3. 1.0 INTRODUCTION
The main purpose of this project is to intentionally explain the most suitable procurement
method, types of tendering method as well as the contractor arrangement which meets the project
requirements for the client. Choosing the best and appropriate procurement method is essential
because it can help to control risk, cost, quality and time of the particular project.
Requirements
● Client wishes to have full control of the design and able to introduce changes from
beginning till the completion.
● To ensure that all quality and Health & Safety requirements are captured in the Contract
and that there will be minimum variations to the Contract Price during construction.
● The project to complete on time and imposed Liquidated Damages of RM 250,000.00 a
day.
● Client is not interested in the daily dealing with too many parties except the few key
members of the project.
● Being a public listed company and thus accountable to other shareholders and board of
directors, he wants the selection process of the successful contractor to be reasonably
transparent. However, the selection process should be able to eliminate potentially
non-performing contractors.
The objectives of this report to be able to add value in relation to the project. The type of
tendering method,type of contract used for the project, have a good contractual arrangement to
protect the client.
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4. 2.0 PROCUREMENT METHOD
Procurement is defined as acquiring goods, services and works either through competitive
or non-competitive means. In this particular project the proposed procurement method is
traditional method. It is one of the most preferred procurement method in the industry as it gives
the best arrangement with better economy, efficiency, and transparency.
This method strictly involves the separation of construction from design. The client will
first appoint a team of consultants to plan, specify and finalise the design before calling for
tender. By accepting the tender, the contractor agrees to produce what has been specified in the
documents. Thus, the contractor has no responsibility for the design. The client will have a
contractual relationship with the contractor while the architect in the consultant team is
responsible to coordinate them about all the construction works.
The appointment of a domestic sub-contractor is usually by the contractor while the client
plays no part in selecting or entering into a contract. A stand out feature of traditional
procurement is the nomination of sub-contractors by client. This ensures that the contractor
employs sub-contractors of reasonable standing.
Figure above shows the contracted relationship between Client and the construction parties
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5. 2.1 Advantages of Traditional Procurement Method
One of the advantages is the ability of the client to control the design of the project
through his consultant team as there is close relationship between them. He can easily introduce
change by telling his Architect or the superior officer (S.O.) subsequently the Architect will issue
an Architect instruction (AI) to the contractor team.
The client only has to deal with few key members of the project with as the client is not
interested to deal with too many parties. He only has to discuss with his own consultant team like
Architect, Quantity surveyor and Engineer for the design, construction progress and others of the
project although there is a contractual relationship between him and the contractor.
The contract sum is certain as it is calculated based on complete design especially under
lump sum contract for traditional procurement method as long as there are no variation order
which can be controlled by the Architect. Therefore, it is easier to do budgetary control and as a
result minimum variations to the Contract Price. In the event that some sort of design error or
defects happens, the contractor would need to chip in his own money for the amount that
exceeded the contract price, which the risk to the client is reduced.
2.2 Justification on other method
Construction management
The client will have to deal with more direct trade contractors because there is a contractual
relationship between the client and the works package contractors. The client is responsible to
settle the disputes with the trade contractors when there is any issue arisen.
Design and build
The client will only have a little involvement in the design of the project and the quality of
material and workmanship are all depended on the contractor as the contractor of this
procurement method handles both the design and construction of the project once their
successfully get the tender award of the project. This method always have the problem of low
quality of final product when the contractor get urged by the client.
Management contracting
The chance of making variations with incomplete design is higher hence the amount of
remeasurement is greater during construction period which mean the requirement of client to
have minimum variation on the contract price cannot be achieved. As the project is split into
works packages then only award to the sub-contractor, therefore the total cost is uncertain until
the last works contracts have been signed and the overall construction cost will be higher.
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6. 3.0 TENDERING METHOD
To fulfill the client’s requirement of wanting to go through a selection process of successful
contractors, we chose selective tendering as it is reasonably transparent and able to eliminate
non-potential performing contractors.
Selective Tendering
This method is divide into 2 categories - single stage tendering and two stage selective tendering.
In Single stage tendering, pre-selected list chosen by the consultants were asked to tender the
project and the client will decide the final list of contractors whereas in two stage selective
tendering, firstly, pre-qualification process will be held to select the list of contractors to tender
and short-list of prequalified contractors will go through a selection based on the criteria such as
price and quality. However, we chose two stage selective tendering.
Why Two-stage Selective Tendering
1. Prequalification process
A range of pre-qualification questionnaires and interviews will be held for selection which can
reduce number of firms tendering and minimise the time wasted by unsuccessful applicants.
Questionnaires includes the full company contact details, previous projects and topics such as
financial capability, status and legitimacy, quality, and health and safety. Consultants will go
through the questionnaires answered by the contractors and select the contractors that fulfil the
requirements.
2. Quality assured
Due to this method only allow contractors from the pre-selected list chosen by the consultant, it
ensures the quality of proposed building as the consultant choose the contractors based on their
previous project, reputation, financial capabilities, company full details and so on.
3. Cost saving
Using this method will lower the overall cost. Firstly, the cost of printing tender documents will
be lower as the number of tenderers will not exceed 6 tenderers. Secondly, in order to win the
award, the tenderer will try to present an economical price to execute the works.
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7. 3.1 Tendering Process
1. Invitation to tender
A pre-selected list of tenderers chosen by the consultant will be asked if they are interested in the
tender.
2. Pre-qualification process
Questionnaires and interviews will be given out to tenderers to evaluate their capabilities in
handling the tender and it able to eliminate non-potential performing contractors.
3. Documents collection
Successful tenderers will collect the tender documents on a stipulated date by the consultants and
employers. Documentation fee will be charged upon collection.
4. Tender closing
Tenderers are required to submit their tender in a sealed envelope and to deposit into a “tender
box” at the employer’s office.
5. Tender opening
Tender box which contain all the tender submission from the tenderers will only be open in the
presence of all consultants and employer’s representatives. Tender figures are recorded and
jointly verified by all parties.
6. Tender evaluation
All the tenders will be checked for major arithmetical errors and the lowest few tenders will be
checked in detail for compliance with the tender condition and so on. Items to be check are
arithmetical error, reasonableness of rates and elemental cost, comparison with Quantity
Surveyor’s Pre-tender Estimate and other tenderer. Consultants will prepare tender report to the
employer with their recommendations to call the lowest 3 tenderers for a tender interview.
7. Tender interview
During the interview, the tenderers are to query on some issues regarding tender submission.
8. Tender award
Consultant will then prepare letter of award to be issued to the successful tenderer and to be
signed and return within a fixed period. If the contractor fails to return in the fixed period, the
award will be considered as failure and there will no further legal effect on the tender.
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8. 3.2 Justification on other method
Open Tendering
First of all, since all the contractors wants to win the award, underpriced tenders may include low
quality materials, poor quality of works and other factors to cut corners. Secondly, open tender is
a long tender process as it calls all possible contractors that to tender and upon submission of
tender which requires the consultants to go through every single one of the tender which is time
consuming. Lastly, the risks of possibly selecting a new and unknown contractor is higher with
open tendering method. The contractor may also potentially not have the sufficient experience
for the job.
Negotiated Tendering
The client wants selection process of the successful contractor to be reasonably transparent.
Therefore, negotiated tendering is not suitable as only one contractor is approached by the client
based on the contractor’s track-record experience and previous projects which the terms of the
contract are then negotiated. Besides, negotiated tendering does not have a selection process and
is normally only one or two contractors will be selected by the client based on their reputation
and skills which may leads to higher cost as it lacks competitiveness.
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9. 4.0 CONTRACTUAL ARRANGEMENT
4.1 Type of Contract
The type of contract we proposed for this project is Lump Sum Contract with Quantities. Lump
sum contract with quantities is also known as Bill of Quantities Contract. In this form of
contractual arrangement, the Bills of Quantities are normally comprising of general conditions
and preliminary of the contract, trade preamble and specification, measured items of materials
and labour. The contract conditions and preliminaries cover both practical and contractual
conditions of the contract, while the trade preamble and specification indicate the quality of
materials and standard of workmanship required and finally the measured items give the
quantities of material and labour necessary to complete the works. The advantages of using BQs
are as follow:
1. Reduces cost and time spend on tendering process
2. Reduce the risks of the tenderers
3. Ensures fairness in competitive tendering process
4. Provides improved cost feedback
5. Provides a basis of valuing variations.
In this form of contract, it can be further divided into two types; Bills of Firm Quantities and
Bills of Approximate Quantities. For this project, we proposed the bills to be Bills of
Approximate Quantities. In this form of bills, the quantities given in the bills are approximate
and are subjected to late adjustment. The essential characteristic is that only unit rates form part
of the contract. This form of bills allows the client to have room for adjustment since he have the
intention to control the design of the project which may happen in between the construction
period. This method is suitable to be used in cases where time and speed is of demand and
general design has been selected such as this project, where the project need to be done in five
years. In addition to that the design of the project deem to be change and therefore it does not
permit accurate bills to be prepared.
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10. 4.2 Form of Contract
Form of contract is the employ standardized of agreement which set by one of the parties.
Form of contract acts a vital efficiency role in mass distribution of services or goods as it
decreases the transaction cost and time for both parties to negotiate all the details required and
create a new contract.
After considering different aspects, we consider the use of Pertubuhan Akitek Malaysia
(PAM) contract 2006 (with quantities) as the type of form of contract. First of all, most of the
Malaysia industries familiar with the PAM contract 2006. In addition, PAM 2006 also
emphasizes on adhering to time provisions by the three parties which are contractor, employer
and consultants together with the inherent loss of rights and incurring of liabilities.
4.2.1 Justification of other contracts
PWD contract
Public Works Department (P.W.D) Form 203 is a standard form of contract which
suitable for government or public sector project only. In our situation, our client is a public listed
company.
Besides, Superintending Officer (S.O) is appointed to monitor and supervise the whole
project which has a similar role and responsibility as Architect stated in PAM 2006. However,
nowadays in Malaysia S.O are mostly not appointed based on their experiences or expertise, in
other words, they are based on a public post according to Umi Kalsum.
FIDIC
As employer is not familiar with the construction industry, he can appoint a staff to be
‘Engineer Representative’ defined in clause 1.1 to represent him whenever the contract requires
orders from the employer. However the term of “Employer’s personnel” has a large scale of
defining who is the person represent the employer or in charge, which means engineer or anyone
without experience and expertise can be appointed by the employer and might cause a lot of
failures appointing tasks, damages, and delay in the end.
According to sub-clause 13.8, if the table of adjustment data is not used, employer will
pay the actual amount of the material, labour, plant cost instead of the estimated cost to the
contractors. The cost might rises or falls throughout the construction period due to the inflation.
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11. 4.2.2 Client’s consideration
Cost
Employer request the liquidated damage as RM 250,000.00 per day, which both parties
agree before they enter into the contract and used to cover the employer’s loss or damage caused
by the delay of contractor who is unable to finish the construction on time. Liquidated damages
collected from the employer by directly on demand or deduct from payment payable or recover
from performance bond. If the contractor does not intend to pay the total liquidated damages, is
considered as a debt to the employer, contractor can discuss with the employer or write an appeal
letter to the court otherwise employer can charge the interest under Clause 30.17.
According to Clause 11.1, it protects the employer when the variation is due to the
negligence of the contractor, architect can reject the written notice of claim from the contract and
using the clause 6.5 to order the contractor to remove, demolish or reconstruct the work which is
not according to the contract.
Clause 30.1 stated that the contract shall submit the payment application within the
interim interval and if the contractor fails to submit the payment application will be considered
he has waived his right to claim from the employer.
The amount of final account of the works is defined in clause 30.11 (a), (b), (c), and (d)
only which means liquidated damages, set-off imposed by the employer and interest payable by
either of the parties are unable included in the final account and employer not responsible to pay
any cost which is not in the final account.
Time
According to the client requirement, he wants the project to be completed on or before
the completion date. However, for a large project, it is unable to ensure that there is no variation,
no delay of construction or unforeseen issues. So as provisions Extension of Time (EOT) under
PAM clause 23 is to preserve the interest of the employer. ‘Relevant Event’ stated in clause 23.8
are the only circumstances or incident for a contract to claim EOT other than that the architect
will take consideration and reject the request for EOT from the contractor.
According to clause 23.6, the contractor must use his best endeavor constantly to show
that the contractor is willing to finish his job as soon as possible.Architect must take part to
justify the contractor’s progress throughout the project in order to make sure the project able to
complete before the completion date.
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12. Quality
For a RM1.2 billion project which consists of hotel and shopping mall, quality is one of
the well-regarded consideration to ensure the robustness of the building.
Contractor can request the information or detail from the engineer or architect if not
stated in contract document. So, if architect finds that any works, material or workmanship
doesn’t meet the requirement stated in the contract document, architect might instruct the
contractor to remove from the site, demolish or reconstruct the works according to clause 6.5 (a),
(b) & (c). The reconstructed or removed works unable to claim from the employer in term of
time and cost. If the contractor fails or refuses to do what the architect issued, employer can
employ other parties to do the work which the contractor rejected or failed according to clause
15.3(b) and 6.7.
Insurances and safety
Safety and insurance is part of the important things that need to be considerate during the
construction period. Incidents such as damage to properties, injury and death are bound to
happen during the construction. Therefore, insurance is to cover the loss for the workers,
contractors, employer and other parties who are involved.The most common types of insurances
are all risk insurance, professional indemnity insurance, public liability insurance and worker’s
compensation insurance.
First of all, there are two building that need to consent about insurance are the existing
building and the new construction building that will extend beside the existing building.The new
constructing building will cover in clause 18, it stated that injury to person or loss and/or damage
of property and indemnity to employer means that any injury or death (clause 18.1), Damages to
property (clause 18.2) and claim on workmen’s compensation and SOCSO (clause 18.3) are all
responsibility of the contractor. The contractor’s indemnities cannot be cancelled or reduced due
to employer's or agents' neglection or failure to find contractor mistakes which cause accident is
state in clause 18.4.
Moreover, clause 19 stated for insurance for injury to person loss and/or damage of
property. The Contractor shall take out insurance from insurance company with automatic
extension or renewal before commencement of works, with endorsement of clause 19.1(a) to
19.1(d). In clause 19.1(a) means that it cover accidents for all parties. In clause 19.1(b) explain
insurer to waive his rights to subrogation .In clause 19.1(c) means the party has rights of
subrogation or recoveries against the insured. In clause 19.1d means for automatic extension or
renewal of the insurance.
For the case proposed, it will have the insurance fall under clause 20.C. Even though
clause 18 provides for contractors’ indemnity to employer in event of accident, payout may be
insufficient which results in contractor slow down works. Hence ,employer can take insurance
himself and pays premium .If insufficient, contractor to bear shortfall. Under clause 20.C.1, the
contractor take out Contractor All Risk (CAR) Insurance,in the joint names of all interested
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13. parties and also to cover professional fees. CAR be extended for extension be effected 1 months
before expiry.This policy covers perils as listed in Contract plus a sum to cover professional fees
for reinstatement usually at 10% of Contract Sum. Insurances can be extended accordingly when
EOT has been granted. If contractors can not assess properly the risks, they will conveniently try
to price the items excessively for assuming such risks to cover themselves financially.
5.0 Reference
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