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An Overview of Comparison between Parties of

Construction Contracts In Malaysia
European Journal of Scientific Research, Vol 49 No 3 February 2011
Fahime Tatarestaghi, Department of Architecture, Faculty of Engineering and Built
Environment, National University Malaysia, 43600 Bangi, Selangor, Malaysia
tatfahim@yahoo.com, tatfahim@eng.ukm.my, Tel: 0060173856460
Prof. Madya Dr. Zuhairuse Md Darus, Department of Architecture, Faculty of Engineering
and Built Environment, National University Malaysia, 43600 Bangi, Selangor, Malaysia
ujang@vlsi.eng.ukm.my, Tel: 0060193515428
Muhammad Farihan Irfan Md Nor, Department of Architecture, Faculty of Engineering and
Built Environment, National University Malaysia, 43600 Bangi, Selangor, Malaysia
irfan@vlsi.eng.ukm.my, Tel: 0060123747066

Abstract

Construction industry is a very complex, high risk and multiplies business.

This has been an importance to make a fine contract at first step of a project. This
study addressed some different types of contract. Secondly the government sector
contracts are used in Malaysia mostly has been described. The data has been
gathered from two projects built by National University Malaysia. Organization
chart of parties and a comparison between them is given in this study. The more
responsibility the contractor has the greater risk. According to effective factors of
a construction project, the client has to adopt a suitable contractual arrangement
for the project and a corresponding standard form of contract.

Keyword: contract; contractor; client; parties, responsibilities

1. Introduction
A contract is a legally binding agreement between the parties identified in the
agreement to fulfill all the terms and conditions outlined in the agreement. A
prerequisite requirement for the execution of a contract, amongst other things, is the
condition that all the parties to the contract accept the terms of the claimed contract.
Construction contracts are basically different from major service contracts. There are
various types of construction contract. The choice of contract depends on the basis of
pricing and the contract strategy that best meets the project objectives. The various
types offer different ways of handling pricing, risk transfer, responsibility for
performance, cost certainty, and complexity.
(http://www.ogc.gov.uk/documents/Contract_Management.pdf)
The purpose of standard forms of contract is to facilitate the contractual
arrangements between actors in a project. Standard forms of contract are readymade
terms and conditions when making a contract (Kwakye 1997). The standards vary
from country to country and from one type of project to another. These standards are
generally used and accepted by different contracting parties. It would be practically
impossible to devise a standard form of contract that would take account of all
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eventualities that might occur in a construction project (Andersson and Gunnarsson,

2002). Standard forms of contracts are often criticized as being a compromise
containing some defective aspects. However, the advantage of their adoptions is that
with the passage of time, persons using them become familiar with their overall
content as well as their particular strengths and weaknesses (Kwakye 1997).

2. Standard Forms of Contract In Malaysia

Surveying on construction site of Research Center Building (Kompleks Pusat Penyelidikan) at
Langkawi and Animal House (Rumah Haiwan) at national university Malaysia (UKM)
campus results an overview of two types of contract in Malaysia. The author has been at
langkawi project twice for a period of 2 days to observe the process and collect the documents
as a surveyor. Animal House’s documents were gathered in Construction Management
Department (JPP) of national university Malaysia (UKM) provided by the architect.
Animal House was contracted in PWD DB (Design & Built) and the latter - Research
Center Building - was using PWD 203A to complete. These are two popular government
contracts which are designed, revised and translated to English in 2007 by Public Work
Department of Malaysia. Consist of contract documents, some introduction is given bellow
and a comparison will approach subsequently.
PWD DB Revised 2007 is standard form of design and build contract published by
Public Work Department (JKR). The contractor gets an assignment from a client to design and
build. A Design and Build contract combines all the fundamental tasks in construction
projects like design and production into one package (Kawakye 1997).
Responsibilities of contractor are to Plan, design, construct, complete, test and
commission the works. Contractor should provide all design, services, labour, materials,
contractor’s equipment, temporary works, transport to and from and in or about the site and
everything whether of a temporary or permanent nature required in and for such planning,
design, construction, completion, testing and commissioning so far as the necessity for
providing the same is specified in or reasonably to be inferred from the contract. The
contractor undertakes complying with all requirements, statutory or otherwise regulating or
relating to the conduct, trade, business or profession of a contractor and he is fully and solely
liable for all costs incurred.
(http://www.moa.gov.my/html/themes/moa2_new/document/StandardForm_of_Design
_and_BuildContractPWDFormDB_Rev2007.pdf)
PWD 203A Revised 2007 Standard Form of Contract to be used where Bills of
Quantities form part of the contract published by Public Work Department (JKR).
Responsibilities of contractor are to Construct, complete, test and commission the works in
accordance with the contract. The contractor should Construct and complete the works using
materials, goods and workmanship of the quality and standards which is specified in contract.
The contractor must also undertake any consequential work in relation to the
construction and completion of works on site i.e. removal/diversion of public sewer, water
mains, electrical mains, gas mains and telephone mains and the installation of permanent
connections. The contractor accepts the design of any part of the works if he is required to.
Also the contractor should ensure that it is suitable, functional, safe and compatible with the
works. Figure 1 illustrates the activities of the Contractor in each PWD form of contract
which mentioned earlier.
(http://www.moa.gov.my/html/themes/moa2_new/document/StandardFormContractToUsedW
hereBills_of_QuantitiesFormPart_of_the_ContractP.W.D.Form203A_Rev2007.pdf)
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Figure 1: Activities of contractor in types of contract

3. Comparison between Parties In PWD DB & PWD 203a

The process of building procurement involves a series of different specialists or parties in
contributing to the work at a different time. It leads to the fragmentation process in
construction industry (Murdoch and Hughes, 2000). Each project participant has particular
aims and objectives and it is rare to find contract structures that encourage harmony among
these aims.
According to the scale and requirement of the project the parties may differ in types of
contract. Figure 2 provides parties’ organization in PWD DB form of contract and figure 3
shows parties relation in PWD 203A form of contract.

Figure 2: Organization chart of PWD DB form of contract

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Figure 3: Organization chart of PWD 203A form of contract

Table 1 illustrates a comparison between PWD DB and PWD 203A form of contract
which is imposed on a wide variety of participants encountered, showing how they may differ.

Table 1: Comparison of PWD DB and PWD 203A form of contract parties

Main Party Roles PWD DB PWD 203A

Representative Project Director Superintending
Officer
Client Advisor Advisory group, Advisory group,
feasibility consultant feasibility
consultant
Stakeholder End-user, general End-user, general
public, tenant public, tenant
Design Architect
leadership - (management
function)
Consultant team
Management - manager, design
Consultant manager
Architect (design
Design - function),
engineer,
consultant
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Architect, contract
administrator,
Administration supervising officer,
- planning
supervisor, project
administration
Site inspector - Clerk of work
Consultant(Architect), Builder, main
Overall main contractor, joint contractor,
responsibility venture contractor, principal
design-build project contractor,
manager executive director
Contractor Contract manager,
Constructor’s project engineers, Project manager,
staff supervision team, site supervisor,
builders builders
Architect, C&S sub- C&S sub-
Partial contractor, M&E sub- contractor, M&E
responsibility contractor, supplier sub-contractor,
quantity surveyor,
supplier

According to table 1, there is no consultant party which directly would be employed

by the client in PWD DB. In fact, the client employs the contractor to design and build which
means the consultant is included in the package of the contractor. Therefore the design
leadership, design management, administration team and site inspector roles are under
contractor’s responsibilities. The contract management is the method in use in PWD DB. The
contract manager controls, monitors and maintains the project since the earliest stage of a
project. One of the benefits for the client is that the client does not have to be so active during
the project, because most of the responsibility of the project is allocated to the contractor
(Söderberg 1993). Architect (management function), consultant team manager, design
manager, architect (design function), engineer, consultant, contract administrator, supervising
officer, planning supervisor, project administration, clerk of work are the roles involved in
consultant which are the subordinates of contract manager.
In PWD DB the contractor is compensated for all costs incurred. Also failing such
deductions will be recovered from the performance bond or as a debt from contractor.
Identifying and controlling (by avoiding or minimizing) the risks to a project is a vital part of
managing it. This includes those risks that have been transferred to the contractor under PWD
DB contract. The reason of popularity for using this type of contract is that the client does not
take the risk as much as the contractor has. Hence the contractor consists of a contract
manager to control over the cost and time.
However in PWD 203A the client employs consultant separately which is directly
linked. In this type of contract there is a separation of construction and design. There is a
designing team, which is contracted by the client, and they shall provide the contractor with a
complete design (Ashworth 1991). The contractor subordinates include executive director
who is the person in charge at site for complementation. Any problem happens during project
development or any difference between designed and built documents in details, the executive
director informs the superior and handles all. The executive director includes site supervisor,
quantity surveyor and safety officer who occupy positions at the site of construction. The
quantity surveyor monitors all required materials’ quantities, proper cost and suggests to the
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client. The site supervisor manages all works, workers, daily reports (site dairy) and the
quality of work. Arranging the masonries, material maintenance and all machines’ installation
are the site supervisor’s responsibilities. In occurrence of a problem, they refer to the project
manager for handling.
The different method of organizing and maintaining the project is used in PWD 203A
which is project management. The project manager controls and monitors the work through
schedule of planning during constructing. The important aspect in PWD 203A is bills of
quantities. Therefore the contractor has the responsibility to complete the work according to
the requested quantities referred to the contract documents. In PWD 203A the government is
entitled to deduct such costs, expenses and on-cost charges or any part from any monies due
to the contractor or to recover it from performance bond as debt due from the contractor. That
is the reason of being popular for this type of contract for government sector in Malaysia.

4. Discussion
The main differences in construction contracts are the extent to which the client is responsible
for the management of the project, risk allocation and the internal responsibilities of project
members (Kodeda 1992; Söderberg 1993). According to Murdoch & Hughes (2000) it is not
only the commercial risk that is most significant when defining the characteristics of projects
and project strategies, but also the involvement of people.
According to the comparison which is given above, the roles link are depended on the
type of contract and it would lead the liabilities and risk to the parties. In PWD DB,
contractor’s responsibilities vary from PWD 203A. The contractor’s responsibilities in PWD
DB are the design leadership, design management, administration team and site inspection
roles. For instance Animal House (Rumah Haiwan) reasons for delay were EOT (Extension
Of Time), third party (the different contractor) and firefighting authority at final stage. The
two constraints of this project were the client own liability and only for last one, client could
claim for delay. The on time completion is the result of this project, it was supposed to be
finished within 127 days as it is. Actually it was started at February 2009 signifies Extension
Of Time was requested by client for possession of site since 2008 when the contract was
signed by parties. Therefore in this project, the management part carried out strongly to make
the completion on time. However the contractor was changed, but it could continue
performing of the works constructively. The contract manager controls, monitors and
maintains the project since the earliest stage of a project according to PWD DB’s method in
use.
Whereas the contractor has the responsibility to complete the work according to the
requested quantities referred to the contract documents (Bills of Quantities) in PWD 203A.
For example, Langkawi Research Center Building (Kompleks Pusat Penyelidikan Langkawi)
delay was the land approval by client. The date of site possession was on April 2009. The
completion duration was 18 months in August 2010, but it is still under construction due to
delays. The last revised schedule is illustrating the completion on December 2010 which
means 4 months more than the planned schedule. In this form of contract due to separation of
design and build, the contractor faces lack of details’ drawing and the constructed part may
differ from plans. In PWD 203A, the project manager controls and monitors the work through
schedule of planning during constructing.
Therefore the client is not so active during the project, because most of the
responsibility of the project is allocated to the contractor in terms of PWD DB, but In PWD
203A the government is entitled to deduct such costs, expenses and on-cost charges or any
part from any monies due to the contractor or to recover it from performance bond as debt due
from the contractor.
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5. Conclusion
The traditional contractual arrangement sets out the legal relationship the parties wish to
establish and the rights, obligations and procedures for resolving contractual disputes (Kodeda
1992; Kwakye 1997). There are several factors that affect what type of contract is suitable for
a certain project, e.g. the amount of involvement from the client, the location of the project,
technical complexity. In an initial stage of the design phase, the client has to adopt a suitable
contractual arrangement for the project and a corresponding standard form of contract.

Acknowledgement
The authors would like to thank construction management department (JPP) in national
university Malaysia (UKM) and Izinria Company for providing the author copy of projects’
documents.

References

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