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A GUIDE TO CONSTRUCTION CONTRACTS BOWMANS 2 A Guide to Construction Contracts 3

A GUIDE TO CONSTRUCTION CONTRACTS BOWMANS 2 A Guide to Construction Contracts 3 04 Introduction 05 What is a contract? 05 Construction contracts 07 Working with the employer’s representative 08 Different forms of contracts 11 Different ways of contracting 12 Construction contract arrangements 13 Construction Industry Development Board 14 Deciding on which contract to use 18 Common construction contract terms/ procedures 22 Key concepts 26 Applicable legislation 27 Useful links Contents BOWMANS Introduction Construction projects play a vital role in South Africa’s development, not only in respect of its physical infrastructure, but also in its broader economic and social development. They also create employment opportunities on a large scale. The construction industry is valued at approximately The industry continues to grow. This handbook provides some basic knowledge and understanding regarding contracting in this industry. and provides job opportunities to approximately ZAR 145 billion 429 000 individuals BOWMANS 4 A Guide to Construction Contracts 5 What is a contract? Construction contracts A contract is an agreement entered into between two or more people with the intention of creating legally enforceable obligations. Once properly concluded, a contract is binding on each party. This means that each party has a legal obligation to do the things which the contract requires him or her to do. If a party does not do so, he or she may be in breach of the contract and the other party will have certain remedies, such as claiming for additional costs caused by the breach (called damages). They are also able to get a court order to force the party in breach to do what is required of them under the contract. The contract should describe the following: • What will be done; • How long it will take to complete; • How much it will cost and the payment terms; • What will be done if either party defaults; and • The extent to which the common law, which would usually apply, is adhered to. Ensure that you have read the entire contract and understand the terms and conditions contained therein before signing. A construction contract is an agreement between an employer (sometimes referred to as the client) and a contractor to construct, repair, modify, renovate or even demolish something in an agreed time frame, for an agreed price and to agreed standards. The contract is signed by both the employer and the contractor. As with any contract, once the construction contract is signed, both the contractor and the employer must follow the terms of the contract or face possible legal action. “It is not the beauty of a building you should look at, it’s the construction of the foundation that will stand the test of time.” – David Allen Coe BOWMANS 6 ROLE PLAYERS WITHIN THE CONSTRUCTION CONTRACT Although the construction contract typically only has two parties, (the employer and contractor), there are a number of role players usually involved (appointed separately by either party or in some cases jointly by both parties), who assist in the construction process. The role players are set out below (for a more detailed description of the role players refer to the sections that follow): Employer Requires the construction work and provides payment Commissioned to construct the works Settles disputes between the parties Acts on behalf of the employer and may be referred to as engineer, project manager, principal agent, etc. Appointed by the contractor to perform a part of the construction works under a subcontract Contractor Subcontractor Adjudicator/ Arbitrator/ Court Employer’s Representative A Guide to Construction Contracts 7 Working with the employer’s representative Employers usually elect to work through a representative who may be an architect, an engineer, a project manager, a quantity surveyor or any other qualified third party. The employer gives his or her representative the authority to act on his or her behalf in the execution of certain provisions of the contract. The representative’s role is to oversee and administer the contract and the project itself. It is important to develop a good working relationship with the employer and/ or his or her representative, as the contractor always benefits from trust and co-operation arising from this relationship. Importantly, the employer’s representative is usually the person to whom all notices, invoices and claims must be submitted and is the person who determines the amounts due to the contractor. There are some important steps a contractor can take to develop this relationship such as: • Report all problems to the employer, through the appointed representative, as quickly as possible. This is very important if the problems could cause cost increases or delay completion. • Handover in good time all notices, advices, time delay claims, bad weather reports, certificates for payment, invoices, lists of workers, plant on-site, etc. • Make sure claims are submitted in strict compliance with the applicable contractual provisions, in writing within the period stated in the contract. If a claim cannot be prepared within the required period, extensions should be sought prior to the expiry of the period. If no extension is granted or communicated prior to the expiry of the time periods, the claim (even if not fully complete) and all documents available at that time should be submitted (explaining if possible why the claim cannot be completed and submitted on time), with any further documents and information required to be provided thereafter. • Only make reasonable claims for additional payment. Inflated or frivolous claims will be rejected. • Carry out all written instructions. If the instructions are difficult or impossible BOWMANS BOWMANS 8 to execute, talk to the representative who issued the instructions as soon as possible to see if it can be done in a different way – do not delay. If the contractor disagrees with any decision taken by the employer’s representative, the contractor should, as soon as possible, give notice of a dispute (if stipulated in the contract) in terms of the contract to the employer’s representative. In some contracts time bars are also in place for when a dispute should be disclosed and submitted to an adjudicator or arbitrator. The contract should always be studied to see if such time bars apply, and to ensure that they are followed. In this way you are likely to avoid disputes. Should a disagreement actually arise, it is best to look for possible compromises to resolve the dispute. Different forms of contracts The type of contract form to be used will depend on the employer’s preference as well as the works to be executed. Two common ways in which parties can contract are either through a bespoke contract or a standard form contract. BESPOKE CONTRACT This is a type of contract that is not based on a standard form contract and is specially drafted and fully customised to cater for specific needs or requirements for the parties. This type of contract is not commonly used by lenders or banks who sometimes provide the funding of construction works. According to the Construction Industry Development Board (CIDB, additional information provided on page 13), when contracting with government entities (state-owned companies, government departments etc.) only standard form contracts should be used. This is to ensure a measure of consistency and uniformity in the terms of construction agreements concluded with the government. STANDARD FORM CONTRACTS There are usually risks and issues which will be common for all construction projects A Guide to Construction Contracts 9 and activities. Accordingly, a number of “standard form” contracts have been developed which set out standard terms for a construction contract to cover the related issues and risks that will most likely apply. There are standard form contracts for both construction work and construction-related professional services (for example pure design work, or supervision work for construction). Standard form contracts are useful because they can be obtained and understood in advance and, therefore, are usually easier to agree on instead of drafting the entire contract from scratch. The parties simply agree on specific changes to the standard terms based on the requirements for the specific construction project concerned. It is therefore very important for a contractor to become familiar with the relevant standard form contracts, which could be used for the type of construction work which the contractor would normally consider tendering for. A list of standard form contracts that are typically used in South Africa is set out on page 13 (these standard forms are approved by the CIDB, further information regarding the CIDB is provided on page 13). Specific types of standard form contracts (approved by the CIDB) CONSTRUCTION PROFESSIONAL SERVICES FIDIC – French Initials for International Federation of Consulting Engineers (1999) Short Contract and Red, Yellow and Silver Books CIDB – Standard Professional Services Contract 3rd Edition GCC – General Conditions of Contract for Construction (2010) NEC – New Engineering Contract (Professional Services Contract) JBCC – (JBCC series 2000) (Principal Building Agreement and Minor Works Agreement) NEC – New Engineering Contract (Engineering and Construction Contract and Engineering and Construction Short Contract) BOWMANS 10 A Guide to Construction uploads/Ingenierie_Lourd/ guide-construction-contracts 1 .pdf