BUSINESS AND TRAINING 11
Rights and Obligations in Sub-Contracts
By
Uwe Putlitz
The contractual requirements for the provision of‘ insurances’ and‘ guarantees’ differ in the relationship between the employer and the contractor in the standard-form principal contract and between the principal contractor and the subcontractor in the standardform subcontract.
‘ Insurance’ is“ to arrange for compensation in the event of damage or loss of( property, life) in exchange for regular payments to an insurance company”.
Generally, the employer insures the works at its expense. Contract Works Insurance( CWI) automatically includes the work of all direct contractors and( nominated, selected and domestic) subcontractors, provided the policy is endorsed to include all service providers, and may include the Professional Indemnity Insurance for the professional team.
A direct contractor and a subcontractor must be aware of the insurance obligations of the employer, or the principal contractor. A direct contractor and a subcontractor is entitled to request proof of insurance and / or a copy of the insurance policy and to comment to the insured if the description or the value is incorrect.
Every direct contractor and subcontractor must insure its business, premises, vehicles, personnel, equipment and tools.
A‘ guarantee’ is to“ provide financial security”, and a‘ security’ is a“ thing deposited or pledged as a guarantee in fulfilment of an undertaking or repayment of a loan forfeited in case of default”. A‘ security’ is a“ binding agreement to repay money”, referred to in all standard-form contracts( SfC) and all standard-form subcontracts( SfS).
Guarantees for‘ performance’,‘ advance payment’ and for‘ payment’ may be exchanged between the employer and the contractor or between the principal contractor and the subcontractor.
Insurance Types of insurance applicable to building / civil works The CWI protects the assets during construction until the employer takes possession of the works. ' Extensions ' may be bought to cover malicious damage, claims preparation costs, additional professional fees etc to reinstate the works.
Supplementary insurance is for loss or damage caused by civil commotion etc to the extent not insured under the
CWI, provided as a SASRIA extension, typically bound with the CWI.
Where goods are stored off-site the insurer must be informed of the nature and value of the goods, the location and duration of storage, security arrangements – and when such goods are moved to the site.
Where goods are procured outside South Africa, the employer / principal contractor may purchase marine insurance for the period that goods leave the manufacturer until they are released from customs in South Africa when the‘ transit extension’ expires and CWI applies.
Exclusions to CWI policies include damage as a result of war, terrorism, any wilful act or negligence, the cost to repair, replace, to reinstate or make good any part of the works using defective materials, bad workmanship or faulty design and specification- but may cover resultant loss or damage. Insurers typically insist on a rigorous investigation to determine the cause of such loss before settling a claim, and more recently, also to justify force majeure events.
•‘ Consequential loss’ occurs if the employer is likely to suffer financial loss due to late completion of a project. This is not an insurable item but the penalty amount per day specified in the tender documents should cover such loss.
•‘ Cost overruns’ are not an insurable item as the employer usually benefits from such expenditure – professional negligence may be difficult to prove.
Public Liability Insurance( PLI) must remain in force until the date of final completion to indemnify the insured against claims arising from death, injury or illness and loss of property as a result of an accident arising out of or in connection with the execution of the works.
Note: Subcontractors should subscribe to a PLI policy as a matter of responsible business management and as a precaution if someone is injured or killed in site – where the victim is likely to seek compensation from all contractors involved. 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
" A direct contractor and a subcontractor must be aware of the insurance obligations of the employer, or the principal contractor "
June 2025 Volume 31 I Number 04 www. plumbingafrica. co. za