Kobus le Roux
Planning and Construction Contract Expert
CASE STUDY: Contractor ABC performs work for Employer DEF under the JBCC contract. The Principal Agent certifies, in an interim certificate the amount of R1M. The Employer receives the certificate and refuses to pay. He says there is an amount of R200K included in the certificate for standing time that they disagree with. Furthermore…(Let’s make this one interesting):
The JBCC contained an express change to the standard document that read: Any payment claim by a Contractor only becomes valid when it is accepted and certified by the Employer.
For contractors, the best time each month is when they cheerily expect the release of their interim payment certificate on a large project. Even more special is when payment is made on time and as per the certified amount. Yes, I can actually hear all of you scoff while reading this! Thinking: “when was the last time this happened without an unfair amount of drama or a high degree of strain and tension.”
Interim payment certificates are one of those exceptional mechanisms of the construction contract. Under the common provisions of reciprocal contracts, the intention is that neither of the parties should be entitled to enforce the contract unless they have performed or are ready to perform their own obligations. Translated to our industry, it means that a contractor cannot expect payment for work until he has fully delivered his own performance which is a functional and completed building.
This provides a problem in construction contracts because the performance amounts are typically in the high millions or hundreds of millions.
The interim payment certificate is a mechanism that bridges this problem. It allows for payments to be made regularly, without implying that the contractor performed his obligation in full compliance as per the specification. Only the final certificate carries that implied power.
The reason I like this case study is because it succinctly demonstrates the overriding authority of a principal agent under the JBCC contract.
It is very important to note that the principal agent is not a party to the contract as per the law-defined meaning of a party. In other words, the principal agent does not acquire any contractual rights and obligations. However, the principal agent is still a key independent professional role player as is demonstrated below.
Let’s set out the facts:
- Fact 1 – Under JBCC, the Employer warrants that the principal agent has full authority to act on his behalf. In simple terms this means that any act by the principal agent is equal to an act by the employer himself.
- Fact 2 – This authority extends to approving interim payment certificates as well as any additional expenses or adjustments of the contract value.
- Fact 3 – An interim certificate is a liquid document that creates a separate obligation for the employer which stands isolated or separate from the JBCC contract ( See Randcon Ltd v Florida Twin Estates).
- Fact 4 – Stemming from the previous fact and the JBCC contract, the Employer cannot dispute or refuse to honour the obligation to pay an interim certificate issued by his principal agent.
These facts establish without a doubt that once an amount is certified by the principal agent, it must be paid by the Employer even if he disagrees with it and even if there is a mistake. When mistakes are made, the JBCC contract provides 100% assurance, terms and guidance for the parties that will ensure correction of the mistake without prejudice to the employer.
Now for the interesting part: What about the changes made to the standard provisions of JBCC in our case study? The employer did state that a claim can only become valid after acceptance and certification by him.
In this particular instance, we have to acknowledge the authority of the principal agent did not change. In other words, the employer still warrants that the principal agent has full authority to act on his behalf and bind him (see clause 6 of JBCC Principal Building Agreement 6.1).
This means that when the principal agent act, we can accept such action as the employer’s. Therefore, even with this qualification, the certificate was valid because it was accepted and certified by the principal agent (with full authority) and hence, deemed to be accepted and certified by the employer himself!
I see this mistake often made in qualifications where employers try to limit their exposure and tamper with the mechanisms without fully understanding the consequences.
Enjoy your week everyone and watch this space next week where I will delve into the ways in which you can get paid for extra’s in other words… how to get money into your certificate. We all know that you must be paid for a contract instruction that is not your fault, or default interest or even adjustments of preliminaries when there is an accepted delay but how do you get paid for all these extra’s? What are the contractual mechanisms you can rely on to ensure they are included in your next certificate?
This post was compiled by Kobus le Roux for Le Roux Consulting, all rights reserved. Please contact us for your professional project planning, project control, claims or adjudication assistance services in the heavy civil and building industry.
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