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SUBCONTRACTORS - WHEN SHOULD THEY BE PAID?

Sub ContractorsPayment to the Main Contractor.

The principal agent must, in terms of clause 31 of the JBCC Principal Building Agreement,  issue monthly payment certificates based upon a valuation of the work done and send copies to both the employer and the contractor. The principal agent must also in terms of clause 31.13.2 simultaneously issue to each subcontractor a notification showing the formulation of the subcontract amount indicated in the payment certificate.

Payment must be made by the employer to the contractor within 7 days of the issue of each certificate in terms of clause 31.9.

Payment to the Subcontractor

In terms of clause 31 of the JBCC Nominated / Selected Subcontract Agreement the principal agent is likewise obliged to issue interim payment certificates based on a valuation of the subcontract works to the subcontractor, the employer and the main contractor. The subcontractor has to co-operate with the main contractor in the formulation of payment claims.

The main contractor is obliged to prepare and issue a payment advice within 7 days of issue of the payment certificate and payment to the subcontractor must then be made within 7 days after the due date for payment to the main contractor by the employer.

What Happens when the Employer does not pay the Main Contractor?

If the main contractor has not been paid in terms of an interim payment certificate to enable it to meet its obligations to subcontractors the main contractor must in terms of 31.15
notify the subcontractor of the employers default within 5 days
and
make payment to the subcontractor within 7 days of receipt of payment from the employer or 90 days from the due date for payment by the employer, whichever the earlier

Proof of Payment to Subcontractors

The principal agent may in terms of clause 20.6 and 21.6 call for proof from the main contractor that a subcontractor has been paid. Should the contractor fail to provide satisfactory proof of having done so then the employer may instruct the principal agent to certify payment direct to the subcontractor.

Payment Guarantees

Subcontractors sometimes in their eagerness to obtain work, overlook at tender stage the importance of obtaining payment guarantees in terms of clause 3 of the subcontract agreement.

Subcontractors  may however call for payment guarantees in the event of the contractor failing to meet its payment obligations in terms of clause 3.1.2.

This remedy will however not be available where the standard subcontract agreement had been varied to provide that  the main contractor is not obliged to pay its subcontractors until payment has been received by from the employer.

Cautionary Note

Subcontractors should be cautious about entering into direct contracts with employers especially where the main contract has been cancelled and there are allegations of non payment by the employer. In these circumstances subcontractors may find themselves in the same situation as the main contractor by being left unpaid by the employer.

Bruce Lyle | Membership Services Manager

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