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
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