Contract Document (IS05-LP02)

CONTRACT DOCUMENT

Information

Sheet IS05-Z-004-

LP02

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CONTENT

1.0 Introduction

2.0 Purpose

3.0 Content

3.1 Form of Tender

3.2 Conditions of Tendering

3.3 Letter of Acceptance

3.4 Conditions of Contract

3.5 Supplementary Clauses

3.6 Specifications

3.7 Preliminaries

3.8 Bill of Quantities

3.9 Contract Drawings

3.10 Construction Drawings

3.11 Shop Drawing

3.12 As-Built Drawings

3.13 Schedule of Rates

4.0 Appendices

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1.0 Introduction

A contract document consists of various documents, which are bound together, and to be
adhered to during the process of execution of the project. In this subject we refer to a
bound document between the client and the contractor. The document has to be signed by
both parties with witnessed and stamped.

2.0 Purpose

Contract document is a legal binding document that makes up a written guideline

between the client and contractor. It signifies the understanding between the parties on
their contractual commitment & relationship in project execution.

3.0 Content

Depending on the contractual arrangement between the parties, contract documents may
include the following, but not limited to:

3.1 Form of tender

This is form used during the stage of tendering. The tenderer would indicate the
amount offered (tender value) by and the completion time.

3.2 Condition of tendering

The condition of tendering is adopted differently by government and private sector.

This is a guideline for the contractor to participate in a certain tender. The basic
requirement is usually the availability of valid registration of contractor with CIDB
and PKK

3.3 Letter of Acceptance

This is a formal client’s acceptance of the contractor’s tender bid. In this

letter the client will state the tendered amount, construction

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period and other requirement needs that the client may want to impose on the
contractor. The usual requirements are as follows.

3.3.1 Insurances
Typical insurance needed in the contract are
a. Contractor’s all risks
Which consist of fire insurance, third party indemnity and insurance
of work.
b. Workmen Compensation
The period of coverage for the above insurances will be
through-out the contract period, plus the defects liability period. The
coverage shall be extended if the contractor is granted an extension of
time.

3.3.2 Performance Bond/Retention Fund

Performance bond is a guarantee by the contractor on its performance to
execute, ensure progress and complete the works. Performance bond
usually amounts to 5% of contract value.

Performance bond may be in the following form, but not limited to:
i. Bank Guarantee
ii. Insurance Guarantee
iii. Insurance Banker`s Guarantee
iv. Progress part payment retention
v. Cash deposit

Retention fund is a progressive amount retained from the progress

payment due to the contractor. The purpose of retention fund is to set
aside a fund in the event a third party contractor is required to undertake
or carry out the portion of works left undone by the contractor during the
construction period right until completion of defects liability period.
Any remaining amount of the retention fund will be released to the
contractor upon the expiry of defects liability period.

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3.3.3 Advanced payment bond

Advanced payment is payment paid out by the client to the
contractor/supplier ahead before the work/materials delivered.
Advanced payment is usually between 10% to 25% of builders work
or cost of materials. In order the contractor is eligible to obtain the
advanced payment, the contractor has to provide the client with a bond
or guarantee letter usually issued by local banks. The validity of the
bond will usually follow the contract period and will be automatically
becomes invalid once the recoupment of the payment is completed.
Recoupment is made via the progress payment and the formula adopted
is usually designed to match a full recoupment when the contractor has
achieved 50% or 75% (normal practice in Malaysia) of work progress.

3.4 Conditions of Contract

In all types of conditions of contract, there will be clauses concerning
following, amongst others:
 Parties and Obligations of parties to the contract
 Payment and Final Account
 Variation
 Non-completion of Works
 Delay and Extension Of Time
 Defects Liability Period or Maintenance Period
 Determination
 Dispute Resolutions
 Claims

The form of contract used shall be based on the procurement of the tender. The
administration of the contract shall be in accordance with the clauses provided in
the form of contract used.

There are several standard forms of contract in Malaysia namely:

 JKR 203 for contract based on drawings and specifications
 JKR 203A for contract based on Bills of Quantities
 JKR Design & Build form of contract

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 PAM/ISM form of contract

 CIDB form of contract
 IEM form of contract
 FIDIC form of contract

3.5 Supplementary Clauses

Supplementary clauses are additional add-ons to the original contract terms
usually added on after the contract has been awarded and signed. It is usually
done with the consent of parties, the client and the contractor.

3.6 Specifications
The specifications define the qualitative requirements of the project that is to be
built. They are ‘a detail description of requirements, dimensions, materials, etc.,
as of a proposed facility and further as the act of making specific’. The
specifications are intended to compliment the construction drawings by defining
the nature of the materials which are to be used and the description of the
workmanship and procedures to be followed in constructing the project.
Specifications are usually uniform and often termed as standard specifications.
The client may make a minor alteration or addition to certain items or schedule to
meet his needs.

The reality of the situation is that any number or factors can cause the
specifications in a project to change, name in the following two situations:

3.6.1 Firstly, when the client or consultants may decide to change the
specification of work from the original for reason of cost or time.
3.6.2 Secondly, a contractor may propose an alternative material or work
operation due to the same, e.g. cost saving or availability of supplies.

It is unrealistic to expect the specification to remain fixed throughout the life of

the project.

3.7 Preliminaries
Preliminaries are set of items or requirements by the client necessary to start the
project or for use throughout the construction period. Certain

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items are to be provided until the end of defects liability period. They are usually
priced by the tenderers in the first section of Bill of Quantities.

Typical items required in preliminaries are as follows, but not limited to:
a) Provision of Insurances
b) Provision of Superintending Officer(S.O) site office
c) Provision of Contractor’s Site agent/manager
d) Hoarding
e) Transportation
f) Progress report including Progress photograph
g) Boundary survey
h) Safety signboard

3.8 Bill of Quantities

A Bill of Quantities (prepared by Quantity Surveyor) is a document containing

detail of items of work and the quantities required for the projects. It is primarily
derived from the description and measurement of items translated from
document, such as drawings and specifications produced namely by the
Architect, Civil & Structural Engineer, M&E Engineer, Landscape Architect and
Interior Designer.

Often termed as BQ, it is issued during the tendering process for the tenderers to
fill and to price, and it will be a bound document once the tender is accepted and
awarded to the contractor. The BQ is usually subdivided into various sections
and sub-sections according to the activities of the works to be executed in the
project.

In normal practice, there are two types of BQ.

a. Provisional quantities BQ
The quantities shall be re-measured after the completion of the
activities.

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b. Firm quantities BQ
The bidder has to ascertain the correctness of the quantity given during
the tender stage by referring to the drawing and specification provided.

The payment shall be paid according to the quantity stated regardless of the
actual quantity executed on site.

3.9 Construction Drawings

Construction Drawings are provided to the contractor prior to the commencement

of construction works and during the stage of construction. Any discrepancies
between the tender drawings and construction drawings which are issued later,
there may be variations to the original contract. The construction drawings must
always be read together with the bill of quantities to ensure consistency in
quantity and description of work items.

The drawings express the purpose of delineating the architects’ and/or engineers’
intentions concerning the project that they have conceived and designed. The
drawings normally show the arrangement, dimensions, geometry, constructions
details, materials, and other information necessary for estimating and building
the project.

3.10 Shop Drawings

Shop drawings are details drawings prepared by the material suppliers or

fabricators. This is to ensure the contractor that the basic concept is acceptable
before actual fabrication begins. Shop drawings frequently contain information
that is relative only to the fabrication process or specialized in the field. The
approval is the scope of the duties and responsibilities of the architect or
engineer.

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3.11 As-Built Drawings

As-built drawings are a marked set of prints prepared by the contractor. As-built
drawings are contract drawing prints upon which the contractor or inspector
record all variations between the works as it was reported by the contractor as
having been actually constructed and the work as it was shown in the original
contract drawing as the existed at the time the contract was awarded. All change
orders should be reflected in appropriate marks on the as built drawings.

3.12 Schedule of Rates

In practice, the total of the tender sum arrived at in the 'summary of tender’ is
carried over and included in the 'form of tender’. Such sum therefore represents
the final tender sum, which is translated into the contract sum on award of the
tender. In view of its legal and contractual significance, the sum involved should
be prepared with due care and scrutinized for patent errors and arithmetical
checks before being included in the form of tender.

Schedule of Rates has been variously defined, the two common descriptions
being:
a. A list of unit items of work priced at a rate per unit - The schedule thus
formed is used in conjunction with the measurement of work to calculate
payment due
b. Contracts which do not include Bills of Quantities but rely on drawings
and specifications, require the contractor to submit a schedule of his rates
used to arrive at the tender figure in order that the variations can be
accurately and fairly valued

From the above two definitions, the following salient points can be extracted:
1) The Schedule of Rates is normally employed for a contract based on
drawings and specifications

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2) The primary purpose of the schedule is for its use in the valuation of
variation work undertaken during the construction stage of the project, and
3) Such a schedule may also be employed in 'Remeasurement' type of
contract where it is used for the dual purpose of tender evaluation and
payment to the contractor upon execution of the work

In preparing the Schedule of Rates, it is necessary to be mindful of matters as

listed below:
a. For the sake of effectiveness, the schedule should be as detailed as
possible, i.e. covering all major trades, equipment, elements, etc
b. Where it is intended to be used for the valuation of variation work, item
anticipated to be varied should be identified and listed out for
completeness.
c. For each item, the precise scope to be covered by the unit rate should be
indicated, e.g. 'design, supply, install, test and
commission' or merely design or supply or installation or testing and
commissioning. Such description should be unambiguous and
unequivocal leaving no room for future misinterpretation or dispute
d. Against each item, the unit rate involved should be clearly indicated,
e.g. per meter run, square meter, number, etc. Use of mere description of
'Lump Sum' should be avoided unless it is the most appropriate description
under the circumstances; and
e. Special care should be taken to use the latest schedule when adopting a
standard schedule of rate, e.g. the Standard Schedule of Rates for Building
Works

Furthermore, such a standard schedule may not be exhaustive. Hence, an

addendum schedule may be necessary to cover items of work not found in the
standard schedule but anticipated to be varied during the construction stage of the
project.

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3.13 Labour Schedule

Labour schedule has to be submitted by the contractor at the beginning of a

construction period and it must read simultaneously with the constructions
program. Labour means all workforces on site which consist of skill and
unskilled labourer, plant operators, foremen and site management personnel. To
be precise it may be shown daily, weekly and monthly. The usual practice is the
monthly labour schedule. Labour schedule may be split into the various trade
schedules for the month. The schedule may be altered along the construction
period depending upon the current condition and the progress of work.

3.14 Plant and Machinery Schedule

Similar to the above, this schedule is to be submitted by the contractor at the

beginning of a construction period and must be read simultaneously with the
construction program. To be precise it may be shown daily, weekly and monthly.
The usual practice is the monthly schedule. The schedule may be altered along
the construction period depending upon the current condition and the progress of
work. Plant and machinery schedule can be used for the estimation of expected
fuel consumption.

3.15 Daywork Rates

Another document that normally constitutes part of the tender documents is the
'Schedule of Daywork Rates'- Daywork rates are utilized to value varied work
which cannot be properly measured and for which consequently the contract
rates cannot directly apply. The basis of payment to the contractor is total cost
reimbursement. The 'day work rates' are 'essentially pre-determined rates of
skilled and unskilled labour’ as well as percentages of profits and overheads
which the contractor requires to be added to the prime cost of materials and plant
for the execution of the subject varied work"

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3.16 Others

Other documents that may be included (not limited to) in contract documents
are:-

a. Correspondence of pre contract award

b. Minutes of meeting which involve the contractor during pre contract
award.
c. Supporting documents submitted by contractor during tender stage.
d. Notice of Addendum (drawings, specifications and bill of quantities)

4.0 Appendices

Sample documents are to be provided where necessary.

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