FAQ's Principal Building Agreement

BACK TO FAQs

PREVIOUS CLAUSE

Clause 33
NEXT CLAUSE

Recovery of Expense and Loss

Question 1

I am the principal agent in a project where the contractor’s failure to complete the works has delayed the issue of the certificate of final completion. The employer is owed money by the contractor which he can recover in the final payment certificate although this cannot be issued until the issue of the certificate of final completion. Can I issue a qualified certificate of final completion containing reference to the incomplete items in order to allow me to issue the final payment certificate and, if not, what remedies are available to the employer?

Ref: P33.001

Answer

A certificate of final completion constitutes conclusive evidence as to the sufficiency of the works and the fulfillment of the contractor’s obligations other than for latent defects [26.6] and therefore may not contain any qualifications.

The fact that the contractor has failed to complete the works means that he has not completed the items on the defects list and therefore has failed to carry out a contract instruction [17.1.18]. Consequently the employer may now proceed in terms of 17.4 and employ other parties to carry out such contract instruction subject to his right to recover any resultant expense or loss. Once this has been done the certificate of final completion is to be issued. The employer may then recover such expense and loss via the recovery statement [33.2.2] and the final payment certificate is to be issued.

Question 2


I am in the process of preparing a final payment certificate in respect of a project where I am the appointed principal agent and have been instructed by the employer that he and the contractor have agreed that direct payments are to be made in respect of certain items and that these are to be removed from such certificate. Is this correct and am I obliged to comply with such instruction?

Ref: P33.002

Answer

In any agreement the parties are entitled to make alternative arrangements provided that these are not in conflict with the law or any other terms of their agreement. In this instance there is nothing which prohibits the arrangement between the employer and the contractor to which you refer and consequently you are obliged to comply with the employer’s instructions in order to give effect thereto.

As the principal agent you need to ensure that such arrangement is correctly administered in terms of the agreement which will require the following:-

1. the terms of such arrangement and the instruction from the employer are to be recorded in writing and annexed to the agreement;

2. the contract value is to be adjusted so as to take into account the direct payments;

3. the direct payments are to be included in the recovery statement to be issued with the final payment certificate; and

4. provision is to be made in the final payment certificate for the deduction of the direct payments from the amount due to the contractor as stated in the recovery statement.

By taking these steps there will be no change to the final contract value.

Question 3

Penalties are imposed on the contractor and recorded in the recovery statement. The debt is recovered from the security (Clause 33.3.2). As the security is now reduced, does the security have to be reinstated?

Ref: P33.003

Answer

The security does not have to be reinstated – the penalty could be recovered from the retention amount if applicable, or be recovered as a debt Clause 34.14 Plus interest.

Question 4

Can the principal agent deduct estimated penalties of say 100 days when, at the time of the valuation only 50 days penalties apply?

Ref: P33.004

Answer

Clause 33.1.1 provides for the deduction of penalties up to the date of the valuation – valuations can not based on an anticipated expenditure.

Question 5

Are penalties VATable?

Ref: P33.005

Answer

A penalty is an expense to the contractor. The “JBCC Guide to Valuation, Certification and Payment” on page 10 shows how the certificate form is filled in. Penalties are deducted in line 10.2 (based on the recovery statement), after the net amount certified, to give a net value of work done (Line 11.0) before VAT is added (Line 12.0). [VAT Act 89/1991].

Question 6

Is VAT charged on default interest?

Ref: P33.006

Answer

The JBCC payment certificate is set out in accordance with the VAT act … The “JBCC Guide to Valuation, Certification and Payment” on page 10 shows how the certificate form is filled in. The debt includes VAT (line 12) interest is subtracted / added thereafter in lines 13.1 and 13.2.

Question 7

In deducting penalties from the contractor, the valuation become negative, ie the contractor owes the employer money. How is the VAT dealt with?

Ref: P33.007

Answer

VAT can not be a negative number [VAT Act 89/1991] Thus the amount due to the employer by the contractor does not attract VAT.

Question 8

The contract period was exceeded as part of the concrete structure had to be demolished due to non compliant concrete tests. Can the recovery statement be used to claim additional fees?

Ref: P33.008

Answer

The recovery statement is solely for financial transactions between the employer and the contractor.