10 Common Practice Issues in Contracts 21May11

25 Common Problems for M&E Engineers Armada Hotel , Petaling Jaya 26th May 2011

5 Common Contract Management Problems Ir. Looi Hip Peu Hon Sec, ACEM (2010/11) B.Eng (Hons) (Electrical) P.Eng (5226), Jurutera Gas [email protected]

CONTENT

2

Objectives of this Workshop Mismatch in Main & Sub Contract Confusion on BQ and Lump Sum

No Proper Work Acceptance Procedure Acceptance of Products against System PAM 1998 and PAM 2006 Contract Forms [email protected]

26th May 2011

3

OBJECTIVES OF WORKSHOP

What are the Objectives of this Workshop?  In the Malaysian context, M&E engineers are usually responsible for managing the M&E portion of the construction contract.  This responsibility frequently include: 1. Cost consulting 2. Contract drafting 3. Contract management 4. Works supervision and cost finalisation  The requires a basic understanding of (construction) contracts and good understanding of cost [email protected]

26th May 2011

OBJECTIVES OF WORKSHOP

4

This Workshop Module List 5 Common Problems !

1. Mismatch between Main Contract & Sub Contract

2. BQ contract and Lump Sum Contract 3. Failure in Contract Management 4. Shorting Comings in Work Acceptance 5. Interim Payment and Final Payment

[email protected]

26th May 2011

[email protected]

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

6

T h e M & E E n g i n e e r ’s Ro l e i n C o n t ra c t d ra f t i n g . 1. The QS is responsible for drafting Main Builder‟s Contract. 2. The M&E Engineer is responsible for drafting M&E Sub Contracts.

[email protected]

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

7

C o m m o n p r o c e d u re i n C o n t ra c t D ra f t i n g . M&E checks with QS on Contract Form

QS decide Contract Form

PAM 1998 PAM 2006 JKR 203 [email protected]

M&E Draft M&E Sub Contract based on Form

JKR 203N PAM 2006 NSC

PAM 1998 NSC 26th May 2011

MAIN & SUB CONTRACTS MISMATCH

8

S e l e c t i n g t h e C o n t ra c t F o r m . Government

JKR Contract Form

PAM 1998

Private or Public ?

Private

[email protected]

Building

PAM Form

Sector ?

Industry

FIDIC, Other Forms

Type?

PAM 2006

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

9

S e l e c t i n g t h e C o n t ra c t F o r m . Large / Complex

Contract Based on BQ

PAM/JKR Form Selected.

BQ or Lump Sum?

Simple / Well Defined [email protected]

Contract Based on Drawings

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

10

H o we ve r t h e p ro b l e m i s n o t mi s m atc h i n C o n t ra c t Fo r m b u t i n d raf t i n g Ma i n a n d S u b C o n t ra c t w i t h c o m p a t i b l e t e r m s !

QS decide Contract Form

M&E checks with QS on Contract Form

M&E Draft M&E Sub Contract based on Form

M&E checks with QS on “Preliminary Items” in MC to align in NSC

[email protected]

26th May 2011

11

MAIN & SUB CONTRACTS MISMATCH

W h a t a r e ‘ P r e l i m i n a r y ’ I te m s i n M a i n C o n t ra c t ? Nominated Sub Contract (PAM Form 2006): “This Sub Contract is made pursuant to the agreement for (hereinafter referred to as “the Main Contract”) made between the of (or whose registered office or business address is situate at) (hereinafter called the „Employer‟) and the Contractor.”

[email protected]

26th May 2011

12

MAIN & SUB CONTRACTS MISMATCH

W h a t a r e ‘ P r e l i m i n a r y ’ I te m s i n M a i n C o n t ra c t ? Nominated Sub Contract (JKR 203N):

“WHEREAS the Contractor has entered into a Contract No: made the (hereinafter referred to as “The Main Contract”) between the Government of (hereinafter called “The Government”) of the one part and the Contractor of the other part for the .

[email protected]

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

13

‘Preliminary ’ Items? Contract Management Issues: 1. Defects Liability Period 2. Date of Commencement 3. Liquidated & Ascertained Damages (LAD)

4. Completion & Sectional Completion (if applicable) 5. Period of Interim Certificate 6. Percentage of certified value retained 7. Limit of retention sum

8. Period of Final Measurements. 9. Insurances [email protected]

26th May 2011

14

MAIN & SUB CONTRACTS MISMATCH

‘O t h e r P r e l i m i n a r y ’ I t e m s . Main contractor‟s specific responsibilities defined: 1. Ascertaining from NSC coordination information; 2. Providing coordination information; setting out , dimensions etc. 3. Making good and touching up damages due to NSC works (this may sometimes be loaded under NSC). 4. Providing space ONLY for storage & accommodation. 5. Water supply, electricity supply (including charges).

6. Protection, covering, watching, security of NSC fittings 7. Removing rubbish off site. [email protected]

26th May 2011

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MAIN & SUB CONTRACTS MISMATCH

‘ O t h e r P r e l i mi n a r y ’ I t e m s . Nom sub contractor‟s specific responsibilities: 1. Insurances (where his responsibility ends); 2. Providing coordination information; dimensions to main contractor etc.

setting

out

3. Making good and touching of damages due to NSC works (caveat; NSC is not qualified to rectify builder‟s works. 4. Consumption charges for water supply, electricity supply. 5. Provision of commissioning.

water,

energy,

electricity

for

6. Keeping site clean in coordination with MC. [email protected]

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

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C o m m o n m i s m a tc h i n ‘ P r e l i m i n a r y ’ Contract Management Issues: 1. Defects Liability Period cited is different in MC & NSC

2. LAD not cited in NSC 3. Responsibility for provision of water, electricity and energy for construction and commissioning not clearly cited or is different between MC & NSC. 4. Overlapping provision of insurance 5. Completion or Sectional completion not clearly stated.

6. Periods for interim & final certifications mismatch

In PAM 2006, some ’Preliminary Items are standardised. [email protected]

26th May 2011

MAIN & SUB CONTRACTS MISMATCH

17

C O N C LU S I O N

QS decide Contract Form

M&E checks with QS on Contract Form

Modification to Main Contract terms must be reflected in NSC

[email protected]

M&E Draft M&E Sub Contract based on Form

M&E checks with QS on “Preliminary Items” in MC to align in NSC

26th May 2011

18

MAIN & SUB CONTRACTS MISMATCH

L AST R ESORT T h e t e n d e re r i s s u p p o se d t o c h e c k a t t e n d e r J K R 2 0 3 & PA M : “WHEREAS the Nominated Sub Contractor has had reasonable opportunity to examine and have full knowledge of all provisions of the Main Contract (except the details of the prices included therein)” The above does not detract from the responsibility of the professional M&E engineer to draft a properly coordinated tender document. [email protected]

26th May 2011

[email protected]

26th May 2011

20

BQ AND LUMP SUM CONTRACT

M & E C o n s u l ta nt s a re re s p o n s i b l e fo r d ra f t i n g d e s c r i p t i o n o f i te ms t o b e t e n d e re d .

D e s c r i p t i o n o f wo r ks o r B i l l o f Q u a nt i t i e s a r e i m p o r t a nt d o c u m e nt s wh i c h wi l l d ete r mi n e d h o w co nt ra c t a re p r i c e d , va r i at i o n c o st d ete r m i n e d and final a c c o u nt s o r m e a s u re m e nt s f i xe d .

[email protected]

26th May 2011

BQ AND LUMP SUM CONTRACT

21

Large / Complex Contract Based on BQ

PAM/JKR Form Selected.

BQ or Lump Sum?

Simple / Well Defined

[email protected]

Contract with Quantities

Contract Based on Drawings

Contract without Quantities

26th May 2011

22

BQ AND LUMP SUM CONTRACT

M&E Consultants are responsible for drafting description of items to be tendered. Bill of Quantities (BQ) is a document detailing the qualitative and quantitative aspects of every constituent parts of a proposed construction project. Qualitative: Quantitative:

Description of material, labour and workmanship for the work Quantity of material, labour and workshop

Hackett & Robinson (2003) and Chan (2002)

It is compiled together with the form of tender, specification, preliminary bill and list of drawings to form a tender document. [email protected]

26th May 2011

23

BQ AND LUMP SUM CONTRACT

C o n t ra c t b a s e d o n q u a n t i t i e s 1. Price is based on quantities and is subject to final re-measurements on completion. 2. Variations means difference due to design schematics, concepts or addition in scope (i.e. additional system not in drawings). 3. Variations valid only on Architect ’s instructions. 4. BQ form the basis of Contract Works. 5. Specifications determines the qualitative aspect of works.

[email protected]

26th May 2011

24

BQ AND LUMP SUM CONTRACT

L u m p S u m C o n t ra c t 1. Contract Price is firm and shall not be subject to revision. 2. Variations only on Architect’s instructions. 3. Drawings form the basis of Contract Works (determining the contract drawings before contract binding is therefore important). 4. Specifications determines the qualitative aspect of works. 5. BQ or price schedule augment drawings. 6. Variations and final account is determined by comparison with Contract Drawings and final As-Built (however changes from Contract Drawings can only claimed Variations based on AI). [email protected]

26th May 2011

25

BQ AND LUMP SUM CONTRACT Quantity

[email protected]

rates

Total Cost

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[email protected]

BQ AND LUMP SUM CONTRACT

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27

BQ AND LUMP SUM CONTRACT

Price Schedule

[email protected]

26th May 2011

BQ AND LUMP SUM CONTRACT

28

Lump Sum

BQ

Must be detail.

Detail schematics sufficient.

1

Consultants Drawings

2

Consultant‟s BQ

Simple 1 Lot

Detail measurements

3

Consultant‟s final measurements

Just check for VO

VO and comparison between contract drawings & as-built,

4

Contractors approach after award

Do as little as possible within the interpretation of the Contract.

Do as much as possible within the interpretation of the Contract.

5

Consultant‟s professional liability

Drawings not detailed enough attracts „negligence torts‟.

Quantities too much different from actual quantity attracts „negligence torts‟.

[email protected]

26th May 2011

29

BQ AND LUMP SUM CONTRACT

Common problems with Lump Sum Contract 1. Tender/Contract drawings not detail enough to determine scope and quantity. 2. Missing details attract claims of Variations. 3. Mismatch in BQ description and drawings. 4. ‘Itemised Lump Sum’: Itemised works must have drawings with sufficient details to show scope and extent of works.

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26th May 2011

30

BQ AND LUMP SUM CONTRACT

Common problems with BQ Contract 1. M&E engineer do not have sufficient experienc e to execute a BQ. 2. Mismatch in BQ description and drawings. 3. ‘Itemised Lump Sum’ in BQ: Itemised works must have drawings with sufficient details to show scope and extent of works.

[email protected]

26th May 2011

[email protected]

26th May 2011

32

PROPER WORK ACCEPTANCE

Wo r k A c c e p t a n c e i s a f u n d a m e n t a l responsibility of the M&E Engineer in supervision of works. 1. In many statutory declarations, the engineer is required to declare that he has design and supervise to a certain technical standards. 2. Some design standards are mandatory in nature and some are ‘commercial’ in nature. 3. Mandatory: Example: MS wiring codes, MS fire standards. 4. Commercial: Qualitative requirements of the Client. [email protected]

26th May 2011

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PROPER WORK ACCEPTANCE

Statutory Declarations Compliance to technical standards is certified!

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26th May 2011

34

PROPER WORK ACCEPTANCE

C.C.C. Borang G Statutory Declarations

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26th May 2011

35

PROPER WORK ACCEPTANCE

W h a t i s Wo r k A c c e p t a n c e ? (1) Vendor acceptance (2) Product acceptance (3) System acceptance

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26th May 2011

36

PROPER WORK ACCEPTANCE

 Vendor registrations  Product acceptance  Back up, spare parts etc

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 SIRIM Cert.  Conformance Cert.  3rd party Certification

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PROPER WORK ACCEPTANCE

 Alternative construction method  Rectifying construction defects  Coordination of works e.g. conduit run in r.c. slab

 Covered works  Tests during construction  Visual inspection

 Functional test  TAB (Test, Adjustment, Balancing)  Visual Inspection

[email protected]

26th May 2011

PROPER WORK ACCEPTANCE

38

C o m m o n F a i l u r e i n Wo r k A c c e p t a n c e .  No basic check of product acceptance.

 In many case SIRIM certification are expired or certificate submitted is for a product model different from the actual model to be installed.  Covered works are not properly tested during construction which will prejudice their final acceptance.  Approval of material suitable for the applied condition not complied with.

Final work acceptance require on going “work acceptance procedure from „design stage‟! [email protected]

26th May 2011

[email protected]

26th May 2011

PRODUCT VS SYSTEM ACCEPTANCE

40

Types of Standards Basic Standards

General Standards dealing with topics used by other standards; e.g. terminology, insulation coordination, IP, testing techniques etc.

Product Standards

Three Sub-Types:(a) Material (oil, winding wires). (b) Component (capacitor, resistors) (c) Assembly (switchgears, GIS, UPS)

Installation Standards

Rules and information to connect various types of equipment for a specific application e.g. BS7671:2001

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26th May 2011

PRODUCT VS SYSTEM ACCEPTANCE

41

E xa m p l e s o f P r o d u c t s a n d Sys t e m ABS Piping Product:

 Product specification for ABS pipe MS1419: Part 1 and Part 2. ABS Piping System:

 Piping system means all pipes, fittings, water seals, traps, expansion and pipe joints etc.  Generally acceptance concept require all components of the system to be from one vendor. [email protected]

26th May 2011

PRODUCT VS SYSTEM ACCEPTANCE

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E xa m p l e s o f P r o d u c t s a n d Sys t e m uPVC conduit; product only:  Product specification for conduit.

Conduit System:  IEC 61386 “Conduit management”

system

for

cable

 Piping system means all bends, cable pull box, tees etc.  Generally acceptance concept require all components of the system to be from one vendor. [email protected]

26th May 2011

PRODUCT VS SYSTEM ACCEPTANCE

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C o m m o n Fa i l u re  Products approved comply with the specifications, but the system installed are sub standard !  Common practice in the industry; piping or conduit supplied comply with specification even SIRIM certification are complied with, HOWEVER  Pipe joints not compatible with the pipe supplied (ABS pipe system).  Pipe accessories e.g. bends, tees etc not of the same standard (both ABS and conduit).  The wrong grade of piping use for the application e.g. grade B or C for embedding in concrete or surface mount.

[email protected]

26th May 2011

PRODUCT VS SYSTEM ACCEPTANCE

44

Te m p l ate wo r k a c c e p ta n c e fo r sys t e m

TENDER

SPECIFICATIONS

[email protected]

1. Specify system and product. 2. Specify that all components of system to be from one vendor 3. Require vendor approval in work acceptance 4. Vendor approved will be required to submit letter of confirmation.

26th May 2011

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PRODUCT VS SYSTEM ACCEPTANCE

Te m p l ate wo r k a c c e p ta n c e fo r sys t e m Vendor Approval

CONSTRUCTION

Approve

Reject

Construction Check List

[email protected]

Vendor To submit Letter of Confirmation

Method Statement Pipe Jointing

26th May 2011

[email protected]

26th May 2011

47

PAM 1998 AND 2006 CONTRACT FORM

PAM Contrac t Forms  PAM Contract forms are popular contract forms for private buildings in Malaysia.  M&E engineers who are responsible for drafting sub contract forms and ultimately managing the M&E portion of the sub contract should understand major differences in contract management required between the two forms.

[email protected]

26th May 2011

48

PAM 1998 AND 2006 CONTRACT FORM

S e l e c t i n g t h e C o n t ra c t F o r m . Government

JKR Contract Form

PAM 1998

Private or Public ?

Private

[email protected]

Building

PAM Form

Sector ?

Industry

FIDIC, Other Forms

Type?

PAM 2006

26th May 2011

49

PAM 1998 AND 2006 CONTRACT FORM

PAM 1998 vs 2006 Contract Forms  The risk allocation for time, money matters, quality issues and dispute resolution between the contractor, employer and consultant team has been shifted significantly in the PAM 2006. Comparatively (1998/2006) the risk for Contractors under 2006 has been shifted towards the Employer.  This reallocation of risks proportionately increases the employer’s exposure and burden in terms of claims and payments while providing more possible grounds for disputes between the contractor and employer.

 PAM 2006 Forms are also more procedural requiring the contractor, employer and consultants to strictly adhere to time provisions with the attendant loss of rights or incurring of liabilities.  PAM 2006 imposes definite and at times, mandatory time periods on the Architect/consultant team to carry out certain duties, for example, certification and approvals within a specified time. The failure to do so may open the consultant team to professional negligence claims. [email protected]

26th May 2011

50

PAM 1998 AND 2006 CONTRACT FORM

PAM 2006 For M&E Consultants  PAM 2006 Forms are also more procedural requiring the contractor, employer and consultants to strictly adhere to time provisions with the attendant loss of rights or incurring of liabilities.

Time provisions (work programme) forms part of the Contract.

Section of works scheduled for completion based on Contract [email protected]

Contractor submits RFI

Consultant replies with Information

Contractor proceeds with Works 26th May 2011

51

PAM 1998 AND 2006 CONTRACT FORM

PAM 2006 For M&E Consultants Time provisions (work programme) forms part of the Contract.  To minimise RFI due to incomplete information Consultant must ensure drawings have sufficient information for construction.  Consultant must diligently reply to RFI and/or issue drawings allowed within the schedule in the contract programme.  Information/drawings MUST be issued on time!

 Any issues affecting work programme (e.g. contractors delay, insufficient setting out information etc) must be diligently recorded in case of future dispute.

PAM 2006 is highly “Procedural”. No verbal instructions! Emails are DO NOT constitute legal notice! [email protected]

26th May 2011

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PAM 1998 AND 2006 CONTRACT FORM

PAM 2006 For Contractors Time provisions (work programme) forms part of the Contract.  Diligently scrutinise each section of the programme chart.  List information missing or incomplete which is required for completion of the section.  At every section, issue written RFI to consultant.  Diligently record receipt of reply to RFI and scrutinse completeness of information in Reply to RFI.

Any delay in information will open the contractor to claims for EoT. [email protected]

26th May 2011

53

PAM 1998 AND 2006 CONTRACT FORM

PAM 2006 for Consultants - Certification PAM 2006 imposes definite and at times, mandatory time periods on the Architect/consultant team to carry out certain duties, for example, certification and approvals within a specified time. The failure to do so may open the consultant team to professional negligence claims.  Approvals for shop drawings, certification of works etc. must be executed within a specified time!  Payment certification must be issued within a specified time.

D e l ay o p e n s t h e c o nt ra c t to d i s p u te a n d t h e c o n s u l ta nt s u b j e c t t o n e g l i ge n c e c l a i m s . [email protected]

26th May 2011

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PAM 1998 AND 2006 CONTRACT FORM

PA M 2 0 0 6 C o nt ra c t – C o m m o n Fa i l u r e s by M & E C o n s u l ta nt E n g i n e e rs 1. Incomplete drawings and constructional information. ‘Friendly contractor’ will cover. However not-do-friendly (or business-only) contractor will record this in RFI. 2. Information and drawings NOT issued in time. This will affect completion and allow EoT application by Contractor. The consultant will also be opened to claims for negligence. 3. Approvals not issued in timely manner. This will affect completion and allow EoT application by Contractor. 4. Payment certifications not issued in timely manner. Opens the consultant to claims of negligence. [email protected]

26th May 2011

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PAM 1998 AND 2006 CONTRACT FORM

Pe r h a ps M& E E n gi n e e r s h o u l d atte n d C PD c o u rs e s on u n d e rsta n d i n g co n st r u c t i o n c o nt ra c t s a n d t h e ro l e o f t h e c o n s u l t a nt w i t h i n t h e C o n t ra c t ?

[email protected]

26th May 2011

25 Common Problems for M&E Engineers Armada Hotel , Petaling Jaya 26th May 2011

5 Common Contract Management Problems

Ir. Looi Hip Peu | [email protected]