![Event 4 (i)
10
Clearglass claimed that there is always a delay in payment from the Main Contractor. The Interim Certificate was
issued by the Architect every 20th of the month on time. However, Clearglass only received payment more than two months
after the issuance of every Interim Certificate. This is seriously affecting their cash flow and they would like to get the
Employer’s involvement to solve this issue. The Contractor explained that they did not delay in paying the Nominated Sub-
contractor. It is supposed to be back to back payment condition. The Contractor will only pay the Nominated Sub-contractor
when they received payments from the Employer.
Back-to-back payment is used to arrange that the Main Contractor will not be
liable to pay the Sub-Contractor payments, unless the Main Contractor
received the equivalent payment from the Employer.
However, the validity of back-to-back payment was not recognized based on
the Construction Industry Payment and Adjudication Act (CIPAA) 2014. The
main objective of CIPAA is to facilitate regular and timely payment and to
prohibit the conditional payment such as “pay when paid” arrangement to
reduce the issue of cash flow shortage or non-payment of progress payments.
VALIDITY OF BACK-TO-BACK PAYMENT
SINWIRA BINA SDN BHD V PUTERI NUSANTARA SDN BHD [2017] MLJU 1836
In this case, the defendant, which was the main contractor for a project in Langkawi, relied on a “back-
to-back” clause in the Letter of Award which provided that the Sub-Contract Sum would be paid to the
plaintiff as a back-to-back payment as and when the payment was received by the defendant from a
party known as the “Client”. The clause also provided that in the event payment was not received from
the Client, the defendant would not be liable to pay the plaintiff.
Section 35 of the CIPAA renders a conditional payment provision in a construction contract void.
“Conditional payment provision” is defined in Section 35(2) of the CIPAA as the obligation of one party
to pay another upon that party receiving a payment from a third party, or that the obligation of one
party to pay another is conditional upon the availability of funds or the drawdown of that party’s
financing facilities. This meant that the back-to-back clause was void pursuant to Section 35 of the
CIPAA.
On 12th June 2019, ABC Architect nominated Clearglass Sdn. Bhd. as the Nominated Sub-contractor for aluminium works. They
started fabrication on site on 7th September 2019. A few disputes were raised by the Contractor and Clearglass.
Employer
Main
Contractor
Sub-
Contractor
“35. Prohibition of Conditional Payment
1. Any condition payment provision in a construction contract in relation to payment under the construction contract is void.
2. For the purposes of this section, it is a conditional payment provision when:
a) The obligation of one party to make payment is conditional upon that party having received payment from a third party; or
b) The obligation of one party to make payment is conditional upon the availability of funds of drawdown of financing facilities of that party.”](https://image.slidesharecdn.com/c2-200619055250/85/Professional-Practice-II-Group-Assignment-13-320.jpg)
Professional Practice II (Group Assignment)
- 1. PROFESSIONAL PRACTICE II(QSB60904) GROUP ASSIGNMENT C O U R S E W O R K 2 0323839 BOON LI YING 0331686 ENG CHENG EN 0331084 GREWDELINE CHEW YEE JUN 0331473 LEE YU QING 0330856 LIM ZHENG YAN 0331773 NICHOLAS WONG CHIN KAI 0324838 NUR FIRZANA BINTI MUHAMMAD HASMI 0330764 WAN YEE LEN SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN BACHELOR OF QUANTITY SURVEYING (HONOURS)
- 2. CONTENT 01 Final account 02 Project details & Events A summary of the financial effect of all activities carried out under the Contract of an apartment project, breakdown of variation works as well as adjustments to Nominated Sub-Contractor’s final account. A brief introduction of the building construction and project team, as well as assessment of several events arose between the parties during the construction period. The Consultant Quantity Surveyor (CQS) plays a significant role in advising the involved parties, all in accordance to the PAM Contract 2018 (With Quantities) and other construction contract related.
- 3. CONTENT The overview of the Clauses and Conditions of Contracts referred in the effort of assessing the events are as follow: - Event 1 Clause 19.1 – Contractor to insure against injury to Person and loss and/or damage of property Clause 19.3 – Insurance for local workmen not subject to SOCSO Clause 19.4 – Workmen’s compensation insurance for foreign workers Clause 20.A.1 – Contractor’s risks – new buildings/works Clause 30.4 – Set-off by Employer provided under Clause 19.5 Event 2 Clause 11.1 – Definition of variation Clause 11.6 – Valuation rules (b) Event 3 Clause 3.4 – Further drawings or details Clause 11.5 – Valuation of variations and provisional sums Clause 11.6 – Valuation rules (b) Clause 23.6 – Contractor to prevent delay Clause 23.8 – Relevant events (h) Event 4 (i) Section 35 of CIPAA 2012 – Prohibition of Conditional Payment Clause 27.5 – Payment by Contractor to Nominated Sub-Contractors Clause 27.6 – Failure of Contractor to pay Nominated Sub-Contractors Appendix Clause 30.1 – Period of Honouring Certificate Event 4 (ii) PAM Sub-Contract 2006 Clause 26.13 – Set-off claims by Contractor provided under Appendix ‘B’ Clause 27.0 – General attendance upon Sub-Contractor Appendix ‘B’ to the Sub-Contract Conditions – General attendance Event 5 Clause 2.1 – Contractor to comply with AI Clause 11.2 – No variations by Architect shall vitiate Contract Clause 11.6 – Valuation rules (b) Clause 23.8 – Relevant events (h) Event 6 Clause 1.1 – Completion of works in accordance with Contract Documents Clause 2.1 – Contractor to comply with AI Clause 11.2 – No variations by Architect shall vitiate Contract Clause 11.6 – Valuation rules (e) Clause 24.3 – Matters materially affecting the regular progress of the works (h)
- 4. Final account 1 A Final Account in construction contracts is the agreed statement of the amount of money to be paid at the end of a building contract by the Employer to the Contractor. A Final Account brings about a sense of finality to the negotiations leading up to the agreement of the Final Account between the parties to the Contract. The settlement of the Final Account negotiations between the Contractor, and the Architect or Quantity Surveyor will in due course trigger the issue of the Final Account Statement and ultimately, enable the Architect to issue the Final Certificate. In accordance with Clause 30.10 of the PAM Contract 2018 (With Quantities), the Contractor duly submitted his Final Accounts within 6 months after the issuance of the Certificate of Practical Completion. Being appointed as the consulting Quantity Surveyor, the application was then assessed, and the Final Account for the apartment project was prepare. The summary of the original Contract Sum is as follow: Bill No. 1 — Preliminaries Bill No. 2 — Building Works Bill No. 3 — Local Infrastructure Works Bill No. 4 — P.C. and Provisional Sums Contract Sum RM RM RM RM RM 5,250,000.00 64,250,000.00 4,500,000.00 20,600,000.00 94,600,000.00
- 5. Final account 2 Summary of Variation Order Summary of Nominated Sub-Contractor’s account Notes: Contingency sum is a sum of money allowed in the project budget, for expenditure on aspects of the project that were unforeseen or unforeseeable at the time of preparing documents. The Employer “funds” the contingency from which costs arising from the enumerated risks are drawn until the contingency fund is exhausted. Any unspent contingency funds at the end of the project typically revert to the owner or are shared. Therefore, the value of the contingency sum is to be omitted from the NSC’s Final Account.
- 6. Project details The proposed project is a mixed development consists of: BLOCK A BLOCK B 5-STOREY PODIUM CARPARK 26-STOREY APARTMENT BLOCK 16-STOREY OFFICE BLOCK (COMMERCIAL) Safe Engineer Sdn. Bhd. C&S Engineer ABC Architect Sdn. Bhd. Architect Efficient Engineer Sdn. Bhd. M&E Engineer Good QS Sdn. Bhd. QS Consultant Build Fast Sdn. Bhd. Contractor Awarded Contract Sum RM90,000,000.00 Date of Commencement and Site Possession 1st January 2019 Contract Duration 24 months 3
- 7. Event 1 4 On 15th January 2019, it has been realized that the Contractor has not procured any insurance for the project although works have started on site. A reminder was sent immediately to the Contractor and followed by a notice issued by the Architect pertaining to this issue. Build Fast explained that they did not delay in procuring the insurance. It was the insurance company’s problem in delaying them. With date of commencement and site possession on 1st January 2019, it is made clear that Build Fast had delayed in the procurement of insurance for a total of 15 Days. It is assumed that the insurance for: 1. Injury to Person and loss and/or damage of property 2. New building 3. Local workmen not subject to registration under SOCSO 4. Foreign workers ASD is supposed to be insured by the Contractor and 15 Days was more than enough for Build Fast to obtain the insurance required despite the delay in realization of missing insurance as according to the Clauses 20.A.1, 19.1, 19.3, 19.4 from PAM Contract 2018 insurance has to be procured before Works commencement and it should be noted no extension of time (EOT) should be given for insurance procurement as it does not fall under any relevant events as stated in Clause 23.8. As stated in Clause 20.A.1, “……the Contractor shall as a condition precedent to the commencement of any work under the Contract, take out and maintain in the joint names of the Employer, Contractor, Sub- Contractors and all interested parties a Contractors’ all risks (CAR) insurance policy……”. The same condition precedent is also stated in Clause 19.1, Clause 19.3 & Clause 19.4 where the insurance against injury to Person and loss and/or damage of property, local workmen, foreign workers has to be procured before commencement of Works under Contract. Hence, it is made clear that it is the obligation of the Contractor to procure insurance before the commencement of Contract Works on site. As it was the Contractor’s obligation to procure the related insurance before commencement of Works, it is deemed that the Contractor has defaulted in insuring the Works. Hence, Employer may exercise his rights as in accordance to Clause 20.A.3, Clause 19.5, and Clause 30.4. As stated in Clause 20.A.3 (in reference to Clause 20.A.1), “……if the Contractor makes default in insuring or continuing to insure as aforesaid, the Employer may insure against any risks in respect of which the default has occurred and the amount of premiums and any other cost incurred or paid by the Employer shall be set-off by the Employer under Clause 30.4”. The same statement is stated in Clause 19.5 where if the Contractor fails to insure (in reference to Clauses 19.1, 19.2, 19.4), the Employer may (but not obligated to) insure against the risk and any cost incurred by the Employer shall be set-off against the Contractor under Clause 30.4.
- 8. Event 1 5 This is further supported by Clause 30.4 which states that, “The Employer shall be entitled to set-off all costs incurred and loss and expense where it is provided under Clauses……19.5 and 20.A.3……”. However, the Employer must comply with Clause 30.4(a) and Clause 30.4(b) before he is entitled for set-off. Under Clause 30.4(b) the Employer or Architect must give the Contractor a written notice by hand or registered post specifying the intention to set-off and unless stated elsewhere, such written notice shall be given within 28 Days before any set-off is deducted from payment by Employer. Next, under Clause 30.4(a) the Architect or Quantity Surveyor must submit complete details of set-off assessment to the Contractor. Only then the Employer is entitled for set-off. In addition, Clause 30.4 also states, “……any set-off by the Employer shall be recoverable from the Contractor as a debt or from any monies due or to become due to the Contractor under the Contract and/or from the Performance Bond……”. If questioned by the Contractor regarding the Performance Bond deduction it is further supported by Clause 39.5 which states that, “……the Employer may call on the Performance Bond and utilize and make payments out of or deduction from the Performance Bond for……reimbursement of loss/ expense suffered by the Employer……”. Upon receiving the written notice of set-off, as stated in Clause 30.4, the Contractor has within 21 Days to dispute or agree on the amount and if both parties are unable to agree on an amount or part of the amount within a further 21 Days after the receipt of the Contractor’s written notice, either party may refer to adjudication under Clause 36.0. If and when it happens, the Employer shall only be entitled to set-off the amount or part of the amount not disputed. The allocation of the disputed amount will have to wait until the adjudicator has issued his decision. In conclusion, the Contractor did not fulfill his obligations which as a result entitles the Employer to set-off on the condition the necessary steps are taken.
- 9. Event 2 6 Build Fast started works on the piling works. The driven precast concrete 300x300mm piles were billed as provisional quantity under the Contract. The provisional quantity allowed was 40,500 meters of precast concrete piles. On completion of the piling works, the actual penetration of the total quantity on site was only 10,900 meters. The Contractor demanded for a higher rate due to the reduced in quantity of driven piles and claimed that they were unable to get a good price for materials due to the reduced order and also because their sub-contractor is charging them a higher rates due to the reduce in quantities. Build Fast had demanded for a higher rate because a significant deduction in quantity of materials required was encountered which affected the material cost. Provisional quantity for the material allowed was 40,500 meters, but the total depth penetrated was only 10,900 meters hence, a 73% reduction was encountered. Aside from that, the Sub-Contractor is charging them a higher rate as a result for the reduction in quantity. Provisional Quantities consists of items that are measured during the tendering stage which may encounter an inability to obtain exact measurements. This inability may be linked to a lack of details in the drawings or nature of work. A Quantity Surveyor (QS) is responsible for providing reasonable assumptions to avoid over or underestimations to avoid large variations from the approximate quantity. When a variation is experienced in respect of Provisional Quantities, a valuation of Variation Orders will be undertaken by the QS based on the actual quantities executed and these valuations are determined by the rates and prices in the Contract Document all as stated in Clause 11.6 (f) of PAM Contract 2018. This would mean that the Contractor may claim for the variation but will not be entitled to have his rates adjusted. Furthermore, a claim for variation of the quantity of works from the previously stated and agreed upon quantity is possible for Build Fast which is defined in Clause 11.0 of PAM Contracts 2018. However, the claim must comply with the rules stated in Clause 11.6. The claim most fitting for the case of Build Fast lies under Clause 11.6 (b). There are two pre-conditions for Clause 11.6 (b) which are: - 1. Where work is of similar character but not executed under similar conditions. 2. Where work is of similar character but there is a significant change in the quantity of work. In the case of Build Fast, the Contractor can claim according to the second pre-condition under Clause 11.6 (b). The Contractor had executed works under similar conditions but a significant change in quantity of 73% reduction was experienced, which consequently affected the cost of materials procured. The rates and prices in the Contract Document shall be the basis for determining the valuation in which the rates shall include a fair adjustment, all as stated in clause 11.6 (b). This means that the Contractor will be allowed a fair adjustment in agreed the rates. – 29,600 40,500 𝑥 100% = – 73% 10,900 – 40,500 = – 29,600
- 10. Event 3 7 On 5th March 2019, when the Contractor was about to start the structural works for ground floor, they found out that 30% of the ground beam details were not shown in the construction drawings. They wrote immediately to the Engineer to request for the details. Works were idling on site because the Contractor cannot proceed further without the details. Engineer took five days to furnish the Contractor with the detail drawings. Upon receipt of the detail drawings, the Contractor wrote to the Architect and gave notice that they delay in furnishing details drawing by Engineer have time and cost implication and the Contractor would like to reserve their right to claim for EOT & Loss and/or expense. The Contractor also claimed that the beams with missing details were not captured in the BQ. Due to urgency of the arrangement of additional structural works, his domestic sub-contractor is charging 10% extra. As such, the Contractor is claiming the same top-up/adjusted rates for these works. As stated, the date of commencement and site possession was on 1st January 2019, Build Fast had about 2 months to check the drawings and notify the Architect regarding the missing drawings (if any). DELAYS MITIGATION Clause 3.4 reads, “If the Contractor requires any further drawings……and any other information, he shall specifically apply in writing to the Architect for these items in sufficient time before commencement of affected constructions works to enable the Architect to issue instructions within a period which would not materially delay the progress of the affected works……”. This is further supported by Clause 23.6, “The Contractor shall constantly use his best endeavor to prevent or reduce delay in the progress of Works, and to do all that may reasonably be required to prevent and reduce delay or further delay in the completion of the Works beyond the Completion Date.” Hence, despite given two months which is deemed to be more than sufficient for proper inspection of drawings by the Contractor, he did not mitigate the delay by notifying the Architect in due time. Further, the Contractor could have commenced the structural works for the ground beam details available on hand instead of idling the works on site. This phenomenon is a similar indication where the Contractor has not entirely alleviated the consequential delays. Thus, the Contractor is not entitled for claim of EOT and loss and/or expense as he did not use his best endeavor to prevent the delay. VALUATION OF VARIATIONS Assuming Build Fast’s claim regarding the missing details not captured in the BQ is valid, it would constitute a Variation Order (VO) in accordance with Clause 11.1, which defines the term “Variation” as “…… alteration or modification of……quantity of Works” under Clause 11.1(a) which includes, “the addition, omission or substitution of any work”. Regarding the valuation of the VO, as stated in Clause 11.6(b), “where work is of a similar character to work as set out in the Contract Documents…… but there is a significant change in the quantity of work carried out……”. Hence, Clause 11.6(b) is applied as there is no change in character of work (ground beams) but there is a significant change in quantity (additional 30%). Moreover, Clause 11.6(b) also states that, “…… the rates and prices in the Contract Documents shall be the
- 11. Event 3 8 basis of determining the valuation which shall include the fair adjustments in the rates to take into account such difference.” In accordance with Clause 11.6(b), the Contractor is not entitled to his claim of adjusted rates of extra 10% as Contract rates shall be used for valuation with fair adjustments to be made. In accordance with Clause 11.7, if the Contractor has incurred additional costs for he would not be paid under Clause 11.6, he may make a claim for such additional expenses. However, he must comply with Clause 11.7(a) and Clause 11.7(b). Under Clause 11.7(a) the Contractor must give a written notice to the Architect specifying his intention to claim for additional expenses with initial estimates duly supported by necessary calculations within 28 Days from date of AI or CAI. Next, under Clause 11.7(b) the Contractor must send to the Architect and Quantity Surveyor complete particulars of his claim for additional expenses supported by necessary calculations within 28 Days of Variation completion. If the Contractor fails to submit within the stated time, it shall be deemed the Contractor has waived his rights to any such additional expenses. Following Clause 11.5, the Consultant Quantity Surveyor, Good QS shall measure and value all the Variation. Upon completion of the variation, the Contractor, Build Fast shall submit the complete details and particulars that required by the Architect, ABC Architect, and Quantity Surveyor, Good QS for the valuation of Variation. The Quantity Surveyor needs to measure and value the Variation within 30 Days or any extended date that agreed by both the Contractor and the Architect from the receipt of the Contractor’s submission. As an Architect’s Instruction was issued to carry out the Variation Order, the Contractor is entitled to claim for EOT under Relevant Events under Clause 23.8(h) compliance with AI under clauses 1.4, 11.2 and 21.4. However, the Contractor is not entitled to loss and expense as the Contractor has already claimed his variation works under Clause 11.6 and Clause 11.7 (if any). To be entitled for EOT, the Contractor must comply with Clause 23.1(a) and Clause 23.1(b). Step 1 – Giving of Notice 1. Notice to be in writing 2. Include initial estimate of EOT required 3. Causes particulars 4. Notice to be given within 28 days of delay
- 12. Event 3 9 In conclusion, the Contractor is entitled to claim for EOT for the execution of Variation Order but not for late issuance of drawings. The Contractor is only allowed to claim for variation and is not entitled to loss and expense. The Contractor must also be notified that the 10% he is claiming is subject to Contract rates and fair adjustments. Step 2 – Official Application A subsequent application submitted within 28 days of end of cause of delay. 1. Application to be in writing 2. State relevant event causing delay 3. State effects delay caused on work 4. State number of days delayed 5. State steps taken to accelerate works 6. Submit reschedule of works programme 7. Submit all supporting records, details, documents, etc. 8. Number of days EOT required
- 13. Event 4 (i) 10 Clearglass claimed that there is always a delay in payment from the Main Contractor. The Interim Certificate was issued by the Architect every 20th of the month on time. However, Clearglass only received payment more than two months after the issuance of every Interim Certificate. This is seriously affecting their cash flow and they would like to get the Employer’s involvement to solve this issue. The Contractor explained that they did not delay in paying the Nominated Sub- contractor. It is supposed to be back to back payment condition. The Contractor will only pay the Nominated Sub-contractor when they received payments from the Employer. Back-to-back payment is used to arrange that the Main Contractor will not be liable to pay the Sub-Contractor payments, unless the Main Contractor received the equivalent payment from the Employer. However, the validity of back-to-back payment was not recognized based on the Construction Industry Payment and Adjudication Act (CIPAA) 2014. The main objective of CIPAA is to facilitate regular and timely payment and to prohibit the conditional payment such as “pay when paid” arrangement to reduce the issue of cash flow shortage or non-payment of progress payments. VALIDITY OF BACK-TO-BACK PAYMENT SINWIRA BINA SDN BHD V PUTERI NUSANTARA SDN BHD [2017] MLJU 1836 In this case, the defendant, which was the main contractor for a project in Langkawi, relied on a “back- to-back” clause in the Letter of Award which provided that the Sub-Contract Sum would be paid to the plaintiff as a back-to-back payment as and when the payment was received by the defendant from a party known as the “Client”. The clause also provided that in the event payment was not received from the Client, the defendant would not be liable to pay the plaintiff. Section 35 of the CIPAA renders a conditional payment provision in a construction contract void. “Conditional payment provision” is defined in Section 35(2) of the CIPAA as the obligation of one party to pay another upon that party receiving a payment from a third party, or that the obligation of one party to pay another is conditional upon the availability of funds or the drawdown of that party’s financing facilities. This meant that the back-to-back clause was void pursuant to Section 35 of the CIPAA. On 12th June 2019, ABC Architect nominated Clearglass Sdn. Bhd. as the Nominated Sub-contractor for aluminium works. They started fabrication on site on 7th September 2019. A few disputes were raised by the Contractor and Clearglass. Employer Main Contractor Sub- Contractor “35. Prohibition of Conditional Payment 1. Any condition payment provision in a construction contract in relation to payment under the construction contract is void. 2. For the purposes of this section, it is a conditional payment provision when: a) The obligation of one party to make payment is conditional upon that party having received payment from a third party; or b) The obligation of one party to make payment is conditional upon the availability of funds of drawdown of financing facilities of that party.”
- 14. Event 4 (i) 11 The “pay when paid” clauses in a construction contract entered into before 15 April 2014 remains valid, however in this event with the assumption that the Contract is made after the operative date, the mode of payment shall not be incorporated and the Main Contractor holds the obligation to pay the Nominated Sub- Contractor. Although a nominated sub-contractor is nominated by the Employer, the parties in the main contract are Main Contractor and the Employer; and the parties in subcontract are the Main Contractor and the Nominated Sub-Contractor. The contractual provision that is the subject of judgement falls under Clause 27.5 of PAM Contract 2018. The clause reads that at the same time when any certificate under Clause 30.0 is issued, the Contractor shall inform the Nominated Sub-Contractor in writing of the amount of the said total value. The sum representing such total value shall be paid by the Contractor to the Nominated Sub-Contractor within seven (7) Days after the Period of Honouring Certificates. Will there be a failure of Contractor to pay Nominated Sub-Contractor, the Employer may (but not obliged to) pay such amounts directly to the Nominated Sub-Contractor and deduct the same from any sums due or to become due to the Contractor, being supported by the Clause 27.6. PERIOD OF HONOURING CERTIFICATE means the period for honouring certificates stated in the Appendix under Clause 30.1, that if none stated is twenty one (21) Days from the date of the Certificate. Once the Interim Certificate is issued by the Architect, it crystallizes the Employer’s obligations to pay. The Employer would have to honour such certificate in accordance with the provisions in the contract by reasons of the certificate having a ‘temporary finality’. Failure to pay the Interim Certificate within the period, without reasonable cause, constitutes a serious breach of contract. Say in this event that the Employer had not made payments, consecutively, which therefore constitutes the Contractor making a statement that, “…will only pay the Nominated Sub-Contractor when they received payments from the Employer”, it is held that the Employer had breached the conditions of Contract where the essential condition of issuance of Interim Certificate by the Architect has been made in a timely manner. In effect of non-payment, the remedies available to the Contractor are that he can suspend execution of the works until such time payment is made (Clause 30.7), he can claim interest on the unpaid amount (Clause 30.17), and if non-payment persists, he may terminate his own employment (Clause 26.1(a)). The Contractor may also refer the dispute for adjudication under CIPAA 2014 for a decision as a last resort. Howbeit, if the Period of Honouring Certificate was pre-agreed between the parties to be later than 21 Days, granted in this event that the period is assumed to be three months after the issuance of every Interim Certificate, the Employer therefore has not breached the contract in relation to the payment.
- 15. Event 4 (ii) 12 Build Fast is charging the usage of water, electricity, scaffolding, hoisting/vertical transport used by Clearglass. Clearglass claimed that all these general facilities should be provided by the Main Contractor at no cost to them. On 12th June 2019, ABC Architect nominated Clearglass Sdn. Bhd. as the Nominated Sub-contractor for aluminium works. They started fabrication on site on 7th September 2019. A few disputes were raised by the Contractor and Clearglass. Clearglass Sdn. Bhd. has been selected by the Employer as the Nominated Sub-Contractor for aluminium works. Generally, the employer negotiates a price with the nominated sub-contractor and then instructs the main contractor to appoint them for those works. The main contractor will include the sub-contractor’s price as a prime cost sum in the contract sum for the main contract, to which they add overheads, profit and attendance. In this event, a dispute arose where the Nominated Sub-Contractor claimed that the general facilities on-site should be provided by the Main Contractor at no cost to them. GENERALATTENDANCE AND SPECIALATTENDANCE ‘Attendance’ is the main contractor’s mark up for specific services which the Employer had paid under preliminaries. This might include items such as material handling, scaffolding and rubbish clearance. Attendance can be ‘general’ or ‘special’. General attendance is the description of main contractor attendance available site-wide to all suppliers or sub- contractors such as welfare facilities, external scaffolding, temporary power and lighting, platform and passenger hoists, tower crane lifts by prior arrangement, site security, waste disposal etc.. General attendance is additionally stated in Appendix ‘B’ of the PAM Sub-Contract 2006. Further, Clause 27.1 in the Contract reads that general attendance shall be provided by the Contractor to the Sub-Contractor. Save as otherwise provided in the general attendance, the Sub-Contractor shall at his own expense provide all additional services and facilities or agree with the Contractor to provide the services and facilities at additional cost to be agreed between them. In short, these additional services and facilities are known as special attendance, such as special hoists, builders work such as a concrete plinth, special scaffolding etc.. In assessing the claim by Clearglass with regarding the general facilities to be provided by Build Fast, clarification of each item in accordance with Appendix ‘B’ of the PAM Sub-Contract 2006 are as follow: - WATER v) The Contractor shall provide free use of reasonable water supply which will terminate at standpipes in reasonable locations. Temporary water supply provided for general purposes, where available at or near the site of the Sub-Contract Works, may be used by the Sub-Contractor. If the Sub-Contractor requires additional water distribution pipes not provided by the Contractor, he shall at his own cost
- 16. Event 4 (ii) 13 provide such distribution pipes and equipment for his needs to connect to water connection positions provided by the Contractor in reasonable locations. ELECTRICITY iv) The Contractor shall provide free use of power for the safe access to and egress from the Main Contract Works. Temporary power provided by for general purposes, where available at or near the site of the Sub-Contract Works, may be used by the Sub-Contractor. If the Sub-Contractor requires additional power not provided by the Contractor, he shall at his own cost provide distribution cables and equipment for his needs to connect to power sockets provided by the Contractor in reasonable locations. ix) The Contractor shall assist in arranging for source of any special power supplies required by the Sub- Contractor. (Current and fuel consumed shall be paid by the Sub-Contractor). SCAFFOLDING i) The Contractor shall afford free and full use of standing scaffolding as provided in Clause 27.2, while it remains so standing upon the site. The Contractor and Sub-Contractor shall give written notice to the other party prior to the removal of any standing scaffolding. HOISTING / VERTICAL TRANSPORT viii) The Contractor shall provide to the Sub-Contractor free reasonable use of the Contractor’s existing hoisting facilities for such times as they remain operational on site. The Sub-Contractor shall be responsible at his own cost for the distribution of items required for the execution of the Sub-Contract Works and shall provide any additional hoisting facilities which may be required for that purpose. It is important to establish within the contract documents whether items that sub-contractors require will constitute attendances that will be provided by the main contractor, or whether they will provide them themselves (such as their own specialist equipment). Therefore, in this case, the general facilities shall be provided by the Main Contractor with no cost to them as expressed in PAM Sub-Contract 2006 Appendix ‘B’. In the event the Contractor, at the request of the Sub- Contractor, provides services and facilities additional to the general attendance or if the Sub-Contractor fails to comply with any particular provisions, the extra cost for these provisions, if provided by the Contractor shall be paid by the Sub-Contractor and the Contractor shall be entitled to set-off the extra cost under Clause 26.13.
- 17. Event 5 14 On 26th September 2019, an instruction was issued to the Contractor for the omission of 90% of the flat ceiling board and to be replaced with sloping ceiling board (a gradient of 15 degree) upon the Interior Designer’s request. The Contractor argued and refused to carry out the works because of the adjustment of degree makes their works tedious and complicated. The Architect and the Interior Designer insisted on their design and claimed there should not be additional cost that 15 degree was a very minor adjustment and the flat ceiling rate shall be applicable. The Contractor claimed to have the rights not to carry out this works and that the sloping ceiling is too difficult to construct. If the Architect insisted on this construction, they want to claim for additional time for the sloping ceiling and deserve an adjusted unite rates. VALUATION RULES: FAIR ADJUSTMENTS OF UNIT RATES Based on PAM Contract 2018 (With Quantities), Clause 11.1 states the term “Variation” means the alteration or modification of the design, quality or quantity of the Works as supported by Clause 11.1(a), the addition, omission or substitution of any work and subject to the valuation rules in Clause 11.6(b), where the work is a similar character to work set out in the Contract Documents but is not executed under similar conditions or is executed under similar conditions but there is a 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 fair adjustment in the rates to take into account such differences. This determines the Contractor is entitled to fair adjustments of unit rates for sloping ceiling due to the change on the work condition instructed by the Architect. Therefore, the Architect shall consult to the QS to assess and recommend the altered value for the variation work with a fair adjustment in the rates to take into account such differences. ARCHITECT’S INSTRUCTIONS (‘AI’) Under Clause 2.1 states that, the Contractor shall subject to Clauses 2.2 and 2.3 forthwith comply with all instructions issued to him by the Architect in regard to any matter in respect of which the Architect is expressly empowered by these Conditions to issue instructions. Furthermore, Clause 11.2 mentions, the Architect may issue an AI ordering a Variation or sanctioning any Variation made by the Contractor. No Variation ordered by the Architect or subsequently sanctioned by him shall vitiate the Contract. Pending to the valuation of the Variations, the Contractor shall carry out with due diligence and expedition all Variation so instructed. Consequently, the Contractor may be able to claim for the extension of time for the delay causing the construction period to be fixed to a later completion date provided it is supported by Clause 11.2.
- 18. Event 5 15 The Contractor shall constantly use his best endeavour to prevent or reduce delay in the progress of the Works, and to do all that may reasonably be required to the satisfaction of the Architect to prevent and reduce delay in the completion of the Works as shown in Clause 23.6. Hence, according to Clause 23.1(a), the Contractor shall give written notice to the Architect his intention to claim for such extension of time together with an initial estimate of the extension of time he may require supported with all particulars of the cause of delay. Such notice must be given within twenty-eight (28) Days from the date of AI, CAI or the commencement of the Relevant Events, whichever is earlier. The giving of such written notice shall be a condition precedent to an entitlement of extension of time. The Contractor’s reason to claim extension of time is stated in Clause 23.8(h) which is compliance with AI issued by the Architect under Clauses 1.4, 11.2 and 21.4. It is upon the Architect’s consideration either to reject the Contractor’s application with reasons or issue a Certificate of Extension of Time with details within six (6) Weeks from the receipt of sufficient particulars. Assuming that the AI was issued before the installation of the ceiling, the extension of time would be invalid as it would not have affected the progress of work thus means the Contractor is unable to claim for the additional time. On the other hand, Contractor is still able to receive some compensation on the adjusted fair rates as the work condition was not written in the Contract Document. In any case, if the Contractor fails to comply with AI, therewith then the Employer may, without prejudice to any other rights and remedies which he may possess under the Contract, employ and pay other Person to execute any work which be necessary to give effect to such instruction as stated under Clause 2.4.
- 19. Event 6 16 Developer CEO’s brother, Mr. Boss Bro has just started his sanitary fittings business. So Developer decided to let Mr. Boss Bro supply and install all the sanitary fittings for this project. Developer instructed the Architect to instruct the Contractor about the decision to omit of all sanitary fittings works from their Contract and give the omitted works to Mr. Boss Bro. The Contractor claimed that the sanitary fittings are already part of their scope of work in the Contract and challenged this instruction to omit. ORIGINALITY OF MAIN CONTRACTOR’S WORKS The sanitary fittings works is part of the Main Contractor’s in the Contract to begin with. In accordance to Clause 1.1, the Contractor shall carry out and complete the Works in accordance with the Contract Documents and in compliance therewith provide materials, goods and standards of workmanship of the quality and standard described in the Contract Documents and/or required by the Architect in accordance with the provisions of the Contract. Clause 2.1 reads that the Contractor shall comply with all instructions issued to him by the Architect. However with the decision to omit all sanitary fitting works instructed by the Developer to the Architect to give Architect Instruction (AI), it had clashed with Clause 11.2, where no variations required by Architect shall vitiate Contract. The Architect has his rights to issue an Architect’s Instruction (AI) to order a Variation or sanctioning any Variation made by the contractor but the Variation or sanctioning ordered by the Architect should not vitiate the contract. BONA FIDE OMISSION According to clause 11.6(e), the rates and price in the Contract Documents are used for the omission of works, but this is limited to bona fide omission only. It implies that if the Employer omits any works from the Contract and give it to others, it will, therefore, constitute a breach of contract, which in this event the omission instructed by the Developer was outside of the contract as he was intending to grant the sanitary fittings works to his brother. Following the case of Commissioner for Main Roads v Reed & Stuart Pty Ltd & Anor (1974), the court held that the contract manager cannot omit certain works under the contract and give to another contractor to perform the work. Also, the contract manager cannot prevent or bar the contractor from performing work, which the parties have agreed the contractor will perform, by exercising a variation power.
- 20. Event 6 17 ENTITLEMENT TO LOSS AND/OR EXPENSE If, the Developer insists to omit the sanitary fittings works from the contract and give it to Mr Boss Bro, the action will violate the agreed-upon terms and conditions of the contract, then such breach of contract entitling the Contractor to damages, and it is clearly established that loss of profit can form part of such a claim for damages. Clause 24.1 enables the contractor to pursue his entitlement to loss and expenses caused by matters referred to clause 24.3. In this event, the Contractor has the rights to claim for loss and expenses provided under Clause 24.3(h) on the breach of contract by the Employer. Further, at common law, demonstrated that the principal does not have an automatic right to instruct variations unless the contract specifically empowers the principal to instruct variations. With that being said, the contractor can refuse to perform the variation and insist on performing the original scope of works. This principle applies to all contracts, including subcontracts and consultants’ agreements. From the case, Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, the court held that despite the power given to Architect to direct that particular item of work not be carried out, the architect was not authorised to delete the works so that they could then be carried out by another contractor. The court stated that such a power would be unreasonable and could only be conferred with very clear words. In this event, if the Developer did not have the contractual power to instruct a variation, then it had repudiated the contract by insisting that the Contractor departs from the original line, where the power to order variations set out in the contract has been exceeded. Secondly, variations must be either necessary or desirable for the satisfactory completion or functioning of the works. Works cannot be omitted, for example, to save time for completing the works, or to save the employer’s money. Generally, for contractors seeking to prove a claim of lost profit due to omitted scope, it is critical to demonstrate that his loss of profit by the omission of work is genuinely incurred because of his inability to recover that loss elsewhere. In conclusion, it is advised that the sanitary fittings works to be carried out in the course of the Contractor’s operations being the reason that the instruction by the Developer will constitute a breach of contract and the consequences can be serious.