BEC 402

JUNE 2014

Contents
INTRODUCTION: ........................................................................................................................ 1
CONTRACT DOCUMENTATION .................................................................................................. 2
TYPE OF CONTRACTS IN MALAYSIA: .......................................................................................... 2
TRADITIONAL : ......................................................................... Error! Bookmark not defined.
PACKAGE DEAL CONTRACTS: ................................................................................................. 3
MANAGEMENT CONTRACTS: ................................................................................................ 4
CONSTRUCTION MANAGEMENT ........................................................................................... 5
Advantages ............................................................................................................................ 6
Disadvantages........................................................................................................................ 7
REFERENCES: ............................................................................................................................. 8

INTRODUCTION:
Contract in general an agreement between two or more parties for the doing or not
doing of something specific enforced by law. Constriction contract is a formal
agreement for construction, alteration, or repair of buildings or structures (bridges,
dams, facilities, roads, tanks, etc.). A construction contract is distinct from a contract
to assemble, fabricate, or manufacture. A construction contract is a contract
specifically negotiated for the construction of an asset or a combination of assets that
are closely interrelated or interdependent in terms of their design, technology and
function or their ultimate purpose or use. A construction contract may be negotiated
for the construction of a single asset such as a bridge, building, dam, pipeline, road,
ship or tunnel. A construction contract may also deal with the construction of a
number of assets which are closely interrelated or interdependent in terms of their
design, technology and function or their ultimate purpose or use; examples of such
contracts include those for the construction of refineries and other complex pieces of
plant or equipment. Nevertheless, such is the complexity of the typical construction
contract in the modern age, that any awareness of the workings of construction
contracts must of necessity be founded upon a thematic understanding of the various
procurement strategies and the underlying forces which drive them.
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In general, familiarity with the available standard form of construction contract, and
of the types of construction contract, will enable the prudent Employer to at least
ensure that it will achieve the appropriate contractual framework for the physical
execution of its desires.

CONTRACT DOCUMENTATION
The contract documentation is all documents which, when combined, form the basis
of the contract, including all pre-tender, tender and contractual documentation. Your
quote can also form part of the contract documentation.
The contract documentation will give contractor sufficient information to be able to
complete the building works and meet the service delivery requirements. The
documents that make up the contract documentation include:
Contract the binding document or agreement between contractor and the owner to
carry out the building work. The type of contract contractor use will depend on the
size and complexity of the project.
Contract conditions define the legal rights and obligations, or the rules by which
each party (contractor and the owner) must comply
Special contract conditions as the name suggests, special conditions that are an
extension of the general conditions and apply specifically to the project
Bill of quantities a list of materials, parts and labour (and their costs) that are
included in the contract. The bill of quantities is helpful in valuing variations and
assists in the preparation of progress claims
Drawings the architectural and structural plans of the building
Specifications set out the technical requirements of the work. They describe the
project and requirements for materials and workmanship, and add clarity to the
drawings
Other documents including technical and pricing schedules.

TYPE OF CONTRACTS IN MALAYSIA:

TRADITIONAL:
Appearing under various labels such as General contracts, Employer-design contracts and
Design-bid-build contracts, these contracts are basically characterized by the separation of
the design from the production or manufacture elements of the contract. Under this contract
procurement route, the employer causes the design of the works to be prepared by his
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professional designers and then invites the contractor to tender on the basis of the completed
design. he contractor builds or manufactures what the designers have specified. Since the
design element is within the ambit of the employers obligations, he accordingly assumes all
responsibility for all design work undertaken. The contractor is only answerable for the
building or construction aspects of the works i.e. the quality of materials used and
workmanship involved in the contract.

PACKAGE DEAL CONTRACTS:

A package deal contract , also known as a design-and-build or turnkey contract 30,
is one under which the contractor undertakes both designing and constructing the
contract works, which are to be completed in such a way as to meet the requirements
of the employer 31. The defining characteristic of this type of contract is the
combination of most (if not all) of the essential tasks of a project e.g. design
procurement, manufacture, fabrication, production, construction and management into
am single package. Taken to the extreme, the arrangement also places the task of
financing, procuring approvals, complete fitting out, technology transfer and the like
on the contractor. Accordingly, the contractor shoulders full responsibility and sole
liability for the design and construction elements of the works in so far as these are
included within the ambit of his obligations. In instances of default or breach by the
contractor, the onus is not on the employer to distinguish the particular element
involved be this design, quality of materials or workmanship or the party actually
culpable. His redress is solely at the contractors expense . Selection of the contractor
is normally based on competitive tendering or negotiations and payment effected on
either an interim, milestone or lump sum basis. It is common under such an
arrangement to find that the supervisory powers of the employers representative are
more limited than those of a contract administrator under a traditional general contract
. Hence, unlike traditional general contracting, the employers representative plays a
limited administrative role which may be confined to conducting independent checks
and auditing the contractors works. The contractor, his sub-contractors and
professional advisors are responsible for all aspects of the works inclusive of
managing the contract up to its final realization.

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MANAGEMENT CONTRACTS:
A comparatively recent development on large and complex projects has been the
emergence of the management contractor, whose only role is to manage, co-ordinate
and supervise the work of numerous specialists by whom the whole of the
construction work is carried out. Under a modern management contract, these
specialists are employed as sub-contractors to the main or management contractor but
the latter is relieved of any responsibility to the employer for subcontractor defaults .
The underlying philosophy of this species of contract procurement is that the
management of the construction process constitutes a particular expertise which can
be distinctly identified and accordingly addressed through the employment of the
management contractor. The latter is for all intents and purposes not a builder in the
strict sense but an independent professional providing essentially a management
service. This common thread runs, in addition through the construction management
route of contract procurement . Compared to traditional general contracting or design
and build types of contracts, management contracting is unfortunately deficient in the
availability of standard forms of conditions of contract. On the local level, no
particular authority, institution or body has published any such form. Hence, there is a
tendency to use either bespoke forms or modified foreign forms.

OWNER

CONTRACTOR

DESIGN ENTITY

INDUSTRY
SPECIFIC DESIGN

SUPPLIER

SUBCONTRACTOR

Figure (1) Traditional delivery method

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Brief

Financial commitment

Feasibility

Low

study
Scheme

Low

design
Moderate

Production design

Moderate

tender

High

Construction

occupation

Figure (2) Stages in Traditional method in delivering project

CONSTRUCTION MANAGEMENT
Construction management contracts are sub-set of the general corpus of management
type of contracts and as such share common characteristics with management contracts.
These have metamorphosed recently into an alternatively to the latter type of contract and are
being employed mainly on large and complex projects having multiplicity of trades, user and
designers.
In essence, a construction management contract is an arrangement under which the employer
enters into a direct contractual relationship with each of the specialist contractors, while at the
same time employing a construction manager to provide managerial and supervisory
services for the project. The obligations undertaken by the construction manager in such a
case depend upon the terms of the contract by which he is employed.

In addition to

traditional, design and build, management contract and construction management, there is
hybrid approach to procurement system.

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STUDY CASE:

We interviewed with the contracting counselor Mr. Che Bahri who is senior
lecturer he provided sufficient information about the type of contracting used in
the projects that he engaged with and answered our following questions
professionally:
Q1: what is the type of construction contract did choose in running the
project you were in charge with and why?
Mr. Bahri : the type of construction contract that we did in our previous project is
traditional contract.
Traditional contract is categorized into two categories:
a. Lump sum contract
b. Bill of quantity contract
Q2- What are the criteria that you look into in choosing the type of contract?

a.
b.
c.
d.
e.
f.
g.
h.
i.

Before selecting an appropriate contract type the clients must analyze their
objectives and based on their needs the procurement choice might differ
The criteria that influence the choice of the procurements method that need to
be taken into consideration are
Contract duration
The estimated cost
Complexity of the proposed project
Client needs
The nature of the project
The scope of work
Measure of control by client
Accountability
Restriction

Q3- What is the advantages and disadvantages of this types of construction

contract?

Advantages
Some of the advantages of the 'traditional' contract approach are:
Familiarity among contractors and consultants - the roles and responsibilities are
well understood;
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The client retains responsibility for and control of design team;

There is direct reporting by the design team to the client to ensure that quality
control is maintained;

The client has an independent professional in the role of contract administrator

monitoring the project;

There is certainty of price (if the work is fully designed in advance);

Priced Bills of Quantities provide a basis for variations to be priced at tendered rates;

As all prices are based on the same information:

- There is no need for a contractor to build in a risk premium;
- It is easier to analyse the prices;
- The lowest price is usually the best value for money;
- Where elements of the building are not fully designed, provisional
sums may be used to allow for the later design of those elements.

Disadvantages
Some of the disadvantages of the 'traditional' contract approach are:
To be effective, it requires the scheme to be more or less fully designed before
tenders are sought - this often results in an extended pre-tender period;

The fragmented design and construction process and responsibility can lead to
disputes, for example in respect of whether construction defects are really design
defects or whether they are construction defects;

There is the potential for over-design and/or over-engineering;

The contractor is not involved in the design process and therefore is not required
to 'buy in' to the design;

The client retains responsibility for the design team performance;

A fixed lump sum price is rarely actually achievable;

A contractor may price the work to win the job rather than providing a price that
properly reflects the work to be carried out. This can encourage a claims culture
if the submitted price was too low because of market forces;

The use of provisional sums and the power of the architect or engineer (or
project manager, if appointed) to issue instructions for additional or varied works
can lead to price escalation

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REFERENCES:
1-AGC.GOV.MY
FORMATION OF CONSTRUCTION CONTRACTS IN THE CONSTRUCTION
INDUSTRY: THE PROCEDURES, TYPES AND PROBLEMS
In-text: (Agc.gov.my, 2014)
Bibliography: Agc.gov.my, (2014). FORMATION OF CONSTRUCTION CONTRACTS IN THE
CONSTRUCTION INDUSTRY: THE PROCEDURES, TYPES AND PROBLEMS. [online]
Available at:
http://www.agc.gov.my/cnc/index.php?option=com_content&view=article&id=1767 [Accessed
15 Sep. 2014].

2-Construction contract an overview by By Ir. Harbans Singh K.S

3- Gan Eng Toh, Procurement Strategy Selection for Construction: An

Artificial Neutral Network Approach, Faculty of Build Environment,
Universiti Teknologi Malaysia.