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Water ResourcesOfManagement Suspension Work: In Malaysia – The Way Forward An Overview By Ir. Harbans Singh K.S., BE (Mec) S’pore, P.E., C. Eng, LLB (Hons) London, CLP, DiplCArb
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uspension represents a contingency that can be made available to both parties to the contract in certain defined situations whereby the progress of the work can be temporarily halted. The reasons for such freezing of rights and obligations under the contract are many and are furthermore dependent upon the identity of the particular party invoking the said mechanism. In practice, the common grounds giving rise to suspension vary from issues connected with financial matters 2 at one end of the spectrum to the vagaries of the weather at the other end. Despite its importance in the implementation of a typical contract, little or no emphasis has been placed by local drafters of conditions of contract 3 to expressly empower the parties to exercise the right of suspension. Even where prudent draftspersons have envisaged its application, such rights are usually onesided i.e. permitting only the employer and not the contractor to invoke such a remedy. Perhaps it is timely for the engineering/construction industry to give due recognition to the above-mentioned contingency by incorporating express stipulations vis-à-vis the subject at hand; a move that definitely will not stultify but on the contrary will auger well for the balancing of the rights between the parties. In Malaysia, such a shift in thinking is reflected in some standard forms, such as the CIDB Standard Form of Building Contract (2000 Edition) 4, the Putrajaya Conditions of Main Contract 5 and the IEM.ME 1/94 Forms 6. However, it is necessary to take the exercise one step further by affording all parties to the contract reciprocal rights to the like effect.
MEANING OF SUSPENSION
Drawing upon the above definitions, it can be concluded that the word ‘suspension’ entails the following meanings and consequences within its ambit: ●
By suspending the works under the contract, the parties merely stop or cease all work related activities on a temporary basis. The contract, inclusive of all rights and obligations thereunder, however subsists during the period of suspension;
●
In a similar vein, by suspending the contract itself there is a moratorium on all facets, rights and obligations under the contract inclusive of the performance of all work related activities. In essence, the ‘suspension of the contract’ is, prima facie, wider in scope and effect than the limited ‘suspension of works’ under the contract only; and
●
The alternative description of ‘postponing’ works or the contract has fundamentally a similar meaning and effect as suspension. It involves either the ‘works’ or the rights and obligations of the respective parties being held in abeyance for the period of suspension.
SUSPENSION: PRINCIPAL TYPES Logically, both the parties to the contract should be able to exercise the power of suspension, if and when necessary. This is subject to the express terms of the agreement that they have entered into. Hence, in the engineering/construction industry, the parties who may be vested with such powers include the employers, main contractors, sub-contractors, suppliers and the like.
Synonymous with the term ‘postponement’, suspension has been variously defined in different texts; some common dictionary examples are listed hereunder: ●
The Longman Dictionary of Contemporary English holds the word ‘suspension’ to mean:
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‘…. the act of officially stopping something from continuing for a period of time ….’ ●
Mozley and Whiteley’s Law Dictionary ascribes a rather concise meaning 8 as reflected herebelow: ‘…. a temporary stop or cessation of a ……. right’
1. 2.
3. 4. 5. 6. 7. 8.
Director, HSH Consult Sdn. Bhd. See Channel Tunnel Group Ltd. v Balfour Beatty Construction Ltd. & Others [1992] 2 All ER 609, [1993] 32 Con LR1. Including the standard forms Clause 19 Clause 58.0 Clause 29 At P 1453 9th Edn. by J.B. Saunders at P 332.
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In the context of an ‘employer-main contractor’ agreement the main types of suspension that can be encountered in practice include, inter alia, the following:
The consequences of the abovementioned general rule include, inter alia, the following: ●
The employer does not have a power to order the contractor to suspend work under the contract unless there is an express term in the contract empowering him so to do 12;
●
Likewise, a contractor cannot suspend work under the contract if he so desires in the absence of an express provision permitting him to do so. The Channel Tunnel Group Ltd. v Balfour Beatty Construction Ltd. & Others 13;
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Should the contractor proceed with the suspension of work, this may constitute a breach of contract on his part e.g. in failing to proceed ‘regularly and diligently’ with the work: Canterbury Pipelines Ltd. v Christchurch Drainage Board 14. Such a breach may further entitle the employer to determine the contractor’s employment provided there is an express term making provision for the same and the said ground is one of the default’s stipulated therein e.g. clause 25.1(i) and (ii) PAM ‘98 Forms (With and Without Quantities) Editions;
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There must be actual and not just a virtual suspension of work: JM Hill & Sons Ltd. v Camden LBC 15. Furthermore, a mere threat to suspend work has been held on the facts not to constitute a repudiatory breach of contract: F. Treveling & Co. Ltd. v Simplex Time Record Co. (UK) Ltd. 16; and
●
In situations, where the contractor desires to respond appropriately to the employer’s alleged defaults e.g. failure to pay on interim certificates, etc. in the absence of express provisions permitting him to suspend works, other than arbitration and/or litigation, the only option he may have is to determine his employment under the contract: DR. Bradley (Cable Jointing) Ltd. v Jefco Mechanical Services 17. This matter was further explored in the New Zealand case
9.
See ‘The ICE Design and Construct Contract: A Commentary’ by. B. Eggleston at P 235. See ‘Law and Practice of Construction Contract Claims’ by Chow Kok Fong at P 170. See also ‘100 Contractual Problems and Their Solutions’ by R. Knowles at P 87. See also Kah Seng Construction Sdn. Bhd. v Selsin Development Sdn. Bhd. [1997] 1 CLJ Supp. 448. See ‘An Engineering Contract Dictionary’ by Vincent Powell-Smith at P 546. [1992] 2 All ER 609, [1993] 32 Con LR 1. [1979] 16 BLR 76. [1980] 18 BLR 31 [1981] Unreported. [1989] Unreported. See also Kah Seng Construction Sdn. Bhd. v Selsin Development Sdn. Bhd. [1997] 1 CLJ Supp. 448.
A. Employer Ordered Suspension This species of suspension represents the bulk of the suspensions effected in the industry as express provisions permitting their realization are not only included in standard forms of conditions of contract but also enshrined in the many ‘bespoke’ forms used. B. Contractor Invoked Suspension In the local context, though rarely practiced in agreements employing the standard forms of conditions of contract, its usage in projects involving larger institutional employers utilising ‘bespoke’ forms of conditions of contract is slowly increasing in frequency. C. Contractor Requested Suspension More commonly seen in agreements where only the employer is given the power to suspend works e.g. ‘package deal’ types of contracts, nominated subcontracts, etc., under this species of suspension, either the contract provisions expressly permit the contractor to request the contract administrator to allow works to be suspended on particular grounds e.g. need to reassess the design, adverse weather affecting quality/ safety of work, etc. or the contractor persuades the contract administrator to order suspension ‘for the proper construction and completion of the works’ 9. D. Constructive Suspension Strictly, this applies where any act or omission of the employer has the effect of impliedly halting the contractor from undertaking his obligations or suspending the works for an unreasonable time 10. A local example of this is clause 29.1 of the IEM.ME 1/ 94 Form where the contractor is deemed to be instructed to suspend work if he is prevented by the engineer from delivering or erecting Plant in accordance with the programme.
GENERAL RULE ON SUSPENSION
10.
It is trite law that unless there is an express term permitting suspension enshrined in the contract, parties do not have a right to either: ●
Suspend work under the contract, or
●
Order work to be so suspended
11.
12.
Hence, in essence, there is no right at common law to effect the above 11. The only other permissible way to effect suspension is by the variation of the contract through mutual consent.
13. 14. 15. 16. 17.
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‘In such cases, if the contractor cannot or does not wish to rescind and cannot prove impossibility or its equivalent, he will be left with whatever remedies regarding the recovery progress payment may be available to him under the contract’.
suspension of the works. The contractor has no similar rights although under sub-clause 29.1 of the IEM.ME 1/94 Form, the contractor has a limited avenue of suspension under the so called ‘deemed’ or ‘constructive’ suspension provision. However, even the latter is of very restricted nature and application; ●
In view of the above judicial pronouncements spelling out the court’s approach to this matter, the issue of suspension must be handled with due circumspect and vigilance. EXPRESS CONTRACTUAL PROVISIONS
The common express provisions as listed hereabove essentially encompass the following facets of the suspension mechanism: 1.
The power of the contract administrator to order suspension;
2.
The circumstances or situations in which such power can be exercised;
3.
The formalities pertaining to the ordering of the suspensions;
4.
The procedural requirements vis-à-vis issues consequent to the suspension such as responsibilities of the contractor, cost and time implications, effect of prolonged suspension and resumption of work following suspension.
5.
Miscellaneous formalities and procedural requirements.
General From the foregoing discussion it is apparent that most standard forms of conditions of contract make no provision whatsoever for the eventuality of suspension, concentrating instead on determination or termination of employment. Only as of recent have the newer standard forms attempted to specifically incorporate suitably drafted clauses to cater for the suspension of works; notable examples of which are as listed herebelow. ●
CIDB Standard Form of Contract For Building Works (2000 Edition): The main provision is clause 19 entitled ‘Suspension’.
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IEM.ME 1/94 Form for Mechanical and Electrical Works: The applicable express provision is clause 29: Suspension of Works, Delivery or Erection.
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PUTRAJAYA Conditions of Main Contract: Under the instant form, the issue of suspension is dealt with vide clause 58.0 19.
Comments on the Provisions Cognisance should be taken of the following matters pertaining to the express contractual provisions: ●
●
Except for clause 19 CIDB Form (2000 Edition), clause 29 IEM.ME 1/94 Form and clause 58.0 Putrajaya Conditions of Main Contract, the rest of the common local standard forms of conditions of contract e.g. the JKR Forms, the PAM ‘98 Forms, the IEM.CE 1/89 and CES 1/90 Forms, the Putrajaya Conditions of Nominated Sub-Contracts, etc. have no express contractual provisions covering the issue of suspension. Hence, for the latter forms neither the employer has an express power to order suspension nor the contractor the right to suspend works under the contract; Even where express stipulations have been enshrined in the conditions of contract, it is obvious that these are blatantly one-sided i.e. they are intended to empower only the employer to suspend or order
●
Prima facie, the said express provisions give the contract administrator an apparently wide or unfettered power to order suspension of work in terms of scope, timing and manner.
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The duty of compliance to a properly issued or contractually valid suspension order is on the contractor; and
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The form of the suspension order is envisaged to be in an express mode i.e. through a formal instruction issued by the contract administrator. However, the IEM.ME 1/94 Form vide sub-clause 29.1 makes provision for the so called ‘deemed’ suspension order in the limited circumstances spelt out in that subclause. However, such a mode is unique only to the said IEM Form.
PRINCIPAL PURPOSES FOR SUSPENSION General Contrary to popular belief, suspension is, and remains a convenient mechanism at the disposal of the contracting parties to address specific issues during the currency of the contract without incurring liability for breaching the contract in any way. In most instances, suspension affords
18. [1979] 16 BLR 78. 19. Entitled ‘Suspension of Works’.
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of Canterbury Pipelines Ltd. v The Christchurch Drainage Board where the court of appeal stated: 18
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the parties the necessary opportunity to take a ‘breather’ i.e. freeze the contract or hold it in abeyance whilst reflecting upon or reassessing particular issues before resuming or restarting the contract with the benefit obtained therefrom.
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Site safety considerations;
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Unforeseen conditions encountered;
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Unexpected restrictions imposed on the works;
The necessity for such an eventuality arises in most contracts either by chance or by design. Specific problems occurring during the progress of the works e.g. the breakdown of the contractor’s quality assurance system, the reassessment of the design by the consultants, etc. may compel a suspension to be effected. Factors beyond the parties’ control e.g. governmental policy changes, legislative amendments, etc. may on other occasions trigger a requirement for an appropriate postponement of rights and obligations under the contract inclusive of the progress of work.
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Pre-planned closures; and
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Changes in authority requirements and/or legislative requirements.
Be that as it may, in the final analysis, there are in most contracts compelling grounds or reasons for both the employer and the contractor 20 at one time or another to initiate or resort to the suspension of works. Although there are in specific instances common reasons or grounds for effecting the same, in general the principal purposes show marked variance between the different parties. Owing to this distinct difference, each of the principal parties will be dealt with separately. Employer’s Purpose A review of the common express contractual provisions 21 reveals the fact that though such stipulations give the contract administrator an apparently absolute discretion to suspend works under the contract as he deems necessary, the rationale behind such exercise of power is not specified. Prima facie, such clauses therefore appear one-sided and on the face value inequitable. However, if one were to delve deeper into the matter, it is apparent that there may be valid grounds for the employer to resort to suspension in any particular situation. Various reasons have been proffered by leading authorities 22 in the engineering/ construction field to justify the employer’s invoking the instant mechanism; a summary of which is appended herebelow: ●
Reassessment of the design of the works;
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Change in the employer’s requirements;
●
Adverse weather conditions affecting the safety and/or quality of the works or people engaged thereon;
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Breakdown of the contractor’s quality assurance system;
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Contractor’s default or unsatisfactory performance;
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Access and possession of site problems;
A more compelling reason of late is the financial difficulty faced by employers in terms of temporary lack of funds or cash flow problems. Though prima facie, a seemingly valid reason prompting the justification of suspension, it has been dismissed as an abuse of the said provision by many authorities. As an example, Eggleston opines 23: ‘From the clause ………. and its wording it is clearly intended principally for practical matters relating to when and how the works are constructed and not to financial matters’ Despite the above-mentioned position, it has not prevented employers from expressly listing temporary lack of funds as one of the relevant suspension events. In tandem with contractual stipulations of the like of ‘Determination by Convenience’, suspension on financial grounds is beginning to feature commonly in ‘bespoke’ forms on the local scene. Contractor’s Purpose It is obvious that none of the common local standard forms of conditions of contract makes any provision whatsoever for the contractor to suspend works under the contract no matter how valid a ground he may have. However, this does not mean that the said deficiency should, and has been overlooked by fair-minded practitioners inclusive of the contractors themselves. A good proportion of ‘bespoke’ forms afford the contractor a commensurate right to suspend works; these being premised on the following principal grounds: ●
Failure of the employer to pay on interim certificates;
●
Reassessment of design of works where the design element is included in the contractor’s scope of work 24;
20. And the sub-contractor. 21. See hereabove. 22. See ‘The ICE Design and Construct Contract: A Commentary’ by B. Eggleston at P 235. 23. Ibid. Whilst dealing with clause 40 of the ICE Design and Construct Contract Conditions. 24. E.g. for works under P.C. Sum or ‘Package Deal’ types of contracts.
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Adverse weather conditions affecting the safety and/ or quality of the works or people engaged thereon;
●
Specific defaults of the employer or the contract administrator 25;
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Site safety considerations; and
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Unforeseen conditions encountered;
other forms. Presumably the suspension instruction must comply with the relevant formalities and procedural requirements applicable to a typical instruction under the particular form of contract; ●
1. 2.
Of the many grounds listed hereabove, failure of the employer to effect payment remains the main reason where contractors feel entitled to suspend works until the employer remedies the default. This is especially so where the conditions of contract do not make failure to pay a ground for permitting the contractor to determine his employment.
●
The contract administrator may issue such instruction as and when he so desires and for such time or times and in such manner as in his absolute discretion is considered necessary. He does not need to give any reason/justification to the contractor for the exercise of the same. Hence, the contract administrator’s power to order suspension appears indeterminate and unfettered. This is subject to an implied obligation to exercise the absolute discretion bestowed on him on objective grounds although, prima facie, appearing purely subjective. Should the discretion be abused i.e. ordering of suspension on purely financial grounds where such grounds are not enshrined in the contract, the contractor has a right to mount a challenge on the basis of mal-administration of the contract;
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The instruction to suspend work must stipulate essential matters such as the extent and nature of the work involved and the timing for the commencement of the suspension. In emergency situations e.g. where safety issues are concerned, such suspension orders may be of immediate effect. For others e.g. need to reassess design, change in employer’s requirements, etc. a reasonable notification period is usually given 28 ; and
●
Cognisance should be taken of the fact that the instruction to suspend work may not necessitate the issue of a formal instruction at all under certain conditions of contract or in the case of ‘constructive’ suspension. As an illustration, by virtue of clause 29.1 of the IEM.ME 1/94 Form, should the engineer prevent the contractor from delivering or erecting Plant in accordance with his approved programme, this is deemed to be considered to be an instruction to suspend. Therefore, one should be mindful of the precise wording of the applicable clause and the
General For the suspension to be tenable at law not only must it comply with the substantive matters but also the procedural requirements expressly stipulated in the contract. Otherwise it may constitute a breach of contract on the part of the party initiating the suspension with its dire consequences. With the said proposition in mind, it is necessary to examine the procedural requirements visà-vis the issue of suspension from the employer’s point of view since such a remedy seems to be available only to the latter in the applicable standard forms 26. Suspension Procedure Under the CIDB Form, IEM.ME 1/94 Form and Putrajaya Conditions of Contract, the following principal procedural requirements can be noted: The respective conditions of contract empower only the contract administrator to order a suspension of the works. Hence, such a body would include: 1.
The ‘Superintending Officer (S.O.)’: CIDB Form
2.
The ‘Engineer’: IEM.ME 1/94 Form; and
3.
The ‘Employer’s Representative (E.R.)’: Putrajaya Conditions of Main Contract
It should be appreciated that none of these forms bestow a commensurate power on the employer himself. Hence, he must act through the contract administrator; ●
The contract administrator may suspend work only by means of an instruction issued formally to the contractor. Although clause 58.01 of the Putrajaya Conditions uses the terminology of a ‘written order’, it essentially refers to an instruction in line with the
Part of the works; or The whole of the works
The above includes the suspension of the delivery of plant or equipment to site and the erection of such items already delivered to site 27.
PROCEDURAL REQUIREMENTS
●
By virtue of the instruction, the contract administrator is permitted to order suspension of the execution of:
25. A good example would be the specified events in the CIDB Form (2000 Edition). 26. Furthermore, it is the most common form of suspension in practice. 27. See clause 29.1 IEM.ME 1/94 Form. 28. E.g. between 7 to 14 days as appropriate.
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implied effects of the parties’ acts or omissions in relation to their rights and obligations under the contract.
duration of the suspension. Human resources, plant, equipment can be reassigned, if possible, as necessary, in an attempt to mitigate the full rigours of the suspension. A skeleton staff essential to undertake the remaining duties during the suspension period e.g. security and maintenance of site, preparation of claims, other administrative duties, etc. should be maintained as these may be eventually paid for by the employer.
Contractor’s Duties Following Suspension Upon receipt of the order to suspend works from the contract administrator, the contractor has forthwith to adopt certain measures consequent to the said order. These measures must be in line with the relevant contract stipulation e.g. clause 19.1 (a) of the CIDB Form (2000 Edition) which reads:
3.
The contractor’s duty to secure and protect the works so far as is necessary in the opinion of the contract administrator during the period of suspension is not only an implied requirement but in addition expressly stipulated in most standard forms of conditions of contract 30. Furthermore, there is often either an implied or express necessity for the contractor to maintain the works in question for the said period.
‘The contractor shall on an instruction of the Superintending Officer, suspend the execution of the works or any part of the works …… and shall during such suspension, properly protect and secure the works or such part of the works so far as is necessary or in accordance with the instruction of the Superintending Officer’. Since the contractual provisions are never complete and exhaustive, the bulk of the required measures have to be established by necessary implication. The essential procedural arrangements would generally include 29: 1.
In assigning this responsibility to the contractor, the consequent risks during the suspension period are accordingly passed on to him. He then remains primarily liable for the security of the works, protection against the elements and deterioration from foreseeable causes, etc. In discharging this duty, the contractor is expected to implement only reasonable steps within the context of the contract and no more. Should measures over and above the norm be necessary, he must seek the consent and direction of the contract administrator as at the end of the day the employer has to ultimately reimburse the contractor for the same.
Contractor to Suspend Works The initial response of the contractor should be to comply with the suspension order effective on the date named in such order by discontinuing all works under the contract. This would entail basically: a)
Halting all construction, erection, installation, etc. related activities;
b)
Suspending the ordering, fabrication off-site, delivery to site, etc. of all material, plant and equipment; and
c)
Ceasing to undertake all other activities or operations in relation to the works under the contract e.g. design work, appointment of subcontractors, etc.
Since most contractors would have farmed out the bulk of the elements under the contract to a host of subcontractors/suppliers, it would be incumbent for the former to accordingly initiate the commensurate suspension downstream. This exercise should not pose any problem as most contractors normally tie their sub-contractors/ suppliers on a ‘back-to-back’ basis. 2.
Contractor to Demobilise In tandem with the cessation of the activities related both to site work and ‘off-site’ disciplines, it would be prudent for the contractor to undertake a demobilization of resources for the anticipated
Contractor to Secure and Protect the Works
Position Post Expiry of Suspension Period Suspension, being essentially of a temporary nature, can be of a limited period only. This fact is supported by the various express provisions which stipulate a definite duration for any one suspension order; examples of such life spans being: 1.
IEM.ME 1/94 Form: Maximum 84 days 31
2.
Putrajaya Conditions of Main Contract: Maximum 150 days 32
3.
CIDB Form (2000 Edition): Maximum of 3 months 33
29. See ‘Law and Practice of Construction Contract Claims’ by Chow Kok Fong at P 170 & 171. 30. See Clause 19.1 CIDB Form (2000 Edition), Clause 58.01 Putrajaya Conditions of Main Contract, etc. 31. Clause 29.4 32. Clause 58.03 33. Clause 19.2 and Appendix to Conditions
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1.
2.
3.
4.
The contract administrator lifts the suspension by instructing the contractor to resume work before the suspension period is over; or
●
Expressly provided for in the contract e.g. clause 19.2 CIDB Form (2000 Edition), clause 58.03 Putrajaya Conditions of Main Contract, etc.; or
The contract administrator instructs the contractor to resume work upon the lapse of the suspension period; or
●
Necessary by reason of the contractor’s default e.g. clause 29.4 IEM.ME 1/94 Form, etc.
The contract administrator expressly extends the suspension period by a definite time either before the original suspension period is over or upon its lapse; or
3.
Should the reasons for the prolonged suspension be neither expressly provided for in the contract nor attributable to the contractor’s default, the contractor may serve a written notice to the contract administrator for permission to recommence or resume with the suspended works in whole or part (as applicable) within a stipulated period of receipt by the latter of the said notice.
The suspension period lapses and the contract administrator gives no instruction whatsoever to the contractor.
The 1st and 2nd situations have clear implications as these are usually contractually valid and have the consequential effects well spelt-out. The contractor under such scenario would adopt a series of measures i.e.: 1.
Contractor to Notify Contract Administrator for Permission to Proceed With Works
The period stipulated in the above notice is usually prescribed in the applicable contractual provision; common examples include:
Resume with the works i.e. recommence with all work related activities such as construction, erection, installation, ordering, delivery of materials to site, etc.;
●
14 Days: Clause 19.2 CIDB Form (2000 Edition); and
●
2.
Remobilise all necessary resources to resume with the works under the contract.; and
28 Days: Clause 29.4 IEM.ME 1/94 Form and Clause 58.03 Putrajaya Conditions of Main Contract
3.
Proceed with his relevant claims for additional costs, extension of time, etc. to cover the suspension period.
Where no such period is expressly indicated, by necessary implication it is to be taken as a reasonable time under the particular circumstances.
In contrast, the 3rd and 4th situations are problematic as under such scenarios the contractor’s position is less well defined; being vague and nebulous. Labeled as ‘Prolonged Suspension’ is most standard forms 34, the general procedure for the contractor to follow under these circumstances can be reduced to the steps as listed herebelow: 1.
The Contractor to Determine Whether the Suspension Period Had Lapsed Before the contractor can initiate any action, he must establish that the suspension falls under the contractual definition of ‘Prolonged Suspension’. Hence, he must establish whether the suspension has actually exceeded the period permitted under the contract i.e. 84 days, 150 days, 3 months, etc. as applicable.
2.
The Contractor to Establish Reasons for the Prolonged Suspension
4.
The Contract Administrator To Make Decision and Respond Accordingly Upon receipt of the contractor’s notice, the contract administrator has to make a considered decision and respond appropriately within the period stipulated in the notice 36. Should the said decision be in line with the contractor’s application, the suspension is accordingly lifted and the contractor can resume with the works in question. However, if permission to proceed with the works is not granted, the contractor is entitled to initiate the next step in the procedural chain as listed hereunder.
34. E.g. Clause 19.2 CIDB Form (2000 Edition). 35. See ‘The ICE Design and Construct Contract: A Commentary’ by B. Eggleston at P 239. 36. See Clause 19.3 CIDB Form (2000 Edition), Clause 29.4 IEM.ME 1/94 Form, Clause 58.03 Putrajaya Conditions of Main Contract.
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Unless the suspension is due to the following reasons, the contractor has a right to invoke the consequential steps to deal with the prolonged suspension 35:
Following the issue of a typical suspension order to the contractor, the situations as listed hereunder can occasion:
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5.
Contractor to Exercise Right of Election If permission is not granted by the contract administrator within the time prescribed in the contractor’s notice of application, the contractor has to decide on the next course of action to be adopted. The option to be exercised is dictated both by the extent of work affected by the suspension and the remedies permitted contractually. These include: ●
In the case where the suspension affects the whole or substantially the whole of the works, the contractor is entitled to: 1.
●
Determine his own employment i.e. if his contract contains a clause to this effect: Clause 19.3 and 45.1 CIDB Form (2000 Edition); or
2.
Terminate the contract i.e. if the contract expressly permits: Clause 29.4 and 37.1 IEM.ME 1/94 Form; or
3.
Treat the suspension as a Termination for Convenience of the Contract by the Employer where the contract prescribes this remedy: Clause 58.03 and 60.0 Putrajaya Conditions of Main Contract.
In the case where the suspension affects only a part or section of the works, the contractor may treat such suspended part as an omission 37 under the relevant clause of the contract e.g. 1.
Clause 28: CIDB Form (2000 Edition)
2.
Clause 19: IEM.ME 1/94 Form
3.
Clause 41: Putrajaya Conditions of Main Contract.
Whatever option is adopted by the contractor it must be communicated forthwith to the contract administrator. Though only the Putrajaya Conditions of Contract 38 prescribe the form of the said notice, it is advisable for the contractor to effect the same through a written notice. A further point to note is as to the unique third option afforded to the contractor by the IEM.ME 1/94 Form 39 i.e. where the contractor decides to treat the prolonged suspension as neither a termination nor an omission. In such an eventuality the contractor can request the employer to take over the responsibility for protection, storage, security and insurance of the suspended works and the risk of loss or damage shall thereupon pass on to the Employer. Whilst this option has been expressly prescribed under the conditions of contract, its validity and practicality in actual practice is uncertain since it has been hardly adopted. It is a moot point as to whether such an option can in reality result in a viable option in the event of the contract administrator’s failure to respond
to the contractor’s application in a prolonged suspension scenario. However, since it has been stipulated in one of the standard local forms, its availability and ambit should be taken cognizance of.
CONTRACTOR’S ENTITLEMENTS General Unless the reason for the suspension ordered by the contract administrator is primarily due to the contractor’s default or otherwise provided for in the contract, the latter is generally entitled to the following entitlements consequent to the suspension of works 40: ●
A commensurate extension of time to the contract to cater for the suspension period; and/or
●
Reimbursement for the extra cost incurred in giving effect to the suspension ordered.
The above listed broad categories of entitlements are primarily meant to compensate the contractor for the usual consequences of the disruption to the progress of his works. Most contracts have express stipulations or formulae to cater for these eventualities; notable examples of such provisions encompassing financial reimbursements include: ●
Clause 19.1(b) CIDB Form (2000 Edition);
●
Clause 29.2, 29.3 and 29.5 IEM.ME 1/94 Form; and
●
Clause 58.02 Putrajaya Conditions of Main Contract.
Such express stipulations, where provided for, prescribe in addition to the valuation methodology, also the procedural requirements e.g. notification, etc. for the contractor to pursue in seeking the necessary reimbursements. It should be noted that in the absence of express contractual stipulations governing the contractor’s entitlement, the common law principles would have to be accordingly applied. Extension of Time Entitlement The general rule is that the contractor is entitled to an extension of time to the contract for any disruption to his progress of works i.e. if it affects the whole of the works. Should the suspension be limited to a part or section of the works only, extension can be considered if the affected part or section of the works lies on the critical path 41 and any float, if allotted, does not belong to the employer. 37. 38. 39. 40.
or a variation. See Clause 58.03 stipulating the ‘written’ mode. See Clause 29.5. See ‘The ICE Design and Construct Contract: A Commentary’ by. B. Eggleston at P 236. 41. See ‘Law and Practice of Construction Contract Claims’ by Chow Kok Fong at P 170.
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There must be enshrined in the contract a clause permitting extension of time in the first place; and
●
One of the relevant grounds or events stipulated therein should cover the instant eventuality i.e. of suspension of works.
1.
Here again, the different forms approach this subject in varying fashions. The CIDB Form 43 does not define the components of the cost entitlement but vide clause 19.1(b) merely labels these as ‘Loss and Expense’. In a similar vein clause 58.02 of the Putrajaya Conditions of Main Contract underlines the contractor’s right to additional expenditure by reason of a suspension order given by the Employer’s Representative without delving into further details or classification. The IEM.ME 1/94 Form on the other hand whilst maintaining the ‘broad brush’ approach of the two previously mentioned forms, however, is a bit more generous with the description and classification of the contractor’s entitlement; these being reflected in clause 19.2 44 and 19.3 45 respectively.
Examining the various standard forms of conditions of contract permitting suspension, it is apparent that they satisfy the above pre-conditions to the following effect: ●
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CIDB Form (2000 Edition) 42 1.
1st pre-condition: Clause 24 Delay and Extension Of Time
2.
2nd pre-condition: Sub-clause 24.1 (k)
The Heads/Components of the Costs Claimable
In the absence of and notwithstanding any express stipulations as previously considered, the cost entitlements of the contractor 46 can be basically broken down into a number of principal heads or components as listed hereunder 47. ●
Additional costs incurred in protecting, securing and maintaining the works for the period of suspension;
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Reasonable costs involved in the demobilization process following the suspension order and remobilization upon the resumption of the works;
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Additional costs, charges and/or premiums in extending the various insurances, performance bonds, guarantees, warranties, etc. incurred due to the suspension;
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Reasonable expenses incurred due to the suspension of sub-contracts and purchase orders, cancellation charges (if incurred), storage and warehousing charges, etc. during the period of suspension;
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Compensation for the contractor’s maintenance of its organization, plant and equipments, etc. which have been committed to the project or part of it affected by the suspension 48;
IEM.ME 1/94 Form 1.
2.
1st pre-condition: Clause 31.2 Extension Of Time for Completion 2nd pre-condition: Sub-clause 31.2 (g)
Interestingly, the Putrajaya Conditions of Main Contract do not contain an express ground to extend time to the contract due to suspension of work. Hence, under such circumstances, the only option available to the Employer’s Representative would be to instruct the contractor to accelerate works pursuant to clause 43.06 in order to recover the period of delay occasioned by the suspension. Where such recovery is wholly or partly not capable of being practically achieved, the employer may inevitably compromise his rights pertaining to liquidated damages. Cost Entitlements The applicable formula governing the contractor’s entitlement to the various additional costs entitlement consequent to the suspension are usually stipulated in the respective conditions of contract. Such express provisions in general spell out the relevant matters pertaining to this issue including, inter alia: ●
The heads or components of the costs available;
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The exceptions to the contractor’s right of recovery; and
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The procedural requirements inclusive of any special pre-conditions
42. 43. 44. 45. 46.
See also Clause 19.1(b). Form of Contract for Building Works [2000 Edition]. Entitled ‘Cost of Suspension’. Labeled ‘Payment in Event of Suspension’. Whether described as ‘Loss and Expense’ or ‘Cost of Suspension’, etc. 47. See also ‘Law and Practice of Construction Contract Claims’ by Chow Kok Fong at P 171. 48. Ibid.
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In establishing the contractor’s entitlement to any extension of time to his contract, the principles and procedures in relation to this subject have to be strictly complied. Of particular concern are the following preconditions:
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2.
Additional costs incurred by the contractor owing to the adverse effect of the suspension process on the contractor’s performance of the remainder of the work following the lifting of the suspension e.g. loss of productivity, inefficient sequencing of the work, abortive work, etc.; and
e)
Where the suspension is necessary for the safety of the works;
f)
Where the suspension is necessary by reason of direction/order of any statutory/governmental authorities
Other miscellaneous additional costs, charges and/or expenses which can be proven attributable to the suspension.
As a general rule, unless the contractor can show that either the stipulated exceptions are inapplicable or are not relevant on the facts, his right of recovery of additional costs or loss and expense by reason of the suspension will be likely to be compromised.
The Exceptions To The Right of Recovery The contractor’s entitlement to the right of recovery is curtailed by any exceptions agreed to by the parties and as expressly enshrined in the contract. Once more, the number and types of such exceptions differ according to the particular conditions of contract employed. Hence, these stipulations must be strictly construed and adhered to.
A. IEM.ME 1/94 Form By virtue of clause 29.2 the contractor is not entitled to be paid any additional cost if the suspension is necessary by reason of a default on the part of the contractor.
3.
The Procedural Requirements In seeking a commensurate compensation to the loss and expense suffered or additional costs incurred by reason of compliance with the suspension order, the contractor must follow any procedural requirements expressly spelt out in the conditions of contract in force. The common standard forms have express stipulations to this effect; compliance with which is a necessary pre-requisite to the contractor’s satisfactory recovery. The following pertinent points need to be taken note of in relation to some of the salient features pertaining to the procedure to be adopted: ●
The contractor is required to notify the contract administrator of his intention to make a claim 50;
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The notice must be in writing and must be made within a stipulated period after the receipt of the order to suspend works. This period is normally:
B. CIDB Form (2000 Edition) Clause 19.1(b) lists out the exceptions as: a)
Express provisions in the contract denying the recovery of additional costs 49; or
b)
Where the suspension is necessary because of the contractor’s default or breach of contract; or
c)
Where the suspension is necessary for the proper execution of the works; or
d)
Where the suspension is necessary for the safety of whole or any part of the works.
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a)
28 days: Clause 29.2 IEM.ME 1/94 Form and Clause 58.02 Putrajaya Conditions of Main Contract; or
b)
30 days: Clause 32.1 CIDB Form (2000 Edition) 51
The contents of the notice should specify: a)
The event giving rise to the claim and its consequences 52;
b)
An estimate of the likely daily cost 53 or the value of the loss and expense 54; and
c)
Any other relevant information e.g. the appropriate contract reference, etc. 55
C. PUTRAJAYA Conditions of Main Contract The exceptions stipulated under clause 58.02 include: a)
Express provisions in the contract denying the recovery of additional costs;
b)
Where the suspension is necessary because of the default of the contractor, his sub-contractors / suppliers, etc.;
c)
Where the suspension is necessary by reason of adverse weather conditions;
d)
Where the suspension is necessary for the proper execution of the works;
49. Or as labeled ‘Loss and Expense’. See Clause 29.2 IEM.ME 1/94 Form, Clause 58.03 Putrajaya Conditions of Main Contract. 51. Entitled ‘Notice of Claims’. 52. Clause 32.1(a)(i) CIDB Form. 53. Clause 58.03 Putrajaya Conditions of Main Contract. 54. Clause 32(a)(ii) CIDB Form. 55. Clause 32(a)(ii) CIDB Form.
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Within a reasonable period 56 of the issue of the notice by the contractor or at such times as mutually agreed to by the parties, the contractor must submit to the contract administrator all records and documents to substantiate the claim;
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Upon receipt of the contractor’s claim together with the supporting documents, the contract administrator must check these for sufficiency and accuracy. Should there be a necessity to request for further and better particulars, the contract administrator must initiate the appropriate procedural steps to effect the same;
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If upon the receipt of all relevant information, the contract administrator is of the opinion that the contractor is contractually entitled to additional expenditure by reason of the suspension order issued, he shall ascertain the extra costs incurred and add it to the Contract price; and
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The amount due shall be included in any payment certified by the contract administrator and disbursed within a reasonable period of the contractor’s submission of all the relevant documents and/or records.
Most standard forms of contract are worded to the effect that the condition precedent to the contractor’s right to recover the additional costs being the issue of the notice of intention to claim within the stipulated period e.g. clause 29.3 IEM.ME 1/94 Form, Clause 58.02 Putrajaya Conditions of Contract and Clause 32.1 CIDB Form (2000 Edition). As to whether non-compliance with such a condition precedent is fatal to the contractor’s claim is a moot point depending as to whether such a provision is construed as a mandatory requirement. To obviate the possibility of a claim being rendered invalid by reason of the breach of such a provision, it is advisable for contractors to comply as far as is reasonably practicable to its stipulations unless extenuating circumstances or reasons beyond the contractor’s control render such compliance impossible.
of the other. Coupled with repudiation and frustration, both suspension and determination serve as the common mechanisms for stopping the works under the contract; whether these be on a temporary or permanent basis. Suspension is seldom encountered in everyday practice; a fact evidenced by the dearth of corresponding express provisions in the common forms of conditions of contract being employed in this country. However, this apparent lack of emphasis does not negate the fact that suspension is, and does, represent an important mechanism for the parties to temporarily stop or freeze the works and/or their rights and obligations under their contract due to various reasons. More importantly, it does serve a secondary purpose of allowing the parties to address specific areas of concern e.g. reassessment of design, review of safety measures, etc. without having to breach the contract and thereby incur the consequences of perhaps repudiating the contract. Hence, it is timely for practitioners to appreciate the legal and procedural intricacies of this important but often ignored area of contract implementation by according it due consideration in practice. BEM
REFERENCES 1.
Bockrath, J. ‘Contracts and the Legal Environment for Engineers and Architects’ [5th Edn.], McGraw Hill.
2.
Chappel, D. ‘Parris’s Standard Form of Building Contract’ [3rd Edn.], Blackwell.
3.
Chow Kok Fong ‘Law and Practice of Construction Contract Claims’ [2nd Edn], Longman.
4.
Eggleston, B. ‘The ICE Design and Construct Contract: A Commentary’, Blackwell.
5.
Gajria, K. ‘GT Gajria’s Law Relating to Building and Engineering Contracts In India’ [4 th Edn.], Butterworths.
6.
Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Post-Commencement Practice’, Lexis Nexis/Butterworths.
7.
Knowles, R. ‘100 Contractual Problems and Their Solutions’, Blackwell Science.
8.
Murdoch, J. & Hughes, W. ‘Construction Contracts’ [3rd Edn.], Spon Press.
CONCLUSION Suspension and determination are two disparate topics that arise quite frequently in engineering/ construction contracts. Though appearing at first blush to be distinct, they do however have a nexus in that under certain conditions of contract they share common grounds for disrupting the flow of the work under a contract. In particular circumstances, suspension and determination represent alternative remedies for the parties in the event of any default and/or breach on part
56. 30 days in the CIDB Form: Clause 32.3
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