Pp2 final report

SCHOOL OF ARCHITECTURE,
BUILDING AND DESIGN
BACHELOR OF QUANTITY SURVEYING (HONOURS)
PROFESSIONAL PRACTICE II (QSB 60904)
COURSEWORK 2 - PREPARATION OF FINAL ACCOUNT
NAME STUDENT ID
CHIN KE NI 0324021
GILLIAN CHONG YEONG LIN 0323941
KOK KA SHING 0323553
LOH MUN TONG 0323680
PUI CHUN SHIAN 0323470
TANG ZHI QIAN 0326987
YEONG POH LING 0323590
LECTURER: SR. EDDIE LIM SEK CHEON
DATE OF SUBMISSION: 29th
OCTOBER 2018

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Question 1.
The Letter of Award for the above works was issued for RM 81,200,000.00 based on the
tender sum submitted by the Contractor. As you were preparing the contract documents
for binding and signature, you found some errors in the rates for aluminium windows
works submitted by the Contractor, which were very low. Kindly advise the actions that
you will take.
(10 marks)
Answer:
In this case, the Letter of Award has been issued with the total tender sum of RM
81,200,000.00 however due to the carelessness of the Contractor for inserting the wrong rates for
the aluminium windows works, corrective action must be taken in order to ensure fair and
adequate rates for the Contractor.
As the Letter of Award is yet to be signed by the appropriate parties, the rate for the
aluminium works can be adjusted as stated in the PAM Contract 2006 (With Quantities) Clause
13.1 “The Contract Sum shall not be adjusted or altered in any way whatsoever, other than in
accordance with the express provisions of the Contract. Any arithmetical errors or any errors in
the prices and rates shall be corrected and/or rationalised by the Architect or Consultant without
any change to the Contract Sum before Signing of the Contract.” The provision granted by
Clause 13.1 dictates that the prices and rates can be manipulated before the signing of the
Contract however, it must not affect the Contract Sum.
The rationalisation of the prices and rates are to determine whether the itemised prices
and rates for the works stated by a selected tenderer or contractor in the tender document are
erroneous or if it is reasonable. If it is unreasonable, these prices and rates are to be rationalised
or adjusted to a reasonable level for acceptance by the contracting parties. Such practice also
enables reasonable spread of overheads and profit in the priced items of works over the entire

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construction project. In this case, rationalisation allows the rate of the aluminium windows works
to be increased to a reasonable rate while other rates can be lowered down to a reasonable price
provided that the Contract Sum is not affected.
The Contractors are at a liberty to determine their own pricing strategy in any way they
choose. This can lead to an unfair financial advantage. “Loading the rates” is unfortunately a
common practice amongst Contractors to increase rates for work in the initial or early stages and
reduce the rates in the later stages of work to allow for a high cash flow at the early stages of
work. This leads to a lack of incentive or interest in completing the remaining construction works
in the later stages. This is shown in a case of Sist Construction v State Electricity Commision of
Victoria [1982] VR 597 of 606, and Convent Hospital v Eberlin & Partners [1988] 14 Con LR 1,
the Contractor priced lower rate on items which they believe the actual quantities are likely to be
less than the quantity stated in the Bills of Quantities, and priced higher rate for the items where
they believe the actual quantities will exceed the original quantities stated in the said Bills of
Quantities, without altering his final tender price.
As a Consulting Quantity Surveyor, I will assist in correcting and rationalizing the rates
of aluminium windows works before binding and signing the Contract Documents. This aims to
rationalise or adjust the tendered prices and rates of the Contractor fairly and reasonably befitting
the work items concerned, including to correct any pricing errors and to avoid front loading
claims, without altering the Contract sum. By doing so, it can avoid, or at least, reduce
errors, inconsistencies, ambiguities and unreasonableness of priced rates when the contract is
formed and signed, thereby minimising any dispute in connection with pricing arising thereafter
during construction works progress. In conclusion whilst rates rationalisation when correctly
practiced at the construction project outset ensures fair play and reasonableness in tender prices
and rates, it can also be a subject of dispute if it is not or incorrectly practiced, particularly during
the works progress, when one party can take advantage of the other by manipulating the prices
and/or rates to their commercial advantage. Thus, by performing my part as a Consulting
Quantity Surveyor, I would prevent these issues by ensuring a fair, reasonable, and smooth
project Contract.

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Question 2.
In accordance with clause 30.10 of the contract, the contractor duly submitted his Final
Accounts within 6 months after the issuance of the Certificate of Practical Completion. You
are then required to assess this application and prepare the Final Account for the
apartment project based of the following valuations and adjustments made to the Contract
Sum:
(30 marks)
Information provided are as follows:
a. The Architect had granted the Contractor’s first application for extension of time
and approved additional insurance premium amounting to RM 30,000.00 in
accordance with clause 24 of the contract due to the delay in the completion of the
works caused by the Employer’s late decision on the toilet design.
In his second application for extension of time, the Contractor submitted an
application for extension of time due to exceptionally inclement weather and a loss
and expense claim for RM120,000.00 in his Final Accounts to you. The Architect
approved the extension of time as per Clause 23.8.

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b. The following are the nominated sub-contractor’s accounts:
Original P.C. &
Provisional Sums
NSC’s
Final account
i. Lift Services:
Profit @ 2%
Attendance as item
RM 1,300,000.00
RM 26,000,00
RM 20,000.00
RM 1,600,000.00
Ii. Air Conditioning Services:
Profit @ 2%
Attendance as item
RM 2,300,000.00
RM 46,000.00
RM 40,000.00
RM 2,200,000.00
iii. Electrical Services:
Profit @ 2%
Attendance as item
RM 2,700,000.00
RM 54,000,00
RM 50,000.00
RM 2,600,000.00
iv. Provisional Sums: Guard House RM 1,000,000.00 RM 1,250,000.00
v. Contingency Sum RM RM 2,064,000.00
RM 9,600,000.00

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Answer:
In the final account, the contract sum is deducted with the original prime cost and
provisional sums to obtain the total builder’s work. Apart from that, the variation works are
evaluated and added into the final account in accordance with questions c(i) to c(iv). Since the
original prime cost and provisional sums are omitted, the nominated sub-contractor’s final
account value is added in, where a 2% of profit and the attendance as an item was allowed.
However, for the guard house, a 2% of the value is added in as an attendance.
The contractor has applied for an additional expense claim for insurance premium. Since,
it falls in the provision of PAM contract 2006 (With Quantities) under relevant event stated in
Clause 24.3(a), whereby the late issuance of Architect's instruction is due to the employer's late
decision on toilet design which has substantially and materially affected the progress of work
based on the provided work programme, the claim was granted an amount of RM30,000.
The contractor has also applied for a claim of loss and expense under exceptionally
inclement weather. Exceptionally inclement weather is a delay caused by neutral event where the
suffered parties have to bear their own losses, hence, it does not fall under any relevant event
provided in the provision of PAM Contract 2006 (With Quantities) under Clause 24.3.
Therefore, the contractor is not entitled to claim for loss and expense for this event and the claim
is not approved. Based on the case example “Henry Boot Construction (UK) Limited v
Malmaison Hotel (Manchester) Limited”, the court concluded that in the event of concurrent
delay the contractor was entitled to an extension of time due to the relevant event; exceptionally
inclement weather, however he was not entitled for loss and expense due to his own fault where
he suffers shortage of labour, causing delay to completion date by a week.
The prepared Final Account and supporting documents are as attached. After the allowed
deduction and addition, the final contract value is RM 79,550,500.00.

Project : Construction and completion of apartment project.
Employer : One Service Republic Development Sdn. Bhd.
Contractor : A Plus Builders Construction Sdn. Bhd.
RM RM
1.0 Original Contract Sum 81,200,000.00
2.0 Less : P.C. & Provisional Sums 9,600,000.00
Total Builder's works 71,600,000.00
3.0 Add : Variation works (V.O.Nos. 1 - 4 )
Total Additions 33,000.00
Total Omissions (50,500.00)
Nett Additions (17,500.00) (17,500.00)
71,582,500.00
4.0 Add back : NSCs' final account
4.1 Lift Services 1,600,000.00
4.2 Air-Conditioning Services 2,200,000.00
4.3 Electrical Services 2,600,000.00
4.4 Guard House 1,250,000.00
7,650,000.00 7,650,000.00
4.6 Profit and Attendance
a. Profit @ 2% of RM 7,650,000.00 153,000.00
b. Attendance 135,000.00
288,000.00 288,000.00
5.0 Contractual Claims:
5.1 Additional Expenses 30,000.00
FINAL CONTRACT VALUE 79,550,500.00
FINAL ACCOUNT
Page 6 of 20

SUMMARY OF ORIGINAL CONTRACT SUM
1 Preliminaries 4,250,000.00
2 Building Works 62,850,000.00
3 Local Infrastructure Works 4,500,000.00
4 P.C. and Provisional Sums 9,600,000.00
TOTAL CARRIED TO
STATEMENT OF FINAL ACCOUNT
81,200,000.00
Item Description Nett Amount (RM)
Page 7 of 20

SUMMARY OF VARIATION WORKS
VO/1 Employer purchased Contractor All
Risk Insurance on behalf of
Contractor prior to the
commencement of work.
- - - Invalid variation. Payment to
be resolved by set-off thus the
amount is excluded in Final
Account.
VO/2 AI issued by the Architect to purchase
colour photocopier machine instead of
black and white
- 8,000.00 8,000.00 Valid Variation. Amount to
be included in Final Account
as an addition payment.
VO/3 Changes of Floor Finishes in lift
lobbies from Marble floor tiles to
Granite Floor tiles
(50,000.00) 20,000.00 (30,000.00) Valid Variation. Amount to
VO/4 Changes of quantity in rocks
excavation with revised rates and
quantities.
(500.00) 5,000.00 4,500.00 Valid Variation. Amount to
TOTAL CARRIED TO
(50,500.00) 33,000.00
Variation
Item
Description Omission (RM) Addition (RM) Remark
Nett Addition/
Omission (RM)
(17,500.00)
Page 8 of 20

SUMMARY OF NSC FINAL ACCOUNTS
NSC/1 Lift Services 1,300,000.00 1,600,000.00
Profit @ 2% 26,000.00 32,000.00
Attendance as item 20,000.00 20,000.00
NSC/2 Air Conditioning Services 2,300,000.00 2,200,000.00
Profit @ 2% 46,000.00 44,000.00
NSC/3 Electrical Services 2,700,000.00 2,600,000.00
Profit @ 2% 54,000.00 52,000.00
NSC/4 Provisional Guard House 1,000,000.00 1,250,000.00
Profit @ 2% 25,000.00
Attendance @ 2% 25,000.00
TOTAL CARRIED TO
Total NSC's Final Acount: 7,650,000.00
Total Profit: 153,000.00
Total Attendance: 135,000.00
7,536,000.00 7,650,000.00 135,000.00
Item Description
Original Sum
(RM)
NSC's Final
Account (RM)
Total Attendance
(RM)
Total Profit (RM)
153,000.00
Page 9 of 20

SUMMARY OF LOSS AND EXPENSES
1 Additional expenses for Insurance
Premium
24.3(a) Granted 30,000.00 Confirmed by Architect.
2 Claim under exceptionally
inclement weather
- Not Granted - No provision in contract for
Loss and expense for
exceptionally inclement
weather.
TOTAL CARRIED TO
Item Description
Clause Reference -
PAM 2006 (With
Quantities)
Granting of Loss
and Expense
Remarks
Amount Granted
(RM)
30,000.00
Page 10 of 20

SUMMARY OF EXTENSION OF TIME
1 Employer's late decision on the
toilet design
23.8(e) Granted X Granted by the Architect where
the event falls in the provision of
contract under relevant event
stated in Clause 23.8(e), whereby
the late issuance of Architect's
instruction is due to the employer's
late decision on toilet design
which has substantially and
materially affected the progress of
work based on the provided work
programme. Therefore, the claim
for extension of time is valid.
2 Claim under exceptionally
inclement weather
23.8(b) Granted Y Granted by the Architect where
the event falls in the provision of
contract under relevant event
stated in Clause 23.8(b), whereby
an exceptionally inclement
weather is anticipated. Therefore,
the claim for extension of time is
valid.
Item Cause of Delay
Clause Reference -
PAM 2006 (With
Quantities)
Granting of
Extension of Time
RemarksDays Granted
X+YTOTAL DAYS GRANTED FOR APPLICATION OF EXTENSION
OF TIME
Page 11 of 20

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C. You have to evaluate the following variations for final account:
i. The Contractor had priced RM 130,000.00 for the Contractor All Risk Insurance
policy in the Preliminaries Bills. The Contractor failed to purchase this insurance
when the works commence. The Employer, then, bought and paid for the said
insurance for RM 180,000.00 on behalf of the Contractor, for which the
Contractor agreed. The Employer wants to recover this cost.
(15 marks)
Answer:
Based on PAM Contract 2006 (With Quantities), Clause 20.A.1 states the Contractor is
obliged to procure a Contractor’s All Risk Insurance (C.A.R) policy and the insurance is required
to be maintained until the end of the Defects Liability period. Furthermore, according to Clause
20.A.3 of PAM Contract 2006 (With Quantities), the C.A.R Insurance policy purchased should be
provided from the insurance companies which have been agreed upon by both the Employer and
contractor. The Contractor has to provide the Employer with the policy and the receipt of the
premiums paid. If the Contractor fails to comply with the following, the Employer is allowed to
purchase the insurance policy on behalf of the Contractor and set-off the amount of the premiums
and any other costs incurred or paid by the Employer under PAM Contract
(With Quantities) Clause 30.4.
Clause 30.4 entitles the Employer to set-off all cost and loss and expense incurred where it
is expressly provided under the Clauses and one of them is Clause 20.A.3. However for the set-off
under Clause 30.4 to be made, the Employer has to abide by Clause 30.4(a) where it states that the
Architect or Quantity Surveyor(on behalf of the Employer) has submitted to the Contractor
complete details of their assessment of such set-off and Clause 30.4(b) where it states that the
Employer or Architect(on behalf of the Employer) shall provide a written notice delivered by hand
or registered post, specifying the intention to set-off the amount and the reasons for the set-off
within twenty-eight(28) days before the set-off is deducted by the Employer unless stated

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otherwise. Clause 30.4 also states that any set-off by Employer can be recovered from Contractor
as debt or any form of monies due or become due to Contractor under the Contract and/or from
the Performance Bond.
Hence, in this situation together with the fact that the Contractor also has agreed to the
Employer’s request the Employer is able to recover the cost he has paid for the C.A.R. Insurance
policy on behalf of the Contractor. Initially, the Contractor has priced for RM130,000.00 for the
C.A.R. Insurance policy in the Preliminaries Bills but the Contractor had failed to purchase it, in
which the Employer on the Contractor’s behalf has helped to purchase at RM180,000.00 and is
agreed by the Contractor.
Therefore, in return now the Contractor now owes the Employer RM50,000.00 provided
that the Employer has not paid the Contractor any amount for the insurance in the preliminaries
section. However, under Clause 30.11(f) the set-off by Employer provided under Clause 30.4
cannot be included in the Final Account and should be resolved separately between the Employer
and Contractor. There are two solutions for this case where the first is that the set-off can be
resolved before or after Final Account between the Employer and Contractor as debt via cheque
to prevent the delay in preparation of Final Account due to Clause 30.11(f). The second option
would be that the Employer will deduct the set-off from the Performance Bond under Clause 30.4.

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ii. Under the Preliminaries, the Contractor is required to provide a black and white
photocopier machine on site for the Resident Engineer’s use but this item was left un-
priced, i.e. BQ item was left blank in the rate/amount column in the contract
document. During the progress, the Architect instructed the Contractor to provide a
colour photocopier machine costing RM8,000.00 instead of the black and white one
as specified. Contractor submitted a variation claim for RM8,000.00.
(15 marks)
Answer:
According to Clause 11.1 in PAM Contract 2006, the term “Variation” means the alteration
or modification of the design, quality or quantity of the Works. The contractor’s claim can be
considered as a variation as the changes is requested by the Architect. Under Clause 11.1(a) the
addition, omission or substitution of any work; the Architect has instructed the contractor to
provide a colour photocopier instead of the black and white photocopier stated in the preliminary.
Under Clause 11.6 (c), where work is not of a similar character to as set out in the Contract
Documents, the valuation shall be at fair market rates and prices determined by the Quantity
Surveyor. In this case, the black and white photocopier was not priced in the Contract Documents,
therefore the Quantity Surveyor should determine the price of the black and white photocopier
based on fair market rates and prices in order to omit it from the preliminary.
According to Clause 11.6(e), the rates and prices in the Contract Documents shall determine
the valuation of items omitted. If omissions substantially vary the conditions under which any
remaining items of work are carried out, the price of such remaining items shall be valued by under
Clause 11.6(a), (b) or (c). As the black and white photocopier in the preliminaries section was
unpriced, the Quantity Surveyor shall omit the black and white photocopier item from the
preliminaries and add the colour photocopier and determine the price of the colour photocopier
based on Clause 11.6(a), (b) or (c).

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In conclusion, the Quantity Surveyor should omit the price of the black and white
photocopier based on fair market rates and prices and add the price of the colour photocopier which
is RM8,000. The price difference between the two photocopiers will constitute as the variation.
Lastly, the omission and addition of items shall later be included in the Final Account. In
accordance to Clause 30.11(a), the final account of works shall show the adjustment made to the
contract sum.

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iii. The Contractor had delivered to site all marble floor tiles needed for the lift lobbies
as specified in the contract and construction drawings. However, the Architect
decided to use granite floor instead and instructed the Contractor to remove all the
marble tiles from site. The Contractor paid RM 50,000.00 for the marble tiles. The
Contractor returned the marble tiles to the supplier but only managed a refund of
RM 30,000.00. The Contractor submitted a claim for the loss of RM 20,000.00 that he
suffered.
(15 marks)
Answer:
The Contractor had delivered to site all marble floor tiles needed for the lift lobbies which
is accordance with the contract and construction drawings. However, the marble floor tiles have
been delivered to site, but Architect decided to use granite floor instead. Therefore, the Architect
has instructed the Contractor to remove all the marble tiles from site. According to the PAM
Contract 2006 (With Quantities), it has allowed in Clause 11.1 (c) which states the removal of any
work executed or materials and goods brought to site which are not in accordance with the contract.
Besides that, the Architect decided to change the marble floor tiles to the granite floor. The
marble tiles have been listed in the Contract Document and the granite floor is not listed in it. In
this situation, the work must not be of similar character as set out in the contract documents which
is fall under Clause 11.6(c). The valuation shall use fair market rates and prices to be determined
by the Quantity Surveyor. In the case of Crittall Windows v T.J Evers (1996) 54 Con LR 66, the
court held that fair valuation which means a valuation will not give the contractor more than the
actual cost reasonably and necessarily incurred plus similar allowance for overhead and profit.

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The Contractor paid RM 50,000.00 for the marble tiles in according to contract documents
and construction drawings. The Architect has instructed the Contractor to remove all the marble
tiles from site, so the Contractor returned the marble tiles to the supplier but only managed a refund
of RM 30,000.00. The Contractor submitted a claim for the loss of RM 20,000.00 that he suffered.
In this situation, according to Clause 11.7 which states the valuation has clause or is likely or cause
the contractor to incur additional expenses for which he would not be paid under any provisions
in Clause 11.6. Therefore, the Contractor may make a claim for the loss of RM 20,000.00 that he
suffered such additional expenses provided always that Clause 11.7 (a) and Clause 11.7 (b).
Under Clause 11.7(a), it states when architect issue instruction to contractor to remove all
the marble tiles from site, contractor shall give written notice of his intention to claim such
additional expenses together with an initial estimate of his claim duly supported with all necessary
calculations. Such notice must be given within 28 Days from the date of AI or CAI giving rise to
his claim. The giving of such written notice shall be a condition precedent to any entitlement to
additional expenses. According to the Clause 11.7 (b), it states within twenty-eight 28 Days of
completing such Variation, the Contractor shall send to Architect and Quantity Surveyor complete
particulars of his claim for additional expenses together with all necessary calculations to
substantiate his claims. If Contractor fails to submit within the stated time, it shall be deemed that
the Contractor has waived his rights to claim for the loss of RM 20,000.00 that he suffered.
In conclusion, the Contractor can claim for the loss of RM 20,000 that he suffered. According
to Clause 11.8, it states the Contractor shall keep contemporaneous records to substantiate all his
claim for additional expenses under Clause 11.7 and submit all particulars to the Architect and
Consultants. The marble tiles price which cost RM50,000 will be put under Omissions in final
account based on Clause 11.9 in PAM Contract (With Quantity) 2006. The Contractor claim which
cost RM20,000 will be put under additional amount of variation works in final account based on
Clause 30.11(a) in PAM Contract 2006. In Final account, under variation work will additional for
the granite tiles price with omission of RM50,000 and additional amount of variation works of
Rm20,000 with net omission of RM 30,000.

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iv. Mistake was made in the price for excavation through rocks at RM50 per m3. Item
was not rationalised during contract documentation. However, original quantity in
BQ is 10 m3 but re-measured as-built quantity was 100 m3. The Contractor submitted
a claim for RM 55,000 based on a revised rates of RM 550 per m3 for the total
quantity of 100 m3.
(15 marks)
Answer:
According to PAM Contract 2006 (With Quantities) Clause 11.1, Variation means the
alteration or modification of the design, quality or quantity of the Works. It is also stated that it
excludes any changes intended to rectify any negligence, omission, default and/or breach of
contract by the Contractor and such changes shall be executed by the Contractor entirely at his
own cost. However, if there is any error on the rates in the Contract, it shall not be subjected to
any changes. Contractor is responsible to bear his own losses. All variation shall be evaluated
under the six rules listed in Clause 11.6. In this situation, it shall be referred to Clause 11.6 (b).
Under Clause 11.6(b), it stated that the rates and prices shall be appropriately adjusted
where the Variation work is of a similar character and is executed under similar conditions, but
there is a significant change in the quantity of work as compared to the quantity indicated in the
Contract Bill. In this case, there is a significant change of quantity with similar character of work
from the original quantity of 10 m3 to 100 m3 for excavation through rocks. Even though the
Contractor submitted the false rate for the work, a fair adjustment should be made by Quantity
Surveyor according to the original rates and price as stated in the Contract Bill of Quantities.
In accordance to Clause 13.1, stated that the contract sum is not allowed to be adjusted or
corrected in any way. Any arithmetical errors or errors in the prices and rates shall be corrected
and/or rationalised by the Quantity Surveyor without any change to the Contract Sum before
signing of the Contract. Hence, despite the errors in prices and rates for the works of excavation

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through rocks, the claim that was submitted by the Contractor shall be declined because all these
errors are not allowed to be amended after signing of Contract.
Based on the case of Henry Boot Construction Ltd v Alstom Combined Cycles Ltd (1999),
it held that errors in contract rates, whether it is unrealistic high or low, it should be applied to the
variation and will not be altered merely due to a substantial change in the quantity. The original
quantity of 10 m3 stated in the Contract Bills of Quantities shall be paid to the Contractor based
on the contract rates of RM50 per m3. and the remaining quantity can be adjusted based on fair
market price basis.
In conclusion, the Contractor is entitled to claim for 100 m3 rock excavation at RM50 per
m3 as stated in the Contractor Documents. This variation will result in the omission of the original
sum of RM500 and an addition of RM5,000 for the re-measured as-built rock excavation quantity
of 100m3 instead of 10m3 as allowed in the Bills of Quantities.

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References
Entrusty (2018), ‘Rates Rationalisation Practice in Construction Industry’.
Accessed on 21st October 2018 from : http://entrusty.com/?p=860
Entrusty (2018), ‘Construction Contract & Management Issues’.
Accessed on 21st October 2018 from :
http://entrusty.com/site/wp-content/uploads/2018/04/43.-Rates-Rationalisation-Entrusty-Article-
7th-Draft-6Dec14.pdf
Potts, K. (2008). Construction Cost Management - Learning from case studies. Retrieved
October 24, 2018, from
http://site.iugaza.edu.ps/kshaath/files/2010/10/Construction_Cost_Management_Learning_from_
Case_Studies.pdf
Tan, P. I., Low, K. S., Sum, J. P., & Chee, S. T. (2010). Handbook for PAM 2006 contract (First
ed.). Kuala Lumpur: Pertubuhan Akitek Malaysia.

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