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Your Contractual Questions Answered

Must The Contractor Submit His Interim


Payment Claims Before The Superintending
Officer Certifies For Payment?
By The Entrusty Group
Entrusty Group, a multi-displinary group of companies, of which, one of their specialisation is
in project, commercial and contractual management, has been running a regular contractual
questions and answers section for Master Builders members in the Master Builders Journal.
In this instalment of this series, Entrusty Group will provide the answer to another frequently
asked question above.

ayments are of major concern to


Contractors and Employers. As
the duration of the construction
projects are usually long, contract
sums involved are large and payments
are only progressively paid rather then
on delivery, thus the payments are
lifeblood of the Construction Industry.
In common law and in the absence
of any provision in the contract for
interim payments during the progress
of work, the Contractor would not
be entitled to such payment for his
work done progressively unless he
has fully or substantially completed
his contracted work.
Nevertheless, in the present
construction industry, almost all
construction contracts have claims or
payment application and certification
provisions, which are usually applied
and implemented on monthly or stage
payment basis. Interim or progress
payment claims are usually prepared
by the Contractor and submitted to
the Consulting Quantity Surveyor
for valuation, which in turn is then
submitted to the Architect/Engineer/
Superintending Officer (SO)/Project
Director (PD) for certification. The
Employer is required to pay within a
specified period after having received
the said interim payment certificate

from the Architect/Engineer/SO/PD,


who usually acts as the Contract
Administrator of the project.
Before we go further to answering the
above question, let us look into the
standard form of contract provision
for interim payment applications that
is commonly used in the Malaysian
Construction Industry.

Standard Forms of
Construction Contract
Many standard forms of construction
contract in Malaysia provide for
payment application and certification
clauses. The relevant payment clauses
in respect of the various conditions
of contract in use in Malaysia are: PAM 1998 and PAM 2006 Clause
30 Certificate and Payment (refer to
Flow Chart 1 for PAM 1998 and Flow
Chart 2 for PAM 2006)

IEM/JKR Clause 47 Payment to
Contractor and Interim Certificates
(refer to Flow Chart 3 for IEM and
Flow Chart 4 for JKR)

CIDB Clause 42 Payment (refer
to Flow Chart 5)

JKR PWD Form DB/T (2002
Edition) Clause 50 Interim Payment
(refer to Flow Chart 6)

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PAM 1998 Sub-Clause 30.2 and


PAM 2006 Sub-Clause 30.1 requires
the Contractor to submit sufficient
details/particulars to Architect for
him to value and ascertain the works
(including materials and goods on
site) and issue interim certificate for
Contractors entitlement to payment.
The materials and goods on site
shall be reasonably, properly and not
prematurely delivered with adequate
protection against weather or other
casualties. PAM 1998 Sub-Clause 30.2
provides that the Architect shall have
the discretion to make the interim
valuation whenever he considers
necessary for issuing the interim
certificate.
The following Flow Chart 1 details the
procedures of the interim payment
process under PAM 1998 form of
contract.
However, PAM 2006 Sub-Clause 30.1,
which has been revised from PAM
1998, states that the Interim Certificate
is to be issued within 21 days from
the Contractors submission of their
interim payment application. In
addition, PAM 2006 clearly provides
that in the event the Contractor fails
to submit the payment application,
it shall be deemed to be a waiver

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START

Contractor submits details and particulars


to Architect during the Period of Interim
Certificate stated in the Appendix
Architect ascertains the amount due to
the Contractor

Error or discrepancy in the previous


certificate detected

Yes

Architect corrects or
modifies previous
certificate in next
certificate

No
Architect ascertains:
(a) the total value of works
properly executed
including those executed
by sub-contractors
(b) the total value of materials
and goods including:(i) delivered to or
adjacent to the Works
(ii) delivered up to and
not more than 7 days
before the date of
certificate
(iii) reasonably, properly
and not prematurely
brought to or adjacent
to the Works
(iv) adequately protected
against weather or
other casualties

No

Architect
issues
Interim
Certificate
with a
copy to the
Employer

Employer pays within


the Period of Honouring
Certificate stated in the
Appendix

Contractor may serve


default notice

Employer stops
default in 7 days
No

Carry out provisions of


Clause 26.2

Yes
Yes

Notice of determination
by contractor

Contractor proceeds with


the Works

END

Flow Chart 1: PAM 1998 Form Of Building Contract Clause 30 - Interim Payment Process

START

Contractor submits details and particulars


to Architect during the Period of Interim
Certificate stated in the Appendix
Architect ascertains the amount
due to the Contractor

Error or discrepancy in the previous


certificate detected

Yes

Architect corrects or
modifies previous
certificate in next
certificate

No
Architect ascertains:
(a) the total value of works
properly executed
including those executed
by sub-contractors
(b) the total value of materials
and goods including:(i) delivered to or
adjacent to the Works
(ii) delivered up to and
not more than 7 days
before the date of
certificate
(iii) reasonably, properly
and not prematurely
brought to or
adjacent to the Works
(iv) adequately protected
against weather or
other casualties

No
Architect
issues
Interim
Certificate
with a
copy to the
Employer
within 21
days from
receipt
Contractors
Application

Employer pays within


the Period of Honouring
Certificate stated in the
Appendix

Contractor may serve


default notice

Employer stops
default in 14 days

Yes
Yes

Contractor proceeds with


the Works

Flow Chart 2: PAM 2006 Form Of Building Contract Clause 30 - Interim Payment Process

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No

Notice of determination
by contractor
within 10 days
Carry out provisions of
Clause 26.4 & 26.6
END

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of his contractual entitlement for


that interim certificate, and the
Architect may at his discretion, issue
or not issue the interim certificate
under the circumstances. After the
issuance of the Certificate of Practical
Completion,
interim
certificate
shall be issued as and when
further amounts are ascertained
by the Architect as payable to the
Contractor by the Employer.
Flow Chart 2 details the procedures
of the interim payment process
under PAM 2006 form of contract.
Similarly with PAM Form of Contract,
IEM/JKR Clause 47 (a) to (d) deals
with the interim payment claims,
certifications and payments on a
monthly basis. IEM/JKR Clause 47
(a) states that when the Contractor
has executed the Works including
the material on site has reached
the minimum value requirement as
stated in the Appendix for the First
Interim Certificate, the SO shall make
the first valuation of the Works, for
which is the first claim can be less or
more than a month. For subsequent
claims, the amount must also exceed
the minimum amount as stated in
the Appendix, whereby the claims
can be on monthly basis or more
than a month (at the discretion of
the SO). The Engineer/SO is required
to make a fair valuation of works
properly executed and 75% of the
value of unfixed material and goods
on-site and issue Interim Certificate
to the Contractor for payment by
Employer/Government. It is implied
that the Engineer/SO is to value the
executed works and issue an Interim
Certificate on a monthly basis. IEM/
JKR Sub-Clause 47 (b) requires the
SO to issue an Interim Certificate
within 14 days from the date of
valuation.
The following Flow Chart 3 and Flow
Chart 4 detail the procedures of the
interim payment process under IEM
and JKR respectively.

For CIDB Form of Contract, the SubClause 42.1 requires the Contractor
to submit a Statement of Work Done
(SoWD), which would incorporate the
work properly executed (subject to
any agreement as to stage payment
stipulated in the Appendix), any
items priced in the contract including
Construction Plant, Temporary Works,
percentage (as stated in the appendix)
of value of equipment, material or
goods delivered for incorporation in
the Works and any amount due to the
Contractor under an Option Module.

Sub-Clause 42.2 (a) requires that the


S.O. shall subject to sub-clause 42.2
(c) and (d) issue an Interim Certificate
within 21 days from receiving SoWD.
As provided under sub-clause 42.2
(c), the Interim Certificate must be
issued at regular interval (as stated
in the Appendix). After the Practical
Completion of the Works, the SO
may issue Interim Certificate as and
when he ascertains further amounts
due to the Contractor. Sub-Clause
42.2 (d) provides that the SO is
not required to issue an Interim

START
Contractor submits claims to Engineer when the value of
executed work including delivery of materials had reached
the sum referred to in the Appendix

Engineer makes the first* valuation


of the Works

Engineer makes fair valuation of the Works and materials


delivered each succeeding month, provided the total value is not less
than the sum referred to in the Appendix
Within 14 days from the valuation, Engineer issues Interim
Certificate stating the amount die to the Contractor

Amount of Interim Certificate includes:(i)


Estimated total value of work done
(ii) 75% of value of unfixed materials up to
and including date of valuation
Less
(iii) Installment previously paid
(iv) Retention Fund

Within the Period of Honouring Interim Certificate


stated in the Appendix / Within 30 days if the
issues of Interim Certificate, Employer makes
payment to the Contractor

YES

Contractor proceeds
with the Works

NO
Contractor gives notice of
default under Clause 52 (a)
Contractor terminates the
Contract under Clause 52

Recover monies outstanding


using Clause 55
END

Flow Chart 3: IEM Form Of Building Contract Clause 47 - Interim Payment Process

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No

Contractor returns Letter of


Acceptance of Tender
Yes

No

Contractor deposits relevant


insurance policies

No Interim Certificate
shall be issued

Yes
No

Contractor deposits the


Performance Bond

Contractor executed works including


delivery of materials
S.O. makes valuation of the Works executed and
materials delivered every month
No

Total value more than the


sum referred to in Appendix
Yes
Within 14 days from the valuation, S.O. issues
Interim Certificate stating the amount due to the
Contractor
Amount of Interim Certificate includes:(i)
Estimated total value of work done
(ii)
75% of value of unfixed materials up to

and including date of valuation
Less
(iii)
Installment previously paid

Within the Period of Honouring


Interim Certificate stated in the
Appendix / Within 30 days of the issue
of Interim Certificate, Government
makes payment to
the Contractor

No

Dispute or differences
arise

Yes
Refer Settlement of
Dispute Clause 54.0

Contractor proceeds with


the Works
END

Flow Chart 4: JKR Form Of Building Contract Clause 47 Interim Payment Process

Certificate if the amount claimed


or the amount certified is less than
the minimum amount stated in the
Appendix.
The following Flow Chart 5 details
the procedures of the interim

payment process under CIDB form


of contract.
JKR D&B/T Clause 50 deals with
interim payment. The Interim
Payment shall be made as set out
in the Appendix 2 drawn up by
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mutual agreement of the contracting


parties. However, the PD reserves the
right to make payment according to
the value of work done or Payment
Schedule. Sub-Clause 50.2 requires
the Contractor to submit to the
PD written application for Interim

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Contractor lifts
suspension

NO

Employers
failure to pay
subsequently

Add to Contract
sum

S.O. evaluates
claims

Contractor
submits Loss
and
Expense/EoT
claims

Contractor
entitled to Loss
and Expense

YES

Refer Settlement of
Disputes Clause 47

Contractor
entitled to
Extension of
Time

Determination
subject to
Clause 45.1 (b)

Contractor
protect and
secure the
Works during
suspension

Refer Notice of
default Clause
45.1 (a)

Contractor suspends
wholly / partly / reduces
the fate of the Work
progress

YES

YES

Total amount
Contractor stated in
Statement of Work
Done greater than
the minimum amount
specified in the
Appendix

NO

Employers
failure to make
payment after
further 14 days

YES

Contractor
gives
notice
of his
intention
to
suspend
work

Total amount
which the S.O.
considers Contractor
to be entitled to
greater than the
minimum amount
specified in the
Appendix

NO

Flow Chart 5: CIDB Form Of Building Contract Clause 42 Interim Payment Process

START

Contractor submits to
the S.O. at the intervals
specified in Appendix
as Statement of Work
Done

Statement of Work Done


shall contain:
(i) value of works properly
executed
(ii) items separately priced in
the Contract
(iii) percentage of value of
equipment, materials
delivered to Site
(iv) amount entitled
(v) amount due under Option
Module

NO

S.O. at his discretion decides not to


issue Interim Certificate

S.O. Shall notify the Contractor in writing within


21 days of receiving Statement of Work Done

NO

Employers failure
to pay for further
14 days

YES

YES

Employers
pays certificate
and interest

S.O. issues Interim


Certificate to the
Employer (c.c to the
Contractor) stating
amount ascertained
within 21 days of
receiving Statement
of Work Done

NO

Contractor is
entitled to some
remedy where the
Employer is liable.
Clause 42.12

YES

Interest in
respect of the
unpaid amount
accrued

S.O. may make


any correction or
modification on error in
previous certificates

Contractor recovers
the unpaid amount
from the Bond

YES

Option Module E
/ Payment Bond
applicable

Interim Certificate shall include:


(i) The amount Contractor is
entitled to
Less
(ii) Retention Monies
(iii) Any amount previously
stated
(iv) Any amount previously
certified to be deducted

END

Contractor proceeds
the Works

YES

Employer pays the


Contractor within 21
days/the Period of
Honouring Certificate
stipulated in the
Appendix

After issuance of
Certificate of Practical
Completion, Interim
Certificate shall be
issued as and when
further amounts are
ascertained by the S.O

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Payments showing the amounts


due under the contract, variations,
expenditure of provisional sums
and material on site for use in the
Works.

START
Contractor executed works including
delivery of materials

PD shall issue a notice to Contractor


with reasons to the effect

Contractor submit
payment application

Payment Schedule included in


Appendix 2 of the Contract

No

Where Payment Schedule is included


in the Contract, PD shall issue the
Interim Certificate within 14 days upon
receipt of Contractors application for
Interim Payment. Where no Payment
Schedule is included in the Contract,
the Interim Payment shall be made
by the Government based on PDs
monthly valuation of the Works
properly executed and any goods or
unfixed materials delivered to Site
intended for use in the Works.

Contractor executed works


and payment application in
accordance with Contract

Yes

No

No

Yes

PD do valuation of
the executed Works (including
materials delivered) on monthly basis
and the total value shall be more than
the sum referred to in Appendix 1

PD shall issue interim certificate


within 14 days upon received
Contractor payment application

Yes
PD shall issue Interim Certificate within 28 days
from the Contractors payment application
stating the amount due to the Contractor

Within the Period of


Honouring Interim Certificate
stated in the Appendix / Within
30 days of the issue of Interim
Certificate Government makes
payment
to the Contractor
Yes
Contractor proceeds with
the Works

Flow Chart 6 details the procedures


of the interim payment process under
JKR D&B/T form of contract.

No

Table 1 shows the relevant payment


clauses in the standard forms of
construction contract.

Dispute or
differences arise

Whilst most of the above stipulated


forms of contract provided for
similar words ...... shall on submission
of payment application ........, which
make it a mandatory obligation on
the Contractor to submit his payment
application
for
the
Architect/
Engineer/SO/PD consideration and
certification. Whether such obligation

Refer Settlement of Disputes


Clause 56.0

END

Flow Chart 6: JKR PWD DB/T Form Of Building Contract Clause 50


Interim Payment Process
Table 1
Brief Description of Relevant
Contract Clauses

Contract Clauses
PAM
2006

PAM 1998

The Contractor shall submit a payment application at


the Interim Claim Interval stated in the Appendix.

30.1

30.2

The Architect / Engineer / Superintending Officer


shall within the stipulated period after the Contractor
submitted Interim Payment Claims issues the Interim
Certificate.

30.2
within 21
days

The Employer has to make the payment to the


Contractor within stipulated period after the
Architect / Engineer / Superintending Officer issued
the Interim Payment Certificate.
Interest imposed on Employer for late payment.

CIDB
2000

FIDIC 4th
Edition

47 (a)

42.1

50.2

Architect
discretion

14 days after
Valuation

42.2(a)
within
21 days

50.3 (a)
14 days after
application

30.2

30.3

47 (d)

42.9 (a)

50.3 (c)

30.17

42.9 (b)

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JKR
203A

IEM
1989

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Kuala Lumpur high rise offices

is indeed a mandatory requirement


is debatable, except when it is
expressly provided for as condition
precedent, as in the case of PAM
2006 Clause 30.1.
According to Ir. Harbans Singh
K.S.1, ...... non-compliance to such
requirements is not fatal to the
contractors entitlement, since the
employer is obliged, in the absence
of such breaches anyway to proceed
with the discharge of his side of the
bargain.
CONCLUSION
In normal practice, the Architect/
Engineer/SO/PD usually prepares
the Interim Certificate only after
the Contractor has submitted their
payment application. Whether the

Contractor has to submit their


payment application prior to the
Architect/Engineer/SO/PD issuance
of the interim certificate at the
interval period as prescribed in
the Appendix of the Conditions
of Contracts depends on different
forms of Conditions of Contract.
PAM 2006 Form of Contract make
it a condition precedent in that
the Contractor must submit their
payment application to the Architect/
SO, otherwise it is deemed a waiver
of his contractual entitlement for
that interim certificate. Nevertheless,
the Architect may issue the
interim certificate at his discretion,
depending on the circumstances.

PAM 1998, CIDB and JKR PWD Form


DB/T Forms of Contract require the
Contractor to submit their payment
application to the Architect/PD.
However, there is no provision stating
that the failure of the Contractor to
do so will cause the Contractor to
waive his contractual entitlement
for that interim certificate. Thus, it
is still depends on the Architect/SO/
PDs discretion to make an interim
valuation whenever he considers
necessary for ascertaining the amount
due in an interim certificate.
IEM/JKR Forms of Contract do
not have any provisions that the
Contractor must submit his payment
application for the Engineer/SO to

1
Ir. Harbans Singh K.S., Engineering and Construction Contracts Management PostCommencement Practice, Chapter 3 Payments, LexisNexis (Singapore) Pte. Ltd., 2003.

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REFERENCE/BIBLIOGRAPHY

Payment calculations

do the valuation and then issue


the interim certificate. However, the
Engineer/SO is required to make the
first valuation when the Contractor
has executed the Works (including
material on-site) have reached the
minimum value as stated in the
Appendix of the said form of contract.
Subsequently, the Engineer/SO is also
required to do the valuation and
issue an Interim Certificate when the
Works (including materials on site)
have exceeded the minimum amount
stated in the Appendix either monthly
or more than a month. Failure of
the Engineer/SO to issue the Interim
Certificate is a breach of conduct for
which the Employer/Government can
be liable under the Contract.
Although certain standard forms of
contract do not expressly require the
Contractor to submit their payment
application, they impose such duty
on the Contract Administrator
(Architect/Engineer/SO/PD) to initiate
the payment process. It is therefore
pertinent that the Contractor is
proactive and in his interest, to make
the necessary payment application
regularly and timely, as it will definitely
assist the Contract Administrator to
expedite the payment process and
in turn for the Employer to fulfil his
payment obligation, accordingly.

1. Malaysian standard forms of contract: i. PAM Form of Building Contract (1998 & 2006)
ii. JKR/PWD Form of Contract (203A - Rev 10/83)
iii. IEM Conditions of Contract for Works Mainly of Civil Engineering
Construction (1st Edition 1989)
iv. CIDB Form of Contract for Building Works (2000 Edition)
v. JKR PWD/ Standard Form of Design & Build/Turnkey Contract (PWD
Form DB/T) (2002 Edition)
2. Sr. Ong Hock Tek, Payment Claims, Valuations, Certification and Final
Account, one day seminar organised by Entrusty Management Sdn. Bhd.
and B.K. Burns & Ong Sdn. Bhd., 2 November 2004.
3. Ir. Harbans Singh K.S., Engineering and Construction Contracts Management
Post-Commencement Practice, Chapter 3 Payments, LexisNexis
(Singapore) Pte. Ltd., 2003.
4. Vincent Powell Smith, The Malaysian Standard Form of Building Contract,
Clause 30 Interim Certificate and Valuation, Malaysia Law Journal Sdn.
Bhd., 1990.
5. Ling Tek Lee, Natural Justice in Adjudication, Chapter 2 The Dilemma in
the Construction Industry, University Technology Malaysia, March 2006.

In the next issue of the MBAM journal the article will answer the
question on Is determination of employment and termination of
contract the same in meaning and implications?

The Entrusty Group includes Entrusty


Consultancy Sdn Bhd (formerly known
as J.D. Kingsfield (M) Sdn Bhd), BK
Burns & Ong Sdn Bhd (a member of the Asia wide group BK Asia Pacific) ,
Pro-Value Management, Proforce Management Services Sdn Bhd / Agensi
Pekerjaan Proforce Sdn Bhd and International Master Trainers Sdn Bhd.
providing project, commercial and contractual management services, risk,
resources, quality and value management, recruitment consultancy services
and corporate training programmes to various industries, particularly in
construction and petrochemical, both locally and internationally.
For further details, please visit website: www.entrusty.com. or contact
HT Ong at 22-1& 2 Jalan 2/109E, Desa Business Park, Taman Desa, 58100
Kuala Lumpur, Malaysia. Tel: 6(03)-7982 2123 Fax: 6(03)-7982 3122 Email:
enquiry@entrusty.com.my.
Entrusty Group provides 30 minutes of free consultancy (with prior
appointment) to MBAM members on their contractual questions. The Group
also provides both in-house and public seminars/workshops in its various
areas of expertise.
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