PP2 - Group Assignment

SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
Bachelor of Quantity Surveying (Honours)
PROFESSIONAL PRACTICE [QSB 3614]
COURSEWORK NO.2 - PREPARATION OF FINAL ACCOUNT
LECTURER: EDDIE LIM SIK CHEON
SUBMISSION DATE: 29th
OCTOBER 2018
Name : Student ID :
Adele Lu Khai Syn 0323151
Sim Si Kai 0318609
Zachary Ooi Cheng En 0323120
Choo Zhi Kang 0327586
Tey Cheng Fern 0323912
Michelle Tung Man Kaye 0324175
Lee Lin Hui 0322797
Heng Chun Hui 0329804

You are appointed as the consulting Quantity Surveyor for a apartment project based on PAM
Form of Contract 2006 (With Quantities). The summary of the Contract Sum is as follows :
Bill No. 1 - Preliminaries RM 4,250,000.00
Bill No. 2 - Building Works RM 62,850,000.00
Bill No. 3 - Local Infrastructure Works RM 4,500,000.00
Bill No. 4 - P.C and Provisional Sums RM 9,600,000.00
Contract Sums RM 81,200,000.00
Question 1
The Letter of Award for the above works was issued for RM 81,200,000.00 based on the tender
sum submitted by the Contractor. As you were preparing the contract documents for binding and
signature, you found some errors in the rates for aluminium windows works submitted by the
Contractor, which were very low. Kindly advise the actions that you will take.
(10 marks)
Answer for Question 1
Based on Clause 13.1, contract sum shall not be adjusted or altered in any way or
whatsoever other than in accordance with the express provision of the contract. Any errors in rate
and price shall be rationalized by the Architect without changing the contract sum figure before
signing the contract.
For this case, Letter of Award had been issued hence there is a contract form between
both parties. But the contract document has not been signed due to errors found in rates for
aluminium window works is very low. Architect or Consultant will have to rationalized the rate
based on the market rate but subject to agreement by Contractor as well.

In some cases, the Contractor might attempt ‘front loading’ when pricing to allow a more
profitable price. Based on the case law, Sist Construction v State Electricity Commision of
Victoria [1982] VR 597 of 606, the Contractor priced lower rate on items which they believe the
actual quantities are likely to be less than the quantity stated in the BQ. This may be the reason
why the rates for aluminium window works were very low. The Court held that the Contractor
has to act reasonably in pricing the BQ and it is necessary for the Consultant to rationalize the
BQ.
Question 2a
In accordance with clause 30.10 of the contract, the contractor duly submitted his Final Accounts
within 6 months after the issuance of the Certificate of Practical Completion. You are then
required to assess this application and prepare the Final Account for the apartment project based
of the following valuations and adjustments made to the Contract Sum.
(30 marks)
Information provided are as follows:-
The Architect had granted the Contractor’s first application for extension of time and approved
additional insurance premium amounting to RM 30,000.00 in accordance with clause 24 of the
contract due to the delay in the completion of the works caused by the Employer’s late decision
on the toilet design.
In his second application for extension of time, the Contractor submitted an application for
extension of time due to exceptionally inclement weather and a loss and expense claim for RM
120,000.00 in his Final Accounts to you. The Architect approved the extension of time as per
Clause 23.8.

Question 2b
The following are the nominated sub-contractor’s accounts:-
Original P.C &
Provisional Sums NSC’s final account
i. Lift Services: RM 1,300,000.00 RM 1,600,000.00
Profit @ 2% RM 26,000.00
Attendance as item RM 20,000.00
ii. Air Conditioning
Services:
RM 2,300,000.00 RM 2,200,000.00
Profit @ 2% RM 46,000.00
iii. Electrical Services: RM 2,700,000.00 RM 2,600,000.00
Profit @ 2% RM 54,000.00
iv. Provisional Sums:
Guard House
RM 1,000,000.00 RM 1,250,000.00
v. Contingency Sum RM 2,064,000.00
RM 9,600,000.00

Answer for Question 2a and 2b
According to PAM 2006 with Quantities stated that final account is the financial
documents showing the adjustments of the contract sum issued under clause 30.10. It is the
process of calculating and agreeing the adjustments of contract sum to determine the final
payment to the contractor. The contractor need to submit all necessary document within 6 months
after the issuance of the Certificate of Practical Completion for the preparation of final account.
Quantity Surveyor and Architect shall complete the final account within 6 months from the
receipt of all document from the contractor.
The contractor’s first application for extension of time and approved additional insurance
premium amounting to RM30,000.00 is granted for both extension of time and loss and expenses
claim according to relevant clauses 23.8(g) and 24.3(a) respectively.
Under clause 23.8(g), delay due to compliance with the Architect’s instruction issued by
the Architect under clauses 1.4, 11.2 and 21.4. In this case, the extension of time is granted under
variation clause 11.2 since there are changes in toilet design by the employer.
Under clause 24.3(a), there is a late issuance of Architect’s instruction due to the delay of
employer in deciding the toilet design which is clearly employer’s default. With this supporting
clause, the contractor is granted loss and expenses which is RM30,000.00 and therefore, included
in final account.
The contractor’s second application for extension of time due to exceptionally inclement
weather and loss and expenses claim for RM120,000.00. With supporting clause 23.8(b),
extension of time is granted to contractor due to exceptionally inclement weather. However, there
is no relevant clause to support the loss and expenses claim under clause 24.3. According to
principle natural of justice, the contractor and employer shall bear their own losses suffered due

to exceptionally inclement weather is a neutral event which it is no either contractor’s or
employer’s default.
Nominated sub-contractor’s final account such as lift services, air conditioning services
and electrical services, the nominated sub-contractor’s final account sum will be added into the
final account and the profit will be 2% of the final sum while the attendance will be remain the
same as to the original amount.
Besides that, provisional sums for guard house are awarded to the nominated sub-
contractor therefore RM 1,250,000.00 of the nominated sub-contractor final account sum will be
added into the final account and profit and attendance are included as well. For the amount of
profit and attendance of the guard house will be 2% each of the final sum.
Question 2c (i)
You have to evaluate the following variations for final account:-
The Contractor had priced RM 130,000.00 for the Contractor All Risk Insurance policy in the
Preliminaries Bills. The Contractor failed to purchase this insurance when the works commence.
The Employer, then, bought and paid for the said insurance for RM 180,000.00 on the behalf of
the Contractor, for which the Contractor agreed. The Employer wants to recover this cost.
(15 marks)

Answer for Question 2c (i)
In Article 7 of PAM Contract 2006, Contractor All Risk Insurance (CAR Insurance) is a
comprehensive insurance policy that covers any physical loss or damage to work executed or
material and goods under a standard CAR Insurance policy. It offers protection for any parties
involved in construction work against any unforeseen accidents that might lead to financial
losses.
This question stated that the Contractor had priced RM 130,000.00 for CAR Insurances in
Preliminaries Bills. However, he failed to purchase the insurance when the works commence.
When Contractor failed to purchase the insurance, his action has caused a breach of his own
obligation since it is a requirement stated in the PAM Contract. According to Clause 20.A.3 in
PAM 2006, if Contractor makes default in insuring works for new building, Employer may
insure against any risks in respect of which the default has occurred. Employer could but is not
obligated to purchase those insurances for the Contractor. The amount of premiums and any
other cost incurred and paid by the Employer shall be set-off by the Employer under Clauses
30.4.
The total cost of CAR Insurance paid by Employer is RM 180,000.00, include RM
130,000.00 which is the premium of CAR Insurance priced in the Preliminaries Bills and the
extra cost of RM 50,000.00. This amount has been agreed by Contractor before Employer
purchase the insurance. Employer is allowed to recover the total cost of RM 180,000.00 through
set-off but should divided into 2 steps.
First step is to recover the CAR Insurance premium of RM 130,000.00. Clause 20.A.1
stated purchasing CAR Insurance is Contractor’s obligation for the parties in the contract. In this
clause also mentioned that Contractor shall ensure the CAR Insurance is accordingly extended
for the same period of delay and ensure the policy is valid shall be valid up to the Completion
Date and the extended maintenance cover shall be fore the Defects Liability Period plus a further
3 months. In this condition, the default caused by Contractor which gives Employer rights to set-
off the amount from Contractor.

Secondly is the additional cost of CAR Insurance premium, RM 50,000.00 can be set-off
by the Employer. When Employer intends to set-off the extra cost, Contractor has no rights to
dispute that amount. Additionally, the breach of his action would trigger the set-off entitlement
by the Employer.
There are several precedent conditions when Employer intends to set-off the amount from
Contractor. Architect or Quantity Surveyor shall submit detailed assessment such as an official
receipt of the insurance and a written notice of set-off to Contractor. It lacks clarity and is open to
dispute by the Contractor if without explaining and defining those “complete details”. In the
written notice shall include the intention of Employer to set-off the sum and grounds and reasons
on which set-off is made. The notice shall deliver by hand or registered post within 28 days
before the set-off is deducted.
When Contractor receives the written notice from Employer, he has 2 options, either
accepts or disputes the amount. In this situation, Contractor only can agree and accept the amount
that Employer wish to recover within 28 days of notices of setting off. There are several ways
where set-off can be recovered from Contractor. First, Contractor can recover the set-off directly
as a debt through a cheque. Second, the set-off can deduct from any monies due to or to become
due to the Contractor through Interim Certificate. Third, Employer may call the exact sum from
performance bond but not the total bond.
The easiest way to deduct set-off amount is through Interim Certificate. However, the
amount that is going to counter-claim will not reflect on Interim Certificate. Interim Certificate
only included work done of the construction work and percentage of materials and goods on site.
Employer can deduct the amount that he intends to set-off on the interim payment when he issues
a cheque payment to Contractor.

Question 2c (ii)
Under the Preliminaries, the Contractor is required to provide a black and white photocopier
machine on site for the Resident Engineer’s use but this item was left un-priced, i.e. BQ item was
left blank in the rate/amount column in the contract document. During the progress, the Architect
instructed the Contractor to provide a colour photocopier machine costing RM 8,000.00 instead
of the black and white one as specified. Contractor submitted a variation claim for RM 8,000.00.
(15 marks)
Answer for Question 2c (ii)
In this scenario above, it falls under the categories of variation which stated in PAM
Contract 2006 Clause 11.1. This clause defined variation as the alteration or modification of the
design, quality or quantity of the works. The photocopier machine is considered as the alternative
materials and goods to be used in the Works which under Clause 11.1(b). From the scenario, the
Contractor is required to provide a black and white photocopier machine under the preliminaries,
but he left to price for the item. Then, he was instructed by the Architect to provide a colour
photocopier machine which involve the addition or omission of work to be carried out stated
under Clause 11.1(a).
Based on PAM Contract 2006, rules for valuation under Clause 11.6 stated of valuation
of Variations and work executed by the Contractor shall be made in the according with the
following rules in Clause 11.6(a) to (f). According to the rule of variation, Clause 11.6(e) stated
the rates and prices in the Contract Documents shall be determine the valuation of items omitted.
The omissions that substantially vary the conditions of work are carried out, shall be valued
under Clause 11.6(a), (b) or (c). In this case, Clause 11.6(e) can be further explained under
Clause 11.6(c).
Clause 11.6(c) stated where work is not of a similar character to work as set out in the
Contract Documents, the valuation shall be at fair market rates and prices determined by the
Quantity Surveyor. The scenario stated where the Architect instructed the Contractor for a colour

photocopier machine which is different from the Preliminaries where Contractor need to provide
for a black and white photocopier machine. This is where work is not similar character, a black
and white to a colour photocopier machine as set out in the contract documents. This valuation
can be claimed by the Contractor under Clause 11.6(c) and the valuation shall be at the fair
market rates and prices.
As conclusion, the Quantity Surveyor has to omit the black and white photocopier
machine and add in the colour photocopier machine as valuation based on fair market rates and
prices provided by the Contractor which is RM8,000.00. The quantity surveyor has to determine
the fair market rates and prices based on the any previous contract documents or get quotation
from the suppliers on the similar photocopies machine. The Quantity Surveyor has to carry out
the pricing professionally. If the Contractor satisfied to the valuation prices prepared by the
Quantity Surveyor and both parties will come to an agreement in the claim for the colour
photocopier machine.
Question 2c (iii)
The Contractor had delivered to site all marble floor tiles needed for the lift lobbies as specified
in the contract and construction drawings. However, the Architect decided to use granite floor
instead and instructed the Contractor to remove all the marble tiles from site. The Contractor paid
RM 50,000.00 for the marble tiles,. The Contractor returned the marble tiles to the supplier but
only managed a refund of RM 30,000.00. The Contractor submitted a claim for the loss of RM
20,000.00 that he suffered.
(15 marks)

Answer for Question 2c (iii)
Based on PAM Form Contract 2006, Clauses 11.1(b) states that variation occurs when
there is changes in materials or goods which are used in the Works. In this case, it is a change
that the contractor has instructed to remove all the marble tiles from site and replaced with
granite floor by Architect.
Since the alteration of material in the Works occurs, the marble tiles will be omitted
which falls under Clause 11.6(e) based on PAM Form Contract 2006. This clause states that the
rates and prices in the Contract Documents shall identify the valuation of item omitted. If
omissions substantially vary the conditions under which any remaining item of work are carried
out, the prices of such remaining items shall be valued under Clause 11.6(a), (b) or (c). Which
the new price of the granite will based on Clause 11.6(c) stated where work is not of a similar
character to work as set out in the Contract Document, the valuation shall be at fair market rates
and prices determined by the Quantity Surveyor. Hence, the marble tiles with amount RM50,000
will be omitted in Final Account under this clause.
Due to the marble tiles which cost RM50,000 to Contractor has returned to the supplier
but the Contractor only get refund of RM30,000, the Contractor is entitled to make a claim for
the RM20,000 that he suffered. This is because Clause 11.7 in PAM Form Contract 2006 states
that when there is variation cause the Contractor to incur additional expenses which the
Contractor is not being paid under Clause 11.6, the Contractor is entitled to make a claim for the
additional expenses.
To make a claim for the expenses, clause 11.7(a) in PAM Form Contract 2006 states that
the Contractor is required to submit a written notice to the Architect with an initial estimate of his
claim duly supported with all necessary calculations. Besides, the notice should be submitted
within 28 days from the date of the AI or CAI for the Contractor’s claim.
Based on clause 11.7(b) in PAM Form Contract 2006, the Contractor has to send
complete particulars of his claim to Architect and Quantity Surveyor for additional expenses with

all necessary calculation to support his claim. The particular should be submitted within 28 days
of completing the Variations. If the Contractor did not submit the particulars within 28 days, it
shall be deemed that the Contractor has waived his right to the additional expenses.
As a result, the marble tiles price which costs RM50,000 will be put under Omissions in
final account based on Clause 11.9 in PAM Form Contract 2006 and the Contractor’s claim
which costs RM20,000 will be put under Additional Expenses in final account based on Clause
30.11(a) in PAM Form Contract 2006.
Question 2c (iv)
Mistake was made in the price for excavation through rocks at RM 50 per m3. Item was not
rationalised during contract documentation. However, original quantity in BQ is 10 m3 but re-
measured as-built quantity was 100 m3. The Contractor submitted a claim for RM 55,000.00
based on a revised rates of RM 550 per m3 for the total quantity of 100 m3.
(15 marks)
Answer for Question 2c (iv)
Based on the situation, rock excavation that was priced wrongly for RM 50 per m3 and
the revised rate is RM 550 per m3. The quantity for rock excavation is measured wrongly in 10
m3 in original Bills of Quantities instead of 100 m3 after re-measured. The Contractor is facing a
big lost due to the irrationalised priced in contract documentation and the quantity measured
initially. Therefore, the Contractor has the right to claim his loss and expenses on the outstanding
work for revised rate and quantity.

Referring the PAM Contract 2006 under Clause 11.6(a) state where the work have the
similar character, executed under similar conditions and there is no significantly change of
quantity of works as set out in the contract documents. The rates RM 50 per m3 and quantity 10
m3 have been agreed in Bills of Quantity and this is not allow for changed and amended.
Therefore, the first 10 m3 excavation claimed by Contractor shall be based on RM 50 per m3
although he had made mistake and the excavation rates had been agreed in BQ and it is not allow
for amended.
In addition, the PAM Contract 2006 under Clause 11.6(b) stated where work is of a
similar character to work as set out in the contract documents but is not executed under similar
conditions or is executed under similar conditions but there is significant change in the quantity
of work carried out, the rates and prices in the Contract Documents shall be the basis for
determining the valuation which shall include a far adjustment in the rates to take into account
such difference. This means the Contractor can claim for the work with the pre-conditions of
that: (a) the work in similar character but is not executed under similar conditions; or (b) the
work under similar conditions but significant change in the quantity of work carried out. Hence,
the remeasured quantity 100 m3 is the change in the quantity of work which can be claimed by
Contractor based on the contract rates, RM 50 per m3. The Contractor cannot claim based on the
revised rate RM 550 per m3 for the remeasured quantity because the excavation rates had been
agreed in BQ which is not allow for changed and amended stated under Clause 11.6(a).
The recommended revised amount has been adjusted and to be claimed by Contractor is
RM 4,500.00 by following the calculation below.
Calculation:
1. Original quantity and rates: 10 m3 x RM 50 per m3 = RM 500.00
2. Re-measured quantity and Original BQ rates: 100 m3 x RM 50 per m3 = RM 5,000.00
Total Revised Amount:
Remeasured - Original = RM 5,000.00 - RM 500.00
= RM 4,500.00

PP2 - Group Assignment

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PP2 - Group Assignment