20090716-pam 2006-a user's manual
TRANSCRIPT
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CHARLTON MARTIN ONE DAY SEMINAR
PAM 2006
A USER’S MANUAL
THURSDAY 16 JULY 2009
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Mission and Vision
Our mission is to provide high quality consultancy
services which are relevant to our client’s needs and
circumstances in any particular situation.
Our vision is to be the construction contracts
consultant of choice within the Asia Pacific Region.
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About Charlton Martin Group
Worldwide construction contract consultancy provider dealing
specifically with the many disputes and varied problems frequently
arising in:
– Construction
– Engineering
– Oil & Gas
– Power
– Process
– Petrochemical
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About Charlton Martin Group
Mike Charlton and Rod Martin have combined in excess of thirty five
years experience of working in the Asia Pacific region.
Previously as CEO and Group Regional Director (Asia), respectively of
the Knowles Group they successfully managed, developed and
maintained the Knowles consultancy businesses in Asia.
In 2007, they started their own consultancy practice across Asia Pacific
and now have businesses in Hong Kong, Singapore and Malaysia
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Our Offices
• Hong Kong
• Malaysia
• Singapore
• International Consultancy Coverage
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Our ServicesContractual Claims
On behalf of Employers /
Owners
On behalf of Contractors /
Sub-Contractors
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Choice of Contract
Advice on the appropriate
form of contract and method
of appointment of a
contractor or sub-contractor
Advice to the
Employer/Owner on contract
procedures, administration of
the contract and potential
problem areas.
Preparation of Contract
Documents
Drafting contracts, sub-
contracts, Joint Venture
agreements; modifying
standard forms of contract
and sub-contract; drafting
special conditions and
preliminary clauses;
checking contract documents
and advising on suitability.
Advice and Detailed
Analysis of Contractual
Problems
Whether the problem has
arisen under a standard form
of contract or sub-contract or
under any other form of
contract, definitive advice
and analysis of any problem
or dispute can be provided.
Detailed guidance on
administration of main
contracts and sub-contracts
generally throughout the
project is also offered.
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Our Services
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Arbitration
As arbitration advisers,
preparing a client's case
from issuing a notice of
arbitration including advice
on the appointment of an
arbitrator, preparation of
pleadings, discovery of
documents and representing
a party before the arbitral
tribunal. For many of our
clients, arbitration is an
unfamiliar process. We
explain the process and
procedures adopted which
are required to be followed in
detail.
Mediation
As representative of a party
with a dispute referred to
mediation, we explain the
procedure and assist to
prepare for the entire
process including drafting
agreements upon successful
closure. We also act as the
appointed mediator in
disputes referred to
mediation.
Regular Advice
Throughout the Project
(Retainer Services)
Regular attendance at
employer‟s/owner‟s,
contractors' or sub-
contractors' offices, at
monthly or other suitable
intervals, discuss financial
and contractual difficulties
and disputes on all current
contracts. Advice on notices
to be given under the
contract. Dealing with
correspondence between
employer‟s, consultants,
main contractor, sub
contractors and suppliers.
Expert Witness Services
Preparation of Expert
Witness reports on most
construction matters,
including claims evaluation,
delay analysis, etc., with
subsequent attendance at
litigation or arbitration
proceedings as necessary.
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Our ServicesProject Planning /
Project Management
Services
Providing planning, co-
ordination and management
of projects from inception
through to completion. Ad-
hoc planning services to
support Extension of Time
claims prepared on behalf of
Contractors or to defend the
Employer's position on
receipt of such claims from
Contractors.
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Staff Secondment
Secondment of Contract
Administrators and Project
Managers to site, together
with full back up as required.
This service is flexible and
caters to Employers/Owners,
Contractors and Sub-
contractors needs on live
construction projects
irrespective of the size,
location or nature of the
project.
Professional Search
Services
We work in partnership with
our Clients to source the best
talent for their organisation.
The search for the right
candidate can be specifically
directed only to those who
possess the potential to fill
the role in a broader capacity
than simply having the right
qualifications.
Seminars & Training
The whole spectrum of
construction contracts and
construction related topics is
covered, and training is
organised to suit individual
client's requirements either "in
house" or at public venues. The
training service includes
provision of comprehensive
training material and provision
of experienced lecturers and all
organisational matters.
Public seminars are presented
regularly with subject matter
relevant to construction
contracts and related topics.
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Programme
09:10 – 10:00 Session 1 – Rodney Martin
10:00 – 10:40 Session 2 – Michael Charlton
10:40 – 11:00 Tea / Coffee Break
11:00 – 12:00 Session 3 – Rodney Martin
12:00 – 12:30 Questions & Discussion
12:30 – 14:00 Lunch
14:00 – 14:45 Session 4 – Michael Charlton
14:45 – 15:30 Session 5 – Rodney Martin
15:30 – 15:45 Tea / Coffee Break
15:45 – 16:30 Session 6 – Michael Charlton
16:30 – 17:00 Questions & Discussion
17:00 Close
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Session 1
by
Rodney Martin
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Session 1
Introduction to Construction Contracts
History of the PAM Form
Background and Intended Use
Structure of the Contract
Definitions
New Features and Key Changes in PAM 2006
Comparison with other Malaysian Forms
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INTRODUCTION TO CONSTRUCTION CONTRACTS
What is a Construction Contract?
“A building contract is an entire contract for the sale of goods and work and labour for a lump sum price payable by installments as the goods are delivered and the work is done.”
(Lord Diplock – Modern Eng‟g v Gilbert-Ash 1974)
Note “building contract” now “construction contract”
Governed by the Contracts Act 1950
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All elements of a simple contract must be present:
• Offer
• Acceptance
• Consideration
As with any contract, the contract will be:
• Voidable if there has been fraud or misrepresentation by either
party
• Void if there has been a mistake about a fundamental matter
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Only the Contract Documents contain the terms of the contract
Distinguished from other documents available or representations made attime of tender
• E.g. Reps about site conditions or report on soil conditions
– Where these meant to be in or out of the contract?
– If out then of no legal effect
– If in then any inaccuracy causing loss has remedy in damages
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Common Construction Contract Documents:
-Articles of Agreement
-Conditions of Contract
-Drawings
-Bills of Quantities
-Schedule of Rates
-Specification
-Other documents sometimes included (tender docs)
Where the agreement is stated in contract documents – difficult to
argue that anything else is a term of the contract
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Construction contract arrangements are now varied and complex
• Traditional model
• Traditional model with partial design by contractor
• Design and Build
• Construction Management
Available Standard Forms
• PAM
• IEM
• CIDB
• PWD
• International e.g. FIDIC
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Why do we have Standard Forms?
• Avoids re-inventing the wheel
Expense and time of setting out all rights and obligations of
the parties for each project would be considerable
• Provides high level of certainty
Contains the key principles of customs, practices and
processes supported by judicial precedents handed
down by the courts
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HISTORY OF THE PAM FORM
PAM/ISM 1969 Form
Based on the JCT 1963 form with all its deficiencies
PAM 1998 Form
Comprehensively redrafted to deal with the problems of PAM 1969
PAM 2006 Form
Not a radical redraft but some important significant changes
More of a facelift than a new model!
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BACKGROUND AND INTENDED USE
PAM 2006 has two versions:
• Lump Sum Contract Without Quantities (drawings and specs)
• Lump Sum Contract With Quantities
Adjustments to the Lump Sum for variations and loss & expense
Modified “entire contract” to cater for interim payments and retention
Subject to general law of contract (Contracts Act 1950 & case law)
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“Conditions” – Did you know?
• PAM 2006 defines “Conditions” as “the Conditions of Contract”
• “Conditions” in the legal sense has more precise meaning:
– Contractual terms include both conditions and warranties
» A “condition” is an essential term of a contract
» A “warranty” is a less significant term than a condition
– Breach of condition = discharges from further performance of the
contract (e.g. refusal to pay)
– Breach of warranty = damages (e.g. interest for late payment)
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But that’s not all………
Many “express terms” exist within a standard form like PAM 2006
But certain terms may be implied into the contract : “implied terms”
• Give business efficacy to the agreement
• Fill the gaps where the express terms do not deal with the subject matter in
dispute
Courts use implied terms to represent:
• presumed intention of the parties
• the commercial bargain of the contract
But only where necessary to give business efficacy and not otherwise
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Examples of Implied Terms in Construction Contracts
The Employer will take all steps reasonably necessary to enable the
Contractor to discharge his obligations under the contract and to
execute the Works in a regular and orderly manner
The Employer would not hinder or prevent the Contractor from
carrying out his contractual obligations or from executing the Works
in a regular and orderly manner.
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Standard Forms – To Amend or Not to Amend?
Standard Forms are recognisable, familiar and understood
Therefore good reasons not to amend
A “no amendment policy” may not suit all
If amendments are necessary care must be taken to avoid disputes due
to poor drafting
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STRUCTURE OF THE PAM CONTRACT
• Articles of Agreement• Contain the Recitals (Agreement Date; Parties; and Nature & Description of the Work)
• Articles• Contractor’s Obligations; Contract Sum; Architect & Other Consultants; Definitions; and
Meanings
• Attestation / Signatories of the Parties
• Conditions of Contract• 1 to 38
• Appendix• Convenient collection of specific data for each contract such as LD amount, DLP period,
Insurance cover, etc.
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DEFINITIONS
41 new definitions (59 in PAM 2006 versus 18 in PAM 98)
But many simply cross references with definitions in Conditions (e.g.
see “Variation” and “Practical Completion”)
Useful Source for reference purposes
Certain New Definitions to Note:
Day; Defects; Force Majeure; Lump Sum Contract; Person; Site
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DEFINITIONS
“Day”
New definition under PAM 2006
Any day other than gazetted holiday at place of works
Care must be taken when preparing programme and applying for EOT
“Defects”
New definition under PAM 2006
“…due to materials and workmanship not in accordance with the Contract…”
Includes “faulty design” where Contractor carries out design
Includes NSC defects
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DEFINITIONS
“Force Majeure”
New definition under PAM 2006
Restricted definition
But should reduce disputes
“Lump Sum Contract”
Fixed Price Contract subject only to adjustment as prescribed in contract
Forgot to include “Provisional Sums and PC Sums” in definition
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DEFINITIONS
“Person”
Used for ease of reference to describe the variety of legal entities which
Consultants are capable of being from sole practitioner to limited liability company
“Site”
Includes “…other land and places obtained by the Contractor and accepted by
the Employer as forming part of the Site.”
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NEW FEATURES AND KEY CHANGES IN PAM 2006
Rights to Set-off by Employer
Right to Interest for Late Payment
Right to Suspend the Works for Non-Payment
Retention Monies in Trust fund on Request
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NEW FEATURES AND KEY CHANGES IN PAM 2006
• Notices a Condition Precedent
• 7 Additional Relevant Events for Extension of Time including:
• Re-nomination of NSC / NS
• Suspension due to Non-Payment
• Definition of “Variation”
• Adjudication
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COMPARISON WITH OTHER MALAYSIAN FORMS
Private Sector
PAM 2006
IEM – Civil Engineering Construction 1989
IEM – Mechanical & Electrical Installation 1994
CIDB – Contract for Building Works 2000
No Malaysian Private Sector Design & Build Standard Form
Public Sector
PWD 203A / 203
PWD Design & Build / Turnkey Contract DB/T
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Session 2
by
Michael Charlton
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1.0 Contractor’s Obligations
Clause 1.1 – obligation to complete Works “as required by Architect inaccordance with Contract”
Not “to the reasonable satisfaction of Architect” as PAM 1998 – avoids architecttaking responsibility for exercising his discretion.
Clause 1.2 – responsible for safety and adequacy of site operations
irrespective of approval by Consultants
– temporary works = Contractor‟s design responsibility
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1.0 Contractor’s Obligations
Clause 1.3 – Contractor responsible –his alternative design must be fit forpurpose (irrespective of approval by Consultants)
Fit for purpose = higher standard than that imposed on architect or engineer,who must design to a reasonable level of skill and care
If particular purpose not stated in Contract, Contractor only can design to fitnormal purpose contemplated at time of Contract signing
Advice – Employer must state particular purpose in Contract
Claiuse 1.4 – no obligation to search for discrepancy or divergence
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2.0 Architect’s Instructions
Clause 2.1 – Forthwith comply with all A.I.
Time for compliance = not less than 7 days – Contractor take care to comply,otherwise Employer engage others and backcharge Contractor
Advice- Contractor must start compliance before 7 days expire and ask formore time to complete compliance, if necessary.
What is meant by comply?
Contractor must Confirm verbal instruction as “Confirmation of A.I.”
All A.I. must be in writing – before Contractor receives certification for variationwork, no provision for verbal instructions
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3.0 Contract Documents, Programme and As-Built Drawings
Clause 3.1 – certainty in order of precedence if discrepancy
3.1(a) the Letter of Award;
3.1(b) the Articles of Agreement;
3.1(c) the Conditions of Contract;
3.1(d) the Contract Drawings;
3.1(e) the Contract Bills; and
3.1(f) other documents incorporated in the Contract Documents, unless expressly
stated to be excluded in any of the Contract Document.
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3.0 Contract Documents, Programme and As-Built Drawings
Clause 3.4 – Architect must issue construction drawings for Contractor to startconstruction on time as per Works Programme – C responsible formanaging the information
Clause 3.6 – programme not a contract document, but changes to specifiedsequence of work may be a variation (Clause 11.1(d)(iv)
Clause 3.7 Works Programme or updated Works Programme may basis forEOT claim and assessment
Contractor must apply to Architect in advance for detailed drawings – recorddate application and date received drawings for future EOT claim
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4.0 Statutory Obligations, Notices, Fees and Charges
Clause 4.2 – Before start works, Contractor responsible to notify discrepancybetween Contract Documents and laws, if he finds them
Architect must issue instruction , otherwise changes caused by laws = deemedvariation
Contractor claim variation but difficulties if he carries out work as drawingswhich do not comply with statutory obligations
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5.0 Levels and Setting Out of the Works
Clause 5.1 – If error in Contractor‟s setting out, Employer may make“appropriate deduction” for set-off
Unclear what is “appropriate deduction”
Ruxley v Forsyth [1996]
- Contractor built swimming pool depth about 1 feet lesser thanspecification, court awarded loss of amenity as unreasonable to reinstatepool
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6.0 Materials, Goods and Workmanship to Conform to Description,Testing and Inspection
Clause 6.1 – all work to conform with Contract requirements, otherwisedefective
Clause 6.3 – instruct open up works for inspection, difficulty if part of workcomplies and part does not
Clause 6.5(e) – option to deal with defects includes leaving defect in Workssubject to appropriate set off by Employer – see Ruxley v Forsyth [1996]
Warranty by Manufacturer does not release Contractor from liability
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7.0 Royalties and Intellectual Property Rights
Clause 7.1 – Contractor to indemnify Employer against loss or claim arisingfrom Contractor infringing intellectual property rights (e.g. design rights)
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8.0 Site Agent
Clause 8.1 – Contractor‟s site agent (normally project manager) must becompetent and employed full time
Frequently contract lays down specific qualifications and experiencerequirements
Clause 8.3 – Architect‟s power to remove incompetent site agent-but must NOTbe unreasonable or vexatious – avoid abuse
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9.0 Access to the Works
Clause 9.1 – Contractual right for Architect and Consultant to be givenreasonable access to Works and to factories.
Subcontracts to have same provision
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10.0 Site Staff
Clause 10.2 – Instructions from Employer‟s Site staff has NO effect unless:-
- instruction in writing
- Architect delegates authority to Site Staff in writing
Directions involving variation to be confirmed by AI
Site staff include clerks of works, resident architect or engineer, inspector orworks etc
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CHARLTON MARTIN ONE DAY SEMINAR
TEA / COFFEE BREAK
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Session 3
by
Rodney Martin
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11.0 Variations Provisional and Prime Cost Sums
Why do we have Variation Clauses?
• Employer given power to vary the Works as a right
• No need to get Contractor’s agreement each time
• Architect has no implied authority to contract for the Employer
• Contractor would not get paid for AI’s if no VO clause
• Pre-agreed rules for valuing variations
PAM 2006 has a comprehensive Variations Clause
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11.0 Variations Provisional and Prime Cost Sums
Definition of Variation (11.1)
“the alteration or modification of the design, quality or quantity of the Works
including the addition, omission, or substitution of any work as well as the
alteration of the kind or standard of any materials and goods to be used in the
Works and the removal of any works other than defective work as instructed.”
also changes in: limitation of working hours
working space
access to or utilization of any part of the Site
executing and completing the Works in any order
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11.0 Variations Provisional and Prime Cost Sums
• PAM 2006 has a comprehensive definition for Variations
• Removed old PAM 98 “change to alter the ultimate use to which the Works will beput ” which is an improvement – otherwise the principle of the variation clausewould be violated
Chadmax Plastics v Hansen 1984 – variation omitting 98% of scope of workexceeded authority to vary the work
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11.0 Variations Provisional and Prime Cost Sums
• No Variation shall vitiate the contract (11.2)
• Vitiate = “to impair the legal validity of a contract” But if the Variation is avalid Variation under the 11.1 definition how could it vitiate the contract?
• Contractor to proceed pending valuation of the Variation (11.3)
• Contractor must proceed with “due diligence and expedition”
West Faulkner v Newham 1994 – means: continuously, industriously andefficiently with appropriate physical resources
• So once Contractor receives a Variation Instruction he must get on with itwhether or not the price is agreed
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11.0 Variations Provisional and Prime Cost Sums
• Architect may issue instructions after Practical Completion to deal
with Appropriate Authority and Service Provider (11.3)
• But once Practical Completion achieved the Works are deemed
complete and usually the power of Architect to issue Variation
Instructions ends
• This makes 11.3 illogical – either the work is complete or it is not
• AI’s to be issued for expenditure of PC and Provisional Sums (11.4)
• Variations to be measured and valued by the QS (11.5)
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11.0 Variations Provisional and Prime Cost Sums
• Valuation Rules (11.6)
• Apply Contract Rates and Prices - 11.6(a)
Where Work is similar in character, executed under similar conditions and does not significantlychange work in Contract
• Apply Fairly Adjusted Contract Rates and Prices - 11.6(b)
Where work is similar in character, but executed under different conditions or similar character andconditions but there is a significant change in quantity of work
• Apply Fair Market Rates and Prices Determined by the QS - 11.6(c)
Where work is not of similar character to work in Contract
• Apply Daywork Rates – 11.6(d)
Where work cannot be properly measured and valued in accordance with first three rules – based onverified daywork sheets
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11.0 Variations Provisional and Prime Cost Sums
• Omitted Items to be valued at Contract Rates - 11.6(e)
• If substantial change to the conditions in which remaining work
carried out then the valuation rules apply for remaining work
• Provisional Quantities to be re-measured and valued using Contract Rates
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11.0 Variations Provisional and Prime Cost Sums
• PAM 2006 Introduces “fair market rates” for work not of similar character
• Radical departure from PAM 98 which maintained reference to Contract Rate
• Contractor takes no pricing risk for such work
• Contractor can dispute QS‟s determination of what is a fair market rate
• Different from “fair valuation” which usually refers to the Contractors overall level ofContract Pricing and level of profitability
• Charrington v Wooder (1914) – “market price” of a commodity was to be construedwith reference to the surrounding circumstances
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11.0 Variations Provisional and Prime Cost Sums
• Claims for loss & expense arising from a Variation (11.7)
• Provided not recovered under any provision of 11.6
• Strict compliance with notice requirements essential or right lost
• Initial estimate and calculations with notice within 28 days of AI or CAI
• Full particulars within 28 days of completion of Variation
• Amount ascertained to be included in interim certificates and added toContract Sum
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12.0 – Contract Bills
• The relevance of the BQ as a Contract Document (12.1)
• BQ linked to amount of work included in Contract Sum
• BQ prepared in accordance with SMM unless otherwise expressly stated
• SMM is incorporated into the Contract by reference – any variance from the SMM must
be expressly stated in the Contract Documents
• Now the ordinary rule that the written word prevails over the printed form is intact - PAM
2006 has removed old sub-clause12.2 from PAM 1998 which stated:
“Nothing contained in the Contract Bills shall override, modify or affect in any
way whatsoever the application or interpretation of that which is contained
In these Conditions”
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12.0 – Contract Bills
• The Contact is a Lump Sum Contract (12.2)
• Any errors in the Contract Bills shall not vitiate the contract
• Errors to be corrected by the Architect or consultant
• But does not say such corrections may amount to a Variation?
• Not a re-measurement contract so adjustments only for:
– Variations
– Expenditure of P.C. and Provisional Sums
– Measurement of Approx Quantities
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13.0 – Contract Sum
• Same principle as Clause 12 – Lump Sum Contract
• No adjustments for arithmetic errors or pricing errors
• No contractual link between Lump Sum Contract Price and BQ total
• Errors in rates to be rationalised by Architect or Consultant without change to Contract Sum
before Contract signed
BUT
• If Contract Sum will not change as a result what is the point?
• Who is the Architect or Consultant to say Rates or Prices are in error?
• The rates are what they are for a variety of reasons – pricing strategy?
• Unilateral variation of the contract?
• Is PAM 98 better?
“…any error whether arithmetic or not in the computation of the Contract Sum shall be deemed to
have been accepted by the parties hereto.”
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14.0 – Materials and Goods
• Materials and goods once delivered and paid for become property of Employer
• Contractor to have obtained adequate title to materials and goods
• Title usually is retained by seller until full payment (S25(1) Sale of Goods Act)
• Contractor warrants title in materials and goods free of encumbrances once value
included in interim payment applications – Employer can recover any loss (14.4)
• Contractor responsible for loss or damage to materials & goods on site (14.3)
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15.0 – Practical Completion and Defects Liability
• “Practical Completion” – a state of readiness for use or occupation by the owner
and free from any known omissions and defects which are not merely trivial
• The Architect certifies this important event
• Important because:
• preparation of final accounts follow
• release of performance bond
• commencement of the defects liability period
• release of one part of the retention
• passing of risks associated with the completed works
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15.0 – Practical Completion and Defects Liability
• PAM 2006: When in the opinion of the Architect the Employer can have full use of
their Works for the intended purpose, notwithstanding minor defects (subject to
Contractor‟s written undertaking to make good such defects within a reasonable
time, the Works are Practically Complete (15.1)
• PAM 2006 is therefore consistent with the accepted definition
• PAM 98 did not attempt to define the term but instead used the words “…the
Contractor has performed and completed all the necessary Works specified in the
Contract…”
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15.0 – Practical Completion and Defects Liability
• The Contractor now must give written notice to the Architect as soon as he thinks
the whole of the Works are Practically Completed
• This is new. PAM 98 required the Architect to act when he formed the view
• Within 14 days of Contractor‟s notice, Architect must:
• Notify Contractor why Works are not Practically Completed; or
• Issue a Certificate of Practical Completion
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15.0 – Practical Completion and Defects Liability
• Defects Liability Period Begins at Practical Completion
• Contractor to make good defects listed at PC (15.3) and at end of DLP (15.4)
• If Contractor fails, Employer has three options:
– Grant Contractor additional time
– Employ others and set-off the cost
– Accept the defects and set-off an appropriate amount
• New to PAM 2006 (15.5), Architect can issue an AI at any time during the DLP requiring any critical
defects to be made good within a reasonable time
• Contractor has the right to remedy all defects during the DLP (default 12 month period)
• Contractor to notify Architect at end of DLP when all defects made good
• If Architect agrees he issues a Certificate accordingly or a notice giving reasons why he disagrees
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16.0 – Partial Possession By Employer
• Employer takes early possession of a part of the Works (the “Occupied
Part” with consent of Contractor before Practical Completion
BUT
• Where Contract Completion Date has lapsed and a Certificate of Non
Completion issued, no such consent of Contractor required (provided no
unreasonable disturbance)
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16.0 – Partial Possession By Employer
• When Employer takes possession of an Occupied Part:
• Architect issues cert of Partial Completion for the Occupied Part within 14 days stating
value of part
• Practical Completion takes place and DLP commences for the part from date of
occupation by Employer
• Liquidated Damages reduced by the ratio of the value of occupied part to the Contract
Sum
• Half Retention Sum for the value of the Occupied Part is released
• When defects in the Occupied Part are made good a cert is issued
• Remaining Retention Sum is released within 14 days of cert of Occupied Part
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16.0 – Partial Possession By Employer
• Architect will issue an instruction to remove any construction plant
or equipment, materials or goods in the Occupied Part
• Q: Is there finality for the Occupied Part?
A: No. There is no final settlement for any Occupied Part until the
Final Certificate for the whole Works is issued
• Partial Possession is not Sectional Completion
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17.0 – Assignment And Sub-Contracting
• The transfer by a party of his rights under a contract to another
• Generally the law does not permit assignment of contractual liabilities
• Usually consent of other party required (not unreasonably withheld)
• Exceptions:
• Employer – assigning rights, interests or benefits to a financial institution
• Contractor – assigning any payment due or to become due to a financial institution
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17.0 – Assignment And Sub-Contracting
• Sub-Contracting is not assignment because both rights and obligations as
passed to the sub-contractor
• Contractor cannot “wholly” or “substantially” sub-contract the Works
unless provided in the Contract (17.3)
• Failure to comply with any of the provisions of Clause 17 are grounds for
Employer to terminate
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CHARLTON MARTIN ONE DAY SEMINAR
QUESTIONS AND DISCUSSION
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CHARLTON MARTIN ONE DAY SEMINAR
LUNCH BREAK
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Session 4
By
Michael Charlton
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18.0 Injury to Person Or Loss And/Or Damage Of Property And IndemnityTo Employer
Clause 18 – Contractor to indemnify the Employer against any loss or claimunder common law or statute for:-
18.1 Personal injury or death of any person
18.2 Loss or damage to any real or personal property incl Employer‟s propertyand the Works
18.3 Workmen‟s claim, Workmen‟s Compensation Act 1952, and Employee‟sSocial Security Act 1969.
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18.0 Injury to Person Or Loss And/Or Damage Of Property And IndemnityTo Employer
Promisor Principal Debtor
discharge liability
Diagram 1 - a contract of indemnity relationship
3rd partyowes debt/liability
Primary
Liability:
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18.0 Injury to Person Or Loss And/Or Damage Of Property And IndemnityTo Employer
Principal Debtor Creditor
Guarantorgives guarantee
owes debt/liability
Diagram 2 - a contract of guarantee relationship
Primary
Liability:
Secondary
Liability:
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18.0 Injury to Person Or Loss And/Or Damage Of Property And IndemnityTo Employer
Contractor Employer
discharges liability for claim
Diagram 3- Clause 18.1
3rd party
owes liability for claim
Primary
Liability:
claims damages for injury
causes injury
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18.0 Injury to Person Or Loss And/Or Damage Of Property And IndemnityTo Employer
Conditions for indemnity:-
18.1 All loss or claim must be caused by Contractor‟snegligence/omission/default/breach of contract
18.2 Even if partly caused by Employer‟s negligence/default, Contractor‟sindemnity shall not be defeated or reduced –Sukumaran v BuildingConstruction [1969] (surveyor stood in dangerous location, 50% liable)
18.3 Contractor‟s liability for indemnity arises when Employer incurs lossCounty v Jenner [1976]
Loss in indemnity means financial loss - Anglian v Crawshaw [2001]
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19 –purpose – aid Contractor in managing risks in Clause 18 bytransferring risks to Insurer
But Contractor is still liable to Employer for risks not covered by Insurer e.g.consequential loss- „Without prejudice to his liability under Clause 18”
Insurance under Clause 19 is a condition precedent to commencement of theWorks:-
a) not practical on site
b) Estoppel –Boustead v Arab-Malaysian Merchant Bank [1995]
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.1 –joint names of Employer, Contractor, sub-contractor andinterested parties
Unclear who are „interested parties‟ – practical suggestion, identify them,otherwise void for uncertainty
Interested parties do not include consultants who are defined as third parties
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.1 –joint names of Employer, Contractor, sub-contractors andinterested parties
Petrofina v Magnaload [1983]
a) Accident at oil refinery caused by sub-sub-contractors‟ negligence
b) Sub-contractors = sub-sub-contractors (inseparately connected, avoidoverlapping/cross-claims)
c) „sub-contractors‟ could claim benefit under policy that covers maincontract and sub-contract works although not parties to policy.
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.1 –Public Liability insures against:-
a) personal injuries or death to „any person‟
– Any person=pedestrian, employee of Employer, Consultants,Contractor
- „Employee to employee extensions‟ endorsement – to indemnifyemployee of Insured making a claim against Insured
b) Loss or damage to real or personal property
- real property = building adjacent to site
- personal property = pedestrian car
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Endorsements to Public Liability
Cross liability – As though each Insured party is separately insured –allow oneInsured to sue another Insured for causing loss
Deem employees of Employer and Consultants = 3rd parties
Waive subrogation rights
a) Subrogation = Insurer right to step into shoes of Injured Party to suedefaulting party who caused injury
b) Petrofina v Magnaload – If defaulting party is the Insured, NOsubrogation rights
Auto extension/renewal up to Certificate of Making Good Defects
a) No certainty of date, Not practical, May not be accepted by Insurer
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.1 –criteria to claim Public Liability:
a) Loss arise out of Works
b) Irrespective whether Loss caused by negligence/default of Employer,Contractor, sub-contractor, interested parties
Practical suggestion – check fine print
- Exclude „wilful negligence‟ = not negligence
- Re City Equitable [1925] wilful if person knewand intended the action
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.2 –Contractor and sub-contractors to register all local workmenunder Employee‟s Social Security Scheme (SOCSO)
Local workmen are no longer covered under Workmen‟s Compensation Act1952 from 1 July 1992.
If sub-contractor fails to pay monthly contribution for local workmen, Contractoror Employer may be liable – Advised to check
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19.0 Insurance against injury to person and loss and/or damage ofproperty
Clause 19.3- Workmen Compensation Insurance - Contractor only needs toinsure local workmen not covered under SOCSO. Hence, reduce amountof estimated wages to reduce premium
Clause 19.4 –all foreign workers (manual) covered under Workmen‟s
Compensation (Foreign Worker‟s Scheme)
- suggestion: Contractor to ask from sub-contractors policy on Workmen‟sCompensation (Foreign Worker‟s Scheme) for all foreign workers(manual)
Insurance policies valid until Completion Date (cover Works) + MaintenanceCover until 3 months after Defects Liability Period (cover defect remedialworks)
If delay Works or defect remedial works - Extend policy 1 month before expiry
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20.0 Insurance of New Buildings/Works or Existing Building by theContractor or the Employer
3 options to insure Works under CAR policy
20A- Insure Works or construction of new buildings by the Contractor
20B and 20C- Insure Works or construction of new or existing buildings by the
Employer
- Contractor still liable for risk of damage to Works under Clause 18
- insurance preferred by Employer if overlapping work packages, lower
premium but higher deductibles for Contractor to bear
- may not be economical for Contractor to insure deductibles
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20.0 Insurance of New Buildings/Works or Existing Building by theContractor or the Employer
Clauses 18.2 & 18.4– Contractor liable to indemnify Employer for damage to
Works even if negligence/default partly responsibility of
Employer/Consultants
- E.g. faulty Consultants‟ design or negligence in supervision of Works
Advice- check CAR policy –does it exclude faulty design or workmanship?
- get endorsement to cover faulty design or workmanship
- check plant hirer‟s or sub-contractor‟s Plant policy, if necessary
insure under CAR policy
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20.0 Insurance of New Buildings/Works or Existing Building by theContractor or the Employer
CAR policy for Works valid until Completion Date + Maintenance Cover until 3months after DLP
If delay to Works, extend CAR policy 1 month before the date of expiry
a) Good practice
b) Advice- compile extended insurance receipt for Loss and Expense claimif delay caused by Employer
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20.0 Insurance of New Buildings/Works or Existing Building by theContractor or the Employer
Clause 20.A.4 – in event of claim Contractor‟s obligation to restore, replace andrepair damaged Works
No need to wait for insurance claim
Repair is not a VO – Indemnity Clause 18.2 & Clause 20.A.4
- Gold v Patman [1958] – Contractor‟s risk = damage to Works even bynatural catastrophe
Clause 20.A.4 - unclear what is meant by an instalment payment to Contractorby Employer on insurance claim
- Advice- Contractor to clarify at tender
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21.0 Date of Commencement, Postponement and Completion Date
Clause 21.1 –Possession of Site given on Date of Commencement
Site means entire Site not so much of the as necessary to carry out the Works
Avoid two different dates in Letter Award
Site Possession provides contractual licence to enter whole site, cannot berevoked during Contract Period – Hounslow v Twickenham [1970]
Merton v Stanley Hugh Leach (1985) – Employer‟s implied duty not toprevent or hinder Contractor‟s works
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21.0 Date of Commencement, Postponement and Completion Date
Clause 21.2 – several Dates of Commencement for several Sections of theWorks , potential for confusion unless Site is redefined.
Each Section = as if separate contract –
- but PAM 2006 silent on retention fund, implied proportion retention fundaccording to value of Section
Practical suggestion – insert proportioned retention fund in Appendix
- Limit of Retention Fund= 5% of Contract Sum
- Avoid inconsistent terms – Contract Sum/Contract Price/RevisedContract Sum
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21.0 Date of Commencement, Postponement and Completion Date
Clause 21.4 – instruction to suspend Works (period < 3 months)
- claim EOT and Loss and Expense (additional premium
insure period of suspension)
- Cannot instruct to suspend > 3 months –avoid abuse by
Employer with financial problem
- if suspension > 3 months, Contractor option to terminate (Clause26)
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22.0 Damages for Non Completion
Clause 22.1 : „Upon the issuance of the Certificate of Non-Completion (CNC),the Contractor shall pay Liquidated Damages‟
Lion Engineering v Pauchuan Development [1997]
- CNC = condition precedent to Liquidated Damages
Cantrell v Wright [2003]
- must issue CNC before Final Certificate
Engineering Construction v Attorney General [1994]
- must issue CNC before Contract terminated
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22.0 Damages for Non - Completion
Clause 3.1 : Order of precedence- Letter of Award prevail over Conditions ofcontract
Practical suggestion – if tender negotiation resulted in discounted LiquidatedDamages rate, Contractor to ensure new rate is reflected in Letter Award
see Session 2 page 8 - Cannot rely on tender negotiation minutes of meetingas it falls under the lowest order of precedence „other documentsincorporated in the Contract Documents‟
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22.0 Damages for Non Completion
Clause 22.2 – „No need for Employer to prove actual loss‟, circumvent SelvaKumar v Thiagarajah [1995]
But „unless the contrary is proven by the Contractor‟
- affirms Sakinas v Siew Yik Hau [2002] –if Contractor proves LD notdue if it could be assessed by settled methods, Employer needs to proveactual loss
Clause 22.3 – If EOT given after 1st CNC, Architect must issue 2nd CNC ifcannot meet extended Completion Date before deduct LD
- affirms Bell v CBF Residential (1989)
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23.0 Extension of Time (EOT)
Clause 23.1 – Notice of intention to claim EOT + estimate + records = conditionprecedent to EOT
Clause 23.1 – Within 28 days of Delay Ending, Contractor to submit final claimfor EOT + full supporting records
(if Contractor needs more than 28 days, ask Architect for more time,failure to provide details means deemed relevant event will not delaycompletion, i.e. waived right to EOT)
Putrajaya v Digital Green [2008]
- deem = assuming something to be a fact which may/may not be thecase
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23.0 Extension of Time (EOT)
Architect‟s duties
Architect to assess EOT after delaying factor ceases–affirms Lian SoonConstruction v Guan Qian Realty [2001]
(good practice to grant interim EOT for Contractor to target newCompletion Date, avoid constructive acceleration)
Architect to issue Certificate of EOT within 6 weeks of receipt of particulars –but what if Architect exceed 6 weeks? Employer‟s breach?
Hiap Hong v Hong Huat Development [2001]
- Employer not undertake Architect will exercise certification powers
What are Contractor’s recourse if Architect refuses to giveEOT?
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23.0 Extension of Time (EOT)
Architect‟s duties
Lian Soon Construction v Guan Qian Realty [2001]
- a EOT decision = foundation for delay certificate (=CNC) before deductLiquidated Damages (LD)
- Architect should avoid granting a block EOT, should consider separatedelay event‟s effect on Completion Date
Arab Malaysian v ASM Development [1998]
- if Architect wrong in refusing EOT, then no basis for Employer‟sdeduction of LD
Advice: Architect to give correct EOT to preserve Employer’s right to LD
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23.0 Extension of Time (EOT)
Architect‟s duties
Clause 23.5(b) -Architect express power to grant EOT despite Contractor notmade claim – note Peninsula v Abigroup Contractors [2002],Superintendent had no right to grant EOT without notice but court heldcontractor could not rely on prevention by employer in overcoming noticerequirement.
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23.0 Extension of Time (EOT)
Contractor‟s duties
Clause 23.6 –Contractor to use best endeavours to prevent/ reduce delay
Re-sequence works=mitigate delay, claim mitigation cost –Rapsican v GlobalContainer [2002]
If Employer‟s delay, Contractor should get EOT - no need to increaseresources/accelerate unless instructed by Architect and paid byEmployer– Architect to take care in instructing Contractor!
If Contractor‟s delay, Architect has right to instruct Contractor to increaseresources to accelerate at own cost
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23.0 Extension of Time (EOT)
Relevant Events (grounds for EOT)
Force majeure –government ban on heavy traffic
Exceptionally inclement weather – compare average past 5-10 years rainfallwith present rainfall
Delay in re-nomination of NSC (new in PAM 2006)
Employer‟s act of prevention (wide)
Delay caused by change to law (new in PAM 2006)
Delay in replacing Consultants (new in PAM 2006)
Delay in executing higher Provisional Quantity (new in PAM 2006)
Delay in suspending Works due to Employer‟s late payment (new in PAM 2006)
Delay in suspending Works due to Consultants‟ withdrawal from supervision ofWorks (new in PAM 2006)
Delay in suspending works by Local Authority‟s order (new in PAM 2006)
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Session 5
By
Rodney Martin
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24.0 – Loss And/Or Expense Caused By Matters Affecting The
Regular Progress Of The Works
Contractor has right to claim loss & expense due to delay or disruption
events subject to condition precedents:
• Notice to Architect within 28 days of start of event or issue of AI / CAI
with initial estimate and supporting calculations
• Submit to Architect or QS complete particulars of his claim with
substantiating records and calculations within 28 days after the event
has ended
Failure to comply means Contractor looses right to claim
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24.0 – Loss And/Or Expense Caused By Matters Affecting The Regular Progress Of The Works
• Contractor to keep contemporary records of loss & expense including sub-cons (24.2)
• Matters allowing loss & expense to be claimed:
• Late information• Delayed site possession• Compliance with Postponement or Suspension AI• Delay by contractors engaged by Employer• Delay by Employer in supplying goods and materials• Opening up the works (unless defects found)• Any act of prevention or breach of Contract by Employer• Delay resulting from antiquities AI• Appointment of a replacement Person under Articles 3,4,5 and 6• Compliance with a Neighbour dispute AI• Inaccurate Provisional Quantities• Employer‟s delay in giving site access• Suspension by the Contractor due to late payment or compliance with bye-laws• Suspension by the Contractor on instruction of Appropriate Authority or SP due to negligence of E, A or C
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24.0 – Loss And/Or Expense Caused By Matters Affecting The Regular Progress Of The Works
• Matters not allowing loss & expense to be claimed (outside Employer‟s control):
• Force Majeure• Exceptionally Inclement Weather• Insurance clause contingencies• Civil Commotion• Delay by NSC • Delay in re-nomination of NSC• War Damage• Change in Law and Regulations• Delay by Appropriate Authority & Service Providers
• Architect or QS to ascertain amount of L&E from time to time and add to Contract Sum by way of interim certificate
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25.0 – Determination of Contractor’s Employment By Employer
• Employer may determine employment of Contractor when in default as follows:
• Fails to commence the Works without reasonable cause
• Wholly or substantially suspends the Works without reasonable cause
• Fails to proceed “regularly and diligently” with the works
• Persistent refusal or neglect to comply with an AI
• Assigns rights or wholly / substantially sub-contracts without consent of employer
• Abandons the Works
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25.0 – Determination of Contractor’s Employment By Employer
• Procedure is very important (25.2)
• Notice of default by registered post or hand from Architect or Employer
• Notice must not be:•
– unreasonable (to take advantage of accidental error or omission), or
– vexatious (without good grounds – to cause annoyance or embarrassment or irritation
• If default continues for 14 days then•• Within 10 days notice of determination from Employer
• If not issued then go back to beginning – (fresh default notice)
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25.0 – Determination of Contractor’s Employment By Employer
• Contractor‟s employment is then determined
• Other provisions continue such as:
– Valuation of the Works (25.5)– Reference of a dispute to Arbitration (34)
• Automatic determination on Contractor‟s insolvency, arrangement with creditors or winding up (25.3)
• Is (25.3) an infringement of bankruptcy laws? – right of trustee or liquidator to elect to carry on or disclaim the contract
• So perhaps look for an alternative right to determine such as suspension or abandonment
• Effective against receivers not covered by bankruptcy laws
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25.0 – Determination of Contractor’s Employment By Employer
• Post determination procedure (25.4)
– Contractor vacates the site and Employer may us his plant, equipment, goods and
materials but has no right to sell them
– Right to use plant may be at odds with owners of hired plant – but 25.4(a)
assignment of hire agreements to Employer within 21 days of determination
– Right to have agreements for supply of materials/goods or any sub-contract
assigned to Employer within 21 days - 25.4(b)
– Architect may instruct the removal of any plant, equipment, materials or goods
belonging to Contractor – 25.4(c)
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25.0 – Determination of Contractor’s Employment By Employer
• Post determination procedure (25.4)
– No further payment to Contractor until Works completed
– Contractor liable to pay Employer all additional costs incurred in completing the
remaining works including loss & expense – 25.4(d)
• Extra over cost of replacement contractor
• Cost of removing Contractor‟s plant & equipment
• Additional consultants fees
• Liquidated Damages up to determination if Completion Date already lapsed
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25.0 – Determination of Contractor’s Employment By Employer
• Site Inspection between Architect and Contractor within 28 days (25.5)
• Architect or QS to produce a final account for the parties to consider within 6 months from the completion of the remaining Works (25.6), including:
• Total value of Works completed up to date of termination (certified and not certified)• Total amount of the cost of engaging a replacement contractor• Liquidated Damages to be recovered• Total amount of any set-off against the Contractor• Total amount of any Loss & Expense suffered by the Employer
• The Parties must dispute within 3 months or else account is considered agreed
• If the amount of the final account is greater than the amount which would have been payable to the contractor (a notional FA) the difference is a debt due from the Contractor to the Employer
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25.0 – Determination of Contractor’s Employment By Employer
• PAM 2006 – 25.6(a) wording is an anomaly:
“If the said amount is less than the said total amount, the difference shall be a debt
payable to the Contractor by the Employer”
So if the Employer‟s total costs after replacing the Contractor and finishing the
Works are less than would have been paid to the defaulting Contractor, then the
Employer should pay money back to the defaulting Contractor?
Surely the correct position is that the Employer has suffered no loss and has no
claim against the defaulting original Contractor
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25.0 – Determination of Contractor’s Employment By Employer
• If final account disputed then notice must be given to other party within 3 months with reasons and records - 25.6(b)
• Architect or QS must decide within 3 months of final account dispute notice whether to amend the final account
• If either party disagrees then they have 3 months to refer the matter to arbitration under Clause 34 otherwise the FA is “conclusive and agreed by the parties”
• Departure from the Limitations Act which gives the parties 6 years to refer
• But 25.8 states that the Employer‟s rights at common law and statute are not prejudiced by the provisions of Clause25.0
• So the Employer‟s rights are preserved but the Contractor has to refer any dispute within 3 months – is this practical?
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25.0 – Determination of Contractor’s Employment By Employer
• Mandatory obligation on Contractor to give back Site within 14 days -25.7
• If Contractor disputes Employers Notice of determination he must still go
• Contractor has no right to continue with the Works where he disputes
• Only remedy is damages for breach of contract (unlawful termination)
• See Kong Wah Housing v Desplan Construction (1991)
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• 26.0 Clause – Determination of Own Employment By
Contractor• Contractor may determine his own Employment due to the following
Employer defaults:
• Failure to pay any amount due after LD and set-off – 26.1(a)
• Interference by Employer – 26.1(b) (“any” not just “improper or fraudulent” as
in PAM98)
• Failure to nominate a new Architect or Consultant – 26.1(c)
• Suspension of whole Works for continuous 3 month period due to:– AI‟s (on discrepancies, postponed site possession and postponed Works)
– Late instructions or information by Architect
– Delay or failure by Employer appointed Contractors
– The opening up of the works for testing
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• 26.0 Clause – Determination of Own Employment By Contractor
• Similar Notice requirements and procedure as Clause 25
• Employer insolvency is grounds for automatic determination
• Contractor to leave site within 14 days
• Payment for work done plus loss & expense arising
• Joint valuation within 28 days of determination by Contractor Architect and QS
• Contractor to prepare the final account (unique to PAM 2006) within 6 months of determination
• Employer has 3 months to dispute the FA otherwise deemed agreed
• Same limitation period issue for Employer here having to refer any dispute on the FA to arbitration within 3 months
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• 26.0 Clause – Determination of Own Employment By
Contractor
• Payment due after FA settled less LD‟s and set-off
• LD‟s no longer payable if the Contractor validly determines his employment
and at that time no LD‟s have accrued because completion date yet to
arrive
• General or un-liquidated damages still recoverable subject to proof of loss
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• 27.0 – Nominated Sub-Contractors
• NSC is responsible for design in NSC Works and not the Contractor
• Objection by Contractor to nomination within 14 days of AI
• Terms of the Sub-Contract to include:
• Works must be to reasonable satisfaction of the Architect and Contractor
• Contractor‟s obligations as to performance passed down to NSC
• Indemnity from NSC to Contractor as given by Contractor to Employer
• Indemnity against negligence, omission or fault
• EOT from Contractor subject to Architect‟s recommendation (but not mandatory)
• Architect to issue CPC not Contractor
• Contractor‟s right to claim loss/expense due to delay by NSC
• NSC right to payment within 7 days after Period of Honouring Certificates even where Employer has not paid Contractor
• Right of Architect to access NSC premises for inspections
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• 27.0 – Nominated Sub-Contractors
• Right to Object to Nomination
• Contractor has right to object to nomination if documentary evidence of poor financial and
technical capacity of NSC which would jeopardise the Work progress - 27.3
• Architect can cancel instruction, re-nominate or override Contractor‟s objection by issuing
an instruction to appoint the NSC – 27.4
• Unfair – See 27.9 Contractor still responsible for NSC performance
• Payment to NSC
• Payment proof to be provided by Contractor to Architect prior to issuing interim or
penultimate certificates 27.6
• Direct payment by Employer if Contractor cannot justify non-payment
• But Employer not obliged to pay NSC and NSC‟s only recourse for non-payment is to sue
Contractor – KM Quarry Sdn Bhd v Ho Hup Construction (2006)
• See also 27.10 - no privity of contract between Employer and NSC
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• 27.0 – Nominated Sub-Contractors
• Final Payment in Advance to NSC
• Architect can certify final payment to NSC before final payment is due to the Contractor – 27.7
• NSC Termination
• Architects consent needed as a CP before Contractor can terminate the NSC‟s employment – 27.8
• Contractor must issue a report to the Architect and NSC stating the default and the Architect can ask the NSC to respond to the allegations
• Architect obliged to re-nominate – 27.11
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• 27.0 – Nominated Sub-Contractors
• Final Account Procedure upon termination – 27.11
• Similar in principal to Main Contractor termination
• Employer to pay any additional cost of re-nomination if cannot be recovered
from defaulting terminated NSC
• EOT for delay due to terminated NSC but no L & E – 27.11
• Time taken to re-nominate
• Any extra time needed by re-nominated NSC
• Contractor not entitled to loss & expense
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• 27.0 – Nominated Sub-Contractors
• Termination by NSC with cause – 27.12
• Contractor liable to pay any additional cost of re-nomination
• Contractor liable to pay Employer any additional costs incurred
• No EOT for Contractor unless proof of wrongful termination by NSC
• Contractor has right to tender for PC Sum and Provisional Sum
work – 27.14
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• 28.0 – Nominated Suppliers
• NS Contract of Sale to include – 28.2:
– Goods of quality and standard specified
– Make good defects
– Comply with delivery programme
– Ownership to pass upon delivery to Contractor (whether or not paid for)
– Payment within 7 days of Period of Honouring Certs
• Right to reasonable objection – 28.3 (similar to 27.3)
• Architect may:– issue further instructions to remove objection
– cancel the instruction and omit the materials or goods
– re-nominate
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• 28.0 – Nominated Suppliers
• NS payment provisions similar to NSC – 28.5 & 28.6
• Contractor responsible for any of NS‟s :
– negligence
– omission
– Default - 28.7
• No privity of contract between Employer and NS – 28.8
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• 29.0 – Works By Craftsmen, Tradesmen Or Other Contractors
Employed or Engaged By the Employer
• Permission for Employers direct contractors to enter the site
and carry out direct related Works
• Employer responsible for any delay caused
• EOT and L&E claimable in event of critical delay
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CHARLTON MARTIN ONE DAY SEMINAR
TEA / COFFEE BREAK
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Session 6
By
Michael Charlton
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30.0 Certificates and Payment
Clause 30.1 : onus on Contractor to submit payment application each month,otherwise NO interim certificate
Tuck Sin Engineering Sdn Bhd v Yee Heng [2007]
- Architect‟s payment certificate = condition precedent to payment
Clause 30.3 : Architect to revise previous payment certificate to correct error
Anwar v Teo Hee Lai Building Construction [2007]
- revised certificate must be issued when occasion arises for correction
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30.0 Certificates and Payment
Clause 30.6(a) : Within 14 days of request by Contractor, Employer duty to setaside retention fund in separate trust account
Enable Contractor to access retention fund if Employer insolvent, otherwiselose retention as in MacJordan v Brookmount (1992)
Clause 30.6(b) – Employer notify Contractor reason for deducting againstretention fund – avoid abuse
Clause 30.6(c) & (d) – Architect to release 1st and 2nd moiety of retention within14 days from CPC and CMGD respectively -certainty
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30.0 Certificates and Payment
Clause 30.7 : If Employer fails to pay certified amount by 21 days of Architect‟scertificate, Contractor to give 1st notice of default
If Employer continues default for another 14 days, Contractor to give notice ofsuspension until full payment
– Contractor gets EOT, loss and expense for suspension (eg insurancepremium)
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30.0 Certificates and Payment
Clause 30.10(a) : If Employer / Contractor fails to give notice disputing QS‟sfinal account within 3 months of receipt, final account = conclusive
QS to study Contractor‟s reasons of dispute, and decide if to amend finalaccount
If Employer / Contractor still disputes QS‟s decision/ amended final account, hemust refer the dispute to arbitration within another 3 months, otherwisefinal account = conclusive
Practical suggestion – give notice of dispute/arbitration to buy more time whilstnegotiating final account
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30.0 Certificates and Payment
Clause 30.14 : Architect to issue Final Certificate within:-
- 21 days after another 21 days of the Penultimate Certificate , or
- 28 days after the issue of CMGD
Clause 30.15 : Onus on Contractor to ensure Employer makes payment of allprevious certificates
- as Final Certificate states the net sums certified after less all previouscertificates
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30.0 Certificates and Payment
Clause 30.16 : Final Certificate = conclusive on final value of Works except LD,set-off, interest payment
But not conclusive as to quality of materials and workmanship complying withContract
Affirms SA Shee Sarawak v Sejadu [2000] – final certificate= conclusive onbalance sums due, NOT sufficiency of materials and workmanship
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30.0 Certificates and Payment
Clause 30.17 : entitles Contractor to simple interest for Employer‟s latepayment of certified sum– at Maybank BLR + 1%
Payment certificate shows certified sum, must not show Liquidated Damages orset-off
Employer can deduct Liquidated Damages and set-off against certified sum
Advice - Take care to check and avoid Employer‟s wrongful deduction ofLiquidated Damages and set-off
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31.0 Outbreak of Hostilities
Clause 31.1 : in the event of war, allows Employer or Contractor to terminate bynotice
Advice - Once terminated, Contractor to:
- protect Works
- take photographs of completed Works to prove value of Workscompleted up to termination
- carry out joint site valuation only if permits
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32.0 War Damage
Clause 32.1(b) : Architect may give AI instructing Contractor to removedamaged Works and protect the Works, deemed to be a variation
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33.0 Antiquities
Clause 33.1 : When discover antiquities, requires Contractor to suspend Worksand request further instruction
Contractor gets EOT for suspension
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34.0 Adjudication and Arbitration
Clause 34.1 : Speedy resolution of dispute on Employer‟s set-off via an agreedadjudicator – avoids disruption to Works
But parties can agree to refer other dispute to adjudicator
Clause 34.4 – temporary binding effect of adjudicator‟s decision until PracticalCompletion
Parties have 6 weeks to give notice refer dispute on adjudicator‟s decision toarbitration, otherwise decision is final and binding
6 weeks too short- compel parties to negotiate and settle
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34.0 Adjudication and Arbitration
Clause 34.6 : any party may start arbitration by Notice to appoint arbitrator
Arbitrator‟s award = final and binding except for circumstances (e.g. misconduct)
Arbitrator‟s powers:
- rectify the Contract
- certification, open up and review (e.g. under-certification)
- revise Architect‟s certificates or decision
- award pre-award and post-award interest
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34.0 Adjudication and Arbitration
Clause 34.9 : Best endeavours by Contractor, Employer and Nominated Sub-Contractor to appoint same arbitrator to hear same/connected disputeinvolving subcontractor
Clause 34.9 =Similar to tripartite arbitration agreement affirms – Lafarge vShepherd Hill [2001]
Clause 34.10 – cannot start arbitration until practical completion or terminationunless urgent:
- Questioning Architect‟s authority to issue instruction
- war outbreak
- improper withholding certificate
- improper withholding of payment to Contractor
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35.0 Mediation
Clause 35.1 : flexibility for parties to mediate = commercial negotiation(separate from adjudication and arbitration)
Mediation = NOT condition precedent to adjudication and arbitration
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36.0 Notice
Clause 36.3 : Importance of proof of delivery of notice by:-
- notice by hand : acknowledgement of receipt
- notice by registered post : receipt of posting from Post Office
(useful when party refuse to acknowledge receipt)
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37.0 Performance Bond
Clause 37.1 : Submit Performance Bond 5% Contract Sum – breforecommence Works
Esso Petroleum Malaysia v Kago Petroleum [1995]
- unconditional bond= call on bond triggers bank‟s liability to pay
- no need prove breach by Contractor
Bond valid until 3 months after practical completion
Employer must return Bond within 28 days of Contractor‟s termination –inpractice if Employer disputes Contractor‟s right to terminate, unlikelyreturn Bond
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38.0 Governing Law
Clause 38.1 : Malaysian law applies to PAM 2006 Contract
(foreign case-law = persuasive authorities, though not binding)
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CHARLTON MARTIN ONE DAY SEMINAR
QUESTIONS AND DISCUSSION
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CHARLTON MARTIN ONE DAY SEMINAR
Contract Administration In A Day
THURSDAY, 19 NOVEMBER 2009
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CHARLTON MARTIN ONE DAY SEMINAR
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