Proposed amendments to the Construction Industry Development Regulations of 2004 were published in the Government Gazette on 29 May 2015 and giving 60 days for public input.  The proposed amendments are in line with international best practice and aim to facilitate timeous payment of contractors and suppliers in the construction sector and propose the implementation of statutory dispute resolution / adjudication processes applicable to construction contracts.

The new proposed ‘prompt payment’ provisions explicitly apply to all construction contracts, with the exception of a home building contract as per the Housing Consumer Protection Measures Act, 95 of 1998.  The provisions prohibit ‘pay when paid’ clauses, (payments only processed when a third-party payment is received).  This will ensure that principal contractors pay sub-contractors on time, whether or not the principal contractor has received payment from the employer.  There are two exceptions, however, one, where business rescue procedures have commenced in respect of the party that has to pay, and two, where the party has gone into insolvency.

The draft regulations also aim to achieve ‘prompt payment’ by:

  • Entitling any party to progress payments (unless there is a contractual provision/s to the contrary). If the contract does not provide for regular intervals, a supplier can submit monthly invoices or invoices reflecting work completed or good / services delivered.The amount to which the third-party is entitled will be calculated based on the contract or the value of the construction work / goods / services delivered (if the contract does not specify this).
  • Prohibiting any party from withholding payment, unless effective notice has been given;
  • Permitting a party to suspend its performance if due payment is outstanding (it must give the payer seven days’ notice of intention to do so);
  • Introducing automatic interest charges on payments delayed for longer than 30 days; and
  • Not allowing any party to withhold payment without reasonable grounds and without first giving notice of intention to do so.  The party receiving the notice may disagree with it bycalling a dispute and referring the dispute to adjudication.

In the event of a dispute arising, the proposed regulations provide for an adjudication procedure.  Parties are obliged to incorporate an adjudication procedure into their contract and the regulations outline an adjudication procedure where the contract does not provide for one.  The proposed regulations provide for the right to refer a dispute, to have the dispute resolved by an appointed adjudicator and the right to refer the adjudicator’s decision for arbitration.  Anadjudicator must hand down a decision within 28 days of the referral notice or such further period as the parties may agree to.