LAD Calculator For Construction Payment Disputes Under CIPAA 2012
Late completion or liquidated ascertained damages (LAD) are one of the most common reasons contractors in Malaysia get paid less than what was promised, and having represented clients on the receiving end of one, we're afraid we must start with bad news.
If the LAD clause is in your contract and work was delayed, it's probably valid.
However, if you believe there could be a mistake or deliberate miscalculation of the LAD, this guide helps you estimate it and walks you through options if the numbers don't add up.
Of course, feel free to skip the reading and get in touch for a free case assessment.
Otherwise, let’s begin.
How LAD deductions can be mistaken
Procedural missteps and calculation oversights can result in an incorrect LAD deduction.
There are five common contributors.
No Certificate of Non Completion: Under PAM contracts, the architect generally must issue one before LAD can be deducted (sample above).
Your EOT is unanswered: If your Extension of Time application is still pending, the final completion date may not yet be established.
They've taken over part of the site: If your employer has taken possession of part of the works, LAD may need to be reduced proportionately from that date.
They're claiming too much: Under Section 75 of the Contracts Act 1950, compensation must be reasonable. The contractual LAD rate may not automatically be recoverable in full.
The calculation is wrong: Your employer may have overlooked EOT days, the correct start date, the agreed LAD rate or any contractual cap when calculating the amount owed.
Our calculator and guide helps you specifically put that last one to the test!
How to use our LAD calculator
These documents contain information that helps you more accurately estimate a potential LAD claim, so the more you have on hand, the better:
your contract appendix, which has the LAD rate, the completion date, and any cap
the certificate they took the money from
the Certificate of Non-Completion, if issued one
your EOT applications and any written replies
any letter about your employer taking over part of the site
Because LAD owed depends on completion date and that in turn is affected by how EOT applications are handled, the calculator gives three estimates based on input values.
Finally, it also doubles as an optional CIPAA Payment Claim generator.
Interpreting the results
The calculator sorts your EOT days into those granted, unanswered, and refused, then calculates what you would owe in each scenario so you can compare it against the claim by your employer.
Let's look at a hypothetical example featuring everyone's favourite contractor, Bob - everyone was so busy asking if he could build it, they never stopped to ask if it could be built on time.
Say Bob's contract required him to finish by 31 December but he finished on 31 March - 90 days late at an LAD rate of RM1,000 a day.
And let's say the delay had four separate causes:
30 days from a labour shortage on his side, which he never claimed EOT for
20 days from late site possession which he was granted EOT for
30 days from variation instructions where his EOT application is still unanswered
10 days from a materials delay where EOT was refused as the employer claims it's Bob's fault
That gives us three possible outcomes:
Scenario | EOT days granted | Remaining LAD days | LAD owed |
Worst case for Bob | 20 days | 70 days | RM70,000 |
If unanswered application is approved | 50 days | 40 days | RM40,000 |
Best case for Bob | 60 days | 30 days | RM30,000 |
Let's say Bob's employer claims the full RM70,000.
Of that RM70,000, Bob is almost certainly liable for at least RM30,000 for the 30 days he accepts was on him and never applied for EOT on.
The remaining 40 days are made up of his unanswered and refused EOT applications and are contestable, which means the maximum potentially disputable amount is RM40,000.
Whatever Bob's chances of winning, he knows how much is at stake and if it's worth fighting for.
If you were Bob and wanted to recover the amount, you can send your employer a CIPAA Payment Claim, which requires a response in 10 working days.
If not resolved within this period, the claim can be used to initiate CIPAA adjudication proceedings, which we're guessing readers are already familiar with.
And while we don't deny its usefulness and would never discourage a contractor from pursuing it, we would just like to point out some key limitations contractors should be aware of.
CIPAA adjudication fees & timeframe
Let's say Bob's Payment Claim goes ignored and he decides to pursue adjudication.
The Asian International Arbitration Centre (AIAC) which is the body overseeing the matter charges based on the dispute amount:
registration fee: RM250, non-refundable
appointment fee, if you and your employer cannot agree on an adjudicator: RM400
adjudicator's fee: from RM2,760 for claims under RM50,000 up to RM50,000 for claims over RM5 million
admin fee: 20% of the adjudicator's fee
the adjudicator's travel and accommodation
Our guide to adjudication under CIPAA 2012 breaks it down in full, but in short, Bob's RM40,000 claim works out to roughly RM4,000 in fees before expenses - about a tenth of what he is chasing.
Fees must be paid before a decision is released, and as the party initiating, there is a good chance Bob must foot the whole thing with no guarantee he wins any portion of his claim.
Additionally, adjudication follows a very specific procedure set by AIAC that means from serving the initial Payment Claim to getting a decision usually takes just under 90 working days, which can spread out over four to five months.
For a contractor already short on cash, forking out more money and then enduring a lengthy gap before a chance of getting paid is not exactly encouraging, and for RM40,000, Bob may decide to grit his teeth and just move on instead.
And truth be told, we are sure many Bobs all over Malaysia have done the same.
If YOU are Bob, we strongly encourage you to get in touch with us for a case assessment where we can advise you on other pre-court debt recovery and settlement strategies that make recovering your money financially viable.
That's it from us, and we wish you a smooth recovery 🙂
Let Rule & Co handle your construction debt recovery
If your payment reminders have been ignored or you simply don’t want the hassle of chasing debtors, Rule & Co is a law firm specialising in helping contractors recover debts via legally compliant strategies that minimise upfront cost and maximise recovery.
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