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Construction Law I

Lecture 2

STANDARD FORMS OF CONSTRUCTION CONTRACTS

Zulhabri Ismail

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This lecture will discuss the following:-

What are the standard forms of construction contracts, advantages and disadvantages?

Parties involved in drafting of standard forms

Synopsis

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Types of important standard forms of contract used in Malaysia and abroad.

Highlight on major differences between the standard forms and their uses and selection.

Synopsis (cont’d)

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The Rule of Thumb

All standard forms of contracts [express] must be read and construed together with common law principles [implied] and the statutory provisions.

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Forms of Contracts Standard forms Model forms Modified forms Ad hoc [because of situation / not planned in

advance] Bespoke [special made / according to needs

of individual project]

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Procurement

Contract Types based on Method of Contract Procurement (Harbans Singh, 2004):-

Traditional General Contracts Management Contracts Construction Management Contracts Package Deal / Turnkey Contracts Build Operate and Transfer [BOT]

Contracts; and New Type of Contracts [i.e. PFI]

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What is standard forms? These are in a printed form and published

by an authoritative body of the industry, which body is recognised by both parties;

The form set out the terms or conditions on which the contract between the parties are to be carried out;

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What is standard forms? (cont’d) These terms or conditions are deemed to

be agreed and are not subject to further negotiation and/or amendment; and

The terms or conditions are generally suitable for a wide range of common projects or works.

(Harbans Singh, 2004)

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BackgroundHistorically, the initial set of Standard Forms were drafted by the

various government agencies for works in the public sector i.e. earlier version of PWD form modeled on the RIBA Form of Contract 1931, later revision 1983 and the latest 2007 .

Due to progress of development projects, many other professional bodies published their own version of standard forms to suit the current development and modernisation and variation of procurement methods i.e. IEM was first published in 1989 and PAM in 1969 (Lian, Im and Kheng, 2000).

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Government / Public Sector Public Works Department PWD Form 203A (Rev 2007)

without quantities. with quantities.

PWD Form 203N for Nominated Sub-Contractors.

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Government / Public SectorPublic Works Department (cont’d) PWD Form 203P for Nominated Suppliers.

PWD Form DB/T for Design and Build Turnkey Contracts.

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Government / Public Sector (cont’d)Construction Industry Development Board CIDB Form for Building Contracts 2000

Edition.

Standard Proforma for Contract Administration (For use in conjunction with The CIDB Standard Form of Contract for Building Works).

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Government / Public Sector (cont’d) CIDB Standard Form of Sub-contract For

Nominated Sub-Contractor [Form CIDB.B (NSC) / 2002] (To complement the Standard Form of Contract for Building Works).

Model Terms of Construction Contract for Subcontract Work (2006) [CIDB / CICC].

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Model Terms of Construction Contract for Subcontract Work.Intended to be used as part of a generally ‘stand

alone’ subcontract and not ‘back to back’ to any one main contract.

The generic drafting style and flexibility mean it can be used as subcontract terms with any main contract whether a one-off contract (bespoke & ad hoc) or published “standard form” such as the PWD, PAM, IEM, CIDB, FIDIC or JCT contracts.

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CIDB FormsCIDB published its own version of Standard

Forms for building works (main contract and sub contract). But the question is do we need another public sector standard form?

There is presumption that CIDB will replace PWD Standard Forms?

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Other Public Sector FormsSome statutory bodies and public sector related

bodies utilise the PWD Standard Forms with slight modifications and/or amendments.

Drainage and Irrigation Department (DID/JPS)

Lembaga Pelabuhan Kelang (Port Klang Authority)

PETRONAS

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Private SectorPAM PAM 2006 (previously 1998) with quantities. PAM 2006 without quantities. PAM NSC 2006 to be used for NSC where

the main contract is based upon the above.

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PAMOrigin

Rather than developing and drafting a new standard form on its own, PAM in collaboration with the ISM in 1969 adopted 1963 JCT Standard Form of Building Contract (Reprinted 1968) with modifications to be used for private sector building works through traditional general contracting contract procurement method comprised:

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PAM 1998 Usage

Essentially for

1. Private sector projects

2. Building works

3. Contracts undertaken through Traditional General Contracting Procurement

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Private SectorCivil Engineering works IEM Condition IEM.CE 1/89. Mainly for

Civil Engineering Construction (Second Reprint 1994).

IEM Condition IEM.CES 1/90. Sub-contract for use in conjunction with the IEM Condition (First Reprint 1994).

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Private SectorM&E works IEM Condition IEM.ME. For mechanical and

electrical work (First Edition 1994). Sub contract? [absent]

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IEM FormsOriginDue to rigours/harsh and pitfalls of the

JKR/PWD forms and unsuitability of the PAM forms for engineering and infrastructure projects, construction engineering professionals attempted to employ UK engineering forms i.e. ICE, IMECHE, IEE, JCT and FIDIC forms with modifications.

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IEM FormsOrigin (cont’d)

The “modifications” were subject to job specific and ad hoc basis. Thus, leading to uncertainty, inconsistency and leading to construction disputes.

Due to that, IEM attempted to fill in the lacuna by drafting their own Standard Forms started from 1989 for the traditional general contracting.

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IEM FormsUsage Private sector projects. Civil engineering, Mechanical and Electrical

works. Procured under the Traditional General

Contracting.

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International Contracts FIDIC family JCT Family IEEE IMechE ECC PPC 2000

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Why standard forms?According to Nayagam and Pathmavathy (2005),

“Standard Form construction contracts provide a basic legal framework identifying the rights, obligations and duties of the parties, establish the ambit of the powers and duties of the contract administrator”.

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Why standard forms? Most construction professionals are familiar

with their operation, limitations and drawback. Such familiarity leads to administrative and cost

efficiency. As there is a body of judicial pronouncement

accumulated over the years on standard forms, there is some certainty in meaning.

Savings in time and costs when standard forms are used compared to the costs of drawing up fresh contracts.

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Why standard terms of Contract? (CICC, 2006) It becomes more economical as there is no

need to draft new terms of contract every time a contract is let out.

It provides more certainty when tendering [equal bargaining power].

Familiarity makes it easier and quicker to be priced.

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Why standard terms of Contract? (CICC, 2006) It creates the possibility of a more balanced

allocation of risk between the contracting parties.

There is a higher chance of avoiding unwarranted disputes in court or arbitration.

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Purpose (Robinson & Lavers) To provide the basic legal framework

evidencing the legal relationship between the parties i.e. identifying the rights, obligation and duties.

To furnish a mechanism for regulating the conduct of the commercial relationship between the parties.

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Purpose (Robinson & Lavers)To put in place the administrative procedures

necessary to effect the legal and commercial relationship between the parties for achieving the purposes of the contract.

To establish the ambit of the powers and duties of the contract administrators under the contract between the parties.

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PurposeTo make it short, according to Harbans Singh

(2004) “the purpose of the Standard Forms are multifold governing not only legalities but also mundane administrative issues to ensure that both parties are able to discharge and can actually discharge their side of the bargain through full performance”.

Tujuan Borang Perjanjian Standard (Nor Ainah, 2001)

Mengandungi syarat-syarat perjanjian. Terperinci hak dan obligasi. Rangka asas perundangan, komersial dan

mekanisma pengurusan projek berlatarbelakang amalan dan standard industri binaan.

Asas rundingan.

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Advantages The forms have been arrived at through a process of

negotiation between the various sectors of the industry and as a result act as a compromise between the various powerful interest group.

They have been widely adopted because experience has shown that they facilitate the conduct of trade (Schroeder Music Publishing Co v Macaulay [1974] 1 WLR 1308) and have addressed the common pitfalls and shortcomings.

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Advantages (cont’d)The forms satisfy the equitable principle

requiring that similar projects demand similar contracts (Murdoch and Hughes, 2000).

Fair risk allocation to all the parties (Murdoch and Hughes, 2000).

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Advantages (cont’d)Most such forms are time tested and

practitioners are aware of their workability, limitations and drawbacks. This familiarity leads to administrative and cost efficiency and minimises possible claims and disputes.

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Conclusion

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Thank You