Table of Contents Introduction Introduction ............................................... .................................................... ........................................................................ .................... 1 Definition Definition of PAM and CIDB standard form of building contract .............................. 2 Function Function PAM and CIDB standard form of building contract .................................... 3 Conflict between PAM and CIDB CI DB standard form of building contract cont ract ........... ..... ........... ......... .... 5-6 5- 6 Advantages Advantages of PAM and CIDB standard form of building contract ....................... 7-8 7-8 Disadvantages Disadvantages of PAM and CIDB standard form of building contract contract ...................... 9 Similarities of PAM and CIDB standard form of building contract..................... 10- 12 Case study .................................................. .................................................... ................................................................. ............. 1315 Conclusion ....................................................................................................................... 16 Tai Gui Tian (16WVD05109) ............................................................................................ 16-17 17 Tee Kai Yuan (16WVD04775) ................................................................................................ 18
References References ............................................................................................... .................... 19-20 20
Introduction The introduction of new standard forms or conditions of contract in Malaysia‟s
construction industry suggests that present documents are less than ideal. Pertubuhan Arkitek Malaysia (PAM) issuance of the PAM2006 (coming fast at the heels of PAM1998), Construction Industry Development Board (CIDB) of Malaysia‟s various forms (CIDB2000, model terms for domestic sub-contracts, etc.) and Jabatan Kerja Raya (JKR) Malaysia issuance of JKR203A edition 2007 indicate the perceived agreement that the source of conflicts and disputes might be traced to the contract. One of the numerous examples of how contract became the source of disputes and conflicts lies on the clarity of the conditions conditions of contract. Clarity has been defined as “can be simply seen or heard, easily understood, not confusing, clear and precise” .Clarity or the lack of it is one of the main reasons why some disputes are submitted to the courts (Onn, 2014). Clarity of any construction contracts depends largely on those who drafts or, in many instances, on those who amend standard terms. Factors identified as contributing to the level of clarity are many, such as the original drafter of the contract conditions may not be well versed in the idiosyncrasies of the construction process, conditions not in tandem with current and innovative technology and the competency of the contract drafters iterates that the contract drafter is an individual who not only has the experience of drafting but also the knowledge to draft clear and precise contract terms (Klcra, 2013). However, the need to produce a “better and improved” conditions of contract, as evidenced in the issuance of these forms, either in a modified, amended or revamped format, also indicate that the stakeholders (PAM, CIDB,JKR) unwittingly adhere and subscribe to the philosophy and theoretical idealizations of contract law (Klrca, 2013). In short, this paper attempts to present a brief overview of the standard construction contracts in Malaysia. It does not however go not details of every aspects of construction contract; instead only selected and salient features will be highlighted. Some questions will be posed, and to some of these attempts are made to answer them; others are left as foods for thoughts. Some insights gained by the writer in drafting two standard construction contracts in Malaysia will also be used as illustrations (Othman, 2015). 1
Definition of PAM and CIDB standard form of building contract
The Malaysian Institute of Architects (Pertubuhan Architect Malaysia – PAM) form of contract for building works are by far the most often adopted standard forms of contract used for building works in the Malaysian private sector. PAM 2006 is the third generation of the PAM standard form has been adapted greatly from the first generation version known as PAM 1969. The first edition was for practical purposes a lightly amended version of the JCT 1963 standard form of building contract. PAM 2006 comes in two versions, with quantities and without quantities and it was launched on April 2007. The latest edition has received mixed reviews from the industry. Many consider it still to remain cluttered with deficiencies and glaring omissions which many construction and legal practitioners still consider difficult to comprehend and appear to have been carried through from earlier editions. (Gayle, 2010) Depending upon the your point of view you will either consider the latest edition of this form to be more balanced in respect of risk allocation or pro-contractor in comparison with earlier editions such as the second generation PAM 1998 version. There is now provision of elements of contractors design in this latest version which also places greater time constraints on both the contract administrator and contractor in the administration of the contract. (Gayle, 2010) The Construction Industry Development Board Malaysia (CIDB) has produced two standard forms of Contract. One is the CIDB Standard form of Contract for Building Works (2000 Edition) and the other is the CIDB Standard Form of Sub-Contract for Nominated Sub-Contractor. It is understood that they are planning on releasing standard forms in respect of design and build and civil engineering works in the future. The two forms of contract do not appear to have been widely adopted by the construction industry at this time.
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Function PAM and CIDB standard form of building contract
Standard form of contract will influence the performance security of a building. The various standard form IEM standard form and PWD 203 Forms require the submission of a performance bond but, f rom the writer‟s experience, there is invariably a provision in the letter of award (which is expressed to be part of the contract) or in the bills of quantities (in what is called “Preliminaries”) that requires its submission .In the CIDB Form, the requirement for the submission of performance bond is optional. Pam standard form is for private building works. While CIDB standard form is for building works for both government and private employer. CIDB and PAM also can help contractor to apply the extension of time and liquidated damages. Construction contracts generally allow the construction period to be extended where there is a delay that is not the contractor the contractor fault. Liquidated damages is a damage suffered by the Employer in the event of non-completion, it is a form of monetary compensation which is start from the Completion Date (Onn, 2014). CIDB and PAM also help in variation. The concept of variation is simply this: the Contractor has been given a certain price to execute and complete a certain work and what is not covered for in that price is a variation to the contract. Here comes the difficulty: how is one to determine if a certain work is or is not covered within the price already contracted for. The answer to this question will also directly answer the question if the work is a variation to the contracts. This might be due to the jurisdictional problems or method of measurement. CIDB and PAM also will state the payment provisions. During the drafting of CIDB (2000), the policy of pay when paid was also rejected in the case of payment from the Contractor to the Nominated Subcontractor. The security of payment by the Contractor to the Nominated subcontractor is however enhanced in CIDB (2000), as provisions are included to the effect that certificates of payment with respect to the Nominated Subcontract. Works alone shall be issued by the S.O. to both the Contractor and the Nominated Subcontractor (Hansen, 2016). CIDB and PAM will have remedies of Non-payment for the employer. Perhaps the question which troubles a contractor most now is the question of non-payment or delayed payment by the Employer. CIDB and PAM contain a provision that if the Employer does not pay, the Contractor is entitled to bring the contract, of his employment under contract, to an end. Proper procedure must however be followed.
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CIDB and PAM will disputes resolution. All the standard forms discussed herein provide or arbitration as a means of dispute resolution. Out of these, only PAM 98 and CIDB (2000) provide for a mediation alternative; however in the case of CIDB (2000) the mediation is compulsory and the disputing parties must attempt to resolve any dispute between them by mediation first before arbitration in resorted to whereas in PAM 98, the resource to mediation is an option available to the parties (CheeOnn, 2013).
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Conflict between PAM and CIDB standard form of building contract
There are some problems Associated with PAM 2006. In lieu of examining the comments on PAM 2006 alone, it is essential to examine the comments on its predecessors first as problems faced by the latter have „domino effect‟ repercussions to the drafting of its subsequent forms. Engineers did not find the PAM forms suitable for their applications in the engineering and infrastructure fields. Early attempts to modify the PAM/ISM work to meet the particular applications did not generate much success as evidenced in the lack of enthusiasm in such usage and the litany of disputes generated. The feedback for PAM 1998 indicated that the PAM form is not without its shortcomings albeit that to a large extent it addresses and put right the defects of PAM/ISM 1969 and remains to be the popular and the preferred choice of the building sector for the last 10 years. Although PAM 2006 contains some contemporary provisions, they are more procedures requiring the contractor to strictly adhere to time provisions with the attendant loss of rights or incurring of liabilities. It is further mentioned that PAM 2006 limits the rights of employers while reducing the risks borne by the contractors. This reallocation of risks proportionately increases the employer‟s exposure and burden in terms of claims and payments while providing more possible grounds for disputes between the contractor and the employer (Lieu, 2012). Problems Associated with CIDB 2000 Based on academic analysis, CIDB 2000‟s structure is the best in comparison to PWD, PAM and FIDIC. The significant amount of bullets and point forms in their quality clauses makes the spelling out of quality clearer. The type of materials required is also clear. On top of that, the provision of quality plan makes it easier to adopt the type of quality required on site (Martin, 2013). CIDB 2000 form caters for multiple options and scenarios by which steps are allocated for the varying problems that may arise. This is more advantageous since consequences are laid out early rather than having to wait for the Contract Administrator‟s decision. Resourcefulness is clearly adapted here (Martin, 2013).
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However, CIDB 2000 form is still not accepted, nor widely applied. The majority of the construction industry considers the CIDB 2000 form of contract as apparently „too new‟ and untested, when compared with other forms which have a longer history of usage. Due to the conservative thinking of most of the Malaysian construction participants, they are reluctant to use a new form which they are not familiar (Klaus, 2010).
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Advantages of PAM and CIDB standard form of building contract
Usually they are some common advantages of using CIDB and PAM contract. First of all, using a standard form contract in your business transaction can save times. You can use this for real estate transactions, such as a rental agreement, where both parties agree on the basics of the contract and most of the terms. Then, using a standard form contract can reduce time you may spend negotiating each of the terms of the standard form contract. Determine which terms are necessary for a smooth business transaction and concentrate your negotiation on those terms. Cross out the terms which are inapplicable and write in other applicable terms not covered in the standard form. Review terms such as arbitration or availability of attorney fees for dispute clauses, application of state laws clauses, and termination clauses to determine if these terms are acceptable. Addition to this, you can eliminate attorney fees with a standard form contract. Remove the need to have the attorney negotiate the contract, write the contract, and review the contract. Benefit with additional money in your pocket by using a standard contract to complete your business transaction (Angelique, 2012 ). PAM contract provide the variation clauses are enable the employer‟s design team to vary the design and specification. This is to avoid any problems that a contract would and in principle, have to be re-negotiated due to the changes of specification of works (Attard, 2016). The benefit of variation is also allow such changes to be made stated in the contract and also permit to any consequential to be made in the contract sum. Variation allows the constructive changes that allow changing on the mistake and error accidentally occurred such as example in correcting a discrepancy in the contract drawing and specification (Attard, 2016).
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Besides, the benefit of variation is stated under clause 11.7 of PAM 2006. The contractor is entitled to claim for such additional expenses for which he would not be paid under clause 11.6 of PAM 2006. It is allow the contractor claim back any direct loss and expense incurred such as pro-rata rates, day work rates, BQ rate, and fair market rate from the Variation Order (V.O) work and requested by employer and Architect (Warren, 2013). CIDB 2000 form caters for multiple options and scenarios by which steps are allocated for the varying problems that may arise. This is more advantageous since consequences are laid out early rather than having to wait for the Contract Administrator‟s decision. Resourcefulness is clearly adapted here (Goh, 2010). CIDB 2000 form is the only Malaysian Standard Forms of Contract which covers most of the aspect in Safety and Health. CIDB 2000 form of contract is the most comprehensive form among all the local construction contract forms, which stipulates the right of the contracted parties and provides clear guidelines and procedures. It also contains occupation safety and health (OSH) clauses (Singh, 2009).
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Disadvantages of PAM and CIDB standard form of building contract
The disadvantages of PAM contract is reduce competitiveness. In my opinion, with the use of standard form of contract, in certain level, it will reduce the competitiveness of contractors to bidding in a tender. Here, I mean it will limit the contractors‟ chances to bid with their own interpr etation of the works and their risk valuation. In every project, there will always be risk and this risk can be profitable for contractors who do good risk management. Contractors then can compete each other in the level of risk management. On the other hand, standardization of contract form will limit this risk. Therefore, contractors cannot compete very well. They will give bid prices with a slight different. Finally as consequence the employer will lose the chance to get the best bid. (Hansen, 2015) Secondly, length and complexity almost all standard form of contracts is considered too long and covered too many things in one form. The purpose of using standard form to ensure everything is covered in the conditions will become a boomerang since not everyone want to read the standard form due to its length and complexity. Besides, sometime it is considered too complex for both p arties while they just want to do a simple construction work. (Hansen, 2015) Lastly, the needs to be up to date Since the development of construction industry is very dynamic, unique and always changing depending on the new technologies or relevant law are adopted, then there must be some changes and revisions of standard form of contract to be made. In other word, the construction industry itself always needs to be up to date with relevant technologies and law. Each time there is a revision; users must study the new edition or revisions carefully to see whether it should be used and if changes need to be made. These actions will cause another cost. Another point is that the previous court decisions may become irrelevant with the new revisions of standard form. Frequent revisions of standard form can also create distrust in the competence of the entity that makes the standard contract. (Hansen, 2 015)
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Similarities of PAM and CIDB standard form of building contract
There are similarities between Pam and CIDB standard form of contract. Firstly, obligation of the employer. They have the description about obligations of the employer, although only CIDB which expressly describe this obligation (clause 6) but PAM does not provide a certain clause to state the employer‟s obligations. However, it does not mean that there is no employer‟s obligation in the contracts. The employer‟s obligations in both contracts are spread throughout some clauses which implied these obligations. (Wick, 2011) The main obligation of the employer is to pay to the contractor what has been built. Here, payment is a consideration which creates a legal binding between the employer and the contractor. If the employer does not pay to the contractor, then we can assume that the employer has entered breach of contract. In order to evaluate any project progress on site, the employer will then employ architect/ superintending officer (S.O.). These standard forms have a similar procedure that is the employer will pay to the contractor any amount which has been evaluate by S.O. both PAM and CIDB also permit contractor to include any unfixed materials and goods but only in percentage (not all value). In PAM and CIDB, contractor can submit his payment monthly and within 21 days S.O. shall issue an Interim Certificate (wick, 2011) PAM and CIDB also provide a clause especially define about suspension for non payment. Here if the employer fails or neglects to pay within specified period of time after the release of Interim Certificate, then the contractor may give notice of his intention to suspend the Works. In PAM and CIDB this matter is discuss in clause 30.7 and 42.10 respectively. (Wick, 2011)
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In the particular events of delay and need to extent the Works schedule, employer has to give contractor an extension of time. All of these three standard forms stated that contractor must submit his claim for EOT within a specified period of time. In PAM and CIDB, if the contractor fails to submit his claim within the specified period of time, then contractor shall not be entitled with EOT. Contractor also entitled with claims and employer has the obligation to pay any claim made by contractor and has been approved by S.O. Moreover, in PAM there is mentioned that contractor can only make claim in such occasion as explained in clause 24.3. Both in PAM and CIDB give an option whether contractor will insure the Works or employer (but in case for existing building or extension, the employer is the one who has the obligation to insure). (Wick, 2011) Secondly, the obligation of the contractor. The main obligation of the contractor is to construct the said project which has been agreed based on its scope and within the specified period of time and quality. For the contractor‟s general obligations, we can see in PAM clause 1, and CIDB clause 7. It is important to notice why PAM put contractor‟s obligations in the first clause of the contract. In my opinion, it means that in PAM contractor is considered as the party who need the work. All of these three standard forms have similar clause regarding Works Completion. In PAM it is described in clause 15; and in CIDB it is described in clause 20, 21, and 22. Before executing the Works, contractor must provide performance bond to the employer as security deposit. This is a common matter required by employer to the contractor. (Andy, 2014) However, we can only find a clause specifically discuss about performance bond in PAM. While in CIDB, performance bond becomes part of the appendix. Therefore, it will be depend on the agreement between both parties whether the contractor should submit performance bond or not. See Option Module F of CIDB. Contractor also has the obligation to ensure the quality of his works. If there is any defect during construction period and after completion, contractor has the liability to make good of any such defect until S.O satisfy with the works. This obligation is described in PAM clause 15, and in CIDB clause 15.7 and 27. In doing his job, S.O sometimes needs to take a test of the works done by contractor. Usually the cost of inspection and testing are borne by contractor. This matter is described in PAM clause 6 and 14, and in CIDB clause 15. 11
Contractor also has the obligation to be responsible with any indemnity and insurance of personal injury or death and damage to property arising from carrying out of the Works. These matters are described in PAM clause 18 and 19, and in CIDB clause 35 and 36. (Andy, 2014) The contractor also has the obligation to execute the whole Works. If he would like to assign some duties to his subcontractors, first he must receive the approval of S.O. If S.O approves his assignment, the contractor shall still be fully responsible for the works of his subcontractors. S.O also can appoint Nominated Subcontractor (NSC) or Nominated Supplier (NS) with the approval from the contractor. And again, the contractor shall be fully responsible for the works of NSC/NS. These matters are described in PAM clause 17, 27 and 28, and in CIDB clause 18 and 40. At the end of the project, contractor should submit the as built drawing to the employer. Usually he must submit this drawing not later than the Date of Practical Completion of the Works or otherwise stated in the contract. We can see the description in CIDB clause 4.10 and PAM clause 3.10. (Andy, 2014) Lastly, obligation of both parties. Both parties also share some obligations such as confidentiality (PAM clause 3.9, CIDB clause 4.9), obedience of dispute resolution decision (PAM clause 34 and 35, CIDB clause 47), compliance with the Law (PAM clause 4 and 38, clause 10 and 49), and give notification (PAM clause 36, CIDB clause 8). (Andy, 2014)
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Case study
Boulevard Serviced Apartment is located in Jalan Kuching which has 33 storey height service apartments. Underneath the apartment is basement parking. It is ongoing construction building project. Construction on the 4.14 acres of freehold land is expected to commence in 13 November 2011 and be completed in stages by 2014. The projected gross development value (GDV) for this development is tagged at RM 235 million. It connected to the city centre and the Klang Valley via a series of highways; this hybrid urban lifestyle development is hailed as heralding a new era of modern living in the mature neighborhood of Jalan Kuching.
Figure 1 Boulevard serviced Apartment location The developer for the Boulevard Serviced Apartment is Magna City Development Sdn Bhd. The main contractor is Magna Prima Construction Sdn Bhd. Then, they distributed to sub-contractor which is Yin Lean Construction Sdn Bhd, KCG Construction Sdn Bhd, Green Build Solution Sdn Bhd, Kitacon Sdn Bhd and Athen Parks Sdn Bhd. They also have nominated sub-contractor Selisa Synnergy Sdn Bhd. Yin Lean Construction Sdn Bhd is contractor for earthworks. While KCG Construction Sdn Bhd is contractor for main building, this company nominates a subcontractor which is Selisa Synnergy Sdn Bhd which contractor Mechanical & Electrical. Next, Green Build Solution Sdn Bhd is contractor for aluminium formwork, windows and doors. Then, Kitacon Sdn Bhd is contractor is waterproofing work. Last but not least, Athens Park Sdn Bhd is contractor for Façade aluminium.
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Magna City Development Sdn Bhd Employer
KPK Architect Sdn Bhd Architect
Kumpulan Sepakat Consultant Sdn Bhd Consultant
Magna Prima Contruction Sdn Bhd Main-contractor Yin Lean Construction Sdn Bhd Earthworks
KCG Construction Sdn Bhd
Kitacon Sdn Bhd
Athens Park Sdn Bhd Facade
waterproofing
Main Building
Green Build Solution Sdn Bhd
Selisa Synnergy Sdn Bhd
Aluminium work
M&E(Nominated Sub-con)
Figure 2 The construction project detail
This building construction project is suitable to use CIDB standard form of contract because CIDB can enhance the competitiveness of the Malaysia construction industry. The service includes registration of contractor, CIDB green card; provide courses on health & safety, standardization of con struction cost and materials, etc. In my opinion, CIDB are suitable to this building construction project as the CIDB applies for building works whether in government or private sector employers. Therefore, this building construction can use CIDB standard form of contract between employers to contractor. CIDB also suitable to use because of nominated sub-contractor. CIDB published its own version of Standard Forms for building works (main contract and sub contract). CIDB also will state the pa yment provisions.
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During the drafting of CIDB (2000), the policy of pay when paid was also rejected in the case of payment from the Contractor to the Nominated Subcontractor. The security of payment by the Contractor to the Nominated subcontractor is however enhanced in CIDB (2000), as provisions are included to the effect that certificates of payment with respect to the Nominated Sub-contractor. CIDB and also can help contractor to apply the extension of time and liquidated damages. Construction contracts generally allow the construction period to be extended where there is a delay that is not the contractor the contractor fault. Liquidated damages is a damage suffered by the Employer in the event of non-completion, it is a form of monetary compensation which is start from the Completion Date (Onn, 2014).
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Conclusion
Tai Gui Tian (16WVD05109)
The Standard Form Contracts are standardized contracts that contain a large number of terms and conditions in fine print, which restrict and often exclude liability under the contract. This gives a unique opportunity to the giant company to exploit the weakness of the individual by imposing upon him terms which often look like a kind of private legislation and which may go to the extent of exempting the compan y from all liability under the contract. The battle against abuse has fallen to the courts. The courts have found it very difficult to come to the rescue of the weaker party (Vishnus, 201 0). The courts have evolved and applied certain rules to protect the interest of the consumer, customer or passenger, as the case may be upon whom standard form contracts or exemption clauses are imposed, like reasonable notice should be given, notice should be given, notice should be contemporaneous with contract, theory of fundamental breach, liability in tort, exemption clauses and third parties etc. (Lear y, 2011) PAM contract is highly recommended by many contractors because it had been frequently used. Resourcefulness is clearly adapted here for the CIDB contact. However, CIDB 2000 form is still not accepted, nor widely applied. The majority of the construction industry considers the CIDB 2000 form of contract as apparently „too new‟ and untested, when compared with other forms which have a longer history of usage. Due to the conservative thinking of most of the Malaysian construction participants, they are reluctant to use a new form which they are not familiar (Ahmad, 2009).
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The use of standard construction contracts is not without advantages. However, the limitations and the philosophy inherent in the standard construction contract adopted must be well appreciated. One possible disadvantage of the prevalent use of standard construction contracts is that this inhibits thinking and new developments and ideas which are not reflected in the standard construction contract adopted are through ignorance not considered. This paper has attempted to discuss some features of standard construction contracts and has also tried to highlight certain innovations in and beyond some standard construction contracts which draftsman of construction contracts may wish to have them for consideration (Onn, 2014)
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Tee Kai Yuan (16WVD04775) After I had done my assignment, I had understood more about Pam standard form and CIDB standard form. There are at least 4 standard forms of contract which are commonly used in Malaysia nowadays, namely PWD (Public Works Department) Standard Form of Contract, PAM (Pertubuhan Arkitek Malaysia) Standard Form of Contract, CIDB (Construction Industry Development Board) Standard Form of Contract, and IEM (Institution of Engineers Malaysia) Standard Form of Contract. These standard forms evolve and develop in particular manners depending on the history and development of construction industry in the world, especially in Malaysia. These are the standard forms which is common use in Malaysia for construction project details. Different standard form has different function in construction project contract. Standard form is the terms or conditions are deemed to be agreed and are not subject to further negotiation or amendment and the terms or conditions are generally suitable for a wide range of common projects or works (CheeOnn, 2013). In my opinion, CIDB is the most complete standard form in terms of indemnity and insurance. In the case of Works insurance, both in PAM and CIDB give an option whether contractor will insure the Works or employer. Usually both parties will agree that contractor will provide the insurance in CAR form of insurance. See clause 20A of PAM and 38A of CIDB. There is also a specific clause regarding to antiquities such as fossils, coins and others which may be found on the site. In this circumstance, contractor has the obligation to take all steps which may be necessary to preserve and protect the object in the exact position and condition. The contractor should inform S.O immediately about the discovery. This obligation can be seen in clause 33 of PAM, and 39 of CIDB. (Andy, 2014) The CIDB develops the industry for the improved delivery of infrastructure to the South African public. It works with all stakeholders for the sustainable growth of construction enterprises and the best practice of employers, contractors and the professions. The CIDB identifies best practice and sets national standards. It promotes common and ethical standards for construction delivery and contracts. (Klrca, 2013)
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