MDA Law
The Carbon Tax and Construction
As per our previous two articles, the President has signed into law the Carbon Tax Act No 15 of 2019, which came into effect from 1 June 2019.
Our clients that are contractors in the construction industry continue to receive price increase notification letters from suppliers (particularly in the cement and steel industries).
This is the third in our series of articles which sets out how a contractor may claim additional compensation from an employer should such price increases have an effect on the contract price.
The third contract form in our series is the GCC2010. This contract has specific clauses that deal with the Contractor’s obligation to comply with the laws of the country (the GCC2010 being a South African standard form contract, we have assumed that the law of South Africa applies).
Clause 6.8.1 of the GCC states:
“Except as provided in this Clause or elsewhere in the Contract, the rates and/or prices stated in the Pricing Data shall be final and binding throughout the period of the Contract.”
One of the provisos to Clause 6.8.1 is in respect to additional or reduced cost to the Contractor as a result of a change in the laws. More specifically, Clause 6.8.4 of the GCC states:
“If at any time within 28 days before the closing date for tenders or thereafter, there occur changes to any Act of Parliament, Ordinance, Regulation or By-law of any local or statutory authority which cause additional or reduced cost to the Contractor (other than in terms of Clauses 6.8.2 and 6.8.3) arising from the execution of the Contract, such additional or reduced cost shall, after due consultation between the Employer and the Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Employer”.
Unlike the FIDIC and JBCC contracts (where claim notifications for additional compensation / expense and loss are required before the Contractor is entitled to payment of any such additional compensation / expense and loss) the GCC2010 does not appear to require any notifications from the Contractor in line with a specific claims clause.
Clause 3.1.2 of the GCC2010 states:
“Whenever the Engineer intends, in terms of the Contract, to exercise any discretion or make or issue any ruling, contract interpretation or price determination, he shall first consult with the Contractor and the Employer in an attempt to reach agreement. Failing agreement, the Engineer shall act impartially and make a decision in accordance with the Contract, taking into account all relevant facts and circumstances.”
Clause 3.1.2 reads with Clause 6.8.4 in that the Engineer is required to consult with the Contractor and Employer prior to making a determination on price. There is a clear right for the Contractor to additional cost as a result of a change in the law, as long as the change in the law occurred within 28 days of the closing date for tender, or thereafter (ie. during the course of the Contract). The Contractor must, obviously, be able to display how the change in the law has given rise to such additional cost. Clause 6.8.4 is an interesting clause because it also allows the Engineer to reduce the Contract Price should a change in law result in a reduced cost. This could be the reason for the fact that there are no prescribed notification requirements for the Contractor – why would the Contractor notify the Engineer for reduced cost?
Similarly to the FIDIC and JBCC contracts, a Contractor (and an Engineer in making his determination) will be required to take into consideration any Contract Price Adjustment Factor agreed to between the Contractor and the Employer in the Contract, as steel and cement would be considered “Materials” when applying the Contract Price Adjustment Factor.
Summary
Unlike the FIDIC and JBCC contracts discussed in our previous articles, the GCC2010 does not contain a specific clause that requires the Contractor to issue a claim notification, within a prescribed period, to the Engineer in order to be entitled to additional compensation as a result of a change in the law. There would, however, be a requirement for the Contractor to initiate the conversation by notifying the Engineer of any price increase letters received from its suppliers as a result of the Carbon Tax Act. There is a consultation process, followed by a determination by the Engineer, acting impartially and taking into account all relevant facts and circumstances.
