contract procedure

CONTRACT PROCEDURE

TOPIC 3

CONTRACT PROCEDURE

TRADISIONAL

SYSTEM

•Contract Base on Bill Of Quantity

•Contract Base on drawing & Spesification

STRUCTURE OF CONTRACT

PRINCIPLES

• Offer

•Acceptance

• consideration

•Intention

•Agreement legally bound by law

• Flawless record on both parties

•Bound contract executed

Made in writingGeneral

Construction

CONTRACT

DIFINATION

ALTERNATIF

SYSTEM

Cont.Cont.ALTERNATIF

SYSTEM

•PC + Target Cost

•PC + Fixed Fee

•PC + Percentage Fee

•Kontrak Harga Tambah (Cost Reimbursement)

• Turnkey

Contract

TYPES OF

SUB CKONTRACTOR

DOMESTIC SUB CONTRACTOR

NOMINATED SUB CONTRACTOR

NOMINATED SUPPLIER

MAIN CONTRACTOR RESPONSIBILITY

DIFFERENCE

WORK PROGRESS PAYMENTS

APPOINTMENTS

RIGHT ON THE MAIN CONTRACT PAYMENTS

In terms of:

•The main responsibilities of the contractor

•Progress Payment

•Appointments

•The right main contractor on the payment

DEFINITION OF CONTRACT

• A contract is an agreement is sealed when a party agrees to accept the bid from another one party.

• The contract is sealed when the client appoints the contractor as the project executor.

• The contractor accepts the client’s offer to complete a project by complying to all terms in the sealed contract.

The contractor will perform the work so perfectly, and the owner will be responsible for making payment against the work.

It is made in writing using a valid form

PRINCIPLES OF CCONTRACT

INTENTION

• Client and contractor intend to bind a sincere, responsible and mutual relationship and will not breach all the conditions stated in the contract.

OFFER / TENDER

• According to the contract of 1950 (Revised 1974) - Section 2 (A),

• Client states intention and invites contractor to execute the planned project.

ACCEPTANCE

According to the contract of 1950 (Revised 1974) - Section 2 (b)

Contractor accepts the client’s proposal without other conditions imposed other than as stated in the contract

Conditional acceptance is invalid and not enforceable by contract law.

A proposal when accepted becomes a promise.

CONSIDERATION

Consideration is the action taken by the recipient to accept the tender/offer.

Tender acceptance is usually done either verbal, in writing or by action.

Agreement legally bound by law

• Any agreement between the proposer and the receiver ( client and contractor) is legal according to the Government’s law stated in the contract.

• Agreement that violates state law is invalid and can not be enforced in accordance with the Contract Act 1950 (Revised 1974).

Flawless record on both parties

• No record such as careless work, breach of contract, or bad work performance before binding the contract.

Bound contract executed

• Bound contract does not burden of both parties ( client and contractor), and will not create problems during its execution.

Relationship between contract and offer

• Tender is a statement from the client that provides information to the contractor about the proposed project.

• The tender can be awarded either by competition or by negotiation.

• The main function of a tender is that the client can select the most qualified contractor to carry out the project.

• A contract is an agreement between the client and a contractor bound after the client agreed to appoint the contractor to carry out the project.

• Among contents of the contract is the contractor agree to complete the entire construction according to the estimated cost and client’s approval.

Types, features, requirements, advantages and disadvantages

of procurement ( a ) Lump Sump Contract base on Bill of Quantities.

Plans are prepared and all work items and quantities specified in the tender documents before tenders are invited.

Tenderers who participated in the tender will determine the price for the details of the work contained in the Tender Documents

Quantities contains some fraction of the total tender price for each building elements such as external walls, internal walls, frames, windows, doors, staircases, roofs and other.

i. Both parties can easily understand each field of work when using a contract based on the bills of quantities.

ii. The rates contained in the contract documents will be the basis for evaluate the progress payment that has been

prepared by the contractor and to evaluate the variation order.

iii. Contractors can use the Bill of quantities for calculating the quantity of purchased materials.

iv. Contractors are also able to determine the quotations from sub contractors.

v. The Contractor shall ensure that the work done covering the scope of contract.

ADVANTAGES

i. Quantity Surveyors and architects take a long time to prepare plans and bills of quantities.

ii. This contract may only be used if you have enough time to prepare plans and bills of quantities.

DISADVANTAGES

(b ) Lump Sump Contract based on drawing, specification and schedule of rate .

•The contractor is required to perform work for each element of the total amount of money that has been determined (as has been tendered)

•Tenderers are not supplied with a bill of quantities, but the schedule of rate was attached in the tender documents.

•The scope of works which contained in the drawing and materials also a methods of statement described in the specification but does not stated in bill of quantity .

•Schedule of rates are to be used as a basis for evaluate the progress payment that has been completed and to value a variation order

( c ) Turnkey Contracts

Turnkey contract is carried out when the client assigned complete responsibility to plan, design and manage the project, to the contractor.

The contractor is selected based on the ability in submitting complete proposal that fulfilled the client’s needs. This proposal contains design, construction method, detail cost and term of payment.

There are two factors why the turnkey contract was introduced:

i. urgent requirement of a specific projectii. owners lack the specialist group.

Advantages :

i. Reduce the project implementation. They have time savings because the contractor is fully involved in the construction process from beginning to final.ii. Contractor involvement at an early stage to ensure the success of the project more effective. Contractors can give their views and opinions related to construction projects.iii. To reduce the direct involvement of the owners on matters related to technical problems, cost, time and other.

Disadvantages:

i. The price for a project is high compared with the traditional system.ii. Could affect the participation of local consultants in the turnkey contractor which normally contractor will appoint its own consultants. iii. Local and Bumiputera contractors can not compete to take part because it was used for the high project management prices.

( d )Cost reimbursement contract

Cost reimbursement contracts, also known as Cost Plus Contract.

This contract means that the method of payment to the contractor.

This includes the cost of materials, plant and labor which called prime cost and plus of fee to cover benefits and administrative expenses (overhead).

It Suitable for complex projects and should be completed soon.

This type of Contracts can be divided into three types:

a) Prime Cost + Fixed Fee. b) Prime Cost + percentage fee.

c) Prime Cost + Target cost

Contract Prime Cost + Fixed

Fee

RM RM

1. Cost of Labour

2. Cost of materials

3. Cost of Sub contractor’s work

4. Cost of machine and plant

( Plus Fee that has been set and

approved )

COST PROJECT

39,000

59,000

10,000

2,000

110,000

15,000

125,000

Example : 1

Contract Prime Cost +

Percentage Fee

RM RM

1. Cost of labour

Add 25 %

2. Cost of material

Add 10%

3. Cost sub –contractor’ work

Add 5 %

4. Cost of Machine & plant

Add 10 %

COST PROJECT

40,000

10,000

60,000

6,000

10,000

500

2,000

200

50,000

66,000

10,500

2,200

128,700

Example 2

Contract Prime cost + Target cost

(Target cost RM 110,000) RM RM

1. Cost of labour

2. Cost of material

3. Cost of sub contractor’s work

4. Cost of machine & plant

Negotiate fee

Add 20% from RM2,000

(RM 110,000 − RM 108,000)

38,000

58,000

10,000

2,000

15,000

400

108,000

15,400

COST PROJECT 123,400

Example 3

DOMESTIC SUB CONTRACTOR

Persons / companies which carry out of work on behalf of main contractor.

Selected by main ContractorThe work done was to install floor & wall

tiles, cement works, concrete works and so on.

NOMINATED SUB CONTRACTOR

Persons / companies who are taken to carry out work on behalf of main contractor ( especially for specialis job)

The work done is the piling, electrical installation, air conditioning, lift, etc. .

The payment paid by Owner are directly to Nominated sub contractor.

NOMINATED SUPPLIER

Appointed by the owner / officer and authorities for the supply of Materials to the main contractor.

Binding contract by main contractor Normal appointed for reason:

• Owners may not be able to make decisions for certain work such as finishing work , etc.• Material changes in the market such as electrical equipment, wall paper, etc.• To ensure the suppliers can supply of materials in the market and work to be completed on schedule• Suppliers are usually able to use only quality

products.

Different between domestic sub contractors and nominated

subcontractor

Domestic Sub Contractor

Nominated Sub Contractor

Responsibility of Main Contractor

There is no formal contractual

There is a formal contractual

Progress payment Payment received depends on the Main Contractor

Payment Received based on work completed

Appointed Main Contractor Owner / SO

The right main contractor on claims payments

Through the main contractor

Paid directly by the owner

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