Prompt payment regulations expected to be gazetted later this year

Amendments to the Construction Industry Development Board Act, which would introduce prompt payment and adjudication regulations, was expected to be released later this year, said global law firm Clyde & Co at a semi- nar hosted by the Royal Institute of Chartered Surveyors in Sandton last month.

North-West University Potchefstroom campus lecturer Michelle Schoeman highlighted that there were two forms of adjudication, namely contractual and statutory, which was enforce- able by national legislation.

South Africa currently practised contractual adjudication, but was moving towards statutory adjudication with the amendments to the Construction Industry Development Board Act, which she noted was in line with global construction industry trends.

Schoeman further noted that there were several concerns relating to South Africa’s current adjudication practices, such as the lack of uniformity for application for adjudication as stipulated in the four contractual agreements used to apply contractual adjudication.

South Africa’s contract adjudication processes are currently determined under the auspices of the General Conditions of Contract for Construction Works 2015, the Joint Building Contracts Committee version 6.1, the New Engineering Contract and International Federation of Consulting Engineers agreements.

Schoeman also highlighted the lack of experienced adjudicators in South Africa, which meant that “we do not necessarily have the resources or court structures to enforce adjudication”.

The inability to effectively enforce adjudication was a further challenge, which she said often resulted in the matter being moved to arbitration, a more enforceable legal procedure that defeated the precepts of adjudication to quickly resolve disputes.

Meanwhile, Clyde & Co Johannesburg branch partner Rob Scott noted that the draft regulations, in their current form, would apply to all construction related disputes; however, it would not be applicable to home building contracts.

“The regulations state that all disputes may be referred for adjudication. However, when dealing with issues of payment, it is mandatory to refer the matter for adjudication,” he explained.

Should a contract not stipulate regular payment intervals, Scott noted that the regulations would provide contractors and suppliers with the means to submit monthly invoices to their employer, which would have to be paid within 30 days of the invoice being issued. Should payment not be made, interest would accumulate at a punitive rate.

However, it would be possible for an employer to file a notice of objection within five days of receiving an invoice. Should a contractor not agree with a notice of objection, he or she may then refer the matter for adjudication.

An adjudicator would have to be appointed within seven days of the referral being submitted. The adjudicator has to resolve the dispute and hand down a judgment within 28 days, which would have to be honoured within ten days of the decision.

Clyde & Co Johannesburg branch partner Alon Meyerov noted that a practical implication, which the amended regulation might not take into account regarding payments, is if a project finance agreement was in place, with conditional drawdowns, which would come into effect only after certain milestones had been met such as the project generating revenue.

“On the payment claims . . . the regulations do not say that when a payment claim is made it is under the auspices of the regulation or the contract. When an employer is faced with a payment claim, they need to deal with them properly and comprehensively because it can be referred to adjudication,” he explained.

Meanwhile, in cases where payment was due under a contract, but not paid, and no notice of intention to withhold payment had been given, “the individual entitled to receive payment is entitled to suspend performance, provided that seven days’ notice had been provided”, Scott said.

He pointed out that one concern regarding the regulations was that it did not stipulate a timeframe for a referral to be submitted – only that a dispute may be submitted for adjudication “at any time”, which was problematic as “the idea of adjudication is to deal with a dispute at the time during which it arises”.

Scott highlighted that “the important aspect of adjudication is the enforcement of a ruling and the support of the courts”, said Scott, adding that a contractor or supplier could seek support from a court if payment was not made within ten days.