Malaysia: Renovation Contracts: Towards A Worry-Free Relationship With Your Contractor

Last Updated: 8 September 2016
Article by Raymond Mah and Gan Chong Chieh

Most people, at some point in their lives, will deal with renovation contractors. Whether the job is big or small, for the office or home, we can half expect delays, defects, cost overruns and stress from the renovation process. This is often based on our own prior experience with renovation contractors, or what we have heard from friends or family. However, many disputes with contractors can be avoided with an adequate written contract and by managing the process diligently. Here are useful answers to some commonly asked questions:

What are the indicators of a trustworthy contractor?

Most problems are avoided with the appointment of an honest and reliable contractor. A personal recommendation is a good start, but ask the recommender specific questions about working with the contractor; ask for examples of both the good and bad. Also ask the contractor for photographs of sample work and recent referees on similar jobs, and then call those referees for feedback on the contractor.

You can conduct a company search with the Companies Commission of Malaysia (www.ssm.com.my) to confirm the registration and status of the contractor. The search may reveal financial information on the contractor, which you will want to consider especially if the contract value is high. A search will also allow you to confirm whether the person who represents himself as the owner is in fact a director or shareholder of the company.

Contractors can register with the Lembaga Pembangunan Industri Pembinaan Malaysia (CIDB) (www.cidb.gov.my). A registered contractor is far less likely to be a fly-by-night outfit.

Lastly, trust your gut feeling. If you are not able to communicate well with a contractor, or if you don't feel comfortable with them, keep looking for another. These days many contractors are technologically savvy and are able to communicate quickly over Whatsapp or email, and you may prefer this convenience. Yet, bear in mind that some old and experienced hands still produce the best quality work.

What are the issues to be discussed with the contractor prior to the commencement of work?

Three main issues which require clarity and agreement are:

(i) the scope of the works – exactly what you want the contractor to do;

(ii) the contract price – how much the contractor will be paid; and

(iii) the duration of work – when the work will start and finish.

The scope of work is best defined by drawings or sketches along with a description of the method of construction and materials to be used. These can be prepared by an architect, interior designer, the contractor, or by the owner – the objective here is to ensure that the contractor knows what needs to be done, and to be able to hold the contractor to it in the event the works are not carried out accordingly. Any changes made along the way should be confirmed and documented.

The contract price should be agreed upon upfront and confirmed in writing, whether by way of a signed letter of award, invoice, or purchase order. The contract price could be lump sum or be derived from an itemised bill. Any changes to the original scope of works are called variations – and could involve omissions (removing items from the original scope) or additions (adding items to the original scope). Variations will mean changes to your contract price, and it is best to discuss the cost of variations at the time the instructions are given to the contractor and to confirm the variations in writing. You will have far less bargaining power to negotiate the price of variations once the works are completed.

The schedule or manner of payment also needs to be agreed upon – whether to pay a portion upfront and the balance on completion, or whether to pay agreed amounts progressively.

It is always a good idea to retain an agreed portion of the contract price until all works have been completed and all defects have been rectified. This is usually referred to as the retention sum and is usually 10% of the contract price, although it can be more if the contract price is small.

For larger jobs, owners should consider engaging an architect or an interior designer to supervise the works. These consultants will be responsible for checking the progress of the works and certifying payment when the contractor issues his bills.

In order to avoid delays to the project, you need to specify a commencement and completion date for the works. Generally, contractors perform best when they have a firm deadline to meet. If there are any variations to the works, remember to also discuss any changes that the variations will have on the completion date. You can try to negotiate a liquidated ascertained damages (LAD) clause in your renovation contract, which will allow you to deduct an agreed sum for each day of delay caused by the contractor.

For more complex projects, it is a good idea to seek the advice of a construction lawyer on the terms and conditions of your contract with the contractor.

Are approvals either from the local authority or developer necessary for renovation works?

Generally, internal renovations do not require approvals from the local authorities. However, external renovations, additions or expansions to your home or building are likely to require the submission of plans and drawings to the local authorities under the provisions of the Street, Drainage and Building Act 1974 and the Uniform Building By-Laws 1984. Failing to obtain the necessary approvals will render you liable to fines and your extensions liable to demolition, especially if complaints are made by your neighbours. For any significant external renovations, it is best to engage the services of an architect or interior designer who is familiar with local council submissions.

In gated and guarded communities, house owners are often bound by a Deed of Mutual Covenants. Similarly in landed strata title properties, house owners are often bound by a set of house rules imposed by the Joint Management Body (JMB) or Management Corporation (MC). These rules generally impose restrictions on the type of external renovations that can be carried out with the objective of maintaining uniformity in the facade of the houses in the community.

In residential or office towers, notice may have to be given to the JMB or MC and a deposit may need to be paid to cover any dirtying of or damage to common property.

 

How can homeowners minimise disappointments which may result from the renovation works?

Close supervision of the works is likely to produce the best results. Even if you have engaged an architect or interior designer, it is best that you as the owner or your representative frequently visit the site to check on the progress and quality of the works. Regular inspections throughout the renovation period will encourage the contractor to keep to the timeline and will allow any works which are not satisfactory to be addressed and remedied immediately.

Owners are advised to take plenty of photographs of the works to document the progress. All meetings with the contractor should be noted down, and any correspondence with the contractor should be recorded and kept. This is especially important when issues such as price or variations are discussed and agreed upon.

Lastly, pay promptly when payments are rightfully due. Non-payment or delayed payment may result in the contractor slowing or stopping work until receipt of payment. This will also have the unavoidable effect of spoiling your relationship with the contractor. Treat your contractor with respect and kindness, and you may find him going the extra mile for you.

What action can be taken if the contractor is not performing its works according to the renovation/building contract?

If the contractor is not performing as agreed and expected, immediately communicate your dissatisfaction to the contractor. Be professional about the matter – state the shortcomings and agree on a course of action to remedy the problem. You may discuss your grievances verbally, but always follow up in writing, whether on paper, by email or even over Whatsapp.

If you cannot agree on the problem or the solution, or if the contractor demonstrates that he is unable or unwilling to rectify the problem, you should consider terminating the engagement. In such circumstances, terminating the contract is likely to save you more losses and delays in the long run. This would also be a good time to speak to a lawyer on your rights against the contractor and liabilities that may arise from the termination.

What can the homeowners do in a case of defects in the renovation works?

Once the contractor has completed his works, arrange for a joint inspection of the works and carefully identify all the defects that you require the contractor to rectify. This is most efficiently done by recording the defects on the construction drawings for the contractor.

Some contracts will have a defined Defect Liability Period (DLP), which refers to the period during which the contractor remains liable to rectify all defects found. In the event the contract does not have a specified DLP, the defects need to be identified within a reasonable period, but better as soon as possible. Practically, it is best to identify the defects and have them rectified before the final payments are made and before the retention sum is released.

In the event the contractor refuses to rectify the defects after reasonable opportunity is given, the owner can proceed to engage another contractor (usually called a 3rd party contractor) to finish off and rectify whatever is outstanding. The cost of engaging the 3rd party contractor for that purpose can be set-off against any balance outstanding due to the original contractor or the retention sum. In the event that the cost exceeds the unpaid balance, the difference can be demanded and claimed from the original contractor.

(This article was published in the December 2015 issue of Home & Decor magazine.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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