Page 33 - issue 21

Technically Speaking 33
@Mininginvmt
Mining Investment Conferences & Exhibitions

Mining Investment Events JBCC PRINCIPAL BUILDING
Mining Investment Conference
AGREEMENT EDITION
3RD ANNUAL

BOTSWANA 6.1 MARCH 2014 CLAUSE 11.1.3 and 11.3.1

PAYMENT REDUCTION - A RISK TO SUBCONTRACTORS
21 - 22 May 2019 Gaborone, Botswana

Where Miners, Investors and Service Providers Converge lause 11 of the JBCC Principal Building Agreement form of security. The 5% or 10% should not be withheld from
distinguishes three different forms of construction
the subcontractors unless the principal contractor has
Cguarantees / agreed with the subcontractors to this.
methods of security.
Serious challenges emerges with this form of security if the
1. Variable Construction Guarantee: The contractor provides principal contractor fails or struggles to reach practical
a construction guarantee from an approved guarantor completion. Failure to reach practical completion can be
which is normally a bank or insurance company. The value caused by single items not being completed to the correct
of this guarantee is initially 10% of the contract sum. This standard. To withhold money from a subcontractor who
is enforceable until the final payment certificate has been has completed his scope of work in time and according to
issued to the contractor. specification due to other incomplete items on the project
2. Fixed Construction Guarantee: The contractor by other parties is not fair.
provides a construction guarantee from an approved Subcontractors should therefore be careful when entering
guarantor which is normally a bank or insurance company. into a contract with principal contractors where payment
The value of this guarantee is 5% of the contract sum. In are withheld as part of a security adjustment.
addition to this a payment reduction of 5% of the value of
each payment certificate up to a maximum of 5% of the It is important that principal contractors realize that
contract sum is made. The security adjustment reduces payment reduction as security is withheld from the principal
when practical completion is reached. contractor and not the subcontractors. The principal
3. Withhold in interim payment certificates an contractor must ensure that the necessary agreements are
amount equal to 10% of the contract value. The security in place with subcontractors making it clear how payments
adjustment reduces when practical completion is reached. will be withheld.
The subject of this article is payment reduction as a form
Take Advantage of our Special Offer to Attend and Exhibit Today! of risk to subcontractors. Payment reduction forms part of In a worst case scenario where the principal contractor fails

Contact Vishal at +65 6717 6019 | vishal.sengupta@spire-events.com option 2 and 3 mentioned above. to reach practical completion and 5% or 10% of payment
A careful reading of clause 11.3 makes it clear that this has been withheld from all subcontractors, the principal
contractor will probably find it difficult or be unwilling to
Featuring option is in fact a compromise from the employers side to pay the subcontractors who has completed their work
accommodate the contractor who failed to provide the
required construction guarantee. If this clause (11.3.1) is satisfactorily. From there the premise of this writeup is
derived that payment reduction as a form of security is a
implemented strictly the contractor will not receive any risk to subcontractors.
payment until a total of 10% of the contract sum has been
withheld. A scenario like this will in most cases cause cash Subcontractors can reduce their risk, or at least understand
www.mininginvestmentbotswana.com flow problems for the contractor. In order not to jeopardize their risk, by formalizing payment methods with the

the project, employers are lenient in this regard and principal contractor. It is not unfair to expect full payment
withhold 10% of the value of every payment certificate.
Organised by for work that has been completed according to specification
and expectation.
It is important to realize that in the case of options 2 and 3 In countries like Botswana and Zambia contractors and
payment is withheld from the principal contractor as a subcontractors often have a casual approach to contract

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