On Friday, 29 May 2015, the Minister of Public Works, Thulas Nxesi, published proposed new regulations in terms of the Construction Industry Development Board Act of 2000 ("the Act") which aim to facilitate prompt payment of contractors and suppliers in the construction sector. Furthermore, the envisaged measures provide for a scheme of statutory dispute adjudication to be applicable to construction contracts. Although these are only draft regulations, published for public comment, we set out the fundamental provisions of the intended amendments below.
Although the Act’s primary purpose is to regulate the procurement of construction services in the public sector, the new ‘prompt payment’ provisions explicitly apply to all construction contracts, whether in the private or public sector with the exception of a home building contract as contemplated by the Housing Consumer Protection Measures Act, 1998.
The provisions explicitly prohibit so-called ‘pay when paid’ clauses, i.e. where payments which will only be processed when a payment from a third party has been received. This is clearly aimed at ensuring that principal contractors pay sub-contractors punctually, regardless of whether the principal contractor has received payment from the employer. In future, clauses to the contrary will be unenforceable.
Additionally, the proposed regulations aim to achieve ‘prompt payment’ by:
- entitling any party to progress payments, notwithstanding any contractual provision to the contrary;
- prohibiting any party from withholding payment, unless effective notice has been given;
- permitting a party to suspend its performance, if due payment remains outstanding, and
- introducing automatic interest charges on payments delayed for longer than 30 days.
Although most of these principles have already become standard clauses in construction contracts, the effect of the proposed regulations is to ensure that parties cannot contract out of these principles.
In the event of a dispute arising, the proposed regulations provide for an adjudication procedure to be applicable. It is not stated whether the adjudication provisions apply to all construction contracts or only those concluded in the public sector. In terms of these amendments, parties are not only obliged to incorporate an adjudication procedure into their contract, but the regulations outline an adjudication procedure where the contract does not provide for one.
All disputes arising from the contract, whether technical or legal in nature, must be adjudicated in a manner which substantially complies with the proposed regulations. Consequently, institutions which provide standard form conditions of contract may have to revise their current adjudication procedures to substantially comply with the procedure outlined in the regulations. Fortunately, however, the procedure outlined in the regulations is not dissimilar to the adjudication procedures provided for in many standard form construction contracts.
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.
Further, the adjudicator’s decision, notwithstanding any challenge to such decision, must be implemented by the parties within ten days after the decision is made. This gives legislative effect to the line of court decisions placing emphasis on the immediate implementation of adjudication decisions.
The regulations should be welcomed as they are in line with international best practice and are not too dissimilar from the regimes in other jurisdictions.