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BUILDING CONTRACT ADMINISTRATION In reference to PAM Building Contract 2006

by Wan Sofiah Wan Ishak

May 2014

ADMINSTRATION

Architects are engaged as CONSULTANTS on building projects for his/her professional skills and experience. 2 separate funcDons;

-‐  translaDng client’s brief into design with drawings, specificaDons, etc -‐  supervising the work of the actual construcDon to ensure it complies with

the intenDons, standards of workmanship and quality, not forgeOng [complying to] the building bye-‐laws and regulaDons

BUILDING CONTRACT

an overview

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Architect’s main funcCons in the building contract include : Firstly, he carries out duDes as agent of the Employer in that he is bound to act on his Employer’s instrucDons.

•  provide informaDon, drawings, •  issue variaDon orders on nature or quanDty of the works, suspending the

works, •  nominate sub-‐contractor and suppliers and •  inspecDng and approving the works

Secondly, he carries out certain decision making funcCons which require him to act fairly between the Employer and Contractor and exercise independent professional judgment.

•  role as an independent cerDfier

ADMINSTRATION BUILDING CONTRACT

an overview

Architects Rules [ Scale of Minimum Fees] 2010 recognised the roles and responsibiliDes of the architect as employer’s agent in the building contract. Part II – Architectural Consultancy Services

Rule 10 : Basic Services under Contract ImplementaDon & Management Phase CondiDons of Engagement : -‐ paragraph 8 [instrucDons /variaDon orders], -‐ paragraph 9 [inspecDon of works] and -‐ paragraph 13 [client not to issue instrucDon to contractors]

LAM’s Code of Professional Conduct -‐  Faithful discharge of responsibiliDes : to act competently, responsibly and to be imparDal.. PAM’s Code of professional Conduct -‐  Fairness between parDes

In addiDon, Architects are also bound to; •  Federal & State consDtuDons •  Contract Act 1950 •  Street, Drainage And Building Act 1974 [incl UBBL]


an overview

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roles and responsibiliDes of the architect as employer’s agent in the building contract. -‐  Is a relaDonship created by an Agreement, expressed or implied -‐  the extent of roles & responsibiliDes are limited to that prescribed in the contract

An agent in the building contract; -‐ Is expected to work with a level of skill normally associated with his profession or occupaDon, and be concerned not to allow a conflict to arise between his own interests and those of his principal.

The power of the architect [as a client’s agent in building contract]

-‐  is limited to the terms of the appointment, and has no authority e.g.to vary the contract between the contractor and employer unless express powers are granted for such a purpose

Note: An architect is appointed under Architects Rules [2010] as a consultant providing ‘consultancy services’ not as an ‘agent’ giving ‘agency’ services.


an overview

…architect as employer’s agent in the building contract and independent cerDfier

VariaCons : Where an architect acts without the authority or approval, the Employer is not bound by what is done, except for ; statutory requirements or safety. Note on the provisions under paragraph 8 of CondiDons of Engagement [what would the contractor’s recourse if client disagree with variaDons instructed by architect without his prior approval?]

Suspension of work:

Generally , the employer and the Architect have no right to instruct the contractor to suspend work.

DelegaCon of authority: Generally, an Architect is expected to act personally for the employer, unless expressly stated in the contract such as delegaDon to the engineer [stated in ArDcle 4], QuanDty Surveyor[ stated in ArDcle 5] or specialist consultant [stated in ArDcle 6]

InstrucCons to contactor: Architect has no general right to issue instrucDons except those within express provisions in the building contract


an overview

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…architect as employer’s agent in the building contract and independent cerDfier InformaCon to the contractor; The architect is to provide relevant informaDon to the contractor. [Cl 3] -‐ 2 signed original copies of the contract document -‐ 2 further copies of contract drawings -‐ 2 copies of unpriced bills -‐ And when necessary, to provide further drawings, details, levels and any other informaDon as reasonably necessary. [Cl 3] -‐ Architect to determine all levels and provide drawings & informaDon to enable the contractor to set out the works. [Cl 5] -‐  Architect to determine levels and provide drawings, informaDon to enable contractor to do seOng out InspecCons Terms of Engagement of an architect contain the architect’s duty to inspect at periodic intervals. The need for a constant inspecDons to ensure that the works are executed in accordance to the contract is supplemented by a resident architect or clerk of works as inspectors. [note Cl 6 on the power by architect to open up works or arrange test on materials incorporated in the works…]


an overview

NOTE : para 9 has been updated in ARCHITECTS RULES 2010

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an overview

…architect as employer’s agent in the building contract and an independent cerCfier

The Architect must act as an independent professional

-‐  in exercising judgment and reaching decisions on various makers under the contract.

Note: -‐ The terms; instruct / direct, approve, cerDfy, to determine, to the saDsfacDon, at the discreDon, in the opinion of

Examples;

-‐  cerDficaDon of payments, -‐  acceptance of completed works at specified standard and Dme

…architect as employer’s agent in the building contract and an independent cerCfier

Guiding rules;

-‐  should act honestly and without any preserve conduct or refusal to deal with the maker at all

-‐  apply the contract as strictly and imparDally as possible -‐  not an arbitrator but to decide based on evidence and quanDtaDve

assessment

Failing which can lead to -‐  Breach of Contract enDtling claims from Contractor on damages, direct loss

and expense, Dme extension and determinaDon if found to be mala fide -‐  claim as negligence

mala fide : undertaken in bad faith


an overview

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Architect’s main funcDons in the administering the building contract can be summarised to include the following: 1.  To verify whether the Contractor discharges his contractual obligaDon that the works

are completed saDsfactorily as specified in the contract documents in terms of quanDty, quality and Dme;

2.  To provide the Contractor with any addiDonal or supplementary informaDon not

contained in the contract documents which he might require to complete the works; 3.  To assess any claim for extensions of Dme to complete the contract, loss and / or

expense from the variaDons, addiDons which the Contractor had not allowed for and be enDtled to recover;

4.  To issue pracDcal compleDon and making good defects cerDficates upon compleDon of

the works and expiry of the defect liability, to issue cerDficate of non-‐compleDon if necessary;

5.  To be the first point of adjudicaDon of any dispute between the Employer and the

Contractor.


an overview

WHAT, WHO, WHEN together with required acDons

RecommendaDons on the best way to read and understand the document;

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A contract has been defined as: “Legally binding agreement between two or more parCes, by which rights are acquired by one or more to acts or forbearances on the part of the other or others”

Sir William Anson

Rule of Law ..states

-‐ …must be ad idem ( of one mind-‐intenDon the same thing) before the existent of the contract. -‐ Intended project is lawful, -‐ both partner is of age (mature) and mentally capable (sane). -‐ No element of fraud.


Building contract WHAT •  Meaning

•  Significance / importance

•  Hierarchy

WHAT •  Meaning


•  Hierarchy

Building Contract is -‐  A private agreement -‐  Enforceable by Law

in essence, to set out the terms •  for the architect to govern the Dmely delivery of the specified product by the

contractor to the employer within the sDpulated cost, in return •  for the appropriate disbursement of money from the employer to the

contractor

Note that, Architects are advised to use the PAM Standard Form of Contract without amendments. Any alteraDons made which lead to ambiguity or inconsistency of the document may compromise the Employer’s rights to the contract or construed to be against the Employer

Building contract


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Contracts may be -  VALID -  VOID, without any legal effect -  VOIDABLE i.e. valid until one of the parties repudiates

-  UNENFORCEABLE in the courts


Building contract WHAT •  Meaning


•  Hierarchy

Hierarchy of documents

Act of Parliament

MINISTRY

PARLIAMENT

REGULATORY BODY

Acts

Rules / RegulaDons / bye law /

code of conduct


Building contract

Building contract [private agreement]

WHAT •  Meaning


•  Hierarchy

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WHAT •  Meaning


•  Hierarchy

Architect to funcDon as the client’s agent & an independent cerDfier as prescribed and implied; An agent in the building contract;

-‐ Is expected to work with a level of skill normally associated with his profession or occupaDon, and be concerned not to allow a conflict to arise between his own interests and those of his principal.

The power of the architect [as a client’s agent in building contract]

-‐  is limited to the terms of the appointment, and has no authority e.g..to vary the contract between the contractor and employer unless express powers are granted for such a purpose

Note: -‐ An architect is appointed under Architects Rules [2010] as a consultant providing ‘consultancy services’ not as an ‘agent’ giving ‘agency’ services -‐ name of the architect & pracDce are stated in ArDcle 3 and defined under arDcle 7 of the building contract

administraCon


•  Contract documents [defined under arDcle 7] •  Work programme •  OrganisaCon chart •  SeOng out drawings •  Site report , site diaries •  Architect’s InstrucDons •  NoDces •  CerDficates •  Asbuilt drawings •  Maintenance & operaDon Manual •  Final Account

WHAT •  Meaning


•  Hierarchy

documents


•  Performance bond •  insurance

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Contract documents [defined under arDcle 7] i.  The leker of award [defined] ii.  The ArDcles of Agreement iii.  The condiDons of the contract [defined] iv.  the contract drawings [stated in arDcle of agreement] v.  the contract bills [defined] vi.  Other documents incorporated in the contract documents

In the event of any conflict or inconsistencies… The priority shall be the order… as listed above [ Cl 3.1]

WHAT •  Meaning


•  Hierarchy

documents


Contract Bills [defined in ArDcle 7] comprise the following documents (as may be applicable): •  InstrucDon to Tenders •  CondiDons of Tendering •  Form of Tender •  Preliminaries •  Preambles and SpecificaDons •  Bills of QuanDDes and •  Any other documents specifically menDoned in any of the above documents;

WHAT •  Meaning


•  Hierarchy

documents


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Work programme [defined in ArDcle 7 and described in Cl 3.5-‐3.7] is -‐  an obligaDon by the contractor to the architect for informaCon. -‐  is not part of the contract -‐  is a responsibility & duty of the contractor even if the architect accept the work programme

-‐  may be used by the architect to monitor progress, use as a basis to assess EOT, delay and /or disturbance to work progress

Work programme ; -‐  To be submiked to the architect within 21 days from the receipt of LA or as stated by the architect [but not sooner]

-‐  To be submiked 6 copies unless otherwise stated in the contract documents [but no less]

-‐  To indicate the order of works to be carried out -‐  must comply to requirements specified in the contract documents -‐  must be revised if the works or any part of is delayed [architect may issue instrucDon for a revised WP ]

WHAT •  Meaning


•  Hierarchy

documents


SeOng out [Cl 5] drawings Note the difference between the acDon required for seOng out and the responsibility to provide informaDon & drawings to enable seOng out. SeWng out -‐  Is a duty and responsibility of the contractor -‐  is a liability of the contractor on any errors arising from any inaccurate seOng out InformaCon, drawings & levels to enable seOng out -‐ to be provided by the architect In the event of errors; -‐  The contractor to recDfy at his own cost -‐  The architect may accept the errors with prior approval from the Employer, and subject to appropriate deducDon to be set off by the employer

Note: It is recommended to include in the contract document on the requirement for the contractor to appoint a license surveyor Q : How / when does the architect observe that the seOng out is correct? Q : What is an acceptable tolerance to be considered as ‘error’

WHAT •  Meaning


•  Hierarchy

documents


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Architect’s InstrucCons -‐ AI [arDcle 7 & Cl 2]

-‐  Issued by the architect within the condiDons expressly stated in the contract -‐  must be in wriDng and expressly stated “AI” -‐  obliged to specify in wriDng on which provision that empowers to the architect to issue such AI -‐  contractor to comply with the instrucDon within the period stated by the architect [not less than 7 days from receipt of AI]

In the event that the contractor fails to comply with AI within the stated period;

-‐  The employer may employ and pay another party to execute the work to comply with AI. The cost to be set off by the employer

WHAT •  Meaning


•  Hierarchy

documents


NoCces [Cl 36]

-‐ Must be sent by hand, ordinary mail or registered post or fax

Deemed received -‐  By hand [at Dme delivery] with signed acknowledgement of receipt -‐  ordinary mail or registered post [3 days arer posDng] with receipt of posDng -‐  fax [at Dme of transmission] with report on successful transmission

Sent to the addresses as stated in ArDcle 3 Note; -‐ NoDce sent by email is not an acceptable form of delivery unless otherwise stated in the contract document. -‐  ArDcle 3 only state addresses but not fax no.

WHAT •  Meaning


•  Hierarchy

documents


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As built drawings [arCcle 7, Cl 3.10] Means as-‐built drawings for works designed [including alternaDve design] by the contractor and / or NSC And Any other as required as specified in the contract documents

-‐  Contractor to submit before the CompleDon Date or within the Dme specified in the contract -‐  Contractor to obtain the same from NSC and submit in the same manner

Q Can this include [if specified in the contract documents] key plans/ drawings incorporaDng all changes made during construcDon?

WHAT •  Meaning


•  Hierarchy

documents


CerCficates Final Account [covered under other Module]

WHAT •  Meaning


•  Hierarchy

documents


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OrganisaDon chart Not stated in the contract

WHAT •  Meaning


•  Hierarchy

documents


Site report , site diaries Not stated in the contract

WHAT •  Meaning


•  Hierarchy

documents


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Performance Bond [PB] Defined as ‘the bond required to be provided by the Contractor as a security for the due performance of the contract under Clause 37.1; ‘ Stated in -‐ -‐  Stated in under Apendix

Amount of PB is 5% of Contract Sum unless otherwise stated. -‐  cl 27.13 [ under NSC] and PAM 2006 NCS contract cl 32.1

Contractor may recoveraddiDonal expenses from NSC’s PB in the event that Architect gives consent to determine NSC’s employment.

-‐  Cl 30.4 [set-‐off by employer] Employer can recover from contractor’s PB on any ‘set-‐off’ as outlined in the contract

-‐  Cl 37 [PB]

WHAT •  Meaning


•  Hierarchy

documents


……PB ConCnue

ConCnue …… Performance Bond [PB] Cl 37 [PB] -‐  To submit before the Date of Commencement -‐  FuncDon as a security for the due performance up to PracDcal CompleDon of the Works. -‐  To be prepared by the Contractor during site mobilisaDon -‐  However, in the event the contractor failed to submit, the client cannot prevent the Contractor

from commencing works unless expressly stated in the contract. -‐  The amount is a fixed sum as stated in the appendix -‐  Format of PB is specified in the contract or to the client’s approval. It is recommended to include

specimen of PB in the tender documents to avoid disagreement on the content & format -‐  Validity is unDl 3 months arer CompleDon Date and to be extended by the Contractor in the event

of delay, following the same requirements. -‐  If the Contractor fails to provide or maintain PF, the Employer has the right to withhold or deduct

the same amount of PB, from any payment due to the contractor PB shall be uDlised by Employer : -‐  Contractor’s employment is determined by the Employer [cl37.5]. Employer to refund to the

Contractor, the balance of amount uDlised arer deducDons in recovering all expenses, losses suffered by the Employer

-‐  To recover from any Set-‐off as stated under the contract [cl 30.4] PB to be returned to the Contractor: -‐ Contractor’s own determinaDon of the contract. Employer to return within 28 days of noDficaDon from the contractor

WHAT •  Meaning


•  Hierarchy

documents


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maintenance manuals [cl 3.10] -‐  To be supplied by the Contractor & NSC in 4 copies before the CompleDon Date

unless specified otherwise. -‐  The content and details of OM is not specified in the Contract. -‐  It is recommended to provide specimen in the tender document on the minimum

requirement of OM

WHAT •  Meaning


•  Hierarchy

documents


WHO contractual parDes / line of communicaDon

•  Architect •  Engineers •  QS •  Specialists

consultant •  site staff

•  contractor •  site agent •  nominated subcontractor •  nominated supplier •  domesDc sub-‐contractor

•  employer

•  ArDsts / tradesmen •  License surveyor


WHO

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Employer [stated in ArDcle of Agreement and defined in ArDcle 7] •  Include the legal successors or personal representaDves •  Can be transferred with the agreement from the contractor

the client or employer undertakes to:

•  give the contractor possession of site in order to carry out the work

•  ensure all necessary information is made available to the contractor

•  appoint a contract administrator [architect, engineer, QS, etc]

•  pay all amounts properly certified

WHO •  Meaning


•  Hierarchy

who


Architect [stated in ArDcle of Agreement and defined in ArDcle 7] •  Can be a person registered as a Professional Architect •  Or a pracDce registered by LAM

Architect undertakes to:

•  issues necessary information to the contractor

•  issues instructions empowered or required by the contract;

•  issues certificates as required by the contract

•  does not exceed the authority given by the contract

•  act in a fair and reasonable manner where impartial judgment is required by the contract

WHO •  Meaning


•  Hierarchy

who


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Engineer [stated in ArDcle 4 of Agreement and defined in ArDcle 7] •  Can be a person registered as a Professional Engineer •  Or a pracDce registered with Board of Engineers, Malaysia

QuanCty Surveyor [stated in ArDcle 5 of Agreement and defined in ArDcle 7] •  Can be a person registered as a registered QS •  Or a pracDce registered with Board of QS, Malaysia •  To keep copies of documents [cl 3.3] •  To do measurement & valuaDon of variaDon works, to determine rates if

variaDon involves works not similar to that stated in the contract •  Has access to contractor’s books and documents [cl11.8] •  Evaluate loss and/or expense Note : in all situaCons, the term ‘QuanCty Surveyor’ appears together with ‘architect’

Specialist Consultant [stated in ArDcle 6 of Agreement]

WHO •  Meaning


•  Hierarchy

who


Contractor [stated in ArDcle of Agreement and defined in ArDcle 7]

•  Include the legal successors or personal representaDves •  Can be transferred with the agreement by the Employer

Contractor undertakes to:

•  carry out and complete the works in accordance with the contract;

•  proceed regularly and diligently;

•  complete by the agreed Date for Completion;

•  comply with instructions empowered by the contract

WHO •  Meaning


•  Hierarchy

who


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Site Staff [defined in ArDcle 7 & described duty under cl 10] -‐ To be appointed by the Employer -‐ Act as an inspector under the direcDon of the architect -‐ Contractor to provide faciliDes [Note : refer to CondiDons of Engagement para 9]

scope of services In simple terms… to look, and report to the architect what they see.

Site Staff has no power to;

-‐issue instrucDons to the contractor unless expressly authorised in wriDng by the architect -‐Approve any of the work -‐issue any of the cerDficates -‐ Carry out any of the other administraDve duDes that fall to the architect

Note the difference terms: site agent, Clerk of Works and delegate, authorise

WHO •  Meaning


•  Hierarchy

who


Site Agent [defined in ArDcle 7 & described duty under cl 8.0] -‐  A competent Site Agent to be appointed by the Contractor and to be full Dme at Site -‐  Act as Contractor’s representaDve at site to receive any direcDons & instrucDons. -‐  Architect has the right to remove Site Agent, but not unreasonably or vexaDously. -‐  to sign off vouchers specifying Dme, materials, workers’ names, construcDon plan of variaDon works. The Contract does not state: -‐  The number of Site staff required & their qualificaDons -‐  It is recommended to state the minimum qualificaDon in Contract Bills Note: -‐ cl 8.3 also states that the Architect has the right remove any Person employed or controlled by the Contractor . This definiDon extends to any sub-‐contractor under the control of the Contractor.

WHO •  Meaning


•  Hierarchy

who


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NSC Under separate note

Crabsmen, Tradesmen, Other Contractors employed / engaged by the Employer [cl29.0] -‐  The Contractor to allow access and permit execuDon of works by other parDes engaged

by Employer -‐  Employer to take full responsibility -‐  The Contractor shall be enDtled for EOT in the event of delay caused by 3rd party

engaged by Employer

WHO •  Meaning


•  Hierarchy

who


Employer

Architect Engineers

QS others

Local AuthoriDes

Main Contractor

Nominated supplier

DomesDc sub-‐contractor

suppliers

Crarsmen & tradesmen

Nominated sub-‐contractor

Contractual & communicaCon link


Note : communicaDon between contractors, suppliers with local authoriDes is limited to their respecDve works

communicaCon link

contractual link

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WHEN / EVENTS

Perfect situaCons… •  site possession •  commencement of works •  works in progress •  compleDon •  defect liability period •  Final Account


Not so perfect… •  postponement of site possession •  Works not in accordance •  Discrepancies / divergence •  variaDons •  non-‐compliance •  delay •  Disputes & resoluDons •  determinaDon


WHEN / EVENTS

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Site Possession [Cl 21.0] -‐  Client’s obligaDon to give site possession on the Date of Commencement [defined

in ArDcle 7, stated in the Appendix [including SecDonal Commencement Dates] In the event of delay in site possession within the Period of Delay; -‐  Architect to grant EOT -‐  The contractor is enDtled to loss and/or expense In the event of delay in site possession aber the Period of Delay; -‐  The client is in breach of the contract -‐  The contractor is enDtled to determine the contract [with due noDce] Period of Delay is stated in the Appendix, if none stated it is ‘conDnuous’ period of 3 months

WHEN •  Meaning


events


SecDonal Commencement Dates [cl 21.2] -‐  The contract allows for the site possession to take place in secDons whereby it

must be stated in the Appendix [& Contract Bills] so that the contractor can price accordingly.

-‐  Giving site possession in secDons when it is not stated in Contract Bills [ArDcle 7], is

a breach of contract by the Employer

WHEN •  Meaning


events


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…Works not in accordance…[cl 6.5-‐6.7] -‐  Referring to work, materials, good and workmanship

Architect to instruct the contractor in wriDng;

-‐  To remove or not to bring to the site -‐  to demolish and reconstruct -‐  to recCfy with no effect to the contact sum -‐  to submit method statement within 7 days [ or any other specified by the architect] from the receipt of AI… Architect may accept or reject the proposal for recDficaDon. -‐  accept the works, materials, goods or workmanship with Employer’s consent and subject appropriate set-‐off by the Employer. In this case, the contractor is sDll liable for the works -‐  no compensaDon on Dme & cost to the contractor [cl 6.6]

At the same Dme, the architect must inform QS to make adjustment in payment valuaDons on the related works,…

WHEN •  Meaning


events


not perfect situaCon

Works not in accordance…[cl 6.5-‐6.7] If the contractor fail to comply with wriken instrucDon by the architect [cl 6.7]

-‐ Employer may employ and pay other Person to carry out such works…., all cost including loss & expense to be set-‐off by the Employer -‐  Employer may determine the contract provided that the contractor has persistently fail to comply with the architect’s instrucDons.

WHEN •  Meaning


events


not perfect situaCon

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Discrepancy or divergence between documents [cl 1.4] -‐  Referring to work, materials, good and workmanship

Contractor to plan the works prior to execuCon, using the Contract Documents and any other subsequent documents to. Upon discovery of any discrepancy or divergence,

-‐ Contractor to give wrifen noCce to the architect in sufficient Dme, before commencement of the affected works. -‐  architect to respond with wriken instrucDon within a ‘fair’ period and not to delay the affected works.

NOTE The Dme duraDon for the architect to respond is not specifically stated. Q: In the event that the contractor claim for EOT due to delay in response by the architect, what would be the basis for assessment?

WHEN •  Meaning


events


ACTIONS •  Instruct / Direct •  Approve •  CerDfy / grant •  Comply •  non-‐compliance/ not in accordance

•  Issue / provide / furnish •  Due diligence •  Fail / refuse / neglect •  Pay, offset payment

building contract administraDon

•  to determine •  to the saDsfacDon..

•  at the discreDon •  In the opinion of •  VexaDously •  conDnuously •  shall • may

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WHAT, WHO, WHEN together with required acDons

•  client

•  Architect

•  engineer

•  site staff

•  contractor

•  site agent

•  nominated subcontractor

•  nominated supplier

•  domesCc sub-‐contractor

•  ArCsts / tradesmen

building contract administraDon

•  pre site possession

•  site possession

•  commencement of works

•  works in progress

•  compleCon

•  defect liability period

•  postponement of site possession

•  Discrepancies / divergence

•  variaCons

•  non-‐compliance

•  delay

•  Disputes & resoluCons

•  determinaCon

•  Contract documents

•  Performance bond

•  Work programme

•  OrganisaCon chart

•  SeWng out drawings

•  Site report

•  Architect’s InstrucCons

•  NoCces

•  CerCficates

•  Asbuilt drawings

Glossary of Common Legal terms •  Per se – by itself •  Prima facie – on first view •  Ultra vires – beyond one’s powers •  Non – grata – not welcome •  mala fide : undertaken in bad faith

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TradiDonal procurement The basic hierarchy

CLIENT

ARCHITECT

PRINCIPAL CONTRACTOR

DOMESTIC SUB CONTRACTORS

NOMINATED SUB CONTRACTORS

SPECIALIST CONSULTANTS

TENDERING STAGE: SELECTION OF PRINCIPAL CONTRACTOR