New developments in international construction legislation

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.

Payment in the construction industry continues to be one of the major sources of dispute. For whatever reason many employers and a significant number of main contractors delay making payment or fail to make payment at all leaving the unfortunate party to pursue its rights through the dispute resolution clauses.

Frequently a costly procedure and even if completely successful will inevitably leave the successful party having to fund a substantial portion of the costs of that exercise.

Although the industry almost always expects performance bonds to be put in place, with or without additional security by way of retention, corresponding payment guarantees are the exception rather than the rule.

Final account negotiations with the main contractor and/or his sub-contractors often result in a requirement to compromise their final accounts in the face of a threat of non-payment or significantly reduced payment. These compromises/ threats would, to a large extent, be eliminated by the provision of payment guarantees.

The ubiquitous “pay when paid” provisions continue to proliferate despite the best efforts, in the building industry, of the JBCC.

What can be done about this situation?

Towards the end of 1998 legislation vas introduced in the United Kingdom following that government’s concern at the state of the construction industry which had prompted, during 1995, an enquiry headed up by Sir Michael Latham which culminated in the publication of the Latham Report in 1996.

Subsequently the English Construct ion Act was promulgated which provided for the elimination of pay when paid provisions and for mandatory adjudication as a first step in the dispute resolution process in any construction contract falling within the ambit of the Act. Australia has clearly sat up and taken notice of the English Construction Act and the State of New South Wales, in October 1999, promulgated the Building and Construction Industry Security of Payment Act, No.46. The object of this Act is stated as being:

“…… ensure that any person who carries out construction work (or who supplies related goods and services) under a construction contract is entitled to receive, and is able to recover, specified progress payments in relation to the carrying out of such work and the supplying of such goods and services.”

The effect of this Act is to ensure that a person is entitled to receive a progress payment by granting statutory entitlement to such payment and ensuring that a per son is able to recover a progress payment by creating a procedure that involves: the making of a payment claim by the person claiming payment; the provision of a payment schedule by the person by whom the payment is payable; the referral of any disputed claim to an adjudicator for determination; and the setting aside of money as security for payment of the progress payment so determined.

Powerful stuff indeed!

The Act applies to any construction con tract, whether written or oral and applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales. That provisions will no doubt give rise to some interesting legal debate.

The Act has also followed the UK’s lead in eliminating “pay when paid” provisions. The Act includes powerful provisions to enable the payment to be recovered, either as a debt due, in any court of competent jurisdiction alternatively the claimant may serve notice of intention to suspend the work or to suspend the supply of related goods and services.

Any dispute on the amount to be paid is referred to adjudication, the submission to adjudication being made within five days of the alleged default in payment and the response to be lodged by the alleged defaulting party within five business days after receiving a copy of the application. The adjudication process is not final and binding and dispute resolution procedures provided for in the construction contract are still available following the adjudicator’s decision. However, the respondent is obliged to pay the amount adjudicated upon or to give security for payment of that amount pending the Final determination of the matters in dispute between them.

Suspension of the work or the supply of related goods and services may be effected two business days after the claimant has given such notice. This is considerably faster than the types of suspensions clauses which are occasionally found in our South African construction contracts. Of course once the contractor, sub-contractor or supplier has performed his obligations its right to suspend is a hollow threat.

Given the large number of disputes in South Africa which arise out of the failure to make timeous payments, bodies such as BIFSA, JBCC and organisations which represent sub-contractors’ interest should give serious consideration to lobbying Government for the incorporation of similar legislation. Such legislation would be particularly important in supporting the Government’s ideals of affirmative action and affirmative appointments of previously disadvantaged contractors as well as being of assistance to SMME’s.

The full text of the Act is down-loadable from the new South Vales Department of Public Works and Services website: