Faculty of Engineering Faculty of Engineering
Faculty of Engineering
QUALITY PROVISIONS IN STANDARD FORMS OF LOCAL AND INTERNATIONAL CONSTRUCTION CONTRACT
Quay Wei Kwang
Bachelor of Engineering with Honours (Civil Engineering)
2008
QUALITY PROVISIONS IN STANDARD FORMS OF LOCAL AND INTERNATIONAL CONSTRUCTION CONTRACT
QUAY WEI KWANG
This project is submitted in partial fulfillment of
the requirements for the Degree of Bachelor of Engineering with
Honours (Civil Engineering)
UNIVERSITI MALAYSIA SARAWAK
BORANG PENGESAHAN STATUS TESIS
QUALTIY ASPECTS OF LOCAL AND INTERNATIONAL STANDARD Judul:
FORMS OF CONSTRUCTION CONTRACT
SESI PENGAJIAN: 2005 – 2009 Saya QUAY WEI KWANG
(HURUF BESAR)
mengaku membenarkan tesis * ini disimpan di Pusat Khidmat Maklumat Akademik, Universiti Malaysia Sarawak dengan syarat-syarat kegunaan seperti berikut:
1. Tesis adalah hakmilik Universiti Malaysia Sarawak. 2. Pusat Khidmat Maklumat Akademik, Universiti Malaysia Sarawak dibenarkan membuat salinan untuk
tujuan pengajian sahaja. 3. Membuat pendigitan untuk membangunkan Pangkalan Data Kandungan Tempatan. 4. Pusat Khidmat Maklumat Akademik, Universiti Malaysia Sarawak dibenarkan membuat salinan tesis
ini sebagai bahan pertukaran antara institusi pengajian tinggi. 5. ** Sila tandakan ( a ) di kotak yang berkenaan
SULIT (Mengandungi maklumat yang berdarjah keselamatan atau kepentingan Malaysia seperti yang termaktub di dalam AKTA RAHSIA RASMI 1972). TERHAD (Mengandungi maklumat TERHAD yang telah ditentukan oleh organisasi/ badan di mana penyelidikan dijalankan).
a TIDAK TERHAD Disahkan oleh (TANDATANGAN PENULIS) (TANDATANGAN PENYELIA) Alamat tetap: 31, JALAN GAMBUS 13, TAMAN DESAWAN 41200 KLANG, SELANGOR IR. TING SIM NEE (Nama Penyelia)
Tarikh: 16 April 2009 Tarikh:
CATATAN * Tesis dimaksudkan sebagai tesis bagi Ijazah Doktor Falsafah, Sarjana dan Sarjana Muda. ** Jika tesis ini SULIT atau TERHAD, sila lampirkan surat daripada pihak berkuasa/organisasi
berkenaan dengan menyatakan sekali sebab dan tempoh tesis ini perlu dikelaskan sebagai SULIT dan TERHAD.
Final Year Project Report below:
Title : Quality Provisions in Standard Forms of Local and International Construction Contract Author : Quay Wei Kwang
Matric. No. : 15790
Has been read and certified by:
__________________________ ________________________ Ir. Ting Sim Nee Date Supervisor
QUALITY PROVISIONS IN STANDARD FORMS OF LOCAL AND
INTERNATIONAL CONSTRUCTION CONTRACT
QUAY WEI KWANG
This thesis is submitted in partial fulfilment of the requirements for the degree of
Bachelor of Engineering with Honours
(Civil Engineering)
Faculty of Engineering
UNIVERSITI MALAYSIA SARAWAK
2009
For the One and the ones who have been there from where it all began
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ACKNOWLEDGEMENT
I take this opportunity to express appreciation to all that have physically and morally
contributed towards this thesis, primarily to my supervisor, Ir. Ting Sim Nee for her
guidance even using up point of using up her own personal time and space.
Also to the following correspondence (in no specific order):
1. Mr. Kamraj Nagayam, a partner from Skrine, one of the largest law firms in
Malaysia.
2. Miss Tan Swee Im, a lawyer of a firm of hers who have been closely involved in
the CIDB Standard Form of Contract drafting.
3. Mr. Lim Chong Fong, an experienced lawyer from Azman, Davidson & Co
4. Ir. Oon Chee Kheng, a lawyer of his own firm and Vice President of IEM; who
has also been closely involved in the CIDB Standard Form of Contract drafting.
5. Sr. Bong Siak Khiun, a seasoned quantity surveyor from KTA (Sarawak) Sdn Bhd
6. Ir. Kueh Kim Meow, an resourceful engineer from Hock Seng Lee Berhad
where I utmostly value their time out of their busy schedule and also literature shared, in
particular Ir Oon and Mr. Nagayam.
Not forgetting the fellow course mates who were there with me throughout this
dissertation. You are the best!
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ABSTRACT
Standard forms of contracts have been in use in the Malaysian construction industry as a
means to expedite contractual and legal duties where clients often seek a quick approach
to arrive at an agreement with their contractors. Various forms have been drafted by
various professional bodies and organisations, both locally and internationally, to closely
meet the demands of the market where quality is one its objectives. Experts within this
field are sought together with the comparison of clauses made to provide a robust study.
This dissertation investigates the adequacy of the provision of these forms and suggests
suitable changes to the current standard forms within this study. Evidently, the standard
of quality in the Malaysian construction industry remains at a low and becomes an
evergreen issue. Whether these forms sufficiently cater for quality, remains disputable.
However it is an undeniable fact that quality provisions can be further enhanced. Since,
the “one-size fits all” postulate may not hold any grounds especially when it comes to
ensuring quality on site, the question of validity and effectiveness of standard forms
becomes a pertinent one.
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ABSTRAK
Borang kontrak digunapakai di Malaysia sebagai satu langkah mempercepat proses
penyediaan kontrak dan guaman di mana klien sering kali ingin mencari jalan mudah
bagi mencapai kata sepakat dengan kontrakor. Borang-borang kontrak ini telah
disediakan oleh pebagai badan dan organisasi professional tempatan mahupun
antarabangsa, bagi memenuhi kehendak pasaran di mana kualiti menjadi salah satu
matlamatnya. Pakar-pakar dalam bidang ini ditemuduga selari dengan perbandingan
klausa bagi mewujudkan kajian yang mampan. Tesis ini menkaji kepadatan provisi
borang-borang ini dan menyarankan perubahan yang sewajarnya. Ternyata, peringkat
kualiti di Malaysia masih rendah dan senantiasa menjadi isu. Sama ada borang-borang ini
menanggung kualiti secara mencukupi, masih menjadi pertikaian. Walau bagaimanapun,
hakikat yang tidak boleh dinafikan adalah provisi kualiti masih boleh dipertingkatkan.
Oleh sebab, teori “satu saiz bagi semua” tidak dapat direalisasikan, terutama bagi
memastikan kualiti di lapangan, maka soal kesahihan dan keberkesanan borang kontrak
menjadi persoalan penting.
v
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TABLE OF CONTENTS
CONTENT PAGE
TITLE PAGE i
DEDICATION ii
ACKNOWLEDGEMENT iii
ABSTRAK iv
ABSTRACT v
TABLE OF CONTENT vi
LIST OF TABLES xi
LIST OF FIGURES xii
TABLE OF CASES xiii
CHAPTER 1 INTRODUCTION
1.1 General 1
1.2 TThe Standard Forms of Conditions of Contract 2 T
1.3 Quality with respect to Standard Forms 6
1.4 Problem Statement 7
1.5 Hypothesis 9
1.6 Aim and Objectives 9
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1.7 Scope of Study 10
1.8 Structure of Thesis 11
CHAPTER 2 LITERATURE REVIEW
2.1 General 12
2.2 Quality – The Reality 15
2.2.1 Middle Ring Road II 16
2.2.2 Immigration Department, Putrajaya 17
2.2.3 Jalan Duta Court Complex 18
2.3 Quality – The Lacuna in a Contract 18
2.4 Quality in Dispute Resolution 20
2.5 Quality Control as a ‘Stick’ 22
2.6 The NEC as a New Benchmark of Quality 24
2.7 Summary 27
CHAPTER 3 METHODOLOGY
3.1 General 28
3.1.1 Literature Review 31
3.1.2.1 Case Study 31
3.1.3 Interviews 31
3.1.4 Structured Questionnaire 34
3.1.5 Quantitative and Qualitative Analysis 34
viii
3.1.6 Results Summary/Inference 35
3.1.7 Discussion and Recommendation 35
3.1.8 Conclusion 36
3.2 The Parameters 36
3.2.1 Adequacy 37
3.2.2 Clarity 37
3.2.3 Versatility 37
CHAPTER 4 ANALYSIS
4.1 Introduction 39
4.2 Salient Quality Driving Aspects 40
4.2.1 Material and Workmanship 41
4.2.1.1 PWD Form 41
4.2.1.2 PAM Form 42
4.2.1.3 CIDB Form 43
4.2.1.4 FIDIC Form 45
4.2.2 Testing and Inspection 46
4.2.2.1 PWD Form 46
4.2.2.2 PAM Form 47
4.2.2.3 CIDB Form 49
4.2.2.4 FIDIC Form 51
4.2.3 Performance Bond 55
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4.2.3.1 PWD Form 55
4.2.3.2 PAM Form 57
4.2.3.3 CIDB Form 59
4.2.3.4 FIDIC Form 61
4.2.4 Dispute Resolution 63
4.2.4.1 PWD Form 63
4.2.4.2 PAM Form 63
4.2.4.3 CIDB Form 66
4.2.4.4 FIDIC Form 68
4.3 Comparison in Adequacy 70
4.4 Comparison in Clarity 81
4.5 Comparison in Versatility 87
4.6 Pugh Analysis 91
4.7 Summary 93
CHAPTER 5 DISCUSSION AND RECOMMENDATION
5.1 Material and Workmanship
5.1.1 Discussion 95
5.1.2 Recommendation 99
5.2 Testing and Inspection
5.2.1 Discussion 100
5.2.2 Recommendation 103
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5.3 Performance Bond
5.3.1 Discussion 104
5.3.2 Recommendation 106
5.4 Dispute Resolution
5.4.1 Discussion 107
5.4.2 Recommendation 110
5.5 Others 111
5.6 Summary 113
CHAPTER 6 CONCLUSION
6.1 Introduction 115
6.2 Research Overview 116
6.3 Methodology Accomplished 117
6.4 Research Findings 117
6.5 Recommendation 120
6.6 Constraints and Future Research 121
6.7 Conclusion 122
REFERENCES 123
APPENDIX 126
xi
LIST OF TABLE
TABLE PAGE
4.1T Comparison of Material and Workmanship
Tprovisions amongst forms 70
T4.2 Comparison of Testing and Inspection
Tprovisions amongst forms 73
T4.3 Comparison of Performance Bond
Tprovisions amongst forms 76
T4.4 Pugh Analysis for adequacy 91 T
T4.5 Pugh Analysis for clarity 92
T4.6 Pugh Analysis for versatility 92
xii
T
LIST OF FIGURE
FIGURE PAGE
3.1 T Flowchart of Methodology 30
xiii
TABLE OF CASES
CONTENT PAGE
Holland Hannen &Cubitts(Northern) Ltd v Welsh Health
Technical Services Organisation (1981) 18 BLR 80 100
JM Hill & Sons Ltd v London Borough of Camden
(1981) 18 BLR 31 24
Renard Constructions Ltd v Minister of Public Works
(1992) 26 NSWLR 234 23
Swartz &Son (Pty) Ltd v Wolmaransstad Town Council
1960 (2) SALR 1 104
Young & Marten Ltd v McManus Childs Ltd
[1969] 1 AC 454 97
CHAPTER 1
INTRODUCTION
1.1 GENERAL
Ashworth (1998) defines a contract as “a legally binding agreement made between
two or more parties, by which rights are acquired by one or more to acts or forbearances
on the part of the other or others.” The essential elements of this definition are as follows:
legally binding: Not all agreements are legally binding. In particular there are
social or domestic arrangements which are made without any intention of
creating legal arrangements.
two or more parties: In order to have an agreement there must be at least two
parties. In law one cannot make bargains with oneself.
According to Hinze (2001) a contract is an agreement, usually between two parties,
that is enforceable by law. Construction agreements are drawn up between two parties for
their mutual benefit. While Totterdill (2001) defines a contract as any construction
Contract is a legally binding agreement between two Parties – the Owner, who is
generally referred to as the Employer, and the Contractor.
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Standard forms of contract are a type of contract most commonly employed in the
construction industry. As its name suggest, it is a model contract which makes
contractual agreements convenient. (Singh, 2002)
1.2 THE STANDARD FORMS OF CONDITIONS OF CONTRACT
Fundamentally, the Standard Forms of Conditions of Contract or the General
Conditions Document (hereinafter referred to as Standard Forms) are the ‘rules’
governing the execution of the contract. Specifically, they define the powers and
rights, responsibilities and obligations of the parties involved in the contract.
Additionally, they detail the rights of the parties to the contract in that they specify
the various courses of action which are open to either party in the event of the other
party’s failure to discharge his contractual obligations (Williams, 1992).
In addition, the standard form of general conditions has been widely adopted as
experience has shown that they facilitate the conduct of trade and have addressed the
common pitfalls and shortcomings in most civil engineering contracts. The standard form
also satisfies the equitable principle requiring that similar projects demand similar
contracts. Moreover, the standard form of general conditions allocates risks relatively
fairly between the parties. Such equitable apportionment of risk hinders contractors from
adding risk premiums and allowances and thereby leads to a fairer commercial
transaction between the parties involved in a contract (Singh, 2002).
2
Standard forms are prepared having the nature of work to be undertaken.
Practitioners in the industry are more comfortable using a standard form of contract with
which they are familiar and which is usually capable of interpretation by reference to
readily available text books and case laws. (Thomas, 2001) It is said that familiarity
should make compliance with the form easier and that previous court cases may aid in
their interpretation. (Chan, 2006) This familiarity leads to administrative and cost
efficiency, and minimises possible claims and disputes (Singh, 2002). They are often
drafted and agreed by recognised bodies representing all sides of the industry which will
be affected by them. This last point is to some extent a disadvantage in that a form of
contract, ‘by committee’, is often a compromise containing some defective aspects of one
form or another. (Thomas 2001)
Standard forms of contract have been in used both locally and internationally,
namely the Pertubuhan Arkitek Malaysia (PAM) standard forms of building contracts and
Public Works Department (PWD) Form of Construction Contract which is used locally
and Fédération Internationale des Ingénieurs-Conseils (FIDIC), the International
Federation of Consulting Engineers and which is used internationally. There are more
standard forms of contract in existence; however, this study will gravitate on the
aforementioned so as to give a better focus. Another local contract which is to be looked
upon is the Construction Industry Development Board (CIDB) Standard Form of
Contract which is rarely used. Although less popular, this form is of a different standard
in terms of drafting and would provide a more insightful research.
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The Pertubuhan Arkitek Malaysia (PAM) standard forms of building contracts are
the staples of the Malaysian construction industry, with an estimate of 90% of building
contracts in the private sector are based on a PAM form. The antecedent of the PAM
contracts, The Malaysian 1969 Standard Form of Building Contract, or more commonly
referred to as the ‘PAM/ISM 1969 Form’, was issued with the consent of PAM and
Institute of Surveyors of Malaysia ISM in 1969. As with other building contracts, it spells
out the roles, obligation and consequences involved, with the intention to mitigate
conflicts and to achieve a common end. (Rajoo 1999) The PAM Contract 2006 (PAM06)
was officially launched on 05 April 2007 and is said to be a ‘redraft’ of it predecessor, the
PAM Building Contract, Edition 1998 (PAM98). The drafting of PAM06 was done by
the PAM Contract Review Committee, with many rounds of the construction industry
consultative reviews and feedback.
The PWD forms of contract are the de facto standard forms of construction contract
used by the Malaysian public sector. To streamline this study, the PWD 203 and 203A
forms will be focus since it involves the relationship between the client i.e. the
Government and the Contractor. To make mention, the PWD 203N form caters for
nominated subcontractors, PWD 203P for nominated supplier and PWD DB/T form for
cases of design and build or turnkey system of procurement.
The CIDB Standard Form of Contract for Building Works is still in its first revision
(2000). The CIDB form is significantly thicker than the other forms. Aside from the more
lengthy clauses, the CIDB form also contains a separate section of appendix where
4
optional modules are available for different situations and requirements of a particular
contract. It is interesting to note that a Guide to the standard form is also published to aid
users.
The most commonly used Conditions of Contract for international construction
projects are published by the Fédération Internationale des Ingénieurs-Conseils (FIDIC),
the International Federation of Consulting Engineers. The traditional FIDIC ‘Conditions
of Contract Works of Civil Engineering Construction’, commonly referred to as ‘The Red
Book’ is the one which will carry weight. In 1999, this was superseded by the FIDIC
’Conditions of Contract for Construction’ which comprise of:
The General Conditions; and
The Particular Conditions
However, to make mention, there are other sets of contracts for specific conditions
which include; but are not limited to the Conditions of Contract for Design – Build and
Turnkey (The Orange Book) and the Conditions of Contract for Electrical and
Mechanical Works (The Yellow Book).
These standard contracts function to simplify agreements when it comes to
engineering construction contracts by reducing the dependence on legal drafting.
Ironically, they have been drafted with the help of legal advisers and will consequently
lead to the need of their services to interpret clauses due to the incomprehensible jargon
associated contracts. For instance, a study by Bunni (as quoted by Broome, 1997),
revealed that 86% of the sentences in the FIDIC contract could be understood by only 4%
5
of the population, equivalent to those with an IQ of 130 or more. Nonetheless, standard
forms of contract still play a vital role within the construction industry.
1.3 QUALITY WITH RESPECT TO STANDARD FORMS
With respect to cost and time, quality unfortunately, becomes inferior and an often
times is compromised for the former two, especially when these resources are limited. It
is neglected factor in project management. (Barnes, 1988) However when analysed, the
general mindset that “quality will inevitably translate to higher cost” can be eliminated.
According to Juran (1998), ‘Quality’ means those features of products which meet
customer needs and thereby provide customer satisfaction. In this sense, the meaning of
quality is oriented to income. The purpose of such higher quality is to provide greater
customer satisfaction and, one hopes, to increase income. However, providing more
and/or better quality features usually requires an investment and hence usually involves
increases in costs. Higher quality in this sense usually ‘costs more.’ ‘Quality’ can also
mean freedom from deficiencies i.e. freedom from errors that require doing work over
again (rework) or that result in field failures, customer dissatisfaction and claims. In this
sense, the meaning of quality is oriented to costs, and higher quality usually ‘costs less.’
For this reason, quality is not a luxury that only parties with large capitals can take
pleasure in but rather a means of curtailing loses and also increasing productivity.
Therefore, the only apparent grounds to not integrate quality into a work are most likely
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due to misconception and the myopic view of quality, which hinders the foresight of the
benefits of quality.
With respect to the effect on quality on general conditions, Bubshait (1994) defines
quality as the degree to which the general conditions promote the meeting of the project’s
established requirements of materials and workmanship.
In general, quality aspects are addressed in the:
General Section, where a brief description or the overview are provided.
Materials Section, where a specified quality of materials is to be used.
Workmanship Section, where performance and methods of work are spelt.
Testing and Inspection Section, where the procedures and obligations of testing
are spelt out.
Specifications, an additional attached set of itinerary specifying the actual work
quality.
1.4 PROBLEM STATEMENT
Malaysia has been somewhat a ‘contractual backwater’. Her standard forms have
been operating based upon JCT conditions of contract save for the new CIDB Contract
released in year 2000. (Chan, 2006)
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