By Uwe Putlitz

In this part five, the final article in a series by Uwe Putliz, we look at (non)payment by the employer. The non-payment by the due date of a certified amount in full is a recurring, worldwide problem. The wording in standard-form contracts (SfCC) has become more specific in each revision to enforce contractual compliance by the employer.

Pressfoto | Magnific.com

Who is involved?

  • Directly, the employer and the principal contractor.
  • Indirectly, the principal contractor (PrC) and (one or more) subcontractor(s).
  • Indirectly, stakeholders to the employer, including a bond holder to finance the project and the guarantor to provide guarantee for payment in favour of the PrC.
  • Indirectly, stakeholders to the PrC to provide a guarantee for performance in favour of the employer.
  • The contract administrator (CA), supported by the professional team, to timeously compile and issue the payment certificate in the SfCC format to the PrC and the employer.
  • The PrC is the employer of all subcontractors with similar standard contractual conditions.
  • The employer has no contractual relationship with the PrC’s suppliers or subcontractors.
  • FIDIC and JBBC SfCC permit direct payment from the employer at a subcontractor’s request on default by the PrC’s to pay an identified amount due to the (nominated) subcontractor included in the PrC payment.
  • The state, as a regular employer of PrC – has a poor reputation to make timeous payments. National Treasury has published revised rules:
    • The PFMA (National and Provincial Government) Section 38(1)(f) places a direct, personal obligation on the accounting officer of each national or provincial department to settle supplier invoices within 30 days. This isn’t a guideline or a best-practice recommendation – it is a statutory duty. Treasury Regulation 8.2.3 operationalises it by specifying that the 30-day clock starts on the date the department receives a valid, compliant invoice.
    • Section 65(2)(e) of the Municipal Finance Management Act (MFMA) extends the same 30-day obligation and personal accountability to municipalities and municipal entities.
    • National Treasury reinforced both the PFMA and MFMA obligations through Instruction Note 34, which went further than restating the 30-day rule. It introduced quarterly reporting requirements: every department must now report its payment performance to National Treasury each quarter.
    • National Treasury circular dated 26 March 2018 – Accountability update published 8 April 2026.

What is the purpose of the contract and/or the construction documents?

All standard-form construction contracts (SfCC) regulate the legal relationship between the parties with procedures to follow should either party be in breach of the contract, and likewise in the PrC–Subcontractor relationship.

Typically, a SfCC refers to payment in general terms and in project-specific terms in the contract data, where applicable, or in the specification.

Construction contracts usually extend over long periods, necessitating monthly interim payments before a final payment at the end of the latent-defects liability period. Interim payments are a fair estimate of work correctly completed to pay ‘not too much and not too little.’

If a ‘situation’ arises

Contractors, subcontractors and suppliers in the building and construction industry generally trust their clients to make payments when due.

The employer must make payment to the PrC within the period stipulated in the SfCC/CD, usually between 14 and 21 days of the date of issue of a payment certificate but not exceeding 30 days in most countries. The PrC (tier1) must pay subcontractors/suppliers (tier 2 +3) within 7 days of date of payment to the PrC.

Be aware that a loophole in system is the SA National Treasury Regulations that calculate the period for payment from the date of receipt of a compliant Tax Invoice. The payment certificate is issued by the CA simultaneously to the employer and the PrC – thus tax invoice can be issued by the PrC forthwith to limit any delay in payment.

  • Non-payment is a breach of contract.
  • Resolving a non-payment issue is invariably time consuming in addition to normal administrative duties.
  • Some jurisdictions introduced a pay less option, permitting the employer to pay a reduced amount due to perceived non-compliance by the PrC. This provision was discarded as it over-ruled the CA’s professional authority.

How to deal with a ‘situation’

Before resorting to non-payment remedies in the SfCC, the PrC must confirm with the employer if there is a substantial reason for the delayed payment, such as perceived poor or delayed work, errors in the payment documentation, or a lack of funds.

  • Note: If ‘lack of funds’ is identified as a real possibility, the PrC must assess this as a business risk and decide to proceed with the work and not get paid or to terminate the appointment. Only FIDIC allows the PrC to request proof of the employer’s ability to pay for (additional) work.

The ‘PrC must give notice to the employer that a certified payment has not been received by the due date – to be rectified within the period stated in the contract.

On failure by the employer to make payment by the expiry date of the notice, the PrC:

  • is entitled to interest from the due date until the actual date of payment at the rate of interest stated in the SfCC/CD;
  • may call on the guarantee for payment if provided;
  • may enforce the lien;
  • can apply for summary judgement at court on presentation of the payment certificate.

On failure by the employer to make payment by the expiry date of the notice, the PrC can issue a notice of intention to suspend the work on expiry of this notice period, or the PrC can issue a notice of intention to terminate the contract on expiry of this notice.

Some jurisdictions introduced a project bank account topped up timeously to make interim payments by the due date – not unlike an Escrow account offered by some commercial banks – not an automatic non-payment solution!

Desired result

  • To comply with the contractual application for payment provisions and certification process.
  • To comply with the contractual payment process.
  • Use SfCC-specific stationary to avoid disputes due to inconsistent wording or page layout of the payment certificate (and the recovery statement in JBCC contracts).

What must you do?

As the Contract Administrator

The payment certificate in a format that includes the date of issue and the due date for payment (per the SfCC/contract data), the title “interim” (or “final”) and a serial number. The certified amount must include amounts due for:

  • Retention withheld, if applicable
  • Payment for unfixed materials and goods on- or off-site, or goods in transit
  • Calculation of cost fluctuations in accordance with a stated system
  • Deduction of penalties (stated damages)
  • Tax due
  • Interest on late payments repo rate + 3.5% (FIDIC) + 6% (JBCC)
  • Advance payments (deposits) made to or recouped from the PrC
  • JBCC only – when using an Advance Payment Guarantee, issue a recovery statement to both parties to record advance payments made and recouped.

As the (Sub)Contractor:

  • Assist the CA (PrC) in the compilation of an interim/the final claim for payment.
  • Submit an invoice to the employer for the certified amount in compliance with local statutory requirements.

As the Employer:

  • Ensure that sufficient funds are available to meet the projected monthly payments to the PrC. A regular cashflow is the lifeblood of any business.

If the objective is not achieved

If circumstances have changed that may affect future contractual payments, promptly inform the PrC and agree a way forward – slowing down the work to match reduced cashflow or, in the extreme case, suspend or terminate the contract.

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