B.Sc. (Hons) Quantity Surveying, B. Jurisprudence [External](External Law Degree), Certificate in Legal Practice (CLP), M. Sc. Project Management, Reg. QS., FRISM.
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This brief paper will outline steps that have already been undertaken by the Government in the wake of the enactment of Construction Industry Payment and Adjudication Act (CIPAA) 2012. Such steps arise from the need to pay the Contractor at the right time with the right amount. New procedures pertaining to the application and approval of Variation Orders have been streamline in order to facilitate payment to the Contractor. New procedures were also issued to prepare and finalize the Final Certificate in accordance with the contract provision in order not to prolong the issuance of the said Final Certificate. Finally, amendments to the Standard Form of Contract pertaining to payment had to be done in order to safeguard the interest of the Government whilst ensuring the right amount of payment is being made to the Contractor. AMRAN MOHD MAJID 2 With reference to the Intituled of the Construction Industry Payment and Adjudication Act 2012 (CIPAA), it reads: An Act to facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters Hence the said provision envisage to regulate regular and timely payment as well as speedy dispute resolution. It is therefore incumbent upon the Government to pay Contractors regularly and timely. As for the Government, the issue of regular payment generally does not arise, but with the enactment of CIPAA, it does provide avenue for the Contractors to now challenge the valuation as well as certification of works done by Jabatan Kerja Raya (JKR).
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Further, pursuant to section 4 of the CIPAA, it defines unpaid party as: unpaid party means a party who claims payment of a sum which has not been paid in whole or in part under a construction contract Hence the matter of dispute does not necessary restrict to only issues pertaining to timely payment but may relate to the dispute relating to the issue of valuation of work. The Government, being one of the biggest employer in the Construction Industry has to now look at ways to improve its current procedures pertaining to contract administration in order to minimize any potential disputes that may arise.
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The person administrating the contract on behalf of the Government is the Superintending Officer (S.O.) or the Project Director (P.D.), as the case may be, named in the contract. It is trite law, that the S.O./P.D. being the agent of the Government has to follow any current procedures determined by the Government which pertains to contract administration. One such procedure is that before the S.O./P.D. could instruct any Variation Order (V.O.) which involves addition to the Contract Sum, he must apply to the V.O. Committee and obtain its prior approval. This requirement can be seen in the Treasury Instruction (T.I.) 202.2, which inter alia reads:
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Had Nilai Perubahan Dan Pihak Berkuasa Melulus 202.2 Sebelum mengeluarkan arahan perubahan kerja, pegawai yang bertanggung jawab hendaklah memastikan kerja tersebut benar-benar perlu dan ada peruntukan yang mencukupi bagi menampung perbelanjaan tambahan dan kelulusan hendaklah diperolehi terlebih dahulu daripada Pihak Berkuasa seperti jadual berikut: The T.I. 202.2 then goes to list the various V.O. Committees that are involved with regard to the various ranges of Financial Limits pertaining to the accumulated value of V.O.s which will increase the contract sum that the S.O. intends to instruct the Contractor.
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The S.O./P.D. is usually a Government Officer and hence it is incumbent for the S.O. to comply with the said T.I. 202.2. The S.O./P.D. does face problems complying with the said T.I. 202.2. Whilst it may be ideal to apply the intended V.O. to the V.O. Committee, it proved to be a daunting task. This is so due to the numerous number of project undertaken by the Government. It will be quite burdensome on the S.O./P.D. to do the paper work to apply to the V.O. Committee. At the same time the V.O. Committee comprising of senior officers, who are busy with official duties would find themselves hard pressed for time to convene meetings. AMRAN MOHD MAJID 7 The S.O./P.D. needs to give V.O. instruction to the Contractor especially pertaining to technical requirements that will not hinder the current work progress on site. To apply and wait for the approval from the V.O. Committee will take time. More often than not the S.O./P.D. will instruct the necessary V.O. and apply later to the said Committee. When the S.O./P.D. apply later to the V.O. Committee this will invariably delay the full payment of V.O. to the Contractor and will therefore contribute to the delay in closing the account of the project. To overcome this problem, whilst at the same time adhering to the T.I. 202.2, a new procedure has to be introduced.
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The Jabatan Kerja Raya (JKR) via the Surat Arahan KPKR Bil. 6/2012 introduced a new procedure which requires the S.O./P.D. to apply to the Chairman of the V.O. Committee to obtain his prior approval in principle of the intended V.O.. Such provision could only be utilized by the S.O./P.D. in the event that the intended V.O. is necessary and urgently required and must be technical in nature. The S.O./P.D. at the same time has to ensure that there is sufficient funds allocated for the project to carry out the said intended V.O.. Upon obtaining the approval from the Chairman, the S.O./P.D. shall then, with convenient speed, apply to the V.O. Committee to formalize the application. In the mean time the S.O./P.D. can issue a V.O. instruction to the contractor and the Contract Sum could correspondingly provisionally be adjusted to allow payment to be made to the Contractor in accordance with the progress of the execution of the said V.O..
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Another procedure to facilitate early closing of account within the time prescribed under the Contract requires the S.O./P.D. to prepare a draft Statement of Final Account (SOFA) within certain prescribed period after the date of the issuance of Certificate of Practical Completion (CPC). This procedure is introduced via Surat Pekeliling Perbendaharaan Bil. 1 Tahun 2012 (SPP Bil. 1/2012). The SPP Bil. 1 Tahun 2012 inter alia stated that the S.O./P.D. must prepare the draft SOFA as follow: i. 9 months after CPC for conventional projects ii. 12 months after CPC for Design and Build projects.
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However the said draft final account shall not be issued to the contractor. Instead it shall be used as a guide for the S.O./P.D. to pay any balance due to the Contractor. This will assist in alleviating the financial burden of the Contractor once the work is completed. Whilst making payment, certain amount shall be set aside by the S.O./P.D. to allow for making good any defects during the remaining period of Defects Liability Period (DLP). This obviously depends on the discretion of the S.O./P.D. with regards to the state of workmanship and goods. The finalized SOFA shall be issued to the Contractor upon the expiry of the DLP and the issuance of the Certificate of Making Good Defects (CMGD) to the Contractor in accordance with the terms of the Contract. AMRAN MOHD MAJID 11 The S.O./P.D. must be mindful not to issue the draft SOFA to the Contractor. As this may cause potential problems to the Government. Reference could be made to the case of Pembinaan Aman Hasil Sdn. Bhd. v. Sabah Medical Centre Sdn. Bhd. & Others (In The High Court In Sabah And Sarawak At Kota Kinabalu Civil Suit No. K22-91-2006 Judgment dated 3.7.2007). In this case the Architect, who is the S.O. for the project repeatedly requested the Contractor to submit particulars of his claims in order for the Architect to issue the Final Certificate for the said project. It was found that the Contractor failed to do so. Nevertheless the Architect issued a draft Final Certificate to the Contractor. AMRAN MOHD MAJID 12 The Contractor then claimed final payment based on the said draft final certificate. The court ruled that in the absence of any cogent reason, the said draft final certificate is prima facie binding on both sides. The Court opined that surely the architect would not have picked the final figure from the air and certainly would have a good basis to issue the said draft Final Certificate. Hence based on the legal principle adumbrated in this case, it is prudent for the S.O./P.D. not to issue the said draft Final Certificate or SOFA to the Contractor but just to use it as a basis to make interim payment during the DLP.
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With the advent of CIPAA the S.O./P.D. must be weary of the amount of payment that needs to be certified to the Contractor. It must not be overvalued and at the same time it must not be undervalued. In this case the S.O./P.D. must have sufficient and cogent records to support and justify his valuation and certification. With the high number of projects executed by the Government, this proved to be a daunting task for the S.O./P.D.. This is further aggravated by the current provision of the Standard Form of Contract. The current provision of clause 28.2 of the PWD 203/203A (Rev.1./2010), inter alia reads:
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Thereafter, once (or more often at the discretion of the S.O.) during the course of each succeeding month the S.O. shall make a valuation of the works properly executed and of unfixed materials and goods delivered to or adjacent to the Site, provided the total value of work properly executed and the value of unfixed materials and goods as specified in clause 28.4 hereof, delivered to the Site intended for incorporation into the Works in each subsequent valuation shall not be less than the sum referred to in Appendix. The said clause 28.2 clearly puts the burden on the S.O. to make valuation of work properly executed and unfixed material on site.
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The S.O. must make findings as to whether the work executed by the Contractor is properly carried out and the unfixed material on site is not prematurely sent to site and its delivery is intended to be incorporated into the Works. If the S.O. fail to justify his valuation, the Government may be vulnerable to claims by way of adjudication under the CIPAA. As can be seen the current clause 28.2 of the PWD 203/203A (Rev.1/2010) does not make it mandatory for the Contractor to submit his monthly claim for interim payment to the S.O.. Hence the process of valuation falls squarely on the S.O. alone without the need for Contractor to assist the S.O. by way of submission of claim. AMRAN MOHD MAJID 16 Hence the said payment provision must be revisited and amended to allow the S.O. to make a just valuation whilst at the same time safeguarding the Governments interest. After discussion with the Legal Advisor of the Ministry of Works, the new provisions with regard to payment under clauses 28.1 and 28.2 of PWD 203/203A (Rev.1/2010), are to be amended as follow: 28.0 PAYMENT TO CONTRACTOR AND INTERIM CERTIFICATES 28.1 Subject to compliance with the terms and conditions under this Contract, The Contractor shall be entitled for Interim Payment certified by the S.O.s monthly evaluation (or more often at the discretion of the S.O.). Provided always that the Contractor shall submit to the S.O., at such times and in such form as the S.O. may prescribe, written application for Interim Payments showing the amounts which in the Contractors opinion are due under the Contract Payments. The submission shall include the following:
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(a) the value of Works done and properly executed and valued in accordance with these terms of Contract; (b) the amount of any valuation of variations or of the instructions by the S.O. (clause 25); (c) the amount in regard to the expenditure of Provisional Sums and Prime Cost Sums executed or expended (clause 34); (d) the value of any goods or unfixed materials delivered to or adjacent to the Site intended for use or to be incorporated into the Works; (e) the value of fluctuation of price pursuant to clause 30: and (f) all relevant documents including site measurement, working diagrams, delivery orders, relevant invoices, as- built drawings, shop drawings relevant tests and environmental impact assessment of the Works or other relevant documents as the S.O. may require, to substantiate the Contractors written application for interim payments,.
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28.2 The S.O. shall within fourteen (14) days from the date of receipt of the application for Interim Payments, inspect and verify the Works, and make a valuation of the same and issue an Interim Payment Certificate stating the amount due to the Contractor from the Government PROVIDED THAT the total value in each monthly valuation shall not be less than the sum referred to in Appendix 1. Hence with the new amended clauses 28.1 and 28.2 of the PWD 203/203A (Rev.1/2010), it is now incumbent for the Contractor to submit his monthly payment claim. At the same time the onus is on the Contractor to substantiate his payment claim to the S.O. for the value of work properly executed.
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It is trite law that the Government must still pay notwithstanding the non-submission of payment claim by the Contractor, provided that the work is properly executed and yield some benefit to the Government. Hence a new clause is inserted to cater for such situation. The new clause 28.6 reads: 28.6 If the Contractor fails to submit full particulars of written application for Interim Payment as stipulated in clause 28.1, the S.O. shall make the valuation of works based on the available documents to him for the purpose of the Interim Payment Certificate. The Government shall be discharged from all liabilities in connection with the Interim Payments.
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As for the preparation and issuance of the Final Certificate, the current provision clause 31.1 of the PWD 203/203A (Rev.1/2010) reads; 31.3 Within three (3) months after the expiry of the Defects Liability Period for the whole of the Works or three (3) months after the issue of the Certificate of Completion of Making Good Defects under clause 48 hereof, whichever is the later, the S.O. shall issue the Final Certificate. Again the said clause 31.1 puts the onus on the S.O. to prepare and issue the Final Certificate. There is no need for the Contractor to submit his final claim.
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The S.O. will be hard press to prepare the Final Certificate whilst at the same ensuring the rights of the Government for example the liability of making good defects during the DLP by the Contractor, re-measurement of provisional quantities, the expenditure of Provisional Sums and other related and incidental matters, are taken care. The S.O. must also ensure all Variation Orders issued whether in the form of additions or omissions are taken into account. Failing which the S.O. may be vulnerable to legal or disciplinary action taken by the Government if he overvalued the Final Certificate. Alternatively, the Contractor may take legal action including by way of Adjudication against the Government if the Final Certificate is undervalued. Hence amendment to clause 31.2 of the same form of Contract is necessary. AMRAN MOHD MAJID 22 The amended clause 31.2 of the PWD 203/203A (Rev.1/2010) now reads: 31.2 Within three (3) months after issuance of the Certificate of Completion of Making Good Defects, the Contractor shall submit to the S.O. a statement of the final account showing in detail the value in accordance with the Contract, of the Works carried out together with all further sums which the Contractor considers to be due to him after giving credit to the Government for all amounts previously paid by the Government and for all sums to which the Government is entitled under the Contract up to the date of the Certificate of Completion of Making Good Defects or the Certificate of Completion of Maintenance, as the case may be. The Final Account shall be supported by all documentation substantiating the value of the same. AMRAN MOHD MAJID 23 Again, if the Contractor fails to submit his final claim for payment of works properly executed, the Government is still liable to pay. Hence to cater for such situation, a new clause is inserted: 31.3 If the Contractor fails to submit full particulars of all claims within the stipulated period, the S.O. shall make the assessment based on the available documents submitted by the Contractor for the purpose of the Final Account. The Government shall be discharged from all liabilities in connection with the claims.
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Reference could be made to the case of Syarikat Panon Sdn. Bhd. v. Platinum Best Engineering Sdn. Bhd. (2011) 1 LNS 520. In this case the contractor claimed payment due under two heads, namely: i. RM1,897,506.76 balance of payment due for the variation of works executed but was undervalued and under certified. ii. RM1,389,531.22 the amount of variation of works allegedly done but was not valued and certified.
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The court found that both claims were founded on very complicated calculations and were not supported with relevant cogent evidence. Hence both claims were just bare assertions from the Contractor. The court also ruled that the onus lies on the Contractor to prove his claim. Since the Contractor failed to do just that, the Contractors claim must fail. Hence based on the legal principle adumbrated from this case, it is incumbent for the Contractor to prove his payment claims for work done. If he fails, then the S.O. must still issue certificates and he too must justify his valuation and certification.
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This brief paper has illustrated that the Government has already taken steps to meet the potential effects of the enactment of CIPAA. There are always room for improvement. However the Government is often faced with a dilemma to pay and close project accounts speedily but at the same time to pay the right amount of money at the right time. It is hope that by undertaking these steps, it will minimize any potential claims by the Contractor against the Government. As the Government strives to improve the liquidity of the economy, it must nevertheless be done with a just manner i.e. being fair to the Contractor as well as to the tax payers.
The impact of human engineering and human capital as mediator variables in the relationship between servant leadership and social capital أثر الهندسة البشرية ورأس المال البشري كمتغيرين وسيطين في العلاقة بين القيادة الخدمية ورأس المال الاجتماعي