The Basic Principals of Contract Law in the Build Environment – As published by the South African Council for the Quantity Surveying Profession.
By: Oostewald van Niekerk
Posted on: 03 August 2022
A Contract is the most important item when a building project is undertaken. This contract is made up of a set of promises stating the rights and obligations of each party to the contract. The very basic principle is that the contractor (or builder) promises to construct a building at a specific design in a set time frame at a specified price and the client (or employer) promise to pay the contractor for the building or service. For a contract to be valid certain requirements must be met (Mckenzie 2009:7):
- The parties should be competent to contract.
- There should be consensus between the parties.
- The actions of the contract should be possible at the time of contracting.
- The content of the contract should be legal.
- The contract should not be against public policy.
- The contract should be voluntarily.
- The formalities required by law should be observed.
The basis of a contract is that there is agreement between the parties. This agreement is evaluated through the principal of offer and acceptance.
Was an offer made? Was the offer accepted?
An offer is a declaration of intent that is made by one party to the contract to the other party that contains certain proposals regarding the proposed contract, and these proposals are of such a nature that mere acceptance thereof creates a contract. Acceptance of an offer is when there is a meeting of the minds or mutual agreement.
Acceptance can be implied or can be tacit, for example a contractor makes an offer to a client in the form of a quotation, the client pays an amount of money to the contractor as a deposit without formally stating he/she accepts the quotation. The action of paying the deposit implies that the client accepted the offer from the contractor.
It should be noted that the party making the offer is free to revoke the offer at any time before the offer is accepted. An offer is deemed to be valid for a reasonable time when no time limit is stipulated. Generally, construction contracts can take some clarification and negotiation to be finalized. During these negotiations various statements may be made by the parties. It is noteworthy that some of these statements are not seen as firm offers by the South African courts, these include:
- Invitations to negotiate
- Requests for a quotation
- Statements of information
- Statements of intention/letters of intent
An invitation to tender lays the basis for an offer and acceptance in the built environment, and each tender is an offer that the employer may accept or reject. Such an offer can be terminated on the following grounds:
- Lapse of a reasonable time
- Expiry of the stated validity period
- Death – if the tender is in the name of a natural person
- Loss of contractual capacity
- Rejection of an offer
Often in construction projects disputes arise between sub-contractors and the main contractor, or the main contractor has an issue with one of the professional consultants. If one looks at this from a contractual point of view, one need to understand the doctrine of privity of contract. As a rule, only the parties to a contract may claim against each other in terms of the specific contract. Nominated and Selected sub-contractors enter into an agreement with the main contractor and therefor has no recourse whatsoever against the employer as there is no contractual relationship between a sub-contractor and the employer. Similarly, the contractor has no recourse against a consultant appointed by the employer as he is not a party to the professional services contract between the consultant and the employer.
For a contract to be valid only two formalities exist namely:
- Those decided on by the parties
- Those required by law
A contract thus does not have to be in writing to be binding, there should be a mutual agreement, however if one refers to construction certain agreements must be in writing and will not be enforceable if it is verbal. These are contracts of suretyship and contracts to provide credit. For example, an advance payment guarantee or a payment guarantee. In the Arbitration Act 42 of 1965 it states that an agreement providing for the reference to arbitration of any existing or future dispute must be in writing, there is however a judgement in this regard stating that it is not necessary for the parties to sign it (Kamstra & Holmes v Stallion Group 1992 (3) SA825(W)).
Parties to a contract often refers to terms and conditions. Conditions qualifies contractual obligations in such a manner as to make the execution of that contractual obligation dependent on the occurrence (or non-occurrence) of an uncertain future event. The following conditions can be identified:
- Suspensive condition – such a condition will suspend the operation of an obligation (in whole or in part) pending the occurrence (or non-occurrence) of a particular future event. Clause 11.6 of the JBCC (ed 6.2 of May 2018) is a suspensive condition.
11.6 Where the employer fails to provide the guarantee for payment [CD] or such security has expired, the contractor may, after giving ten (10) working days’ notice, where such default has not been remedied, forthwith suspend the works until such security has been provided [12.1.1; 28.1.1] or by further notice terminate this agreement [29.14.2; 29.15]
- Resolutive conditions – the operation of a contractual obligation does not get postponed, but rather, the obligation becomes effective immediately and operates in full. The obligation may come to an end if certainty is reached in that the condition is fulfilled or in that it fails.
- Condition precedent – a condition that the parties agree to must be fulfilled before any contractual obligations come into existence between them.
For future blogs on the subject of contract law it is the intent of the writer to specifically look at the JBCC Principal Building Contract Ed 6.2 with specific reference to Content, Interpretations of contract, Breach of Contract, Remedies, Termination of Contracts.