Can a contractor deduct contra-charges from a Subcontractor?
A story that many N/S Subcontractors of the JBCC contract know very well (particularly the plumbers).
The last tube of silicone is neatly wiped. The WC’s are flushed. The vanities are polished and the missing shower-heads are re-fitted for the last (erm… hundredth) time.
It is time for handover. You wake up excited. You’re already imagining a red carpet rolled out for you and your crew. The contracts managers cheering as you make your way to cut the ribbon in front of the main ablution block of the building.
It’s also the start of the glorious age of compiling the final account and thereafter of course, final payment. You have been molded in the crucible of this site for months, and finally, you are ready to reap the rewards of your hard work.
And then you see it…
The words scream at you like the spectators next to a brutal cage fight would chant: “finish him!“.
The final account, shows a deduction of R500k for “contra charges”. There goes the college tuition, the new bakkie and Spanner, your loyal dog and very last friend.
What does the term “contra charges” mean in JBCC?
Don’t bother trying to find the definition of contra charges in the JBCC, it is not a defined term. “Contra charges” is an umbrella term used by Main Contractors to deduct amounts from a N/S Subcontractor for various, alleged “transgressions” during the construction period. The following items comprise a list (by no means exhaustive) of typical “contra charges”:
- Cleaning and clearing away rubble. Usually accompanied by a portfolio of photographs demonstrating not only that the junior QS had nothing better to do on site, but also allegedly showing how the subcontractor substantially failed to clear his rubbish. Or rather failed to clear it in time, before the junior QS, armed with his phone discovered the scene.
- Defective work
- Damages to the contractor’s or other’s work that needed repair
- Use of the contractor’s equipment, scaffolding or the like
- Additional time and attendance by the contractor due to any of the above
Can these amounts be deducted from a subcontractor’s payment advice certificate?
In terms of the JBCC N/S Subcontract Agreement signed between the parties, the contractor may recover certain expense and loss items they incurred from a subcontractor. The most prominent circumstances, when a contractor can deduct amounts from a subcontractor are:
- Where a subcontractor failed to proceed diligently with a contractor’s instruction and/or;
- Where a subcontractor is in default which causes expense and loss to the main contractor.
However, these deductions or recoveries are strictly conditional and does not give the contractor free reign to deduct amounts randomly as they deem fit.
Strict conditions and process to be followed before amounts can be deducted.
1. Clear and direct notification, detailing the default.
The contractor must provide a notice to the subcontractor, detailing the particular default, before the issue of the recovery statement and before the contractor is entitled to appoint others to carry out an instruction or to deduct amounts due to the Sub’s default.
Because these provisions are clearly stated in the contract as conditions to entitlement, contractor’s who fail to adhere could later on lose their entitlement to recover any expenses from a subcontractor. The obligation is found in Sub-clause 27.2.9 and 17.3 of the JBCC N/S Subcontractor agreement (6.2).
2. Opportunity to remedy.
After notification, the subcontractor must be afforded an opportunity to remedy the default. In the event of a subcontractor not proceeding with an instruction, the subcontractor must be given five (5) working days to proceed with the instruction after notification.
Only when the Subcontractor remains in default, can the Contractor employ others to carry out the instruction. See Sub-clause 17.3 of the JBCC N/S Subcontractor agreement (6.2). Remember that proceeding with a notice isn’t always visible. For example, if the subcontractor is instructed to change the washing hand basins in a bathroom, proceeding would entail placing an order and waiting for the new material to be delivered.
Furthermore, where the default is not in terms of an instruction, let’s say it’s rubble not being cleared or the subcontractor is not working in accordance with a contractual requirement, then the subcontractor must again be given at least five (5) working days before the issue of the recovery statement, to allow the subcontractor to remedy the default. Sub-clause 27.2.9.
Subcontractors must still take note and be mindful of the following:
Although contractors must follow due process to establish liability for any deduction as shown above, it does not excuse or absolve a subcontractor from liability.
The purpose of any damages or cost and expense award is that the sufferer should be placed in the same position he/she would have been in, had the contract been performed.
In other words, let’s say a subcontractor receives a contra charge because they failed to remedy a defective showerhead. Let’s assume the contractor did not follow the provisions of the JBCC. The contractor simply phoned a friend who installed a new showerhead for R10,000. This is now shown as a contra charge to the subcontractor.
In terms of JBCC and common law, the subcontractor is not automatically liable for the R10k. The subcontractor would however still be liable for the actual/reasonable cost of replacing the defective showerhead. This is if we assume it is a true Defect in terms of JBCC. The subcontractor would therefore not escape liability entirely, and can only return to the same position he or she would have been in, had the contractor followed the correct process and afforded the subcontractor an opportunity to remedy.
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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