When construction projects go wrong, they usually don’t collapse overnight—they unravel clause by clause. This guide distills the most frequent pain points we see in Malaysian construction contracts and how employers, contractors, and consultants can manage them proactively.
Key Takeaways (TL;DR)
Variation and omission rights are never automatic—if it’s not in the contract (and followed strictly), it’s risky.
Concurrent delay usually provides time, but not money (unless your contract states otherwise).
Time bars on claims that completely shut the courthouse door may be void, but notice requirements are generally enforceable—miss them and you may lose your claim.
Pay-when-paid clauses are void under CIPAA—cash flow must keep moving.
Latent defects get a knowledge-based extension (3 years from discovery), but there’s a 15-year longstop.
Design liability tracks who designed it and the professional standard of care.
- Force majeure needs clear drafting; “it’s uneconomic” is not enough.
1) Variations: Power with Procedure
An employer can only vary the works if the contract expressly allows it, and everyone must follow the process to the letter: written instruction by an authorised person, types of permissible variations, and valuation method (contract rates/fair valuation).
Risk tip: Contractors who proceed on verbal “please just do it” requests without a valid clause or instruction risk non-payment—at best, you may rely on quantum meruit.
Checklist
Variation instruction form + signer with authority
Scope clearly described
Valuation route agreed upfront
Contemporaneous records (photos, diaries, quantities)
2) Omission of Work: Narrow Lane
Omissions also require an express clause and strict compliance. Use it for genuine scope reduction, not to replace the contractor with a cheaper alternative mid-stream—doing so invites dispute.
3) Implied Terms: Rare, but Real
Courts imply terms sparingly. Fitness-for-purpose may arise where the buyer relies on the supplier’s skill for goods of a kind the supplier ordinarily provides.
Good faith? Malaysian courts consistently decline to imply a general duty of good faith—draft what you need, don’t assume it.
4) Concurrent Delay: Time, Not Money
Where employer-risk and contractor-fault delays run together, the contractor typically gets extension of time (EOT) but not loss & expense, unless your contract says otherwise.
Drafting tip: Define concurrent delay and set out the financial consequences to avoid arguments later.
5) Limitation Periods: Know Your Clock
Contract claims: 6 years from breach (Peninsula Malaysia; similar regimes in Sabah/Sarawak under their Ordinances).
Latent defects (non-personal injury): 3 years from date of knowledge, longstop 15 years from accrual (not applicable in Sabah/Sarawak).
Practical move: Keep a defects timeline and trigger a limitation diary for long-tail risks.
Contract claims: 6 years from breach (Peninsula Malaysia; similar regimes in Sabah/Sarawak under their Ordinances).
Latent defects (non-personal injury): 3 years from date of knowledge, longstop 15 years from accrual (not applicable in Sabah/Sarawak).
Practical move: Keep a defects timeline and trigger a limitation diary for long-tail risks.
6) Time Bars & Notices: Enforceable Formalities
Clauses that totally prevent suing or unreasonably curtail enforcement can be void. But notice provisions (e.g., “notify EOT within 28 days”) are generally upheld.
Discipline: Submit timely, content-complete notices with supporting records.
7) Unforeseen Ground Conditions: Contract First
Allocation depends on your drafting. If silent, courts weigh site investigations, information provided, foreseeability, and conduct.
Mitigate: Conduct and record pre-award site reviews; clarify who owns the risk in the contract; add a mechanism for time/cost if conditions differ materially.
8) Change in Law: Don’t Leave It to Chance
Well-drafted contracts give EOT and sometimes money for legislative changes. If silent, outcomes depend on which party must comply and the justice of the case.
Clause to add: Define “law,” set baselines, valuation method, and prompt notice.
9) Intellectual Property in Design
If the contract is silent, IP usually stays with the creator.
Solution: Include licenses for construction, operation, maintenance, and future alterations, plus payment-linked IP rights.
10) Suspension by Contractor: Clause Required
No general right to suspend. If permitted, follow the exact preconditions (notice, cure period). Wrongful suspension can be repudiatory.
11) Termination: Contractual Grounds + Common Law
Standard grounds include non-payment, abandonment, and insolvency. In the absence of clauses, a serious repudiatory breach can justify termination. Serve notices properly—mode, timing, and content matter.
12) Termination for Convenience: Use with Care
Uncommon and scrutinised. Must be exercised in good faith; don’t use it to swap to a cheaper contractor without consequence. Address profit on unperformed works expressly to avoid uncertainty.
13) Force Majeure vs. Frustration
Frustration (statutory): Contract becomes impossible/illegal—automatically ends.
Force majeure (contractual): Temporary relief/extension per your clause.
Not enough: “It’s uneconomic” or “market downturn.” Draft event lists, notice steps, mitigation, and termination options.
Frustration (statutory): Contract becomes impossible/illegal—automatically ends.
Force majeure (contractual): Temporary relief/extension per your clause.
Not enough: “It’s uneconomic” or “market downturn.” Draft event lists, notice steps, mitigation, and termination options.
14) Third-Party Rights: Privity Still Rules
Non-parties can’t enforce the contract, but may sue in negligence if proximity and reasonableness exist (e.g., MCs for common property defects).
Workaround: Use collateral warranties or direct agreements in financed or high-stakes projects.
15) Direct Agreements & Collateral Warranties
Not universal in Malaysia but increasingly common in infrastructure, commercial, and energy deals. Funders and forward purchasers want step-in rights, a duty of care, and cure periods. Plan for them at the tender stage.
16) Set-Off: Mind the Drafting Trap
Common-law set-off can be limited or excluded by contract. Ironically, if an employer drafts some set-off rights, a court may treat those as the only ones available.
Contractor tip: Insist on limits against interim certificates and define adjudication-safe payment flows.
17) Concurrent Liability in Contract & Tort
Duties in contract and negligence can co-exist. Courts are reluctant to add tort duties where the contract is comprehensive—but they will where justice and proximity demand (e.g., building defects impacting MCs).
18) Ambiguity: Contra Proferentem Bites
Ambiguous wording is construed against the drafter. Clear drafting beats clever argument—define processes, time frames, authorities, and valuation.
19) Terms at Risk of Being Unenforceable
Pay-when-paid / pay-if-paid: Void under CIPAA s.35.
Total exclusion of liability / ousting the court: Risks being void (Contracts Act s.29).
LDs requiring proof of actual loss: Not the law—LDs stand if they’re a genuine pre-estimate and reasonable.
Clauses that sidestep statutes (e.g., blocking CIPAA or shortening limitation): Likely void.
Pay-when-paid / pay-if-paid: Void under CIPAA s.35.
Total exclusion of liability / ousting the court: Risks being void (Contracts Act s.29).
LDs requiring proof of actual loss: Not the law—LDs stand if they’re a genuine pre-estimate and reasonable.
Clauses that sidestep statutes (e.g., blocking CIPAA or shortening limitation): Likely void.
20) Design Liability & Professional Standards
Responsibility follows the designer. In traditional delivery, contractors building to employer designs may be absolved if they complied. In Design & Build, the contractor owns design risk.
Standard: “Reasonable care and skill” of a competent professional—plus statutory duties (OSHA, Architects Act, REA).
21) Decennial Liability? Not Mandated
Malaysia has no statutory 10-year decennial liability. Protection for latent defects arises via the knowledge-based extension (3 years) with a 15-year longstop. Consider latent-defects insurance on major projects.
Practical Drafting Toolkit (Save This)
Authorities & Notices: Who can issue instructions? In what form? Within what time?
Variations & Omissions: Scope, pricing ladder (rates → analogous rates → fair valuation), records.
EOT & Delay Costs: Define concurrent delay outcomes; require programmes and delay analysis method.
Ground Conditions: Baseline info, investigation regime, change-mechanism, shared risk.
Change in Law: Definition, trigger, notice, entitlement.
Payments & Set-Off: CIPAA-compliant mechanism, interim certification sanctity, narrow set-off.
Design & IP: Allocation of design risk; IP licences for build-operate-maintain-alter.
Security: Bonds, retention, step-in rights, collateral warranties where relevant.
Dispute Resolution: Adjudication (CIPAA), arbitration, escalation ladders, seat, rules.
Compliance: OSHA, statutory approvals, record-keeping for limitations and defects.
Authorities & Notices: Who can issue instructions? In what form? Within what time?
Variations & Omissions: Scope, pricing ladder (rates → analogous rates → fair valuation), records.
EOT & Delay Costs: Define concurrent delay outcomes; require programmes and delay analysis method.
Ground Conditions: Baseline info, investigation regime, change-mechanism, shared risk.
Change in Law: Definition, trigger, notice, entitlement.
Payments & Set-Off: CIPAA-compliant mechanism, interim certification sanctity, narrow set-off.
Design & IP: Allocation of design risk; IP licences for build-operate-maintain-alter.
Security: Bonds, retention, step-in rights, collateral warranties where relevant.
Dispute Resolution: Adjudication (CIPAA), arbitration, escalation ladders, seat, rules.
Compliance: OSHA, statutory approvals, record-keeping for limitations and defects.
Final Word
In construction, clarity is cash flow. The more precisely you draft processes (authority, time, form, valuation), the fewer surprises—and the stronger your position in adjudication, arbitration, or court.
Disclaimer: This article provides general information on Malaysian law and is not legal advice. For advice on a specific contract or dispute, consult a qualified Malaysian practitioner.
