An Open Letter to Contactors

by Tan Swee Im, International Arbitrator Member, 39 Essex Chambers, Kuala Lumpur

I have been a construction lawyer for over 30 years and have for the past few years been sitting as a third party neutral, mainly as arbitrator and adjudicator. It’s been an interesting time in the University of Life.

The construction industry in Malaysia has given me much pride in what we have built in, and to have been part of nation building is a privilege that I hold dear. It is an industry which has kept me in the law when I thought of quitting all that paper pushing and looking at numbers with lots of zeros behind them but which felt empty. This is an industry where even as a lawyer, I could see and touch and feel the very real projects I was involved in, and remember the stories behind each, and the people who made it happen.

However, as I reflect over the decades I have been involved in construction, and the issues which we have encountered, it strikes me that disputes in construction have not moved on very much. At the heart of every project big or small, are still disputes about time and money, and the constant cries of non-payment and how unfair things are. Court actions filed apace became less popular, with arbitration taking centre stage, then the pivot to statutory adjudication and then a renewed love affair with courts especially the specialist construction courts.

As projects are tendered and negotiated, the race to the lowest price has intensified, and the failure to comply with contractual procedures such as notifications has proliferated. Non – payment and under payment is rife and the dispute resolution industry is thriving, as contractors suffer poor cashflow.

Seminars, webinars, training courses, workshops, and a raft of training programmes have been held on contract administration, all of them emphasising compliance with procedural requirements imposed by the contract conditions, and keeping good records. Many have paid good money to attend them, learning the importance of reading the contract, of understanding the conditions of contract, the need to issue notices, and keeping good records with the attendant the perils of failure to comply.

Sadly however, the lack of compliance with conditions of contract with respect to notifications, claims and other “paperwork” remains low. Contractors often have not even read their contract to know that such requirements exist, let alone what is required and how to comply with them. Defences offered range from “got meh?” to “normally no need one” to “forgot lah”. Defences in arbitrations try different angles such as “estoppel” from requiring strict compliance with the requirements to “not practical in the circumstances” and numerous other permutations and arguments.

Contracts are legal instruments; they are entered into to regulate the relationship between the contracting parties and to allocate risks between parties. The conditions of contract are there to be adhered to. They not there as “guidance only”, they are not there for the fun of it.

All too often we hear contractors, sub-contractors and suppliers lament “it’s not fair”. All too often we see contractors who have done the work and endured delays but have not been given extensions of time and instead been hit with liquidated damages for delay in completion. However, when asked, the same contractor often admits that he did not give notice of delay as required by the conditions of contract – PAM, JKR and other forms of contracts almost all contain notification provisions requiring notices to be given within time frames and stipulating the type of information and supporting documentation required. And yet the contractor expects that his failure to comply with the contract requirements should be excused because the delay was not the contractor’s fault, and that it is unfair to the contractor.

Even when notifications are sent and applications made, all too often they are still not compliant, containing what the contractor has in his mind, not what is required by the contract. Delay events are complained of, but with no attempt to show its impact on the date for completion.

I agree it is “unfair” if you as the contractor has to bear the effects of delay not caused by you. But the contract that you signed, is not based on fairness, it is based on what is set out in the contract and signed by you. You are business people, and you sign contracts knowingly – you chose to sign the contracts. If you do not read them, or do not comply with them, you face a high risk of the contract provisions working against you.

The judge, arbitrator or adjudicator has to decide the case on the law – so what the contract states, and what the positions of the law is. It is an objective exercise to examine the contract, the law, and also importantly the evidence. That objective exercise may yield a result which the contractor may not consider “fair” but which is legally correct.

Cases decided by the court, especially the appeal courts[1], have to be followed as they represent the position of the law. Recent cases remind contractors of the importance of complying with the requirements of the contract – not just to meet technical and quality requirements, but also contract administration requirements such notification procedures.

Contractors beware, these recent developments in caselaw emphasise even more that you have to up your game on contract administration because it translates directly into time and money entitlements. Writing letters, issuing notifications within time frames and providing the type of information and supporting documentation required by the contract are part your obligations under the contract. It’s not just about getting the work done, it’s about getting the paper work done.

It’s easy to understand that if you don’t do the work, you don’t get paid. But it’s equally important to realise that if you don’t get the paperwork done, you will also not get paid. So, your scope of work is physical work on the site as well as paper work to comply with the requirements of the contract. Doing one part of the work does not get you payment, or extension of time, or loss and expenses, or relief from liquidated damages for delay in completion, if you do not complete the other part of the work. That’s not being unfair, that’s being non-compliant with the contract.

The judge, arbitrator or adjudicator can only decide based on the evidence that is before them. If you did something but do not offer evidence of that, then there is nothing before the judge, arbitrator or adjudicator. So once again, records, records, records.

If you want your claim to be successful, you need to train your team to play by the rules of the game you are in – that means compliance with the contract requirements, as set out in the contract which you signed, and not as envisioned in your mind.

Would you start a race from behind and then look for ways to carve through the competition and get to the front? I dare say not. So why would you start your contract from behind, with non-compliance, and then look for ways to get around your own breaches? Even when you diligently follow the requirements of the contract and keep excellent records, it is difficult enough to complete the work within time and to quality and get paid what you are due. Compliance with the contract requirements is the easy stuff that you can do, and save your energies for the more difficult fights.

May the Contract be with you!

[1] Cases such as

• Yuk Tung Construction Sdn Bhd v Daya CMT Sdn Bhd – Court of Appeal, May 2020
• Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd [2019] CLJ 723