the alleged lien the subcontractor is trying to enforce if the
subcontractor is acting unlawfully.
At worst, this clause is important in protecting the
subcontractor from an insolvent contractor by providing an
enforceable obligation by the employer to take delivery of and
pay for uncertified materials (as distinct from making direct
payment for materials certified and paid to the contractor but not
paid by the contractor to the subcontractor). At best, it probably
provides an opportunity for the employer to treat the payment
for unpaid materials as part of its costs of completing the works.
Practically there may be problems in identifying what
materials and goods have been paid or included in a certificate.
This is normally dealt with by the use of the cumulative payment
process used in construction payments.
The principal agent and the subcontractor must ensure
that the list, the value and the direct payment are disclosed to
the contractor and reflected in the final account issued to the
contractor in terms of clause 38.5.4.
The question of payment is further dealt with in the discussion
of the provisions of NSSA clause 38.5.7 at bullet 7 hereunder.
CLAUSE 38.5.6
‘The contractor shall be liable to the subcontractor for damages
resulting from such termination’
This provision may appear at first glance to be the statement
of the obvious but the termination in terms of clause 38.3 is based
only on the fact of the termination of the principal contract and
therefore the subcontractor’s summary termination could raise
questions of liability.
The contractor is the only party with whom the subcontractor
had a contract and, if the principal contract has been improperly
terminated by either the employer or the contractor, such damages
will form part of the one’s damages claim against the other.
Broadly speaking, damages for breach of contract is a
monetary sum which is calculated as the difference between
the position the innocent party would have been in if the
contract had been properly executed and the position that
results from the breach. It will include the mark-up on work not
executed, the costs incurred in this termination including costs
of suspension and dealing with superfluous staff, plant, office
overhead costs, special security, balance of contract works and
3 rd party insurance costs, extension of warranties on installed
equipment, etc. The reality is, however, that it is easier to try to
incorporate such costs in the price charged to the employer to
complete the n/s works if the opportunity arises and to avoid
litigation.
A subcontractor who completes the subcontract works would
have trouble claiming loss of profits on the n/s works excluded
from the original n/s agreement but subsequently paid for in the
subsequent subcontract and other similar theoretical losses.
Contract savvy
Invoices should detail all costs incurred prior to termination.
CLAUSE 38.5.7
‘The principal agent shall continue to certify the value of the n/s
works executed by the subcontractor and the value of materials
and goods for payment by the employer.’
NSSA clause 38.5.7 differs substantially from the similar
provisions in the PBA and NSSA at clause 36.5.10.
PBA clause 36.5.10 provides:
‘The principal agent shall continue to issue interim payment
certificates in a nil amount until the quantum of damages [36.5.8]
has been determined and the final account [36.5.3] has been
completed. The final payment certificate shall then be issued.’
NSSA clause 36.5.10 (termination by contractor of the n/s
subcontract due to the subcontractor’s default) provides:
‘The principal agent shall continue to issue interim payment
certificates in a nil amount until the issue of the final payment
certificate.’
PBA clause 36.5.10 on further interim certification after
termination is clear and peremptory - the contractor is not
entitled to any further payments and might well not be entitled to
payment of any unpaid interim payment certificates 11 .
In NSSA clause 38.5.7, the principal agent is peremptorily
required to certify the value of the n/s works and materials and
goods for payment by the employer. A comparison of NSSA
clauses 36.5.10 and 38.5.7 clearly indicates that the latter is
intentionally differently drafted, presumably to deal with the
case of an innocent subcontractor caught in the contractor’s
or employer’s default which results in the collapse of the
underpinning provisions of the principal building agreement.
There is no mention of the interim and final payment certificate.
The wording of NSSA clause 38.5.5 to the effect that materials
and goods should be handed over to the employer who is liable
to the subcontractor also support the direct liability of the
employer for payments due after the termination.
11 See Thomas Construction (Pty) Ltd (In Liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1988 (2) SA 546 (A) 563C, but this judgment was on the basis of the wording of
clause 22.3.4 ‘until after completion of the works under this clause no payment shall be made to the contractor under this contract’. In terms of the JBCC 2007 editions’ contract wording,
the principal agent must continue to issue monthly payment certificates in a nil amount until the final payment certificate is issued – this is different from the provision ‘no payments
shall be made’ in the judgment even if it amounts to the same and may influence future judgments.
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RACA Journal I February 2020
63