KUALA LUMPUR: A formal agreement or contract ('bai'ah') between the homeowner, as the client, and the appointed contractor is crucial before starting any project, the Construction Industry Development Board (CIDB) says.
"Even a single piece of paper is enough to indicate that there is an agreement between Party A and Party B. That's how important a valid contract is in any construction, especially for renovation work and small projects nowadays," its Chief Executive Officer Datuk Sr Mohd Zaid Zakaria said.
According to him, agreements cannot be made verbally because they do not adequately protect the interests of the homeowner. Both parties need to have a written agreement or contract to avoid uncertainty and unnecessary disputes.
"Homeowners should also seek further advice from any legal practitioner before signing any agreement," he said in a recent interview with Bernama.
Due to many cases involving fly-by-night, runaway and fraudulent contractors, CIDB has, since 2015, provided sample construction contracts for renovation work and small projects between clients and contractors.
Mohd Zaid said that the sample, published in collaboration with several parties such as the Malaysian Institute of Architects (PAM), Royal Institution of Surveyors, the Ministry of Works, and the Ministry of Domestic Trade and Cost of Living, is available for free.
The sample agreement outlines the responsibilities and contractual obligations of all parties involved in the renovation project in simple language. It also informs homeowners about the costs of building materials, labour, and the laws and regulations of local authorities (PBT).
He said with the sample agreement provided by CIDB for construction contracts, which is concise and written in simple language, homeowners can also include additional clauses in the agreement, such as provisions for advance payments and monthly payments to the contractor.
Performance bond insurance
In some situations, he said, the homeowner can also "require" the contractor to place a performance bond to ensure that the contractor fulfils their obligations under the contract within the specified time frame or according to the contract terms
He added that the bond's value is typically around five per cent of the contract amount. If the contractor fails to fulfil the contract within the specified period and no extension is granted, the homeowner can cash the bond.
"If the contractor cannot complete the work, the homeowner can seize the bond," he said.
Additionally, the homeowner can obtain third-party liability insurance, which he described as a more professional approach, to ensure that both the homeowner and any third parties are protected in case of unforeseen circumstances, such as damage to a neighbour's property during renovations.
Although such measures may increase construction costs by up to 10 per cent, they are crucial to ensure that construction risks are controlled and subject to legal regulations.
Lackadaisical attitude
However, Mohd Zaid noted that one of the reasons people continue to be deceived by contractors is their lackadaisical attitude and unwillingness to go through the proper procurement process for renovation work and building private homes.
Not only are they careless in hiring contractors to carry out projects, some also make verbal agreements, often with foreign contractors, simply because they were influenced by their neighbour's renovation work. Unfortunately, these contractors often disappear after receiving the advance payment.
Without realising it, this attitude traps them, leading to situations where some are left high and dry when the project is not completed properly. Many then find themselves pleading with contractors to finish the project once they realise they have been duped.
Section 29 of the Construction Industry Development Board Act (Act 520) states that unregistered contractors can be fined not less than RM10,000 but not exceeding RM100,000.
He added that the public needs to be aware that they could face legal action if they hire unregistered contractors, especially if a project encounters issues, including posing safety risks to the public.
Act 520 also states that a person can be considered a contractor if they enter into an agreement, fulfil a contract, or manage construction work unless proven otherwise.
As such, if the homeowner fails to provide evidence that they have appointed a contractor for their home construction, they could be considered the contractor themselves and may be prosecuted under Section 25 of Act 520.
However, if there are complaints about registered contractors with CIDB who are negligent or abandon their duties, CIDB will investigate. If misconduct by the contractor is found, CIDB can bring the case to the board's disciplinary proceedings.
"From January to June this year, CIDB received a total of 103 complaints related to breaches of agreements by registered contractors while complaints related to unregistered contractors during the same period stood at 16," he said.
Appointing a third party
According to the home renovation guidelines available on the CIDB website, By-Law 18 (UUK18) under the Uniform Building By-Laws 1984 (UKBS) allows a completed building that has undergone renovations to be subject to two methods.
The first method is the permit method, where the PBT issues a permit based on the submitted sketch plan, granting permission to carry out the requested renovation work.
The second method is the Approved Plan, where the PBT approves plans submitted by the Principal Submitting Person (PSP). After the renovation work is completed, a Certificate of Completion and Compliance (CCC) will be issued.
There are three categories of residential renovations:
Category A involves renovation work that can be carried out without a renovation permit, meaning without PBT approval, such as electrical work for landscaping or decoration purposes, air conditioning maintenance, and the installation of iron grilles.
Category B refers to work that requires a renovation permit, meaning PBT approval is needed for work such as modifying walls, fences, open roof extensions that do not involve structural changes, installing gazebos, and interior construction like plumbing systems and plaster ceilings.
Category C refers to work that requires plan approval and a CCC, such as renovations that involve expanding space by more than 6.5 square metres, demolishing and rebuilding part of the original building, constructing boundary walls, and installing or replacing mechanical systems.
Mohd Zaid said if a contractor intends to use the services of an architect for work in Category C, the architect must be registered with LAM.
However, he acknowledged that there are situations when homeowners take shortcuts by not obtaining a permit for renovation work in Category B or without PBT plan approval for work in Category C.
"As LAM Chairman Datuk Ar Azman Md Hashim mentioned, if it is necessary to appoint a PSP, the homeowner or contractor can do so," he said.
Know your rights, avoid being cheated
In a nutshell, Mohd Zaid said homeowners need to equip themselves with the knowledge and information before appointing an individual or company to carry out renovation work or build a house.
He said homeowners can search for contractors on https://cims.cidb.gov.my/ to ensure that the contractor they hire is registered with CIDB. Additionally, they can use other platforms to obtain information by meeting CIDB officers or visiting the CIDB website.
"The most important thing is not to wash your hands of the matter because this is your money, your responsibility. You need to know how to ensure that every single sen of your money is used effectively. At the very least, you need to enter into a contract, which forms the foundation of procurement," he said.
Furthermore, if a contractor has been appointed, he advised that payments should be made according to the percentage of work completed (in progress) to ensure that the work done matches the payments made.
He also suggested that the public set aside 5 to 10 per cent of the contract value as retention money, which can be paid after the work is fully completed and the homeowner is satisfied.
"Make sure the contractor provides an estimated completion period and adheres to it. During the construction period, homeowners should also regularly monitor the progress of the work and check the quality," he added.
Additionally, Mohd Zaid said it is time for the PBT to introduce a notification method outside the premises before any renovation or house construction project is carried out.
"This notification could include project details, the contractor's name, the project's implementation period, and so on. This method is implemented in most developed countries, like France.
"I believe this notification is important so that the public and neighbours are aware of what is happening in their neighbourhood. This way, contractors may be more inclined to do their best since their names are displayed on the notification board," he said.