NewZimbabwe.com has invited Mr. Vengai Madzima, the Senior Partner at Madzima Chidyausiku Museta Legal Practitioners (MCM Legal), to discuss construction and engineering contracts in Zimbabwe.
Reporter: Welcome back Mr. Madzima. What are the common contracts in construction and engineering and why are they necessary?
VM: Thank you
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Construction, remodelling or renovating project contracts are contracts between what the industry terms as ’employer’ being the owner of the land under project and a ‘contractor’, being the company contracted to execute the construction work required. Although construction contracts can be complex, in that they involve a panoply of laws, it is surprising how common verbal contracts between employers and contractors are in small or private projects. I must say, for completeness, verbal contracts are legal by the way and benefit from the same rights as written contracts, once proved.
To return to your question, the recommended contracts are the National Joint Committee standard contracts and forms for local use, inspired or created and aligned with the internationally recognised FIDIC contracts, as they offer uniformity while at the same time being flexible to incorporate clauses that are subjective or unique to the particular project. Some large projects, especially where there is a mix of international and local stakeholders, use the internationally recognised FIDIC contracts.
Reporter: You mentioned that there is a panoply of laws that relate to construction and engineering projects, what are some of the areas of law or regulations that an employer must be aware of?
VM: The laws applicable to a specific project depend on its size, location and type. I will give a general run-down and brief explanation of some of the Acts, regulations and laws that may affect a construction and engineering project. Construction plans must be in alignment with the Regional Town and Country Planning Act and the model building bylaws, Public-private partnerships in construction are regulated by ZIDA for design, construction, modernisation, among other things. The Engineering Council Act regulates engineers empowered to practice in Zimbabwe. You also have other statutes playing a critical role in construction projects, example, National Social Security Act and specifically the Accident Prevention and Workers Compensation Notice No.6 of 1990, the Labour Act dealing with health and safety, the Environmental Management Act and specifically the Environmental Impact Assessment and Ecosystems Protection Regulations which require housing, commercial and industrial developments, among others to undertake an Environmental Impact Assessment before commencing works together with compliance of other related laws and regulations.
Reporter: I get the idea of the complexity and need to enter into comprehensive contracts before commencing construction projects. In your experience, what litigation issues are common where there are no such contracts and does a contract mitigate the problem?
VM: The common problem with verbal contracts and in some instances written contracts, is cost overruns, although this does not always result in litigation as most employers eventually pay the updated amounts to ensure project is completed. These amounts out of interest may end up being 3 times the quoted amount.
There are a variety of potential causes to this, prime costing being one. In some instances, contractors, especially in smaller projects, may omit to highlight certain expenses, presumably, for purposes of securing the project and then bring the costs to the attention of the employer once the project is locked in, has kicked off and the employer has limited manoeuvrability. A contract that prescribes a cost clause against deliverables may limit issues of underestimation.
Also, an employer and contractor may not actually be of the same mind as to what is to be delivered, perception against reality, the old chicken on the display picture at the chicken shop and the chicken delivered. This causes a lot of litigation in that the employer, upon seeing the final product, which may not marry expectation, is displeased and normally refuses to pay for the service while the contractor on the other hand, will insist that all deliverables were met.
In the absence of such deliverables being stated on paper, it will be left to the courts to decide on the balance of probabilities who is right, whereas the job of the courts may be made easier by having an actual referral template in its assessment.
Reporter: What are the common problems that arise in larger commercial contracts?
VM: Construction and Engineering contracts for large projects have a variety of stakeholders and where such contracts are disjointed and do not speak to each other, it may create a lot of problems and litigation among the stakeholders. The common issue is that the employer will have a contract with the main contractor, who will, in turn subcontract various service providers to ensure that project deliverables are met. Issues arise when there is a problem on the main contract, especially where such a problem affects payments on the main contract, which will cascade and vicariously result in multiple defaults on the related subcontractors.
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Some contractors end up filing for corporate rescue and in the extreme cases, liquidation as a result. In these circumstances, a lot of related and unrelated issues arise, some being whether the contractor company and its assets have legal protective structures or insurance to mitigate the horrors of such a situation or whether the subcontractors were paid on terms or not.
Reporter: Mr. Madzima, there are a lot of issues on this topic, we will have to continue next week.
VM: Thank you.
These discussions are of a general nature and those seeking specific legal advice should contact their lawyer.
