JBCC: avoiding payment issues under the PBA

Parties agreeing to use the PBA agree on a contract sum: the accepted tender amount which amount is not subject to adjustment. This will differ from the contract value, which is the monetary value of the contract subject to adjustment in terms of the agreement.

Changes in scope

As with any standard form contract for construction works, there are mechanisms available to the contractor under the PBA to address changes in the scope of works. Under clause 17.2 of the agreement, the principal agent can issue a contract instruction instructing “alteration to design, standards or quality of the works…”.

As the contractor is obliged to comply with and duly execute all contract instructions, all parties must have a good understanding of the process triggered once a contract instruction is issued. This ensures that there is a fair assessment of the varied works and a concomitant adjustment to the contract value.

Clause 26.2 provides for adjustments to the contract value arising from a contract instruction to be assessed on the following basis:

The sub-clauses cover the difference for work of a similar character being priced compared to that not of similar character, with specific guidance where neither apply that work should be priced based upon labour, equipment and material and goods requirements, with a 10% mark-up.

There is also guidance for recalculating the cost based on work omitted, which is determined by using the same methods.

Clause 26.5 of the agreement provides that the contractor is required to give the principal agent notice within 20 working days of becoming aware, or when it ought reasonably to have become aware, of expenses or losses which were not provided for in the contract sum – failure to do so means the claim will be forfeited. This condition serves as a time bar for claiming any additional expenses or losses pursuant to a contract instruction.

Once the requisite notice has been submitted by the contractor, a further detailed and substantiated claim for the adjustment of the contract value must be submitted within 40 working days, or such additional period as allowed by the principal agent. However, there is no time barring provision associated with this step. Under these circumstances, the principal agent must make a fair assessment and any contract value adjustment within 20 working days. If they fail to do so, the claim will be deemed refused and dispute resolution procedures can begin.

Delegation of authority

Very often contractors are unaware of the time constraints to submit a claim arising from a contract instruction and it is common to see disputes arising due to factors such as oral instructions, late claim submissions, or failures to fully substantiate a claim. Further, in order to constitute a formal contract instruction as provided under clause 17, this must be signed by the principal agent - or another appropriate agent under delegated authority - otherwise it will not be considered a contract instruction.

In this regard, whilst the principal agent can delegate authority to issue contract instructions to other agents of the employer, notice of such delegation must be given to the contractor.

This means an instruction from an architect to amend drawings, where there is no delegation of authority, would not meet the requirements of a contract instruction. Similarly an entry in the site instruction book or site meeting minutes for some action by the contactor would not meet the requirements.

Contractors are also likely to encounter general instructions, which are informal and operational in nature. These are typically issued on-site by the principal agent or site managers and relate to matters such as safety, access, coordination and sequencing. General instructions are usually given verbally or recorded in site diaries or meeting minutes, and while they help manage day-to-day operations, they do not carry contractual weight.

How to avoid issues

In order to proactively deal with these types of issues, contractors and subcontractors should:

• ensure all contract instructions are written – do not act upon oral instructions
• consider the details of the contract instruction –for example, remedial work owing to a contractor’s shortcomings in executing the original design would not entitle the contractor to additional payment from the instruction
• maintain robust record-keeping and documentation to substantiate any claim for additional expense or loss
• ensure notices are issued promptly and within the 20 working day time limit, and that the notice is issued in the prescribed form and to the correct party
• engage proactively with the principal agent on the valuation methodology.

Ensuring that price adjustments are pursued, the rights to claim adjustments are reserved and amicably awarded under the PBA requires:

• a thorough understanding of the mechanism provided under the PBA to claim for additional expense or loss;
• understanding the applicable time periods for claim notices and strict adherence to this period - remaining aware that the default time periods under the PBA may be adjusted by the employer so read every contract afresh; and
• undertaking proactive contract administration to reduce disputes and ultimately prevent any cash flow risks

To aid the process, employers and principal agents must ensure sufficient clarity in each contract instruction, and assessment of claims should be done on an objective and fair basis. It should be standard practice to avoid oral or informal variations which will inevitably lead to disputes.

Aside from this, it could be helpful to incorporate contract price adjustments into the agreement through inclusion in the contract data, which is covered through other clauses.

Accordingly, each month the contract value is automatically adjusted – there is no need for any application by the contractor to claim these adjustments.  It simply remains for them instead to check the adjustments are applied contemporaneously.