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By Daniellé Giannico (Candidate Attorney)

Many forms of standard form construction contracts are in existence. In South Africa, the Construction Industry Development Board (CIDB) recommends the use of only four standard forms of contract for construction procurement in the public sector. This promotes standardisation and uniformity of documentation and reduces escalation of tendering and contracting costs in the industry. It also benefits emerging contractors and consultants that lack resources and the capacity to be constantly adapting to new forms of contract used by different clients.

These four standard form contracts are the JBCC (Joint Building Contracts Committee), NEC (New Engineering Contract), and GCC (General Conditions of Contract) and FIDIC, which is the International Federation of National Member Associations of Consulting Engineers. It publishes international standard forms of contracts for construction works and various forms of associated agreements. The FIDIC Subcontract Agreement is designed specifically for use with the FIDIC Conditions of Contract for Construction (‘red book’) Agreement. The red book only makes provision for the appointment of nominated subcontractors; it does not allow for the appointment of selected subcontractors. In this article, we will examine some of the important aspects that the contractor should be aware of when entering into the FIDIC Subcontract Agreement.

Administration of the main contract
The FIDIC red book Main Construction Agreement is administered on behalf of the employer by an engineer. The red book requires that the engineer must be a professional engineer with appropriate qualifications and experience for the particular type of project. The engineer plays a crucial role in the administration of the main contract as he/she is the first port of call should there be a disagreement between the parties.

Under the red book, the engineer is required to assist the parties, being the employer and the contractor, to reach an agreement. Where the parties do not reach an agreement, the engineer is required to make a determination of the matter, which is binding on the parties unless the determination is disputed and referred to the Dispute Avoidance/Adjudication Board (DAAB) or arbitration, as the case may be.

Extension of subcontract time for completion
The FIDIC subcontract does not contain a consolidated list of events, which will entitle the subcontractor to an extension of time (EOT) claim. The various circumstances, which may give rise to an EOT claim, are scattered throughout numerous clauses in the subcontract.

Should an event occur in terms of which the subcontractor is entitled to an EOT, the subcontractor is required to give notice to the main contractor of his or her intention to claim within two days after he/she becomes aware, or should have become aware, thereof. Should the subcontractor fail to give this notice within this period, the subcontractor will be time-barred from claiming for an EOT and/or the additional associated costs. The subcontractor must submit a fully detailed claim within 35 days after the occurrence of the event or of when the subcontractor should have become aware of the occurrence of the event.

The parties to the subcontract agreement must first attempt to reach an agreement regarding the EOT claim. Where the parties cannot reach an agreement, the main contractor is required to make a fair decision within 49 days of receiving the fully detailed claim. The agreement reached or the decision made by the main contractor will be binding on the parties to the subcontract agreement unless it is revised by either the subcontract Dispute Adjudication/Avoidance Boards (DAAB) or the main contract DAAB where the subject matter of the dispute also relates to a dispute between the main contractor and the employer.

Completion of the subcontract works will have been achieved when:

  • The subcontract works have been completed substantially in terms of the subcontract agreement, save for minor outstanding work and defects;
  • the subcontract tests on completion have been passed; and
  • The as-built drawings and operation manuals have been submitted to the main contractor.

At least seven days prior to the date on which the subcontractor believes that the subcontract works will be complete, the subcontractor is required to give notice to the main contractor. The main contractor is then required to give notice to the subcontractor notifying the subcontractor that completion of the subcontract works has either been achieved, or that completion has not been achieved with reasons.

Taking over
As soon as the subcontract works have been taken over by the employer, the subcontractor will no longer be liable for the care of the subcontract works. Taking-over only occurs once the subcontractor has achieved completion, and the engineer has issued a Taking-Over Certificate for the main contract works, or a section thereof, which includes the subcontract works, in which case the risk for the care of the subcontract works passes to the employer. This will not apply where provision has been made in the subcontract agreement that upon completion of the subcontract works the main contractor takes over the subcontract works prior to the taking-over of the entire works by the employer, in this case the risk for the care of the subcontract works will pass to the main contractor.

Under the FIDIC subcontract agreement, the subcontractor is required to submit monthly statements to the main contractor setting out the amounts the subcontractor considers to be due, together with the relevant supporting documents and a progress report.

The main contractor will then make provision for these amounts in his application for interim payment under the main contract and payment of these amounts will become due to the subcontractor within 70 days of the receipt of these statements.

For purposes of final payment, the subcontractor is required to submit a draft final statement to the main contractor containing all amounts finally due and the value of the work done in accordance with the subcontract. The draft final statement must be submitted within 28 days of the expiry of the subcontract Defects Notification Period (DNP) to the main contractor, and payment in terms thereof becomes due 56 days after the expiry of the subcontract DNP.

The FIDIC subcontract agreement regularly refers back to the clauses in the main contract, therefore the contractor must ensure that when he/she enters into the FIDIC subcontract agreement, he/she obtains a copy of both the subcontract agreement as well as the main construction agreement. Under the FIDIC subcontract, the main contractor is required to provide the subcontractor with a copy of the main construction agreement on request. Prior to the commencement of the subcontract agreement the contractor must familiarise himself/herself with the timelines and processes contained in the FIDIC red book so that the contractor is aware of the risks and obligations in terms of the FIDIC subcontract agreement.