MINEFIELD OF RISKS IN ORAL AGREEMENTS FOR BUILDING AND RELATED WORK
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).
Pulitz says an oral agreement between employer and electrical contractor to undertake certain 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 (SFC) have been developed to fairly balance the contractual risk, obligations and rights between the employer and the contractor The employer’s risk is reduced when dealing with a reputable electrical contractor who is a member of the Electrical Contractors’ Association because the ECA(SA) 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 and/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;oral
- Occupation during construction;
- Ground conditions; and
- Risks to adjoing properties.
“The builder must carry statutory insurances for staff and equipment. The professionals – architects, engineers, quantity surveyors, health and safety consultants, etc – must all carry professional indemnity insurance in addition to insurances for the business risks,” Pulitz cautions.
He says, depending on the 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 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. “By following the correct contractual procedures, claims can be kept to a minimum and most disputes can be avoided – providing the parties are prepared to cooperate,” Putlitz adds.
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