Construction Law Final Report

SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
BACHELOR OF QUANTITY SURVEYING (HONOURS)
CONSTRUCTION LAW (LAW 63804)
GROUP ASSIGNMENT
GROUP MEMBERS:
NO. NAME STUDENT ID
1 Chan Yi Fung 0323057
2 Jason Wong Kok Yong 0327650
3 Lee Lin Hui 0322797
4 Loh Mun Tong 0323680
5 Soo Ping Zheng 0331365
6 Soo Yon Li 0322821
7 Yeap Phay Shian 0322243
SEMESTER: SEMESTER 6 (MARCH 2019)
LECTURERS: MR WONG CHONG WEI & SR SHIRLEY CHIN
SUBMISSION DATE: 26th JUNE 2019

TABLE OF CONTENT
NO. TITLE PAGE NO.
1.0 Introduction 1
1.1 Project Details 1
1.2 Overview of Report 1
1.3 List of Assumptions 2
2.0 General Principle Governing Law in Construction Contract 3
2.1 Elements for a Valid Construction Contract 3
2.1.1 Offer 3
2.1.2 Acceptance 3
2.1.3 Intention to create legal relations 4
2.1.4 Consideration 4
2.1.5 Certainty 4
2.1.6 Capacity 5
2.1.7 Consent 5
2.2 Discharge of Contract 6
2.2.1 Discharge by Performance 6
2.2.2 Discharge by Agreement 6
2.2.3 Discharge by Frustration 6
2.2.4 Discharge by Breach 6
2.3 Remedies for Breach of Contract 7
2.3.1 Damages 7
2.3.2 Specific Performance 7

2.3.3 Injunction 7
2.3.4 Quantum Meruit 7
3.0 Selection of PAM Standard Form of Contract (2006) 8
3.1 Summary of Form of Contract – PAM Contract 2006 &
FIDIC Book
9
3.2 Justification of Proposed Form of Contract – PAM 2006 10
3.3 Which PAM Form of Contract – With Quantities of Without
Quantities
11
4.0 Conditions Guiding Payment 12
4.1 Important Principles Guiding Payment 12
4.1.1 Payment Application and Issue of Architect’s
Certificate
12
4.1.2 Errors in Payment Certificate 13
4.1.3 Set-off by Employer 13
4.1.4 Final Payment 14
4.2 Analysis between PAM 2006 and FIDIC 15
4.3 Recommendation 16
5.0 Conditions Related to Extension Of Time, Loss and/or
Expense, and Variations
17
5.1 Extension of Time 17
5.1.1 Entitlement of Extension of Time 17
5.1.2 Procedure of Claiming Extension of Time 18
5.1.3 Consideration while Assessment of Extension of Time 19

5.1.4 Issue after Certificate of Non-Completion and
Practical Completion
19
5.2 Loss and/or Expense 19
5.2.1 Entitlement of Loss and/or Expenses 20
5.2.2 Procedure of Claiming Loss and /or Expenses 21
5.2.3 Issue Related to Contract Sum and Interim Certificates 21
5.3 Variation 21
5.3.1 Condition of Variation 22
5.3.2 Rules of Variation 23
5.3.3 Procedure of Claiming Additional Expenses 24
5.3.4 Issue Related to Contract Sum and Interim Certificates 24
5.4 Comparison Between PAM 2006 and FIDIC Red Book 2017 25
6.0 Contractual Programme 27
6.1 Important Principles of Contractual Programme 27
6.2 Analysis between PAM 2006 and FIDIC 27
7.0 Conditions Guiding Termination 29
7.1 Determination of Contractor’s Employment by Employer 29
7.1.1 Defaults by Contractor 29
7.1.2 Procedures 30
7.1.3 Automatic Determination 30
7.1.4 Rights and Duties 30
7.1.4.1 Contractor’s Rights and Duties 31

7.1.4.2 Employer’s Rights and Duties 31
7.2 Determination of Own Employment by Contractor 31
7.2.1 Defaults by Employer 31
7.2.2 Procedure 32
7.2.3 Automatic Determination 32
7.2.4 Rights and Duties 32
7.2.4.1 Contractor’s Rights and Duties 33
7.2.4.2 Employer’s Rights and Duties 33
7.3 Analysis between PAM and FIDIC on Determination 34
8.0 Dispute Resolution 36
8.1 Important Principles by Refer available Dispute Resolution 36
8.2 First Tier – Mediation 36
8.3 Second Tier – Adjudication 36
8.4 Third Tier – Arbitration 38
8.5 The Cost & Time Comparison of the three-dispute resolution
mechanism
40
8.6 The difference between PAM and FIDIC form in Dispute
Resolution
41
9.0 References 43

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1.0 Introduction
1.1 Project Details
One of the most reputable international universities in the world with campuses situated
in more than 10 countries, Construction Institute of Technology, intends to build a university
accommodation and a recreation centre which costs RM500 million in its campus at Kuala
Lumpur, Malaysia. This project includes the construction of a modern academic block facilities
which aims to accommodate 5,000 postgraduate students and the recreation centre serves as a
centre of interest for the University’s community-based teaching activities concept as well as
continuous professional development courses.
As the contract advisor team appointed by the client, the purpose of this report is to
propose an appropriate standard form of contract and to provide sound professional advice on
the relevant pre-contract and post contract stage issues to the President of the Construction
Institute of Technology.
1.2 Overview of Report
This report is logically sectioned and presents on the following items:
● General principles governing law in the construction contract
● Explanation on the proposed selection of PAM form of contract
● Clarification on the conditions guiding payment in PAM
● Identification of conditions in relation to the extension of time, loss and expense, and
variations in PAM
● Determination of the conditions of contractual standing governing contractual
programme in PAM
● Elucidation on conditions guiding termination for contracting parties in PAM
● Elaboration and justification on the available dispute resolution methods in PAM
● Comparison of contracts between PAM 2006 and FIDIC

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1.3 List of Assumptions
The assumptions are outlined as below:
● PAM or PAM Contract 2006 indicates PAM Standard Form of Contract 2006 (With
Quantities) unless otherwise stated.
● FIDIC Red Book 2017 refers to FIDIC Conditions of Contract for Construction for
Building and Engineering Works Designed by the Employer Second Edition 2017
● The client agrees that Bills of Quantities form part of contract.
● The client does not wish to have any involvement of international parties.
● The client wishes to complete the construction in a shorter period.

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2.0 General Principle Governing Law in Construction Contract
2.1 Elements for a Valid Construction Contract
The elements required for an enforceable construction contract which is binding in law is
similar to any other contract.
2.1.1 Offer
According to Section 2(a) of Contracts Act 1950, a legally binding contract must consist
of an offer from one party and must be accepted by another party. An offer is a definite promise
to be bound and it must be lawful, clear and certain.
In construction contract, the owner who invites tenders only indicates an intention to
receive (invitation to treat) tenders for the project. Tender submitted to the owner by a contractor
serves as an offer.
2.1.2 Acceptance
According to Section 2(b) of Contracts Act 1950, acceptance occurs when the offeree
signifies his agreement to the offer. Section 7(a) of Contracts Act 1950 states acceptance must be
absolute and unqualified. The offeree must communicate the acceptance to the offeror and silence
does not constitute as an acceptance.
In construction contract, until tender (offer) made to the owner by the contractor is duly
accepted, there is no contractual obligations arise. An acceptance is presumed when the contractor
submits his tender and the client have examined the tender, allow the contractor to commence
work without implying any reservation.

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2.1.3 Intention to create legal relations
Both parties which is the owner and contractor must have the intention to enter into a legal
relationship in prior to form a valid contract. This intention is usually expressed from the nature
of agreement.
2.1.4 Consideration
A valid contract must be supported by consideration. According to Section 2(d) of
Contracts Act 1950, the acceptor must provide something in return to the promise made by the
promisor. Under Section 26 of Contracts Act 1950, an agreement without consideration is void
unless it falls within one of the exceptions Section 26 (a), (b) and (c) where it must be in writing
and registered or a promise to compensate to the affecting party barred by law.
In construction contract, consideration is implied from the contract sum or price for the
works stipulated.
2.1.5 Certainty
All the terms of the contract must be listed out clearly and with certainty. Section 30 of
Contracts Act 1950 confer that agreements in which the meaning is not certain, or capable of being
made certain are considered void.
In construction contract, the terms and conditions of the chosen standard form of contract
for the project must be stated clearly and certain.

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2.1.6 Capacity
The parties involved which is both the owner and contractor must be competent and possess
the legal capacity to enter into contract. According to Section 11 of Contracts Act 1950, every
person is competent to contract if he [1] is of the age of majority which is above 18 years old [2]
is of sound mind and [3] is not bankrupt.
2.1.7 Consent
Both the owner and the contractor must come to an agreement on their own free will and
consent before entering into a contract provided the consent as confer in Section 14 of Contracts
Act 1950 is not induced by coercion, undue influence, fraud, misrepresentation and mistake.
2.1.8 Privity of Contract
This principle states that only those who are the parties to the contract with is the owner
and contractor can sue or be sued to it. The parties in the contract cannot impose liabilities upon a
third party to the contract and a person who is not an involved party to a contract cannot enforce a
contract even it is made for his benefit.

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2.2 Discharge of Contract
A contract is discharged when the contracting parties are released and free from their
contractual obligations. A contract can be discharged by performance, agreement, frustration or
by breach.
2.2.1 Discharge by Performance
A contract is discharged when both of the contracting parties have performed their
contractual obligations as stated in the contract
2.2.2 Discharge by Agreement
According to Section 63 of Contracts Act 1950, if the parties to a contract agree to replace
a new contract, or to revoke or modify it, the parties are not required to perform the original
contract. A contract can be terminated by agreement or mutual consent of all parties to the contract
either expressed or implied.
2.2.3 Discharge by Frustration
A contract can come to an end due to unforeseen circumstances causing a contract to be
legally or physically impossible to perform.
2.2.4 Discharge by Breach
A contract is said to have repudiated the contract when one of the contracting parties fails
to perform his contractual obligations in accordance to the terms stated in the contract or show no
intention to continue his performance in the contract.

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2.3 Remedies for Breach of Contract
In the event of breach of contract, the innocent party is entitled to sue for damages. The
remedies available to the innocent party for breach of contract includes damages, specific
performance, injunction and quantum meruit.
2.3.1 Damages
In accordance to Sections 74, 75 and 76 of Contracts Act 1950, damages is a remedy in the
form of monetary compensation with the aim to restore the innocent party to the position he would
have been in had the contract been performed. However, such compensation is not given for any
remote and indirect loss or damage sustained from the breach.
2.3.2 Specific Performance
The defaulting party may be compelled to perform the contract where damages would be
inadequate compensation for the breach of contract. Specific performance involved constant court
supervision.
2.3.3 Injunction
A court order directing a defendant not to commit some act and non-compliance of an
injunction order constitutes a contempt of court.
2.3.4 Quantum Meruit
According to Section 71 of Contracts Act 1950, where a person lawfully does anything for
another person which he does not intend to do so gratuitously, the beneficial party is bound to
make compensation to the person who does the work. Quantum meruit is a claim for payment of
work executed based on fair market rates where no price has been agreed or quantifies before the
execution of work.

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3.0 Selection of PAM Standard Form of Contract (2006)
We have chosen PAM 2006 as the best form of contract in this project instead of JKR 203A
and FIDIC (any kind of FIDIC book). JKR 203A is not selected as this is a private project where
it does not involve any government and public parties. JKR 203A does not contain any provisions
which allow the Contractor to suspend work in the event if his payment was unduly delayed or not
getting any payment at all. By implementing JKR 203A in a private sector project, it might
reversely cause trouble to the Employer if the Employer is not aware of the payment terms.
Therefore, PAM 2006 is more suitable as it contains provision for the Contractor to suspend work
if the Contractor encounter problem of delayed or non-payment by the Employer.
Next, FIDIC could not be the choice for the best form of contract in this project as the client
does not wish to have any involvement from the international parties. In addition, FIDIC form of
contract is usually adopted in projects which contains a lot of mechanical, electrical and
engineering works where designs are unnecessary. For instance, infrastructure like flyovers, roads,
hydropower, etc. In this project, the Employer wishes to build a university accommodation and a
recreation centre which is not suitable to use FIDIC form of contract as these two buildings require
proper design. Hence, FIDIC form of contract is not selected.

9
3.1 Summary of Form of Contract - PAM Contract 2006 & FIDIC Book
PAM Contract 2006 FIDIC Book
Uses of Contract • Widely used in Malaysia
• Used in Private Sector
• For general and traditional
projects
• Used for international
projects
• Usually used for big
contract sum
Types of Works • High rise buildings
• Residential buildings
• Commercial buildings
• Bridges
• Roads
• Hydropower plantations
• M&E works
Superintending
Officer
• Architect • Engineer
Role of
Contractor
• Contractor has full
responsibility to ensure the
performance of the temporary
works and method of
construction
• Contractor has full
responsibility on the site
operations and methods of
construction
Design • Consultants can propose new
design
• Design must be approved
by the Engineer

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3.2 Justification of Proposed Form of Contract - PAM 2006
PAM 2006 is a Standard Form of Contract that is widely used in Malaysia (Kuang, L. C.,
2012). It is utmost suitable for projects like construction of high rise buildings and
accommodations. This form of contract is possibly the most balanced form of contract between
the contract parties - the Employer/Consultants and the Contractor. The reason being is because
this form of contract provides specific provisions that enable the parties to claim, whether it is Loss
and/or Expense (Clause 24), Extension of Time (Clause 23), Certification and Payments (Clause
30) and other provisions that might affect both parties. The Architect is the contract administrator
known as the Superintending Officer (S.O.) and the Architect shall without prejudice, to make fair
decision between parties.
As Architect is the contract administrator, there are some key responsibilities of an
Architect in construction projects throughout the project cycle.
Pre-contract Stage
Architects will have to be well prepared of the construction drawings before construction
starts. The earlier submission of the drawings will reduce the risk of project delays, which can
avoid loss of profit for the Employer. When the tender period is closed, the Architect would have
to analyse each tender submitted by the Contractors, then advise accordingly according to his
professional perception without prejudice. With the agreement of the Architect and Employer for
the award, the Architect shall prepare to award to the selected Contractor.
Post-contract Stage
This is the stage where the construction has begin and where the Architect has to supervise
the work done by the Contractor. In this period of time, Architect will issue instructions on behalf
of the Employer to the Contractor to commence the work. There will also be disputes on Payment
Claims (Clause 30) and Extension of Time (Clause 23), where Architect will have to make fair

11
judgments on these disputes. The Architect will also have to keep track of the practical completion
date and issue either Certificate of Practical Completion of Non-Completion etc.
3.3 Which PAM Form of Contract - With Quantities or Without Quantities
There are 2 types of PAM form of Contract which is with Quantities and without Quantities. There
are also some differences between both contracts.
Clauses With Quantities 2006 Without Quantities 2006
Clause 11:
Variation
States and indicates that the
Quantity Surveyors and Architect
is empowered evaluate claims
Not mentioned
Clause 12:
Quality and
Quantity of
Works
Indicates that the Bill of Quantities
should be the basis of the quantity
of works – Where the contract sum
is obtained from the Bills of
Quantities.
Contractor’s estimate as the basis for
the quantity of works - The
Contractor has the responsibility to
estimate as referred to drawings and
specifications, and that will be the
basis of contract sum
To conclude, PAM 2006 with Quantities is the form of contract which is to Employer. The
reason being is because PAM 2006 without Quantities is subject to remeasurement, which means
that the Contractor has the right to reallocate the rates as well as for the quantities of the element.
Moreover, PAM 2006 with Quantities are widely used as it can avoid dispute over quantities of
materials as the rate and quantities are subjected to Bills of Quantities. This could reduce the risk
of cost overrun for the Employer as a minor mistake in quantities could affect cash flow.

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4.0 Conditions Guiding Payment
4.1 Important Principles Guiding Payment
In PAM Form of Contract 2006, there are a few important principles regarding payment to
be taken into consideration; payment application process and the issuance of Architect’s
certificate, rectification of errors in payment certificate and Employer’s right to set-off. All the
principles are expressly stated in the clauses in the form of contract; Clause 30.1, Clause 30.3 and
Clause 30.4
4.1.1 Payment Application and Issuance of Architect’s Certificate
According to Clause 30.1, for a successful claim of interim payment; the Contractor is
required to submit a payment application claim within the Interim Claim Interval which is stated
in the Appendix with all the necessary details and particulars as required by the Architect. The
Architect upon receival of the application shall within twenty-one (21) Days from the date of
receipt of the application issue an Interim Certificate to the Employer with a copy to the Contractor
after reasonable consideration and ascertained the amount to be certified. Employer shall therefore
pay the amount certified by the Architect in the Interim Certificate to the Contractor within the
Period of Honouring Certificate.
Failure by the Contractor to submit his payment application to the Architect within the
Interim Claim Interval shall be deemed that the Contractor has waived his right for his contractual
entitlement for the Interim Certificate. The Architect is therefore not obliged to issue an Interim
Certificate under such circumstances.
Clause 30.1
Contractor
submits Statement
to the Architect
Clause 30.1
Architect issues
Interim Payment
Certificate
Clause 30.1
Employer makes
the payment to the
Contractor
21 Days 21 Days

13
4.1.2 Errors in Payment Certificate
Documentation errors are unavoidable (Dosumu, O. et.al.,2017) and there will be chances
of clerical, computational or typographical error or errors of a similar nature. Under such
circumstances, the Architect is not entitled to revise or correct any payment certificate issued under
the Contract. However, according to Clause 30.2, the Architect may later issue a certificate to
make correction in respect to the errors made in the earlier certificates.
4.1.3 Set-off by Employer
According to clause 30.4, the Employer is entitled to set-off all cost incurred and loss and
expenses where the circumstances are met with the conditions expressly provided under Clause
2.4, 4.4, 5.1, 6.5(e), 6.7, 14.4, 15.3(b), 15.3(c), 15.4, 15.5, 19.5 and 20.A.3.
This clause further stated that no set-off under the clause shall be made unless the following
conditions are met:
• 30.4(a) The Architect acting on the behalf of the Employer has submitted to the Contractor
complete details of their assessment of the relevant set-off;
• 30.4(b) The Employer or the Architect on the behalf of the Employer has given the
Contractor written notice either delivered by hand or by registered post, specifically stating
his intention to set-off the amount and providing reasonable reasonings for the action. The
usual period before any set-off is being deducted from any payment is twenty-eight (28)
days and therefore the written from the Employer or the Architect to the Contractor shall
be given not later than then specified date before deduction is being conducted.
In addition, Clause 30.4 stated that any set-off by the Employer shall be recoverable from the
Contractor in the form of;
• A debt
• Any monies due or to become due to the Contractor under the signed Contract
• Performance Bond.

14
The Contractor in the case dispute the amount of set-off, he shall within twenty-one (21)
Days from the receipt of the written notice notify the Employer with a written notice either
delivered by hand or by registered post stating out clearly the reasons and particulars of such
disagreement. A period of another twenty-one (21) Days are given for the Contractor and the
Employer to agree on the amount of set-off from the date of reception of the written notice by the
Employer. If both parties are unable to come to an agreement, either party may refer the dispute to
adjudication as per stated in Clause 34.1. The Employer is in no power to exercise any set-off
unless the amount has been agreed by the Contractor or the adjudication has issued his decision.
4.1.4 Final Payment
According to clause 30.10, the process of the final payment commences when the
contractor within six (6) Months of Practical Completion of works submit all the necessary
documents for preparing the Final Account to the Architect and related Consultants so that the
Final Certificate can be issued.
In Clause 30.14, the Final Certificate shall be issued:
• Clause 30.14(a) within the time frame of Period of Honouring Certificates for the
payment of the Penultimate Certificate; or
• Clause 30.14(b) within twenty-eight (28) Days after the Certificate of Making Good
Defects has been issued, in the event no Penultimate Certificate has been issued.
According to clause 30.15, the Final Certificate should be stating 30.15(a) Final Account;
less 30.15(b) the total sums certified in previous payment certificates regardless the sum being
paid or not to the Contractor. In the case of balance due to either from the Contractor to the
Employer or vice versa, the balance shall be payable from one party to another within the Period
of Honouring Certificates. The Architect shall not oblige to issue the Final Certificate before the
issuance of the Certificate of Making Good Defects.

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4.2 Analysis between PAM 2006 and FIDIC
PAM Contract 2006
Types of
Contract
FIDIC RED BOOK 2017
Architect Certifier Engineer
Clause 30.1: within 21 days
from the date of receipt of
application
Certifying
Period
Sub-Clause 14.6: within 28
days after receipt statement
and supporting documents
Clause 30.1: within Period of
Honouring Certificate,
twenty-one (21) Days from
the date of receipt of
contractor’s application
Interim
Payment
Sub-Clause 14.7(a): Advance
payments within 42 days after
issue of LOA or within 21
days after receiving the
Performance Security
Sub-Clause 14.7(b): Interim
Payment Certificate within 56
days after the Engineer
receives the Statement and
supporting documents
Clause 30.14(a): within 21
Days after the Period of
Honouring Certificate for the
payment of the Penultimate
Certificate; or
Clause 30.14(b): within 28
Days after the CMGD has
been issue, in the event no
Penultimate Certificate
Final
Certificate
Sub-Clause 14.7(c): Final
payment Certificate within 56
days after the Employer
receives this Payment
Certificate

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4.3 Recommendation
Based on the clause 30.1, the Employer is obliged to pay the Contractor within the Period
of Honouring Certificate after the Interim Certificate have been certified by the Architect. With
reference to this clause, payment process starts after the Contractor has successfully submitted his
payment application and if the Contractor fail to do so, the Architect is not obliged to issue an
Interim Certificate.
In the event of documentational error in the Interim Certificate, the Architect are not
allowed to make changes in the certified certificate as per clause 30.2. However, the Architect can
rectify the error through issuance of a new certificate making correction and rectification in the
next certificate.
In the event the Contractor incurred loss and expenses to the Employer, clause 30.4 allow
the Employer to set-off the amount based on the relevant events. The set-off amount can be
recovered from the Contractor in the form of monies due, a debt or performance bond. In the event
of dispute to the set-off amount, the Contractor and the Employer can refer the dispute to
adjudication.

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5.0 Conditions Related to Extension of Time, Loss and Expense, and Variations
5.1 Extension of Time
If the Contractor in his or her opinion thinks that the completion of the Works is or will be
delayed beyond the Completion Date in relation with any of the Relevant Event.
5.1.1 Entitlement of Extension of Time
Based on clause 23.8 (Relevant Events), the Contractor is entitled to claim for extension of
time if the event related to the table below.
RELEVANT EVENT (CLAUSE 23.8)
23.8 (a) Force Majeure
23.8 (b) Exceptionally inclement weather
23.8 (c) Loss and damage caused by fire or other peril
23.8 (d) Civil commotion, strike or lockout affecting relevant trades
23.8 (e) Late issuance of AI for which Contractor applied in writing
23.8 (f) Delay in giving site possession
23.8 (g) AI for discrepancy, variation and suspension of works
23.8 (h) Delay caused by NSC or NS where steps to avoid has been taken by
Contractor
23.8 (i) Re-nomination of NSC
23.8 (j) Delay by Employer’s direct Contractors
23.8 (k) Delay or failure to supply materials by Employer
23.8 (l) Opening up of works for inspection and testing which is found to be in order
23.8 (m) Act of prevention or breach by Employer (non-payment)

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23.8 (n) War Damage
23.8 (o) AI in connection with discovery of antiquities
23.8 (p) Changes to Statutory Laws
23.8 (q) Delay or failure to carry out by statutory bodies
23.8 (r) Appointment of replacement consultant (Architect/QS)
23.8 (s) AI in related to disputes with neighbours
23.8 (t) Execution of work under insufficient provisional quantity
23.8 (u) Delay in giving site entry and exit
23.8 (v) Suspension of works due to non-payment and withdrawal of suspension
23.8 (w) Suspension of work by statutory body
23.8 (x) Any other ground for extension of time that is stated in contract
5.1.2 Procedure of Claiming Extension of Time
Based on clause 23.1 (Submission of notice and for extension of time) and clause 23.4
(Certificates of Extension of Time), the submission of notice shall be condition precedent in order
to claim for extension of time. If the Contractor failed to submit notice in the first place or submit
complete particular within 28 days of the end of the Relevant Event, the Contractor deemed to
waive his right to claim. The diagram below is the procedure to claim for Extension of Time.
Based on clause 23.3 (Insufficient information), if in the opinion of the Architect, the
Contractor did not submit enough information regarding the extension of time claim. Both the
Contractor and the Architect shall comply with the procedure below.

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5.1.3 Consideration While Assessment of Extension of Time
Based on clause 23.5 (Other consideration for extension of time), the Architect shall not
fix a Completion Date earlier than the Completion Date stated in the Contract. Any other Relevant
Event which in the Architect’s opinion will affect the Contractor’s entitlement to an extension of
time.
Based on clause 23.6 (Contractor to prevent delay), the Contractor shall always try to
mitigate the delay in the progress of the Works when a Relevant Event arise.
5.1.4 Issue after Certificate of Non-Completion and Practical Completion
Based on clause 23.9 (Extension of time after the issuance of Certificate of Non-
Completion), the Architect can grant an extension of time to contractor to revoke the Completion
Date after the issuance of the Certificates of Non-Completion.
Based on clause 23.10 (Architect’s review of extension of time after Practical Completion),
the Architect may within 12 weeks after the date of Practical Completion, review a previous
decision and fix a Completion Date which is later, and the Completion Date fix cannot be earlier
than previous Completion Date.
5.2 Loss and/or Expenses
The Contractor has incurred or is likely to incur loss and/or expense which cannot be claim
under any other provision in the contract in relation with the Relevant Matters.

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5.2.1 Entitlement of Loss and/or Expenses
Based on clause 24.3 (Matters materially affecting the regular progress of the Works), the
Contractor is entitled to claim for Loss and/or Expenses if the matter related to the table below.
RELEVANT MATTERS (CLAUSE 24.3)
24.3 (a) Late issuance of AI for which Contractor applied in writing
24.3 (b) Delay in giving site possession
24.3 (c) AI for discrepancy, variation and suspension of works
24.3 (d) Delay by Employer’s direct Contractors
24.3 (e) Delay or failure to supply materials by Employer
24.3 (f) Opening up of works for inspection and testing which is found be in order
24.3 (g) Act of prevention or beach by Employer (non – payment)
24.3 (h) AI in connection with discovery of antiquities
24.3 (i) Appointment of replacement consultant (Architect/ QS)
24.3 (j) AI in related to dispute with neighbours
24.3 (k) Execution of work under insufficient provisional quantity
24.3 (l) Delay in giving site entry and exit
24.3 (m) Suspension of works due to non-payment and withdrawal of suspension
24.3 (n) Suspension of work by statutory body where Employer, Architect and
Consultant are at fault

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5.2.2 Procedure of Claiming Loss and/or Expenses
Based on clause 24.1 (Loss and/or expenses caused by matters affecting the regular
progress of the Works), the submission of notice is condition precedent in order to claim for loss
and/or expenses. If the Contractor failed to submit notice in the first place or submit complete
particular within 28 days of the end of the Relevant Matters, the Contractor deemed to waive his
right to claim. The diagram below is the procedure to claim for Loss and/or Expenses.
5.2.3 Issue Related to Contract Sum and Interim Certificates
Based on clause 24.4 (Loss and/or expenses to be included in certificate), the Architect and
Quantity Surveyor shall ascertain the amount of such loss and/or expenses and it shall be added
into the Contract Sum. The ascertained amount shall add into the Interim Certificate if the Interim
Certificate issue after the date of ascertainment.
5.3 Variation
The term Variation refer to the alteration or modification of the quality or quantity, design of the
Works.

22
5.3.1 Condition of Variation
Based on clause 11.1 (Definition of Variation), Variation is the alteration and modification
of the design, quality or quality of the works including:
- The addition, omission or substitution of any works
- The changes of any material and goods that is going to incorporate into the works
- The removal work executed, material and goods which are not accordance with the contract
from site
- Changes to provisions in the contract:
• Any limitation of working hours
• Working space
• Access to or utilisation of any specific part of the site
• The execution and completion of the works in any specific order
Based on clause 11.3 (Issue if Variation after Practical Completion), variation may occur
any time before the issuance of the Certificate of Practical Completion with the issuance of
Architect Instruction.
Based on clause 11.4 (AI on P.C. Sums and Provisional Sums), the expenditure of P.C.
Sums and Provisional Sums can be activated by the issuance of AI by The Architect.

23
5.3.2 Rules of Variation
Based on clause 11.6 (Valuation Rules), the valuation of Variation shall be the following:
VALUATION RULES (CLAUSE 11.6)
11.6 (a) - Works is similar character
- Work executed under similar condition
- Does not significantly change the quantity of work
- The rate and price in the Contract Document shall determine
the valuation.
11.6 (b) - Works is similar character
- Work executed under not similar condition or similar condition
- Significantly change the quantity of work
the valuation and include fair adjustment in the rates
11.6 (c) - Works is not similar character
- Valuation shall include fair market rates and price determined
by the Quantity Surveyor.
11.6 (d) - Work cannot be properly measured and valued in accordance
with 11.6 (a), 11.6 (b), 11.6 (c)
- The contractor shall be allowed to use daywork rates in the
Contract Documents
- If there is no such daywork rates in the Contract Documents
- The actual cost to the Contractor of his material, plant and
scaffolding, transport and labour plus 15%
- The 15% which will include use of all tools, standing plant,
standing scaffolding, supervision, overhead and profits.

24
11.6 (e) - The rate and price in the Contract Document shall determine the
valuation of item omitted.
- If omission substantially vary the condition under which any
remaining item
- The prices of such remaining item shall be valued under clause
11.6 (a), 11.6 (b), 11.6 (c)
11.6 (f) - If is provisional quantity, the quantity state in the Contract
Documents shall be re-measured by the Quantity Surveyor
the valuation.
5.3.3 Procedure of Claiming Additional Expenses
Based on clause 11.7 (Additional expenses caused by Variation), the submission of notice
is a condition precedent to claim additional expenses. If the Contractor failed to submit notice in
the first place or submit complete particular within 28 days of the completion of the Variation, the
Contractor deemed to waive his right to claim. The diagram below is the procedure to claim for
Variation.
5.3.4 Issue Related to Contract Sum and Interim Certificates
Based on clause 11.9 (Variation and additional expenses added to Contract Sum), as soon
as the architect has ascertained the amount of Variation, it shall be included into the Contract Sum.
The ascertained amount shall add into the Interim Certificate if the Interim Certificate issue after
the date of ascertainment.

25
5.4 Comparison between PAM 2006 vs FIDIC Red Book 2017
Title PAM 2006 FIDIC Red Book 2017
Provision for Value
Engineering
Not Applicable Contractor may submit a
written value management
proposal at any time before
the issuance of the Taking-
Over Certificate for the
project to the Engineer.
(Clause 13.2)
Provision for Cost
Fluctuation
Not Applicable The amount payable to the
contractor shall be adjusted
for rises and falls, by the
addition or deduction of the
amount calculated in
accordance with the schedules
of cost indexation. (Clause
13.7)
Claim for Variation For PAM 2006, all matters
regarding variation falls under
clause 11.
For FIDIC 2017, matter
regarding variation falls under
clause 13 and the valuation of
variation are falls under
separate clause 12.
Method of Granting Claim For PAM 2006, the Architect
alone will act neutral in matter
related to granting on claim.
For FIDIC 2017, under clause
3.7. There is an additional
steps that the Engineer shall
consult with both Parties
jointly and/or separately in
order both parties to reach an
agreement on the claim.
Claim for EOT and Loss
and/or Expenses
For PAM 2006, claim for
EOT fall under clause 23 and
for Loss and/or Expenses fall
under clause 24.
For FIDIC 2017, the claim for
EOT and Loss and/or
Expenses falls under the same
clause which is clause 20.2

26
The Typical Duration for
EOT Procedure
The minimum day for
granting a EOT 98 days
excluding the duration of
happening Relevant Event.
The minimum day for
The Typical Duration for
Loss and/or Expenses
The minimum day are 56 days
excluding the duration of
happening Relevant Matters.
The minimum day for

27
6.0 Contractual Programme
6.1 Important Principles of Contractual Programme
The Contractor’s programme for execution of the Works is an important management tool
(Illingworth, J. R., 2017) throughout the performance of the Works. According to Clause 3.5 in
PAM Contract 2006, the Works Programme is needed to be submitted by the Contractor to the
Architect within 21 days from receiving the Letter of Award. The submission of the Works
Programme needs to comply with the specified requirements in Contract Documents.
6.2 Analysis between PAM Contract 2006 and FIDIC Red Book 2017 under the Contractual
Programme
Features PAM Contract 2006 FIDIC Red Book 2017
Administrator Architect Engineer
Submission
Time Frame
Within 21 days after receiving
the Letter of Award under
Clause 3.5
Within 28 days after receiving
the notice of Commencement
of Works under Sub-Clause 8.3
Documentation
Submit 6 copies of Works
Programme to Architect under
Clause 3.5
Submit 2 copies: one paper
copy and one electronic copy
of Works Programme to
Engineer under Sub-Clause 8.3
Documentation
Details
It required to show the order
in which Contractor proposed
to perform the works under
Clause 3.5
the commencement date and
time for completion of the
works and others under
Sub-Clause 8.3(a)-(e)
Revised Programme
Instructed by Architect under
Clause 3.5
Engineer shall review and
given a Notice of No-objection
and/or the remedial work
instructed under Sub-Clause
8.3(f)

28
Conditions to submit
revised programme
If any part of works is delayed
for any reasons under Clause
3.5
Any delays effect to the actual
progress is required to submit a
supporting report under Sub-
Clause 8.3 (k)
Binding to Contract
Works programme shall not
form to part of the Contract
under Clause 3.6
No specifically specified
6.3 Recommendation
The Contractor needs to be aware that the Works Programme is needed to be submitted to
the Architect within 21 days from receipt of the Letter of Award. The Contractor is responsible for
planning and completing the Works on or before the contract completion date, and the programme
will usually indicate an earlier completion time than in contract documents. Besides, the Contractor
should be aware that there can be no extension of time when completion is later than the Work
Programme but before the original completion date. Furthermore, it is necessary for the Contractor
to submit the updated work progress from time to time to reflect the changes made to durations of
each activity and sequence of works throughout the entire project.

29
7.0 Conditions Guiding Termination
7.1 Determination of Contractor’s Employment by Employer
Clause 25 in PAM Contract 2006 explains the determination of contractor’s employment by
employer.
7.1.1 Defaults by Contractor
Based on Clause 25.1, the Employer may determine the employment of the Contractor if the
Contractor defaults in any of the events in 25.1 (a) to (f).
Clause 25.1 Events
(a) Fails to commence the Work
(b) Completely or substantially suspends the Works before completion.
(c) Fails to proceed regularly and/or diligently with the Works regarding
compliance with time and quality.
(d) Persistently refuses or neglects to comply with an AI.
(e) Assigns his rights under the Contract to other party without the written
consent of the Employer or when the Contractor wholly or substantially
subcontract the Works without written consent of the Employer.
(f) Abandons the Works.

30
7.1.2 Procedures
Procedure for determination falls under Clause 25.2. Determination consists of a 2-step procedure.
7.1.3 Automatic Determination
Based on Clause 25.3, the Contractor’s employment may be automatically determined if
the Contractor becomes insolvent. The contractor shall be deemed to be automatically determined
and no notice or other formalities shall be required. However, to ensure Contractor is aware of the
determination, the Employer is advised to notify them in writing.
7.1.4 Rights and Duties
According to Clause 25.4, it states the Employer and Contractor’s responsibilities if that
the Contractor is determined.

31
7.1.4.1 Contractor’s Rights and Duties after Determination
The Contractor is responsible to carry out certain tasks after being determined. The
Contractor must vacate the Site peacefully and return site possession to the Employer in a safe
condition. The Contractor also has to demobilize and remove his personnel and workers from site.
Moreover, the Contractor has to assign to the Employer, if he wishes, the benefit of any agreement
for the continuation of the hire of plants and equipment for the remaining works to be completed.
7.1.4.2 Employer’s Rights and Duties after Determination
As for the Employer’s rights and duties, the Employer may take back site possession from
the Contractor in a safe condition. The Employer may employ and pay another contractor to carry
out the remaining construction works.
7.2 Determination of Own Employment by Contractor
Clause 26 in PAM Contract 2006 explains the determination of own employment by contractor.
7.2.1 Defaults by Employer
Clause 26 states that the Contractor may determine his own employment in any of the
following situations in Clause 26.1 (a) to (d).
Clause 26.1 Events
(a) Fails or neglect to pay the Contractor the certified amount
(b) Interferes with any certificate
(c) Fails to appoint succeeding Architect/Consultant
(d) The Works is suspended

32
7.2.2 Procedures
Procedure for determination by Contractor falls under Clause 26.2. Determination consists of a 2-
step procedure.
7.2.3 Automatic Determination
Based on Clause 26.3, the Contractor’s employment may be automatically determined if
the Employer becomes insolvent. As such, if the Employer is in breach of financial defaults, the
Contractor’s employment may be automatically determined,
7.2.4 Rights and Duties
According to Clause 26.4, it states the responsibilities of Employer and Contractor if the
Contractor is determined.

33
7.2.4.1 Contractor’s Rights and Duties after Determination
The Contractor must vacate the Site and return site possession to the Employer as well as
demobilize all workers and remove all temporary buildings, construction plants and tools on the
Site.
7.2.4.2 Employer’s Rights and Duties after Determination
The Employer must pay for work executed according to the Contract Bills and the value of
materials delivered comprising of all loss and/or expense suffered by the Contractor.

34
7.3 Analysis between PAM Form of Contract and FIDIC on Determination
PAM CONTRACT 2006
(WITH QUANTITIES)
FIDIC RED BOOK 2017
TERMINOLOGY Determination Termination
TERMINATION /
DETERMINATION
BY EMPLOYER
Clause 25:
Determination under the events
stated in Clause 25.1 unless the
Contractor becomes insolvent
or making a composition with
his creditors, then the
employment shall be
automatically determined.
Procedures, rights and
obligations are similar.
Clause 15:
Termination under the events
stated in Sub-Clause 15.2
unless the events fall under
Sub-Clause 15.2.1 (f), (g) and
(h), that are subcontracting or
assigning the Contract without
agreement, bankruptcy or
insolvency and engaging in
corrupt practices, then the
Employer shall immediately
terminate the Contract.

35
TERMINATION /
DETERMINATION
BY CONTRACTOR
Clause 26:
stated in Sub-Clause 26.1
unless the Contractor becomes
insolvent or making a
composition with his creditors,
then the employment shall be
automatically determined.
Sub-Clause 16.2:
stated in Sub-Clause 16.2,
unless the event falls under
Sub-Clause 16.2.1 (g)(ii), (h)
or (j), then the Contractor may
immediately terminate the
Contract.
OPTIONAL
TERMINATION
(PAM does not have any
clauses regarding optional
termination)
Sub-Clause 18.5
Optional termination may take
place by the Employer or
Contractor due to an
Exceptional Event. The
termination shall take effect 7
days after the Notice of an
Exceptional Event has been
given where the execution of
all works is prevented for a
continuous period of 84 days
or for multiple periods which
is more than 140 days due to
the Exceptional Event.

36
8.0 Dispute Resolution Mechanism
Disputes often arise from the construction project due to conflict of interest by both parties
by both parties (Fenn, P. et.al.,1997). PAM Contract 2006 provides three dispute resolution to the
parties which includes Mediation, Adjudication and Arbitration.
8.1 Important Principles by Refer available Dispute Resolution
The Employer must comply with the conditions stated in PAM if dispute arises during the
construction period. There are two tiers which is adjudication which is minatory to be applied
before going for arbitration.
8.2 First Tier – Mediation
The first tier of Alternative dispute resolution is Mediation in Clause 35.0 of PAM. There
are important rules notice that any disputes may be settled with mediation before going litigation
or other dispute resolution method. The words implied that the genius dispute able to be mediation
if both parties willing to settle in very first tiers. Apart from the non – genius dispute which is
purposely or intent to do so.
From our team’s point of view, mediation is the most effective method to resolve a dispute
in terms of time, cost and satisfaction as mediation is likely to resolve a dispute within a day and
incurred with minimum cost resulting a satisfying outcome.
8.3 Second Tier – Adjudication
The second tier of dispute resolution is adjudication under PAM clause 34.0. The
adjudication is mandatory to be apply and condition precedent if the dispute related to the payment
issues. It implies that it had to implement adjudication before going arbitration stated in clause
34.1.

37
Both parties can select their own preferable adjudicator from the AIAC panel list. Both
parties engage each of their own adjudicator with both parties consents and the third adjudicator
act as partial between the parties, so that the parties can go through CIPAA in regard to payment
issues with minimum time period and deliver the decision to the register board to review the
adjudicator decision which is AIAC.
This pre – selecting process usually apply in the large project to avoid the dispute itself
affect the regular process or other decision. It also minimizes the cost of the dispute escalated by
prolong the dispose period.
Item Amount In Dispute (RM) Fees (RM)
1. 50,000 and below 2,760
2. 50,001 to 150,000 5,760
3. 150,001 to 300,00 7,087 + 2.7% of excess over 150,000
4. 300,001 to 800,000 11,137 + 1.08% of excess over 300,000
5. 800,001 to 1,300,000 16,537 + 1.08% of excess over 800,000
6. 1,300,001 to 1,800,000 21,937 + 1.2826% of excess over 1,300,000
7. 1,800,001 to 2,300,000 28,350 + 0.3374% of excess over 1,800,000
8. 2,300,001 to 2,800,000 30,037 + 0.3376% of excess over 2,300,000
9. 2,800,001 to 3,300,000 31,725 + 1.4714% of excess over 2,800,000
10. 3,300,001 to 5,000,000 39,082 + 0.54% of excess over 3,300,000
11. 5,000,001 and above 50,000
Standard Fees for Adjudicator service

38
Standard Procedure of CIPAA
The decision of adjudicator only provides temporary – binding until CPC so that the
aggrieved party would appeal the result after CPC to obtain satisfaction decision.
8.4 Third Tier – Arbitration
The third tier of dispute resolution is arbitration in clause 34.5 of PAM. The arbitration
decision is final – binding and confer to finality only due to cannot revoke by factual itself.
PAM indicated that the arbitration proceedings is in accordance to the provisions of
Arbitration Art (AA) 2005 or in accordance to the latest version of AA. Arbitration is similar to
adjudication where both parties must come to an agreement on pre – selected arbitrator if the
dispute arise.

39
The reason of arbitration being the last tier is because of the long duration process and high
cost to the parties. According to clause 34.8, the arbitrator possesses the power to:
• 34.8(a) to rectify the Contract that it truly reflects the agreement made by the Employer
and Contractor
• 34.8(b) to direct measurements and/or valuation if in his opinion that it is desirable to
determine the rights of the parties
• 34.8(c) to ascertain and award any sum which to be included in any certificate
• 34.8(d) to review and revise on any certificate, opinion, decision, requirement, or notice
• 34.8(e) to determine all matter in dispute submitted to him in the same manner
• 34.8(f) to award interest from such dates at such rates and with such rests as he thinks fit
• 34.8(g) to award interest from the date of the award (or any later date) until payment
Description Mediation Adjudication Arbitration
The basis of dispute
resolution
Interest based; need
not be based on
facts, evidence or
legal point. The
parties may agree
anything (that is
lawful bargaining)
Right based; based
on facts, evidence
(document &
records) and law
Right based; based
on facts, evidence
and law
Typical tribunal cost
in Malaysia (RM)
2,000 – 15,000 3,000 – 50,000 50k – 300k above

40
8.5 The Cost & Time Comparison of the three-dispute resolution mechanism
The time frame of the arbitration is highly depending on the arbitrator himself. According
to David Y. (2018), an arbitrator in the AIAC penal list stated that it took 5 years to complete his
recent case. The duration of the proceeding may take 1 months to 2 years for the written arbitrator
decision, it is not only depending on arbitrator himself but also the complexity of the value.
0 500 1000 1500 2000
Mediation
Adjudication
Arbitration
Mediation
Adjudication
Arbitration
Mediation Adjudication Arbitration Mediation Adjudication Arbitration
Time (Days) 1 105 1825
Writen Decision 1 45 730
The Time Frame

41
8.6 Difference between PAM and FIDIC form in Dispute Resolution
PAM 2006 FIDIC 2017
Clause 35
Refer any dispute for mediation upon thee
written agreement if parties agree
Clause 21.3
Request the DAAB provide informal
discussion or assistance to resolve any
dispute if the parties agree
Clause 34.2
Adjudicator agree between each party
Clause 21.1
Appointed sole member or each of the three
members within 28 Days after LOA
Clause 34.2
PAM will be appointed if failure to appoint
adjudicator/arbitration after 21 Days written
notice
Clause 21.2
DAAB agreement will take place if failure
to appoint within 42 Days or selected but
disagree by one the members within 14
Days
Clause 34.4
Appeal the adjudicator decision by
arbitration; shall written notice within 6
Weeks after CPC
Clause 21.4.4
NOD shall be given within 28 Days after
the DAAB’s decision;
Clause 21.5
Amicable Settlement take place before
going into arbitration unless both parties
agree
Clause 34.5 & 34.7
The Arbitration proceeding with provision
AA 2005
Clause 21.6
The disputes shall be settle under the Rules
of the Arbitration of the International
Chamber of Commerce

42
8.7 Recommendation
That’s no any preferred dispute resolution method to be recommended because they are
hand in hand relationship. One of the biggest benefits of the dispute resolution stated in the contract
can avoid parties seek to litigation instead of other effective solution method in the time of the
contract.
The tiers system allows the parties to go through mediation first before going for other
mechanism. The mandatory of adjudication would take place if the payment dispute itself is
straightforward and in clear cut. The adjudication is not a preferred method due to their limitation
which ambit for payment dispute only. In contrast, arbitration covers a wider range of disputes.

43
References
David Y. (2018). Construction Industry Payment Adjudication Act (CIPAA) 2012 Procedures.
Retrieved from http://www.davidyek.com/cipaa-procedure.html
Dosumu, O., Idoro, G., & Onukwube, H. (2017). Causes of errors in construction contract
documents in Southwestern, Nigeria. Journal of Construction Business and Management, 1(2),
11-23.
Federation Internationale Des Ingenieurs-Counseils. (2017). FIDIC Red Book 2017 (2nd ed.).
Fenn, P., Lowe, D., & Speck, C. (1997). Conflict and dispute in construction. Construction
Management & Economics, 15(6), 513-518.
Illingworth, J. R. (2017). Construction methods and planning. CRC Press.
Kuang, L. C. (2012). Contractor's Dilemma in Suspending Works against Non-payment in
Construction Industry: Highlighting Possible Legal Issues based on PAM 2006 Standard Form of
Contract. Journal of Engineering and Technology (JET), 3, 99-112.
Pertubuhan Arkitek Malaysia. (2006). PAM Contracts 2006 [Ebook]. Kuala Lumpur. Retrieved
from https://theveritasdesigngroup.com/global_files/pdf/PAM_Contracts.pdf

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