The current 2010 version of the GCC is the second edition following the first edition published in 2004. These two contracts have their genesis in the Civil Conditions of Contract of which there were six editions, the last of which was published in 1990. The GCC 2010 has adopted some, though not all of the developments and improvements incorporated in the New Engineering Contract. Several of these new developments in the GCC2010 are discussed herein.
Documents to be submitted
At the inception of the contract, the contractor is obliged to present three documents to the employer within prescribed times. The first two of these are the proof of insurance and the performance guarantee. The third is the construction programme. This process and the applicable clauses that apply are set out below:
Proof of insurance
Sub-clause 5.3.1 requires that, before the contractor commences the execution of the works, it must submit the documentation stipulated in the contract data. This normally includes proof of insurance. Further, sub-clause 8.6.1 requires the contractor (provided this is required in the contract data) to effect and maintain insurances in the joint names of the employer and the contractor.
Should the contractor fail to do this, do this late or fail to provide acceptable insurances, sub-clause 5.3.2 (new clause) allows the employer to terminate the contract. These are resolutive conditions which, if not fulfilled, will result in the agreement coming to an end.
The 2004 edition of the GCC required contractors to provide some form of performance security and this usually took the form of a demand guarantee. The problem here is that it was either expensive to provide if it was supplied by an insurance company or, it was difficult to provide unless the contractor had substantial financial resources. This created a barrier to entry to the market for emerging contractors.
In addition to this performance security requirement, the employer withheld 10% (usually) retention from the contractor which had an adverse effect on a contractor’s cash flow. Practically, and in such an instance, if the mark up on a contractor’s prices was less than 10% then the contractor would only become cash positive at the end of the defects liability period.
In the GCC 2010, the contractor is able to choose the form of security he is prepared to provide and the contractor has the option to provide either retention or a performance security. Sub-clause 6.2 deals with the provision of security by the contractor. In particular, sub-clause 6.2.2 requires the contractor to select the form of security, and 6.2.3 stipulates the duration of the security. These are both new clauses. If the security is in the form of a performance guarantee, this is returned to the guarantor upon the issue of the certificate of completion.
Sub-clause 6.10.3 allows retention to be deducted from payment certificates. One half of the retention is returned to the contractor upon the issue of a certificate of completion (see sub-clauses 6.10.5 and 220.127.116.11)
Extract from contract pro-forma documents:
The following extract reflects the actual wording of the contract and how this choice of security is made by the contractor:
“PART 2: DATA PROVIDED BY THE CONTRACTOR
The security to be provided by the Contractor shall be one of the following:
Note: In the Standard for Uniformity in construction Procurement in section 18.104.22.168 it is stated that: “Retention monies that are held shall not exceed 10% of any amount due to a contractor. Where guarantees of an insurance company or bank that are provided are equal to or greater than 10% of the contract price, the total amount of retention monies held shall not exceed 5% of the contract price.”
Claims for additional payment:
A significant development in contract drafting, since the late 1990’s, is the inclusion of time bar provisions. Previously, contractors were required to place the engineer on terms (place him in mora) to create an obligation for the engineer to perform a specific function by a given time. If this process was not followed, a contractor had no rights to make a claim. These are known as “conditions precedent” and their legal standing and significance was confirmed in the Alfred MacAlpine v Provincial Administration of the Transvaal case (the ‘MacAlpine case’).
In modern contracts such as FIDIC and the GCC 2010 the contractor usually has to earn the right to make his claim by complying with a notice requirement (the condition precedent) and then sustaining his right to make a claim by complying with a time bar provision. These are what are known as resolutive conditions. If the procedural requirement (of the time bar) is not met the entitlement falls away.
Time barring provisions:
The principal time bar is to found in sub-clause 10.1.4. Note the 28 days required for the first submission (clause 10.1.1) may be extended under clause 10.1.2. Matters which are not the subject of clause 10.1.1 may be time barred under clause 10.2.2. This is a new clause. The new dispute resolution clauses contain the NEC type time bars and work as follows:
Firstly, matters which are in dispute must be referred to dispute within 28 days of the event giving rise to the dispute. If the parties fail to deliver such dispute notice within the 28 day period it is time barred under clause 10.3.1.5. Further, the parties must dispute the dispute adjudication board’s decision after a cooling off period of 28 days but before 56 days after receipt of the DAB decision. If they fail to do so they are time barred from referring the dispute to arbitration.
Employer’s claims under the GCC 2010:
Clause 22.214.171.124 entitles the employer to set off any debts against payments due to the contractor and states:
“The Employer may deduct from such payment any amounts which he is entitled to in terms of this contract or by law to set off against such payment and shall state in a notice accompanying the said payment, the reasons for such deduction…”
This also incorporates an NEC type amendment in sub-clause 5.7.3 and, in accordance with this sub-clause, the engineer may request the contractor to accelerate the works at an agreed cost which is for the employer’s account.
Two new clauses have been introduced in relation to testing under clause 7.4.3. Sub-clauses 7.6.1 and 7.6.2 empower the engineer to retest plant and to accept such subject to a price reduction where retesting shows the performance of the plant to be defective, alternatively, to reject the item of plant.
The drafters of the GCC2010 did not shy away from an attempt to draft the contract in the same legalistic style and language as its predecessor. The GCC2010 has roughly 20 deeming provisions and approximately 10 indemnifications. It is only through the actual application and use of a contract will all the real problems be identified and some expected problem perhaps proved to be less problematic than first thought. There are however reasons to be cautious when embarking on any contract where the GCC 2010 has been used. The initial conclusion must be that the risk allocation in the GCC 2010 is more onerous on the contractor.
Editor: Neil Coertse