jbcc to completion and payment (a selection)

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©JBCC® Guide to Completion and Payment – JBCC Ed 6.2 May 2018

JBCC® GUIDE TO COMPLETION AND PAYMENT (A SELECTION)

JBCC® Principal Building Agreement (Edition 6.2 - May 2018)

JBCC® N/S Subcontract Agreement (Edition 6.2 - May 2018) JBCC® Minor Works Agreement (Edition 5.2 - May 2018)

CONTENTS 1 EXPLANATORY NOTES AND INSTRUCTIONS 2 COMPLETION Waiver of Contractor’s Lien Certificate of Site Possession Contract validity period

1.0 INTERIM COMPLETION 6

Construction period Certificate of Interim Completion 2.0 PRACTICAL COMPLETION 8

Construction period Certificate of Practical Completion - PBA

3.0 FINAL COMPLETION 12 Contract validity period

Certificate of Final Completion – PBA 4.0 SECTIONAL COMPLETION 15 5.0 LATENT DEFECTS LIABILITY PERIOD 16

Latent defects liability period

PAYMENT 6.0 INTERIM and FINAL PAYMENTS 18

7.0 RECOVERY STATEMENT- PBA 20 8.0 PAYMENT CERTIFICATE - PBA 22

9.0 PAYMENT NOTIFICATION - PBA 24

10.0 RECOVERY STATEMENT - NSSA 26

11.0 PAYMENT ADVICE - NSSA 28

12.0 RECOVERY STATEMENT – MWA 30

13.0 PAYMENT CERTIFICATE – MWA 32

14.0 ADVANCED PAYMENT 34

Example calculation for Advance Payment –

PBA + NSSA

INTEREST 15.0 INTEREST CALCULATIONS 35

CPAP 18.0 CPAP – EXAMPLE CALCULATION 37

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EXPLANATORY NOTES AND INSTRUCTIONS DISCLAIMER The purpose of this publication is to give guidance on the most effective application

of the provisions of the JBCC May 2018 agreements. This guidance is given in good faith. JBCC disclaims all liability for any loss, damage or expense that may be incurred in using this guide

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Introduction

This selection from the composite and updated guide by the JBCC® serves as a desktop reference manual for consultants and contractors alike. It seeks to simplify the tendering for and the administration of the JBCC® building agreements and to avoid/minimise disagreements arising from poor contract administration - in the interests of standardisation of documentation and good practice in the building industry. This selection from the guide has been prepared to further promote the understanding of the abovementioned objectives and should prove to be an important aid in:

Contract educational and training courses

Fostering good and consistent management by all concerned

Clearly defining and identifying the responsibilities of the contracting parties

Defining notice periods and time bars required to protect the parties against prejudice or error

Setting standard methodology for dealing with contractual responsibilities and obligations

Ensuring the maintenance of the independent duty of the principal agent to act fairly between the parties

The JBCC® agreements are recommended/suitable for building projects and the suite consists of types of agreements for larger and smaller projects to suit different circumstances. These are the Principal Building Agreement (PBA), the N/S Subcontract Agreement (NSSA) and the Minor Works Agreement (MWA) and they are available from the vendors listed on the website jbcc.co.za or online from ‘Contracts on Demand’

How this guide is structured

Completed ‘waiver of the contractor’s lien’ and ‘certificate of site possession” forms

The ‘completion’ process is described in five stages with completed certificates of interim, practical and final completion of the works as a whole or in sections. The concept of ‘latent liability’ of the contractor is explained in detail

Aspects of the ‘payment’ process are described in notes and illustrated with completed payment and related certificates supplemented by the calculation of interest and the CPAP

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The contractor waives in favour of the employer any lien or right of retention that is or may be held in respect of the works to be executed on the site

This waiver shall only come into effect on provision by the employer of a security for payment in fulfilment of obligations in terms of the identified agreement

For and on behalf of the contractor who by Signature of Witness signature hereto warrants such authorization

Waiver of the Contractor's Lien for use with the:

Principal Building Agreement Edition used: Ed 6.2 May 2018

Minor Works Agreement Edition used: N/A

Contractor Defect-proof Builders

Employer ABC Developments

Works Cosy Flats

Site 9 Drummer Street, Symphony Village…

AGREEMENT

®

This done and signed at Symphony Village Date 2019-02-01

Name of Signatory Peter World Capacity CEO

Contractor Defect-proof Builders

Street Address 22 Straus Avenue, Symphony Village…..

Code 0865

Postal Address Private Bag 12, Symphony Village

Code 0222

E-mail Mobile +27765643333

Fax N/A Telephone +277778088

JBCC® PBA or MWA Waiver of Lien © Aug 2019

[email protected]

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® Certificate of Site Possession for use with the: Principal Building Agreement Yes

Minor Works Agreement No

PROJECT DETAILS

Works

Site

Employer

Contractor

Principal Agent

Agent

Note: A professional Land Surveyor may be appointed to perform this function

The following particulars of the site were pointed out to the contractor by the agent Pegs

Benchmark

Other features

Information attached hereto:

This certificate records the hand-over of the site to the contractor for the purpose of constructing the works in

terms of the agreement. A copy of this certificate shall be provided to the contractor

Ed 6.2

Cosy Flats

Erf 346 Symphony Village

ABC Developments

Defect-proof Builders

Design Services Unlimited

Star Surveys-Peter Straight

NW corner GPS: S25 23.096' E30.395'

Stormwater catchpit, Dvorak Street

Fig tree ("F" on Site Plan) behind building to be preserved

Survey plan with GPS coordinates and levels above mean sea level

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CONSTRUCTION PERIOD

(PRIVATE)

After ‘practical completion’ the works can be used for the

intended purpose by the employer, subject to the issue of

“occupation certificate” by local authority

After practical completion the contractor is not obliged to

execute any further contract instructions except those

relating to the completion of outstanding work

CONSTRUCTION PERIOD

(PUBLIC)

5 YEAR

LDLP DLP

90 DAY

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Interim Completion

applies only in the N/S

Subcontract Agreement

The intended date for

practical completion may

be revised by the PA

Where the (revised) date

for practical completion is

not met, the contractor

may be liable for penalties

to the employer

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The period to rectify items

on the List for Completion

and to attend to defects that

become apparent up to the

end of the defects liability

period (DLP)

The period for

making good

latent defects

that appear up to

the end of the

latent defects

liability period

(LDLP)

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COMPLETION

INTRODUCTION

All JBCC® agreements follow the same procedures to achieve Interim, Practical and Final Completion. The procedures described

in the JBCC® agreements to achieve each of the three degrees of completion must be applied strictly to minimise disagreements

later. Other than payment, completion is the most important aspect of the agreement and therefore no “short cuts” should be taken

in certifying any of the degrees of completion. The procedures and time bars applying to completion and to payment must be strictly adhered to by the principal agent and be observed by the parties

1.0 INTERIM COMPLETION (in terms of the JBCC® NSSA only)

1.1 PURPOSE The contractor generally requires the work of all subcontractors to be completed before the date of practical completion to permit the timeous commissioning of services and general cleaning of the site before relinquishing possession of the site/works to the employer

Note: Stage completion: The contractor and the subcontractor may agree which aspects of the subcontract works must be

completed before interim completion can be achieved in a particular project (only applies in the NSSA)

1.2 SUBCONTRACT CONSTRUCTION PERIOD AND PROGRAMME

▪ The subcontract construction period set by the principal agent in the pre-tender information and stated in the subcontract data

▪ Where the contractor has been appointed at the time of calling for the subcontract tender, the principal agent must consult the contractor in setting the date for interim completion. The contractor and the subcontractor must agree the subcontract programme in harmony with the works as a whole

▪ The parties may agree to vary the start of the subcontract programme and the intended date of interim completion

1.3 ACHIEVEMENT OF STAGE COMPLETIONS AND INTERIM COMPLETION

▪ Criteria for stage completions must be set at the start of the subcontract construction period to avoid possible disputes later

▪ The contractor must inform the principal agent if the assistance of an appointed specialist agent will be required for the inspection for achievement of interim completion

▪ On achievement of interim completion, the responsibility for the subcontract works passes to the contractor. This does not relieve the subcontractor of his responsibility in respect of defective or incomplete work

1.4 DAMAGES

▪ The subcontractor may be liable for damages to the contractor for the late achievement of interim completion. The subcontractor must be allowed enough time to achieve stage and/or interim completion set by the contractor

▪ Where the subcontractor is prevented from fulfilling obligations due to default of the contractor, other subcontractors or a direct contractor, the subcontractor shall be entitled to damages. Adjustments to the subcontractor’s completion dates are not dependent on the contractor obtaining similar adjustments in terms of the agreement with the employer

▪ The calculation of damages must be shown in the subcontract recovery statement - see page 27

1.5 OPERATING AND INSTRUCTION MANUALS

▪ On achievement of interim completion, the subcontractor shall hand over to the contractor all operating and instruction

manuals, guarantees etc. as well as the applicable statutory/regulatory approval certificates (compliance certificates)

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90 DAY 5 YEAR

DLP LDLP SUBCONTRACT PERIOD

C’s CONSTRUCTION PERIOD

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Where S/C is delayed by C and/ or other

S/C’s = may claim damages from C

C assesses time claims from S/C; PA

assesses monetary claims

S/C – product warranties commence on

date of PC

C and S/C agree programme

S/C gives notice to C for assistance/

inspection by PA/ agent

PA/ agents direct standard of work and

quality of finish

C inspects S/C’s works, issue list for

interim completion and certificate of

interim completion

C revises date of interim completion

S/C complete late = damages

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2.0 PRACTICAL COMPLETION

2.1 PURPOSE The principal agent must specify in appropriate detail in the contract data at tender stage what quality of work and degree of completion the contractor must produce to achieve practical completion to limit subjective interpretation thereof. This will vary

from one project to another depending on the nature and purpose of the building The professional consultants and the team of contractors have been appointed to provide the employer with a building that “... can effectively be used for the intended purpose…” Achievement of practical completion is the most important of the various stages of completion required in terms of the agreement

2.2 CONSTRUCTION PERIOD

▪ The principal agent at the tender stage determines and specifies in the contract data the intended date when possession of the site is to be given to the contractor, and the intended date for practical completion of the whole works, or the intended dates for practical completion where the works is to be completed in sections - but not both!

▪ Where JBCC Agreements are used for public sector works, the construction period is defined in months

• During the construction period the principal agent must “inspect the works, or a section thereof, at appropriate intervals to give the contractor interpretations and direction on the standard of work and the state of completion of the works required of the contractor to achieve practical completion”… and likewise for work by subcontractors

• Any such interpretations and direction given to the contractor may not be construed as approval of any work or component inspected by the principal agent

2.3 ACHIEVEMENT OF PRACTICAL COMPLETION

• “The contractor shall inspect the works to satisfy himself that the specified degree of completion of the works has been achieved” and give timeous notice to the principal agent to inspect the works on or before the anticipated date of practical completion

• The contractor must make provision in his programme (possibly as a sub-programme for the 3-4 weeks before the date for practical completion) for the inspection period required by the principal agent. The principal agent may require reasonable notice of the date(s) when the contractor intends such inspection to take place

• The principal agent and other specialist agents must decide during such inspections if the works is “... substantially complete

and can effectively be used for the purpose intended ...”

• Where the degree of completion of the works does not comply with the specifications, the principal agent must forthwith issue a single “comprehensive and conclusive list for practical completion recording the defects and/or outstanding work to be completed to achieve practical completion. The principal agent may not add to this list for practical completion once it has been issued but he can issue a contract instruction at any time where, for example, a water pipe bursts that must be repaired

without delay

• The principal agent can issue an ‘updated’ list for practical completion that excludes remedied defects

• Where the degree of completion of the works complies with the specifications, the principal agent must issue the certificate of practical completion and a list for completion

• Whilst other appointed agents may assist in such inspections the issue of the certificate of practical completion is solely the responsibility of the principal agent

• Where the principal agent does not issue the (updated) list for practical completion or the certificate of practical completion within five (5) working days of such inspection, the contractor may give notice to the principal agent to comply within a further five (5) working days - failing which practical completion will be deemed to have occurred on expiry date of such notice

• After certification of practical completion, the employer may impose the penalties stated in the contract data (from the intended or revised date for practical completion until the actual date of practical completion when possession of the site is relinquished to the employer by the contractor). Similarly, the contractor may be entitled to recover damages from a subcontractor or vice versa

• The issue of the certificate of practical completion may not occur before the intended/revised date for practical completion, unless agreed by the parties, as the contractor’s obligation is to hand over the works on the date for practical completion

and not earlier

• The principal agent must issue a certificate of practical completion (and later a certificate of final completion) to the contractor for each defined section. The certificate for the last section is for the whole works. Thus, multiple completion dates

are applicable to product warranties, the defects liability period and the latent defects liability period

2.4 CONSEQUENCES (On achievement of practical completion):

▪ The (legal) responsibility for the works passes to the employer ▪ The employer is entitled to possession of the works and the site but must apply for an occupation certificate from the local

authority before the building may be put use ▪ The Contract Works Insurance reduces until final completion, the employer’s building insurance applies ▪ The contractor is not obliged to carry out any contract instruction for additional works ▪ The principal agent must issue within the period a list for completion

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▪ The contractor is no longer liable for penalties (that may apply before the date of practical completion) ▪ The principal agent must prepare the final account within sixty (60) working days ▪ The value of the Guarantee for Construction (variable) reduces to 4% of the contract sum ▪ The Guarantee for Construction (fixed) expires and the payment reduction reduces to 2,5% of the contract sum ▪ The Guarantee for Payment remains valid until the final payment has been made by the employer ▪ The contractor becomes entitled to compensatory interest (PBA only) 2.5 PRACTICAL COMPLETION CRITERIA (source: Stanley H Segal - Segal Architects)

The principal agent must specify at tender stage in the [CD] or in the preliminaries document any aspects of the works that do not have to be ready for practical completion to be certified. Such items must be noted on the list for completion issued concurrently with the certificate of practical completion. Other buildings to be described by the principal agent in the [CD] when preparing the tender enquiry document if not listed hereunder

2.5.1 RESIDENTIAL - PRIVATE DWELLING

The state of completion where the works may be occupied by the owner/tenant with minor disruption to carry out remedial work to items on the list for completion during the defects liability period to achieve final completion

2.5.2 RESIDENTIAL - BLOCK OF FLATS/CLUSTER HOME/TOWNHOUSE/HOSTELS The state of completion where the works may be occupied by the owner/tenant with minor disruption to carry out

remedial work to items on the list for completion during the defects liability period to achieve final completion

2.5.3 RESIDENTIAL - HOTEL AND/OR RETIREMENT HOME The state of completion where the works may be occupied by the owner/tenant to install built in furniture, fittings

and equipment with minor disruption to carry out remedial work to items on the list for completion during the defects liability period to achieve final completion

2.5.4 INDUSTRIAL BUILDINGS - WAREHOUSE/FACTORY/DISTRIBUTION CENTRES

The state of completion where the works may be occupied by the owner/tenant to install fixtures, fittings, plant and

equipment and where loading bays and parking areas are available for the owner/tenant use and disruption to carry out remedial work to items on the list for completion during the defects liability period to achieve final completion

2.5.5 COMMERCIAL - OFFICE BUILDINGS


2.5.6 COMMERCIAL - SHOPPING CENTRES



2.5.7 HEAD OFFICE BUILDINGS FOR SPECIFIC BUILDING OWNER/TENANT


2.5.8 BUILDINGS FOR EDUCATION - SCHOOLS/UNIVERSITIES/COLLEGES



2.5.9 CORRECTIONAL SERVICES - PRISONS

The state of completion where the works may be occupied by the owner/tenant to install fixtures, fittings,plant and


2.5.10 HEALTH CARE BUILDINGS - HOSPITALS/CLINICS



2.5.11 PUBLIC BUILDINGS - THEATRES/MUSEUMS/LIBRARIES/FIRE STATIONS



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90 C – DAY 5 YEAR

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PA in tender documents specifies

start + duration of construction

period + completion criteria

PA/agents direct standard of work +

quality of finish required

C notice to PA to inspect for PC

PA inspects works, issues List for

Practical Completion, and if ready,

issues Certificate of Practical

Completion and List for Completion

C claim revision of date of PC

PA assesses EOT claims and

certifies penalties if PC not achieved

by intended or extended date

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▪ Note: Issue Certificate of Practical Completion – employer occupies works, penalty liability ends, contract works insurance > building insurance, value of security reduces

▪ Note: PA + C +SC resolves final account

DLP LDLP CONSTRUCTION PERIOD

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3.0 FINAL COMPLETION 3.1 PURPOSE

The definition of final completion requires the principal agent to certify “... the stage of completion of the works to be free of

defects…” The issued certificate of final completion is “…conclusive as to the sufficiency of the works and that the contractor’s obligations have been fulfilled other than for latent defects”

3.2 ACHIEVEMENT OF FINAL COMPLETION

▪ The defects liability period (DLP) automatically comes into force on the calendar day following the date of practical completion and ends at midnight ninety (90) calendar days from that date … or when defects on the list for final completion have been satisfactorily completed (but not before expiry of the ninety (90) calendar day DLP)

▪ The contractor must “… rectify all items on the list for completion at least ten (10) working days before the expiry of the DLP and give notice to the principal agent to inspect the works within five (5) working days of receipt of such notice”. The principal agent must, within reason, inspect the whole of the works for latent defects that may have become patent during the DLP and not just identified items on the list for completion

▪ The principal agent must forthwith issue to the contractor a list for final completion incorporating the list for completion and any latent defects that may have become patent to rectify to achieve final completion. The contractor must give the principal agent notice to inspect rectified items until all defects have been rectified to the satisfaction of the principal agent

▪ Note: Where the employer takes possession of the site/works before practical completion has been certified – the principal agent must issue the certificate of practical completion forthwith (specifying the date when possession of the site/works was relinquished by the contractor) and issue the list for completion of items to be rectified by the contractor within thirty (30) calendar days

• Where the principal agent does not issue the (updated) list for final completion or the certificate of final completion within five (5) working days of such inspection, the contractor may give notice to the principal agent to comply within a further five (5) working days - failing which final completion will be deemed to have occurred on expiry date of such notice

3.3 CONSEQUENCES

On achievement of final completion:

▪ The contractor’s obligations in terms of the agreement have been fulfilled

▪ The contractor’s public liability in relation to the works ceases

▪ The value of the Guarantee for Construction (variable) reduces to 2% of the contract sum until the final payment

▪ All subcontractor’s guarantees, warranties or indemnities are deemed to be ceded to the employer

▪ The balance of the contractor’s latent defects liability period is determined (see section 5.0)

▪ The final payment certificate can now be issued

▪ Should there be a disagreement about the final contract value further interim payment certificates must be issued for the

undisputed amounts

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90 C – DAY 5 YEAR

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Note:

C’s DLP ends, then:

Value of security reduces

NSSA warranties ceded to E


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C rectifies items on List for

Completion

C submits notice to PA to inspect

PA inspects, issues List for Final

Completion – if done – issues

Certificate of Final Completion

Note: PA + C + SC resolve final

account

Final account agreed then PA

issues Final Payment Certificate

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4.0 SECTIONAL COMPLETION 4.1 PURPOSE

Projects may have to be completed in sections - as separate buildings or by storey. Each section must be clearly defined with due consideration for common areas, provision of services, safe access by the employer and continued access by the contractor to complete the works. Sectional completions should be avoided where each section cannot be defined as a homogeneous unit and where there is no reasonable continuity of work for the contractor

Note: The contract works insurance must be effected by the employer to prevent conflict that may arise from multiple practical

completions possibly insured by different insurers. Securities, guarantees, warranties and the like should only be provided for the works as a whole and not for individual sections

4.2 ACHIEVEMENT OF SECTIONAL FINAL COMPLETION

Where sectional completions are required - each section (other than the last section) must be treated as unique for completion purposes. Thus, each section requires:

▪ A certificate of interim completion for each subcontractor

▪ A certificate of practical completion

▪ A certificate of final completion (other than the last section)

4.3 CONSEQUENCES

Payment is always made for the works as a whole - never for a section - by issuing the following documents:

▪ A (monthly) interim payment certificate ▪ A (monthly) recovery statement

▪ A (monthly) payment notification to each subcontractor

▪ A final account

▪ A final payment certificate

▪ A certificate of final completion for the works as a whole incorporating the last section

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5.0 LATENT DEFECTS LIABILITY PERIOD 5.1 PURPOSE

In common law the liability of the contractor (and of agents described in the professional appointment agreement) to the employer for latent defects is open ended and will only expire with the demolition of the building - clearly an untenable situation.

In all JBCC® agreements the latent defects liability period (LDLP) of the contractor is restricted to a period of five (5) years from

the certified date of final completion or the date of termination by the contractor or where execution of the works has become

impossible: -

▪ The definition of a “latent defect” relies on the definition of “defect”. Thus the latent defect definition becomes “... any aspect of the works which ... includes an imperfection that impairs the structure, composition or function of the works ... which a reasonable inspection ... would not have revealed before the issue of the list for final completion”, and “defects which may appear up to the date of final completion shall be addressed...."

▪ This definition does not specify how a defect that becomes apparent after final completion is to be dealt with. Where this occurs, the employer must give notice to the contractor to remedy the defect within the LDLP. Failure by the contractor to do so entitles the employer to employ another contractor to remedy the defect(s) and to claim such expense from the contractor. The obligation to remedy a defect is clear in common law and in the Consumer Protection Act

▪ The “period“ is defined: “The latent defects liability period shall commence at the start of the construction period and end five years from the date of final completion”. The time period is clear where the works reaches final completion

▪ If final completion is not achieved - where the agreement is terminated prior to the achievement of final completion the termination clauses apply. The final account must be prepared, and on acceptance by the parties, the final payment certificate must be issued by the principal agent. Final completion will be deemed to have occurred on the date of acceptance of the final account but no certificate of final completion is issued in terms of the agreement. The five-year period applies (contractor default) or no period is applicable (employer default)

▪ The “liability” aspect - The contractor shall make good all defects that appear up to the date of expiry of the LDLP. Where termination of this agreement occurs before the date of final completion, the LDLP shall end five (5) years from the date of termination [29.10] for the completed portion of the works only,

or

▪ Where termination of this agreement occurs before the date of final completion on the date of termination where execution of the works has become impossible due to circumstances beyond the control of either party, or on the date of termination by the contractor due to default by the employer

▪ The liability of the principal and other agents is determined by the terms of their conditions of appointment and not those of

the building contract

5.2 PRESCRIPTION PERIOD

All defects as defined in terms of the agreement are subject to a prescription period determined by law. In South Africa this period is three (3) years. The prescription period commences from the date on which the employer (principal agent) becomes aware of a defect and notifies the contractor forthwith

The LDLP is not extended by the prescription period – but the obligation on the contractor to remedy an identified and notified defect only remains – and this may extend beyond the five (5) year LDLP

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Prescription expiry:

In common law prescription runs for 3 years from the date that a defect

was noted and reported to C – may extend beyond LDLP period

3 YEARS

90 C -DAYS 5 YEAR

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PAYMENT INTRODUCTION

All JBCC® agreements follow the same payment procedures that must be applied strictly to minimise disagreements later.

“Payment” is the most ‘sensitive’ aspect of the agreement and therefore no “short cuts” should be taken in certifying amounts due to the contractor or a subcontractor, and occasionally due to the employer! The procedures and time bars applying to valuation and certification as well as to payment must be applied by the principal agent and be observed by the parties

6.0 INTERIM and FINAL PAYMENTS 6.1 PREPARATION

The following contract data clauses have a direct bearing on the preparation for valuation, certification and payment: -

Pre-Tender Information ▪ Employer details ▪ Principal Agent details (Only the principal agent is authorised to certify payment) ▪ Works description ▪ Law of the agreement

▪ Criteria for practical completion ▪ Site description

▪ Payment (or not!) for materials and goods (unfixed on site, off site or in transit)

▪ Completion - per section or the works as a whole ▪ Penalty - per section or the works as a whole

▪ Contract Price Adjustments – method used

▪ Changes, if any, to the provisions of the JBCC® agreement

Post Tender Information ▪ Contractor details

▪ The accepted contract sum that becomes the base amount of the contract value in terms of the agreement

▪ The latest day of the month for the issue of an interim payment certificate

▪ The preliminaries payment option selected in terms of the tender

▪ The preliminaries adjustment option selected in terms of the tender

▪ The security option selected in terms of the tender

6.2 THE INTERIM PAYMENT CYCLE (See diagram opposite)

Setting the Cycle

▪ The principal agent records the date of issue of the interim payment certificate in the contract data

▪ The contractor and subcontractors must cooperate with the principal agent to submit payment claims in terms of the defined

payment cycle

▪ The employer must pay the contractor within fourteen (14) calendar days of the date of issue of a payment certificate ▪ The contractor must pay each subcontractor within twenty-one (21) calendar days of the date of issue of a payment

certificate ▪ The contractor must pay the employer within twenty-one (21) calendar days of the date of issue of a payment certificate

Valuation and certification

The principal agent must issue a payment certificate by the defined date [CD] in the agreed payment cycle - based on the valuation of completed work provided by the contractor or, where not provided, assessed by the principal agent

The principal agent must issue a payment certificate in every payment cycle comprising a fair estimate of work executed and of materials and goods to the contractor with a copy to the employer, and

To the contractor A summary of amounts due to each subcontractor

A Recovery Statement to the contractor

To each n/s subcontractor A Subcontract Payment Notification showing the amount included in the contractor‘s

payment certificate

And the contractor must issue to each subcontractor A Subcontract Recovery Statement A Subcontract Payment Advice

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Interim payment cycle applicable to all JBCC Building Agreements

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7.0 RECOVERY STATEMENT (PBA)

7.1 PURPOSE

The recovery statement deals with financial transactions between the employer and the contractor that do not affect the contract value and are therefore not part of the valuation of work in progress or the final account. Such transactions can occur at any time during the construction period. The amounts due to either party are determined by the principal agent on a monthly basis and are included in the payment certificate issued at that time. Documentation substantiating the amounts due must accompany the recovery statement. By dealing with these transactions as they occur and not at the end of the contract considerable administrative

frustration is avoided 7.2 THE STATEMENT

Column A Total Amount to be recovered

All amounts as determined by the principal agent are accounted for on an accumulative basis

Column B Less Previously recovered

Previously determined accumulative amounts are accounted for Column C Recovered this Period

The difference between the column A and B subtotal amounts are carried to the referenced item in the payment certificate

7.3 AMOUNTS DUE TO THE EMPLOYER

There are twelve conditions not related to the contract value that the employer may recover from the contractor. These are: ▪ The first nine (1.1.1-9) are grouped together as they impact on the tax on the certified contract value ▪ Advance payment recoupment (1.10) is accounted for after tax ▪ Penalties due (1.11) are accounted for before tax but are separated for clarity purposes

▪ Default interest (1.12) is tax neutral and is accounted for after tax

7.4 AMOUNTS DUE TO THE CONTRACTOR

There are six conditions that the contractor may recover from the employer. These are:

▪ Compensatory (2.2) and default interest (2.1) amounts, which are both tax neutral, and accounted for after tax ▪ Damages (2.3) are accounted for before tax

▪ E&L caused by a direct contractor (2.4)

▪ Advance payment received (2.5) is accounted for after tax

▪ Termination of a n/s subcontract agreement (2.6) 7.5 IMPORTANT NOTES

A recovery statement must be issued simultaneously with each payment certificate

▪ All recovery amounts are dealt with on a “before tax” basis - where applicable tax is added in the payment certificate

▪ Each amount to be recovered is identified by a payment certificate reference line - only the amount in column C is transferred

to that location 7.6 ADVANCE PAYMENT ADMINISTRATION

See page 34

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8.0 PAYMENT CERTIFICATE (PBA) 8.1 PURPOSE

An amount of money that is due and payable by the employer to the contractor or vice versa is ‘certified’ in a payment certificate

issued by the principal agent. Liquidity is conferred where the employer (the debtor), by the signature of the principal agent, acknowledges his indebtedness to the contractor for a determined sum of money. The wording must be correct – specifying the employer, principal agent and the contractor and the payment amount that is due to the contractor. Payment due to the employer is provided for in the agreement and the payment certificate form but is not a liquid document!

8.2 THE PAYMENT CERTIFICATE

Column A Contract Sum The contract sum i.t.o. the agreement remains fixed for the duration of the contract

Column B Current Contract Value The totals of Columns A and B give an immediate comparison between the contract sum and

contract value at the time of issue of the payment certificate. The quantity surveyor, where appointed, determines the adjustments to the contract value for approval by the principal agent

Column C Current Valuation The principal agent (or the quantity surveyor) determines the valuation

Column D Current Certification The principal agent certifies the current valuation amounts and items of expense and/or

loss detailed in the recovery statement as well as tax on the applicable items

1.0 Value of work executed The valuation must be “a reasonable estimate of the work executed” without it being “work satisfactorily completed”. The principal agent must act impartiality to verify (or

modify) the quantity surveyor’s valuation before certifying such amount

2.1-2 Materials on and off site Materials and goods on and off site may be included in the valuation

Note: Projects financed by a financial institution generally exclude payment of unfixed materials leaving the employer short of money to make payment of an issued payment certificate. The principal agent must record in the contract data if unfixed materials (on or off site) will be paid, or not, where included in a payment certificate A Guarantee for Advance Payment may cover some such materials and will reduce the employer’s additional risk (see Recovery Statement) Transfer of ownership of materials off site may be difficult to prove in law

3.0 SUBTOTAL 4.0 Security adjustment Applies where the contractor has chosen the security (fixed) to which a 5% payment

reduction provision applies, or is in default by not providing such security and the employer

elects to apply the payment reduction option 5.0 Net contract sum The amount reflected in Column B is the same as the amount in Column A

6.0 Authorised adjustments … Authorised adjustments to date are included [B 6.0], excluding anticipated adjustments 7.0 Cost fluctuations Included in [A 7.0], updated in [B7.0], if included in a valuation [C+D 7.0]

8.0 GROSS AMOUNT CERTIFIED … in [D 8.0]

9.0 Less : Amount certified in the previous payment certificate … [D 9.0]

10.0 NET AMOUNT CERTIFIED The net resultant portion of the contract value certified in this payment certificate

11.1-3 Recovery Statement Adjustment of amounts due to/by the contractor that attract tax

12.0 SUBTOTAL The summed total of the previous items 13.0 Tax The subtotal 12.0 is pre-tax. The tax percentage must be filled in and calculated If this subtotal is negative, tax will apply where the employer issues a VAT invoice to

recover the amount due from the contractor

14.1-9 Recovery Statement Amounts that do not attract tax = interest and advance payment amounts (loans)

15.0 TOTAL The total of the contract sum and the comparative variable current contract value

16.0 AMOUNT DUE Identify the currency / receiving party / amount due

17.0 Contract sum execution The completion status must be indicated as it affects all the security options

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9.0 SUBCONTRACTOR’S PAYMENT NOTIFICATION

9.1 PURPOSE

The payment notification informs the subcontractor of a subcontract amount included in the total amount certified to the contractor

(or employer) in the current payment certificate. Any adjustment made to such amount due to the security provided by the contractor is not applicable to the payment due to the subcontractor. The contractor must certify the full amount due to the subcontractor and make any adjustment in terms of the security provided by the subcontractor. The 2nd NOTE on the payment notification form details this condition

9.2 THE PAYMENT CERTIFICATE NOTIFICATION

Column A Subcontract Sum The subcontract sum i.t.o the agreement remains fixed for the duration of the subcontract

Column B Current SC Value The totals of Columns A and B give an immediate comparison between the subcontract sum

and the subcontract value at the date of issue of the payment certificate. The quantity surveyor, where appointed, determines the adjustments to the subcontract value for approval by the principal agent

Column C Current Valuation The principal agent or quantity surveyor, where appointed, determines the valuation

Column D Current Certification The principal agent notifies the subcontractor of the current subcontract valuation amounts

certified to the contractor together with any adjustment i.t.o. the security provided by the contractor; the previous gross subcontract amount certified as well as tax on the net subcontract

amount certified 1.0 Value of work executed The principal agent inserts the value of work executed in the payment certificate

2.1-2 Materials on and off site The principal agent inserts the value of items included in the payment certificate

3.0 SUBTOTAL 4.0 Security adjustment The principal agent notifies the subcontractor of adjustments made to the valuation of items included in the current payment certificate (if applicable) to comply with the

contractor’s security provision in terms of the principal agreement

5.0 Net contract sum The amount reflected in Column B is the same as the amount in Column A

6.0 Authorised adjustments … Authorised adjustments to date are included [B 6.0], excluding anticipated adjustments 7.0 Cost fluctuations Included in [A 7.0], updated in [B7.0], if included in a valuation [C+D 7.0]


9.0 Less : Amount certified in the previous payment certificate … [D 9.0]

10.0 NET AMOUNT CERTIFIED The amount of the subcontract value that has been certified in the current payment

certificate. This amount may differ in the contractor’s payment advice due to adjustments the contractor may be entitled to make in terms of the subcontractor’s security or the subcontract recovery statement

11.0 Tax The subtotal 10.0 is pre-tax. The tax percentage must be filled in and calculated If this subtotal is negative, tax will apply where the contractor issues a VAT invoice to

recover the amount due from the subcontractor 12.1-2 SC Recovery Statement Amounts that affect the subcontractor’s income or expenditure that are tax neutral

13.0 TOTAL The total of the subcontract sum and the comparative variable current subcontract

value


15.0 Subcontract sum execution Where the subcontractor has provided a Guarantee for Construction (variable) the

percentage of the subcontract sum that has been executed must be determine. The completion status must be indicated as it affects all the security options for the works as a whole in terms of practical completion and final completion

Note: The principal agent is not responsible for and is not involved in determining any of the recovery amounts nor for determining

whether the security provided by the subcontractor varies the amount due

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10.0 SUBCONTRACTOR’S RECOVERY STATEMENT

10.1 PURPOSE

The subcontract recovery statement deals with expenses and losses suffered by the contractor or the subcontractor that do not affect the subcontract value and that are not part of the valuation of the work in progress nor the subcontract final account. Such expenses and losses can occur at any time during the subcontract construction period. The amounts as are determined by the contractor on a monthly basis and are included in the interim or the final subcontractor’s payment advice issued at that time

Documentation substantiating the amounts due must accompany the subcontract recovery statement

By dealing with such expenses and losses as they occur and not at the end of the contract considerable administrative frustration is

avoided and the parties are correctly compensated for such expenses and losses incurred 10.2 THE STATEMENT


All amounts as determined by the contractor are accounted for on an accumulative basis


Previously determined amounts are accounted for Column C Recovered this Period

The difference between the column A and B subtotal amounts are carried to the referenced item in the subcontractor’s

payment advice


There are ten conditions for which the contractor is entitled to recovery from the subcontractor. These are:

▪ The first eight (1.1-1.8) are grouped together as they all impact on the tax calculated on the certified subcontract value

▪ The remaining two items, default interest (1.9) and advance payment recoupment (1.10), are accounted for after tax

10.4 AMOUNTS DUE TO THE SUBCONTRACTOR

There are eight conditions for which the subcontractor is entitled to recovery from the contractor. These are:

▪ Default interest (2.1), compensatory interest (2.2) and advance payments made (2.5) These amounts are tax neutral and are accounted for after tax

▪ Damages (2.3) and non-contract variations (2.4 – 2.8) are accounted for before tax

10.5 IMPORTANT NOTES

▪ The subcontract recovery statement must be issued simultaneously with each subcontractor’s payment advice

▪ All recovery amounts exclude tax as this is dealt with in the subcontractor’s payment advice

▪ Each item to be recovered is identified by a subcontractor’s payment advice location reference with only the amount in column

C being transferred to that location 10.6 ADVANCE PAYMENT ADMINISTRATION

See page 34

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11.0 SUBCONTRACT PAYMENT ADVICE 11.1 PURPOSE

The amount of money that is due and payable by the contractor to the subcontractor or vice versa is ‘certified’ in a subcontract payment advice issued by the contractor. Liquidity is conferred where the contractor (the debtor) acknowledges his indebtedness to the subcontractor for a determined sum of money. The wording must be correct – specifying the contractor and the subcontractor and the payment amount that is due to the subcontractor

11.2 THE PAYMENT ADVICE STATEMENT

Column A Contract Sum The subcontract sum in terms of the agreement remains fixed for the duration of

the subcontract Column B Current Contract Value The totals of Columns A and B give an immediate comparison between the subcontract sum

and the subcontract value at the date of issue of the subcontract payment advice.

Column C Current Valuation The contractor incorporates the valuation provided by the principal agent in the statement

issued in terms of the PBA Column D Current Certification The contractor certifies the current valuation amounts and items of expense and/or loss

detailed in the subcontract recovery statement as well as tax on applicable items

1.0 Value of work executed The contractor incorporates the valuation provided by the principal agent in the statement

issued in terms of the PBA. The contractor has no authority to reduce or vary such valuation

2.1-2 Materials on and off site The subcontractor’s materials on and off site are to be included where they are certified in the payment certificate

3.0 SUBTOTAL 4.0 Security adjustment Applies only where the subcontractor has chosen the security (fixed) to which payment reduction provisions apply, or is in default by not providing such security and the contractor elects to apply the payment reduction option

5.0 Net subcontract sum The amount reflected in Column B is the same as the amount in Column A

6.0 Authorised adjustments … Authorised adjustments determined by the principal agent to date are included [B 6.0],

excluding anticipated adjustments

7.0 Cost fluctuations Included in [A 7.0], updated in [B7.0], if included in a valuation [C+D 7.0]


9.0 Less : Amount certified in the previous payment advice statement … [D 9.0]

10.0 NET AMOUNT CERTIFIED The net resultant portion of the subcontract value certified in this subcontract payment advice

11.1-2 Recovery Statement Amounts that affect the subcontractor’s income or expenditure, that attract tax

12.0 SUBTOTAL The summed total of the previous items 13.0 Tax The subtotal 12.0 is pre-tax. The tax percentage must be filled in and calculated If this subtotal is negative, tax will apply where the contractor issues a VAT invoice to

recover the amount due from the subcontractor

14.1-3 Recovery Statement Amounts that do not attract tax = interest and advance payment amounts.

15.0 TOTAL The total of the subcontract sum and the comparative variable current subcontract value


17.0 Contract sum execution Where the subcontractor has provided a Guarantee for Construction (variable) the

percentage of the subcontract sum that has been executed must be determined.The completion status must be indicated as it affects all the security options

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12.0 RECOVERY STATEMENT (MWA)

12.1 PURPOSE

The recovery statement deals with financial transactions between the employer and the contractor that do not affect the contract value and are therefore not part of the valuation of work in progress or the final account. Such transactions can occur at any time during the construction period. The amounts due to either party are determined by the principal agent on a monthly basis and are included in the payment certificate issued at that time. Documentation substantiating the amounts due must accompany the recovery statement. By dealing with these transactions as they occur and not at the end of the contract considerable administrative

frustration is avoided 12.2 THE STATEMENT


All amounts as determined by the principal agent are accounted for on an accumulative basis


Previously determined accumulative amounts are accounted for Column C Recovered this Period

The difference between the column A and B subtotal amounts are carried to the referenced item in the payment certificate

12.3 AMOUNTS DUE TO THE EMPLOYER

There are seven conditions not related to the contract value that the employer may recover from the contractor. These are: ▪ The first four (1.1.1-4) are grouped together as they impact on the tax on the certified contract value ▪ Advance payment recoupment (1.7) is accounted for after tax ▪ Penalties due (1.5) are accounted for before tax but are separated for clarity purposes

▪ Default interest (1.6) is tax neutral and is accounted for after tax


There are three conditions that the contractor may recover from the employer. These are:

▪ Default interest (2.1) which is tax neutral, and accounted for after tax ▪ Damages (2.3) are accounted for before tax

▪ Advance payment received (2.2) is accounted for after tax 12.5 IMPORTANT NOTES

A recovery statement must be issued simultaneously with each payment certificate

▪ All recovery amounts are dealt with on a “before tax” basis - where applicable tax is added in the payment certificate

▪ Each amount to be recovered is identified by a payment certificate reference line - only the amount in column C is transferred

to that location 12.6 ADVANCE PAYMENT ADMINISTRATION

See page 34

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13.0 PAYMENT CERTIFICATE (MWA) 13.1 PURPOSE

An amount of money that is due and payable by the employer to the contractor or vice versa is ‘certified’ in a payment certificate issued by the principal agent. Liquidity is conferred where the employer (the debtor), by the signature of the principal agent, acknowledges his indebtedness to the contractor for a determined sum of money. The wording must be correct – specifying the employer, principal agent and the contractor and the payment amount that is due to the contractor

Payment due to the employer is provided for in the agreement and the payment certificate form but is not a liquid document!

13.2 THE PAYMENT CERTIFICATE

Column A Contract Sum The contract sum i.t.o. the agreement remains fixed for the duration of the contract

Column B Current Contract Value The totals of Columns A and B give an immediate comparison between the contract sum and

contract value at the time of issue of the payment

Column C Current Valuation The principal agent determines the valuation of the works

Column D Current Certification The principal agent certifies the current valuation amounts and items of expense and/or loss {detailed in the recovery statement} as well as tax on the applicable items

1.0 Value of work executed The valuation must be “a reasonable estimate of the work executed” without it being

“work satisfactorily completed”. The principal agent must act impartiality {to verify (or

modify) the quantity surveyor’s valuation before certifying such amount} 2.1-2 Materials on and off site Materials and goods on and off site may be included in the valuation

Note: Projects financed by a financial institution generally exclude payment of unfixed materials leaving the employer short of money to make payment of an issued payment certificate. The principal agent must record in the contract data if unfixed materials (on or off site) will be paid, or not, where included in a payment certificate A Guarantee for Advance Payment may cover some such materials and will reduce the employer’s additional risk {see Recovery Statement} Transfer of ownership of materials off site may be difficult to prove in law

3.0 SUBTOTAL The total of the previous items 4.0 Security adjustment Applies where the contractor is in default by not providing a specified security and the employer elects to apply the payment reduction option

5.0 Net contract sum The amount reflected in Column B is the same as the amount in Column A

6.0 Authorised adjustments … Authorised adjustments to date are included [B 6.0], excluding anticipated adjustments 7.0 GROSS AMOUNT CERTIFIED … in [D 7.0] 8.0 Less Amount certified in the previous payment certificate … [D 8.0]

9.0 NET AMOUNT CERTIFIED The net resultant portion of the contract value certified in this payment certificate

10.1-3 Recovery Statement Amounts that affect the contractor’s income or expenditure, that are tax neutral

11.0 SUBTOTAL The summed total of the previous items 12.0 Tax The subtotal 11.0 is pre-tax. The tax percentage must be filled in and calculated If this subtotal is negative, tax will apply where the employer issues a VAT invoice to

recover the amount due from the contractor 13.1-5 Recovery Statement Amounts that do not attract tax = interest and advance payment amounts.

Any deposit paid by the employer for the purchase of materials must also be included

14.0 TOTAL The total of the contract sum and the comparative variable current contract value


16.0 Contract sum execution Where the contractor has provided a Guarantee for Construction (variable) the

percentage of the contract sum that has been executed must be determined. The completion status must be indicated as it affects all the security options

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15.0 ADVANCE PAYMENT 15.1 PURPOSE

The Guarantee for Advance Payment is a financial instrument to enable the employer to make an advance payment (a loan) to the contractor or the subcontractor for materials or equipment to be ordered in advance of their requirement on site. Such goods cannot be included in a payment certificate as “value of work executed”

Some form of collateral will be required by the institution providing such a security

A “transfer of ownership” may be a legally unenforceable substitute (legal maxim of constitutum possessorium – this is never

presumed – the party alleging it must, inter alia, prove that the transferor is the owner of the thing at the moment of transfer)

15.2 ADMINISTRATION

15.2.1 All advance payment transactions are dealt with in the applicable recovery statement

15.2.2 No “direct payments” or recoupment of an advance payment may bypass the payment certificate to ensure that all

financial transactions pertaining to the agreement are accounted for in the various payment forms

15.2.3 Interest or other charges related to the Guarantee for Advance Payment must be agreed directly between the parties -

-- They are not part of the contract sum nor the contract value!

15.2.4 A Guarantee for Advance Payment should not be demanded for materials off site that adequately fall within the

provisions of a Guarantee for Construction provided by the contractor or subcontractor

15.2.5 ‘Advance payments’ are a form of loan and therefore do not attract tax

15.2.6 Note: The end Current Certification balances with the end Total Net Payment 15.2.7 The employer is entitled to call up the Guarantee for Advance Payment should the contractor or a subcontractor

default in the repayment of such ‘loan’ at any stage The following tables set out the typical cash flow of an advance payment to either or both the contractor and a subcontractor

Security information Contractor Subcontractor

Recipient’s Net Contract Value (excl Tax) 2 00 000 600 000

Advance payment required 200 000 150 000

Recoupment period (months) 5 3

Recoupment start month M3 M5

Recoupment monthly payment 40 000 50 000

Payment Certificate M1 M2 M3 M4 M5 M6 M7 M8 Total Contract Value Valuation: Contractor 40 000 120 000 280 000 500 000 800 000 1 200 000 1 700 000 2 000 000

N/S 0 0 20 000 70 000 240 000 480 000 570 000 600 000

Certified: Contractor 0 -40 000 -120 000 -280 000 -500 000 -800 000 -1 200 000 -1 700 000

N/S 0 0 0 -20 000 -70 000 -240 000 -480 000 -570 000

Current certification 40 000 80 000 180 000 270 000 470 000 640 000 590 000 330 000 2 600 000

Add Tax at 14% 5 600 11 200 25 200 37 800 65 800 89 600 82 600 46 200 364 000

Gross certification 45 600 91 200 205 200 307 800 535 800 729 600 672 600 376 200 2 964 000

Advance/ recoupment C 200 000 0 -40 000 -40 000 -40 000 -40 000 -40 000 0

Advance/recoupment N/S 0 0 150 000 0 -50 000 -50 000 -50 000 0

Total net payments 245 600 91 200 315 200 267 800 445 800 639 600 582 600 376 200 2 964 000

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18.0 INTEREST CALCULATIONS (compensatory and default interest) 18.1 PRACTICAL COMPLETION

▪ Compensatory interest only applies to payment certificates issued 31 calendar days after practical completion

▪ Default interest applies to late payment of any payment certificate - applicable to the PBA, NSSA and MWA

18.2. FINAL COMPLETION

▪ At least 3 interim payment certificates must be issued before the issue of the final payment certificate

18.3 PAYMENT CERTIFICATE 11

▪ The first payment certificate after practical completion (say 15 calendar days) attracts no compensatory interest

▪ The employer makes payment of the certified amount


▪ Compensatory interest over 15+30 = 45 calendar days included in payment certificate shown in the recovery statement

▪ The employer makes payment of the certified amount


▪ Compensatory interest for 75 calendar days included

▪ The employer pays certificate number 13 twenty-one (21) calendar days after issue date. The first fourteen (14) calendar days is the employer’s “payment window”. The further seven (7) calendar days attracts default interest

▪ Should the employer pay the certified amount + the default interest i.e. the “debt due” no further default interest applies ▪ Should the employer pay only the certified amount further default interest of 2 calendar days would apply to the “unpaid balance”

and must be included in the next recovery statement

▪ With the employer’s concurrence, the default interest on the “unpaid balance” should be calculated up to the next expected payment date viz 9+7 = 16 calendar days thereby extinguishing the default


▪ The employer meets payment requirements without 11.5 inclusion

▪ Should 9.5 not have been applied the “unpaid balance” default interest as per 11.5 would again apply 18.7 PAYMENT CERTIFICATE 15

▪ Should final completion and acceptance of the final account not be achieved in ninety (90) calendar days further interim payment certificates must be issued to maintain the “payment cycle”

▪ The final payment certificate also attracts compensatory interest (PBA only). Should the final payment certificate be paid late default interest is due and is recoverable by the contractor as a debt

18.8 COMPENSATORY INTEREST CALCULATION

Assumptions: • Interest rate (Repo/Bank rate- July 2019) = 6.5% (see interest definition) • Net amount certified = 20 000.00 • Certificate No 12 issued after Practical Completion = 45 calendar days Calculation : 20 000 x 6.5% x 45 / 365 = 160.27

18.9 DEFAULT INTEREST CALCULATION

Assumptions: • Interest rate (Repo + 6.0%) = 6.5% + 6.0% (see interest definition) • Certificate No 3-payment due = 91 200.00 • Payment made after Certificate issue date = 21 calendar days • Employer (21-14) calendar day default pay period = 7 calendar days (see 11.5.2 above) • Balance of payment cycle = 9 calendar days • Next Employer payment (expected) = 14 calendar days Calculation : 91 200 x 12.5% x 7 / 365 = 218.63 * Assuming the employer makes payment of the certificate amount only: Add : 218.63 x 12.5% x 9 / 365 = 0.67 (see 10.5.4 above)

Total default interest due at end of payment cycle = 219.30 * Additional interest to expected employer payment date Add : 219.30 x 12.5% x 14 / 365 = 1.05 (see 10.5.5 above) Total default interest paid = 220.35 18.10 COMPENSATORY AND DEFAULT INTEREST – ASSUMPTIONS

1 Each payment certificate issued reflects an amount in favour of the contractor 2 The contractor's “payment cycle'' is a constant 30 calendar days = same day (date) every month stated [CD]

3 Default periods given are for demonstration purposes only

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19.0 CPAP - CALCULATION The calculation and payment of fluctuations is an integral part of interim valuations. Fluctuations are referred to as Contract Price Adjustment Provisions (CPAP) in the built environment. The most commonly applied formula for calculating CPAP for building contracts in South Africa was (originally known as) the Haylett Formula. Please refer to the CPAP indices application Manual and the Work Groups Composition and weighting of sub-indices The indices are calculated and compiled by Statistics SA and are available from their webpage free of charge: -

www.statssa.gov.za/publications/mystats.asp?myfavpubl=1&myfavpubln=P0151

The weighting of the indices is also useful when analysing unit rates The formula: A = 0.85 V (Ie/Io-1) Where: A = the amount of adjustment

0.85 = a constant which provides for a 15% non-adjustable element V = the work value for adjustment in such work group and the valuation period Ie = the value of the index applicable to such work group and the valuation period which shall be

the value for the month Io = the value of the index applicable to such work group for the base month

The formula is applied to the net amount certified for every workgroup. The net amount is determined by deducting the amount

previously certified from the accumulative amount for the current month for each workgroup. The base month index (Io) remains constant throughout the contract for each workgroup. The only time where this would not be the case is when work is undertaken at a different time than that of the initial tender. An example would be an item that was included in the tender as a provisional sum and that is tendered at a later stage than the main contract. The current month index (Ie) moves along month by month according to the date of the certificate The format according to which the escalation is calculated resembles that of the detail of the certificate and also starts off with the cumulative total for each workgroup less the amount previously certified to obtain the amount that needs to be adjusted. It is important to realise that the result arrived at is no longer a cumulative amount and therefore the adjustments of all the certificates need to be added together to obtain a cumulative amount for inclusion in the valuation The indices are obtained from the P0151 publication and the monthly indices and inserted into the sheet as illustrated below; Assume the following:- Tender date: April 2019 Date of Certificate no 1: June 2019

If an adjustment value is negative, it indicates that the cost of the workgroup has decreased since the date of tender.

http://www.statssa.gov.za/publications/mystats.asp?myfavpubl=1&myfavpubln=P0151

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The next certificate would be as follows

Figure 1: Calculating fluctuations (escalation)

There may be instances where the value of work is based on information that does not stem from the same time as the tender - for instance items that were included in the tender documentation as cost price items and that are adjusted to the correct cost according to invoices that are to be submitted as soon as the work they pertain to is executed. Such an event can be handled in two ways - either these values can be grouped together in a total that is not subject to escalation, or the rates may be de-escalated back to the same base month as the tender and then included with the other work and escalated together with the other work. To de-escalate a value the inverse of the formula must be applied Assume the value of the tiling at current value is R 10 000 Current index (Ie) for June 2019 for tiling is 109.6; Base index (Io) for April 2019 for tiling is 109.3 1 . Adjusted (de-escalated) amount = V x [1+ 0.85 (Ie/Io -1)] = R 10 000 x 1 / [1+0.85(109.6 /109.3 -1)] = R 10 000 x 1 / [1+0.0023] = R 10 000 x 0.9977

= R 9 977

It is important during the final account stage to double check that the indices used to calculate the fluctuations are correct in all the certificates. The indices prepared by Statistics SA are issued on a monthly basis. When the CPAP is calculated and the indices for the current month are not available the latest available indices are used. Should any of the indices be incorrect the specific month’s calculations must be redone as well as all subsequent calculations to correct the cumulative value for the CPAP

jbcc to completion and payment (a selection)

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