"The work is completed. Why is the final RM800,000 still not being paid?"

A contractor completes structural and mechanical works for a commercial development.

The architect has certified several progress claims, but the employer withholds the final RM800,000.

The employer alleges that the project was delayed and that parts of the work are defective.

The contractor responds that the delay was caused by late drawings, variations and restricted access to the site.

Both parties refer to the same contract and arrive at completely different figures.

Construction disputes are rarely determined by a single unpaid invoice.

The outcome may depend on the contract administration, notices, certification, site records and whether each claim was preserved at the correct time.

1. Begin with the contract, not the final account spreadsheet

The parties should identify the complete contractual framework, which may include:-

• the letter of award;

• standard conditions;

• bills of quantities;

• specifications and drawings;

• tender clarifications;

• schedules of rates;

• variation procedures;

• programme requirements;

• bonds and guarantees;

• insurance documents; and

• amendments agreed during the project.

A WhatsApp instruction from the site may be relevant, but its effect must be assessed against the contractual procedure.

The contract may require particular notices, approvals or certificates before an entitlement arises.

2. Was the additional work a valid variation?

A contractor may perform additional work after receiving an instruction from a project manager or site representative.

Later, the employer may say:

“That person had no authority to approve a variation.”

The inquiry may include:-

• who had contractual authority to issue instructions;

• whether the instruction was written;

• whether the work fell outside the original scope;

• whether notice was given;

• how the variation should be valued;

• whether the employer accepted the benefit of the work; and

• whether the contractor proceeded despite knowing that approval was absent.

Contractors should not wait until the final account to identify every alleged variation.

Employers should ensure that site personnel understand the limits of their authority.

3. Certification does not always end the dispute

A payment certificate can be important evidence of the value and status of work.

However, its effect depends on the contract.

Questions may arise about whether:-

• the certificate is interim or final;

• the certifier acted within his authority;

• contractual conditions for payment were satisfied;

• the certificate may be corrected;

• deductions were permitted;

• retention was properly calculated; and

• a final certificate is conclusive.

The parties should not assume that a certificate is either completely irrelevant or impossible to challenge.

The wording of the contract and the facts surrounding certification must be examined.

4. Delay requires a cause-and-effect analysis

It is not enough to show that completion occurred after the original date.

The parties need to examine:-

• the contractual completion date;

• extensions of time granted or refused;

• employer-caused delay;

• contractor-caused delay;

• concurrent delay;

• variation work;

• late possession of the site;

• late drawings or approvals;

• shortage of labour or material;

• force majeure provisions; and

• compliance with notice requirements.

Site programmes, updated schedules, progress reports, meeting minutes and correspondence may be essential.

A general statement that “everyone knew the project was delayed” does not establish responsibility for each period of delay.

5. Liquidated damages are not deducted merely because the employer chooses a figure

A construction contract may specify liquidated damages for delay.

The employer still needs to consider whether:-

• the contractual completion date remained enforceable;

• a valid certificate of non-completion was issued, where required;

• extensions of time were properly assessed;

• the contractual deduction procedure was followed; and

• the amount is recoverable under the contract and applicable law.

If employer-caused events were not addressed properly, the contractor may challenge the deduction.

The contractor, on the other hand, should not assume that every delay caused by the employer automatically grants unlimited time or compensation. Notices and proof remain important.

6. A defect and an incomplete item are not necessarily the same

The employer should identify each alleged defect with sufficient detail.

Evidence may include:-

• inspection records;

• photographs;

• testing results;

• non-conformance reports;

• expert findings;

• rectification notices; and

• invoices for remedial work.

The contractor should be given the contractual opportunity to inspect and rectify where applicable.

If the employer appoints another contractor immediately and later claims the entire cost, issues may arise about whether the original contractor was given access, whether the remedial scope was reasonable and whether the new works included upgrades beyond rectification.

7. Can the employer set off every alleged loss against a progress claim?

That depends on the contract and the applicable statutory regime.

An employer may seek to deduct:-

• liquidated damages;

• rectification costs;

• overpayments;

• third-party claims;

• site charges; or

• other contractual losses.

The contractor may argue that the deduction is unsubstantiated, premature or prohibited by the payment provisions.

Each deduction should be particularised and supported. A broad statement that “the contractor owes us more than we owe them” may not be sufficient.

8. CIPAA adjudication may provide a faster payment remedy

The Construction Industry Payment and Adjudication Act 2012 applies to qualifying written construction contracts concerning construction work carried out wholly or partly in Malaysia, subject to the statutory scope and exclusions.

It establishes a statutory adjudication process for payment disputes.

The process generally begins with a payment claim and payment response, followed by the appointment of an adjudicator and the exchange of adjudication submissions.

The timelines are substantially shorter than an ordinary court action. A party that ignores a payment claim or misses a response deadline may prejudice its position.

9. An adjudication decision is immediately significant, but not necessarily the final word

A successful party may seek to enforce the adjudication decision as a judgment of the High Court.

The Act also provides other mechanisms, which may include suspension or reduction of work and requests for direct payment from a principal, subject to the statutory requirements.

However, adjudication is generally intended to preserve project cash flow. The underlying dispute may still be finally determined through arbitration or litigation, depending on the contract and circumstances.

A party should therefore assess both:-

• the immediate payment strategy; and

• the final resolution of the broader contractual dispute.

10. The dispute-resolution clause determines the longer route

The contract may require:-

• negotiation;

• referral to the architect or contract administrator;

• mediation;

• adjudication;

• arbitration; or

• litigation.

These mechanisms are not interchangeable.

An arbitration agreement may require the substantive dispute to be decided privately by an arbitral tribunal. Court proceedings commenced in disregard of a valid arbitration clause may face a stay application.

CIPAA adjudication can sometimes operate alongside an arbitration clause because it is a statutory payment remedy.

The sequence and interaction between the available processes should be planned carefully.

11. Do not wait until the project ends to organise the evidence

Useful records include:-

• signed contracts and amendments;

• approved drawings;

• requests for information;

• site instructions;

• variation claims;

• daily site records;

• progress photographs;

• programmes and updates;

• manpower and machinery records;

• delivery orders;

• meeting minutes;

• payment claims and certificates;

• notices of delay;

• extension-of-time applications;

• testing and commissioning documents; and

• defect records.

The documents should be organised chronologically and by issue.

Thousands of unlabelled photographs and messages do not automatically amount to a persuasive case.

12. Expert evidence may be necessary

Disputes involving workmanship, engineering standards, delay analysis or valuation may require evidence from an independent expert.

The expert’s role is not simply to repeat the client’s position.

The expert should examine the relevant technical material and provide an opinion within his or her expertise.

Parties should also distinguish between:-

• a factual witness who attended the project;

• a quantity surveyor valuing work;

• an engineer assessing defects; and

• a delay expert analysing the programme.

One witness may not be qualified to establish every issue.

13. Commercial settlement can still be structured during proceedings

A settlement may address:-

• immediate payment of an undisputed amount;

• staged payment of the balance;

• rectification works;

• release of retention;

• withdrawal of liquidated damages;

• treatment of bonds;

• final account certification; and

• mutual release of claims.

The settlement must identify whether it resolves one payment claim or the entire project account.

A payment labelled “full and final settlement” can have serious consequences if unresolved variations or defects are not expressly reserved.

Construction disputes are built throughout the life of a project.

The party with the strongest final account is often the party that administered the contract, issued timely notices and maintained reliable records long before lawyers became involved.