This document provides a project proposal for developing a RM600 million hotel and shopping complex in Kuala Lumpur. It recommends using a management contracting procurement strategy, two-stage selective tendering method, and a cost plus contract with a guaranteed maximum price. Management contracting is proposed because it allows client involvement, time savings through overlapping design and construction, competitive tendering of work packages, and clear roles. Two-stage tendering allows early contractor appointment based on qualifications. The cost plus contract with GMP provides price certainty for the client's flexible budget.

1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
BACHELOR OF QUANTITY SURVEYING
MARCH 2017 INTAKE
​PROFESSIONAL PRACTICE 1
[ QSB 2615 / QSB 60604]
ASSIGNMENT 1
GROUP MEMBERS:
NO. NAME STUDENT ID
2. NGIENG TIEN YUNG 0320221
3. NGO JIA HAUR 0320144
4. OOI YIN JI 0319962
5. PANG KAI YUN 0319802
6. SAM WEI YIN 0320364
LECTURER : WONG CHONG WEI
SR ANG FUEY LIN
SUBMISSION DATE : 22ND JUNE 2017
WORD COUNT : 3066

2. PROJECT PROPOSAL
[ TO DEVELOP A RM 600 MILLION HOTEL AND SHOPPING COMPLEX IN
THE CENTRE OF GOLDEN TRIANGLE, KUALA LUMPUR ]
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3. Table of Content
1 Introduction​……………………………………………………………………………....3
1.1 Purpose
1.2 Objectives
1.3 Overview
2 Statement of problems or needs​………………………………………………………....4
3 Procurement Strategy​………………………………………………………………..5 - 7
3.1 Recommendation: Management Contracting
3.1.1 Justification
3.1.1.1 Advantages of Management Contracting
3.1.1.1 Disadvantages of Management Contracting
3.2 Justification on other methods
3.2.1 Traditional method
3.2.2 Design and Build
3.2.3 Construction Management
4 Tendering Method​…………………………………………………………………....​8 - 9
4.1 Recommendation: Two stage selective tendering
4.1.1 Justification
4.1.1.1 Advantages of Two stage selective tendering
4.1.1.2 Disadvantages of Two stage selective tendering
4.2 Justification on other methods
4.2.1 Open tender
4.2.2 Single stage selective tender
4.2.3 Negotiated tendering
5 Contract Arrangement​…………………………………………………………….10 - 15
5.1 Type of Contract
5.1.1 Cost Plus with GMP
5.2 Form of Contract
5.2.1 Modified form of contract
5.2.2 Employer’s commercial consideration
5.2.3 Rights of Employer and Work Packages Contractor
6 Bibliography​…………………………………………………………….……………....16
7 References​…………………………………………………………….…………….16 - 17
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4. 1.0 Introduction
1.1 Purpose
This proposal which contains the preferred procurement route, tendering method and selection of
contract arrangement serves as a guidance for the client to obtain a comprehensive understanding
on the issues and appropriate routes to be taken to achieve the objectives of client. It includes a
strong justification and reasoned argument in terms of both benefits and risks.
1.2 Objectives
Objective of this proposal focuses on method of selecting an appropriate strategy that will:
● Assist in securing planned project outcomes
● Help in achieving client’s objectives
● Reduce the risk of project period and budget overruns
● Reduce contractual disputes
● Plan appropriate risk allocation between client and contractor
1.3 Overview
Various factors affecting the decision of procurement strategy including the client’s major
concern will be covered in the first part of this proposal which serves as a good route in the
decision-making process. The second part covers the best procurement strategy proposed as well
as the justification. Third part of the proposal consists of the information of the best tendering
method selected and importantly, the rationale of the choices. Also, the suitable contract
arrangement will be discussed in fourth part of the proposal.
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5. 2.0 Statement of problems or needs
Initial consideration affecting the choice in terms of cost, design, quality and time set the
framework of the development of procurement. There are twelve (12) factors affecting the
choice of procurement strategy will be analysed and discussed.
● Nature of project - A high rise building which requires heavy machineries such as crane
● Scope of works - Mixed development of hotel and shopping complex
● Measure of control by client - Client wants hands-on approach, owns full control of the
design and are able to introduce changes from start to completion of the project
● Accountability - Client is accountable to other stakeholders and board of directors
● Appointment of contractor - Client expects a transparent tendering process as well as to
eliminate non-performing contractors
● Certainty of final cost - Client has flexible budget which allows an uncertain final cost
● Start and completion time - Client prefers an overlapping on design and construction
programme
● Restrictions - Working hours from 8am to 5pm from Monday to Saturday, no work
allowed on Sundays and public holidays
● Changes during constructions - Changes are allowed to be made
● Assessment of risks - Risk of time and quality bear by contractor while risk of cost bear
by client
● Client - Inexperienced, not a regular player in the industry
● Time constraint - The project need to be completed before start of COMMONWEALTH
GAMES to take advantage of tourist
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6. 3.0 Procurement Strategy
3.1 Recommendation : Management contracting
Management contracting is a procurement method that the client appoints an independent
consultant team and a management contractor to manage all the work packages contractor. The
management contractor is approached by the client no later than the outline design stage so he
can contribute his expertise by advising on the design, tender action and construction
programme. The management contractor will normally receive a management fee for his service.
He undertakes the work on the basis of a cost plan, project drawings as well as project
specification.
3.1.1 Justification
3.1.1.1 Advantages :-
● Deal with lesser parties - Client deals with Management Contractor and his own
consultant team by practicing this method. It fulfills client’s requirement to deal with
lesser parties thus improving coordination and collaboration between the client and
constructors.
● Time savings - It has the highest potential for time savings as it maximizes the
overlapping between design stage and construction activities which fulfills client’s
requirement as well. Management contractor is involved at the early stage of process
before the design has been completed by contributing his expertise to enhance the
buildability of the project.
● Competitive tendering - Work packages can be let competitively at prices that are current
● Flexibility for changes - Client is able to introduce changes easily since he has a direct
contractual relationship with his own consultant team. Thus, high quality of work which
reaches his own expectation can be achieved.
● Roles, risk and responsibilities for all parties all clear - Management contractor bears all
the risks and responsibilities for the integration of the design process with construction.
He has to ensure construction process is on track and avoid any delay causing by work
packages contractor.
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7. 2.1.1.2 Disadvantages : -
● Price uncertainty - The changes in design during construction stage caused the price
uncertainty until the final work package has been tendered by the subcontractor. However
our client has a flexible budget for develop this project hence the uncertainty of price will
not be concerned.
● Sufficient information - A clear and good quality project brief is required for the design
team and management contractor as the design will not be complete until the materials
and plants have been utilized to the construction.
3.2 Justification on other methods
3.2.1 Traditional method
● Long construction time frame - The overall construction time frame is longer because
there is no parallel working. The design process has to be completed before calling of
tender. It is not suitable in this situation as the project must be completed within a short
period. The construction work need to start before the completion of the design.
● Deal with many parties - The client has to deal with many parties involved in the
consultant teams as well as in the contractor team which does not fulfill the requirements
of the clients that is not interested in the daily dealing with too many parties except the
few key members of the project.
3.2.2 Design and Build
● Does not have full control of design - The client only has a little involvement in the
design development or procurement process, basically a complete hands-off approach.
The client will employ a design team designers to draw up his or her brief to a level of
sophistication, leaving the contractor to develop detailed or specialist design elements. ​As
the contractor is responsible for completing the detailed design and constructing the
works, it may be difficult for the client to exert any significant level of control over the
design process because it will affect the whole of the design.
● Client is not familiar with construction industry - The client will face difficulties in
formulating an “Employer’s Requirements” that reflect his actual requirements when the
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8. building is eventually being completed to ensure high-quality outcomes are delivered.
Any uncertainty in “Employer’s Requirements” may lead to claims and disputes.
3.2.3 Construction Management
● Deal with many parties - ​The trades contractors has direct contractual relationship with
the client. This mean the client is liable to settle issues and disputes of trade contractors.
However, our client is not interested in dealing with too many parties.
● Client is not familiar with construction industry - ​Construction Management requires
direct and constant involvement of client so it is inapplicable to our client who is
unfamiliar with the construction industry.
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9. 4.0 Tendering Method
4.1 Recommendation: Two stage selective tendering
Selective tendering is a tendering process which select a contractor based on their integrity,
ability, and characteristics. Two stage selective tendering method is proposed as the contractors
can be appointed on the basis of preliminary design and concept at an early stage of project. The
consultant team on behalf of employer will select the qualified contractors on the basis of skills,
experience and resources which submitted in a ‘Pre Qualification Form’.
4.1.1 Justification on two stage selective tendering method:
4.1.1.1 Advantages
● Transparent tendering process - Since pre-qualification exercise is conducted as an
advertisement on the newspaper, thus the tendering process is open and transparent. It is
crucial as the client emphasizes on the transparency of the tendering method since his
company is public listed organization. Thus, he is required to be responsible and
accountable to other stakeholders and directors. Closed tendering method is not
appropriate as it may lead to misunderstanding that the selection of contractor is decided
at a higher level.
● Eliminate non-performing contractors - There are two selecting process which helps to
eliminate those contractors who are not reached the qualification expected by the client.
Firstly, contractors who are interested to bid for this project are required to submit a
pre-qualification form which include their company particulars such as past experience,
financial capability, reputation etc to the client.Past experience on similar works and
sufficient resources are crucial in this project as it is a mixed development project which
strong construction technology and good workmanship is deemed to be important. Then,
the pre-qualified contractors will be further filtered by the client’s consultant team to
prepare a final tenderer list.
● Higher quality - It is able to minimize the project default as the contractors have past
experience on similar projects. Good workmanship, quality of work can be expected.
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10. ● Reduce risk - Risk of employer in terms of cost can be reduced as there is high
competitiveness during the open tendering process. Contractors with high level of interest
will try to price as low as possible to win the tender.
4.1.1.2 Disadvantages of two stage tendering
● Longer time - Longer time frame is required as the contractors are appointed after two
times of the selection.
● Costly - Prices generally higher than open tender.
4.2 Justification on other methods
4.2.1 Single stage selective
● Transparency - In this tendering process, the contractor's list will be prepared by the
client’s consultant team based on their own recommendation. Other stakeholders will be
more difficult to be convinced that there is no undersigned bidder in the project.
4.2.2 Open tender
● Time concern - Client wishes to develop and complete the project in a shorter time frame
to take advantages of the tourists. However, open tendering will take a longer tendering
process to review the tenders as all contractors are allowed to bid.
● Risky - Although it provides opportunity to any interested contractor, it also increases the
risks of appointing the inexperienced contractors which the quality and workmanship is
unpredictable. Client wishes to ensure that the quality of the project is good in terms to
protect the reputation of the country since it intends to take advantage of influx of tourist.
4.2.3 Negotiated tendering
● Transparency - Contractor is approached and invited to tender by the client’s consultant
team based on their preferences. Therefore, no comparison of price since it is based on
negotiating which can lead to higher price in tendering.
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11. 5.0 Contract Arrangement
5.1 Type of Contract
5.1.1 Cost Plus Contract with GMP
A guaranteed maximum price (GMP) is a variation of cost-reimbursement contract. The payment
mechanism is similar where the employer agrees to pay contractor the actual cost of the project
plus a predetermined fee to cover the overhead and profit. Such predetermined fee is
recommended to be fixed fee as contractor will not be able to inflate the prices in order to claim
more. Also, fixed fee acts as an incentive for contractor to work efficiently to maximize their
return. Percentage fees lack of such incentive thus contractors will spend more to achieve a
higher fee in return. Employer’s risk is furthered secured with the incorporation of GMP where it
has a shared savings clause where both parties agreed to share to cost savings if the actual
construction cost is lower than GMP. On the other hand, if the actual construction cost is higher
than GMP, the remaining sum need to be paid by contractor at his own cost.
5.1.2 Advantages
● Incentive - It encourages a more proactive working relationship with contractor to
practice cost savings and improve productivity to obtain lower cost than the ceiling
prices, to the benefit of client.
● Allocation of risk - The risks can be shared proportionally to each party by weighing their
ability to bear uncertainties.
5.1.3 Disadvantages
● Overestimate - Contractor tends to set the GMP higher in order to minimize his risk of
overruns.
● Mutual agreement on GMP - It is difficult for both parties to come to an agreement about
what is included in the sum if GMP is developed early during pre construction stage.
Further clarification need to be made between both parties if there are issues such as lack
of information, design changes or unambiguity of contract documents contribute to an
increment of the sum or whether they are contemplated in the sum as originally agreed.
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12. 5.2 Form of Contract
5.2.1 Modified form of contract
Since Malaysia has no standard forms of contract which covers management types of contract,
thus we proposed a modified form of contract which PAM 2006 with quantities serves as a basis.
Some clauses in PAM form 2006 secures the risk of client such as payment, extension of time.
Some changes on the roles and responsibilities of the parties are introduced to the contract.
5.2.1.1 Management Contractor’s Obligations
Management contractor plays his role as ‘Employer’ who pays the work packages contractor’s
such sum as agreed in the contract documents. Also, management contractor has the
responsibility as ‘Architect’ in PAM 2006 who instructs and issues certificates to the work
packages contractors. With an agreement with client, management contractor is the one who
helps the client to manage and coordinate with consultant team and work packages contractors.
For example, architect who is from client’s consultant team works under management contractor
who reports any relevant issues to him. When comes to claim of extension of time, the architect
will advise management contractor on this particular issues arise from work packages contractor.
However, Management contractor holds the right to grant the extension of time after approved
by the client.
5.2.1.2 Work packages contractor’s Obligations
By referring to PAM 2006, work packages contractors have a dual obligation to ‘carry out’ and
to ‘complete’ the Works in compliance with that described in Contract Documents. Such Works
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13. should be referring to the drawings, specification and bill of quantities to adopt the specific
quality and type of materials and goods.
5.2.2 Employer’s commercial consideration
5.2.2.1 Quality
By referring to clause 6.1 in PAM 2006 which states if there is any discrepancy between the
actual quality and specification in the contract, the Management contractor can instruct work
packages contractors to demolish and rectify the defect works without affecting the contract sum.
Also, the work packages contractor must provide defect liability period after completion of
works. He is obliged to correct the defects within 28 Days from receipt of schedule of defects
from Management contractor. If he fails to correct the defect, Employer has the right to pay other
party to do and such cost incurred will be compensated which clause 15.3 in PAM 2006 serves as
reference.
5.2.2.2 Cost
By making reference to Clause 11.6 in PAM 2006, the valuation rules are able to protect the
Employer in terms of payment to the work packages contractor. He is not able to claim any
variation without site measurement carried out by consultant team. Therefore, the Employer will
not be charged additionally of works which have not yet been carried out by the work packages
contractor. Besides, Clause 30.0 explains the payment application in order to make a successful
claim by work packages contractor. He shall prepare a payment application with all details and
particulars to Management contractor. Within 21 days of receipt of such application, Quantity
Surveyor must issues an Interim Certificate to Employer. Therefore, Employer is obliged to pay
the contractor the sum stated in the Interim Certificate. However, Employer is protected in such a
way that if the work packages contractor fails to submit the application, he has the right to not
verify such works thus he is not obliged to pay in this situation. Retention fund under clause 30.5
is to protect Employer against specific defaults of the contractor by holding a readily accessible
source of financial redress in the event of such default eventuates.
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14. 5.2.2.3 Time
By referring to Clause 23.0 Extension of time, it protects Employer from risk of time delay.
Work packages contractor has the right to claim for extension of time if any Relevant Events
happens, provided that he has submitted a written notice to Employer regarding his intention to
claim for additional time. When the work packages contractor has submitted sufficient
particulars, management contractor holds the right to consider or reject such application after a
consultation with architect by taking into account the effect of such extension fairly and
reasonably. Also, by modifying clause 23.6 in PAM 2006, it is work packages contractor’s
obligation to not only prevent delay of the progress but also to reduce delays. For instance, the
work packages contractor can show that he is proactive in preventing such delays happen by
rescheduling, resequencing of works, revising his methods of working etc. He could even
propose a few ways to prevent the delays to relevant parties with the notice of management
contractor.
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15. 5.2.3 Rights of Employer and Work Packages Contractor
5.2.3.1 Employer’s rights
Table 1: Examples of Work packages contractor’s defaults
Contractor’s Defaults PAM 2006 as reference
Fails to commence Works in accordance with the contract Clause 25.1(a)
Suspension of Works Clause 25.1(b)
Fails to proceed regularly and diligently Clause 25.1(c)
Failure to comply with Management contractor’s instructions Clause 25.1(d)
Assignment or sub-letting without consent Clause 25.1(e)
Abandoned the contract Clause 25.1(f)
Contractor’s bankruptcy Clause 25.3
Fail to rectify defect works Clause 15.3
Table 2: Examples of rights of Employer
Brief description of relevant clauses PAM 2006 as reference
The contractor must empty the site and remove all machineries and
personnel that belongs to him
Clause 25.4(a) & (c)
The contractor is not entitled to get any payment even though it is
certified until after completion of the outstanding works by the
Employer
Clause 25.4(d)
The contractor must assign to the Employer, contracts with his
suppliers and sub-contractors upon notice by the Employer
Clause 25.4(a) & (b)
The employer can claim expenses, loss and damages suffered Clause 25.4(d)
Employer can employ and pay other person to rectify defect works
and such cost will be set off
Clause 15.3 (c)
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16. 5.2.3.2 Work packages contractor’s rights
Table 3: Examples of Employer’s defaults
Employer’s Defaults PAM 2006 as reference
Failure to pay Clause 26.1(a)
Interference with Certificates Clause 26.1(b)
Suspension of Works Clause 26.1(d)
Failure to appoint Management contractor upon his death Clause 26.1(c)
Employer’s insolvency Clause 26.3
Table 4: Examples of rights of Work Packages contractor
Brief description of relevant clauses PAM 2006 as reference
The contractor to remove all temporary buildings, equipment,
personnel from site (including his sub-contractors)
Clause 26.4(a)
The contractor is entitled to payment of the total value of works
executed on site
Clause 26.4(b)
The contractor is entitled for loss and expense suffered Clause 26.4(b)
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17. 6.0 Bibliography
● Hackett, M., & Statham, G. (2016). ​Procurement, Tendering & Contract Administration
(2nd ed., pp. 77-98). United Kingdom: The Aqua Group.
● Rajoo, S. (2010). ​The PAM 2006 Standard Form of Building Contract​. Petaling Jaya:
Lexis Nexis Malaysia Sdn Bhd.
● Griffith, A., Knight, A. and King, A. (2003). ​Best practice tendering for design and build
projects​. London: Thomas Telford.
7.0 References
● Anon, (2017). ​Advantages of GMP Contracts over Lump Sum​. [online] Available at:
http://www.wiszco.com/sites/all/files/gmp_advantages.pdf [Accessed 20 Jun. 2017].
● Article. (2017). ​Is Determination Of Employment And Termination Of Contract The
Same In Meaning And Implications?​. [online] Available at:
http://entrusty.com/site/wp-content/uploads/2012/08/Is-Determination-of-Employment-a
nd-Termination-of-Contract-the-same-in-meaning-and-implications.pdf [Accessed 11
Jun. 2017].
● Building. (2017). ​Procurement: Single-stage tendering​. [online] from
​ ​http://www.building.co.uk/procurement-single-stage-tendering/3127871.article
● C L I E N T A L E R T. (2017). ​Understanding Contractual Pricing Arrangements
–Fixed Price, Cost-Plus, and Guaranteed Maximum Price​. [online] Available at:
https://www.pecklaw.com/images/uploads/communications/Client_Alert-Understanding_
Contractual_Pricing_Arrangements.pdf [Accessed 15 Jun. 2017].
● Driver analysis action resolution trett. (2017). ​Contractual Arrangement​. [online]
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Jun. 2017].
● Fenwick Elliott. (2017). ​"Management contracting – the JCT Management Contract: a
review"​. [online] Available at:
https://www.fenwickelliott.com/research-insight/annual-review/2013/management-contra
cting-jct-review [Accessed 20 Jun. 2017].
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18. ● Gehr, F. (2017). ​Difference between Management Contracting and Construction -Home
tips​. [online] Home tips. Available at:
http://tipsdiscover.com/home/difference-management-contracting-construction-managem
ent/ [Accessed 20 Jun. 2017].
● Lawteacher.net. (2017)​. CLAUSES REGARDING TO PAYMENT UNDER PAM
CONTRACT 2 | Law Teacher. [online] Available at:
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g-payment-under-pam-contract-law-contract-essay.php?cref=1 [Accessed 8 Jun. 2017].
● Limited, S. (2017). ​Benefits of the Two Stage Tender by Steve Speller​. [online]
Spellermetcalfe.com.from
http://www.spellermetcalfe.com/blog/2014/benefits-two-stage-tender-steve-speller
● Lynch, J. (2017). ​Two-Stage Tendering - The Procurement ClassRoom​. [online] The
Procurement ClassRoom. from
​ ​https://procurementclassroom.com/two-stage-tendering/
● Sarah Lupton, S., Sarah Lupton, S., McPartland, R. and McPartland, R. (2017). Which
procurement method?. [online] NBS. Available at:
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2017].
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