Chapter 1 - Contract Administration and Legal Studies

Contract definition

✓ Offeror offeree

✓ Consideration involved

• Payments
• Swap land, projects

• Tendering

✓ Advertisement

✓ Purchase and submit

✓ During tendering issues, addendums

✓ Validity Period

✓ Valuation report

✓ Confidentiality issues

• Award

CONTRACT

• An agreement enforceable by law

• A binding agreement between two or more persons which creates mutual rights and duties
and which is enforceable at law. There must be an intention to create a legal relationship.
• Agreement = Every promise and every set of promises, forming the consideration for each
other
• Offer + acceptance + consideration = contract

OFFER

• When a person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to the act or abstinence, he is said to make
a proposal
• An expression by one party of willingness to be bound by some obligation to another
• An intimation of willingness by the offer or to enter into a legally binding contract. It terms
either expressly or impliedly must indicate that it is to become binding on the offeror as
soon as it has been accepted by the offeree

ACCEPTANCE

• An expression by one party of willingness to be bound by some obligation to another.

 • When the person to whom the proposal is made signifies his assent thereto, the proposal is
said to have been accepted.
• Acceptance may be made in writing, orally or by conduct

WHO MAY ACCEPT?

• An offer can be directed to a particular person or to the public at large, anyone meeting the
conditions of the offer may accept it
• An offer addressed to a specific group or class of persons only can be accepted by the group
members.

CONSTRUCTION CONTRACT

• As an agreement for carrying out, arranging for the carrying out, or providing labour for
carrying out construction operations.
• It is expressly stated to include agreements for architectural design or surveying work or for
providing advice on building, engineering, interior or exterior decoration or the laying out of
landscape
• Standard Form of Contract ➢ PWD ➢ PAM ➢ CIDB ➢ FIDIC ➢ JCT
• Construction Contract ➢ Traditional ➢ Design and Build ➢ Build Operate Transfer ➢
Joint Venture
• Parties Involved
o ➢ Client: Public, Private, Personal
o ➢ Contractors, Main, Sub, Specialist
o ➢ Consultants
o ➢ Suppliers, Manufacturers

COMMON PROBLEMS

• Process of building procurement involves a series of different specialists in contributing to

the work at different times
o These people have widely differing skills; they often work for different organizations,
in different geographic locations and at different times
• The level of understanding between them is often less than would be desirable.
• There are several continuing problems that can stand in the way of effective team building in
construction projects.

EXTENDED PROJECT PARTICIPATION

• This shows an enormous range of terms that describe various project participants, some of
which are roughly synonymous with each other, and all of which are in current use. •
• It also shows how the role of the traditional role of the architect has become fragmented,
with different specialists taking on some aspects of the work
TEMPORARY MULTI-ORGANIZATIONS

• Fragmentation is a problem within the construction industry and the result is often
internecine strife
• The reasons for this fragmentation are associated with the fact that a variety of different
people come together on a project, temporarily, each with his or her own set of objectives
and expectations, each from a separate firm

CONFLICT IN PROJECT TEAMS

• Each project participant has particular aim and objective and it is rare to find contract
structures that encourage harmony among these aims.
• Project participants expect to enter into confrontations with each other and with the client.
• One of the purposes of assembling a team of people from different professions is to harness
a variety of views.
• The tensions thus generated should precipitate debate and dialogue so that clear choices
can be made.

CONTRACT ADMINISTRATION

• Managing various aspect of contracts.

• From supervision of works to decision making functions such as certificates, approval,
acceptance etc.
• Circumscribed by terms and conditions i.e. form of contract (PWD, PAM, CIDB)
• Purpose:
o Works is completed within original contract period and price.
o Ensure contractor fulfill obligations.
o Ensure employer fulfill obligations.
o Statutory / local authority approved the project
o Employer is protected against various claims.
o Contract administrator obligations fulfilled
o Nature of the contract, client -contractor, main-contractor – subcontractor.
o Type of contract, traditional, design and build, management contract.
o Terms of particular contract, rights and duties/obligations.
o Identities and roles of contract administrator.
• To ensure:
o Contractor fulfills his obligations,
o Employer fulfills his obligations,
o Designer meet statutory obligations.
• DAMAGES
o Liquidated Ascertained Damages
• RESOLUTION
o Negotiation
o Mediation
o Adjudication
o Arbitration
 o Litigation
• Key issues lead to dispute:

TERMINATION

• By client
• By contractor
• Mutual
• Effects
• Claims, cross claim
• Loss and expenses

•
Chapter 2

 Procurement is the acquisition of goods, services or works from an outside external source.
 It is favourable that the goods, services or works are appropriate and that they are procured
at the best possible cost to meet the needs of the purchaser in terms of quality and quantity,
time, and location
 Construction Procurement can be defined as the process to obtain construction projects.

Preconstruction stage
1.Initiation/ Promotion - The processes of recognizing the need for a facility.

2.Funding - The preparation of the finance required for the project to be undertaken.

3.Design - The translation of the requirements of the initiator into drawings and specifications to
facilitate construction.

4.Statutory Approval - The process of obtaining permissions from the relevant authorities to initiate
and construct a facility and upon its completion occupy and/or use the completed facility.

5.Tendering - The process that is used to obtain offers leading to a contract between a client and
contractor, a client and consultant or a contractor and subcontractor.

During construction stage

1.Construction - The process of physically fitting the various components of facility together, to form
a final structure.

2.Risk Allocation - The susceptibility of each of the above generic functions to varying degrees of risk
depend on the type of procurement system used and the individual functional roles.
 1. Initiation

The process of initiation/ promotion refers to:

 The process of recognising the need for a facility for owner occupation, as an investment, or
as a speculative development.

The Client

 The initiator / promoter who wishes to have a facility constructed and possesses the
ownership or has the authority to develop the land on which the required facility will
occupy.
 In government: Ministries, departments, agencies, etc.
 In private: Developer, individual land owner, etc

The initiation / promotion involved 2 key elements

namely the preparation of a:

• Feasibility Study
• Project Brief

Feasibility Study

✓A proposal to determine whether a project is viable or feasible from both the business, technical
and social points of view.

✓It may encompass wide ranging issues includes:

Project brief

✓The user’s requirements form the basis on which the client expresses his needs to the designer
that eventually becomes the project brief.

✓A statement of needs of the client, and how the proposed facility will be used and therefore,
should define the client’s requirements in term of concept, time, cost and functionality.

✓Preparation of Project Brief is a very tedious and time-consuming activity which requires great
expertise and knowledge of the projects by the personnel who prepare them (ie: Architect, Engineer,
QS)

✓Architect may advise on design aspects, QS may advise on construction cost planning, cost control
and selection &appointment of contractor.

✓Client may engage the services of a project management consultant (PMC) to assist in coordinating
the activities of the various advisors (eg: JKR)
2. Funding
• Funding concern on identifying the sources of funds and the method of adequately funding a
project.
• The available funding must be able to sustain financing the project during the periods
between the initiation of the project and the time when the facility is able to yield its
economic or other benefits.
• Sources and types of funding:

✓In private, it may through internal generate funds or external borrowing from financial
institutions (eg: Banks)

✓In public sector, the Gov. provides necessary finance through Treasury (…Budget 2014) or
through borrowings from local (eg: KWSP) or international bodies (eg: World Bank)

✓Privatisation: Gov. leasing several of facilities such as infrastructure (eg: highways) to the
private sector (eg: PLUS) through Build-Operate-Transfer (BOT) arrangements.

✓Various financial instruments for financing construction projects including term loans,
bridging finance, al-Bai Bithaman Ajil (Islamic Banking) etc.

✓Financial institutions are relatively attracted to finance housing development projects due
to:

1. It offers steady cash flow of income (ie: interim payment)

2. Low risk of loss (ie: usually contractor completed the works)

3. Secondary mortgage market (ie: financial inst. can refinance their housing mortgages)
• The process of obtaining funding:

❑ Client may have to provide proof that they would be able to achieve substantial sales.

❑ Financial institution require collateral includes the land and building to be procured for
the total amount of the financing.

❑ The activities involved in processing a loan application includes:

1. The bank appraise the application (ie: the eligibility of applicant, collateral,
security deposit, etc.)

2. determines requirements of the customer in relation to his period and nature of

repayment.

3. The bank purchases the asset concerned.

4.The bank subsequently sells the relevant asset to the customer at an agreed price
(actual cost + profit)

5. The banks allow the customer to settle the payment by instalments within the
period and in manner agreed

3. Design
a. Schematic design
i. Process of translating the initiator’s requirements into basic design form,
shape, size and function of the building (eg: concept design)
b. Detailed design
i. Production of detailed drawings and specifications from schematic design.
ii. Describing each building elements (eg: tender drawings, construction
drawings)
c. Specialist design
i. Development of detailed drawings and specifications for a specific
component or element within the structure which requires specialist
technical knowledge to design and construct such as M&E works (eg: Rain
Water Harvesting)
• Client may employ Project Management Consultant (PMC) to co-ordinating the works of the
designers, evaluating designs and acting as client’s agent (eg: JKR, KLIAConsult)
• Almost all of the consultants in Malaysia is governed by their respective professional bodies
(eg: BQSM, PAM, IEM, RISM, MIP).
• The professionals also subjected to rule and regulations administered and enforced by the
respective boards (ie: registration,fees, services, etc.)

4. Statutory approval
a. Process to obtain permissions from the relevant authorities to initiate and to
construct a facility and upon its completion to occupy and use the facility

• Statutory control and standards

• Process of obtaining statutory approval
• The responsibility of submitting applications for statutory approvals to relevant authorities
for full compliance of the laws, by laws and regulations is uponTown Planner, Architect
and/or Engineer.
• The procedures vary from one project to another depending on its nature, size and
complexities, from one department to another within a local authority, &from one local
authority to another within Malaysia.
• Statutory control and approval for construction may be divided into 4 stages:
o 1.Development Order
o 2.Building and Services Plans
 ❑Detailed design must be signed by registered designer (ie: Ar., Ir.)
 ❑Design must be submitted to Government Department’s, Statutory Bodies
responsible for different utilities (ie: TNB, Telekom, Syabas, MBSA)
o 3.Construction
 ❑Contractor responsible to comply the laws and regulations concerning
construction activities such as Health and Safety, Local Government, Factory and
Machinery, etc.
 ❑Inspection by authorities to ensure site safety, clean, etc.
o 4.Certificate of Fitness for Occupation
 ❑To obtain before completed facility can be occupied and used.
 ❑To submit final and complete as-built drawings for final inspection by relevant
authorities
 ❑Temporary CF: Contractor must rectify within 3 months

5. Tendering

Types of tendering in construction: 1. Tendering for Consultants’ Services

➢Client appoint consultants

➢Selection through: quotations, interviews, negotiations, appointment ➢Selection criteria:

 ➢Quota (ie: distribution project among consultants)

➢Track record

➢Experience (eg: minimum 10 years experience)

➢Fees payable

➢Other criteria's: personal contact

1. Tendering for Contractors’ Services

1. Open Tendering

- Inviting offers from registered contractors through advertisement normally in general press (eg:
Berita Harian, The Star)

2. Selective Tendering

-Inviting offers from a limited number of registered contracting firms have proven experience and
track record in constructing similar projects.

-Normally through client’s personal contact, recommendation from consultants or 3rd parties known
to the client.

3. Negotiated Tendering

-Clients do a direct negotiation (tender price) with the contractor who meet the requirements (ie:
technical, financial, experience, etc.)

Important information normally included in a Tender Notice:

1. Name of client (E.g: Lembaga Kemajuan Ikan Malaysia)

2.Name of project (E.g: Cadangan Membina Dan Menyiapkan Sebuah Hotel 14Tingkatdi Kelana Jaya)

3. Location of project

4. Tender document price

5. Date, time & place to purchase tender document

6. Date, time & location for project briefing

7. Closing date &time for tender submission

8. Period for buying tender document

9. Tender reference number (E.g:UKM/JPP/56/2011)

10. Class of contractor/ tender requirement details (E.g: CIDBGradeG7)

6. Construction

What is construction?
 ❑ Management of construction

o What to manage ?
o Management skills required in construction
o Factors lead to inefficient & ineffective construction management

❑ Construction production

Construction production inputs

o -Materials
o -Manpower
o -Plant and Equipment
o -Finance

❑ Construction products / output

7. Risk allocation

Production price

Construction time

Project finance

Quality of product

Effectiveness of project operation

1. Construction Time

o Risk to party who gives certainty to Date for Completion.

o Whether project completed before / on / after Date for Completion.

2.Product Price

o Total project price and escalation.

o Uncertainty of project estimates.

3.Design Apportionment Liability Reliability and durability of designs.

4.Project Finance

o Providing project finance and total loss.

5. Effectiveness of Project in Operation

o Whether the completed project meets the stated requirements, can perform its purposed
function.

6.Quality of Product

o Unsuitable quality of material and workmanship in construction process.

Allocation of Risk

1. Client transfer risks in whole or part to other parties on procurement process.

2. Reduce risk by preparing thorough and adequate project feasibility study, project brief, site
and soil investigation, adequate design and cost estimates, employ suitably qualified and
experienced designers, contractors etc.
3. Contained risk through performance bonds, completion guarantee, manufacturer warranty,
etc.
Chapter 5 OBLIGATIONS AND WARRANTY OBLIGATIONS AND DUTIES OF PARTIES IN CONSTRUCTION

Dual liability

Contract

an agreement enforceable by law

Tort

Tort can be defined as a civil wrong independent of contract; or as breach of a legal duty owed to
person generally. The practical consequences of the law of tort are concerned with the adjustment
of losses. Where the elements of fault and damage exist, the law determines who should bear the
resulting financial loss

Liability in Contract and Tort

Tortious liability arises from the breach of a duty primarily fixed by law; such duty is towards persons
generally and its breach is redressed by an action for unliquidated damages./ Tort liability arises
from the breach of a duty primarily imposed by law; such duty is owed to persons in general, and the
breach will be compensated by an action for unliquidated damages

The aims of the Law of Torts

There are two aims of the law of torts that also point towards the major remedies available,
damages and injunctions.

1) Compensation – the main outcome of a successful tort action is to compensate the victim of the
wrong to the extent of the damage suffered.

2) Deterrence/Prevention – the most satisfactory way of dealing with any wrong is to ensure that it
does not happen again or even better to prevent it occurring at all i.e. injunction.

Donoghue v Stevenson [1932]

Established the principle that a duty of care arises whenever a person can reasonably foresee that
his acts or omissions would injure or cause damage to another – “neighbour principle”.

Facts: The claimant claimed to suffer shock and gastroenteritis after drinking ginger beer from an
opaque bottle out of which a decomposing snail had fallen when the dregs were poured. A friend
had bought her the drink, so she could not sue in contract. She claimed £500 from the manufacturer
for his negligence and was successful.

Held by Lord Atkin

1. Lack of privity of contract did not prevent the claimant from claiming .

2. Negligence was accepted as a separate tort in its own right.

3. Negligence would be proved by satisfying a three-part test:

a. The existence of a duty of care owed to the claimant by the defendant.

b. A breach of that duty by falling below the appropriate standard of care.

c. Damage caused by the defendant’s breach of duty that was not too remote a
consequence of the breach.

The moral behind

A manufacturer would owe a duty of care to the ultimate consumer, irrespective of the lack of any
contractual agreement between them. Since the plantiff had suffered as a result of the
manufacturer’s alleged lack of care in ensuring that the product was fit for consumption, the
manufacturer was liable to the girl in negligence.

Dual Liability: Hedley Byrne & Co Ltd v Heller & Partners Ltd

• House of Lords decision gave rise to the possibility of tortious liability even in the absence of
a contractual relationship, if the defendant had 'assumed responsibility' to the plaintiff.
• It could therefore be argued that the plaintiff should be able to recover in tort even where
there was a contract, since it made little sense for the plaintiff to be worse off where he had
provided consideration to the defendant.

Dual Liability: Henderson v Merrett

The concept of concurrence or dual liability was later fully accepted in this case.

Two classes of underwriting members sued their underwriting agents for negligent advice.

One class had a direct contractual relationship with the underwriting agents, and the other class only
had a contract with an intermediate agent, who in turn had a contractual relationship with the
underwriting agents.

The House of Lords confirmed that the duty to give proper advice arose concurrently in tort and
contract, and second, that the lack of a direct contractual relationship did not mean that the parties
intended to exclude any direct claim in tort.

Dual liability: Contract and Tort

All contracting parties owe a duty to the other not party in contract and also in tort. Thus quite
irrespective of any breach of terms of the contract (PAM, PWD, CIDB, contract etc.), a contractor
may be liable to the employer for workmanship which is negligent.
Sucliffe v Thackrah (HL) [1974]

Facts: The architect over-valued a series of certificates, and the employer duly paid the contractor.
The contractor then went into liquidation / winding up before the job was completed. As a result the
employer could not recover the money that had been overpaid.

Held: The architect was not acting in a “quasi-judicial” capacity and had no immunity from liability.
The architect was liable to compensate the employer for the money lost.

Pratt v George J Hill Associates [1987]

Facts: A contractor who strongly recommended by the defendant architects proved to be highly
unsuitable. He became insolvent (company bankrupt) leaving a trial of defective work.

Held: The defendant architects were liable to the client for the money she was unable to recoup
from the builder

Townsends (Builders) v Cinema News Property Management [1959]

Facts: The contractor had been liable to the employer for certain breaches of statue (installation of
toilets in contravention of a by-law).

Held: Since the architect had led the contractor to rely on him and ensure compliance with the by-
laws, the contractor was entitled to recover from the architect the damages that he had to pay the
architect the damages that he had to pay the employer