DEFECT LIABILITY PERIOD AND ACCOUNT CLOSING

DEFECT LIABILITY PERIOD

AND

ACCOUNT CLOSING

W. Mohd. Saipallah bin W. Kadir

Head of Project Team 2

Cawangan Kerja Kesihatan



A common feature in all the standard form of

construction contracts in Malaysia

PAM 98 / JKR PWD 203 / IEM / CIDB 2000


A common feature in all the standard form of


PAM 98 Clause 15 – Practical Completion & Defects Liability

JKR PWD 203A (Rev 1-2010) Clause 48 – Defects After Completion

CIDB Standard Form of Contract for Building Works 2000 Edition

Clause 27 - Defects Liability After Completion


PAM


JKR 203A


CIDB Standard Form of Contract


JKR PWD FORM DB (Rev.2007)

Defect Liability Period


Deemed to have commenced on the date on which

the client (Government) shall have taken possession

and occupied the works.

1. Completion of works – issuance of CPC

2. Sectional completion of works – issuance of CPO



i. Issuance of Certificate of Practical Completion (CPC)

ii. Completion of outstanding works and remedying defects.

iii. Default in remedying defects

iv. Diminuation in value of works

v. Certificates of completion of making good defects

Completion of Works



i. Certificate of Partial Occupation. (within 7 days)

ii. Start of DLP for parts occupied

iii. Certificates of completion of making good defects (relevant parts)

iv. Reduction in LAD

v. Default in remedying defects

vi. Diminuation in value of works

vii. Insurance (contractor to notify insurer)

viii. Performance Bond (realeased after CMGD for whole works)

Partial Occupation



S.O. : issue instructions requiring any defects,

shrinkages or other faults appearing

within DLP due to materials or

workmanship not in accordance with the

Contract.

Contractor : obliged and liable to rectify defects that

appear between the period the

Certificate of Practical Completion

(CPC) is issued and the expiry of the

DLP.


In General : Instruction for rectifying defects,

shrinkages or other faults can no

longer be issued after 14 days from

expiry of the DLP.

Unless otherwise stated in the Contract


In general terms defects or defective works is

where the standard and quality of

workmanship and materials as specified in

the contract is deficient.


Defects

Defects


Patent Defects :

Latent Defects :

defects that can be discovered by normal

examination or testing.

defects that are not discoverable by

normal examination or testing which

manifests itself after a period of time.

Defects


Construction Defects :

Usage Damages :

defects arising from poor worksmanship or

defective materials.

damages due to incorrect operating

by users.

defective materials.

Defects


Defects



Start

Issuance of Certificate of Practical Completion

CPC

i. End of Contractor’s contractual liabilitiy : except of making good defects;

ii. One moiety of Retention Fund released;

iii. End of insurance period;

iv. End of Contractor’s liability for further Liquidated Damages;

v. End of Contractors’s possession of site except to make good defects.

Defects Libility Period begins

S.O./Engineer may issue written instruction to

Contractor to make good defects

S.O./Engineer may issue Schedule of Defects not

later than 14 days after expiry of DLPFlowchart

Flowchart


Contractor makes

good defects at his

own cost, within 3

months after the

receipt of the

Schedule

S.O./Engineer ascertains the

diminution in the value of

defective works if impracticable

and inconvenient for Contractor

to rectify

ORS.O. may employ third party to

make good the defective works

No

Start

Issuance of Certificate of Practical Completion

CPC

i. End of Contractor’s contractual liabilitiy : except of making good defects;

ii. One moiety of Retention Fund released;

iii. End of insurance period;

iv. End of Contractor’s liability for further Liquidated Damages;

v. End of Contractors’s possession of site except to make good defects.

Defects Libility Period begins

S.O./Engineer may issue written instruction to Contractor to make good defects

S.O./Engineer may issue Schedule of Defects not later than 14 days after expiry of DLP Employer may recover cost

incurred from the amount

due to the Conractor of

from Performance Bond

Yes

S.O./Engineer issues

Certificate of

Making Good Defects

S.O./Engineer issues Final Certificate within 3

months from DLP / 3 month after Certificate

of Making Good Defects (whichever is later)

Release of Performance Bond

Final Certificate

ENDFlowchart

FINAL ACCOUNT

ACCOUNT CLOSING

Final Account

Construction contracts generally provide some

mechanism for the final payment to be made to

the contractor on completion of the works

described in the contract.

Generally this payment will be made at the end

of the defects liability period provided that all

defects have been rectified.

Final Account


Normally mentioned in all the standard form of


PAM 98 / JKR PWD 203 / IEM / CIDB 2000

Final Account

CIDB Standard Form of Contract

Final Account

PAM

Final Account

JKR 203A

Final Account

Preparing the final account is the process of calculating and agreeing

any adjustments to the contract sum (the amount originally set out in

the contract to be paid to the contractor for completion of the works)

so that the amount of the final payment can be determined. The

amount of the final payment is then set out in the final certificate

(or final statement).

It is possible for the final certificate to show that money is owed to the

client, rather than due to the contractor.

Final Account

Final Account

The contract sum may need to be adjusted for a number of reasons,

including:1. Variations.

2. Fluctuations.

3. Prime cost sums.

4. Provisional sums.

5. Payments to nominated sub-contractors or nominated suppliers.

6. Statutory fees.

7. Payments relating to the opening-up and testing of the works.

8. Loss and expense.

9. Liquidated and ascertained damages.

10. Contra claims imposed as a result of the contractor's operations (such as a third-party claim

resulting from contractor negligence or contractual breach, for example, flooding a neighbour's

property, third party works as instructed by S.O.).

11. The release of any remaining retention.

Final Account

Final Account

Agreeing the final account can be a complicated,

time consuming and adversarial process,

often resulting in disputes.

The process can be made easier if adjustments to

the contract sum are agreed as the project

progresses rather than saving them up for the end.

Final Account

Final Account

1. Finalizing of the account is not a one sided activity

2. Entails necessary input of the contractor especially in

terms of the provision of the relevant documents,

substantiation each in regard to his claims and also of

those pertaining to his sub-contractor

3. Must be a proactive approach on both sides

4. Strict adherence to any programmed or deadlines set

Final Account

Final Account

1. The Contractor shall submit full particulars complete with supporting

documents within but not more than three (3) months after issuing of

the Certificate of Practical Completion (CPC).

2. The Superintendent Officer (S.O) shall issue the Final Certificate within

three (3) months after the expiry of the Defect Liability Period for the

whole of the Works or three (3) months after the issuance of the

Certificate of Completion of Making Good Defect (CMGD).

Final Account

In Majority of contract :

Issue of the final account can remain open for years after the

Certificate of Making Good Defect (CMGD)

Conclusion

1. Read And Understand The Contract

2. Justly Interpret The Clauses

3. Precise description of defects in report

4. Follow The Latest Guidelines

5. Resolve Disputes Amicably

6. Document All Action Taken

Conclusion

Conclusion

No certificates of the S.O. under any provision of this Contract shall be

considered as conclusive evidence as to the sufficiency of any works, material

or goods to which it relates, nor shall it relieve the Contractor from his ability to

amend and make good all defects, imperfections, shrinkages, or any other

faults whatsoever as provided in this Contract. In any case, no certificate of the

S.O. shall be final and binding in any disputes between the Government and

the Contractor if the dispute is brought before an arbitrator or in the Courts.

Clause 55 - PWD Form DB (Rev.2007)

Clause 43 - CIDB Standard Form of Contract for Building Works 2000 Edition

Clause 34 - PAM Contract 2006 (without quantities)

(Adjudication and Arbitration)

Clause 32.0 - JKR 203 (Effect of S.O. Certificates)

DEFECT LIABILITY PERIOD & FINAL ACCOUNT

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DEFECT LIABILITY PERIOD AND ACCOUNT CLOSING