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1 Interim Payment Dexter Martin Jabatan Ukur Bahan, Fakluti Alam Bina dan Ukur, Universiti Teknologi Malaysia 1. Introduction Interim Payment Certificates, means a payment certificate issued under the Clause “Contract Price and Payment”, other than the Final Payment Certificate. Most standard forms ...

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Interim Payment Dexter Martin Jabatan Ukur Bahan, Fakluti Alam Bina dan Ukur, Universiti Teknologi Malaysia

1. Introduction Interim Payment Certificates, means a payment certificate issued under the Clause “Contract Price and Payment”, other than the Final Payment Certificate. Most standard forms of contract state an entitlement on the part of the contractor to interim payment. These payments assist in the contractor's cash flow, but the actual determination of the contractor's entitlement is not made until the final certificate. The interim payments are therefore sums paid on-account of whatever the contractor might eventually be entitled to recover from the Employer. Most standard forms make the issue of a certificate a condition precedent to the contractor's right to payment. It is a matter of fact whether payment for work carried out is a statement of acceptance or approval. Most contract provisions for interim certification and payment are based on cumulative valuation of work done, and are only for payments on account. They are not binding nor conclusive of acceptance of the work.

2. Introduction of Claim in JKR 203 A All Conditions of Contract provide for the contractor to be paid progressively for the value of work done and materials on site during the progress of the work. Such payments are necessary to provide the contractor with the necessary cash-flow to finance his operations. Although corrections and adjustments can be made in subsequent certificates, all interim valuations should be as accurate as possible. Overpayment resulting from an excessive valuation may be impossible to recover in the event of bankruptcy or default of the contractor. On the other hand, underpayment may affect the contractor's cash flow to such extent that it delays the progress of the project. The Form 203A Conditions of Contract require the S.O. to value completed work on a monthly basis. Conditions allow for the contractor to present a statement of completed work value at the end of each month provide for the contractor to attend for measurement and valuation, as and when required by the Engineer. However, regardless of which "Conditions" apply, it is normal for interim measurement activities to be undertaken jointly with the contractor. After joint measurement and agreement of completed quantities, a statement is prepared, signed and presented by the contractor, usually on a monthly basis. This must be checked against the agreed recorded quantities and signed by the R.E. or member of the site team responsible for measurement. The contractor should be informed of any amendments or deletions made to the statement at this stage. An Interim Payment Certificate is then to be prepared by the Resident Engineer for signature by the Engineer, or other officer authorised to issue payment certificates. Certificates are to be prepared on JKR Form 66, a copy of which is given in Figure 7F. Before being presented to the issuing officer for signature, they should be endorsed as correct by the officer actually responsible for preparing or checking the valuation. Full supporting details of the statement should be appended. Contractual requirements- for the preparation of the statements and certificates are set down in Clause 47 of Form 203A Conditions of Contract and in Clause 60 (8). In addition to the value of complete work executed under the main contract, JKR Form 66 provides for the following.

Payment/repayment of Plant or Cash Advances, Payment of Advances for Materials on site Nominated SubContractors/Suppliers Accounts Variation of Price Adjustment Deduction for Retention Various other Deductions The following further points should be noted in connection with the preparation of interim certificates. (a) Procedures for establishing the value of Plant Advances are dealt with in Chapter 4.04 (f). Repayment terms for these Advances are prescribed in the Conditions of Contract. The amounts of Cash Advances, if they are a feature of the contract, and the repayment terms are also both established in the Conditions of Contract. (b) Advances for Materials on Site are paid in the interim certificates against claims presented by the contractor. The claims must be checked by the supervision measurement staff to ensure that they are in accord with material actually existing on site and not incorporated in the works at the effective end-date of the certificate period. ​Conditions of Contract and Clause 47 (c) of Form 203A"Conditions" set out the terms under which Plant Advances are to be made - both forms allow for payment of 75% of the accredited value. If materials are delivered to site substantially in advance of their incorporation into the works and are admitted for inclusion in the Advance Payments, periodic checks should be made to ensure that they remain on site and have not deteriorated in quality before successive certificated payments are authorised. (c) Payment to Nominated SubContractors/Suppliers is dealt with in Chapter 7.06. (d) No retention is held on contracts with are subject to form 203A Conditions of Contract but deductions for retention must be made. "Conditions" (Clause 60.9), the percentage and limiting amounts being quoted in the Appendix to the Form of Tender.

Process of interim claim Procedure before issuing Interim Payment Cert (JKR 203A) 1.

Set date of valuation progress work. Agreed by both parties.

2. Valuation method for general works ​(Initial Payment, Recurring Payment, Final Payment). 3.

Works that executed according to the contract will be paid.

4. Valuation to the Materials on site/ at location stated in document. Paid up to 90%. 5.

Valuation must take into account the variation works.

6. Variation of Price must be made using method according to provision made in the Contract. 7. the S.O. under conditions the amount must not be more than the invoice. 8.

Direct payment from Government to the NSC.

9. Within ​14 days after valuation​, ​S.O. shall issue Interim Certificate​. 10. Within amount of time stated in Appendix to COC (If none stated assumed ​30 days​), ​Government shall make payment ​to the Contractor.

​ ​3​. ​Introduction of PAM Contract 2006 (With Quantities) Since 1969, the Pertubuhan Akitek Malaysia (PAM) standard forms of building contract are used extensively in the private sector commercial, institutional, housing and other building projects. It is estimated that 90% of the building contracts in the private sector are based on a PAM form. As such, the PAM forms have become a benchmark as the Malaysian Standard Form of Building Contract from its genesis in 1969 up to their last revision in 2006. The PAM/ISM 1969 Forms has had its fair share of criticism and judicial scrutiny. PAM has recently introduced a new set of standard forms entitled PAM 2006 Forms to replace the PAM 1998 Forms. Although the new forms are dated 2006, they were officially launched in 2007 and made available for use recently. The PAM 2006 Forms has address a large extent of shortcomings in the previous PAM 1998 form and continued to be popular in the later part of the last decade to now. The PAM 2006 Form is redrafted of its 1998 predecessor. However, a closer scrutiny of the two Forms shows only superficial resemblance. The various provisions in the new Form have been reworded, reshuffled, and amalgamated. The risk allocation for time, money matters, quality issues and dispute resolution between the Contractor, Employer and consultant team has been shifted significantly. Concluding Remark PAM 2006 Form has been more emphasizing on procedures requiring the Contractor, Employer and consultants to ensure all the parties strictly adhere to time provisions with the inherent loss of rights or incurring of liabilities. Compare to PAM 1998 Form, the PAM 2006 Form limit the rights of Employers while reducing the risks borne by Contractors. This reallocation of risks proportionately increases the Employer’s exposure and burden in terms of claims and payments while providing more possible grounds for disputes between the Contractor and Employer. Further, the PAM 2006 imposes definite time periods on the Architect and the consultant team to carry out certain duties, for example, certification and

approvals within a specified time. The failure to do so may open the consultant team to professional negligence claims. 4.​ ​Payment (PAM 2006) Payment is a sum of money paid to someone. In the construction industry, payment is the sum of money paid to Contractors after their works or certain projects has been successfully realized. In an engineering and construction contract, the Contractor has to fulfil his obligations to carry out all the works stated under the Contract. On the other hand, the Employer must keep his promise of giving necessary consideration which in most cases comes in monetary form. 5. Types of Payment in PAM 2006 In practice, the payment to the Contractor for works done under the building contract has a variety of forms. In Malaysia however, the types of reimbursing the contractor are as follow: Interim Payment During contract period, the most common method used is interim payments or the so called cost progress payments. In Standard Forms, the interim or cost progress payments are affected by the issuance of ‘Interim Certificate’. Interim Certificate is a certificate issued by the supervising officer binding the client to pay the fitting-out contractor an agreed amount for work that has been completed. The failure of the certifier to issue the relevant ‘interim’ certificates in line with the stipulation of the contract can expose his employer to a possible claim of breach of contract by the contractor. The frequency of periodic payment could be varied from fortnightly to monthly because the actual duration would be as agreed in the contract conditions signed. Stage Payment It is defined as the payment of an agreed amount when an agreed stage of the project has been completed.The term stage payment is used when the payments are made at specific stages of work. This mode of payment is often used in small lump sum contract without quantities where a proportion of the total sum is agreed to be paid

over in a number of stages. These proportions are fixed and do not depend upon any re-measurement of work. Nevertheless, the application of this mode of payments is more common in Turnkey, Design & Build as well as contracts involving repetitive works. 6. Payment Before Commencement This is the sum of money paid to the Contractor by the Employer well before the work involved is executed. This practice is usually done in public work contracts. Some construction industry consultants focused on the residential projects suggest collecting a 50 percent payment before work even starts. The main purpose of implementing this type of payment is to help the Contractor to start up and finance the Contract without resorting unnecessary external borrowings. Payment After Completion This is the method of payment to Contractor triggered by the achievement of the Contract milestone of practical of substantial completion and/or the so called handing over of the Works to the Employer. Hence, unless such stage is reached and certified by the contract administrator, the contractor is not entitled to any payment whatsoever. In using this method, the Contractor is basically financing the works to a large degree, which costs would eventually built into the contract sum. The Employer must also be prepared to shoulder this burden as well as be in a position to source and effect payment ultimately of a sizeable lump sum amount upon the taking over of the works. 2. Procedure before issuing Interim Payment Cert (PAM 2006) 1. Contractor shall submit application or Interim Claim with complete details & particulars required. 2. QS shall make a valuation. 3. Within 12 days Architect shall issue Interim Certificate to Employer & copy to Contractor. 4. Employer shall then pay Contractor within Period of Honoring Certificate (usually 30 days if not stated).

5. Failure for Contractor to submit payment application may let Architect not to issue any Interim Certificate.

3. Recommendation to Improve Payment Issues Payment problems in the construction industry cannot be effectively resolved contractually in the standard terms of construction contracts. Remedies such as suspension of work and direct payment are difficult to be properly and lawfully exercised unless there are expressed provisions in the contract and disputes are resolved by an independent third party. (Star, December 2008). Construction Industry Payment and Adjudication Act (CIPAA) that will launch soon in Malaysia will be the act to resolve the payment issues in the construction industry. The act is suggested to: a. Banning to use the Pay-When-Paid clauses b. A scheme to facilitated the timely payment procedures in construction works c. Establish a speedy disputes resolution process– adjudication d. Provides security and remedies for recovering the payment in construction contract. e. Thus, the enactment of CIPAA is good fair to contractor because it provides some relief if contractor is assured or given some security and remedies in the key issues of payment. CIPAA is a speedy disputes resolution process through adjudication and give a quick justice to unpaid contractor so that he would not suffers in silence and disputes in a longer time and costly through arbitration and litigation.

Conclusion Interim payment is important to both sides involved in contract. ​In a conclusion, late payment and non-payment certainly considered as a breach of contract and whether a ground for determination or termination by contractor is dependent on the contract provisions and the intention of contractual parties. The contractor must understand on his rights and remedies on part or non-payment and conditions for determination of his employment where applicable in most of standard forms of contract in construction industry.

References : 1.Issue of Late and Non-Payment in Construction Industry https://www.lawteacher.net/free-law-essays/contract-law/issue-of-late-and-non-payment-law-co ntract-essay.php 2. CHAPTER SEVEN : MEASUREMENT AND FINANCIAL CONTROL,Interim Valuation and Certification http://jpedia.jkr.gov.my/images/5/56/Chapter_7.pdf 3. ​STANDARD FORM OF CONTRACT TO BE USED WHERE BILLS OF QUANTITIES FORM PART OF THE CONTRACT P.W.D. FORM 203A (Rev. 2007) 4. PAM CONTRACT PAM 2006 (WITHOUT QUANTITIES)...