Construction and construction contracts

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. In addition, employment opportunities are created on a large scale. This will include both formal and informal employment opportunities.

What is a contract?
A contract is an agreement entered into between two or more people with the intention of creating legally enforceable obligations. A duly concluded contract is binding on each party. This means that each party has a legal obligation to perform in terms of the provisions of the contract. If a party fails to perform, 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). These remedies are usually clearly defined in the contract.

The contract should stipulate the following:
 What will be done;
 How long it will take to complete;
 How much it will cost and the payments terms;
 What will be done if either party defaults; and
 The extent to which the common law, which would usually apply, is adhered to.

Construction contracts
A construction contract is an agreement between an employer (sometimes referred to as the client) and the contractor to construct, repair, modify, renovate, or even demolish something in an agreement 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.

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 ether party or in some cases jointly by both parties), who assist in the construction process.

The role players are set out below:
Employer → Requires the construction work and provides payment.

Employer’s Representative → Acts on behalf of the employer and may be referred to as the engineer, project manager, or principal agent, etc.

Contractor → Commissioned to construct the works.

Subcontractor → Appointed by the contractor to perform a part of
the construction works under a subcontract.

Adjudicator / Arbitrator / court → Settles disputes between the parties.

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.

Different types of contracts
The type of contract form to be used will depend on the employer’s preferences, role players involved 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 (“CIBD”), 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 terms of constructions agreements concluded with the government.

Standard Form Contracts

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. Most contractors are familiar with the terms of the standard form contracts.

Below is a list of standard form contracts used and approved by the CIBD:
Approved Construction Contracts FIDIC – French initials for International Federation of Consulting Engineers

  • (1999) Short Contract and Red, Yellow and Silver Books.
  • GCC – General Conditions of Contract for Construction (2010).
  • JBCC – (JBCC series – 2000) (Principal Building Agreement and Minor Works Agreement).
  • NEC – New Engineering Contract (Engineering and Construction Contract and Construction Short Contract).

To ensure that the provisions of the contract are understood, consult an attorney.

Author: Sonja Tifloen

LEAVE REPLY

Your email address will not be published. Required fields are marked *