18 June 2015

Amendments to the Regulations of the Construction Industry Development Board Act will have significant consequences for construction contractors

The Minister of Public Works recently published for public comment proposed amendments  to the Regulations of the Construction Industry Development Board Act (Act). The proposed amendments, if promulgated could potentially have significant consequences fin the South African construction industry.

Sonia de Vries, a Director in the  Construction & Engineering practice at Cliffe Dekker Hofmeyr business law firm, says that the objective of the current Act and its existing Regulations, among others, is to regulate the growth and development of the construction industry.  The construction industry is still largely governed by the common law principles of contract law, which gives one the right to freedom of contract.

She explains that the the proposed amendments appear to be addressing a criticism of the industry in respect of perceived 'funding' by the contractor (and subcontractors) of the employer’s construction project. This 'funding' would take place  because of inhibited cash flow between them as a consequence of disputes or the if the contractor's payment was conditional upon the employer being paid.

“The proposed amendments prohibit these 'pay-when-paid' provisions and contemplate a speedy resolution of any dispute that, if otherwise left unresolved, may see contractors (and subcontractors) financing construction projects by not having been paid for work done whilst the dispute resolution is underway,” she notes.

“The proposed amendments will impose statutory mechanisms to ensure the prompt  progressive payment to a party for work performed and expeditiously solve disputes in a judicially enforceable manner," de Vries explains.

She says that the proposed amendments are significant in effect and consequence as the ability to freely contract could be curtailed and  parties exposed to a potentially unrealistic and unworkable adjudication process.

"In principle the objective of the proposed amendments appear to be beneficial for the construction industry by attempting to address challenges contractors may face from time to time and which could contribute to insolvency and unemployment, among other things,” de Vries adds.

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