Vol 20, No.

2;Feb 2013

Toward Sustainability in Construction Industry: The

Important of Final Account Closing Satisfaction

Zarabizan Zakaria1, Syuhaida Ismail1, Aminah Md Yusof2

1
RAZAK School of Engineering and Advanced Technology, University of Technology Malaysia,
54100 Kuala Lumpur, Malaysia
2
Faculty of Civil Engineering, University of Technology Malaysia, 81310 UTM, Johor, Malaysia
Tel: +6013 343 4949 E-mail: zarabizan2@live.utm.my

The research is financed by: Grant for Research University (GUP) of the University of
Technology Malaysia, Johor for research funding under Cost
Centre No. Q.K.130000.7140.00H47.
Abstract
Construction industry is one of the major pillars of the economy in Malaysia. The more
cross-boundary co-operation on economic activities implies heavier demands on new transportation
and infrastructure developments. As the sustainability awareness rises globally, the construction
industry is under increasing pressure to improve its efficiency of project delivery. The issue of
sustainability continues to grow due to its relationship with overall quality of life in terms of economic,
social and environmental of well-being. Therefore, satisfaction approach is needed in order to achieve
sustainability in the construction so that the project expenditure will be within the allocated budget and
given timeline. The sustainable developments are considered to be a means to improve the
effectiveness of closing the final accounts. Final account in construction contracts is defined as the
agreed statement of the amount of money to be paid at the end of a project contract by the owner to the
contractor. Hence, the aim of this paper is to demonstrate the influence of final account closing
satisfaction approach in achieving sustainability in the construction industry in Malaysia. This aim can
be achieved via its objective in identifying the important attribute factors that can clearly distinguish
between claims of the contractors and the employer. This paper can serve as a tool to achieve
sustainability in construction projects through proper planning and understanding of strategies in term
of value for money and other social considerations. Based on the results of the survey, this paper
anticipates that pattern will emerge in form of the key performance indicators which measure project
sustainability via final account closing satisfaction. The causal final account closing satisfaction, once
identified, will be a useful piece of information to successfully implement a construction project. It is
anticipated that the finding reported in this paper could assist the planning of future strategies and
guidelines for the betterment of construction projects in Malaysia
Keywords: Sustainability, construction industry, construction contract, final account closing

1. Introduction

Construction industry enabled mankind to meet their social needs for shelter, to meet economic
needs for investment and to satisfy corporate objectives. It changes people’s lifestyle, improves
people’s standard of living and modernised a community. The construction industry is regarded as an
essential and highly visible contributor to the process of growth of one country. Nevertheless, the
adverse impacts to the environment lead to a growing realisation and acceptance throughout the world

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that there is a need for a more responsible approach to the environment. A strategy for sustainable
construction is a significant milestone on the road to a more socially and environmentally responsible.
It creates a framework within which the industry can make a strong contribution to the better future.

In Malaysia, there are several types of Standard Form of Contract available to be used in
construction, such as Public Work Department 203A (PWD 203A), Pertubuhan Akitek Malaysia
(PAM), International Federation of Consulting Engineers (FIDIC), Construction Industry Development
Board Malaysia (CIDB) and The Institute of Engineer Malaysia ( IEM) as shown in Table 1. The PWD
forms of contract are the standard forms of contract used by the Malaysian public sector. In fact, this
has been in recent years increasing usage of the PWD forms with amendments by the private sector as
well, especially in civil engineering construction (Fong, 2004). However, the PAM, CIDB and IEM
standard form of contract was very widely used in the private sector.

Table 1: Forms of contract in Malaysia

Forms of Contracts (FOC) Application
Public Works Department (PWD) For government projects
(Building and civil engineering works)
203A (Rev.10/83) Bills of Quantities form part of the contract
203 (Rev.10/83) Without Bills of Quantities
Pertubuhan Akitek Malaysia (PAM) For private building works
2006 Originated from JCT 63, United Kingdom
International Federation of For international projects
Consulting Engineers (FIDIC)
Construction Industry Development For building works for both government and
Board Malaysia (CIDB) 2000 private projects
The Institute of Engineer Malaysia For private building works
IEM.CE 2011
Source: Zarabizan et al. (2012)

Building sustainably has many merits but applying this concept is not easy as it requires changes to
the old ways. Delivering sustainable construction requires action from all engaged in constructing and
maintaining the structure or building including those providing design, consulting and construction
services (Bartlett, 2000). To increase the consideration to sustainability, the construction practitioners
must be willing to change their behaviour in exploring new territory and willing to adopt new products,
ideas and practices (Ofori et al., 2000). Because of the merits and the growing interest on building
sustainably, the race is now on for researchers and construction practitioners worldwide to put their
best foot forward and initiate actions to reduce the negative impacts of development and sharpen their
competitive edge. As global interest on sustainability has steadily blooming, Malaysia should not fell
short in its attitude on sustainability and sustainable construction. Malaysia needs to demonstrate that it
can abide by this new interest and can compete in the global market. Therefore, this paper will
revealed and discussed about sustainable development and also identifying the most critical factors of
causing delay in construction project. Subsequently is to reveal the important issues of closing the final
account in achieving the sustainable development in construction industry.

2. Sustainable Development in Construction Industry

Sustainable construction could be defined as "the creation and responsible management of a

healthy built environment based on resource efficient and ecological principles" (Hui, 2002).

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Sustainable construction is generally used to describe the application of sustainable development to the
construction industry. The construction industry is defined as all who produce, develop, plan, design,
build, alter, or maintain the built environment, and includes building material suppliers and
manufacturers as well as clients, end users and occupiers. Therefore, sustainable construction could be
best described as a subset of sustainable development, which encircles matters such as tendering, site
planning and organisation, material selection, recycling, and waste minimisation (Langston, 2001).
Meanwhile, Shen et al. (2007) believe that amongst the objectives of a construction project are to
ensure the financial affordability to the stakeholders and clients, employment opportunities,
competitiveness, and maintain the needs of future generations.

Construction projects and contracts are of course already subject to certain sustainability provisions.
The government has introduced a number of legislative provisions, forms of contract, procedure,
(some of which are mandatory some of which are voluntary) which fall within the sustainability
umbrella. This will continue as the government is committed to improving resource efficiency and
sustainability as part of its drive to address climate change. Construction practitioners worldwide are
beginning to appreciate sustainability and acknowledge the advantages of building sustainable. Bartlett
& Howard (2000) and Pettifer (2004), who added that sustainable buildings will contribute positively
to better quality of life, work efficiency and healthy work environment.

On the other hand, delay in completion of the project will have an impact in the pursuit of
sustainable developments. Delays give rise to disruption of work and loss of productivity, late
completion of project, increased time related costs, and third party claims and abandonment or
termination of contract. The effect of this delay will affect the quality of life and also the closing of
final account. It is very rare to see that a construction project is completed on time (Arditi, 1985;
Baldwin, 1971; Oglesby, 1989 and Vidogah, 1989). Hence, the sustainable developments are
considered to be a means to improve the effectiveness of closing the final accounts by mean of
evaluate the benefits and costs of the project to society and environmental (Zainul & Pasquire, 2007).

Based on the literature review, six major effects of delay in construction projects contribute to the
sustainability development and closing final account included time overrun, cost overrun, dispute,
arbitration, total abandonment, and litigation were identified (Abedi et. al., 2011). This issues being
raised will affect the quality of life such as additional time is needed, the use of human energy
inefficient, waste materials and also have an impact on the environment upon the occurrences total
abandonment project. These major effects are shown in the below fish bone diagram in Figure 1.

Fig. 1. Fish-bone diagram of six effects of the construction delay

Time Cost Overrun Disputes

Overrun

Construction
Delay

Litigation Arbitration Total

Abandonment

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Therefore, when the completion time of the construction project exceeds the agreed completion
time, it is known as construction project delay. The causes of project delays fluctuate according to and
due to the faults and weaknesses of the owner and the contractor. It is needed to conduct detailed
investigation and identification of delay factors and then selecting the right actions to counter theses
delay factors within cost and maintaining quality (Arditi, 1985; Assaf, 1995; Baldwin, 1971; Oglesby,
1989 and Vidogah, 1997). The faults and errors due to the contractor cause delays and waste of capital
and time (Ahmad et. al., 2002). Shortage and incompetent workers and employees are due to the
imprecise staff projections (Mansfield et. al., 1994). Delay can occur due to the incapability of the
contractor of project and properly use the capital.

3. Final Accounts in Construction Industry

The rapid increase of the late payment issues nowadays has gone to the point that it tends to
decrease the good image of construction industry in Malaysia. Malay Contractors Association who
once revealed that some contractors are owed RM 100 million to RM 200 million for four to five
years, mostly on final payments (Utusan Malaysia, 2006).

Thus, final account closing satisfaction is considered as favourable if that final account was
achieved on time, i.e. within the prescribed time frame, otherwise it is considered as adverse if it was
achieved beyond the prescribed time frame. Most of the final account thereof was settled without delay.
Yet, the majority of construction projects failed to manage this and frequently suffered delays in
settling the final account. With respect, effective and efficient closing of construction final account is
increasingly of the utmost importance to, in particular, the contractor who is desirous to achieve
project satisfaction or success.

Consequently, there are even contractors who have to do leasing or loans with bank because of late
payment. Late payment gives bad impacts to contractors, especially contractors with small capital
(Zarabizan et al. 2012). Not only that, it also creates a negative chain effect within the players in the
construction industries such as to suppliers, sub-contractors and end users as well. The contractors
cannot sustainable in business if they do not receive the payment. The causes and impacts of dispute
and delay in the closing of final account are summarised in Table 2.

Table 2: Cause and impacts of dispute and delay in the closing of final account
Impacts of dispute and delay caused by
Contractor Management’s Matters Contractual Matters
Errors in submission Longer time to certify the
Enforcement
claims claim
Disagreement valuation of Finalisation of the
Unethically employees
works variation orders (VO)
Records are not kept well Rationalisation of rates Maintenance period
Person in charge is retired Understanding the
Inadequate experience
or transferred processes and ruled
Source: Zarabizan et al. (2012)

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Abdullah (2006) in his statement as Prime Minister of Malaysia in a statement dated 6 October
2006 believed that complaints relating payment to contractors and suppliers tends to give negative
perception that the implementation of the 9th Malaysia Plan is moving at a slow pace. This shows the
seriousness of the problems because it is related to the image of Malaysia’s construction industry. This
paper is important in determining the steps contractors could take in ensuring their payment is received
on time, without compromising their business. In this paper, the comparison and what is the meant
claims of the contractors and employer which is the factors contributing to the success of sustainable
development will be discussed in the next sub topic. The relationship to achieve the satisfaction of the
final accounts and sustainable development can be summed in Figure 2.

Fig. 2. The relationship between the final accounts and sustainability development
(Source: Zarabizan et al. 2012)

SUSTAINABLE DEVELOPMENT
Final account settled
without delay Final Account Closing Success

Within the prescribed

time frame Without
dispute, delay
Within allocation and legal
budget issue

Records are properly

kept e.g. VO

3.1 Claims of the Contractor

The contractor’s duties are to deliver the project to the client’s requirements that is to the brief,
budget and to programme. The contractor will subcontract various parts of the construction works, and
will be responsible for their performance, and will co-ordinate the work of all the subcontractors
accordingly. They are also responsible for health and safety on site and ensuring that all persons on site
are aware of their responsibilities.Therefore, a contractor can only claim loss and expense based on site
conditions if there is a particular provision of the contract that provides this. The fact that an
unexpected difficulties have been encountered or work is proving more expensive does not generally
entitle the contractor to be compensated.

In the certain situation, the contractor to prove that direct loss and expense has been incurred. The
loss may arise from one of the variations; instructions in relation to postponement of work; expenditure
of provisional sums specified in the contract document; discrepancy or diversions between contract
drawings; suspension of works due to default in payment and diversions where the quantity is different
to an approximate quantity.

Hence, there are certain procedural aspects in relation to claims. The procedure for making the
claim is set out in forms of contract. The application must made to the contract administrator who
decides if the claim is founded and ascertains the amount so incurred. The nature of the loss or expense
can cover out of pocket expenses for loss or loss of profit. There may be immediate costs and head
office overheads and profits.

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3.2 Claims of the Employer

The main roles of the employer are to have a full understanding of the project, and to be able to
communicate this to the project manager and design team. The employer will co-ordinate user input,
assist with preparing the project brief, control changes and risk. Manage the project budget and
programme, secure professional services as required, determine the procurement route, manage
reporting arrangements and provide a focal point for all employer contact with the supply team.
Therefore, the employer can only claimed to ensure that the contractor can complete the project within
the specified time frame, quality, scope and specified allocation budget. The factors can be consider as
a references in the claim of the employer in avoiding the delay which is a client’s type, individuality,
experience, financial status, awareness, organization, construction complexity, confidence, extent and
risk dealing (Chan and Kumaraswary, 1997). Therefore, employer must be mentally and financially
strong for starting a new project due to which we can reduce delay in projects.

4. Conclusion

Through this paper some conclusions have been identified. Whereas, construction project is
commonly acknowledged as successful and sustainable when the aim of the project is achieved in
terms of predetermined objectives that are mainly completed the project on time, within budget and
specified quality in accordance with the specifications and to stakeholders’ satisfaction. One of the
most important problems that may arise in the construction project is delays and the magnitude of
these delays varies considerably from project to project. For reducing delay managerial and technical
staff should be acquired for site management and supervision. It is necessary to include skilled and
experienced workers in staff because of them the performance of work is improved. For completion of
project it is necessary that client must be fait on contractor and consultant. Whilst, the most important
when the final accounts can be closed successfully, its effects there is no wastage of manpower,
abandoned projects, waste building materials that contribute to pollution.

In general, this paper has successfully revealed the meaning of sustainable development to the
construction industry in Malaysia. This paper also reveals the causes of dispute and delay that will
influence the closing of final account process. Hence, the concept of sustainable development together
with final account success will be achieved if the cooperation and understanding between players in
construction are formed. Therefore, in order to achieve sustainable development, the issues raised
above need to be addressed with good intelligent and orderly manner by the construction players. We
believe that the information of this paper can be immense help the construction players (clients,
contractors and consultants) and academicians. In the future, through comparative studies in other
aspects, the reason on why each characteristic of a contract form, and roles and responsibilities
contract administrator are formed in ensuring the sustainable on-time closing of final account in
construction project shall be proven from the viewpoints of use new machinery and training process.

5. Acknowledgement

The authors would like to express their sincere gratitude to University of Technology Malaysia for
providing the financial support for this paper to publish. Many thanks to Public Works Department
Malaysia, Construction Industry Development Board Malaysia (CIDB), consultant and contractors
who kindly participate the short discussions and interviews. The authors are also very grateful to
anonymous reviewers for their valuable comments to this paper. The study is financed by the Grant for
Research University (GUP) of the University of Technology Malaysia, Johor for research funding
under Cost Centre No. Q.K.130000.7140.00H47.

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