Contract Administration for Construction & Engineering Contracts - 1

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(1)IEM TRAINING CENTRE SDN. BHD.. TWO DAY INTENSIVE COURSE ON. CONTRACT ADMINISTRATION FOR CONSTRUCTION & ENGINEERING CONTRACTS. Presented by:. IR. HARBANS SINGH K.S. B.E. (Mech) S’PORE, LLB (Hons) London CLP, DipICArb, C. Eng, PE..

(2) ABOUT THE COURSE PRESENTER Ir. Harbans Singh K.S. B.E. (Mech) S’pore, LLB (Hons) London, CLP, DipICArb, P.E., C. Eng., MIEM, MIMechE, MIHEEM, MASHRAE, MCIArb, MMIArb.. Ir. Harbans Singh K.S. is a Professional and Chartered Engineer, Arbitrator, Adjudicator, Mediator, Advocate & Solicitor (non-practising). He commenced his career in Malaysia before working in Germany and then locally in various professional capacities. He is presently domiciled in Malaysia where he is active in construction law and dispute resolution. Ir. Harbans is the recipient of IEM’s Tan Sri Hj. Yusoff Prize (2001), the Cedric Barclay and the Chartered Institute of Arbitrator’s Awards for the Diploma in International Commercial Arbitration Examination (Oxford 2003). He is also the author of a series of four books entitled ‘Engineering & Construction Contracts Management’, coauthor of the book ‘The PAM 2006 Standard Form of Building Contract’, contributor to the ‘Malaysian Standard Forms & Precedents: Construction & Engineering Contracts’, ‘The Ingenieur’ and the ‘Malayan Law Journal’.. © HSKS.

(3) CONTRACT ADMINISTRATION FOR CONSTRUCTION/ ENGINEERING CONTRACTS DAY 1 - PROGRAMME 8.30 a.m.. -. 9.00 a.m.. :. Registration. 9.00 a.m.. -. 10.30 a.m.. :. Session 1. 10.30a.m.. -. 10.45a.m.. :. Tea/Coffee Break. 10.45 a.m.. -. 12.30 noon. :. Session 2. 12.30 noon. -. 1.00 p.m.. :. Q & A Session. 1.00 p.m.. -. 2.00 p.m.. :. Lunch Break. 2.00 p.m.. -. 3.15 p.m.. :. Session 3. 3.15 p.m.. -. 3.30 p.m.. :. Tea/Coffee Break. 3.30 p.m.. -. 4.45 p.m.. :. Session 4. 4.45 p.m.. -. 5.00 p.m.. :. Q & A Session. :. End of Day 1. 5.00 p.m.. © HSKS.

(4) CONTRACT ADMINISTRATION FOR CONSTRUCTION/ ENGINEERING CONTRACTS DAY 2 - PROGRAMME 9.00 a.m.. -. 10.30 a.m.. :. Session 1. 10.30a.m.. -. 10.45a.m.. :. Tea/Coffee Break. 10.45 a.m.. -. 12.30 noon. :. Session 2. 12.30 noon. -. 1.00 p.m.. :. Q & A Session. 1.00 p.m.. -. 2.00 p.m.. :. Lunch Break. 2.00 p.m.. -. 3.15 p.m.. :. Session 3. 3.15 p.m.. -. 3.30 p.m.. :. Tea/Coffee Break. 3.30 p.m.. -. 4.45 p.m.. :. Session 4. 4.45 p.m.. -. 5.00 p.m.. :. Q & A Session. :. End of Course. 5.00 p.m.. © HSKS.

(5) CONTENTS 1.0. CONSTRUCTION/ENGINEERING CONTRACTS: INTRODUCTION. 2.0. COMMENCEMENT OF CONTRACT AT SITE. 3.0. MONITORING OF WORK PROGRESS. 4.0. SUPERVISION OF WORKS/CONTRACT ADMINISTRATION. 5.0. PAYMENTS/COMMERCIAL MATTERS. 6.0. VARIATIONS/CHANGES. 7.0. DELAY AND EXTENSION OF TIME. 8.0. NON-COMPLETION AND DAMAGES. 9.0. COMPLETION AND HANDING OVER. 10.0. DEFECTS. 11.0. POST COMPLETION AND FINAL ACCOUNT. © HSKS.

(6) CONSTRUCTION/ ENGINEERING CONTRACTS: INTRODUCTION. © HSKS.

(7) 1.0. •. CONSTRUCTION/ENGINEERING CONTRACTS: INTRODUCTION TYPES OF CONTRACTS 1.. GENERAL CONTRACTS. 2.. ENGINEERING/CONSTRUCTION CONTRACTS. •. TYPES OF BUILDING CONTRACTS. •. COMMON CONTRACT PROCUREMENT METHODS 1.. TRADITIONAL GENERAL CONTRACTS. 2.. MANAGEMENT TYPES. 3.. ‘PACKAGE DEAL’ TYPES. 4.. MISCELLANEOUS METHODS. © HSKS.

(8) •. •. BASIC CONTRACT PRINCIPLES 1.. CONTRACT DEFINITIONS. 2.. ELEMENTS OF CONTRACT. 3.. STANDARD FORMS OF CONTRACT. 4.. BREACH OF CONTRACT: REMEDIES. MISCELLANEOUS ISSUES. © HSKS.

(9) SIMPLE CONTRACTS SPECIALITY CONTRACTS (DEED). COLLATERAL CONTRACTS MATERIAL & LABOUR CONTRACTS. ORAL CONTRACTS. LABOUR CONTRACT. EXPRESS CONTRACTS. GENERAL CONTRACTS: TYPES. MATERIAL SUPPLY CONTRACT. MAIN CONTRACTS. INDEPENDENT CONTRACTS. SUB-CONTRACTS EMPLOYMENT CONTRACTS. SUB-SUB CONTRACTS. FIG. 1-1: GENERAL CONTRACTS - TYPES © HSKS.

(10) ENGINEERING/ CONSTRUCTION CONTRACTS: TYPES’. FIG. 1-2 : ENGINEERING/CONSTRUCTION CONTRACTS - TYPES © HSKS.

(11) TYPE OF CONTRACT. MESUREMENT CONTRACTS. LUMP SUM CONTRACTS. LUMP SUM WITH PLAN AND SPECIFICATION. LUMP SUM WITH BILLS OF QUANTITIES. BASED ON APPROXIMATE QUANTITIES. COST PLUS FIXED FEE. COST REIMBURSEMENT CONTRACTS. COST PLUS PERCENTAGE. BASED ON A SCHEDULE. COST PLUS FLUCTUATING FEE. TARGET COST. VALUE COST. FIG. 1-3 : TYPES OF CONTRACTS BASED ON PRICING MECHANISM © HSKS.

(12) COMMON CONTRACT PROCUREMENT METHODS. TRADITIONAL GENERAL CONTRACTTING. PACKAGE DEAL TYPE. MANAGEMENT TYPE. MANAGEMENT CONTRACTING. DESIGN & BUILD/ DESIGN & CONSTRUCT. CONSTRUCTION MANAGEMENT. BUILD, OPERATE & TRANSFER. ENGINEERING, PROCUREMENT, CONSTRUCTION & COMMISSIONING. MISCELLANEOUS METHODS. FAST TRACKING. PARTNERING. ‘TURNKEY’ TURNKEY’. FIG. 1-4 : COMMON CONTRACT PROCUREMENT METHODS IN USE © HSKS.

(13) FIG. 1-5 : COMPARISON OF COMMON CONTRACT PROCUREMENT METHODS. 1985. 1990. 1995. 2000. 1.0 TRADITIONAL GENERAL CONTRACTING. 95%. 76%. 31%. 20%. 2.0 MANAGEMENT CONTRACTING. 2%. 3%. 2%. 1%. 3.0 CONSTRUCTION MANAGEMENT. 1%. 3%. 9%. 10%. 4.0 PACKAGE DEAL TYPE’. 2%. 15%. 52%. 60%. 5.0 BUILD, OPERATE AND TRANSFER. -. 2%. 5%. 8%. 6.0 OTHER MISCELLANEOUS. -. 1%. 1%. 1%. © HSKS.

(14) FIG. 1-6: TRADITIONAL GENERAL CONTRACTING (TGC) – CONTRACTUAL RELATIONSHIPS. EMPLOYER. PROFESSIONAL TEAM - DESIGN AND CONTRACT ADMINISTRATION. 1. 2. 3. 4.. Architect Engineers - C&S, M&E Quantity Surveyor Other Specialist. MAIN CONTRACTOR (MC). DOMESTIC SUPPLIER (DS). SUBSUB-SUB CONTRACTORS Key _______ _____. : :. SUB--SUB SUPPLIERS SUB. NOMINATED SUPLLIER (NS). SUBSUB-SUB CONTRACTORS. SUBSUB-SUB SUPPLIERS. Contractual Link Responsibility. © HSKS.

(15) FIG. 1-7: ‘TURNKEY’ CONTRACTS/DESIGN & CONSTRUCT (D&C) - CONTRACTUAL RELATIONSHIPS. EMPLOYER. PROFESSIONAL ADVISORS. 1. 2. 3. 4.. Architect Engineers - C&S, M&E Quantity Surveyor Other Specialist. 1. Setting up Employers Requirements 2. Auditing role during construction. D & C CONTRACTOR. 1. 2. 3. 4.. Architect Engineers - C&S, M&E Quantity Surveyor Other Specialist. PROFESSIONAL TEAM. : :. SUBSUBSUPPLIER. 1. Detailed Design 2. Construction supervision. SUBSUB-SUB CONTRACTORS. Key _______ _____. SUBSUBCONTRACTOR. SUBSUB-SUB SUPPLIERS. SUBSUB-SUB CONTRACTORS. SUB--SUB SUPPLIERS SUB. Contractual Link Responsibility. © HSKS.

(16) FIG. 1-8: MANAGEMENT CONTRACTING (MC) - CONTRACTUAL RELATIONSHIPS. EMPLOYER. PROFESSIONAL TEAM 1. 2. 3. 4.. MANAGEMENT CONTRACTOR (MC). Architect Engineers - C&S, M&E Quantity Surveyor Other Specialist. TRADE CONTRACTOR. TRADE CONTRACTOR. TRADE CONTRACTOR. Key. _______ : Contractual Link _____. :. Responsibility. © HSKS.

(17) FIG. 1-9: CONSTRUCTION MANAGEMENT (CM) - CONTRACTUAL RELATIONSHIPS. EMPLOYER. PROFESSIONAL TEAM 1. 2. 3. 4.. CONSTRUCTION MANAGER (CM). Architect Engineers - C&S, M&E Quantity Surveyor Other Specialist. Key. _______. : Contractual Link. _____. : Responsibility. TRADE CONTRACTORS. TRADE CONTRACTORS. © HSKS.

(18) * 1.0. DEFINATIONS. PER ANSON * * * *. 2.0. CONTRACT -. Legally binding agreement Between two or more parties By which rights are acquired by one or more To acts or forbearances on the part of the other or others. PER SECTION 2(h) MALAYSIAN CONTRACTS ACT 1950 (REV. 1974) * An agreement * Enforceable by Law **. CLEAR + OFFER. CONTRACT - BASIC ELEMENTS. UNQUALIFIED ACCEPTANCE. + CONSIDERATION =. CONTRACT CONTRACT (LEGAL AGREEMENT). FIG. 1-10: CONTRACT DEFINITIONS © HSKS.

(19) FIRM OFFER/ PROPOSAL. + UNQUALIFIED ACCEPTANCE. + CONSIDERATION. INTENTION TO CREATE LEGAL RELATIONS. FREE CONSENT. CERTAINTY OF TERMS. LAWFUL OBJECT AND CONSIDERATION. LEGAL CAPACITY TO CONTRACT. PHYSICAL/LEGAL POSSIBILITY. FIG. 1-11: ELEMENTS OF A VALID/ENFORCEABLE AGREEMENT © HSKS.

(20) DEFINITION/ MEANING. CHARACTERISTICS. MAIN TYPES. DISADVANTAGES. ADVANTAGES. FIG. 1-12 :. STANDARD FORMS OF CONTRACT. TYPES. PURPOSE. STANDARD FORMS OF CONTRACT (PART I) © HSKS.

(21) STANDARD FORMS OF CONTRACT. GOVERNMENT/ PUBLIC SECTOR. INTERNATIONAL CONTRACTS. PRIVATE SECTOR. 1. FIDIC Conditions 2. ICE Conditions. JKR / PWD. MISCELLANEOUS. •. 203 (Rev. 1/2010) - without quantities. •. 203A (Rev. 1/2010) - with quantities. •. 203N (Rev. 1/2010) - For NSC. •. 203P (Rev. 1/2010) - For Nominated Suppliers. •. PWD Form DB (2007 Edn.) For Design & Build Contracts. 3. IEEE Conditions. •. CIDB Form for:. 4. IMechE Conditions. -. Building Contracts 2000 Edn. Form CIDB.B (NSC/2002). 5. JCT Conditions. •. Modified JKR/PWD Forms e.g. LPK, MHA, etc.. CIVIL ENGINEERING WORKS. BUILDING WORKS •. PAM Contract 2006 (with quantities). •. PAM Contract 2006 (without quantities). •. •. M & E WORKS. IEM Conditions. •. IEM Conditions. - IEM.CE 2011 - IEM.CES 1/90. -. IEM.ME 1/94. •. TNB Conditions, etc.. PAM Sub-Contract 2006. FIG. 1-13: STANDARD FORMS OF CONTRACT (PART II) © HSKS.

(22) COMMENCEMENT OF CONTRACT AT SITE. © HSKS.

(23) 2.0. •. APPROACHES IN: 1. 2.. •. COMMENCEMENT OF CONTRACT AT SITE. TRADITIONAL GENERAL CONTRACTS DESIGN & BUILD / TURNKEY CONTRACTS. FORMALITIES: 1. 2.. CONDITIONS PRECEDENT INSURANCES, PERFORMANCE BONDS, ETC.. •. SITE POSSESSION : MEANING AND EFFECT. •. SUBMITTALS : 1. 2. 3. 4. 5. 6.. CONSTRUCTION DRAWINGS SHOP DRAWINGS SAMPLES QA AND QC DOCUMENTS HEALTH AND SAFETY DOCUMENTS METHOD STATEMENTS. •. TEMPORARY WORKS. •. ISSUES FOR ATTENDANCE OF NOMINATED SUBSUB-CONTRACTORS. •. MISCELLANEOUS ISSUES © HSKS.

(24) •. RELEVANT CASES 1. THE RADIO & GENERAL TRADING CO. SDN. BHD. V WYASS & FREYTAG (M) SDN. BHD. [1998] 1 MLJ 346 2. LEC CONTRACTORS (M) SDN. BHD. V CASTLE INN SDN. BHD. & ANOR [2000] 3 MLJ 339 3. KLEINWORT BENSON LTD. V MALAYSIA MINING CORP. BHD [1989] 1 WLR 379 4. NANYANG INSURANCE CO. LTD. V SALBIAH & ANOR [1967] 1 MLJ 94 5. SURREY HEALTH [1988] 42 BLR 25. BOROUGH. COUNCIL. V. LOVELL. CONSTRUCTION. 6. FREEMAN V HENSLER [1981] 20 BLR 78 7. TAN HOCK CHAN V KHO TECK SENG [1980] 1 MLJ 308 8. PUTRA PERDANA CONSTRUCTION SDN. BHD. V AMI INSURANCE & ORS [2005] 2 MLJ 123 HC. BHD. 9. YIP SHOU SHAN V SIN HEAP LEE – MARUBENI SDN. BHD. [2002] 5 43, HC`. MLJ. © HSKS.

(25) TAKING OVER OF THE SITE. SITE POSSESSION. COMMENCEMENT OF CONTRACT. COMMENCEMENT: COMMON LABELS. COMMENCEMENT OF OPERATIONS ON SITE. COMMENCEMENT OF CONTRACT PERIOD. COMMENCEMENT OF WORKS. FIG. 2-1 : COMMENCEMENT - COMMON LABELS © HSKS.

(26) PARENT COMPANY GUARANTEE. INSURANCE. PERFORMANCE BOND. PROTECTION AGAINST CONTRACTOR’S FAILURES: COMMON MECHANISMS. LETTER OF COMFORT. STANDBY LETTER OF CREDIT LETTER OF AWARENESS. FIG. 2-2: PROTECTION AGAINST CONTRACTOR’S FAILURES – COMMON MECHANISMS © HSKS.

(27) PROTECTION AGAINST CONTRACTOR’S FAILURES: AN OVERVIEW (PART I). COMMON MECHANISMS/ INSTRUMENTS: TYPES. PURPOSE •. Risk transferring contracts. •. Parent Company Guarantees. •. Enable recovery of compensation upon contractor’s default/failure under the contract. •. Performance Bonds. •. Miscellaneous Types: 1. 2. 3.. Letters of Comfort Standby Letters of Credit Insurances. NATURE •. •. Contractual performance of ‘Company within a corporate group is underwritten by other members of group E.g. Subsidiary and Holding Company. PARENT COMPANY GUARANTEES. PROCEDURAL REQUIREMENTS. USE •. For commercial and administrative convenience. •. Owing to requirements of applicable law e.g. company law, etc.. •. Preliminary review. •. Check for legal compliance. •. Check for compliance with formalities. Cont’d….. FIG. 2-3 : PROTECTION AGAINST CONTRACTOR’S FAILURES – AN OVERVIEW (PART I) © HSKS.

(28) Cont’n.. PROTECTION AGAINST CONTRACTOR’S FAILURES: AN OVERVIEW (PART II). MISCELLANEOUS MECHANISMS/ INSTRUMENTS. PERFORMANCE BONDS. • • •. Reasons for Typical contents Legal effect of letter. • • • •. DEFINITION DEFINITION •. See Robinson and Laver’s definition. •. Means of guaranteeing to the employer: 1. The contractor’s financial viability and 2. Contractor’s ability to perform obligations under the contract. •. Two main types: 1. ‘Conditional/ Default’ Bond 2. ‘Unconditional/ On-Demand’ Bond • •. Features of local practice Rules of construction and enforcement. Reasons for Comparison with letters of comfort Typical contents Legal effect of letter. DURATION DURATION OF OF LIABILITY LIABILITY. TYPES TYPES •. STANDBY LETTER OF CREDIT. LETTER OF AWARENESS. LETTER OF COMFORT. Normally stipulated in bond. Types include: 1. Entire duration of contract 2 Up to CPC ‘Construction’ Bond 3 CPC to Final Certificate – ‘Maintenance’ Bond. Reasons for Comparison with ‘Unconditional/On-Demand’ Bond Obligations under Legal effect of letter. • • • •. PROCEDURAL PROCEDURAL REQUIREMENTS. FINANCIAL LIMITS OF LIABILITY •. Normally stipulated in Bond itself.. •. Normally 5-10%. •. Sometimes higher. •. See use of ‘Indexed Performance Bonds’. INSURANCE • • •. Reasons for: Legal effect of Insurance Comparison with the other mechanisms/instruments. NONPROVISION OF OF NON--PROVISION BOND/GUARANTEE. RELEASE OF BOND /GUARANTEE. •. Preliminary review. •. Timing for submission. •. Seven main circumstances. •. Checks for authenticity. •. Consequences of failure to submit:. •. •. Check for compliance with formalities. Effect of breaches of terms and conditions. 1. Contract provisions 2. Common law rules. 4 Up to date of release stipulated by guarantor. FIG. 2-4 : PROTECTION AGAINST CONTRACTOR’S FAILURES – AN OVERVIEW (PART II) © HSKS.

(29) FIG. 2-5 : CONTRACTOR’S INSURANCE POLICIES – COMMON TYPES © HSKS.

(30) INSURANCES: AN OVERVIEW (PART I). •. Risk allocation mechanisms. •. Per Robinson and Lavers. •. Means of seeking compensation following default/failure. •. Voluntary assumption of specified risk in return for an agreed payment. CATEGORY I. CATEGORISATION •. Two Main Categorization: 1. 2.. •. TYPES. DEFINITION. PURPOSES. Liability based Loss based. Difference: basis of compensation. CATEGORY II. PRINICPAL TYPES. •. Liability based. •. Loss based. •. Contractor: Common Types. •. Indemnification of insured against damages payable to 3rd party. •. Compensate insured for loss/damage directly incurred by insured. •. Employer: Common Types. •. Occupier: Common Types. Examples:. •. Examples:. •. Management Corporation: Common Types. •. 1. 2. 3.. 3rd Party Liability Insurance Workmen’s Compensation Professional Indemnity Insurance. 1. 2.. Contractor’s All Risk Policy Erection All Risk Policy. FIG. 2-6 : INSURANCES – AN OVERVIEW (PART I) © HSKS.

(31) Cont’d…….. INSURANCES: AN OVERVIEW (PART II). FEATURES AND CONDITIONS. PROCEDURAL REQUIREMENTS. FAILURE TO INSURE. • Necessity for checking authenticity of: 1. Cover notes 2. Policy • Necessity to check for compliance with: 1. Contract requirements 2. Formalities. FAILURE TO INSURE. TIMING FOR SUBMISSION •. Normally stipulated in contract. •. 2 Common alternatives:. • Effects dictated by: 1. Governing contractual provisions 2. Common law rules. 1. Before commencement of work/contract; or. • Possible options: Employer insures and charges premiums to contractor. 2. Within stipulated period of award of contract. IMPORTANT IMPORTANT STANDARD STANDARD CONDITIONS CONDITIONS. BASIS BASIS OF OF CONTRACTING CONTRACTING • Submission of proposal •. Issue of policy. •. Effect of : 1. Contracts of ‘uberrimae fidei’ 2. Cover notes, etc.. •. PARTIES PARTIES EFFECTING POLICY POLICY. Six main ones i.e.. •. •. 4. Following a loss event 5. As to subrogation 6. On contribution. • Various possibilities:. Typical parties: 1. 2. 3. 4.. 3. As to risk. •. Employer Contractor Sub-contractors Selected 3rd parties. Effect of ‘cross liability’ provisions. DURATION DURATION OF OF POLICY POLICY. COMMENCEMENT COMMENCEMENT OF OF POLICY POLICY. 1. Named party 2. With insurable interest. 1. Condition precedent to liability 2. During work/construction. General rule:. Different formulae:. •. 1. Date of commencement of contract; or. 1. Up to issue of CPC. 2. Date of commencement of work on site; or. 3. Up to issue of Final Certificate. 3. Date of delivery of material, etc.. • Function of the nature of contract works. • Apparently not a serious ground to effect determination. 2. Up to issue of CMGD. FINANCIAL FINANCIAL LIMITS LIMITS OF OF LIABILITY LIABILITY •. •. Guidelines for estimating limits.. •. General rule on deductibles/excess clauses. 4. Up to Final Certificate plus fixed period •. Normally stipulated by employer in tender/contract. Requirements pertaining to extension of period. TERMINATION TERMINATION OF OF POLICY POLICY • Three main methods: 1. Satisfaction of conditions precedent in contract e.g. issue of CPC, etc. 2. Termination of policy by breach/mutual agreement 3. Lapse of insurance period and/or extension. FIG. 2-7 : INSURANCES – AN OVERVIEW (PART II) © HSKS.

(32) SITE POSSESSION: AN OVERVIEW. PROVISIONS FOR. MEANING. EXPRESS • •. Licence revocable by Employer at any time. •. Licence to be free from any encumbrances. • If not expressed, by. Or in Contract. •. Contractor entitled to Sole/exclusive possession. GENERAL LEGAL POSITION. IMPLIED •. No. •. Freeman & Son v Hensler. EXCEPTIONS TO GENERAL PRINCIPLE •. Express Stipulations. •. Case Law. POSSESSION ON PIECEMEAL BASIS?. LATEST LEGAL POSITION •. Sufficient degree of possession/ access. •. To execute work unimpeded. •. To be able to perform work. FAILURE TO GIVE POSSESSION. EXCEPTIONS. Law. GENERAL PRINCIPLE •. •. In Letter of Acceptance. POSTPONEMENT. DEGREE. Express contract stipulations permitting postponement. GENERAL LEGAL POSITION. EFFECT. •. General Position: No. •. Breach of Contract. •. •. Exceptions:. •. Entitles Contractor to rescind Contract.. Contractor entitled to loss occasioned. •. Contractor entitled to EOT if expressly permitted contractually. •. Otherwise, LAD cannot be imposed. a) Express stipulations to contrary b) Where Common Law applies. FIG. 2-8 : SITE POSSESSION – AN OVERVIEW © HSKS.

(33) SITE POSSESSION MEETINGS. TIMING. ·. On Date of Commencement of Contract /. ·. Date of Site Possession. MATTERS DEALT. PURPOS E. ·. 1. All Project Team Member. To officially handover Possession of Site to the Contractor. WHO PREPARES ? ·. EXPLANATION OF CONTRACT REQUIREMENTS. LETTER OF DELEGATION OF POWERS. PARTICIPANTS. MINUTES. INTRODUCTION OF PROJECT MEMBERS. COPY OF CONTRACT DOCUMENTS. PRICED COPY OF B.Q.. Contract Administrator. DISTRIBUTION/ CIRCULATION ·. To all parties. HANDOVER OF VARIOUS DOCUMENTS. SET OF CONSTRUCTION DRAWINGS. SET OUT PROCEDURES COVERING ·. Document Submittals and Approvals. ·. Sample Submittals and Approvals. · ·. Inspection of Work Interim Valuations. ·. Claim Procedures. FIG. 2-9 : SITE POSSESSION MEETINGS © HSKS.

(34) WORK PROGRAMME MISCELLANOUES REPORTS AND DOCUMENTS. DESIGN AND CALCULATIONS FOR WORKS UNDER P.C. SUM, ‘PACKAGE DEAL’ TYPE CONTRACTS, ETC.. METHOD STATEMENTS. WORKS UNDER CONTRACT: TYPICAL SUBMITTALS BY CONTRACTOR. DESIGN AND CALCULATIONS FOR TEMPORARY WORKS. DRAWINGS I.E. SHOP, FABRICATION, SETTING OUT, ETC.. QA/QC DOCUMENTS. HEALTH AND SAFETY DOCUMENTS. FIG. 2-10: WORKS UNDER CONTRACT – TYPICAL SUBMITTALS BY CONTRACTOR © HSKS.

(35) MONITORING OF WORK PROGRESS. © HSKS.

(36) 3.0. MONITORING OF WORK PROGRESS. •. PROGRAMMING OF WORKS. •. PARTIES RESPONSIBLE: 1. 2. 3.. EMPLOYER MAIN CONTRACTOR CONTRACT ADMINISTRATOR. •. PROGRESS REPORTS. •. SITE RECORDS. •. MEETINGS: 1. 2. 3. 4.. •. SITE POSSESSION PROGRESS/SITE NSC COORDINATION AD-HOC. MISCELLANEOUS ISSUES. © HSKS.

(37) •. RELEVANT CASES 1.. GLENLION CONSTRUCTION LTD. V THE GUINESS TRUST [1987] 39 BLR 89. 2.. YORKSHIRE WATER AUTHORITY V (NORTHERN) LTD. [1986] 32 BLR 114. 3.. GREATER LONDON COUNCIL V CLEVELAND BRIDGE & ENGINEERING CO. LTD. [1986] 8 Con LR 30. 4.. KITSONS SHEET METAL LTD. V MATTHEW HALL MECHANICAL & ELECTRICAL ENGINEERS LTD. [1989] 47 BLR 82. 5.. WEST FAULKNER ASSOCIATES V LONDON BOROUGH OF NEWHAM [1994]. SIR ALFRED MCALPINE & SON. 71 BLR 1. 6.. EQUITABLE DEBENTURES ASSETS CORP. LTD. ROBERTS & ORS [1984] 2-CLD-10-01. V. MORGAN BRANCH. © HSKS.

(38) FIG. 3-1 : WORK PROGRAMME - TYPICAL FORMS © HSKS.

(39) PRINCIPAL ACTIVITIES IMPORTANT MILESTONES FOR EMPLOYER TO MEET. SEQUENCE OF ACTIVITIES. WORK PROGRAMME: PRINCIPAL CONTENTS. IMPORTANT MILESTONES FOR CONTRACTOR TO MEET. TIMING OF ACTIVITIES IDENTIFICATION OF CRITICAL ACTIVITIES AND CRITICAL PATH. FIG. 3-2 : WORK PROGRAMME – PRINCIPAL CONTENTS © HSKS.

(40) WORK PROGRAMME: AN OVERVIEW. RESPONSIBILITY. •. Express Provisions. •. By Implication. METHOD OF WORKING. BAR CHARTS. FORM. MEANING. CONTENTS. Sequence and Timing of Activities. •. Critical Milestones. FOR CONTRACT ADMINISTRATOR. SEQUENCE OF WORKING. CRITICAL PATH ANALYSIS. •. PERT. PRIMIVERA/ MICROSOFT ‘PROJECT’ PROJECT’. PURPOSE. OPTIONS ON SUBMISSION. PART OF CONTRACT?. • Approval • Rejection • Withholding of Approval. ALTERATION/ REVISION •. General Policies. •. Mode of Alternatives / Revision. •. Effect of Alternatives/ Revision. FOR CONTRACTOR. MISCELLANEOUS. PART OF TENDER SUBMISSION?. SUBMITTED AFTER TENDER AWARD. FIG. 3-3 : WORK PROGRAMME – AN OVERVIEW © HSKS.

(41) TO LEVY CONTROL OVER PROGRESS OF THE WORKS TO ENSURE CONTRACT IS COMPLETED ACCORDING TO SCHEDULE. MISCELLANEOUS PURPOSES. PROGRESS MONITORING: EMPLOYER’S PURPOSES. TO PLAN AND STREAMLINE FINANCIAL ARRANGEMENTS TO OBVIATE DEFAULT. TO TAKE NECESSARY REMEDIAL MEASURES IF DELAY OCCURS OR IF EMPLOYER IS AT FAULT. TO WARN CONTRACTOR TO TAKE REMEDIAL MEASURES IN CASE DELAY OCCURS. FIG. 3-4 : PROGRESS MONITORING – EMPLOYER’S PURPOSES © HSKS.

(42) PROGRESS MONITORING: AN OVERVIEW. PURPOSE. DURATION. •. From Site Possession. •. To Issue of Final Certificate. •. Normally up to Practical Completion only. SITE POSSESSION MEETINGS. •. Primary Purposes. •. Secondary Purposes. METHODS. •. Use of Contractor’s Work Programme. • •. SITE PROGRESS MEETINGS. SUBSUBCONTRACTORS MEETING. Employer/ contract administrator Contractor. COORDINATION/ PROJECT MANAGEMENT MEETINGS. •. On regular basis. •. Normally ‘monthly’. •. Maybe i. Weekly ii. Fortnightly iii. Quarterly, etc.. SITE RECORDS. PROGRESS MEETINGS. FREQUENCY/ NATURE OF CHECKS. PARTIES RESPONSIBLE. BASIS. ‘ADAD-HOC’ HOC’ MEETINGS. DURATION. PURPOSE. OFFICIAL WORK RECORDS. METHODS. OFFICIAL PROGRESS REPORTS. EVIDENTIAL VALUE. SITE DIARY. FIG. 3-5 : PROGRESS MONITORING – AN OVERVIEW © HSKS.

(43) SITE POSSESSION MEETINGS. MISCELLANEOUS MEETINGS. POST CONTRACT AWARD STAGE: PRINCIPAL TYPES OF MEETINGS. AD-HOC MEETINGS. SUB-CONTRACTOR’S MEETINGS. SITE PROGRESS MEETINGS. COORDINATION/ PROJECT MANAGEMENT MEETINGS. FIG. 3-6 : POST CONTRACT AWARD STAGE – PRINCIPAL TYPES OF MEETINGS © HSKS.

(44) SITE PROGRESS MEETINGS: AN OVERVIEW. ENABLE CONTRACTOR TO. PERMIT WORK PROGRESS TO. Officially present progress report. •. Be reviewed on regular basis. •. Present problems encountered. •. Identify areas and causes of delay. •. Enable Employer/ C.A. to redress delay caused by him/them. •. Keep track of financial progress/allocation. FINANCIAL ISSUES. 3RD PARTY ISSUES AFFECTING CONTRACT. CONTRACT ADMINISTRATOR •. Chairs Meeting. •. Main participant. • S.O./ Contract Administrator. Main participant. DISTRIBUTION/ CIRCULATION • To all parties/ attendees. MISCELLANEOUS ISSUES. MAIN CONTRACTOR •. PARTICIPANTS. MINUTES. WHO PREPARES?. MISCELLANEOUS. •. ONLY SITE ISSUES. ISSUES/ MATTERS DEALT. PURPOSE. TIMING. NSCs. CONSULTANTS •. Observers Only. •. Participants if contract administrator's assistants/ representatives. •. By invitation only. EMPLOYER •. Observer only. FIG. 3-7 : SITE PROGRESS MEETINGS – AN OVERVIEW © HSKS.

(45) SUB-CONTRACTORS MEETINGS: AN OVERVIEW. ISSUES/ MATTERS DEALT. PURPOSE. TIMING. •. Usually monthly prior to site meetings. •. If necessary more frequently TO ENABLE SUBSUBCONTRACTOR TO. TO PERMIT CONTRACTOR TO. • Officially present progress report to Contractor. • Review NSC’s progress, areas of delay, etc.. • Present problems encountered. PARTICIPANTS. MINUTES. WHO PREPARES? • Main Contractor. DISTRIBUTION/ CIRCULATION • To all parties/ attendees. • Identify and sort coordination problems CONTRACTOR (MAIN). NOMINATED SUBSUBCONTRACTORS. DOMESTIC SUBSUBCONTRACTORS. • Chairs Meeting. OTHERS (BY INVITATION) • Employer • Third Parties. COORDINATION MATTERS. SITE PROBLEMS. FINANCIAL ISSUES. 3RD PARTY ISSUES. • Design. • Possession. • Payments. • Authorities. • Site Work. • Access. • V.O.s. • Utilities Providers. • Security. • Claims. • Others. MISCELLANEOUS ISSUES. • Contract Administrator. FIG. 3-8 : SUB-CONTRACTORS MEETINGS – AN OVERVIEW © HSKS.

(46) ‘AD-HOC’ MEETINGS: AN OVERVIEW. CONVENORS (AS APPLICABLE). TIMING. AS AND WHEN NECESSARY FROM TIME TO TIME. •. The Employer. •. The Contract Administrator. •. The Contractor. •. The Sub-Contractors. PURPOSE. USUALLY DICTATED BY CIRCUMSTANCES. EMERGENCY ISSUES. TO DISCUSS SPECIFIC ISSUES / MATTERS. ADMINISTRATIVE MATTERS. TECHNICAL ISSUES. FINANCIAL ISSUES. •. Site Issues. •. Payments. •. Design. •. Training. •. Design/ Work Issues. •. V.O.s. •. Construction/Installation. •. Maintenance. •. 3rd. •. Claims. •. Testing and Commissioning. •. ‘As-Built’ Records. •. Defects. Party Issues. MISCELLANEOUS ISSUES. FIG. 3-9 : ‘AD-HOC’ MEETINGS – AN OVERVIEW © HSKS.

(47) SITE RECORDS: AN OVERVIEW. PURPOSE. DURATION •. From Date of Commencement / Site Possession to. •. Completion of works. •. Normally up to Practical Completion only PROVIDE NECESSARY INFORMATION/ EVIDENCE TO. EVALUATE CONTRACTOR’’S CONTRACTOR CLAIMS TO. REVIEW WORK PROGRESS •. Contractor’s Scope. •. Extension of Time. •. NSC’s/DSC’s Scope. •. Additional Work. •. Direct loss and/or expense. •. Miscellaneous matters. EVIDENTIAL VALUE. METHODS. OFFICIAL PROGRESS REPORT. OFFICIAL WORK RECORDS. PERMIT DECISION MAKING. SITE DIARY. DULY SIGNED/ ENDORSED RECORDS •. Best evidential value. ACKNOWLEDGEMENT OF RECEIPT RECORDS •. Some evidential value. FIG. 3-10 : SITE RECORDS – AN OVERVIEW © HSKS.

(48) OFFICIAL WORK RECORDS: AN OVERVIEW. TIMING OF SUBMISSION. DAILY. WEEKLY. PURPOSE. PROCEDURAL MATTERS. CONTENTS. USE OF DESIGNATED STAFF FOR. FORTNIGHTLY. • Preparing • Maintaining • Submitting RECORD OF SITE INFORMATION. SITE WORK/ ACTIVITIES. FOR CONTRACT ADMINISTRATION. RECORD OF WORKERS. • Planned. • Skilled. • Undertaken. • Unskilled. SIGNING OR ENDORSEMENT • By authorized Person(s). TIME OF ENTRY. • S.O/ Contract Administrator. • Daily. FOR BASIS OF OFFICIAL PROGRESS REPORT. RECORD OF PLANT/MACHINER Y • On site. WEATHER CONDITIONS. SAFE KEEPING • By S.O./Contract administrator • Up to lapse of period of limitation. PROBLEMS ENCOUNTERED. INSTRUCTIONS. • Affecting work. • Design. • Received. • Delaying site operations. • Site. • Carried Out. • Coordination. • Outstanding. MISCELLANEOUS. • Site/ Factory Visits • Inspections. • Due to 3rd Parties. FIG. 3-11 : OFFICIAL WORK RECORDS – AN OVERVIEW © HSKS.

(49) SITE DIARY: AN OVERVIEW. NATURE. DURATION. •. Preferably kept by each and every site personnel. •. From commencement of work on site until completion. •. Personal record of site activities. •. If necessary until the end of the contract. •. Otherwise by designated site supervision team member. • Undertaken. ENTRIES ON DAILY BASIS •. SITE WORK/ ACTIVITIES. PROCEDURAL MATTERS. CONTENTS. By designated person. PROBLEMS ENCOUNTERED. INSTRUCTIONS. •. As to Site Work. • Issued to Contractors. •. Coordination. • Carried out by Contractor. PRESENTATION ON REQUEST/ DEMAND. CHECKING / ENDORSEMENT •. By Employer’s Representative/ Designated person. •. Accuracy of entries. RECORD OF • Contractor’s defaults /omissions. •. By Employer/ S.O./ any interested party. MISCELLANEOUS • Site/ factory visits • Weather conditions • Disruption to site activities. SAFE KEEPING/ CUSTODY •. By S.O./ contract administrator. •. Up to lapse of period of limitation. ATTACHMENTS • ‘As-Built’ sketches, drawings, diagrams, etc. • ‘As-erected’/ ‘AsInstalled’ Work/ plant, etc.. FIG. 3-12 : SITE DIARY – AN OVERVIEW © HSKS.

(50) SUPERVISION OF WORKS/ CONTRACT ADMINISTRATION. © HSKS.

(51) 4.0 1.0. SUPERVISION OF WORKS/CONTRACT ADMINISTRATION CONTRACT ADMINISTRATION PURPOSE DESIGNATION ROLES SOURCES OF DUTIES AND POWERS REPRESENTATIVE/ASSISTANTS PRINCIPAL DUTIES LIABILITY. 2.0. SUPERVISION FORMS DURATION LEVEL LIABILITIES. 3.0. DISCUSSION OF CASE LAW © HSKS.

(52) ENSURE WORKS SATISFACTORILY COMPLETED WITHIN ORIGINAL CONTRACT PERIOD AND PRICE. ENSURE THAT CONTRACTOR FULFILLS HIS OBLIGATIONS UNDER THE CONTRACT ENSURE THAT EMPLOYER FULFILLS HIS OBLIGATIONS UNDER THE CONTRACT. CONTRACT ADMINISTRATION: PRIMARY PURPOSES. ENSURE THAT NEEDS/ OBLIGATIONS OF CONTRACT ADMINISTRATOR UNDER CONTRACT/STATUTE ADEQUATELY FULFILLED. ENSURE THAT EMPLOYER’S POSITION ADEQUATELY PROTECTED AGAINST VARIOUS CLAIMS. ENSURE THAT EMPLOYER FULFILS HIS STATUTORY/LOCAL AUTHORITY REQUIREMENTS. FIG. 4-1 : CONTRACT ADMINISTRATION – PRIMARY PURPOSES © HSKS.

(53) SUPERINTENDING OFFICER/ S.O.. CONSTRUCTION MANAGER. PROJECT DIRECTOR. EMPLOYER’S REPRESENTATIVE. CONTRACT ADMINISTRATORS: COMMON DESIGNATIONS. ARCHITECT. ENGINEER. FIG. 4-2 : CONTRACT ADMINISTRATORS – COMMON DESIGNATIONS © HSKS.

(54) AS TO RIGHTS/ DUTIES UNDER THE CONTRACT WITH IMPLIED/ OSTENSIBLE AUTHORITY. WITH EXPRESS AUTHORITY. AS TO MATTERS OF COST. AS AN AGENT OF THE EMPLOYER. AS TO OTHER MATTERS. AS AN ADVISOR TO THE EMPLOYER. CONTRACT ADMINISTRATOR: RANGE OF ROLES PERFORMED. AS AN INDEPENDENT/ IMPARTIAL ADJUDICATOR. AS AN INDEPENDENT CONTRACTOR. WHERE SUCH WORK IS REQUIRED POSTCONTRACT. FOR MAINLY DESIGN/ DETAILING WORK. AS TO DISPUTE RESOLUTION. AS TO CERTIFICATION. FIG. 4-3 : CONTRACT ADMINISTRATOR – RANGE OF ROLES PERFORMED © HSKS.

(55) TERMS OF REFERENCE OF APPOINTMENT. CONDITIONS OF CONTRACT BEING ADMINISTERED. ‘IN-HOUSE’ EMPLOYEE. CONDITIONS OF ENGAGEMENT/ SERVICES AGREEMENT. CONDITIONS OF CONTRACT BEING ADMINISTERED. EXTERNAL BODY/PERSON. CONTRACT ADMINISTRATOR: SOURCES OF DUTIES AND POWERS. FIG. 4-4 : CONTRACT ADMINISTRATOR – SOURCES OF DUTIES AND POWERS © HSKS.

(56) ARCHITECT SPECIALIST CONSULTANT. PROJECT MANAGER. CIVIL ENGINEER. CONTRACT ADMINISTRATOR’S REPRESENTATIVES/ ASSISTANTS: TYPICAL EXAMPLES. QUANTITY SURVEYOR. STRUCTURAL ENGINEER. MECHANICAL ENGINEER. ELECTRICAL ENGINEER. FIG. 4-5 : CONTRACT ADMINISTRATOR’S REPRESENTATIVES/ASSISTANTS - TYPICAL EXAMPLES © HSKS.

(57) OVERALL SUPERVISION. PROGRESS MONITORING. ADMINISTRATION OF PAYMENTS ISSUING INFORMATION, DRAWINGS, DETAILS, ETC.. ORDERING VARIATIONS ISSUING RELEVANT INSTRUCTIONS. GRANTING APPROVALS, CONSENTS, ETC.. INSPECTIONS OF WORKS. NOMINATING SUB-CONTRACTORS, ETC.. ADVISING EMPLOYER. CONTRACT ADMINISTRATOR’S PRINCIPAL DUTIES FOR TRADITIONAL GENERAL CONTRACTS. ISSUING NECESSARY REPORTS OVERSEEING TRAINING OF EMPLOYER’S O & M PERSONNEL OVERSEEING COMPLETION & HANDING OVER OF WORKS MONITORING RECTIFICATION OF DEFECTS PARTICIPATING IN PREPARATION OF MIGRATION/ FACILITIES MANAGEMENT PLANS. PARTICIPATING IN TESTING AND COMMISSIONING. MONITORING SERVICING AND MAINTENANCE CHECKING AND APPROVING O & M MANUALS & ‘AS-BUILT’ DRAWINGS PREPARING ‘FINAL ACCOUNT’. ‘CLOSING-OFF’ CONTRACT. FIG. 4-6: CONTRACT ADMINISTRATOR’S PRINCIPAL DUTIES FOR TRADITIONAL GENERAL CONTRACTS © HSKS.

(58) FULL-TIME SUPERVISION. NOMINAL SUPERVISION. STANDING SUPERVISION. FORMS OF SUPERVISION: COMMON LABELS. PERIODIC SUPERVISION. CONSTANT SUPERVISION. PART-TIME SUPERVISION. FIG. 4-7 : FORMS OF SUPERVISION – COMMON LABELS © HSKS.

(59) SUPERVISION/INSPECTIONS: OVERVIEW (PART I). TYPICAL CLAUSES IN AGREEMENTS •. TYPICAL PROVISIONS IN BYBY-LAWS. Engineer’s Agreement:. •. 1. Clause 8.1 and 8.7 BEM Form (1999) •. Building (Federal Territory of Kuala Lumpur) By-Laws 1985: 1. By-Law 6: Supervision of Works. NATURE AND MEANING. •. Terms used synonymously. •. See Newey J’s definition. •. Distinction: Inspection imposes a lesser duty: William Tompkinson v St. Michael in the Hamlet.. Architect’s Agreement 1. Clause 5(4)(iv) Part II: Architects (Scale of Minimum Fees) (Amendment) Rules 1992 2. Clause 9 Conditions of Engagement of Architect. 2. By-Law 23(1): Certificate For Occupation • •. By-Law 5(1) City of Kuala Lumpur (Earthworks) By-Laws 1975 •. PURPOSES. •. See Keating’s definition in ‘Building Contracts’. •. Three fold purpose:. In absence of express provisions to contrary courts imply a duty of supervision: Alexander Corfield v David Grant. Malaysia: Statutory provisions necessitate ‘supervision’. 1. To ensure contractor carries out work in accordance with contract. 2. To enable contract administrator to discharge his obligations to employer. 3. To enable contract administrator to meet his statutory obligations. FIG. 4-8 : SUPERVISION/INSPECTIONS – OVERVIEW (PART I) © HSKS.

(60) SUPERVISION/INSPECTIONS: OVERVIEW (PART II). LEVEL OF SUPERVISION REQUIRED. DURATION. •. Determining factors:. •. 1. Nature of works under contract Normal periods:. 2. Applicable statutory provisions e.g. By-Laws •. 1. Up to issue of Practical Completion; or. 2. Category II: PartTime/Periodic Supervision. 3. Up to issue of Certificate of Making Good Defects Common practice is up to issue of Certificate of Making Good Defects. Necessity for Resident Site Staff (RSS). •. Typical examples: 1. Resident architect/engineer 2. Clerk-of-works. 3. Other relevant staff. Prevailing Forms: 1. Category I: Fulltime/Standing/ Constant supervision. 2. Up to application of certificate for occupation; or. •. •. 1. Conditions of engagement. 2. Conditions of engagement •. Determined by:. RESIDENT SITE STAFF. •. 2. Must be sufficient to check the important elements. Primary responsibility for supervision: contractor’s. See East Ham Corp. v Bernard Sunley.. •. Heads of liabilities of contract administrator for defaults/ breaches:. Engagement:. •. Powers and duties determined by engineering/construction contract being administered and/or letter of delegation of power.. •. Responsibilities of:. Legal Position: 1. Must be reasonable for works involved. •. 1. Contractual 2. In tort 3. Statutory. 1. By employer; or 2. By contract administrator. 3. Category III: ‘Nominal’ Supervision •. LIABILITIES. •. Position of contract administrators who are professional engineers, architects, etc.. 1. RSS 2. Contract Administrator. 3. Adequate to meet statutory requirements 4. Sufficient to meet obligations of engagement. FIG. 4-9 : SUPERVISION/INSPECTIONS – OVERVIEW (PART II) © HSKS.

(61) CONTRACT ADMINISTRATOR’S LIABILITIES: AN OVERVIEW (PART I). •. •. CONTRACTUAL LIABILITY. LEGAL KNOWLEDGE AND PERSONAL DUTY. HEADS OF LIABILITIES Three main categories:. •. 1. Contractual 2. Tortious 3. Statutory. General position: Required to have knowledge of all legal matters relating to work being undertaken. •. Nature of matters.. Characteristics:. •. Consequences of failure. 1. Not distinct/mutually exclusive. •. Duty is personal and non-delegable. DEFENCES. 2. Concurrent/complementary. •. Prove no valid express/implied contract of engagement. •. If there is such valid contract prove:. 3. Choice of option on aggrieved part. STANDARD OF CARE. GENERAL POSITION •. Action by employer under terms of contract of engagement. •. If no express terms, implied by law. •. Contract of engagement: 1. Standard forms, or 2. ‘Bespoke’ Forms. •. Duty of care owed to employer. •. Usually to use ‘reasonable skill and care’. •. Duty and standard of care either: 1. Expressed in contract of engagement, or 2. Implied by law. EFFECT OF BREACH •. Two options available to employer:. 1. Rescind contract and sue for damages; or. 1. Contract didn’t impose particular duty breach of which claimed, or 2. Service actually rendered was of the standard reasonably expected under the circumstances. 2. Affirm contract and sue for damages •. Right of election of option belongs to employer. FIG. 4-10 : CONTRACT ADMINISTRATOR’S LIABILITIES – AN OVERVIEW (PART I) © HSKS.

(62) CONTRACT ADMINISTRATOR’S LIABILITIES: AN OVERVIEW (PART II) TORTIOUS LIABILITY. NEGLIGENCE. GENERAL POSITION •. Duty of care in tort of negligence concurrent with contractual duty: Brown v Boorman. •. Common Forms: 1. Acts/omissions 2. Mis-statements. BASIC ELEMENTS. DEFINITION •. • •. Laid down in Donoghue v Stevenson ‘Neighbourhood’ principle. •. D owed P duty of care. •. Application of the ‘Bolam Test’. •. D breached this duty. •. •. Consequence: P suffered loss/damage. Use of ‘Reasonable Man’ test. •. Use by Malaysian Courts. Loss/damage suffered not remote. •. Important elements: 1. Causation 2. Forseeability. STANDARD OF CARE. •. •. Criterion: Objective. •. Less onerous. •. •. Proscribe use of hindsight. •. See Eckersly v Binnie & Partners. Per Hunter v Henley. •. 2. Fitness for purpose •. Need to satisfy all 3 element on balance of probabilities. Only 3 types:. •. 1. Deny existence of duty of care. No liability to contractor. •. Possible exceptions: See Para 5.9B5.. 2. Prove claim made not of type currently recognized. 2. D did not adopt the practice 3. Practice adopted by D would not be adopted by another reasonable D. LIABILITY TO 3RD PARTIES. DEFENCES. 1. There is a usual and normal practice. Use of standards prevailing at time of default. •. 2 Categories: 1. Reasonable skill & care. ESTABLISHING LIABILITY. REASONABLE SKILL & CARE. 3. Show service rendered meets ‘Bolam Test’ •. No immunity to suit: Sutcliffe v Thackrah. •. Situation per ‘Pure Economic Loss’. FIG. 4-11 : CONTRACT ADMINISTRATOR’S LIABILITIES – AN OVERVIEW (PART II) © HSKS.

(63) CONTRACT ADMINISTRATOR’S LIABILITIES: AN OVERVIEW (PART III). STATUTORY LIABILITY. LIABILITIES UNDER DELEGATED LEGISLATION. DIRECT STATUTORY LIABILITY. GENERAL POSITION. PROFESSIONAL LIABILITY. •. In addition to Contractual and Tortious Liability. •. Various Acts of Parliament applicable. •. Liability under various ByLaws e.g. UBBL, etc.. •. For professional contract administrator. •. Various sub-heads:. •. •. Penalties/sanctions stipulated in the By-Laws. •. 1. Direct statutory liability 2. Under delegated legislation 3. Professional liability. Principal example: S71 Street, Drainage & Building Act 1974. Under specific Acts of Parliament. •. Penalty for mis-supervision, etc.. •. Possible sanctions: 1. Fine 2. Suspension 3. Cancellation of registration. FIG. 4-12 : CONTRACT ADMINISTRATOR’S LIABILITIES – AN OVERVIEW (PART III) © HSKS.

(64) PAYMENTS/ COMMERCIAL MATTERS. © HSKS.

(65) 5.0. PAYMENTS/COMMERCIAL MATTERS. •. LEGAL OBLIGATION OF EMPLOYER. •. PAYMENT TO MAIN CONTRACTOR/TURNKEY CONTRACTOR. •. PAYMENT TO SUBSUB-CONTRACTORS. •. ‘BACK TO BACK’ BACK’ PAYMENTS. •. BREACHES IN PAYMENT OBLIGATIONS. •. RELEVANT CASES •. SUTCLIFFE V THACKRAH [1974] 1 ALL ER 319. *. CROUDACE LTD. V THE LONDON BOROUGH OF LAMBETH [1986] 33 BLR 20. *. GUNUNG BAYU SDN. BHD. V SYARIKAT PEMBINAAN PERLIS SDN. BHD. [1987] 2 MLJ 332. *. HAJI ABU KASSIM V TEGAP CONSTRUCTION SDN. BHD. [1981] 2 MLJ 149. *. KAH SENG CONSTRUCTION SDN. BHD. V SELSIN DEVELOPMENT SDN. BHD. [1997] 1 CLJ SUPP 448. *. YONG MOK HIN V UNITED MALAY STATES SUGAR INDUSTRIES LTD. [1966] 2 MLJ 286. *. JALLCON (M) SDN. BHD. V NIKKON METAL (M) SDN. BHD. (No. 2) [2001] 5 MLJ 716, HC.. © HSKS.

(66) PROCEDURES AND CONDITIONS PRECEDENT. QUANTUM/AMOUNT. SET-OFF/DEDUCTIONS. ENFORCEMENT/HONOURI NG. TIMING. PAYMENT: ASPECTS OF CONTRACTOR’S ENTITLEMENTS/EMPLOYER’S OBLIGATIONS. FIG. 5-1: PAYMENTS – ASPECTS OF CONTRACTOR’S ENTITLEMENT/EMPLOYER’S OLIGATIONS © HSKS.

(67) TIMING OF PAYMENT TO CONTRACTOR: PRINCIPAL SCHEMES/SCHEDULES. PERIODIC SCHEDULE DURING CURRENCY OF THE CONTRACT. OF WHOLE CONTRACT SUM. STAGES/MILESTONE PAYMENT. PHYSICAL WORKS. PERIODIC SCHEDULE AFTER COMPLETION/ END OF CONTRACT. ADVANCE PAYMENT. FINANCIAL. OF PART OF CONTRACT SUM. AFTER ISSUE OF CPC. AFTER COMPLETION/ END OF CONTRACT. AFTER ISSUE OF CPC. AFTER ISSUE OF FINAL CERTIFICATE. MISCELLANEOUS/ METHODS. AFTER ISSUE OF FINAL CERTIFICATE. FIG. 5-2 : TIMING OF PAYMENT TO CONTRACTOR – PRINCIPAL SCHEMES/SCHEDULES © HSKS.

(68) START. Contract administrator to resolve all preliminary issues. Yes. Are the preliminary matters expressly stipulated in the contract? No. Yes. Are they included in the Project Procedures Manual? No Have these been sorted- out following award of contract?. No. Yes Have these been formalized by all the parties?. No. Contract administrator to take necessary action forthwith. Yes Contract administrator to issue formal record of issues agreed upon by all relevant parties. All relevant parties to take necessary steps to implement issues. A. FIG. 5-3: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART I) © HSKS.

(69) A. Establish if the contractor has fulfilled his first pre -condition to payment. Has the contractor commenced with the work under the contract?. No. Yes Has he executed any physical work?. No. Yes Has he delivered materials to site?. No. Contractor not entitled to any payment. Yes Prima facie, contractor may be entitled to payment. Contract administrator not obliged to initiate the progress payment. Establish if it is necessary for the contractor to apply for the required payment. No. Does the contract contain an express term thereto? Yes. B. C. D. FIG. 5-4: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART II) © HSKS.

(70) C. B. Contractor not obliged to apply. No. D. Is it mandatory? Yes. Contract administrator obliged to initiate process on his own volition. Has contractor complied with requirements?. No. Contractor may not be entitled to payment until he satisfies pre -conditions. Yes Contract administrator to proceed with the next stage i.e. valuation. Has the date of valuation been reached?. No. Yes Have the relevant pre-conditions been fulfilled?. No. Prima facie, valuation may not be initiated until achievement of necessary requirements. Yes No. Have the parties involved been identified? Yes. Deficiencies/omissions to be addressed forthwith to enable process to continue. No. Has the method for valuation been confirmed? Yes. E. F. G. FIG. 5-5: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART III) © HSKS.

(71) F. E. G. Valuation of works to be carried out jointly by the relevant parties. Valuers to prepare a valuation report. Yes. Does the contractor agree with the valuation? No. Yes. Does he sign off the valuation report?. No Valuation deemed to have been accepted by the contractor. No. Does he officially register his protest with valuers? Yes Do the valuers consider the objections protest? Yes Do they agree with the objections?. No. No. Contractor may protest to the certifier if necessary. Yes Valuers may revise/amend the valuation as necessary. Does the Contractor protest to the certifier?. Valuers to endorse/sign off the valuation report prepared. H. No. Yes. I. J. K. FIG. 5-6: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART IV) © HSKS.

(72) H. I. J. K. Valuation report together with all other necessary documents to be submitted to the certifier Certifier to clarify/ discuss deficiencies/ omissions with the valuers. Certifier to carry out preliminary reviews. Is the valuation report complete, sufficient and accurate?. No. Deficiencies/ omissions may compromise the certification. Yes Certifier to take objections into consideration before undertaking certification. Yes. Has the contractor any valid grounds for objecting? No Certifier not to consider objections any further. L. Certifier may exercise No his discretion in undertaking certification. Is the date for certification imminent? Yes. No. Should in his discretion a certificate be issued? Yes. M. Has the stipulated minimum value of work been exceeded?. No. Certifier has no discretion to carry out certification. Yes Certifier to proceed with the necessary certification procedures. N. O. FIG. 5-7: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART V) © HSKS.

(73) M. L. N. O. Is the 1st Interim Certificate due?. No. Yes Have all the stipulated pre-conditions been met?. No. Yes Is the subsequent Interim Certificate due?. No. Yes Have all the relevant pre-conditions been met?. No. Prima facie, certificate cannot be issued. Yes Certifier to proceed with preparation of Interim Certificate. Is there a standard form of certificate prescribed?. Yes. Use the standard form as prescribed. No Utilize the form unless found not suitable. Yes. Has a ‘bespoke’ form been generated? No Certifier to develop an ‘ad hoc’ form meeting the necessary criteria/contents requirements. P. Q. R. S. T. FIG. 5-8: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART VI) © HSKS.

(74) P. R. Q. T. S. Certifier to fill in all details completely, sufficiently and correctly in certificate Are there any NSCs/Nominated Suppliers?. Yes. No Are there any official assignees?. Yes. Amount certified for such parties to be indicated separately in certificate. No No. Are all procedural requirements met? Yes. No. Are all formal requirements met? Yes. Certificate may be challenged as invalid and unenforceable, if and when issued. No. Is the signatory an authorized person under the contract? Yes Have all the relevant checks for errors, etc. been undertaken?. No. Deficiencies/ errors may compromise validity of certificate. Yes U. V. W. X. FIG. 5-9: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART VII) © HSKS.

(75) U. V. W. CA to rectify deficiencies/errors as soon as possible. Contract administrator to issue relevant certificate. Is there a certification period stipulated in the contract?. X. No. Certificate to be issued within a reasonable time of application/ valuation. No. Default in service may constitute a breach of contract on employer’s part. To be corrected/ rectified forthwith. Yes Prima facie, employer may be in breach of contract. Contractor may take appropriate action for employer’s breach. No. Is certificate issued within the said period? Yes. Contractor to be furnished with original copy. No. Is the recipient of the original copy stipulated? Yes Is the certificate issued to the stipulated person? Yes Are copies issued to the relevant parties?. No. Relevant parties have a right to demand the necessary copies from contract administrator. Yes No. Is the service of certificate formally evidenced? Yes. Y. Z. AA. AB. FIG. 5-10: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART VIII) © HSKS.

(76) Y. AA. Z. AB. Establish the specific post-certification requirements. Do the recipients formally acknowledge receipt of document?. No. Omission to acknowledge may lead to future evidential problems. Yes No. Contractor may present certificate within a reasonable period of receipt. Contract administrator to procure said acknowledgements as soon as possible. Is presentation of certificate stipulated in the contract? Yes. No. Is there a period stipulated for the presentation? Yes Is presentation formally effected within this period?. No. Delay may postpone employer’s obligation to honour certificate. Yes Does employer formally acknowledges receipt of the certificate from contractor?. No. Omission to acknowledge may lead to future evidential problems and may affect the honouring of certificate. Yes Employer to review certificate for validity. AC. AD. AE. Contractor to procure said acknowledgement as soon as possible. AF. FIG. 5-11: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART IX) © HSKS.

(77) AC. AD. AE. Are there grounds for challenging validity of certificate?. AF. Yes. Employer may challenge certificate and refuse to honour it citing the relevant grounds. No Employer to proceed with honouring certificate issued/ presented (as applicable). No. Are there any set-offs/deductions to be made? Yes. Employer must pay amount as certified to the contractor. No. Are these expressly permitted by the contract? Yes Has the amount certified less the setoffs/ deduction been established? Yes Has the final sum due been paid to the contractor?. No. Employer to determine amount due before the stipulated honouring period lapses. No. Yes Has this been done in the stipulated honouring period?. No. Employer culpable of breach of contract. Contractor to take appropriate action.. Yes. STOP. FIG. 5-12: FLOWCHART ON GENERAL PROCEDURE FOR PROCESSING OF PAYMENTS (PART X) © HSKS.

(78) RECOVERY OF THE UNPAID AMOUNT MISCELLANEOUS REMEDIES. INTEREST ON THE UNPAID AMOUNT. DEFAULT IN PAYMENT: TYPICAL CONTRACTUAL REMEDIES. RIGHT TO DETERMINE EMPLOYMENT UNDER CONTRACT. RIGHT TO REDUCE RATE OF EXECUTING WORK RIGHT TO SUSPEND WORK. FIG. 5-13 : DEFAULT IN PAYMENT - TYPICAL CONTRACTUAL REMEDIES © HSKS.

(79) CERTIFICATE WRONG ON ITS’ FACE. CERTIFICATE FUNDAMENTALLY INACCURATE. CERTIFICATE NOT IN CORRECT FORM. CERTIFICATE ISSUED BY UNAUTHORISED PERSON CERTIFICATE ISSUED IN UNAUTHORISED MANNER. INTERIM CERTIFICATES: TYPICAL CHALLENGES. CERTIFICATE ISSUED OUT OF TIME CERTIFIER ACTING ‘ULTRA VIRES’ CERTIFIER IMPROPERLY PRESSURIZED/INFLUENCED CERTIFICATE SUBJECT TO FRAUD/COLLUSION FRAUD, DISHONESTY/FRAUDULENT CONCEALMENT BY CONTRACTOR MISCELLANEOUS CHALLENGES. FIG. 5-14: INTERIM CERTIFICATES – TYPICAL CHALLENGES © HSKS.

(80) DIRECT PAYMENT BY THE EMPLOYER. PAYMENT UPON CERTIFICATION. CONTINGENT PAYMENT. PAYMENT TO SUB-CONTRACTORS: PRINCIPAL METHODS. FIG. 5-15 : PAYMENT TO SUB-CONTRACTORS – PRINICPAL METHODS © HSKS.

(81) START Sub-Contractor (SC) forwards details of amount claimed to Main Contractor (MC) officially. SC to make fresh submission in the next application No. Is it within the prescribed time limits? Yes. No. Does the MC accept the submission? Yes. MC to include SC’s details in his claim. MC to submit consolidated claim to the Contract Administrator (CA). CA to carry out the necessary valuation. CA to issue interim payment certificate to MC. Employer to pay certified amount to MC within the Honouring Period. Establish if there is a Contingent Payment Type II clause in the sub-contract. A. FIG. 5-16: FLOWCHART ON GENERAL PROCEDURE FOR TYPE II ‘CONTINGENT PAYMENT’ (PART I) © HSKS.

(82) A Is there such a clause in the contract?. No. Yes Is the period for payment stated?. No. MC may pay SC within a reasonable time of receipt of monies from the Employer. Yes Yes. Does the MC pay the SC within the said period? No SC to pursue the remedies available under the contract. Are there any contractual remedies available?. Yes. SC to initiate the contractual remedies as applicable. Yes. SC to initiate the Arbitration process if necessary. No Is there an arbitration agreement? No SC to pursue his common law remedies if necessary. STOP. FIG. 5-17: FLOWCHART ON GENERAL PROCEDURE FOR TYPE II ‘CONTINGENT PAYMENTS’ (PART II) © HSKS.

(83) PAYMENT IN ‘PACKAGE DEAL’ TYPES OF CONTRACTS: AN OVERVIEW. CONTRACT SUM ANALYSIS. PURPOSE. DRAFTING. • For Tender Analysis • For Interim Payment • Valuation of Changes/ Provisional Sums. • Normally by Contractor • Samples may be given by Employer in Employer’s Requirements. • For any Price Adjustment. GENERAL POSITION. MEASUREMENT. QUANTITIES. STRUCTURE • Given in some Forms e.g. JCT 98, PWD Form DB/T, etc. • Required for: 1. Overall Works 2. Sections or Phases. EXPRESS PROVISIONS. • Whenever used, effect not similar to TGC. • Included in most Standard Forms. • Are deemed to be only estimates. • E.g. Clause 55(1) ICE, Clause 13.1(d) FIDIC, etc.. GENERAL POSITION • As based on Lump Sum and due to nature of contract. SITUATIONS WHERE USED • Changes/V.O.s • Unforeseen Conditions. • No requirement for measurement. ERRORS/ OMISSIONS. ACCURACY • Effect of measurement expressly stipulated in some forms • Mostly deals with patent errors. PREPARATION. • Risk on Contractor. • Contractor responsible. • E.g. Clause 55(2) ICE Form. • If Employer prepares, risk for errors/omissions normally passed on to Contractor. FIG. 5-18 : PAYMENT IN ‘PACKAGE DEAL’ TYPES OF CONTRACTS: AN OVERVIEW © HSKS.

(84) FINAL AMOUNT TO WHICH CONTRACTOR ENTITLED TO UNDER THE CONTRACT. FINAL ADJUSTMENTS TO THE CONTRACT SUM. FINAL AMOUNT (SET OFFS/ DEDUCTIONS) TO WHICH EMPLOYER ENTITLED TO UNDER THE CONTRACT. FINAL ACCOUNT: PRINCIPAL CONTENTS. FIG. 5-19 : FINAL ACCOUNT – PRINCIPAL CONTENTS © HSKS.

(85) APPROVED VARIATIONS TO THE CONTRACT MISCELLANEOUS ADJUSTMENTS. ADJUSTMENT FOR PRICE FLUCTUATION, ETC.. APPROVED CONTRACTOR’S CLAIMS. ADJUSTMENT TO THE CONTRACT SUM: TYPICAL HEADS/ITEMS. ADJUSTMENT FOR P.C. SUMS/ PROVISIONAL SUMS. PERMITTED COSTS FOR TESTING, OPENING UP OF WORK, ETC.. FEES AND CHARGES FOR PERMANENT CONNECTIONS REMEASUREMENT OF ‘PROVISIONAL’ ITEMS/WORK. FIG. 5-20 : ADJUSTMENT TO THE CONTRACT SUM – TYPICAL HEADS/ITEMS © HSKS.

(86) VARIATIONS/CHANGES. © HSKS.

(87) 6.0. VARIATIONS/CHANGES. •. WHAT CONSTITUTES ‘VARIATIONS/CHANGES’ VARIATIONS/CHANGES’. •. ISSUES AS TO VALIDITY. •. PROBLEMS WITH VARIATIONS. •. INVALID VARIATION ORDERS AND EFFECTS. •. LIMITATIONS OF VARIATIONS. •. RELEVANT CASES *. SHARPE V SAN PAULO RAILWAY [1873] L.R. 8 CH. APP. 597. *. RE CHITTICK & TAYLOR [1954] 12 WWR 653. *. MITSUI CONSTRUCTION CO. LTD. V A.G. OF HONG KONG [1986] 33 BLR 1. *. CARR V JA BERRIMAN PTY LTD. [1953] 27 A.L.J.R. 273. *. COMMISSIONER FOR MAIN ROADS V REED & STUART PTY LTD. & ANOR [1974] A.L.J.R. 461. *. SIR LINDSAY PARKINSON & CO. LTD. V COMMISSIONERS OF AND PUBLIC BUILDINGS [1950] 1 ALL ER 2008. HIS MAJESTY’S WORKS. *. ANTARA ELEKTRIK SDN. BHD. V BELL & ORDER BHD [2002] 3 MLJ 321, HC. © HSKS.

(88) VARIATIONS. FACTORS DETERMINING A VALID V.O.. TYPES. ADDITION. OMISSION. HYBRID. LEGAL NATURE OF PROPOSED CHANGE. FORMALITIES. ISSUE BY DESIGNATED OFFICER. PROCEDURAL REQUIREMENTS. EXPRESS CONTRACT CONDITIONS APPLICABLE. APPLICABLE COMMON LAW RULES. FIG. 6-1: VARIATIONS: OVERVIEW © HSKS.

(89) CHANGE TO BE IN RELATION TO SCOPE OF THE WORK. A CHANGE BEING EFFECTED. SCOPE OF WORK BEING CHANGED MUST BE AS EXPRESSLY OR IMPLIEDLY CONTAINED IN CONTRACT DOCUMENTS. CHANGES/VARIATIONS: BASIC ELEMENTS. FIG. 6-2 : CHANGES/VARIATIONS – BASIC ELEMENTS © HSKS.

(90) INCREASE/ DECREASE QUANTITY OF WORK. OMIT WORK. EXECUTE ADDITIONAL WORK OF ANY KIND. CHANGE CHARACTER OF WORK. VARIATIONS: TYPICAL EXAMPLES. CHANGE SEQUENCE OF WORK. CHANGE QUALITY OF WORK. CHANGE TIMING OF WORK ACTIVITIES. CHANGE KIND OF WORK. CHANGE DIMENSIONS OF WORK. CHANGE LEVELS OF WORK CHANGE POSITION OF WORK. FIG. 6-3: VARIATIONS - TYPICAL EXAMPLES © HSKS.

(91) OMISSIONS. ADDITIONS. HYBRID. ACCORDING TO NATURE OF THE CHANGE. NSC. CONTRACTOR. TIME IMPLICATIONS CONTRACT ADMINISTRATOR. EMPLOYER. ACCORDING TO IDENTIT Y OF INITIATOR OF CHANGE. COMBINATION OF BOTH. FINANCIAL CONSIDERATIONS. ACCORDING TO CONSEQUENCES/EFFECT OF THE CHANGE. TYPES OF VARIATIONS: MAIN METHODS OF CLASSIFICATION. FIG. 6-4: TYPES OF VARIATIONS – MAIN METHODS OF CLASSIFICATION © HSKS.

(92) CHANGES IN EMPLOYER’S REQUIREMENTS. INTEFERENCE BY EMPLOYER. MALADMINISTRATION OF CONTRACT. DEFECTIVE DRAWINGS. DEFECTIVE SPECIFICATIONS. DEFECTIVE CONTRACT DOCUMENTS. ITEMS CONSTITUTING VARIATIONS. WRONG/ NEGLIGENT ADVICE FROM CONTRACT ADMINISTRATOR. DIFFERENCES BETWEEN BILLED AND ACTUAL QUANTITIES CHANGES DUE TO STATUTORY/ LEGISLATIVE CHANGES. FIG. 6-5: ITEMS CONSTITUTING VARIATIONS © HSKS.

(93) WHAT CONSTITUTES VARIATION WORKS. LEGAL POSITION. 1. Test: What is the intention of the parties at time of contracting 2. Extras: Work not contemplated by parties when contracting and not provided in Contract. 3. Works which are indispensably necessary to give effect to parties intentions: Not extra. CONTRACTS BASED ON BILL OF QUANTITIES 1. Rule: All items intended to be executed by Contractor must be provided for in the Contract. 2. All items not provided for in Contract are extras. 3. Literal interpretation/ strict construction.. CONTRACTS BASED ON DRAWINGS AND SPECIFICATIONS 1. Rule: Contract requires: a) Not only work set out in drawings and/or specifications b) But also all work incidental or necessarily required whether set out in the drawings and/or described in specifications or not. VARIATION TEST PER RE:. CHITTICK & TAYLOR 1. Item specifically provided for in Contract: ‘Not Extra’ 2. If Contractor varies, contract without an instruction: Cannot Claim for ‘Extra’ 3. If Contractor instructed by C.A. to change contract: has basis for claim for ‘Extra’. 2. Effect: Difficult to claim extra work [Re: Sharpe v Sao Paulo Railway]. FIG. 6-6 : WHAT CONSTITUTES VARIATION WORKS © HSKS.

(94) WORKS CHANGED MUST BE DEFINED IN CONTRACT DOCUMENTS. THERE MUST BE AN ‘INSTRUCTION’. VALID VARIATION ORDER: PRINCIPAL ELEMENTS. INSTRUCTION MUST EFFECT A CHANGE TO THE WORKS. ‘INSTRUCTION’ TO BE ISSUED BY CONTRACT ADMINISTRATOR OR BY AUTHORISED PERSON. FIG. 6-7 : VALID VARIATION ORDER – PRINCIPAL ELEMENTS © HSKS.

(95) COMPLIANCE WITH THE RELEVANT EXPRESS CONTRACT PROCEDURES. EXISTENCE OF EXPRESS CONTRACTUAL PROVISION PERMITING VARIATION OF WORK UNDER THE CONTRACT. VALIDITY OF VARIATION ORDERS: PRINCIPAL FACTORS DETERMINING. ISSUE OF VARIATION ORDER BY DESIGNATED PERSON. COMPLIANCE WITH THE APPLICABLE COMMON LAW RULES IN RELATION TO VARIATIONS WORKS. FIG. 6-8 : VALIDITY OF VARIATION ORDERS – PRINCIPAL FACTORS DETERMINING © HSKS.

(96) LIMITATIONS TO VARIATIONS. LEGAL POSITION. EXERCISE OF POWER BY CONTRACT ADMINISTRATOR 1.. Power to vary work confined to genuine omissions. 2.. If effect of omission is to give omitted work to 3rd Parties: Invalid Omission. CARDINAL CHANGES. SCOPE OF WORK 1.. 2.. 2.. TESTS. Power to vary confined to scope of works contemplated by parties at time of contracting.. 1. Was it in the reasonable contemplation of the parties when contracting?. If effect of variation is to substantially change scope of work (‘Cardinal Change’): Invalid Variation. 2. Although not included, can it be considered an indispensable part of the Contract?. DEFINITION 1.. NATURE. Changes which render the works substantially different from that contracted for by the parties. 3. Functionally is it similar to the intended work or some other work required by the Contract?. EFFECTS 1. General Rule: Invalid 2. Contractor cannot be compelled to carry it out 3. If compelled, breach of contract 4. If Contractor carries out work, Contract rates not applicable. FORM. TYPES 1.. Physical work changes. 1.. A Single change. 2.. Financial Changes. 2.. A large number of otherwise small permissible changes.. Constitutes a fundamental change in the scope of the Contract. FIG. 6-9 : LIMITATIONS TO VARIATIONS © HSKS.

(97) PAYMENT FOR VARIED WORK: GENERAL PRINCIPLES/METHODS. VARIED WORK OUTSIDE CONTRACT. VARIED WORK WITHIN CONTRACT. FORMULA VALID AND APPLICABLE. A ‘CARDINAL’ CARDINAL’ CHANGE i.e. FUNDAMENTALLY ALTERS CONTRACT. ABSENCE OF EXPRESS FORMULA IN CONTRACT. EXISTENCE OF EXPRESS FORMULA IN CONTRACT •. Mutually agree upon a formula/rate; or. •. Any contractual formula rendered invalid /inapplicable. •. Be paid a reasonable sum i.e. on a ‘quantum meruit’ basis, etc.. •. Whole works to be paid on ‘measure and value’ basis and on ‘altered’ or ‘adjusted’ rates. NOT A ‘CARDINAL’ CARDINAL’ CHANGE i.e. DOES NOT FUNDAMENTALLY ALTER CONTRACT •. Portion of works within scope of contract to be paid according to the contract formula (if applicable). •. Remaining works falling outside scope of contract to be paid at a reasonable rate. FORMULA INVALID AND/OR INAPPLICABLE. •. Use the formula for valuation and payment. •. Mutually agree upon a formula/rate; or. •. No right of election. •. Be paid a reasonable sum i.e. on ‘quantum meruit’ basis, etc.. FIG. 6-10 : PAYMENT FOR VARIED WORK – GENERAL PRINCIPLES/METHODS © HSKS.

(98) COST OF DELAY AND DISRUPTION COST OF VARIED WORK e.g. •. Additions. •. Omissions. • Direct loss and/or expense • Extended Preliminaries. FINANCIAL EFFECTS. DELAY AND DISRUPTION TO CONTRACT •. Extension of time to Contract Period, etc.. TIME EFFECTS. PRINCIPAL CONTRACTUAL CONSEQUENCES OF VARIATION OF WORK UNDER CONTRACT. FIG. 6-11 : PRINCIPAL CONTRACTUAL CONSEQUENCES OF VARIATION OF WORK UNDER THE CONTRACT © HSKS.

(99) VALUATION OF VARIATIONS: COMMON COMPUTATIONAL METHODS. WHERE THERE ARE RATES/ PRICES IN THE CONTRACT. WHERE WORK CANNOT BE MEASURED. •. Use of B.Q. rates. •. Use of Daywork Rates in Contract. •. Use of Schedule of Unit Rates. •. On a cost-reimbursible basis. •. Use of Adjusted Contract Rates. •. Use of Contract Prices in: a) Contract Bills; or b) Summary of Prices; or c) Contract Sum Analysis. MISCELLANEOUS METHODS. WHERE NO RATES/ PRICES IN CONTRACT •. Use of ‘Fair Valuation’ principles. •. Use of ‘Quotation’ Method. •. Use of ‘Negotiated’/’Agreed’ Rates. •. Use of ‘Negotiated’/’Agreed’ Rates. •. Use of ‘Quotation’ Method. •. Payment on ‘quantum meruit’ basis or a reasonable sum. •. Payment of a reasonable sum. FIG. 6-12 : VALUATION OF VARIATIONS – COMMON COMPUTATIONAL METHODS © HSKS.

(100) START Establish if the conditions precedent have been satisfied. Has measurement stage been satisfactorily completed?. No. Yes Has the valuation stage been satisfactorily completed?. Prima facie, premature to prepare and issue certificate concerned. No. Yes Contract administrator to prepare certificate of variation of works. No. Is there a contract provision prescribing the same? Yes. A. Yes. Are its requirements clear and complete? No Have the requirements been agreed to by the parties?. No. Yes. B. C. D. FIG. 6-13: FLOWCHART ON THE GENERAL PROCEDURE FOR THE CERTIFICATION OF VALUATION (PART I) © HSKS.

(101) A. B. C. Have the requirements been complied with?. D. No. Yes Have the particulars been completely and properly filled in?. No. Yes Is the V.O./instruction attached?. No. Yes Are the measurement and valuation details endorsed?. No. Omissions/deficiencies may render certificate invalid. No. Contract administrator to address omissions /deficiencies forthwith. Yes Has the certificate been checked for sufficiency and accuracy? Yes No. Has it been signed by the authorized person? Yes. E. FIG. 6-14:. F. G. FLOWCHART ON THE GENERAL PROCEDURE FOR THE CERTIFICATION OF VALUATION (PART II) © HSKS.

(102) E. F. No. G. Has it been prepared within a reasonable/ prescribed period of completion of measurement and valuation? Yes Contract administrator to issue certificate to the contractor. Contractor to check and undertake necessary action. No. Is the certificate sufficient and accurate? Yes. No. Has it been signed by the authorized person? Yes. Prima facie, certificate is invalid. No. Does it comply with any prescribed requirements? Yes. H. I. J. FIG. 6-15: FLOWCHART ON THE GENERAL PROCEDURE FOR THE CERTIFICATION OF VALUATION (PART III) © HSKS.

(103) H. I. J. Does the contractor agree with the content?. Yes. Contractor to formally signify acceptance. No Does he notify the contract administrator officially of his dissent?. No. Yes Are the full particulars/details given?. No. Yes Contractor obliged to give notice within reasonable period only. No. Is there a period stipulated for the giving of the notice? Yes Has the contractor met the time requirements?. No. Contractor deemed to have accepted the measurement and valuation. Yes Contract administrator to review contractor’s notice and make decision. K. FIG. 6-16:. L. M. FLOWCHART ON THE GENERAL PROCEDURE FOR THE CERTIFICATION OF VALUATION (PART IV) © HSKS.

(104) M. L. K. Yes. Is the notice sufficient and accurate? No. No. Has the contractor been asked to furnish further details? Yes Has he complied with the request?. No. Yes Is the contractor’s stand reasonable?. Yes. No Is there any reason not to reject the contractor’s application?. Yes. Contract administrator to undertake necessary amendments/ revisions. No. N. Reject the contractor’s application/notice. N. Communicate decision to the contractor. Does the contractor wish to proceed with dispute resolution?. Yes. Contractor to give necessary notice. Contract administrator to use valuation set out in the interim period. No. STOP. FIG. 6-17: FLOWCHART ON THE GENERAL PROCEDURE FOR CERTIFICATION OF VALUATION (PART V) © HSKS.

(105) VARIATIONS: PRINCIPAL REQUIREMENTS FOR ‘PACKAGE DEAL’ TYPE OF CONTRACTS. EXPRESS STIPULATIONS. EMPLOYER’ EMPLOYER’S RIGHT TO VARY. CONTRACTOR’ CONTRACTOR’S RIGHT TO VARY. • In most Standard Forms. •. • Stipulate – Extent, Procedure, etc.. •. EXPRESS EXPRESS PROVISIONS PROVISIONS • Enshrined in all Standard Forms. NEED NEED FOR FOR CONSULTATION. CONTRACTOR’ CONTRACTOR’’S S RESPONSIBILITY. • Prior to ordering V.O. • Get Contractor’s view on effect of V.O. on programme. • Be pro-active. •. Most Standard Forms have express clauses Issued by E.R./ P.D.. Permitted expressly in most Standard Forms Due to: 1. Value engineering 2. Buidability 3. Safety 4. Legal/Physical impossibility. VARIATIONS IN WRITING. EFFECT OF PROCEDURE • Formal V.O. Instruction from E.R./P.D. condition precedent to recovery of payment. • Permissible if only expressly allowed by contract • Some Standard Forms do allow e.g. ICE, FIDIC, etc. • Others are silent e.g. JKR, etc.. • Failure of Contractor to observe procedure/ formalities – may compromise recovery. • Not to unreasonably withhold consent, etc.. NECESSITY NECESSITY FOR FOR ‘‘WRITTEN’ WRITTEN’’ INSTRUCTIONS INSTRUCTIONS. CONTRACT CONTRACT PROVISIONS PROVISIONS •. VARIATIONS IN DLP/DCP. • •. Requirement for ‘Writing’ Includes: 1. Letters 2. Minutes of Meetings 3. Drawings. RECOVERY RECOVERY WITHOUT WITHOUT INSTRUCTIONS INSTRUCTIONS. ORAL INSTRUCTIONS • • •. Only if contract expressly allows Need for written confirmation Duty of confirmation either on: 1. Contractor or 2. Employer. • •. Generally no Situations where permitted: 1. If contract expressly allows 2. Under Waiver/Estoppel 3. Under concept of ‘Constructive Change’. FIG. 6-18: VARIATIONS – PRINCIPAL REQUIREMENTS FOR ‘PACKAGE DEAL’ TYPE OF CONTRACT © HSKS.

(106) DELAY AND EXTENSION OF TIME. © HSKS.

(107) 7.0. DELAY AND EXTENSION OF TIME. •. OPTIONS AVAILABLE TO EMPLOYER. •. EXTENSION OF TIME ISSUES. •. ACCELERATION OF WORKS. •. DRAFTING OF DELAY AND DISRUPTION CLAIMS. •. MISCELLANEOUS ISSUES. •. RELEVANT CASES *. PEAK CONSTRUCTION (LIVERPOOL) LTD. V MCKINNEY FOUNDATION LTD. [1970] 1 BLR 114. *. MILLER V L.C.C. [1934] 50 T.L.R. 479, 482. *. MERTON LONDON BOROUGH V STANLEY HUGH LEACH [1985] 32 BLR 55. *. WESTMINSTER CITY COUNCIL V JARVIS & SONS LTD. [1970] 7 BLR 64. •. SYARIKAT TAN KIM BENG DAN RAKAN-RAKAN V PULAI JAYA SDN. BHD. [1992] 1 MLJ 42. © HSKS.

(108) CONSEQUENCES OF DELAY: AN OVERVIEW. BY EMPLOYER (ACTS OF PREVENTION). BY CONTRACTOR. INSTRUCT CONTRACTOR TO ACCELERATE WORKS. GRANT OF EXTENSION OF TIME • Only if contract expressly permits. •. Only if contract expressly permits. • Contractor may be entitled to:. •. To meet original contract deadline. •. Contractor to be compensated for reasonable expenses incurred. 1.. Extended Preliminaries. 2.. Direct Loss and/or Expense. DUE TO NEUTRAL EVENTS. •. •. Contractor entitled to E.O.T. but not to extended preliminaries or other claims If asked to accelerate works, entitled to reasonable expenses incurred therefrom. DUE TO CONTRACTOR’ CONTRACTOR’S OWN ACTS AND/OR OR OMISSIONS • Contractor culpable. DUE TO CONTRACTOR’ CONTRACTOR’S SUBSUB-CONTRACTORS/ SUPPLIERS •. Contractor vicariously liable to Employer. •. May seek indemnity from the culpable party e.g. Subcontractor, Supplier, etc.. • May be liable for: 1. Liquidated Damages, or 2. Unliquidated Damages caused to Employer. FIG. 7-1 : CONSEQUENCES OF DELAY – AN OVERVIEW © HSKS.

(109) ‘FORCE MAJEURE’ EXCEPTIONALLY INCLEMENT WEATHER CIVIL COMMOTION, STRIKES, LOCK-OUT, ETC. LOSS OR DAMAGE TO THE WORKS OCCASIONED BY SPECIFIED PERILS CONTRACTOR’S INABILITY TO SECURE LABOUR, GOODS, MATERIALS, ETC. CARRYING OUT OF WORK BY STATUTORY UNDERTAKERS EXERCISE BY GOVERNMENT OF ANY POWER WHICH DIRECTLY AFFECTS THE WORKS. EXTENSION OF TIME: COMMON ‘RELEVANT EVENTS’ FAILURE OF EMPLOYER TO GIVE POSSESSION/ACCESS IN TIME DELAY IN THE SUPPLY OF INFORMATION/INSTRUCTIONS VARIATIONS AND EXTRA WORKS COMPLIANCE WITH CONTRACT ADMINISTRATOR’S INSTRUCTIONS DELAY ON PART OF NOMINATED SUB-CONTRACTORS/SUPPLIERS EXECUTION OF WORK NOT FORMING PART OF THE CONTRACT LATE SUPPLY OF MATERIALS BY THE EMPLOYER OTHER SPECIAL CIRCUMSTANCES. FIG. 7-2 : EXTENSION OF TIME – COMMON ‘RELEVANT EVENTS’ © HSKS.

(110) DEFERMENT/POSTPONEMENT IN GIVING SITE POSSESSION OTHER ACTS OF PREVENTION EXPRESSLY PERMITTED BY THE CONDITIONS OF CONTRACT. LATE SUPPLY OF INFORMATION, DRAWINGS, INSTRUCTIONS, ETC.. ‘ACTS OF PREVENTION’: TYPICAL EXAMPLES. LATE SUPPLY OF MATERIALS BY THE EMPLOYER. EXECUTION OF WORK NOT FORMING PART OF THE CONTRACT. COMPLIANCE WITH CONTRACT ADMINISTRATOR’S INSTRUCTIONS, DIRECTIONS, ETC.. FIG. 7-3 : ‘ACTS OF PREVENTION’ – TYPICAL EXAMPLES © HSKS.

(111) ‘FORCE MAJEURE’ DELAYS BY NOMINATED SUBCONTRACTORS/SUPPLIERS FOR THE SAID ‘NEUTRAL EVENTS’. EXCEPTIONALLY INCLEMENT/ ADVERSE WEATHER. ‘NEUTRAL EVENTS’: TYPICAL EXAMPLES. CIVIL COMMOTION, STRIKES, LOCK OUTS INDUSTRIAL ACTION, EMBARGOES, ETC.. CONTRACTOR’S IN ABILITY TO SECURE LABOUR, GOOD, MATERIALS AND/OR OTHER RESOURCES LOSS/DAMAGE TO THE WORKS OCCASIONED BY SPECIFIED PERILS OR CONTINGENCIES. FIG. 7-4 : ‘NEUTRAL EVENTS’ – TYPICAL EXAMPLES © HSKS.

(112) CAUSE OF THE DELAY. ALL OTHER SUPPORTING RECORDS, DETAILS, ETC.. APPROPRIATE CONTRACT REFERENCES TO SUCH EVENT OF DELAY. SCHEDULING DOCUMENTATION. DETAILS OF EFFECT OF DELAY ON WORK PROGRAMME. APPLICATION FOR EXTENSION OF TIME: TYPICAL CONTENTS. ESTIMATE OF THE EXTENSION OF TIME REQUIRED. ESTIMATED LENGTH OF THE DELAY STEPS TAKEN/PROPOSED TO MINIMIZE/AVOID DELAY. FIG. 7-5 : APPLICATION FOR EXTENSION OF TIME – TYPICAL CONTENTS © HSKS.

(113) OFFICIAL WORK RECORDS OFFICIAL PROGRESS REPORTS SITE DIARIES LETTERS, INSTRUCTIONS, ETC. MEMORANDA FACSIMILE TRANSMISSIONS, ETC. DRAWINGS, ETC.. EXTENSION OF TIME APPLICATION: TYPICAL SOURCES OF INFORMATION. OFFICIAL MINUTES OF MEETING WORK PROGRAMMES, ETC. RECORDS/REPORTS FROM AUTHORITIES/INDEPENDENT BODIES, ETC. SHIPPING/AIRFREIGHT RECORDS, ETC. PROCUREMENT RECORDS, INVOICES, ETC. DELIVERY ORDERS OTHER MISCELLANEOUS RECORDS, DOCUMENTS, ETC.. FIG. 7-6 : EXTENSION OF TIME APPLICATION – TYPICAL SOURCES OF INFORMATION © HSKS.

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