Construction

CONSTRUCTION LAW

Overview

People used to wrongly assume that there are special laws governing the construction industry in Malaysia. Although this industry itself is a sector contributing towards the economy of the country, the law applicable to this industry are tort and primarily law of contract.

The obligations, roles and remedies between parties in construction industry are usually covered by construction contracts entered into by parties, common ones being used are PAM (Persatuan Arkitek Malaysia) Main and Sub-Contracts 2006. The other examples are Jabatan Kerja Raya Form (JKR) contract where it is used for public contract.

As a reminder, construction contract award process begins when:

  1. the client (employer) awards the project to the main-contractor;
  2. then, the main contractor will award parts or whole of the contract to subcontractors; nominated by client or appointed by main contractor.
  3. the subcontractors will either undertake to complete the job themselves and source for supplies of materials and machineries.
  4. Otherwise, they will delegate the job to sub-sub-contractors who will source for supplies of materials and machineries to complete the project undertaken

Common scenarios faced by You

The most common disputes in construction industry in Malaysia are payment dispute; followed by variation of works.

When an architect certificate is issued certifying the work has been completed, there is a grace period for payment to be made for the work done. 2 problems usually happen to client:

  1. Architect certificate did not reflect the works done;
  2. When architect certificate reflects the work done, the party who is obliged to pay under the letter of award may default to pay after the grace period.

When main contractor requests for variation of work under instruction of client, subcontractor is confused as to whether the variation falls within the work stated in letter of award. When it falls outside, subcontractor can demand for payment for extra work done.

Solutions for You

When it comes to solve the issues faced by customers, the options depend on the issues faced; whether it is for demand for payment or variation of work.

When there is an existing contract between the parties and claim is only for monetary, subject to the existence of arbitration clause, the recommended option is adjudication under CIPAA 2012 (Construction Industry Payment and Adjudication Act 2012) as it the process is faster. Alternatively, arbitration and court proceedings can be used; especially when the grounds in dispute are not only for demand for payment.

The terms and conditions of the contract (usually letter of award) are construed strictly. When the variations requested are necessary for the completion the project, it impliedly falls within obligation of contractors. However, when the works are not required for completion of the project and are not expressly stated in the contract, client may have to pay contractors for the extra work done.