Cold Link Africa October 2019 | Page 39

CONTRIBUTORS Consequences of termination of principal building agreements By Edwin Giesteira I share some thoughts on the consequences of termination of principal building agreement by the employer due to contractor’s default. (Part 1 of 3) S to numerous subcontractors and suppliers who are most often actually the ultimate risk bearers on behalf of the contractor. A large number of projects are still using the 2007 Edition of the JBCC 2000 Series documents and it is therefore probably useful to look at what those contracts, in particular the Nominated/Selected (N/S) Subcontract Agreement which is the subject of this commentary, provide and what the consequences are for the N/S subcontractor. outh Africa’s ongoing poor economic conditions have eventually led to failures by some of our large contractors. Such failures are normally preceded by poor performance that results from the increasing cash flow constraints. It is therefore not uncommon for contracts to be terminated by the employer, so as to attempt to rescue the project and limit costs of completion and delays. When a principal building agreement is terminated, the effect cascades down The employer is contractually entitled to secure the works on termination and to take over and use materials, plant and machinery that are on site to complete the works. COLD LINK AFRICA • OCTOBER 2019 It would seem there are two possible options available to such a subcontractor; namely, to uphold the subcontract and abide by the consequences of the provisions of the principal building agreement which are implemented vis-à-vis the contractor or alternatively to terminate the subcontract in terms of clause 38.3. If a subcontractor chooses to uphold the subcontract, a particularly onerous provision in the principal building agreement is the effective suspension of payments until the final account for the completed project has been compiled, a final payment certificate is issued, and the damages claimed by way of the recovery statement. The residual sum, if there is any, is paid to the contractor. This could take extremely long, and in all this time, the subcontractor’s legitimately recoverable revenue is not available to it resulting in major hardship. Where insolvency supervenes, this further threatens the subcontractor’s potential recovery of its investment in the project. The alternative of termination of the N/S agreement in terms of clause 38.3 could provide an attractive alternative. The writer’s thoughts on possible interpretation of those provisions follows… If it stimulates debate, this is to be welcomed as it will serve the industry well if subcontractors start engaging more actively in the standard documents under which they operate. Edwin Giesteira qualified with a BSc (QS) at the University of Pretoria in 1978. He acquired an MSc (Real Estate) at the same university in 2011. Edwin became a Fellow of the Association of Quantity Surveyors (Southern Africa) in April 2013 and has worked for various building contractors mainly as senior quantity surveyor. Projects include Unitas, Muelmed and Pretoria Heart Hospitals and the Carousel. He was a director of Stocks Leisure Developments for five years. He has stood in as lecturer for Quantities to BSc Construction Management Honours students at the University of Pretoria for a semester. Edwin has been consulting to project managers and contractors for 10 years but now only consults on construction disputes or acts as adjudicator or arbitrator in disputes.  www.coldlinkafrica.co.za 39