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CONTRACT MANAGEMENT

UNDER PAM CONTRACT 2006


AN ARCHITECT''S PERSPECTIVE

Prepared by Ar. Joseph Tan Meng Hooi

October 2015

INTRODUCTION.

With a Building Contract, you have ;


1. THE EMPLOYER, who will provide the site and pay
for the construction of a Building for his use and
2. THE CONTRACTOR, who will build the Building for
the payment received.
Both the Employer and Contractor form the
CONTRACTUAL PARTIES to the Contract.

INTRODUCTION Cont.

The PAM Contract 2006, like all Building Contracts,


attempts to be fair to both Contractual Parties by
setting out their rights and obligations.
To ensure that the Contract is administered fairly
between both Contractual Parties, PAM Contract 2006
places the administration under a third party, namely
the ARCHITECT.

INTRODUCTION Cont.
This paper is not ambitious enough to attempt injecting
the various management theories currently floating
around into the administration of the Building Contract.
The intent of this paper is much more basic and seeks
to just high-light the areas where the Archtect is
(compulsorily) required to step in under the Contract to
perform his appointed role as the Contract's Administrator.
Performance of this role, very simply put and in the writer's
opinion, forms the basis of CONTRACT MANAGEMENT.
For the purposes of simplicity, the Contract in the following
paper refers to the PAM Contract 2006 (With Quantities).

PRE-CONTRACT PREPARATION.

As per the title, this paper only seeks to look into the
Architect's role during the management and administration
of the PAM Contract 2006.
Nevertheless, it must be remembered that there are obvious
steps leading up to the entry of the Contractual Parties into
the Building Contract.

PRE-CONTRACT PREPARATION. Cont.


These steps incude (but are not restricted to) :
- the compilation of information from which a prospective
Contractor may formulate and submit an offer,
- selection of the Contractors whom you would like to submit an
Offer,
- evaluation of the Contractors' offers,
- clarification of their offers,
- negotiations to ensure that the offers are the best available,
- advising the Employer on the selection of the Contractor and
- after selection, preparing to award the Contract.

PRE-CONTRACT PREPARATION. Cont.


Although not a requirement, PAM Contract 2006 pre-supposes a
competitive tender prior to arriving at the execution of the
Contract.
If a Building Contract is to be managed competently, it is only
sensible that the steps leading up to contract such as the
compilation of tender documents, the tender process, tender
clarification, negotiation, evaluation and contract award be
also managed competently with full awareness of any
implications during the execution of the contract.
The importance of the all these steps during the pre-contract
preparation cannot be minimized and are deserving of a
separate paper.

AREAS OF MANAGEMENT.
Different Architects may categorize the areas of management differently
but for this writer, the following categories have been chosen :
A. The Management of INFORMATION.
B. The Management of WORK PROCESS & CONDITIONS,
C. The Management of QUALITY,
D. The Management of PAYMENT & CASH FLOW,
E. The Management of CHANGE,
F. The Management of COMPLETION,
G. The Management of CONTINGENCIES and
H. The Management of DISPUTES.

A. The Management of Information.


Architects generally, neither pay for nor construct the buildings they work
on. Apart from administering the Building Contract to ensure that works
get completed according to plan, the most important task of an Architect
is in conceptualizing the building followed by producing and managing
the information required to construct the works.
The types of information to be managed may comprise (and are also not
restricted to) the following :
a. Information required to construct the works or to show how the works
are to be constructed., i.e.; Contract or Construction Documents, the
Works Programme, Architect's Instructions, etc.,...
b. Information as to whether the works have been constructed correctly.
c. Information as to the status of the works, i.e.; amount of work
completed, whether the works are on schedule, the amounts due to
the Contractor, etc.,....
This section shall attempt to look into some of the above.

A. The Management of Information

Cont.

Contract Documents.
- The Contract does not just comprise the Articles of Agreement, where
the Contractural Parties indicate their acceptance but extend to a set of
Contract Documents which Clause 3.1 specifies as the following :
a. The Letter of Award.
b. The above-mentioned Articles of Agreement.
c. The Conditions of Contract.
d. The Contract Drawings (as prepared by the respective Consultants).
e. The Contract Bills.
f. Any other documents which are to be incorporated into the Contract
Documents.

A. The Management of Information. Cont.


- It is the Architect's job to compile and check through all the above and
issue them out to the Contractual Parties for the execution of the
Contract.
- In addition, the Architect is also required to supply two (2) further
copies of the Contract Drawings and two (2) further copies of the
Contract Bills to the Contractor, for them to plan and execute the
work.
PAM Contract curiously, only requires the Architect to supply these
further copies after the execution of the Contract (Clause 3.3).
It is the writer's practice to instead, look into supplying the Contractor
with the above documents immediately after the issuance of the Letter
of Award to allow the Contractor to have as much time as possible to
plans for the works.

A. The Management of Information. Cont.


- The Contract Bills should reflect the work as described in the Contract
Drawings but should there be any errors in the Bills, either in terms of
description, quantity or by omission, it is the Architect who has to
correct such errors (Clause 12.2).

A. The Management of Information. Cont.


Setting Out and Levels.
- Amongst the items required to be issued by the Architect to the
Contractor is all the necessary information to set out and determine the
levels of the works (Clause 5.1).
Once issued, the Contractor has to follow the above levels and setting
out. Should there be any errors in constructing the works relative to the
above, the Architect is empowered to either instruct that the errors be
corrected or (subject to the Employer's consent), accepted subject to
any Deductions.

A. The Management of Information. Cont.


Custody of Tender Documents.
- As noted previously, tender documents are prepared to enable a
Contractor to submit a price but between the preparation of the tender
drawings and the subsequent execution of the Contract, there may be
changes to the design and specification.
The tender documents, once having these changes incorported, shall
form the basis of the Contract Documents., i.e.; Tender drawings may
not necessarily be the same as Contract Drawings.
Tender documents as such, form a valuable record of the steps leading
up to the Contract and it is the Architect's job to keep copies of both
The Tender and Contract Documents (Clause 3.2)..

A. The Management of Information. Cont.


Statutory Requirements.
- It has already been noted that the Contract Documents should have
been checked and it's also assumed that the building arising out of
these documents should be in full compliance with any statutory
requirements.
Compliance relative to statutory requirements remains the Architect's
responsibility.
Nevertheless, should there be any discrepancies or non-compliance
relative to statutory requirements which the Contractor may discover,
he may give written notice to the Architect who is in turn, now obliged
to resolve such discrepancies (Clause 4.2).

A. The Management of Information. Cont.


Further Drawings and Details.
- As and when additional information may be required (either to clarify
the existing design or to cater for any variation or changes), the
Architect is again obliged to issue two (2) copies of such information to
the Contractor (Clause 3.4).
It must also be remembered that the Contract allows for the Contractor
to apply for such information and once applied for (in writing), the
Architect is obliged to issue such information within a period which
does not materially affect the progress of the works, i.e.; the Architect
has to issue the information in a manner which does not cause any
delays to the Contractor.

A. The Management of Information. Cont.

- The preceding pages looked at principally, information originating from


The Architect (and Consultant Team).
Nevertheless, there is also information originating from the Contractor
which has to be managed, i.e.; shops drawings or as-built plans from
specialist sub-contractors (Clause 3.10).
Again, it is the Architect's job to ensure that the above is issued at the
appropriate time and once issued, that it is checked.

A. The Management of Information. Cont.

- Management of Information is not just the production and assessment


of information between the Architect (as Contract Administrator) and the
contractual parties.
It is important to remember that the form and method of transmission of
information is prescribed in the PAM Contract 2006.
In its current form, all notices or communication are only recognised
if they are physical documents (hard copies), delivered either by hand,
post or fax (Clause 36). Transmission by e-mail or social media is not
recognised.

B. The Management of Work Process &


Conditions.
- It is the Contractor's job to plan and execute the construction and
delivery of the works BUT nevertheless, it is the Architect's job to check
and ensure that the above execution and delivery are inaccordance
with the Contract. .
- Documents like the Works Progamme (Clause 3.5) will normally detail
out the Contractor's Work Process.
It is the Contractor's job to prepare the Programme and although this
programme does not form part of the Contract, it is the Architect's job to
evaluate it to ensure that the process is feasible and meets the
Employer's requirements one of which may be the co-ordination of
works by others whom may also be employed directly by the Employer.

B. The Management of Work Process &


Conditions
Cont.
- In addition to the scheduling of the works, the Architect is also
empowered to have a say in the staff employed by the Contractor to
manage the works, such as the Site Agent (Clause 8.3).
- It is also the Architect's job to ensure that the Contractor takes all
precautions and indemnifies the Employer against any damage or injury
to persons and property (Clause 18).
This usually means that the Architect has to check and ensure that the
correct insurance coverage (as required under Clause 19 and 20) are
appropriately taken out.
- Whilst site safety is mainly the Contractor's responsibility, it must
remembered that as the Principal Submitting Person through the
Street, Drainage & Building Act, the Architect cannnot escape from
shouldering part of this responsibility.

B. The Management of Work Process &


Conditions
Cont.
- Very often, the work process requires the appointment of specialist
sub-contractors (whose nomination is allowed for under Clause 27).
It is the Architect's job to advise the Employer on the allowance of any
required Prime Cost (PC) Sums, the subsequent identification and
selection of these sub-contractors and their nomination in accordance
to the Contract.
- Although a Nominated Sub-Contractor (NSC) is under the direct control
of the Contractor, the Architect is required ;
a. to ensure that his administration of the Contract does not jeopardize
the sub-contract and
b. to fulfill his obligations to both the contractor and the Nominated
Sub-Contractor,such as the acceptance of a NSC's work and the
notification of any sums due from the Contractor to the NSC.

C. The Management of Quality.


- Apologies for having to repeat once again - it is the Contractor's job to
execute the works BUT, it is the Architect's job to ensure that the works
are built in accordance to the Contract, i.e.; the Employer gets what he
pays for.
- The Contract facilitates the Architect in carrying out this task by :
a. giving him access to the works or workshops and factories where
parts of the works are being carried out (Clause 9.1),
b. by having Site Staff to inspect the works (Clause 10),
c. by empowering the Architect to ask for vouchers or any other
evidence to substantiate the quality of materials (Clause 6.2) and
d. empowering the Architect to ask for samples or the opening up of
any works (Clause 6.3).

C. The Management of Quality

Cont.

- If the works or materials employed are NOT in compliance with the


Contract, the Architect is further empowered to issue instructions for the
removal of any materials, demolition of any works as well as the
rectification of such works (Clause 6.5).
The Architect is also empowered to accept works which are not in
compliance subject to the imposition of an appropriate set-off (Clause
6.5).

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D. The Management of Cash Flow.


- Building Contracts are almost always protracted affairs requiring a
prolonged construction period. Building Contracts recognise this by
allowing for progressive payments at set intervals for parts of the works
which have been completed at these intervals (Clause 30.1).
If these progressive payments are jeopardized, a Contractor may not be
able to finance the remaining works, thus in turn, jeopardizing the
remainder of the works.
- Under the PAM Contract 2006, the Contractor is required to submit his
progressive claims at set intervals for the Architect to evaluate.
- Upon evaluation, the Architect is required to certify the amounts due to
the Contractor by issuing an Interim Certificate.
- Upon receipt of such an Interim Certificate, the Employer is then
required to honour the Certificate by paying the Contractor within the
period of honouring certificates.
.

D. The Management of Cash Flow

Cont.

- As the issuance of Interim Certificates ultimately involves the subject of


money, it is both a contentious and important issue important enough
that it deserves a paper of its own.
For those who are intereted in finding out more on this subject, they
may refer to the writer's paper entitled Architect's Certification under
PAM Contract 2006.
.

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E. The Management of Change.


- In an ideal world, the building as constructed would be the same
building as conceptualized during tender.
Nevertheless as seen earlier when discussing the possible differences
between tender and contract drawings, change is veryoften inevitable
with differences also possibly occuring between the Tender, Contract
and Construction drawings.
PAM Contract 2006 acknowledges the inevitabilty of these changes
which result in alterations or modifications of the design, quality or
quantity of the Works by empowering the Architect to issue instructions
ordering such Variations (Clause 11.2).
The issuance of such instructions for Variations may only take place
during Construction, i.e.; before the issuance of the Certificate of
Practical Completion UNLESS such a variation is required by a
Statutory Authority or Service Provider (Clause 11.3).

E. The Management of Change

Cont.

- Before any instructions ordering variations are issued, an Architect


has to assess the impact such variations may have on the
progress of the works, the rights of both the Contractual Parties
and advise them accordingly.
- Should the instruction for a variation be issued, resulting in
alterations or modifications of the design, quality or quantity of the
Works, the Architect has to ensure that the Contractor is paid
(or the Employer is compensated) accordingly by valuing the work
arising from the variation.

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E. The Management of Change

Cont.

- The valuation of such variations follow strict rules whch identify


whether the work is of a simlar character to that already described in
the Contract and if it is of a similar nature, whether the conditions under
which the work is undertaken is also similar to that already described in
the Contract (Clause 11.6).
Where the work is not similar, the Contract allows for valuations at fair
market rates, the use of daywork rates or valuations based on actual
cost (Clause 11.6(c) & 11.6(d)).

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F. The Management of Completion.


- The ultimate aim of the Contract is for the Contractor to complete the
works in order for the Employer to take possession and use it for its
intended purpose.
- The process of completion and subsequent possession is defined
under the Contract as Practical Completion.
- Practical Completion may occur in a single stage, i.e. ALL the Works
are completed and handed over in a single stage OR, it may occur in
multiple stages.
- The stages may not have been planned for prior to entering into the
Contract, i.e.; as with Partial Possession (Clause 16.0)

OR alternatively, the stages may have been planned for with


allowances being made in the Contract, i.e. as with Sectional
Completion (Clause 21.3).

F. The Management of Completion

Cont.

- Partial Possession under the Contract, may only occur with the
Contractor's consent UNLESS :
a. the Works are delayed and the Architect has already issued a
Certificate of Non-Completion and.
b. such partial possession by the Employer shall not disturb the
progress of the Contractor to complete the remaining works.
.

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F. The Management of Completion Cont.


- Irrespective of whether Practical Completion is either in a single stage
or stretched over multiple stages, the process of applying for and
arriving at Practical Completion are similar.
- PAM Contract 2006 requires the Contractor to give written notice to the
Architect, when the Works are practically completed.
Upon receipt of this notice, the Architect has to evaluate this notice and
within 14 days, he has to either :
a. reject the notice by giving a written notice in reply to the Contractor,
specifying the grounds for such rejection OR
b. where there are minor defects which do not affect the Employer
enjoying full use of the Building, he may issue the Certificate of
Practical Completion upon receipt of the Contractor's written
undertaking to make good these minor defects OR
c. he may issue the Certificate of Practical Completion, if the Works are
complete and there are NO defects.

F. The Management of Completion Cont.


- The responsibility in determining whether the Works have reached
Practical Completion lies solely with the Architect.

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Although the decision as to whether the Works are practically


completed rests on the Architect's opinion, this has to be an opinion
which is arrived at based on the factual conditions on site and whether
the Employer may enjoy the full use of the Building according to its
intended use.

F. The Management of Completion Cont.


- Issuance of the Certificate of Practical Completion is BUT only the
1st STEP towards the completion of the whole Contract.
Its issuance triggers off a few other steps which also have to be
managed by the Architect, namely :
a. issuance of a Certificate for the release of the 1st half of the retention
sums,
b. adjustment of the retention sums, liquidated damaged and
Performance Bond where Practical Completion involves Partial
Possession or Sectional Completion,
c. commencement of the defects liability period for the discovery (and
making good of any latent defects) and
d. commencement of the period for settling the Final Account.

F. The Management of Completion Cont.


- Just as Practical Completion is based on the expression of the
Architect's opinion, the determination as to whether a building fault or
damage is a bona fide defect for which a Contractor is liable shall
also be based on the Architect's opinion which in turn, should be arrived
at objectively and be based on fact.

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F. The Management of Completion Cont.


- Full Completion of the Contract can only said, to be achieved when :
a. all defects occurring within the defects liability period have been
made good and certified with a Certificate of Making Good Defects
followed by the issuance for a Certificate for the release of the
balance of the retention sums,
b. the Final Account has been settled (within the Period to complete
the Final Account) and FINALLY,
c. upon the issuance of the Final Certificate.

F. The Management of Contingencies.


- If all Contracts went according to plan, the task of managing the
contract would definitely be less onerous. Nevertheless, as in life,
there will always be occassions when events DO NOT GO accordng
to plan.
PAM Contract 2006 recognizes the inevitability of this and attempts to
provide a basis for planning for the unexpected and unintended.
- Some of the unexpected and unintended events provided for in the
Contract are the perils listed under Clause 20 which range from fire
and theft, through to natural disasters like earthquakes or tsunamis to
events such as riots or civil commotions.
As noted earlier, it is the Architect's job to ensure adequate insurance
for the Works for all the above eventualities.
- Whilst it is the Contractor's responsibility to make good or repair any
part of the Works which may have been damaged, it is the Architect's
job to ensure that any money received under an insurance claim, is
paid out to the Contractor at the appropriate time.

F. The Management of Contingencies Cont.


- Other contingencies specifically allowed for are the Outbreak of
Hostilities (Clause 31), the sustaining of War Damage (Clause 32) or
the discovery of Antiquities (Clause 33) on the site.
- It is sincerely hoped that all Architects never have to manage
contingencies such as the outbreak of hostilities but should the
need ever arise, they need to be aware of the role they are
required to undertake.
- As a young, developing nation, the discovery of antiquities in a
Malaysian context is perhaps a rarity but the title of Clause 24;
Antiquities can be seen as a misnomer as it also covers the discovery
of fossils and other objects of interest and value.
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F. The Management of Contingencies Cont.


- Probably the most common contingency which has to be managed
would by the occurrence of delays to the progress of the Works.
The delays may arise from the Clause 20 perils, war damage of the
discovery of Antiquities as previously discussed or it may be a result of
acts of omission or commission by the Architect, Consultants,
Employer, Contractor, Nominated Sub-contractor, Statutory Authority
or Service Provider.
Should the delay be due to a relevant event (as detailed under
Clause 23.8), a Contractor may be entitled to claim for an Extension
of Time.

Being entitled to an Extension of Time does not automatically mean


that such an extension will be granted. Under the Contract there are
specific procedures which have to be followed by firstly, the Contractor
and secondly, the Architect.

F. The Management of Contingencies Cont.


- The distinguishing feature of the PAM Contract 2006 is the requirement
for the Contractor to give notice when he is of the opinion that the
works are going to be delayed.
The submission of this notice followed by the subsequent submission
of details of the relevant event and delay and the assessment of such
information have to also follow a specific time frame.
The rationale for all the above steps is to ensure that the Contractor
continuously monitors his own progress and that all delays are dealt
with as soon as reasonably possible.

Failure to follow the procedure and time frame may either cause a
Contractor to lose his rights to claim for an extension or lead a
Contract
to suffer from time being set at large.

F. The Management of Contingencies Cont.


- Assuming that all procedures and time frames are followed, the
evaluation and subsequent granting of an extension rests solely with
the Architect. Management of this process also involves reminding the
Employer that any interference on their part in the assessment and
granting of an extension constitutes a breach of Contract.
- Should an extension be granted with the issuance of a Certiicate for
An Extension of Time, setting a new completion date, the Architect
should also ensure that all affected parties such as the Employer,
Consultants and Nominated Sub-Contractors are informed and that all
insurances or Performance Bonds are extended to cover the new
completion date.

An Architect should also ensure that the Contractor endeavours to


complete the Works as soon as possible. One way of checking on this
would be request for a revised Works Programme based on the new
Completion Date.

F. The Management of Contingencies Cont.


- Apart from being granted additional time to complete the Works, a
Contractor may have also suffered additional expense or losses arising
from the delay.
- The Contract allows for the Contractor to claim under certain
circumstances (as set out under Clause 24.3) for such losses or
additional expenses (Clause 24) but as with the process of claiming for
an extension of Time, there are set procedures and time frames to be
followed by the Claimant and the Architect as the Contract
Administrator.
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F. The Management of Contingencies Cont.


- Should the Works remain uncompleted on the Completion Date and if
the Architect is of the opinion that it ought to have been completed,
i.e.;there are no grounds for the granting of an extension of time, the
Architect is obliged to issue a Certificate of Non-Completion.
This Certificate is of extreme importance as :
a. without its issuance, time may be set at large and

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b. an Employer may only claim for Liquidated Damages upon its


issuance (Clause 22)

F. The Management of Contingencies Cont.


- Another set of possible contingencies which may occur is the
Insolvency of either the Contractor (Clause 25.3) or Employer (Clause
26.3).
Strictly speaking, once either of the Contractual Parties are declared
insolvent, the Contract shall no longer be able to proceed and should
be terminated.

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As the Contract Administrator, this termination process has to be


managed in accordance with the Conditions of Contract to ensure that
the rights of the Contractual Parties are maintained.

G. The Management of Disputes.


- Contracts are normally conceived to minimize any misunderstanding
which may lead to a dispute between the Contractual Parties but alas,
even with the Contract in place, disputes may still occur.
- Even without disputes, breaches of Contract may still occur and such
breaches of the Contract may result in suspension of the Works by a
Contractor or Determination of a Contractor's Employment by an
Employer OR Determination by an Contractor of his own
Employment.
The Grounds for such determination by either Contractual Party are
clearly spelt out (Clause 25.1 and Clause 26.1) and should either party
decide to exercise their rights, the Architect as Contract Administrator
has to ensure that these rights are exercised correctly.
Once exercised, the Contract Administrator has to ensure that the
determination procedures are adhered to in order to ensure that the
determination is equitable and that the accounts arising from the
contract and determination are finalized fairly.
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G. The Management of Disputes.


- It is hoped that if the Contract is managed fairly and competently, this in
itself would help mnimise the possibility of any disputes arising.
- Should a dispute arise, PAM Contract 2006 allows for the resolution of
such dispute by the appointment of an independent third party through
the process of :
a. Mediation (Clause 35) and
b. Adjudication and Arbitration (Clause 34).
- Although the above are dependant on a third party, the utilisation of any
of the above Alternative, Dispute Resolution Procedures (including the
appointment of either the mediator, adjudicator and arbitrator) has still
to be in accordance to the procedures set out in the Contract.
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G. The Management of Disputes Cont.


- Although the provisions for Adjudication and Arbitration are clearly spelt
out, it must be noted that the introduction of recent federal legislation
may affect the utilisation and validityof these provisions as specifically
allowed for under PAM Contract 2006.
All Architects as such,are advised to keep abreast of any future
developments and pronouncements with respect to these dispute
resolution clauses.
.

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CONCLUSION.
- The areas under the PAM Contract which an Architect has to take the
lead on and manage are many (and complex) and this paper can only
seek to briefly high-light some of these areas.
The ultimate intention of this brief look though is to spur all Architects
to examine (or review) their role in managing the Contract with much
greater detail, rigour and precsion.

T H A N K Y O U.