Contractor's Dilemma in Suspending Works against Non-payment in Construction Industry: Highlighting Possible Legal Issues based on PAM 2006 Standard Form of Contract

Abstract

Non-payment scenario has seriously plagued the construction industry and affects the contractor’s cash flow. Contractors nevertheless suspend works if their employers refuse to pay. In Malaysia, this right has been introduced in PAM 2006 Standard Form of Contract for building works.  Eventually, PAM 2006 is widely used to manage contractual relationship between contractor and the employer. This paper has been done to explore what are the possible legal issues that may arise when the contractors exercise this right in relation to PAM 2006. The result shows that the employer can challenge contractor’s right in suspension of work for several grounds such as the validity of notice to suspend works, validity of interim certificates as grounds for non-payment. Secondly, the employer can challenge contractor’s right without proper fulfilment such as mitigation of loss, prevention of delay, and submitting notices. Thirdly, contractor may face legal problems in suspending works downstream if there is lack of back to back provisions in PAM 2006 sub-contracts. This paper will significantly illustrate what are the possible legal problems that the contractors may encounter under PAM 2006 and forms a guideline for the contractors to suspend work cautiously and effectively without having to suffer for legal difficulties.