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SCHOOL OF ARCHITECTURE BUILDING DESIGN

Centre for Modern Architecture Studies in Southeast Asia

Bachelor of Quantity Surveying (Honours)


PROFESSIONAL PRACTICE 2 [QSB 3614]

Lecture P1 CONSTRUCTION DISPUTES with Interim Certificates

The issuance of Interim Payment Certificates is provided for in most building contracts
and its nature is as follows;

1. Interim Certificates are issued periodically during the contract, certifying the sum
that, in the architects opinion are the works that have been properly carried
which includes materials and goods delivered to site.

2. Interim Certificates are approximate estimates, made for the purpose of


determining whether it is safe for the employer in making a payment in advance
of the contract sum.

3. Such certificates are normally not binding upon the parties to the contract as to
the quality or sum. They are like provisional payments and does not confirmed
finality. These are subjected to adjustment on completion.

Problems with Interim Certificates

1.0 Disputes arising in the event architect withhold issuance of interim certificate.

1.1 Clause 30.1 expressly states that the architect shall issue an interim
certificate within 21 days after the contractor has submitted an application
for payment.

1.2 The same clause also stated clearly that failure by the contractor to submit
an application shall be deemed to mean that he has waived his
entitlement for the payment for that month. In this case, the architect may
still exercise his discretion to issue an interim certificate.

The phrase shall be deemed was recently construed by the High Court in
Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd (2008) 7 MLJ 757 as
follows: the word deem is an indispensable word in its legal sense of
assuming something to be a fact which may or may not be one.

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1.3 The Employer has an obligation to pay the contractor within the period of
honouring certificate, usually within 21 days after the issuance of the
certificate.

1.4 However, Clause 30.0 does not make any specific provision in the event
that the Architect fails to issue an interim certificate or fail to issue at the
proper time.

1.5 The contractor cannot terminate his own employment under clause 26.0
because the default of the architect is not stated as one the reasons for
determination.

1.6 However, clause 34.5 entitles the contractor to refer the disputes
arbitration on claims of withholding of any certificates by the architect to
which the contractor claimed to be entitled to.

1.7 If the architect fails to issue an interim certificate, without reasonable


cause, he may be liable to be sued for breach of duty under common law.
Alternatively, being an employee of the Employer, the Employer may also
be liable for the architects default.

2.0 Disputes arising from an incorrect sum certified in the interim certificate.

2.1 It is industry practice to have monthly joint valuation on site between the
consulting QS, contractor and Clerk of Works to agree on the certified sum
in the interim certificate. However, sometimes this sum may not be the
sum expected by the contractor although the certified sum is a matter to
be determined by the architect and quantity surveyor.

2.2 Clause 30.0 provides for works to be included in the interim certificate and
some works are subjected to retention and set-off, while others are not.
Sometime, architects and quantity surveyors may make errors. Even if the
interim certificate is issued not in accordance with the Conditions, it is not
subject to immediate arbitration.

Common problems in Interim Certificates

1. The act of its issuance


2. Under-valuation
3. Under-certification
4. Non-payment
5. Errors
6. Late issuance

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1) The act of its issuance

Under clause 30.1, the architect is obliged to issue an interim certificate if the following
pre-conditions are present:

a. The architect must have received the contractors application for interim payment
at the specific time with sufficient details.

b. The architect have received the interim payment valuation carried out and
recommended by the quantity surveyor.

If the above two conditions are present, then the architect must issue the interim
certificate within 21 days of receipt of the contractors application. Failure to issue the
interim certificate by the architect within 21 days may amount to a breach of duty by the
architect.

For an interim certificate to have contractual and legal effect, it must be issued in strict
compliance with the Conditions of Contract. It must be signed and delivered officially to
the registered office of the contractor.

In the case of London Borough of Camden v Thomas Mclnerney (1986), the court held
that although the architect signed the certificate, but it was never send out because of a
subsequent inspection which revealed defective work. Therefore, an interim certificate
must be officially delivered to the registered address of the contractor for his entitlement
to payment.

2) Under-valuation

a) After the Architect had signed and delivered the interim certificate to the
contractor, the contractor is entitled to full payment stated in the interim certificate.
The employer cannot deduct any contra-payment, he may have against the
contractor which are not in accordance with clause 30.4.

b) Employers failure to pay in full is a breach of contract and therefore contractor


can:-
i) Sue employer to recover the debt; or
ii) Change interest until the debt is settle (clause 30.17)

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c) Court case : Leow Tuck Chui v. Dr. Leela Medical centre

i) The medical centre delayed payment and deduct cross-claim for alleged
defective works

ii) It was held by the court that:-


Employer has to honour certified amount despite employers cross-claim
for defective works. Contractor has right to full payment in absence of
provision for deductable.
There was no provision for deduction by employer (PAM 1996)
Employers cross-claim could still go arbitration or to litigation even after
payment.

3) Under-certification

The Architect shall certified total value of works properly executed in the Interim
Certificate. He should advise the Quantity Surveyor, if in his opinion that certain
works executed does not comply with the specifications or are rejected for whatever
reasons. The value of such works shall be excluded for the payment certification.

Sometimes contractor alleged that the architect has under-certified his interim
certificate by failing to pay the sum for the works carried out. There are limited
remedies for under-certification

Under clause 34.0, the Employer and the contractor have access to Adjudication or
Arbitration for review of set-off disputes in interim certificate.

The contractor may have a direct remedy against the Employer if the certification
process has broken down entirely:

i. When the architect has died

ii. Where the architect refused to act and the employer fails to replace him, or

iii. When there is evidence that the employer was interfering or influencing the
certification process.

iv. In the case of Ling Heng Toh Co. v Borneo Development Corporation (1973),
the court held that there was no fraud or collusion or interference by the
employer. So the payment is valid.

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Contractors remedies under common law for under-certification are limited due to
the fact that an interim certificate does not confer finality by itself and can be
corrected in subsequent certificate.

4) Non Payment

Failure to pay the interim certificate within the period of honouring certificates by the
employer, without reasonable cause, constitutes a serious breach of contract.

a) Remedies available to contractor are:

i) He can suspend execution of the works, until such time payment is made
(clause 30.7)

ii) He can claim interest on the unpaid amount (clause 30.17)

iii) If non-payment persists, contractor may terminate his own employment


(clause 26.1(a)).

In Court case: Kah Seng Construction Son Bhd v Selsin Development Sdn Bhd
(1997), it was held by the court that:-

(1) The contractor should suspend execution of the works completely and not
slow down.

(2) This is to emphasize that the process of the payment has broken down.

(3) Where the employer fails to honour a single certificate or a number of


certificates which either individually or cumulatively do not constitute an
absolute refusal on his part of the contract, it is not considered to be a
fundamental breach of contract entitling the contractor to repudiate the
contract.

5) Errors in interim certificate

Clause 30.3:- expressly empowers the architect to revise or correct any payment
certificates only if there are:-

i) Clerical error, or

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ii) Computational error, or

iii) Typographical error, or

iv) Errors of similar nature.

The correction of the errors or putting them right may be carried out in the
subsequent certificate. The timing of the correction is at the discretion of the
architect. In the event of major errors, the architect may replace the certificate issued.

Clause 30.3 provides that except for clerical, computational or typographical errors,
the architect is not entitled to revise or correct any payment certificate issued by him
under the contract.

In the court case of Anwar Siraj v Teo Hee Lai (2007), it was held by the court that
errors could be corrected at any time before the final account/ certificate.

If the Architect discovers any error in the certificate, which is not a clerical,
computational, or typographical error, he may make any necessary correction in a
later certificate. This is consistent with Lubenham v South Pembrokeshire District
Council 33 BLR 39 where the court found that the contractor was wrong when he
suspended work when the architect failed to amend an obvious error in the interim
certificate. The court said that: the proper remedy of the contractor was to request
the architect to make an appropriate adjustment in another certificate

6) Late issuance

Clause 30.1 requires the Architect to issue an Interim Certificate within 21 Days from
the receipt of the Contractors application. If the Architect takes more than 21 Days
to send out the Interim Certificates, then the Architect would have breached the time
stated in the Contract.

In the case of Temloc v Enrill Properties 39 BLR 39, it was held that the time stated
is only directory, and further; as the Employer can still make payment to the
Contractor within the Period of Honouring Certificate less the extra days that the
Architect took in issuing the certificate, the Contractor would have suffered no loss,
so breach is of no consequences.

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