Construction World March 2019

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The gift of complexity Aurecon has allowed me to ask the question, ‘why?’ Why do we do the things we do, and what problems do we really want to solve? It’s the single most important word embedding our activities, because it’s the only word big enough to incorporate the complexity of a global digital world in shift. Moving beyond the traditional ‘fix it’ approach has meant a complete step change in how we engage with our clients. Now, rather than sitting back and receiving known problems to solve, we are going out to find problems that clients don’t even know they have. The deep complexity of accelerating change has demanded a broader definition of design and an attitude that can, as Ben Hamley puts it: “love uncertainty, and lean in on the chaos”. It has paved the way for our Design Academy and design thinking as a

way of Aurecon life an altogether different way of future building that embraces human skills, talent and ability as its cornerstones. I’ve loved the journey, of seeing contributions unlocked and silos overturned in a collective design experience that has bred beautiful optimism and bright talent to shape our future world. So, as a way of saying thank you, what would be my gift back to the greater Aurecon community? I think a simple encouragement to say, keep doing what you do. Keep steady on your tiptoes, peeking into the future and pulling it towards you. According to Indra Nooyi: "The more we can break the rules, the better off we’re going to be." Be radical in your research and deliberations; don’t fear risk. And keep telling yourself and others the success stories that inspire more transformative and meaningful design. Together, they form a narrative which I’ve decided to entitle ‘Aurecon: the privilege was all mine’. 

On-demand bonds: THE GREAT DISTRESS OF CONTRACTORS Construction projects are complex and risky. For this reason, the viability of the industry requires forms of securities, including on-demand bonds. By Kelly Stannard, Associate, MDA Attorneys

A n on-demand bond is a contract between an employer under a construction contract and an independent guarantor (usually a bank) which allows the employer to demand the bond amount for immediate payment without needing to prove that it has suffered a loss. Whether or not there are any pending disputes between the employer and the contractor, the guarantor is obliged to pay the total guarantee amount to the employer unless there are exceptional circumstances. The guarantor will then recover the paid-out amount from the contractor. For employers, on-demand bonds are an ideal form of security – they can be quickly enforced and their effectiveness is legally certain. But, for contractors this form of security can be devastating, potentially resulting in their liquidation. There may be a need to develop alternative security options that are effective while being fair. Pay now, argue later Because on-demand bonds allow for a “pay now, argue later” scenario, employers are increasingly abusing on-demand bonds to obtain cash quickly, instead of risking or waiting for a long and expensive dispute to be resolved under the underlying contract. Given South Africa’s cash-strapped construction sector, at MDA Attorneys we are seeing more cases where employers cash in on bonds even where they may not have actually suffered loss as a result of the contractor. While this action provides quick cash flow for employers, it devastates the contractor’s cash flow. The employer is paid now but the contractor may not survive to argue later. Often the contractor has a legitimate dispute that would have been won if dispute resolution proceedings were followed, making this situation severely prejudicial for contractors.

Alternatives A current alternative bond in South Africa is the conditional bond. It differs from an on-demand bond in that the employer has to prove the liability of the contractor before the the will cash out the bond. Employers specifically looking for the speed and certainty of an on-demand bond are unlikely to accept a conditional bond as a compromise. In the United Kingdom, a third type of bond has been developed, namely the adjudication bond. This is principally an on-demand bond, but the demand must be accompanied by an adjudicator’s decision. This means that the employer must have proven its case against the contractor and obtained an adjudicator’s decision in its favour before it can make a demand under the bond. This type of bond could offer a compromise that employers are willing to accept. As adjudicator’s decisions can be fairly quickly obtained, it upholds to some extent an employer’s desire for a prompt remedy, while affording the contractor some fairness in that its argument will be heard by an adjudicator now rather than later. The implementation and enforcement of adjudication bonds will not be without challenges. The underlying contract and the bond will need to speak to each other in respect of the adjudication provisions. Situations that may obstruct the effectiveness of the bond need to be considered – Adjudication may be impossible (if the contractor is liquidated, for instance) and the fact that there is no legislation in South Africa to regulate adjudication. These problems could be addressed with the help of legal and financial professionals. The time may have come to try effective and fair alternatives to the on-demand bond. 

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CONSTRUCTION WORLD MARCH 2019