This document discusses the key steps and legal considerations in forming a building contract through the traditional procurement system in Malaysia. It explains the process from invitations to tender, tender submissions, letters of intent and acceptance, estimation and quotation, and incorporation of contract documents. Case studies are presented to illustrate legal principles regarding mistakes in tenders, acceptance of quotations forming a binding contract, and letters of intent not creating a binding contract until formalization. Alternative procurement methods like design-build are also mentioned.

1. Formation of Building Contract

2. Process
 Invitations to tender
 Tender
 Letters of intent
 Estimation
 Quotation
 Letter of acceptance
 Incorporation of documents

3. Invitations to tender
 An invitation to treat
 Open tender-To the public-advertisements in
newspaper/website.
 By invitation-nominated contractor

4. Tender
 Constitute as a proposal from the contractor.The
acceptor shall be the client/employer
Belle River Community Are Inc v WJC Kaufmann
Co.Ltd
Facts: The def submitted a tender for the plf’s projects. Due
to serious error in calculation by the contractor, the
tender was much lower than intended.The plf’s architect
recommended acceptance but the def withdrew the
tender.The plf sued the def.

5.  CA: An offeree cannot accept an offer which
he knows has been made by mistake and
which afects a fundamental term of the
contract. Price is obviously one such term…
because of the mistake, is not the offer the
offeror intended to make and the offeree
knows that.

6. Estimation/Quotation
Ng Bros Construction v Kaolin (M)
Sdn.Bhd
Facts:The def wished to build an industrial complex at
Tapah, Perak. They requested the plaintiff to submit
a quotation. The plf sent the quotation and received
a reply which stated inter-alia:…”Thank you for
your quotation dated 15 December 1969. We are
pleased to inform that we have accepted your
quotation and therefore you may treat this letter as
our official order to you…we would also be
sending you at a later date an official contract
agreement …”. Subsequently, the def decided to
withdraw from the agreement.

7. Wah Hamzah J: “On acceptance of the
quotation, there was a contract binding on
both parties and any subsequent
disagreement between the parties on any
proposal to vary the terms of the contract did
not affect the contract and the contract
remains valid and binding.”

8. Methods of Procurement
 Traditional System
 Alternative method-Design and build,
management contracting

9. Building Procurement-
Traditional System
 Bill of quantities (BQ)
 Bills of Approximate BQ
 Drawings and specifications
 Based on schedule rates-standard schedule,
ad-hoc schedule, previous contracts BQ

10. Bill of Quantities
 Employer will normally appointed his architect and
qunatity surveyor for the project.
 The architect will prepare the drawing and
specifications.
 QS will prepare the Bill of Quantities based upon
the drawings and specification.The qs will come to
the estimated contract price.
 The contractor will be invited to submit tender and
those who come close/lower/ reasonable estimation
to the employer estimation will be chosen.

11. Bills of Approximate BQ
 Architect will prepare the
drawing/specification-not finalized
 The QS will prepare the BQ but not a
conclusive one-only the unit rates-no pricing

12. Drawings and specification
 No BQ is supplied to the contractor in the
tender-normally small project
 Contractor has to prepare estimation based
upon the drawings and spec. only

13. Schedule rates
 The tender contained the schedule rates in
which contractor should based their tender
estimation but tenderers are required to
tender percentage additions or deductions to
the the listed rates- similar to approximate
BQ.
 The schedule rates could be standard rates or
ad-hoc schedule.

14. Building procurement-
Alternative methods
 Design and build-package deal (turn key-build,
design, operate, maintenance-transfer
or merely design, build and transfer)
 Management contracting- involved
subcontracting the whole project.

15. Letter of intent
Ayer Hitam Tin Dredging (M) Bhd v YC Chin
Enterprise Sdn.Bhd.
 The Resp negotiated to carry out a turn key project for the
construction of low houses and shop houses for the app. The
app later sent a letter to the resp which stated that they
agreed to the proposals, subject to certain terms and
conditions. In reliance of the letter, the resp appointed
architects, engineers and surveyors and executed
preliminary works on site. Following a dispute, the app
instructed the resp to cease work and the resp claimed that
there is a contract between them.

16.  Supreme Ct (Ipoh): Per Edgar Joseph Jr. CJ:
”There is no contract …A binding contract
could be formed before an informal one was
executed but usually the use of the
expression ‘subject to contract' or a reference
to a formal contract would negate the
necessary intention to be bound at that
point.”

17. Letter of Comfort
 Klenwort Benson Ltd v Malaysia Mining
Corporation Bhd.(1989) 1 ALL ER 785.
CASE Review Exercise 1
Qn: Is there any difference between letter of intent
and letter of comfort?

18. Letter of Acceptance
 Section 7(a): Acceptance must be absolute
and unqualified.
Low Kar Yit& Ors v Mohamed Isa & Anor.
Per Gill J:”It is plain that a contract comes into
existence where there has been an unqualified
acceptance of a definite an unequivocal offer…”

19. Contract documents
 PAM 2006-Clause 3.1 (a)- (f)
COMPARE WITH
 PWD 203A (Rev 1/2010)- clause 1.0 (b)

20. Incorporation of document
 LoA
 Correspondences
 Instruction to Tenderers
 Form of Tender
 Conditions of contract
 Annexure to conditions of contract
 Specification and Drawings
 Schedule of Rates
 Appendices

21. Work Programme
• PAM 2006- clause 3.5-3.7
• PWD 203A (Rev 1/2010)- clause
12.0

22. Performance Bond and
Performance Guarantee Sum
 PWD 203A (Rev.1 /2010)- clause 13.1 (a)
 PWD 203A (Rev 1/2010)- clause 13(1)(b)
and 13(2)
 Rights of the Govt - PWD 203A (Rev
1/2010)- clauses 13.3 and 13.4
 Refund/Release - PWD 203A (Rev 1/2010)-
clause 13.5
 Forfeiture- PWD 203A (Rev 1/2010)- clause
13.6