Construction Contract

Dr. Nur IzieAdiana binti Abidin

 Table of Content
Definition of construction contract

Elements of Contract

.
Tendering

Establishment of contract in
Table of construction
Content
Parties involved in construction
contract

Standard Form of Contract

Main contents in contract

document

Types of contract
 Definition of Construction Contract

What is construction contract?

A legally binding or valid agreement between two or more parties based on

conditions recorded in documentation form

Written
The agreement can be exercised in three
ways: Orally
Act

Covering the rights and responsibilities of the parties involved which

enforceable in law
 Sources of the law of contract

Written law Unwritten law

• Enacted in the
constitution or in • Law which are not
legislation contained in any statutes
and can be found in case
decision
 Elements of Contract

Elements in Contract which enforceable by law

Offer
Acceptance
In order to establish a contract, there are several process involved:

Consideration

Intention

Free/Genuine Consent
Legality of Agreement
Genuine Consent
Capability
Legal Capacity of Agreement
 Elements of Contract

Offer Offeror Acceptor

• Person making offer (Offeror/ promisor)

• Person accepts offer (Acceptor/ promisee)

Form of offer
• Express in oral, written or by conduct
 Elements of Contract

Offer
- It is an offer made by one party (offeror) to establish a legally
binding relationship when it is accept by the other party (acceptor)

- A promise made by the offeror matures into a contract when

accepted by the acceptor

- Example: A offers to buy B’s car for RM100,000 and B accepts such
an offer. Now, this has become a promise and the contract is
establish.

- Other example: Advertisement of job application

: Buying goods
 Elements of Contract

Offer
• Illustration
– In response to a tender invitation, Contractor RMZ Sdn.
In order to establish a contract, there are several process involved:
Bhd. on 1st. January 2008 offers/proposes by way of a letter
to undertake renovations to a Client’s bungalow at certain
Intention
price. The letter is received by the client on 7th. January
2008.

• Offer is complete when client receive the letter on

7th. January 2008.
 Elements of Contract

Rules and Lapse to Offer

Rules to Offer
1. May be made to one or a number of persons
2. Must be communicated to offeree
3. All terms must be brought to notice of offeree
4. May specify conditions to be followed
5. May be revoked or may lapse

Lapse of Offer
1. If not accepted within the time stated
2. If no time stated, if not accepted within reasonable time
3. If counter offer made (A counter offer means the original offer was rejected and
replaced with another one) (ie: real estate deals, car sales and employement
contract).
4. On death of either party before acceptance
 Elements of Contract
Offeror Acceptor

Acceptance
An acknowledgment of the acceptance of the offer

When the offer is accepted, it will become a promise

and the contract is establish

Acceptance must be made within a certain period

or within a reasonable time if the period is not specify

Acceptance must be made in a reasonable manner (ex: letter)

 Elements of Contract

Acceptance

– The Client A accepts the Contractor’s RMZ’s offer/proposal

In order to establish a contract, there
by a letter sent on 8th are several process involved:
January 2008. The Contractor
receives the Client’s letter on
Intention 12 th January 2008.

• The acceptance is complete when:

- Contractor point of view, letter is posted (8 Jan 2008)
- Client point of view, letter is received by the contractor (12 Jan
2008)
 Elements of Contract

Acceptance
An offer may be cancelled at any time before the acceptance
is complete

A Contractor (A) submits an offer/proposal by a letter sent by

post on 1 January 2008 to carry out certain works for the
employer (B). On 8th January 2008 the employer sends a letter
by post to the contractor accepting the offer/proposal; which
letter reaches the contractor on 12th. January 2008.

• The Contractor may revoke the acceptance before or on 12 Jan

2008, not afterwards
 Elements of Contract

Acceptance

Rules to acceptance

1. Must be communicated to offeror

2. Must be unconditional (“yes, but” does not amount to an acceptance)
3. Must be made in the method described
4. Can only be made by party to whom the offer was made
5. Must be made within prescribed time – before lapsed, revoked or rejected
6. Cannot be revoked without consent of the offeror
 Elements of Contract

Consideration

• remuneration, benefits, returns or profits which will be obtained by the

contractual parties

• in other words, the consideration is obtained when a contract is

completely fulfilled

• The consideration from the offer and acceptance should be in an

economic value

Example:
Alif made an advertisement to find his missing cat and offer for RM100.00
to anyone who finds it. Aminah found the cat and return it to Alif. Aminah
received RM100 as the consideration
 Elements of Contract

Consideration

• Example: Client offers a project to the contractor to build a mosque with

a cost RM 4,000,000. Contractor accepts the offer.

• Consideration:
- Contractor: will be paid by the amount of RM 4,000,000

- Client: will get the building (mosque)

 Elements of Contract

Consideration
- without consideration, agreement shall be valid if made in
writing and signed or made by natural affection among the
parties who have a close relationship.

- Low tender price by the contractor that allows to make no

profit, if offered without coercion, is also considered as an
acceptable and legitimate.
 Elements of Contract

Consideration

Rules to consideration

1. Essential in every simple contract

2. Must have some value, but Court not concerned as to its adequacy
3. Part of payment may discharge an obligation
4. Must not be illegal or unlawful
5. May be future, present, or past
6. Need not move from the promise

Ex (6) If a person provides consideration other than the promisee then the promisee
cannot enforce the contract. If the third party involved then problems may arise.

.
 Elements of Contract

Consideration
Intention
- Parties involved in a contract must have the intention to
establish a legally binding contract.
- If there is no intention to create legal relations the contract
would not be enforceable, legal and binding

– The exception is family arrangement.

– Domestic/family agreements
» Agreements between husband and wife;
» Agreements between parent and child; and
» Other domestic arrangements.
– Commercial agreements
 Elements of Contract

Consideration
Free/Genuine Consent
- The desire to execute the contract must be at will, no fraudulent(cheating) or coercive

- Contractual parties should not commits to any act, threatens or to do any act prohibited by the
Penal Code such as killing or injuring, by harming anyone, with intent to cause a person to commit
an agreement

Example: Salman wants Ameer to buy his house for a price RM300,000. Salman threatened that
if Ameer refused buying the house, he will be beaten. Because of fear, Ameer bought the house
according to the price.

Does the contract valid?

 Elements of Contract

Free/ Genuine Consent

Genuine consent affected by:

• Coercion (force or threats)

• Undue influence (manipulation, persuade another’s decisions)
• Fraud (dishonest way to trick people. i.e: scam)
• Misrepresentation (false or misleading account)
 Elements of Contract

Consideration
Legality of Agreement

- The contract to be executed must be within the proper limits

of rules and regulations.

- A contract that deal with unlawful things are illegal and cannot
be enforced in court.

- The effect of illegal contracts are void and will not be effective
to enforced by law. It can be subject to criminal

- When a contract is considered void, no one can make a

claim based on contract
 Elements of Contract

Legality of Agreement

Void contract if object of agreement is:

1. Forbidden by the law

2. Fraudulent (penipuan)
3. Involves injury to person of property
4. Immoral or opposed to public policy
5. In restrain of marriage (ie: minority age to get married)
6. In restrain of legal
7. In restrain of legal proceedings
 Elements of Contract

Consideration
Capability

- the ability of both parties (offeror and acceptor) to carry

out their responsibilities as per stated in the contract.

- Example: Contractor’s able to fulfil his work based on the

stipulated period and time
: Ability of contractor to provide workers,
financially stable
: Clients able to pay for every work done by
contractor
 Elements of Contract

Consideration
Capacity

- Parties who wish to perform the contract must be the

person to whom legal action can be taken against them

- There are three conditions for the contractual parties to

enter into a contract:

a. Adult (18 years old and above)

b. Sound mind
c. Does not lose the legal contracting ability (ex: bankrupt)
 Elements of Contract

Legal Capacity

Must be age of majority, sound mind and not barred by law.

Void if made by aliens, minors, lunatics (under age) or drunkards

CROSSWORD PUZZLE
ELEMENTS OF CONTRACT Offer
Acceptance
Consideration
Intention
Genuine
Legality
Capability
Capacity
CROSSWORD PUZZLE
ELEMENTS OF CONTRACT
 Discharge of a Contract

By Under
By breach By consent
performance frustration

28
 PERFORMANCE
• Sec 38(1) of the Contracts Act 1950 states
• .. The parties to a contract must either perform or offer to perform, their respective
promises….

• Performance means:-
• The completion of an act or an act which, in strict accordance of the terms of a contract,
discharge it… and
• The carrying out of an obligation imposed by contract or statutes. In engineering contracts
..’complete performance ‘ where the contractor carries out the whole of the works in
accordance with the contract documents and employer pays the contract sum will discharge
the contract. …
• The complete completion- whole project completed and Partial performance – substantial
completion
• The contractor has carried out all his obligations under the contract, ie undertaken the
construction, installation, rectification, conducted services, done all necessary training…
• The employer has discharged his obligations by making all payments due, issued all
necessary certificates

29
 BREACH
• The refusal or failure by a party to a
contract to fulfil an obligation under that
contract

• A refusal to perform contract may occur

before the time of performance is due
(anticipatory breach), or during the time of
performance itself. A refusal to perform a
contract when performance is due would
amount to a discharge.
30
 AGREEMENT
• What has been created by agreement may be
extinguished by agreement
• Sec 64 of the Contract Act 1950: Every
promise may dispense with or remit, wholly or
in part, the performance of the promise made
to him, or may extend the time for such
performance, or may accept instead of it any
satisfaction which he thinks fit.
• If parties to a contract agree to substitute a
new contract for it, or o rescind or alter it, the
original contract need not be performed

31
 FRUSTRATION
• Impossible of performance does not generally excuse
the performance. Where, however, an event occurs
which destroys the basis of the contract and which is not
the fault of the parties, the contract is terminated.
• The parties may find it is not possible to physically or
legally discharge their obligations under the contract.
• Physically or legally impossible to carry it through to
completion due to factors such as the (i) destruction of
the subject matter of the contract, (ii) death or personal
(iii) incapacity of the parties or supervening illegality.

32
PHASES OF CONTRACT FORMATION

Tender Stage

Contract Stage

Contract Administration
PHASES OF CONTRACT FORMATION

Tender Stage
 Tendering

- Refers to the process whereby governments/ organizations invite a contractor

to bids for a projects that must be submitted within a finite deadline.

- It involves the documentation process, selection process and evaluation of

contractors

- The main purpose of the tender process is to select a truly qualified

contractor and to obtain a tender that can be agreed upon and accepted by
both parties prior establishment of contract
 TENDERING PROCESS
Award &
Pre-Tender Tender Evaluation Contract

Expression of Call for Tender Tender Selection of

interest by client - tender notice evaluation preferred tender

Preparation of Tender
Tender documents Close Tender
interview

Tender
recommendation
Copyright: Pengurusan Dokumen Tender: Salina Abd Wahab, JKR
Who’s the Client?

Copyright: Pengurusan Dokumen Tender: Salina Abd Wahab, JKR

Copyright: Pengurusan Dokumen Tender: Salina Abd Wahab, JKR
WHO SHOULD PURPOSE OF BENEFITS FOR
PREPARE? T/DOCUMENTS? CONTRACTOR?

1. The selection of a suitable Contractor

2. To establish the Contract Price/Sum

a. Forming essence of the Employer’s enquiry

b. Contractor’s tender is based in response to the
Employer’s query
Who should prepare for the
tender?

Copyright: Pengurusan Dokumen Tender: Salina Abd Wahab, JKR

 PROCESS OF PREPARING THE
DOCUMENT
Technical Dept./
Consultants
Within Budget

Detail Design

Concept Design
Inception
Within Budget

How long the process?

Depend: 3 – 12 months
Tender Document
 BASIC REQUIRMENTS

1 Employer/ Client?

Government GLC/Private

2 Must form the basis of a contract legally

and physically possible of being
performed by a Contractor
 BASIC REQUIRMENTS
3 Must reflect procurement in accordance with the
employer’s:
1. approved procedure; and
Government
2. must incorporate the employer’s latest policies.
3. This is particular important where the
employer is a public sector (refer to Treasury’s
Circular No. 5/2007, 5/2009 & 5/2012).
GLC/Private

4 The nature and extent of the work to be

carried out must be:
1. clearly and concisely defined; and
2. specified
 BASIC REQUIRMENTS

5 Must minimise ambiguities, discrepancies,

errors and misinterpretations and ensure a
high level of clarity

6 Work stipulated in the documents must

reflect the expressed or implied requirements
of the particular employer

Work specified in the tender documents

7 must comply with latest standard of
design and construction and good
practice
 PRE-REQUISITES
Firming up of
2 Employer’s
requirements
1 3

Completion of
Funding in place
detailed design

Select the Conditions

4
of Contract
 PRE-REQUISITES

Tendering procedure identified 5

Contractor – Grade/Categories &

6
Specialisation identified (SPP 6/2012)

Form, contents & no. of Tender

7
Documents established

Set up the Tendering Committee 8

Permission to tender 9
 Tendering

Open Tender

Selective Tender

Types of Direct Negotiation Tender/Pre bid

Tender Tender

Pre-qualification Tender
 MODES OF TENDERING

1
Differences:

1. Calling Tender
Open Tender Method
Advertisement
2. Grade /
Specialisation of
2
Contractor
Letter of
Invitation
Selective Tender
 MODES OF TENDERING

Letter of
Intent
Direct One-to-One
Negotiation Tender

Pre-
Qualification Advertisement Invite to the Award to the
for Pre-Q successful successful
 Tendering
Open Tender
- Often practiced in the construction industry by governments or private bodies

- Its open to all contractor but limited to the requirement given in the tender
advertisement

- The purpose: to enable the client to obtain a contractor who can offer the minimum
price for a construction project without compromising the quality of work and
materials.
Advertisement- types of job,
location of site, location of tender Contractor fill up the Contractor submit the
document collection, closing tender document –price, rates, completed document
date, document fee and tender materials
deposit

Tender evaluation and

Successful tenderer
reporting
commence the work
 Tendering
Open Tender

Advantages:

1. Open to all qualified bidders

2. No favouritism, equal opportunities (newly registered and inexperienced can
involve)
3. Highly competitive and this can create healthy competition between
contractors

Disadvantages:
1. High cost of tendering preparation
2. Novice contractors
3. Under-price tenders (low quality materials, poor of works)
4. Long tender process
 Tendering

Selective Tender
- Invites a few known and reputable contracts to tender the job
- The number of invitation is smaller (5-10 tenderers)
- The selection is based on experience and skills of the contractor

The process: Contractors will purchase a

Invite the potential copy of tender document and
Client/ consultant will list out the
contractors fill in the price, rates and
potential contractor
materials

Contractor sent back the

Successful tenderer Tender evaluation and completed tender
commence the work reporting documents
 Tendering

Selective Tender
Advantages:

1. Reduce the possibility of project failure

2. Reduce the document tender preparation and cost
3. Shorter tendering process
4. Simplified the tender evaluation

Disadvantages:
1. Not all contractor have the opportunity to tender especially for newly registered
and inexperienced contractors
2. There is a price alliance between the listed contractors
3. Open to only the specified category (ex: bumiputera contractor only)
4. Can only be implemented after the approval from Malaysia’s Treasury
 Tendering
Direct Negotiation Tender/Pre bid Tender

- Invites only one potential contractor based on its ability and reputation
- The selection is based on background, experience and skills of the contractor

The process:
The contractor will enter a
Contractor shall then negotiation stage with the
Client choose one potential proceed to directly price QS/client for the best value of
contractor the Bill of Quantities money possible

Consultants will prepare

Successful contractor the contract documents
commence the work
 Tendering
Direct Negotiation Tender/Pre bid Tender

Advantages:

1. Quality assurance
2. High success rate completing a project
3. Suitable for emergencies
4. Reduce the cost and time for tender preparation

Disadvantages:
1. Highest price
- because it focus on quality and time instead of cost
- Highest cost compared to open tender and selective tender

2. Long negotiation period

 Tendering
Pre-qualification tender

- Almost similar to open tender

- The difference is that the contractor with a strong background and good
records only will be selected compared to open tenders where all contractors
have equal opportunities.
Advertisement- types of job,
location of site, location of tender Contractor fill up the
document collection, closing tender document –price, rates, Contractor submit the
data, document fee and tender materials completed document
deposit

Tender evaluation and

Successful tenderer
reporting
commence the work
 TENDERING PROCESS
• Tender Documents Preparation
• Bill of Quantities • Specification and Drawings

a. Tender notice a. Tender notice

b. Instructions to tenderers b. Instructions to tenderers
c. Checklist for submission c. Checklist for submission
d. Articles of Agreement d. Articles of Agreement
e. Form of Tender e. Form of Tender
f. Condition of Contract (COC) f. Condition of Contract (COC)
g. Special provision to the COC g. Special provision to the COC
h. Sample of Letter of Acceptance h. Sample of Letter of Acceptance
i. Specification i. Specification
j. Schedule of Daywork rate j. Schedule of work rate
k. Bill of Quantities (with quantities) k. Bill of Quantities (without quantities)
l. Drawing l. Drawing
m. Form of guarantee (performance bond, m. Form of guarantee (performance bond,
advance payment) advance payment)
n. Appendices- Supporting documents n. Appendices- Supporting documents
(contractor’s detail and evaluation) (contractor’s detail and evaluation)
Instructions To Checklist for
Tenderer Submission Of Tender

Articles of Bills of Quantities/

Agreement Summary of Tender

Conditions of Schedule of
Contract + Addendum Rate (if any)

9. TYPICAL List of Drawings

Relevant CONTENTS
Appendices & Tender Drawings
(SPP 5/2007)

Form of Tender Sample Copy of

Guarantee Form

Specifications + Contractor’s Details &

Addendum Background for Evaluation

Sample Copy of Miscellaneous

Letter of Acceptance Details
60
12/1/2022
 TENDERING PROCESS
• Call for Tender

Tender Notice

- Tender advertisement

- To inform all the potential contractor to enter into the tender

 TENDERING PROCESS
• Tender Notice

• Name of client
• PKK and CIDB registration (Class)
• Head and sub-head
• Time and place of tender submission
• Tender Box
• Tender deposit
• Tender closing date
• Special conditions
Example of Tender Notice

Title of Project, field code, price for

document tender, briefing for site visit, the
place, date and time of tender closing

Address to buy the document tender and

to obtain for table tender document

Method of payment for tender document

 TENDERING PROCESS
• Tender Documents Preparation

Instruction to Tenderers

- Instruction given by client to contractor to correctly fill in all the forms

- Failure to do so may lead to rejection of tender and disciplinary action will apply
 INSTRUCTION TO TENDERER

• Instruction to Tenderers
• The instructions may differ from one contract to another. For example:

a) Tenderer must seal the tender and submit it to the address in tender notice

b) The tenderer should visit the site and perform a detailed inspection

c) Tenderer is required to price all items in the bill of quantity

Tenderer must fill in all blank spaces in the tender form

d) The contractor will need to fill out the tender form and bill the quantity using the ink,
signature, and date to be filled

e) The tender is based on the tender table documents as well as the drawings
provided and other terms and conditions
 TENDERING PROCESS
• Instruction to Tenderers

• The instructions may differ from one contract to another. For example:

a) Tenderers that does not comply with the terms and conditions will not be accepted

b) Tender validity period (90 days) – contractor should withdraw the tender within this
period

c) All expenses for preparing tender has to be borne by the contractor

d) Successful contractor will be informed through mail

e) Late tender will not be accepted