www . refrigerationandaircon . co . za RACA Journal I August 2024 7
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At present , employers only have contractual relationships with main contractors which , in turn , engage sub-contractors . This leaves construction SMMEs vulnerable to dire and shameful practices , the most common of which is late or non-payment .
These practices persist despite the Construction Industry Development Board ’ s ( CIDB ’ s ) Best Practice Guideline D1 : Subcontracting Arrangements that was published as early as 2004 .
In this document , the CIDB notes that sub-contracting is an important method of ensuring participation of SMMEs in publicsector procurement activities . Yet , state procurement organs only have a contractual relationship with principal contractors . Sub-contracting issues are the least of their concerns which they pass onto the principal contractor to manage . A case in point are standard forms of contracts used by state-owned entities that increasingly shift responsibility further down the responsibility chain .
As early as then , the board identified a need to address shortcomings in sub-contracting arrangements , especially with regard to engineering and construction contracts . To ensure that sub-contractors are engaged in terms of fair conditions that are recorded in writing , it recommends that sub-contracts be regulated in public sector procurement .
This requirement for transparent and fair public procurement practices , enshrined in the South African Constitution under Section 217 , is also echoed in the Draft Public Procurement Bill . “ Therefore , I believe that it is time to revisit Section 217 , considering the prevalence of ‘ outlawed ’ practices that compromise the sustainability of sub-contractors and SMMEs , despite concerns being raised over these practices for many years now ,” Hattingh says .
These ‘ outlawed ’ practices to which he refers are outlined in the CIDB guideline . They include ‘ paid-when-paid ’ or ‘ no-pay-ifnot-paid ’ clauses ; and a right of setoffs in favour of the principal contractor that are not provided for in the law . This is in addition to authoritarian rights afforded to main contractors or their agents with no recourse given to adjudication in the event of a dispute with a sub-contractor . The CIDB is also a staunch proponent of alternative dispute resolution procedures , such as CAASA ’ s LVDA , that provide construction SMEs with an efficient and cost-effective way of resolving disputes . It is opposed to the common practice by main contractors of insisting on only using formal proceedings , such as arbitration and litigation , which are often beyond the reach of construction SMEs and emerging contractors . Further practices that stifle the development of emerging contractors is the retention of unreasonable percentages after a contract has been completed and conditions in sub-contracts that are more onerous than those of the principal contractor .
The guideline also references the fair and transparent principles in the Master Builders South Africa ( MBSA ) and the South African Forum for Civil Engineering Contractors ’ ( SAFCEC )
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CIDB again emphasises the need for a written contract to exist between principal contractor and sub-contractor and that the standard forms be used with minimal contract amendments that do not change the intended use .
series of sub-contract . This includes that sub-contractors observe , perform and comply with principal contract provisions as so far as they relate to the sub-contract and are not inconsistent with the provisions thereof . Moreover , MBSA and SAFCEC note that
sub-contractors have similar rights , powers and responsibilities as the principal contractor when interpreting the provision of the main contract when they relate and apply to the sub-contract . Moreover , they prohibit privity between the employer and the main contractor . Lastly , the terms of the contract as they apply to the sub-contractor and the terms of the sub-contract that influence the price and assessment of risk should be clearly and concisely stated at tender stage .
This seldom happens in the majority of cases in which Hattingh is involved with sub-contractors . He attributes this to the perceived safety in passing obligations and liabilities towards the employer through to sub-contractors . This approach can be a convenient means of transferring risks and obligations down the chain of responsibility and , thus , essential for large and complex projects . However , so-called back-to-back schemes are being abused , and their inadequate drafting is giving rise to disputes which are particularly complex to resolve .
In many instances , sub-contractors agree to these unfair conditions because they simply do not understand basic forms of construction contracts . This is a challenge that the Joint Building Construction Committee is addressing by providing site-specific basic training in construction contract law to construction SMEs .
Certainly , Hattingh anticipates more examples of underhanded sub-contracting practices to surface as CAASA ’ s LVDA gains traction in the industry .
This is especially considering the indefinite shelving of the proposed Draft Prompt Payment and Adjudication Regulations
www . refrigerationandaircon . co . za RACA Journal I August 2024 7