KKR Exam Notes PDF

INSURANCES AND SECURITIES 8.0 WORKS RISK Who is responsible for what and when. 8.1 The contractor shall take full responsibility for the works from the date on which possession of the site is given to the contractor and up to the date of issue of the certificate of practical...

INSURANCES AND SECURITIES 8.0 WORKS RISK Who is responsible for what and when. 8.1 The contractor shall take full responsibility for the works from the date on which possession of the site is given to the contractor and up to the date of issue of the certificate of practical completion or deemed achievement of practical completion for the works as a whole, or a section thereof. Thereafter responsibility for the works as a whole, or a section thereof, shall pass to the employer. Contractor is responsible for everything until practical completion, The project is essentially finished. Ex. The contractor is still responsible for finishing odds and ends until final completion. 8.2 The contractor shall make good physical loss and repair damage to the works caused by or arising from: Acts of God, so unforeseen circumstances. The contractor is still required to fix the damages. o 8.2.1 Any cause before the date of practical completion [19.0] o 8.2.2 Any act or omission of the contractor in the course of any work carried out in pursuance of the contractor’s obligations after the date of practical completion. 8.3 The liability of the contractor in respect of any loss or damage shall include, but not be limited to: 8.3.1 The cost of making good such physical loss and repairing damage to the works including clearing away and removing all debris and any other costs to reinstate the works 8.3.2 The new replacement value of free issue [12.1.10] 8.3.3 The cost of additional professional services 8.4 Notwithstanding subclause 8.3, the limit of the contractor’s liability shall not exceed the amount of the contract works insurance [10.1.1] [CD] 8.5 The contractor shall not be liable for the cost of making good physical loss and repairing damage to the works caused by or arising from: 8.5.1 The use or occupation of any part of the works by the employer, the employer's employees and/or agents and those for whose actions they are responsible 8.5.2 An act or omission of the employer, the employer's employees and/or an agent and those for whose actions they are responsible 8.5.3 An act or omission by a direct contractor 8.5.4 The use or occupation of any part of the works by a direct contractor 8.5.5 The design of the works for which the contractor is not responsible [7.1] 8.5.6 A defect in free issue or materials and goods specified by trade name where the contractor has no right of substitution. The contractor hereby cedes any right of action to the  employer that may exist against the supplier and/or manufacturer of such free issue and/or materials and goods. 8.5.7 Force majeure 8.6 Where the contractor is not liable for the cost of making good physical loss or repairing damage [8.5] such making good and/or expense and/or loss shall be measured and valued and included in the contract value by the principal agent [17.1.10]. 8.7 The contractor shall immediately give notice to the principal agent on becoming aware of physical loss or damage to the works. Commentary: 8.1: Obligation to Maintain the Works in Good Repair The contractor must maintain the works until final completion. This duty is based on: Common law: As the party in possession of the site, the contractor has a legal obligation to care for and return the site to the employer in a satisfactory condition. o This includes improvements (e.g., buildings) made during construction. o Exceptions include situations where the contractor has been instructed to alter, demolish, or add to existing structures. o Liability may be limited if it involves structures outside the contractual scope or if the loss relates to actions by the employer or third parties. Contractual duty: The contractor is responsible for delivering defect-free work. Any damage (e.g., storms, fire, theft) before practical completion is treated as a defect that must be repaired at the contractor’s expense. The contractor’s liability extends to: o The cost of repairs and removal of debris. o The replacement value of free-issued materials provided by the employer. o Any additional professional fees related to remedial work. 8.2: Period of Responsibility The contractor’s liability begins when they take possession of the site and ends with the issue of practical completion (or deemed completion). After practical completion, responsibility shifts to the employer, except when: o The contractor continues working on remaining or defective items during the defect’s liability period. o Any loss or damage caused by the contractor’s post-completion activities remains the contractor’s responsibility. 8.3: The Role of Subcontractors Subcontractors (whether nominated or selected) are under similar obligations:  o They must repair physical loss or damage that occurs during their construction period. o Before practical completion of subcontracted works, they are liable for all damage to their portion of the works. o After practical completion, they remain responsible for damages arising from any further work. Costs arising from subcontractor damage are passed to the contractor, who remains accountable to the employer for completing the overall project. 8.4: Limitation of Risk The contractor’s liability for loss or damage is limited to the insured amount as specified in the contract. Risks beyond the contractor’s control—such as actions by the employer or uninsurable events—are excluded from liability. Specific exclusions include: o Acts of war, terrorism, or riots. o Government actions such as nationalization or requisition. o Sonic shock waves caused by aircraft. 8.5: Uninsurable Risks and Employer Actions The contractor is not responsible for physical loss or damage caused by: o The employer’s use or occupation of the works. o Independent contractors employed by the employer. o Design flaws attributable to the employer or their agents. o Latent defects in materials or goods specified without allowing substitution. 8.7: Risk for Existing Structures If the contract involves alterations or additions to an existing structure, the contractor is not liable for damage to the original structure. o However, the contractor is responsible for any damage to the new additions made under the contract. 8.8: State Projects and Liability in Organs of State Contracts In public-sector contracts, state entities do not insure buildings. o This leaves the contractor fully liable for any loss or damage to both the works and existing structures, contrary to private-sector norms.  o This poses a significant risk, especially when working on minor additions or alterations to large buildings, as the contractor may not know the full extent of the existing structure's value. o The contractor’s liability under public contracts extends throughout the construction period, unlike in private-sector agreements where liability typically shifts after practical completion. 9.0 INDEMNITIES Financial protection leading from clause 8 9.1 The contractor indemnifies and holds harmless the employer, the employer's employees and/or agents from all claims or proceedings for damages, expense and/or loss including legal fees and expenses in respect of or arising from: o 9.1.1 Death or bodily injury or illness of any person or physical loss or damage to any property other than the works arising out of or due to the execution of the works or presence on and/or occupation of the site by the contractor. Should such an event occur, the contractor shall forthwith give notice to the principal agent o 9.1.2 Non-compliance by the contractor with the law, regulation or bylaw of any local or other authority and the failure by the contractor to obtain any permit, licence or approval that the contractor is required to obtain in terms of this agreement [2.1] o 9.1.3 Physical loss or damage to construction equipment or other property belonging to the contractor or the contractor’s subcontractors but excluding direct contractors’ equipment or property 9.2 The employer indemnifies and holds the contractor harmless from all claims or proceedings for damages, expense and/or loss, including legal fees and expenses, in respect of or arising from: o 9.2.1 An act or omission of the employer, the employer's employees and/or agents and those for whose actions they are responsible o 9.2.2 An act or omission of a direct contractor [16.0] o 9.2.3 Design of the works [7.2] where the contractor is not responsible for such design o 9.2.4 The use or occupation of any part of the works by the employer, tenants, direct contractors or others authorised by the employer o 9.2.5 Proceeding with the works on instruction from the employer without the employer obtaining the required permission under the law in terms of this agreement [2.1] o 9.2.6 Interference with any servitude or other right not recorded in construction information issued to the contractor that is the unavoidable result of the execution of the works including the removal of or weakening of or interference with the support of land and property adjacent to or within the site unless resulting from any negligent act or omission by the contractor or his subcontractors. Should such an event occur, the contractor shall forthwith give notice to the principal agent  o 9.2.7 Physical loss or damage to an existing structure and the contents thereof where this agreement is for alterations or additions to an existing structure. Should such an event occur, the contractor shall forthwith give notice to the principal agent o 9.2.8 A defect in free issue o 9.2.9 Physical loss or damage to the works where a certificate of practical completion has been issued [19.0] or practical completion has been deemed to have been achieved o 9.2.10 Advance payments certified by the principal agent and paid by the contractor to subcontractors [27.1.8; 27.2.4]. Commentary: 9.0: Indemnity against loss or damage to third parties. 9.1: Liability to Third Parties Construction work carries significant risks not just to the works but also to third parties, both on-site and off-site. Under common law, individuals, including contractors, are obligated to avoid causing harm to others through negligence. A contractor can be held liable for: o Injury or death of third parties. o Damage to property other than the works under construction. If negligence by the contractor results in harm, third parties (or their heirs) have a right to claim damages from the contractor. The PBA emphasizes that liability rests with the contractor, not the employer, since the contractor is better positioned to ensure the safety of the site. Subcontractors are similarly held accountable and must indemnify both the contractor and the employer against third-party claims. 9.2: Limitation of Liability Employer’s liability arises when harm or damage is directly or indirectly caused by: o Acts or omissions by the employer, their agents, or employees. o Independent contractors hired by the employer. o Occupants or tenants using parts of the works before completion. In such cases, the employer indemnifies the contractor against claims or costs. The contractor is also indemnified against: o Loss or damage to the contents of the works after practical completion.  o Risks associated with direct contractors hired by the employer for specific tasks (as noted in Clause 16.0). 9.3: Risk of Loss of Lateral Support Lateral support refers to the natural stability of neighbouring properties. The employer, as the landowner, has a legal duty to ensure their work does not compromise this stability. Even if the contractor performs the excavation work, the employer remains liable for any resulting damage to neighbouring properties. This liability persists regardless of any contractual attempts to transfer responsibility to the contractor. Insurance policies for excavation work often require appropriate safety measures, such as temporary shoring, designed and monitored by a registered engineer to prevent accidents. To reduce disputes, the PBA requires pre-construction inspections of neighbouring properties (Clause 3.3 of the Preliminaries). This involves: o Recording the existing condition of nearby structures. o Using photographs to document pre-existing issues that could otherwise be blamed on the construction. 9.4: Additional Indemnities Contractors must indemnify the employer for: o Any legal actions resulting from the contractor’s failure to comply with laws, bylaws, or regulations. o Loss or damage to tools, equipment, and plant used by the contractor or their subcontractors on-site. Subcontractors are also obligated to indemnify the contractor against: o Legal claims stemming from non-compliance with regulations. o Loss or damage to subcontractors' tools and equipment. 10.0 INSURANCES 10.1 The party responsible shall effect and keep the respective insurances [CD] in force in the joint names of the parties from the date of possession of the site until the issue of the certificate of practical completion with an extension to cover the contractor’s obligations after the date of practical completion [8.2.2]: o 10.1.1 Contract works insurance [CD] for the works that shall make provision for direct contractors [CD], free issue [CD], materials and goods, professional fees, temporary works, clearing away and removing of all debris and any other costs to  reinstate the works and where required, damage to employer owned surrounding property [CD] where not covered under the removal of lateral support insurance o 10.1.2 Supplementary insurance [CD] for the works against loss or damage caused by civil commotion, riot, strike, labour disturbance and lockout to the extent not insured under the contract works insurance o 10.1.3 Public liability insurance [CD] providing indemnity in respect of accidental death or injury to any person and accidental loss of or physical damage to tangible property, to remain in force until the date of final completion o 10.1.4 Removal of lateral support insurance [CD] where the employer considers that the execution of the works could cause the removal of or weakening of or interference with the support of land or property adjacent to or within the site (also including employer owned surrounding property) and the consequences thereof. The employer shall appoint an agent to design and monitor appropriate support structures for use in excavations and/or in existing property that form part of the works and/or the site o 10.1.5 Other insurances [CD] 10.2 Where practical completion in sections is required [20.0], or where the works is for alterations and additions, the employer shall effect and keep in force contract works insurance [10.1.1], supplementary insurance [10.1.2], public liability insurance [10.1.3] and where applicable, removal of lateral support insurance [10.1.4] and other insurances [10.1.5] in the joint names of the parties until the date of final completion 10.3 The party responsible for effecting insurances [10.1.1-5; 10.2] shall provide proof of the insurances effected to the other party before the commencement of the construction period and, where required, provide proof of extension or renewal of such insurances before their expiry. Upon request the party responsible for effecting insurances shall provide the other party with the entire policy wording of such insurances 10.4 The contractor shall be responsible for the deductible amounts [CD] other than where a claim against an insurance cover is due to default of the employer, the employer’s employees and/or agents and those for whose actions they are responsible 10.5 The employer may, at his expense, require the cover of the contract works insurance [10.1.1] to be increased. The party responsible for effecting insurances shall provide written proof of such adjustment 10.6 Where the employer fails to effect the required insurances within ten (10) working days after notice to do so the contractor may, on expiry of the notice period, suspend the works until such insurances have been effected [28.1.4] 10.7 Where this agreement is terminated [29.0] and the contractor is not required to make good the physical loss or repair damage to the works, the right to the proceeds of an insurance claim shall vest solely in the employer. The party responsible for the insurances shall give notice to the insurer to clarify the status of the insurance cover and/or further insurance obligations applicable to the works, public liability insurance, supplementary insurance and removal of lateral support insurance 10.8 Any amounts not recovered from insurers shall be borne by the employer or contractor in accordance with their respective obligations under this agreement 10.9 The party responsible for effecting the insurances shall keep insurers informed of any relevant changes in respect of this agreement  10.10 The parties shall at their discretion effect insurances for aspects not insured such as construction equipment and work by direct contractors after practical completion. Commentary: 10.1 Contract Works Insurance o Purpose: To mitigate financial risks by covering physical loss or damage to the works during the construction period. o Joint Insurance: Insurance policies are taken in the joint names of the contractor and employer. This ensures both parties are protected from financial loss before the practical completion of the works. o Duration: Coverage is effective until practical completion or deemed practical completion. After this point, the risk shifts to the employer. o SASRIA Insurance: Special insurance to cover political risks and riots must also be effected unless the employer decides otherwise. o Insurance Placement: Either the contractor or the employer may take out the policy, and the decision must be outlined in the contract documents (CD). For projects with sectional completion or alterations, the employer must effect the insurance. o Subcontractors: Contract works insurance extends to subcontractors, eliminating the need for them to obtain separate insurance for the works. 10.2 Amount of Works Insurance Cover o Traditional Rule: Previously, 110% of the contract sum was considered sufficient. However, modern economic factors (such as inflation, delays, and cost escalations) have rendered this inadequate. o Recommended Coverage: The insurance cover should now range between 125% and 135% of the contract value, depending on the project’s complexity and scope. o Contract Adjustments: The agreement requires insurance to be adjusted if the contract value increases (Clause 10.5), with proof of adjustment provided by the responsible party. o Monitoring: The principal agent should monitor any changes to the contract value to ensure adequate coverage. 10.3 Sectional Completion, Alterations, and Additions o For alterations and additions to existing buildings, the employer is required to effect insurance for both the existing structure and the new works. o In the case of sectional completion, the insurance must remain active until the final completion date. 10.4 Lateral Support Insurance o Lateral support insurance is required if there is a risk that excavation or construction could interfere with the stability of adjacent properties. This insurance must cover the employer, contractor, and subcontractors. 10.5 Indemnity Insurance and Public Liability Insurance o Public liability insurance protects against third-party claims for injuries or property damage arising during construction.  o Both contractors and subcontractors are responsible for obtaining this coverage, with the amount and deductible specified in the CD. o Contractors must also comply with COID Act 130 of 1993, ensuring compensation coverage for workers injured on-site. 10.6 Proof of Insurance and Compliance o The responsible party must furnish documentary proof of insurance to the other party before the construction period begins. o If insurance lapses or fails to meet the contract requirements, the other party may issue five working days' notice to rectify the situation. o If compliance is not achieved, the non-defaulting party can effect the insurance and recover costs from the defaulting party. o Condition Precedent: The site cannot be handed over to the contractor unless all required insurances are in place. 11.0 SECURITIES 11.1 The contractor shall provide to the employer a guarantee for construction within fifteen (15) working days of acceptance of the contractor’s tender and choose: o 11.1.1 A guarantee for construction – (variable) initially equal to ten per cent (10%) of the contract sum and keep such security valid and enforceable until the final payment certificate has been issued to the contractor [25.15] or … o 11.1.2 A guarantee for construction - (fixed) equal to five per cent (5%) of the contract sum and a payment reduction of five per cent (5%) of the value of each payment certificate up to a maximum of five per cent (5%) of the contract sum [25.3.3; 25.12]. The contractor shall keep such security valid and enforceable until the only or last certificate of practical completion has been issued 11.2 The contractor shall: o 11.2.1 Maintain and/or replace a guarantee for construction - (variable or fixed) [11.1.1-2] at least twenty (20) working days before such security is due to expire o 11.2.2 Provide a guarantee for advance payment where an advance payment is required. The contractor shall keep such security valid and enforceable until the advance payment is repaid [11.3] o 11.3 The amount of the guarantee for advance payment shall be reduced by the amount repaid by the contractor as certified by the principal agent in payment certificates. If the advance payment is not repaid by the date a certificate of practical completion is issued or deemed achievement of practical completion or by the date of termination by the employer due to contractor default [29.9.3], the entire outstanding amount shall immediately become due and payable 11.4 Where the contractor fails to provide the specified guarantee for construction the employer may:  o 11.4.1 Hand over the site to the contractor and withhold an amount in interim payment certificates to the contractor until the total amount withheld is equal to ten per cent (10%) of the contract sum. The amount withheld shall be reduced at practical completion [19.0] to two and one half per cent (2.5%) of the contract sum and to zero per cent (0%) in the final payment certificate [25.9; 25.15] or … o 11.4.2 Terminate this agreement [29.1.1; 29.2] 11.5 The employer shall: o 11.5.1 Provide to the contractor a guarantee for payment where required in the accepted tender [CD] within fifteen (15) working days of acceptance of the contractor’s tender o 11.5.2 Keep such guarantee for payment valid and enforceable in terms of the security form and/or provide a replacement guarantee for payment at least twenty (20) working days before such security is due to expire 11.6 Where the employer fails to provide the guarantee for payment [CD], or such security has expired, the contractor may, after giving ten (10) working days’ notice, where such default has not been remedied, forthwith suspend the works until such security has been provided [12.1.1; 28.1.1] or by further notice terminate this agreement [29.14.2; 29.15] 11.7 Where the contract value exceeds the contract sum by more than ten per cent (10%) the guarantee for payment shall be adjusted at the employer’s expense. The employer shall provide written proof of such adjustment 11.8 The original or the replacement security form(s) shall be returned to the other party within ten (10) working days after the expiry date 11.9 Where a party makes an unjustified call on a security, the amount paid, and default interest shall be paid to the other party [27.1.2; 27.1.5] 11.10 The contractor shall waive his lien or right of continuing possession of the works on receipt of a guarantee for payment from the employer Commentary: 11.1 Introduction The section emphasizes common contractor breaches (e.g., delays, non-completion, or defective work) that may cause financial loss to the employer. Traditionally, contractors were asked to provide security to minimize the employer’s financial risk through tools like retention funds, sureties, or construction guarantees. Key Problem: Contractors’ financial positions are often unstable, and even legal recourse such as insolvency yields minimal recoveries, leading to a need for effective guarantees. 11.2 Retention Funds Retention funds were a cash guarantee system used before the JBCC construction guarantees were introduced in 1991. Employers withheld 10% of each interim payment (until 5% of the total contract sum was reached) to ensure the contractor's compliance. Payments were released in stages:  Half on practical completion Balance on final completion Issues with Retention Funds: Insufficient early-stage cover: Employer risk is highest during the early stages when only a fraction of the retention fund is accumulated. Cash flow challenges: Contractors received only 90% of payments, limiting their ability to pay suppliers and subcontractors, which could disrupt work. Disputes over ownership: Contractors argued the retention fund belonged to them since it was withheld from their payments. However, in Thomas Construction, the court ruled that interim payments are advances, and the retention fund remains the employer’s money until obligations are met. Supplementing Retention Funds with Sureties: Often sureties were provided alongside retention funds (usually covering up to 10% of the contract sum) to mitigate the employer’s risk further. 11.3 Variable Guarantee for Construction The JBCC introduced a construction guarantee in 1991, designed to replace retention funds. These guarantees were issued by financial institutions and offered more immediate and flexible security. Starts at 12.5% of the contract sum and reduces as the project progresses: o 7.5% at 50% completion o 4% at practical completion o 2% at final completion Advantages: Payable on demand: The employer can call the guarantee without needing to prove losses. Better contractor cash flow: No retention is held from interim certificates, ensuring steady income. Criticism: Some contractors struggled to obtain guarantees from financial institutions, especially those with limited financial resources. Contractors who failed to secure guarantees were often seen as high-risk, which could deter employers from awarding them contracts. 11.4 Fixed Guarantee for Construction A fixed guarantee offers a simpler alternative, similar to retention funds, but with a fixed security amount of 5% of the contract sum.  The withheld amount gradually increases as the project progresses. Payments are capped at 95% during interim stages, 97.5% after practical completion, with full payment only upon final completion. Key Differences from Variable Guarantees: Lower initial cover: 5% compared to the 10% under a variable guarantee, making it less favourable for employers during the high-risk early stages. Employer retains withheld payments without placing them in interest-bearing accounts, giving them an immediate financial advantage over contractors. 11.5 Comparison of Security Types Variable Guarantees: o More favourable to both contractors and employers. o Provides higher coverage (10%) early in the project when risks are highest. o Offers better cash flow for contractors without retention on interim payments. Fixed Guarantees: o Mimics retention practices by withholding part of the payment. o Less favourable for employers because it provides lower security when needed most. o More burdensome for contractors due to reduced cash flow throughout the project. 11.6 Default Provision If the contractor fails to provide security (whether fixed or variable) within 15 working days of tender acceptance, the employer has two options: 1. Terminate the agreement. 2. Allow the contractor to proceed but withhold payments equal to 10% of the contract sum until practical completion, reducing the amount withheld to 2.5% at completion. This provision raises concerns about project feasibility since a contractor struggling to secure security is unlikely to perform effectively without early-stage income. 11.7 Advance Payment Guarantee This guarantee protects the employer when advance payments are made to the contractor for goods not yet delivered or installed. If the contractor fails to deliver or ownership is not transferred, the financial institution backing the guarantee covers the loss. Use Cases: Off-site goods or materials not yet under the employer’s control. Subcontractors requiring deposits for specialized items (e.g., kitchen fittings). 11.8 Subcontractor Security The NSSA (Nominated/Selected Subcontract Agreement) includes similar provisions for subcontractor security. Subcontractors must provide guarantees in cases where they need advance payments or off-site storage coverage, ensuring seamless coordination within the project. Execution 12.00: Obligations of the parties 12.1 The employer shall: o 12.1.1 Provide a guarantee for payment [11.5], where applicable [CD] o 12.1.2 Record specific requirements [CD] where the existing premises will be in use and occupied during the execution of the works, including restriction of working hours [CD] o 12.1.3 Record and describe relevant natural features and known services [CD] where the contractor shall be responsible for their preservation o 12.1.4 Define any restrictions to the site or areas that the contractor may not occupy [CD] o 12.1.5 Give possession of the site to the contractor on the agreed date [CD] o 12.1.6 Effect and keep in force insurances in the joint names of the parties, where the employer is responsible for providing insurances [CD] o 12.1.7 Make payments by the due date [25.10] [CD] o 12.1.8 Make advance payments, where required [CD] o 12.1.9 Permit reasonable access to the works by the contractor and/or subcontractors subsequent to practical completion to fulfil outstanding obligations [17.1.17 and 19.7] o 12.1.10 Supply free issue [CD] to suit the programme o 12.1.11 Define the extent of work to be carried out by direct contractors [CD] o 12.1.12 Ensure that the principal agent and/or agents provide adequate construction information timeously to the contractor o 12.1.13 At the employer’s discretion make direct payment where the contractor has failed to honour a n/s subcontract payment advice after notice of default by a subcontractor to the principal agent, the employer and the contractor [14.5 and/or 15.5] 12.2 The contractor shall: o 12.2.1 Have inspected the site and any existing structures and be thoroughly acquainted with the conditions under which the works is to be executed including means of access and any matters which may influence the execution and/or the pricing of the works o 12.2.2 Within fifteen (15) working days of acceptance of the contractor’s tender submit to the principal agent the priced document with items priced to include all costs overheads and profit, extended and cast. Where the priced document contains errors or discrepancies and/or prices considered by the principal agent to be  imbalanced or unreasonable the principal agent and the contractor shall adjust such prices without any change to the contract sum o 12.2.3 Provide a guarantee for construction [11.1.1; 11.2.1] o 12.2.4 Provide a guarantee for advance payment [11.2.2] where applicable [CD] o 12.2.5 Effect and keep in force insurances in the joint names of the parties where the contractor is responsible for providing insurances [10.0] [CD] o 12.2.6 Prepare and submit to the principal agent within fifteen (15) working days of receipt of construction information a programme for the works in sufficient detail to enable the principal agent to monitor the progress of the works o 12.2.7 On being given possession of the site commence the works and proceed with due diligence, regularity, expedition, skill and appropriate resources to bring the works to practical completion and to final completion [21.12] o 12.2.8 Provide everything necessary for the proper execution of the works in compliance with the agreement o 12.2.9 Coordinate the programme with subcontractors’ and direct contractors’ programmes o 12.2.10 Regularly update the programme to illustrate progress of the works and revise the programme where the principal agent has revised the date for practical completion o 12.2.11 Regularly submit to the principal agent a progress report and a schedule of outstanding construction information to avoid delays to the works o 12.2.12 Cooperate with the principal agent in the preparation of cash flow projections and the compilation of payment certificates [25.1] o 12.2.13 Designate a competent person to continuously administer and control the works and to receive and implement notices and contract instructions on behalf of the contractor o 12.2.14 Maintain daily records of categories of persons and construction equipment employed on the works and regularly provide copies to the principal agent o 12.2.15 Keep on site a copy of all construction information required for execution of the works to which the employer and principal agent and/or agents shall have reasonable access o 12.2.16 Allow the employer and principal agent and/or agents reasonable access to the works, workshops and other places where work is being prepared, executed and/or stored o 12.2.17 Give notice forthwith to the principal agent and/or the employer where items of free issue have been received damaged prior to storage or, where on unpacking, are found not to be in good order before installing such items o 12.2.18 Provide, maintain and remove on practical completion all temporary structures, construction equipment and notice boards o 12.2.19 On achievement of practical completion hand over to o the principal agent all information for the preparation of ‘as built’ documentation and applicable statutory and/or regulatory approval certificates as well as operating and instruction manuals and the like o 12.2.20 Cede to the employer on the date of issue of the certificate of final completion any guarantees, product warranties or indemnities, pertaining to the  works. This cession shall not prejudice any other rights that the employer may have [21.11] o 12.2.21 Forthwith notify all subcontractors where a certificate of practical completion and/or a certificate of final completion has been issued by the principal agent for the works, or a section thereof 12.3 The principal agent and the contractor shall hold regular meetings to monitor progress of the works and to deal with technical and coordination matters. The principal agent shall record and timeously distribute the minutes of such meetings. Commentary: 12.1 Obligations of the Employer under the PBA Appoint agents (principal agent and other specific agents). Hand over the site to the contractor. Provide drawings, construction information, and instructions. Make payments according to the agreement. Provide a payment guarantee if required. 12.2 The Obligation to Appoint a Principal Agent and Other Agents Clause 6.1: Employer must appoint a principal agent with full authority to act and bind the employer. Principal agent cannot amend the agreement. Clause 6.2: Employer can appoint other agents (e.g., architect, quantity surveyor, engineers, land surveyor, etc.). 12.3 The Obligation to Hand Over the Site 12.3.1 The Common-Law Concept of Possession Employer hands over the site at the start of the construction period. Contractor takes possession of the site, but ownership remains with the employer. Contractor has the right to exclude others from the site, including the employer and agents (subject to reasonable access). Site cannot be used for purposes other than construction (e.g., accommodation for families, storing irrelevant equipment). 12.3.2 Legal Consequences of the Contractor’s Possession of the Site Contractor must maintain the site’s condition and protect it from damage. Liable for damage to site improvements (e.g., buildings, trees).  Contractor is delict ally liable for harm caused to third parties due to negligence. Employer retains liability for damages to adjoining properties due to site excavations (lateral support issues). Special insurance required for excavation-related damages. 12.3.3 Contractor’s Lien Contractor has a lien over the site as security for unpaid amounts. Employer can require a lien waiver using the JBCC waiver form. If lien is waived, the employer must provide a payment guarantee. No lien allowed on State-owned land. 12.3.4 Contracts for Alterations and Additions Contractor may receive possession of only a portion of the site. Lien rights may be limited or absent, depending on the contract. 12.3.5 Handing Over the Site Employer appoints a surveyor to establish site boundaries. Principal agent defines required levels for construction. Contractor must not disturb site pegs and reference points or replace them if damaged. 12.4 The Obligation to Provide a Guarantee for Payment Employer must provide a payment guarantee if the contractor waives the lien. If required by the tender, the guarantee must be issued within 15 working days of acceptance. 12.5 The Obligation to Make Payments in Accordance with the Agreement Employer must pay the contractor according to the agreed terms. Payment obligations are detailed in other sections of the contract. 12.6 The Obligation to Provide Construction Information and Instructions Principal agent must provide necessary drawings and instructions in time to avoid delays. Fast-track projects may require careful planning for the release of outstanding drawings. Contractor must submit a detailed programme to the principal agent for progress monitoring. Contractor is entitled to receive instructions regarding subcontractor nominations and materials selection. 12.7 Obligations of the Contractor under the PBA 12.7.1 Submission of Priced Bills of Quantities or Lump-Sum Document  Contractor must submit a priced copy of the bills of quantities after tender acceptance. The document will be used to value variations and interim payments. In lump-sum contracts, the contractor's pricing method may not need to be disclosed. 12.7.2 The Obligation to Furnish Security Contractor chooses the form of security in the tender. If security is not provided within 15 working days, the employer may terminate the agreement. 12.7.3 The Obligation to Furnish a Waiver of Lien Contractor must waive the lien if required, using the JBCC form, upon receiving a payment guarantee. 12.7.4 The Obligation to Appoint a Site Representative Contractor must have a competent representative on-site at all times. Representative manages day-to-day operations and liaises with the principal agent. 12.7.5 The Obligation to Prepare a Construction Programme Contractor must proceed with "due diligence, regularity, and expedition." A construction programme must be submitted within 15 working days of receiving information. Programme must include subcontractors' schedules and be updated regularly. 12.7.6 The Obligation to Complete the Work in Accordance with the Agreement Contractor must complete the agreed work to a satisfactory standard and by the stipulated date. Penalties apply for non-completion. If no specification is provided, the contractor must still deliver reasonable workmanship. 12.7.7 The Obligation to Provide Satisfactory Materials and Workmanship Materials used must be free from defects (implied by law). Contractor is expected to acquire non-defective materials as an expert in building. Defective materials can be returned to the supplier for replacement and damages. Contractor cannot detect latent defects immediately, but must replace them when discovered or be liable for damages, retaining recourse against the supplier. Materials used must be fit for purpose; otherwise, the contractor must replace them or be liable for damages. If the principal agent specifies materials by trade name, the contractor must use them and cannot substitute, even if they seem unsuitable.  Contractor remains liable for patent defects but not latent defects in specified materials. Workmanship must meet the standard of other competent contractors working under similar conditions in the absence of specific contract stipulations. 12.7.8 Obligation to Rectify Latent Defects The contractor is responsible for completing the works free of patent defects. Latent defects discovered after completion must be rectified if caused by a breach of contract. In theory, the contractor’s liability lasts for the life of the building. Practically, proving liability for defects years later becomes challenging (e.g., wear and tear, defective design). The burden of proof for contractor liability lies with the employer. JBCC Agreements: Contractor’s liability for latent defects is limited to five years from the certified date of final completion (Clause 22.1). Contractor is not liable for latent defects in specified trade name materials without substitution rights (Clause 8.5.6). Contractor must cede any rights of action against suppliers or manufacturers to the employer. 12.7.9 Liability for Design See commentary in Section 2 at 7. 12.7.10 The Obligation to Comply with Statutory Requirements See commentary in Section 2 at 2. 12.7.11 Suspension of the Works by the Contractor Contractor may suspend works with 10 working days’ notice to the employer and principal agent (Clause 28.1). Conditions for suspension include defaults by the employer or principal agent (Clauses 28.1.1 to 28.1.6). Subcontractors also have suspension rights under the NSSA. 12.7.12 Contractor’s Obligations to Nominated and Selected Subcontractors Contractor must give subcontractors access to necessary portions of the works, though subcontractors have no possession or lien rights. Contractor must make payments in accordance with the subcontract agreement and provide necessary drawings and instructions. Subcontractors may request a guarantee for payment within 15 working days of acceptance of their tender, for 10% of the subcontract sum (in accordance with the JBCC NSSA guarantee form).  If the contractor fails to pay a certified amount after the employer pays, the subcontractor can give five working days’ notice to comply. Failing compliance, the subcontractor may suspend work or call on the NSSA guarantee for the balance of the unpaid subcontract sum. 13.00: Setting out: 13.1 The principal agent and/or an agent with delegated authority shall: o 13.1.1 Point out t boundary pegs or beacons identifying the site and the datum level o 13.1.2 Define the setting out points and levels required for the execution of the works 13.2 The contractor shall: o 13.2.1 Be responsible for accurate setting out of the works notwithstanding checking by others o 13.2.2 Be responsible for the preservation and the reinstatement of boundary pegs, beacons and other survey information and, where disturbed or destroyed, replace such items at his expense o 13.2.3 Not be responsible for incorrect setting out if incorrect information was issued o to the contractor. In such event the contractor may be entitled to a revision of the date for practical completion [23.2.5] and/or an adjustment of the contract value [26.0] o 13.2.4 Immediately suspend affected work to an appropriate extent where encroachments of adjoining structures occur and where undocumented services, natural features, articles of value or relics are uncovered on site, and give notice to the principal agent who shall issue a contract instruction on how to proceed with the works. Any relics or other articles found on the site shall remain the property of the employer. Commentary: 13.1 Setting Out: Delegation of Boundary Marking: o The principal agent should delegate authority for identifying boundary pegs and datum levels to a registered land surveyor, appointed by the employer. o The surveyor should attend the site handover meeting to perform this task. Information for Setting Out: o The principal agent must provide the contractor with the necessary information to enable the correct setting out of the works (Clauses 13.1.1 and 13.1.2). Contractor's Responsibility for Assistance: o The contractor must provide any assistance and resources required for checking the accuracy of the setting out. Accuracy Check Responsibility:  o There is no obligation on the principal agent or any other party to verify the accuracy of the contractor’s setting out. o Failure by the principal agent to check the setting out does not constitute negligence. Rectifying Incorrect Setting Out: o The contractor must rectify incorrect work resulting from inaccurate setting out at their own cost, unless the error is due to incorrect information provided (Clause 13.2.3). Recommended Condition: o It is recommended that the principal agent include a clause in the contract documents (CD) requiring the contractor to provide a certificate from a registered land surveyor certifying the correctness of the setting out for a new building. 14.00: Nominated subcontractors: 14.1 The principal agent and/or agents shall: o 14.1.1 Prepare tender documents in conformity with the n/s subcontract agreement and this agreement for work intended to be executed by a nominated subcontractor o 14.1.2 Call for tenders o 14.1.3 Scrutinise the received tenders for compliance with the tender documents, in consultation with the contractor, where appointed o 14.1.4 Nominate a subcontractor and instruct the contractor [17.1.14] to appoint such subcontractor as a nominated subcontractor in terms of the n/s subcontract agreement and other tender requirements o 14.1.5 Inform the contractor where an advance payment is to be made to the subcontractor for an amount included in the accepted tender and that a guarantee for advance payment shall be provided by the subcontractor for the amount stated [NSSA-CD] 14.2 The contractor may refuse to appoint such subcontractor: o 14.2.1 Against whom the contractor makes a reasonable objection o 14.2.2 Who refuses or fails to enter into a n/s subcontract agreement and/or to comply with other tender requirements o 14.2.3 Who has failed to provide a required security [NSSA-CD] 14.3 Where such subcontractor is not appointed by the contractor for the reasons stated [14.2], or where the appointment of a subcontractor has been terminated, another subcontractor shall be nominated and appointed in accordance with a contract instruction issued by the principal agent 14.4 Where the subcontractor has complied with the tender requirements, in accordance with a contract instruction issued by the principal agent [17.1.14], the contractor shall: o 14.4.1 Appoint the subcontractor as a nominated subcontractor and forward a copy of the signed n/s subcontract agreement to the principal agent  o 14.4.2 Provide a guarantee for payment in the amount stated within fifteen (15) working days, where required in the n/s subcontract agreement [CD] Page 140 o 14.4.3 Forward the subcontractor’s regular payment claims to the principal agent and/or agents by the date stated [NSSA-CD] o 14.4.4 Issue to each subcontractor (with a copy to the principal agent) a JBCC® n/s subcontract payment advice and a JBCC® n/s subcontract recovery statement to reconcile the amount due for payment with the amount stated in the JBCC® n/s subcontract payment notification issued by the principal agent. o 14.4.5 Pay the subcontractor the amount certified by the date stated in the JBCC® NSSA n/s contract data [25.13] 14.5 Where the contractor fails to provide proof of payment to the subcontractor within five (5) working days of a notice by the principal agent, the employer may instruct the principal agent to certify direct payment to the subcontractor and recover such amount from the contractor [27.2.7] 14.6 Where a nominated subcontractor has been declared insolvent, or where, after notification by the contractor, the principal agent agrees that a nominated subcontractor is in default of a material term of the n/s subcontract agreement, the principal agent shall instruct the contractor to give notice to the subcontractor to rectify such default. The principal agent shall instruct the contractor to terminate the n/s subcontract agreement should such default continue for five (5) working days after such notice [17.1.15] 14.7 Where a n/s subcontract agreement with a nominated subcontractor is terminated: o 14.7.1 Due to default or insolvency of the subcontractor [23.2.10], or default of the employer, the principal agent and/or agents [23.2.11], any variation in the cost of completing such subcontract works shall be for the account of the employer o 14.7.2 Due to default or insolvency of the contractor any variation in the cost of completing such subcontract works shall be for the account of the contractor. The employer may recover expense and/or loss [27.2.8] o 14.7.3 The principal agent shall instruct the contractor to appoint another nominated subcontractor [14.1.4] to complete the n/s subcontract works 14.8 There shall be no privity of contract between the employer and a subcontractor appointed by the contractor. Commentary: 14.0 The Trend Toward Subcontracting: A General Introduction Specialization in the building industry has been a long-standing tradition, with trades such as masonry, carpentry, and bricklaying historically organized into guilds that controlled standards and training. Subcontracting evolved as these tradespeople initially worked directly for owners but later became subcontractors to principal contractors. Currently, principal contractors limit themselves to wet trades (like bricklaying or plastering) and outsource specialized and finishing work to subcontractors. This trend has increased in large, complex projects that require specialized subcontractors for areas like air conditioning, electrical installations, façade systems, and renewable energy systems.  The nominated/selected subcontract model emerged to provide employers with the benefits of both project management by a principal contractor and specialized skills of subcontractors chosen for certain tasks. This structure also shifts risks between the principal contractor and employer. 14.1 Nominated and Selected Subcontractors The JBCC Principal Building Agreement (PBA) provides for the appointment of both: Nominated subcontractors under Clause 14.0 Selected subcontractors under Clause 15.0 While both types offer similar services, they differ in terms of who bears the risks and delays caused by subcontractor default, as detailed below. 14.2 Advantages and Disadvantages of Nominated/Selected Subcontracts Several reasons might prompt the employer or principal agent to appoint a nominated or selected subcontractor, rather than leaving the task to the principal contractor’s discretion: 1. High-Quality or Specialized Work: o Some tasks, such as boardroom joinery or lift installations, require highly skilled subcontractors. The employer may prefer to choose such subcontractors, even at a higher cost, to ensure superior outcomes. 2. Specialized Work with Design Requirements: o Certain components, like air conditioning systems, may require specialized design input from subcontractors, which goes beyond what can be specified in regular bills of quantities. 3. Unclear Requirements at Tender Stage: o The employer might need to defer certain decisions, such as office partitioning layouts, until more information becomes available, like lease agreements. 4. Urgency in Tender Preparation: o Time pressures might require allowing monetary allowances for certain subcontracted work, enabling tender documents to be issued for the main contract while subcontract documents are finalized later. Risk Allocation in Nominated and Selected Subcontracts Nominated Subcontractors: o The employer selects the subcontractor, but the contractor is not responsible for delays or extra costs caused by the subcontractor’s default or insolvency (Clause 14.7.2).  o The employer, however, cannot sue the nominated subcontractor directly for damages, as there is no privity of contract between them. This often leaves the employer without an effective remedy. Selected Subcontractors: o The contractor participates in the selection process and assumes greater responsibility for managing the selected subcontractor. o If delays or additional costs arise due to the selected subcontractor’s default, the contractor bears the risk (Clause 15.7.2). o The contractor may price the additional risk into their tender to cover potential liabilities. Practical Shift from Nominated to Selected Subcontracts: o Due to the employer’s lack of recourse in nominated subcontracts, selected subcontracts have largely replaced nominated ones. o However, the involvement of the contractor in the selection process means that subcontract tenders cannot be finalized until the contractor is appointed. 14.3 Entering into a Nominated Subcontract A nominated subcontractor performs specific work for which a provisional sum is included in the contract or additional work as per a contract instruction. The JBCC Nominated/Selected Subcontract Agreement (NSSA) governs these relationships. The tender process for a nominated subcontractor involves the following steps: 1. The principal agent prepares the tender documents, invites, and receives tenders. 2. The agent recommends the acceptance of one tender to the employer. 3. Upon the employer’s approval, the contractor is instructed to enter into a nominated subcontract with the selected subcontractor (Clause 14.4.1). Grounds for Contractor Refusal to Appoint a Nominated Subcontractor The contractor may refuse to enter a subcontract if: The subcontractor refuses to accept the JBCC NSSA terms (Clause 14.2.2). The subcontractor fails to provide security as required by the NSSA (Clause 14.2.3). The contractor has reasonable objections to the subcontractor (Clause 14.2.1). Reasonable objections may include: Suspicion that the subcontractor lacks the resources to complete the work on time. Poor performance or service from the subcontractor on previous projects.  If the contractor refuses on valid grounds, the tender process must be repeated to find a new subcontractor. 14.4 Legal Considerations in the Subcontracting Process The tendering process for nominated or selected subcontracts does not align with the traditional contractual model, as it creates a unique relationship among the employer, contractor, and subcontractor. Employer's Role in Tendering: o The principal agent invites tenders on behalf of the employer. o While the subcontractor’s tender is technically an offer to the employer, the subcontractor ultimately enters into a contract with the contractor. Contractor's Obligation to Accept the Tender: o Once the subcontractor is nominated, the contractor is obliged to enter into the subcontract, unless valid reasons exist to refuse. Risk of Subcontractor Withdrawal: o If the subcontractor withdraws or alters their tender before acceptance, the employer bears the financial risk and may claim damages for the increased cost or delays. o The employer’s right to damages arises from the subcontractor’s breach of the agreement to enter a subcontract under the agreed terms. 15.00: Selected subcontractors: 15.1 The principal agent and/or agents shall: o 15.1.1 Prepare tender documents in conformity with the n/s subcontract agreement and this agreement for work intended to be executed by a selected subcontractor in consultation with and to the reasonable approval of the contractor o 15.1.2 Call for tenders from a list of tenderers agreed between the contractor and the principal agent o 15.1.3 Scrutinise the received tenders for compliance with the tender documents in consultation with the contractor o 15.1.4 In consultation with the contractor, choose the compliant tenderer to be appointed as a selected subcontractor in terms of the n/s subcontract agreement o 15.1.5 Inform the contractor where an advance payment is to be made to the subcontractor for an amount included in the accepted tender and that a guarantee for advance payment shall be provided by the subcontractor for the amount stated [NSSA-CD] 15.2 The contractor may refuse to appoint such subcontractor: o 15.2.1 Who refuses or fails to enter into a n/s subcontract agreement and/or to comply with other tender requirements  o 15.2.2 Who has failed to provide a required security [NSSA-CD] o 15.2.3 Against whom the contractor makes a reasonable objection where circumstances have changed 15.3 Where such subcontractor is not appointed by the contractor for the reasons stated [15.2], or where the appointment of a subcontractor has been terminated, another subcontractor shall be chosen in consultation with the contractor and appointed in accordance with a contract instruction issued by the principal agent 15.4 Where the subcontractor has complied with the tender requirements, in accordance with a contract instruction issued by the principal agent [17.1.14], the contractor shall: o 15.4.1 Appoint the subcontractor as a selected subcontractor and forward a copy of the signed n/s subcontract agreement to the principal agent o 15.4.2 Provide a guarantee for payment in the amount stated in the n/s subcontract data within fifteen (15) working days, of such appointment where required in the n/s subcontract agreement [CD] o 15.4.3 Forward the subcontractor’s regular payment claims to the principal agent and/or agents by the date stated [NSSA-CD] o 15.4.4 Issue to each subcontractor (with a copy to the principal agent) a JBCC® n/s subcontract payment advice and a JBCC® n/s subcontract recovery statement to reconcile the amount due for payment with the amount stated in the JBCC® n/s subcontract payment notification issued by the principal agent o 15.4.5 Pay the subcontractor the amount certified by the date stated in the JBCC® NSSA contract data [25.13] 15.5 Where the contractor fails to provide proof of payment to a subcontractor within five (5) working days of a notice by the principal agent, the employer may instruct the principal agent to certify direct payment to the subcontractor and recover such amount from the contractor [27.2.7] 15.6 Where the selected subcontractor is in default of a material term of the n/s subcontract agreement, the decision of whether or not to terminate the n/s subcontract agreement is that of the contractor 15.7 Where a n/s subcontract agreement with a selected subcontractor is terminated: o 15.7.1 Due to default by the employer, the principal agent and/or agents, any variation in the cost of completing such subcontract works shall be for the cost of the employer [25.3.7] o 15.7.2 Other than due to default by the employer the principal agent and/or agents, any variation in the cost of completing the subcontract works shall be for the account of the contractor [25.3.7] o 15.7.3 The principal agent shall instruct the contractor to appoint another selected subcontractor [15.1.4] to complete the subcontract works 15.8 There shall be no privity of contract between the employer and a subcontractor appointed by the contractor Commentary: 15.0 Selected subcontractors The basic concept of nominated and selected subcontracts is very similar (see 14.2 for the commentary on nominated subcontractors). Both are used to engage subcontractors to carry out specialized or specific work within a project, usually with provisional sums allocated in the contract. 15.1 Entering into a selected subcontract 1. Definition of a Selected Subcontractor: o A selected subcontractor performs specific work where a provisional sum has been included in the contract sum or additional work instructed by the principal agent under the contract. o This subcontract must comply with the JBCC® NSSA (Nominated/Selected Subcontract Agreement). 2. Tender Documentation Preparation: o The principal agent, in consultation with the contractor, prepares the tender documents. o These tender documents must receive the contractor’s reasonable approval before tenders are invited. 3. Tendering Process: o The principal agent invites tenders from a list of subcontractors that has been agreed upon with the contractor (Clause 15.1.1). 4. Subcontractor Appointment: o After consulting the contractor, the principal agent instructs the contractor to enter into a selected subcontract with the successful tenderer under the JBCC® NSSA and any specific tender conditions. o The contractor must appoint the selected subcontractor in accordance with Clause 15.4.1. 5. Payment Guarantee Requirements: o If required, the contractor must provide a payment guarantee (NSSA) within 15 working days, covering the amount stipulated in the subcontract data. 6. Contractor's Right to Object: o If the contractor has valid objections, he may refuse to appoint the selected subcontractor by advancing acceptable reasons (Clause 15.2). ▪ For example, this may include concerns about the subcontractor’s capacity, financial stability, or ability to meet deadlines.  7. Repeat Tender Process: o If the contractor objects to the appointment or cannot provide the required guarantee, the principal agent must restart the tendering process to find a new subcontractor (Clause 15.3) 16:00: Direct contractors: 16.1 The contractor shall: o 16.1.1 In accordance with a contract instruction [17.1.16] permit direct contractors [CD] to execute and/or install work as part of the works. Such access to the works shall not constitute deemed achievement of practical completion or occupation by the employer [19.6] o 16.1.2 Make reasonable allowance in the programme for such work or installation o 16.1.3 Be entitled to claim expense and/or loss caused by direct contractors) [23.2.9; 27.1.7] 16.2 Payment of direct contractors shall be the responsibility of the employer outside this agreement 16.3 There shall be no privity of contract between the contractor and a direct contractor appointed by the employer Commentary: 16.1 Work by the employer’s direct contractors 1. Common-law Position on Site Control: o When a contractor undertakes to complete a building and is given possession of the site, they have complete control over the site and can exclude anyone, including the owner of the site. o However, this right is limited by Clause 16.1.1 of the JBCC PBA, which requires the contractor to allow access to the employer’s appointed direct contractors. 2. Employer’s Limited Right Under Previous Agreements: o In older building contracts (clause 24.3), the employer had only limited rights to engage certain artists, craftsmen, or similar workers to perform work not included in the building contract while the contractor had possession of the site. ▪ Purpose: To allow artistic work or other embellishments by independent artists, which the contractor was not suited to perform as nominated subcontractors. 3. Expansion of the Provision in the First JBCC PBA Edition: o Clause 22.0 of the first edition expanded the scope to include manufacturing and processing installations.  o However, the issue of ‘tenant installations’ in commercial buildings was not addressed. ▪ Tenant installations are work that tenants or the employer want to perform before practical completion to ensure their installations are ready when the building is completed. 4. Inclusion of Tenant Installations in JBCC PBA Edition 6.2: o In Clause 16.1.1, the contractor must permit tenant installations or other work by workmen engaged by the employer, if instructed by the principal agent. o Such work must be described in the CD (contract documents) per Clause 17.1.16. 5. Contractor’s Responsibility Regarding Tenant Installations: o The contractor must make reasonable provision for this work in his programme (Clause 16.1.2). o If these direct contractors cause a delay to practical completion, the contractor is entitled to: ▪ Revise the date for practical completion (Clause 23.2.9). ▪ Receive financial compensation (Clause 27.1.7). 6. Control and Responsibility Over Direct Contractors: o The direct contractors and their work are subject to the contractor’s reasonable control. o Clause 9.2.2: The contractor is not responsible for the quality of the direct contractors’ work or for any risks associated with it. 17:00: Contract instructions: 17.1 The principal agent may issue contract instructions to the contractor regarding: o 17.1.1 Rectification of discrepancies, errors in descriptions or omissions in the agreement other than in the JBCC® Principal Building Agreement o 17.1.2 Alteration to design, standards or quantity of the works provided that such contract instructions shall not substantially change the scope of the works o 17.1.3 The site [13.0] o 17.1.4 Compliance with the law, regulations and bylaws [2.1] o 17.1.5 Provision and testing of samples of materials and goods and/or finishes and assemblies of elements of the works o 17.1.6 Opening up of work for inspection, removal or re-execution [23.2.4; 26.4.2] o 17.1.7 Removal or re-execution of work o 17.1.8 Removal or substitution of any materials and goods o 17.1.9 Protection of the works o 17.1.10 Making good physical loss and repairing damage to the works [23.2.2]  o 17.1.11 Rectification of defects [21.2] o 17.1.12 A list for practical completion specifying outstanding or defective work to be rectified to achieve practical completion, a list for completion and a list for final completion specifying outstanding or defective work to be rectified to achieve final completion o 17.1.13 Expenditure of budgetary allowances, prime cost amounts and provisional sums 17.1.14 Appointment of a subcontractor [14.0; 15.0] o 17.1.15 Termination of a nominated n/s subcontract agreement [14.6] o 17.1.16 Work by direct contractors [16.0] o 17.1.17 Access by other or previous contractors to remedy defective work o 17.1.18 Removal from the site of any person employed on the works Page 152 o 17.1.19 Removal from the site of any person not engaged on or connected with the works o 17.1.20 On suspension or termination, protection of the works, removal of construction equipment and surplus materials and goods [29.0] 17.2 The contractor shall comply with and duly execute all contract instructions 17.3 Should the contractor fail to proceed with a contract instruction with due diligence, the principal agent may give notice to the contractor to proceed within five (5) working days of receipt of such notice. Where the contractor remains in default, the employer may engage others to carry out such contract instruction and recover expense and/or loss incurred [27.2.3] 17.4 The contractor shall not be obliged to execute contract instructions for additional work issued after the certified date of practical completion 17.5 Oral instructions shall be of no force or effect. Commentary: 17.0 Contract instructions – Introduction Building contracts differ from other contracts: After the contract agreement, the employer has the right to vary the scope of work. Employer's right to vary work: This is not a common-law right but one granted by the agreement. Without this, the contractor could refuse variations. Impact of variations: The contractor cannot refuse varied obligations; their remedies are price adjustments and time extensions for completion. Reason for variations: Unforeseen conditions may arise, requiring contract changes. Challenges: Variations can allow employers to start projects without clear planning, as they can adjust later. Comparison with other countries: In places like the USA, where bills of quantities are not used, costs for variations must be negotiated, discouraging changes. 17.1 Instructions to rectify discrepancies, errors, or omissions  Clause 17.1.1: The principal agent may issue instructions to correct: o Discrepancies, errors, and omissions in construction documents. o These documents include drawings, diagrams, schedules, and bills of quantities. Contractor responsibilities: o Contractors must inform the principal agent if any documents are missing, unclear, or contain errors. o Contractors are not liable for redoing incorrect work caused by these document errors. Work under consecutive contracts: o Contractors must check levels, lines, and profiles from prior work and notify the principal agent of inaccuracies. 17.2 Instructions that vary the design, quality, or quantity of the works Clause 17.1.2: o The principal agent can issue instructions to alter: ▪ Design, standards, or quality of the works. o However, these changes must not substantially change the scope of the works. Extent of variations: o The principal agent has broad authority to add or omit parts of the project and substitute materials. Limitations on changes: o Major shifts, like changing the building type (e.g., hotel to office), are not allowed. o The contractor may receive compensation and time extensions if the changes cause delays. Instruction limitations: o No instructions can be issued after the certificate of practical completion. 17.3 Instructions dealing with the site (Clause 13.2.4) If undocumented services, relics, or articles of value are discovered, the contractor must: o Suspend work immediately in the area. o Notify the principal agent, who will provide instructions. Impact on completion:  o If the discovery affects the critical path of the contractor’s program, it can justify a time extension. 17.4 Instructions regarding compliance with the law (Clause 17.1.4) The principal agent may issue instructions if: o Drawings or other documentation do not comply with laws, regulations, or bylaws. o These instructions guide the contractor on how to adjust the work accordingly. 17.5 Instructions on samples, testing of materials, and finishes (Clause 17.1.5) The principal agent can instruct the contractor to: o Provide samples of materials, finishes, and assemblies for approval. o If these samples affect the project’s cost, they must be included in the contract data (CD). Mock-ups or show flats: o In projects like apartment blocks, contractors may be required to complete a sample or show unit to set quality benchmarks. Testing of samples: o Samples and elements may need testing to ensure they conform to the agreement. 17.6 Instructions regarding opening of work for inspection, removal, or re-execution The principal agent may instruct the contractor to open work if it was covered before being inspected. If the work is found non-compliant with the contract, the contractor bears the cost and delay associated with uncovering and re-executing the work. If the work complies with the contract, the contractor will not incur any cost or time penalties. 17.7 Instructions regarding removal or re-execution of work The principal agent may issue instructions to remove or re-execute defective or non- compliant work. For example: skew brickwork that does not meet the specified quality can be identified during inspection and removed/re-executed by the contractor. 17.8 Instructions regarding removal or substitution of materials and goods The principal agent can require the removal or substitution of unfixed materials and goods that do not meet contract specifications.  However, once materials are incorporated into the works, they are no longer considered "unfixed," and instructions to remove these fall under different conditions (as per Clause 17.1.7). 17.9 Instructions regarding protection of the works While the contractor is generally responsible for protecting the works, the principal agent may issue specific protective measures to be followed. If the contractor believes the measures are unnecessary, the principal agent may face claims for associated costs. 17.10 Instructions regarding making good physical loss and repairing damage to the works [8.0] The contractor is responsible for repairing any physical loss or damage to the works. If the loss is unforeseen, the contractor can claim additional time and possibly financial compensation (Clauses 23.1.3 and 23.2.2). 17.11 Instructions regarding rectification of defects [21.2] The principal agent can instruct the contractor to rectify defects during the defect’s liability period. This should be done progressively to minimize any inconvenience to occupants of the building. 17.12 Instructions regarding a list for practical completion The principal agent must issue a list of outstanding or defective work required for practical and final completion. If the items are not resolved, the principal agent must re-issue updated lists until all work is satisfactorily completed, allowing for the practical completion certificate to be issued. 17.13 Instructions regarding the expenditure of budgetary allowances, prime cost amounts, and provisional sums The principal agent is responsible for instructing how provisional sums, prime cost amounts, and budgetary allowances are to be spent. 17.14 Instructions regarding the appointment of a subcontractor [14.0; 15.0] The principal agent can instruct the contractor to enter into agreements with nominated or selected subcontractors. 17.15 Instructions regarding termination of a nominated n/s subcontract agreement [27.2.8] If a nominated subcontractor becomes insolvent or defaults, the principal agent can instruct the contractor to terminate the subcontract and appoint a replacement subcontractor (Clauses 14.7.1 and 27.2.8). 17.16 Instructions regarding work by (a) direct contractor(s) [16.1.1]  The contractor must allow access to direct contractors and adjust the programme accordingly (Clause 16.1.2). If delays occur due to direct contractors, the contractor may claim expenses, losses, or time extensions (Clause 23.2.9). 17.17 Instructions regarding access by other or previous contractors to remedy defective work The principal agent can instruct the contractor to grant access to previous contractors so they can remedy their defective work. 17.18 Removal from the site of any person employed on the works The principal agent may instruct the contractor to remove disruptive or undesirable personnel from the site. However, removal cannot be demanded based solely on poor performance. 17.19 The removal from the site of any person not engaged on or connected with the works The principal agent can instruct the contractor to remove unauthorized persons from the site, such as squatters or family members of workers. 17.20 On termination, protection of the works, removal of construction equipment, and surplus materials and goods If the contract is terminated, the principal agent can issue instructions for: o Protection of the works o Removal of equipment, surplus materials, and goods The contractor must leave the site in a safe and secure condition. 17.21 Limitation on power to issue instructions The principal agent’s powers are extensive but not limitless. The principal agent cannot interfere with the sequencing of work, nor can they issue instructions to suspend, accelerate, or omit work assigned to other parties. After practical completion, no further instructions for additional work can be issued, except for rectification or repair (Clauses 8.0, 21.0, and 22.0). 17.22 Instructions to be given in writing For instructions to be legally binding, they must be in writing. Oral instructions may be issued on-site but must be confirmed in writing by the principal agent. 17.23 Obligation to carry out instructions The contractor must comply with all instructions promptly, minimizing delays.  If the contractor fails to act on an instruction within five working days, the employer can engage others to complete the work and recover costs from the contractor (Clause 17.3). 17.24 Financial consequences of instructions The contract value will be adjusted to reflect any additional or omitted work, following the contract’s valuation methods (Clauses 26.2, 26.2.1, 26.2.2, and 26.2.3). Defective work does not entitle the contractor to extra compensation, nor does work performed to rectify breaches. If the contractor incurs costs due to compliance with instructions, they must notify the principal agent within 20 working days, or they forfeit compensation claims (Clause 26.5). 17.25 Contractor’s instructions The contractor may issue instructions to subcontractors, mirroring the authority of the principal agent. To ensure smooth management, the principal agent should route instructions through the contractor to avoid undermining site control. 18:00: Interim completion: This clause applies only in the n/s subcontract agreement and is included to retain same clause numbers between the two agreements 19:00: Practical completion: 19.1 The principal agent shall: o 19.1.1 Inspect the works at appropriate intervals to give the contractor interpretations and direction on the standard of work and the state of completion of the works required of the contractor to achieve practical completion [CD] o 19.1.2 Issue a contract instruction [17.1] consequent on each such inspection, where necessary 19.2 The contractor shall: o 19.2.1 Inspect the works in advance of the anticipated date for practical completion to confirm that the standard of work required and the state of completion of the works for practical completion has been achieved  o 19.2.2 Give at least five (5) working days’ notice to the principal agent of the anticipated date for the inspection for practical completion of the works to meet the anticipated date for practical completion 19.3 The principal agent shall inspect the works, or a of section thereof, within the period stated [CD] and forthwith issue to the contractor: o 19.3.1 A comprehensive and conclusive list for practical completion [17.1.12] where the works has not reached practical completion specifying the defects to be rectified and work to be completed to achieve practical completion o 19.3.2 An updated list for practical completion, limited to items on the list for practical completion that have not been attended to satisfactorily. The contractor shall repeat the procedure until all items on the list for practical completion have been dealt with satisfactorily before the certificate of practical completion is issued by the principal agent or o 19.3.3 A certificate of practical completion with a copy to the employer stating the date on which practical completion of the works, or of a section thereof, was achieved o 19.3.4 A list for completion with a copy to the employer 19.4 Should the principal agent not issue a list for practical completion or the updated list within five (5) working days after the inspection period, or the certificate of practical completion, [19.3] the contractor shall give notice to the employer and the principal agent. Should the principal agent not issue such list within a further five (5) working days of receipt of such notice, practical completion shall be deemed to have been achieved on the date of such notice and the principal agent shall issue the certificate of practical completion forthwith 19.5 On issue of the only or last certificate of practical completion the employer shall be entitled to possession of the works and the site subject to the contractor’s lien or right of continuing possession of the works where this has not been waived. On issue of the certificate of practical completion for a section, the employer shall be entitled to possession of such section 19.6 Where the employer takes possession of the whole or a portion of the works by agreement with the contractor, practical completion shall be deemed to have occurred. The principal agent shall after inspection of the works [19.3] issue a certificate of practical completion to the contractor with a copy to the employer within five (5) working days of the date of possession of the whole or a portion of the works by the employer and the list for completion of items to be rectified and work to be completed within a period to be agreed between the parties 19.7 On issue of the certificate of practical completion of the works or a section thereof, where the principal agent instructs that installation work is to be executed by others, the employer and/or contractor shall allow access for such installations Commentary: 19.0 Practical Completion 19.1 Definition The definition of Practical Completion in PBA Edition 6.2 differs from earlier versions.  Previously, determining practical completion was subjective, relying on the Principal Agent’s opinion on whether the works were substantially complete and fit for intended use. Now, practical completion is defined as the stage when: o The works (or a section thereof) are free of patent defects, except for minor defects listed for completion. o The works are ready for the intended purpose [CD]. The works completion stage used in previous editions was removed. This puts greater emphasis on the standard of practical completion in Edition 6.2. The CD must specify the practical completion standard in sufficient detail to allow tenderers to accurately price the works. The required state of practical completion varies by project, with guidelines provided in Section 5 of the Standard Forms and Annexures. 19.2 Contractor’s Duty The contractor must provide advance notice of when the works will likely reach practical completion, so the Principal Agent can schedule inspections [CD]. Before giving notice, the contractor must inspect the works to ensure that: o The work quality and completion meet the standards indicated by the Principal Agent [Clause 19.2.1]. If the Principal Agent finds that practical completion has been achieved, they must: o Issue a certificate of practical completion to the contractor immediately [Clause 19.3.3]. o Provide a copy to the employer. If the works have not reached practical completion, the Principal Agent must: o Issue a comprehensive list (or an updated list) of outstanding work and defects within 5 working days of the inspection. o The list defines the work and defects that need to be rectified to achieve practical completion [Clause 19.3.1]. The contractor must notify the Principal Agent once all items on the list have been completed and request a new inspection. The Principal Agent will re-inspect within the time frame stated in the CD. o If the works are complete, the certificate of practical completion must be issued [Clause 19.3.3]. o If not, the updated list will be reissued, and this process continues until the works meet the required standard.  If the Principal Agent fails to issue a list within 5 working days of the inspection, the contractor must notify both the employer and the Principal Agent. o If the Principal Agent still does not issue a list within another 5 working days, practical completion is deemed achieved, and the certificate must be issued. 19.3 Principal Agent’s Duty The Principal Agent must ensure that the contractor meets all contractual obligations. Regular site inspections are required to: o Verify that materials, goods, and workmanship comply with the contract. o Provide the contractor with guidance and interpretations on the required standard of work and completion [Clause 19.1.1]. Although the Principal Agent is not legally obligated to identify deficiencies during work, in practice, they usually notify contractors of issues promptly to avoid delays. After each inspection, the Principal Agent may issue contract instructions [Clause 17.1] to rectify any issues found. The Principal Agent must inform the contractor of the time needed to complete the practical completion inspection [Clause 19.3]. 19.4 Consequences of Practical Completion Once the certificate of practical completion is issued: o The employer gains possession of the works and the site (subject to any contractor’s lien or right of possession, if applicable) [Clause 19.5]. o The contractor’s liability for penalties for late completion ceases. o The contract works insurance policy reduces until final completion. o Public liability insurance remains in force until final completion. o Employer’s building insurance commences. o The contractor is no longer obligated to perform additional contract instructions. o The construction guarantee is reduced as per its terms. o The 90-day defects liability period begins on the day after practical completion. 19.5 Certificate of Occupation Although the employer takes possession of the works at practical completion, occupation of the building is subject to the issue of a certificate of occupancy under Section 14 of the National Building Regulations and Building Standards Act 103 of 1977. The local authority must issue the certificate within 14 days of a written request if: o The building complies with all regulations and approved plans.  o All required certificates (e.g., structural, electrical, mechanical) have been submitted. If the certificate is denied, the authority must provide written reasons. It is illegal to occupy or use the building without a certificate of occupancy. The local authority typically requires: o Inspection by building inspectors and fire prevention officers. o Certification from structural engineers and relevant professionals for compliance with statutory requirements (e.g., electrical, plumbing, glazing). o Submission of amended building plans to reflect any changes from the original plans. While the employer is responsible for obtaining the certificate of occupancy, this task is often delegated to the Principal Agent. o The Principal Agent usually coordinates inspections with the contractor and relevant authorities. If the contractor fails to comply with regulatory requirements, they may be required to assist with obtaining the certificate of occupancy. Although the PBA is silent on this matter, it is recommended that the Principal Agent include the certificate of occupancy as a preliminary requirement in the tender documents. 20.00: Completion in sections: 20.1 Where completion in sections is required [CD] the terms and conditions applicable to the works shall apply to each section 20.2 The principal agent shall for each section issue: o 20.2.1 A certificate of practical completion [19.3] o 20.2.2 A certificate of final completion, indicating where applicable, if it is for the last section to reach final completion [21.6.2] Commentary: 20.0 Sectional completion: Sectional Completion in Major Building Projects: Many large projects are completed in separate sections, with each section handed over to the employer as it reaches practical completion. Defining Sections: Sections in a building (e.g., parking basement, ground floor shops, upper- floor offices) are completed and delivered at different times. The extent of each section, its completion date, and penalties for late completion are specified in the contract documents [clause 20.1].  Application of Terms: For sectional completion, the same terms and conditions that apply to the works as a whole (without sections) also apply to each section independently [clause 20.1]. Completion Certificates: o The principal agent issues a certificate of practical completion and a certificate of final completion for each section [clause 20.2.2]. o For the final section completed, the certificate of final completion also serves as the final completion certificate for the entire works [clause 20.2.2]. Payment Provisions: o Interim payment certificates, recovery statements, the final account, and the final payment certificate are prepared for the project, not section by section [clause 25.2]. o After the final section is completed, the final payment and completion certificates for the entire works are issued [clause 20.0]. Contract Works Insurance: When the project is divided into sections, the employer is respon