Construction Debt Recovery & Collection in Malaysia: A Cautionary Tale for Contractors

As a debt recovery lawyer in Malaysia, I often see honest, hardworking contractors suffer because of unfair contracts and delayed payments. One recent case really hit home.

The Struggle of a Contractor

My client, a reputable contractor, had won a job to provide M&E (Mechanical & Electrical) works for a notable large employer. Despite completing his work, the employer delayed payments. The outstanding balance reached RM900,000+. Understandably, he could not keep bleeding financially and had no choice but to stop work.

Attempts to Mediate – Employer’s Delay Tactics

The contractor made multiple attempts to mediate with the employer. Each time, meetings were dragged out, with no real resolution. When my firm was finally appointed to recover the debt, the employer engaged a lawyer to respond. Instead of settling, they counterclaimed RM1.5 million in LAD (liquidated ascertained damages), blaming my client for delays caused by the work stoppage. From being owed nearly a million ringgit, the tables were turned — the employer claimed that he actually owed them money.

Why Contractors Are Often at a Disadvantage

This is a sad reality in Malaysia’s construction industry disputes. Most of the time, contracts are drafted in favor of the employer.

• If there is no clause allowing contractors to suspend works for non-payment, the contractor is stuck.

• You may have to dig into your own pocket to continue works, and only file a claim later.

• Many contractors lack the bargaining power, expertise, or legal knowledge to negotiate better terms before signing.

  
  

Watch Out for LAD Clauses

Contractors in Malaysia must be especially careful with LAD (Liquidated Ascertained Damages) clauses. These provisions are often used by employers to counterclaim against contractors once disputes arise.

Don’t Delay – File a Claim Early

If you are a contractor facing non-payment, do not delay. The longer you wait, the harder it becomes to recover your dues. Quickly file a claim for outstanding construction payments before the situation worsens.

Understanding Your Rights

It is essential to understand your rights as a contractor. Contracts should clearly outline payment terms, timelines, and conditions for work suspension. If these terms are not met, you have the right to take action.

The Importance of Legal Advice

Seeking legal advice early can make a significant difference. A lawyer can help you understand your contract and identify any unfair clauses. They can also guide you on the best steps to take if you face non-payment.

Building Strong Contracts

To protect yourself, invest time in building strong contracts. Ensure that they include clear payment terms and conditions. This can help prevent disputes and ensure you are compensated for your work.

Final Thoughts

It is heartbreaking to see so many hardworking contractors suffer financial losses due to one-sided contracts and delayed payments. With proper legal advice and timely action, many of these risks can be reduced.

AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com