South Africa: Construction Industry Development Regulations

Last Updated: 9 July 2015
Article by Nikita Lalla

Most Read Contributor in South Africa, September 2018

The Minister of Public Works has announced that he intends to amend the Construction Industry Development Regulations of 2004 (the Regulations), which were passed under the Construction Industry Development Board Act of 2000. The notification of the proposed amendment was published in the Government Gazette of 29 May 2015, and it gives interested persons a period of 60 days to submit written comments.

The proposed amendment deals with two issues. The first is headed 'Prompt Payment', and the second is headed 'Adjudication'. The proposed amendment is being done by way of a re-working of Part IV of the Regulations, with the existing Part IV being renamed Part IV A, and the new issues being headed Part IV B and Part IV C respectively. There's considerable detail in the proposed amendment and I'll simply be discussing the most important aspects in this article.

Prompt Payment (Part IV B)

The proposed amendment provides as follows:

  • Application: It applies to all construction work contracts, oral or written, private sector or public sector. It does, however, not apply to home building contracts contemplated in the Housing Consumer Protection Measures Act 1998.
  • Conditional payment: No construction work contract may require a payment to be conditional upon payment being received from a third party. There are, however, two exceptions - where business rescue proceedings have commenced in respect of the party that has to pay, and where that party has gone into insolvency.
  • Progress payments: Notwithstanding any contractual provision to the contrary, a party who has carried out construction work or supplied goods or services is entitled to progress payments. If the contract does not provide for regular intervals, a supplier can submit monthly invoices, or invoices reflecting work completed or goods or services delivered. The amount to which the party is entitled will be calculated in accordance with the terms of the contract or, if such terms don't exist, the value of the construction work or goods or services supplied. The value of the construction work or goods or services supplied will be calculated with reference to the contract price, prevailing rates or prices or, in the case of defects, the estimated cost of remedying the defect.
  • Date of payment: The date of payment will be the date provided for in the contract, which must be not later than 30 days of the submission of an invoice. In case of late payments, interest will be payable – the rate will be the repurchase rate determined by the Reserve Bank, plus 6%.
  • Withholding payment: No party can withhold payment without reasonable grounds, and without first giving notice of its intention to do so. The notice must specify the amount to be withheld and the reason why it is being withheld, and it must be given within five days of the invoice. If the party receiving the notice is not satisfied that notice has been correctly given, or with the reason given for withholding the amount, it can declare a dispute and refer that dispute to adjudication. Where the matter is referred to adjudication, neither party can withhold payment for work or goods that are not in dispute, or for any part of an invoice that is not in dispute. If an adjudicator decides that an amount must be paid, it must be paid within 10 days.
  • Suspending performance: In a case where payment is withheld without proper notice, the other party can suspend performance of its obligations (without prejudice to its other rights), although it must give the defaulting party seven days' notice of its intention to do so, together with its grounds for doing so. The right to suspend performance ceases once payment is made in full.
  • Validity: A failure to comply with these provisions does not render the contract invalid.
  • Exclusion: Any contractual provision that seeks to exclude these provisions is void.
  • Notices: Notices must be served in accordance with the agreement, but if there is no provision in the agreement any effective means can be used using the addressee's last known principal address, including email address.

Adjudication (Part IV C)

The proposed amendment provides as follows:

  • Referral to adjudication: Every construction work contract must provide for an adjudication procedure that's substantially in line with the proposed amendment – if it doesn't, the provisions of the proposed amendment will apply. A contract must do the following: grant each party the right to refer a matter to adjudication; provide a timetable leading to an adjudicator being appointed within seven days and a decision being handed down within 28 days, or whatever other period the parties agree on; allow the adjudicator to take the initiative in ascertaining facts and law.
  • Appointment of adjudicator: The Board will accredit adjudicator nominating bodies. An adjudicator will not be liable for anything done in good faith, and an objection to an adjudicator will not render the appointment or the decision invalid.
  • Powers and duties: The adjudicator must act impartially, avoid unnecessary expenditure, and apply the rules of natural justice. The adjudicator will have the authority to decide on matters of procedure, and they can require parties to provide documents, decide on the language of the proceedings, question the parties, make site visits, carry out tests, obtain expert evidence and impose deadlines. If a party fails to comply with any request or timetable, the adjudicator can do the following: proceed with the matter; draw such inferences as they see fit; make a decision on the information available; and impose a financial penalty on the non-compliant party.
  • Advisers: Parties can be assisted in adjudication proceedings by advisers, legally qualified or otherwise.
  • Confidentiality: An adjudicator is required to keep all information confidential.
  • Time limits: An adjudicator must hand down their decision within 28 days of the referral notice, or such further period as the parties may agree to. If the adjudicator fails to comply with these requirements, either party can serve a notice requesting the appointment of a new adjudicator.
  • Reasons: The adjudicator must provide reasons for their decision if required to do so by either party.
  • Effect of decision: The parties must give effect to the adjudicator's decision within a period of 10 days. The decision will be regarded as a 'liquid document' under the High Court Rules, which means that provisional sentence will be an option. Where the amount of money involved in the dispute falls within the jurisdiction of the Magistrate's Court, the decision is regarded as a 'certificate' as contemplated in the Magistrate's Court Act.
  • Arbitration and review: Any party who is dissatisfied with an adjudicator's decision has the right to refer the matter to arbitration or review – the decision remains binding whilst this takes place, but if the decision is overturned restitution will be available.

These amendments have important implications for all those involved in the construction industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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