Introduction
Interim payments throughout the construction period as the work progresses are one of the most important mechanisms in construction contracts. They ensure that contractors are paid regularly for work completed and materials supplied, while also allowing employers to monitor whether contractual obligations are being met.
In the common law, payment is usually due only on delivery of the finished product, which causes severe problems with cash flow management on the time scales of construction or EPC projects – especially if materials and equipment must be purchased or manufactured ahead of time.
Most construction contracts therefore provide for periodic assessments of the work done, followed by the issuing of a payment certificate by a certifier such as a principal agent, Employer’s engineer, architect or project manager. The certificate records the amount due to the contractor at that stage of the project.
While payment certificates are intended to maintain financial momentum on projects, disputes sometimes arise when employers fail to pay the certified amounts. In those circumstances, an important practical question emerges:
Does the payment certificate itself create a clear obligation for the employer to pay?
The answer depends largely on the construction contract in question and, most importantly, the role of the certifier within that contract.
When Does a Payment Certificate Confirm That Payment Is Due?
In legal terms, a document recording a debt will be enforceable if it clearly records that a specific amount of money is owed and payable, and constitutes an unambiguous undertaking by the debtor to pay that sum. This is commonly termed “a liquid document”.
For a payment certificate to meet this threshold, it generally needs to demonstrate three key elements:
- it must be a written document,
- it must record a fixed or easily ascertainable amount of money, and
- the obligation to pay must be clear in line with the contract and not dependent on further conditions.
Where the requirements of a liquid document are fully satisfied, a payment certificate will ordinarily be enforceable as a self-standing acknowledgment of indebtedness, entitling the contractor to pursue immediate enforcement. However, in circumstances where the contractual terms are silent, ambiguous, or where the requirements are only partially satisfied, courts have demonstrated a willingness to examine the substance of the document and the surrounding contractual framework. In such instances, the court may draw an inference, based on the authority of the certifier, the wording of the certificate, and the intention of the parties, that the document constitutes a liquid obligation. The enquiry is therefore not purely formalistic, but involves a consideration of whether, in substance, the certificate evidences a clear and enforceable liability on the part of the employer.
In South African law, in addition to the need for the debt to be recorded in writing, it must be signed by the debtor or their properly authorised agent. Where these elements are present, the certificate may serve as strong confirmation that the employer is required to pay the certified amount.
However, in circumstances where the employer is an organisation rather than a single person, and there are many different people with delegated roles on the project including independent contractors working for the employer, whether a payment certificate meets these requirements often depends on how the construction contract defines the authority of the certifier.
Payment Certificates Under Different Construction Contracts
Different standard form construction contracts treat payment certificates differently. Understanding these differences is important for contractors, project managers, engineers and quantity surveyors involved in contract administration.
JBCC Contracts
Under the JBCC Principal Building Agreement, payment certificates are issued by the principal agent at regular intervals during the project. The certificate confirms the amount due and payable by the employer to the contractor for work completed.
Within the JBCC framework, the principal agent typically acts as the employer’s agent when issuing payment certificates. In terms of the Contract, he is specifically authorised to act on the employers behalf for certain delegated functions, and the confirmation of the amount due for payment to the contractor is expressly included in this delegation. As a result, once a certificate is issued properly and signed by the principal agent, it legally binds the employer to pay the certified amount.
This gives JBCC payment certificates significant legal weight, and absent any issues regarding the agent’s authority, a court will usually enforce them as payment instruments in their own right, separate from the underlying contractual obligation to pay the contractor for the work performed, in a general sense.
For contractors working under JBCC contracts, this mechanism provides a high level of security regarding payment, once a certificate has been issued. In addition, there are sanctions against the principal agent and employer should payment certificates not be issued properly or timeously.
NEC Contracts
The NEC contract suite approaches payment certification differently. Under NEC contracts, the Project Manager assesses the work done at each assessment date and determines the amount due to the contractor. This amount is then communicated to the parties as part of the payment process.
Although this assessment establishes what should be paid at that stage of the project, the Project Manager is generally regarded as an independent contract administrator rather than the employer’s agent, and even though the Project Manager does generally act on the employer’s behalf, it is not explicitly stated in the contract terms that this creates a situation of agency, from a legal perspective. NEC payment certificates also do not prescribe the necessary formalities, such as being signed by an authorised person.
Because of this distinction, the assessment of the amount due may not always carry the same binding effect as a payment certificate issued under a JBCC contract. Employers may still raise challenges to the assessment in certain circumstances, depending on the contractual provisions and the nature of the certificate that was issued.
For this reason, while NEC payment assessments remain central to project cash flow, their legal effect can sometimes be less straightforward than under other contract forms.
For a contractor seeking security for payment, it may be prudent to include a secondary option clause in the NEC contract when it is negotiated, stating that the employer consents to being bound to pay each payment certificate issued by the project manager, as a liquid document. This addition to the standard form terms would remove any uncertainty as to the status of an NEC payment certificate.
FIDIC Contracts
Under FIDIC contracts, the responsibility for payment certification rests with the Engineer.
The contractor submits a payment application, which the Engineer reviews before issuing an Interim Payment Certificate confirming the amount that should be paid by the employer.
Similar to the NEC structure, the Engineer is generally regarded as an independent certifier rather than an agent of the employer. This means that while the certificate reflects the Engineer’s professional assessment of the amount due, it does not always operate as a direct acknowledgement of debt by the employer.
While a court in South Africa may be inclined to accept that the FIDIC Engineer does in fact act as the employer’s agent, and that the contract intended to bind the employer to pay, there is a lack of clear and unambiguous wording to that effect, which opens the door to an employer disputing its payment obligation.
As a result, disputes over payment certificates under FIDIC contracts may require closer examination of the contractual provisions and the surrounding circumstances.
What do the courts say?
In Thomas Construction (Pty) Ltd v Grafton Furniture Manufacturers (Pty) Ltd, the court recognised that interim payment certificates may create an enforceable cause of action, but emphasised that their enforceability remains subject to the terms of the underlying contract and any available defences. More recently, in Umlazi Civils (Pty) Ltd v Concor Construction t/a Conradie Joint Venture, the court declined to enforce a payment certificate on the basis that disputes persisted under the contract, illustrating that such certificates are not automatically treated as liquid documents. These cases demonstrate that courts adopt a substantive approach, considering whether the certificate evidences a clear and unconditional liability, failing which liquidity will not be inferred.
Key Questions to Consider
When assessing the strength of a payment certificate on a project, several practical questions are worth asking:
- Is the certificate formally issued in writing?
- Does it clearly state the amount that must be paid?
- Is the obligation to pay unconditional, or subject to further review?
- Is the certifier acting as the employer’s agent or as an independent professional?
These factors often determine whether a payment certificate simply records an interim assessment or represents a clear confirmation that payment must be made.
Practical Implications for Construction Projects
For Contractors
For contractors, payment certificates are essential for maintaining cash flow and ensuring that project operations can continue without interruption. Contractors should ensure that:
- payment applications are prepared accurately and supported by proper records,
- the contract clearly defines how certification operates, and
- the authority of the certifier is clearly understood.
Under contracts such as JBCC, payment certificates often provide strong confirmation of payment due. Under NEC and FIDIC, contractors may need to consider the contractual framework more carefully when relying on certificates to enforce payment.
The crucial difference between a payment certificate being a liquid document and one that is not is the time taken to enforce payment – liquid documents are treated as an independent debt on their own merits, and only the authenticity and status of the document need be proven. On the other hand, contractual debts without a liquid document will usually be subject to the contractual dispute resolution mechanism, which can involve a dispute over the underlying entitlement. Such disputes can be time consuming to resolve, and the contractor’s cash flow will hang in the balance.
For Employers
Employers should also pay careful attention to the provisions governing payment certification. In particular, employers should:
- understand how binding payment certificates are under the contract,
- ensure that internal payment procedures comply with contractual timelines, and
- address disputed certificates promptly and constructively.
Allowing payment disputes to remain unresolved can disrupt project progress and place unnecessary strain on the contractual relationship between the parties.
Conclusion
Payment certificates play a central role in construction contracts by supporting project cash flow and confirming the value of work completed.
However, not all payment certificates carry the same level of authority. Their strength depends largely on the contract in use, the authority of the certifier and the way the certificate records the amount payable.
For professionals across the built environment, including engineers, project managers and employers’ representatives, understanding how payment certification operates under JBCC, NEC and FIDIC contracts is essential. It is especially important for professionals that represent employers to clearly understand their responsibilities, if they act as an agent of the employer. Clear contract administration and a proper appreciation of these mechanisms can go a long way toward preventing payment disputes and keeping construction projects on track.