Contract savvy
There are several
provisions peremptorily
making the employer
liable for certain
obligations. With the
contractor removed,
this creates a contract
between the employer
and the subcontractor
once the principal
building agreement
is removed by
termination.
1.
2.
3.
4.
the subcontractor’s claim against the contractor for work
completed where there is any dispute on amounts certified
to and payable by the contractor in terms of all elements of
the payment advice and recovery statements 6 ;
definition of the work to be carried out after termination
for the employers account which in turn could serve as a
basis for proving its damages;
a basis for establishing the amount the employer will
have to pay the subcontractor to complete the n/s works
(a subcontractor may think it disadvantageous to make
all this information available but proper records are an
important aid in litigation);
evidence of the subcontractor’s ability to execute
n/s works which are dependent on the contractor’s
prior completion of precedent activities as well as the
contractor’s ability to use completed n/s works, all of
which will acquire significance if the contractor attempts
to raise penalties and ‘contra-charges’ in the final
payment advice it issues.
The subcontractor should start working on it as early as
possible if it becomes aware of the intended termination. It is
not just the normal progress report that can be compiled by
the site team as part of their normal routine.
Clause 38.5.4
The principal agent shall timeously commence and complete the
n/s final account [34.0].
The same comment as above applies with regards to the
subcontractor taking the initiative. The final account so
prepared is essentially concerned with work completed up
to the date of termination inclusive of any additional sums
which become payable in terms of clauses 38.5.5
and 38.5.7.
The reference to clause 34.0 appears to incorporate
its provisions regarding agreement and settlement of the
final account and the issue of the final payment advice.
However, given the termination of the principal contract,
the contractor is no longer involved and the relevance and
application of some of the sub-clauses of clause 34.0 could
become arguable.
Both the payment and the construction guarantees are
applicable as between contractor and subcontractor and
the employer has no role to play other than to ensure the
issue of completion certificates is brought to the terminated
contractor’s and the subcontractors’ attention if not done by
the contractor 7 . See also comments under the subheading
guarantees and security above.
*Note: this is not a legal opinion and no liability for reliance on its
contents attaches to the writer or sender. RACA
To be continued in an upcoming edition.
It is submitted that the contractor and the subcontractor involved, are liable for the costs of making good any defects in the n/s works for which payment has been made i.e. the
employer does not acquire liability for the costs incurred by the new n/s subcontractor in making good defective work completed and paid for prior to termination even when certified
by a specialist agent. Such costs become part of the employer’s damages claim against the contractor who in turn would have a right of recovery against the subcontractor (see Minister
of Public Works and Land Affairs v Group Five Building Ltd 1999 (4) SA 12 (AD) and dicta about the principal agent’s obligations in Strijdom Park Extension 6 (Pty) Ltd v Abcon (Pty) Ltd
1998 (4) SA 844 (SCA)). This is particularly important in sophisticated specialist trades such as electronics and HVAC. There could be a defense to such a claim in terms of NSSA clause
38.5.9 (termination of latent defects liability period) but it would probably be tenuous. The matter is discussed at bullet 9 hereunder. Therefore, the position seems to be that damages
are recoverable for defective work that is discovered prior to settlement of the final account but only to the extent it does not qualify as a latent defect. It is evident that this somewhat
confusing situation could result in litigation.
6
7
The subcontractor should receive a payment notification from the principal agent when any certificate including a final payment certificate is issued but there is no obligation on the
principal agent to notify the subcontractor when any of the various completion certificates are issued. Equally, there is nothing that prevents the principal agent from copying all n/s
subcontractors in on any electronic issue of such completion certificates and the subcontractor should make written request that this be done after the termination of the contractor.
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RACA Journal I January 2020
77