JBCC contract documentation flawed - claim

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.

Q: You are recognized as an outspoken critic of the JBCC 2000 suite of documents. Why have you adopted this attitude?

A: Principally because I hoped that JBCC was going to introduce a document which would be major step in what I perceive as being the right direction for modern drafting of building con tract documents. Instead they have gone back into the dark ages. They have made the document far too complicated. The document is poorly worded. They haven’t taken advantage of modern contract drafting and the modern techniques that are available particularly for the construction industry insofar as, for example, early intervention in the resolution of disputes is concerned. I felt that I would like to go into print on this to highlight the problems and I have done so in a number of articles. Instead of a positive response from JBCC I have Just had negative response and innuendo as to my motivation presumably because I have In the past been a member of the committee dealing with the NEC, the New Engineering Contract suite of documents, I think JBCC has incorrectly perceived me as trying to support NEC to the detriment of JBCC, and that is certainly not the case. My concern is simply that the document is flawed and does not do Justice to the construction industry, which has enough problems without the added complication of inadequate contract documentation.

Q: If, as you suggest, the document is legally flawed, why do you think it was introduced into the marketplace?

A: Any contract drafted by committee inevitably represents a compromise of the differing views. JBCC deliberated over this document for months, if not years. It is inevitable therefore, particularly with a complicated suite of documents, and JBCC is complicated, that the process takes a long time. I think that there may well have been some frustration, and I wasn’t a party to it so I am speculating here, towards the end of the process, and it was necessary to get the document in place, warts and all, with the view to allowing the market place to feed back to JBCC the flaws in the documents with a view to JBCC reviewing it from time to time. JBCC is a very active committee, it has a permanent executive director and it has various members actively participating in the review of the documentation itself. So I have no doubt that while, in my view, it was premature to issue it in its present form, the committee always expected to receive comments and criticism from users. Whilst this might deal with the drafting flaws this will not address the major structural problems that I perceive to exist.

Q: Assuming your criticisms are correct what are the consequences for users of these documents?

A: Since JBCC would like all building con tracts to be under the auspices of this document, the simple answer is that where any document is introduced which has legal flaws the inevitable consequences will be that disputes will arise as a consequence. People will find the flaws in the document, will take advantage of them, or may be prejudiced by them. Inevitably we will see disputes coming through arising out of these problem areas.

Q: It has been suggested that you have a hidden agenda in criticizing JBCC 2000. What is your reaction?

A: I am very disappointed that such an approach has been taken since there is no truth in this fact. My motivation is straight forward and straight, to the point It is self evident to anybody with any contractual knowledge that this document is flawed. I would like to see a proper building document — one that serves the needs of the building industry. As far as I am concerned JBCC 2000 doesn’t do that at the moment. Whether it can be amended to do so I can’t say, because I think it would need major amendments but certainly I have no hidden agenda. I am no longer a member of the NEC user group, albeit that I take an interest in what NEC is doing because I think that many of the concepts that were introduced through the New Engineering Contract suite of documents could have been beneficially utilized by JBCC. Indeed if you look to the international FIDIC suite of documents you will see that the latest amendments in FIDIC have in fact taken a significant lead from NEC. There is no reason why our own domestic building contract could not similarly have taken note of what has been considered internationally as good practice as far as new techniques are concerned.

Q: You have issued a challenge to the 18CC elsewhere in this magazine. What do you hope to achieve by this?

A: I would like to bring these issues out into the open. I believe that a very positive debate, and a very entertaining debate, could be structured around the situation in a relatively lighthearted fashion. I regret that there is a perceived animosity between myself and JBCC and I wish to emphasise that from my perspective there is no such animosity. I believe the issues with which I am concerned can best be highlighted via the forum of open debate, with the public being invited. I think that would generate huge response from the building industry. I believe it would be beneficial to allow the document to have an exposure in public. Ultimately, if my criticisms are validly accepted I would hope that JBCC would take note of them and perhaps incorporate a major amendment in a future edition.

Q: If the opportunity were offered to you to raise your concerns with JBCC, how would you react?

A: I have in fact recently received an invitation from Dave Mitchell, the chairman of the JBCC committee, to meet with his committee — and in particular with the relevant reviewing committee — to debate the issues which I perceive as being problematical. I see that as a very positive step and I welcome that step. I have responded to Dave Mitchell saying that I will most definitely be prepared to meet. But I also believe that the open debate should take place because I think its in the public interest to know what the difficulties are. At the moment this document is a public document and it is being used extensively. I believe my concerns need to be expressed in open debate such that the users of the document can be alerted and if JBCC are able to counter my arguments, so be it. I am happy for that to take place but I have a lot of confidence in my position in regard to the flaws in the document.

Q: In its present form what would your advice be to users of the document?

A: To tread carefully. Also there are certain clauses that have to be deleted. One is looking for trouble in utilising the document in its present format.

Q: Can you give our readers a few examples of what you consider to be major flaws in the document?

A: The first and foremost one is the deeming provision. In the definition of “deeming”. JBCC has taken the word “deeming” and eliminated any possible challenge to the ‘deemed” condition. In law a “deemed” condition merely creates a rebuttable presumption. In other words, if the use of the deeming provision is inappropriate in the context of its application, then the law allows the presumption to be rebutted and the deeming provision falls away. However, what JBCC has done is to use the following definition in clause 1.5.1: the word deemed shall be conclusive that something is fact regardless of the objective truth.

That is totally nonsensical because thereafter, just as an example, when dealing with the delivery of documentation, a notice shall be deemed to have been duly given when it is sent by fax one day after transmission. Now, you can see the illogicality in that. If in fact that document is never received by the other party, it is deemed to have been duly given. The definition of the word deemed removes the ability of the other party to rebut the presumption that it never received it. In addition to which the word deeming appears in various other clauses with the same draconian result. The definition has now created its own arrogant truth irrespective of the objective truth! That definition must be deleted immediately.

Clauses 2.1 and 2.2 are entirely superfluous they deal with the objective of the agreement for the execution of and payment of the works for which there has been an offer by the contractor and an acceptance by the employer. In these clauses the parties undertake to carry out their reciprocal obligations in terms of the agreement. This is just superfluous drafting.

Clause 3.1 deals with payment guarantees, and obliges the employer to provide a payment guarantee within 21 calendar days of the request by the contractor. Payment guarantees by the employer are a welcome device, but the clause is poorly worded. When may he request such a guarantee?

Under 3.2 its quite clear that where the employer requires the contractor to waive his lien the contractor shall do so within seven calendar days of having received a payment guarantee from the employer. But no amounts are specified, so how is that to be dealt with? These clauses are under the general heading preparation, which would imply an early request but then the headings are not to be used in the interpretation of the contract unless expressly stated. Failure to provide the guarantee is a breach but no sanction is provided other than a right to cancel. Why not a right to suspend a far more powerful tool than cancellation, and one which the contractor may find more appropriate in certain circumstances?

Clause 14.2.1 is litigation waiting to happen. This is the clause that deals with security by way of a cash deposit. Here the employer is required to invest the deposit in the employer’s name. Clearly as far the financial institution is concerned the investment is the employer’s. According to clause 14.2.6 the employer only acquires ownership of the cash deposit when the principal agent has certified this in terms of clause 33.3 and notice has been given by the employer in terms of clause 3L4. What is the position if the employer is liquidated?

The investment will remain in the employer’s name. It will be of little benefit for the contractor to wave the contract at the liquidator. Attorneys must be rubbing their hands in glee at the problems created by this clause.

Clauses 14.3.5 and 14.4.5 deal with rights of recovery under the guarantees. These two clauses suffer from the same defects. The employer is entitled to issue a written demand. Does this mean he may also issue an oral demand, and to whom is the demand issued? The contractor, the bank, or both? Presumably it will be a demand to the bank and if so there would appear to be no obligation to inform the contractor of such demand. This is simply untidy draftsmanship.

Clause 17.1.9 gives the principal agent blanket authority to remove any person employed on the works without guidelines or good cause being shown. It leaves open the possibility of abuse.

Clause 20.4 is typical of a number of clauses that do not need to be in the principal building agreement. This deals with the fact that the contractor is to provide a payment guarantee in terms of the nominated/selected sub-contract agreement. This clause has no purpose in the principal agreement. The sub-contractor acquires no rights and it is not a party to this agreement. The only place for this clause is in the sub-contract. Failure to provide constitutes of breech, but it will be highly unlikely to result in the employer suffering any damages. This clause should be deleted since it exists in the sub-contract agreement anyway.

Clause 22 deals with work by others. This clause and its sub-clauses appear to have been introduced with little thought for the consequences. Under 22.1 what if the work is not described in the schedule? Is the contractor still expected to permit work by others? In order to give some background it is necessary to refer to clause 22.1. This says that on instruction of the principal agent the contractor shall permit work to be executed and installed in the works by others for whom the con tractor is not responsible. The type and extent of such work shall be as described in the schedule. What happens if the employer, as an afterthought wishes to add to the scope of work by others and it is not described in the schedule. Clearly there is a restriction as to those others who may be employed by the employer. This type of restriction should not in fact occur. The employer may want to make a decision that other people should be employed. But in terms of this the employer is restricted.

Under 22.2 the contractor shall make reasonable allowance in his construction programme for such work, or installation. What if the work is not described in the schedule? Is the contractor still expected to permit work by others? Under the same clause, if not described in the schedule reasonable allowance in the programme can obviously not be made.

Clause 22.3 such work or installation and the associated risks shall be the direct responsibility of the employer. The responsibility for work by others is in fact in conflict with clause 81. Clause 8.1 makes the contractor take full responsibility for the works from the date on which possession of the site is given to the contractor up to the issue of the certificate of practical completion. So there is clearly a conflict here, which is not dealt with by an exception.

Clause 25 is a horrendous clause. It deals with works completion and now introduces yet another stage in the completion of the work-s. In order to under stand the process, traditionally in the building industry — as in many other industries — work is complete when it has achieved practical completion and the principal agent certifies as such. Usually that is preceded by an inspection leading to a list of items, which need to be completed before a certificate of practical completion can be issued. Here we still have the requirements for practical completion. We have the inspection pre-practical completion — once the contractor has completed those items there is another inspection, the certificate of practical completion is issued, and a works completion list is now issued.

When the items on the works completion list are completed a further inspection takes place and if the principal agent is satisfied he issues a works completion certificate. The defects liability period, in contrast to JBCC 1991 documentation, no longer commences with practical completion but now commences at works completion. Now there is no sanction for failure to complete the items on the works completion list. It merely means that the con tractor’s obligation will extend longer and longer because his 90-day patent defects liability period will not yet have commenced.

Why do we need yet another stage in bringing the work to completion? Completion should be at the discretion of the principal agent. If he is not satisfied, he tells the contractor that and he doesn’t issue the certificate of practical completion. We don’t need further complications.

From the contractor’s perspective, of course, there are often occasions when he considers the works have been brought to practical completion and the principal agent refuses to certify. The simple answer to this difficulty is the introduction of an adjudicator. Most modern forms of con tract have introduced the adjudication process as a step in the dispute resolution process. FI has got it, NEC has got it, and JBCC should have it. The adjudicator is agreed between the parties and steps in the moment there is a dispute between the contractor on the one hand and the principal agent on the other. It will be up to him to determine whether or not practical completion has taken place.

This is a major omission in this document. Worldwide the use of an adjudicator has been seen to be a dramatic improvement in the dispute resolution procedure and leads to resolution of 99 of all disputes between the parties. In fact this process has been so successful that the United Kingdom has legislated for adjudication across the board and made it a statutory requirement that adjudication shall be used in all construction contracts. This process is also being introduced else where, and notably Australia has now introduced legislation particularly in New South Wales in so far as adjudication is concerned. JBCC should have taken note of the modem trend of dispute resolution. They could have eliminated clause 25 an unnecessary complication and relied upon practical completion being determined either by the principal agent or by the adjudicator.

Both clauses 24 practical completion and 25 works completion have a further ridiculous provision, that in the event that the principal agent fails to issue the relevant certificate after due notice practical completion or works completion are deemed to have taken place. Given the draconian wording of the deeming provision, which I dealt with earlier, you end up with the ludicrous situation that the principal agent then becomes bound by the deeming clause. One of the effects of achieving practical completion is that the value of the construction guarantee is reduced. Imagine what your banker’s attitude would be to being told that you are no longer liable to the extent of the construction guarantee because practical completion has now taken place? They would say: well give me a piece of paper, show me the certificate, and you say I can’t it’s been deemed to have taken place. I can’t imagine that any banking institution would accept deemed practical completion leading to such a reduction in liability.

There is one final point that I would like to raise albeit this list we have been discussing is not an exhaustive list and there are numerous other problems with the document. Clause 29.23 deals with the insolvency of a nominated sub-contractor as being one of the reasons for which a contractor is entitled to an extension of time for practical completion. The subtle difference between that and clause 29.1.6, which is the clause whereby default by a nominated sub-contractor gives rise to an entitlement without cost for a revision to the date for practical completion, escapes me- If the contractor is entitled to time but no cost compensation for defaults by nominated sub-contractors, why should the contractor now get time and cost for the insolvency of a nominated sub-contractor which must in turn lead to default. This highlights once again the difficulties faced by an employer who is persuaded of the necessity to use nominated sub-contractors a breed of sub-contractor that, quite frankly, as I have said I think in your magazine before, should be eliminated in its entirety. They are not used by FI they are not used by NEC, and there is no reason to hang on to this outdated concept of nominated and selected sub-contractors.

Q: The document you have referred to is the principal building agreement of the JBCC 2000 Series?

A: Yes, but most of the problems that I have highlighted you will see flowing through the subsequent documents, that is the nominated/selected sub-contract agreement.

Q: The JBCC constituents, who are those represented on the Committee, recommend this. Those represented are the Association for Quantity Surveyors, Building Industries Federation of South Africa, SA Association of Consulting Engineers, SA Institute of Architects, SA Property Owners Association and the Specialist Engineering Contractors’ Committee?

A: That is correct. Quite a wide ranging group representing different interests within the building industry. Inevitably there would be conflict within such a group but that should have promoted and probably did promote a good deal of healthy debate.

Q: When was the JBCC suite of documents introduced?

In fact, in 1999 but they called it the JBCC 2000 series with a view to looking forward to the new millennium.

Q: How long has this been in circulation?

A: I think since May of 1999.