Comments on the JBCC Contracts
Articles:
Am I entitled to more Money?
Be careful of the details - definitions!
How to maximise the contract price under the JBCC contract.
AM I ENTITLED TO MORE MONEY?
That’s always a good question and the answer under the JBCC contracts is a definite maybe. It depends on the circumstances.
There are various scenarios which could apply:
Tenders obtained using fixed bills of quantities
If the document used in obtaining the tenders is called “Bills of Quantities” and if the preliminaries bill of that tender document at 2.2 does not indicate that the bills of quantities are provisional then those bills of quantities are regarded as being “fixed” i.e. not subject to change except by the issue of a contract instruction. Contract instructions can take many forms, including: a written instruction, drawing/s or other construction information (see definitions 1.0). The instruction must however be signed and issued by or under the authority of the principal agent.
If the bills of quantities (fixed not provisional bills of quantities) contain an error e.g. the quantity of a particular item is over or under-stated, then before that error can be adjusted, a contract instruction must be issued by the principal agent. Contractors do not build from the bills of quantities but, rather from the drawings and other information provided to them to allow them to carry out the works. The contractor could find himself in a position where he is required to provide more of something than is measured in the bills of quantities. If he doesn’t bring that circumstance to the principal agent’s attention and demand a contract instruction varying the appropriate quantity then the contractor would find himself in the position of being obligated to provide something which he is not going to be paid for.
This is particularly true when the contractor doesn’t notice the discrepancy until after the time when he should have reasonably become aware of the discrepancy and should have brought it to the attention of the principal agent. If e.g. the drawings call for the installation of three reception units but the bills of quantities only include two and the contractor doesn’t notify the principal agent of the variance within forty working days of receiving the drawing showing the three units the principal agent would be within his rights to refuse to pay for the “additional” third unit. That is harsh, but it is in accordance with the contract. The contractor could of course declare a dispute, but it’s not certain that he would win.
Tenders obtained using provisional bills of quantities
The situation in this scenario is simpler. The work is re-measured and any variations in quantity are simply adjusted in the final account. However a situation can arise where details are changed on drawings which the agents do not view as a variation. If the contractor believes it is, he’s back to the same situation where he has to bring it to the principal agent’s attention and request a contract instruction, or recompense for additional loss ad expense within 40 days of becoming aware of the circumstances which give rise to his entitlement.
Tenders obtained using drawings
Here the contractor is in much the same situation as that where “fixed” bills of quantities are used to obtain tenders. The scope of the work is as identified on the drawings used to prepare is tender. Any departure from those drawings could give rise to a contract instruction entitling the contractor to additional payment. But, if the contractor doesn’t advise the principal agent of his perceived entitlement within the allotted time period, he (the contractor) could lose his entitlement.
BE CAREFUL OF THE DETAILS - DEFINITIONS
The definitions aren’t important. They’re only there to save typing. That’s what most people believe and most people are wrong. Taking only two important examples:
At clause 1 of the JBCC Principal Building Agreement (PBA) a contract instruction is defined as: “a written instruction which may include drawings and other construction information signed and issued by or under the authority of the principal agent to the contractor.”
This raises issues which must be met or there is no valid instruction and without a valid instruction, there can be no entitlement to: payment or loss and expense incurred or a revision to the date for practical completion.
First and foremost, the instruction must be written. There’s no such thing as an oral instruction or a verbal instruction. If a contractor complies with an oral instruction he does so at his own risk and expense.
Who has the right to issue contract instructions? Only the principal agent. Unless he has delegated the authority to issue contract instructions over a specific part of the works to another agent of the employer (clause 5.3.2 of the JBCC PBA). That means; even if the contractor confirms in writing an oral or verbal instruction issued by the principal agent, or some other agent of employer, although it is now “in writing” it is still not a valid contract instruction and the contractor cannot rely on it. It has to be signed by the principal, or other appropriate agent under delegated authority, or it is not an instruction.
Although the principal agent can delegate the authority to issue contract instructions to other agents of the employer, notice of that delegation must be given to the contractor. The notice to the contractor has to be written. Notices can be “hand delivered, sent by registered post, sent by telefax and or sent by e-mail.” It’s extremely difficult to hand deliver, post or telefax a verbal notice, it follows that the notice is required to be in writing. If the principal agent doesn’t give notice to the contractor that he has delegated to an agent the right to issue instructions, then that agent doesn’t have the right to issue instructions. In the real world, it may seem like an awful lot of bother to send a written notice confirming that e.g. the electrical consultant has the right to issue contract instructions on the electrical installation works but it’s a contractual requirement.
We all tend to want to ignore the administration side of contracts “There’s a project to be built for goodness sake and the admin can be done later!” is too often our attitude. Don’t travel in that direction, it’s a toll road and generally speaking, it’s the contractor who has to pay the tariff. If a contract says something has to be in writing, demand that it is. The professionals will initially moan and complain, but, eventually, and it shouldn’t take too long, they’ll understand that writing everything down is a protection for them too. They are the first ones to deny a claim for loss and expense or revision to the date of practical completion because a submission period hasn’t been met, or the submission doesn’t meet the requirements as to form. So hold them to a similar standard. When the date for practical completion inclusive of variations may not be met because the variations haven’t been actioned, because the necessary written contract instructions haven’t been issued, they’ll wake up rather rapidly and issue those instructions rather than face the wrath of their client.
Enforcement of payment certificates and payment advice statements
Summary judgement regarding payment certificates and payment advice statements can be sought in any court; including the Magistrates Court, even although the amount of the payment certificate or payment advice statement exceeds the normal limits of the Magistrates court. This contract provision is contained at clause 1.7 of both the PBA and the N/S Subcontract Agreement. It forms part of the definitions and while that may seem a strange place to put it, the fact that it is there at all confers a powerful right on both contractors and subcontractors.
If an employer doesn’t pay an amount certified by the principal agent or the contractor doesn’t pay the subcontractor the amount on the payment advice statement, then in addition to a right to receive interest on any amount which should have been paid, the contractor / subcontractor has the right to approach the courts to have an order made against the defaulting party compelling payment.
The right to approach any court is an important one. There are limits placed upon the jurisdiction of Magistrates Courts (currently R100 000) and this clause of the contract waives that restriction. It is normally much quicker and cheaper to raise an action in the Magistrates Courts which, since we are talking about a right to receive payment, is obviously an important factor. By the time a matter could be heard in the High Court, literally years may have elapsed, since one needs payment now waiting years to have your case heard is obviously counterproductive.
You have to bear the following in mind. To have sentence passed by the courts; any court, you will normally need to present to them the original payment certificate or payment advice statement. That is why it is so important to ensure that you as the contractor / subcontractor receive the original document. Some larger institutions, Mining Houses were particularly guilty of this in years past, demand that they receive the original payment certificate prior to making payment. They have no right to it! They have already received a copy of the payment certificate; they knew how much is due for payment. To additionally demand the original payment certificate is incorrect. The certificate should only be handed over when payment is made. To provide it at an earlier stage merely places a roadblock in way of the efforts of the contractor to secure payment - no original certificate no summary judgement by the court.
Subcontractors are in an even more invidious position. Virtually no contractor I have come across issues a genuine payment advice statement to subcontractors. In one instance I was advised by the attorneys of a multi-national construction company that no such document exists. It does, it’s document No 2146 of the JBCC suite of documents and can be downloaded for free from the JBCC website. It seems the reason why contractors do not want to issue it is that without it the subcontractor cannot make application to the courts for summary judgement in respect of payment. Clause 1.7 of the N/S Subcontract Agreement specifically refers to the payment advice statement, any other document probably wouldn’t meet the requirements of the courts and would require proof to be submitted a sometimes long and costly exercise.
The payment advice statement is such an important document that the N/S Subcontract Agreement at clause 38.1.5 allows the subcontractor to suspend work / terminate the subcontract if it isn’t provided.
Summary
It’s the little details, which we’re all too quick to ignore which can trip us up. Remember:
Instructions must be in writing!
HOW TO MAXIMISE THE CONTRACT PRICE UNDER THE JBCC CONTRACT
At the completion of a project contractors are finally able to calculate how much carrying it out has cost them. It often comes as a shock. The returns projected at tender stage are only rarely realised at final account stage. Then of course comes the desire to increase the price of the contract to at least meet the expense. By then, it’s too late.
One of the aspects of the JBCC contracts which make it attractive to employers is that the old game of waiting until the last minute to present your claims no longer works. Claims by the contractor for loss and expense, or additional payment are subject to a time bar. And that time bar is enforceable. There is a principle in South African Law called forfeiture. It basically states that if you are supposed to do something within a certain period and you don’t then you lose the right to do it.
Under the JBCC Principal Building Agreement (and the N/S Subcontract Agreement) at clause 32.5 if expense and or loss has been incurred and notice of that expense or loss is not given to the principal agent (contractor under the N/S agreement) within 40 days (35 under the N/S agreement), the right to claim that expense and loss has been forfeited - lost. That may seem unfair, but contracts do not have to be fair. They merely record what has been agreed by those who have contracted.
It’s especially of interest to note that what is required to secure your right to claim loss and expense is merely that notice be given. You do not have to submit full details at the stage of giving notice, it may even be impossible to calculate what the final cost will be at that stage. All you have to do is send a written notice, and it must be written, verbally advising of a potential claim is not notice: even if it has been minuted in a meeting, it still doesn’t meet the standard for a written notice, by hand, registered post, fax or e-mail and you’ve secured your right to claim.
When sending the notice you should be careful to ensure that it is received within the time limits set. These are; hand delivery - same day, registered post – 5 working days after posting, fax - 1 working day after transmission and e-mail - 1 working day after transmission. So, if it your intention to send a letter advising of a potential claim and it is 36 days after you should have become aware of it, do not post it. It would be deemed to have arrived after the period for submission and your entitlement will have vanished. The forfeiture clause is that strict.
The golden rule is; "If you feel that something entitles you to additional payment, give notice immediately." It may be that you do not have a valid claim; that will be determined in the evaluation process. But if you haven’t given notice, within the required time period, then whether claim was valid or not, you no longer have the right to make it.
Disclaimer
All opinions and information contained in these articles are for interest only. Should anyone rely on any information and or opinions stated they do so at their own risk. The author specifically rejects any liability for any action, loss, damage, cost or expense incurred by anyone arising from their dependence on the accuracy of the information and or opinions stated in these articles.