RMK 354 - CONSTRUCTION LAW

SEMESTER 2 2020/2021

NAME MATRIC NUM

MOHAMAD HAZIQ BIN ZULKIFLE 147035

AHMAD FA’ID BIN ARIFFIN 146458

MUHAMMAD SHARUL AMIN BIN NORILHAM 145693

AFFIQ NUR AFIZAN BIN ARIFF FADZIL 149212

MUHAMMAD AZIM BIN MOHD ASRI 147759

MUHAMMAD ILHAM BIN IZARUDDIN 145861

TITLE: Syarikat BinaMaju submitted progress payment No. 3 for works carried out in
Projek Pembangunan Sekolah at Batu Pahat Johor. However, the claim was not
certified by the Consultant, thus no payment was made to Syarikat BinaMaju.

DUE DATE: 7 MAY 2021

LECTURER: DR. ZUL ZAKIYUDIN BIN AHMAD RASHID

TABLE OF CONTENT

NO CONTENT PAGES
1 INTRODUCTION 3-5

2 EXECUTIVE SUMMARY 6

3 REQUIREMENT 7-11

4 COMMON MISTAKES 12-15

5 SUGGESTIONS BEST PRACTICES 16-21

6 STEPS & OPTION 22-28

7 CONCLUSION 29

8 REFERENCE 30-31
INTRODUCTION
A building project may be billed in a variety of forms. You will bill at the conclusion
of the job, at the start, or as the project progresses. Progress fees are received as a part of
progress billing and are made whilst the project is still in progress. A payment submission,
which should be specified in the contract specifications, may be used by contractors or
subcontractors to make a progress payment. Prime contractors and first-tier subcontractors
use billing applications to receive payment from the hiring team. Contracts usually have
provisions specifying the employer's and contractor's rights, roles, commitments, and
liabilities, as well as remedies for violations of any of the duties. One of the important
elements in the construction contract is “payment” by the employer to the contractor 1. In
clause 28.1 of PWD 203A stated that:

When the Contractor has executed work including delivery to or adjacent to the Works of any
unfixed materials or goods intended for incorporation into the Works in accordance with the
terms of this Contract and their total value of work thereof has reached the sum referred to
in Appendix, the S.O. shall at that time make the first valuation of the same.

In PAM 2018 under clause 30.1 stated that :

Upon receipt of the Contractor's details and particulars, the Architect after having received
the payment valuation from the Quantity Surveyor shall, within twenty one (21) Days from
the date of receipt of the Contractor's application, issue an Interim Certificate to the
Employer with a copy to the Contractor, and the Employer shall thereafter pay the amount
certified to the Contractor within the Period of Honouring Certificates. Any failure by the
Contractor to submit a payment application shall be deemed to be a waiver of his
contractual entitlement for that Interim Certificate, and the Architect may or may not issue
an Interim Certificate under the circumstances. After the issuance of the Certificate of
Practical Completion, Interim Certificates shall be issued as and when further amounts are
1 RUSTAM, NURHANISA HASMAH. “PAYMENT FOR OFF-SITE UNFIXED
MATERIALS AND GOODS.” PAYMENT FOR OFF-SITE UNFIXED MATERIALS AND
GOODS, Universiti Teknologi Malaysia, 27 July 2011,
https://bic.utm.my/files/2018/12/Payment-for-Off-Site-Materials_Nurhanisah.pdf.
 ascertained by the Architect and Quantity Surveyor as payable to the Contractor by the
Employer.

CIPAA (Construction Industry Payment and Adjudication Act of 2012) has provisions to
ensure that payments are received on time and in full across the supply chain. Surprisingly,
the Act does not specify payment dates, only stating that the parties are free to negotiate on
what fees are owed and when, implying that the arrangement must provide a method for
deciding these issues. Interim licences, which are commonly valued by the expense
contractor, usually qualify for routine payments. The recipient is responsible for honouring
temporary certificates within the contract's time frame. In other countries, The owner will
charge the progress payments at the end of each month, and the paid number, minus any
retainage, will be transferred to the contractor's account 30 days later. The following formula
can be used to measure the value of each progress payment:
(Halpin et al. 189)

Pay = 1.25 (indirect expense + direct expense) - 0.10 [1.25(indirect expense + direct
expense)]2

2 Halpin, Daniel W., et al. Construction Management. John Wiley & Sons, 2017. Wiley.com,
https://books.google.com.my/books?id=pQpADwAAQBAJ&source=gbs_navlinks_s.
In claiming the payment there are two main things to consider first which is contractual basis
and common law basis. For contractual basis, a contract argument based on the concept of
'loss and expense' or 'gain,' of which the difference or claimed balance should naturally
include the cost of capital. In the UK RIBA form of contract, the word 'loss and expense' is
large enough to provide compensation for the costs of borrowing capital. The contractor can
have a greater chance of proving its failure and injury if the foundation is contractual.
Financing costs must also be proven, but they are now one of the cost elements, along with
the rest of the variance or cost argument. (Hallworth)

While for common law basis, a legal action for a breach of contract, which is effectively a
lack of ability to spend the remaining funds or the balance of interest owed.The aim of a
contract infringement damages settlement is to place a party in the same situation it would
have been in if the contract had been properly executed. This can have the expense of not
using the money or the interest that should have been earned. This issue can be referred to
through the case of Hadley v Baxendale in 1854 where the losses arose naturally and in the
ordinary course of things.3

3 Hallworth, Tim. “Construction claims: preparing finance claims.” OUT-LAW GUIDE,

Pinsent Masons, 18 September 2020,
https://www.pinsentmasons.com/out-law/guides/construction-preparing-financial-
claims.
EXECUTIVE SUMMARY

From the introduction above, we can foresee the topic of this report is referring to the
payment claiming from a contractor to the consultant in a legal way of law. This report is
about a study case of a claiming progress payment from contractor (Syarikat BinaMaju) on
their No. 3 for works that are being carried out in Projek Pembangunan Sekolah at Batu
Pahat, Johor. However, an issue occurred regarding the claiming where the Consultant does
not accept the claim, thus no payment being made to the contractor.
By taking PAM 2018 and PWD 203 Standard Form of Contract as the reference, we
will review the basic requirements needed to claim the payment. In this part the reader could
see the essential documents, dateline and properties that need to be prepared by the contractor
to submit any claim regarding their works to the consultant. As in the construction industry,
the payment progress will be paid based on the evaluation of works that are being done.
Next, reviewing the common mistakes that might happen in this study case and
regularly happen when submitting the claim. Every project requires a huge amount of money,
therefore simply mistakes are prohibited and every single thing requires a special audition
from a specialist like a Quantity Surveyor or Safety engineer. This part is also important to
evaluate whether the mistakes come from the contractor or the consultant. Then, the decision
will be made fairly.
Furthermore, briefly discuss the suggestion and recommendation practise that can be
conducted by the contractor to ensure their claim is valid and accurate with the requirement
needed. However, the recommendation might vary according to the region of the project and
local authorities' requirements.
Moreover, in claiming the payments, there are no parties right or wrong till the
judgement can be made. So if any dispute happens, this part will help the contractor to fight
for their justice if they do nothing wrong in the claiming process. The steps and options are
based on the previous cases that happen as reference or guidance to solve the dispute.
In summary, the construction industry required a balance between cost, time and
quality. All the work that is being done needs concrete proof or evidence before payment is
made. Integrity in evaluating is also essential to avoid any dispute or conflict which can make
the project become worse or even suspended.
 1. REQUIREMENT

1.1 Claim

A claim from a contractor is a right where the contractor may demand a settlement for any
damages done by other party. In any event or works that were not agreed in the initial
agreement between the stakeholders, the construction contractor may demand the responsible
party a request called claim. Because of the involvement of numerous parties in a
construction project, such as contractors and clients, the cost may be affected, resulting in a
significant additional cost. A resort to arbitration, litigation, and other types of dispute
regarding the misunderstanding of rights for a settlement is strongly required, as is the
amount of time and money to be incurred.

In order for a construction claim to be made, there must be some kind of action or omission
on the part of any party to a construction contract, indicating that the other party did not fulfil
their end of the bargain. To make it clear, this claim arises when a liability which needs to be
reimbursed by a contractor to the other party (client). Therefore, an affirmation and demand
for settlement by concrete information formed and arguments advanced by a party in support
of its case is a form of construction claim in the industry.

The term "claim" has been falsely acknowledged, and the government department has made
the assumption that this action of claiming "claim" is an attempt by the contractors to seek
excessive payments. This caused the government departments to need to defend themselves
from this action. This term "claim" reflects bad feedback because it reflects an unwanted
procedure between the parties to discuss to obtain relief which is contractually and equitably
entitled after having difficult financial status. Although public and private substances appear
in their negative perspective on claims from entirely different points of view, those insights
are bolstered by an ever expanding disdain for the consistency of the interaction of question
goal, which is commonly used in the open agreement guarantee goal.

1.2 Claim Identification

Instantly resolving claims in an efficient manner is the best way to prevent any construction
claims from arising at the start of the project. The recognition of amendments must be done
as soon as possible, and the stakeholders must be informed. With this, the stakeholders will
be able to make a decision with regard to the claim arises. One of the keys to successfully
resolving claim disputes that arise during the construction phase is early identification of any
potential claims. This includes special compensation and additional work. The identification
of a claim is the first step in the management of proper claim work. Recognising and
identifying the position of a claim should be the ability of the contractor and comes along
with notification. Clauses in almost every contract from government and private can pursue
require notification of differing site conditions, variation, and delay in a specific duration
before equitable adjustment is written in.The cause of a claim is very crucial. Disputes and
claims that are common are worth nothing.

The environment with "claim consciousness" people, used to and understanding of potential
claim situations have become the criteria for a fortunate claim process. While the recognition
of claims is automated with the client's direction of change orders, the provider must be able
to detect and recognise a claim case as it first arises, rather than after it has become a dispute
(Bakhary et al., 2017). In order to meet contractual obligations, it is critical to encourage
identification and notification. All rights of the contractor to claim could be lost. In this case,
expert assistance was useful in the early stages of the claim. During the preliminary
identification of potential claims and disputes, a project manager must take a proactive role
due to any work progress and determining any growing problems of the construction project
is best suited valued by this project manager. To support this, essential knowledge of the
terms and condition of the contract document needs to be possessed by the management
personnel. If the project manager failed to do so, it may cause him to be exposed to the
contractual defences. So, the project manager must be aware enough in determining claims
during the construction phase.

Not only is an excellent working knowledge of the contract documents required of the
contractor, but also of the project staff. To recognize contract rights and duties, project
personnel must be familiar with the technical and general terms. To achieve efficient and
competent and powerful claim management, the interaction of ideas and problems is very
crucial. The project workers must be informed and mindful of real circumstances that vary
from those predicted, such as soil types, intrusion of buildings, other contractors, traffic,
weather, and labour (Bakhary et al., 2017). The result of the potential claim situation will be
affected by the adequacy of the project staff to the legal concepts and rights.

1.3 Claim Notification

A notification must be issued following the determination of a claim. It is usual in a

construction contract to have a party provide a timely notice of claims to the other party.
Most standard type contracts provide a procedure for providing certain notifications and
provisions outlining the possible repercussions of failing to deliver notices as specified in the
contract (Bakhary et al., 2017). This is because both parties will have all the historical record
of dates and facts that start a claims situation, and to secure their perspective rights. Allowing
the client to respond to a claims dispute is one of the notice clauses necessary.

The contractor's agenda and reporting arrangement for assessing claims must be well-
organized. The procedure should ensure that all allegations are communicated to the owner as
soon as the project manager becomes aware of any allegation or disagreement, written or
oral, claiming or implying a fault in the provision of services (Bakhary et al., 2017). On the
other hand, making an understandable statement on what contractor should take action if any
problems occur, such as delay and need to extend the completion date or claiming additional
money is required by the client to do so. Any changes, differing site conditions, extra work or
any events that may affect the contractor’s progress and financial status need to have a notice
written in most construction projects. This notice clause should be accurate and obvious
about what contractors should do in the next step to meet the conditions of the notice clause.
Immediate notification is crucial to prevent any chances of breaching contract policy
conditions by late notification. Late notification is often the result of a misguided belief that
the situation will ultimately correct itself, humiliation for the entity and/or contractor
involved, anxiety about the individual's personal repercussions, and apprehension that the
truth will be made public, thus jeopardising the contractor's credibility (Bakhary et al., 2017).

1.4 Claim Documentation

In applying a claim and solving any conflict in a construction project, a thorough and solid
claim documentation is crucial. As stated in the contract requirements, such notice, as well as
deadlines for submitting any documentation supporting and proving the claim, must be met
by the contractors.By closely documenting and closing out the work as performed by the
contractor, it should meet the requirement to have solid documentation. While the proof and
information should be understandable and persistent, the flow of preparing and presenting the
claim is very crucial. This is because the contractor must refine and claim it from preliminary
to final.

To support the claim applied by the contractor, it must be supported with every proof and
necessary document to clarify the dispute in a short, precise, and comprehensive approach. In
this documentation, the date of amendment and the method, with agreement by all the
stakeholders. A clear, decisive, and understandable writing style should be applied in the
claim and detailed pricing and calculation of damage is important in the claim. To add some
good support to the claim document, any charts, graphs, and photos could help a lot. With
good support from detailed photos and videos of the completed work, any testing works
operated, or quality control will give strong evidence of real conditions (Bakhary et al.,
2017).

In the claim document, special requirements, instructions, specifications, as well as contractor

calculations and bid document preparation, usually reliable proof of what is demanded by a
contract. The record of a project, such as the status of the timeline for key personnel, could be
useful, and a record of the manpower, weather, visitors, and contractors on site, as well as
any important situation that occurred, such as site condition status or conditions that cause
delay, should be kept in diaries. This can be done by recording all important events, when the
event occurred, especially that event leads to possible claim, what it was, who noticed it,
possible impact on the cost and time.

Keep revising records on a regular basis by the contractor to achieve the goal of capturing all
changes and supporting enough proof so that there is less remembering required on the entire
record set compiled. This is crucial even before the recognition of the claim for the contractor
keeping every record of the progress of the project. Among the documentation, the roots of
the problem are from three basic conditions:

If this condition is used properly and taken advantage of by the contractor, it would ably help
the contractor in winning their claim from the client. By having good claim management, it
could assist the contractor in achieving proper resolutions and in preventing claims from
developing into disputes.

2. COMMON MISTAKES
Common mistake(s) by a contractor in the whole process of progress payment claim by
referring to the clauses of:

a) PAM Standard Form of Contract 2018

b) PWD 203 Standard Form of Contract

Flowchart of Process of Payment Claim

General View

Over several decades, there have been several industry designations about the relationship
between the construction industry and payment. Payment is regarded as the lifeblood of
the construction industry because constructions often require a significant capital outlay
and take a long time to complete. Many contractors do not have the means or ability to
complete all of the construction work before being paid. This is particularly true for
medium and small-sized contractors, as well as when the job involves millions of ringgits.
They need some kind of daily or periodic financial infusion to sustain their cash flow and
continue to function diligently.
Late or non-payment of payment to Contractors has been a major issue in the Malaysian
Construction Industry. There are many causes of payment issues in the construction
industry in Malaysia. The problem of payment is an old issue that plagues industry
players, especially contractors in the construction sector. It often happens where
contractors and industry players state that they are unable or late to get payment by the
employer. Reference results from PAM Standard Form of Contract 2018 and PWD 203
Standard Form of Contract, found that the main reasons for contractors not being able or
late in getting payment is due to the attitude of industry players, certification delays by
consultants, unsystematic financial management and common mistakes by a contractor.
the whole process of progress payment claim. However, this report will focus on common
mistakes by a contractor in the whole process of progress payment claim. We will take a
closer look at the mistakes that contractors often make when the process of demanding
payment from clients. This report will refer to PAM Standard Form of Contract 2018 and
PWD 203 Standard Form of Contract in identifying errors often committed by contractors
in claiming payment.

Provisions for payment have been set out in three contracts applied in the construction
industry in Malaysia namely, PWD 203A, PAM (2018) and CIDB (2000). In this contract
it has been stated that payments shall be made in stages and the client shall make payment
after the certificate of progress of work by the architect or the authorities. The contractor
has the right to demand payment on a regular basis staged based on the work that has
been completed on the construction site. Rules generally that a contract only creates rights
and obligations that can be enforced by the contracting parties against any party between
them only (Marsh, P. D. V., 1998). The purpose of the payment is to ensure that the
contractor gets payment is gradual throughout the project construction process. This is to
maintain the contractor's cash flow and smooth project travel. Payments are also
important because of the whole process involving many parties such as subcontractors,
suppliers, and employees. Cash flow is the lifeblood of construction projects (Denning,
1973). However, common mistakes by a contractor in the whole process of progress
payment claim is one of the factors that late and non-payment still happen in the
construction industry. Among the common mistakes that are often made by contractors in
the process of claiming payment are as follows:

i. Failure by the Contractor to Submit Payment Application:

Provisions Contain in the Forms of Construction Contract

PAM 2018:

Clause 30.1 stated that any failure of the Contractor to submit an application for
payment shall be deemed to be a waiver of his rights under the contract for an
Interim Certificate and the Architect may or may or may not need to issue an
Interim Certificate in such circumstances.

This clause clarifies that if the Contractor fails to submit a Payment Application,
they have denied their right to claim payment. In addition, it will also result in the
interim certificate cannot be issued because the Architect has the right not to issue
the interim certificate for not receiving the Payment Application from the
Contractor. Interim Certificate was issued by the Architect for approval of claim
and to enable payment be made to the contractor. Most construction contracts
have provisions for payments to be made against interim certificates, which are
normally provided on a regular basis by the Architects or Superintending Officer
(S.O.). An interim certificate, like a bill of exchange, is to be treated as cash and
must be honored. In Dawnays Ltd v F

G Winter the judge held that:

“Interim certificate was taken to be almost equivalent to cash like a bill of

exchange and must be honoured”.

Without Interim Certificate, Client has the right to not pay the Contractor for the
work done and it will give a huge loss for the Contractor.
ii. Lack Management in Managing Materials and Good

Provisions Contain in the Forms of Construction Contract

PAM 2018:

Clause 30.2 stated the materials and goods must be incorporated into the
permanent works and have been delivered to and properly stored at the Site and
be protected against loss, damage or deterioration, and in accordance with the
Contract. The certificate shall only include the value of the materials and goods
which are reasonably, properly and not prematurely brought to the Site.

PWD 203A:

Clause 28.4 stated Provided That such certificate shall only include the value of
the said unfixed materials and goods as and from such time as they are
reasonably and properly and not prematurely delivered to or adjacent to the Site
and adequately protected against weather, damage or deterioration.

Based on this 2 Clause, we can understand that most Contractors experience the
issue of not getting Payment due to negligence in managing materials and goods.
Most Contractors take it easy in the management of Materials and Goods. Among
the examples of mistakes made in the management of materials and goods is to
demand payment for materials and goods brought into the Site ahead of time.
Pursuant to Clause 30.1 in PAM 2018 and Clause 28.4 of PWD 203A, materials
and goods entered into the Site ahead of time, it cannot be included in the Interim
Certificate for payment. In addition, negligence in the management of materials
and goods by the Contractor is negligence in the care of materials and goods
delivered into the Site. The Contractor shall protect materials and goods from loss,
damage and wear and tear in accordance with the requirements set out in the
Contract. Most make the mistake of adopting an irresponsible attitude in the care
of materials and goods. This will result in the Contractor not being able to claim
payment from the Client.
3. Suggestions for best practices to be observed by contractors in
ensuring that progress claims can successfully be made.

Lately, we have heard a lot of problems faced from the construction sector, especially
involving contractors who are an important character of a construction project.
Among the common problems faced by contractors are contractors lack of capital and
insufficient experience. The issue of contractors is found to be less efficient in
controlling the work done by subcontractors or the problem of contractors using
substandard materials. The most unwelcome by every contractor to happen is when
payment cannot be claimed because everyone definitely wants to use the money for
daily use. These are some of the issues and statements that appear in the press chest,
when there are any projects that fail to be completed within the stipulated period. Like
the case of Syarikat Bina Maju which did not receive payment from the School
Development Project at Batu Pahat Johor. This is because the consultant did not give
a certificate to the contractor to claim the payment, which in turn is dangerous
because it may cause significant losses to the contractor.

Therefore, it is very important for the contractor to prepare himself in terms of

documents and so on before starting a project so as not to face the problem of
claiming the payment. This is because there are various risks that will be accepted by
the contractor in ensuring payment is received, especially for additional work will
often have difficulties where payment for additional work claims are usually paid at
the final stage of the project and this will cause difficulties for the contractor to
perform the work properly running during that period. In addition, many projects that
will use the conventional lump sum contract method will often have a lot of additional
work which will pose a risk to the contractor in making additional work claims while
that additional work was agreed by the Enforcement Officer or the Architect.
Honestly, there were difficulties for the contractor to get full payment for the
additional work. We can see here that each contractor has a high probability of facing
various risks even if doing professional work mainly involves money that is payment
even if it has been promised by the client or others.
From the above discussions, it seems that one of the measures contractors should take
to avoid or minimize risks such as negative impact on the project is by performing
their duties with reasonable care and by displaying skills according to the standards of
the standing profession as a professional contractor, as well as cultivating awareness.
about how important it is for the contractor to perform the task as best as possible,
which will ultimately have a positive impact on themselves, their profession, clients
and other relevant parties, including users of the construction output themselves.
Directly and indirectly, it will also affect the construction industry itself, and the
country in general. Thus, we can hear many clients will not pay or reduce the amount
of payment to the contractor because the contractor cannot do the job properly or does
not meet the demand requested by the client. Similarly on the other hand where if the
contractor does the job well, it will certainly not be a problem of payment on each
project because the consultant will take care of the client's money as well as possible
and reduce the risk of loss as much as possible especially when the project does not
reach the expected quality.

Contractors can also use the method of "risk mitigation" where it is a process of
disaster planning and ways to reduce the negative impact. It is very good for
contractors to use this method to ensure that payments can be claimed as usual and
have no problems. This method will usually avoid risk in a project especially payment
to the client and the contractor can ensure that steps can be taken before the event
occurs to reduce adverse, potential, or long-term effects. When creating a risk
reduction plan, there are a number of steps that are fairly standard for most
organizations. Recognizing the risk of non -payment, non -payment or prioritizing
risk mitigation is an important aspect of maintaining a comprehensive risk mitigation
strategy. There are five general steps in the claims of payment of risk mitigation plan
which is identify all possible events in which risk is presented, perform a risk
assessment, prioritize risks, track risks and Implement and monitor progress.
The first step that needs to be done to ensure this risk mitigation which can be
followed by the contractor is to identify all possible incidents where the risk is
indicated. This strategy can certainly be used by the contractor to identify every risk
that will occur so that the project can receive all payments that will be approved by
the consultant, especially when the project is almost fully completed. Risk mitigation
strategies not only consider the client’s priority to complete the project perfectly, but
also the risks that may arise due to the nature of the field or problems of the work not
being completed properly. The risk reduction strategy must also influence the
employees and the needs of the organization so that the contractor can receive
payment as achieved so as not to face the problem of delays or failure to claim the
payment.

Next, the contractor will perform a risk assessment, which involves measuring the
level of risk in an identified event. Risk assessment involves measures, processes and
controls to mitigate the impact of risk. In this case, the contractor has identified the
risks that will be faced if it does not achieve as requested by the client. So, of course
the contractor can take the initial Step by studying or understanding each client's
request and identifying the best way to do it. In addition, the contractor needs to keep
track of the risks that are or will occur, where if payment cannot be claimed by the
contractor, then the contractor needs to identify why and why the matter was not
successfully claimed. It’s important to have strong metrics to track risk as it occurs. If
we can identify the cause, it is certain that the payment claim made by the contractor
will be easily accepted.

Keeping the presumption of evidence on all that happens on the job is one of the other
tactics that the contractor can use. The risk of proving a liability or cost falls to the
complainant, that is, the contractor. The most important thing that a contractor would
do in the building process is maintain good records. In this instance, a contractor shall
be responsible if he has been personally engaged in damages and/or costs for which
he will not be reimbursed by payments rendered under any other clause of this
contract as a result of the orderly progress of the job or any aspect thereof being
materially affected. This has also been made public as it is also in the clauses of PAM
Standard Form of Contract 2018 and PWD 203 Standard Form of Contract.

Act 44 PWD 203 Standard Form of Contract:

If the orderly progress of the work or any part thereof has been materially affected by
the reasons as stated under Clause 43 (c), (f) or (i) of these Conditions (and not for
any other reason) and The Contractor has incurred direct losses and/or expenses
which he will not be reimbursed through payments made under any other provision of
this Contract, then the Contractor shall within one (1) month after the occurrence of
the event or circumstance give notice in writing to PP as to its intent to claim direct
losses and/or expenses, together with an estimated amount for such direct losses
and/or expenses, subject always to Clause 48 of these Conditions.

Act 24(i) PAM Standard Form of Contract 2018:

If a written application is made to him by the Contractor, the Architect is of the

opinion that the Contractor is directly involved in losses and/or expenses for which he
will not be reimbursed through payments made under any other provision of this
contract due to the orderly progress of work or any part thereof has been materially
affected.

Last but not least, it is important for the contractor to prepare and keep key records
about the project as such things are very important to be evidence to the contractor
especially when wanting to demand payment from the consultant. If payment is
claimed by the contractor but the contractor does not have a complete record, of
course the consultant will not give approval to the contractor to claim payment
because there is no evidence to show that the contractor did the work or used his own
money first. This will be because the consultant or client will certainly not take any
risk to give his money arbitrarily in order to save and maximize profits on the project
to the client. So, it is very important here for the contractor to keep and provide all the
main records, especially when wanting to demand payment from the consultant or
client. Among the key records that need to be prepared accurately and thoroughly by
the contractor to be included along with his claim application (notice), include:

a. Correspondence between the Consulting Contractor, the Client and the Supervisor
involved.

b. Minutes of Meetings (chaired by PP only).

c. Works Record Sheets.

d. Labor and Plant Report/Productivity Assessment.

e. Materials Report (received and used).

f. Site Diary.

g. Site Instructions.

h. Variation Orders.

i. Daily Works Records.

j. Work schedule.

k. Progress Photographs.

l. Contract & Work Drawings.

m. Bills Relating to Increased Expenditure.

n. Daily Weather Record.

o. Site Level Details.

Finally, making a claim for payment for a contractor for a project is very easy because
it has reached an agreement from both parties, namely the contractor and the client.
Most of the time, the problem is when the contractor is not ready or does not apply in
the right way or there is an error committed by the contractor that causes the claim not
to pass. So, my suggestion is to ensure that the contractor makes the claim according
to the correct format to make it easier for the consultant to give approval to the
contractor. The correct format for making a claim is that the contractor should state an
introduction to the consultant about the purpose for which the contractor is claiming
payment. After that, the contractor has to provide the details of the available claim as
well as state the details of the claim and finally make the cover. It is also important
here for the contractor to provide an attachment of existing evidence such as
providing a receipt attachment if buying a material from a store. We hope that the
strategies we provide will help contractors to facilitate their affairs, especially in
claiming payment from consultants or clients.
 4. STEPS AND OPTION
In any event, the Contractors must be paid within 30 days or 14 days after receiving the
Interim Certificate, as specified in the various standard type of construction contracts used in
Malaysia, such as the PWD203 and PAM 1998/2006. However, in certain cases, the issue of
dispute such as non-certification can happen, with some of the non-certification payment
could be from the default of the consultant. In this case study that was provided, Syarikat
BinaMaju has requested payment number three for work completed on the Projek
Pembangunan Sekolah project in Batu Pahat, Johor. However, since the Consultant did not
certify the claim, no payment was made to Syarikat BinaMaju. In this scenario, we can
certainly conclude on options and steps that are applicable for the contractor in challenging
the consultant.

The option and step that can be used is the dispute resolution method can be divided into two
main categories which are alternative dispute resolution (ADR) and traditional dispute
resolution. There are many ADR methods available and practiced in the construction industry
while for traditional dispute resolution, most jurisdictions labelled litigation and arbitration,
whilst some categorised arbitration as one of ADR methods. ADR is not a new thing in the
Malaysian construction industry. The existence of ADR clauses in all major standard forms
of construction contracts such as the Public Works Department (P.W.D. Form 203A (Rev.
1/2010) and Malaysian Institute of Architects (PAM Contract 2018) are the evidence that
show it is well accepted in the Malaysian construction industry.

4.1) Mediation

Mediation is one of the major mechanisms of alternative dispute resolution (ADR). It is a

mutually agreed-upon mechanism in which two parties choose a neutral third party to help
them settle their differences. The mediator's job would be to bring the conflict to a
conclusion. He or she will lead the disputants in reconciling and reducing the parties'
differences. It is a dispute-specific resolution, and any agreement reached would not set any
precedents for similar circumstances in future cases. Mediation under the local standard
forms of contract is governed by the contract's institutional laws. PAM Contract 2018
provides an example of PAM mediation law. The clause of this provision is 34.0, 34.1 and
34.2.
PAM 2018 Standard Document of Contract

Clause 34.0: Mediation

● Clause 34.1 Mediation under PAM rules

Upon the written agreement of both the employer and contractor, the parties may refer any
dispute for mediation. After 21 days, if the parties fail to agree on a mediator from the date of
the written agreement to refer the dispute to mediation, any party can apply to the President
of PAM to appoint a mediator. Upon appointment, the mediator will begin the mediation in
compliance with the most recent version of the PAM Mediation Rules, as well as any changes
or revisions to those rules.

● Clause 34.2 Mediation shall not prejudice the parties’ rights to adjudication or
arbitration

Prior references to mediation under Clause 34.1 shall not be a condition precedent for either
the contractor or the employer to refer the dispute to adjudication or arbitration under Clause
36.0 or arbitration under Clause 37.0 of these conditions, nor shall this clause prejudice or
impact any of their rights to refer the dispute to adjudication under Clause 36.0 or arbitration
under Clause 37.0 of these conditions.

In 1999, the Malaysian Bar founded the Malaysian Mediation Centre (MMC) to facilitate
mediation as a means of conflict resolution and to provide a proper avenue for effective
dispute resolutions. The centre uses professional mediators who have been trained and
selected to MMC's Panel of Mediators to provide mediation services.

The Mediation Act of 2012 obtained royal assent in June 2012 and went into effect on August
1, 2012. The purpose of this Act is to facilitate and encourage mediation as a form of
alternative conflict resolution by establishing a mediation mechanism that allows parties to
resolve conflicts in an equitable, timely, and cost-effective manner, as well as to address
related issues.

Since 2010, the Malaysian judiciary has offered Court-annexed Mediation as an alternate
mode for resolving case backlogs. Furthermore, the Asian International Arbitration Centre
(AIAC) offers mediation services and guidelines, allowing the parties to choose their
mediator from a list of qualified mediators or, if that is not possible, the Director of the
Centre will assist in the selection of the mediator.

4.2) Adjudication
As stated by Cambridge Dictionary (n.e), Adjudication is define as ‘the act of judging a case,
competition, or argument, or of making a formal decision about something’ or ‘the process
or act of making an official decision about something, especially about who is right in a
disagreement’. Adjudication also is one of the common ADR that has been applied. The
PAM Contract 2018 includes an adjudication process as one of the contractual mechanisms
for resolving construction disputes. The P.W.D. and CIDB Forms of contracts do not have a
similar clause. 36.0, 36.1, 36.2, 36.3, and 36.4 are the clauses of this provision.

PAM 2018 Standard Document of Contract

Clause 36.0: Adjudication

● Clause 36.1 Set-off disputes referred to adjudication

For disputes under Clause 30.4, a reference to adjudication is a condition precedent to

arbitration. After the date of Practical Completion, any conflict arising under Clause 30.4 will
be referred to arbitration under Clause 37.0.

● Clause 36.2 Notice to refer to adjudication

If a party requests that a dispute or difference under Clause 36.1 be adjudicated, the dispute
or difference shall be referred to an adjudicator decided upon by the partiesIf the parties to
the contract are unable to agree on the adjudicator's appointment after 21 days from the date
of the written notice, the party initiating the adjudication will apply to the President of PAM
to appoint an adjudicator, and such adjudicator shall be deemed to have been appointed with
the agreement and consent of the parties to the contract.

● Clause 36.3 Adjudication Rules

Upon appointment, the adjudicator will begin the adjudication process in compliance with the
current edition of the PAM Adjudication Laws, as well as any subsequent modifications or
revisions.

● Clause 36.4 Decision of the adjudicator

If a party disagrees with the adjudicator's decision, he is bound by it until Practical
Completion, but must give the other party written notice that the issue that was the topic of
the adjudication will be referred to arbitration within 6 weeks of the adjudicator's decision.
The decision of the adjudicator is not referred to arbitration under the time limit. The parties
can resolve any disagreements over the adjudicator's decision through a written agreement or
arbitration under Clause 37.1.

The Construction Industry Payment and Adjudication Act, which went into effect on April
15, 2014, established statutory adjudication (CIPAA 2012). The CIPAA Regulations of 2014
govern this act. The Malaysian construction industry, like other developing-country
construction industries, has a long history of long payment periods, which has caused cash
flow issues for many contractors, causing projects to be delayed.

As a result, this law establishes a mandatory legislative adjudication and remedy for payment
recovery. Parties will be able to get a swift interim judgement on progress payment conflicts,
mitigating possible short-term cash-flow issues during project execution, thanks to statutory
adjudication.

In the event that the parties to the adjudication do not agree on the appointment of the
adjudicator, the Director of the AIAC is the default appointing authority. In addition, AIAC
includes the KLRCA adjudication rules and procedures, which can be used if all parties
agree.

4.3) Expert Determination

Expert determination is a form of alternative Dispute Resolution, in which the dispute is
decided by an independent third party who is an expert in the matter at hand. In usual cases,
the decision of the expert will bind between the disputed partied. In particular meaning,
Expert determination is referred as a private form of dispute settlement in which disputing
parties select an expert to decide a matter of fact, valuation, or rule in a definitive and
binding manner; where the expert's opinion is advisory rather than binding. According to
Pena-Mora et al, as cited in Shamsuddin et al (2019), an expert determination is a legally
binding agreement in which the parties agree to refer their disagreements to an expert and
to be bound by the expert's opinion. While the expert's decision is binding, it is usually
applied as a contract.

Expert determination may be written into a contract between the parties as a way to settling
all conflict. Not only that, it can be used to settle an ongoing conflict instead of the contract's
system. It is sometimes used in conjunction with other forms of conflict resolution, such as
mediation.

In standard document of contract, the only contract that been provision on Expert
Determination is PAM 2018. The clause of this provision is 35.0, 35.1, 35.2, and 35.3

PAM 2018 Standard Document of Contract

Clause 35.0: Expert Determination

● Clause 35.1: Disputes on all matters

In any time of the event, if there is a disputes over the course of the project, the parties are
ought to seek a expert to determine the disputes

● Clause 35.2 : Expert Determination under PAM rule

However, if the parties does not deciding on agreeing with the expert after 14 days from the
written agreement, any disputed parties can appeal to appoint an expert that being
appointed by President of Pertubuhan Arkitek Malaysia (PAM). The expert need to
determine based on the current edition of rules that being adapted in PAM standard of
contract.
● Clause 35.3 : Expert Determination shall not prejudiced to parties’ right to
adjudication or arbitration
In this clause, it is stated that the reference of clause 35.1 should not be a condition
precedent if any parties want to refer for adjudication or arbitration. Also, the adjudication or
arbitration process should not be affected by the clause of 35.0.

4.4) Arbitration
According to Cambridge Dictionary (n.e), Arbitration is dubbed as ‘the method of resolving a
disagreement between two parties by assisting them in reaching a mutually agreeable
solution’. Arbitration is a process in which a case is referred to one or more arbitrators by
consensus of the parties, who make a binding judgement on the dispute. In Malaysia ,the
arbitration proceeding is empowered through the 2005 Arbitration Act, which is primarily
based on the Model Law, and the New Zealand Arbitration Act of 1969, which are the model
of the arbitration law that being used in Malaysia. Arbitrations that began after March 15,
2006 are subject to the 2005 Arbitration Act.
Arbitration is only possible if the sides consent to it. In the event of potential contract conflict,
the parties have an arbitration clause in the applicable contract. A submission resolution
between the parties may be used to submit an existing case to arbitration. Unlike mediation,
arbitration does not allow a side to withdraw unilaterally. (WIPO

Because of its effectiveness and practicality, it is more expensive than mediation and, in
general, more expensive than trial. The substance and outcome of the hearings are
controlled by a third party, the arbitrator. However, the parties that being arbitrated will have
discretion over the arbitrator, terminology, place, language, relevant legislation, and
procedural laws.
Based on the standard document (PAM 2018 and PWD 203A), the arbitration process does
indeed included in the provision of the contract. Under clause 66.0 of the PWD 203 Form of
Contract, arbitration is the primary method of resolving disputes. The clause stated that :-

PWD 203A
Clause 66.0 : Arbitration

● Sub- Clause 66.3

Under 66.3, It is stated that, if the parties failed to give the name of the officer within 45 days,
or disaffected with the decision that been made from the officer, the disagreement or dispute
should be done through arbitration in 45 day by arbitrator. Failing to the agreement may
cause the the disputed parties to refer to Director of the Regional Centre in Kuala Lumpur

● Sub- Clause 66.11

The arbitration should be refered to the Arbitration Act 2005

In PAM 2018, the significance clause on arbitration is on the clause 37.0 with several sub-
clauses :-

PAM 2018
Clause 37.0

● Clauses 37.1
Under this sub-clause, it is stated that any problem that arise in between the parties whether
during the work of progress or after completion, or even abandonment of the project
because of dispute, the parties that are being affected can be referred to arbitration. The
event of disputes vary such as:
I. 37.1(a) : Any matter that arise with the connection of the contract
II. 37.1(b) : Any matter left to the architect's discretion under the contract
III. 37.1(c) : The architect holding back any certificate in which contractor should be entitled
to claim

In this cases, if Syarikat BinaMaju believe that their claim is possible and should be entitled,
the company are eligible to referred for an arbitration if the standard contract is in PAM 2018.

CONCLUSION

In every aspect of construction there will be several disputes. Not such things as a perfect
project without any argument, mistakes and unexpected events. Therefore, checks and
balances in construction sites are important to be fair for both parties, clients and contractors.
There will always be a solution in every dispute that happens, which can be considered as the
final result that is agreed by both sides. A few components exist for settling clashes in the
structure business. Be that as it may, there is no one size-fits-all way to deal with addressing
issues. It is significant for the two proprietors and workers for hire to comprehend the
advantages and downsides of each approach, just as to guarantee that the agreements they
sign incorporate adequate debate settlement statements. The essential wellspring of debate in
development contracts is an agreement that permits the gatherings to see it in an unexpected
way (abstractly). It implies that inability to impart between the gatherings to a development
contract bargain is the most widely recognized wellspring of development questions.
Development contract exchanges that are painstakingly drafted will have great security
against pandemic struggles and conflicts.

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