Construction in South Africa: Beware of Bespoke Contracts
Anyone undertaking building works should be cautious when entering into bespoke contracts with building contractors, instead of one of the standard-form contracts available in the building industry. Bespoke or self-written contracts often do not deal with important issues and risks or, even worse, they favour one party at the cost of the other.
If the party considering entering into a bespoke contract is properly advised, the bespoke contract may require lengthy and costly negotiations between the parties in order to close the gaps or apportion risks appropriately. This is likely to delay finalisation of the contract and completion of the project. Often, the employer accepts at face value that the general terms of the agreement are fair and deals with the specific issues. There is therefore little negotiation, which can result in an extremely one-sided contract. This can lead to the breakdown of relationships between the contractor and the employer, legal disputes and claims. The employer usually gets the short end of the stick.
Some common problems with bespoke contracts are:
- Risks which the contractor should bear reside with the employer. This means that the employer may be liable for issues over which it has no control
- They provide that the contractor may determine key issues, such as when completion has taken place or when payments of amounts are due
- A failure to deal properly with instructions to vary the building works and payment for such variations
- One-sided dispute resolution procedures, or procedures in which the contractor (or a party associated with the contractor) determines the outcome
- Insufficient security for the employer to ensure that works are completed and free of defects
Employers should seriously consider utilising a recognised standard-form construction contract. One such standard form is the Joint Building Contracts Committee (JBCC) suite (including the Principal building agreement and the minor works agreement). While the body of the JBCC contract is not drafted for a specific project, the contract data allows for a certain amount of customisation and tailoring.
JBCC contracts are widely used throughout the private and public sector. The clauses contained in these contracts have been drafted after due consideration and input from multiple stakeholders in the building industry, and so provide a balanced distribution of contractual risk.
JBCC contracts are approved by the Construction Industry Development Board and contain standard clauses which deal with completion of the project, latent defects, security, guarantees, waiver, contractual claims, status reports, payment terms and remedies available in law to both parties in the event of any disputes arising.
Inside Africa would like to thank Natasha Naidoo, Candidate Attorney, for her contribution to this blog post.