This article is the third in our series discussing the impact of the Movement Control Order (“MCO”) on building projects in Malaysia.
In this piece, we look at several frequently asked questions (“FAQs”) from the perspective of the Standard Form of Building Contracts (2019 Edition) issued by the Asian International Arbitration Centre (AIAC SFC).
FAQ (1): Does the MCO entitle the Contractor to an Extension of Time (EOT) under the AIAC SFC?
Yes. The Contractor is entitled to an EOT if Covid-19 is considered one of the “Time Impact Events” under Clause 23.8, provided the mechanisms for an EOT application are properly followed.
FAQ (2): Which “Relevant Event” under the PAM Conditions applies to the MCO?
There are several. The “Time Impact Events” under AIAC SFC are divided into two categories:
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Non-Employer’s Events under Clause 23.8(b)
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Employer’s Events under Clause 23.8(c)**
(a) Clause 23.8(b)(i): Force Majeure
Article 9.34 defines “force majeure” as an exceptional event or circumstance that:
(a) is beyond a party’s control,
(b) could not reasonably have been provided against before entering the contract,
(c) could not reasonably have been avoided or overcome, and
(d) is not substantially attributable to the other party.
Covid-19 satisfies these conditions. The pandemic and the resulting MCO were beyond the Contractor’s control and could not reasonably have been foreseen. The Contractor had to comply with government directives and thus could not avoid or overcome the situation.
Therefore, where the MCO delays work progress, the Contractor is entitled to an EOT under Clause 23.8(b)(i).
However, for contracts negotiated after Covid-19 was declared a pandemic by the World Health Organization (WHO), it may be argued that the Contractor should reasonably foresee such risks. In that case, the MCO may no longer qualify as a force majeure event.
(b) Clause 23.8(b)(iv): Delay by Nominated Sub-Contractors or Nominated Suppliers
Clause 19.6 of the AIAC Standard Form of Building Sub-Contract provides that Sub-Contractors may also claim EOT for “Time Impact Events”. If Nominated Sub-Contractors or Suppliers are delayed by the MCO, the main Contractor may claim a corresponding EOT under Clause 23.8(b)(iv).
(c) Clause 23.8(b)(vii): Unforeseeable Change in Law
The Prevention and Control of Infectious Diseases (Measures within the Infected Local Areas) Regulations 2020 (the “PCID Regulations”) introduced the MCO from 18 March 2020. The subsequent extensions were also unforeseeable.
As these regulations could not reasonably have been foreseen by an experienced contractor at the time of tender, the introduction and extension of the MCO qualify as an unforeseeable change in law. Therefore, the Contractor is entitled to an EOT under Clause 23.8(b)(vii).
(d) Clause 23.8(b)(viii): Delay Caused by Appropriate Authority
The MCO implemented by the Ministry of Works and other authorities caused site closures, labour restrictions, and supply chain disruption.
Where the Contractor has complied with the MCO, could not have foreseen it, and the delay is not due to the Contractor’s fault, the Contractor is entitled to an EOT under Clause 23.8(b)(viii).
(e) Clause 23.8(b)(ix): Lockout
The MCO can be seen as a “lockout” affecting the performance of construction works.
If the Contractor is not responsible for the lockdown and cannot control it, an EOT claim may be made under Clause 23.8(b)(ix).
Only “critical works” (those that prevent harm to people, the public, or the environment) are allowed to continue during the MCO.
Exemptions may be granted by project directors or resident engineers for specific cases.
(f) Clause 23.8(c)(xiv): Suspension by Appropriate Authority
The MCO is effectively a suspension order by the Government of Malaysia to prevent the spread of Covid-19.
Since it was not caused by any negligence or breach by the Contractor, the Contractor is entitled to an EOT under Clause 23.8(c)(xiv).
FAQ (3): What must the Contractor do to claim the EOT?
Two main requirements apply — notification and particulars.
Under Clause 23.1(b), the Contractor must notify the Employer within 28 days of becoming aware (or when they should have been aware) of the MCO, stating their intention to claim an EOT.
Under Clause 23.1(c), the Contractor must then submit the full particulars and substantiation within 28 days after the MCO is lifted, showing how the MCO affected work progress.
FAQ (4): Can the Contractor claim loss and expense arising from the MCO?
Not all delaying events entitle the Contractor to claim loss and expense. Under Clause 24.1, only delays that materially affect work progress due to a suspension order by an Appropriate Authority (Clause 23.8(c)(xiv)) allow such a claim.
The Contractor must also comply with the procedures set out in Clause 24.1(a)(i)–(iv).
Contractors are therefore advised to exercise prudent cost control throughout the MCO period.
This joint publication is contributed by:
Foo Joon Liang FCIArb
Partner, Gan Partnership
E: joonliang@ganlaw.my
Grace Chaw MCIArb
Partner, Grace Chaw & Co
E: lawyer@gracechaw.com
Kaylee Tan Jin Yee
Associate, Gan Partnership
E: kaylee@ganlaw.my
Disclaimer:
This article is for general information only and should not be relied upon as legal advice. For further enquiries, please contact Foo Joon Liang (joonliang@ganlaw.my) or Grace Chaw (lawyer@gracechaw.com).
