• Contractor registration

• Tendering process
• Tender and Contract Documents
• Insurances and bond
• Progress payment
• Variation order
• Extension of time

CONSTRUCTION CONTRACT PROCEDURES

DR. AZEANIITA SURATKON
 CONTRACTOR REGISTRATION
Tender

On completion of all the preliminary stages of the project, i.e. inception,

feasibility, design development and detail design, the works must be let out
to a contractor to undertake the production.

Tender process
1. Appropriate contract 6. Receipt and opening tenders
procurement method selection 7. Evaluation of tenders
method 8. Tender acceptance
2. Tender lists development
3. Tender document preparation
4. Calling of tenders
5. Preparation and submission of
tenders
 TENDERING PROCESS & PROCEDURES
Types of tender

There are three (3) common types of tendering procedures:

1. Open tendering
2. Selective Tendering
3. Negotiations/ Negotiated tendering

Open tendering
- The main tendering procedure employed by both government and private
sector.
- The procedures of inviting offers from registered contracting firms
through tender advertisement normally in the general press.
- A tender advertisement provides information such as outline details of
the work, its scale and programme, tendering period, class or grade of
registration of contracting firms eligible to tender, etc.
- All eligible contractors have the opportunity to tender and maximum
competition may be achieved.
 TENDERING PROCESS & PROCEDURES
Types of tender

Selective tendering
- The procedures of inviting offers from a limited number of registered
contracting firms, normally through client’s personal contact,
recommendation from consultants or third parties known to the client.
- In the public sector, the names of contracting firms are drawn from the
list of registered contractors that have proven experience and track
record in constructing projects similar to the one being tendered.
- A common approach in the selection of a successful contractor in a
design-build project.
 TENDERING PROCESS & PROCEDURES
Types of tender

Negotiated tendering
- In a negotiated tender, there are provisions in the conditions of tendering
for a negotiation or a series of negotiations to be held between tenderers
and the client.
- A client would carry out parallel negotiation with the lowest two or three
contracting firms whose bids meet the technical detail and specifications.
Normally the key issue in the negotiation is the tender price.
- In design-build or turnkey system, negotiation may become essential in
order to facilitate evaluating incomparable offers since contractors may
be required to offer competition in both design and prices.
 TENDER & CONTRACT DOCUMENTS
Tender Documents

● A document which is prepared to be used by contractor to propose the

price of a project.
● The content of tender document prepared for contractor may vary
depending on the type of contract being offered to the contractor:
● For contract based on Bills of Quantity (BQ) the tender document
comprises BQ, Form of Tender, Specification and drawings.
● As for Lump Sum based contract, the tender documents given to
contractors comprises Schedule of Tender, Form of Tender, drawings
and Table of works.
 TENDER & CONTRACT DOCUMENTS
Tender Documents
 TENDER & CONTRACT DOCUMENTS
Table Tender Documents

● Normally before calling for tender, a Table Tender Document (TTD) will be
prepared. It will be displayed during the period of calling for tender. TD
normally will be placed at the same office issuing the tender.

● TTD contains a number of documents including conditions of contracts,

form of tender, drawings and specifications.

● TTD serves as reference for contractor participating the tender especially

when submitting or returning the tender document to ensure all the
necessary documents as in the TTD is complete and submitted.

● TTD serves as the basis in preparing contract documents.

 TENDER & CONTRACT DOCUMENTS
Contract Document

● An agreement document or law document which explain tasks and

responsibilities of each contracting party to the contract.

● It defines project according to the request of client in detail through

drawings, specification, tables, BQ, work programme, etc.

● It is the basis for project management team in controlling the project

during construction phase.

● The contract documents include Articles of Agreement, Conditions of

Contract, Plans & Drawings, Bill of Quantities, Specifications and Other
Documents specifically included.
 CONTENT OF TENDER & CONTRACT DOCUMENTS
Instruction to Tenderer
● It is compulsory for the contractor to join site visit to investigate the
location, actual size of the site, and basic utilities available at the project
site.
● Instruction on how to fill up form of tender and other documents such as
type of ink can be used, signature and date to be filled up as well as
attached documents.
● Instruction related to the TTD and drawings: where they are placed
(location) and when they can be referred to (time).
● Time and place of submitting tender document.
● Reminder that a tender can be rejected if the specified conditions and
instructions are not followed by the tenderer.
● Exemption clause – a statement that client is not bonded to award the
cheapest tender or any tender.

Form of Tender
A form used by tenderer to participate in the tender by filling up important
information including the tender price and time completion.
 TENDER & CONTRACT DOCUMENTS
Letter of Acceptance
● A letter by client to state his acceptance towards the tender offered by a
contractor.
● It is sent to the contractor to be kept.

Articles of Agreements
It describes in general terms the parties, the contract works and the price,
and evidences the intention of the parties to be bound.
● Brief description of Project
● Location of Site
● Commencement Date
● Name of the parties
● Obligation of parties
● Price to be paid
● Name of consultants
● Time for Completion
● List of contract documents
Why use Standard Form of Contracts?

TENDER & CONTRACT DOCUMENTS

The Standard Form Contracts provide a basic legal framework,
establish the ambit of the powers and duties of the contract administrator
and put in place the necessary administrative procedures.

Advantages of Standard Form of Contracts

● Compromise solution
● Risks are allocated relatively fairly
● Time-tested
● Certainty in meaning
● Saves time and costs
 TENDER & CONTRACT DOCUMENTS
Conditions of Contract

Detailed conditions, often in standard form (with or without amendments),

amplify and explain the basic obligations of the parties and lay down
administrative procedures to be followed during the progress of the works.
● Elaborate set of legal terms which regulate the contractual relationship
between parties to the contract
● Define duties and rights of parties
● Address some of the likely events which may arise during the course of
works

Appendix to the conditions

Certain information specific to a particular contract, such as dates of

commencement or completion and amounts of liquidated damages, is
commonly required to be inserted by the parties in an Appendix to the
conditions before the contract is executed.
Specifications

TENDER & CONTRACT DOCUMENTS

● This document amplifies the ● It explains and elaborates:
contract drawings by providing • Works included in the tender;
verbal description of such • Minimum quality of
methods as the scope of work, construction materials needed;
methods of construction, quality • How a work should be carried
of finishes and standards of out;
workmanship to be provided. • Minimum quality of
● It may also specify levels of workmanship.
performance which individual
items of work are required to
achieve.
● Standards for execution of works
● Source for applicable technical
standards and codes
Schedule of rate

TENDER & CONTRACT DOCUMENTS

● Where there are no priced bill of ● This schedule will be used
quantities, a document setting out when there are work changes
rates applicable to various during the contract.
categories of contract work may ● It helps contractor in pricing
be required for the assessment of the tender.
interim payments, the valuation of
variations or (in a measure and
value contract) the calculation of
the total amount to the
contractor.
● A list of price to construct/build
an element of construction.
● The price includes the cost of
materials and installation labour
without profit.

Bill Of Quantities
● This document itemises in great
detail the contract work as
described in the drawings and the
specifications. It may, but need
not constitute an exhaustive
statement of the work which the
contractor undertakes to perform
in return for the agreed price.
● Where, as is common, the bill of
quantities is required by the
contract to be drawn up in
accordance with a particular
standard method of
measurement, any deviation from
the prescribed method may entitle
the contractor to claim payment
for additional work.
TENDER & CONTRACT DOCUMENTS
● Consists of preliminaries (site
overheads), trades bills, schedule
of provisional sums
● Trade bill divided into six columns
(i) Alphabetical reference for the
item
(ii) Brief description of item
(iii) Unit
(iv) Quantity
(v) Unit price rate for each item of
work
(vi) Grossing up column [unit price
rate x quantity]

Drawings and plans
● Drawings are prepared by
whoever is responsible to the
employer for the design of all or
part of the proposed works, and
are the major vehicle for
conveying the intentions of the
designer to the contractor.
● Among other matters, they
provide information as to the
shape, appearance, location and
interaction of the component
parts of the proposed works.
TENDER & CONTRACT DOCUMENTS
● Numbered according to series and
separate series used for each
consulting discipline:
architecture, structural and civil
engineering, mechanical and
electrical engineering
● Each drawing signed and scales
clearly stated
● Enable the price for works to be
computed
Programme or method statement Miscellaneous documents

TENDER & CONTRACT DOCUMENTS

statement Included
● Although a contractor is
commonly required to furnish
such documents, they are
frequently defined by the contract
in such a way that there is no
obligation on either party to
comply with the dates or methods
contained in them. In such cases
these documents are regarded
merely as aids in project planning
and coordination.
● Various other documents may
be required for sufficiency, clarity
and completeness purposes. These
include, inter alia, documents such
as the contractor’s tender
submissions, any addenda and/or
clarifications, post tender
submission negotiations, documents
amending the offer in any way and
the like.

Design and build documents

● Certain design and build contracts replace the documents listed above
with three alternative documents comprising the 'Employer's
Requirements’ issued by the employer and the 'Contractor's Proposals'
and the ‘Contract Sum Analysis’ submitted by the contractor.
TENDER & CONTRACT DOCUMENTS
Obligations of Parties
 TENDER & CONTRACT DOCUMENTS
Key Dates in a Construction Contracts & Obligations of Parties
 PERFORMANCE BOND
What is Performance Security/Bond?

● Contractor is commonly required in construction contracts to furnish

performance security for due performance of the works.
● Performance security usually takes the form of an ‘on dem a n d ’ a n d
i r r e v o c a b l e banker’s guarantee
● Parent company guarantee or insurance guarantee may be an acceptable
alternative in some instances
● The value of performance security typically required by employers in
Malaysia is 5% to 10% of the contract price
● Employer may require design bond as additional security against any
defect in the design.
 PERFORMANCE BOND
What is Performance Security/Bond?

● A bond taken out by the contractor, usually with a bank or insurance

company (in return for the payment of a premium), for the benefit of
and at the request of the employer, in a stipulated maximum sum of
liability and enforceable by the employer in the event of the
contractor’s default, repudiation or insolvency.
● In essence, a performance bond is a mean of guaranteeing to the
employer the financial viability of the contractor’s ability to perform
his obligations under the engineering and construction contract.
● PWD 203A : Clause 13
The contractor shall provide a Performance Bond/Performance
Guarantee Sum (on the date of Site Possession).
● The amount is equivalent to 5 % of the total Contract Sum.
● Duration of liability: the date of Site Possession until 12 months after
the expiry of the Defect Liability Period or the issuance of the
Certificate of Completion of Making Good Defects, whichever is the
later.
 INSURANCE
Insurance

● Insurance may be described as a voluntary assumption of specified risk in

return for an agreed payment. An insurance contract effects the transference
of specified financial risk from a party initially subject to it (the insured), to the
insurer (usually an insurance company) for a fee (usually called ‘the premium’).
● The various insurances prevalent in the engineering and construction industry
can be basically divided into 2 main categories:
Category 1: Liability based
Category 2: Loss based
● Insurance Category 1: Liability based insurance
The insurer essentially agrees to indemnify the insured against damages
which becomes payable by the insured to a third party.
Usually the insured is indemnified for all damages payable to the third
party as well as the legal costs involved.
Examples: Third Party Liability Insurance, Workmen Compensation
Insurance, Professional Indemnity Insurance, etc.
 INSURANCE
Insurance

● Category 2: Loss based insurance

This category insurance policies compensate the insured for losses and
damages directly incurred by the insured and not for his legal liabilities to
others.
Depending on the particular conditions of a policy, cover might be provided by
the insurer for loss or damages suffered by the insured whether it is caused
accidentally or by the negligence of the insured or a third party.
Examples: Contractor’s All Risk (CAR) Policy, Erection All Risk Policy, etc. that
are normally taken out in the joint names of the employer, contractor (and sub-
contractors in some cases).
Provisions in PWD 203A:
Clause 14, 15, 16, 17 & 18.
 INSURANCE
Insurance

● Provisions in PWD 203A:

Clause 14 : Indemnity in respect of personal injuries and damage to
property
Clause 15 : Insurance against personal injuries and damage to
property
Clause 16 : Indemnities to government in respect of claims by
workmen
Clause 17 : Employees’ Social Security Act, 1969
Clause 18 : Insurance of Works

Where risk cannot be assigned to either party, it should be covered by insurance

such as Contractor’s All Risk Policy, Public Liability and Workman
Compensation Policies.
 ADVANCED PAYMENT
Advanced Payment

● A facility given to local (Bumiputra) contractor only for all types of

contracts including Design and Build.
Advanced payment = Builder’s work x 25 %
= [Contract Sum – (Prime cost sums +
Provisional sums)] x 25 %
 PROGRESS PAYMENT
Interim Payment

● Stage Payments v Periodic Payments

● Periodic payments are sums payable to the contractor based on a
periodical valuation of the work done to date. Such valuation are usually
conducted on a monthly basis.
● Stage payments are fixed installment sums payable to the contractor
upon the achievement of certain prescribed milestones.
● General view is that stage payments offer the benefit of certainty in the
sums payable to the contractor and savings in professional fees and time.

NB: Stage payments may not be appropriate for contractors with poor cash
flow.
 PROVISIONAL SUM & PRIME COST SUM
PS & PCS

Clause 34 PWD 203A

Provisional Sum
A provision included in the contract for work
which cannot entirely foreseen, defined or
detailed at the time that the tendering
documents are issued.
Prime Cost Sum
A provision for specialist work not
normally undertaken by the general
contractor.

It can be implemented either through the Nominated Sub-Contractor (NSC),

prime contractor or contractor appointed by Nominated Suppliers & Statutory
the Superintending Officer. undertakings.

Telephone rental and call charges, Electrical works, air conditioning

landscaping work, relocation of existing works, and fire fighting system.
services & decanting works, signage,
upgrading the existing sewerage treatment
plant, sanitary plumbing for existing building,
and extension of TNB sub-station.
 VARIATION ORDER
Variation

● Clause 24 PWD 203A

● Increase or decrease of quantity of work and construction materials

Design changes due to the request of the client

● Omission of work
Compliance to the rules, regulation or law
Compliance to the client’s instruction

● Miscommunication among contracting parties

Contractor misinterprets instructions given by client/architect/
engineer/ S.O.
 VARIATION ORDER
Variation

● Extra work due to subsoil condition

Incomplete of subsoil detailed plan cause actual cost for the work is higher than
the amount stated in the contract document
Due to failure in acquiring permission to carry out soil investigation, the scope
of work stated in the contract different with the actual soil condition
Disturbance exists during excavation work such as boulders that could not be
identified earlier.

● Mistakes in Contract Documents

Mistakes in stating the quantity of item
Contradiction of type or size of materials stated in the drawing, specification
and bills of quantity
Incomplete specification

Time for Completion
● It is important to expressly
stipulate in the contract
the time for completion of
the works as otherwise the
contractor only has an implied
obligation to complete the
works within a reasonable
period.
● Extension of time provisions
must be included to prevent
time being at large should the
employer causes any delay
to the works. Otherwise, the
employer’s right to claim
liquidated damages may be
affected.
EXTENSION OF TIME (EOT)
Reasons that allows contractor to
obtain Certificate of Delay and
Extension of Time
● Examples of events of delay which
would entitle the contractor to
extension of time:
(a) act of prevention by employer
(b) delay in giving possession of
the site to the contractor
(c) Interference by the employer’s
contractors
(d) delay by the employer in issuing
necessary instructions
(e) suspension of works by the
employer without reasonable cause
Refer to Clause 43 (Delay and
Extension of Time), PWD 203A for
other allowable reasons.
 EXTENSION OF TIME (EOT)
EOT

● Clause 43 PWD 203A

● To retain, as far as practicable, a defined time of completion for the
contractor to work towards in order to meet his obligations under the
contract;
● To preserve the employer’s right to liquidated damages against acts of
prevention;
● To give the contractor reasonable relief from his strict duty to complete
on time in respect of certain designated ‘neutral’ events such as strikes,
riots, exceptionally inclement weather, etc.;
● To enable employer to revise/fix a new date for completion for works
under the contract.
 EXTENSION OF TIME (EOT)
Failure to complete on time

● It is important to specify in a construction contract what remedies are

available to the employer in the event the contractor fails to complete the
works within the stipulated time of completion.
 EXTENSION OF TIME (EOT)
Failure to complete on time

● Such remedies may include the right to:

(a) issue instructions to the contractor to expedite the works
(b) impose LAD
(c) terminate the contract
(d) call on performance security
 COMPLETION & TAKING OVER
Completion & Taking Over

● The employer may take over the works when the works have been
completed in accordance with the contract and the relevant certificate
has been issued certifying the completion of the works.
● What constitutes completion of the works may differ from one project to
another. Typically, substantial completion will suffice where the employer
has the full and proper beneficial use of the works with only minor
defects. Other conditions may also be imposed such as the issuance of CF
and completion of testing and commissioning of the works to the
satisfaction of the employer.
 COMPLETION & TAKING OVER
Workflow for Taking Over
 DEFECTS LIABILITY PERIOD
Defects Liability Period (DLP)
● It is common in construction contracts require the contractor to warrant
that the works upon completion are free from defects and to make good
defects which appear during the defects liability period.
● It is during the defects liability period that the employer has the right to
call for the contractor’s physical return to the site after the employer has
taken over the works. The employer must serve a notification of defect on
the contractor and the contractor is required to make good the defect
within a reasonable period.
● If defects appeared after the expiry of the defects liability period, the
employer’s remedy in most cases is limited to pursuing a legal claim in
damages.
 DEFECTS LIABILITY PERIOD
Defects Liability Period (DLP)

● Remedies available to the employer in the event the contractor fails to

make good defects during DLP may include the right to:
(a) carry out the remedial works himself or employ other contractors
and deduct all reasonable costs incurred from the retention monies;
(b) determine a reasonable reduction in contract price to reflect the
diminution in value of the works by reason of the defects;
(c) call on the performance security;
(d) terminate the contract

● In practice, such defect liability period clauses also work to the advantage
of the contractor given that remedial works can usually be carried out
more cheaply by the contractor than other 3rd party contractors.
 LIQUIDATED & ASCERTAINED DAMAGES
Liquidated and Ascertained Damages (LAD)

● LAD serves as a reasonable compensation to the employer for:

(a) the contractor’s failure to complete the works within the stipulated
time for completion
(b) the contractor’s failure to satisfy the performance guarantees
prescribed in the contract
(c) LAD clauses are usually incorporated to protect the employer’s
interest, avoid expense and effort to prove damages and provide
certainty to the consequences of breach
(d) NB: LAD clause may also work to the advantage of the contractor as
it may act as a ceiling to which the employer can claim for damages
 TERMINATION
Termination

● Termination clauses should set out clearly :

(a) the mechanism within which either party may terminate the
contract by giving notice of default, followed by notice of
termination should the defaulting party fail to remedy the default
within requisite period;
(b) Events of default entitling the party to terminate (distinguish
defaults capable of being remedied and non remediable defaults)
(c) Remedies available to the non-defaulting party in the event of
termination
 TERMINATION
Termination

● Examples of remedies available to the contractor in the event of

termination on the basis of employer’s default:
(a) The contractor to cease works and vacate the site and remove all
equipment and personnel (including his sub-contractors)
(b) The employer is entitled by himself or employ others to complete
the outstanding works
(c) The contractor is entitled to be paid the amount representing the
value of the works done to-date and loss and expense suffered by
the contractor resulting from the termination
(d) The contractor is entitled to be returned any performance security
furnished to the employer