Analysis of a Recent Arbitrator’s Award – January 2026

ANALYSIS OF A RECENT ARBITRATOR’S AWARD – JANUARY 2026

ON A CONTRACT PRICE ADJUSTMENT DISPUTE ARISING FROM
A JBCC PRINCIPAL BUILDING AGREEMENT

Introduction

  1. They say that a camel is a horse designed by a committee.  I don’t know who they are, but they would not be too far off the mark by applying the same comparison to standard-form construction contracts.  Most of the widely used standard-form construction contracts including the JBCC have been developed over many years and amended on numerous occasions.  One of the risks of developing and amending contracts (as opposed to re-drafting them from scratch) is that, over time, certain provisions may become somewhat vague and/or ambiguous and may require more focussed interpretational effort, skill and experience.  Clause 40 of your PBA is a case in point as far as the identification of the selected nominating / appointing / dispute resolution body for purposes of adjudication is concerned.  A recent arbitral award by an eminent Fellow of the Association of Arbitrators (Southern Africa) NPC (the Association) considered interesting arguments regarding contract price adjustment (CPA) under the JBCC form of agreement, finding that although the CPA provisions of the JBCC were not applicable due to the contract data wording chosen by the parties, the contractor’s fluctuations in material, labour and fuel costs were nonetheless claimable as loss and expense.
  2. In 2020 the employer engaged the contractor (both of them South African registered entities) under the JBCC Series 2000, Edition 5.0, JULY 2007 to expand an operational shopping mall in South Africa. There would be no shut down of the mall, necessitating a short construction period of a few months, with many activities in parallel.
  3. Given the relatively short construction period, the contractor felt comfortable pricing and concluding the contract without the JBCC provision for adjustment of the contract value for CPA (contract data clause 3.2.4 marked “No”).
  4. The works were not completed in time. A project that was envisaged to be completed within a few months expanded into years. It was  impacted by a variety of employer’s risk events including local community protests, site stoppages by local subcontractors and delays by governmental departments. Various extensions of time were granted to accommodate the events and delays.
  5. The contractor found itself in a situation wherein it provided construction services from 2021 to 2023, but having only allowed for material, labour and fuel rates applicable in 2019 in its pricing, without any entitlement to CPA adjustments to cater for inflation. The contractor then advanced a claim for additional payment in terms of JBCC clause 32 for expense and loss, the loss being its actual increased input costs.

The Parties’ Competing Contentions

  1. The employer disputed the contractor’s entitlement on the basis that the contractor had assumed the risk of inflation (or price fluctuations) by expressly contracting on the basis that it would have no entitlement to adjustments to the contract price according to CPA provisions of the agreed JBCC contract data. The employer contended that, by agreeing that the contract value shall not be adjusted according to CPA provisions of the JBCC, the contractor had assumed the risk of fluctuations in input costs. The contractor, so the employer argued, was bound by its rates in the BoQ and the contractor’s claim effectively sought to unilaterally re-rate its 2019 pricing.
  2. On the other hand, the contractor contended that in recording “No” against the CPA provisions in the JBCC contract data, it still retained an entitlement under clause 32.5 for expense and loss incurred due to no fault of its own, given that extensions of time had been granted. The contractor contended that CPA provisions were but one method in the JBCC to adjust the contract price, quantifying its claim on the rise and fall method. 
  3. CPA is a formulaic method for adjusting prices using published indices for labour, fuel and materials based on the Haylett formula developed during the 1970s in response to extraordinary inflation to allow for a fair adjustment to compensate for increased (or decreased) costs due to factors beyond the control of the parties (Ramsden, McKenzie’s Law of Building and Engineering Contracts and Arbitration 7th Edition p199). 
  4. The rise and fall method on the other hand recompenses a contractor based on actual increases in its costs from the date of the contract to the current market rate for those costs, typically finding application in projects that may last for years during which there may be considerable and unpredictable fluctuations in the costs of inputs.
  5. Typically, in the absence of a rise and fall clause, the contractor takes the risk that increases in the cost of its inputs will reduce the profitability of a project or even cause the contractor to sustain a loss.
  6. Although the rise and fall method provides for an employer being able to benefit from a decrease in the cost of labour, materials and fuel the construction labour market has, overall, been inflationary on a consistent basis. Therefore, the use of a rise and fall clause effectively means that the owner accepts the risk of an increased cost burden. (Julian Bailey Construction Law 4th Edition 2025 par 6.2.6).Typically, in the absence of a rise and fall clause, the contractor takes the risk that increases in the cost of its inputs will reduce the profitability of a project or even cause the contractor to sustain a loss.

The Arbitrator’s Findings

  1. Whilst the parties expressly agreed in the contract data that the CPA provisions of the JBCC would not apply, the JBCC expense and loss clause 32.5 remained. The arbitrator concluded that the requirements of this clause had been satisfied, viz, the contractor had incurred an expense or loss due to no fault of the contractor and for which the contractor was not required to provide in the contract sum (the tender price). The arbitrator found that this entitled the contractor to recoup the difference between its 2019 and the actual 2023 pricing of material, labour and fuel.
  2. The arbitrator found support for his conclusions in English authority to the effect that increased costs of labour or materials have been found to be recoverable on the basis that these costs were incurred at a later and more expensive time because of the employer’s delay (due to no fault of the contractor) and can be proved by reference to actual increases or using published inflation indices. Many contracts contain fluctuation or cost variation clauses (viz., the JBCC CPA provisions) under which the contractor is entitled to additional payment for inflationary increases. The contractor cannot recover twice, but might conceivably argue that its actual increased costs were greater than those recovered under the clause so that it was entitled to recover the difference as damages (viz, under JBCC clause 32.5) (Furst et al Keating on Construction Contracts 11th Edition 2021 para 9-057. See also Dennys et al Hudson’s Building and Engineering Contracts 14th Edition para 5-064, and Segal Finsen’s The Building Contract – A Commentary on the JBCC Agreements 3rd Edition p 226 fn 338). Extending the same logic means that a contractor may even have an additional claim, even where a CPA provision has been applied, if it can demonstrate that it has incurred expense and loss beyond what it has recouped through the CPA provisions of the contract.
  3. The essential consequences of the arbitrator’s award in this instance would appear to include the following:
        • Subject always to the exact wording of the contract, a contractor may have, in principle, an entitlement to inflationary loss and expense incurred due to no fault of its own even where the parties have opted out of JBCC CPA provisions.
        • Employers wishing to fix the basis of the contract pricing and its adjustment (if any) would be required, prior to contract conclusion, to include express additional modifications to the contract that exclude inflationary claims via other methods and clauses in the JBCC contract. A mere “tweaking” of the CPA provisions of the JBCC may not suffice.
  1. Subject always to the exact wording of the contract, a contractor may have, in principle, an entitlement to inflationary loss and expense incurred due to no fault of its own even where the parties have opted out of JBCC CPA provisions.
  2. This might not be the end of the debate. There may be difference in opinions.  Our esteemed readers are invited to participate for the benefit of all by sending their views on this interesting topic to the Editor right here.

ANDREW RUSSELL
11 January 2026
The Maisels Group, Sandton
Practising Advocate of the Johannesburg Society of Advocates 
Member of the South African Institute of Electrical Engineers

Oswald

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