It’s Time To Stamp Out Unethical Contractual Practices

Databuild, a knowledge hub for the construction and related industries, recently hosted a roundtable discussion to address unethical contractual practices in the construction industry.

According to Mthembeni Mkhize, CEO of the South African Institute of Architects, SAIA presents webinars geared to educating professionals on why amendments to standard contracts are not recommended.

Unless the unethical contractual practices currently prevalent in the construction industry are addressed, main and sub-contractor companies will continue to suffer financial strain and be forced out of business due to the unbalanced amount of risk they have to assume. This is the view of Bradley Boertje, founder and owner of BorCon, speaking at a roundtable discussion hosted by Databuild in conjunction with MBA North.

Also on the panel were Hardin Ratshisusu (deputy commissioner of the Competition Commission South Africa), David Green (immediate past president of the South African Property Owners Association and CEO of ProAfrica Property Services), Peter Barnard (partner at Cox Yeats Attorneys), Derek Wheals (CEO of Tri Star Construction), Mthembeni Mkhize (CEO of the South African Institute of Architects), Rakesh Singh (CEO of the Joint Building Contracts Committee), Christelle Bown (president of the Association of South African Quantity Surveyors), Larry Feinberg (executive director at ASAQS) and Chris Oldacre (regional director at Building Credit Management).

“The root of the problem lies at developer/client and project management level,” said Boertje. “Main contractors are forced to accept heavily amended Joint Building Contracts Committee (JBCC) documents (specifically around payment terms) or face disqualification of their tenders. It has also become common practice to force main contractors to sign away their lien with no payment guarantee and extend their payment terms. This places sub-contractors in the value chain at risk.”

Wheals echoed these sentiments. “The JBCC contract seeks to be a fair contract when it comes to fairly distributed risk between professionals, clients and contractors. The fact is contractors are not being treated fairly because of all the amendments made to the contract.”

He appealed to professionals to act professionally and put unaltered agreements together. “A contractor may win a tender, but his refusal to sign an amended contract means he loses the project.”

According to Singh, the JBCC’s Principal Building Agreement (PBA) is published in the interests of standardisation and good practice with an equitable distribution of contractual risk. “Consequently, it should not be amended for any reason, especially as not all contractors have access to or can afford legal advice to enable them to understand how signing an amended contract will impact their business.”

Brown and Feinberg concurred. “The JBCC has made it very clear that its PBA should not be amended, as an amendment to one clause can adversely affect the meaning of another,” said Bown. “Contractors who are expected to sign an amended contract should refuse on the grounds that risk is not distributed equitably.”

“While there may be legitimate reasons behind the amendment of contracts, it is a sad fact that some professionals are trying to safeguard the client’s interests to the detriment of the contractor,” added Feinberg. “This practice needs to be acknowledged and stamped out. ASAQS has issued a note to members on this issue in the past, but it was not effective. Putting a policy or legal framework in place would be far more desirable.”

“Contracts are amended to safeguard one party’s interests to the detriment of the other,” said Barnard, “and no one should sign a non-standard version. The problem with refusing to sign, however, is that the developer will take their business to a contractor who is prepared to do so; that’s the nature of a competitive industry. So unless the industry presents a unified front on this issue and draws a firm line in the sand, this practice will continue.”

A contract between parties should be viewed as a meeting of the minds, said Green. “If changes are made, they should be minimal. The challenge lies in the fact that everyone is looking out for their own interests because profit margins are so tight.”

Seeking solutions

Barnard proposed a joint-risk concept going forward. “The JBCC should consider formulating a new standard contract that advocates a turnkey approach to projects. This eliminates the adversarial nature of the contract where everyone looks out for their own interests, and instead ensures that all parties carry the same risk towards the delivery of the end-product. In this way everyone works together as a team.”

According to Mkhize, the SAIA presents webinars geared to educating professionals on why amendments to standard contracts are not recommended. “We have seen a slight decline in conflict between these role players since the programme began,” he said.

BCM has also embarked on an education drive for its clients, said Oldacre. “Contractors need to know the options available to them before they sign a contract.”

“It is clear that the construction sector needs to find a sustainable way forward to resolve this issue,” concluded Ratshisusu. “Non-adherence to terms and conditions can sometimes be construed as collusion between the various players so there needs to be agreement among the parties. The Competition Commission is available to support and assist the industry as these engagements continue.”

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