FAQ's Principal Building Agreement

Clause 34

Final Account and Final Payment

Question 1 The final account was prepared and issued to me the contractor after the employer informed the professional team that he was satisfied with it. I signed acceptance thereof and requested the issuing of the certificate of final completion and the final payment certificate. I have now been informed that the employer has had “second thoughts” and has changed some amounts and has requested that the “revised” final account be signed. Am I obliged to accept his action? Ref: P34.001

Answer It is a basic principle of law that a legally binding agreement cannot be changed by one party without the consent of the other. I believe that the “offer and acceptance” of the final account complies with this principle. I have no doubt that you should not accept the retraction of his “offer” and should declare a dispute which I believe you will win “hands down” I suggest that you seek legal advice in taking such action.

Question 2 The final account has been prepared and submitted to the contractor who is quibbling about ‘minor issues’, but not substantiating these to assist in finalizing the outstanding amounts. Hence the contractor is refusing to issue a VAT invoice> How can the contract be brought to a speedy, equitable conclusion? Ref: P34.002

Answer All parties must comply with the laws of the country. Implementation of VAT is defined and adherence is obligatory. [VAT Act 89/1991] The JBCC agreement offers the following mechanisms: Clause 31.1 requires the issue of a monthly payment until the issue of the final payment certificate so offering regular opportunities to value the work done – involving the contractor; Clause 32.1 provides a mechanism to value additional work– involving the contractor; Clause 32.6 provides for notice by the contractor to the principal agent within 40 working days of becoming aware of expense or loss … the principal agent must respond within 20 working days; Clause 33.1.4-7 permits the contractor to recover compensatory interest / default interest / damages / and the granting of advance payments where appropriate Clause 34.1 requires the contractor to cooperate with and assist the principal agent in the preparation of the final account timeously … The principal agent shall issue the final account within 90 working days of the of practical completion … Clause 34.3 requires the contractor to accept or object to the final account within 45 working days. On acceptance, or should the contractor not object with reasons within this period, the principal agent shall issue the final payment certificate Clause 34.4 requires the principal agent to issue the final payment certificate - unless the period for objection in Clause 34.3 has been extended / the dispute resolved Clause 34.5 … the principal agent shall not issue the final payment certificate before the certificate of final completion Clause 34.6-9 describe the payment certificate / recovery statement steps Clause 34.10 requires the employer to pay within 7 calendar days of the date of the final payment certificate The clause does not state on presentation of a VAT invoice = requirement of the VATact. Clauses 34.11-14 deal with compensatory interest should the employer not pay on time…

Question 3 An eager professional team may complete the final account before the dates stipulated in the PBA. Are there any advantages / disadvantages ? Ref: P34.003

Answer Whilst the final account can be compiled as trades complete their tasks, the issue and acceptance of project final account must follow the sequence and periods described in the contract. To issue and agree the final account before the certificate of final completion / followed by the final payment certificate limits the employer’s rights during the Defects Liability Period resulting in possible expense or loss if the contractor does no honour his obligations. Where the final account has been accepted and a defect manifests itself, and the contractor does not willingly and speedily resolve same, the employer would have to sue the contractor … and possibly his agents as well.

Question 4 Can the principal agent issue a final account and a final completion certificate without issuing the final payment certificate ? (to sort out penalties etc) Ref: P34.004

Answer The principal agent is acting outside the parameters of the PBA and by implication the financial management act and the VAT act.

Question 5 Under what circumstances can a “final payment certificate” be withdrawn? Ref: P34.005

Answer The final and indeed any payment certificate is a liquid document entitling the contractor to apply for a court order forcing the employer to make payment. Interim certificates are deemed to be a reasonable estimate of the value of the completed works – and variations can be accommodated in subsequent certificates. The principal agent can not amend the final payment certificate by issuing subsequent certificates or by cancelling it – thus absolute caution is required when compiling this document.

Question 6 When must the contractor ‘claim’ interest? Ref: P34.006

Answer There is no stipulation in the JBCC agreements that the contractor must claim within a particular timeframe default or compensatory interest that he may be entitled to under certain circumstances. The principal agent, in compiling an interim valuation or the final account, should make allowance for interest in the recovery statement and the payment certificate for inclusion, at the latest, in the final payment certificate. If the contractor accepts the final account where interest is due but not shown in the calculations, then he looses his right to compensation. Once the final payment certificate has been issued and paid, the contract is concluded. Note that the employer can not dispute the final account once it has been accepted by the contractor – if the agents have got it wrong, the employer can sue them!