By Uwe Putlitz

Almost without exception, when asking any subcontractor what the biggest business challenge is, they will answer that it is getting paid in full on time …

uwe putlitz

Uwe Putlitz

Uwe Putlitz is a registered professional Architect and Construction Project Manager, a Fellow of the Royal Institute of Chartered Surveyors (RICS) and is a visiting lecturer at the School of Construction Economics and Management at the University of the Witwatersrand. Having recently retired as the Chief Executive Officer of the Joint Building Contracts Committee (JBCC) he specialises in the avoidance of construction disputes by way of lectures, technical articles dealing with aspects of contract administration for various industry publications arising from the use of Standard-form Contracts including the Federation Internationale des Ingenieurs-Conseils (FIDIC), the General Conditions of Contract (GCC), the JBCC or the New Engineering Contract (NEC) to find an acceptable settlement without resorting to legal processes, where possible.

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Only in the JBCC suite of contract documents, must the principal agent inform the Subcontractor (SC) or the Nominated Subcontractor (NSC) of the amount due to him or her included in a certified amount due to the Principal Contractor (PC) using a ‘payment notification form.’ In the N/S Subcontract Agreement, the PC is obligated to concurrently issue a ‘payment advice’ for the amount due to each SC/NSC. JBCC encourages using a ‘recovery statement’ to record transactions between the parties, the employer and the PC or the PC and the SC/NSC, (for example, deducting an amount for abortive work) to create a transparent audit trail. The ‘payment advice’ like the ‘payment certificate’ issued in accordance with the Principal Building Agreement, is a liquid document entitling the bearer to approach a court to enforce payment where this has not been received within the stipulated period.

Should no or partial payment be received by the due date, communicate with the PC to find out why the amount in a payment notification differs from the payment advice, if this is not clear from the recovery statement and/or why payment has been withheld. If no satisfactory explanation is forthcoming and the amount has not been paid, give notice of your intention to suspend the subcontract works on the expiry of the notice. The extreme remedy is to terminate the contract.

Subcontractors may be entitled to an extension of time, and possibly additional payment if:

  • Construction information is provided late, is incorrect, or not issued
  • Design changes are made by an agent during the construction period
  • An agent is appointed late for the design or specification of the subcontract works
  • The design agent, after following prescribed notice procedures, fails or delays the inspection or commissioning of the subcontract works
  • An SC cannot commence subcontract works on the stipulated date due to delays by the PC or other (sub) contractors
  • A nominated subcontractor (NSC) is appointed timeously for the design, supply and installation of a part of the works, but their design is not submitted, or accepted or rejected by the agent within the stipulated time
  • An NSC is appointed late, even if their design is submitted and accepted or rejected on time by the agent
  • A NSC is appointed late for the design, supply and installation of part of the works and their design submission, acceptance or rejection by the agent is late in terms of the programme

Small disagreements, if not addressed promptly, may develop into a dispute. To deal with any dispute – and for that matter any contractual or insurance claim – requires the presentation of an accurate and informative auditable report of the events and the resultant ‘product’ for evaluation by the contract administrator or, in a dispute resolution process, the adjudicator, arbitrator or mediator.

In the relationship between the PC and SC or NSC Subcontractors in the building and civil construction industries are employed by the PC and (hopefully) appointed using one of the industry-accepted Standard-form Subcontract Agreements. Sadly, standard contracts are often unilaterally modified or replaced with bespoke agreements to limit a subcontractor’s rights with the introduction of various restrictions, including a ‘pay when paid’ clause (in the EU, the UK and most Commonwealth countries, such clauses are illegal). Contractors in the UK are now required to maintain a register of late or reduced payments – with defaulting contractors forfeiting the opportunity to be awarded any public sector work. In South Africa, challenging such clauses by an SC /NSC can result in losing an appointment. The risk of late or partial payment may be perceived to be less than having no work.

‘Domestic’ subcontractors (DC) typically perform the wet trades but may include electricians and plumbers chosen by the PC based on their skills and successful past working relationships. DCs are appointed using a standard-form subcontract agreement published by Master Builders South Africa. The same payment conditions apply as for an SC/NSC. For specialised work, the employer may ‘nominate’ one or more subcontractors for appointment by the PC, without the option for the PC to suggest another specialist subcontractor. The employer remains responsible should an NSC fail to perform under the PC’s control. The JBCC uniquely introduced the concept of a ‘selected’ subcontractor appointed under full control of the PC. The PC has the right and obligation to inform the employer of any circumstances as to why a proposed NSC should not be appointed. The employer may heed or ignore such advice.

Similarly, a “direct contractor” is appointed by, and responsible to, the employer for ‘other work’ – for example, artwork on a wall or floor or an external waterproof clock. The PC must be alerted to such appointments in the tender documents, to permit access to the works and allow the use of construction equipment whilst erected and enforce the Construction Health Safety Regulations but is not responsible for the timeous or correct performance of such work.