BUSINESS AND TRAINING 9
Subcontracts: rights and obligations( part 2)
By
Uwe Putlitz
Role of the insurance broker and of the underwriter
Insurance is a complicated matter:
• It is important that‘ the parties’ deal with a broker knowledgeable in‘ construction insurance’.
•‘ The insured’ has no direct dealings with the underwriter or the actual insurance company. The employer owns the project – and should be the beneficiary of the pay-out of claim to make good damage but not necessarily with the same professional team or the same contractor- as would be the case if the contractor insured the works.
Guarantees are used:
• To recover money from the guarantee for payment( GfP) where the employer( contractor) fails to pay the contractor( subcontractor) in full on time in terms of the SfC / SfS.
• Where the contractor( subcontractor) fails to execute the( sub) contract works in terms of the SfC( SfS) the employer( contractor) may recover money to make good defective or incomplete work from a guarantee for construction( or‘ for performance’)( GfC).
• A GfC may be either:
• An‘ unconditional and on demand( bond)’ guarantee binds the issuer to make payment on demand – except in the case of fraud. The guarantor usually requires a certificate justifying the remedial costs incurred issued by the contract administrator;
• A‘ conditional or suretyship’ type guarantee requires the issuer to carry out the obligations of the contractor;
The‘ fixed’ guarantee requires the( sub) contractor to invest a stipulated amount of money with the guarantor. In the event of a claim the employer’ s benefit is limited to:
• 5 % of contract sum‘ fixed’ investment
• Expires on the date of practical completion
• The value certified is subject to 5 % reduction up to date of practical completion( retention)
• The value certified is subject to 2,5 % reduction between practical completion and final completion
• The value certified in full in Final Payment Certificate
The‘ variable’ guarantee requires the( sub) contractor to invest a stipulated amount of money with the guarantor. In the event of a claim the employer’ s( contractor’ s) claim is limited to:
• Initially at 10 % of the contract sum
• Reduces to 6 % when 50 % of the contract sum has been certified
• Reduces to 4 % at practical completion
• Reduces to 2 % at final completion
• Expires on the date of final payment PA
Uwe Putlitz is a registered professional Architect and Construction Project Manager, a Fellow of the Royal Institute of Chartered Surveyors( RICS) and is a visiting lecturer at the School of Construction Economics and Management at the University of the Witwatersrand. Having recently retired as the Chief Executive Officer of the Joint Building Contracts Committee( JBCC) he specialises in the avoidance of construction disputes by way of lectures, technical articles dealing with aspects of contract administration for various industry publications arising from the use of Standardform Contracts including the Federation Internationale des Ingenieurs-Conseils( FIDIC), the General Conditions of Contract( GCC), the JBCC or the New Engineering Contract( NEC) to find an acceptable settlement without resorting to legal processes, where possible.
More info: info @ buildstrat. co. za
" The employer owns the project – and should be the beneficiary of the pay-out of claim to make good damage."
The contractor may choose to provide a‘ fixed’ or‘ variable’( JBCC + GCC) unconditional on-demand guarantee.
© Plumbing Africa
Go over contracts carefully.
July 2025 Volume 31 I Number 05 www. plumbingafrica. co. za