Dec 12, 2013 ... memantau semua projek penswastaan dan Kerjasama Awam. Swasta (PPP)
serta .... business model, financial model and tariff / charges. ➢.
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Government Policy on Privatisation Guidelines on Privatisation 1985 – Pekeliling Am Bil. 2 Tahun 1985 (KSN) Pelan Induk Penswastaan 1991, PM’s letter to all Menteris Besar an Chiefs Minister 1991 & DG EPU’s letter 1993 Outsourcing - EPU’s letter dated 10 Oct 2007
PRIVATISATION CONTRACT Speaker: En Abdul Aziz Engan Legal Section, Public Private Partnership Unit, Prime Minister’s Department
More than RM25 million 7 years or more Charge to be imposed on to the public Require inter agency coordination Garis Panduan Perkongsian Awam Swasta 2009
(* The above list is NOT exhaustive AND since policies are subject to change there is a need to keep yourself abreast with the latest policy)
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PUBLIC PRIVATE PARTNERSHIP UNIT (3PU) On 22nd April 2009, Y.Bhg. Tan Sri Mohd Sidek bin Haji Hassan, the Chief Secretary to the Government, announced the establishment of a new unit under the Prime Minister's Department known as Privatisation and Private Finance Initiative Unit - PFI (currently known as Public Private Partnership 3PU) in line with the economic transformation effort towards being more competitive. Y.Bhg. Dato' Sri Dr. Ali bin Hamsa was appointed as the first Director General of 3PU. Now Dato’ Ahmad Husni Hussain is the current Director General of 3PU. 3PU is under the purview of the Prime Minister’s Department. Under Ministerial Function Order 2013 [P.U.(A)184/2013], the functions of 3PU are as follows: “merancang, menyelaraskan, menilai, merunding serta memantau semua projek penswastaan dan Kerjasama Awam Swasta (PPP) serta projek-projek pembangunan Koridor”.
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Objectives of Privatisation To relieve/reduce financial & administrative burden of Government Improve efficiency, increase productivity of services & Government enterprises Facilitate/promote economic growth in the economy through higher investment from the private sector (private sector as engine of growth) Reduce the size and presence of the public sector in the economy Help meet the restructuring objectives of the National Development Policy vis-à-vis the ownership pattern in the economy To encourage competition an efficiency in allocation of scarce national resources
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What Is Privatisation?
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Approaches Adopted GOVERNMENT INITIATED
Any measure resulting in the transfer to the private sector of activities or functions which have traditionally rested with the public sector involving one or combination of the following: entity activity e.g. management responsibility assets (with or without liabilities) / right to use assets personnel
Transfer can either be an outright transfer or for a certain concession period
Proposal are identified and submitted by Ministries or Government agencies to Unit Kerjasama Awam Swasta (UKAS) Government to determine mode of privatisation
PRIVATE SECTOR INITIATED
Proposal are identified and submitted by Ministries or Government agencies to Unit Kerjasama Awam Swasta (UKAS) Guided by the principle of choosing a feasible method which maximise private sector investment Private sector proposes mode of privatisation subject to negotiation with Government
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Jawatankuasa Kerjasama Awam Swasta (JKAS) Evaluation of overall privatisation proposal and submit recommendation to Jawatankuasa Tertinggi Awam Swasta (JTAS) and the Cabinet Members:
Key Process PLANNING Evaluation of privatisation proposal and getting the “right” business model, financial model and tariff / charges Negotiating the terms and conditions of privatisation agreement Getting the necessary approval and signing of concession agreement CONSTRUCTION/PROJECT IMPLEMENTATION
Unit Kerjasama Awam Swasta (UKAS) Economic Planning Unit (EPU) Ministry of Finance (MOF) Attorney General Chambers (AGC) Federal Lands Commissioner Department Valuation Department Relevant Ministry/Agency
Meeting the condition precedent (CPs) Commencement and construction Completion of works OPERATION Obligations of Government Obligations of concession company
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Jawatankuasa Tertinggi Awam Swasta (JTAS)
IMPORTANCE OF CONTRACT PREPARATION o Primary
Aim:
Evaluation of overall privatisation proposal and making recommendation to the Cabinet to be chaired by KSN
safeguard Government’s interest
Members: Unit Kerjasama Awam Swasta (UKAS) Economic Planning Unit (EPU) Ministry of Finance (MOF) Attorney General Chambers (AGC) Federal Lands Commissioner Department Valuation Department Relevant Ministry/Agency
o Government
is a big and consistent purchaser of goods and services
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Privatisation Committee Financial Committee
Evaluation of financial proposals and submit recommendation to JKAS Members: UKAS, EPU, MOF, AGC Valuation Department Relevant Ministry/Agency
Technical Committee
Evaluation of technical proposals and submit recommendation to JKAS Members: Relevant Ministry/Agency Relevant Technical Department
IMPORTANCE OF CONTRACT PREPARATION o Privatisation
sums of $$$
projects involve huge
o Privatisation
also involves transfer / lease of Government properties to concession company (e.g. land swap)
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Constitutional Issues Jurisdiction Federal Constitution 1. 2.
Articles 73-81 Ninth Schedule a. Federal List b. State List c. Concurrent List
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ARTICLE 69 (1) FEDERAL CONSTITUTION The Federation has power to –
EXAMPLE PRIVATISATION OF NATIONAL SEWERAGE SERVICES SCOPE:
• Acquire; • Hold; & • Dispose
- property of any kind &
Taking over the operations of the existing public sewerage systems within the various operational areas of all local authorities in Malaysia Manage, maintain, upgrade and refurbish existing sewerage systems Design, construct, finance and commission new public sewerage systems and operate and maintain
- to make contracts
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ARTICLE 69 (2) FEDERAL CONSTITUTION •
The Federation may:
• •
Sue & Be sued.
•
Capacity as a legal entity
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Constitutional Position Item 7 of the Concurrent List “public health, sanitation….” has been interpreted by Chamber to include “solid waste” Accordingly under Article 80(2) both the Federal or State Authority have the legislative as well as executive power over sewerage, solid waste management & public cleansing Effect if both legislate - Article 75 Federal Constitution Therefore new law has to be legislated to confer the executive power to the Federal Government
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EXAMPLE PRIVATISATION OF SOLID WASTE & PUBLIC CLEANSING
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Constitutional Position State List to Concurrent List Restructuring of water services industry and sewerage services 2007
SCOPE: Taking over the operations of the existing solid waste management & public cleansing within the various operational areas of all local authorities in Malaysia Manage, maintain, upgrade and refurbish existing solid waste facilities Design, construct, finance and commission new solid waste facilities and operate and maintain
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Constitutional Position Integrated solid waste management policy
Sewerage Services Act 1993 [Act 508] is repealed by Water Services Industry Act 2007 [Act 655] Establishment of Suruhanjaya Perkhidmatan Air Negara vide Suruhanjaya Perkhidmatan Air Negara Act 2007 [Act 654] Establishment of Pengurusan Air Berhad
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Identification of Existing Laws
Solid Waste And Public Cleansing Management Act 2007 [Act 672]
Does existing legislation permit privatisation?
Amendment of Local Government Act 1976 [Act 171], Street, Drainage and Building Act 1974 [Act 133] and Town and Country Planning Act 1976 [Act 172]
Whether new laws or amendments is needed - Depend upon: • Status of existing entity • the activity or functions to be privatised • mode of privatisation
Establishment of Perbadanan Pengurusan Sisa Pepejal dan Pembersihan Awam vide Solid Waste and Public Cleansing Management Corporation Act 2007 [Act 673]
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EXAMPLE RESTRUCURING OF WATER SUPPLY SERVICES SCOPE: Taking over the operations of existing public water supply services from various State Departments or its statutory bodies in West Malaysia & Labuan Manage, maintain, upgrade and refurbish existing water supply systems Design, construct, finance and commission new public water supply systems Operate and maintain
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Status of Existing Law Universities and University Colleges Act 1971 [Act 30] Section 6: Effect of Incorporation Order and general powers of a higher educational institution which is a University.
(1) If, the Yang di-Pertuan Agong is satisfied that it is expedient in the national interest that a Univ ersity should be established, he may by order— (a) declare that there shall be established a higher educational institution hav ing the status of a Univ ersity, which shall be a body corporate, for the purpose of prov iding, promoting and dev eloping higher education in all such branches of learning as shall be specified in the order; (b) assign a name and style to that Univ ersity; and (c) specify the location of the site which shall be the seat of that Univ ersity. (1A) The Yang di-Pertuan Agong may amend, v ary or rev oke an order made under subsection (1) by a subsequent order published in the Gazette. (2) An Order made under subsection (1) (hereinafter referred to as the "Incorporation Order" or (1A)) shall, at the next meeting of Parliament, be laid before both Houses of Parliament.
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RELEVANT ACTS/CIRCULARS
Section 7: Effect of Incorporation Order and general powers of a higher educational institution which is a University.
(1) Upon the coming into force of the Incorporation Order made under section 6, a higher educational institution having the status of a University, with the name and style assigned to it by the Order, shall be deemed to have been established, and by which name the Chancellor, the Vice-Chancellor and the members for the time being of the Board and the Senate shall be deemed to have been constituted a body corporate with perpetual succession and with full power and authority by and in such name—
•
Ministerial Functions Act 1969 [Act 2]
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Federal Lands Commissioner Act 1957 [Act 349]
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National Land Code; and
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Treasury Instructions (Arahan Perbendaharaan)
(a) to sue and be sued in all courts; (b) to have and use a common seal and to alter the same at its pleasure; (c) to purchase any immovable or movable property and to take, accept and hold any such property which may become vested in it by virtue of any such purchase or by any grant or donation, lease, subventions, legacies, testamentary disposition or otherwise; (d) to sell, lease, exchange or otherwise dispose of any such property not inconsistent with any condition or restriction as may be imposed by the Constitution; and (e) to exercise, discharge and perform all such powers, duties and functions as may be conferred or imposed on the University by this Act or the Constitution. (2) The powers conferred on a University by subsection (1) shall, unless otherwise expressly provided by this Act or the Constitution, be exercised by the Board. First Schedule: Constitution of the University
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STATUS OF EXISTING ENTITY
GOVERNMENT CONTRACTS ACT 1949 [ACT 120]
Established under Specific Act/legislation UPM – Univ ersity established under Univ ersity Putra Malaysia (Incorporation) Order 1971 [P.U.(A)387/1971]. The powers of UPM can be found in the Constitution of the Univ ersity Putra Malaysia [P.U.(A) 106/1998]/ P.U.(A) 448/2010].
•
“All contracts made in Malaysia on behalf of the Government shall, if reduced in writing, be made in the name of the Government of Malaysia and may be signed by a Minister or by any public officer duly authorized in writing by a Minister, either specially in any particular case, or generally for all contracts below a certain value in his department or otherwise as may be specified in the authorization.”
UITM - Univ ersity established under Univ ersity Teknologi Mara Act 1976 [Act 173] o
Section 4: Powers of the Universiti
UM – Univ ersity established under Univ ersity of Malaya Act 1961 [Act 682] o
Section 3: The Constitution shall, upon the appointed day, take effect and have the force of law within Malaysia.
Established under Companies Act 1965 [Act 125] UIAM – Univ ersity established under the Companies Act 1965 [Act 125] o
Section 2 of Act 120
Need to look at the Memorandum of Association (MOA) of the University.
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RELEVANT ACTS/CIRCULARS •
•
•
Government Contracts Act 1949 [Act 120] Financial [Act 61]
Procedure Act 1957
Minister of Finance (Incorporation) Act 1957 [Act 375]
PARTIES TO GOVERNMENT CONTRACT Refer to – •
SPP 8/1995 – perenggan 4
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SPP 5/2007 – perenggan 46
•
Ensure that the signatory has the authority to sign the contract
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FORM OF CONTRACT
CONTRACTS ON BEHALF OF A STATE GOVERNMENT
• A contract may be oral or written.
Section 3 Act 120 (1)
(2)
• However it is advisable that a contract be written to avoid later disputes as to what terms were actually agreed upon.
All contracts made in Malaysia on behalf of a State Government shall, if reduced to writing, be made in the name of the Government of that State, and may be signed by the Chief Minister of the State, or by any public officer duly authorized in writing by the Chief Minister, either specially in any particular case, or generally for all contracts below a certain value in his department or otherwise as may be specified in the authorization.
• A written contract should therefore contain all the terms and conditions agreed upon between the contracting parties in respect of the work/services.
(2) In the application of this section to Sabah and Sarawak "Chief Minister" includes any State Minister.
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TYPES OF CONTRACT
AUTHORIZATION Section 9 Act 120 Authorization shall be in the appropriate form set out in the Schedule
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Procurement of goods- examples:
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Purchase of office equipment (computers, printers, stationery, office furniture etc)
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Purchase of vehicles (e.g. aircrafts)
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Purchase of license to use software
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TYPES OF CONTRACT
SCHEDULE Authorization under Section 2 and 3 Act 120 “ I Minister / Chief Minister …..hereby authorize…..to sign the contract between the Government of Malaysia/ the Government of the State of…..and…….for……….(describe the particular contract)” Signed…………… Minister/Chief Minister/Minister of State of…..
•
Tenancy Agreement
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Rental of office buildings/premises for the use of Government from private party.
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Renting of Government buildings to private sector
• •
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Lease Agreement Lease of Government’s land (title held by Federal Land Commissioner (FLC)) to private sector/company Services Agreement Consultancy Services Cleaning Services Photostate Services Security Services
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Forms Of Privatisation
TYPES OF CONTRACTS •
Procurement of services (purchase of skill or manpower) examples:
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Building maintenance services (e.g. cleaning of office premises)
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Consultancy services (e.g. to conduct study on specific subject matter)
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Computer maintenance services (hardware and software)
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Hybrid - both procurement of goods and services
Privatisation can take number of forms. Selection of appropriate form will depend on the nature of the activities to be privatised and factors which are of significance to the activities concerned (e.g business model): Complete Privatisation entire ownership or control of existing enterprise, activity or service is transferred from public to the private sector
Partial Privatisation portion of equity or ownership is transferred or sold-off & Government still maintain the other portion
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TYPES OF CONTRACT Privatisation Agreement Toll Roads Hospitals Support Services Ports Construction of Government's asset (building) ICT Agreement Software Developing, Testing, Commissioning Maintenance of Hardware
Continue … Selective Privatisation a selection or part of the services provided by the Government is sold-off Commercialisation and privatisation Leasing specific facilities leased for a specific period for the use of the facilities (renting out of specific facilities in return of specified payment)
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Continue … Management Government retains ownership and control but the know-how and management expertise is required from private sector
Outsourcing/Contracting out Provision of certain services or activities without any change in the organisation
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Salient terms
Continue … Careful consideration before selecting services and interest to be privatised Its viability and potential of profitability Evaluation of costs and benefits of privatising services and activity Feasibility of fragmentation Special characteristics of services i.e. security implications Social objectives Employees
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1.
Build-Operate-Transfer (BOT)
2.
Build-Own-Operate (BOO)
3.
Build and Transfer (BT)
4.
Build-Lease-Transfer (BLT)
5.
Build-Lease-Mantain-Transfer (BLMT / BLMOT)
6.
Sale of Equity, Assets or Business (SOE or SOA)
7.
Management Buy Out (MBO)
8.
Services contract / Management Contract (MC) / Outsourcing
9.
Land Development:
11.
Contract Manufacturing
Concession agreement Company
Lenders
Build-Operate-Own (BOO) Concession Company will be given a concession to design, build, complete and operate and maintain for a concession period and the concession company will own the project
Government Concession agreement
Lenders
Government is only interested in output (services) and make payment for the services rendered Subject to rapid to technological change or its useful life is shorter (junk/scrap)
Company
Not necessary on Government land Upon expiry of the concession the Government can take over for a price to be negotiated with the concession company
(a) Land Swap (b) Long term Lease (c) Land exchange
Off-take
Government
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Modes Of Implementation
10.
BOT (Highway)
Grant of concession Condition precedent Estimated cost Toll Finance/shareholding structure Design/construction/Oper ation Step in right Default/termination/cons equences of termination Expropriation
E.g: Independent power producer (IPP), biometric identification (Immigration), neurosurgery equipment (MU), environment monitoring services
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Build and Transfer (BT)
Build-Operate-Transfer (BOT) Government Concession Company will be given a concession to design, build, complete and operate and maintain for a concession period
Concession agreement Lenders
Strategic asset to the country
Company
Company to design, build and transfer to the Government upon Lenders completion
Demand risk is with the company and not the Government Useful life of the asset goes beyond the concession period At the end of the concession period, transfer it back to the Government at no cost
Government
Concession agreement
Company
Upon handing over the Government may appoint another company to operate it
E.g: highways, ports, rail, waste to energy
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Build-Lease-Transfer (BLT) Government Concession Company will be given a concession to design, build, complete and operate and maintain for a concession period
Concession agreement
Lenders
Lease the land and facilities to the company
Company is valued on its asset, business, goodwill and liabilities. Sale of equity is basically sale of shares. If it is not profitable, then only asset are sold whereas in some other projects both asset and liabilities are sold
Company
Sale of assets - assets are sold but the Government takes over the liabilities and sell a clean company for a purchase price. For a strategic activity for company, Government retains a golden share to take care of national interest, policy and security
Government will pay sublease rental (a.k.a deferred payment) At the end of the concession period, transfer it back at no cost E.g: Government Building in Putrajaya
E.g: PERWAJA, MARA HOLDINGS, Penang Port
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Build-Lease-Mantain-Transfer (BLMT) Government Concession Company will be given a concession to design, build, Lenders complete and operate and maintain for a concession period Lease the land and facilities
Sale of equity/asset/business (SOE/SOA)
Concession agreement
Company
Management Buyout (MBO) Divestment or sale exercise of a company where the personnel are normally the management teams intends to hold equity of the said company. In most cases a portion of the shares of the company will be sold to the MBO team
At the end of the concession period, transfer it back at no cost
e.g: UDA, MARDEC, PERDA E.g: UiTM, HWKK, HPKK, Pagoh Education Hub, etc.
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Build-Lease-Mantain-Transfer (BLMT) -Campus Government
Salient terms
Grant of concession Concession Condition precedent agreement Estimated cost Availability Payment Lenders Company Maintenance Payment Maintenace Reserved Fund Land Matters Finance/shareholding structure Design/construction/Operation Substituted Entity (lender’s step in right) Default/termination/consequences of termination Expropriation
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Off-take Company is appointed to undertake to do certain obligation Government will provide a guarantee/capacity and make payment No transfer of asset at the end of the concession E.g: University Perdana, plasma fractionation
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Services contract/Management/Outsourcing
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Method of Privatisation
Company is appointed to undertake to do certain obligation
Project Category
Government Agency will make payment for the services rendered
New Project
Method
Build-Operate-Transfer (BOT) Build-Own-Operate (BOO) Build-Lease-Manage-Transfer (BLMT) Build-Transfer (BT) Land Swap
No transfer of asset at the end of the concession E.g: Federal Government building maintenance services, road maintenance services, managed ICT services, Hospital Support Services.
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Leasing Company is appointed to provide facility and Government will make payment based on usage of the facility
No transfer of asset at the end of the concession
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Method of Privatisation Project Category
Method
Sale of Equity or Sale of Assets (SOE/SOA) Lease of Asset (LOA) Management-Buy-Out (MBO) Management Contract (MC)
Existing Project/ Activities
E.g: Medical equipment enhancement tenure (Government clinics), broadcasting equipment, MES (Government Hospital)
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Land Development
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Joint Venture
Company to construct the buildings & develop the land. The company to be given another piece of land to the value of the development to be undertaken
What is Joint Venture?
Under a long term and lease arrangement, the company shall develop and lease from the Gov for certain period of time
What is the difference between JV and Partrnership?
Land development agreement involves a tripartite agreement between Sykt. Hartanah, Gov and the company E.g: Projek Rumah Guru, Mindef Projects
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Continue … JV is - an association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation. JV vs Partnership? a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. A joint venture is – (a) contractual business undertaking between two or more parties. (b) Individuals
or companies choose to enter joint ventures in order to share strengths, minimize risks, and increase competitive advantages in the marketplace. (c) Joint ventures can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses. In a collaboration, for example, a high-technology firm may contract with a manufacturer to bring its idea for a product to market; the former provides the know-how, the latter the means.
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Continue …
Letter of intent
Generally JV Contract consists the following features: (a) (b) (c) (d) (e)
(f)
specifies their mutual responsibilities and goals. the parties must be specific about the intent of their joint venture as well as aware of its limitations. involve certain rights and duties. The parties have a mutual right to control the enterprise, a right to share in the profits, and a duty to share in any losses incurred. Parties have fiduciary responsibilities, owes a standard of care to the other members, and has the duty to act in good faith in matters that concern the common interest or the enterprise (a fiduciary responsibility is a duty to act for someone else's benefit while subordinating one's personal interests to those of the other person). A joint venture can terminate at a time specified in the contract, upon the accomplishment of its purpose, upon the death of an active member, or if a court decides that serious disagreements between the members make its continuation impractical.
What is Letter of Intent (LOI)? Oxford Business English Dictionary: A formal letter in which somebody states what they intend to do about something. It is not a promise or a legal contract but shows that they are serious about it. [In summary LOI is an expression in writing of a Party’s intention to enter into a contract at a future date and it has no binding effect as the LOI is subject to a formal contract to be entered between the parties.] Two characteristics of LOI: The expression to enter into contract in future; The LOI will create no liability to that future contract.
a) b)
References for Letter of Intent Surat Pekeliling Perbendaharaan Bil. 5 Tahun 2007 (SPP Bil. 5/ 2007)
i)
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SAMPLE OF LOI – SPP 5/2007
EXAMPLE… DBKL JV’s Agreement consists of the following: Consideration – Project Land Value, Minimum Guaranteed Profit, Additional Profit Land Matters; DBKL’s option to purchase; Housing Development Account (for the purposes of depositing progressive payments, all moneys whatsoever, received from the purchaser or end financiers in respect of the residential unit); Commercial Escrow Account (for the purposes of depositing progressive payments, all moneys whatsoever, received from the purchaser or end financiers in respect of the commercial unit); Bumiputera’s purchasers & discount;
Dear Sir, ...............................................……………………………………………………… ……………………………………………………………………………………………….. With reference to your tender for the above mentioned *Supply/Services /Works, the Government of Malaysia wishes to indicate to you that generally the terms of your tender are acceptable to the Government. 2. The Government however is unable to accept your tender without further discussion/negotiation with you in relation to other specific terms of the proposed Contract, in particular the terms relating to the following matters: *2.1 *2.2 *2.3 *2.4 *2.5 *2.6 *2.7
tender price; financing of the proposed contract; local/Bumiputera participation; transfer of technology/training of locals; terms of payment; local content - in respect of eg. materials, travel, transportation, insurance etc.; .............................................................................
3. For the purpose of discussion/negotiation, the Government proposes to arrange a series of meeting between the Government's representatives and yourselves. Please indicate officially your agreement to discuss/negotiate *within ............. days from the date of this letter. If you do agree, the dates for the meeting will be determined later. 4. This letter is considered as a GOVERNMENT SECRET and cannot be made known to others. 5. This is a letter of intent and shall not be construed to bind the Government in any manner whatsoever.
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Sample of Letter: Dengan segala hormatnya saya merujuk perkara di atas. 2. Dimaklumkan bahawa Kerajaan telah bersetuju secara prinsip [**nama syarikat/tuan] melaksanakan ...........[nama projek]................... tertakluk kepada terma dan syarat yang akan dirundingkan antara Kerajaan dan pihak [syarikat/tuan] dan perkara-perkara berikut: (a) Kerajaan tidak bertanggungan terhadap apa-apa kos atau perbelanjaan yang ditanggung oleh pihak [**syarikat/tuan] akibat daripada apa-apa tindakan yang diambil oleh [**syarikat/tuan] lanjutan daripada persetujuan Kerajaan; dan (b) Kerajaan juga berhak (reserves the right) untuk tidak meneruskan atau menangguhkan pelaksanaan cadangan projek atau menukar/mengubah pelaksanaan cadangan projek sama ada dari segi skop dan kos projek. Dalam keadaan ini, Kerajaan tidak bertanggungan terhadap apa-apa kos atau perbelanjaan yang ditanggung oleh [**syarikat/tuan] sekiranya projek tidak diteruskan, ditangguhkan atau pelaksanaan projek ditukar/diubah atau apa-apa kelewatan di pihak Kerajaan berhubung pelaksanaan cadangan projek dan keadaan tersebut tidaklah dengan apa-apa cara sekalipun melayakkan [**syarikat/tuan] untuk membuat sebarang tuntutan gantirugi atau pampasan terhadap Kerajaan.
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3. Sehubungan itu ditegaskan persetujuan secara prinsip ini oleh Kerajaan tidak boleh dianggap mengikat dalam apa cara sekalipun sehingga rundingan mengenai terma dan syarat perjanjian dimuktamadkan dan perjanjian mengenainya ditandatangani oleh pihakpihak. Sekian, terima kasih. ‘BERKHIDMAT UNTUK NEGARA’ Saya yang menurut perintah,
(..................................................) [Ketua Setiausaha/Ketua Jabatan] * peringkat keselamatan RAHSIA/SULIT/TERHAD hendaklah ditentukan oleh Kementerian/Jabatan berkenaan dan ditanda di penjuru atas sebelah kiri dan hujung bawah sebelah kanan setiap muka surat bergantung kepada peringkat keselamatan dokumen (rujuk perenggan 48 Arahan Keselamatan). **
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Turiff Construction Ltd v Regalia Knitting Mills Ltd 9 BLR 20 QBD 20 “A letter of intent would ordinarily have two characteristics one, that it will express an intention to enter into a contract in future and two, it will itself create no liability in regard to the future contract.”
Ayer Hitam Tin Dredging Malaysia Bhd. v Chin Enterprise Sdn. Bhd. [1994] 3 CLJ 133 (SC) “…But it is now settled that when an arrangement is made “subject to contract” or “subject to the preparation and approval of a formal contract” and similar expressions, it will generally be construed to mean that the parties are still in a state of negotiations and do not intend to be bound unless and until a formal contract is exchanged.”
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In the case of Ayer Hitam Tin Dredging Malaysia Bhd. v Chin Enterprise Sdn. Bhd. [1994] 3 CLJ 133 (SC) the Supreme Court held as follows: (1) The existence of an agreement depends upon the intention of the parties, who must be ad idem. It may be inferred from the language used, the parties' conduct having regard to the surrounding circumstances and the object of the contract. The court will generally apply an objective or reasonable man test. (2) Merely because the parties contemplate the preparation of a formal contract, that would not prevent a binding contract from coming into existence before the formal contract is signed. However, when an arrangement is made 'subject to contract' or 'subject to the preparation and approval of a formal contract', it will generally be construed to mean that the parties are still negotiating and do not intend to be bound until a formal contract is exchanged. But it is now well settled that when an arrangement is made 'subject to contract'(see Rossdale v Penny) or 'subject to the preparation and approval of a formal contract'(see Winn v Bull) and similar expressions, it will generally be construed to mean that the parties are still in a state of negotiation and do not intend to be bound unless and until a formal contract is exchanged. We say 'generally' because in exceptional circumstances, the 'subject to contract' formula w ill not be so intractable as alw ays and necessarily to prqvent the formation of a contract. (see, for example, Richards (Michael) Properties Ltd v Corp of Wardens of St Sav ious's Parish Southw ark, Alpenstow Ltd v Regalian Properties pic, Filby v Hounsell)." Hav ing said that, how ever, we consider that the case which is especially relev ant to the facts and circumstances of the present appeal is Crossley v Maycock where Sir George Jessel MR said: “If the agreement is made subject to certain conditions then specified or to be specified by the partly malting it or his solicitor, then until those conditions are accepted, there is no final agreement such as the court w ill enforce.” A letter of intent would ordinarily have two characteristics, one, that it will express an intention to enter into a contract in future and, two, it will itself create no liability in regard to that future contract. We would add that we hav e not overlooked the fact that the plaintiff had, after the receipt of the letter of 19 September 1984, conducted itself as if it considered that a contract binding in law had been concluded, as ev idenced by the steps it had taken in that direction to which I've have referred. How ever, this does not really assist in deciding the question of construction of the letter of 19 September 1984 for reasons w e now giv e.
potong jika/mana yang tidak berkenaan.
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Issue Whether LOI is binding and whether any liability shall attach to the person who issues the LOI
Halsbury’s Laws of England, Volume 9(1) stated: “an agreement in principle is no agreement at all. To bind the parties, a contract must be concluded in all its fundamental terms, with nothing left to negotiate”
Moria and Another v Bednash [2011] All ER (D) 87 (Apr); [2011] EWHC 839 (Ch) “It is common ground that an agreement “in principle” is one that is not intended to be binding i.e an agreement that is subject to contract”
Where the words in a letter of intent clearly refers to the execution of a contract being a future event, or where the parties clearly conduct themselves on the footing that no contract has been concluded, the letter of intent cannot be regarded as a contract. On the other hand, where the letter of intent indicates that both parties intend that it should be enforceable, and it does not refer to the execution of a formal contract in the future, the letter of intent can constitute an agreement between the parties. [[1994] 4 CLJ xxxviii, LETTERS OF INTENT: INTENDING THE UNINTENDED?, Pawancheek B Marican]
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Quantum Meruit When one party has performed services and/or works but there has been no agreement on the price or payment terms. The Contractor often commences the works on the basis of, among others, a letter of intent. Quantum Meruit means ‘the amount he deserves’ or ‘what the job is worth’. It is a claim for a payment for the work executed where no price has been agreed or quantified, and usually a claim being assessed in a ‘reasonable sum’, ‘reasonable remuneration’, ‘fair market rates’, ‘fair commercial rates’ or on similar terms. [What is a Quantum Meruit Claim?; The Entrusty Group]
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Even if both parties expect a formal contract to eventuate, but one party requests the other to commence work, the work done is treated as having been done under the expected contract, and if no contract is entered into, the party carrying out the work at the request of the other, can claim payment of a reasonable sum for work done under the principle of quantum meruit. [[1994] 4 CLJ xxxviii, LETTERS OF INTENT: INTENDING THE UNINTENDED?, Pawancheek B Marican]
Quantum Meruit is essentially in restitution for unjust enrichment Cases: British Steel Corporation v Cleveland Bridge & Engineering Co Ltd (1984) 1 All ER 504; Ban Hong Joo Engineering & Construction Sdn Bhd v Standard Quality Sdn Bhd (2011) 9 MLJ 117; Syarikat Binaan Utara Jaya v Koperasi Serbaguna Sungai Gelugor Bhd (2009) 1 CLJ 786
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Claim for quantum meruit in restitution is usually presented as an alternative claim if indeed there is no contract. It is a quasi-contractual claim under which the claimant merely seeks to be compensated for an amount representing the reasonable sum of the work which he has already completed. Section 71 of the Contracts Act 1950 [Act 136]/ Quantum Merit “Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.”
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Section 71 of Act 136 is referred to should there be a claim for any works done pursuant to LOI. However, such claim may only be awarded based on the following conditions: The works must be lawful; ii. The works must be done for/ delivered to the Government; iii. Not intending to do so gratuitously; and iv. The Government enjoys the benefit thereof. [See New Kok Ann Realty Sdn. Bhd. v. D & C Bank [1987] 2 MLJ 57] i.
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Ayer Itam Tin Dredging Malaysia Berhad v. YC Chin Enterprise Sdn. Bhd. [1994] 2 AMR 32:1631, the learned Judge, Edgar Joseph Jr SCJ referred to judgment of Judge Fay in Turriff Construction Ltd. and Turriff Ltd. v. Regalia Knitting Mills Ltd. [1971] 9 BLR 20 (QBD). In Ayer Itam’s case the Plaintiff has done some work for the Defendant and therefore was entitled for quantum meruit’s claim.
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EXAMPLE MJM: Tuntutan kos perbelanjaan oleh UEM Group Berhad akibat penarikan balik tawaran konsesi projek jambatan Pulau Pinang Ke-2 (2013) Based on series of letters between GOM and UEM there is nowhere stated that UEM will execute the Work stated in the LOI at their own risk, cost and expense and that the GOM will not be responsible. Therefore, AGC was of the view that section 71 CA 1950 (QM) is applicable.
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4 conditions necessary to establish a claim under Section 71 Contract Act 1950: a. b.
c. d.
The work was lawful; The said work was done for another person (the employer) He did not intend to do it gratuitously His undertaking of the work was such that the other person (i.e the employer) enjoyed the benefit of the same
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KERAJAAN .......................... LETTER OF ACCEPTANCE OF TENDER Sir, Tender For ....................................................................………… You are hereby informed that your Tender for the above-mentioned Works in the sum of Ringgit .................................. i.e RM ................. is accepted subject to the terms, conditions and stipulation of the Documents upon which the Tender is based and of this Letter. 2. You will be required to execute in due course a formal Contract Agreement. However, until the formal Contract Agreement is executed your tender together with this Letter of Acceptance shall constitute a binding Contract between yourselves and the Government. 3. You are required to choose a mode of Performance Bond from either one of the following: (i) Bank Guarantee/Islamic Bank/Bank Pembangunan Malaysia Berhad; or (ii) Finance Company’s Guarantee; or (iii) Insurance Guarantee/Takaful; or (iv) Retention Money {being a 10% deduction from every interim payment until it amounts to 5% of the Contract Sum.
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Letter of award/Letter of Acceptance
83 4. The date for possession of the site, as referred to in the Conditions of Contract, shall be ..........................… However, you can only commence work after submission to the Government or the Superintending Officer the following: (a) Insurance Policy for Public Liability (i.e insurance against injury to persons and damage to property) of an insured value not less than RM ......................... (b) Works Insurance Policy: RM
What is Letter of Award/Letter of Acceptance (LOA)? Written confirmation of an award of a contract by the Government to the contractor stating the acceptance by the Government and the contract sum agreed. It has legal binding effect. The format of the LOA is provided for in the SPP 5/2007. a) b)
It is to affirm the acceptance of the offer based on tender etc… It is important that the agreed terms and conditions agreed must be spelt out clearly in the LOA.
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SAMPLE OF LOA SPP 5/2007 LETTER OF ACCEPTANCE OF TENDER (WORKS) CONTRACT NO.: .........................…………………………………… 20...….... or the under-mentioned works entered into on the day of ...................... 20.…….. by the undersigned parties, refers to this Letter of Acceptance of Tender which is and shall be read and construed as part of the said Contract.
(c) Registration numbers of employees under the Social Security Scheme (SOCSO). However, for the purpose of commencement of the Works and no other, you may provide to the Superintending Officer the Cover Notes of the said insurance policies and the receipts of premium paid thereof. You are required to deposit the relevant insurance policies (if not already submitted) in accordance with paragraph 4 above, within thirty (30) days after the cover notes are provided. 5. If you choose the mode in paragraph 3(i) or 3(ii) or 3(iii), you have to provide the performance bond to the value RM ………………. and if you fail to provide the Performance Bond as in Paragraph 3(i) or 3(ii) or 3(iii), the Government shall automatically impose the Retention Money mode. 6. Failure to commence the Works within two (2) weeks from the date of possession of the site shall result in termination of the Contract as stipulated in Clause 51(b)(i) of the Contract terms. 7. Based on the Tender Completion Period of .......... days/weeks/months*, the Date of Completion for the whole Works under this Contract is 8. This letter is sent to you in duplicate. Please return the original, duly signed and witness, where indicated, to this office within seven days from the date of this letter.
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LETTER OF ACCEPTANCE OF TENDER (SUPPLY/SERVICE) Dear Sir, ............................................................………………………………………… ……………………………………………………………………………………………... *1. (A) With reference to your tender for the above mentioned *Supply/Serv ices, the Government of Malaysia hereby is pleased to inform you that the Government has agreed to accept your tender. *1. (B) With reference to your tender for the abov e mentioned *Supply/Services, and negotiations held between the Government's representatives and yourselves on the .................. at ................................. w hereby it was agreed by both parties that the terms as contained in the Annexure hereto be deemed to be part of the terms of tender and w hich terms of tender shall, to the extent of incorporating the terms as contained in the Annexure, be modified, the Gov ernment of Malaysia hereby is pleased to inform your that the Government has agreed to accept your tender as modified. 2. With the Government's acceptance of your tender you are advised that there is now a binding Contract between the Government and yourselves. A formal Contract will subsequently be executed incorporating all the terms of tender as modified. You w ill be notified by the Gov ernment w hen the Contract Documents are ready for your signature.
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3. Please be reminded that in accordance with the *Conditions of Tendering your are required to do the following: *3.1 to deposit with the Government, a Performance Bond in the form of an irrevocable Bank Guarantee/Finance Company’s Guarantee/ Insurance Guarantee from a Bank/Finance Company /Insurance Company established in Malaysia in the amount of ............................ being two and a half percent (2.5%) or five percent (5%) of the Tender Sum within fourteen (14) days from the date of this letter; *3.2 to deposit with the Government, Insurance Policies and within ............................. from the date of this letter and to produce for inspection of receipts for the premium paid; *3.3 ........................................................................................... Any failure to comply with the requirements of paragraph 3 within the stipulated time, unless expressly waiv ed by the Government, will render this acceptance revoked and thenceforth the Government shall not be liable to you in any way whatsoever. *4. The date for supply/services, as referred to in the Conditions of Contract, shall be ...................... but no supply/services under this Contract shall commence unless and until you have complied with the provision of paragraph 3 above. *5. This letter is sent to your in *duplicate/triplicate. Please return *original/and second copies duly signed and witnessed where indicated to this office within .......... days from the date of this letter and retain one copy.
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Yours truly, ..............................…………….. (Signature of Officer) Name in Full : .......................... Designation : .......................... The undersigned hereby acknowledges receipt of the above letter, a copy of which has been retained and confirms that *no terms, conditions or stipulations additional to those contained in the Tender Table Documents have been imposed by the issue of the said letter/the contents of paragraph 1(B) above constitutes the totality of the undersigned's tender. ..................................... ...............................…… Signature Of Contractor Signature of Witness Name in Full : ...........….. Name in Full : ................ Address : ............…. Address : ................ ...........….. ................ ............…. ................ ............…. ................ Contractors' seal or chop Date : ....................... Date : ....................... *Delete/Modify/Add Wherever Necessary
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Memorandum of Understanding (‘MOU’) The term MOU by itself connotes that it is only a memorandum witnessing the mutual understanding or intention of the parties to do a certain act or to enter into a certain arrangement, usually upon the occurrence of certain other events. It is usually a preparatory agreement for preliminary arrangements and therefore it is generally not treated as a valid and enforceable contract that enjoys the binding effect under the law.
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A memorandum of understanding (MoU) is a document describing a bilateral or multilateral agreement between two or more parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. It is a more formal alternative to a gentlemen’s agreement. Whether or not a document constitutes a binding contract depends only on the presence or absence of well-defined legal elements in the text proper of the document (the socalled “four corners”). The required elements are: offer, consideration, intention (consensus ad idem), and acceptance. It also depends on the intention of the parties at the time of signing it. The Court will apply the general rules of construction to unveil the true intentions of the parties. Here, the Court’s duty is to construe the documents as a whole and to determine from its language and any other admissible evidence its true nature and purport.
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Issue: SPP 5/2007 WORKS - “You will be required to execute in due course a formal Contract Agreement. However, until the formal Contract Agreement is executed your tender together with this Letter of Acceptance shall constitute a binding Contract between yourselves and the Government.” SUPPLY/SERVICE - “With the Government's acceptance of your tender you are advised that there is now a binding Contract between the Government and yourselves. A formal Contract will subsequently be executed incorporating all the terms of tender as modified. You will be notified by the Government when the Contract Documents are ready for your signature.” Does it really necessary to have a written contract after the execution of the contract pursuant to the above LOA? Based on the above statement, the contract is concluded between the parties and written contract becomes a formality.
Discrepancies/inconsistencies between the LOA and the contract the LOA .
Sia Siew Hong v Lim Gim Chian (1995) 3 MLJ 141 Gopal Sri Ram JCA held that the label of the document chosen by the parties does not bind the court. The court has to construe the nature and purport from its language and other admissible evidence to decide the relationship between the parties. Ismail Mohd Yunos v First Revenue Sdn Bhd (2000) 5 MLJ 42 –based on the construction of the document the court held that the MOU is binding.
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Abdul Rahim bin Syed Mohd v Ramakrishnan Kandasamy (Wan Ahmad Azlan bin Wan Majid & Anor, interveners) and another action [1966] 3 MLJ 385 at pp 400-401 Visu Sinnadurai J, said: It appears to me that considering the memorandum of understanding as a whole, and in particular, in considering the objective of the MOU, and particularly the 'genesis of the agreement', and the intention of the parties at the time of the signing of the memorandum of understanding, the memorandum of understanding is not a legally binding agreement. It is no more than an agreement to negotiate, and as such, it is unenforceable.
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Kam Mah Theatre Sdn Bhd v Tan Lay Soon [1994] 1 MLJ 108 (SC) The Supreme Court allowed the appeal and held that: (1) There was no contract at all, because the said document was dependent on the signing of a formal contract to be further negotiated and approved by both parties. The prov iso in the said document was very similar to the phrase or formula of 'subject to contract'. There need not be the v ery words of the said formula in order to hav e the usual effect arising from the use of such formula. (2) The words 'usual terms and conditions' failed to rev eal certainty and were too ambiguous. What would be the usual terms and conditions remained largely a matter of conjecture, thus the words would create uncertainty unless a contract containing these agreed 'usual terms and conditions' had been signed by the parties. (3) It is settled that the formula of 'subject to contract' gives rise to a strong presumption of the necessity of a further formal contract and it requires cogent ev idence to displace this strong presumption. On the facts of this case, there was cogent ev idence to show that negotiations were still ongoing between the parties, including: (i) the prov ision of the return of the deposit on the failure of the parties signing the contract by 18 March 1989; (ii) the agreement which was signed by the plaintiff only, containing two more conditions; (iii) there could hav e been a further amended draft of the ultimate agreement to take account of withdrawal of the compulsory acquisition ov er part of] the land; and (iv ) the correspondence after the date of the said document.
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Lim Hong Liang & Anor v Tan Kim Lan @ Tan Kim Leng & Anor [1997] 5 MLJ 157
95 Kheamhuat Holdings Sdn Bhd v The Indian Association, Penang [2006] MLJU 183 COA
I n this case the MOU could be div ided into tw o parts: I n this case Recital 2 and 3 of the MoU prov ide: (i) (ii)
it prescribed the introduction of profitable companies (the target companies) to be injected into UCM; and the intended sharing of benefits consequent to the injection.
The plaintiffs claimed that the MOU was a legally binding contract, and claimed from the defendant's compensation in respect of breaches of the MOU committed by the defendants. On the other hand, the defendants contended that the MOU w as not a legally binding contract, and as such the plaintiffs had no enforceable rights. The MOU prescribed the nomination of the target companies by the defendants and to enter into bona fide negotiations in respect of the sale and purchase agreement with the target companies. This, the defendants failed to do. I n a nutshell the Court held that: 1. 2.
3.
The Court’s duty is to construe the documents as a whole and to determine from its language and any other admissible evidence its true nature and purport. It w ould then be prudent to consider the terms of the MOU and see whether the parties intended to enter into a legally binding relationship, the breach of which would give rise to enforceable rights as claimed by the plaintiffs. I n other words, the court w ill have to determine from its language and any other admissibly ev idence its true nature and purport. In this regard, the admissible ev idence to be considered would be the CABD, which was agreed to by both parties for the purpose of determining the issue as framed. MOU to be subject to a formal contract to be executed by both parties after the finalization of the terms and conditions. Until such time, the MOU is not intended to be legally binding on the parties. I n this respect, the Supreme Court in Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprise Sdn Bhd [1994] 2 MLJ 754 at p 765 said: “But it is not well settled that when an arrangement is made 'subject to contract'(see Rossdale v Denny [1992] 1 Ch 57; (1921) 90 LJ Ch 204) or 'subject to the preparation and approv al of a formal contract' (see Winn v Bull (1877) 7 Ch C 29) and similar expressions, it will generally be construed to mean that the parties are still in a state of negotiation and do not intend to be bound unless, and until a formal contract is exchanged.”
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CONTD… Crossley v Maycock (1874) 43 LJ Ch 379; (1874) LR 18 Eq 180 where Sir George Jessel MR said: If the agreement is made subject to certain conditions then specified or to be specified by the party making it or his solicitor, then until those conditions are accepted, there is no final agreement such as the court will enforce.
It would seem clear from the various clauses referred to by me that the MOU was an agreement to contract or an agreement to negotiate. In this respect, Lord Denning MR in Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd & Anor [1975] 1 WLR 297 at p 302 held: …. I think we must apply the general principle that when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract.
In MN Guha Majumder v RE Donough [1974] 2 MLJ 114, the learned judge at p 116 said: “It is a well-established rule that the parties must make their own contract, and this means that they must agree to its terms with sufficient certainty. If the terms are unsettled or indefinite, there will be no contract (Chitty on Contract (23rd Ed) Vol 1 para 83).”
“2. And w hereas the Association had decided to develop the said land by selling part of it with the prior approval of the General body at an E.G.M together with the consent of the High Court on terms mentioned herein (hereinafter reffered to as “the said proposal”) 3. And w hereas it is the intention of the parties herein to enter into this Memorandum of Understanding subject to: (a) Obtaining the consent of the General body to the said proposal; (b) Thereafter the consent of the High Court; (c) A final Agreement being concluded between the parties after their lawyers have studied and advised on the matter; and (d) To any amendments that may be made by the Association to the Building plans submitted by the said Company.” The MoU env isage an agreement to be concluded between the parties and that agreement to be binding on the parties and not the MoU. Perusing the MoU as a w hole, the Court held that the MoU itself subject to a formal agreement which was to be negotiated, prepared and agreed by the parties through their respective solicitors. Therefore, the MoU is not a contract and not legally binding. I t w as only and agreement to negotiate. As long as substantial terms and conditions remained to be agreed and fulfilled then there cannot be a concluded or enforceable contract as stated in the case of Kam Mah Thetyre Sdn Bhd v Tan Lay Soon (1994) 1 MLJ 108 (SC) and Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprises Sdn Bhd (1994) 2 MLJ 754 (FC) (in Ayer Hitam’s case and the present case both the LOI and MoU require certain conditions to be fulfilled and one of the conditions is to execute formal agreement. Thus, the court in both cases concluded that the LOI and MoU are nothing more than a basis for negotiations and the parties do not intend to be bound by the them until a formal agreement is executed).
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Contract Implementation (CI) - Duration Contract must be for a definite period. However, its duration varies from one contract to another. Nevertheless, it must for a reasonable period taking into consideration, among others, the nature of the contract, implementation period, amount of investment spend by the parties as well as return of investment expected at the end of the contract period.
Taking into consideration the totality of the terms and conditions set out in the MOU, the Court in this case the parties did not intend to create a legally binding contract in view of the various approvals that needed to be obtained and the various uncertainties and the process off negotiations that needed to be carried out.
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Extension of time GR: The company (“the contractor”) is under a strict duty to complete the works on time unless he is prevented or hindered from doing so by the Government (“the employer”) (e.g. delay in giving site possession). Failure to complete the work within the stipulated time will expose the contractor to action taken by the employer against the contractor such as LAD and/or common law damages or if the breach is serious enough the contract may be terminated. However, if the employer agrees to extend time for completion, the employer effectively fixes a new or revised date for completion and in the process preserves the contractor’s obligation to complete the works under the contract by the said date.
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Treasury has issued Surat Arahan Perbendaharaan (SAP) dated 16 Mei 2007 which does not allow extension of time to be given to the contractor. Nevertheless, an exception is given only in cases whereby the delay is caused by something which is beyond the control of the contractor such as: a) b) c) d) e)
f) g) h)
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Basic principle: extension of time can be given only if there is an express provision which permits the employer to do so. Example of contracts that provide clause on extension of time are: clause 23.0 PAM Contract (With Quantities), JKR Forms 203 and 203A (Rev 1/2010), clause 49.0 of the PWD Form DB (Rev 1/2010), clause 44 of the IEM.CE 2011 Form and clause 24 of the CIDB Form (2000 edn). In summary, these contracts provide for matters such as, the extent of the contract administrator’s power to extend time, the relevant events for which extension of time may be given, the procedures applicable, assessment and granting of extension of time etc…
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Issue: What if there is no express provision that allows EOT to be given?
Force Majeure Keburukan cuaca luar biasa; Kelewatan/kerosakan yang disebabkan oleh mana-mana perkara luar jangka yang disebut dalam kontrak; Arahan yang diberikan oleh Pegawai Penguasa yang m engakibatkan penangguhan projek; Kelewatan disebabkan oleh Pegawai Penguasa berpunca daripada arahan, lukisan, penamaan subkontraktor/pembekal yang diperuntukkan dalam kontrak atau kelewatan yang disebabkan oleh Kerajan dalam melaksanakan kerja kemahiran yang tidak m enjadi sebahagian daripada kontrak; Kelewatan m emberi m ilik tapak bina m engikut kontrak; Apa-apa tindakan berpunca dari penyatuan pekerja-pekerja setempat atau m ogok atau tutup pintu; atau Kontraktor tidak berupaya kerana sebab-sebab yang tidak dapat dikawal dan diramal olehnya dengan m unasabah.
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Contract Administrator should pay heed to the rule set that that in the absence of clear words to the contrary, the extension of time should only be granted in respect of events which appear likely to cause a delay in the completion or actually delay completion, and not for those which merely disrupt the works. Hounslow London Borough Council v Twickenham Garden Developments Ltd (1971) Ch 233 at 263 Syarikat Tan Kim Beng & Rakan-Rakan v Pulai Jaya Sdn Bhd (1992) 1 MLJ 42
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The onus is on the contractor to substantiate his claim, it is necessary for the application to be as comprehensive as possible by including details such as, the cause(s) of the delay, the appropriate contract reference, the details of the effect of the delay on the work programme and the progress of the delay, the estimated length of the delay, the steps taken by the contractor to minimise or mitigate the delay and an estimated of the extension of time required. This should be supported by documents, contemporaneous records, details etc… to make the application complete, accurate and comprehensive so as to enable the contract administrator to undertake a proper assessment and decide on the said application.
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DELAY One of the contractor’s primary obligations is to complete the works under the said contract by the date for completion stipulated therein (or any rev ised date). Should the contractor fail to do so and he is not contractually entitled to any extension thereto, he is regarded to be in culpable delay and consequently in breach of contract. The contractor may face claims for damages from the employer in regard to the loss and/or expense caused to him consequent from the said delay. The employer may recov er such damages: (a) pursuant to any express contractual term; or Express prov ision of the contract: Liquidated Ascertained Damages and Section 75 CA 1950 (b) under the law (statutory prov ision and common law) Express prov ision of the law/common law – Contract Act 1950: Section 74 CA 1950
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Section 75 Contract Act 1950 When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Termination of contract may also be one of the consequences if the delay is a serious repudiatory breach.
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LIQUIDATED ASCERTAINED DAMAGES Based on Surat Arahan Perbendaharaan dated 18 Mac 2011, Liquidated Ascertained Damages will be imposed to all contractor (including Bumiputera contractors). Financial contractual remedy: The general rule is that the financial contractual remedy can be recovered only if there is an express clause in the contract permitting the same. The sum claimed must be genuine pre-estimate of the loss and/or expense and no more.
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Procedure under JKR Contract 2010 Project Director (PD) can issue Certificate of Non Completion (CNC) immediately when PD is of the opinion that the Works ought to have been completed and the Contractor failed to complete the Work; Upon issuance of CNC, LAD can be imposed without the need for PD to issue prior notice. LAD can be imposed when the PD issues CNC. Issuance of CNC constitutes sufficient notice under section 56(3) of Contract Act 1950. This is in line with the Court’s decision in the case of Hock Huat Iron Foundry v Naga Tembaga Sdn Bhd (1999) 1 CLJ 89
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SS Maniam v The State of Perak (1957) MLJ 75; Wearne Brothers (M) Ltd v Jackson (1966) 2 MLJ 155; Linggi Plantations Ltd v Jagatheesan (1972) 1 MLJ 89 The effect of section 75 CA 1950 is that the Plaintiff is disentitled from recovering simpliciter the sum fixed in the contract whether as penalty or liquidated damages and must prove the damages suffered by him unless the sum is a genuine pre-estimate. The above interpretation of section 75 CA 1950 was confirmed by Federal Court in the case of Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy (1995) 2 MLJ 817 and Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd (2009) 6 AM R 733. The court in the Selva Kumar’s case further added that where the court finds it difficult to assess damages for the actual damage as there is no known measure of damages, and yet the evidence clearly shows some real loss inherently not too remote, the words in section 75 in question (i.e. whether or not actual damage or loss is proved to have been caused thereby)will apply. In any event the damages awarded must not exceed the sum named in the contractual provision.
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The above cited cases are not applicable for construction contract involving housing which is governed under Housing Development (Control and Licensing Act) 1966 (Act 118). In such cases, the right to be paid liquidated and ascertained damages stipulated in the agreement arise automatically once the failure to hand over possession by the developer and there is no obligation on the part of the purchaser to give notice to the former the same.
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Due to the decision of the Federal Court, there is a trend to draft and incorporate into the contracts, express provisions meant to overcome the effects of the said decision which is inimical to the employer. E.g.: Clause 45.3 of the PWD Form DB (Rev 1/2010) “The Liquidated and Ascertained Damages stated in Appendix 1 shall be deemed to be a reasonable amount of loss which the Government will suffer in the event that the Contractor is in breach of this clause. The Contractor by entering into this Contract agrees to pay the Government the said amount(s) if the same become due without the need of the Government to prove his actual damage or loss.”
It is worth to take note that although such provisions are valid if freely entered into by the parties (see Phillips Hong Kong Ltd v Attorney General of Hong Kong (1993) 61 BLR 41), these are however strictly interpreted by the courts with the probable use of the contra proferentem rule of constructions. In Johor Coastal’s case, the majority decision left the possibility that the parties may contract out of section 75 CA 1950 by using clear provision to this effect.
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IMPLIED OBLIGATIONS Full co-operation with contractor This necessitates the employer discharging his obligations in time as prescribed in the contract (if stated), or within a reasonable time (if time not stated). E.g. acquisition of land, obtaining planning permission/other statutory consents, giving site possession and access, furnishing necessary information, details or plan, the issuing of relevant instructions, approvals or consents etc… to the contractor.
Non-hindrance of the contractor The employer should not hinder the contractor’s performance under the contract. E.g. of hindrances include ordering of additional variation works, failing to give consents or approval in time, delay or failure to effect payment, failure to appoint contract administrator.
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Express provision of the law (Contract Act 1950)
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Obligations of appointment and nominations
Section 74 Contract Act 1950 – “(1) When a contract has been broken, the party who suffers by the breach is entitled to receiv e, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. (2) Such compensation is not to be giv en for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract (3) When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receiv e the same compensation from the party in default as if the person had contracted to discharge it and had broken his contract. Illustration: (f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conform to the contract.
It is generally implied that in a construction contract, the works thereunder will be supervised by a “qualified person”; the breach of this obligation is a statutory offence (by-laws 5 and 28 Uniform Building By-Laws 1984). Should the contract administrator so appointed ceases to act or becomes incapable to act, it is the obligation of the employer to appoint a replacement forthwith. In the event that the contract administrator on record fails to perform satisfactorily and this has a material impact on the execution of the contract, the employer has an obligation to timeously dismiss and appoint a suitable replacement.
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Site possession and access
Main obligation of the parties Employer’s Obligations Types: Express Obligations – as provided expressly by the contract Implied Obligations
The employer is obliged to give the contractor possession and sufficient access to the site. In giving the contractor site possession, the employer is regarded to have given the contractor what amounts in law to be a contractual licence to occupy the site for the purposes of the contract and no more and subject to the terms of the contract. Being a mere contractual licence, it can be revoked by the employer following the contractor’s breach of its terms or upon its lapse. Otherwise, any interference by the employer with the contractor’s possession will be a breach of contract which entitling the contractor to the applicable remedies (Tan Hock Chan v Kho Teck Seng (1980) 1 MLJ 308)
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The licence given by the employer should be free from any encumbrances which would affect the contractor’s execution of the works under the contract. The employer must give the contractor sufficient possession of site to allow him to perform his work as envisaged in a satisfactory manner and unimpeded by others. If there is any restrictions to the said licence, these should be expressly spelt out. The failure of employer to give effective site possession entitles the contractor to rescind the contract and claim for damages (see Federal Court decision in Tan Hock Chan v Kho Teck Seng (1980) 1 MLJ 308 – squatters are regarded as encumbrances). Alternatively, the contractor can accept late possession, i.e. he affirms the contract but is still entitle to additional time and costs claims (subject to any express provisions in regard thereto in the contract).
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IMPLIED OBLIGATIONS OF CONTRACTOR To undertake all work which is indispensably necessary for the completion of what is expressly stipulated (Williams v Fitzmaurice (1858) 3 H & N 844). To execute all his work under the contract in a proper and workmanlike manner using reasonable skill and care (Hancock v BW Brazier (Averley) Ltd (1966) 2 All ER 901) If the contractor undertakes to design, it must be fit for their purpose (M High Mark (M) Sdn Bhd v Patco Malaysia Sdn Bhd (1985) 28 BLR 129). Even where the contractor merely undertakes works designed by the employer he is also under an implied obligation to warn the latter of any defects or shortcomings in the design of which he becomes aware (Brunswick Construction Ltd v Nowlan (1974) 21 BLR 27).
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IMPLIED OBLIGATIONS OF CONTRACTOR
Piecemeal site possession? Whittal Builders Co Ltd v Chester le Street DC (1987) 40 BLR 82 held that the contractor must be given possession of the whole site. Exception: The contract stipulates expressly to the contrary (e.g. clause 21.3 PAM Contract 2006 (With Quantities) OR the parties so agree mutually. Access The contractor has an implied right of access to the site in so far as access is controlled by the employer i.e. the employer is obliged to allow full and unrestricted access to the site via an appropriate route.
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Handover of documents The employer is under obligation to prepare and hand over to the contractor a number of documents to enable him to commence his works under the contract. E.g. : letter of delegation of power, duly executed and stamped contract documents, a set of construction drawings (other than design and build) etc…
Implied liability to the employer in respect of the works of subcontractors and suppliers Implied obligation to carry out the works by employing safe working methods (Lim Seow Wah & Anor v Housing & Development Board & Anor (1991) 1 MLJ 386) To warn the employer of any breaches or nonconformances with the applicable laws or regulations that he becomes aware of.
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VARIATIONS Owing to the inherent nature of a construction contract, the precise scope that needs to be undertaken by the contractor may not be capable of being ascertained prior to the award of the contract and therefore not provided for in the contract. There may be a further necessity for extra or different type of work to be executed by him during the currency of the contract when the requirement for the same becomes apparent.
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NATURE & SCOPES “Variation” is generally defined to mean any change to the works as specified originally in the contract. Item specifically provided for in the contract are not variations and the contractor cannot recover extra payment for these although he may not have thought at the time of contracting that it would be necessary for the completion of the contract. In deciding whether an item of work constitutes a variation or not, the vital question to ask is whether or not the parties intended at the time of entering the contract for the item in question to be part of the contract scope of works and the contract price. In Russell v Viscount Sa Da Bandeira (1862) 13 CBNS 149, the works which are indispensably necessary to give effect to the parties’ intention at the time of contracting are generally not considered to be strictly variations. Thus, it is trite that whether any change made to the works constitutes a legally valid and enforceable one has to be established in relation to the particular contract provisions and the applicable common law principles.
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For a variation to be valid, it must meet both the procedural and legalities requirements. Procedurally, the usual requirement is the order must be in the form of instruction issued by an authorised person (Taverner & Co Ltd v Glamorgan CC (1941) 57 TLR 243; Antara Elektrik Sdn Bhd Sdn Bhd v Bell & Order Bhd (2002) 3 MLJ 321). Preferably the order for variation is in written form. The authorised person is empowered either under the contract or through formal letter of delegation of power issued by the employer after the award of the contract.
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Categorisation of variation based on legal basis: Common law – “extra-contractual”; variations crystallise outside the ambit of the particular contract but under the general corpus of the law e.g. quantum meruit under section 71 Contract Act 1950 Contractual – arises under specific express provision
Categorisation of variation based on nature Additions Omission Hybrid (additions + omission)
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ISSUE What if VO was given without authorisation by the Government? How to remedy the situation?
Categorisation of variation based on consequences and effects Financial Effect Time Implication Hybrid (Financial + Time)
Ratify the contract administrator’s act or by conduct (e.g. a promise to pay)
Categorisation of variation based on identity of the initiator/source Employer Contractor
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CONTRACTUAL VARIATION For a variation to be tenable in law it must be contractually valid. The consequences of a valid variation are that the duty of the contractor to comply with it. Court in R v Peto (1826) 1 Y & J 37 held that neither the employer nor the contract administrator (as the agent of the employer) had an implied right or authority to order variations or to alter the contract in any way (Stockport Metropolitan Borough Council v O’Reilly (1978) 1 Lloyd’s Rep 595; Tan Eng Hoe v Liang Hooi Kiang (1961) MLJ 119). Where such an order is given and acted upon by the contractor, the employer is contractually not liable to pay for the works done unless he authorised or ratified his contract administrator’s act or unless a promise to pay can otherwise be implied (Rusell v Viscount Sa da Bandeira (1862) 13 CB (NS) 149; section 135 CA 1950).
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Any changes ordered must not render the varied works materially and substantially different from the works contracted for (Scope of Work). Otherwise, it can be considered as “cardinal changes”. Such cardinal changes can be in the form of financial changes, physical changes, or a combination of the two (Wegan Constructions Pty Ltd v Wodonga Sewerage Authority (1978) VR 69; Yong Mok Hin v United Malay States Sugar Industries Ltd (1967) 2 MLJ 9). It is pertinent to note that since a “cardinal change” is invalid by law, there is no duty of compliance on the contractor. Should the contractor nevertheless carry out such works, the contractual rates governing the same are not applicable and the contractor has a right to new rates (Ettridge v Vermin Board of District of Murat Bay (1928) SASR 124; Sir Lindsay Parkinson & Co v Commissioners of Works & Public Buildings (1950) 1 All ER 208).
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130
ISSUE
To comply with Arahan Perbendaharaan (AP) which provide for extend of variation to be allowed and its procedures.
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Should the variation fall under the contractual scope of variations and the issue of a valid variation order has been made to the contractor, contractor is obliged to comply with the order unless the contractor challenges the variation order or officially registers his objection to it. Failing to comply amounts to breach of contract and the employer may determine the contract should the contractor persistently refuse to comply with the order.
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Properly ordered variations which have been carried out by the contractor as instructed have to be measured and valued by the contract administrator before the commensurate payment is disbursed to the former. The valuation made is either based on a specific formula expressly stipulated in the contract; mutually agreed on specific formula or based on the common law principles for the valuation of the varied work (Thorn v London Corporation (1876) 1 App Cas 120). The court in case of Canterbury Pipelines v Christchurch Drainage Board (1979) 16 BLR 76 held that for varied work which falls within the ambit of the contract, this must be valued using the formula/rules stipulated in the contract, there being no right of refusal or election by neither part. However, should such a formula or rule be expressly absent or inapplicable the contractor must be paid a reasonable sum established by negotiations, agreement etc…).
What if the contractor alleged that there is variation when the Government has never issued the VO? Contract Administrator needs to carefully scrutinise the details of the allegation made before authorising the VO and subsequently making payment pursuant to VO.
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EXAMPLE OF VARIATION CLAUSE The more popular method of undertaking variations is through the inclusion of a contractual mechanism in the form of a variation or change clause in the construction contract itself. To be effective, such a clause should spell out clearly the relevant substantive and procedural matters inclusive of the precise scope of the provision. Generally, these provisions are structured in terms of the extent of the work that can be varied, the party or parties entitled to change, the party or parties empowered to order the variation, the procedure pertaining to the implementation of the change, the status and effect of valid and invalid variation orders, the scheme for the valuation and payment for the variations ordered, the recovery of consequential costs and time entitlements (Blue Circle Industries Plc v Holland Dredging Co (UK) Ltd (1987) 38 BLR 40; Simplex Concrete Piles Ltd v St Pancras Borough Council (1958) 14 BLR 80). Any shortcoming or deficiency in the abovementioned provision may compromise its effectiveness and enforceability
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Standard Form of Design and Build Contract PWD Form DB (Rev1/2010) Clause 23 (Variations) Clause 24 (Valuation of Variations) Standard Form Of Contract To Be Used Where Drawings And Specifications Form Part Of The Contract P.W.D Form 203 (Rev1/2010) Clause 24 (Variations) Clause 25 (Valuation of Variation) Standard Form of Contract To Be Used Where Bills Of Quantities Form Part Of The Contract P.W.D. Form 203A (Rev 1/2010) Clause 24 (Variations) Clause 25 (Valuation of Variation)
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136
PAM Contract 2006 (With/Without Quantities) Clause 11 – Variations, Provisional and Prime Cost Sums Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer – Multilateral Development Bank Harmonised Edition June 2010 – General Conditions (FIDIC Agreement)
(3) As soon as practicable following receipt by the Government of the Concession Company’s proposal pursuant to Clause 4.2(2) the Government and the Concession Company shall negotiate on the Revised Services and the cost thereof and the Concession Company shall supply to the Government such further or other information as the Government may require. [Valuation of Variation Clause] (4) If the Parties are unable to reach agreement pursuant to Clause 4.2(3) within thirty (30) days of receipt by the Government of the Concession Company’s proposal pursuant to Clause 4.2(2), the matter shall be referred for resolution to the Dispute Resolution Company pursuant to Clause 13.1. (5) Upon approval by the Government or the resolution of the Dispute Resolution Committee is passed pursuant to Clause 13.1 of the Agreement, the Parties shall comply with the decisions pursuant to Clause 4.2(3) or Clause 4.2(4) as the case may be.
Clause 13 – Variations and Adjustments
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137
Land Swap - Privatisation Agreement Clause 12.5 – Development
Variation
and
Modification
to
the
SECURITY OF IMPLEMENTATION
12.5.1 Notwithstanding anything herein contained in this Agreement, in the event that any changes to the Development are required by virtue of any requirement of the Relevant Authority beyond the control of the Developer and Datuk Bandar, the Parties shall re-negotiate in good faith with the view of agreeing to the amendments, modifications, variations or adjustments to the Parcels of the Development, the Construction Period or Datuk Bandar’s Consideration, failing which either party may refer this matter to the Dispute Resolution Committee as stipulated in Clause 19.
As a means of mitigating the risk of the contractor’s failure to perform the contract as envisaged, employers frequently require the contractor to provide as a condition precedent to the commencement of work under the contract, security for due performance of his said obligations. Various other securities against the contractor’s particular failures in obligation such as guarantees and bonds covering the performance, design, maintenance, retention sum, labour and materials
12.5.2 The Parties hereby agree that all costs incurred from such changes shall and form part of the Gross Development Costs. [Valuation of Variation Clause]
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Privatisation Agreement - in Respect of Building Maintenance Support Services for Government Building Clause 4.2 Alteration/Variations (1) The Government may alter or vary any part of the Contract Building or the Installed Facility may result in substantial change to the scope of the Services or any of the TRPI, Provided that the Government shall give written notice to the Concession Company of any such alteration and provide such information as the Concession Company may reasonably require to enable the Concession Company to evaluate the variations to the Services, the revised operation of a Contract Building affected thereby to comply with the Concession Company’s obligation under this Agreement. (2) Within thirty (30) days of receipt of a notice pursuant to Clause 4.1 the Concession Company shall prepare proposal at its own cost and expense setting out:
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Performance bonds remain the most preferred choice. Performance bond whenever used are mainly in the form of bank guarantees although insurance guarantees may be acceptable to some employers. It is an instrument guaranteeing the employer the financial viability of the contractor and his ability to perform his obligations under the contract. 2 types of Performance Bond: I. II.
(a)
the scope of the Revised Services; and
(a)
the adjustments to the Fees, if any, to reflect the increased/decreased costs to the Concession Company in providing the Revised Services and furnishing the justification of such adjustments together with the supporting documentation thereof;
Conditional Unconditional
Synonymous with a “default bond”, conditional bond the surety only becomes liable upon the proof of a default or breach of the principal contract and the employer as the beneficiary sustaining a loss as a consequences thereof
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Unconditional bond also known as “on demand bond”. In essence, it is a covenant by the surety to indemnify the beneficiary (the employer) merely when a demand or call is made on him by the latter whether or not there has been a default under the principal contract (Ho Hup Construction Co Bhd v Government of Madagascar and Another Appeal (2011) 3 MLJ 694.
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Bond may be rendered ineffective and the surety released from liability on the occurrence one or more of the following circumstances (not exhaustive): 1. 2. 3. 4.
However, the mere labelling of the instrument is not conclusive of its form, categorisation or effect. It is much depends on how it is construed by the courts (Mitsubishi Corp & Ors v Sapangar Bay Power Corp Sdn Bhd & Ors (2009) 9 MLJ 121; Konajaya Sdn Bhd v Perbadanan Urus Air Selangor Bhd (2009) 5 MLJ 263.)
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SPP 5/2007 – Form of Performance Bond
5.
6. 7.
The guaranteed obligations are fulfilled On the payment of the sum indemnified Upon the lapse of the date of release or discharge stated in the instrument Where there is material variation in the terms of the principal contract Where there is any misconduct on the part of the beneficiary which materially prejudices the surety’s position Upon cancellation of the instrument Where beneficiary expressly releases the surety’s obligations or liability.
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Para 51 Surat Pekeliling Perbendaharaan Bil 5 Tahun 2007 – Peraturan Berkenaan Bon Pelaksanaan
Unconditional Bond i.e. to be paid on demand notwithstanding any contestation or protest by the contractor or guarantor (bank) or by any third party and without proof or condition.
Lampiran J1: Bank/Finance Company’s/Insurance Guarantee Form For Performance Bond (Supply/Services)
Wholly or partially
Lampiran J2: Bank/Finance Company’s/Insurance Guarantee Form For Performance Bond (Works) Lampiran J3: Bank/Finance Company’s/Insurance Guarantee Form For Performance Bond (Nominated Sub-Contract Works)
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Contractor’s failure to obtain the stipulated performance security amounts to a repudiatory breach of contract with its consequential ramifications. Accepting the fact that such instruments are not easily procurable, there is a tendency for most employers to expressly permit an alternative option to be adopted.
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DETERMINATION/TERMINATION The word “determination” itself essentially means the bringing to an end of something i.e. dispute, the contractor’s employment etc (Curzon, A Dictionary of Law(2nd Ed) Most of the contract use the expression “determination of employment”/”termination of contract” or “termination of employment”
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148
PAM Contract 2006
TYPES/NATURE OF DETERMINATIONS
Clause 25: Determination Employment by Employer
Identity of the defaulting party – the contracting parties Basis of determination – the party’s breach or default which can either be performance defaults or financial defaults Legal basis of determination – contractual contractual basis (common law).
or extra –
Extra-Contractual is premised on the principles of a fundamental or repudiatory breach of contract. It is a fallback alternative where a contractual stipulation is either absent or rendered unenforceable by law (Usaha Damai Sdn Bhd v Setiausaha Kerajaan Selangor (1997) 5 MLJ 601 & LSSL Development Sdn Bhd v Thomas a/l lruthayam & Anor (2007) 4 M LJ 1.
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TERMINATION CONSTRUCTION CONTRACT Prior to construction
of
Contractor’s
Clause 26: Determination of Own Employment by Contractor FIDIC Agreement Clause 15: Termination by Employer Clause 16: Suspension and Termination by Contractor
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One should be mindful of the fact that these provisions generally do not entitle the employer, either expressly or impliedly, to carry out the determination where the relevant default on the contractor’s part has itself been brought about by some failure and/or neglect of the employer or the contract administrator. [Contractor Default is due to the Government’s failure/neglect – cannot terminate] The employer is also permitted in most construction contracts to determine the employment of the contractor (or the contract itself, as appropriate) on the basis of the contractor’s financial defaults or failures, provided these are contained expressly in the contract and the other preconditions and procedural requirements stipulated in regard thereto have been satisfied.
During Construction During Operation
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DETERMINATION UNDER CONTRACTUAL PROVISIONS Standard Form of Design and Build Contract Clause 60 – Events and Consequences of Default by the Contractor Clause 61 – Termination on Corruption, Unlawful or Illegal Activities Clause 62 – Termination on National Interest Clause 64 – Events and Consequences of Default by the Government
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Financial defaults include, but are not limited to, events such as the contractor becoming bankrupt, or making a composition or arrangement wit his creditors, or having a winding up order made, or having a receiver or liquidator duly appointed (Desa Samudra Sdn Bhd v Bandar Teknik Sdn Bhd & 5 Ors (2012) 1 AMR 761, FC) If it is for the employer to decide whether the right to determine has arisen, his decision must, in the absence of a clear provision to the contrary, be reasonable and not “vexatious”. E.g. Clause 25.2 PAM Contract 2006. In determining the contract, the procedures stated in the contract must be strictly adhered to (SK Styroform Sdn Bhd v Pembinaan LCL Sdn Bhd (2004) 5 MLJ 385). Whenever notices are required to be issued, it must stipulate clearly the particular default to which it relates (Fajar Menyensing Sdn Bhd v Angsana Sdn Bhd (1998) 6 MLJ 80). [Must follow the procedure and the notice must stated the default clearly]
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TERMINATION DUE TO BANKRUPTCY/WINDING UP Current Position – forthwith terminate Why? – (a) because it is non-remedial (b) To protect the Government’s interests
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EFFECT OF DETERMINATION Contractor to cease all work under the contract, demobilise and hand possession of the site back to the employer. The contractor’s licence to occupy the site is revoked by the determination (Joshua Henshaw & Son v Rochdale Corporation (1944) KB 381; Kong Wah Housing Development Sdn Bhd v Desplan Construction Trading Sdn Bhd (1991) 3 MLJ 269.) However, the Federal Court in the case of Malayan Banking Bhd. V Basarudin Ahmad Khan (2007) 1 CLJ 309 - rights of the parties to claim for damages, loss, cost and expense not expressly stipulated in the contract.
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Federal Court in the case of Malayan Banking Bhd. V Basarudin Ahmad Khan (2007) 1 CLJ 309
“The traditional view is that damages for a breach of contract committed by the defendant are compensation to the claimant for the damage, loss or injury suffered through that breach. (See Chitty On Contracts Vol. 1 29th edn. para. 26-001.) This is the common law right arising from the breach of a contract and it is not the subject of the contract. In other words it need not be provided for in the contract. (See the judgment of Fry LJ in Birmingham and District Land Company v. London and North Western Railway Company (supra)). This right is contained in s. 74(1) of the Contracts Act 1950 which reads: S. 74(1) when a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. In P & M Kaye v. Hosier & Dickinson [1972] 1 All ER 121 at 139; [1972] 1 WLR 146 at 165-166, Lord Diplock, in discussing the question of a building owner recovering consequential loss or damage arising from the contractor's breach of contract in respect of defects in workmanship or materials, said:
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At common law a party to a contract is entitled to recover from the other party consequential damage of this kind resulting from that other party's breach of the contract, unless by the terms of the contract itself he has agreed that such damage shall not be recoverable. In the absence of express words in the contract a Court should hesitate to hold that a party had surrendered any of his common law rights to damages for its breach, although it is not impossible for this to be a necessary implication from other provisions of the contract. Reverting to the present case, we agree with the appellant that there is no express or implied term in the agreement excluding the appellant's right to damages for breach of contract. We would go so far to say that upon close scrutiny of the service agreement we are of the view that it is not a contract of indemnity per se, rather it is a contract of employment setting out the contractual duties and obligations of the respondent as an employee of the appellant with an indemnity clause added as an alternative remedy. In the circumstances, we agree with the appellant's submission that the respondent as employee of the appellant owes a contractual duty of care to the appellant and breach of that duty would render him liable to the appellant in damages for breach of contract. This is the common law right of the appellant as the employer. This right cannot be taken away without express or implied term in the contract. We find no such term in the service agreement in the present case.”
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The employer is also normally empowered to call upon or forfeit the Performance Bond/Maintenance Bond/Design Guarantee Bond and stop any further payment to the contractor until the balance work is completed and the account finalised. Most construction contracts normally stipulate the entitlements, procedures, timing and resolution of the financial settlement following the determination undertaken by either party – BOT – value of completed works BOO – formula for payment Expropriation - formula for payment PFI (BLMT) – no payment if the agreement is terminated during construction (unavailable asset)
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This activity involves the carrying out of a joint inventory and recording of all work done plus all materials and goods delivered to site under the contract, inclusive of their condition and state. Patent rights, design rights, copyrights, password, licence to use the software As to the particular heads of the entitlements that can be claimed, although these are very wide under the common law but they are generally restricted by the express provision of the contract (it may be restricted by express provision of the contract.
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Who is contract administrator?
Public Authorities – Superintending Officer (“SO”) PAM Contracts for building works – Architect IEM Forms, ICE Forms and FIDIC Forms (Red and Yellow Book) – Engineer
EFFECTIVE CONTRACT MANAGEMENT
Who is responsible in Contract Management?
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The powers and duties of contract administrator depend on the express terms of the contract. Nevertheless, the contract administrator is generally responsible for the initial interpretation of the plans and specifications, reviewing and approving shop drawings and other submissions and carrying out inspections. He is also an independent certifier in exercising judgment and reaching decision on various matters stipulated under the contract. Some duties of the contract administrator can be found under the law. For example by-law 5 of the Uniform Building By Laws 1984 (GN 5178/85), professional services agreement (clause 8.1 and 8.7 BEM Form (1999) and rule 11(e) of the Architects (Scale of Minimum Fees) Rules 2010). Such statutory rules may prevail even though the contract itself does not require him to be responsible for the supervision.
158
161
The level of supervision required must meet the following requirement:
Contract Administrator 1. 2.
He/ She must know their powers, rights and duties stipulated in the agreement
3.
It must be reasonable for the works involved; The supervision must be sufficient to check the important elements and items that will be covered up by the later work; Should meet the requirements imposed by the applicable law on the contract administrator.
Another important duty of the contract administrator is to issue certificates.
Problem: Most of the Contract Administrator do not understand the contract and know their powers, rights and duties. Consequently, this can result to them acting ultra vires to the contract.
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EFFECTIVE CONTRACT MANAGEMENT Contract management/administration means the task of administering, or managing the various aspects of the contract which involves a host of activities ranging from the supervision and inspection of work up to decision making, furnishing information to the contractor, managing the contract and adjudication roles. The ultimate aim of contract administration is to ensure that all the parties under the contract fulfill their respective obligations under the contract.
In undertaking his certification role, the contract administrator must act independently and professionally in addition to doing so impartially, reasonably and expeditiously ( Ling Heng Toh Co v Borneo Development Corporation Sdn Bhd (1973) 1 MLJ 23). This power may be challenged on the ground that there are patent mistakes, or where the certificate is issued by an unauthorised person, or in an unauthorised manner, or where the certifier acts ultra vires, or where the certifier has been improperly pressurised or influenced by one of the parties, or where there is fraud or collusion between the certifier and one of the parties (Hj Abu Kassim v Tegap Construction Sdn Bhd (1981) 2 MLJ 149).
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The power to issue instructions can be considered to be the most practical and effective tool in the hands of the contract administrator to help him discharge his duties satisfactorily as envisaged in the contract. It is trite that unless the contract expressly provides so, there is no general right under the contract for the employer and/or the contract administrator to instruct the contractor. Therefore, most of the contract do provide for it. In order to be effective, the instruction issued by the contract administrator must comply with the particular form and procedure stipulated in the contract and must not be issued ultra vires or they may be personally liable for any damage or loss caused. In a nutshell, contract administrator must know his rights and duties under the law and under the contract and he must act accordingly. In addition, the contract administrator and his team must have the necessary qualification, knowledge and experience required in order to manage the contract effectively.
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166
The necessity to provide proper training to the relevant officers in the relevant agencies who will be carrying out contract monitoring.
Challenges in Contract Monitoring
Contract Administrator appointed must have the necessary/relevant knowledge and experience. Develop standard operating procedures (SOP) or manuals for contract and risk management purposes.
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167
Challenges Insufficient manpower Government contracts.
to
properly
monitor
Inexperience manpower Impartiality of the supervising officer/ Government representative in monitoring Government contracts.
Challenges in Contract Implementation
Do not understand the contract especially their powers, rights and duties under the contract.
165
Recommendations To ensure the due performance of a contract, there is a need to develop a mechanism for contract monitoring (process automation) – e.g database system, monitoring system, alert system.
168
The challenges involve in contract implementation is very wide and vary from one form of contract to another. The challenges involve in contract implementation are connected to contract administration. Thus, poor contract administration and lack of knowledge, experience and expertise can give rise to many problems. Generally, challenges arise due to:
The necessity for Contract Administrator, legal officers and other relevant officers to have a thorough understanding of the provisions and the appropriate background knowledge of the agreement. (This is even more crucial for the Contract Administrator because they are involve in the Contract Management stage)
Documentation should be properly kept and filed for ease of reference. This would be particularly useful if problems arise in monitoring the agreement.
Progress report Compliance to the time set out in the Implementation Schedule EOT Variations Compliance to the laws and regulations applicable Performance of contract to the satisfaction of the Government
(the above list is not exhaustive)
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ENFORCEMENT OF CONTRACT In the event of delay: LAD Forfeiture of bonds Termination/Determination of Contract * As discussed in the previous slides.
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EXAMPLE Clause 10.4 PWD Form DB (Rev 1/2010) “Notwithstanding anything contained in this Contract, if the Contractor fails to perform any of his obligations under the Contract and such failure is not remedied in accordance with this Contract, the Government shall be entitled to call upon the Performance Bond, wholly or partially.”
Clause 45.0 PWD Form DB (Rev 1/2010) – Damages for Non Completion, Liquidated Ascertained Damages. Clause 60.0 PWD Form DB (Rev 1/2010) – Events of Default and Consequences of Default by the Contractor which may lead to termination of contract.
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THANK YOU
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