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In this article we examine what the potential harmful effect is if an electrical subcontractor does not have access to the full agreement between all the parties to the project and the risk faced by parties when their agents are not properly identified or authorised. 

The Facts 

Briefly, the facts of the dispute are as follows: 

The main contractor was appointed in terms a bespoke agreement making use of elements of the FIDIC conditions of contract for EPC/turnkey projects (1999 edition) (“the main agreement” herein). The Subcontractor was appointed to provide labour to erect steel structures equipment and stringing  in terms of the SAFCEC general conditions of subcontract 4th edition 2011 as amended in its letter of appointment (“the SAFCEC agreement” herein).. The Subcontractor then further sub-contracted a portion of the subcontract works on the same terms as its own appointment (“the subcontract” herein). This article will focus on this (sub)subcontract agreement and accordingly we will refer to the subcontractor as the Contractor (“the contractor” herein) and the (sub) Subcontractor as the subcontractor (“the subcontractor” herein)  for ease of reading.

The first issue was that the Subcontract incorporated the terms of the Main Contract and the SAFCEC, but the Subcontractor was not provided with a copy of these agreements , nor was it made aware of the terms of the agreement between the Main Contractor, Contractor and the contractor. In short, the Subcontractor was not made aware of the terms of the entire agreement and unfortunately acted to its own detriment as a result. 

The Subcontractor prepared its final invoice and submitted it to the Contractor. The Contractor’s Representative attended meetings with the Subcontractor in order to assist it with its calculations of the amounts set out in the final invoice. These meetings included certain verbal agreements being made in respect of the remeasurement of P&Gs as well as an allowance made for overtime claims for labour.  The Representative shortly after these meetings informed the Subcontractor that the final invoice, what was referred to in the agreement as the statement at completion, was accepted and that the Contractor would make payment thereof. 

The Contractor’s head office rejected the claim and responded to the invoice of the Subcontractor by issuing a payment certificate for a lessor amount after making certain deductions, which were later found by the Adjudicator to be unlawful. The Contractor then denied that its Representative, who all along had acted on behalf of the Contractor, was authorised to accept the statement at completion. The fault in this logic was that the Representative had acted as the Contractor’s Representative throughout the duration of the construction project, and neither party at any point questioned or disputed his authority to act. 

The Subcontractor finally disputed that the Contractor was entitled to issue the payment certificate for the lower amount, however the Subcontractor amended its invoice to this lower amount so that it could at least obtain payment of this amount. The Subcontractor referred this dispute to adjudication on the basis that the contract provided that once the Contractor had accepted the statement of completion, it had no authority to withdraw this acceptance.



 It is important for anyone dealing with agents (in this case the Contractor’s representative) to be made aware of a legal principle referred to as estoppel. Very simply put, the principle of estoppel states that where a person acts as an agent, and, the Principle for whom the agent acts (in this case, the Contractor) does not dispute this authority, the Principal being the Contractor cannot later claim that the agent was not authorised to act. Essentially, where it appears to an outsider looking in that an agent is entitled to act, the person appearing to give the agent the mandate, cannot deny this perceived authority.


What went wrong?

The Subcontractor did not have a copy of the main agreement from the outset which lead to confusion and even a notice of dispute that referred to contract clauses that actually did not exist.

The subcontract did not make provision for the re-measurement of the P&Gs and the parties came to a verbal agreement as to certain additional claims for overtime for labour despite the subcontract not allowing for such a claim. This led to the Contractor disputing the value claimed by the Subcontractor in its statement at completion.

Further, a whole host of issues were caused by the Contractor’s representative not being properly identified in the agreement, including the representative binding the Contractor to a statement at completion that it did not necessarily agree with, and then the Contractor denied that the representative had authority to act, leaving the Subcontractor in an uncertain position.


In conclusion – how to avoid these issues

When entering into a subcontract agreement always make sure that you receive a copy of both your subcontract agreement and the main contract, including any amendments made thereto. Oftentimes, the subcontract refers back to clauses in the main contract that have an effect on your rights and obligations, but because you were not provided with a copy, you are not aware of this.

When dealing with a Contractor’s Representative, always ensure that they are authorised to act on behalf of the instructing party. Where the Representative has not been identified in the subcontract itself, insist that such a representative is properly identified to you in writing.

Always follow the proper subcontract processes when agreeing to variations (instructions that will result in additional costs or delay to completion) such as overtime arrangements and Re-measured P&G’s with the Contractor. Where the subcontract does not make provision for a process to be followed, make sure that such variations are made in writing and signed by both parties.