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Intellectual Property on Building Information Modelling (BIM)

Last year I wrote an article, titled “What is Building Information Modelling or else known as BIM?”. With this article I continue dealing about BIM and more in particular want to briefly deal with the issue around intellectual property on BIM.

Who owns the design(s), and who is the lawful owner of the intellectual property of the particular BIM information, which is used in collaboration between the relevant project players on a particular project?

As stated in my previous article mentioned above, I defined the term “Information Providers”, which was defined to be “the people or organisations who contribute to the Information Model and are identified in the Information Model Requirements”.

Reading the above, it is evident that in some (if not in most) circumstances where BIM is used, you will have various people on a project, who will have access (preferably someone authorised in terms of the contract) to the BIM model, to either add into the design or take away or otherwise. These individuals can inter alia include the engineer, the employer’s agent or representative, the contractors (civil, electrical, piping, landscaping, the list goes on) and or the architects etc.

So, to what extent can anyone claim ownership of the intellectual property?

The authors, Peter Barnes and Nigel Davies who authored “BIM in Principle and in Practice”, explains that “Because the client will ordinarily have access to the model as it is being developed, care must be taken to ensure that the intellectual property rights are not lost because of the open and collaborative nature of model development”.

It gets a tricky when you work on a model that might contain confidential or trade secret information, where a model will disclose what a company is planning to build and the processes it will use. The risk is that this information will be broadly circulated in a collaborative team.

Barnes and Davies state that, “Many of the intellectual property issues are similar to those that existed before BIM.” But it is stated further that the intellectual property issues “are amplified by the amount of information contained in BIM, the access to this information by others and its ease of transfer”.

Considering the above, the authors are of the view that where the BIM model is a collaborative work, a single party cannot claim ownership.

Complexed ownership issues and or risks, should be determined and be fully dealt by the contract. This will avoid possible confusion or misunderstanding by the relevant parties. Further, confidentiality agreements should be considered and will be important in circumstances where the information is confidential and where the party who provides such information, wishes to limit the distribution thereof.

In conclusion, when deciding on who owns the model, who owns information in the model, and who has access to the model, Barnes and Davies states that all these relevant questions should be considered when BIM procedures are developed and when intellectual property rights are considered.

Author: Barry Herholdt, Senior Associate

Suspension due to non-payment under the GCC

For those Contractor’s who experience difficulty in obtaining payment on a project governed by the GCC 2010, suspension of the Works due to non-payment is an appealing yet elusive and, ultimately, risky response.  Clause 5.11 of the GCC 2010 deals with suspension of the Works and a careful reader will note that the only person entitled to suspend the Works, for whatever reason, is the Engineer.

 Some may argue that the principle of reciprocity applies i.e. that in any contract, where both parties undertake obligations to the other, the intention is that neither is entitled to enforce the contract unless they have themselves performed or are ready to perform their own obligations. In other words, the Employer cannot enforce progression of the Works, when it has failed to make progress payments for work already done.  This is, however, subject to an interpretation of how the contract terms were intended to operate  (Hauman v Nortje 1914 AD 293, Nesci v Meyer 1982 (3) SA 498 (A) 513; Rich and Others v Lagerwey 1974 (4) SA 748 (A), BK Tooling (Edms) BPK v Scope Precision Engineering (Edms) BPK 1979 (1) SA 391 (A), James v Mendelowitz 1983 (1) SA 481 (C)).

 The 2015 edition of the GCC solves this difficulty with Clause 5.11.1 thereof stipulating that “[t]he Contractor may, after giving fourteen (14) days written notice to the Employer, with a copy to the Employer’s Agent, (with specific reference to this Clause) suspend the progress of the Works where the Employer’s Agent or the Employer has failed in terms of Clause 6.10.4 to…[d]eliver a payment certificate, or…[m]ake full payment of the amount certified in the payment certificate…” [emphasis added].

 Author: Michelle Kerr,  Senior Associate

Do the dispute resolution provisions of a contract survive the termination of the contract?

We have recently dealt with a case where an NEC3 contract was terminated by the Employer. Our client then invoked the provisions of Clause 93.1 [Payment on termination] and referred the matter to adjudication. The Employer then tried to argue that since the contract had been terminated, they were no longer bound by the dispute resolution provisions in the Contract.

Which then begged the question, do the dispute resolution provisions of a contract (the NEC3 in this instance) survive termination of the contract? What are the effects or consequences of termination of the contract?

This issue was discussed in the case of Heyman v Darwins Limited: HL 1942. The court in this case found that an arbitration clause will survive a repudiatory breach. The court held that:

If one party to a contract repudiates it and that repudiation is accepted, then “By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.’ The primary obligations under the contract may come to an end, but secondary obligations then arise, among them being the obligation to compensate the innocent party. The original rights may not then be enforced. But a consequential right arises in the innocent party to obtain a remedy from the party who repudiated the contract for his failure in performance.

In some construction contracts, termination is often expressed as termination of the contractor’s employment under the contract as though to emphasize that the contract itself is not terminated and that some of its provisions, particularly those for assessing amounts due and dispute resolution, remain in force. What is in fact “terminated” is the future performance of the contract – that is, the primary obligations of the parties that have been partially performed at the time of termination and those that would have fallen due for performance had the contract not been terminated.

This is also the case with Clause 90.1 of the NEC3 which states that:

Clause 90.1

90.1 If either Party wishes to terminate the Contractor’s obligation to Provide the Works he notifies the Project Manager and the other party giving details of his reason for terminating. The Project Manager issues a termination certificate to both Parties promptly if the reason complies with this contract [my emphasis].

The clause is expressed in terms of the termination of the Contractor’s obligation to “provide the works”. “To provide the works” is defined in Clause 11.2(13) as to do the work necessary to complete the Works in accordance with this contract and all incidental work, services and actions which this contract requires.

In terms of common law, what obligations survive termination of a contract?

While termination puts an end to the primary obligations of each party, there are other obligations which may survive termination. Those obligations could be:

  • Obligations that arise when there is a breach of contract. If the contract is terminated in those circumstances, the parties’ primary obligations are substituted by a secondary obligation that is imposed on the party in default which requires it to pay compensation to the other party. This secondary obligation to pay compensation survives termination of the contract.
    • For example, in the construction context, upon termination of the contract by either party, the contractor is relieved of its primary obligation to carry out and complete the works. If, however, the contract was terminated as a result of the contractor’s default, the law imposes a secondary obligation on the contractor requiring it to pay compensation to the owner. That compensation will usually comprise any additional cost incurred by the owner in completing the works that is over and above the contract price.
  • Obligations that are ancillary to the main purpose of the contract. These may be of a substantive or procedural nature. Examples of this type include an agreement to refer differences or disputes to arbitration, an obligation not to disclose confidential information and an agreement as to the choice of forum.

Therefore, even though the contract is terminated, the following obligations would still survive termination:

  • Dispute resolution provisions
  • Assessing of amounts due; and
  • Confidentiality provisions

A party cannot claim that since the contract has been terminated, they are discharged from all obligations in terms of the contract, including the secondary obligations that come into effect after termination.

Author: Nombuso Shange, Associate.

Business Rescue: An Employer’s Guide to Weathering the Storm

The insolvency of a contractor on a construction project has long been a threat to the timely and cost-effective completion of the works. Over time, the standard form contracts have evolved to minimise the risk of the insolvency of such contractor, to the employer, allowing the employer to bow out of such agreements with the vestiges of its dignity intact.

With the introduction, by Chapter 6 of the Companies Act No. 71 of 2008 (the Act), of business rescue proceedings into the South African business landscape, however, employers may be forgiven for wondering what protections, if any, are still available to them. The purpose of this article is to provide a quick reference guide for employers wanting to understand their rights when their contractors enter business rescue.

What is Business Rescue?

The Act defines business rescue as proceedings to facilitate the rehabilitation of a company that is financially distressed.

These proceedings can be initiated (provided that there appears to be a reasonable possibility of rescuing the company) by a resolution of the board of the financially distressed company, or by way of an application to court by a person affected by the company’s financial difficulties. The management of the company’s affairs, business and property are then placed under the temporary supervision of a business rescue practitioner, who develops and implements a rescue plan.

Only a shareholder, creditor, registered trade union representing employees of the company or its employees themselves, may challenge this resolution or the appointment of the business rescue practitioner, or bring an application for the institution of business rescue proceedings. This means that the employer to a contract, who is not owed money by the contractor, will have no say in the matter.

What are the Consequences of Business Rescue?

Business rescue proceedings are intended to last 3 months, or such longer period determined by the court, on application by the business rescue practitioner. Once business rescue proceedings have commenced:

  1. There is a temporary moratorium on the rights of claimants against the company, and no legal proceedings may be commenced or proceeded with, while the company is under business rescue;
  2. Despite any provision of a contract to the contrary, the business rescue practitioner may suspend, entirely, partially or conditionally, for the duration of the business rescue proceedings, any obligation of the company that arises under an agreement to which the company was a party when the proceedings commenced; and/or
  3. Despite any provision of a contract to the contrary, the business rescue practitioner may apply to a court to entirely, partially or conditionally cancel (on any terms that are just and reasonable) any obligation of the company arising under such an agreement.

The other party’s only remedy for such suspension or cancellation is damages (which would render the other party a claimant, subject to the moratorium on legal proceedings).

Employers’ Rights under a Construction Contract

Business rescue proceedings do not automatically mean that a contractor will default on its obligations in terms of a construction contract, and it is by no means a given that the business rescue practitioner will decide to suspend or cancel any obligations under the contract. If this does transpire, however, the employer has a few options available to it:

  1. Reciprocal Obligations – The Act does not address an employer’s duty to proceed with its own obligations in terms of the contract, where the contractor elects to suspend performance. As such, the common law principle of exceptio non adimpleti contractus applies, allowing the employer to suspend performance of its reciprocal obligations to the contractor [BP Southern Africa (Pty) Ltd v Intertrans Oil SA (Pty) Ltd and Others 2017 (4) SA 592 (GJ)].
  2. Security – The moratorium on enforcement proceedings is a personal right afforded to a company by the Act. It does not extend to security provided by others on the company’s behalf [Investec Bank Ltd v Bruyns 2012 (5) SA 430 (WCC)].

Should a contractor breach the terms of the contract entitling the employer to call upon the contractor’s security, the Act does not prevent the employer from doing so.

  1. Cancellation – The Supreme Court of Appeal has determined that cancellation does not constitute enforcement action. Cancellation of an agreement with a company which is in business rescue would, therefore, be valid [Cloete Murray and Another NNO v Firstrand Bank Ltd t/a Wesbank 2015 (3) SA 438 (SCA)].

An employer would, however, still need to demonstrate an entitlement to cancel or terminate in terms of the agreement e.g. due to a material breach. The suspension of obligations by the business rescue practitioner would constitute such a material breach entitling the employer to cancel the contract [BP Southern Africa (Pty) Ltd v Intertrans Oil SA (Pty) Ltd and Others 2017 (4) SA 592 (GJ)].

Once the contract is cancelled, the employer will be at liberty to employ another contractor to complete the works. Recovery of any additional costs occasioned thereby, together with the damages incurred due to the cancellation of the contract, will, however, once again, place the employer in the position of a creditor in the business rescue proceedings.

Author: Michelle Kerr, Senior Associate.

What is Building Information Modelling or else known as BIM?

 

This year I had the privilege to attend the Construction Law Summer School that was held at the Gonville and Caius College, Cambridge, UK. On the last day of this ‘course’, one of the speakers, Mr. Joseph F. Moore, from the law firm HansonBridget LLP in San Francisco, California, presented its talk on “The Legal Obligations and Risks of Building Information Modelling”.

As you would have noted from the title and the above, “BIM” stands for ‘building information modelling’.[1]

This was in particular a very interesting presentation to me, and I am ashamed to admit it, but until then, the term and abbreviation were unfamiliar to me and it never crossed my path in the few years that I have practised as an Attorney in South Africa. Upon my return from the UK, I did some further searching into BIM and out of interest, wanted to establish if there were companies in South Africa who has knowledge and expertise on the use of BIM who can assist the construction industry players of South Africa or even beyond borders. By surprise, I noticed that there are a few companies already, with even a BIM Institute who has their offices located in Cape Town, in the Western Cape Province.

When you search videos on BIM, it gets even more interesting and fun. The instruments and system structure of this technology and how it can inter alia be utilised and be developed during a construction project, is in my view a game changer. There are daily various technological advancements around the world, and the aim of the majority of them (or at least in my view), is to make your life less complicated. However, there are always some negatives attached to it and people will have different views when it comes to technology.

An example of a possible less complicated life on site, is that BIM models can digitally generate and store the information electronically which is usually obtained from documents that are written and stored in hard copy, such as drawings, schedules and specifications[2] to name a few.

The use of BIM is also supported by the new NEC4 contract. Secondary Option X10, deals with “INFORMATION MODELLING”. Looking at the definitions, it inter alia defines “The Information Model” as “the electronic integration of Project Information and similar information provided by the Client and other Information Providers and is in the form stated in the Information Model Requirements”.

The “Information Providers” is defined to be “the people or organisations who contribute to the Information Model and are identified in the Information Model Requirements”. By reading this, it already raises some questions with regards to inter alia information or intellectual property ownership. This however, will be a separate topic that I will investigate and explain later in more detail with my further articles on BIM.

In quoting the authors, Peter Barnes and Nigel Davies who authored “BIM in Principle and in Practice[3], and in particular, the introduction on BIM, they inter alia state, “There can be little doubt that BIM is here to stay”. Further, “When applied correctly, BIM is intended to make substantial cost savings throughout the whole life cycle of a building, from design, through construction and maintenance, to regeneration and eventual disposal or recycling

It is also viewed that the use of BIM on projects, can positively contribute in advancing collaboration between the relevant project players. Barnes and Davies[4] states “Another major aspect of BIM is the potential full collaboration of the entire project team – the employer, the architect, the engineers, the consultants, the contractor and the specialist contractors – in developing the project design.

The most important outcome to this is that such full collaboration “not only allows for increased speed of project delivery, enhanced economics for the project and true lean construction all at levels but also the potential to change the relationships between the participants in the construction industry, from the more traditional contracts based on obligations and rights to the more modern partnering associations based on fair allocation and sharing of risks and liabilities.”[5]

Considering that and in conclusion, there is no doubt that projects are more successful when it is managed by parties who are willing to collaborate and seek to maintain a positive, collaborative and good partnering relationship with each other.

  1. See “BIM in Principle and in Practice”, authored by Peter Barnes and Nigel Davies and published by ICE Publishing, pp 1-2.
  2. Ibid.
  3. Published by ICE Publishing
  4. See “BIM in Principle and in Practice”, authored by Peter Barnes and Nigel Davies and published by ICE Publishing, pp 2
  5. Ibid

Author: Barry Herholdt, Senior Associate

The effect of business rescue on adjudication

As many construction companies are currently facing serious financial distress and are increasingly entering into business rescue proceedings, if you have a contract with a company that has been placed under business rescue, you may be wondering what effect this will have on adjudication proceedings, either already progressing or yet to be referred.

In terms of section 133 of the Companies Act, 71 of 2008 (the “Act”), during business rescue proceedings, no “legal proceeding” may be commenced or proceeded with in any forum. The Act lists certain exceptions to this rule including where written consent of the practitioner has been obtained or with leave of the court.

In 2015, the Supreme Court of Appeal, in Chetty v Hart[1], was faced with a challenge regarding the interpretation of section 133. Chetty and TBP Building and Civils (Pty) Ltd (“TBP”) had agreed to refer a contractual dispute between them to arbitration. Shortly before argument took place and the arbitrator’s award was made, TBP was placed under business rescue. Chetty (and the arbitrator) had not been aware that TBP was in business rescue and thus had not sought the consent of the practitioner to proceed with the arbitration. Chetty subsequently sought to invalidate the award in its entirety on the basis that the arbitration award was precluded by the moratorium on legal proceedings against companies under business rescue. Hart (the liquidator and respondent in the matter) contended that the moratorium only applied to legal proceedings and not to arbitrations.

The SCA considered whether arbitration fell under the term “legal proceeding”. In its interpretation of this term, the SCA considered the purpose of the moratorium, namely to give the practitioner breathing space to get the company’s financial affairs in order.[2] Arbitrations, like court proceedings, also involve several resources and may hinder the effectiveness of business rescue proceedings.[3] The SCA thus concluded that a narrow interpretation of “legal proceeding” so as to only include court proceedings defeats the purpose of the Act and leads to insensible and impractical consequences.[4]

Having reached this conclusion, the SCA went on to consider whether the failure by Chetty to seek and obtain the practitioner’s consent before continuing with the arbitration was fatal to its outcome and for this reason should be invalidated.

Again, the SCA considered the purpose of the moratorium in coming to its conclusion. The moratorium is there to prevent the practitioner from being inundated with legal proceedings without enough time within which to consider whether or not the company should resist them and also to prevent a company that is financially distressed from being dragged through litigation while it tries to recover from its financial woes.[5] The SCA considered that obtaining the practitioner’s consent is not supposed to serve as a shield behind which a company not needing protection may take refuge to fend off legitimate claims.[6] The SCA concluded that non-compliance with the requirement for the exception does not necessarily lead to a nullity or invalidate legal proceedings.[7] Furthermore, the exception is there to protect a company in business rescue and is not a defence available to a creditor.[8]

Although there has been no court pronouncement on whether adjudication falls under the term “legal proceedings”, a party seeking include adjudication will have a persuasive case given the SCA’s decision in Chetty v Hart in respect of arbitrations, and the reasoning behind it. Therefore, depending on the circumstances, a moratorium may be applicable to any adjudication proceedings currently underway between you and a party that is placed under business rescue or to adjudication proceedings you wish to refer against such party.

  1. (20323/14) [2015] ZASCA 112 (4 September 2015).
  2. Para 35.
  3. Para 35.
  4. Para 35.
  5. Para 39.
  6. Para 40.
  7. Para 41.
  8. Para 43.

Author: Kelly Stannard, Associate

Retention and the current state of the construction industry

A retention is a percentage of the contract payment value which is held by the Employer as a security for the quality of the workmanship and materials. That is why, usually, half of the retention is released at achievement of practical completion, when the work is finished, and only patent defects are to be rectified.

The old BIFSA (Building Industry Federation South Africa) “white form” contract provided for a retention fund to be held by the Employer as a guarantee for the completion of the contract. The retention was held in an interest-bearing account and such interest accrued to the benefit of the Contractor.

When the JBCC was adopted, this arrangement was abandoned.

A relatively recent development is the adoption of the provision of a retention guarantee which is usually provided as an alternative to a cash retention. This is attractive for the employer because it means at day one, he has security for the full value of the retention and will not have to wait until most of the work is done before he gets a meaningful security against defective work.

However, some employers consider that “cash is king” and prefer a cash retention. The following issues are associated with how cash retentions work in practice:

  • Late payment or release of the retention; and
  • Non-payment of retention monies
  • Insolvency of the holder of the retention money

Late and/or non-payment or release of the retention

Unjustified late and non-payment of retention monies is a significant cause of issues associated with the practice of holding cash retentions within the construction sector.

Unfortunately, retention have also been used as a poor excuse to withhold or avoid paying contractors and are now viewed by many as an unfair and potentially problematic arrangement and currently, there are no measures in place to tackle the issues.

The late or non-payment usually results in cashflow issues for the contractor or the subcontractor.

It is therefore important for the employer, or the contractor in relation to sub-contracts, to ensure that they comply with contractual provisions, not only in the deduction of retention monies, but also their release.

How to protect yourself

Knowing your rights as a contractor (or subcontractor) will help to ensure that you get paid on time by looking out for the following issues;

  • The Subcontractor should seek to ensure that the release of their retention is not tied to the completion of the main contract and/or the release of the retention fund under that main contract;
  • Ensure that the deduction made is in accordance with the contract, in the right amount and that the right percentage is deducted;
  • Retention monies are held in trust or insisting on a retention guarantee.

What happens to retention monies when the party holding the monies is insolvent?

In the event of the holder of the retention being placed under business rescue, the retention monies will be mixed with other sums and or monies in the business. The business rescue practitioner would be entitled to use the money to try and rescue the business or company. The retention monies will be subsumed with the rest of the money and can, effectively be lost.

Should business rescue proceedings fail, and the business rescue practitioner applies for the company to be placed in liquidation, the contractor or subcontractor is a concurrent creditor and not a secured or preferred creditor. This means that the contractor or the subcontractor is left to stand in line with all the other creditors for a share of the distributable assets.

As a result, a large proportion of retention monies are lost due to the holder of the retention being insolvent.

International move towards “No retention policy” or retention money trust account

There has been a move aimed at doing away with the negative effects of the holding of cash retention in the construction industry.

In 2011, a “No Retentions Policy” was launched in Scotland designed to help contractors resist cash retention policies.

In Australia, a trust account scheme for subcontractor’s retention money held by main contractors commenced on the 1st of May 2015 as a part of security of payment of the retention monies.

The purpose of the trust is to ensure that in the event that the party holding the retention is insolvent, those monies are not mixed with the other sums and can easily be identified and paid in terms of the contract.

South African context and conclusion

It is advisable for the parties to a construction contract to include a provision for a retention guarantee, in lieu of the cash retention. Alternatively, the parties can include a clause for a retention fund held by the Employer as security and providing for any interest on such fund to accrue to the Contractor upon completion of the work.

The protection in respect of the release of retention money is crucial to ensure and secure certainty of cashflow which is very crucial in the current state of the South African construction industry.

Author: Nombuso Shange, Associate.

Reciprocity and Construction Contracts

In the case of Lorraine Du Preez v Tornel Props (Pty) Ltd heard during 2014 in the Supreme Court of Appeal, the court was called upon to consider if the Defendant (Respondent in the application) was justified to withhold its performance under the contract and thereafter cancel the contract with the Plaintiff.

The facts in this case are that the Defendant appointed the Plaintiff to complete construction works, subsequent to the liquidation of the previous contractor initially appointed to execute these works. The facts leading up the liquidation of the first contractor are not material and will not be discussed in this case note.

In terms of the Plaintiff’s appointment, the relationship was governed by a partly written and partly oral contract. The written portion of the contract included the building contract and annexures originally entered into. The building contract included a provision providing that payments would be made according to a schedule of progress payments until the works were completed. During the currency of the contract the Plaintiff issued an invoice for a progress payment. Despite the term of the contract regarding progress payments, the Defendant’s attorneys disputed that payment was due. On the contrary the Defendant alleged that payment for works was only due on completion. In addition, the Plaintiff was prohibited from suspending the works for reason of non-payment. Notwithstanding the Plaintiff’s correspondence, the Plaintiff suspend the works. In reply the Defendant alleged, and accepted, the repudiation of the contract by the Plaintiff. The present application was instituted by the Defendant against the order of the court a quo’s decision that the Defendant’s failure to pay, amounted to a repudiation, as the Defendant had a reciprocal duty to make payment under the contract. Although the court upheld the application in part, regarding the issue of a repudiation by the Defendant for not paying, and the Plaintiff withholding its performance as result thereof, the court found against the Defendant.

Several construction disputes turn on the failure of a party – employer or contractor – to pay a party for works completed. Such disputes are always dealt with in terms of the contractual provisions for non-payment. Unfortunately, not all standard form contracts provide for a withholding of performance due to non-payment, and where such do, the drafters usually elect to delete or amend such provisions to curtail the innocent party’s right to withhold performance. Similarly, it is a trite that construction contracts are examples of reciprocal contracts where one party is expected to fulfill his obligations (i.e. execute the work) with the other party reciprocating and fulfill its obligations (i.e. by making payment).

The South African common law recognises the principle of ‘exceptio non adimpleti contractus’ also described as the situation where a party enforcing his contractual right has not himself performed, there is a valid ground for the opposing party to withhold his performance. As such, and unless the contract specifically stipulates otherwise, common law remedies are available to a party and apply as consequence of our law. Accordingly, the common law principle of ‘exceptio non adimpleti contractus’ is applicable to all reciprocal contracts. To change the operation of the common law principle the contract would have to expressly state this. In the present case, the court confirmed the principle of withholding performance, by accepting that the Plaintiff’s termination of the contract pursuant to it accepting the repudiation, was valid. The court stated that the Defendant’s decision to treat the withholding of performance by the Plaintiff as an act of repudiation was unjustified. The Plaintiff was entitled to rely on the failure to make payment to suspend or cancel the contract. Although the contract expressly provided for progress payments, it did not include as an alternative the remedy of suspending the works (or withholding performance).

The NEC contract is an example of a contract which does not expressly provides for the withholding of performance due to non-payment. Under this contract, if the above legal position/principle is to apply, unless the contract expressly changes the common law principle, the common law remedy to withhold performance remains available to an innocent party. To determine if the common law has been changed, it must be expressly stated or, it may be determined on the reading of the contract (i.e. the requirement to give a prescribed period of notice to terminate whereas the common law requires a ‘reasonable’ period). It is common for employers and contractors alike to argue that the contract does not provide for a withholding of performance. Although correct, as the contract does not state this expressly, it appears that the innocent party may still have recourse in terms of the common law.

Our courts are bound by the provisions of the contract and must not be seen to step into the contractual matrix and change the contract, unless it would be unreasonable to do so. In this case, the court does not deal with question of the general application of the common law remedies in construction contracts but rather shows in part that the common law remedy of withholding performance is well established in our legal system and it is for employers and contractor to enforce this principle, where it is clear that there are reciprocal obligations. Anything to the contrary could constitute an act of repudiation.

Author. Tsele Moloi, Associate

Employer and Project Manager One and the Same – a Breach of Contract

A project manager’s independence is often a sensitive subject for contractors and even more so where an employer appoints a project manager from within its organization (including from either its subsidiaries or its parent company).

In the case of Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd[1] the Technology and Construction Court of England and Wales provides some guidance on the legitimacy of doing so.

Imperial Chemical Industries LTD (“ICI”) and Merit Merrell Technology Ltd (“MMT”) entered into a NEC3 Engineering and Construction Contract for works associated with the construction of a new paint manufacturing facility for ICI. The independent Project Manager appointed under the contract was Projen, who subsequently resigned. Thereafter, ICI appointed Mr Boerboom, an employee of its parent company AkzoNobel, as Project Manager. Mr Boerboom came into the project towards the end of its completion with the obvious task of reducing the cost.[2] Mr Boerboom chose to achieve this outcome by revisiting almost everything that MMT had done and paying no attention to the contract and legal rights of MMT.[3] At about the same time Mr Boerboom was appointed, ICI simply stopped paying MMT.[4] It became clear that Mr Boerboom had made the decision that no more payments would be made to MMT and the reasons to justify this were then searched for.[5] MMT challenged the validity of the replacement Project Manager.

NEC3 makes provision for a third-party entity to act as Project Manager. One of the duties of the Project Manager is to act as decision-maker on matters where the contractor and the employer have opposing interests.[6]

In determining the validity of the replacement Project Manager, Justice Fraser considered the cases of Balfour Beatty Civil Engineering Ltd. v. Docklands Light Railway Ltd[7] and Scheldebouw BV v St. James Homes (Grosvenor Dock) Ltd.[8]

It is extremely unusual and rare for the employer under any construction contract to also be the decision-maker. In the Balfour Beatty case, the contract contained an express term that the employer should be the certifier. The Court of Appeal clearly had misgivings about the contract but gave effect to its express terms.

Relying on the Scheldebouw case, Justice Fraser held, “It is contrary to the whole way in which the contractual mechanism is structured, and intended to work, to have the employer seek to appoint itself (or one of its employees, or an employee of its parent) as the decision maker…the whole structure of the contract is built upon the premise that the employer and the decision maker are separate entities and endless anomalies arise if the employer and the decision maker become one and the same….Such a situation is so unusual that an express term is required.”[9]

Justice Fraser held further that although Mr Boerboom was formally employed by AkzoNobel and not ICI, AkzoNobel is the parent company of ICI and thus he was the very opposite of independent.[10]

Justice Fraser concluded that no proper appointment was made of a replacement Project Manager and that the purported appointment of Mr Boerboom as the replacement was a breach of contract.[11]

The matter between ICI and MMT is very specific in that the Project Manager started off independent at the time of entering into the contract and towards completion of the works, ICI purported to replace the independent Project Manager with one of its own. The more familiar situation faced by contractors in South Africa is where the contractor is aware from the outset that the Project Manager is employed by the employer or one of its associated entities. The Scheldebouw case indicates that where the Project Manager is a direct employee of the employer and this circumstance was known to the contractor at the outset and the contractor went into such contract with “his eyes open”, the contractor cannot then challenge the independence of the Project Manager on the basis that he/she is an employee of the employer.[12]

  1. [2017] EWHC 1763 (TCC) (12 July 2017).
  2. Para 41.
  3. Para 41.
  4. Para 110.
  5. Para 113.
  6. Para 128.
  7. [1996] 78 B.L.R. 42.
  8. [2006] EWHC 89 (TCC) (16 January 2006).
  9. Para 134-135.
  10. Para 135.
  11. Para 139.
  12. Para 45.

Author: Kelly Stannard, Associate

Mind the Safety

Majority of construction disputes revolve around issues of payment, but every now and then, you deal with a dispute which is the result of a project site health or safety related issue. Safety on project sites and in particular the lack thereof, can cause a project to come to a complete halt, and not to mention the costs implications it might have on both the employer and or the contractor.

Over the years I noticed that on projects, and especially projects that have continued beyond its envisaged completion date or long duration projects, people tend to neglect or fail to comply with site-specific health and safety requirements. Which is usually different from when the project commenced, when everyone was fully aware of their respective obligations and complied therewith faithfully.

In light thereof, I intend to deal with and want to give a brief overview of what should be taken into account when considering your duties and obligations related to occupational health and safety.

The Occupational Health and Safety Act and general safety regulations (“OH&S Act”) provides the perfect guideline, which further sets out the rights and duties of the respective contracting parties to a construction contract.

It inter alia provides that employees (which includes persons appointed and or employed by either the employer or the contractor) should be aware of the possible hazards it is likely to encounter on the project site, they should be trained on how to identify hazards and how to protect themselves or others against it. This should remain the case for any and every new employee appointed prior, after and during project duration.

To create the best awareness, it is important that all relevant parties participate in occupational health and safety decision-making.

What can be done to achieve project completion free from the possible risk of encountering a health or safety related accident?

The OH&S Act inter alia provides that (but not limited hereto):

  • periodic health and safety audits and document verification be conducted at intervals mutually agreed between the employer and the contractor, at least ones every 30 days;
  • a safe workplace must be provided (in the event this is not the case, any party or its employees should voice his/her concerns and refuse dangerous work);
  • policy statements regarding accident prevention can be created; and
  • medical and first aid systems must be provided.

An employer or its appointed site representatives must stop any contractor from executing a construction activity which poses a threat to the health and safety of others, especially if the contractor’s conduct and activity fails to comply with the employer’s health and safety specifications issued for the project and further the contractor’s own health and safety plan it had submitted for the project.

Sufficient health and safety information and the appropriate resources should be available to execute and achieve completion to a project, in a safe, accident free manner as expected.

The OH&S Act further provides that no contractor may allow or permit any employee or person to enter any site unless that employee or person has undergone a health and safety induction training pertaining to the hazards prevalent on the site. This requirement extents to any visitors to the construction site as well. The contractor must ensure that a visitor has the necessary personal protective equipment (PPE), where its required.

A competent person, who’s duty it is to ensure that all occupational health and safety requirements are complied with on site, must be appointed full-time. If the size of the project spreads over various sections, more than one such person or assistant must be appointed to ensure safety on site.

Considering the above, I hereby conclude that health and safety requirements on projects, should not be taken lightly. All relevant parties must endeavour to maintain thorough and faithful compliance of site-specific health and safety requirements, and to do so in the same manner it was likely faithfully complied with at the commencement of the project. Any neglect, laziness or failure, could unfold in a serious accident, which can result in a large disadvantage for the project, and further cause a negative impact on costs and time.

Author: Barry Herholdt

 

Walking the Legal Tight Rope in Arbitration Proceedings

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]

  1. CONCLUSION

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)

Mind Your Step

 

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.

Concurrent Delays under the Gcc 2010

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

Nec4 on Corrupt Acts and the Cidb Code of Conduct

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:

http://www.cidb.org.za/publications/Documents/Code%20of%20Conduct.pdf

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 4.4.7.1
  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 3.1.5.4, 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

“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.

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.

Favourable business ethics & pushing up your construction company's CIDB grading

Last year, I am sure as most will agree, various companies, in particular within the construction industry (as well as other institutions / organisations) felt the sting of a tough economical period. However, as the fight goes on, it made me think about an old song by Judy Collins called the “Liverpool Lullaby”, with a lyrical line that states “Although we have no silver spoon, Better days are coming soon”.

With that in mind, we remain hopeful and positive that this year will make a turn for the better. With economic rehabilitation and growth, will come new opportunities, new developments etc. This will then hopefully open the doors wide again for existing construction companies, big or small and even new players to the game to get on the tender playing field. Therefore, with this article I felt it necessary to remind current players and for those who are unfamiliar, what is expected ethically wise and what can be done to grow your CIDB grading.

As you would know, and as stressed and promoted by inter alia the Constructio Industry Development Board (CIDB), it remains crucial that all players in the construction industry should strive in upholding high standards of ethics in all business dealings, especially at the start, when participating from tendering stage.

On the CIDB’s website, a “Code of Conduct” is provided for all parties engaged in construction procurement and I invite all to familiarise yourselves with this Code of Conduct, to view click here:

Further, what I think a lot have wondered about or have asked in the past (especially for the smaller or new construction companies coming into the game), what can be done to grow that CIDB grading and gunning for the giants (i.e. your bigger budget projects etc.)?

Your CIDB grading gets determined by some factors, such as your companies’ works capability and further your financial capabilities. To be able to get financially stronger and to better works capability, participate and keep tendering for projects at your specific qualified level, then work it up from there, increasing works capability and by doing so, getting paid by satisfied clients (hopefully the ones that do pay) to grow financially.

If you are small, attempt to build subcontractor relationships with other higher grading contractors or seek for possible Joint Venture opportunities. Trust and good relations is important in this regard. In light of the above, continue and endeavour to do business in good faith, upholding good business ethics and by doing so, building strong trusting relationships with others in the industry in order to grow yourself into one of the big players.

Author: Barry Herholdt, Associate

Favourable business ethics & pushing up your construction company's CIDB grading

Last year, I am sure as most will agree, various companies, in particular within theconstruction industry (as well as other institutions / organisations) felt the sting of a tough economical period. However, as the fight goes on, it made me think about an old song by Judy Collins called the “Liverpool Lullaby”, with a lyrical line that states “Although we have no silver spoon, Better days are coming soon”.

With that in mind, we remain hopeful and positive that this year will make a turn for the better. With economic rehabilitation and growth, will come new opportunities, new developments etc. This will then hopefully open the doors wide again for existing construction companies, big or small and even new players to the game to get on the tender playing field. Therefore, with this article I felt it necessary to remind current players and for those who are unfamiliar, what is expected ethically wise and what can be done to grow your CIDB grading.

As you would know, and as stressed and promoted by inter alia the Constructio Industry Development Board (CIDB), it remains crucial that all players in the construction industry should strive in upholding high standards of ethics in all business dealings, especially at the start, when participating from tendering stage.

On the CIDB’s website, a “Code of Conduct” is provided for all parties engaged in construction procurement and I invite all to familiarise yourselves with this Code of Conduct, see link below: http://www.cidb.org.za/publications/Documents/Code%20of%20Conduct.pdf

Further, what I think a lot have wondered about or have asked in the past (especially for the smaller or new construction companies coming into the game), what can be done to grow that CIDB grading and gunning for the giants (i.e. your bigger budget projects etc.)?

Your CIDB grading gets determined by some factors, such as your companies’ works capability and further your financial capabilities. To be able to get financially stronger and to better works capability, participate and keep tendering for projects at your specific qualified level, then work it up from there, increasing works capability and by doing so, getting paid by satisfied clients (hopefully the ones that do pay) to grow financially.

If you are small, attempt to build subcontractor relationships with other higher grading contractors or seek for possible Joint Venture opportunities. Trust and good relations is important in this regard. In light of the above, continue and endeavour to do business in good faith, upholding good business ethics and by doing so, building strong trusting relationships with others in the industry in order to grow yourself into one of the big players.

Author: Barry Herholdt, Associate

Standing adjudication and replacement of members

The GCC 2010 Adjudication Board Rules (the Rules) define standing adjudication as a flexible procedure available to the parties, from the outset of the contract, for its full duration.  The intention is to have the adjudication board members (the members) on hand for the duration of the contract, to assist the parties in reducing conflict.

The parties are required, at the outset of the contract to jointly select one or three persons from the SAICE panel of standing adjudication members.  Failing selection by the parties, the president of SAICE, on application of either of the parties, will nominate the required person/s.

These persons are required to provide disclosure statements to the parties.  Once both parties are satisfied with these disclosure statements, the member/s are appointed by entering into the Adjudication Board Agreement (the Agreement) with the parties.

If a three-member adjudication board is required, the parties will jointly pick the chairman.  Failing agreement by the parties, the members will select their chairman, amongst themselves.

Clause 4 of the Agreement permits the parties to jointly terminate it.  This must be done individually with respect to each member.

But what happens if only one of the parties lose confidence in a member or members?  This is not specifically catered for in either the Rules or the Agreement.

The only guidance provided by the Rules is that in Rule 3.7, which states:
“If an Adjudication Board Member for any reason cannot or ought not to continue as Adjudication Board Member, the new Adjudication Board Member shall be appointed in the same manner as the Adjudication Board Member who is being replaced.” [Emphasis added]

While this explains the procedure to be followed in appointing new members, it does not establish the criteria for when a member “ought not to continue” as such.

The answer to this may be found, it is suggested, in Rule 6.3, which requires the adjudication board to conduct its proceedings in accordance with:
  1. The contract and the Rules;
  2. The principles of fairness and impartiality;
  3. Consideration for the wishes of the parties; and
  4. The rules of natural justice.

Rule 6.4.11 of the Rules authorised the members to settle any dispute regarding the Agreement and decide on their own jurisdiction.

While a loss of confidence in one or more of the members, should in and of itself lead such members to seriously consider whether they “ought” to continue acting or not, this could be countered by the knowledge that such allegations may be used by intractable parties to delay proceedings.  Should a party, however, be able to make a sufficiently strong case for the members’ failure to comply with the requirements of Rule 6.3, this may be more likely to sway the members in question.

Should they, despite being furnished with such argument, refuse to recuse themselves, it will support an objecting party’s case for damages for any future infractions, on the basis that the members were acting in bad faith, as per Rule 10.1.

Author: Michelle Kerr, Senior Associate

Real time technology provides an alternative method of managing risks on construction projects

In an industry where new projects are limited and profits margins are severally depressed, it is important for the industry to consider innovative ways to weather the storm.

The ability of a project team to identify and manage issues, without delay as work progresses, is increasingly becoming important to reduce the, actual and time related, costs incurred to remedy defective work, address issues, and to ensure work is completed timeously.

The traditional approach of identifying and remedying defective work or issues is a delayed process. It is has also become inefficient in an environment where the loss of time has consequences for both the employer and the contractor. The risks can be managed more effectively if issues can be identified and communicated accordingly, and in real time. In other words, reducing the passage of time between identifying the issue and addressing it.

Real time technology provides an alternative method of managing risks on construction projects. An article recently published on the Engineering News website, reviews the uses of google glasses and drones to do this.

Procore and drones are real-time software application, and hardware, respectively, being used by professional teams to identify issues on construction sites, assessing the issues against the scope of work and communicating deficiencies to the contractor promptly to be remedied. The benefits are to lessen the time wasted identifying, communication, and addressing, the issues.

The result is an efficient means of managing the risks of costs overruns and avoidance of failing to complete the work within the construction period due to time taken to remedy issues.

To view the full article, click here.

Author: Tsele Moloi, Associate

Adjudicator decisions when deciding on disputes (referred or not referred) made in error and the subsequent enforcement thereof by courts

The Society of Construction law recently released an article by Mr. Daryl Royce, titled “Errors in Adjudicator’s Decisions: Right Questions, Wrong Answer”, which I thought is an interesting piece to share.

Briefly, the article turned around a dispute where the subcontractor claimed certain monies from the main contractor and the adjudicator deciding the dispute, decided in favour of the subcontractor by deciding that a certain amount is to be paid to the subcontractor. The issue turned around the calculation of the amount. At the time of the dispute, the works had not been completed, but the adjudicator in his decision dealing with the amount due to be paid to the subcontractor by the main contractor, deducted sums paid that “excluded retention from a gross sum that included retention”. What is the issue? Well seeing that the works had not been completed at time of dispute, no retention could have been due to the subcontractor.

The adjudicators decision had the effect that retention was released to the subcontractor. When the subcontractor then approached the court to enforce the adjudicators decision, various questions came into play, raised by the opposition, which were dealing inter alia regarding circumstances when an adjudicator makes a decision on a point that was never referred for decision, meaning issue on jurisdiction and or, as was held by the Court of Appeal later when this matter was referred to it, the adjudicator had not exceeded its jurisdiction, but gave the wrong answer to the question referred to him. It deals further whether such decision can still be binding and be enforced.

This article canvasses over very interesting topics for discussion, inter alia various tests that has been applied over the years by courts hearing enforcement applications, advantages and or disadvantages on courts’ intervention to make a further ruling on adjudicator’s decisions and or correcting and adjudicator’s errors made in adjudication proceedings.

For the full article, Click here and follow the instructions (in particular for non-registered individuals).
Author: Barry Herholdt, Associate

Late Payment by Organs of State and State Owner Entitles – National Treasury coming to the assistance of the suppliers/contractors

As of 1 July 2016, National Treasury Instruction 5 of 201/17 came into effect. What this instruction does is come to the aid of any contractors or suppliers currently working for Organs of State (Government Departments) and Public Owned Entities (the likes of Eskom and Transnet). The Instruction is issued to all Accounting Officers of Departments and Constitutional Institutions, Accounting Authorities of Public Entities and Head officials of Provincial Treasuries and deals specifically with payments due to suppliers / creditors exceeding 30 days after submission of a valid invoice.

The instruction states that it aims to resolve non-payment to those suppliers exceeding 30 days and informs that a dedicated call centre is being established to assist affected suppliers in resolving non-payments.

Once a complaint is lodged with the call centre, the Accounting Officer/ Authority will be notified and required to settle payment within 5 days from receipt of the complaint if there is no dispute.

The Accounting Officer/ Authority must report to National Treasury within 5 working days of being so notified on the resolution of the outcome, in case of a dispute this reporting requirement remains and the reasons for non-resolution must be stated.

National Treasury will investigate any dispute and provide recommendations, should the National Treasury decide that payment is in fact due, the Accounting Officer / Authority has 5 working days within which to implement this decision, if it does not do so the National Treasury may invoke the provisions of S216(2) of the Constitution which allows the Treasury to enforce compliance. Further to all the above, the instruction allows National Treasury to release publicly every month all details of outstanding creditors per Department and Entity.

Once the call centre is in place, it will most certainly be of assistance to contractors and suppliers who are suffering hardships due to late or non-payment where there is no dispute regarding such payment.

To view the full instruction, click here.

Author: Taryn van Deventer, Senior Associate

When is a dispute a dispute?

It is inevitable, considering the many features of a construction project, and the expensive risks associated therewith, that disagreements will arise between contractors, employers and their agents. The way these disagreements are managed will determine how easily they may be overcome. More and more often, parties are turning to adjudication for this.

In order for an adjudicator to have jurisdiction, however, a dispute must actually exist between the parties. Determining whether a dispute is, in fact, a dispute which is ripe for adjudication is more complex than it first appears.

It is typical that in construction projects parties will raise issues which will be discussed at length, usually over a protracted period of time. The question is, when do these issues crystallise into disputes which are capable of being referred to adjudication.

A number of construction contracts provide for the issuing of a notice of dispute which signifies that at least one of the parties to the contract believes that a dispute has come into existence. The issuing of such notice does not, however, automatically mean that a dispute exists and further interrogation may be required.

Where the term “dispute” is not defined, regard must be had to the common law. The definition of a dispute has been thoroughly considered in the United Kingdom and the applicable case law is of persuasive value.

In the English case of Halki Shipping Corp v Sopex Oils [1998] 1 W.L.R. 726 it was held that a “dispute” means any claim of which the opposing party has been notified, which that party has refused to admit or pay.

In the English case of AMEC Civil Engineering Limited v Secretary of State for Transport [2005] B.L.R. 227, [2005] 1 W.L.R. 2339 the Court of Appeal approved the following seven propositions:

  • The word dispute should be given its normal meaning;
  • Judicial decisions on particular situations where the word “dispute” was in dispute, produce helpful guidance;
  • The mere fact that one party notifies the other of a claim does not automatically give rise to a dispute. A dispute will only arise if the claim is not admitted;
  • The circumstances under which a claim is not admitted are numerous and variable;
  • The period of time for which a party may remain silent before a dispute is to be inferred depends upon the facts of the case and the contractual structure;
  • If a deadline is imposed by a party for responding to a claim, that deadline, although a relevant consideration, does not automatically curtail what would otherwise be a reasonable time for responding; and
  • If the claim is so vague that it cannot be reasonably responded to, neither silence by the other party nor an express non-admission is likely to give rise to a dispute for the purposes of adjudication.

Author: Michelle Kerr, Senior Associate

Appointment of an adjudicator under the GCC 2010 

So you’ve submitted your claim in terms of Clause 10 of the GCC 2010 but the Engineer comes back to you, in terms of Clause 10.1.5, rejecting your claim.  What now?

Provided that you are sufficiently confident in the merits of your claim, you may wish to skip over the amicable settlement provisions contained in Clause 10.4 and proceed directly to the next step.  This is adjudication, however, navigation of the provisions taking a party from the Engineer’s ruling to the appointment of an adjudicator may be confusing for the lay person.

First and foremost, you are required to submit a notice in terms of Clause 10.3 disputing the Engineer’s ruling within 28 days thereof.  This is important as a time bar attaches to this notice and if it is not submitted timeously, you will lose your right to claim.

Secondly, you need to consider whether the contract provides for standing or ad-hoc adjudication.  This is dealt with in Clause 10.5, read with the contract data.  The contract data will specify whether one or three adjudicators are required.

From there, reference needs to be made to the Adjudication Board Rules contained at the back of the GCC 2010, read with Clause 10.9.

If the contract provides for standing adjudication, the parties should have selected one or three persons to act as adjudicator/s at the outset of the contract, from the SAICE panel of standing adjudication members.  If the parties do not make a selection within seven days of either party delivering a request in writing for such a selection, either party may apply to the President of SAICE or his nominee to make a nomination.  A referral may then be made to the adjudicator.

If the contract provides for ad hoc adjudication, the Adjudication Board Rules require a few extra steps before such a referral can be made. In terms of Rule 4.1 a notice of adjudication must be delivered within 28 days of the event giving rise to the adjudication.

It is often debated whether this event is the Engineer’s ruling or the delivery of the notice of dispute.  For this reason, it is advisable to ensure it is delivered within 28 days of the Engineer’s rulings.  This is important as this notice is separate and distinct from the dispute notice and is subject to its own time bar clause.

Included in this notice must be the names and fees of three or more potential adjudicator selected from the SAICE panel of ad hoc adjudicators, who have confirmed their availability to act.  The other party is required to select one or three of these adjudicators within seven days of receipt of the adjudication notice.

If they do not, either party may apply to the President of SAICE or his nominee for this nomination.  Once the nomination has been made and the Adjudication Board Member Agreement/s concluded, the dispute may be referred.

Author: Michelle Kerr, Senior Associate

Considering environmental risk

Before construction commences and during the construction process, there is a plethora of environmental and heritage laws, regulations and processes in South Africa that must be complied with. The question of who bears the risk for compliance with environmental regulations and processes is often dictated by the type of contract utilised.

In FIDIC contracts, for example, it is the employer’s responsibility to ensure that all planning, zoning or similar permissions for the works are in place prior to commencement unless otherwise specified. The contractor is obliged to comply with all laws and regulations.

The GCC2010 has a similar risk allocation: the employer is responsible for planning approvals in respect of the permanent works, but the contractor is responsible for all consents, permits or approvals arising from any legislation, ordinance, Regulation or By-Law.

In the JBCC, the allocation is not borne out of the standard form, which means that the parties must allocate the risk. The only requirement that is required by the standard form is that both parties comply with all laws, regulations and bylaws of local and other authorities.

The unique complexities of each project will dictate how the specific risks are allocated. Using an example of a biogas production plant construction contract, the contractor is probably best placed to ensure that all emission regulations are complied with, while the employer would likely make application for any zoning or planning approvals as owner of the new plant and land on which it is situated.

Aside from the obvious requirement to comply with regulations, both contractors and employers have a moral and ethical duty to protect our environment and heritage. Pay careful attention to which party between the contracting parties is responsible for ensuring compliance with both environmental and heritage laws.

Author: Taryn van Deventer, Senior Associate

Construction dispute resolution procedures should be properly regulated

James Pickavance, a Partner in litigation at Eversheds LLP – Solicitors in London, recently published an interesting article, titled “THE REGULATION OF MISCONDUCT IN ADJUDICATION AND ARBITRATION”.

This article confirmed that arbitration is still the dominant method for resolving large scale disputes in the construction industry all over the world, however the use and provision of adjudication as the first tier dispute resolution procedure, stipulated in almost all new published standard form construction contracts, has brought some growth in popularity for adjudication.

The article further shines light on the importance of a well regulated arbitration or adjudication procedure. Whether you are pursuing to resolve your disputes by either adjudication or arbitration or by any other means, it is important and advisable to seek the necessary assistance, advice and expertise from someone who knows the process and who has knowledge and practical experience with regards to the various standard form construction contracts. Any dispute procedure should be properly regulated and this should be confirmed and brought to everyone’s attention well before any dispute proceedings commence. Thus, before you commence, all parties concerned should consult and agree as to the procedure, the rules and the rights and obligations of each party to the dispute. These rules and procedures can be recorded in an agreement (whether its an Adjudication Agreement and/or an Arbitration Agreement), for all parties to agree and sign. In most cases, only after such agreement is agreed to and signed by all parties, the dispute resolution process will take effect.

By having such agreement in place, which provides each parties’ rights and obligations and further sets out the procedural rules, it will be easy to regulate the dispute process and you will be aware of the steps to take in the event there is any misconduct or failure by a party to comply with the agreement. This will include any party to the proceedings, either the contractor, the employer or the Adjudicator and the Arbitrator in event proceedings are not conducted as prescribed.

See link below for full article:

https://www.scl.org.uk/papers/regulation-misconduct-adjudication-arbitration

Author: Barry Herholdt, Senior Associate

Difference between ‘float’ and ‘time risk allowance’ under the NEC3

The NEC3 deals with the programme under clause 31 and states clearly what the contractor is expected to show on a programme which he submits for acceptance. Under clause 31.2 of the standard NEC3 contract, the terms “float” and “time risk allowance” are stipulated and we will be looking at the meaning and difference between these two terms.

Scholars on the NEC3 explains that “time risk allowance” (also known as “free float”) are for periods (events) which are for the contractor’s risk and which further have a great chance of occurring. Free float is thus owned by the contractor and cannot be used by the employer to mitigate the effect of a compensation event.

On the other hand, “float” records a period additional to what is required within the ordinary programme. Under usual conditions, it will record additional time on a programme to accommodate an impact of a compensation event in order to reduce planned completion and or to avoid delays thereto. This “float” is available for the project so the speak, and either the employer or the contractor, can use it in an endeavor to mitigate a delay caused by a compensation event and or other event having a negative influence on the programme.

Author: Barry Herholdt, Senior Associate

Who should bear the risk of community unrest and strikes?

At MDA Consulting we work on site and provide onsite commercial support so we often see strikes, community unrest, service delivery protests, taxi protests and other uniquely South African events first hand, which, in most circumstances, disrupt and delay the works.

These events often occur when:

  • the project is situated in a rural or excluded area where there is high unemployment, or
  • if more than one contractor is involved or
  • if the employer is a state owned company.

In these circumstances, all participants to a project lose money or are prejudiced in some way.

In most circumstances the standard form construction contracts make provision for such events under the definition of force majeure or prevention.

In this instance, the contractor will be entitled to submit a claim for an extension of time but not necessarily for payment of additional costs associated with the delay. Based on this, it is clear from the standard form contracts that the contractor may not be adequately compensated for all money lost.

As an example and with particular reference to FIDIC, clause 19 entitles the contractor to claim an extension of time and payment of additional cost – this does not include profit nor make provision for or take into account the disruption of works and decrease in productivity, which is likely to occur.

As the FIDIC is an international standard form contract used for international projects, it could be said that the principle of force majeure and more particularly the model of compensation in an international context is fair. However, within a South African context, the contractor is affected by force majeure events, which are unique to South Africa and over which the contractor has no control.

Based on this, the question remains whether the principle of force majeure and more particularly the model of compensation in a South African context is balanced? This is a concern in the South African construction industry.

At tender stage all parties need to consider the definition of force majeure and all potential risks. These should be dealt with upfront by deciding whose risk the event should be and to include the necessary particular conditions.

Author: Odette Potgieter, senior associate

The consequences of omitting work so as to pass it to another contractor

It is an unfortunate fact that relationships between employers and contractors occasionally deteriorate, often over issues which would have been unimaginable at tender stage.

One of the consequences of this is that the employer may be tempted to invoke the provisions of the contract, permitting omission of work, and remove items from the contractor’s scope of work.   The intention being to hasten the finalisation of the relationship between the employer and the contractor in question, and permit the employer to pass these items to another contractor (with less baggage) for completion.

It must be born in mind, however, that, in terms of the common law [See Hydro Holdings (EDMS) BPK v Minister of Public Works and Another 1977 (2) SA 778 (T); Van Streepen & Germs (Pty) Ltd v Transvaal Provincial Administration 1987 (4) SA 569 (A)], unless these provisions of the contract expressly and unambiguously permit an omission for the purposes of passing on work to another contractor,  an omission must be a ‘genuine’ one i.e. it may not be for the purpose of handing the work to another contractor.

As pointed out in the 10th Edition of Hudsons’ Building and Engineering Contracts, under normal circumstances, a contractor is entitled to perform all of the contract work and, if the employer prevents the contractor from so doing, the contractor will have a remedy.  In this case the remedy would be damages, such as the loss of profit suffered as a result of the omission.

Author: Michelle Kerr, senior associate

Winning at communication under a construction contract

Communication plays a very important part during any engineering and construction project. You need to understand the provisions under the contract and what this requires you to do.

A standard form construction contract provides for the form of communication as well as the delivery or the submission of these communications.

An example: Your contract might require that a notice may be given by fax or hand delivery only. If you then proceed and give a notice of your intention to claim by email, you run the risk that the opposition may say that you did not notify your claim in the proper form required and that your claim will not be entertained until the proper procedure is followed. In this case, a further risk might be that you are then too late to notify your claim as the period of notification expired. Always make sure that you notify timeously and with sufficient detail.

It is important that the parties to a contract, understand where and how any form of communication should be delivered with specific reference to the address and the office hours etc. If your address changes during the course of the project, you need to inform the other party.

Contractors can encounter various obstructions or issues on site and it is to your benefit to have a record when these occur – especially where it might cause a delay, loss or damage to the works or prevent you from doing your work. It is important to record it in some form of communication. You can never go wrong by building a paper trail of records throughout the project.

Communicate and inform the other party and provide proper details and clarifications as needed. This will then make it easier to communicate or negotiate a way forward. Include in your notice to claim for example, the time you have lost and the costs that resulted.

Follow the procedure and periods required, refer to the correct clauses of the contract and be thorough when providing your details. This will then reduce misunderstanding or confusion between the parties.

Author: Barry Herholdt, associate

GCC 2010 Master Class and Introduction to the GCC 2015 3rd edition

Johannesburg
2-3 March 2016

The course focuses on a comparison between the GCC 2010 and GCC 2015, and the significance of these changes.

For more information click here.

The readiness of the South African infrastructure delivery sector to respond to the SIPs

The answer to this question is that industry is in bad shape. Most of the contracting major players have been over exposed to the Eskom contracts and this has placed tremendous pressure on their financial resources. These projects are a model for how not to set up and run construction contracts.

It is also true to say that the players to the industry are polarized and dysfunctional. The polarization is also the product of the traditional apartheid era industry structure.

Contracts in South Africa are traditionally administered on the basis of an adversarial model. The polarization, dysfunctionality and distrust that has been the product of such events as the Competitions Board Enquiry findings of collusive tendering and a misunderstanding of the Employer body’s insistence on the promotion of the BEE agenda has exacerbated this situation.

Many of these issues have been addressed by Manglin Pillay (the CEO of the SAICE) in his Civilution initiative where he advocates the bringing together of engineers from all sectors with each other and with government to actively try and understand what this new dispensation is all about and to seek solutions via dialogue.

The perception is that many employer bodies make their decisions for political rather than contractual and sound commercial reasons. One of the results of this approach has been interference by the employer on certain contracts in the employment conditions and remuneration levels of the work force. Whether this is for altruistic reasons or to enhance the political standing of the employer body is questionable. The result is the same,

the Contractors management have been emasculated and their ability to discipline labor and to achieve acceptable levels of productivity has undermined.

There can be no doubt in anyone’s minds that the labour/ contractor relationship is equally dysfunctional to that of the Contractors and Employers.

Jonathan Jansen, the Rector and Vice Chancellor of the University of the Orange Free State has observed that since Marikana, there has been a change in attitude from the Black work force. Where previously the perception was that to get ahead you needed education and training, the governments’ inability to deliver an acceptable level of education has now resulted in the work force deciding that to get ahead one needs to act collectively. Hence the emergence of more militant unions whose strategy is to strike and picket at the same time as they negotiate.

Most modern and in particular long duration Contracts are governed by some means (usually a formula) by which the price is escalated to compensate the Contractor for price increases experienced as a result of inflation. These formulae are dependent on the publication of indices by the Department of Statistics. The indices are calculated using the changes in price on a month by month of a basket of commodities. Obviously the performance of the indices is dependent on which commodities you choose for the basket of commodities.

The main driver for inflation in South Africa as in the rest of the world is the cost of fuel. This is price controlled in South Africa by the government and is not included as one of the commodities used for the basket on which the indices used in the formula are based.

The movement of the formula over the past three or so years must lead an objective observer to conclude that the basket of commodities does not include commodities that are sensitive to variations in the cost of fuel. Announcements from the Reserve Bank that inflation of our economy is operating within the target range of between 5.5 of 7 percent would also reinforce this impression.

There are two obvious consequences to this scenario. The first is that contractors are likely to lose money on the recovery of escalation. Secondly, their ability to pay salary and wage increases commensurate with the actual rate of inflation but in excess of the escalation recovery will be compromised.

From the labor movements perspective, the consequences of what can only be described as a misrepresentation by the government of the true inflation position (for whatever reason) is that what ever they ask for by way of wage increases will look like they are being unreasonable and greedy.

The project labor agreements implemented by the various employer bodies make no reference to productivity. The reality of our industry is that productivity is poor to non existent.

The combination of what appear (by reference to under reported inflation statistics) to be excessive wage demands and declining productivity is a sure road to ruin.

This situation cannot be resolved under the prevailing circumstances described above of a polarized and dysfunctional employer, contractor and labour relationships.

In this observers opinion, the thinking and momentum created by the Civilution initiative must be broadened. The time for inspired leadership is here. Leaders from the Contractor Employer and labour representative bodies with credibility and integrity need to intervene. Communication must be opened up and understanding and trust created and established. Adversarial contracting strategies must be avoided. People must be taught to work collaboratively.

The consequences of sitting tight and doing nothing are too awful to contemplate. We will lose our construction industry. The Infra structural growth that we need to allow the economy to grow will not happen. Our economy will die. The tax base will disappear, gone will be the government grants and gone will be the gravy train!

Author: Ian Massey – director

The Need for consulting engineers to take the lead on infrastructure development in the country

It has to be observed that for a variety of reasons, consulting engineers are not providing the service that we normally and traditionally expect of them. This invariably results in unsatisfactory outcomes during the contract execution. This article will identify and discuss some of these issues.

Very often the employer bodies that appoint the consulting engineers do not have the skill to administer the contracts or the decision-making ability that is necessary and in these circumstances the consultants are filling the void and fulfilling the role of the employer. The employer then performs simply a rubber-stamping role. This means that the checks and balances so important in the symbiotic relationship between the employer and his consultant just doesn’t perform and the project inevitably is compromised. It also means that consultant’s time and energy is diverted from their core activity.

Alternatively, for control reasons, Employer bodies fail to allow their consulting team to fulfill the role required on them by the various contract forms. The Project Manager, Principal Agent or Engineer become “lame ducks” and this has a detrimental impact on the project out comes.

Probably the most deleterious development of recent years insofar as successful contract implementation is concerned, is the tendency for employer bodies to require that consultants work on a lump sum fee. The net result of which is that very often, too little is allowed to do a proper job and the engineering and administration of the contract suffers as a result.

Any one who has driven between Johannesburg and Durban in recent years will have witnessed the effect that contractor led toll operators have on road maintenance. What decides the maintenance work to be carried out is not sound engineering practice but what the budget will allow. Given that there are an inordinate number of abnormal trucks on our roads but the continual maintenance that one witnesses that is constantly being undertaken would indicate in this observers opinion at least that a proper job is not being done.

The effect of the recession in the construction industry since the mid 1980’s is that a lot of skills have been lost and many of the operators have been inadequately or inappropriately trained. Training during the few boom periods that have been experienced (like around the 2010 soccer world cup and the G-FIP contracts) appears to have resulted in some bad practices being adopted and being hard wired into the system. So skills and bad practices (like for example the adoption of adversarial contracting strategies) is also an impediment to successful project implementation. Lump sum professional fees also results in little or no professional development of the consultants staff.

This skills deficiency in respect of contractual practices appears to have been recognized by certain employer bodies and they have resorted to using legal practitioners to assist in drawing up contract agreements. This results either in bespoke contract conditions (as apposed to using one of the standard forms recommended by the CIDB) or special conditions of contract attached to a standard form contract which are intended to make the contract more onerous towards the contractor. This is a very unwise and damaging policy.

There is no doubt that the traditional way that we have run our contracts, allocating risks in an even handed fashion and empowering the consultant to fulfill the roll envisaged by the contract form and remunerating him adequately, is preferable to the current situation. The Employer bodies must come to the party and make the right decisions at the right time for the right reasons.
The starting point should be to recognize the skills deficiencies that we have and to implement a programme to over come these. Secondly to recognize practices that work. Adversarial contracts stacked heavily in the favour of the Employer are a short sighted and unsound contract implementation policy. They are a recipe for disaster. The consulting fraternity should recognize this and make sure that employer bodies are properly advised as to how best to carry out their contracts.

South African Contractors Risk Management Abilities, are they up to standard?

The Risk Management Process involves identifying potential risks and deciding which risks should be managed on the basis of the likelihood of their taking place and the magnitude of their potential effect. Thereafter, measuring the effect of the risk and whether it is having the impact that you thought it would and having a risk response that you can implement to mitigate the effect of the risk.

Most contracts in Southern Africa are managed generically. In other words we do the same things to mitigate our risks no matter what risks are actually going to prevail on a particular contract. So although we are doing things that will mitigate the risks that might occur we are not specifically aware of these risks unless they are particularly severe and have a major delay or cost impact. Any special risks that might affect that particular contract are not identified and they come about as a surprise to us. In these circumstances the risks manage us rather than the other way around.

The reason that this is so can be traced to deficiencies in the contract documents that we use. Apart from the NEC contract and a half hearted attempt to introduce an early warning requirement in clause 8.3 of the FIDIC 1999 Red Book, there are no specific risk management tools and requirements in these contracts. The intention, it must be presumed is that in compiling the programme for the work, that risks will be identified and a risk response devised.

So here lies the rub. As a general statement and in an environment where skills are in any case in short supply, our planning skills and procedures are chronically bad! We have a surfeit of schedulers but a shortage of planners. Schedulers are the guys that know how the programming software works but don’t have the on site experience to understand things like construction methods and rates of production. The intention is that the site team that will carry out the work should provide this information to the scheduler. Either this is not done (and the scheduler works in isolation) or it is done in such a way as the risk identification process is either not done at all or it is done superficially.

In an environment where our skills are paper thin this is a really bad thing. We need to empower the people that we appoint to manage and carry out our contracts and the best way to do this is to identify the risks that they will in all probability have to deal with and to give them the tools and the support to manage the risk once they manifest themselves. This can only be done if a risk workshop is convened and fully experienced people are involved in the process.

As a general observation risk management is practiced at tender stage and at the inception of a contract but the effort tends to peter out as the contract progresses.
The management of construction contracts is the management of risk, so it is fundamental to the well being of our projects and our industry going forward that we start to manage risk proactively.

What developers and contractors need to know about their rights when it comes to building outside South Africa

With the present economic growth and extensive opportunity in Africa, many developers, contractors and consultants are finding work north of the Limpopo. Contracting in another country other than the one where you are resident brings with it a host of potential issues from taxes and customs to the impact of local employment legislation. In this article Euan Massey takes a broader look at the various laws which impact on your rights when contracting in another African country.

Contracts, and the rights and obligations which flow from them are influenced by four potential areas of law. These are the law applicable to the contract (or governing law), the law of the courts which have jurisdiction over the contract, the mandatory law and the law of the arbitration agreement (if applicable). Considering these four potential areas it is quite possible to have a contract between a South African developer and Brazilian contractor for the construction of a new development in Mozambique where the applicable law is that of South Africa, it is agreed that the English courts have jurisdiction, the mandatory law is that of Mozambique and the law of the arbitration agreement is Swiss. This potential minefield introduces a myriad of rights and obligations and requires extensive consideration before diving headlong into a new contract.

The applicable law is the law which is applied to the interpretation of the contract and the rights and obligations contained therein. It is always advisable when contracting in another country, or with a party from another jurisdiction, to agree on an applicable law with which you are familiar. There is a tendency to automatically choose the law of South Africa when contracting in another country, or with a party from another jurisdiction, but often this is not acceptable to the other party. This leads to the option to either accept the other party’s proposed applicable law or to propose a “neutral” applicable law. Accepting a law with which you are unfamiliar can have disastrous consequences. For example choosing French law, or a derivative of French law (such as the law of Mauritius), as the applicable law may have unintended consequences for at least one the parties. The Napoleonic code introduces decennial liability into construction contracts which is effectively a 10-year warranty period over the works furnished by the contractor.

Outside of having knowledge of the applicable law, it is usually advisable to select the law of one of the common law countries (on the basis that these laws will share common characteristics as ours). Countries like Kenya, Botswana and Ghana will have legal systems and laws similar to ours. “Neutral” jurisdictions such as England also provide well-recognised laws and a familiar legal system.

The issue of jurisdiction is vitally important. A number of jurisdictions present logistical challenges and legal hurdles when it comes to enforcing your rights under a contract. Even though you might agree to arbitration, you may still require the assistance of the courts to enforce your rights. An excellent example of this is where the parties to a building contract agree to refer disputes, in the first instance, to adjudication. No country in Africa has introduced a statutory adjudication system which allows for adjudicator decisions to be enforced through the courts. Despite this, the South African courts have illustrated a robust willingness to enforce adjudicator decisions on the basis of the parties’ contractual agreement (see Stefanutti Stocks v S8 Property [2013] ZAGPJHC 249). There is no similar certainty that a court in another country will enforce adjudicator decisions on the same basis, particularly in civil jurisdictions such as Angola. Again if you are unable to agree to the jurisdiction of the South African courts then it is advisable to consider agreeing to submit to a “neutral” jurisdiction such as that of England and Wales.

The mandatory law is the law where the works are to be executed. No matter what you agree in your contract, you are unlikely to avoid the obligation to comply with mandatory law. The mandatory law includes the laws relating to employment, health and safety and the environment. With most African economies become more sophisticated it is imperative for the mandatory law to be understood before concluding the contract.

The law of the arbitration agreement is the law which is applied to the arbitration process. In South Africa this law would be the Arbitration Act 42 of 1965. This piece of legislation, like many others in Africa, has fallen behind modern developments in international arbitration. The upshot of this outdated legislation is that it may allow the local courts to interfere extensively in the arbitration process and may limit the parties’ rights to interim and conservatory measures, thereby blunting the effectiveness of the agreed arbitration process. Where contracting outside of South Africa, parties should consider agreeing to an arbitration law which is likely to assist the arbitration process. Good options here include Mauritius (which has recently opened a satellite court of the London Court of International Arbitration) and England and Wales.

When contracting internationally, arbitration is still the “only game in town”. Despite the process being expensive and time consuming, the New York Convention ensures that the holder of an arbitration award can enforce such award in countries who are signatories to such convention. It is therefore important to ensure that the party with whom you are contracting is a signatory to the New York Convention. Notable omissions include Angola and Swaziland. The full list of contracting states can be found at http://www.newyorkconvention.org/contracting-states/list-of-contracting-states.

If the parties to an arbitration agreement do not expressly agree the law of the arbitration agreement then there are a number of possibilities which could apply. A court may decide that the law of the arbitration agreement is the same as the applicable law (Sonatrach Petroleum v Ferrell International [2002] 1 All ER (Comm) 627) or the law of the arbitration agreement may be the seat of the arbitration (Dubai Islamic Bank v Paymentech 1 Lloyd’s Rep. 65). It is therefore recommended that this be dealt with in the arbitration clause.

As is clear from this article, the legal considerations to be taken account of when contracting in Africa, as with any other country internationally, are vast and should not be lightly considered.

Author: Euan Massey, director

The importance of an informed client in helping to deliver infrastructure on time and in budget. How do we Bridge the skills Gap?

When considering the plethora of unhappy contracts currently under construction and how they came to be in this situation, it is apparent that poor decisions concerning project implementation have been taken by Employers. In many instances, Employers have been reliant on experts to guide them for example in the choice of the contract form to be adopted and the alterations to standard forms that should be made. In most cases, this has resulted in adversarial contracts being even more adversarial. As a result a great deal of energy that should be directed at getting the job done is focused on commercial issues and pursuing claims.

One would find it hard to identify better examples of this scenario, than the Eskom contracts currently under construction. It must be concluded that the decision making on these projects demonstrated very little wisdom or appreciation of the consequences of adopting highly adversarial contracting strategies.

Contractors involved in these contracts must also accept their share of the responsibility for an unsatisfactory out come, notwithstanding that the performance of most contractors is dependent on the environment created by the Employer.

In a skills scarce environment adopting a strategy that results in polarization of the parties to the contract simply does not make sense. We have to set our projects up so people all pull in the same direction. Collaborative contracting has to be the way to go.

The challenge is to persuade Employer bodies that what they are doing is inadvisable. No doubt they feel that they are in a comfort zone and that keeping contractors at arms length is a preferable approach particularly as anything that could be interpreted as being preferential treatment could be misconstrued as being “tenderpreneurial”.

We have written previously about the polarization between the various parties in the industry. There is mistrust and suspicion between employer, contractor and consulting bodies and this has to be overcome before common ground and an understanding that we actually have no choice can be achieved. The current situation is making the successful execution of projects an impossibility. The result is a lack of jobs and job opportunities and an environment where emerging contractors will inevitably founder. The established contractors are fairing no better. It would be a brave (not to say unwise) investor that put his hard earned cash into a construction company under the current circumstances.

So we need a forum for discussing these issues and breaking down the barriers of mistrust. Policies must be adopted whereby we set our selves by agreement, rather than by government statute what our objectives are for training, for job creation and job opportunities, for the creation of viable emerging contracting organizations. This must not be a “ band aid” approach it needs to be a well thought through strategy with established out comes against which we as industry participants can measure our success and achievements against this blue print.

It’s time for the industry to take control of its own destiny and to stop following the lead set by the unions and by government. We should be performing above and beyond anything that the government or a union can envisage for our businesses or for the people that we work together with in the industry. Who better to decide what is achievable or acceptable either from a business or moral perspective than we who have devoted our lives to the well being of the industry?

South Africa’s ability to compete effectively in cross border public sector jobs.

There has been a major change in the past twenty or so years in the attitude of South African construction workers to working across border and up into Africa. Where previously workers were reluctant to venture more than a days’ drive away from their home base there is now willingness to work on an ex pat basis through out Africa and the Middle East.

The decline in work availability commencing in the mid 1980’s necessitated that work should be found elsewhere. There was obviously a perception that South Africans would be in a good position and be competitive in environments that were perceived as being very similar to those found in South Africa, The major obstacle at this time to winning work in many African Countries was obviously the pariah status of South Africa during the last decade of the Apartheid government.

This all changed after 1994 and there was a major move to acquire work, particularly road work and mining related projects throughout Africa. The major lure being that many of the contracts were funded by international aid agencies and these were therefore “hard currency” contracts.

Prior to the strengthening of the Rand approximately ten years ago, super profits were available on contracts where the revenue was in Dollars or Euros and the costs were incurred in Rand’s or whatever was the local currency at the job site and both these currencies were gradually losing value relative to the currency of payment.

When the Rand strengthened this situation reversed and many of the South African construction companies (particularly those working on road contracts) lost some significant amounts of money. Just after this there was an upswing in work availability (mainly to do with the 2010 world cup) and many companies took policy decisions NOT to take on cross border work.

Notwithstanding recent statements concerning major infra structure improvement and development projects mooted by the South African government this has yet to translate into tenders and an improvement in contractors (and for that matter consultants) order books. The major players on the construction scene are therefore venturing back into Africa in order to keep resources busy and keep their order books ticking over.

The environment is a very different one to that experienced in the late 1990’s and early 200’s. Competition in the form of Chinese, Arab and European and in some instances American companies are now competing with South African contractors. Very often they are able to offer finance (and in some instances they are subsidized by their governments) for these projects and that puts South African at a disadvantage.

Notwithstanding this, our local contractors are making major commitments and efforts to secure this work, which in some instances represents the majority of the work load being undertaken by these contractors.

Given the benefits of relevant experience both with working conditions and cultures, the cost benefit of a weak Rand and logistic advantages South African contractors are well positioned to secure and carry out these cross border projects.

Author: Ian Massey – Director

How to prevent strikes from happening too frequently

There is, unfortunately, no short term answer to this dilemma.

A decent living wage for your staff must be the objective for any responsible employer. However, what happened to workers responsibility to produce good work at an acceptable level of productivity?

We have written before about the polarization of the construction industry. Where there is mistrust between the employer bodies, the professional organizations and the contractors. There is a perception amongst employer bodies that workers best interests are not being looked after by contractors. Hence the appearance of Project Labour Agreements such as those imposed at the Eskom contracts. These, in this commentators opinion, cause more harm than good. They undermine the contractors ability to manage his workforce and create unrealistic and unreasonable anticipations in the workers. When these expectations are not met the result is a strike.

It must also be true to say that remuneration levels at the lower end of the skill scale have not kept up with the cost of living that has run away from the control of the government largely due to falling Rand values and increases in fuel prices. Unions appear to have been fooled (generally by misstatements by the reserve bank and government) into thinking that the inflation was under control and that an annual adjustment of between 5 and 7,5% was an adequate increase when nearer 15% would have been more the order of the day. Hence the erosion of workers spending power and the rise in more militant unions.

Maybe all these things are just symptoms of a more sinister problem. Firstly that capitalism in the African environment where the wealth of the nation is concentrated in the hands of a few people. That it appears to be governments policy to enrich a select band of cohorts who will join the fortunate few. Further the, what appear to be, obscene remuneration packages that top executives reward them selves with.

The knee jerk reaction to these issues is to suggest nationalization of major industry and the mines and the adoption of a more socialist government model. Winston Churchill has been quoted as saying that “the inherent vice of capitalism is the unequal sharing of the blessings; the inherent virtue of socialism is the equal sharing of the miseries”, lets hope we don’t have to test this observation by personal experience!

What has happened to the Construction Industry is that wage levels and conditions of employment have become institutionalized. That is that the industry waits almost cap in hand awaiting the out come of the annual wage negotiations, these days invariably accompanied by a strike. The system therefore appears impersonalized and this just reinforces the mistrust and polarization between construction company management and the work force. This is the crux of the issue.

We need to get back to creating personal relationships with each of our workers. They need to be recognized as valuable human beings and that their involvement in the organization is vital to the success of the company. Everyone should have a career path and a means of moving up the ladder. We should reward good work, integrity and recognize by personal interaction the contribution that everyone makes from the lowliest to the highest echelon of worker.

We shouldn’t and can’t deny a persons access to collective bargaining but by rewarding people’s personal efforts and contribution regardless of what the industry minimum wage is, we should strive to making resorting to union intervention to give someone a reasonable remuneration unnecessary.

Lets ask our selves a simple question; is everyone’s job in my organization worth keeping? If you are honest you will admit that most of your workers would rather do something else if it was available. There’s your yardstick. Give your people dignity and a job worth fighting for and my bet is we wont have any need for strikes.

Putting together the right suite of training courses for a project.

The Engineering and Construction industries are very reliant on short (usually two days duration) public training courses to supplement commercial skills. These courses are of often of questionable quality. One thing they all have in common is that they are expensive but how do we choose the courses that will deliver a real benefit to our people deployed to a particular contract?

Lets start by discussing some fundamental issues.

Whilst we may disagree on many issues, the subject that there will be no dissention over is the lack of meaning full skills available to industry as a whole and the construction industry in particular.

Of course skills development starts with meaningful schooling and the Government have done society and industry no favors by down grading our educational standards. The closure of industry based technical skills development programmes (like apprenticeships) is equally a major blow to skilling up our industry.

The other dynamic that must be appreciated is that the industry demands and requirements have changed significantly in the past twenty or so years. The emphasis on what might be called “soft skills” has increased beyond all recognition and site managers can expect to expend 80% of their time immersed in sorting these HR, safety and environmental issues out and only the remaining 20% dealing with technical issues. The other important change is that the commercial skills necessary to properly manage a modern construction contract has increased dramatically.

So how has the industry responded to these changes? It is probably true to say that there has been no meaningful or coordinated response. Certain training companies have seen the gap and are providing training courses that vary from very poor to excellent. One feature that they all have in common however is that they are all expensive.

Some years ago , companies got a tax break for the training that they were doing. The training requirement was therefore top down (government) driven. Now that the benefits (tax at least) have been removed, training is driven by the individual skill development needs of each person or company. It is bottom up driven. This is a weakness and is counterproductive to making major changes and turning around the skills shortages at least in respect of commercial skills training.

Another feature of training programmes available is that people who already have a modicum of commercial skills are the ones we see on these courses. The people that really need the training (like the BBBEE contractors) are rarely if ever seen.

So what is missing? Well firstly, we need to identify the training needs of the entire industry not the training needs of the privileged (and monied) established contractors. Secondly we need standards. Standards for the course leaders and standards for the course material being presented. The present CPD arrangement does not assist the current varied and generally unsatisfactory quality of presenters and material alike. Anyone can present courses (and they do).

So the starting point for any project, whether we are talking about the actual construction of the Works or the training needs of the staff and labour to be deployed on the site is a risk analysis. Once we know the risks that have to be managed we can match or identify gaps between these risks and the experience and training of our people. This will identify the subjects and issues that need to be addressed.

This is a major shortcoming of most organizations operating in the construction environment. We don’t identify the specific risks that will be encountered. We run contracts generically. In other words we do the same things on all our contracts regardless of any specific risks that may be inherent in a particular contract. We “crank the handle”!

So the knee jerk reaction is give the guys a training course on the particular type of contract (i.e., JBCC, NEC, GCC 2010 etc.,) and hope for the best. We don’t say “ the NEC is an administration intensive contract” and respond by saying lets brush up our administrative skills.

Once we have decided what topics need to be dealt with we need to find the right training provider. Get out there, interview the people that will be presenting the course. Ask to see the material that will be presented and objectively decide which trainer and which course is going to result in the most benefit to your people.

The problem we have with this sort of training is that it usually only sensitizes people to the sorts of problems that they may encounter. It doesn’t give them the skill to deal with the issues. This will only come with experience and exposure. So make sure that the training provider is available to mentor your people and field calls whenever a problem arises and there is uncertainty of what to do. The better training providers will jump at the opportunity to maintain an involvement after the training work shop and maybe hold a follow up session to review and share experiences.

Author: Ian Massey – Directore

Articles for the contractor

The trend in modern construction contracts is to reimburse contractors for additional expenditure via the payment of the actual cost incurred.

Let’s test this proposition shall we?

Under the NEC contract, there is an option to use, by agreement, the rates or the lump sums (option A and B as for example at clauses 63.14 and 63.13) to quantify compensation events. The default position however is that payment for compensation events including variations involving additional work is to pay the contractor his defined cost.

In accordance with the GCC 2010, additional work is paid for using the billed rates or adjusted billed rates where there are differences in the work or where the circumstances under which the work is carried out (see clause 6.4). He gets paid his time related General items (clause 5.12.3) when the time for completion is granted. Otherwise the Contractor gets his “proven cost”, (see for example clauses 5.4.3, 5.9.6 and 5.10.1)

The 1999 FIDIC Red Book contract has a very similar arrangement for the evaluation of variations (see clause 12.3) and other costs are compensated as cost, where the cause of the additional expenditure is beyond either parties control (see for example clause 4.12) or cost plus a reasonable profit where the cause of the additional expenditure is something within the Employer’s control (see for example clause 1.9). This is the remedy available to the contractor also for extensions of time.

Under JBCC 2000, variations are quantified (see clause 32.2) much as they are under FIDIC or the GCC, where additional time is awarded the Contractor gets his Preliminaries (clause 32.12) but where an expense is incurred through no fault of the contractor and which is not recovered through the other rates he gets paid his expense and loss (clause 32.5).

It is also of interest to note that there is a trend to adopt Target Cost Contracts as the preferred contracting strategy in contracts in Europe and North America. These are collaborative type contracts and the Contractors remuneration is in the first instance on a reimbursable (i.e., a cost plus) basis.

So the payment of cost under all these contract forms is an important issue.

It needs to be made clear that these costs are not the “allowable cost” or indeed anything to do with the Contractors tender. They are the out of pocket expense incurred in actually carrying out the work.

How does a contractor proceed to deal with these circumstances?

Well, under the NEC he is well prepared. He has the Schedule of Costs Components (both the “longer” and “shorter” schedules) and he has had the opportunity to complete the Contract Data section of the tender document, section two “Data provided by the Contractor”. He is also entitled to rely on trade publications to establish the cost of hiring certain equipment. So if he has been diligent, he will be in good shape to substantiate what his defined cost will be.

All well and good. How about FIDIC, GCC and JBCC, how does he shape up here? The answer is, not very well. These documents generally speaking do not require that cost information or the acceptable source of such information be provided or stipulated. Even the question of cost adjustments and what constitutes a reasonable mark-up are not normally established at tender stage prior to award.

This puts the professional team at an enormous disadvantage. Their bargaining power is effectively compromised and they have no basis for comparison except perhaps from previous contracts.

So the Contractors are onto a winning streak and are going to come out of this with a handsome profit?

As much as you might think that this would be the situation, this is not, generally speaking, the case. Most contractors are all at sea the moment they have to produce proof of what their costs were. Their accounts departments are not equipped to save this type of information and find it difficult to provide the requisite substantiation of what costs were incurred.

It is, in addition, a lot of work. Some of the information is confidential (like salaries and other remuneration costs) and most information is saved in a manner that makes it difficult to allocate a particular cost to a particular event.

All these contributory factors make the substantiation and agreement of the cost of doing a particular piece of work particularly problematic. Trust is also an issue here and the professionals team are invariably suspicious of the contractors motives and integrity.

So what is the lesson learned? Practitioners who are committed to using contract forms other than the NEC should take a leaf out of the NEC’s book and include a section into the Contract Data which the Contractor is required to complete, which will empower the consulting team to manage the process whilst at the same time enabling the contractor to quantify his claims for cost using accepted known data.

Author: Ian Massey – Director

Best strategy for getting projects completed on time and within budget.

A commonly asked question is, 15 or so years ago, how many contracts finished late? How many of those contracts had delay damages applied?

The answer was very few and none.

If the question were asked of the contracts currently under way, the answer would be diametrically opposite, namely most of them are late and all of these have penalties levied.

By definition therefore, whether you look at things from an employer or a contractor situation, most contracts are late and by definition will be over budget (or looking at things from the contractor’s view point), he will lose money.

This is therefore a pretty depressing outlook and clearly a topic of general interest.

Lets first and foremost try and get to grips with what has gone wrong. Is this a contractor’s problem alone? Is this perhaps exacerbated by problems within the professional team for example, the requirement that professionals tender for their work and have too little money to do their job properly? Are low skilled, inexperienced and perhaps politicized employers make things more difficult by not making the correct decisions at the right time? How about the work force? Have unionized workers who are under motivated to achieve acceptable levels of production contributed to the overall situation?

The answer is that all the parties to the contracts are contributing the poor performance of modern contracts.

So what is to be done about this?

Well firstly we have to realize how destructive our standard form contracts are. These are commonly referred to as adversarial contracts and as the name implies a great deal of time is spent in conflict on these contracts. If you want an example of the sorts of things we are talking about look no further than the Eskom contracts adopted for the Kusile and Medupi power stations. These use the Fidic form of contract which, notwithstanding statements by Fidic themselves to the contrary, is not a particularly contractor friendly contract. This contract has been “spiced up” to make life interesting (and no doubt more difficult) for any contractor unfortunate enough to be awarded a contract on either of these sites. An enormous amount of time (and money) is being expended in promoting and defending claims. This is time and effort that would be better expended getting the job done.

Developments overseas in recent years have favored more collaborative contract execution strategies like target cost contracts. The intention is to play to the parties’ strengths, align the aspirations and objectives of the parties to get the job done as quickly and as inexpensively as possible. These form of contract also require fewer levels of hierarchy and in a skills scarce environment this should also be a strong motivator to adopting less conflict prone means of running a contract.

Collaboration also requires a team approach from the professional team. “Them and us” attitudes are inappropriate and unacceptable. A slick service from the professional team is a necessity and to do this he must be properly remunerated. He must be able to afford to deploy sufficient top class people to perform his function in such a way that the scope of the work, the employers requirements, the geotechnical information and as many of the unknowns that inevitably bedevil the proper execution of a contract are attended to and are known as near to or preferably before commencement of the work.

Employers must get their acts together too. Making decisions at the right time and for the right reasons is paramount. One of the benefits of collaborative forms of contracts is that the Employer can take a greater role in the actual execution of the contract and where employers have expertise in contract execution this can be of major benefit.

Ultimately, the objective is to create a trust relationship between the parties to the contract and this brings us conveniently to the question of the work force. Contractor work force relationships are, generally strained and it would not be inaccurate to say that the relationship is polarized. Bold industry wide initiatives must be adopted. Fair and equitable remuneration packages must be available to workers who perform from a production, safety and quality perspective. Career paths must be established for each member of the work force. Training must be provided (literacy and numeracy included) to enable individual workers to achieve their particular aspirations and to move up the ladder to better levels of remuneration and employment benefits and to escape the poverty trap.

All of the issues that we have addressed in this article are risks that are inherent in the construction environment albeit, much bigger issues than might normally be addressed. Like the day to day risks that are dealt with in the normal course of events they must be managed in an effective way so that they do not present insurmountable impediments to the satisfactory and successful completion of the contract.

Author: Ian Massey – Director

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