MOHD NOOR HIDAYAT BIN MOHAMAD

Topic of Discussion

• What is Contract?
• What is Construction Contract?
• Purpose of Construction Contract
• Contract for Bid and Procurement
• Contract for Pricing Arrangement
• Construction Contract Component
• Contract Document List
• Standard Form of Contract in Malaysia
What is CONTRACT ?
Proposal Promise Agreement Contract

>2

• A consent agreement made by two or more parties,

with certain conditions and guarantees to do anything in
return for the benefits which good is known as a
consideration.
• The contract is the law that regulates the deal.
• Only an agreement that has the characteristics of a contract
only has legal implications.
• An agreement enforceable by law is a Contract.
PURPOSE of Construction Contract

• To allocate duties between parties. (Supervisory Power &

Obligation)

• To reduce the uncertainty surrounding the project and allow the

parties to plan for the project and future. (Extent of Obligation)

• To make provision on the time for completion and interim control

of the progress of the works. (TIME)

• To ensure that work in is valued prudently with correct

matching of revenue and costs by defining what amount to be
paid, how any additional or reduced payments are to be
computed and when payments are to be made. (Payment)

• To recognize & allocate risk or remedies available to the different

parties. (Remedies)

• To make provisions on insurance against a range of risks.

(Insurance)
Contract for Bid and Contract for Hold harmless
Procurement Agreement
Pricing Arrangement
(Insurance)
• Traditional General Contracts
• Lump Sum or Fixed Price
• Broad Form
Contract
• „Design and Build Contracts
• Intermediate Form
• Time and Material
• Management Contracts Contracts (when Scope is
not Clear) • Limited Form
• Construction Management
Contracts • Cost Plus Contracts

• „Hybrid‟ Contracts
• Unit Pricing Contract
• Term Contracts

• Miscellaneous Contracts

• Government Construction
Contract
Contract for Bid and Procurement
TRADITIONAL General Contracting
• General Contracting / Employer-Design Contracting / Design-Bid-Build Contracting

Architect

Characteristic:
• Contract & Financial
Relationship • The separation of the design
from the production or
manufacture.
• Single main contractor
• Supervision & undertakes total responsibility
Instruction to the employer for all the
work under the contract.

Limited Form
Client • Sub-Con do not enter into
direct Contractual relation
• Coordination with the employer.

(* Limited Form of Contract enter

• Product and Services between the employer and
Contractor chosen sub-con)
delivery

Sub-Cons
DESIGN & BUILD Contracts

Characteristic:

• the contractor undertakes both

designing and constructing the
contract works.
• Contract & Financial • combination of most (if not all)
Relationship Client of the essential tasks of a
project e.g. design
procurement, manufacture,
fabrication, production,
construction and management
into a single package.
• Supervision & • the supervisory powers of the
Instruction employer’s representative are
more limited than those of a
contract administrator under a
traditional general contract.
Contractor
• Coordination

• Product and Services

delivery

Architect
Sub-Cons Sub-Cons
(Source: http://www.bem.org.my/publication/march-
may2005/CF(CONTRACTS).pdf)
MANAGEMENT Contracts

Characteristic:

Client • Role is to manage, co-

• Contract & Financial ordinate and supervise the
Relationship work of numerous
specialists by whom the
whole of the construction
work is carried out.
• Supervision &
• Main Contractor and
Instruction Design team are relieved
of any responsibility to the
Sub-Cons/ employer.
• Coordination Coordinator

• Product and Services

delivery

Sub-Cons Contractor Architect

CONSTRUCTION MANAGEMENT Contracts

• Contract & Financial Client Characteristic:

Relationship
• Share common
characteristics with
management contracts.
• Supervision &
• Employer enters into a
Instruction direct contractual
relationship with each of
the specialist contractors
Sub-Cons/ (SUB-CONS).
• Coordination
Coordinator

• Product and
Services
delivery

Sub-Cons Contractor Architect

HYBRID Contracts
‘Develop & Construct’ ‘Design & Manage’ ‘Design & Construction
Contract Contract Management’ Contract

• similar to a design and • similar to a • similar to construction

build contract, but a management contract, management but the
concept design is but the contractor is construction manager is
prepared by also responsible for also responsible for
independent detailed design or for detailed design or for
professionals engaged managing the design managing the design
by the employer before process process.
the design and build
contractor is selected

Designer

Designer
=
Designer
TERMS Contracts

• Contract & Financial • Product and

• Employer seeks to make provision for the Relationship Services
carrying out of certain categories of work delivery
(usually minor works of alteration or repair
and/or maintenance) during a specified • Supervision &
period of time. Instruction

• Depending upon the terms on which

tenders are invited and accepted, the
resulting legal relationship may be a
contract which binds the contractor to
carry out whatever work of the specified
description the employer chooses to order
during the PERIOD stated.
Client

• Alternatively, the acceptance of a tender

may result in a ‘standing offer’ by the
contractor, which ripens into a contract on
each occasion that an order is placed but
which may be revoked at any time.

Contractor
MISCELLANEOUS Contracts
‘Build, Operate & Transfer’ Continuation Contract Partnering Contract
Contract
This contract is in
This is a type of a privately This is an ‘ad hoc’ essence an extension to
financed contract whereby arrangement to extend the the normal serial
the contractor finances the scope of the initial or original contract whereby over a
project, designs it, undertakes contract beyond its original predetermined period of
time, the contractor
the construction, owns and ambit. automatically receives
operates it. all new contracts from
the employer.
= =

Serial Contract Periodic Contract Independent

Contract
This is a contract resulting This is similar to a term This is essentially a
from a procedure called contract, but the execution of ‘contract for services’
‘serial tendering’. It offer to work or supply of goods is whereby the party
carry out work for more than required at intervals, regularly undertaking a stipulated
one project in accordance task for an agreed
with the tender submitted for or on demand.
consideration is free to
the initial project. select his own mode of
doing it.
SPECIAL PARTIES Contracts

Contract with The Contract with The Local Contract with

Government Department Authority Companies,
Corporations and
• The extent to which contracts • A local authority must make Partnerships
can be made on behalf of the standing orders with regard to
Federal Government, and the contracts for the execution of • the formalities required for
Governments of the states is works or the supply of goods or the execution of contracts
governed by the Government materials. are effectively identical to
Contracts Act 1949. those for individuals, save
• However, a contractor is not for particular requirements
• Accordingly, the Government bound to inquire whether the as stipulated in the
is bound by a contract made relevant standing orders have respective statutory
by a proper agent acting been complied with, and non enactments.
within the scope of his compliance by itself does not
authority but not otherwise. invalidate any contract.

• A Government Officer who • Protection is afforded to local

enters into a contract within authorities or persons acting in the
the scope of his authority not execution of statutory or other
liable to be sued personally public duties in respect of any
upon any contract made in act, neglect or default done or
that capacity. committed by the Public
Authorities Protection Act 1948.
• Actions by or against the
Government are instituted or
defended by the Attorney
General.
Contract for Pricing Arrangement
Contract for Pricing Arrangement
‘There are several types of contracting approaches between
owner and contractor and each supports different project
environments and project approaches.’

Lump Sum Contract

Time & Material Contract

Cost Plus Contract

Unit Pricing Contract

LUMP SUM or FIXED PRICE Contracts

• This type of contract involves a TOTAL FIXED

PRICED for all construction-related activities.

• If actual cost of the works exceeds the agreed

price, the contractor must bear the additional
expense. While if the cost of the works is less than
the agreed price, the contractor will benefit from
the savings.

• Lump sum contracts can include incentives or

benefits for early termination, or can also have
penalties, called liquidated damages, for a late
termination.

• Lump Sum contracts are preferred when a CLEAR

SCOPE and a DEFINED SCHEDULE has been
reviewed and agreed upon.

(* Price allow to change under circumstances :

Variations, Relevant Events, Provision Sums,
Fluctuations, Payment to NSC, Statutory fees or
payments relating to opening up and testing the
works.)
TIME & MATERIAL Contracts
The owner and the contractor must
establish an agreed HOURLY OR DAILY
RATE, including additional expenses that
could arise in the construction process.

When using time and materials contracts,

the following items could be negotiated:

Labor Rate : Specifying Fixed rate for all

labor.
Material Mark-Up : Add between 15-35%
onto material prices
Not-to-Exceed: Maximum Amount being
charged by Contractors
Maximum Labor Hours : When contractors
exceed a specified amount, additional
hours shall not be billed to other party.

Time and material contracts are usually

preferred if the PROJECT SCOPE IS NOT
CLEAR, or has not been defined.
COST PLUS Contracts
Under Cost plus Contract, Contractor get paid for almost every expense related to the construction job

• This type of contract involves payment of the actual

costs, purchases or other expenses generated directly
from the construction activity. Cost plus contracts must
contain specific information about a certain pre-
negotiated amount (some percentage of the material
and labor cost) covering contractor’s overhead and
profit.

• Costs must be detailed and should be classified as direct

or indirect costs. There are multiple variations for Cost
plus contracts and the most common are:

• Cost Plus Fixed Percentage

• Cost Plus Fixed Fee
• Cost Plus with Guaranteed Maximum Price Contract
• Cost Plus with Guaranteed Maximum Price and Bonus
Contract

• Cost plus contracts are used when the SCOPE HAS NOT
BEEN CLEARLY DEFINED and it is the owner responsibility
to establish some limits on how much the contractor will
be billing. When some of the aforementioned options are
used, those incentives will serve to protect the owner's
interest and avoid being charged for unnecessary
changes. Be aware that cost-plus contracts are difficult
or harder to track and more supervision will be needed,
normally do not put a lot of risk in the contractor.
UNIT PRICING Contracts
• This kind of contract is based on estimated
quantities of items included in the project and
their unit prices. The final price of the project is
dependent on the quantities needed to carry
out the work.

• In general this contract is only suitable for

construction and supplier projects where the
different types of items, but not their numbers,
can be accurately identified in the contract
documents.

• Unit pricing contracts is probably another type

of contract commonly used by builders and in
federal agencies.

• Unit prices can also be set during the bidding

process as the owner REQUESTS SPECIFIC
QUANTITIES and pricing for a pre-determined
amount of unitized items.

• Unit price can easily be adjusted up and/or

down during scope changes, making it easier
for the owner and the builder to reach into
agreements during change orders.
Construction Contract Component
CONSTRUCTION CONTRACT COMPONENT

A Construction contract agreement

• Contract Document List
should have the following sections:

1. Agreement or article of
agreement
• Project Description
2. Conditions of contract
• Contract Price
3. Appendix to the
• Payment Basis
conditions
• Construction Schedule/Calendar
4. Drawings & Plans
• CONTRACT DOCUMENT LIST
5. Specification
• Construction Scope
6. Bill of Quantities
• Construction Conditions &
7. Schedules of Rates
Responsibilities
8. Programme or method
• Contract Laws
statement
9. Miscellaneous
Document
10. Design and Build
Document
CONSTRUCTION CONTRACT DOCUMENT LIST
MANDOTORY list :

1. FORM OF TENDER 1A. SUMMARY OF TENDER 2. CONDITIONS OF

(AGREEMENT OR ARTICLES OF CONTRACT
AGREEMENT) Usually drafted by
contractor. Detailed conditions,
often in standard form
This document describes in To refer to Form of Tender if (with or without
general terms the parties, the any deviation occurs amendments), amplify
contract works and the price, and explain the basic
and evidences the intention of obligations of the
the parties to be bound. parties and lay down
administrative
procedures to be
followed during the
progress of the works;

3. APPENDIX TO THE 4. DRAWINGS & PLANS 5. SPECIFICATIONS

CONDITIONS:

Certain information specific to Drawings are prepared by This document amplifies

a particular contract, such as whoever is responsible to the the contract drawings by
dates of commencement or employer for the design of all providing a verbal
completion and amounts of or part of the proposed works, description of such
liquidated damages, is
commonly required to be and are the major vehicle for methods as the scope of
inserted by the parties in an conveying the intentions of work, methods of
Appendix to the conditions the designer to the contractor. construction, quality of
before the contract is finishes and standards of
executed.
workmanship
CONSTRUCTION CONTRACT DOCUMENT LIST
MANDOTORY list (BASED ON RELEVENCY) :
6. BILL OF QUANTITIES:

This document itemizes in great detail the contract work as described in the drawings
and the specifications.

It may, but need not constitute an exhaustive statement of the work which the
contractor undertakes to perform in return for the agreed price.

Where, as is common, the bill of quantities is required by the contract to be drawn up

in accordance with a particular standard method of measurement, any deviation
from the prescribed method may entitle the contractor to claim payment for
additional work.

OR

7. SCHEDULE OF RATES

Where there are no priced bill of quantities, a document setting out rates applicable to
various categories of contract work may be required for the assessment of interim
payments.
CONSTRUCTION CONTRACT DOCUMENT LIST
ADDITIONAL list (BASED ON RELEVENCY) :

8. PROGRAMME OR METHOD 9.MISCELLANEOUS 10. DESIGN & BUILD

STATEMENT DOCUMENTS DOCUMENT

Contractor are frequently

defined by the contract in Various other documents Certain design and build
such a way that there is no may be required for contracts replace the
obligation on either party to sufficiency, clarity and documents listed above
comply with the dates or completeness purposes. These with three alternative
methods contained in them.
The documents are regarded include, inter alia, documents documents comprising
merely as aids in project such as the contractor’s the ‘Employer’s
planning and coordination tender submissions, any Requirements’ issued by
addenda and/or the employer and the
clarifications, post tender ‘Contractor’s Proposals’
submission negotiations, and the ‘Contract Sum
documents amending the Analysis’ submitted by
offer the contractor
STANDARD FORM OF CONTRACT IN MALAYSIA
Type of Contract in Malaysia

• The standard form of construction contract are issued by

the following bodies and institutes:

a) Jabatan Kerja Raya (“JKR”).

b) Pertubuhan Arkitek Malaysia (“PAM”).
c) Construction Industry Development Board (“CIDB”).
d) The Institution of Engineers, Malaysia.

 PAM  JKR  IEM  CIDB

Pertubuhan Jabatan Kerja Institution of Construction
Arkitek Malaysia Raya Engineers Industry
Malaysia Development
Board

• These standard forms of construction contract contain clauses which allow for the
determination of the employment of the contractor in the event of specified
defaults.
Jabatan Kerja Raya (“JKR”).

• JKR has produced a number of standard forms for use in

public sector works, both for building works and civil
engineering works. However, it is observed that the forms
are also commonly used in private sector contracts.
However, it is not the case that all public sector works follow
the PWD 203 variants of contract forms especially those
funded by World Bank or Asian Development Bank (for
example)where preference seems to be for the adoption of
FIDIC Forms.
Pertubuhan Arkitek Malaysia
(“PAM”).
• The current PAM building contract form is PAM 98 Form
which is published in two versions: one with quantities and
the other without quantities. PAM 98, as the Form is
popularly referred to, is a revised version of PAM 69 Form8
which is essentially for most practical purposes a lightly
amended version of JCT 1963 Form. PAM 98 aims to update
and replace PAM/ISM 69 Form. A PAM 1998 Sub-Contract
Form is also produced for use where the sub-contractor is
nominated under the PAM 98 Form (with or without
quantities).
Construction Industry
Development Board (“CIDB”).
• CIDB has to date produced two standard forms; one is CIDB
Standard Form of Contract for Building Works (2000 Edition)
and the other is CIDB Standard Form of Sub-Contract for
Nominated Sub-Contractor.10 It is planned by CIDB that a
standard form of Design and Build Contract and another for
Civil Engineering Contract will also be published. It may be
of interest to note that CIDB has also produced a booklet on
“Standard Proforma for Contract (sic) Administration” which
is expressly stated to be used in conjunction with CIDB
Standard Form of Contract for Building Works.
The Institution of Engineers,
Malaysia.
• IEM standard forms essentially are hybrid forms except for
the IEM Conditions of Contract for Mechanical and Electrical
Works which essentially follows the corresponding FIDIC
standard form. The various forms published by IEM, it needs
to be appreciated, are the only ones currently for use in
private sector civil engineering works and mechanical and
electrical works in Malaysia.
 STANDARD FORMS OF CONTRACT

GOVERNMENT PRIVATE
SECTOR

JKR/PWD MISCELLANEOUS
CIVIL ENGINEERING
BUILDING WORKS M&E WORKS
WORKS
203 (2010) – CIDB FORM FOR
BUILDING
WITHOUT QUANTITIES CONTRACTS 2000
PAM 2006 – WITH IEM CONDITIONS – IEM CONDITIONS –
QUANTITIES IEM. CE 1/89 IEM. ME 1/94

203A (2010) – MODIFIED JKR/PWD

FORMS E.G. LPK,
WITH QUANTITIES MHA, ETC.
PAM 2006 – WITHOUT IEM CONDITIONS –
TNB CONDITIONS. ETC
QUANTITIES IEM. CES 1/90
203N (2010) –
FOR NOMINATED
SUPPLIERS
PAM NSC 2006
JKR FORM FOR DB
(2010 EDN.) FOR
DESIGN & BUILD
CONTRACTS
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector)

(Pertubuhan Arkitek Malaysia Standard Form)

Revision

 PAM PAM/
PAM PAM
Persatuan Arkitek ISM
Malaysia 1998 2006
1969

3 ARTICLES 3 ARTICLES 7 ARTICLES

34 CLAUSES 35 CLAUSES 38 CLAUSES

Widely use in the private sectors especially projects headed by architects

MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Building Works)
Comparison between PAM 2006 and 1998

PAM PAM
1998 2006

3 ARTICLES 7 ARTICLES
35 CLAUSES 38 CLAUSES

4 new articles added • 3 new clauses added

• to define the roles of supporting • Clause 36.0 – Notice
consultants (Article 4, 5 & 6) • Clause 37.0 – Performance Bond
• to provide clearer definitions (Article • Clause 38.0 – Governing Law
7)
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Building Works)
Comparison between PAM 2006 and 1998

• Clause 1.0 – Contractor’s Obligation

• Clause 2.0 – Architect’s Instruction (AI)
• Clause 3.0 – Contract Documents, Programme And As-built Drawing
• Clause 4.0 – Statutory Obligations, Notices, Fees And Charges
• Clause 5.0 – Levels And Setting Out Of The Works
• Clause 6.0 – Materials, Goods and Workmanship To Conform To
Description , Testing and Inspection
• Clause 7.0 – Royalties And Intellectual Property Rights
• Clause 8.0 – Site Agent
• Clause 9.0 – Access To The Works
• Clause 10.0 – Site Staff
• Clause 11.0 – Variations, Provisional and Prime Cost Sums
• Clause 12.0 – Contract Bills
• Clause 13.0 – Contract Sum
• Clause 14.0 – Materials and Goods
• Clause 15.0 – Practical Completion And Defects Liability
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Building Works)
Comparison between PAM 2006 and 1998

• Clause 16.0 – Partial Possession By Employer

• Clause 17.0 – Assignment And Sub-Contracting
• Clause 18.0 – Injury To Person Or Loss And/Or Damage Of Property and
Indemnity To Employer
• Clause 19.0 – Insurance Against Injury To Person And Loss And/Or Damage Of
Property
• Clause 20.A – Insurance Of New Buildings/Works – By The Contractor
• Clause 20.B – Insurance Of New Buildings/Works – By The Employer
• Clause 20.C – Insurance Of Existing Buildings Or Extension – By The Employer
• Clause 21.0 – Date of Commencement, Postponement And Completion Date
• Clause 22.0 – Damages For Non-Completion
• Clause 23.0 – Extension Of Time
• Clause 24.0 – Loss And/Or Expenses Caused By Matters Affecting the Regular
Progress Of the Works
• Clause 25.0 – Determination Of Contractor’s Employment By Employer
• Clause 26.0 – Determination Of Own Employment By Contractor
• Clause 27.0 – Nominated Sub-Contractors
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Building Works)
Comparison between PAM 2006 and 1998

• Clause 28.0 – Nominated Suppliers

• Clause 29.0 – Works By Craftsmen, Tradesmen Or Other Contractors
Employed Or Engaged By Employer
• Clause 30.0 – Certificates And Payment
• Clause 31.0 – Outbreak Of Hostilities
• Clause 32.0 – War Damage
• Clause 33.0 – Antiquities
• Clause 34.0 – Adjudication And Arbitration
• Clause 35.0 – Mediation
• Clause 36.0 – Notice
• Clause 37.0 – Performance Bond
• Clause 38.0 – Governing Law
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Building Works)
Differences
Clause 11 - Variation
PAM 2006 With Quantities empowers the
Architect and/or the Quantity
With surveyor to evaluate claims.
Quantities The QS is absent in Without Quantities
although in practice a QS may be
commissioned to assist the architect
in the contract administration.
Clause 12 - Quality and Quantity of
works
PAM 2006
PAM With Quantities - Contract Bills form
Without the basis for quantity of the works.
2006 Quantities The BQ carry the risk of error in
quantities. Since the risk of error of
quantity is born by the employer, any
correction to the quantity would
entitle the contractor for a VO (12.2)
Without Quantities - The Contract Sum
is derived from the contractor's own
PAM 2006 estimate of the quantity based on
NSC Drawings and Specifications. Here,
the risk of error in quantity is borne by
Nominated Sub- the contractor.
Contractor
MALAYSIA STANDARD FORM OF CONTRACT
(Government Sector-JKR/PWD)

(JKR Standard Form)

Revision

 JKR YEAR YEAR YEAR

Jabatan Kerja Raya 1983 2007 2010

• Mainly for government projects or use by government linked agencies

(building and engineering work)
MALAYSIA STANDARD FORM OF CONTRACT
(Government Sector-JKR/PWD)

 JKR
Jabatan Kerja
Raya

JKR JKR JKR JKR JKR

203A 203 203N 203P 203 DB

With Without Nominated Nominated Design &

Quantities Quantities Sub- Build
Supplier
Contractor Contract
MALAYSIA STANDARD FORM OF CONTRACT
(Government -Miscellaneous)

(CIDB Standard Form and Term of Contract)

 CIDB Year Available since

Construction 2000 but less
Industry 2000 popular
Development
Board
MALAYSIA STANDARD FORM OF CONTRACT
(Government -Miscellaneous)

(CIDB Standard Form and Term of Contract)

The initiatives undertaken to continuously enhance the professionalism and current

practices of the construction industry players covering from the procurement stage to
the completion of a construction projects including payment through :

• Continuous enhancement of the tender procedure in both public and private sectors
by incorporating best practices.
• Facilitate the use of standard forms and terms of contracts and standard codes of
practices that distribute the risks equally and appropriately to all parties according to
the circumstances of projects.
• Introduce a ‘Construction Industry Payment and Adjudication Act’ to resolve non-
payment issues.
MALAYSIA STANDARD FORM OF CONTRACT
(Government -Miscellaneous)
Standard Form Guide

STANDARD FORM
Buildings
Work

 CIDB
Construction Industry
Development Board

NSC
MALAYSIA STANDARD FORM OF CONTRACT
(Government -Miscellaneous)

STANDARD TERMS
OF CONTRACT

 CIDB
Construction Industry
Development Board

Standard Term of Standard Term of

Construction Contract for Sub
Contract for Contract Work 2007
Renovation and
Small Projects
MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Eng. Works)

(Institution of Engineers Malaysia Standard

Form)

 IEM the only domestic standard form of contract which

are published for the use in private sector civil
Institution of engineering and Mechanical & Electrical
Engineers Engineering contracts in Malaysia.
Malaysia

Used mostly for engineering works or projects headed by engineers

MALAYSIA STANDARD FORM OF CONTRACT
(Private Sector-Eng. Works)

IEM Forms of Contract is produced

in three standard forms:

CIVIL
IEM Conditions of Contract for Works

 IEM mainly of Civil Engineering Construction

(1989)
Institution of
Engineers
IEM Standard Conditions of Sub-Contract
Malaysia for use in conjunction with IEM Condition
of Contract for Works of mainly Civil
Engineering Construction (1990)

M&E
IEM Conditions of Contract for
Mechanical and Electrical Works (1994)
Thanks for Patience !