Contract Law and Construction Contracts
Formation and terms
Malaysian construction contracts are governed by the Contracts Act 1950 and common law. Formation needs offer, acceptance, consideration, intention to create legal relations and certainty. Construction documents usually combine articles of agreement, conditions (PAM 2018, PWD 203A or 203, FIDIC or CIDB forms), specification, drawings, bills of quantities and programme. Express terms prevail over general representations; implied terms include cooperation and not preventing the other party's performance.
Key construction rules
- Time: completion dates and extension of time clauses. Notices are conditions precedent in many forms; late notice can defeat a valid claim.
- Variations: must be instructed under the contract. Oral instructions should be confirmed in writing immediately.
- Payment: interim certificates, retention and final account. Pay-when-paid clauses are now controlled by CIPAA 2012 adjudication.
- Liquidated damages: a genuine pre-estimate of loss is enforceable; a penalty is not. Section 74 of the Contracts Act 1950 allows reasonable compensation, not a windfall.
- Termination: follow the contractual notice and cure procedure. Repudiation at common law is a separate route.
Worked example
A contract provides RM8,000 per day for delay, capped at 10 per cent of the RM20 million contract sum. The contractor is 40 days late. Liquidated damages equal 40 x RM8,000 = RM320,000, within the RM2 million cap. If the employer's actual loss is only RM50,000, the contractor may argue the rate is a penalty; the employer must show it was a genuine pre-estimate at contract formation. The label penalty is not decisive; substance is.
Traps
- Issuing a variation orally and later disputing its value.
- Missing a 14-day EOT notice.
- Deducting liquidated damages without contractual power.
- Assuming a no-loss argument defeats a valid liquidated damages clause.