Contract savvy
EDWIN GIESTEIRA
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.
CONSEQUENCES OF TERMINATION
OF PRINCIPAL BUILDING AGREEMENTS
By Edwin Giesteira
I share some thoughts on the consequences of the termination of a
principal building agreement by the employer due to contractor’s default.
Part 3 of 3.
T
here appears to be a degree of conflict between the
provisions of clause 38.5.4 on the one hand which, by
reference to clause 34.0, places the final account within the ambit
of the normal relationship between contractor and subcontractor,
and clauses 38.5.5 and 38.5.7 which provide for payment by
the employer to the subcontractor. The following thoughts are
submitted to deal with the provisions of these clauses:
1. The challenge of excluding the contractor is that there may
be matters as between the contractor and the subcontractor
that need to be dealt with by the contractor and in which
the employer does not wish to and should never become
involved. The continuation of the construction and payment
guarantees up to the issue and payment of the final
payment advice would generally cover any adjustments that
may occur after the last payment advice statement issued
prior to termination.
2. The principal building agreement at clause 36.0 Termination
by employer – contractor’s default provides that the
contractor is entitled only to nil interim payment certificates
until after the final payment certificate is issued. This would
mean that by reference to the provisions of clause 31 1 ,
the subcontractor would similarly not be entitled to any
payments until the issue of the final payment certificate and
an employer wishing to retain a n/s subcontractor’s services
to complete the work would find itself at a disadvantage
by not being contractually entitled to make good at least
the uncertified part of the unpaid balance due to the
subcontractor, particularly where liquidation supervenes.
3. PBA clause 38.0 Termination by contractor – employer’s
default provides for ongoing interim payments to the
4.
5.
6.
contractor similarly to NSSA clause 38.0 and therefore there
would be no problem with payments in the (unlikely) event
the employer does pay. However, the subcontractor could
be prejudiced by issues between the contractor and the
employer that result in non-certification or non-payment to
the contractor.
Therefore, the n/s final account for work completed prior to
termination should be processed through the contractor and
in terms of all the provisions of and referred to in clause 34.0
with all its sub-clauses, which include inter alia sub-clause
34.7 providing for amounts recoverable by the employer
in terms of a recovery statement. A subcontractor when
dealing with an insolvent contractor will probably only
be entitled to recover payments certified and paid by the
employer prior to termination in terms of the distribution
account from the insolvent estate 2 . This may be a very good
reason for the exercise of any liens or other defences and the
removal from site of any unpaid goods 3 .
The subcontractor can and should immediately exercise a
lien and/or reservation of ownership over unpaid materials
and goods, even to the point of including identifiable and
detachable and removable elements which have been
placed/fixed but can be easily removed, in the lien 4 .
The difficulty of providing for defects or overpayments
to the subcontractor before termination is a matter that
could be adjusted if the subcontractor is appointed to
complete the n/s works. However, when the subcontractor
is not available to continue after termination or where the
employer prefers to employ a new subcontractor, it could
but should not create a challenge for the employer if it pays
1 Inter alia sub-clause 31.5.1
2 Hence the need for clause 38.5.5 and 38.5.7 providing for direct payment to the subcontractor as discussed under those provisions.
3 See inter alia Concor Holdings (Pty) Ltd v Potgieter (219/03), [2004] ZASCA (28 May 2004); Administrator General South West Africa v Trust Bank of Africa Ltd 1982 (1) SA 635 (SWA)
4 Legal opinion should be sought if the lien is disputed and a discussion on liens falls outside the scope of this paragraph. Suffice it to point out that the principles accessio inaedificatio
(ownership through attachment of goods to immobile property) do not fully preclude the availability of a lien on easily identifiable isolated and detachable goods (see inter alia Melcorp
SA (Pty) Ltd v Joint Municipal Pension Fund (Transvaal) 1980 2 SA 214 (W).
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RACA Journal I February 2020
59