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« Using Standard Building Contracts part 1 | Main | Using Standard Building Contracts part 3 »

Using Standard Building Contracts part 2

By arlene | March 2, 2008

4. JBCC Principal agreement

Two model agreements are issued, one with bills of quantities and one without bills of quantities, the so-called lump sum agreement. In the domestic market, the lump sum agreement is more popular. The material difference between the two agreements is the method of measurement. One includes a bill of quantities, which is measured, and payment, which is made according to the actual quantities used. In the other, which excludes a bill of quantities, payment is made according to a predetermined lump sum.

4.1 Payment

Let us start with the important matters first—viz. payment.

The JBCC Building Agreements make provision for an architect who acts as the principal agent for the employer. This is the person who issues the payment certificate to the contractor. The payment certificate is issued once a month on an agreed date.

The amount certified is based on a valuation which is made by the architect in the case of the lump sum agreement or by the quantity surveyor when working with the bill of quantities agreement. The valuation is based on a reasonable estimate of the total value of work executed at the time of valuation. If the employer has made variations to the original drawings and specifications, the valuation will take such variations into account. The valuation will also provide for material on site.

Real Estate AwareFourteen days after the certificate has been issued, the employer must effect payment of the certified amount to the contractor.

4.2 Retention

The JBCC Principal Agreement makes no provision for the employer to hold retention money from the contractor. The employer must pay the full amount due to the contractor in terms of each payment certificate.

4.3 Construction guarantee

The contractor must provide the employer with a construction guarantee. The construction guarantee is a new concept which was introduced for the first time into the JBCC documents. It is

a guarantee whereby a guarantor (which is a financial institution approved by the employer) guarantees the performance of the contractor. It covers the traditional performance period which ends at practical completion. It also covers the traditional retention period which ends at final completion.

The construction guarantee diminishes over the construction period. At the beginning of the period, the guaranteed sum is for an amount equal to 14% of the contract sum. When the employer has paid the contractor half of the contract sum, the guarantee is reduced to of the contract sum. On practical completion the guarantee is reduced to 4% of the contract sum. At final completion, the guarantee is reduced to 2% of the contract sum. On final financial settlement (which is referred to in the JBCC Principal Agreement as settlement of the reconciliation statement) the construction guarantee lapses.

The construction guarantee is payable by the guarantor on written demand from the employer. It is interesting to note that although the architect in his/her capacity as principal agent issues the payment certificate, the authority to demand payment from the construction guarantee vests in the employer and not in the architect.

4.4 Architect’s instructions

The architect, as the principal agent of the employer, is entitled to issue an architect’s instruction to the contractor. The architect is however empowered to delegate authority to another agent of the employer to issue an architect’s instruction.

An architect’s instruction may be issued in relation to various matters. One example is the control of quality. The architect may even issue an instruction which alters the original quality specified, provided that such instruction does not substantially change the scope of the works. The manner in which the architect controls the quality is to issue instructions to the contractor relating to:

Should the contractor fail to comply, the architect must give the contractor notice to comply therewith. If, after 14 days, the contractor has not yet proceeded with the instruction, the employer may appoint another to do whatever the architect requires. The employer may then recover from the contractor the cost charged by such third party to do the required work.

4.5 Insurance

The JBCC Principal Agreement makes provision for either the contractor or the employer to insure the works. This is a new concept, previously the contractor had to insure the works. An interesting feature of the JBCC Principal Agreement is that although the contractor takes care of the works during the construction period, his risk does not exceed the amount provided for in terms of the construction risk insurance.

Where one of the parties is supposed to take out the insurance for the works and fails to do so, the other party may take out the insurance and recover the cost from the defaulting party.

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