You are on page 1of 28

BY

Sr AMRAN B. MOHD. MAJID


B.Sc. (Hons) Quantity Surveying,
B. Jurisprudence [External](External Law Degree),
Certificate in Legal Practice (CLP),
M. Sc. Project Management,
Reg. QS., FRISM.

AMRAN MOHD MAJID 1


This brief paper will outline steps that have already been
undertaken by the Government in the wake of the enactment of
Construction Industry Payment and Adjudication Act (CIPAA)
2012.
Such steps arise from the need to pay the Contractor at the
right time with the right amount.
New procedures pertaining to the application and approval of
Variation Orders have been streamline in order to facilitate
payment to the Contractor.
New procedures were also issued to prepare and finalize the
Final Certificate in accordance with the contract provision in
order not to prolong the issuance of the said Final Certificate.
Finally, amendments to the Standard Form of Contract
pertaining to payment had to be done in order to safeguard the
interest of the Government whilst ensuring the right amount of
payment is being made to the Contractor.
AMRAN MOHD MAJID 2
With reference to the Intituled of the Construction
Industry Payment and Adjudication Act 2012 (CIPAA), it
reads:
An Act to facilitate regular and timely payment, to provide
a mechanism for speedy dispute resolution through
adjudication, to provide remedies for the recovery of
payment in the construction industry and to provide for
connected and incidental matters
Hence the said provision envisage to regulate regular and
timely payment as well as speedy dispute resolution.
It is therefore incumbent upon the Government to pay
Contractors regularly and timely.
As for the Government, the issue of regular payment
generally does not arise, but with the enactment of CIPAA,
it does provide avenue for the Contractors to now
challenge the valuation as well as certification of works
done by Jabatan Kerja Raya (JKR).

AMRAN MOHD MAJID 3


Further, pursuant to section 4 of the CIPAA, it defines
unpaid party as:
unpaid party means a party who claims payment of a
sum which has not been paid in whole or in part
under a construction contract
Hence the matter of dispute does not necessary
restrict to only issues pertaining to timely payment
but may relate to the dispute relating to the issue of
valuation of work.
The Government, being one of the biggest employer
in the Construction Industry has to now look at ways
to improve its current procedures pertaining to
contract administration in order to minimize any
potential disputes that may arise.

AMRAN MOHD MAJID 4


The person administrating the contract on behalf of
the Government is the Superintending Officer (S.O.)
or the Project Director (P.D.), as the case may be,
named in the contract.
It is trite law, that the S.O./P.D. being the agent of
the Government has to follow any current procedures
determined by the Government which pertains to
contract administration.
One such procedure is that before the S.O./P.D. could
instruct any Variation Order (V.O.) which involves
addition to the Contract Sum, he must apply to the
V.O. Committee and obtain its prior approval.
This requirement can be seen in the Treasury
Instruction (T.I.) 202.2, which inter alia reads:

AMRAN MOHD MAJID 5


Had Nilai Perubahan Dan Pihak Berkuasa Melulus
202.2 Sebelum mengeluarkan arahan perubahan kerja,
pegawai yang bertanggung jawab hendaklah
memastikan kerja tersebut benar-benar perlu dan
ada peruntukan yang mencukupi bagi menampung
perbelanjaan tambahan dan kelulusan hendaklah
diperolehi terlebih dahulu daripada Pihak Berkuasa
seperti jadual berikut:
The T.I. 202.2 then goes to list the various V.O.
Committees that are involved with regard to the
various ranges of Financial Limits pertaining to the
accumulated value of V.O.s which will increase the
contract sum that the S.O. intends to instruct the
Contractor.

AMRAN MOHD MAJID 6


The S.O./P.D. is usually a Government Officer and
hence it is incumbent for the S.O. to comply with the
said T.I. 202.2.
The S.O./P.D. does face problems complying with the
said T.I. 202.2. Whilst it may be ideal to apply the
intended V.O. to the V.O. Committee, it proved to be
a daunting task.
This is so due to the numerous number of project
undertaken by the Government. It will be quite
burdensome on the S.O./P.D. to do the paper work to
apply to the V.O. Committee.
At the same time the V.O. Committee comprising of
senior officers, who are busy with official duties
would find themselves hard pressed for time to
convene meetings.
AMRAN MOHD MAJID 7
The S.O./P.D. needs to give V.O. instruction to the
Contractor especially pertaining to technical requirements
that will not hinder the current work progress on site.
To apply and wait for the approval from the V.O.
Committee will take time. More often than not the
S.O./P.D. will instruct the necessary V.O. and apply later
to the said Committee.
When the S.O./P.D. apply later to the V.O. Committee this
will invariably delay the full payment of V.O. to the
Contractor and will therefore contribute to the delay in
closing the account of the project.
To overcome this problem, whilst at the same time
adhering to the T.I. 202.2, a new procedure has to be
introduced.

AMRAN MOHD MAJID 8


The Jabatan Kerja Raya (JKR) via the Surat Arahan KPKR Bil.
6/2012 introduced a new procedure which requires the
S.O./P.D. to apply to the Chairman of the V.O. Committee to
obtain his prior approval in principle of the intended V.O..
Such provision could only be utilized by the S.O./P.D. in the
event that the intended V.O. is necessary and urgently
required and must be technical in nature. The S.O./P.D. at
the same time has to ensure that there is sufficient funds
allocated for the project to carry out the said intended V.O..
Upon obtaining the approval from the Chairman, the
S.O./P.D. shall then, with convenient speed, apply to the V.O.
Committee to formalize the application.
In the mean time the S.O./P.D. can issue a V.O. instruction to
the contractor and the Contract Sum could correspondingly
provisionally be adjusted to allow payment to be made to the
Contractor in accordance with the progress of the execution
of the said V.O..

AMRAN MOHD MAJID 9


Another procedure to facilitate early closing of
account within the time prescribed under the
Contract requires the S.O./P.D. to prepare a draft
Statement of Final Account (SOFA) within certain
prescribed period after the date of the issuance of
Certificate of Practical Completion (CPC).
This procedure is introduced via Surat Pekeliling
Perbendaharaan Bil. 1 Tahun 2012 (SPP Bil. 1/2012).
The SPP Bil. 1 Tahun 2012 inter alia stated that the
S.O./P.D. must prepare the draft SOFA as follow:
i. 9 months after CPC for conventional projects
ii. 12 months after CPC for Design and Build projects.

AMRAN MOHD MAJID 10


However the said draft final account shall not be issued to
the contractor. Instead it shall be used as a guide for the
S.O./P.D. to pay any balance due to the Contractor. This
will assist in alleviating the financial burden of the
Contractor once the work is completed.
Whilst making payment, certain amount shall be set aside
by the S.O./P.D. to allow for making good any defects
during the remaining period of Defects Liability Period
(DLP). This obviously depends on the discretion of the
S.O./P.D. with regards to the state of workmanship and
goods.
The finalized SOFA shall be issued to the Contractor upon
the expiry of the DLP and the issuance of the Certificate of
Making Good Defects (CMGD) to the Contractor in
accordance with the terms of the Contract.
AMRAN MOHD MAJID 11
The S.O./P.D. must be mindful not to issue the draft SOFA
to the Contractor. As this may cause potential problems to
the Government.
Reference could be made to the case of Pembinaan Aman
Hasil Sdn. Bhd. v. Sabah Medical Centre Sdn. Bhd. &
Others (In The High Court In Sabah And Sarawak At
Kota Kinabalu Civil Suit No. K22-91-2006 Judgment
dated 3.7.2007).
In this case the Architect, who is the S.O. for the project
repeatedly requested the Contractor to submit particulars
of his claims in order for the Architect to issue the Final
Certificate for the said project.
It was found that the Contractor failed to do so.
Nevertheless the Architect issued a draft Final Certificate
to the Contractor.
AMRAN MOHD MAJID 12
The Contractor then claimed final payment based on
the said draft final certificate.
The court ruled that in the absence of any cogent
reason, the said draft final certificate is prima facie
binding on both sides.
The Court opined that surely the architect would not
have picked the final figure from the air and
certainly would have a good basis to issue the said
draft Final Certificate.
Hence based on the legal principle adumbrated in
this case, it is prudent for the S.O./P.D. not to issue
the said draft Final Certificate or SOFA to the
Contractor but just to use it as a basis to make
interim payment during the DLP.

AMRAN MOHD MAJID 13


With the advent of CIPAA the S.O./P.D. must be weary
of the amount of payment that needs to be certified
to the Contractor. It must not be overvalued and at
the same time it must not be undervalued.
In this case the S.O./P.D. must have sufficient and
cogent records to support and justify his valuation
and certification.
With the high number of projects executed by the
Government, this proved to be a daunting task for
the S.O./P.D..
This is further aggravated by the current provision of
the Standard Form of Contract.
The current provision of clause 28.2 of the PWD
203/203A (Rev.1./2010), inter alia reads:

AMRAN MOHD MAJID 14


Thereafter, once (or more often at the discretion of
the S.O.) during the course of each succeeding
month the S.O. shall make a valuation of the works
properly executed and of unfixed materials and
goods delivered to or adjacent to the Site, provided
the total value of work properly executed and the
value of unfixed materials and goods as specified in
clause 28.4 hereof, delivered to the Site intended
for incorporation into the Works in each subsequent
valuation shall not be less than the sum referred to
in Appendix.
The said clause 28.2 clearly puts the burden on the
S.O. to make valuation of work properly executed
and unfixed material on site.

AMRAN MOHD MAJID 15


The S.O. must make findings as to whether the work
executed by the Contractor is properly carried out
and the unfixed material on site is not prematurely
sent to site and its delivery is intended to be
incorporated into the Works.
If the S.O. fail to justify his valuation, the
Government may be vulnerable to claims by way of
adjudication under the CIPAA.
As can be seen the current clause 28.2 of the PWD
203/203A (Rev.1/2010) does not make it mandatory
for the Contractor to submit his monthly claim for
interim payment to the S.O..
Hence the process of valuation falls squarely on the
S.O. alone without the need for Contractor to assist
the S.O. by way of submission of claim.
AMRAN MOHD MAJID 16
Hence the said payment provision must be revisited and
amended to allow the S.O. to make a just valuation whilst at
the same time safeguarding the Governments interest.
After discussion with the Legal Advisor of the Ministry of
Works, the new provisions with regard to payment under
clauses 28.1 and 28.2 of PWD 203/203A (Rev.1/2010), are to
be amended as follow:
28.0 PAYMENT TO CONTRACTOR AND INTERIM
CERTIFICATES
28.1 Subject to compliance with the terms and conditions
under this Contract, The Contractor shall be entitled
for Interim Payment certified by the S.O.s monthly
evaluation (or more often at the discretion of the
S.O.). Provided always that the Contractor shall
submit to the S.O., at such times and in such form
as the S.O. may prescribe, written application for
Interim Payments showing the amounts which in the
Contractors opinion are due under the Contract
Payments. The submission shall include the following:

AMRAN MOHD MAJID 17


(a) the value of Works done and properly executed and valued in
accordance with these terms of Contract;
(b) the amount of any valuation of variations or of the instructions
by the S.O. (clause 25);
(c) the amount in regard to the expenditure of Provisional
Sums and Prime Cost Sums executed or expended (clause
34);
(d) the value of any goods or unfixed materials delivered to or
adjacent to the Site intended for use or to be
incorporated into the Works;
(e) the value of fluctuation of price pursuant to clause 30: and
(f) all relevant documents including site measurement, working
diagrams, delivery orders, relevant invoices, as- built
drawings, shop drawings relevant tests and environmental
impact assessment of the Works or other relevant documents
as the S.O. may require, to substantiate the Contractors
written application for interim payments,.

AMRAN MOHD MAJID 18


28.2 The S.O. shall within fourteen (14) days from
the date of receipt of the application for
Interim Payments, inspect and verify the Works,
and make a valuation of the same and issue an
Interim Payment Certificate stating the amount
due to the Contractor from the Government PROVIDED
THAT the total value in each monthly valuation
shall not be less than the sum referred to in
Appendix 1.
Hence with the new amended clauses 28.1 and 28.2 of the
PWD 203/203A (Rev.1/2010), it is now incumbent for the
Contractor to submit his monthly payment claim.
At the same time the onus is on the Contractor to
substantiate his payment claim to the S.O. for the value of
work properly executed.

AMRAN MOHD MAJID 19


It is trite law that the Government must still pay
notwithstanding the non-submission of payment claim by
the Contractor, provided that the work is properly
executed and yield some benefit to the Government.
Hence a new clause is inserted to cater for such situation.
The new clause 28.6 reads:
28.6 If the Contractor fails to submit full particulars of
written application for Interim Payment as
stipulated in clause 28.1, the S.O. shall make
the valuation of works based on the available
documents to him for the purpose of the Interim
Payment Certificate. The Government shall be
discharged from all liabilities in connection with
the Interim Payments.

AMRAN MOHD MAJID 20


As for the preparation and issuance of the Final
Certificate, the current provision clause 31.1 of the
PWD 203/203A (Rev.1/2010) reads;
31.3 Within three (3) months after the expiry of the
Defects Liability Period for the whole of the
Works or three (3) months after the issue of the
Certificate of Completion of Making Good
Defects under clause 48 hereof, whichever is
the later, the S.O. shall issue the Final
Certificate.
Again the said clause 31.1 puts the onus on the S.O.
to prepare and issue the Final Certificate. There is no
need for the Contractor to submit his final claim.

AMRAN MOHD MAJID 21


The S.O. will be hard press to prepare the Final Certificate
whilst at the same ensuring the rights of the Government for
example the liability of making good defects during the DLP by
the Contractor, re-measurement of provisional quantities, the
expenditure of Provisional Sums and other related and
incidental matters, are taken care.
The S.O. must also ensure all Variation Orders issued whether in
the form of additions or omissions are taken into account.
Failing which the S.O. may be vulnerable to legal or disciplinary
action taken by the Government if he overvalued the Final
Certificate.
Alternatively, the Contractor may take legal action including by
way of Adjudication against the Government if the Final
Certificate is undervalued.
Hence amendment to clause 31.2 of the same form of Contract
is necessary.
AMRAN MOHD MAJID 22
The amended clause 31.2 of the PWD 203/203A
(Rev.1/2010) now reads:
31.2 Within three (3) months after issuance of the
Certificate of Completion of Making Good Defects,
the Contractor shall submit to the S.O. a statement
of the final account showing in detail the value in
accordance with the Contract, of the Works carried
out together with all further sums which the
Contractor considers to be due to him after giving
credit to the Government for all amounts previously
paid by the Government and for all sums to which
the Government is entitled under the Contract up to
the date of the Certificate of Completion of Making
Good Defects or the Certificate of Completion of
Maintenance, as the case may be. The Final Account
shall be supported by all documentation
substantiating the value of the same.
AMRAN MOHD MAJID 23
Again, if the Contractor fails to submit his final claim
for payment of works properly executed, the
Government is still liable to pay. Hence to cater for
such situation, a new clause is inserted:
31.3 If the Contractor fails to submit full particulars
of all claims within the stipulated period, the
S.O. shall make the assessment based on the
available documents submitted by the
Contractor for the purpose of the Final
Account. The Government shall be
discharged from all liabilities in connection
with the claims.

AMRAN MOHD MAJID 24


Reference could be made to the case of
Syarikat Panon Sdn. Bhd. v. Platinum Best
Engineering Sdn. Bhd. (2011) 1 LNS 520.
In this case the contractor claimed payment due
under two heads, namely:
i. RM1,897,506.76 balance of payment due for
the variation of works executed but was
undervalued and under certified.
ii. RM1,389,531.22 the amount of variation of
works allegedly done but was not valued and
certified.

AMRAN MOHD MAJID 25


The court found that both claims were founded on very
complicated calculations and were not supported with
relevant cogent evidence.
Hence both claims were just bare assertions from the
Contractor.
The court also ruled that the onus lies on the Contractor to
prove his claim.
Since the Contractor failed to do just that, the
Contractors claim must fail.
Hence based on the legal principle adumbrated from this
case, it is incumbent for the Contractor to prove his
payment claims for work done.
If he fails, then the S.O. must still issue certificates and he
too must justify his valuation and certification.

AMRAN MOHD MAJID 26


This brief paper has illustrated that the Government has
already taken steps to meet the potential effects of the
enactment of CIPAA.
There are always room for improvement.
However the Government is often faced with a dilemma to
pay and close project accounts speedily but at the same
time to pay the right amount of money at the right time.
It is hope that by undertaking these steps, it will minimize
any potential claims by the Contractor against the
Government.
As the Government strives to improve the liquidity of the
economy, it must nevertheless be done with a just manner
i.e. being fair to the Contractor as well as to the tax payers.

AMRAN MOHD MAJID 27


AMRAN MOHD MAJID 28