- Standard forms of contract in Malaysia are published by JKR, PAM, IEM, AIAC and CIDB.
- Foreign standard forms of contract commonly used in Malaysia are published by FIDIC, JCT, ICE, IMechE and IEE.
- Construction works does not have to be constructed perfectly to achieve practical completion.
- CPC can be issued even when there is minor works yet to be completed.
- Employer’s act of interference could release the Contractor from strict compliance of completion date.
- Contractor may claim against the Employer for delay in nominating sub-contractors
- Variation works given without written instruction may be claimable.
- Final certificate is conclusive unless stated otherwise under the contract.
- Interest is claimable in most of the standard forms of contract for delay by employer in making payment.
- Two steps procedures in applying EOT must be complied with.
Contractor’s Guide to Construction Law in Malaysia
Q1.What are the standard forms of contract available in Malaysia for construction sector?
Generally, the type of standard forms of contract are divided into two divisions, one being the public sector standard forms of contract and the other being private sector standard forms of contract.
In the Public sector, standard forms are issued by Jabatan Kerja Raya(JKR) and there are PWD Form 203A(Rev.1/2010), PWD Form 203(Rev.1/2010), PWD Form 203N(Rev.1/2010), PWD Form 203P(Rev.1/2010) and PWD Form DB(Rev.1/2010). The truth to speak is that PWD forms of contract is perceived to be more beneficial to the employer.
Meanwhile, the standard forms of contract in the private sector are produced by authorities or professional bodies in Malaysia as follows:-
a. Pertubuhan Akitek Malaysia(PAM);
b. Asian International Arbitration Centre(AIAC);
c. Construction Industry Development Board(CIDB);
d. Institution of Engineers Malaysia(IEM).
Q2. What are the foreign standard forms of contract adopted by Malaysian in the construction industry?
The most popular form of foreign standard forms of contract adopted in Malaysia construction industry is issued by International Federation of Consulting Engineers(FIDIC). Foreign standard forms of contract is often used when the construction projects contain international elements like contracting parties residing in different countries or when it is funded by international agencies such as World Bank and the Asian Development Bank.
Other foreign standard forms of contract include those published by Joint Contracts Tribunal(JCT), Institution of Civil Engineers(ICE), Institution of Mechanical Engineers(IMechE) and Institution of Electrical Engineers(IEE).
Q3. Must the construction work to be perfectly constructed in order to achieve Practical Completion and thereafter obtain Certificate of Practical Completion?
It was argued in foreign jurisdiction that standard of perfection in construction works must only be reasonable and not absolute in most instances. In Emson Eastern case decided in English jurisdiction, Judge Newey QC once said “It must be a rare new building in which every screw and every brush of paint is absolutely correct.
In relation to this, one must look into respective construction contract which has set the specific parameters of acceptable practical completion and when the Superintendent Officer must issue the certificate of Practical Completion.
For example, in PAM Contract 2018, Clause 15.1 provides when the works are consider practically completed. Whereas in PWD Form 203A, Clause 39.5 equally provides when the works are regarded as practically completed.
Q4. Can CPC be issued even when there is very minor work yet to be carried out?
In the absence of practical completion being defined under the contract, common law may step in to provide guidance to the contracting parties.
In foreign jurisdiction, we can see the more lenient approach defined practical completion as completion for all practical purposes like allowing the employers to take possession of the works and use them as intended. It is further observed that trifling defects are excused in the certification of practical completion. In contrary, the stricter approach prescribes practical completion as the work must contain no patent defects in materials and workmanship.
The local jurisdiction has adopted a compromise approach whereby when the cost of rectifying the defects is substantial, then it would be impossible to say that the contract had been substantially performed by the contractor. Against the backdrop, if the cost of rectifying the defects is so relatively small, there is local jurisdiction which held that contract had been substantially performed.
Q5. What happen to the completion date in a contract when there is interference by the Employer?
The contractor must first determine if the Employer’s act is covered under extension of time clause and if the answer is in the affirmative, the contractor must apply for Extension of Time(EOT) under the specific clause of the contract.
However, in the absence of any effective EOT clause, any interference by the Employer may be regarded as an act of prevention which releases the contractor from its obligation to complete the works within the agreed period of time. This is commonly observed when the Employer fails to provide drawings or plans at the proper time or failure to give possession of site at agreed time. There are also instances where the Employer fails to procure materials on behalf on time or delay in giving instructions through the consultants.
Q6. What happens when the Employer delay in making Nomination of sub-contractors?
It is observed that if there is delay in making a nomination of a sub-contractor, the main contractor may have a claim against the employer for extra time and payment based on common law position.
Q7. What happens when there is variation works given without written instruction?
It is observed in certain circumstances, the court is ready to impute an implied promise by the employer to pay for work which has not been ordered formally in writing. It was observed in common law that when an additional work was insisted by employer but the employer deny that it is an additional work but the court later find out that it is an additional work, the employer is then bound to pay for the additional work despite there is no written instruction.
Q8. Is a final certificate conclusive?
Generally, final certificate is conclusive as to the amount due from the employer to the contractor or vice versa. Under local jurisdiction, a summary judgment may even be obtained based on final certificate alone where the Court held that final certificate is binding and conclusive in the absence of fraud. There is also situation where the architect has not taken into account all set-off by the employer but the Malaysian Court has held that the employer’s redress is against the architect and no payment can be withhold to the contractor.
Q9. Can a contractor recover interest on money due?
Generally, unless the construction contract expressly provides for it, a contractor is not entitled to interest on any sum of money due to him from the employer.
A contractor must take note of several standard forms of conditions of contract which permit recovery of interest on money due as follows:-
a. CIDB Form(2000 edn);
b. IEM.CE 2011 Form;
c. PAM Subcontract 2006;
d. PAM Contract 2006(with or without quantities).
Q10. What is the proper way to apply for EOT?
The contractor shall comply to two steps procedure required by most of the standard forms of contract, whereby the contractor must first give notification of the delay and express his intention to claim for EOT and secondly, make a formal application for extension of time when the number of days of delay is confirmed.
In PAM Forms of contract(i.e PAM contract 2006(with or without quantities), the two step EOT application mode is mandatory compliance.
In JKR Forms of contract(i.e 203 & 203A(rev 1/2010)), both the steps must be taken simultaneously.
Failure to comply with the mandatory term to apply for EOT is fatal to the contractor.
THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
-CONSTRUCTION & ALTERNATIVE DISPUTE RESOLUTION DIVISION-
Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning
Phang Ting Hong (Associate)
Construction Dispute Resolution Division
Tan Wei Sheng (Associate)
Construction Dispute Resolution Division