LAM Stakeholder ProfFees PPF 2013

LAM AS STAKEHOLDER FOR
ARCHITECT’S PROFESSIONAL FEES
Ar Chan Seong Aun

PAM President 2013-14
M Arch (Distinction), B Arch (Hons), B Bdg Sc (VUW, NZ), FPAM, Amiid, AuIA(Hon)
Pertubuhan Akitek Malaysia

LAM AS STAKEHOLDER FOR
ARCHITECT’S FEES
Background
Moral & Ethical Issues
Legal & Contractual provisions
Statutory requirements
Way forward

BACKGROUND

VALUE OF CONSTRUCTION PROJECTS NATIONWIDE
Source : CIDB

BACKGROUND
June 2004. PM calls for replacement of

CFO by CCC
HBA questions independence of PSP in
issuing CCC
June 2005 BIPC agreed to proposal
Apr 2007 CCC introduced in UBBL
Aug 2007 LAM decided to implement fee
deposit
MORAL
ETHICAL
STUTATORY LEGAL
REQUIREMENTS CONTRACTURAL
ISSUES

MORAL & ETHICAL
ISSUES

Malpractices in Construction Industry
1. Imposing “pay-when-paid” conditions on Architects
in “un-written” appointment contracts. No payment
until bridging loan draw down.
2. Squeezing of Professional fees and still
demanding world class quality designs
3. Delayed payment of Architect’s Fees OR Non-
payment until sale of houses. Payment schedule
reduced at front end.
4. Appointing of Architect’s due to patronage
5. Novation of Architects to D&B Contractors &
Privatization Contracts.
6. Non-Professionals offering Architectural services
7. Franchising of Architectural Services – Selling of
signatures.
CIDB 2006 SURVEY ON PAYMENT TO CONTRACTORS

CIDB 2006 SURVEY ON PAYMENT TO CONSULTANTS

CIDB 2006 SURVEY ON TYPES OF PAYMENT PROBLEMS

CIDB 2006 SURVEY ON PAYMENT CONTRACTS

I WIN I WIN
YOU LOSE YOU WIN
Pay-if-paid
Pay-when-paid
Low Fees
Free Design Proposals
Open Competitions
No Payments
Lowest Fee Architect Full Fees

Franchise Service Partial Service STAR
Non-Professional Foreign Architect
Architects
Novation to D&B
Contractor
I LOSE I LOSE
YOU LOSE YOU WIN
BASIS FOR MORE EQUITABLE PAYMENT CONTRACTS
I WIN I WIN
SELF RESPECT YOU LOSE YOU WIN
Low Fees Scale Fees
Full Service Full Service
I LOSE I LOSE
YOU LOSE YOU WIN
Low Fees Full Fees
No(Franchise) Partial Service
Service
RESPECT FOR OTHERS

The only sustainable long term
Relationship is a Win Win
Relationship

Effects of “Deposit of Fees with LAM”
on Architects
“Pay-When-Paid” contracts become inoperable
Blatantly low Professional Fees will become clearly
within LAM to monitor
Architects will be paid upon completion of each
stage of their works
Architects novated to D&B Contractors will be paid
according to LAM schedule.
Non-Architects will find it more difficult to function as
all their payments would be through the Professional
Architect. They risk not being paid at all as they may
not be legally entitled to payment
Franchised Architectural services will have similar
problems Pertubuhan Akitek Malaysia
on Developers
 Developers will have to pay reasonable
Professional Fees and can then expect full & quality
services
 Professional fees are drawn from the Housing
Developer’s Account. This will only transfer the fees
from HDA account to LAM and not create any cash
flow issues for Developers.
 Developers will have less reason to employ Non-
Architects who provide incomplete services and
have no liabilities under law

DIFFERENT FORMS OF BACK-TO-BACK CONTRACTS
 Pay-when-paid
 Pay-if-paid
 Pay-when & if-paid
PAY-WHEN-PAID CLAUSES IN APPOINTMENTS NOT

ALLOWED UNDER CLAUSE 35 OF CIPAA
“Within 14 days of the receipt by the D&B Contractor of payment from
the Housing Developer Account against any certificate from the
architect, the D&B Contractor shall notify and pay to the Architect……”
“Professional Fees shall only be payable upon commencement of

construction works….”
“Professional fees shall commencement upon approval of the Financial

Institution releasing funding for the project….”
Effects of “Pay-When-Paid” & “Non-
payment of fees” on ARCHITECTS
 All rights under Rule 16 & 17 rendered ineffective if
there is no payment by the Employer
 Obligations and Liabilities however still remain
 Architect is contractually obliged to continue to work
even when there is no payment
 Architect continue to be liable for damages for
delays, no-completion and omissions under UBBL
and Housing Development Act

on House Buyers
 Independence of the certifying Architect no long in
question.
 Architects paid reasonable Professional Fees and
can then render full & quality services
 Developers will have less reason to employ Non-
Architects who provide incomplete services and
have no liabilities under law.
 Foreign Architect will have to register with LAM to
offer services in Malaysia or risk NOT being able to
collect fees

LEGAL & CONTRACTURAL
PROVISIONS

LEGAL PROVISIONS FOR LAM TO ACT AS STAKEHOLDER

•Architects Act 1967 –
•Clause 35
LAM
•Architects Act 1967 –
Clause 4(1)(ea)
•LAM as Stakeholder
•Architects Rules 1986

•Deposition of
Professional Fee with
LAM as Stakeholder
•Architects Rules 1986 - CLAUSE

FOR ENGAGEMENT

LEGAL PROVISIONS FOR LAM TO ACT AS STAKEHOLDER
• Clause 35 of Architects Act1967. No

changes required
• Architects Act 1967 – Clause 4(1)(ea)
• LAM Circulars used for enforcement of
the requirements (applicable initially to
only projects under the Housing
Development Act 1966)

Available recourse for NON-payment of
fees to Architect
1.Slow down or “SILENT” temporary suspension of

services. (Not legal)
2.Suspension of Works for non payment
under Rule 16(1)
3.Claim for payment through Adjudication
under CIPAA 2012
4.Termination of Agreement under Rule
17(1)

ARCHITECTS APPOINTMENT &
LEGAL PROVISIONS FOR “SILENT
CONSENT”.

SUSPENSION OF SERVICES FOR NON-
PAYMENT OF FEES

TERMINATION OF SERVICES FOR NON-
PAYMENT OF FEES

Rights & Obligations of Client and
Architect
LAM 2010 ARCH (SCALE OF MIN FEES) RULES

1. Rule 16(1) Suspension of services by Architect
upon non payment by Employer
2. Rule 17(1) Termination of Agreement by Architect
upon non payment by Employer
3. Rule 20 Copyright of Design remains with the
Architect
4. Rule 21(1) Client entitled to use design for
implementation of the project

RIGHTS OF CLIENT & ARCHITECT UPON
TERMINATION OF SERVICES
 COPYRIGHT OF DESIGN SHALL REMAIN

WITH THE ARCHITECT
 CLIENT ENTITLED TO USE DESIGN &
DOCUMENTS TO COMPLETE
CONSTRUCTION
 CLIENT ENTITLED TO USE DESIGN &
DOCUMENTS TO MAINTAIN, REPAIR,
RENEW, REINSTATE OR MODIFY
PROJECT
 ARCHITECT CANNOT WITHHOLD
DRAWINGS & DESIGNS FOR NON-
PAYMENT

PROPOSED INCLUSION OF EMPOWERING
CLAUSES IN ARCHITECTS ACT
 7A The Professional Architect before commencing any work shall
submit to Lembaga Akitek Malaysia a statement of the total amount
of fees estimated as payable to him together with the written
agreement of the client in respect of his remuneration for the
architectural services provided or to be provided by him.
 7B The client shall deposit with Lembaga Akitek Malaysia, who shall
act as stakeholder, a sum equivalent to 10% (Ten Percent) of the
fees payable to the Professional Architect as security deposit towards
the total amount of fees estimated as payable to the Professional
Architect for architectural services provided or to be provided by him.
 7C The Professional Architect shall be paid his fees according to the
Stakeholder Rules as set out in ...............

STATUTORY
REQUIREMENTS

ARCHITECT’S PAYMENT PROBLEMS
Entitlement to Payment
Procedures for Payment
Enforcement of Claims

Entitlement to Payment
 Entitlement under Contract – Architect must make a
claim first to be verified by Client before release by
LAM.
 Under statute – This is not available in Malaysia. In
USA, UK, Australia, NZ and Singapore claims can
be made under a Security of Payment Act.
(Effective from 1st April 2005 in Singapore) CIPAA
Malaysia 2012 does not have this
 The Malaysian CIPAA is still awaiting enforcement
(Construction Industry Payment & Adjudication Act)

Procedure for Fees Deposit with LAM
 LAM as stakeholder – LAM circular requiring
Architects to deposit fees
 Client-Architect appointment – This shall contain
clause for deposit of fees & empowering LAM to
collect fees for Architect
 Security Deposit 10% - This shall be deposit with
LAM as for above appointment agreement.
 Architect may start work – This shall commence
upon notification by LAM that fees had been
deposited.

Procedure for Fees Deposit with LAM
Full Basic Services, work shall be in accordance to the 4 Stages of
Work as outlined in the Architect’s (Scale of Minimum Fees) Rules
1986.
The 4 phases of Basic Services are as follows:

1. Schematic Design Phase – 15%
10% for Schematic Design
5% upon Submission for Planning Approval (Development
Order)
2. Design Development Phase – 30%

10% for Final Developed Design
15% for Submission for Building Plans Approval
5% upon Approval of Building Plans
3. Contract Documentation Phase – 25%
10% upon Completion of Working Drawings
10% upon Calling of Tender
5% upon Awarding of Tender
4. Contract Implementation and Management Phase –

30%
Option given for pro-rata of fees over the construction
period.

Flowchart for Fees Deposit with LAM
1 Client – Architect Agreement signed with stakeholder Clause Client/Architect

Client/Architects
Architect and Client to notify stakeholder (LAM) on the

appointment with particulars of fees including service tax Architect/LAM
2 if applicable and schedule of payment
LAM notifies Client to submit Security Deposit to them

3 LAM/Client
Upon receipt of Security Deposit, LAM notifies LAM/Architect

4 Architect and works can proceed

Architect upon completion of each agreed stage or
quantum of work obtains sign-off from Client, and
5 submits for the fees due to the Client. Sends copy
Architect/Client
of claim to LAM
Client deposits full Client fails to deposit full

Client/LAM
6a payment to LAM
within 28 days 6b payment to LAM within
stipulated 28 days
LAM issues LAM notifies Architect

7a payment due to
Architect within
7b that fees not deposited.
Architect entitled to
LAM/Architect
14 days suspend work or
terminate services and
charge interest for
outstanding payments

8 Architect to proceed with works to next stage Architect
Upon issuance of CCC, Architect to submit

9 claim for 95% fees due
Architect
Upon issuance of Certificate of Making Good

10 Defects, Architect to submit claim for 2.5% Architect
fees due
Upon final certificate, Architect to submit Architect

11 claim for 2.5% fees due

Upon project abandonment / termination,
12 Architect to submit final total fees due up to Architect
that stage or point of termination
If dispute, refer Client to deposit payment

13a to Adjudication 13b
with LAM within 28 days
and final payment made Architect /Client
OR Arbitration to Architect by LAM within
14 days. Balance, if any
to be released to Client

Mechanism for "Deposition of the Architect's
Fees with a Stakeholder"
1. Architects Fee deposited with Stakeholder - LAM

2. Architect-Client appointment agreement to include
clause for deposit of fees with stakeholder
3. Appointment Agreement sent to LAM to empower
LAM to act
4. Security Deposit 10% total fee to be deposit with LAM
before Architect can start work
5. Architect starts work upon receiving notification from
LAM that they have received Security Deposit.
Work shall be in accordance to the 4 Stages of Work
as outlined in the Architect’s (Scale of Minimum Fees)
Rules 1996
6. Upon completion of each stage of work as outlined
above, the Architect will obtain the sign-off from the
Client to confirm that the particular stage of work has
been completed and accepted. The Architect then
submits his bill to the Client and for the Client to make
the payment to LAM, within 30 days upon receipt of the
bill from the Architect.
7. Upon LAM receiving the money from the Client, LAM
will release the money to the Architect within 14 days.
8. In the event that the Client fails to make the payment
to LAM within the 30 days stipulated period, the
Architect is entitled to suspend work without prejudice
to his rights to terminate his services, and also to
charge interest for the outstanding payment

9. For check and balance, the current requisite stages
involving the Local Authorities will be tied into the
deposition and claims for fees schedule.
10. When and if changes are required at the request of
the Client after signing off, the Architect is entitled to
charge for the extra/additional work.
11. Upon the award of tender stage, where the initial
contract sum has been established, the Architect
must adjust the fees due to him and inform the client
and stakeholder accordingly.
12. In the event of prolongation of the work, the Architect
is entitled to charge an extra fee, whether on a lump-
sum or time basis, shall be agreed upon between
him and the Client. Procedure as per item 10 and 11
shall apply.
13. LAM will impose a levy (based on a sliding scale
percentage basis) for being the stakeholder to
ensure that all fees due to the Architect are paid.
14. The security of 10% deposited with LAM upon
commencement of work may be drawn down by the
Architect upon default by the Client and also to cover
LAM’s levy. Upon rectification of the Client’s default,
the security deposit is to be topped up again.
15. The deposition of the Architect’s fees through LAM
as the stakeholder is mandatory and will apply to all
projects under the Housing Development Act 1966.

Enforcement of Payment
Enforcement Based on Appointment Contract
 Suspension for Client’s failure to pay under Rule 16
 Termination for Client’s failure to pay under Rule 17
 Termination for Client’s improper or fraudulent
interference or obstruction of Architect’s duties under
UBBL or Housing Act under Rule 17
Enforcement Based on CIPAA

 As a judgment form Adjudication (or Arbitration) under
clause 12(6) of CIPAA.
 Suspension OR Slow down of works only after award
not paid under clause 29 of CIPAA
ALTERNATIVE DISPUTE RESOLUTIONS AVAILABLE

M’sia UK Aust USA S’pore
NZ Canada
CONTRACTURAL REMEDIES
Interest Yes Yes Yes
Suspension of works Yes Yes Yes Yes
ENFORCEMENT
Special Courts Yes
Arbitration Yes Yes Yes
Adjudication Yes Yes Yes
Mareva injunction Yes Yes Yes Yes Yes

SECURITY
Liens on Land Yes
Trusts Yes
Payment Bonds Yes

Mareva injunction
Court order preventing a defendant from
transferring assets until the outcome of the
associated law suit is decided. Named after 1975
UK case 'Mareva Compania Naviera S.A. vs.
International Bulk Carriers S.A.' Also called
freezing injunction, freezing order.

RIA
REGULATORY IMPACT
ANALYSIS
Source : MPC

Why Good Regulatory Practice (GRP)
• To address the gaps in the
management system for regulations;
• To standardise regulatory and rule-
making process with emphasis on
public consultation and measurement;
• Consistent with International
development on regulatory
coherence; and
• Recommendation by World Bank that
Malaysia to have GRP embedded in
its regulatory development process
54
Regulatory Impact Analysis (RIA)
• What : Regulatory Impact Analysis (RIA)
• The process of examining the likely impacts of
a proposed regulation and a range of alternative
options which could meet the government’s policy
objectives
• Why: RIA requirements are intended to achieve

better regulation by supporting:
i. Sound analysis
ii. Informed Decision Making
iii. Transparency
•55
Adequacy Criteria or
Elements of RIA
1. Identify the Problem or Issues
2. Explain the Objectives
3. Identify a Range of Alternative
Options (Regulatory and Non
Regulatory)
4. Provide Adequate Impact Analysis
(Cost, Benefits and Risks)
5. Describe How Consultation was
Conducted
6. Clearly State Conclusion and
Recommended Option
7. Provide Strategy to Implement and
Review
RIA ANALYSIS
RIA CRITERIA ANALYSIS
Problem or Issues Non & Late payment of Architect Fees

Independence of PSP in Question
Objectives Remove link of Professional Fees from the CCC issuance
Full Fees for Full Service
Alternative CCC issuance by another party
Advanced payment to Architect OR Security Deposit
Impact Analysis 1% Cost to Architects for Security of Payment
Transfer Fees from HD Account to LAM Stakeholder Acc
Consultation HBA in 2004
BIPC in 2005
Conclusion and Reduced risk of Independent & Transparent CCC
Recommended Issuance. Higher Trust & Professionalism
Strategy to Use existing provisions in Architects Act 1967
Implement LAM Circular for deposit of fees in Stakeholder Account
KNOCK-ON EFFECT OF PAY-WHEN-PAID & LAM
FEE DEPOSIT
Source : CIDB

WAY
FORWARD

MALAYSIAN CIPAA
Construction Industry Payment &
Adjudication Act 2012

SCOPE & APPLICATION OF CIPAA
2. This Act shall apply to every construction contract
made in writing that concerns construction work at an
identified site within the territory of Malaysia.
Government to be bound
3. Excluded are contracts by natural persons for buildings

less than 4 storey and for own occupation.
5. Payment claim by unpaid party to include

a.Amount claimed and due date
b.Cause of action
c.Description of works or service
d.Sate it is under CIPAA
6. (1)Party served notice shall serve payment response
(2)State amount disputed and reasons
(3)Response within 10 days
(4)No response means whole amount disputed
7. (1) Either party may refer dispute to adjudication.

(2) Refer to adjudication only after 10 days vis 6(3)
(3) Subject to limitations act and ordinances
8. Initiation of adjudication
9. Adjudication claim within 10 days
10. Adjudication response within 10 days
11. Adjudication reply within 5 days
12. (1) Adjudicator will conduct the adjudication according
to section 25
(2) Adjudicator to deliver decision according to
section 19(5) within 45 day
(3) Adjudication decision not with 45 days or extension
agreed shall be void
(4) Decision must be in writing with reasons
(5) Determine adjudicated amount
(6) Adjudicator to serve decision on both parties and
KLRCA Director
(7) Adjudicator may make corrections
(8) Enforcement not affected by any corrections
(9) Not subject to Evidence Act

13. Adjudication decision is binding unless:
(1)Set aside by High Court
(2)Settled by written agreement between parties
(3)Final decision by Arbitration OR Court
14. Consolidation of 2 or more adjudications

15. High Court can set aside adjudication decision
16. High court can stay adjudication decision
17. Claimant can withdraw claim but has to bear cost
18. Adjudicator makes decision on Costs to follow the
event
19. Adjudicator fees
20. Confidentiality of adjudication
21. Appointment of Adjudicator
22. Appointment of Adjudicator by parties
23. Appointment of Adjudicator Director KLRCA
24. Duties & Oblgations of Adjudicator
25. Powers of Adjudicator
26. Powers of Adjudicator not affected by non-
compliance
27. Jurisdiction of adjudicator
28. Enforcement of adjudication decision as
judgments by High Court
29. Suspend or slow down service if adjudication
decision as per 12(6) NOT complied
30. Direct payment by Principal
31. Concurrent remedies by winning party
32. Adjudication Authority KLRCA
33. Policy directions by Minister of Work
34. Immunity of Adjudicator & KLRCA
35 Prohibition of Conditional Payment

36. Default provisions in absence of terms of
payment.
2(a) Fees prescribed by relevant regulatory
board (LAM)
3(a) Monthly payment
4. Thirty days from receipt of invoice
37 Dispute may be referred concurrently to

Arbitration and Courts
38 Service of notice
39. Adjudication Regulations by Minister of
Works
40.Exemptions by Minister of Works
 Maintain right to terminate the contract for non-
payment (Architects Rules 1996 )
 Maintain the right to suspend works for non-
payment in all Appointment contracts
(Architects Rules 1996)
 Introduce Statutory right to suspend works
through CIPAA for non-payment (NOT after
adjudication award)
 Include right to interest for late payment in
Appointment contracts (Architects Rules 1996)
 Enactment of ‘CIPAA’ to ban ‘pay-if-paid’ and
similar clauses – under existing clause 35.
 Government Contracts to be included under
CIPAA – under existing clause 2
THANK YOU
chanseongaun@unifi.my

LAM Stakeholder ProfFees PPF 2013

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LAM AS STAKEHOLDER FOR

ARCHITECT’S PROFESSIONAL FEES

Ar Chan Seong Aun

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

June 2004. PM calls for replacement of

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Lowest Fee Architect Full Fees

RESPECT FOR OTHERS

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

PAY-WHEN-PAID CLAUSES IN APPOINTMENTS NOT

“Professional Fees shall only be payable upon commencement of

“Professional fees shall commencement upon approval of the Financial

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

•Architects Rules 1986

•Architects Rules 1986 - CLAUSE

Pertubuhan Akitek Malaysia

• Clause 35 of Architects Act1967. No

Pertubuhan Akitek Malaysia

1.Slow down or “SILENT” temporary suspension of

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

LAM 2010 ARCH (SCALE OF MIN FEES) RULES

Pertubuhan Akitek Malaysia

 COPYRIGHT OF DESIGN SHALL REMAIN

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

Pertubuhan Akitek Malaysia

The 4 phases of Basic Services are as follows:

2. Design Development Phase – 30%

4. Contract Implementation and Management Phase –

Pertubuhan Akitek Malaysia

1 Client – Architect Agreement signed with stakeholder Clause Client/Architect

Architect and Client to notify stakeholder (LAM) on the

LAM notifies Client to submit Security Deposit to them

Upon receipt of Security Deposit, LAM notifies LAM/Architect

Pertubuhan Akitek Malaysia

Client deposits full Client fails to deposit full

LAM issues LAM notifies Architect

Pertubuhan Akitek Malaysia

Upon issuance of CCC, Architect to submit

Upon issuance of Certificate of Making Good

Upon final certificate, Architect to submit Architect

Pertubuhan Akitek Malaysia

If dispute, refer Client to deposit payment

Pertubuhan Akitek Malaysia

1. Architects Fee deposited with Stakeholder - LAM

Pertubuhan Akitek Malaysia