Construction Claim FAQs · 2020-07-23 · Construction Claim FAQs THE CONTRIBUTORS (In Alphabetical...

JULY 2020Construction Claim FAQs

Published by:

MAC Intellect Sdn Bhd (1241149-X)

No. 70-2 Persiaran 65C, Pekeliling Business Centre, Off Jalan Pahang Barat, 53000, Kuala Lumpur, Malaysia

Copyright © All rights reserved. No part of this guide may be reproduced or transmitted in any form or by any means whether mechanical or electronic including photocopying and recording without the written consent of MAC Intellect Sdn. Bhd.

Disclaimer The publisher and the contributors to this publication each excludes liability for loss suffered by any person resulting in any way from the use of or reliance on the publication.

PREFACE

We have great pleasure in presenting this publication to the stakeholders in the construction industry. This publication has been prepared with the objective to assist contractors in facing the challenges post-Movement Control Order (MCO). The COVID-19 pandemic and MCO have imposed great impact in the construction supply chain in respect of delay and disruption, availability of plant and labour resources. Many small and medium-sized enterprises suffered from cash flow problem and may be forced to shut down or downsize. In Millchris Developments Ltd v Waters [2020] 4 WLUK 45, the court was supportive in refusing to grant an injunction against the respondent from proceeding with the adjudication as a result of the COVID-19 pandemic. The court preserves the benefits of adjudication in resolving disputes quickly and secure cash flow within project. Parties are discouraged to use COVID-19 as an excuse for unnecessary extra time to participate in the adjudication proceedings. This book is presented in three parts: Chapter 1 presents information relating to common construction contracts, tendering procedures and project management. It explains common terminologies used and the good practices in the construction industry. Chapter 2 outlines the common alternative dispute resolution methods in the construction industry and their procedures in brief. Chapter 3 provides an overview on the possible post-MCO/COVID-19 impacts in the construction industry and some of the measures that contractors can take to mitigate those impacts. This is a free publication written by both local and foreign construction practitioners with an aim to benefit the public at large. It serves as a general guideline only and does not constitute legal advice and should not be relied on as a statement of the law in any jurisdiction. Readers are recommended to obtain legal advice for specific concerns.

July 2020

Construction Claim FAQs

THE CONTRIBUTORS (In Alphabetical Order)

Ir. Albert Yeu, FCIArb MICE MHKIE Senior Resident Engineer of AECOM [email protected] A senior resident engineer at AECOM, Albert is also a chartered civil engineer with extensive experience in design and construction of tunnel, bridge, highway, waterworks and flood prevention scheme in Hong Kong. He is experienced in NEC form of contract and other traditional forms. He is an accredited NEC4 ECC Project Manager, a member of the Institution of Civil Engineers (UK) and Hong Kong Institution of Engineers. He is also a dispute resolver in construction arbitration, adjudication, mediation and dispute board. He is a Fellow of the Chartered Institute of Arbitrators and is the past chairperson of the Chartered Institute of Arbitrators (East Asia Branch) Young Members Group, a council member of the Society of Construction Law Hong Kong and a regular speaker in the areas of ADR and construction contracts. He has numerous publications on the different security of payment legislations implemented around the world and is also a co-author of the book “Lukas Klee, International Construction Contract Law (2nd Edition), Wiley Blackwell, 2018”.

Alex Ngu Partner of Alex, Jason & Co [email protected] +6012 891 7117 Alex Ngu is an advocate and solicitor at High Court of Sabah and Sarawak, Malaysia and he is experienced in dealing with construction disputes either as a mediator, adjudicator, arbitrator and/or counsel. He works with individual clients and businesses to achieve their goals with a litigation strategy designed for each particular matter. He acknowledged that each client has a different needs and intention in their litigation cases. With this in mind he will find the best solutions to their needs. Alex is primarily a litigator, where his emphasis is on general civil litigation and construction disputes. He also advises clients on various litigation process and issues. He also acts as legal advisors to various construction companies based in Malaysia.

mailto:[email protected]



Cindy Wong Principal of Messrs. Wong Xien Yee [email protected] Cindy Wong was called to the Malaysian Bar in April 2011 and admitted as an advocate and solicitor of the High Court of Malaya. She completed her pupillage with Messrs. Chooi & Company and practised with them thereafter. Cindy joined Maybank Group as an in-house legal counsel in April 2012. In September 2016, Cindy resumed practice and joined Messrs. Tan Swee Im, Siva & Partners. She was actively involved in construction dispute resolution including arbitration, fast track arbitration, mediation and adjudication. Cindy started up her own firm of Messrs. Wong Xien Yee in September 2017, primarily focusing in the construction dispute resolution, construction contract management and contract advisory. She also obtained the AIAC Certificate in Adjudication.

Leong Hong Kit MAC Consultant [email protected] Being a dual-discipline degree holder in financial economics and law, Hong Kit is currently the head of portfolio management of MAC Consultant, selecting and controlling the company's business projects and programs in line with MAC Consultant's strategic objectives and capacity to deliver. Driven by his burning passion in the areas of ADR and construction law, he is a construction claim consultant where he regularly acts as party's representative and provides professional consultation on contractual claim matters. In terms of professional achievements, he is a chartered quantity surveyor, a chartered building engineer and a certified project management professional (PMP). He is also a certified HRDF trainer, it is his main interest to create knowledge sharing platform that allows the development of stronger relationship between the construction industry and the industry stakeholders.




Nicholas (Nick) Sunderland Chief Executive Officer of CCMS Group Ltd and Customized Construction Management Services Sdn Bhd. [email protected] Nicholas (Nick) Sunderland is Chief Executive of CCMS Group Ltd and Customized Construction Management Services Sdn. Bhd., having previously been employed as Director at a Malaysian Claims Consultancy and Senior Consultant at two Global Consultancy companies since leaving the UK to work Internationally. Of his 22 years of Construction industry experience working on major international building and civil engineering projects, 15 years has been working in the UK including 5 years of running his own Consultancy in the UK, a total of 7 years has been working Internationally including North America, Thailand and for the past 4 years of the last 7 years in Malaysia. Nick has worked for many clients, of all sizes, throughout the UK, North America and Asia. Nick holds a degree in quantity surveying is a chartered quantity surveyor, a member of the Royal Institute of Chartered Surveyors (MRICS) and a Chartered member of the Association of Building Engineers (MCABE). Learn more about Nick’s companies services and products at www.ccmssb.com www.constructionapps4u.com

Serene Hiew Mun Yi Partner of Harold and Lam Partnership [email protected] Serene was called to the Malaysian Bar in 2011 and is a Partner at Messrs Harold & Lam Partnership. Serene has been practicing in the areas of construction, infrastructure and engineering since being called to the Malaysian Bar. Her involvement in the dispute resolution of construction, infrastructure and engineering is primarily focused in the alternative dispute resolution i.e. adjudication and arbitration. While dispute resolution is her primary area of practice, Serene has also undertakes advisory and construction project management work. In the past several years, Serene has been increasingly involved in both geotechnical substructure-related disputes and infrastructure construction projects. Serene also heads the adjudication practice at Harold & Lam Partnership and since the coming into effect of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) in April 2014, she has been actively acting as counsel or client representative in CIPAA Adjudication cases. She also sits as an Adjudicator in the KLRCA Panel of Adjudicators. Serene is currently the Honourary Secretary of the Chartered Institute of Arbitrators, Malaysia (IGAB Malaysia) and the Honourary Secretary of the Malaysian Society of Construction Law.


http://www.ccmssb.com/

http://www.constructionapps4u.com/



Sr Rachel Ng Associate Director of BKASIAPACIFC (M) Sdn Bhd [email protected] An Associate Director of BKASIAPACIFIC (M) Sdn Bhd, Rachel is also a Chartered Surveyor with over 10 years of experience in construction industry. Fellow Member of the Chartered Institute of Arbitration and Asian Institution of Alternative Dispute Resolution. Sr. Rachel Ng also practises as a mediator, arbitrator and adjudicator, experiences in various contract and commercial consultation, management and advisory as well as various dispute resolution.

Tam Yuen Wah MAC Consultant [email protected] Tam Yuen Wah possesses over 15 years of experience in Malaysia, UAE and Africa with added knowledge in Project Management, Contract Administration & Claim, Planning and scheduling, Quantity Surveying with diverse experience of projects from Infrastructures and ancillaries, Commercial to Residential. He holds the highest academic credential in Master of Science in Construction Management. After graduation, he started his career in year 2005 at a construction cost consultancy firm known as Baharuddin Ali & Low Cost Consultancy Sdn Bhd as Project Executive. Thereafter, he continued his career by venturing into the oversea market in Qatar, Abu Dhabi and West Africa for career advancement from year 2008 to 2015 as contract administrator, planner, and quantify surveyor at a managerial position. In the past few years, he returned to Malaysia and focused on construction contract management and advisory services, disputes resolution including arbitration and adjudication under the Construction Industry Payment and Adjudication Act 2012 (CIPAA). He is also accredited by AIAC as panel Adjudicator.

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Wong Chong Wei Founder and Director of WCW Consulting Sdn Bhd [email protected] Founder and director of WCW Consulting Sdn. Bhd, Chong Wei is also a Chartered Quantity Surveyor (UK) and Chartered Building Engineer (UK) with over 20 years of construction industry experience in Malaysia and overseas. He offers expert advice and assistance on commercial and contractual matters, including expert witness appointments, provision of professional services, assistance with adjudication, mediation, dispute resolution and training and seminars services. He has accepted appointments as adjudicator, mediator and expert witness in several construction and engineering disputes. Mr. Wong is a HRDF Certified Trainer and RICS Licensed Trainer for conducting training courses on Delays and Disruption, Loss and Expenses, Variations Management, Construction Contract Administration, etc. He was the former board member of RICS Malaysia, and he is trained as a RICS Assessor for the APC for new RICS members. As a passionate member of the Malaysian construction industry, he has frequently acted as a counsellor and mentor for prospective RICS APC candidates in their assessments. He is also passionate to train the next generation of construction professionals where he has been conducting part-time and guest lecturing in various private universities in Malaysia for quantity surveying degree programme. In this publication, Chong Wei was assisted by his two young proteges Seng He and Jing Ying whose profiles are mentioned in the following.

Ng Seng He Mr. Ng is a Technical Associate of WCW Consulting Sdn. Bhd. He graduated from Taylor’s University, Malaysia in 2018 with a Bachelor of Quantity Surveying (Hons). He is registered Provisional Quantity Surveyor with Board of Quantity Surveyors Malaysia and Graduate Member of Royal Institution of Surveyors Malaysia. He is currently practicing in the areas of construction commercial and contract management. Apart from that, he is involved in claims and alternative dispute resolution, i.e. adjudication claims preparation and proceedings. Furthermore, he is one of the supporting roles for the company training and seminar programs.

Ng Jing Ying Ms. Ng is a Technical Associate who joined WCW Consulting Sdn Bhd in 2019. She graduated from Tunku Abdul Rahman University College, Malaysia in 2019 with a Bachelor of Quantity Surveying (Hons). While pursuing her bachelor’s degree, she was also attached with a main contractor firm. Her experience involves variation order preparation, monthly interim progress claims preparation, measurement etc. She is one of the supporting roles for the company training and seminar programs. Other than that, she is an essential part of our company with her skills on quantity measurement and costing.



CONTENTS

Chapter 1: Construction Contract, Tender and Project Management ······························································· 1

I. Construction Contract ······························································································································· 1

II. Tender ······················································································································································· 1

III. Project Management ································································································································ 2

IV. Common Abbreviations Used in Construction Industry ············································································ 2

V. PAM Contract 2006/2018 ························································································································· 3

Chapter 2: Dispute Resolution ························································································································· 6

I. Statutory Adjudication (CIPAA) ················································································································· 6

II. Mediation ··············································································································································· 10

III. Arbitration ·············································································································································· 11

IV. Expert Determination ····························································································································· 14

Chapter 3: Post-MCO/COVID-19 ···················································································································· 15

I. Impact on Time ······································································································································· 15

II. Impact on Costs ······································································································································ 15

III. Impact on Work Site ······························································································································· 15

IV. Impact on Management of the Company ······························································································· 16

V. Impact on Employment Issues ················································································································ 16


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CHAPTER 1: CONSTRUCTION CONTRACT, TENDER AND PROJECT MANAGEMENT

I. Construction Contract

Q1 : What is a “construction contract” and what are the essential elements to form a “contract”?

A1 : A construction contract is a contract for construction works and/or services. A construction contract spells out the relationship and obligations of the parties, including the applicable terms and conditions relating to time, money, project management, exit clause, dispute resolution process, etc. The legal requirements to establish a legally binding “contract” are (1) offer; (2) acceptance; (3) consideration; and (4) competency and capacity. For example: a. When a contractor submits a tender for construction works, this is an offer. b. If the employer issues a letter of acceptance to accept the tender, this is an acceptance. c. The tender sum is the consideration. d. Both the employer and the contractor must have legal competency and capacity to enter

into a contract.

Q2 : What are the common types of construction contracts in Malaysia?

A2 : There are many types of construction contracts in Malaysia, such as: a. Classified based on pricing: lump sum contract, cost plus contract, remeasurement

contract, etc. b. Classified based on nature of works: design and build contract, engineering, procurement

and construction contract (EPC Contract), turnkey contract, project development partner contract, etc.

c. Classified based on types of standard forms of contract: Pertubuhan Arkiteck Malaysia (PAM) contract, Jabatan Kerja Raya (JKR) contract, International Federation of Consulting Engineers (FIDIC) contract, Asian International Arbitration Centre (AIAC) standard form of contract, etc.

II. Tender

Q3 : What should you consider when pricing a tender?

A3 : It is important to understand the project and tender documents, e.g. drawings, specifications, bill of quantities, method statements, project duration, scope of works, tender terms, applicable standard form of contract, amendment to standard form of contract, etc.

Q4 : What is a good practice to complete a tender?

A4 : It is advisable for the tender process to be broken down into several “internal packages”, whereby people with different skillsets will review the tender documents from different aspects and raise any tender queries. For example: a. Contract Team / Legal Team – to review the tender terms and conditions and the

applicable standard form of contract.


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b. Costing Team / Estimator – to prepare the costing and pricing for the project including obtaining pricing details from the sub-contractors, specialist consultants and suppliers.

c. Site Manager / Project Manager – to review tender drawings, specifications, method statements for buildability, duration and sequencing for the programme/schedule.

Q5 : How does the project management/site team know what was included in the tender?

A5 : To ensure a smooth transition between the project tender team and the project management/site team, you may consider to: a. Conduct handover meetings. b. Highlight and discuss all the risks identified and accepted in the tender and award. c. Identify key contract management terms including notice requirements, claims and

payment terms, variations, extension of time clauses etc. d. Coordinate between head-office and site office teams.

III. Project Management

Q6 : What is construction planning and scheduling?

A6 : Construction planning and scheduling are key aspects in integrating all your construction activities and phases needed to complete a given construction project at a given budget and time frame.

Q7 : What is the most basic and common scheduling method?

A7 : The critical path method (CPM), is the most commonly used scheduling technique in the construction industry. The critical path method is built around the use of predecessors and successors for each construction task needed to accomplish the job.

Q8 : What does delay analysis do?

A8 : Delay analysis is an exercise to identify the cause and effect of delay and disruption occurred in the course of a construction project. The Society of Construction Law (SCL) Delay and Disruption Protocol (2nd edition) February 2017 sets out some core principles and concepts, amongst others, pertaining to delay, disruption and acceleration, extension of time, concurrent delay, float, mitigation of delay and loss, claims, valuations, prolongations.

IV. Common Abbreviations Used in Construction Industry

Q9 : What is a variation order (VO)?

A9 : VO is an instruction to alter the original scope of works under a construction contract. The costs and valuation of VO works are subject to the terms of the construction contract.

Q10 : What is an extension of time (EOT)?

A10 : EOT means an extension of the completion date under a construction contract. EOT entitlement and application process are subject to the terms of the construction contract.


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Q11 : What are liquidated and ascertained damages (LAD)?

A11 : LAD is a genuine pre-estimate of the loss and damages that an employer may suffer, if there is a breach of contract by the contractor.

Q12 : What is a certificate of practical completion (CPC)?

A12 : CPC will be issued by a contract administrator to a contractor when the construction works are practically completed.

Q13 : What is a defects liability period (DLP)?

A13 : DLP is a pre-agreed period for a contractor to rectify defects found in the construction works done and often the final retention sum is to be released when the DLP ends. The DLP will only arise if it has been included in the contract.

V. PAM Contract 2006/2018

Q14 : How to deal with verbal instruction by Architect?

A14 : Refer to Clause 2.2 AI All instructions issued by the Architect shall be in writing. If the Architect provides a verbal instruction for additional works or variation works, the contractor must request the Architect to formalise the verbal instruction.

Q15 : What is the timeframe for the Architect to provide copies of contract documents after the

contract is awarded to the Contractor?

A15 : Refer to Clause 3.3 Copies of Documents

PAM Contract 2006 PAM Contract 2018

Immediately after the execution of the contract, provide the contractor with 1 signed original copy of the contract documents, 2 further copies of the contract drawings, and 2 copies of the unpriced contract bills.

a. Within 14 days after the award of the contract, provide the contractor with 2 copies of the contract drawings and 2 copies of the unpriced contract bills.

b. Within 14 days after the execution of the contract, provide the contractor with 1 signed copy of the contract documents.

Q16 : If the completion date stated in the Articles of Agreement is different from the Letter of

Award, which one should be followed?

A16 : Refer to Clause 3.1 Contract Documents Pursuant to Clause 3.1 Contract Documents of PAM Contract 2006 and PAM Contract 2018, the Letter of Award prevails over the Articles of Agreement. The date of completion stated in the Letter of Award shall take precedence.


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Q17 : How to make a variation order claim?

A17 : Refer to Clause 11.7 – Additional Expense Caused by Variation Within 28 days upon receiving the Architect Instruction (A.I.), a contractor must give a written notice of its intention to claim for additional costs together with an initial estimate of the claim to the Architect. Within 28 days after completing the variation order, a contractor must submit its official application for additional costs together with supporting documents to substantiate its claim.

Q18 : What should the contractor do when its works have achieved practical completion?

A18 : Refer to Clause 15.2 – Certificate of Practical Completion The contractor should write to the Architect to inform the practical completion of its works and request the issuance of the Certificate of Practical Completion.

Q19 : What are the procedural requirements to apply for extension of time under the PAM

Contract?

A19 : Refer to Clause 23.1 – Submission of Notice and Particulars for Extension of Time Within 28 days of the A.I. or commencement of a relevant event under Clause 23.8, the contractor must give a written notice for its intention to claim for extension of time together with an initial estimate of time required to the Architect. Within 28 days after the end of the relevant event, the contractor must submit its official application of extension of time together with supporting documents to substantiate its claim.

Q20 : What are the procedural requirements to apply for loss and/or expense under the PAM

Contract?

A20 : Refer to Clause 24.1 Loss and/or Expense Caused by Matters Affecting the Regular Progress of the Works Within 28 days of the A.I. or the occurrence of the matter referred in Clause 24.3, the contractor must give a written notice for its intention to claim loss and expense together with an initial estimate of the claim to the Architect. Within 28 days after the matter referred in Clause 24.3 has ended, the contractor must submit its official application for the loss and expense claim together with supporting documents to substantiate the claim.

Q21 : What is the recourse available to the contractor in the event of non-payment?

A21 : Refer to the relevant contract provisions below:

Clauses PAM Contract 2006 & PAM Contract 2018

26.0 Determination of Own Employment by Contractor

30.7 Suspension of Works for Non-payment

30.17 Interest


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Refer to the relevant clauses for dispute resolution below:

PAM Contract 2006 PAM Contract 2018

Clause 34.0 Adjudication and Arbitration Clause 34.0 Mediation

Clause 35.0 Mediation Clause 35.0 Expert Determination

Clause 36.0 Adjudication

Clause 37.0 Arbitration

In addition, the employer and contractor are may consider resolving their disputes and differences via statutory adjudication under Construction Industry Payment and Adjudication Act 2012 (CIPAA Adjudication).

Q22 : What is the mode of delivery of documents under PAM Contract?

A22 : PAM Contract 2006 PAM Contract 2018

C. 36.0 Notice C. 38.0 Notice

C. 36.1 (a) By hand C. 38.1 (a) By hand

C. 36.1 (b) By ordinary mail or registered post

C. 38.1 (b) By ordinary mail or registered post

C. 36.1 (c) By facsimile transmission (fax)

C. 38.1 (c) By facsimile transmission (fax)

C. 38.1 (d) By electronic transmission



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CHAPTER 2: DISPUTE RESOLUTION

I. Statutory Adjudication (CIPAA)

Q23 : What is CIPAA adjudication?

A23 : The CIPAA adjudication is a statutory dispute resolution mechanism provided under Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012). CIPAA 2012 is enacted to facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution, and to provide remedies for the recovery of payment in the construction industry.

Q24 : The construction contract was made before 15 April 2014, can an unpaid party initiate a

CIPAA claim against the non-paying party?

A24 : According to the Federal Court case of Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 175, CIPAA is held to apply prospectively. This means that all construction contracts made before 15 April 2014 are not within the ambit of CIPAA 2012 and the unpaid party therefore cannot initiate a CIPAA claim against the non-paying party. Note: CIPAA 2012 came into force on 15 April 2014.

Q25 : Can an unpaid party initiate a CIPAA claim based on a verbal contract?

A25 : No, pursuant to Section 2 of CIPAA 2012, the Act applies only to construction contract in writing. Therefore, an unpaid party cannot initiate a CIPAA claim based on a verbal contract.

Q26 : Is the written contract required to be signed by both parties?

A26 : No, Section 2 of CIPAA 2012 does not require the written contract to be signed by both parties.

Q27 : Does CIPAA 2012 apply to government construction contract?

A27 : Yes, pursuant to Section 2 of CIPAA 2012, the Act applies to government construction contract.

Q28 : What is the minimum or maximum dispute amount that can be referred to CIPAA

adjudication?

A28 : There is no minimum nor maximum dispute amount limited by CIPAA 2012. An unpaid party can therefore refer any dispute amount to CIPAA adjudication.

Q29 : What happens if the non-paying party refuses to participate in the CIPAA adjudication? Can

the unpaid party still proceed with CIPAA adjudication?

A29 : The unpaid party can proceed with the CIPAA adjudication even if the non-paying party refuses to participate. Pursuant to Section 6(4) of CIPAA 2012, a non-paying party who fails to respond is deemed to have disputed the entire payment claim and pursuant to Section 10(3) of CIPAA 2012, if the respondent fails to serve the adjudication response, the claimant may still proceed with the adjudication. In such circumstance, the Adjudicator appointed is still required and has the power to complete the CIPAA proceedings.


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Q30 : How is an adjudicator appointed?

A30 : Pursuant to Section 21 of CIPAA 2012, an adjudicator may be appointed by the agreement of the parties or by the Director of AIAC upon the request of either party in dispute.

Q31 : How much time is available to the adjudicator to deliver the CIPAA adjudication decision?

A31 : Pursuant to Section 12(2) of CIPAA 2012, the adjudicator must deliver the adjudication decision within: a. 45 working days from the adjudication response or adjudication reply (whichever is

later); or b. 45 working days from the expiry of the period prescribed for the service of the

adjudication response, if no adjudication response is received; or c. Such further time as agreed to by the parties.

Q32 : What happens if the CIPAA adjudication decision is not issued within time?

A32 : Pursuant to Section 12(3) of CIPAA 2012, the CIPAA adjudication decision is void if it is not made within the specified time under Section 12(2) of CIPAA 2012.

Q33 : Can a claimant claim late payment interest in the CIPAA proceedings?

A33 : Yes, a claimant can claim late payment interest, however it is the power and discretion of the adjudicator under Section 25(o) of CIPAA 2012 to award any late payment interest.

Q34 : What are the adjudication costs involved?

A34 : a. Registration fee of RM265.00 for registration of the CIPAA case at AIAC. b. Appointment fee of RM424.00 to request AIAC to appoint an adjudicator. c. Standard adjudication fee as per the table below:

Regulation 6 and Schedule of Construction Industry Payment & Adjudication Regulations 2014

Amount In Dispute (RM) Fees (RM)

50,000 and below 2,760

50,001 to 150,000 5,760

150,001 to 300,000 7,087 + 2.7% of excess over 150,000

300,001 to 800,000 11,137 + 1.08% of excess over 300,000

800,001 to 1,300,000 16,537 + 1.08% of excess over 800,000

1,300,001 to 1,800,000 21,937 + 1.2826% of excess over 1,300,000

1,800,001 to 2,300,000 28,350 + 0.3374% of excess over 1,800,000

2,300,001 to 2,800,000 30,037 + 0.3376% of excess over 2,300,000

2,800,001 to 3,300,000 31,725 + 1.4714% of excess over 2,800,000

3,300,001 to 5,000,000 39,082 + 0.54% of excess over 3,300,000

5,000,001 and above 50,000


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d. Recommended adjudication fee as per the table below: AIAC CIPAA Circular 02:

Amount In Dispute (RM) Fees (RM)

Up to 150,000 8,400

150,001 to 300,000 8,400 + 3.5% of excess over 150,000

300,001 to 800,000 13,650 + 1.3% of excess over 300,000

800,001 to 1,300,000 20,150 + 1.25% of excess over 800,000

1,300,001 to 1,800,000 26,400 + 1.1% of excess over 1,300,000

1,800,001 to 2,300,000 31,900 + 0.7% of excess over 1,800,000

2,300,001 to 2,800,000 35,400 + 0.5% of excess over 2,300,000

2,800,001 to 3,300,000 37,900 + 0.683% of excess over 2,800,000

3,300,001 to 5,000,000 41,315 + 0.65% of excess over 3,300,000

5,000,001 to 10,000,000 52,365 + 0.365% of excess over 5,000,000

10,000,001 to 15,000,000 70,615 + 0.38% of excess over 10,000,000

Over 15,000,000 89,615

e. AIAC’s administrative fee is 20% of the adjudication fee pursuant to Schedule III of the

AIAC Adjudication Rules & Procedure. f. Preparation cost and legal fee.

Q35 : Who pays the adjudication costs?

A35 : Pursuant to Section 18(1) of CIPAA 2012, the loser pays the adjudication costs. The adjudicator will fix the quantum of the costs to be paid by the loser in the CIPAA adjudication decision.

Q36 : Do I need to be professionally or legally represented?

A36 : No, you do not need to be professionally or legally represented in the CIPAA adjudication, this is stated in Section 8(3) of CIPAA 2012. However, you must ensure that you have the relevant expertise and knowledge to achieve a successful outcome in the CIPAA adjudication.

Q37 : What can you do when you receive a winning CIPAA adjudication decision?

A37 : Once you receive a winning CIPAA adjudication decision, although it is not required under CIPAA 2012, it is a good practice to write to the respondent to request for the adjudicated sum ordered in the adjudication decision.

Q38 : What if the respondent refuses to pay after the period stated in the CIPAA adjudication has

lapsed?

A38 : If the respondent refuses to pay, you may: a. Enforce the adjudication decision by applying to the High Court for an order to enforce

the adjudication decision as if it is a judgement or order of the High Court pursuant to Section 28 of CIPAA 2012; or

b. Suspend or reduce the rate of performance of the works or consultancy services under the construction contracts pursuant to Section 29 of CIPAA 2012; or

c. Request for direct payment from the principal of the respondent pursuant to Section 30 of CIPAA 2012.

Pursuant to Section 31 of CIPAA 2012, these three remedies can be exercised concurrently.


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Q39 : What is the other alternative if the respondent refuses to pay the adjudicated sum?

A39 : You may file a winding up proceeding against the respondent without the need to first enforce the CIPAA adjudication decision as a Court judgment (Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 CLJ 499). Note: As of the date of this FAQ, Likas Bay is still the applicable law.

Q40 : What can I do after the CIPAA adjudication is enforced under Section 28 of CIPAA 2012?

A40 : You may file the following execution proceedings against the respondent: a. “Garnishee proceedings” is a judicial process of execution or enforcement of monetary

judgment whereby money belonging to a judgment debtor, in the hands or possession of a third party known as the ‘Garnishee’ (usually a bank), is attached or seized by a judgment creditor, the ‘Garnisher’ or ‘Garnishor’, in satisfaction of a judgment sum or debt (Order 49, Rule 1, Rules of Court, 2012).

b. “Judgment debtor summons” is an order for the judgment debtor to be orally examined before the Registrar of the Court on whether: (a) any debt is owing to the judgment debtor; and (b) any other property acquired by him which are able to satisfy the judgment or order (Order 48, Rule 1, Rules of Court, 2012).

c. “Writ of seizure and sale” is an order issued by a court that allows the petitioner (usually a creditor) to take ownership of a property from a borrower (Order 47, Rule 1, Rules of Court, 2012).

d. Any other execution proceedings available under the law. Q41 : What can a respondent do when the respondent loses in the CIPAA Adjudication?

A41 : The respondent may apply to set aside the adjudication decision pursuant to Section 15 of CIPAA 2012 and a stay of the adjudication decision pursuant to Section 16 of CIPAA 2012.

Q42 : Whether “pay-when- paid” or “pay-if-paid” clauses are still valid and legal?

A42 : In Malaysian construction industry, it is a common practice that the sub-contractor’s payment terms are subject to “pay-when-paid” or “pay-if-paid” basis. This means that unless the contractor receives payment from the employer, the sub-contractor will not receive its corresponding payment. These “pay-when-paid” or “pay-if-paid” clauses are prohibited by Section 35 of CIPAA 2012 in the CIPAA proceedings, they however remain valid outside of CIPAA 2012.

Q43 : Is CIPAA’s adjudication “confidential”?

A43 : Section 20 of CIPAA 2012 stated that the adjudicator and any party to the dispute shall not disclose any statement, admission or document made or produced for the purposes of adjudication to another person and hence meaning that an adjudication proceeding shall be made confidential.


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II. Mediation

Q44 : What is mediation?

A44 : Pursuant to Section 4 of the Mediation Act 2012, mediation is a voluntary process in which a mediator facilitates communication and negotiation between parties to assist the parties in reaching an amicable settlement in respect of the dispute. The parties maintain their rights under the contract and at law to resolve disputes using other forums if mediation fails.

Q45 : What can we achieve in mediation since it is a voluntary process?

A45 : The Mediation Act 2012 acknowledges that mediation is a form of alternative dispute resolution to facilitate the disputing parties to settle their disputes in a fair, speedy and cost-effective manner. With a right intention from disputing parties to mediate, they could achieve an amicable commercial settlement and make their own decision for their disputes.

Q46 : What is the role of a mediator in the mediation?

A46 : In a mediation proceeding, the mediator plays the role as a facilitator in communication and negotiation between the parties and identify parties’ needs and options for amicable settlement. Therefore, the mediator has no decision-making power in a mediation.

Q47 : When can we mediate?

A47 : Generally, mediation can be initiated at any time or stage when disputes and differences between parties arise or at any point of time during a court litigation processes or in the midst of an arbitration proceeding. We encourage mediation to be initiated as early as possible before irreparable communication breakdown between the disputing parties. This may help the disputing parties in arriving at amicable solutions. In the instance where parties have agreed with a multi-tier dispute resolution clause in their contract, such as imposing mediation as a mandatory alternative dispute resolution process prior to commencement of an arbitration proceeding or court litigation, then mediation shall be invoked accordingly. There are also instances where the Court may require parties to mediate first before proceeding with the Court litigation process.

Q48 : What are the processes involved in a mediation proceeding?

A48 : The mediation processes involved are briefly set out below: a. Pre-Mediation – Mediator may request parties to exchange their summary of case and

documents. b. Introduction by Mediator – During the mediation proceeding, Mediator will introduce

parties to mediation and state some ground rules and the procedures involved. c. 1st Joint Session – This is a joint session for parties to identify issues and differences with

the assistance of the Mediator. d. Separate Caucus – Mediator may have private session with each party respectively to

discuss issues which are confidential to each party, and Mediator may facilitate them in identifying their needs and interests.

e. 2nd Joint Session – Parties may negotiate their options and solutions to arrive at an amicable settlement.


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f. Settlement Agreement or Dismissal – If the mediation is successful, mediator will advise the parties to sign a settlement agreement. If the mediation is not successful, mediator will dismiss the mediation proceeding and parties may refer their disputes to a separate forum such as arbitration or court litigation.

Q49 : What are the costs involved?

A49 : The mediation costs involved may include: a. Party Representative’s Costs – This includes legal fees and/or consultant fees. b. Registration and Administrative Costs – This is applicable if parties agreed for the

mediation processes to be administered by any institutions. c. Mediator’s Fee – Parties may negotiate the terms of appointment of mediator including

the mediator’s fees prior to appointment of any mediator. The institute may have determined the mediator’s fee under institutional mediation.

III. Arbitration

Q50 : What is arbitration?

A50 : Arbitration is a form of alternative dispute resolution whereby an arbitral tribunal is appointed to determine the disputes and differences between the parties. In Malaysia, arbitration is governed by the Arbitration Act 2005. Generally, arbitration can be classified as follows: a. domestic arbitration or international arbitration b. institutional arbitration or ad hoc arbitration

Q51 : What are domestic arbitration and international arbitration?

A51 : Pursuant to Section 2 of the Arbitration Act 2005, international arbitration means an arbitration whereby: a. one of the parties to an arbitration agreement, at the time of the conclusion of that

agreement, has its place of business in any state other than Malaysia; b. one of the following is situated in any state other than Malaysia in which the parties have

their places of business: i. the seat of arbitration if determined in, or pursuant to, the arbitration agreement; ii. any place where a substantial part of the obligations of any commercial or other

relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

c. the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one State.

Domestic arbitration means, any arbitration which is not an international arbitration.

Q52 : What are institutional arbitration and ad hoc arbitration?

A52 : Institutional arbitration refers to an arbitration administered by an arbitration institution such as AIAC, in accordance with the arbitration rules issued by the relevant institution or any arbitration rules acceptable to such arbitration institution. Ad hoc arbitration refers to an arbitration not administered by an arbitration institution, whereby parties may determine the applicable rules and procedures.


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Q53 : What are the pre-conditions to initiate an arbitration?

A53 : Parties shall firstly agree to refer their disputes and differences to arbitration. Section 9 of the Arbitration Act 2005 stated that an arbitration agreement may be in the form of an arbitration clause in an agreement or in the form of a separate agreement. A good arbitration agreement includes: a. seat of the arbitration; b. language to be used in the arbitration proceedings; c. governing law of the arbitration agreement; and d. any institutional rules applied (if the arbitration is administered by any arbitration

institution). Q54 : What are the processes involved in an arbitration proceeding administered by AIAC?

A54 : The processes involved in an arbitration proceeding administered by AIAC are briefly set out below: a. Commencement of Arbitration – Notice of arbitration to be served on the other party(ies)

and submit a commencement request with registration fee with the AIAC. b. Appointment of Arbitrator – Parties may appoint their arbitrator(s) or request AIAC to

appoint the arbitrator(s) to determine their disputes. c. Preliminary Meeting and Procedures – Arbitrator will initiate a preliminary meeting with

parties and provide procedural directions for the arbitration proceedings. d. Pleadings – Parties to present their case by exchanging pleadings as directed by the

Arbitrator. e. Hearing – Parties may examine witnesses and expert witnesses during the hearing. f. Submissions – Parties to submit their case for arbitrator’s determination. g. Delivery of Arbitration Award – Arbitrator will deliver the arbitration award to the

parties. Q55 : What are the costs involved?

A55 : The arbitration costs involved includes: a. Party’s Costs – This includes legal fees, consultant’s fees, expert consultant’s fees etc. b. Registration and Administrative Costs – This is applicable if the parties agreed for the

arbitration to be administered by any institution, such as AIAC. Please refer to the relevant arbitration rules for further details.

c. Arbitrator Fees – Parties may negotiate the terms of appointment and arbitrator’s fees prior to the appointment of any arbitrator. For arbitration administered by any institution, please refer to the relevant arbitration rules for further details.

Q56 : Is an arbitration award binding?

A56 : Pursuant to Section 36 of Arbitration Act 2005, an arbitration award is final and binding in Malaysia. However, the High Court has limited powers to set-aside an arbitration award in accordance with Section 37 of Arbitration Act 2005 as briefly summarised below: a. incapacity of a party to the arbitration agreement; b. the arbitration agreement is not valid under the applicable laws; c. the party making the application was not given proper notice of the appointment of an

arbitrator or of the arbitral proceedings or was otherwise unable to present that party’s case;

d. the award deals with dispute out of the jurisdiction of the arbitration proceeding; e. the award contains decision on matters beyond the scope of arbitration proceeding (in

this case, the relevant part of the decision may be set-aside);


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f. composition of the arbitral tribunal or arbitration procedures was not in accordance with the arbitration agreement and the Arbitration Act 2005;

g. the subject matter of dispute is not capable of settlement of arbitration under the laws of Malaysia; or

h. the award was in conflict with the public policy of Malaysia (including, the making of award was induced or affected by fraud or corruption or a breach of the rules of natural justice occurred during the arbitral proceedings or in the making of the award).

An application to set aside an arbitration award shall be made within 90 days from the receipt of the arbitration award, except for the arbitration award induced or affected by fraud or corruption.

Q57 : Is an arbitration confidential?

A57 : Yes, pursuant to Section 41A of the Arbitration Act 2005, no party may publish, disclose or communicate any information relating to the arbitration proceedings under the arbitration agreement or an arbitration award unless otherwise agreed by the parties or unless it is in accordance with the disclosure permitted under the Arbitration Act 2005 (such as to enforce the arbitration award, required by law or to the professional adviser of the parties).

Q58 : How is an arbitrator appointed?

A58 : An arbitrator is appointed by reference to the arbitration clause provided in the contract. Under most standard form of contracts currently used in Malaysia, the arbitration clause makes reference to an appointing body.

Q59 : What are the powers of arbitrators?

A59 : An arbitrator’s powers are set out in the Arbitration Act 2015 and the relevant subsidiary legislation, arbitration rules and the arbitration agreement. The arbitrator (arbitral tribunal) has the power to decide on its own jurisdiction, take evidence, call for a hearing, request for further submissions, appoint experts, decide on costs and arbitration procedures.

Q60 : What can I do after I receive an arbitral award?

A60 : After an arbitral award is delivered by the arbitrator, a party may take the following actions: a. request the tribunal to correct any errors in computation; b. request the tribunal to give an interpretation of any part of the award; c. request the tribunal to make an additional award as to matters claimed but omitted in

the award; d. challenge the award on ground of serious irregularity; and e. apply for court’s assistance to set aside the whole or part of the award



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Q61 : What are the differences between mediation and arbitration?

A61 : Some key differences between mediation and arbitration are as follows:

Mediation Arbitration

Mediator is appointed to facilitate the communication and negotiation between the parties to achieve amicable settlement.

Arbitrator is appointed to determine the dispute and differences between the parties.

Flexible process with less formality on rules of proceedings.

Formal process in accordance with the law and applicable arbitration rules.

Relationship between parties are likely to be maintained upon reaching successful mediation.

Relationship between parties may be damaged during and after the arbitration proceeding.

Settlement agreement will be signed by parties upon a successful mediation with the consent of both parties.

An arbitration award will be rendered by the Arbitrator, which can be enforced on the parties subject to the limited exceptions under the law.

IV. Expert Determination

Q62 : What is Expert Determination?

A62 : Expert Determination is a mechanism for parties to resolve disputes that is usually agreed at the time when the contract was entered into. Normally, this method will be used by parties to resolve problem that relates to specific technical issues such as geotechnical engineering, shipping, construction of oil rigs, power plants etc. Parties shall agree to appoint a joint expert on a particular technical issue and the decision of the joint expert can then be agreed to be binding on the parties. However, unlike litigation or arbitration, expert determination is not governed by any statute. In other words, the application of expert determination is premised on the contract provisions and parties have to spell out the specific scope of issues referred to expert determination and the expert to be appointed.

Q63 : What is Dispute Adjudication Board (DAB) and Dispute Avoidance/Adjudication Board

(DAAB)?

A63 : The DAB is a dispute resolution mechanism introduced in the FIDIC contract as a pre-condition to arbitration. In the latest 2017 FIDIC amendments, DAB is redefined as DAAB. The role of DAAB includes: a. Avoidance of disputes: At the request of the parties, provide assistance and/or informally

discuss and attempt to resolve any issue or disagreement that may have arisen between the parties during the performance of the contract.

b. Issuance of DAAB’s decision: Either party may refer dispute arises between the parties to the DAAB for its decision (whether or not any informal discussion for avoidance of dispute has been held). The DAAB shall issue its decision within 84 days after receiving its reference or such other period agreed by the parties. The DAAB’s decision is final and binding unless a notice of dissatisfaction is issued by any party within 28 days upon receiving the DAAB decision.


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CHAPTER 3: POST-MCO/COVID-19

I. Impact on Time

Q64 : What are the clauses that may be relevant to MCO or COVID-19 pandemic under PAM 2006/2018 and JKR203A (2007/2010) standard form of contracts?

A64 : The relevant clauses are: a. Force majeure is provided for under Article 7(ad) and Clause 23.8 (a) of PAM 2006/2018

or Clauses 43 and 57 of JKR203A (2007/2010). b. The contractor may also consider making an alternative claim, i.e. in compliance and

conformance with the instruction, laws and regulations, under Clauses 4.1, 4.3, 11.3, 21.4, 23.8(q), 23.8 (x), 23.8 (y), 24.3 (d) and 24.3 (o) of PAM 2006/2018 or Clauses 5, 21, 43(e), 44, 50, and 77 of JKR203A (2007/2010).

Q65 : In regards of contractual claims, what are the steps that a contractor may look at post-

MCO?

A65 : As a matter of good practice, a contractor is advised to conduct post-MCO inspection and joint valuation, submit claims and notices, keep contemporaneous records, making good of deterioration works, police reporting and insurance claims for theft and damages, submit revised work programme, adhere to SOPs set out by relevant authorities and so forth.

II. Impact on Costs

Q66 : As a result of the Covid-19 pandemic and also the subsequent stoppage of work on site upon the issuance of Movement Control Order by the Government, would a contractor be automatically entitled to a claim for loss and expense?

A66 : Generally, there is no automatic entitlement to time and cost as a result of Covid-19 pandemic nor the implementation of Movement Control Order. Whether or not a contractor is entitled to a claim for loss and expense is dependent to the terms of the construction contract.

III. Impact on Work Site

Q67 : There are various Standard Operating Procedures (SOP) issued by the relevant authorities being in placed for workers on construction site and these SOP may last for many months into the future. Must we follow each and every of these SOP and if not, what are the consequences?

A67 : Yes, a contractor with workers on site must adhere to all relevant SOPs. Failure to comply with the SOP provided by the relevant authorities is an offence and can be liable to a fine and/or imprisonment under the Rule 11 of the Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) (No. 7) Regulations 2020 (having effect from 10th June 2020 to 31st August 2020) or such other regulations issued pursuant to Prevention and Control of Infectious Diseases Act 1988. It must be noted that Rule 11 of the Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) (No. 7) Regulations 2020 also stated that the director, compliance officer, partner, manager, secretary or other similar officer of a company, limited liability partnership, firm, society or other body of persons, shall be jointly liable as well.


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Q68 : To implement these new SOPs, the contractor will incur additional costs for the project. Can a contractor claim these additional costs from the employer or main contractor?

A68 : Subject to the terms and conditions of the particular construction contract, the answer is generally no. As Covid-19 pandemic and the Movement Control Order are neutral events and the new SOP were imposed by the relevant authorities, the additional costs to implement the new SOP were not due to the fault of the employer nor main contractor.

IV. Impact on Management of the Company

Q69 : My company is having financial difficulty and we would like to restructure the debts, what can we do?

A69 : There are generally 3 ways to do it: Corporate Voluntary Arrangement, Judicial Management and scheme of Arrangement. It must be noted that the consent of at least 75% of the total value of creditors is required before any option can be executed. In a brief summary: a. Scheme of Arrangement

This is an agreement between the company and its creditors/shareholders to reconstruct its capital, assets and liability with court’s approval. There is no automatic moratorium for pending legal suit or winding up petition under scheme of arrangement, the debtor company has to apply for a restraining order from court.

b. Corporate Voluntary Arrangement Similar to Scheme of Arrangement but no approval from the court is required. A nominee (i.e. insolvency practitioner) shall be appointed to provide certain opinion. This approach is not applicable to public companies, a licensed or banking institution and a company which creates a charge over its property or any of its undertaking.

c. Judicial Management A statutory scheme to appoint a Judicial Manager pursuant to a Judicial Manager Order granted by the court to manage a company which is in financial distress. The court will make Judicial Manager Order if it is satisfied that the company is unable to pay its debt and the interest of creditors is better served than company being wound up.

V. Impact on Employment Issues

Q70 : Can we continue to exercise pay-cut/salary deferment/retrenchment as cost-cutting measures due to financial difficulty at the moment?

A70 : Under the Wage Subsidy Scheme, an employer who received the wage subsidy cannot reduce or retrench the employee throughout the subsidy period or 3 months after the subsidized month (subject to any changes and updates on the Wage Subsidy Scheme). For example, if an employer was subsidised in April and May 2020, he cannot retrench or reduce the salary of the employer from April until August. For employees not being covered under the Wage Subsidy Scheme, retrenchment, salary deferment and pay-cut will be subject to normal employment and industrial relation law. It is advisable for employer to obtain each employee’s consent for any salary deferment or pay-cut as it might give rise to breach of employment contract or unfair dismissal. Retrenchment


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should always be the last resort after exhausting other cost-cutting measures such as salary deferment, pay-cut and/or restructuring the manpower. Further, retrenchment must be done in good faith.

Q71 : As construction works are allowed to resume operation by the Government, must we re-

hire the workers which were laid off previously due to redundancy?

A71 : No, the law does not expressly require an employer to first consider the ex-workers when hiring workers.


ISBN 978-967-17877-2-4

Construction Claim FAQs · 2020-07-23 · Construction Claim FAQs THE CONTRIBUTORS (In Alphabetical...

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Transcript of Construction Claim FAQs · 2020-07-23 · Construction Claim FAQs THE CONTRIBUTORS (In Alphabetical...