Question

On 01 May 2015, the management of Netcare concluded a contract with Build-IT Building Contractors, in terms of which the construction company undertook to build one Medical Suite Block, consisting of 50 suites of 3 rooms, a waiting room, Doctors consulting room, reception area and kitchenette. The contract stipulated that the building would be completed by 15 December 2015.

The contracting parties also agreed to the following:

a) If the hostels are not completed by 15 December 2015, Build-IT Building Contractors would be liable for an amount of R10 000 per day delayed after 15 December 2015.  

b) Ten percent of the contract price would be held back until Mr. Smith, Netcare’s architect, issues a final certificate.  

Evaluate which form of breach of contract, if any, has been committed in each of the following independent situations. Provide reasons in support of your evaluation.                                                                             

2.2.1    Build-IT Building Contractors only completes the work on 7 January 2015. The delay is caused by serious floods resulting from an unforeseeable cyclone in September 2015.                                                                                              (5)

2.2.2    Build-IT Building Contractors only completes the work on 10 January 2015. The delay is caused by a week-long strike by the construction company’s employees.                                                                                                                                           (5)

2.2.3    On 6 January 2015, Mr. Smith issues a final certificate, but owing to a cash flow problem, Netcare does not pay the outstanding balance on the contract price.   (5)

Answer 1

This question belongs to the concept of Breach of Contract in case of construction Contracts.

• Types of breach of Contract:
  • 1. Major (“Material”) Contract Breaches:involves the failure to perform an essential and significant term or multiple terms of a contract which result in a negative effect on the value of the contract. render the contract terminated with immediate effect and sue for damages resulting from the breach.
  • 2. Minor (“Non-Material”) Contract Breaches:  which pertains to an inconsequential or ancillary term that does not affect the whole outcome of the contract. The party can claim for damages.
• 3 Common Causes for Breach of Contract in Construction
  • 1. Defective Performance
  • 2. Schedule Issues
  • 3. Failure to Perform
• Potential Remedies Under Breach of Contract
  • 1. Damages for Breach of Contract
  • 2. Rescission
  • 3. Reformation
  • 4. Specific Performance

As per question, case wise discussion is given below:

2.2.1: Build-IT Building Contractors only completes the work on 7 January 2015. The delay is caused by serious floods resulting from an unforeseeable cyclone in September 2015: in this case delay is not due to contractor fault but due to natural calmity. Hence this is not the actual breach & management of Netcare should not sue Build-IT Building Contractors, for damages.

2.2.2    Build-IT Building Contractors only completes the work on 10 January 2015. The delay is caused by a week-long strike by the construction company’s employees: in this case delay is due to contractor fault i.e strike by employees, it concludes Minor (“Non-Material”) Contract Breaches as the performance/completeion period got delayed. Hence management of Netcare should can sue Build-IT Building Contractors, for damages @ R 10000 per day , total of R 2,60,000 for 26 days.

2.2.3    On 6 January 2015, Mr. Smith issues a final certificate, but owing to a cash flow problem, Netcare does not pay the outstanding balance on the contract price : in this case since Ten percent of the contract price should be paid as soon as architect issue final certificate delay by Netcare on account cash flow problem is a breach of contract & Build-IT Building Contractors can sue for the damages or intrest from 6 January 2015 till actual date of payment.

Thankyou!!