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WHY ARE CONSTRUCTION CONTRACTS SO UNIQUE WHEN IT COMES TO RECOVERIES

11 March 2022

Construction contracts are often of large value and could entail complex works with detailed specifications. Whilst generally based on standard form contracts we often tend to find extensive modifications in the form of particular conditions.

Key to a successful contract is a proper understanding of its terms and conditions and following the provisions thereof to the letter. However, extensive modifications often change the standard form contract to a form unfamiliar to the contractor. As a result, things may go awry and the contractor is faced with challenges ranging from recouping payments, return of performance guarantees, unlawful calls on guarantees and release of retentions.

We have seen in the media from the likes of the Eskom Kusile and Medupi projects how standard form contracts amended extensively can lead to snowballing problems in execution and completion. Shortcomings in these contracts have been identified, inter alia, as irregular contract modifications and deviations from its provisions.

In this complex playing field, have a specialist legal provider to assist in navigating through the contract and advising on a solution aimed at achieving the quickest and most cost effective result will alleviate further unnecessary hurdles in the process. It’s common knowledge that smaller contractors faced with delayed resolution of such financial challenges may not be able to sustain their businesses and run the risk of going under.

At MDA we have extensive experience and success at recoveries for our clients. We have successfully pursued recovery through the courts on provisional sentence proceedings for clients with overdue payment certificates.

Provisional sentence is a motion proceeding – meaning it is brought by way of an application i.e. it does not follow the traditional civil process. It accordingly allows for an expedited process as immediately the summons is issued, a date for the hearing of the matter on the unopposed roll is allocated by the Court. The Defendant is served with a copy of the summons and is compelled to appear before court to admit or deny liability in relation to the liquid document. The only defences that may be raised to a payment certificate are:

  • Fraud;
  • Lack of authority of the signatory to the payment certificate.

Once the court is satisfied that the defendant is liable, an order will be issued against the defendant ordering payment of the amount per the payment certificate, interest as applicable and costs of the action. In circumstances where the defendant still does not satisfy the Court order a warrant of execution can be issued to obtain payment from the defendant.

Where payment may be due but the contract does not provide for a payment certificate process, we at MDA will assist to formulate your claim and present this to the employer in terms of the contractual provisions and advance the discussions to achieve resolution of any impasse. Our experience in this field extends to government contracts where we managed the process for our client and achieved a better than expected settlement.

MDA has also successfully defended calls on client’s performance bond where the call was made in circumstances not allowed for. A performance bond is generally called where there is a default by the contractor in the performance of the works under the contract. Circumstances which allow for calling a bond , include where a contractor abandons the works or commits an act of insolvency. The process to oppose a call on a performance bond is an urgent application to interdict the guarantor from payment to the insured and this is naturally only successful where valid grounds exist to substantiate why the call is invalid.

Otherwise, in the normal course where the works are successfully completed a performance bond is returned once the certificate of practical completion/performance certificate has been issued and the risk in the works transfers to the employer.

Retention guarantees or release of retention monies also follow completion of the works, generally at the end of the contract. However, normal practice is a reduction at practical completion / taking over of the works by the employer and the balance being released upon the expiry of the defects liability period. This is not cast in stone and release of retention monies can differ from contract to contract. For this reason, MDA has recently launched a retention recovery service to assist our clients, inter alia,  in reviewing their contracts to determine retention due dates for payback; a diary system to alert us us once a retention payment becomes due, contract specific notice being drafted to be placed on our client’s letterhead to call for payment of the retention/return of the retention bond.

MDA’s leadership team offers in excess of 60 years combined experience in this field and we believe our service offering can aid in the efficient management of your recovery process which will prove invaluable to your business. We look forward to hearing from you and making a difference in the management of your contracts and overall business efficacy.