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

Contractors and Subcontractors are usually trying to figure out how to get fair compensation for their troubles when it comes to the JBCC, or any standard form contract for that matter. It could be as simple as being paid for work done, being compensated for time-related P&G's due to delays, or recouping other costs that have not been reasonably allowed for.

It is yet another contractual aspect that one would think should be clear and straightforward. However, when we look at how these clauses are distributed throughout the JBCC, as well as how there is synergy and operation between the various clauses of the JBCC agreement and the Contract Data, we frequently find that Contractors and Subcontractors struggle to bring it all together in a clearly defined manner.

In this article, we set out to combine the various clauses and interactions between the JBCC contract and JBCC Contract Data into a concise and clear guide, providing clarity to Contractors and Subcontractors on how to get money into a certificate and then into their bank account.

"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," Keith Pickavance* said when eloquently explaining the unique nature of construction contracts.

In response, all standard form construction contracts include a mechanism for the Contractor to change its price (adjust the contract value) and the time frame for completing the work in light of the changes requested by the Employer.

Some employers are so focused on their right to change their minds that they frequently overlook the contractual ramifications. "We can certainly move this electrical plug for you, Mr. Employer"... However, please remember to pay us and adjust the value to account for the additional costs we incurred.

Let's start with the most important definitions related to these adjustments in terms of the JBCC. The contract sum and contract value.

The contract sum is the amount offered by the Contractor and initially accepted by the Employer. It is also known as the baseline/planned or budgeted cost from a Contractor's perspective. This amount is technically never changed or adjusted and remains fixed, almost cast in stone, to provide us with a baseline against which we can measure variance (difference between planned vs actual value).

The term contract value refers to the Employer's current/actual obligation to the Contractor. This amount varies and is adjusted based on a variety of factors.

Usually the bulk or core portion of payment due to a Contractor or Subcontractor is based on a fair estimate of the amount of work executed to date and the estimated value of materials and goods on site.  This amount is not decided upon between the parties, i.e. (Contractor-Employer, or Contractor-Subcontractor), although they can submit their own valuations, but rather, and ultimately it is certified by the Principal Agent or another Agent with delegated authority such as a Quantity Surveyor appointed by the Employer.

It must be noted that such a certifier owes both parties a duty to act independently and with reasonable skill and care.  The Principal Agent has full authority to bind the Employer and hence where such an amount is certified it is an admittance of debt by the Employer to the Contractor, in the amount as certified.

As mentioned, this amount is typically the cornerstone of the value to be paid from the Employer to the Contractor and from a Contractor to a Subcontractor. 

In a perfect world, the amounts certified in this manner will eventually reach 100% of the Contract Sum, at which point the project would have reached final completion.  However, due to various circumstances and provisions of the JBCC, the initial Contract Sum will be adjusted to reflect the Contract Value.

So, let’s explore these provisions and circumstances, in other words, under what circumstances would a Contractor /Subcontractor have the right to receive an adjustment on the contract value?

It must be noted that not all Contract(or) Instructions are compensable. If an instruction is issued for the Contractor to rectify a defect for instance, this would not result in an adjustment to the Contract Value where the Contractor is responsible for the defect.

Although this clause is mainly intended to deal with instructions for additional work, where an instruction is issued, due to no default of the Contractor, the Contract Value needs to be adjusted.

The manner in which such an adjustment should take place is clearly defined under Clause 26.2.

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. We see a lot of practitioners accepting that all work are automatically re-measurable which is not the JBCC’s intention.

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.

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 or work that is performed after the date of Practical Completion. Usually Contractors are not compensated for the time-related impact of these events and this clause is the way in which those expenses can be recouped. 

However this clause requires the Contractor to provide adequate notification and to later on submit a claim in order to sustain its entitlement to claim the additional cost.  Where the Contractor fails to provide said notification it shall lose entitlement and forfeit such a claim.

As part of every bill of quantities (priced document), there are certain allowances made. These amounts cannot always 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.

Preliminaries is the name given to the overhead portion of the contractor’s priced bill. This usually includes the establishment cost, the monthly overhead expenses such as cranage, site offices, site management’s salaries, health and safety expenses and the like. The biggest portion of preliminaries is usually what we call a "time-related" cost. In other words a cost per month that would continue irrespective of the production on site.

Something like the site management’s salaries or the rental of site offices, or the monthly payment on guarantees or insurances. Those costs, although it can sometimes be slightly mitigated, usually continues to accrue every month as time passes by.   

If there is a delay on site and the contractor ends up staying  on site for longer than initially allowed for, it can become a significant additional cost. Also, this is usually a double risk for Contractors as they are also exposed to liquidated damages / penalties during these overruns.  Accordingly, not only are they losing money on the time-related expenses, they may be charged penalties as well.

As a result, the contract needs a mechanism by which to provide relief of these penalties and 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 which entitle the Contractor to claim an extension of time (EOT).  Certain circumstances as listed under 23.2 entitles the Contractor to an EOT with an adjustment of the Contract Value.

Accordingly, clause 23.2 and 26.9.4 and options selected in terms of the Contract Data, operates in unison to provide this relief to a Contractor. 

Contractor's must unlock this adjustment by claiming.  In other words, a Contractor can only obtain this adjustment (26.9.4) if they adhere to the requirements to claim for it, pursuant to clause 23, failing which again they forfeit that right and may lose the ability to claim. 

In some projects there is an option selected to adjust the contract value as per the inflation rate.

This is known as CPAP under the older versions or cost fluctuations under the latest versions of JBCC.

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.

However, it must be an option selected in the Contract Data for this clause to operate.  There is no automatic entitlement for a Contractor to claim the increase in prices on a project.

Where the option is not selected, a Contractor essentially carries the risk for any cost increased in the prices of materials and labour, for the duration of the project. 

However, where the time of the initial project is extended, and cost increases do take place after expiry of the initial contract duration, due to no default by the Contractor, then the Contractor may be entitled to claim the effect of such price increases pursuant to clause 26.5.

Yes, we know it will be heavily disputed, but even Quantity Surveyors make mistakes now and again. Where these errors are corrected and/or where it causes additional cost, this clause makes provision to adjust the Contract Value accordingly. 

Part of what is issued with each payment certificate is a recovery statement between the Contractor - Employer or Contractor - Subcontractor to recoup amounts due between the parties and which amounts are not contained in clause 26.0.

It is important to remember that this document is not primarily compiled/estimated or certified by the Principal Agent.  This is with the exception of default and compensatory interest as well as penalties. Clause 25.7.4 and 25.7.5 obligates the Principal Agent to determine the value of default and compensatory interest and issue those values with each payment certificate.  Clause 24.3 obligates the PA to add penalties when it is accrued. 

Accordingly, taking the exceptions listed above into account, the parties should inform the Principal Agent of amounts they need included in the recovery statement. This is also the case between the Contractor and Subcontractor.  The Principal Agent does not act on behalf of those two parties and can therefore not really impede or participate in the process of recovery between the Contractor and Subcontractor.

The following adjustments are contained in the Recovery Statement - 

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.

Adjustment due to Penalties

In previous versions of JBCC, penalties were not an automatic provision, and nobody was under an obligation to levy a penalty.  The Employer could elect to do so, or choose not to. However this changed in the latest versions.  Now pursuant to 24.3, the PA is obligated to include a penalty on the date on which the Employer's entitlement to penalties commences.   This sometimes raises the technical question, if it is not added to a certificate when it ought to have been, would it constitute a waiver of penalties on the Employer's side? 

Adjustments due to expense and loss:

Clause 27.2 sets forth a list of possible expenses and loss that an Employer may recover from a Contractor.  Perhaps the most important of those is 27.2.9 where the Contractor is in default, have received a notification of such default and fails to rectify it.  If the Employer suffers loss as a consequence, the Employer can recoup such loss in the recovery statement. 

Adjustments due to damages:

Although it must be proven in liability and in quantum, and would require proper common law processes, a Contractor would have a right to recoup any damages due to it from the Employer in the recovery statement.

Adjustments due to expense and loss caused by a direct contractor:

Direct Contractors are those employed by the Employer and although a Contractor is obliged to allow them reasonable access to site and space to do their work, where they cause expense and loss, this can be recovered by the Contractor in the recovery statement.

Adjustments due to advance payments

Where the Employer provides an advanced payment to the Contractor, it is contained in the recovery statement.  The Employer under clause 27.2.4 would later have a right to again recover this amount from the Contractor.

Adjustments due to termination of a n/s subcontract agreement due to the default of the Employer, the Principal Agent or other Agents.

Where the Contractor suffers a loss due to the termination of a N/S Subcontractor and this termination is as a result of the Employer, PA or other Agents, the Contractor can recoup such losses in the recovery statement. 

Any additional expense and loss the Contractor may suffer, due to no fault of its 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. 

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? Or, 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. They are:

1. Recovery Statement

2. Adjustments in terms of clause 26

3. Claims in terms of clause 23 for time and 26.5 for additional cost. Both claims processes essentially operate through clause 26 to get certified. 

It remains very important to remember, if a Contractor is entitled to compensation, but for some reason fails to successfully recover an expense through any method above, give notice in terms of clause 26.5. 

Many times Contractors rely on a provision of the contract, just to later realize they were not entitled to have recovered the expense in the manner they thought, however by that time, they have lost the ability to claim compensation through 26.5 because they are time-barred.  

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