A SEMINAR

ON
TI-IE PAM 2006 CONTRACT
(yd November 2007)
by
Sr. Low Khian Seng
Baharuddin AI i & Low Sdn Bhd
History of the rAM Forms
The PAMfISM 69 Form was based OD the RIBA 1963 Form.
The RlBA 1963 Form was a revision of the RIBA 1931 and
1939 Form.
The earlier Forms of Contract in Malaysia, Singapon and
Hongkong was based 011 the RlBA 1963 Form. Therefore case
law in the UK, Singapol"e and HK was applicable to
Malaysian cases.
The Forms of Contract was re-drafted in UK itt the 1980 nllel
was kRown as dteJCT 1980 Form. It has since been revisetfa
number of times.
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In Singapore, the SIA commissioned Duncan Wallace to re-
draft the Forms in 1980 and the SIA Form has also since
undergone a number of amendments.
Because the revised contracts in the UK and Singapore, case
law after 1980 were not as applicable.
In Malaysia, the Form of Contract was revised in 1998 (29
years after the PAM/ISM69 Form).
The PAM 2006 Contract was a project that took 5 years of
consultation and drafting work.
A clause by clause explanation was presented at a PAM
organized workshop in October 2005 when the 'final' draft
was completed. Following the workshop, participants offered
a number of constructive comments during the workshop and
after the event.
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The PAM Contract Review Committee deliberated on these
comments and where appropriate, the comments have been
incorporated in the PAM 2006 Contract.
A number of people representing various sectors of the
constructional industry also participated at some drafting
sessions.
The Forms were launched by the Minister of Works in April
2007.
The suite of forms comprised:
PAM Contract 2006 (with quantities)
PAM Contract 2006 (without quantities)
PAM Sub-Contract 2006
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The principles behind the drafting of the
contract.
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Architect is an "individual" in the PAM 98 Form
"•. ..such other person" in the Article is intended to mean "the name
of the individual who is to act as Architect" - not the name of the
practice.
".. or in the event ofhis death.... "
Can only refer to an individual. A company cannot die - they can be
insolvent.
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There is a distinction in Clause 27 between ''person'' and
"companies".
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The following are quotations from the Rajoo on the PAM 98
Form:
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At Page 40 - The title of "Architect" in the Contract is therefore
restricted to an individual who is so registered by the Board of
Architects. "
"..... Therefore, the architect who is the identified contract
administrator to supervise and administer the building contract
must be an individual.... "
".... While it is still common practice, for reasons ofefficacy, for
the name ofthe architectural practice to be stated as Architect, it
is submitted that this may be invalid.... "
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Three reasons were provided to substantiate the approach
taken in the PAM 98 Form to name the Architect as an
"individual" and not the "name ofthe practice":
(1) Quote page 40
"Thus, the contract is consistent with the Architects Act 1967
which restrict the usage ofthe word 'Architect' to a person as
such by the Board ofArchitect.... "
This was the position up to 1992. The Act has since been change.
See new Section 7A and 7B.
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• BEPAkitek v Pontiac Land [1992J ISLR251- the Architect
failed to recover fees because BEP Akitek as a firm was not a
registered architect under the Architect Act.
At that time, the Act allows only individual to be "registered
Architect".
• Kerajaan Malaysia v Cheah Fong Chiew [1993J 2 MLJ 439-
the defendant was a partner in a consulting firm. When Cheah,
a registered engineer was sued by the Government for
negligence, the court held that Cheah was not liable as the
Government's contract was with his firm and not with Cheah.
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Section 7A ofthe Architects Act:
"Notwithstanding section 7(1), a sole proprietorship. partnership
or body corporate may practise as an architectural consultancy
practice , ifit is registered with the Board as an
architectural consultancy practice and has been issued with a
certificate ofregistration. "
Section 7A allows various types of architectural practices.
Section 7B of the Architects Act:
"Where a body corporate carries on practice ofproviding
architectural consultancy service, professional engineering
services and/or quantity surveying services, the Board may
....register that part ofthe practice providing architectural
consultancy services. "
Section 7B allows the setting up of a multi-disciplinary practice
with other building professionals.
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(2) Quote page 40
"This newprovision in Article 3 ....which is notfound in the
PAMIISM 69 Form, clarifies the case ofGunung Bayu Sdn Bhd v
Syarikat Perlis Sdn Bhd [1987J 2 MLJ 332 .... "
The Gunung Bayu case - a 1987 decision was not a decided case.
The case was referred to arbitration.
An arbitration award is confidential and does not bind later
cases.
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(3) Quote page 40/41
"The law relating to building control... requires that/or any
building work.... A Qualified Person (QP) must be appointed/or
both the design and the supervision .... The Kuala Lumpur By-law
3 defines QP as 'any architect, . .. engineer"
That the requirement for an "individual" as the Architect is
consistent with the building control legislation for a named
Qualified Person ('QP')
It is necessary to distinguish the requirements in a building
contract and the requirements ofthe building authority.
The Client may have appointed the architectural practice as the
Architect and not the individual named.
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Consider caselaw:
Merrett v Babb [2001J EWCA Civ 214. The Valuation Surveyor
signed a certificate containing the following words "I certify that I
am not disqualified under the Building Societies Act from making
this report." Even though it was signed under the Company, he was
held personally liable. The court held that there was "an assumption
o/personal responsibility to create a special relationship between the
two parties"
So an Architect who signs a declaration to the Authority that the
work has been carried out in accordance with the plans and
complying with the building bye-laws may be personally liable
under the Merrett v Babb principle, even if the declaration was
signed under the company's name.
In other words, it is immaterial whether the Architect signs as a
company or an individual, as far as the authority is concerned, this
statement would make him personally liable.
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PAM 2006 Contract has rectified the PAM 98 position.
Article 7(aq)
"Person" means "an individual, sole proprietorship, firm
(partnership) or body corporate"
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"•. .not being a person to whom the Contractor shall object... "
The Contractor has a right to object to the appointment of a
replacement Architect.
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"..for reasons considered to be sufficient by an Arbitrator... "
What happens if the objection becomes an arbitration issue? If there
is an arbitration issue - there will be delay and cost to the project,
not to mention potential claim by purchasers if it is a housing
project.
"...the Employer shall nominate and appoint within 28 days a
succeeding Architect... "
The Employer would be in breach of contract if he fails to appoint
an Architect within the time.
The Contractor could orchestrate the Employer to breach by
bringing the objection to arbitration, thereby making it impossible
for the Employer to have a replacement Architect within 28 days.
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PAM 2006 Contract
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• Remove right of objection. As long as the Employer retain
an Architect (who is registered as a Professional Architect
under the Act) there should not be any reason to object.
• Delete from the PAM 98 Form: not being a person to whom
the Contractor shall object (or reasons considered to be
sufflcient by an Arbitrator appointed in accordance with
Clause 34.0 ofthe Conditions.
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Responsibility for temporary work
PAM 98 Form deals only with site operations and methods of
construction.
There is no mention of responsibility for temporary works,
which is the more important item.
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PAM 2006 Contract - Clause 1.2:
"Unless designed by the Architect or Consultant, the Contractor shall
befully resp iblefor the adequacy, stability and safety ofall
temporary nd ofall methods ction ofthe Works,
irrespective ofany approval by the Arc r Consultant.
PAM 2006 clarified:
(1) The Contractor is responsible for temporary work and methods
of construction where he is responsible for design or where the
consultant provided no design.
(2) The responsibility is irrespective of whether there is approval or
consent by the Architect of such works.
(3) The Contractor is however NOT responsible if the design for
the temporary works or methods of construction are designed
by the consultant - example: basement sheet piling. In that case,
the Contractor's responsibility is to carry out the work in
accordance with the consultant's design.
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• The PAM 2006 deals only with the Contractor's contractual
responsibility to the Employer.
• Note recent case judgment on the Architect's duty.
• Hart Investment v Fidler held that:
even though a professional was not responsiblefor temporary
work, he could be liable to the Employer ifthe temporary work
was deficient and caused the Employer loss - example:
collapse ofscaffolding affect some permanent work. The
professional has a duty to warn the contractor ifhe notice that
the temporary work was deficient. The danger could be to
person or property.
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Duty of Care
The PAM Contract and the NSC Forms are both drafted as
construction only contracts (not design and build contracts),
although very often, there may be some design elements.
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This happens when a Contractor proposed alternative designs
to the consultant's design (example: piling alternative or r.c.
design alternative)
or
carry out design to meet performance specification (example:
curtain wall or air-conditioning design.)
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There are currently NO expressed provisions in the PAM 98
Form on the standard duty of care. In the absence of express
provisions, we can only rely on implied terms to the Contract.
There are two important duties:
1. the obligation to use reasonable skill and care and
2. the obligation to ensure that the end product is "fit for its
purpose."
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"Skill and care" - If you are an architect, the standard of skill and
care will be the standard of your peer and fellow members of your
own profession. So if your peers judge that you have done your best,
then you will not be held liable because you would have carried out
your work with skill and care. In short the "Bolam" test (Bolam v
Friern Hospital Management)
Recent Federal court case of Foo Fio Na v Dr Soo Fook Mun may
extend the liability. The Court imposed the "Roger" test (Australian
case of Rogers v Whitaker)where it was stated:
".. .it has been accepted that the standard ofcare to be observed by a
person with some special skill or competence is that ofthe ordinary
skill person exercising andprofessing to have the special skill. But the
standard is not determined solely or even primarily by reference to the
practicefollowed or supported by a responsible body ofopinion in the
relevany profession or trade instead, the courts have adopted
the principle that, while evidence ofacceptable medical practice is a
useful guide for the courts, it is the courts to adjudicate on what is the
appropriate standard ofcare.... "
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• "Fitness for purpose" - if you are a design and build contractor
and the product you build fail for whatever reasons, then you will
be liable even if you had carried out your work with your best skill
and care.
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Where the Contractor and NSC carry out the construction,
but do not carry out any designs - the implied duty of care
will be reasonable skill and care.
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The Architect and the Engineer carries out the design, but do
not carry out the construction - the implied duty of care will
be reasonable skill and care.
If the Contractor or the NSC carries out the construction and
the design, whether in the design of temporary works or as an
alternative to the consultant's design, the implied duty of care
for the portion of work will be "fit for purpose".
If the Contractor or NSC carries out the construction and the
design to meet the performance specification in the contract,
the implied duty will be "fit for purpose."
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Greaves (Contractors) Ltd v Baynham Meikle & Partners
(1975)
Lord Denning said: "Now, as between the building owners and
the Contractors, it is plain that the owners made known to the
Contractors the purposefor which the building was required, so
as to show that they relied on the Contractor's skill and
judgment. It was, therefore, the duty ofthe Contractors to see
that the finished work was reasonably fit for the purpose for
which they knew it was required. It was not merely an obligation
to use reasonable care. The Contractor was obliged to ensure
that the finished work was reasonablyfit for the purpose" .
A designer working under a design and build contractor may
therefore carry a 'fit for purpose' liability following this case.
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Independent Broadcasting Authority v EMI Electronic
and BICC Construction (14 BLR 1).
If the NSC carries out design and build, the NSC will
therefore have a "fit for purpose" liability.
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If the Contractor accepts the NSC, NSC's liability for
"fit for purpose" will be pass on to the Contractor in his
relationship with the Employer, unless there is an
exemption of that liability in the Main Contract.
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The PAM 2006 Contract has such a clause to exclude the
Contractor's Fit for purpose liability.Uyou do not have such a
clause, the Contractor can always refuse to accept the nomination
because of unacceptable and unknown risk.
To maintain the chain of liability, the NSC will be required to enter
into a collateral agreement with the Employer and will be responsible
to the Employer for the "fit for purpose" liability.
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Under JCT Contract (with Design), the liability is skill and care
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The JCT Design and Build Contract reduced the Contractor's
implied liability for "fit for purpose" by expressly providing that the
Contractor's liability is similar to an architect or other professional
designer undertaking design services. That liability is to use
"reasonable skill and care" .
This Clause has been removed by most lawyers in UK advising
construction contracts using the JCT Contract (with Design).
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15
erials, goods and w
all ensure that such works
Although it is not necessary to expressly state the "fit for purpose"
liabilities in the above clause because it is implied, the PAM 2006
Edition has expressly stated it so that there is no doubt about the
liability :
when the Contractor propose any alternative designs
- eg: alternative structural system.
when the Contract leaves any matter of design, specification or
choice of materials to the Contractor
- eg: performance specification for curtain wall design.
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Architect's Instruction
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Instructions that are issued in writing
and
".. ..issues an instruction otherwise than in writing.... "
Means "Verbal instructions"
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What is the meaning of 'instructions in writing'?
Quote from the Rajoo on PAM 98 Form - page 75:
"There is no requirement that the instruction be in any specific form
as it is merely to be "in writing" As such the practical solution is
thereforefor the architect to write the instructions in the contractor's
site record book immediately and thus comply with Clause 2.5"
".. ... instructions do not have to be in any particularform, although to
avoid disputes on what was intended should use clear words.
Instructions given in electronic media (through the internet) may be in
writing."
"The main purpose ofsite meeting minutes is to record the events that
have taken place. However, it is submitted that ifsite meeting minutes
are prepared and sent by the Architect to the Contractor, any
instructions recorded therein would operate as confirmation under
Clause 2.5(i)."
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In the current age of ISO, and the tendency to issue a multitude of
documents, there may be difficulties to recognized "what is an instruction in
writing" ifit is issued in all sorts of written form, example: issue of
drawings via transmittal forms, letters which may constitute 'written'
instructions.
The importance of proper documentation cannot be more important when
reference is made to PAM 98 Form Clause 25.1(vi) where it provided that:
"The Employer may determine the employment ofthe Contractor under the
Contract ifthe Contractor has persistently refused orfailed to comply with a
written instruction from the Architect. "
As written instructions do not need to be in any specific form, the
Contractor can default without being fully aware of it.
Since the Employer has a ground for determination if the "ifthe Contractor
fail to comply with a written instruction.... ", it is important that there should
be no ambiguity on what is an "instruction".
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It is essential that for proper contract administration that all
instructions are properly documented.
Possible Problem
The Employer requires the Consultants to obtain the
Employer's consent before issuing an instruction that has a
financial effect. If minutes of site meetings, email
communication, or comments written in the daily site record
books resulted in a claim from the contractors for complying
with an Architect's instructions, then the consultants may be
liable to the Employer for breaching the Employer's
requirement of 'no variations without authorisation'.
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• PAM 2006 Contract - Clause 2.2:
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All instructions issued by the Architect shall be in writing
expressly entitled "Architect's Instruction" ('AI'). All other
forms ofwritten instructions including drawings issued by the
Architect shall be an AI:
2.2(a) upon written confirmation from the Contractor entitled
"Confirmation ofArchitect's Instruction" ('CAl'); or
2.2(b) upon subsequent confirmation ofthe written
instructions by the Architect with an AL
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Under the PAM 2006 Contract, there is no provision for 'verbal'
instructions.
The PAM 2006 Contract encouraged that all instructions must be
issued on the Standard Architect's Instruction proforma.
The Architect may continue to issue instructions by means of
drawings, minutes of meeting or any other type of documents in
writing. This will be considered as "instructions in writing" but
must still be confirmed by an AI or CAl.
The AI should have serial numbering. The requirement for serial
numbering is to enable everyone to have a reference point when an
AI is issued (example: if 20 AI are issued in a day - at least we know
there were 20 AI's and not 18).
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The issue of proper numbered AI will enable the Architect to have
more control, in particular where other consultants may have also
issued instructions.
For the QS, it is a format to maintain better cost control as
contractors will be paid when there is an AI or a CAl.
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This will also encourage Contractor to have a better control over
their operations on the site and also ensure that they are reimburse
for all work covered by an AI or CAl.
Contractors now do not have to worry if the Architect has yet to
issue an AI. The scheme of things is that the Contractor can confirm
the architect's written instructions which for example, has been
minuted by a CAl with the relevant written instruction attached.
The Architect therefore cannot refute that he has not ordered an AI.
The CAl also must also have serial numbering.
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This is an unusual clause in the PAM 98 Form. It means that
Architects' instructions must be sent by registered post or
recorded delivery. It can also be left at the site office as long as
there is an acknowledgment.
PAM 2006 has a new Clause 36 on 'Notices' to avoid this
problem.
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Letter of Award
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Contract Bills as defined also include: the Letter of Award.
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Can be read as follows:
Nothing contained in the Contract Bills ("Letter of Award") shall
over-ride, modify or affect in any way whatsoever the application or
interpretation of that which is contained in these Conditions (which
means the "Conditions of Contract").
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PAM 2006 Contract - Clause 3.
Documents s mutually explanatory of
In the e t or inconsistencies between
any ofthe Contract Document, the priority in the interpretation of
such documents shall be in the following descending order:
3.1(a) the Letter ofAward:
3.1(b) the Articles ofAgreement;
3.1(c) the Condi ofContract;
3.1(d) ontr Drawings;
3.1(e) Contract and
3.1(f) other documen incorporated in the Contract Documents,
unless expressly stated to be excluded in any ofthe Contract
Document."
The Contract Documents has been redefined. There is a priority of
documents in the event of conflict between documents.
The Letter of Award has been given the first priority to recognize the
probability that Employer frequently have special conditions in the Letter
of Award that may conflict and over-ride the Conditions of Contract.
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As-built Drawings
Some As-Built drawings and 0 & M manual are required on CPC
whereas others can be prepared before the DLP. So it is not
appropriate to say that all As-Built and 0 & M manual must be
submitted within 3 months. This very much depends on each project
requirement.
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As-built drawings describing the Works as-built under Clause
3.10 may be interpreted to mean that the Contractor has an
obligation to provide Architectural As-built drawings even if
the Contractor have not carried out any designs and has
constructed the Works to the Architect's design.
This should not be the obligation of the Contractor - the
obligations of the Contractor should be to provide As-built
drawings if he has carried out the designs or provide As-built
drawings if such requirement is specified in the contract,
example: pile position or finished earthwork levels.
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The requirement that the Contractor has to provide
Architectural As-built drawings, will conflict with the
Architect's basic services as defined in item 5(4)(vii) of Part II
of the Architects Rules 1986 which is clear that the Architect
scope of work includes:
"providing a set ofdrawings showing the building as
constructed and obtainingfor the client the drawings of
building services as installed together with all warranties and
maintenance manual as provided in the contract. "
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06 Contract - Clause 3.10
ntractor shall s shall cause any
Contractor upply As- "ngs and/o
ma anuals specified in the Contra
No documents in the manner ithin the
time specifie a d, the Contractor shall
supply.. .••• .... before the Compl
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PAM 2006 Contract clarified the types of As-built drawings
and/or 0 & M manuals to be provided by the Contractor:
1) As-built drawings and/or 0 & M manuals where the
Contractor has provided design.
2) If the Architect require any other as-built drawings where
the Contractor has not carried out any design this must be
specified in the Contract documents. Example: As-built
pile positions, final earthwork levels ...
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PAM 98 gave the Contractor a 3 month period to submit the
As-built and 0 & M manuals. This may not be practical as
some of the As-built drawings and 0 & M Manuals are
required upon Practical Completion for CF purposes.
PAM 2006 Contract requires that the As-Built and/or
operation and maintenance manuals shall be supplied "in the
manner and within the time specified.. "
The Contractor's obligation on As-built drawings and 0 & M
manuals extend to NSC documents.
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Variations covers 'change to ultimate use ofthe Works'
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Variation shall include any changes which may be designed to
alter the ultimate use to which the Works "
This may mean that if you change an apartment block to a Hotel, it
would be considered as a variation and the rates in the BQ would
apply.
The risk to both the Employer and Contractor are unpredictable.
There will be delay caused by authority approval due to change of
use.
The variation could be a substantial omission or addition to the
original sum.
There will be many items in the original contract not catered for,
example, I.D. works and special services will be required for hotels
as compared to a medium cost apartment.
This part of the Clause is deleted from the PAM 2006 Contract as
the provision is not practicable.
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New provision for carrying out variation pending valuation
ontract - Clause 11.2:
issue an AI ordering a Variation .••.... Pending
the valuation 0 Variations, the Contractor s ry out with due
diligence and expedition all Variations so instru
"Pending the valuation ofthe Variations, the Contractor shall carry
out... "
The PAM 98 has no such equivalent Clause.
This Clause clarified that that the Contractor have a duty to comply
with an AI and that the valuation ofthe Variations is a separate
matter. It cannot be used as an excuse that the Contractor will only
carry out the work only when the price has been agreed.
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New provisions to issue Variation up to issue of CPC
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There is no express provision in the PAM 98 Form whether the
Architect can order a variation when he has already issued a
Certificate of Non Completion and the work is still in progress.
The PAM 2006 Contract clause expressly provides that Variations
can be issued up to the date of Practical Completion.
Note that the date of Practical Completion can be after the CNC has
been issued.
After CPC, the Architect can issue Variations only if it is to comply
with new requirements from the Authorities and the Service
Providers' requirement. The Contractor is bound to perform the
works at rates which may be different from the Contract rates.
Ifthe Architect has to issue Variations after the CPC which is not
due to Authorities and the Service Providers' requirement, the
Contractor is not bound to perform the works.
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Loss and expense caused by a variation
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"lithe Contractor applies..... "
It was held in Merton v Leach that the above statement did
not imposed an obligation on the Contractor to apply.
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"•. a Variation.... has caused the Contractor direct loss and/or
expense..... "
The term "loss and expense" is usually related to damages for
breach of contract. Section 74 of the Contract Act define it as
"any loss or damage caused .... which naturally arose in the
usual course ofthings from the breach... " [first limb of Hadley
v Baxendale].
Loss and expense will include amongst others claims for loss
of profit, financing charges, head office overheads.
It is doubtful that a variation can cause direct loss. If the
variation affects the regular progress of the Works and the
contractor suffers loss and/or expense, it is covered under
Clause 24.
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It is possible that a variation can caused additional expenses which
may not be paid under any other provisions.
Example: if the architect instructed the contractor to pour 100m3 of
concrete at the penthouse level of the building after the contractor
has removed his tower crane, the contractor should be able to
recover his additional expense to hire special crane facilities to pour
the concrete at that high level.
PAM 2006 Contract - Clause 11.7:
"Where a Variation has caused or is likely to cause the Contractor to
incur additional expenses for which he would not be paid under any
provisions in Clause 11.6, the Contractor may make a claim for such
additional expenses provided always that..... "
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PAM 98 procedure for claims for loss and expense
The procedure for claim submission for loss and expense caused by
a variation under PAM 1998 are as follows:
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Under the PAM 98 Form, the Contractor can apply anytime if
a variation has caused him loss and/or expense.
The Architect shall ascertain the amount of the loss and/or
expense.
If the Architect cannot assess because of insufficient
information, the Architect has to request information from
the Contractor.
In practical terms, the Architect will not assess any claim
unless the Contractor submits his particulars. The important
point here is that the Contractor has no time limit to submit
his claim.
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PAM 2006 has a two stage process for any claims. Notice is a
condition precedent to a claim.
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"The giving ofsuch written notice shall be a condition
precedent to any entitlement.... "
Written notice together with an initial estimate is a condition
precedent to a claim.
On completion of the Variation, the Contractor has 28 days
(unless the Architect agrees to give him more time) to submit
his final claim. If he fails to comply, he will be deemed to have
waive his claim.
This process is to enable the parties to finalise all claims when
matters are fresh, rather than inflated claims later on.
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To explain this Clause, it is best to quote the Reference Book on the
PAM 98 Form - page 127:
"..... The words reverse the ordinary rule ofcontractual interpretation
whereby the written words in a contract prevail overprinted
conditions"
"Clause 12.2 expressly states that the printed form is to prevail over
written words. [fany Contract Bills provision attempts to modifY or
override or affect the printed conditions in any way, the printed
conditions will prevail. Thus, a special clause in the Contract Bills
which conflicts with one ofthe printed conditions will be ignored."
Baharuddin Ali & Low Sdn Bhd 61
"Clause 12.2 ofthe PAM1998 Form reverses the above rule.
Instead it precludes the arbitrator or court from looking at any
special Contract Bill provisions to see what the real intentions of
the parties... "
What this means is that, in the event ofany conflict between any
written words in any special written documents such as the
Letter ofAward and the Contract Bills, Clause 12.2 expressly
states that the printed Conditions in the PAM98 Form shall
prevail over the Letter ofAward and the Contract Bill.
Baharuddin Ali & Low Sdn Bhd 62
31
PAM 98 - Letter of Award cannot override the Contract Conditions
"Nothing contained in the Contract Bills [Letter of Award] shall
override, modify or affect in any way whatsoever the application or
interpretation of that which is contained in these Conditions
This interpretation also applies to all documents comprising the
Contract Bills [example: Contract particulars included in the
Preliminaries]
Baharuddin Ali & Low Sdn Bhd 63
So under the PAM 98 if there is a conflict between the Letter
of Award or the Contract Bills with the printed PAM 98
Form, the printed PAM 98 Form will prevail over the Letter
of Award or the Contract Bill. The provisions in the Letter of
Award or the Contract Bill will be of no effect.
Any special requirements stated in any of the above
documents, if it conflicts with the Conditions of Contract, will
be of no effect. This includes any special terms and conditions
agreed by the parties which has been incorporated in the
Letter of Award.
A provision in the Contract Bills to delete Clause 12.2 may not
be valid, as the Conditions will prevail over the Contract Bills.
Baharuddin Ali & Low Sdn Bhd 64
32
Lord Denning in English Industrial Estate v George Wimpey 7
BLR 122, found this clause so offensive that he was even
prepared to disregard them as a matter ofpublic policy
Duncan Wallace said that that this clause is notorious and
that "such artificial priority between documents can only
produce injustice..... seeking to put forward an interpretation of
the contract which departs from the parties' true intention.... "
Vincent Powell-Smith in his book on the PAM/ISM 1969
Form said that: "the clause should be entirely deleted as in
practice it often defeats the true intentions ofthe parties and
there is no legal or logical justification for its inclusion"
Baharuddin Ali & Low Sdn Bhd
PAM 2006 Contract
Clause 12.2 of the PAM 98 Form has been deleted.
65
Although Clause 12.2 has been deleted, this deletion is not to
encourage professionals to amend the Forms on an ad-hoc
basis. Suggest they seek proper advice.
Amending one clause may have repercussion on other
Clauses.
Any amendments carried out to the Main Form MUST also
be carried through to the NSC Form.
If there are conflicts between Clauses, the Court may apply
the contra proferetum rule. This means if there is any doubt, it
will be interpreted in favour of the Contractor.
Baharuddin Ali & Low Sdn Bhd 66
33
Amending Forms of Contract
Example of inconsistent amendments:
when consultants amended the period ofhonouring certificates
in clause 30.1 of the PAM 98 Form from 14 days to 60 days, they
often forget to amend the relevant Clause 11.4 of the NSC
Form.
As a result of this inconsistent provision, the Contractor has to
pay the NSC within 14 days whereas the Employer need only
pay the Contractor within 60 days from the date of the
certificate.
Baharuddin Ali & Low Sdn Bhd
Example of Inconsistencies in the EDT Clause in PAM 98
67
Baharuddin Ali & Low Sdn Bhd 68
34
Example of consistent amendments in PAM 2006 Contract:
The Clause in the PAM 2006 NSC Contract need not be
changed irrespective ofthe terms of payment in the main
contract.
Baharuddin Ali & Low Sdn Bhd
Payment for Materials
69
"•. ..goods intendedfor and delivered to or placed adjacent to the
Works.... "
Under this Clause, as long as the materials are "intended" for the
Works, the Employer may have to make payment.
This will include payment of materials used for temporary works -
example: formwork materials, sheet piling and strutting.
Baharuddin Ali & Low Sdn Bhd 70
35
Difficult to make payment for temporary sheet piling etc., especially
if they are old materials.
PAM 2006 Contract expressly provides that claims for materials
must be for materials to be incorporated in the permanent work.
Baharuddin Ali & Low Sdn Bhd
Materials paid for becomes the property of Employer
71
This clause is similar to Clause 14 of the PAMIISM 69 Form.
This clause have been held insufficient to defeat a Retention of Title
('ROT') in the event ofthe Contractor's insolvency.
Baharuddin Ali & Low Sdn Bhd 72
36
Under PAM 98 - the materials will only be included in the interim
certificates, after the contractor has paid his supplier full payment
The Clause was intended to solve Retention of title ('ROT') or
'Romalpa' problems on the premises that ifthe Contractor has paid
his supplier, he will have good title to the materials.
Explain ROT or 'Romalpa' problems
Baharuddin Ali & Low Sdn Bhd
Off-Site Materials
73
According to Rajoo, this clause is for payment for materials off-site
in the Main Contract.
There is no similar provisions in the NSC Contract to pay the NSC
for off-site materials.
Baharuddin Ali & Low Sdn Bhd 74
37
If the employer has to pay for materials off-site, there should be
provisions in the PAM 98 Form to protect the Employer's interest,
when such payments are made.
Consider the following problems:
(a) How do you ensure that the Employer has the ROT. Not all
materials can be identified for "ROT'.
Example: glass for curtain walling, steel members for
trusses.
(b) How do you protect the materials from falling in the hands
of receivers in the event of the contractor or sub-contractor
or supplier's insolvency.
(c) How do you distinguish the materials belonging to the
Employer from that belonging to others.
(d) What happens if say payment was made for lift equipment,
and it was later found that some equipment was not in
compliance with specification?
Baharuddin Ali & Low Sdn Bhd
PAM 2006 Contract
75
No provisions have been made to pay for materials Off Site. It
is suggested that if materials off the site is to be included in
payment certificate, it should be dealt with in a separate
module provision.
Baharuddin Ali & Low Sdn Bhd 76
38
to have made a false warranty, any I
be made good by the Contractor or shall be set-off
Clause 30.3 of PAM 1998 requires for payment of materials to be
included in payment valuations only after the Contractor and the
Sub-Contractor has paid for the materials. This is also insufficient to
ensure that the Employer have a "retention of title ('ROT') on the
materials" since it is not possible to ensure that the Contractor
suppliers and sub-suppliers etc., has no ROT on the materials
supplied by them.
Baharuddin Ali & Low Sdn Bhd 77
As the Clause is not practicable and also to avoid the problem of
ascertaining titles, this Clause imposed an contractual obligation to
the Contractor that when he applies for payment, he has to warrant
that he has title, so that when payment are made to him, the title will
be deemed transferred, and if he does not have title, then he will be
liable to the Employer for breach of the warranty.
The PAM 2006 Contract has reverted to paying for materials on site
without the requirement that the Contractor have to pay his
Suppliers in full.
PAM 2006 Contract -Clause 14.4 therefore provides a contractual
remedy which the Employer can take against the Contractor in the
event the goods, having been paid has been repossessed.
ROT is a difficult problem.
Baharuddin Ali & Low Sdn Bhd 78
39
PRACTICAL COMPLETION
Practical completion is perhaps easier to recognise than
to define. So perhaps it is prudent to brief on the current
state of the law relating to Practical Completion.
In Westminister County Council v J Jarvis, Salmon LJ in
the Court of Appeal said: "..J take it that these words to
mean completion for all practical purposes, that is to say,
{or the purpose orallowing the employer to take possession
ofthe works and use them as intended.... "
Baharuddin Ali & Low Sdn Bhd 79
Contractors no doubt were more than pleased with this
definition, but unfortunately, the problem was later confused
when in the same case on appeal at the House of Lords,
Viscount Dilhorne said:
"This contract does not define what is meant by "practically
completed". One would normally say that a task was completed
when it was almost but not entirely finished: but "practical
completion" suggest that that is not the intended meaning and
that what is meant is the completion oCall construction work
that has to be done.... "
Baharuddin Ali & Low Sdn Bhd 80
40
The courts made a further attempt to define Practical
Completion in H. W. Neville (Sunblest) Ltd v William Press &
Son (1981) 20 BLR 78. In this case defects occurred after
practical completion of a preliminary work contract which
delayed a follow on contract. Here the judge sided with the
views of Dilhorne in saying
"1 think the wordpractically complete....gave the Architect a
discretion to certify that the Contractor hadfulfilled its
obligation..... where very minor de minimis work had not been
carried out, but ifthere were any patent defects ....the Architect
could not have given a certificate ofpractical completion"
Baharuddin Ali & Low Sdn Bhd
In the Emson Eastern Ltd v EME Development Ltd (1991),
Judge John Newey in arriving at a decision, took account of
what happens on building sites.
81
He considered that building construction is not like the
manufacture ofgoods in afactory. The size ofthe project, site
conditions, use ofmany materials and employment ofvarious
types ofoperatives make it virtually impossible to achieve the
same degree ofperfection as can a manufacturer. His view was
that it must be rarefor a new building to have every screw and
every brush ofpaint correct. Further a building can seldom be
built precisely as required by the drawings and specification.
Judge Newey in considering the meaning ofpractical
completion thought that he stood somewhere between Lord
Salmon and Dilhorne in the Jarvis case. Completion therefore
occurs before defects and other faults have to be remedied.
Baharuddin Ali & Low Sdn Bhd 82
41
So this is where the current state of law is.
We will now refer to the PAM Clauses and see how they
have dealt with it.
Baharuddin Ali & Low Sdn Bhd 83
Baharuddin Ali & Low Sdn Bhd 84
42
"•...the Works are practically completed, meaning that the Contractor
has performed and completed all the necessary Works specified in the
Contract and the patent defects existing in such Works are "de
minimis"
This is the definition of Practical Completion in the PAM 98 Form.
Contrast this with the explanation of Practical Completion provided
by Rajoo on page 144:
"Practical completion under Clause 15.1, may therefore mean that all
construction work that has to be done is completed. The Architect's
discretion (to issue CPC) is limited only to very minor items ofwork
left incomplete under the 'de minimis' principle. Works can be
practically completed notwithstanding that there are latent
defects........ The architect may not issue a Certificate ofPractical
Completion ifthere are any patent defects"
Baharuddin Ali & Low Sdn Bhd 85
The PAM 98 definition of Practical Completion was an
intended extract from the judgment of H. W. Nevill (Sunblest)
Ltd v Wm Press & Sons 20 BLR 87.
However what had been provided in the PAM 1998 Form is
entirely different from the case law definition and the
explanation from Rajoo's Book.
Under the PAM 98 Form, the "de minimis" principle mean
that the CPC may be issued when the patent defects existing in
such Works are "de minimis", when what is meant is that the
CPC may be issued if very minor items ofwork is left
incomplete (without patent defects)
Baharuddin Ali & Low Sdn Bhd 86
43
PAM 2006 Contract - Clause 15.1
The Works are Practically Completed when:
15.1(a)
Baharuddin Ali & Low Sdn Bhd 87
"other requirements expressly stated in the Contract Documents
as a pre-requisite for the issuance ofthe Certificate ofPractical
Completion•... "
What is the meaning of "other requirements?"
Example:
(i) testing and commissioning requirement;
(ii) training of staff to use equipment;
(iii) requirement for statutory certificates and/or
manufacturers' warranties for equipment, materials and
goods incorporated into the Works;
(vi) any As-built Drawings, operation and maintenance manuals
which may be required at CPC
Baharuddin Ali & Low Sdn Bhd 88
44
Whether the Work is Practically Completed is a matter
to be decided by the Architect based on the provisions
stated in Clauses 15.1(a) and 15.1(b). Accordingly, the
Works is considered to be Practically Completed :-
Example 1
when in the opinion of the Architect, the Employer can
have full use of the Works for their intended purposes
and there is no outstanding works, no patent defects and
there is no other pre-condition in the Contract that the
Contractor need to comply before the issuance of the
Certificate of Practical Completion;
A situation difficult to achieve, but a possibility
Baharuddin Ali & Low Sdn Bhd 89
Example 2
when in the opinion of the Architect, the Employer can
have full use of the Works for their intended purposes,
but there are works and defects of a minor nature still to
be attended to
but there is no other pre-condition in the Contract that
the contractor need to comply before the issuance of the
CPC.
In such a scenario, the Architect will specify a reasonable
time for the Contractor to attend to such works and
the Contractor will thereafter give a written undertaking
to the Architect that he will attend to the works within
the time specified; or
Baharuddin Ali & Low Sdn Bhd 90
45
Example 3
when in the opinion of the Architect, there are still
works and defects of a minor nature still to be
attended to and there are pre-condition in the
Contract that the contractor has to comply with before
the issuance of the CPC, the Architect will only issue a
CPC when the Contractor has complied with the pre-
condition in the Contract as well as making good any
works and defects of a minor nature specified by the
Architect.
Baharuddin Ali & Low Sdn Bhd 91
Under PAM 98 Clause 15.1 there is no obligation on the
Contractor to apply for a CPC. The Architect must issue
a CPC when he is of the opinion that the Contractor has
completed his Works.
The date of the CPC is the day named in the certificate.
Baharuddin Ali & Low Sdn Bhd 92
46
Under the PAM 2006, the Contractor must give notice to
the Architect when he reaches the stage of Practical
Completion. The Architect must act within 14 days upon
receipt of the notice. He has the following options:
Baharuddin Ali & Low Sdn Bhd 93
the Architect is ofthe 0
·cally Completed u
ritten no
for his opinion; 0
15.2(b)(i) the date ofreceipt the Contractor's written
undertaking to ma od and to complete works
and defects ofa minor nature, where there are
such works and defects; or
15.2(b)(ii) the date Contractor's written
notice, where re are no works and defects ofa
minor nature.
Baharuddin Ali & Low Sdn Bhd 94
47
The date of CPC is important because it:
(i) It marks the end of the Contractor's liability to
Liquidated Damages
(ii) It relieves the Contractor of his responsibility for insuring
the Works;
(iii) Its triggers the commencement dates of the Defect
Liability Period;
PAM 2006 Contract prefers that the provisions for dating the
CPC is defined in the Contract rather than subject the
Architect to undue pressures from the Employer in
prolonging the date of the CPC in order to maximize the
amount of LD.
Baharuddin Ali & Low Sdn Bhd
CLAUSE 18.0 - INDEMNITY
The concept of Indemnity and Insurance
Baharuddin Ali & Low Sdn Bhd
95
96
48
"... unless it is solely due to any act or neglect ofthe Employer..... "
The Employer is not covered by the indemnity if he is solely
negligent.
". ..or ofany person for whom the Employer is responsible.... "
The indemnity also does not cover if the Architect or Site Staff fail to
supervise the work properly, and as a result an accident occur.
"..In that event, the Employer shall be liable."
The Employer's liability is expressly provided.
Baharuddin Ali & Low Sdn Bhd
PAM 2006 Contract - Clause 18.1
"The Contractor shall be liablefor and shall indemnifY the
Employer ....... provide that the same is due to any
negligence, omission, d and/or breach ofcontract by the
Contractor or ofany Person for whom the Contractor is
responsible"
The Contractor indemnifies the Employer if he or his sub-
contractor is negligent.
Baharuddin Ali & Low Sdn Bhd
97
98
49
To ensure that the Contractor is not able to raise the defence
that the negligence is due to the failure of the Architect or Site
Staff refer to Clause 18.4.
INSURANCE
Baharuddin Ali & Low Sdn Bhd 99
PAM 2006 Contract ~ Clause 19.1:
indemnifY th I]Jloyer •.
C r shall,. t and maintain in thejo ames 0
Employer, Contractor, sub-contractor and all interestedparties in
respect ofpersonal injuries or death and injury or loss and/or damage
ofproperty real or personal arising...... and whether or not such
injury, death, loss and/or damage is caused by negligence, omission,
default and/or breach ofcontract by the Contractor, Employer, sub-
contractor and interestedparties and any oftheir servants and agents.
....... /fthe Contractor having regard to his indemnity to the Employer
under Clause 18.0 desires to increase any ofthe insurance coverage,
he shall do so and allowfor any additional cost. The insurance policy
shall include thefollowing endorsements"
Baharuddin Ali & Low Sdn Bhd 100
50
an endorsement to
professi
ees and rep
ntatives of
(iii) an endorsement for waiver ofall expressed or implied rights of
subrogation or recoveries against the insured
(iv) an endorsemen
insurance up to
Defects.
n or renewal ofthe
rtificate ofMaking Good
Baharuddin Ali & Low Sdn Bhd 101
New insurance clause.
".. rights ofsubrogation.. " means that if the Contractor is sued,
the insurance cannot plead that the Employer caused it. Same
applies to the Employer.
"..cross liability.. " means that the cover extends to the
Contractor and the Employer as if they are separately insured
by the same insurance company.
So it is not necessary to say that the Contractor will not
indemnify the Employer if is caused by the Employer or
persons for whom the Employer is responsible.
Baharuddin Ali & Low Sdn Bhd 102
51
Clause 20A - Insurance of New Buildings etc.
The insurance requirement is not up to date. The insurance is only
for fire, storm, tempest, lightning, flood, earthquake, aircraft or
anything dropped therefrom, aerial objects, riot and civil commotion.
This coverage is not as wide as a CAR insurance.
Baharuddin Ali & Low Sdn Bhd 103
If any additional insurance requirements are specified in the
Contract Bill, the new requirement will not be valid because
of Clause 12.2.
English Industrial Estate v George Wimpey 7BLR 122 - where
it was argued that despite the additional coverage for
additional insurance specified in the Contract Bill, the
additional coverage in the Contract was not valid because of
Clause 12,2
Baharuddin Ali & Low Sdn Bhd 104
52
Cover for the Standard Form is now more comprehensive and
include all the risk covered by the PAM 98 Form but extended to
include theft. ground subsidence. existing underground cables and/or
pipes or other underground facilities. bursting or overflowing ofwater
tanks. apparatus or pipes. strike. riot and civil commotion. malicious
damage and trespass.
Baharuddin Ali & Low Sdn Bhd 105
There is provision to have additional insurance requirement to suit
the project requirement to be specified in the Contract Bills. For
example: "vibration cover" for piling contract.
New Clause also advised that the Contractor is at liberty to cover
additional risk if he considers that the risk under the Contract
covered by the insurance is insufficient - in view of his indemnity
under the Contract to the Employer.
Baharuddin Ali & Low Sdn Bhd 106
53
" ..... shall be at the sole risk ofthe Employer as regards to loss
or damage under Clause 20 A risks."
This means that if Clause 20B is used, the Employer assume
all the risk. This defeats the purpose of the indemnity clause.
(Clause 18)
Baharuddin Ali & Low Sdn Bhd 107
To make matters worse, this clause makes it clear that "such
loss or damage shall be disregarded in computing any amounts
payable to the Contractor... ".
Baharuddin Ali & Low Sdn Bhd 108
54
Is there any logic that the restoration of works destroyed shall
be a variation?
PAM 98 Clause 20.C: The provisions under Clause 20.C is
generally the same as Clause 20.B except that the insurance
by the Employer includes the value of the existing building
Baharuddin Ali & Low Sdn Bhd 109
Scottish Special Housing Association v Wimpey Construction 31 BLR
17.
The Scottish Court ofSession held that afire caused by the
contractor's negligence rendered the contractor liable to the employer
under the indemnity clause.
Lord Brand in this case said: "....1 would only add that the court must,
where possible, adopt a construction ofa contract which makes
commercial sense the construction contended by the second
parties (i.e. the Contractor) wouldproduce a "bizarre" consequence in
respect that it would enable the secondparties negligently to burn
down thefirst parties' properties and thereafter to reinstate it all at the
full expense ofthefirst parties. Such a result would be so patently
absurd that no court would adopt a construction which lead to it unless
driven to do so by clear and unambiguous language"
Baharuddin Ali & Low Sdn Bhd 110
55
Later at the House ofLord{1986] 1 WLR 995 - allowing the
appeal, that on the true construction ofthe two clauses it was
intended that the employer should bear the risk ofdamage byfire
includingfire caused by the negligence ofthe contractor
Baharuddin Ali & Low Sdn Bhd 111
PAM 2006 Contract streamlined the risk to be covered,
whether by the Contractor or by the Employer to be similar
to Clause 20.A. For example, under Clause 20.A.4
Upon the occurrence ofany loss the Contractor shall
with due diligence restore, replace or repair the same..... All
money ..... shall be paid in thefirst place to the Employer. The
Employer shall.... pay the balance to the Contractor and/or
Nominated Sub-Contractors by installments under separate
certificates to be issued by the Architect. The Contractor shall
not be entitled to any additional payments in respect ofthe
restoration other than the monies received under the ..
insurance.
Baharuddin Ali & Low Sdn Bhd 112
56
The Insurance clauses in the PAM 98 and the PAM 98 NSC are quite
confusing. In the NSC Contract, all the risk is with the Contractor, even if
the risks, such as fire are caused by the NSC negligence.
There is no difference whether the insurance are covered under Clause 20.A
(by Contractor) or Clause 20.B and 20.C (by Employer)
In addition, the Contractor shall also pay the NSC all the losses suffered.
These have all been revised in the PAM 2006 Sub-Contract to reflect the
proper allocation of risk.
Baharuddin Ali & Low Sdn Bhd
LIQUIDATED DAMAGES
Background information on Liquidated Damages
113
In Selvakumar v Thiagariah [1995J 2 AMR 1097, the court held that
the under Section 75 ofthe Contracts Act, in Malaysia, all damages
are considered as penalty, and the party imposing the damages has
to prove his loss.
Section 75 of the Contract Act
"When a contract has been broken. ira sum is named in the contract
as the amount to be paid in case orsuch breach. or ifthe contract
contains any other stipulations by way ofpenalty, the partv
complaining ofthe breach is entitled. whether or not actual damage or
loss is proved to have been caused thereby, to receive from the partv
who has broken the contract reasonable compensation not exceeding
the amount so named or, as the case may be, the penalty stipulated
for"
Baharuddin Ali & Low Sdn Bhd 114
57
In Selvakumar the parties entered into an agreement which
contain a clause stipulating that in the event of default, the
entire amount was forfeitable. The Federal court held that
unless there was proof of damage or loss suffered, the claimant
was not entitled to forfeit the entire amount (In other words,
how could the same amount be forfeited irrespective of when
the contract was rescinded - a definite penalty)
Baharuddin Ali & Low Sdn Bhd 115
Sakinas Sdn Bhd v Siew Yik Hau may have given hope that the
Selvakumar case may have been misapplied. From the analysis of
the Selvakumar case, there are two classes of damages:
The first case (Sakina) is where the courts would find:
(i) it difficult to assess the actual damage or loss where there is no
known measure ofdamages.
(ii) but there is real evidence to show some real and not too remote
loss.
The second case (Selvakumar) is where
(i) damages in a case could be assessed by seUled rules.
(ii) there is inherently some actual damage or loss from the
evidence or nature of the claim.
(iii) the loss is not too remote.
Baharuddin Ali & Low Sdn Bhd 116
58
Whether LD can be deducted before proof of damages.
In Arab Malaysian Corporation Builders v ASMDevelopment,
the court refused to grant a Contractor an injunction against
the Employer for deducting LAD stated in the contract before
proof of loss. The court held that the construction contract
gives the Employer a provisional right to deduct the LD
specified, and if he subsequently cannot prove his loss, he will
have to refund the sum deducted to the contractor.
Note that any dispute under a PAM Contract will be an
arbitration case and not a court case, and an arbitration can
only be held after the completion of the works.
Baharuddin Ali & Low Sdn Bhd 117
PAM 98 also have a provision under Clause 30.3(ii) that any dispute
on "set offor to any counterclaims or any allegation ofdefective works,
materials or goods orfor any other reasons" be referred to arbitration.
PAM 98 did not define 'set-ofr. It may be argued that LAD is cover
under "set off ....•. or for any other reasons. " If the Contractor
disputes the LAD, then the Employer may be prevented from
deducting the LAD until the dispute has been arbitrated.
Baharuddin Ali & Low Sdn Bhd 118
59
Baharuddin Ali & Low Sdn Bhd
The PAM 2006 is drafted differently, but both clauses hope to
circumvent the Federal Court decision on the Selvakumar case
"..is to be deemed to be as the actual loss... "
= " .. is a genuine pre-estimate ofthe loss and/or damage.. "
The Contractor by entering into this Contract agrees to pay to the
Employer = Both the Employer and the Contractor by entering into
this Contract have agreed
119
".. without the needfor the Employer to prove his loss and/or damage
unless the contrary is proven by the Contractor. "
This re-states the common law position which requires the party
contending that the amount is a penalty to prove that it is so.
Baharuddin Ali & Low Sdn Bhd 120
60
Issue of Variation after CNC
What is the position under PAM 98 ifthe Architect has to issue a
variation after he has issued a Certificate of Non Completion?
Can the Architect grant an EOT certificate after he has issued a
CNC?
Where is the Architect "express provisions" in PAM 98 to empower
to issue a variation after the CNC?
Baharuddin Ali & Low Sdn Bhd
PAM 2006 Contract has express provisions.
121
PAM 2006 Contract -Clause 11.3
"Th chitect may issue instructions in writing requiring a Variation
at before the issuance ofthe Certificate ofPractical
Completion "
11 of Time....
erthan
issued,
ate ofNon-
. Th revise the
ted Damages he is entitled to retain..... "
Baharuddin Ali & Low Sdn Bhd 122
61
EXTENSION OF TIME
Notice a condition precedent to a EOT claim
Quote from the Rajoo on the PAM 98 - page 207:
" . ...The failure to give notice..•. within the time required may disentitle
the contractor to an extension oftime. The words ofClause 23.1
relating to the time within which the giving ofthe notice is required is
mandatory"
"The wordings ofClause 23.1, and in particular Clause 23.2
....stipulates that the giving ofnotice by the Contractor is a condition
precedent to the performance by the architect ofhis duties ...... "
Baharuddin Ali & Low Sdn Bhd 123
Baharuddin Ali & Low Sdn Bhd 124
62
The wordings in the PAM /ISM 69 Form were held not to mean that
notice is a condition precedent to a claim.
Clear words of the intention to make notice a condition precedent
should be used to replace "If and when it becomes reasonably
apparent... the Contractor shallforthwith ofthe occurrence ofsuch
event notifY the Architect in writing... "
There needs to be a time for such notice to be submitted.
Baharuddin Ali & Low Sdn Bhd 125
n ofthe Works is
ofthe Relevant
oftime
nno
23.1(b) within twenty eight ( s ofthe end ofthe cause ofdelay,
the Contractor shall send to the chitect his final claimfor extension
oftime ..... to enable the Architect to assess any extension oftime to be
granted. If the Contractorfails to submit such particulars within the
stated time (or within such longer period as may be agreed in w
by the Architect), it shall be deemed that the Contractor has ass
that such Relevant Event will not delay the completion ofthe Works
beyond the Completion Date. "
Baharuddin Ali & Low Sdn Bhd 126
63
The PAM 2006 Contract makes it clear that notice is a
condition precedent.
Under the PAM 2006 Contract, the Contractor need to give
notice within twenty one (28) days and follow up with the
particulars in a further 28 days. The Contractor's notice is to
enable the Architect to issue an AI to reconsider any earlier AI or
to mitigate any delay.
This is in compliance with Hudson:
Baharuddin Ali & Low Sdn Bhd 127
Hudsons 11th Edition paragraph 4.132:
Building and engineering contracts frequently contain provisions
requiring a contractor to give notice within a reasonable time of events
occurring which he considers may entitle him to claim additional
payment under the terms ofthe contract. Since the purpose ofsuch
provisions is to enable the owner to consider the position and its
financial consequences (by canceling an instruction or authorizing a
variation, for example, he may be in aposition to reduce his financial
liability ifthe claim is justified), there is no doubt that in many
ifnot most cases the courts will be ready to interpret these notice
requirement as condition precedent to a claim, so thatfailure to give
notice within the requiredperiod may deprive the contractor ofall
remedy
The reason for the very generous 28 days notice requirement is
because in the Nominated Sub-Contract Form (Clause 21.1 ofthe
NSC Form), the NSC has to submit notice to the Contractor within
21 days and the Contractor has a further 7 days for follow up action.
Baharuddin Ali & Low Sdn Bhd 128
64
Under PAM 98, the Architect can only grant an EOT ifthe
Contractor submits his claim for extension of time
Baharuddin Ali & Low Sdn Bhd 129
The PAM 98 procedure:
" ..Provided always the Contractor submits to the Architect his
application for extension oftime the Architect shall ascertain
andfIX such new Datefor Completion"
This may be a problem. Consider:
If the Employer has not paid the Contractor his progress payment,
he would be in breach of contract, but the Contractor under Clause
23.7(xi) "any act ofprevention or breach ofcontract by the
Employer... ", is entitled to an EOT provided he applies on that
ground.
If the Contractor intentionally decides not to apply for an EOT
based on the above grounds and deprive the Architect the power to
grant an EOT, the Employer will have breached the contract.
Can the Employer despite his breach of contract in not paying the
Contractor impose LD for late completion?
Baharuddin Ali & Low Sdn Bhd 130
65
In the Australian case of Gaymark Investment v Walter
Construction Group (1999) NTSupreme Court 143, the facts are
nearly similar. The court found that the Employer was in
breach of contract in not making timely payment to the
Contractor, and his breach prevented him from enforcing the
LD clause on to the Contractor. The court refused to uphold
the 'notice condition precedent' provision relying on the
'prevention principle'- that is that a party cannot take
advantage of its own wrong in enforcing a contract.
In order to ensure that the prevention principle do not apply to
the PAM 2006 Contract, a new provision has been expressly
drafted to allow the Architect to grant an EOT even if the
Contractor choose not to apply.
Baharuddin Ali & Low Sdn Bhd 131
132
For example, the Architect can grant an EOT if the Employer
breached the payment terms and there was no application from the
Contractor. However, this does not exempt the Contractor from
complying with the 'notice condition' provision although the
Architect now has discretion to grant an EOT irrespective whether
or not application has been submitted.
PAM 2006 Contract - aause 23.6:
"In assessing the exte oftime, the Architect may take into
account thefollowing:
(i) .
(ii) any r Relevant Events which in the Archite 'Pinion will
enti the Contractor to an extension oftime w the
Contractor has omitted orfailed to notifY the Architect. "
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66
Under PAM 98, the Architect is required to grant an EOT within a
reasonable time and to grant it prospectively i.e. before the Date for
Completion.
He can only grant an EOT retrospectively (i.e. after the Date for
Completion) "upon failure.ofthe Contractor to submit his application
for extension oftime."
It is not expressly stated that he can grant an EOT retrospectively
for any other reasons.
This means that after the issue of a CNC, if the Architect issues a
variation and he is precluded from granting an EOT, time will be at
large.
EOT Case law 1
Baharuddin Ali & Low Sdn Bhd 133
In Amalgamated Building Contractor v Waltham Holy Cross [1952J 2
All ER 452, the court had to consider whether an extension of time
granted after the work was completed was valid. The contract
provided that the contractor was entitled to an extension "by reason
oflabour and material not being available. ... "
Facts
• The contractor applied for extension of time in January 1949
due to labour and material shortages. The Architect did not
respond.
• The work was in culpable delay and was eventually completed
in August 1950.
• In December 1950, four months after the completion date, the
architect wrote a letter to extend the time of completion to May
1949. LAD is therefore to be imposed from May 1949 to August
1950.
Baharuddin Ali & Low Sdn Bhd 134
67
The question that the court had to address was whether the
extension was valid. In holding that the extension was valid
Denning L.J. explained it as follows: "Take a simple case
where the contractors ...have overrun the contract timefor six
months without legitimate excuse. They cannot get an extension
for that period. Now suppose that the works are still
uncompleted and a strike occurs and lasts a month. The
contractor can get an extension oftime for that month. The
architect can clearly issue a certificate which will operate
retrospectively. He extends the time by one month from the
original completion date, and the extended time will obviously
be a date which is already passed"
Baharuddin Ali & Low Sdn Bhd 135
However, there is a caveat to the power to grant extension of
time during the period of culpable delay. Denning L.J. added
that "1 would observe that on principle there is a distinction
between cases where the cause is due to some act or default of
the building owner, such as not giving possession ofthe site in
due time, or ordering extras, or something ofthat kind. When
such things happen the contract time may well cease to bind the
contractors, because the building owner cannot insist on a
condition ifit is his own fault that the condition has not been
fulfilled"
In short, the Architect cannot grant an EOT for variation
when the Contractor is in culpable delay.
Baharuddin Ali & Low Sdn Bhd 136
68
EOT Case law 2
A case where the court was given further opportunity to consider
the issue of extension of time during the period of culpable delay was
in Balfour Beatty Building Ltd v Chestermount Properties 62 BLR 1.
The dispute was based on the JeT 1980 Form.
Facts
• May 1989 - the contractor failed to complete the building work
(without fit out) by the contract completion date.
• Between February to July 1990, when the contractor was
already several months in delay in the building works, the
architect issued a series of instructions for fit-out works.
• October 1990 - the contractor completed the building works
• February 1991- the fit-out works was completed.
Baharuddin Ali & Low Sdn Bhd 137
Extensions of time for 199 days were granted for the fit-out works.
The 199 days were added to May 1989, the original date for
completion of the building core works.
The new completion date was accordingly extended to November
1989.
It must be noted that the extended completion date of November
1989 was before the date of the instruction for the fit-out works. The
instruction for the fit out work was issued between Feb - July 1990.
The same issue - whether the architect had the power to order a
variation instruction when the contractor was already in culpable
delay
Baharuddin Ali & Low Sdn Bhd 138
69
Contractor's Argnment:
1. the effect of issuing a variation instruction during a period
of culpable delay rendered time at large and that the
employer would lose his right to levy liquidated damages.
2. Alternatively, the contractor contended that the architect
should have granted an extension of time on a gross basis,
that is to say that the extra period for executing the work,
which was 199 days, should have been calculated from the
date when the variation instruction was given.
Baharuddin Ali & Low Sdn Bhd 139
140
Court decision: Under the JCT 1980 Form, the architect has
the power to grant extensions retrospectively for all the
grounds provided under Clause 25.3, and not merely to those
which would be classified as 'acts of prevention.'
The court further held that any extension of time should be on
a nett basis, that is by taking a date currently fixed and
adding to it the number of days which the architect regarded
as a fair and reasonable extension of time.
It should be noted that the Balfour Beatty case was based on
the JCT 1980 Form so we must not assume that the case is
applicable to the PAM 98 Form.
Baharuddin Ali & Low Sdn Bhd
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Clause 23.9 is drafted to expressly allow the Architect to issue an
EOT after the issue of a CNC, to cater for a Balfour Beatty
situation.
Clause 22.3 must be read complementary to this clause. It allows a
CNC to be revoke by a later EOT Certificate.
PAM 2006 Contract - Clause 22.3:
"In the event the Archit Certificate ofExtension of Time
under Clauses 23.4,23.9 10 which has the effect offlXing a
Completion Date which is later than the date stated in a Certificate of
Non-Completion previously issued, such certificate shall have the
effect ofrevoking the Certificate ofNon-Completion earlier issued.... ".
Baharuddin Ali & Low Sdn Bhd 141
The Architect must respond to the Contractor within 6 weeks
on the EOT. He can either grant an EOT or inform the
Contractor that he rejects it. Failure to respond to the
Contractor may encourage a time at large argument.
PAM 2006 Contract - Clause 23.4:
"Whe Contractor has submitted s
the Ar 'tect's consideration, the Arch
reject the Contractor's application or issue a
Extension ofTime within six (6) Weeksfrom
sufficient pa 'he Architect may i
ofrejection ate ofExtension 0
after the Co teo "
Baharuddin Ali & Low Sdn Bhd 142
71
PAM 2006 Contract ~ Clause 23.10:
"The Architect may (but not obliged to) within twelve (12) Weeks after
ofPractica eview Date
such
nyof
New Clause to allow the Architect to review EOT granted within 12 weeks
after completion. The Clause stipulate "may" review the EOT. If the
Architect is not reviewing the EOT after the CPC, he shall confirm this to
the Contractor.
This Clause provides the Architect an opportunity to review after the CPC
to avoid the issue being review by the arbitrator. Of course it does not
preclude the arbitrator from reviewing, but at least it gives him an
opportunity to correct any "unreasonableness" before it goes to arbitration.
Baharuddin Ali & Low Sdn Bhd 143
Baharuddin Ali & Low Sdn Bhd 144
72
PAM 98 procedure
"Ifand when the Contractor notifies the Architecf'.
No time limit - only when it is reasonably apparent to the
Contractor that the regular progress of the work is affected
Two stage procedure as follows:-
• the Contractor submits application to enable the Architect (or
the QS as instructed by the Architect) to form an opinion.
After the Architect has formed an opinion, the Contractor upon
request of the Architect (or the QS) to submit details of loss
and/or expense
No quantum claim need to be submitted until the Architect agrees
that there is a claim
Baharuddin Ali & Low Sdn Bhd 145
"•. express provisions ofthe Contract... "
Reference to provisions in the Contract is too general.
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73
"....any ofthe matters expressly referred to in Clause 24.3•.. "
The areas for loss and expense are restricted to only the
matters referred to in Clause 24.3.
Baharuddin Ali & Low Sdn Bhd 147
Under Clause 23 "lland when... " is supposed to mean 'notice a
condition precedent'.
However the same words used in Clause 24 does not convey the
same intention as the clause further provides that if the Contractor
fails to comply with the requirements of Clause 24, the Architect or
the Quantity Surveyor must still ascertain the loss and/or expense on
the basis of information available to them.
Baharuddin Ali & Low Sdn Bhd 148
74
Under the PAM 2006 Contract, strict procedures must be followed
by the Contractor to make a claim for loss and expenses.
expense.
Baharuddin Ali & Low Sdn Bhd
Nominated Sub-Contractors
149
Some background information
The NSC Form was first issued in 1936 and was amended 1963 by
National Federation of Building Trade Employers and the Federation
of Association of Specialist and Sub-Contractors and Approved by
the Association of Specialist Engineering Contractors.
The NSC Form which was the basis of the Sub-Contract Forms for
the PAM/ISM 69 and PAM 98 Form was actually drafted by the
Contractors and Sub-Contractors. It was not a RIBA or a JCT Form.
The JCT only started issuing Sub-Contract Forms in 1980.
Many clauses in the PAM 98 NSC Form is not compatible with the
PAM 98 Form.
The NSC Form has to be totally re-drafted to be compatible with the
PAM2006 Form.
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Two types of Sub-Contractors: Domestic and Nominated Sub-
Contractors.
Appointment of Domestic Contractors:
1) Alternative 1: The appointment of domestic sub-
contractors is entirely up to the Contractor.
2) Alternative 2: A few short listed Sub-Contractors could be
named in the Contract or in an Architect's Instruction,
and it is up to the Contractor to choose whichever one he
wants to work with - sometimes referred to as 'designated
sub-contractors' or 'named sub-contractors'.
Baharuddin Ali & Low Sdn Bhd
Domestic Sub-Contractors
lSI
The Contractor shall be fully responsible for the performance
and the works of the domestic sub-contractors.
The terms and conditions of contract are between the
Contractor and the domestic sub-contractor; there is as yet no
Standard Form of Domestic Sub-Contract in Malaysia.
The Contractor will carry ajitfor purpose liability for any
designs provided by the domestic sub-contractors.
The domestic sub-contractors work is priced by the
Contractor at his own prices - this may not be the most
economical price to the Employer.
Baharuddin Ali & Low Sdn Bhd 152
76
Limited time to sort out domestic sub-contract included in the
Contractor's tender may not result in quality and cost issues
being resolved in the most effective way for the Employer.
Once appointed, the domestic sub-contractors is treated in a
very similar way to an ordinary domestic sUb-contractor, so
the architect is not involved in matters such as certifying
payment, extension of time issues and loss and/or expense
issues.
If the domestic sub-contractor fails to perform the work or is
insolvent, it is a matter for the contractor to resolve. The
Employer need not re-nominate a replacement domestic sub-
contractor.
Baharuddin Ali & Low Sdn Bhd 153
There is no privity of contract between the Employer and the
domestic sub-contractors.
This means that the domestic contractor has no recourse to
the Employer.
It also means that the Employer has no recourse to any
domestic sub-contractors.
In the event of termination, there may be problems to
continue work with domestic sub-contractors unless past
payments and warranties can be sorted out.
Baharuddin Ali & Low Sdn Bhd 154
77
Nominated Sub-Contracts - advantages
The consultant and the employer have discretion to decide on the
appointment of the nominated sub-contractor.
Nomination based on Standard Forms of Contract have known risk
allocation.
Sub-contractors may offer a better price to the employer when they
know that the employer may make direct payment to them in the
event the Contractor fails to do so.
Less risk to the Contractor will result in nominal mark up by the
Contractor for profit and attendance than the normal mark up for
domestic sub-contractors. Use of Nominated Sub-Contractors will
therefore result in lower priced sub-contract sum to the Employer.
Baharuddin Ali & Low Sdn Bhd 155
The Sub-contractor's bid is more competitive when they know that a
third party consultant will be involved in matters such as certifying
payment or extension of time issues.
The consultant may utilise the sub-contractor's design expertise
during the tender stage. Sub-contractors are also more willing to
impart this information if they know that they have a chance to
participate in the tender to be called by the Employer.
Nominated sub-contractors for long lead items like Lift may be
appointed even before the appointment of the main contractor.
There is a possibility to provide an Employer/Sub-Contractor
Agreement so that the Sub-Contractor is responsible to the
Employer for designs and warranties. The Employer can therefore
have recourse against the sub-contractor - no need to go through
the main contractor.
Baharuddin Ali & Low Sdn Bhd 156
78
Nominated sub-contractors - disadvantages
Need to re-nominate a replacement sub-contractor in the event of
insolvency or determination of the employment of the sub-
contractor. If care is taken by the Employer and Consultants in the
selection of Nominated Sub-Contractors, this risk can be reduced.
Employer should be encouraged to nominated Sub-Contractors
based on merits and less on price to avoid re-nomination problems.
Re-nomination of Sub-Contractors may result in extra cost to
complete the works and cause delays (but this may also happen for
domestic sub-contractors - but the extra cost and delay will be
borne by the Contractor).
Ultimately, any delay caused by sub-contractors, whether domestic
or nominated could still be borne by the Employer if the Employer
have to pay damages to purchasers.
Baharuddin Ali & Low Sdn Bhd 157
These are the two choices as far as Sub-Contracting is concerned.
Both have advantages and disadvantages. It is up to the professional
to advise their Employer accordingly.
If the Sub-Contractor is 'domestic' the Contract between the
Contractor and the domestic sub-contractors are matters to be
resolve among them. It is up to the contracting parties to agree on
their own contracts. PAM do not have a Form of Contract for
Domestic Sub-Contractors.
Sub-Contractors under the PAM Forms are Nominated Sub-
Contractors and NOT Domestic Sub-Contractors
Baharuddin Ali & Low Sdn Bhd 158
79
Case Law: North West Metropolitan Regional Hospital Board v TA
Bickerton (1970) 1 All ER 1039.
"shall be expended in favour ofsuch persons as the Architect shall
instruct". The wording was one of the reasons for the re-nomination
findings in the Bickerton case.
Baharuddin Ali & Low Sdn Bhd 159
Re-allocation of risk under the PAM 98 Form
It may not have been fully appreciated, but there has been a major
policy shift of risk allocation under the PAM 98 Form.
Quote from Rajoo on the PAM 98 Form - page 286-
"Clause 27. 7 •.•••explicitly provides that the responsibilities ofthe
main contractor includes any default or breach ofcontract of
nominated sub-contractors. The Employer shall in no circumstances
be liable to the contractor".
Baharuddin Ali & Low Sdn Bhd 160
80
Under the PAM 98 Form, the Employer retained all the benefits of
nomination - which allows the Employer to select the Company to
carry out the sub-contract works as well as negotiating an
acceptable price to the Employer (the Contractor have no say), but
all the risk relating to the Sub-Contractor has been transferred to
the Contractor.
One of the risks is that if the NSC cannot perform, due to insolvency
or other reasons, the Contractor is apparently still responsible to
complete the NSC Work.
There is no provision whether the Contractor has to complete the
NSC work with the same cost as the original NSC and also complete
the Works without an EOT (there being no provisions under Clause
23 for an EOT in the case of insolvency)
Problems to consider:
Baharuddin Ali & Low Sdn Bhd 161
(1) Can the Contractor priced for this risk based on the amount of
P.C. Sum?
(2) Can the Contractor priced for this risk when the identity of
Sub-Contractor has yet to be nominated?
(3) Can the Contractor priced for this risk in the event of the Sub-
Contractor's insolvency because of low pricing?
(4) Is it reasonable to expect a Contractor to replace a Sub-
Contractor who has been determined without any time and cost
compensation?
(5) What happens if the NSC who has previously carried out design
and is now unable to perform? It may be difficult for the
Contractor to find say a replacement Lift Contractor or Curtain
Walling sub-contractor willing to continue with the design and
work and partially executed by others. What about liabilities
for design for the work carried out by the terminated NSC?
Baharuddin Ali & Low Sdn Bhd 162
81
(6) Can a Contractor replace a Lift Contractor or Curtain Walling
NSC without cost and time implication?
(7) Warranties are given by the Contractor, not the Sub-
Contractor - how do you resolved these items.
These are some of the issues that may have to be solved - but under
the PAM 98 Form, these are all the responsibilities ofthe Main
Contractor. It is clear that under Clause 27.7 " ..... the Employer
shall in no circumstances be liable to the Contractor.. "
It is suggested that the problem of the Contractor eventually
becomes the problem of the Employer. He may have to deliver say a
condominium project to the purchasers. Any delay in delivery by the
Contractor will surely impact on the Employer delivery to
purchasers.
Baharuddin Ali & Low Sdn Bhd 163
Under PAM 98, the Sub-Contractor is "domesticated" to the
Contractor, but the provisions relating to "Nominated Sub-
Contractors are all retained. Example:
(1) The Architect has to 'consent' to an extension of time for sub-
contractors.
(2) The Architect has to issue a Certificate of Practical Completion
when the NSC Works are completed.
(3) The Architect has to issue the CNC ifthe NSC fails to complete
their Works.
(4) The Architect has to assess loss and/or expense claimed by NSC.
(5) The Architect has to certify and monitor payments to NSC.
(6) The Architect has discretion to issue final payments to the NSC.
Baharuddin Ali & Low Sdn Bhd 164
82
Consistent provisions for "domestication"
There are two provisions in the Contract which are consistent with
the policy that the Contractor shall be fully responsible for NSC,
and that the Employer has no right to interfere.
First
There is no provision in the PAM 98 Form that the Contractor need
the consent of the Architect to determine the employment of the
Sub-Contractor.
Under the PAM 98 NSC, the Contractor has sole discretion in this
issue. This is also in line with the intention stated in PAM 98 Clause
27.7. "The Contractor shall befully responsible to all NSC or
Suppliers andfor any default or breach ofcontract on their part and
the Employer shall in no circumstances be liable to the Contractor.
Neither the existence nor the exercise oftheforegoing powers nor
anything contained in these Conditions shall render the Employer in
any way liable to any Nominated Sub-Contractor."
Baharuddin Ali & Low Sdn Bhd 165
Baharuddin Ali & Low Sdn Bhd 166
83
Second
The Contractor has sole discretion to set-off any claim against
the Sub-Contractor. All the Contractor has to do is to notify
the Architect's of the reasons for deduction or set-off.
Baharuddin Ali & Low Sdn Bhd
Inconsistent provisions for "domestication"
167
The following provisions in the Contract are inconsistent with
the policy that the Contractor shall be fully responsible for
NSC. The provision in the Contract does not concede with the
intentions of Clause 27.7 that:
"The Contractor shall be fully responsible to all NSC or
Suppliers andfor any default or breach ofcontract on their part
and the Employer shall in no circumstances be liable to the
Contractor. Neither the existence nor the exercise ofthe
foregoing powers nor anything contained in these Conditions
shall render the Employer in any way liable to any Nominated
Sub-Contractor. "
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84
The Contractor must make payment of the amount as
directed by the Architect.
The Contractor must also pay the NSC within 14 days from
receiving the Architect's certificate. This may be before he
receives the money from the Employer.
Baharuddin Ali & Low Sdn Bhd 169
If the Contractor does not show sufficient proof that he has
paid the NSC the amount certified by the Architect, the
Architect may ask the Employer to make payment direct to
the NSC by-passing the Contractor.
Baharuddin Ali & Low Sdn Bhd 170
85
The Architect must approve any EDT to the NSC. This is to prevent
the Contractor from benefiting from his own decision. Under PAM
98 Clause 23. 7(vii) the Contractor is also entitle to an EDT for:
delays on the part ofNominated Sub-Contractors or Nominated
Suppliers for the same reasons as set out in the sub-clauses 23.7(i) to
23.7(vi) and sub-clauses 23. 7(viii) to 23. 7(xii)".
Baharuddin Ali & Low Sdn Bhd 171
The Architect (not the Contractor) is responsible to issue a
Certificate of Non Completion if the NSC fails to complete the
sub-contract works.
The Architect's decision to issue or not to issue the CNC affect
the Contractor's claim for damages against the NSC.
Baharuddin Ali & Low Sdn Bhd 172
86
The Architect (not the Contractor) shall certify a Certificate
of Practical Completion when the Sub-Contract Works are
completed.
The issue by the Architect of the CPC will terminate any
claims for damages.
Baharuddin Ali & Low Sdn Bhd 173
The Architect (not the Contractor) has the discretion whether
the NSC should receive his final payment before the Main
Contractor receives his final payment.
Baharuddin Ali & Low Sdn Bhd 174
87
The Architect under Clause 27.6 can discharge the NSC from
further liability except for latent defect for the Sub-Contract Works.
This discharge also conflict with the Contractor's responsibility
under Clause 30.8 that the Final Certificate will not discharge the
Contractor if any works (which means including the sub-contract
work) are not in accordance with the Contract
NSC - Risk Allocation
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The normal rule is that the risk is allocated to the party best able to
control it.
If the intention is to transfer all the responsibilities of Sub-
Contractors on to the Contractor i.e. no re-nomination - then the
Architect must be prepared to transfer completely their roles
highlighted earlier.
Otherwise, some provisions in the PAM 98 Form may neutralise the
Employer's intention.
For example, in the event of insolvency of the NSC, the Contractor
may claim additional monies from the Employer to complete the
NSC's work on the ground that the NSC has been over-paid -
certification of monies to NSC are done by the consultants.
Baharuddin Ali & Low Sdn Bhd 176
88
For an example of total risk transfer consistent with
"domestic Sub-Contractors"- reference is made to the SIA
Sub-Contract Form where:
(1) The Contractor (not the Architect) decides on extension of
time;
(2) The Contractor (not the Architect) issues a Sub-Contract
Completion Certificate when the works are completed;
(3) The Contractor can set-off for loss or damage due to delay
in completion without an Architect's certificate;
Baharuddin Ali & Low Sdn Bhd 177
(4) The Contractor (not the Architect) issues a Sub-Contract
Maintenance Certificate when the Sub-Contractor has
rectified defects;
(5) The Contractor can terminate the Sub-contract without
consent of the Architect;
(6) The Contractor makes payment when it has been certified
by the Architect and upon receipt of payment from the
Employer. ('Pay when paid'). There is however no direct
payment provision if the Contractor fails to pay.
Baharuddin Ali & Low Sdn Bhd 178
89
Under the PAM 98 Form of Nominated Sub-Contracting, all
the risk of default or breach of the Nominated Sub-
Contractor is transferred to the Contractor, but the
Contractor is not given the tools to exercise his responsibility.
If the Contractor is to be totally responsible for the NSC, why
is it necessary for the Architect to protect the interest of the
NSC from the Contractor?
Baharuddin Ali & Low Sdn Bhd 179
The PAM 2006 Contract proposed to revert to the position as
PAM/ISM 69 on re-nomination of NSC. The re-view of the
allocation of risk has been undertaken with the underlying principle
that the risk should be allocated to the party best able to manage it.
If the Employer wishes to choose the Sub-Contractor and negotiate
his own pricing, then the Employer shall be responsible to re-
nominate if things go wrong.
If the Sub-Contract contain provisions for the Architect to 'look
after the interest of the NSC' then the Contractor should not be held
fully responsible.
If the Contractor is to be fully responsible for his NSC, it may be
necessary to leave the choice of Sub-Contractor and pricing to the
Contractor. Domestic Sub-Contractors and their contractual
arrangement are the Contractor's responsibilities.
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90
Provision for re-nomination
previous
any sum
Contractor lause 27.13.
23.8(i) may be granted to the Co
be entitled to any damages, loss a
If the NSC is determined by the Contractor with consent of the
Architect, the Architect will make are-nomination.
If there is cost extra, the Contractor will be entitled to payment -
after taking into consideration what can be recovered from the NSC.
No loss and/expense entitlement to Contractor - this may be a
'neutral event'.
Baharuddin Ali & Low Sdn Bhd 181
actor
rks and to pay the
ination and loss
determination. The
ion oftime ess and
until the Contractor has established determinati ~ the
Nominated Sub-Contractor ofhis own employment is invalid. In the
event the determination by the Nominated Sub-Contractor ofhis own
employment has been established to be invalid by arbitration or
litigation, Clause 27.11 will apply.
Baharuddin Ali & Low Sdn Bhd 182
91
The NSC may determine the Sub-Contract because of a
default by the Contractor (for example: the Contractor did
not pay the NSC). As a result a new nomination has to be
made by the Architect.
The amount to be paid by the Employer is the same amount
as the previous NSC, but the Contractor will have to pay the
extra cost to the new NSC and other cost incurred by the
Employer.
No EOT to be granted.
Baharuddin Ali & Low Sdn Bhd
CLAUSE 30.0 - CERTIFICATES AND PAYMENT
Correction of certificates
183
Baharuddin Ali & Low Sdn Bhd 184
92
This Clause allows the Architect to correct any previous certificates
which has been issued and this includes payment certificates.
This can be implied to mean that the Architect can re-issue a new
Interim Certificate to replace previous Interim Certificates.
The Architect has the power to "correct any error or discrepancy
which has been discovered in any previous certificate, or may modifY
any previous certificate." This power may be too wide ranging.
The only exception is that the Architect cannot correct errors or
discrepancies or modify a Certificate of Practical Completion or the
Final Certificate.
Why is the Architect prevented from correcting the CPC and the
Final Certificate? Why leave it to the Arbitrator under
PAM 98 - Clause 34.4(iv)".. .to open up, review and revise any
certificate, .... "
Lojan Properties v Tropicon Contractors (1991) 2 MLJ 70
Baharuddin Ali & Low Sdn Bhd 185
The power to amend certificates may be implied if there are
some honest errors. For example, if the Architect made a
mistake in the Final Certificate on the amount paid by the
Employer, there should therefore be no restriction in a
contract that he cannot correct this error. Why is there the
necessity to expressly forbid corrections in the Final
Certificate.
Previous provisions in PAM/ISM 69 Form Clause 30(7) allows
the corrections ofthe Final Certificate due to (a) fraud,
dishonesty or fraudulent concealment (b) any defects which a
reasonable inspection would not disclosed (c) any accidental
inclusion or exclusion of any work.
Baharuddin Ali & Low Sdn Bhd 186
93
This Clause clarifies that the Architect can make amendments to
payment certificate if it is due to clerical, "computational or
typographical error or errors ofa similar nature". If there are any
other errors in the valuation, the Architect can carry out the
amendment in a later certificate. This is to encourage certainty of
the payment valuation and discourage amendments to previous
certificates issued.
Baharuddin Ali & Low Sdn Bhd 187
PAM 2006 Contract - Clause 30.1
".. Upon receipt ofthe Contractor's details andparticu
Architect.. ... shall, ..... issue an Interim Cer to ~ e r
with a copy to the Contractor, and the Employe II thereafter pay
the amount certified to the Contractor within the Period ofHonouring
Certificates. "
There is no requirement for the Contractor to present the
certificates.
The Architect must make sure that the Employer is aware of the
issue of the certificates.
Baharuddin Ali & Low Sdn Bhd 188
94
Payment for materials after the Contractor has paid the full cost
<t•••• and where the Contractor hadpaid to the supplier the full_cost of
the materials ... "
Under PAM 98, payment for materials will be included in payment
certificates after the Contractor has paid his supplier the full cost of
the materials.
Baharuddin Ali & Low Sdn Bhd 189
Payment for Nominated Sub-Contractor and Nominated Supplier
As regards Nominated Supplier, the Contractor will have to pay the
Nominated Supplier in full within 30 days after delivery, before he
can include NS materials in his payment application.
The same payment arrangement also applies to Nominated Sub-
Contractors. The NSC must pay for the materials in full before they
can include the cost of their materials in any payment application.
Baharuddin Ali & Low Sdn Bhd 190
95
The PAM 98 payment provisions mean that:
(a) the Contractor and the NSC will have to pay in full the cost of
their respective material purchase until payment is received
from the Employer within the period of honouring certificates.
If you assume that the certificate is issued 28 days after the
contractor's application and the period of honouring certificates is
say 60 days, this would mean that the Contractor and NSC will have
to finance the cost of materials by 88 days.
(b) the Contractor will also have to finance the materials supplied
by Nominated Suppliers for at least 88 days.
Baharuddin Ali & Low Sdo Bhd 191
PAM 2006 Contract - Clause 30.
"The amount stated as due in a rim Ce shall... be the
total value ofthe ly executed a the percentage of
the value ofmater ds stated in the Appendix The
materials and goods must befor incorporation into the permanent
works ...... "
PAM 2006 Contract reverted to payment for materials on site, but it
is confined to materials
for incorporation in the permanent works. In other words no payment
for formwork, temporary strutting etc.,
The Employer can decide the percentage of such payment.
Baharuddin Ali & Low Sdn Bhd 192
96
ROT problems cannot be solved. The retention fund and the
performance bond would provide a degree of risk protection
to the Employer. Under Clause 14.4, if the materials are re-
possess by creditors, the Contractor will be liable for breach
of contract.
PAM 2006 Contract - Clause 14.4
"The Contractor shall be deemed t
title free from encumbrances
uc
Baharuddin Ali & Low Sdn Bhd 193
"Unless otherwise expressly provided in these Conditions.... "
This clause makes it clear that the Employer cannot set-off any
amount from the Contractor's payment unless it is expressly
provided in the Conditions. It adopts the decision of Leow Tuck Chui
v Leela Medical Centre.
But it is not clear in PAM 98 where these Conditions are "expressly
provided?" Under the PAM 98, set-off cannot be implied.
Baharuddin Ali & Low Sdn Bhd 194
97
Unfortunately, the same intentions regarding set-off are not carried
over to the PAM 1998 NSC Form.
Provided always that the Architect has been notified.. ... the Contractor
shall be entitled to... set-off against any money due from him to the
Sub-Contractor
This statement makes it clear that the Contractor can set-off without
agreement either the Architect or the NSC.
What is the purpose of informing the Architect of the amount and
the reasons? .
Set off Clauses
Baharuddin Ali & Low Sdn Bhd 195
Baharuddin Ali & Low Sdn Bhd 196
98
The areas where the Employer can set-off are briefly as
follows:
Clause 2.4 - The employer may employ others to execute the
works in the event of failure by the Contractor to comply with
an instruction.
Clause 4.4 - The Employer may pay fees, levies and charges in
the event of failure by the Contractor to pay.
Clause 5.1 - The Employer may accept wrong setting out
subject to an appropriate set-off.
Clause 6.5(e) - The Employer may accept works not in
accordance with the contract subject to an appropriate set-off
Baharuddin Ali & Low Sdn Bhd 197
Clause 6.7- The Employer may pay other Persons to rectify
the Contractor's work subject to an appropriate set-off.
Clause 14.4 - The Employ can recover from the Contractor in
the event he has suffered loss if the Contractor make a false
warranty that he has ROT
Clause 15.3(b), 15(c), 15.4 and 15.5 concerns Defects in the
work which are either set-off if the Contractor fail to execute
the works, or abated if the Employer decides to accept the
works with Defects.
Clause 19.5 and Clause 20 concerns insurance premiums
incurred by the Employer on the Contractor's behalf.
Baharuddin Ali & Low Sdn Bhd 198
99
Liquidated Damages not subject to set-off
It is also clearly stated in PAM 2006 that Liquidated Damages
is not subject to set-off procedures.
Baharuddin Ali & Low Sdn Bhd 199
Under PAM 98 Form Clause 34.5 the arbitration shall not be opened
until after Practical Completion or alleged Practical Completion ofthe
Works..... ".
It is not clear what would be the interim position if there is a
dispute. Can the Employer deduct the monies pending arbitration
for disputes on "set o((or to any counterclaims or any allegation o(
defective works, materials or goods or (or any other reasons."
Baharuddin Ali & Low Sdn Bhd 200
100
Clause 30.3(ii) may effectively neutralized the Clause 30.3(i),
if the Employer cannot deduct pending arbitration..
Baharuddin Ali & Low Sdn Bhd
Set-off procedure under PAM 2006
PAM 2006 Contract - sub Clause 30.4(i)
"the Architect or Quantity Surveyor (on
submitted to the Contractor complete det
such set-off; and"
201
ub- Clause 30.4
oyer or the Architect on his s given the Contractor
tice delivered by hand or b edpost, specifYing his
in n to set-offthe amount and the nds on which such set-off
is made. Unless expressly stated elsewhere, such written notice shall be
given not later than twenty eight (28) Days before any set-offis
deductedfrom any payment by the Employer. "
Baharuddin Ali & Low Sdn Bhd 202
101
er
watwn under Clause 34.1. The
entitled to exercise any set-offunless the amount has been
agreed by the Contractor or the adjudicator has issued his
decision. "
Baharuddin Ali & Low Sdn Bhd
General discussion on adjudication.
Baharuddin Ali & Low Sdn Bhd
203
204
102
If there are any dispute on set-off, the dispute will be referred to
adjudication. The timescale to resolve this dispute are as follows:
(a) The Architect informs the Contractor within 28 days with
reasons and details on set-off.
(b) If the Contractor does not agree, he will have to respond within
21 days the reasons for any disagreement.
(c) If the parties are unable to agree amicably within a further 21
days, the dispute will be referred to an adjudicator.
(d) Assuming the adjudicator is appointed within 30 days and issues
an adjudicator's decision based on the documents in (a) and (b),
it means that the dispute should be resolved within a time frame
of 130 days.
Baharuddin Ali & Low Sdn Bhd
What happens if there is a dispute on the adjudicator's decision?
d binding
ecision is not referred to ar
stip e. The parties may settle any with the
adjudicator's decision by written agreement between the parties or
arbitration under Clause 34.5."
Baharuddin Ali & Low Sdn Bhd
205
206
103
Suspension of work for non payment
The provision was in the NSC Contract but there is no similar
provision in the main contract.
Babaruddin Ali & Low Sdn Bbd
Clause 30.7 rectify the position.
207
stating t ent is
Days, the Contractor
forthwith suspend the execu
payment is made..... "
ithin the fourteen
rther written notice
ofthe Works until
Babaruddin Ali & Low Sdn Bbd 208
104
Compulsory suspension of Works
the
laws for whatev
suspend the exe of
suspension until the resumption
New Clause in PAM 2006 Contract to comply with the
Building By-law that the work has to be under supervision of
aQP.
Baharuddin Ali & Low Sdn Bhd
Final Certificate conclusive in PAM/ISM69 Form
209
Under PAMIISM 69, the Final Certificate serves two purposes. It
was conclusive that:
(a) "the Works have been properly carried out and completed in
accordance with the terms ofthis Contract" and
(b) "that any necessary effect has been given to all terms ofthis
Contract which requires an adjustment to be made to the Contract
Sum.. ."
In other words, the Final Certificate is conclusive on the value of
work.
Baharuddin Ali & Low Sdn Bhd 210
105
Final Certificate not conclusive in PAM 98 Form
Under PAM 98, the Final Certificate is not "conclusive evidence that
any work, materials or goods to which it relates are in accordance with
the Contract."
It is however silent whether the Final Certificate is conclusive on the
value of Work.
Note: There is no equivalent provision in the NSC that "No
certificate ofthe Architect shall ofitself be conclusive evidence that
any Sub-Contract Work are in accordance with the Contract"
Baharuddin Ali & Low Sdn Bhd
Conclusiveness of the Final Account
211
PAM 2006 Contract - Clause 30.12:
"Unless a written noticefor arbitration shall have been given under
Clause 34.0 by either party within the stipulated time stated in Clause
30.10, the Final Account or the last amended Final Account shall be
conclusive and deemed agreed by the parties other than any
outstanding items to be resolved between the Employer and
Contractor under Clauses 30.11 (g), except where the Final
Account is erroneous by reason of:"
The Final Account shall be conclusive on the value of work.
Either party who disagree with the Final Account may request that
the dispute be referred to arbitration within 3 months - sufficient
time for consultation with the parties' advisers.
Baharuddin Ali & Low Sdn Bhd 212
106
Final Certificate not conclusive
PAM 2006 Contract - Clause 30.16
"The Final Certificate sh
Works eption
Emplo racto Cl
shall usive evidence t
which it relates a
Nominated Sub-
States clearly the position of the Final Certificate.
Baharuddin Ali & Low Sdn Bhd 213
The Sub-Contractor is aware of the position of the Final
Certificate on his work.
Baharuddin Ali & Low Sdn Bhd 214
107
This clause provides for payment by either party.
Baharuddin Ali & Low Sdn Bhd
CLAUSE 34.0 - Arbitration and Adjudication
215
This is a new provision for contractual adjudication. It is confined to
matters under Clause 30.4 which covers "set-off'.
If the parties wish to refer any other disputes to adjudication not
covered under Clause 30.4, they must enter into a separate written
agreement to do so. (Example: valuation disputes).
Adjudication can be held anytime during the progress of the work.
If the work has reached the stage of CPC, all disputes will be
referred to arbitration.
Baharuddin Ali & Low Sdn Bhd 216
108
siatoapp(}inta
The parties will attempt to agree on the name of the adjudicator. If
there is a failure to agree, the contract provides that the President of
PAM will appoint the adjudicator.
QS may be more conversant to deal with disputes on set-off.
However PAM 2006 provides that the adjudicator is to be appointed
by the President of PAM. Suggest that it is possible to amend the
clause to provide for the appointment of the adjudicator to be
appointed by the President of the ISM instead of by the President of
PAM.
Baharuddin Ali & Low Sdn Bhd 217
PAM 2006 Contract - Clause 34.3
"Upon appointment, the adjudicator shall initiate the
adjudication in accordance with the current edition ofthe PAM
Adjudication Rules ..... "
• PAM 2006 provides that the procedure for adjudication will
follow the PAM Adjudication Rules.
• Suggest that ISM can also draftJlte·ISMAd.iudication
Rules. In the Rules, the fees f ~ ' r Q S AdjUdicat4ld also
be provided. ~ _ ~ '_-'/'
Baharuddin Ali & Low Sdn Bhd 218
109
t di
arbitration under Clause 34.5."
The adjudication decision shall "temporarily" bind the parties during the
currency of the Contract.
U any party is dissatisfied with the adjudicator's decision, he must give
notice 6 weeks from the adjudicator's decision to refer the dispute to
arbitration after the completion ofthe Works.
There is nothing to stop the parties to agree amongst themselves using the
adjudicator's decision as a basis to do so instead of referring the dispute to
later arbitration. Any agreement must be in writing.
Baharuddin Ali & Low Sdn Bhd 219
• What happens if a party refused to abide by
the adjudicator's decision?
• How does a party enforce an adjudicator's
decision?
Baharuddin Ali & Low Sdn Bhd 220
110
New provision for consolidation of arbitration proceedings.
Example: In the event that the Employer sues the Contractor for say
defective works by the NSC, this clause allow the Contractor to join
the NSC in the proceedings.
Baharuddin Ali & Low Sdn Bhd 221
If the Sub-Contractor sue the Contractor, the Contractor may
allow the Sub-Contractor to step into his shoes in trying to
recover from the Employer.
Baharuddin Ali & Low Sdn Bhd 222
111
PAM 2006 provides that the arbitrator is to be appointed by
the President of PAM.
Suggest that it is possible to amend the clause to provide for the
appointment of the arbitrator to be appointed by the President
of the ISM instead of by the President of PAM.
Baharuddin Ali & Low Sdn Bhd 223
tment, the arbitrator shall initiate the arbitration
n accordance with the provisions of the Arbitration Act
tatutory modification or re-enactment to the Act and the
ration Rules ....."
• PAM 2006 provides that the arbitration shall in in accordance
with the PAM Arbitration Rules.
• Suggest that ISM consider a new set of ISM Arbitration Rules.
The existing ISM Arbitration Handbook (the blue book) was
drafted in 1984 and is out of date.
• If the profession is to play any part in adjudication and
arbitration, we need to put in place the proper adjudication and
arbitration rules so that any members appointed as adjudicators
or arbitrators can follow the relevant procedures.
• We need to also prepare and train members to be adjudicators
and arbitrators.
Baharuddin Ali & Low Sdn Bhd 224
112
THANK YOU
Baharoddin Ali & Low Sdn Bhd 225
113

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