DAMAGES FOR

NON-COMPLETION
1.0 INTRODUCTION
 1.0 INTRODUCTION
• Damages for non-completion means that the
contractor must responsible to complete the works
within the contract period or within Extension of
time (EOT).
• If the contractor fails to carry out their
responsibilities as stated in the contract due to his
own faults, then he will be issued with Certificate of
Non-Completion.
• The contractor is released of his liability for damage
due to non-completion upon the issuance of the
Certificate of Practical Completion
 CLAUSE 33.0:
Deduction from
money due to
contractor

CLAUSE 40.0:
CLAUSE 42.0:
P.W.D. FORM Damages for
Partial occupation
203A (REV.2010) non-
completion

CLAUSE 41.0:
Sectional
completion
2.0 P.W.D FORM 203A
(REV 1/2010)
 2.0 P.W.D FORM 203A(REV 2007)
• CLAUSE 33.0: Deduction from money due to contractor
- According to this clause, the Government or the S.O can deduct any
money that owing from the contractor to the Government under the
contract. It is as the chargeable to cover the losses incurred by the
government.
• CLAUSE 40.0: Damages for non-completion
- The contractors should complete the works within the extended time
granted as stated in Clause 40.0.
- The Liquidated Ascertained Damages that need contractor pay that
stated in Appendix must be reasonable amount with the Government
suffer loss because of the non-completion of the project.
- Contractor needs to complete the Works (obligation) even though
Liquidated Ascertained Damages is issued.
 2.0 P.W.D FORM 203A(REV 2007)
• CLAUSE 41.0: Sectional completion
- In this clause, if there has the different of completion dates for different
sections or parts of the works ,the Liquidated Ascertained Damages for
each sections will be separately according to:
1. Certificate of Practical Completion
2. Delay and Extension of Time
3. Liquidated Ascertained Damages and
4. Defects Liability Period
• CLAUSE 42.0: Partial occupation
- If there is some of the section that is not completed within the stipulated
time, the Liquidated and Ascertained Damages for the remaining works
should be recalculated and to be reduced in the proportion which the
value of the relevant part bears to the contract sum.
3.0 NON-COMPLETION
 3.0 NON-COMPLETION
• Non-completion
➢works do not reach practical completion
within contractual completion date
• OBLIGATION to complete the work within
stipulated time.
 3.0 NON-COMPLETION
Date for completion
-Works completed
Date for possession of site -C.P.C.

Contract period C.P.C.

Works completed on time

 3.0 NON-COMPLETION
Works not -Works completed
Possession of
completed -C.P.C.
site
-C.N.C.

L.A.D.

Contract period Delay D.L.P.

Works not completed on time

3.0 NON-COMPLETION
E.O.T.

DELAY
Terminate L.A.D.

Affects of delay
 3.0 NON-COMPLETION
• Not contractor’s fault → E.O.T
• Contractor’s fault
-> No E.O.T.
-> Pay L.A.D.
-> Terminate
• Length of delay:
Completion date -C.P.C
 3.0 NON-COMPLETION
• Employer’s fault
-> Render the completion
-> Lose right to damages
4.0 CERTIFICATE OF NON-
COMPLETION
 4.0 CERTIFICATE OF NON-COMPLETION
1. Notice (warning letter)
• Issuing before Certificate of Non Completion
• Condition precedent to issue Certificate of Non
Completion
• Notice and Certificate of Non Completion : to warn
contractor LAD will be charged if works cannot complete
on time.

Non-completion
Notice to contractor -Certificate of Non Completion
 4.0 CERTIFICATE OF NON-COMPLETION

Certificate of Non Completion (CNC)

• CNC is the condition precedent to deduction for
Liquidated and Ascertained Damages.
• If E.OT is granted after the issuance of the Certificate
of Non Completion, another Certificate of Non
Completion could be issued although there is no
express provision to that effect.
4.1 PROCEDURE OF ISSUING CERTIFICATE OF
NON-COMPLETION
4.2 EFFECTS OF THE ISSUE OF CERTIFICATE OF NON-
COMPLETION
1. The employer is entitled to be compensated for all
losses suffered by him for the delay beyond the
contractual completion date.
2. The amount of Liquidated and Ascertained Damages
to be paid to the employer is calculated based on the
rate stated in the Appendix.
3. Damages cover any period between the completion
date established and the date of the Certificate of
Practical Completion.
4. The onus is on the employer to claim for damages by
issuing the Certificate of Non-Completion i.e. no
obligation on the part of the contractor to pay the
employer without the certification.
5.0 Damages For Non
Completion
 5.1 Liquidated and Ascertained Damages

• Liquidated and ascertained damages can be defined

as “damages that the contractor needs to pay to
client if he is fails to complete the works within the
agreed period in the contract” (Ismail, 2008).
 5.1 Liquidated and Ascertained Damages
(cont’d)
• Based on Standard Form of PWD Form 203A,
Clause 40.2,
 5.1 Liquidated and Ascertained Damages
(cont’d)
• The contract has express provision for liquidated and
ascertained damages for non-completion therefore
Contractor is liable for late completion.
• However the amount damages should clearly and completely
stated in the Appendix.
• Besides that, it also must be reasonable and must be an actual
pre-estimate of the damage likely to be sustained
• The information such as date of completion and the rate of
liquidated and ascertained damages should be stated in the
appendix during the tendering process as well as in contract
period.
• If the information is not clearly stated, the Employer will face
with problem when he want to claim damages.
 5.1 Liquidated and Ascertained Damages
(cont’d)
Example 1
If the rate of liquidated and ascertained damages id not stated in the
Appendix
•The Employer still entitle to claim the damages BUT the Employer needs to
bring this dispute to the court.
•The amount of the damages will be determined by the court regarding the
actual loss suffered by the Employer.
Example 2
If the date of completion is not stated in the contract
•In this case the Employer is not liable to claim damages due to the non-
completion of works.
•The completion period for this contract is know as time at large since it did
not have the dateline and the completion period is depend on the reasonable
time.
•So, it is impossible to calculate the damages since this contract did not have
the completion date.
 5.1 Liquidated and Ascertained Damages
(cont’d)
Example 3
If the Employer wrote “NIL” for the damages in the Appendix
• The Employer is not liable to claim the damages due to non-completion of
works.
• This shows that the Employer is not interested to claim for damages of
non-completion
• In other words the Contractor is not entitled to pay to Employer if he is
fails to complete the works as per date agreed.
 5.1 Liquidated and Ascertained Damages (cont’d)

The rate of liquidated and ascertained damages is important to be clearly stated in the
Appendix as shown in figure 6 so that the Contractor is aware of the financial
implication of delay.

On the other side, it clearly show and protect the rights for Employer to claim the
damages if the Contractor breach of contract.

40 Liquidated and Ascertained Damages as the rate of ……………… RM 500.00 per Day

Figure 6
5.1 Liquidated and Ascertained Damages
(cont’d)
Express
provision
for L.A.D

C.N.C has
It is not a
been
penalty
issued
Claiming of
L.A.D by the
employer, he
must shows
that:
The sum is
Retains his
stated in
right
Appendix

Completion
date is
specified
 5.2 The latest Legal Position on L.A.D Malaysia

In Malaysia, the contract is governed by the Contract Act 1950. In the Section
75 of the Contract Act 1950 was stated that:

• “When then contract has been broken, if a sum is named in the contract as the
amount to be paid in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been caused thereby, to
receive from the party who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may be, the penalty
stipulated for.”

Many of the intentions of the standard forms for the treatment of Liquidated
Ascertained Damages are over ruled Act.
 5.2 The latest Legal Position on L.A.D Malaysia
(cont’d)
Therefore the court has given decisions to the following effects:

a)No different in the

b)The employer would
treatment of Liquidated
have to prove the
and Ascertained
actual loss
Damages and penalties

c)The sum stated is

considered as the
maximum amount
recoverable
 5.2 The latest Legal Position on
L.A.D Malaysia (cont’d)
See decided court cases:
1. Selvakumar
2. Johor Coastal
3. Bintai Kidenko
5.3 Computation of Liquidated and Ascertained
Damages

a) loss of income
by the employer

b)factors that
c)cost of contribute to
providing the total loss
finance for the incurred by
contract works the employer
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)
BASED ON THE LOSS INCOME BY THE EMPLOYER
This method is generally applicable to small project that provide revenue to the
Employer.

i) The estimated amount of rental of the building

The rental rate must base on market rate at the time the work is expected to be completed.
As example for the calculation:
Assumptions: Rental rate = RM 20,000.00/Month
Period of delay = 20 Days

Rate for L.A.D = RM 20, 000.00

30 Days
= RM 666.67/Day

Therefore, the amount of = RM 666.67/Day x 20 days

= RM 13, 333.40

Rate of RM 666.67/Day should be inserted in the Appendix before signing of contract

document. Meanwhile, the amount to be deducted from interim payment for Liquidated
and Ascertained damages is RM 13, 333.40.
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)

ii) The estimated income from the business to be conducted in the building

A reasonable amount of profit or income that the contractor in the building to make out of his
business but this way is a bit difficult to establish and subject to much argument

Delay : 15 Days
The expected amount of profit : RM 4,500.00/Day
Therefore,
RM 4,500.00 x 15 Days = RM 67, 500.00
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)
Based on factors that contribute to the total loss incurred by the Employer

This method is usually use for big project which provide revenue to the Employer for
example shopping mall. This method is more comprehensive because it considered
factors such as :
1) Financing
charges

3) Prolongation 2) Loss of
cost income
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)
Example : Housing Scheme

Assumptions:
Project financing based on 20% equity and 80% loan
Delay occur at 75% of completion period
Contract sum = RM 120, 000.00 / Unit
Interest rate = 8%
Total number of unit = 200 units of double storey terrace houses
25% incomplete
Selling price = RM 240, 000.00 / unit

1) Financing charges

Contract sum x 80 % x 75% completion x 8% interest

365 days
= (RM 120, 000.00 x 200) x 0.80 x 0.75 x 0.08
365 Days
= RM 3, 156.20/Days
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)
2) Compensation to purchasers due to late handing
over
Total Sales x 25% uncompleted x 8% interests
365 Days
=(240, 000.00 x 200) x 0.25 x 0.08
365 Days
= RM 2, 630.14/ Day

3) Overheads, site supervisions, etc

Assumptions: Clerk of work and sit engineer = RM 8,000.00/ month

Site Overhead = RM 8, 000.00

30 Days

= RM 266.67 / Day
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)

4) Loss of income from interest on capital which he is not

free to invest
Assumptions:
Expected net profit = RM 30,000.00/ Unit
25% incomplete
90% of units sold

Loss of income = total net profit x % uncompleted

365 Days
= (RM 30, 000 x 200) x 0.25 x 0.08 x 0.90
365 Days
= RM 295.89/ Day

Therefore, total L.A.D = RM 3, 156.20/Days + RM 2, 630.14/ Day +

RM 266.67 / Day + RM 295.89/ Day

= RM 6, 348.90 / Day
 5.3 Computation of Liquidated and Ascertained Damages
(cont’d)
BASED ON THE COST OF PROVIDING FINANCE FOR THE WORK
•This method usually is use to non-making profit concern for example for project school,
mosque, clinic etc. In other words this method is applicable for government project.
•In order to calculate the liquidated damages, it is necessary to base lending rate from any
commercial bank in the area where the project is situated.
Example:

Assumptions:

Prime rate = 10%

Contract sum = RM 10, 000, 000.00
Period delay = 20 Days

Percentage of liquidated damages = 10%

365 Days
= 0.0273%/ Day

Amount of liquidated damages = 0.0273% x RM 10, 000, 000.00 X 20 Days

= RM 54, 600.00
 5.4 Computation of Liquidated and Ascertained Damages for
sectional completion
In case of sectional project, the liquidated damages is different due to the date of
completion each section. Besides that, each section is treated as having a separate
contract between the Employer and the Contractor. In Clause 41.1 Standard Form of
PWD Form 203 A (Rev. 1/2010),

According to this clause, it state that:

liquidated damages for sectional completions is different for each part or section.
Therefore, the information to be provided in the Appendix:

i)The date for completion for each section

ii)Liquidated and Ascertained Damages ( these amounts is need not be proportions to
the value of the section)
5.4 Computation of Liquidated and Ascertained Damages for
sectional completion (cont’d)
41 Sectional Completion

Identification of Sections or Date for Possession [Clause Date for Completion Liquidated & Ascertained
parts 38.3 ] Damages

Block A 15. 2. 2009 15. 5. 2010 RM1, 500. 00 per Day

Block B 15. 2. 2009 10. 3. 2010 RM1, 100. 00 per Day

Block C 10. 8. 2009 15. 11. 2010 RM1, 200.00 per Day

Figure 9: Particulars regarding sectional completion in the Appendix

 5.4 Computation of Liquidated and Ascertained Damages for
sectional completion (cont’d)
Since the date of completion for each section is different so, the Certificate of Practical
Completion also will be issued separately. So, each section of the works will has
different and separate:

a) Extension of time for delay of that section

b) Liquidated and Ascertained Damages for non-completion of that section
c) Defects liability period that starts immediately after the completion of that
section and Certificate of completion of making good defects for that section will
be issued upon making good defects.
 5.5 Adjustment of Liquidated and Ascertained Damages for
Partial Occupation
According to the Clause 42.1 (d) in PWD 203A, Liquidated and Ascertained Damages
for the remaining works should be recalculated and to be reduced in the proportion
which the value of the relevant part bears to the contract sum. However, this does not
make allowance for any variations.
Example:
Assumptions:
Value of the whole works: RM 10, 000, 000.00
L.A.D for the whole works: RM 3, 000.00/Day
Value of section taken-over by the employer: RM 6, 000, 000.00
Balance value of the works : RM 4, 000, 000.00

So, L.A.D for remainder of the works = RM 4, 000, 000.00 x RM 3, 000.00

RM 10, 000,000.00

= RM 1, 200.00/ Day
 5.6 Deduction for Liquidated and Ascertained Damages

“……. The S.O may deduct such damages from any money due or to become due to the
Contractor failing which…..recovered from the Performance Bond or as a debt due
from the Contractor. The S.O shall inform the Contractor in writing of such deduction.”
(Clause 40.2)

According to the P.W.D Form 203A (Rev.1 /2010) in Clause 40. 2

Payment for Liquidated and Ascertained Damages may be made as follows:

• The deduction by the S.O in the interim and final payment certificates.
• If necessary, the employer may deduct the amount from Performance Bond.
• If it is inadequate, the employer may recover the money as debt.
Thus, the contractor should be made known of all the deduction made by the S. O.
6.0 P.A.M. Contract 2006
 6.0 P.A.M. Contract 2006
• Clause22.2:
-> L.A.D., damages sustained by Employer
-> Employer entitled for loss

• Certificate of E.O.T. revokes C.N.C. (if the date is later)

• If E.O.T. is after the C.N.C., new C.N.C. required

• Employer refunded the retained amount of L.A.D.

exceeds
 6.0 P.A.M. Contract 2006
• Example:
Assumptions:
Date of completion in C.N.C. -> 1 / 10 / 2009
Date of C.P.C. -> 25 / 10 / 2009
L.A.D. = RM 200.00/day

Period of delay = 25 / 10 / 2009 – 1 / 10 / 2009 = 24 days

Amount of L.A.D. paid by Contractor = 24 x RM 200.00 = RM 4,800.00

Date of completion stated in Certificate of E.O.T. = 15 / 10 / 2009

Effective period of delay = 25 / 10 / 2009 – 15 / 10 / 2009 = 10 days
Amount of L.A.D. can be retained by Employer = 10 x RM 200.00 = RM 2,000.00

Amount of L.A.D. to be refunded = RM 4,800.00 – RM 2,000.00 = RM 2,800.00

THANK YOU….