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Forum Home > Conditions of Contract issues > Regarding payment certificate

David Yong
Member
Posts: 8

Hi,

I just want to ask, if a contract is worth RM100million, and the contractor has submitted a claim. After doing site valuation, it was found that there are some defect works and minimal progress of work. The Architect and Engineer have informed the contractor to rectify but contractor never do it for few months.

So, some deductions for not doing rectification have been made in the claim, and minimal work progress.At the end, the claim only has minimal amount due to contractor, let's say approximate RM900-RM1500.00.

As a QS consultant, do we still have to issue certificate of payment or just a formal letter? In PAM, i think we still have to issue certificate. Please correct me if im wrong. If formal letter only, based on which contract clause?

Another question is, after making deductions, if the amount due is negative, do we still have to issue the certificate with negative amount or just a formal letter? What if the contractor insist to have the certificate of negative amount? How do we inform the contractor and based on which clause or what basis?

Thank you.

May 10, 2012 at 9:57 AM Flag Quote & Reply

Sr Samuel Chong
Member
Posts: 98

Under JKR 203 form of contract Clause 47a, the SO has to make a fair valuation of the works each month.

Clause 47b says that Interim Certificate  shall be issued following the Valuation done in 47a subject to condition of minimum claim amount stated in Clause 47a's Appendix.

 

So, Valuation need to be done monthly, followed by interim payment certificate based on the Valuation if it complies with the minimum payment amount stated in 47a's Appendix.

If minimum payment amount not complied, just do a letter explaining the problem and attach the Valuation as support document.  The letter may not be mentioned in the conditions but the Valuation is.

Valuation = calculation details of work done by contractor including materials, etc and whatever deductions made.

A negative amount definitely is less than the stated minimum payment amount for payment in the Clause 47a's Appendix - hence no interim certificate need to be issued.

Valuation need to be done / given regardless whether Interim Certificate is issued or not.  You better give a cover letter to explain why you're not issuing the interim certificate even though not mentioned by Conditions.


May 11, 2012 at 6:00 AM Flag Quote & Reply

FARID SAUFI
Member
Posts: 2

Dear Sr Sam,

Appreciate if you can give your professional advise regarding the position of NCR in a way of a mechanism of deduction in any payment? Does the NCR has a contractual implication to the payment certification?


Thank you in advance.

March 27, 2013 at 12:06 AM Flag Quote & Reply

Sr Samuel Chong
Member
Posts: 98

Does NCR have contractual implication to payment certification ?

 

There may be differences between various conditions of contract but I think the principles are the same.

Assuming that the Contract is using JKR 203 (rev. 1/2010) conditions.

According to clause 28.4 "The amount stated as due in an interim certificate shall .... be the estimated total value of the work PROPERLY EXECUTED ..."

I'd say NCR works are improperly executed and hence CAN BE excluded from payment in extreme cases.

 


Example of extreme case - building structure is supposed to use Grade 30 concrete but it was found later that the contractor cut corner and used Grade 25 concrete only for the entire building structural works. I'd say stop-work instruction has to be immediately issued and NCR issued for ALL Grade 25 concrete works and ... whatever items built on the non-complying Grade 25 structures. I'd say that no payments should be made for such NCR items because the NCR is very critical. The building is unsafe, all due to contractor's fault, using a lesser concrete grade.

 


Example of not so extreme case - drawings and BQ call for laying of homogenous tiles but contractor instead only laid ceramic tiles to bedroom areas.

Now, it is possible for the S.O. to issue NCR and reject the ceramic tiles and instruct that they be replaced with the specified homogenous tiles.

Payment for this NCR ceramic tiles can be excluded from interim payment because it can be considered as 'improperly executed' as per clause 28.4.


Alternatively, the S.O. can accept the ceramic tiles (if properly executed / laid) and do a value reduction adjustment for the difference in price between homogenous tiles and ceramic tiles. A proper Variation / Adjustment valuation has to be done to finalize the reduction / adjustment but partial payments can be made before finalization of the adjustment, if this alternative course of action is taken.

 


What is said above is not comprehensive / exhaustive but I want to conclude with these general points below : 

* evaluate it on case by case basis

* refer to the conditions of contract - I've already given you a few examples.

* get SO / SO Reps / consultants to issue NCRs before you start deducting or excluding items from interim payments, else it can be argued that the QS under-valued the works.  The QS does not decide whether the works are acceptable or comply or not (that's the S.O / SO Rep's job).  The QS just value the work & materials on site, excluding NCR items.

* ensure you have up to date copy of all NCRs. Get the contractor to include a list in their Monthly Progress Reports.

 

Best wishes.

March 28, 2013 at 12:01 AM Flag Quote & Reply

FARID SAUFI
Member
Posts: 2

Sr Samuel Chong at March 28, 2013 at 12:01 AM

Does NCR have contractual implication to payment certification ?

 

There may be differences between various conditions of contract but I think the principles are the same.

Assuming that the Contract is using JKR 203 (rev. 1/2010) conditions.

According to clause 28.4 "The amount stated as due in an interim certificate shall .... be the estimated total value of the work PROPERLY EXECUTED ..."

I'd say NCR works are improperly executed and hence CAN BE excluded from payment in extreme cases.

 


Example of extreme case - building structure is supposed to use Grade 30 concrete but it was found later that the contractor cut corner and used Grade 25 concrete only for the entire building structural works. I'd say stop-work instruction has to be immediately issued and NCR issued for ALL Grade 25 concrete works and ... whatever items built on the non-complying Grade 25 structures. I'd say that no payments should be made for such NCR items because the NCR is very critical. The building is unsafe, all due to contractor's fault, using a lesser concrete grade.

 


Example of not so extreme case - drawings and BQ call for laying of homogenous tiles but contractor instead only laid ceramic tiles to bedroom areas.

Now, it is possible for the S.O. to issue NCR and reject the ceramic tiles and instruct that they be replaced with the specified homogenous tiles.

Payment for this NCR ceramic tiles can be excluded from interim payment because it can be considered as 'improperly executed' as per clause 28.4.


Alternatively, the S.O. can accept the ceramic tiles (if properly executed / laid) and do a value reduction adjustment for the difference in price between homogenous tiles and ceramic tiles. A proper Variation / Adjustment valuation has to be done to finalize the reduction / adjustment but partial payments can be made before finalization of the adjustment, if this alternative course of action is taken.

 


What is said above is not comprehensive / exhaustive but I want to conclude with these general points below : 

* evaluate it on case by case basis

* refer to the conditions of contract - I've already given you a few examples.

* get SO / SO Reps / consultants to issue NCRs before you start deducting or excluding items from interim payments, else it can be argued that the QS under-valued the works.  The QS does not decide whether the works are acceptable or comply or not (that's the S.O / SO Rep's job).  The QS just value the work & materials on site, excluding NCR items.

* ensure you have up to date copy of all NCRs. Get the contractor to include a list in their Monthly Progress Reports.

 

Best wishes.

Thank you Sr Sam for the valuable comments. it seems that we have the same thought as per bullet no.3 in your conclusion. 

Looking forward for your advise in future.

Thank you & regards.

April 2, 2013 at 6:42 AM Flag Quote & Reply

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