PROFESSIONAL PRACTICE EXAMINATION

DATE: 26 APRIL 2017

PAPER 2

PROFESSIONAL PRACTICE EXAMINATION : 26 APRIL 2017

PAPER 2:This is an open book paper.

Answer all questions

Total marks for this paper -100 marks

Time allowed for Paper 2-3 hours

Pass mark for the examination-55% in either papers with an average of 60% for the two papers combined.

QUESTION 1: DISPUTE RESOLUTION10 Marks

1.1List 3 reasons for the growing number of disputes in relation to building contracts (3)

1.1Any 3 of the following:(3)

  1. The scale of building projects has increased enormously in recent years and their design and constructions has grown in complexity
  2. Such projects require an ever increasing number of specialist subcontractors, and the growing variety of sophisticated mechanical and electrical installations and services require careful co-ordination and integration.
  3. The increase in interest rates and cost escalations over the past few decades has made employers acutely aware of the importance of keeping construction time, during which capital earns no return, as short as possible.
  4. The pressure has been on the construction industry to build more and more in less and less time. The fast track contract has become the norm.
  5. Under such pressure, mistakes, both by the contractors and the employer’s agents, are inevitable.

1.2Name 4 types of dispute resolution(4)

1.2(4)

  1. Litigation
  2. Adjudication
  3. Mediation
  4. Arbitration

1.3List 4 characteristics of each of the above.(16)

1.3Any 4 under each type.(16)

Litigation

  1. The parties do not freely and voluntarily submit any dispute to a court of law, but are summoned to appear.
  2. The judges judgement is subject to appeal
  3. Parties should have legal representation
  4. A registered / qualified judge has to hear the case
  5. The judge may not always be knowledgeable in building agreement disputes
  6. A Judge has judicial immunity
  7. Litigation is a public matter
  8. Litigation is seen as the last resort in dispute resolution
  9. Litigation is governed by a number of acts
  10. Litigation could potentially become a very long and drawn out and expensive process
  11. There are procedural rules that govern litigation
  12. Costs are borne by the unsuccessful party

Arbitration

  1. The parties freely and voluntarily agree to submit any dispute that may occur to the impartial judgement of a third party. This is done at the point of concluding the contract. The agreement should state the name of the arbitrator, or how the arbitrator is to be appointed.
  2. The arbitrators judgement is final
  3. Parties may be represented by Legal Advisors and/or Counsel
  4. The arbitrator does not have to be an officer of the law
  5. An arbitrator is usually an expert in the field
  6. An arbitrator has judicial immunity
  7. Arbitration is a private matter and is therefore seldom subjected to the press.
  8. Arbitration is recognised as a legitimate alternative means of resolving disputes
  9. It is governed by the Arbitration Act 42 of 1965
  10. Arbitration may be concluded in a shorter time than litigation.
  11. There are procedural rules that govern the conducting of arbitration.
  12. The cost of arbitration is generally borne by the unsuccessful party

Adjudication

  1. The parties freely and voluntarily agree to submit any dispute that may occur to the impartial judgement of a third party of their choice.
  2. An adjudicator may be appointed when a dispute arises
  3. The courts cannot enforce the award of the adjudicator
  4. Parties may be assisted by experts
  5. The adjudicator does not have to be an officer of the law
  6. An adjudicator is usually an expert in the field and is required to perform his duty with proper skill, diligence and care
  7. An adjudicator does not have any judicial immunity and thus is liable to the parties for any lack of skill, diligence or care in carrying out his duties.
  8. Adjudication is a private matter
  9. Adjudication is often used as a first resort.
  10. It is not governed by any legislation
  11. The JBCC Rules on adjudication requires that the adjudicator must conclude within 20 working days.
  12. There is no set procedure however the JBCC publishes Adjudication Rules which may be used.
  13. The costs are borne equally by the parties, unless otherwise decided by the Adjudicator in his/her decision

Mediation

  1. The parties freely and voluntarily agree to appoint a mediator to assist the parties to seek a negotiated resolution to the dispute.
  2. The mediator never expresses an opinion. Any settlement is negotiated by the parties themselves.
  3. Parties may be assisted by legal or other assistants.
  4. Mediation has the potential to preserve goodwill as both parties often make concessions and agree to accept less.
  5. A mediator is usually a person that is respected in the field and that the parties feel will assist without bias.
  6. Mediation is a private matter. It is customary for the parties to sign a confidentiality clause.
  7. Because the parties reach agreement, the agreement is usually respected by both.
  8. Mediation has recently been introduced into the statues of South Africa.
  9. The idea of going for mediation is to save time and resources. It should be concluded in a short period of time.
  10. The procedure of mediation is determined by the mediator in consultation with the parties.
  11. The costs of the mediator are borne equally between the two parties.

1.4Define Arbitration(2)

1.4Arbitration is the process by which parties to a dispute are, with the approval and encouragement of the law, enabled to arrange for taking and abiding by the judgment of a selected person or persons instead of carrying the dispute in the ordinary course to the established courts of justice

1.5Complete the following statements:

a.The reference of any dispute to mediation, arbitration or litigation during the construction period does not excuse either party from (1)

a.duly fulfilling his contractual obligations.

b.Notwithstanding the cancellation, or purported cancellation, of the agreement, the arbitration clause (1)

b.survives and is fully applicable to the resolution of all disputes that there may be.

c.The arbitrator will include in his award directions as to who should pay the costs of the proceedings. The principal costs are the fees of the arbitrator and the lawyers (2)

The usual rule is that the loser pays all the costs.(1)

QUESTION 2: CONSTRUCTION LAW AND BUILDING CONTRACTS

2.1Name any 6 Constituents of the JBCC:

2.1Any 6 of the following:

  1. Association of Construction Project Managers
  2. Association of South African Quantity Surveyors
  3. Consulting Engineers South Africa
  4. Master Builders South Africa
  5. South African Black Technical and Allied Careers Organisation
  6. South African Institute of Architects
  7. South African Property Owners Association
  8. Specialist Engineering Contractors Committee

2.2A contractor, chooses to exercise his lien over the property on which he is currently contracted to execute a building project. Answer the following questions in this regard:

  1. Give a definition of a builder’s lien?(3)
  2. On what grounds would the contractor exercise his lien?(2)
  3. When is the waiver of a lien a prerequisite?(3)
  4. How may the employer seek to remedy the situation?(2)

2.2(10)

  1. The builder’s lien is the common law right of a builder, who is in possession of the fixed property of another and who has expended money or money’s worth in effecting improvements to the owner’s property, to remain in possession of the property until the owner has paid the agreed price or a fair and reasonable price for the work. Such possession does not entitle him to sell the property if the owner refuses or fails to pay. (3)
  1. On the grounds that the contractor claims that he has not been paid by the employer. If the contractor is insolvent it may be that his creditors are using the lien to attempt to recover their costs. (2)
  1. A waiver of lien by a bond holder is a prerequisite of the bond being granted but will not invalidate the lien the contractor is entitled to by the common law or the building contract unless specifically excluded. (3)
  1. The employer would seek to lodge a payment guarantee for the amount of the monies outstanding / claimed by the contractor and which is the basis of the dispute in return for relinquishment of the builder’s lien. This may have to be proved in court. The actual disputed amount would then form a basis for arbitration in terms of the contract. In order to avoid such a situation the employer is advised to ensure that the right to exercise the contractor’s lien is specifically excluded from the building contract. (2)

2.3Briefly describe the concept of CPAP and the primary differences between fixing a contract price and/or applying CPAP. (10)

2.3(10)

An aspect that often arises is the wish of building contract employers to know from the beginning their maximum expenditure. This is usually dealt with by a quantity surveyor, if one has been appointed, by exacting budget control arrangements. It is sometimes suggested that a fixed price basis be put to tender, rather than rely on the CPAP (Contract Price Adjustment Provisions) based on statistics from the State’s Central Statistical Service. (These are now arranged through the JBCC office).

Fixing the price of a building contract is really a misnomer. The price is still manifestly adjusted for variations instructed to be made to the work. Architects should be careful to point that out to the inexperienced employer. The end cost is manifestly subject to that caveat.

The risk to a contractor in fixing the contract sum has most to do with the period in which the work is to be done. In a relatively stable environment, then up to a year may be seen as reasonable. In an unsettled financial climate, 6 months is more likely to be the limiting period.

  1. QUESTION 3: BUILDING AGREEMENTS

3.1In terms of the Principal Building Agreement, 2 types of Construction Guarantees can be provided by the Principal Contractor. Name these guarantees. (2)

3.1(2)

Variable and

Fixed Contract Guarantee

3.2Briefly describe the differences between these types of Guarantees.(5)

3.2(5)

A Variable Construction Guarantee:

  • has an initial cash value of 10% of the Contract Sum; and
  • is enforceable until the Final Payment Certificate has been issued.

A Fixed Construction Guarantee:

  • has an initial cash value of 5% of the Contract Sum; and
  • allows for a further 5% payment reduction on each Payment Certificate up to a maximum of 5% of the Contract Sum; and
  • is enforceable until the last Practical Completion Certificate has been issued.

3.3In terms of theJBCC Minor Works Agreement, list 5 responsibilities of the Principal Agent. (5)

3.3Any 5 of the following:(5)

  1. Administer theagreement
  2. Meet regularly with the contractor and agents to monitor progress of the works, and to deal with technical andcoordination matters. The principal agent shall record and timeously distribute the contract minutes of suchmeetings
  3. Issue construction information timeously
  4. Give the contractor interpretations and direction on the standard of work and the state of completion of the worksrequired of the contractor to achieve practical completion and final completion
  5. Revise the date for practical completion
  6. Issue a certificate of practical completion and a certificate of final completion where the works has reachedthe specified standard of completion
  7. Issue interim payment certificates to the contractor by the due date [CD] with a copy to the employer until theissue of the final payment certificate
  8. Adjust the contract value and prepare the final account

3.4A subcontractor is appointed in terms of the JBCC Nominated/Selected Subcontract Agreement. Listthe design responsibilities of the subcontractor. (5)

3.4(5)

  1. Unless otherwise stated the subcontractor shall not be responsible for the design of the n/s subcontract works other than the subcontractor’s temporary works. The subcontractor shall not be responsible for the coordination of design elements
  2. Where the subcontractor is appointed to design, supply and to install an element:
  • The subcontractor shall submit such design to suit dates in the programme to the contractor for review by the principal agent or relevant agent for conformity with the n/s subcontract documents
  • The principal agent shall be responsible for the coordination of design elements
  • The subcontractor indemnifies the contractor for consequences of such design and shall cede such indemnity, warranties, and other rights to

3.5What is the objective of thePrincipal Building Agreement?(3)

3.5The objective of a Principal Building Agreement is the execution of and payment for the works for which there has been an offer by the contractorand an acceptance by the employer (3)

3.6Give a definition of a Packaged Contract.(3)

3.6A Packaged Contract is a form of contract where the contractor provides the entire building package, including his own professional team, for a lump sum amount (3)

3.7List any 3 disadvantages of a Packaged Contract.(3)

3.7Any 3 of the following:(3)

  1. The disadvantages of the without quantities contract apply equally to this type of contract.
  2. As contracts become larger and more complex costs also increase, necessitating care in planning and pre-contract preparation. To meet the advantage of saving in time, as claimed for packaged contracts, skimping in pre-planning are almost inevitable.
  3. The employer has to pay for the equivalent of his normal management team, or consultants, without benefiting from their full and independent services. Should there be any dispute between employer and contractor, he would be on his own against the contractor’s team that the employer has already paid for. In the event of litigation the employer would need to engage a similar team to advise him. If his costs under the “package deal” are less than he would otherwise pay for independent quality of services it would probably be because the same quality of service is not being provided. This may place the employer at risk.
  4. The system does not lend itself to competitive tendering. If package dealers can be induced to tender competitively, evaluation of tenders on any basis other than total cost, becomes well-nigh impossible, because of all the variations possible between the packages offered.
  5. The pitfalls are numerous. The employer remains in the dark on many vital issues which may not be included in the contract documentation. He is not always in a position to assess beforehand what the final product will be like

3.8Give a definition of a Contract Without Quantities with Schedule of Rates.(5)

3.8This is similar to the Contract Without Quantities, but with a Schedule of Rates incorporated so as to enable the parties to evaluate any variations to the contract on a pre-determined basis. This form of contract is commonly used in South Africa on contracts for electrical and mechanical work. It is however frequently used in certain other countries, notably the United States of America, for ordinary building work irrespective of magnitude. (5)

3.9List 3 advantages of a Contract Without Quantities with Schedule of Rates.(3)

3.9Any 3 of the following:(3)

  1. Time is saved in going to tender and commencement of building operations when compared to quantities or provisional quantities contracts.
  2. The final cost of the project can be more accurately and equitably determined than the final cost of a without quantities contract.
  3. Proposed variations can be accurately evaluated before contract instructions are issued.
  4. Apart from the lack of drawings and accurate quantities the contract documentation can still be of a very high calibre which will facilitate proper control financially and over the workmanship and materials used.
  5. The quantity surveyor, who is best qualified for the job, will be available to play his normal role of financial controller of the contract

QUESTION 4: TENDERING

4.1You are trying to compare contractors that are considered as potential tenderers for a specific project. Name the mechanism that could be employed to draw this comparison. (1)

4.1A Pre-qualification Questionnaire(1)

4.2List any 5 issues that this mechanism should/could address.(5)

4.2Any 5 of the following:(5)

  1. Company Details such as registration number, shareholding structures, overview, BBEEE policy, legal entity (CC / Pty Ltd / sole prop etc) ;
  2. Names of contact persons;
  3. Financial Matters such as name of bankers and/or auditors, branch name, account number;
  4. Securities, Insurances and Guarantees such as limits of Public Liability, Name of Guarantor, ability to render a guarantee, limit of Contract Risk insurance;
  5. List of 5 previous largest and most recent projects completed, references, contract sums, was there claims for revision to the date of PC, etc?
  6. List of 5 projects in progress, value, construction period, references etc;
  7. List of projects awaiting potential award;
  8. CVs of persons who would be employed on the contract, key personnel, other personnel;
  9. Method Statements for concrete production, carnage;
  10. Controls, e.g. quality, surveys, program, cash flow;
  11. List of proposed N/S subcontractors

4.3-Name 4 (four) steps that could constitute a recommended tendering procedure. (4)

4.3The following 4 steps:(4)

  1. Tenders should always be submitted in sealed envelopes, marked clearly and externally with the Employer’s name and the contract name, by a pre-arranged date and time at a pre-arranged venue (e.g. the client’s tender box);
  2. The opening of tenders should be done publicly, i.e. in front of any tenderers who wish to be present;
  3. Tenders should be opened at a previously arranged date, time and venue;
  4. Tenders should be read out and whether there are any qualifications. Results should be recorded in order of opening, not necessarily in order of value.

PPE APRIL 2017 – Paper 2Page 1 of 8