You are on page 1of 53

May 2013 - Contract Administration II Syllabus Section A - Introduction An overview of contract requirements.

s. Understand the roles and authority of the personnel involved on a project and including classification of contracts and standard form, tendering system and tendering process. Understand the contract documents Introduction of proper documentation and preparation and execution of contract. Section ! "re-construction documentation "erformance #ond. Insurance. $or% programme.

Section & ! &ontract documentation during construction "A' ())*+&I, ()))+-./ ()0A 1()2)3 Standard 4orms of &ontract &ommencement of wor% "rogress 'onitoring ,elay and extension of time 5on-&ompletion and damages Suspension of wor% Issues related to payment ,etermination of employment 6ariations to the wor%s &ompletion and handing over "ost completion and handing over &laims ,isputes resolution under "A' ())*

Scheduling of CA II for May 2013 Semester $ee% 2 to 0 7verview of contract requirements and introduction of proper documentation 18 hours3 An overview of contract requirements. Understand the roles and authority of the personnel involved on a project and including classification of contracts and standard form, tendering system and tendering process Understand the contract documents Introduction of proper documentation and preparation and execution of contract.

$ee% 9 "re-construction documentation 10 hours3 "erformance #ond. Insurance and Socso. $or% programme.

$ee% : to ; &ontract documentation during construction 1; hours3 < =est 5o.2 1( hours3 "A' ())* Standard 4orms of &ontract. &ommencement of wor% "rogress 'onitoring ,elay and extension of time 5on-&ompletion and damages

$ee% > to2) &ontract documentation during construction 18 hours3 Suspension of wor% Issues related to payment ,etermination of employment 6ariations to the wor%s

$ee% 22 to 2( "ost contract documentation 19 hours3 < =est 5o. ( 1( hours3 &ompletion and handing over "ost completion and handing over &laims ,isputes resolution under "A' ())*

Main reference books 2. =he "A' ())* Standard 4orm of uilding &ontract, Sundra /ajoo, ,ato? $S$ ,avidson and @ar#ans Singh .S 1())83. (. =he 'alaysian Standard 4orm of uilding &ontract 1=he "A' 288> 4orm3 ! Sundra /ajoo 128883 0. Angineering B construction contract management ! Caw and principles, @ar#ans Singh, ..S. 1())93. 9. Angineering B construction contract management ! "re-contract award practice, @ar#ans Singh, ..S. 1())(3. :. Angineering B construction contract management ! &ommencement B administration, @ar#ans Singh, ..S. 1())(3. *. Angineering B construction contract management ! "ost commencement practice, @ar#ans Singh, ..S. 1())03. Su 2. (. 0. 9. :. lementary reference books "rinciples of the law of contract in 'alaysia ! Syed Ahmad Alsagoff ( Adition. rd &ontract practice for surveyors ! -ac% /amus and Simon irchall,0 Adition. rd =enders and contracts for #uilding ! =he Aqua Droup, 0 Adition. nd Caw for the construction industry ! Stephanie 7wen, ( Adition. nd &ontract documentation for contractors ! 6incent "owell Smith and -ohn Sims, 0 Adition. nd *. &onstruction contract claims ! /eg =homas, ( Adition. ;. 2:) &ontractual pro#lems and their solutions ! .nowles. !b"ecti#e$ %o ro#ide the students &ith the necessary kno&ledge so that they understand the mechanisms and rocedures in administering the construction contracts in relation to 'AM( )*+( IC, and CI-. form of contracts and its sub-contracts/ %he learning outcome !n com letion of this sub"ect( a student shall be able to$ 0amiliari1e &ith the mechanisms and contracts/ Identify suitable Standard 0orm of contract a undertaken/ rocedures in administering construction licable to the ty e of rocurement system
nd

Incor orate and Im lement the #arious Standard 0orms of Contracts encountered in Malaysian construction industries/ Identify the main ro#isions in the 'AM( )*+( I,M and CI-. Standard 0orms of Contract and a&are the similarities and differences in the #arious Standard 0orms of Contract/ +ecogni1e the strengths and limitations of these Standard 0orms of Contract and Subcontract( and be able to identify the #arious issues and roblems encountered in construction contracts and to establish its current osition &ith reference to the rele#ant sections and clauses found in these forms of contract and sub-contract/ Identify the methods a#ailable to resol#e dis utes or conflicts An !#er#ie& Section A 2. (. 0. 9. :. *. &ontract ! Alements of contract - =he lin%s #etween contract and tort, &lassification of contracts and standard form =endering system =endering "rocess =he requirements of proper contract documentation ,ocumentation after tendering - &ontent of contract document

1/1 Contract - ,lements of a contract =he main elements for a valid #inding contract areE i3 An agreement. ii3 &onsideration iii3 An intention to #e #ound #y the agreement. =he other requirements areE i3 =hat there is no fundamental mista%e over the su#ject matter. ii3 =hat the parties are capa#le of entering into that particular type of contract. iii3 =hat the contract is for legal purpose. iv3 =hat the contract is supposed to #e in a particular form, e.g in writing or in a deed ! this is done either #y the ma%er signing in front of one witness, who then signs 1Attests3 the deed, or #y another person signing on #ehalf of the ma%er at the ma%er?s direction and in his presence and the presence of two witnesses, who after each attest. v3 =hat the parties consented to the agreement of their own free will. Summary of the requirements of a valid contract If a#sent 6oid ! unless a specialty contract 1a deed3 6oid 6oid 6oid Alements &onsideration Agreement Intention to #e #ound 5o fundamental mista%e =he price of the promise 7ffer and acceptance and certainty of terms "arties must not have agreed not to #e #ound #y their promise Su#ject matter must have #een existence and no mista%e as to the terms of the offer or identity of su#ject matter or parties 5ot a minor, mentally ill or drun% 1if relevant3

6oid, voida#le or unenforcea#le

&apacity to enter into that type of contract

6oid 6oid 6oida#le

Cegal o#ject "roper form =rue consent

=he purpose of the contract must #e permitted #y law =he contract must #e in a particular form e.g. in a deed. 5o duress, undue influence, misrepresentation or fraud to o#tain agreement

'ri#ity of contract =he doctrine illustrated #y reference to #uilding main contracts and su#contracts, under which employers and su#contractors cannot sue each other. @owever, it has always #een possi#le to o#tain a collateral warranty from su#-contractor. =his is a promise #y the su#-contractor that his wor% will #e of the quality required #y the main contractor. As this is a contractual promise, it must either #e contained in a deed 1unli%ely3 or there must #e consideration. =his may ta%e the form of a promise in consideration of #eing made the 5ominated su#-contractor. It could also #e a separate fee for some element not found in the main contract, e.g. for design wor%. %his doctrine only a lies to contract/ It is irrelevant in tort, agency, third party rights in motor insurance, a #eneficiary?s right to sue under trust created #y other people and transfer of rights of action to trustee in #an%ruptcy. 2o& do contractual rights and duties end3 A contract doe not go on forever, with the parties owing each other contractual duties indefinitely. &ontracts end in a num#er of different ways. =hese are #y performance, agreement, frustration and #y #reach of contract. 1/2 4a& of tort =he law of =ort is mostly to #e found in the common law. =he practical consequences of the law of tort are concerned with the adjustment of losses. $here the element of faults and damage exist, the law will determine who will #ear the resulting financial loss. Caw of =ort in 'alaysia is largely derived from common law of Angland. =he areas that are covered under this module areE 23 5egligence and related issues. (3 =respass to land and related issues. 03 5uisance and related issues. 5hat is a tort or tortious liability3 According to $infield ! =ortious lia#ility arises from the #reach of a duty primarily fixed #y lawF this duty is towards persons generally and its #reach is redressi#le #y an action for unliquidated damages or alternative remedies as injunctions. A tort is a civil wrong. Action is #rought #y the victim of wrongful conduct 1the claimant3 against the wrongdoer 1the defendant3.

-ifferences bet&een contract and tort of negligence$

Contract A contract is a voluntary agreement. =he parties may agree upon a num#er of stringent o#ligations which each party promises to o#serve. In the event of a default, the claimant will #e entitled to sue for the #reach of contract.

%ort of negligence 7#ligations are not accepted #y voluntary agreement #ut are imposed upon the persons concerned #y the state.

Aim of the la& of tort 're#ention or deterrent/ =he aim of =ort Caw is to compensate injured, not punish offender 1other "u#lic laws to punish e.g. "enal code3. =he most effective way of dealing with any wrong committed is to ensure that it will not #e repeated or even #etter to prevent it from happening at all, that is, #y an injunction. Categories of tort =ype 2 - Actiona#le per se ! Antitlement to compensation as of right without the need to prove damage occurred, e.g. trespass and forci#le injury. =ype ( ! 5ot actiona#le per se ! =he plaintiff must esta#lished that he+she suffered actual damages due to the defendant commission of the tort. Denerally to #e successful, the plaintiff need to show the defendant?s #ehaviour falls into a specified situation cover #y the law of tort ! 5egligence, trespass or nuisance. Interests rotected by the la& of tort areas follo&s$ 2. "ersonal security ! Safety of individual, personal injury and privacy. (. /eputation ! Axtension of personal security ! ,efamation, malicious falsehood and deceit+dishonesty. 0. "roperty ! /eal or personal #ut not economic loss. 6/ Aconomic interest ! Aconomic loss due to negligent misstatement and actual damages can #e compensated #ut not pure economic loss such as loss of profit and defective #uilding which can #e recovered under the contract and not under tort. - See %eh *e& !n 7 Anor # 8eoh 7 5u -e#elo ment Sdn/ .hd/ 7 ors/ 91::;< ! =he plaintiff claimed against the first defendant GHthe #uilderI in contract for defective wor% in the construction of the house purchased #y them. =hey also claimed against the second defendant Gthe architectI and third defendant Gthe engineerI for damage in negligence. =he learned judge found the #uilder lia#le for #reach of contract #ut dismissed the claim against the architect and the engineer with whom the plaintiffs have no contractual relationship, the claim #eing for pure economic loss. =2eld by 'eh S&ee Chin as he &as then> %ort is a 'ri#ate 4a& bet&een indi#iduals/ .ut some beha#iour can be both a tort and a crime/ 2. If a wor%man is injured on site and there was a #reach of the &onstruction regulations #y his employer, his employer may #e prosecuted for that #reach, as it was a crime. @e may #e sued in the civil courts either for tort of #reach of statutory duty or for #rea%ing his employer?s duty to ta%e care of his employees, that is, a sort of negligence. (. A person who #uys a defective tool that causes him to lose his fingers may sue the supplier for #reach of contract and the manufacturer for the tort of negligence. 0. $here there is an existing contract #etween the contractor and the employer, the contract does not prevent the contractor to o#tain judgement also in tort.

9. =he plaintiff may sue for #reach of contract or negligence or #oth, #ut he cannot recover damages twice Jres judicataK. @e also cannot sue the same party using the same reason in contract and tort. /es judicata means a matter which has #een adjudicated on and the plaintiff may not #ring a su#sequent claim which involves reopening a matter already decided nor may a plaintiff #ring a claim which see%s some relief which was or should have #een included in the claim already decided. Deneral principle ! ,amages or relief arising from any cause of action can only #e claimed once. It follows that any claim for damages whether in tort or for #reach of contract, must #e claimed for all future anticipated losses, which will #e assessed at the date of hearing. ! See .atty # Metro olitan +ealisation =1:?@> A. ;;6/ %y es of liability for torts =here are three typesE 1i3 "ersonal lia#ility ! =he person who actually committed the tort 1i.e. the tortfeasor3 is sued and will have to pay all the damages. If other people are involved they will #e jointly lia#le. 1ii3 6icarious lia#ility ! $hen someone authoriLes another, either expressly or impliedly, to do something, and that person in so doing commits a tort, then the person authoriLing the #ehaviour will #e vicariously, i.e. indirectly lia#le for the tort. 1'ore details #elow3 and 1iii3 Strict lia#ility ! A person will #e strictly lia#le even though there was no fault or intention on his part. 'erely #y doing certain things is enough to give rise to action in tort. Axamples are rule in /ylands v. 4letcher and statutory #reaches plus others such as trespass and defamation. Claimants in tort under construction industry "ersons with no contractual involvement with the project and those with contractual relationship can claim. =he law of contract does not prevent action in law of tort #ut the o#ligation in tort cannot #e greater than those found in contract. 'arties liable in %ort 'inors injured can only sue through an adult, mentally unfit exempted from actions, hus#and not lia#le for tort of wife unless they are employer+employee, royalty exempted from actions, judiciary has a#solute immunity, am#assadors+staff immune from actions. -oint tortfeasors-Injured can as% for joint contri#utions to pay damages, #usiness partners e.g. are joint tortfeasors.

2/1 Classification of contracts Introduction - =he doctrine of freedom to contract in common law countries 1'alaysia inclusive3 has generated an extensive array of contracts of various characteristics and varieties. &oupled with an explosion of contractual dealings arising out of the glo#aliLation and li#eraliLation process the practical ramifications are a multitude of contracts in all fields of the engineering+construction industry. It is not possi#le to deal with the entire spectrum of such contracts. @owever, it is relevant to address the main types of the engineering+construction contracts that are presently encountered commonly in the local industry and these are listed #elow under the following categoriesE &ontracts #ased on the pricing+payment criteriaF and &ontracts #ased on the method of contract procurement.

Contracts based on ricingB ayment criteria 7ne of the principal methods of classifying contracts is #ased on the method #y which the contract price is esta#lished and su#sequently payment is made to the contractor. $e are focusing at the traditional approach and at the same time address possi#le areas of confusion #y su#-classification of contracts under this category into the following typesE 4ixed price type of contractsF &ost reim#ursement type of contractsF and 'iscellaneous type of contracts. 0iCed rice ty e of contracts A fixed price contract can #e defined as a contract in which the contractor quotes a price for the whole of the wor%. In essence, the contractor ta%es the ris% of judging how much wor% is involved and its cost. In practice, if the contract documents do not accurately reflect the wor% to #e done, the contractor is entitled to variation in the contract sum. Alternatively, fixed price contract may #e defined as items paid for on the #asis of a predetermined estimate of the cost of the wor%, an allowance for the ris% involved and the mar%et situation in relation to the contractorMs wor%load, the estimated price #eing paid #y the client irrespective of the cost incurred #y the contractor. In essence, a fixed price type of contract is a contract whereE =he contractor contracts to do the wor% at a price he has estimated in advanceF =he contract price is not adjusta#le #y reason of factors such as price increases, currency fluctuations, changes in ris%s, etc. @ence, if the contractor is incorrect in his estimation, he ta%es the ris% of #eing wrongF and =he price may, however, #e su#sequently adjusted due to instances of variations ordered #y the client, contract documents not accurately defining wor% to #e underta%en, etc. =he common species of fixed price contracts encountered in the engineering+construction industry areE Cump sum contractsF 'easure and value contractsF and =urn%ey contracts. 7f the three, lump sum contracts are the most readily encountered though the latter two varieties are #ecoming increasingly common and as such do need some consideration within the overall discussion. 4um sum contracts Strictly, a lump sum contract is a contract where a party underta%es to complete the whole of the wor% for a stated and fixed amount of money paya#le #y the other. =his is so even though it may contain express stipulations permitting adjustment of the contract sum for eventualities such as variations, payment for extended preliminaries, etc. $hat is important is that at the time of contracting, #oth parties must have agreed upon a lump sum price to #e paya#le for a defined scope+quantity of wor% to #e underta%en. It should #e noted that most of the common Standard 4orms of &ontract used in the country such as the -./ 4orms, "A' 4orms and IA' 4orms are essentially entire contracts for a lump sum with modifications to reduce the strict application of an entire contract. Cump sum contracts are of the two principal types. $ith #ills of quantitiesF or $ith drawings and specifications.

=he eventual type of such a contract adopted is #asically dictated #y factors such as the extent of the detailed design, the employerMs involvement in the ta%ing-off of the quantities, ris% allocation, etc. Usually the second species of a lump sum contract is quite uncommon and is confined either to proprietary processes+systems or mechanical and electrical installations where the services of a quantity surveyor are not employed. 4um sum contracts &ith bills of Duantities =his type of contract is used predominantly in traditional general contracts where the employer causes the complete design to #e underta%en and a detailed ill of Nuantities 1 N3 to #e prepared on his #ehalfF which N is then given to the contractor for pricing. =he N fully descri#es the materials and wor%manship and actually represents the wor%s to #e executedF wor% which #y its nature cannot #e accurately measured are descri#ed as provisional. =he N is eventually used as a #asis of effecting payment to the contractor. Such contracts are of the following varietiesE $ith prime cost 1"&3 and provisional sumsF or $ithout prime cost 1"&3 and provisional sums. Oou need to #e aware of the fact that although the second variety of the contracts are not usually common, they are nevertheless significant in small to medium siLed projects where none of the elements of the wor% are let out on a "& and+or provisional sum #asis. 4um sum contracts based on dra&ings and s ecifications As for lump sum contracts, this type of contract also comes in two forms, namelyE $ith prime cost 1"&3 and provisional sumsF or $ithout prime cost 1"&3 and provisional sums. 4or such contracts, the contractor is usually furnished with the following documentsE ,rawings showing the extent, location, arrangements and perhaps suita#le details of the wor%F Specifications descri#ing the quality of material, wor%manship and to a certain extent contractorMs design inputF and Supplements on items such as scope of wor%, an indicative schedule of quantities, etc. =he contractor is required to price the wor%s essentially on the documents furnished, i.e. underta%e his own Mta%ing-offM or measurement of the quantities, contingencies, ris% analysis, etc. =he indicative schedule of quantities or summary of prices eventually agreed upon would serve as the #asis of ma%ing interim payments. Cump sum contracts #ased on drawings and specifications are used mainly whereE ,etailed design wor% is not underta%en #y the employerF =he employer is not confident of achieving a comprehensive coverage of the complete design requirements, e.g. for a proprietary systemF =he siLe and nature of wor% does not justify the preparation of N, e.g. minor renovation or maintenance wor%s, etcF and =he employer wishes to transfer the ris% of assessment of the wor% to contractor as far as possi#le. Measure and #alue contracts =his is also %nown as schedule contract or measurement contract. A measure and value contract has #een concisely explained asE A general name given to any contract where there is no fixed contract sum 1lump sum contract3 #ut where the wor% is measured and valued as it proceeds in order to arrive at a price to #e paid to the contractor.

=his type of contract is utiliLed principally where the exact scope and quality of the wor% cannot reasona#ly #e determined accurately at the time of tendering. =o ena#le the tenderer to esta#lish a price, a #asis is provided #y the employer in the invitation to tender documents. ,uring the currency of the contract or upon completion of the wor%s, the wor%s are measured, valued and payment effected to the contractor. Such contracts are common, rather than an exception in civil engineering and infrastructure projects especially those involving earthwor%s, wor% #elow ground level, etc. 'easure and value contracts come in the two #asic forms #ased on eitherE A #ill of approximate quantitiesF or A schedule of prices. 7f the two forms mentioned a#ove, a measure and value contract #ased on a M ill of Approximate NuantitiesM is more prevalent in the industry although it entails a higher involvement and preparatory wor% on the part of the employer. &omparatively, it affords relatively easier tender evaluation and eventual selection of a possi#le contractor. Measure and Ealue Contract .ased on A roCimate Auantities

=his type of contract is in essence quite similar to a lump sum contract #ased on #ill of quantities. @owever, the differences lie in the input pertaining to the preparation and nature of the #ills of quantities, the tender evaluation process and the eventual contract administration. =he process necessitates the preparation of #ills of approximate quantities, the tenderers pricing these quantities, the su#sequent measurement and valuation of the completed wor% and the eventual dis#ursement of payment to the contractor. It is to #e noted that for the #ills of quantities, only the quantities are approximate. =he descriptions of wor% still have to #e accurate. Applications of such contracts include the following situationsE $here the site conditions are not sufficiently %nown or defined until the wor%s are actually carried out, e.g. wor% #elow ground level involving roc% excavationF $here the accuracy of the actual quantities cannot #e guaranteed or esta#lished with reasona#le accuracy at the time of tendering, e.g. pile lengths, etcF and 4or a fast trac% project, where early appointment of a contractor and commencement of wor% on site is envisaged #efore detailed design is finaliLed and accurate ills of Nuantities esta#lished. In underta%ing the measurement and valuation of the completed wor%s, the contract administrator has the following optionsE =he wor%s can #e measured and valued on an incremental #asis, i.e. as and when the various parts+elements are completedF or =he wor%s can #e measured and valued as soon as the construction+installation drawings are ready and su#stitution #ills of quantities prepared in place of the #ills of approximate quantitiesF or =he whole wor% is measured and valued at the end of the contract which is then used as a #asis of the final account. Measure and Ealue Contracts .ased on a Schedule of 'rices =his type of contract is applica#le where time is very short or is not practica#le for some reasons to prepare even #ills of approximate quantities. A schedule may #e produced giving descriptions only of the wor% to #e carried out and the materials to #e used. =he employer may put prices against each item and require tenderers to state the percentage a#ove or #elow the given prices for which they would #e prepared to carry out the wor%. =he essential features of such a contract areE =here are no #ills of quantities, i.e. not even #ills of approximate quantitiesF

=he contractor is furnished with either a schedule of the wor%s to #e carried out to #e priced on a unit #asis or a pre-priced schedule allowing the contractor to add or deduct a percentage with respect to each particular tradeF =he schedule of price is usually la#eled as approximate and indicative only of the nature, scope and extent of the wor%s involved. @owever, for ensuring M#usiness efficacyM for the purposes of the contract, the descriptions of the wor% have, at the least, to #e reasona#ly accurateF and $or% is then measured and valued %urnkey Contracts It can #e descri#ed as pac%age deal type of contracts, ,esign and uild+ ,esign and &onstruct contracts, A"&& type of contracts, etc the defining characteristic is the com#ining of all the fundamental tas%s of the project, i.e. design, production 1construction or #uilding3 and management in a single pac%age. =he contractor ta%es full responsi#ility and carries sole lia#ility for design and construction. In such a typical contract, the employer approaches a contractor with a set of requirements defining the employerMs wants termed the AmployerMs /equirements covering #asically the followingE Specifications of wor% related to the performance required called "erformance SpecificationsF and A proposed formula on how the wor% is to #e paid for. =a%e note of the fact that the a#ove requirements may #e mere #rief statements or detailed specifications, drawings, schedules, etc depending on the nature and complexity of the project or the extent to which the employer has underta%en the expression of his wants. =he contractor responds to the employer with an offer called the &ontractorMs "roposals which will include production as well as design wor%, contract price and the manner in which the contract price has #een calculated, e.g. the contract price analysis, etc. ills of quantities are strictly not applica#le in a =urn%ey contract and if something a%in to this is used, it is merely for the purpose of the contract sum analysis or for ma%ing payment to the contractor. =hough =urn%ey contracts can #e on a fixed price or cost reim#ursement #asis, the accepted practice in this country favours the fixed price approach. =he norm is for the contractor to contract on the #asis of a predetermined estimate of the cost of the complete wor%. =his is in line with the selling point of such an arrangement, where#y the contractor #ears all ris%s inclusive of costs and pricing ris%s su#ject to adjustments occasioned #y variations ordered #y the employer, extended preliminaries, etc. Another feature sometimes encountered in such contracts is a guaranteed maximum sumF a sum offering assurance to the employer on his maximum price exposure. Cost reimbursement ty e of contracts &ost reim#ursement is a term used to descri#e one of the two principal methods of ma%ing payment under a contract. In terms of definitions, such contracts have #een defined as a type of contract #y which the contractor receives all his costs together with his fee or a contract in which the contractor is reim#ursed his actual cost plus a fee to cover his overheads and profit =he following pertinent matters need to #e ta%en notice on cost reim#ursement type of contractsE =here is no finite sum tendered #y the contractor nor is one esta#lished at the time of contractingF =he contractor is paid #ased on the prime cost of the wor% 1as defined in the contract documents3 plus a fee to cover matters such as his overheads and profit, etcF "ayment of the contractorMs actual cost invaria#ly ta%es into account any attendant fluctuationsF

10

=he #asis of the fee paya#le, i.e. whether it is to #e a fixed fee, percentage fee or fluctuating fee is esta#lished when the contract is signedF and =he actual contract sum will only #e determined on completion of the wor%s and the ascertainment of the final account figure.

=he types of cost reim#ursement contracts are dictated #y the formula adopted for reim#ursing the fee due to the contractor. @ence, such types of contracts includeE &ost plus fixed fee contractsF or &ost plus percentage fee contractsF &ost plus fluctuating fee contractsF or =arget cost contract. &ost reim#ursement contracts are not popular in this country as it #urdens the employer with all the ris%s and with no advance notion of the eventual financial commitment. It generally imposes no incentive on the contractor to maximiLe efficiency and %eep the costs down since he is already assured of his fee in advance. Seemingly with this arrangement, the employer #ears the #runt of the disadvantages whilst simultaneously guaranteeing the contractor of his fee 1and profit3 with little or no attendant ris%s. 5evertheless, such contracts are still utiliLed in the following limited situationsE In emergency situations where under the prevailing constraints, such contracts afford the #est alternatives availa#le to the employer to not only commence wor% fast #ut also with minimum investigative wor%F $here through a previous course of dealings, an element of trust and relia#ility has #een esta#lished #etween the parties ensuring that the formula adopted per the contract is mutually advantageous and offers a Mwin-winM solutionF and In ongoing contracts where the contractor encounters severe cash flow pro#lems and is una#le to further finance his activities on site, to avoid determination with its attendant cost and time implications, the most practical option would #e to convert the contract into a M&ost "lusM type and finish off the wor%s on time, discounting any extra costs incurred. Cost lus fiCed fee contracts $ith this type of contract, the contractor is paid the prime cost or actual cost of the wor% reasona#ly incurred plus a fixed lump sum. =he prime cost of the wor% carried out is compiled fromE 'aterial invoicesF $age and time sheetsF Ca#our record sheetsF and "lant accounts, etc. =he fixed fee is a lump sum figure that does not vary with the final cost of the wor%s and covers items such as the contractorMsE "rofitF Supervision costsF and 7verheads. ,ue to the fact that the fee is normally not su#ject to any upwards variation, there is some incentive on the contractor to complete the wor%s efficiently and as early as possi#le to recover the said fee. Cost lus ercentage fee contracts =his is a variant to the cost plus fixed fee contract, under this contractual arrangement, the formula adopted is reim#ursement of the prime cost 1or actual cost3 plus a fee which is a percentage of the prime cost instead of a fixed lump sum. =he percentage is predetermined and #uilt into the contract entered #y the parties.

11

7wing to the fee #eing a percentage of actual wor% underta%en, its quantum varies according to the extent of the actual wor% eventually completed. @ere, there is little or no incentive 1other than his reputation and integrity3 for the contractor to complete the wor%s efficiently and on time. =his arrangement can #e seen in contracts involving either emergency wor% or for projects where it is difficult to estimate the wor% to #e done although it has #een employed for certain aspects of maintenance wor%. Cost lus fluctuating fee contracts Under such contracts, the contractor is reim#ursed forE the prime cost of the wor% doneF and a fluctuating fee to cover his profits, overheads, etc. =he fee is esta#lished in accordance with the following principlesE the total cost 1or MtargetM cost3 of the wor%s is estimated and agreed upon #y the partiesF the formula of the fee is next determined #y reference to the MtargetM cost or to some form of a sliding scaleF and a common formula adopted esta#lishes the amount of fee as varying inversely to the costs actually achieved, i.e. if these costs are less than the MtargetM cost, the contractor receives a higher fee calculated in accordance with an agreed sliding scale and vice versa. @ence, there is an advantage to the contractor to %eep the costs actually incurred as low as possi#le #y wor%ing efficiently and timelyF thus maximiLing his eventual returns. %arget Cost contracts A target cost contract has #een defined as contract in which the contract sum is calculated #y comparing the actual prime cost with an estimate of the cost 1target3 made in advance, the difference #etween the two #eing shared #etween the parties according to the actual terms of the contract. =his type of contract contains elements of fixed price and cost reim#ursement contracts and #y splitting the difference #etween the actual and target cost, this contractual arrangement transfers part of the ris% to the contractor and there#y necessitating him to underta%e his wor% efficiently and within time. =he payment during the currency of the contract is made partly on the estimated fixed price #asis and partly on the actual prime cost. =he administration of such contracts is #oth tedious and expensive involving careful costing and accurate measurement and valuation on the employerMs side. =he procedure for such arrangement involves the followingE on the #asis of the either priced #ills of quantities or a priced schedule of rates, a target cost plus the contractorMs fees is agreed upon #y the partiesF the latter usually #eing a percentage of the target costF the target cost, though an estimated cost, includes suita#le provisions for fluctuations and possi#le adjustments involving variationsF the wor% is measured and valued on the #asis of the #ills or schedule and the contractor is paid the actual costs reasona#ly incurred 1inclusive of any variations3 plus the relevant feeF the total of these costs is compared to the adjusted target cost. If there is a savings #etween these two figures, the difference is split among the contractor and the employer according to the pre-arranged formula and vice versa.

12

Contracts .ased on Method of 'rocurement 7ne of the alternative methods utiliLed in the industry in categoriLing contracts is to #ase it on the contract procurement path or method adopted instead of solely on the contractual pricing arrangement. It should #e noted that the contractual pricing arrangement mechanism will #e influenced #y the method of contract procurement adopted #ut could #e similar for different procurement paths. =he final contract entered into #y the parties would eventually incorporate elements of the procurement method and contractual pricing arrangement agreed upon #y the said parties. =he contracts that were #ased on the method or path of procurement can #e divided into the following main typesE =raditional Deneral &ontracts 1M=D&M3F 'anagement &ontractsF &onstruction 'anagement &ontractsF M"ac%ageM ,eal =ype of &ontractsF and uild 7perate and =ransfer 1 7=M3 &ontracts =he a#ove various procurement methods which may #e adopted can #e #roadly classified under two 1(3 headingsE i3 =raditional ii3 5on-=raditional 'anagement contracting &onstruction management ,esign and #uild 1"ac%age deal or =urn%ey3 uild 7perate and =ransfer 1 7=3 &ontracts %raditional Feneral Contracts Appearing under various la#els such as general contracts, MAmployer-designM contracts and the li%e, =raditional Deneral contracts are #asically characteriLed #y the separation of the design from the manufacture 1i.e. construction or installation3 elements of the contract. =he employer causes the design to #e prepared #y his professional designers and there#y ta%es full responsi#ility for the design. ,epending on the contractual arrangement selected, the employer may also cause #ills of quantities to #e prepared. Under this method of contract procurement, the contractor #uilds or manufactures what the designers have designed and+or specified. @e is only responsi#le for the material and wor%manship aspects of the contract and for the performance of his su#-contractors 1inclusive of any nominated su#-contractors3. 5otwithstanding its Mtime-testedM credentials, such contracts are slowly losing favour with the onslaught of increasingly complex projects preferring the newer paths of contract procurement, e.g. M"ac%ageM deal type, &onstruction 'anagement, etc. Management Contracts A management contract has #een descri#ed as a form of contractual arrangement where#y a contractor is paid a fee to manage the #uilding of a project on #ehalf of a client. It is, in essence, a contract to manage rather than a contract to #uild. =he characteristics of a management contract are that the employer engages the contractor to participate in the project at an early stage, contri#ute construction expertise to the design and manage the construction processF the latter #eing underta%en #y a num#er of wor%s 1or trade3 contractors. =he management contractor is paid a feeF which fee may #e on a fixed lump sum #asis or a pre-agreed percentage. ,epending on the nature of the contracts entered #etween the employer, the management contractor and the MtradeM contractors, the management contractor may or may not carry lia#ility for the defaults and+or omissions of the latterF delay inclusive.

13

Construction Management Contracts As aptly named, construction management contracts are a su#-set of the general corpus of management type of contracts and as such share common characteristics with management contracts discussed a#ove. =he essential differences are namelyE =he employer has direct contracts with the wor%s+trade contractorsF =he employer pays such wor%s+trade contractors directlyF =he construction manager is not lia#le for the acts and+or defaults of the wor%s+trade contractorsF and =he construction manager essentially acts as a mere consultant instead of a contractor in the general sense. 4or the instant type of contract, the construction managerMs expertise is used in the coordination and administration of the various wor%s+trade contracts. 4or this service, he is paid either a fixed lump sum fee or a percentage fee #ased on a pre-determined formula. It should #e appreciated that a construction manager does not play any of the roles of the general contractor especially in filling in for any exclusions or omissions in the interfaces #etween the various wor%s+trade contracts. 'ackage -eal %y e of Contracts =his is also %nown as =urn%ey type of contracts. =his is a method of contract procurement where the contractor is responsi#le for #oth design and construction 1and in some cases for even financing, complete fitting out, MtechnologyM transfer, etc3. =he common variations include the followingE ,esign and uild 1,B 3 &ontractsF ,esign and &onstruct 1,B&3 &ontractsF Angineering, "rocurement and &onstruction 1A"&3 &ontractsF Angineering, "rocurement, Installation and &onstruction 1A"I&3 &ontractsF and Angineering, "rocurement, &onstruction and &ommissioning 1A"&&3 &ontracts. Selection of the contractor is normally #ased on competitive tendering or negotiation and payment effected on an interim, milestone or lump sum #asis. .uild( ! erate and %ransfer Contracts =his novel method of contract procurement surfaced on the local scene directly as a result of the governmentMs privatiLation policy. Under this scheme, the contractor is responsi#le forE financing the project at all stagesF underta%ing the relevant design and constructionF operating and maintaining the wor%s over a stipulated periodF and on the lapse of the agreed period, reassigning it to the employer at no further charge. ,uring this stipulated period 1sometimes also called the concession period3, the contractor is entitled to collect any revenue generated as a means of recouping his initial and su#sequent financial outlay. @ence, this type of a contract procurement path is generally suita#le for projects capa#le of generating an income, e.g. highways, utilities, ports, etc. =he employer in return enjoys interim utility and eventual #eneficial ownership free from any financial and management commitments.

14

C!G%+AC%HA4 AG- 0HGC%I!G +,4A%I!GS2I' 9%raditional Method<

C4I,G%

-,SIFG C!GH4%AG%S

A+C2I%,C% AC%IGF AS -,SIFG 4,A-,+ AG'+!),C% MAGAF,+

AHAG%I%8 SH+E,8!+

MAIG C!G%+AC%!+

G!MIGA%,- B GAM,SH.C!G%+AC%!+S

-!M,S%IC SH.C!G%+AC%!+

&ontractual relationship 4unctional relationship Alternative relationship

G!G-%+A-I%I!GA4 M,%2!- - -,SIFG 7 .HI4% M,%2!%y e 1 - !+FAGISA%I!G S%+HC%H+, 9- 7 .<

C4I,G% C4I,G%IS AF,G%S MAIG C!G%+AC%!+

C!G%+AC%!+IS '+!),C% %,AM

AHAG%I%8 SH+E,8!+

A+C2I%,C%

,GFIG,,+

C!G%+AC%!+IS MAGAF,+ C!G%+AC%!+IS SI%, %,AM

SI%, MAGAF,+ &ontractual relationship 7rganisational relationship

SI%, ,GFIG,,+

SI%, SH+E,8!+

SH''!+% S%A00

15

%y e 2 - -,SIFG-AG--.HI4- 95I%2 'A+%IA4 -,SIFG .8 C4I,G%

&ontractual relationship #efore novation

C4I,G% &ontractual relationship

-,SIFG C!GSH4%AG%S

&ontractual relationship after novation

-,SIFG-AG--.HI4C!G%+AC%!+

Subcontractors

Su

liers

0abricators

!rganisational structure for Construction Management %y e 1

C4I,G%

-,SIFG %,AM

C!G%+HC%I!G MAGAF,+

5!+*S C!G%+AC%!+S

Contractual relationshi !rganisational relationshi


16

!rganisational structure for Management Construction

C4I,G%
&ontractual $or%ing relationship

'rofessional Construction Manager


-esign Consultants -Architect -Angineers -Interior designer, etc

5orks Contractor

5orks Contractor

5orks Contractor

'lease read ,ngineering and Construction Contracts Management 're-Contract A&ard 'ractice by 2arbans Singh */S/ 3: to 162 for further information on rocurement methods/ 2/2 Standard forms/ %y es of Standard 0orm of Contract Introduction Standard forms are useful documents that can help to determine the terms of the legal framewor% that is intended to form the #asis of the agreement #etween the parties. =his can #e achieved through the employment of the Standard 4orms of &ontract which are commonly availa#le for pu#lic and private construction wor%s such as "A', -./, IA' and &I, . =he suita#ility of such forms is dependent upon the procurement method and the contractual arrangement to #e adopted #y the parties. -efinition and related issues on the use of standard forms Standard forms of contract can #e defined as the terms on which transactions of common occurrence are to #e carried out and the terms of which were not the su#ject of negotiations #etween the parties. Alternatively, standard forms of contract can #e defined as document in a printed form containing standard conditions which are applica#le 1or can #e made applica#le #y the use of alternatives3 to a wide range of projects. =hey are prefera#le to specially drafted contracts #ecause they are intended to #e comprehensive and avoid most of the pitfalls which surround relations in the construction industry =he following characteristics can #e identified from the definition of Standard 4orms of &ontractE

17

=hese are in a printed form and pu#lished #y an authoritative #ody of the industry, which #ody is recogniLed #y #oth partiesF =he forms set out the terms or conditions on which the contract #etween the parties are to #e carried outF =hese terms or conditions are deemed to #e agreed and are not su#ject to further negotiation and+or amendmentF and =he terms or conditions are generally suita#le for a wide range of common projects or wor%s.

5hat are the main ur oses of ado ting Standard forms3 =he purposes of the Standard 4orms are multifold governing not only legalities #ut also mundane administrative issues to ensure that #oth parties are a#le to discharge and can actually discharge their side of the #argain through full performance. It is pertinent to loo% at the very purposes of using these forms and these can #e categoriLed #y the followingE =o provide the #asic legal framewor% evidencing the legal relationship #etween the parties, such as, identifying the rights, o#ligations and duties, =o furnish a mechanism for regulating the conduct of the commercial relationship #etween the parties, =o put in place the administrative procedures necessary to effect the legal and commercial relationship #etween the parties for achieving the purposes of the contract, and =o esta#lish the am#it of the powers and duties of the contract administrators under the contract #etween the parties. 5hat are the key ad#antages of Standard 0orms3 =here are some apparent positive reasons justifying the use of such forms in preference to the other varieties. =hese can #e summed up as descri#ed #elowE =he forms have #een arrived at through a process of negotiation #etween the various sectors of the industry and as a result act as a compromise #etween the various powerful interest groupsF =hey have #een widely adopted #ecause experience has shown that they facilitate the conduct of trade and have addressed the common pitfalls and shortcomingsF =he forms satisfy the equita#le principle requiring that similar projects demand similar contractsF =he standard forms allocate ris%s relatively fairly #etween the parties. Such equita#le apportionment of ris% o#viates contractors from adding ris% premiums and allowances and there#y leads to a fairer commercial transaction #etween the partiesF 'ost such forms are time tested and practitioners are aware of their wor%a#ility, limitations and draw#ac%s. =his familiarity leads to administrative and cost efficiency and minimiLes possi#le claims and disputesF 7ver the years these forms have accumulated a #ody of case law and judicial pronouncements as to the interpretation of the various provisions and stipulations which leads to certainty in their implementationF and Amployment of Standard 4orms avoid the necessity of the parties indulging in a long winded and time wasting process of negotiating the relevant contents of the legal and commercial framewor% which they intend to put in place. An Moff the shelf+ Mready-madeM formula is availa#le for the possi#le adoption #y the parties. 5hat are the dra&backs of Standard 0orms3 =hose who oppose the use of Standard 4orms provide a list of disadvantages and the principal ones of which are appended #elowE Standard 4orms contravene the very cornerstone of the law of contract, i.e. the doctrine of freedom to contract. y imposing Standard 4orms on the parties, these parties are

18

prevented from freely deciding on whatever terms and conditions that they deem fit to govern their legal and commercial relationshipF 7wing to the multitude and the varied nature of the contracts encountered in the engineering+construction industry, it is a fallacy to have a standard form covering all eventualities. =here is no way in which such a contract is a#le to cover all the various situations envisaged in the industry. 'oreover, such forms rarely record the terms of the agreement #etween the parties accuratelyF In situations where such contracts have #een used, these have #een more li%ely due to possi#le Marm-twistingM or MeconomicM duress rather than consensus #etween the parties. =his is especially so in times of economic recession or a slowdown in the industry where employers usually have the Mta%e it or leave itM attitudeF =he #elief that the Standard 4orms fairly apportion ris%s #etween the parties is in reality a myth as the parties are rarely #argaining at arm length. Such forms are normally drafted #y powerful interest groups inherently #iased in their allocation of responsi#ilityF and 'ost of the Standard 4orms are drafted in legalese, i.e. in complex legal language #eyond the comprehension of the parties and the normal contract administrators and requiring input or the services of legal specialists in interpreting the contents.

Standard forms of contract and subcontract in Malaysia In 'alaysia, there are a num#er of Standard 4orms of &ontract in the engineering+construction field. It may #e prudent to review the fundamental forms under the following categoriesE Dovernment+pu#lic sector contractsF and "rivate sector contracts. Fo#ernmentB ublic sector ty es =he initial sets of Standard 4orms were drafted #y the various government agencies for wor%s in the pu#lic sector. =his is evidenced #y the development of the "u#lic $or%s ,epartment 1"$,+-./3 Standard 4orms of &ontract. 7ver the years the Standard 4orms were modified progressively to suit local conditions and to %eep up with the current industry developments and the latest revisions is ());. Denerally, the #ul% of all pu#lic engineering+construction wor% let out until the mid-nineteen eighties were through governmental agencies, the "$,+-./ Standard 4orms enjoyed widespread popularity. @owever, with the advent of privatiLation and a consequential reduction of projects underta%en directly #y governmental agencies, #e these 4ederal, State or Statutory, the usage of such forms has shown a mar%ed decrease with further erosion in utility expected to continue in the new millennium. 5evertheless, these Standard 4orms do remain of importance to the industry and the practitioners in small to medium projects involving primarily the state and+or quasigovernmental project. =he &onstruction Industry ,evelopment oard 1&I, 3 has drafted and pu#lished a standard form of its own for #uilding wor%s under the style of the &I, Standard 4orm of &ontract 4or uilding $or%sE ())) Adition. A standard form for the nominated su#-contract was also pu#lished su#sequently. Any further development or new Standard 4orms to #e issued #y the &I, is still not clear. Although it appears that &I, Ms intention is to ma%e the usage of their forms common place, the question as to whether these &I, Standard 4orms will ultimately replace the existing "$,+-./ Standard 4orms yet to #e esta#lished. '5-B)*+ Standard 0orms for %raditional Feneral Contracts &urrently, "$,+-./ has a couple of Standard 4orms of &ontracts for #oth engineering and #uilding wor%s underta%en on the #asis of traditional general contracting. =hese areE "$,+-./ 4orm ()0A 1());3E &onditions of &ontract to #e used where #ills of quantities form part of the contractF

19

"$,+-./ 4orm ()0 1());3E &onditions of &ontract to #e used for contract #ased on drawings and specificationsF "$,+-./ 4orm ()05 1());3E form of contract to #e used for nominated su#contractors where the main contract is #ased upon 4orm -./ ()0 or ()0AF "$,+-./ 4orm ()0" 1());3E form of contract to #e used for nominated suppliers where the main contract is #ased upon 4orm ()0 or ()0A.

=hese revised Standard 4orms are time-tested and have #een utiliLed quite successfully for a whole range of #uilding, infrastructure and engineering projects of varying siLes and complexities. '5-B)*+ for %urnkey -esign 7 .uild Contracts 7wing to the popularity, as of recent, of wor%s #eing let out on the =urn%ey+,esign B uild method of contract procurement, "$,+-./ has developed and pu#lished a set of standard &onditions of &ontract for such wor%s under the title of "$, 4orm , += 1())) Adition3. =his form represents at the moment the only local standard form for such contracts. !ther Contracts =o date "$,+-./ has no Standard 4orms for the other types of contracts previously discussed, e.g. domestic su#-contracts, management contracts, construction management contracts, serial contracts, continuation contracts, etc. -udging #y the current trend in privatiLing more projects, it is dou#tful if "$,+-./ will, in the future, generate or pu#lish such Standard 4orms. CI-. 0orms &I, has started the #all rolling #y drafting and pu#lishing Standard 4orms of &ontract with the &I, Standard 4orm of &ontract 4or uilding $or%s 1())) Adition3 #eing the first such form. =his form will soon #e joined #y the Standard 4orm of &ontract for 5ominated Su#-contractors. It is predicted that more Standard 4orms will follow perhaps to fill in the lacuna left #y "$,+-./Ms corresponding slow-down on this su#ject. Miscellaneous 0orms Some statutory #odies and also private sector employers utiliLe the "$,+-./ Standard 4orms with slight modifications and+or amendments. Axamples of such usage include projects involved the ,rainage and Irrigation ,epartment 1,I,+-"S3, Cem#aga "ela#uhan .elang 1C".3, Ur#an ,evelopment Authority 1U,A3, to name a few. 'ri#ate Sector Standard 0orms In conjunction with the procurement path adopted #y the pu#lic sector for its wor%s up to the mideighties, the private sector inevita#ly developed its own Standard 4orms to cater for projects underta%en along the traditional general contracting route. =he impetus was provided #y "ertu#uhan A%ite% 'alaysia 1"A'3 for its primary activity, i.e. #uilding wor%s, which saw the pu#lication of the "A' series of Standard 4orms in 28*8. Angineers did not find the "A' forms suita#le for their applications in the engineering and infrastructure fields. Aarly attempts to modify the "A' and I&A, I'A&@A and IAA 4orms to meet the particular local applications did not meet with much success as evidenced #y the lac% of enthusiasm in such usage and the wide spread of disputes generated. =his resulted in the Institution of Angineers 'alaysia 1IA'3 developing their own Standard 4orms in the late-eighties and early nineties. "resently the "A' and IA' forms represent the main Standard 4orms used in the private sectorF with &I, ma%ing a recent entry.

20

'AM 0orms =he origin of "A' Standard 4orms is #y wor%ing in colla#oration with the Institute of Surveyors 'alaysia 1IS'3 in 28*8 to adopt the 28*0E -oint &ouncil =ri#unal 1-&=3 Standard 4orm of uilding &ontract 1/eprinted 28*>3 with necessary modifications as its flagship standard form. =hese forms are to #e used for private sector #uilding wor%s underta%en through the traditional general contracting contract procurement method comprisedE "A' *8E Standard 4orm of uilding &ontract $ith NuantitiesF "A' *8E Standard 4orm of uilding &ontract $ithout NuantitiesF and "A' 5S& ;)E Standard 4orm of &ontract for 5ominated Su#-contractors to #e used with "A' *8. =hough the -&= 28*0 4orm was revised progressively over the years to rectify its wea%nesses and shortcomings, the "A' 4orm remained relatively unaltered until its complete overhaul and replacement with a new "A' 288> Standard 4orm and further refinements in ())* with the introduction of "A' ())*. %he 'AM 200J 0orms =he anachronistic and archaic "A' *8 and revised "A' 8> 4orms have #een replaced with the new and updated "A' ())* 4orms which include, inter alia, the following Standard 4ormsE =he 'alaysian Standard 4orm of uilding &ontract 1"A' ())* 4orm $ith NuantitiesM edition3F =he 'alaysian Standard 4orm of uilding &ontract 1"A' ())* 4orm M$ithout NuantitiesM edition3F and =he "A' ())* Su#-contract 4orm 1to #e used for nominated su#-contracts where the main contract is #ased upon the "A' ())* 4orm3. 7n the details of the principles and the ma%ing of these forms, reference can #e made to the compilation entitled =he 'alaysian Standard 4orm of uilding &ontract 1Second Adition3 #y Sundra /ajoo and =he "A' ())* Standard 4orm of uilding &ontract #y Sundra /ajoo, ,ato? $S$ ,avidson and Ir. @ar#an Singh .S. It should #e noted that the "A' ())* 4orms are used essentially forE "rivate sector projectsF uilding wor%sF and &ontracts underta%en through =raditional Deneral contracting 1=D&3 procurement route. "lease ta%e note that there are currently no standard "A' forms for the following contractsE Angineering+construction contracts 1other than #uilding contracts3F "ac%age deal+=urn%ey types of contractsF 'anagement types of contracts, e.g. management contracting and construction managementF ,omestic su#-contractsF It is su#mitted that save for "ac%age deal+=urn%ey type of contracts where there may #e some motivation to draft a standard form, it is highly unli%ely to see "A' generating any other forms for the remaining contracts. =herefore, reliance may have to #e placed on the other Standard 4orms availa#le in the mar%et to fill this void. I,M 0orms After studying the strengths and wea%nesses of the "$,+-./ forms and the unsuita#ility of the "A' forms for primarily engineering and infrastructure projects, practitioners in the engineering field attempted to employ various ritish engineering forms. 'odifications to these forms were underta%en on a jo# specific and ad hoc #asis leading to much uncertainty and disputes in the local engineering industry.

21

=he Institution of Angineers, 'alaysia 1IA'3 then stepped in to rectify the seemingly confusing situation and addressed the gap in this area of the industry #y drafting and pu#lishing a series of Standard 4orms for engineering wor%s procured #y way of traditional general contracting. =he process commenced in 28>8 with the advent of the first form and five years later a much awaited form for 'echanical and Alectrical wor%s made its de#ut. %he I,M Standard forms =o date IA' has pu#lished three main forms, which include the followingE IA'.&A 2+>8E IA' &onditions of &ontract for $or%s mainly of &ivil Angineering &onstruction 1Second /eprint Septem#er 28893F IA'.&AS 2+8)E IA' Standard &onditions of Su#-contract for use in conjunction with the IA' &onditions of &ontract for &ivil Angineering $or%s 14irst /eprint Septem#er 28893F and IA'.'A 2+89E IA' &onditions of &ontract for 'echanical and Alectrical wor%s 14irst Adition 28893. 'ar%edly a#sent is the IA' Standard &onditions of su#-contract for use in conjunction with the IA' &onditions of &ontract for 'echanical and Alectrical wor%s. It should #e appreciated that the IA' Standard &onditions of &ontract are employed mainly forE "rivate sector projectsF &ivil Angineering, 'echanical and Alectrical wor%sF and &ontracts procured under the =raditional Deneral &ontracting 1M=D&M3 procurement route. As for the "A' forms, the IA' 4orms do not cater for the following contractsE "ac%age deal type+ turn%ey types of contractsF 'anagement types of contracts, e.g. management contracting and construction managementF ,omestic su#-contractsF =he IA' 4orms, in addition, do not also cover #uilding contracts as there is a desire not to duplicate the existing "A' 4orms 1and perhaps the new &I, form3. $ith the emergence of &I, as the new source of Standard 4orms for the construction industry, it is anticipated that IA' may not, in the near future, draft and pu#lish any new forms. @owever, for engineering wor%s 1as distinct from construction wor%s3 IA' will still #e loo%ed upon as a source of the relevant Standard 4orms within the local context. International standard forms of contract International Standard 4orms of &ontract are of foreign origin has #een, and continue to #e employed in 'alaysia for various projects despite the emphasis on the use of local forms. =he reasons for such usage can #e classified under the following principal categoriesE $here the contract is essentially of an international nature funded #y an international agency such as the $orld an%, Asian ,evelopment an% or foreign promoter or investor, e.g. a multi-national corporationF $here, though locally funded or promoted, the employer or contractor is of foreign domicile and insists on the adoption of a foreign or international standard form of contract with which he is familiar or which meets his expectationsF $here there is no local standard form availa#le to cater for the particular contract involved, e.g. a management contract or a construction management contractF or $here though there is a local standard form at the disposal of the parties, it is nevertheless not wholly suita#le for the particular project or contract involved, e.g. either its provisions are not extensive or its stipulations lac%ing in clarity as to the respective o#ligations and+or lia#ilities of the parties.

22

In such situations and to ensure that the legal framewor% to #e put in place adequately meets the commercial and legal expectations of the respective parties, there is a compulsion to use a standard form whatever its origin so long as the o#jectives of the agreement reached are ultimately met. @ence, the necessity to explore the possi#ility of using international+foreign 4orms of &ontract which in all pro#a#ilities will #e of ritish origin due to our traditional association with and dependence on ritish sources of engineering+construction &onditions of &ontract. =herefore, the following main types of international+foreign Standard 4orms of &ontracts will #e discussed. 4I,I& Standard 4orms of &ontractF -&= Standard 4orms of &ontractF I&A Standard 4orms of &ontractF and I'echA and IAA Standard 4orms of &ontract. 0I-IC Standard 0orms of Contract 4ederation Internationale des Ingenieurs ! &onseils 14I,I&3, the International 4ederation of &onsulting Angineers in association with the Auropean International 4ederation of &onstruction 1M4AI&M3 produces a whole series of Standard 4orms of &ontract for use worldwide with modifications, if necessary to suit the legal system of the country of a particular application, i.e. the domicile of the employer. 4I,I& forms are used in specific instances particularly whereE =he project is #eing funded #y or is #eing under the purview of an international agency of the li%es of the $orld an%, Asian ,evelopment an%F $here the parties find the 4I,I& forms the most appropriate for their transaction owing to factors such as familiarity, comprehensivenessF and $here there are either no local forms availa#le for the particular application or if there exist such forms, these #eing inadequate or deficient. =he most frequently used 4I,I& forms compriseE 4I,I& &onditions of &ontract for &ivil Angineering $or%sE =he /ed oo%F 4I,I& &onditions of &ontract for 'echanical and Alectrical $or%sE =he Oellow oo%F and 4I,I& &onditions of &ontract for ,esign, uild and =urn%eyE =he 7range oo%. In 2888, 4I,I& revised the a#ove forms and developed new ones, the principal types of which are listed hereunderE 4I,I& &onditions of &ontract for &onstructionE =he 5ew /ed oo% for #uilding and engineering wor%s designed #y the employerF 4I,I& &onditions of &ontract for "lant and ,esign uildE =he 5ew Oellow oo% for electrical and mechanical plant and for #uilding and engineering wor%s designed #y the contractorF 4I,I& &onditions for Angineering "rocurement &onstruction 1A"&3 =urn%ey &ontractsE M=he 5ew Silver oo%M for privately or pu#lic+private financial A"& =urn%ey projectsF and 4I,I& Short 4orm of &ontractE =he 5ew Dreen oo% - for minor #uilding or relatively uncomplicated construction wor%s. It is su#mitted that going #y the current trends in the industry and the swings towards glo#aliLation, we will see quite a #it of the new Oellow and Silver oo%s. As for the new Dreen oo%, except for marine wor%s involving dredging, there appears to #e no other field where it can #e employed locally. )C% Standard 0orms of Contract =he -oint &ontracts =ri#unal 1-&=3 is an affiliation of interest groups within the ritish construction industry which operates as a forum for discussing and determining the content of the clauses of the standard form #uilding contracts. It issues and regularly amends Standard 4orms of &ontract with supporting documentation and "ractice 5otes.

23

-&= Standard 4orms of &ontract in their original form have #een rarely used in this country. =he only limited exceptions have #een in very specific applications involving special types of contracts, such as, management contracts. In most cases, the -&= forms have #een used either with necessary modifications or as a #asis of a locally generated ad hoc or M#espo%eM form of conditions of contract, e.g. one with contractorMs design. Although -&= has, since its inception, generated a whole list of Standard 4orms of &ontract, in 'alaysia of relevance to the industry are only the following main typesF which at one time or another have #een used in various stylesE -&= Standard 4orms of uilding &ontract 128>)3E -&= >)F o "rivate $ith NuantitiesF o "rivate $ithout NuantitiesF o "rivate $ith Approximate NuantitiesF o 5ominated Su#-contractsE 5S&+2 to 9F and o ,omestic Su#-contractsE ,7'+2F -&= Standard 4orm of uilding &ontract $ith &ontractorMs ,esign 128>23E -&= &, >2F &= Intermediate 4orm of uilding &ontract 128>93E -&= I4& >9F -&= Standard 4orm of 'anagement &ontract 128>;3E -&= '& >;F -&= Standard 4orm of 'easured =erm &ontract 128>83F -&= Standard 4ixed 4ee 4orm of "rime &ost &ontract 128*;3F and -&= Standard 4orm of &onstruction 'anagement &ontract. -&= has issued another set of Standard 4orms listed as #elowE -&= Standard 4orms of uilding &ontract 1288> Adition3F -&= Standard 4orm of uilding &ontract $ith &ontractorMs ,esign 1288> Adition3F -&= Intermediate 4orm of uilding &ontract 1288> Adition3F -&= Standard 4orm of 'anagement &ontract 1288> Adition3F -&= Standard 4orm of 'easured =erm &ontract 1288> Adition3F and -&= Standard 4orm of "rime &ost &ontract 1288> Adition3. As part of its general revision and updating, -&= has launched a new set of -&= document under the Standard uilding &ontract terminology. =he following -&= ()22documents areE

Standard uilding &ontract $ith Nuantities ()22 Standard uilding &ontract $ith Approximate Nuantities ()22 Standard uilding &ontract $ithout Nuantities ()22 ,esign and uild &ontract ()22 Intermediate uilding &ontract ()22 Intermediate uilding &ontract with contractorMs design ()22 'inor $or%s uilding &ontract ()22 'inor $or%s uilding &ontract with contractorMs design ()22

$hether these new forms will #e used #y the local practitioners is purely speculative at the moment. 'uch depends on the a#ility of local #odies, e.g. &I, to generate suita#le standard forms to cover the major applications adequately. IC,( IMech, and I,, Standard 0orms of Contract or Institutional 0orms In ritain, #efore 4I,I& or -&= started developing Standard 4orms of &ontract, the principal institutions, i.e. the Institution of &ivil Angineers 1I&A3, Institution of 'echanical Angineers 1I'echA3 and Institution of Alectrical Angineers 1IAA3 had initiated the process of drafting Standard 4orms to address their respective areas of concern, i.e. engineering wor%s.

24

Since the emphasis of -&= is presuma#ly on #uilding wor%s whilst 4I,I& lists more towards an international engineering+construction audience. =hese institutions seem more focused to their fields of specialiLation. @ence, it is inevita#le that they represent the most suita#le #odies to draft and issue Standard 4orms of &ontract in their particular areas of competenceF hence the so called institutional forms. It is no secret that when local #odies such as the Institution of Angineers, 'alaysia develop their own Standard 4orms, they fashion these after the ritish institutional forms. $ell #efore "$,+-./ came out with its standard form for =urn%ey contracts, the local practitioners used to employ the I&A ,esign and &onstruct &onditions. Since the local private sector is still without such a standard form, the I&AMs version continues to #e the #asis of private design and construct contracts. In parallel, the I&AMs Standard 4orm of &ontract for &ivil Angineering $or%s is adopted in situations where it is preferred over the corresponding IA' or 4I,I& 4orms. As for the I'echA and IAA Standard 4orms, these have #een adapted for local use #y certain 'echanical and Alectrical wor%s employersF a classic example #eing =enaga 5asional erhad. Such forms will continue to fill in the voids on the local scene where there is a lac% of motivation to address issues pertaining to 'echanical and Alectrical wor%s in favour of the seemingly more lucrative #uilding and civil wor%s. =he primary forms of I&A Standard 4orms of &ontract utiliLed locally areE =he I&A &onditions of &ontracts for $or%s of &ivil Angineering &onstruction 1*th Adition3. =he ;th Adition which has #een recently issued supersedes the *th AditionF =he I&A &onditions of &ontract for ,esign and &onstruct J288(KF =he I&A &onditions of &ontract for 'inor $or%s 1(nd Adition, 288:3F and =he I&A &onditions of &ontract for Dround Investigation J28>0K. 7f the a#ove-mentioned forms, the first two are the most popular. =he last form is suita#le only for investigation carried out under the control and supervision of an independently employed engineer. 5oteE I&A &onditions of &ontract are a family of well esta#lished contracts for use on civil engineering contracts. =he first edition of the I&A &onditions of &ontract 1I&A &o&3 was pu#lished #y the Institution in 289:, in association with the 4ederation of &ivil Angineering &ontractors 1now the &ivil Angineering &ontractors Association 1&A&A33. Su#sequent editions followed in association with &A&A and the Association for &onsultancy and Angineering 1A&A3. 'ost recently the :th 128;03, the *th 128823 and the ;th 128883 editions were pu#lished. !ther Standard 0orms 7ccasionally, local practitioners have loo%ed upon or may #e compelled to loo% at various other Standard 4orms that may suit their particular applications, examples of which includeE =he 5ew Angineering &ontractF =he Association of &onsulting Architect, U. 1A&A3 4orms of &ontractF =he Dovernment &ontracts, U. 1D&3 4orms of &ontractF and =he 5ew Singapore Institute of Architects 1SIA3 4orms of &ontract. =his does not mean that the parties cannot employ any other Standard 4orms from any other jurisdiction provided it is in line with their requirements and meets their legal and commercial o#jectives.

25

3/1 %endering system/ 'ode of tendering i3 &ompetitive ! 7pen 1prequalification or eligi#ility3 or Selective 1from approved list drawn from various selection criteria and+or interviews3. ii3 5egotiated ! &lient?s preference of a contractor, usually experienced and competitive with a#ility to finance the project and+or complete within specified period. iii3 =wo stages ! 4irst stage tendering involves open tendering #ased on preliminary design. Second stage tendering usually involves negotiation #ased on first stage pricing. iv3 Serial tendering ! $here a &ontractor is first chosen #y selective tendering and the same tender is used with provision for update and negotiation of price. &ontractual arrangement ! It is defined as the contractual and legal framewor% for the #uilding process. It involves the preparation of the contractual documentation which esta#lished the contractual rights, o#ligations and responsi#ilities of the various parties involved. 'lease read ,ngineering and Construction Contracts Management 're-Contract A&ard 'ractice by 2arbans Singh */S/ 32: to 3@0 for further information on tendering system/ 6/1 %he tender rocess Introduction =his stage can only commence when the tender documentations are completed. =his involves the invitation of suita#le tenderers to collect the tender documents and hopefully most of them will su#mit their tenders or offers at the close of the tendering period. In the interim, site visit is arranged to ensure the tenderers is aware of the site constraints affecting their method of construction and pricing. =he su#sequent stage after tender su#mission is the evaluation of the tenders or offers #y the consultants and to ma%e recommendation on potential contractors for the employer to ma%e the final decision. In#itation to tender After the completion of the tender documentations stage, the next stage is to invite the tenderers to collect the tender documents and su#mit officially. =his stage varies and dependent upon the tendering procedure adopted such as open tendering, selective tendering or #y negotiation. Irrespective of which tendering procedure #eing adopted, tendering commences through employer?s invitation or calling of #ids. =he invitation to tender stage can commence when the following conditions precedent are fulfilledE =he tender documents are prepared, chec%ed and approved #y the consultants and employerF =he whole procedure for su#sequent stages and its duration must #e esta#lished and agreed #y the employer to ensure timely commencement of the projectF and =he finance for the project must #e identified and confirmation #y financiers o#tained. =his stage of the tender process must #e handled with care and professionally as non-compliance with a#ove requirements may result in a#ortive tender invitation exercise. =his has a profound impact on the credi#ility of the employer. In open tendering, the procedure involves an unrestricted invitation to the pu#lic or a restricted invitation open to a particular section of the pu#lic 1pre-qualified3 only. An invitation to tender notice is issued through various mediumF the main ones areE Use of flyersF or Advertisements in newspapers, magaLines, etcF or roadcasting media such as television, radio, etcF or 5otices on the internetF or

26

Use of advertising firms. =he most common method adopted currently is through printed media, i.e. newspapers. $ith the readily availa#le internet nowadays, this medium is poised to #ecome the main area for placing advertisement+notices to invite tender in future. Usually tender notices are of the #espo%e type, their structure and content is determined #y the employer or drafter of the notice. Irrespective of whatever source, a tender notice must have as a minimum certain contents and they areE ,etails of the project /egistration requirements for the tenderers ,etails of site visit ,etails of fees to #e paid ,etails of availa#ility and inspection of tender ta#le document 1if applica#le3 ,etails of su#mission of tender 7ther relevant details 4igure 2 ! 4lowchart on general tendering procedure

Complete compilation of tender documents Start Advertisement for contractor for t e pro!ect

Arran"e site visit

#ssue tender documents to tenderers $eceipt of %ueries from tenderers

#ssue tender clarifications to all t e tenderers

&'tent time for tenderin" to all tenderers if re%uired Su(mission of tender documents () tenderers

&nd

27

=he issuing of tender documents can #e carried out #y the employer itself, quantity surveyor or lead consultant. =he usual practice is for the quantity surveyor to compile and issue the tender document. 4or pu#lic sector wor%s, an internal department of the employer is usually assigned this role. $hosoever is selected, all the relevant details must #e reflected in the tender notice and in the instructions to the tenderers. In most situations, the place where the tender documents are issued is also the place to inspect the tender ta#le documents and su#mit in the completed tender. efore the issuing of the tender documents, the following matters must #e chec%ed and confirmedE =he tenderers have valid registration as requiredF =he representative collecting the tender documents is given the authorityF =he tender documentation fee has #een paidF and If site visit is a mandatory pre-condition for collection of the tender documents, this is complied. =he tender documentation fee is calculated #ased on either actual cost or a formula for its computation. =he details of the tender documentation fee are reflected in the tender advertisement or notice. "rior to the issuance of the tender documents, the issuing personnel should chec% the amount of fee to #e paid, who is the #eneficiary and whether cheque or #an% draft is needed. If additional deposits such as Hsecurity drawing deposit? are required in addition, these should #e chec%ed in a similar manner and expressly stated in the invitation. 4egal as ects of in#itation to tender =he employer?s invitation or request for tenders or #ids from the contractors is regarded as an Hinvitation to treat?, i.e. an Hoffer to receive offers?. See 0isher # .ell 91:J1< A. 3:6/ Similarly, an advertisement or notice of invitation to tender has #een held to #e an Hinvitation to treat? as decided in 2ar#ela In#estment 4td # +oyal %rust Co of Canada 4td 91:@J</ -uration for tendering =he start of the tendering period is on the date official announcement for the collection of tender and a fixed date for its su#mission at a designated location. =his is a very important stage as the tenderers has this limited duration to prepare their offer in compliance with the tender documents provided or proposed an alternative if allowed #y the employer. =he tenderers must consider whether the duration provided is reasona#ly sufficient to ena#le them to understand the designer?s+employer?s requirements as reflected in the tender documents. =he employer should consult the professional advisor #efore fixing such duration. If the duration allocated is too short, tenderers may not #e a#le to su#mit a reasona#ly priced offer. In some situations, tenders may have to #e recalled due to poor response. Alternatively, if such situation does not occur, a short tendering period may forced the tenderers to request for extension of time for su#mission. =oo long a duration will delay the completion date for the project. =herefore, a fair and reasona#le duration in relation to the nature and complexity of the wor%s involved should #e allocated to avoid futile tendering exercise. Under the instruction to tenderers which forms part of the tender documents issued to tenderers, the tenderers must comply with all the requirements as set out in the tender document to avoid their tender su#mission #eing rejected #y the employer. If a chec%list for su#mission of tender is also included as part of the tender documents, the tenderers can ma%e use of this list to guide them on all the pertinent items to #e complied in the preparation and su#mission of their offer. It is common for tenderers to see% clarifications in writing on issues that are am#iguous, uncertain or having discrepancies in the tender document within the tendering period from the employer and consultants. It is important that the whole clarification process is formalised for the following reasonsE

28

Any response from the consultants+employer is made %nown to all the tenderers for transparent and fair exerciseF Ample time must #e given to the appropriate employer+consultants team mem#er to prepare a formal responseF and =he said response must #e issued to all tenderers timely as it affects cost and content of the tender. A good practice is to ensure that all clarifications or queries raised are answered within the window period of seven 1;3 days of the stipulated closing date. $e are all human and no matter how carefully the documents are scrutinised, errors are #ound to #e discovered after the issue of the tender documents. =o rectify this situation, an addendum or a series of addenda may #e issued during the tendering period. It may #e related to specifications, drawings, N, schedules, information+data and any other relevant documents. =hese addenda may #e used to replace, modify, qualify, augment, supplement, cancel or remove existing documents. Apart from the errors discovered, other reasons for its issues are correction of errors due to design, discrepancies and am#iguities and+or changes in the employer?s requirements and+or changes in the financial, commercial or political situations after the issue of the tender documents. If these addenda are issued too close to tender closing date, the employer has to weigh all the factors and may have to grant extension of time to the original tendering period. Eisit to ro"ect site $hen a visit to the future project location is made mandatory #efore the collection of the tender documents, the information gathered from such visit shall have a positive contri#ution to the su#mission of tenders #y the tenderers. =he feed#ac% from site visit reports will ena#le the persons responsi#le for pricing the tenders to factor the impact due to the followingsE Any major site constraints on method of construction adoptedF =he allowa#le hours of wor%ing at the project locationF Any restriction on site for temporary #uilding and storage areasF Axtent of site security requiredF Any interference to neigh#ouring land or structureF Any ingress and egress constraintsF "resence of utilitiesF Site topography and existing drainageF Availa#ility of local resourcesF $eather conditionsF Any particular local authority conditions that affect the wor%sF and Any other important site conditions that may impact on the tender su#mission. =he tenderers who visited the site and ma%e inquiries are #etter informed and appreciate the ris%s in relation to this project. Inevita#ly, the tenderers will #e a#le to su#mit a #etter prepared and priced offer with the additional advantage of extra %nowledge identified through the site appraisal process as compared to tenderers ignorant of the actual site conditions and therefore su#mit speculative offers with dire consequences. Submission of tenders All tenderers must su#mit their tenders #y the original tender closing date or its extension formally granted #y the employer. =his mar%s the commencement of the process in selecting a competitive contractor for the wor%s, a prelude to the ma%ing of a contract. =he tenderers #y su#mitting their offers are legally ma%ing offers in response to the employer?s invitation to tender. =he offers should #e clear and capa#le of forming a contract on acceptance #y the employer during the tender validity period. In order to prevent tenders #eing rejected, tenderers must strictly follow all the instructions contained in the tender documents or any alternative proposal #eing solicited.

29

A good guide to tendering exercise is to complete all sections of the tender documents, fill in all schedules, forms, appendices leaving no #lan%s, furnish all information required, enclose any additional information that may clarify, qualify or aid the consultants +employer understand the offer, identify the principal su#-contractors and+or suppliers even if not expressly as%ed for, initial every page of the tender documents and retain at least a complete copy of the tender su#mission. =hings to avoid during tendering are qualifying the tender su#mission, ma%ing conditional offer, su#mitting incomplete, erroneous, unclear, am#iguous su#mission and using a covering letter to the tender su#mission to include exclusion, deviations and+or pre-conditions. 4inally, the tender should #e su#mitted strictly in accordance with the expressed conditions as to the mode of su#mission, e.g. single or separate envelop, any identification required, place of su#mission, date of su#mission, time of su#mission and any other pre-conditions such as tender deposit+#ond or earnest money required to accompany it. ! ening of tenders =he procedure adopted for the opening of tenders depends on whether it is a private or pu#lic project. It may #e minor or major in nature. Denerally, the procedure is simpler for minor and private projects. 4or pu#lic sector, it has an ela#orate and stringent procedure, #reach of which may result in the tender #eing recalled through retendering exercise. Unfortunately, there is no standard procedure in practice or authoritative guidelines availa#le. Aach project has its own procedure #ut certain core criteria can #e esta#lished from common practices as descri#edE =enders must #e su#mitted #y the time, date and to the stipulated office and in the form prescri#ed and may #e placed in a tender #ox or #oxes allocated for this purposeF An official pre-tender estimate prepared prior to tender closing date #y the relevant consultant and deposit in the tender #oxF 7nly after the lapse of the official closing date and time, the tenders should #e opened #y a designated person or a mem#er of the tender committeeF and =he details of each tenderers in the order the tender was opened must #e entered into a tender schedule. A sample of the details required are as followsE o 5ame of tendererF o /egistration detailsF o StatusF o =ender priceF o =ime for completion proposedF o Ca#elling of the tenders openedF o "re-tender estimateF and o Signature of the designated person. 4or pu#lic projects that are under open tender, it is mandatory to prepare and post on a notice #oard at the office receiving the tender su#missions for all tenderers and pu#lic to see the tender prices and proposed times for completion. In the event that tenders that are su#mitted late 1i.e. after the time and date as stated in the tender documents3, such tenders must not #e accepted, or if su#mitted, it should not #e opened for consideration due to reasons of fairness and accounta#ility. =his is especially so for pu#lic sector projects where the standards pertaining to transparency and accounta#ility are very high. Should a tender su#mitted late and still accepta#le #y the employer, a proper procedure would necessitate the preparation of a special report with advice #y the relevant mem#ers and recommendation for the employer?s consideration.

30

Assessment of tenders =his is another important stage after tender opening as failure to allocated sufficient time and following the proper assessment+evaluation procedure can result in du#ious recommendation just li%e Gputting a square peg into a round hole.I =he assessment+evaluation process is complex and a difficult one, if not addressed with sufficient care can result in adverse physical site progress and contractual complications. "rior to the assessment+evaluation of tenders, the parties to underta%e the assessment must have #een identified and notified, the rules and procedures governing the assessment process must #e esta#lished and approved, the criteria to #e used in the assessment process must #e approved also and the pre-tender estimate must have #een prepared and officially su#mitted #y the consultant in the form and mode agreed #y the employer. =he parties involved in the assessment can range from a single individual up to a whole range of specialists for mega projects. Denerally, the following is a typical component of the relevant parties involved in the assessment exerciseE Amployer or its representativeF &ost consultants for commercial aspects of the tenderF ,esign consultants for technical aspects of the tenderF and 7ther specialists as necessary. =he #asic rules and procedures to #e followed #y the assessors must comply with the employer?s requirements. =he following rules governing assessment of tender is of importance and can promote transparency and accounta#ility. 7nly tenders that are officially received #y the employer and cleared for assessment to #e considered. Unless a late tender has #een cleared for review #y the employer, it should not #e includedF 5o amendments and+or revisions are allowed after the closing of the tender unless it is in response to the employer?s express query which resulted in an errorF =here must #e no communication whatsoever #etween the tenderers and the assessors during the tendering and assessment period, unless it is for officially sanctioned requests for clarifications 1/4&3 or requests for information 1/4I3 to aid the assessment process. =he /4& and /4I must #e in accordance with the formal procedures as laid down #y the employerF If alternative tenders are #eing solicited or tenderers are allowed to propose alternatives to the tender requirements, it is advisa#le to treat these alternatives separately and assess them on their own, as compared with the #ase tender. In short, one for conforming tender and another for alternative proposalF =he process and results of the assessment exercise must #e %ept confidential even if no expressed stipulation to this effect. =he common parameters applica#le to the assessment criteria revolve around matters on quality, cost and time usually. In addition to these criteria, other important matters to consider are completeness of offer, accuracy of offer, reasona#leness of commercial offer, reasona#le wor% programme, technical conformance, capacity of the tenderers and other relevant criteria. In actual practice, not all the said criteria are of equal priority. Usually they are assigned different weightage depending on the profession assessors input. In conclusion, not only the main criteria identified #ut also the corresponding weightage assigned to ensure the needs of the employer are adequately covered in the assessment exercise. =he types of assessment process adopted can #e single-stage+integrated+unitary type 1all aspects of tender su#mission3 or two-stage+stepped type 1separating technical and commercial assessments3. In single-stage type, the assessment process is confined to projects which are essentially small in value, simple in nature, involving small num#er of tenderers, simple+minimal criteria and

31

employers with limited resources availa#le for the assessment exercise and involving minimal tender su#mission documents. As for two-stage type, the assessment process is applica#le when it involves relatively high project cost, wor%s are technically and organisationally complex, the num#er of tenderers are high or relatively more specialised, employer having sufficient resources for detailed assessment, ela#orate criteria for assessment required and relatively high num#er of tender documents su#mitted and complex in content. =he final step in the assessment process is the production of a tender report and it must convey to the employer the recommendations of the assessors, the #asis of the assessment and the methodology adopted. =he usual content in a tender report covers tender details, #rief description of the scope of wor%s, tenderer?s details, details on assessments, #asis and methodology adopted in assessment, technical assessment of each tender, commercial assessment of each tender, recommendations and other relevant information for the employer to ma%e a final decision. =his report must #e %ept in safe place until the tender is awarded and thereafter archived until the expiry of the applica#le limitation period for the project. A point to ponder over the a#ove exercise as assessment exercise is an activity consisting many su#jective elements and unless there is a real need to satisfy the criteria of transparency and accounta#ility as in the case for pu#lic sector employers or large corporations, under the doctrine of freedom to contract, an employer is free to award the contract to whomsoever he desires and at whatsoever price and conditions as he chooses. In essence, there is no need for assessment at all so long as the employer contracts with free consent and no duress, coercion, fraud, misrepresentation and other vitiating factors. %ender #alidity eriod =he legal aspects of tender validity period, is that an offer may #e revo%ed at any time #efore the communication of its acceptance is complete as against the tenderer, #ut not afterwards. See Section ;91< Contract Act 1:;0. As you %now, a tender su#mission is an offer and valid for a stated period of time as stipulated in the tender documents issued to the tenderers. In the a#sence of any expressed provisions, it is implied that the offer is valid for acceptance #y the employer for a reasona#le period. $hat is reasona#le is a question of fact depending upon the circumstances of each caseE Macon 5orks 7 %rading Sdn .hd # 'hang 2ong Chin 7 Anor 91:?J</ =he tender validity period 1commence from the date of closing the tender to the final date to award the contract3 and generally, can range from 0) to *) days for small projects and *) to 2>) for #ig projects. =herefore, it is important for all necessary activities involved in the assessment process, clarification, preparation of reports, su#mission of recommendations, approval and acceptance of the tender #y the employer #e finalised #efore the lapse of the agreed period or its extension. In the event that extension of the validity period is required due to unforeseen events, the procedure for see%ing such extension must #e initiated immediately. =his include writing to all tenderers, at least two 1(3 wee%s #efore the expiry of the tender validity period, expressly see%ing their formal consent to a finite extension of the tender validity period. 7nly those who have agreed to the extension can #e used for further considerations. If such response falls #elow a minimum figure, the whole tender exercise may have to #e a#andoned and a retender exercise called. A further point to note is that, it is mandatory for any extension to the tender validity period that the tenderers are not allowed to revise their original official offer in any manner as only the validity of their offer is extended. If the tenderers attempt to amend or revise the original offer in any manner during the extended validity period, their offers shall #e deemed to #e a new tender and should #e rejected.

32

=here are instances where the tenderers were as%ed to extend their tender validity for more than once to over 2( months. =his is not a healthy exercise and must #e discouraged if professionalism and integrity to #e preserved unless there are very good reasons justifying such irregular procedure. ;/1 %he reDuirements of ro er documentation Introduction =his is the preliminary aspect #efore the commencement of the tendering process. =he success in achieving the employer?s o#jectives is dependent upon the provision of adequate information to the tenderers #y the employer and its consultants. =herefore, to ensure it meets these requirements, adoption of a guideline is necessary. =his will help to monitor the compilation of the tender documents. A detailed ela#oration on each item that ma%e up the contents of traditional contracts and nominated su#-contracts are carried out to provide a good understanding of the role played #y each of them. .asic reDuirements of tender documents In this section, the term Htender documents? shall mean the documents forming the essence of the employer?s enquiry and they are usually prepared #y the consultants and issued to the tenderers to solicit from them a firm offer for the wor%s as descri#ed in the documents. =he employer in initiating the tendering process is to achieve the selection of a suita#le contractor and a contract price for the wor%s. In order for the tender documents to achieve their intended purpose, it must meet certain #asic requirements in terms of su#stance and content. Denerally, the following #asic requirements must #e present in the provisions of the tender documentsF It must form the #asis of a valid contract and physically #uilda#le #y a contractorF It must reflect procurement in accordance with the employer?s discretionF =he scope of the wor% to #e carried out must #e clearly defined and specifiedF =he tender document must #e easily understood and avoid am#iguities, discrepancies, errors and misinterpretationsF =he wor%s must reflect the expressed or implied requirements of the particular employerF and =he wor%s specified in the tender documents must comply with the current standards of design, construction and good practice. efore the tender documentation can progress further, all the earlier stages of the project must #e completed. Under traditional contract procurement method where "A', -./, &I, or IA' standard forms are used, the followings must #e achievedE =he detailed design completed, all necessary specifications finalised and the relevant #ills of quantities 1if applica#le3 preparedF =he source of funding have #een identified and the project financing confirmedF "ermission is granted #y the employer for the tender process to #e initiatedF =he employer have selected the standard form of contract to #e adopted for the projectF All potential tenderers have #een confirmedF =he tendering procedure has #een selected, e.g. competitive tendering, negotiations or selective tenderingF =he tender documents such as contents, num#er and form must #e esta#lished #y the project team and approved #y the employerF and A tendering committee and its terms of reference have #een set-up #y the employer and including procedures for the committee in relation to preparation, quality control, issuing, receipt, evaluation and award of the tender esta#lished

33

%ender document re aration =he next activity is the preparation of the tender documentation after the completion of the a#ove stage. =he preparation of tender documentation should have ta%en the following factors into considerationsE Amployer?s specific needsF =he organisation and composition of the professional team mem#ers, in particular the lead consultantF =he procurement method to #e adopted, e.g. traditional or non-traditional contractingF and =he specific standard form of contract to #e used. &ommon sense will tell us that no one factor as descri#ed a#ove shall prevails and the final determinant is a com#ination of several factors. =raditionally, two distinct sets of documents #eing prepared, namelyE =ender ta#le documentsF and =ender documents. 7f the two, only the tender documents are actually issued to the tenderers. =hese give the essential information to the prospective tenderers as compared to the tender ta#le documents. =he tender ta#le documents are prepared for display at a specific location where they may #e inspected #y interested tenderers for additional information such as samples of letter of acceptance, #an% guarantee for performance #ond, articles of agreement, conditions of contract, specification, etc. =he reasons for such exercise traditionally is to %eep the tender documentation fee minimal, to ma%e it managea#le and not too #ul%y in terms of content, to ensure that the tenderers are furnished with the relevant and essential information to ena#le them a clear offer and to ease the production and logistical #urden on the employer?s tendering team especially for large and complex projects involving extensive documentation and high num#er of tenderers. $ith the development and great improvements in computer hardwares and softwares technologies which are reasona#ly priced, the acquisitions of such items are afforda#le for organisations or personal use. In tandem with computer advancement, is the availa#ility of huge external electronic storage space such as compact disc and external hard dis% for storing data. =herefore, all the information contained in the tender ta#le documents can #e stored in compact discs for ease of handling, replacing hard copies previously which are costly to #e produced and environmentally unfriendly. Alternatively, with the availa#ility of the internet plus its high security features, the physical collection of tender documents #y potential tenderers could #e replaced where#y #ringing down the cost of tendering and ma%ing it more effective and efficient as such documents can #e downloaded from the internet. Similarly, the su#mission of their offers can also #e done through the internet and some pu#lic and private organisations are already implementing it. Irrespective of the methods of delivery to the tenderers adopted, there is still a need to physically prepare the tender documents. =owards this end, it is important that a proper quality control procedure to #e in place to ensure that am#iguities, discrepancies, deviations and+or misrepresentations arising from the tender documents compilation are minimised. =his role can #e underta%en either #y the employer?s project manager or can #e assigned to the professional teamF an o#vious choice #eing the lead consultant who is most suited for this tas%.

34

%ender documentation for %raditional Main Contracts and Gominated-subcontracts =raditional &ontracts are the most common types of contracts %nown in engineering and construction industry. =he essential feature of traditional contracts is the separation of the design from the production. =he employer causes the design of the wor%s to #e prepared #y his professional designers and the contractor #uilds or manufactures what the designers have specified. Any other arrangements which are different from this can #e classified as nontraditional contracts such as management, pac%age deal+turn%ey and miscellaneous type of contracts, within such arrangements, there are various su#-categories to suit a particular project. In the traditional contract procurement method, the main contractor is responsi#le for the construction and completion of the facility+#uilding to the employer. In short, the contractor is responsi#le for the sourcing, planning, coordinating and planning to integrate all the various components required for the wor%s as designed #y the consultants on #ehalf of the employer. =he compilation of the tender documents #y the consultants must reflect this #asic concept as it is fundamental to traditional procurement method. =he contents of the tender documents may #e varied depending on whether the contract is to #e #ased on #ills of quantities or merely on drawings and specifications. =he documentation for non-traditional procurement such as design and #uild, construction management and management contracting, are not covered in this sylla#us. $ithin the traditional tender documentation, you usually find provisions for wor%s to #e carried out under "rime &ost 1"&3 and+or "rovisional Sums 1"S3. 2. "rime &ost means the sums provided in the contract for wor%s or services to #e executed #y 5ominated Su#-&ontractor or for materials and goods to #e supplied #y 5ominated Supplier. (. "rovisional Sums means the sums provided in the contract and+or the 5ominated Su#&ontract for wor% to #e executed or for the supply of any materials and goods which cannot #e foreseen, determined or detailed at the time of tender. Under the traditional arrangement, the employer or his consultant acting as agent 1contract administrator3 is expressly allowed to select or nominate the su#-contractors or suppliers and the main contractor must accept such nomination unless there are valid grounds to o#ject to their appointments. =a#le 2 ! =he typical content of tender documentation for traditional main contracts and nominated-su#contracts. 5ominated Su#'ain 'ain &ontract contracts &ontract #ased on applica#le with ills drawings and to #oth of specifications types of quantities 'ain &ontracts P P P P P P P P P

Item 5o.

,escription for the content of tender document

2 ( 0

9 : *

Cetter of invitation &hec%list for su#mission &onditions of contract ! espo%e, "am ())*, -./ ()0, &I , ())) or IA& 1'ain 7/ 5ominated Su#-contract3 4orm of tender Specifications ills of quantities

P P P

P P -

P P $here applica#le

35

; > 8 2) 22

=ender drawings Schedule of day wor% rates Summary of tender Schedule of unit rates Schedule of technical data of equipment+plant+material offered

P P -

P P P P

P $here applica#le $here applica#le $here applica#le P

It is apparent from the study of the a#ove ta#le, it shows that most of the documents mentioned are similar #etween main and nominated su#contract except for some items that are unique to each of them. In order for you to understand the significance of each item, a #rief description on the purpose+function is provided to ena#le you to decide on the extent of its requirements within the procurement method adopted. 4etter of in#itation =his is one of the %ey documents found in the tender document. =his represents the formal document evidencing the employer?s intention to invite the tenderers to officially collect the tender document and su#mit their offer within the time frame given. =he employer or its authorised representative would issue such letter. If the representative were to issue it, the tenderers must #e expressly informed that the representative will #e under the law to #e the agent of the employer 1the principal3 for this tender exercise. =he letter of invitation usually contained a list of documents to #e issued, the documentation fee to #e charged, details on the su#mission of the tender, penalty for withdrawal or failure to proceed in the event of acceptance of the contract and any other necessary instructions. Checklist for submission =his is a good practice and it is useful to help the tenderers to minimise incomplete su#mission. An Had-hoc? or a standard chec%list may #e included with the tender documents. =his chec%list helps the tenderers in their preparation of their tender offer, the filling of the relevant forms, schedules and appendices to ensure that the requirements of the employer are complied to avoid the possi#ility of tender su#mission #eing rejected due to factors such as incompleteness, lac% of clarity and+or mista%es. Conditions of contract &onditions of contract is one of the most important documents and must #e issued to the tenderers or #e made %nown to them prior to their su#mission of the tender. =his can #e either standard form or #espo%e depending on the employer?s preference. It is an express form which esta#lished the rights and o#ligations of the parties, the procedural compliance required, as well as the allocation of the various ris%s involved in the particular contract. =hese conditions shall have a very profound impact on the ultimate tenderer?s offer as each ris% has its own cost. =here is a special section called the HAppendix? and can #e found in the various standard forms in use in 'alaysia. =he HAppendix? helps to highlight the few critical matters that can #e found em#edded within the clauses of the contract. y expressly ma%ing them %nown to the tenderers for a second time, it shall assist in the su#mission of an informed tender 1offer3. =he details that can #e found in the HAppendix? areE

36

,efects lia#ility periodF Insurance coverage and its durationF &ommencement and completion date1s3F Ciquidated damages F Sectional completionF "eriod of delay permissi#leF Interim claim intervalF "eriod of honouring payment certificateF "ercentage of the value for materials and goods on site claima#leF Cimit of retention sumF "eriod to complete the final accountF and Amount for performance #ond.

0orm of tender =he form of tender is the single most important document in any tender su#mission. =he official offers #y the tenderers are made on this form and must #e correctly filled #y the tendering parties and the amounts as stated here overrides any other figures that can found accompanying the tender su#mission. =he principal matters contained in such a form areE =ender sumF ,uration and completion periodF =ender validity periodF Any alternative proposals, its amounts and completion period for each alternativeF and "rime cost sum or provisional sum items where the tenderer wish to participate. S ecifications Specifications can #e defined as a document which together with the drawings descri#es in detail the whole of the wor%manship and materials to #e used in the construction. It is normally divided into trades or elements of construction in much the same sequence as they would #e #uilt Specifications can #e divided into three main categories, that is, 1i3 performance specifications which stipulate the performance required for the particular portion of the wor% or installation, 1ii3 detailed specifications of materials and wor%manship required and the extent of wor% and 1iii3 specifications in relation to contracts #ased on #ills of quantities 1as part of the pream#les3 which provide detailed description of materials and wor%manship pertaining to the wor%s. =he extent of the detail and its relative importance depends upon the type of contract adopted. 4or contracts #ased on #ills of quantities 1 N3, the specification are generally used to assist the tenderer, amplify the drawings and fill in the gap due to the wor% #eing either not descri#ed or stipulated in other portion of the document. 4or contract #ased on drawings and specifications, the specifications ta%e on a very important role as it is one of the main components of the tender documents descri#ing the quality of materials and wor%manship, the nature and extent of the wor%s inclusive of location, fa#rication+manufacture, installation and construction. =hey form the #asis of tenderer?s pricing and after tender awarded, the specifications will #e contractual in the legal sense and will determine the rights and o#ligations of the parties. It will also #e used for cost control and administration of wor%s. .ills of Duantities =he #ills of quantities 1 N3 is a document usually prepared #y a cost consultant 1e.g. quantity surveyor3 to #e issued as part of the part tender documents and serves as the #asis of the tender sum and ultimately the contract sum for the successful tenderer. =he N fully descri#e the materials and wor%manship of the permanent wor%s to #e executed and may include items for temporary wor%s alsoF wor%s which cannot #e accurately measured are descri#ed as Hprovisional?.

37

=he status and purpose of N are dictated #y the type of standard form of contract adopted and #y the nature of the wor%s, that is, whether it is #uilding or civil engineering wor%s. $hen a N is prepared, it shall assists tenderers in pricing the wor%s more quic%ly as they are li#erated from the tedious tas% of studying the drawings, specifications and related documents and measure the quantities of the wor% required. =he N can come in various forms depending on consultants and employer?s preference and the common ones are called fully measured N, approximate N, elemental N and operational N. %ender dra&ings 'ost tender documents will have a complete set of drawings of varying num#er, form and detail. =he purpose of these drawings depends on the type of the contract used. Denerally, tender drawings are used forE Identifying and descri#ing in detail the nature and extent of the wor% involvedF Amplifying and clarifying the detailed nature and extent of the completed wor%s as contained in other parts of the tender documentsF "roviding information to tenderers to #etter comprehend the designers? intent, fa#rication and manufacturing processes and the requirements of the completed projectF Assisting the tenderers in assessing the ris% factors and in the pricing of the wor%s #efore su#mitting tenderF "roviding the #ase reference for the preparation of construction, as-#uilt, fa#rication, shop or installation drawings of the project. In addition to the a#ove, tender drawings must #e as complete and detailed as possi#le especially for contracts #ased on drawings and specifications. =hey must #e fully coordinated and chec%ed for errors, omissions, discrepancies and am#iguities #efore #eing incorporated as part of the tender documents. =he actual contents and details of the tender drawings will vary with factors such as the type of contract involved and the nature of the wor%s #ut it should have at least the following contentsE Site location+layout planF oundary of the wor% or right of wayF 4loor plansF =ypical sections and elevationsF Schematic+single line drawingsF and ,etailing on architectural, electrical and mechanical wor%s and may ta%e advantage of any standard drawings+details availa#le for the particular discipline as it saves time and ensure consistency.

An industry #est practice necessitates the issue of a full set of drawings with each drawing mar%ed H4or tender purposes?. $here drawings are generated or developed #y a third party or designs of a propriety system are included in the tender drawings, due regard to issues of copyright must #e given full consideration. Similarly, it is incum#ent for the designers to esta#lish and include expressly the ownership of copyright for their design to avoid infringement to their intellectual rights. =ender documents may include Hschedules? as supplement to the tender drawings. =hey are actually ta#les of information which summarise the quantities and dimensions of certain generic items, such as windows or ironmongery. 4or structural wor%, you will find H#ar #ending schedules? for reinforcement elements. =he main purposes on the use of such schedules areE It provide a summary of detailed information not availa#le in the tender drawingsF It helps the cost consultants, tenderers, su#contractors and suppliers in measuring and pricing the wor%sF It simplify and expedite the recording and retrieval of relevant informationF and It serves as a tool for chec%ing of errors, presenting data+information and for pricing of the tender as a whole.

38

Schedule of day &ork rates ,ay wor% rates are used to value variation wor% which cannot #e properly measured and therefore, the contract rates cannot apply. =he #asis of payment to the contractor is cost reim#ursement method. =he day wor% rates are generally pre-determined rates assigned #y the tenderer during tender su#mission on a list of machinery, manpower and materials generated #y the consultant. =he contractor is allowed a certain predetermined percentage for profits and overheads over the amount computed from the machinery, manpower and materials utilised for the wor%s. Summary of tender =his is used to replace the N for tenderers to price the wor%s for contracts #ased on drawings and specifications. Unli%e N, there are no standards governing its preparation. =he practice varies according to the particular parties involved in its preparation and from project to project depending on the nature of the wor%s involved. =he typical contents of summary of tender are as followsE All the wor%s to #e carried out must #e identified and listed either on a trade #y trade #asis or on an operational #asisF A comprehensive list of specific item for the preliminaries to #e pricedF and Nuantities for each wor% must not #e reflected in the summary of tender under this type of contract to avoid disputes+claims during contract implementation. =he main functions of summary of tender are to transfer the ris% on quantity error to the tenderers, to ena#le a proper tender evaluation to #e carried out prior to award of the contract, it is used in the construction stage for cost control and management such as valuation of interim payment, monitoring of financial progress, etc and to ena#le valuation of variation wor% to #e underta%en. =he total tender sum arrived at the summary of tender is reflected in the form of tender. =his sum represents the final tender sum which is the future contract sum on award of the tender. Axtra care must #e ta%en in compiling such amount to ensure no errors #efore #eing incorporated in the form of tender. Schedule of unit rates =he schedule of rates is used for contract #ased on drawings and specifications and its main purpose is for valuation of variation wor% during construction stage of the project. In preparing the schedule of rates, attention must #e given to the matters as listed #elowE =he schedule must #e as detailed as possi#le to cover all trades, machinery, materials and manpowerF 4or every item, the exact scope to #e covered #y the unit rate should #e expressly stated without any am#iguity and leaving no room for future misinterpretation or disputeF Avoid the use of lump sum if possi#le for each item #y adopting the appropriate unit of measurementF and If possi#le, identify and ma%e a complete list for future anticipated variation wor%s to #e carried out. Schedule of technical data of eDui mentB lantBmaterial offered =his is applica#le to contracts involving equipment, plant and proprietary system. =his is required from the tenderers as part of the tender su#mission. =ypical details to #e provided are as followE rand+ma%eF =ype or model num#erF =echnical data+ informationF Accessories to #e includedF

39

Spare parts offeredF and 7ther relevant technical information such as catalogues+#rochures, product information+data sheets, manufacturer?s pu#lished performance specifications, pamphlets and the li%e. =his information is important during the evaluation of the su#mission of the tenders as it allows the consultants to chec% for compliance with the requirements. Should there #e a failure to address this matter adequately at the tender stage, it may hamper the evaluation process #efore final recommendation could #e made. J/1 -ocumentation after tendering eCercise Introduction =he documentation after tendering exercise can #e classified as the final sector of the tendering process. =his stage commence when a suita#le contractor #eing identified and a method of arriving at a price esta#lished. "rior to the documentation of what was agreed during tendering, you are introduced to the need for the issue of a letter of intent and its consequences. =he precontract phase ends with the issue of the letter of award+acceptance 1CA3 #y the employer to the successful tenderer and followed #y the formalisation of the agreement #etween the parties in a legally accepta#le manner. In order to administer the project successfully, all interested parties must understand the contents of the agreements and the roles of the parties under the contract. =his is the only sure route to project management and administration success. 4etter of a&ardBacce tance and letter of intent Upon the completion and the recommendations contained in the final report and approved #y the employer or its authorised representative, the process of formally accepting the tender can #e started. It is important at the #eginning to set a clear guideline or methodology for this final stage of the tender process culminating in the issue of a formal letter of award or acceptance 1CA3 #y the employer to the successful tenderer. A formal contract is formed after signing #y the successful tenderer or its authorised representative on the letter of award or acceptance. If the tenderer fails to ac%nowledge within a reasona#le time after its issued within the tender validity period, it shall #e deemed that Hconstructive ac%nowledge? has occasioned with its attendant legal consequences unless the CA is in essence a Hcounter-offer? in which case the tenderer can consider not to have accepted the Hcounter-offer? made #y the employer. =here are situations where prior to the issue of the CA, a letter of intent 1C7I3 was issued instead to the selected tenderer. =his is followed #y negotiations, meetings and chec%ing or confirmation on availa#ility of funds #y the employer. If everything is in order, the employer can proceed to prepare and issue the CA to #e ac%nowledged #y the selected tenderer. In the letter of intent 1C7I3, the employer may identify matters to #e considered #y the tenderer such as any issues requiring further clarifications, the necessity for further negotiations on matter relating to scope of wor% and pricing, the need to rationalise the prices, unit rates and day wor% rates, any matters or conditions that need confirmation, a timeta#le to resolve issue and sometimes requesting the tenderer to start preparatory wor%s. Oou must remem#er that the issue of C7I #y an employer will not amount to an acceptance, as it does not per se give rise to any legal rights or o#ligations. It is important for #oth the title and content of the C7I to convey this message in a clear manner.

40

4egal osition on letter of intent =he letter of intent 1C7I3 is no more than the name implies, i.e. that the parties hope that at sometime in the future they will enter into a contract. =hey are designed to have the effect of given advance notice, often to main contractor and su#-contractors, that there are wor% in the pipeline and that specialist materials will #e need to #e ordered if they are to #e availa#le at the start of the project. "ro#lems occur if wor% #egins and there is no written contractual #asis other than the letter of intent. It is imperative, therefore, if a letter of intent is used to Hwarn? of the impending placing of a contract, and you are as%ed to do some wor%, it is safer for the parties to #e placed on a proper contractual footing with a written contract entered into as soon as possi#le, prefera#ly #efore the wor% starts and pro#lem arise. In addition to the a#ove, whatever la#el or name given to a document will not #e conclusive as to the legal consequences which can arise from the document concerned. y la#eling a document a C7I does not #y itself conclusive that the document is to ta%e effect as a C7I as intended #y its issuer. =he whole contents of the C7I have to #e studied to arrive at a conclusion. Denerally, a C7I is a document expressing the present intent of one party and this is generally not construed as the parties having agreed on all the essential terms of the contract #etween them. In *okome&ah Sdn .hd # -esa 2atchery Sdn .hd 91::;<, the court held that as the parties were still negotiating, the C7I issued remains what it was and the parties had not concluded any contract. In recent years there have #een cases in which the courts have found that, ta%ing into account all the circumstances and loo%ing #eneath the words on paper, there is indeed a contract in #eing. =he pro#lem then remains of what terms can #e found in the contract. As often all that is in writing is a letter of intent, that will #e loo%ed at as the prime source, so if #uilders are on site doing the wor% mentioned in the letter and pro#lem occur, o#viously, in the a#sence of any other writing, the letter of intent will #e examined minutely if there is dispute #etween the parties. It must not #e thought in these situations that the letter is a contract. It will merely #e evidence that a contractual relationship exist unless proven otherwise. =he terms of the contractual relation will then #e made up of what was said in the letter, what has actually #een done or orally agreed, and of course as implied #y the law. If preliminary wor% are requested it may #e recovered on a quantum meruit #asis 1a reasona#le sum for the wor% done3. If the letter of intent does not state that the wor% is #eing done at the contractor?s own ris%, payment shall #e made for all the wor% as descri#ed in the letter of intent In .ritish Steel Cor oration #/ Cle#eland .ridge ,ngineering Co/ 4td 91:@1<, the courts had to consider whether, or not, a contract had #een created #y a letter of intent. =he court considered that each case must depend on the particular circumstances. @owever, it was decided that if a party acted on a request in a letter of intent and was simply claiming payment, it did not matter if a contract was not created as payment could #e #ased on quantum meruit. %he contents of letter of a&ardBacce tance and its closure =he letter of award+acceptance 1CA3 should #e prepared on the letter head of the employer in triplicate 1Amployer, &onsultant and &ontractor each shall retain a copy3 and must #e signed #y the authorised person or this can #e delegated to the consultant to do it. =he issue of CA must #e done within the tender validity period or its extension when all matters are resolved. =he content of the CA should include the important information as followsE =he contract price or sumF =he site possession date or dates if project is in phases or sectionsF =he duration or durations of the phases or sections if sectional completion is applica#leF =he commencement date or dates if phases or sections is applica#leF

41

=he amount of liquidated damages of each phases or sectionsF &onditions precedent to the commencement of wor% such as deposit of performance #ond, insurance, organisation chart, wor%ing programme and names of su#contractorsF and =he identity of the authorised signatory. Oou must remem#er that whatever conditions that need to #e incorporated in the CA should #e mere repetitions of the conditions forming part of the tender documents and no more. If additional conditions are to #e incorporated they must #e mutually agreed. 4ailing which, the CA issued out may constitute either a counter-offer or a conditional acceptance with the attendant consequences. As CA is for the formalisation of a contract, only the employer in his personal capacity or through an authorised representative should #e the signatory. A tender can #e accepted on #ehalf of the employer if the person has the actual or ostensi#le authority to do so. See ,MS .o&e 9M< Sdn .hd # *0C 2oldings 9M< 7 Anor 91:::</ In line with this principle, where an agency relationship exists, either expressly or impliedly, the CA can #e signed for and on #ehalf of the employer and will #e #inding upon the employer. After the signing of the CA, it must #e sent to the successful contractor in duplicate using the usual modes adopted such as delivery #y hand, use of courier, facsimile transmission or the postal service. =here are certain important points in relation to the issue of the CA which must #e noted to avoid material #reach which renders such acceptance legally ineffective and they areE =he employer when dispatching the CA to the contractor is in the legal sense communicating his acceptance of the tender to the successful contractor and informing him accordinglyF Acceptance must #e made in the manner as descri#ed in the tender su#mission. =he stipulated method of acceptance cannot #e deviated from unless expressly waived #y the tenderer. In this situation, silence cannot #e prescri#ed as a manner of acceptance. See 0elthouse # .indley 91@J2<K In the a#sence of prescri#ed manner, acceptance must #e expressed in some usual and reasona#le manner. ,ue to the legal importance of this matter, the recommended practice is to send the CA to the tenderer #y registered postF and =he communication of the acceptance of the tender as against the employer is complete when it is put in a course of transmission so as to #e out of the power of the acceptor, e.g. when the letter is posted and the acceptance is complete when it comes to the %nowledge of the tenderer, e.g. when the letter is received. See Section 692< of the Contract Act 1:;0. 7n receipt of the CA, the contractor must ac%nowledge receipt and return a copy to the employer within the period expressly stated in the CA or if none stated, within a reasona#le time. If failed to ac%nowledge within a reasona#le time, it shall #e deemed to #e constructive ac%nowledge. =he contractor shall retain a copy for his records. =here are other important matters for the successful contractor to chec% #efore signing the CA and they areE Ansure that the CA is a true unqualified legal acceptance 1i.e. without any addition or deletion3 of his offerF =he receipt of the CA must #e ac%nowledged #y an authorised representative of the contractor. ,etails of his identity, designation and date of receipt+ac%nowledgement must #e clearly indicated on the face of the documentsF and =he ac%nowledgement of the receipt of CA renders the communication of acceptance of the tender complete as against the successful contractor.

42

!ther matters related to tender %ender &ithdra&al rior to acce tance =he withdrawal of a tender #y a tenderer #efore tender closing does not attract serious financial cost #ut if this is done after tender closing 1even though not falling foul of the law3 may result in considera#le financial repercussions. =his is due to the employer requiring the tenderers to su#mit tender #ond or deposit earnest money at the time of tender su#mission. =his #ond or deposit can #e forfeited #y the employer. In addition, the employer may resort to #lac%listing the tenderer concerned or cancelling his registration with his organisation. An offer may #e withdrawn at any time #efore the communication of its acceptance is complete as against the offeror+proposer, i.e. the tenderer, #ut not afterwards. See Section ;91< of the Contract Act 1:;0. 5ithdra&al of acce tance An acceptance may #e revo%ed at any time #efore communication of the acceptance is complete as against the acceptor, #ut not afterwards. See Section ;92< of the Contract Act 1:;0/ An employer may opt not to proceed with the implementation of the project for whatsoever reasons so long acceptance is not complete. @owever, once acceptance is completed, a withdrawal #y the employer will not #e sustained as the offer and acceptance for the ma%ing of the contract is completed. ,m loyerIs obligation during tendering Denerally, the employer is under no legal o#ligation to accept the lowest tender or for any tender at all. In addition, the employer is not #ound to compensate the tenderers for the costs involved in the tendering process. It is common practice for express provisions to this effect to #e included in the tender notices and the tender documents. =here are several exceptions to this general position and they areE $hen they are expressly stated promising to accept the lowest tender. See 2ar#ela In#estments 4td # +oyal %rust Co of Canada 91:@J<F $hen the facts and circumstances of the case, imply a promise #y the employer to pay costs. See 5illiam 4acey 92ounslo&< # -a#is 91:;?<F $hen the employer ma%es a su#stantial profit from the process at the tenderer?s expense. See Marston Construction Co 4td # *igass 4td 91:@:< F and $hen a person invites another to tender with no intention whatsoever of accepting the tender. =here is authoritative opinion which suggests that the employer?s unfettered discretion in respect of tender need to #e tempered with fairness. =he following qualifications to the employer?s a#ove mentioned #asic unfettered discretion can #e determined asE Amployer is under an implied o#ligation to give proper consideration to any tender which is su#mitted in accordance with the pu#lished conditions. See .lack ool and 0lyde Aero Club 4td # .lack ool .orough Council 91::0<F An implied o#ligation requiring the employer to give due consideration to the tender su#mitted, not necessary to accept it. See 0airclough .uilding 4td# .orough Council of 'ort %albot 91::2<F and An implied duty upon the employer to conduct the tender process fairly. See 2ughes Aircraft Systems International # Airser#ices Australia 91::?</

43

Unfortunately, there are no such cases locally that can offer any direction on the possi#le application of fairness in 'alaysia #ut it is su#mitted that our local judges may #e persuaded to adopt the approach ta%en #y other jurisdictions in common law countries as descri#ed a#ove. Authority( roles and duties of the arties under %raditional Contracts and Gominatedsubcontracts +oles of em loyer =he o#ligations of the client are generally not precisely set in the contract. =he o#ligations of the employer under a contract are clearly not limited to paying for the wor% though in many contracts this is the principal o#ligation cast upon him. =he other o#ligations are to give possession of the site, appoint a contract administrator usually the architect under "A' contract, supply instructions as to the carrying out of the wor%, nominates specialist su#-contractors and suppliers, not to interfere with the progress of the wor% and to permit the contractor to carry out the whole of the wor%. +oles and obligations of contract administrator All the standard form of contract in 'alaysia provides for administration of a contract #y an administrator and under "A' contract, this position is ta%en up #y the named architect. $e will focus on architect as contract administrator here, #ut this can #e su#stituted with Superintending 7fficer 1S73 if -./ contract is used, and Angineer if IA& contract is used. =he role of the named architect has two aspects that are often misunderstood and rarely defined precisely. 2. =he first is, as the agent of the client, where decisions are made and directions given a#out the extent of the wor% and expenditure. (. =he second is as an assessor, valuer or certifier. =his is a quasi-ar#itral role. $hilst performing this second function, the independence of the named architect must not #e questioned, or differences and ultimately disputes will undou#tedly occur. $hen the employer enters into a written contract with the contractor, the authority given to the named architect, as the client?s representative, to vary the contract wor% will expressly #e set out under the contract conditions. It is essential to understand that in the a#sence of express authority, the named architect can only #ind the employer in relation to the contract under the implied authority only. =he named architect generally has no authority to waive strict compliance with the contract, or to #ind the client, except #y the formal certificates issued during the course of the wor%s. Any express provisions purporting to confer finality are generally not always #inding since they are usually su#ject to a review #y ar#itration. An important issue is that the named architect has no implied authority to ma%e arrangements with third parties that will affect the rights of the employer, unless specifically authoriLed under the contract or #y internal memorandum of such delegated authority. =herefore, without the employer?s approval, the named architect cannot engage consultants or other specialists and would #e acting outside of delegated authority where the contract expressly confers such a power on the employer. &onstruction contracts, nevertheless usually confer certain powers expressly on the named architect, the exercise of which is therefore #inding on #oth parties. =he most important of these powers is the power to order variations #ut this must #e done in strict conformity with the formalities laid down in the contract. It is desira#le to indicate the precise nature of the instruction as the contractor is entitled to as% the named architect where the power originated under the contract. =he named architect duty is merely to stipulate the final result required and if this has already #een done there is no further duty to assist. =he named architect should #e particularly careful to

44

adopt a permissive attitude in preference to giving mandatory instructions. 4or such instructions given without caution and upon which reliance is placed #y the contractor could lead to difficulties and disputes. $ith respect to the quasi-judicial role required of the named architect, certain valuations or other matters often have to #e settled #etween the parties which require that the named architect acts impartially and not as an agent of the client. =his particular status is often not fully appreciated #y the employers. =he requirement is that the named architect #e o#jective in decision-ma%ing and to act with scrupulous impartially when applying provisions of the contract. If negligence were proven, the named architect could #e lia#le in #oth contract and tort to the other parties. Several o#servations on the roles and duties of the contract administrator can #e seen from the decisions of the judges as followsE @e is not a party to the contract and lia#le to the contractor in tort #ut not in contract. See Sutcliffe # %hackrah 91:?6< and 2edley .yrne 7 Co # 2eller 7 'artners 91:J6</ =he contract defines the duties, delimit the authorities and delimit the area in which the architect is acting as an agent for the employer. =he architect as an agent for the employer and he is a specialist exercising special s%ill independently as a certifier. See 5esseC +2A # 24M -esign 4td 91::6</ =he authority of the architect+contract administrator is expressly stated under the contract. @e is not to see% consent from the employer as the employer will #e estopped from denying. =he duties of an architect under the contract are to carry out site inspection himself and cannot rely on others. @e is accounta#le and responsi#le to the employer for the design and suita#ility even it is not done #y him. @e has to deliver the drawings and issue instructions timely, failing which extension of time and loss+expense may occur. @e has to supervise the wor% #ut not required to #e constantly on site. @e must see that major aspects of the wor%s are properly executed and need not attend to every detail. @e must #e fair and impartial when issuing certificates as he owes a duty of care. See Sutcliffe # %hackrah 91:?6</ =he duties of an architect to the employer at pre-contract stage, he is responsi#le for overall design and to prepare an economic design for the wor%s. @e wor%s for the #est interest of the employer. @e acts as an independent contractor for the employer unless he is an employee architect under a contract of service. See +eady MiCed Concrete 9South ,ast< # Minister of 'ensions and Gational Insurance 91:J@</ @e is lia#le if he delegates his design duties to others. See Moresk Cleaners 4td # 2icks 91::J3. If an expert was engaged to assist him, he is not entitled to #lindly follow the expert. See Merton 4.C # 4o&e 91:@1</ At the construction stage, he must perform in the #est interest of the employer. @e is acting as an agent for the employer. Anything he does within the scope of his authority #inds the employer. @e also performs the duties of a contract administrator 1&ertifier3. @e has a dual lia#ility, i.e. owe a duty under the contract and tort. See %o&nsend .uilders # Cinema Ge&s 'ro erty -e#elo ment 91@;:</ @e is expected to %eep a#reast with the development in law, including recent legislations and court decisions, and will #e lia#le to damages for negligence to his employer if he fails to do so. See .4 2oldings 4td # +obert )/ 5ood 7 'artners 91:?:</ +oles and duties of contractor In traditional contract procurement, the main o#ligation of the contractor is to carry out and complete the wor%s in accordance with the contract. &ontractor would li%e to achieve Hsu#stantial completion? or Hpractical completion? as this signals his fulfillment of his contractual o#ligations. $hen this is achieved, the maintenance period commenced and triggers the release of retention moneys plus a host of other activities which shall #e covered in the other sections. @owever, this determination is often very su#jective and may lead to disputes. 'ost construction contracts

45

contain an express or implied underta%ing #y the contractor to complete the whole of the project in question, upon which he depends his right to payment of the full contract price. $hen standard form of contract is used, generally the a#sence of an express underta%ing to complete the wor%s is irrelevant as the contractor cannot merely cease wor% midway through a contract, unless of course the client is in #reach. =he contractor must complete the wor%s. =he essence of a construction contract is a promise #y the contractor to carry out wor% and to supply materials in consideration of a promise #y the employer to pay for the wor%. In most standard form of contracts for major wor%s the contractor is given an express right to payment #y installments on account of the contract price as the wor% proceeds. A contractor underta%ing to do a wor% and supply materials impliedly underta%esE =o do the wor% underta%en with care and s%ill, or as is sometimes expressed in a wor%manli%e manner. =o use materials of good quality 1usually to a standard specification3. =hat #oth the wor% and materials will #e reasona#ly fit for the purpose for which they are required, unless the circumstances of the contract are such as to exclude such o#ligations. =he o#ligation to use good materials is a#solute and independent of fault if materials are so chosen #y the client. See 8oung 7 Martin # McManus Child 91:J:</ If the contractor construct according to all the detailed instructions, he is still lia#le for the implied warranty for the fit for purpose of the finished product. See 4ynch # %horne 91:;J< ! @e is not lia#le without any other expressed conditions. In the a#sence of express provisions, a contractor must complete the wor%s within a reasona#le time. In addition to express provisions for completion #y a stated date, there would #e an implied term that the contractor will proceed with reasona#le diligence and to maintain reasona#le progress. In addition to the a#ove, the contractor shall ta%e full responsi#ility for the sta#ility, adequacy and safety of all operation and methods of construction. +oles and duties of AS Nuantity surveyors 1NS3 are a %ey mem#er of the construction teamF frequently involved from the initial planning stages to the end of construction and #eyond. ,uring the planning stage he plays a %ey role in assessing whether the project is feasi#le from an economic standpoint. =he NS may act in consulting role to engineers and architects, advising them on cost effective methodologies and procedures. @e will ensure that the project adheres to local and national regulations. ,uring construction stage, the NS played a pivotal role in ma%ing sure the process runs smoothly and within #udget limits. ,ispute and conflict can arise during these times and the NS, if need #e, can step in to act as a liaison #etween conflicted mem#ers of the construction process. Dood interpersonal relationships #etween all mem#ers of the construction team %eep the project moving forward. &lose attention is also %ept to monitor the costs and economics involved during the construction process. .eeping the project running without conflict and economically sound are valua#le services provided #y this role. ,uring the post-construction stage, his responsi#ilities and functions shift. =he o#jective now is to monitor the #uilding and ma%e sure that operational costs are %ept inside the #udget. ,uring this time, the responsi#ilities are to ma%e sure the project adheres to local and national tax laws. Insurance is another aspect of the project. Insurance claims and cost of replacement may #e dealt #y the NS. 6alua#le and accurate estimates of damages, and costs of destroyed or damaged goods can #e provided.

46

7rganiLing tenders and compiling reports are crucial roles of the NS. &ontract drafting and interpretation is also a valua#le role this position can provide. $ith a professional %nowledge of legal documents, consultation to companies, contractors, or anyone involved in the construction process shall enhance their contri#utions to the project team. =he diverse and essential roles provided #y the NS allow for any aspect of the construction or development process to run smoothly. y %eeping the project within legal, economical and structural limits, this position is crucial for any project. -ocumentation for contract a&ard =he contract documentation process involves several activities resulting in a legal document. =he main activities to its successful completion areE =he systematic gathering of the additional information, details and amendments to the original tender document, to prepare draft contract documentsF =he draft contract documents must #e chec%ed or reviewed for completeness, accuracy, clarity and conformance with the laws and Acts of "arliamentF "roducing the relevant num#ers of final contract documents for distri#utionF Initiate the formalisation process #y the employer 1i.e. signing under hand or sealing3F Sending the signed final contract documents for stamping in accordance with current law 1e.g. Stamp Act 28983F 'a%e duplicate copies of the signed final documentsF and ,istri#ute the original signed copies to those entitled and duplicates as wor%ing copy. Article ;1q3 of "A' ())* states that the term Hcontract documents? to refer collectively to the various documents such as the Cetter of Award, the Articles of Agreement, the &onditions of &ontract, the &ontract ,rawingsF the contract #ills and other documents incorporated in the &ontract ,ocuments, unless expressly stated to #e excluded. &lause 2.2 1#3 of -./ ()0A1());3 defines the term Hcontract documents? to mean the documents forming the tender and acceptance thereof including, 4orm of =ender, Cetter of Acceptance of =ender, &ontract ,rawings, ills of Nuantities, Specifications and =reasuryMs Instructions and all these documents shall #e complementary to one another. In H=enders and &ontracts for uilding? #y Aqua Droup 1( edition3 at page 22:, contract documents is defined as the documents signed #y #oth parties 1to a contract3 and precisely stated in the form of contract as Hcontract document?. &ontracts can #e signed under hand or sealed. =herefore, contract documents are the formal documents of an agreement reached #etween the parties, after acceptance of the tender during the tender process. It consists of a collection of separate documents identified expressly in a particular form of contract employed for the specific project, and they are signed under hand or sealed #y the parties to the contract. %he role of contract documents Oou need to realiLe #y now that the signed contract documents are not just to satisfy the legal requirements of the country that the contract operates. =here are other equally important roles played #y the finaliLed documents and they areE It serves as the main evidence of agreement #etween the parties and their legal relationshipF It expressly states the terms and conditions of the agreement reached #y the partiesF It defines the rights, duties, o#ligations and lia#ilities of the partiesF It reflects the designer?s design intent to the parties and for the contractor to plan, interpret, manage and integrate the relevant resources to produce the required productsF It defines the scope of wor% to #e done #y the contractorF It allocates the amount of money to #e paid to the contractor #y the employerF
nd

47

It identifies the officers of the contract and define their roles and dutiesF and It sets out the administrative procedures required to fulfill the legal relationship #etween the parties. Com ilation of the contract documents =he contract documents cannot #e compiled #y anyone as it is complex and needs special s%ill due to the legal nature of the documents. As far as possi#le, it should #e a#sent of mista%es, omissions, discrepancies, am#iguities and the li%e in view of the adverse legal consequences arising after formaliLation of the documents. Oou must #e aware that any of the a#ove defects are difficult to #e rectified after formaliLation as the courts have the tendency to interpret it strictly. Denerally, for small contracts or quotations, the employer would use in-house personnel to prepare it. $hen traditional contracting method of contract procurement is employed, consultants are engaged to prepare such as cost consultant for #uilding and infrastructure projects, and engineers for 'BA services and civil wor%s. In non-traditional contracting method of contract procurement, project managers, contractors or employer?s in-house personnel are employed to do it. Apart from the parties identified a#ove, for administrative efficiency, the one who prepared the tender documents or invited the tenderers is assigned this compilation jo#. =he party ta%ing up this role must get input from other relevant parties involved in the project and collates such information into final documents and in the interim underta%es the reviews, chec%s for sufficiency, accuracy and legalities. In small projects, only a single #ody underta%es this role whereas for large and complicated contracts, a whole team or department is involved. =he contract documents must #e ready for signature when signed CA, performance #ond and insurance policies are su#mitted #y the contractor. As these documents are made condition precedent to the commencement of wor% under the conditions of contract, therefore the contract documents should #e ready for signature within a reasona#le time from the date of site possession or commencement of wor%. =he current local practice of delaying the preparation and formaliLation of the contract documentation well after the commencement of the contract and in some instances even after project completion, is untena#le and should #e discarded. A whole range of contractual+legal pro#lems created, giving rise to disputes+claims which inhi#its the successful implementation of the project. =he actual num#er of copies of the contract documents to #e made is determined #y employer?s requirements and the num#er of parties entitled to original copies. Denerally, the minimum num#ers of contract documents made for formaliLation are two, one for employer and the other for contractor. =here are situations where certified true copies of the original documents are accepta#le as adequate. Contract documents for %raditional Contracts and Gominated-subcontracts =he contents of the contract documents must accurately reflect what was contained originally in the tender documents and its modifications through su#sequent discussions, clarifications, amendments and additional requirements agreed #etween the parties. Oou can see from the =a#le 2 and ( as appended #elow the transformation from tender documents to contract documents. A #rief summary on the changes from tender to contract document are the deletion of letter of invitation, chec%list for su#mission and schedule of technical data from the tender documents and replaced #y articles of agreement, letter of acceptance+award, relevant documents of contractor, relevant documents to contractor, relevant document from contractor and special conditions to the

48

conditions of contract 1highlighted in grey colour3. Aach of the replacement as listed a#ove shall #e descri#ed in detail here #ut the descriptions of the other items which can #e found in tender documents shall not #e repeated. =a#le 2 ! =he typical content of tender documentation for traditional main contracts and nominated-su#contracts. 5ominated Su#'ain 'ain &ontract contracts &ontract #ased on applica#le with ills drawings and to #oth of specifications types of quantities 'ain &ontracts P P P P P P P P P

Item 5o.

,escription for the content of tender document

2 ( 0

9 : * ; > 8 2) 22

Cetter of invitation &hec%list for su#mission &onditions of contract ! espo%e, "am ())*, -./ ()0, &I , ())) or IA& 1'ain 7/ 5ominated Su#-contract3 4orm of tender Specifications ills of quantities =ender drawings Schedule of day wor% rates Summary of tender Schedule of unit rates Schedule of technical data of equipment+plant+material offered

P P P P P -

P P P P P P

P P $here applica#le P $here applica#le $here applica#le $here applica#le P

=a#le ( ! =he typical content of contract documentation for traditional main contracts and nominated-su#contracts. 5ominated Su#'ain 'ain &ontract contracts &ontract #ased on applica#le with ills drawings and to #oth of specifications types of quantities 'ain &ontracts P P P P P P P P P

Item 5o.

,escription for the content of contract document

2 ( 0

Articles of Agreement =he letter of award &onditions of contract ! espo%e, "am ())*, -./ ()0, &I , ())) or IA& 1'ain 7/ 5ominated Su#-contract3 4orm of tender

49

: * ; > 8 2) 22

Specifications ills of quantities &ontract drawings Schedule of day wor% rates Summary of tender Schedule of unit rates /elevant documents of contractor su#mitted as part of the tender su#mission documents and which are material to the contract such as details on deviations from tender requirements, details on su#-contractors proposals and other details having impact on the contract /elevant documents to the contractor amending or confirming the original tender or affecting the contract in any way such as addenda, pretender clarifications, correspondences, records of meeting and post tender su#mission clarifications, negotiations and records of meetings /elevant documents from the contractor amending or confirming the original tender or affecting the contract in any way such as pre-tender su#mission stage request for information, clarifications, correspondences, records of meeting and post tender su#mission clarifications, negotiations and records of meetings Special conditions to the conditions of contract ! if applica#le

P P P P P

P P P P P

P $here applica#le P $here applica#le $here applica#le $here applica#le P

2(

20

29

50

Articles of Agreement =he Articles of Agreement is the formal document recording in general terms the agreement reached #etween the parties. It consists of an introduction+formal opening such as the contract num#er, the date of agreement and the identities of the parties to the agreement, including their address for notification purposes. =his is followed #y recitals which are statements in the documents to introduce the operative clauses. =heir main purpose is to set out the facts on which the documents are #ased, and to give reasons for the su#sequent clauses. =hey usually commence with the wording GwhereasI and include a #rief description of the wor%s and the site, a reference to the effect that the N 1if employed3, contract drawings, etc. have #een prepared and a record that tender has #een accepted. =he recitals are followed #y operative clauses called articles which define the contractor?s o#ligations, employer?s o#ligations, define the principal words and+or expressions use, identities and roles of the principal contractor administrator. At the end of every Article of Agreement is a section for the parties to sign or affixing the common seal and an attestation clause. =he purpose of an attestation clause is to evidence that the document was properly signed or sealed in the presence of the witness or witnesses descri#ed or identified in the attestation clause. Denerally, a single witness is sufficient who attests the document and adds his description 1such as address and identity card num#er3. =he Articles of Agreement must #e filled correctly due its legal significance #efore signing or sealing and attestation. =he other points to note areE 2. the date of agreement must #e the current date and no #ac%dating allowed, (. a contract num#er is to #e included as the heading preceding the date of agreement if already allocated #y the employer, 0. the recitals should #e drafted to conveyed the required information in a concise manner as identical to the tender documents during tender process, 9. the contractor?s precise o#ligation and the correct contract amount #e duly stipulated, :. the roles of the various parties involved in the administration of the contract to #e correctly filled in, and where the specific articles of the Articles of Agreement are used to define essential terms used in the contract as aids to interpretation, *. this tas% must #e done #y an experienced and competent professional familiar with legal drafting. 4etter of acce tanceBa&ard =he letter of acceptance is the document evidencing the official acceptance #y the employer of the contractor?s offer. In compiling the contract documents, it is important for the letter of acceptance included to #e the copy expressly ac%nowledged #y the contractor testifying to the formal acceptance of the employer?s counter offer or original offer. =his must #e chec%ed for correctness #efore inclusion into the contract documents. +ele#ant documents of contractor submitted as art of the tender submission documents =he contractor?s tender su#mission forms the core of his offer and is the su#ject of the employer?s acceptance, and forms the essence of the formal contract #etween the parties. @ere we are interested with the remaining relevant documents and material, to ensure completeness of the final contract documents and they areE =he details on deviations from the original tender documentsF =he details on the proposed list of su#-contractors and suppliersF =he method statements where expressly requiredF =he wor% programme as required #y the contractF

51

=he details on contractor?s proposed organisation set-up, on-site and off-site for the contract implementationF and Any other relevant information having impact on the agreement entered into #y the parties. +ele#ant documents to the contractor amending or confirming the original tender If after the issue of tender documents to the tenderers, employer does issue further documents during the tendering period, these documents could amend or confirm the original tender requirements or affect the contract. =herefore, it is necessary to include them into the final contract documents such as addenda comprising drawings, specifications, N, schedules officially issued to the contractor and official answers to the contractor?s request for clarifications or request for information. In addition to a#ove, there may #e official documents in the form of correspondences, minutes of meeting, etc issued to the contractor following tender clarifications and +or negotiations #etween the parties which may amend or confirm the original tender requirements or materially impact on the contract. =hese must #e included into the final contract document to reflect the final agreement reached #etween them. +ele#ant documents from the contractor amending or confirming the original tender It is normal for the contractor to su#mit documents to the employer either at the pre-tender closing stage or within the tender validity period. =hese documents may #e necessary for the purposes of clarifications or amplifications of their offer and+or #e part of the tender negotiation process. If these relevant documents have an impact on the contract, they must #e included in the final contract documents to reflect its significance. S ecial conditions to the conditions of contract It is usual for most standard forms of conditions of contracts to include additional conditions as special conditions+provisions to conditions of contract. =his is incorporated #y the employer to cover specific matters particular to the contract such as provisions of fluctuation in prices and advance payment. =hese conditions must #e carefully identified, drafted and included in the contract as they may #e mere repetition of the existing conditions of the original tender documents. =he items and #ase prices as reference for fluctuation in prices must #e esta#lished during tendering exercise including the formula for its adjustment when project commenced. 0ormalisation of the contracts 7nce the process of compilation is completed, the contract documents can proceed to #e formalised. A pre-condition to this is an express ac%nowledgement #y #oth parties as to the accuracy of the documents pending formalisation. A good idea is to have a joint document preparation exercise #y extending the completed draft contract documents to the other party for their necessary review and+or comments. =he formalisation of the agreement involves a two-step process, that is, 2. Signing under hand or sealing and (. Attestation 1due witnessing of the signing or sealing3. =he mode of formalisation is stipulated in the Articles of Agreement and shall determine whether the document is to #e signed or sealed. In the signing of the contract documents, not only the Articles of Agreement is signed #ut also all the rest of the documents comprising the contract documents. =he signing procedures are as followsE =he attestation clause to #e filled and signed #y the contracting parties or its authorised representativesF

52

If the party is a corporate entity, the contract can #e signed #y a person authorised under the Articles of Association of the particular companyF It is prudent to require the person signing the contract to furnish proof of such authorisation, that is, in the form of the resolution of the company or other accepta#le form of documentary evidenceF If the party+parties involved is a joint venture or consortium, the contract documents need to #e signed #y the authorised representatives of each of the partners to the joint-venture or consortium so as to render them jointly and severally lia#le. A copy of the joint-venture or consortium agreement, in addition to any further underta%ings need to #e provided for verification prior to the act of signingF =he full name, designation and identity card num#er of each of the signatory must #e verified and recorded in the testimoniumF It is important for all the contents of the whole contract documents to #e suita#ly signed or initialled #y all parties to the contractF and At least two sets of the original contract documents must #e signed. A further copy for the use of the contract administrator may #e prepared and signed, although a certified true copy of the original document is sufficient. If the fixing of the common seal is permitted under some contracts to #e formalised #y affixing the common seal of the company in lieu of signing under hand. =he affixing of the common seal must #e witnessed in accordance with the Articles of Association of the company. Aven though the execution of the agreement #y the affixing of the seal for the Articles of Agreement, the rest of the contract documents must #e signed or initialled #y the parties to the contract. =he remaining procedures as descri#ed a#ove for normal signing the contract documents shall apply. Attestation is descri#ed as the practice of having contracts or other documents signed or sealed in the presence of a witness who also signs and add his address and description as evidence that the document was properly signed or sealed. Additional points to consider in relation to attestation areE 7nly a single witness is sufficient unless specific attestation clause provides otherwiseF =he identity of the witness is dictated #y the form of formalisation used, if the affixing of the common seal is the mode, the identity of the witness attesting the affixation is determined #y the Articles of Association of the companyF =he full name, designation and identity card num#er of the witnesses must #e verified and recorded in the attestation clauseF =he attestation must #e underta%en contemporaneously with the signing or sealing of the contract documentsF and 4ailure to attest and+or non-compliance with the attestation procedure though not desira#le, is nevertheless not fatal and may render the contract entered into #y the parties invalid. =he formalisation of the contract documents is completed when the documents are send for stamping and the necessary copies are made and distri#uted to the relevant parties, and #alance are %ept in a safe place. 'lease read ,ngineering and Construction Contracts Management 're-Contract A&ard 'ractice by 2arbans Singh */S/ 3@0 to 636 for further information on re-contract documentation/

53

You might also like