Construction Law Assignment

1. SCHOOL OF ARCHITECTURE, BUILDING, AND
DESIGN
Bachelor of Quantity Surveying (Honors)
CONSTRUCTION LAW (LAW 63804)
Sr. Wong Chong Wei
Date of Submission
21st
of June 2017
Group Members Student ID
Chan Hui Yong 0313991
Haji Muhammad Syafiq. Bin Haji Abd Zariful 0314702
Khor Seem Leng 0315208
Lee Qian Ying 0313749
Lee Kai Yang 0314835

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Table of Contents
1.0 Introduction 2

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1.0 Introduction
A construction project frequently involves a large number of parties that comes
together for its completion such as the client, contractors, engineers, architects and other
professional teams. Hence, it is essential to have contracts to construe the rights and
obligations of each party. Construction contract is a contract under which one party agrees
for valuable consideration to undertake to carry out works for another party involving
design, repair or demolition of structures, etc.
1.1 Objective
The objective of this report is to recommend a suitable FIDIC form of contract and
provide a comprehensive professional guidance to the Client on post-contract stage issues.
1.2 Project Detail
Table 1.1: Project Detail
Information Detail
Client Taylor’s University (Taylor’s Education Group)
Project Scope Postgraduate Student Accommodation and Outreach
Centre
Site Location Taylor’s University Lakeside Campus, Subang Jaya
Project Aim To provide state of the art accommodation facilities for
2,100 postgraduate students, as well as an outreach centre
which will become the focal point for the University’s
community-based teaching activities and continuous
professional development courses
Estimated Construction
Cost
RM 150,000,000

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2.0 General Principles of Construction Contracts
2.1 Features of contract
Offer and Acceptance:
The contractor quoting the tender price is viewed as an offer and client has the
option of whether to accept it or not. According to Contracts Act 1950 Section 7(a), the
acceptance must be absolute and unqualified. The acceptance should be made within a
reasonable time or time indicated by the offering party. The acceptor should communicate
the offer to the offeror, either expressed or implied.
Intention:
To be bound to a contract there must be the intention to enter into a legal
relationship between parties.
Consideration:
As established in Section 2(d) of Contracts Act 1950, the promisee (acceptor) ought
to give or do something in return for the promise made by the promisor. A contract must
be supported by valuable consideration (Section 26 of Contract Act 1950.)
Certainty:
It is necessary for each party to know what its particular obligations are.

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Capacity:
Both parties to the contract must have the legal capacity and be competent to do so
(Section 11 of Contract Act 1950).
2.2 Formation of Construction Contract
The formation of construction contracts is usually governed by the contractual rules
of offer and acceptance.
2.2.1 Tenders
Generally an invitation to contractor to submit tenders for a particular project is not
an offer but an invitation to treat (Pharmaceutical Society of Great Britain v. Boots Cash
Chemist Ltd) where the contractor’s submission is an offer made to the owner. Tenderer
may seek to qualify the tender by excluding or amending certain conditions and the
qualifications made in the tender submissions are considered valid conditions. The tender
offer may be accepted any time after it is made and can also be withdrawn before
acceptance.
2.2.2 Letter of Intent
The client may communicate his decision by issuing a Letter of Intent, which
expresses an intention to enter into a contract with the contractor at a future date and it can
have no binding effect except in certain express term (Turiff Construction Ltd v Regalia
Knitting Mills 1971).

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2.2.3 Terms of agreement
There is no contract if some particulars necessary to the agreement still remain to
be settled afterwards (Lord Blackburn in Rossiter v Miller 1878).
2.2.4 Letter of Award
Once both parties have agreed on the principal terms of the contract, the owner can
issue a formal letter of award.
2.2.5 Discharge of contract
Situations under which the contract may be discharged by:
1. Performance: when parties do not perform its obligations.
2. Agreement: discharged by mutual consent
3. Frustration: when there is a change in the circumstances that renders a contract
legally or physically impossible of performance.
4. Breach: when one party intends to not go on with the contract.

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3.0 Types of Contract: FIDIC Standard Form
In Malaysia, the court held that the parties to a contract have the liberty to decide
the terms and conditions they desire to contract upon as long as there is no contradiction
with the Contracts Act 1950 (Knutson, & Abraham, 2005). Hence, for this project, the
recommended form of contract is FIDIC (French acronym for International Federation of
Consulting Engineers) Conditions of Contract for Plant and Design Build, 1999: The New
Yellow Book. The intention of adopting this FIDIC Standard Form is due to unavailable
local forms for design and builds procurement system.
3.1 Procurement through Designand Build
For this type of procurement, tenders are generally being summoned based on
Employer’s Requirement. According to Sub-Clause 1.1.6.3 in FIDIC Yellow Book, 1999,
Employer’s Requirement refers to a document which stipulates “the purpose, scope, and/or
design and/or other technical criteria, for the Works”. In response, the Contractors will
submit a set of Contractor’s Proposal with their letter of tender.
In order to ensure the Client obtains his anticipated works, he is suggested to assign
a design crew for planning discussion, initial design preparation, and specifications and
comprehensive design brief to be integrated into the Employer’s Requirement
(MALCONLAW, n.d.). If desired, the original design team can be novated to the awarded
Contractor.
There is a similar past project, NUS Student’s Housing, done by Sembcorp,
Singapore which also adopted design and build procurement system. According to
Sembcorp, this method incorporates the forte of both design and construction teams so that
the project could meet Client’s requirements, design parameters and achieve completion
consistent with the project program and budget.

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Figure 3.1: NUS Student’s Housing
3.2 Features of FIDIC New Yellow Book 1999
To establish FIDIC New Yellow Book 1999 as an appropriate Form of Contract for
the project, its features are being highlighted as below:
Table 3.1: Features of FIDIC New Yellow Book 1999
Features Interpretations
Single point
of responsibility
 “The Contractor shall carry out, and be responsible for, the
design of the Works.” [Sub-Clause 5.1]
 The singularised responsibility portrays the principal feature of
the design/build project delivery technique where the Contractor
offers to the Client under the legal responsibility, the services
essential to both design and construct wholly or partially of a
project.
 One of the advantages of integrating design and construction
under the Contractor singularised responsibility is to support the

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works to be initiated in phases, instead of waiting for the
confirmation of design.
 Contractors with more control over the project schedule can aid
in reducing the risk of project postponements due to deficiency
in design and construction coordination.
Contract
Administration
 The provisions expressing the administration, selection and
responsibilities of the contract administrator are established in
Clause 3 (The Engineer).
 The chosen Engineer will regulate any claim relating to
extension of time and additional payment; certify payments and
issue certificates of taking over and performance.
 The role of the Contract Administrator is to stimulate and
consent Contractor’s innovation; and allow for Contractor’s
creativity during the design stage, by open communication
channels with the Contractor.
Risk Sharing  In order to attain better and more successful projects, FIDIC
believes that the way to handle project risk is by fair risk sharing.
It will give rise to more efficient and effective risk handling
when assigning the risk to the Party that is best placed to control
it and deal with it.
 The provisions relating to Contractor’s risks and Employer’s
risks are established in Sub-Clause 17.2 (Contractor’s Care of
the Works) and Sub-Clause 17.4 (Consequences of Employer’s
Risks).
 The Contractor is required to take full responsibility for the care
of the works, materials and plant from the commencement date
until the taking-over certificate is issued for the Works. If any
loss or damage happens to the Works or materials and Plant,
other than due to “Employer’s Risks” (as defined in Sub-Clause
17.3), the Contractor must “rectify” this loss or damage at the
Contractor’s cost.

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 “Employer’s Risks” are generally events or circumstances over
which neither party will have any control (e.g. war, hostilities
and the like) or events or circumstances caused by the
Employer, directly or indirectly.
 This risk sharing principle is beneficial for both parties, as the
Employer signing a contract at a lower price and only having
further costs when particular unusual risks actually eventuate,
and the Contractor avoiding pricing such risks which are not
easy to assess.
Value Engineering  Sub-Clause 13.2 (Value Engineering) seeks to encourage the
Contractor to propose changes to nature or construction of the
works that will “(i) accelerate completion, (ii) reduce the cost to
the Employer of executing, maintaining or operating the Works,
(iii) improve the efficiency or value to the Employer of the
completed Works, or (iv) otherwise be of benefit to the
Employer”.
To sum up, there are several benefits through the implementation of design and
build project delivery system along with Yellow Book. The feature of singularised
responsibility encourages good quality and proper project performance. Furthermore, cost
savings can be achieved as the unified team of designers and contractors excellently applied
value engineering and constructability during design stage. Firm cost can also be obtained
earlier as the individual who designs for the development concurrently estimates the cost
of construction and able conceptualised the finished project precisely. Due to the
overlapping design and construction stages plus the abolition of redesigning period, total
time of the development process can be considerably reduced. Finally, other than well-
adjusted risk allocation, enhanced risk management can be attained as the Yellow Book
clearly outlines the features of time, cost and quality.

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4.0 Payment

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5.0 Conditions Governing Contractual Programme
< 42 Days < 28 Days
Signing of the
Agreement
Figure 5.0: Time frame for Submission of Time Programme
Under clause 8.3 of the FIDIC contract 1999, contractors are required to provide a detailed
time programme to the Engineer within 28 days after receiving the notice of
commencement of works under sub-clause 8.1. Basically, this contractual Programme
serves as a basis to access for Extension of Time (EOT) or any delays as well as losses and
expenses claim by contractors.
The contractor has an obligation to conduct the works in accordance to the
submitted time programme which includes the compliance of the period of reviews of any
submission, order of contractor’s intention to carry out the works, obeying the sequence
and schedules of inspection and tests which is specified in the Contract and submission of
all supporting report. This was supported in the case law of West Faulkner Associates v
London Borough of Newham (1994) 71 BLR 1 whereby the High Court held that the
obligation to proceed regularly and diligently was essentially an obligation to progress the
work steadily towards completion.
Subsequently, under the circumstances whereby contractor does not comply with
the Contract, the Engineer which is the Employer’s personnel is obligated to notify the
contractors regarding this matters within 21 days after the receiving of a time programme.
The contractor is at liberty to plan their activities based on this submitted time programme.
In the event whereby occurrence of predictable future matters which adversely affect the
< 7 Days
Employer’s notice to
the Contractor of
Commencement
Date
Commencement
Date
Submission of Time
Programme by the
contractor to the
Employer

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time, cost and quality of works, contractors is obliged to notify the Engineer and submit an
estimate of the anticipated effect of future event under the Sub-clause 13.3.
On the other hand, time programme is a crucial tools as it acts as a basis to access
the rate of progress of a programme based on clause 8.6(b) of FIDIC 1999. Engineers shall
instruct the Contractor to submit a revised programme which includes all the necessary
supporting report which the contractor propose in order to expedite the progress and
completing the work within the Time for Completion
With the absences of a time programme, Contractors could face adverse
consequences whereby it will be difficult to defend himself against allegation of failure to
proceed diligently with works as well as justifying claims for extension of time and
demonstrating the effect of delaying events.
6.0 Dispute Resolution Methods
In FIDIC form of contract, multi-tiered dispute resolution procedure has been
provided (MALCONLAW, 2011). Section 20 in FIDIC Yellow Book, 1999 consists of
provisions concerning “Claims, dispute and arbitration”. The parties under the contract can
refer this section in the event dispute rises. Under this provision, there are three dispute
resolution methods in placed.
6.1 Adjudication
First step in dispute resolution process refers to Dispute Adjudication Board (DAB)
under sub-clause 20.2, 20.3 and 20.4. DAB is a prerequisite for entitlement of arbitration
(Jeremy, n.d.), as concluded in case of ICC Interim Award in Case 14431 (2008) and Swiss
Supreme Court Decision 4A_124/2014. A party must give written notice to the other party
of intention to refer dispute to DAB.

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Appoint aDAB (28 days)
Notice to intention to Formation of DAB
refer disputeto DAB
Figure 6.1: Formation of Dispute Adjudication Board (DAB)
Submission to DAB (<84 days) <28 days
Refer disputeto DAB DAB gives decision A party may issuenotice of dissatisfaction
Figure 6.2: Time frame for Dispute Adjudication Board (DAB)’s Decision

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6.2 Amicable Settlement
Amicable settlement is one of the dispute resolution method in the event that the
parties are not satisfy with the adjudication’s decision (sub-clause 20.5), enable both parties
to settle dispute with the help of impartial third party. It is a confidential voluntary process
in which the designated third party has no decision making power, the parties must came
into agreement to solved the dispute (Mediation Sophilex, 2008).
Amicable Settlement (0-56 days) Arbitration commenced on/after 57th
day
Issuance of notice of dissatisfaction 56 day 57 day
Figure 6.3: Time frame for Amicable Settlement
Amicable settlement is a prerequisite to commencement of arbitration. The case of
Emirates Trading Agency Llc v Sociedade de Fomento Industry Private Ltd concluded that
amicable settlement clause coupled with a time limited obligation is a condition precedent
and need to comply in order to commence arbitration (Andrew, 2015).
6.3 Arbitration
The last step according to contract’s provision is arbitration. If the event stated in
sub-clause 20.7 and 20.8 arises, the dispute may or shall be resolved through arbitration
under sub-clause 20.6 in which dispute are settled by international arbitration unless both
parties agreed on the conditions in sub-clause 20.6(a), 20.6(b) and 20.6(c).
6.4 Conclusion
FIDIC Yellow Book, 1999 provides only one dispute resolution procedure under
clause 20 which starts from adjudication. It is advisable to go for adjudication and amicable

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settlement and avoid resolved dispute through arbitration due to extra cost incur and
lengthy process.
FIDIC Yellow Book 1999 PAM Contract 2006
Contractual Programme
Engineer Administration Architect
 Within 28 days after
receiving the notice of
Commencement of
Work.
(Sub-Clause 8.3)
Time frame  Within 21 days from
receipt of the Letter of
Award.
(Clause 3.5)
No specification Documentation Contractor shall provide
six (6) copies of the Work
Programme.
(clause 3.5)
Each Programme shall
include:
 An order in which
Contractor intends to
carry out the works
 The period for reviews
under Sub-Clause 5.2
Contractor’s Document
 The sequences and
timing of inspection and
test specified in
Contract.
(Sub-Clause 8.3)
Documentation
Specification
 No particular format or
content is laid down for
the Work Program.
 However, it is required
that the Work Program
must show the order in
which contractor
proposes to carry out
the works.
(clause 3.5)

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FIDIC Yellow Book 1999 PAM Contract 2006
Adjudication, Amicable
settlement, Arbitration
Distribution resolution
methods
Adjudication, Mediation,
Arbitration
Adjudication
Dispute Adjudication
Board (one or three
suitably qualified
persons)
Administration Arbitrator
Prerequisite to
arbitration
Condition precedent to
arbitration (clause 34.1)
 28 days from notice of
intention to DAB’s
appointment
(Sub-clause 20.2)
Time frame  21 days from date of
written notice to concur
on adjudication’s
appointment
(clause 34.2)
Mediation/ Amicable Settlement
Judge Administration Mediator
Prerequisite to
arbitration.
Not a condition precedent
to adjudication and
arbitration (clause 35.2).
Arbitration
Written notice to refer
dispute to arbitration
within 28 days after
DAB’s decision
(sub-clause 20.4)
Time frame Written notice to refer
dispute to arbitration
within 6 weeks from date
of adjudication’s decision
(clause 34.4)
Sub-clause 20.6
 International
arbitration
Unless agreed by both
parties:
 Rules of Arbitration of
International Chamber
of Commerce
 Language for
communication in sub-
clause 1.4
Arbitration Act and Rules Clause 34.3
 Arbitration Act 2005
 PAM Arbitration Rules

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Appendix – Common Issues during Construction
Scenario 1 – Delay/Non-payment
After completion of certain work and had undergone interim valuation, the
Contractor submittedhis claim for interim payment. Yet the Contractor did not receive any
payment from the Employer despite interim certificate has been issued.
Remedies for the Contractor:
According to Sub-clause 14.6, the Engineer shall within 28 days after receiving a
Statement and supporting documents, issue to the Employer an Interim Payment Certificate
which shall state the amount which the Engineer fairly determines to be due, with
supporting particulars. Then, according to Sub-clause 14.7, the Employer shall pay to the
Contractor the amount certified in each Interim Payment Certificate within 56 days after
the Engineer receives the Statement and supporting documents.
In the scenario mentioned above, if the Contractor does not receive the interim
payment within specified period, the Contractor shall be entitled to receive financing
charges (Sub-clause 14.8) compounded monthly on the amount unpaid during the period
of delay. The financing charges shall be calculated at the annual rate of 3% points above
the discount rate of the central bank in the country of the currency of payment. The
Contractor shall be entitled to this payment without formal notice or certification, and
without prejudice to any other right or remedy.

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References
Andrew, T. (2015). FIDIC’s Sub-Clause 20.5 – A Condition Precedent to Arbitration.
Retrieved from http://corbett.co.uk/wp-content/uploads/KH-article-FIDIC-Sub-
clause-20.5-PDF.pdf
Jeremy, G. (n.d.). FIDIC Dispute Adjudication Boards. Retrieved from
https://www.fenwickelliott.com//sites/default/files/jg_fidic_dispute_adjudication_bo
ards.pdf
Knutson, R., & Abraham, W. (2005). FIDIC : an analysis of international construction
contracts (1st ed.). The Hague [etc.]: Kluwer Law International [etc.]
MALCONLAW. (n.d.). Procurement through Design and Build. Retrieved from
https://simplymalaysia.wordpress.com/articles/choice-of-contract/procurement-
through-design-and-build/
MALCONLAW. (2011). Amicable Settlement – A vital Tool | Malaysian Construction and
Contract Law. Retrieved June 15, 2017, from
https://simplymalaysia.wordpress.com/articles/amicable-settlement/amicable-
settlement-–-a-vital-tool/
Mediation Sophilex. (2008). What are the differences between a mediation and an amicable
settlement conference? Retrieved from
http://www.mediationsophilex.ca/pdf/mediation_faq5_en.pdf
Sembcorp. (n.d.). NUS Student’s Housing. Retrieved from
http://www.sembcorpdc.com/past-projects/building-projects/20-nus-students-
housing