The construction industry is evolving rapidly. We are seeing tighter margins, increased regulatory scrutiny, greater complexity in project delivery and heightened financial pressures across the supply chain. More importantly, there is more focus on the contract document. The contract document is no longer a legal technicality but is a strategic issue that affects cashflow, project viability and business sustainability. Therefore, managing the contract and treating it as a strategic matter is important.

During the panel discussion pertaining to Construction Risks in Modern Construction, the following were the key takeaway points:

1) Delayed payments are a critical issue that affects the entire value chain from the Contractor downwards. Non-payment by clients was discussed to be an issue of contractual integrity and / or conduct. Amongst the recommendations made was that the contract document lays the foundation for the project and must be followed. A distinction was made between late payments and non-payment. Whilst contractors were encouraged to treat late payments following a collaborative approach, non-payments should be treated according to the provisions of the contract, and contractors were encouraged to invoke their contractual rights before it is too late.

2) On the topic of Extension of Time Claims, it was discussed that construction contracts all have well developed extension of time clauses. The following advice was shared with contractors to proactively manage this matter:

3) Contract administration was equated to risk administration. It is common cause that the contract serves as a risk allocation tool. The parties to a contract must understand the risk allocation and manage it. Parties to a construction contract were encouraged to manage cashflow and monthly payment certificates more aggressively.

4) The issue of contract amendments was discussed. Issues often arise from half-baked changes or changes to the contract that were not properly thought out. The common change to the payment clauses of a contract to include a pay-when-paid provision was discussed. Whilst it was discussed that these clauses are legal, main contractors were cautioned that they cannot sit back and do nothing when they are not paid. Main Contractors have to take steps to receive the money owed from their clients and make payment to subcontractors.

It was established that contractual risk in modern construction contracts is not merely about drafting contracts, it is about awareness, proper administration, financial discipline and industry culture. To move forward, the sector must move towards fairness, transparency and accountability. 

Bilaal Dawood | Head: Membership Services

07 MARCH 2025 | CONSTRUCTION, ENGINEERING AND INFRASTRUCTURE LAW

On 17 January 2025, the Supreme Court of Appeal (SCA) handed down judgment in Kidrogen RF (Pty) Ltd v Erasmus & Others (815/2023) [2025] ZASCA.

The case involved a shareholding dispute between Kidrogen RF (Pty) Ltd (Kidrogen) and two shareholders, Mr Erasmus and Mr Ncube.

Kidrogen concluded Share Sale Agreements (the agreements) with Mr Erasmus and Mr Ncube to resolve the disputes. The agreements recorded that the disputes would be referred to arbitration by Kidrogen within thirty (30) days of the signature dates (the referral period), and that the arbitration proceedings would be governed by the Arbitration Act.

The agreements further recorded that if the disputes were not referred to arbitration by Kidogren within the referral period, the disputes would be deemed to have been determined in favour of Mr Erasmus and Mr Ncube, entitling them to payments for their shareholdings.

Kidrogen failed to refer the disputes to arbitration within the referral period and only initiated the proceedings months later.

In the arbitration proceedings, Mr Erasmus and Mr Ncube raised special pleas, arguing that Kidrogen had forfeited its rights to refer the disputes to arbitration because it did not refer the disputes within the referral period.

The arbitrator upheld the special pleas, effectively ruling that Kidrogren was time-barred from referring the disputes to arbitration, and that Mr Erasmus and Mr Ncube were entitled to payment for their shareholdings.

Kidrogen thereafter applied to the High Court for an extension of the referral period under section 8 of the Arbitration Act, which records that if the court believed that the time bar would cause undue hardship, it may extend the period.

After much debate and reference to other cases, the court ultimately confirmed that section 8 of the Arbitration Act only applied to “future disputes” and could not be relied upon to overturn a final award issued by an arbitrator.

Kidrogen appealed the High Court’s decision.

The SCA dismissed Kidrogen's appeal, confirming that section 8 of the Arbitration Act only empowers the court to extend the time- bar provision in respect of future disputes. The SCA reiterated that if a party to an arbitration agreement intends on relying on section 8 of the Arbitration Act, it ought to do so before a final award is issued. The SCA also noted that granting an extension after the issuing of a final award would be a futile exercise unless the award had been set aside.

In the circumstances, section 8 of the Arbitration Act can only be relied on where a party to an arbitration agreement seeks to extend the referral period before any dispute arises.

Conclusion:

We often come across contracts with arbitration clauses that are not properly prepared, contain unreasonable time-bar provisions, or are incomplete.

In many instances, parties agree that if they are unable to reach agreement on an arbitrator, a specific arbitration body named in the contract data will make the appointment. Often, the arbitration body is not named. Where there is a time-bar provision, the clock continues ticking despite the parties being unable or unwilling to agree to an arbitrator or an arbitration body to make the appointment.

If the parties seek to revise or amend the arbitration agreement at a point in time when a dispute already exists, and the clock is already ticking, the referring party runs the risk of being time-barred from referring the dispute.

To avoid finding oneself in the above position, it is important to ensure that arbitration clauses are properly drafted and considered. If the time-bar provisions are unreasonable, the parties may agree to amend those provisions, alternately, a party may rely on section 8 of the Arbitration Act to have a court extend the referral period.

This decision makes it clear that parties will be held to much more stringent level of adherence to the timelines and processes agreed to.

This is a reminder that it is crucial to stick to and follow the timelines and processes in a contract with regards to alternate dispute resolution, as seeking relief from the court to relax those timelines and processes may be challenging and time consuming. This case makes it clear that where one applies to court to extend a referral period after a dispute already exists or after an award is made, it will be all but impossible. 


PETER BARNARD | PARTNER
COX YEATS

www.coxyeats.co.za

1. Standard Form Contract Updates

1.1 What to expect

The growing adoption of updated standard forms of contract during 2025 signals a clear trajectory toward greater contractual certainty and explicit risk allocation. Revised editions of GCC, JBCC, NEC and FIDIC are placing renewed emphasis on defined processes, strict notice requirements and clearly articulated rights and obligations.

A notable trend is the continued increasing importance of procedural compliance. Disputes are less likely to turn on general notions of fairness and more likely to focus on whether contractual mechanisms were invoked correctly and within prescribed timeframes projecting recent trends in this regard. Time-bar provisions, in particular, are becoming decisive.

Adjudication and arbitration continue to dominate as preferred dispute resolution mechanisms, with South African courts reinforcing party autonomy where these mechanisms have been contractually agreed.

1.2 What should you do?

Contractors must familiarise themselves thoroughly with the contracts they sign and treat them as essential operational handbooks rather than administrative documents. Key actions include:

• Understanding updates and differences across standard form agreements.
• Recognising that risk is no longer implicitly assumed but explicitly allocated in contract documents.
• Ensuring that accepted risks are adequately identified, priced and managed at tender stage.

2. A Shift Toward Proactive Contract Management

2.1 What to expect

The legal and financial consequences of poor contract management are becoming increasingly evident across the industry. A well-managed contract is now directly linked to project success and in many cases the commercial sustainability of construction businesses.

There is a heightened responsibility to strictly comply with contractual mechanisms, particularly in relation to:

• Suspension of works.
• Termination.
• Notices and claims for dela.
• Cost claims and variations.
• Time-bar provisions.
• Dispute resolution procedures.

Failure to follow prescribed processes can result in the forfeiture of otherwise legitimate entitlements.

2.2 What should you do?

Construction companies should invest more deliberately in:

• Training for project, commercial and site teams.
• Contract administration systems.
• Professional legal and dispute-resolution support (which is available through the Association’s Legal and Dispute Resolution Department).

Early risk identification, structured claims management and regular contract reviews should become standard practice. Crucially, contractual understanding must be translated into practical, day-to-day contract management processes on site.

3. Contract Price Adjustment Provisions (CPAP)

3.1 What to expect

CPAP remains a key mechanism for adjusting contract prices and typically covers materials, labour, plant and equipment, fuel and transport as well as a general cost component. Adjustments are calculated using a basket of indices which are primarily published by Statistics South Africa.

While headline inflation is forecast to remain relatively subdued, construction-specific inputs — particularly fuel, materials and logistics remain volatile and may increase at rates exceeding general CPI. Against this backdrop, coupled with growing emphasis on precise contract wording, CPAP provisions are especially significant for projects exceeding 12 months.

It is important to note that CPAP is one of several contractual price adjustment mechanisms and does not operate automatically.

3.2 What should you do?

CPAP must be understood as a risk-allocation mechanism, not a safety net. Contractors should:

• Confirm that CPAP is expressly provided for in the contract.
• Understand triggering requirements and procedural steps.
• Establish the correct base date and apply indices at the correct intervals.
• Recognise that CPAP does not cover all cost increases.

Accurate documentation and properly substantiated calculations are essential when submitting CPAP claims.

4. Public Procurement

4.1 What to expect

The Public Procurement Act, 2024 was assented to in July 2024 and aims to enhance transparency, integrity and accountability in public procurement. Its objectives include combating corruption, ensuring efficient use of public resources and advancing transformation and inclusive participation.

However, the Procurement Regulations required to operationalise the Act have not yet been promulgated. These regulations are currently being developed and is the subject of debate and scrutiny. The commencement date and practical implementation of the Act is currently uncertain.

4.2 What should you do?

Despite regulatory uncertainty, contractors should begin preparing now. The Act seeks to:

• Standardise procurement law across government.
• Strengthen oversight and anti-corruption safeguards.
• Promote transformation and economic inclusion.
• Introduce new compliance and reporting obligations.

Practical preparatory steps include:

• Developing procurement compliance checklists aligned to the Act’s objectives.
• Preparing for increased transparency and electronic procurement processes.
• Anticipating greater oversight, bid challenges and award disputes.
• Allowing for delays and legal uncertainty during the transition period.
  

5. The Housing Consumer Protection Act

5.1 What to expect

The Housing Consumer Protection Act, 2024 was assented to in January 2025 but has not yet come into effect. Once implemented, it significantly expands the scope of regulatory and warranty protection beyond new homes to include renovations, repairs, additions and extensions requiring approved building plans.

The Act also introduces duties for homebuilders, estate agents, conveyancers and financial institutions, with the aim of strengthening consumer protection – therefore there will be a wider range of parties required to comply with the Act.

As a result, contractors and developers who were previously exempt from NHBRC registration may now be required to register and comply with statutory obligations before commencing work.

5.2 What should you do?

In preparation for implementation, contractors should:

• Ensure your NHBRC registration is in place.
• Develop preliminary legislative compliance checklists to be finalised when further legislative clarity is available.
• Factor enrolment and compliance costs into tender pricing.
• Allow for regulatory lead times in programming and scheduling.
• Strengthen quality management systems and record-keeping practices.

Conclusion

In conclusion standard form contracts are becoming more exacting, CPAP provisions demand careful management, public procurement is entering a period of reform and expanded housing consumer protection will increase regulatory oversight. In this environment, success will depend less on informal practices and more on contractual literacy, proactive risk management, disciplined execution and regulatory compliance.

Bilaal Dawood | Head: Membership Services

Joint Ventures in Construction and Infrastructure Projects: Balancing Opportunity and Risk

Joint ventures have become a defining feature of the construction and mining landscape in South Africa. They are used by contractors to pool skills, resources and capital in order to secure and deliver large projects that may be out of reach for a single contractor. At their core, joint ventures are a means of cooperation. They allow parties to align their interests for a common objective, while retaining their separate corporate identities. For this reason, they are particularly attractive in a sector where projects are capital-intensive, technically complex, and often subject to demanding timeframes and regulatory requirements.

Why contractors make use of joint ventures

The appeal of the joint venture lies in its flexibility. Two companies can come together for a single project without having to restructure their businesses or create a new corporate vehicle. This contractual form allows them to present a united front when tendering, to combine their technical capacity and to spread their risk. For foreign contractors, joint ventures are often the preferred vehicle for complying with local participation requirements or Black Economic Empowerment obligations while still accessing significant projects.

Joint ventures also offer softer but equally important benefits. They can be a way of forging longer-term commercial relationships, exposing parties to new markets and client networks. They enable skills transfer between partners, especially where one partner brings specialist engineering expertise and the other offers local knowledge or logistical capacity. They also enhance credibility in the eyes of funders and employers, as the combined financial and technical strength of the partners can be decisive in securing a tender.

The risks that lie beneath the surface

Yet, the same qualities that make joint ventures attractive also give rise to risk. Because an unincorporated joint venture does not have separate legal personality, its rights and obligations attach directly to the participants. This creates several common pressure points.

The first is governance. A joint venture agreement may create a management committee, but it cannot insulate the venture from instability within a partner. If one partner experiences shareholder disputes, board changes, or loss of capacity, the joint venture itself can grind to a halt. Unlike a company, which has its own statutory governance regime, the joint venture only has the governance mechanisms its partners have agreed upon.

The second is financial management. Most joint venture agreements provide for dedicated bank accounts with dual signatories. This is meant to ensure transparency and prevent unilateral withdrawals. But where authority within one partner becomes contested, banks often respond to competing mandates by restricting or freezing accounts. The practical effect is immediate paralysis: salaries go unpaid, suppliers are left hanging, and the entire project can stall even though the partners may be in agreement on operational matters.

There are other risks too. Liability is often joint and several, meaning that a third party can pursue either partner for the full debt of the venture. Without clear allocation provisions, disputes can arise over who shoulders the cost of delays, overruns or defects. Exit provisions are frequently neglected, leaving parties without a mechanism to unwind the relationship if the project falters or if one partner becomes unable or unwilling to perform. And, critically, disputes between partners can spill into the project itself, leaving employers and clients caught in the crossfire.

When risk becomes reality: the Imbani case

The  recent case of Imbani Minerals (Pty) Ltd v Standard Bank of South Africa Ltd and Others (Johannesburg High Court, 22 August 2025) shows how quickly things can unravel in a joint venture when proper safeguards are not in place.

Imbani and Kilken Platinum had a joint venture to process mining tailings. Their agreement was straightforward: the JV would have dedicated bank accounts, and any payment had to be authorised by two signatories, one nominated by each partner. For more than ten years this arrangement worked without difficulty.

The problem started within Kilken itself. Its shareholders fell into a bitter dispute and split into rival camps. Each camp claimed the right to appoint Kilken’s representative to sign on the JV account. Standard Bank was caught in the middle. Faced with conflicting instructions, and the risk of being held liable if it allowed the wrong person to sign, the bank froze the JV account. From that moment, the JV could not pay salaries or suppliers. In practice, the project was paralysed even though the work on the ground had not stopped.

The dispute was complicated by earlier High Court orders made in separate litigation between Kilken’s shareholders. Those orders required both factions to nominate signatories to Kilken’s accounts so that neither side could act alone. The question before the Court was whether that safeguard also applied to the JV account. The Court held that it did. Because the JV was not a separate legal entity, its bank account was in law simply an account operated by its members. This meant that the same safeguard applied: the JV account could not be used without three signatures – one from Imbani and one from each Kilken faction.

The lesson from Imbani is simple but critical. A joint venture without its own legal personality has no protection against instability inside one of its members. If a partner becomes deadlocked or divided, the JV itself can be dragged down with it. The bank will always err on the side of caution. Unless the JV agreement makes provision for continuity, the account will be frozen, wages and suppliers will go unpaid, and the project will stall.

This risk could have been avoided if the JV agreement had anticipated what should happen if one partner became deadlocked. The parties might have agreed that if a venturer could not agree internally, an alternative representative would automatically step in. They could also have provided for an independent person to be a temporary co-signatory to allow essential payments such as wages and certified subcontractor accounts to continue while the dispute was resolved. Even a simple clause requiring each venturer to keep its internal resolutions up to date and to replace its signatory promptly would have made a difference.

Conclusion

Joint ventures remain an indispensable vehicle for delivering large and complex projects. They allow contractors to share risk, pool expertise and broaden their access to opportunities. But they must be approached with care. A joint venture agreement should not only allocate scope and profit shares, but also provide for governance stability, financial continuity, dispute resolution and exit mechanisms. Without these protections, as the Imbani matter shows, even a successful venture can be paralysed by disputes within one partner.

Contractors should therefore view joint ventures as both an opportunity and a risk. When properly structured, they unlock projects that could not be delivered alone. When carelessly managed, they can expose participants to uncertainty, liability and disruption. The key lies in recognising both sides of the equation, and in drafting agreements that anticipate difficulties before they arise.

Khanya Mgebisa | Cox Yeats 

Visit: https://www.coxyeats.co.za/

As a result of the above, the general practice is that an Employer holds the Main Contractor contractually responsible for any and all defects on a construction project, even those that arose from the work of a Subcontractor. This position is correct since in most cases, there is generally no direct contract relationship between the Employer and Subcontractor. Furthermore, the terms of the main contract may lay out the recourse available to the Employer and this must be adhered to.

The stipulatio alteri principle which is recognised in South African law, provides a scenario where a contract may confer benefits to a third party who is not a direct party to the contract. This principle could be relevant to construction contracts where an Employer seeks recourse against a Subcontractor, however, in order to be successful, two key requirements must be met:

1. The subcontract agreement must include a stipulation which includes a benefit for a third party, the Employer in this instance, who is not a party to the contract.
2. The beneficiary of this provision, the Employer in this instance, must either expressly or tacitly accept this benefit conferred to them by the contract.

A typical example of a contract which includes the stipulation alteri principle is where an individual takes out a life insurance policy designating a specific beneficiary who will receive the payout.

An alternative claim that an Employer may explore in their claim against a Subcontractor is a delictual claim. To succeed with a delictual claim, the Employer must prove:

1. That the Subcontractor owed a duty of care to the Employer.
2. The subcontractor breached this duty of care by failing to perform their duties to the required standard.
3. This breach of duty caused actual harm or damage to the Employer.

The purpose of this article is to raise awareness that a Subcontractor may not be absolutely immune to claims from the Employer depending on the terms of the contract and it is necessary to execute work that meets the standard of care required.

Bilaal Dawood Head: Membership Services 

Building plans play an integral and fundamental role in the construction lifecycle. The plan is a blueprint that translates vision into reality. It defines what must be done, how it must be done and sets the standards by which quality and safety are measured. It reduces uncertainty, prevents costly mistakes and ensures that all role-players on a project are on the same page by serving as the common language that aligns everyone’s efforts. It is therefore a blueprint to ensure that all project participants are in tune, allowing them to sing from the same hymn sheet.

In terms of the latest statistical release by Stats SA entitled “Selected building statistics of the private sector as reported by local government institutions (Preliminary)”, dated June 2025, the value of building plans has decreased during the first half of 2025 when compared to the first half of 2024 across the following comparisons overall:

- Building plans passed by larger municipalities at current prices by type of building.
- Building plans passed by larger municipalities at current prices by province.
- Building plans passed at constant 2019 prices.

Beyond safety and compliance, a building plan is an economic trigger and every time a plan is approved, its sets a whole value chain into motion:

- Architects begin design execution.
- Contractors and subcontractors mobilise on site.
- Suppliers receive material orders and deliver materials to site.
- Workers and artisans gain employment.
- The Community benefit from new infrastructure, housing or commercial activities. 

Therefore, delays in plan approvals do not just slow down projects – they stall jobs, investment confidence and growth in towns and cities while also impacting potential revenue collection by the municipalities. One could go further on this basis and state that plan approval is a matter of public interest and not just industry interest.

To address this issue directly, the Association recently hosted a series of workshops across four regions – Durban, Zululand, South Coast and Pietermaritzburg. Each session featured presentations from municipal planning approval departments in the various areas, which consisted of eThekwini, uMhlathuze, Msunduzi and Ray Nkonyeni Municipalities with some municipalities also including contributions from their Building Control Officers. These engagements created an important platform for open dialogue between the private sector and municipal authorities and was well attended overall.

Key Issues Highlighted

The Way Forward

The workshops underscored the importance of collaborative problem-solving between municipalities and the private sector. While municipalities highlighted resource constraints and regulatory requirements, industry representatives emphasized the need for clear timelines, transparent communication and consistent application of legislation. The municipalities in all areas were accommodating and supportive of measures to improve the overall planning approval process. 

Proposals included:

Conclusion

Plan approval delays are not unique to KwaZulu-Natal, but their impact on our provincial construction industry is particularly acute given current economic pressures. The workshops provided a valuable opportunity to strengthen dialogue and lay the groundwork for collaborative solutions. As the Association, we will continue to advocate for efficient, predictable and transparent plan approval systems – systems that support sustainable growth, create jobs and unlock much-needed development across the province.

Public policy has no fixed meaning because it represents the interests of a particular community at a particular time and can therefore vary in substance from society to society and evolves as time lapses.

In the context of construction contracts, an argument often proffered is that a penalty clause is contrary to public policy with regards to either the quantum of the penalty or the circumstances under which they are being enforced. 

Courts have the power to strike down a contract for being contrary to public policy, but such powers are exercised sparingly. The reasons for this are twofold:

The above was affirmed in Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others held in the Constitutional Court. The Court reaffirmed that the rule of law requires that the law be clear and ascertainable and provide reasonably predictable outcomes for contracting parties and that freedom to contract is based on constitutional values of freedom and dignity, and is vital for economic development to achieve the constitutional vision of society.  A person seeking to attack a contract based on it being contrary to public policy bears the onus of proof in this regard.  The Court in this case confirmed that a contract may be set aside if it is contrary to public policy, however, the Court encouraged and supported a “perceptive restraint” approach meaning that the Court will use this power sparingly in the clearest of cases.

As a general guiding principle, a court will look objectively at the relevant parties bargaining power, the disproportionality of the consequences versus an innocent party’s legitimate interests or whether the affected party had legal advice when entering into the contract. On the other hand, a court may even assume that commercial parties contracting on equal terms are capable of deciding the appropriate consequences to protect their legitimate interests. 

When a court declares a contract illegal, it looks at the tendency of the contract, not the actual result. This means that the tendency of the contract must be contrary to public policy to be declared illegal. A court will not declare a contract illegal simply because it offends the courts individual sense of propriety or fairness.

In addressing the aspect of penalties, the Conventional Penalties Act 15 of 1962 plays an important role in adding further clarity.

Please contact the Association for any further queries.

Bilaal Dawood | Head: Membership Services

Introduction 

Alastair Hay | Cox Yeats

https://www.coxyeats.co.za/

Ensuring Clarity, Compliance and Claims Protection from the perspective of a Contractor

Contractual notices are a vital part of effective project management and contractual claims management.

Whether related to time, cost or variation orders, these notices ensure that all parties are aware of potential impacts on the contract and serves the purpose that the Contractor preserves their claim entitlements and the Employer can take steps to mitigate the claim against them. Failure to issue proper notices, which must firstly be issued within the time allowed in the contract, can result in waived claims, disputes or financial loss.

This article outlines the key elements a contractual notice should include, and the importance of supporting documentation.

What is a Contractual Notice?

A contractual notice is a formal communication from one party (in this instance the Contractor) to another (usually the Employer or Principal Agent), notifying them of an event or condition that may affect the time, cost, scope of the works or any combination of time, cost and scope.

Notices are often required under contracts such as FIDIC, NEC, JBCC, and GCC. These contracts further stipulate the circumstances under which notices are required, the entitlement of the party submitting the notification, including what should be included in the notification and the time period within which to submit the said notification.

A contract notification should be differentiated from a contractual claim, which is usually preceded by a contractual notification. The focus of this article is the notification which is a critical step in the contractual claim process. An incorrect notice or a notice issued out of time may jeopardize a potential and valid contractual claim.

Core Elements a Contractual Notice:

A properly constructed notice should be clear, specific and timely. Failure to submit a contractual notice on time may result in a claim being time barred which means that the Contractor will have to absorb the said claim and is at risk for penalties should the claim affect time.

It should include the following:

1. Reference to the Contract

• Clearly identify the contract (e.g., Contract Name, Date and Clause being invoked).
• Mention the relevant clause that necessitates the notice and gives right to an entitlement of claim (e.g., “Clause 32.1 – Delay Event Notification,” etc).
• It is possible for multiple contractual clauses to be invoked for a single claim.

2. Description of the Event & Potential Impacts

• Provide a concise but comprehensive explanation of the event or circumstance that is the subject of the notice.
• Include details such as what happened, when it happened and where possible, how it affects the works, time or cost. (e.g., a delay that affects the critical path of the programme)
• If applicable, note that further particulars will follow during the claim submission process.

3. Date of the Event

• Specify the date on which the event or issue occurred.
• This is critical especially when assessing whether the notice is issued within the timeframe specified in the contract.
• If it’s a continuing event, mention both the start date and expected duration or what is required for the event to cease.

4. Supporting Documentation

To strengthen the notice and improve its credibility, include relevant documents as attachments to the notice. Some examples are included below:

a. Contract Instructions (CIs)

• Include any written instructions received from the Principal Agent or Engineer that led to the change or event.
• Reference instruction numbers and dates.

b. Field Engineering Queries (FEQs)

• If the notice arises from or relates to technical uncertainties, attach the FEQ with responses.
• Reference any delays in responses or unresolved issues that impact progress.

c. Updated Drawings or Specifications

• Include or reference any new or revised drawings that contributed to scope changes or rework.
• Clearly identify the drawing numbers, revision dates and the nature of the change.

5. Action Requested or Being Taken

• Indicate what action is being taken by the contractor (e.g., preservation of works).
• Request any required instructions or clarifications from the Employer, Principal Agent or Engineer as required.

Best Practices for Issuing Notices

• Timeliness is key: Most contracts stipulate timeframes (e.g., within 7 or 14 days). Late notices can be time barred and thereby invalidate claims.
• Keep it factual and objective: Avoid emotional or speculative language.
• Use formal communication channels: Email may be acceptable, but verify the method prescribed in the contract (e.g., hard copy, online portal).
• Track and log all notices: Maintain a register with dates, subjects and responses.

Conclusion

A well-prepared contractual notice is more than a formality—it is a strategic tool that protects your rights, facilitates transparent communication and also aids in dispute avoidance or dispute resolution.

Should you require any further information or clarity, please contact the Association.

Bilaal Dawood | Head: Membership Services

1. When shall an unresolved dispute be referred to arbitration?

An unresolved dispute is referred to arbitration where the contract does not provide for adjudication, or adjudication has been exhausted, and the parties do not wish to submit the dispute to mediation. The contract should allow for arbitration or there should be an agreement between the parties to submit a dispute to arbitration. The agreement to arbitrate could take the form of a separate agreement between the parties, however, most construction contracts contain an arbitration clause in respect of dispute resolution. These clauses constitute an Arbitration Agreement in terms of the Arbitration Act 1965.

2. You wish to submit your dispute to arbitration, what should you do?

In most instances, the contract sets out the process to follow when invoking the arbitration clause. The general process is as follows:

3. The arbitrator is appointed, now what?

Once an arbitrator is appointed, there is usually a preliminary meeting and the process to be followed is clarified. The rules applicable to the arbitration are usually specified in the contract following wich, these are agreed to with the arbitrator. During the preliminary meeting, the submission timeframes for documentation are agreed to, including how evidence will be led and the arbitration hearing dates are planned. 
The parties are then responsible to adhere to the process and timelines as agreed to during the preliminary hearing.
The arbitration process is not to be construed as a review or appeal process. The disputes are referred anew and the arbitrator will decide based on the submissions and evidence of the respective parties.

4. What happens after the arbitration hearing has been finalised?

The arbitrator then communicates his / her decision to the parties in a document known as the Award. The Award is almost always for the payment of a sum of money by one party to another. The performance of certain works is seldom made since such an Award will lack finality. 

5. Who pays for the costs of an arbitration?

The parties usually share in certain costs of the proceedings whilst it is still pending. This includes the arbitrator appointment costs, the costs of the arbitrator and the venue etc. Whilst the arbitration is pending, each party will pay their own legal fees and the costs of their own experts. On conclusion of the arbitration, the arbitrator may make an award for costs which may be a punitive measure. There are various considerations employed by an arbitrator when making a costs award but there is no general rule that the successful party will recover all costs of an arbitration. 

6. You received an Award, what’s the next step?

Once you have received an Award, the other party must comply with the Award. If required, the successful party may apply to a court of competent jurisdiction to compel the losing party to comply with the Award in terms of section 31(1) of the Arbitration Act. The arbitration award can then be made an order of court and executed upon.

7. Can a court remit or set aside the Award?

An arbitration award is usually final and binding and not subject to appeal unless agreed to by the parties. On good course shown, it may be referred back to the arbitrator for consideration or to hear further evidence or any other purpose agreed by the parties or upon direction of the court. An arbitration award may also be set aside by a court where it has been tainted by gross and reprehensible misconduct. 

The Association assists parties by providing representation during adjudications and arbitrations. Should you require any assistance or any further clarity, please contact the Association.

B. Dawood | Head: Membership Services

Some of the advantages of a turnkey contract include:

• There is one party to take responsibility for design and construction and can therefore be expected to design the works taking full account of access and construction issues and in a manner taking into account execution of construction activities. In principle, such design should offer a savings on both cost and time taken.
• There should be a cost saving to the Employer due to there being no separate design engineering and consultants. Employers without adequate technical resources may find these contracts attractive.
• Turnkey contracts are usually lump sum and offer security to the owner in the sense of price certainty. A contractor must ensure to price their risks into the tendered price.
• Payments can be milestone based instead of valuation based and the conventional interim payments can be done away with. This helps the Employer to have an informed budget commitment as well as assist the Contractor with their budget and expense planning in advance.
  

  Some of the disadvantages of a turnkey contract include:

  
  
• There may be little or no check on the reasonableness of the price where the tendered designs by various contractors differ. Competitive tendering may result in some tenders under-designing the works which may cause issues during the later lifecycles of the project, including the durability of the project.
• A Contractor may incur high expenditure to hire a professional team to prepare a baseline design when tendering for the works.
• Studies in the UK have shown that where it was possible to compare a turnkey project price to a conventional project, the turkey project did not provide significant price savings but did provide time savings.
• Turnkey contracts need to be properly drafted for price certainty and to avoid variation proceedings which can easily be abused. There needs to be a balance of the rights between the Contractor and Owner, since a Contractor should have a right to variations where the requirements of the Employer change.

When deciding whether to use a turnkey contract, the parties must consider advantages and disadvantages, the complexity of the works and decide.

Should you have any further queries regarding a turnkey contract, please contact the Association.

Bilaal Dawood | Head: Membership Services

The Public Procurement Act, 2024 (Act No. 28 of 2024) (“the Public Procurement Act”) was signed into law on 23 July 2024. This Act has not yet come into effect due to the pending Regulations that are being finalised. The purpose of this article is to understand the importance and need of this critical legislation. Once the Regulations have been finalised, the impact on the construction industry will be explored in a future article.

In the book “The Law of Government Procurement in South Africa”, Phoebe Bolton estimates that public sector procurement accounts for approximately 14% of South Africa’s gross domestic product (GDP). This translates to a large monetary value and public procurement is expanding. Due to the magnitude of public procurement, taxpayers have an interest in the way the money is spent. Furthermore, public procurement is of major significance for the economic development of the country. Public procurement can be used to drive social and policy objectives by promoting the development of previously disadvantaged persons or groups. Therefore, public procurement differs from private procurement in so far as the policies they aim to achieve, the importance from a public interest perspective and the large amounts of public money involved.

Public Procurement in South Africa is afforded constitutional status. The Constitution, Act 108 of 1996 (“the Constitution”), is the supreme law of the land and any law of conduct inconsistent with the Constitution, is invalid. Section 217 (1) of the Constitution provides that when the government contracts for goods or services, it must do so in accordance with a system that is “fair, equitable, transparent, competitive and cost-effective”. Section 217(2) of the Constitution goes on to provide grounds for differential treatment of contractors or service providers in achieving policy objectives. The Public Procurement Act and Regulations give effect to section 217(3) of the Constitution which requires that National legislation prescribes a framework within which the policy referred to in Section 217(2) must be implemented.

The question that sometimes arises is, what is the scope of application of Section 217 of the Constitution? Section 217(1) refers to “an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services”.  An organ of state is defined in section 239 of the Constitution as:

“(a) any department of state or administration in the national, provincial or local sphere of government; or

(b) any other functionary or institution –

(i) exercising a power or performing a function in terms of the Constitution or provincial constitution; or

(ii) exercising a public power or performing a public function in terms of any legislation, but does not include a court or a judicial officer.”

Three tests or approaches have been developed in this regard, viz, the control test, the government function test and the government entity test. The control test entails whether the entity is under the control of the state. The government function test focuses on the nature of the function performed (see Claase v Transnet Bp ken ‘n Ander 1999 (3) SA 1012 (T)).  The government entity test is the broadest and entails the establishment of two questions which are “Does the entity perform tasks pursuant to some form of statutory authority?” and “Is the task performed pursuant in furtherance of some government objective?” (Woolman, 1999).

When interpreting the phrase “any other institution identified in national legislation” as contained in section 217(1) of the Constitution, care must be exercised not to interpret this as any institution named in any legislation. According to Bolton, this phrase should be interpreted as referring to those institutions that are specifically identified in legislation as those to which section 217(1) applies. This would lead to the interpretation of the inclusion of all those institutions in the PFMA because this Act, in sections 38(1)(a)(iii) and 51(1)(a)(iii), reflects the procurement principles laid down in section 217 of the Constitution.

Procurement law, as it may be called, can be seen as a complex web of systems. However, the basics stem from section 217 of the Constitution.

Should you have any queries, please do not hesitate to contact the Association.

B. Dawood | Head: Membership Services

The South African construction industry contributes approximately 3% to the gross domestic product (GDP), employs over 1.3 million South Africans (176,000 jobs added in the third quarter of 2024) and plays a critical role in the economy. The construction industry also has an unmatched multiplier effect in that for every R1 million invested, more than three jobs are created. This is the highest multiplier across all sectors in our economy. These statistics were shared by the Deputy Minister of Finance, the Honourable Ashor Sarupen, at the National Construction Summit on Crime-Free Construction Sites held at Durban’s ICC on 19 November 2024. The Deputy Minister went on to reveal that criminal syndicates and site disruptions have hindered over 180 projects worth R63bn since 2019.

The Deputy Minister outlined a three-pronged approach as part of a strategic plan which includes:

• Public procurement reform.
• Expanding PPPs.
• Scaling infrastructure development.

It was indicated that subcontracting will be allowed only where feasible and must follow due process to prevent abuse, and also called for direct payments to subcontractors and stricter subcontracting requirements designed to curtail exploitation and delays. He stated that “Government entities will have the option to pay subcontractors directly, eliminating the delays and exploitation often experienced under the current system.” He further stated that efforts to revitalise the construction sector are part of the broader reform under Operation Vulindlela, which is a joint initiative between Treasury and the Presidency launched in 2020.

Operation Vulindlela has achieved significant progress in:

• Stabilising the electricity supply.
• Reducing the cost and improving the quality of digital communications.
• Securing sustainable water supply.
• Enhancing the efficiency of freight transport.
• Reforming the visa regime to attract skills and grow tourism.

The Deputy Minister said, “Phase 2 of Operation Vulindlela focuses on creating dynamic and integrated cities to support urbanisation and economic growth. This will require substantial contributions from the construction sector to build housing, schools and transport infrastructure needed for our rapidly growing urban population.”

Minister of Public Works, the Honourable Dean Macpherson, made a compelling call for heightened police intervention for site disruptions. The Honourable Minister Macpherson highlighted that the gathering is not aimed only at discourse but at initiating tangible change underscored by the urgency of combating criminal disruptions that hinder South Africa’s infrastructure developments. He further highlighted the impact of these criminal activities which have plagued both public and private sector projects and the far-reaching consequences, including the disruptions to essential services in vulnerable communities. The Honourable Minister Macpherson called for a joint and collaborative approach from all stakeholders in combating these unlawful site disruptions.

The Honourable Minister of Police, Senzo Mchunu, stated that Gauteng, Western Cape and KwaZulu-Natal are the engines of South Africa’s economy and cannot be handed over to mafia syndicates. He advised that the SAPS is escalating its investigations to apprehend those behind these syndicates.

The Durban Declaration of Crime-Free Construction Sites is the product of the Summit and was signed by the Minister of Public Works & Infrastructure, the Deputy Minister of Police, the Deputy Minister of Finance and the cidb Chairperson. Honourable Minister Macpherson said, “The purpose of the Declaration is to outline a collective commitment to eradicate extortion and violence on construction sites and [pledge an] initiative mechanism to urgently and immediately give effect to this commitment.” The Declaration proposes a series of interventions to be implemented over the next year to end disruption at construction sites including:

• Strengthening the legislation governing the construction industry.
• Implementing appropriate policies for the development of the construction industry.
• Prioritising law and order through enhanced data collection and reporting systems.
• Enhancing the rapid response to lead to arrests for extortion on construction sites and prosecutions.
• Developing standard frameworks and guidelines for embedding social facilitation in project planning and implementation.
• Providing for the systematic and structured development of emerging enterprises and skills development.
• Establishing collaborative platforms for industry stakeholders to share best practices.
• Collaborating on solutions to the problems faced by the construction industry.

In addition, the National Extortion Hotline number was shared: 0800 911 011.

The Association has developed a guideline for members in responding to site disruptions. Click here to download.

Bilaal Dawood

Head: Membership Services

INTRODUCTION 

Arbitration is an alternative private dispute resolution process which is governed by the Arbitration Act, 42 of 1965 (“the Act”).

If a party to a contract, which includes an agreement to arbitrate disputes, institutes legal proceedings, the Act provides that the other party may apply to court for the legal proceedings to be stayed so that the dispute can be dealt with by way of arbitration.[1]

The other party may also choose simply to defend the legal proceedings and raise the arbitration agreement as a special defence to the legal action.

The Act and our courts recognise the primacy of arbitration where parties have agreed to arbitrate as opposed to litigate their disputes.

However, an agreement to arbitrate disputes does not entirely oust the jurisdiction of our courts.

The Act makes provision for the court, on good cause shown, to:

• set aside the arbitration agreement[2]; or

   

• direct that any particular dispute not be dealt with by arbitration.

The default position of our courts has been to uphold arbitration agreements and stay legal action which has been taken vis-à-vis an arbitration agreement or alternatively uphold a defence to the action based on the existence of the arbitration agreement.

The principles that emerge from our case law on the subject are:

• there must be very strong grounds for avoiding the arbitration agreement;

   

• the party seeking to avoid the agreement has the onus of persuading the court, which will not be easily discharged;

   

• arbitration has the advantage of finality and a party should not be readily deprived of that benefit; and

• only where there is something intrinsically unfair about arbitration proceedings should a court allow a party to avoid the arbitration agreement.

Some of the factors which courts have taken into account in determining whether good cause exists to avoid the arbitration agreement are:

• In cases where fraud is alleged, a court will be inclined to direct that such a case be heard in open court as opposed to by way of arbitration. However, a distinction is drawn between who seeks the referral to court. If it is the person against whom fraud has been alleged, the court will more readily uphold an application to avoid the arbitration agreement. If it is the person alleging fraud, the court may be less inclined to set aside the arbitration agreement.

   

• Where two different tribunals will have to adjudicate the same facts and may come to conflicting decisions.[3]

   

• The avoidance of the wastefulness involved in having issues investigated and decided in two different tribunals.

   

• Where a claim lies against more than one party and only one of the parties is bound by the arbitration agreement, which creates the possibility of conflicting findings of fact and law in the arbitration and in separate court proceedings.

[3]Metallurgical and Commercial Consultants v Metal Sales Co 1971(2) SA 388 (W) at 393

Some case studies follow.

METALLURIGICAL AND COMMERCIAL CONSULTANTS CASE

This case involved a contract in terms of which Metallurgical and Commercial Consultants (“MCC”) was appointed for a five year period as a business adviser and public relations consultant to Metal Sales Co.

The contract contained a clause stipulating that any difference or dispute arising between the parties had to be submitted for determination by arbitration before a single arbitrator agreed between the parties and failing agreement appointed in accordance with the Act.

Metal Sales Co failed to make payment of fees claimed by MCC in terms of the contract and disputed that it was liable to do so.

MCC wished to have the dispute between the parties resolved by arbitration and sought Metal Sales Co’s agreement to the appointment of an arbitrator. Metal Sales Co declined to cooperate and, as provided for in the Act, MCC applied to court to have an arbitrator appointed.

Metal Sales Co opposed the application on the grounds that the contract did not embody a valid transaction between the parties but was a mere pretence and was not intended to have any legal efficacy or validity.

The court observed that, if the contract embodying the arbitration agreement was invalid and without legal force, that would apply equally to the arbitration clause in the contract.

It bears noting however that, if an arbitration clause is worded in such a way that it is intended to cover disputes about the validity of the agreement itself, the arbitration clause will be treated as a separate agreement clothing the arbitrator with the power to adjudicate the issue of the validity of the agreement.

In opposing the application for the appointment of an arbitrator, Metal Sales Co argued that the court should exercise its discretion in terms of the Act and order that the dispute be dealt with in court as opposed to by way of arbitration.

The grounds relied upon by Metal Sales Co in advancing this case were that it had claims against the majority shareholder of MCC and other parties which it intended to pursue in court proceedings connected with alleged fraudulent conduct on the part of the shareholder concerned. It contended that the shareholder’s fraudulent conduct would feature not only in the intended court litigation but in the arbitration proceedings as well.

Metal Sales Co relied on authority which is to the effect that, although questions relating to fraud can be settled by arbitration, it is usually better that they be settled in court.

It also argued that it would be wasteful to have to deal with the investigation of the shareholder’s fraud both in the court proceedings and the arbitration, which it said also gave rise to the possibility that the two tribunals might reach different conclusions on the same issues.

It relied strongly on the English case of Halifax Overseas Freighters[4] where this consideration had weighed heavily in favour of not upholding the arbitration agreement.

Reasoning as below, the judge took the view that the grounds relied upon by Metal Sales Co were not sufficient to show good cause to avoid the arbitration agreement and that the Halifax Overseas Freighters case was distinguishable.

Firstly, the principle that issues of fraud should be dealt with in court rather than arbitration applied in cases where the person accused of fraud wished to bypass an arbitration agreement and have the issue adjudicated in court.

Secondly, the Metal Sales Co claims did not lie against MCC but a third party, namely the major shareholder, and the risk of a decision on liability in one tribunal being different to the decision in another tribunal involving the same parties did not arise.

Thirdly, the facts in the Halifax Freighters case were distinguishable because in that case there was the danger of the plaintiff falling between two stools. The same facts and law had to be adjudicated in arbitration and court which, if there were conflicting findings, would end up with the plaintiff being unsuccessful in both forums whereas, if the various defendants were all in one forum, the plaintiff had to succeed against one of them.

The upshot of the application was that the court referred the dispute as to the validity of the agreement containing the arbitration clause for the hearing of evidence in court on the basis that, if the agreement was held to be valid, the arbitration would then proceed.

[4] Halifax Overseas Freighters Ltd v Rasno Export Technoprominport and Polskie Linie Oceaniczne PPW (the “Pine Hill”) [1958] 2 Lloyd’s List Law Reports 146, McNair J

HALIFAX OVERSEAS FREIGHTERS CASE 

This was a case involving an equivalent provision in the English Arbitration Act where a party applied to court to stop arbitration proceedings.

The matter was a shipping case involving a charter party, namely a ship lease, which contained an arbitration clause and bills of lading which did not.

The plaintiff elected to sue the party implicated in the charter party and two other defendants implicated in the bills of lading in court so that all protagonists were in the same forum.

The charter party defendant applied to court to stay the proceedings on the grounds that the claim against it had to be dealt with by arbitration.

The position was that the decision in relation to the plaintiff’s claim against the charterer and its alternative claim against the bills of lading defendants depended on decisions on the self-same issues.

The court said that it was apparent that the matter was one which, if possible, consistently with the contractual obligations which the parties had assumed, should be determined in one set of proceedings.

The court took into account three relevant factors:

• firstly, that, if the claim of the plaintiffs against the bills of lading holders and the plaintiffs’ claim against the charterer were allowed to proceed before different tribunals, there was a substantial risk that one would get from those two tribunals inconsistent findings of fact, resulting in the plaintiffs losing in both forums when, if all parties were in the same forum, it had to succeed against one of the defendants;

   

• secondly, the case involved complicated and difficult questions of law which two different tribunals could come to different conclusions on, with the same adverse consequences for the plaintiff;

   

• thirdly, having the matter dealt with in one forum would have the benefit of a very substantial saving in time and costs.

The judge observed that, whilst each consideration might not individually justify avoiding the arbitration agreement, collectively he considered that they did.

In the circumstances, the court dismissed the charterer’s application to stay the legal proceedings and held that the legal action should be allowed to continue. 

SERA VS DE WET [5] 

In this case De Wet appointed Sera to carry out certain building works at his house in Pretoria.

De Wet cancelled the contract in circumstances which Sera contended gave rise to him having a damages claim against De Wet.

Sera did not wish to pursue his damages claim in terms of the arbitration clause in the building contract and applied to court for an order that the arbitration agreement should not apply to his claim.

The grounds advanced by Sera in support of his application were:

• there were serious allegations regarding the honesty and integrity of the architect who had administered the contract;

   

• the arbitration agreement made provision for the appointment of an architect as arbitrator;

   

• the architect appointed as arbitrator would be in an embarrassing and difficult position to rule on the honesty and integrity of a colleague;

   

• courts of law are better equipped to decide upon matters of credibility; and

   

• the main issue in the case was a legal one involving whether a certificate issued by the architect entitled Sera to payment, which was a matter best decided upon by a court.

The judge somewhat surprisingly upheld the application and ruled that Sera was entitled to pursue his claim in litigation as opposed to by way of arbitration.

The judge may have been influenced in this decision in no small way by his finding that De Wet had acted in an arrogant and dictatorial manner, had completely taken matters into his own hands, manipulated them as he wished and in the process, not only absolutely usurped the powers of the architect, but also, as the judge described it, rendered him a servile instrument for his purposes. 

[5] Sera v De Wet 1974 (2) SA 645 (T)

YORIGAMI MARITIME CONSTRUCTION VS NISSHO-IWAI CO LTD [6]

In this case Nissho-Iwai Co (“Nissho”) concluded a towage charter with Yorigami Maritime Construction (“Yorigami”), a tug owner, for purposes of towing two vessels owned by Nissho from Piraeus in Greece to Pusan in Korea.

While towing the two vessels, the tow broke, with the result that the two vessels were wrecked off Camps Bay and Llandudno in the vicinity of Cape Town.

Nissho attached the tug in Cape Town to provide jurisdiction to pursue a damages claim against Yorigami in the Cape Town High Court.

Yorigami applied to the court to uplift the attachment of its tug and relied inter alia on the fact that there was an arbitration clause in the towage charter requiring disputes between the parties to be decided by arbitration in Japan.

The court made the point that in our law an arbitration clause does not oust the jurisdiction of the court.

In rejecting Yorigami’s application to stop Nissho pursuing a damages claim against it in the Cape Town High Court, the court relied on the following factors:

• the vessels connected with the damages claim were within the jurisdiction of the Cape Town High Court;

   

• many of the witnesses who would have to testify in the proceedings required to determine the liability of the master of the tug were resident in Cape Town;

   

• investigations would have to be carried out in Cape Town by experts who could not be compelled to give evidence in an arbitration in Japan;

   

• Nissho’s claim also lay against the South African Railways and Harbours;

   

• the claim might also lie against another defendant, Trade Traffic, based in Cape Town; and

   

• if arbitration proceedings against Yorigami were held in Japan and legal proceedings against the Railways and Trade Traffic in Cape Town, there would be a multiplicity of actions and a high likelihood of resultant conflicting decisions. 
  

[6] Yorigami Maritime Construction v Nissho-Iwai Co Ltd 1977(4) SA 682 (C) at 694

RAWSTORNE VS HODGEN [7]

In this matter the Rawstornes sold their members’ interests in a close corporation which owned a residential property in Fourways together with certain movable assets to Mr Hodgen.

The agreement contained an arbitration clause.

Mr Hodgen instituted arbitration proceedings against the Rawstornes for the value of certain of the movable assets that had not, in breach of contract, been delivered and also in respect of latent defects in the residential property which he contended the Rawstornes had fraudulently failed to disclose.

The Rawstornes applied to court to stop the arbitration proceedings on the grounds that, in light of the allegations of fraud against them, the case ought properly to be dealt with in court proceedings.

The court observed that the discretion of a court to not uphold an arbitration agreement is a limited one and the onus of satisfying a court that it should exercise its discretion to do so is on the party who wishes to bypass the arbitration agreement. It is a discretion that must be exercised judicially.

In this case, as the Rawstornes were the parties who had been accused of fraud and, as they wished the allegations of fraud to be dealt with in open court, the court considered it appropriate to grant the application and direct that the arbitration agreement would not apply to Mr Hodgen’s claims.

[7] Rawstorne and Another v Hodgen and Another 2002(3) SA 433 (W) at 438

WELIHOCKYJ VS ADVTECH [8]

This case related to a sale of business agreement which incorporated a dispute resolution clause providing for resolution of disputes by an independent person acting as an expert and not as an arbitrator.

Disputes arose which were referred for determination in accordance with the dispute resolution clause.

The first thing the court found was that, although the clause referred to the party acting as an expert and not as an arbitrator, because the clause made it clear that the person was expected to exercise a quasi‑judicial function, in truth he was an arbitrator.

The clause clearly contemplated the person making decisions based on evidence provided rather than simply relying on his own experience and skill. The fact that the clause made reference to an expert acting did not mean that the proceedings contemplated were not to be regarded as arbitration proceedings.

Allegations of fraud had been levelled at Mr Welihockyj and his co‑applicants which prompted them to apply to court to stay the arbitration proceedings so that the disputes, including the allegations of fraud, could be determined in court proceedings.

The court upheld the application in light of the following considerations

• serious allegations of fraud had been made against the applicants which justified a public hearing in court with a right of appeal;

   

• the disputes involved in the arbitration were interwoven with legal proceedings which were already under way and which, if allowed to continue independently of each other, would result in a costly duplication in the resolution of the disputes;

   

• the disputes subject to arbitration could be easily introduced into the legal proceedings and continued in the High Court;

   

• issues raised by Advtech in its counterclaims in the arbitration related to and affected third parties which were not subject to the sale of business agreement and the arbitration clause in respect of which an arbitrator would have no powers of investigation; and

   

• a court of law on the other hand would not be curtailed by such factors and would be in a position to adjudicate and conclude on all of the interwoven issues in one and the same process.

[8] Welihockyj and Others v Advtech Ltd and Others 2003(6) SA 737 (W) at 740 and 754‑755

CROMPTON STREET MOTORS VS BRIGHT IDEA PROJECTS [9]

In this case the Constitutional Court upheld the refusal by the High Court to stay legal proceedings which had been instituted in relation to a matter where the parties were bound by an arbitration agreement.

In passing, the Constitutional Court confirmed that a party who wished to stop legal proceedings and insist on a dispute being dealt with in terms of an arbitration agreement had two avenues for achieving that:

• a substantive application in terms of section 6 of the Act to stay the court proceedings; or

   

• by way of a special plea in the action requesting a stay of the proceedings pending the determination of the dispute by arbitration.

   

  The Constitutional Court confirmed that the discretion to refuse arbitration should be exercised judicially and only when a very strong case has been made out.

   

  It found that the High Court had exercised its discretion appropriately in refusing to stay the legal proceedings and, as an appellate court, its role was not to decide whether the High Court was right or wrong but whether or not it had exercised its discretion judicially. In other words, the court had not taken into account irrelevant considerations and had not based the exercise of its discretion on a wrong appreciation of the facts or wrong principles of law.

   

  The Constitutional Court interpreted section 6 of the Act to mean that the default position of a court when faced with an application to stay legal proceedings in light of the existence of an arbitration agreement was that such a stay should be granted upon request. The onus then rested on the party who had instituted the legal proceedings to persuade the court that a stay was not appropriate.

   

  In refusing to stay the legal proceedings, the High Court had taken into account the following considerations in refusing a stay of the legal proceedings:

   

• a stay of the proceedings would be a waste of judicial resources as the merits of the underlying disputes had already been fully argued in court;

   

• Bright Idea Projects who had instituted the legal proceedings was entitled to have the matter heard without undue delay which it appeared that Crompton Street Motors was intent on orchestrating;

   

• the relief which Crompton Street Motors wished to seek in an arbitration, namely the extension of a lapsed franchise and lease agreement and a challenge of a refusal to conclude new agreements, was a matter that an arbitrator would not be empowered to rule on; and

   

• the franchise agreement which was the subject matter of the proceedings had expired through effluxion of time such that the dispute could not be said to be a dispute connected with the agreement which had to be subjected to arbitration in terms of the arbitration clause. 

[9]Crompton Street Motors CC t/a Wallers Garage Service Station v Bright Idea Projects 66 (Pty) Ltd t/a All Fuels 2022(1) SA 317 (CC)

CONCLUSION

The courts will sparingly refuse to uphold arbitration agreements.

They will however allow parties to sidestep arbitration agreements where:

• a party accused of fraud wishes to do so; or

   

• there are a multiplicity of parties in relation to the disputes involved, some of which are bound by an arbitration agreement and others not, and where the self-same issues need to be adjudicated.
  

Alastair Hay

Cox Yeats

Contracts impose various obligations on the parties and if one of the parties does not carry out any particular obligation, they are said to be in breach of contract.

It goes without saying that for there to be a breach of contract, there must be a valid contract between the parties. In most cases, fault is required for a breach of contract to occur, and this can be either deliberate or negligence.

According to the common law, a breach of contract can be classified as a major breach or a minor breach. A major breach may justify terminating the contract while a minor breach may for example only allow the innocent party to claim damages but not terminate the contract.

The innocent party to a contract that has been prejudiced by such breaches has the following remedies available:

• Terminate the contract
• Damages
• Uphold the contract and claim specific performance together with damages

Damages may be further classified into General Damages or Special Damages. General Damages naturally flow from the specific breach, and Special Damages do not naturally flow from the breach but can be reasonably anticipated.

The general rule for termination is that a party may only terminate if the breach is so serious that it goes to the root of the contract. Due to it often being difficult to determine whether the severity of the breach is sufficient to warrant termination, construction contracts usually stipulate the grounds for termination.

Late completion is hardly the case for termination of a building contract since the remedies for late completion are usually specified in the building contract, i.e. penalties. Where there is a cogent ground to terminate a building contract, the requisite procedural steps are prescribed in the contract to invoke the termination procedure. Non-compliance with the termination procedure in itself may be a breach of contract.

The general rule where a contract is terminated due to breach is that the innocent party is placed in a position, he would have been in had the breach not occurred. This presents practical problems in a building contract since it may be unreasonable to demolish a building and refund the purchase price to a client claiming breach. Therefore, the innocent party may be limited to claiming damages which may include the cost of rectifying the work and financial losses he can prove.

The most common breach is late completion by the contractor. Due to the difficulty in proving the damages suffered, parties usually agree to a pre-estimate rate for liquidated damages known as penalties. In this instance, a client under a building contract cannot also claim damages for late completion or claim damages in lieu of the predetermined penalty amount.

Defences against a claim for breach of contract include the following:

• Mistake
• Duress
• Impossibility of Performance

The landscape concerning breach of contract can be complex. In an effort to be unambiguous, most construction contracts cover the most common areas that may be considered a breach of contract and provide the remedies therein. This further emphasises the importance of following the agreement. To further elaborate on this point, consider the following generalised examples:

• As highlighted above, a common breach of contract is late completion, and the client may claim penalties.
• A contractor who is paid late may elect to suspend the work and claim an extension of time with costs.

Should you have any further queries on this topic, please contact the Association.

Bilaal Dawood

Head: Membership Services

Under common law, every person has an obligation not to cause harm to another person through negligence. Such harm could include physical loss or damage to property, physical injury or even tragic loss of life. In circumstances where such loss occurs, the aggrieved person or their successors/heirs may have recourse to a claim for damages against the person who caused such loss.

The Employer is the owner of the construction project and appoints the Contractor to execute the construction work. In the context of a construction contract, an injured person or third party may sue the Contractor and Employer jointly, irrespective of who is at fault and may even sue the consultants on the project. This concept is referred to in the United States as “duck-shoot”.

The indemnity clauses in the JBCC exist because it would be unfair for the Contractor to be held responsible for the Employer’s negligence and vice versa. In terms of the JBCC Contract, the Contractor and Employer are responsible for the damages that they are in the best position to ensure do not occur. In respect of liability to third parties, the Contractor is held accountable for the death of or bodily injury to any third party or physical loss or damage to any property other than the works and the Employer is indemnified in this regard.

The Contractor is also liable for any damage or expense that arises out of non-compliance with any law, regulation or bylaw of any local or other authority or the failure to obtain any permit, licence or approval that the Contractor is required to obtain.

There are however limitations on the liability of the Contractor in the JBCC agreement and these are the instances where the Employer indemnifies the Contractor against any claims or proceedings for damages which arise from actions the Employer is best placed to control. These indemnities offered by the Employer include inter alia, an act or omission of the Employer, the Employer’s employees and/or agents and those whose actions they are responsible for, an act or omission of a direct contractor and the design of the works for which the Contractor is not responsible.

Under the JBCC Principal Building Agreement, 6.2 – May 2018, the indemnities are reflected in clause 9. Clause 9.1, including its subclauses, reflects the indemnities offered by the Contractor and clause 9.2, including its subclauses, reflects the indemnities offered by the Employer in favour of the Contractor.

The risk of lateral support to neighbouring property remains with the Employer in terms of clause 9.2.6 of the JBCC Principal Building Agreement, 6.2 – May 2018. An owner of land has an absolute and continuing obligation not to do anything on his own site that affects the stability of his neighbour’s land adversely.

If you have any further queries, please contact the Association.

Bilaal Dawood

Head: Membership Services

A construction contract lies at the heart of a construction project and is a legally binding document delineating the reciprocal rights and obligations of the parties to it. Choosing the right contract is integral to a successful project as it can affect the project cost and schedule, amongst other factors.

The two broad categories of contracts to select from are bespoke contracts and standard form contracts. A bespoke contract is a specially drafted contract by an Employer or a Contractor for a particular entity or project. On the other hand, a standard form contract is widely available and recognised, and drafted by industry experts. Examples of widely used standard forms of contract include the MBSA suite of agreements, JBCC, NEC 3 and GCC.

Standard form contracts are updated from time to time to reflect the evolving needs of the construction industry and always represent good practice. The advantages of a standard form contract include the following:

• Usually represents good practice.
• Avoids cost and time of individually negotiated contracts.
• Changes to the contract must be clearly recorded.
• There is a familiarity with the terms and conditions and consistency in managing the contracts.

A concern regarding standard forms of agreement is the adoption of a specific version of a standard form of agreement, which is sometimes a much older version of the contract and resistance to change to the newer versions.

Selecting a construction contract is not a one-size-fits-all endeavour and requires a comprehensive understanding of the project scope, pricing requirements and risks involved. The form of contract sets the foundation for how the project will be managed.

A few considerations when choosing a construction contract include the following:

• A cornerstone of construction contracts is the allocation of risk, with the underlying principle being allocating the risk to the party in the best position to manage the risk. When choosing the contract, it is important to understand the risks allocated to you and ensure that you have measures in place to manage them, and furthermore understand the contractual provisions to use when managing these risks. Astute contractors also price for the risk allocated to them.
• The complexity of the project and the management capabilities of the parties. For example, the MBSA House Building and Small Contracts Agreement may be used for a simple home building project, which facilitates both scenarios of with and without an agent, but for a more complex road construction or infrastructure project, a GCC agreement may be used.
• Consider the specific pricing requirements of the project as certain formats of contracts may only be suitable for a specific pricing strategy. For example, an NEC3 Option E contract will work well on an infrastructure project where the pricing strategy is cost reimbursable.
• Understanding the nature of the scope of work is also crucial to determining a suitable form of contract. Design and build contracts will require consideration of the additional responsibilities of the successful contractor and may necessitate specific design and build contracts, for example, the FIDIC Gold Book.

Through careful analysis of these considerations and the specific needs of the projects, a suitable contract can be chosen which provides clarity, allocates risks appropriately and paves the way for a successful project.

Bilaal Dawood

Head: Membership

A construction contract contains reciprocal rights and responsibilities. For example, the Contractor is entitled to access to the site to progress with works and payment and the client is entitled to performance of the works within the agreed timeline.

The agreed timeline is often underestimated by parties to a construction contract. Critical project milestones are determined by the project timeline and should be reflected in a project schedule. Examples of these milestones include site handover and practical completion.

Staying with the theme of reciprocal rights and duties, a Contractor is entitled to an extension of time with costs when the delays relate to the fault of his client. Practically speaking, and in line with the prescripts of timelines, should the client cause delays by failing to fulfil their responsibilities without justification, the client would be in breach of the contract. The standard form construction agreement provides the remedy of extension of time for the Contractor with costs and is subject to strict notification periods and submission deadlines.

If the Contractor does not perform within the agreed time, the Contractor is in breach of contract and will be liable for damages. The concept of penalties is to provide a mechanism for the parties to agree upfront on what these damages would be for late completion. This avoids a disagreement about the extent of the damages.

There are principles which govern the extent of penalties in the contract, including legislation such as the Conventional Penalties Act, case law etc. The expectation is that the penalty amount will not be arbitrary and be reflective of damages that the client would suffer due to late completion. The common law objective of a damages claim is to put the prejudiced party in a position they would have been in had the breach not taken place. Therefore, the calculation of the predetermined damages in the form of a penalty clause should be based on the same principle.

Some construction agreements, particularly subcontract agreements, still make reference to damages for late completion or for non-performance as opposed to penalties. Unless specified in the agreement, there is no limit on the value of the damages where a subcontractor is responsible for delaying a project. Subcontractors should be aware of this when suffering delays. If the subcontractor does not submit a notice and claim for the delays within the timelines specified in the contract, the subcontractor could be time-barred in this regard.

The difference between penalties and damages for non-performance is where penalties are instituted, the liquidated damages are predetermined and agreed to.

If you require any further information, please contact the Association.

Bilaal Dawood

Head: Membership Services

Signing a construction contract is a significant step in any project, whether it is a small residential renovation or a large commercial development. Ensuring that all aspects of the contract are thoroughly reviewed and clearly understood can prevent future disputes and financial losses. Listed below is a best practice checklist to guide you through the process of signing a construction contract:

1. Define the Scope of Work

• Detailed Description: Ensure that the contract includes a comprehensive and clear description of the work to be performed.
• Specifications and Standards: Specify the materials, standards and quality expectations to avoid misunderstanding about what is included.
  

2. Set a Clear Timeline

• Project Schedule: Outline key milestones and completion dates.
• Delays and Extensions: Include provisions for handling delays, including how they will be communicated and managed. These terms are included in standard form contracts and it is important to familiarise yourself with these.

3. Establish Payment Terms

• Payment Schedule: Ensure that you understand how payments are made and whether these are milestone-based or progress-based. Furthermore, it is important to understand the payment terms as this is important for cash flow management.
• Retainer: Determine if a percentage of payment is withheld until project completion.
• Change Orders: Understand how variations and/or change orders will be addressed.  Standard form contracts detail how additional work or changes will be billed and approved.

4. Include Detailed Plans and Drawings

• Plans and design drawings: Attach all relevant plans, drawings and specifications. It is good practice for these to be included in the contract.

5. Understand Insurance and Bonds

• Liability Insurance: Verify the limit and extent of liability insurance and ensure that sufficient cover is in place.
• Worker’s Compensation: Ensure coverage is in place for all workers on site.
• Performance and Payment Bonds: Understand the requirements of bonds and what is required to raise them in each instance. There may be consequences for failure to comply with these requirements.

6. Define Warranties and Guarantees

• Workmanship Warranty: Familiarise yourself with the warranty requirements and ensure that you can honour these.
• Manufacturer Warranties: Ensure that any product warranties from subcontractors, manufacturers and suppliers are transferred to you and cover you in terms of the contract that you have signed with your client.

7. Clarify Permits and Approvals

• Responsibility: Specify who is responsible for obtaining necessary permits and approvals.
• Compliance: Ensure the risks of compliance for the various categories are borne by the correct person. For example, the risk of compliance for design may be with an Engineer and the risk for compliance with the building codes may be with the contractor.

8. Include Dispute Resolution Terms

• Mechanism: Outline how disputes will be resolved (e.g., mediation, arbitration, litigation). Standard form contracts include the mechanisms in the standard terms and sometimes you may be required to specify the mechanism in the contract data. Ensure that this is populated and is suitable. For example, litigation without an option for mediation may be costly.
• Governing Law: Specify which jurisdiction’s laws will govern the contract. This is usually South Africa for South African projects.

9. Set Procedures for Changes and Extras

• Change Orders: Define how changes to the project will be handled and approved.
• Additional Costs: Ensure there is a clear process for agreeing on and documenting any additional costs.

10. Review Termination Clauses

• Termination for Cause: Understand the terms for terminating the contract due to breach or failure to perform and the process of invoking them. If you terminate a contract and follow the incorrect procedure, you may be liable for breach of contract.

11. Ensure Proper Signatures and Dates

• Authorised Signatories: Confirm that the contract is signed by individuals authorised to bind each party.
• Date: Ensure that all signatures are dated.

12. Consult Legal and Financial Advisors

• Legal Review: Have an attorney review the contract to identify potential legal issues.
• Financial Advice: Consult with a financial advisor to ensure the contract terms are financially sound and feasible.

Conclusion

Signing a construction contract involves careful consideration and a thorough review of all terms and conditions. By following this best practice checklist, you can help ensure that the construction project proceeds smoothly. Taking the time to get the contract right from the start can save you significant time, money and stress down the line.

Bilaal Dawood

Head: Membership Services

An increasingly important issue facing the industry is one of fraudulent calls made to tenderers during the bid adjudication phase of a project with the intention of soliciting bribes in exchange for contract awards. These practices are deceptive and in most instances are fraudulent and made by persons who are not who they claim to be.

Entertaining bribery or corruption in any way or form is strongly condemned, however, the purpose of this article is to address issues relating to fraudulent calls with the aim of soliciting bribes during the tender phase of a project.

In order to combat such fraudulent activities effectively, it is imperative to implement robust strategies and protocols. Enclosed below are some guidelines for effectively addressing this issue:

1. Establish clear communication channels.

• Define official communication channels for the tender process, such as designated email addresses or phone numbers and only utilise these official communication channels.
• Inform employees about the authorised channels for communication and explicitly state that any deviation should be treated with suspicion.

2. Verify the caller's identity.

• Request detailed information from the caller, including their name, position and contact details.
• Cross-verify the caller's credentials with the organisation's database or through independent means.
• Be wary of callers who refuse to provide verifiable information or who insist on secrecy.

3. Exercise caution with sensitive information.

• Refrain from disclosing sensitive information, such as bid details, pricing strategies or proprietary data over the phone.
• If the caller insists on obtaining confidential information, advise them to follow the established communication protocols or escalate the matter to authorised personnel.

4. Document the interaction.

• Take thorough notes during the call, including the caller's statements, requests made and any suspicious or coercive tactics employed.
• Record the date, time and duration of the call for future reference and investigation purposes.
• Preserve any electronic or physical evidence, such as voicemails or call recordings as potential proof of fraudulent activity.

5. Report suspicious calls immediately.

• Notify the appropriate authorities, including the organisation or department inviting tender submissions, about any fraudulent calls or solicitation attempts.
• Provide the department or organisation with detailed information, including the caller's identity (if known), phone number and a summary of the conversation.
• Cooperate fully with any investigations to combat fraudulent practices.

6. Strengthen internal controls.

• Conduct regular training sessions to educate employees about common fraud schemes and tactics used during tender phases.
• Implement strict approval processes for financial transactions or disbursements to prevent unauthorised payments.
• Foster a culture of transparency and accountability within the organisation to discourage unethical behaviour and promote integrity.

Conclusion

These fraudulent phone calls pose a threat to businesses, jeopardising their reputation, financial stability and ethical integrity. Strengthening internal controls will allow businesses to effectively safeguard themselves against these risks.

Bilaal Dawood

Head: Membership Services

A payment certificate is defined as follows in the JBCC PBA 6.2 as “PAYMENT CERTIFICATE: A certificate issued at regular agreed intervals [CD] by the principal agent to the parties certifying the amount due and payable in terms of the JBCC® Payment Certificate format”.

The JBCC NSSA 6.2 defines a subcontract payment advice as “SUBCONTRACT PAYMENT ADVICE: A document issued at regular intervals [CD] by the contractor stating the amount due and payable by the contractor to the subcontractor or vice versa using the JBCC® Subcontract Payment Advice format”.

Clause 25.17 of the JBCC PBA ed 6.2 and 25.17 stipulates the following: “For the purposes of provisional sentence in relation to a payment certificate only, the parties consent to the jurisdiction of any court of law of the country [CD]”.

Similarly, clause 25.17 of the JBCC NSSA ed 6.2 stipulates as follows: “For the purposes of provisional sentence in relation to subcontract payment advice only, the parties consent to the jurisdiction of any court of law of the country [CD]”.

In order to fully understand the implications of the above extracts of the respective contracts, it is necessary to answer the following key questions:

1. What is a liquid document?
2. What is provisional sentence proceeding?

A liquid document is a document which on presentation demonstrates an express undertaking to pay an amount specified in it and does not require any other evidence to prove the indebtedness of the person who signed it. In terms of the JBCC, a document which complies with the definition of the payment certificate or subcontract payment advice and is based on the JBCC format, will be a liquid document, in that it represents an obligation on the party certifying the payment to pay the amount reflected in the payment certificate or subcontract payment advice. It should however be borne in mind that any document that complies with the requirements of a liquid document could be subject to provisional sentence proceedings.

Provisional sentence proceedings have their origins in Roman-Dutch Law in South Africa. Provisional sentence proceedings are used where the defaulting party cannot deny liability. It is used where a claim is based on a liquid document, a liquidated sum of money, a claim for ejectment, or a claim for the delivery of specified immovable property. It is meant for use in instances where the plaintiff has prima facie evidence of their claim, and it is aimed at providing a speedy resolution. Where a provisional sentence is granted and a defendant wishes to defend the main case, the defendant must provide security for payment of the provisional sentence summons. In practice, there are other considerations that apply which include defences that may be raised against provisional sentence summons as well as the development of provisional sentence summons, since the constitutional era through court decisions.

The significance of the JBCC payment certificate being a liquid document or complying with the requirements of a liquid document and the references to provisional sentence in clause 25.17 of both the JBCC PBA ed 6.2 and JBCC NSSA ed 6.2, is that disputes around non-payment of certified payment certificates are not arbitrable for reasons relating to the consideration that there is no dispute and that the payment certificate or subcontractor payment advice constitutes an acknowledgement of debt. In instances where there is nonpayment of a payment certificate or a subcontract payment advice, it is recommended to be referred to provisional sentence proceedings.

An alternative to provisional sentence proceedings is an application in motion court for payment based on a liquid document.

Please contact the Association if you require any further clarity.

Bilaal Dawood

Head: Membership Services

In the high-stakes world of construction, timing isn't just a matter of convenience—it's the bedrock of financial stability and project success. The adage "time is money" finds its most literal application here, with every day of delay potentially costing parties significantly. It's against this backdrop that the concept of penalties or delay liquidated damages has become a cornerstone of construction contracts, both locally and internationally. But what exactly does this entail, and how does the Conventional Penalties Act 15 of 1965 (“the Act”) come into play?

At its core, the issue revolves around the financial repercussions for failing to complete construction projects on time. Employers, typically developers or property owners, face a multitude of losses when projects overrun their deadlines. These can range from lost revenue and additional professional fees to the costs of alternative accommodations and delayed financial servicing. To mitigate these challenges, construction contracts have evolved to include penalty clauses.

These clauses are not merely punitive; they serve a compensatory function, pre-estimating daily damages to be paid by contractors for delays until project completion. This setup bypasses the traditional need for employers to prove their financial losses, offering a straightforward claim process. However, this doesn't leave contractors without recourse. The Conventional Penalties Act introduces a crucial balance to this equation.

Section 3 of the Act empowers courts—and by extension, adjudicators or arbitrators—to adjust penalties deemed disproportionate to the actual prejudice suffered by the employer due to delays. This provision places a significant onus on contractors to demonstrate the excessiveness of the stipulated penalty, a task complicated by limited access to the employer's financial damage documentation.

The journey to challenge a penalty involves navigating complex legal and procedural landscapes. For contractors, the strategic move often involves escalating matters to arbitration, where a more thorough examination of evidence can take place. This process not only requires contractors to make a prima facie case for penalty reduction but also shifts the burden to employers to justify the penalty's proportionality.

Legal precedents, such as the case of Afriscan Construction (Pty) Ltd v Umkhanyakude District Municipality & another [2005] JOL 1436 (D), highlight the nuanced considerations in these disputes. Even when penalties are contractually agreed upon and the contractor is indeed late, the law recognises the fairness in apportioning losses among various causes of delay, potentially reducing the penalty.

In conclusion, the Conventional Penalties Act serves as a vital mechanism for fairness in the construction industry, offering a pathway to balance financial compensations and penalties. It underscores the importance of detailed contract negotiations and the need for both parties to understand their rights and responsibilities fully. As the construction landscape continues to evolve, staying informed and prepared to navigate these legal terrains becomes ever more critical for all involved.

Peter Barnard and Chantal Mitchell

Cox Yeats

Construction disputes are costly and are often accompanied by lengthy resolution processes which can be stressful and result in additional costs. The main issues experienced by parties to a construction contract which result in disputes and how they can be avoided, are set out hereunder:

1. The Project Scope: The scope of works refers to a description of what the works on the project entails. In the absence of the scope of works, extrinsic evidence is often relied upon to determine what the parties intended the works to include. Furthermore, a project without a properly defined scope of works results in disputes in respect of what constitutes a variation, and what was included in the original scope of works. Where the parties have a Bill of Quantities, reliance is often placed on this to establish what the parties have intended to include in the scope and what was excluded.  Misunderstandings and ambiguity regarding the scope may lead to differing interpretations which lead to delays, cost overruns and strained relationships between the parties.

   The scope of works serves as a comprehensive document that outlines the specific tasks, responsibilities and deliverables required from each party involved, together with the required standards and specifications. A clear and detailed definition of the scope helps to minimise misunderstandings and ambiguities, providing a solid foundation for the execution of the project.
   

   It is recommended that a scope of work document is included in the contract document which properly records the requirements of each party.

2. Basis of costing and terms of payment: The basis of costing refers to how a project is priced, i.e. whether it is re-measurable against a bill of quantities, whether it is lump sum etc. Where both parties have a clear understanding and agreement on the basis of the costing of a project, the methods of measurements in this regard and what are the inclusions and exclusions in the price, the likelihood of a dispute is greatly reduced.                                                                                                                                                                                          The terms of payment refer to the process for a contractor to receive payment. This includes the claim for payment from the Contractor, the time for the Employer or his Agent to review the claim, the submission of invoices and the time period to process payment.

3. Standard form contracts capture the terms of payment clearly, based on industry best practice and the collective experience of multiple experts. It is imperative to understand and properly apply these terms. Often these terms are modified, for example a “pay when paid” clause. Where these changes are made, it is critical to clarify and properly understand the extent of these changes and their precise meaning, to avoid any disputes.

4. Project Schedule: The project time for completion is often disputed. It is important to constantly formulate a project schedule at the commencement of a project and to regularly update progress on the schedule for dissemination to the project stakeholders. The project critical path must be clearly identified and any changes to the critical path through contract claims or variations must be regularly updated and submitted, following the process laid out in the contract.

   If the project schedule is properly formulated, submitted for approval when contract claims are submitted and the process in the contract for extensions of time are properly followed, then disputes in this regard are mitigated. This will also lead to disputes concerning penalties and disputes in the final account relating to preliminary and general costs being avoided.

   The parties will therefore be well advised to pay attention to the clauses in the contract pertaining to the schedule, extension of time and the approval thereof as well as the clauses governing the preliminary costs when claiming extension of time and ensure that they understand these clauses and apply them as intended.

5. Builder’s Lien: In its simplest form, a builder’s lien is the right a contractor acquires over a building or structure which they have constructed and have not received payment for the works. This is a specialised area that is often overlooked but is crucial. Parties should understand what a lien entails and when a builder is entitled to exercise it. Similarly, builders should understand when to invoke a builder’s lien, under what circumstances they apply and when they may be required by certain contracts to waive them.

6. Arrangements for Dispute Resolution: This matter is well documented in standard form contracts.  They become complicated when the parties fail to properly record their intentions or selections on certain dispute resolution aspects in the contract data. Parties should ensure that every option that requires a selection or information in the contract data is properly and correctly captured. In bespoke contracts, the parties should capture a clear and unambiguous dispute resolution process to avoid any ambiguity in the process involved.

In conclusion, it should be added that navigating the complexities of a construction contract requires a thorough understanding of the common areas of dispute and a proactive approach to mitigating potential conflicts. By highlighting the typical sources of contention, such as unclear scope of works, changes in project specifications and payment disputes, parties can take deliberate steps to avoid these pitfalls. Clear and detailed contracts, open communication channels, and a commitment to resolving issues collaboratively, are key elements in preventing disputes. Additionally, regular project updates, well-documented changes and the establishment of a dispute resolution mechanism can significantly contribute to a smoother construction process. It is essential for all parties involved to prioritise transparency, cooperation and adherence to contractual obligations.

Through these measures, stakeholders can foster a positive working environment, enhance project outcomes, and ultimately ensure the success of construction endeavours, while minimising the likelihood of disputes.

Bilaal Dawood

Head: Membership Services

Introduction

Construction contracts provide a framework for collaboration, outlining rights, responsibilities, and expectations. However, when parties fail to meet their contractual obligations, issues of breach and default arise, introducing complexities that can impact project timelines, costs, and relationships. This article explores the underlying concept of breach and default in construction contracts and sheds light on legal considerations and potential resolutions.

Understanding Breach and Default

A breach of contract occurs when one party fails to fulfil its obligations as outlined in the contract. A breach of contract can manifest in various ways, such as delays in project completion, substandard work or failure to adhere to specifications. Default, on the other hand, occurs when a party fails to perform a duty required by the contract.

Key Considerations

1. Termination Clauses:
• Construction contracts typically include termination clauses that outline conditions under which either party can terminate the agreement. These clauses further highlight the process for invoking the termination clause. It must be borne in mind that failure to abide by the process to terminate in terms of the contract is in itself a breach of contract and may have the effect of repudiation of the contract which may lead to a claim for damages by the aggrieved party.
2. Force Majeure:
• Force majeure clauses, which excuse parties from performance obligations in the event of unforeseen circumstances, are included in contracts. This clause covers the parties in the event of unforeseen delays or other impacts to a project due to events beyond the control of the parties. The contract will usually provide for the mechanisms to be used for a Contractor to notify their client of this event and the impacts thereof. It is critical to understand the time period for the notices and claims in this regard, failing which the right to claim delays for the event may be lost.
3. Notices and Claims:
• Most construction contracts specify notice requirements and the grounds thereof in the event of a breach. Strict adherence to these requirements is crucial for preserving legal rights and pursuing remedies. For example, when drawings are not submitted to a contractor on time or access is not granted to the contractor on the agreed date, this constitutes a breach and the contract makes provision for notices and claims for these circumstances. These often include a provision for recovery of costs due to the breach.
4. Dispute Resolution Mechanisms:
• Dispute resolution mechanisms, such as mediation, arbitration, or litigation, are often outlined in construction contracts. In the event of any dispute, including those relating to breach of contract, the choice of dispute resolution is usually specified in the contract and parties must follow prescribed procedures to resolve disputes efficiently. In the event that there is no agreed dispute resolution mechanism, the matter may be referred to a court which has the necessary jurisdiction.
5. Liquidated Damages:
• Contracts may include provisions for liquidated damages, specifying predetermined amounts to be paid in the event of breaches, for example, penalties in the event that a Contractor misses the agreed date for practical completion. Clauses addressing the requirement for penalties provide relief to the aggrieved party for the stated breach.
6. Performance Bonds and Guarantees:
• Performance bonds and payment guarantees are common and are designed to secure performance. When a breach occurs, for example, non-performance or non-payment respectively, these instruments may be called upon to compensate the aggrieved party for losses suffered provided that the terms of the contract and those relating to the performance bond or payment guarantee are followed.
7. Remedies for Breach:
• There are various legal remedies for breaches of contract, including specific performance, damages, and interdictory relief. The appropriate remedy depends on the nature of the breach and the desired outcome.

Conclusion

Breach and default are inherent risks in construction projects, and addressing these issues requires a nuanced understanding of the contract and applicable law. Effective contract drafting, clear communication and an understanding and adherence to contractual and legal processes are essential components of mitigating the impact of breaches.

Members of the Association receive free contractual advice. Contact the Association to learn more.

Bilaal Dawood

Head: Membership Services