Driver Trett Digest Issue 21 03.2021 - Flipbook - Page 27
DIGEST | ISSUE 21
THE IMPACT OF
THE COVID-19
PANDEMIC, AND
THE CHALLENGES
FACED BY
CONTRACTORS IN
MALAYSIA
Kingwah Liew
Driver Trett Country Manager, Malaysia
CASH FLOW
The COVID-19 pandemic
has intruded everyone’s
lives, not just regionally,
but globally.
Many countries including Malaysia
have experienced a seemingly everincreasing number of virus infections;
causing the implementation of national
lockdowns and other restrictions on
movement and proximity.
Since March 2020, the government
of Malaysia implemented a series of
measures including, Movement Control
Order (“MCO”)1 , Conditional Movement
Control Order (“CMCO”)2, Enhanced
Condition Movement Control Order
(“EMCO”)3 and Recovery Movement
Control Order (“RMCO”)4 in attempts to
curb the spread of the virus.
THE IMPACTS TO THE
MALAYSIAN CONSTRUCTION
INDUSTRY
Businesses and the economy in general
were badly affected by the virus and the
measures implemented to try to control
it. For example, the crude oil price
benchmark, West Texas Intermediate,
dropped into negative territory, an
historical low around a month after the
WHO declared COVID-19 a pandemic.
Much like everything else, the
construction industry in Malaysia was
severely affected by the COVID-19
pandemic. Most construction work,
except that classified as critical
or essential services, were halted
throughout the MCO. Even after the
MCO was lifted, contractors have
continued to encounter disruption,
such as that arising from having
to incorporate stringent standard
operating procedures on health
and safety measures (“SOPs”) for
construction sites. Such disruption has
prevented them carrying out their works
as originally and normally envisaged.
26
TYPICAL CHALLENGES FACED
BY CONTRACTORS DURING THE
COVID-19 PANDEMIC
Cash flow problems were an immediate
impact of the COVID-19 pandemic
experienced by most contractors.
Project payments are generally
evaluated based on the amount of
work done. The suspension of almost
all construction activity during the
MCO meant no work being carried out
and thus no payments being made, yet
contractors continued to incur their
recurring costs, e.g. rental charges,
wages, and overheads, etc.
EXPOSURE TO LIQUIDATED
DAMAGES & TERMINATION
To regularly and diligently carry out
and complete the construction works
in accordance with the contract within
the specified times is a fundamental
contractual obligation for a contractor.
When a contractor has failed to
complete the works within the
prescribed time and in instances where
no extension of time has been granted,
an Employer or Client normally has the
contractual right to impose liquidated
damages and sometimes other
related charges, or to terminate the
contract in the worst-case scenario.
Many contractors have successfully
claimed for extensions of time for the
MCO period under the contract when
their projects were suspended with
all site activities ceased. However, in
many cases we have observed that
contractors have, and continue to,
struggle to secure further extensions
of time for events post MCO.
TYPICAL CHALLENGES FACED BY
CONTRACTORS POST MCO
Typical challenges in our experience
that contractors have faced when their
works were allowed to resume after
the initial MCO period include having to
implement new health and safety SOPs,
shortage of workers, restricted working
hours, delay in their supply chains,
rework after the long suspension,
disruption due to limits on the number
of workers by having to comply with
27