Monday, July 01, 2013

KLIA2: UEMC-Bina Puri JV Contract - "MAHB Adament about LAD fine"

The blame game of KLIA2
The Star Online
Saturday June 29, 2013

I like to make a few comments on some of the facts and statements that was made by Datuk Azmi Murad, the General Manager of MAHB.

[QUOTE from Para 5-7 ]

According to MAHB operations senior general manager Datuk Azmi Murad, the last-minute instructions are just minor changes needed by stakeholders, and this doesn't affect the completion date of the seven sectors of the terminal itself. Among the requests are the addition of 45 more immigration counters, and additional ticket booths and counters. “The instructions for the immigration counters are a valid point, and the contractors can apply for extension of time (EOT) to justify the extension. This may take only a further two to four weeks to complete, but does not justify an EOT for one year. The JV (referring to UEMC-Bina Puri JV, who is the Main Contractor for the Main terminal Building and Satellite Building & Associated works) already has enough time to complete the works before June,” he says.


My remarks:

As reported, Datuk Azmi acknowledged that “the instructions for the immigration counters are a valid point and the Contractors can apply for EOT to justify the extension.” (ibid)

But what was puzzling is: Datuk Azmi had acknowledged the VO works for the extra 45 immigration counters and that such additional works (or what we call, 'Variation Order' works) may take 2 to 4 weeks to complete. This statement in itself means that the Contractors are contractually entitled to EOT. The fact is, this VO Instruction was issued on 29th May 2013 and the Contract Completion Date is 15th June 2013. So, would MAHB still expect the Contractor to complete the works by 15th June 2013? And if Datuk Azmi admitted that it may only take 2 to 4 weeks to complete, then the Contract Administrator (CA) must perform his fiduciary duty by granting the Extension of Time (EOT) accordingly. However, the CA failed to do so, and instead choose to issue the Certificate for Non Completion on 16th June 2013 and thereof imposed the LAD. From the presentations made at the press conference on 28th June 2013 at the KLIA2 site, there were quite many instructions issued by MAHB for additional works and modification of designs during the period between March to June 2013. The period between March to June was significant as the earlier EOT granted was made on 15th March 2013. As such, it was imperative that the CA would have to assess the EOT fairly and reasonably.

It is trite construction law that there will be implied into every construction contract terms whereby the owner shall cause the Contract Administrator (CA) to act fairly, impartially and within the times required by the contract conditions. It is also understood that the CA has a legal obligation to so act, using his 'professional skills' and 'best endevours' to reach the correct decision rather than necessarily deciding in the owner's favour.

On the legal perspective, the Employer and/or his Contract Administrator (CA) had wrongfully issued the Certificate for Non Completion (CNC) because it is trite law that the CA is duty bound, before issuing the CNC, to act fairly and reasonably, by assessing and exhausting all the events of delay caused by the Employer before he forms his opinion, and that the Contractor has no more valid entitlement to any EOT. However, the Variation Order instruction to add 45 extra immigration counters was issued only on May 29, 2013 while the CNC was issued on 16th June 2013, i.e. 2 weeks later.

Clearly, the Contract Administrators are ignorant of the law of contracts. What is puzzling is the fact that MAHB has a legal department filled with legal experts.

In Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) the Court of Appeal held that Peak Construction was not entitled to recover Liquidated Damages from McKinney. The Court of Appeal found that at least part of the 58-week delay had been caused by the corporation itself, and no attempt had been made by the corporation to extend time. Accordingly, there was no date from which Liquidated Damages under the main contract could begin. Lord Salmon held “If the failure to complete on time is due to the fault of both the employer and the contractor, in my view, the clause does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled.”

The Court of Appeal had held that:

'Notwithstanding that the Contractor is not entitled to or has not claimed an extension of time, the Superintendent Officer (SO) or CA may at any time and from time to time before the issue of the Certificate for Non Completion (CNC) by notice in writing to the Contractor extend the time for practical completion for any reason.'

In such a case where MAHB and his CA has issued the CNC and LAD notice, Edmund Davies has this advice:

“The stipulated time for completion having ceased to be applicable by reason of the employer’s own default and the extension clause having no application to that, it seems to follow that there is in such a case no date from which liquidated damages could run and the right to recover them has gone.”

Importantly, common law courts have construed extension of time clauses narrowly when determining their application to events of owner-caused delay. By way of example, courts have held that clauses providing general grounds for delay, including the catch all other causes beyond the contractor's control and for any cause not under the control of the builders will not cover specific acts of prevention by an owner. As stated by Professor Wallace QC as editor of the 11th edition of Hudson's Building and Engineering Contracts, it is likely courts interpreted these clauses narrowly because of their dislike of, and willingness to invalidate, liquidated damages provisions for any event not expressly provided for in a contract or within the contractor's scope of responsibility.

A well-known example of the prevention principle is the 1971 English Court of Appeal judgment, Peak Construction (Liverpool)Limited v McKinney Foundations Limited. 

In Summary, it can be observed that MAHB had shot their own feet by issuing the CNC and invoking the LAD while at the same time, they acknowledged that they had knowledge of the delay events caused by the issuance of Written Instruction for Variation (legally classified as Employer’s Delay) whereof MAHB and his CA had failed to grant the necessary EOT to the Contractor. In this circumstances, the Contract will become time at large and any wrongful deductions enforced unto the contractors’ payment will be construed as an Act of Prevention to Completion and a Fundamental Breach of Contract that activates Section 56 and Section 74 of the Contracts Act 1950.

PARA 11 of the News report


Besides the incomplete terminal, the taxiway and the new Runway 3 are also unfinished, which according to MAHB would not prevent KLIA2 from a delayed opening as it can direct air traffic to KLIA2 via the existing Runway 2, assuming if the terminal was operational.



According to the report, MAHB states that “the taxiway and new Runway 3 (contracted to other corporations) which are unfinished till today (where EOT was granted until August 2013) would not prevent KLIA2 from a delayed opening (in reference to June 15, 2013 completion date for Main Terminal Building & Satellite Building Contract) as it can direct air traffic to KLIA2 via the existing Runway2, assuming if the terminal was operational.”

I am puzzled and flabbergasted! How is it possible for MAHB to assume that the terminal can be operational without the planned taxiway at the Main Terminal Building and Satellite Building? The taxiway and runway has not been completed and will not complete till probably September 2013. So how do the airplanes get to the link-bridge to allow the passengers disembark? And would DCA permit the airplane to land at the airport where construction works and heavy machinery and equipment are still plying and working at the airport sites? What are the safety compliance standards and requirements specified by ICAO, IATA and NACO for this LCCT? The photographic proof and evidence of the existing site conditions will convince any judges to dump this argument. MAHB prides itself of their international standards of Management of Airports and such statement will be embarrassing to potential airport owners.


First envisioned to become a low cost carrier terminal (LCCT) with a price tag of RM1.9bil, it has ballooned to RM4bil featuring state-of-the-art specifications. It is a LCCT but definitely not a low cost terminal. 



Rightly said, this KLIA2 is not a “Low Cost Terminal” as envisaged in the tender document. The design was intended and tendered out to the Contractors as LCCT but the enforcement of the Concept Design Consultants (CDC) who forced unto the Contractors to deliver a detailed design that encompasses high state of the art specifications that ultimately produced a High Cost Terminal (similar or of much higher standards and specification compared to the current KLIA Terminal) for a Low Cost Carrier Terminal Design-and-Build Contract which may be arbitrated in a legal forum at a later date.

The Blame Game of KLIA2

Main contractor of KLIA2 to appeal fine for delay

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