Bab 3 Interim Payment
Content
BAB 3
INTERIM PAYMENT
3.1 : INTRODUCTION
1.
Methods of payments to contractor normally determined by the size of jobs. Small jobs : Contractor will be paid on completion of the job i.e. only 1 payment involved. Big jobs : Contractor is to be paid in instalmens i.e. many payments are made until the whole contract sum is settled.
2.
Interim payments – all payments made to the contractor other than the final payment. These payments are made during and after the contract period until the issuance of final payment. During Construction – the contractor is entitled to interim payments at regular interval in accordance with a proper evaluaton of the work done and materials supplied i.e. the contractor receives regular payments as the work progresses. 21
3.
4. 5.
After completion – the interim certificates are not subjected to monthly interval. There should not be any large amount outstanding to the contractor after completion and payments within this period mey be required: a) To release retention sum (where applicable), b) For final evaluation of variations, c) Settlement of an account for loss and expenses, d) N.S.C.’s and N.S.’s accounts.
3.2 : P.W.D. FORM 203A (Rev. 2007)
1. The relevant contractual provisional regarding interim payments are as shown in Table 1.
P.W.D. FORM 203A (Rev. 2007) Clause 20.0 : Unfixed materials and goods Clause 28.0 : Payment to contractor Clause 30.0 : Fluctuation of price Clause 33.0 : Deduction from money due to contractor Clause 34.0 : P.C./ Provisional sums Clause 40.0 : Damages for non-completion Clause 60.0 : Payment for Nominated sub-contractors or Nominated supplier Table 1 ; Contractual provisional
2. The above Clauses explain the procedure to be adhered to in the payment process which include: a) The timing of payments to the contractor. b) The amount to be paid to the contractor. c) The right of set-off by the employer. d) The enforcement of payment. 22
e) The procedure and conditions precedent.
3.3 : PROCEDURE OF CERTIFICATION
Progress claim submitted by contractor. Valuation prepare by S.O.
Certification by S.O.
Payment made by employer
Figure 1: Interim payment process. 3.4 : CONTRACTOR’S APPLICATION
1. The submission of payment application by the contractor is not mandatory under the contract. The S.O. has to make valuation for interim payment even though contractor does not submit his claim. 2. However, contractor normally submits his claim for work done and materials on site to help speed up the valuation process. The claim is n the form or BQ or Summary in the tender. 3. S.O./ Consultant to check and approve the application. Consultant also to certifyin writing that the work is in accordance to contract. 4. For administrative purposes, it’s good to agree on the specific date of each month for the submission of the application. 23
5. The application shows the estimated value of work done by the contractor and should be presented in an approved format. 6. The contractor should include everything that he thinks he entitled to be paid in his application since the claim is going to be the basis of the evaluation.
3.5 VALUATION 3.5.1 Generally ‘When the contractor has executed work including delivery … of any unfixed materials or goods intented for use thereon … the S.O. at that time make the first valuation of the same.’ (Clause 28.) 1. The S.O. has to make interim valuation in order to arrive at the amount due in interim certificates. 2. The evaluation is for the work properly executed and materials delivered on site. ‘Thereafter, once (or more often at the discretion of the S.O.) during the course of each succeeding month the S.O. shall make a fair valuation …’ (Clause 28.2) 3. The evaluation is to be carried out at least once a month. 4. In practice, the S.O. and the contractor have to agree on specific dates or days of the month to carry out the valuation work. 5. The evaluation should be as accurate as is reasonably possible and is subject to the month to carry out the valuation work. 6. A new evaluation of the work done provides an opportunity to adjust or modify previous evaluations of earlies certificates. 7. No interim certificate is final and conclusive and is subject to adjustment in subsequent interim certificates and final certificate. 8. The value of work executed consists of preliminaries and permanent work done by the contractor.
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3.5.2 Preliminaries 1. This section consists of those items that do not form part of the permanent works but are essential to be provided for the successful completion of the job. 2. The employer and the contractor should agree on the method of paying for the preliminaries items at the beginning of the contract. 3. Valuation is only made on the items that are priced and carried out by the contractor. 4. The price of each item may be broken down and categorized as initial cost progressive cost or completion cost to the employer. 5. Initial cost – a lump sum to be paid to the contractor in the first interim payment. 6. Progressive cost – a continuing cost to be spread throughtout the execution of the work and either related to the time or to the expenditure on the work. 7. Completion cost – a lump sum to be paid to the contractor upon completion the work.
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Example for calculation of payment for Preliminaries
Table 2 shows an example of breakdown of the preliminaries items. The total amount of RM 361,700.00 in coloum ‘Initial’ to be paid in the first interim payment. The total amount of RM 33,100.00 in coloum ‘Comlpetion’ to be paid in the last regular interim.
BQ REF.
DESCRIPTION
TOTAL
INITIAL
PROGRESSIVE
COMPLETION
D/11/A
Temporary roads Temporary office Signboards Light & power Water for the works Contractor’s equipment Site telephone Temporary hoardings Work programme Cash flow estimate Progress report Progress photographs Shop drawings Site meetings Interim certificate claims Testing & apparatus Maintenance on public roads Safeguarding the works Keeping site clear Clearing site on completion Setting out Contractor’s superintendence Workmen’s compensation
10,000.00 18,000.00 2,000.00 10,000.00 15,000.00 300,000.00 8,500.00 28,000.00 20,000.00 5,000.00 2,000.00 6,000.00 2,000.00 3,000.00 2,000.00 5,000.00 3,000.00 30,000.00 50,000.00 15,000.00 20,000.00 240,000.00 75,000.00
7,500.00 14,000.00 1,700.00 1,000.00 3,000.00 50,000.00 500.00 20,000.00 1,000.00 1,000.00 2,000.00 15,000.00 75,000.00
1,500.00 3,500.00 200.00 8,500.00 11,500.00 240,000.00 7,500.00 5,000.00 19,000.00 4,000.00 2,000.00 6,000.00 2,000.00 3,000.00 2,000.00 3,000.00 3,000.00 28,000.00 50,000.00 5,000.00 240,000.00 -
1,000.00 500,00 100.00 500.00 500.00 10,000.00 500.00 3,000.00 2,000.00 15,000.00 -
TOTAL
1,049,500.00
361,700.00
654,700.00
33,100.00
Table 2: Breakdown of Preliminaries
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The total amount of RM 654,700.00 in coloum ‘Progressive’ to be paid progressive during the execution of the works and can be done in 2 ways:-
a) Pro-rata on contract period : Assumptions: Contract period = 24 months Progressive payment = RM 654,700.00 = RM 27,279.17 / Month 24 Amount of Preliminaries items to be paid: Payment No. 1 = RM 361,700.00 + (654,700.00 x 1) = RM 388,979.17 24 Payment No. 2 = RM 361,700.00 + (654,700.00 x 2) = RM 416,258.33 24 b) Pro-rata on the value of work executed Assumptions: Contract sum = RM 25,000,000.00 Provisional sums = RM 1,500.000.00 Preliminaries = RM 1,049,500.00 Net contract sum = RM 25,000,000.00 – (RM 1,500.000.00 + RM 1,049,500.00) = RM 22,450,500.00 % of progressive cost to net contract sum = RM 654,700.00 x 100 RM 22,450,500.00 = 2.91619 % Amount of Preliminaries items to be paid: If net value of work executed by contractor to date = RM 900,000.00 Progressive payment = RM 900,000.00 x 2.91619 % = RM 26,245.717
3.5.3
Value of the permanent works executed Only the value of work properly executed by the contractor in accordance with the contract must be included in the certificate – Townsend v Stone Toms & Partners (1985). 27
‘the amount stated as due in an interim certificate shall, subject to any agreement between the parties as to payment by stages, be the estimated total value of the work properly executed …’ (Clause 28.4) a) Valuation based on Contractor’s work executed The valuation calculates the estimated value of work executed by reference to: i. The detailed quantities and rates for every items in the bills of quantities as in Table 3.
B.Q REF
DESCRIPTIONS
TENDERED AMOUNT (RM)
PERCENTAGE OF WORKDONE (%)
AMOUNT OF WORKDONE (RM)
W.B.L.F.F Excavation D/1/A D/1/B D/1/C D/1/0 D/2/A To red. lev. For pile cap n.e. 1.00m dp. Ditto 1.00 – 2.00m dp. Grd. Bm. n.e. 0.50m dp. Hardcore Conc. Gr. 15 D/2/B D/2/C Lean conc. to pile cap Ditto to grd. bm. Conc. Gr. 30 D/2/0 D/3/A D/3/B D/3/C Pile cap Col. Stump Grd. bm. bed 125,080.00 7,695.00 32,631.00 53,852.00 100.00 100.00 25.00 0.00 125,080.00 7,695.00 8,157.75 0.00 3,248.00 8,690.00 100.00 100.00 3,248.00 8,690.00 900.00 10,900.00 5,520.00 1,890.00 2,850.00 100.00 100.00 100.00 90.00 30.00 990.00 10,900.00 5,250.00 1,701.00 855.00
Total Carried Forward
172,566.75
Table 3: Valuation besed on measured items.
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ii.
The cost of elements or work sections as in Table 4.
ITEM
DESCRIPTIONS
TENDERED AMOUNT (RM)
PERCENTAGE OF WORKDONE (%)
AMOUNT OF WORKDONE (RM)
A B C D E F G H J K L M N P
W.B.L.F.F FRAME UPPER FLOOR STAIRCASE ROOF EXTERNAL WALLS INTERNAL WALLS WINDOWS DOORS INT. WALL FINISHES INT. FLOOR FINISHES INT. CEILING FINISHES EXTERNAL FINISHES MECHANICAL & ELECTRICAL WORKS
25,400.00 31,900.00 18,250.00 5,890.00 20,850.00 9,500.00 3,240.00 8,500.00 5,400.00 12,690.00 22,200.00 13,850.00 15,800.00
100.00 95.00 90.00 90.00 30.00 35.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00
25,400.00 30,305.00 16,4250.00 5,301.00 6,255.00 3,325.00 972.00 0.00 0.00 0.00 0.00 0.00 0.00
58,000.00
0.00
0.00
TOTAL
261,470.00
-
87,983.00
Table 4 : Valuation based on elemental cost
iii.
The contract sum This only suitable for small jobs and to be done by experienced staff only. The amount of done is calculated by multiplying the estimated percentage completion with the contract sum. Example: Amount of work done = 25% x RM100,000.00 = RM 25,000.00 Where 25% is the percentage of work completed and RM 100,000.00 is the contract sum.
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b) Valuation based on stage of completion i. This is an alternative method of valuing the work executed by the contractor. ii. Interim payment to be made on the basis of percentage completion of the various components of the project. iii. An example of breakdown of works for stage payment for a residential building is as shown in Table 5.
BREAKDOWN OF CONTRACT SUM
PERCENTAGE OF ITEMS STAGES OF WORKS CONTRACT SUM
1 2 3 4 5 6
Foundation and ground floor Reinforced concrete frame, staircases and upper floor Walls including doors and windows Roofing, electrical wiring and plumbing Finishes Roads, drains and sewerage works TOTAL Table 5 : Schedule of breakdown of contract sum.
15 % 20 % 15 % 15 % 15 % 20 % 100%
iv.
The detail of breakdown of works and the percentage of payment to each stage of work will be decided by the employer and attached to the tender document or as agreed by both the employer and the contractor before the signing of the contract.
v.
The amount to be paid to the contractor for the work executed is equal to the value of the percentage of the contract sum assigned to the work.
vi.
In some arrangement, materials on site are not considered for payments.
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c) Percentage Adjustment ‘The Govermentreserves the right to adjust the prices and rates in the Bills of Quantities … to ensure their reasonableness before acceptance of tender…’ (Clause 26.2) ‘Any adjustment of the prices and rates in the B.Q. required … above and any arithmetical error or omission in the B.Q. shall before signing of the contract be so rectified and adjusted that when correctly calculated, the total amount in the summary of the B.Q. shall represent the same amount as the tender amount in the Form of Tender ...’ (Clause 26.3) i. Before the signing of contract document – the S.O has to check the contract document and make adjustment or corrections to: a) Unreasonable and inconsistent rates b) Arithmetical error in the pricing by the contractor. ii. Normal sources of errors: a) ‘Extension’ e.i. multiplication of rates and quatities. b) Adding up the total of each item on each page of B.Q. c) Transferring the total on each page to Collection. d) Transferring the total from Collection to Summary. e) Transferring the total from Summary to Form of Tender. iii. Correction has to be made to avoid mistakes in the computation of interim payments. ‘… The tender amount shown in the Form of Tender shall remain unaltered but the nett aggregate amount of the difference ..., shall be calculated as a percentage of the total adjusted amount shown in the summary of the B.Q. and all prices and/ or rates throughout shall be subject to such percentage discounts or premiums as the case may be. Provided always that Provisional and P.C sums shall be excluded from such calculation and shall not be subject to such percentage discount or premium.’ (Clause 26.3)
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iv. v.
The original contract sum in the Tender Form must not be changed. The S.O. has to calculate the percentage of the difference between the tender sum and the corrected tender amount.
Example of the calculation of percentage adjustment A. TOTAL AMOUNT as tendered B. TOTAL AMOUNT as corrected C. ERROR RM 1,000,000.00 RM RM 950,000.00 50,000.00
B. TOTAL AMOUNT as corrected Less Total Provisional Sums D. TOTAL for Builder’s Works as corrected
RM RM RM
950,000.00 100,000.00 850,000.00
E. PERCENTAGE ADDITION / OMMISION = C X 100 D 1 = 0.058823529% X 100 1 =5.8823529% ADDITIONAL/OMISSION
If Tender amount > Corrected amount = + percentage adjustment If Tender amount < Corrected amount = - percentage adjustment
vi.
The amount to be paid to the contractor in the interim certificate is subjected to the percentage adjustment.
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Example of application of percentage adjustment in interim payment: Example 1: Assumptions: Value of work executed by the contractor (Preliminaries + building work + external work) = RM 500,000.00 Percentage adjustment = + 5.8823529% Value of work executed Add percentage adjustment = RM500,000.00 x 0.058823529 Amount to be paid Example 2: Assumptions: The work is 100% completed. Value of work executed Add percentage adjustment = RM 850,000.00 x 0.058823529 Amount to be paid d) Variations i. This is for the value of work which is not part of the original scope of work but has been carried out by the contractor as the result of the S.O.’s instruction. ‘The amount of variations shall be certified by the S.O. and added to or deducted from the contract sum …’ (Clause 25.3) ii. The value of variation work must also be included in the variation of permanent work executed by the contractor. iii. The value so considered for payment includes the variation work where variation certificate is not yet prepared. = RM 850,000.00 = RM 50,000.00 = RM 900,000.00 = RM 500,000.00 = RM 29,411.76 = RM 529,411.76
e) Nominated Sub-contractors Works i. The methods of valuation of works done by Nominated suncontractors are similar to that for main contractor. 33
3.5.4
Materials On Site a) Generally i. The contractor is entitled to payment for all unfixed materials delivered to site but not yet incorporated in the work. ‘Unfixed materials and goods delivered to … Site … shall not be removed except for use upon the works, unless the S.O. has consented in writing to such removal …’ (Clause 20.0) ii. Materials brought to site for the work must not be removed out of the site without the S.O. consent. iii. Materials which have been paid belong to the employer but the contractor is still responsible for their safety. iv. Materials not intended for the work must not be brought to site and the S.O. instruct the contractor to remove those materials from site. b) Prerequisite for payment ‘…value of the unfixed materials and goods deliverd to or adjacent to the site intended for incorporation into the permanent works … such certificate shall only include the value of the said unfixed materials and goods … they are reasonably and properly and not prematurely delivered to or adjacent to the site and adequately protected against weather, damage and deterioration.’ (clause 28.4) i. Unfixed materials may be considered for payment if they are: Delivered to site or adjacent to site. Intended for incorporation in the permanent works i.e. in accordance with the contract. ii. Reasonably, properly and not prematurely brought to site. Adequately protected against weather and other casualties.
The contractor also needs to obtain adequate title to the goods which he pass on to the employer i.e. payment should be made to rightful owner. 34
iii.
The costc of the materials must have been paid by the contractor to the supplier.
c) Computation of valuation
i.
The materials are priced at invoice prices i.e. the actual price paid by the contractor to supplied and the price should be reasonable and based on market price.
‘The amount stated as due in an interim certificate shall, …up to 90% to the value of the unfixed materials and goods delivered to adjacent to the site intented for incorporation into the permanent works up to and including the date the valuation was made …’ (Clause 28.4) ii. The amount to be paid to the contractor is 90% of the value of materials. iii. The type and quantity of materials must be in accordance to contract – as stated in Specification, shown on drawings, described in B.Q. etc. iv. Only total value of materials available on site on the date of valuation considered for payment. ‘… unfixed materials and goods which are supplied and delivered by Nominated suppliers for which payment should be made for the full value …’ (Clause 28.5) v. Materials supplied by Nominated suppliers are to be paid in full.
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3.5.5
Fluctuation of Price ‘… the amount payable by the Government to the Contractor upon the issue by the S.O. of an interim certificate … shall be increased or descreased accordinglt …’ (Clause 30) i. The changes in cost of materials due to the market conditions must be taken into account in the interim payments. ii. Objective – to reduce risk of contractor as result of price increase by compensating contractor for the increase during contract period. iii. Price adjustment is made through the application of indices which are issued by the Department of statistics in a formula. iv. The calculation of the amount of fluctuation in price is to be made monthly. v. Base index figure is the index figure for the month the tender closes. This index is to be inserted in Appendix B of the contract provision before signing of the contract. vi. Current index is the index figure for the month preceding the date of the month of valuation.
Amount of Addition/Omission = Fluctuation factor x Effective value of workdone Fluctuation factor = Recovery factor x (Current index figure – Base index figure) Base index figure Effective value of work done = Builder’s work – Preliminaries items Recovery factor = 0.61 i.e. estimated material cost is 60% of the total cost of work. Builder’s work = Total value of work done – (P.C. Sums + Provisional Sums) *Addition/omission : quatity for the month x (previous price – current price) (steel)
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3.5.6
Performance Bond ‘The contractor shall, on the of the possession of site, provide a Performance bond … issued by an approved licensed bank or financial institution incorporated in Malaysia in favour of the Government for a sum equivalent to five percent (5%) of the total contract sum … to secure the due performance of the obligations under this contract by the contractor …’ (Clause 13.1(a)) i. A performance bond is an agreement between the Government, the contractor and a third party i.e. a bank or an insurance company. ii. The third party here agrees to pay a sum of money to the Government in the event of non-performance of the contract by the contractor. iii. The performance bond must be for an amount 5% of the contract sum. ‘… the Government shall make a payment to the contractor as follows: (a) Where the Performance Bond is in the form of a Banker’s, Insurance or Finance Company Gurantee, payment shall be made on the amount certified as due to the contractor in the said interim certificate; …’ (Clause 28.6(a)) iv. The contractor will be paid the whole amount certified as payable to him in the certificate as no money will be retained by the employer.
3.5.7
Performance Guarantee Sum ‘The contractor may opt for Perfomance bond in the form of Performance Guarantee Sum … whereby deductions of ten percent (10%) shall be made from the first interim payments and subsequent interim payment until the total amount deducted aggregate to a sum equivalent to five percent (5%) or the Contract Sum…’ (Clause 13.2)
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i.
This is an alternative form of guarantee for non-performance of construction contract.
ii.
The gross value of work done and materials delivered as ascertained in the certificate is subject to deduction for Performance guarantee sum.
iii.
The deduction of 10% is made in every interim payment certificate. Only 90% of the amount certified as due to the contractor will be paid to him.
iv.
The deductions must stop when the accumulated amount retained reaches its limit of 5% of the contract sum.
3.6.8 Liquidated Damage for Delay ‘Upon the issuance of the Certificate of Non-Completon, the Government shall be entitled to recover from the Contractor Liquidated and Ascertained Damages calculated at the rate stated in the Appendix from the period of the issuance of the Certificate of Non-Completion to the date of issuance of the Certificate of Non-Completion to the date of issuance of Certificate of Practical Completion or the date of termination of this contract. The S.O. may deduct such damages from any money due or to become due the Contractor …’ (Clause 40.2) v. Liquidated and ascertained damages is a pre-estimate of a certain sum of money to be paid as compensation if a breach actually takes place. vi. The amount is fixed and stated in Appendix to the Conditions of contract. vii. The contractor has to pay liquidated damages to the employer
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3.7 CERTIFICATIONS 3.7.1 Generally a) Taken Construction Co. Ltd. V Charlton Estates Ltd (1973) laid out that a certificate in the expression in a definite form of opinion by the S.O. regarding some matter according to the contract. b) Wording such as ‘The amount stated as due in an interim certificate ...’ (Clause 28.4), and ‘... and interim certificate stating the amount due to the contractor ...’ (Clause 28.3) imply that certificates are required to be in writing. c) The S.O. is responsible to certify to the Employer the amount of payment payable to the Contractor within 14 days from the date of the valuation. d) Content of an interim payment: i. Value of work done (Clause 28.4) ii. Value of materials on site (Clause 28.4) iii. Fluctuation of prices (Clause 30) iv. Variation works (Clause 25.3) v. P.C and Provisional sums (Clause 60) vi. Contractual claims (Clause 44) e) The deduction are made for: i. Previous payments made (Clause 28.4) ii. Performance guarantee sum (Clause 13.2) iii. Recoupment of advance payments (Treasury Instruction 11/1981) iv. Liquidated and ascertained damages (Clause 40.2) v. Other permitted deductions – payments to other contractors making good defects (Cl. 48.2), default in payments of wages (Cl. 23.5), ect... ‘... the S.O. shall issue an interim certificate ... PROVIDED THAT the signing of this contract shall not be a condition precedent for the issue of the first interim certificate (and no other) so long as teh contractor has returned the Letter of Acceptence duly
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signed and has deposited with the S.O. ... the relevent insurance policies ...’ (Clause 28.4) f) First interim certificate can be issue even before signing of contract provided the contractor deposited with S.O.: i. Signed L.A. ii. Public liability insurance and insurance of work. g) For Government contracts, 3 interim certificates can be issued within 4 months after the issuance of Letter of Acceptance even before signing of contract – Treasury circular 10/1995. ‘NO certificate of the S.O. ... shall be considered as conclusive evidence as to the sufficiency of any work, materials or goods to which it relates, nor shall it relieve the contractor from his liability to amend and make good all defects, imperfections,... (Clause 32.0) h) Interim certificate is not an evident that the work have been properly carried out and complete and it does not release the contractor of his responsibilities for defects.
3.7.2
Certificate As A Condition Precedent To Payment
‘Within a number of days as stated in the Appendix ... (or if none stated then within 30 days) ... of the issue of any such interim certificate ... the Government will make a payment to the contaractor on the amount certificate as due to the contractor in the said certificate’ (Clause 28.6) a) The payment certificate must be prepare before a payment can be made to the contractor. b) London Borough of Camden V Thomas Mclnerney & Sons Ltd. (1986) – the architect signed certificates but they never sent out because a subsequent
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inspection revealed defective work. It was held that since the certificates was not issued, it was of no effect.
3.7.3
Late Certification
‘within 14 days from the date of any such valuation being made ... the S.O. shall issue an Interim Cerificate stating the amount due to the Contractor ...’ (Clause 28.3) a) No provision to deal with situation where the S.O. fails to certify within the specified time. b) However, contractor can commence arbitration proceeding on the ground that the certificate has been improperly witheld. He does not have to wait until the work practically completed.
3.7.4
Minimum Amount
‘... and the total value thereof has reached the sum reffered to in the Appendix ... the S.O. at that time make the first valuation on the same.’ (Clause 28.1) Thereafter, once (or more often at teh discretion of the S.O.) during the course of each succeeding month ... each subsequent valuation shall not be less than the sum reffered to in the Appendix ...’ (Clause 28.2) a) The amount certified should be graeter than the minimun amount for interim payment certificates in accordance with the KPKR’s instruction and as stated in the Appendix of the conditions of contract as follows: i. First payment – value of work executed and materials delivered is not less that RM 1,000.00. ii. Subsequent payments – ditto. b) However, the S.O. may issue the certificate when dealing with a small balance at the end of the contract. 41
3.7.5
Correction of Certificates
a) The contractor is entitled to be paid only for work properly done. b) The S.O. may make any correction or modification in any previous certificate. c) Certificates issued cannot be withdraw but the contractor can request the S.O. to issue a further certificate to correct any patent or letent error discovered. d) The S.O. has the authority to omit or reducethe value of any work not carried out to his satisfaction in any certificate (Clause 48.3).
3.7.6
Under-certification
a) If the contractor is not satisfied with the amount certified by the S.O.: i. Contractor can request S.O. to adjust the under-certification in a subsquent certificate. ii. If S.O. refuses, contractor may take the dispute to immediate arbitration on the ground that certificate is not prepared properly. iii. The contract gives no right to contractor to sue for higher sum. b) Lubenham Fidelities & Investment Co. Ltd. V South Pembrokeshire Distric Council (1986) – The employer only needs to pay the contractor the sum stated in the interim certificate as being due to the contractor from the employer even if the certificate contains a latent or patent error.
3.8
PAYMENT TO CONTRACTOR
3.8.1
Generally
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‘Within a number of days as stated in the Appendix ... (or if none stated then within 30 days of the issue of any such Interim Certificate), the Gevernment will make a payment to the contractor ...’ (Clause 28.6) a) The certificates are binding on the employer and he must make the payment within a specified period. b) However, there is no provision to deal with situation where the Government fails to py within the specified time.
3.8.2
Dispute by employer
a) Over-payment will result in unnecessary early expenditure by the employer and also will cause problem in recovering his money in the event of insolvency of contractor. b) The employer may dispute the S.O.’s opinion but the contract gives no right to the employer to withhold payment due to the contractor. The employer must pay up within the honouring period.
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INTERIM PAYMENT
3.1 : INTRODUCTION
1.
Methods of payments to contractor normally determined by the size of jobs. Small jobs : Contractor will be paid on completion of the job i.e. only 1 payment involved. Big jobs : Contractor is to be paid in instalmens i.e. many payments are made until the whole contract sum is settled.
2.
Interim payments – all payments made to the contractor other than the final payment. These payments are made during and after the contract period until the issuance of final payment. During Construction – the contractor is entitled to interim payments at regular interval in accordance with a proper evaluaton of the work done and materials supplied i.e. the contractor receives regular payments as the work progresses. 21
3.
4. 5.
After completion – the interim certificates are not subjected to monthly interval. There should not be any large amount outstanding to the contractor after completion and payments within this period mey be required: a) To release retention sum (where applicable), b) For final evaluation of variations, c) Settlement of an account for loss and expenses, d) N.S.C.’s and N.S.’s accounts.
3.2 : P.W.D. FORM 203A (Rev. 2007)
1. The relevant contractual provisional regarding interim payments are as shown in Table 1.
P.W.D. FORM 203A (Rev. 2007) Clause 20.0 : Unfixed materials and goods Clause 28.0 : Payment to contractor Clause 30.0 : Fluctuation of price Clause 33.0 : Deduction from money due to contractor Clause 34.0 : P.C./ Provisional sums Clause 40.0 : Damages for non-completion Clause 60.0 : Payment for Nominated sub-contractors or Nominated supplier Table 1 ; Contractual provisional
2. The above Clauses explain the procedure to be adhered to in the payment process which include: a) The timing of payments to the contractor. b) The amount to be paid to the contractor. c) The right of set-off by the employer. d) The enforcement of payment. 22
e) The procedure and conditions precedent.
3.3 : PROCEDURE OF CERTIFICATION
Progress claim submitted by contractor. Valuation prepare by S.O.
Certification by S.O.
Payment made by employer
Figure 1: Interim payment process. 3.4 : CONTRACTOR’S APPLICATION
1. The submission of payment application by the contractor is not mandatory under the contract. The S.O. has to make valuation for interim payment even though contractor does not submit his claim. 2. However, contractor normally submits his claim for work done and materials on site to help speed up the valuation process. The claim is n the form or BQ or Summary in the tender. 3. S.O./ Consultant to check and approve the application. Consultant also to certifyin writing that the work is in accordance to contract. 4. For administrative purposes, it’s good to agree on the specific date of each month for the submission of the application. 23
5. The application shows the estimated value of work done by the contractor and should be presented in an approved format. 6. The contractor should include everything that he thinks he entitled to be paid in his application since the claim is going to be the basis of the evaluation.
3.5 VALUATION 3.5.1 Generally ‘When the contractor has executed work including delivery … of any unfixed materials or goods intented for use thereon … the S.O. at that time make the first valuation of the same.’ (Clause 28.) 1. The S.O. has to make interim valuation in order to arrive at the amount due in interim certificates. 2. The evaluation is for the work properly executed and materials delivered on site. ‘Thereafter, once (or more often at the discretion of the S.O.) during the course of each succeeding month the S.O. shall make a fair valuation …’ (Clause 28.2) 3. The evaluation is to be carried out at least once a month. 4. In practice, the S.O. and the contractor have to agree on specific dates or days of the month to carry out the valuation work. 5. The evaluation should be as accurate as is reasonably possible and is subject to the month to carry out the valuation work. 6. A new evaluation of the work done provides an opportunity to adjust or modify previous evaluations of earlies certificates. 7. No interim certificate is final and conclusive and is subject to adjustment in subsequent interim certificates and final certificate. 8. The value of work executed consists of preliminaries and permanent work done by the contractor.
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3.5.2 Preliminaries 1. This section consists of those items that do not form part of the permanent works but are essential to be provided for the successful completion of the job. 2. The employer and the contractor should agree on the method of paying for the preliminaries items at the beginning of the contract. 3. Valuation is only made on the items that are priced and carried out by the contractor. 4. The price of each item may be broken down and categorized as initial cost progressive cost or completion cost to the employer. 5. Initial cost – a lump sum to be paid to the contractor in the first interim payment. 6. Progressive cost – a continuing cost to be spread throughtout the execution of the work and either related to the time or to the expenditure on the work. 7. Completion cost – a lump sum to be paid to the contractor upon completion the work.
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Example for calculation of payment for Preliminaries
Table 2 shows an example of breakdown of the preliminaries items. The total amount of RM 361,700.00 in coloum ‘Initial’ to be paid in the first interim payment. The total amount of RM 33,100.00 in coloum ‘Comlpetion’ to be paid in the last regular interim.
BQ REF.
DESCRIPTION
TOTAL
INITIAL
PROGRESSIVE
COMPLETION
D/11/A
Temporary roads Temporary office Signboards Light & power Water for the works Contractor’s equipment Site telephone Temporary hoardings Work programme Cash flow estimate Progress report Progress photographs Shop drawings Site meetings Interim certificate claims Testing & apparatus Maintenance on public roads Safeguarding the works Keeping site clear Clearing site on completion Setting out Contractor’s superintendence Workmen’s compensation
10,000.00 18,000.00 2,000.00 10,000.00 15,000.00 300,000.00 8,500.00 28,000.00 20,000.00 5,000.00 2,000.00 6,000.00 2,000.00 3,000.00 2,000.00 5,000.00 3,000.00 30,000.00 50,000.00 15,000.00 20,000.00 240,000.00 75,000.00
7,500.00 14,000.00 1,700.00 1,000.00 3,000.00 50,000.00 500.00 20,000.00 1,000.00 1,000.00 2,000.00 15,000.00 75,000.00
1,500.00 3,500.00 200.00 8,500.00 11,500.00 240,000.00 7,500.00 5,000.00 19,000.00 4,000.00 2,000.00 6,000.00 2,000.00 3,000.00 2,000.00 3,000.00 3,000.00 28,000.00 50,000.00 5,000.00 240,000.00 -
1,000.00 500,00 100.00 500.00 500.00 10,000.00 500.00 3,000.00 2,000.00 15,000.00 -
TOTAL
1,049,500.00
361,700.00
654,700.00
33,100.00
Table 2: Breakdown of Preliminaries
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The total amount of RM 654,700.00 in coloum ‘Progressive’ to be paid progressive during the execution of the works and can be done in 2 ways:-
a) Pro-rata on contract period : Assumptions: Contract period = 24 months Progressive payment = RM 654,700.00 = RM 27,279.17 / Month 24 Amount of Preliminaries items to be paid: Payment No. 1 = RM 361,700.00 + (654,700.00 x 1) = RM 388,979.17 24 Payment No. 2 = RM 361,700.00 + (654,700.00 x 2) = RM 416,258.33 24 b) Pro-rata on the value of work executed Assumptions: Contract sum = RM 25,000,000.00 Provisional sums = RM 1,500.000.00 Preliminaries = RM 1,049,500.00 Net contract sum = RM 25,000,000.00 – (RM 1,500.000.00 + RM 1,049,500.00) = RM 22,450,500.00 % of progressive cost to net contract sum = RM 654,700.00 x 100 RM 22,450,500.00 = 2.91619 % Amount of Preliminaries items to be paid: If net value of work executed by contractor to date = RM 900,000.00 Progressive payment = RM 900,000.00 x 2.91619 % = RM 26,245.717
3.5.3
Value of the permanent works executed Only the value of work properly executed by the contractor in accordance with the contract must be included in the certificate – Townsend v Stone Toms & Partners (1985). 27
‘the amount stated as due in an interim certificate shall, subject to any agreement between the parties as to payment by stages, be the estimated total value of the work properly executed …’ (Clause 28.4) a) Valuation based on Contractor’s work executed The valuation calculates the estimated value of work executed by reference to: i. The detailed quantities and rates for every items in the bills of quantities as in Table 3.
B.Q REF
DESCRIPTIONS
TENDERED AMOUNT (RM)
PERCENTAGE OF WORKDONE (%)
AMOUNT OF WORKDONE (RM)
W.B.L.F.F Excavation D/1/A D/1/B D/1/C D/1/0 D/2/A To red. lev. For pile cap n.e. 1.00m dp. Ditto 1.00 – 2.00m dp. Grd. Bm. n.e. 0.50m dp. Hardcore Conc. Gr. 15 D/2/B D/2/C Lean conc. to pile cap Ditto to grd. bm. Conc. Gr. 30 D/2/0 D/3/A D/3/B D/3/C Pile cap Col. Stump Grd. bm. bed 125,080.00 7,695.00 32,631.00 53,852.00 100.00 100.00 25.00 0.00 125,080.00 7,695.00 8,157.75 0.00 3,248.00 8,690.00 100.00 100.00 3,248.00 8,690.00 900.00 10,900.00 5,520.00 1,890.00 2,850.00 100.00 100.00 100.00 90.00 30.00 990.00 10,900.00 5,250.00 1,701.00 855.00
Total Carried Forward
172,566.75
Table 3: Valuation besed on measured items.
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ii.
The cost of elements or work sections as in Table 4.
ITEM
DESCRIPTIONS
TENDERED AMOUNT (RM)
PERCENTAGE OF WORKDONE (%)
AMOUNT OF WORKDONE (RM)
A B C D E F G H J K L M N P
W.B.L.F.F FRAME UPPER FLOOR STAIRCASE ROOF EXTERNAL WALLS INTERNAL WALLS WINDOWS DOORS INT. WALL FINISHES INT. FLOOR FINISHES INT. CEILING FINISHES EXTERNAL FINISHES MECHANICAL & ELECTRICAL WORKS
25,400.00 31,900.00 18,250.00 5,890.00 20,850.00 9,500.00 3,240.00 8,500.00 5,400.00 12,690.00 22,200.00 13,850.00 15,800.00
100.00 95.00 90.00 90.00 30.00 35.00 30.00 0.00 0.00 0.00 0.00 0.00 0.00
25,400.00 30,305.00 16,4250.00 5,301.00 6,255.00 3,325.00 972.00 0.00 0.00 0.00 0.00 0.00 0.00
58,000.00
0.00
0.00
TOTAL
261,470.00
-
87,983.00
Table 4 : Valuation based on elemental cost
iii.
The contract sum This only suitable for small jobs and to be done by experienced staff only. The amount of done is calculated by multiplying the estimated percentage completion with the contract sum. Example: Amount of work done = 25% x RM100,000.00 = RM 25,000.00 Where 25% is the percentage of work completed and RM 100,000.00 is the contract sum.
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b) Valuation based on stage of completion i. This is an alternative method of valuing the work executed by the contractor. ii. Interim payment to be made on the basis of percentage completion of the various components of the project. iii. An example of breakdown of works for stage payment for a residential building is as shown in Table 5.
BREAKDOWN OF CONTRACT SUM
PERCENTAGE OF ITEMS STAGES OF WORKS CONTRACT SUM
1 2 3 4 5 6
Foundation and ground floor Reinforced concrete frame, staircases and upper floor Walls including doors and windows Roofing, electrical wiring and plumbing Finishes Roads, drains and sewerage works TOTAL Table 5 : Schedule of breakdown of contract sum.
15 % 20 % 15 % 15 % 15 % 20 % 100%
iv.
The detail of breakdown of works and the percentage of payment to each stage of work will be decided by the employer and attached to the tender document or as agreed by both the employer and the contractor before the signing of the contract.
v.
The amount to be paid to the contractor for the work executed is equal to the value of the percentage of the contract sum assigned to the work.
vi.
In some arrangement, materials on site are not considered for payments.
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c) Percentage Adjustment ‘The Govermentreserves the right to adjust the prices and rates in the Bills of Quantities … to ensure their reasonableness before acceptance of tender…’ (Clause 26.2) ‘Any adjustment of the prices and rates in the B.Q. required … above and any arithmetical error or omission in the B.Q. shall before signing of the contract be so rectified and adjusted that when correctly calculated, the total amount in the summary of the B.Q. shall represent the same amount as the tender amount in the Form of Tender ...’ (Clause 26.3) i. Before the signing of contract document – the S.O has to check the contract document and make adjustment or corrections to: a) Unreasonable and inconsistent rates b) Arithmetical error in the pricing by the contractor. ii. Normal sources of errors: a) ‘Extension’ e.i. multiplication of rates and quatities. b) Adding up the total of each item on each page of B.Q. c) Transferring the total on each page to Collection. d) Transferring the total from Collection to Summary. e) Transferring the total from Summary to Form of Tender. iii. Correction has to be made to avoid mistakes in the computation of interim payments. ‘… The tender amount shown in the Form of Tender shall remain unaltered but the nett aggregate amount of the difference ..., shall be calculated as a percentage of the total adjusted amount shown in the summary of the B.Q. and all prices and/ or rates throughout shall be subject to such percentage discounts or premiums as the case may be. Provided always that Provisional and P.C sums shall be excluded from such calculation and shall not be subject to such percentage discount or premium.’ (Clause 26.3)
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iv. v.
The original contract sum in the Tender Form must not be changed. The S.O. has to calculate the percentage of the difference between the tender sum and the corrected tender amount.
Example of the calculation of percentage adjustment A. TOTAL AMOUNT as tendered B. TOTAL AMOUNT as corrected C. ERROR RM 1,000,000.00 RM RM 950,000.00 50,000.00
B. TOTAL AMOUNT as corrected Less Total Provisional Sums D. TOTAL for Builder’s Works as corrected
RM RM RM
950,000.00 100,000.00 850,000.00
E. PERCENTAGE ADDITION / OMMISION = C X 100 D 1 = 0.058823529% X 100 1 =5.8823529% ADDITIONAL/OMISSION
If Tender amount > Corrected amount = + percentage adjustment If Tender amount < Corrected amount = - percentage adjustment
vi.
The amount to be paid to the contractor in the interim certificate is subjected to the percentage adjustment.
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Example of application of percentage adjustment in interim payment: Example 1: Assumptions: Value of work executed by the contractor (Preliminaries + building work + external work) = RM 500,000.00 Percentage adjustment = + 5.8823529% Value of work executed Add percentage adjustment = RM500,000.00 x 0.058823529 Amount to be paid Example 2: Assumptions: The work is 100% completed. Value of work executed Add percentage adjustment = RM 850,000.00 x 0.058823529 Amount to be paid d) Variations i. This is for the value of work which is not part of the original scope of work but has been carried out by the contractor as the result of the S.O.’s instruction. ‘The amount of variations shall be certified by the S.O. and added to or deducted from the contract sum …’ (Clause 25.3) ii. The value of variation work must also be included in the variation of permanent work executed by the contractor. iii. The value so considered for payment includes the variation work where variation certificate is not yet prepared. = RM 850,000.00 = RM 50,000.00 = RM 900,000.00 = RM 500,000.00 = RM 29,411.76 = RM 529,411.76
e) Nominated Sub-contractors Works i. The methods of valuation of works done by Nominated suncontractors are similar to that for main contractor. 33
3.5.4
Materials On Site a) Generally i. The contractor is entitled to payment for all unfixed materials delivered to site but not yet incorporated in the work. ‘Unfixed materials and goods delivered to … Site … shall not be removed except for use upon the works, unless the S.O. has consented in writing to such removal …’ (Clause 20.0) ii. Materials brought to site for the work must not be removed out of the site without the S.O. consent. iii. Materials which have been paid belong to the employer but the contractor is still responsible for their safety. iv. Materials not intended for the work must not be brought to site and the S.O. instruct the contractor to remove those materials from site. b) Prerequisite for payment ‘…value of the unfixed materials and goods deliverd to or adjacent to the site intended for incorporation into the permanent works … such certificate shall only include the value of the said unfixed materials and goods … they are reasonably and properly and not prematurely delivered to or adjacent to the site and adequately protected against weather, damage and deterioration.’ (clause 28.4) i. Unfixed materials may be considered for payment if they are: Delivered to site or adjacent to site. Intended for incorporation in the permanent works i.e. in accordance with the contract. ii. Reasonably, properly and not prematurely brought to site. Adequately protected against weather and other casualties.
The contractor also needs to obtain adequate title to the goods which he pass on to the employer i.e. payment should be made to rightful owner. 34
iii.
The costc of the materials must have been paid by the contractor to the supplier.
c) Computation of valuation
i.
The materials are priced at invoice prices i.e. the actual price paid by the contractor to supplied and the price should be reasonable and based on market price.
‘The amount stated as due in an interim certificate shall, …up to 90% to the value of the unfixed materials and goods delivered to adjacent to the site intented for incorporation into the permanent works up to and including the date the valuation was made …’ (Clause 28.4) ii. The amount to be paid to the contractor is 90% of the value of materials. iii. The type and quantity of materials must be in accordance to contract – as stated in Specification, shown on drawings, described in B.Q. etc. iv. Only total value of materials available on site on the date of valuation considered for payment. ‘… unfixed materials and goods which are supplied and delivered by Nominated suppliers for which payment should be made for the full value …’ (Clause 28.5) v. Materials supplied by Nominated suppliers are to be paid in full.
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3.5.5
Fluctuation of Price ‘… the amount payable by the Government to the Contractor upon the issue by the S.O. of an interim certificate … shall be increased or descreased accordinglt …’ (Clause 30) i. The changes in cost of materials due to the market conditions must be taken into account in the interim payments. ii. Objective – to reduce risk of contractor as result of price increase by compensating contractor for the increase during contract period. iii. Price adjustment is made through the application of indices which are issued by the Department of statistics in a formula. iv. The calculation of the amount of fluctuation in price is to be made monthly. v. Base index figure is the index figure for the month the tender closes. This index is to be inserted in Appendix B of the contract provision before signing of the contract. vi. Current index is the index figure for the month preceding the date of the month of valuation.
Amount of Addition/Omission = Fluctuation factor x Effective value of workdone Fluctuation factor = Recovery factor x (Current index figure – Base index figure) Base index figure Effective value of work done = Builder’s work – Preliminaries items Recovery factor = 0.61 i.e. estimated material cost is 60% of the total cost of work. Builder’s work = Total value of work done – (P.C. Sums + Provisional Sums) *Addition/omission : quatity for the month x (previous price – current price) (steel)
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3.5.6
Performance Bond ‘The contractor shall, on the of the possession of site, provide a Performance bond … issued by an approved licensed bank or financial institution incorporated in Malaysia in favour of the Government for a sum equivalent to five percent (5%) of the total contract sum … to secure the due performance of the obligations under this contract by the contractor …’ (Clause 13.1(a)) i. A performance bond is an agreement between the Government, the contractor and a third party i.e. a bank or an insurance company. ii. The third party here agrees to pay a sum of money to the Government in the event of non-performance of the contract by the contractor. iii. The performance bond must be for an amount 5% of the contract sum. ‘… the Government shall make a payment to the contractor as follows: (a) Where the Performance Bond is in the form of a Banker’s, Insurance or Finance Company Gurantee, payment shall be made on the amount certified as due to the contractor in the said interim certificate; …’ (Clause 28.6(a)) iv. The contractor will be paid the whole amount certified as payable to him in the certificate as no money will be retained by the employer.
3.5.7
Performance Guarantee Sum ‘The contractor may opt for Perfomance bond in the form of Performance Guarantee Sum … whereby deductions of ten percent (10%) shall be made from the first interim payments and subsequent interim payment until the total amount deducted aggregate to a sum equivalent to five percent (5%) or the Contract Sum…’ (Clause 13.2)
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i.
This is an alternative form of guarantee for non-performance of construction contract.
ii.
The gross value of work done and materials delivered as ascertained in the certificate is subject to deduction for Performance guarantee sum.
iii.
The deduction of 10% is made in every interim payment certificate. Only 90% of the amount certified as due to the contractor will be paid to him.
iv.
The deductions must stop when the accumulated amount retained reaches its limit of 5% of the contract sum.
3.6.8 Liquidated Damage for Delay ‘Upon the issuance of the Certificate of Non-Completon, the Government shall be entitled to recover from the Contractor Liquidated and Ascertained Damages calculated at the rate stated in the Appendix from the period of the issuance of the Certificate of Non-Completion to the date of issuance of the Certificate of Non-Completion to the date of issuance of Certificate of Practical Completion or the date of termination of this contract. The S.O. may deduct such damages from any money due or to become due the Contractor …’ (Clause 40.2) v. Liquidated and ascertained damages is a pre-estimate of a certain sum of money to be paid as compensation if a breach actually takes place. vi. The amount is fixed and stated in Appendix to the Conditions of contract. vii. The contractor has to pay liquidated damages to the employer
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3.7 CERTIFICATIONS 3.7.1 Generally a) Taken Construction Co. Ltd. V Charlton Estates Ltd (1973) laid out that a certificate in the expression in a definite form of opinion by the S.O. regarding some matter according to the contract. b) Wording such as ‘The amount stated as due in an interim certificate ...’ (Clause 28.4), and ‘... and interim certificate stating the amount due to the contractor ...’ (Clause 28.3) imply that certificates are required to be in writing. c) The S.O. is responsible to certify to the Employer the amount of payment payable to the Contractor within 14 days from the date of the valuation. d) Content of an interim payment: i. Value of work done (Clause 28.4) ii. Value of materials on site (Clause 28.4) iii. Fluctuation of prices (Clause 30) iv. Variation works (Clause 25.3) v. P.C and Provisional sums (Clause 60) vi. Contractual claims (Clause 44) e) The deduction are made for: i. Previous payments made (Clause 28.4) ii. Performance guarantee sum (Clause 13.2) iii. Recoupment of advance payments (Treasury Instruction 11/1981) iv. Liquidated and ascertained damages (Clause 40.2) v. Other permitted deductions – payments to other contractors making good defects (Cl. 48.2), default in payments of wages (Cl. 23.5), ect... ‘... the S.O. shall issue an interim certificate ... PROVIDED THAT the signing of this contract shall not be a condition precedent for the issue of the first interim certificate (and no other) so long as teh contractor has returned the Letter of Acceptence duly
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signed and has deposited with the S.O. ... the relevent insurance policies ...’ (Clause 28.4) f) First interim certificate can be issue even before signing of contract provided the contractor deposited with S.O.: i. Signed L.A. ii. Public liability insurance and insurance of work. g) For Government contracts, 3 interim certificates can be issued within 4 months after the issuance of Letter of Acceptance even before signing of contract – Treasury circular 10/1995. ‘NO certificate of the S.O. ... shall be considered as conclusive evidence as to the sufficiency of any work, materials or goods to which it relates, nor shall it relieve the contractor from his liability to amend and make good all defects, imperfections,... (Clause 32.0) h) Interim certificate is not an evident that the work have been properly carried out and complete and it does not release the contractor of his responsibilities for defects.
3.7.2
Certificate As A Condition Precedent To Payment
‘Within a number of days as stated in the Appendix ... (or if none stated then within 30 days) ... of the issue of any such interim certificate ... the Government will make a payment to the contaractor on the amount certificate as due to the contractor in the said certificate’ (Clause 28.6) a) The payment certificate must be prepare before a payment can be made to the contractor. b) London Borough of Camden V Thomas Mclnerney & Sons Ltd. (1986) – the architect signed certificates but they never sent out because a subsequent
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inspection revealed defective work. It was held that since the certificates was not issued, it was of no effect.
3.7.3
Late Certification
‘within 14 days from the date of any such valuation being made ... the S.O. shall issue an Interim Cerificate stating the amount due to the Contractor ...’ (Clause 28.3) a) No provision to deal with situation where the S.O. fails to certify within the specified time. b) However, contractor can commence arbitration proceeding on the ground that the certificate has been improperly witheld. He does not have to wait until the work practically completed.
3.7.4
Minimum Amount
‘... and the total value thereof has reached the sum reffered to in the Appendix ... the S.O. at that time make the first valuation on the same.’ (Clause 28.1) Thereafter, once (or more often at teh discretion of the S.O.) during the course of each succeeding month ... each subsequent valuation shall not be less than the sum reffered to in the Appendix ...’ (Clause 28.2) a) The amount certified should be graeter than the minimun amount for interim payment certificates in accordance with the KPKR’s instruction and as stated in the Appendix of the conditions of contract as follows: i. First payment – value of work executed and materials delivered is not less that RM 1,000.00. ii. Subsequent payments – ditto. b) However, the S.O. may issue the certificate when dealing with a small balance at the end of the contract. 41
3.7.5
Correction of Certificates
a) The contractor is entitled to be paid only for work properly done. b) The S.O. may make any correction or modification in any previous certificate. c) Certificates issued cannot be withdraw but the contractor can request the S.O. to issue a further certificate to correct any patent or letent error discovered. d) The S.O. has the authority to omit or reducethe value of any work not carried out to his satisfaction in any certificate (Clause 48.3).
3.7.6
Under-certification
a) If the contractor is not satisfied with the amount certified by the S.O.: i. Contractor can request S.O. to adjust the under-certification in a subsquent certificate. ii. If S.O. refuses, contractor may take the dispute to immediate arbitration on the ground that certificate is not prepared properly. iii. The contract gives no right to contractor to sue for higher sum. b) Lubenham Fidelities & Investment Co. Ltd. V South Pembrokeshire Distric Council (1986) – The employer only needs to pay the contractor the sum stated in the interim certificate as being due to the contractor from the employer even if the certificate contains a latent or patent error.
3.8
PAYMENT TO CONTRACTOR
3.8.1
Generally
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‘Within a number of days as stated in the Appendix ... (or if none stated then within 30 days of the issue of any such Interim Certificate), the Gevernment will make a payment to the contractor ...’ (Clause 28.6) a) The certificates are binding on the employer and he must make the payment within a specified period. b) However, there is no provision to deal with situation where the Government fails to py within the specified time.
3.8.2
Dispute by employer
a) Over-payment will result in unnecessary early expenditure by the employer and also will cause problem in recovering his money in the event of insolvency of contractor. b) The employer may dispute the S.O.’s opinion but the contract gives no right to the employer to withhold payment due to the contractor. The employer must pay up within the honouring period.
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