JBCC: commercial considerations for contracting parties in South Africa

The PBA agreement in particular offers a number of significant features. It is concise – which makes it easy for the contracting parties to use – and it also has dynamic security arrangements, allowing the contracting parties the option to rely on various forms of security, including variable performance securities, fixed performance securities, retention or a combination of the two.

The agreement also accommodates both a nominated and a selected subcontractor regime, supported by the fact that it can be used with a back-to-back standard form subcontract, which is also published by the JBCC. It is process-driven, speaks to a tier-one contractor and contains a generally fair contractual regime.

However, there are several commercial issues worthy of consideration before contracting parties opt for this type of agreement.

Liability for indirect and consequential loss 

Firstly, the PBA does not contain a clause excluding either party’s liability to the other party for any indirect and consequential loss that may be suffered by the other party. It would usually be recommended that parties include such a clause in any contractual agreement and its exclusion here may be deemed a disadvantage as exclusion clauses for indirect and consequential losses are usually crucial in contracts for limiting a party's overall liability.

These clauses help manage risk by defining the scope of recoverable losses, thereby preventing open-ended financial exposure from unforeseen damages. This is particularly important because indirect or consequential losses, such as loss of profits or business interruption, can be substantial and often difficult to predict. 

Limitation of liability 

The PBA also do not contain a clause expressly limiting the contractor’s overall liability to the employer to a defined amount. Such a clause would usually be recommended as while the agreement does limit the contractor’s liability to rectify loss and damage to the works arising from contractor risk events, this alone is insufficient as it does not constitute an overall limit of liability for any and all loss which could be suffered by the employer.

Limitation of liability clauses are crucial for defining the extent of a party's responsibility under a contract, offering protection against unforeseen financial risks and potential disputes. By capping potential losses, these clauses allow businesses to manage risk, encourage business relationships, and ensure fairness in allocating liability.

Insolvency and business rescue 

The PBA also does not contain a clause expressly entitling the employer to terminate the agreement if the contractor becomes insolvent or where the contractor enters into business rescue or into administration.

While the contractor becoming insolvent is a fundamental issue which should enable the employer to terminate the agreement immediately, the more concerning omission relates to the inability to terminate the agreement for the contractor entering into business rescue. This leaves the employer in a position where it is subject to the limitations on its contractual rights imposed by business rescue legislation where the contractor enters business rescue.

Employer’s right to suspend

Generally, construction contracts provide the employer with a right to suspend the performance of the works, subject to the contractor being entitled to time and cost relief where this suspension was not caused by the contractor’s default.

The employer’s right to suspend provides it with the flexibility to deal with various risks and circumstances, including – as we saw during the Covid-19 pandemic – unforeseen circumstances and health and safety emergencies.

It would generally be recommended that the employer include a suspension right to provide it with the necessary flexibility to manage certain risks and unforeseen circumstances.  

Contractor’s responsibility for subcontractor design 

Where a PBA contract is used any design responsibility undertaken by a subcontractor does not devolve on the contractor. Instead, the contractor cedes any rights it has against a subcontractor arising from defective design to the employer on the date of final completion. The employer also indemnifies the contractor against any claims for damages or loss arising from the subcontractor’s defective design.

Depending on the nature and scale of the subcontract packages, this may not always be appropriate. It may be prudent to augment this regime to appropriately provide for the contractor’s responsibility for subcontractor design in certain instances.

Despite several amendments to the PBA since its inception, the JBCC PBA regime has largely remained the same. Contractors, particularly foreign entities that are unfamiliar with the local requirements, should ensure they are fully aware of these exclusions and the challenges they may raise prior to entering into this type of agreement with another party.