This is part of an article series which reviews various key provisions included in two of the more commonly used standard forms of construction contract in Malaysia i.e. Agreement and Conditions of ‘Pertubuhan Akitek Malaysia’ (PAM) 2018 and Standard Form of Contract of ‘Jabatan Kerja Raya’ (JKR) or Public Works Department (PWD). This comparison is based on lump sum contract without quantities. There are various contrasting approaches of extension of time provisions under both PAM and JKR contract form. In general PAM contract form is used for private sector construction projects whilst JKR is used by the public sector agencies for its construction projects. The different sources of funding including its consequential public accountability could be some of the key reasons on why its risks allocation philosophy differs noticeably. Such distinction is particularly glaring in respect of the extension of time clauses.

Delay to project completion is one of the more common types of construction disputes where the main contractor is often at odds with the Employer and its consultants over whether or not it should be granted extension of time. The causes of delay are rarely obvious at least at the outset  which explains the need for notifications and disclosure in extension of time clauses. In general the contractor is granted with extension of time so that the original practical completion date could be extended contractually, for the duration during which the contractor is not in culpable delay. The main contractor often view that since the extended completion date provides contractual relief from liquidated damages, the extension of time clause is in place for the contractor’s benefit. In reality, the extension of time clause is meant for the Employer’s benefit. This is because if the Employer by its conduct prevented the contractor from completing the project on time, the Employer could not insist on the contractor’s compliance with the original practical completion date. This is also known as the ‘prevention principle’. The contractor could legally disregard the practical completion date, setting ‘time at large’ following which liquidated damages are no longer applicable. The extension of time addresses this problem by providing a mechanism to enable the liquidated damages to flow from an extended completion date. In other words, the extension of time clause benefits the Employer by preserving its right to recover liquidated damages from an extended completion date. 

One of the key elements of extension of time provision is the list of grounds or circumstances that entitle the contractor additional time for completion. PAM contract refers these grounds as ‘Relevant Events’ whilst JKR refers these simply as ‘events’. Interestingly, there are certain differences in such grounds between PAM and JKR, which will be elaborated further in this article. One should be aware that even if the delaying event in principle entitles the contractor to extension of time, the contractor is required to comply with certain notification and disclosure requirements set out under the contract. These requirements often involve informing the Employer or its agent within certain time frame from the occurrence of the delaying event as well as disclosure of information relevant to such delay. These requirements may be condition precedents to the contractor’s entitlement to extension of time. Again, the notification and disclosure requirements associated with extension of time differs between PAM and JKR contract, of which the latter appear less prescriptive and onerous. Understanding nuances of both PAM and JKR contract is essential to establishing an effective contract and claims administration system that is specific to the contract in used. Parties should avoid administering their contract in a generic manner regardless of contract form for the sake of expedience. In the next few sections of this article, the key differences between PAM and JKR will be highlighted as it relates to extension of time provisions.

Notification And Disclosure Requirements For Extension Of Time

Clause 23.1 of PAM contract set outs certain notification and disclosure requirements which shall be complied prior to any of contractor’s entitlement to extension of time. Under this clause the contractor may apply for an extension of time if it is of the opinion that the completion of the works is or will be delayed beyond the completion date. Under Sub-Clause 23.1(a), the contractor shall give written notice to the Architect of its intention to claim extension of time with an initial estimate of the extension of time that may be required including supporting particulars of the cause of delay. Such notice shall be given within 28 days from the date of the relevant instructions or the commencement of the Relevant Events whichever is earlier. The issuance of such notice shall be a ‘condition precedent’ to an entitlement to extension of time. 

Condition precedent is essentially mandatory requirement that had to be fulfilled failing which the right of claim is lost. In the case of extension of time, if the contractor fails to notify the Architect within the prescribed time frame including the relevant particulars, the contractor’s right to additional time is lost notwithstanding any merit to its claim. The Employer typically justifies the need for such strict requirement by arguing that advance notice enables timely mitigation by the Employer of such delay where possible. 

It is also interesting to note that under Clause 23.1 of PAM, the need to  apply for extension of time arises when the contractor is of the opinion either when the project is already delayed or will be delayed. However Sub-Clause 23.1(a) requires the contractor to notify the Architect (including supporting details) within 28 days from the date of relevant instructions or the commencement of the Relevant Event (whichever is earlier). What if the contractor arrives at such opinion more than 28 days after the occurrence of the relevant event? This scenario is entirely possible in construction project where the event impacts subcontract works but was initially on the subcontract programme float. However during the intervening period, a revision was made to the subcontract programme resulting in change from float to critical path for the material activities. By the time the issue was ‘escalated’ by the subcontractor and for the contractor to be properly notified as well as to opine on the schedule effects, the entire duration could have taken more than 28 days. Some may counter argue that since the contractor is only required to provide its initial estimate for the extension of time required, with the necessary follow up as provided for under Sub-Clause 23.1(b) (which will be elaborated later), such condition precedent should not be overly onerous. On the other hand as the 28 days reference is calculated from the date of occurrence of the Relevant Event (rather than when the contractor ought to have arrived at its opinion on the schedule), the contractor is likely to be conservative by issuing notice out of abundance of caution in order to be safe than sorry. When a project is inundated with an overly conservative list of delaying events, it could be counter productive and ironically be a source of distraction. However the conundrum arises when Clause 23.1 requires that the contractor to make extension of time application if it is of the opinion that the completion of the works ‘is or will be delayed beyond the completion date’. Such standard is quite different from the opinion that delay ‘may’ happen. The certainty with which the contractor’s opinion should have on its programme suggest a significant level of due diligence and investigation expected prior to making an application as well as notification for purposes of extension of time. The reasonableness of the 28 days duration ought to be viewed within the context of such pragmatism.

As alluded to earlier, Sub-Clause 23.1(b) of PAM stipulates that the contractor shall follow up within 28 days of the end of the cause of delay by sending to the Architect its final claim for extension of time including all particulars. This again is a condition precedent in that failure to adhere with such requirement shall extinguish the contractor’s entitlement to any extension of time. In case of breach of condition precedent, the contractor shall be deemed to have assessed the event concerned and concluded that there shall be no delay to the project schedule. Whilst the Employer may justify the stringent requirements at the inception of the delaying event for purposes of timely mitigation, it is unclear the rationale behind a similar requirement at the end of the cause of delay of the event concerned. It should also be noted that ‘end of the cause of delay’ may be argued to be different from ‘end of the delaying effect’. This ambiguity may give rise to difficulty in contract administration. By way of illustration, suppose the Employer caused delay in providing site access to the contractor for a period of one week, but the consequences of such delay continue to be felt beyond that one-week period, say for a total period of three weeks. Should the 28 days time frame under Sub-Clause 23.1(b) be calculated from the one-week or three weeks period? The contractor may only be in the position to provide full particulars after the three weeks period rather than the one-week duration in order to have a comprehensive assessment of the extension of time required.

By stark contrast, the JKR contract takes a completely different approach as regards notification and disclosure requirements for extension of time which is encapsulated in its Clause 43.1. Under this clause, the contractor shall give a written notice upon it becoming reasonably apparent that the progress of the works is delayed. Such notice shall include the causes of delay and relevant information with supporting documents to enable the certifier to form an opinion as to the cause and calculation of the length of delay. 

Firstly, under the JKR contract the notification and disclosure requirements are not expressly labelled as condition precedents. Therefore, those strict requirements that may extinguish right of claim is not applicable. Secondly, the contractor is only required to issue a notice to the certifier for purposes of extension of time when it is reasonably apparent to the contractor that the progress of the works is delayed. In this regard there is no reference to any defined period or even calculation of such period from the commencement of any delaying event. Those difficulties set out in the preceding paragraphs of this article may not be applicable to the contractor under JKR contract. There is also a general requirement to provide particulars to the certifier to enable its identification of cause of delay and the length of delay. This is in contrast to a strict follow up requirement to provide further particulars within 28 days as found under PAM contract. 

Whilst most contractors may understandably be in favour of JKR contract which do not appear to have strict and onerous requirements in respect of application of extension of time, it will not be entirely surprising if some contractors may still prefer the regime under PAM contract. This is due to the element of reciprocity under PAM extension of time, whereby timeline requirement is applicable to both the contractor as well as the certifier. By way of illustration, under Clause 23.4 of PAM the certifier is under a six-week timeframe to notify the contractor of its decision on the application of extension of time. On the other hand, there is no equivalent timeline requirement imposed on the certifier under JKR contract just as there are no such requirements imposed on the contractor. Certain contractors are in favour of visibility on their programme status and exposure to any liquidated damages so as to be the position to mitigate delays in a timely manner. Such transparency may be so crucial to the contractor that they are willing to shoulder the very timeline requirements that may otherwise be viewed as onerous. 

Certifications Under Extension Of Time

As one may notice, there are various certificates issued by the certifier under the construction contract which include certificate of practical completion, progress payment certificate, final certificate etc. Certificate is not mere formality in terms of paper work but an important contractual instrument that signifies discharged of certification function by the certifier on various critical issues under its scope of authority. In this regard, the contractor should expect to receive a certificate if it is granted with any extension of time. There are certain differences between PAM and JKR contract in respect of such certification. 

Under Clause 23.4 of PAM contract, the Architect shall issue a Certificate of Extension of Time “with details” either before or after the Completion Date. Under Clause 43.1 of JKR contract, the certifier shall issue a Certificate of Delay and Extension of Time indicating a reasonable extension of time for completion of the works. Apart from the difference in label used between these certificates, only PAM contract requires details to be included in such certificate. However there are no specific information stipulated under PAM in respect of details to be included in such certificate. Whilst these certificates would ordinarily include general information such as original completion date, revised completion date (and associated extended duration), reference to specific applications of extension of time made by the contractor etc, certifiers may be reluctant to disclose their delay analysis. The delay analysis performed are in fact crucial in that it reveals the methods of assessment used, programmes referred to, critical path impacted by various delaying events including time impact caused and the presence of any concurrent delays. Given that condition precedent imposed on the contractor underscores the need for sufficient particulars from the contractor, it may be rather ironic for the certificate that ensued to be sparse in details. 

Under Clause 23.10 of PAM, the Certificate of Extension of Time may be subject to review by the Architect within 12 weeks after the date of Practical Completion. However such review shall not result in a decrease in any extension of time already granted previously. Whilst the Certificate of Extension of Time under PAM lacks finality, it can only benefit the contractor because any such review shall only result in an increase to time previously granted. There is no equivalent provision under JKR contract for such review. It is also interesting to note that the Architect may review his previous decisions having regard, amongst others whether or not the Relevant Event has been specifically notified by the contractor. In other words even if the contractor failed to notify the Architect regarding certain Relevant Event, which is considered a breach of condition precedent, the Architect may still grant extension of time in any case. It follows that the Architect may be authorised to effectively cure such breach of condition precedent in exercising its certification function under Clause 23.10 of PAM. Others may also view this Clause 23.10 of PAM as a subtle and informal avenue for ‘appeal’ by the contractor. Taking the effects of Clause 23.10 of PAM as well as the condition precedents as a whole, it is not surprising that certain contractors may favour the regime under PAM contract.

Unique Grounds For Extension Of Time Under JKR Contract

In examining the list of grounds under Clause 43.1 of JKR contract which entitles the contractor to extension of time, it is interesting to note that there are certain events listed therein that are unique to JKR contract and are not available under PAM contract. In particular under Clause 43.1(i) if the completion of the works is likely to be delayed or has been delayed due to the contractor’s inability for reason beyond his control and which he could not reasonably have foreseen at the date of closing of tender of the contract to secure such goods, materials and/or services as are essential to the proper carrying out of the works. 

At a first glance, the inability to secure resources appear similar that of ‘force majeure’ which generally mean rare, radical, external and unforeseeable event that prevent performance of existing contract obligations due to circumstances beyond parties’ control. For the fact that there is a separate Force Majeure Clause found under Clause 57 of JKR contract where such ground is not expressly included therein, the contractor’s inability to secure resources could not have intended to be force majeure event. In other words, if the contractor finds itself unable to secure resources due to unforeseeable circumstances that are beyond its control, the contract could not be frustrated and the only remedy likely available is extension of time. It is however unclear what happens if such circumstance is prolonged over an excessive period of time and whether parties still retain the right to terminate the contract as ordinarily found under force majeure clauses. 

Apart from the overlap with events of force majeure, there is another reason why the inability to secure resources can be an event that is problematic in its administration. Where the contractor alleges that it is unable to secure certain resources for purposes of the project, it can be challenging to define with precision what specific event could reasonably fall within such category. If the price of certain concrete material escalated significantly and the contractor finds it impossible to secure the same material at the same commercial terms, it may be argued that this is not quite a neutral delaying event but rather a commercial issue relating to the contractor’s profitability. In other words the change in economic circumstances is affecting the ease with which its obligation can be performed. How radical should price escalation be for such event to qualify for extension of time? Would it not be fair to argue that this event is merely a materialisation of a lump sum contract risk which the contractor had freely undertaken? 

Some may argue that the price escalation of concrete would fall within the purview of Clause 30 of JKR contract which deal with fluctuation of prices where the contractor will be financially compensated by the government. However the same argument could be made for any construction materials, plant, machineries, equipment and even workers where the inability to secure such resources could be due to market scarcity which in turn causes price hikes. It is often difficult to make a legal distinction between economic hardship and ‘act of God’ where the cause and effect in reality could greatly overlap.

Unique Grounds For Extension Of Time Under PAM Contract

There are also grounds for extension of time that are unique to PAM contract which are not available under JKR contract. One such notable example relates to Clause 23.8(u) of PAM where the contractor may be entitled to extension of time if the project schedule is delayed or will be delayed as a result of the execution of work for which a provisional quantity is included in the Contract Bills which in the opinion of the Architect is not a reasonably accurate forecast of the quantity of work required. There are a few reasons why the administration of this provision may be challenging in reality and requires absolute clarity in contract administration. 

Firstly it is unclear what is the magnitude or percentage of deviation between actual quantity executed and provisional quantity included in Contract Bill that would qualify for extension of time under such ground. Secondly, it is important to distinguish additional quantities above and beyond the provisional quantity indicated in Contract Bill from additional quantity instructed by the Architect for purposes of variation. The latter is provided for under a separate ground for extension of time set out under Clause 23.8(h) pertaining to instruction pursuant to Clause 11.2. Such distinction is important because when the contractor encounters additional work beyond the provisional quantity, no instruction is required from the Architect for the contractor to proceed with the additional works. However, occasionally the execution of additional quantities beyond the provisional quantity entails clarification on construction details through the exchange of ‘Request for Information’ also known as ‘RFI’. Thirdly, the time impact arising from deviation from provisional quantity may be affected by the sequence of works rather than just magnitude of work. In other words, there may be instances where the magnitude of works may not be significant (say 5% more than provisional quantity) but the delaying effect arises due to the timing in which such works was discovered and had to be carried out. If such additional works were discovered towards the tail end of the relevant planned construction activities where much of the plant and machineries had been demobilised coupled with progressive commencement of the subsequent planned activities, there may be serious delaying effect. In other words, the delaying effect is not a direct function of quantity of works but rather criticality of works. Lastly, whilst the ground of extension of time is based on the Architect’s opinion of what constitute a reasonably accurate forecast, such opinion is not conceived in vacuum but rather derived based on contemporaneous record such as baseline programme or revised programme which were accepted by the Architect but produced by the contractor. The duration dedicated by the contractor on works with provisional quantity is in turn dependent on the construction methodology and critical path of the relevant programmes. Therefore, if the contractor submits a baseline programme that is more aggressive in its planned duration for works with provisional quantity, such strategy might be advantageous to its future application for extension of time. These obscure details of strategy deployed at the inception of the project can have magnified effect during the administration of extension of time.

Conclusion

Whilst there are fairly notable and distinct differences between PAM and JKR contract as it relates to administration of extension of time, it is very challenging to conclusively determine which regime is ‘fairer’. As pointed out earlier, extension of time regimes with strict timeline requirements can appear onerous from one perspective but simultaneously may be advantageous when viewed from other perspective. What may appear to be burdensome may actually provide clarity and by contrast provisions that are lenient may give rise to ambiguity.




Koon Tak Hong Consulting Private Limited