard in court, the likelihood of us seeing the courts applying and confirming these principles in respect of construction contracts is slim. Without any such case law to solidify the approach will adjudicators and arbitrators be convinced? We shall be keeping an eye out for court judgments with bated breath.

  1. (CCT 89/13) [2014] ZACC 11.
  2. Para 44.
  3. Para 45.
  4. Malcolm Wallis JA “Commercial Certainty and Constitutionalism: Are they compatible?” (2016) SALJ 133 p569-599.

Appeal may be able to determine what is “fair” but how can your average person, or even magistrates, be expected to grapple with and enforce the concept daily.

So how does all of this affect those who are parties to a construction contract? Well, in terms of this approach, contractors that could not reasonably be expected to know any better could get out of the strict timing requirements of notices of claim for example. Or perhaps, contractors could wriggle their way out of strict compliance with quality requirements.

It is expected that parties to construction contracts will begin to seek to rely on the principles of fairness and good faith in their interpretation and enforcement of contracts more and more, and as and when it suits their case. However, as construction disputes are rarely heard in court, the likelihood of us seeing the courts applying and confirming these principles in respect of construction contracts is slim. Without any such case law to solidify the approach will adjudicators and arbitrators be convinced? We shall be keeping an eye out for court judgments with bated breath.

Author: Kelly Stannard, Associate

Risks unaccounted for? The loss lies where it falls

Construction is a risky business. Not all risks can be predicted prior to the commencement of a project. Not all risks can be prevented or curbed during the execution of a project. Millions of Rands could be lost should a risk materialize on a project. It is crucial for parties to construction contracts to be aware of which risks they are responsible for and for which they will ultimately bear the loss.

The CIDB endorsed standard forms of contract provide for who bears the risk in relation to specific events and thus who will be liable for the loss associated therewith. However, these contracts do not assign risk in respect of each and every possible event and a badly drafted bespoke contract might not assign risk at all, leaving the parties thereto in a very uncertain position.

While there are some risks that are clearly the risk of the contractor, such as substandard workmanship, or clearly the risk of the employer, such as a delay due to an instruction to carry out additional work, there are other events that are not obviously the fault of the contractor or the employer. Where it is not entirely apparent who should bear the risk, and in turn the loss, for an event, to whom should each party’s fingers be pointed?

Judge Edgar Fay QC in Henry Boot Construction Ltd v Central Lancashire New Town Development Corp[1] provided some clarity on this issue by stating as follows:

There are cases where the loss should be shared, and there are cases where it should be wholly borne by the employer. There are also cases which do not fall within either of these conditions and which are the fault of the contractor. But in cases where the fault is not that of the contractor the scheme clearly is that in certain cases the loss is to be shared: the loss lies where it falls. But in other cases the employer has to compensate the contractor in respect of the delay, and that category, where the employer has to compensate the contractor, should, one would think, clearly be composed of cases where there is fault upon the employer or fault for which the employer can be said to bear some responsibility.”[2]

The words of Judge Fay QC are not entirely clear in that he refers to the loss being shared in cases where the fault is not that of the contractor and then summarises that statement with a seemingly contradictory phrase – “the loss lies where it falls”.

Our understanding of Judge Fay QC’s words is that where an event is neither an employer’s risk event nor a contractor’s risk event, the loss must lie where it falls, unless the party at which the loss has fallen can establish a breach of contract or fault on the other party’s part.

To illustrate this dictum; where an event causes delay, it is the contractor’s risk as that is where the loss has fallen. This is provided, of course, that the event was not caused (in whole or part) by a breach of contract by the employer.

As mentioned above, the standard forms of contract provide for who bears the risk for specific events and provides mechanisms for dealing therewith. For example, in FIDIC:

in respect of the risk of delay – several clauses specify when the contractor will be entitled to an extension of time and additional payment (i.e. where the contractor is not at risk) such as clause 4.12 (unforeseeable physical conditions) and 4.24 (fossils);

in respect of damage to the works – clause 17.3 specifies the causes of damage which constitute risks of the employer (eg: war, riots and design by the employer)

Although the standard forms of contract assign many of the risks parties to construction contracts are faced with, there are still a few that have not been accounted for. Some of the examples we have come across include – flooding due to ground conditions (rather than due to weather), flooding due to municipal drains being blocked, civil unrest in the local community and shortages of materials.

If one puts the legal dictum “the loss lies where it falls” into practice, where events such as these (and importantly, events that have not been caused by either party) cause a delay to the works, the contractor is at risk as it is the contractor that will face a loss in such circumstances.

It is therefore important to review the assignment of risk within a construction contract and to keep in mind that not all risks can be predicted and where they haven’t, the loss may lie with the party at which it falls.

Author: Kelly Stannard, Associate


An issue we are all aware off and which has affected and unfortunately still affects the construction industry to this day (not only in South Africa, but worldwide), is the issue turning on corruption. This can include unethical practices and conduct, and it can take place during pre-tender or pre-contract stages, further after contract award and even during the contract period of project execution.

NEC4 has included a new clause, clause 18, which deals with corrupt acts, and further defines a corrupt act under clause 11.2(5) as follows:

  • the offering, promising, giving, accepting or soliciting of an advantage as an inducement for an action which is illegal, unethical or a breach of trust or
  • abusing any entrusted power for private gain

in connection with this contract or any other contract with the Client. This includes any commission paid as an inducement which was not declared to the Client before Contract Date.

The CIDB Code of Conduct also deals with “corrupt acts”. It states that “This Code of Conduct represents an important step in management of integrity and the creation of an environment within which business can be conducted in a fair and transparent manner. It also forms an essential first line of defence in combating the scourge of corruption.

All parties engaged with construction procurement in South Africa (and further within the construction world in general), should always be reminded of the provisions set out in the CIDB Code of Conduct.

It inter alia requires that the “Contractor or his employees should:

  • Undertake the contract with the objective of satisfying the requirements of the employer
    by observing the spirit, as well as complying with the letter of the contract, and, in pursuit
    of this objective, co-operate with all other parties in the procurement process.
  • Aim to meet all statutory and contractual obligations fully and timeously in regard to
    conditions of employment, occupational health and safety, training, fiscal matters, etc.
  • Employ subcontractors only on the basis of fair, unbiased, written subcontracts.
  • Not engage in unfair or unethical practices in dealings with subcontractors.
  •  Not make spurious claims for additional payment or time.
  • Not approach any representative directly in connection with a contract, save for a legitimate purpose.
  • Not undermine the development objectives of the employer through tokenism or fronting.
  •  Not engage in collusive practices that have direct or indirect adverse impacts on the cost of the project to the employer.

It further requires that the “employer, his employees, or agent should:

  • Not invite tenders without having a firm intention to proceed with the procurement.
  • Ensure that the basis on which tenders will be evaluated is clearly set out in the
    tender documents and that tenders are evaluated and awarded accordingly.
  • Employ contractors only on the basis of fair and equitable written contracts.
  • Not accept gifts, favours or other considerations, of anything more than token
    value, from any other party to the procurement process.
  • Ensure that the procurement documents are clear and comprehensive and set out
  • the rights and obligations of all parties.
  • Not breach the confidentiality of information, particularly intellectual property,
    provided by tenderers in support of their tender submissions.
  • Not engage in unfair or unethical practices in dealings with subcontractors, including
    the practice of trading one subcontractor off against another in an attempt to
    obtain lower prices.
  • Ensure that all tenderers are fairly treated and that tender offers are evaluated without bias.
  • Ensure that transparency is maintained in the tendering process. This implies, under
    normal circumstance, inviting tenders as widely and publicly as possible, stating
    clearly any prequalification criteria and considering only those who qualify, opening
    tenders in public and reading out/making available key information, such as tender
    prices, basic award criteria and times required for completion, and, in due course,
    making known to unsuccessful tenderers the outcome of the evaluation process.
  • Ensure that his obligations in terms of contracts with contractors and agents are
    scrupulously and timeously met, particularly in regard to making payments and
    giving decisions.
  • Ensure that legal requirements and principles are upheld in relation to safety,
    health, the environment and sustainable delivery management.


The above is only limited extracts applicable to the contractor and the employer and a full copy of the CIDB Code of Conduct can be obtained and downloaded from the CIDB website or at the link below:


This Code of Conduct can be enforced in terms of Section 29 of the CIDB Act (2000). In the event of a breach of the code, the Board may convene and conduct an enquiry. If any misconduct exists and is established, the CIDB Board can sanction the guilty party (or parties) by either issuing a warning or a fine, or refer the matter to the South African Police Services for further investigation, or worse, deregister a contractor for a period of time, which will mean that it cannot take part in any tendering process during that period, or maybe at all depending on the misconduct. This will not be an ideal position to find yourself, especially when you seek to grow your company within the Construction Industry.

Author Barry Herholdt, Senior Associate

A case of one step forward and two steps back?

During the course of 2015, the then Minister of Public Works published for comment regulations (“the Regulations”) to the Construction Industry Development Board Act 38 of 2000 (“the Act”).

The Regulations proposed, among other things, prohibiting ‘pay-when-paid’ provisions, creating a statutory right to interim payments and providing for the speedy resolution of disputes between contracting parties, by way of statutory adjudication.

For adjudication to have the required impact, as a dispute resolution mechanism, it has to be compulsory, preventing employers and main contractors, who hold the greater bargaining power, from simply removing adjudication clauses from the sub/contracts concluded. The proposed Regulations were a clear recognition of the importance of adjudication as a mechanism to resolve disputes in an efficient and cost-effective manner. The obligation to make interim payments and prohibition of ‘pay when paid’ provisions would have ensured that the interests of parties in unequal contract relationships were protected and sub/contractors would be paid what was lawfully due to them.

Although criticism can be levelled at the Regulations, in that that they encroached on the ‘right to freedom of contract’, they were generally welcomed. As regulations to the Act, the Regulations would be applicable to all construction projects (barring certain exclusions) and also compulsory.

Two years later, however, following extensive public comment, the Regulations have still not come into force, and it appears that they may fall by the wayside altogether. In terms of Section 33 of the Act the Minister is empowered to publish draft regulations for public comment and thereafter gazette them in terms of this section. A protracted period has passed since the publishing of the Regulations for comment, however, and to date, the minster has not gazetted them into law.

While the uncertainty relating to the Regulations persists in the industry, the Construction Industry Development Board (“CIDB”) recently circulated draft standards dealing with prompt payments and adjudication (“the Standards”) for construction contracts. The provisions appear to be the same or similar to those of the proposed Regulations.

The difficulty with the Standards, however, is, firstly, that they will not have the force and effect and binding nature that the Regulations would have had on contracting parties. Secondly, the application of the standard relating to prompt payments will be largely confined to parties who voluntarily elect to contract on this basis. For the standard on prompt payment it is proposed that the provisions, if agreed, would be incorporated into the tender data and contract. For the standard dealing with adjudication, it is intended that these would apply to contracts which do not provide for adjudication procedures similar to those of the adjudication standard.

Although the Standards appear to largely reflect the objectives of the Regulations insofar as proposing prompt payment mechanism and an efficient and cost-effective dispute process, they fail to achieve the main aim of the Regulations, which is to be of legal force and effect and settle the issues plaguing the construction industry and emerging contractors once and for all. They are not of compulsory application and as such do not sufficiently deal with the unequal power dynamics between contracting parties in the construction industry.

Since the end of apartheid, the South African government has focused on providing adequate infrastructure for the previously disadvantaged majority, and the inclusion of this group of people and enterprises into the formal construction sector. [1] These objectives formed part of South Africa’s Reconstruction and Development Plan Policy Framework also commonly referred to as the RDP. Broadly speaking, the RDP is an integrated, coherent socio-economic policy framework which seeks to mobilise all people and the country’s resources toward the final eradication of Apartheid and the building of a democratic, non-racial and non-sexist future [2]. Within the context of the construction industry, the purpose of the RDP was to address the basic human need for infrastructure by providing adequate housing and leveraging this need to develop and sustain small to medium sized enterprises.

In pursuit of this objective, South Africa’s Department of Public Works (“the Department”), published a Green Paper in 1998, titled ‘Creating an Enabling Environment for Reconstruction, Growth and Development in the Construction Industry’. This was followed by a White Paper of the same name in 1999. The Green Paper was the government’s defining document in its attempt to understand the construction industry. Among its objectives was to create an enabling environment in which the objectives of the RDP were achieved, enhance industry performance and achieve growth of small and medium enterprises. The White Paper reaffirmed the proposals put forward in the Green paper and the actions needed to address the issues. These documents in part propose that this can be achieved by the promotion of alternative dispute resolution (“ADR”) mechanisms by the public sector, which are efficient and cost effective, streamlining payment processes to support emerging contractors and the establishment of the CIDB.[3]

Both these papers, firstly, identified that traditional dispute resolution processes are costly and time consuming, which can be prejudicial to contractors with limited resources. As such, proposals including fair and effective ADR mechanisms are called for, to strike a balance with the competing interests of producing quality goods and equitable treatment of contractors. Secondly, the papers identified that contractors were susceptible to cash-flow constraints, which would be limited by the introduction of uniform and streamlined payment processes.

In 2004 and 2005 the CIDB, now established, published best practice guidelines dealing inter alia with payment procedures and ADR in construction contracts. [4] For the former the guideline proposed at the outset was that conditions of subcontract should be regulated by fair terms and conditions, as an example to mitigate the risk of non-payment due to pay-when-paid and/or right of set off provisions.[5] For the latter, the CIDB released a guideline focusing on adjudication and the need to ensure this option remains available to disputing parties, and not to have contracts only advocating arbitration and litigation which are time consuming and costly.

It is accepted that the principles of the Standards are similar to those of the Regulations, and are consistent with solutions proposed by industry stakeholders when it comes to payment procedures and adjudication for construction contracts. If the draft Standards are published in their present form, however, they will only be binding in limited circumstances, and may not fully advance the proposals of the Green and White Papers.

It is clear that over the last 10-15 years the construction industry has had an opportunity to understand the issues faced by sub/contractors, especially small and medium sized enterprises, mainly due to the unequal contractual arrangements. The CIDB may view the Standards as a way to deal with the above issues while the Regulations are in limbo. If true, such a decision may be open to criticism, as engaging with the minister to understand the limited action regarding the Regulations would have been more proactive. To deal with the issues facing the industry one needs measures that are firstly binding on all.

It is not clear why the Regulations have not yet been gazetted, but the draft Standards are little progress on matters which have been at the centre of the construction industry for a while. A case of ‘one step forward and two steps back’, I wonder!. We shall have to wait and see where this leads.

  1. Reconstruction and Development Programme (RDP) A Policy Framework, Paragraphs 1.3.6, 1.4.3 and
  2. Reconstruction and Development Programme (RDP) A Policy Framework, Paragraph 1.1.1
  3. Green Paper and White `Paper: Creating an Enabling Environment for `Reconstruction, Growth and Development in the Construction Industry, Chapter 7, January 1998, Paragraphs, 5.5.7 and 7.2.1 and 4,15.2, 6,5.7
  4. Michelle Kerr, Statutory Adjudication: A necessary Transfusion for the South African Construction Industry? Dissertation submitted in part fulfilment of an MSc degree in Construction Law & Dispute Resolution, King’s College London, September 2017, as yet unpublished
  5. CIDB Construction Procurement – Best Practice Guideline #D1, Adjudication; March 2004

Author: Tsele Moloi, Associate

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

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