In conjunction with the 22^nd International Construction Week, the Construction Industry Development Board Malaysia (“CIDB Malaysia”) launched their new Standard Form of Contract for Building Works (2022 Edition) (“CIDB SFC 2022”) on 16 November 2023.¹ The CIDB SFC 2022 is a much-anticipated revision of and update to CIDB Malaysia’s first Standard Form of Contract for Building Works, which was published in year 2000.
 
The CIDB SFC 2022 represents CIDB Malaysia’s initiative to provide options for resolving disputes arising during the course of construction that extend beyond litigation and arbitration. This is based on feedback from industry players on the challenges they face in implementing projects due to increased costs and frequent contractual issues.
 
In the write-up below, we outline the key features of the CIDB SFC 2022.
 
Collaborative Contracting Structure
 
The CIDB SFC 2022 is premised on the collaborative contracting model, whereby the contract is structured to foster cooperation between parties in order to resolve any issues that arise during the execution of a project. This is expressly noted in Recital (3) of the Articles of Agreement which provides that:
 
“The Employer and the Contractor recognise that effective collaboration and communication are essential to the successful execution and completion of the Works and are committed to establish a collaborative and cooperative relationship to achieve the same.”
 
There are also mechanisms that have been introduced under the CIDB SFC 2022 to implement this model, which are discussed in further detail below.
 
In adopting the collaborative contracting model, the CIDB SFC 2022 draws inspiration from the New Engineering Contracts (“NEC”) standard forms issued by the Institute of Civil Engineers (ICE) of the United Kingdom. The NEC standard forms, which were first launched in 1993, are construction and civil engineering contracts that are designed to ensure collaboration between parties in managing project issues and risks – a move away from traditional construction contracts, which are typically adversarial in nature. The development of the NEC standard form was underpinned by the belief that joint management of the project by all parties would encourage fair dealing and better performance, which would in turn create a conducive environment for project implementation and delivery. The NEC standard forms have been a success internationally and is often used for large-scale infrastructure projects, particularly in the United Kingdom and Hong Kong.
 
Introduction of Early Warning System
 
Clause 24 of the CIDB SFC 2022 provides for the implementation of an early warning system (“EWS”). Under the EWS, the Superintending Officer as the contract administrator is responsible for preparing and managing an early warning register that serves as a record of any matters which could: 

In the event the Contractor or Superintending Officer becomes aware of any such matter, they may (but are not obliged to) provide an early warning to the other and this will be subsequently entered into the early warning register.
 
In addition to the early warning register, the Contractor is required to attend early warning meetings at the interval prescribed in the contract as well as such other times as notified by the Superintending Officer. If the attendance of the Contractor’s subcontractors or any other person involved in the project is necessary for a particular meeting, the Superintending Officer or Contractor may instruct these persons to attend. During such meetings, attendees have an obligation to cooperate on making and considering proposals for managing the matters listed in the early warning register, deciding on the actions to be taken, and whether a matter can be removed from the early warning register.
 
The EWS is a mechanism for the parties to identify potential issues that could have an adverse impact on the cost of the works, the time for completing the works, or the works itself as soon as such issues become apparent. It is intended to be a risk management tool aimed at helping parties address issues and any possible consequences in an efficient manner. While there are contracts in the market which utilise a similar mechanism, such as the use of risk registers in some Malaysian contracts or the provision for early warnings in the FIDIC suite of contracts, it is pertinent to note that these contracts are silent on the consequences of any failure to comply with the same.
 
In contrast to the foregoing, there is a consequence under CIDB SFC 2022 in the event the contractor fails to give an early warning. Clause 32.3(g) provides that if the Contractor does not give an early warning of an event and which an experienced contractor could have given, then the event shall be assessed as if the Contractor had given such early warning. This means that it will be assumed that the Contractor had reacted competently and promptly to the event, which could have a bearing on the assessment of the costs incurred by the Contractor.
 
Compensation Events in Place of Variation and Extension of Time Provisions
 
It is typical for construction contracts to contain terms on variations and extension of time. These matters are often among the issues in dispute between parties on construction works. The CIDB SFC 2022 has replaced the clauses on variations and extension of time that were in the previous edition with a new clause on compensation events – a concept that was pioneered by the NEC standard forms.
 
What constitutes a compensation event under the contract is specifically listed in Clause 31 and this includes instructions for variations, failure of the Employer to give possession of Site as required under the Contract, and any other breach by the Employer. Essentially, these are events that could delay the Contractor’s progress of the works and/or result in the Contractor incurring additional cost. This in turn will give rise to the Contractor’s entitlement to claim for an extension of time and/or an adjustment of the contract sum.
 
The idea behind the introduction of compensation events was to make contract management easier, given that the Contractor’s claims for additional time and/or cost would be managed together rather than separately. To this end, the procedure for the assessment of compensation events under Clause 32 is very prescriptive and breaks down the procedure into the various stages: 

In line with the collaborative nature of the CIDB SFC 2022, the responsibility of notification of a compensation event does not lie solely with the Contractor. There are also implications in the event the Superintending Officer fails to comply with the requirements of the procedure for assessment of the compensation event – for example, if the Superintending Officer does not assess a compensation event within the stipulated time and fails to remedy such failure within seven days after notice from the Contractor, it will be deemed that the Superintending Officer had accepted the quotation of the Contractor’s choosing. Such provisions are incorporated to ensure strict compliance is required from the Superintending Officer and the Employer, and not just from the Contractor.
 
Enhancement of Dispute Resolution Mechanism
 
There are a number of changes to the dispute resolution mechanism in the CIDB SFC 2022. Firstly, there is the introduction under Clause 47 of a dispute resolution board (“DRB”), a creation and key aspect of the FIDIC standard forms. In the event a party disagrees with the decision by the Superintending Officer on a dispute, then such party may refer the dispute to the DRB. The DRB can either be a person or a panel of three persons nominated by the parties that is tasked to decide on the disputes arising during the course of the construction works. The parties are to share the cost of remuneration of the members of the DRB.
 
The decision of the DRB is intended to be final and binding unless either party requires the decision to be referred to a tribunal of competent jurisdiction. Such tribunal will either be a reference to arbitration or submission to court jurisdiction, as opted by the parties.
 
An alternative available to the parties is that upon any dispute arising, the parties may refer the dispute to mediation. Such mediation shall be in accordance with the CIDB Malaysia Mediation Rules in force at the material time and the mediator appointed shall be a CIDB Malaysia Accredited Mediator. In the event parties are unable to achieve a settlement during mediation, either party may refer the dispute to a tribunal of competent jurisdiction as described above.
 
The dispute resolution mechanism under the CIDB SFC 2022 is structured so as to give the parties options in terms of their dispute resolution method. It is also intended to encourage parties to first attempt alternative dispute resolution methods such as the DRB or mediation before going down the common route of arbitration or court litigation.
 
Driving a Change in Contracting in the Malaysian Construction Industry
 
Conceptually and structurally, the CIDB SFC 2022 is markedly different from the local standard forms such as the Pertubuhan Arkitek Malaysia (PAM) and Public Works Department (PWD) forms. It is very much acknowledged that the concept of collaborative contracting is somewhat new to the Malaysian market. As such, it may be challenging for industry players to move away from what is familiar to them.
 
However, the same could no doubt have been said about the NEC when it was first introduced, and it has since proven the benefits of collaborative contracting. It is hoped that the CIDB SFC 2022 will drive a change in the Malaysian construction industry towards more collaborative, efficient and successful project implementation.
 
 
Article by Rachel Chiah (Senior Associate) of the Construction and Engineering Practice of Skrine. Rachel is a member of the Technical Committee that advised CIDB Malaysia on the Standard Form of Contract for Building Works (2022 Edition).
 

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