TERMINATION PROCEDURES OF PROJECTS
BY THE PUBLIC WORKS DEPARTMENT (PWD)
INTAN SAFINA BINTI SANUSI
A master project report submitted in partial fulfillment
of the requirements for the award of the degree of
Master of Science in Construction Contract Management.
Faculty of Built Environment
Universiti Teknologi Malaysia
JANUARY 2015
iii
Dedicated with deepest love and greatest affection to my beloved husband
Mohd Shahrul bin Shari, my parents, my parents in law and my four lovely children
Atiqah, Shaafi, Ayesha and Salehuddin.
Their radiant love continues to bring out the best in me.
Thank you for your sacrifices, support, guidance and constant Du’a.
iv
ACKNOWLEDGEMENTS
In the name of Allah s.w.t who gave me the opportunity, inspirations, ideas
and physical strength in preparing this thesis. Without His guidance and blessing, it
would have been an impossible task for me.
First of all, I wish to express a very sincere appreciation and acknowledgment
to my very supportive and respectful supervisor, Assoc. Prof. Dr. Nur Emma bintil.
Mustaffa. This thesis would be less than complete if not by her endless efforts, gentle
guidance and help, generous encouragement and constructive criticism throughout
the process. I am also very thankful to all the lecturers of Construction Contract
Management Group especially to En. Jamaludin Yaakob, Assoc. Prof. Dr. Maizon
bte Hashim, and Assoc. Prof. Sr. Dr. Rosli Bin Abdul Rashid for their kind help and
support, motivation and advices towards my understanding and thoughts to complete
the study.
I am deeply grateful to my family for their endurance, unconditional love and
care throughout the years. Unforgettable, I would like to thank my beloved husband
Mohd Shahrul bin Shari and my lovely children Atiqah, Shaafi, Ayesha and
Salehuddin, who have given me full support during my study.
I am also indebted to Public Service Department (JPA) Malaysia for funding
my study, Public Works Department (PWD) State of Johore especially to the officers
and staffs from the Quantity Survey Branch, Building Branch and Roads Branch for
their cooperation and assistance in conducting this study. My sincere appreciation
also extends to all my fellow postgraduate colleagues and others for their morale
support and point of views at various occasions in the process of completing this
study.
v
ABSTRACT
Termination of contract is one of the most significant problems in construction
industry with major concern is given to public sector projects, as it has a direct
relationship with the public and the nation’s socio-economic growth. Projects may
suffer cost and time overrun and the owner may suffer significant loss and profit,
worst still the project may be abandoned. From an observation report there were
more than 50% of the projects in Ninth Malaysia Plan supervised by PWD are
completed behind time. Some of these delays might be contributed by non-completed
projects due to termination of contracts. The objective of this study is to identify the
procedures of termination of contract by PWD. The research methodology adopted
was the case study analysis based on the four (4) selected projects being
implemented in the State of Johore, and terminated by PWD.
The data and
information were also gathered from interviews and documentary analysis. From the
research findings there were five (5) salient procedures of termination of contract had
been provided under Clause 51.1 of PWD 203A Standard Form of Contract and
enumerated under Surat Arahan Ketua Pengarah Kerja Raya Bil.8/2013. PWD has
complied with all the procedural requirements enumerated under the contractual
provisions and guidelines, except with the timing for the issuance of Notice of
Termination as well as to make the claim against the Contractor for the loss and/or
damage caused to the Government to complete the project. This study is important
to enhance the knowledge and understanding mainly for the public officials that
termination of contract must be done with greatest care and must follow strictly all
the procedural requirements, or otherwise such termination will be challenged by the
Contractor before the court, and will be held as a wrongful termination.
vi
ABSTRAK
Penglibatan pelbagai pihak dalam proses pembinaan, boleh menyebabkan pertikaian
dan permasalahan antara pihak-pihak tersebut. Penamatan kontrak adalah salah satu
permasalahan utama dalam industri pembinaan, khususnya bagi projek-projek di
sektor awam yang dilaksanakan Kerajaan atas faktor kepentingan masyarakat dan
pertumbuhan sosio-ekonomi negara.
Apabila kontrak ditamatkan, projek akan
mengalami kerugian dari segi kos, masa, prospek keuntungan dan lebih kritikal
adalah projek akan terbengkalai. Berdasarkan satu laporan pemerhatian, lebih 50%
projek di bawah Rancangan Malaysia Kesembilan (RMK-9) yang dilaksanakan oleh
Jabatan Kerja Raya (JKR) disiapkan melangkaui tarikh siap asal yang ditetapkan.
Kelewatan penyiapan projek-projek berkenaan disebabkan antaranya oleh projekprojek yang gagal disiapkan kerana telah ditamatkan kontrak. Objektif kajian ini
adalah untuk mengenalpasti prosedur penamatan kontrak oleh JKR.
Kaedah
metodologi kajian yang digunakan adalah berdasarkan analisis kajian kes ke atas
empat (4) projek yang telah dilaksanakan di negeri Johor Darul Takzim dan telah
ditamatkan kontrak oleh JKR s
emasa projek dalam tempoh pembinaan. Temuduga dan analisis dokumen-dokumen
berkaitan telah dijalankan bagi mendapatkan data dan maklumat untuk mencapai
objektif kajian. Hasil kajian menunjukkan terdapat lima (5) prosedur utama dalam
penamatan kontrak oleh JKR sepertimana dalam Syarat-syarat kontrak PWD203A
(Rev.1/2010) dan Surat Arahan Ketua Pengarah Kerja Raya (SAKPKR) Bil.8/2013.
JKR telah mematuhi keseluruhan prosedur yang telah ditetapkan dalam
melaksanakan tindakan penamatan, kecuali pematuhan tempoh masa yang telah
ditetapkan untuk mengemukakan Notis Penamatan Kontrak serta tuntutan kepada
kontraktor ke atas kos dan/atau kerugian atau kerosakan kepada Kerajaan bagi
menyiapkan projek yang telah ditamatkan kontrak. Kajian ini amatlah penting untuk
memberi kefahaman yang lebih jelas kepada penjawat-penjawat awam bahawa
penamatan kontrak projek-projek Kerajaan perlu dilaksanakan dengan teliti dan
mematuhi segala ketetapan dalam kontrak bagi mengelakkan tindakan penamatan
JKR dicabar oleh Kontraktor di mahkamah dan boleh diputuskan bahawa penamatan
adalah tidak sah di sisi undang-undang.
vii
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE
THESIS DECLARATION
SUPERVISOR’S DECLARATION
1
TITLE PAGE
i
DECLARATION
ii
DEDICATION
iii
ACKNOWLEDGEMENT
Iv
ABSTRACT
V
ABSTRAK
Vi
TABLE OF CONTENTS
Vii
LIST OF TABLES
Xiv
LIST OF FIGURES
Xvi
LIST OF ABBREVIATIONS
xvii
LIST OF CASES
xviii
INTRODUCTION
1
1.1
Background of the Study
1
1.2
Problem Statement
4
1.3
Objective of the Study
11
1.4
Scope and Limitation of the Study
11
viii
1.5
Significance of the Study
12
1.6
Previous Study
13
1.7
Research Methodology
13
1.8
Chapter Organization
17
1.8.1
Chapter 1: Introduction
17
1.8.2
Chapter 2: Termination of Construction
17
Contract
1.9
2
1.8.3
Chapter 3: Research Methodology
17
1.8.4
Chapter 4: Data Analysis and Discussion
17
1.8.5
Chapter 5: Conclusion and Recommendations
18
Conclusion
18
TERMINATION OF CONSTRUCTION CONTRACT
19
2.1
Introduction
19
2.2
Overview of Construction Contract
19
2.3
Termination of Contract and Determination of
21
Contrator’s Employment
2.4
Types and Nature of Termination of Contract
24
2.5
Termination of Contract Under Common Law
25
2.5.1 Repudiatory Breach by the Employer
27
2.5.2 Repudiatory Breach by the Contractor
32
Termination of Contract Under Contracts Act 1950
37
2.6.1 Discharge of Contract by Performance
38
2.6.2 Discharge of Contract by Agreement
39
2.6.3 Discharge of Contract by Frustration
41
2.6.4 Discharge of Contract by Breach
43
2.7
Termination of Contract Under Contractual Provisions
44
2.8
Termination of Contract Under PWD203A Standard
47
2.6
Form of Contract
2.8.1 Termination for Defaults by the Contractor
Under Clause 51 of PWD203A Standard Form of Contract
49
ix
2.8.2 Consequences of Termination
55
2.8.3 Termination Procedures Under Surat Arahan
57
Ketua Pengarah Kerja Raya Bil.8/2013
2.9
3
4
Conclusion
61
RESEARCH METHODOLOGY
64
3.1
Introduction
64
3.2
Research Methodology
66
3.2.1 Research Design
67
3.2.1.1 Type of Study
67
3.2.1.2 Purpose of Study
68
3.3
Research Location
69
3.4
Research Respondents
69
3.5
Research Instruments
71
3.6
Data Collection
72
3.7
Project Case Studies
73
3.8
Conclusion
76
DATA ANALYSIS AND DISCUSSION
77
4.1
Introduction
77
4.2
Background of the Respondents
78
4.3
Research Objective – To Identify The Procedures of
81
Termination Practiced by PWD
4.4
Case Studies Analysis
4.4.1
Project No.1 – Project No.1 Projek Membina
91
91
Jalan Redong ke Selancar, Segamat, Johor
4.4.2 Melengkapkan Lengkongan Pesimpangan
Bertingkat Cloverleaf Di Jalan Masuk Ke Pusat Pentadbiran
Baru Kerajaan Johor Di Nusajaya Dari Linkedua, Johor
98
x
4.4.3
Projek Perumahan Kastam, Larkin, Johor
107
Project No.4 – Projek Pembinaan Bangunan
115
Bahru, Johor
4.4.4
Tambahan Ibu Pejabat Polis Kontinjen (IPK) Johor
4.5
5
Conclusion
124
CONCLUSION AND RECOMMENDATIONS
126
5.1
Introduction
126
5.2
Research Findings
126
5.2.1 Procedures of Termination by PWD
127
5.2.2 Issues on the Non-Compliance of Termination
131
Procedures by PWD
5.3
Future Research
132
5.4
Conclusion
132
REFERENCES
APPENDIX A: TREASURY INSTRUCTIONS,
SA KPKR BI.8/2013 & PWD CORRESPONDENCE
APPENDIX B: PROJECT’S REPORTS &
CORRESPONDENCE
APPENDIX C : INTERVIEW GUIDE
xi
LIST OF TABLES
TABLE NO.
TITLE
PAGE
4.1
Respondents’ information for Project No.1
79
4.2
Respondents’ information for Project No.2
80
4.3
Respondents’ information for Project No.3
80
4.4
Respondents’ information for Project No.4
80
4.5
Analysis of Respondents’ based on their designation and
81
years of working experience
4.6
Findings on the Compliance of Termination Procedures
98
by PWD for Project No.1
4.7
Findings on the Compliance of Termination Procedures
106
by PWD for Project No.2
4.8
Findings on the Compliance of Termination Procedures
115
by PWD for Project No.3
4.9
Findings on the Compliance of Termination Procedures
124
by PWD for Project No.4
4.10
Findings on the Compliance of Termination Procedures
by PWD for Project No.1,2,3 and 4
124
xii
LIST OF FIGURES
FIGURE NO.
TITLE
PAGE
1.1
Research Methodology Flowchart
16
3.1
Research Process Flowchart
75
4.1
Procedures of Termination Under Clause 51.1 of
83
PWD203A Standard Form of Contract (Rev.1/2010)
4.2
Procedures of Termination as stipulated under SPB
87
2013
4.3
Procedures of Termination of Contract Practiced by
90
PWD
4.4
Location of Project No.1
91
4.5
Signboard at the Project Site for Project No.1
91
4.6
Project Site for Project No.1
92
4.7
Project Site for Project No.1
92
4.8
Location of Project No.2
99
4.9
Location of Project No.2
99
4.10
Project No.2 – Drainage & turfing works a t Loop 1
100
4.11
Project No.2 – Drainage & turfing works at Loop 2
100
4.12
Project No.2 – Sub-base layer at Loop 4
101
4.13
Project No.3 – Structure of Block A
107
4.14
Project No.3- Structure of Block B
108
4.15
Project No.3 – Concrete Slab at Level 1 Block A
108
4.16
Project No.3 – Formwork at Level 3 of Block B
109
4.17
Project No.3 – TNB Sub Station
110
xiii
4.18
Project No.3 – Playground Area
110
4.19
Location of Project No.4
115
4.20
Location Site Plan of Project No.4
116
4.21
Project No.4 – Main Administrative Building
117
4.22
Project No.4 – 2 storey Quarters Class D
118
4.23
Project No.4 – Quarters Semi-D Class E
118
4.24
Project No.4 – 6 storey Building of Quarters Class F (40
119
units)
xiv
LIST OF ABBREVIATIONS
CIDB
Construction Industry Development Board
IEM
Institution of Engineers Malaysia
PWD
Public Works Department
JKR
Jabatan Kerja Raya
CIDB
Construction Industry Development Board
PKK
Pusat Khidmat Kontraktor
GDP
Gross Domestic Product
RMK-9
Rancangan Malaysia Ke Sembilan
CNC
Certificate of Non Completion
LAD
Liquidated Ascertained Damages
SO
Superintending Officer
EOT
Extension of Time
SPB
Sistem Pengurusan Bersepadu
SA KPKR
Surat Arahan Ketua Pengarah Kerja Raya
CPM
Critical Path Method
xv
LIST OF CASES
NO.
CASE
PAGE
1
Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd
7
[2014] 11 MLJ 218
2
Sanlaiman Sdn Bhd v Kerajaan Malaysia [2013] 3
8
MLJ 755
3
Fajar Menyinsing Sdn Bhd v Angsana Sdn Bhd [1998]
6 MLJ 80
4
9,51,53,84
Nirwana Construction Sdn bhd v Pengarah Jabatan
Kerja Raya, Negeri Sembilan Sarul Khusus and Anor
10
[2008] MLJU 171
5
Teh Wan Sang & Sons Sdn Bhd v See Teow
26
Chuan[1984] 1 MLJ 130
6
Ching
Yik
Development
Sdn
Bhd
v
Setapak
26
White & Carter (Councils) Ltd v McGregor [1962]
AC 413
Hounslow LBC v Twickenham Garden Developments
27
Development Sdn Bhd, [1997] 1 CLJ 287
7
8
27
Ltd[1971] Ch 233
9
Cowell v Rosehill Racecourse Co Ltd [1937] 56 CLR
27
605
27
10
Tan Hock Chan v Kho Teck Seng [1980] 1 MLJ 308
27
11
Robert v Bury Commissioners [1870] LR 4 CP 755
27,46
xvi
12
Attorney General of Singapore v Wong Wai Cheng
28
Trading and Union Contractors [1980] 1 MLJ 131
11
Carr v J.A. Berriman [1953] 89 CLR 327
29
12
Haji Abu Kassim v Tegap Construction Sdn Bhd
29
[1981] 2 MLJ 149
13
Lep Air Services Ltd v Rolloswin [1973] AC 331
30
14
Brani Readymixed Pte Ltd v. Yee Hong Pte Ltd1
30
[1995] 1 SLR 205
15
Hoening v Isaacs 1 [1952] 2 All ER 176
30,34
16
William Cory & Son Ltd v City of London Corporation
31
[1951] 2 KB 476 CA
17
Marshall v Mackintosh1 [1898] 78 LT 750
33
18
Cheok Hock Beng v Lim Thiam Siong [1992]
33
19
Rice v Great Yarmouth Borough Council [2003]
33
20
Bolton v Mahdeva [1972] 2 All ER 1322
34
21
Thomas Feather & Co (Bradford) Ltd v Keighley
35,36,45
Corporation. 1953 53 LGR 30
22
Sim Chio Huat v Wong Ted Fui [1983] 1 MLJ 151
39
23
Yeoh Kim Pong (Realty) Ltd v Ng Kim Pong. [1962]
39
MLJ 118
24
Ramli bin Zakaria & Ors v Government of Malaysia
42
25
DMCD Museum Associated Sdn Bhd v Shademaker
53
(M) Sdn Bhd (No 2) 1 [1999] 4 MLJ 243
26
SK Styrofoam Sdn Bhd v Pembinaan LCL Sdn Bhd
53
[2004] 5 MLJ 385
27
Renard Constructions Ltd v Minister of Public Works
54
[1992] 26 NSWLR 234 89 [1980] 18 BLR 31
28
JM Hill & Sons Ltd v London Borough of Camden
54
(1980) 18 BLR 31
29
Central Provident Fund Board V Ho Bock Kee [1981]
2 MLJ 162
85
xvii
CHAPTER ONE
INTRODUCTION
1.1
Background Of The Study
The construction industry in Malaysia, like that of many developing
countries, plays an important role in the national economy, through its contribution
to gross national product and employment.
In 2013, it was reported that the
construction industry has contributed not less than RM23.9 billion or 10.6% to gross
domestic product (GDP).1
Despite this important role, the industry is still largely inefficient, especially
regarding contract administration in the public sector, delays, cost and time overruns,
poor project implementation and termination of contract.2 Key industry players both
in public and private sector such as Public Works Department, Construction Industry
Development Board (CIDB), employers, contractors and consultants are thus bracing
themselves for the challenges of the new era towards becoming a high-income nation
and well-developed country by the year 2020.
1
The Malaysian Economy in Figures 2013 (Updated Edition) Prepared by Economic Planning Unit,
Prime Minister's Department, 26th December 2013
2
http://www.epu.gov.my/ as accessed 15th September 2014
2
Traditionally, the contractor carries the risk of completing construction works
on time. This arises from the responsibility the contractor has for scheduling the
work, managing sub‐ contractors and developing the means and methods of
construction.3 Shortcomings that may result in delay or added costs are thus
considered non excusable.4
The construction industry is a complex industry with many parties involved
in its process and operations, often brought together to work for a particular project.
Due to its multi- faceted nature and involvement of numerous parties, disputes are
often inevitable. 5 The natures of disputes in Malaysian construction industry are
payment, default, performance bond, damages, variations, termination, delay and
defect.6
One common dispute in the public sector construction is the issue of
‘determination’ of the contractor’s employment or termination of the contract by the
employer or the Contractor itself.
It is to be noted that previous study has shown that for projects being
implemented and administered by PWD, scheduling that fails to take into account the
important matters will result in projects having extension of time, or termination.
This will affect the end user involve additional expenses, including financial liability,
employee relocation and storage of equipment and problems inventory.7
Termination often termed to be a taboo among the players in the construction
industry owing to the severity of the consequences arising that may lead therefrom.8
3
Lynch, B.G. (2003), “The employer's risk?”, Building Journal Hong Kong, China, June, pg. 66‐ 9.
Thomas, R., Smith, G.R. and Cummings, D.J. (1995), “Enforcement of liquidated damages”, Journal
of Construction Engineering and Management, Vol. 121, pg. 459‐ 63.
5
Entrusty Group (2010),” Construction Contract &Management Issues”, Master of Builders Articles
& Publications, Volume 3, pg.64
6
Asniah Abidin (2007) “The Profile Of Construction Dispute”, Masters thesis, Faculty of Built
Environment, Universiti Teknologi Malaysia, pg.6
7
Hasan, Muhamad Khair (2010) “Improving Time Estimation In JKR Project”, Masters Thesis,
Faculty of Civil Engineering, Universiti Teknologi Malaysia, pg. 2
8
John Wong. (2005). Terminated or be Terminated. The Malaysian Surveyor. 39.1. Page 12
4
3
Termination can have serious implications for the progress of the project and almost
always brings the contracting parties into arbitration or litigation.
Termination occurs when an employer instructs a contractor to permanently
stop the performance of work and leave the site. Termination of contract occurs
when a valid and enforceable contract is brought to an end either by becoming
impossible to perform due to unforeseeable circumstances at the time the contract
was formed or by the actions of one or both parties.9 When the employment of the
contractor has been determined, the procedures, mechanisms and forms of recovery
and remedies are as provided in accordance with the provisions of the contract.10
In Malaysia, most of the Standard Contract Forms termination clauses like
PAM 2006, PWD Form 203A (Rev.2007), PWD Form 203A (Rev.1/2010) and
CIDB Standard Form of Contract for Building Works 2000 Edition, are intended as
with the many other contractual remedy provisions, to provide a mechanism that may
be operated by one party, in the event of specified breached of the contract by the
other, in lieu of rescission and/or an action for damages.
In this study, it will focus on the termination of construction contract by the
employer according to the PWD Form 203A (Rev.2007) and PWD Form 203A
(Rev.1/2010). Under both versions of PWD 203A Forms of Contract, which is
applied to government projects implemented by PWD, has indeed express provisions
for determination of the contractor’s employment by the employer in the event of
specified breach by the contractor of its obligation to complete the works.
It also
envisages the procedures, mechanisms and forms of recovery and remedies to be
within the contract, and not outside the contract.
Nevertheless, the additional
provision under PWD Form 203A (Rev.1/2010) as compared to PWD Form 203A
(Rev.2007) is on the determination of contractor’s own employment by himself, if
9
The Entrusty Group (2008),” Is Determination Of Employment And Termination Of Contract The
Same In Meaning And Implications?”, Master of Builders Articles & Publication, 2 nd Quarter, pg 96
10
Ibid. 5
4
the employer breaches its contractual obligations as provided in the particular
contract.
Under clause 51.1 (a) PWD Form 203A (Rev.2007) and (Rev.1/2010), it
allows the employer to terminate the contract if there is any default by the contractor,
such as the contractor without reasonable cause suspends the carrying out of the
works; the contractor fails to proceed regularly and diligently with the works; the
contractor fails to execute the works in accordance with the contract; the contractor
refuses or neglects to comply with a written notice from the SO; or the contractor
fails to comply with the provisions of clause 27 (a), (b) and (d). Besides that, under
clause 51.1 (b), the employer may terminate the contract if the contractor becomes
bankrupt or insolvent.
Nevertheless, contracts based on the PWD Form 203A (Rev.2007) and
(Rev.1/2010) provides for pre-arbitration resolution of disputes in general, whereby a
dispute or difference as described of whatsoever kind between the employer, the
Superintending Officer (SO) or the superintending officer’s representative and the
contractor must in the first place be referred to the SO for his decision and this
reference to the SO is a condition precedent to any reference to arbitration. If the
Contractor disagrees with the SO’s decision, he may give notice of disagreement and
require the dispute to be referred to arbitration after completion, termination or
abandonment of the contract.11
1.2
PROBLEM STATEMENT
Construction contracts differ from other commercial contracts in that, other
than the parties to the contracts themselves, i.e. the employer and the contractor,
11
Professor Datuk Sundra Rajoo (2014), “Dispute Boards & Adjudication in Malaysia : An Insight
into the Road Ahead”, DRBF 14th Annual International Conference in Singapore on “Dispute Boards:
Realising the Potential for Dispute Avoidance”.
5
there is a third person who features prominently throughout.
This third person is
variously referred to as “the Engineer” in Institution of Engineers Malaysia (IEM)
standard Forms, the “the Architect” in PAM forms and “the Superintending Officer”
Or “S.O.” in PWD and CIDB forms. In fact, it is the case in all standard forms that,
upon the execution of the contracts, the employer hardly plays any role other than
payment, and is limited to have some say on matters relating to termination of
employment and others.12
Termination of contract is one of the most significant problems in
construction industry with major concern is given to public sector projects, as it has a
direct relationship with the public and the nation’s socio-economic growth. From an
observation report there were more than 50% of the projects in Ninth Malaysia Plan
supervised by PWD are completed behind time. Some of these delays might be
contributed by non-completed projects due to termination of contracts.13
In monitoring delayed and sick projects, PWD always encounter errant
contractors in terms of work quality and financial. Despite repeated warning,
discussions and extension of time had been given, most of the time eventually such
contract has to be terminated. Former Minister of Works, Datuk Shaziman Abu
Mansor in 2009 has mentioned that before resorting to such an action, the ministry
would allow for extension of time (EOT) to problem-ridden contractors to which
caused the delay.14 The EOT will only be given if the reasons for the delay are fair
and are within the terms and conditions of the contract.
The Auditor General’s Report 2012 has revealed that 160 projects with a
contract value of RM3.137 billion were terminated between 2007 and 2012. The
Auditor General Report 2012 also found that the government had to bear losses of
12
Oon Chee Kheng (2002), “Standard Construction Contracts In Malaysia-Issues And Challenges”, a
paper presented to a seminar on “INNOVATIONS IN CONSTRUCTION CONTRACTS” held on 31
May 2002, Melaka. pg. 3
13
http://www.ukessays.com/essays/construction/the-project-duration-practices-in-jkr-constructionessay.php. as accessed on 15th September 2014
14
http://www.mysinchew.com/node/31567 as accessed 5th October 2014
6
RM4.89 million because the Public Works Department (PWD) failed to recover
advance payments from banks/insurance companies for three projects that were
terminated.15 The report stated that such outstanding advance payment not recovered
was for a project to upgrade 50 kilometres of the Batu Pahat-Ayer Hitam, Kluang,
Johor by contractor Pintasan Jaya Sdn Bhd amounting to RM3.41 million.16
The
other two were a hostel and canteen project at Sekolah Menengah Seri Nering, Besut,
Terengganu by IT Industries Sdn Bhd (RM780,000) and a library and hostel complex
by at UiTM Perlis by YMY Resources Sdn Bhd (RM700,000).17
From the feedback obtained, PWD admitted that the outstanding balance on
advance payments to the contractors could not be claimed before the expiry date of
advance payment guarantee because of time constraints asides several other
problems that arose during the process of termination of the contracts which included
transfers and absence of the related officers.18
It is clear that proper contract administration in the implementation of
government projects supervised by the prominent technical agency like Public Works
Department (PWD) has been a main concern of the stakeholders nowadays.
Delivering the project on time as stated in the contract to the client is important to
JKR as an implementer.19 Failure to deliver the project on time to the client will
reflect on the capability of PWD as a government technical department.
Projects may suffer cost and time overrun and the owner may suffer
significant loss and profit, worst still the project may be abandoned. Failure to
complete infrastructure and public amenities projects not only will give a bad image
and reputation to PWD, but also created doubts and a negative perception towards
15
The Sundaily, October 1, 2013.
Ibid. 15
17
Ibid. 15
18
Ibid. 15
19
http://www.ukessays.com/essays/construction/the-project-duration-practices-in-jkr-constructionessay.php as accessed 22nd September 2014.
16
7
the tender process for the projects.
The big risk with any form of termination is that the termination could be
wrongful or it is not done correctly. If the termination is proved to be wrongful, then
the party terminating the contract (PWD) not only fails to deliver and complete the
project on time, but also will be responsible to pay the wrongfully terminated party
its contracts payments through the date of termination and potentially the loss of
profit on the work not performed.20
Most of termination cases were held as a wrongful termination due to a
reason that they did not follow the procedure of termination as being provided in the
standard form of contract.21
Lack of understanding, poor communication and
coordination, incompetency and shortages of man power in the project management
team are amongst the essential problems that has caused termination procedures
failed to be understood and adhered entirely.
Although under PWD 203A Form 203A (Rev.2007) and (Rev.1/2010) have
provided the express provisions on the power of the Government to terminate a
contract, in order to terminate a contract on contractual grounds the it must be proved
that one of the reasons for termination set out in the contract has occurred. This is not
always straightforward. For example, a “failure to proceed regularly and diligently”
is a common ground for termination, but it is not easy to pinpoint exactly when this
sort of failure has occurred.
PWD who has decided to terminate on this ground will need to carry out a
detailed assessment of the progress of the works to identify whether there really has
20
Roslinda Rosly (2009), “The Profile of Construction Terminated Cases”, Masters Thesis, Faculty of
Built Environment, Universiti Teknologi Malaysia, pg.97
21
Ibid. 20
8
been a breach. In the case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd22
the High Court has observed that sole reliance on the Critical Path Method (CPM) to
evidence a failure of the defendant to proceed regularly and diligently with the works
can be suspect and risky especially when the completion date was still not up. The
plaintiff relying on it as a ground for terminating the contract before the completion
date runs the risk that the termination had been unreasonable, invalid and wrong in
law. Therefore, using merely the failure of the contractor to abide by his work
programme or its update as a yardstick to establish the default per se was insufficient.
The question on the validity of termination of the contract under the PWD
form of construction contract was also discussed in the case of Sanlaiman Sdn Bhd v
Kerajaan Malaysia23. In this particluar case, the plaintiff was appointed by the
defendant as the main contractor for a construction project and had received several
warning and reminder letters from the latter that the progress of its work was slow
and not in keeping with the time-line for the project's completion. The plaintiff had
applied for two extensions of time, respectively of four months and three months to
complete the works. However the defendant only allowed one 30-day extension.
Despite granting the extension, the defendant issued the plaintiff a notice of default
and followed that up with a certificate of non-completion ('CNC'), a claim for
liquidated and ascertained damages ('LAD') and finally a letter terminating the
contract. The plaintiff disputed the termination claiming it had completed more than
90% of the works and referred the matter to arbitration. The arbitrator ruled, inter
alia, that the plaintiff was entitled to complete the project within a reasonable time as
the time for completion had been set 'at large' and that the defendant's issuance of the
CNC and the imposition of LAD were wrongful and invalid. He, however, held the
defendant's termination of the contract was lawful and valid. The plaintiff argued that
it was illogical for the arbitrator to hold the termination to be valid when he had
already found that the time for completion was set 'at large'. The High Court finally
dismissed the plaintiff’s claim with costs and Mohamad Ariff J held that:
22
23
[2014] 11 MLJ 218
[2013] 3 MLJ 755
9
1)
There was no error of law on the face of the award or arising out of
the award;
2)
The arbitrator had considered the evidence in relation to the failure to
'proceed regularly and diligently with the works' and came to firm findings of
fact on the evidence that the notice of default and the subsequent termination
was not mala fide, unconscionable or wrongful;
3)
The arbitrator found the plaintiff's argument that 'the CNC itself
would have superseded the event complained of in the notice of default'
untenable as they were both different and unrelated provisions in the contract;
4)
Seen in its entirety, the findings in the award were not illogical or
inconsistent. The arbitrator came to definite findings on the evidence and
found the issues of CNC and extension of time to be separate from the issue
of failure to proceed regularly and diligently with the works, which afforded a
cause for termination under cl 51 of the contract.
Another important issue which often arises following termination of a
contract on contractual grounds is whether the correct procedure has been followed.
The general rule is that in the absence of an express provision in the contract, the
exercise of a contractual power of determination need not take any particular form,
so long as there is some act which demonstrates an unequivocal intention to
determine.24
However, the rights of determination are narrowly construed and therefore
any specific provisions must be strictly observed. The said approach has been fully
endorsed by the Malaysian Courts as reflected in the following extract of Nik
Hashim J’s judgement in Fajar Menyinsing Sdn Bhd v Angsana Sdn Bhd25, in
relation to Clause 25(i) of the PAM/ISM 1969 Form of Building Contract:26
24
Sundra Rajoo, Harbans Singh KS (2012), “Construction Law in Malaysia”, Sweet & Maxwell Asia,
pg.426
25
[1998] 6 MLJ 80
26
The predecessor of the PAM 1998 Forms
10
“…it is obvious by its provision and the marginal note that clause 25(i) is a
determination clause as such, it must be construed strictly.
Its provision is
mandatory in nature. Therefore any formal or procedural requirements stipulated in
the determination clause must be complied with exactly and meticuously…”
It is submitted that the essence of the judgement as reproduced above is
equally applicable to the various determination clauses enshrined in the other
common forms of conditions of contract used in the country, like PWD Forms, IEM
Forms, Putrajaya Forms and CIDB Form.27
If the terminating party fails to comply fully with the termination procedure
set out in the contract, this can result in the terminating party being in breach of
contract himself and having to pay damages to the terminated party. In the case of
Nirwana Construction Sdn bhd v Pengarah Jabatan Kerja Raya, Negeri Sembilan
Sarul Khusus and Anor28 it was held that such notice to terminate was bad in law, for
being devoid of the precise ground for termination. The court decided amongst
others that the contractor is to be paid the unpaid contractual sum claimed, i.e. the
sum of RM501,817.66 with interest at 8% p.a. with effect from 5th July 1996 till date
of realisation, general damages for breach of contract.
Therefore, from the issues stated above, this study is to identify what are the
procedures being practiced by PWD in termination action against the contractor
precisely under Clause 51 of PWD 203A (Rev.1/2010) as well as other guidelines,
directives provided to be complied by PWD. By analysing the facts on real project
documents, the good practice and weaknesses by PWD as the project implementer
can be used as a reference and lesson learned especially for those public officials to
be appointed as the SOs in the future. It is hoped that this study will be a general
guideline so that any weaknesses and shortcomings may be improved and overcomed
27
Ir Harbans Singh K.S (2003), “Engineering and Construction Contracts Management” Post
Commencement Practice, Lexis Nexis, pg. 109
28
[2008] MLJU 171
11
for the betterment of delivery system in the terms of contract administration of the
public sector.
1.3
OBJECTIVE OF THE STUDY
The objective of this study is to identify the procedures being practiced by
PWD in terminating the contract in the event of defaults by the contractor under
Clause 51 of PWD Form 203A (Rev.2007) and (Rev.1/2010).
1.4
SCOPE AND LIMITATION OF THE STUDY
The scope of this study is limited to development projects which were
implemented by PWD State of Johore, and have been terminated under the 10th
Malaysia Plan (2011-2015).
As the objective of this research is to identify the procedures of termination
practiced by PWD, the scope of this study will be limited to three (3) aspects of
termination procedures being stipulated either in PWD203A Form 203A (Rev.2007)
and (Rev.1/2010), or other government’s official circulars and directives, as the
following:
(i) Timing;
(ii) Notices;
12
(iii) Person empowered and authorized under the contract to issue any
relevant notices, claim, certificate or correspondence related to
termination of contract by PWD.
It will refer to the relevant provisions as set out in the PWD Form 203A
(Rev.2007) and (Rev.1/2010), as it is the de facto standard forms of construction
contract used in the Malaysian public sector, besides other official documents
categorized as confidential as well as non-confidential documents.
Confidential
documents are the projects reports, notices and correspondence of the selected
projects terminated by PWD. The non-confidential documents are also referred like
the Treasury Instruction, official directives and circulars, journals, books and other
relevant sources of information related to the research objective.
In addition, the
study will be supported by the Malaysian an international cases which wherever
background of knowledge is necessary.
1.5
SIGNIFICANCE OF STUDY
This research is very important as it provides basic guideline especially for
the public officials acting as the Project Manager or Superintending Officer (SO), as
well as other players in the construction industry such as the contractors, consultants
and employers in the private sector in relation to termination disputes in construction
contract. Any attempt to terminate contract must be done with greatest care and must
be done in accordance with the procedural requirements stated in the PWD 203A
(Rev.1/2010) and related official governments’ circulars and instructions.
Furthermore, hopefully this study will also help the public officials to give a
serious attention and great care when dealing with termination of contract as it may
give rise to disputes that eventually will be referred to arbitration and litigation.
13
1.6
PREVIOUS STUDY
There are several previous theses and past studies being conducted relating to
termination of construction contract. However those studies or research focused on
the ‘Determination of Contract By Employer in Construction Industry’ both referring
to PWD 203A and PAM (Tan LeeYong, 2006), the ‘Profile of Construction
Disputes’ by Asniah Abidin, 2007, the ‘Profile of Construction Contract Termination
Cases’ by Roslinda Rosly, 2009, ‘Wrongful Termination of Contract in Construction
Industry’ by Choong Oi Siang, 2011 and ‘Mutual Termination of Contract in
Construction Projects’ by Awang Muhamad bin Hj Jambol, 2011.
Hence, this study will focus on the procedures being practiced by PWD in
terminating the contract in the event of defaults by the contractor under Clause 51 of
PWD Form 203A (Rev.2007) and (Rev.1/2010).
1.7
RESEARCH METHODOLOGY
In order to achieve the research objective, a systematic process of conducting
this study had been organised. Basically, the process of this research consists of five
(5) major stages, which involve identifying the research issue, literature review, data
collection, data analysis, conclusion and recommendation.
Stage 1 – Identifying the Research Issue
The first stage of research involves initial study, which is discussion with
lecturers and friends regarding the research topic and initial literature review to get
14
an idea of the research issue. The objective and scope of the research will be
determined after the initial study and the outline will be prepared in order to identify
the type and sources of data related to the research.
Stage 2 – Literature Review
After the research issue and objective have been identified, various
documentation and literature review regarding the research field will be collected to
achieve the research objective. Generally secondary data is collected from the latest
reading materials in printing form such as books, journals, research papers, reports,
newspapers as well as from the internet. It is important to identify the common issues
of the terminated contracts for projects being administered by PWD, as well as the
general state of knowledge concerning the subject area of termination of contract
such as background, definition, procedures and effects etc.
Stage 3 – Data Collection
The third stage of research process is the data collection, which consists of
primary data and secondary data.

Primary Data
In order to achieve the research objective, primary data will be collected
through the process of interviews. This technique hopefully will help in obtaining
information on actual basis. The respondent will come from PWD officers and staffs
who are involved directly in the procedures of termination of contract.

Secondary Data
Sources of secondary data consist of books, articles, journals and seminar
papers. The data and information will also be collected from the relevant Treasury
15
Instruction, Official Circulars and Standard Forms of Contract. These sources are
important to facilitate in conducting a good literature review.
In summary, the methodology of this research adopts from case study of the
four (4) selected PWD projects, literature review together with the semi-structured
interviews to be conducted with various PWD officers and staffs directly involved in
termination procedures of contract as well as documentary analysis on the research
topic.
Stage 4 – Research Analysis
In this stage involves data analysis, interpretation and data arrangement. This
process is to process and convert the data collected to information that is useful for
the research. Arrangement of data tends to streamline the process of writing of the
paper.
Stage 5 – Conclusion and Recommendations
In the last stage, the whole process of study will be reviewed with the
intention to identify whether the research objective has been achieved.
presenting the research findings, further research will be suggested.
After
16
INITIAL STUDY
st
1 STAGE


Discussion (Lecturers & Friends)
Literature Review (Books, journals, Internet)
LITERATURE REVIEW
2nd STAGE
Identify the research issue
Identify the research objective, scope and outline
Identify the type and sources of data
3rd STAGE
DATA COLLECTION
\
Primary data
 Interview
Secondary data
\  Books, Articles, Journal, Acts
 Treasury Instruction, Standard
Form of Contract, Directives.
\
DATA ANALYSIS AND
INTERPRETATION
4th STAGE
\
5th STAGE
\
WRITING AND CONCLUSION
17
Figure 1.1 – Research Methodology Flowchart
1.8
CHAPTER ORGANIZATION
This study will consist of five (5) chapters. The brief descriptions of each
chapter are as follows:
1.8.1
Chapter 1 : Introduction
This chapter presents the overall content of the study. It will introduce the
background of the study, problem statement, objective and scope of study. It will
also explain the research methodology in order to accomplish the objective of the
study.
1.8.2
Chapter 2 : Termination of Construction Contract
This chapter will discuss generally about termination including the definition,
procedures and consequences of termination od construction contract. It will also
highlights in general the termination clauses provided in the existing PWD203A
Standard Form of Contract.
1.8.3
Chapter 3 : Research Methodology
This chapter is to elaborate on the research methodology that has been
endorsed in this study which consisting of the explanations on method used, rationale
or reasons behind the method selected.
18
1.8.4
Chapter 4 : Data Analysis and Discussion
This chapter will consist of detailed analysis of the four (4) selected case
studies and discussion on the procedures of termination, which have been practiced
by PWD.
The research findings on the compliance of the established termination
procedures will be discussed as well as its implications on the validity of the
termination of contract by PWD based on decided case law.
1.8.5
Chapter 5 : Conclusion and Recommendations
Conclusion of the research will be based on all discussions in the previous
chapters to explain the findings of the research. In this chapter also, further relevant
study will be suggested.
1.9
Conclusion
As a conclusion, in order to achieve the research objective, a systematic
process and methodology of study shall be determined and identified in early stage.
A researcher needs to focus and conducted the study based on an appropriate
method. Thus, a study on termination of contract by Public Works Department
hopefully will benefit the contracting parties in the construction industry, mainly the
public officials and staffs as a guideline and reference in the future.
19
CHAPTER 2
TERMINATION OF CONSTRUCTION CONTRACT
2.1
Introduction
This chapter will discuss on the termination of construction contract.
It
explains on its overview, definition, procedures and effects towards the project
management and contract administration for projects administered by PWD. It will
also highlights the termination clauses as in the existing Form 203A (Rev.2007) and
(Rev.1/2010) which applies to the government’s projects.
2.2
Overview of Construction Contract
20
What is a contract? A “contract” is a promise or a set of promises for the
breach of which the law gives a remedy, or the performance of which the law in
some way recognizes as a duty.29 An agreement enforceable by law is a contract.30
Black's Law Dictionary has defined “an agreement” is a concord of
understanding and intention, between two or more parties, with respect to the effect
upon their relative rights and duties, of certain past or future facts or performances.31
Thus from the various definitions of contract, the essential features known are the
agreement with a common understanding and intention between parties to do or
refrain from doing something, which is enforceable by law.
A construction contract is an agreement for: 32
(a) the carrying out of construction operations;
(b) arranging for the carrying out of construction operations by others,
whether under sub- contract to him or otherwise;
(c) providing his own labour, or the labour of others, for the carrying out of
construction operations.
and includes an agreement
(a) to do architectural, design, or surveying work, or
(b) to provide advice on building, engineering, interior or exterior decoration
or on the laying-out of landscape.
In short, a construction contract is a contract under which one party
(commonly called “the contractor”) agrees for valuable consideration to undertake to
carry out works for another party (commonly called “the employer”) involving
design (where applicable), fabrication, erection, alteration, repair or demolition of
structures and/or installations on a site made available by the latter. Such contracts
are usually termed ‘building contracts’ when they relate to buildings and
29
J. Beatson FBA, A. Burrows FBA, J. Cartwright (2010), “Anson's Law of Contract” Twenty-ninth
edition, pg.2
30
Section 2, Contracts Act 1950
31
http://thelawdictionary.org/agreement/ as accessed 2 November 2014
32
Section 104 of the Housing Grants, Construction and Regeneration Act 1996, United Kingdom.
21
‘engineering contracts’ when they relate to infrastructure, systems and equipment
installations.33
A study of the law pertaining to building and civil engineering contracts
involves consideration of the following34:
I.
The English law of contract and of tort as received locally;
II.
Local legislation which adds to or overrides the English law
III.
Case law (precedent), which provides some definitions, rules or which
may provide only guidance in interpretation problems, and which is in a continual
state of development; and
IV.
The terms of the particular contract (express and implied) which are
themselves subject to common law and statutory rules of interpretation.
2.3
Termination of Contract and Determination of Construction Contract
One of the common problems in the construction industry that usually has
serious implications on the project and the parties concerned is termination of
contract or determination of employment by the employer or contractor.35
It has
been observed that many players in the construction industry still lack the
understanding and appreciation of the difference between determination of
contractor’s employment and termination of contract.
A proper understanding is
essential to appreciate the issues involved.
33
http://www.bem.org.my/publication/march-may2005/CF(CONTRACTS).pdf accessed on 1st
November 2014, Articles by Ir. Harbans Singh K.S. (2005),”Construction Contracts: An Overview”,
Board of Engineers (BEM) Publications
34
Nigel M. Robinson, Anthony P.Lavers, George Tan Keok Heng & Raymond Chan (1996),
“Construction Law in Singapore and Malaysia”, Second Edition, Butterworths Asia, pg.3
35
Ibid. 9
22
The word ‘determination’ (from the verb ‘to determine’ used transitively as in
the standard forms) means ‘putting an end to’ (as opposed to its intransitive meaning
of ‘to come to a decision’) and is therefore indistinguishable from ‘termination’. 36
The meaning of the word ‘determination’ in the context of civil engineering
contracts has been defined as 37:
“The bringing to an end of something, for example the determination of a
dispute. The word is commonly used in the context of civil engineering contracts to
refer to the ending of the contractor’s employment. Both parties have a common law
right to bring the contract to an end in certain circumstances but most standard
forms give the parties additional and express rights to determine upon the happening
of certain events.”
In the context of construction contracts, the word ‘determination’ is employed
in connection with the bringing to an end the Contractor’s employment under the
particular contract. It is synonymously used with the terms ‘termination” and
“forfeiture” although there are distinct differences between them.38 In determination,
it is the contractor’s obligation and responsibility to carry out the works under the
contract that is terminated and not the contract. The contractual and common law
rights of the parties remained intact and are not invalidated due to the
determination.39
An action of determination of the contractor’s employment as far as the
employer is concerned, is to facilitate completion of his project without expense over
and above that originally contracted for. For the contractor, his right to determine
provides a mean of escape without loss. When the contractor’s employment has
been determined, then settlement and further rights and liabilities are provided by
36
Ibid. 34 pg.362
Vincent Powell-Smith, David Chappell and Derek Simmonds (1989), “An Engineering Contract
Dictionary” , (Oxford: Legal Studies and Services (Publishing) Ltd, pg. 129
38
Ibid. 24 pg.420
39
Ibid. 9
37
23
the determination clauses only. Other contractual provisions (except for dispute
settlement) being rendered inoperative.
Arbitration provisions thus survive
determination and remain available for the settlement of disputes arising in the
determination process.40
Briefly, termination of contract takes place at a point in time in the course of
the contract period when a legally binding contract period is brought to an end before
it has been discharged by performance due to the acts of one or both parties.41 The
use of the phrase ‘termination of contract’ seems to suggest that the contract in
question as a whole is brought to an end. However, this may be in variance with the
intention, which may be merely to bring the contractor’s duties and obligations in
relation to the execution of the works (i.e. construction activities) to a halt.42
Whilst most contracts use the expression ‘determination of employment’ for
instance in Clause 25 and 26 of PAM Contract 2006, Clause 44 of the JKR Sarawak
Form of Contract (2006) and Clause 44 and 45 of the CIDB Form (2000 edn), others
prefer the phrase ‘termination of contract’ or termination of employment as stated in
Clause 51-55 of PWD 203 and 203A (Rev 1/2010), Clauses 60-64 of the PWD DB
(Rev 1/2010), Clauses 61-62 of the IEM.CE 2011 Form and Clauses 36-37 of the
IEM.ME 1/94 Form).43
It is clear that there is no consistency of terminology in the contract forms
prepared by various organizations. Much depends on the preference of the parties
and/or the drafters of the conditions of contract. If and when employed it usually
refers to the employer’s right to determine the contract or to seize any plant and/or
materials.44 However, the important consideration is whether the meaning of the term
used in the contract is clear in itself. For the remainder of the chapter, the term used
would be ‘termination of contract’ whenever possible for the sake of consistency and
40
Ibid. 34 pg.363
Ibid. 8 Page 12
42
Ibid.24, pg.420
43
Ibid. 42
44
Ibid. 27 pg.231
41
24
focus of this study as similar phrase being used in termination clauses of the PWD
203A (Rev 1/2010) Standard Form of Contract.
2.4
Types and Nature of Termination of Construction Contract
Terminations can be basically categorized according to the identity of the
defaulting party, or the basis of the termination, or the legal basis of such a
termination.45
Under the first category fall the contracting parties. For main contracts, these
can be the employer and the main contractor. Likewise for nominated subcontracts
the parties who can determine are the main contractor and the nominated
subcontractor. 46
Second category of termination is premised on the very nature of a party’s
breach or defaults that can either be performance defaults or financial defaults. The
final category entails the legalities pertaining to the determination in question.47 It is
always imperative to ascertain whether such termination is based on a contractual
provision or under the common law.
In practice “determination at common law” exists usually in parallel with
“determination under contractual provisions” although it can be validly exercised in
in restricted circumstances as it can be readily challenged.48
45
Ibid.24 pg.421
Ibid. 45
47
Ibid. 45
48
Ibid. 27 pg. 109
46
25
2.5
Termination of Contract Under Common Law
The rights to "terminate" at common law are confounded by definitional
difficulties and inconsistencies. Strictly speaking "termination" means that the
contract is "discharged", that is, the future, unaccrued obligations owed by the parties
fall away. The contract does not actually cease to exist. The innocent party electing
to treat his liabilities to perform as at an end, the primary obligations of the party in
breach to perform the contract are replaced by secondary obligations to pay damages
for the loss arising from the breach.49
Termination of contract at common law occurs when a valid and enforceable
contract is brought to an end either by it becoming impossible to perform due to
unforeseeable circumstances at the time the contract was formed or by the actions of
one or both parties.50
The right to ‘put an end of the contract’ may be exercised in two situations,
namely refusal by the promisor to perform and disability to perform. The party not in
breach has the option either to continue with the contract and claim damages or
repudiate the contract. Continuation with the contract despite the breach may be
‘signified by words or conduct’.51
49
https://www.ashurst.com/doc.aspx?id_Resource=4638. as accessed on 26th September 2014 :
Article by Ashurst LLP (2012), “Terminating Contract”.
50
Ibid. 5
51
Beatrix Vohrah & Wu Min Aun. [2010]. “The Commercial Law Of Malaysia”. Malaysia: Pearson
Malaysia Sdn Bhd. pg.172
26
A breach of this kind is known as a ‘repudiatory breach’. In both cases, the
innocent party has a choice either to ‘affirm’ the contract and hold the other party to
its obligations (while claiming damages as appropriate for the breach), or to bring the
contract to an end. If repudiation is opted for, then both parties are released from any
further contractual obligation to perform.52
Repudiations ordinarily occur where the contract is unfavorable to the
repudiator, and the injured party has the rights to take the offensive, by bringing
affirmative action. Indeed, though the contract is favorable to the repudiator, the
injured party has parted with money or other consideration in advance of
performance by the repudiator.53
In Teh Wan Sang & Sons Sdn Bhd v See Teow Chuan [1984]54, the High
Court held that:
“A repudiation in advance by one party to a contract, that he will not
perform it before the arrival of the time for the performance by the repudiating party,
does not, by itself, amount to a breach of contract, though it may optionally be, of
course, regarded as such a breach by the other party in treating it as at an end.”
In Ching Yik Development Sdn Bhd v Setapak Development Sdn Bhd, [1997]
1 CLJ 287 the High Court held that:
“... where the term that has been flouted is fundamental to the contract, the
innocent party is entitled to treat himself as being discharged from further
obligations under it. But where the obligation that has been breached is only
subsidiary or minor in nature, the innocent party may not treat himself as being free
of his obligations under the contract, although he may sue and recover damages for
52
Murdoch, J and Hughes, W. (1997). Construction Contracts: Law and Management. E & FN Spon.
London. pg. 324
53
Herbert R. Limburg (1925), “Anticipatory Repudiation of Contracts’, Volume 10, Cornell Law
Review, June 2014
54
[1984] 1 MLJ 130
27
the non-performance of the subsidiary term ... A party who terminates a contract or
treats it as having come to an end in reliance upon the breach of a non-fundamental
term is himself guilty of a breach of a contract.”
From the foregoing two judicial decisions, it can be noted that not every
breach gives rise to an entitlement to terminate the contract. Only repudiatory breach
that goes to the root of the contract will entitle the innocent party to terminate the
said contract, if the innocent party accepts such repudiation by rescinding the
contract.55
One particular problem which the law has not yet satisfactorily resolved is
whether an innocent party who ‘affirms’ a contract can insist on carrying out that
contract in the face of the other party’s clear (though wrongful) wish to terminate it.56
In the case of White & Carter (Councils) Ltd v McGregor57 a bare majority of the
House of Lords upheld that the innocent party’s right to act in such a way albeit with
the proviso that the innocent party must have a ‘legitimate interest’ in performing the
contract rather than claiming damages.58
However, in another English case of Hounslow LBC v Twickenham Garden
Developments Ltd 59 Megarry J was firmly of the opinion that the White & Carter
principle did not apply where performance of the contract required the co-operation
of the other party, especially where it consisted of work done on the other party’s
property.60
2.5.1
55
Repudiatory Breach by the Employer
Ibid. 5
Ibid. 52
57
[1962] AC 413
58
Ibid. 52
59
[1971] Ch 233
60
Ibid. 52
56
28
There are various acts by the employer that can result in a repudiatory breach.
These are listed and explained below:

Failure to give possession of site
Generally, the employer is obliged to give the contractor possession and
sufficient access to the site to enable the contractor to perform his physical works
under the contract.61
Unless there is a provision in the contract to postpone the date
of the site possession, the failure of the employer to give effective possession entitles
the contractor to rescind the contract and claim for damages.62 In Robert v Bury
Commissioners 63 it was held that an outright refusal to give possession of site by the
employer is a repudiatory breach.
Nevertheless, mere delay in giving site possession to the contractor is not
repudiation.
Therefore the crucial question as to delay in giving possession is
whether the employer’s conduct indicates an intention no longer to be bound by the
contract.
In the case of Attorney General of Singapore v Wong Wai Cheng Trading and
Union Contractors64 the Court of Appeal in Singapore held that a delay in site
possession by a period of 30 months which was in excess of the contract period (24
months) itself was not a fundamental breach having regard to the express provisions
in the contract that shows that the parties had clearly contemplated at the time the
contract was made that hindrances and delays, including late site possession, to the
execution of Works were to be allowed for. In the event of such delays, the contract
expressly provides that the contractor would be compensated. The Court came to the
conclusion that there was no fundamental breach unless the continued performance
61
Cowell v Rosehill Racecourse Co Ltd [1937] 56 CLR 605
Tan Hock Chan v Kho Teck Seng [1980] 1 MLJ 308
63
[1870] LR 4 CP 755
64
[1980] 1 MLJ 131
62
29
by the contractor under contract was rendered impossible or would result in
something totally different from that which the contract contemplated.65
In the case of Carr v J.A. Berriman66 Fullagar J., had observed that:
"Where a contract contains a promise to do a particular thing on or before a
specified day, time may or may not be of the essence of the promise. If time is of the
essence, and the promise is not performed on the day, the promisee is entitled to
rescind the contract, but he may elect not to exercise this right, and an election will
be inferred from any conduct, which is consistent only with the continued existence
of the contract. If time is not of the essence of the promise, the promisee is not
entitled to rescind for non-performance on the day. If either (a) time is not originally
of the essence, or (b) time being originally of the essence, the right to rescind for
non-performance on the day is lost by election, the promisee can, generally speaking,
only rescind after he has given a notice requiring performance within a specified
reasonable time and after non-compliance with that notice.”
In this particular case, a delay of two months in giving possession of site
despite repeated requests from the contractor, and also announced that part of the
contract work was to be omitted and given to another contractor, it was held that
these two breaches taken together, amounted to a repudiation of the contract. Thus
entitles the contractor to claim damages.

Non-payment of sum due
As a general principle of law, failure to pay on time what is due under a
contract will not normally be treated as a sufficient breach to justify the other party in
terminating that contract.67 This is why contracts commonly provide express rights
65
Ibid. 9
[1953] 89 CLR 327
67
Mersey Steel & Iron Co v Naylon, Benzon & Co [1884] 9 App Cas 434
66
30
of determination for non-payment.
It was held by the Court of Appeal in the case of Haji Abu Kassim v Tegap
Construction Sdn Bhd68 that such termination of the contract was bad in law and the
appellant had failed to honour the architect’s certificate. It was found that at that
relevant time, the appellant did not have the funds to make payment and used the
complaint that the respondent used inferior materials in construction as a breach of
agreement, which was found to be completely without merit.
However, while late payment or short payment is not in itself repudiatory, a
continued refusal to pay may become so.69 In another case of Lep Air Services Ltd v
Rolloswin70 the House of Lords also held that the payment of £10,060 out of £24,000
due as payable in installments was a breach as such, constituting a repudiation of the
contract.
In another case of Brani Readymixed Pte Ltd v. Yee Hong Pte Ltd71, the Court
of Appeal affirmed the common law position that the mere failure or delay in making
payment per se would not amount to a repudiation. However, as on the facts in that
case, the Court of Appeal found the failure went beyond the mere stalling for time
and evinced an intention not to pay at all. This amounted to a repudiation of the
contract.
On a question of whether the entire performance was a condition to payment
and non-payment amounting to repudiatory breach of contract, was further explained
by Denning L.J. in the case of Hoening v Isaacs72 as follows:–
68
[1981] 2 MLJ 149
Ibid. 52 pg. 355
70
[1973] AC 331
71
[1995] 1 SLR 205
72
[1952] 2 All ER 176
69
31
"…the first question is whether, on the true construction of the contract,
entire performance was a condition precedent to payment. It was a lump sum
contract, but that does not mean that entire performance was a condition precedent to
payment. When a contract provides for a specific sum to be paid on completion of
specified work, the courts lean against a construction of the contract which would
deprive the contractor of any payment at all simply because there are some defects or
omissions. The promise to complete the work is, therefore, construed as a term of the
contract, but not as a condition. It is not every breach of that term which absolves the
employer from his promise to pay the price, but only a breach which goes to the root
of the contract, such as an abandonment of the work when it is only half done.
Unless the breach does go to the root of the matter, the employer cannot resist
payment of the price. He must pay it and bring a cross-claim for the defects and
omissions, or alternatively, set them up in diminution of the price. The measure is the
amount which the work is worth less by reason of the defects and omissions and is
usually calculated by the cost of making them good".

Withholding of certificates
Most construction contracts are performed over a long period of time.
Because of this fact, the contract normally contemplates the issue of certificates of
progress or completion. In order to constitute a certificate within the context of a
construction contract, it must be an expression of the judgment, opinion or skill of
the contract administrator as stipulated in the said contract, or as necessarily implied
therefrom.73
If the contract administrator refuses to certify at the appropriate time, or
negligently under certifies, this will amounted to repudiatory breach on part of the
contractor. Similarly in the case where the contract administrator’s conduct is due to
positive interference of the employer. Such events will undoubtedly enable the
73
Ibid. 24, pg.228
32
contractor to claim damages, or possibly to recover what is due without the necessity
of a certificate.74

Hindrance of the contractor
A breach by the employer of the duties of non-hindrance and positive cooperation may be so serious as to indicate an intention not to be bound.75 In William
Cory & Son Ltd v City of London Corporation76 Lord Asquith held that ‘a term is
necessarily implied in any contract that neither party shall prevent the other from
performing it’. An employer who without lawful excuse, by his acts of hindrance or
prevention, renders impossible the completion of the Works by the Contractor could
be held liable to have repudiated the contract.77
One should be mindful of the fact that termination provisions generally do
not entitle the employer, either expressly or impliedly, to carry out the termination
where the relevant default on the contractor’s part has itself been brought about by
some failure and/or neglect of the employer or the contract administrator.78
2.5.2
Repudiatory Breach of the Contractor
The termination of a contractor for repudiating or declaring it will not
perform its contract generally arises from the contractor’s refusal or complete failure
74
Perini Corporation v Commonwealth of Australia [1969] 12 BLR 82
Ibid. 52. pg. 356
76
[1951] 2 KB 476 CA
77
Ibid. 9
78
Ibid. 24, pg.424
75
33
to prosecute the work in a timely manner.79 To terminate a contract on the basis of
repudiation by the contractor, the employer must show that in terms of a “positive,
definite, unconditional and unequivocal manifestation of intent, by words or
conduct’, the contractor manifestly cannot or will not perform the contract.80
There are various events that may give rise to an accusation that a contractor
has repudiated the contractor, which will be discussed as follows:

Abandonment or suspension of the work
An absolute refusal to carry out the work or an abandonment of the work
before it is substantially completed, without any lawful excuse, is a repudiation. It
was held in the case of Marshall v Mackintosh81 that the most obvious example of
‘repudiatory breach’ by a contractor is total abandonment of the work in
circumstances where this is unjustified.
In the case of Cheok Hock Beng v Lim Thiam Siong82 whereby the owners of
the land terminated the agreement with the developer on the grounds that the
developer had repudiated them by failing to carry out construction works. The High
Court found that the plaintiffs (owners) were entitled to repudiate the agreement and
an order that the possession of the land be given back to the plaintiff.
It was argued in the case of Rice v Great Yarmouth Borough Council83 that an
express termination clause should be applied literally, that the council could
terminate Rice’s four-year employment contract as gardener for a breach of any of
his obligations under the contract by abandoning his works. The Court made clear
that despite the reference to a breach of any obligation, before the contract could be
79
Thomas J. Kelleher, Jr. and G. Scott Walters, “Smith, Currie & Hancock’s Common Sense
Construction Law: A Practical Guide for the Construction Professional”, 4th Edition, John Wiley &
Sons, Inc. pp.450
80
Ibid. 79
81
[1898] 78 LT 750
82
[1992]
83
2003
34
terminated there had to be either a single breach serious enough to be repudiatory on
its own or an accumulation of breaches that together could be described as
repudiatory.
The test applied was whether the council was deprived of substantially the
whole benefit of what it had contracted for over a given period. It was held on facts
that the test was not met and so Council was not entitled to terminate the contract
which taking into account a drought during the summer and the Council’s own
behaviour that had contributed to Rice’s inability to perform of his obligations and
complete his works.84

Defective work
As a general principle which applies to lump sum contracts, defects in the
work do not entitle the employer to refuse payment altogether. The only remedy is
to claim damages for the cost of rectification.85
In the case of Hoenig v Issaacs 86 it was held that in a lump sum contract
which the sum is payable on completion, although there are small items which are
not in compliance with the specification of the contract when the work is
substantially completed, the employer is obliged to make prompt payment of the
contract sum less an allowance based on the cost of completing the defective work.
However, very serious defects may justify the conclusion that there has not
been ‘substantial performance’ by the contractor therefore the employer need pay
84
Ibid. 9
Ibid. 52. pg 358
86
[1952] 2 All ER 176
85
35
nothing. It has been discussed in the case of Bolton v Mahadeva 87whereby the
contractor has defectively carried out the installation of a central heating system at an
inclusive price of £560. It turned out that the system was only 90% efficient (70% in
same room) and gave off fumes in the living room. The Court of Appeal held the
plaintiff (contractor) was entitled to nothing for this work and the defendant
(employer) was not limited to setting off the £174, which it would cost for
rectification works.
Furthermore, defective works during the currency of the contract would only
amount to a repudiatory breach where the defects are of such magnitude that the
contractor had no hope of rectifying them.88

Delay
At common law, there are only three situations in which delay by a contractor
will justify the employer in bringing the contract to an end89:
The delay may be so great as to demonstrate the contractor’s intention
i.
not to be bound by the contract;
ii.
The contract itself may make clear that time is of the essence; and
iii.
Once delay has occurred, the non-delaying party may make time of
the essence (where it is not already so) by giving reasonable notice to
the other party.
Many building contracts make provision for termination of the contract in
specified circumstances. The innocent party has completely free choices as to which
remedy will be pursued. However, the innocent party must elect for one remedy or
the other, and cannot combine the best elements of the two remedies in some
complex way. Thus, for example, a party who seeks the favorable remedies provided
by a contractual termination clause must follow the specified procedures. Failure to
87
[1972] 2 All ER 1322
Ibid. 9
89
Ibid. 85
88
36
do so may result in having to rely on common law rights instead, but this can only
done if the contractor’s breach is a repudiatory one.90
Likewise, where a clause of the contract provides for termination in
circumstances where the common law does not, the innocent party can only take
whatever remedies the contract offers. This situation is exemplified in the case of
Thomas Feather & Co (Bradford) Ltd v Keighley Corporation. 91 In this particular
case a local authority contract provided that, in the event of unauthorized subcontracting, the authority could either determine the contractor’s employment or
claim £100 liquidated damages. When the contractors breached this provision, the
local authority gave notice of termination, employed another contractor to complete
the work and then claimed the original contractors for the extra cost incurred (a total
of some 21000). However, it was held that since the contractor’s breach would not
have justified termination of the contract at common law, the local authority was
limited to those remedies specifically given by the contract. These did not include
unliquidated damages, and so the local authority’s claim failed.92
It is to be noted that where the ground of termination is not one, which would
be treated as repudiator at common law, it has been held that the determining party is
entitled only to such remedy as the contract itself specifically provides.93 In the case
of Thomas Feather & Co. (Bradford) Ltd v Keighley Corporation94 a contract clause
provided, somewhat ungrammatically:
‘Contractor shall not assign or underlet this contract or any part of it or
enter into a sub-contract except with the consent of the Corporation. Compliance
with these conditions is of the essence of this contract and in the event of noncompliance by Contractor it shall be lawful for the Corporation to adopt either of
following remedies:
Architectural Installation Services Ltd v James Gibbons Windows Ltd 1989 46 BLR 91
1953 53 LGR 30
92
Ibid. 52. pg 354
93
Tay Lee Yong (2006), “Determination of Contract by Employer in Construction Industry”, Masters
Thesis, Faculty of Built Environment, Universiti Teknologi Malaysia, pg.14
94
[1953] 52 LGR 30
90
91
37
(i) The Corporation may absolutely determine the contract, or
(ii) The Corporation may call on Contractor in respect of such noncompliance for the sum of £ 100 by way of liquidated and ascertained
damages and not by way of penalty.’
The contractor did sub-contract in breach of this provision and the
corporation terminated the contract. The work was completed by another contractor
and the corporation claimed the extra cost of £21,000 as damages for breach of
contract. The High Court held that they were not so entitled. Lord Goddard CJ
observed:
‘... that is that they can put an end to the contract once and for all. I would
have expected to find, if it was intended that, in those circumstances, the contractor
would be liable for damages, that there would have been an express provision put in
to that effect. I think that this provision simply gives the Corporation a right to
terminate the contract, which they would not otherwise have had, and that it gives
them nothing more’.
2.6
Termination of Contract Under Contracts Act 1950
In Malaysia, the construction contracts are governed by the general elements
and rules of contract involving performance and discharge of duties and the
Contracts Act 1950 [Act 136].95 By virtue of Contracts Act 1950, essentially, there
are four (4) types of discharge of contract96:
95
96
i.
Performance
ii.
Agreement
http://www.agc.gov.my as accessed 5th November 2014
Ibid.51 pg.151
38
iii.
Impossibility or Frustration
iv.
Breach of contract
2.6.1
Discharge of Contract by Performance
As a general rule, performance of a contract must be exact and precise, and
should be in accordance with what the parties had promised. Performance is the
usual method for the discharge of a contract.
Section 38 (1) of the Contracts Act 1950 signifies that parties to a contract are
bound by an obligation and they must ‘either perform, or offer to perform, their
respective promises, unless the performance is dispensed with or excused’ under the
law.
Section 40 of the Contract Act 1950 further provides when a party to a
contract has refused to perform, or disabled himself from performing, his promise in
its entirely, the promise may put an end to the contract, unless he has signified, by
world or conduct, his acquiescence in its continuance.
As a general rule, a promisor must be prepared to perform his obligations at
the time and place at which he has undertaken to do. If a promise is to be performed
on a certain day and the promisor has not undertaken to perform it without
application by the promise, ‘it is the duty of the promisee to apply for performance at
39
a proper place and within the hours of business’.97 The question of what is a proper
time and place is, in each particular case, a question of fact.
On the other hand, Section 48 of the Contracts Act provides that when a
promise is to be performed on a certain day, and the promisor has undertaken to
perform it without any application by the promisee, ‘the promisor may perform it at
any time during the usual hours of business on the day and at the place at which the
promise ought to be performed’. Where no time is fixed for performance and an
application by the promisee is not required, the promise ‘must be performed within a
reasonable time’.98 The question of ‘what is a reasonable time’ is, in each particular
case, a question of fact.99
It is common to provide a term in a contract that a delay, however slight, in
performance will entitle the other to free himself from the contract. Time is said to be
‘of the essence’ of the contract. Section 56 of the Contracts Act 1950 lays down the
law relating to the effects of such terms, and it has been judicially recognized that
this section does not differ from the common law. Salleh Abas F.J. in Sim Chio Huat
v Wong Ted Fui100 expressly approved the statement of the law in Yeoh Kim Pong
(Realty) Ltd v Ng Kim Pong. 101 His Lordship stated that if ‘in a contract in which
time is of essence, a party fails to perform it by the stipulated time, the innocent party
has the right either to rescind the contract, or to treat it as still subsisting. If he treats
it either expressly or by conduct as still continuing, the contract exists but time
ceases to be of the essence and become at large.’ In the instant case, the Federal
Court held that by allowing the delivery dates to pass, by agreeing to the work being
done by the developer and by further ordering extra work, the respondent had waived
his right to rescind the contract, and consequently was deemed to have opted to treat
the contract as subsisting.102
97
Section 49 of Contracts Act 1950
Section 47 of Contracts Act 1950
99
Ibid. 51 pg 152
100
[1983] 1 MLJ 151
101
[1962] MLJ 118
102
Ibid. 99
98
40
2.6.2
Discharge of Contract by Agreement
Section 63 and 64 of the Contract Act 1950 provide for the discharge of the
contracts by agreement or consent. Section 63 deals with the effects of novation,
rescission and alteration, and read as follows:
“If the parties to a contract agree to substitute a new contract for it, to
rescind or alter it, the original contract need not be performed.”
Novation is the substitution of a new contract for an earlier one, particularly a
contract between a creditor, a debtor and a third party whereby they agree to
substitute a third party for the debtor or creditor under the original contract which
will be discharged. This is illuminated in Illustration (a) which reads:
A owes money to B under a contract. It is agreed between A, B and C that B
shall henceforth C as his debtor, instead of A. the old debt of A to B is at an end, and
a new debt from C to B has been contracted.
The consideration for a new arrangement is the mutual discharge of the
original contract, and consent of all parties is secured. Illustration (c) demonstrates
the need for such consent, and reads as follows:
A owes B RM1, 000 under a contract. B owes C RM1, 000. B orders A to
credit C with RM1, 000 in his books, but C does not assent to the arrangement. B
still owes C RM1, 000, and no new contract has been entered into.
Section 63 Illustration (b) gives an example of the alteration of a contract
where A owes B RM10, 000 and enters into a arrangement with B whereby he gives
B a mortgage of his (A’s) estate for RM5, 000 in place of the debt of RM10, 000.
This new contract extinguishes the original contract.
41
An executory contract may be rescinded by the consent of all parties to the
contract. In a contract for the sale of goods, a buyer and a seller may agree to rescind
the contract at any time before delivery of the goods or the payment of the price. This
is not the same as the right of a party to rescind a contract when the other party failed
to fulfill his obligations under it. Rescission for cause also gives the party rescinding
it the right to receive damages for breach of contract. Suppose that X promises to
deliver certain goods to B on a particular day and fails to carry out that promise. B
may rescind the contract for breach without prejudice to his rights to compensation.
Section 64 of the Contracts Act 1950 deals with remission of performance
and read as follows:
“Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.”
2.6.3
Discharge of Contract by Frustration
A contract is frustrated when there is a change in the circumstances, which
renders a contract legally or physically impossible of performance. Section 57 (1)
provides that an agreement to do an act impossible in itself is void. The contract is
discharged if either one or both parties aware of the impossibility.
There are two instances of frustration, i.e. when a contract to do an act
becomes impossible or unlawful. However, the frustration should be supervening
and subsequent to the formation of the contract. It should be some event, which the
promisor could not prevent, as a ‘self induced frustration’ does not discharge a party
42
of his contractual obligations.103 The effect of a frustrating event is to discharge a
contract immediately, but only as to the future.104 The contract is not ab initio, but
only void from the time of the frustrating event. For the period that the contract is
valid, any obligations that arise must be fulfilled.105
Section 57 of the Contracts Act 1950 covers the common law doctrine of
frustration. Frustration can only arise where106:
i.
An unforeseen event outside the control of the contracting parties
(supervening event) has significantly or radically changed the obligations of the
parties from the original intentions;
ii.
Neither party caused the supervening event;
iii.
Neither contemplated the supervening event, so there was no
provision in the contract for it; and
iv.
The new circumstances would make it unjust to hold the parties to
their original contract.
In applying section 57(2), the court will examine the nature and term of the
contract, the circumstances under which it was made and the event frustrating the
contract, including whether it has been self-induced. In Ramli bin Zakaria & Ors v
Government of Malaysia,107 the Federal Court accepted the view that a self- induced
frustration does not discharge a party of his contractual obligations. A court will
further need to satisfy itself that the events have substantially prevented the
performance of the contract as a whole. If in fact the contract has been ‘impossible’
or ‘unlawful’, the contract is automatically discharged without the need for election
by either party.108
103
Lee.M.P & Ivan Jeron Detta [2013], Commercial Law, Polytechnic Series, Second Edition, Oxford
Fajar, pg.82
104
Ibid. 103 pg.85
105
Ibid. 104
106
Ibid. 103 pg.84
107
[1982] 2 MLJ 257
108
Ibid. 52 pg 167
43
If only one party knew of the impossibility, he must make compensation to
the other party. Section 57 (3) of the Contracts Act 1950 reads as follows:
“Where one person has
promised to do something which he knew or,
reasonable diligence, might have known and which the promisee did not know to be
impossible or unlawful, the promisor must make compensation to the promise for
any loss which the promisee sustains through the non performance of the promise” .
2.6.4
Discharge of Contract by Breach
Section 40 of the Contracts Act 1950 provides that when a party to a contract
has refused to perform, or disabled himself from performing, his promise in its
entirely, the promisee may put an end to the contract, unless he has signifies by word
or conduct his acquiescence in its continuance”.
When a party fails to perform their obligations as agreed, they are in breach
of contract. A breach can occur in some ways including109:

A failure to comply with a term of the contract;

By a party announcing to the other party that they are no longer
interested in carrying out their obligations prior to the time for performance
(anticipatory breach); and

A delay in the performance where time is of the essence in the
contract.
Where one of the parties indicates to the other either by conduct or in clear
terms an intention not to go on with the contract, the party is said to have repudiated
or renounced the contract.110 A refusal to perform a contract may occur before the
time for performance is due (anticipatory breach), or during the time of performance
109
110
Ibid. 103 pg.89
Ibid. 109
44
itself. The innocent party can immediately treat the contract as at an end and sue for
breach. There is no need to wait until actual breach occurs.111
A refusal to perform a contract when performance is due would amount to a
discharge. A contract is discharged only if the disability to perform is brought about
through the fault of the party concerned.112
If one party fails to perform their obligations under the contract or breaches a
condition, the innocent party is entitled to treat the contract as ended from the time of
the terminating event and may be able to recover damages.
Any rights and
obligations that have already arisen from the partial performance of the contract will
remain unaffected. The parties are only relieved of the obligation to perform after the
date on which the contract was discharged.113
However, if a party breaches a less important term (a warranty) then there is
partial breach and while the innocent party is still going to have to carry out their
obligations under the contract, they may sue for damages.114
Section 65 of the Contracts Act states the effect of an innocent party putting
an end to the contract is that he must restore the other party to the position he was in
before the breach occurred. The innocent party must return to that other party any
benefits which he may receive from him. On the other hand, as a general rule, the
party in default cannot terminate the contract which he himself had broken.115
111
Ibid. 109
Ibid.109
113
Ibid. 109
114
Ibid. 109
115
Ibid. 109
112
45
2.7
Termination of contract under contractual provisions
A contract may be terminated before completion at common law or by the
exercise of express rights set out in the contract itself.116 In the latter case, the
termination clause often seeks to improve on the common law rights of the parties by
giving grounds for termination which would not entitle one party to terminate at
common law.117
Termination under contractual provision has been, and remains the single
most common mechanism for effecting determination of contractor’s employment in
the bulk of engineering and construction contracts encountered in practice.118
Virtually all construction contracts expressly recognize the right to terminate the
contract for the default of a breaching party in certain specific circumstances. Such
provisions usually afford the non-breaching party a right to recover damages
resulting from the termination.119
It is a good prudent practice to ensure that termination clauses by the
employer or contractor are included in the construction contracts to clearly and
properly states the contractual rights and liabilities of the parties, in the event of a
contractual termination before the execution of the contract.120
The purpose is to
mitigate any future problems and arbitration or litigation proceedings, if the parties
should need to take such drastic action.
Under
most
construction
contracts,
determination
of
Contractor’s
employment may be exercised either by the Employer or the Contractor.121 The
116
Ibid. 93
Ibid. 93
118
Ibid. 27, pg.53
119
Ibid. 79, pg..447
120
Ibid. 9
121
See Clause 25 and 26 of PAM2006 Standard Form of Building Contract , Clause 51 and 55 of JKR
203A (Rev.1,2010) Form of Contract, Clause 44 and 45 CIDB Standard Form of Contract 2000
Edition
117
46
determination of employment clauses in most of the standard forms of construction
contracts set out the following basic outline122:
(a) Either party may determine the employment by giving notice of default. If
the defaulting party fails to remedy the default within a required period, a notice of
determination is issued to the defaulting party provided it is not be given
unreasonably or vexatiously.
(b) A list of events of default entitling a party to distinguish between
remediable and non- remediable defaults; and
(c) Available solutions for the non- defaulting party in the event of
determination.
Most termination clauses also specify the rights and obligations of the parties
following the exercise of the power of termination, and leave the common law rights
of the parties intact.123
The court in Thomas Feather & Co (Bradford) Ltd v
Keighley Corporation124 held that notwithstanding any determination effected under
a contractual provision, the rights of the parties under the common law are neither
expunged nor invalidated unless clear words have been employed in the contract to
this effect.125
Termination clauses are always construed strictly. It was held in Roberts v.
Bury Commissioners 126 that the contractual provisions prescribing the procedures by
which a contractor’s employment may be determined must be properly and faithfully
complied with for the termination to be effective. Otherwise, the termination may be
wrongful and amount to a wrongful repudiation by the employer instead.127 The
122
Ibid. 9
Powell-Smith, V and Sims, J. [1987]. Determination and Suspension of Construction Contracts.
William Collins Sons & Co. Ltd. London. pg 1
124
[1953] 52 LGR 30
125
Ibid. 24, pg.423
126
1870 LR 5 CP 310
127
Lodder v. Slowey [1904] AC 442
123
47
contractor is then entitled to sue the employer for the actual value of the work done
and materials supplied or damages or both.
2.8
Public Works and Termination under PWD 203A Form 203A (Rev.2007)
and (Rev.1/2010)
In general, public works and projects refer to construction activities of all
kinds that are undertaken by the government in the public interest. 128 These activities
lead to the creation of tangible assets such as drainage, irrigation and dams, railroads,
roads and bridges, ports and buildings.
The management and control of public works implementation is the
responsibility of the particular government ministry/department, town board, district
council or public enterprise. However, it is a prerequisite for agencies which do not
have the necessary technical expertise to provide funds to the Public Works
Department for the implementation phase. In addition, the implementation of all
projects requires prior approval of the Economic Planning Unit.129
Malaysian Public Works Department (PWD) or Jabatan Kerja Raya Malaysia
(JKR) is the federal government department in Malaysia under Ministry of Works
128
http://www.asosai.org/R_P_auditpublicworks_projects/chapter_14_malaysia.htm. as accessed 30th
October 2014
129
Ibid. 128
48
Malaysia (MOW), which is responsible for construction and maintenance of public
infrastructure in Malaysia. Public Works Department of Malaysia (PWD) is the
government agency who is responsible for the PWD forms of contracts. The PWD
forms of contract are the de facto standard forms of contraction contract used by the
Malaysian public sector.130 In fact, this has been in recent years increasing usage of
the PWD forms with amendments by the private sector as well, especially in civil
engineering construction.131
PWD has produced a number of standard forms for use in public sector
works, both for building works and civil engineering works. PWD Form 203A
(Rev.2007) and (Rev.1/2010) where bills of quantities form part of the contract, is
produced to govern the relationship between the Government as the employer and
the contractor. 132 This form of contract is meant to operate under the traditional
system of procurement where the Government as the employer produces the
permanent design of the works.
PWD Form 203A (Rev.2007) and (Rev.1/2010) provides various clauses for
termination of contract by the employer, as well as by the contractor as the
following:

Clause 50 – Suspension of works

Clause 51 - Events And Consequences Of Default By The Contractor

Clause 52 – Termination on National Interest

Clause 53 - Termination On Corruption, Unlawful Or Illegal
Activities

Clause 55 – Default of the Government (Addition Clause in PWD
Form 203A (Rev.1/2010)
130
Ibid. 93
Lim Chong Fong. (2004), “The Malaysian PWD Form of Construction Contract”, Thomson Asia
Pte Ltd. pp. 1
132
Ibid. 131
131
49
For the purpose of this study, the following discussion will be focusing on
termination procedures to be complied by the PWD on behalf of the Government in
the events of default by the contractor as provided under Clause 51 of PWD Form
203A (Rev.2007) and (Rev.1/2010). Clause 51 deals with the Government’s right to
terminate the contract in the event of Contractor’s performance and financial
defaults, and sets out the procedures to be followed when this occurs.
Procedures are defined as a fixed, step-by-step sequence of activities or
course of action (with definite start and end points) that must be followed in the same
order to correctly perform a task.133 Besides the procedures as provided under
Clause 51, the recent Surat Arahan Ketua Pengarah Kerja Raya (SA KPKR)
Bil.8/2013 has laid down clearly the step by step sequence of activities as a
guideline, that must be complied by the SO in commencing the termination action
against the Contractor.
2.8.1
Termination for Defaults by the Contractor Under Clause 51 of PWD
203A Form 203A (Rev.1/2010)
While monitoring of the progress of the work may reveal that completion will
be delayed, it may also reveal that completion within a reasonable time (if at all) will
be far-fetched. The conduct of the Contractor also may render himself incapable of
completing or evince his intention not to complete the work. Where it is evident that
the Contractor is unlikely to complete or has evinced his intention not to complete or
has rendered himself incapable of completing the work, the need to consider
completing it by other means arises.
133
http://www.businessdictionary.com/definition/procedure.html#ixzz3IxurPueq
November 2014
as
accessed
12th
50
Where the contractor defaults in fulfilling his obligations under the contract
vis-à-vis to his performance in regard to the same, these are deemed to constitute
performance defaults and serve as a basis for the employer determining the
contractor’s employment provided they are expressly contained in the specific
provision and all other preconditions and attendant procedures are complied with.134
In deciding whether or not the employment of the Contractor should be
determined, consideration must be given, taking into account administrative
difficulties, social and political implications, to what will be to the best interests of
the Government under the circumstances.135 While the primary concern must be to
ensure that the work is completed in the shortest time and at the lowest cost possible,
determination of his employment may be not the only answer where the Contractor
defaults in fulfilling his obligations.136 After all the possibility of the Government
being able to recover the extra costs and other damages from the Contractor will, in
the majority cases, be very remote.
The bottom line however is whether the
Contractor will be able to proceed with and complete the work, notwithstanding that
he may require some assistance to do it.
Under PWD Form 203A (Rev.1/2010), the Government as the employer can
terminate the contract if the contractor is culpable of defaults which are either in his
performance (called “Performance Defaults”)137 or financial standing (called
“Financial Defaults”)138. The said financial defaults include, but are not limited to,
events such as the contractor becoming bankrupt, or making a composition or
arrangement with his creditors, or having a winding up order made, or having a
receiver or liquidator duly appointed.139
134
Ibid. 24, pg.423
A Guide on the Administration of Public Works Contracts (1988), JKR.
136
Ibid. 134
137
Clause 51.1 (a) PWD 203A Standard Form of Contract (Rev.1/2010)
138
Clause 51.2 (a) PWD 203A Standard Form of Contract (Rev.1/2010)
139
Ibid. 134
135
51
Clause 51.1 (a) sets out eight different defaults of obligations by the
contractor which may give rise to termination, which read as follow:
In the event the Contractor (i)
fails to commence works at the Site within two (2) weeks after the
Date for Possession;
(ii)
suspends or abandons the carrying out of the Works or any part
thereof for a continuous period of…(…) days;
(iii)
fails to proceed regularly and diligently with the performance of his
obligations under the contract;
(iv)
fails to execute the Works in accordance with the Contract;
(iv)
persistently neglects to carry out his obligations under the Contract; or
(v)
refuses or persistently neglects to comply with a written notice from
the SO in relation to any defective work or equipment, materials or
goods which are defective or do not meet the requirements of the
Contract;
(vi)
if he fails to comply with the provision of Clause 47; or
(vii)
if he fails to comply with any terms and conditions of this Contract.
then the Government shall give written notice to the contractor
specifying the default, and requiring the Contractor to remedy such
default within fourteen (14) days of the receipt of the default notice or
any period determined by the Government.
52
If the contractor fails to remedy the breach within such period, the
Government shall have the right to forthwith terminate this Contract by giving a
written notice to that effect.140
It was held in Fajar Menyensing Sdn Bhd v Angsana Sdn Bhd141, whilst
construing the equivalent clause under the PAM form of contract, that assertions of
fact and not mere opinion would be required of the Superintending Officer (SO) in
the specification of the default. Clause 51.1 does not empower the Superintending
Officer to issue a notice of default based on his opinion but that the Contractor has as
a matter of fact made a default in one or more of the matters enumerated in the
clause.142 This distinction may not be easily appreciated and put into practice. It is
submitted that the Government in this regard cannot merely rely on the subjective
views of the SO but must have other cogent and corroborative evidence of default on
the part of the contractor.
Upon the receipt of the notice of default, the contractor can take one or more
of three courses as suggested by Professor Powell-Smith in the PAM
Commentary143:
(i) he can dispute the notice, i.e. deny that he has defaulted as alleged by the
Superintending Officer;
(ii) he can remedy the default and inform the Superintending Officer as soon
as possible after receipt of the notice how the default is being remedied. The
time-limit of 14 days should be noted, i.e. the contractor must begin to
remedy the default within the period. It may not be possible to complete
remedying the default within that period but it should be sufficient if the
contractor begun and continues to do so. Thus, if the contractor in fact putting
140
Clause 51.1 (b) PWD Form 203A (Rev.1/2010)
[1998] 2 AMR 1530
142
Ibid. 131 pg.120
143
Ibid. 142
141
53
the default right, the Superintending Officer and Government must accept
that; or
(iii) he can continue the default and risk the consequences of his failure to
remedy it.
If the contractor chooses the first course, he should give a notice of dispute or
difference to the SO for a decision under clause 66 on the grounds that the notice of
default was wrongly given, thus protecting his position.
Should the contractor admit the default and remedy it, he must ensure that he
does not repeat. Any repetition of a default which notice has once been validly
served does not require a further 14-day notice of default. For example, if the
contractor defaults by failing to proceed regularly and diligently and in response to
the SO’s notice of default resumes proper working, but subsequently defaults in the
same respect, the SO need not serve a further notice. In such a case the Government
can proceed to determine the contractor’s employment under the contract without
more ado. 144 This is the purpose of the words in parenthesis in clause 51.1(a).
If the contractor adopts the third course and continues the default for 14 days
after the receipt of the Superintending Officer’s notice (or repeats a default after
remedying it), then the Government may terminate the contract. There is no
stipulated time within which the Government must act accordingly and it is
submitted that the Government must do so within a reasonable time, preferably
forthwith upon the expiry of the 14-day grace period to remedy the default.145
144
145
Ibid. 131, pg. 121
Ibid. 144
54
In Fajar Menyensing Sdn Bhd v Angsana Sdn Bhd146, it was held that the
notice of determination under the equivalent PAM form of contract must be sent by
registered post. There is no Recorded Delivery Act in Malaysia to effect sending by
recorded delivery. However, in DMCD Museum Associated Sdn Bhd v Shademaker
(M) Sdn Bhd (No 2)147 and SK Styrofoam Sdn Bhd v Pembinaan LCL Sdn Bhd148, it
was held that the notice of determination send under same PAM form of contract by
hand was valid service by reason that the clear trend of the current day is to take a
business common sense approach. It is submitted that until there is a clear
pronouncement on this point by the Malaysian Appellate Court, it is safer to send the
notice of termination (as well as the earlier notice of default) by registered post. The
notice takes effect from the moment the notice is received by the contractor and
clause 51.1 (c) thereafter applies.149
Unlike the PAM form of contract which stipulates that the notice of
determination must not be served unreasonable or vexatiously, there is no such
equivalent provision in PWD203A Standard Form of Contract (Rev.1/2010). There is
nevertheless room to argue following Renard Constructions Ltd v Minister of Public
Works150 that the implication of a reasonableness limitation in arriving at the decision
to determine may be imposed by the court.151 It should however be noted that the
determination clause in the Renard Constructions’ case is very wide in respect of the
grounds stipulated for determination which included in the performance of any
contractual stipulation. In this case, it was held that the principal acted unreasonable
based on misleading, incomplete and prejudicial information.
If the requirement for reasonableness is implied, it was held in JM Hill &
Sons Ltd v London Borough of Camden152 that it protects a party where there is
“something accidental or purely incidental so that the Court could see that [the other
146
[1998] 2 AMR 1530
[1999] 4 MLJ 243
148
[2004] 5 MLJ 385
149
Ibid. 131, pg. 122
150
[1992] 26 NSWLR 234 89 [1980] 18 BLR 31
151
Ibid. 149
152
(1980) 18 BLR 31
147
55
party] was taking advantage of the other side in circumstances in which, from a
business point of view, it would be totally unfair and almost smacking of sharp
practice”.153 In other words it is an act which can objectively be judged to be
unreasonable.
2.8.2
Consequences of Termination
Besides those defaults that listed under the Clause 51.1 (a) and 51.2, Clause
51.1 (c) also provides the consequences of termination of contract. By Clause 51.1
(c) paragraph (i), the contractor is to surrender and hand over the site to the
Government and remove his personnel and workmen. The contractor must however
leave all temporary buildings, plant, tools, equipment, goods and unfixed materials
belonging to him except as and when specifically directed otherwise by
Superintending Officer in writing. This provision can only extend to goods and
unfixed material which belong to the contractor and cannot confer rights in respect of
items which belong to third parties.154 Similarly, this provision does not apply to
plant and equipment, which are leased or rented by the contractor for use in the
works.
Paragraph (ii) basically provides that the Government is entitled to either
engage another contractor or on its own departmentally to carry out and complete the
works. Both the Government and the completion contractor are given the express
right to enter and repossess the site. They are also empowered to purchase goods and
153
154
Ibid. 149
Ibid. 131, pg. 124
56
materials necessary for the carrying out and completion of the works.155
The
Government also shall be entitled to claim against the Contractor for any losses,
costs, expenses and damages suffered as a result of termination of this Contract in the
manner provided under Clause 56. Under paragraph (iii) the Contractor shall not be
entitled to any form of losses including loss of profit, damages, claims or whatsoever
upon termination of this contract under this clause.
Once the contract is terminated under Clause 51.1(b), the contractor is
required to 156 :
(A)
cease all operations of the Works;
(B)
carry out any protection works so as to secure the Site, equipment,
goods, materials therein against any deterioration, loss or damage and to do
all things necessary so as to leave the Site in a clean and tidy condition;
(C)
remove its personnel and workmen from the Site;
(D)
vacate the Site within the time stipulated by the S.O, remove all
temporary buildings, plant, tools, equipment, goods and unfixed materials
which have not been paid by the Government, as specified by the S.O. Failing
which the Government may (but without being responsible for any loss or
damage) remove and sell any such property belonging to the Contractor,
holding the proceeds, less all cost incurred, to the credit of the Contractor;
(E)
either –
(aa) terminate all third party contracts entered into by the Contractor for the
purposes of this Contract;
(bb) assign to the Government, if so required by the S.O, at no cost or
expense to the Government, the benefit of any agreement for the supply of
materials or goods and/or for the execution of any work or services for the
purposes of this Contract; or
155
156
Ibid. 131 pg. 125
Clause 51.1 (c) PWD203A Standard Form of Contract (Rev.1, 2010)
57
(cc) allow such third party to enter into a contract with the Government or
any person deemed necessary by the Government for the purpose of
completing the Works;
PROVIDED THAT the Government shall not be obliged to pay any third
party for any materials or goods delivered or any work executed or services for the
purposes of tis Contract (whether before or after the date of termination) for which
the Government has paid but the Contractor has failed to make payment to the third
party;
(F)
at no cost to the Government, hand over to the Government all plans,
designs, specification and other relevant documents relating to the Works;
(G)
pay to the Government for any losses and damages as a result of
termination of this Contract in the manner provided under Clause 56; and
(H)
2.8.3
not be released from any of its obligations under the Contract.
Termination Procedures Under “Surat Arahan Ketua Pengarah Kerja
Raya (SA KPKR) Bil.8/2013”
In order to provide a clear step by step guideline on the termination
procedures to be complied by PWD in the events the contract is terminated under
Clause 51.1(a) of PWD Form 203A (Rev.1/2010), Surat Arahan Ketua Pengarah
Kerja Raya (SA KPKR) Bil.8/2013 had been issued in 15th March 2013. It has laid
down clearly the procedures to be complied by the SO, the Project Director and the
Officer who is empowered to act on behalf of the Government with regard to
termination of contract, once termination action is to be taken against the contractor.
Based on SA KPKR Bil. 8/2013 the termination procedures to be complied
by the PWD can be categorised into three (3) sections as the following:
58

Section A :
Procedures in the Events of Contractor’s Defaults
under Clause 51.1 (a) of PWD203A of Standard of Contract
(Rev.1/2010)

Section B :
Procedures
After
the
Issuance
of
Notice
of
Termination

(I)
Section C :
Preparation of Termination Costs
Section A : Procedures in the Events of Contractor’s Defaults under
Clause 51.1(a) of PWD203A of Standard of Contract (Rev.1/2010)
In the events the contractor has defaulted to perform his obligations under
Clause 51.1 (a), the SO or the PD is instructed to take necessary steps to terminate
Contract. However, before the SO can proceed to terminate the contract, he must
discuss with the contractor to identify whether there is any reasonable explanation or
justification for the contractor’s performance or financial defaults under the contract.
When the SO can establish the fact and evidence that the Contractor has
defaulted to perform his obligations as provided under Clause 51.1 (a), the SO shall
issue a written notice or a warning letter to the Contractor specifying his defaults
under the contract.
If such default specified has failed to be remedied by the
Contractor within the period of grace period, the SO then must serve to the
Contractor Notice of Intention for Termination.
The Notice of Intention for
Termination must also specify the default of the Contractor who must be given
fourteen days (14) to remedy the same. Where however the Contractor repeats a
default for which a Notice of Intention for Termination has been previously given,
59
the employment may be determined without the need for another Notice of Intention
for Termination.157
The SO must issue the Notice of Termination within fourteen (14) days or
reasonable time from the date the Notice of Intention for Termination was issued.
All notices must be delivered to the Contractor via registered post and receipt of
delivery must be kept safe in the file for future reference. Copies of both the Notice
of Intention for Termination and Notice of Termination must be distributed to all
involved in the contract, and in addition to the bank or insurance company which
provides the guarantee for the Performance Bond and advance payment, the PWD
Quantity Surveying Branch, Construction Industry Development Board (CIDB) and
the Contractor Service Center (PKK), Ministry of Works.
(II)
Section B
: Procedures After the Issuance of Notice of Termination
Much remain to be done after the contract has been terminated. The balance
of the work shall be awarded to a new contractor in order to complete the project.
Claims must be maid against the guarantor bank or insurance company, and the
Contractor.
The procedures to be complied with following the termination of
contract are as follows158:
(a)
The Contractor must be instructed to cease all operations on the Site,
leaving all temporary buildings, plants, tools, equipment and unfixed
materials and goods.
157
158
Ibid. 135, pg. 198
Ibid. 135 pg.199-200
60
(b)
The Site must be placed under 24 hour guard, and no unauthorized
person shall be allowed to enter therein and nothing shall be removed
therefrom without the written approval by the SO.
(c)
An inventory of all temporary buildings, plant, tools, equipment, and
unfixed materials and goods on the Site and the record of the work completed
must be prepared. Photographs of the same must also be taken for record and
future use. The Contractor must be invited to be present when records are
taken on site.
(d)
The Contractor must be instructed to remove all temporary buildings,
plant, tools, equipment, and unfixed materials and goods not required for use
for the completion of the balance of the work. If the contractor fails to
remove the plant, tools, equipment, etc., the same may be disposed of (by
inclusion of such disposal in the new contract or other means) and the
proceeds (after deducting costs incurred) held to the credit of the Contractor.
(e)
The work executed, and all temporary buildings, plant, tools,
equipment, and unfixed materials and goods left on the Site must be protected
against damage by the elements. Precautions must also be taken to prevent
the abandoned work from posing any danger to the members of the public.
(f)
A written claim for Performance Bond must be made against the bank
or insurance company and the guarantee for advance payment if there still
remains a balance of advance payment not recovered. The claim must be
made not later than two (2) weeks from the date of termination of contract
even though the bond or guarantee may be valid for a longer period. If the
bank or insurance company does not honour the guarantee within two weeks
of the claim, the matter must be immediately referred to the Legal Adviser of
the Ministry of Works for legal action to be taken. If Performance Guarantee
61
Sum has been chosen instead of Performance Bond, the SO must forfeit the
money and arrangements shall be made to transfer the money from the Trust
Account into the Revenue Account of the Government.
(III)
Section C
: Preparation of Termination Costs
Tender documents must be prepared and tenders or quotations invited to
complete the balance of the work. The Director General of Public Works must be
informed of the date of termination and when tenders, quotations, etc. for execution
of the balance of the work will be invited.
A schedule showing the activities
involved from measurement of the work and preparation of the tender documents to
approval by the Tenders Board must be submitted.
A few things must however be noted as follows159:

A provision must be included for a complete record of the work
already executed to the prepared and agreed before any work is commenced
with. This is of utmost importance for contracts based on bills of quantities
to avoid disputes at a later stage.

The scope and extent, and standard of materials and workmanship of
the work to be executed must not be varied from the original.
When
variations to the work are required, these must be clearly identified in the
tender documents for ease of finalizing accounts with the Contractor whose
contract has been terminated.

Work executed and/or materials and goods supplied not in accordance
with the Contract must be identified, and the removal, making good, reexecution, or replacement of the same included in the new contract.
159
Ibid. 158.
62

A provision must be made for credit to be allowed to the Government
for the plant, tools, equipment, and unfixed materials and goods left on the
Site for use or for incorporation into the Works by the new contractor.
Though an inventory is prepared and the quantities of the same known,
quantities of the plant, tools and materials and goods must not be specified.
These must be left to the tenderers to ascertain for themselves.

Nominated Sub-contractors and Suppliers may be re-nominated to the
new contractor provided that they agree to proceed with the sub-contract
work or supply of the materials or goods at the same sub-contract sums or
prices as if the contract had not been terminated. Where a Nominated Subcontractor or Supplier requests for an increase of the sub-contract sum or
prices, either fresh tenders for the work or supply of the materials or goods
must be invited, or the approval of the Treasury must be obtained to increase
the sub-contract sum or prices.
As soon as the new contractor is appointed, the SO or Project Director shall
make an assessment of Termination Costs as being the costs and/or loss or damage to
the Government in order to complete the project.
According Clause 56 of
PWD203A Standard of Contract (Rev.1/2010), the SO shall issue Certificate of
Termination Costs comprise the Completion Cost, Final Contract Sum and the
difference between the Completion Cost and the Final Contract Sum.
If the Completion Cost is greater than the Final Contract Sum, a claim must
be made and delivered to the Contractor using the AR Registered. Such claim shall
be made against the Contractor not later than 9 months from the date of termination.
If the Contractor fails to honour the claim within fourteen (14) days period despite
repeated reminders to him to do so, the matter must be referred to the Legal Adviser
of the Ministry of Works for legal action to be instituted.
63
2.9
Conclusion
A contract is said to be discharged when the parties become released from
their general obligations. The discharge of a contract may be brought in several
ways. Under the Common Law and the Contracts Act 1950, there are various ways
to discharge a contract either by performance, by frustration, by agreement and also
by repudiation.
There are provisions in all the common forms of contract that allow either
party to terminate the contract. There must, of course, be a good reasons to support
any party who decides to determine, otherwise a breach of contract can occur.
Clause 51 of PWD Form 203A (Rev.1/2010) provides circumstances which allow the
Government to terminate the contract due to events of defaults of the Contractor. In
one sense they are fairly exceptional happenings, and so they should be, since they
provide a final option to the Government.
The decision to terminate a contract must be taken very carefully and
reasonably. It generally occurs because the Contractor is failing to take notice of
instructions of the SO or PD to remedy an already existing breach of contract.
Termination of contract by either party results in two losers and no winner.
64
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
Introduction
Research is a systematic inquiry to describe, explain, predict and control the
observed phenomenon. Indeed, research is a process of collecting, analyzing,
interpreting information to answer questions. Nonetheless to qualify as research, the
process must have certain characteristics such as it must as far as possible, be
controlled, rigorous, systematic, valid and verifiable, empirical and critical.
65
Research methodology acts as the nerve center because the entire research is
bounded by it and to perform a good research work, the internal and external
environment has to follow the right methodology process.160
This chapter provides an overview and brief discussion about the research
methodology being adopted in carrying out the study as well as in achieving the
objective of the research. The objective of the research is to identify the procedures
of termination practiced by PWD based on the four (4) projects selected as case
studies.
Past literature reveals the application of the case study method extensively in
many areas and disciplines, particularly in government, management and in
education. A case study method selects a small geographical area or a very limited
number of individuals as the subjects of study. Case studies, in their true essence,
explore and investigate contemporary real-life phenomenon through detailed
contextual analysis of a limited number of events or conditions, and their
relationships. 161
Crafting the design of case studies is of paramount importance. This is
because case study method, through interviews or journal entries, must be able to
prove that:
i. it is the only viable method to elicit implicit and explicit data from the
subjects;
160
http://www.howtodo.dissertationhelpservice.com/what-is-research
methodology#sthash.5jncfzTD.dpuf as accessed 12th October 2014
161
Zaidah Zainal (2007), “Case study as a research method, Jurnal Kemanusiaan Bi.9, Faculty of
Management and Human Resource Development, Universiti Teknologi Malaysia.
66
ii. it is appropriate to the research question;
iii. it follows the set of procedures with proper application;
iv. a ‘chain of evidence’, are systematically recorded and archived
particularly when interviews and direct observation by the researcher are the
main sources of data.
The multiple-case design, as compared to a single case study, can be adopted
with real-life events that show numerous sources of evidence through replication
rather than sampling logic.162 Generalisation of results from case studies, from either
single or multiple designs, stems on theory rather than on populations. By replicating
the case through pattern-matching, a technique linking several pieces of information
from the same case to some theoretical proposition, multiple-case design enhances
and supports the previous results. This helps raise the level of confidence in the
robustness of the method.163
In order to achieve the objective of the study, a documentary analysis has
been conducted based on the PWD203A Standard Forms of Contract (Rev.1/2010),
projects’ reports prepared by PWD and the respective ministry, minutes of site
meetings, notices, correspondence and other circulars and Treasury instructions and
PWD directives related to this research.
In addition to documentary analysis, data have been also collected through
interview sessions conducted with the engineers and quantity surveyors and assistant
engineers working with the PWD State of Johore as well as PWD District of Johore
Bahru who were directly involved throughout the project monitoring and termination
procedures of each of the four (4) projects selected as case study.
162
163
Ibid. 161
Ibid. 161
67
3.2
Research Methodology
There are obviously a great many issues involved with choosing research
methodologies and with carrying them out appropriately in conducting this research.
The right methods of empirical inquiry that are best suited to this specific research
problem and purposes must be chosen.
This chapter outlines the methodology of the study by describing the research
design, research location, research respondent, research instrument, data collection
and finally the background of the case study.
3.2.1
Research Design
A proper research design will facilitate a research to provide collection of
relevant evidence with minimal expenditure of effort, time and money. In order to
carry out and complete the research, an appropriate research design has been
developed which include the aspects of type of study, purpose of study and data
collection methods.
3.2.1.1 Type of Study
The type of study for this research is a qualitative study. It focuses on the
verbal information gathered from the interviews conducted and also documentary
analysis.
68
This study is conducted with the objective to identify the procedures of
termination practiced by PWD. By adopting a qualitative research kind of approach,
data and information on what are the procedures of termination practiced by PWD
were obtained through the semi-structured interview. The semi-structured interviews
were conducted with the engineers, quantity surveyors and assistant engineers who
are still working with PWD State of Johore and PWD District of Johor Bahru. The
selection of the respondents to be interviewed were based upon their designation and
direct involvement in project monitoring as well as termination procedures of the
four (4) selected projects.
Besides interview, documentary analysis on the confidential and nonconfidential documents also have been conducted.
Amongst the confidential
documents that have been examined and analysed were the project reports prepared
by PWD, minutes of site meetings, notices and correspondence related to background
of the projects and its termination process. Other non-confidential documents were
the existing PWD203A Standard Form of Contract, directives from PWD Director
General’s office, Treasury instructions and official circulars related to termination
procedures have been analysed to achieve the research objective.
Documentary analysis method facilitates in providing genuine, authentic and
reliable sources of information on the related research topic. Perhaps documentary
analysis also helps in gaining deep understanding of the information gathered from
the interview sessions conducted to achieve the research objective.
3.2.1.2 Purpose of Study
The purpose of this research is a descriptive research. It attempts to explore
and explain while providing additional information about the procedures of
termination practiced by PWD.
69
This research will attempt to describe what are the procedures being practiced
by PWD in terminating the contract in the event of defaults by the contractor under
Clause 51 of PWD 203A (Rev.1/2010). For this research purpose, four (4) projects
which have been implemented and terminated by PWD State of Johore had been
identified as selected case studies to be analysed..
The question of whether or not
the existing established procedures of termination have been complied by PWD will
be discussed in the research analysis in Chapter Four.
3.3
Research Location
The projects selected for this research were the development projects
approved and implemented under the 10th Malaysian Plan (2011-2015) which its
owners were the Ministry of Rural and Regional Development (KKLW), Ministry of
Works (KKR) and Ministry of Home Affairs (KDN). All the four (4) projects were
implemented in the State of Johore, and thus they were implemented and monitored
by PWD State of Johore.
For all the selected projects, the Superintending Officer
(SO) was the Director of PWD State of Johore.
The four (4) selected projects are as follows:
(i)
Projek Jalan Redong ke Selancar, Segamat;
(ii)
Projek
Melengkapkan
Lengkongan
Pesimpangan
Bertingkat
Cloverleaf Di Jalan Masuk Ke Pusat Pentadbiran Baru Kerajaan Johor Di
Nusajaya Dari Linkedua, Johor;
(iii)
Projek Perumahan Kastam Larkin, Johor Bahru; and
(iv)
Projek Pembinaan Bangunan Tambahan Ibu Pejabat Polis Kontinjen
(IPK) Johor.
70
Those projects were amongst the delayed and sick projects that were failed to
be completed by the contractor despite being given the extension of time by PWD.
As for Projek Pembinaan Bangunan Tambahan Ibu Pejabat Polis Kontinjen (IPK)
Johor, which the project’s owner is Ministry of Home Affairs and the end user is the
Royal Malaysia Police Department, was reported to be one of 14 police delayed
projects throughout the country costing RM1bil.164
It was discovered that the
projects had been delayed for 10 months and the contractor still failed to complete
the project despite being given the extension of time (EOT).
Apart from that, those projects were selected due to its easy accessibility of
data and have been identified as terminated projects under PWD State of Johore.
3.4
Research Respondents
All of the respondents were directly involved in the implementation of the
projects, as well as its termination procedures. Due to research constraint, four (4)
projects have been identified as case studies for this research. For each project, two
(2) respondents have been identified for the semi-structured in-depth interview
purposes.
The respondents for this research are the engineers, quantity surveyors
and assistant engineers of the Public Works Department (PWD) with at least 5 years
of working experience.
They were eight (8) respondents who have been identified to be interviewed
for the purpose of this research. Six (6) of them are from the Roads Branch, Building
164
http://www.thestar.com.my/News/Nation/2014/06/02/Many-police-projects-delayed-Wan-JunaidiProblems-with-contractors-main-reason-behind-stalled-plans/ as accessed on 15th November 2014
71
Branch and Quantity Survey Branch of PWD State of Johore in Kota Iskandar,
Nusajaya and two (2) of the respondents were from PWD District of Johor Bahru.
The reason for selecting two (2) respondents from PWD District of Johor Bahru was
due to its easy accessibility of information and because most of the correspondence
especially for Project No.3 Projek Perumahan Kastam Larkin, Johor Bahru were
issued from District Engineer as being the SO’s representative.
3.5
Research Instruments
The validity and reliability of any research project depends to a large extent
on the appropriateness of the instruments. Whatever procedure one uses to collect
data, it must be critically examined to check the extent to which it is likely to give
the study the expected results.
Interview has enabled a face-to-face meeting with the respondents to interact
and generate ideas in order to achieve the research objective. The semi-structured
interview which is the less formal type was used for this research. Semi structured
interview consists of several key questions that help to define the areas to be
explored, but also allows the interviewer or interviewee to diverge in order to pursue
an idea or response in more detail. Although sets of questions have been prepared as
the interview guide as attached in Appendix C, the interviewer freely modifies the
sequence of questions, changes the wording and sometimes explains them or adds to
them during the interaction, without deviating focus on the research objective during
the interview period.
Data and information on what has been stipulated as the procedures of
termination of contract that has been practiced by PWD in relation to the four (4)
selected projects have been gathered through the semi-structured interview sessions
72
conducted. In addition, through such interviews also information on the background
of each of the projects have been collected, such as the cost of contract, method of
procurement, date of site possession, date of completion, extension of time granted,
date of warning notices for contractor’s default and date of termination notice for all
the selected projects for case study.
Given the inherent challenges of conducting face-to-face interviews which
time and labour intensive, the author had used purposeful sampling. For each project,
two (2) respondents have been identified for the semi-structured in-depth interview
purposes.
The semi-structured interviews have been conducted with six (6)
respondents from PWD State of Johore and two (2) respondents from PWD District
of Johore Bahru. All eight (8) of the respondents were selected based on their
designation, working experience and direct involvement in monitoring and
termination procedures of each of the projects selected for case study. Each interview
was conducted approximately two hours duration.
Besides interviews, in order to achieve the research objective data also have
been collected through documentary analysis.
Related documents of each of the
projects selected which have been catogorised as confidential such as PWD project
reports, minutes of site meetings, notices and correspondence have een examined and
analysed. The non-confidential documents that have been analysed including the
PWD203A Standard Form of Contract (Rev.1/2010), Surat Arahan Ketua Pengarah
Kerja Raya, Treasury Instructions, official circulars related on this research topic.
3.6
Data Collection
In order to achieve the research objective, primary data as well as secondary
data also have been referred for sources of data collection.
73
The primary data collected through interviews are adopted to achieve the
research objective, which is to identify the procedures of termination practiced by
PWD. This approach has helped to generate some ideas pertaining to the research in
question. It was through the interviews, which act as the preliminary survey, the
salient procedures of termination of PWD have been identified. The discussion on
the research findings extracted from the interviews conducted will be elaborated in
forthcoming of Chapter Four of this dissertation.
Besides the primary data, secondary data also had been referred in order to
achieve the research objective. The secondary data have been obtained from the
research done by third parties, which is related to the research subject matter.
Documentary analysis has been conducted by examining the related documents of
each of the projects selected which have been catogorised as confidential such as
PWD project reports, minutes of site meetings, notices and correspondence have
been examined and analysed.
The non-confidential documents that have been
analysed including the PWD Form 203A (Rev.2007) and (Rev.1/2010), Surat Arahan
Ketua Pengarah Kerja Raya, Treasury Instructions, official circulars related on this
research topic.
Other sources of secondary data are including books, articles, journals,
seminar papers, newspapers and government agencies’ reports. These secondary
data sources are essential in conducting a proper and good literature review.
Secondary data also were collected from the Malayan Law Journal, Construction
Law Report through the LexisNexis Law Database via UTM Library electronic
database and also current law journal online database. The case law related to this
research have been collected and only important cases have been highlighted
throughout the discussion at the final stage.
74
3.7
Project Case Studies
The selection of the projects as case study for this research has been explained
in paragraph 3.3. The data and information about the projects have been collected
through semi-structured interview as well as documentary analysis from both PWD
District of Johor Bahru and PWD in the State of Johore.
For the purpose of this study, four (4) projects that have been terminated by
PWD under Clause 51.1 of PWD Form 203A (Rev.2007) and (Rev.1/2010) are as
follows :
Project No.1
Projek Membina Jalan Redong ke Selancar, Segamat, Johor
- PWD Form 203A (Rev.2007)
Project No.2
Melengkapkan Lengkongan Pesimpangan Bertingkat Cloverleaf Di Jalan
Masuk Ke Pusat Pentadbiran Baru Kerajaan Johor Di Nusajaya Dari Link
Kedua, Johor
- PWD Form 203A (Rev.1/2010)
Project No.3
Projek Perumahan Kastam, Larkin, Johor Bahru, Johor
- PWD Form 203A (Rev.2007)
Project No.4
Projek Pembinaan Bangunan Tambahan Ibu Pejabat Polis Kontinjen (IPK)
- PWD Form 203A (Rev.1/2010))
75
1st STAGE
PRELIMINARY INTERVIEW
(Conducted on respondents involved in monitoring and termination
procedures of the four projects chosen as case study)
2nd STAGE
IDENTIFYING ESTABLISHED PROCEDURES FROM THE
INTERVIEW SESSIONS
(Procedures of termination of PWD have been identified)
3rd STAGE
DOCUMENTARY ANALYSIS
(Documents such as contract documents, projects reports, notices
and correspondence, circulars, directives and Treasury Instructions
have been analysed to achieve research objective)
76
Figure 3.1 – Research Process Flowchart
3.8
Conclusion
As a conclusion, in order to achieve the objective of this research the
appropriate research methodology has been adopted. This research is based on four
construction projects, which become the selected case for studies. The two main
methods to elicit data from these cases are the semi-structured interviews and
documentary analysis of various confidential and non-confidential documents related
to the background of the projects as well as procedures that have been practiced by
PWD in terminating the contract of the four (4) identified construction projects.
77
CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION
4.1
Introduction
This chapter will discuss about the research analysis done in achieving the
decided research objective, which is to identify the termination procedures being
practiced by Public Works Department (PWD).
In order to achieve the objective of this research, four (4) projects that had
been terminated by PWD under Clause 51.1 of PWD Form 203A (Rev.2007) and
78
(Rev.1/2010) were selected as a case study. The main criteria of the four (4) projects
identified are as the following:
i.
The projects were implemented by PWD using the PWD Form 203A
(Rev.2007) and (Rev.1/2010);
ii.
The projects were implemented in the State of Johore during the
period of 10th Malaysia Plan (2011-2015);
iii.
The Superintending Officer (SO) is the Director of PWD State of
Johore
iv.
The projects were terminated by PWD in the events of defaults by the
Contractor under Clause 51.1 (a) of PWD Form 203A (Rev.2007) and (Rev.1/2010).
However, due to resource constraints it is more practical to sample
respondents for qualitative data capture purposively.
Respondents are chosen
because they have particular features or characteristics, which will enable detailed
exploration of the research objectives.
For this research, the respondents who had
been identified to be interviewed were the engineers, quantity surveyors and assistant
engineers of PWD State of Johore and PWD District of Johor Bahru who had been
directly involved throughout the monitoring of the projects, as well as dealing with
the procedures of termination of each of the project.
Due to restricted time, only two (2) respondents for each project were
selected as a sample in collecting all the data and information for this research. All
eight (8) total number of respondents had been interviewed during the month of
October and November 2014 and they were fully supportive and cooperative during
the interview sessions.
79
4.2
Background of the Respondents
Eight (8) respondents had been interviewed to gather and compile all the data
and information for this research. The respondents selected for each of the project
were the engineers, quantity surveyors and assistant engineers who were responsible
in monitoring and involved in the termination procedures of each of the project.
From the total of eight (8) respondents altogether, two (2) of them who were
the engineer and assistant engineer specifically involved in the termination
procedures of Project No.3 Projek Perumahan Kastam Larkin, Johor Bahru had been
selected from PWD District of Johor Bahru. The head of department of PWD Johore
Bahru who is the District Engineer has been appointed as the SO’s representative for
this particular project. Therefore all data and information about Project No.3
including project reports, correspondence and notices were prepared and issued from
PWD Johor Bahru.
However the remaining six (6) respondents were from PWD
State of Johore, Kota Iskandar, Nusajaya who were directly involved in monitoring
and termination procedures for Project No.1, Project No.2 and Project No.4.
Amongst the respondents identified, they were two (2) persons from the
respondents are male and six (6) were female. Three (3) of the respondents are
working as quantity surveyors (QS), four (4) of them are Engineers and one (1)
person is working as assistant engineer.
The table shown below consists of information on the respondents according
to the project selected based on gender, designation and number of years of their
working experience with PWD:
1) Project No.1 - Projek Membina Jalan Redong ke Selancar, Segamat,
Johor.
80
Designation
Years of Experience
working with PWD
Respondent 1
Engineer (J44)
6 years
Respondent 2
Quantity Surveyor (J36)
25 years
Table 4.1 – Respondents’ information on Project No.1
2)
Project No.2 - Melengkapkan Lengkongan Pesimpangan Bertingkat
Cloverleaf Di Jalan Masuk Ke Pusat Pentadbiran Baru Kerajaan Johor Di
Nusajaya Dari Link Kedua, Johor.
Designation
Years of Experience working
with PWD
Respondent 1
Engineer (J44)
Respondent 2
Quantity
6 years
Surveyor 25 years
(J36)
Table 4.2 – Respondents’ information on Project No.2
3)
Project No.3 – Perumahan Kastam Larkin, Johor Bahru, Johor.
Designation
Years
of
Experience
working with PWD
Respondent 1
Engineer (J41)
Respondent 2
Assistant
5 years
Engineer 10 years
(J29)
Table 4.3 – Respondents’ information on Project No.3
4)
Project No.4 - Projek Pembinaan Bangunan Tambahan Ibu Pejabat
Polis Kontinjen (IPK) Johor.
81
Designation
Years
of
Experience
working with PWD
Respondent 1
Engineer (J44)
21 years
Respondent 2
Quantity Surveyor (J48)
15 years
Table 4.4 – Respondents’ information on Project No.4
The data and information obtained from the respondents were analysed. The
results of the analysis of the respondents involved during the interview sessions
based on their gender, designation and years of working experience are shown in the
Table 4.5 as follows:
I
Description
Item
Respondents (nos)
( No. of respondents
Percentage
(%)
8
100%
(i) Engineer
4
50%
(ii) Quantity Surveyor (QS)
3
1
37.5%
2
6
25%
75%
a)
( Designation
b)
(iii) Assistant Engineer
( Years
c)
of
12.5%
working
experience
(i) 5 years to 10 years
(ii) above 10 years
Table 4.5 – Analysis of the Respondents based on designation and years
of working experience.
4.3
RESEARCH OBJECTIVE
Termination Practiced By PWD
- To Identify The Procedures Of
82
While monitoring of the progress of the work may reveal that completion will
be delayed, it may also reveal that completion within a reasonable time (if at all) will
be far-fetched. The conduct of the Contractor also may render himself incapable of
completing or evince his intention not to complete the work. Where it is evident that
the Contractor is unlikely to complete or has evinced his intention not to complete or
has rendered himself incapable of completing the work, the need to consider
completing it by other means arises.
Treasury Instruction Bil.8/2009 has provided a guideline for all government
agencies and departments including PWD on how to deal with such circumstances.
It has been provided in such Treasury Instruction that when a project’s progress is
delayed more than 20% behind original schedule or 2 months period and the
contractor has rendered himself incapable of completing the project accordingly, the
SO may recommend to the Officer empowered under the contract to act on behalf of
the Government to terminate the contract.
Clause 51.1 (a) of PWD203A Standard Form of Contract (Rev.1/2010) has
specifically enumerated the events of default by the contractor where the
Government can terminate the contract. The procedures of termination that must be
complied by PWD also has been provided under Clause 51.1 (b) as well as in “Surat
Arahan Ketua Pengarah Kerja Raya” Bil.8/2013.
In Clause 51.1(b) of PWD203A Standard Form of Contract (Rev.1/2010), it
says that in the events of default of the contractor, the Government shall give written
notice to the contractor specifying the default, and requiring the Contractor to
remedy such default within fourteen (14) days of the receipt of the default notice or
any period determined by the Government. If the contractor fails to remedy the
breach within such period, the Government shall terminate the contract by giving a
written notice to the contractor.
83
Events of Default
by the Contrator
(Clause 51.1 (a)
(i) - (viii)) of
PWD Form 203A
(Rev.1/2010)
Written Notice
specifying default
of the contractor
according to the
contract and 14
days period to be
given to the
contractor to
remedy default
If the contractor
fails to remedy
the specified
default within the
prescribed
period,
Government must
issue written
Notice of
Termination.
Figure 4.1 – Procedures of termination under Clause 51.1of PWD Form
203A(Rev.1/2010)
As far as termination notices are concerned, Clause 67.1 has stated that any
notice, approval, consent, request or other communication required or permitted to be
given or made under the contract shall be in writing in Bahasa Malaysia or English
language. Clause 67.2 further provides that such notice shall be effected by:
i.
hand delivery or courier and an acknowledgement of receipt obtained;
ii.
or leaving the notice at the registered office or site office of the
Contractor in which case it shall be deemed to have been duly
delivered; or
iii.
registered post in which case it shall be received seven (7) days after
the date of posting.
With regard to the Performance Bond which the Contractor had provided on
the date of site possession for a sum equivalent to 5% of the total contract sum to
secure the performance of the Contractor’s obligations under the contract, Clause
13.6 had specifically stated that notwithstanding the above, in the event that the
contract is terminated under Clause 51 the said Performance Bond or any balance
thereof shall be forfeited.
84
In the event where the Contractor had opted for a Performance Guarantee
Sum (PGS), which deductions of 10% shall be made from the first interim payment
and subsequent payment until the total deducted aggregate to a sum equivalent to 5%
of the contract sum, immediately after termination notice is issued such amount of
PGS will also be forfeited. Upon termination of project, the SO is responsible to
ensure that arrangements to be made immediately for PGS to be creditted from the
Trust Account (Akaun Amanah) to the Revenue Account (Akaun Hasil).165
Under PWD203A Standard Form of Contract (Rev.1/2010), Clause 69.1 also
mentioned that the Contractor is entitled to an advance payment amounting to 25%
of the value of the Contract Sum less Provisional Sums, but subject to a maximum of
RM 10 million on compliance with few conditions set under the conditions of the
contract. However, in the event that the full sum of the advance paid cannot be
realized due to termination of contract, then the balance of the advance repayable to
the Government shall be recovered from the advance guarantee.166
It should be noted that the exact and meticulous compliance by the
determining party with any formal or procedural requirements laid down in the
termination clause, for example, as to notices or time limits, will usually be required
if a contractual termination is to be successful.167
Due to its serious implications and consequences, termination clause under
the contract is mandatory in its nature and must be strictly construed. Therefore, any
formal or procedural requirements stipulated in the termination clause must be
complied with exactly and meticulously.168
A wrongful or otherwise invalid
determination of the contractor's employment would amount to a repudiatory breach
of contract by the employer. In particular, the times laid down and the contents of the
165
Surat Arahan KPKR Bil.8/2013
Clause 69.3 of PWD203A Standard Form of Contract (Rev.1/2010)
167
I.N Duncan, Wallace (1995) Hudson's Building and Engineering Contracts (11th Ed,) Vol 2, pg
1244
168
Fajar Menyensing v Angsana Sdn Bhd [1998] 6 MLJ 80
166
85
notices should be strictly observed, and so should the requirement as to service by
registered post or recorded delivery.169
In the case of Fajar Menyensing v Angsana Sdn Bhd170 , the employer had
failed to comply with the requirements of determination clause under PAM that
stipulates the architect's notice must clearly specify the default of the plaintiff (the
contractor) and the architect's default notice and the defendant's (the employer)
notice of termination are to be given to the plaintiff by 'registered post or recorded
delivery'. Thus, Nik Hashim J of the High Court Kuala Lumpur had observed that
the default and termination notices are serious documents, and as such, they should
be treated seriously and firmly. The court finally held termination of contract by the
employer was ineffective due to two essential reasons:
I.
The architect in his notices had merely relied upon his 'opinion' that
the plaintiff had failed to proceed regularly and diligently in the execution of the
works. However, cl 25(1) does not empower the architect to issue a notice of default
based on his opinion but only if the plaintiff has as a matter of fact made a default in
one or more of the matters provided therein.
II.
The notices delivered by hand and received by the plaintiff contravene
the express provision of cl 25(1). The mode of service by registered post should be
strictly observed. Failure to comply with the prescribed mode of service is fatal.
Service by any other means other than by registered post is invalid.
Besides the mode of delivery of Notice of Contractor’s Default and Notice of
Termination of Contract, it was observed that procedural requirements on the person
empowered to issue such notices being specified under the contract also must be
169
Powell-Smith,Vincent (1990), The Malaysian Standard Form of Building Contract (PAM/ISM 69),
Malayan Law Journal, pg 110
170
[1998] 6 MLJ 80
86
strictly followed. In the case of Central Provident Fund Board V Ho Bock Kee 171
before the Court of Appeal, Singapore, the respondents had argued that termination
of contract by the employer was unjustified because the procedure for determination
required by the contract was not followed. Wee Chong Sin CJ held that the giving of
the first notice (Notice of Contractor’s default) under clause 34(a) is the taking of
action on behalf of the Board and on the true construction of clause 1A(d) is reserved
to the Chairman alone. Accordingly, such notice was held to be invalid for having
been issued by the Superintending Officer (SO). Thus the termination notice issued
subsequently was also to be held invalid on account of there was no valid notice of
default.
Hence, failure to comply with any procedural matters required under the
termination clause in the contract is fatal and thus carries serious legal implication on
the validity of such termination by the employer. In the event such termination is
contested and challenged before the court because of non-compliance of procedural
requirements stipulated under the contract, then the employer will be held liable of
wrongful termination which amounting to repudiatory breach of the contract.
Besides termination procedures set out under the conditions of PWD203A
Standard Form of Contract (Rev.1/2010) that must be strictly followed, PWD also
has established a guideline of termination procedures to be complied as enumerated
in Surat Arahan Ketua Pengarah Kerja Raya (KPKR) Bil.8/2013 as well as the recent
“Sistem Pengurusan Bersepadu (SPB) 2013 for MS ISO OSHA. Figure 4.1 has
shown the sequence step by step procedures of termination to be adhered to as
stipulated in SPB 2013.
However, failure to comply with any of procedural matters pertaining to
termination of contract under the non-contractual provision as in Surat Arahan
KPKR or SPB 2013, for instance on the number of notices or reminders to be issued,
171
[1981] 2 MLJ 162
87
timing of the issuance of termination notice or claim of Performance Bond to the
Bank/financial institutions or timing for the preparation of Certificate of Termination
Costs and claim to be made against the contractor, will not render the termination of
contract as a whole to be invalid or wrongful. Nonetheless, such failure to comply
with the non-contractual procedural matters in terminating a contract will subject the
responsible officer who committed such default to the inquiry under the Public
Service Department and National Audit Department, and hence disciplinary action
and surcharge proceedings can be taken against him.
88
Defaults by the Contractor under Conditions of PWD Contract
SO shall issue Notice of Contractor's Default as a warning letter and to be
delivered to all parties involved including PKK and CIDB
Officer empowered under the Contract to act on behalf of the
Government to terminate the contract shall issue Notice of Termination
SO shall claim the Performance Bond, balance of the advance payment
not recovered or forfeit the Performance Guarantee Sum to be creditted
from Trust Account into Revenue Account.
SO shall issue Certificate of Termination Costs comprising of the Final
Contract Sum (FCS), Completion Cost (CC) and the difference between
FCS and CC. SO shall send a claim against the Contractor for the
difference of FCS and CC.
If the Contractor fails to pay within 14 days despite repeated reminders
(minimum 2), SO shall refer the matter to the Legal Advisor of Ministry of
Works for legal action to be instituted.
Figure 4.2 – Procedures of termination as stipulated in SPB 2013
(Sources : Sistem Pengurusan Bersepadu 2013 JKR MS ISO OSHA)
Based on the study carried out, the findings of the salient procedures of
termination of contract practiced by PWD will be elaborated as follows:
89
STEP 1 : The SO or SO’s representative shall issue a written Notice of Contractor’s
Defaults also known as “Surat Amaran Kemungkiran Kontraktor” to the Contractor
specifying his defaults under the contract. This written notice, which is deemed as a
warning letter, must be sent to the Contractor and all parties involved under the
contract including CIDB and Contractor Service Centre (PKK).
STEP 2 : If such default specified failed to be remedied by the Contractor within the
period of grace period, the SO then must serve to the Contractor Notice of Intention
to Terminate the Contract. The Notice of Intention to Terminate the Contract must
also specify the default of the Contractor who must be given fourteen days (14) to
remedy the same. This notice must be signed by the Officer empowered to terminate
the contract on behalf of the Government as specified in the Appendix of the
Conditions of the Contract, and must sent to all parties involved under the contract
including CIDB and Contractor Service Centre (PKK).
STEP 3 : Where however the Contractor repeats a default for which a Notice of
Intention for Termination has been previously given, the Officer empowered to act
on behalf of the Government under the contract to terminate the contract, must issue
the Notice of Termination within fourteen (14) days or reasonable time from the date
the Notice of Intention for Termination was issued. Reasonable time in this sense
must not be later than 40 days from the date Notice of Intention to Terminate the
Contract was sent to the Contractor.172 This notice must be sent to all parties
involved under the contract including CIDB and Contractor Service Centre (PKK).
STEP 4 : A claim must be made within two (2) weeks after termination notice was
issued, against the bank or insurance company which provided the Performance
Bond and the guarantee for advance payment if there still remains a balance of
advance payment not recovered.
172
If Performance Guarantee Sum was collected
According to a letter dated 29th October 2013 from the Director General’s of PWD Office as
attached in the Appendix G.
90
instead of Performance Bond, then the SO shall make arrangements to forfeit the
sum by crediting it from the Trust Account into the Revenue Account.
STEP 5 : Once the new contractor has been appointed to complete the balance of the
work, the SO must issue the Certificate of Termination Costs stating the Final
Contract Sum (FCS), Completion Cost (CC) and the difference between the FCS and
CC as in accordance with the provision of Clause 56 of PWD203A Standard Form of
Contract (Rev.1/2010). If the Final Contract Sum is less than the Completion Cost,
the difference must be claimed against the Contractor not later than 9 months from
the date of termination, as the costs and/or loss or damage to the Government. The
SO must send at least two (2) reminders to the Contractor to make the payments
according to the claim. If the Contractor fails to honour the claim in fourteen (14)
days, the matter must be referred to the Legal Adviser of the Ministry of Works for
legal action to be instituted.
91
SO shall issue Notice of Contractor's Default specifying such default under
the conditions of the PWD203A Standard Form of Contract (Rev.1/2010)
and to be delivered to the Contractor by registered post and all parties
involved including PKK and CIDB
- the Contractor must be given 14 days to remedy his default
If such default specified failed to be remedied by the Contractor within 14
days, Notice of Intention for Termination signed by the Officer empowered
to terminate the contract on behalf of the Government as stipulated in the
Appendix of the Conditigons of the Contract must be served to the
Contractor.
- the Contractor who must be given 14 days to remedy the same
If the Contractor repeats his defaults, Officer empowered under the Contract
to act on behalf of the Government to terminate the contract shall issue
Notice of Termination within 14 days or not later than 40 days from the
date the Notice of Intention for Termination.
SO shall claim from the bank the Performance Bond and balance of the
advance payment not recovered from the advance gurantee, alternatively
Performance Gurantee Sum to be creditted from the Trust Account into the
Revenue Account
SO shall issue Certificate of Termination Cost and claim against the
Contractor for the difference of Final Contract Sum and Completion Cost
not later than 9 months from the date of termination
If the Contractor fails to honour the claim and make payment accordingly
within 14 days despite two (2) repeated reminders, SO shall refer the
matter to the Legal Advisor of Ministry of Works for legal action to be
instituted.
Figure 4.3– Procedures of Termination of Contract practiced by PWD
92
4.4
Case Studies Analysis
4.4.1
Project No.1 – Projek Membina Jalan Redong ke Selancar, Segamat,
Johor.
Figure 4.4– Location of Project No.1
Figure 4.5 – Signboard at the Project Site for Project No.1
93
Figure 4.6 – Project Site for Project No.1
Figure 4.7 – Project Site for Project No.1
94
A) Background of the Project
This particular project was approved under the 9th Malaysian Plan (20062010) and its owner is the Ministry of Rural and Regional Development, Malaysia. It
involves the construction of 12km road from Felda Redong, Segamat to Felda
Selancar, Pahang that was designed and implemented by PWD State of Johore.
The proposed project was targeted to benefit the local community especially
planters and farmers to transport the oil palm from Felda Redong to Selancar Oil
Palm Factory to be processed. Besides, road users from Ayer Hitam, Yong Peng and
Labis who wish to travel to Kuantan can save up to 20km and 30 minutes of driving
without having to pass through more than 20 traffic lights in Bandar Segamat.173
The project was tendered in 2008 through an Open Tender using PWD203A
Standard Form of Contract (Rev.2007). The successful contractor was a Bumiputera
Class A Contractor and the original contract sum was RM23,029,398.45.
The Superintending Officer (SO) for this project was the Director of PWD
State of Johore.
Segamat.
The SO’s representative was the District Engineer, PWD of
The officer named in the Appendix to the Conditions of Contract
empowered to take action on behalf of the Government in respect of Clause 51 for
termination was the Deputy Director General of PWD, Malaysia.
The original date of site possession was 12th September 2009 and the original
completion date under the contract was fixed 11th March 2010.
Due to some
technical problems during its construction period where special approval need to be
obtained from the State Government for the cutting of the trees under the Reserved
173
http://www.utusan.com.my dated 15th January 2012 as accessed 30th November 2014
95
Forest, this project was granted two extension of time (EOT). The new completion
date was fixed 2nd November 2012. Despite being given extension of time, the
Contractor has failed to improve his performance on site in order to complete the
project on time. Thus, on 1st October 2012 the contract was terminated when the
project progress had only reached 47.3% as compared to 68.3% as scheduled.
In general, the brief information about this project is as follows:
a)
Original Contract Sum
= RM23,029,398.45
b)
Type of tender
=Conventional (Open tender)
c)
Date of Possession of Site
= 12/9/2008
d)
Original Completion Date
= 11/3/2010
e)
Extension of Time (EOT)
=12/9/2011(EOT1)
2/11/2012(EOT2)
f)
Notice of Intention For Termination = 6/6/2012
g)
Date of Termination
h)
Percentage of work completed upon Termination = 47.3%
=1/10/2012
B) Termination Procedures
This study will focus on the termination procedures, which had been
practiced by PWD for this project. The data and information were gathered from the
respondents through interview sessions conducted to enable the author to analyze and
achieve the objective of this study.
For this particular project, when the Contractor has delayed in his work
performance at the work site, the SO has issued several notices of Contractor’s
Default under the contract as follows:
1)
First Notice – 10th January 2012
2)
Second Notice – 24th February 2012
96
3)
Third Notice – 14th March 2012
As the Contractor has still failed to improve his work progress despite several
notices delivered to him, Deputy Director General of PWD Malaysia being the
Officer empowered to terminate the contract on behalf of the Government, had
issued the Notice of Intention for Termination on 6th June 2012.
In such notice, the
Contractor’s default has been specified to have failed to proceed regularly and
diligently to complete the project on time. In such letter also, PWD has advised that
the Contractor must improve his work progress in 14 days by increasing building
materials, work force and working hours. It was also stated that if the Contractor
fails to show some good progress within the prescribed period, PWD would
terminate the contract in pursuance of Clause 51 of PWD203A Standard Form of
Contract.
When PWD has not received any reply from the Contractor on such notice
within the specified period of time and the Contractor had failed to show good
progress on site, thus on 1st October 2012 Deputy Director General of PWD Malaysia
finally issued the termination notice. It was found that PWD had delayed in issuing
the Notice of Termination, which is supposed to be issued within 14 days or not later
than 40 days from the Notice of Intention for Termination.174
In such Notice of Termination dated 1st October 2012, it was clearly stated
that Contractor must cease all operations on the site, leaving all temporary buildings,
plants, tools, equipment and unfixed materials and goods. The Contractor also was
instructed to remove all temporary buildings, plant, tools, equipment, and unfixed
materials and goods not required for use for the completion of the balance of the
work. Upon termination, works have been completed by the Contractor was only
47.3%.
174
It also mentioned that the works will be completed according the Clause
Surat Arahan KPKR Bil.8/2013
97
51.1 (c) of the contract and thus the loss or/and damage caused to the Government
will be claimed against the Contractor.
Pertaining to the Performance Guarantee Sum (PGS) for this project,
immediately after termination notice was issued PWD has forfeited the PGS.
Accordingly following termination, PGS was credited from the Trust Account to the
Revenue Account of the Government.
The Certificate of Termination Costs had been prepared by the Quantity
Survey Branch, PWD State of Johore. Since the Completion Cost (CC) was greater
than the Final Contract Sum (FCS), such difference amounting to RM5.6 million had
to be claimed against the Contractor. Such claim was made against the Contractor on
4th March 2014, which was 17 months from the date of termination, and notice of
such claim was issued and delivered to the Contractor. It shows that PWD has failed
to comply with its non-contractual procedure of termination as provided under Surat
Arahan KPKR Bil.8/2013 that such claim for the difference between FCS and CC
shall be made not later than 9 months from the date of termination notice.
PWD has made the efforts to make a search at various agencies and
departments for the actual Contractor’s office address between April to August 2014.
On 24th June 2014, PWD again has sent the reminder to claim such amount from the
Contractor using the address provided by the Registration Department of State of
Johore. As of December 2014, SO has yet to issue second warning and if the
Contractor still fail to honour such claim despite repeated reminders, such matter will
be referred to the Legal Adviser of the Ministry of Works for legal action to be
instituted.
In conclusion, for this particular project, PWD has complied with all the
procedures of termination except two of the following:
98
i.
Notice of Termination was delayed by 4 months instead of 40 days
from the issuance of Notice of Intention to Terminate the Contract.
ii.
The claim against the contractor for the loss or/and damage caused to
the Government had only been made after 17 months from the date of the Notice of
Termination was issued. Such claim was supposed to be made not later than 9
months from the Notice of Termination was issued.
Nonetheless, such non-compliance of such procedural matters on the timing
of making such claim against the Contractor will not render termination of contract
to be invalid, as it was not a contractual procedure of termination provided under the
contract. However, PWD shall be mindful that such claim against the Contractor is
subjected to the limitation period of 6 years in pursuance of Limitation Act 1953
applicable in Malaysia which provides that :
“Actions founded on a contract or on tort cannot be brought after 6 years
from the date “the cause of action accrued”.
In short, PWD’s compliance on the termination procedures with regard to
Project No.1 – Projek Jalan Redong-Selancar can be summarized as table shown in
the following:
PROCEDURES
STEP 1
Notice
of
Contractor’s
FINDINGS
Default
specifying
√
Contractor’s default under the conditions of the
contract with 14 days to remedy his default.
STEP 2
Notice of Intention to Terminate the Contract
√
with 14 days given to the Contractor to remedy
his default.
STEP 3
Notice of Termination after 14 days or within
reasonable time not later than 40 days from
Notice of Intention for Termination was issued.
X
99
STEP 4
Performance
√
Issuance of Certificate of Termination Costs and
X
Advance
Payment
recovered/
Guarantee Sum shall be forfeited.
STEP 5
claim for the loss or/and damage to the
Government to be made against the Contractor
not later than 9 months from the date of
termination.
Table 4.6 – Findings on the Compliance of Termination Procedures by PWD
for Project No.1
4.4.2
Project No.2 - Melengkapkan Lengkongan Pesimpangan Bertingkat
Cloverleaf Di Jalan Masuk Ke Pusat Pentadbiran Baru Kerajaan Johor Di
Nusajaya Dari Link Kedua, Johor
A) Background of the Project
This proposed project was approved under the 10th Malaysian Plan (20112015) and the owner of this project is Ministry of Works, Malaysia and had been
designed and implemented by PWD State of Johore. It has a number of scopes of
works to be completed mainly to construct four (4) loops of interchange and utilities
relocation. The first loop is to connect the flow of traffic coming from Tuas to Kota
Iskandar. The second loop is to connect the flow of traffic from Gelang Patah to
Tuas, third loop is to connect the traffic coming from Johor Bahru/Kuala Lumpur to
Gelang Patah. The final loop is to connect the traffic coming from Kota Iskandar to
Johor Bahru/Kuala Lumpur.
100
Arah ke JB/
KL
LOOP 1
LOOP 2
n
la
Ja
sa
Nu
tis
rin
Pe
Arah ke Kota
Iskandar
Arah ke Gelang
Patah
LOOP 3
LOOP 4
Arah ke
Tuas
v Tuas ke Kota
Iskandar
(Loop 1)
v JB/KL ke Gelang
Patah
(Loop 2)
v Kota Iskandar ke JB/
KL
(Loop 3)
v Gelang Patah ke
Tuas
(Loop 4)
Figure 4.8– Location of Project No.2
Figure 4.9 – Location of Project No.2
101
Figure 4.10 – Project No.2 Drainage and turfing works at Loop 1
Figure 4.11 – Project No. 2 Drainage and turfing works at Loop 2
102
Figure 4.12 – Project No.2 Sub base layer at Loop 4
The project was designed and implemented by PWD.
This project was
tendered in 2011 through an Open Tender using the PWD203A Standard Form of
Contract (Rev.2010). The successful contractor was a Bumiputera Class A
Contractor and the original contract sum was RM11,942,163.
The Superintending Officer (SO) for this project was the Director of PWD
State of Johore.
The SO’s representative was the Senior Construction General
Manager of Special Project Division, PWD State of Johore. The officer named in the
Appendix to the Conditions of Contract empowered to take action on behalf of the
Government in respect of Clause 51 for termination was the Deputy Director
General, PWD Malaysia.
The Contractor was given the possession of the site on 20th October 2011 and
the original completion date under the contract was fixed 19th April 2013. An
103
Extension of Time (EOT) was approved until 25th May 2013 as the new completion
date.
In monitoring the project progress in early November 2011, PWD has issued
a few warning letters due to the Contractor’s slow performance at the work site.
Despite the advice and warning letters sent to the contractor, the contractor still
failed to improve his work progress. Thus on December 2012 when the work
progress had only reached 11.4% as compared to 40.8% as scheduled progress the
project was terminated.
In general, the brief information about this project are as follows:
a)
Original Contract Sum
= RM11,942,163
b)
Type of tender
=Conventional (Open tender)
c)
Date of Possession of Site
= 20/10/2011
d)
Original Completion Date
= 19/4/2013
e)
Extension of Time (EOT)
= 25/5/2013 (EOT1)
f)
Notice of Intention For Termination = 14/09/2012
g)
Date of Termination
h)
Percentage of work completed upon Termination = 11.4%
= 14/12/2012
B) Termination Procedures
This study will focus on the termination procedures, which had been
practiced by PWD for this project. The data and information were gathered from the
respondents through the interview sessions conducted. The author had analyzed all
data and information gathered in order to achieve the research objective.
104
For this particular project, the SO had issued several Notices of Contractor’s
Default as the following when it was found the project was delayed due to
Contractor’s slow performance:
i.
First Notice
– 15th November 2011
ii.
Second Notice
– 15th December 2011
iii.
Third Notice
– 9th April 2012
iv.
Fourth Notice
– 23rd May 2012
All notices had been delivered to the Contractor and PWD has specified that
the Contractor has failed to show good progress as promised under the Contractor’s
Work Programme as promised in order to complete the project on time. PWD also
has advised that the Contractor must improve his work progress in 14 days by
increasing building materials, work force and working hours. It was also stated that
if the Contractor fails to show some good progress within the prescribed period,
PWD will proceeds with termination action against the Contractor as provided under
Clause 51 of PWD203A Standard Form of Contract.
With regard to the Notice of Intention For Termination was issued twice as
follows :
25th January 2012 following the second Notice of Contractor’s Default
i.
dated 15th December 2011;
14th September 2012 following the fourth Notice of Contractor’s
ii.
Default dated 23rd May 2012.
It has been observed that the Contractor has only completed 6.5% of the work
as compared to 32.6% as scheduled progress when the Notice of Intention to
Terminate the Contract was issued by Deputy Director General, PWD Malaysia on
14th September 2012.
105
It should be noted that neither Clause 51 nor Surat Arahan KPKR Bil.8/2013
have provided the specific timing on the issuance of Notice of Intention For
Termination from the date of the Notice of Contractor’s Default was issued.
Nonetheless, Surat Arahan KPKR Bil.8/2013 had only stated that the notices should
follow the contents and wording as specified but not the timing.
Besides having specified the Contractor’s default under the contract in such
notices, the Contractor was given another 14 days to improve his work progress at
site, or otherwise the contract will be terminated following Clause 51.1 of the
contract.
After 3 months from the issuance of the Notice of Intention For Termination,
finally Notice of Termination was issued by Deputy Director General, PWD
Malaysia on 14th December 2012 and delivered by registered post to the Contractor.
In such termination notice it was stated that Contractor must cease all operations on
the site, leaving all temporary buildings, plants, tools, equipment and unfixed
materials and goods. The Contractor also was instructed to remove all temporary
buildings, plant, tools, equipment, and unfixed materials and goods not required for
use for the completion of the balance of the work. Upon termination, works have
been completed by the Contractor was only 11.4%. It also mentioned that the works
will be completed according the Clause 51.1 (c) of the contract and thus the loss
or/and damage caused to the Government will be claimed against the Contractor.
PWD has taken all necessary steps immediately after termination notice was
issued to forfeit the Performance Guarantee Sum (PGS). Accordingly following
termination, PWD has the PGS from the Trust Account to the Revenue Account of
the Government.
The Certificate of Termination Costs was issued by the Quantity Survey
Branch, PWD State of Johore. Since the Completion Cost was greater than the Final
106
Contract Sum, such difference amounting to RM1.26 million had to be claimed
against the Contractor.
The SO had sent out such claim through registered post to the Contractor on a
letter dated 18th December 2013, which is 12 months after the date of termination
notice, was issued. The delivery was failed since there was a problem with the
Contractor’s office address. PWD has made the efforts to make a search at various
agencies and departments for the actual Contractor’s office address. On 9th February
2014 PWD again has sent out a letter claiming such amount to the Contractor.
Despite repeated reminders being sent to the Contractor, on 13th April 2014
subsequently the SO had referred the matter to the Legal Adviser of the Ministry of
Works for legal action to be instituted.
In conclusion, for this particular project, PWD has complied with all the
procedures of termination except for the following:
i.
Notice of Termination was only issued three (3) months after Notice
of Intention for Termination, which is contrary with the procedural
requirements stipulated in Surat Arahan KPKR Bil.8/2013 and official
letter from the Director General’s Office of PWD Malaysia dated 29th
October 2013. The Notice of Termination shall be issued within 14
days or not later than 40 days from the issuance of Notice of Intention
for Termination.
ii.
The claim made against the Contractor for the loss or/and damage
caused to the Government after the Certificate of Termination Costs
was prepared. Such claim was supposed to be made not later than 9
months from the Notice of Termination was issued according to Surat
Arahan Ketua Pengarah Kerja Raya Bil.8/2013. However for this
107
project, PWD had only made the claim after 12 months from the date
of the Notice of Termination was issued.
Nonetheless, non-compliance of such procedural matters on the timing of
making such claim against the Contractor will not render termination of contract to
be invalid, as it was not a contractual procedure of termination provided under the
contract.
In short, PWD’s compliance on the termination procedures with regard to
Project No.2 can be summarized as table shown below:
PROCEDURES
STEP 1
Notice
of
FINDINGS
Contractor’s
Default
specifying
√
Contractor’s default under the conditions of the
contract with 14 days to remedy his default.
STEP 2
Notice of Intention to Terminate the Contract
√
with 14 days given to the Contractor to remedy
his default.
STEP 3
Notice of Termination after 14 days or within
X
reasonable time not later than 40 days from
Notice of Intention for Termination was issued.
STEP 4
Advance
Payment
recovered/Performance
√
Guarantee Sum shall be forfeited.
STEP 5
Issuance of Certificate of Termination Costs and
X
claim for the loss or/and damage to the
Government to be made against the Contractor
not later than 9 months from the date of
termination.
Table 4.7 - Findings on the Compliance of Termination Procedures by PWD for
Project No.2
108
4.4.3 Project No.3 – Perumahan Kastam Larkin, Johor Bahru, Johor
A) Background of Project
This proposed project was approved under the development budget in the 9th
Malaysian Plan (2006-2010). The owner of this project is Ministry of Finance,
Malaysia. The project was designed and implemented by PWD. This project was
tendered in 2010 through an Open Tender using the PWD203A Standard Form of
Contract (Rev.2007). The successful contractor was a Bumiputera Class A
Contractor and the original contract sum was RM18,499,760.60.
Figure 4.13 – Project No.3 Structure of Block A
109
Figure 4.14 – Project No.3 Structure of Block B
Figure 4.15 – Project No.3 Concrete Slab at Level 1 Block A
110
Figure 4.16 – Project No.3 Formwork at Level 3 of Block B
The Superintending Officer (SO) for this project was the Director of PWD
State of Johore. The SO’s representative was the District Engineer of PWD Johor
Bahru. The officer named in the Appendix to the Conditions of Contract empowered
to take action on behalf of the Government in respect of Clause 51 for termination
was the Senior Director of General’s Building Works Branch of PWD, Malaysia.
The scope of works under the contract has been set consisting of
preliminaries work, piling works, building works (2 Quarters block Class G),
external works, electrical installation works and some mechanical works such as lift
installation and fire fighting systems.
The original date of site possession was 28th September 2010 and the original
completion date under the contract was fixed 10th September 2012. However due to
transition of budget allocation to be brought forward to the 10th Malaysia Plan, the
date of site possession had to be amended to 14th November 2011. Due to such delay
111
in giving possession of site to the contractor, in accordance to Clause 43.1 (g) of
PWD203A Standard Form of Contract an Extension of Time (EOT) was approved
till 27th October 2013 as the new completion date.
Figure 4.17 – Project No.3 TNB Sub station
Figure 4.18 – Project No.3 Playground area
112
In monitoring the project progress in early October 2012, PWD has detected
that there was a delay of 7% amounting to 69 days behind schedule. Despite the
advice and warning letters sent to the contractor, the contractor still failed to improve
his work progress at the work site. After 12 months of its commencement, the
project was terminated which the contractor had only completed 23% of the project.
The project delay was equivalent to 148 days when it was terminated.
In general, the brief information about this project are as follows:
B)
a)
Original Contract Sum
= RM18,499,760.60
b)
Type of tender
=Conventional (Open tender)
c)
Original Date of Site Possession
= 28/9/2010
d)
Amended Date of Site Possession
= 14/11/2011
e)
Original Completion Date
= 10/9/2012
f)
Extension of Time (EOT)
= 25/5/2013 (EOT1)
g)
Notice of Intention for Termination = 19/12/2012
h)
Date of Termination
i)
Percentage of work completed upon Termination = 21%
= 30/1/2013
Termination Procedures
This study will focus on the termination procedures, which had been
practiced by PWD for this project. The data and information were gathered from the
respondents through the interview sessions conducted. The author had analyzed all
data and information gathered in order to achieve the research objective.
For this particular project, the first warning letter was issued by District
Engineer of PWD Johor Bahru (SO’s representative) on 2nd October 2012. PWD
detected that the Contractor’s performance at site was delayed by 7%, which was
equivalent to 69 days behind schedule. In such letter, PWD has specified that the
Contractor has failed to show good progress as promised under the Contractor’s
113
Work Programme/Critical Path Method (CPM) as promised in order to complete the
project on time. In such warning letter, PWD has advised that the Contractor must
improve his work progress in 14 days by increasing building materials, work force
and working hours. It was also stated that if the Contractor fails to show some good
progress within the prescribed period, PWD will proceeds with termination action
against the Contractor as provided under Clause 51 of PWD203A Standard Form of
Contract (Rev.2007).
On 24th October 2012, the District Engineer of PWD Johor Bahru acted as the
SO’s representative had issued the Notice of Contractor’s Default as the contractor
still failed to remedy his defaults as specified in the first warning letter previously
issued. Another grace period of seven (7) days was given for the Contractor to
respond and provide reasonable explanation as to his slow progress at the work site.
Besides failure to proceed with the work according the work programme/CPM, PWD
also found that there was no labours or workers at all at the work site on 17th October
2012.
Notice of Intention for Termination of Contract was issued on 19th December
2012 by the Senior Director of Building Works Branch, PWD Malaysia as being the
Officer named to act on behalf of the Government with regard to Clause 51 of the
contract, after the Contractor has failed to act and give serious attention to both
warning letters being sent to him previously.
Besides having specified the
Contractor’s default under the contract in such notice, the Contractor was given
another 14 days to improve his work progress at site, or otherwise the contract will
be terminated following Clause 51.1 (c) of the contract.
After 40 days from the issuance of the Notice of Intention for Termination of
Contract, finally Notice of Termination was issued by Director of Building Works
Branch, PWD Malaysia on 30th January 2013 and delivered by AR Registered to the
Contractor. In the termination notice it was stated that Contractor must cease all
operations on the site, leaving all temporary buildings, plants, tools, equipment and
114
unfixed materials and goods. The Contractor also was instructed to remove all
temporary buildings, plant, tools, equipment, and unfixed materials and goods not
required for use for the completion of the balance of the work. Upon termination,
works have been completed by the Contractor was only 21%. It also mentioned that
the works will be completed according the Clause 51.1 (c) of the contract and thus
the loss or/and damage caused to the Government will be claimed against the
Contractor.
PWD has taken all necessary steps immediately after termination notice was
issued to forfeit the Performance Guarantee Sum (PGS). Accordingly following
termination, PWD has the PGS from the Trust Account to the Revenue Account of
the Government.
The Certificate of Termination Costs was prepared by Quantity Survey
Branch, PWD State of Johore and was issued by the District Engineer of PWD Johor
Bahru in April 2014, which was 15 months after the termination notice was issued.
Since the Completion Cost was greater than the Final Contract Sum, such difference
amounting to RM3.86 million had to be claimed against the Contractor.
The SO had sent out such claim through registered post to the Contractor on a
letter dated 6th May 2014, but there was no reply from the Contractor. The delivery
was failed since there was a problem with the Contractor’s office address. PWD has
made the efforts to make a search at various agencies and departments for the actual
Contractor’s office address. On 21st July 2014 PWD again has sent out a letter
claiming such amount to the Contractor using the address provided by the
Registration Department of State of Johore. The SO finally on a letter dated 13th
August 2014 had referred the matter to the Legal Adviser of the Ministry of Works
for legal action to be instituted.
115
In conclusion, for this particular project, PWD has complied with all the
procedures of termination except for the claim made against the contractor for the
loss or/and damage caused to the Government after the Certificate of Termination
Costs was prepared.
According to Surat Arahan Ketua Pengarah Kerja Raya
Bil.8/2013 the claim for the amount of difference between the Final Contract Sum
and Completion Costs was supposed to be made not later than 9 months from the
Notice of Termination was issued. However for this particular project, PWD had
only made the claim after 15 months from the date of the Notice of Termination was
issued.
Nonetheless, non-compliance of such procedural matters on the timing of
making such claim against the Contractor will not render termination of contract to
be invalid, as it was not a contractual procedure of termination provided under the
contract. It should be noted that such failure to comply with the non-contractual
procedural matters in terminating a contract will subject the responsible officer who
committed such default to the inquiry under the Public Service Department and
National Audit Department, and hence disciplinary action and surcharge proceedings
can be taken against him.
In short, PWD’s compliance with regard to Project No.3 – Perumahan
Kastam Larkin, Johor Bahru can be summarized as table shown below:
PROCEDURES
STEP 1 Notice
of
Contractor’s
FINDINGS
Default
specifying
√
Contractor’s default under the conditions of the
contract with 14 days to remedy his default.
STEP 2 Notice of Intention to Terminate the Contract with 14
√
days given to the Contractor to remedy his default.
STEP 3 Notice of Termination after 14 days or within
reasonable time not later than 40 days from Notice of
Intention for Termination of Contract was issued.
√
116
STEP 4 Advance Payment recovered/ Performance Guarantee
√
Sum shall be forfeited.
STEP 5 Issuance of Certificate of Termination Costs and
X
claim for the loss or/and damage to the Government
to be made against the Contractor not later than 9
months from the date of termination.
Table 4.8 – Findings on the Compliance of Termination Procedures by PWD
for Project No.3
4.4.4 Project No.4 – Projek Pembinaan Bangunan Tambahan Ibu Pejabat Polis
Kontinjen (IPK) Johor.
A)
Background of Project
Figure 4.19– Location of Project No.4
117
This proposed project was approved under the development budget in the 9h
Malaysian Plan (2006-2010). The owner of this project is Ministry of Home Affairs
and when the project is completed it will be handed over to the Royal Malaysia
Police Department (PDRM). The project was designed and implemented by PWD.
This project was tendered in 2010 through an Open Tender using the PWD203A
Standard Form of Contract (Rev.2007). The successful contractor was a Bumiputera
Class A Contractor and the original contract sum was RM103,556,694.84.
The Superintending Officer (SO) for this project was the Director of PWD
State of Johore. The SO’s representative was the Principal Assistant Director of
Building Branch, PWD State of Johore. The officer named in the Appendix to the
Conditions of Contract empowered to take action on behalf of the Government in
respect of Clause 51 for termination of contact was the Deputy Director General,
PWD Malaysia.
The scope of works under the contract has been set consisting of
preliminaries work, piling works, building works including a 12-storey
administrative building with 4-storeys of car parks, 2 storey building for Crime
Investigation and Traffic Branch, cafeteria, ammunition store building, 40 unit of
quarters in 6 storey building, 1 unit quarters Class D and 2 unit Semi-D quarters
Class E.
PELAN LOKASI PROJEK
Blok Kuarters D,E,F
-Blok G : Banglo 1 unit
-Blok H : Semi Detached 2 unit
-Blok F : 40 units 6 ngkat
Padang Bola
Reten on
Pond
Blok A: Menara Pentadbiran
Blok C : Bekalan & Persenjataan
Blok D : Stor Peluru
Blok E : Blok Kafeteria
Blok B: Trafik &
Siasatan Jenayah
Figure 4.20 – Location Plan for Project No.4
118
The original date of site possession was 28th December 2010 and the original
completion date under the contract was fixed 3rd September 2012.
For this
particular project, due to certain technicalities during its construction period the
Contractor was given two (2) extension of time (EOT). The new completion date was
set to be 18th July 2013.
Figure 4.21 – Project No. 4 Main Administrative Building
119
Figure 4.22 – Project No.4 2 storey Quarters Class D
Figure 4.23 – Project No. 4 Quarters Semi-D Class E
120
In monitoring the project progress in June 2012, PWD has detected the slow
progress of the project at site due to Contractor’s financial problems. Between 2012
until April 2013, there were 5 notices of contractor’s default had been issued and
delivered to the Contractor by the SO.
For this particular project, PWD had sent a written notice to the Contractor
dated 16th July 2013 specifying on the imposition of liquidated ascertained damages
(LAD) due to Contractor’s failure to complete the project within the extended time
granted. Subsequently, the Certificate of Non-Completion (CNC) had been issued by
the SO on 17th July 2013 to recover from the Contractor the LAD calculated at the
rate stated under the contract which was RM17,190.41/day. The LAD were deducted
from money due or to become due to the Contractor, failing which such damages
shall be recovered from the Performance Bond or as a debt due from the Contractor.
In pursuant of Clause 40.2 of PWD203A Standard Form of Contract, the
Government is entitled to recover the LAD from the period of the issuance of CNC
until the date of the issuance of Certificate of Practical Completion (CPC) or the date
of termination of the contract.
Figure 4.24– Project No. 4 6 storey building of quarters Class F
(40 units)
121
As the Contractor had still failed to improve his work progress on site for
more than 6 months period after the issuance of CNC on July 2013, the contract was
eventually terminated on 10th February 2014.
In general, the brief information about this project are as follows:
a)
Original Contract Sum
= RM 103,556,694.84
b)
Type of tender
=Conventional
(Open tender)
c)
Original Date of Site Possession
= 28/12/2010
d)
Original Completion Date
= 3/9/2012
e)
Extension of Time
= 22/2/2013 (EOT1)
= 18/7/2013 (EOT2)
f)
Notice of Intention for Termination = 3/1/2014
g)
Date of Termination
h)
Percentage of work completed upon Termination = 58%
= 10/2/2014
B) Termination Procedures
This study will focus on the termination procedures which had been practiced
by PWD for this project. The data and information were gathered from the
respondents through the interview sessions conducted. The author had analyzed all
data and information gathered in order to achieve the research objective.
For this particular project, there were five (5) notices specifying the
Contractor’s Default under the contract, particularly for failing to perform his work
regularly and diligently. The first notice was issued by SO on 18th October 2012. In
such letter, PWD has specified that the Contractor has failed to show good progress
as promised under the Contractor’s Work Programme/Critical Path Method (CPM)
as promised in order to complete the project on time. In such notice also PWD has
122
advised that the Contractor must improve his work progress in 14 days by increasing
building materials, work force and working hours.
Despite the first notice sent to the Contractor, the Contractor was not
consistent in performing his work so as to show that he was capable of completing
the project according to time fixed under the contract. The number of workers on
site and quality of work reported by the appointed consultants were deteriorating.
Thus the SO had to issue the subsequent default’s notice to the Contractor as the
following:
i.
First notice – 18th June 2012
ii.
Second notice – 13th September 2012
iii.
Third notice - 23rd October 2012
iv.
Fourth notice – 5th December 2012
v.
Fifth Notice – 2nd April 2013
Notice of Intention for Termination was first issued by Deputy Director
General, PWD Malaysia on 24th April 2013, after the Contractor has failed to act and
give serious attention to repeated notices of default being sent to him previously.
Besides having specified the Contractor’s default under the contract in such notice,
the Contractor was given another 14 days to improve his work progress at site, or
otherwise the contract will be terminated following Clause 51.1 of the contract.
The Contractor had showed some positive progress on site after the issuance
of such notice. Nevertheless after four (4) months period the Contractor repeated his
defaults of not being able to perform his work on site regularly in order to complete
the project. PWD had issued another Notice of Intention for Termination on 23rd
August 2013 and the final notice was issued on 3rd January 2014.
123
After 37 days from the date of Notice of Intention for Termination of
Contract was issued, the Deputy Director General, PWD Malaysia had finally
terminated the contract by issuing Notice of Termination dated 10th February 2014.
In such termination notice it was stated that Contractor must cease all operations on
the site, leaving all temporary buildings, plants, tools, equipment and unfixed
materials and goods. The Contractor also was instructed to remove all temporary
buildings, plant, tools, equipment, and unfixed materials and goods not required for
use for the completion of the balance of the work. Upon termination, works have
been completed by the Contractor was only 58%. It also mentioned that the works
will be completed according the Clause 51.1 (c) of the contract and thus the loss
or/and damage caused to the Government will be claimed against the Contractor.
With regard to actions to be taken immediately after the issuance of Notice of
Termination, PWD has claimed the Performance Bond from the bank within two (2)
weeks time following termination. In addition, it was discovered also that PWD had
recovered the balance of the advance payment from the Contractor from the advance
guarantee.
It is essential to note that as of December 2014, PWD has not yet prepare and
issue the Certificate of Termination Costs in pursuant of Clause 56 of PWD203A
Standard of Contract since the tender for the appointment of the new contractor to
complete the project is still pending and not awarded.
However, based on the
established procedures as stipulated under Surat Arahan KPKR Bil.8/2013 that such
Certificate of Termination Costs comprising of the Final Contract Sum, Completion
Costs and the difference of the said amount must be prepared within 9 months from
the date of termination.
PWD had not complied with such procedure as the
prescribed period has lapsed.
Failure of PWD in issuing the Certificate of
Termination Costs had not make it possible for such claim to be made against the
Contractor for the difference between the Final Contract Sum and Completion Costs
as being the loss and/or damages to complete the project.
124
In conclusion, for this particular project, PWD has complied with all the
procedures of termination except for the claim made against the contractor for the
loss or/and damage caused to the Government after the Certificate of Termination
Costs was prepared.
Nonetheless, non-compliance of such procedural matters on the timing of
making such claim against the Contractor will not render termination of contract to
be invalid, as it was not a contractual procedure of termination provided under the
contract. It should be noted that such failure to comply with the non-contractual
procedural matters in terminating a contract will subject the responsible officer who
committed such default to the inquiry under the Public Service Department and
National Audit Department, and hence disciplinary action and surcharge proceedings
can be taken against him.
In short, PWD’s compliance with regard to Project No.4 –Projek Pembinaan
Bangunan Tambahan Ibu Pejabat Polis Kontinjen (IPK) Johor can be summarized as
table shown below:
PROCEDURES
STEP 1
Notice
of
Contractor’s
FINDINGS
Default
specifying
√
Contractor’s default under the conditions of the
contract with 14 days to remedy his default.
STEP 2
Notice of Intention to Terminate the Contract with
√
14 days given to the Contractor to remedy his
default.
STEP 3
Notice of Termination after 14 days or within
√
reasonable time not later than 40 days from Notice
of Intention for Termination of Contract was
issued.
STEP 4
Advance Payment recovered/ Performance Bond
claimed.
√
125
STEP 5
Issuance of Certificate of Termination Costs and
X
claim for the loss or/and damage to the
Government to be made against the Contractor not
later than 9 months from the date of termination.
Table 4.9 – Findings on the Compliance of Termination Procedures by
PWD for Project No.4
4.5 Conclusion
From the analysis of four (4) projects selected as a case study in order to
identify the termination procedures practiced by PWD, it is observed that generally
PWD has complied with all the requirements being stipulated under the contractual
provision of PWD203A Standard Form of Contract. However, PWD was found to
have failed to observe the timing pertaining to two important non-contractual
procedural matters which are on the issuance of Notice of Termination and claim
made against the Contractor for the difference of amount when the Completion Costs
is greater than the Final Contract Sum as stated in the Certificate of Termination
Costs issued by the SO.
It should be noted that such non-compliance would not affect the validity of
termination of contract by PWD provided that all other procedural requirements
under PWD203A Standard Form of Contract had been complied with. Nevertheless,
because of such failure to comply with the non-contractual procedural matters set out
in Surat Arahan KPKR will make the responsible officer, mainly the SO or SO’s
representative or even the Officer empowered to terminate the contract on behalf of
the Government to be subjected to the inquiry by the National Audit Department or
Public Service Department, and eventually surcharge proceedings and disciplinary
action may be taken against them.
126
In summary, the research findings as to the compliance as well as noncompliance of termination procedures by PWD based on the four (4) projects
selected are as follows:
Procedures
STEP 1
Notice
of
Contractor’s
Project
Project
Project
Project
No.1
No.2
No.3
No.4
√
√
√
√
√
√
√
√
Default
STEP 2
Notice
of
Intention
for
Termination Contract
STEP 3
Notice of Termination
X
X
√
√
STEP 4
Performance Bond claimed/
√
√
√
√
X
X
X
X
Advance
Payment
recovered/Performance
Guarantee Sum forfeited
STEP 5
Certificate of Termination
Costs and claim for the loss
or/and
damage
to
the
Government to be made
against the Contractor
Table 4.10 – Findings on the Compliance of Termination Procedures by
PWD for Project No.1, 2, 3 and 4.
127
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
5.1
Introduction
This final chapter will summarize the findings of the research and provide
recommendations for future studies. The sole objective of this research is to identify
the procedures, which have been practiced by Public Works Department (PWD) in
terminating a contract. Based on the case study analysis on the four (4) selected
projects which data have been collected from, semi-structured interviews as well as
documentary analysis conducted, recommendations in order to improve the
procedures of termination of contract with regard to the existing practice of PWD in
terminating a contract has been suggested in this chapter.
5.2
Research Findings
Because of its strengths, case study is a particularly appealing design for
applied fields of study such as education, social work, administration, health, and so
on. An applied field's processes, problems, and programs can be examined to bring
128
about understanding that in turn can affect and perhaps even improve practice.
Although a small sample in the case study did not provide representative findings,
the semi-structured interview and documentary analysis were able to provide
important information on the actual process and procedures to be followed whenever
PWD terminates a contract due to contractor’s defaults under the contract.
5.2.1
Procedures of termination of contract by PWD
There are five (5) steps, which PWD has to comply in termination of contract
due to the events of Contractor’s defaults as enumerated in Clause 51.1 (a)
PWD203A Standard Form of Contract.
From the research findings, it has shown
that from the overall four (4) projects analysed PWD has complied with all the
procedural requirements enumerated under Clause 51.1 as well as those termination
procedures provided under Surat Arahan Ketua Pengarah Kerja Raya Bil.8/2013,
except for the timing of the following procedures :
i.
STEP 3 : Notice of Termination shall be issued within 14 days or not
later than 40 days form the date Notice of Intention for Termination of
Contract was issued.
Based on the interviews conducted, PWD’s delay in issuing the
Notice of Intention to Terminate was due to the fact that after the
Notice of Intention to Terminate the Contract was issued, the
Contractor had resumed work at site and showed some good progress
before repeating the same defaults, that make Notice of Termination
finally been issued.
It is up to the wisdom and experience of the SO and SO’s
representative who had closely monitor the Contractor’s performance
129
at site from the very beginning until the project was delayed and
become “sick project” to advise the Officer empowered under the
contract whether or not to proceed with the issuance of Notice of
Termination.
ii.
STEP 5 : After the new contractor has been appointed to complete the
project, the SO shall make an assessment of the Completion Costs as
well as the Final Contract Sum to be issued in the Certificate of
Termination Costs.
If the Final Contract Sum is less than the
Completion Cost, the difference must be claimed against the
Contractor not later than 9 months from the date of termination, as the
costs and/or loss or damage to the Government.
With regard to the issuance of Certificate of Termination Costs and
claim against the Contractor failed to be completed within 9 months
from the date of termination, from the interviews and documentary
analysis, it was discovered that the process of appointment of the new
contractor to complete the terminated project was quite a lengthy one.
It involves various work process within PWD itself, as well as getting
the financial allocation from the relevant Ministry who owns the
project and also the approval for the shortlisted companies of
Contractor from the Ministry of Finance, Malaysia.
For the details of the research findings on the case study analysis based on the
four (4) selected projects, the compliance of PWD with the five (5) steps in
termination procedures are as follows:
STEP 1 : Notice of Contractor’s Default
The Superintending Officer (SO) or SO’s representative shall issue a written Notice
of Contractor’s Default, which is also known as “Surat Amaran Kemungkiran
130
Kontraktor” to the Contractor in order to notify and specify his defaults under the
contract.

Projects No.1,2,3 and 4 had fulfilled this procedural requirements in terms of
its timing, notification and person authorized to issue such notice.
STEP 2 : Notice of Intention To Terminate the Contract
If such default specified is still failed to be remedied by the Contractor within the
period of grace period, then Notice of Intention to Terminate the Contract must be
served to the Contractor. The Notice of Intention for Termination must also specify
the default of the Contractor who must be given fourteen days (14) to remedy the
same. This notice must be signed by the Officer empowered to terminate the contract
on behalf of the Government as specified in the Appendix of the Conditions of the
Contract.

Projects No.1,2,3 and 4 had fulfilled this procedural requirement in terms of
its timing, notification and person authorized to issue such notice.
STEP 3 : Notice of Termination
Where however the Contractor repeats a default for which a Notice of Intention to
Terminate the Contract has been previously given, the Officer empowered to act on
behalf of the Government under the contract to terminate the contract, must issue the
Notice of Termination within fourteen (14) days or reasonable time from the date the
Notice of Intention for Termination was issued. Reasonable time in this sense must
not be later than 40 days from the date Notice of Intention to Terminate the Contract
was sent to the Contractor.

Projects No. 3 and 4 had fulfilled this procedural requirement in terms of its
timing, notification and person authorized to issue such notice. However, Projects
No.1,2 has not complied completely with this procedural requirements, particularly
131
on the timing on the issuance of such Notice of Termination. For Project. No.1, the
Notice of Termination was issued after four (4) months from the date of Notice of
Intention to Terminate the Contract. Whereas for Project No. 2, such Notice of
Termination was issued after three (3) months from the date of Notice of Intention to
Terminate the Contract was issued.
STEP 4 : Claim of Performance Bond, Balance of Advance Payment shall be
recovered and Performance Guarantee Sum shall be forfeited
A claim must be made within two (2) weeks after termination notice was issued,
against the bank or insurance company which provided the Performance Bond and
the guarantee for advance payment if there still remains a balance of advance
payment not recovered. If Performance Guarantee Sum was collected instead of
Performance Bond, then the SO shall make arrangements to forfeit the sum by
crediting it from the Trust Account into the Revenue Account.

Projects No.1,2,3 and 4 had fulfilled this procedural requirements in terms of
its timing, notification and person authorized to issue such notice.
STEP 5 : Certificate of Termination Costs
Once the new contractor has been appointed to complete the balance of the work, the
SO must issue the Certificate of Termination Costs stating the Final Contract Sum
(FCS), Completion Cost (CC) and the difference between the FCS and CC as in
accordance with the provision of Clause 56 of PWD203A Standard Form of Contract
(Rev.1/2010).
If the Final Contract Sum is less than the Completion Cost, the
difference must be claimed against the Contractor not later than 9 months from the
date of termination, as the costs and/or loss or damage to the Government.

Project No.1,2.3 and 4 had not comply with this particular procedural
requirement in terms of the timing in issuing the claim for the difference of amount
between the Completion Costs and Final Contract Sum as stated in the Certificate of
132
Termination Costs. On average PWD has only managed to make the claim for the
amount against the Contractor after 12 to 29 months after the date of termination of
contract.
5.2.2
Issues on the Non-Compliance of Termination Procedures by PWD
From the data and information gathered through documentary analysis and
interviews conducted, it has been discovered that PWD has to comply with all the
procedures of termination enumerated under the Conditions of PWD203A Standard
From of Contract and those provided under the Surat Arahan Ketua Pengarah Kerja
Raya (SA KPKR) Bil.8/2013.
However non compliance of procedural matters mainly on the timing on the
issuance of Notice of Termination from the date of Notice of Intention for
Termination was issued by PWD, and also on the timing for the preparation of
Certificate of Termination Costs so as to make claim against the Contractor for the
loss and/or damage caused to the Government to complete the project, which have
been established in Surat Arahan Ketua Pengarah Kerja Raya (SA KPKR)
Bil.8/2013, although being not specifically provided under the contract, will subject
the SO, SO’s representative or any other officer responsible for such default of noncompliance to the inquiry by the National Audit Department and surcharge
proceedings as well as disciplinary proceedings will be taken against them.
133
5.3
Future Research
This study is to identify the procedures of termination of projects by PWD.
Nonetheless, it is highly recommended that more future research related to the topic
to be conducted in order to provide an in depth understanding on the PWD
construction contract administration as a whole, particularly pertaining to
termination, which is the threat to construction contract.
The following are the recommendations for future research:
i.
Procedures of Preparing the Certificate of Termination Costs by PWD.
ii.
Common grounds for termination of contract by PWD.
iii.
Frequent Disputes which have been referred to the court related to
termination of contract by PWD.
iv.
5.4
Financial and Economic Implications of PWD terminated projects.
Conclusion
As the consequences of termination are quite considerable and can be felt for
years after the termination is effected, it must naturally be handled with extreme care
lest that what is intended is not realised with its consequent financial disaster. Before
attempting to terminate any construction contract, PWD has to:
i. Assess whether reasons for termination are grounds for termination under the
PWD Standard Form of Contract or common law.
134
ii. Understand the procedural steps required before formally terminating the
construction contract.
iii. Assess potential exposure to damages in the event of wrongful termination.
iv. Most importantly, analyse and exhaust all possible alternatives to termination,
given the very serious consequences of termination.
135
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