Most standard forms of construction contract require an independent certifier to be appointed to make temporary but binding decisions on critical matters that may be contested by both parties. Under Agreement and Conditions of ‘Pertubuhan Akitek Malaysia’ (PAM) 2018, such independent certifier refers to ‘Architect’ whilst under Standard Form of Contract of ‘Jabatan Kerja Raya’ (JKR) or Public Works Department (PWD), the Superintending Officer is the independent certifier. This is Part 4 of an article series comparing and contrasting various key provisions of PAM and JKR/PWD contracts. These comparisons help deepen one’s understanding on effective administration of these contract forms by taking into consideration their unique characteristics. Whilst most contractors in Malaysia may have utilised PAM contracts for their private sector projects and JKR contracts for public sector projects, most contractors do not necessarily have a distinct contract administration system for each contract form. This article series provide analysis on various provisions under both contract forms that may be helpful not just in contract administration but also negotiating amendments to standard conditions if necessary.  

Contract certification regime refers to issuance of various types of certificates such as practical or substantial completion certificates, monthly progress payment certificates, final account certificates, delay certificates, termination certificates etc. Certificates are essentially formal documents through which a contract administrator communicates his determinations or decisions to the contracting parties on various critical issues. Therefore, whether the contract administrator is labelled as an Architect or Superintending Officer, he is generally considered a ‘certifier’ due to his certification functions. Apart from certifications, that are other formal means by which a certifier conveys his assessments such as his written approval to baseline programmes, or instructions to suspend works to carry out certain inspection or investigations etc. When parties are in contentions over certain issues involving claims, payments or compensations, the related determinations, rejections or certificates by the certifier are generally subject to challenge. Therefore as a matter prudence, every contract administration system ought to have a clear record not only the certificates but also submissions, communications, supporting documents, calculations etc leading to the issuance of these certificates as well as responsive to those certificates. If and when parties commence legal proceedings, the dispute resolution provisions under construction contract typically allow the certifier’s decision to be reviewed subject to certain prescribed limitations. This explains why the certifier’s decisions are often described as being of ‘temporary finality’. When the certificates are challenged, there are generally three elements that are scrutinised namely (1) substance or reasoning behind the decisions (2) any independence or impartiality (or the lack thereof) exhibited by the certifier in making the decision in issue and (3) whether the manner in which the disputed certificates were issued complied with the prescribed procedural requirements. These elements will be further elaborated in the next few sections of this article. The overarching principles on the above mentioned issues do no differ significantly between PAM and JKR contract. The devil however is in the detail. 

One of the practical challenges confronting any certifier is the fact that he is expected to be reasonably skilled in a diverse set of issues such as delay analysis, valuation of variations, quantification of loss and expense, interpreting contract terms, deciphering engineering specifications etc all of which do not traditionally fall within the expertise of an architect or a senior executive within government agency that would assume the role of Superintending Officer. This begs the question of whether the certification functions of an individual certifier is practically too broad to be reasonably discharged by a single construction practitioner? In this regard, one may find that contract forms typically have provisions to allow the certifier to delegate some of his functions either to a separate professional or a representative. This article will examine whether delegation of function effectively delegates certification authority. In other words, apart from the contractually named certifier, can someone else also be responsible for issuing certificates? These queries in turn will have important consequences on whether the certificate in contention was issued in a procedurally compliant manner. This determination affects the contractual validity of the certificate in issue.

Independence of Certifier

Contract administrator is typically engaged and appointed by the Employer to design the project and/or to represent the Employer’s interest by ensuring that the works carried out are in compliance with prescribed quality and design intent. In other words, the contract administrator is effectively the Employer’s agent. Under Articles of Agreement of PAM, it is expressly stated that the Employer has caused drawings and Contract Bills showing and describing the work to be done to be prepared by ‘his’ Architect and Consultants. Under Clause 4.1(a) of JKR contract, the Superintending Officer named in the Appendix reserves the right to act on behalf of the Government for matters relating to specified provisions and under Clause 3.1 the Superintending Officer shall be responsible for the overall supervision and direction of the works. As the contract administrator supervises the contractor’s works to ensure compliance with specification, he clearly does not act as the contractor’s agent. In view of the above, is it reasonable for the contractor to expect the contract administrator to be objective and impartial in his assessment of various critical but subjective issues such as issuance of delay certificates, practical completion certificate, grant of extension of time etc? 

To understand the query raised above one has to be aware that the contract administrator assumes dual function namely (1) the Employer’s agent (2) an independent certifier. Whilst the Architect or Superintending Officer acts in the interest of the Employer in supervising the contractor’s works, he is also required to be independent, impartial and neutral in his concurrent role as a certifier. In particular the element of impartiality and independence of a certifier is provided for under common law in Malaysia as well as expressly stated under the respective contract forms. By way of illustration, under Clause 23.10 of PAM contract, when the Architect reviews application for extension of time, he shall fix a later Completion Date if in his opinion such later Completion Date is ‘fair and reasonable’ having regard to any of the Relevant Events amongst others. Under Clause 43.1 of JKR contract, the SO shall as appropriate issue a certificate of delay and extension of time giving a ‘fair reasonable’ extension of time for completion of the works. In reality, it is a delicate balancing act for any certifier to simultaneously protect the interest of the Employer whilst being fair and balance in the discharge of its certification function. This is why the subject of independent certifier is a fertile ground for dispute and contract mismanagement. 

The reason for any confusion between the role of an agent for the Employer and that of an independent certifier may be due to under appreciation of the nature of certification functions and its inherent subjectivity.  The ambiguity is exacerbated by the absence of an exhaustive list of responsibilities which require the certifier’s independence. Notwithstanding that and as a general rule, the contract administrator acts as an independent certifier when he is assessing matters that lead to the issuance of certificate or its equivalent. In particular such certificate typically brings about time and/or costs implications to both the project and parties. By way of illustration using PAM contract, the Architect acts as an independent certifier in assessment of extension of time due to the fact that the outcome of his assessment leads to either issuance of Certificate of Extension of Time pursuant to Clause 23.4 and/or Certificate of Non-Completion pursuant to Clause 22.1. This principle is equally applicable to the Superintending Officer under JKR contract. In the event where the extension of time is denied, the schedule overrun results in the contractor being liable for liquidated damages i.e. cost implications to the contractor. On the other hand if the extension of time is granted, then contract time for completion is lengthened i.e. time implication on contractor’s schedule.

So what exactly does it mean to be ‘independent’? It is quite common to find the contractor arguing that the variation order instructed by the Architect for design changes caused excusable delay to the project schedule. In other words, the Architect in acting as the Employer’s agent may have initiated design changes for reasons completely unrelated to the contractor’s performance but had to now confront with the fact that he may have been the cause of delay. Any grant of extension of time therefore is an admission of his culpability on project schedule overrun. The independence in this regard requires the certifier to be completely objective by removing the desire for self preservation from his consideration in the course of carrying out assessment. In reality, this expectation is much harder than one may ordinarily expect. The certifier should also provide the contractor with reasonable opportunities at least within the timeline prescribed to submit its claim and substantiate its position. 

Certification regimes incorporated in construction contract is critical in ensuring that any dispute between the parties does not grind the progress of works to a halt. Certificates issued by the certifier which are of temporary finality typically govern critical and potentially contentious matters such as recovery of liquidated damages, extension of time, progress payments etc. The requirement for the certifier to act fairly and independently can be viewed as a form of legal ‘safeguard’ in ensuring the contractor is treated fairly. However, the enactment of Construction Industry Payment And Adjudication Act 2012 is perhaps a tacit recognition that the legal requirement for a certifier to be independent may not be entirely adequate particularly as regards swift resolution of progress payment disputes. Therefore, statutory adjudication regime is available to the contractor in case payment dispute arises.  

Certifier’s Power To Delegate

As alluded to earlier the scope of expertise expected from a certifier appear broader than what one may reasonably find in a professional architect or a senior executive within government agency that may assume the role of a Superintending Officer. Therefore both PAM and JKR contract have provisions to allow the certifier to delegate part of his duties, power and authorities. PAM and JKR contract have different approaches on the issue of delegation by the certifier as illustrated in the following paragraphs.

Under Article 3 of PAM contract, the term ‘Architect’ shall mean a ‘person’ or an ‘individual’ as opposed to an architectural firm or an organisation. This distinction is important. The subsequent Article 4 refers to both Structural Engineer as well as Mechanical and Electrical (M&E) Engineer where the Architect may from time to time delegate certain duties and authority of the Architect where appropriate to the said engineers.  The following Article 5 is similar in that it refers to ‘Quantity Surveyor’ where the Architect may also delegate certain of his duties and authority as appropriate. Article 6 refers to ‘Specialist Consultant’ with similar provision for delegation of duties and authority by the Architect. Admittedly, the term ‘Specialist Consultant’ lacks specificity where depending on the nature of the construction project it may well refer to Lighting Consultant, Acoustic Consultant, Facade Engineering Consultant etc. Whilst these provisions under PAM contract rightly allow the Architect to delegate certain functions that are generally outside his scope of expertise to other project consultants, there are no further details as regards procedural requirements to effect these delegations. In particular there are no limitations on the extent to which delegation of duties and authority are allowed, the requirement to inform the contractor on scope of delegation as well as whether the Architect retains the right to review any decisions that were delegated to other consultants. Further, it is also unclear if the Architect is precluded from acting on matters that had been delegated to other consultants. These ambiguities may potentially be further grounds for challenging the certifier’s decisions.  

 Under Clause 3.3(a) of JKR contract, the Superintending Officer may from time to time ‘in writing’ delegate to the SO’s Representative (appointed pursuant to Clause 3.2) any of the powers and authorities vested in the Superintending Officer as listed in the letter of delegation and shall furnish to the contractor a copy of all such written delegation of powers and authorities. Clause 3.3(c) states that if the contractor is not satisfied with any decision of the SO’s Representative, the contractor shall refer the matter to the Superintending Officer who shall confirm, reverse or vary the decision of the SO’s Representative. Finally, Clause 3.3(d) states that the delegation shall not preclude the Superintending Officer from himself exercising or performing at any time any of the delegated powers and duties. Unlike the PAM contract, the JKR contract does not expressly stipulate delegation of duties and authority to other consultants. In fact under Clause 3.2(b) of JKR contract, the SO’s Representatives shall be responsible to the Superintending Officer and his duties are to watch and supervise the works and to test and examine any materials or goods to be used or workmanship employed in connection with the works. The descriptions of the role of the SO’s Representative do not include the specialist functions generally assumed by other project consultants e.g. structural engineer, quantity surveyor, M&E engineer etc where their collective roles go well beyond that of a supervisory function. Therefore, it is likely that the SO’s Representative refers to subordinate or departmental staff of the Superintending Officer within the government agency commissioning the construction works. This raises the question of whether the JKR contract contemplates delegation of duties and authority of the Superintending Officer to other project consultants. If the Superintending Officer decides to delegate his functions to certain project consultants, one may reasonably challenge the procedural validity of such delegation. As certifier is essentially ‘creature of the contract’, he cannot act beyond what is provided for under the contract.

When comparing the PAM and JKR contract as regards the issue of delegation, another notable difference relates to the contractor’s right to ‘appeal’ if he is not satisfied with certain decisions made by individuals who had been vested with delegated certification authority. As alluded to earlier, such right to appeal exist under Clause 3.3(c) of JKR contract whilst the same is not expressly provided for under PAM contract. One possible explanation for such contractual difference is that the PAM contract anticipates delegation of authority by the certifier on issues that are generally outside his scope of expertise as an architect e.g. quantity surveying matters or engineering matters. Therefore, it may not be logical for the Architect to override the experts on matters that are well within their scope of expertise. On the other hand under the JKR contract, the Superintending Officer and SO’s Representative are unlikely to have significant difference in domain of expertise as alluded to in the preceding paragraph. The likely rationale behind any delegation of Superintending Officer’s duties and authority may stem from expedience and organisational efficiency in that an individual officer may not have sufficient capacity to oversee and supervise large public sector project. In fact the Superintending Officer may under Clause 3.2(a) appoint such number of SO’s Representatives as he deems fit. Therefore it made more sense for the contractor to be given the right to appeal against decisions made by junior officers where appropriate.

Employer Interference With Certification

As alluded to earlier, the Architect appointed under PAM contract assumes dual function i.e. the Employer’s agent as well as an independent certifier. Under its Clause 26.1(b) the distinction between these functions is further sharpened whereby if the Employer is found to interfere with or obstruct the issue of any certificate by the Architect, such default entitles the contractor to determine his own employment under the contract. As a matter of context, the events listed under Clause 26.1 are significant grounds of defaults by the Employer that entitle the contractor to terminate his own employment under the contract. Some of these events include severe delay in providing site access, failure to honour interim progress payment certificate etc. Therefore if the Employer’s compromises the certifier’s independence by exerting his influence, it can have severe consequences that it entitles the contractor to be relieved from any further performance under the contract. Why should the Employer’s interference with independent certification be considered such a serious breach that goes to the root of the contract? Although such provision is not commonly found in other suite of standard conditions of contract (including that of JKR contract), there may be good reasons for its adoption. 

Generally any interference by the Employer is subtle and unlikely to unfold in a public manner. Since the Architect is simultaneously the Employer’s agent, it is a common practice for meetings to be organised exclusively between the Employer and its consultants that is chaired by the Architect, generally referred to as ‘Project Consultants Meeting’. In other words, there is almost an expected information asymmetry between the Employer and the contractor on various project related matters including private communications with the Architect on critical issues. However it will not be surprising to find that such right to termination is not quite commonly exercised by the contractor. The burden of proof is on the contractor to demonstrate any of the Employer’s undue influence over the certifier which can be onerous. Therefore, the actual value to such provision could be its deterrence as well as underscoring the need for the certifier to be independent. Notwithstanding that, the contractor could still utilise such provision in legal proceedings through document discovery in a retrospective manner. This is provided that the Employer’s interference with independent certification is pleaded by the contractor as part of its claim arising from termination. 

It is also unclear what may objectively constitute interference with the issuance of any certificate by the Architect. In this regard, could any of the Employer’s action that compromises sense of fair play amount to interference? Some may argue that the Employer’s ability to issue any  rebuttal to the contractor’s claims directly to the Architect without affording the contractor any right to reply or even to be informed constitute interference. Currently, there are no express provisions for the Employer to provide its written responses to the certifier on the contractor’s claims. Therefore, the contractor is unlikely to be copied on any communications between the Employer and the certifier on various claims particularly those in dispute. If and when there are discussions between the Employer and the certifier on these contentious matters, the contractor is is likely excluded from the chain of communication. Again the burden of proving the Employer’s interference can be extraordinarily onerous. Therefore if the contractor invoke his right to determine his employment under the contract, the lack of access to the relevant proof and documentation may put the contractor at risk of being alleged to have abandoned the contract.

Conclusion

The requirement for certifier to act independently, fairly and impartially under construction contract ought to influence the ways in which contractors manage their claims and disputes. Whilst some contractors may have the optimism that they would be treated evenly and fairly on various certification matters, other ‘battle hardened’ contractors may not necessarily share the same optimism. Those who belong to the latter category should therefore be more vigilant and watchful on the manners in which decisions are made by the certifier by ensuring that there is sufficient paper trail leading to the decisions in issue. Occasionally the lack of paper trail and traces of assessment by the certifier on various certification matters may be more revealing than had these information been available.




Koon Tak Hong Consulting Private Limited