1 RAZAK School of Engineering and Advanced Technology, University of Technology Malaysia, Kuala Lumur, Malaysia
! "aculty of #ivil Engineering, University of Technology Malaysia, Malaysia $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Abstract
Constru$tion industry is r#alizing th# plans and sp#$i!i$ations !or th# physi$al stru$tur#. "h# pro-#$t is su$$#ss (h#n it is $ompl#t#d to m##t $ustom#r n##ds (ithout any issu#s and probl#ms in t#rms o! tim#, .uality and budg#t allo$ation. "h# budg#t allo$ation is important #sp#$ially to g#t th# total !inal $ost o! th# pro-#$t that (ill b# add#d in th# !inal a$$ounts. /inal a$$ount is th# !a$t that th# sum agr##d to b# paid at th# #nd o! th# $ontra$t by th# o(n#r to th# $ontra$tor. Mor#o%#r, th# !inal a$$ount issu# has #0ist#d in Malaysia $onstru$tion industry !or s#%#ral d#$ad#s in (hi$h th# important !a$tors signi!i$antly a!!#$t th# $losing o! !inal a$$ount that r#lat#d (ith $ontra$tor, manag#m#nt and th# $ontra$t as (#ll. Su$$#ss!ul $losing is $at#goriz#d as r#sol%#d at th# stipulat#d tim# (ithout any probl#ms in th# disput# and d#lay. "h#r#!or#, th# purpos# o! this pap#r is to in%#stigat# th# important !a$tors that $ontribut# to th# $losing o! !inal a$$ount in $onstru$tion pro-#$ts in Malaysia. "his aim $an b# a$hi#%#d through th# ob-#$ti%#s o! #%aluating th# $ontra$t in Malaysia to $ompar# th# !inal $losur# o! %arious !orms o! $ontra$t and !inally id#nti!y th# $aus#s and #!!#$ts o! th# disput# and d#lays in th# !inal a$$ount $losing. As a r#sult, this pap#r $an assist $onstru$tion industry play#rs to $r#at# mor# #!!#$ti%# planning and b# us#d as guid#lin#s in #nsuring th# on+tim# $losing o! !inal a$$ount in $onstru$tions pro-#$ts in Malaysia.
"h# building and $onstru$tion industry #n$ompass#s housing, $omm#r$ial, and in!rastru$tur# d#%#lopm#nt. &o( 213345 argu#s that th# $onstru$tion industry has a dir#$t b#aring on th# national #$onomy and $ons#.u#ntly, $an b# us#d as an indi$ator o! #$onomi$ (#ll+b#ing !or a $ountry. "hus, th# #!!#$t o! $onstru$tion on th# #$onomy through th# produ$tion pro$#ss and through th# #!!#$ts o! $r#dit $onstraint $an b# as important as th# #!!#$t o! th# #$onomy on th# $onstru$tion s#$tor 2"s#, 13365. "his is b#$aus# th# $onstru$tion s#$tor $ompris#s %arious !i#lds in$luding ar$hit#$tur#, $i%il #ngin##ring, m#$hani$al #ngin##ring, #l#$tri$al #ngin##ring, .uantity sur%#ying, land sur%#ying, building $ontra$ting, and lands$aping, among oth#rs 2Cho(, 133'5. "h# $onsultant and $ontra$tor ar# dra(n tog#th#r by a $ommon purpos# to build a building pro-#$t !or a p#rson or an organization $all#d th# $li#nt 27osli, 13885. 9n$# a pro-#$t is $ompl#t#d and hand#d o%#r to th# $li#nt, th#ir (ork #nds th#r#.
:ournal o! South#ast Asian 7#s#ar$h 2
"h#r#!or#, it is undoubt#d that $onstru$tion industry plays an important rol# in g#n#rating (#alth and impro%ing th# .uality o! li!# through th# translation o! go%#rnm#nt;s so$ial+#$onomi$ poli$i#s into so$ial and #$onomi$ in!rastru$tur#s and buildings. /or this r#ason, a sum o! 7M2'0 billion has b##n allo$at#d !or d#%#lopm#nt und#r th# 10 th <lan !rom Malaysia go%#rnm#nts 2*<=, 20105. /urth#rmor#, th# $onstru$tion industry $r#at#s a multipli#r #!!#$t to oth#r industri#s, in$luding manu!a$turing, !inan$ial s#r%i$#s and pro!#ssional s#r%i$#s. >o(#%#r at th# sam# tim#, th#r# is a lot o! probl#ms !a$#d by Malaysia $onstru$tion industry, (hi$h (ill #!!#$t to th# produ$ti%ity o! $onstru$tion industry in t#rms o! manpo(#r, .uality o! produ$ti%ity, tim# and paym#nt issu# #sp#$ially during th# $losing o! !inal a$$ounts in $onstru$tion pro-#$ts. ?#%#rth#l#ss, as %arious #!!orts ha%# b##n tak#n by th# @o%#rnm#nt in sustaining Malaysia $onstru$tion industry to #nsur# its supports to oth#r industri#s, th# Malaysian #$onomy gr#( by 4.6A 2/2010) B.4A5 on gro(th in pri%at# $onsumption and sustain#d robust #0pansion in gross !i0#d $apital !ormation amid th# $onsolidation in @o%#rnm#nt outlays and mod#rat# #0t#rnal trad# gro(th 2Maybank, 20115.
A$$ording to th# r#$ords pro%id#d by Constru$tion Industry 1#%#lopm#nt Coard Malaysia 2CI1C5 220125, th# total numb#r o! pro-#$ts until Mar$h 2012 is DBB (ith %alu# o! 7M 3,'33.03 million. "h#pro-#$t (asa(ard#d to lo$al $ontra$tors is DB2 (ith a total %alu# 7M 3,103.B' million and !or#ign $ontra$tors is ' (ith a total %alu# is 7M 283.BD million. "h# numb#r o! pri%at# pro-#$ts g#n#rally #0$##ds th# numb#r o! go%#rnm#nt pro-#$ts, r#gardl#ss th# status o! $ontra$tor.
>a%ing $on!#rr#d th# $onstru$tion industry in g#n#ral, $onstru$tion pro-#$ts $onsist o! !our stag#s, nam#ly d#signEplanning stag#, t#nd#r stag#, $onstru$tion stag# and !inal a$$ountEd#!#$t liability stag# or b#ing r#!#rr#d to as post+$ontra$t. "h# rol# and p#r!orman$# o! %arious pro-#$t parti$ipants and $ontra$ting parti#s in a $onstru$tion pro-#$t in #a$h stag# $an in!lu#n$# th# pro-#$t su$$#ss. <ost $ontra$t is th# pro$#ss to summaris# all progr#ss o! (orks and #%aluat# all %ariations and pr#par# th# !inal a$$ount. In pra$ti$#, th# $losing !inal a$$ount should b# $ompl#t#d a!t#r th# #0piry o! d#!#$t liability p#riod. In basi$ t#rms, !inal a$$ount in $onstru$tion $ontra$ts is d#!in#d as th# agr##d stat#m#nt o! th# amount o! mon#y to b# paid at th# #nd o! a pro-#$t $ontra$t by th# o(n#r to th# $ontra$tor.
Fh#n un!or#s##n situations o$$ur on sit#, it is important to !irst und#rstand th# situation and $om# up (ith suitabl# solutions and !or#$ast th# probl#mati$ $ons#.u#n$#s. "h# timing o! paym#nts is said to b# a k#y #l#m#nt o! a $ontra$tor;s pro!itability p#r!orman$# 2Stris$h#k, 133B5.It (ill bring in$on%#ni#n$#s to all th# parti#s in%ol%#d in th# $onstru$tion industry, mainly th# $li#nt, $onsultants and th# most important, th# $ontra$tors. 9n th# oth#r hand, it also brings in$on%#ni#n$# to th# #nd us#r b#$aus# th# !inal a$$ounts r#main#d unr#sol%#d a!t#r th# building is o$$upi#d. "his is support#d by 9d#yinka and Gaka 2200B5 through th#ir sur%#ys on th# impa$t o! th# paym#nt t#rms o! $ash !lo( (hi$h !ound that $ontra$tors (#r# dissatis!i#d (ith th# tim# lag to r#$#i%ing paym#nt.
>o(#%#r, #!!#$ti%# manag#m#nt $an assist in #nsuring that paym#nts ar# mad# to th# r#lat#d parti#s in a$$ordan$# (ith th# prop#r amount (ithin th# sp#$i!i#d tim# and also s#ttl#d (ithout any issu#s and probl#ms. A$$ording to Ch#n and Ch#n 2200B5 (ho r#port a sur%#y o! $ontra$tors on tim# lags, and $ompon#nts and !r#.u#n$y o! paym#nts, paym#nt $ondition patt#rns ar# s##n to di!!#r b#t(##n th# publi$ s#$tor and th# pri%at# s#$tor. Adams 220085, bas#d on sur%#ys, #stablish#s sub-#$ti%# probabiliti#s on paym#nt d#lays. =h#r 213315, >inz# and "ra$#y 213345, C#nn#tt and /#rry 213305 and Arditi and Chotibhongs 2200B5 not# th# impa$t on sp#$ialist $ontra$tors o! paym#nt tim# lags and lat# paym#nts. ?a%on 2133B5 on th# oth#r hand highlights th# $onn#$tion % :ournal o! South#ast Asian 7#s#ar$h
b#t(##n (ork p#r!orman$# and paym#nt. "h# disput# and d#lays in $onstru$tion pro-#$t ar# th#r#!or# obs#r%#d by this pap#r as among th# !a$tors a!!#$ting th# $losing o! !inal a$$ounts in $onstru$tion pro-#$t.
Cas#d on this, som# strat#gi#s ar# n##d#d to anti$ipat# any probl#ms that may o$$ur !rom th# planning stag#, so that th# on+sit# issu# $an b# d#t#rmin#d and minimiz#d during th# $losing o! !inal a$$ount. "h# l ogi$al .u#stions at this point ar#) Fhy is it n#$#ssary to link th# $aus#s and #!!#$ts o! di sput# and d#lays and ho( $an th# link h#lp th# pra$titi on#rs to pr#%#nt or r#m#dy !utur# disput# and d#laysH "h#r#!or#, all parti#s in%ol%#d should $oop#rat# to assur# that th# disput# and d#lays in $onstru$tion pro-#$t $an b# #liminat#d in #nsuring th# $losing o! !inal a$$ount $an b# r#sol%#d (ithout any probl#ms.
Forms of Contract in Malaysia
A !orm o! $ontra$t is a l#gally binding agr##m#nt b#t(##n th# parti#s id#nti!i#d in th# agr##m#nt to !ul!il all th# t#rms and $onditions outlin#d in th# agr##m#nt. A pr#r#.uisit# r#.uir#m#nt !or th# #0#$ution o! a $ontra$t, amongst oth#r things, is th# $ondition that all th# parti#s to th# $ontra$t a$$#pt th# t#rms o! th# $laim#d $ontra$t. Constru$tion $ontra$ts ar# basi$ally di!!#r#nt !rom ma-or s#r%i$# $ontra$ts. "h#r# ar# %arious typ#s o! !orm o! $ontra$t us#d in $onstru$tion industry in Malaysia. "h# s#l#$tion !orms o! $ontra$t d#p#nd on th# basis o! pri$ing and th# $ontra$t strat#gy that b#st m##t th# pro-#$t ob-#$ti%#s. "h# %arious typ#s o! $ontra$t o!!#r di!!#r#nt (ays o! handling pri$ing, risk trans!#r, r#sponsibility !or p#r!orman$#, $ost $#rtainty, and $ompl#0ity. "h# pro$#ss o! building pro$ur#m#nt in%ol%#s a s#ri#s o! di!!#r#nt sp#$ialists or parti#s in $ontributing to th# (ork at a di!!#r#nt tim#. It l#ads to th# !ragm#ntation pro$#ss in $onstru$tion industry 2Murdo$h, 20005. *a$h pro-#$t parti$ipant has parti$ular aims and ob-#$ti%#s and it is rar# to !ind $ontra$t stru$tur#s that #n$ourag# harmony among th#s# aims.
"hus, th# purpos# o! standard !orms o! $ontra$t is to !a$ilitat# th# $ontra$tual arrang#m#nts b#t(##n a$tors in a pro-#$t. Standard !orms o! $ontra$t ar# r#adymad# t#rms and $onditions (h#n th# $ontra$t is $r#at#d 2G(aky#, 13365. "h# standards !orms o! $ontra$t ar# %ary !rom $ountry to $ountry and !rom on# typ# o! pro-#$t to anoth#r pro-#$t. "h#s# standards ar# g#n#rally us#d and a$$#pt#d by di!!#r#nt $ontra$ting parti#s. Standard !orms o! $ontra$ts ar# o!t#n $riti$iz#d as b#ing a $ompromis# $ontaining som# d#!#$ti%# asp#$ts. It (ould b# pra$ti$ally impossibl# to d#%is# a standard !orm o! $ontra$t that (ould tak# a$$ount o! all #%#ntualiti#s that might o$$ur in a $onstru$tion pro-#$t 2And#rsson and @unnarsson, 20025. >o(#%#r, th# ad%antag# o! th#ir adoptions is that (ith th# passag# o! tim#, p#rsons using th#m b#$om# !amiliar (ith th#ir o%#rall $ont#nt as (#ll as th#ir parti$ular str#ngths and (#akn#ss#s 2G(aky#, 13365.
In Malaysia, th#r# ar# s#%#ral standard !orms o! $ontra$ts (hi$h ar# appli$abl# !or $onstru$tion d#p#nding on th# $at#gori#s o! (orks and typ#s o! $li#nts. Among th# s#%#ral standard !orms o! $ontra$t in Malaysia is th# <F1 /orms (hi$h ar# $ompulsory !or go%#rnm#nt (orks. "h#r# ar# t(o typ#s o! th# <F1 /orms, <F1 /orm 20'A 27#%. 10E8'5 2Standard /orm o! Contra$t to b# us#d (h#r# Cills o! Iuantiti#s !orm part o! th# Contra$t5 and <F1 20' 27#%. 10E8'5 2Standard /orm o! Contra$t to b# us#d bas#d on 1ra(ings and Sp#$i!i$ations (ithout Cills o! Iuantiti#s5. In !a$t, <F1 !orm 20'A 27#%. 10E8'5 is us#d mor# o!t#n than <F1 20' 27#%. 10E8'5 !orm b#$aus# Cills o! Iuantiti#s ar# %#ry o!t#n us#d in Malaysia. "h#r#!or#, <F1 20'A 27#%. 10E8'5 is tak#n as th# r#pr#s#ntati%# standard !orm o! $ontra$t in Malaysia 2<F1, 20065. "h# <F1 !orms ar# appli#d !or all pro-#$ts !und#d by th# Malaysian publi$ s#$tor.
:ournal o! South#ast Asian 7#s#ar$h 4
9n th# oth#r hands, th# <AM 2<#rtubuhanAkit#k Malaysia5 standard !orms o! $ontra$t ha%# b##n (id#ly us#d by th# lo$al building industry #sp#$ially !or pri%at# pro-#$t in Malaysia 2<AM, 200D5. 9th#r !orm o! $ontra$t us#d in Malaysia is /JdJrationInt#rnational# d#s IngJni#urs+ Cons#ils 2/I1IC5, (hi$h is also r#!#rr#d to as th# Int#rnational /#d#ration o! Consulting *ngin##rs, produ$#s standard !orms o! $ontra$t !or $i%il #ngin##ring $onstru$tion (hi$h ar# us#d throughout th# (orld 2/I1IC, 13335. /I1IC $ontra$ts ar# o!t#n r#!#rr#d to as th# int#rnational standard.
C#sid#s, th# Constru$tion Industry 1#%#lopm#nt Coard Malaysia 2CI1C5 has produ$#d t(o standard !orms o! Contra$tK th# CI1C Standard !orm o! Contra$t !or Cuilding Forks 22000 *dition5 and th# CI1C Standard /orm o! Sub+Contra$t !or ?ominat#d Sub+Contra$tor. "h# t(o !orms o! $ontra$t do not app#ar to ha%# b##n (id#ly adopt#d by th# $onstru$tion industry at this tim#. 9th#r !orm o! $ontra$t in Malaysia is I*M /orm o! Contra$t /or Ci%il *ngin##ring Forks 2as it has no( b##n r#nam#d5, or I*M.C* 2011. I*M Conditions o! Contra$t !or Forks Mainly o! Ci%il *ngin##ring Constru$tion (as !irst publish#d in May 1383. It (as mod#ll#d %#ry mu$h on <F1 20' /orm o! Contra$t and (as mu$h us#d in pri%at# s#$tor+!inan$#d $i%il #ngin##ring $onstru$tion (orks. It has b##n a littl# mor# than t(o d#$ad#s sin$# it (as publish#d. "h#r#!or#, th# s#l#$tion o! #a$h !orms o! $ontra$t m#ntion#d abo%# d#p#nding on typ# o! pro-#$t, o(n#rE$li#nts o! pro-#$t, natur# o! a pro-#$t and !inan$ing in%ol%#d.
Comparisons of the Closing of Final Accounts according to the Forms of Contract
/orms o! $ontra$t to b# us#d should b# und#rstood by all parti#s in%ol%#d in th# $onstru$tion pro-#$ts to pr#%#nt any disput#s or probl#ms in th# !utur#, #sp#$ially in th# $losing o! !inal a$$ounts. Most o! th# standard !orms o! $i%il #ngin##ring $ontra$t in Malaysia $ontain pro%isions upon (hi$h th# #ngin##rE.uantity sur%#yor is oblig#d to s#ttl# th# !inal a$$ountand issu# a !inal paym#nt $#rti!i$at# to th# $ontra$tor (ithin a sp#$i!i#d p#riod o! tim# a!t#r r#$#ipt o! th# $ontra$tor;s !inal a$$ount stat#m#nt.
In basi$ t#rms, a !inal a$$ount in $onstru$tion $ontra$ts is th# agr##d stat#m#nt o! th# amount o! mon#y to b# paid at th# #nd o! a pro-#$t $ontra$t by th# #mploy#r to th# $ontra$tor. A !inal a$$ount brings about a s#ns# o! !inality to th# n#gotiations l#ading up to th# agr##m#nt o! th# !inal a$$ount b#t(##n th# parti#s to th# $ontra$t. In $onstru$tion $ontra$ts, it is g#n#rally a $ommon pra$ti$# !or #ith#r th# #mploy#r 2or th# #mploy#r;s r#pr#s#ntati%#5 and th# $ontra$tor to sign th# !inal a$$ount stat#m#nt to signi!y that th# !inal a$$ount !igur# r#pr#s#nts th# !ull and !inal s#ttl#m#nt o! all $laims. "h# $losing o! !inal a$$ount n#gotiations b#t(##n th# $ontra$tor and th# ar$hit#$t, #ngin##r or .uantity sur%#yor on b#hal! o! th# #mploy#r (ill in du# $ours# trigg#r th# issu# o! th# !inal a$$ount stat#m#nt and ultimat#ly, #nabl# th# issuan$# o! th# !inal $#rti!i$at#. "h# $omparison o! instru$tions !or th# $losing o! !inal a$$ount as m#ntion#d in !orms o! $ontra$t $ommonly us#d in Malaysia ar# d#s$rib#d as th# !ollo(ing.
PWD Form 2!A "#e$%2&'( "h# $ontra$t stat#s that th# Contra$tor shall submit !ull parti$ulars $ompl#t# (ith supporting do$um#nts (ithin but not than three "!' months a!t#r th# issuan$# o! th# C#rti!i$at# o! <ra$ti$al Compl#tion. "h# Sup#rint#nd#nt 9!!i$#r 2S.95 shall issu# th# /inal C#rti!i$at# (ithin three "!' months a!t#r th# #0piry o! th# 1#!#$t &iability <#riods !or th# (hol# o! th# Forks or thr## 2'5 months a!t#r th# issu# o! th# C#rti!i$at# o! Compl#tion o! Making @ood 1#!#$ts 2Claus#'15 2<F1, 20065.
PAM Contract 2)( "h# $ontra$t stat#s that th# Contra$tor shall s#nd to th# Ar$hit#$t and Iuality Sur%#yor, all do$um#nt (ith supporting o! th# dra!t !inal stat#m#nt (ithin si* ")' months a!t#r <ra$ti$al Compl#tion o! th# Forks 2Claus# '0.105 2<AM, 200D5. & :ournal o! South#ast Asian 7#s#ar$h
FIDIC +st ,dition #,D -..K( "h# $ontra$t stat#s that within /) days a!t#r r#$#i%ing th# <#r!orman$# C#rti!i$ationK th# Contra$tor shall submit th# dra!t o! !inal stat#m#nt (ith supporting do$um#nts sho(ing in d#tail in a !orm appro%#d by th# *ngin##r 2Claus# 14.115 2/I1IC, 13335.
In summary, th#r# ar# signi!i$ant di!!#r#n$#s in th# !orms o! $ontra$t in t#rms o! tim# !ram# !or th# $losing o! !inal a$$ounts in a parti$ular pro-#$t. "h# !inal a$$ount is $at#goriz#d as on+tim# i! it $an b# r#sol%#d (ithin th# tim# p#riod sp#$i!i#d in th# !orms o! $ontra$t. >o(#%#r, th# similarity b#t(##n th# !orms o! $ontra$t is th# pro$#ss o! submitting th# !inal paym#nt $laim a!t#r th# C#rti!i$ation o! Making @ood 1#!#$t 2CM@15 or 1#!#$t &iability C#rti!i$at# 21&C5 (as issu#d. #t, s##ing as th# d#lay is %#ry mu$h a!!#$t#d by disput#s (ithin parti#s in $onstru$tion pro-#$ts, it is #ss#ntial to in%#stigat# th# $aus# o! th# probl#ms (hi$h #%#ntually a!!#$t th# $losing o! !inal a$$ount.
Causes of Dispute and Delay in the Closing of Final Accounts
"h# ma-or !a$tor l#ading to a pro-#$t;s su$$#ss is th# pra$ti$# o! #!!i$i#nt and tim#ly paym#nt in $onstru$tion pro-#$ts. "h# $aus# o! th# probl#m to $losing th# !inal a$$ount is b#$aus# disput# and d#lay. 1isput# o$$urs in pro-#$t manag#m#nt is in#%itabl#, y#t disput# is manag#abl#. It (ould #0ist (h#r# th#r# is an in$ompatibility o! int#r#st 2/#nn, 13365 and th#r#!or#, th# manag#m#nt o! disput# is to s#l#$t a disput# r#solution mod#, nam#ly $on!ronting, $ompromising, smoothing, !or$ing and a%oiding 2G#rzn#r, 200D5.
1isput# is d#!in#d as an ass#rtion o! opposing %i#(s or $laims or a disagr##m#nt as to rights 2M#rriam+F#bst#rLs 1i$tionary o! &a(, 133D5. "h# $on!li$ts and disput# ar# $o+r#lat#d (h#r# th# disput# o$$urs (h#n th# $ontra$ting parti#s !ail#d to manag# th# probl#ms and dissol%# th# $on!li$t. Carmi$h#al 22000, 20025 also $laims that th# $as# (h#r# $ontra$tor do#s not r#$#i%# th# paym#nt as a $aus# o! #s$alat#d disput#s. 1isput# may b# r#sol%#d in a numb#r o! (ays using %arious pro$##dings. It (ould not b# tru# to say that all disput#s ar# r#sol%#d at $ourt pro$##dings or oth#r !ormal or in!ormal s#ttings o! alt#rnati%# disput# r#solution m#thods. <ra$ti$ally, th# $ontra$ting parti#s; $ontro%#rsy and ad%#rsary (ould b# in$r#as#d tog#th#r (ith th# $onsumption o! $ost and tim# on$# high#r stag# o! disput# r#solution appli#d. "h# disput#, i! not r#sol%#d ami$ably, $an l#ad to arbitration or litigation. "h#y also d#monstrat#d $onsist#n$y o! th# la( s#%#ral $as#s b#$aus# o! n#glig#n$# to und#rstand t#rm $ontra$t !or #0ampl# disput#s on misund#rstanding 2"homas, 13325 and disput#s on int#rpr#tation o! $laus#s 2"homas, 13345.
"h# issu# o! d#lay in paym#nt in $onstru$tion industry is global ph#nom#non as it is among th# most $ommonly o$$ur. In Malaysia, th# impa$t o! this probl#m had $aus#d a massi%# d#stru$tion to th# $ountry;s #$onomi$ and this has tarnish#d th# good imag# o! th# lo$al $onstru$tion industry. Fh#n paym#nts du# und#r th# $ontra$t ar# d#lay#d or o! l#ss#r %alu# than anti$ipat#d, th# $ontra$tor;s !inan$ial position su!!#rs, and this in turn may a!!#$t a pro-#$t p#r!orman$# 2S#ars #t. Al, 2008K @ould 1336K Antill and /arm#r, 1331K 9;Cri#n and Zilly, 1361K >alpin and Foodh#ad, 1380K Carm#$ha#l, 20005.
"h#r#!or#, d#lay in !inal paym#nt to $ontra$tors is obs#r%#d by this pap#r as a $ommon $aus# o! disput# in th# $onstru$tion industry all o%#r th# (orld. Although th#r# has b##n a r#markabl# progr#ss in Malaysia;s $onstru$tion industry in th# r#$#nt y#ars, probl#ms arising !rom paym#nt issu#s ar# g#tting mor# s#rious. "hus, this pap#r propos#s that th# $aus#s o! th#s# d#lay and disput# $an b# $at#goris#d into thr## as dis$uss#d in th# !ollo(ing subs#$tions (hi$h ar# $ontra$tors+r#lat#d, manag#m#nt+r#lat#d and $ontra$tual+r#lat#d.
:ournal o! South#ast Asian 7#s#ar$h D
Dispute and Delay Caused by Contractors i%e% Contractor0#elated
Most o! th# tim# $ontra$tors (ould blam# $li#nts (h#n th#y r#$#i%# lat# paym#nt. *%#n though this ph#nom#non is not arguabl#, th# $ontra$tors ar# also among th# !a$tors $ontributing to this issu#. "his is support#d by 7##%#s 2200'5 (ho stat#s that on# o! th# main r#asons !or d#lays paym#nt is (h#n th#r# ar# #rrors in submitting $laims by th# $ontra$tors. "h#s# #rrors in$lud# $laims (ithout ad#.uat# supporting do$um#nts, (rongly $al$ulat#d $laims, submit un$ompl#t#d $laims and submission (ithout using th# right pro$#dur#s. Fh#n th#s# ar# th# $as#s, $ontra$tors n##d to r#submit th# $laims a!t#r making n#$#ssary $orr#$tions, (hi$h #%#ntually (ill l#ad into d#lay in paym#nt.
Anoth#r !a$tor $ontribut#d by $ontra$tors to th# d#lay in th# !inal a$$ounts $losing is (h#n th# $ontra$tors !ail to agr## (ith th# %aluation o! (ork 29d#h and Cattain#h, 20025. "h# disagr##m#nt may $aus# d#lay in $#rti!ying th# amount o! !inal a$$ount."his (ould $ons#.u#ntly r#sult in $on!li$ts b#t(##n $li#nts and $ontra$tor. It is no doubt that th# $laims (ould not b# $#rti!i#d and h#n$#, d#lay paym#nt (ill o$$ur. "h# sam# probl#m (ill also happ#n #%#n though a $ontra$tor $arri#s out his -ob as p#r sp#$i!i#d in Cill o! Iuantiti#s and instru$tions, y#t submits $laims a!t#r th# d#!#$t liability p#riod. "his (ill #%#ntually tak# tim# !or th# paym#nt to b# mad# to th# $ontra$tor. <robl#m also o$$urs (h#n th# $ontra$tors do not k##p th# r#$ords prop#rly to $laim th# !inal paym#nts.
9n th# oth#r hand, 9d#h and Cattain#h 220025 indi$at# that inad#.uat# #0p#ri#n$# o! th# $ontra$tor is also an important !a$tor $ausing th# disput# and d#lay in $onstru$tion pro-#$t. "his $ould b# link#d to th# $ontra$t a(arding pro$#dur# (h#r# most pro-#$ts (#r# a(ard#d to th# lo(#st bidd#r. A $ontra$tor (ith inad#.uat# #0p#ri#n$# is not abl# to plan and manag# th# pro-#$ts prop#rly and this $an l#ad to disastrous $ons#.u#n$#s.
Dispute and Delay Caused by Management1s Matters i%e% Management0 #elated
Main !a$tor $ontribut#d to disput# and d#lays in $onstru$tion pro-#$t by $li#nts ar# (h#n th#y tak# long#r tim# than stipulat#d in th# $ontra$t to $#rti!y th# $laim. A$$ording to ## and Abdul 7ahman 220105, d#lay in $#rti!i$ation by parti#s in%ol%#d may also l#ad to lat# paym#nt. "h# parti#s in%ol%#d may d#lay in appro%ing th# appli$ation !or paym#nt $laim du# to $#rtain r#asons (hi$h may aris# b#$aus# o! his o(n or oth#r parti#s !ault, !or #0ampl# $laims o! th# d#sign and $onstru$tion administration s#r%i$#s. "h# obligation o! th# d#sign pro!#ssional to issu# paym#nt $#rti!i$at#s !or instan$# has long b##n a t#dious and dr#ad#d task and th#r#!or# o!t#n $r#at#s num#rous liability probl#ms. Although th# only r#al purpos# o! issuing paym#nt $#rti!i$at#s is to in!orm th# o(n#r or l#nd#r that th# $ontra$tor is #ntitl#d to paym#nt, th#s# $#rti!i$at#s ar# o!t#n us#d by pot#ntial $laimants as a basis !or many typ#s o! l#gal a$tions. "his ob%iously l#ads to lat# paym#nts in th# $onstru$tion pro-#$t.
"h#r# ar# also $as#s (h#r# $li#nt;s #mploy##s un#thi$ally hold th# pro$#ss o! $losing th# !inal a$$ounts to obtain som# kind o! Mgi!tN !rom $ontra$tors to #0p#dit# th# paym#nt pro$#ss. "his un#thi$al pra$ti$# has gain#d att#ntion !rom %arious p#rsonals in Malaysia $onstru$tion industry in$luding th# Malaysia <rim# Minist#r (ho insists that $onstru$tion play#rs, parti$ularly th# go%#rnm#nt s#r%ant (ith this kind o! attitud# shall b# gi%#n p#nalty. C#sid#s, ## and Abdul 7ahman 220105 id#nti!y that $li#nts d#lib#rat#ly d#lay th# paym#nt to $ontra$tors !or th#ir o(n !inan$ial b#n#!its, #sp#$ially in r#l#asing th# r#t#ntion moni#s to $ontra$tor.
' :ournal o! South#ast Asian 7#s#ar$h
Oarious lit#ratur#s ha%# also sho(n that un#thi$al b#ha%iours in th# $onstru$tion industry in$lud# un!air $ondu$t, n#glig#n$#, $on!li$t o! int#r#st, $ollusi%# t#nd#ring, !raud and brib#ry. /urth#rmor#, in t#rms o! pro!#ssional $ondu$t, it has b##n id#nti!i#d that th# ma-ority o! pro!#ssionals b#li#%# that obligations to th# $li#nt and publi$ ar# o! #.ual importan$# 2O## and Skitmor#, 200'5. O## and Skitmor# 2200'5 ha%# !urth#r $lassi!i#d un#thi$al pra$ti$#s into !our g#n#ral typ#s o! a$tions (hi$h ar# un!air $ondu$t, $on!li$t o! int#r#st, $ollusion, !raud and brib#ry.
9th#r probl#ms to th# $losing o! !inal a$$ounts o$$ur during rationalisation o! rat#s 2(ork pri$# $hang#s5 as (#ll as du# to th# ignoran$# o! Contra$t Administrator sta!! in rationalising th# rat#s on tim#. It usually o$$urs (h#n th# p#rson in $harg# o! th# pro-#$t 2i.#. .uantity sur#yorE#ngin##r5 is no long#r in s#r%i$# (ith th# $ompanyEr#tir#Etrans!#rr#d, thus th# $losing o! !inal a$$ount (ill b# mor# di!!i$ult and t#dious. 1isput# and d#lay (ill also happ#n (h#n th# r#$ords 2(ork pri$# $hang#sE%ariation ord#rs5 ar# not k#pt prop#rly. C#sid#s, Murali 2200D5 also id#nti!i#s that la$k o! $ommuni$ation b#t(##n parti#s is on# o! th# $aus#s and #!!#$ts o! d#lays !a$#d by Malaysia $onstru$tion industrydu# to non+!un$tional $ontra$t administrator. "h#r#!or#, th# matt#rs sp#$i!i#d abo%# should b# gi%#n du# att#ntion in #nsuring th# !inal a$$ount $an b# $los#d su$$#ss!ully.
Dispute and Delay Caused by Contractual Matters i%e% Contractual0#elated
Oarious !orms o! $ontra$t ha%# #stablish#d th# pro$#ss#s and rul#d th# $losing o! !inal a$$ount in $onstru$tion pro-#$t. =nd#rstanding th# pro$#ss#s and rul#d it $an h#lp th# o$$urr#n$# o! disput#s. >o(#%#r, probl#ms al(ays o$$ur a!t#r r#$#i%ing th# o!!i$ial $#rti!i$at# o! paym#nt !rom th# $ontra$t administrator. "h# main .u#stion aros# is ho( $an h# #n!or$# it, i.#. ho( and (h#n h# $an !inally r#$#i%# his paym#ntsH /or $ontra$tors, th# ans(#r li#s in th# parti$ular $ontra$tual pro%isions go%#rning th# $ardinal issu#s o! th# honouring p#riod as (#ll as th# r#m#di#s a%ailabl# to th# $ontra$tor in th# #%#nt o! th# #mploy#r;s br#a$h o! th# said obligation.
9th#r !a$tor (hi$h $aus#d d#lay and oth#r di!!i$ulti#s in th# $losing o! !inal a$$ounts is to !inaliz# th# !inal amount o! %ariation ord#rs. Oariation ord#r aris#s !or a %ari#ty o! r#asons. Som# ar# !or#s##abl# (hilst oth#rs ar# not. Som# r#sult !rom a g#nuin# $hang# o! $ir$umstan$#s and oth#rs !rom th# d#sign t#am;s o(n inad#.ua$i#s. Arain and &o( 2200D5 id#nti!y !our origin ag#nts o! %ariation ord#rs, in$luding $li#nt, $onsultant, $ontra$tor and oth#r $hang#s. 1i!!i$ulti#s in r#sol%ing %ariation ord#rs !or $urr#nt or !utur# pro-#$ts may ha%# a mat#rial ad%#rs# impa$t on $ontra$tor;s !inan$ial $ondition, $ash !lo(s and r#sults o! op#rations. I! this probl#m $annot b# s#ttl#d b#!or# th# pro-#$t is hand#d+o%#r to th# $li#nt, th# $losing o! !inal a$$ount $annot b# r#sol%#d (ithin th# p#riod pr#s$rib#d.
9n th# oth#r hand, th# d#lay $losing o! !inal a$$ounts also o$$urs du# to maint#nan$# it#ms in th# $ontra$t do$um#nts (h#r# th# $ontra$tors still ha%# not b##n paid a!t#r th# #0piry o! th# d#!#$t liability p#riod. Any !orms o! $ontra$t in$luding <F120', <AM, /I1IC and oth#rs stat# that !inal a$$ount (ill b# paid a!t#r th# d#!#$ts liability p#riod. "h#s# !a$tors slightly gi%# th# impli$ation to th# d#lay in th# $losing !inal o! a$$ount in th# $onstru$tion pro-#$ts.
Impact of Dispute and Delay in the Closing of Final Accounts
"h# rapid in$r#as# o! th# d#lay in th# $losing o! !inal a$$ount no(adays has gon# to th# point that it t#nds to d#$r#as# th# good imag# o! th# $onstru$tion industry in Malaysia. Malay Contra$tors Asso$iation 2200D5 r#%#als that som# $ontra$tors o(#d 7M 100 billion to 7M 200 million (ithin !our to !i%# y#ars, mostly in !inal paym#nts. "h#r# ar# #%#n $ontra$tors (ho ha%# to do l#asing :ournal o! South#ast Asian 7#s#ar$h 8
or loans (ith th# bank b#$aus# o! d#lay in paym#nt. 1#lay in paym#nt gi%#s bad impa$ts to $ontra$tors, #sp#$ially $ontra$tors (ith small $apital. C#sid#s, it also $r#at#s a n#gati%# $hain #!!#$t (ithin th# play#rs in th# $onstru$tion industri#s su$h as to suppli#rs, sub+$ontra$tors as (#ll as #nd us#rs. <robl#ms to s#ttl# th# !inal a$$ount (ill $r#at# !urth#r probl#m in $ash !lo( and !inan$# to th# $ontra$tor in t#rms o! obtaining o! $ash !lo( to p#r!orm oth#r $onstru$tion pro-#$ts.
Impa$ts o! d#lays in th# $losing o! !inal a$$ount also r#pr#s#nt an additional $ost to th# $ontra$tor (h#r# in ma-ority o! $as#s, th# #mploy#r is an0ious to kno( his ultimat# !inan$ial $ommitm#nt. "h# ar$hit#$t, #ngin##r or th# .uantity sur%#yor has a $ontra$tual r#sponsibility und#r th# $ontra$t to #nsur# th# dat# stipulat#d in th# $ontra$t !or $ompl#tion o! th# !inal a$$ount is a$hi#%#d, (hilst th# $ontra$tor should assist in gi%ing prompt pro%ision !or sub$ontra$tor;s and suppli#r;s a$$ounts by taking into a$$ount th# m#thod o! m#asur#m#nt and pri$#s bas#d on agr##m#nt as (#ll as pro%iding n#$#ssary supporting data.
It is not#(orthy to und#rpin that !inal paym#nt is in!lu#n$#d by th# pr#paration o! !inal $#rti!i$at#, or !inal paym#nt $#rti!i$at# as indi$at#d in som# $ontra$ts, (hi$h is a $on$lusi%# #%id#n$# o! all th# (orks that ha%# b##n $ompl#t#d in a$$ordan$# (ith th# $ontra$t (ith pro%ision as to th# !inal $ontra$t sum. "h#r# has b##n (rong!ul $on$#ption that th# $ontra$t administrator is oblig#d to automati$ally produ$# a !inal paym#nt $#rti!i$at# on his b#st kno(l#dg# (ithin th# sp#$i!i#d p#riod a!t#r issuan$# o! th# maint#nan$# $#rti!i$at#. Ind##d, th# la$k o! und#rstanding o! and att#ntion to th# signi!i$ant #0t#nt o! (orks in%ol%#d in th# a$hi#%#m#nt o! su$h !inal paym#nt $#rti!i$at# should b# th# origin o! probl#ms arising th#r#o!.
Murali and Soon 220065 ha%# id#nti!i#d th# !ollo(ing as th# ma-or impa$ts o! d#lay !a$ing by Malaysia $onstru$tion industry) tim# o%#rrun, $ost o%#rrun, disput#, arbitration, litigation and total abandonm#nt. "h# mistak#s and dis$r#pan$i#s in th# $ontra$t do$um#nt gi%# impa$t on $ost o%#rrun and subs#.u#ntly (ill a!!#$t th# pr#paration o! !inal a$$ounts. "h# id#nti!i$ation o! $aus#s and impa$ts alon# do#s not h#lp th# pro-#$t manag#rs to tak# appropriat# r#m#dial or pr#%#nti%# st#ps. "hus pro-#$t manag#rs o! $ontra$tor n##d to und#rstand !or #0ampl# (hat $aus#s d#lay in th# $losing o! !inal a$$ounts. 9n$# th# !a$tors b#$om# $l#ar, th# pro-#$t manag#rs $an tak# proa$ti%# st#ps to a%oid su$h situations.
In t#rm o! th# impa$t o! disput# in th# $losing o! !inal a$$ount, disput# (ill l#ad to th# us# o! arbitration (h#n no mutual d#$ision is a$hi#%#d in th# !inal a$$ounts $losing. In th# arbitration pro$#ss, it is $l#ar that th# disputants n##d an arbitrator (hilst an ind#p#nd#nt #0p#rt (ill a$t as th# d#$ision mak#r. "h# parti#s must agr## to th# appointm#nt and ar# bound by th# arbitrator;s d#$ision. *%#n so, th#r# ar# still $as#s o! d#lay#d paym#nt and non+paym#nt in arbitration i! not in th# $ourt (h#r# $ontra$tors ar# still !a$ing probl#ms in r#$#i%ing th#ir paym#nts. Arbitration and -udi$atur# pro$#ss not only $onsum#d mu$h tim# and mon#y but also $ould Pkill; th# busin#ss. As a $ontra$tor, (hat is th# most appropriat# a$tion to b# tak#n in s#$uring th#ir paym#nts (ithout #!!#$ting th#ir busin#ss and $ash !lo(H
In summary, it is $l#ar that th# pr#paration o! prop#r r#$ord in!ormation at #arly stag# should b# don# to a%oid th# probl#ms o! disput# and d#lay in $losing o! !inal a$$ount. Contra$t administrator should gi%# r#mind#r to all parti#s to k##p all th# r#$ords prop#rly. Cy doing this, it $an r#du$# and a%oid probl#ms in th# $losing o! !inal a$$ount a!t#r th# d#!#$t liability p#riod.
.n02ime Closing of Final Accounts
Constru$tion industry in Malaysia !a$#s many probl#ms, su$h as littl# $o+op#ration, limit#d ( :ournal o! South#ast Asian 7#s#ar$h
trust, di!!#r#nt o! opinion and in#!!#$ti%# $ommuni$ation r#sulting in an ad%#rsarial r#lationship among all pro-#$t stak#hold#rs 2Chan, 200'5. Su$h r#lationship pilots to pro-#$t d#lays, di!!i$ulty in r#sol%ing $laims, $ost o%#rrun, litigation and a (in+los# $limat# 2Moor#, Mosl#y and Slagl#, 13325. "h#r#!or#, i! th# abo%# probl#ms ar# not nipp#d in th# bud, th#n, th#s# issu#s (ill #s$alat# and $aus# !urth#r d#lay throughout th# $ours# o! th# $onstru$tion pro-#$t in$luding th# !inal a$$ount $losing stag#. As su$h, th# !inal a$$ountis protra$t#d and !r#.u#ntly th# d#lay#d and uns#ttl#d issu#s l#ad to disput#. <ursuant to Ca$$arini 213335 and Ghang and Mo# 220085, (h#n all th# !inal a$$ount o! !inan$ial transa$tionEdu#s ar# $ompl#t#d on+tim# at th# $losing or $ompl#ting phas# o! a pro-#$t, su$h pro-#$t satis!i#d th# #nd us#rs and all k#y stak#hold#rs 2in$luding $ontra$tors5. 9n th# oth#r hand, (h#n th# !inal a$$ount $losing is $ompl#t#d (ith a !inal paym#nt $#rti!i$at# issu#d by th# #ngin##r or .uantity sur%#yor (ithin th# $ontra$tual pr#s$rib#d tim#s$al#, th# $losing o! th# !inal a$$ount !or a parti$ular pro-#$t is $lassi!i#d as on tim# and satis!i#d 2Go, 20035. "h# $ontra$tor shall submit !ull parti$ulars $ompl#t# (ith supporting do$um#nts a!t#r th# issuan$# o! th# C#rti!i$at# o! <ra$ti$al Compl#tion !or th# !inal paym#nt.
Conclusions
A $onstru$tion pro-#$t is $onsid#r#d as su$$#ss!ul i! it is $ompl#t#d (ithout any issu# (ithin #stimat#d $ost, tim#, duration and pr#s$rib#d s$h#dul# on a m#thodology that r#.uir#s sound #ngin##ring -udgm#nt. A$$ording to Sh#net al. 220065, th# ob-#$ti%#s o! a $onstru$tion pro-#$t ar# to #nsur# th# !inan$ial a!!ordability to th# stak#hold#rs and $li#nts, $r#at# #mploym#nt opportuniti#s and $omp#titi%#n#ss as (#ll as maintain th# n##ds o! !utur# g#n#rations. Cli#nt or paymast#rs should pra$ti$# an #!!i$i#nt syst#m to mak# sur# that th# $ontra$tor r#$#i%#s th# paym#nt a$$ordingly. >#n$#, d#lays o! !inal a$$ounts $losing $an b# r#sol%#d at th# #arly stag# i! th# do$um#nts ar# k#pt prop#rly. 1#lay in th# $losing o! !inal a$$ounts may also $aus# probl#ms to $ontra$tor in making (orking $apital and #%#ntually l#ad to bankrupt$y. <#rsonal in $harg# in th# pro-#$t should b# maintain#d #sp#$ially th# pro-#$t manag#r until th# $losing o! !inal a$$ounts is $ompl#t#d. "hus, pro-#$t manag#rs n##d to ha%# b#tt#r und#rstanding o! $riti$al su$$#ssE!ailur# !a$tors in th# $onstru$tion pro-#$t and ho( to m#asur# th#m.
In g#n#ral, this pap#r has su$$#ss!ully r#%#al#d th# o! $omparisons o! !orms o! $ontra$t that ha%# b##n us#d in th# $onstru$tion industry in Malaysia. "his pap#r also id#nti!i#s th# $aus#s and impa$ts o! disput# and d#lay in th# $losing o! !inal a$$ount. It is anti$ipat#d that th# !inding r#port#d in this pap#r $ould assist th# planning o! !utur# strat#gi#s and guid#lin#s in #nsuring an on+tim# $losing o! !inal a$$ount in $onstru$tion pro-#$ts in Malaysia. In th# !utur#, through $omparati%# studi#s in oth#r asp#$ts, th# r#ason on (hy #a$h $hara$t#risti$ o! a $ontra$t !orm, and rol#s and r#sponsibiliti#s $ontra$t administrator ar# !orm#d in #nsuring th# on+tim# $losing o! !inal a$$ount in $onstru$tion pro-#$t shall b# pro%#n !rom th# %i#(points o! history, $ultur# and busin#ss pra$ti$#s.
Ac3nowledgements
"h# authors (ould lik# to #0pr#ss th#ir sin$#r# gratitud# to =ni%#rsity o! "#$hnology Malaysia !or pro%iding th# !inan$ial support !or this pap#r to b# publish#d. "h# authors ar# also %#ry grat#!ul to anonymous r#%i#(#rs !or th#ir %aluabl# $omm#nts to this pap#r. "his study is !inan$#d by th# @rant !or 7#s#ar$h =ni%#rsity 2@=<5 "i#r 1 o! th# =ni%#rsity o! "#$hnology Malaysia, :ohor !or r#s#ar$h !unding und#r Cost C#ntr# ?o. I.G.1'0000.6140.00>46.
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