Obligations in Construction Projects

Analysis of the Study: Similarities of Three Standard Forms of Contract

Particulars

PWD

PAM

CIDB

Origin RIBA 1931 JCT 1963
Produced by The Government (JKR) PAM CIDB
Application For government projects, usually for civil engineering works For private building works For building works for both government and private employer

1. Obligation of the Employer

Among these 3 standard forms, all of them have the description about obligations of the employer, although only CIDB which expressly describe this obligation (clause 6). Both PWD and PAM do not provide a certain clause to state the employer’s obligations. However, it does not mean that there is no employer’s obligation in the contracts. The employer’s obligations in both contracts are spread throughout some clauses which implied these obligations.

The main obligation of the employer is to pay to the contractor what has been built. Here, payment is a consideration which creates a legal binding between the employer and the contractor. If the employer does not pay to the contractor, then we can assume that the employer has entered breach of contract. In order to evaluate any project progress on site, the employer will then employ architect/superintending officer (for next we will use S.O.). All of these three standard forms have a similar procedure that is the employer will pay to the contractor any amount which has been evaluate by S.O. In PWD, contractor can include any unfixed materials and goods intended for the Works in his payment (except unfixed material and goods supplied by Nominated Suppliers). For this matter, both PAM and CIDB also permit contractor to include any unfixed materials and goods but only in percentage (not all value). Then in PWD, contractor can submit his payment monthly and within 14 days S.O. shall issue an Interim Certificate, while in PAM and CIDB it is within 21 days. The, government then shall make a payment within specified period of time after the issuance of Interim Payment with the remaining xx% of the amount is being retained (for PWD 10%, for PAM and CIDB it is as stated in the appendix). Both in PWD and CIDB, within 3 months after the issuance of Certificate of Practical Completion, the contractor must submit full particulars including claims to enable the Final Account to be prepared by S.O. If contractor fails to submit within the stipulated period, then the S.O will make the assessment based on the available documents submitted by the contractor for the purpose of Final Account. The Government shall be discharged from all liabilities in connection with the claims. For this matter, PAM stated that period will be within 6 months.

These three standard forms also provide a clause especially define about suspension for non payment. Here if the employer fails or neglects to pay within specified period of time after the release of Interim Certificate, then the contractor may give notice of his intention to suspend the Works. In PAM and CIDB this matter is discuss in clause 30.7 and 42.10 respectively. However we cannot find clause discussing suspension for non payment in PWD. In my opinion, this may be because PWD is used for government projects. Therefore, contractor need not be worry for the payment, since it is fund by government. It will be paid although takes a long time.

In PWD clause 29 and 30, it is stated that contractor may ask for adjustment of contract sum due to some circumstances and fluctuation of price. In PAM, it is clearly stated that there is no such adjustment or alteration for contract sum. While in CIDB, there is no corresponding provision.

Employer also has the obligation to pay contractor for any variation occurred during construction, only if the variation issued by the S.O. This matter is discussed in PWD in clause 24 and 25, in PAM in clause 11, and in CIDB in clause 28 and 29. All variation amounts shall be certified by the S.O and added to or deducted from the contract sum and the amount shall be adjusted accordingly.

In the particular events of delay and need to extent the Works schedule, employer has to give contractor an extension of time. All of these three standard forms stated that contractor must submit his claim for EOT within a specified period of time. In PAM and CIDB, if the contractor fails to submit his claim within the specified period of time, then contractor shall not be entitled with EOT. In PWD, there is no such requirement. Furthermore, in CIDB there is an explanation of specific event with continuing effect which will make a delay in overall project schedule.

Contractor also entitled with claims and employer has the obligation to pay any claim made by contractor and has been approved by S.O. Moreover, in PAM there is mentioned that contractor can only make claim in such occasion as explained in clause 24.3. Also both in PAM and PWD, it is stated that if the contractor does not submit his claim together with the required documents within a specified period of time, then the contractor shall not be entitled the claim.

In the case of Works insurance, both in PAM and CIDB give an option whether contractor will insure the Works or employer (but in case for existing building or extension, the employer is the one who has the obligation to insure). If both parties agree that the Works insurance will be done by the employer, then the employer must insure the Works within specified period of time. Failure of this action may lead the contractor to insure the Works and he shall be entitled to have the amount of insurance added to the Contract Sum. See clause 20 of PAM and 38 of CIDB.

Employer also has the obligation to give site possession to the contractor usually before the Date of Commencement or unless the contract otherwise provides. We can see this in PWD clause 38 and CIDB clause 17.2. However, there is no corresponding provision in PAM.

Based on the author’s experience, the characteristic of employer also effects to the employer’s obligations. It is true that the main obligation of the employer is to pay, but not only that. Employers should make payment to the contractor punctually. Contractors usually will face some difficulties to ask payment from private employers rather than projects fund by government. Private employers may have their own cashflow difficulties and strategic business plan. These reasons will eventually take effect to payment to the contractor. In some projects, the employers will release the payment 2 or 3 months after the payment certificate has been released. To overcome this problem, contractors will usually do some personal approach to the employers and take some strategies to make good their project’s cashflow so that their projects still can run and finish on time. This impact is something that the employers usually do not concern about.

2. Obligation of the Contractor

The main obligation of the contractor is to construct the said project which has been agreed based on its scope and within the specified period of time and quality. This is also the general similarities of these three standard forms. The difference is the emphasis of the contractor’s obligations.

For the contractor’s general obligations, we can see in PWD clause 10, PAM clause 1, and CIDB clause 7. It is important to notice why PAM put contractor’s obligations in the first clause of the contract. In my opinion, it means that in PAM contractor is considered as the party who need the work.

All of these three standard forms have similar clause regarding Works Completion. In PWD this matter is described in clause 39 and 41; in PAM it is described in clause 15; and in CIDB it is described in clause 20, 21, and 22. Sometimes the employer wants to take some part of the Works which are already completed. This is explained in clause 41 of PWD and clause 22 of CIDB as Sectional Completion.

Before executing the Works, contractor must provide performance bond to the employer as security deposit. This is a common matter required by employer to the contractor. However, we can only find a clause specifically discuss about performance bond in PWD and PAM. While in CIDB, performance bond becomes part of the appendix. Therefore, it will be depend on the agreement between both parties whether the contractor should submit performance bond or not. See Option Module F of CIDB.

Contractor also has the obligation to ensure the quality of his works. If there is any defect during construction period and after completion, contractor has the liability to make good of any such defect until S.O satisfy with the works. This obligation is described in PAM clause 15, in PWD clause 48, and in CIDB clause 15.7 and 27.

In doing his job, S.O sometimes needs to take a test of the works done by contractor. Usually the cost of inspection and testing are borne by contractor. This matter is described in PWD clause 36, in PAM clause 6 and 14, and in CIDB clause 15.

Contractor also has the obligation to be responsible with any indemnity and insurance of personal injury or death and damage to property arising from carrying out of the Works. These matters are described in PWD clause 14 and 15, in PAM clause 18 and 19, and in CIDB clause 35 and 36. The contractor must also provide insurance for his labour as described in clause 17 of PWD and clause 37 of CIDB. In my opinion, CIDB is the most complete standard form in terms of indemnity and insurance.

In the case of Works insurance, both in PAM and CIDB give an option whether contractor will insure the Works or employer. Usually both parties will agree that contractor will provide the insurance in CAR form of insurance. See clause 18 of PWD, 20A of PAM and 38A of CIDB.

There is also a specific clause regarding to antiquities such as fossils, coins etc which may be found on the site. In this circumstance, contractor has the obligation to take all steps which may be necessary to preserve and protect the object in the exact position and condition. The contractor should inform S.O immediately about the discovery. This obligation can be seen in clause 64 of PWD, 33 of PAM, and 39 of CIDB.

The contractor also has the obligation to execute the whole Works. If he would like to assign some duties to his subcontractors, first he must receive the approval of S.O. If S.O approves his assignment, the contractor shall still be fully responsible for the works of his subcontractors. S.O also can appoint Nominated Subcontractor (NSC) or Nominated Supplier (NS) with the approval from the contractor. And again, the contractor shall be fully responsible for the works of NSC/NS. These matters are described in PWD clause 47 and 59, in PAM clause 17, 27 and 28, and in CIDB clause 18 and 40.

At the end of the project, contractor should submit the as built drawing to the employer. Usually he must submit this drawing not later than the Date of Practical Completion of the Works or otherwise stated in the contract. We can see the description in CIDB clause 4.10 and PAM clause 3.10.

3. Obligation of both parties

Both parties also share some obligations such as confidentiality (PWD clause 68, PAM clause 3.9, CIDB clause 4.9), obedience of dispute resolution decision (PWD clause 65, PAM clause 34 and 35, CIDB clause 47), compliance with the Law (PWD clause 21 and 72, PAM clause 4 and 38, clause 10 and 49), and give notification (PWD clause 66, PAM clause 36, CIDB clause 8).

by Seng Hansen

One thought on “Obligations in Construction Projects

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