General Questions

Q1: What is Movement Control Order (MCO)?

Answer:

    1. MCO is a preventative measure to curb the widespread of COVID 19 and was announced by the Prime Minister of Malaysia on 16.3.2020 with the sole purpose of restricting movement of anyone residing in Malaysia to, from and within an infected area. The announcement of MCO was made based on Prevention and Control of Infectious Diseases Act 1988(“PCIDA”) and Police Act 1967.

Q2: How long is MCO going to last?

Answer:

    1. There are currently three phases of MCO happening in Malaysia now. The first phase of MCO was from 18.3.2020 until 31.3.2020 as announced by Prime Minister Tan Sri Muhyiddin Yassin on 16.3.2020.
    2. The second phase of MCO was from 1.4.2020 until 14.4.2020 as announced by Prime Minister Tan Sri Muhyiddin Yassin on 25.3.2020. We are currently in the third phase of MCO which is for the period of 15.4.2020 to 28.4.2020. This is based on the latest Prime Minister’s announcement on 10.4.2020 where the MCO is extended to 28.4.2020.

Q3: What is an “Infected Area”?

Answer:

    1. Following the gazette of the Prevention and Control of Infectious Diseases (Declaration of Infected Local Areas) Order 2020 (“PCID Order 2020”), the whole of Malaysia has been defined as an infected area. The PCID Order 2020 was issued under Section 11(1) of the PCIDA which allows the Minister of Health to make regulations under Section 11(2) of the PCIDA, to then prescribe the measures to be taken to control or prevent the spread of an infectious disease within or from the whole of Malaysia.

Q4: How is Construction Sector affected by MCO?

Answer:

    1. The construction sector is affected in the first and second phase of MCO where it falls under non-essential services under MCO. The Government of Malaysia has ordered all premises to close except for those involved in the provision of essential services defined under Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) Regulations 2020 (“PCID Regulations 2020”). As such, Ministry of Works has on 18.3.2020 announced that all construction work and maintenance work must stop except for critical works are allowed to continue.
    2. However, during the third phase of MCO(from 15.4.2020 until 28.4.2020) which we are currently in right now, Senior Minister Datuk Seri Azmin Ali has announced on 10.4.2020 that subject to online application to International Trade and Industry Ministry’s(MITI) website from 13.4.2020 onwards, the following sectors of construction and services related to construction works could operate:
      1. Projects whereby the main contractors are G1–G2;
      2. Projects that have achieved physical progress of 90% and above;
      3. Tunnelling works;
      4. Maintenance works;
      5. Sloping works;
      6. Emergency works that are consequent to contractual obligations;
      7. Maintenance, cleaning and drying of stagnant water, spraying of pesticides at construction sites which prevent the breeding of Aedes mosquitoes and other pests;
      8. Other works that if left incomplete may result in danger;
      9. Building projects with 70 IBS score and above;
      10. Construction projects with accommodation facilities for workers, such as centralised quarters for workers or workers’ camp;or
      11. Professional services related to the construction industry including architects, engineers, town-planners, land surveyors, quantity surveyors, project managers, facility managers as well as other relevant services.

Q5: What is considered as critical works?

Answer:

    1. “Critical Works” is defined by the Ministry of Work as works which if not continued with, could cause danger and harm to works, the public or the environment. 

Q6: What are the examples of Critical Works?

Answer:

  • The examples of critical works are (a)Slope Repairs; (b) Pothole Repairs; (c) Traffic Management Control (TMC); (d) Periodical checks of lifts/travellators/escalators and other critical mechanical and electrical equipment; (e) Repairs of lifts/travellators/escalators and other critical mechanical and electrical equipment; (f) Maintenance works at premises of critical services; (g) Upgrading works at premises of critical services; (h) Traffic Light Repairs; (i) Construction of Bailey Bridge at location of any collapsed bridge; (j) Tunnelling Works; (k) Other emergency works as specified under the contract; and (l) Other works which if not completed would result in danger.

Q7: If a contractor deems its construction project falls under critical works, can it carry on the project as usual?

Answer:

    1. No. Construction companies must apply via email (projkkp@mohr.gov.my) to Occupational Safety and Health Department (DOSH) in order to carry out critical works.

Q8: If the construction project does not fall under critical works, does the contractual completion date still apply despite Covid-19 and MCO halted the works for weeks?

Answer:

    1. Yes. In the absence of any express contractual provision which provides for automatic extension of time in such situation, the contractual completion date whether found in awarding letters or in certain standard contract forms like PAM, IEM or PWD will still be unaffected and any delay from the contractual completion date would lead to Liquidated Ascertained Damages(LAD) being imposed by the employer.  

Q9: What if a contractor still carries out the construction works during Covid-19 and MCO for non-critical works?

Answer:

    1. Any individuals or body corporates who carries out construction works which are not considered critical works during the MCO period will be liable to a fine not exceeding RM50,000.00 or imprisonment for a term not exceeding three years, or both pursuant to Street, Drainage and Building Act 1974 (“SDBA”)
    2. There will be further liability for a fine of RM1,000.00 for each day the offence is continued after conviction.

Q10: Does the law provide for all the contractual completion dates to be extended for the equal period of MCO in view of Covid-19?

Answer:

    1. No. The law does not provide for all the contractual completion dates to be extended for the equal period of MCO in view of Covid-19.

Q11: Will EOT be granted automatically in view of MCO?

Answer:

    1. No, unless the contract referred to expressly provides for it. Otherwise, there will be no EOT granted automatically.
    2. There are instances despite very unlikely that where the Superintendent Officer or Consultants will issue a Certificate for EOT without any application being made, but that does not necessarily make the EOT to be granted automatically without any application.
    3. An application for EOT based on the contract is still imperative to safeguard the contractor’s interest.

Q12: What if there is no EOT granted and the construction works was indeed delayed due to Covid 19 and MCO?

Answer:

    1. The contractor will risk being imposed Liquidated Ascertained Damages (LAD) by the employer as provided under the contract.
    2. This is provided under Section 75 of Contracts Act 1950 where a sum as to damages has been fixed in the contract and is payable upon a breach.
    3. In view of the Cubic Electronic Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] CLJ 723, the contractor will now bear the burden of proof to show the LAD amount is extravagant and unconscionable.
    4. The Employer will no longer need to prove actual loss or damage as was the position in Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamay [1995] 2 CLJ 374.

Q13: Can a contractor apply for an Extension of Time (“EOT”) in view of MCO pursuant to the construction contract?

Answer:

    1. Yes, but the contractor must comply with the grounds provided under the contract to apply for EOT. For instance, under PAM Contract 2006, Clause 23.8 sets out the grounds of delay in the form of “relevant events”.
    2. In addition, the Contractor must also seek EOT in accordance to the procedure of the underlying contract executed between the parties. For example, under PAM Contract 2006, Clause 23.1 sets out the procedure to give notice and particulars in order to apply for EOT.

Q14: Can contractor still apply for EOT even if the Covid-19 and MCO scenario does not fit into any grounds of application for EOT provided under the contract?

Answer:

    1. A contractor may rely on the Force Majeure clause if the contract contains the clause.
    2. A Force Majeure clause will cover unforeseen events beyond the control of both parties that makes the performance of the contractual obligation impractical and/or impossible.
    3. The Courts will definitely be tasked with the duty to interpret the respective force majeure clause in the contract on whether Covid-19 and MCO is within the ambit of the same as such argument will be a virtual certainty in disputes to come.
    4. A successful application on Force Majeure clause would excuse the parties legally from performing their obligations under the contract.
    5. If the Superintendent Officer or Consultants failed to process the EOT application and the Contractor’s delay was indeed caused by relevant event for which an extension of time is available, then the time would be at large and the Employer will fail in its LAD claim.

Q15: What would be the consequence if contractor successfully establish the time is at large? 

Answer:

    1. The common law principle of “time at large” is that if a delay event occurs which is attributed to the employer itself and the contract does not allow the completion date to be extended in that event, the original completion will be put “at large” and the contractor just need to complete the works within reasonable time.
    2. There will be no LAD imposition by the Employer if time is set at large.
    3. In Malaysia, the acceptable circumstances by the Courts on “time at large” will be as follows:
      1. additional works instructed by SO after completion date;
      2. Late site possession;
      3. Act of prevention by Employer;
      4. Failure of SO to grant EOT.
    4. In the Federal Court case of Sim Chio Huat v Wong Ted Fui [1983] 1 MLJ 151, it was held that in cases where an agreement contains no clause for extension of time for completion, the acts of prevention by the employer whether authorised by the contract or whether in breach of it or whether the prevention is a cause of part or of the whole of the delay invalidate the liquidated damages clause because by such acts time becomes at large and consequently there is no date from which damages could run and therefore no damages could be claimed.
    5. In the case of Goldcourse Sdn Bhd v Asaztera Sdn Bhd [2011] 9 MLJ 700, the High Court cited with approval the article by Prof. Vincent Powell-Smith on failure of SO to grant EOT would set time at large as follows:
      “(18)…I quote them below:
      (a) Prof Vincent Powell-Smith,The Malaysian Standard Form of Building Contract(PAM/ISM 69):
      Clause 23 provides for the Architect to grant an Extension of Time on specified grounds and an Extension of Time is grantable on those grounds and no other. The Architect has no inherent power to extend the period for completion and in the absence of an express provision such as Clause 23 he would have no power to do so. Failure by the Architect properly to exercise power to extend time, where any delay to completion is caused by the employer for those for whom those for whom he is responsible in law, relieves the Contractor from his liability to pay or allow liquidated damages (Doddd v Churton [1897] 1 QB 562 ] and the time for completion becomes ‘at large’, i.e. the Contractor’s obligation is then to complete within a reasonable time’, (at p 88).”
    6. Hence, if the contractor successfully established time is at large, then the Employer would fail in its LAD claim and the contractor just has to complete its work scope within reasonable time.

Q16: I have several construction contracts supplemented by different PAM Conditions of Contract such as PAM Contract 2006(With Quantities), PAM Contract 2006(Without Quantities), PAM Contract 2018(With Quantities) and PAM Contract 2018(Without Quantities), which clause shall I rely on for EOT?

Answer:

    1. First of all, the PAM Contracts stated above have identical extension of time clause. 
      1. You can rely on Clause 23.1 of the PAM Contracts and take notes of the importance of giving notification and particulars based on Clause 23.1(a) of PAM Contracts.
      2. What Clause 23.1(a) requires simply is that notification of an intention to claim EOT together with estimation of the EOT required and particulars of the MCO must be made within 28 days from the commencement of the relevant event.
      3. The commencement of relevant event would be from the date of the implementation of the MCO. 
      4. In this regard, since Covid-19 outbreak is declared as a global pandemic and shall be considered as force majeure event under Clause 23.8(a) of the PAM Contracts, the Contractor can take advantage of such clause in its EOT application.
    2. Next, when the MCO is lifted, you are again required under Clause 23.1(b) of PAM Contracts to send in a Final Claim for EOT to the Employer within 28 days from when it is lifted. Make sure to support your EOT application with particulars as to how the MCO has affected the progress of works.

Q17: I have several other construction contracts supplemented by PWD forms of contract such as PWD Form203(Rev.1/2010) and PWD Form 203A(Rev.1/2010), can I apply for an EOT under these forms of contract?

Answer:

    1. While Clause 43.1 of PWD Form 203 & 203A(“PWD”) does provide the procedure to apply EOT, it seems that MCO and pandemic is not a ground for extension of time as it does not fall under the definition of Force Majeure.
    2. Although Clause 43.1(a) of PWD provides that force majeure can be an event to allow extension of time and Clause 58 of PWD is the force majeure clause itself, it does not cater for MCO and pandemic under “Event of Force Majeure” pursuant to Clause 58.2.
    3. It does however worth a shot at Clause 43.1(i) of PWD which provides  a ground for extension of time following that “the Contractor’s inability for reason beyond his control and which he could not reasonably foreseen at the date of closing of tender of this Contract to secure such goods, materials and/or services as are essential to the proper carrying out of the Works”.
    4. Clause 43.1(i) of PWD would be the closest clause to be used as a ground to seek for an extension of time. Contractors may argue that MCO and the pandemic have greatly prevented the contractor from obtaining supplies which is beyond their control and definitely not reasonably have foreseen.
    5. Finally, make sure you apply within a reasonable period of the MCO, give a written notice to the Superintending Officer with relevant information and supporting documents pursuant to Clause 43.1 of PWD Form of Contract(203&203A).

Q18: My construction contract is supplemented by IEM Form of Contract for Mechanical and Electrical Engineering Works 1989, can I apply for extension of time in view of MCO?

Answer:

    1. Yes. You can rely on Clause 43 of the IEM Contract 1989 and give written notice of the causes of delay to the Engineer. The grounds to be relied on is simply 43(a), 43(h) and 43(j) of the IEM Contract 1989 as follows: –
      43(a): by Force Majeure;

      43(h): by reason of any action due to local combination of workmen, strike, or lockout affecting any of the trades employed upon the Works, provided the same are not due to any unreasonable act, neglect or default of the Contractor or of any sub-contractor, nominated or otherwise;

      43(j): by the Contractor’s inability for reason beyond his control and which he could not reasonably have foreseen at the date of closing of tender of this Contract to secure such goods and/or materials as are essential to the proper carrying out of the Works.
    2. Next, make sure you have in your best endeavors try to mitigate the delay. For example, the Ministry of International Trade and Industry has on 10.4.2020 allows certain construction project to resume operation provided it has satisfied the requirements set out by MITI and has made an application to resume operation from 13.4.2020 onwards provided that such application is successful.

Q19: Is it true that I can only apply EOT for the period mirroring MCO period?

Answer:

    1. Not exactly. As we all know it will take time to remobilize work force and procuring materials since every construction site will be re-operating at the same time and will definitely result in construction materials shortage or delay.
    2. As such, the extent of EOT application would very much be fact dependent.

Q20: Is Loss and Expense claimable by Contractor to Employer due to MCO?

Answer:

    1. The Contractor must first take note that not all delaying events qualifies for loss and expense claims.
    2. In PAM form of contract, the Contractor’s entitlement to loss and expense is governed by Clause 24 of PAM Contract.
    3. The grounds that give rise to Loss and Expense claim are provided in Clause 24.3 of PAM Contract in which it has to be either attributable to the employer, architect or consultants. Hence, it is clear that Clause 24.3 of PAM Contract did not cater for loss and expense due to delays by reason of the MCO.
    4. On the another hand, Ministry of Work clarifies on 18.3.2020 that the Government will not be responsible for any losses by reason of MCO as it is an event that is beyond the control of the Government.
    5. PWD Form of Contract and AIAC standard Form has been consistent with Ministry of Works’ announcement where the contractor is not entitled to claim for any loss and expenses arising from force majeure in view of MCO.
    6. It is therefore advisable for the Contractors to be mindful of cost control measures during the enforcement of the MCO.

Q21: What should the Contractors do to ascertain whether Loss and Expense is claimable?

Answer:

    1. No doubt that the Contractors must review the Letter of Award, Letter of Acceptance or any awarding letters to review the contract clause ultimately to determine if MCO give rise to the extension of time or falls within the definition of force majeure under the contract.
    2. It is advisable to look for any clause in the awarding letters for rights to claim for Loss and Expense in the event of force majeure.
    3. Alternatively, the Contractors can also try to discuss with counterparty and/or project consultants in relation to the impact caused by MCO on performance of contractual obligations and reach a mutually benefitting solution together pertaining to the Loss and Expense.
    4. Meantime, the Contractors must be mindful to mitigate all losses and expenses as it bears the burden of proof to show that it has taken reasonable steps to lessen the effect of the force majeure event.

Q22: There is a price fluctuation after MCO is lifted, who shall bear the cost?

Answer:

    1. It very much depends on respective construction contract whether it contains a price fluctuation clause. If the contract expressly stated that there is no price adjustment due to price fluctuation, then the contractor is not allowed to be reimbursed due to price fluctuation.
    2. Among the standard forms contract, it is observed that PWD203A form of contract do have price fluctuation clause provided if Special Provision to the Condition of Contract for Fluctuation of Price is incorporated.
This FAQs are prepared and published by Messrs Gan & Zul, Advocates & Solicitors, Kuala Lumpur.
-Construction & Alternative Dispute Resolution Division-
Prepared by:
Gan_Zul_Mr_Ben_Lee_Partner

Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning

Joyce Gan Ling Ying(Associate)
Construction Dispute Resolution Division
Arbitration
Adjudication
Mediation

Phang Ting Hong (Associate)
Construction Dispute Resolution Division
Arbitration
Adjudication
Mediation

Download Article in PDFDownload Article in PDF
Gan& Zul is an established legal firm in Malaysia which consists of experienced litigation lawyers. Our firm provides a wide spectrum of legal services covering various aspects of laws includes dispute resolution, debt recovery, land, bankruptcy, insolvency and corporate dispute. We are also a firm construction lawyers based in Kuala Lumpur.
If you have any queries or require additional information, kindly email us at kul.litigation@ganzul.com or call us at 03-2242 3836

Leave a Reply