PP2 - Assignment

SCHOOL OF ARCHITECTURE, BUILDING & DESIGN
BACHELOR OF QUANTITY SURVEYING (HONS)
PROFESSIONAL PRACTICE II
(QSB60904)
GROUP MEMBERS :
Name Student ID No.
CHAN TIAN JI 0320831
EE HUI TENG 0322548
KAM PEI CHI 0327295
LEW QUO MING 0322884
NG ZHEN HUAN 0324261
TAN JIA SAN 0322406
WONG JIA JING 0327221
LECTURER : SR EDDIE LIM

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.
Answer to Question 1
In this case, the Letter of Award had been issued with the total of RM 81.2 million.
However, Contractor is at his fault for using the wrong rates for aluminium window works.
Therefore, adjustment action must be taken to ensure fair prices and rates for the Contractor.

According to Clause 13.1 in PAM Contract 2006 (With Quantities) which stated that
the Contract Sum shall not be adjusted or alerted in anyway, other than in accordance with the
express provisions of the contract. Any arithmetical errors or any errors in the prices and rates
shall be corrected or rationalized by Architect or consultant without any changes to the contract
sum before signing of the contract.

The rationalisation of the prices and rates is to determine whether the prices and rates
adjust the rates and prices used by the contractor is reasonable and fair. If there are errors, the
prices and rates have to be rationalised or adjusted to an acceptance of both contracting parties.
For this case, rationalisation of prices and rates should be applied on the rate of aluminium
window works to increase the rate to a reasonable level without changing the contract amount.

The Contractor is at a liberty to determine and choose his own pricing strategy. Loading
the rates is a common practice of contractor which they increase the rates for items at the early
stages and reduce the rates at the later stages in order to allow a higher cash flow at the early
stages. The similar cases to prove this statement is ‘Sist Construction v State Electricity
Commission of Victoria (1982) VR 597 of 606’ and ‘Convent Hospital v Eberlin and Partners
(1988) 14 Con LR 1’, the Contractors priced at a lower rate on items which they believed that
the actual quantities had to be lower than the quantities in Bill of Quantities, and raise the rates
on items where they believed the actual quantities had to be higher than the quantities in Bill
of Quantities, without alerting the final contract amount.
1

As a Quantity Surveyor, I will help in rationalising and correcting the rates of
aluminium window works before binding and signing of the contract document.
Rationalization of prices and rates in tendered prices and rates is to correct the pricing errors
made by the Contractor to avoid front loading claims, without changing the Contract Sum. This
can help to reduce or avoid errors and unreasonable pricing rates when the Contract is signed;
to minimising disputes in connection with raised price during construction stages.
Question 2
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.
Answer to Question 2 (a) & (b)
According to article 7(ab) in PAM conditions of contract (2006), 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’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 Clause 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 Clause 1.4, 11.2 and 21.4. In this case, the Extension of Time is granted
under Variation Clause 11.2 since there is change 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. With this supporting clause, the Contractor is granted
Loss and Expenses and therefore, included in Final Account.
2

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 due to exceptionally inclement weather. However, there
is no relevant clause to support the Loss and Expenses claim. According to principle natural of
justice, the Contractor and Employer are to bear their own loss suffered due to this natural
event.

In this Final Account, the final account for Nominated Sub-Contractor includes lift
services, air conditioning services and electrical services. As for Provisional Sums for guard
house, since it has be awarded as Nominated Sub-Contractor’s work, it is therefore part under
Nominated Sub-Contractor’s Final Account as well. Profit and attendance for the construction
of guard house would have an allowance of 2% of guard house sum respectively.
3

Project : Construction of An Apartment Project
Employer :
Contractor:
1.0 Original Contract Sum
2.0 Less : P.C. & Provisional Sums
Total Builder's Works
3.0 Add : Variation Works (V.O. Nos 1 - 4)
Total Additions
Total Omissions
Nett Additions/ Omissions
4.0 Add back : NSCs' Final Account
4.1 Lift Services
4.2 Air Conditioning Services
4.3 Electrical Services
4.4 Provisional Sum : Guard House
4.5 Profit and Attendance
(a) Profit @ 2% of RM 7,650,000.00
(b) Attendance @ Lumpsum
5.0 Contractual Claims
5.1 Loss and Expense
FINAL CONTRACT VALUE
153,000.00
1,600,000.00
79,550,500.00
30,000.00
288,000.00 288,000.00
135,000.00
30,000.00 30,000.00
2,200,000.00
2,600,000.00
1,250,000.00
FINAL ACCOUNT
RM RM
7,650,000.00 7,650,000.00
(17,500.00)
(50,500.00)
33,000.00
81,200,000.00
9,600,000.00
71,600,000.00
(17,500.00)
71,582,500.00
4

Employer :
Contractor:
Summary of Variation Order
Item Description Omission (RM) Addition (RM)
Nett Addition/
Omission (RM)
1 Variation Order No. 1 - 8,000.00 8,000.00
AI to provide colour
photocopier machine on site
2 Variation Order No. 2 (50,000.00) 20,000.00 (30,000.00)
Additional expenses incured
due to change of lift lobbies
from marble floor tiles to
granite floor
3 Variation Order No. 3 (500.00) 5,000.00 4,500.00
Revise rate and quantity for
excavation through rock
(50,500.00) 33,000.00 (17,500.00)
TOTAL CARRIED TO STATEMENT OF
FINAL ACCOUNT
5

Employer :
Contractor:
Summary of Nominated Sub-Contractor's accounts
Item Description NSC's Final account
NSC/1 Lift Services RM 1,300,000.00 RM 1,600,000.00
Profit @ 2% RM 26,000.00 RM 32,000.00
Attendance as item RM 20,000.00 RM 20,000.00
NSC/2 Air Conditioning Services RM 2,300,000.00 RM 2,200,000.00
Profit @ 2% RM 46,000.00 RM 44,000.00
NSC/3 Electrical Services RM 2,700,000.00 RM 2,600,000.00
Profit @ 2% RM 54,000.00 RM 52,000.00
NSC/4 Guard House RM 1,000,000.00 RM 1,250,000.00
Profit @ 2% RM 25,000.00
Attendance @ 2% RM 25,000.00
Total Profit @ 2% RM 153,000.00
Total Attendance RM 135,000.00
Original P.C & Provisional
Sums
6

Question 2 (c)(i)
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
behalf of the Contractor, for which the Contractor agreed. The Employer wants to recover this
cost.
Answer to Question 2 (c)(i)
According to PAM Contract 2006 (With Quantities), Clause 20.A.1 stated that the
Contractor shall, as a condition precedent to the commencement of any work under the
Contract, purchase and maintain Contractor All Risk Insurance (C.A.R) policy until Defects
Liability Period ended. Clause 20.A.3 also stated that C.A.R insurance shall be placed with
licensed insurance companies and agreed between the Contractor and Employer. The
Contractor is obliged to pay and maintain the C.A.R insurance. If Contractor fails to comply
and makes default in insuring, Employer may insure against any risks in respect of which the
default has occurred on behalf of Contractor, and such payment shall be set-off by the
Employer under Clause 30.4. In this situation, the Contractor failed to purchase the C.A.R
insurance before the commencement of Works. Therefore, the Employer has such rights to
purchase the said premium and set off the amount based on Clause 30.4.

Under Clause 30.4 of PAM Contract 2006 ( With Quantities), it gives the Employer
entitlement to set-off all cost incurred and loss and expenses. The Architect or Quantity
Surveyor on behalf of the Employer have to submit the complete detail assessment of such set-
off and has given Contractor a written notice delivered by hand or by registered post to notify
the Contractor that Employer has intention to set off. Any set-off by the Employer shall be
recoverable from the Contractor as a debt or from any monies due to become due to the
Contractor under the Contract and/ or from the Performance Bond. However, the Employer
only entitled to set-off when the amount has been agreed by the Contractor and in this scenario
the Contractor has agreed on the set-off amount. Since the Employer paid for the insurance at
RM180,000 on behalf of the Contractor. Therefore, the amount paid by Employer shall be set-
off against the Contractor where the Contract Sum being awarded at the early stage stated that
the insurance was RM130,000 but because of default by Contractor which he fails to purchase
the insurance by himself, the Employer paid for the insurance on behalf at the price of RM
180,000.
7

Therefore, the Employer is entitled to set-off total amount of RM 180,000 which
included the additional cost of RM 50,000 against the Contractor under Clause 30.4 PAM
Contract 2006 (With Quantities). Such amount of set-off should not be included in Final
Account as in accordance to Clause 30.11 (f) and are matters to be resolved separately between
the Employer and the Contractor.

In conclusion, the Employer is able to deduct Contractor’s money as debt from
Contractor towards Employer for buying insurance on behalf of Contractor. The additional
amount can be set-off from the Contractor through interim payment ,as a debt , balance and
also call for the Performance Bond. However , the Contractor is not entitled to claim the
amount of RM 180,000 from the Employer and Contractor has to bear the cost himself.
8

Question 2 (c)(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
RM8,000.00 instead of the black and white one as specified. Contractor submitted a variation
claim for RM8,000.00.
Answer to Question 2 (c)(ii)
According to PAM Form 2006 (With Quantities), the clause under Variation which is
Clause 11.6 (c) will be implemented. The situation states that the Contractor is to provide a
black and white photocopier as specified but left un-priced under the preliminaries and the
Architect instructed the Contractor to provide a colour photocopier which cost RM8,000
instead of the original black and white photocopier.

Under PAM Contract 2006, Clause 11.6(c) states that, where work is not of 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.

At the start of it, the Contractor did not price the black and white photocopier under the
Preliminaries section causing no price being agreed on by both Employer and Contractor.
Moreover, the Architect instructed the Contractor to provide a colour photocopier instead of
the black and white photocopier. This has significantly changed the characteristics of work as
they are both not in similar works and this is not in compliance with the Contract Documents.
Hence, the rate of this Variation Order may be priced on the cost-plus basis or may be
determine through fair market rate where the lower price will be adopted and decided by the
Quantity Surveyor. What constitute the latter term of ‘fair market rates and prices’ has not been
defined but guidance can perhaps be sought from Charrington & Co Ltd v Wooder (1914) AC
71, where the House of Lords held that the term ‘market price’ of a commodity was to be
construed with reference to the surrounding circumstances. It would be recommended to adopt
the fair market rate rather than the cost plus basis as referring to the case of Laserbore Ltd v
Morrison Biggs Wall Ltd (1993) CILL 896.
9

In the case of Laserbore Ltd v Morrison Biggs Wall Ltd (1993) CILL 896, the judge has
decided that cost-plus basis was wrong in principle even though in some instances it may
produce the right results. The appropriate approach was to adopt the general market rates as it
fairer and more reasonable price. As the contractor submitted a Variation claim of RM 8,000,
the rates in this case are to be determine by the Quantity Surveyor as they must first identify
the specification of the photocopier needed by the Resident Engineer, where the specifications
contribute the difference is cost of each machine. This is to establish a baseline to be able to
price for. This is done to allow the Contractor to obtain a fair market price for their Variation
claim on the colour photocopier that cost RM8,000.

In conclusion, the Contractor’s Variation claim will be processed by Quantity Surveyor
based on the fair market rate after analysing all relevant information to obtain the best price as
possible. The final rates and prices of the colour photocopier determined by the Quantity
Surveyor will be listed in the final account under variation and the previous black and white
photocopier which has previously been left blank rates in the Preliminaries will be omitted.
Question 2(c)(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.
Answer to Question 2 (c)(iii)
According to PAM Contract 2006 (With Quantities), Clause 11.1 has stated that the
term “Variation” means the alteration or modification of the design, quality or quantity of the
Works. Clause 11.1 (a) means that there is variation when there is addition, omission or
substitution of any work. In this situation, Clause 11.1 (a) can be use as the Architect decided
to change the marble tiles to the granite floor.

10

In this situation, the Clause under Variation 11.6 (c) will be implemented. It states that
the Architect decided to change the marble floor tiles to the granite floor. The marble tiles has
been listed in the Contract Document and the construction drawings. Clause 11.6 (c) has stated
that 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 as
supported by the case of Crittall Windows v T.J Evers (1996) 54 Con LR 66.

It has been held in Crittall Windows v T.J Evers (1996) 54 Con LR 66 to mean that the
Contractor shall be entitled to a fair valuation which will not give the Contractor more than his
actual cost, reasonably and necessarily incurred, plus similar allowance for overheads and
profit.

According to Clause 11.7, where a Variation has caused or is likely to cause the
Contractor to incur additional expenses, the Contractor may make a claim for such additional
expenses. The Contractor shall give a written notice to the Architect of his intention to claim
for such additional expenses including an initial estimate of his claim duly supported with all
necessary calculations. The notice shall be submit within 28 days from the date of the AI or
CAI giving rise to his claim. The written notice shall be a condition precedent to the entitlement
of additional expenses.

According to the Contract Document and drawings, the Contractor is required to use
marble floor tiles for the lift lobbies which cost RM 50,000. However, after the marble floor
tiles has delivered to site, the Architect has instructed the Contractor to remove the marble floor
tiles on site as the Architect decided to change to granite floor. The Contractor has returned the
marble tiles to the supplier and only managed a refund of RM 30,000. In this situation, the
work is not under similar characteristic and also not similar condition.

In conclusion, the Contractor is able to claim for the loss of RM 20,000 that he suffered.
It is not a default by the Contractor as he has follow the Contract Documents to deliver the
marble tiles to the site. According to Clause 11.8, the Contractor shall keep contemporaneous
records to substantiate all his claim for additional expenses under Clause 11.7 and submit all
particulars to the Architect and Consultants. According to Clause 11.9, as soon as the Architect
has ascertained the amount of Variations and or additional expenses claimed by the Contractor
11

under Clause 11.7, the amount so ascertained shall be added to the Contract Sum. The
adjustment made to the Contract Sum shall include in the Final Account according to Clause
30.11 (a). Due to such Variation, there will be an omission of RM 50,000 and an addition of
RM 20,000 with a net omission of RM 30,000.
Question 2(c)(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 based
on a revised rates of RM 550 per m3 for the total quantity of 100 m3.
Answer to Question 2 (c)(iv)
In accordance to PAM 2006 (With Quantities) Clause 11.1, Variation is defined as the
alteration or modification of design, quality or quantity of the Works. It is also stated that it
excludes any changes intended to rectify any negligence, omission, default and/or breach of
contract by the Contractor and such changes shall be executed by the Contractor at his own
cost. In short, any error on the rates incorporated into Contract Documents shall not be
subjected to any changes and the Contractor is held responsible to bear any losses at his own
cost. All Variations shall be evaluated following the rules listed in Clause 11.6. Assuming the
rock excavation is not a Provisional Quantity, this Variation shall be valued according to
Clause 11.6(b).

In Clause 11.6(b), it is stated that Variations for work that are of similar character and
executed under similar conditions but has a significant change in the quantity shall be valued
by using the rates and prices in Contract Documents as basis while incorporating a fair
adjustment in the rates to accommodate the differences. However, the rate in this case is unable
to include fair adjustments as the contrary rate is not rendered unreasonable by a substantial
increase in quantities as held by the decision of Henry Boots Construction Ltd v Alstom
Combined Cycles Ltd (1999). The rate itself was already unreasonable when the contract is
entered and shall not be affected due to any forms of variation such as the increase or decrease
of quantities.

12

Referring to the case of Henry Boots Construction Ltd v Alstom Combined Cycles Ltd
(1999), it is stated that contract rates cannot be amended simply due to the dissatisfaction of
any parties in the contract. The profitability of a rate is irrelevant when evaluating a variation
as the unreasonable rate is not the result of the alteration of quantity but the error in pricing
itself. Therefore, the Variation shall not allow the Contractor to be paid a rate different from
what is stated in the Contract Documents nor what that is regarded as fair on quantum meruit
basis.

The case of Dudley Corporation v Parsons and Morrin Ltd (1959) held that the
Contractor had chosen to under-price the rate to secure the job. Despite sympathising the
Contractor on the circumstance where the item which was greatly under-priced had an increase
in quantities during construction and had resulted the Contractor to suffer considerable
financial loss, it must be assumed that the Contractor had accepted the risk of under-pricing an
item when submitting his tender. The change in quantity which substantially increased the
Contractor’s losses shall not be a consideration to allow the Contractor to be paid on a different
basis other than the contract rates. Therefore, the Contractor shall be responsible to bear the
risk of pricing a low rate to increase his chances of securing the project.

In conclusion, the mistake made in pricing the excavation through rocks shall not allow
the alteration of the contract rate despite the existence of a variation. Therefore, the Contractor
is entitled to claim for 100m3 rock excavation at RM50 per m3 as stated in the Contract
Documents. This Variation shall result in the omission of the original sum of RM500 and an
addition of RM 5,000 for re-measured as-built rock excavation quantity of 100m3 instead of
10m3 as allowed in the Bills of Quantities.

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PP2 - Assignment

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PP2 - Assignment