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BUILDING INDUSTRIES FEDERATION SOUTH AFRICA

	Contractual &  Legal
About  BIFSA Member Associations Press  Releases Director's Report Contact  BIFSA Conference Centre Education &  Training Statistics/Economi cs Occupational Health &  Safety Contractual &  Legal SA Builder Disclaimer Links	THE NATIONAL CONTRACTS ADVISORY COMMITTEE l Index l INTRODUCTION The National Contracts Advisory Committee (NCAC) is a  joint body of the Building Industries Federation South Africa (BIFSA) and the South African Property Owners' Association (SAPOA). The purpose of the Committee is, inter alia, to review representations from the building and  property development industries in respect of various issues which are regarded as unreasonable or inequitable and which may not be in their best interests. This committee does not have the jurisdiction to be  prescriptive. The aim of the committee is to be informative and provide  guidelines for good practice and fair competition, subject to sound business judgement and flexibility in commercial decision making. In order to comply with the above, practice notes are  periodically issued crystallising the principles which the committee  endorses. The practice notes highlight the principles and are not intended to be a guide for drafting contractual clauses. The practice notes have generally been derived from  specific non-standard clauses taken from actual tender documentation. These non-standard clauses are, where applicable, reflected as a typical unacceptable clause directly underneath the practice note. The NCAC wishs to stress its firm belief that tender conditions should be such that they will lead to a contractual climate which is beneficial both to the employer and to the contractor. The practice notes issued herewith have all been updated and universalized to be compatible with all model documentation. These practice notes, which are numbered with a suffix of "1999" which indicates  the date of issue, replace all previously issued practice notes. Index 1 Good Practice – Model  Documentation 2 Negotiations on contract price adjustment provisions subsequent to tender submission 3 Applicability of rates in  priced bills of quantities 4 Insolvency 5 Tenant Installation  Works 6 Contractor's responsibilities 7 Shop Drawings 8 Employment of a construction co-ordinator 9 Cancellation of a contract by  employer 10 Contractor's lien and  employer's payment guarantee 11 Damage to unknown  services 12 Scaffolding for use by subcontractors 13 Standard System 14 Order of work 15 Opening of tenders 16 Electronic Communication 17 Acceptance of portions of  tenders 18 Extension of time due to industrial action 19 Fast track projects 20 Mark-up charges 21 Roof waterproofing guarantees 22 Tender periods 23 Retention Funds 24 Qualification of Tenders 25 Alternative  Tenders 26 Possession of the works prior to practical completion		N  C  A  C Practice Notes
	NCAC PRACTICE NOTE NO.  1/1999 GOOD PRACTICE – MODEL DOCUMENTATION The use of model documentation in the building industry is an accepted and established practice in South Africa.  Model documents are drafted and issued by responsible forums where all stakeholders are represented The advantage of using model documentation is that there is a fair distribution of risk between the parties to the  agreement. A further advantage is that the parties become familiar  with their obligations and are in a position to enter into the  building agreement with confidence. This is of great importance to the building industry as a whole, as it allows for quicker and lower  tendering. The result is more efficient management of the entire  building process Notwithstanding the advantages of using model  documentation, from time to time the circumstances of a particular project dictate a need to deviate from model documentation. Such  deviation should be justified by the nature of the project and not by individuals who may wish to unreasonably change the balance of risk to the disadvantage of one or both of the parties to the building agreement It is considered to be good practice where deviation from model documentation is necessary, to apply the following principles. Amendments should be : restricted to an absolute minimum and should be  pertinent to the particular project separately identified and clearly highlighted at the time of tender specific with regard to the explicit or inherent risks involved for the tenderer described in such a manner that the tenderer will  be able to assess the risks involved capable of being properly  priced And should not be : arbitrarily introduced unless dictated by the circumstances of a particular project and then only on specific employer instruction such that unintentional legal ramifications are introduced on  the remainder of the agreement reproduced consistently in every tender document emanating from  quantity surveying practices, regardless of whether special circumstances prevail "embroidery" of certain clauses which are invariably adequately  covered in model building agreements nothing other than restating the common law position but which may cause confusion and alarm to tenderers an introduction of clauses where the items referred to are measurable introduced unless specifically indicated or identified as an amendment Compliance with the foregoing principles will significantly reduce : confrontational situations at pre-tender stage unrealistic markups by tenderers a proliferation of potential disputes NCAC PRACTICE NOTE NO.  2/1999 NEGOTIATIONS ON CONTRACT PRICE ADJUSTMENT PROVISIONS SUBSEQUENT TO TENDER SUBMISSION The practice of calling for tenders on the basis of  the Haylett formula and thereafter negotiating fixed prices with a  number of tenderers is regarded as unfair tender soliciting which is  not in the interest of the contracting parties There can be no objection to negotiating a fixed price with a single successful tenderer but the practice of entering  into negotiations with a number of tenderers after the tender date has  expired is tantamount to re-tendering If the intention is to call for alternative tenders, either subject to the Contract Price Adjustment Provisions (CPAP) or  in accordance with a fixed tender sum, it is recommended to specify this in the tender documentation A typical UNACCEPTABLE clause would be : Reimbursement for fluctuations in cost in respect of labour and materials shall be negotiated with the successful  tenderer NCAC PRACTICE NOTE NO.  3/1999 APPLICABILITY OF RATES IN PRICED BILLS OF  QUANTITIES   Some clauses in tender documents seek to enforce that  the rates in priced bills of quantities (and especially "provisional" bills of quantities) apply irrespective of possible changed  circumstances which may arise during a project A contractor tenders on the quantities and description of work stated in the bills of quantities and the quantity  surveyor should review these rates if the quantities or circumstances  of execution of work change to a meaningful extent A typical UNACCEPTABLE clause is : The rates contained in the priced bills of quantities  will apply irrespective of the final quantities of the different  classes and kinds of work actually executed. No claim for extras will  be entertained as a result of any variation whatsoever between the  quantities of work actually executed and the quantities of work set out in these bills of quantities NCAC PRACTICE NOTE NO.  4/1999 INSOLVENCY Most text book authors, including Finsen in "Quail on  the Building Contract" and McKenzie in "The law of building and engineering contracts and arbitration", are of the opinion that in the event of insolvency of a party to the agreement, it is the trustee or liquidator who has the right to elect to proceed with the agreement  and not the other party. Any deviation from this principle should  therefore be treated with circumspection" A typical UNACCEPTABLE clause is : If the contractor is placed in insolvency the  employer may without prejudice to any other rights herein contained by written and registered notice cancel the agreement with immediate effect NCAC PRACTICE NOTE NO.  5/1999 TENANT INSTALLATION WORKS The practice of including tenant installation works  in the general bills of quantities (ie without separate identification) can lead to contractual problems and claims for loss of profit if such works have to be omitted if tenants are not  forthcoming Additionally, if instructions in respect of tenant works have to be issued towards the end of the general works the contractor will probably have justifiable claims for (a) enhanced rates for work done out of sequence and (b) extension of time It is therefore recommended that this problem be addressed in the tender enquiry and the tenderer made aware of possible omissions or exclusions of work which may be caused by the  lack of timeous information regarding tenants' requirements NCAC PRACTICE NOTE NO. 6/1999 CONTRACTOR'S RESPONSIBILITIES The clarification of responsibilities is recommended as good practice. The construction of contract clauses in such a manner that responsibilities which traditionally rest with one party are now to be undertaken by another party is not recommended as it  varies the balance of risk between the parties. A typical UNACCEPTABLE clause is : The principal agent is entitled to issue contract  instructions instructing the contractor to do one or all of the following without additional compensation to the contractor : accelerate the works to achieve practical  completion execute the works in whatever sequence the principal agent deems appropriate suspend the works for whatever period the  principal agent deems appropriate NCAC PRACTICE NOTE NO. 7/1999 SHOP DRAWINGS A principal agent may call for shop drawings to  amplify the design of certain specialist work. Care should be taken to  ensure that the architect's design duties are not in any way delegated  to others NCAC PRACTICE NOTE NO.  8/1999 EMPLOYMENT OF A CONSTRUCTION CO-ORDINATOR The management of a project is the contractor's  prerogative as he sees fit and the execution thereof is his responsibility for which he has tendered accordingly Where the construction activities are exceptionally  complex in nature and the employer makes provision in the tender  documents for the contractor to appoint a construction co-ordinator, care should be taken not to further complicate the contractual  relationships The construction co-ordinator's duties must be unambiguously described in the tender documents as his duties need to be clearly distinguished from those of the professional team NCAC PRACTICE NOTE NO.  9/1999 CANCELLATION OF CONTRACT BY EMPLOYER A stipulation that an employer may cancel the  agreement with the contractor in the event that the contractor commits  any breach more than once is seen as a very human reaction to an  irritable problem. The remedy is however too dramatic and too drastic, specifically if such breach is not a material breach of the  agreement Furthermore, the principle of keeping account of sins  committed irrespective by which party can only lead to the eventual  destruction of the relationship between the parties A typical UNACCEPTABLE clause is : …then, if such default shall continue for fourteen days after a written or registered notice to the contractor from the  architect specifying the same or, if any offence shall have previously  occurred in respect of which such notice shall have been given, the employer may cancel the agreement with the contractor NCAC PRACTICE NOTE NO. 10/1999 CONTRACTOR'S LIEN AND EMPLOYER'S PAYMENT GUARANTEE Quoting from Quail on the Building Contract (page  169) "A lien is a right of retention which arises out of the fact that  one man has put money or money's worth into the property of another.  It constitutes the most efficient form of security known in our law" Some employers call on the contractor to waive his lien but insist that they will not provide him with "adequate security" A contractor who waives his lien without exchanging  it for a suitable payment guarantee gives up a very important common law right and will be well advised to investigate the financial  profile of employers who refuse to provide security in such a case A typical UNACCEPTABLE clause is : By signature of the form of tender contained herein, the contractor shall be deemed to have waived any lien whatsoever to which he may have otherwise been entitled "Waiving of his lien" shall be deemed to have taken  place upon return of the form of tender by the contractor and such waiver shall be in favour of the employer or in favour of any party  nominated by the employer. Such waiver shall apply to every lien which the contractor may have or acquire over the works, machinery and materials whether on site or not NCAC PRACTICE NOTE NO.  11/1999 DAMAGE TO UNKNOWN SERVICES The contractor's only liability when he encounters unknown services is to notify the architect immediately thereof and to suspend all affected work in the immediate vicinity until written  instruction to proceed has been given by the architect. The intention should not be to make the contractor liable for damage to unknown  services as such liability is unfair and unpriceable A typical UNACCEPTABLE clause is : Any damage caused or arising out of the contractor's operations in respect of any unknown services shall be made good at his own expense NCAC PRACTICE NOTE NO. 12/1999 SCAFFOLDING FOR USE BY SUBCONTRACTORS The general trade norm, which is also considered to  be the most economical method, is that subcontractors may use erected scaffolding belonging to the contractor in common with other subcontractors having a like right, whilst such scaffolding remains  erected on site If it is required that the contractor should provide scaffolding to the subcontractor then this should be stated in detail in order that it can be properly priced A general clause in the tender stating that the  contractor shall supply all scaffolding required by the  nominated/selected subcontractors, is not priceable nor good practice A typical UNACCEPTABLE clause is : The contractor shall provide all scaffolding required  by nominated/selected subcontractors NCAC PRACTICE NOTE NO.  13/1999 STANDARD SYSTEM Deviations from the Standard System of Measuring Building Work should be specifically and individually stated in the  appropriate place and not covered by a vague omnibus item A typical UNACCEPTABLE clause is : These bills of quantities have been prepared generally in accordance with the latest edition of the "Standard  System of Measuring Building Work 6th Edition" issued by  the Association of South African Quantity Surveyors ("the Standard  System") with deviations to suit this service and local practice and the system herein actually adopted is the only system which will be recognised in connection with this contract NCAC PRACTICE NOTE NO.  14/1999 ORDER OF WORK Clauses which purport to give a principal agent wide ranging and general powers to direct the order in which the works  should be executed without due compensation to the contractor appear  in some tender documents. Such clauses are undesirable as they are  considered to be generally unpriceable and in conflict with the contractor's prerogative to manage and execute the works as he sees  fit If the employer requires a specific phasing of a project this should be stated in the documents A typical UNACCEPTABLE clause is : Notwithstanding anything to the contrary contained herein the principal agent at all times reserves the right to direct the order in which the various parts of the contract must be executed. The contractor shall give priority to any individual section or portion of the works that, in the opinion of the principal agent¸ requires to be expedited and no claim for extras in this  connection will be entertained. NCAC PRACTICE NOTE NO.  15/1999 OPENING OF TENDERS Tenders should be opened at the time specified in the  presence of tenderers and the name of each tenderer and his tender  price disclosed. This is good tender practice, minimising possible malpractices If, for good reason, tenders cannot be opened in the presence of the tenderers, a list should be circulated to tenderers immediately after tenders are opened. The list should disclose the names of all the tenderers, their tender prices and whether or not subject to any qualifications The foregoing procedures do not affect the tender  enquirer's right to accept or reject any or all the tenders  received NCAC PRACTICE NOTE NO.  16/1999 ELECTRONIC COMMUNICATION Electronic communications are not always legally binding It is recommended that communication by electronic means is always supported by the original documentation to avoid the possibility of dispute The submission of tenders by electronic means is strongly discouraged as such tenders arrive unsealed and this could  lead to malpractice NCAC PRACTICE NOTE NO.  17/1999 ACCEPTANCE OF PORTIONS OF TENDERS The intentions of an employer who wishes to reserve  the right to accept only portions of a tender should be clearly defined. This should be dealt with as an alternative to the main  tender Tender documentation should be structured in such a  manner that the contractor is able to price the relevant Preliminaries  for alternatives NCAC PRACTICE NOTE NO.  18/1999 EXTENSION OF TIME DUE TO INDUSTRIAL ACTION Although the intention of the employer may be that the contractor should endeavour to establish sound industrial  relations, the complete denial to grant the contractor an extension of  time in the case of industrial action is unreasonable. A trade union  can exploit the weakened bargaining position of the contractor by  submitting onerous demands knowing that the contractor has no other  option but to accept them, as the alternative is the imposition of  penalties for late completion Industrial action would in terms of most model building agreements warrant an extension of time but not additional payment in terms of the preliminaries. There is therefore an incentive  for the contractor to limit the time lost due to industrial action and thus minimise its own unrecoverable preliminaries costs caused by  industrial action A typical UNACCEPTABLE clause is : No extension of time shall be granted to the contractor for delays caused by industrial action, labour unrest,  strikes, political stayaways, go slow actions, local and national stayaways, local community unrest/intimidation NCAC PRACTICE NOTE NO.  19/1999 FAST TRACK PROJECTS Fast track projects are here to stay. The key to success or failure of a fast track project is often in the hands of  the project manager/principal agent and the professional team. Where the professional team is unable to produce drawings and information  timeously the project is delayed and the contractor incurs additional expense. In such an event the benefits of fast track construction will be lost to the detriment of all involved in the project. It is  therefore vital that the design information on a fast track project is produced so as to conform with the requirements of the contractor's programme. NCAC PRACTICE NOTE NO.  20/1999 MARK-UP CHARGES If a contractor is obligated to pay for certain items  on behalf of the employer then the contractor is entitled to be timeously and correctly reimbursed his incurred costs together with an appropriate mark-up NCAC PRACTICE NOTE NO 21/1999 ROOF WATERPROOFING GUARANTEES Principal contractors have a common law obligation for latent defects that applies equally in the case of waterproofing.  This common law obligation is restricted in terms of certain model  building agreements to a specific period, usually 5 years Certain waterproofing manufacturers and contractors  provide specific guarantees for their waterproofing material and the  installation thereof. This guarantee is part of the manufacturer's  product promotion and becomes part of the waterproofing system and finished product. The guarantee should be ceded to the employer at the time of final completion of the building Should the employer have problems with the waterproofing he may: in terms of paragraph one above call on the  principal contractor to rectify the problem in terms of his  common law rights for latent defects and/or in terms of paragraph two above call on the  manufacturer to rectify the problem in terms of their guarantees Principal contractor's obligations in terms of a "brand name or other approved waterproofing specifications" In cases where the waterproofing system is specified by "brand name or other approved waterproofing specifications" the principles set out above apply as stated Principal contractor's obligations in terms of performance based waterproofing specifications In cases where the waterproofing system is performance based the principal contractor has the obligation  mentioned in paragraph one above. Any waterproofing guarantee should be handed to the principal contractor who then may, in addition to his  normal contractual and common law rights, call on the waterproofing  guarantor to rectify the problem in terms of the guarantee Should the performance based specifications require  the principal contractor to provide the employer with a guarantee, this guarantee should be ceded to the employer. The employer may then  call for rectification of any defects in terms of paragraphs one and two above The limitations within certain guarantees currently  available severely prejudice the protection required by employers. The  practice of utilising suspect guarantees in lieu of proper specifications and adequate supervision of the execution of work  should be avoided at all costs   NCAC PRACTICE NOTE NO 22/1999 TENDER PERIODS Unrealistic time reductions in the planning and  tendering stages are invariably lost during the construction stage due  to delays and disputes. To require of contractors to adequately compile complex tender submissions in less than the accepted norm of three weeks is: unrealistic and impractical prejudicial to the parties a potential platform for conflict NCAC PRACTICE NOTE NO. 23/1999 RETENTION FUNDS Some model building agreements provide for retention funds,  others provide for guarantees in lieu of retention funds. Where provision is made for a retention fund, certain employers stipulate  that retention monies will be held by themselves and not placed in a trust fund and some also stipulate that the contractor will not  receive any interest thereon Contractors sometimes accede to requests that  retention monies be kept by the employer if he is of good financial  standing. It has to be borne in mind however, that should the employer be declared insolvent, the contractor stands to lose all retention  money held on the project, including that attributable to subcontractors If no interest is to be paid on retention monies then  the contractor has to price this item in his tender. This is difficult, as both the amount and the period that the retention monies are to be held are not known The practice of not creating an independent interest bearing retention fund is therefore not recommended A typical UNACCEPTABLE clause is : Notwithstanding any other provision no separate  account shall be established for the retention fund. The employer shall retain all retention monies and such monies will be interest  free NCAC PRACTICE NOTE NO. 24/1999 QUALIFICATION OF TENDERS The tender enquirer who makes tender documentation available is extending an invitation to tenderers to submit offers to  him. The terms and conditions on which tenderers are required to  submit offers are normally contained in this documentation. Should a  tenderer wish to qualify his tender in respect of the terms and  conditions incorporated in the documentation, he should explicitly set  out such qualifications failing which it will be deemed that the tenderer submitted his offer unqualified and in compliance with all conditions and specifications contained in the tender  documentation It is recommended that tenderers who qualify their tenders should do so in a covering letter which should clearly set out the extent of the qualifications, and which should accompany the tender submission. An additional item should be inserted in the tender form by the tenderer indicating that the provisions of the letter are deemed to be incorporated in the tender NCAC PRACTICE NOTE NO. 25/1999 ALTERNATIVE TENDERS The tender enquirer, who may be desirous of obtaining  alternative tenders, should include in the tender documentation instructions to tenderers with regard to alternative tenders. The  inclusion of such instructions will create certainty amongst tenderers  and it is strongly recommended by NCAC that the following instructions should, inter alia, be incorporated in the tender documentation : All tenderers shall submit an offer in accordance with the original tender invitation (including any alternative tenders  required by the original invitation). Such offer shall be termed the  original offer Should a tenderer wish to offer an alternative tender, he may do so whereafter such tender shall be termed an alternative offer For each alternative offer the tenderer shall clearly set out on the tender form or attach thereto all the details of such offer,  including time implications, together with the saving or additional cost to the client Tenders submitted in a format which differs substantially from that described in these instructions may be rejected Details of alternative tenders such as the tender amount and the associated construction period will be read out to tenderers at the  opening of tenders, where practicable NCAC PRACTICE  NOTE NO. 26/1999 POSSESSION OF THE WORKS PRIOR TO PRACTICAL COMPLETION Possession of the works  is intended to occur once practical completion has been achieved. Amendments to model documentation which entitle the employer as a  matter of course to take possession without practical completion being achieved is undesirable. Where possession by the employer is a vital  necessity prior to practical completion, the terms of such possession should be mutually agreed by the parties. In the event that the  employer takes possession of the works prior to practical completion,  in the absence of any other agreement, the contractor may, inter alia: ·        still be held to be responsible for the works ·        be obligated to continue to insure the works ·        be compromised in terms of the applicable insurance ·        be liable for incurring penalties Possession at a  predetermined date may, however, in certain circumstances be the essence of the contract. In such cases provision should be made in the  building agreement to relieve the contractor from the above-mentioned  obligations where non-achievement of the desired essential date of  practical completion is beyond his control.
	PLEASE NOTE : The Association of South African Quantity Surveyors does not neccesarily underwrite the above practice notes		Updated: 28  November  2000

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+ site created on : 19 May, 1997 + site updated on : 08 Feb, 2003 +