10 Common Practice Issues in Contracts 21May11

25 Common Problems

for M&E Engineers

Armada Hotel , Petaling Jaya 26th May 2011

5 Common Contract

Management Problems

Ir. Looi Hip Peu

Hon Sec, ACEM (2010/11) B.Eng (Hons) (Electrical) P.Eng (5226), Jurutera Gas [email protected]

C

2

Objectives of this Workshop

Mismatch in Main & Sub Contract

Confusion on BQ and Lump Sum

No Proper Work Acceptance Procedure Acceptance of Products against System

What are the Objectives of this Workshop?

 In the Malaysian context, M&E engineers are usually responsible for managing the M&E portion of the construction contract.

 This responsibility frequently include: 1. Cost consulting

2. Contract drafting

3. Contract management

4. Works supervision and cost finalisation

 The requires a basic understanding of (construction) contracts and good understanding of cost

O

W

This Workshop Module List 5 Common Problems !

1. Mismatch between Main Contract & Sub Contract 2. BQ contract and Lump Sum Contract

3. Failure in Contract Management

4. Shorting Comings in Work Acceptance 5. Interim Payment and Final Payment

O

W

T h e M & E E n g i n e e r ’s Ro l e i n

C o n t ra c t d ra f t i n g .

M

& S

C

M

6

1. The QS is responsible for drafting Main Builder‟s Contract.

2. The M&E Engineer is responsible for drafting M&E Sub Contracts.

C o m m o n p r o c e d u re i n C o n t ra c t D ra f t i n g .

M

& S

C

M

7

QS decide Contract Form

M&E checks with QS on

Contract Form

M&E Draft M&E Sub Contract based on Form PAM 1998 PAM 2006 JKR 203 PAM 2006 NSC JKR 203N PAM 1998 NSC

S e l e c t i n g t h e C o n t ra c t F o r m .

M

& S

C

M

8

S e l e c t i n g t h e C o n t ra c t F o r m .

M

& S

C

M

9

Simple / Well Defined

Contract Based on Drawings

M

& S

C

M

10

H o we ve r t h e p ro b l e m i s n o t mi s m atc h i n

C o n t ra c t Fo r m b u t i n d raf t i n g Ma i n a n d S u b

C o n t ra c t w i t h c o m p a t i b l e t e r m s !

M&E checks with QS on

Contract Form

M&E Draft M&E Sub Contract based on Form

M&E checks with QS on “Preliminary

Items” in MC to align in NSC

M

& S

C

M

11

W h a t a r e ‘ P r e l i m i n a r y ’ I te m s

i n M a i n C o n t ra c t ?

Nominated Sub Contract (PAM Form 2006):

“This Sub Contract is made pursuant to the agreement for <title of main contract works> (hereinafter referred to as “the Main Contract”) made <date of main contract> between the <name of client> of (or whose registered office or business address is situate at) <address of client> (hereinafter called the „Employer‟) and the Contractor.”

M

& S

C

M

12

W h a t a r e ‘ P r e l i m i n a r y ’ I te m s

i n M a i n C o n t ra c t ?

Nominated Sub Contract (JKR 203N):

“WHEREAS the Contractor has entered into a Contract

No: <ref no of main contract> made the <date of main

contract> (hereinafter referred to as “The Main

Contract”) between the Government of <Govt agency>

(hereinafter called “The Government”) of the one part

M

& S

C

M

13

‘ P r e l i m i n a r y ’ I t e m s ?

Contract Management Issues:

1. Defects Liability Period 2. Date of Commencement

3. Liquidated & Ascertained Damages (LAD)

4. Completion & Sectional Completion (if applicable) 5. Period of Interim Certificate

6. Percentage of certified value retained 7. Limit of retention sum

8. Period of Final Measurements. 9. Insurances

M

& S

C

M

14

‘ O t h e r P r e l i m i n a r y ’ I t e m s .

Main contractor‟s specific responsibilities defined:

1. Ascertaining from NSC coordination information;

2. Providing coordination information; setting out , dimensions etc.

3. Making good and touching up damages due to NSC works (this may sometimes be loaded under NSC).

4. Providing space ONLY for storage & accommodation. 5. Water supply, electricity supply (including charges). 6. Protection, covering, watching, security of NSC fittings 7. Removing rubbish off site.

M

& S

C

M

15

‘ O t h e r P r e l i mi n a r y ’ I t e m s .

Nom sub contractor‟s specific responsibilities:

1. Insurances (where his responsibility ends);

2. Providing coordination information; setting out dimensions to main contractor etc.

3. Making good and touching of damages due to NSC works (caveat; NSC is not qualified to rectify builder‟s works.

4. Consumption charges for water supply, electricity supply.

5. Provision of water, energy, electricity for

commissioning.

M

& S

C

M

16

C o m m o n m i s m a tc h i n ‘ P r e l i m i n a r y ’

Contract Management Issues:

1. Defects Liability Period cited is different in MC & NSC 2. LAD not cited in NSC

3. Responsibility for provision of water, electricity and

energy for construction and commissioning not

clearly cited or is different between MC & NSC. 4. Overlapping provision of insurance

5. Completion or Sectional completion not clearly stated. 6. Periods for interim & final certifications mismatch

M

& S

C

M

17

C

QS decide Contract Form

M&E checks with QS on

Contract Form

M&E Draft M&E Sub Contract based on Form

M&E checks with QS on “Preliminary Items” in MC to align in NSC Modification to Main Contract terms must be reflected in NSC

M

& S

C

M

18

L

AST

R

ESORT

T h e t e n d e re r i s s u p p o se d t o c h e c k a t t e n d e r

BQ

L

S

C

20

M & E C o n s u l ta nt s a re re s p o n s i b l e

fo r d ra f t i n g d e s c r i p t i o n o f i te ms

t o b e t e n d e re d .

D e s c r i p t i o n o f wo r ks o r B i l l o f Q u a nt i t i e s

a r e

i m p o r t a nt

d o c u m e nt s

wh i c h

wi l l

d ete r mi n e d

h o w

co nt ra c t

a re

p r i c e d ,

va r i at i o n

c o st

d ete r mi n e d

a n d

f i n a l

a c c o u nt s o r m e a s u re m e nt s f i xe d .

BQ

L

S

C

21

Simple / Well Defined

Contract Based on Drawings C o n t r a c t w i t h Q u a n t i t i e s C o n t r a c t w i t h o u t Q u a n t i t i e s

BQ

L

S

C

22

M & E C o n s u l t a n t s a r e r e s p o n s i b l e f o r d r a f t i n g d e s c r i p t i o n o f i t e m s t o b e t e n d e r e d .

Bill of Quantities (BQ) is a document detailing the qualitative and quantitative aspects of every constituent parts of a proposed construction project.

Qualitative: Description of material, labour and

workmanship for the work

Quantitative: Quantity of material, labour and workshop

Hackett & Robinson (2003) and Chan (2002)

It is compiled together with the form of tender, specification, preliminary bill and list of drawings to form a tender document.

BQ

L

S

C

23

C o n t ra c t b a s e d o n q u a n t i t i e s

1. Price is based on quantities and is subject to final re-measurements on completion.

2. Variations means difference due to design

schematics, concepts or addition in scope (i.e. additional system not in drawings).

3. Variations valid only on Architect ’s instructions. 4. BQ form the basis of Contract Works.

5. Specifications determines the qualitative aspect of works.

BQ

L

S

C

24

L u m p S u m C o n t ra c t

1. Contract Price is firm and shall not be subject to revision. 2. Variations only on Architect’s instructions.

3. Drawings form the basis of Contract Works (determining the contract drawings before contract binding is therefore important).

4. Specifications determines the qualitative aspect of works. 5. BQ or price schedule augment drawings.

6. Variations and final account is determined by comparison with Contract Drawings and final As-Built (however changes from Contract Drawings can only claimed Variations based on AI).

BQ

L

S

C

25

rates Total Cost Quantity

BQ

L

S

C

BQ

L

S

C

27

BQ

L

S

C

28

Lump Sum BQ

1 Consultants Drawings

Must be detail. Detail schematics sufficient.

2 Consultant‟s BQ Simple 1 Lot Detail measurements

3 Consultant‟s final measurements

Just check for VO VO and comparison between contract drawings & as-built, 4 Contractors

approach after award

Do as little as possible within the interpretation

of the Contract.

Do as much as possible within the interpretation

of the Contract. 5 Consultant‟s

professional liability

Drawings not detailed enough attracts „negligence torts‟.

Quantities too much different from actual

quantity attracts „negligence torts‟.

BQ

L

S

C

29

C o m m o n p r o b l e m s w i t h L u m p S u m C o n t r a c t

1. Tender/Contract drawings not detail enough to determine scope and quantity.

2. Missing details attract claims of Variations. 3. Mismatch in BQ description and drawings. 4. ‘Itemised Lump Sum’:

Itemised works must have drawings with

sufficient details to show scope and extent of works.

BQ

L

S

C

30

C o m m o n p r o b l e m s w i t h B Q C o n t r a c t

1. M&E engineer do not have sufficient experienc e to execute a BQ.

2. Mismatch in BQ description and drawings. 3. ‘Itemised Lump Sum’ in BQ:

Itemised works must have drawings with

sufficient details to show scope and extent of works.

P

W

A

32

Wo r k A c c e p t a n c e i s a f u n d a m e n t a l r e s p o n s i b i l i t y o f t h e M & E E n g i n e e r i n s u p e r v i s i o n o f w o r k s .

1. In many statutory declarations, the engineer is required to declare that he has design and supervise to a certain technical standards.

2. Some design standards are mandatory in nature and some are ‘commercial’ in nature.

3. Mandatory:

Example: MS wiring codes, MS fire standards. 4. Commercial:

P

W

A

33

S t a t u t o r y D e c l a r a t i o n s C o m p l i a n c e t o t e c h n i c a l s t a n d a r d s i s c e r t i f i e d !

P

W

A

34

(1) Vendor acceptance (2) Product acceptance (3) System acceptance

P

W

A

35

P

W

A

36

 Vendor registrations  Product acceptance

 Back up, spare parts etc

 SIRIM Cert.

 Conformance Cert.  3rd _{party Certification}

P

W

A

37

 Functional test

 TAB (Test, Adjustment,

Balancing)

 Visual Inspection

 Covered works

 Tests during construction  Visual inspection

 Alternative construction method  Rectifying construction defects  Coordination of works e.g. conduit

 No basic check of product acceptance.

 In many case SIRIM certification are expired or

certificate submitted is for a product model different from the actual model to be installed.

 Covered works are not properly tested during

construction which will prejudice their final acceptance.

 Approval of material suitable for the applied

condition not complied with.

C o m m o n Fa i l u r e i n Wo r k A c c e p t a n c e .

P

W

A

38

Final work acceptance require on going “work acceptance procedure from „design stage‟!

P

V

S

A

40

Types of Standards

Basic

Standards

General Standards dealing with topics used by other standards; e.g. terminology, insulation coordination, IP, testing techniques etc.

Product Standards

Three

Sub-Types:-(a) Material (oil, winding wires).

(b) Component (capacitor, resistors) (c) Assembly (switchgears, GIS, UPS)

Installation Standards

Rules and information to connect various types of equipment for a specific application e.g. BS7671:2001

P

V

S

A

41

ABS Piping Product:

 Product specification for ABS pipe MS1419: Part 1

and Part 2.

E xa m p l e s o f P r o d u c t s a n d Sys t e m

ABS Piping System:

 Piping system means all pipes, fittings, water

seals, traps, expansion and pipe joints etc.

 Generally acceptance concept require all components of the system to be from one vendor.

P

V

S

A

42

uPVC conduit; product only:

 Product specification for conduit.

E xa m p l e s o f P r o d u c t s a n d Sys t e m

Conduit System:

 IEC 61386 “Conduit system for cable management”

 Piping system means all bends, cable pull box,

tees etc.

 Generally acceptance concept require all components of the system to be from one vendor.

P

V

S

A

43

 Products approved comply with the specifications, but

the system installed are sub standard !

 Common practice in the industry; piping or conduit

supplied comply with specification even SIRIM

certification are complied with, HOWEVER

C o m m o n Fa i l u re

 Pipe joints not compatible with the pipe supplied (ABS

pipe system).

 Pipe accessories e.g. bends, tees etc not of the same

standard (both ABS and conduit).

 The wrong grade of piping use for the application e.g.

P

V

S

A

44

Te m p l ate wo r k a c c e p ta n c e fo r sys t e m

TENDER

SPECIFICATIONS

1. Specify system and product.

2. Specify that all components of system to be from one vendor

3. Require vendor approval in work

acceptance

4. Vendor approved will be required to submit letter of confirmation.

P

V

S

A

45

Te m p l ate wo r k a c c e p ta n c e fo r sys t e m

PAM 1998

2006 C

F

47

 PAM Contract forms are popular contract forms for

private buildings in Malaysia.

 M&E engineers who are responsible for drafting

sub contract forms and ultimately managing the M&E portion of the sub contract should understand major differences in contract management required between the two forms.

S e l e c t i n g t h e C o n t ra c t F o r m .

PAM 1998

2006 C

F

PAM 1998

2006 C

F

49

 The risk allocation for time, money matters, quality issues and dispute

resolution between the contractor, employer and consultant team has been shifted significantly in the PAM 2006. Comparatively (1998/2006) the risk for Contractors under 2006 has been shifted towards the Employer.

 This reallocation of risks proportionately increases the employer’s

exposure and burden in terms of claims and payments while providing more possible grounds for disputes between the contractor and employer.

 PAM 2006 Forms are also more procedural requiring the contractor,

employer and consultants to strictly adhere to time provisions with the attendant loss of rights or incurring of liabilities.

 PAM 2006 imposes definite and at times, mandatory time periods on the

Architect/consultant team to carry out certain duties, for example, certification and approvals within a specified time. The failure to do so may open the consultant team to professional negligence claims.

PAM 1998

2006 C

F

50

 PAM 2006 Forms are also more procedural requiring the contractor,

employer and consultants to strictly adhere to time provisions with the attendant loss of rights or incurring of liabilities.

PAM 2006 For M&E Consultants

Time provisions (work programme) forms part of the Contract.

Contractor submits RFI Section of works scheduled for completion based on Contract Consultant replies with Information Contractor proceeds with Works

PAM 1998

2006 C

F

51

PAM 2006 For M&E Consultants

Time provisions (work programme) forms part of the Contract.

 Consultant must diligently reply to RFI and/or issue drawings

allowed within the schedule in the contract programme.

 Information/drawings MUST be issued on time!

 Any issues affecting work programme (e.g. contractors

delay, insufficient setting out information etc) must be diligently recorded in case of future dispute.

 To minimise RFI due to incomplete

information Consultant must ensure drawings have sufficient information for construction.

PAM 2006 is highly “Procedural”. No verbal instructions! Emails are DO NOT constitute legal notice!

PAM 1998

2006 C

F

52

PAM 2006 For Contractors

Time provisions (work programme) forms part of the Contract.

 At every section, issue written RFI to consultant.

 Diligently record receipt of reply to RFI and scrutinse

completeness of information in Reply to RFI.

 Diligently scrutinise each section of

the programme chart.

 List information missing or

incomplete which is required for completion of the section.

Any delay in information will open the contractor to claims for EoT.

PAM 1998

2006 C

F

53

PAM 2006 imposes definite and at times, mandatory time periods on the Architect/consultant team to carry out certain duties, for example, certification and approvals within a specified time. The failure to do so may open the consultant team to professional negligence claims.

PAM 2006 for Consultants - Certificatio n

 Approvals for shop drawings, certification of

works etc. must be executed within a specified time!

 Payment certification must be issued within a

specified time.

D e l ay o p e n s t h e c o nt ra c t to d i s p u te a n d t h e

c o n s u l ta nt s u b j e c t t o n e g l i ge n c e c l a i m s .

PAM 1998

2006 C

F

54

1. Incomplete drawings and constructional information.

‘Friendly contractor’ will cover. However not-do-friendly (or business-only) contractor will record this in RFI.

2. Information and drawings NOT issued in time. This will affect completion and allow EoT application by Contractor. The consultant will also be opened to claims for negligence.

3. Approvals not issued in timely manner. This will affect completion and allow EoT application by Contractor.

4. Payment certifications not issued in timely manner. Opens the consultant to claims of negligence.

PA M 2 0 0 6 C o nt ra c t – C o m m o n Fa i l u r e s by

M & E C o n s u l ta nt E n g i n e e rs

PAM 1998

2006 C

F

55

Pe r h a ps M& E E n gi n e e r s h o u l d atte n d C PD

c o u rs e s

o n

u n d e rsta n d i n g

co n st r u c t i o n

c o nt ra c t s a n d t h e ro l e o f t h e c o n s u l t a nt

w i t h i n t h e C o n t ra c t ?

25 Common Problems

for M&E Engineers

Armada Hotel , Petaling Jaya 26th May 2011

5 Common Contract

Management Problems