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 1. Definition

2. Governing laws
3. Contract between employer & contractor
4. Contract of supply & fix
5. Regulates relationship between
employer & contractor

6. Procurement methods

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 7. Standard forms
8. Entire contract & payment
9. Contract documents
10. Certificates
11. Subcontracts
12. Consultants
14. Completion
15. Important terms
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 13. Remedies for breach of contract

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There is no one clear and definite definition of what
construction contract is.

It is a contract between an “employer” and a

“contractor”.
Its main purpose is for the employer to get the
contractor’s services for the construction of a
project in consideration for the employer’s
payment of the contract’s sum.

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 CONTRACT

“a contract is an agreement between parties,

having the capacity to make it, in the form
demanded by the law, to perform, on one side
or both, acts which are not trifling,
indeterminate, impossible or illegal, creating an
obligation enforceable in a court of law.”

Per Prof. A.D. Gibbs

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 CONSTRUCTION CONTRACT
HGCRA 1996 – SS. 104(1) & (2)
S. 104(1)
“In this Part a ‘construction contract’ means an
agreement with a person for any of the following -
(a) The carrying out of construction operations;
(b) Arranging for the carrying out of construction
operation by others, whether under
subcontract to him or otherwise;
(c) Providing for his own labour, or the labour of
others, for the carrying out of construction
operations.
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 CONSTRUCTION CONTRACT
HGCRA 1996 – SS. 104(1) & (2)
S. 104(2)
“References in this Part to a construction contract
include an agreement -
(a) To do architectural, design or surveying work,
or
(b) To provide advise on building, engineering,
interior or exterior decoration or on the laying
out of landscape,
in relation to construction operations.”

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 CONSTRUCTION CONTRACT

“A building contract is an entire contract for the

sale of goods and work and labour for a lump sum
price payable by installments as the goods are
delivered and the work is done”

Lord Diplock in Modern Engineering v. Gilbert Ash

[1974] AC 689, 717 (HL).

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 Unlike UK, Malaysia has no specific statute on
construction contract.
The law applicable is a combination of common law
several statutes that form the legal basis of the
terms of the contract.
The main statute is the Contract Act 1950.

Other statutes include:

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 GOVERNING LAWS

United Kingdom - Housing Grants, Construction

and Regeneration Act, 1966
Singapore - Building and Construction Industry
Security of Payment Act 2004
NSW Australia - Building and Construction
Industry Security of Payment Act 2004
Malaysia - Building and Construction Industry
Security of Payment Act 2006?

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 GOVERNING LAWS

Civil Law Act

Reception of English and other commonwealth
jurisdictions in Malaysian construction contract
cases

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 GOVERNING LAWS

NLC 1965 Insurance Act

T & CPA 1976 Employment Act
Sale of Goods Act EQA
Companies Act EQA
Bankruptcy Act Arbitration Act

Antiquity Act OSHA

Factory & Machinery Act Others

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 ‘Employer’ and ‘Contractor’

Other parties:
Employer and Consultants
Main Contractor and Subcontractors

MC/SC and Suppliers

MC/SC and labour only subcontractors

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 Contractor’s duty is to supply the goods &
materials and use them in the construction works.

There are important implications:

Transfer of title in materials and goods supplied

Liability for quality of goods and materials

Liability for workmanship

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 Sets rights, duties and liabilities
Distributes risks
Sets out conditions of contract

Sets out procedures

Determines methods of resolving disputes

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REGULATES RELATIONSHIP

Concept of ‘Rights’ and ‘Duties’

Employer’s rights – Contractor’s duties, vice versa

Express & Implied Rights and Duties

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REGULATES RELATIONSHIP

Employer’s express duties – Contractor’s

express rights.
Clause 38 – duty to give possession of site

Clause 47 – duty to pay

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 Clause 4 Contractor’s duty in general
Clause 5 Duty to comply with S.O.’s instructions
Clause 9 Quality of workmanship, goods & materials
Clause 9 Quality of workmanship, goods & materials
Clause 10 Safety of unfixed materials & goods
Clause 11 Statutory obligations
Clause 14 Levels and setting out
Clause 15 Site inspection/condition
Clause 16 Employment of workmen
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REGULATES RELATIONSHIP

Implied duty to appoint consultants

Implied duty to provide contract documents

Implied duty to get the necessary approvals

Implied duty to nominate subcontractors/suppliers

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REGULATES RELATIONSHIP

Employer’s implied duties – Contractor’s

implied rights
Two main implied duties:
Implied duty to corporate
Implied duty of non-hindrance

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 REGULATES RELATIONSHIP

Implied duty not to prevent the contractor from

earning profit
Duty to permit contractor to complete the work
Duty not to terminate the contract
Duty not to abuse NSC clause

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REGULATES RELATIONSHIP

Implied duty to warn defective designs/drawings

Implied duty to warn defective designs/drawings

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REGULATES RELATIONSHIP
DISTRIBUTES RISKS
Levels & setting out
Site conditions
Public safety
Safety of works
Safety/quality of materials and goods
Date of completion
Insolvency

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REGULATES RELATIONSHIP
RISKS MANAGEMENT TOOLS

Express transfer of risk

Insurance
Subcontracting
Termination

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 REGULATES RELATIONSHIP
SETS OUT CONDITIONS

Giving possession of site

Payment
Final Account

Partial Possession
Assignment/Subletting

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 REGULATES RELATIONSHIP
SETS OUT PROCEDURES

Variation order
Liquidated & ascertained damages
Payment

Instructions to contractor
Loss and expense
Termination of contract
Dispute resolution

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 PROCUREMENT METHODS

These systems or methods are designed by

taking into account several factors.
Employers requirements.
Distribution of risk.
Complexity of design and construction.

Development in construction management

and technology.

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 PROCUREMENT METHODS

Types of procurement methods:

Traditional/conventional
Design & Build
Construction Management
Management Contracting
Build-Operate-Transfer
Partnering

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 PROCUREMENT METHODS

Contracts are made up of terms (conditions) that

set out rights, duties and liabilities.
The terms can be designed in such a away as to
form systems.
These systems are called Procurement Methods
or Delivery systems.
Currently, there are already several delivery
systems that have been developed.

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 PROCUREMENT METHODS

Traditional/Conventional

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 PROCUREMENT METHODS

Employer

Design Team

Contractor

DS DSC NSC NS

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 In construction contracts, the contract terms are
determined by:
employers:
Contractor & Employer
Custom designed by professional for a
particular project
Statutes
Standard forms

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 Advantages
Safe money, time, effort
Familiarity facilitate management & control
Assurance – all important terms are
provided for
Certainty - terms have been judicially
interpreted
‘Balance’ contract?
Continuous revisions and amendments taking
into account judicial pronouncements and
changes in statutory rules
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 Traditional Procurement Method

UK M’sia Inter

JCT JKR FIDIC

ICE PAM

CIDB
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 Other Procurement Method

Design & Build JCT CD 81

UK
Management Contracting

Construction Management

M’sia Design & Build JKR D&B 2001

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 Elements of enforceable contract: clear and
unambiguous.
Section 30 Contract Act 1950: agreement void
for uncertainty.
Ahmed Meah v. Nacoda Merican: contract to build
a “suitable house”.
Conditions of contract inadequate to explain
contract.
Contract documents explain and describe
contract.
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 Specifications .7 Articles of Agreement .1

Tender Form .8 Conditions of Contract .2

Letter of Acceptance .9 Appendices .3

Schedule of Rates .10 Drawings .4

Treasury Instructions .11 Specifications. 5

Schedule of Works .12 Bills of Quantities .6

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 CONTRACT DOCUMENTS

• Clauses or rules in a document

• Record in general terms matters that the parties
have agreed to do
• Example:
For the consideration hereinafter mentioned the
Contractor will upon and subject to the Contract
Documents carry out and complete the Works as
shown upon and described by or referred to in those
Documents

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 CONTRACT DOCUMENTS

 Detailed clauses that follow on the Articles of

Agreement.
 The purposes:
• to amplify and explain further the duties of the
parties.
• To set out the conditions and procedures
• Example: Extension of Time
• To provide the administrative mechanism
• Examples: Architect’s instructions, Certificates

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 CONTRACT DOCUMENTS

 Record important particulars of the contract.

 Purpose: to enable the standard form be used
in a variety of situations despite of the
differences in the facts of each contract
 Purpose: to enable the standard form to be used
in spite of the differences in the facts of each
contract :
• Dates for commencement & completion.
• Amount of LAD
• Percentage of retention money
• Period of honouring certificates
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 CONTRACT DOCUMENTS

 A document that defines materials and goods to

be used, the standard of workmanship, method of
working and the conditions for execution of their
execution.
 Determine the method of construction, quality of
finishes and workmanship.
 Their functions are similar to bills of quantity.
 Most projects require either specifications or bills
of quantity and not both.

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 CONTRACT DOCUMENTS

 They define the whole of the contractor’s

obligations for quality and quantity of work.
 They are prepared in accordance with
standard method of measurement.
 They form the basis for the contractor’s
estimates of the tender price.

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 CONTRACT DOCUMENTS

 Types of drawings: architectural, isometric,

scheme design, engineering, working or detailed
drawings (shapes, appearance, locations)
 They are prepared in stages as the construction
progresses for various purposes:
• Presentation of the designer’s idea & creativity
• Instructions to contractor
• Basis for extracting information regarding
materials, methods of working.
• Set out the contractor’s scope of work
• Record the contractor’s work – “as-built-
drawings”
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 CONTRACT DOCUMENTS

 JKR or Government contracts only.

 Treasury issues instruction from time to time.
 Normally these instructions are not immediately
enforceable against contracts created prior to
their issuance.
 The term in JKR contracts causes these
instructions to be immediately enforceable as
and when they are issued.

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 CONTRACT DOCUMENTS

• Tables of information that summaries the

quantities and dimensions of generic items such
as: windows or ironmongery (give details of the
sizes and number requires).
• Information retrieval system
• Useful information for various functions: getting
quotations and placing orders.

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 MODULE OUTLINE

 Construction contracts are normally not

personal contracts.
 Section 41 Contract Act 1950 permits
performance of non-personal by third party.
 The practice of subcontracting is not
particularly unique in construction industry.

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 MODULE OUTLINE

 There are various advantages in the use of

subcontracting.
 Under construction contracts there three main
types of subcontractors: NSC/NS, DSC/DS and
labour only subcontractor.

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 MODULE OUTLINE

 Non-wage cost of employment: training,

pension, medical, redundancy, etc.
 Increase need in diverse skills in modern &
complex projects.
 Rising expectation of workers and increase
shift to free lancing.

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 MODULE OUTLINE

 Choice between diversifying & contracting out.

 Perceived threat from union.
 Transfer of risk.
 Employer’s wish to let works carried out by
specialist subcontractors of own choice.

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 MODULE OUTLINE

Clause 38 Site Possession (see Appendix)

Clause 39 Completion of work (see Appendix)
Clause 47 Interim certificates and payment
Clause 5 S.O.’s Instruction
Clause 24 Variation orders
Clause 43 Delay and extension of time
Clause 40 Damages for delay
Clause 44 Loss and expenses caused by delay
Clause 51 Determination by Employer
Clause 54 Arbitration
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