A rticle

Your Contractual Questions Answered

Must The Contractor Notify The Employer/

SO Of Its Loss And/Or Expense Claim?
By the Entrusty Group

The Entrusty Group, a multi-disciplinary group of companies, of which, one of their specialisations is in
project, commercial and contractual management, has been running a regular contractual question-and-
answer section for MBAM members in Master Builders Journal.

In this instalment of the series, the Entrusty Group will provide the answer to the frequently asked question
above.

T
he standard forms of contract in loss and/or expense which had been ● Delay on the part of artists,
Malaysia require that written incurred by the Contractor, as and when tradesmen, or others engaged by the
notifications are provided for loss necessary from time to time, provided that: Employer in executing work not
and/or expense claims. However due to forming part of this Contract;
poor understanding of the requirement of ● The Contractor’s application is made in ● The Architect’s instructions issued in
notification, bad notice or the lack of writing as soon as it becomes or should regard to the postponement of any
notice has led to disputes and be reasonably apparent to him that the work to be executed under the
disagreement amongst the various regular progress of the Works or any of provisions of this Contract;
parties (i.e. Employer, SO and Contractor). it had been or is likely to be affected; ● Delay or failure by the Employer to
and supply or provide materials and
A written notice of claim or application by ● The Contractor submits together with goods which the employer had
the Contractor is usually the precondition his application relevant information agreed to provide or supply for the
to evaluation, ascertainment and substantiating his claim so as to enable Work;*
certification by the Architect/Engineer/SO him to form an opinion; and ● Failure of the Employer to give in due
for Loss and/or Expense payment. Unlike ● The Contractor upon request submit to time entry to or exit from the site of
extension of time, lack of notice on loss him any other additional details of loss the Works (or any part thereof )
and/or expense claim is often fatal. and/or expense as are reasonably through/over any land by way of
necessary for ascertainment. passage adjoining/ connected to the
STANDARD FORMS OF CONTRACT site and in the possession and control
(RELEVANT CLAUSES) Clause 24.1 list down the circumstances or of the Employer in accordance with
situations that are considered as materially the Contract Drawings and/or the
PAM Form of Building Contract (1998) affecting the regular progress of the Works Contract Bills;*
and these are: ● Any act of prevention or breach of
Clause 24 - Loss and/or Expense of PAM contract by the Employer.*
98 is more detailed and procedural when ● The Contractor not having received in
compared to its predecessor, PAM 69 due time the necessary instructions, [Note : These are not provided for under
especially in relation to its application and drawings, details or levels from the PAM 69].
ascertainment. It also incorporates Architect for which he had specifically
additional provisions on circumstances applied in writing provided that it was Under clause 24.3, this requires the
that have materially affecting the regular neither unreasonably distant from nor Architect (or QS if he is so instructed) to
progress of works. unreasonably close to the date on ascertain the amount of such loss and/or
which it was necessary for him to expense if and when the Contractor
Clause 24.1 requires the Contractor to receive them; makes written application within a
notify the Architect in writing if and when ● The opening up for inspection of any reasonable time of it becoming apparent
the regular progress of the Works or any work covered up or testing of any work, that the progress of the Work or any part
part of it has been or is likely to be materials or goods in accordance with of it has been affected. Failure by the
materially affected which he had incurred Clause 6.3, including its making good, Contractor to comply with the
or is likely to incur direct loss and/or unless the inspection or test showed requirement of Clause 24.0 will entitle the
expense not reimbursable under any that the work, materials or goods were Architect (or QS if he so instructs) to
other provisions of the Contract. not in accordance with this Contract; ascertain the quantum of the Contractor’s
● Any discrepancy in or divergence entitlement to loss and/or expense
The Architect (or QS if he is so instructed) between the Contract Drawings and/or payment on the basis of information
shall then ascertain the amount of such the Contract Bills; available to them.

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JKR/PWD Form Of Contract (203a – Rev IEM Conditions Of Contract Sub-clause 32.1 (c) requires the
10/83) Contractor to comply with the notice
IEM Clause 44 is identical to JKR Clause 44, requirement notwithstanding whether
The Clause 44.1 of the JKR Contract states except that IEM has an additional he knows or not that the valuation of
that if the regular progress of the Works provision to cover for delays in giving the variation has been agreed or SO has
or any part thereof has been materially possession of the site as provided under decided to include any such claim
affected by the following reasons only clause 38(b)(i) [clause 43 (g)]. Like the JKR amount in any certificate.
and the Contractor has incurred direct Contract, the Contractor is also required to
loss and/or expense that he would not be give written notice to the Engineer within Contemporaneous Records
reimbursed under any other provisions 30 days of the occurrence together with Sub-clause 32.2 (a) to (c) requires the
of the Contract, then he shall within a an estimate of the loss and/or expense Contractor to keep contemporaneous
month of the occurrence of such event amount and is subject to the final records reasonably necessary to
give written notice to the SO of his certification clause (clause 48). Similarly support any loss and/or expense claim.
intention to claims together with an IEM Contract also contains an identical The Contractor is to allow the SO to
estimate of the amount of the loss and/ PWD sub-clause 5 (d). inspect these records when so
or expense: instructed and the SO may then further
CIDB Form Of Contract For instruct additional records to be kept.
● 43(c) - directions given by the S.O Building Works These SO’s instructions are without
consequential upon disputes with admission of Employer’s liability.
neighbouring owners which is not There are various clauses relating to loss
due to any act or default of the and/or expense. The definition is The Contractor is required to supply
Contractor or its sub-contractor; contained in Clause 1.1 and Clause 31 sets copies of such records to the SO when
● 43(f ) - the Contractor not receiving in out the claimable situations for loss and/ instructed to do so.
due time necessary instructions, or expense. The procedure for claiming
drawings, levels or instructions on the loss and/or expense is set out in some Substantiation of Claims
nomination of sub-contractors and/ detail under clause 32 - Procedure for Sub-clause 32.3 (a) requires the
or suppliers from the S.O, which he Claims. This clause is divided into 6 sub- Contractor to submit to the SO a
has specifically applied in writing on sections/clauses: written account with detailed
a date which was neither particulars to adequately substantiate
unreasonably distant from nor ● Sub-clause 32.1 - Notice of Claim; the amount claimed and its linkage of
unreasonably close to the date on ● Sub-clause 32.2 – Contemporary the event(s) giving rise to the claim.
which it was necessary for him to Records;
receive the same; or ● Sub-clause 32.3 – Substantiation of Sub-clause 32.3 (b) deals with claim
● 43(i) – the Contractor is delayed on Claims; events that have continuing effect shall
the part of artists, tradesmen or ● Sub-clause 32.4 - Access to be treated as interim accounts until the
others engaged by the Government Contractor’s Books and Documents; end of the effects, where the
in executing work not forming part of ● Sub-clause 32.5 – Payment of Claims; Contractor is required within 30 days to
this Contract. ● Sub-clause 32.6 – Failure to Comply. submit to SO a final claim account
supported with detailed substantiation
This clause is subject to clause 48 which Notice of Claims of the claims.
relates to final certificate. Sub-clause 32.1 (a) requires the
Contractor to give written notice to the SO Access to Contractor ’s Books and
Apart from Clause 43, the JKR Contract of his intention to claim loss and/or Documents
under Clause 5 – SO’s Instructions also expense, within 30 Days after the claim Sub-clause 32.4 (a) empowers the SO to
contain a provision under sub-clause 5 event first arisen, specifying: have access to all books, documents,
(d) that if in compliance with the SO’s ● the event and its consequences; papers or records in the possession,
instructions involves loss and/or expense ● the appropriate Contract references to custody or control of the Contractor
for which the Contractor would not be such event ; that are material to the claim for the
reimbursed under any other provision in ● an estimated Loss and/or expense purpose of making audit, examination,
this Contract provided the SO’s value; and excerpts and transcripts to verify any
instruction was not issued owing to ● to comply with sub-clauses 32.2 to claim submitted under this sub-clause
some breach of the Contract by the 32.4 requirements. 32 and the Contractor must make these
Contractor, the Contractor shall within a records available until all claims,
month of such SO’s instruction to give Sub-clause 32.1 (b) expressly states that mediation, arbitration, or litigation have
written notice of his intention to claim for the notice is condition precedent to the been finally disposed of or concluded.
such loss and/or expense to the SO Contractor’s entitlement under the
together with an estimate of such loss Contract stating “The giving of such a Sub-clause 32.4 (b) also requires the
and/or expense. notice shall be a condition precedent to Contractor to use his best endeavours to
any entitlement that the Contractor may ensure that all the said documentation /
This clause is similarly subject to clause 48. have under the Contract.” records in the possession, custody or

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control of all his sub-contractors/ In London Borough of Merton v Stanley A loss and/or exp ense claim or
suppliers that are material to the claim Hugh Leach Ltd Vinelott J held that it is a application should be supported by
to be similarly made available. requirement of the contract for the notice relevant information and documents
to be made within a reasonable time. He to substantiate it. The CIDB Contract
Payment of Claims said that it must not be made so late that contains a procedure basically codifies
Sub-clause 32.5 (a) requires the the Architect cannot form a competent the good practice for loss and expense
Contractor to comply with sub-clauses opinion on the matters which he requires claims which ought to be followed
32.1 to 32.4, before he is entitled to have to satisfy himself that the contractor has even if other forms of contract are
the loss and/or expense claim amount suffered the loss and/or expense claimed. used. If this good practice is followed
included in any SO payment certificate and practiced this should lead to less
under Clause 42, which the SO may CONCLUSION disagreement and disputes.
consider due to him.
The above standard forms of contract Only the CIDB Contract makes it a
Sub-clause 32.5 (b) states that the require the Contractor to give written condition precedent that a notice is
Contractor is only entitle to payment of notice to the Architect/Engineer/SO of his required before the SO can consider
the substantiated part of the claim loss and/or expense claim. There is no the loss and/or expense claimed by
amount if he fails to supply and satisfy notice requirement to give notice to the the Contrac tor. The Architec t/
the SO with adequate substantiation of Employer. Engineer/SO is responsible for
the whole claim amount. assessing and ascertaining within a
The Contractor’s entitlement to recover reasonable time the amount due to
Sub-clause 32.5 (c) provides that SO’s loss and/or expense incurred is subjected the Contractor of the said claim where
inclusion of any loss and/or expense to the works being materially affected by the payment for this loss and/or
claim or any payment by the Employer specific events only as set out in the expense amount is to be made by the
in any certificate under Clause 42 shall relevant clauses of the various contracts. Employer. MBJ
not:

● Prejudice the Employer’s right to

dispute the Contractor’s entitlement
to the amount certified either in
principle, or its quantification or In the next issue of the MBAM journal the article will answer the question Should
referring such dispute for decision additional Preliminaries be evaluated on recurring costs basis or actual costs
under clause 47 (Settlement of incurred?
Disputes).
● Be taken into account by the SO or Entrusty Group is currently running a series of seminars/workshops in 2005. The up and
any arbitrator (or other tribunal) in coming ones are:
deciding whether the Contractor
shall repay to the Employer the ● Sub-Contracting - Overcoming The Problems July 27 2005
whole or any part of such amount. ● Payment Claims, Valuation, Certification & Final Account Aug 10 2005
● Value Engineering / Management Aug 24 2005

Failure to Comply For further details, please visit www.entrusty.com

Notwithstanding sub-clause 32.5, under
sub-clause 32.6 the SO is still entitled to
make such assessment, valuation or
opinion on fair and reasonable basis The Entrusty Group includes Entrusty Consultancy Sdn
based on the information available to Bhd (formerly known as J.D. Kingsfield (M) Sdn Bhd), BK
him if the Contractor have complied Burns & Ong Sdn Bhd (a member of the Asia wide group BK
with Clause 32.1 but not complied fully Asia Pacific) , Pro-Value Management, Proforce Management Services Sdn Bhd/Agensi
or at all with any of the sub-clauses 32.2 Pekerjaan Proforce Sdn Bhd and International Master Trainers Sdn Bhd. Apart from
to 32.4. project, commercial and contractual management services, the group also provides risk,
resources, quality and value management, recruitment consultancy services and
RELEVANT CASE LAW corporate training programmes to various industries, particularly in construction and
petrochemical, both locally and internationally.
Clause 23 of the PAM 98 Contract is in
this respect of notice is similar to Clause Entrusty Group provides both in-house and public seminars and will provide a 30
23 of the 1963 Edition of the JCT minutes of free consultancy (by prior appointment) to MBAM members on their
Contract in the U. K. which was contractual questions. Kindly contact HT Ong or Wing Ho at 22-1 & 22-2, Jalan 2/109E,
considered in the case of London Desa Business Park,Taman Desa, 58100 Kuala Lumpur, Malaysia.
Borough of Merton v. Stanley Hugh Tel: 6(03) -7982 2123 Fax: 6(03) -7982 3122 Email: [email protected] Website :
Leach Ltd. in 1985. www.entrusty.com

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