INTRODUCTION TO CONTRACT

beAr Program
LAM Pt III Lecture Series
Hisham ali 23.02.2013
 INTRODUCTION TO CONTRACT

DISCLAIMER
This session does not go into details of every aspects of
construction contract; instead only selected and salient
features will be highlighted.
Some questions will be posed, and to some of these
attempts are made to answer
them; others are left as foods for thoughts. Some insights
gained by the tutor in actively partially administer
construction contracts in Malaysia will also be used as
illustrations.

DISCLAIMER
This session does not go into details of every aspects of
construction contract; instead only selected and salient features
will be highlighted.
Some questions will be posed, and to some of these attempts are
made to answer
them; others are left as foods for thoughts. Some insights gained
by the tutor in actively partially administer construction
contracts in Malaysia will also be used as
illustrations.
CONTENT Contract Act 1950
Salients Points
1. What is really a contract ? Elements of Contract

2. Why is it Important to an architect? Standard Form of Contract

NON Std form of Contract
3. Understanding Construction Why do we need
Construction Contract
Contract in the local Construction What entails Contract
Document
Scene

4. Awareness of the common

‗GLITCHES‘ in Contract
administration
WHAT IS A CONTRACT
 WHAT IS A CONTRACT ??
A Proposal ??
A promise???
An Agreement ??
Implying ??

PROMISE + AGREEMENT + LEGALISED = CONTRACT

A CONTRACT IS BASICALLY..
SIGNED CONSENCIOUSLY

HAS A LEGAL STATUTE –

enforcefable!

COMES WITH OBLIGATIONS

AND IMPLICATIONS

OCCURS ALMOST
CONSISTENLY ON OUR LIVES
A CONTRACT IS BASICALLY..
By Definition: A legal binding agreement between 2 / more parties
where one has a need & the other delivers in return of a benefit.

A contract is an agreement entered into voluntarily by two parties or

more :
 For exchange of goods or services.
 with the intention of creating a legal obligation, which may have
elements in writing.
 Contract can be orally executed
 Contracts are enforceable by Contract law.
 There are many different types of Contracts and they vary between
industry and according to the type of services performed.
Hence without knowing we have unconsciously
signed a lot of contract!!!
Buying a Car
Renting a House
Buying A House
Employment with a firm
Purchase Insurance
MOBILE PHONE PACKAGE
CREDIT CARD

MARRIAGE???

… and we are bound to them!!

Contract is part of a general law
study.
tort, contract, evidence etc
CRIMINAL
COMMERCIAL
INTELECTUAL PROPERTY RIGHTS
GOVERNMENT
PROPERTY
LITIGATION
COMPANY
SYARIAH
WHAT IS A CONTRACT
A common agreement that’s binded by the law between 2
or more parties

One party is compensated by the action or inaction(

refrained ) of the other

Legislated under Contract Act 1950 Act 136

 Legislative of CONTRACT
 In 1878, by virtue of section 6 of
the Civil Law Ordinance 1878,
English commercial law was
introduced into the Straits
Settlements.‖
 English law relating to contracts
was applicable to Penang, Malacca
and Singapore.‖
 by 1899, the Contract Enactment
which was modelled on the Indian
Contract Act 1872 (that was based
on the English principles) was
extended to the four states of the
Federated Malay States.
 This Enactment of 1899 was then
gradually extended to the
Unfederated Malay States, with
Johore as the first state to accept
its application, as early as 1914.
 Legislative of CONTRACT
 The oldest printed version of the
provisions relating to contracts is
the Contract Enactment 1899.

 However, it was not formally

passed by the Federal Legislative
Council of the Federation of
Malaya until 1950.

 The Contract Ordinance 1950 was

then revised in 1974 and it became
an Act by virtue of the Revision of
Laws Act 1968.
CONTRACT ELEMENTS
Contract principle( ELEMENTS ) as per CONTRACT ACT 1950
( rev 1974) :

1. Offer
2. Acceptance
3. Compensation - CONSIDERATION
4. Intent
5. Agreement - CONSENT
6. Possible fulfillment – CAPABILITY/CAPACITY
7. No shortfalls on both parties.- FAIR

In order to be legal enforcing (legally binding), all these

elements have to be included inside the contract.

The contract will not be enforceable if any of the above

items is missing.
CONTRACT ELEMENTS
Interpretation
1. Offer 2 (a) when one person signifies to
2. Acceptance another his willingness to do or to
3. Compensation - CONSIDERATION abstain from doing anything, with a
view to obtaining the assent of that
4. Intent other to the act or abstinence, he is
5. Agreement - CONSENT said to make a proposal;
6. Possible fulfillment –
CAPABILITY/CAPACITY
7. No shortfalls on both parties.- FAIR
CONTRACT ELEMENTS
Interpretation
1. Offer 2(b) when the person to whom the proposal is
2. Acceptance made signifies his assent thereto, the proposal
3. Compensation - CONSIDERATION is said to be accepted: a proposal, when
accepted, becomes a promise;
4. Intent
5. Agreement - CONSENT Communication, acceptance and revocation
6. Possible fulfillment – of proposals
CAPABILITY/CAPACITY 3. The communication of proposals, the
acceptance of proposals, and the revocation of
7. No shortfalls on both parties.- FAIR proposals and acceptances, respectively, are
deemed to be made by any act or omission of
the party proposing, accepting, or revoking, by
which he intends to communicate the
proposal, acceptance, or revocation, or which
has the effect of communicating it.
Communication, when complete
4. (1) The communication of a proposal is
complete when it comes to the knowledge of the
person to whom it is made.
CONTRACT ELEMENTS
Acceptance must be absolute
1. Offer 7. In order to convert a proposal into a promise
2. Acceptance the acceptance
3. Compensation - CONSIDERATION must—
(a) be absolute and unqualified;
4. Intent (b) be expressed in some usual and reasonable
5. Agreement - CONSENT manner, unless the proposal prescribes the
6. Possible fulfillment – manner in which it is to be accepted. If the
CAPABILITY/CAPACITY proposal prescribes a manner in which it
is to be accepted, and the acceptance is not
7. No shortfalls on both parties.- FAIR made in that manner, the proposer may, within a
reasonable time after

Acceptance by performing conditions, or receiving consideration

8. Performance of the conditions of a proposal, or the acceptance
of any consideration for a reciprocal promise which may be offered
with a proposal, is an acceptance of the proposal.
Promises, express and implied
9. So far as the proposal or acceptance of any promise is made in
words, the promise is said to be express. So far as the proposal or
acceptance is made otherwise than in words, the promise is said to be
implied
 CONTRACT ELEMENTS
What considerations and objects are
1. Offer lawful, and what not
24. The consideration or object of an
2. Acceptance
agreement is lawful, unless—
3. Compensation - CONSIDERATION (a) it is forbidden by a law;
4. Intent (b) it is of such a nature that, if permitted, it
5. Agreement - CONSENT would defeat any law;
(c) it is fraudulent;
6. Possible fulfillment –
(d) it involves or implies injury to the
CAPABILITY/CAPACITY person or property of another; or
7. No shortfalls on both parties.- FAIR (e) the court regards it as immoral, or
opposed to public policy.

In each of the above cases, the

consideration or object of an
agreement is said to be unlawful.

Every agreement of which the

object or consideration is unlawful is
void.
 CONTRACT ELEMENTS What agreements are contracts
10.(1) All agreements are contracts if they
1. Offer are made by the free consent of parties
2. Acceptance competent to contract, for a lawful
3. Compensation - CONSIDERATION consideration and with a lawful object, and
are not hereby expressly declared to be
4. Intent void.
5. Agreement - CONSENT
6. Possible fulfillment – ―Free consent‖
CAPABILITY/CAPACITY 14. Consent is said to be free when it is
7. No shortfalls on both parties.- FAIR not caused by—
(a) coercion,
(b) undue influence,
(c) fraud, as defined in section 17;
(d) misrepresentation, as defined in
section 18; or
(e) mistake,
Consent is said to be so caused when it
would not have been given but for the
existence of such coercion, undue
influence, fraud, misrepresentation, or
mistake.
 CONTRACT ELEMENTS Agreements void if considerations and
objects unlawful in part
1. Offer 25. If any part of a single consideration for
2. Acceptance one or more objects, or
3. Compensation - CONSIDERATION any one or any part of any one of several
4. Intent considerations for a single object, is
unlawful, the agreement is void.
5. Agreement - CONSENT
6. Possible fulfillment – Agreement without consideration, void,
CAPABILITY/CAPACITY unless—
7. No shortfalls on both parties.- FAIR 26. An agreement made without
consideration is void, unless—
it is in writing and registered
or is a promise to compensate for
something done
(b) it is a promise to compensate, wholly or
in part, a person who has already
voluntarily done something for the
promisor, or something which the promisor
was legally compellable to do; or
or is a promise to pay a debt barred by
limitation law
 CONTRACT ELEMENTS Agreement in restraint of marriage void
27. Every agreement in restraint of the
1. Offer marriage of any person,
2. Acceptance other than a minor during his or her
3. Compensation - CONSIDERATION minority, is void.
4. Intent
Agreement in restraint of trade void
5. Agreement - CONSENT 28. Every agreement by which anyone is
6. Possible fulfillment – restrained from exercising
CAPABILITY/CAPACITY a lawful profession, trade, or business of
7. No shortfalls on both parties.- FAIR any kind, is to that extent

Agreements in restraint of legal

proceedings void
29. Every agreement, by which any party
thereto is restricted
absolutely from enforcing his rights under
or in respect of any
contract, by the usual legal proceedings in
the ordinary tribunals, or
which limits the time within which he may
thus enforce his rights,
is void to that extent.
 CONTRACT ELEMENTS
Agreements void for uncertainty
1. Offer 30. Agreements, the meaning of which is
2. Acceptance not certain, or capable of
3. Compensation - CONSIDERATION being made certain, are void..
4. Intent
5. Agreement - CONSENT
Agreements by way of wager void
6. Possible fulfillment – 31. (1) Agreements by way of wager are
CAPABILITY/CAPACITY void; and no suit shall be
7. No shortfalls on both parties.- FAIR brought for recovering anything alleged to
be won on any wager, or
entrusted to any person to abide the result
of any game or other
uncertain event on which any wager is
made.
CONTRACT ELEMENTS
1. Offer
2. Acceptance
3. Compensation - CONSIDERATION
4. Intent
5. Agreement - CONSENT
6. Possible fulfillment –
CAPABILITY/CAPACITY
7. No shortfalls on both parties.- FAIR
 CONTRACT ELEMENTS
Agreements void for uncertainty
1. Offer 30. Agreements, the meaning of which is
2. Acceptance not certain, or capable of
3. Compensation - CONSIDERATION being made certain, are void.
4. Intent
5. Agreement - CONSENT Agreement to do impossible act
57. (1) An agreement to do an act
6. Possible fulfillment – impossible in itself is void.
CAPABILITY/CAPACITY Contract to do act afterwards becoming
7. No shortfalls on both parties.- FAIR impossible or unlawful
(2) A contract to do an act which, after the
contract is made,
becomes impossible, or by reason of some
event which the promisor could not
prevent, unlawful, becomes void when the
act becomes impossible or unlawful.
 CONTRACT ELEMENTS
The concept of inequality of bargaining
1. Offer power, though not an express
2. Acceptance provision in Contracts Act 1950, is
3. Compensation - CONSIDERATION nevertheless a recognized principle of
4. Intent English common law13 which is highly
persuasive in Malaysia.14 Though it
5. Agreement - CONSENT seems highly unlikely that a construction
6. Possible fulfillment – contract entered into between two
CAPABILITY/CAPACITY commercial organizations can be declared
7. No shortfalls on both parties.- FAIR void on this ground alone

Judges could do well to be reminded that

courts of law are established not for the
administration of law but of justice; indeed
in the words of Earl Warren, ―It is the spirit
and not the form of law that keeps justice
alive.‖
LETS TEST YOUR
UNDERSTANDING
JUST WHEN YOU THOUGHT THE
WORLD CANT GET CRAZIER
Important CONTRACT vocabs
1. BREACH
2. EXPRESSED
3. IMPLIED
4. DETERMINATION
5. DAMAGES
6. SETTLEMENT
7. REPRESENTATION
8. OBLIGATION
9. LIABLE
10.LEGALLY BIND
11.WITHOUT PREJUDICE
12.VIXATIOUSLY
13.VOID
14.CLAUSES
Why is it Important to an architect?
Why is it Important to an architect?
 PART AND PARCEL OF YOUR
RESPONSIBILITIES AS A PROFESSIONAL :
CONTRACTUAL RESPONSIBILITIES

 BE BETTER CLIENT AGENT

 FULFILL YOUR ROLE UNDER OTHER PARTS

OF YOUR OTHER RESPONSIBILITIES eg. legal
Why is it Important to an architect?

Article 3 of the Articles of Agreement of the PAM 2006 Form,

provides for the designation of an Architect registered with
the Board of Architects Malaysia. Under Article 3, the
Employer has a duty to appoint the Architect. The named
Architect, engaged by the Employer is thus entrusted with the
administration and supervision of the building contract.
PROFESSIONAL TaCP Planning Permission Architect
SERVICE Client/Devel

SPC
STA HDA UBBL NLC
Project Team
Schematic
Design Tech. Depts.
Dev. Order
S&P Agrmnt S&P Agrmnt LA

SALE Housing
Design Dev Application Controller
For ST BP App. Purchaser

Contract
Document Contractual
Responsibilities

Contractor
Certification Certification FORM G1 Pam 2006
of Payments of Payments – G21
Contract frm HDA Financer
frm HDA
Admin Acc CCC
Acc Sub Contract
Form Sub
Contractor

The Realms of an Architect’s Obligations and

Responsibilities in a Development Process
 Project Team
Local Authority, Technical Depts, Ministries

Contractor

Architect
Sub
PAM 2006 Contract
MOA
Sub Contractors
Client/Developer

SPA Financer

Purchaser

Parties in a Development Process

Obligation as an architect are to EVERYTHING!

Reporting Auditing
Advisory Certification of
Agents Payment
Administrative Architect Instruction
Coordinating

LOCAL AUTHORITY/ MINISTRY Certification of Payment

Formal Letters
Defined By Verification of Certificates
LEGISLATION & ACTS
Why is it Important to an architect?
―… to FULFILL YOUR OBLIGATIONS
UNDER THE CONTRACT BETWEEN
YOU AND YOUR CLIENT.‖
The Architect enters into a contractual relationship with the client to
perform specific services. (architectural consultancy) There is an
implied agreement to carry out the required work to the standard
expected of the profession. Failure to meet these standards, which
cause extra expense or delays for the owner, may result in a claim for
damages against the Architect on the grounds of breach of contract.

The Architect’s legal obligations and responsibilities are owed to a

variety of parties, and are governed by statutes, administrative
regulations and common law.
Understanding Construction Contract in
the local Construction Scene
The Construction Contract - the Document that Bind one/more parties to fulfill
obligation to another in execution of construction project

Terms – Known as Condition of Contract

Inherent Philosophy and Assumptions

 Independent certifier
 Equality of bargaining power
 Consensus approach
 Non-consideration of tendering exercise

Dominant Entities/Players :
(a) The Institution of Engineers, Malaysia (―IEM‖);
(b) Pertubuhan Arkitek Malaysia (―PAM‖);3
(c) Construction Industry Development Board (―CIDB‖); and
(d) Jabatan Kerja Raya (―JKR‖).4
Understanding Construction Contract in
the local Construction Scene
Dominant Entities/Organisation members utilised their own Contract Form to execute
their project. THESE ARE KNOWN AS STANDARD FORM

 PAM 1998 (Pertubuhan Arkitek Malaysia)

(untuk kerja-kerja bangunan) (klien persendirian)

 JKR 203/203A (Jabatan Kerja Raya)

(untuk kerja-kerja sivil bangunan) (klien kerajaan/badan berkanun)

 CIDB 2000 (Lembaga Pembangunan Industri Pembinaan Malaysia)

(untuk bangunan) (klien swasta/kerajaan)

 IEM Conditions of Contract for Works Mainly of Civil Engineering

Construction

 IEM Standard Conditions of Sub-Contract for use in Conjunction

with the IEM Conditions of Contracts for Civil Engineering Works;6

 IEM Conditions of Contract for Mechanical and Electrical Works.

Understanding Construction Contract in
the local Construction Scene
Other Form of Construction Contract :
 FIDIC - Federation
Internationale des Ingenieurs
Conseils
 ICE – Institution of Civil
Engineers

There are also cases of unique Contract

Form : known as Non Standard Contract
Form.( which is normally
modified/amended from Standard Form
of contract
Contract Conditions
Terms and conditions that set the rights
and obligations of the contracting parties,
when a contract is awarded or entered
into. These include 'general conditions'
which are common to all types of
contracts, as well as 'special conditions'
which are peculiar to a specific contract
(such as, contract change conditions,
payment conditions, pricevariation
clauses, penalties).
Standard Form of Contract
Advantage

1. It becomes more economical as there is no need to draft new

terms of contract every time a contract is let out.
2. It provides more certainty when tendering.
3. Familiarity makes it easier and quicker to be priced.
4. It creates the possibility of a more balanced allocation of risk
between the contracting parties.
5. There is a higher chance of avoiding unwarranted disputes in
court or arbitration.

Shortfalls/Disadvantage

1. Take it of leave it!

2. Not tailored for highly specific project.
3. Prevent innovation
4. Unfair allocation of risk
NON Standard Form of Contract
Advantage

1. Can be tailored to very specific requirements to

suit specific projects
.

Shortfalls/Disadvantage

1. Parties not familiar to the interpretation

2. Has not been tested hence subject to challenges
and disputes
3. Even more Unfair allocation of risk
Why do we need a construction
contract ?
 Demarcate scope of project
 Determine price and duration of completion
 Spell out the task and responsibilities of each party
 To spell out action to be conducted in the event of
changes of scope, time and duration
 To spell out and implication in the event of breach.

Contract Administrator must fulfill the client‘s needs and fair (

looking the interest of both parties )
What entails a Contract Document

AS PER PAM 2006 (Clause 3 )

1. The Contract Drawings,

2. Specification,
3. Descriptive Schedules,
4. the Schedules of Rates,
5. Form of Tender.
6. Letter of Acceptance.
7. Summary of Tender,
8. Articles of Agreement,
9. Conditions of Contract and
10.the Appendix
What entails a Contract Document
AS PER CIDB

CONTRACT DOCUMENTS
The several documents forming the Contract are to be taken as mutually
explanatory of one another but in the event of any conflict or
inconsistency between the documents Forming the Contract , the priority
shall be as follows:

1. The Articles of Agreement;

2. The Letter of Award;
3. The Conditions;
4. The Addenda listed in Article 3 of the Articles of Agreement;
5. The Drawings;
6. The Specifications;
7. The Bills of Quantities or Schedule of Works (whichever is applicable);
8. Other documents listed in Article 3 of the Articles of Agreement.
What entails a Contract Document
BORANG JKR 203

PERKARA-PERKARA PERJANJIAN

Dokumen-dokumen berikut hendaklah disifatkan menjadi

dan dibaca dan ditafsirkan sebagai sebahagian daripada Kontrak ini, iaitu:
(a) Perkara-Perkara Perjanjian;
(b) Borang Tender;
(c) Surat Setujuterima Tender;
(d) Syarat-Syarat Kontrak dan Lampiran Tambahan kepada;
(e) Peruntukan-Peruntukan Khas kepada Syarat-Syarat Kontrak untuk:
(i) …………………………………………………………………
(ii) …………………………………………………………………
(iii) …………………………………………………………………

(f) Pelan-Pelan Kontrak;

(g) Senarai Kuantiti;
(h) Spesifikasi;
(i) Arahan Perbendaharaan sebagaimana dinyatakan dalam Lampiran
kepada Syarat-Syarat Kontrak
Common Glitches in Construction Contract
Common Glitches in Construction Contract
 Contract Administrator fail to administer
the contract execution :
• Poor documentation – evidence
• Reliance on subordinates
• Remote control
• Delayed action

 Lack understanding for terms of

performance

 Fail to play the role of Quasi Arbitrator

 Discrepancies in contract conditions

Common Glitches in Construction Contract
 Vague Contract Condition

 Rely on own interpretation

 Giving the wrong advise

 Fail to seek the right advise

 Fail to see the real issues that‘s

impose risk to the project.
As a Contract Administrator you should
 Read and Understand your COC
– Often don‘t until dispute or client asks you a question about
the clause and you don‘t know why it is in there.
– Often it is somebody else‘s form and the clause that you are
using doesn‘t even pertain to your business.
– Good time to reflect (talk to your supervisor or legal counsel)
and revise or create with mind towards resolving most
common disputes likely to arise (can‘t cover everything) on
your terms.
 Review and Revise Periodically
• Typos/misspelled words over time (passed down word processor
to word processor).

• Inconsistent terms will be construed against the drafter.

• When your contracts go out sloppy you lose credibility with your
client and the court
Contract Issues:
• LEGAL TIPS YOU ABSOLUTELY MUST
UNDERSTAND:

Understand the legal requirements

of a contract.
Contract Issues:

 Understand the proper way to Amend a Contract or Proposal

– Don‘t allow oral modification use a clause which states that
all modifications to the contract must be made in writing.
– Identify a person or persons on your staff and with the
contracting party who are allowed to modify the contract on
the party‘s behalf.
– Make sure that all modifications are signed off to by both
parties.
– If an oral modification is made on site make sure the person
who is asking for the change is authorized to do so.
 Contract Issues:
 Always Define Your Terms
– Make sure the other party understands the terms (i.e.
guarantees). It is a good idea to have them sign off on clauses
like the guarantee so that they
won‘t come back later and say I didn‘t know about that or I didn‘t
understand.
Contract Issues:
Malaysian courts apply conventional principles in determining cases
involving contract law. They tend to emphasise the importance of form
and procedure over substance and are inclined to enforce a contract
as long as it satisfies the basic requirements of validity. The courts are
averse to intervening, let alone declare an entire contract nugatory.

The doctrine of unconscionability, though much in use in England and

other common law jurisdictions appears retarded in Malaysia‘s
jurisprudence, caught in the clash between contractual justice and
freedom of contract.
Contract Issues:
A contract may be unfair because of the unfair manner in which it was
brought into existence, or because the terms of the contract are more
favourable to one party, the former being known as „procedural
unfairness‟ and the latter as „contractual imbalance‟. This imbalance
may be so extreme as to raise a presumption of „victimization,‟ and
hence unconscionable dealing,
Q & A ???
Thank you for
your ears……