A Seminar on the PAM 2006 Contract Ism

A SEMINAR

ON

TI-IE PAM 2006 CONTRACT(yd November 2007)

bySr. Low Khian Seng

Baharuddin AI i & Low Sdn Bhd

History of the rAM Forms

The PAMfISM 69 Form was based OD the RIBA 1963 Form.

The RlBA 1963 Form was a revision of the RIBA 1931 and1939 Form.

The earlier Forms of Contract in Malaysia, Singapon andHongkong was based 011 the RlBA 1963 Form. Therefore caselaw in the UK, Singapol"e and HK was applicable toMalaysian cases.

The Forms of Contract was re-drafted in UK itt the 1980 nllel

was kRown as dteJCT 1980 Form. It has since been revisetfanumber of times.

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In Singapore, the SIA commissioned Duncan Wallace to redraft the Forms in 1980 and the SIA Form has also sinceundergone a number of amendments.

Because the revised contracts in the UK and Singapore, caselaw after 1980 were not as applicable.

In Malaysia, the Form of Contract was revised in 1998 (29years after the PAM/ISM69 Form).

The PAM 2006 Contract was a project that took 5 years ofconsultation and drafting work.

A clause by clause explanation was presented at a PAMorganized workshop in October 2005 when the 'final' draftwas completed. Following the workshop, participants offereda number of constructive comments during the workshop andafter the event.

Baharuddin Ali & Low Sdn Bhd

The PAM Contract Review Committee deliberated on thesecomments and where appropriate, the comments have beenincorporated in the PAM 2006 Contract.

A number of people representing various sectors of theconstructional industry also participated at some draftingsessions.

The Forms were launched by the Minister of Works in April2007.

The suite of forms comprised:

PAM Contract 2006 (with quantities)

PAM Contract 2006 (without quantities)

PAM Sub-Contract 2006

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The principles behind the drafting of thecontract.


Architect is an "individual" in the PAM 98 Form

"•. ..such other person" in the Article is intended to mean "the nameof the individual who is to act as Architect" - not the name of thepractice.

"..or in the event ofhis death...."

Can only refer to an individual. A company cannot die - they can beinsolvent.


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There is a distinction in Clause 27 between ''person'' and"companies".


The following are quotations from the Rajoo on the PAM 98Form:

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At 0 - The title of "Architect" in the Contract is thereforerestricted to an individual who is so registered by the Board ofArchitects. "

"..... Therefore, the architect who is the identified contractadministrator to supervise and administer the building contractmust be an individual.... "

".... While it is still common practice, for reasons ofefficacy, forthe name ofthe architecturalpractice to be stated as Architect, itis submitted that this may be invalid.... "


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Three reasons were provided to substantiate the approachtaken in the PAM 98 Form to name the Architect as an"individual" and not the "name ofthe practice":

(1) Quote page 40

"Thus, the contract is consistent with the Architects Act 1967which restrict the usage ofthe word 'Architect' to a person assuch by the Board ofArchitect.... "

This was the position up to 1992. The Act has since been change.See new Section 7A and 7B.


• BEP Akitek v Pontiac Land [1992J ISLR251- the Architect

failed to recover fees because BEP Akitek as a firm was not aregistered architect under the Architect Act.At that time, the Act allows only individual to be "registeredArchitect".

• Kerajaan Malaysia v Cheah Fong Chiew [1993J 2 MLJ 439the defendant was a partner in a consulting firm. When Cheah,a registered engineer was sued by the Government fornegligence, the court held that Cheah was not liable as theGovernment's contract was with his firm and not with Cheah.


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Section 7A ofthe Architects Act:

"Notwithstanding section 7(1), a sole proprietorship. partnershipor body corporate may practise as an architectural consultancypractice , if it is registered with the Board as anarchitectural consultancy practice and has been issued with acertificate ofregistration. "

Section 7A allows various types of architectural practices.

Section 7B of the Architects Act:

"Where a body corporate carries on practice ofprovidingarchitectural consultancy service, professional engineeringservices and/or quantity surveying services, the Board may....register that part ofthe practice providing architecturalconsultancy services. "

Section 7B allows the setting up of a multi-disciplinary practicewith other building professionals.

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(2) Quote page 40

"This new provision in Article 3 ....which is notfound in thePAMIISM 69 Form, clarifies the case ofGunung Bayu Sdn Bhd vSyarikat Perlis Sdn Bhd [1987J 2 MLJ 332 .... "

The Gunung Bayu case - a 1987 decision was not a decided case.The case was referred to arbitration.

An arbitration award is confidential and does not bind latercases.

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(3) Quote page 40/41"The law relating to building control...requires that/or anybuilding work.... A Qualified Person (QP) must be appointed/orboth the design and the supervision ....The Kuala Lumpur By-law3 defines QP as 'any architect, . ..engineer"

That the requirement for an "individual" as the Architect isconsistent with the building control legislation for a namedQualified Person ('QP')

It is necessary to distinguish the requirements in a buildingcontract and the requirements ofthe building authority.

The Client may have appointed the architectural practice as theArchitect and not the individual named.


Consider caselaw:Merrett v Babb [2001J EWCA Civ 214. The Valuation Surveyorsigned a certificate containing the following words "I certify that Iam not disqualified under the Building Societies Act from makingthis report." Even though it was signed under the Company, he washeld personally liable. The court held that there was "an assumptiono/personal responsibility to create a special relationship between thetwo parties"

So an Architect who signs a declaration to the Authority that thework has been carried out in accordance with the plans andcomplying with the building bye-laws may be personally liableunder the Merrett v Babb principle, even if the declaration wassigned under the company's name.

In other words, it is immaterial whether the Architect signs as acompany or an individual, as far as the authority is concerned, thisstatement would make him personally liable.


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PAM 2006 Contract has rectified the PAM 98 position.

Article 7(aq)

"Person" means "an individual, sole proprietorship, firm(partnership) or body corporate"


"•. .not being a person to whom the Contractor shall object... "

The Contractor has a right to object to the appointment of areplacement Architect.


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"..for reasons considered to be sufficient by an Arbitrator... "What happens if the objection becomes an arbitration issue? If thereis an arbitration issue - there will be delay and cost to the project,not to mention potential claim by purchasers if it is a housingproject.

"...the Employer shall nominate and appoint within 28 days asucceeding Architect... "The Employer would be in breach of contract if he fails to appointan Architect within the time.

The Contractor could orchestrate the Employer to breach bybringing the objection to arbitration, thereby making it impossiblefor the Employer to have a replacement Architect within 28 days.


PAM 2006 Contract

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• Remove right of objection. As long as the Employer retainan Architect (who is registered as a Professional Architectunder the Act) there should not be any reason to object.

• Delete from the PAM 98 Form: not being a person to whomthe Contractor shall object (or reasons considered to besufflcient by an Arbitrator appointed in accordance withClause 34.0 ofthe Conditions.


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Responsibility for temporary work

PAM 98 Form deals only with site operations and methods ofconstruction.

There is no mention of responsibility for temporary works,which is the more important item.


PAM 2006 Contract - Clause 1.2:"Unless designed by the Architect or Consultant, the Contractor shallbefully resp ible for the adequacy, stability and safety ofalltemporary nd ofall methods ction ofthe Works,irrespective ofany approval by the Arc r Consultant.

PAM 2006 clarified:

(1) The Contractor is responsible for temporary work and methodsof construction where he is responsible for design or where theconsultant provided no design.

(2) The responsibility is irrespective of whether there is approval orconsent by the Architect of such works.

(3) The Contractor is however NOT responsible if the design forthe temporary works or methods of construction are designedby the consultant - example: basement sheet piling. In that case,the Contractor's responsibility is to carry out the work inaccordance with the consultant's design.


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• The PAM 2006 deals only with the Contractor's contractualresponsibility to the Employer.

• Note recent case judgment on the Architect's duty.

• Hart Investment v Fidler held that:even though a professional was not responsible for temporarywork, he could be liable to the Employer if the temporary workwas deficient and caused the Employer loss - example:collapse ofscaffolding affect some permanent work. Theprofessional has a duty to warn the contractor ifhe notice thatthe temporary work was deficient. The danger could be toperson or property.


Duty of Care

The PAM Contract and the NSC Forms are both drafted asconstruction only contracts (not design and build contracts),although very often, there may be some design elements.

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This happens when a Contractor proposed alternative designsto the consultant's design (example: piling alternative or r.c.design alternative)

or

carry out design to meet performance specification (example:curtain wall or air-conditioning design.)


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There are currently NO expressed provisions in the PAM 98Form on the standard duty of care. In the absence of expressprovisions, we can only rely on implied terms to the Contract.

There are two important duties:

1. the obligation to use reasonable skill and care and

2. the obligation to ensure that the end product is "fit for itspurpose."


"Skill and care" - Ifyou are an architect, the standard of skill andcare will be the standard of your peer and fellow members of yourown profession. So if your peers judge that you have done your best,then you will not be held liable because you would have carried outyour work with skill and care. In short the "Bolam" test (Bolam vFriern Hospital Management)

Recent Federal court case of Foo Fio Na v Dr Soo Fook Mun mayextend the liability. The Court imposed the "Roger" test (Australiancase of Rogers v Whitaker)where it was stated:".. .it has been accepted that the standard ofcare to be observed by aperson with some special skill or competence is that ofthe ordinaryskill person exercising andprofessing to have the special skill. But thestandard is not determined solely or even primarily by reference to thepractice followed or supported by a responsible body ofopinion in therelevany profession or trade instead, the courts have adoptedthe principle that, while evidence ofacceptable medicalpractice is auseful guide for the courts, it is the courts to adjudicate on what is theappropriate standard ofcare.... "


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• "Fitness for purpose" - if you are a design and build contractorand the product you build fail for whatever reasons, then you willbe liable even if you had carried out your work with your best skilland care.


Where the Contractor and NSC carry out the construction,but do not carry out any designs - the implied duty of carewill be reasonable skill and care.

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The Architect and the Engineer carries out the design, but donot carry out the construction - the implied duty of care willbe reasonable skill and care.

If the Contractor or the NSC carries out the construction andthe design, whether in the design of temporary works or as analternative to the consultant's design, the implied duty of carefor the portion of work will be "fit for purpose".

If the Contractor or NSC carries out the construction and thedesign to meet the performance specification in the contract,the implied duty will be "fit for purpose."


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Greaves (Contractors) Ltd v Baynham Meikle & Partners(1975)Lord Denning said: "Now, as between the building owners andthe Contractors, it is plain that the owners made known to theContractors the purpose for which the building was required, soas to show that they relied on the Contractor's skill andjudgment. It was, therefore, the duty ofthe Contractors to seethat the finished work was reasonably fit for the purpose forwhich they knew it was required. It was not merely an obligationto use reasonable care. The Contractor was obliged to ensurethat the finished work was reasonably fit for the purpose" .

A designer working under a design and build contractor maytherefore carry a 'fit for purpose' liability following this case.


Independent Broadcasting Authority v EMI Electronicand BICC Construction (14 BLR 1).

If the NSC carries out design and build, the NSC willtherefore have a "fit for purpose" liability.

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If the Contractor accepts the NSC, NSC's liability for"fit for purpose" will be pass on to the Contractor in hisrelationship with the Employer, unless there is anexemption of that liability in the Main Contract.


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The PAM 2006 Contract has such a clause to exclude theContractor's Fit for purpose liability.Uyou do not have such aclause, the Contractor can always refuse to accept the nominationbecause of unacceptable and unknown risk.

To maintain the chain of liability, the NSC will be required to enterinto a collateral agreement with the Employer and will be responsibleto the Employer for the "fit for purpose" liability.


Under JCT Contract (with Design), the liability is skill and care

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The JCT Design and Build Contract reduced the Contractor'simplied liability for "fit for purpose" by expressly providing that theContractor's liability is similar to an architect or other professionaldesigner undertaking design services. That liability is to use"reasonable skill and care" .

This Clause has been removed by most lawyers in UK advisingconstruction contracts using the JCT Contract (with Design).


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erials, goods and wall ensure that such works

Although it is not necessary to expressly state the "fit for purpose"liabilities in the above clause because it is implied, the PAM 2006Edition has expressly stated it so that there is no doubt about theliability :

when the Contractor propose any alternative designs- eg: alternative structural system.

when the Contract leaves any matter of design, specification orchoice of materials to the Contractor- eg: performance specification for curtain wall design.


Architect's Instruction

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Instructions that are issued in writing

and

".. ..issues an instruction otherwise than in writing.... "Means "Verbal instructions"


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What is the meaning of 'instructions in writing'?

Quote from the Rajoo on PAM 98 Form - page 75:"There is no requirement that the instruction be in any specific formas it is merely to be "in writing" As such the practical solution isthereforefor the architect to write the instructions in the contractor'ssite record book immediately and thus comply with Clause 2.5"

".. ... instructions do not have to be in any particularform, although toavoid disputes on what was intended should use clear words.Instructions given in electronic media (through the internet) may be inwriting."

"The main purpose ofsite meeting minutes is to record the events thathave taken place. However, it is submitted that ifsite meeting minutesare prepared and sent by the Architect to the Contractor, anyinstructions recorded therein would operate as confirmation underClause 2.5(i)."


In the current age of ISO, and the tendency to issue a multitude ofdocuments, there may be difficulties to recognized "what is an instruction inwriting" ifit is issued in all sorts of written form, example: issue ofdrawings via transmittal forms, letters which may constitute 'written'instructions.

The importance of proper documentation cannot be more important whenreference is made to PAM 98 Form Clause 25.1(vi) where it provided that:

"The Employer may determine the employment ofthe Contractor under theContract if the Contractor has persistently refused orfailed to comply with awritten instruction from the Architect. "

As written instructions do not need to be in any specific form, theContractor can default without being fully aware of it.

Since the Employer has a ground for determination if the "ifthe Contractorfail to comply with a written instruction.... ", it is important that there shouldbe no ambiguity on what is an "instruction".


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It is essential that for proper contract administration that allinstructions are properly documented.

Possible ProblemThe Employer requires the Consultants to obtain theEmployer's consent before issuing an instruction that has afinancial effect. If minutes of site meetings, emailcommunication, or comments written in the daily site recordbooks resulted in a claim from the contractors for complyingwith an Architect's instructions, then the consultants may beliable to the Employer for breaching the Employer'srequirement of 'no variations without authorisation'.


• PAM 2006 Contract - Clause 2.2:

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All instructions issued by the Architect shall be in writingexpressly entitled "Architect's Instruction" ('AI'). All otherforms ofwritten instructions including drawings issued by theArchitect shall be an AI:

2.2(a) upon written confirmation from the Contractor entitled"Confirmation ofArchitect's Instruction" ('CAl'); or

2.2(b) upon subsequent confirmation ofthe writteninstructions by the Architect with an AL


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Under the PAM 2006 Contract, there is no provision for 'verbal'instructions.

The PAM 2006 Contract encouraged that all instructions must beissued on the Standard Architect's Instruction proforma.

The Architect may continue to issue instructions by means ofdrawings, minutes of meeting or any other type of documents inwriting. This will be considered as "instructions in writing" butmust still be confirmed by an AI or CAl.

The AI should have serial numbering. The requirement for serialnumbering is to enable everyone to have a reference point when anAI is issued (example: if 20 AI are issued in a day - at least we knowthere were 20 AI's and not 18).


The issue of proper numbered AI will enable the Architect to havemore control, in particular where other consultants may have alsoissued instructions.

For the QS, it is a format to maintain better cost control ascontractors will be paid when there is an AI or a CAl.

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This will also encourage Contractor to have a better control overtheir operations on the site and also ensure that they are reimbursefor all work covered by an AI or CAl.

Contractors now do not have to worry if the Architect has yet toissue an AI. The scheme of things is that the Contractor can confirmthe architect's written instructions which for example, has beenminuted by a CAl with the relevant written instruction attached.The Architect therefore cannot refute that he has not ordered an AI.The CAl also must also have serial numbering.


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This is an unusual clause in the PAM 98 Form. It means thatArchitects' instructions must be sent by registered post orrecorded delivery. It can also be left at the site office as long asthere is an acknowledgment.

PAM 2006 has a new Clause 36 on 'Notices' to avoid thisproblem.


Letter of Award

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Contract Bills as defined also include: the Letter of Award.


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Can be read as follows:

Nothing contained in the Contract Bills ("Letter of Award") shallover-ride, modify or affect in any way whatsoever the application orinterpretation of that which is contained in these Conditions (whichmeans the "Conditions of Contract").


PAM 2006 Contract - Clause 3.Documents s mutually explanatory of

In the e t or inconsistencies betweenany ofthe Contract Document, the priority in the interpretation ofsuch documents shall be in the following descending order:3.1(a) the Letter ofAward:3.1(b) the Articles ofAgreement;3.1(c) the Condi ofContract;3.1(d) ontr Drawings;3.1(e) Contract and3.1(f) other documen incorporated in the Contract Documents,

unless expressly stated to be excluded in any ofthe ContractDocument."

The Contract Documents has been redefined. There is a priority ofdocuments in the event of conflict between documents.

The Letter of Award has been given the first priority to recognize theprobability that Employer frequently have special conditions in the Letterof Award that may conflict and over-ride the Conditions of Contract.


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As-built Drawings

Some As-Built drawings and 0 & M manual are required on CPCwhereas others can be prepared before the DLP. So it is notappropriate to say that all As-Built and 0 & M manual must besubmitted within 3 months. This very much depends on each projectrequirement.


As-built drawings describing the Works as-built under Clause3.10 may be interpreted to mean that the Contractor has anobligation to provide Architectural As-built drawings even ifthe Contractor have not carried out any designs and hasconstructed the Works to the Architect's design.

This should not be the obligation of the Contractor - theobligations of the Contractor should be to provide As-builtdrawings if he has carried out the designs or provide As-builtdrawings if such requirement is specified in the contract,example: pile position or finished earthwork levels.


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The requirement that the Contractor has to provideArchitectural As-built drawings, will conflict with theArchitect's basic services as defined in item 5(4)(vii) of Part IIof the Architects Rules 1986 which is clear that the Architectscope of work includes:

"providing a set ofdrawings showing the building asconstructed and obtainingfor the client the drawings ofbuilding services as installed together with all warranties andmaintenance manual as provided in the contract. "


06 Contract - Clause 3.10ntractor shall s shall cause any

Contractor upply As- "ngs and/oma anuals specified in the ContraNo documents in the manner ithin thetime specifie a d, the Contractor shallsupply.. .••• ....before the Compl


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PAM 2006 Contract clarified the types of As-built drawingsand/or 0 & M manuals to be provided by the Contractor:

1) As-built drawings and/or 0 & M manuals where theContractor has provided design.

2) If the Architect require any other as-built drawings wherethe Contractor has not carried out any design this must bespecified in the Contract documents. Example: As-builtpile positions, final earthwork levels ...


PAM 98 gave the Contractor a 3 month period to submit theAs-built and 0 & M manuals. This may not be practical assome of the As-built drawings and 0 & M Manuals arerequired upon Practical Completion for CF purposes.

PAM 2006 Contract requires that the As-Built and/oroperation and maintenance manuals shall be supplied "in themanner and within the time specified.. "

The Contractor's obligation on As-built drawings and 0 & Mmanuals extend to NSC documents.


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Variations covers 'change to ultimate use ofthe Works'


Variation shall include any changes which may be designed toalter the ultimate use to which the Works "This may mean that if you change an apartment block to a Hotel, itwould be considered as a variation and the rates in the BQ wouldapply.

The risk to both the Employer and Contractor are unpredictable.

There will be delay caused by authority approval due to change ofuse.

The variation could be a substantial omission or addition to theoriginal sum.

There will be many items in the original contract not catered for,example, I.D. works and special services will be required for hotelsas compared to a medium cost apartment.

This part of the Clause is deleted from the PAM 2006 Contract asthe provision is not practicable.


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New provision for carrying out variation pending valuation

ontract - Clause 11.2:issue an AI ordering a Variation .••.... Pending

the valuation 0 Variations, the Contractor s ry out with duediligence and expedition all Variations so instru

"Pending the valuation ofthe Variations, the Contractor shall carryout... "The PAM 98 has no such equivalent Clause.

This Clause clarified that that the Contractor have a duty to complywith an AI and that the valuation ofthe Variations is a separatematter. It cannot be used as an excuse that the Contractor will onlycarry out the work only when the price has been agreed.


New provisions to issue Variation up to issue of CPC

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There is no express provision in the PAM 98 Form whether theArchitect can order a variation when he has already issued aCertificate of Non Completion and the work is still in progress.

The PAM 2006 Contract clause expressly provides that Variationscan be issued up to the date of Practical Completion.Note that the date of Practical Completion can be after the CNC hasbeen issued.

After CPC, the Architect can issue Variations only if it is to complywith new requirements from the Authorities and the ServiceProviders' requirement. The Contractor is bound to perform theworks at rates which may be different from the Contract rates.

If the Architect has to issue Variations after the CPC which is notdue to Authorities and the Service Providers' requirement, theContractor is not bound to perform the works.


Loss and expense caused by a variation

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"lithe Contractor applies..... "It was held in Merton v Leach that the above statement didnot imposed an obligation on the Contractor to apply.


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"•.a Variation .... has caused the Contractor direct loss and/orexpense..... "The term "loss and expense" is usually related to damages forbreach of contract. Section 74 of the Contract Act define it as"any loss or damage caused ....which naturally arose in theusual course ofthings from the breach... " [first limb of Hadleyv Baxendale].

Loss and expense will include amongst others claims for lossof profit, financing charges, head office overheads.

It is doubtful that a variation can cause direct loss. If thevariation affects the regular progress of the Works and thecontractor suffers loss and/or expense, it is covered underClause 24.


It is possible that a variation can caused additional expenses whichmay not be paid under any other provisions.

Example: if the architect instructed the contractor to pour 100m3 ofconcrete at the penthouse level of the building after the contractorhas removed his tower crane, the contractor should be able torecover his additional expense to hire special crane facilities to pourthe concrete at that high level.

PAM 2006 Contract - Clause 11.7:"Where a Variation has caused or is likely to cause the Contractor toincur additional expenses for which he would not be paid under anyprovisions in Clause 11.6, the Contractor may make a claim for suchadditional expenses provided always that..... "


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PAM 98 procedure for claims for loss and expense

The procedure for claim submission for loss and expense caused bya variation under PAM 1998 are as follows:


Under the PAM 98 Form, the Contractor can apply anytime ifa variation has caused him loss and/or expense.

The Architect shall ascertain the amount of the loss and/orexpense.

If the Architect cannot assess because of insufficientinformation, the Architect has to request information fromthe Contractor.

In practical terms, the Architect will not assess any claimunless the Contractor submits his particulars. The importantpoint here is that the Contractor has no time limit to submithis claim.


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PAM 2006 has a two stage process for any claims. Notice is acondition precedent to a claim.


"The giving ofsuch written notice shall be a conditionprecedent to any entitlement.... "Written notice together with an initial estimate is a conditionprecedent to a claim.

On completion of the Variation, the Contractor has 28 days(unless the Architect agrees to give him more time) to submithis final claim. If he fails to comply, he will be deemed to havewaive his claim.

This process is to enable the parties to finalise all claims whenmatters are fresh, rather than inflated claims later on.


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To explain this Clause, it is best to quote the Reference Book on thePAM 98 Form - page 127:

" ..... The words reverse the ordinary rule ofcontractual interpretationwhereby the written words in a contractprevail overprintedconditions"

"Clause 12.2 expressly states that the printed form is to prevail overwritten words. [fany Contract Bills provision attempts to modifY oroverride or affect the printed conditions in any way, the printedconditions will prevail. Thus, a special clause in the Contract Billswhich conflicts with one ofthe printed conditions will be ignored."


"Clause 12.2 ofthe PAM 1998 Form reverses the above rule.Instead it precludes the arbitrator or courtfrom looking at anyspecial Contract Bill provisions to see what the real intentions ofthe parties... "

What this means is that, in the event ofany conflict between anywritten words in any special written documents such as theLetter ofAward and the Contract Bills, Clause 12.2 expresslystates that the printed Conditions in the PAM 98 Form shallprevail over the Letter ofAward and the Contract Bill.


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PAM 98 - Letter of Award cannot override the Contract Conditions

"Nothing contained in the Contract Bills [Letter of Award] shalloverride, modify or affect in any way whatsoever the application orinterpretation of that which is contained in these Conditions

This interpretation also applies to all documents comprising theContract Bills [example: Contract particulars included in thePreliminaries]


So under the PAM 98 if there is a conflict between the Letterof Award or the Contract Bills with the printed PAM 98Form, the printed PAM 98 Form will prevail over the Letterof Award or the Contract Bill. The provisions in the Letter ofAward or the Contract Bill will be of no effect.

Any special requirements stated in any of the abovedocuments, if it conflicts with the Conditions of Contract, willbe of no effect. This includes any special terms and conditionsagreed by the parties which has been incorporated in theLetter of Award.

A provision in the Contract Bills to delete Clause 12.2 may notbe valid, as the Conditions will prevail over the Contract Bills.


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Lord Denning in English Industrial Estate v George Wimpey 7BLR 122, found this clause so offensive that he was evenprepared to disregard them as a matter ofpublic policy

Duncan Wallace said that that this clause is notorious andthat "such artificial priority between documents can onlyproduce injustice.....seeking to put forward an interpretation ofthe contract which departs from the parties' true intention.... "

Vincent Powell-Smith in his book on the PAM/ISM 1969Form said that: "the clause should be entirely deleted as inpractice it often defeats the true intentions ofthe parties andthere is no legal or logical justification for its inclusion"


PAM 2006 Contract

Clause 12.2 of the PAM 98 Form has been deleted.

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Although Clause 12.2 has been deleted, this deletion is not toencourage professionals to amend the Forms on an ad-hocbasis. Suggest they seek proper advice.

Amending one clause may have repercussion on otherClauses.

Any amendments carried out to the Main Form MUST alsobe carried through to the NSC Form.

If there are conflicts between Clauses, the Court may applythe contra proferetum rule. This means if there is any doubt, itwill be interpreted in favour of the Contractor.


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Amending Forms of Contract

Example of inconsistent amendments:

when consultants amended the period ofhonouring certificatesin clause 30.1 of the PAM 98 Form from 14 days to 60 days, theyoften forget to amend the relevant Clause 11.4 of the NSCForm.

As a result of this inconsistent provision, the Contractor has topay the NSC within 14 days whereas the Employer need onlypay the Contractor within 60 days from the date of thecertificate.


Example of Inconsistencies in the EDT Clause in PAM 98

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Example of consistent amendments in PAM 2006 Contract:

The Clause in the PAM 2006 NSC Contract need not bechanged irrespective ofthe terms of payment in the maincontract.


Payment for Materials

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"•. ..goods intendedfor and delivered to or placed adjacent to theWorks.... "Under this Clause, as long as the materials are "intended" for theWorks, the Employer may have to make payment.

This will include payment of materials used for temporary works example: formwork materials, sheet piling and strutting.


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Difficult to make payment for temporary sheet piling etc., especiallyif they are old materials.

PAM 2006 Contract expressly provides that claims for materialsmust be for materials to be incorporated in the permanent work.


Materials paid for becomes the property of Employer

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This clause is similar to Clause 14 of the PAMIISM 69 Form.

This clause have been held insufficient to defeat a Retention of Title('ROT') in the event ofthe Contractor's insolvency.


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Under PAM 98 - the materials will only be included in the interimcertificates, after the contractor has paid his supplier full payment

The Clause was intended to solve Retention of title ('ROT') or'Romalpa' problems on the premises that ifthe Contractor has paidhis supplier, he will have good title to the materials.

Explain ROT or 'Romalpa' problems


Off-Site Materials

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According to Rajoo, this clause is for payment for materials off-sitein the Main Contract.

There is no similar provisions in the NSC Contract to pay the NSCfor off-site materials.


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If the employer has to pay for materials off-site, there should beprovisions in the PAM 98 Form to protect the Employer's interest,when such payments are made.

Consider the following problems:

(a) How do you ensure that the Employer has the ROT. Not allmaterials can be identified for "ROT'.Example: glass for curtain walling, steel members fortrusses.

(b) How do you protect the materials from falling in the handsof receivers in the event of the contractor or sub-contractoror supplier's insolvency.

(c) How do you distinguish the materials belonging to theEmployer from that belonging to others.

(d) What happens if say payment was made for lift equipment,and it was later found that some equipment was not incompliance with specification?


PAM 2006 Contract

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No provisions have been made to pay for materials Off Site. Itis suggested that if materials off the site is to be included inpayment certificate, it should be dealt with in a separatemodule provision.


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to have made a false warranty, any Ibe made good by the Contractor or shall be set-off

Clause 30.3 of PAM 1998 requires for payment of materials to beincluded in payment valuations only after the Contractor and theSub-Contractor has paid for the materials. This is also insufficient toensure that the Employer have a "retention of title ('ROT') on thematerials" since it is not possible to ensure that the Contractorsuppliers and sub-suppliers etc., has no ROT on the materialssupplied by them.


As the Clause is not practicable and also to avoid the problem ofascertaining titles, this Clause imposed an contractual obligation tothe Contractor that when he applies for payment, he has to warrantthat he has title, so that when payment are made to him, the title willbe deemed transferred, and if he does not have title, then he will beliable to the Employer for breach of the warranty.

The PAM 2006 Contract has reverted to paying for materials on sitewithout the requirement that the Contractor have to pay hisSuppliers in full.

PAM 2006 Contract -Clause 14.4 therefore provides a contractualremedy which the Employer can take against the Contractor in theevent the goods, having been paid has been repossessed.

ROT is a difficult problem.


39

PRACTICAL COMPLETION

Practical completion is perhaps easier to recognise thanto define. So perhaps it is prudent to brief on the currentstate of the law relating to Practical Completion.

In Westminister County Council v J Jarvis, Salmon LJ inthe Court of Appeal said: "..J take it that these words tomean completion for all practicalpurposes, that is to say,{or the purpose orallowing the employer to take possessionofthe works and use them as intended.... "


Contractors no doubt were more than pleased with thisdefinition, but unfortunately, the problem was later confusedwhen in the same case on appeal at the House of Lords,Viscount Dilhorne said:

"This contract does not define what is meant by "practicallycompleted". One would normally say that a task was completedwhen it was almost but not entirely finished: but "practicalcompletion" suggest that that is not the intended meaning andthat what is meant is the completion oCall construction workthat has to be done.... "


40

The courts made a further attempt to define PracticalCompletion in H. W. Neville (Sunblest) Ltd v William Press &Son (1981) 20 BLR 78. In this case defects occurred afterpractical completion of a preliminary work contract whichdelayed a follow on contract. Here the judge sided with theviews of Dilhorne in saying

"1 think the wordpractically complete....gave the Architect adiscretion to certify that the Contractor hadfulfilled itsobligation.....where very minor de minimis work had not beencarried out, but ifthere were any patent defects ....the Architectcould not have given a certificate ofpractical completion"


In the Emson Eastern Ltd v EME Development Ltd (1991),Judge John Newey in arriving at a decision, took account ofwhat happens on building sites.

81

He considered that building construction is not like themanufacture ofgoods in a factory. The size ofthe project, siteconditions, use ofmany materials and employment ofvarioustypes ofoperatives make it virtually impossible to achieve thesame degree ofperfection as can a manufacturer. His view wasthat it must be rare for a new building to have every screw andevery brush ofpaint correct. Further a building can seldom bebuilt precisely as required by the drawings and specification.Judge Newey in considering the meaning ofpracticalcompletion thought that he stood somewhere between LordSalmon and Dilhorne in the Jarvis case. Completion thereforeoccurs before defects and other faults have to be remedied.


41

So this is where the current state of law is.

We will now refer to the PAM Clauses and see how theyhave dealt with it.



42

"•...the Works are practically completed, meaning that the Contractorhas performed and completed all the necessary Works specified in theContract and the patent defects existing in such Works are "deminimis"This is the definition of Practical Completion in the PAM 98 Form.

Contrast this with the explanation of Practical Completion providedby Rajoo on page 144:

"Practical completion under Clause 15.1, may therefore mean that allconstruction work that has to be done is completed. The Architect'sdiscretion (to issue CPC) is limited only to very minor items ofworkleft incomplete under the 'de minimis'principle. Works can bepractically completed notwithstanding that there are latentdefects........ The architect may not issue a Certificate ofPractical

Completion ifthere are any patent defects"


The PAM 98 definition of Practical Completion was anintended extract from the judgment ofH. W. Nevill (Sunblest)Ltd v Wm Press & Sons 20 BLR 87.

However what had been provided in the PAM 1998 Form isentirely different from the case law definition and theexplanation from Rajoo's Book.

Under the PAM 98 Form, the "de minimis" principle meanthat the CPC may be issued when the patent defects existing insuch Works are "de minimis", when what is meant is that theCPC may be issued if very minor items ofwork is leftincomplete (without patent defects)


43

PAM 2006 Contract - Clause 15.1The Works are Practically Completed when:

15.1(a)


"other requirements expressly stated in the Contract Documentsas a pre-requisite for the issuance ofthe Certificate ofPracticalCompletion•... "

What is the meaning of "other requirements?"Example:

(i) testing and commissioning requirement;

(ii) training of staff to use equipment;

(iii) requirement for statutory certificates and/ormanufacturers' warranties for equipment, materials andgoods incorporated into the Works;

(vi) any As-built Drawings, operation and maintenance manualswhich may be required at CPC


44

Whether the Work is Practically Completed is a matterto be decided by the Architect based on the provisionsstated in Clauses 15.1(a) and 15.1(b). Accordingly, theWorks is considered to be Practically Completed :-

Example 1when in the opinion of the Architect, the Employer canhave full use of the Works for their intended purposesand there is no outstanding works, no patent defects andthere is no other pre-condition in the Contract that theContractor need to comply before the issuance of theCertificate of Practical Completion;

A situation difficult to achieve, but a possibility


Example 2when in the opinion of the Architect, the Employer canhave full use of the Works for their intended purposes,but there are works and defects of a minor nature still tobe attended tobut there is no other pre-condition in the Contract thatthe contractor need to comply before the issuance of theCPC.

In such a scenario, the Architect will specify a reasonabletime for the Contractor to attend to such works andthe Contractor will thereafter give a written undertakingto the Architect that he will attend to the works withinthe time specified; or


45

Example 3when in the opinion of the Architect, there are stillworks and defects of a minor nature still to beattended to and there are pre-condition in theContract that the contractor has to comply with beforethe issuance of the CPC, the Architect will only issue aCPC when the Contractor has complied with the precondition in the Contract as well as making good anyworks and defects of a minor nature specified by theArchitect.


Under PAM 98 Clause 15.1 there is no obligation on theContractor to apply for a CPC. The Architect must issuea CPC when he is of the opinion that the Contractor hascompleted his Works.

The date of the CPC is the day named in the certificate.


46

Under the PAM 2006, the Contractor must give notice tothe Architect when he reaches the stage of PracticalCompletion. The Architect must act within 14 days uponreceipt of the notice. He has the following options:


the Architect is ofthe 0

·cally Completed uritten no

for his opinion; 0

15.2(b)(i) the date ofreceipt the Contractor's writtenundertaking to ma od and to complete worksand defects ofa minor nature, where there aresuch works and defects; or

15.2(b)(ii) the date ofl"ecl~iptofthe Contractor's writtennotice, where re are no works and defects ofaminor nature.


47

The date of CPC is important because it:

(i) It marks the end of the Contractor's liability toLiquidated Damages

(ii) It relieves the Contractor of his responsibility for insuringthe Works;

(iii) Its triggers the commencement dates of the DefectLiability Period;

PAM 2006 Contract prefers that the provisions for dating theCPC is defined in the Contract rather than subject theArchitect to undue pressures from the Employer inprolonging the date of the CPC in order to maximize theamount of LD.


CLAUSE 18.0 - INDEMNITY

The concept of Indemnity and Insurance


95

96

48

"... unless it is solely due to any act or neglect ofthe Employer..... "The Employer is not covered by the indemnity if he is solelynegligent.

". ..or ofany person for whom the Employer is responsible.... "The indemnity also does not cover if the Architect or Site Staff fail tosupervise the work properly, and as a result an accident occur.

"..In that event, the Employer shall be liable."The Employer's liability is expressly provided.


PAM 2006 Contract - Clause 18.1"The Contractor shall be liable for and shall indemnifY theEmployer ....... provide that the same is due to anynegligence, omission, d and/or breach ofcontract by theContractor or ofany Person for whom the Contractor isresponsible"

The Contractor indemnifies the Employer if he or his subcontractor is negligent.


97

98

49

To ensure that the Contractor is not able to raise the defencethat the negligence is due to the failure of the Architect or SiteStaff refer to Clause 18.4.

INSURANCE


PAM 2006 Contract ~ Clause 19.1:indemnifY th I]Jloyer •.

C r shall,. t and maintain in the jo ames 0

Employer, Contractor, sub-contractor and all interestedparties inrespect ofpersonal injuries or death and injury or loss and/or damageofproperty real or personal arising...... and whether or not suchinjury, death, loss and/or damage is caused by negligence, omission,default and/or breach ofcontract by the Contractor, Employer, subcontractor and interestedparties and any oftheir servants and agents........ /fthe Contractor having regard to his indemnity to the Employerunder Clause 18.0 desires to increase any ofthe insurance coverage,he shall do so and allow for any additional cost. The insurance policyshall include thefollowing endorsements"


50

an endorsement toprofessi

ees and repntatives of

(iii) an endorsementfor waiver ofall expressed or implied rights ofsubrogation or recoveries against the insured

(iv) an endorsemeninsurance up toDefects.

n or renewal ofthertificate ofMaking Good


New insurance clause.

"..rights ofsubrogation.. " means that if the Contractor is sued,the insurance cannot plead that the Employer caused it. Sameapplies to the Employer.

"..cross liability.. " means that the cover extends to theContractor and the Employer as if they are separately insuredby the same insurance company.

So it is not necessary to say that the Contractor will notindemnify the Employer if is caused by the Employer orpersons for whom the Employer is responsible.


51

Clause 20A - Insurance of New Buildings etc.

The insurance requirement is not up to date. The insurance is onlyfor fire, storm, tempest, lightning, flood, earthquake, aircraft oranything dropped therefrom, aerial objects, riot and civil commotion.This coverage is not as wide as a CAR insurance.


If any additional insurance requirements are specified in theContract Bill, the new requirement will not be valid becauseof Clause 12.2.

English Industrial Estate v George Wimpey 7 BLR 122 - whereit was argued that despite the additional coverage foradditional insurance specified in the Contract Bill, theadditional coverage in the Contract was not valid because ofClause 12,2


52

Cover for the Standard Form is now more comprehensive andinclude all the risk covered by the PAM 98 Form but extended toinclude theft. ground subsidence. existing underground cables and/orpipes or other underground facilities. bursting or overflowing ofwatertanks. apparatus or pipes. strike. riot and civil commotion. maliciousdamage and trespass.


There is provision to have additional insurance requirement to suitthe project requirement to be specified in the Contract Bills. Forexample: "vibration cover" for piling contract.

New Clause also advised that the Contractor is at liberty to coveradditional risk if he considers that the risk under the Contractcovered by the insurance is insufficient - in view of his indemnityunder the Contract to the Employer.


53

" ..... shall be at the sole risk ofthe Employer as regards to lossor damage under Clause 20 A risks."

This means that if Clause 20B is used, the Employer assumeall the risk. This defeats the purpose of the indemnity clause.(Clause 18)


To make matters worse, this clause makes it clear that "suchloss or damage shall be disregarded in computing any amountspayable to the Contractor... ".


54

Is there any logic that the restoration of works destroyed shallbe a variation?

PAM 98 Clause 20.C: The provisions under Clause 20.C isgenerally the same as Clause 20.B except that the insuranceby the Employer includes the value of the existing building


Scottish Special Housing Association v Wimpey Construction 31 BLR17.

The Scottish Court ofSession held that afire caused by thecontractor's negligence rendered the contractor liable to the employerunder the indemnity clause.

Lord Brand in this case said: "....1 would only add that the court must,where possible, adopt a construction ofa contract which makescommercial sense the construction contended by the secondparties (i.e. the Contractor) wouldproduce a "bizarre" consequence inrespect that it would enable the secondparties negligently to burndown thefirst parties' properties and thereafter to reinstate it all at thefull expense ofthe first parties. Such a result would be so patentlyabsurd that no court would adopt a construction which lead to it unlessdriven to do so by clear and unambiguous language"


55

Later at the House ofLord{1986] 1 WLR 995 - allowing theappeal, that on the true construction ofthe two clauses it wasintended that the employer should bear the risk ofdamage by fireincluding fire caused by the negligence ofthe contractor


PAM 2006 Contract streamlined the risk to be covered,whether by the Contractor or by the Employer to be similarto Clause 20.A. For example, under Clause 20.A.4

Upon the occurrence ofany loss the Contractor shallwith due diligence restore, replace or repair the same..... Allmoney ..... shall be paid in the first place to the Employer. TheEmployer shall.... pay the balance to the Contractor and/orNominated Sub-Contractors by installments under separatecertificates to be issued by the Architect. The Contractor shallnot be entitled to any additionalpayments in respect oftherestoration other than the monies received under the ..insurance.


56

The Insurance clauses in the PAM 98 and the PAM 98 NSC are quiteconfusing. In the NSC Contract, all the risk is with the Contractor, even ifthe risks, such as fire are caused by the NSC negligence.

There is no difference whether the insurance are covered under Clause 20.A(by Contractor) or Clause 20.B and 20.C (by Employer)

In addition, the Contractor shall also pay the NSC all the losses suffered.

These have all been revised in the PAM 2006 Sub-Contract to reflect theproper allocation of risk.


LIQUIDATED DAMAGES

Background information on Liquidated Damages

113

In Selvakumar v Thiagariah [1995J 2 AMR 1097, the court held thatthe under Section 75 ofthe Contracts Act, in Malaysia, all damagesare considered as penalty, and the party imposing the damages hasto prove his loss.

Section 75 of the Contract Act"When a contract has been broken. ira sum is named in the contractas the amount to be paid in case orsuch breach. or if the contractcontains any other stipulations by way ofpenalty, the partvcomplaining ofthe breach is entitled. whether or not actual damage orloss is proved to have been caused thereby, to receive from the partvwho has broken the contract reasonable compensation not exceedingthe amount so named or, as the case may be, the penalty stipulatedfor"


57

In Selvakumar the parties entered into an agreement whichcontain a clause stipulating that in the event of default, theentire amount was forfeitable. The Federal court held thatunless there was proof of damage or loss suffered, the claimantwas not entitled to forfeit the entire amount (In other words,how could the same amount be forfeited irrespective of whenthe contract was rescinded - a definite penalty)


Sakinas Sdn Bhd v Siew Yik Hau may have given hope that theSelvakumar case may have been misapplied. From the analysis ofthe Selvakumar case, there are two classes of damages:

The first case (Sakina) is where the courts would find:(i) it difficult to assess the actual damage or loss where there is no

known measure ofdamages.(ii) but there is real evidence to show some real and not too remote

loss.

The second case (Selvakumar) is where(i) damages in a case could be assessed by seUled rules.(ii) there is inherently some actual damage or loss from the

evidence or nature of the claim.(iii) the loss is not too remote.


58

Whether LD can be deducted before proof of damages.In Arab Malaysian Corporation Builders v ASMDevelopment,the court refused to grant a Contractor an injunction againstthe Employer for deducting LAD stated in the contract beforeproof of loss. The court held that the construction contractgives the Employer a provisional right to deduct the LDspecified, and if he subsequently cannot prove his loss, he willhave to refund the sum deducted to the contractor.

Note that any dispute under a PAM Contract will be anarbitration case and not a court case, and an arbitration canonly be held after the completion of the works.


PAM 98 also have a provision under Clause 30.3(ii) that any disputeon "set offor to any counterclaims or any allegation ofdefective works,materials or goods orfor any other reasons" be referred to arbitration.

PAM 98 did not define 'set-ofr. It may be argued that LAD is coverunder "set off ....•. or for any other reasons. " If the Contractordisputes the LAD, then the Employer may be prevented fromdeducting the LAD until the dispute has been arbitrated.


59


The PAM 2006 is drafted differently, but both clauses hope tocircumvent the Federal Court decision on the Selvakumar case

" ..is to be deemed to be as the actual loss... "= " .. is a genuine pre-estimate ofthe loss and/or damage.. "

The Contractor by entering into this Contract agrees to pay to theEmployer = Both the Employer and the Contractor by entering intothis Contract have agreed

119

"..without the needfor the Employer to prove his loss and/or damageunless the contrary is proven by the Contractor. "This re-states the common law position which requires the partycontending that the amount is a penalty to prove that it is so.


60

Issue of Variation after CNCWhat is the position under PAM 98 ifthe Architect has to issue avariation after he has issued a Certificate of Non Completion?Can the Architect grant an EOT certificate after he has issued aCNC?

Where is the Architect "express provisions" in PAM 98 to empowerto issue a variation after the CNC?


PAM 2006 Contract has express provisions.

121

PAM 2006 Contract -Clause 11.3"Th chitect may issue instructions in writing requiring a Variationat before the issuance ofthe Certificate ofPracticalCompletion "

11 ofTime....erthanissued,

ate ofNon-. Th revise the

ted Damages he is entitled to retain..... "


61

EXTENSION OF TIME

Notice a condition precedent to a EOT claim

Quote from the Rajoo on the PAM 98 - page 207:

" . ...The failure to give notice..•.within the time required may disentitlethe contractor to an extension oftime. The words ofClause 23.1relating to the time within which the giving ofthe notice is required ismandatory"

"The wordings ofClause 23.1, and in particular Clause 23.2....stipulates that the giving ofnotice by the Contractor is a conditionprecedent to the performance by the architect ofhis duties ...... "



62

The wordings in the PAM /ISM 69 Form were held not to mean thatnotice is a condition precedent to a claim.

Clear words of the intention to make notice a condition precedentshould be used to replace "Ifand when it becomes reasonablyapparent... the Contractor shallforthwith ofthe occurrence ofsuchevent notifY the Architect in writing... "

There needs to be a time for such notice to be submitted.


n ofthe Works isofthe Relevant

oftimenno

23.1(b) within twenty eight ( s ofthe end ofthe cause ofdelay,the Contractor shall send to the chitect his final claim for extensionoftime ..... to enable the Architect to assess any extension oftime to begranted. If the Contractor fails to submit such particulars within thestated time (or within such longer period as may be agreed in wby the Architect), it shall be deemed that the Contractor has assthat such Relevant Event will not delay the completion ofthe Worksbeyond the Completion Date. "


63

The PAM 2006 Contract makes it clear that notice is acondition precedent.

Under the PAM 2006 Contract, the Contractor need to givenotice within twenty one (28) days and follow up with theparticulars in a further 28 days. The Contractor's notice is toenable the Architect to issue an AI to reconsider any earlier AI orto mitigate any delay.

This is in compliance with Hudson:


Hudsons 11th Edition paragraph 4.132:Building and engineering contracts frequently contain provisionsrequiring a contractor to give notice within a reasonable time ofeventsoccurring which he considers may entitle him to claim additionalpayment under the terms ofthe contract. Since the purpose ofsuchprovisions is to enable the owner to consider the position and itsfinancial consequences (by canceling an instruction or authorizing avariation, for example, he may be in a position to reduce his financialliability if the claim is justified), there is no doubt that in manyifnot most cases the courts will be ready to interpret these noticerequirement as condition precedent to a claim, so thatfailure to givenotice within the requiredperiod may deprive the contractor ofallremedy

The reason for the very generous 28 days notice requirement isbecause in the Nominated Sub-Contract Form (Clause 21.1 oftheNSC Form), the NSC has to submit notice to the Contractor within21 days and the Contractor has a further 7 days for follow up action.


64

Under PAM 98, the Architect can only grant an EOT iftheContractor submits his claim for extension of time


The PAM 98 procedure:" ..Provided always the Contractor submits to the Architect hisapplication for extension oftime the Architect shall ascertainandfIX such new Date for Completion"

This may be a problem. Consider:If the Employer has not paid the Contractor his progress payment,he would be in breach of contract, but the Contractor under Clause23.7(xi) "any act ofprevention or breach ofcontract by theEmployer... ", is entitled to an EOT provided he applies on thatground.

If the Contractor intentionally decides not to apply for an EOTbased on the above grounds and deprive the Architect the power togrant an EOT, the Employer will have breached the contract.

Can the Employer despite his breach of contract in not paying theContractor impose LD for late completion?


65

In the Australian case of Gaymark Investment v WalterConstruction Group (1999) NT Supreme Court 143, the facts arenearly similar. The court found that the Employer was inbreach of contract in not making timely payment to theContractor, and his breach prevented him from enforcing theLD clause on to the Contractor. The court refused to upholdthe 'notice condition precedent' provision relying on the'prevention principle'- that is that a party cannot takeadvantage of its own wrong in enforcing a contract.

In order to ensure that the prevention principle do not apply tothe PAM 2006 Contract, a new provision has been expresslydrafted to allow the Architect to grant an EOT even if theContractor choose not to apply.


132

For example, the Architect can grant an EOT if the Employerbreached the payment terms and there was no application from theContractor. However, this does not exempt the Contractor fromcomplying with the 'notice condition' provision although theArchitect now has discretion to grant an EOT irrespective whetheror not application has been submitted.

PAM 2006 Contract - aause 23.6:"In assessing the exte oftime, the Architect may take intoaccount the following:(i) .(ii) any r Relevant Events which in the Archite 'Pinion will

enti the Contractor to an extension oftime w theContractor has omitted orfailed to notifY the Architect. "


66

Under PAM 98, the Architect is required to grant an EOT within areasonable time and to grant it prospectively i.e. before the Date forCompletion.

He can only grant an EOT retrospectively (i.e. after the Date forCompletion) "upon failure.ofthe Contractor to submit his applicationfor extension oftime."

It is not expressly stated that he can grant an EOT retrospectivelyfor any other reasons.

This means that after the issue of a CNC, if the Architect issues avariation and he is precluded from granting an EOT, time will be atlarge.

EOT Case law 1


In Amalgamated Building Contractor v Waltham Holy Cross [1952J 2All ER 452, the court had to consider whether an extension of timegranted after the work was completed was valid. The contractprovided that the contractor was entitled to an extension "by reasonoflabour and material not being available. ... "

Facts• The contractor applied for extension of time in January 1949

due to labour and material shortages. The Architect did notrespond.

• The work was in culpable delay and was eventually completedin August 1950.

• In December 1950, four months after the completion date, thearchitect wrote a letter to extend the time of completion to May1949. LAD is therefore to be imposed from May 1949 to August1950.


67

The question that the court had to address was whether theextension was valid. In holding that the extension was validDenning L.J. explained it as follows: "Take a simple casewhere the contractors ...have overrun the contract time for sixmonths without legitimate excuse. They cannot get an extensionfor that period. Now suppose that the works are stilluncompleted and a strike occurs and lasts a month. Thecontractor can get an extension oftime for that month. Thearchitect can clearly issue a certificate which will operateretrospectively. He extends the time by one month from theoriginal completion date, and the extended time will obviouslybe a date which is already passed"


However, there is a caveat to the power to grant extension oftime during the period of culpable delay. Denning L.J. addedthat "1 would observe that on principle there is a distinctionbetween cases where the cause is due to some act or default ofthe building owner, such as not giving possession ofthe site indue time, or ordering extras, or something ofthat kind. Whensuch things happen the contract time may well cease to bind thecontractors, because the building owner cannot insist on acondition if it is his own fault that the condition has not beenfulfilled"

In short, the Architect cannot grant an EOT for variationwhen the Contractor is in culpable delay.


68

EOT Case law 2A case where the court was given further opportunity to considerthe issue of extension of time during the period of culpable delay wasin Balfour Beatty Building Ltd v Chestermount Properties 62 BLR 1.The dispute was based on the JeT 1980 Form.

Facts• May 1989 - the contractor failed to complete the building work

(without fit out) by the contract completion date.• Between February to July 1990, when the contractor was

already several months in delay in the building works, thearchitect issued a series of instructions for fit-out works.

• October 1990 - the contractor completed the building works• February 1991- the fit-out works was completed.


Extensions of time for 199 days were granted for the fit-out works.The 199 days were added to May 1989, the original date forcompletion of the building core works.

The new completion date was accordingly extended to November1989.

It must be noted that the extended completion date of November1989 was before the date of the instruction for the fit-out works. Theinstruction for the fit out work was issued between Feb - July 1990.

The same issue - whether the architect had the power to order avariation instruction when the contractor was already in culpabledelay


69

Contractor's Argnment:

1. the effect of issuing a variation instruction during a periodof culpable delay rendered time at large and that theemployer would lose his right to levy liquidated damages.

2. Alternatively, the contractor contended that the architectshould have granted an extension of time on a gross basis,that is to say that the extra period for executing the work,which was 199 days, should have been calculated from thedate when the variation instruction was given.


140

Court decision: Under the JCT 1980 Form, the architect hasthe power to grant extensions retrospectively for all thegrounds provided under Clause 25.3, and not merely to thosewhich would be classified as 'acts of prevention.'

The court further held that any extension of time should be ona nett basis, that is by taking a date currently fixed andadding to it the number of days which the architect regardedas a fair and reasonable extension of time.

It should be noted that the Balfour Beatty case was based onthe JCT 1980 Form so we must not assume that the case isapplicable to the PAM 98 Form.


70

Clause 23.9 is drafted to expressly allow the Architect to issue anEOT after the issue of a CNC, to cater for a Balfour Beattysituation.

Clause 22.3 must be read complementary to this clause. It allows aCNC to be revoke by a later EOT Certificate.

PAM 2006 Contract - Clause 22.3:"In the event the Archit Certificate ofExtension ofTimeunder Clauses 23.4,23.9 10 which has the effect offlXing aCompletion Date which is later than the date stated in a Certificate ofNon-Completion previously issued, such certificate shall have theeffect ofrevoking the Certificate ofNon-Completion earlier issued.... ".


The Architect must respond to the Contractor within 6 weekson the EOT. He can either grant an EOT or inform theContractor that he rejects it. Failure to respond to theContractor may encourage a time at large argument.

PAM 2006 Contract - Clause 23.4:"Whe Contractor has submitted sthe Ar 'tect's consideration, the Archreject the Contractor's application or issue aExtension ofTime within six (6) Weeksfromsufficientpa 'he Architect may iofrejection ate ofExtension 0

after the Co teo "


71

PAM 2006 Contract ~ Clause 23.10:"The Architect may (but not obliged to) within twelve (12) Weeks after

ofPractica eview Datesuch

nyof

New Clause to allow the Architect to review EOT granted within 12 weeksafter completion. The Clause stipulate "may" review the EOT. If theArchitect is not reviewing the EOT after the CPC, he shall confirm this tothe Contractor.

This Clause provides the Architect an opportunity to review after the CPCto avoid the issue being review by the arbitrator. Of course it does notpreclude the arbitrator from reviewing, but at least it gives him anopportunity to correct any "unreasonableness" before it goes to arbitration.



72

PAM 98 procedure

"Ifand when the Contractor notifies the Architecf'.No time limit - only when it is reasonably apparent to theContractor that the regular progress of the work is affected

Two stage procedure as follows:-• the Contractor submits application to enable the Architect (or

the QS as instructed by the Architect) to form an opinion.After the Architect has formed an opinion, the Contractor uponrequest of the Architect (or the QS) to submit details of lossand/or expense

No quantum claim need to be submitted until the Architect agreesthat there is a claim


"•.express provisions ofthe Contract... "Reference to provisions in the Contract is too general.


73

"....any ofthe matters expressly referred to in Clause 24.3•.. "The areas for loss and expense are restricted to only thematters referred to in Clause 24.3.


Under Clause 23 "lland when... " is supposed to mean 'notice acondition precedent'.

However the same words used in Clause 24 does not convey thesame intention as the clause further provides that if the Contractorfails to comply with the requirements of Clause 24, the Architect orthe Quantity Surveyor must still ascertain the loss and/or expense onthe basis of information available to them.


74

Under the PAM 2006 Contract, strict procedures must be followedby the Contractor to make a claim for loss and expenses.

expense.Baharuddin Ali & Low Sdn Bhd

Nominated Sub-Contractors

149

Some background information

The NSC Form was first issued in 1936 and was amended 1963 byNational Federation of Building Trade Employers and the Federationof Association of Specialist and Sub-Contractors and Approved bythe Association of Specialist Engineering Contractors.

The NSC Form which was the basis of the Sub-Contract Forms forthe PAM/ISM 69 and PAM 98 Form was actually drafted by theContractors and Sub-Contractors. It was not a RIBA or a JCT Form.

The JCT only started issuing Sub-Contract Forms in 1980.

Many clauses in the PAM 98 NSC Form is not compatible with thePAM 98 Form.

The NSC Form has to be totally re-drafted to be compatible with thePAM2006 Form.


75

Two types of Sub-Contractors: Domestic and Nominated SubContractors.

Appointment of Domestic Contractors:

1) Alternative 1: The appointment of domestic subcontractors is entirely up to the Contractor.

2) Alternative 2: A few short listed Sub-Contractors could benamed in the Contract or in an Architect's Instruction,and it is up to the Contractor to choose whichever one hewants to work with - sometimes referred to as 'designatedsub-contractors' or 'named sub-contractors'.


Domestic Sub-Contractors

lSI

The Contractor shall be fully responsible for the performanceand the works of the domestic sub-contractors.

The terms and conditions of contract are between theContractor and the domestic sub-contractor; there is as yet noStandard Form of Domestic Sub-Contract in Malaysia.

The Contractor will carry ajitfor purpose liability for anydesigns provided by the domestic sub-contractors.

The domestic sub-contractors work is priced by theContractor at his own prices - this may not be the mosteconomical price to the Employer.


76

Limited time to sort out domestic sub-contract included in theContractor's tender may not result in quality and cost issuesbeing resolved in the most effective way for the Employer.

Once appointed, the domestic sub-contractors is treated in avery similar way to an ordinary domestic sUb-contractor, sothe architect is not involved in matters such as certifyingpayment, extension of time issues and loss and/or expenseissues.

If the domestic sub-contractor fails to perform the work or isinsolvent, it is a matter for the contractor to resolve. TheEmployer need not re-nominate a replacement domestic subcontractor.


There is no privity of contract between the Employer and thedomestic sub-contractors.

This means that the domestic contractor has no recourse tothe Employer.

It also means that the Employer has no recourse to anydomestic sub-contractors.

In the event of termination, there may be problems tocontinue work with domestic sub-contractors unless pastpayments and warranties can be sorted out.


77

Nominated Sub-Contracts - advantages

The consultant and the employer have discretion to decide on theappointment of the nominated sub-contractor.

Nomination based on Standard Forms of Contract have known riskallocation.

Sub-contractors may offer a better price to the employer when theyknow that the employer may make direct payment to them in theevent the Contractor fails to do so.

Less risk to the Contractor will result in nominal mark up by theContractor for profit and attendance than the normal mark up fordomestic sub-contractors. Use of Nominated Sub-Contractors willtherefore result in lower priced sub-contract sum to the Employer.


The Sub-contractor's bid is more competitive when they know that athird party consultant will be involved in matters such as certifyingpayment or extension of time issues.

The consultant may utilise the sub-contractor's design expertiseduring the tender stage. Sub-contractors are also more willing toimpart this information if they know that they have a chance toparticipate in the tender to be called by the Employer.

Nominated sub-contractors for long lead items like Lift may beappointed even before the appointment of the main contractor.

There is a possibility to provide an Employer/Sub-ContractorAgreement so that the Sub-Contractor is responsible to theEmployer for designs and warranties. The Employer can thereforehave recourse against the sub-contractor - no need to go throughthe main contractor.


78

Nominated sub-contractors - disadvantages

Need to re-nominate a replacement sub-contractor in the event ofinsolvency or determination of the employment of the subcontractor. If care is taken by the Employer and Consultants in theselection of Nominated Sub-Contractors, this risk can be reduced.Employer should be encouraged to nominated Sub-Contractorsbased on merits and less on price to avoid re-nomination problems.

Re-nomination of Sub-Contractors may result in extra cost tocomplete the works and cause delays (but this may also happen fordomestic sub-contractors - but the extra cost and delay will beborne by the Contractor).

Ultimately, any delay caused by sub-contractors, whether domesticor nominated could still be borne by the Employer if the Employerhave to pay damages to purchasers.


These are the two choices as far as Sub-Contracting is concerned.Both have advantages and disadvantages. It is up to the professionalto advise their Employer accordingly.

If the Sub-Contractor is 'domestic' the Contract between theContractor and the domestic sub-contractors are matters to beresolve among them. It is up to the contracting parties to agree ontheir own contracts. PAM do not have a Form of Contract forDomestic Sub-Contractors.

Sub-Contractors under the PAM Forms are Nominated SubContractors and NOT Domestic Sub-Contractors


79

Case Law: North West Metropolitan Regional Hospital Board v TABickerton (1970) 1 All ER 1039.

"shall be expended in favour ofsuch persons as the Architect shallinstruct". The wording was one of the reasons for the re-nominationfindings in the Bickerton case.


Re-allocation of risk under the PAM 98 Form

It may not have been fully appreciated, but there has been a majorpolicy shift of risk allocation under the PAM 98 Form.

Quote from Rajoo on the PAM 98 Form - page 286-"Clause 27. 7 •.•••explicitly provides that the responsibilities ofthemain contractor includes any default or breach ofcontract ofnominated sub-contractors. The Employer shall in no circumstancesbe liable to the contractor".


80

Under the PAM 98 Form, the Employer retained all the benefits ofnomination - which allows the Employer to select the Company tocarry out the sub-contract works as well as negotiating anacceptable price to the Employer (the Contractor have no say), butall the risk relating to the Sub-Contractor has been transferred tothe Contractor.

One of the risks is that if the NSC cannot perform, due to insolvencyor other reasons, the Contractor is apparently still responsible tocomplete the NSC Work.

There is no provision whether the Contractor has to complete theNSC work with the same cost as the original NSC and also completethe Works without an EOT (there being no provisions under Clause23 for an EOT in the case of insolvency)

Problems to consider:


(1) Can the Contractor priced for this risk based on the amount ofP.C. Sum?

(2) Can the Contractor priced for this risk when the identity ofSub-Contractor has yet to be nominated?

(3) Can the Contractor priced for this risk in the event of the SubContractor's insolvency because of low pricing?

(4) Is it reasonable to expect a Contractor to replace a SubContractor who has been determined without any time and costcompensation?

(5) What happens if the NSC who has previously carried out designand is now unable to perform? It may be difficult for theContractor to find say a replacement Lift Contractor or CurtainWalling sub-contractor willing to continue with the design andwork and partially executed by others. What about liabilitiesfor design for the work carried out by the terminated NSC?


81

(6) Can a Contractor replace a Lift Contractor or Curtain WallingNSC without cost and time implication?

(7) Warranties are given by the Contractor, not the SubContractor - how do you resolved these items.

These are some of the issues that may have to be solved - but underthe PAM 98 Form, these are all the responsibilities ofthe MainContractor. It is clear that under Clause 27.7 " ..... the Employershall in no circumstances be liable to the Contractor.. "

It is suggested that the problem of the Contractor eventuallybecomes the problem of the Employer. He may have to deliver say acondominium project to the purchasers. Any delay in delivery by theContractor will surely impact on the Employer delivery topurchasers.


Under PAM 98, the Sub-Contractor is "domesticated" to theContractor, but the provisions relating to "Nominated SubContractors are all retained. Example:

(1) The Architect has to 'consent' to an extension of time for subcontractors.

(2) The Architect has to issue a Certificate of Practical Completionwhen the NSC Works are completed.

(3) The Architect has to issue the CNC ifthe NSC fails to completetheir Works.

(4) The Architect has to assess loss and/or expense claimed by NSC.

(5) The Architect has to certify and monitor payments to NSC.

(6) The Architect has discretion to issue final payments to the NSC.


82

Consistent provisions for "domestication"There are two provisions in the Contract which are consistent withthe policy that the Contractor shall be fully responsible for NSC,and that the Employer has no right to interfere.

FirstThere is no provision in the PAM 98 Form that the Contractor needthe consent of the Architect to determine the employment of theSub-Contractor.

Under the PAM 98 NSC, the Contractor has sole discretion in thisissue. This is also in line with the intention stated in PAM 98 Clause27.7. "The Contractor shall befully responsible to all NSC orSuppliers andfor any default or breach ofcontract on their part andthe Employer shall in no circumstances be liable to the Contractor.Neither the existence nor the exercise ofthe foregoing powers noranything contained in these Conditions shall render the Employer inany way liable to any Nominated Sub-Contractor."



83

SecondThe Contractor has sole discretion to set-off any claim againstthe Sub-Contractor. All the Contractor has to do is to notifythe Architect's of the reasons for deduction or set-off.


Inconsistent provisions for "domestication"

167

The following provisions in the Contract are inconsistent withthe policy that the Contractor shall be fully responsible forNSC. The provision in the Contract does not concede with theintentions of Clause 27.7 that:"The Contractor shall be fully responsible to all NSC orSuppliers and for any default or breach ofcontract on their partand the Employer shall in no circumstances be liable to theContractor. Neither the existence nor the exercise oftheforegoing powers nor anything contained in these Conditionsshall render the Employer in any way liable to any NominatedSub-Contractor."


84

The Contractor must make payment of the amount asdirected by the Architect.

The Contractor must also pay the NSC within 14 days fromreceiving the Architect's certificate. This may be before hereceives the money from the Employer.


If the Contractor does not show sufficient proof that he haspaid the NSC the amount certified by the Architect, theArchitect may ask the Employer to make payment direct tothe NSC by-passing the Contractor.


85

The Architect must approve any EDT to the NSC. This is to preventthe Contractor from benefiting from his own decision. Under PAM98 Clause 23. 7(vii) the Contractor is also entitle to an EDT for:delays on the part ofNominated Sub-Contractors or NominatedSuppliers for the same reasons as set out in the sub-clauses 23.7(i) to23.7(vi) and sub-clauses 23. 7(viii) to 23. 7(xii)".


The Architect (not the Contractor) is responsible to issue aCertificate of Non Completion if the NSC fails to complete thesub-contract works.

The Architect's decision to issue or not to issue the CNC affectthe Contractor's claim for damages against the NSC.


86

The Architect (not the Contractor) shall certify a Certificateof Practical Completion when the Sub-Contract Works arecompleted.

The issue by the Architect of the CPC will terminate anyclaims for damages.


The Architect (not the Contractor) has the discretion whetherthe NSC should receive his final payment before the MainContractor receives his final payment.


87

The Architect under Clause 27.6 can discharge the NSC fromfurther liability except for latent defect for the Sub-Contract Works.

This discharge also conflict with the Contractor's responsibilityunder Clause 30.8 that the Final Certificate will not discharge theContractor if any works (which means including the sub-contractwork) are not in accordance with the Contract

NSC - Risk Allocation


The normal rule is that the risk is allocated to the party best able tocontrol it.

If the intention is to transfer all the responsibilities of SubContractors on to the Contractor i.e. no re-nomination - then theArchitect must be prepared to transfer completely their roleshighlighted earlier.

Otherwise, some provisions in the PAM 98 Form may neutralise theEmployer's intention.

For example, in the event of insolvency of the NSC, the Contractormay claim additional monies from the Employer to complete theNSC's work on the ground that the NSC has been over-paid certification of monies to NSC are done by the consultants.


88

For an example of total risk transfer consistent with"domestic Sub-Contractors"- reference is made to the SIASub-Contract Form where:

(1) The Contractor (not the Architect) decides on extension oftime;

(2) The Contractor (not the Architect) issues a Sub-ContractCompletion Certificate when the works are completed;

(3) The Contractor can set-off for loss or damage due to delayin completion without an Architect's certificate;


(4) The Contractor (not the Architect) issues a Sub-ContractMaintenance Certificate when the Sub-Contractor hasrectified defects;

(5) The Contractor can terminate the Sub-contract withoutconsent of the Architect;

(6) The Contractor makes payment when it has been certifiedby the Architect and upon receipt of payment from theEmployer. ('Pay when paid'). There is however no directpayment provision if the Contractor fails to pay.


89

Under the PAM 98 Form of Nominated Sub-Contracting, allthe risk of default or breach of the Nominated SubContractor is transferred to the Contractor, but theContractor is not given the tools to exercise his responsibility.

If the Contractor is to be totally responsible for the NSC, whyis it necessary for the Architect to protect the interest of theNSC from the Contractor?


The PAM 2006 Contract proposed to revert to the position asPAM/ISM 69 on re-nomination of NSC. The re-view of theallocation of risk has been undertaken with the underlying principlethat the risk should be allocated to the party best able to manage it.

If the Employer wishes to choose the Sub-Contractor and negotiatehis own pricing, then the Employer shall be responsible to renominate if things go wrong.

If the Sub-Contract contain provisions for the Architect to 'lookafter the interest of the NSC' then the Contractor should not be heldfully responsible.

If the Contractor is to be fully responsible for his NSC, it may benecessary to leave the choice of Sub-Contractor and pricing to theContractor. Domestic Sub-Contractors and their contractualarrangement are the Contractor's responsibilities.


90

Provision for re-nomination

previousany sumContractor lause 27.13.23.8(i) may be granted to the Cobe entitled to any damages, loss a

If the NSC is determined by the Contractor with consent of theArchitect, the Architect will make are-nomination.

If there is cost extra, the Contractor will be entitled to payment after taking into consideration what can be recovered from the NSC.No loss and/expense entitlement to Contractor - this may be a'neutral event'.


actorrks and to pay theination and loss

determination. Theion oftime ess and

until the Contractor has established determinati ~ theNominated Sub-Contractor ofhis own employment is invalid. In theevent the determination by the Nominated Sub-Contractor ofhis ownemployment has been established to be invalid by arbitration orlitigation, Clause 27.11 will apply.


91

The NSC may determine the Sub-Contract because of adefault by the Contractor (for example: the Contractor didnot pay the NSC). As a result a new nomination has to bemade by the Architect.

The amount to be paid by the Employer is the same amountas the previous NSC, but the Contractor will have to pay theextra cost to the new NSC and other cost incurred by theEmployer.

No EOT to be granted.


CLAUSE 30.0 - CERTIFICATES AND PAYMENT

Correction of certificates

183


92

This Clause allows the Architect to correct any previous certificateswhich has been issued and this includes payment certificates.

This can be implied to mean that the Architect can re-issue a newInterim Certificate to replace previous Interim Certificates.

The Architect has the power to "correct any error or discrepancywhich has been discovered in any previous certificate, or may modifYany previous certificate." This power may be too wide ranging.

The only exception is that the Architect cannot correct errors ordiscrepancies or modify a Certificate of Practical Completion or theFinal Certificate.

Why is the Architect prevented from correcting the CPC and theFinal Certificate? Why leave it to the Arbitrator underPAM 98 - Clause 34.4(iv)".. .to open up, review and revise anycertificate, .... "

Lojan Properties v Tropicon Contractors (1991) 2 MLJ 70


The power to amend certificates may be implied if there aresome honest errors. For example, if the Architect made amistake in the Final Certificate on the amount paid by theEmployer, there should therefore be no restriction in acontract that he cannot correct this error. Why is there thenecessity to expressly forbid corrections in the FinalCertificate.

Previous provisions in PAM/ISM 69 Form Clause 30(7) allowsthe corrections ofthe Final Certificate due to (a) fraud,dishonesty or fraudulent concealment (b) any defects which areasonable inspection would not disclosed (c) any accidentalinclusion or exclusion of any work.


93

This Clause clarifies that the Architect can make amendments topayment certificate if it is due to clerical, "computational ortypographical error or errors ofa similar nature". If there are anyother errors in the valuation, the Architect can carry out theamendment in a later certificate. This is to encourage certainty ofthe payment valuation and discourage amendments to previouscertificates issued.


PAM 2006 Contract - Clause 30.1".. Upon receipt ofthe Contractor's details andparticuArchitect.. ... shall, ..... issue an Interim Cer to ~er

with a copy to the Contractor, and the Employe II thereafter paythe amount certified to the Contractor within the Period ofHonouringCertificates. "

There is no requirement for the Contractor to present thecertificates.

The Architect must make sure that the Employer is aware of theissue of the certificates.


94

Payment for materials after the Contractor has paid the full cost

<t••••and where the Contractor hadpaid to the supplier the full_cost ofthe materials ..."Under PAM 98, payment for materials will be included in paymentcertificates after the Contractor has paid his supplier the full cost ofthe materials.


Payment for Nominated Sub-Contractor and Nominated Supplier

As regards Nominated Supplier, the Contractor will have to pay theNominated Supplier in full within 30 days after delivery, before hecan include NS materials in his payment application.

The same payment arrangement also applies to Nominated SubContractors. The NSC must pay for the materials in full before theycan include the cost of their materials in any payment application.


95

The PAM 98 payment provisions mean that:

(a) the Contractor and the NSC will have to pay in full the cost oftheir respective material purchase until payment is receivedfrom the Employer within the period of honouring certificates.

Ifyou assume that the certificate is issued 28 days after thecontractor's application and the period of honouring certificates issay 60 days, this would mean that the Contractor and NSC will haveto finance the cost of materials by 88 days.

(b) the Contractor will also have to finance the materials suppliedby Nominated Suppliers for at least 88 days.

Baharuddin Ali & Low Sdo Bhd 191

PAM 2006 Contract - Clause 30."The amount stated as due in a rim Ce shall... be thetotal value ofthe ly executed a the percentage ofthe value ofmater ds stated in the Appendix Thematerials and goods must befor incorporation into the permanentworks ...... "

PAM 2006 Contract reverted to payment for materials on site, but itis confined to materialsfor incorporation in the permanent works. In other words no paymentfor formwork, temporary strutting etc.,

The Employer can decide the percentage of such payment.


96

ROT problems cannot be solved. The retention fund and theperformance bond would provide a degree of risk protectionto the Employer. Under Clause 14.4, if the materials are repossess by creditors, the Contractor will be liable for breachof contract.

PAM 2006 Contract - Clause 14.4"The Contractor shall be deemed ttitle free from encumbrances

uc


"Unless otherwise expressly provided in these Conditions.... "This clause makes it clear that the Employer cannot set-off anyamount from the Contractor's payment unless it is expresslyprovided in the Conditions. It adopts the decision of Leow Tuck Chuiv Leela Medical Centre.

But it is not clear in PAM 98 where these Conditions are "expresslyprovided?" Under the PAM 98, set-off cannot be implied.


97

Unfortunately, the same intentions regarding set-off are not carriedover to the PAM 1998 NSC Form.

Provided always that the Architect has been notified.. ... the Contractorshall be entitled to... set-offagainst any money due from him to theSub-Contractor

This statement makes it clear that the Contractor can set-off withoutagreement either the Architect or the NSC.What is the purpose of informing the Architect of the amount andthe reasons? .

Set off Clauses



98

The areas where the Employer can set-off are briefly asfollows:

Clause 2.4 - The employer may employ others to execute theworks in the event of failure by the Contractor to comply withan instruction.

Clause 4.4 - The Employer may pay fees, levies and charges inthe event of failure by the Contractor to pay.

Clause 5.1 - The Employer may accept wrong setting outsubject to an appropriate set-off.

Clause 6.5(e) - The Employer may accept works not inaccordance with the contract subject to an appropriate set-off


Clause 6.7- The Employer may pay other Persons to rectifythe Contractor's work subject to an appropriate set-off.

Clause 14.4 - The Employ can recover from the Contractor inthe event he has suffered loss if the Contractor make a falsewarranty that he has ROT

Clause 15.3(b), 15(c), 15.4 and 15.5 concerns Defects in thework which are either set-off if the Contractor fail to executethe works, or abated if the Employer decides to accept theworks with Defects.

Clause 19.5 and Clause 20 concerns insurance premiumsincurred by the Employer on the Contractor's behalf.


99

Liquidated Damages not subject to set-off

It is also clearly stated in PAM 2006 that Liquidated Damagesis not subject to set-off procedures.


Under PAM 98 Form Clause 34.5 the arbitration shall not be openeduntil after Practical Completion or alleged Practical Completion oftheWorks..... ".

It is not clear what would be the interim position if there is adispute. Can the Employer deduct the monies pending arbitrationfor disputes on "set o((or to any counterclaims or any allegation o(defective works, materials or goods or (or any other reasons."


100

Clause 30.3(ii) may effectively neutralized the Clause 30.3(i),if the Employer cannot deduct pending arbitration..


Set-off procedure under PAM 2006

PAM 2006 Contract - sub Clause 30.4(i)"the Architect or Quantity Surveyor (onsubmitted to the Contractor complete detsuch set-off; and"

201

ub- Clause 30.4oyer or the Architect on his s given the Contractortice delivered by hand or b edpost, specifYing his

in n to set-offthe amount and the nds on which such set-offis made. Unless expressly stated elsewhere, such written notice shall begiven not later than twenty eight (28) Days before any set-offisdeductedfrom any payment by the Employer. "


101

erwatwn under Clause 34.1. The

entitled to exercise any set-offunless the amount has beenagreed by the Contractor or the adjudicator has issued hisdecision. "


General discussion on adjudication.


203

204

102

If there are any dispute on set-off, the dispute will be referred toadjudication. The timescale to resolve this dispute are as follows:

(a) The Architect informs the Contractor within 28 days withreasons and details on set-off.

(b) If the Contractor does not agree, he will have to respond within21 days the reasons for any disagreement.

(c) If the parties are unable to agree amicably within a further 21days, the dispute will be referred to an adjudicator.

(d) Assuming the adjudicator is appointed within 30 days and issuesan adjudicator's decision based on the documents in (a) and (b),it means that the dispute should be resolved within a time frameof 130 days.


What happens if there is a dispute on the adjudicator's decision?

d bindingecision is not referred to ar

stip e. The parties may settle any with theadjudicator's decision by written agreement between the parties orarbitration under Clause 34.5."


205

206

103

Suspension of work for non payment

The provision was in the NSC Contract but there is no similarprovision in the main contract.

Babaruddin Ali & Low Sdn Bbd

Clause 30.7 rectify the position.

207

stating t ent isDays, the Contractorforthwith suspend the execupayment is made..... "

ithin the fourteenrther written noticeofthe Works until

Babaruddin Ali & Low Sdn Bbd 208

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Compulsory suspension of Works

thelaws for whatevsuspend the exe ofsuspension until the resumption

New Clause in PAM 2006 Contract to comply with theBuilding By-law that the work has to be under supervision ofaQP.


Final Certificate conclusive in PAM/ISM69 Form

209

Under PAMIISM 69, the Final Certificate serves two purposes. Itwas conclusive that:(a) "the Works have been properly carried out and completed in

accordance with the terms ofthis Contract" and(b) "that any necessary effect has been given to all terms ofthis

Contract which requires an adjustment to be made to the ContractSum.. ."

In other words, the Final Certificate is conclusive on the value ofwork.


105

Final Certificate not conclusive in PAM 98 Form

Under PAM 98, the Final Certificate is not "conclusive evidence thatany work, materials or goods to which it relates are in accordance withthe Contract."

It is however silent whether the Final Certificate is conclusive on thevalue of Work.

Note: There is no equivalent provision in the NSC that "Nocertificate ofthe Architect shall ofitselfbe conclusive evidence thatany Sub-Contract Work are in accordance with the Contract"


Conclusiveness of the Final Account

211

PAM 2006 Contract - Clause 30.12:"Unless a written notice for arbitration shall have been given underClause 34.0 by either party within the stipulated time stated in Clause30.10, the Final Account or the last amended Final Account shall beconclusive and deemed agreed by the parties other than anyoutstanding items to be resolved between the Employer andContractor under Clauses 30.11 (g), except where the FinalAccount is erroneous by reason of:"

The Final Account shall be conclusive on the value of work.Either party who disagree with the Final Account may request thatthe dispute be referred to arbitration within 3 months - sufficienttime for consultation with the parties' advisers.


106

Final Certificate not conclusive

PAM 2006 Contract - Clause 30.16"The Final Certificate shWorks eptionEmplo racto Clshall usive evidence t

which it relates aNominated Sub-

States clearly the position of the Final Certificate.


The Sub-Contractor is aware of the position of the FinalCertificate on his work.


107

This clause provides for payment by either party.


CLAUSE 34.0 - Arbitration and Adjudication

215

This is a new provision for contractual adjudication. It is confined tomatters under Clause 30.4 which covers "set-off'.

If the parties wish to refer any other disputes to adjudication notcovered under Clause 30.4, they must enter into a separate writtenagreement to do so. (Example: valuation disputes).

Adjudication can be held anytime during the progress of the work.

If the work has reached the stage of CPC, all disputes will bereferred to arbitration.


108

siatoapp(}inta

The parties will attempt to agree on the name of the adjudicator. Ifthere is a failure to agree, the contract provides that the President ofPAM will appoint the adjudicator.

QS may be more conversant to deal with disputes on set-off.

However PAM 2006 provides that the adjudicator is to be appointedby the President of PAM. Suggest that it is possible to amend theclause to provide for the appointment of the adjudicator to beappointed by the President of the ISM instead of by the President ofPAM.


PAM 2006 Contract - Clause 34.3

"Upon appointment, the adjudicator shall initiate theadjudication in accordance with the current edition ofthe PAMAdjudication Rules ..... "

• PAM 2006 provides that the procedure for adjudication willfollow the PAM Adjudication Rules.

• Suggest that ISM can also draftJlte·ISMAd.iudicationRules. In the Rules, the fees f~'rQS AdjUdicat4ld alsobe provided. ~_~ '_-'/'


109

t diarbitration under Clause 34.5."

The adjudication decision shall "temporarily" bind the parties during thecurrency of the Contract.

U any party is dissatisfied with the adjudicator's decision, he must givenotice 6 weeks from the adjudicator's decision to refer the dispute toarbitration after the completion ofthe Works.

There is nothing to stop the parties to agree amongst themselves using theadjudicator's decision as a basis to do so instead of referring the dispute tolater arbitration. Any agreement must be in writing.


• What happens if a party refused to abide bythe adjudicator's decision?

• How does a party enforce an adjudicator'sdecision?


110

New provision for consolidation of arbitration proceedings.

Example: In the event that the Employer sues the Contractor for saydefective works by the NSC, this clause allow the Contractor to jointhe NSC in the proceedings.


If the Sub-Contractor sue the Contractor, the Contractor mayallow the Sub-Contractor to step into his shoes in trying torecover from the Employer.


111

PAM 2006 provides that the arbitrator is to be appointed bythe President of PAM.

Suggest that it is possible to amend the clause to provide for theappointment of the arbitrator to be appointed by the Presidentof the ISM instead of by the President of PAM.


tment, the arbitrator shall initiate the arbitrationn accordance with the provisions of the Arbitration Acttatutory modification or re-enactment to the Act and the

ration Rules ....."

• PAM 2006 provides that the arbitration shall in in accordancewith the PAM Arbitration Rules.

• Suggest that ISM consider a new set of ISM Arbitration Rules.The existing ISM Arbitration Handbook (the blue book) wasdrafted in 1984 and is out of date.

• If the profession is to play any part in adjudication andarbitration, we need to put in place the proper adjudication andarbitration rules so that any members appointed as adjudicatorsor arbitrators can follow the relevant procedures.

• We need to also prepare and train members to be adjudicatorsand arbitrators.


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THANK YOU

Baharoddin Ali & Low Sdn Bhd 225

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A Seminar on the PAM 2006 Contract Ism

Documents

Transcript of A Seminar on the PAM 2006 Contract Ism