CONTRACT FORMATION

GOVERNED BY CONTRACTS ACT 1950

 Elements of a simple contract
Offer / Proposal
Orally
In writing including telex or faks
conduct
Acceptance
Must correspond to an offer
Consideration
Mutual exchange something of value
Giving up or refraining from doing something
which is of value
Must be lawful
 Different and definite parties
Sole proprietorship and partnership
Cant enter into a contract in its own right as
they are not legal entities recognized in law
The agreement shall be This agreement is
entered into between Ong Ah Tong t/a Ah Tong
Construction.
Incorporated companies
Sdn Bhd or Bhd
Joint venture
A contractual arrangement between 2 legal
entities
Partnership
An incorporated company called JV company
 Letter of Intent
Generally is a document expressing the
present intent of one party.
This is not construed as the parties having
agreed on all the essential terms of the
contract between them
It is possible and indeed likely sometime that
a letter of intent is not followed by the award
of a contract
 Memorandum of Understanding
(MOU)
Is a document expressing an intent and is
therefore not a legally binding contract
 Letter of Understanding
Usually issued prior to the issuance of the
letter of acceptance
Records the understanding reached during the
negotiation which varies the original term and
conditions of tender documents.
 Letter of Award / Acceptance
A formal acknowledgement by one party of
his acceptance of another partys offer
Should contain a bare minimum of wording to
the effect that the offer/tender (which is
based on the tender documents)
If the tender document are varied, together
with addenda and letter of understanding has
been accepted thereby maturing the whole
process into an agreement
 Letter of Award / Acceptance
The party who signs an agreement must have
the authority to do so.
Otherwise a power of attorney is required.
A managing director of a company (Sdn Bhd or
Bhd) has the authority to sign on behalf of the
company
 Cost of Tendering
A contractor who participates in a tendering
exercise would have to bear his own cost.
However, if a party invites another party to
tender with no intention whatsoever of
accepting that particular tender submitted,
the inviting parties will be liable for any
reasonable expenses which the contractor
incurs in preparing the tender.
Withdrawal and acceptance of tender
A tender is an offer; it can thus be revoked
and withdrawn at any time before it is
accepted.
If its accepted, there will be valid and binding
contract
CONTRACT DOCUMENTATION AND
INTERPRETATION
 Contents of a contract document
Letter of award
Articles of agreement
Condition of contract
Contract drawing
Contract bills
Etc
Letter of award
Letter of agreement
Letter of agreement
 Condition of contract
In Malaysia, standard contract forms are
produced by
Pertubuhan Arkitek Malaysia (PAM 2006)
The Institution of Engineers Malaysia
Construction Industry Development Board
(CIDB 2000)
Jabatan Kerja Raya (JKR Form 203 or 203N)
COMPILE APPROVED TECHNICAL
DOCUMENTS
PREPARING A TENDERING PROCESS
 TENDER DOCUMENT

What is a tender document?

A document used by bidders to prepare their bids and later used as a contract
document between the client, main contractor and nominated sub contractor

The successful bidder will be known as a Nominated Sub

Contractor (NSC) or Domestic Sub Contractor and need to enter
contract with the Main Contractor
 TENDER DOCUMENT
It consists of :
General condition of contract
Instruction to tenderer & site visit
Formats for bank guarantee, performance bonds etc.
Letter of acceptance
Form of tender
Main contractors details
Scope of works
Specification
Bill of quantities
Schedule of technical data
Schedule of prices
Schedule of unit rates
Service & maintenance unit rate
Tenderers information
Drawings
 TENDER DOCUMENT
The information regarding the project teams are also
displayed on the tender document.

The project teams comprise of:

Client
Project Management
Architect
Quantity Surveyor
M & E Consultant
C & S Consultant
Interior Designer
 TENDER DOCUMENT
In a tender document, drawings and specifications play an
important part.
Drawings and specifications must be clearly defined as
lawsuits involved million of dollars had been filed based on
the ambiguous specification.
The drawing scale is determined by the amount of detail to be
presented. Smaller scale for a higher detail. The common
scale in HVAC is either 1/8 in :1 ft or 1:100.
Nowadays drawings for HVAC system are plotted using
AutoCAD software.
Equipment schedules in tabular form should be in the drawing
rather than in the specification as contractor often doesnt
refer to the specification.
 Nature of Contract

In HVAC work, the owner will typically arrange a contractor to

install HVAC system.
The agreement between the owner and the contractor
contains the basic elements of any legal contract.
i.e. Work or service to be deliver, Compensation for the work
performed and date of completion.
Penalties are often imposed for the work done beyond the
time period.
A person signing the contract must be authorized by the
company and it is often witnessed.
Contract or tender drawings are legal documents and should
be avoided of any ambiguity otherwise it will cost extras later
on.
 ENGINNEERING AND DESIGN

What is Engineering?
Engineering is design. Design begins with the identification of
a need and ends with a product or system in hands of a user.
That means that all products or systems was developed,
produced or delivered by an engineer or engineers.

What is design?
The design is the process of devising a system, component or
process to meet a desired need. It is not a totally formal affair,
and that drawings and specifications come into existence as a
result of a social process.
 Maximum amount of tendered sum
( as stated by jkr)

Tender amount < 10 millions Open to 100% locally owned

companies.

10 million < Tender amount < 25 millions Open to 100% locally

owned companies or companies listed in KLSE with foreign equity <
30 % with the managing director and their employees are 100%
local people.

Tender amount > 25 millions open to 100% locally owned

company or joint venture company with foreign equity not more
than 45% with the majority of the employees are local people.
 Tender document prices
as stated by JKR
For domestic work the amount depends on the no of pages
as follows:
Price per page of tender document A3 = RM0.70 & A4 = RM
0.35
Price per page of drawing A3 = RM 0.70 , A2 = RM3.50, A1=
RM6.50, A0 = RM8.00 with the minimum price of RM50.00.

For international work - the amount depends on the no of

pages as follows:
Price per page of tender document A3 = RM1.50 & A4 = RM
0.75
Price per page of drawing A3 = RM 1.40 , A2 = RM7.00, A1=
RM13.00, A0 = RM16.00 with the minimum price of
RM100.00.
 Tender deposit
as stated by jkr

For domestic construction no tender deposit is required

For international construction the deposit are:
< 10 millions = RM 50,000.00
20 millions< Tender Amount < 50 millions = RM 150,000.00
50 millions< Tender Amount < 100 millions = RM 750,000.00
>100 millions = RM 1 million
For local tenderer who is exempted from register with PKK
need to deposit 2.5% of the tendered amount with the
maximum of RM10,000.00

The deposit need to in local bank draft or banks guarantee

and to be return t the unsuccessful tenderer.
 Tender deposit
as stated by jkr

For local contractors who are registered with Pusat Khidmat Kontraktor
(PKK) are not required to deposit the tender deposit.

However, should they withdraw after the tender has been awarded to
them, the penalties are:
For the 1st offence = They cannot participate in government tender for two
(2) years
For the 2nd offence = They cannot participate in government tender for
five (5) years
For the 3rd offence = Their registration with PKK will be terminated and
their board of directors will be blacklisted.

Tender validity period shall be of minimum of 90 days. During this period,

the tenderer shall not increase their price.
Remember, late submission of tender is not accepted
 CONTRACT & DRAWING REVIEW
Contract review is carried out as per previous lecture.
However, drawing review is carried out by study:
1. Duct layout
2. Pipe layout.
3. No of equipments in the schedule of equipments.
4. Type, number and location of switchboard.
5. The wiring length from the switchboard to the equipments.
6. Any additional specifications written in the drawing.
 LIST OF SUPPLIER
List down all the equipments involved.
Prepare a table for the equipment suppliers involved.
1 equipments = min 3 suppliers to quote.
Prepare invitation to quote contain:
1. Equipments schedule of data
2. Qty of equipments
3. Equipment specification from the tender document.
4. A blank schedule of technical data from the tender
document.
5. Dateline for the supplier to reply the quotation.

Once the supplier quote, evaluate their price and specification

and prepare a report to be submitted to your boss.
 LIST OF EQUIPMENTS
Prepare a list of equipments as follows:
 TUTORIAL NO 1
Prepare a list of equipments for the attached building
Sample of Tender notice by JKR and others
Find PKK requirement to register for Kepala 3 , Subkepala
1(a), 1(b) for Class A, B, C, D, E & F
From Perdana Hall tender document:
1.List down quantity of equipments in Perdana Hall
2.Summarize the equipments specification for Perdana Hall
3.Any PKK requirement to participate?
4.Any tender deposit?
5.Performance Bond to whom shall be submitted?
Submit by next lecture
 90 usgpm
@150ft head

25.6 RT Air
Handling Unit

37.5 RT Air
Cooled Chiller
OTHER DOCUMENTS FOR JKR 203N