JBCC: understanding termination of works under Principal Building Agreement

Termination provisions can cater to circumstances both foreseen and unforeseen, for instance, in some contracts, works can be terminated for by the employer for convenience if for instance funding is pulled from the project.

For those looking to utilise it, it is important to understand how these provisions can be applied under the JBCC’s Principal Building Agreement (PBA).

Termination under the PBA

In terms of clause 29.1, the employer is entitled to terminate the agreement where the contractor has failed to (i) provide and maintain a guarantee for construction, (ii) to proceed with the works and (iii) comply timeously with a contract instruction issued in terms of clause 17.

Read more on the use of JBCC contracts in South Africa

• South African contractors and employers must ensure understanding of PBA clauses and consequences
• JBCC: commercial considerations for contracting parties in South Africa
• How the JBCC PBA aids construction management in South Africa

The process for this is to provide a notice of intention to terminate the contract, calling on the contractor to remedy the specified breach within 10 days working days of receipt of the notice. The notice may be provided by the employer directly to the contractor or by the principal agent acting on the employer’s instructions. Where the contractor has not remedied the breach within the specified period, the employer may forthwith give notice of termination. It is important to note that the JBCC provides certain additional protection in that the right to terminate may not be exercised where the employer is in material breach of the agreement.

Termination by the contractor is similarly set out in terms of clause 29.15 and follows a similar termination procedure as that of the employer. The contractor issues a notice of intention to terminate to the employer calling upon the employer to remedy the breach within 10 working days, the grounds for which are set out in clause 29.14. Should the employer fail to remedy the breach, the contractor may give a notice of termination.

The breaches that allow the contractor to terminate include where the employer has; failed to provide and maintain a guarantee for payment, failed to give possession of the site to the contractor, failed to allow the principal agent and/or agents to exercise fair and reasonable judgement, failed to effect insurances, failed to pay certified amounts by the due date, failed to appoint another principal agent and/or agents and lastly where the principal agent has failed to issue a payment certificate to the contractor by the due date.

Again there is a similar protection as there is in relation to employer termination in that the right to terminate may not be exercised where the contractor is in material breach of the agreement.

Further, clause 29.20 provides that either party is further entitled to give notice of intention to terminate the agreement where the works are for alterations and/or additions to a new or existing building which has been substantially destroyed regardless of the cause other than by the party seeking termination, and/or progress of the works has ceased for a continuous period of 90 calendar days or an intermittent period totalling 120 days as a result of a force majeure event or the exercise of statutory power that directly affects the execution of the works.

The notice shall provide the other party with 10 working days before the agreement is terminated.

Rights and obligations of the parties after termination

Except where termination occurs pursuant to clause 29.20, the employer is entitled, post termination, to employ other contractors to safeguard the works, complete the outstanding works and/or rectify defects and the employer will recover the costs related to these actions from the contractor in the final account.

The employer is also entitled to, amongst others, use materials and goods on site, payment for which will be included in the final account, recover damages, apply a penalty up to the date of termination and to call upon the guarantees for construction provided by the contractor.

It is also of note that the latent defects liability period for the completed portion of the works shall end five years from the date of termination and where the contractor has terminated the agreement, the latent defects liability period ends on the date of termination.

The contractor upon termination has the following obligations: to cease the works; it remains responsible for the works until the employer takes possession; to give notice of termination of the subcontract agreement/s to each subcontractor; to remove temporary structures, construction equipment and, on notice, surplus materials and goods from the site; and the contractor may be entitled to recover damages.

The contractor’s guarantee for construction and guarantee for advance payment together with the guarantee for payment in favour of the contractor (where applicable) shall respectively expire on:

• the date of termination,
• the date of repayment of amounts due to the employer; and
• on the date of payment of the final payment certificate or on payment in full of the guaranteed sum or on the security expiry date, whichever is earlier.

Duties of the principal agent on termination

Upon termination the principal agent shall prepare and handover to the employer all compliance certificates, as built drawings and product warranties; issue a status report to the parties recording completed and incomplete work on the date of termination within 20 working days; continue to certify the value of the work executed until the issue of the final payment certificate; and prepare and issue the final account to the contractor within 60 working days of the date of termination.

The PBA is quite extensive in its termination procedure. It allows for the principal agent to continue certifying works executed and issue payment certificates after termination has occurred. This means that the scope of the principal agent’s work does not end immediately upon termination. The same applies to both the employer and contractor: they both still have obligations towards one another post termination of the agreement.

The principal agent must continue to certify the value of the works until the issue of the final account, where the contractor disputes the final account clause 25.16 confirms that the principal agent is then only entitled to include any undisputed amounts in any interim payment certificates.

Co-written by Siyabonga Machava of Pinsent Masons