i

NATURE OF DELAY IN NOMINATED SUBCONTRACTING

MD. ASRUL NASID BIN MASROM

A dissertation submitted in fulfillment for the award of the degree of Master of Science in Construction Contract Management

Faculty of Built Environment Universiti Teknologi Malaysia

JUNE, 2007

ii

I declare that this thesis entitled Nature of Delay in Nominated Subcontracting is the result of my own research except as cited in the references. The thesis has not been accepted for any degree and is not concurrently submitted in candidature of any other degree.

Signature Name Date

: ................................................................. MD. ASRUL NASID BIN MASROM : ................................................................. : .................................................................

iii

DEDICATION

Thanksgiving to Allah s.w.t, as with the consent awarded, I am able to finish this dissertation within the given time.

To my beloved mother, Asmah Binti Majid, you are my strength when I was weak, my siblings, my beloved friends

and not forgetting to my late grandmotherTok Yah (mak) my late grandfatherTok Mat (abah) my late father.. may Allah bless youAmin.

iv

ACKNOWLEGDEMENT

First and foremost, I extend my highest gratitude to my supervisor of this dissertation, Dr.Nur Emma Mustaffa who has provided guidance, advice, support and thought in writing this dissertation.

Highest credit also goes to the coordinator of Dissertation, Assoc. Prof. Dr. Rosli b. Abdul Rashid, and other lecturers for the course of Master of Science (Construction Contract Management), for encouragement, guidance and critics.

I am also indebted to Sultan Iskandar Foundation (Yayasan Sultan Iskandar) for sponsoring my study. Not forgetting to my beloved mother, my siblings and my colleague for giving full support. Lastly , I would like to thank to my classmate and also others in giving me support and cooperation to complete this dissertation and also providing me essential information needed to fulfill my study requirements.

Thank you.

ABSTRACT

Construction delay is a results of occurrence beyond the control of either the contractor or the employer. Delay can be categorized as excusable, non-excusable, compensable and concurrent. There are many causes that can contribute delay in construction. However, delay in nominated subcontracting are very seldom acknowledged and the ways to improve also seldom discussed. As a result, to identify the causes of delay on account of nominated subcontractors work are often difficult. Thus, the objective of this study is to identify circumstances which are caused delay in nominated subcontractors work and their implication to the main contractor. In Malaysia, most of the standard form of contract such as PWD203A, PAM 19988 and CIDB 2000 have provided grounds which gives entitlement for an extension of time to the main contractor in the event of delay on the part of the nominated subcontractor. The methodology that has been applied in this study is a detail analysis of ten (10) cases which have been selected through Malayan Law Journal. The results proved that there are several circumstances which caused delay in nominated subcontractors work. Every causes have their own implication to the main contractor in terms of entitlement of extension of time as well as the liability of damages. This study concludes that, irregular payment is the prominent cause which contributed to delay in nominated subcontracting.

vi

ABSTRAK

Kelewatan di dalam pembinaan adalah disebabkan oleh kerana ia berlaku di luar kawalan samada daripada kontraktor ataupun majikan. Kelewatan boleh dikategorikan sebagai kelewatan dengan alasan, kelewatan tanpa alasan, kelewatan boleh dibayar gantirugi dan kelewatan serentak. Terdapat pelbagai punca yang menyumbang kelewatan di dalam pembinaan. Namun begitu, kelewatan di dalam kerja subkontraktor dinamakan yang perlahan adalah kurang diberi perhatian dan jarang dibincangkan. Akibatnya, kelewatan di dalam kerja subkontraktor dinamakan ini sukar untuk dikenalpasti puncanya. Oleh yang demikian, objektif utama kajian ini adalah untuk mengenalpasti keadaan-keadaan yang menyebabkan kelewatan di dalam kerja-kerja subkontraktor dinamakan serta implikasinya ke atas kontraktor utama. Di Malaysia, kebanyakan borang kontrak seperti PWD 203A, PAM 1998 dan CIDB 2000 ada menyediakan alasan-alasan yang boleh digunapakai untuk melayakkan kontraktor utama mendapatkan masa tambahan akibat kelewatan dari pihak subkontraktor dinamakan. Kaedah yang digunakan untuk mencapai objektif kajian, adalah dengan menganalisa 10 kes yang telah diperolehi melalui Jurnal Undang-undang Malaya (Malayan Law Journal). Keputusan kajian ini membuktikan terdapat beberapa keadaan yang menyebabkan kelewatan di dalam kerja-kerja subkontrak dinamakan. Setiap punca mempunyai implikasinya yang tersendiri ke atas kontraktor utama terutamanya di dalam menentukan kelayakan ke atas tambahan tempoh masa pembinaan begitu juga dengan tanggungan ke atas gantirugi. Kajian ini menyifatkan pembayaran yang tidak mengikut jadual adalah punca utama yang menyumbang kelewatan di dalam kerja-kerja subkontraktor dinamakan.

vii

TABLE OF CONTENTS

CHAPTER

TITLE

PAGE

Title Declaration Dedication Acknowledgement Abstract Abstrak Table of Contents List of Cases List of Table List of Figures List of Abbreviations

i ii iii iv v vi vii xi xv xvi xvii

1 1.1 1.2 1.3 1.4 1.5 1.6

INTRODUCTION Background Study Problem Statement Objectives of the Study Scope of the Study Significance of the Study Research Methodology 1.6.1 Stage 1: Identifying The Research Issue 1.6.2 1.6.3 Stage 2: Literature Review Stage 3: Data Collection 1 3 6 7 7 8 8 9 9

viii 1.6.4 Stage 4: Research Analysis 10 10

1.6.5 Stage 5: Conclusion and Recommendation

DELAY IN CONSTRUCTION PROJECT

2.1 2.2 2.3

Introduction Time is of The Essence Contract Commencement and Completion Date(s) 2.3.1 Substantial Completion

12 13 15 20 21 24 25 26 27 28 29

2.4 2.5 2.6

Definition of Project Delay The Nature of Delay Claims Causes of Delay 2.6.1 Owner-Caused Delay 2.6.2 Designer-Caused Delay 2.6.3 Contractor-Caused Delay

2.6.4 Subcontractor Delay 2.6.5 Delay Not Caused by Parties to the Design and Construction Stage 2.7 Type of Delay 2.7.1 2.7.2 2.7.3 2.7.4 2.8 2.9 2.10 Excusable Delays Non-Excusable Delays Compensable Delays Concurrent Delays

30 33 34 35 36 37 39 42 43

Extension of Time (EOT) Liquidated Ascertained Damages (LAD) Summary

3 3.1 3.2

SUBCONTRACT DELAYS Introduction Nature of subcontracting 3.2.1 3.2.2 3.2.3 Assignment Domestic Subcontract Nominated Subcontract 44 45 46 47 48

ix 3.3 Relationship of the Parties in Construction 3.3.1 Main Contractor 3.3.2 3.3.3 3.4 3.5 Nominated Subcontractor Domestic Subcontractor 49 51 52 53 53

Relationship between Employer and Subcontractor Relationship between the Main Contractor and Subcontractor

56

3.6

Provision under Subcontractor Form in relation to the Nominated Subcontractor 3.6.1 3.6.2 Delay and Extension of Time Relevant Events in Standard Form of Contract 3.6.3 Breach of Contract 3.6.4 Damages for Non Completion 59 65 66 57 58

3.7

Nature of Delay in Nominated Subcontracting Work 67

3.8

Circumstances Contributes to Delay in Nominated Subcontractors Works 3.8.1 Late Instructions 3.8.2 Delay in Delivery of Materials and Goods by The Employer 3.8.3 3.8.4 3.8.5 3.8.6 3.8.7 Late Payment Changes Out of Scope of Work Delay in Giving Possession of Site Suspension of Works Main Contractor Fails to Provide and Erect Facilities 3.8.8 3.8.9 Interference by The Main Contractor Negligence by The Nominated Subcontractor 3.8.10 Delay to Rectify Damages 3.8.11 Default by The Main Contractor 80 81 83 84 79 80 73 74 76 77 78 71 71

3.9

Summary

COMMON CIRCUMSTANCES CAUSING DELAY IN NOMINATED SUBCONTRACTING 4.1 4.2 Introduction Analysis of Cases 4.2.1 4.2.2 Number of Cases Within Time Frame Type of Nominated Subcontractor According to Specialisation 4.2.3 Causes of Delay 4.3 Circumstances Causing Delay in Nominated Subcontracting 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.3.6 Circumstances No.1 Circumstances No.2 Circumstances No.3 Circumstances No.4 Circumstances No.5 Circumstances No.6 91 92 97 100 104 108 111 88 90 85 86 86

CONCLUSION AND RECOMMENDATIONS

5.1 5.2 5.3

Introduction Summary of Research Findings Problems Occurred When Conducting This Study

115 115

120 120 121

5.4 5.3

Further Studies Conclusion

REFERENCES

122

xi

LIST OF CASES

CASE

PAGE

Alliance (Malaya) Engineering Co. Sd. Bhd. v. San Development Sdn. Bhd. (1974) 2 MLJ 94 Antara Elektrik Sdn.Bhd. v. Bell & Order Bhd (2002) 3 MLJ 321 Behzadi v. Shaftsbury Hotels Ltd (1992) Ch 1 Carr v. JA Berriman Pty Ltd (1953) 89 CLR 327 Chandler Brothers Ltd v. Boswell (1936) 3AII ER 179 Clydebank Engineering & Shipbuilding Co. v. Castaneda and Others (1905) AC 6 Croudace Ltd. v London Borough of Lambeth (1986) 33 BLR 25 CSK Electrical Co. Bhd. V. Regional Construction Sdn. Bhd. (1987) 2 MLJ 76 CSK Electrical Co. Bhd. V. Regional Construction Sdn. Bhd. (1987) 2 MLJ 763 Davies & Co.Shipfitters Ltd. v. William Old Ltd(1969) 67 LGR 395 DEC Electric, Inc. v. Raphael Construction Corp (1989) 538 So. 2d 963, 964 Dodd v. Churton (1897) 1 Qb 562 Dunlop Pneumatic Tyre Co. Lt v. New Garage Motor Co. Ltd. (1915) AC 79 Engineering Construction (PTE) Ltd v. Ohbayashi Guni Ltd. (1986) 1 MLJ 21

75,93 75,96 15 97,102 56 43 74

75,112

79 48

75 110

42

75,96,98

xii Engineering Construction (PTE) Ltd v. Ohbayashi Gumi Ltd (1986) 1 MLJ 218 Equitable Debenture Assets Corporation Ltd v. Morgan Branch Roberts and Ors. (1984) 2 CLD 10-01 Freeman & Son v. Hensler (1900), 64 JP 200 Freeman v. Hensler (1900) 64 JP 260 Geary, Walker & Co Ltd v. W Lawrence & Sons Ltd (1906) Gilbert Ash (Nothern) Ltd v Modern Engineering (Bristol) Ltd (1973) 3 AII ER 195 GLC v. Cleveland Bridge and Engineering Co Ltd (1984) 34 BLR 50 Glenlion Construction Ltd v. Guiness Trust (1987) 39 BLR 89 Glenlion Construction Ltd. V. The Guiness Trust (1987) 39 BLR 89 H. Fairweather & Co. Ltd. v. London Borough of Wandsworth (1987) 39 BLR 106 Hampton v. Glamogan County Council (1917) A.C 17 Harbutts Plasticine Co. Ltd. v. Wayne Tank & Pump C. Ltd. (1970) Helstan Securities Ltd. v. Hertfordshire County Council (1978) 3 AII ER 262, Messrs Renhold Henry Boot Construction (UK) Ltd v. Malmaison Hotel (Manchester) Ltd (1999) 70 CLR 32 Hoenig v Isaacs (1952) 2 All ER 176 Holme v.Guppy (1838) 2 M & w 387 Hong Kong Fir Shipping Co. Ltd v. Kawsaki Kisen Kaisha Ltd (1962) J.M. Hill v London Borough of Camden (1980) 18 BLR 31 Jurong Engineering Ltd v. Paccon Building Technology Pte. Ltd (1999) 3 SLR 667 (CA) Kitsons Sheet Metal Ltd v. Matthew Hall Mechanical and Electrical Engineers Ltd (1989) 47 BLR 82 Lebaupin v. Crispin (1920) 2 KB 714

83

81 100,103 18 57

57 18 73 28

29 54 66

46

39,40 19 110 66 78

56

18 34,63

xiii Levy v. Assicurazioni Generali (1940) 2 AII ER 437 Lightweight Concrete Sdn.Bhd. v. Nirwana Indah Sdn.Bhd. (1999) 5 MLJ 351 London Borough of Hounslow v. Twickenham Garden Developments Ltd. (1970) 7 BLR 81 Maryon v. Carter (1830) 4 C & P 295 Miller v. London County Council (1934), 151 LT 425 Mitsui Construction Co. v. The Attorney General of Hong Kong (1986) CLJ 134 Multiplex Constructions Pty Ltd v. Abragus ty Ltd (1992) Neodox Ltd v Swinton and Pendlebury Borough Council (1958) 5 BLR 34 Nokes v. Doncaster Amalgamated Collieries Ltd (1940) A.A 1014 (H.L) North West Metropolitan Regional Hospital Board v. TA Bickerton & Sons Ltd. (1970) 1 AII ER 1039 Peak Construction (Liverpool) Ltd. v. Mcknney Foundations Ltd. (1970) Penang Development Corporation v. Teoh Eng Huat (1992) 1 MLJ 749 Percy Bilton Ltd V. Greater London Council (1982), 20 BLR 1 Pigott Construction Co. Ltd. v. W.J. Gowe Ltd (1961) 27 DLR (2d) 258 Pritchett,etc.,Co. Ltd. v. Currie (1916) 2 Ch 515 C.A Roberts v Bury Commissioners (1870) LR 5 CP 310 Robinson v Harmon (1848) 1 Exch 850 at 855 Ryoden (M) Sdn.Bhd. v. Syarilkat Pembinaan Yeoh Tiong Lay Sdn.Bhd.(1992) 1 MLJ 33 Shanklin Pier Ltd. v. Detel Products (1951) 2 K.B 854. Shen Yuan Pai v. Dato Wee Hood Teck & Ors (1976) 1 MLJ 16 Smith and Montgomery v. Johnson Bros Co.Ltd. (1954) 1 DLR 392 64

73,105

102 63 14,26,43

77 36

37,72

46

52 15,27,40 63 27,29 113 54 111 107

54,94 55 72,108 47

xiv Surrey Health Borough Council v. Lovell Construction (1990) 48 BLR 108 Teoh Kee Keong v. Tambun Mining Co. Ltd. (1968) 1 MLJ 39 Tham Cheow Toh v. Associated Metal Smelters Ltd. (1972) 1 MLJ 171 Thamesa Designs Sdn.Bhd v. Kuching Hotels Sdn.Bhd. & 3 Ors. (1993) 2 AMR 2083 The Queen in Right of Canada v Walter Cabott Construction Ltd (1975) 21 BLR 42 Wallis v. Robinson (1862) 130 RR 841 Watson v Auburn Iron Works (1974) 318 NE 2d 508 Wells v. Army & Navy Co-operative Society (1902)86 LT 764 Westminster City Council v. Jarvis & Sons Ltd (1970) 7 BLR 64 Woh Hup (Pte) Ltd & Anor v. Turner (East Asia) Pte Ltd. (1987) 1 MLJ 443 Young & Marteen Ltd v. . Mcmanus Childs Ltd (1969) 1 AC 454

64 107 107

40,78,101

102 54 96 110 1,19,68,70

99 82

xv

LIST OF TABLES

TABLE NO.

TITLE

PAGE

Table 3.1

Comparison of Grounds for Granting Extension of Time in Different Standard Forms of Contract 62

Table 4.1

Number of Cases Dealing With The Period of Time 87

Table 4.2

Number of Cases Dealing With Types of Nominated Subcontractor 89 90

Table 4.3 Table 5.1

Causes of Delay Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor

116

Table 5.2

Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor 117

xvi

LIST OF FIGURES

FIGURE NO.

TITLE

PAGE

Figure 1.1 Figure 2.1

Research Methodology The Relationship Between Cost and Construction Duration

11

24 32 50 55 69 67

Figure 2.2 Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.4 Figure 4.1

Causes of Delay Contractual Relationships of the Parties Relationship Arising From a Subcontract Delay on the Part of Nominated Subcontractor Delay Caused by Nominated Subcontractor Number of Cases Dealing With The Period of Time

88

Figure 4.2

Number of Cases Dealing With Type of Nominated Subcontractor 89 91

Figure 4.3

Causes of Delay

xvii

LIST OF ABBREVIATIONS

CIDB PWD JCT PAM RIBA SO EOT LAD

Construction Industry Development Board Public Work Department Joint Contract Tribunal Persatuan Arkitek Malaysia Royal Institute of British Architects Superintending Officer Extension of Time Liquidated Ascertained Damages

CHAPTER 1

INTRODUCTION

1.1

Background Study

Construction industry is a series of different specialist in contributing to the work at different times, different skills, work for different organization and sometimes different geographical locations.1 However, the parties including clients, designers, contractors and suppliers share the same goals of minimizing costs and duration to deliver the projects.2

Furthermore, every construction project has a defined goal or objective, specifics tasks, defined time including beginning and end, defined deliverables and resources being consumed. To complete any projects successfully, many tasks need to be accomplished by the project team for instance, the owner must define the requirements, the designer needs to translate the requirements into contract document and the construction
Murdoch, J. and Hughes,W. (2000).Construction Contracts-Law and Management,3rd ed., Spon Press, London. 2 H.A. Rahman (2006). Mitigation of Delaying During Commissioning of Construction Project Using Knowledge Management- Contractors Perception, Quantity Surveying National Convention. 137-150
1

2 professionals need to organize and manage the physical construction in accordance with the contract document.3

Besides, project schedules are useful and essential to the successful coordination of the project. Eggleston4 stipulates that, most construction contracts specify performance time in achieving completion of the whole of the works. On top of that, time may be fixed either by reference to specified dates or by reference to a construction period and it is essential that precise completion date can be established.

Sundra Rajoo5 is of the view, a contractors obligation is to carry out and complete the works accordance to the contract. Furthermore, the contractors legal obligation is to complete the project by the date for completion or within the date for completion.6

Wright7 however, asserts that finishing a project on schedule is a difficult task to accomplish in the uncertain, complex, multiparty and dynamic environment of construction. Most of projects are eventually completed more or less to specification but seldom on time and within budget. Thus, many of these problematic situations are either beyond control and often lead to delay.8 1.2 Problem Statement

3 4

Eggleston,B. (1997). Liquidated Damages and Extension of Time. 2nd ed. Oxford: Blackwell Science Ltd. Rajoo, S. (1999).The Malaysian Standard Form of Building Contract (The PAM 1998 Form), Malayan Law Journal, Malaysia. 6 M.S.M.Danuri (2006). Delay Claims and Damages, Proceedings of the 2006 One Day Seminar on Mitigation of Delay in Construction Projects. November 23, University of Malaya 7 Wright,J.N. (1997). Time and Budget: The Twin Imperatives of a Project Sponsor. International Journal of Project Management. 15(3): 181-186 8 H.A.Rahman (2001). Critical Factors for Mitigation of Delay in Construction, Conference paper of National Conference of Construction Industry Development. Johor Bahru
5

Levy, S.M. (1994). Project Management in Construction, 2nd ed., Mgraw-Hill Inc. USA.

Many construction projects suffer from delay. Failure to finish either within the original planned time and budget or both, ultimately results in a delay. In addition to that, construction projects involve more variables and uncertainties than in the product line also increases the probability of delay.9

Therefore, disputes involving delayed of construction project are widespread in the construction industry.10 Datuk Seri Mohd Effendi Norwawi has noted that delays in government projects have become crucial problems which need to be solved immediately.11 Furthermore, National House Buyer Associated12 highlight that the complaints statistics regarding late delivery and liquidated ascertained damages (LAD) in year 2002 is 13%, and 14% in year 2005. Besides, abandoned projects had increased from 19% in 2002 to 23% in 2005.

Recently, the blame game over the long-delayed of Sultanah Bahiyah Hospital in Alor Setar continues between the parties involved. This project failed to be completed on time in December 2003 and due to that the cost incurred to RM565 million for the four-year delay. Nevertheless, there is nobody who wants to take the blame over this problem. In fact, the parties still unable to identify the causes constitute to the four-year delay of the hospital.13

How delay can occur in construction project? There are many ways that a construction project can be delayed. In short, all parties to the design and construction
H.A.Rahman (2001). Experiences in Handling Project Delays In Construction, National Construction Industry Development Conference.1-15 10 Smith, Curie & Hancock (2001). Common Sense Construction Law- A Practical Guide for the Construction Profesional, John Wiley & Sons, Canada 11 F.N.Karim , Incompetent Contractors, Delays, Cost Overruns, Failed Projects: Lesson Learnt. News Straits Times, February 5, 2007. 12 Complaints Statistics, News Sunday Times, February 11, 2007 13 R.Abdullah . Delay of Sultanah Bahiyah Hospital Project, News Straits Times, March 8, 2007
9

4 process can delay the project. Delay may be the result of their direct action or of their failure to act especially if they have duty to act in the circumstances.14

Nevertheless, unexpected events may happen during the life of the construction project and can affect construction time necessary for completion of the work. For instance, force majeure, negligence, discrepancies and so forth, may occur on the construction project to increase the time of performance of the overall project or affect any given activity and most common causes differ under different project. 15

Based on Sundra Rajoos views16, it shows that delaying circumstances can be of three types namely delay caused by Contractor, delay caused by the natural events and delay caused by Employer or his agent. Besides, delay caused by nominated subcontractor or supplier also disturb of the progress of the works.17

In addition to that, it has been highlighted in several studies on causes of delay and one of them shows that delays in subcontractors work has been ranked at no. 25 out of 73 causes.18 According to a study on contractors responses of the significance of factors causing delays in building projects, it has been asserted that delay in subcontractors work has been ranked at no. 11 out of 20.19 Further to this, study on delay factor in relation to subcontractors also proven that it falls at ranking no. 9 out of 28.
20

Another study proves that, by basing on the overall ranking of the 44 factors, delay in
Bramble,B.B, Callhan, M.T.( 1992). Construction Delay Claims, 2nd ed., John Wiley & Sons, New York. Fong, L.C. (2004). The Malaysian PWD Form of Construction Contract, Sweet & Maxwell, Malaysia 16 Rajoo, S. (1999).The Malaysian Standard Form of Building Contract (The PAM 1998 Form), Malayan Law Journal, Malaysia. 17 Carnell,N.J (2005). Causation and Delay in Construction, Blackwell Publishing Ltd., UK 18 Hadi,S.A & Al-Hejji, S.(2006), Causes of Delay in Large Construction Projects, International Journal of Project Management, 24, 349-357. 19 Kumaraswamy,M.M & Chan, D.W.M.(1998).Contributors to Construction Delay, Construction Management and Economics, The University of Hong Kong,16, 17-29. 20 Odeh, A.M & Battaineh,H.T.(2002). Causes of Construction Delay: Traditional Contracts, International Journal of Project Management, 20, 67-73.
15 14

5 subcontractors works is among the top 4.21 With reference to that, it reveals that delay caused by subcontractors can be considered as a significance cause that contributes to delay in projects. Therefore, these studies show that delay caused by nominated subcontractor is a significance cause of delay in construction world.

Basically, under PWD 203A Clause 43(k), PAM 98 Clause 23.7(vii) and CIDB Clause 24.1(p) has asserted that the contractor is allowed extension of time on account of delays on the part of the nominated sub-contractor or nominated suppliers. Due to that, the main contractor is entitled to an extension of time when delayed by a nominated subsubcontractor and there is no liability on the part of the employer for liquidated damages.

However, a particularly controversial area of risk allocation in respect of nominated sub-contractors and suppliers is that of delay. The reason why this is controversial is that, where such an extension of time is granted to main contractor, the employer is deprived of the right to claim liquidated damages which the main contractor would otherwise passed on to the delaying sub-contractor.22

Besides that, in the case of Westminster City Council v. Jarvis & Sons Ltd (1970) 7 BLR 64 , cites that the main contractor claimed extension of time by rely on phrase delay on the part of nominated sub-contractor and has taken all reasonable steps to avoid and reduce. Finally, the court held that no extension should be granted.23 Thus, it shows to identify causes of delays are often difficult and the burden on the party seeking to prove delay is a heavy one.24 Hence, what is the nature of the delay in nominated subcontractors work? What are the main causes that contribute to this delay? What are

21

Aibinu,A.A, & Odeyinka,H.A.(2006). Construction Delays and their Causative Factors in Nigeria, Journal of Construction Engineering and Management, 132, 667-677. 22 Murdoch,J. , Hughes, W. (2000). Construction Contracts- Law and Management, Spon Press, London. 23 Ibid, 21
24

Carnell,N.J (2005). Causation and Delay in Construction, Blackwell Publishing Ltd., UK

6 common circumstances causing delay in nominated subcontracting and their implication to the main contractor?

In the view of the above, it is necessary for the parties in this construction industry, mainly employer, architect, main contractor and nominated subcontractor to have better knowledge of the causes of delay in nominated subcontractors work before considering its the implication to the main contractor.

1.3

Objective of the Study

With reference to the above problem statement, the following is the objective of this study: 1. To identify circumstances which are caused to delay in nominated subcontractors work and their implication to the main contractor.

1.4

Scope of the Study

7 The following the scope of study: 1. The approach adopted in this study is case law based. The case will be

referred is only having connection to this study which is delay in nominated subcontractors work. Although, the issue of delay is closely related to extension of time and liquidated damages, these areas are not elaborated in detail.

2.

The standard forms of contract used in Malaysia, PAM 98, PWD203A and

CIDB 2000 will be compared and discussed. The court cases referred in this study include Malaysia, Singapore, Australia, and English cases. There is no limit to the cases chosen in terms of time frame, as long as it has not been overruled by higher court and establishes a good law.

1.5

Significance of the Study

Basically, this study is expected to answer some of the uncertain issues that arise in construction contracts such as issues that related delay in construction project. In accordance to that, issues will be analyzed based on the interpretation and judgment by the courts. Normally, the reason why these issues arise in the event of delay is due the parties who are unclear and unaware of the causes of delay. Thus, by identifying the ground or causes of delay in construction project, this study will be able to create awareness to the parties consist of employer, consultant, contractor, sub-contractor and supplier about their obligation in carrying out the works within the time, budget and quality as in the contract.

8 In addition to that, it can be as a basic guidance for those who are involved in construction industry for instance, developers, architects, engineers, quantity surveyors, and etc. in relation to the issue of delay. Finally, hopefully it assists in avoiding unnecessary disputes while assuring project success and better relationship among the contractual parties.

1.6

Research Methodology

In order to achieve the objectives of this study, a systematic process of conducting this study had been organized. Basically, this study process comprised of five major stages, which involved identifying the study issue, literature review, data collection, data analysis, conclusion and suggestions.

1.6.1 Stage 1 : Identifying The Research Issue

The study issue arises from intensive reading of books, journals and articles which can be attained from the UTM library, Building Construction Information Centre (BCIC) and Resource Centre of Alam Bina (RC).Based on the study issue, the objective of the study has been identified. In addition to that, this research is executed to review the relevant court decisions, with the intention of identifying and determining the common causes constitutes delay claim in construction project.

1.6.2 Stage 2 : Literature Review

Collection of various documentation and literature regarding the study field is of most important in achieving the research objectives. Besides, secondary data is collected from reading materials in printing form like books, journals, research paper, magazines, reports, proceedings, seminar paper as well as information from internet. It is important to identify trends and developments over time in construction industry, as well as the general state of knowledge concerning the subject area of delay such as background, definition, type, procedures, relevant events and etc.

1.6.3 Stage 3 : Data Collection

In this stage, after identifying all the background and relevant issues through literature review, legal cases based on written opinions of courts, which are related to the study issue, will be collected from different sources such as All England Law Reports, Malayan Law Journals, Singapore Law Report and etc. via UTM library electronic database, namely Lexis-Nexis Legal Database.

1.6.4 Stage 4: Research Analysis

10 Once the previous related court cases under Malayan Law Journal are collected, it will be conducted by reviewing and clarifying all the facts of the cases. The focus will be on two parts, issues in delay caused by nominated subcontractors and the other is the implications of the delay towards the parties involved in the contract especially the main contractor. The circumstances which constitute delay in nominated subcontractors work will be determined from the relevant cases. After issues presented by each cases, thorough discussion and comparison will be done in order to achieve objectives of this study

1.6.4 Stage 5 : Conclusion And Recommendation

In this stage, reviews on the whole process of the study will be made with the intention to identify whether the study objective has been achieved. After presenting the study findings, recommendations and limitations of the study, topics for further research emerge.

11

RESEARCH ISSUE The issue is what the circumstances are caused to delay in nominated subcontractors work and implication to the main contractor.

RESEARCH OBJECTIVE To identify circumstances which are caused to delay in nominated subcontractors work and implication to the main contractor.

LITERATURE REVIEW Time for performance and delay, occurrence of construction delay, types of delay, and delay in phases of construction, consequences of delay, provision of standard forms of contract, delay in other country, extension of time, liquidated ascertained damages, sub-contracting.

RESEARCH METHOD Data collection: Legal cases in relation to the causes of delay in construction Access to UTM library electronic database(Lexis-Nexis Legal Database) Collect cases from All England Law Report, Malayan Law Journal, Singapore Law Report, Current Law Journal and etc. Data analysis: Detail study on legal cases

DISCUSSIONS

CONCLUSION & RECOMMENDATIONS Figure 1.1: Research Methodology

12

CHAPTER 2

DELAY IN CONSTRUCTION PROJECT

2.1

Introduction

Some delays are the result of occurrences beyond the control of either the contractor or the owner. In addition to that, many delays however, result from one party or the others failure to fulfill its contractual obligations. Any entity involved in the construction process must understand its rights and responsibilities in each type of delay situation.

To have such an understanding, employers, contractors, subcontractors, and material suppliers must be able to recognize and distinguish among the various types of delay. Thus, this chapter will explain on completion, definition and characteristics of delay, relevant events set out under standard form of contract i.e. PWD 203, PAM 98, and CIDB and briefly JCT 98.

13 2.2 Time is of The Essence

In construction contract, time may be stated either by reference to specified date or by reference to a construction period. Thus, this part will consider the basic principles of time in relation to construction contracts. Normally, when parties enter into a contract it is normal that they specify the time in which performance of that contract must be carried out.25

An interesting stipulation encountered frequently in building contracts is one which purports to state that time is of the essence of the contract. The stipulations are usually inserted in the preliminaries section of the bills of quantities or in some portion of the contract specification. In many cases, it amounts to nothing more than just a well intended exhortation to the contractor to apply himself diligently to complete the works on time.26

However, Martin27 has highlighted that time of the essence is one of the most misused contractual terms, particularly in construction contract. In the normal situation, where a time for completion is expressly stated in the contract, thus the employer is entitled to damages if the contractor does not complete on time. Besides that, time is of the essence where failure to meet the particular date is a fundamental breach of contract entitling the other party to treat the contract as repudiated and claims damages. On the other hand, in a case of Miller v. London County Council28 cites that the parties lost the benefit of the clause due to the fact that stated time is not definite clearly in the contract,

Martin,R.L.(2004), Introduction Time Within Contracts, Bullet-Proof EOTs Conference.July 27. Kuala Lumpur. 1-21. 26 Fong,C.K. (2004) Law an Practice of Construction Contracts, 3rd Edition, Thomson Sweet & Maxwell Asia, Singapore 27 Martin,R.L.(2004), Introduction Time Within Contracts, Bullet-Proof EOTs Conference.July 27. Kuala Lumpur. 1-21. 28 Miller v. London County Council (1934), 151 LT 425

25

14 thus there was no date from which the liquidated damages could run and damages could be recovered.

In relation to that, there is a situation under common law where time is shown to be the essence of a contract; the court will hold that a delay in its performance constitutes a breach which goes to the root of the contract, regardless of the magnitude of the breach or the scale of its actual consequences. The innocent party, in the circumstances, is entitled to terminate the contract and bring an action for damages against the defaulting party.29

Under what circumstances can time be held of the essence of a contract? In United Scientific Holding Ltd v Burnley Council, the House of Lords, citing with approval a statement on the position in Halsburys Laws of England (4th Ed), ruled that time should not be held to be of the essence unless the following conditions present:30

1. The parties must have expressly stipulated in the contract that conditions as to time should be strictly complied with. 2. The nature of the subject-matter of the contract and the surrounding circumstances demonstrate that time should be considered to be of the essence. 3. The party who has been subjected to unreasonable delay gives notice to the party in default making time of the essence.

It must be a term so fundamental that its breach would render the contract valueless, or nearly so, to the other party. It is noteworthy that where a term is not originally of the essence it may be made of the essence by one party giving the other a
See United Scientific Holdings Ltd v. Burnley Council (1978) Fong,C.K. (2004) Law an Practice of Construction Contracts, 3rd Edition, Thomson Sweet & Maxwell Asia, Singapore
30 29

15 written notice to that effect.

31

In that case, failure to comply with the notice would be

evidence of a repudiatory breach rather than a repudiatory breach itself. This may be of limited use in cases where a contractor consistently fails to meet time targets for reasons which do not entitle him to an extension of time under the contract provisions. However, in the case of most standard form building contracts, the provisions for determination (e.g for failure to proceed regularly and diligently) adequately cover the situation.

There is authority that time will not normally be of the essence in building contracts unless expressly stated to be so. This is because the contract makes express provision for the situation the employer is wholly or partly responsible for the contractors failure to complete on time where the employer cannot recover liquidated damages unless the contract provides otherwise.32

In a nutshell, most contract documents provide that time is of the essence. This clause makes time a material requirement of the contractors performance obligation and ensures that the owner can recover delay damages for missed milestone or completion dates. In the absence of such a clause, or an expression by the contract as a whole that time is material element of performance , delay damages may not recoverable.

2.3

Contract Commencement and Completion Date (s)

Time is an extremely important issue in construction. Together with cost and quality, it is a primary objective of project management and a major criterion by which

31 32

See Behzadi v. Shaftsbury Hotels Ltd (1992) Ch 1 See Peak Construction (Liverpool) Ltd. v. Mcknney Foundations Ltd. (1970)

16 the success of a project is judged. It has clearly stated in every form of contract including PWD 203A, PAM 98, CIDB 2000 and JCT 98 which sets out:

PWD 203 (Clause 38 (b)) Unless the Contract Document shall otherwise provide, possession of the Site as complete as may reasonably be possible but not so as to constitute a tenancy, shall be given on or before the Date for Possession stated in the Letter of

Acceptance of Tender to the Contractor who shall thereupon and forthwith commence the Works and regularly and diligently proceed with and complete the Works on or before the Date for Completion as stated in the appendix.

PAM 98 (Clause 21.1) On the Date of Commencement stated in the Appendix, possession of the site shall be given to the Contractor who shall thereupon begin the Works, and regularly and diligently proceed with the same and complete the same on or before the Date for Completion stated in the Appendix subject to any extension of time in accordance with Clause 23.0 and/or sub-clause 32.

CIDB 2000 (Clause 17.2 (a) Unless the Contract otherwise provides, the Contractor shall be entitled on or before the Date of Commencement access to and possession of the Site or such part of the Site to enable the Contractor to commence the Works. The Contractors access to possession of the Site or such part of the Site shall not be exclusive but shall be subject to the Employers rights under Clause 18 in respect of other contractors.

17 JCT 98 (Clause 23.1) On the Date of Possession of site shall be given to the contractor who shall thereupon begin the Works, regularly and diligently proceed with the same and shall complete the same on or before the Completion Date.

These clauses are identifies the three basic time-related issues as commencement, progress and completion. In fact there are also two other issues where the contractors continuing obligations after completion, and the extension of time which may be available to the contractor when the work is delayed by certain specified clause.

In addition to that, the factor to be analyzed in assessing a delay claim is the contract commencement, progress and completion dates. Based on the study carried out by Scott33, it shows that construction contracts usually specify performance periods either by setting forth commencement and completion dates or by establishing that the work shall be completed within a specified number of days after the notice to proceed or commencement of work.

Under the commencement factor, the issues at the beginning of the contract involve giving possession of the site to the contractor, the timing of this possession and potential delays to the possession. Normally, possession should take place not more than two months after the successful contractor has been awarded the contract. Too speedy a start may cause extra work and delay, rather than hastening the construction period. This needs to be balanced against the needs of the client to avoid undue delay which may cause extra costs.34

Scott,S. (1997), Delay Claims In U.K Contracts, Journal of Construction Engineering and Management. 238-242. 34 Murdoch, J., Hughes,W. (2000), Construction Contracts-Law and Management, 3rd Edition, Spon Press, London

33

18 Where a contract specifies the date for the commencement of work, the employer may be deemed to have warranted the readiness of the work site as the specified date. The employer has to give possession of site to the contractor to permit him to carry out his obligations.35 Clause 21.1 of the PAM 98 stipulates expressly what would otherwise be implied as was in the case of Freeman v Hensler36 where if the work site is not a sufficient state of readiness to permit the contractor to begin work on that date, the employer may be liable for delay damages. In an attempt to avoid liability for such delays, employers often include a statement that the specified commencement date is only a projection or an estimate.

While, in the situation where a construction contract fixes a date for completion, but makes no provisions to the rate at which the works are to progress, it appears that the courts will not imply any such term. This is because, in the absence of any indication to the contrary, the contractor has absolute discretion as to how the progress is planned and performed, provided only that it is completed on time. 37

Furthermore, while many contracts require the contractor to submit a programme for the execution of the works, this in itself does not mean that there is contractual obligation to keep to that programme.38 Indeed, it should be appeared that, if there were such an obligation, it would apply to both parties. Thus, employer would have to ensure that the contractor was provided with all necessary information at such a time as to enable compliance with programme.

In construction contracts, completion is a vague concept. The fact that building projects can be handed over in a less than perfect state is to the advantage of both parties.
35

Rajoo,S. (1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), Malayan Law Journal, Malaysia. 36 Freeman v. Hensler (1900) 64 JP 260 37 See GLC v. Cleveland Bridge and Engineering Co Ltd (1984) 34 BLR 50 38 See Kitsons Sheet Metal Ltd v. Matthew Hall Mechanical and Electrical Engineers Ltd (1989) 47 BLR 82

19 This is clear when the legal meaning of completion is considered. A contractor cannot truly be said to have totally performed the contract if a single item of work is missing or defective. However, from a practical point of view, to delay the handover of something as complex as a large building for a trivial breach would causing enormous inconvenience. As a result, most building contracts require the contractor to bring the works to a state described by such expressions as practical completion or substantial completion.

There is a question of whether or not a building is complete in this sense is normally a decision for the contract administrator, based on an inspection of the works and the exercise of reason. Practical completion can be defined as completion for all practical purposes that are to say for the purpose of allowing the employers to take possession of the works and use them as intended. 39

In addition to that, many contracts also include interim milestone dates, specifying the dates upon which certain portions of the work are to be completed. The inability to meet interim milestone dates may provide the basis for an acceleration directive claims. To avoid misunderstandings and disputes, all parties should take great care to clearly define contract commencement dates and the interim completion to meet any such dates should also be clearly defined.

2.3.1 Substantial Completion

39

Westminster CC v Jarvis & Sons Ltd (1970) 7 BLR 64

20 Most of contract documents define substantial completion of the work as the stage in the progress of the work when the work or a designed portion thereof is sufficiently complete so the owner can occupy or utilize the work for its intended use.

Robinson40 has emphasized that the phrase substantial completion has been adopted to describe the state of completion that the law would imply as the minimum prerequisite for entitlement to payment under an entire contract in the absence of an express requirement for entire completion. In addition to that, the word substantial imports a somewhat indeterminate requirement for a level of achievement falling short of completion.

In practice, acceptance of the contractors performance will reflect the practicalities of the employers needs at the point in time. In the case of Hoenig v Isaacs41, it shows that the plaintiff was employed by the defendant to decorate and furnish a flat for the sum of 750, the term of payment being net cash, as the work proceeds and balance on completion. The defendant paid 350 on the ground that some of the design and workmanship was defective. The judge held that there had a substantial performance of the contract and the defendant was liable for 750, less the cost of remedying the defects which was assessed at 56.

Generally, an owner may not assess, and a contractor is not liable for, delay or liquidated damages after substantial completion. Thus, even when a contractor does not fully completed the work specified by its contract, or has performed work in a defective manner, the owner may prevented from collecting actual delay damages or liquidated damages if the contractor has advanced work sufficiently to have achieved substantial completion.
Robinson,N.M. (1996). Construction Law in Singapore and Malaysia, 2nd Ed. Butterworth Asia, Singapore. 41 Hoenig v Isaacs (1952) 2 All ER 176
40

21

2.4

Definition of Project Delay

Todays projects are technically complex and scheduled driven. Multidisciplinary nature of modern construction projects require management and execution by highly skilled and task organized project team. For a successful completion of any project, both the timing and cost have to be carefully planned, monitored and controlled. Project must also meet the technical performance specifications and mission to be performed.

Nevertheless, Ndekugri42 asserts that these objectives may be impeded by situations where contractor fails to complete the works according to due date. Basically, the term delay is defined as the extension of time beyond planned completion dates traceable to the contractors.43

Besides that, Turner44 has viewed delay as being treated only if it leads to failure to achieve the completion date and not in its effects on the programmed before completion. On the entirety principle, delay is assumed to be the responsibility of the contractor, so leading to him having to pay liquidated damages, even if delay is not necessarily his fault, unless contract specifically provides otherwise.

I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University. 35,1-14. 43 Kaming,P.F.,Olomolaiye,P.O, Holt,G.D. & Harris,F.C.(1996). Factors Influencing Construction Time and Cost Overruns on High-Rise Projects in Indonesia. University of Wolverhampton,U.K.15, 83-94. 44 Turner,D.F.(1989). Building Contract Disputes-Their avoidance and Resolution, Longman Group UK Limited.

42

22

Meanwhile, in business, a project is defined as delayed when its progress has not matched the planned progress. On the other hand, delay also can be defined as a slowing down of a work without stopping it entirely.45 Besides, in the laypersons sense of the word delay simply means a postponement in the completion of a task. But, in the legal sense of the word delay can actually involve several distinct that present different legal claims and defenses.46

All significant stages of the project must take place no later than their specified dates, to result in total completion on or before the planned finish date. In general, delay in progress of works has a significant effect to the project performance, it does not only increase the time required to perform the contract work but may also increase the cost for many of the parties involved. To recover damages for extended performance or obtain a time extension, the delay must affect the overall project completion.

The client, consultants, contractors and the suppliers that are all interrelated to form the life cyclic of construction may cause delays. Many things may occur on the construction project to increase the time of performance of the overall project or affect any given activity and most common causes differ under different site conditions. Very long delays can be caused by pre-verification, legal or planning difficulties, shortage of information, lack of funds or other resources, and a host of other reasons. However, a common risk to projects is failure to start work on time and hardly be expected to finish on time.47 Every construction contract considered time as the essence of the project. Typically, a time period is specified as the contract duration. The contractor is obliged under the contract to achieve substantial completion within the specified period.
45 46

Bartholomew,S.H.(1998). Construction Contracting/Business And Legal Principles, New Jersey. Cox,A. & Thompson,I. (1998). Contracting for Business Success, Thomas Telford Publishing, U.K 47 Turner,D.F. (1989). Building Contracts Disputes-Their Avoidance and Resolution, Longman Group UK Limited.

23 Unfortunately, proves that unexpected events can happen during the life of the construction project and can affect the construction time necessary for the completion of the work. When the contractors fail to complete the project within the contract period, delay becomes the reality of the project. 48

If the panned timescale is exceeded, the original cost estimation and budget are almost certain to be exceeded too. According to Yahya49, a project costs money during every day of it existence from beginning of the program right through until the project end, both in direct cost and indirect cost. Direct cost included material, machinery, workforce and supervision costs. The variable or direct project costs of material and workforce man-hours are time-related in several ways. Cost inflation is one factor, so that a job started and finished later than planned can be expected to cost more because of intervening materials price rises and increases in wages, salaries and other costs. While, the fixed or overhead cost of management, administration, accommodation, services and general facilities are directly time-related. If the project runs late, then these costs will have to be come for a longer period than planned and must exceed their budget.

The success of a project depends on getting things done on time and within budget. The time/cost relationship is illustrated in Figure 2.1. According to Figure 2.1, an optimum point can be achieved with reasonable construction duration, well-planned resources and maximum usage of resource.

Cost Crash cost

48

Kumaraswamy,M.M & Chan,D.W.M. (1996). Contributors to Construction Delays, Construction Management and Economics.The University of Hongkong, 16,17-29. 49 Yahya, I.A. (2006). Delay in Construction Projects, Proceedings of the 2006 One Day Seminar on Mitigation of Delay in Construction Projects. November 23, University of Malaya

Minimum cost

Optimum Duration

24

Figure 2.1: The relationship between cost and construction duration Source: Adopted from Yahya,I.A (2006)

2.5

The Nature of Delay Claims

The legal rights and obligations of the parties associated with performance delays arise from either an express contract obligation to perform by given date or within a specified time frame, or the implied obligation in every contract that each party will specified time frame, or the implied obligation in every contract that each party will not delay, hinder or interfere with the performance of the party.50 A party that hinders or prevents performance by the other party, or that renders performance impossible, may not benefit from its wrong. This rule of law prevents a party from taking advantage of its own contract breaches. The same rule also provides a basis for the recovery of costs generated by delays that are the fault or responsibility of one of the contracting parties. Basically, the contractors obligation to complete the works by the completion date is, like all such obligations, backed up by legal sanctions. Under certain type of

Smith, Curie & Hancock (2001), Common Sense Construction Law- A Practical Guide for the Construction Profesional, John Wiley & Sons, Canada

50

25 contract, time is expressly or impliedly of the essence.51 Where this is so, any lateness in performance entitles the other party to determine the contract. However, construction contracts very rarely fall into this category. Consequently, the employers remedy for late completion will be award of damages for breach of contract.52

Most of the studies has been carried out and indicate that common causes of delays include inclement whether, labor disputes, ultimately equipment delivery, defective specifications, changes of the work and differing site conditions. These kinds of delays often increase both time required to perform the work and the cost of the work where it will be elaborated in detail later.

2.6

Causes of Delay

There are many ways that a construction project can be delayed. Although it is extremely difficult to generalize on what can cause delay, in most cases delay results from a failure to plan and to assess possible occurrences and consequences.53

This section will explain the causes of delay by looking at the responsibility of the major parties to the design and construction process for instance the owner, designer, contractor, subcontractors, and suppliers. In assessing responsibility of the various parties for delay, one must first start with a factual analysis of who did or failed to do what. This

Chappel,D.,Smith,V.P,Sims,J.(2005), Building Contract Claims, 4th Edition, Blackwell Publishing Ltd., UK. 52 I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University.35, 1-14 53 Carnell,N.J (2005). Causation and Delay in Construction, Blackwell Publishing Ltd., UK

51

26 requires a further examination of the contractual responsibilities and duties implied by law. Generally, the causes can be classified as follows:54

2.6.1 Owner- Caused Delay

Owner-caused delay can be detailed further into four main categories55; delay resulting from failure to fulfill contractual responsibilities, delay caused by changes made in the work required under the construction contract, delay caused by interfering with responsibilities of the contractor and failure to coordinate the activities of any separate contractors. Although specific duties will depend upon the individual contract, the owners contractual responsibilities can be generalized to responsibility to provide the project site, approvals, finances and design as well as contract administrations.

The court in Miller v London Country Council (1934) 151 LT 425 supports that there is power to extend the time for delays caused by the building owner, and such delays have taken place, but the power to extend the time has not been exercised, either at all or within the time expressly or impliedly limited by the contracts, it follows (unless the builder has agreed to complete to time notwithstanding such delay) that the building owner has lost the benefit of the clause.

54

Abdul Rahman,H. (2001), Critical Factors for Mitigation of Delay in Construction, National Conference of Construction Industry Development 2001. 55 Nee,C.S. (2005). Extension of Time: The Issue of Delay Notification, Faculty of Built Environment,UTM.Msc.Thesis.

27 Another situation, in the case of Percy Bilton Ltd v.Greater London Council
56

where judge held that an employer is not entitled to liquidated damages if by his acts or omissions he has prevented the contractor from completing the works by the completion date. The employer also cannot recover liquidated damages where he is wholly or partly responsible for the contractors failure to complete on time.57

2.6.2 Designer-Caused Delay

According to Rahman et.als58 study, delay caused by designers generally results from four common deficiencies; defects in design, slow correction of design problems, tardy review of shop drawings and delays in tests and inspections. Besides that, their finding also clearly explained the problems faced by the contractor with regards to the quality of civil and structural design of The Chemistry and Biochemistry Building, Faculty of Science, University Malaya. The effects of poor quality of design are listed as major and minor problems.

Because of integral role the designer has in the development of the project design, preparation of contract documents and contract administration, deficiencies in its performance may have significant impact upon the progress of construction works. The impact of the designers errors is first felt by the contractor who may or may not have direct recourse against the designer depending upon the jurisdiction.

56 57

Percy Bilton Ltd V. Greater London Council (1982), 20 BLR 1 Peak Construction (Liverpool) Ltd v. Mckinney Foundations Ltd (1970), 1 BLR 111 58 H.A.Rahman, I.A. Abbas & M.A. Berawi (2001), Experiences in Handling Project Delays in Construction, Conference paper of National Conference of Construction Industry Development, Johor Bahru.1-15.

28 The relevant event is in two parts.59 In the first part, if the architect does not provide the information as set out in the schedule, the contractor has a ground for extension of time provided that other criteria are met. Meanwhile, the second part of the relevant event refers to the failure of the architect to comply with the situation whereby information release schedule has not been provided for or in the situation when the information required is not listed on the schedule.

But if the contractors rate of progress is such that he will not finish by the due date, the architect may have regard to this act. Moreover, the architect entitled to slow down the rate of provision of information to the contractor in order to match the contractors progress.60

2.6.3 Contractor-Caused Delay

Delay attributable to the contractor most often stem from five major causes;61 failure to evaluate the site or design, contractor management problems, inadequate resources such as cash, material, or labor, poor workmanship and subcontractor failures. The specifics contractor problems are often unknown to the owner and designer until major slippage in the schedule is recognized. Even then, the exact reasons for the project delay are often unknown. The contractor may allege a variety of causes which are excusable and compensable.

Chappel,D.,Smith,V.P,Sims,J.(2005), Building Contract Claims, 4th Edition, Blackwell Publishing Ltd., UK. 60 Glenlion Construction Ltd. V. The Guiness Trust (1987) 39 BLR 89. 61 Kumaraswamy,M.M & Chan,D.W.M. (1996). Contributors to Construction Delays, Construction Management and Economics.The University of Hongkong, 16,17-29.

59

29 In relation to that, under PWD203A Clause 43(j) will grant an extension of time to the contractor if the securing of the materials is beyond his control, but the shortage must have been one that could not have reasonably been foreseen at the date of the closing of the tender. It should be noted that this clause is not applicable for shortage of labour even though essential for the execution of the works.62

2.6.4 Subcontractor Delay

In general, the contractor is responsible to the owner for the none-excusable delays incurred by its subcontractors.63 However, if the delay is caused by a second tier subcontractor, and the general contractor and first tier subcontractor make diligent efforts to expedite the work of the second tier contractor, the general contractor may be excused for the delay. Since the second tier subcontractors action may be beyond the control of the contractor and not due to contractor fault negligence, the contractor may be neither assessed liquidated damages nor compensated for such delay.

Most of the contracts have been set out the provision that related to subcontractor delay for instance PWD203A Clause 43(k), PAM98 Clause 23.7(vii), CIDB Clause 24.1(p) and JCT 98 Clause 25.4.7. However, this provisions has a limited meanings where delay on the part of the Nominated Sub-contractors is only means delay by the nominated sub-contractor during execution of the sub-contract works. 64

Fong,L.C. (2004). The Malaysian PWD Form of Construction Contract, Sweet & Maxwell, Malaysia. Chappel,D.,Smith,V.P,Sims,J.(2005), Building Contract Claims, 4th Edition, Blackwell Publishing Ltd., UK. 64 Percy Bilton Ltd. V. Greater London Council (1982) 20 BLR 1.
63

62

30 In this case, the contractor has an obligation to avoid or reduce delay by nominated subcontractors. In fact, the contractor also has responsibility for nominated subcontractors production of installation drawings where it has been derived from a case of H. Fairweather & Co. Ltd. v. London Borough of Wandsworth (1987) 39 BLR 106.

2.6.5 Delay Not Caused by Parties to the Design and Construction Process

Most of the delays which are not caused by the owner, designer, contractor, subcontractors, suppliers or other parties to the design and construction process are excusable or non-compensable delays.65

In addition to that, these delays are beyond the control of any of the parties and contract where some are dealt with specifically in the contract documents are adverse weather, labor disputes, unavoidable calamities, acts of God and unusual delays in transportation. Based on Fongs views66, it concludes that a catch-all the contract may designate any cause beyond the contractors control or any cause beyond the contractors control and without the fault or negligence of the contractor.

The purpose of such clauses is to protect the contractor from the risk of the unexpected. Foreseeability of the event is an important consideration. Therefore, just because the contractor encounters one of the enumerated causes of delay, it may not be entitled to a time extension if the event was unforeseeability.
A.M.Odeh & H.T. Battaineh.(2002) Causes of Construction Delay:Traditional Contracts, International Journal of Project Management.20, 67-73 66 Fong,C.K.(2004). Law and Practice of Construction Contracts, 3rd ed.,Sweet & Maxwell Asia,Singapore.
65

31

Causes of Delay

32

Owner-Caused Delay

Contractor-Caused Delay

Delay Not Caused by Parties

-Weather -Acts of God -Strikes and labor disputes

-The project site -Approvals -Owners financial obligations -Owner Contract Administration Responsibilities -Changes in the works -Owner interference -Failure to coordinate separate prime contractors

-Failure to evaluate -Contractor management problems -Inadequate Resources -Construction defects

Designer-Caused Delay

Subcontractor

-Design defects -Slow correction -Tardy Shop drawing review -Delay due to tests and inspection

Figure 2.2: Causes of Delay Source: Modified from H.A.Rahman (2006)

2.7

Type of Delay

33

Many studies have been carried out and proved that construction delays generally adversely affect construction progress. Most disputes arise out of delays that are at least partially the fault of the owner. As has already been shown, Kaming67 elaborated that such delays can be due to suspension of work, slow owner responses to the contractors questions, slow processing of shop drawings and other submittals, failure to provide timely access to the construction site, differing site conditions, variation orders, and other actions of the owner.

Most contracts provide additional contract time when owner-caused delays occur. If the contract does not contain a no-damage for delay provision, the contractor will also have a good chance to receive monetary compensation for owner-caused delays.

In addition to that, construction projects are delayed by numerous causes. Besides, delay is considered a major cause of construction claim. Claims could be due to four types of delay namely: 68

1. excusable delays 2. non-excusable delays 3. compensable delays 4. concurrent delays 2.7.1 Excusable Delays

Kaming,P.F.,Olomolaiye,P.O, Holt,G.D. & Harris,F.C.(1996). Factors Influencing Construction Time and Cost Overruns on High-Rise Projects in Indonesia. University of Wolverhampton,U.K.15, 83-94. 68 Smith, Curie & Hancock (2001), Common Sense Construction Law- A Practical Guide for the Construction Profesional, John Wiley & Sons, Canada

67

34 The occurrence of a construction delay raises the issue of who should bear both the responsibility for, and the cost of that delay. In deciding this question, courts and arbitration panels look both to the causes of the delay and to the express ad implied obligations imposed by the parties.

Generally, the parties contract dictates whether a delay is excusable.69 Typical examples of excusable delays to a contractors work are differing site conditions, design problems, changes to the work, inclement weather, strikes and acts of God. As this list implies, when unanticipated outside forces delay completion of the contractors work, the delay is generally considered excusable.

Excusable delays are those not attributable to the contractors actions or in actions, and typically include unforeseen events. Basically these events are beyond the contractors control and are without fault or negligence on his/her part.

One of the events is force majeure which is usually considered to cover a host of highly unusual and superhuman event.70 In the classic case of LeBaupin v. Crispin71, the court accepted that the term is used with reference to all circumstances independent of the will of man, and which it is not in his power to control.

Most contracts specifically enumerate the types of excusable delays for which a time extension is due. These terms vary from contract to contract. Because contracts differently allocate the risk of both non-performance an unanticipated occurrences beyond control of the parties, the precise term of the contract are critical.
S.Alkass, M.Mazerolle & F.Harris(1995). Construction Delay Analysis Techniques, Shool of Construction,Engineering and Technology,University of Wolverhampton,UK.14,375-394 70 Fong,C.K.(2004). Law and Practice of Construction Contracts, 3rd ed.,Sweet & Maxwell Asia,Singapore 71 Lebaupin v. Crispin (1920) 2 KB 714
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35

Some contracts exhaustively list each type of excusable delay and seek to limit the granting of extensions to the listed delays. Other contracts may contain somewhat less extensive list, but may conclude the enumeration excusable delays with catchall phrase such as causes beyond the control, and without the fault or negligence of the contractor. Each party to a construction contract must have a clear understanding of the intended scope and operation of such a clause when requesting time extensions or analyzing time extension requests.72

2.7.2 Non-Excusable Delays

In contrast of excusable delay, a non-excusable delay provides no bases for recovery of either the time or the monetary impact of the delay.73 Moreover, the legal consequences of non-excusable delay are borne by the perpetrator of the delay. Put another way, the party that causes a non-excusable delay likely creates an excusable, and under certain circumstances a compensable, delay to the other partys work.

Consequently, this type of delay presents no entitlement to a time extension or delay damages for the contractor if the delay can be proved to have affected the whole project. The owner however could be entitled to liquidated damages. For instance, a nonexcusable delay would be when a contractor fails to provide sufficient manpower to complete the job on time.
72

Abdul Rahman,H. (2001), Critical Factors for Mitigation of Delay in Construction, National Conference of Construction Industry Development 2001. 73 S.Alkass, M.Mazerolle & F.Harris(1995). Construction Delay Analysis Techniques, Shool of Construction,Engineering and Technology,University of Wolverhampton,UK.14, 375-394

36

In addition to that, non-excusable delay is for which the party assumes the risk of delayed performance and its consequences. Common non-excusable delays for a contractor include failure to perform work within the allotted time frame. In the Australian decision of Multiplex Construction Pty Ltd. V. Abragus Pty. Ltd74 demonstrates that the employer is likely to suffer in the event that the works are delayed. Thus the remedy for breach by the contractor of his obligation to complete works on time lies generally in damages.

2.7.3 Compensable Delays

Basically, compensable delay is when the contractor will be entitled to additional compensation for the cost of delay and as well as additional time for contract performance and it may be granted extension of time and money if there is any change in scope of work, late supply of owner materials or information, impeded site access, differing site conditions and failure to provide timely and review shop drawings.75

Furthermore, this type of delay is delays for which the innocent party is entitled to both a time extension and additional compensation for the resulting costs.76 In other word, the contractor is entitled both due to insufficient time of the employer to provide all necessary instruction and details. For instance, where the owner or employer causes a delay, if the contract does not include a provision exonerating the owner from liability for
74 75

Multiplex Constructions Pty Ltd v. Abragus ty Ltd (1992) Kaming,P.F.,Olomolaiye,P.O, Holt,G.D. & Harris,F.C.(1996). Factors Influencing Construction Time and Cost Overruns on High-Rise Projects in Indonesia. University of Wolverhampton,U.K.15, 83-94. 76 Neodox Ltd v Swinton and Pendlebury Borough Council (1958) 5 BLR 34

37 such delays, the contractor is entitled to both compensatory damages and a time extension.

Building contracts do not usually require the contractor to utilize all of the performance time allotted by the contract. Recognizing this, courts held owners liable for delaying contractors where, even though the project was finished within the contractually allotted time, the contractor was prevented from achieving an early finish. Thus, timely completion does not necessarily preclude the recovery of delay damages where a reasonable asplanned schedule would otherwise have yielded early completion.

2.7.4 Concurrent Delays

Concurrent delay is in addition to excusable delay and non-excusable delay, as an analytical framework for identifying and evaluating construction delays. Concurrent delays are delays that occur, at least to some degree, during the same period of time.77 In construction, the term concurrent delay is a term of art that refers to the situation when an excusable compensable delay and non-excusable delay occur at the same time or during overlapping time periods. According to Alkass78, concurrent delays refer to delay situations when two or more delays (regardless of the type) occur at the same time or overlap to some degree. Besides, this concurrent delay is used to denote a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal

77 78

Fong,C.K.(2004). Law and Practice of Construction Contracts, 3rd ed.,Sweet & Maxwell Asia,Singapore S.Alkass, M.Mazerolle & F.Harris(1995). Construction Delay Analysis Techniques, Shool of Construction,Engineering and Technology,University of Wolverhampton,UK. 375-394

38 causative potency.79 In a nutshell, this type of delays can be described as expression which explains a situation where here are more than one causes of delay operating at a particular point of time.

There is a case that deal with the question of dominance is Galoo Ltd and Others v. Bright Grahame Murray where it was held that the but for test of causation was not sufficient and it was clear that if there was a breach of contract by a defendant entitling him to claim for damages, it must first be held to be an effective or dominant cause of his loss. In considering whether a breach duty imposed upon a defendant whether in contract or in tort, the court had to arrive at decision on the basis of the application of common sense.

However, if there two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitle to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event.80 Thus, to take a simple example, if no work possible on site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has shortage of labour (not a relevant event), and if to work during the week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour. Concurrent delay creates complex legal issues regarding assessing responsibility for overall project delay.81 The analysis of concurrent delays may be further complicated if:

79 80 81

J.Marin (2002). Concurrent Delay, A Paper of the Society of Construction Law, London. Fong,C.K.(2004). Law and Practice of Construction Contracts, 3rd ed.,Sweet & Maxwell Asia,Singapore Henry Boot Construction (UK) Ltd v. Malmaison Hotel (Manchester) Ltd (1999) 70 CLR 32

39

1. The delay periods are different lengths 2. The delay periods are not totally concurrent 3. The delay periods are periods have different impact on the number and types of work activities they affect and the severity of the impact upon the affected work activities is different for each of the delays.

2.8 Extension of Time (EOT)

Most of the building contracts contain express provisions under which the period allowed for the contractor to undertake and complete the works can be extended. These provisions cater for delays that are neither the fault nor the responsibility of the contractor.

Based on Martins82 views, traditional extension of time clauses contain a list of delaying events for which the contract administrator is empowered to grant extensions of time and the forms of currently used in Malaysia are no exception to this.

Furthermore, Ndekugri83 added that an examination of the list makes two facts very clear. Firstly, the matters include not only those which are attributable to the employer but also events outside his control. Secondly, the list is by no means exhaustive of possible events for which the employer might be responsible.

82 83

Martin,R.L.(2004), Introduction Time Within Contracts, Bullet-Proof EOTs Conference.1-21. I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University. 35,1-14.

40

Every contract has asserted under particular provisions, for instance PWD 203A under clause 43, PAM 69 and PAM 98 under clause 23 and CIDB under clause 24. According to PWD 203A conditions of contract include lists of relevant events. Under Clause 43 PWD 203A provides for the Superintending Officer to grant an extension of time on specified grounds and extension of time is grantable on those grounds and no other.

The operation of clause 43 modifies the liability of the Contractor to complete the Works by the Date for Completion specified in the Appendix and to pay Liquidated and Ascertain Damages to the Government upon the failure of the contractor to meet the deadline. Nevertheless, this clause contained limited grounds for extending time and did not cover many common delaying events, for instance failure to give possession of site on the due date. It has been demonstrated in a case of Peak Construction (Liverpool) Ltd. v. Mckinney Foundation Ltd. (1970) 1 BLR 11 and also in Thamesa Designs Sdn.Bhd v. Kuching Hotels Sdn.Bhd. & 3 Ors. (1993) 2 AMR 2083.

On the other hand, PAM 98 has similar list of the relevant events to PWD 203A. Clause 23.0, asserts that an employer could impose an absolute obligation on the contractor to complete the Works by a certain date and regardless any delay circumstances. Thus, the contractor may be imposed liquidated damages for failure to meet the completion date. 84

CIDB conditions of contract make it a pre-requisite to the contractors right to an extension of time that he has carried out the Works or any section of the Works with due diligence and has taken all reasonable steps to avoid or reduce such delays.85 In addition

84 85

Henry Boot Construction Ltd v. Central Lancashire New Town Develoment Corporation (1980)1 BLR 1 Clause 24.1 of CIDB Standard Form of Contract for Building Works 2000 Edition

41 to that, Martin86 highlights the relevant events which are common to PWD 203A and PAM 98 forms, the CIDB conditions include other relevant events such as: i) ii) iii) iv) v) an instruction from the Superintending Officer to resolve a discrepancy in or between any of the contract documents(Clause 24.1(f)) compliance with Statutory Requirements for which he employer is responsible or which results in a variation (Clause 24.1 (g)) testing or opening up the works not provided for under the contract (Clause 24.1(h)) an instruction to suspend any work (Clause 24.1(k)) an instruction in relation to a Prime Cost or P.C or Provisional Sum giving rise t a variation.

Hence, every each standard forms of contract are aimed at allocating the risk of non-completion between parties. It reduces the contractors risk in relation to delays by entitling him to an extension of time for practical completion on account of delay based on various circumstances.87

Extension of time clauses, therefore have various purpose such as to retain a defined time for completion, to preserve the employers right to liquidated damages against acts of prevention and to give contractor relief from his strict duty to complete on time in respect of delays caused by designated neutral events.88 On the other hand, these clauses provide for the machinery for notification of delay by the contractor and the grant of extension of time by the architect on specified grounds. An extension of time is grantable only on those grounds under these clauses.

86 87

Martin,R.L.(2004), Introduction Time Within Contracts, Bullet-Proof Eots Conference. 1-12. Rajoo, S. (1999).The Malaysian Standard Form of Building Contract (The PAM 1998 Form), Malayan Law Journal, Malaysia. 88 Eggleston,B. (1997). Liquidated Damages and Extension of Time. 2nd ed. Oxford: Blackwell Science Ltd.

42

2.9

Liquidated Ascertained Damages (LAD)

As has been mentioned earlier in previous chapter, liquidated ascertained damages will be briefly discussed in this study. In general, liquidated ascertained damages means a fixed and agreed sum as opposed to unliquidated damages which is a sum neither fixed nor agreed, but must be proved in court, arbitration or adjudication. In detail, liquidated ascertained damages are compensatory in nature and should be a genuine attempt to predict which is not related to probable damages but rather stipulated in terrorem.89

In other words, liquidated ascertained damages also can be explained as a monetary amount fixed and agreed by the parties in advance, as the damages payable in the event of a specified breach of contract. In building contracts commonly, liquidated damages are payable only for the contractors failure to complete on time. A provision for liquidated ascertained damages is enforceable if the amount fixed is a genuine preestimate of the loss likely to be caused by the breach. In contrast, a penalty clause is invalid. If the agreed sum is extravagant in relation to the greatest possible lost, it will be held to be penalty. Liquidated ascertained damages are recoverable without proof of loss. There are numbers of classic cases demonstrated in relation to this discussion such as Dunlop Pneumatic Tyre Co. Lt v. New Garage Motor Co. Ltd. (1915) AC 79, Clydebank Engineering & Shipbuilding Co. v. Castaneda and Others (1905) AC 6 and Miller v. London County Council (1934), 151 LT 425.

89

Chappel,D.,Smith,V.P. & Sim.J.(2005). Building Contract Claims, Blackwell Publishing Ltd. UK.

43

2.10

Summary

In construction, time is extremely important. It can be divided into three basic time-related namely commencement, progress and completion. According to that, a proper planning is very important in order to execute the construction works until completion within time and budget provided. Thus, the contractors obligation is to complete the works by the completion date given. Under certain types of contract, time is expressly or impliedly of the essence. Where this is so, any lateness in performance entitled the other party to terminate the contract. However, contracts very rarely fall into this category. Consequently the employers remedy for late completion will be an award of damages for breach of contract. On the other hand, the contractor may be granted extension of time if the cause falls in the relevant events provided under forms of contract.There are many causes of delay in construction. Basically, delays often increase both time required to perform the work and the cost of the work. Besides, delay is considered a major cause of construction claim. Claims could be due to four types of delay such as excusable delays, non-excusable delays, compensable delays, and concurrent delays.

CHAPTER 3

44

SUBCONTRACT DELAYS

3.1

Introduction

The construction process requires an extensive diversity of skills and materials not all of which may be sourced from the resources of a single construction firm. Thus, most contractors depend on a sub-contractors and suppliers to undertake specialist works or other builder works.90 To understand the problems in relation with sub-contract delays, therefore it is important to have better knowledge of the nature of sub-contracting, responsibilities associated with nominated sub-contractor, the main contractor and the employer.

For that reason, this chapter will explain the definition of main contractor, nominated subcontractor and domestic subcontractor. In addition to that, discussion will be focused on the provisions that have been sets out in the contract (PWD 203A, PWD 203N, PAM 1998, PAM Subcontract Form, CIDB 2000 and CIDB.B (NSC)/2002) which are related to nominated sub-contractor, main contractor and employer. Besides that, breach of contract where default by nominated sub-contractor and delay in nominated sub-contractors works also will be discussed in this chapter.

90

M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press.London.

45

3.2

Nature of Subcontracting

In normal practice, main contractors are to an ever-increasing extent, reducing their dependence on directly employed labour. A main contractor too may have or be in the process of creating a contract with an employer to carry out certain works. According to Atkinson91 , it has been shown that a main contractor may consider that part of the works is best carried out by another contractor. Subcontractors play vital role when they are hired to perform specific tasks on a project.92 Moreover, subcontractors are specialist agents in the execution of a specific job, supplying manpower, besides materials, equipment, tools or designs.93

Nevertheless, Murdoch94 says that subcontracting as a phenomenon is not unique to the construction industry as other business seems to be following in the same way. In construction, there are several ways in which persons may come to be employed on the works or on the site, or possibly on both, despite the contractors right of possession and his obligation to carry out and complete the works. Thus, the processes of distinguishing of the right and obligation through subcontracting will be discussed as follows: 3.2.1 Assignment

Atkinson,D.(1999). Subcontracting, Atkinson Law, London. D.Arditi,M.Asce & R.Chotibhongs (2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, 131, 866-876. 93 Shimizu,J.Y & Cardoso,F.F (2002). Subcontracting and Cooperation Network in Building Construction: A Literiture Review, Proceedings IGLC,10 August. 94 M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press.London.
92

91

46 According to Turner95, assignment can be identified when the contractor passes over his performance of the whole of the works and rewards for so doing to another, while not being relieved of his contractual liability over performance. Keating96 added that in considering assignments it is essential to distinguish between the benefit and the burden of a contract.

In the normal building contract, the burden on the contractor is the duty to complete the works, and his benefit is the right to receive the contract money when it falls due. The burden on the employer is the duty to pay such money, and the benefit is the right to have the works completed.97

However, in general, it has been shown that the burden of a contract cannot be assigned without the consent of other party. Building contracts commonly, contain clauses restraining assignment and sub-letting.98 Therefore, a contractor cannot assign his liability to complete the work somewhere else. 99 However, the contractor would be entitled to assign his rights but if the contract forbids assignment, such an assignment is ineffective to transfer rights to assignee against the employer as cited in the case of Helstan Securities Ltd. v. Hertfordshire County Council (1978) 3 AII ER 262, Messrs Renhold contracted with the council for road works on ICE,4th edition. Condition 3 provided: The contractor shall not assign the contract or any part thereof or any benefit or interest therein or thereunder without the written consent of the employer. Renhold purported to assign their rights to payment under the contract to the plaintiffs. The Judge held that the assignment was ineffective. 3.2.2 Domestic Subcontract

95 96

Turner, D.F.(1994). Building Contract- A Practical Guide, 5th ed.,Longman Scientific & Technical, UK. Keating,D. (1978). Building Contracts, 4th ed. London Sweet & Maxwell. 97 Ibid. 98 Smith,V.P & Furmston,M. (1984). A Building Contract Casebook, Granada Publishing 99 Nokes v. Doncaster Amalgamated Collieries Ltd (1940) A.A 1014 (H.L)

47 On the other hand, Fong100 asserts that a contractor passes over a part only of the works and rewards as in abovementioned, while remaining directly related to the employer and continuing with the consultants. This is called domestic subcontracting or sub letting.

A domestic subcontractor is one in whose selection and appointment the employer normally plays no part, other than simply giving consent where this is required under the terms of the main contract.101 However, a major practical problem in relation to subcontracts is the way in which the main and sub-contract fit together. Provisions of the main contract cannot be read into subcontract unless they have been expressly incorporated. 102

It has clearly stated in the case of Smith and Montgomery v. Johnson Bros Co.Ltd. (1954) 1 DLR 392, the defendants were the main contractors to construct a tunnel sewer for the City of Hamilton through the Hamilton mountain. The plaintiffs, who were miners, undertook a subcontract for tunneling according to the dimensions and specifications as set forth in the contract between the City of Hamilton and the defendant. Unfortunately, the judge held that these words were not apt to incorporate the terms and conditions of the main contract into the sub-contract.

3.2.3 Nominated Subcontract

Fong,C.K.(2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia. M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press.London. 102 Smith,V.P & Furmston,M. (1984). A Building Contract Casebook, Granada Publishing
101

100

48 There is another situation in subcontracting whereby the contractor has no option about whether to subcontract and little option about to whom to subcontract, as the architects nomination will usually have to be accepted. Normally, the nomination is indicated by a prime cost sum in the tender document and is made post contractually. This situation is named as nominated subcontracting.103

In this approach, it allows the employer or his professional team full involvement in the early selection of the individual company, using the subcontractors expertise for design and coordination.104 Besides, nomination is the practice by which an employer, through the contract administrator, selects a person who then enters into sub-contracts with the main contractor.105

In addition to that, the contractual position between contractor and nominated subcontractor must be found in the subcontract. In A. Davies & Co.Shipfitters Ltd. v. William Old Ltd
106

cites that the defendant was the main contractor for the erection of a

new store on JCT 63 terms, which provided for certain work to be subcontracted to a subcontractor which was nominated by the architect. The architect obtained a tender for this work from the plaintiff and instructed the defendant to accept it. The defendants sent an order to the plaintiff on their standard printed form, which contained on its reverse printed conditions which included a pay when paid clause. The plaintiffs wrote thanking the defendant for the order and carried out the work. The employer became insolvent before having paid for all the work. The Judge held that the contract between plaintiff and defendant was on the basis of the defendants printed conditions, which the plaintiff had accepted. The defendant was only liable to pay for the work in so far he had himself been paid by the employer.

Fong,C.K. (2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia. Robinson, M.N. et.al(1996). Construction Law in Singapore and Malaysia, 2nd ed., Butterworth Asia. 105 M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press.London. 106 (1969) 67 LGR 395
104

103

49

3.3

Relationship of The Parties In Construction

Traditionally, the construction process is undertaken by two groups which consists of consultants and contractors where both working on behalf of their client. In addition to that, there are also subcontractor and suppliers who assist the contractor in various ways and tasks.107 The contractual relationship between main parties is illustrated in Figure 3.1.

Based on that, each of the parties is increasingly sub-divided into specialist interests such that any building project will bring together a large number of different specialists. With reference to that, this part will briefly discuss on responsibilities of each parties namely main contractor, nominated subcontractor and domestic subcontractor.

107

Kwakyee,A.A (1997). Construction Project Administration in Practice, The Chartered Institute of Building.

50

Architect

Nominated Supplier

Supplier

Employer

Contractor

Domestic Subcontractor

Nominated Subcontractor

Key:

Contractual Procedural Agreement/warranty, optional with suppliers Contractual relationships of the parties Adopted from S.Colin

Figure 3.1: Source :

3.3.1 Main Contractor

51 The production aspects of projects are undertaken by building contractors who are essentially commercial companies that enter into a contract to construct development projects.108 According to JKR 203A, contractor has been defined as the person or persons, partnership, firm or company whose tender for the Works has been accepted and who has or have signed this Contract and includes the Contractors personal representatives, successors and such other persons or body of persons to whom the Contractor has assigned or sub-let pursuant to Clause 27 of these Conditions. 109

Based on Fongs110 views, the contractor may be sole proprietor or partnership or body corporate typically registered under the Companies Act 1963. It includes persons vicariously performing the contract for the contractor. While, PAM 98 defined that the contractor as the other principal party to the main contract and may have any status and thus could be a natural or legal person whether incorporated or not as a company, partnership, or joint venture. 111

In short, a main contractor is the parties who are enter the contract with the employer to execute works and to organize his considerable resources. Besides, the main contractor is also responsible to carry out his works and diligently proceed with the same and shall complete the same on or before the completion date as stated in the contract.

3.3.2 Nominated Subcontractor

Kwakye,A.A(1997). Construction Project Administration-In Practice, Addison Wesley Longman. Fong,L.C.(2004).The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia. 110 Ibid. 111 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
109

108

52 The system of nominated subcontracting in the construction industry is common and widespread and it is seems to have a number of advantages for the employer.
112

For

that reason, it enables the employer to select a subcontractor to the contractor to carry out certain work, particularly specialist works such as M & E works. Besides, the employer may obtain the most competitive price for the execution of the work.

Furthermore, in PWD 203A form of contract provides the definition for nominated subcontractor as all specialists, merchants, tradesmen and others executing any work or services, or supplying any materials or goods for which Prime Cost Sums (or P.C Sums) are included in the Bills of Quantities or for which the SO has given written instructions in regard to the expenditure of Provisional Sums.113

Thus, the contractor is entitled to choose his own subcontractors, Clause 27.0 of the PAM 1998 Form allows the architect to nominate subcontractors whom the contractor must employ to carry out specific works. In the case of North West Metropolitan Regional Hospital Board v. TA Bickerton & Sons Ltd. (1970) 1 AII ER 1039 has cited that the employer remains bound to renominate in the situation where the nominated subcontractor did not carry out his work as specified in the contract. According to Rajoo114, nominated subcontractor under PAM 1998 Form is a person selected by the architect to do defined work as a subcontractor on the site of the main contractor.

3.3.3 Domestic Subcontractor

Rawling,B.E. (2001).Nominated or Named, HKIS Newsletter 10(5)b June 2001. Fong,L.C.(2004).The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia. 114 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
113

112

53 The key contractual difference between nominated and domestic

subcontractors is that with domestic subcontractor the main contractor has the freedom of choice over which subcontractor to employ and the terms on which they are employed.115 And nominated subcontractors as it has been explained earlier is a person selected by the employer. In addition to that, the root principle of any domestic sub-contract is that a main contractor selects and appoints the subcontractor to perform work for which he, the contractor has tendered as part of the main contract.116

Most of the standard form of contract does not provide any provision that related to the domestic subcontracting. Thus, domestic subcontracts are the result either of individual negotiation or commonly, of imposition by one side or the other. 117

Discussion on domestic subcontractor for the purpose of this study is limited because the focus is more on nominated subcontractor.

3.4

Relationships between employer and subcontractor

Under the traditional common law position is that a subcontract executed between a main contractor and subcontractor cannot give rise to any privity of contract between the subcontractor and employer. This is because subcontracting operates as a subletting of the physical construction of the works only and does not constitute an assignment of rights and liabilities under the main contract. The main contractor continues to be
115 116

Cheeseman,G.(2004). And the Nomination are., Construction Management,RCIS. Turner,F.D.(1990). Building Contract Disputes-Their Avoidance and Resolution, Longman Scientific and Technical,UK. 117 M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press

54 responsible to the employer for the whole of the works and to be liable for any defective work delay or any other default committed by his sub-contractors.118

In addition to that, the main contractor is acting as an agent for the employer when he negotiates and awards the nominated subcontracts. However, a situation where the circumstances were indeed exceptional was encountered in the classic case of Wallis v. Robinson (1862) 130 RR 841 which cited that an architect negotiated with a subcontractor, in the presence of the employer to execute work in a certain manner which suggested that the subcontractor would be paid extra for this work.

The court held that, a separate contract was created between the employer and the subcontractor, so that the subcontractor was entitled to recover the additional payment directly from the employer. The decision in this case, turned on its facts where it seems that the employer and the subcontractor had intended to enter into a separate contract.

A subcontractor who has entered into a contract with the main contractor to which the employer is not a party has no cause of action against the employer for the price of work done or goods supplied under his contract,
119

unless he sues under valid

assignment. Whether he has any lien on goods supplied, the property in which has passed to the main contractor.120 Likewise the employer has no claim in contract against a subcontractor unless he can rely on a collateral warranty. In relation to that, if a subcontractor or supplier warrants the quality of his work or goods, in consideration of the employer causing the contractor to enter a contract with the subcontractor or supplier, the employer can sue the subcontractor or supplier for loss caused by breach of that

118 119

Ryoden (M) Sdn.Bhd. v. Syarilkat Pembinaan Yeoh Tiong Lay Sdn.Bhd.(1992) 1 MLJ 33. Hampton v. Glamogan County Council (1917) A.C 17 120 Pritchett,etc.,Co. Ltd. v. Currie (1916) 2 Ch 515 C.A

55 warranty.121 The relationship arising in a subcontract is illustrated in the Figure 3.2 below.

Employer Main Contract

Main Contractor

Collateral Warranty

Sub Contract

Subcontractor

Figure 3.2: Relationships arising from a Subcontract Sources: Adopted from Fong.C.K.(2004) 3.5 Relationship between the main contractor and subcontractor

121

Shanklin Pier Ltd. v. Detel Products (1951) 2 K.B 854.

56

In this part, consideration will be based on the effect of terms in the main contract in order to have effective explanation of relationship between both parties. Normally, problems arise where the terms which the main contractors are required to observe under main contract turn out to be inconsistent with his obligations to the subcontractor under the subcontract.122

Furthermore, in the classic case of Chandler Brothers Ltd v. Boswell (1936) 3AII ER 179 asserts that an engineer was empowered under the terms of the main contract to order the main contractor to remove a subcontractor. The main contractor did not provide for this contingency in terms of the subcontractor. As a result, he was placed in an untenable position where he would commit a breach of the subcontract if he carried out the engineers instruction o remove the particular subcontractor and if he did not, he would commit a breach of the terms of the main contract. In the event, the main contractor chose to comply with the order of the engineer to remove the subcontract for delay. However, in so doing, the main contractors were held to have committed a breach of the subcontract.

Besides, a subcontract may be drafted to expressly incorporate certain terms of the main contract into the subcontract in order to forestall these inconsistencies. Where the terms of incorporation are clear, the effect of incorporation may be readily determined.123

Nevertheless, terms of incorporation may not always clear. There is a question whether a materials term of the main contract has been effectively incorporated in a subcontract. Thus, in a classic case of Geary, Walker & Co Ltd v. W Lawrence & Sons

122 123

Russell,J.(2006). Protecting The Subcontractors Entitlements, Electrical Times, April 2006 edition. Jurong Engineering Ltd v. Paccon Building Technology Pte. Ltd (1999) 3 SLR 667 (CA)

57 Ltd (1906) cites that the term of payment for the work.shall be exactly the same as those set forth in clause 30 of the (main).contract. In relation to that, problems with incorporation are exacerbated where the structure of the main contract is of a different contractual character from that of the subcontract. 124

In a nutshell, in the absence of any express incorporation clause, there is some dicta to the effect that recourse may be made to the terms of the main contract to resolve ambiguities in the subcontract in favor of a meaning which would enable the main contractor to comply with the main contract as demonstrated in the case of Gilbert Ash (Nothern) Ltd v Modern Engineering (Bristol) Ltd (1973) 3 AII ER 195.

3.6

Provision under Subcontract Form in relation to Nominated Subcontractor

In order to have a better understanding of responsibilities and rights of each party, discussion on the provisions in the standard form of contract is needed. Therefore, this study will be based on the provisions in nominated subcontract mainly related to delay and extension of time. According to Arditi and Chotibongss125 study, they points out that subcontractors are very important to the successful completion of most construction projects, yet the many issues involved in subcontracting practice are seldom acknowledged.

3.6.1
124 125

Delay and extension of time

Fong,C.K. (2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia. D.Arditi,M.Asce & R.Chotibhongs (2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, 131, 866-876.

58

It is unusual for standard form of contract not to contain provisions dealing with the entitlement of extension of time.126 In addition to that, extension of time as contractual remedies is so essential to the interest of the employer.
127

In order to grant

extension of time, the delay occur will be measured according to type of delay that has been explained in chapter 2 such as excusable, non excusable, compensable and concurrent.128

Generally, delays are classified according to liability into two major types, namely excusable or non excusable delays.129 Delay causes by nominated subcontractor are one type of excusable delay. According to PWD 203A Clause 43 (k), PAM 1998 clause 23.7 and CIDB 2000 clause 24 (p) assert that the main contractor are entitled to claim for extension of time if there is delay on the part of nominated subcontractor.

In relation to that, the provisions of extension of time under subcontract are also considered in this study. Responsibilities of each party on extension of time differ. In PWD 203N Clause 26(a), PAM 1998 Subcontract Clause 8.1 and CIDB.B (NSC)/2002 Clause 19.2, it has been set out that the subcontractor is required to give written notice of the delay progress or completion of the subcontracts works or any section to the contractor. Moreover, the architect or the S.O is required to grant reasonable extension of time after receiving the subcontractors notice of delay and the main contractor shall give the notice of delay from the subcontractor to the employers responsibilities.130

Ventrella,T(1994). A contractors Guide to Contract Law, Dunnick Publications Ltd., London Robinson, M.N. et.al(1996). Construction Law in Singapore and Malaysia, 2nd ed., Butterworth Asia. 128 Alkass.S, Mazerole,M. & Harris, F.(1995). Construction Delay Analysis Techniques, Construction Management and Economics, 375-394. 129 Ibid. 130 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
127

126

59 Based on that, it proves that giving notice by the subcontractor is a condition precedent to the performance by the architect (PAM 1998) or the S.O (PWD 203A) of his duties under the contract. The subcontractors notice of delay is essential before the architect is obliged to consider, prior to practical completion, whether an extension of time might be appropriate. 131

An extension of time can be granted by the architect (PAM 1998) and the S.O (PWD 203A) by the reasons fixed under the contract. There are a number of causes of delay which may give rise to an extension of time to the subcontractor, for instance, variation order, late commencement of works, late of information and other items which give an entitlement to the nominated subcontractor as well as contractor for an extension of time for the completion of the main contract.132

3.6.2 Relevant Events in Standard Form of Contract

In general, many of the building contracts contain similar provisions where the procedure and grounds for granting extension of time set out in the contracts are about the same. This is due to the reason that commonwealth countries such as Malaysia, Singapore and Hong Kong have drafted their own standard forms of contract based on the English JCT contracts.133

131 132

Fong,L.C.(2004).The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia. I.Ndekugri(1994).Delay, Extension of Time and Liquidated Damages under JCT80, Construction Paers, Reading University,1-14. 133 Nee,C.H.(2005). Extension of Time: The Issue of Delay Notification, Faculty of Built Environment,UTM.

60 In addition to that, every each contracts also set out ground for granting extension of time for example PWD 203 under clause 43, PAM 1998 under clause 23.7 and CIDB 2000 under clause 24. A fundamental point is that the time for completion can only be extended where the contract permits, and strictly in accordance with the contract provisions. Nevertheless, if delay is caused by some event which the contract does not cover, then the contractor cannot claim an extension, nor can the employer insist on giving one.

This study will focus more on delay in nominated subcontractors work, thus provision under subcontract form such as PWD 203N Clause 26(a), PAM 1998 Subcontract Clause 8.1 and CIDB.B (NSC)/2002 Clause 19.2 will be referred accordingly with the main contract. From provisions of these forms of contracts, it can be concluded that the nominated subcontractor shall forthwith written notice of the delay in the progress of the subcontract works to the main contractor. In addition to that, the notice must be substantiated by relevant events that causing to delay, expected effect of the delay and an estimate of time required. Further to that, the main contractor shall inform the architect thereof and of any representations made to him by the nominated subcontractor.

In PAM 1998 Subcontract Clause 8.2, it has been provided that the relevant events causing delay for which extension of time may be given. It has been expanded that after the architect had received the information is of the opinion that the completion of the subcontract works is likely has been delayed beyond the period based on two main reasons whereby the first reason is any of the matters specified in the Clause 4.1( Variations) and Clause 6.1 (Commencement and Completion of Subcontract Works) of this subcontract or by any act or omission of the main contractor which is included his subcontractors, his servants or agents, and the second reason is for any (except delay on the part of the subcontractor) for which the main contractor could obtain an extension of time for completion under the main contract. For that reason, the architect shall provide

61 his written consent to the main contractor to grant the extension of time to the nominated subcontractor.

Basically, it could be said that most of the building contracts has set out similar grounds for granting extension of time in the main contract which is incorporated in the subcontract. Thus, most common grounds has been adopted from the main contract which are force majeure, exceptionally inclement weather, insurance contingencies, civil commotion, strikes and lockout, architect or superintending officers instructions, variation,testing and inspection, late supply of information, employees licensees, materials and goods supplied by the employer, delay or failure to give site possession, contractors inability to secure labour, goods and materials, act of prevention or reach of contract by employer. The cause or causes of delay of which the nominated subcontractor enumerate in the notice must fall under the events listed are to qualify for an extension of time. Table 3.1 below demonstrates the grounds for granting extension of time provided in different standard forms of contract.

62 Table 3.1: Comparison of Grounds for Granting Extension of Time in Different Standard Forms of Contract Relevant Events PWD 203 Force Majeure Exceptionally inclement weather Insurance Contigencies Civil commotion, strikes, lockout Architect or superintending officers instructions Discrepancies in or between contract documents Variation Discovery of antiquities and fossils Testing and inspection Prime cost or provisional sum item which give rise to a variation Late supply of information Employers Licensees Materials and goods supplied by employer Delay or failure in giving possession of site Disputes with neighboring owners Contractors inability to secure labour, goods and materials One or ore of the excepted risks Compliance with statutory requirements which result in a variation Act of prevention or breach of contract by employer Any other ground Forms of Contract PAM 98 CIDB

63 According to Table 3.1 above, it shows that most of the forms of contract are provide relevant events which interest to both parties under main contract. However, for this study, the ground which has been provided in the main contract will be applied in the subcontract. It could be said that, the most common event is force majeure which this term refers to acts of God or man-made events which beyond the control of the parties. However, it must have a restricted meaning as several of the events normally classified under this term such as war, strikes and lightning are dealth with separately.134

In the classic case of Lebeupin v Crispin (1920) 2 KB 714, McCardie J accepted that force majeure is normally used with reference to all circumstances independent of the will of man and which it is not in his power to control.135 Fundamentally, it is clearly used to describe situations where an unforeseeable event makes execution of the contract wholly impossible and is of such important that it cannot be overcome.
136

Nevertheless,

the parties may always revert to force majeure as a residual provision where the events do not fall precisely within the detailed list.137 It has been demonstrated in the case of Penang Development Corporation v. Teoh Eng Huat (1992) 1 MLJ 749.

Exceptionally inclement weather is one of the most common grounds on which a claim or extension of time is made.138 However, the adverse weather conditions do not excuse the contractors non-performance. The case of Maryon v. Carter (1830) 4 C & P 295 is illustrative. The effect of the exceptionally inclement weather must be assessed at the time and in relation to the work being actually carried out and not when it was

I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University. 35,1-14. 135 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd. 136 M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press 137 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd. 138 I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University. 35,1-14.

134

64 programmed to be carried out by the contractor at the time of delay.139 In addition to that, to succeed with a claim on this ground the contractor as well as nominated subcontractor must produce evidence that the conditions complained against are exceptional for that time of year and location. Weather records covering a reasonable period as well as site diaries will normally be determined by architects.140

According to Table 3.1, which delay is caused by some specified perils, which normally covered by works insurance, the nominated subcontractor may be entitled to an extension of time. The principles of this case can be applied in the delay in nominated subcontractors work. In Surrey Health Borough Council v. Lovell Construction (1990) 48 BLR 108 has construed that even if the loss or damage is brought about by omission or default of the contractor, it appears that this clause still applies. In addition to that, some extension of time clause clearly stated that the main contractor shall not be given extension time where instruction or acts of the employer or the architect or superintending officer are necessitated by or intended to cure any default of breach of contract by the main contractor. Based on this provision, the man contractor is not entitled to a time extension for anything that is his own intentional default as opposed to his default or negligence.141

This Table 3.1 also shows that civil commotion, strikes and lockout has been provided in most of the forms of contract. Under this clause the events which justify an extension of time are civil commotion, strike or lockout affecting any of the trades engaged in the preparation, manufacture or transportation of any of the goods or materials required for the works. The first event listed is civil commotion and the essential element here is that of tumult or turbulence has cited in the case Levy v. Assicurazioni Generali (1940) 2 AII ER 437. This decision is important to employers. Delays which can be
Turner,D.F.(1994). Building Contracts A Practical Guide, Longman Group Limited,U.K. Kaming,P.F.,Olomolaiye,P.O, Holt,G.D. & Harris,F.C.(1996). Factors Influencing Construction Time and Cost Overruns on High-Rise Projects in Indonesia. University of Wolverhampton,U.K.15, 83-94. 141 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
140 139

65 attributed to a strike or civil commotion do not entitle contractors to claim loss and /or expenses against the employer.

Besides, late instruction, drawings and other information is considered as important ground for the claim or extension of time. This is the most controversial relevant event. The most frequent use of this ground for extension is in relation to late receipt or non-receipt of information and instructions on nominations. 142

In short, the nominated subcontractor may attempt to claim for extension of time in the event of project delay. It must be also noted that an extension of time can only be granted on the relevant events expressly set out in the contract as in the Table 3.1.

3..6.3 Breach of Contract

Basically, if one of two parties to a contract breaks the obligation which the contract imposes, a new obligation will in every case arise, a right of action conferred upon the party injured by the breach.143 A breach of condition at law is a major breach. In addition to that, when the breach is of a condition and so fundamental in its effect, it may entitle the aggrieved party to treat the contract during or before progress as repudiated by the other, so as to bring it to an end, or to treat the precise and apparently binding terms of the contract as overruled.144

142

I.Ndekugri (1994). Delays, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University. 1-14. 143 Guest,A.G.(1975). Ansons Law of Contract, Twenty Fourth Edition., Clarendon Pres.Oxford. 144 Turner,F.D.(1990). Building Contract Disputes-Their Avoidance and Resolution, Longman Scientific and Technical,UK.

66 The recognition of fundamental breach should be done carefully. Thus, in a case in which such breach was alleged over the non-availability of a hired ship due to the defendants fault for 20 weeks out of a total hire period of 24 months, it was held that there was not fundamental breach, as the plaintiff could still obtain a large part of the hire benefit.145 On the other hand, the installation of defective pipework which led to the complete destruction of a mill by fire was held to be fundamental.146

In this study, the circumstances where defaulting party breach of the contract and whether be liable to pay damages to the innocent party will be discussed.

3.6.4 Damages for non-completion

In practice, building contract provides a remedy for breach of contract by the contractor of his obligation to complete the works on time lies generally in damages. For that reason, apart from the contracts must be set time is held to be of the essence for the contract. The same principle commonly applies under subcontract, where the nominated subcontractor liable for damages in the event of delay in completion of the works. In essence, the nominated subcontractors delay allows the main contractor to be granted an extension of time.147

In PAM 1998 Subcontract Clause 7.1, it provides that if the subcontractor fails to complete the subcontracts work or any section within stipulated time or extended period,
145 146

Hong Kong Fir Shipping Co. Ltd v. Kawsaki Kisen Kaisha Ltd (1962) Harbutts Plasticine Co. Ltd. v. Wayne Tank & Pump C. Ltd. (1970) 147 Fong,C.K. (2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia.

67 the subcontractor shall pay or allow to the main contractor a sum equivalent to any loss or damages suffered caused by the failure of the subcontractor. Nevertheless, exceptional has been sets out in Clause 7.2, it shows the main contractor may not entitle to claim any loss or damage under Clause 7.1 unless the architect shall have issued to the main contractor a certificate in writing stating that in his opinion the subcontract works o the relevant section ought to be have been completed within specified time.

3.7

Nature of Delay in Nominated Subcontracting Work

The primary nature of this event is delay in the execution of work by one of the nominated subcontractors or nominated suppliers. Usually, a contractor will responsible towards an employer for whatever nominated subcontractors and suppliers do or fails to do.
148

However, the contractor is allowed to secure an extension and avoid damages

when a nominated subcontractor has defaulted in the manner stated, provided that thecontractor has done everything reasonable in the circumstances to mitigate the effects. In addition, if the contractor has taken appropriate action, he is not liable to the employer.149

Therefore, PAM 1998 Clause 27.5 deals with delay in the completion of the subcontract works by the nominated subcontract and the circumstances in which the contractor may grant an extension of time to the nominated subcontractor. It provides that, the contractor shall not grant any extension of time to a nominated subcontractor without the written consent of the architect which must not be unreasonably withheld.

148

Turner,F.D.(1990). Building Contract Disputes-Their Avoidance and Resolution, Longman Scientific and Technical,UK. 149 Chappell,D., Smith,V.P, & Sims,J.(2006). Building Contract Claims, 4th ed., Blackwell Publishing.

68

The use of the phrase delay on the part of the nominated subcontractors and nominated suppliers came in for some judicial criticism in Westminster Corporation v. J.Jarvis 150which arose from JCT 63. According to the court the phrase does not mean the delay caused by nominated subcontractors or nominated suppliers. It was construed as a failure to complete the nominated subcontract works within the appropriate subcontract period. It followed that nominated subcontractors who completed on time but had to return to carry remedial work could have caused the sort of delay described by the phrase.151

According to PWD 203A Clause 43(k) and PAM 1998 Clause 23.7(vii) and CIDB Clause 24.1(p), the contractor is allowed to an extension of time on account of delay on the part of the nominated subcontractors or nominated suppliers. Furthermore, the contractor would be entitles to an extension of time in any event if the reason the same reasons as set out in the PAM 1998 Clauses 23.7(i) to 23.7(vi) and Clauses 23.7(viii) to 23.7(xiii). As the case of Westminster Corporation v. J.Jarvis, the case demonstrated that this clause is limited and where it was held by the House of Lords that such delay on the part of nomination subcontractors was confined to delay in completing the subcontract works.

Thus, as has been illustrated by the case if a nominated subcontractor ostensibly completes his subcontract works but later found to be breach and has to return to the site to remedy breach, that is not delay on the part of the nominated subcontractor.152 Accordingly, in those circumstances, the contractor is not entitled to an extension of time. The House of Lords explained their reasoning as follows:

(1970) 1 WLR 637 1 AII ER 943 I.Ndekugri(1994).Delay, Extension of Time and Liquidated Damages under JCT80, Construction Papers, Reading University,1-14. 152 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
151

150

69 ..the subcontractor is not in delay so long as, by the subcontract completion date, he achieves such apparent completion that the contractor is able to take over, notwithstanding that the work so apparently completed may be defective.

On the other hand, if the breach is discovered before the subcontract works or the supply of goods or materials period ends so that completion is then delayed beyond the completion date, either case while the breach is being remedied, this would amount to delay on the part of the nominated subcontractor and thus gives rise to a right to extension of time.153

The distinction between delays on the part of nominated subcontractor and delay caused by a nominated subcontractor can be illustrated in figure 3.3 and figure 3.4 as follows.

NSC Programme completion period

Delay on the part of NSC

Default rectification

Default discovered

Actual completion date

Figure 3.3: Delay on the part of Nominated Subcontractor Source: Adopted from Robinson et.al (1996)

153

Robinson, M.N. et.al(1996). Construction Law in Singapore and Malaysia, 2nd ed., Butterworth Asia.

70 With reference to the illustrations in Figure 3.3, it established the contractors claims and entitlement to an extension of time. In a contrasting situation, no liquidated damages may be claimed by the employer, and the employer suffers his own loss caused by the delay. In other words, both nominated subcontractor and employer lose, while the contractor is compensated.

NSC Programme completion period

Delay caused by NSC

Default rectification

(Apparent completion)

(Default discovered)

Actual completion date

Figure 3.4: Delay caused by Nominated Subcontractor Source: Adopted from Robinson et.al (1996)

However, according to illustration in Figure 3.4, it demonstrated that the situation whereby the contractor cannot claim extension of time and must be therefore either accelerates his programme to meet the original date for completion or suffer liquidated damages for delay.154 In fact, the employer is either not affected or is recompensed for his own loss. Further, the contractor claims his disturbance cost (which includes any liquidated damages he has suffered under the main contract) from the nominated subcontractor. As a result, nominated subcontractor loses and both contractor and employer are compensated.

154

Westminster City Council v. Jarvis & Sons Ltd. (1970) 7 BLR 64

71 3.8 Circumstances Contributes to Delay in Nominated Subcontractors Works

Further discussion will be focuses more on circumstances that constitute to delay in nominated subcontractor works will be carried out in this study. The circumstances are illustrated based on the court cases. However, for those circumstances which are not supported by the court cases will be substantiated by the relevant clauses of the standard form of contract (i.e PWD203A, PAM 98, CIDB 2000). The circumstances which will be discussed on account of common causes which are contribute delay in nominated subcontractors works. The circumstances are include late instructions, delay in delivery of materials and goods by the employer, late payment, changes, delay in giving possession of the site, suspension of works, discrepancies between contract drawings and contract bills, main contractor fail to provide and erect facilities, interference by the main contractor, negligence by the nominated subcontractor, delay to rectify damages and default by the main contractor.

3.8.1 Late Instructions

Basically, this problem is caused by the late constructional information furnished by the S.O (PWD 203A) or architect (PAM 1998) for execution of work. In practice, under main contract, the S.O (PWD 203A) or architect (PAM 1998) is obliged to provide the main contractor with further reasonably necessary information to amplify the drawings or bill of quantities as and when necessary. Meanwhile, under subcontract PAM 1998 Clause 5.1 asserts that, a nominated subcontractor may requires the main contractor to request the architect to specify in writing the provision of the main contract which empower the issue of the said instruction. Further to this, the main contractor shall convey the architects answer of the request.

72 However, the failure of the S.O (PWD 203A) or architect (PAM 1998) to provide the instruction in good time puts the employer in breach of contract. Thus, the subcontractor has to make the request for the information at the right time. 155 In Neodox Ltd v. Swinton and Pendlebury Borough Council (1958) 5 BLR 34, the main contractor alleged that there was an implied obligation on the part of the employer to provide all necessary information in sufficient time to enable the contractor to execute and compete the works in an expeditious and economic manner and/or sufficient time to prevent the main contractor being delayed in such execution and completion. Nevertheless, Diplock J ruled that:

What is reasonable time does not depend solely upon the convenience and financial interest of the claimants (contractors). No doubt it is to their interest to have every detail cut and dried on the day the contract is signed, but the contract does not contemplate that. It contemplates further details and instructions being provided, and the engineer is to have a time to provide them which is reasonable having regard to the point of view of him and his staff and the point of the Corporation (employer), as well as the point of view of the contractors.

With reference to that, delay may occur in nominated subcontractors work when the instruction is not given in appropriate time. It was illustrated in the case of Shen Yuan Pai v. Dato Hood Teck & Ors.156 This case cites that, the plaintiff was the main contractor, and the defendant was the employer, had contracted for the construction of an office building in Thompson Road in Kuching. The defendant was found that contractor had delay in completion. The plaintiff contended that the delay has been caused by nominated subcontractor because of the lack of instructions or directives by the architect. It was held that the delay was solely by the defendants default and that such failure led to delay in the progress of the main contract works. Thus, the main contractor was not liable to pay damages. By this case, it proves that the late instruction by the architect can
Fong,L.C. (2004). The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia,Malaysia. 156 Shen Yuan Pai v. Dato Wee Hood Teck & Ors (1976) 1 MLJ 16
155

73 be results delay in nominated subcontractor. In addition to that, the contractor is not entitled to receive necessary information to enable early completion too. This principle has been illustrated in Glenlion Construction Ltd v. Guiness Trust (1987) 39 BLR 89.

3.8.2 Delay in delivery of materials and goods by the employer

The employer may choose to supply some of the materials or goods for incorporation in the works. In PAM 1998 Clause 23.7 (ix) has provided that the delay or failure by the employer to supply materials and goods which it has been agreed to provide for the works which may entitle the nominated subcontractor to attain an extension of time.

It must be noted that, in PAM 1998 there is no express provision in the conditions to allow for the possibility of the works being carried out using materials and goods which are to be supplied by the employer. However, certain circumstances do in reality exist and if there is a delay caused the employer in supplying the materials and goods, thus the main contractor should be entitled to an appropriate extension of time. Same goes if the delay occurs in nominated subcontractors work. It could be possibly if the employer caused to delay by failure to deliver such important material for nominated subcontractors work. It has been established in the case of Lightweight Concrete Sdn.Bhd. v. Nirwana Indah Sdn.Bhd. (1999) 5 MLJ 351. Based on this case, the plaintiff was nominated subcontractor to design, manufacture, supply, delivery and installation of the pre-finished concrete panel with granite slabs. The defendant was developer (employer).The plaintiff was late in completion. Thus the defendant claimed the damages for the delay. However, the plaintiff contended that the delay was due to the neglect of

74 the defendant himself to secure sufficient and timely granite to the plaintiff. It was held that the defendant claimed was dismissed.

In view of the above case, it has proven that circumstances may contribute in extending of completion date in nominated subcontracting. For that reason, the employer should liable to be granted an extension of time to the main contractor if that delay which has been illustrated affected to the work programme.

3.8.3 Late Payment

This study will also look an overview of this circumstance which is considered as a significant cause of delay in nominated subcontractors work. Problems in the payment delays become common in construction contract.157It includes where the architect or quantity surveyor fails to consider or evaluate claims submitted by the main contractor within reasonable time, delay payment by the employer, payment is disputed by the main contractor or the employer, problem with certificate and withhold the payment without reasonable reasons.

Normally, as provided in standard form of contract, the main contractor has to pay the nominated subcontractor when he receives payment certificates from he employer (PAM 1998)158 or when he receive payment from the employer (PWD 203N).159 In other word it also known as pay when paid clause. Based on PAM 98 Clause 27.3, has asserts
Croudace Ltd. v London Borough of Lambeth (1986) 33 BLR 25. Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd. 159 Fong,L.C. (2004). The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia,Malaysia.
158 157

75 that the nominated subcontractor is entitle to be paid by the main contractor within 14 days after received the certificate from the architect. The question that should be noted is the main contractor fails to pay the nominated subcontractor and whether the main contractor entitles to withhold the money which is has been certified by the employer.

The non payment of the employer does not necessary due to employer default in payment. The employer might withhold the payment due to default by the main contractor. The problem arise is when the nominated subcontractor request for payment but he rely on the clause pay when paid. There is a case illustrated that this clause is enforceable. In DEC Electric, Inc. v. Raphael Construction Corp.160 under the subcontract provided that no funds will be due to the subcontractor unless the main contractor is paid by the owner in accordance to the sworn statement. Thus, the court found that as a matter of law, that language was a condition precedent and that the subcontractor was not entitle. Further discussion on the cases which are same issues such as Antara Elektrik Sdn.Bhd. v. Bell & Order Bhd (2002) 3 MLJ 321, Engineering Construction (PTE) Ltd v. Ohbayashi Guni Ltd. (1986) 1 MLJ 218, CSK Electrical Co. Bhd. V. Regional Construction Sdn. Bhd. (1987) 2 MLJ 763, and Alliance (Malaya) Engineering Co. Sd. Bhd. v. San Development Sdn. Bhd. (1974) 2 MLJ 94.will be carried out in the following chapter. According to above elaboration, it shows that this circumstance can be delayed in nominated subcontracting and the entire construction.

3.8.4 Changes Out of Scope of Work

160

(1989) 538 So. 2d 963, 964.

76

Most of the standard forms of contract provide a clause in relation to changes or commonly known as variation. This clause is one of the important provisions for covering any changes in terms of scope of work procedure, materials and goods to be used. However, by this clause it also creates some problem to delay in nominated subcontractors work. In addition to that, the Privy Council decision can be referred as in Mitsui Construction Co. v. The Attorney General of Hong Kong (1986) CLJ 134. Thus , it is conceivable, in most cases that the basis for determining a contractors entitlement to time extension on this ground could be different from the basis for determining the effect of a variation on the contract price.

Furthermore, both of the subcontracts PWD 203N and PAM 1998 Subcontract have been provided that the provisions on the scope of changes. As a result, the time of the construction work can be delayed by this circumstance. This discussion will be referred to substantial changes where normally require work beyond the scope of the contract. In the case of Peter Kiewit Sons Co. v. Summit Construction Co. (DDC 1968) 292 F, the plaintiff was a main contractor and he substantially increased the magnitude and difficulties of the subcontractors back filling work on missile project. The court found that the main contractor breached the subcontract by ordering changes beyond the scope of the contract.

3.8.5 Delay in giving possession of the site

77

Normally, the main contractor and nominated subcontractor may suffer due to the failure on the part of the employer to grant him timely possession of site. Furthermore, if the delay or any deferment without reasonable reason may constitutes a breach of contract and sets time to become at large.161

The contractor shall from time to time make available to the nominated subcontractor such part of the site and main contracts works and such means of access thereto within the site is reasonably necessary to enable the nominated subcontractor to execute his works.
162

However, the main contractor shall not be bound to give to the

nominated subcontractor possession or exclusive control of any part of the site or the main contract works. With reference to that, the problems may arise when the part of the site of subcontract work not ready for the nominated subcontractor to carry out his work. Subsequently, this problem may constitute to delay in the subcontract works thus, the issue is whether the main contractor is entitling to an extension of time.

According to Rajoo163, the contractor may allowed an extension of time if the delays of the nominated subcontractors or suppliers fall within the relevant events which identified in PAM 1998 Clause 23.7(except clause 23.7(vii)). However, PWD 203A Clause 38(d) has highlighted that the S.O is empowered to issue an instruction to revise the Date for possession in the event of any delay in the giving of possession of site or sections or part thereof by the date for possession. In consequence the S.O is also empowered to grant the appropriate extension of time pursuant to PWD 203 Clause 43(g). However, it is clearly provided that the contractor would not entitle to any losses

Turner,F.D.(1990). Building Contract Disputes-Their Avoidance and Resolution, Longman Scientific and Technical,UK 162 Clause 11(a), PWD 203N Standard Form of Subcontract 163 Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.

161

78 or damages caused by such delay in giving possession of the site.164 Thus, in order to determine the circumstances that cause to delay in nominated subcontractor, further discussion on the case of Thamesa Designs Sdn. Bhd. v Kuching Hotels Sdn.Bhd. (1993) 2 AMR 2083) will be carried out in chapter 4.

3.8.6 Suspension of works

Basically, on account of the main contractor fails to make a payment in appropriate time, the nominated subcontractor have the right to suspend the further execution of the subcontract works until such payment being paid and such period suspension shall be deemed to be an extension of and be added to the period of completion.165 Moreover, in PAM 1998 Clause 11.7, it emphasizes that any extension of time granted to the nominated subcontractor in this respect will not entitle the main contractor to an extension of time under the main contract.

In addition to that, it has been illustrated in the case of J.M. Hill v London Borough of Camden (1980) 18 BLR 31,CA. According to this case, the contractor was held entitled to suspend the works because he was being paid certified sums and his claim for loss and expense were being ignored by the architect. As a result, the contractor was held to have reasonable grounds for suspending the works. But, the problem may arise if the nominated subcontractor suspends the work without any reasonable grounds. With reference to that, delay in nominated subcontractor has a potential to be occurred by this occasion.
Fong,L.C.(2004).The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia. Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
165 164

79 3.8.7 Main contractor fail to provide and erect facilities

Under normal construction, a main contractor has an obligation to provide and erect facilities for the nominated subcontractor. In this situation, the main contractor should provide all the facilities for the subcontract works such as water, lighting, watching, site security, allocation of space for storage and accommodation and rubbish clearing at his own cost. Thus, a nominated subcontractor has right to make all necessary in appropriate manner. It has been clearly stated in PAM 1998 Subcontract Clause 15.1, PWD 203N Clause 5, Clause 6 and Clause 7 and CIDB.B (NSC)/2002 Clause 8.

However, CIDB.B (NSC)/2002 expands the clause and states that such utilities are supplied by the main contractor then the nominated subcontractor have to pay the main contractor for the consumption of the same in connection with the subcontract works. Besides that, the nominated subcontractor has to bear at his own cost. The problem may arises when the main contractor failed to supply any utilities such as electrical for the nominated subcontract works. As a result, the delay may occurred in the process of the nominated subcontractor to carry out his work. It has been demonstrated in the case of CSK Electrical Co. Bhd. V. Regional Construction Sdn. Bhd. (1987) 2 MLJ 763. According to this case, the plaintiff was the nominated subcontractor for the execution of electrical works under the main contract. The defendant was the main contractor. One of the issue has been highlighted in this case is when the main contractor failed to pay to CSK in full amount due to late in completion in nominated subcontract works. However, the plaintiff contended that the delay has been caused by failure of plaintiff to obtain some of the necessary electrical equipment. The court found that, the plaintiffs order because the delay caused by the defendant. As an implication, the defendant should liable for damages if it affected in the main contract. Thus, it proves that the delay in nominated subcontracting works may also caused by this circumstances. 3.8.8 Interference by the main contractor

80

Delay in nominated subcontractors works also can be caused by wrongfully interfere by the parties of the project. The problem which may occurs is when the nominated subcontractor not able to precede the subcontract works in properly within specified time and it lead to delay in completion. According to PAM 98 Subcontract Clause 17, it has been highlighted that the contractor and subcontractor shall not wrongfully use or interfere with the plant, ways, scaffolding, temporary works, appliances or other property respectively belonging to or provided by either of them.166 Besides, the same provision also has been asserted in PWD 203N Clause 9.

This problem also has been highlighted in the different approach. There is a classic case of British Waggon Co. v Lea (1880), where the contract involved the repair of railway wagons. It was held that the defendants did not attach any importance to whether the repairs were done by the company or anyone with whom the company might enter into a subsidiary contract to do the work. According to the principle of the case, it can be apply into this discussion which the nominated subcontractor was delay due to unreasonable information had given.

3.8.9 Negligence by the nominated subcontractor

The main contractor is liable to the employer for all defaults in the work of nominated subcontractor, irrespective of whether the subcontractors default arises in his design, fabrication or workmanship. It has been demonstrated in the case of Equitable

Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.

166

81 Debenture Assets Corporation Ltd v. Morgan Branch Roberts and Ors. (1984) 2 CLD 1001.

Furthermore, PAM 1998 Clause 23.7(vii) provides that for the architect to grant extension of time to the main contractor in respect of delays on the part of nominated subcontractor or nominated suppliers, but this does not affect the fundamental principle. With reference to that, the employer cannot bring a contractual claim directly against nominated subcontractor because there is no privity of contract. Besides that, the way in which the employer must pursue a claim against the nominated subcontractor is through suing the main contractor for breach of the main contractor. In turn, the main contractor sues the defaulting by nominated contractor. This event may also caused delay in the construction work.

3.8.10 Delay to rectify damages

In general, a main contractors responsibility for a nominated subcontractors work is most likely to arise in respect of failure to comply with required standards of workmanship or the quality and fitness for their purpose of any materials supplied.

It has been already noted that, apart from any express terms in a building contract, it is the contractors implied obligation to build in a workmanlike manner with materials that are of good quality and fit for their intended purpose. Nevertheless, while the obligation as to the fitness of materials only arise where the employer has relied on the skill judgment of the contractor and will therefore be excluded where a subcontractor is nominated, the obligation as to quality is strict and will therefore normally remain

82 intact.167With reference to the above discussion, PWD203A clause 28, PAM 1998 clause 27 and CIDB clause 40 laid down the list of obligations for nominated subcontractor. Clause 27.2 (i) provides that the nomination subcontractor must carry out and complete the subcontract works in every respect to the reasonable satisfaction of the contractor and the architect and in conformity with all reasonable directions and requirements of the contractor.

Normally, the nominated subcontractor is still liable for making good of his defects. In addition to that, the subcontractors liability to remedy defects is worded to keep him in step with the main contractor as a similar liability to any liability of the main contractor.168 Most subcontracts such as in PWD 203N Clause 18 (a) to (c), PAM 1998 Subcontract Form Clause 10.2 to 10.4 and CIDB.B (NSC)/2002 Clause 21 included the provision in relation to the defects in subcontract works.

For that reason, the main contractor may ask the nominated subcontractor to carry out rectification works for the defective. In addition to that, the nominated subcontractor has to complete the rectification works within due date. The problem arise is when the nominated subcontractor has delayed in carrying out the work due to many of defective to be done. In was held in the case of Wesminster CC v. Jarvis, the delay occur in this construction due to rectification work was not consider as delay on the nominated subcontractor. For this study purposes, it has been proven that delay can be occurred by rectification of the defective works.

167 168

Young & Marteen Ltd v. Mcmanus Childs Ltd (1969) 1 AC 454. Turner,D.F.(1994). Building Contract- A Practical Guide, 5th. Ed., Longman Scientific&Technical,UK.

83

3.8.11 Default by The Main Contractor

The failure of the main contractor to pay regularly for the substantial completion may effect to the progress of the nominated subcontractor. Another problem occurs when the main contractor determine subcontract without reasonable reason. It has been established in the case of Engineering Construction (PTE) Ltd v. Ohbayashi Gumi Ltd (1986) 1 MLJ 218. In this case, the plaintiff was a nominated subcontractor of the defendant and claimed that the termination of their employment by the defendant was wrongful. The defendant alleged that the plaintiff was lack of progress and delay in completion and claims damages. However, the plaintiff argued that the delay was due to defendant wrongfully withholding payment. It was held the defendant had wrongly terminated.

Thus, this case has proven that this circumstance also caused to delay in nominated subcontractors work.

3.9 Summary

Most of construction project will rely on subcontractor. There are several ways to delegates the works to the subcontractor. The process of distinguishing of right and obligation can be done through subcontracting are namely as assignment, nominated subcontract and domestic subcontract. The parties involved commonly are the employer, main contractor, nominated subcontractor and domestic subcontractor. All of them have been bound in a contractual relationship. A nominated subcontractor plays an important

84 role in construction especially for the works that requires highly expertise and specialties. Under construction contract, there have a standard forms for the nominated subcontractor to be incorporated with the main contract. It consists of PWD 203N, PAM 1998 Subcontract and CIDB.B (NSC)/2002. With reference to that, it also has been provided a clause in relation to delay and extension of time. Delay in nominated subcontracting works has also considered as a significance cause to delay in construction. There are several circumstances that contribute to delay in nominated subcontractor and their implication to the main contractor whereby it has been elaborated in this chapter.

85

CHAPTER 4

COMMON CIRCUMSTANCES CAUSING DELAY IN NOMINATED SUBCONTRACTING

4.1

Introduction

It has been decided that the objective of this study is to identify circumstances which caused delay in nominated subcontractors work. Hence, this chapter will highlight the issues gathered from cases that caused nominated subcontractor unable to proceed their work within specified time. Discussion will be conducted according to circumstances that have been highlighted in chapter 3. However, only six (6) common circumstances will be discussed which will be supported by relevant cases. In addition to that, the achievement of the objective and the analysis of data collection will be presented in further details.

86 4.2 Analysis of Cases

The legal cases which are related to this study have been assembled in order to achieve the objective of this study. Most of the relevant cases reported in Malayan Law Journal have been collected through Lexis Nexis databases. With reference to that, there is no limitation in terms of time frame, as long as it has not been overruled by higher court and established as good law.

Basically, this analysis is based on cases which have been selected in connection with delay caused by nominated subcontractor. The relevant cases to this research are limited even though there are long list of cases dealing with delay, extension of time as well as liquidated damages. Initially, 100 cases have been found but only 24 cases were relevant to subcontract. Finally, there were only 10 relevant cases that have been investigated in this study. In relation to this, numerous keywords have been used for this process. For instance, delay in subcontract, delay caused by nominated subcontractor, delay in building contract, extension of time in building contract, default by nominated subcontractor and default by main contractor.

4.2.1 Number of cases within time frame

As has been mentioned above, only 10 cases have been investigated in order to achieve the objective of this study. These cases are divided into 4 main categories according to the year cases were decided (refer to Table 4.1). Table 4.1 shows that from year 1970 to 1979, 2 cases have been reported relating to delay in nominated subcontractors work. However, only 3 cases have been reported from 1980 to 1989 and

87 1990 to 1999. It has been noted that only 2 cases were reported within year 2001 to 2007. In other words, 60% of the cases studied are within the year of 1980 to 1999 (refer Figure 4.1). Thus, it can be concluded that nominated subcontractor played a vital role in construction industry.169 The analysis on the number of cases has shown that subcontracting method has become a norm in construction industry. This is due to the fact that during such period of time, the construction industry is expanding.170 Table 4.1 : Number of Cases Within Time Frame Source : Cases from Malayan Law Journal Period of Time No. of Cases

1970 1979

1980 1989

1990 1999

2000 2007

Total

10

169

Arditi,ASCE,M. & Chotibongs,R.(2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, Volume 131, 866-876 170 Asem,M.,Malak,A.,Member,A.,ASCE & Hassanein,Z.(2001). Asphalt Works Subcontracting Disputes in Large Construction Programs, Journal of Performance of Constructed Facilities, Volume 15.

88 Figure 4.1 : Number of Cases Within Time Frame Source

50%

: Cases from Malayan Law Journal

No. of Case

30% 30% 20%

30%

20%

10% 1970 1979 1980 1989 1990 1999 2000 - 2007 Year of Case

4.2.2 Types of Nominated Subcontractor according to specialisation

In general, nominated subcontractors profess various skills and specialisation. In reference to this, ten (10) cases have been categorized based on their expertise as presented in Table 4.2 and Figure 4.2. The categorization are based according to scope of work such as Mechanical and Electrical (including air conditioning, lift, sewerage system, electrical works and ventilation), Furniture and Equipment and Building works. Table 4.2 shows that the highest number dealing with this problem is nominated subcontractor who are expert in mechanical and electrical works. It can clearly be stated that 70 % or 7 cases out of 10 cases related to delay in mechanical and electrical works. It can also asserted that only 2 cases or 20% deal with furniture and equipment experts. However, only one case is related to the nominated subcontractor who is an expert in building works. The observation shows that, most of the arguments of delay comes from

89 mechanical and electrical works. It could be due to the long duration of completion, complexity of the process, highly skill and expertise required and costly. 171

Table 4.2 : Types of Nominated Subcontractor and the Number of Cases Source : Cases from Malayan Law Journal Type of Nominated Subcontractor Mechanical and Electrical Furniture and Equipment Building Works Total No. of Cases 7 2 1 10

Figure 4.2 : Type of Nominated Subcontractor and the Number of Cases Source : Cases from Malayan Law Journal

80%

70%

No. of Case

60%

40% 20% 20% 10%

0% Mechanical and Electrical Furniture and Equipment Type of Nominated Subcontractor Building Works

171

Arditi,ASCE,M. & Chotibongs,R.(2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, Volume 131, 866-876

90 4.2.3 Causes of Delay

Delay is the most common problem in construction projects. There are many reasons why delay occurs. One of the reasons is delay caused by nominated subcontractor.172 In actual fact, there are several causes that may contribute to delay in nominated subcontracting. Thus, this study has categorized the causes into 2 major groups as demonstrated in the following Table 4.3. Table 4.3 : Causes of Delay Source : Cases from Malayan Law Journal

Causes of Delay Employer Main Contractor Total

No. of Cases 5 5 10

Table 4.3 indicates that the main contractor is one of the contributors in causing delay in nominated subcontracting. Based on this study, it is shown that 50% out of cases studied are in respect to delay in nominated subcontracting caused by main contractor. The problems could be due to bad site management, improper planning, inadequate experience, mistakes during construction and improper construction methods.173 Besides that, the problems where the nominated subcontractor is unable to complete their
172

S.Alkass, M.Mazerolle & F.Harris(1995). Construction Delay Analysis Techniques, Shool of Construction,Engineering and Technology,University of Wolverhampton,UK.14,375-394 173 A.M.Odeh & H.T. Battaineh.(2002) Causes of Construction Delay:Traditional Contracts, International Journal of Project Management.20, 67-73

91 subcontract works within specified time has also been caused by the employer. Thus, another 50% of the cases studied proved that the employer has contributed to delay in nominated subcontracting.(Refer to Figure 4.3) Figure 4.3 : Causes of Delay Source : Cases from Malayan Law Journal

60% 50% 50% No. of Case 40% 30% 20% 10% 0% Employer Causes of Delay Main Contractor 50%

4.3

Circumstances Causing Delay in Nominated Subcontracting

Basically, projects can be delayed for a large number of reasons.174 Normally, most of the previous studies that have been conducted focused on reasons or causes for delay in main contract. Delays in nominated subcontracting are very seldom acknowledged and the ways to improve are also seldom discussed,175 but it is a significant cause to delay the construction project. In addition to that, delay on the part of nominated subcontractors will entitle the main contractor to obtain an extension of time.
174

Kumaraswamy,M.M & Chan,D.W.M. (1996). Contributors to Construction Delays, Construction Management and Economics.The University of Hongkong, 16,17-29. 175 Arditi,ASCE,M. & Chotibongs,R.(2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, Volume 131, 866-876

92 Thus, this study will focus on delay in nominated subcontracting in order to define circumstances that contribute to delay.

Furthermore, after reviewing the nature of delay in construction as well as delay in subcontract in the previous chapter, this chapter will identify and analyse the circumstances which will render delay in nominated subcontractors work and their implication to the main contractor. Those circumstances are based on decided cases and provision that have been provided in the standard form of contract.

4.3.1 Circumstances No.1 Delay in Nominated Subcontractors Work Due to Late Payment

Most of building contracts provide for payment by installment as the works proceeds normally against an architects certificate. In relation to this, failure to make payment when due does not normally amount to a repudiation of the contract, nor entitle the contractor to repudiate the contract.176 In addition to that, an employers obligation to pay the main contractor is determined by the payment arrangement envisaged in terms of the underlying contract. In practice, the most common payment arrangement is one where work is certified and paid progressively according to the value of work completed through a series of interim payment or progress payment.

Furthermore, the primary obligation upon the employer is to give the main contractor the sum of money which forms the consideration for the contract. Money must be paid promptly and fully unless there are specific reasons for withholding it. All these
176

Smith,V.P. & Furmston,M.(1987). A Building Contract Casebook, BSP Profesional Books.

93 events explain the employers obligation on payment for the main contractor. The question that now must be considered is regarding to payment for completion of nominated subcontractors work and the nominated subcontractors right against the main contractor.

It is worth being mentioning here that the payment rights of a nominated subcontractor are to be found exclusively within the terms of subcontract. However, nominated subcontractors demand to be paid is frequently challenged by the main contractor on the ground that the subcontractor is guilty of delay, defective work or other breach of contract.177 Due to these circumstances, it can lead to a slow progress of subcontract work mainly in nominated subcontracting. It has been pointed out that timeliness of payments affects many nominated subcontractors, for whom receiving delayed payments from their main contractor is caused by friction between the two parties. The nominated subcontractor may delay in their progress of work due to the late payment and expose to payment clauses of pay when paid and pay if paid. This can be illustrated in the case of Alliance (Malaya) Engineering Co. Sdn.Bhd. v. San Development Sdn.Bhd. (1974) 2 MLJ 94. In this case, the plaintiff was a nominated subcontractor. The defendant was a main contractor. In this contract, the plaintiff was a specialist in kitchen and medical equipment. The defendant contracted to build for the Sarawak Government, a General Hospital in Kuching. The plaintiff and defendant entered into two subcontracts, one for the supply and installation of kitchen cabinet and the other for the supply and installation of medical equipment. The defendant alleged that there has been a delay in plaintiffs performance and that he is failed to supply the cabinet and equipment accordingly. One of the issues that arose was related to the defendants refusal and withholding of the progress payment due to the nominated subcontractor. This case highlighted that the money had been paid by the employer to the main contractor but half of the payment for nominated subcontract works were still outstanding and thus the employer withholding it without reason. The court allowed the plaintiffs appeal to claim for the money due.
177

M.John & Hughes.W. (2000). Construction Contracts-Law and Management, 3rd ed.,Spon Press

94 Basically, many nominated subcontract contained a provision to the effect that the main contractor would become liable to pay the nominated subcontractor not when the relevant sum has been certified by the architect, but only when the main contractor has actually received the money from employer. This provision is known as pay when paid clauses, which are inserted in the subcontract for two main purposes.178 The first is to protect the main contractors cash flow. This occurs because the main contractor will merely act as a channel payment between the employer and the subcontractor and will thus be in no danger of having to finance the subcontract work. The second purpose which is less obvious is to make the nominated subcontractor carry the risk of the employer becoming insolvent. This will happen in circumstances where the employers insolvency occurs after subcontract work has been certified, but before the main contractor has been paid for it. However, most of the standard forms of subcontract stipulate that specific periods of time for payments to subcontractor which is normally reached through by negotiation. According to the above case, it shows that, the clause in relation to pay when paid has not been applied for the payment purposes. Thus, the main contractor has no right to hold the money by relying on that reason.

This has also been established in the case of Ryoden (M) Sdn Bhd v. Syarikat Pembenaan Yeoh Tiong Lay Sdn.Bhd. (1992) 1 MLJ 33. In this case, the main contractor was the defendant and the plaintiff was a nominated subcontractor. One of the problems in this case is when the delay occurs in nominated subcontractors work due to the late payment by the main contractor. The problem arose when the defendant wrongly withholds one of the progress payment and he also relied on pay when paid clauses which is not applicable. In this contract, they successfully applied summary judgment in respect of the unpaid amounts. The main contractor appealed against this judgment, arguing that the plaintiff would be paid until they themselves have received the certified sums from the employer. The court considered two clauses in the subcontract which provided that the nominated subcontract shall be deemed to have notice of all the
178

Arditi,ASCE,M. & Chotibongs,R.(2005). Issues in Subcontracting Practice, Journal of Construction Engineering and Management, Volume 131, 866-876

95 provisions of the main contract and required the nominated subcontractor to observe and conform with all provisions of the main contract so far as they were applicable to the subcontracts work and were not inconsistent with the express provisions of the subcontract. However, the court decided that these clauses did not apply to the subcontract. In these circumstances, the court further held that the payments for the subcontract works were regulated only by the payments terms of the subcontract and these provided that the subcontractors right to be paid within 14 days from the main contractors receipt of any certificate issued by the architect.

Nevertheless, in the above case, it is clearly stated by Clause 10 of the subcontract that the defendant as the main contractor agreed, subject to and in accordance with the main contract, where from time to time to apply to the Director of Public Works for certificates of payment of the amount which at the date of the application fairly represented the value of the nominated subcontract works, and within 14 days of the receipt by them of such certificates aforesaid to pay the nominated subcontractors the amount certified to be due in respect of the nominated subcontract works and any authorized variations thereof less the due proportion of retention money(10%) retained by the employer. It has also been provided in PAM 98 Subcontract Clause 11.3, which says that;

PAM 98 Subcontract Clause 11.3 Contractors Obligation to Pay the Subcontractor

Within fourteen (14) days of the receipt by the Contractor of any certificate or duplicate copy thereof from the Architect the Contractor shall notify and pay to the Subcontractor the total value certified therein respect of the Subcontract Works and in respect of any authorized variations thereof and in respect of any amounts ascertained under Clause 9.4 hereof less:-

96 i) Retention Money, that is to say the proportion attributable to the Subcontract Works of the amount retained by he Employer in accordance with the Main Contract and ii) The amounts previously paid.

Thus, due to the above clause, if it is incorporated in the subcontract, thus the main contractor shall pay the nominated subcontractor accordingly based on his work done. The main contractor who refused to implement it accordingly will lead to a breach of contract. It could be said that this problem is similar to the case of Antara Elektrik Sdn.Bhd. v. Bell & Order Bhd. (2002) 3 MLJ 321., whereby the argument in this case is related to payment whether it should follow the pay when paid clause or payment should be made after 14 days of the receipt the certificate. In addition to that, the nominated subcontractor also failed to procede their work due to the main contractor wrongfully withholding their payment. It also has been demonstrated in the case of Engineering Construction (Pte) Ltd. Ohbayashi-Gumi Ltd (1986) 1 MLJ 218 and Mahkota Technologies Sdn.Bhd. v. BS Civil Engineering SdnBhd. (2000) 6 MLJ 505. In these circumstances, what can the nominated subcontractor do if the main contractor still refused to make a payment? It can be suggested that, based on the following principle the problem may be overcome. In the decision before the Illinois Court of Appeal, a subcontractor was held entitled to suspend his work following the principal subcontractors failure to make monthly payments. This has been illustrated in Watson v Auburn Iron Works (1974) 318 NE 2d 508. Besides that, PAM 1998 Subcontractor Clause 11.7 and CIDB.B (NSC)/2002 Clause 29.2 provide that the subcontractor have the right to suspend work upon failure. But it was silent in PWD 203N and does not have any other provision that can be related to this part. It has been stated that, if the main contractor fails or neglects to make payment of any amount due to the nominated subcontractor and he continues for 14 days or more, the nominated subcontractor may give notice of his intention to suspend the work. In addition, if the main contractor continues such default for 14 days after the receipt of such notice, the nominated subcontractor may suspend wholly or partly the execution, Clause 29.2(i) asserts that the

97 time for completion of the subcontractor works shall be extended by the contractor by such suspended period.

Therefore, according to the above case, this study determines that the nominated subcontractor is unable to carry out their subcontract work due to the circumstances which are caused by late payment. It also shows that, without proper progress payment and regular payment the subcontract work cannot be completed within specified time in the subcontract. It also asserts that, the principle of clause pay when paid where the main contractor is only liable to pay the nominated subcontractor for work performed under subcontract after the main contractor had been paid for the same work by the employer is not practical. Thus, delay in nominated subcontractors work may give an entitlement to the main contractor for an extension of time but not for such circumstances which delay has been caused by the main contractor. In other words, the main contractor should liable for any damages on account of the delay.

4.3.2 Circumstances No.2 - Delay in Nominated Subcontractors Works Which Was Caused By Main Contractors Default.

As a general principle of law, failure to pay on time what is due under a contract will not normally be treated as a sufficient breach to justify the other party in terminating that contract.
179

Besides that, problems may arise when the main contractor wrongly

terminate the nominated subcontractor. Due to this, delay in nominated subcontract works could be caused by this type of circumstances.

179

Carr v. JA Berriman Pty Ltd (1953) 89 CLR 327

98 The principle can be illustrated in the case of Engineering Construction (Pte) Ltd v Ohbayashi-Gumi Ltd (1986) 1 MLJ 218. In this case, the plaintiff was a nominated subcontractor for sewerage treatment works stage 1 and stage 2. The defendant was a main contractor. The argument was based on wrong termination by the main contractor in respect of lack progress of nominated subcontract works. Therefore, the nominated subcontractor was unable to proceed the subcontract work within time prescribed. The defendant alleged that the plaintiff had done unsatisfactory works, and also lack in progress. The problem became more critical when the defendant was not satisfied with the progress of work of the aluminum works. Due to that, the employer had started to impose the liquidated ascertained damages (LAD) against the defendant. The judge found that, the main reason for the delay occurred on the part of the plaintiffs work including aluminum works was due to the main contractors wrong termination on the nominated subcontractor. Thus, he could not proceed with the subcontract works as required. Thus, the main contractor also failed to make duly payment according to subcontract as agreed by both parties.

With reference to this case, the main contractor has to follow the subcontract agreement that has been agreed by both parties. One of the terms of the agreement that has been highlighted is monthly progress payment and final payments should be done within 14 days of submission of claims. Thus, it is clearly stated that to pay the nominated subcontractor as in the contracts is the main contractors obligations.

In addition to that, there is a provision that can be referred in PAM 1998 Subcontract Clause 20.1 which asserts that:

if before the date of practical completion of the subcontract works the main contractor shall make default in one or more of the following respects:

99 i) without reasonable cause he wholly or substantially suspends the carrying out of the main contract works; or ii) without reasonable cause he fails to proceed with the works so hat reasonable progress of the subcontract works is seriously affected; or iii) without reasonable cause, he fails to make payment to the subcontractor for a period of one (1) month or longer from the date of suspension of work by the subcontractor pursuant to clause 11.7 then the subcontractor may give the main contractor notice by registered post or recorded delivery specifying the default or defaults.

Thus, based on the above provision the nominated subcontractor has the right if the delay due to default of main contractor. Besides that, there is also a provision in PAM 1998 Subcontract Clause 20.2 which provides an option to the nominated subcontractor to proceed or to determine his own employment under the subcontract. Other alternative to obtain the payment, it could be suggested that the nominated subcontractor can refer to PAM 1998 Clause 27.4. It is refers to limited provisions for direct payment to the nominated subcontractor by the employer of amount previously certified but not paid by the contractor. This alternative can help to prevent delays on a project in the event the main contractor either fail to make regular payments to nominated subcontractors or fail to pass on to the subcontractors money when certified to them.

On the other hand, other issue which has been demonstrated in the case of Woh Hup (Pte) Ltd & Anor v. Turner (East Asia) Pte Ltd. (1987) 1 MLJ 443 shows that the delay in nominated subcontractor which deals with the default of the main contractor is when the employer withholds the payment to the main contractor due to termination of the employment by the main contractor. Thus, the nominated subcontractor may not proceed their works and non payment was due to them. It was held that the plaintiff was entitled to obtain his claims.

100 In view of the above, this study highlight that the progress of the nominated subcontractors work can be impeded by the default of the main contractor in carrying out the project. In other words, this circumstance is considered as a cause of delay in nominated subcontractors works. Due to this, it has been clearly shown that the main contractor is not entitled to obtain any extension of time for this type of delay. In fact, the main contractor may be liable for damages on the employer as well as nominated subcontractor because the delay has created by him and it is not be covered under any relevant events in the contract. Default by the main contractor may be brought to an end of the contract.

4.3.3 Circumstances No.3 Delay on the Part of the Nominated Subcontractors Work Has Been Caused By Late Possession of Site.

In construction contract, there are numbers of employers obligation which has been set out. The most important obligation is to give the possession of site or access to the main contractor. However, this study will only refer to nominated subcontractor. It has been mentioned earlier in the chapter 3, the problems may arise in respect of delay in giving site possession to start work. In addition to that, the employer is regarded to have committed a breach of contract if he fails to give timely possession of site.180 Consequently, to ensure that time will not to be set at become at large in the event of late hand over of site to the nominated subcontractor, most standard forms of contract expressly includes this event as one of the grounds for time to be extended.181 Without it, any deferment of possession of site will contribute to breach of contract and will set the time at large as has been established in Freeman & Son v. Hensler (1900), 64 JP 200. It was held that, it was an implied term of the contract that the contractor would be given
180 181

Fong,C.K. (2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia. Turner,F.D.(1990). Building Contract Disputes-Their Avoidance and Resolution, Longman Scientific and Technical,UK

101 possession of the site immediately. The agreement between the parties had waived that obligation and had substituted a reasonable time clause, therefore the plaintiff was entitled to damages for the loss which he had sustained by reason of the delay. However, in PAM 98 there is no specific provision in relation to this event. But under Clause 23.7(xi), the clause can be activated as an alternative to solve this problem. It stipulates that, if the main contractor alleges that there has been an act of prevention or breach of contract by the employer, the architect can continue to administer the contract and grant of extension of time as and when he considers these as appropriate.182

In view of the above discussion, the case of Thamesa Designs Sdn Bhd & Ors v Kuching Hotels Sdn.Bhd. (1993) 3 MLJ 25 can be referred to, where four appellants were the nominated subcontractors. The respondent was the employer. The appellants were appointed in respect of supply and install of furniture and fittings to the respondent. As a result of non payment for works done, the appellants sued the judgment debtor and obtained judgment for a total of outstanding balance which had remained unsatisfied. Furthermore, they then proceeded with garnishee actions against the respondent, the employer of the judgment debtor, to garnish the retention money in the hands of the respondents, which was due to the judgment debtor under the contract. Consequently, the garnishee orders were served on the respondents.

The respondent alleged that there was no money to be paid because the retention fund had been utilized to pay for the rectification of defects. He also claimed for liquidated damages (LAD) to account for 36 days delay in completion of the works. The appellant challenged the validity of the final certificate in respect of the imposition of 36 days liquidated damages. The judge found that, the facts showed that the employer handed over the site late which led to delay on the contractor to complete the works and
Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
182

102 this affected to the nominated subcontractors works. Therefore, the employer should not be entitled to claim for liquidated damages under the said contract because by his omission to give possession of the site in time. Due to that, the time for completion becomes at large and there was no date from which the damages could be assessed.

With reference to the above case, it could be said that the main contractor normally is entitled to exclusive possession of the entire site, but the degree of possession to be given depends on the circumstances of the site. It has been highlighted in the case of London Borough of Hounslow v. Twickenham Garden Developments Ltd. (1970) 7 BLR 81. In addition to that, the employer must also give the main contractor a sufficient degree of possession to permit the execution of the work unimpeded by others. A case of The Queen in Right of Canada v Walter Cabott Construction Ltd (1975) 21 BLR 42 has cited that Cabott contracted with the Crown for the erection of the hatchery building. The contract was one of six contracts for the project as a whole. The work required fewer than two of the later contracts interfered with Cabotts work because they encroached on the site. One of the latter contracts was awarded to a third party, but Cabott successfully tendered for another to mitigate the effects of that contract on its work. Cabott claimed damages for breach of implied terms relating possession of site. It was held that Cabotts claim succeeded. The Crown was in breach of contract by denying Cabott part of the site of the work. A clause of the contract provided that there were implied terms to make ready an appropriate working space which it is fundamental to a construction contract.

However, where the delay in giving site possession is so serious as to evince an intention by the employer not be bound by the contract, it would seem that a case could be made to treat the contract as at an end. In has been cited in Carr v. JA Berriman Pty Ltd. (1953) 27 ALJR 273. There is different situation when the main contractor brought an action for damages instead of bringing the contract to an end. This has been proven in the case of Freeman v Henser (1900) 64 JP 260 (CA).

103 With reference to the above circumstances, it could be said that it is essential for an employer to give possession of the site to the main contractor as well as nominated subcontractor within the stipulated date in the contract.183 It also has been asserted in PWD203N Clause 11(a) that the main contractor shall from time to time make available to the nominated subcontractor such part of the site and main contract works to enable them to execute the subcontract works in accordance with this subcontract. However, it could be said that the permission to access the site still depends on the employer.

Based on the observations from the above cases, this study has identified the circumstances which can delay the performance in nominated subcontracting. One of the causes of the delay which may occur from this circumstance is when the employer is late in giving site possession to the nominated subcontractor. If there are provisions for this circumstances in the contract, the nominated subcontractor is therefore entitled to obtain an extension of time. Nevertheless, normally this provision does not provide such event that may entitle the nominated subcontractor as well as the main contractor to an extension of time. Under PWD203A Clause 43(g) which is interrelated with Clause 38(d) asserts that the nominated subcontractor should carried out the work in extended time when time is set to become at large and completed the works within reasonable time. In addition to that, PAM 1998 Clause 23.7 (xi) also provides that the architect can issue an extension time or fix a new completion date in the event which delay is caused by any act of prevention or breach of contract by the employer. For that reason, the employer may not be entitled to claim liquidated damages in the absence of provision that provides for late possession of site in the contract.

183

Fong,L.C. (2004). The Malaysian PWD Form of Construction Contract, Sweet & Maxwell Asia,Malaysia.

104 4.3.4 Circumstances No.4- Delay in Nominated Subcontractors Work Due to The Failure of the Employer to Supply Materials And Goods

Basically, PWD 203A Clause 43(k), PWD 203A Clause 23.7(vii) and PWD 203A Clause 24.1(p) provide that, the date of completion can be extended in circumstances where the delay is on the part of nominated subcontractor on their work. According to that, the clauses also allow the main contractor to secure time extension and avoid damages when a nominated subcontractor has defaulted in the manner stated.

Furthermore, most of the building contract forms (PWD 203A,PAM 1998 and CIDB 2000) have stipulated that the additional usefulness to the contractor in the event of delay on the part of the nominated subcontractors where it has been caused by similar reasons as set out, for instance in PAM 1998 Clause 23.7(i) to 23.7(xiii) except clause 23.7(vii). Due to this, it benefits the main contractor because he would be given an extension of time for completion date under a construction contract.

There are several causes which constitute delay which are considered in construction contract and one of them is caused by the employer. Delay caused by the employer consists of delay in the supply of materials and goods which has been agreed to supply for the works,184 any act of prevention and breach of contract.185 As a result, the contractor is not liable for any liquidated damages for the delay in completion of the works. Problems arise when the nominated subcontractor delays his work in respect of this event, but the employer insists to claim for any damages. Thus, there was a circumstance where the employer had imposed liquidated damages to the nominated subcontractor for the delay in completion of the works within specified time. In Lightweight Concrete Sdn.Bhd. v. Nirwana Indah Sdn.Bhd.(1999) 5 MLJ 351, the
184 185

Clause 23.7(ix), The Malaysian Standard Form of Building Contract (The PAM 1998 Form) Clause 23.7(xi), The Malaysian Standard Form of Building Contract (The PAM 1998 Form)

105 defendant was a developer of a project. The plaintiff was appointed as nominated subcontractor by a subcontract agreement. In this case, the nominated subcontractors obligation was to design, manufacture, supply, delivery and installation of the prefinished pre-cast concrete panel with granite slabs. The defendant argued that the plaintiffs delayed and only completed the work on 20 March 1993 instead of 30 September 1992. In addition to that, the plaintiff agreed that they completed this stage on 20 March 1993. However, the plaintiff highlighted that, delay in completion occasioned by the neglect of the defendant itself in failing to secure sufficient and timely supply granite to the plaintiff in order for the plaintiff to make the pre-cast granite panels.

Furthermore, the defendant argued that the plaintiff was responsible for the supply and delivery of the granite required for its pre-cast granite panels. The defendant relied heavily on the first agreement dated 30 May 1992 which the main contractor and the plaintiff, where in the first recital described the subcontract works as design, supply, delivery and installation of pre-cast concrete panels pre-finished with granite slab. Based on this, the defendant argued that it was the duty of the plaintiff to have sourced the supply of granite in sufficient amount to thwart any delay. The Judge found that, the agreement spelled out that the supply by the plaintiff was only limited to completed panels and slabs and not to supply of raw granite. In addition to that, the decision made was based on the agreement between the defendant and the supplier of the granite for this project. The defendant argued further that, the delay also had been caused by the supplier to supply the granite. However, the decision shows that the supplier was under the control of the defendant. Thus, the plaintiff cannot be held responsible for the delay.

With reference to the above case, initially, the employer contended that the delay was caused by a nominated contractor in carrying out the works. Usually, a nominated subcontractor has to be liable for liquidated damages for any extended time in completion of the works if the default was caused by himself. The nominated subcontractor was also ordered to indemnify the main contractor against the liabilities in respect of the

106 subcontract works as those for which the main contractor is liable to indemnify the employer under main contract.186 Basically, Section 74 of Contract Act 1950, provides that when a contract has been breached, the party who suffers is entitled to receive compensation for any loss or damage caused to him which naturally arose in the usual course of things from the breach. In addition, such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Furthermore, it has been highlighted that, under common law the remedy for breach of contract is an action for damages. The innocent party is entitled to claim for financial amount which would compensate him for the loss incurred as a result of the breach committed by other party. In the case of late completion or delay, the employer is entitled to claim in liquidated damages calculated according to the stipulated time in the contract. It has been demonstrated in Robinson v Harmon (1848) 1 Exch 850 at 855, Teoh Kee Keong v. Tambun Mining Co. Ltd. (1968) 1 MLJ 39 and Tham Cheow Toh v. Associated Metal Smelters Ltd. (1972) 1 MLJ 171.

In addition to that, the defendant alleged that the plaintiff was late in completion due to the failing to secure sufficient material (granite) for wall paneling within appropriate time. The defendant then added that the plaintiff should be responsible to supply the granite according to contract between the nominated subcontractor and the main contractor. With reference to that, the defendant has wrongly interpreted the contract. In fact, the granite should be supplied by the supplier based on agreement between the defendant and his supplier. However, the material has been delayed in delivery to site due to his supplier.

In a building contract, the circumstances that caused delay due to failure by the employer to supply materials and goods in appropriate time has been provided under list of events in the contract (PAM 1998 Clause 23.7(ix), PWD 203A is silent on this) which
Rajoo.S(1999). The Malaysian Standard Form of Building Contract (The PAM 1998 Form), 2nd ed., Malayan Law Journal Sdn.Bhd.
186

107 give entitlement to the nominated subcontractor an extension time in the subcontract. It must be noted that there is no express provision in the conditions to allow for the possibility of the works being carried out using materials and goods which are to be supplied by the employer. However, such circumstances do in reality exist and if there is a delay which are caused by the employer in supplying the materials and goods, the contractor should be entitled to an appropriate extension of time. Thus, the delay in this case has been caused by the employer in supplying the materials and goods specifically granite and as a results the nominated subcontractor should be entitled to an appropriate of extension of time.

To recapitulate, according to the above case, this study identify that the delay in nominated subcontractors can be caused by the circumstances which the employer fails to supply materials and goods in an appropriate time. Thus, the nominated subcontractor is not liable for the delay. This study has also considered the implication of the delay to the main contractor whether he is entitled to be granted an extension of time or to be liable for damages. As an implication that has been determined from this case, it can be said that the main contractor is entitled to an extension of time due to this circumstances if it effected the whole schedule of the project in the main contract. In addition to that, for those contracts which are based on Clause 23.7(ix) of PAM 1998, the entitlement of extension of time can be given to the main contractor. Besides that, in order to be able to claim for an extension of time under this provision, it must be proved that the contractor could not have reasonably unforeseen such at the date of tender.

4.3.5 Circumstances No.5 Delay In Nominated Subcontractor Due to the Late Instructions

108

In general, an employers failure to issue plans, drawings and other information necessary for the execution of the works and at the proper time is a breach of contract by the employer, through the agency of the architect unless the express terms of the contract stated otherwise.187 The late instructions which was referred to was by PAM 98 Clause 23.7(vi) and include any instructions which empowers the architect. In addition, to enable the works to proceed properly, it is normally necessary for the architect or engineer to issue instructions or additional drawings during the course of the works. Thus, most of the extension o time provisions provide for time to be extended where the architect or engineer fails to issue these instructions or drawing in a timely manner.188

The problem arises when the main contractor is unable to proceed their work under main contract in time due to the delay caused by the nominated subcontractor in nominated subcontract works which is a consequences of the nominated subcontractor delayed in their works in respect of insufficient or late of instruction by the architect or employer. It has been demonstrated in the case of Shen Yuan Pai v. Dato Wee Hood Teck (1976) 1 MLJ 16. According to this case, the plaintiff was the main contractor. The defendant was the employer. By a contract in writing dated 16 November 1965, the defendants contracted with the plaintiff for the construction of an Office Building at Thompson Road, Kuching. The problem arose when the plaintiff claimed that he had not received payment from defendants due to delay in the completion of the construction work.

Furthermore, regarding the agreement that has been agreed by both parties, it shows that the date of completion of the contract was 31 March 1966. However, the time had been extended for specific reason. On the other part of this case, the plaintiff had
187 188

Smith,V.P. & Furmston,M.(1987). A Building Contract Casebook, BSP Profesional Books. Fong,C.K. (2004). Law and Practice in Construction Contract, 3rd ed., Sweet & Maxwell Asia.

109 raised the question of specialist installations with the architect and had reminded the latter that the specialist works had to be completed by first week of February 1966 in order to allow him to complete the work by the agreed time. Moreover, until certain period of the construction, the plaintiff informed that the work cannot be completed by the completion date given in respect of delay in specialist work. Thus, the plaintiff asked for an extension of time where a minimum period was eight weeks. However, the plaintiff still failed to complete the works due to the inability of specialist to commence their work by that extension period.

For that reason, the architect sent a letter to the defendant to inform that due to the lack instructions and directions have resulted in the work cannot complete on time. The defendant replied the letter and informed that there was no suggestion from the architect for that problem. It seems that the defendant put the duty on the architect to propose any suggestion to prevent the delay. However the judge found that the delay occurred was due to default of the defendant in the fulfillment of their own part of the contract.

The above case can relate to the provision in the standard form of contract. In PAM 98 Clause 23.0, it has been asserted that the main contractor has to give notice to the architect and specify the cause of delay which affects the progress. Besides that, the main contractor must also indicate the relevant event causing the delay with sufficient information given. In the case, the plaintiff sent a notice and relevant information to the architect on the causes of delay which is due to the delay on the specialist works. Clause 23.1 stipulates that the contractors notice of delay is essential before the architect is obliged to consider whether an extension of time might be appropriate. However, the failure to give notice, if the contractor knows he is delayed or will likely be delayed, will be breach of contract on his part. As a result, no extension of time is to be given on the account of those circumstances.

110 However, it could be argued that, the problem arose when the architect lack in giving the instruction and direction to the main contractor as well as nominated subcontractor. In addition, the problem became worse when the employer failed to exercise his power in order to take action on the problem caused by nominated subcontractor in specialist works. Besides that, failure by the architect to properly exercise the power to extend time, where any delay to completion is caused by the employer or those for whom he is responsible in law, relieves the main contractor from his liability to pay damages. Dodd v. Churton (1897) 1 Qb 562 cites that where the time for completion becomes at large, that is the contractors obligation is then to complete within a reasonable time. See also the case of Holme v.Guppy (1838) 2 M & w 387 & Wells v. Army & Navy Co-operative Society (1902)86 LT 764.

In addition, the judge also pointed out his point which is according to Halburys Laws of England and it could be concluded that, in the event that any breach of contract and reason for variation works ordered by the employer is not in the contract, and contract clearly stated that the contractor shall take risk for prevention by such extra works, the employer then cannot insist upon completion by the date fixed, but only for completion within a reasonable time. For that reason, the judge decided that the delay was solely due to the defendants default. Thus, because of the breach of the contract, the plaintiff has to proceed the work in reasonable time.

It could be said that, the employer is in breach of his obligation to supply timely instruction for the execution of works. In the leading case of Roberts v Bury Commissioners (1870) LR 5 CP 310, Blackburn and Mellor LJJ stated in their judgment that there is an implied obligation on the part of the employer and their architect to supply plans and necessary particulars for the execution of the works within a reasonable time and a breach of this implied obligation would entitle the main contractor to a cause of action in damages.

111

In view of the above case, this study has derived the circumstances which have caused to delay in nominated subcontract works. Due to the late instruction by the employer as well as architect, it can be resulted in the completion of subcontract works and a breach of contract. In practice, most of the contracts do not prefer to provide a clause which enabling the employer or his agent to fix the new completion date after the employer has caused delays to the contractors progress. The defendant therefore is not entitled for the damages incurred. The same principles has been applied in the previous circumstances where the main contractor is entitled to extension of time or may only allowed to carry out the works within reasonable time.

4.3.6 Circumstances No.6 Delay in Completion of the Subcontract Works Due to the Failure of Main Contractor to Provide Amenities And Facilities

In general, the main contractor is responsible to undertake numerous obligations. A part of the obligation is to provide facilities for the nominated subcontractor to proceed with the subcontract works. Besides that, as has been highlighted previously in the case of nominated subcontracting, a main contractor has to provide a sufficient of site for the nominated subcontractor to carry out nominated subcontract work. In addition to that, the main contractor must also consider the condition of the site whether the facilities and amenities has been ready for the nominated subcontractor to carry out the subcontract works without any disruptions. Nevertheless, the problem arises when the main contractor fails to provide necessary amenities and facilities for the purpose of the subcontract works. Due to this, the nominated subcontractor may not commence their works in accordance with the work programme and most probably it may lead to delay in completion.

112

It has been presented in the case of the CSK Electrical Co. Bhd. v. Regional Construction Sdn. Bhd. (1987) 2 MLJ 763, the plaintiff was nominated subcontractor for the execution of electrical works under the main contract. The defendant was the main contractor. One of the issue which has been highlighted in this case is when the main defendant failed to pay to the plaintiff in full amount due to the late in completion in nominated subcontract works. However, according to the judgment by Robert CJ, the delay has been caused by the failure of the plaintiff to obtain some of the necessary electrical equipment. As a result the plaintiff was unable to complete the subcontract works according to completion period. The judge found that the plaintiffs order was agreed because of the delay caused by the defendant. As an implication, the defendant was liable for the damages if it affected the main contract.

In practice, most of the standard form of contract mainly building subcontract has set out the provision whereby the main contractor is responsible to provide the facilities for the purpose of the nominated subcontract works. It has been clearly stated in PAM 98 Subcontract Clause 15, which says that:

PAM 98 Subcontract-Clause 15.1 Contractor to provide amenities and facilities if so required in main contract if and so as it is so provided in the main contract (but not otherwise) the contractor shall supply at his own cost all necessary water, lighting, watching, site security, allocation of space for storage and accommodation, rubbish clearing and attendance for he purposes of the subcontract works, subject as aforesaid the subcontractor shall make all necessary provision in regard to the said matters and each of them.

113 In addition to that, CIDB.B/(NSC) 2002 has been expanded by the Clause 8.1 of:

CIDB.B/(NSC) 2002 Clause 8.1 Utilities provided by the contractor b) where such utilities are supplied by the contractor then the nominated subcontractor shall pay the contractor for the consumption of the same in connection with the subcontract works. c) subject to sub-clauses 8.1 (a) and (b) above, the nominated subcontractor shall at his own cost make provision of all utilities necessary for he proper execution of the subcontract works.

Furthermore, there is a principle which can be referred to and it has been derived from the case of Pigott Construction Co. Ltd. v. W.J. Gowe Ltd (1961) 27 DLR (2d) 258, CA Ontario. The plaintiff was the contractor and the defendant was the nominated subcontractor. One of the plaintiffs obligations was to supply equipment necessary to the subcontractor. The contractor failed to provide temporary heating as required in the contract. As a result of the failure by the contractors, a number of trades could not proceed with the work in the buildings under construction. The Ontario Court of Appeal held that failure to provide heating prevented the subcontractors, in the depth of the Canadian winter, doing the work at all. Thus, the contractor was held liable to the subcontractor for the cost of providing subcontractors own heating equipment.

Thus, it could be said that to provide all the facilities to the site is a main obligation for the main contractor in construction. It has been proven in the above case that, where the delay occurred is due to failure of the main contractor to provide the required facilities in time and therefore the nominated was unable to proceed their subcontract works as has been stated in the contract. As a result, the main contractor is

114 responsible for the damages which caused in the event of delay in nominated subcontracting.

In view of the above discussion, it can be concluded that the nominated subcontractor cannot complete the subcontract works within the completion period if the condition of the whole site including all facilities are still not ready to be commenced. In short, this circumstance is considered as a cause of delay in nominated subcontracting. Consequently, the nominated subcontractor is entitled to obtain extension of time in such event, but the main contractor should liable for any damages for the employer and nominated subcontractor.

115

CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1

Introduction

This is the final chapter which summarizes the finding of the research in accordance with the research objective. Problems encountered during the research as well as recommendations for future research are also discussed in this chapter.

5.2

Summary of Research Findings

In general, the objective of this research has been achieved through the documentary analysis of law journals. By carrying out this research, six (6) circumstances have been identified which causes delay in nominated subcontractors work and their implication to the main contractor. The findings are summarized in Table 5.1 and Table 5.2.

116

Table 5.1 : Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor Item 1 Circumstances Circumstances No.1 Delay in nominated subcontractors work due to late payment. Circumstances No.2 Delay in nominated subcontractors works which was caused by main contractors default. Circumstances No.3 Delay on the part of the nominated subcontractors work which has been caused by late possession of site. Circumstances No.4 Delay in nominated subcontractors work due to the failure of the employer to supply materials and goods. Circumstances No.5 Delay caused by nominated subcontractor due to the late instructions. Circumstances No.6 Delay in nominated subcontractors work due to the failure of main contractor to provide amenities and facilities. Cause of delay MC & NSC Main Contractor Party in dispute MC & E NSC & E

Main Contractor

Employer

Employer

Employer

Main Contractor

117 Table 5.2 : Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor Item 1 Circumstances Circumstances No.1 Delay in nominated subcontractors work due to late payment. Discussed in the court case of: Alliance (Malaya) Engineering Co. Sdn.Bhd. v. San Development Sdn.Bhd. (1974) 2 MLJ 94 Ryoden (M) Sdn Bhd v. Syarikat Pembenaan Yeoh Tiong Lay Sdn.Bhd. (1992) 1 MLJ 33 Antara Elektrik Sdn.Bhd. v. Bell & Order Bhd. (2002) 3 MLJ 321 Engineering Construction (Pte) Ltd. Ohbayashi-Gumi Ltd (1986) 1 MLJ 218. Mahkota Technologies Sdn.Bhd. v. BS Civil Engineering SdnBhd. (2000) 6 MLJ 505 Circumstances No.2 Delay in nominated subcontractors works which was caused by main contractors default. Discussed in the court case of: Engineering Construction (Pte) Ltd v Ohbayashi-Gumi Ltd (1986) 1 MLJ 218. Woh Hup (Pte) Ltd & Anor v. Turner (East Asia) Pte Ltd. (1987) 1 MLJ 443 Cause(s) of Delay The main contractor refused to pay the progress payment to the nominated subcontractor as stated in the contract Implication to The Main Contractor Repudiatory breach by the main contractor. The main contractor is not entitled to obtain any extension of time. The main contractor is liable to pay damages to the employer

The main contractor has wrongly terminated the employment of nominated subcontractor and withhold progress payment without reason

In CIDB 2000 Clause 24.1-not allow any extension of time due to main contractors default Repudiatory breach by the main contractor The main contractor is not entitled to obtain any extension of time The main contractor liable to pay damages to the employer The nominated subcontractor also have rights to be compensated

118 Table 5.2 : Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor Item 3 Circumstances Circumstances No.3 Delay on the part of the nominated subcontractors work which has been caused by late possession of site. Discussed in the court case of: Thamesa Designs Sdn Bhd & Ors v Kuching Hotels Sdn.Bhd. (1993) 3 MLJ Cause of Delay Failure of the employer in giving the possession of site within appropriate time Implication to The Main Contractor CIDB 2000 Clause 24.1(i) - a ground that entitled the main contractor to an extension of time. PWD 203A Clause 43(g) - a part of ground that allows the main contractor to be given extension of time. PAM 1998 Clause 23.7 (xi) - Act of prevention or breach of contract by employer. Breach of contractor by the employer the main contractor entitled to get extension of time. Time is set to become at large, the employer has no right to be compensated. Since no new completion date has been provided, the main contractor has to proceed the work within reasonable time. PAM 1998 Clause 23.7 (ix) provides such ground which give entitlement to the main contractor to obtain an extension of time. The nominated subcontractor is also entitle to an extension of time on account of this delay. The employer is not entitled to be compensated for any damages due to the delay caused by his own fault.

Circumstances No.4 Delay in nominated subcontractors work due to the failure of the employer to supply materials and goods. Discussed in the court case of: Lightweight Concrete Sdn.Bhd. v. Nirwana Indah Sdn.Bhd.(1999) 5 MLJ 351

The employer fails to deliver material in time

119

Table 5.2 : Analysis For Circumstances Which Causes Delay In Nominated Subcontractors Work and Their Implication to The Main Contractor Item 5 Circumstances Circumstances No.5 Delay caused by nominated subcontractor due to the late instructions. Discussed in the court case of: Shen Yuan Pai v. Dato Wee Hood Teck (1976) 1 MLJ 16 Cause of Delay The employer lack of giving instruction and direction to the main contractor Implication to The Main Contractor PAM 1998 Clause 23.7 (xi)-act of prevention or breach of contract by employer will allow the architect to give an extension of time to the main contractor. In the absence of the provision, time for completion becomes at large, thus the main contractors obligation is then to complete within a reasonable time. Therefore, the employer is not entitled for the damages incurred. PWD 203N Clause 5- a provision for the main contractor to provide necessary facilities for the purpose of subcontract works. The main contractor is liable for the damages incurred to the nominated subcontractor as well as to the employer. The nominated subcontractor may be entitled to obtain extension of time.

Circumstances No.6 Delay in nominated subcontractors work due to the failure of main contractor to provide amenities and facilities. Discussed in the court case of: CSK Electrical Co. Bhd. v. Regional Construction Sdn. Bhd. (1987) 2 MLJ 763

The main contractor not provides facilities as has been required in the contract

120 5.3 Problems Occurred When Conducting This Study

There are some constraints in conducting this study. The first is the time in doing this study is very limited and thus the scope of this study is quite limited. Besides that, the cases that related to this study is also limited. It is because most of the cases in associated with nominated subcontractor are not recorded and thus it has to be searched within Malayan Law Journal. Thus, this limitation led to less cases being found to support the findings, especially those decided in Malaysia court. If more time is given, most probably the circumstances illustrated will be more comprehensive and thorough.

5.4

Further Studies

The following is a possible topic that related to this research recommended for future research: a) The entitlement of extension of time due to concurrent delay -The objective of this research is to determine the circumstances of concurrent delays in construction and the entitlement of extension of time to the main contractor.

121 5.5 Conclusion

As a conclusion, there are many causes of delay in construction. Causes of delay can be further detailed into delay caused by owner/employer, delay caused by designer, delay caused by contractor, delay caused by subcontractor and delay not caused by party to the design and construction process. Delay can be categorized as excusable, nonexcusable, compensable, non-compensable and concurrent delay. An excusable delay gives entitlement the main contractor to be granted extension of time and not liable for damages. Delay on the part of the nominated subcontractor is considered under this type of delay. Further to this, there are circumstances that may cause the completion period of nominated subcontract work become delay. This study has also determined six (6) circumstances, which may contribute to delay in nominated subcontractors work. In addition to that, based on these causes of delay, this study has identified the implications to the main contractor whether they should be entitled an extension of time or to be liable of damages. This study could be considered as guidance to the parties in construction industry in reducing and preventing of delay in construction.

122

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124

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