CONTRACTUAL AND LEGAL Frequently Asked Questions
Our Legal & Contractual FAQs provide an invaluable resource of information for the industry.
WHAT ARE THE ESSENTIALS OF A CONTRACT?
A contract can be described as "an agreement binding in law between two or more persons in which one or each one promises the others(s) to do nor not to do something." It is first necessary to analyse the meaning of "agreement". Before parties arrive at an agreement there is often some preliminary discussion as to what each is going to give or do for the other.
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WHAT IS THE EFFECT OF A LETTER OF INTENT?
Fast track construction methods often leave in their wake the procedure for drawing up the contract which in many instances lacks the necessary urgency it merits.
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WHAT IS THE PAROLE EVIDENCE RULE?
The courts lay great importance on the performance by the parties to a contract of their obligations under the contract and will always be ready to come to the assistance of a party who has been prejudiced by the other party’s failure to perform.
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WHAT ARE THE RULES FOR THE INTERPRETATION OF CONTRACTS?
The various standard or model forms of building contract and sub-contract in use today are normally documents of long standing and, having been revised over the years, should contain few errors, inconsistencies and ambiguities.
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WHEN CAN IMPLIED TERMS BE READ INTO A CONTRACT?
The express terms of a contract may leave many things unsaid and the question often arises, can other terms and conditions which are not spelt out and recorded by the parties be implied?
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WHAT ARE THE REMEDIES FOR BREACH OF CONTRACT?
When one of the parties to a contract commits a breach of that contract there are in principle three avenues open for the other to follow.
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WHERE A SPECIFICIATION CALLS FOR MATERIAL FROM A NAMED SUPPLIER “OR OTHER APPROVED”, CAN THE PRINCIPAL AGENT OR ARCHITECT REFUSE TO APPROVE AN ALTERNATIVE SUPPLIER PROPOSED BY THE CONTRACTOR?
The question of an Architect’s right to refuse an alternative supplier proposed by the Contractor where the contract documents named a supplier “or other approved” was the subject of the dispute in Leedsford Ltd v The Lord Mayor, Aldermen and Citizens of the City of Bradford (1956) 24 BLR 45.
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WHEN A CONTRACTOR REQUESTS A PAYMENT GUARANTEE FROM THE EMPLOYER, WHAT AMOUNT SHOULD IT BE FOR?
Clause 3.1 of the JBCC Series 2000 Principal Building Agreement requires the Employer, if the Contractor so requests, to “provide a payment guarantee for the fulfillment of the Employer’s liability” in terms of the agreement..
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DOES A CONTRACTOR HAVE A DUTY TO INFORM THE EMPLOYER OR HIS AGENT OF DEFECTS IN DESIGN?
The answer to the question may well lie in the express terms of the contract.
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WHERE MATERIALS ARE UNIQUELY SPECIFIED BY NAME AND PROVE TO BE UNSUITABLE FOR THEIR PURPOSE OR AREDEFECTIVE, WHO IS RESPONSIBLE – THE EMPLOYER OR THE CONTRACTOR?
In the case of Young and Marten Ltd v McManus Childs Ltd (1968) 9 BLR 77, an action was commenced as a result of defective roof tiles being supplied and fixed on a housing site.
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WHAT IS A BUILDERS LIEN?
A building lien is a right conferred by law and is the most powerful tool a building contractor has to ensure payment. In South Africa the lien is regulated by common law, in terms of which a lien will always apply unless there is agreement otherwise.
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CAN A BANK LEGALLY EJECT A CONTRACTOR FROM SITE WHO HAS INVOKED HIS COMMON LAW BUILDER’S LIEN AGAINST THE DEVELOPER, BECAUSE THE BUILDER HAS SIGNED THE BANK’S WAIVER OF LIEN?
The Courts were called upon to answer this question in NBS Bank Bpk v Dirma BK en n Ander 1998 (1) SA 556 (T).
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WHERE A CONTRACTOR SUBMITS A PROGRAMME, IS HE OBLIGED TO FOLLOW IT OR CAN HE AMEND IT AT HIS OWN DISCRETION?
Some forms of contract not only require the Contractor to submit a programme but specifically give the Employer’s Agent powers in relation to the programme.
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A CONTRACTOR’S DUTY TO CARRY OUT THE WORKS‘REGULARLY AND DILIGENTLY’. WHAT DOES IT MEAN?
Many forms of construction contract place an onus on the Contractor to carry out the works “regularly and diligently” and contain provisions for cancellation of the contract if he fails to do this.
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CAN AN EMPLOYER GET RID OF IT’S PRINCIPAL AGENT AND TAKE ON THE JOB ITSELF?
Can an employer dismiss its Project Manager or Principal Agent part way through a project and appoint itself instead?
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HOW SHOULD A PRINCIPAL AGENT DEAL WITH REVISIONS TO THE DATE FOR PRACTICAL COMPLETION WHEN THERE ARE MULTIPLE CAUSES OF DELAY?
Clause 29.0 of the JBCC Principal Building Agreement deals with delays and revisions to the intended ate for practical completion.
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WHEN DELAYS OCCUR, CAN A CONTRACTOR BE INSTRUCTED TO ACCELERATE THE WORK TO FINISH ON THE DUE DATE IN LIEU OF BEING GRANTED EXTRA TIME?
Inevitably there are contracts which suffer from delays which pose a threat that the contract competition date will be exceeded.
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WHEN THE PRELIMINARIES AMOUNT IS TO BE ADJUSTED DUE TO EMPLOYER DELAYS, SHOULD THE EVALUATION RELATE TO THE PERIOD WHEN THE DELAY OCCURS OR TO THE OVERRUN AT THE END OF THE CONSTRUCTION PERIOD?
It is common practice for decisions concerning the award of an extension of time to be made before considering the matter of prolongation costs.
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WHEN A CONTRACTOR IS BEHIND PROGRAMME, IS HE ENTITLED TO AN EXTENSION OF TIME WHERE HE IS DELAYED BY INCLEMENT WEATHER BUT WOULD NOT HAVE BEEN AFFECTED BY THE WEATHER IF HE HAD BEEN ON PROGRAMME?
Many forms of building contract include provisions which entitle the contractor to an extension of time for completion of the works where he is delayed by inclement weather.
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CAN WORK BE OMITTED FROM A CONTRACT AND GIVEN TO SOMEONE ELSE?
Standard forms of contract in general provide for the work to be varied, including omissions, and a genuine omission of work is not a breach of contract giving rise to the claiming of damages.
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CAN A CONTRACTOR BE FORCED TO CARRY OUT EXTRAS AFTER PRACTICAL COMPLETION?
Many instances occur where Contractors are instructed to carry out extra work after Practical Completion has been achieved and in many cases the Contractor is willing to oblige.
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WHERE THERE IS PROVISION IN A CONTRACT THAT AN ORAL INSTRUCTION SHALL BE OF NO FORCE OR EFFECT, WILL A CONTRACTOR BE DENIED PAYMENT IF HE OBEYS AN ORAL INSTRUCTION TO PERFORM ADDITIONAL WORK?
Clause 17.0 of the JBCC Principal Building Agreement provides for the issuing of contract instructions by the Principal Agent.
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WHAT ARE THE ESSENTIAL DIFFERENCES BETWEEN A SELECTED UBCONTRACTOR AND A NOMINATED SUBCONTRACTOR?
Both Nominated and Selected Subcontractors are described in the JBCC Series 2000 Principal Building Agreement as Subcontractors who execute work which is provided for by a provisional amount in the Bills of Quantities.
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WHEN MIGHT A MAIN CONTRACTOR BE ABLE TO ARGUE THAT A SUBCONTRACTOR SHOULD PROPERLY BE CLASSIFIED AS NOMINATED RATHER THAN SELECTED?
Our courts or an arbitrator may be persuaded to follow the British case of St Modwen Developments & Kirkland Limited (1996).
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WHERE A CONTRACTOR’S/SUBCONTRACTOR’S DRAWINGS ARE “APPROVED”, “CHECKED” ETC. BY THE EMPLOYER’S AGENT AND SUBSEQUENTLY AN ERROR IS FOUND, WHO BEARS THE COST?
In general terms when an Employer appoints an Architect or Engineer to design a building or work of a civil engineering nature, he is entitled to expect the Architect or Engineer to be responsible for all design work.
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WHAT IS THE IMPORTANCE OF THE CERTIFICATE OF PRACTICAL COMPLETION?
Where the conditions of contract agreement provide for the issuing of a certificate of practical completion by the Architect, Principal Agent or Engineer, Contractors should take great care to ensure that the certificate is issued properly and timeously by the person required to issue it.
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CAN A PRINCIPAL AGENT OR ARCHITECT CONDEMN LARGE AREAS OF WORK AT THE TIME OF FINAL INSPECTION, HAVING VISITED THE SITE REGULARLY AND HAVING INCLUDED PAYMENT FOR THE WORK IN EARLIER CERTIFICATES?
It is not uncommon for Principal Agents or Architects to regularly inspect work, certify same for payment and at a later date condemn large areas of work.
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WHERE AT THE END OF THE DEFECTS LIABILITY PERIOD THE ARCHITECT DRAWS UP A DEFECT LIST AND, AFTER THESE DEFECTS HAVE BEEN ATTENDED TO BY THE CONTRACTOR, PREPARES ANOTHER LIST, WILL THE CONTRACTOR BE OBLIGED TO MAKE THESE DEFECTS GOOD?
Most forms of building contract include a defects liability period. The purpose of the defects liability period is to allow the Contractor an opportunity of making good his own defects.
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IF A DELAY IS RECORDED IN THE MINUTES OF A SITE MEETING, IS THIS REGARDED AS AN ADEQUATE NOTICE FOR THE PURPOSE OF EXTENDING THE CONSTRUCTION PERIOD?
The JBCC Principal Building Agreement provides in clause 29.0 for the Contractor to serve written delay notices.
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IF THE EMPLOYER’S AGENT ISSUES AN ORDER FOR EXTRA WORKS AFTER THE EXTENDED COMPLETION DATE BUT BEFORE PRACTICAL COMPLETION, WILL TIME BECOME AT LARGE RENDERING PENALITIES NO LONGER ENFORCEABLE?
The case, Balfour Beatty Ltd -v- Chestermount Properties Ltd (1993) heard before Mr Justice Colman deals with the subject matter of the question.
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WHAT IS MEANT BY “TIME AT LARGE”?
Time at large is when a contract is entered into with no period of time fixed for completion. Where this occurs the Contractor’s obligation is to complete work within a reasonable time.
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IF THE PROPER NOTICES ARE NOT GIVEN, DO YOU LOSE YOUR RIGHT TO CLAIM?
The case of Edward L Bateman vs Brown Projects (Pty) 1995 (4) SA 128 (T) answers this question.
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IS AN EMPLOYER STILL ENTITLED TO DEDUCT PENALTIES IF IN FACT HE SUFFERS LITTLE OR NO LOSS AS A RESULT OF THE LATE COMPLETION OF THE WORKS?
Where a material term of a contract provides that the works must be completed by a certain date (or an extended date), then failure to complete by the due date is a breach of contract.
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WHAT IS THE SITUATION WHEN A CERTIFICATE FOR PAYMENT IS ISSUED BUT THE EMPLOYER REFUSES TO PAY?
Clause 31.1 of the JBCC 2000 Principal Building Agreement provides that:
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CAN A CONTRACTOR CLAIM PAYMENT OF AN INTERIM CERTIFICATE AFTER THE BUILDING CONTRACT HAS BEEN TERMINATED?
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WHAT IS THE SITUATION WHEN A BUILDING IS COMPLETED AND THE OWNER TAKES POSSESSION BUT REFUSES TO PAY BECAUSE OF SOME ALLEGED DEFECT?
The main legal principles concerned here are that, in addition to the remedies for breach of contract, the creditor may in certain circumstances have a defence, the exeptio non adimpleti contractus.
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WHERE WORK IS OMITTED FROM THE CONTRACT CAN A CONTRACTOR CLAIM FOR LOSS OF PROFIT?
Contractors sometime argue that where work is omitted from the contract they lose an opportunity of earning the profit element which was built into the value of the work which was omitted.
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WHAT HAPPENS WHEN A RATE IN A BILL OF QUANTITIES IS TOO HIGH OR TOO LOW?
Somehow, the contractor has priced an item in the bills at a rate that is fundamentally wrong. Nobody spotted it and negotiations get a bit heated when a variation is instructed which increases the quantity of the item in question.
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CAN EXPENSE AND LOSS CAUSED BY ISSUING OF CONTRACT INSTRUCTIONS BE RECOVERED BY THE CONTRACTOR?
Clause 32.5 of the JBCC Series 2000 Principal Building Agreement provides the Contractor with the right to recover any extra expense or loss which he suffers arising from the Principal Agent issuing contract instructions or failing to issue contract instruction or issuing them late.
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DOES THE JBCC SERIES 2000 PRINCIPAL BUILDING AGREEMENT PROVIDE FOR INCREASED COSTS OF LABOUR AND MATERIALS TO BE RECOVERED ON A ‘FIXED PRICE’ CONTRACT?
Many contracts today are described as “fixed price contracts” meaning that the contract value is not subject to adjustment for price increases using the Contract Price Adjustment Provisions (CPAP (Haylett formula) or other such methods and that the Contractor has allowed for such increases in his tender offer.
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HOW DOES A CONTRACTOR OR SUBCONTRACTOR RECOVER THE EXTRA COSTS INCURRED WHEN VARIATIONS OR CHANGES IN DESIGN OR MATERIALS DISRUPT THE REGULAR PROGRESS OF THE WORK?
It may well be that a Contractor who has undertaken to erect a building according to certain plans and specification will find that instructions involving changes to the design or materials will impose upon him extra costs for which he cannot be properly remunerated by the application of revised unit costs for the work performed.
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WHAT METHODS OF EVALUATING DISRUPTION HAVE BEEN ACCEPTED BY THE COURTS?
Many forms of contract entitle the Contractor to recover expense or loss caused by compliance with Architect’s instructions or delay in the issue of such instructions or failure to issue such instructions.
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IF A CONTRACTOR MAKES CLAIM FOR LOSS AND EXPENSE UNDER A JBCC CONTRACT, CAN HE INCLUDE HIS COST IN PREPARING THE CLAIM?
It is generally accepted that a contractor is not entitled to reimbursement for any costs incurred in preparing a loss and expense claim unless it can be shown that he has been put to additional cost as a result of the unreasonable actions or inactions of the employer.
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WHERE A FINAL ACCOUNT AND/OR CLAIM HAS BEEN SIGNED IN FULL AND FINAL SETTLEMENT BUT SUBSEQUENTLY IT IS DISCOVERED THAT AN ENTITLEMENT HAS NOT BEEN INCLUDED, CAN THE MATTER BE REOPENED?
It is common procedure for contractors and subcontractors to be expected to sign a statement to the effect that they agree to payment of the balance due on the final account on a “full and final settlement” basis.
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WHAT ARE THE LEGAL CONSEQUENCES OF THE ISSUING OF A “FINAL CERTIFICATE” IN TERMS OF A BUILDING CONTRACT?
In Ocean Diners (Pty) Ltd v Golden Hill Construction cc 1993 (3) SA 331 the courts were called upon to determine issues relating to an architect’s final certificate.
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CAN A CONTRACTING PARTY CANCEL THE CONTRACT IN THE EVENT OF THE INSOLVENCY OF THE OTHER PARTY?
Many building contracts and subcontracts contain provisions which purport to give the right to one contracting party to cancel the contract in the event of the insolvency or voluntary or compulsory liquidation of the other.
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HOW DOES ARBITRATION WORK?
Most contracts in the Construction Industry are concluded satisfactorily - the project is completed to the client's requirements and the correct amount of money changes hands.
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HOW DOES THE LAW OF PRESCRIPTION LIMIT YOUR RIGHT TO SUE?
Legal actions have to be brought within a specified period of time. If you fail to do so, your right to sue for damages or to recover a debt or to make reference to Arbitration proceedings etc.
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