PROFESSIONAL PRACTICE EXAM – 11 APRIL 2013

PAPER 2 : This is an open book paper. a. Total marks for this paper : 100 marks b. Pass mark for the examination : 55% per paper with an average of 60% for the two papers combined. c. Time allowed for Paper 2 : 3 hours d. Only material listed as Suggested Reading Material for this examination will be allowed in the examination room. This material allowed is:

 The Building Contract (FINSEN E N)

 SAIA Professional Practice Examination Study Aid

 Contract Documentation: Principal Building Agreement Minor Works Agreement Preliminaries Nominated/Selected Subcontract Agreement Certificate documents  PROCSA Client/Consultant Professional Services Agreement P3101AR PROCSA Combined – Architect P3101PA PROCSA Combined - Principal Agent

 Board Notice 154 of 2009 - The Professional Code of Conduct

 Board Notice 31 of 2009 - Conditions relating to Continuing Professional Development (CPD)

 Board Notice 173 of 2010 – Annual update of the Recommended Tariff of Professional Fees in terms of Section 34(2) of the Act

 Board Notice 154 of 2011 – Identification of Work – Interim Policy

No hand written notes are allowed in the exam venue or in any of the reference material:

PAPER 2 – PPE 11 APRIL 2013 Page 1 of 9 e. Applicants must mark the annexures to the paper (inserted at the back of the question paper) clearly with their details and insert it in the front of the examination book, before handing the book in.

QUESTION 1 (21 MARKS) 1.1 Your client, a listed public company, appointed you to design their newest 50 000m2 shopping centre. They also appointed you to be the Principal Agent and you are about to procure tenders for the Principal Contract. From previous experience, your client wants to avoid the additional responsibilities upon themselves, usually associated with having specialist subcontractors appointed as Nominated Subcontractors, so they insists that you make it a specific requirement of the Principal Contract tender process, that the successful Principal Contractor will appoint all the non-domestic or specialist subcontractors as Selected Subcontractors and none as Nominated Subcontractors. However, in order to save time, they also insist that you obtain all the non-domestic and specialist subcontract tenders, from a list of their preferred subcontractors and that you do this simultaneously with obtaining the Principal Contract tenders, so that all subcontractors can be appointed immediately after the Principal Contract is awarded.

Explain to your client why this can technically not be done. (4 marks) Answer to 1.1 A Nominated Subcontract can be tendered simultaneously with1 or even prior to2 the Principal Contract, however a Selected Subcontract can only be tendered once the principal contract has been awarded3, as the subcontractor is selected mutually by the principal agent and the principal contractor, or in consultation with and the reasonable approval of the principal contractor 4. A Selected Subcontract can therefore not be awarded or tendered prior to the appointment of the Principal Contractor5

1.2 Explain the difference between a JBCC Principal Building Agreement Payment Guarantee and a JBCC Principal Building Agreement Construction Guarantee. (4 marks) Answer to 1.2 Any wording to the effect as stated under the definitions for each, in the front of the JBCC PBA , will suffice.

1.3 Explain briefly what a Waiver of Lien is. (2 marks) 2 Answer to 1.3 A form signed by the Principal Contractor, wherein 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.1 This waiver shall only come into effect on provision by the Employer of a Payment Guarantee for fulfilment of his obligations in terms of the identified Agreement2

1.4 Name 5 types of Insurances that may be required i.t.o. the PBA (5 marks) Answer to 1.4 a) Contract Works Insurance1 b) Supplementary / Special Insurances2 c) Public Liability Insurance3 d) Support Insurance4 e) Special Insurances5

1.5 Explain the difference between a Payment Advice Statement and a Payment Certificate Notification (6 marks) Answer to 1.5 Any wording to the following effect, will suffice:

The Payment Certificate Notification, is issued by the Principal Agent to every N/S subcontractor, concurrently with every payment certificate issued to the Principal Contractor, informing every N/S subcontractor of an amount, which has been certified to the Principal Contractor in the current payment certificate, as payable by the Principal Contractor to the N/S subcontractor. 1-3

The Payment Advice Statement, is a liquid document issued by the PC to every N/S subcontractor, within 7 calendar days of the issuing date of the Payment Certificate, certifying an amount payable by the Principal Contractor to the N/S subcontractor, or vice versa. 4-6

QUESTION 2 (18 MARKS)

2.1 Name six (6) accepted types of building contracts and (6 marks) Answer to 2.1 Any 6 of the following will suffice: a.a.a) With Bills of Quantities With Provisional Bills of Quantities

PAPER 2 – PPE 11 APRIL 2013 Page 3 of 9 “Basic Bill” Contract Lump-sum (without quantities). With Schedule of rates. Cost-plus (different variables) Cost-plus with ceiling figure Packaged Contract Labour-only. Design-and-build (Turn-key).

2.2 List two (2) advantages and two (2) disadvantages of each one. (12 marks) Answer to 2.2 Any two ADVANTAGES and two DISADVANTAGES from the SAIA Practice Manual / Study Aid may be used.

QUESTION 3 (30 MARKS) As the Principal Agent (herein after referred to as the PA) on a new 60 bed Psychiatric Unit, with all external works and services, for Good Mental Wellness Pty Ltd, you have to process the Quantity Surveyor’s (herein after referred to as the QS) monthly Valuation number 3, based on the claim received from the Principal Contractor (herein after referred to as the PC).

The JBCC Principal Building Agreement (herein after referred to as the PBA) Edition 5 of July 2007, is in use.

Below is an extract from Valuation number 3 data, received from the QS and the relevant Project Data as recorded in the signed JBCC PBA.

CONTRACT DATA: The Employer is Good Mental Wellness Pty Ltd and the PC is Power Contractors CC. You may choose your own name for your company, as the Architect / PA. The site is located on Erf 597 Greenvale, Umhlanga, KZN. The contract sum was signed at R 19 987 357.52. No contract price adjustments were selected. The PC opted for a Variable Construction Guarantee and the Contract Works Insurance was to be effected by the PC. The site was handed over to the PC on 10 January 2013 and the contract period is stipulated as 11 months. You issue your Payment Certificate on 28 March 2013.

All amounts exclude VAT. 4 VALUATION No 3 DATA: You received valuation No 3 from the QS on 20 March 2013. The value of work executed to date amounts to R 2 098 365.21. In addition to the value of the works executed to date, the PC has also claimed for materials on site in the form of structural steel columns to the amount of R 463 982.43, which have already been delivered to site, but which have not yet been erected, which the QS has included in valuation No 3. Approved adjustments to the contract value, by way of omissions to the scope of the work, amount to minus R 76 953.47. The gross amount that was certified on the previous certificate was R 1 113 866.58.

All amounts exclude VAT.

SCENARIO: To date, 77 calendar days after site possession, the PC has failed to furnish the Variable Construction Guarantee and the Employer has subsequently opted to withhold 4% retention of the Contract Sum as security, until 50% completion of the works has been reached.

Effecting of the Contract Works Insurance was also selected by the PC as his responsibility during tendering, but he has failed to effect the required works insurance in the amount of R126 087.92 and this has subsequently been effected by the Employer. To assist the Principal Contractor with his cash flow, the Employer agrees to a request from the PC to pay the Contract Works Insurance amount back over two equal interim payments, with the first of these two equal payments recoverable now, under this current Payment Certificate No 3. The next equal repayment by the Principal Contractor to the Employer, will be recovered under a future payment certificate.

All amounts exclude VAT.

It has further come to light that the PC has not yet paid the earth works subcontractor, whom was appointed as a Selected Subcontractor, in the amount of R 216 931.75, as certified to the subcontractor in Payment Certificate No 2. The Employer has now decided to pay the earth works subcontractor directly, for this amount.

Based on this Valuation and the available Contract Data, do the following:

PAPER 2 – PPE 11 APRIL 2013 Page 5 of 9 NB: Please use the JBCC documents attached to the back of the question paper. Ensure that it is marked clearly and insert the completed forms in the front of your answer book.

3.1 Complete the provided JBCC Recovery Statement and (10 marks)

3.2 Complete the provided JBCC Payment Certificate (20 marks)

Answer to 3.1 and 3.2 Please see attached filled out forms.

QUESTION 4 (15 MARKS)

4.1 Your client has heard that Retention is the best form of security and the surest way of ensuring that a contractor completes the works and she insists that you call for retention in the Form of Tender, as the form of security on her new home, where the JBCC Minor Works Agreement (MWA) will be used.

By way of comparison, explain to your client why a JBCC MWA Variable Construction Guarantee will be a more advantageous form of security than Retention.

In your explanation, make specific mention of expediency or delay of achieving certain levels of security and reduction of security at varies stages throughout the contract period. (10 marks) Answer to 4.1 VCG Retention Offers an immediate security of 8% of the Initially offers 0% security. Security has to Contract Sum slowly build up from nil to a maximum of 4% The Employer is therefore immediately There is a period of risk for the Employer covered and risk is reduced Reduces to 4% at Practical Completion up to Reduces to 2% at Practical Completion up to the date of Final Completion the date of Final Payment Certificate Reduces to 2% at Final Completion up to the Reduces to 0% at Final Completion up to the date of the Final Payment Certificate date of the Final Payment Certificate A Construction Guarantee is issued by a Retention relies on the value of work reputable financial institution delivered by the contractor

4.2 On a petrol filling station addition and petrol pump extension project with a contract sum in the amount of R 11 376 194.61 (excl VAT), where 6 more petrol pumps will be added in

6 addition to a new Rest Room and a Wimpy, your client insists that you employ the JBCC Minor Works Agreement, citing ease of understanding for the local and less experienced contractors.

Advise your client in this regard. (5 Marks) Answer to 4.2 Candidates can offer any advice of the following nature:

The specialised nature as well as the significant contract sum, will make the use of the JBCC MWA a challenge and it will be more advantageous to employ the JBCC PBA on this project.

Usually the MWA is used more on contract in value lesser than around R1,5m to R2m and where no or not many specialist subcontractors will be appointed. The nature of this project will necessitate a number of specialist petro-chemical subcontractors to be appointed as Selected and / or Nominated subcontractors, a provision for which the JBCC does not cater.

Using the MWA in this instance, will necessitate all specialist subcontractors to be appointed as Direct subcontractors, which will increase your clients risk, should any of them default on the contract. The client will also be directly liable for any 3rd party claims.

This contract will also require a number of consultants, especially since the client is intent on assisting the local and less experienced contractors. The JBCC MWA also does not cater for multiple other consultant, but for one Agent only.

QUESTION 5 (16 MARKS) 5.1 What is the contractual position in each of the following separate scenarios, and who is responsible for remedying the situation?:

5.1.1 The Employer of a contract, where the PBA was used and that achieved Final Completion 4 years and 3 months ago, phones you to tell you that a portion of the paving in the visitor’s parkade area in front of his building has become loose, causing increasing gaps between the pavers, which has caused the heel of an elderly lady’s high heel shoes to get stuck and causing her to fall, sustaining some injuries. You phone the Principal Contractor of this project and request that he please rectifies the failing paving. He answers that he cannot be held responsible for rectifying the paving, since the paving has already been in use for

PAPER 2 – PPE 11 APRIL 2013 Page 7 of 9 more than 4 years and he suggests that the Employer repair it as part of his maintenance budget. (4 marks)

Answer to 5.1.1 In this instance, the PA should rely on the provisions of clause 271. This is obviously a latent defect2, for which the Principal Contractor is liable for a period of 5 years from the Final Completion date [27.1] 3. The Contractor shall therefore make good all defects that manifest during this 5 year period4.

5.1.2 The date for Practical Completion on a contract, where the PBA is in use, has been legitimately revised due to events beyond the Principal Contractor’s control. However, the Employer requests to occupy her new building 1 month prior to the revised Practical Completion date, despite certain trades not being complete, due to her current landlord no longer being able to accommodate her on a month to month basis. The PC agrees to this and the Employer moves into her building. The day after the Employer occupying the new building, the Principal Contractor furnishes the PA with a request to issue the Practical Completion certificate. The PA refuses to issue the PC certificate, citing the work not being completed yet and that he has not yet done a Practical Completion inspection. (4 marks) Answer to 5.1.2 The Principal Contractor is within his rights to insist that the Practical Completion certificate be issued and the Principal Agent has to oblige1. Where the Employer at any time takes possession of the whole or a part of the works by agreement with the Contractor prior to the applicable date for Practical Completion2, then Practical Completion shall be deemed to have taken place3 and the applicable certificate of Practical Completion shall be issued [24.8]4

5.2 List 4 types of dispute resolution methods (4 marks) Answer to 5.2 Mediation, Adjudication, Arbitration and Litigation4

8 5.3 State whether each of the above dispute resolution methods are a formal or informal procedure and name the rules, act or procedures by which each one is governed (4 marks) Answer to 5.3 Mediation – Informal Process – conducted i.t.o. no official rules or act1 Adjudication – Formal Process - conducted i.t.o. the JBCC Rules of Adjudication2 Arbitration – Formal Process – conducted i.t.o. Act 42 of 19653 Litigation – Formal Process – conducted i.t.o. South African Legislation4

TOTAL 100 MARKS

PAPER 2 – PPE 11 APRIL 2013 Page 9 of 9