CAASA CHAIRMAN'S NOTES

The Construction Industry Development Board (CIDB) publishes a newsletter titled “Concrete.” I came across an article in the February 2022 edition which fills me with some trepidation. It is headlined “First Homegrown Construction Contract set to move from Planning to Pilot.”

Even more alarming was the opening paragraph “GCC, JBCC, NEC and FIDIC should take a backseat in the domestic acronym lexicon. That local is more lekker than ever and the only way to go seems to be the general consensus.”

“National Treasury’s Office of the Chief Procurement Officer is spearheading the  development of contracts tailored to South African conditions and needs. The first contract for Construction Works is about to be piloted. Treasury intends to develop and publish further agreements for the provision of professional services, sub-contractors, maintenance and engineering, procurement and construction (EPC) turnkey contracts.”

To be factually correct both the JBCC and GCC are homegrown, and have been used extensively in the building and civil engineering industries for many years.

All Conditions of Contract are about a fair allocation of risk.   The risk should lie with the Party best equipped to manage it. The GCC, JBCC, NEC and FIDIC and their allocation of risk  have been endorsed by the CIDB and approved for use in the SA construction industry.

These contracts have been tested over time and are periodically revisited to ensure they continue to reflect best practice and the acceptable norms and bonos mores of an ever changing industry. They are extensively used both in South Africa and around the world.  There is significant legal precedence in the interpretation and application of these contracts. Construction law libraries are lined with reference books on the subject, as well as on other issues that have their genesis in some of the conditions. I am not sure why National Treasury no longer consider them fit to use in South Africa.

Part of the problem could lie in how these Conditions of Contract are often amended to be self-serving to only one of the parties to the contract. The General Conditions are drafted to represent a fair allocation of risk. Employers will often amend them by introducing Particular Conditions which skew the risk allocation in their favour. This has long been recognised as a problem.

So much so that, with their latest editions, FIDIC set up a special Task Group (TG15) in order to identify which contractual principles of each form of FIDIC contract FIDIC considers to be inviolable and sacrosanct. These principles are referred to as the “FIDIC Golden Principles” (GPs).TG15 was also requested to consider and suggest possible ways to prevent, or at least limit, misuses of  the Conditions of Contract.

These have been published as “The FIDIC Golden Principles” and provides the reason(s) why such principles are considered to be GPs; and guidance as to how users should draft PCs and the other documents of a contract based on FIDIC’s General Conditions so as not to violate or deviate from FIDIC’s Golden Principles.
 
The following key considerations underpin the GPs:
  1. The terms of the Contract are comprehensive and fair to both contracting Parties.
  2. The legitimate interests of both contracting Parties are appropriately considered and balanced.
  3. The legitimate interests of each party include the right to enjoy the benefits of the contractual relationship generally recognised as implicit in the GCs. For example, the Employer’s legitimate interests include the right to a facility constructed to the contractually specified quality, within the time and for the price contracted for. The Contractor’s legitimate interests include the right to execute the Works in the manner contracted for, within a reasonable time and for a commercial price paid on time.
  4. Best practice principles of fair and balanced risk/reward allocation between the Employer and the Contractor are put into effect in accordance with the provisions of the GCs.
  5. No Party shall take undue advantage of its bargaining power.
  6. The Contractor/Subcontractor is paid adequately and timely in accordance with the Contract to maintain its cash flow.
  7. The Employer obtains the best value for money.
  8. To the extent possible, co-operation and trust between the contracting Parties is promoted, and adversarial attitudes are discouraged and should be avoided.
  9. The Contract provisions are not unnecessarily onerous on either Party.
  10. The Contract provisions can be practically put into effect.
  11. Disputes are avoided to the extent achievable, minimized when they do arise and resolved efficiently.
I would have thought that, if any of the standard forms endorsed by the CIDB were lacking a “South African” element, this could easily be addressed in the Particular Conditions.
 
In his State of the Nation Address the President placed great importance on infrastructure as a catalyst to drive employment and economic growth. He also stressed the need for the private sector to play a significant role in the provision of infrastructure. Will Treasury’s construction contracts become mandatory? The CIDB states that it will not prescribe which conditions to use but we have all been down that road before. Will investors be happy to fund projects under an untried and untested set of conditions that only apply locally?   
 
Instead of Government introducing new contracts it should address the fundamental problems that continue to cripple the industry. Corruption, collusion, construction mafia, non or late payment, insufficient budgets, unrealistic time periods, bureaucracy, lack of contract administration skills, Treasury having to approve variations which approval can take months, ignoring/failing to resolve disputes timeously, the list goes on and on.   
To think that  new set of conditions of contract will resolve all these systemic problems is wishful thinking.  
 
Some years ago the CIDB proposed draft legislation to make 30 day payment and the speedy adjudication of disputes mandatory. The vast majority of disputes relate to payment in some form or another. This legislation exists in countries such as the UK, Canada, Hong Kong, Australia and Singapore, and has been a real game changer.
 
These 2 pieces of legislation would have changed the face of the SA construction industry. Instead it lies somewhere on a shelf collecting dust. The reality is that Government would only be making  a rod for its own back had it done so.

N Milne
Chairman
CAASA ADJUDICATOR'S CONTINUOUS TRAINING 2022 - MOCK ADJUDICATION PART 2

CAASA members and non-members are invited to join us for part 2 of our Mock Adjudication series. These interactive sessions feature a mock adjudication focused on an acceleration claim. The mock adjudication will include the following topics:
  • Whether or not an alleged oral instruction to accelerate works to achieve a particular completion date constituted an instruction in terms of the Contract;
  •  Whether the procedural requirements for the Contractor’s acceleration claim were satisfied, based on the purported instruction to accelerate; and 
  • The merits of the acceleration claim, on the assumption that a valid instruction was issued under the Contract, including consideration of the Contractor’s obligation to keep contemporary records to substantiate the claim.

DATE 3 March 2022 / TIME 09h00 – 11h00/ REFERRAL
DATE 3 June 2022 / TIME 09h00 – 11h00/ RESPONSE
DATE 7 October 2022 / TIME 09h00 – 11h00 / DECISION 

Delegates will be provided with a draft referral and response prior to the sessions to enable consideration of the issues and are able to submit a draft decision for review in the final session. This series is free of charge to CAASA members and R150 (ex vat) for non-members. Should you wish to attend, please email events@adjudicators.co.za for details. All delegates who attended Part 1 will receive details for the upcoming session.
CAASA CHAIRMAN'S NOTES

One positive outcome of the COVID-19 pandemic has been the enormous amount of “eLearning” that is out there, on whatever topic you may be interested in, the vast majority of which is free.
 
I attended two very different webinars on the same day recently.
 
The first was hosted by Cliffe Decker Hofmeyr and looked at “Future Fit Insurance Solutions for Disaster Events.” The second was presented by the Worshipful Company of Arbitrators, and was a seminar on adjudication in the UK.
 
The CDH webinar discussed how insurers responded to business interruption claims related to  the COVID-19 pandemic in various jurisdictions – USA, UK and South Africa. Most business interruption policies are only triggered when there is direct physical loss or damage to an asset such as a factory, workshop, or a business. If there is physical damage and the premises are unable to operate then the policy will respond. Unfortunately the COVID pandemic did not cause physical damage and a large number of claims were rejected. Some policies specified loss or damage due to a “virus” as being specifically excluded under the policy. A great many policy holders were turned away empty handed.    
 
Unlike a construction contract where the terms and conditions are negotiated insurers have their own settled policy wording on a “take it or leave it” basis. There is a concerted effort to have contracts, agreements and the like written in plain English (or other language), avoiding legalese and pages and pages of small print. Nowhere is this needed more than in the insurance industry.   

Even more alarming was a study done on global natural disasters over the period 2011 – 2021.It found that the total cost of global disasters during this period was US$ 2 415.9 billion with only US$ 890.9 billion recovered through insurance. Although the percentage under-insured varied from country to country, the gap is a staggering 63%.

It is estimated the cost of repairing infrastructure damaged in the recent KZN floods is around R 17 billion. We know that national, provincial and local government do not insure their assets. Many businesses and households may not be insured or insurers may apply averaging – if you should have insured for R 10 million but you only insured for R 6 million, insurers will only pay out 60% of the claim.  This happens as we do not review the values insured and the replacement costs on a regular basis. Insurance is seen as a grudge purchase.

There is no doubt we will experience new pandemics in some form or another and that, given the impact of global warming, natural disasters will become more frequent.   We cannot rely on insurance as the only solution.
The 2nd webinar posed 9 questions on adjudication issues under the Housing Grants Construction and Regeneration Act, the Scheme for Construction Contracts Regulations and other applicable legislation  in the United Kingdom. Of particular interest were the questions “does the adjudicator have the jurisdiction to rectify a contract on application by one of the parties” and “can a dispute arising out of a collateral warranty be adjudicated?” Since legislation governing adjudication in the UK differs from SA the answers do not necessarily apply.

However the one common thread throughout the presentation was the legal precedence that existed from having a specialist construction court. The presenters quoted court cases from the TCC  in response to all 9 questions.  The Technology and Construction Court (TCC) is celebrating its 150th anniversary this year, something quite remarkable. Proceedings in the TCC move swiftly. It has judges who specialise in construction related matters.  Adjudication of construction disputes is statutory and strongly promoted. There are many experienced adjudicators and a variety of nominating bodies.  Such has been the success of adjudication that few matters proceed to arbitration. This could well be the reason why the Worshipful Company of Arbitrators held a seminar on adjudication.

Although our courts uphold the rights of the parties to adjudicate and the enforcement of adjudicator’s awards there is still no legislation in place. We do not have specialist judges.  To have your day in court can take months, if not years. We do not have a great deal of precedence. Our pool of experienced adjudicators is small compared to the UK. The same adjudicators are appointed again and again. This not only leads to up and coming adjudicators not gaining experience, but also an adjudicator taking on too many disputes and decisions being delayed.

As CAASA we are committed to promoting adjudication and the development of adjudicators.
Our objectives are:
4.1 to promote for the public and individual Member’s benefit, education, training, study and research (and publication of the useful results of such research) in the field of adjudication law, practice and procedure and related subjects in South Africa and Southern Africa;
4.2 to advocate the use of adjudication processes in all fields where these can be usefully employed; 
4.3 to lobby those in authority, in both State and private institutions, to protect and advance the interests of adjudication and adjudicators;
4.4 to develop and recommend best adjudication practices to its Members; 
4.5 to develop and maintain a panel of adjudicators for the purposes of being appointed to act as adjudicators on request from the public or a Member; and
4.6  to implement such suitable quality assurance procedures to qualify its Members for membership when and in such manners as this becomes possible and practical.

Please let us know if we are failing in any of the above.

N Milne
Chairman
EXTERNAL TRAINING 

MDA Attorneys director and CAASA Exco member, Vaughan Hattingh, will be presenting at the ICE-SA NEC Adjudicator's panel workshop on recent market developments in Adjudication including Employers contracting out of adjudication and current trends in enforcing adjudicators awards.

CAASA members are invited to join in on the discussion:

Date: 9 June 2022
Time: 9:30am - 11:30am
RSVP: events@adjudicators.co.za
FEATURED CASE NOTE

Ekurhuleni West College v Segal

The SCA’s view on the applicability of “natural justice” to JBCC adjudication proceedings.

Ekurhuleni West College (“EWC”) and Trencon Construction (Pty) Ltd (“Trencon”) entered into a JBCC Principal Building Agreement in terms of which EWC was the employer and Trencon was the main contractor. Various disputes arose between the parties, which were referred to adjudication before Mr Segal (the “adjudicator”). Trencon submitted a statement of claim, to which EWC responded with a statement of defence, to which Trencon replicated. Notwithstanding the absence of any provision therefor in the adjudication rules, EWC submitted a rejoinder. Trencon objected to this further submission. The adjudicator informed the parties that the rejoinder would not be considered. In an email thereafter, the adjudicator directed questions to the parties to which Trencon responded. The adjudicator decided that a hearing would not be necessary and published his decision.

EWC filed a notice of dissatisfaction referring the matter to arbitration. EWC also sought an order from the High Court for the review and setting aside of the adjudicator’s decision. EWC contended that the adjudicator had exceeded his jurisdiction and had not acted impartially or independently when he rejected EWC’s rejoinder and failed to conduct a hearing. The High Court dismissed the application for review. In coming to this decision, the High Court considered whether the principles of natural justice had been breached and determined that they were not applicable to the matter.

The SCA agreed with the High Court’s decision and elaborated on why the principles of natural justice did not apply.

The SCA held that the legal position is as set out in the case of Turner Jockey Club of South Africa[1] which stated that the obligation of a tribunal created by contract to observe the principles of justice derives from the express or implied terms of the agreement. The test for determining whether the fundamental principles of justice are to be implied as tacitly included in the agreement between the parties is the usual test for implying a term into a contract.

In the circumstances of the parties, namely under JBCC adjudication proceedings, express contractual provisions regulate the procedure that the adjudicator had to follow. The JBCC adjudication rules provide for a statement of claim, statement of defence and a replication. The adjudicator is empowered to require a party to submit further information which he might reasonably require. The adjudicator is entitled to conduct a hearing but is not obliged to do so.

EWC never challenged any of these provisions as being contrary to public policy. Therefore, there is no room for the tacit importation of any rule of natural justice.

EWC thus had to show that the express contractual provisions had been breached. The SCA determined that the adjudicator had conducted the proceedings strictly in accordance with the contractual provisions and therefore, there was no merit in EWC’s reliance on procedural unfairness.
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