(eng construction contracts)

LEMBAGA JURUTERA MALAYSIA

KDN PP11720/1/2008 ISSN 0128-4347 VOL.35 SEPT - NOV 2007 RM10.00

BOARD OF ENGINEERS MALAYSIA

33

4 President’s Message Editor’sNote

5 Update Professional Indemnity Insurance

Announcement PublicationCalendar EventCalendar FraudulentOffersOnEngineeringCouncil UnitedKingdomRegistration

Cover Feature 6 EffectiveContractManagementFor ConstructionProjects

16 DraftingConstructionContracts

24 UnderstandingEngineering/ConstructionContracts

Guidelines 36 TheChartered InstituteOfArbitrators: CodeOfProfessionalAndEthicalConduct

Feature 37 MembendungKerugianBerkaitanDenganTuntutan

KerugianDanPerbelanjaanTambahanDiDalamKontrakBinaan

44 ConstructionDisputes

48 IntegratedEngineeringServices-TheETICentricProfessionalServices

Engineering Nostalgia 56 SomeEngineeringWorks InThe60s

c o n t e n t sVolume 35 Sept - Nov 2007

2 THE INGENIEUR

41

56

6

As more local builders and professionals are engaging in construction works, both local and overseas, the subject of contracts has always been popular. In this publication, readers will be taken on a revisit to the understanding of Engineering Construction Contracts as well as the drafting of

construction contracts by prominent writers who have salient points to reach out to us.

On the international scene, the paper on ‘Integrated Engineering Services-the ETI centric professional services’ will examine the supply chain of Engineering Services in FTA.

During the recent BEM road shows on Certificate of Completion & Compliance (CCC), many questions were raised on Professional Indemnity Insurance (PII). We hope the section on PII addresses the concerns in this area and we welcome further deliberation on this.

Ir. Fong Tian YongEditor

MEMBERS OF THE BOARD OF ENGINEERS MALAYSIA (BEM) 2006/2007

PresidentYBhg. Dato’ Prof. Ir. Dr. Judin Abdul Karim

RegistrarIr. Dr. Mohd Johari Md. Arif

MembersYBhg. Tan Sri Dato’ Ir. Md Radzi Mansor

YBhg. Datuk Ir. Hj. Keizrul AbdullahYBhg. Mej. Jen. Dato’ Ir. Ismail Samion

YBhg. Dato’ Ir. Shanthakumar SivasubramaniamYBhg. Datu Ir. Hubert Thian Chong Hui

YBhg. Dato’ Ir. Prof. Chuah Hean TeikAr. Dr. Amer Hamzah Mohd Yunus

Ir. Henry E ChelvanayagamIr. Dr. Shamsuddin Ab Latif

Ir. Prof. Dr. Ruslan HassanIr. Mohd. Rousdin Hassan

Ir. Prof. Dr. Hassan BasriTn Hj. Basar bin JuraimiIr. Ishak Abdul Rahman

Ir. Anjin Hj. AjikIr. P E Chong

EDITORIAL BOARD

AdvisorYBhg. Dato’ Prof. Ir. Dr. Judin Abdul Karim

ChairmanYBhg Datuk Ir. Shanthakumar Sivasubramaniam

EditorIr. Fong Tian Yong

MembersIr. Prem Kumar

Ir. Mustaza SalimIr. Chan Boon Teik

Ir. Ishak Abdul RahmanIr. Prof. Dr. K. S. Kannan

Ir. Prof. Dr. Ruslan HassanIr. Prof. Madya Dr. Eric K H Goh

Ir. Nitchiananthan Balasubramaniam

Executive DirectorIr. Ashari Mohd Yakub

Publication OfficerPn. Nik Kamaliah Nik Abdul Rahman

Assistant Publication OfficerPn. Che Asiah Mohamad Ali

Design and ProductionInforeach Communications Sdn Bhd

PrinterArt Printing Works Sdn Bhd

29 Jalan Riong, 59100 Kuala Lumpur

The Ingenieur is published by the Board of Engineers Malaysia (Lembaga Jurutera Malaysia) and is distributed

free of charge to registered Professional Engineers.

The statements and opinions expressed in this publication are those of the writers.

BEM invites all registered engineers to contribute articles or send their views and comments to

the following address:

Publication CommitteeLembaga Jurutera Malaysia, Tingkat 17, Ibu Pejabat JKR,

Jalan Sultan Salahuddin,50580 Kuala Lumpur.

Tel: 03-2698 0590 Fax: 03-2692 5017E-mail: [email protected]; [email protected]

Website: http://www.bem.org.my

Advertising/SubscriptionsSubscription Form is on page 54

Advertisement Form is on page 55

KDN PP11720/1/2008 ISSN 0128-4347

As Malaysia celebrates its 50th anniversary, the local construction industry has also developed tremendously and matured. Malaysia has earned a reputation of completing major projects in record time such as the Petronas Twin Tower and KLIA, just to name a few. Many of our consultants and contractors have ventured beyond our shores to compete with

big players on the international scene. While we may be familiar with construction techniques

and engineering codes, contract management may differ from one country to another. The concept of Integrated Engineering Services as detailed in one of the papers is one such creation that engineers need to familiarize themselves to face the challenging world. For engineers to stay competitive, we not only have to keep up with the new technologies and innovations, we also need to keep track of the changing trend of contracts.

Contact per say cannot be left to the contract division or the quantity surveyor alone. Engineers as the leading consultants in major projects are often saddled with contractual matters that require a good understanding of the nexus of legal terms and conditions of the contract. Knowledge and experience on this matter make an engineer better equipped to manage a major construction project.

I hope this edition with the theme on Engineering Construction Contracts will enrich engineers with new thoughts on contract matters and ingredients needed to formulate and facilitate effective contract management to enhance project excellence.

Dato’ Prof. Ir. Dr. Judin Abdul KarimPresidentBOARD OF ENGINEERS MALAYSIA

President’s Message

4 THE INGENIEUR

Editor’s Note

Vol. 35 Sept - Nov 2007

5 THE INGENIEUR

ANNOUNCEMENT

The issue of whether Professional Indemnity Insurance (PII) should be made mandatory for all Engineering Consultancy Practices (ECP) was

deliberated at length by the Board of Engineers Malaysia (BEM) when the proposed amendment to the Registration of Engineers Act was redrafted last year. This was in view of the proposed amendment to the Street, Drainage and Building Act 1974, Act 133 whereby Professional Architects and Engineers are given the responsibility to issue the Certificate of Completion and Compliance (CCC) for development projects for which they are the principal submitting persons. Although the bill was finally approved by Parliament without any mention on PII, the Board encourages all ECPs to take up PII voluntarily.

In fact, a number of ECPs have PII coverage since their formation and some have taken up PII on their own initiative to safeguard their interest. Meanwhile, the Board is exploring other forms of PII which are practiced in other countries which may be more beneficial and affordable to local ECP.

The public, particularly house buyers may not have the right perception of PII. Professional indemnity policies

Professional Indemnity Insuranceprovide an indemnity for legal liability arising out of a breach of professional duty by way of neglect, error or omission. In addition, many professional indemnity policies incorporate additional clauses or extensions, such as libel and slander, loss of documents in insured custody or control. Certain PII policies do cover legal costs up to a stated amount) in connection with legal proceedings taken by the Professional Engineer (PE) claiming for damages arising out of the infringement of any copyright vested in the PE. The policy, however does not cover civil or criminal and/or other penalties financial or otherwise as liability on the part of the PE. PII does not cover third party claim against the engineer if such claims are not connected with the tortuous act on design or work related to it. Similarly PII does not cover fraud.

As the public is getting more litigious, the Board urges ECPs to take up PII to safeguard their own interest.

Dato’ Prof. Ir. Dr. Judin bin Abdul KarimPresidentBoard of Engineers Malaysia

UPDATE

The following list is the Publication Calendar for the year 2007 - 2008. While we normally seek contributions from experts for each special theme, we are also pleased to accept articles relevant to themes listed.

Please contact the Editor or the Publication Officer in advance if you would like to make such contributions or to discuss details and deadlines.

December 2007: PROJECT FINANCINGMarch 2008: POWERJune 2008: ASSET MANAGEMENT

Event CalendarConference on Sustainable Building South-East Asia – Strategies for Implementation & Exhibition on Sustainable Building and ConstructionDate: November 5-7, 2007Venue: Kuala Lumpur Convention Centre, Kuala LumpurJoint Organisers: KTAK, CTMC, UTM and ISI Workshop on Dynamics of Negotiating SkillsDate: November 26-27, 2007Venue: Hotel Bayview, Langkawi, KedahOrganiser: SPACE UTM Workshop on Dynamics of Strategy ManagementDate: November 28-29, 2007Venue: Hotel Bayview, Langkawi, KedahOrganiser: SPACE UTMTel: 07-5218170; 5218159; 5218164 Fax: 07-5211355Email: [email protected]: Ms. Zarina / Nurrul Ain

The Engineering Council United Kingdom (ECUK) is aware that there is a fraudulent operation in place which, amongst other things, offers to arrange registration with ECUK.

The ECUK never processes applications through third parties. All applicants must deal directly with ECUK and its constituent engineering institutions.

For further details on registration procedures with ECUK, please visit www.engc.org.uk. Anyone who receives an offer from an agent to facilitate registration should contact ECUK.

Fraudulent Offers on Engineering Council United Kingdom (ECUK) Registration

Selamat Hari Raya Aidil Fitri

HappyDeepavali&

The Board of Engineers Malaysia wishes all readers

By Ong Hock Tek, Managing Director, Entrusty Group

Effective Contract Management For Construction Projects

In the context of the construction industry, many of us would acknowledge that successful

construction projects are often attributed to those that achieve the client’s requirements and project objectives set out at the outset of the project. Such objectives may include delivery within the stipulated time period, construct within the budgeted cost and meet the quality standard set. Other objectives, equally important, may include meeting functional requirements and satisfaction of the clients and/or end users. Notwithstanding such requirements and objectives, the construction industries around the world still suffer from numerous se tbacks and p rob lems , in particular those associated with the construction process.

The common i s sues and problems associated with the construction process often lie in the ill considered procurement selection, traditional separation of design from construction, lack of integration/organisation of the project members and poor communication channels, uncertaint ies in design and construction, changing internal

and external environment, project complexity and characteristics, as well as contractual and commercial matters. In order to overcome these issues and problems so as to achieve project success, it is pertinent that the elements or ingredients in managing the contract effectively are well understood and practised.

Con t rac t Admin i s t ra t ion /M a n a g e m e n t i s a b o u t t h e management of the contract/s of a project. It involves the understanding and management of the roles, responsibilities, obligations, powers and liabilities of the contracting parties, as well as the administration of the contract provisions, procedures and practices as expressed and implied under the contract.

Is there a difference between contract adminis t ra t ion and contract management? Whilst many would view and construe contract adminis t ra t ion and contract management as synonymous, the author would draw a distinction between the two, in practice or practical terms.

C o n t r a c t A d m i n i s t r a t i o n involves understanding the roles, responsibilities, obligations, powers

and liabilities of the contracting parties and administering the contract provisions, procedures and practices as expressed and implied in the contract. The term ‘administration’ means ‘to administer’, ‘to execute’ or ‘to implement’. In practice, the administration of the contract is usually carried out in a passive or at best, reactive manner. The person who carries out the contract administration role, usual ly cal led the Contract Administrator, executes orders, gives direct ions and ensure compliance with the contract prov i s ions , p rocedures and instructions by the Superintending Officer.

On the other hand, Contract Management is different. It’s about the management of the contract of a project, which includes contract administration. The term ‘management’ means ‘to manage’. Management of the contract involves planning, organising, communicating, co-ordinating, monitoring and controlling the whole contract of the project. It’s a proactive rather than just reactive approach in the administration of the contract. The person

6 THE INGENIEURCOVER FEATURE

who carries out the contract management role, usually called the Contract Manager, manages and co-ordinates the contract requ i rement s toge ther wi th other project team members to ensure not only the contract is managed effectively, but also the project as a whole achieves its set objectives and meets the client’s requirements, effectively and successfully.

The ten essential elements o r i n g r e d i e n t s n e e d e d i n formulat ing and fac i l i ta t ing effective contract management to achieve project excellence and success are:

1 A good understanding of the Client, its Objectives and Priorities

2 A detailed appraisal and unde r s t and ing o f t he P r o j e c t N a t u r e a n d Characteristics

3 A proper and structured appraisal and management of the Project Risks

4 Selection of a suitable Project Team (Design/Construction)

5 Use of a suitable Building Procurement System

6 Use of a suitable Contractual Arrangement

7 H av i n g a n e f f e c t i v e Organisat ion Structure t h a t a l l ow s e f f i c i e n t communication channels and is capable of adapting to changes

8 Ma in ta in ing e f f ec t ive Monitoring and Control S y s t e m s c a p a b l e o f identifying and responding to changes

9 M a i n t a i n i n g p r o p e r Information Recording and Retrieval Systems

10 Emphasis on the importance o f good Commerc ia l /Bus ine s s and Human Relations

Note: 6 & 8 (adapted)

The elements are br ie f ly described and discussed, as follows;

The Client and its Objectives and Priorities

Whether from the private or public sector, each client has its own organisation and project objectives. The former objectives can include profit margin, growth/expansion, strategic alliance, etc. The latter objectives may include delivery within the stipulated Ti m e p e r i o d , C o s t w i t h i n budget, meeting the required Quality standards or Functional requirements, as well as ensuring customer Satisfaction.

Whatever the objectives, it is important to know and understand clearly the client’s requirements and priorities. Whilst some clients may place priority on aesthetic or prest ige, early or t imely completion or price certainty, o thers may place emphasis on buildability or flexibility to accommodate changes during construction and/or operation of

the eventual completed building or facility.

The objectives are essentially the Input and the Constraints can be the priorities and requirements on the project. In order to ensure that the Output, which are the deliverables, products and/or services can be achieved satisfactorily and successfully, the Mechanisms, which comprise people, resources, etc. must be adequate and timely put in place and properly managed. That is to say, the effective con t rac t management o f a project encompasses effective the interaction and integration of the four basic fundamentals or e lements in the project management process, effectively.

Diagram 1 i l lustrates the project management process1

Project Nature and Characteristics

A detai led appraisal and understanding of the nature and characteristics of the project i s crucia l as every project

7 THE INGENIEUR COVER FEATURE

CONSTRAINTS

Time, cost, quality, technical and other

performance parameters, legal, environment, etc

INPUTBusiness needs

and requirements

MANAGEMENTOF THE

PROJECT

OUTPUTProject

deliverables, products and/or

services

MECHANISMSPeople, techniques

and tools, equipment, organisation

Diagram 1

exhibits different nature and characteristics.

Fo r example , l a r ge and comp lex p ro j ec t s s uch a s airports, involve various unique assemblies and complications due to the high level of services and specialist input, making co-ordination and knowledge of such works of paramount importance. Consequently, the emphasis is on selection of a contractor or builder who has the knowledge and experience to provide the input and expertise by partaking in the pre-construction stage rather than to ensure buildability and proper co-ordination of the works amongst the many parties involved only during the construction stage.

Mass housing or industrial buildings, often involve repetitive construction works due to the extensive use of standardised or prefabricated components and/or proprietary systems. Such systems usually have sufficient construction information and details for the construction works to be carried out and completed. Hence, works can often start early and phased completion is often possible. As for refurbishment works, its nature and characteristics are again different due to the uncertainty of the extent of works as it is usually messy and complicated, possibly involving existing buildings with unsecured site conditions. Works are often required to be started as soon as possible, with difficulties in the measurement of quantities and pricing of rates.

Project Risks

BS 4478 defines risk as a combination of the probability, or frequency, of occurrence of a defined hazard and the magnitude of the consequences of the occurrence. In construction project terms, risk is The likelihood of negative occurrences adversely affecting the project, so that its objectives become more difficult

or impossible to achieve. Due to the inherent characteristics of construction projects and their processes, they invariably give rise to risks and must therefore be understood and managed, effectively. Such characteristics include changing environment cond i t i ons ( ex t e rna l l y and internally), traditional separation of design from construction, lengthy design and construction periods, diverse and substantial resource requirements, sub-contracting of works, mult i -discipl inary project team members, multi-level communication channels and multi-facetted co-ordination of works.

Risks could stem from bad ground and weather conditions, inadequate design and construction documentation, lack of resources and/or ski l ls /expert ise, poor planning, monitoring and/or control and lack of teamwork and communication. The effects arising from these risks, if not properly managed, may include disruption and delays to the construction works, budget and costs overrun, poor quality and standard of works, damage to plant/equipment and/or injury to construction personnel and contractual or technical disputes. Hence, having proper r i sks appraisal and management is an essential element. It involves the systematic application of strategies, policies, methods and procedures by taking positive, often proactive, steps in identifying, assessing, mitigating and managing the risks to eliminate or reduce its exposure to the party/ies concern.

Proper and structured risks appraisal and management can lead to a more effective project or construction management through better awareness and understanding of risks, systematic treatment of the risk issues to reduce uncertainties and hazards, as well as to ensure better use of the available resources.

Managing risks effectively facilitates the achievement of project objectives, improves project performance, increase p roduc t iv i t y and inc rea se s eventual profitability. Hence, specific considerations need to be given in the appraisal of risks, namely:

● Identification of risks (the cause) e.g. hazards - what, where, when, how, why, etc.

● Analysis of risks identified (the analysis) e.g. likelihood and nature of occurrences, etc.

● Assessment of risks analysed (the effects) e.g. consequences and extent of injuries, damages, disruptions, delays, etc

Management of the r isks appraised, involves:

● Planning and allocation of the risks appraised (the planning & control ) i .e . to avoid, transfer, share, reduction and acceptance

● Monitoring and feedback of the actual risk occurrences (the monitoring and feedback) i.e. recording, checking, verifying, comparing, reporting

Project Team

In selecting the project team for design and construction, several factors such as selection criteria and its process, scope of services/works, commitments, responsibi l i t ies , exper ience,


Site inspection

teamwork, communication, action plan, etc need to be assessed and considered properly. The selection process wi l l be very much governed by the type of building procurement system to be used for the project. The factors to consider in establishing a suitable project team includes:

● Commitment to defined and measurable project objectives

● Ability to foster and maintain teamwork

● Realistic action programme, budget/price and resources allocation

● Communication structure and channels

● R e g u l a r p e r f o r m a n c e appraisals

● Suitably located for regular formal/informal interactions

● Roles and responsibilities

In order to select and appoint a suitable design team, the following should be considered:

● Single team of consultants or separate appointment of independent consultants (with or without lead consultant)

● Criteria for selection and interview

● Scope and extent of services● Fees chargeable and mode of

payments● Role and duties● Terms and conditions of the

professional agreement● Compatibility of the consultants

and their teamwork spirit

In the selecting and appointing a suitable construction team, t h e f o l l o w i n g s h o u l d b e considered: ● Suitable selection or tendering

arrangement● Criteria for selection and

tender interview● Experience and expertise of

the contractor● Financial s tabi l i ty of the

contractor

● Scope and extent of works● Te n d e r r e q u i r e m e n t s /

conditions● Tender documentation● Te n d e r a p p r a i s a l a n d

reporting● Compatibility of the contractor

and design teams

In addition, the choice of the right people with the right attitude for the project is important to its eventual success. The following pertinent points should be observed;

● Selection criteria of people and organisations

● Recognition and employing skilled people is essential

● Able and interested to meet project objectives

● Mutual trust creates the right environment

● Encourage a collaborative working environment

● S e l e c t i o n b a s e d o n accomplishments and attitude

Note: The CIOB Code of Practice4 provides a number of checklists and forms for the selection of the design and construction teams.

Building Procurement System

Building procurement systems include traditional/conventional,

management contracting, design and build/construct , project management , package dea l or turnkey, etc. Each system exhibits its own characteristics and advantages/disadvantages.

Any selection should considered together with the project nature and characteristics, in addition to the elements described above.

Note: Further details on the aforesaid systems can be found i n “ C o n s t r u c t i o n C o n t r a c t Administration/Management in Practice”10.

Contractual Arrangement

The contractual arrangement leading to contract documentation establishes the contractual rights, obligations, responsibilities and liabilities of the contracting parties. Such arrangement or documentation includes contract based on bills of quanti t ies , drawings and specification, schedule of rates, cost reimbursement, design and build, etc.

I n s e l e c t i n g a s u i t a b l e contractual arrangement, various factors such as the elements de sc r ibed p rev ious l y, p lu s change in requirements, design completeness, cost fluctuations, etc., need to be considered, instead of merely using any standard form of contract.


Employing skilled people

Organisation Structure

Organisation structure is about framework, hierarchy, authority, control, rules, procedures, formal relationships, for the people in the organisation and/or the project. This essential element, allows effective and efficient communication channels to take place and adapts to project environment and changes.

Any structure adopted, be it functional, project or matrix can affect project teamwork, work efficiencies and the eventual project outcome. Each type of organisation structure has its own advantages/disadvantages. Criteria such as clear objectives and priorities, policies and procedures, roles and responsibilities, flexible work structure, people relations, motivational issues, leadership, teamwork, capacity to change, performance, etc need to be p rope r l y con s ide r ed when choosing a suitable organisation structure for the construction project.

Diagrams 2, 3, 4 illustrate the common organisation structures u s e d i n t h e c o n s t r u c t i o n industry.

Monitoring and Control Systems

Ef fec t ive moni tor ing and control systems are capable of identifying and responding to changes ensure project objectives can be met. Proper monitoring and control systems enable timely provision of information/details, smooth progress of works, costs within the budget, identification of changes/variations, timely supervision, testing and inspection of works, etc.

Increasingly, the project team should adopt quality assurance p r o g r a m m e s s u ch a s I S O 9001:2001 to ensure a consistency and systematic approach to the organisation’s work processes and procedures. Quality is not


Director

Operations Tendering Sales Marketing Administration Management Level

Department Level Functional responsibility

Director

Marketing Finance Administration Tender

Project Manager B

Project Manager A

Project Manager C

Contract Construction Procurement/Purchasing

Construction

Construction Contract

Contract

Procurement/Purchasing

Procurement/Purchasing

Project Manager X

Project Manager B

Others

Funct

ional

res

ponsi

bilit

y

Director

MarketingTender & Contracts

Finance Purchasing

Project Manager A

Project responsibility

FUNCTIONAL

PROJECT

MATRIX

Diagram 2

Diagram 3

Diagram 4


just about achieving technical requirements, but also the various elements in Project Management. There must be greater emphasis on meeting client’s requirements and customer satisfaction, which demands continuous improvements in delivery and products. Such quality practices and improvements enhance competitiveness through better organisational effectiveness and performance efficiency in construction projects. There is also a broader and more encompassing philosophy, often known as Total Quality Management1, which is aimed at identifying the client’s wants, organisation’s mission, measuring performance to meet required standards throughout the whole construction process, thereby involving the whole organisation in a system of continuous improvements.

The Masters Builders Association Malaysia (MBAM) has adopted a group quality scheme using ‘Value-Managed Quality System (VMQS)’ to facilitate contractors

and sub-contractors in Malaysia to achieve their ISO 9001:2000 certi f ication. This is in l ine with the association’s aspiration to p romote and encourage contractors, sub-contractors and others to deliver quality works on their building and construction projects, both in Malaysia and overseas.

In essence, VMQS, which incorporates Value Management is about ‘Doing the right things right’ in order to enhance the efficiency and effectiveness of the quality delivery process to ensure that the end product or service can satisfy the customer’s or client’s requirements. A typical outcome of using the fast approach on the work environment is shown in the following Diagram 5.

VMQS i s an i nnova t ive quality management approach aimed at changing the traditional organisa t ional mindse t and cons t ruc t ion approach in to dynamic, quality and performance exce l lence a t in te rna t iona l

quality standards. Such value achievements and improvements lead to sustainable competitive advantages.

Information Recording and Retrieval Systems

Good records are like snapshots of the events or actions taken at the particular moment, often referred to as contemporaneous records. And, good retrieval systems are like going into a library to find the information required.

Going back to basics, records such as tender/contract documents, drawings register, correspondence files, programmes, progress reports, site diaries, instructions, dayworks, claims, etc. should always be up to-date and maintained, properly. The use of ICT to assist in systematically organising, recording and retrieval of the said documents have reduced the time taken to undertake such tasks, effectively and efficiently.

Improve ICT &Networking

Invest in ICT

Better Working Space & Layout

Storage & Library

Provide ConfortableWorking Area

Provide Area & Personnel for Storage

Improve Productivity

Conducive Environment

Project Good Image

Promote Staff Interaction

Good Communication& Interaction

Improve InterpersonelRelatives

Boost EmployeeSpirit

Proper Space / Relocation

Reduce Noise Interference

Prevent Eating on Working Area

Confortable & Relax Atmosphere

Efficient Working Tools

Larger WorkingArea

Facilitate PeopleMovements

Minimise PhysicalHindrance

Land Scaping

Safe Work Area

Security

WANTS

NEEDSOBJECTIVES

HOW WHY

Diagram 5


Note: Practical examples, various forms and checklists on information recording and retrieval systems can be found in the Appendices of the CIOB Code of Practice 4 and in the Practical Construction Contract Administration/Management 8

Commercial/Business and Human Relations

Emphasis on the importance of good commercial/business and human relat ions is the final essential element, if not most important element, in effective contract management to achieve excellence and success in managing construction projects.

Commerc ia l o r bus ines s relation is about fostering business links/relations and communication with other organisations. Human relations is about understanding and fos te r ing in te rpersonal relationship with another individual or group. For human relations to be effective and harmonious, criteria such as people selection, team commitments, meeting organisation and project objectives, sharing common objectives and values, motivational issues, and skills development need to be seriously taken into account. Failure to manage the construction

project effectively and amicably can lead to problems such as disputes or conflicts. The contracting parties may end up in arbitration or court proceedings to resolve their disputes.

Not all contractually or legally correct action is commercially r i g h t . S o m e t i m e s , e v e n commercially sound decisions, may be contractually wrong. Whilst it is important to know and understand the contractual rights, responsibilities, powers and l iabi l i t ies , i t does not necessarily mean that every contract provisions must be followed and enforced in the strictest sense. To go down the contractual route usually means having to rely on the provisions expressed/implied under the contract i.e. needing to work or resolve matters within the ambit of the contract. This is known to be as the ‘hard’ approach.

To go down the commercial route v i r tua l ly opens up a wider and borderless scope for negotiation and settlement of the disputes/conflicts without/partly relying on contractual/legal route. This is called the ‘soft’ approach. Neither approach should be followed to the extreme.

Therefore, there is a need to strike a balance between

contractual and commercial routes to ensure the successful outcome of a construction project, which essentially means to be able to achieve a ‘win-win’ outcome for all the parties involved in the construction project. In this regard, ‘Partnering’ approach17, which promotes win-win solutions, has been adopted at the outset of many construction projects, overseas.

Conclusion

Construction industries around the world suffer from numerous se tbacks and p rob lems , in particular those associated with the construction process. There is therefore an urgent need to ensure that the setbacks and problems are eliminated or mitigated by effective management of the construction process in order for the projects to be successful.

In order to achieve excellence and success in the management of const ruct ion projects , i t is paramount to appreciate, understand and practice the ten essential elements or ingredients necessary in formulating and facilitating effective contract management.

Effective Contract Management is essentially about managing the contract of a project by ensuring that the planning, organising, co-ordination, monitoring and control of the project from inception to completion will meet the project objectives in order to achieve success.

Editor’s Note: Th i s a r t i c le i s based on and adapted from the conference paper on ‘Effective Project Management — Essential Elements in Successful Projects’ presented by the Author at the Inaugural Construction Conference 2007 jointly organised by CIOB Singapore and National University of Singapore on January 25, 2007. BEM

Recording and retrieval systems using ICT

REFERENCES

1. Association of Project Management (APM), Project Management Body of Knowledge, 4th Edition, 2000.

2. BS ISO 10006:1997 British Standard, Quality Management – Guidelines to Quality in Project Management, BSI 06 - 2000.

3. BS 6079-1:2002 British Standard, Project Management – Part 1 – Guide to Project Management.

4. Chartered Institute of Building, Code of Practice for Project Management for Construction and Development, 3rd Edition, Blackwell Publishing, 2002.

5. Ong, H.T., Building Procurement, Tendering and Contractual Arrangement, Construction Management Seminars/Workshops, CIOB Malaysia, November 16, 1996.

6. Ong, H.T., Effective Contracts Management – Construction Management Seminars by The Chartered Institute of Building, Malaysia. December 16, 2000.

7. Ong, H.T., Construction Contracts in Malaysia a paper presented at Construction Conference 2002 ~ A One-Day Conference jointly organised by The Chartered Institute of Building, Malaysia (CIOBM) and Master Builders Association, Malaysia on in-conjunction with MALBEX and International Construction Week 2002, September 12, 2002.

8. Ong, H.T., Practical Construction Contract Administrat ion/Management , 12-Modules Training Programme Lectures and Workshops, March- September 2003.

9. Ong, H.T., Achieving Excellence through Value-Managed Quality System - A paper delivered at the International Conference on Managing Excellence in Construction, Chongqing, China”- Organised by CIOB China, May 26, 04

10. Ong, H.T., Construction Contract Administration/Management in Practice - Two Day Intensive Semina r /Work shop o r gan i s ed En t ru s t y Management Sdn Bhd, December 9 & 10, 2003.

11. Ong, H.T., Value-Managed Quality System (VMQS) – Towards A Value-Added Quality Management System – 6th International Value Management Conference” organised by Hong Kong Institute of Value Management, Nov 26 & 27, 2003

12. Ong, H.T., Value & Risk Management, FIABCI-CIDB Brown Paper Bag Seminar, University Malaya, 2004

13. Ong, H.T. , Risks and I ts Management , International Conference on Construction Law & Arbitration, April 26 – 28th, 2005, organised

by Kuala Lumpur Regional Centre for Arbitration (KLRCA) & Malaysian Institute of Arbitrators (MIArb), April 27, 05

14. Ong, H.T. , Risks and Uncerta int ies in Construction Projects – One Day Executive Workshop on Construction Business Financing and Risk Analysis for Non-Construction Financ ia l & R i sk Managers /Execu t ives organised by Business & Advanced Technology Centre (BATC), Universiti Teknologi Malaysia, August 3, 2005

15. Pro-Value Management Sdn. Bhd/Applied Facilitation & Training, An Introduction to Risk Management for KLCC Berhad, Training Manual/Materials, September 11, 2002.

16. Project Management Institute, PMI Guide to the Body of Knowledge, PMI 1996.

17. Stevens, David., Strategic Thinking : Success secrets of big business projects, Advantage Quest Publications 2004.

18. Ong, H.T., Effective Project Management ~ Essential Elements in Successful Projects, Inaugural Construction Conference 2007 jointly organised by CIOB Singapore and National University of Singapore on January 25, 2007.


Drafting Construction Contracts


Editor’s Note: This article was extracted from Volume 3/2004 of Legal Insights the Newsletter of Messrs. Skrine, Advocates & Solicitors

By N. Pathmavathy and Kamraj Nayagam, Skrine & Co.

appropriate contractual framework for the physical execution of its desires.

STANDARD FORM CONTRACTS

Standard Form construction contracts provide a basic framework identifying the rights, obligations and duties of the parties, establish the ambit of the powers and duties of the contract administrator as well as put in place the administrative procedures necessary for operation of the contract.

The standard form contracts commonly used in Malaysia include the PAM98 Form issued under the sanction of the Pertubuhan Arkitek Malaysia, JKR or PWD Forms issued by the Public Works Department of Malaysia, CIDB Standard Form of Contract for Building Works issued by the Construction Industry Development Board, IEM forms issued by the Institution of Engineers Malaysia, FIDIC Forms issued by the Federation Internationale des Ingenieur-Conseils and the ICE Forms issued by the Federation of Civil Engineering Contractors.

One of the advantages of most standard forms is that most construction professionals are familiar with their operation, limitations and drawbacks. Such familiarity leads to administrative and cost efficiency. As there is a body of judicial pronouncements accumulated over the years on standard forms, there is some certainty in meaning. Accordingly, there are appreciable savings in time and costs when standard

Aconstruction or building contract can be loosely defined as an agreement for

the construction, repair, renovation or restoration of building or engineering works. It ought to specify what work has to be done by the contractor, where the work is to be done, when this work must be completed, to what standard the work should be done, how the contract is to be administered and how is to be paid to the contractor by the employer.

The many types of construction contracts include traditional building contracts, engineering contracts, design and build contracts, fee based contracts and build operate and transfer contracts. Although each contract will obviously be unique, broad conceptual types of contract may be identified, and even a contract created specifically to meet the individual requirement of a given situation will inevitably have points of similarity to other contracts.

Nevertheless, such is the comp lex i t y o f t he t yp i ca l construction contract in the modern age, that any awareness of the workings of construction contracts must of necessity be founded upon a thematic understanding of the various procurement strategies and the underlying forces which drive them.

In general, familiarity with the available standard form of construction contract, and of the types of construction contract, will enable the prudent Employer to at least ensure that it will achieve the

forms are used compared to the costs of drawing up fresh contracts.

The disadvantages include the following. The forms are arrived at by a process of compromise between dif ferent parties to those entering the contract, often reflecting other concerns than those of the parties. The judicial pronouncements which have accumulated are often contrary to the previous understanding of those in the industry, which is why it is sometimes best to have a new form of words. In a Malaysian context, the forms used are often from overseas and may not reflect peculiarities of local law. The dense wording of the standard forms makes them very difficult to amend effectively. Hasty amendments often have unintended and unforeseen consequences, whilst properly considered amendments often involve large amounts of effort.

T h e c r e a t i o n o f a n y construction contract requires a balancing act between conflicting imperatives. This process starts at the conceptualisation stage, and requires the prospective Employer to be aware of its wishes and intentions before even considering the identity of the Contractor.

The prospective Employer, desirous of maintaining control and certainty, is torn between the shackles of precedent and the pro-active crafting of solutions appropriate to his precise situation. The latter course may amount to no more than the re-invention of the wheel, with all the attendant inefficiency and expense. Hence


Role Of Employer● Procure the design to be

prepared by profess ional architects

● Secure planning permission and building permits

● Make payments regular ly according to contract

● Give adequate site possession to contractor

● Ensure non-interference with construction

Role Of Contractor● To car ry ou t the works

according to the design issued by architects

● To complete the works on or before the contractual date of completion

● Responsible for the materials and the workmanship aspects of the contract

the attraction of the standard form contract, as outlined above. However, such a contract is unlikely to reflect in full the intentions and concerns of the parties, leading to the temptation to amend the same. Such modification, whether by way of addition, deletion, or revision is not to be undertaken lightly. Arbitrary revisions can create serious problems, as discussed above. As a rule of thumb, revisions to standard form contracts should be kept to a minimum and only implemented after a thorough review.

In conclusion, there is no simple solution to the creation of the perfect construction contract, and this is not to be wondered at, for, as has been observed, major construction projects are the most complex sphere of human endeavour short of warfare. In such a scenario, it is only prudent that those about to embark on such an endeavour should give a commensurate amount of consideration to the preparation of the document which will govern the course of the endeavour.

The stages in a construction contract are shown in Diagram 1. The parties involved in a contract includes:

● Employer or Owner ● Contractor● Architect● Engineer● Quantity Surveyor● Consultants● Project Manager● Sub-Contractor● Supplier

ROLE OF RESPECTIVE PARTIES IN A TRADITIONAL B U I L D I N G C O N T R A C T CONTEXT

The Employer commissions an architect to prepare the design for the building. The Contractor is then employed to construct the project for a fixed price. (See Diagram 2)

Employer

MainContractorArchitect

ConsultingAgreement

Consultants

Sub-contractors

Suppliers

Decision to Build ProjectBrief

DesignDesign

Drawings

Tender Documentation

Conditionsof Contract,Drawings,

BQs,Specifications

Tender Invitation

ContractorTenders &Proposals

Evaluation & Award

Construction Works

LOI /Award

ContractDocuments

● Responsible for the performance of his sub-contractors

Role Of Architect● Complete the design● Oversee development of the

Project● Co-ordinate design work of

other consultants ● Supervise the building works● Issue certificates and approvals

Role Of Quantity Surveyor● E s t imate quant i t ies f rom

architect’s plans and put into bills of quantities

● Prepare of tender documents● Oversee contract

documentation● Assist evaluation of progress

claims and variation work● Recommend amounts to be

certified

Diagram 1: Stages in Typical Construction Project

Diagram 2: Traditional Building Contract

EFFECTIVE CONTRACT DRAFTING

• Contract Terms must beclearly drafted

• A good Contract must :

(a) spell out risks, rights and obligations

(b) set out consequences of breach & termination

(c) be consistent

• Don’t ignore terms during project execution

• Reach shared understandingon obligations

• Improve project team communication channels

• If Parties feel the Contract is fair, they will be less likely toseek relief

• Appreciate what the other Party wants out of the Contract

• Allocate risks to the party best able to control, manage and insure the risk

• NB: onerous provisions riskbeing declared unenforceable – e.g. forfeiture clauses of allsums paid (see Johor CoastalDevelopment v ConstrajayaSdn Bhd)

FAIRNESSCLARITY

Diagram 3 – Effective Contract Drafting

Role Of Consultants● C & S Engineer● M & E Engineer● Acoustics Consultant● Landscape Architect

CONTRACT DOCUMENTS

The contract documents include Articles of Agreement, Conditions of Contract, Plans & Drawings, Bill of Quantities, Specifications and Other Documents specifically included.

Articles Of Agreement● Brief description of Project● Location of Site● Commencement Date● Name of the parties● Obligation of parties● Price to be paid ● Name of consultants● Time for Completion● List of contract documents

Conditions Of Contract● Elaborate set of legal terms

which regulate the contractual relationship between parties to the contract

● Define duties and rights of parties

● Address some of the likely events which may arise during the course of works

Plans & Drawings● Numbered according to series

and separate series used for each consulting discipline : architecture, structural and civil engineering, mechanical and electrical engineering

● Each drawing signed and scales clearly stated

● Enable the price for works to be computed

Bill Of Quantities● Consis ts of prel iminar ies

(site overheads), trades bills, schedule of provisional sums

● Trade bill divided into six columns

(i) alphabetical reference for the item

(ii) brief description of item (iii) unit

(iv) quantity (v) unit price rate for each

item of work (vi) grossing up column [unit price rate x quantity]

Specifications● Standards for execution of

works● Source for applicable technical

standards and codes

Other Documents Specifically Included● Tender● Method statement ● Works programme

TYPES OF PROCUREMENT METHODS

● C l a s s i f i c a t i on acco rd ing t o h o w c o n t r a c t o r i s remunerated

(a) Lump Sum Contract (b) Measure & Value Contract (c) Cost Plus Contract (d) Term Contract

● Classification by reference to nature of Contractor’s obligations

(a) Design-Bid-Build Contract

(b) Design & Build Contract (c) Turnkey Contract (d) Management Contract

ENGINEERING CONTRACTS

● EP● EPC● EPCC● EPCM

W H Y U S E S T A N D A R D FORM CONTRACTS?

The Standard Form Contracts provide a basic legal framework, establish the ambit of the powers and du t ies o f the cont rac t administrator and put in place the necessary administrative procedures.

Advantages● Compromise solution● Risks are allocated relatively

fairly● Time-tested● Certainty in meaning● Saves time and costs

STAGES OF PROJECT MANAGEMENT

● Contract Drafting (See Diagrams 3 & 4)

● Contract Administration● Dispute Resolution

RISK ALLOCATION

● Optimal risk allocation ≠ maximum risk transfer


Components of a GoodContract

Benefits

Clearly Stated Scope of Works

Ensures that employer gets what they havepaid for and that contractor is clear as to whattheir responsibilities include

Choice of LawImportant where contracting parties are from different jurisdictions

Performance Standards Defined

Ensures accountability and provides measurablestandards and goals to be achieved

Limitation of liability Allocation of risk

Price StructureDetailed cost estimate from contractor providesup-front awareness of total costs

Completion Date Ensures that project will be accomplished in a given period of time

Penalty for Failure toComplete on Time

Makes contractor accountable for achieving thenegotiated goals within agreed time period

EXAMPLES OF RISKS ENCOUNTERED DURING PROGRESS OF PROJECT

(i) Price escalation (See Diagram 5)(ii) Failure to complete on time (See Diagram 6)

(iii) Unforeseen Ground Conditions

● Not all standard form contracts have provisions in relation to unforeseen ground conditions

● Absence of such provisions may lead to dispute as to who will be responsible and bear the costs for additional works arising from the unforeseen ground conditions

● Emp loye r may cons ide r employing a more interactive selection or bidding process to identify and reduce any uncertainties that may be encountered during the progress of the project

(iv) Default in payment● I t i s no t uncommon fo r

contractor to allocate any risk of any payment default by the employer to his sub-contractor

● Such risk allocation can be done by way of ‘pay when paid’ clauses

KEY TERMS AND CONDITIONS OF CONSTRUCTION CONTRACT

(i) Obligations of Parties (See Diagram 7)(ii) Key Contractual Dates (See Diagram 8)

(iii) Standard of Performance● Implied term: the contractor

must perform the works in good and workmanlike manner. If higher standards are required, these mus t be express ly stipulated in the contract.

● Examples of higher standards for consideration include:

- Fitness for purpose – i.e. the works performed and materials ordered must be

Diagram 4 – Components of a Good Contract

Who will absorb -Contractor / Employer ?

Price Increase

Risk Allocation

If risk is allocated to contractor, contractor maylimit liability for any price increase

Diagram 5 – Price Escalation


● Risks should be allocated to parties best able to manage them

● General rule, risks within the control of the employer to be allocated to the employers and

risks within the control of the contractor to be allocated to the contractors

● Identifying Parties’ interest and effective risk management is the key to prevent disputes

Failure to Complete on Time

Contractor’s DefaultNot due to

Contractor’s Default

Risk to be allocatedto Contractor

Risk to be allocated to Employer by way

of EOT clause

Diagram 6 - Failure to complete on time

Unconditional& “on-demand”

banker’sguarantee

ContractPrice

ProEmployer

Conditionalbanker’s

guarantee

Parent companyguarantee

Valid from commencement of

works to expiry of DLP

Valid from commencement of worksto completion of works

Valid from commencementof works to expiry of DLP but value reduced to half

upon completion of works

Chart 1

Key dates in a Construction Contract

Completion Date

Expiry of DefectsLiability Period (DLP)

Commencement Date

Date of Site Possession

Date the contractor mustcomplete the works (subjectto extensions of time)

Date the contractor must gainpossession of the Site

Date the contractor can commence construction works

Date by which the contractormust make good defects which had appeared duringDLP

• Contractor to complete theworks

• SO to issue certificate of practical completion

• Employer to give possessionof the Site to the Contractor

• Contractor to be responsibleover safety of the Site and mobilise to the Site

• Contractor to commenceconstruction

• Contractor to make gooddefects

• ER to issue certificate of making good defects

Effect Action Required

Execution DateDate when the contractcomes into force

• Contractor to furnishperformance security & do preparatory works

Contractor

• To perform and complete the works

• To design the works in accordance with the employer’s requirements(where applicable)

• To provide all plants, tools andmaterials necessary for the completion of the works

• To be responsible for the adequacyand safety of all site operations and methods of construction

• To comply with statutoryrequirements

• To remedy defects in the works

• To give possession of the site to the contractor

• To make timely payments to the contractor

• To appoint an architect, engineer or surveyor as the superintending officer (S.O.) for contractadministration

• Not to interfere with or improperlyinfluence the S.O. in his certification duties

• Not to interfere with the progress of the works by the contractor

• To issue instructions and give information in good time

Employervfit for the purpose for which they are required.

- Speci f ied per formance guarantees

- Established international benchmarks

(iv) Performance Security● Contractor is commonly required

in construction contracts to furnish performance security for due performance of the works

● Performance security usually takes the form of an ‘on-demand’ and i r revocable banker’s guarantee

● Parent company guarantee or insurance guarantee may be an acceptable alternative in some instances

● The value of performance security typically required by employers in Malaysia is 5% to 10% of the contract price

● Employer may require design bond as additional security against any defect in the design. (See Chart 1)

To ensure the contractor furnishes the performance security to the employer:● the contract may stipulate

the provision of performance secu r i t y a s a cond i t i on precedent to commencement of works and payments by the employer

● the contract may entitle the employer to terminate the contractor’s engagement in the event the contractor fails to furnish the performance security within the requisite period

● the contractor may entitle the employer to withhold monies which may become due to the contractor under the contract in the event the contractor fails to furnish the requisite performance security

(v) Interim Payments● Stage Payments v Periodic

Payments● Periodic payments are sums

Diagram 7

Diagram 8 - Key dates in a Construction Contract


payable to the contractor based on a periodical valuation of the work done to date. Such valuation are usually conducted on a monthly basis.

● Stage payments are f ixed instal lment sums payable to the contractor upon the a c h i e v e m e n t o f c e r t a i n prescribed milestones.

● General view is that stage payments offer the benefit of certainty in the sums payable to the contractor and savings in professional fees and time. NB: Stage payments may not be appropriate for contractors with poor cash flow.

(vi) Time for Completion● It is important to expressly

s t ipula te in the contract the time for completion of the works as otherwise the contractor only has an implied obligation to complete the works within a reasonable period.

● Extension of time provisions must be included to prevent time being at large should the employer causes any delay to the works. Otherwise, the employer’s right to claim liquidated damages may be affected.

● S e e P e a k C o n s t r u c t i o n (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 where CA held:

The s t ipu la ted t ime fo r completion having ceased to be applicable by reason of the employer’s own default and the extension of time clause having no application to that, it seems to follow there is in such a case no date from which liquidated damages could run and the right to recover them has gone.

● Examples of events of delay which would ent i t le the contractor to extension of time:

(a) act of prevention by employer

(b) delay in giving possession of the site to the contractor

(c) i n t e r f e r e n c e b y t h e employer’s contractors

(d) delay by the employer in i s su ing necessa ry instructions

(e) suspension of works by the employer without reasonable cause

● It is important to specify in a construction contract what

remedies are available to the employer in the event the contractor fails to complete the works within the stipulated time of completion.

● Such remedies may include the right to:

(a) issue instructions to the contractor to expedite the works

(b) impose LAD (c) terminate the contract (d) ca l l on per formance

security

(vii) Completion & Taking Over● The employer may take over

the works when the works have been completed in accordance with the contract and the relevant certificate has been issued certifying the completion of the works.

● What constitutes completion of the works may differ from one project to another. Typically, substantial completion will suffice where the employer has the full and proper beneficial use of the works with only minor defects. Other conditions may also be imposed such as the issuance of CF and completion of testing and commissioning of the works to the satisfaction of the employer. (See Chart 2)

(viii) Defects Liability Period● It is common in construction

cont rac t s to requi re the contractor to warrant that the works upon completion are free from defects and to make good defects which appear during the defects liability period.

● It is during the defects liability period that the employer has the right to call for the contractor’s physical return to the site after the employer has taken over the works. The employer must serve a notification of defect on the contractor and the contractor is required to make good the defect within a reasonable period.


If Employernot satisfied

If Employersatisfied

Employer toissue Certificate of

Practical Completion

Contractor to issuenotice when works

ready to beTaken over

Employer toinspect works

Employer to givereasons & specifyworks to be done

Contractor tocomplete works

PracticalCompletion is

achieved

Chart 2 - Workflow for Taking Over

● If defects appeared after the expiry of the defects liability period, the employer’s remedy in most cases is limited to pursuing a legal claim in damages.

● Remedies available to the employer in the event the contractor fails to make good defects during DLP may include the right to:

(a) carry out the remedial works himself or employ other contractors and deduct all reasonable costs incurred from the retention monies;

(b) determine a reasonable reduction in contract price to reflect the diminution in value of the works by reason of the defects;

(c) call on the performance security;

(d) terminate the contract● In prac t ice , such de fec t

liability period clauses also work to the advantage of the contractor given that remedial works can usually be carried out more cheaply by the contractor than other 3rd party contractors.

(ix) Consequences of Default in Payment

● Mere breach of a payment obligation by the employer does not constitute a repudiation under common law, entitling the contractor to terminate the contract. Default in payment must be sufficiently serious to justify termination.

● Courts in Commonwealth jurisdictions have consistently refused to imply a right to suspend works by the contractor in the event of the employer’s default in payment.

● To protect the contractor’s interest in this regard, clear provisions affording the right to the contractor to terminate the contract and suspend the works on the basis of the employer’s default in payment should be incorporated.

(x) Termination● Termination clauses should

set out clearly : (a) the mechanism within

which either party may terminate the contract by giving notice of default, followed by notice of termination should the de fau l t i ng pa r t y f a i l to remedy the default within requisite period;

(b) e v e n t s o f d e f a u l t enti t l ing the party to terminate (dis t inguish d e f a u l t s c a p a b l e o f being remedied and non-remediable defaults)

(c) r e m e d i e s a v a i l a b l e to the non-defaul t ing party in the event of termination

● Examples of remedies available to the employer in the event of termination on the basis of contractor’s default:

(a) The con t rac to r mus t vaca t e t he s i t e and remove all equipment and personnel (including his sub-contractors)

(b) The employer is entitled by himself or employ others to complete the outstanding works

(c) The contractor is not entitled to any monies until after completion of the outstanding works by the employer (except certified sums)

(d) The contractor must assign to the employer contracts with his suppliers and sub-cont rac tors upon notice by the employer

(e) The contractor must issue or procure the issuance of letters of release

● Examples of remedies available to the contractor in the event of termination on the basis of employer’s default:

(a) The contractor to cease works and vacate the site and remove all equipment


and personnel (including his sub-contractors)

(b) The employer is entitled by himself or employ others to complete the outstanding works

(c) The contractor is entitled to be paid the amount representing the value of the works done to-date and loss and expense suffered by the contractor resulting from the termination

(d) T h e c o n t r a c t o r i s entitled to be returned a n y p e r f o r m a n c e security furnished to the employer

(xi) Liquidated and Ascertained Damages (LAD)

LAD serve as a reasonable compensation to the employer for: (a) the contractor’s failure to

complete the works within the s t ipu la ted t ime fo r completion;

(b) the contractor’s failure to satisfy the performance guarantees prescribed in the contract

(c) LAD clauses are usually incorporated to protect the employer’s interest, avoid expense and effort to prove damages and provide certainty to the consequences o f breach

(d) NB: LAD clause may also work to the advantage of the contractor as it may act as a ceiling to which the employer can claim for damages

● Section 75 of the Contracts Act 1975:

When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation


not exceeding the amount so named or, as the case may be, the penalty stipulated for.

See Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817

The Federal Court in Selva Kumar held:

A plaintiff (employer) who is claiming for actual damages or the reasonable compensation in an action for breach of contract must still prove the actual damages or the reasonable compensation in accordance with the settled principles in Hadley v Baxendale [1854] 9 Exch 341. Any failure to prove such damages will result in the refusal of the court to award such damages.

Applied in Lion Engineering Sdn Bhd v Pauchuan Development Sdn Bhd [1997] 4 AMR 3315

● Example Of LAD Clause:

If the Contractor fails to complete the Works by the Date for Completion or within any extended time ... and the Architect certifies in writing that in his opinion the same ought reasonably so to have been completed, then the Contractor shall pay to the Employer a sum calculated at the rate stated in

the Appendix as Liquidated and Ascertained Damages (LAD) for the period from the Date for Completion or any extended date where applicable to the date of Practical Completion. The Employer may deduct such sum as a debt from any monies due or to become due to the Contractor under this Contract. (Clause 22.1 of PAM 1998)

● An employer i s ent i t led t o deduc t LAD upon the certification of non-completion of the works.

See Lion Engineering Sdn Bhd v Pauchuan Development Sdn Bhd [1997] 4 AMR 3315 where it was stated:

From the plain reading of Clause 22 of the PAM Contract, the architect has to certify in writing the non-completion of the works before the defendant is said to be entitled to deduct LAD. It is appropriate to say that the certificate of non-completion is a condition precedent to the deduction of LAD…

See also Bell and Son v CBF Residential Care and House Association [1986] 46 BLR 102 where it was held that as the architect did not issue a valid Certi f icate of Non-Completion after fixing the new

Completion date, no LAD could be deducted.

● Contracting out of Section 75 of Contracts Act

E.g. Clause 22.2 of PAM 1998:

The Liquidated and Ascertained Damages stated in the Appendix is to be deemed to be as the actual loss which the Employer will suffer in the event that the Contractor is in breach of the Clause hereof. The Contractor by entering into this Contract agrees to pay to the Employer the said amount(s) if the same become due without the need of the Employer to prove his actual damage or loss.

E.g. Clause 47(1)(a) of ICE FORM OF CONTRACT:

Where the whole of the Works is not divided into Sections the Appendix to the Form of Tender shal l include a sum which represents the Employer’s genuine pre-estimate (expressed per week or per day as the case may be) of the damages likely to be suffered by him if the whole of the Works is not substantially completed within the time prescribed…

(See Table 1)

TOOLS FOR EFFECTIVE CONTRACT ADMINISTRATION

● Good unders tanding and application of the contractual regime

● Hav ing a good cont rac t administrator

● Effective supervision and close monitoring of the works

● Adherence to Work Programme and milestones

● Proper issuance of Instructions and Notices

● R e c o r d - K e e p i n g a n d Documentation

PAM IEM FIDIC

Performance Bond

EOT – strict noticeprovisions (CP)

Extension of DLP

LAD – Anti-SelvaKumar Clause

Right to suspendworks uponpayment default

Risk Assumption byContractor of Unforeseen GroundConditions

Termination forConvenience

Direct Payment toNSC

Objection to NSC’sNomination

X

X X X

X X

X X

X X

X X

X X

X

✓ ✓

✓

✓

✓

✓

✓

✓ ✓ ✓

✓ ✓

BEM

Table 1

By Ir. Harbans Singh K.S, Director, HSH Consult Sdn Bhd

Understanding Engineering/Construction Contracts

Nature of construction contracts

An engineering/construction c o n t r a c t ( i n s h o r t a construction contract, for

the purposes of this article, is a contract under which one party 1 (commonly called the contractor) agrees for valuable consideration to undertake to carry out works for another party (commonly called the employer 2) involving design (where applicable), fabrication, erection, alteration, repair or demolition of structures and/or installations on a site 3 made available by the latter. It covers a whole range of contracts i.e. from a simple oral agreement to repair a house roof to a mega highway contract. Such contracts are usually termed ‘building contracts’ where they relate to buildings and ‘engineering contracts’ when they relate to infrastructure 4, systems 5 and equipment installations 6. The distinction between these terms is of no legal significance, and indeed construction contracts as a class are regarded by Malaysian law, not as a separate category of contracts, but a part of the general law of contract.

In most cases, the only parties to a construction contract are the employer and the contractor 7. However, in actual practice, in all likelihood, a construction project frequently involves a large number of contributors or participants who are contractually inter-linked by a matrix of contractual arrangements. The roles of such contributors are discussed in this article.

Forms of construction contracts

The main matters for which a construction contract normally makes provision are, the extent of obligations undertaken by the parties and the means by which those obligations may be varied from time to time; the time for completion and interim control of the progress of the works; the machinery for payment of the contractor; supervision of the works on behalf of the employer; insurance against a range of risks; and the remedies available to the parties in respect of default.

The Malaysian construction industry relies essentially on a number of types of forms of contract; these being notably the standard forms of contract, modi f ied s tandard forms of contract and ‘ad hoc’ or ‘bespoke’ forms of contract. The principal s tandard forms in common use include those published by the various institutions e.g. the Insti tution of Engineers, Malaysia and the Pertubuhan Aki tek Malays ia . For public sector contracts , the Public

Works Department 8 has drafted and publ ished an employer specific ‘standard’ set of forms of contract. Lately, the Construction Industry Development Board (CIDB) has issued a standard form of contract for building works 9. Many of the standard forms as alluded to hereabove are adumbrated below. These forms of contract may be used as published, but they are frequently amended. A true standard form i.e. one which is produced by a body which is representative of the industry e.g. the Construction Industry Development Board (CIDB), is in principle unlikely to attract the operation of the ‘contra proferantum’ principle 10.

1. This includes a corporation.2. Also called ‘the client’ or ‘the purchaser’ or ‘the authority’.3. Land or place which may be allotted or used for the purposes of

carrying out the work.4. Such as highways, airports, harbours, etc.5. Inclusive of utilities.6. Such as Mechanical, Electrical, Telecommunication, Heavy Engineering,

etc.7. In a sub-contract, the main contractor is in effect the employer and

the sub-contractor is in effect the contractor.8. or, Jabatan Kerja Raya (JKR).9. Which includes a Main Contract Form and one for the Nominated

Sub-Contract. 10. Union Workshop (Construction) Co. v Ng Chow Ho Construction Co.

Sdn. Bhd. [1978] 2 MLJ 229.

Construction contracts


However, the position may well be different where an employer or contractor repeatedly contracts on the basis of standard form contract containing his own amendments 11 or one that is self-styled as a standard form 12.

Other standard forms of contract in use in the construction industry include those published by particular employers e.g. Tenaga Nasional Berhad, Putrajaya Holdings, Telekom Malaysia Berhad and the like for their specific projects and a sprinkling of foreign forms. The lat ter include those standard forms generated by bodies such as the Joint Contracts Tribunal (JCT), the Institution of Civil Engineers (ICE), the International Federation of Consulting Engineers (FIDIC) and various international bodies for use in relation to specialist works 13.

Roles of the parties

In addition to the employer and the contractor, the operation of a construction contract commonly involves a number of other persons not party to the contract itself 14. Except where the contractor undertakes to design as well as to construct the works, the employer will usually either undertake the design departmentally 15 or commission the design from a professionally qualified person e.g. architect or engineer whose rights and obligations will be governed by the contract under which he is engaged 16.

Most sizeable construction contracts make provision for the employer to be represented during the p rogress o f the works by one or more contract administrators 17. Such person or persons may be given authority to act as the employer’s agent in supervising the works and transmitting information and instructions to the contractor; they may also be empowered by the construction contract itself

to exercise certif ication and other decision-making powers which are binding upon both the employer and the contractor.

Th e p r i n c i p a l c o n t r a c t administrator has traditionally been the engineer or architect responsible for designing the works, although this is by no means necessary. A recent trend especially in ‘Design and Build’ and ‘Management’ types of contracts has been for non-professionals such as project managers, construction managers and the like to undertake the said role. In addition, many contracts provide for the appointment of a quantity surveyor to carry out some of the administrative functions.

A sub-contractor is one who carries out part of the contract works under a contract with the main contractor who is for all intents and purposes of the sub-contract, the former’s employer. A sub-contractor who supplies only materials but undertakes no work or other services under the sub-contract is commonly called a ‘supplier’. Sub-contractors and suppliers are referred to as ‘domestic’ where they are selected by and the responsibility of the main contractor; they are often referred to as ‘nominated’ where they are selected by the employer, who then instructs the main contractor to enter into the relevant sub-contract 18.

11. Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd (1991) 56 BLR 115. See also Barnard Pipeline Technology Ltd. v Marston Construction Co Ltd [1992] CILL 743.

12. E.g. the JKR or PWD Standard Forms.13. Notably the Institution of Electrical Engineers, the Institution of

Mechanical Engineers and the Institution of Chemical Engineers to name a few.

14. See Ir. Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Law and Principles’ at P10-19.

15. Example, the Public Works Department by ‘in-house’ designers.16. e.g. BEM Standard Form of Agreement (BEM Form 2000 Edn)17. Called S.O., Engineer, Architect, Employer’s Representative, etc.

depending on the form of contract employed. 18. Other common categories of sub-contractors include ‘designated (or

named) sub-contractors, ‘selected’ sub-contractors, ‘specified’ sub-contractors, etc.

19. i.e. construction or installation.20. either, in-house or external consultants.21. See JKR 203 & 203A Forms, PAM ‘98 With Quantities and Without

Quantities Edns. Forms, etc.

TYPES OF CONTRACT PROCUREMENT

Traditional general contracts

Appearing under various labels such as ‘General’ contracts, ‘Employer-design’ contracts and ‘Design-bid-build’ contracts, these contracts are basically characterized by the separation of the design from the production or manufacture 19 elements of the contract. Under this contract procurement route, the employer causes the design of the works to

be prepared by his professional designers 20 and then invites the contractor to tender on the basis of the completed design 21. The contractor builds or manufactures what the designers have specified. Since the design element is within the ambit of the employer’s obligations, it accordingly assumes all responsibility for all design work undertaken. The contractor is only answerable for the building or construction aspects of the works i.e. the quality of materials used and workmanship involved in the contract.


Another significant characteristic of this form of procurement is that a single main contractor 22 undertakes total responsibility to the employer for all the work under the contract. In so far as parts of the work are in fact carried out by other organisations, these operate as sub-contractors to the main contractor and do not enter into direct contractual relations with the employer 23. However, where sub-contractors are selected by the employer 24, the main contractor’s responsibility is frequently less onerous and a limited form of contract is entered between the employer and the chosen sub-contractor.

Design and build contracts

A design and build contract 25, also known as a ‘package deal’ or ‘turnkey contract’ 26, is one under which the contractor undertakes both to design and to construct the contract works, which are to be completed in such a way as to meet the requirements of the employer 27. The defining characteristic of this type of contract is the combination of most (i f not all) of the essential tasks of a project e.g. design procurement, m a n u f a c t u r e , f a b r i c a t i o n , production, construction and managemen t in to a s ing le package. Taken to the extreme, the arrangement also places the task of financing, procuring approvals, complete fitting out, technology-transfer and the like on the contractor. Accordingly, the contractor shoulders full responsibility and sole liability for the design and construction elements of the works in so far as these are included within the ambit of his obligations. In instances of default or breach by the contractor, the onus is not on the employer to distinguish the particular element involved be this design, quality of materials or workmanship or the party actually

culpable. Its redress is solely at the contractor’s expense 28.

Selection of the contractor is normally based on competitive tendering or negotiations and payment effected on either an interim, milestone or lump sum basis. It is common under such an arrangement to find that the supervisory powers of the employer’s representative are more limited than those of a contract administrator under a traditional general contract 29. Hence, unlike traditional general contracting, the employer’s representative plays a limited administrative role which may be confined to conducting independent checks and auditing the contractor’s works. The contractor, his sub-contractors 30 and professional advisors are responsible for all aspects of the works inclusive of managing the contract up to its final realization.

Management contracts

A c o m p a ra t i ve l y r e c e n t development on large and complex projects has been the emergence of the ‘management contractor’, whose only role is to manage, co-ordinate and supervise the work of numerous specialists by whom the whole of the construction work is carried out. Under a modern management contract, these specialists are employed as sub-contractors 31 to the main or management contractor 32, but the latter is relieved of any responsibility to the employer for sub-contractor defaults 33. The underlying philosophy of this species of contract procurement is that the management of the construction process constitutes a particular expertise which can be distinctly identified and accordingly addressed through the employment of the management contractor. The latter is for all intents and purposes not a builder in the strict sense but an independent professional providing essentially a management service. This common thread runs, in addition through the construction management route of contract procurement.

Compared to traditional general contracting or design and build types of contracts, management contract ing is unfor tunately

22. Sometimes called a ‘General Contractor’ or ‘Contractor’ (in short).23. Hence avoiding any privity of contract between the parties.24. Where this is so (as frequently in respect of specialist work) the

employer may dictate the terms of the sub-contract as well as the sub-contractor’s identity.

25. or ‘Design and Construct’ Contract. 26. ‘Turnkey Contract’ was defined in High Mark (M) Sdn. Bhd. v Patco

Malaysia Sdn. Bhd. [1984] 28 BLR 129 27. Such contracts are normally entered into on a lump sum basis.28. See Greaves (Contractors) Ltd. v Baynham Meikle and Partners [1975]

4 BLR 56; [1975] 1 WLR 1095, CA.29. See PWD Form DB/T 2002 Edn.30. Who should ideally of the ‘domestic’ type although there is a tendency

to include ‘nominated’ ones.31. Popularly called ‘Works Contractors’ or ‘Trade Contractors’.32. The management contractor is normally entitled to be reimbursed for

all payments made to sub-contractors in addition to his own fee for the management services provided.

33. See JCT Management Contract - JCT MC 87.

Brick laying


deficient in the availability of standard forms of conditions of contract. On the local level, no particular authority, institution or body has published any such form. Hence, there is a tendency to use either ‘bespoke’ forms or modified foreign forms such as JCT MC 87 34 or the ICE New Engineering Contract 35.

Construction management

As aptly named, construction management contracts are a sub-set of the general corpus o f m a n a g e m e n t t y p e o f contracts and as such share common characteristics with management contracts. These have metamorphosed recently into an alternative to the latter type of contracts and are being employed main ly on la rge and complex projects having a multiplicity of trades, users and designers 36. In essence, a construction management contract is an arrangement under which the employer enters into a direct contractual relationship with each of the special is t contractors 37, while at the same time employing a ‘construction manager’ to provide managerial and supervisory services for the project. The obligations undertaken by the construction manager in such a case depend upon the terms of the contract by which it is employed 38.

Owing to the novelty of this method of contract procurement, there is a paucity of standard forms of conditions of contract available for use by the local construction industry. The tendency is to either employ a ‘bespoke’ form or to use the JCT CM 94 Form 39, albeit in a modified form. A further alternative is to draw up a series of contracts i.e. between the employer and firstly the construction manager, secondly each member of the design team and thirdly each specialist trade contractor.

Hybrids

In addition to the main types of contract strategy described above, there have also developed hybrids such as 40:

● 'Develop and Cons t ruct ' contract: This is similar to a design and build contract, but a concept design is prepared by independent professionals engaged by the employer before the design and build contractor is selected 41.

● 'Design and Manage' contract: This is similar to a management contract, but the contractor is also responsible for detailed design or for managing the design process.

● 'Design and construction management' contract: This is similar to construction management but the construction manager is also responsible for detailed design or for managing the design process.

There are no published standard form of contracts governing any of the above hybrids and the local practice is to employ ‘ad hoc’ or ‘bespoke’ forms customized for the particular project or application.

Term contracts

A ‘term contract’ is one by which an employer seeks to make provision for the carrying out of certain categories of work (usually minor works of alteration or repair and/or maintenance) during a specified period of time 42. Depending upon the terms on which tenders are invited and accepted, the resulting legal relationship may be a contract which binds the contractor to carry out whatever work of the specified description the employer chooses to order during the period stated 43. Alternatively, the acceptance of a tender may result in a ‘standing offer’ by the contractor, which ripens into a contract on each occasion that an order is placed but which may be revoked at any time 44.

At the moment, there is no local standard form of conditions of contract for a term contract though there is a tendency to either modify the JCT Standard Form of Measured Term Contract (1989 Edition) or to generate ‘bespoke’ forms.

Miscellaneous Contracts

Over and above the common methods of contract procurement described above, there exist other

34. JCT Standard Form of Management Contract (1987 Edn).35. ICE New Engineering Contract Option F - Management Contract.36. See ‘Construction Management Form - Report and Guidance’ the Centre

for Strategic Studies in Construction, University of Reading [1991].37. Also called ‘Trade Contractors’ or ‘Works Contractors’.38. See Rosehaugh Stanhope (Broadgate phase 6) plc v Redpath Dorman

Long Ltd. [1990] 50 BLR 69, CA; Beaufort House Development Ltd v Zimmcor (International) Inc [1990] 50 BLR 91, CA.

39. The JCT Standard Form of Construction Management (1994 Edition). 40. See Piyush Joshi ‘Law Relating to Infrastructure Projects’ at P22-25.41. This being basically to avoid the purported shortcomings of the other

forms of ‘Package Deal’ types of contracts. 42. The period is usually 1 year but there are instances in local practice

where a longer period of up to 5 years has been employed.43. Percival Ltd. v LCC Asylums and Mental Deficiency Committee (1918)

87 LJKB 677. The JCT Measured Term Contract (1989) permits either party to determine the contract by giving notice, but requires the contractor to carry out all orders which can be completed before the expiry of such notice.

44. Great Northern Rly Co v Witham [1873] LR 9 CP 16.


types of contracts that are being utilized by the local construction industry. These are essentially variations of the conventional methods and have been developed to address specific uses. Such contracts include, inter alia, the following:

● ‘Build, operate and transfer 45 contract’: this is a type of a privately financed contract wh e r e by t h e c o n t r a c t o r finances the project, designs it, undertakes the construction, owns and operates it over the concession period and on its expiry transfers the beneficial ownership of the project back to the employer 46.

● ‘Serial contract’: this is a c o n t r a c t r e s u l t i n g f r o m a procedure called ‘serial tendering’. Fundamentally, a serial tender is a standing offer to carry out work for more than one project in accordance with the tender submitted for the initial project, or based on hypothetical bills of quantities representing the average project of a series 47.

● ‘Continuation contract’: this is a more ‘ad hoc’ arrangement to extend the scope of the initial or original contract beyond its original ambit i.e. there is no standing offer to do more work than that originally envisaged. The original and continuation cont rac t s a re dea l t wi th separately. I f and when the latter arises, the original contract may be used as a basis for real iz ing the continuation contract 48.

● ‘Periodic contract’: this is similar to a term contract, but the execution of work or supply of goods is required at intervals, regularly or on demand rather than being continuous for a stated time 49.

● ‘Partnering contract’ : this contract is in essence an extension to the normal serial contract whereby over a pre-determined period of time, the contractor automatically receives all new contracts f rom the employe r wi th payment to be made by re fe rence to an in i t ia l ly agreed formula 50.

● ‘Independent contract’: this is essentially a ‘contract for

services’ whereby the party undertaking a stipulated task for an agreed consideration is free to select his own mode of doing it. It is neither under the control or direction of the other 51.

There are no published local standard forms of conditions of contract governing the above miscellaneous contracts and use is made of ‘ad hoc’ or ‘bespoke’ forms.

45. Also called ‘BOT’ Contract. See also Piyush Joshi ‘Law Relating to Infrastructure Projects’ at P22-25.

46. See Ir. Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Pre-Contract Award Practice’ at P132-138.

47. See The Aqua Group ‘Tenders and Contracts for Building’ (2nd Edn.) at P 119.

48. See Ir. Harbans Singh K.S ‘Engineering and Construction Contracts Management: Law and Principles’ at P256.

49. See Robinson, Lavers, Tan & Chan ‘Construction Law in Singapore and Malaysia’ [2nd Edn.] at P428.

50. See ‘Dispute Avoidance and Resolution Task Force (DART) of the American Arbitration Association Report on partnering at P86.

51. E.g. Consultants, Suppliers, etc. See Stevenson Jordan & Harrison v MacDonald & Evans [1952] 1 TLR 101 and Syed Mubarak bin Syed Ahmad v Majlis Peguam Negara [2001] 4 MLJ 167.

52. Rev. 1973 (Act 120)53. Rev. 1988 (Act 359). See generally also the Rules of the High Court

1980 Ord. 73 for proceeding by and against the Government.54. It does not include municipal councils and public corporations.55. Under the Government Contract Act 1949 (Act 120) SS 2 & 3, all

contracts made in Malaysia on behalf of the Government shall, if reduced in writing, be made in the name of the Government and signed or authorized as provided for under the Act. Any authorization under S 2 or 3 shall be in the form set out in the schedule to the Government Contracts Act 1949 (Act 120).

SPECIAL PARTIES

The Government departments

The extent to which contracts can be made on behalf of the Federal Government, and the Governments of the states is governed by the Government Contracts Act 1949 52. For the procedure pertaining to the enforcement of such contracts and matters relating to proceedings by and against the Federal Government and the Government of the states,

the applicable statutes are the Government Contracts Act 1949 and The Government Proceedings Act 1956 53.

In general, a construction contract entered into on behalf of the Government 54 is enforceable by and against the Government. Accordingly, the Government is bound by a contract made by a proper agent acting within the scope of his authority but not otherwise 55. A Government Of f i ce r who en te r s in to a contract within the scope of his authority is not liable to be sued


personally upon any contract made in that capacity 56. Actions by or against the Government are instituted or defended by the Attorney General 57.

Local authorities

A local authori ty 58 may enter into contracts inclusive of construction contracts necessary for the discharge of any of its functions 59. A local authority must make standing orders with regard to contracts for the execution of works or the supply of goods or materials 60. However, a contractor is not bound to inquire whether the relevant standing orders have been complied with, and non-compliance by itself does not invalidate any contract 61.

A local authority is bound by any contract entered into by a committee to which the necessary powers have been delegated 62, or by any officer ac t ing wi th in his actual or ostensible authority 63. Protection is afforded to local authorities or persons acting in the execution of statutory or other public duties in respect of any act, neglect or default done or committed by the Public Authorities Protection Act 1948 64.

Companies, corporations and partnerships

Companies , corpora t ions and partnerships may enter into construction contracts like any other person. In fact, the formalities requi red for the execut ion of contracts by companies, corporations and partnerships are effectively identical to those for individuals, save for particular requirements as stipulated in the respective statutory enactments 65. A company may choose to make a contract in writing, under its common seal or a contract may be made on behalf of the person by any person under its express or implied authority 66.

Contracts made by or on behalf of a corporation which if made by private persons would be required to be in writing, or which would be valid although made by parol only, may be similarly made on behalf of a corporation by any person acting under its express or implied authority whether by seal or not.

For partnerships 67, when either party is a member of the

par tnership, the par tnership w i l l b e l i a b l e u n d e r t h e con t rac t i f the con t rac t ing party was acting within the s c o p e o f h i s a u t h o r i t y 6 8 . In genera l a member o f a partnership is regarded as an agent of the firm and binds the other partners in making any contract falling within the normal course of business of the firm 69.

56. Government Contracts Act 1949 (Act 120) S 8 also provides that a public officer shall be personally liable when he expressly pledges his personal credit or where he contracts otherwise than as an agent of the Government. According to S 6, no contracts entered into except in accordance with the Act shall be deemed to have been made by the authority of the Government. See also Dunn v Macdonald [1897] 1 QB 401; affd [1897] 1 QB 555, CA; Sim Siok Eng v Government of Malaysia [1978] 1 MLJ 15.

57. For the Federal Government, the Attorney General. For the state of Sabah and Sarawak, the Attorney General of such state and for all other states, the Legal Advisor of such state.

58. Defined in Local Government Act 1976 (Act 171) to include any City Council, Municipal Council or District Council. S13 stipulates that every local authority shall be a body corporate.

59. See Local Government Act 1976 (Act 171) S 36(1).60. See Local Government Act 1976 (Act 171) S 36(2).61. See North West Leicestershire District Council v East Midlands Housing

Association Ltd. [1981] 3 All ER 364, [1981] 1 WLR 1396, CA.62. See Local Government Act 1976 (Act 171) S 36(2).63. As to the ostensible authority of various officers see A Roberts & Co

Ltd. v Leicestershire County Council [1961] Ch 555, [1961] 2 All ER 545; Carlton Contractors v Bexley Corpn [1962] 60 LGR 331. Cf North West Leicestershire District Council v East Midlands Housing Association Ltd. [1981] 3 All ER 364, [1981] 1 WLR 1396, CA.

64. Act 198, See also Local Government Act 1976 (Act 171) S124.65. See e.g. Companies Act 1965 (Act 125), Partnership Act 1961

(Act 135), etc. 66. Companies Act 1965 (Act 125) S 35(4).67. For a definition of a partnership see Partnership Act 1961 (Act 135)

S 3(1) and Gulazam v Noorazman and Sobath [1957] 23 MLJ 45; Ratna Ammal & Anor v Tan Chow Soo [1964] 30 MLJ 399.

68. See Partnership Act 1961 (Act 135) S 7 & 8. See also Pembinaan Thin Chai Sdn Bhd v Citra Muda Sdn Bhd & Anor [2002] 3 MLJ 107.

69. See Chan King Yue v Lee @ Wong [1962] MLJ 379; Bannatyne v D&C Mac Iyer [1906] 1 K.B. 103.

70. See Ir. Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Law and Principles’ at P61 to 81.

71. Croshaw v Pritchard and Renwick [1899] 16 TLR 45. An inaccurate estimate which is not an offer may give rise to liability in the tort of negligence: see J & J C Abrams Ltd v Ancliffe [1978] 2 NZLR 420.

FORMATION OF CONTRACT

Negotiated contracts

The formation of construction contracts is governed by the

ordinary contractual rules of offer and acceptance 70. Where a contractor quotes a price for works in a document headed ‘estimate’ this may be treated as an offer 71. Acceptance must


be absolute and unqualified 72 and in full conformity with any requirements laid down in the offer 73.

Any purported acceptance may, if it alters the terms of the offer or introduces new terms, be regarded as a counter-offer and thus a rejection of the original offer 74. Where the parties ‘negotiate’ by delivering inconsistent standard-form documents to each other, the usual outcome is that, when work commences or materials are supplied, this will be deemed to constitute acceptance of the last document delivered 75.

W h e r e a c o n t r a c t i s concluded after the contractor has commenced the works, it may easily be concluded that the parties intended the contract to govern all the work, including what has already been done 76.

Tenders

In general, an invitation to contractors to submit tenders to carry out construction works is not an offer but merely an invitation to treat 77; the employer is in consequence under no obligation to accept the lowest or any of the tenders received 78. However, an express undertaking by the employer to accept the lowest tender will be binding upon the submission of a tender which conforms with any conditions laid down 79. Moreover, the employer may in other cases be under an implied obligation to give reasonable consideration to any tender submit ted in accordance with the published conditions 80.

The unconditional acceptance of a tender creates a binding contract. Until such acceptance occurs, the contractor is free to withdraw his tender 81 by giving notice of withdrawal to the employer 82. This will be so notwithstanding any undertaking by the contractor to keep his offer open 83, unless that undertaking

is made by deed or given for consideration 84.

An unsuccessful tenderer is normally not entitled to recover the cost of preparing his tender from the employer 85, except where the invitation to tender was given fraudulently and without any intention of accepting it in any event 86. However, a promise

by the employer to pay for such services may be implied where the work involved far exceeds what would normally be required of the contractor or where the employer is able to make profitable use of the information supplied 87.

Where an employer invites tenders from contractors to supply such work or goods as the employer may require during a specified period, the legal relationship which is brought into existence by the acceptance of a tender depends upon the terms of the invitation to tender.

Purchase Orders

The purchase order system is one of the methods of contract procurement based essentially on the nature of the work and its

72. Section 7(a) Contracts Act 1950 (Act 136).73. See Rajeswari Thedshana Murthy v Kin Nam Realty Development Sdn.

Bhd. [1993] 1 MLJ 88.74. Hyde v Wrench [1840] 3 Beav. 334, 49 ER 132; Trollope & Colls Ltd.

and Holland, Hannen & Cubitts Ltd. v Atomic Power Construction Ltd. [1962] 3 All ER 1035.

75. Chichester Joinery Ltd. v John Mowlem & Co plc. [1987] 42 BLR 100; Butler Machine Tool Co. v Ex-Cell-O-Corp. [1979] 1 All ER 965.

76. Trollope & Colls Ltd and Holland, Hannen & Cubitts Ltd v Atomic Power Constructions Ltd [1962] 3 All ER 1035 [1963] 1 WLR 333.

77. Defined by Lord Parker as ‘an offer to receive offers’ in Fisher v Bell [1961] QB 394.

78. Spencer v Harding [1870] LR 5 CP 561.79. Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986]

AC 207, [1985] 2 All ER 966, HL.80. Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council

[1990] 3 All ER 25, [1990] 1 WLR 1195, CA; cf Fairclough Building Ltd v Port Talbot Borough Council [1992] 62 BLR 82, CA; Hughes Aircraft Systems International v Airservices Australia [1997] 146 ALR 1.

81. Section 5(1) Contracts Act 1950 (Act 136).82. Section 6 Contracts Act 1950 (Act 136). See also Cook Islands

Shipping Co Ltd v Colson Builders Ltd [1975] 1 NZLR 422.83. Routledge v Grant [1828] 4 Bing 653; Dickinson v Dodds [1876] 2

Ch D 463.84. The Canadian courts have upheld such undertakings despite the absence

of consideration: see R v Ron Engineering Ltd [1981] 119 DLR (3d) 267. Most local employers protect themselves against withdrawal by requiring the contractor to furnish a ‘tender’ or ‘bid’ bond.

85. Harris v Nickerson [1873] LR 8 QB 286; William Lacey (Hounslow) Ltd v Davis [1957] 2 All ER 712 at 715.

86. Richardson v Silvester [1873] LR 9 QB 34.87. William Lacey (Hounslow) Ltd. v Davis [1957] 2 All ER 712, [1957]

1 WLR 132; Marston Construction Co. Ltd. v Kigass Ltd. [1989] 46 BLR 109.

Pipe laying


value utilized by employers as distinct from the tender system discussed above 88. Synonymous with the ‘quotation’ system, the purchase order system is used principally for minor works 89. The calling of quotations by the employer is in the legal sense tantamount to an invitation to treat. The contractor’s submission of a quotation in response to the employer’s request will legally constitute the making of an ‘offer’ or ‘proposal’. The mere labeling of the submission as a quotation is not conclusive of its legal effect. The contents will have to be carefully scrutinized to elicit the intention of the submitting party 90. The formal issue of the purchase order by the employer constitutes an acceptance of the quotation (or offer) in the contractual sense and thereby perfects the contract.

Letters of intent

A letter of intent is a document which expresses an intention to enter into a contract with the recipient at some time in the future 91. Its legal effects, if any, depend upon the true construction of the words used 92 and the relevant circumstances between the parties 93. The document may have no legal effect at all 94; it may constitute an offer of payment which the recipient is free to accept by performance o f spec i f i ed se rv ices 95; o r (exceptionally) it may create an ancillary or interim contract which will entitle the recipient to recover his wasted costs if the intended future contract does not materialize 96.

Where a le t ter o f in tent does not result in any kind of contractual relationship, a recipient who carries out work in accordance with its terms may nevertheless be entitled to payments on a restitutionary basis 97 e.g. on a quantum meruit basis.

Consideration

To be enforceable at law, a promise must be supported by valuable consideration 98. A unilateral declaration is not enough to make a contract and that no question of contract under seal arises unless it fell within one of the exceptions in Section 26 of the Contracts Act 1950 99. An undertaking by a contractor to carry out work where no price is agreed is generally enforceable, since consideration exists in the form of an implied promise by the employer to pay a reasonable sum. A promise by an employer to pay an additional sum in return for the contractor’s mere carrying out of existing contractual obligations is

given without consideration and is thus unenforceable 100, unless the court is able to discern sufficient practical benefit to the employer from the arrangement 101. Furthermore, a contractor may found a claim on an act done prior to a promise made by the employer provided the contractor had done or abstained from doing something pursuant to the desire of the employer and not necessarily in pursuance of a promise to be made by the latter 102.

Formalities

The general legal position i s tha t the format ion o f a construction contract requires no particular formalities. Such

88. See Ir. Harbans Singh K.S. ‘Engineering and Construction Contract Management: Pre-Contract Award Practice’ at P511 to 515.

89. E.g. supply items, repair, renovation, maintenance, etc.90. Croshaw v Pritchard [1899] 16 TLR 45. See also Zain Azahari bin

Zainal Abidin v Wearne Brothers (1983) Sdn Bhd [2002] 1 MLJ 254.

91. Its normal purpose is to reassure the recipient. Cf the ‘letter of comfort’ sent by a parent company: Kleinwort Benson Ltd v Malaysia Mining Corpn Bhd [1989] 1 All ER 785, CA.

92. British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 at 509-510 per Robert Goff J.

93. Mashaha Navigation Sdn. Bhd. v Palm Oil Products (M) Bhd. & Anor [1989] 1 CLJ 393, HC.

94. As in Ayer Hitam Tin Dredging Malaysia Bhd. v YC Chin Enterprises Sdn. Bhd. [1994] 2 MLJ 754, [1994] 2 SCR 90, SC.

95. Turriff Construction Ltd v Regalia Knitting Mills Ltd [1971] 9 BLR 20; cf Monk Construction Ltd v Norwich Union Life Assurance Society [1992] 62 BLR 107, CA.

96. Such a contract might also render the recipient liable for defective performance.

97. British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, in which the absence of a contract precluded a counter-claim by the employer for alleged delays in performing the work in question. See also Contracts Act 1950 (Act 136) S71 and Siow Weng Fatt v Susur Rotan Mining Ltd. [1967] 2 MLJ 118, PC and Wilson Smithelt & Cape (Sugar) Ltd. v Bangladesh Sugar & Food Industries Corpn [1986] 1 Lloyd’s Rep 378.

98. See Section 2(d) Contracts Act 1950 (Act 136) for the definition of consideration.

99. Per Gill FJ in Guthrie Waugh Bhd. v Malaippan Muthucumani [1972] 2 MLJ 62, FC.

100. Stilk v Myrick [1809] 2 Camp 317; Sharpe v San Paulo Rly Co [1873] 8 Ch App 597.

101. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, [1990] 1 All ER 512, CA.

102. Per Gunn Chit Tuan SCJ in South East Asia Insurance Bhd. v Nasir Ibrahim [1992] 2 MLJ 362, SC; cf Section 2(d) and 26(b) Contracts Act 1950 (Act 136).


103. In practice most domestic sub-contracts and minor works are made orally. The principal problem here is merely from the evidential point of view in the event of a dispute.

104. Peter Lind & Co. Ltd. v Mersey Docks & Harbour Board [1972] 2 Lloyd’s Rep. 235; New Zealand Shipping Co. Ltd. v Satterthwaite & Co. Ltd. [1975] A.C. 154 (P.C.).

105. See Section 10(2) Contracts Act 1950 (Act 136).106. As required by a particular statutory enactment.107. Although Section 79 Contracts Act 1950 (Act 136) permits the guarantee

to be also in an oral form.108. The actual contents varies with the type of contract and the

requirements of the particular form of contract used. For further details see Ir. Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Pre-Contract Award Practice’ at P536 to 574.

109. Or an informal equivalent such as an exchange of correspondence indicating offer and acceptance.

110. Sometimes ‘bespoke’ or ‘ad hoc’.111. For contract based on Drawings and Specifications. See JKR Form

203 (Rev. 10/83).112. And design where this is part of the contractor’s scope.113. Bills of quantities (or B.Q.) may not be required for smaller or less

complex projects where the drawings and specifications themselves provide sufficient information or in the event the contract is of the ‘package deal’ type.

a contract may be validly made orally 103, by conduct or in writing. Contracts by conduct are difficult to establish evidentially and are often encountered where parties have had a course of dealing before. A further illustration of the above, occasions where an employer makes an offer to a contractor for the performance of certain works upon stated terms,

and without making any express acceptance, or counter-offer, the contractor carries out the work 104. The bulk of construction contracts are either in writing 105 or evidenced in writing 106. Written evidence is also required for a contract of guarantee 107, under which the contractual performance of one of the parties is guaranteed by a third party.

● Specifications: This document amplifies the contract drawings b y p r o v i d i n g a v e r b a l description of such methods as the scope of work 111, methods of construction, quality of f inishes and standards of workmanship 112 to be provided. It may also specify levels of performance which individual items of work are required to achieve.

● B i l l o f quan t i t i e s : Th i s document itemises in great detail the contract work as described in the drawings and the specifications 113. It may, but need not constitute an exhaustive statement of

SCOPE OF CONTRACT

Contract documents

There a re no pa r t i cu la r restrictions upon the documents by which a construction contract may be formed. It is trite that the contents of the said documents must accurately and completely record the express terms and conditions of agreement reached by the parties inclusive of all rights, duties, obligations and liabilities. The following is a brief description of the types of documents which constitute the contract documents 108:

● Agreement or ar t ic les of agreement: This document 109 describes in general terms the parties, the contract works and the price, and evidences the intention of the parties to be bound.

● Conditions of contract: Detailed conditions, often in standard form 110 (with or without amendments), amplify and explain the basic obligations of the parties and lay down administrative procedures to be followed during the progress of the works.

● Appendix to the conditions: Certain information specific to a particular contract, such as dates of commencement or completion and amounts of l iquidated damages, is

commonly required to be inserted by the parties in an Appendix to the conditions b e f o r e t h e c o n t r a c t i s executed.

● Drawings and plans: Drawings are prepared by whoever is responsible to the employer for the design of all or part of the proposed works, and are the major vehicle for conveying the intentions of the designer to the contractor. Among other matters, they provide information as to the shape, appearance, location and interaction of the component parts of the proposed works.

Architecture drawing


the work which the contractor undertakes to perform in return for the agreed price. Where, as is common, the bill of quantities is required by the contract to be drawn up in accordance with a particular standard method of measurement 114, any deviation from the prescribed method may entitle the contractor to claim payment for additional work 115.

● Schedule of rates 116: Where there are no priced bill of quantities 117, a document setting out rates applicable to various categories of contract work may be required for the assessment of interim payments, the valuation of variations or (in a measure and value contract) the calculation of the total amount to the contractor.

● P r o g r a m m e o r m e t h o d statement: Although a contractor is commonly required to furnish such documents 118, they are frequently defined by the contract in such a way that there is no obligation on either party to comply with the dates or methods contained in them. In such cases these documents are regarded merely as aids in project planning and coordination.

● Miscellaneous documents: Various other documents may be required for sufficiency, c lar i ty and completeness purposes. These include, inter alia, documents such as the contractor’s tender submissions, any addenda and/or clarif ications, post tender submission negotiations, documents amending the offer in any way and the like.

● Design and build documents: Certain design and build c o n t r a c t s r e p l a c e t h e

documents listed above with three alternative documents comprising the 'Employer's Requirements’ issued by the employer and the 'Contractor's Proposals' and the ‘Contract Sum Analysis’ submitted by the contractor 119.

Incorporation and priority of documents

A formal construction contract usually contains a number of documents which are incorporated by reference into the agreement

executed by the parties. The condi t ions of contract may expressly define the documents which constitute the contract 120, and may make provision for the priority of documents in the case of discrepancies 121.

Standard sets of contract c o n d i t i o n s a r e s o m e t i m e s incorporated by reference into contracts which are not formally executed 122. Such cases can lead to uncertainty as to which particular set of conditions is intended for incorporation 123. These problems are especially

114. For building works this is currently the ‘Standard Method of Measurement of Building Works’ as published by the Institution of Surveyors, Malaysia and for Civil Engineering is the ‘Civil Engineering Standard Method of Measurement’ (CESMM) as published by CIDB, Malaysia.

115. See C Bryant & Son Ltd v Birmingham Hospital Saturday Fund [1938] 1 All ER 503.

116. Also called ‘Schedule of Unit Rates’ in some contracts. 117. In contracts based on drawings and specifications or design and build

contracts. 118. See the effect of a tender submission being incorporated in Yorkshire

Water Authority v Sir Alfred McAlpine & Sons (Northern) Ltd. [1985] 32 BLR 114 and Havant Borough Council v South Coast Shipping Co. Ltd. [1996] CILL 1146.

119. See PWD Form DB/T 2002 Edn. 120. See the second recital and clause 1(a)(i) JKR Form 203A (Rev.

10/83).121. See clause 4.1 CIDB Standard Form of Contract for Building Works

(2000 Edn.).122. These may arise from e.g. an exchange of correspondence, or an

informal notification that a tender has been accepted.123. See e.g. Killby & Gayford Ltd v Selincourt Ltd [1973] 3 BLR 104,

CA; SP Chua Pte. Ltd. v Lee Kim Tah (Pte.) Ltd. [1993] 3 SLR 122.

Road pavement


acute in relation to sub-contracts which purport to incorporate some or all the provisions of the main contract 124.

Construction of contract

Where a contract is made in writing, the meaning to be given to its express terms is a question of law. The court will seek to give effect to the intention of the parties as expressed in the written documents 125. It is settled law that a written document is presumed to have embodied all material terms and conditions and no extrinsic evidence will be permitted to contradict, vary, add to or subtract from the written terms save for exceptions permitted by the law 126.

If a written document contains an ambigui ty which cannot otherwise be satisfactorily resolved, it will be construed adversely to the party who proffered it for execution under the ‘contra proferantum’ rule 127. In seeking the meaning of a contract , wri t ten words are normally presumed to take precedence over printed words in the event of inconsistency 128. However, this presumption can be reversed by a clear provision in the contract 129. Furthermore, clauses and words are to be construed not by itself standing alone, but in the light of other words appearing in the context in which it is used and all other clauses relating thereby 130. Where possible, the grammatical and ordinary sense of words is

to be adhered to 131, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the document, in which case the words may be modified so as to avoid that absurdity or inconsistency 132.

The construction of a contract also involves the application of a host of cannons of construction and procedural guides 133 including the following, namely, words as interpreted must be consistent with the spirit and letter of the agreement 134, typographical errors may be corrected to give effect to the parties’ intention 135, the contract must be construed as at the date it was made 136

and aids to interpretation within the contract document itself be considered in the construction process. Where a contract is partly oral or made by conduct 137, the ascertainment of the terms of the contract is a question of fact 138.

Implied terms

A construction contract may be subject to certain terms that are expressly included in the contract. In seeking to establish the intention of the parties to a contract, certain terms need to be implied 139; these being namely by custom and usage pertaining to a

124. See e.g. Royden (M) Sdn. Bhd. v Syarikat Pembenaan Yeoh Tiong Lay Sdn. Bhd. [1992] 1 MLJ 33.

125. See Mulpha Pacific Sdn Bhd v Paramount Corp Bhd [2003] 4 MLJ 357; Shore v Wilson [1842] 9 Cl & F 355, HL; Investors Compensation Scheme v West Bromiwich Building Society [1998] 1 All ER 98, HL.

126. See Section 92 Evidence Act 1950 (Act 56); cf Tindok Besar Estate v Tinjar Co. [1977] 2 MLJ 229 and Foo Sam Ming v Archi Environ Partnership [2004] 1 MLJ 449.

127. Per Lord Brightman in Kandasami v Mohamed Mustafa [1983] 2 MLJ 85, [1983] 4 PCC 183, PC. For a recent application of this rule see MBF Finance Bhd v Sim Peng Bee @ Sim Bay Bee & Anor [2003] 5 MLJ 303.

128. Robertson v French [1803] 3 East 130 applied in Bumiputera Malaysia Berhad Kuala Trengganu v Mae Perkayuan Sdn. Bhd. [1998] 2 MLJ 76; [1993] 1 SCR 385, SC.

129. John Mowlem & Co Ltd v British Insulated Callenders Pension Trust Ltd [1977] 3 Con LR 64, DC.

130. Per Salleh Abbas FJ in Trengganu State Economic Development Corporation v Nade Finco Ltd. [1982] 1 MLJ 365, FC.

131. See recent decision in Putra Perdana Construction Sdn. Bhd. v AMI Insurance Bhd & Ors [2005] 2 MLJ 123 where it was held that ‘….. where the meaning of the words used was clear, effect must be given to it. One should not strain the language to find an ambiguity where none exists’.

132. Grey v Pearson [1875] 6 HLC 61 at 106. See also Polygram Records Sdn. Bhd. v The Search & Anor [1994] 3 MLJ 127, HC.

133. See Ir. Harbans Singh K.S. ‘Engineering and Construction Contracts Management: Law and Principles’ at P292 to 299.

134. Lim Yee Teck & Ors v Shell (M) Trading Sdn. Bhd. [1985] 2 MLJ, 265; [1985] 4 PCC 433, PC.

135. Ng Siew Wah & Ors v MAA Holdings Sdn. Bhd. & Anor [1985] 2 MLJ 332, SC.

136. City Investments Sdn. Bhd. v Koperasi Serbaguna Cuepacs Tanggungan Berhad [1985] 1 MLJ 285, FC, [1988] 1 SCR 122; 4 PCC 709, PC

137. Allen v Pink [1838] 4 M & W 140; J Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930, CA.

138. Smith v Hughes [1871] LR 6 QB 597; British Crane Hire Corpn v Ipswich Plant Hire Ltd [1975] QB 303 1 All ER 1059, CA.

139. Hamid Abdul Rashid, Dr. v Jurusan Malaysia Consultants (Sued as a Firm) [1997] 1 AMR 637.Tunnel construction


particular type of transaction 140, the courts based on the intention of the parties 141 and certain provisions contained in statute, or generally by law 142.

There is a paucity of terms implied by custom and usage and by statute or law in construction contracts. However, in respect of construction contracts, the courts do make various implications of which two broad categories may be discerned 143. First, there are those usual terms which the law implies into all contracts of a certain type unless the parties have shown an intention to exclude or modify them. In relation to construction contracts, such implied terms include the employer’s obligations to co-operate with and not to hinder the contractor and the contractor’s obligations as to the standard of work and the time for completion.

Second, a term may be implied into an individual contract where the court finds that the parties must have intended it to form part of their contract 144, and where the transaction would otherwise be inefficacious, futile and absurd 145. The condit ions for such an implication are that it must be reasonable and equitable; it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it 146; it must be so obvious that ‘it goes without saying’ 147; it must be capable of

clear expression and it must not contradict any express term of the contract 148. Where the parties have contracted on the basis of a detailed standard form document, the courts are generally unwilling to imply terms on this basis, even where to do so would improve the contract 149; although there are exceptions 150.

REFERENCES

Ir. Harbans Singh K.S. ‘Malaysian Precedents and Forms Vol. N: Engineering and Construction

Contracts’ (2005) Malayan Law Journal Sdn. Bhd.

I r. H a r b a n s S i n g h K . S . ‘Engineering and Construction Contracts Management: Pre-Contract Award Practice’ Lexis-Nexis.

Joshi, Piyush ‘Law Relating to Infrastructure Projects ’ Butterworths.

Robinson, Lavers , Tan & Chan ‘Construction Law in Singapore & Malaysia’ (2nd Edn.), Butterworths.

S i n n a d u r a i , V. ‘ L a w o f Contract’ (3rd Edn.), Lexis-Nexis Butterworths.

The Aqua Group ‘Tenders and Contracts for Buildings’ (2nd Edn.)

The Centre for Strategic Studies, University of Reading [1991] ‘Construction Management Form – Report & Guidance’.

140. Hamzah & Yeang Sdn. Bhd. v Lazar Sdn. Bhd. [1985] 1 CLJ 72, FC and Udachin Development Sdn. Bhd. v Datin Peggy Taylor [1985] 1 MLJ 121, FC.

141. Sababumi (Sandakan) Sdn. Bhd. v Datuk Yap Pak Leong [1998] 3 MLJ 151, FC.

142. E.g. S14 to 16 Sale of Goods Act 1957 (Act 382), S6 Hire Purchase Act 1967 (Act 212), etc.

143. Liverpool City Council v Irwin [1977] AC 239 at 255,257, HL.144. Trollope & Colls Ltd v North West Metropolitan Regional Hospital

Board [1973] 2 All ER 260 at 268, HL, per Lord Pearson. 145. Liverpool City Council v Irwin [1977] AC 239 at 263, HL, per Lord

Salmon and Hamid Abdul Rashid, Dr. v Jurusan Malaysia Consultants (Sued as a Firm) [1997] 1 AMR 637.

146. ‘The Moorcock’ [1889] PD 64 at P68 applied in Sababumi (Sandakan) Sdn. Bhd. v Datuk Yap Pak Leong [1998] 3 MLJ 151, FC; [1997] 1 MLJ 587, CA.

147. Reigate v Union Manufacturing Co (Rambottom) Ltd. [1918] 1 KB 592; and Yap Nyo Nyok v Bath Pharmacy Sdn. Bhd. [1993] 2 MLJ 25, HC.

148. BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] 52 ALJR 20 at 26, PC.

149. See e.g. Greater London Council v Cleveland Bridge and Engineering Co Ltd [1986] 34 BLR 50, CA (no implied term as to regular and diligent progress); KC Lim & Associates Sdn. v Pembenaan Udarama Sdn. Bhd. [1980] 2 MLJ 26, FC (no implied term that developer was able to carry on the project at or reasonably near the architect’s estimated costs), etc.

150. See Bruno Zornow (Builders) Ltd v Beechcroft Developments Ltd [1990] 51 BLR 16 (implication of fixed date for completion).

BEM

High court, Kuala Lumpur


36 THE INGENIEURGUIDELINES

INTRODUCTION

A. This Code of Conduct is published pursuant to the bye-laws of the Institute. It sets out the minimum standards of conduct to be observed by members when acting as neutrals in any dispute resolution process. A breach of the Code amounts to professional misconduct.

B. This Code of Conduct provides ethical guidelines and does not form part of the rules of any dispute resolution process.

C. This Code of Conduct is not intended to override or replace any applicable law or the applicable rules of any dispute resolution process or to create new or additional grounds for judicial review of any dispute resolution process. In the event that this Code of Conduct or any part of it is inconsistent with any applicable law or the applicable rules of any dispute resolution process, the member shall comply with the applicable law and/or the applicable rules.

D. This Code of Conduct shall be observed regardless of where the dispute resolution process is being conducted. Any additional ethical standards or legal requirements to which the member is personally subject and/or of the place where the dispute resolution process is being conducted shall also be observed.

THECODE

1. Behaviour1.1 A member shall adhere to all Rules,

Codes, Guidelines, Regulations and other professional requirements adopted by the Institute from time to time.

1.2 A member shall not act in manner which might reasonably be perceived as conduct unbecoming a member of the Institute.

2. Integrityand fairness2.1 A member shall maintain the

integrity and fairness of the

dispute resolution process and shall withdraw if illegal conduct or substantive unfairness is apparent.

3. Conflictsof interest3.1 A member shall disclose both

before, and shall have a continuing obligation to disclose during, the dispute resolution process all interests, relationships and matters likely to affect independence or impartiality, or which might reasonably be perceived to affect independence or impartiality.

3.2 After disclosure a member shall only continue to be involved in the dispute resolution process with the express consent of all the parties to the dispute resolution process.

3.3 I f , at any stage, a member becomes incapable of maintaining independence or impartiality, the member shal l withdraw immediately.

4. Competence4.1 A member shall only accept an

appointment or undertake an activity if appropriately qualified or experienced to complete it promptly, in a professional manner and without undue influence by pressure of other work.

4.2 A member shall not make any representations or allow any representations to be made about the member’s experience or expertise which are not truthful.

5. Information5.1 A member shall ensure that all

involved in the dispute resolution process are fully and fairly informed as to the procedural aspects of the process and what is expected of them.

5.2 A member shall not provide legal or technical advice to those involved in the dispute resolution process.

6. Communication6.1 A member shall only communicate

with those involved in the dispute resolution process in the manner

appropriate to the process and not in a manner which might reasonably be perceived to be improper, partial or biased.

7. Conductofprocess7.1 A member shall prepare fully

for, and conduct all stages of, the dispute resolution process diligently, fairly and in an entirely impartial and independent manner, and shall not be influenced by outside pressure, public opinion, fear of criticism or self-interest.

7.2 A member shall not conduct the dispute resolution process in a manner which may harm the parties or worsen the dispute.

7.3 A member shall not delegate the duty to decide to any other person where the dispute resolution process calls for a decision to be made.

8. Trustandconfidence8.1 A member shall be faithful to and

adhere to the relationship of trust which exists with those involved in the dispute resolution process and, at all times, both during and after completion of the dispute resolution process, shall (unless otherwise agreed by all the parties) keep confidential all information acquired during the process.

8.2 A member shall not use any information acquired during the dispute resolution process for personal advantage or adversely to affect the interests of others.

9. Fees9.1 A member shall only charge

fees and expenses which are reasonable, taking into account all the circumstances and shall disclose and explain to the parties to the dispute resolution process the basis upon which the fees and expenses shall be calculated and charges.

10. Applicable law10.1 A member shall conduct the

dispute resolution process in accordance with applicable law.

Code Of Professional And Ethical ConductSubmitted by Ir. Leon Weng Seng

The Chartered Institute Of Arbitrators

Oleh Sr. Amran B. Mohd. Majid, Cawangan Kontrak & Ukur Bahan, JKR Malaysia

Membendung Kerugian Berkaitan DenganTuntutan Kerugian Dan PerbelanjaanTambahan Di Dalam Kontrak Binaan

Prinsip perundangan tuntutan gantirugi memperuntukkan t a n g g u n g j a w a b u n t u k

kontraktor (penuntut) apabila m e m b u a t t u n t u t a n u n t u k mengambil langkah-langkah yang munasabah untuk membendung kerugian yang dialami. Mahkamah akan mempertimbangkan peri tingkah laku kontraktor selepas berlakunya tindakan kemungkiran yang menyebabkan kontraktor mengalami kerugian. Mahkamah secara lazimnya akan melihat adakah kontraktor telah mengambil langkah-langkah yang munasabah untuk membendung kerugian yang dialami atau adakah kontraktor telah mengambil kesempatan terhadap tindakan kemungkiran itu dengan membiarkan kerugian yang dialami itu.

Rujukan boleh dibuat kepada satu kes masyhur Kabatasan Timber Extraction Company lwn. Chong Fah Shing.1 Di dalam kes ini perayu adalah pembekal kayu-kayan kepada responden, iaitu seorang pengilang kayu. Di dalam perjanjian tersebut, pembekal kayu i tu perlulah menghantar kayu-kayan tersebut ke tempat kilang kayu pengilang tersebut. Di dalam perjanjian itu juga memperuntukkan yang dimaksudkan penghantaran kepada pengilang, adalah penghantaran di dalam lingkungan 500m daripada kedudukan kilang.

Pada awa lnya semuanya berjalan dengan lancar, namun begitu, terdapat satu kiriman kayu-kayan telah dihantar melebihi jarak 500m daripada kilang

1 (1969) 2 MLJ 6

Sering terdapat persoalan sama ada kontraktor apabila menanggung kerugiannya mempunyai tanggungjawab perundangan untuk memastikan kerugian yang dialaminya itu dibendung akan kesannya. Contohnya sekiranya majikan telah gagal memberi milikan tapak bina pada tarikh yang telah diperuntukkan di dalam kontrak binaan, bolehkah kontraktor terus membawa para pekerjanya, loji-loji serta bahan-bahan binaan ke tapak bina? Sekiranya kontraktor terus membawanya ke tapak bina yang mana para pekerjanya serta loji-loji yang diperlukan itu akan tersadai di tapak bina dan terbiar, maka persoalan selanjutnya bolehkah kontraktor kemudiannya menuntut gantirugi ke atas perbelanjaan tambahan yang dialami itu? Ataupun adakah lebih wajar untuk kontraktor tidak membawa para pekerjanya itu, loji-loji ataupun bahan-bahan binaannya itu setelah mengetahui bahawa milikan tapak bina tidak dapat diberikan di dalam tempoh yang telahpun dijanjikan di dalam kontrak binaan tersebut?

Maka ini adalah satu lagi prinsip perundangan ataupun pertikaian yang sering berlaku apabila kontraktor menuntut gantirugi daripada majikan apabila berlaku satu kemungkiran kontrak binaan. Majikan akan mendakwa bahawa kontraktor mempunyai tanggungjawab untuk membendung kerugiannya dan t idak mengambil kesempatan di dalam tempoh kemungkiran dengan meningkatkan nilai gantirugi yang hendak dituntut oleh kontraktor. Contohnya apabila kontraktor sedang tekun melaksanakan kerja di tapak bina tetapi oleh kerana kemungkiran majikan yang tidak dapat memberi milikan tapak bina dengan sepenuhnya, kemudiannya membiarkan para pekerjanya serta para loji-loji yang terlibat tersadai di tapak bina; dengan alasan bahawa kontraktor berhak menuntut kemudiannya daripada majikan; maka adakah ini adil? Adakah tuntutan di dalam keadaan tersebut dibenarkan di dalam perundangan?

Satu lagi persoalan setakat manakah tanggungjawab kontraktor membendung kerugiannya itu. Adakah perlu kontraktor membendung kerugiannya tetapi di dalam usahanya itu akhirnya menyebabkan kontraktor mengalami perbelanjaan yang lebih tinggi daripada gantirugi yang akan dialaminya sekiranya usaha untuk membendung kerugian itu tidak diambil daripada awal?

Bab ini akan cuba mengupas serta membincangkan persoalan-persoalan tersebut di atas dan memperjelaskan prinsip membendung kerugian sejajar dengan prinsip perundangan.

37 THE INGENIEUR FEATURE

oleh pembekal kayu tersebut. Pengilang telah enggan menerima kiriman kayu-kayan tersebut. Pengilang tersebut kemudiannya telah mendapat bekalan kayu-kayan yang lain daripada sumber yang lain.

Pengilang telah menuntut berkaitan dengan kos tambahan untuk mendapat bekalan kayu-kayan tersebut dengan harga tambahan dengan lingkungan nilai sebanyak RM16,000. Mahkamah telah meneliti fakta kes dan mendapati bahawa pembekal sebenarnya telah menghantar kiriman bekalan, namun begitu jarak penghantaran melebihi lingkungan 500m yang telah dipersetujui. Mahkamah juga mendapati bahawa sekiranya pengilang mengambil bekalan tersebut dengan menggunakan pihak yang lain, maka kos yang ditanggung adalah sebanyak RM1,000. Tetapi apa yang berlaku adalah pengilang telah membeli bekalan daripada pihak yang lain. Mahkamah memutuskan bahawa sepatutnya pengilang membendung kerugiannya dengan menggunakan pihak ketiga untuk mengangkut bekalan kayu-kayan yang telah dibekalkan tersebut, dengan hanya nilai RM1,000. Maka tuntutan pengilang sebanyak RM16 ,000 wa laupun t e l ah dibuktikan olehnya telah ditolak oleh mahkamah.

MacIntyre, HMP, di dalam penghakimannya antara lain menyatakan:

Namun begitu, undang-undang mengenakan satu tanggungjawab untuk setiap orang yang telah mengalami kerugian yang telah disebabkan oleh kemungkiran kontrak untuk mengambil langkah-langkah yang munasabah untuk membendung kerugian......... Di dalam kes ini, ia tidak memerlukan responden untuk bersusah payah membelanjakan pembelian kayu-kayan daripada tempat lain di mana kayu-kayan itu sudahpun berlempangan beberapa ratus kaki

daripada kilang di mana ia hanya perlu mengambilnya dan apa yang diperlukan adalah perbelanjaan tambahan untuk mengangkutnya ke kilang.........

Maka jelas berdasarkan kes di atas, undang-undang mengenakan satu tanggungjawab perundangan terhadap seorang penuntut untuk mengambil langkah-langkah yang munasabah membendung kerugian. Ia adalah satu tanggungjawab perundangan yang mana ia tidak perlu dimaklumkan oleh pihak yang telah memungkiri kontrak.

Sek i ranya ma j ikan te lah memungkiri kontrak apabila gagal memberi milikan sebahagian daripada tapak bina, maka loji-loji yang tersadai sekian lama di tapak bina perlulah dibawa keluar oleh kontraktor daripada tapak bina. Kontraktor tidak boleh membuat satu dalihan bahawa loji-loji tidak dibawa keluar atas alasan tiada arahan daripada P.P kerana adalah menjadi tanggungjawab perundangan bagi kontraktor mengeluarkan loji-loji daripada tapak bina. Sekiranya kontraktor telah gagal berbuat demikian, maka tuntutan kontraktor tersebut akan menemui kegagalan.

Membendung Kerugian Kos Bahan-Bahan dan Buruh

Satu lagi persoalan yang sering timbul adalah tuntutan kontraktor berkaitan dengan kos tambahan yang perlu ditanggung disebabkan kemungkiran majikan. Contohnya, sekiranya terdapat kemungkiran majikan di mana kelewatan P.P memberi arahan yang sewajarnya akan melibatkan kontraktor menanggung tambahan kos disebabkan para pekerjanya t e r p a k s a m e n u n g g u t a n p a membuat apa-apa kerja di tapak bina. Maka, bolehkah kontraktor menuntut kos tersebut tanpa mengambil langkah-langkah yang sewajarnya untuk membendung kerugiannya itu?

Untuk menjawab soalan-soalan seperti itu, rujukan boleh dibuat kepada kes Hong Leong Co Ltd. lwn. Pearlson Enterprise Ltd.2 Di dalam kes ini plaintif adalah pembekal bahan batu-bata kepada defendan yang merupakan kontraktor untuk kontrak pembinaan flat. Pembekal telah didapati memungkiri kontrak jual beli dengan kontraktor apabila pembekal meminta bayaran serta merta sebanyak $85 setiap 1,000

2 (1968) 1 MLJ 262 (juga [1965 – 1968] SLR 736)

Batu-bata tersadai di tapak bina

Nota: HMP - Hakim Mahkamah Persekutuan P.P - Pegawai Penguasa

38 THE INGENIEURFEATURE

biji batu bata apabila dibekal. Ini adalah bercanggah dengan perjanjian jual beli yang mana kontraktor hanya perlu membuat bayaran di dalam satu tempoh kredit.

L a n j u t a n d a r i p a d a i t u , kontraktor telah tidak mendapat bekalan batu-bata. Maka ia te rpaksa mendapat bekalan dar ipada pihak ket iga yang mana ini akan mengambil masa. Tambahan lagi para pekerjanya telah tidak dapat menjalankan kerja-kerja binaan di tapak bina akibat ketiadaan bekalan batu-bata tersebut selama 69 hari. Maka para pekerjanya berada di tapak bina tanpa membuat apa-apa kerja yang mana ini melibatkan kontraktor menanggung rugi apabila terpaksa membayar gaji kepada kepada para pekerjanya, walaupun kerja tidak dapat dilakukan oleh mereka. Maka kontraktor menuntut gantirugi terhadap pembekal tersebut.

Mahkamah telah meneli t i fakta kes dan mendapati bahawa pembeka l se lepas t indakan kemungkirannya itu menawarkan semula bekalan batu-bata itu dengan harga yang lebih rendah iaitu sebanyak $79 setiap 1,000 biji batu-bata. Kontraktor telah enggan menerima tawarannya itu tetapi telah terus mengikat kontrak dengan pembekal yang lain yang mana didapati ia adalah lebih mahal.

Mahkamah kemudiannya telah memutuskan bahawa kontraktor seharusnya menerima tawaran pembekal itu bagi membendung ke rug iannya i tu . Mengena i tuntutan kos tambahan berkaitan dengan para pekerjanya yang tersadai di tapak bina selama 69 hari, seharusnya kontraktor boleh membendung kerugiannya dengan menghantar mereka pulang sehinggalah bahan batu-bata tersebut dapat dibekalkan. N a m u n b e g i t u m a h k a m a h memutuskan bahawa pembekal sememangnya telah memungkiri k o n t r a k t e r s e b u t . Te t a p i memandangkan kontraktor telah gagal membendung kerugiannya i tu, maka mahkamah hanya menganugerahkan gan t i rug i nominal sebanyak $10.

A m b r o s e . H , d i d a l a m penghak imannya i tu an ta ra lainnya menyatakan:

Pada hemat saya tawaran daripada plaintif pada Januari 8, 1965, adalah satu yang munasabah; yang mana defendan sepatutnya membendung kerugiannya dengan menerima tawaran plaintif; dan tiada kerugian akan ditanggung o leh defendan sek i ranya ia menerima tawaran tersebut. Maka dengan itu saya menyimpulkan bahawa defendan tersebut adalah tidak berhak kepada apa-apa gantirugi......

Berkaitan dengan tuntutan gantirugi para pekerjanya yang tersadai itu, Ambrose, H, di dalam penghakimannya seterusnya menyatakan:

Butiran kedua berkaitan dengan tuntutan balas sebanyak $11,868 yang dibayar kepada 18 para pekerja untuk selama 69 hari dengan $172 sehari semasa defendan sedang didakwa menunggu untuk batu-bata dibekalkan oleh plaintif. Pada hemat saya kerugian tersebut dapat dielakkan. Saya menerima keterangan yang telah dikemukakan oleh plaintif bahawa ia adalah satu amalan di dalam tred binaan untuk pengikat batu-bata dan pengangkut batu-bata dihantar keluar tanpa bayaran sekiranya ketiadaan kerja untuk mereka oleh kerana ketidakcukupan bekalan batu-bata. Maka saya dengan itu dapat menyimpulkan bahawa defendan adalah tidak berhak kepada apa-apa bentuk gantirugi berkaitan dengan butiran kedua tuntutan balas tersebut.........

Maka jelas kepada prinsip kes tersebut, adalah menjadi tanggungjawab perundangan kontraktor untuk membendung kerugiannya walaupun sekiranya satu tindakan kemungkiran telah dilakukan oleh majikan. Tindakan membendung kerugian tersebut adalah dengan membawa keluar para pekerja yang didapati tersadai, ataupun cuba mengagihkan para pekerjanya di dalam aktiviti kerja di tapak bina yang masih boleh dijalankan. Kontraktor perlulah mengelakkan kerugian yang didakwa ditanggung olehnya itu. Ini adalah sejajar dengan prinsip perundangan ekuiti iaitu sesiapa yang berkehendakkan kepada keadilan, dia sendiri perlulah bersikap adil.

Satu lagi prinsip perundangan yang perlu diambil perhatian adalah sekiranya kontraktor gagal membendung kerugiannya itu dengan sewajarnya, maka tindakan tuntutan gantiruginya itu akan

Pekerja binaan


menemui kegagalan walaupun setelah dibuktikan bahawa majikan sememangnya telah memungkiri kontrak. Ini jelas berdasarkan kepada prinsip kes tersebut di atas di mana mahkamah hanya bersetuju untuk menganugerahkan gantirugi nominal sebanyak $10.

Kemunasabahan Membendung Kerugian

Satu lagi persoalan yang sering timbul adalah apakah yang dimaksudkan dengan kontraktor pe r l u mengamb i l t i ndakan m e m b e n d u n g k e r u g i a n n ya dengan mengambil langkah-langkah yang munasabah atau sewajarnya i tu? Adakah in i bermaksud kontraktor perlulah mengambi l langkah- langkah yang akan menyebabkan ia menanggung kerugian yang lebih banyak? Apa pula keadaannya apabila kontraktor tidak dapat mengambil langkah-langkah yang munasabah untuk membendung kerugiannya itu?

Untuk menjawab soalan-soalan tersebut rujukan boleh d ibua t kepada ke s Pac i f i c Electrical Co Ltd lwn. Seng Hup Electrical Co (S) Pte Ltd. 3

Di dalam kes ini perayu adalah pembeli lampu-lampu hiasan dan responden adalah pembekal lampu-lampu tersebut. Perayu telah memesan lampu-lampu hiasan untuk projek pembinaan sebuah Istana di Negara Brunei. Pembeli telah mendapati bahawa pembekal telah lewat sedikit membekal lampu-lampu hiasan tersebut daripada tarikh yang telah dijanjikan. Maka oleh itu, pembeli kemudiannya telah membatalkan kontrak jual beli tersebut.

Namun beg i tu pembeka l telah mengutus telegram kepada p e m b e l i b a h a w a i a a k a n menghantar lampu-lampu hiasan itu melalui pengangkutan udara dan ia akan tiba tidak lama lagi. Tetapi pembeli telah enggan menerima tawaran pembekal

untuk membekalnya itu di dalam tempoh yang munasabah itu. Malah apa yang berlaku adalah pembeli telah memesan lampu-lampu hiasan tersebut terus kepada pengilangnya di Negara Jerman walaupun bekalan lampu-lampu itu kemudiannya akan lambat sampai.

Pembekal kemudiannya telah terpaksa menerima bekalan serta membayar lampu-lampu hiasan tersebut kepada pengilangnya dan terpaksa menyimpannya di kedainya itu. Maka pembekal kemudiannya telah mengambil tindakan undang-undang gantirugi terhadap pembeli disebabkan lampu-lampu hiasan yang telah enggan diterima oleh pembeli.

Pembeli telah membuat dalihan bahawa sepatutnya pembekal m e m b e n d u n g k e r u g i a n nya berkaitan dengan lampu-lampu hiasannya i tu dengan cuba menjualnya kepada orang lain. Pembekal pula telah menyatakan bahawa oleh kerana bentuk lampu-lampu hiasan tersebut sebenarnya adalah luar biasa dan hanya sesuai untuk dipakai di Bangunan Istana atau serupa dengannya; maka adalah agak sukar untuk menjualnya atau mencari pasaran yang lain agar ia dapat dijual.

Mahkamah telah meneliti fakta kes dan bersetuju oleh kerana lampu-lampu hiasan tersebut adalah unik dan hanya sesuai untuk dipasang di Bangunan Istana sahaja, maka oleh itu, adalah sukar untuk mencari pasaran alternatif. Mahkamah juga mendapati bahawa pembeli telah gagal mengemukakan bukti secara munasabah bagaimanakah pembekal dapat membendung kerugiannya itu. Namun begitu, oleh kerana pembekal telah tidak dapat membuktikan kerugiannya secukupnya, maka mahkamah tidak dapat memberi keputusan

untuk n i la i gant i rug i yang boleh dianugerahkannya kepada pembekal.

Pickering, HMR, di dalam penghakimannya antara lain menyatakan:

……….Plaintif pada waktu itu………tidak lagi mempunyai ob l i ga s i un tuk meny impan c a n d e l i e r t e r s e b u t u n t u k membendung kerugiannya; dan untuk defendan mengemukakan bukti, sekiranya mereka boleh, b e r k a i t a n d e n g a n u s a h a -usaha yang mungkin secara munasabahnya boleh dibuat di dalam tempoh interim oleh plaintif dan apakah hasil kewangan yang mungkin diperolehi……………

Leonard, HMR, di dalam penghakimannya juga antara lainnya, telah menambah:

. . . . . . . . . . . . . t i a d a b u k t i dikemukakan oleh perayu untuk menunjukkan bagaimanakah responden mungkin, setelah mengambilkira bentuk candelier yang luar b iasa i tu , boleh membendung (kerug iannya) dan ia adalah, sudah tentu, untuk defendan menunjukkan, bagaimanakah plaintif dapat membendungnya...............

Maka j e l a s be rdasa rkan prinsip perundangan kes tersebut di atas, apa yang dimaksudkan dengan langkah-langkah yang munasabah atau yang sewajarnya itu perlulah berdasarkan hal keadaan pasaran serta satu penilaian persoalan fakta. Di dalam kes ini oleh kerana candelier tersebut adalah satu bentuk yang luar biasa dan tidak mungkin untuk pembekal menjualnya semula di pasaran, maka adalah tidak musanabah u n t u k n y a m e m b e n d u n g kerugiannya itu.

3 (1978) 1 MLJ 162

Nota: HMR - Hakim Mahkamah Rayuan


Di dalam keadaan di mana ia adalah sukar untuk penuntut membendung kerugian, maka adalah menjadi tanggungjawab pihak yang membela daripada t u n t u t a n g a n t i r u g i i t u menunjukkan bagaimanakah penuntut dapat membendung kerugiannya itu.

Contohnya sekiranya para pekerja pakar daripada luar negara yang telah digaji oleh kontraktor untuk menjalankan satu tred kerja pakar, maka adalah sukar untuk kontraktor menghantar mereka pulang agar ia dapat membendung kerugiannya seki ranya satu tindakan kemungkiran telah dilakukan oleh majikan yang menyebabkan para peker ja tersebut terpaksa tersadai di tapak bina. Ini adalah kerana berkemungkinan besar kontraktor telah mengikat satu kontrak pekerjaan dengan para pekerja pakar itu untuk satu tempoh yang tertentu; dan juga ia adalah sukar untuk menghantar mereka pulang dan juga menggaj i mereka semula apabila tindakan kemungki ran o leh maj ikan berakhir. Maka adalah tidak adil untuk majikan membuat dal ihan bahawa kont raktor sepatutnya dapat membendung kerugiannya dengan menghantar mereka pulang. Ini adalah kerana ia adalah sukar dan juga berkemungkinan adalah lebih mahal untuk berbuat demikian. Namun demik ian kesemua kesukaran membendung kerugian itu perlulah juga dibuktikan oleh kontraktor apabila ia membuat tuntutannya.

M a k a j e l a s k o n t r a k t o r mempunya i t anggung jawab perundangan untuk membendung ke rug ian yang d i a l aminya i tu secara munasabah dan sewaja rnya yang mana ia tidak akan memudaratkan hak kontraktor atau ia tidak akan membebankan lagi tanggungan kewangannya melebihi apa yang

sepatutnya sekiranya langkah membendung kerugian itu tidak diambil.

Membendung Kerugian Yang Lazim Dan Bukan Berbentuk Kepakaran Khusus

Adalah menjadi tanggungjawab kontraktor untuk membendung kerugian yang secara lazimnya dapat dielak. Contohnya, sekiranya kontraktor telah mengalami kerugian seperti perbelanjaan loj i - loj i yang tersadai atau buruh-buruh yang mana boleh dihantar pulang, maka kontraktor adalah bertanggungjawab untuk be rbua t demik ian . Namun begitu sebagaimana yang telah d ib incangkan tad i , apabi la kontraktor telah mengikat kerja dengan pekerja buruh yang mempunyai kepakaran yang khusus s epe r t i pengga j i an buruh di luar negara; ataupun keadaan di mana sukar untuk ia membendung, maka secara munasabahnya kontraktor boleh menuntut kerugian yang tidak dapat dibendungnya. Ini lebih-lebih lagi di mana kontraktor apabi la cuba membendung

akan sebenarnya menanggung lebih lagi perbelanjaan yang merugikannya.

Untuk memahami lebih lanjut prinsip perundangan itu tadi, rujukan boleh dibuat kepada kes Tansa Enterprise Sdn. Bhd. lwn. Temenang Engineering Sdn. Bhd.4 Di dalam kes ini plaintif adalah pembekal batu-bata kepada de fendan yakni kont rak tor. Kontraktor sedang menjalankan satu kontrak kerja pembinaan sebuah kilang kain di Johor. Kontraktor menuntut sebelas (11) inbois yang telah dikemukakan kepada kontraktor yang mana jumlah nilai yang terkumpul adalah sebanyak RM160,206.52. Kontraktor telah mengaku hutang tersebut tetapi tertakluk kepada tuntutan gant i rugi balas di pihaknya terhadap pembekal.

Kontraktor telah mendakwa oleh kerana pembekal telah gagal untuk membekal batu-bata sebanyak 75,240 bi j i , maka ia telah melewatkan kerja kontraktor. Di antara tuntutan yang dituntut oleh kontraktor adalah berkaitan dengan Gantirugi Tertentu dan Ditetapkan, kos pengangkutan batu-bata dari

4 (1994) 2 MLJ 353

Projek binaan yang terbengkalai


sumber yang la in dan kos pengurusan tapak bina. Namun begitu pembekal telah memberi alasan bahawa kegagalannya un tuk membeka l ba tu -ba ta tersebut adalah disebabkan oleh kegagalan kontraktor untuk membuat bayaran untuk bekalan batu-bata yang lebih awal sebelum itu yakni sebanyak 99,520 biji. Maka sebab itulah pembekal kemudiannya telah berhenti membuat bekalan batu-bata kepada kontraktor.

Mahkamah telah menelit i f a k t a k e s d a n b e r s e t u j u b a h a w a p e m b e k a l a d a l a h tidak bertanggungan terhadap tuntutan balas yang dibuat oleh kontraktor. Apabila kontraktor te lah secara terus menerus gagal membuat bayaran kepada bekalan-bekalan yang terdahulu, maka pembekal adalah berhak untuk tidak membekalkannya dan membatalkan kontrak bekalan tersebut. Ini adalah kerana pembekal bolehlah menganggap bahawa kontrak bekalan tersebut sudahpun ditolak oleh kontraktor berdasarkan tindak-tanduknya itu.

Di antara perkara-perkara yang telah diputuskan oleh mahkamah adalah tanggungjawab kontraktor untuk membendung kerugiannya berkaitan dengan bekalan batu-bata yang tidak dibekalkan oleh kontraktor. Sepatutnya, kontraktor boleh mendapat bekalan batu-bata dar ipada sumber a tau pembekal la in o leh kerana bekalan batu-bata bukanlah satu bekalan yang susah dicari. Di samping itu, adalah juga di dapati tidak terdapat kekurangan bekalan batu-bata di pasaran. Maka kontraktor boleh mengambil langkah-langkah yang wajar untuk membendung kerugiannya. Maka mahkamah memutuskan bahawa kontraktor adalah bertanggungan untuk membayar hutang yang masih belum berbayar kepada pembekal bagi bekalan yang dibuat di peringkat awal.

H a i d a r , H , d i d a l a m penghakimannya antara lain menyatakan:

Ta m b a h l a g i , wa l a u p u n sekiranya diandaikan bahawa plaintif telah memungkiri kontrak, adalah didapati defendan tidak membendung ke rug i annya . Bekalan batu-bata sejajar dengan kontrak adalah berkaitan dengan batu -bata b iasa dan ianya bukanlah satu keluaran yang khusus yang memerlukan masa untuk dikilangkan. Tidak terdapat kekurangan bekalan batu-bata di pasaran pada waktu itu. ................

Maka, sekiranya defendan telah membendung kerugiannya dengan membe l i ba tu -ba ta daripada sumber-sumber lain, defendan tersebut, sebagaimana yang telah saya nyatakan awal tadi, sebagai satu fakta, akan t idak menanggung apa-apa kerugian..............

Maka j e l a s be rdasa rkan prinsip perundangan kes di atas, apabila kemungkiran yang telah berlaku terhadap kontraktor, maka kontraktor perlulah mengambil langkah-langkah yang sewajarnya untuk membendung kerugiannya. Ini termasuk langkah-langkah seperti mencari sumber-sumber la in apabi la ia mel ibatkan kelewatan bahan binaan; ataupun di mana apabila kelewatan P.P. untuk memberi arahan pada waktu yang wajar maka sekiranya terdapat para buruh atau loji-loji yang tersadai yang mana ia tidak boleh diagihkan ke bahagian-bahagian kerja yang lain, maka kontraktor mestilah mencari jalan untuk menghantar para buruh tersebut ataupun loji-loji yang terlibat pulang. Namun begitu ini hanya terpakai kepada para buruh yang mana senang digaji kembali ataupun pada loji yang senang disewa kembali apabila kerja dapat diteruskan kemudian.

Perlulah diingatkan, kontraktor dipertanggung-jawabkan untuk membuktikan perkara-perkara tersebut di atas berkaitan dengan langkah-langkah membendung ke rug ian yang d ia laminya , sebelum tuntutannya itu dapat diluluskan. Sebagaimana yang t e l a h d i b i n c a n g k a n t a d i , sek i ranya kon t rak to r gaga l membuktikan langkah-langkah yang wajar dan munasabah untuk membendungkan kerugian yang dialami maka berkemungkinan besar tuntutannya i tu akan menemui kegagalan dan ia hanya akan dibayar gantirugi nominal sekiranya ia berjaya membuktikan tindakan kemungkiran kepadanya oleh majikan.

Rumusan

Berdasarkan perbincangan ke s -ke s undang -undang d i Bab ini, bolehlah dirumuskan bahawa kontraktor mempunyai tanggungjawab perundangan untuk membendung kerugiannya. Ko n t ra k t o r t i d a k l a h b o l e h m e m b u a t d a l i h a n b a h awa sekiranya terdapat loji-loji yang tersadai di tapak bina akibat kemungkiran majikan, di mana P.P. telah tidak mengarahkan kontraktor untuk membawa keluar para buruh serta loji-loji yang tersadai, maka oleh i tu kontraktor adalah t idak bertanggungan dan majikan pula adalah bertanggungan.

K o n t r a k t o r p e r l u l a h mengagihkan para buruhnya serta loji-loji yang tersadai di tapak bina di mana ia perlulah membawanya ke lua r t apak bina dan tidak membiarkannya tersadai di tapak bina. Kontraktor juga perlulah mencari alternatif-alternatif lain yang difikirkan munasabah agar kerugiannya itu dapat dibendung. Namun demikian langkah-langkah yang wajar ser ta munasabah i tu perlulah tidak membebankan kontraktor di mana sekiranya


langkah-langkah itu diambil akan menyebabkan kontraktor menanggung kerugian kewangan yang melebihi daripada sepatutnya.

Maka tanggungjawab membendung kerugian i tu adalah hanya berdasarkan pada buruh yang tidak khusus trednya oleh kerana ia lebih menjurus kepada tred buruh yang khusus dan tinggi kepakarannya di mana ia adalah sukar untuk dicari dipasaran; contohnya tred buruh dari luar negara; ataupun loji-loji yang khusus yang perlu disewa dari luar negara. Ini adalah kerana secara lazimnya perjanjian untuk menggaji mereka ataupun menyewa loji-loji tersebut adalah berdasarkan untuk tempoh-tempoh yang tertentu sahaja. Ia juga adalah agak sukar untuk menggaji mereka kembali apabila keja dapat disambung semula. Namun kesusahan mengambil langkah-langkah tersebut tertakluk kepada kontraktor membuktikannya terlebih dahulu.

Akhir sekali sekiranya kontraktor didapati telah gagal mengambil langkah-langkah yang sewajarnya, maka tuntutan gantirugi kontraktor itu akan menemui kegagalan. Maka sekiranya kontraktor dapat membuktikan kemungkiran di pihak majikan tetapi gagal membuktikan langkah-langkah membendung kerugian yang sewajarnya dan semunasabahnya, maka mahkamah akan hanya menganugerahkan gantirugi nominal (di dalam perbincangan kes undang-undang adalah di dapati hanya sebanyak RM10) yang mana hanya bertujuan untuk mengiktiraf kemungkiran atau pelanggaran hak terhadap kontraktor. BEM

Penghakiman kes: Kabatasan Timber Extraction Company lwn. Chong Fah Shing (1969) 2 MLJ 6. Malayan Law Journal Bhd.

Penghakiman kes: Hong Leong Co Ltd. lwn. Pearlson Enterprise Ltd. 1968) 1 MLJ 262 (juga [1965 – 1968] SLR 736). Malayan Law Journal Bhd.

Penghakiman kes: Pacific Electrical Co Ltd lwn. Seng Hup Electrical Co (S) Pte Ltd. (1978) 1 MLJ 162. Malayan Law Journal Bhd.

Penghakiman kes: Tansa Enterprise Sdn. Bhd. lwn. Temenang Engineering Sdn. Bhd. (1994) 2 MLJ 353. Malayan Law Journal Bhd.

Salleh Buang & Nordin Torji, 1995. Undang-Undang Kontrak Di Malaysia Edisi Kedua. Central Law Book Corporation Sdn. Bhd.

RUJUKAN


By Ir. Dr Ooi Teik Aun


Construction Disputes

I t i s w e l l k n o w n t h a t construction is a high risk industry. Consequently, more

disputes arise out of construction contracts than any other contracts. These disputes are often referred to arbitration in accordance to dispute resolution clauses in the contract/agreement between the parties.

The essential requirement to initiate arbitration is to establish that there ex is t s a d ispute between the parties. Very often the respondent is the unwilling party to go for arbitration and consequently, the process for arbitration is susceptible to delay as a result of the respondent dragging its feet in the proceedings. Further delay often arises due to preliminary questions that have to be addressed before the arbitration hearings proper can begin.

Even when it is a clear default by one party, such as non-payment of a certified claim with no dispute on the face of it, when a plaintiff files a suit in court, the defendant will find reasons to raise a ‘dispute’ as to the claim and the court will more often than not order that the parties go for arbitration on the application of the defendant on the basis of there being a dispute between the parties in relation to a contract with an arbitration clause.

Obtaining a Final Award under an arbitration is not necessarily the end of the matter either. The losing party may apply to the High Court to remit or set aside the Award and this often brings with it a delay in the successful party enforcing the Award in Court. The setting aside application can often buy the losing party two-three years

before the Court decides on the enforceability of the Award. Hence the dispute resolution is a long drawn process.

For a long t ime the Act governing arbitration was the Arbitration Act 1952. It has since been replaced by the new Arbitration Act 2005 which came into effect on March 15, 2006. The new Arbitration Act recognizes the need for less court interference and the need for finality of the dispute resolution as soon as possible. For example, the New Act contains ‘opt-in’ and ‘opt-out’ provisos which allow parties the opportunity to limit Court interference in the case of international arbitrations.

The Construction Industry Development Board Malaysia is now working on introducing statutory adjudication in the construction contracts in Malaysia. Under this regime, an adjudicator in effect plays the role of the Superintending Officer (SO) in the traditional contract in the determination of disputes referred to him. As in the case of the SO, an adjudicator’s decision is binding upon the parties unless the decision is disputed and finally decided by arbitration or litigation.

Arbitral Institutions

The principal inst i tut ions in Malays ia that deal wi th construction disputes/dispute resolution are:

● The Institution of Engineers, Malaysia (IEM);

● The Malaysian Institute of Architects (PAM);

● The Kuala Lumpur Regional Centre for Arbitration (KLRCA);

● The Malaysian Institute of Arbitrators (MIArb).

KLRCA and each o f the institutions mentioned above have their own arbitration rules.

Applications for appointment of arbitrator can be made to any of the above institutions subject to agreement by the parties. Under the new Arbitration Act, by default of parties’ agreement with regards to choice of arbitrator and the appointing authority, the KLRCA will be the appointing authority. The parties are free to agree on the arbitration rules to follow.

Risk Assessment And Allocation

It is important to assess the risks in the contract between the parties and allocate them appropriately so as to minimize the areas of dispute. Risk in Chinese means ‘danger’ and ‘opportunity’ and it aptly describes the situation of risk in construction industry.

Risk is defined in BS4778: Section 3.1 : 1991 as: - A combination of the probability, or frequency, of occurrence of a defined hazard and the magnitude Earthworks


of the consequences of the occurrence.

Where risk cannot be assigned to either party, it should be covered by insurance such as Contractor’s All Risk Policy, Public Liability and Workman Compensation Policies.

The risk of contractor not p e r f o r m i n g i s c ove r e d by performance bond. However, the risk of employer not paying is traditionally not covered by a similar payment bond.

Areas Of Construction Dispute

The common areas of construction dispute can be summarized as follows:

● Unforeseen ground conditions

● Delays in completion● Default in payment● Discrepancies in ground

levels

Unforeseen Ground Conditions

Unforeseen ground conditions are described in Clause 12.2 of the FIDIC COC as: - …physical obstructions or physical conditions, other than climatic conditions on the site, which obstructions or conditions were, in his opinion, not foreseeable by an experienced contractor…………

The limitation is on the word ‘physical’ on any unforeseeable

obstruction or condition and the words ‘not foreseeable by an experienced contractor’. This is particularly applicable to tunnelling activity.

It is important that when such event occurs, most construction con t rac t s p rov ide tha t the contractor is required to give written notice immediately to the engineer or SO who will carry out investigation to ascertain the situation.

The PWD 203A Clause 16 on ‘Inspection of Site’ puts the burden on the contractor to carry out detailed pre-contract subsoil investigation at his own expense to adequately design and provide for the temporary works (Lim, 2004). In such a case, the contractor should price in the risk and contingencies accordingly.

Unde r BS 6031 :1981 : - ….no site investigation, however carefully done, ever examines more than a very small proportion of the ground. It is necessary to check the soil conditions revealed during progress of the excavations correspond with those forming the basis for earthworks design as interpreted from the site investigation…

In other words, site investigation is a continuous process, from pre-design to construction stage.

The apprecia t ion o f s i te investigation data is very much dependent on the re levant experience of the contractor. It is important to be able to see the big picture from the site

investigation results in relation to the work and the onus must be on the contractor to assess the risk associated with the work and allow for such mitigation if necessary.

The provision of work method statement in accordance with the work programme will help to minimize the conflict between the parties. The work method statement would also help the contractor go through the thought process on how he is going to do the work and the risk involved in the work and the mitigation if the risk does occur.

Delays In Completion

Delay in contract completion is another common area of dispute. The Employer could be the defaulting party by making changes to the works during the contract. A critical path programme of work submitted by the contractor during the tender stage would be useful here.

If delay in the critical path result from acts of the Employer, then the SO/engineer should grant the extension of t ime and associated cost due to the changes. On the other hand if the delay is due to the contractor’s own fault, then no extension of time is granted with the result that a certificate of non-completion will be issued by the SO/engineer, at the end of the contract period. The consequence of such a certificate of non-completion is that liquidated damages are imposed on the contractor.

Delay in completion is in practice never as straight forward as it seems. The need by all parties to review and monitor progress of work is very important so as to ensure that any possible delay is mitigated at the early stage. In fact it is well known that delay in project completion usually brings financial losses and difficulties to the contractor as Abandoned project

well as the employer. The project suffers consequently as a result thereof.

Default In Payment

This is a very common problem faced by contractors. Employer’s default in payment of certified claim often leads to termination of the contract by the contractor. Payment is the lifeblood of a contractor. No contractor can withstand the financial strain caused by irregular progress payments.

It is a trend for the employer to cal l on the Performance Bond when there is a dispute between the part ies. In the case of Transfield Project (M) Sdn Bhd and Anor v Malaysian Airlines System Bhd, the Employer called on the performance bond when the contractor treated non-payment as a repudiatory breach of the contract and gave notice for arbitration of the disputes between them. This in turn resulted in an unsuccessful attempt by the contractor to injunct the employer from dealing with the proceeds of the performance bond.

Dispute resolution either by litigation or arbitration is very costly and time consuming. Some form of assurance of payment need to be worked in to ensure that payment for undisputed claims are settled according to the terms of the contract particularly with claims of significant amount when the contract sums of projects are in billions of Ringgit.

Discrepancies In Ground Levels

This is another common area of dispute. The tender for earthwork is based on the survey levels by the licensed surveyor engaged by the employer.

Very often, the contractor is able to identi fy prior to commencement of work that


the ground levels are different from that shown in the tender drawings.

Unfortunately, the contractor also then proceeds with the work for commercial reasons, for example, there is a fear that delay in commencing work might impact on the time for completing i t , especial ly in earthworks contracts, where the contract period is short.

Th i s o f ten g ives r i se to employers taking advantage of the situation by claiming that any claim for ‘variations’ arising from different ground conditions were not agreed to by the parties as contractually provided and that the contractor is deemed to have satisfied itself as to the ground conditions before starting work.

It is therefore prudent that any discrepancies in drawings including survey levels must be brought to the attention of the engineer in writing and sufficient time must be given for the engineer to verify such discrepancies and that sufficient provisions to allow for extension of time under these circumstances be negotiated and provided for in the contract.

Conclusions

Construction is a high risk venture and dispute resolution therein is a long drawn and costly process. It is therefore necessary to minimize and if possible avoid disputes.

It is important to identify and assign the risks to the appropriate party in the contract. When risks

BEM

cannot be suitably assigned to the parties, insurance policies must be put in place.

Ground conditions will always be an issue for dispute as ground conditions which occur naturally are not homogenous and cannot be expected to be the same from its length, breadth and depth. Discrepancies in ground levels can be controlled by a joint survey before commencement of actual work to avoid later disputes on the issue.

The programme of work and the method statement of work submitted at the tender stage should form the basis of contractor’s understanding of the ground condition.

Delay in completion is the responsibility of the party that caused it and the consequences that follow. A carefully monitored project can help mitigate delay and control damages.

D e f a u l t i n p ay m e n t i s increasingly frequent with the uncertainties in the fast changing world and the trend of spending the future money before it is earned. Provision of payment bonds by the employer may be the answer to this problem.

REFERENCES

BS 4778: Section 3.1:1991. Quality Vocabulary. Part 3 Availabil i ty, rel iabil i ty and maintainability terms. Section 3.1 Guide to concepts and related definitions, pp5

BS 6031:1981. Code of Practice for Earthworks pp10.

CLJ (1999). Transfield Projects (M) Sdn Bhd & Anor v Malaysian Arline System Bhd 4 CLJ 827

Lim C. F. (2004). The Malaysian PWD Form of Construction Contract. Sweet & Maxwell Asia. Kuala Lumpur. Malaysia.

Land survey

By Ir. Rocky H.T. Wong, Past Chairman ACEM; Chairman IEM pro-ETI Bureau and Head Commissioner ASEAN Engineers Register


Integrated Engineering Services ‑ The ETI Centric Professional Services

CPC 8672 – ENGINEERING SERVICES● 86721 Advisory and consultative engineering services Assistance, advisory and recommendation

services concerning engineering matters.Included here are the undertaking ofpreparatory technical feasibility studies andproject impact studies. Examples are: studyof the impact of topography and geology onthe design, construction and cost of a road,pipeline or other transportation infrastructure;study of the quality or suitability of materialsintended for use in a construction projectand the impact on design, construction andcost of using different materials; study ofthe environmental impact of a project; studyof the efficiency gains in production as aresult of alternative process, technology orplant layout. The provision of these servicesis not necessarily related to a constructionproject. It may consist, for example, of theappraisal of the structural, mechanical andelectrical installations of buildings, of experttestimony in litigation cases, of assistance toGovernment bodies in drafting laws, etc.

● 86722 Engineering design services for theconstruction of foundations andbuilding structures

Structural engineering design services for load-bearingframeworkofresidentialandcommercial,industrial and institutional buildings. Designservices consist of one or a combination ofthe following: preliminary plans, specifications and cost estimates to define the engineeringdesign concept; final plans, specifications and cost estimates, including working drawings,specifications regarding materials to be used,method of installation, time limitations andother specif ications necessary for tendersubmission and construct ion and expertadvice to the client at the time of calling forand accepting tenders; services during the construction phase.

In the United Nations (UN) systems, underthe administration of the UN Statistical office,there is a Central Product Classification (CPC)

code system. CPC constitutes a complete productclassification covering goods and services.

WTO, being an organ of the UN, has thereforeadoptedtheCPCcodesysteminalltradeagreements;among which is the General Agreement in Tradein Services (GATS). Services sector classificationsaddressed in theGATS are defined in the so-called‘W/120List’or theofficialWTOdocuments: -MTN.GNS/W/120.

Under theWTO’s GATS classification, there are12 services sectors, and they are:-● Business Services● Communication Services● Construction & related Engineering Services● Distribution Services● Education Services● Environment Services● Finance & Insurance● Health & Social Services● Tourism Services● Recreational, Cultural & Sporting Services● Transport Services● Other Services

Eachof theabove stated services sectors, in turn,has various sub-sectors; e.g. under the Engineeringand related construction services sectors, we havethe following:-

CPC Code Nos. Sub-sector8671 Architectural Services8672 Engineering Services 8673 Integrated Engineering Services 8674 Urban Planning Services511 to 518 All aspects of Construction Services (which are trade& skills driven)

Focussing on engineering related services, wehave the following sub-sectors as defined by theCPC:-


Exclusion: Engineering services for buildings iftheyarean integralpartof theengineeringdesignservice for a civil work or production plant orfacility.

● 86723 Engineering design services formechanical and electrical installationsfor buildings

Mechanical and electrical engineering designservices for the power system, lighting system,fire alarm system, communication system andother electrical installations for all types ofbuildings and/or the heating, ventilating, airconditioning, refrigeration and othermechanicalinstallations for all types of buildings. Designservices consist of one or a combination ofthe following: preliminary plans, specifications and cost estimates to define the engineeringdesign concept; final plans, specifications and cost estimates, including working drawings,specifications regarding materials to be used,methodof installation, time limitationsandotherspecifications necessary for tender submissionand construction and expert advice to the clientat the time of calling for and accepting tenders;services during the construction phase.

● 86724 Engineering design services for theconstruction of civil engineering works

Engineeringdesignservices for theconstructionof civil engineeringworks, such as bridges andviaducts, dams, catchment basins, retainingwalls, irrigation systems, flood control works,tunnels, highways and street includinginterchanges and related works, locks,canals, wharves and harbours works, watersupply and sanitation works such as waterdistribution systems, water, sewage, industrialand solid waste treatment plants and othercivil engineering projects.

Designservicesconsistofoneoracombinationofthefollowing:preliminary plans, specifications and cost estimates to define the engineeringdesign concept; final plans, specifications and cost estimates, including working drawings,specifications regarding materials to be used,method of installation, time limitations andother specifications necessary for tendersubmission and construction and expertadvice to the client at the time of callingfor and accepting tenders; services during the construction phase. Included are engineeringdesign services for buildings if they are anintegral part of the engineering design for acivil engineering work.

● 86725 Engineering design services forindustrial processes and production

Engineering design services for productionprocesses, procedures and facilities. Includedherearedesignservicesas they relate tomethodsof cutting, handling and transporting logs andlogging site layout; mine development layoutand underground construction, the completecivil, mechanical and electrical mine surfaceplant installations including hoists, compressors,pumping stations, crushers, conveyors and oreandwaste-handling systems; oil and gas recoveryprocedures, the construction, installation and/ormaintenance of drilling equipment, pumpingstations, treating and storage facilities and otheroil field facilities; materials flows, equipmentlayout,material handling systems, processes andprocess control (which may integrate computertechnology) for manufacturing plants; specialmachinery, equipment and instrumentationsystems; and any other design services forproduction procedures and facilities. Designservices consist of one or a combination ofthe following: preliminary plans, specifications and cost estimates to define the engineeringdesign concept; final plans, specifications and cost estimates, including working drawings,specifications regarding materials to be used,method of construction and/or installation, timelimitations and other specifications necessaryfor tender submission and construction andexpert advice to the client at the time of callingfor and accepting tenders; services during the construction phase. Included are engineeringdesign services for buildings if they are anintegral part of the engineering design servicefor a production plant or facility.

● 86726 Engineering design services n.e.c. Other specialty engineering design services.

Included here are acoustical and vibrationengineering designs, traffic control systems

LRT station

designs, prototype development and detaileddesigns for newproducts and anyother specialtyengineering design services.

Exclusion: The aesthetic design of products andthe complete design of products which do notrequire complex engineering (e.g. furniture) areclassified in subclass 87907 (Specialty designservices).

● 86727 Other engineering services during theconstruction and installation phase

Advisory and technical assistance services tothe client during the construction to ensurethat construction work is in conformity withthe final design. This involves services providedboth in offices and in the field, such as thereview of shop drawings, periodic visits to thesite to assess progress and quality of the work,guiding the client and the contractor in theinterpretation of contract documents and anyother advice on technical questions that maydevelop during construction.

● 86729 Other engineering services Engineering services not elsewhere classified.

Included here are geotechnical engineeringservices providing engineers and architectswith necessary subsurface information to designvarious projects; groundwater engineeringservices including groundwater resourcesassessment, contamination studies and qualitymanagement; corrosion engineering servicesincluding inspection, detection and corrosioncontrol programmes; failure investigationsand other services requiring the expertise ofengineers.


CPC 8673 – INTEGRATED ENGINEERING SERVICES● 86731 Integrated engineering services for

transportation infrastructure turnkeyprojects

Fully integrated engineering services for theconstruction of transportation infrastructureturnkey projects. Services included here areplanning and pre-investment studies, preliminaryand final design, cost estimation, constructionscheduling, inspectionandacceptanceofcontractwork as well as technical services, such as theselection and training of personnel and theprovision of operation andmaintenancemanualsand any other engineering services provided tothe client that formpart of an integrated bundleof services for a turnkey project.

● 86732 Integrated engineering and projectmanagement services for water supplyand sanitation works turnkey projects

Fully integrated engineering services for theconstructionofwatersupplyandsanitationworksturnkey projects. Services included here areplanning and pre-investment studies, preliminaryand final design, cost estimation, constructionscheduling, inspection and acceptance ofcontracts as well as technical services, such asthe selection and training of personnel and theprovision of operation andmaintenancemanualsand any other engineering services provided tothe client that form part of an integrated bundleof services for a turnkey project.

● 86733 Integrated engineering services for theconstruction of manufacturing turnkeyprojects

Fully integrated engineering services for theconstruction of manufacturing facilities turnkeyprojects. Services included here are planningand pre-investment studies to address issuessuch as the integration of operations, siteselection, pollution and effluent control andcapital requirements; all necessary structural,mechanical and electrical design services;production process engineering design servicesincluding detailed process flow diagrams,general site and plant arrangements drawings,plant and equipment specifications; tenderspecifications;constructionschedulinginspectionand acceptance of work as well as technicalservices, such as the selection and trainingof personnel, the provision of operations andmaintenance manuals, start-up assistance andany other engineering services that form part ofan integrated bundle of services for a turnkeyproject.Water supply plant

● 86739 Integrated engineering services forother turnkey projects

Fully integrated engineering services for otherconstruction works. Services included here areplanning and pre-investment studies, preliminaryand final design, cost estimates, constructionscheduling, inspection and acceptance ofcontracts as well as technical services, such asthe selection and training of personnel and theprovision of operation andmaintenancemanualsand any other engineering services provided tothe client that formpart of an integrated bundleof services for a turnkey project.

From thedetaileddescriptionsof thevarious sub-sectors of CPC 8672-Engineering Services as listedin above, it is clear that the professional services,so defined, are associated and related toConsultingEngineering Services, or Engineering ConsultancyServicesotherwiseknownasEngineeringConsultancyPractices(ECP) as defined in the Engineers Act.

On the other hand, the interpretations of theprofessional services as detailed for the sub-sectorsofCPC8673-Integrated Engineering Services -in theDemand and Supply Equation are as follows:-

(a) The Demand Side:-Whenafirmof Engineering,Technology & Innovation, i.e. ETI ServicesProvider acts as the Owner’s Representativeand provides the full spectrum of consultancyservices; the ETI firm will be performing theduties as theOwner’s ProgrammeManagementConsultant(PMC) – from project definitionand inception through the full spectrum ofprofessional services till commercial operationof either the delivered infrastructure or thefacilities or the assets etc. On a slightly lesserscale, say in the case,when theOwner himselfhas already defined and conceptualized theproject, the ETI firm acting as the Owner’sRepresentativewill be performing the duties asthe Owner’s Project Management Consultant(also PMC) – from initial or front-end designtill commercial operation as per foresaid. Anin-houseorganisedaquivalentwillbe theProjectManagement Team, i.e. PMT.

(b) The Supply End:- The firm of ETI ServicesSupplier will, when by way of bid-selectionand contracted by Project Owner (who isbeing served by a PMC or PMT), will be theEngineering, Procurement, Construction &Commissioning ie EPCCContractor,orotherwiseknown as the ‘Turn-key’Contractor. Among thevariousandvariedout-sourced servicesanEPCCContractor will sub-contract out will be those

skills or trade centric sub-contractors or builderswho will perform services as listed below:-

CPC Codes Sub-sectors

511 Site preparation512 General construction work for buildings513 General construction for civil engineering515 Special trade construction work514 Installation, Assembly Work &516 Maintenance, and Repair of fixed structures517 Building completion& finishing work518 Renting services related to

equipment for constructionor demolition of buildings orcivil engineering works, withoperators.

For a balanced over-view of the caption, it is alsoimportant to note that in theWTO/GATS definitionof services sub-sectors, we have the following:-

● 86600 Services related to ManagementServices

● 86601 Project management services otherthan for construction

Coordination and supervision services ofresources in preparing, running and completinga project on behalf of the client. Projectmanagement services can involve budgeting,accounting and cost control, procurement,planning of timescales and other operatingconditions, coordination of subcontractors’work, inspection and quality control, etc. Theseservices consist only of management services;operating staff services are excluded.

Exclusions: Construction project managementservicesareclassifiedinclass8671(Architecturalservices), 8672 (Engineering services) and, forturnkey projects, 8673 (Integrated engineeringservices).

● 86602 Arbitration and conciliation servicesAssistance services through arbitration ormediation for the settlementofadisputebetweenlabour andmanagement, between businesses orbetween individuals.

Exclusions: Representation services on behalf ofone of the parties in the dispute and consultingservices in the field of labour relations areclassified in subclass 86190 (other legal


advisory and information services), 95110(Services furnished by business and employersorganizations) and 95200 (Services furnished bytrade unions), respectively.

Comparing the services as defined in thesub-sectors of CPC 8673 (Integrated EngineeringServices) verses the services of sub-sector CPC86601 (Project Management Services, other thanfor construction), it is clear thatwhilst the servicesunder all the sub-sectors of CPC 8673 are thosecomplete services of a preferred PMC; however,those of CPC 86601 are more the administrativeand coordination serviceswhich only formparts ofthe logistic framework of the total delivery systemof a PMC; or that of an EPCC contractor.

However,acloseranalysisofCPC86601 (ProjectManagement Services, other than for construction),being a sub-sector of CPC 8660 (Services relatedto Management Services) will give rise to theappreciation that the said services of CPC 86601relates to, e.g. a project for the launching andestablishing, say, the branding of a product for boththedomestic and internationalmarket; or organisingamajor event like the ‘weddingof the year’ and soon for projects which are non-engineering centric.Hence, the distinction between CPC 86601 andCPC 8673!

It isof interest tonote that sub-sectorCPC86602–‘Arbitration and Conciliation Services’-as thoserendered inMalaysia are provided by the IEM, i.e.by IEM members who are experienced engineersskilled in all aspects of project management.

Remarks & Conclusion

The provision of Integrated Engineering Servicesare expanded by one of the two modes relatingto the dynamics of either the Demand Side orthe Supply End of the Project Delivery SystemEquation.

On the Demand Side, Integrated EngineeringServices is providedbyengineering lead, technologyand innovation driven (i.e ETI centric) team; eitheras the Project Management Team (PMT) or theProject Management Consultant (PMC).

Coming from the Supply End of the Equation,Integrated Engineering Services or professionalETI Services, will be supplied by a contractor,generally referred to as a design/build contractor,but who should rightly be recognised as an ETIprofessional services supplier - the Engineering,Procurement, Construction and Commissioning(EPCC) Contractor.

Question:What is the difference between a design/build contractor and an EPCC Contractor?

Answer: A design/build contractor is usually a skillor trade driven contractor (defined by the CPC 511to 518 series) who supplements his delivery systemof the ‘Design’ element by the out-sourced effortsof consulting engineers; whilst on the other hand,an EPCC Contractor is ETI centric or professionalengineeringandtechnologydependentandinnovationdrivenprofessional services supplier (CPC8673)whosupplementshisdelivery systemof the ‘Construction’element by out-sourcing to skill and/or trade basedsub-contractors and vendors.

From whichever side or end of the Equation,Integrated Engineering Services will be delivered bya Team; the ETI Team consisting of:-● Engineers (wi th recognized engineer ing

degrees),● Engineering Technologists (with engineering or

engineering technology degrees),● Engineering Assistants (with diplomas in

engineering or engineering technology),● Technicians (with either diplomas or certificates

in engineering)

Not all professional engineers are, orwish to beconsultingengineers.ThusmanyMalaysianEngineers(andthesamewithmanyASEAN/AsianEngineers)arenotPrincipalSubmittingPersons.Butneverthelessthesecorporate members of engineering organizations orinstitutions,e.g.theIEMareprofessional/experiencedengineers who are skilled in the application oftechnologies and are innovative in their work andcreations. As such memberships in engineeringorganizations of the likes of IEM are engaged in orassociatedwithengineeringserviceswhicharedefinedby both CPC 8672 and CPC 8673. It will then benecessary to address the accreditation of a broaderspectrumof qualifications, the levels of training andexperiencerequired,(andwhereandwhennecessary)thecompetencytestsandconformancetointernationalstandard-basedregulatoryrequirementsrelatingtoALLmembers of the ETI Team. This will then result in

Cement factory


floatingup theacceptablestandards-basedbenchmarksnecessary for the mobility of all the professionals,skilledpersonnelandtalentsengagedinand/orrelatingto the complete supply-chain of Engineering Services(both CPC 8672 and 8673). These related issueshave to be addressed in the event of developing andframing an MRA on Engineering Services.

PreceedinganMRA,willbe theentering into forceof a FTA, which among other issues, must addressthe following:● Due to thehigh capitalizationneeded to organise

anETIor IntegratedEngineeringServicescompany,equity participation for commercial presence(i.e. Mode 3)as will be ‘scheduled’ in NationalCommitments for FTA’s, shall not only be limitedto natural persons (as in the case of CPC 8672)– but shall also be opened to legal entities (orbodies- corporate).

● A PMC or EPCC professional ETI service supplieris usually by agreement or contract, committedto supplying on schedule and within budget,deliverables that include, among others, bothfunctional and operational commitments andexpectations. ‘Permitting Services’ to obtain localauthorities’ approvals and necessary licenses andpermits are important and formpartof theoverallProject Delivery System. Therefore, knowledge of

the various host countries’ domestic regulatoryregimes administered and implemented by thevarious technical regulators is very important andcrucial tocompletingtheprojectaheadoforbythecontracted date of commercial operation on, andalsoduring theOperationandMaintenance (O&M)life of the plant for latent defect – issues.

Therefore in summary the Chapter or the Sectionin the FTA dealing with the complete supply–chainof Engineering Services shall address:-● Investment policies and measures concerning

Commercial Presence of (legal entities) bodies-corporate for ETIbasedPMCorEPCCProfessionalService Suppliers; and

● Alignment or harmonization on the laws andregulations and other measures forming thestandards-centricregulatoryregimesas implementedby the various technical regulators; starting fromthe planning approval, environment impactassessment, etc. till those governing the operationand maintenance of plants and facilities.

With all being considered and on balance, it canbe logically concluded that Integrated EngineeringServices, be they provided as PMT/PMC, or suppliedas EPCC are ETI centric professional services.BEM


Subscription FormTheIngenieuristheofficialpublicationoftheBoardofEngineersMalaysia.Thejournalprovidesusefulandqualityinformationonpolicyupdate,accreditationoflocalandforeignuniversities,trainingandcourses,safetyandhealth,businessopportunitiesandotherswithintheengineeringarena.Itispublishedfour(4)timesayear.Tosubscribe,pleasecompletethefollowingdetails:

Name:

Address:

Postcode: Country:

Tel: Fax: E-mail:

Enclosedisapostalorder/chequeNo.payabletoLembagaJuruteraMalaysia.Pleasefax/mailthisformto:

LembagaJuruteraMalaysia,Tingkat17,IbuPejabatJKR,KompleksKerjaRayaMalaysia,JalanSultanSalahuddin,50580KualaLumpurTel:03-26980590Fax:03-26925017

Yes!IwouldliketosubscribeTheIngenieurfor:

1yearof4issuesRM30.00



Others (Pleasespecify)

(Pleaseticktheappropriatecircle)

✄

BLOCKCAPITALSPLEASE

56 THE INGENIEURENGINEERING NOSTALGIA

Contributed by Ir. Liaw Yew Peng

Sultan Idris II Power Station

The interior of the Underground Sultan Idris II Power Station (Woh Power Station), s i tuated one mile from the junction at the 7 th milestone Tapah/Cameron Highlands road. It is more than 900 ft. below ground level. In it there are three 50,000 kW generators driven by vertical shaft Francis turbines. The sets are designed to be remotely controlled from the control room in the Sultan Yussuf Power Station. Three generator transformers are also located underground and these step up the generated voltage from 11,000 volts to 132,000 volts. The power is then conveyed in three 132 kV oil filled cables up the access tunnel, which is on a gradient of 1 in 7, to the Woh Switchyard Building situated near the access tunnel portal.

Jor Main Dam and the Jor Saddle Dam

The Jor Main Dam and the Jor Saddle Dam, situated off the 17th milestone along the Tapah/Cameron Highlands road. Both these dams are of earthfill construction. The earthfill was obtained from the surrounding hills where there was an abundance of decomposed granite.

Some Engineering Works In The 60s