When things have gone seriously wrong on a contract the injured party frequently considers that cancellation is a viable option. Cancellation is however fraught with difficulties and it is all too easy to move from a position of strength to one of considerable weakness as a result of failing to understand the ramifications of this drastic action. In this article Chris Binnington, Managing Director of Binnington Copeland & Associates (Pty) Ltd, examines the pitfalls associated with cancellation.

 

Can a Contractor who has been forced to cancel his contract with the Employer as a result of the Employer’s default still sue the Employer under the contract in respect of an interim certificate duly issued but not paid by the Employer within the prescribed time?

 

The historic approach to contracting has typically seen employers engaging the services of professionals to produce designs which are then put out to tender for contractors to construct. In the past 15 to 20 years there has been a significant change in the way in which projects are procured and the introduction of Design and Build contracts as well as Design Build and Operate contracts has seen traditional roles fulfilled by professionals changing.

 

I have often been critical of the indiscrimate use of construction guarantees without consideration of the cost consequence to employers. Obviously the cost of any guarantee is built into the price by the Contractor and borne by the Employer. Where the Employer is able to be selective in the choice of tenderers incurring additional unnecessary costs, simply because it is the norm to ask for such guarantees, does not seem to make a lot of sense. Furthermore insurance companies and indeed banks who issue such guarantees do not always rush to the assistance of the Employer when demand is made and the Employer may be drawn into expensive litigation even where a guarantee is provided.

 

One of the questions which always produces mixed answers when raised at our seminars is whether or not the programme constitutes a contractual document. A lot of people assume that once the programme is approved or accepted by the Principal Agent then it becomes binding upon the parties to the contract. This is however incorrect! Whilst it is possible to incorporate, usually by way of the acceptance of a tender which includes a programme, the programme as a contract document, not only is this not contemplated by all of the standard forms of contract, but it is extremely unwise.

 

 Without payment the construction industry or indeed any commercial venture, will cease to function. The majority of claims involve situations or debates about payment in some form or another. Either claims for payment for changed circumstances or perhaps delays and disruption or for some other entitlement arising under the contract. Rarely does a dispute arise which does not have, as part of the dispute, a claim for additional payment. However, payment itself is frequently not made in accordance with the provisions of the contract either because the parties to the contract are ignorant of the provisions thereof alternatively the Employer’s finances are such that it deliberately seeks ways and means to delay the payment of amounts legitimately earned under the contract.

 

The second edition of the General Conditions of Contract for Construction Works was published recently by the South African Institution of Civil Engineering. At first glance this edition differs radically from its predecessor, GCC 2004, but a closer inspection shows there are many similarities plus some significant changes. Chris Binnington discusses these in this article.

 

I have previously commented in this magazine in regard to the fact that insurance cover, whilst obviously necessary, does not always provide the comfort that might be expected when a claim is made. Insurance companies continue to be reluctant to rush to the assistance of their clients, the insured and instead seek to protect their own shareholders by relying upon an interpretation of the policy which is favourable to themselves and unfavourable to their own clients.

 

This magazine has, during the last few months, carried a number of articles in regard to the process of adjudication. All four forms of contract approved by the CIDB make provision for adjudication. As most readers would know adjudication is a method of resolving disputes by the use of a third party neutral or neutrals whereby the outcome is an immediately binding decision but which decision is not final.

 

 Contractors are regularly called upon to purchase goods from suppliers on terms which could significantly disadvantage the contractor. Indeed having looked at a number of these sales agreements, one must conclude that the purchasing contractors who agree to such draconian conditions either do not read the contract of sale alternatively do not understand it!

 

Service delivery appears to be an ongoing complaint in respect of most of the municipalities in South Africa. Where challenges to a public tender take place from an unsuccessful bidder, it is inevitable that further delays to the award of contract are going to take place and as a consequence service delivery will be further impacted by such a challenge.

 

South Africa and Namibia have a unique piece of legislation, the Conventional Penalties Act, 15 of 1962. Although I cannot claim to have researched legal jurisdictions everywhere in the world I have not come across a similar piece of legislation which provides for the enforcement of penalty stipulations.

 

From time to time in these articles I have commented on the many occasions we have encountered Contractors and indeed Sub Contractors effectively depriving themselves of the benefit of claims clauses and in particular extensions of time claims, where they have simply failed to abide by the terms of the notice provisions.

 

 The ability to vary the scope of the works via instructions of the Principal Agent provides one of the peculiarities of the modern construction contract. The fact that at the time of the award of contract the Contractor is unaware of the final scope of work which may be required and consequently unaware of the date for completion consequent upon the necessity to extend the contract where additional work is required may well present significant difficulties to Contractors who have limited resources.

 

With the world in serious recession and construction contracts worldwide being cut back or cancelled Contractors are inevitably and increasingly concerned about cash flow and prompt payment in accordance with the terms of their contract.

 

At the beginning of a new year, Civil Engineering Contractor summarises some of the words of advice from Chris Binnington in 2008. Chris Binnington walked the reader through an array of legal issues: the letter on intent, adjudication, legally leaving site (or not) and, of course, who owns the float.

 

In June 2007 I wrote an article for this publication entitled “Cash is King – Insurance is often a poor second”. In that particular article the Insurer had resisted a claim by the Contractor in respect of the re-instatement of damage to road works due to tropical cyclone Lizette which swamped Nampula Province in Mozambique and severely damaged roads which the Contractor was about to hand over to the National Roads Agency. Ultimately the Insurer was found liable and the court determined that it must settle the Contractor’s claim.

 

I have never asked the question of any audience, “who owns the float in a programme”, and got a consistent response. The contractors in the audience will invariably say, the contractor owns it because he created it. The professional team in the audience will generally look upon float as something to be used by the employer as and when he wishes to use it. The correct answer is something in between.

 

Several times a year we are consulted by Contractors whose complaint is that they were not paid and accordingly stopped work or left the site. Now they want to know how to recover the amounts due to them. This misconception that there is an automatic right to suspend work or to leave the site if payment is not made is clearly a common misconception in our industry.

 

The 1999 suite of contracts published by FIDIC standardized the procurement systems offered by FIDIC by creating a platform providing for conventionally designed work by the Employer (Red Book); Design and Build by the Contractor where the Employer requires significant involvement through the use of an Engineer (Yellow Book); Turnkey Design & Build where the Employer has less involvement and no Engineer is appointed (Silver Book); and a short form of contract (Green Book).

 

It is indeed regrettable that the construction industry continues to utilise an instrument, the letter of intent, which adds little or no value to the relationship between the parties and, in addition, has the potential for creating significant disputes between the parties. Despite the complete absence of any tangible benefit in using a letter of intent many sectors of the construction industry continue to labour under the misapprehension that it provides some sort of benefit.

 

In view of the fact that all four of the CIDB approved standard form contracts include provisions for adjudication, albeit only FIDIC and NEC make it mandatory, and given CIDB’s unqualified support for adjudication, I thought it appropriate in this article to address some of the issues regarding the respective submissions and the adjudicator’s decision.

 

It is clear that there is a general misconception in the construction industry as to the status of the programme. Many people remain of the view that the programme is a contractual document. What it should be is simply a management tool to enable the contractor to properly plan his work and to assist the Principal Agent to assess the contractor’s progress towards completion by the completion date. In addition it provides the Principal Agent with the basis for assessing claims for extensions of time.

 

One of the arguments in favour of using standard form contracts as opposed to one of kind documents is that their evolution, over time, improves the content of the document and ensures that users will not be faced with unexpected or unusual results not anticipated by the draftsman at the time of creating the document. In addition, standard form contracts are usually exposed to considerable scrutiny by members of the professions as well as the contracting fraternity who, one would expect, would identify, before publication, drafting anomalies.

 

Chris Binnington revisits the thorny issue of notice provision as a prerequisite to a contractor’s claim. In a previous article, I suggested that contractors fail to give notice because of one of the following reasons:

 

The necessity to appoint insurance ombudsmen (or the short- and long-term insurance industries has, no doubt, partly arisen from actions by certain insurance companies with an attitude of ‘we don’t pay, we hassle’ (to parody one insurer’s advertising slogan).

 

The four CIDB-approved standard forms of contract deal with the transfer of ownership, particularly with regard to plant and materials delivered to site in different ways, explains Chris Binnington.

 

Eskom, a staunch supporter of the NEC suite of contracts, has gone out on enquiry for the proposed new conventionally-fired power station at Ellisras (Lephalale), and has elected to use the International Federation of Consulting Engineers (FIDIC) ‘yellow book’ design-and-build contract, one of the difficulties in using FIDIC forms (not unique to FIDIC) is the frequent use of the term ‘reasonable’. In my experience, what is reasonable’ to the contractor is rarely reasonable to the employer and vice versa.

 

To what extent is the contractor liable when he builds in accordance with the design but it is manifestly unsafe? Chris Binnington discusses whether or not the contractor is liable, outside the contract, to claims from third parties.

 

The South African Association of Consulting Engineers (SAACE) has accredited the courses offered by Binnington Copeland & Associates in terms of the requirements introduced in January 2006 for formally recording the Continuing Professional Development (CPD) credits required for ongoing renewal of registration. Binnington Copeland & Associates is a leading provider of training in the fields of contract law, liability and risk, targeted procurement, standard forms of contract - including FIDIC and NEC - dispute avoidance and resolution.

 

Modern forms of contract all allow the principle agent considerable authority to ‘add, vary or omit’ work. To what extent can the scope of work be increased? Chris Binnington answers. This power is considerable and is one of the unusual aspects characteristic of a construction contract. One U of the questions we are frequently asked is: “By how much can the principle agent increase the scope of work before it exceeds the authority of the agent to instruct?

 

Traditionally, the construction industry has been one of the least regulated industries as far as the statutory framework is concerned within which the industry operates. Several pieces of legislation have historically been important to the industry, such as the Arbitration Act 42 of 1966 and the Conventional Penalties Act 15 of 1962. The Occupational Health and Safety Act and, of course, the National Building Regulations provided a general framework in respect of health and safety issues.

 

Chris Binnington attempts to answer a frequently asked question: If and when is an employer entitled to deduct penalties? A question which is often asked at our seminars is whether or not an employer is entitled to deduct penalties in the face of a claim for an extension of time to the completion date or whether the extension of time must first be evaluated by the principal agent and, if rejected, the dispute resolution procedures under the contract must then be completed before the employer’s rights to deduct the penalty can arise.

 

If payment were received timeously I am sure you would agree that a great number of the disputes which arise in the construction industry would fall away.

The trigger for payment, particularly for those contracts where an independent principal agent is engaged, is the issue of a payment certificate. Thus, Clause 14.6 of the FIDIC 1999 Red Book for Construction provides that:

 

In line with the trend in a growing number of countries, adjudication in South Africa is increasingly being used as the first step in the dispute resolution process in the construction industry, says Chris Binnington, -Chairman of the Association of Arbitrators SA. In this regard, England took the lead with the promulgation of the Housing Grants and Regeneration Act, which came into law in February 1998, making it mandatory for virtually all forms of construction contracts to use adjudication to resolve disputes. This was followed by similar legislation in Australia and New Zealand. “In fact,

 

In America, contractors have had success in relying upon what has been referred to as “Constructive Acceleration” to found a claim for the costs of accelerating the work in the absence of an instruction or agreement to accelerate. In the UK and in South Africa, the more conservative approach of these jurisdictions has resulted in the approach being less successful than in the USA. Indeed in South Africa we do not have a reported case on Constructive Acceleration. Author Chris Binnington is of the opinion that in the appropriate circumstances a claim based on constructive acceleration may well succeed albeit it will not be an easy case to win.

 

Expert Chris Binnington this month discusses the contractor’s entitlement to an extension of time and the consequences including the employer’s rights to penalties.

It is most unusual these days to rind conditions of contract which do not deal comprehensively with the contractor’s entitlement to an extension of time for various situations. It may, at first blush, appear that such conditions are for the benefit of the contractor. However, the principal reason for such clauses is to protect the employer’s rights to penalties. In the absence of a provision to grant an extension of time for circumstances which are under the control of the employer, an employer delay event would result in there being no contractual mechanism to allow for an extension of time and, as a consequence, the employer’s rights to claim penalties would be lost.

 

Proposed legislation hampered by misconceptions

South Africa is being left behind its major trading partners in the arbitration arena as a consequence of its failure to promulgate two important pieces of legislation. This is the view of Chris Binnington, recently re-elected chairman of the Association of arbitrators for the ninth consecutive year.

 

Arbitration is frequently criticised as being more expensive and only marginally quicker than court litigation. In this article Chris Binnington who is also chairman of the Association of Arbitrators (Southern Africa), looks at these criticisms and suggests mechanisms to make arbitration more cost effective.

 

In a recent presentation co-hosted by Binnington Copeland Associates and Brooke Pattrick Publications, publishers of Civil Engineering Contractor, a controversial debate centred around the role of contractor and project registration practices and the grading system currently being undertaken by the Construction Industry Development Board (CIDB).

 

This month Chris Binnington steps away from outside on contract and examine the seemingly simplistic question of whether common law is the law for the common people?

On the face this question reflects a general lack of understanding as to:

1. What the common law is, and
2. The relationship between contracts and the common law.

As a consequence I now introduce each of our seminars with a brief background to the common law in order to explain this juxtaposition. The common law applies to all of us but there are areas of the common law, which can be excluded or modified in contract.

 

In the last article I addressed the issue of global claims for loss and expense falling outside the provisions of the contract. In this same vein, this month I look at other claims outside the contract which regularly arise, namely undue or unjust enrichment and quantum meruit.

 

This month, in the fourth of the series, Chris Binnington enlightens us on the topic of Claims, and in particular Global Claims. Read on.

It is more than 15 years since I presented a seminar dealing with Contractors Claims. At the time we had been on the receiving end of a number of large claims by Contractors and one of the common threads was the failure to understand the basic logic of a claim.

 

In his series of articles, Chris Binnington this month examines FIDIC and points out a few of the shortcomings of this widely used contractual standard.

FIDIC, the French acronym for the Federation of International consulting engineers, have been producing contract documents since 1954. Its 1999 suite, in part, was undoubtedly produced because of pressure to provide a comprehensive suite of procurement options which would meet the changing needs of the construction industry. Some would also argue that FIDIC were under pressure from the competing suite of NEC documents produced under the auspices of the Institution of Civil Engineers UK. (See my article on Page 43 of the March edition) This latter suite has become, since its first introduction in 1991, the dominant form of contract in the UK.

 

South African Standard Forms of Contract still draw, to a large extent, on their English historical counterparts. Indeed the Standard Building Contract prior to 1991 was based on JCT63 and the Standard Civil Engineering Contract, current edition 1990, was modelled closely on ICE 5th Edition. With the launch of the New Engineering Suite of Contracts in 1991 (1st Edition) and their adoption by the electricity parastatal, Eskom, adjudication was introduced for the first time as a mechanism for dispute resolution.

 

In the second of his articles on the legal of contracting, Chris Binnington this month examines the pros and cons of using the New Engineering Contract, and why a number of many large corporations are using it in South Africa.

 

Chris Binnington, Managing Director of Binnington Copeland & Associates, presents the first of a series of articles relating to contractual law.

Chris is an acknowledged expert in the fields of alternative dispute resolution, FIDIC forms of contract and in the preparation and analysis of contractual claims.

He has lectured contract law to over 8 000 delegates from the construction industry over the past 15 years and has been extensively involved in the drafting of concession contracts in the water treatment, power generation and roads fields. He has lectured on private funding initiatives and BOT/BOOT contractual arrangements, and appeared as an expert witness in England’s High Court and in South Africa where he has also handled arbitrations in some twelve matters.

 

Chris Binnington, Managing Director of Binnington Copeland and Associates, has been involved in the construction industry for more than thirty years. For the last 20 years, he has focused on the provision of commercial and contractual advice to all segments of the industry and says he has not seen any significant change in the reasons why construction projects go wrong. He lists seven basic reasons: Inadequate Budget; badly scoped project; insufficient time for tender; under-estimation of time/cost; the lowest price syndrome; poor/inadequate resources and cashflow.

 

Chris Binnington, partner in Binnington, Copeland and Associates, well-known engineering and construction contract consultants in this country, is a regular columnist in Construction World, providing readers insights into issues pertinent to the industry.

 

Mr Chris Binnington is the Chairman of the Association of Arbitrators (Southern Africa) and Managing Director of Binnington Copeland & Associates, a leading commercial and contractual consultancy to the construction industry. In 1994 his Association submitted a major re draft of the 1965 Arbitration Ad. This, together with the ground- breaking legislation encompassed within the 1996 English Arbitration Act, has formed the core of the South African Law Commission’s work on the proposed new Domestic Arbitration Ad. In this article he considers some of the major changes that can be anticipated in the forthcoming statute.

 

I am not sure where Judge Basil Wunsh in “The Downside of Arbitration” (By Invitation August 4) obtains information that leads him to conclude: “Americans have found arbitration expensive and slow, and there is growing disillusionment with it”.

 

In this interview Mr Chris Binnington, Managing Director of Binnington Copeland & Associates, severely criticizes the JBCC 2000 Series of contract documentation. He says the Principal Building Agreement and its associated documents, produced by the Joint Building Contracts Committee, representing major partners in the building industry, is flawed, poorly worded, and fails to take note of current trends of modern contract drafting. He talks to Errol Symons.

 

In this article Mr Chris Binnington Managing Director of Binnington Copeland & Associates (Pty) Ltd, commercial and contractual advisors to the construction industry, and chairman of the Association of Arbitrators of Southern Africa, comments on recent changes in United Kingdom and Australian construction legislation and highlights some areas of potential benefit to the South African industry.

 

At a time when the building Industry in South Africa is faced with a major cyclical depression triggered in part by high interest rates and the absence of government spending, and... 

In the October edition of Construction World Peter Bold, Executive Director of JBCC, purported to respond to my article published in the September edition in which I suggested that the construction industry would be better served by eliminating nominated/selected sub-contractors.

 

In line with the Governments committed intention to finance capital projects through the private sector using BOT/BOOT techniques, the Greater Pretoria Metropolitan Council (GPMC) is in the process of finalising enquiries for a 20 year BOOT project for the processing and disposal of approximately 36 000 tons per annum of waste water sludge generated from their seven plants.

 

The use of nominated and selected sub contractors has become so munch a part of contracting that those responsible for setting up contracts seem to accept that this is not only the norm but that it is an essential element of contracting, says Chris Binnington.

 

In this series of articles, Chris Binnington, current chairman of the Southern African Association of Arbitrators, examines the pitfalls associated with cancellation.

 

In this article Chris Binnington, Partner in Binnington Copeland & Associates, one of South Africa’s leading engineering and construction contract consultants, and the Chairman of the Association of Arbitrators of Southern Africa, highlights once again the importance of compliance with claims notice provisions.

 

In this article Chris Binnington discusses construction risks associated with the use of FIDIC IV (red book) Conditions of Contract in Africa on medium-sized projects (up to US$60- million), and he suggests some improvements that could be considered. (Continuing from this Article)

 

In this article Chris Binnington discusses construction risks associated with the use of FIDIC IV (red book) Conditions of Contract in Africa on medium-sized projects (up to US$60- million), and he suggests some improvements that could be considered.

 

Today contractors operate in a rapidly changing environment which is fraught with claims, disputes and high profile risks. These place further pressure on already hard-pressed contractors and can have overall implications on the industry. Some of these changing scenarios and theft implications are examined in a series of articles specially written for The Contractor by Chris Binnington, of Binnington, Copeland & Associates, leading South African engineering and construction contract consultants.