...last week (or things you should now understand) • Claims for loss and/or expense • Claim submission procedure • Claim assessment procedure • “Heads of Claims” 1
Image: Endemoniada on flickr. Some rights reserved. Unit 11: Contract Administration: Ending the Contract and Subcontractors D39PZ: Procurement and Contracts 2
1. Ending a construction contract 2. Remedies 3. Subcontractors and suppliers 4. Transferring rights and obligations to another party 5. Third party rights and collateral warranties D39PZ: Procurement and Contracts 3
Ending a construction contract (1) Frustration/impossbility • Frustration arises when a party is unable to fulfil its obligations under the Contract, but is not in breach • Frustration occurs without the liability of either party • Circumstances change, preventing the project from being completed • Frustration typically occurs in two ways: Supervening illegality o legislation may outlaw the Works Supervening impossibility: o the site may no longer exist (landslip, flooding). D39PZ: Procurement and Contracts 4
Ending a construction contract (2) Termination • Section 8 of SBC/Q governs Termination Defines the processes that parties must follow to “determine” the Contract - i.e. bring it to an end • Termination does not completely end the Contract After termination: o Principal obligations can no longer be enforced e.g. Contractor no longer obliged to complete the Works; Employer no longer obliged to pay for the Works. o Remaining obligations continue to have effect e.g. Dispute resolution methods continue to exist D39PZ: Procurement and Contracts 5
Termination by the Employer • The Employer can terminate the Contract if: (i) the Contractor defaults (cl. 8.4); “Specified defaults” are defined by cls. 8.4.1.1 to 8.4.1.5 o o Employer must provide notice of intent to terminate Contractor due to default (cl. 8.4.2) o Contractor has 14 days to correct the default o If not done, Employer can terminate within 21 days (cl. 8.4.2). o Employer must send a final notice that Contract is determined (ii) the Contractor becomes insolvent (cl. 8.5) o The Contractor is automatically terminated if it applies for bankruptcy, liquidation or receivership o The Contractor must notify the Employer if this occurs (cl. 8.5.2) o The Employer must still notify the Contractor that the Contract has been determined (cl. 8.5.1) o The Contractor can be reinstated if terms can be agreed with the liquidator (cl. 8.3.2) (iii) the Contractor commits acts of corruption (cl. 8.6) D39PZ: Procurement and Contracts 6
Termination by the Employer • Consequences of termination under cl. 8.4, 8.5 and 8.6: o The Employer may employ another Contractor to complete the Works (cl. 8.7.1) o The new Contractor can use all tools and plant left on site (if the Employer did not request their removal under cl. 8.7.2.1) o Any unwanted equipment left on site by the insolvent Contractor can be sold by the Employer o The Employer must give any profit to the insolvent Contractor The original Contractor’s subcontracts may be assigned to the o Employer o An insolvent Contractor is not entitled to further payment until the Works are completed. The Employer’s direct loss and expense incurred as a consequence of appointing a replacement Contractor will be deducted from any payment due (cl. 8.7.4.1) If these costs exceed the payment due, the insolvent Contractor will owe the difference to the Employer (cl. 8.7.5) Cl. 8.8 governs the payment of any outstanding sums if the Employer D39PZ: Procurement and Contracts 7 does not continue with the Works after terminating the insolvent Contractor
Termination by the Contractor • The Contractor can terminate the Contract if: (i) the Employer defaults (cl. 8.9); or o The Contractor can determine its own employment under the Contract if: the Employer causes certain “specified defaults” (cl. 8.9.1); or certain “specified suspension events” arise (cl. 8.9.2). The Contractor’s notification procedure mirrors the Employer's o (cls. 8.9.1; 8.9.2; 8.9.3). (ii) the Employer becomes insolvent (cl. 8.10) o The Contractor can determine the Contract if the Employer become insolvent. Cl. 8.10 defines the Contractor’s procedure, and mirrors cl. 8.5, o which the Employer must follow to determine the Contractor. The definition of “insolvency” provided by cl. 8.1 dictates when o the Employer or the Contractor can determine the Contract D39PZ: Procurement and Contracts 8
Termination by Employer or Contractor • Cl. 8.11 governs determination of the Contract by either party • Cl. 8.11.1 defines the events that can cause either party to determine the Contract These are events that frustrate the Contract. Neither party is liable for causing them e.g. supervening illegality or supervening impossibility make it impossible to complete the Works. D39PZ: Procurement and Contracts 9
Ending a construction contract Remedies Subcontractors and suppliers Transferring rights and obligations to another party Third party rights and collateral warranties D39PZ: Procurement and Contracts 10
Remedies A remedy is the device provided by the Contract to compensate an innocent party for the loss or expense it incurs as a consequence of the other party’s breach. (1) Rescission • In certain circumstances, a material breach of contract by one party may entitle the other party (the innocent party) to terminate the contract • If the breach constitutes a repudiation of the contract, the innocent party has a choice o They can accept the repudiation and rescind the contract or o alternatively they may elect to ignore the repudiation and continue with the performance of the contract D39PZ: Procurement and Contracts 11
(2) Specific implement or damages? Allows the innocent party to compel the party in breach to fulfil its obligations Only possible when the innocent party must be able to insist on the Works being completed It is seldom possible to prove this requirement, causing most remedies to be in the form of damages. D39PZ: Procurement and Contracts 12
(3) Interest • Late payment of sums is a common thing in the construction industry • One way in which this has been addressed is by way of interest • The entitlement to interest in respect of interim certificates is dealt with by Clause 4.12.6 – in addition to the amount not properly paid – simple interest thereon for the period until the payment is made • Clause 4.15.7 makes similar provisions in respect of sums due under a final certificate D39PZ: Procurement and Contracts 13
(4) Interdict • Where a legal wrong is continuing or it is reasonably anticipated that such a wrong will be committed, innocent party is entitled to seek interdict against the wrong D39PZ: Procurement and Contracts 14
(5) Withholding payment • Construction Act 2009 clearly defines the circumstances in which payment due under a construction contract can be withheld. • Before withholding payment, a party intending to do so must give notice of this intention to withhold payment, sating: the amounts that will be withheld; and the grounds justifying each withholding • Cl. 4.12 and 4.13 defines the process the Employer must follow if intending to deduct from the amount due under an Interim Certificate D39PZ: Procurement and Contracts 15
(6) Suspending performance • The Construction Act 2009 clearly gives a party the right to suspend work if: payment has not been made by the final date for payment; and notice explaining why payment is being withheld has not been received • The Contractor’s statutory right of suspension is accommodated by cl. 4.14 in SBC/Q. D39PZ: Procurement and Contracts 16
(7) Recourse under delict (tort) • A party can owe a duty to another in the absence of a contract • In construction, liability under delict is most likely to arise due to negligence All other possibilities are governed by standard contracts • A claim for recompense under delict requires: a duty of care to not be fulfilled; and the innocent party to suffer loss D39PZ: Procurement and Contracts 17
Ending a construction contract Remedies Subcontractors and suppliers Transferring rights and obligations to another party Third party rights and collateral warranties D39PZ: Procurement and Contracts 18
Vicarious performance • “delegated” or “taking the place of another” Vicarious = • Vicarious performance = a new party other than that in the Contract fulfilling the Contracted party’s obligations The contracted party remains liable/legally responsible for the new party’s performance • Vicarious performance is only possible for “impersonal” obligations (obligation which would not be considered “ personal ”) Any obligations requiring specific skills of the contracted party can not be performed vicariously • In construction contracts, the principal of vicarious performance is more commonly know as ‘sub - letting’ D39PZ: Procurement and Contracts 19
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