PROFESSIONAL PRACTICE EXAMINATION MARCH 2011

PAPER 2: Contract Law and Building Contracts

The Resolution of Building Disputes

OPEN BOOK EXAMINATION 100 marks

Question 1 20 marks

1.1 The practical completion date for a 2 storey hospital for which you have been appointed as the Principal Agent, has been recorded in the schedules of the JBCC Principal Building Agreement as 31 September 2010.

Penalties have been determined as R15,000.00 per day in the PBA schedules.

You have received all due requests i.t.o. 24.3 of the PBA, from the Principal Contractor to inspect the works for Practical Completion on the recorded date, however upon inspecting the works, you request that a simulated fire be performed, during which you notice that 15 addresses on the fire detection panel, does not correspond with the actual fire detectors. In addition, you notice that the voice evacuation system has not yet been programmed and is not ready for use. Both the fire detection and voice evacuation systems were installed by a selected subcontractor. Describe your response and duties. (5 marks)

Note to markers : Potential marks have been identified with a number in superscript.

Answer:

A fire detector, being an early warning system, needs to alert occupants, especially in a hospital, of the exact location of a fire and cannot lead duty staff to any false locations. In view of its life threatening potential, the situation does not comply with the definition of Practical Completion1 and Practical Completion can therefore not be certified2.

The principal contractor is entirely responsible for the defaults by any selected subcontractor3 in assuring that the practical completion date is achieved and he therefore carries the risk4 for this default. No revision to the date of practical completion can be considered5.

As the principal agent, you must list these two items on a practical completion list i.t.o. clause 24.3.26 and institute penalties from that date7.

1.2 During the last progress meeting and one week before practical completion is due on a project where you are the principal agent, the Fire Consultant realises that a number of doors on the first floor, have been installed into fire barriers as semi solid core doors and that he has omitted to specify these as fire doors with all its relevant electromagnetic hold open door closer and fail safe equipment, on his drawings. He requests that you issue an instruction to the Principal Contractor to have these doors altered to fire doors. Describe your response and the implications. (5 marks)

You will be obliged to issue the contract instruction1, however this will be regarded as an instruction not occasioned by the contractor i.t.o. 29.2.32 and a late instruction i.t.o. 29.2.43.

Practical completion can therefore in this instance not be granted4, but not due to default by the contractor.

The principal agent shall be obliged to revise the date of practical completion5 and adjust the contract value i.t.o. 29.26.

1.3 List 5 differences between a Variable Construction Guarantee vs Retention as provided for in the JBCC Minor Works Agreement. (10 marks)

Variable Construction Guarantee vs Retention

Offers an immediate higher security. The Employer is therefore immediately covered. 1 / Security has to slowly build up from nil and there is a period of risk for the Employer. 2
Immediate value not exceeding 6% of the contract sum. 3 / Immediate value limited to 4% of the contract sum. 4
Reduces to 4% at Practical Completion up to the date of Final Completion. 5 / Reduces to 2% at Practical Completion up to the date of Final Payment Certificate. 6
Reduces to 2% at Final Completion up to the date of the Final Payment Certificate. 7 / Reduces to 0% on the date of the Final Payment Certificate. 8
A Construction Guarantee is issued by a reputable financial institution. 9 / Retention relies on the value of work delivered by the contractor. 10

Question 2 18 marks

Using the tables below, list 5 advantages and 4 disadvantages of each of the following contract types: (18 marks)

2.1 Contract With Bills of Quantities

2.2 Contract Without Bills of Quantities (also known as a Lump Sum Contract)

Answer concisely and do not exceed the space provided in the tables. Each correct item will earn 1 mark.

Note to markers : The advantages and disadvantages can include any of those listed under clauses 2.1.1 & 2.1.2 on page 2 of 8 and clauses 2.3.1 & 2.3.2 on pages 3 and 4 of 8 of section 3.411 of the SAIA Study Aid for Professional Practice.

Contract With Bills of Quantities

Advantages Disadvantages

1 / 1
2 / 2
3 / 3
4 / 4

Contract With Bills of Quantities

Advantages Disadvantages

1 / 1
2 / 2
3 / 3
4 / 4

Question 3 20 marks

Describe 5 major characteristics of each of the following:

3.1 A Domestic Subcontractor (5 marks)

A domestic subcontract is a subcontract which the contractor has decided to award1 to a subcontractor of his own choice2; the employer has no right to approve or disapprove of such subcontract or the subcontractor3 concerned. The contractor is wholly at risk4 for any default5 of the subcontractor

3.2 A Selected Subcontractor (5 marks)

A selected subcontract is similar to a nominated subcontract1 save that where the default of the selected subcontractor delays the contractor in the completion of his contract the contractor is not entitled to an extension of time2, and where the selected subcontract is cancelled for any reason other than the default of the employer or his agents3, any additional costs incurred in the completion of the subcontract works4 shall be to the account of the contractor. 5

3.3 A Nominated Subcontractor (5 marks)

A nominated subcontract is a subcontract in which the nature and extent of work and the subcontractor concerned are determined by the employer or his agent1, and the contractor is obliged to enter into a subcontract with the nominated subcontractor2 to perform the specified work. The contractor is liable for any default of the subcontractor3 save that where the default of the nominated subcontractor delays the contractor in the completion of his contract he is entitled to an extension of time4, and where the subcontract is cancelled due to the default or insolvency of the subcontractor5 or the default of the employer or his agents6, any additional cost incurred in the completion of the subcontract works shall be to the account of the employer7.

3.4 A Direct Contractor (5 marks)

A direct contractor is an independent contractor1 engaged by the employer2 to carry out certain work on the site of a contract between the employer and a building contractor while the building contractor is still in possession of the site3. The building contractor is not responsible in any way4 for the due performance by the direct contractor of his contract with the employer, and any delay that the direct contractor may cause5 the building contractor in the completion of his works shall entitle the building contractor to an extension of time6. Any additional cost incurred7 in the completion of the works that are the subject of the direct contract that arises from the default of the direct contractor or his replacement is the liability of the employer8

Question 4 20 marks

The following cumulative valuation is received on 21 Aug 2010, from the Quantity Surveyor as valuation no 3, for the new corporate Head Offices for United Cellular Networks Pty Ltd on Erf 305, Halfway House, Gauteng, on which you as Vision Architects Pty Ltd, have been appointed as the Principal Agent.

The principal contractor is Unez Construction cc, the HVAC subcontractor is Coolcats cc and the Electrical subcontractor is Sparks Electrical Pty Ltd, whom have both been appointed as selected subcontractors and whom have both furnished N/S subcontract construction guarantees.

Builder’s Work to date R 5,112,853.07c

Additions to date R +173,953.21c

Materials on Site R 249,832.59c

HVAC subcontract to date R 739,032.85c (Nil materials on/off site & no variations)

Electrical subcontract to date R 697,853.05c (Nil materials on/off site & no variations)

Plumbing subcontract to date R 396,348.63c (Nil materials on/off site & no variations)

Valuation Total R 7,369,873.40c (for markers’ info)

The JBCC Principal Building Agreement is in use.

A Variable Construction Guarantee was required from the principal contractor, however to date, the principal contractor has failed to furnish his construction guarantee as required. Despite this, the employer has opted not to cancel the agreement.

The principal contract sum is R 27,954,731,48c and the previous gross amount certified amounts to R 2,391,592.46c. The contract sum has been fixed, i.e. no contract price adjustment is applicable.

The subcontract sum for the HVAC installation is R 1,301,972.12c. The previous gross amount certified for the HVAC subcontract was R 217,936.82c.

All the above exclude VAT.

Using the attached JBCC documents, issue the necessary Payment Certificate and the Payment Certificate Notification for the HVAC subcontract claim.

Markers, please see attached certificates

Question 5 22 marks

5.1 Using the tables below, list 5 primary differences between the JBCC PBA on the one side and the MWA on the other side. (10 marks)

Answer concisely and do not exceed the space provided in the tables. Each correctly listed item will earn 1 mark.

Principal Building Agreement Minor Works Agreement

Provision for a principal agent and other agents1 / One Agent only2
Provision for nominated and selected subcontractors3 / Provisions for domestic or direct subcontractors only4
Contractor liable for risk of third party claims5 / Employer liable for risk of third party claims6
Contract may be based on bills of quantities7 / No provision for bills of quantities8
Contractor to provide construction guarantee9 / Provision of retention fund as alternative to construction guarantee10

Note to markers: There may be other examples. Discretion to be used with reference to the two agreements.

5.2 Using the tables below, list 6 primary characteristics of or differences between adjudication and arbitration as means of resolving disputes i.t.o. the JBCC Principal Building Agreement. (12 marks)

Answer concisely and do not exceed the space provided in the tables. Each correctly listed item will earn 1 mark.

Adjudication Arbitration

It is a relatively new / 1 / It is an established / 1
quick and inexpensive / 1 / more costly / 1
informal process / 1 / formal legal process / 1
conducted i.t.o. the JBCC Rules of Adjudication / 1 / governed i.t.o. Act 42 of 1965 / 1
with procedures determined by the Adjudicator / 1 / with procedures determined by the Summary Procedure Rules for the conduct of Arbitrations / 1
where the adjudicator is appointed by mutual agreement of the parties within 5 working days of a dispute / 1 / where the arbitrator is appointed either
* by the parties
* or a 3rd party person so mentioned in the PBA
* or from a list of 3 names submitted by this 3rd party / 1
who’s fee is shared equally between the parties / 1 / who’s fee may be awarded to the loosing party / 1
who acts as a expert / 1 / who acts as a judge / 1
in disputes arising during construction / 1 / in disputes arising after practical completion / 1
who may meet with the parties jointly or separately, without legal representation / 1 / who must hold a hearing and may allow legal representation / 1
and furnish a written determination within 20 days / and who’s award must be in writing by a pre-determined date, stating reasons / 1
based on discussions and/or evidence and/or inspecting the works / 1 / based on evidence place before him / 1
which will be final and binding / 1 / which is binding on both parties / 1
unless subsequently over-turned by an Arbitrator / 1 / unless bias or mis-conduct can be proven / 1
and can be made an order of the court / 1 / and can be made an order of the court / 1
An adjudicator may not become a subsequent Arbitrator in the same matter / 1 / An arbitrator may become an expert witness in litigation / 1

6 Marks allocated for any 6 6 Marks allocated for any 6

Page 1 of 7