Extension of Time for Government Contracts – a Sigh of Relief!
19 July 2021
In light of the ongoing movement control order (“MCO”) in Malaysia since 1 June 2021, the Ministry of Finance (“MOF”) has issued a set of Frequently Asked Questions (“FAQs”) as a guidance in relation to Government procurements. The FAQs issued on 31 May 2021 have been updated on 15 June 2021, 25 June 2021 and most recently on 9 July 2021. The recent FAQs is understood to be in line with the National Recovery Plan (“NRP”) which acts as a roadmap to end the MCO by phases.
Extension of time
This alert focuses only on the extension of time (“EOT”) element in relation to the construction industry.
The FAQs essentially allows Government contracts to be extended or to be given EOT if the contract completion falls within the applicable MCO period, subject to the conditions, among others, that:
- the EOT granted does not exceed 60 days: and
- additional quantities are allowed, if necessary, to accommodate the needs for the extended period above.
Based on the FAQs, the Director General of Public Works has issued a letter dated 23 June 2021 to, among others, the State Directors of Public Works informing that the MOF has allowed agencies to approve EOT as mentioned above.
The letter also states that the Public Works Department (“JKR”) had suggested to allow automatic EOT for Government contracts affected by the enforcement of SOP. Arising from this suggestion, the MOF agreed that the Superintending Officer, Project Director, Contract Administrator and/or Government Representatives (“SO”) are to decide on EOT for Government contracts affected by the Total Lockdown.
It must be noted that although JKR had suggested that the EOT be automatic, the MOF has laid down that the SO should decide on the EOT. Thus, it appears that the EOT is not automatic.
Steps to Consider
In this regard, it is prudent for contractors to consider the following:
- strictly comply with the contractual provisions to request for EOT, i.e. Clause 43 of P.W.D. Form 203A (Rev.1/2010) or Clause 49 of P.W.D. Form Design and Build (Rev.1/2010);
- take all active steps to mitigate the delays and all that may be required to the satisfaction of the SO;
- compile detailed and contemporaneous records of, among others, the delay event(s), number of affected days and mitigation efforts;
- endeavour to obtain a written confirmation or certificate for the EOT from the SO. The FAQs provides that the EOT shall be notified officially to the relevant contractors; and
- endeavour to obtain written confirmation on any additional conditions or waiver of conditions or requirements, especially if it is a variation from the existing contractual provisions.
Further, once the extension is allowed, contractors may consider extending the necessary insurance for the corresponding period, if required. Although the FAQs provides that the performance bond for the new extension need not be submitted, this may not cover all circumstances such as when the contract is further extended for other delay events. In any event, it would be advisable for contractors to obtain confirmation from the SO in this regard.
Loss and Expense
Since the Government has treated the pandemic as a force majeure event based on the previous FAQs issued by the MOF and Ministry of Works, contractors under the PWD contract may not be entitled to claim for loss and expense under Clause 44 of P.W.D. Form 203A (Rev.1/2010) and Clause 49.2 of P.W.D. Form Design and Build (Rev.1/2010).
Another piece of welcoming news is that item 8 of the FAQs provides that agencies are to expedite the payment claims based on invoices received during the NRP for completed procurements or projects with complete documentation according to the prescribed rules and contractual provisions.
It is also imperative to note that based on the FAQs, only supply contracts, services and works for sectors which have been categorised as essential economic or service sectors by the National Security Council (MKN) may be carried out, i.e. maintenance and repair works for government buildings. This of course must be read subject to the applicable SOP and directions for the respective location, whether it is under EMCO, MCO or states which have moved to Phase 2 of the NRP.
The FAQs and the notifications are certainly helpful to clarify the uncertainty occasioned by the pandemic. It is hoped that the contractors affected by MCO will be relieved by the availability of EOT during these trying times. Whilst work may not continue at site, it is imperative for contractors to issue the necessary notices in compliance with the contractual provisions and take steps to mitigate the delays where possible while waiting for the restrictions to be lifted.
Alert prepared by Ashok Kumar Mahadev Ranai (Partner) and Kalaiarasan Rasadurai (Senior Associate) of the Construction Litigation, Arbitration and Adjudication Practice of Skrine
*This Alert merely provides an overview of the FAQs and Director General’s directions and shall not be treated as legal advice. Kindly seek independent advice if necessary.