20090716-PAM 2006-A User's Manual

CHARLTON MARTIN ONE DAY SEMINAR

PAM 2006

A USER’S MANUAL

THURSDAY 16 JULY 2009

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.

2www.charltonmartin.com

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


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


Our Offices

• Hong Kong

• Malaysia

• Singapore

• International Consultancy Coverage


Our ServicesContractual Claims

On behalf of Employers /

Owners

On behalf of Contractors /

Sub-Contractors

6

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.

www.charltonmartin.com

Our Services

7

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.


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.


Programme

09:10 – 10:00 Session 1 – Rodney Martin

10:00 – 10:40 Session 2 – Michael Charlton

10:40 – 11:00 Tea / Coffee Break


12:00 – 12:30 Questions & Discussion

12:30 – 14:00 Lunch



15:30 – 15:45 Tea / Coffee Break


16:30 – 17:00 Questions & Discussion

17:00 Close

www.charltonmartin.com 10


Session 1

by

Rodney Martin


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


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


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


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


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


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


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


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!


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)


“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)


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


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.


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


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.


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


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”


“…due to materials and workmanship not in accordance with the Contract…”

Includes “faulty design” where Contractor carries out design

Includes NSC defects


DEFINITIONS

“Force Majeure”


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


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.”


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


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


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


Session 2

by

Michael Charlton


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


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


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


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.


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


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


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


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


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)


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

43


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


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

45


TEA / COFFEE BREAK


Session 3

by

Rodney Martin


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



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

49



• 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



• 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



• 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)



• 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



• 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



• 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



• 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


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”


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


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.”


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)


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



• 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…”



• 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



• 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


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)



• 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



• 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


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


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


QUESTIONS AND DISCUSSION


LUNCH BREAK


Session 4

By

Michael Charlton


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.



Promisor Principal Debtor

discharge liability

Diagram 1 - a contract of indemnity relationship

3rd partyowes debt/liability

Primary

Liability:



Principal Debtor Creditor

Guarantorgives guarantee

owes debt/liability

Diagram 2 - a contract of guarantee relationship

Primary

Liability:

Secondary

Liability:



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



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]


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]



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



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.



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



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



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



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



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


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



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



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



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


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



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



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)


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


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‟


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)


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



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?




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




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.



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



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)


Session 5

By

Rodney Martin


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


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


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


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



• 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)



• 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



• 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)



• 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



• 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



• 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



• 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?



• 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)


• 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


• 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


• 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


• 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



• 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



• 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



• 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



• 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


• 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


• 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


• 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


TEA / COFFEE BREAK


Session 6

By

Michael Charlton


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



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



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)



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



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



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



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


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


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


33.0 Antiquities

Clause 33.1 : When discover antiquities, requires Contractor to suspend Worksand request further instruction

Contractor gets EOT for suspension


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



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



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


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


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)


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


38.0 Governing Law

Clause 38.1 : Malaysian law applies to PAM 2006 Contract

(foreign case-law = persuasive authorities, though not binding)


QUESTIONS AND DISCUSSION


Contract Administration In A Day

THURSDAY, 19 NOVEMBER 2009


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