Covid-19: Administration of Government Contracts Affected by the MCO

The Ministry of Finance recently published Treasury Circular 2.4 (‘Treasury Circular’), which is intended to provide guidance to Ministries and government departments for the administration of government contracts affected by the imposition of the Movement Control Order (‘MCO’). In particular, the Treasury Circular sets out the rules in relation to extensions of time and extensions of contract periods under such government contracts. The provisions of the Treasury Circular apply to all government contracts which were already in effect on, or which will be in effect after, 18 March 2020 and Ministries and government departments shall ensure such provisions are complied with before 31 December 2020.
 
Approving Authority for Extensions of Time and Contract Period
 
The approving authority for extensions of time and extensions of contract period varies based on the type of government contract. A summary of the relevant approving authorities is as set out below:
 
  1. For works contracts based on the standard form contracts published by the Ministry of Works[1], the approving authority is the Supervising Officer or Project Director named in the relevant contract;
  1. For consultancy services contracts, the approving authority is the Controlling Officer or the Director General (the latter only applies where such contracts are with the Public Works Department or Department of Irrigation and Drainage);
  1. For supply and non-consultancy services contracts with contract value of RM500,000 and above, the approving authority is the Controlling Officer or the Director General (the latter only applies where such contracts are with the Public Works Department or Department of Irrigation and Drainage); and
  1. For government contracts with contract value below RM500,000, the approving authority is the Controlling Officer or the Contract Administrator[2]. For contracts with the Public Works Department or the Department of Irrigation and Drainage, the approving authority is the Director General.
Assessment of Period of Extension
 
The representative of the Malaysian Government under the relevant contract shall be responsible for carrying out the assessment of the period of extension to be granted. Such an assessment is to be carried out carefully and in detail so as to ensure the period of extension granted is a reasonable one. In connection therewith, the Treasury Circular stipulates that factors to be taken into consideration for the assessment shall include, but is not limited to, the duration of the MCO and the mobilisation and demobilisation of workers, machinery and equipment by the company.
 
In addition, the following shall apply with respect to any extension of time and/ or extension of contract period granted:
 
  • Pursuant to Amendment to Treasury Circular 201.1, approval for the extension of contract period for supply and non-consultancy services contracts with contract value of RM200,000 and above can only be granted once. Notwithstanding this, an extension of contract period may be granted more than once for  supply and non-consultancy services contracts affected by the MCO provided that there will be no increase in the quantity of goods or services. This includes contracts with contract value ranging from RM20,000 to RM200,000; and
  • The assessment and approval of extensions of time and contract period as described in the Treasury Circular shall be made by the relevant approving authority only with respect to government contracts which are presently in force. However, there is a certain amount of leeway in that such extensions of time and contract period are allowed for government contracts which expired during the MCO or which will expire within one month after the end of the MCO.
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.
 

[1] The standard form contracts published by the Ministry of Works as referred to are the PWD203 Form (Standard Form of Contract To Be Used Where Drawings and Specifications Form Part of the Contract), PWD203A Form (Standard Form of Contract To Be Used Where Bills of Quantities Form Part of the Contract), and the PWD DB Form (Standard Form of Design and Build Contract).
[2] “Contract Administrator” refers to the officer to whom authority to execute contracts has been delegated pursuant to the Government Contracts Act 1949.