What is a subcontractor agreement?
In South Africa, it is quite typical, that when a principal-agent enters into a contract with the main contractor to complete the necessary work. The contractor would enter into a separate contract with specialised subcontractors to do parts of the job, usually, work like plumbing, tiling, and waterproofers; this contract is known as a subcontracting agreement. Subcontracting is a construction law trend that is commonly used; it assists the development of Small, Medium, and Micro Enterprises (SMMEs).
Challenges that arise with subcontractors’ agreements.
While this is a great initiative, there are issues such as subcontractors not being paid at all once they have completed their tasks. Additionally, subcontractors have expressed concerns that they are only paid once the project reaches its milestone and a certificate of completion is issued. Should the milestone not be reached for whatever reason, or the certificate not be issued, the main contractor withholds payment.
Who will be responsible for the debt?
The relationship between a subcontractor and a contractor is regulated by a specific construction contract, and this contract will assist in figuring out who should be held liable. There are different types of contracts used when subcontracting. Nominated subcontractors’ appointments are those nominated by the principal-agent (s) for appointment by the contractor. Domestic subcontractors’ appointments are those selected and employed by the contractor. In Minister of Public Works and Land Affairs v Group Five Building Ltd, the SCA held that in nominated subcontracts there is no privity of contract between the employer and the sub-contractor meaning, a principal-agent cannot be held liable together with the main contractor. This means that the privity of the contract remains with the main contractor.
How can I recover the money that is due to me?
There are different ways to resolve disputes regarding subcontractors’ payments. Subject to the provisions of the contract, the parties may resolve a dispute by mediation, adjudication, arbitration, litigation, or any other mechanism set out by the contract.
- Mediation: A third party facilitates disputes between the parties, and tries to agree on a way to resolve the dispute.
- Adjudication: A third party is appointed to decide regarding the dispute. This adjudication decision is binding on the parties once it is finalised, but the decision can be reviewable in arbitration or through litigation.
- Arbitration: This is the most common and most recommended way to resolve disputes of this nature. An arbitrator is appointed to decide on the dispute. The decision is binding and is the equivalent of a court order. Although it is often more expensive than proceeding to court, the parties are given more freedom to appoint the arbitrator and decide on the procedure. It is more efficient and less time consuming than proceeding to court.
- Litigation: The matter proceeds to the relevant court with jurisdiction for an order on the dispute. Litigation can take years to resolve the matter, in comparison to the other ways listed above.
You can only recover your debt from the main contractor. The principal agent is absolved because of the legal principle of privity of contract; this means that only persons who have concluded are entitled to the rights and obligations arising from the contract. When you need to recover what is due to you use processes set out in the contract if not available use mediation, adjudication, arbitration, and litigation.