13 May 2020 by and Dispute Resolution Alert

Your JBCC Contract: COVID-19 and other curse words

What can parties to a JBCC (Joint Building Contracts Committee) Construction Contract do to prevent the COVID-19 pandemic infecting your contract? We look at a situation where washing your hands and sterilising surfaces may not be enough.

COVID-19 and the consequential lockdown period in South Africa are unprecedented circumstances which no party to any construction contract has ever had to deal with, until now. As a “hands-on” industry for which working from home is generally impossible, the construction sector is one of many which has had to grapple with the COVID-19 induced contractual mayhem.

The construction sector and the work performed, in general, was not regarded as an essential service, being the only types of services capable of being rendered during the initial and extended Alert Level 5 national lockdown. This led to the suspension of the works for most construction projects throughout the country, invariably causing delay to completion of projects.

Under the current Alert Level 4 conditions, most construction projects except for public works projects, road and bridge projects, and critical maintenance and repairs, are still not permitted to resume. According to the Schedule of Services: Draft Framework for Sectors published on 25 April 2020, commercial building projects will only be permitted to resume operations once the country reaches Alert Level 3 and private residential projects only when Alert Level 2 is reached. This would mean that activity would, in a large portion of the construction sector, still be suspended until, at the earliest, the transition to Alert Level 3. No date has, at the time of publishing this article, been forecast for the transition to Alert Level 3.

However, while works have been suspended at most construction sites until Alert Level 3 is reached, what is not yet clear is how Contractors and Employers are going to deal with the contractual aftermath once operations resume. Although one cannot provide definitive, broad stroke answers that cater to all construction projects, there are several key provisions that parties to the 2018 editions of the JBCC Principal Building Agreement and the JBCC Nominated/Selected Subcontract Agreement (cumulatively JBCC Agreements) should consider, particularly relating to the revision of the practical completion date and termination.

Revised Practical Completion Date: How long can the extension be and will I need to pay for the delay?

It is inevitable that the suspension of the works will result in the need for parties to revise the date for the practical completion of a project. Clause 23.1 entitles a Contractor to “a revision of the date for practical completion by the principal agent without an adjustment of the contract value for a delay to practical completion caused by one or more of the following events:

23.1.5 Exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works

23.1.6 Force majeure” (our emphasis)

In order to claim for the revision of the practical completion date, a Contractor would need to comply with the notification and claim provisions set out in clauses 23.4 to 23.6 of the JBCC Agreements. In short, the Contractor must:

  • Within 20 working days of becoming aware of such delay, give notice to the Principal Agent of the intention to submit a claim, failing which the claim for a revised practical completion date will be forfeited;
  • Within 40 working days from when the Contractor is able to quantify the delay caused to the programme submit a fully substantiated claim; and
  • The claim should reference the clause the Contractor relies on, identify the cause and effect of the delay on the practical completion date and identify the working day period claimed.

Once the claim is submitted the Principal Agent has 20 working days to respond either granting, in full or in part, or refusing the claim.

It is accordingly imperative that all parties comply with the JBCC Agreements in submitting and analysing claims relating to the extension of time. Clause 23.1 of the JBCC Agreements only provides for the award of time and not the adjustment of the contract value, and does not deal with who should bear the ancillary costs incurred as a result of COVID-19, a prime example being the security services provided to secure the site, which, for the purposes of the lockdown, is an essential service and can accordingly operate during this period. In an advisory note, the JBCC suggests that parties ought to consider sharing these costs amicably between them as fault would seemingly not be attributed to either party in the circumstances.

Termination: Is this a ground to cut ties?

On the other end of the spectrum, construction projects may need to be suspended again in the future should the Alert Levels fluctuate and/or other circumstances occur which may lead to the impossibility of the completion of the project for either party. Clause 29.20 provides that “either party may give notice of intention to terminate this agreement where:

29.20.2 Progress of the works has ceased for a continuous period of ninety (90) calendar days, or an intermittent period totalling one hundred and twenty (120) calendar days as a result of a force majeure event or the exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works” (our emphasis)

Termination under clause 29.20.2 will not, aside from other contributory fact specific circumstances, be available to either party unless the required time period for the suspension of the works is satisfied. The applicability of this clause is thus largely dependent on regulatory time periods which have yet to be determined.

However, the clauses considering termination and the revision of the practical completion date in these circumstances would be academic, if the relevant party cannot establish whether the disease, or the effects thereof, is a force majeure or an exercise of statutory power. So, is it?

The “F-word”: Force majeure

The JBCC Agreements define a force majeure as “an exceptional event or circumstance that:

could not have been reasonably foreseen

is beyond the control of the parties, and

could not reasonably have been avoided or overcome”.

Parties may argue that it is not necessarily the COVID-19 disease itself that is stopping activities on site, for example due to a large number of infected workers, but rather that it is the lockdown which would be the main cause of the temporary suspension of the works. However, it can be further argued that the disease, and the possible effects on the construction sector generally, fits into this definition as it could not have been foreseen at the time of contracting, it would be beyond the control of the parties to the JBCC Agreements and could not reasonably be overcome except for, ironically, ceasing to work and self-isolating. The facts of each case will invariably have to inform whether it would indeed be a force majeure for the purposes of the JBCC Agreements. However, it would seem that very few contracting parties could have predicted the far-reaching effects of the disease which emanated on the other side of the world. This would in itself be both indicative and persuasive.

The “S-word”: Statute

The JBCC Agreements include another provision which would apply to the present circumstances. This is the “exercise of statutory power by a body of state or public or local authority that directly affects the execution of the works.” While there may be room for debate as to whether the national lockdown qualifies as a force majeure, there can be little doubt that the lockdown implemented under the Disaster Management Act 57 of 2002 (Act) and the myriad of accompanying regulations would constitute an exercise of statutory power as envisaged in the JBCC Agreements.

Does the Principal Agent need to issue a Contract Instruction?

The Contractor, in terms of clause 2 of the JBCC Agreements, is under an obligation to comply with the law specified in the JBCC Agreement.

In terms of clause 17 of the JBCC Agreements the Principal Agent may issue contract instructions to the Contractor regarding the compliance with the laws and regulations. The Principal Agent therefore has a discretion in this regard.

The JBCC, in its advisory note, is of the opinion that the Contractor has an overarching statutory and contractual obligation to comply with the law. It is accordingly unnecessary for the Principal Agent to issue a contract instruction regarding compliance with any extension to the lockdown, the Act and its accompanying Regulations.

Once the fever stops?

During these uncertain times, Contractors and Employers alike should strive for more innovative methods to conduct their business.

For instance, WinSun3D – a Shanghai based 3D printing company – is manufacturing and selling “Print-While-You-Wait Isolation Pods”. In South Africa, the current Regulations under the Act permit businesses to operate if they are supplying an essential service. Moreover, construction firms who are able to undertake projects which meet the definition of an essential service will be able to operate during various Alert Levels. This should be seen as an opportunity for parties to JBCC Agreements to innovate, contribute to the market and add value to society during these unprecedented times.

To ensure clarity going forward, parties to future JBCC Agreements should consider the effects that future pandemics and government interventions may have on a project and tailor their contracts accordingly. This will ultimately ensure certainty, and minimise risks and costs associated with future disputes and litigation. 

For current projects, communication between the Employer, Contractor, Sub-Contractors and the Principal Agent will be vital to establish clear milestones post lockdown, reach reasonable compromises and ensure that this contractual fever doesn’t turn into a full-blown infection.

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