DEFECT LIABILITY PERIOD

AND
ACCOUNT CLOSING

W. Mohd. Saipallah bin W. Kadir

Head of Project Team 2
Cawangan Kerja Kesihatan
DEFECT LIABILITY PERIOD
 A common feature in all the standard form of
construction contracts in Malaysia

PAM 98 / JKR PWD 203 / IEM / CIDB 2000

DEFECT LIABILITY PERIOD

 A common feature in all the standard form of
construction contracts in Malaysia

PAM 98 Clause 15 – Practical Completion & Defects Liability

JKR PWD 203A (Rev 1-2010) Clause 48 – Defects After Completion

CIDB Standard Form of Contract for Building Works 2000 Edition

Clause 27 - Defects Liability After Completion

DEFECT LIABILITY PERIOD

 PAM

DEFECT LIABILITY PERIOD

 JKR 203A

DEFECT LIABILITY PERIOD

 CIDB Standard Form of Contract

DEFECT LIABILITY PERIOD

 JKR PWD FORM DB (Rev.2007)

DEFECT LIABILITY PERIOD

 Defect Liability Period
Deemed to have commenced on the date on which
the client (Government) shall have taken possession
and occupied the works.

1. Completion of works – issuance of CPC

2. Sectional completion of works – issuance of CPO

DEFECT LIABILITY PERIOD

 Defect Liability Period

Completion of Works

i. Issuance of Certificate of Practical Completion (CPC)

ii. Completion of outstanding works and remedying defects.

iii. Default in remedying defects

iv. Diminuation in value of works

v. Certificates of completion of making good defects

DEFECT LIABILITY PERIOD

 Defect Liability Period

Partial Occupation

i. Certificate of Partial Occupation. (within 7 days)

ii. Start of DLP for parts occupied
iii. Certificates of completion of making good defects (relevant parts)
iv. Reduction in LAD
v. Default in remedying defects
vi. Diminuation in value of works
vii. Insurance (contractor to notify insurer)
viii. Performance Bond (realeased after CMGD for whole works)

DEFECT LIABILITY PERIOD

 Defect Liability Period
S.O. : issue instructions requiring any defects,
shrinkages or other faults appearing
within DLP due to materials or
workmanship not in accordance with the
Contract.
Contractor : obliged and liable to rectify defects that
appear between the period the
Certificate of Practical Completion
(CPC) is issued and the expiry of the
DLP.

DEFECT LIABILITY PERIOD

 Defect Liability Period

In General : Instruction for rectifying defects,

shrinkages or other faults can no
longer be issued after 14 days from
expiry of the DLP.

Unless otherwise stated in the Contract

DEFECT LIABILITY PERIOD

 Defects

In general terms defects or defective works is

where the standard and quality of
workmanship and materials as specified in
the contract is deficient.

DEFECT LIABILITY PERIOD

 Defects

Patent Defects : defects that can be discovered by normal

examination or testing.

Latent Defects : defects that are not discoverable by

normal examination or testing which
manifests itself after a period of time.

DEFECT LIABILITY PERIOD

 Defects

Construction Defects : defects arising from poor worksmanship or

defective materials.

Usage Damages : damages due to incorrect operating

by users.

DEFECT LIABILITY PERIOD

 Defects

DEFECT LIABILITY PERIOD

 Defects

DEFECT LIABILITY PERIOD

 Start

Flowchart
Issuance of Certificate of Practical Completion
CPC

i. End of Contractor’s contractual liabilitiy : except of making good defects;

ii. One moiety of Retention Fund released;
iii. End of insurance period;
iv. End of Contractor’s liability for further Liquidated Damages;
v. End of Contractors’s possession of site except to make good defects.

Defects Libility Period begins

S.O./Engineer may issue written instruction to

Contractor to make good defects

Flowchart S.O./Engineer may issue Schedule of Defects not

later than 14 days after expiry of DLP

DEFECT LIABILITY PERIOD

 Start

S.O./Engineer ascertains the

Issuance of Certificate of Practical Completion diminution in the value of
CPC Contractor makes
good defects at his
No defective works if impracticable
and inconvenient for Contractor
i. End of Contractor’s contractual liabilitiy : except of making good defects;
own cost, within 3
ii. One moiety of Retention Fund released;
to rectify
iii. End of insurance period;
months after the
OR
iv. End of Contractor’s liability for further Liquidated Damages;
v. End of Contractors’s possession of site except to make good defects.
receipt of the
Schedule S.O. may employ third party to
Defects Libility Period begins
make good the defective works
S.O./Engineer may issue written instruction to Contractor to make good defects
Yes
S.O./Engineer may issue Schedule of Defects not later than 14 days after expiry of DLP
Employer may recover cost
S.O./Engineer issues incurred from the amount
Certificate of due to the Conractor of
Making Good Defects from Performance Bond

S.O./Engineer issues Final Certificate within 3

months from DLP / 3 month after Certificate Final Certificate
of Making Good Defects (whichever is later)

Release of Performance Bond END

Flowchart

DEFECT LIABILITY PERIOD

 FINAL ACCOUNT

ACCOUNT CLOSING
 Final Account

Construction contracts generally provide some

mechanism for the final payment to be made to
the contractor on completion of the works
described in the contract.

Generally this payment will be made at the end

of the defects liability period provided that all
defects have been rectified.

Final Account
 Normally mentioned in all the standard form of
construction contracts in Malaysia

PAM 98 / JKR PWD 203 / IEM / CIDB 2000

DEFECT LIABILITY PERIOD

 CIDB Standard Form of Contract

Final Account
 PAM

Final Account
 JKR 203A

Final Account
 Final Account
Preparing the final account is the process of calculating and agreeing
any adjustments to the contract sum (the amount originally set out in
the contract to be paid to the contractor for completion of the works)
so that the amount of the final payment can be determined. The
amount of the final payment is then set out in the final certificate
(or final statement).

It is possible for the final certificate to show that money is owed to the
client, rather than due to the contractor.

Final Account
 Final Account
The contract sum may need to be adjusted for a number of reasons,
including:
1. Variations.
2. Fluctuations.
3. Prime cost sums.
4. Provisional sums.
5. Payments to nominated sub-contractors or nominated suppliers.
6. Statutory fees.
7. Payments relating to the opening-up and testing of the works.
8. Loss and expense.
9. Liquidated and ascertained damages.
10. Contra claims imposed as a result of the contractor's operations (such as a third-party claim
resulting from contractor negligence or contractual breach, for example, flooding a neighbour's
property, third party works as instructed by S.O.).
11. The release of any remaining retention.

Final Account
 Final Account
Agreeing the final account can be a complicated,
time consuming and adversarial process,
often resulting in disputes.

The process can be made easier if adjustments to

the contract sum are agreed as the project
progresses rather than saving them up for the end.

Final Account
 Final Account

1. Finalizing of the account is not a one sided activity

2. Entails necessary input of the contractor especially in
terms of the provision of the relevant documents,
substantiation each in regard to his claims and also of
those pertaining to his sub-contractor
3. Must be a proactive approach on both sides
4. Strict adherence to any programmed or deadlines set

Final Account
 Final Account
1. The Contractor shall submit full particulars complete with supporting
documents within but not more than three (3) months after issuing of
the Certificate of Practical Completion (CPC).

2. The Superintendent Officer (S.O) shall issue the Final Certificate within
three (3) months after the expiry of the Defect Liability Period for the
whole of the Works or three (3) months after the issuance of the
Certificate of Completion of Making Good Defect (CMGD).

In Majority of contract :
Issue of the final account can remain open for years after the
Certificate of Making Good Defect (CMGD)

Final Account
 Conclusion

1. Read And Understand The Contract

2. Justly Interpret The Clauses

3. Precise description of defects in report

4. Follow The Latest Guidelines

5. Resolve Disputes Amicably

6. Document All Action Taken

Conclusion
 Clause 32.0 - JKR 203 (Effect of S.O. Certificates)

No certificates of the S.O. under any provision of this Contract shall be

considered as conclusive evidence as to the sufficiency of any works, material
or goods to which it relates, nor shall it relieve the Contractor from his ability to
amend and make good all defects, imperfections, shrinkages, or any other
faults whatsoever as provided in this Contract. In any case, no certificate of the
S.O. shall be final and binding in any disputes between the Government and
the Contractor if the dispute is brought before an arbitrator or in the Courts.

Clause 55 - PWD Form DB (Rev.2007)

Clause 43 - CIDB Standard Form of Contract for Building Works 2000 Edition

Clause 34 - PAM Contract 2006 (without quantities)

(Adjudication and Arbitration)

Conclusion
 Sekian

Terima kasih

DEFECT LIABILITY PERIOD & FINAL ACCOUNT