JBCC rescue – How to get paid for change instructions and variations on your project

6 minute read –  by Kobus le Roux

How to get paid for change instructions and variations

This is a common concern for many contractors in terms of the JBCC agreement.

(a) When are you entitled to additional payment that was not part of your initial tender?

(b) And, how do you eventually include these amounts in your interim or final payment certificates?

In JBCC terms, we refer to these circumstances as events which cause an adjustment to the contract value.  

In this article, I’m going to show exactly how additional cost flows from the circumstance into your payment certificate.

Change is a given

Keith Pickavance* made the following remark when he so eloquently explained the unique nature of construction contracts: “Once the parties enter into an agreement, the Client can change its mind about what it wants, when it wants it, where it wants it and how it wants it”.

In response the standard form construction contracts all provide a mechanism for the contractor to vary its price (making an adjustment to the contract value) and the time within which he is to provide the work in the light of the changes requested by the Client.

Some clients are so focussed on their right to change their mind that they often forget the contractual consequences.

Yes Mr. Client, we can move this electrical point for you… but please remember to pay us and adjust the value for the additional expense we incurred.

In terms of the JBCC, let’s start with the most important definitions related to these adjustments.  The contract sum and contract value.

The contract sum is the amount tendered by the contractor and accepted by the employer.  We can also refer to it as the baseline/planned or budgeted cost. This amount is never varied or adjusted and stays fixed, to allow us to have some benchmark from where we can measure variance (difference between planned vs actual value).

The word contract value represents the current/actual obligation the employer has towards the contractor. This amount varies and is adjusted in respect of certain defined categories of circumstances.

So, let’s explore these categories of circumstances, in other words, under what circumstances would a contractor have the right to receive an adjustment on the contract value?

For all references we have used the JBCC Principal Building Agreement – Edition 6.1 and 6.2.

Adjustments as a result of Contract Instructions:

When a contract instructions are issued for which the contractor must be compensated. A typcial example is an instruction issued for additional work.

Adjustment of provisional work:

As an example, earthworks are usually measured provisionally. Once the actual quantities of work are established, it shall replace the provisional values and it shall constitute an adjustment to the contract value.

Where there is provisional work in the priced document, such value shall be omitted, and the actual value of work as executed shall be added to the contract value (26.3).

Take note that not all BOQ’s are measured provisionally. It must be identified as provisional to be subject to re-measurement.  I see a lot of practitioners accepting that all work are automatically re-measurable which is not the JBCC’s intention.

Adjustment for additional expenses in accordance with a contract instruction:

Where the contractor made payment for items not included in the priced document, these must be made in accordance with an instruction or by the approval of the principal agent.

These typically include charges by authorities in terms of clause 2.1, the cost of opening up or testing work where it was later found to be in accordance with the contract documents (think additional concrete core tests), or the cost of insurance in terms of clause 10, where applicable.

Adjustment for additional expenses or loss which is not the Contractor’s fault or responsibility:

Sometimes referred to as the “ghost clause” because contractors never notice it for some reason.  It allows for compensation of expense or loss that was not provided for or required in terms of the contract sum. Think standing time claims.

Adjustments for prime cost amounts, provisional sums and budgetary allowance items:

As part of every bill, there are certain allowances made. These amounts cannot be accurately ascertained before construction commences.

Adjustments need to be made during construction, once the actual values are known., the provisional amounts are removed and replaced with the actual values. See Clauses 26.9.1 – 2.    

Adjustments for preliminaries:

Preliminaries is the name given to the overhead portion of the contractor’s priced bill.

This usually includes the establishment cost, the monthly cost of the crane, site offices, site management’s salaries, health and safety expenses and the like. The biggest portion of preliminaries is a time-related cost.  In other words a cost per month.

Something like the site management’s salaries. If it is R200k/month and the project’s duration is 10 months the time-related portion of preliminaries will be R2million in the bill.

If there is a delay on site and the contractor ends up staying there for 12 months, they need to pay R2,4million in salaries. However they have only allowed for R2million as part of their tender sum.

As a result, the contract needs a mechanism by which to adjust the time-related value when delays take place that is beyond the contractor’s control.

When you look at clause 23 of JBCC, you’ll see certain circumstances entitles the contractor to claim an EOT with an adjustment of value.

That’s the preliminaries and it requires adjustment when delays are not the contractor’s problem. 

Adjustments for escalation:

In some projects there is an option selected to adjust the contract value as per the inflation rate. This is known as CPAP or cost fluctuations.  There is a simple formula and published indices that are used in the calculation and this is either added or subtracted from the contract value.

Adjustments for any rectification of errors or discrepancies.

Yes, even quantity surveyors make mistakes now and again.

Adjustments due to compensatory interest:

this is an automatic adjustment and calculation should certification be late. It is not optional, and the PA is under an obligation to include it in the certificate for payment.

Adjustments due to default interest:

this is an automatic adjustment and calculation should the employer fail to pay on time. It is not optional, and the PA is under an obligation to include it in the certificate for payment!

Adjustments due to damages:

Should the contractor have a right to recover damages in case of a breach by the employer, clause 27.1 provides the basis on which these damages are recovered by the contractor, through the payment certificate.

Adjustments due to the termination by a nominated subcontractor as a result of default or insolvency of the sub, or by default of the employer and/or agents:

The cost of completing such N/S subcontract work can be recovered by the contractor and becomes an adjustment to the contract value.

How does an adjustment find its way into your payment certificate?

Any additional expense and loss the contractor may suffer, due to no fault of his own, will be covered in the JBCC contract under one of these headings above.  Contractors must find comfort in the fact that they should not suffer losses as a result of circumstances placed beyond their risk in terms of the contract.  And yet, so many of them do?

The next question is, how does an adjustment find its way into the payment certificate?  As an example, let’s say there is an instruction for additional brickwork.  The contractor performs the work and would like to claim it in the next certificate.  Or, there is a delay for which you can claim an extension of time, how and when is the compensation or time-related preliminary adjustment added to your payment certificate? Last example – You incur standing time and want to include those expenses in the certificate.

For this purpose, we have established 3 pathways or “roads” which adjustments follow to be included in your certificate. See the info graphic below which illustrates the JBCC process:

 

The first road is the recovery statement.  The principal agent must, according to clause 27, issue a recovery statement with each payment certificate.  This recovery statement sets out amounts due by one party to the other and lists the various amounts that can be included. 

The second road is automatic contract adjustments in terms of your contract value and the amount certified.  They form part of the “Nett amount certified to Date” line of your payment certificate.  This must be a reasonable estimate of work done including adjustments as per clause 31.4.1.

The third road feeds into the previous one and is reserved for time claims with adjustment and cost claims.

* Pickavance, K. 2010. Delay and disruption in construction contracts, 4th Ed. Sweet and Maxwell publishing, London. 

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.

https://www.lerouxconsulting.com/

Kindly note that our posts on social media do not constitute professional or legal advice and the comments, opinions and conclusions drawn from this post must be evaluated and implemented with discretion by our readers at their own risk. 

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