Tuesday, November 30, 2010

When the Client refuse to pay for an approved VO..

Q: If the client refuse to pay for the V.Os, is it breach of contract by the client? Would it lead to determination or just suspension of work by contractor?

A: As I mentioned in previous posting, variation is the most important clause in the contract. It enables changes to be made to the scope of work, etc without vitiating the contract. As long as the VO was made within the contractual provision, the new scope is deemed to be part of the contract scope. Any cost and time implication (subject to EOT provisions) would alter the contract sum and completion date respectively.

Clause 24.4 (PAM06) provides that the loss/expense due to the VO shall be added to the Contract Sum and shall appear in the next Interim Certificate after the date of ascertainment. If the employer fails to honour the interim certificate within the Period of Honouring Certificate, the contractor may suspend the execution of work until such time payment is made, subject to the procedures stipulated in clause 30.7

Please note the right for suspension by contractor is a NEW provision under PAM06. In the absence of such provision, there are no general rights for contractor to suspend the execution of works. If you are administering a contract using PAM98 or JKR83, such suspension or even slowing down the execution of works by the contractor could amount to a repudiatory breach by the contractor, see PAM98 clause 25.1 (i). On the other hand, the contractor should resort to determine the contract (not to suspend work) as provided by PAM98 clause 26.1 (i).

JKR83 form has got another set-back; there is no provision for determination by the contractor within the contract! However, the unpaid contractor may commence an action against the Government for recovery of payment with interest; see s74 illustration (n), Contract Act 1950.

Monday, November 29, 2010

Letter of Release

Letter of release usually comes in the picture when an Architect's service is prematurely terminated and the client intends to proceed with another Architect.

PAM guidelines on Letter of Release via General Circular No. 2/2007 must be read in the background of the Conditions of Engagement of a Professional Architects, Rule 19:

“In the event that the Memorandum of Agreement between the Professional Architect and the client is TERMINATED for a reason not due to the fault of either party, the Professional Architect shall, subject to the rights of either party in respect of antecedent breaches of the Memorandum of Agreement between the two parties, charge the balance of fees for architectural consultancy services rendered up to the stage of termination together with all reimbursable charges, and after the full settlement of all fees and charges due from the client, the Professional Architect shall issue A LETTER OF RELEASE to the client and the client shall be entitled to appoint another Professional Architect to continue with the project”

The CF and CCC precondition came about to accommodate Purchasers who wish to carry out a renovation works by engaging his own architect while the Developer's Architect had not fully completed his duty.

I’m of the opinion that LOR is not relevant under the following conditions:

1.Obtaining CF was never part of the original agreement ( not a full service)
2.The Architect had fully discharged their duty (final cert issued)
3.All fees due to the architect are duly paid

I’ve come across some LOR case laws but mostly involved instances where Professional Architect withheld LOR when there were disputes relating to claim of professional fees and I think the subject may deviate from our original discussion.

In TRHamzah and Yeang Sdn Bhd v. Lazar Sdn. Bhd. (1985) 2 MLJ 45, the architect terminated its services as architects on the ground of failure of payment of fees. The court held, among others, that the Architect cannot withhold LOR if:

1.The architect’s services were not terminated by the client
2.The project was not abandoned
3.The architect refused to agree to have the fees referred for settlement.

The key point is on item 3; by refusing to refer to dispute resolution, a waiver on the LOR cannot be obtained. It was held that in the circumstances of this case, the court could not allow the architect to withhold the Letter of Release as to do so would mean “that the architect can hold the client to ransom’ (see Blair v. Osborne and Tomkins [1971]).

When in doubt, Architects may always refer to LAM for clarification. Under certain conditions, as I mentioned, LAM may waive the LOR.

However, it is also important to note that these waivers are not immune in court and may be challenged. In Akitek Tenggara Sdn. Bhd. v. Mid Valley City Sdn. Bhd. (1999) 2 MLJ 625, the court held against LAM’s waiver due the following reason:

a) The termination of the agreement was unlawful
b) The Architect’s services were terminated not because the project was aborted but because the client wanted to use its own architect.
c) Cancellation of the contract by the Client was purely on the basis that it wished to utilize its own architect

The above are just my observations and may subject to criticism. Case laws have to be construed in the whole context and circumstances of the case.

Why LAD should not appear in Interim Certificate?

The payment certificate is prepared by the Architect as provided in Cl.30.
An architect is not a party to a contract but just an agent to the employer.
The scope of empowerment to issue the payment certificate is limited to Cl 30.2 which stipulates the amount that expressly described the amount appear/due in the certificate as follows:

Total value of work properly completed + material on site

Less: Amount retained for Retention Sum and amount previously certified.

Other items like LAD, set-off, etc could be valid contractual rights to the employer but beyond the architect’s scope of empowerment under cl 30.2.
Therefore, the employer would have to make the deduction themselves from the monies due or become due.



Apart from Cl 30.2 there are other clause that enpower the architect to include other items into a payment certificate:

Clauses expressly mentioning variation rights or items to be added to contract sum:

4.3 - Statutory Obligation
4.4 - Fees , levies & charges
11.6 - Variation rules
6.3 - Testing
7.2 - Royalties
24.4 - Loss & expence to be included in Cert
27.5 - payment to NSC
28.5 - Expenses due to Nominated Supplier's material

Other Related Questions:

Q: Which VO is included in Payment Certificate & which is not? Approved? Issued? Done?

A: The VO must be included in contract sum in the next certificate of payment after the date of ascertainment as provided by cl 11.9. However only works properly executed would appear in the payment certificate


Q: Is value of work done by others to rectify MC's non conformances allowed to be deducted?

A: Such deduction is the employer’s contractual rights but not included in the Architect’s empowerment under clause 30.2. So, it should not be included in the payment certificate


Q: What is the ratio to value relevant parts in partial cpc in releasing 1st moiety - how is it derived?

A: The value shall be proportionate to the original contract sum


Q: Do Architect certify full material on site or 75%?


A:Subject to Cl 30.2 and the % mentioned in the appendix. If none, then 100%. Note: JKR contract specify 75%