Be it JBCC, NEC, FIDIC or GCC, the ‘big four’ have a common thread – duly authorised agents of the employer are empowered to render determinations on claims and certify works.

In the past few weeks, we have seen a flurry of legality reviews being brought by various public sector entities, be it municipal; provincial; national; or parastatals (hereinafter referred to as government), to review and set aside decisions taken by government or their agents.

These applications are all centred around the same theme – it does not matter what contract has been concluded with the contractor or the consultants, no consultant can bind government to financial obligations, which exceed the approved budget.

This recent barrage of applications is premised on s 15 of the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA) or s 34 of the Public Finance Management Act 1 of 1999 (PFMA), read with s 172(1)(a) and (b) of the Constitution.

The relevant sections of the MFMA and PFMA record that government may only incur expenditure in terms of an approved budget, failing which, such expenditure amounts to unauthorised expenditure. The relevant section of the Constitution allows a court to declare invalid any law or conduct it finds inconsistent with the Constitution, and to grant just and equitable relief.

The question, which now arises, is what does this mean in circumstances where the employer has appointed an agent vested with the authority to make decisions relating to claims on its behalf? Does an approved claim for additional costs, over and above the approved budget, become moot? Does any payment certificate certifying amounts ‘over budget’ become invalid?

Unfortunately, the answer to the above questions is questionably yes.

It is arguably the position that where any amount above the contract sum/contingency amount is certified, prior approval must be sought from government, which must, in turn, follow the prescribed procedures under relevant legislation.

Nevertheless, it is likewise arguable that decisions made by agents are binding and enforceable until they are overturned through either dispute resolution proceedings or court proceedings.

While there is potential to nonetheless be paid, having to proceed to court to extract payment for any additional funds is not feasible.

In my view, we are likely to see in the near future contracts where the authority of agents is stripped away, with the government retaining the authority to make all determinations that have financial implications. The only way forward is for contractors to focus on the claims process, and declare disputes where claims are not approved on time, are refused, or are deemed refused.

It would be a far shorter route to proceed to adjudication/arbitration to have claims approved rather than grappling with constitutional issues in court for many years. By and large, adjudication awards/arbitration awards are binding and enforceable, and the financial obligations are not being determined by ‘an agent’, but rather by an appointed dispute resolution body.

If contractors are, however, constrained to participate in legality reviews, they can rest assured that our courts would most likely find that innocent contractors’ ought to be paid for work executed.

The above principle was confirmed in Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd 2019 (4) SA 331 (CC) (Asla), where the Constitutional Court (CC) found that even though the contract was invalid and unlawful, the contractor nonetheless carried out all its obligations in terms of that contract and performed satisfactorily. The rights, which had already accrued to the contractor, were preserved by the court. The court, however, noted that the parties were not allowed to obtain any further rights under the contract. The dissenting judgment in Alsa is noteworthy. Due to the delay in the launching of the legality review, the minority judgment favoured the enforcement of the contract, which would allow for a claim for non-payment of certified amounts and damages.

In Greater Tzaneen Municipality v Bravospan 252 CC (CC) (unreported case no CCT 342/22, 2-10-2024) (Bilchitz AJ, Chaskalson AJ, Dodson AJ, Madlanga J, Majiedt J, Mathopo J, Mhlantla J, Theron J and Tshiqi J) (Bravospan), the CC was required to determine whether the contractor was entitled to compensation for security services rendered under a contract that had been declared invalid in the court a quo.

The CC found that it was not in the interests of justice to grant the municipality leave to appeal and that the contractor should receive compensation for the services that it provided to the municipality under the contract. The CC went on to state that requesting an innocent contractor to provide services and then refusing to pay them for those services is a prime example of unethical conduct, contrary to the ethics of ubuntu, a principle all public authorities must comply with. The full case summary can be found at: www.coxyeats.co.za.

Given the above judgments, it seems likely that our courts will allow contractors to a claim for unjust enrichment in circumstances where contracts are set aside, or where decisions made by government or their agents are set aside. Steps should, however, be taken to deal with the disputes in terms of the contracts, without having to proceed to court.

Peter Barnard LLB (KZN) is a legal practitioner at Cox Yeats in Durban. 

This article was first published in De Rebus in 2025 (Jan/Feb) DR 36.