CPC is a significant milestone as well as a moot point in construction contracts. PAM 06 allows CPC to be issued with minor outstanding works and/or defects (see clause 15.1(a)) with the following conditions:
1. Employer can have full use of the works for their intended purposes
2. The outstanding works are minor in nature
3. Contractor has given to the Architect written undertaking to complete/make good such works.
With that in mind, an interim certificate could be issued after CPC at any time before the final certificate, upon completion of these outstanding works/defects.
Another reason for issuance of interim certificate after CPC would be to revise or correct any previous payment certificate (see clause 30.3)
To further clarify the matter clause 30.1 expressly states:
“ ..After issuance of CPC, interim certificates shall be issued as and when further amounts are ascertained by the Architect and QS as payable to the Contractor by the Employer”
Wednesday, December 15, 2010
Tuesday, December 14, 2010
TNB Substation Woes
Delay in obtaining utility services upon completion of physical works is not an uncommon scenario in our construction industry. It may be due to several factors such as ambiguous scope of contract, change in authority requirements during construction or just plain bureaucracy.
In the absence of expressed provision in the contract for the Main Contractor to secure power supply, their obligation is limited to the completion of the TNB building provided that the Testing & Commissioning can be achieved using other means i.e. gen- set, etc.
If the Testing & Commissioning can only be properly achieved using a stable power supply via an energized TNB substation, the Main Contractor is obliged to have it completed within 'reasonable' time, i.e. 6 months or any period before completion as normally expected of the service provider. In such case, delay by the service provider beyond the 'reasonable' energizing period can be regarded as an act of prevention by the service provider and would make the MC eligible for EOT under clause 23.8q (PAM06).
Another prudent approach is to allow sectional completion for the TNB substation to ensure the substation is completed ahead of time, allowing reasonable time for the TNB to energise before the project completion.
This approach could also be applied to other services such as water supply and telecom to separate the contractor’s contractual obligation from the service provider’s time consuming procedures
In the absence of expressed provision in the contract for the Main Contractor to secure power supply, their obligation is limited to the completion of the TNB building provided that the Testing & Commissioning can be achieved using other means i.e. gen- set, etc.
If the Testing & Commissioning can only be properly achieved using a stable power supply via an energized TNB substation, the Main Contractor is obliged to have it completed within 'reasonable' time, i.e. 6 months or any period before completion as normally expected of the service provider. In such case, delay by the service provider beyond the 'reasonable' energizing period can be regarded as an act of prevention by the service provider and would make the MC eligible for EOT under clause 23.8q (PAM06).
Another prudent approach is to allow sectional completion for the TNB substation to ensure the substation is completed ahead of time, allowing reasonable time for the TNB to energise before the project completion.
This approach could also be applied to other services such as water supply and telecom to separate the contractor’s contractual obligation from the service provider’s time consuming procedures
Monday, December 13, 2010
Omission and Loss of Profit
Q: Where work is omitted and given to another contractor, is the employer liable to pay loss of profit?
A: Entitlement for loss of profit may depend on the wordings of the contract form. PAM98 cl 11.6 allow for valuation of direct loss and/or expense due to variation, however the word ‘loss’ is absent in PAM06 cl11.7.
However, cl 11.6(b) PAM06 provides that fair adjustment of rates to take into account when there is a significant change in quantity. It may be argued that fair valuation should include loss of profit in respect of work omitted.
From my observation, there is no clause in the standard form that prohibits the employer from omitting works to be carried out by others, although several case laws suggest that the employer may not omit work prescribed under Provisional Sum to be executed by 3rd party see Amec Building V Cadmus (1997). In Australian case Carr v JA Berriman (1995) it was held that works omitted would entitle the contractor to claim loss and expense
A: Entitlement for loss of profit may depend on the wordings of the contract form. PAM98 cl 11.6 allow for valuation of direct loss and/or expense due to variation, however the word ‘loss’ is absent in PAM06 cl11.7.
However, cl 11.6(b) PAM06 provides that fair adjustment of rates to take into account when there is a significant change in quantity. It may be argued that fair valuation should include loss of profit in respect of work omitted.
From my observation, there is no clause in the standard form that prohibits the employer from omitting works to be carried out by others, although several case laws suggest that the employer may not omit work prescribed under Provisional Sum to be executed by 3rd party see Amec Building V Cadmus (1997). In Australian case Carr v JA Berriman (1995) it was held that works omitted would entitle the contractor to claim loss and expense
Thursday, December 9, 2010
Quantum Meruit Claim
Q: When do 'quantum meruit' claims arise and how should they be evaluated?
A: Quantum Meruit basically means ‘the amount he deserves’. Other similar terms being used includes ‘reasonable sum’, ‘fair market rates’, etc.
When you engage a contractor to do work without a contract or without a contract sum, he is entitled for a quantum meruit claim.
A quantum meruit claim may occur in a building contract due to the following:
•Changes were imposed without a variation clause
•Variation with significant change in quantity
•Variation involved works with items not similar character and/or condition to items in contract
Q: How are 'fair' rates defined?
A: PAM06 defines fair market rates to be determined by QS. In my opinion, it should be based on reasonable remuneration, not just cost. In fact PAM cl 11.6(d)ii allows for Cost + 15% profit.
A: Quantum Meruit basically means ‘the amount he deserves’. Other similar terms being used includes ‘reasonable sum’, ‘fair market rates’, etc.
When you engage a contractor to do work without a contract or without a contract sum, he is entitled for a quantum meruit claim.
A quantum meruit claim may occur in a building contract due to the following:
•Changes were imposed without a variation clause
•Variation with significant change in quantity
•Variation involved works with items not similar character and/or condition to items in contract
Q: How are 'fair' rates defined?
A: PAM06 defines fair market rates to be determined by QS. In my opinion, it should be based on reasonable remuneration, not just cost. In fact PAM cl 11.6(d)ii allows for Cost + 15% profit.
Sunday, December 5, 2010
How far can an architect/engineer accept minor deviation at site?
Several case laws had indicated that employer may recover the cost of rectification if the work is defective. But if rectification is not a reasonable solution compare to the minimal benefit, rectification cost would not be awarded.
But it is important to note that the deviations must be aesthetically and technically acceptable. In other words, the employer can still benefit from the works without compromising structural and safety factors.
One of the controversial English cases was Ruxley -v- Forsyth which had shed some lights to such circumstances:
“The 1995 House of Lords decision in the case of Ruxley -v- Forsyth was widely reported since it added to the general understanding of how damages should be assessed for a contractor's failure to meet specified standards in a construction contract.
Forsyth had specified that a swimming pool being constructed for him by Ruxley should have a maximum depth of water of 7'6". Unfortunately the completed pool only had a maximum depth of 6'9" and the depth below the diving board was only 6'. Forsyth sued for the cost of a new pool.
The trial judge concluded that the pool constructed was perfectly safe to dive into and that there was no evidence that the shortfall in depth had decreased its value. The only practical method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of some £21,000. There was no evidence that Forsyth actually intended to build a new pool at such a cost.
The judge held that that cost would be wholly disproportionate to the disadvantage of retaining the pool as it had been built. Accordingly he concluded that, despite breach of contract on the part of Ruxley in building a pool which did not meet the required specification, the damages to be awarded was simply a figure to reflect a loss of amenity. This was assessed in the amount of £2,500.
Forsyth appealed the matter to the Court of Appeal and was successful. The Court of Appeal held that Forsyth had suffered a loss as he had a swimming pool less suited to diving than the one he had contracted for. The question to answer was what money would place Forsyth in the same situation as he would have been, had the contract been performed. The answer was the cost of replacement of the pool, otherwise a builder of swimming pools would never need to perform its contract. The Court of Appeal awarded Forsyth damages in the amount of £21,000, being the cost of a new pool.
No doubt Forsyth thought that he could now pocket the £21,000 and continue to swim happily in his 6'9" deep pool. However, the matter did not stop there, and the next port of call was to the House of Lords where the decision was once again reversed, reinstating the earlier decision of the trial judge. Their Lordships stated that to hold in a case of this kind that the measure of the building owner's loss was the cost of reinstatement, however unreasonable it would be to incur that cost, would seem to fly in the face of commonsense. Where the cost of remedying the defect was disproportionate to the end to be attained, the damages were to be measured by the value of the facility built in accordance with the contract, less its value as it stood. Thus Forsyth never saw his £21,000 but instead, no doubt, was faced with a considerably larger legal bill. “
The above case was indeed a controversial one as it went through several appeals and reversal in decisions. Perhaps it is an attempt to meet in between design based and performance based specification in providing the solution. I believe that no man-made law is perfect but perhaps this seems to be a fair solution for such predicament.
Building contract forms has developed over the years to tackle predicaments and eventualities guided by principles of laws and court decisions. The Set-Off Clause 30.4 is now introduced in PAM 06 which among others enable the client/architect to accept works with acceptable performance/aesthetic although not exactly in accordance with the contract.
A new provision in PAM06 i.e. clause 6.5 (e) was introduced to allow such diviation to be accepted subject to employer's consent and the set-off clause.
Under PAM98 contract form, set–off was not expressly an option to remedy works that are not in accordance to contract. In such case, one of the options is to adjust the contact sum as variation.
I certainly hope that the above British court decision is not misconstrued by contractors to take design specifications lightly. The issue of the case was to determine the measure of damages for breach of contract where the cost of reinstatement is disproportionate to the loss suffered. The application in reality shall not be applied vexatiously to compromise the aesthetic value, safety and performance of the works.
But it is important to note that the deviations must be aesthetically and technically acceptable. In other words, the employer can still benefit from the works without compromising structural and safety factors.
One of the controversial English cases was Ruxley -v- Forsyth which had shed some lights to such circumstances:
“The 1995 House of Lords decision in the case of Ruxley -v- Forsyth was widely reported since it added to the general understanding of how damages should be assessed for a contractor's failure to meet specified standards in a construction contract.
Forsyth had specified that a swimming pool being constructed for him by Ruxley should have a maximum depth of water of 7'6". Unfortunately the completed pool only had a maximum depth of 6'9" and the depth below the diving board was only 6'. Forsyth sued for the cost of a new pool.
The trial judge concluded that the pool constructed was perfectly safe to dive into and that there was no evidence that the shortfall in depth had decreased its value. The only practical method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of some £21,000. There was no evidence that Forsyth actually intended to build a new pool at such a cost.
The judge held that that cost would be wholly disproportionate to the disadvantage of retaining the pool as it had been built. Accordingly he concluded that, despite breach of contract on the part of Ruxley in building a pool which did not meet the required specification, the damages to be awarded was simply a figure to reflect a loss of amenity. This was assessed in the amount of £2,500.
Forsyth appealed the matter to the Court of Appeal and was successful. The Court of Appeal held that Forsyth had suffered a loss as he had a swimming pool less suited to diving than the one he had contracted for. The question to answer was what money would place Forsyth in the same situation as he would have been, had the contract been performed. The answer was the cost of replacement of the pool, otherwise a builder of swimming pools would never need to perform its contract. The Court of Appeal awarded Forsyth damages in the amount of £21,000, being the cost of a new pool.
No doubt Forsyth thought that he could now pocket the £21,000 and continue to swim happily in his 6'9" deep pool. However, the matter did not stop there, and the next port of call was to the House of Lords where the decision was once again reversed, reinstating the earlier decision of the trial judge. Their Lordships stated that to hold in a case of this kind that the measure of the building owner's loss was the cost of reinstatement, however unreasonable it would be to incur that cost, would seem to fly in the face of commonsense. Where the cost of remedying the defect was disproportionate to the end to be attained, the damages were to be measured by the value of the facility built in accordance with the contract, less its value as it stood. Thus Forsyth never saw his £21,000 but instead, no doubt, was faced with a considerably larger legal bill. “
The above case was indeed a controversial one as it went through several appeals and reversal in decisions. Perhaps it is an attempt to meet in between design based and performance based specification in providing the solution. I believe that no man-made law is perfect but perhaps this seems to be a fair solution for such predicament.
Building contract forms has developed over the years to tackle predicaments and eventualities guided by principles of laws and court decisions. The Set-Off Clause 30.4 is now introduced in PAM 06 which among others enable the client/architect to accept works with acceptable performance/aesthetic although not exactly in accordance with the contract.
A new provision in PAM06 i.e. clause 6.5 (e) was introduced to allow such diviation to be accepted subject to employer's consent and the set-off clause.
Under PAM98 contract form, set–off was not expressly an option to remedy works that are not in accordance to contract. In such case, one of the options is to adjust the contact sum as variation.
I certainly hope that the above British court decision is not misconstrued by contractors to take design specifications lightly. The issue of the case was to determine the measure of damages for breach of contract where the cost of reinstatement is disproportionate to the loss suffered. The application in reality shall not be applied vexatiously to compromise the aesthetic value, safety and performance of the works.
Thursday, December 2, 2010
Architect’s Liability on Supervision
The Architect's duty with regard to supervision has been a subject of a number of court cases. One of the closest to our context is a Singapore case: Sim and Associates v Alfred Tan (1997) where the architect was sued for, among others, certifying defective works.
The court held that an architect is only required to give reasonable supervision. That is the general rule in the absence of specific requirements in the conditions of appointment. The fact that the work is certified which turns out to be defective does not by itself mean that the architect has been negligent.
Failure to proof the consultant's negligence would render the contractor responsible for work not in accordance with the contract.
The court held that an architect is only required to give reasonable supervision. That is the general rule in the absence of specific requirements in the conditions of appointment. The fact that the work is certified which turns out to be defective does not by itself mean that the architect has been negligent.
Failure to proof the consultant's negligence would render the contractor responsible for work not in accordance with the contract.
Design Liability
Q: Where a Contractor / NSC's drawings are " APPROVED " , " CHECKED " , " INSPECTED " etc, by the Architect or Engineer and subsequently an error is discovered, who will bears the cost? Contractor, NSC , Architect/Engineer or Employer?
A: In a performance specification (items to be designed by contractor/manufacturer), the architect must be clear in what he is doing, which is checking compliance with the performance requirements, not to undertake design. This must be reflected in the wording of the 'approval' or the 'checking'.
Clause 1.2 of PAM06 expressly provides that in such case contractor is fully responsible for the design irrespective of approval by Architect
Without proper performance spec. or contract provision, an architect may not delegate design to contractor. In Moresk v Thomas (1966), the Architect was held liable
Q: In the case where the Employer bears the cost, can he recover the sum involved from the Architect or Engineer?
A: Employer may recover cost from Architect in the following conditions:
1. When damage was due to Architect's design error, not contractor's workmanship or non-compliance to spec.
2. Employer must prove damage i.e. rectification cost, not necessarily the entire 'additional cost'
3. If both Architect & Contractor are liable, Employer may recover cost from Architect if contractor become insolvent
A: In a performance specification (items to be designed by contractor/manufacturer), the architect must be clear in what he is doing, which is checking compliance with the performance requirements, not to undertake design. This must be reflected in the wording of the 'approval' or the 'checking'.
Clause 1.2 of PAM06 expressly provides that in such case contractor is fully responsible for the design irrespective of approval by Architect
Without proper performance spec. or contract provision, an architect may not delegate design to contractor. In Moresk v Thomas (1966), the Architect was held liable
Q: In the case where the Employer bears the cost, can he recover the sum involved from the Architect or Engineer?
A: Employer may recover cost from Architect in the following conditions:
1. When damage was due to Architect's design error, not contractor's workmanship or non-compliance to spec.
2. Employer must prove damage i.e. rectification cost, not necessarily the entire 'additional cost'
3. If both Architect & Contractor are liable, Employer may recover cost from Architect if contractor become insolvent
Tuesday, November 30, 2010
When the Client refuse to pay for an approved VO..
Q: If the client refuse to pay for the V.Os, is it breach of contract by the client? Would it lead to determination or just suspension of work by contractor?
A: As I mentioned in previous posting, variation is the most important clause in the contract. It enables changes to be made to the scope of work, etc without vitiating the contract. As long as the VO was made within the contractual provision, the new scope is deemed to be part of the contract scope. Any cost and time implication (subject to EOT provisions) would alter the contract sum and completion date respectively.
Clause 24.4 (PAM06) provides that the loss/expense due to the VO shall be added to the Contract Sum and shall appear in the next Interim Certificate after the date of ascertainment. If the employer fails to honour the interim certificate within the Period of Honouring Certificate, the contractor may suspend the execution of work until such time payment is made, subject to the procedures stipulated in clause 30.7
Please note the right for suspension by contractor is a NEW provision under PAM06. In the absence of such provision, there are no general rights for contractor to suspend the execution of works. If you are administering a contract using PAM98 or JKR83, such suspension or even slowing down the execution of works by the contractor could amount to a repudiatory breach by the contractor, see PAM98 clause 25.1 (i). On the other hand, the contractor should resort to determine the contract (not to suspend work) as provided by PAM98 clause 26.1 (i).
JKR83 form has got another set-back; there is no provision for determination by the contractor within the contract! However, the unpaid contractor may commence an action against the Government for recovery of payment with interest; see s74 illustration (n), Contract Act 1950.
A: As I mentioned in previous posting, variation is the most important clause in the contract. It enables changes to be made to the scope of work, etc without vitiating the contract. As long as the VO was made within the contractual provision, the new scope is deemed to be part of the contract scope. Any cost and time implication (subject to EOT provisions) would alter the contract sum and completion date respectively.
Clause 24.4 (PAM06) provides that the loss/expense due to the VO shall be added to the Contract Sum and shall appear in the next Interim Certificate after the date of ascertainment. If the employer fails to honour the interim certificate within the Period of Honouring Certificate, the contractor may suspend the execution of work until such time payment is made, subject to the procedures stipulated in clause 30.7
Please note the right for suspension by contractor is a NEW provision under PAM06. In the absence of such provision, there are no general rights for contractor to suspend the execution of works. If you are administering a contract using PAM98 or JKR83, such suspension or even slowing down the execution of works by the contractor could amount to a repudiatory breach by the contractor, see PAM98 clause 25.1 (i). On the other hand, the contractor should resort to determine the contract (not to suspend work) as provided by PAM98 clause 26.1 (i).
JKR83 form has got another set-back; there is no provision for determination by the contractor within the contract! However, the unpaid contractor may commence an action against the Government for recovery of payment with interest; see s74 illustration (n), Contract Act 1950.
Monday, November 29, 2010
Letter of Release
Letter of release usually comes in the picture when an Architect's service is prematurely terminated and the client intends to proceed with another Architect.
PAM guidelines on Letter of Release via General Circular No. 2/2007 must be read in the background of the Conditions of Engagement of a Professional Architects, Rule 19:
“In the event that the Memorandum of Agreement between the Professional Architect and the client is TERMINATED for a reason not due to the fault of either party, the Professional Architect shall, subject to the rights of either party in respect of antecedent breaches of the Memorandum of Agreement between the two parties, charge the balance of fees for architectural consultancy services rendered up to the stage of termination together with all reimbursable charges, and after the full settlement of all fees and charges due from the client, the Professional Architect shall issue A LETTER OF RELEASE to the client and the client shall be entitled to appoint another Professional Architect to continue with the project”
The CF and CCC precondition came about to accommodate Purchasers who wish to carry out a renovation works by engaging his own architect while the Developer's Architect had not fully completed his duty.
I’m of the opinion that LOR is not relevant under the following conditions:
1.Obtaining CF was never part of the original agreement ( not a full service)
2.The Architect had fully discharged their duty (final cert issued)
3.All fees due to the architect are duly paid
I’ve come across some LOR case laws but mostly involved instances where Professional Architect withheld LOR when there were disputes relating to claim of professional fees and I think the subject may deviate from our original discussion.
In TRHamzah and Yeang Sdn Bhd v. Lazar Sdn. Bhd. (1985) 2 MLJ 45, the architect terminated its services as architects on the ground of failure of payment of fees. The court held, among others, that the Architect cannot withhold LOR if:
1.The architect’s services were not terminated by the client
2.The project was not abandoned
3.The architect refused to agree to have the fees referred for settlement.
The key point is on item 3; by refusing to refer to dispute resolution, a waiver on the LOR cannot be obtained. It was held that in the circumstances of this case, the court could not allow the architect to withhold the Letter of Release as to do so would mean “that the architect can hold the client to ransom’ (see Blair v. Osborne and Tomkins [1971]).
When in doubt, Architects may always refer to LAM for clarification. Under certain conditions, as I mentioned, LAM may waive the LOR.
However, it is also important to note that these waivers are not immune in court and may be challenged. In Akitek Tenggara Sdn. Bhd. v. Mid Valley City Sdn. Bhd. (1999) 2 MLJ 625, the court held against LAM’s waiver due the following reason:
a) The termination of the agreement was unlawful
b) The Architect’s services were terminated not because the project was aborted but because the client wanted to use its own architect.
c) Cancellation of the contract by the Client was purely on the basis that it wished to utilize its own architect
The above are just my observations and may subject to criticism. Case laws have to be construed in the whole context and circumstances of the case.
PAM guidelines on Letter of Release via General Circular No. 2/2007 must be read in the background of the Conditions of Engagement of a Professional Architects, Rule 19:
“In the event that the Memorandum of Agreement between the Professional Architect and the client is TERMINATED for a reason not due to the fault of either party, the Professional Architect shall, subject to the rights of either party in respect of antecedent breaches of the Memorandum of Agreement between the two parties, charge the balance of fees for architectural consultancy services rendered up to the stage of termination together with all reimbursable charges, and after the full settlement of all fees and charges due from the client, the Professional Architect shall issue A LETTER OF RELEASE to the client and the client shall be entitled to appoint another Professional Architect to continue with the project”
The CF and CCC precondition came about to accommodate Purchasers who wish to carry out a renovation works by engaging his own architect while the Developer's Architect had not fully completed his duty.
I’m of the opinion that LOR is not relevant under the following conditions:
1.Obtaining CF was never part of the original agreement ( not a full service)
2.The Architect had fully discharged their duty (final cert issued)
3.All fees due to the architect are duly paid
I’ve come across some LOR case laws but mostly involved instances where Professional Architect withheld LOR when there were disputes relating to claim of professional fees and I think the subject may deviate from our original discussion.
In TRHamzah and Yeang Sdn Bhd v. Lazar Sdn. Bhd. (1985) 2 MLJ 45, the architect terminated its services as architects on the ground of failure of payment of fees. The court held, among others, that the Architect cannot withhold LOR if:
1.The architect’s services were not terminated by the client
2.The project was not abandoned
3.The architect refused to agree to have the fees referred for settlement.
The key point is on item 3; by refusing to refer to dispute resolution, a waiver on the LOR cannot be obtained. It was held that in the circumstances of this case, the court could not allow the architect to withhold the Letter of Release as to do so would mean “that the architect can hold the client to ransom’ (see Blair v. Osborne and Tomkins [1971]).
When in doubt, Architects may always refer to LAM for clarification. Under certain conditions, as I mentioned, LAM may waive the LOR.
However, it is also important to note that these waivers are not immune in court and may be challenged. In Akitek Tenggara Sdn. Bhd. v. Mid Valley City Sdn. Bhd. (1999) 2 MLJ 625, the court held against LAM’s waiver due the following reason:
a) The termination of the agreement was unlawful
b) The Architect’s services were terminated not because the project was aborted but because the client wanted to use its own architect.
c) Cancellation of the contract by the Client was purely on the basis that it wished to utilize its own architect
The above are just my observations and may subject to criticism. Case laws have to be construed in the whole context and circumstances of the case.
Why LAD should not appear in Interim Certificate?
The payment certificate is prepared by the Architect as provided in Cl.30.
An architect is not a party to a contract but just an agent to the employer.
The scope of empowerment to issue the payment certificate is limited to Cl 30.2 which stipulates the amount that expressly described the amount appear/due in the certificate as follows:
Total value of work properly completed + material on site
Less: Amount retained for Retention Sum and amount previously certified.
Other items like LAD, set-off, etc could be valid contractual rights to the employer but beyond the architect’s scope of empowerment under cl 30.2.
Therefore, the employer would have to make the deduction themselves from the monies due or become due.
Apart from Cl 30.2 there are other clause that enpower the architect to include other items into a payment certificate:
Clauses expressly mentioning variation rights or items to be added to contract sum:
4.3 - Statutory Obligation
4.4 - Fees , levies & charges
11.6 - Variation rules
6.3 - Testing
7.2 - Royalties
24.4 - Loss & expence to be included in Cert
27.5 - payment to NSC
28.5 - Expenses due to Nominated Supplier's material
Other Related Questions:
Q: Which VO is included in Payment Certificate & which is not? Approved? Issued? Done?
A: The VO must be included in contract sum in the next certificate of payment after the date of ascertainment as provided by cl 11.9. However only works properly executed would appear in the payment certificate
Q: Is value of work done by others to rectify MC's non conformances allowed to be deducted?
A: Such deduction is the employer’s contractual rights but not included in the Architect’s empowerment under clause 30.2. So, it should not be included in the payment certificate
Q: What is the ratio to value relevant parts in partial cpc in releasing 1st moiety - how is it derived?
A: The value shall be proportionate to the original contract sum
Q: Do Architect certify full material on site or 75%?
A:Subject to Cl 30.2 and the % mentioned in the appendix. If none, then 100%. Note: JKR contract specify 75%
An architect is not a party to a contract but just an agent to the employer.
The scope of empowerment to issue the payment certificate is limited to Cl 30.2 which stipulates the amount that expressly described the amount appear/due in the certificate as follows:
Total value of work properly completed + material on site
Less: Amount retained for Retention Sum and amount previously certified.
Other items like LAD, set-off, etc could be valid contractual rights to the employer but beyond the architect’s scope of empowerment under cl 30.2.
Therefore, the employer would have to make the deduction themselves from the monies due or become due.
Apart from Cl 30.2 there are other clause that enpower the architect to include other items into a payment certificate:
Clauses expressly mentioning variation rights or items to be added to contract sum:
4.3 - Statutory Obligation
4.4 - Fees , levies & charges
11.6 - Variation rules
6.3 - Testing
7.2 - Royalties
24.4 - Loss & expence to be included in Cert
27.5 - payment to NSC
28.5 - Expenses due to Nominated Supplier's material
Other Related Questions:
Q: Which VO is included in Payment Certificate & which is not? Approved? Issued? Done?
A: The VO must be included in contract sum in the next certificate of payment after the date of ascertainment as provided by cl 11.9. However only works properly executed would appear in the payment certificate
Q: Is value of work done by others to rectify MC's non conformances allowed to be deducted?
A: Such deduction is the employer’s contractual rights but not included in the Architect’s empowerment under clause 30.2. So, it should not be included in the payment certificate
Q: What is the ratio to value relevant parts in partial cpc in releasing 1st moiety - how is it derived?
A: The value shall be proportionate to the original contract sum
Q: Do Architect certify full material on site or 75%?
A:Subject to Cl 30.2 and the % mentioned in the appendix. If none, then 100%. Note: JKR contract specify 75%
Wednesday, August 25, 2010
Principles
Maneuvering through the complex circumstances in construction contracts requires the application of legal principles to technical facts. The LAM professional exam should be tuned to these thinking skills. In reality, contract forms changes over time and amended to suit client’s requirements, but the principles should remain the same.
Perhaps, Contractors should also be put through a curriculum similar to our Part 3 exam as part of their qualification. But that would be too idealistic. To make things worse, apart from ignorance, we are also facing contractors who rely more on ‘connections’ rather than technical competency.
However, I still believe that in any conflict, principles should prevail.. and I share the following paradigm-shifting experience as told by Frank Koch in Proceedings the magazine of the Naval Institute for us to cogitate:
Two battleships assigned to the training squadron had been at sea on maneuvers in heavy weather for several days. I was serving on the lead battleship and was on watch in the bridge as night fell. The visibility was poor with patchy fog, so the captain remained on the bridge keeping an eye on all activities.
Shortly after dark, the lookout on the wing of the bridge reported, "Light, bearing on the starboard bow."
"Is it steady or moving astern?" the captain called out.
Lookout replied, "Steady captain," which meant we were on a dangerous collision course with that ship.
The captain then called to the signalman, "Signal that ship: We are on a collision course, advise you to change course 20 degrees."
Back came a signal, "Advisable for you to change course 20 degrees."
The captain said, "Send: I'm captain, change course 20 degrees."
"I'm a seaman second class," came the reply. "You had better change course 20 degrees."
By that time the captain was furious. He spat out, "Send: I'm a battleship. Change course 20 degrees."
Back came the flashing light, "I'm a lighthouse."
We changed course.
Principles are like lighthouses
Reality could be foggy at times, and therefore it’s important to understand the principles of law behind the contract provisions.
Perhaps, Contractors should also be put through a curriculum similar to our Part 3 exam as part of their qualification. But that would be too idealistic. To make things worse, apart from ignorance, we are also facing contractors who rely more on ‘connections’ rather than technical competency.
However, I still believe that in any conflict, principles should prevail.. and I share the following paradigm-shifting experience as told by Frank Koch in Proceedings the magazine of the Naval Institute for us to cogitate:
Two battleships assigned to the training squadron had been at sea on maneuvers in heavy weather for several days. I was serving on the lead battleship and was on watch in the bridge as night fell. The visibility was poor with patchy fog, so the captain remained on the bridge keeping an eye on all activities.
Shortly after dark, the lookout on the wing of the bridge reported, "Light, bearing on the starboard bow."
"Is it steady or moving astern?" the captain called out.
Lookout replied, "Steady captain," which meant we were on a dangerous collision course with that ship.
The captain then called to the signalman, "Signal that ship: We are on a collision course, advise you to change course 20 degrees."
Back came a signal, "Advisable for you to change course 20 degrees."
The captain said, "Send: I'm captain, change course 20 degrees."
"I'm a seaman second class," came the reply. "You had better change course 20 degrees."
By that time the captain was furious. He spat out, "Send: I'm a battleship. Change course 20 degrees."
Back came the flashing light, "I'm a lighthouse."
We changed course.
Principles are like lighthouses
Reality could be foggy at times, and therefore it’s important to understand the principles of law behind the contract provisions.
Thursday, July 22, 2010
Time, the essence of Contract?
When I order some 1000 pieces of satay for a wedding, I expect the caterer to deliver on the exact date of the occasion. If the caterer delivers the satay one day late, the items are of no value to me. Here, time is of the essence of the contract.
In a construction contract, though it has often been said, and routinely reproduced as a boilerplate clause (see PWD203 cl 41.3 “Notwithstanding the provision of Clauses 42 and 45, time shall be the essence of this Contract”), it is strictly not accurate to state merely that “time shall be of the essence of the contract”: it would be more accurate and reflective of the intention of the parties to state that time would be of the essence with respect to which provision or provisions of the contract.
The possible legal consequences that can flow from the Contractor’s failure to complete the Works within the contractual time can be inferred from the provisions of section 56 Contracts Act 1950. The material part of section 56 Contracts Act 1950 is reproduced below:
“56(1) When a party to a contract promises to do a certain thing at or before a specified time, …, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
56(2) If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do the thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by the failure.
56(3) If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of the promise at any time other
than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of the acceptance, he gives notice to the promisor of his intention to do so.”
The insertion of a clause declaring time to be of the essence in a construction contract, unlike its insertion in other contract forms, will not normally, in and of itself, allow the innocent party to rescind or terminate the contract for any breach of a time condition. In determining the party's intentions, the court will look to all the particular terms and circumstances and may well import little meaning to the "time is of the essence" clause.
It can be said that in construction contracts, with the presence of extension of time and liquidated damages clauses, time is, more often than not, NOT of the essence with respect to completion date. That is to say, for the legal consequences flowing from a delay to the completion date or extended completion date in most construction contracts, the applicable provision in Contracts Act 1950 would be section 56(2).
Case Law
In Tan Ah Kian v. Haji Hasnan [1962] MLJ 400., Gill CJ identifies the following three situations when time would be of the essence:
(a) the parties expressly state in the contract that it shall be so;
(b) where it was not originally stated to be of the essence but it was subsequently made so by one party giving reasonable notice to the other who has failed to perform the contract with sufficient promptitude; or
(c) where from the nature of the contract or of its subject matter time must be taken to be of the essence.
In a construction contract, though it has often been said, and routinely reproduced as a boilerplate clause (see PWD203 cl 41.3 “Notwithstanding the provision of Clauses 42 and 45, time shall be the essence of this Contract”), it is strictly not accurate to state merely that “time shall be of the essence of the contract”: it would be more accurate and reflective of the intention of the parties to state that time would be of the essence with respect to which provision or provisions of the contract.
The possible legal consequences that can flow from the Contractor’s failure to complete the Works within the contractual time can be inferred from the provisions of section 56 Contracts Act 1950. The material part of section 56 Contracts Act 1950 is reproduced below:
“56(1) When a party to a contract promises to do a certain thing at or before a specified time, …, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
56(2) If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do the thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by the failure.
56(3) If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the promisee accepts performance of the promise at any time other
than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of the acceptance, he gives notice to the promisor of his intention to do so.”
The insertion of a clause declaring time to be of the essence in a construction contract, unlike its insertion in other contract forms, will not normally, in and of itself, allow the innocent party to rescind or terminate the contract for any breach of a time condition. In determining the party's intentions, the court will look to all the particular terms and circumstances and may well import little meaning to the "time is of the essence" clause.
It can be said that in construction contracts, with the presence of extension of time and liquidated damages clauses, time is, more often than not, NOT of the essence with respect to completion date. That is to say, for the legal consequences flowing from a delay to the completion date or extended completion date in most construction contracts, the applicable provision in Contracts Act 1950 would be section 56(2).
Case Law
In Tan Ah Kian v. Haji Hasnan [1962] MLJ 400., Gill CJ identifies the following three situations when time would be of the essence:
(a) the parties expressly state in the contract that it shall be so;
(b) where it was not originally stated to be of the essence but it was subsequently made so by one party giving reasonable notice to the other who has failed to perform the contract with sufficient promptitude; or
(c) where from the nature of the contract or of its subject matter time must be taken to be of the essence.
ENTIRE CONTRACT, SUBSTANTIAL PERFORMANCE
The older reported cases such as Appleby v Myers (1867)LR CP651 and Whitaker v Dunn (1887) 3 TLR 602 require complete performance by a promisor as a condition precedent to his right of recovery under an entire contract.
However the rigours of the common law has since been modified by later judicial pronouncements. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.
At common law, substantial performance is an alternative principle to entire contract. This principle is relevant when a contractor's performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
Case Law:
Zainun Ali, JCA observed in Nirwana Construction Sdn Bhd v JKR NS(2008) that in the absence of express provision to exclude Substantial Performance, a contract cannot be regarded as Entire Contract
Gunn Chit Tuan, J. observed in KP Kunchi Raman v Goh Brothers Sdn Bhd (1978) 1 MLJ 89 in considering whether there had been substantial performance, it was relevant to take into account both the nature of the defect and the proportion between the cost of rectifying them and the contract price.
However the rigours of the common law has since been modified by later judicial pronouncements. It is now established by the doctrine of substantial performance that a promisor who has substantially performed his side of the contract may sue on the contract for the agreed sum, though he remains liable in damages for his partial failure to fulfill his contractual obligations.
At common law, substantial performance is an alternative principle to entire contract. This principle is relevant when a contractor's performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
Case Law:
Zainun Ali, JCA observed in Nirwana Construction Sdn Bhd v JKR NS(2008) that in the absence of express provision to exclude Substantial Performance, a contract cannot be regarded as Entire Contract
Gunn Chit Tuan, J. observed in KP Kunchi Raman v Goh Brothers Sdn Bhd (1978) 1 MLJ 89 in considering whether there had been substantial performance, it was relevant to take into account both the nature of the defect and the proportion between the cost of rectifying them and the contract price.
Obligation
Architect’s Contractual Obligation
1. Empowerment as Employer’s agent
2. Empowerment as Independent certifier
Employer’s Contractual Obligation
1. Make site available
2. Effect payment
3. Appoint Architect
Contractor’s Contractual Obligation
1. To carry out and complete works
2. To comply with specifications and instrructions
3. To preceed regularly and deligently
1. Empowerment as Employer’s agent
2. Empowerment as Independent certifier
Employer’s Contractual Obligation
1. Make site available
2. Effect payment
3. Appoint Architect
Contractor’s Contractual Obligation
1. To carry out and complete works
2. To comply with specifications and instrructions
3. To preceed regularly and deligently
Wednesday, June 23, 2010
Reappointment of Architect
Scenario:
1. Client appoints an Arch firm, Body corporate,
2. In PAM form, Arch is to be named as a "person" in article 3,
3. If the arch dies, what happens to the appointment of the firm in relation to the contract?
4. Client must re-appoint arch within 28 days but contractor has the right to object. There will be grounds for delay.
5. Would the client be forced to grant EOT & loss & expense if the there is continuous objection from the contractors?
My answer:
Firstly it is important to note that an architect is not a privy to a contract between the Employer and Contractor. The scope of empowerment an architect is strictly limited to the expressed provision of the contract.
Article 3 provides the insertion of the identity of the Architect which refers to a person. Although practice name is in the contract, the partner is personally looking after the job. As far as the contract is concerned, the Employer is under the common law duty to appoint another architect if the named architect ceases to be able to act for any reason (Croudace Ltd v London Borough of Lambeth(1986)).
Apart from the contract, the relation between the client and Architect also subject to the Memorandum of Agreement between the Client and Architect. If the Firm is named in the agreement, the Client may be obliged to name another partner as the Architect for the contract.
Now, if the Architect named in Article 3 dies, the employer has 28 days to nominate a successor. The right for the contractor to object is inserted because the new architect may be someone with whom the contractor has had unsatisfactory dealings in the past. The contractor has to put the reasons for objection in writing. If the employer thinks that the reasons are insufficient, the matter can be decided in arbitration, a situation to be avoided due to the delaying effect.
The rights for EOT are limited to the expressed provision in the contract. In the case of PAM2006 Form, if the contractor continuously objects the reappointment of architect and the reasons for objection are accepted by the employer or through an award of arbitration, EOT may be granted under clause 23.8(r).
1. Client appoints an Arch firm, Body corporate,
2. In PAM form, Arch is to be named as a "person" in article 3,
3. If the arch dies, what happens to the appointment of the firm in relation to the contract?
4. Client must re-appoint arch within 28 days but contractor has the right to object. There will be grounds for delay.
5. Would the client be forced to grant EOT & loss & expense if the there is continuous objection from the contractors?
My answer:
Firstly it is important to note that an architect is not a privy to a contract between the Employer and Contractor. The scope of empowerment an architect is strictly limited to the expressed provision of the contract.
Article 3 provides the insertion of the identity of the Architect which refers to a person. Although practice name is in the contract, the partner is personally looking after the job. As far as the contract is concerned, the Employer is under the common law duty to appoint another architect if the named architect ceases to be able to act for any reason (Croudace Ltd v London Borough of Lambeth(1986)).
Apart from the contract, the relation between the client and Architect also subject to the Memorandum of Agreement between the Client and Architect. If the Firm is named in the agreement, the Client may be obliged to name another partner as the Architect for the contract.
Now, if the Architect named in Article 3 dies, the employer has 28 days to nominate a successor. The right for the contractor to object is inserted because the new architect may be someone with whom the contractor has had unsatisfactory dealings in the past. The contractor has to put the reasons for objection in writing. If the employer thinks that the reasons are insufficient, the matter can be decided in arbitration, a situation to be avoided due to the delaying effect.
The rights for EOT are limited to the expressed provision in the contract. In the case of PAM2006 Form, if the contractor continuously objects the reappointment of architect and the reasons for objection are accepted by the employer or through an award of arbitration, EOT may be granted under clause 23.8(r).
2009 Paper 2: Question 2
The project is a city centre mixed development consisting of the following components:
Phase 1 – 3 level basement car parks
Phase 2 – Shopping mall in 4 storey common podium block
Phase 3 – 18 storey Serviced Apartment – Block A
Phase 4 - 18 storey Serviced Apartment – Block B
Phase 5 – 20 storey office Block c
The Developer has decided to develop each phase under a different contract. For Phase 1 and 2 the PAM Form of Contract 1998 was used.
a) Upon completion of Phase 1 works, the Phase 2 Contractor’s Land surveyor found several column positions out of alignment. The phase 2 contractor has submitted a VO for realignment of beams and column head adjustments. The Developer has refused to pay for the VO. He pointed out that as he had entrusted the entire construction to the consultants, the extra cost would be deducted from the Professional Fees.
Explain how you would resolve this problem. (5 marks)
My answer:
The architect shall write to the clients on the following salient points:
1. The issuance of CPC and even the Final certificate does not relieve the first contractor from their contractual obligation due to default in their works.
2. According to clause 5.1 the consultant’s is only responsible to provide accurately dimensioned drawings for the contractor to carry out the works.
3. The first contractor is responsible on the error on inaccurate setting out.
4. If the DLP period has not lapsed, Architect (according to clause 15.6) shall issue instruction to Phase 1 contractor to realign the columns and beams head within a reasonable time specified by the Architect.
5. If the Phase 1 Contractor failed to do so in the specified time, the developer may employ other person i.e. Phase 2 Contractor to carry out the works and the cost incurred shall be set off from the Phase 1 contractor’s account under clause 30.4
Phase 1 – 3 level basement car parks
Phase 2 – Shopping mall in 4 storey common podium block
Phase 3 – 18 storey Serviced Apartment – Block A
Phase 4 - 18 storey Serviced Apartment – Block B
Phase 5 – 20 storey office Block c
The Developer has decided to develop each phase under a different contract. For Phase 1 and 2 the PAM Form of Contract 1998 was used.
a) Upon completion of Phase 1 works, the Phase 2 Contractor’s Land surveyor found several column positions out of alignment. The phase 2 contractor has submitted a VO for realignment of beams and column head adjustments. The Developer has refused to pay for the VO. He pointed out that as he had entrusted the entire construction to the consultants, the extra cost would be deducted from the Professional Fees.
Explain how you would resolve this problem. (5 marks)
My answer:
The architect shall write to the clients on the following salient points:
1. The issuance of CPC and even the Final certificate does not relieve the first contractor from their contractual obligation due to default in their works.
2. According to clause 5.1 the consultant’s is only responsible to provide accurately dimensioned drawings for the contractor to carry out the works.
3. The first contractor is responsible on the error on inaccurate setting out.
4. If the DLP period has not lapsed, Architect (according to clause 15.6) shall issue instruction to Phase 1 contractor to realign the columns and beams head within a reasonable time specified by the Architect.
5. If the Phase 1 Contractor failed to do so in the specified time, the developer may employ other person i.e. Phase 2 Contractor to carry out the works and the cost incurred shall be set off from the Phase 1 contractor’s account under clause 30.4
Sunday, June 20, 2010
Application of U.K. common law
It is worth to note that English Law prior to 7 April 1956 is applicable in our courts (see : ss3 of the Civil Law Act 1956):
3. (1) Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall—
(a) in Peninsular Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 April 1956;
Although modern English cases are not binding, in the specialized field where the contracts are worded identically, the English decisions are of the highest persuasive authority (see: Thames Design Sdn Bhd v Kuching Hotels Sdn Bhd [1993])
3. (1) Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall—
(a) in Peninsular Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 April 1956;
Although modern English cases are not binding, in the specialized field where the contracts are worded identically, the English decisions are of the highest persuasive authority (see: Thames Design Sdn Bhd v Kuching Hotels Sdn Bhd [1993])
Amending Standard Contract Forms
A developer’s contract department had amended the EOT provisions in the Standard PAM 2006 form by omitting the exceptionally inclement weather provision. What is your advise as the project architect during the Tender stage?
It is easy not to notice that VO is the most important clause in the contract. In the absence of an expressed provision for variation, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’. Therefore, clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract.
I can’t help but to notice the trend in sidelining architects in the formation of tender/contract documents by some clients (apart from the contract drawings itself). In some projects, we were not even involved in the tender evaluation. Big clients have their in-house legal department to advice, but some of the things coming out of their ‘customised contract’ could rather be ironic. I think it’s prudent to just use the standard PAM forms. Since you’re paying an Architect to administer the contract, you might as well use a form he is familiar with.
Perhaps less liability without fees discount could be healthy to the architects, and perhaps it brings new meaning to Mies Van de Rohe’s “less is more”. However, when the client or other consultant choose to assume certain ‘traditional architect’s responsibility it is prudent to have the decisions documented. In today’s corporate world, we often see key personnel change due to merger and acquisitions or for various other reasons.
But if we may conclude, the industry should be made aware of the consequence of making amendments to standard forms of contracts that it may turn the administration of the contracts a real nightmare. Inconsistencies abound and the varying interpretations are a fertile source of disputes, and possibly the consequence to the two contracting parties is that millions of ringgit may be at stake.
Recent development in the English courts also suggest that the Employer is obliged to draw the attention of the contractor on any onerous conditions at the time the contract is entered into, otherwise they may be unenforceable. (Worksop Tarmacadam v Hannaby [1995])
Another point to note in dealing with amended forms is that, Architects should read thoroughly all the addendums made in the contract and be aware on how the changes affect their scope of empowerment. Architects should be mindful not to grant EOT or instruct variations beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort.
It is easy not to notice that VO is the most important clause in the contract. In the absence of an expressed provision for variation, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’. Therefore, clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract.
I can’t help but to notice the trend in sidelining architects in the formation of tender/contract documents by some clients (apart from the contract drawings itself). In some projects, we were not even involved in the tender evaluation. Big clients have their in-house legal department to advice, but some of the things coming out of their ‘customised contract’ could rather be ironic. I think it’s prudent to just use the standard PAM forms. Since you’re paying an Architect to administer the contract, you might as well use a form he is familiar with.
Perhaps less liability without fees discount could be healthy to the architects, and perhaps it brings new meaning to Mies Van de Rohe’s “less is more”. However, when the client or other consultant choose to assume certain ‘traditional architect’s responsibility it is prudent to have the decisions documented. In today’s corporate world, we often see key personnel change due to merger and acquisitions or for various other reasons.
But if we may conclude, the industry should be made aware of the consequence of making amendments to standard forms of contracts that it may turn the administration of the contracts a real nightmare. Inconsistencies abound and the varying interpretations are a fertile source of disputes, and possibly the consequence to the two contracting parties is that millions of ringgit may be at stake.
Recent development in the English courts also suggest that the Employer is obliged to draw the attention of the contractor on any onerous conditions at the time the contract is entered into, otherwise they may be unenforceable. (Worksop Tarmacadam v Hannaby [1995])
Another point to note in dealing with amended forms is that, Architects should read thoroughly all the addendums made in the contract and be aware on how the changes affect their scope of empowerment. Architects should be mindful not to grant EOT or instruct variations beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort.
Types of Specification
Specifications are used :
(1) to convey information concerning desired products
(2) as a basis for competitive bidding, and
(3) to measure compliance to contracts
1. Design Specification
Written requirement that describes the generic design characteristics and method of construction
Also known as method specification
Most commonly used in the past
Advantage
Greater degree of competition than propriety specification.
Straight forward and can be implemented with minimal Architects’s intervention.
Disadvantage
Tend to stifle contractor’s innovation
In some instances where 100 percent compliance were not possible, “substantial performance may be accepted.
Product Performance Liability
Architect/Specifier
Example
100mm thick clay brick with 20mm thick on both sides
2. Propriety Product Specification
Used when a generic description of the material cannot be formulated
Usually contain “or equivalent” clause to allow for some measure of competition
Advantage
Can achieve specific product performance and appearance
Disadvantage
Severely limits competition
Very little innovation by contractor
Product Performance Liability
Architect/Specifier/Manufacturer
Example
200mm thick ALC lightweight block with 6mm skim coating on both sided
3. Performance Specification
Written requirement that describes the functional performance criteria required for a particular equipment, material, or product
Focus on outcomes or results rather than process
Most often used when the contractor has specific expertise in doing the work.
For instance, specialty equipment manufacturers are often required to provide equipment that meets the client’s performance requirement for the equipment being purchased
Advantage
Allow contractors to bring their own expertise, creativity and resources to the tender process.
Allows the contractors to provide the product or service at less cost and shifts some of the risk to the contractors
Better competition
Disadvantage
Product Performance Liability
Contractor
Example
SIRIM & BOMBA approved 2 hour rated fire wall with STC rating123 to manufacturer’s detail and Architect’s approval
4. Mixed Specification
A hybrid of all of the above
(1) to convey information concerning desired products
(2) as a basis for competitive bidding, and
(3) to measure compliance to contracts
1. Design Specification
Written requirement that describes the generic design characteristics and method of construction
Also known as method specification
Most commonly used in the past
Advantage
Greater degree of competition than propriety specification.
Straight forward and can be implemented with minimal Architects’s intervention.
Disadvantage
Tend to stifle contractor’s innovation
In some instances where 100 percent compliance were not possible, “substantial performance may be accepted.
Product Performance Liability
Architect/Specifier
Example
100mm thick clay brick with 20mm thick on both sides
2. Propriety Product Specification
Used when a generic description of the material cannot be formulated
Usually contain “or equivalent” clause to allow for some measure of competition
Advantage
Can achieve specific product performance and appearance
Disadvantage
Severely limits competition
Very little innovation by contractor
Product Performance Liability
Architect/Specifier/Manufacturer
Example
200mm thick ALC lightweight block with 6mm skim coating on both sided
3. Performance Specification
Written requirement that describes the functional performance criteria required for a particular equipment, material, or product
Focus on outcomes or results rather than process
Most often used when the contractor has specific expertise in doing the work.
For instance, specialty equipment manufacturers are often required to provide equipment that meets the client’s performance requirement for the equipment being purchased
Advantage
Allow contractors to bring their own expertise, creativity and resources to the tender process.
Allows the contractors to provide the product or service at less cost and shifts some of the risk to the contractors
Better competition
Disadvantage
Product Performance Liability
Contractor
Example
SIRIM & BOMBA approved 2 hour rated fire wall with STC rating123 to manufacturer’s detail and Architect’s approval
4. Mixed Specification
A hybrid of all of the above
Delay
Each and every delay incurred should be well documented during the course of the project.
Types of delay
1. Critical or Non‐Critical
2. Excusable or Non‐Excusable
3. Compensable or Non‐Compensable
4. Concurrent or Non‐Concurrent
1. Non‐Critical Delays:
• Impact a portion of the work with available float time allowing the project to be completed on time
2. Critical Delays:
• Impact a portion of the work exceeding float time available and delaying the project
3. Excusable Delay
A delay beyond the control or fault of a contractor or owner (e.g. “Force Majeure” causes including weather, fire, flood & act of God)
4.Non‐Excusable Delay
The contractor’s fault
5. Non Compensable:
Contractor entitled to a time extension but not to delay damages
Delay due to:
1. Weather delay
2. Strikes
3. Acts of God
4. The contractor’s fault.
• Contractor is not entitled to a time extension and owner may assess liquidated
• damages or actual damages (if contract does include provision for liquidated damages)
5. Delay caused by events within the control of the contractor and could have potentially been avoided had the contractor exercised care
6. Compensable/ Excusable
Proof of Delay
• Contractor must proof that delays caused by the owner extend the project completion beyond the date attributable to its own delay
• Delay must be on the critical path
• Delay cannot be concurrent with Excusable/Noncompensable delay
Types of delay
1. Critical or Non‐Critical
2. Excusable or Non‐Excusable
3. Compensable or Non‐Compensable
4. Concurrent or Non‐Concurrent
1. Non‐Critical Delays:
• Impact a portion of the work with available float time allowing the project to be completed on time
2. Critical Delays:
• Impact a portion of the work exceeding float time available and delaying the project
3. Excusable Delay
A delay beyond the control or fault of a contractor or owner (e.g. “Force Majeure” causes including weather, fire, flood & act of God)
4.Non‐Excusable Delay
The contractor’s fault
5. Non Compensable:
Contractor entitled to a time extension but not to delay damages
Delay due to:
1. Weather delay
2. Strikes
3. Acts of God
4. The contractor’s fault.
• Contractor is not entitled to a time extension and owner may assess liquidated
• damages or actual damages (if contract does include provision for liquidated damages)
5. Delay caused by events within the control of the contractor and could have potentially been avoided had the contractor exercised care
6. Compensable/ Excusable
Proof of Delay
• Contractor must proof that delays caused by the owner extend the project completion beyond the date attributable to its own delay
• Delay must be on the critical path
• Delay cannot be concurrent with Excusable/Noncompensable delay
Rescue Job
You're on a 5 storey office job that have had 2 contractors with the first one terminated at 93%. The second contractor, who was the approved subcontractor to the first chap took over to completion, and it's well into the Defects Liability Period [DLP]. On one of your recent defects inspection you discover that a major... component - solar screens to the windows have not been installed. What do you do?
After going through a few rescue jobs in the past I’m of the opinion that terminating a main con in the 11th hour is a lose-lose situation. The 1st MC may go bust and Client loose time and money. But sometimes it is necessary to avoid a bigger lost.
One of the things that we did was to conduct a thorough audit to value the completed v outstanding works. We also included some disclaimers to cover any unforeseeable items due to access restrictions, etc. in formulating the scope of the rescue contract.
If BQ forms part of the contract, The QS must pick up all the items in the drawings and audit report to be priced in the BQ. Any items missed and/or not substantially referred in the BQ would grant the contractor a VO. The contractor has to check all the contract documents to come up with the contract the rates, not the quantity. The Employer (represented by the QS) is liable on the quantity.
PAM 2006 Article 5 expressly describes the QS’s professional liability in the contract. Would that be the reason why the PAM06 is not so popular among the QS? Among the possible negligence by the QS would be:
•Error in quantity
•Substantial under valuation of provisional sum
•Non compliance to the Standard Method of Measurement
In this case, for the solar screen to be considered part of the original contract sum, it must be substantially referred in BQ i.e .. inclusive of all other window components shown in the contract drawings. Otherwise, I’m of the opinion that the item is variation.
Instructions in general can be issued by the Architect right up to the issuance of Final Certificate where the Architect becomes ‘functus officio’ i.e instructions to rectify defects, etc. However, instructions that effect a variation to the contract should not be issued after CPC. If the solar screen is deemed as not part of the original contract sum, it may not be included in the contract after CPC unless there is an expressed provision that allows such variation (see: 150 Contractual Problems and Their Solutions by Roger Knowles). For instance, Clause 11.3 of PAM 2006 prescribes the time limit for the Architect to instruct a variation as: anytime before the issuance of CPC except for compliance to requirements by Appropriate Authority and Service Provider.
After going through a few rescue jobs in the past I’m of the opinion that terminating a main con in the 11th hour is a lose-lose situation. The 1st MC may go bust and Client loose time and money. But sometimes it is necessary to avoid a bigger lost.
One of the things that we did was to conduct a thorough audit to value the completed v outstanding works. We also included some disclaimers to cover any unforeseeable items due to access restrictions, etc. in formulating the scope of the rescue contract.
If BQ forms part of the contract, The QS must pick up all the items in the drawings and audit report to be priced in the BQ. Any items missed and/or not substantially referred in the BQ would grant the contractor a VO. The contractor has to check all the contract documents to come up with the contract the rates, not the quantity. The Employer (represented by the QS) is liable on the quantity.
PAM 2006 Article 5 expressly describes the QS’s professional liability in the contract. Would that be the reason why the PAM06 is not so popular among the QS? Among the possible negligence by the QS would be:
•Error in quantity
•Substantial under valuation of provisional sum
•Non compliance to the Standard Method of Measurement
In this case, for the solar screen to be considered part of the original contract sum, it must be substantially referred in BQ i.e .. inclusive of all other window components shown in the contract drawings. Otherwise, I’m of the opinion that the item is variation.
Instructions in general can be issued by the Architect right up to the issuance of Final Certificate where the Architect becomes ‘functus officio’ i.e instructions to rectify defects, etc. However, instructions that effect a variation to the contract should not be issued after CPC. If the solar screen is deemed as not part of the original contract sum, it may not be included in the contract after CPC unless there is an expressed provision that allows such variation (see: 150 Contractual Problems and Their Solutions by Roger Knowles). For instance, Clause 11.3 of PAM 2006 prescribes the time limit for the Architect to instruct a variation as: anytime before the issuance of CPC except for compliance to requirements by Appropriate Authority and Service Provider.
Sunday, June 6, 2010
Variations Clause
This is the most important clause in the contract.
In a contract, a contractor is promised a certain amount of money to perform a certain amount of work. In the absence of an expressed provision for variation in a contract, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’.
Clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract. PAM06 expressly provides that the instruction has to be in AI format. Clause 2 further stipulates the procedural requirements of the issuance of AI.
What is a valid variation?
In general, work which is incidental to the work already contracted for is within the scope of the Works and is thus not a variation. Other phrase used is “indispensable and/or necessary work”.
The principal elements of a valid variation are:
1. Must be in a form of instruction (AI)
2. Contractual Empowerment to the person issuing the instruction
3. The instruction must effect change to the works; and
4. The instruction is not intended to rectify negligence, omission, default and/or breach of contract by the Contractor
Clause 11.1 further stipulates the scope of variations allowed in the contract.
Architects should be mindful not to instruct variation beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort. For instance, the architect does not have the right to issue instructions regarding safety of the works. If such instruction calls for a variation to the contractual provision, the contractor cannot look for the employer for compensation.
It should also be noted that any error in pricing or rate by the contractor is not a valid variation and thus may not be adjusted irrespective of the quantities involved after the execution of the contract.
Can An Architect Issue a Variation After CPC?
Instructions in general can be issued by the Architect right up to the issuance of Final Certificate where the Architect becomes ‘functus officio’. However, instructions that effect a variation to the contract should not be issued after CPC accept for compliance to requirements by Appropriate Authority and Service Provider as expressly provided in Clause 11.3 of PAM 2006
Valuation of Variation
The contractor is entitled to additional cost implicated by a valid variation. Clause 11.6 further stipulates the method of valuation of variation.
The contract rate is applicable for Variation items with ‘similar character’ and ‘similar conditions’ to the existing contract items. The word “similar” means “of a like nature” and does not mean have to be “identical”.
Similar character of variation work usually refers to the similar item of work already described and has a rate/price in the contract BQ. e.g. concrete columns/beams, brickwalls, etc. Variation work not of similar character e.g. installation of floor and ceiling tiles. Similar condition of variation work usually refer to the physical conditions, timing and extent of the variation work which is similar to that described and allowed in the contract BQ. Variation work not of similar condition, which may be affected by the three factors e.g. addition of a concrete beam after completion of all concrete works in the project.
The contractor is entitled to caim for additional costs on a fair and/or reasonable basis, commonly known as ‘quantum meruit’ if instructed to carry out additional works on an existing contract as a variation to the contract where:
1. the existing contract prices/rates do not cater for the said variation works;
2. the nature of the works is not with ‘similar character’ and ‘similar conditions’; or
3. the nature of the works is with ‘similar character’ and ‘similar conditions’but with significant change in quantity (new provision in PAM06 clause 11.6(a))
A QS/Architect may value a fair market rate or include a fair allowance on the contract rate/price to take into consideration the circumstances prevailing at the time of execution of the variation work.
There is no provision for submission of quotation or price agreement by the contractor prior to carrying out any variation works in PAM06. However, in good practice and to avoid unnecessary dispute or problem arising, it is prudent that the Contractor submit a quotation upon SO’s instruction or prior to carrying out the variation works.
Notice Requirement
Clause 11.7 (a) & (b) of PAM2006 expressly provide that a written notice of the contractor's intention to claim and their susequent submission of the supporting document within the stipulated time, is a condition precedent to contractor’s claim for additional expenses caused buy a Variation. If the contractor fail to comply with the formalities stipulated in the contract, he cannot insist either under the contract or other contractual promise to be paid a reasonable sum, even though the employer derived some benefit from the work varied: Taverner & Co. Ltd. V Glamorgan County Council.
In a contract, a contractor is promised a certain amount of money to perform a certain amount of work. In the absence of an expressed provision for variation in a contract, any instruction issued to modify or alter the original scope of work will entitle the Contractor to end the contract. Subsequently the contractor is no longer bounded by the contract rates and could make the subsequent claims based on ‘quantum meruit’.
Clause 11 of the PAM 2006 Form in general, empowers the Architect to issue instruction ordering a variation without vitiating the contract. PAM06 expressly provides that the instruction has to be in AI format. Clause 2 further stipulates the procedural requirements of the issuance of AI.
What is a valid variation?
In general, work which is incidental to the work already contracted for is within the scope of the Works and is thus not a variation. Other phrase used is “indispensable and/or necessary work”.
The principal elements of a valid variation are:
1. Must be in a form of instruction (AI)
2. Contractual Empowerment to the person issuing the instruction
3. The instruction must effect change to the works; and
4. The instruction is not intended to rectify negligence, omission, default and/or breach of contract by the Contractor
Clause 11.1 further stipulates the scope of variations allowed in the contract.
Architects should be mindful not to instruct variation beyond their contractual ambit, as such act could be regarded as ‘ultra vires’ and could expose the architect directly liable under tort. For instance, the architect does not have the right to issue instructions regarding safety of the works. If such instruction calls for a variation to the contractual provision, the contractor cannot look for the employer for compensation.
It should also be noted that any error in pricing or rate by the contractor is not a valid variation and thus may not be adjusted irrespective of the quantities involved after the execution of the contract.
Can An Architect Issue a Variation After CPC?
Instructions in general can be issued by the Architect right up to the issuance of Final Certificate where the Architect becomes ‘functus officio’. However, instructions that effect a variation to the contract should not be issued after CPC accept for compliance to requirements by Appropriate Authority and Service Provider as expressly provided in Clause 11.3 of PAM 2006
Valuation of Variation
The contractor is entitled to additional cost implicated by a valid variation. Clause 11.6 further stipulates the method of valuation of variation.
The contract rate is applicable for Variation items with ‘similar character’ and ‘similar conditions’ to the existing contract items. The word “similar” means “of a like nature” and does not mean have to be “identical”.
Similar character of variation work usually refers to the similar item of work already described and has a rate/price in the contract BQ. e.g. concrete columns/beams, brickwalls, etc. Variation work not of similar character e.g. installation of floor and ceiling tiles. Similar condition of variation work usually refer to the physical conditions, timing and extent of the variation work which is similar to that described and allowed in the contract BQ. Variation work not of similar condition, which may be affected by the three factors e.g. addition of a concrete beam after completion of all concrete works in the project.
The contractor is entitled to caim for additional costs on a fair and/or reasonable basis, commonly known as ‘quantum meruit’ if instructed to carry out additional works on an existing contract as a variation to the contract where:
1. the existing contract prices/rates do not cater for the said variation works;
2. the nature of the works is not with ‘similar character’ and ‘similar conditions’; or
3. the nature of the works is with ‘similar character’ and ‘similar conditions’but with significant change in quantity (new provision in PAM06 clause 11.6(a))
A QS/Architect may value a fair market rate or include a fair allowance on the contract rate/price to take into consideration the circumstances prevailing at the time of execution of the variation work.
There is no provision for submission of quotation or price agreement by the contractor prior to carrying out any variation works in PAM06. However, in good practice and to avoid unnecessary dispute or problem arising, it is prudent that the Contractor submit a quotation upon SO’s instruction or prior to carrying out the variation works.
Notice Requirement
Clause 11.7 (a) & (b) of PAM2006 expressly provide that a written notice of the contractor's intention to claim and their susequent submission of the supporting document within the stipulated time, is a condition precedent to contractor’s claim for additional expenses caused buy a Variation. If the contractor fail to comply with the formalities stipulated in the contract, he cannot insist either under the contract or other contractual promise to be paid a reasonable sum, even though the employer derived some benefit from the work varied: Taverner & Co. Ltd. V Glamorgan County Council.
Friday, June 4, 2010
What Constitute a Contract?
There have been several articles provided in PAM Part 3 Exam Seminar notes on this subject. An extensive definition in Malaysian context is also available in the Contract Act 1950 itself. The key elements can be sourced from Section 10 (1) of the Act as follows:
“ All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”
Derived from the above section, it can be construed that a legally binding contract must consist of SIX of the following elements:
1) Offer
2) Acceptance
3) Concent
4) Competency
5) Consideration
6) Legality
Offer and Acceptance
The word ‘agreement’ means that there must be an offer by one side and an acceptance of the offer by the person to whom the offer was made. Without both an offer and an acceptance, there can be no consensus ad idem or a meeting of the minds which is essential to form a contract.
Consent
Another key element to a contract is consent as described above as ‘..made by the free consent of parties..’. Section 19 further elaborate on the Voidability of agreements without free consent as follows:
“ When consent to an agreement is caused by coercion, fraud,
or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.”
Competency
‘..parties competent to contract..’ is further defined in Section 11 of the Act as follows:
“Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”
I.e a person under 15 years and a mentally insane person cannot enter a legal contract
Consideration
Consideration as described as ‘..for a lawful consideration..’ in the Act is another essential element of any valid contract. Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is a present exchange bargained for in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or incurred by the other party. It is not necessary for a contract to be supported by a monetary consideration.
Legality
The Act also require a contract to be of ‘a lawful object’, which means that the objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not a binding contract because the purpose for which it exists is not legal.
“ All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”
Derived from the above section, it can be construed that a legally binding contract must consist of SIX of the following elements:
1) Offer
2) Acceptance
3) Concent
4) Competency
5) Consideration
6) Legality
Offer and Acceptance
The word ‘agreement’ means that there must be an offer by one side and an acceptance of the offer by the person to whom the offer was made. Without both an offer and an acceptance, there can be no consensus ad idem or a meeting of the minds which is essential to form a contract.
Consent
Another key element to a contract is consent as described above as ‘..made by the free consent of parties..’. Section 19 further elaborate on the Voidability of agreements without free consent as follows:
“ When consent to an agreement is caused by coercion, fraud,
or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.”
Competency
‘..parties competent to contract..’ is further defined in Section 11 of the Act as follows:
“Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”
I.e a person under 15 years and a mentally insane person cannot enter a legal contract
Consideration
Consideration as described as ‘..for a lawful consideration..’ in the Act is another essential element of any valid contract. Consideration consists of either a benefit to the promisor or a detriment to the promisee. It is a present exchange bargained for in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or incurred by the other party. It is not necessary for a contract to be supported by a monetary consideration.
Legality
The Act also require a contract to be of ‘a lawful object’, which means that the objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not a binding contract because the purpose for which it exists is not legal.
Tuesday, June 1, 2010
With or Without BQ?
Upon checking the PAM 2006 Contract Forms, I noticed the difference between the drafting of the Contract Forms with quantities (called Form A for this discussion) and without quantities (Form B) lies in 2 main clauses namely:
Clause 11 - Variation; and
Clause 12 - Quality and Quantity of works
Clause 11 - Variation
Form A empowers the Architect and/or the Quantity surveyor to evaluate claims. The QS is absent in Form B although in practice a QS may be commissioned to assist the architect in the contract administration.
Clause 12 - Quality and Quantity of works
Form A - Contract Bills form the basis for quantity of the works. 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)
Form B - The Contract Sum is derived from the contractor's own estimate of the quantity based on Drawings and Specifications. Here, the risk of error in quantity is borne by the contractor.
In contrary to popular belief, both contracts are Lump Sum ( see clause 12.2 of both forms) in a sense that the contractor undertake to complete the whole works for a determined amount of money payable by the employer.
The BQ may not provide an exhaustive description of the works but should be read as mutually explanatory with other contract documents, i.e. specification and drawings. Hence the contractor should thoroughly check all the relevant contract documents according to the priority set in clause 3.1 in coming up with the contract rates.
The BQ may not be required for smaller or less complex projects where drawings and specifications themselves provide sufficient information.
Clause 11 - Variation; and
Clause 12 - Quality and Quantity of works
Clause 11 - Variation
Form A empowers the Architect and/or the Quantity surveyor to evaluate claims. The QS is absent in Form B although in practice a QS may be commissioned to assist the architect in the contract administration.
Clause 12 - Quality and Quantity of works
Form A - Contract Bills form the basis for quantity of the works. 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)
Form B - The Contract Sum is derived from the contractor's own estimate of the quantity based on Drawings and Specifications. Here, the risk of error in quantity is borne by the contractor.
In contrary to popular belief, both contracts are Lump Sum ( see clause 12.2 of both forms) in a sense that the contractor undertake to complete the whole works for a determined amount of money payable by the employer.
The BQ may not provide an exhaustive description of the works but should be read as mutually explanatory with other contract documents, i.e. specification and drawings. Hence the contractor should thoroughly check all the relevant contract documents according to the priority set in clause 3.1 in coming up with the contract rates.
The BQ may not be required for smaller or less complex projects where drawings and specifications themselves provide sufficient information.
Intro
This blog is a compilation of my notes for my own consumption. I figured that since a blog is easily accessible anytime anywhere, why not fully utilise as my mobile reference. However, should anyone happen to read this postings, your comments are most welcomed.
The discourse are mostly related to the construction law and building contract. I'm not an expert in this area but currently studying the subject for my professional exam.
My main references include:
The discourse are mostly related to the construction law and building contract. I'm not an expert in this area but currently studying the subject for my professional exam.
My main references include:
- PAM Tutorial Notes
- Malaysian Standard Form of Building Contract (PAM 1998 Form) by Sundra Rajoo
- '150 Contractual Problems and Their Solutions' by Roger Knowles
- 'The Malaysian PWD Form of Construction Contract' by Lim Chong Fong
- Various articles on 'Engineering & Law' by Ir Harbans Singh
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