Notice of Extensions of Time and Contract Period
A company that is a party to a government contract affected by the MCO is automatically entitled to an extension of time or extension of contract period. However, the period of extension will still be subject to the decision of the Ministry or government department. Accordingly, the representative of the Malaysian Government under the relevant contract is required to issue a written notice of the extension of time or extension of contract period to the company. It is pertinent to note that this written notice includes announcements made through social media channels.
Other Contract Administration Matters
In connection with the abovementioned extensions of time and contract period, the Treasury Circular also addresses three other contract administration matters, namely the calculation of Liquidated and Ascertained Damages (‘
LAD’), claims for loss and expense, and the performance bond.
Calculation of LAD
For companies on which LAD has been imposed prior to the commencement of the MCO, the calculation of such LAD will be up to 17 March 2020. This is to take into account the effect of the MCO on the companies’ ability to perform their contractual obligations.
Such companies will be eligible for an extension of time or extension of contract period pursuant to the Treasury Circular. During the period of extension, LAD will not be imposed. However, in the event a company fails to complete the works, supply or services after the period of extension granted, the relevant Ministry or government department shall issue a Certificate of Non-Completion and impose LAD once again.
Claims for Loss and Expense
Companies are not entitled to claim for loss and expense in relation to extensions of time or contract period granted due to the MCO. The Malaysian Government’s position in this respect is that the
force majeure principle applies. In the event a government contract does not include a clause on
force majeure, the Ministry or government agency concerned is required to prepare a supplementary agreement setting out, among others, the period of extension granted and a provision that the company shall not be entitled to claim for loss and expense in relation to the said period of extension.
Performance Bond
Ministries or government agencies do not have to request for companies to provide a new performance bond for the period of extension that has been granted.
Commentary
The Treasury Circular provides clarity on the Malaysian Government’s position in relation to the administration of government contracts affected by the MCO, in particular time and cost. This should be of some relief to companies that are parties to such contracts.
If you have any queries, please contact our Mr. Richard Khoo (Partner) at richard.khoo@skrine.com or Ms. Rachel Chiah (Associate) at rachel.chiah@skrine.com.