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Similarities of Standard Forms of Contract in Malaysia
A Comparative Study on Three Standard Forms Used in Malaysia
Seng Hansen
Master Student of Construction Contract Management UTM
Email: [email protected]
Introduction: Why We Need Standardization?
There are at least 4 standard forms of contract which are
commonly used in Malaysia nowadays, namely
PWD (Public Works Department) Standard Form of Contract, PAM
(Pertubuhan Arkitek Malaysia) Standard
Form of Contract, CIDB (Construction Industry Development Board)
Standard Form of Contract, and IEM
(Institution of Engineers Malaysia) Standard Form of
Contract.
These standard forms evolve and develop in particular manners
depending on the history and development
of construction industry in the world, especially in Malaysia.
Here, the author said that the development of
these standard forms in Malaysia depending on the development of
construction industry in the world
because of 2 (two) reasons:
Despite of the complexity and wideness of construction industry,
the industry itself is actually inter-related
and inter-connected. Thus we can say that we are working in a
specific field of work which is dynamic but
still in one closed system. For instance, new technologies or
new material used in a project will become
widely known and accepted in short time. This transfer of
technology will have effect to the standardization
of construction industry in here we are particularly discussing
the standardization of contract forms.
Basically, Malaysia standard forms of contract adopt the
international standard forms of contract. For
instance, we can see that PAM Standard Form of Contract is
originally based on JCT (Joint Contract Tribunal)
Particulars PWD PAM CIDB
Origin RIBA 1931 JCT 1963
Produced by The Government (JKR) PAM CIDB
Application For government projects, usually
for civil engineering works
For private building works For building works for both
government and private
employer
instance, we can see that PAM Standard Form of Contract is
originally based on JCT (Joint Contract Tribunal)
Standard Form of Contract; the same with PWD Standard Form of
Contract which is originally modeled from
the English 1931 RIBA (Royal Institute of British Architects)
Standard Form of Contract.
Since the dynamic movement of construction industry will give so
many interpretations in terms of
methods, costs, scope etc, we need to limit these
interpretations since the initial point of a project. This is
materialized in contract document. Therefore, we can say that
with the influence from global construction
industry, Malaysian professionals try to make a standardization
of contract in order to limit the
interpretation of dynamic movement in construction industry.
Table 1. Standard Forms of Contract in Malaysia
The advantages of using standard forms of contract instead of
composing a new fresh contract document
for each project are:
1. They are made by professionals in construction industry,
therefore hopefully it can make a more clear
understanding of contract terms (ambiguities and inconsistencies
are reduced to a minimum)
2. They give options to both parties (the employer and
contractor) to choose which standard form of
contract will be used according to strategic business plan they
may have
3. The rights and obligations of both parties are set out
clearly and to the required degree of detail (fairer to
both parties)
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4. Because it is standardized, frequent users are familiar with
the provisions in a particular form
5. We can save time and expense which usually incurred in
preparing a new contract document
What will be discussed in this paper is about the similarities
of 3 (three) standard forms of contract used in
Malaysia. These 3 standard forms are the most commonly used in
Malaysia and have their own
characteristics. The first is PWD form 203A (Rev. 2007) where
Bills of Quantities is part of the contract.
Because Bills of Quantities is very often used in Malaysia, the
author takes PWD form 203A (Rev. 2007) as
the representative standard form published by JKR/PWD. Secondly
is PAM Contract 2006 with Quantities.
Again, the same reason is taken. Thirdly is CIDB 2000 edition.
CIDB standard form of contract consist only
one type of contract. But there is appendix in CIDB which
consist 6 option modules. Each module can be
chosen whether they will be used or not. Generally, there will
be so many similarities between these 3
standard forms of contract since they are already standardized.
The only major differences between these 3
standard forms are their characteristics, descriptions and
detailing procedures.
Analysis of the Study: Similarities of Three Standard Forms of
Contract
1. Obligation of the Employer
Among these 3 standard forms, all of them have the description
about obligations of the employer,
although only CIDB which expressly describe this obligation
(clause 6). Both PWD and PAM do not provide a
certain clause to state the employers obligations. However, it
does not mean that there is no employers
obligation in the contracts. The employers obligations in both
contracts are spread throughout some
clauses which implied these obligations.
The main obligation of the employer is to pay to the contractor
what has been built. Here, payment is a
consideration which creates a legal binding between the employer
and the contractor. If the employer does
not pay to the contractor, then we can assume that the employer
has entered breach of contract. In order
to evaluate any project progress on site, the employer will then
employ architect/superintending officer (for
next we will use S.O.). All of these three standard forms have a
similar procedure that is the employer will
pay to the contractor any amount which has been evaluate by S.O.
In PWD, contractor can include anypay to the contractor any amount
which has been evaluate by S.O. In PWD, contractor can include
any
unfixed materials and goods intended for the Works in his
payment (except unfixed material and goods
supplied by Nominated Suppliers). For this matter, both PAM and
CIDB also permit contractor to include any
unfixed materials and goods but only in percentage (not all
value). Then in PWD, contractor can submit his
payment monthly and within 14 days S.O. shall issue an Interim
Certificate, while in PAM and CIDB it is
within 21 days. The, government then shall make a payment within
specified period of time after the
issuance of Interim Payment with the remaining xx% of the amount
is being retained (for PWD 10%, for
PAM and CIDB it is as stated in the appendix). Both in PWD and
CIDB, within 3 months after the issuance of
Certificate of Practical Completion, the contractor must submit
full particulars including claims to enable
the Final Account to be prepared by S.O. If contractor fails to
submit within the stipulated period, then the
S.O will make the assessment based on the available documents
submitted by the contractor for the
purpose of Final Account. The Government shall be discharged
from all liabilities in connection with the
claims. For this matter, PAM stated that period will be within 6
months.
These three standard forms also provide a clause especially
define about suspension for non payment. Here
if the employer fails or neglects to pay within specified period
of time after the release of Interim
Certificate, then the contractor may give notice of his
intention to suspend the Works. In PAM and CIDB this
matter is discuss in clause 30.7 and 42.10 respectively. However
we cannot find clause discussing
suspension for non payment in PWD. In my opinion, this may be
because PWD is used for government
projects. Therefore, contractor need not be worry for the
payment, since it is fund by government. It will be
paid although takes a long time.
In PWD clause 29 and 30, it is stated that contractor may ask
for adjustment of contract sum due to some
circumstances and fluctuation of price. In PAM, it is clearly
stated that there is no such adjustment or
alteration for contract sum. While in CIDB, there is no
corresponding provision.
Employer also has the obligation to pay contractor for any
variation occurred during construction, only if the
variation issued by the S.O. This matter is discussed in PWD in
clause 24 and 25, in PAM in clause 11, and in
CIDB in clause 28 and 29. All variation amounts shall be
certified by the S.O and added to or deducted from
the contract sum and the amount shall be adjusted
accordingly.
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In the particular events of delay and need to extent the Works
schedule, employer has to give contractor an
extension of time. All of these three standard forms stated that
contractor must submit his claim for EOT
within a specified period of time. In PAM and CIDB, if the
contractor fails to submit his claim within the
specified period of time, then contractor shall not be entitled
with EOT. In PWD, there is no such
requirement. Furthermore, in CIDB there is an explanation of
specific event with continuing effect which
will make a delay in overall project schedule.
Contractor also entitled with claims and employer has the
obligation to pay any claim made by contractor
and has been approved by S.O. Moreover, in PAM there is
mentioned that contractor can only make claim in
such occasion as explained in clause 24.3. Also both in PAM and
PWD, it is stated that if the contractor does
not submit his claim together with the required documents within
a specified period of time, then the
contractor shall not be entitled the claim.
In the case of Works insurance, both in PAM and CIDB give an
option whether contractor will insure the
Works or employer (but in case for existing building or
extension, the employer is the one who has the
obligation to insure). If both parties agree that the Works
insurance will be done by the employer, then the
employer must insure the Works within specified period of time.
Failure of this action may lead the
contractor to insure the Works and he shall be entitled to have
the amount of insurance added to the
Contract Sum. See clause 20 of PAM and 38 of CIDB.
Employer also has the obligation to give site possession to the
contractor usually before the Date of
Commencement or unless the contract otherwise provides. We can
see this in PWD clause 38 and CIDB
clause 17.2. However, there is no corresponding provision in
PAM.
Based on the authors experience, the characteristic of employer
also effects to the employers obligations.
It is true that the main obligation of the employer is to pay,
but not only that. Employers should make
payment to the contractor punctually. Contractors usually will
face some difficulties to ask payment from
private employers rather than projects fund by government.
Private employers may have their own
cashflow difficulties and strategic business plan. These reasons
will eventually take effect to payment to the
contractor. In some projects, the employers will release the
payment 2 or 3 months after the payment
certificate has been released. To overcome this problem,
contractors will usually do some personalcertificate has been
released. To overcome this problem, contractors will usually do
some personal
approach to the employers and take some strategies to make good
their projects cashflow so that their
projects still can run and finish on time. This impact is
something that the employers usually do not concern
about.
2. Obligation of the Contractor
The main obligation of the contractor is to construct the said
project which has been agreed based on its
scope and within the specified period of time and quality. This
is also the general similarities of these three
standard forms. The difference is the emphasis of the
contractors obligations.
For the contractors general obligations, we can see in PWD
clause 10, PAM clause 1, and CIDB clause 7. It is
important to notice why PAM put contractors obligations in the
first clause of the contract. In my opinion, it
means that in PAM contractor is considered as the party who need
the work.
All of these three standard forms have similar clause regarding
Works Completion. In PWD this matter is
described in clause 39 and 41; in PAM it is described in clause
15; and in CIDB it is described in clause 20,
21, and 22. Sometimes the employer wants to take some part of
the Works which are already completed.
This is explained in clause 41 of PWD and clause 22 of CIDB as
Sectional Completion.
Before executing the Works, contractor must provide performance
bond to the employer as security
deposit. This is a common matter required by employer to the
contractor. However, we can only find a
clause specifically discuss about performance bond in PWD and
PAM. While in CIDB, performance bond
becomes part of the appendix. Therefore, it will be depend on
the agreement between both parties
whether the contractor should submit performance bond or not.
See Option Module F of CIDB.
Contractor also has the obligation to ensure the quality of his
works. If there is any defect during
construction period and after completion, contractor has the
liability to make good of any such defect until
S.O satisfy with the works. This obligation is described in PAM
clause 15, in PWD clause 48, and in CIDB
clause 15.7 and 27.
In doing his job, S.O sometimes needs to take a test of the
works done by contractor. Usually the cost of
inspection and testing are borne by contractor. This matter is
described in PWD clause 36, in PAM clause 6
and 14, and in CIDB clause 15.
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Contractor also has the obligation to be responsible with any
indemnity and insurance of personal injury or
death and damage to property arising from carrying out of the
Works. These matters are described in PWD
clause 14 and 15, in PAM clause 18 and 19, and in CIDB clause 35
and 36. The contractor must also provide
insurance for his labour as described in clause 17 of PWD and
clause 37 of CIDB. In my opinion, CIDB is the
most complete standard form in terms of indemnity and
insurance.
In the case of Works insurance, both in PAM and CIDB give an
option whether contractor will insure the
Works or employer. Usually both parties will agree that
contractor will provide the insurance in CAR form of
insurance. See clause 18 of PWD, 20A of PAM and 38A of CIDB.
There is also a specific clause regarding to antiquities such as
fossils, coins etc which may be found on the
site. In this circumstance, contractor has the obligation to
take all steps which may be necessary to preserve
and protect the object in the exact position and condition. The
contractor should inform S.O immediately
about the discovery. This obligation can be seen in clause 64 of
PWD, 33 of PAM, and 39 of CIDB.
The contractor also has the obligation to execute the whole
Works. If he would like to assign some duties to
his subcontractors, first he must receive the approval of S.O.
If S.O approves his assignment, the contractor
shall still be fully responsible for the works of his
subcontractors. S.O also can appoint Nominated
Subcontractor (NSC) or Nominated Supplier (NS) with the approval
from the contractor. And again, the
contractor shall be fully responsible for the works of NSC/NS.
These matters are described in PWD clause 47
and 59, in PAM clause 17, 27 and 28, and in CIDB clause 18 and
40.
At the end of the project, contractor should submit the as built
drawing to the employer. Usually he must
submit this drawing not later than the Date of Practical
Completion of the Works or otherwise stated in the
contract. We can see the description in CIDB clause 4.10 and PAM
clause 3.10.
3. Obligation of both parties
Both parties also share some obligations such as confidentiality
(PWD clause 68, PAM clause 3.9, CIDB
clause 4.9), obedience of dispute resolution decision (PWD
clause 65, PAM clause 34 and 35, CIDB clause
47), compliance with the Law (PWD clause 21 and 72, PAM clause 4
and 38, clause 10 and 49), and give
notification (PWD clause 66, PAM clause 36, CIDB clause
8).notification (PWD clause 66, PAM clause 36, CIDB clause 8).
Conclusion
After doing some comparison on these three standard forms of
contract, we can see the characteristic of
each standard form. The PAM standard form of contract tends to
protect the employers interest, while
PWD standard form of contract tends to protect the contractors
interest. The most balanced is CIDB
standard form of contract. But this is not the only aspects to
choose which standard form of contract will be
used by both parties. There must be many other aspects both from
the employer and the contractor to
enter into an agreement.
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Table 2. Similarities of 3 Standard Forms of Contract in terms
of Obligations
No Particulars PWD 203A PAM 2006 CIDB 2000
1 General Obligations of the Employer Spread Spread Clause 6
2 Claims made by contractor Clause 44 Clause 24 Clause 31
Clause 32
3 Delay & Extension of Time (EOT) Clause 43 Clause 23 Clause
24
4 Insurance by employer - Clause 20B
Clause 20C
Clause 38B
Clause 38C
5 Payment Clause 28
Clause 31
Clause 54
Clause 60
Clause 30 Clause 42
6 Price Adjustment Clause 29
Clause 30
Clause 13.1 -
7 Site Possession by contractor Clause 38 - Clause 17.2
8 Suspension for non payment - Clause 30.7 Clause 42.10
9 Variations Clause 24
Clause 25
Clause 11 Clause 28
Clause 29
10 General Obligations of the contractor Clause 10 Clause 1
Clause 7
11 Antiquities Clause 64 Clause 33 Clause 39
12 Guarantees & Bonds Clause 13 Clause 37 Module E &
F
13 Indemnity & Insurance by contractor Clause 14
Clause 15
Clause 16
Clause 17
Clause 18
Clause 18
Clause 19
Clause 20A
Clause 35
Clause 36
Clause 37
Clause 38
Clause 38A
14 Testing & Inspections Clause 36 Clause 6.3 Clause
15.1
Clause 15.3
Clause 15.4
15 Subcontractor, NSC & NS Clause 47
Clause 59
Clause 17
Clause 27
Clause 28
Clause 40
Module C
16 Work Completion Clause 39
Clause 41
Clause 42
Clause 15
Clause 16
Clause 20
Clause 22
Clause 23
17 Work Defects Clause 48 Clause 15.4
Clause 15.5
Clause 15.6
Clause 15.7
Clause 27
18 As built drawings - Clause 3.10 Clause 4.10
19 Confidentiality Clause 68 Clause 3.9 Clause 4.9
20 Dispute Resolution Clause 65 Clause 34
Clause 35
Clause 47
21 Law Clause 21
Clause 72
Clause 4
Clause 38
Clause 10
Clause 49
22 Notification Clause 66 Clause 36 Clause 8
