The Minister of Public Works has proposed an amendment to the Regulations to the Construction Industry Development Board Act No. 38 of 2000.
The proposed regulations seek to introduce statutory/mandatory prompt payment and adjudication provisions applicable to all construction contracts and all construction works related contracts, whether reduced to writing or not, undertaken by private sector and public sector clients excluding home building contracts.
The draft amendments to the regulations have been published for public comment and are expected to come into law during 2016. The proposed regulations are currently under review and further proposals and amendments are awaited. At this stage, it is uncertain when the regulations will be brought into effect.
The significant features of the proposed prompt payment and adjudication regulations are:
- The regulations are very broad/non-exhaustive, in that they apply to all construction contracts, and all disputes whether of a technical or legal matter, or invoice or tax invoice
- If the contract does not provide for regular and reasonable intervals at which progress payments must be made, a contractor, supplier or service provider may submit monthly invoices or tax invoices in relation to the works completed, services rendered or goods delivered
- The amount of a progress payment to which a person is entitled under a contract is the amount calculated in accordance with the terms of the contract, or if the contract does not contain such provision, the amount calculated on the basis of the value of the construction work carried out, or the goods or services supplied by the person under that contract. The method of valuation is well described
- The date on which payment is due and payable is the date determined in the contract, which may not be later than 30 days after the date on which the contractor, service provider or supplier has submitted a tax invoice. Interest is payable from day 30, at a punitive rate
- A party to a contract may not withhold payment unless there is a reasonable ground for doing so and unless the party has first given a notice of intention to withhold payment, which notice is to be given within 5 days from the date of receipt of the invoice
- Where the contractor, service provider or supplier is not satisfied with the reasons provided by the client or employer for withholding payment, the contractor must declare a dispute in terms of the contract and “must refer that dispute for adjudication”
- Where payment which is due under a contract is not paid by due date, and no notice of intention to withhold payment has been given, the person to whom the payment is due has the right to suspend performance of his/her obligations under the contract, but at least 7 days’ notice must be given, stating the ground or grounds on which it is intended to suspend performance
- Where performance is legitimately suspended the period of suspension is to be disregarded in computing any contractual time limit
- “All disputes may be referred to adjudication” and must be referred in terms of a notice of adjudication, which notice may be given “at any time”. The following however should be noted:
- While “all disputes may be referred to adjudication”, it is however apparent that where a service provider or supplier is not satisfied with reasons given for the withholding of payment, then in those circumstances, there must be a referral to adjudication
- It would seem however, that in relation to all other disputes, a referral to adjudication is permissive
- What is not clear at this point, from the proposed regulations as they currently stand, is what the time limit is for the commencing of adjudication
- The regulations appear to contemplate the appointment of an adjudicator within 7 days of the notice of adjudication, and require the adjudicator to reach a decision within 28 days from the date of the adjudication notice. The 7 day limitation period is however not entirely clear. The period of 28 days may be extended to 42 days with the agreement of the parties
- The decision of the adjudicator is binding, and the parties must give effect to that decision, even though either party intends to refer the dispute to arbitration, or to review the decision of the adjudicator
- Where an adjudicator decides that an amount must be paid that amount must be paid within 10 days of the decision of the adjudicator
- The appointment of the adjudicator is to be made in terms of “the standard for adjudication” – the standard is yet to be drawn up
- The objection of any party after the appointment of an adjudicator, against that appointment, does not render the appointment of that adjudicator invalid and it does not render the decision of that adjudicator invalid
- The adjudicator must act impartially, reach his/her decision in accordance with the applicable law in relation to the contract, avoid incurring unnecessary expense and adhere to the rules of natural justice
- The adjudicator is to take the initiative in ascertaining the facts and the law, and must decide on the procedure to be followed – then follows a substantial list of entitlements available to the adjudicator
- The parties must comply with the decision of the adjudicator immediately on delivery of his decision to the parties – the parties are entitled to ask for reasons for the decision
- The parties can be assisted or represented in the adjudication by advisors or representatives, including legally qualified representatives
The purpose of the regulations is to introduce mandatory adjudication as a fast track mechanism for resolving disputes and to increase cash flow in the construction industry. The regulations are set to have a profound effect on the industry and industry participants need to get to grips with the regulations and the impact that they will have.