Oral agreements for building and related work a “minefield of risk”

May 30th, 2018, Published in Articles: Vector

Oral agreements for electrical installation work are theoretically legal but frequently cause enormous problems, says Uwe Putlitz, CEO of the Joint Building Contracts Committee (JBCC).

He says an oral agreement between an employer and an electrical contractor to undertake work based on discussions between the two parties – perhaps a drawing and/or a job description – is acceptable providing nothing goes wrong.

“When matters do go wrong, the parties could conveniently forget what was agreed upon. The employer could maintain that the contractor is not getting on with the job, the product is not as envisoned by the employer and the contractor is overcharging. On the other hand, the contractor could say the employer is continuousy making changes but does not want to pay for them or allow more time, and the employer has not paid for months.”

Standard Form of Building Contracts (SFCs) have been developed to balance the contractual risk, obligations and rights between the employer and the contractor. The employer’s risk is reduced when dealing with a reputable member of the ECA(SA), whose members’ work is covered by a Workmanship Guarantee against defective work.

“The parties involved in the contract must comply with the laws of the country – including the provisions of the Wiring Code (SANS 10142-1) and the Construction Regulations.

“The SFC generally defines the obligations of the parties – what the contractor must do, how to deal with unforeseen events or changes after the award of a tender, and how the contractor will be compensated for additional time or costs. The employer’s obligations, simplistically, are to define the scope of work and to provide a specification of the quality of work to be provided as part of the construction information (approved by the local authority) for the contractor to work from, and also to make payments at regular intervals.”

Putlitz says the building works must be insured – preferably by the employer – with the owner as the beneficiary in the event of a claim. The insurers must be given all information, including:

  • New building or alterations.
  • Occupation during construction.
  • Ground conditions.
  • Risks to adjacent properties.

“The builder must carry statutory insurances for staff and equipment. Professionals such as architects, engineers, quantity surveyors, health and safety consultants and others, must all carry professional indemnity insurance in addition to insurance for the business risks.”

Depending on the SFC chosen, the employer may have to appoint a principal agent to administer the contract. This is an additional cost but it may be cheap in the long run, when serious problems occur in the contractual relationship that could have been prevented with a little foresight and implementation of the SFC.

The SFC describes procedures to be followed to deal with claims from the contractor for additional time and/or money. The principal agent will deal with such issues in terms of the agreement. The SFC also includes a dispute resolution procedures such as mediation, adjudication or arbitration.

Claims can be kept to a minimum and most disputes can be avoided by following the correct contractual procedures – providing the parties are prepared to cooperate.

Erika van Zyl, ECA national communications manager