Case Study PP 2 Print
Case Study PP 2 Print
Case Study PP 2 Print
1. INTRODUCTION 2-3
2. Q1
MANAGEMENT PROCEDURES OF PRIME COST SUM AND 4-13
PROVISIONAL SUM AT TENDER DOCUMENT PREPARATION
STAGE AND CONSTRUCTION STAGE
3. APPENDIX Q1 14-18
4. Q2
PREPARATION OF PROGRESS PAYMENT FOR PRELIMINARIES 19-24
WORK IN CONSTRUCTION PROJECT
5. APPENDIX Q2 25-28
6. Q3
THE MATTERS RELATED TO THE PREPARATION OF INTERIM 29-40
PAYMENT IN CONSTRUCTION PROJECT
7. APPENDIX Q3 41
8. Q4
INTERIM PAYMENT PREPARATION IN PUBLIC OR PRIVATE 42-47
CONSTRUCTION PROJECT
9. APPENDIX Q4 48-64
10. Q5
PROCEDURES OF VARIATION OF WORKS IN PUBLIC OR 65-68
PRIVATE CONSTRUCTION PROJECT
11. APPENDIX Q5 69-70
12. Q6
FINAL ACCOUNT PREPARATION IN PUBLIC OR PRIVATE 71-81
CONSTRUCTION PROJECT
13. APPENDIX Q6 82-84
14. CONCLUSION 85
15. REFERENCE 86
16. APPENDIX 87
1
INTRODUCTION
The PROFESSIONAL PRACTISE 2 course provides students with practical information and
abilities linked to the profession of a quantity surveyor in a project. The course emphasises
the definition, function, and job tasks of a quantity surveyor in the compilation of the prime
cost sum and provisional amount, preparatory works, interim payment, changes, and final
account.
A PC Sum is a budget that should be utilised to cover the cost of materials or products
exclusively. It is usually determined by the quantity surveyor.
PC Sums are frequently used when getting an estimate from a contractor when the specific
quality or standard of those products and commodities is unknown.
Provisional sum
A provisional sum does not necessarily need to be set aside just for one task. Occasionally,
the contract itself may be made to contain a provisional amount. A contract may have one or
more provisional sums. Let's use site clearance as an example to explain. Site clearing may
involve a lot of unforeseen items. Take a look at an infrastructure project that involves a
flyover, roads, etc. The typical items that need to be cleared include asphalt roads, paving
blocks, kerbs, signal poles, crash barriers, guard rails, sign boards, stormwater drainage
pipelines, sewerage pipelines, manholes, catch pits, gullies, trees, bushes, shrubs, buildings,
fencing, compound walls, sculptures and monuments, concrete structures, etc. There will also
be elements that are particular to the site. At the time of the tender, many items will be
measurable, but some of them may turn out to be questionable. For instance, it could be
challenging to estimate the amount of work required to remove a site- specific object like a
sculpture or monument. To get around this problem, you might allocate these as a different
provisional sum item in the BOQ.
Preliminaries work
Preliminaries is a part of Bills of Quantities explain about the project, details of the contract,
contractor liability, client requirements, on-site facilities and other things that affect the
implementation of construction work on site. Items in Preliminaries would not normally be part
of the final product but needed to facilitate the process of construction. Unlike the cost of other
resources such as labour costs, material costs, plant costs and management costs
(overhead), the cost of construction site management (preliminaries) is not included in the
calculation of rates for the items measured.
Interim payment
2
issuance of final payment. The Contractor is entitled to interim payments at regular interval in
accordance with a proper evaluation of the work done and material supplied.
Variation
A variation order is a formal agreement for modification, extend, or otherwise vary the work
that was previously outlined in the contract. In general, variant orders include changes to the
scope, time, and materials for further work, as well as additional expenses for the additional
working hours. Variation orders are used in all sorts of projects since modifications to
construction projects are unavoidable given the industry's dynamic and sophisticated nature.
Final Account
Is a declaration that shows the total final (current) contract value, the total amount paid under
all prior intermediate payment certificates, any other deductions permitted by the contract,
and the total amount still payable to the contractor or the customer.
3
QUESTION 1:
MANAGEMENT
PROCEDURES OF
PRIME COST SUM
AND PROVISIONAL
SUM AT TENDER
DOCUMENT
PREPARATION STAGE
AND CONSTRUCTION
STAGE
4
a) PRIME COST SUM
INTRODUCTION
Prime Cost Sum is a sum of money provided for work or services to be executed by a Nominated
Sub-Contractor (NSC) or for materials or goods to be obtained from a Nominated Supplier. It is as a
part of total contract sum. Nominated Sub-Contractor & Nominated Supplier usually are nominated
by the S.O (PWD) or Architect (PAM) and they are appointed by the Main Contractor.
Main Contractor able to carry out of those Prime Cost Sum works by getting permission from S.O. If
Main Contractor’s tender are selected and accepted, then they are not entitle to get profit &
attendance.
PWD Contract
It means a sum for works or services to be executed by a Nominated Sub-Contractor or sums for
materials or goods to be obtained from a Nominated supplier.
PAM Contract
Prime Cost Sums means the sums provided in the contract for works or services to be executed by
Nominated Sub-Contractor or for materials and goods to be supplied by Nominated Supplier.
5
PRIME COST SUM ITEMS
The P.C. Sum works shall be expended as directed by the S.O or Architect or in part if not expended
for:
Ø Electrical Works
Ø Air-Conditioning and Mechanical Ventilation System
Ø Fire Fighting System
Ø Hot Water System
Ø Lift and Escalator System
Ø Profit
Ø Attendence
PROFIT
Main Contractor is given the opportunity to price the profit item for the works execute by Nominated
Sub-Contractor because :
Ø Main Contractor is responsible for the sub-contracted work since sub-contracting does not
relieve him from any liability or obligation under the contract. Main Contractor deserves to be
paid for the risks taken.
Ø Main Contractor entitle to get paid for a certain risk such as breach of contract by the
Nominated Sub-Contractor (NSC) or Nominated Supplier (NS).
Ø Main Contractor needs to supervise and coordinate the NSC and NS works.
Ø Sub-contract work is originally part of the main contract. Taking out the work from the main
contract and giving it to Nominated Sub-Contractor means reducing the profit of Main
Contractor. So the Main Contractor is entitled to get paid for loss of the profit.
6
ATTENDANCE
Main Contractor is responsible to provide general attendance for the works executed by Nominated
Sub-Contractor. Attendance for classified into 2 categories which is General Attendance & Special
Attendance.
a) General Attendance
General Attendance is given for every P.C. Sum works. The Main Contractor should price this item
in a lump sum basis.
The facilities to be provided to Nominated Sub-Contractor in this case are basically what the Main
Contractor happens to have on site at the time for his own use i.e. existing attendance. Item for
General Attendance are listed under Clause B.8.2 of SMM2 which must be provided without charge
to the Nominated Sub- Contractor because they are already considered in Attendance items:
v Use of paving and paths
v Use of standing scaffolding
v Use of standing power operated hoisting plant
v Provision of temporary lighting and water supplies
v Clearing rubbish
v Provision of space for NSC office
v Provision of space for storage of NSC plant and materials
v Use mess rooms
v Use of sanitary accommodation
v Use of welfare facilities
b) Special Attendance
Special Attendance is required solely by the Nominated Sub- Contractor. Each items for this Special
Attendance should be given separately in the Bills of Quantities to be priced by Main Contractor.
Items for Special Attendance are listed under Clause B.8.3 of SMM2 and are as follows:
v Special scaffolding or scaffolding additional to the Main Contractor's scaffolding.
v The provision of temporary access roads and hard-standing in connection with structural
steelwork, pre-cast concrete components, heavy items of plant and the like.
v Unloading, distributing, hoisting, placing in position giving in the case of significant items the
weight and/or size.
v The provision of covered storage and accommodation including lighting and power thereto.
v Maintenance of specific temperature or humidity levels.
v Any other attendance not included under General Attendance.
7
MANAGEMENT PROCEDURES OF PRIME COST SUM AT TENDER DOCUMENT
PREPARATION STAGE
The Head of Project Team (HOPT) and the Head of Design Team (HODT) need to determine the
Specialist Work that will be carried out for the project and then the list of specialist works involved
must be submitted to the HOPT and HODT Quantity Survey for the purpose of being included in the
Main Contractor Tender Document.
In order to ensure that the allocated P.C. Sum is more reasonable, the estimate for the P.C. Sum
should be prepared by experienced officers who are directly involved with the related P.C. Sum
works. For example, if the P.C. Sum is for M&E works, the estimate should be prepared by whoever
will design or evaluate and approve the design of the P.C. Sum.
Flow Chart for P.C. Sum Management at Tender Document Preparation Stage :
Figure 1.1: Flow chart of Prime Cost Sum management procedures at the stage of preparation of
tender document
8
MANAGEMENT PROCEDURES OF PRIME COST SUM AT TENDER DOCUMENT
CONSTRUCTION STAGE
S.O. and S.O. Representative who supervises and administers the contract must make preliminary
plans to ensure that the items under the P.C. Sum are tendered according to schedule so that the
appointment of the Nominated Subcontractor is not delayed. Delay in appointment may affect the
work program of the Main Contractor and will result in delayed completion of the project and cause
extension of time to be granted.
If M&E works and other specialist works that should be categorized as P.C. Sum have been allocated
as Provisional Sum in the Contract Document, then after the Letter of Acceptance is issued. It is
necessary for S.O. to immediately convert the works to P.C. Sum and implement the management
process. Management procedures for works based on P.C. Sum are as per current procurement
regulations. The recommendation of Tender or Quotation must be approved by the relevant
Procurement Board or Quotation Committee.
Flow Chart for P.C. Sum Management at Tender Document Construction Stage
:
Figure 1.2: Flow chart of Prime Cost Sum management procedures at the stage of construction of
tender document
9
a) PROVISIONAL SUM
INTRODUCTION
Provisional Sum works may be carried out by the Main Contractor or other party as required by S.O.
Then, Main Contractor entitle to apply to carry out the works under Provisional Sum. S.O. must
considering that if the Main Contractor have a capability to do so. If the works to be assigned to
another sub-contractor, then the S.O. should not supposed to award those Provisional Sum works
to the Main Contractor.
S.O. also have an authority to convert Provisional Sum to Prime Cost Sum.
PWD Contract
It means a sum for works or for the supply of goods or materials which cannot be defined or detailed
at the time the tender documents are issued.
PAM Contract
Provisional Sums means the sums provided in the contract and the Nominated Sub-Contract for
works to be executed or for the supply of any materials and goods which cannot be foreseen,
determined or detailed at the time.
10
PROVISIONAL SUM ITEMS
CONTINGENCY SUM
A contingency sum can best be described as a sum of money allowed in the project budget, for
expenditure on aspects of the project that were unforeseen or unforeseeable at the time of preparing
tender document. It should be used the design and construction phases of the project. The use of a
contingency sum allows the design to evolve in an orderly fashion while ensuring that you are aware
of the likely total 'end cost'.
By including a contingency allowance in each stage of the project the realistic, total cost, the total
end cost can be more accurately estimated and the design team can work within a budget that will
reflect the likely true cost of the project. The contingency sum is intended to cover the cost of
unforeseen or unforeseeable works and it should not be used for variations of works.
11
Flow Chart for Provisional Sum Management at Tender Document Preparation
Stage :
Figure 1.2: Flow chart of Provisional Sum management procedures at the stage of construction of
tender document
12
MANAGEMENT PROVISIONAL OF PRIME COST SUM AT TENDER DOCUMENT
CONSTRUCTION STAGE
For the purpose of preventing the implementation of this Prov. Sum rule from impeding the overall
development of the work, the S.O./S.O. Representative responsible for overseeing and managing
the contract must create preliminary plans while taking the Main Contractor's Work Implementation
Schedule into account. The scope of the Prov. Sum work must also be identified by the S.O. /S.O.
Representative.
13
APPENDIX
14
15
16
17
18
QUESTION 2:
PREPARATION OF
PROGRESS PAYMENT
FOR PRELIMINARIES
WORK IN
CONSTRUCTION
PROJECT
19
What do preliminaries in construction mean?
The preliminaries part of a bill of quantities typically contains the most arbitrary and difficult-to-price items.
The preliminaries section would show the highest price difference if all the tenderers' priced bills for a project
could be compared, with each estimate having his or her own perception of the scope and extent of the costs
involved. The client ran into issues while putting up the tender evaluation, particularly when comparing the
costs for each tenderer's preliminary offer. There will be 20 alternative price sets if there are 20 tenderers.
Some of them just sufficiently allow a specific amount of the building cost to go toward the preliminary costs
without even pricing the preliminary work. General overhead and job overhead are two categories of overhead
expenditures. All overhead expenses that cannot be attributed to a specific work are included in general
overhead costs. Job overhead costs include all overhead costs include all overhead and job but cannot be
charged to labour, materials, or equipment.
Preliminary costs in construction impact your entire project, and you’ll find that they cover a broad range of
equipment, labour, and materials. Prelims can be either one-time costs or ongoing costs that begin at the
project’s start and continue to its end. The easiest way to define preliminaries in construction is as a group of
items necessary for a construction company or contractor to complete a project but that won’t become a part
of the finished work, site overhead, scaffolding, powering the site, etc.
RM
Camera 2000.00
Photo: 10 photo x 6 sets x RM0.80 x 12 576.00
month
2576.00
Depreciation on camera 30% x RM 600.00
2000.00
1976.00
Add Profit& overhead 296.40
TOTAL 2272.40
20
Preliminaries Costs Component
Initial Cost
One-off expenses in early stage of construction which are incurred before work in producing the project
deliverable commences
Progressive cost
Continuous expenses throughout the life of the project
Completion cost
One-off expenses in last stage of construction after work in producing deliverable completed.
21
Construction pricing structures
Time and material contracts (T&M) are based on the actual hours worked and the materials purchased for
the job during the time you are billing for. Usually, an hourly billing rate is agreed upon, and there is a set
mark-up for the materials. Invoice amounts are a simple math equation (labour hours x labour rate +
materials costs x mark-up percentage). It is important to keep good records of costs, as owners or general
contractors may want to review them to make sure they are getting what they are paying for.
On lump sum contracts, the contract price is a set amount. This type of contract is generally used when the
total costs for the project can be easily estimated. On a small project, a subcontractor may bill with a simple
invoice at the end of the project. They are very easy to prepare and usually there isn’t much back-up
documentation required. On a larger project, lump sum contracts may call for progress billing to give the
owner more control over the work as it progresses, and provide ongoing payments to the subcontractor
doing the work.
Cost plus contracts work like T&M, in that they use the actual construction costs as the basis for the total
contract price. In these contracts, the subcontractor adds a percentage or set fee to the contract cost of the
project for overhead or other expenses. The owner or GC will likely require back-up documentation so they
can verify expenses.
Under a unit price contract, the price for a unit of work is set ahead of time (say
$100 per linear foot), and that amount is multiplied by the number of units complete. This is straight forward,
except when there are disagreements about how many units are complete. The subcontractor may need to
show documentation that proves the amount of work complete.
22
METHOD OF PROGRESSIVE COST
= RM22,450,500.00
% of progressive cost to net contract sum = RM654,700.00 X 100
RM 22,450,500.00
= 2.92%
23
Benefits of progress payments
Progress payments provide benefits to everyone up and down the payment chain. They
allow owners and/or prime contractors to review the subcontractors’ work before it’s
complete, and resolve disputes before the project is over.
For subcontractors, one of the best reasons to use progress payments is that you don’t
have to wait until the end of the job for payment. A regular payment schedule makes cash
flow much easier to predict and control. It is especially helpful for small businesses that
don’t have large cash reserves to wait for lump-sum payments.
Subcontractors can pay expenses on a job as they go. If you have cash flowing in
throughout the project, then you can pay your employees and bills on time. You don’t
have to wait until the end to pay everyone (if they’ll even let you wait that long), and you’re
less likely to go into debt to make ends meet.
Also, if you are billing as you go, it will be easier to spot a payment problem. For example,
if the first couple of payments are really prompt, and then they start to take longer and
longer as you go along, it could be a red flag that the project is experiencing financial
issues. If you wait until the end of the project, you won’t know whether the owner has the
money set aside or not. By that time, it is too late, and your only remedies may be filing
a mechanics lien or pursuing a lawsuit.
If there is a payment issue and you are billing as you go, you can stop the work until the
payment issue is resolved. Many contracts stipulate your ability to do this to resolve
disputes. Using this tactic is very effective in securing payment. Owners don’t want their
projects delayed for any reason, even if it is their own lack of payment. And if it is a GC
that isn’t paying you, stopping work will get the owner’s attention quickly.
24
CNH/327/11/C/VAL/10
K.W. LUM
Edd/edd
25
CNH JURUKUR BAHAN SDN BHD VALUATION NO : 10
QUANTITY SURVEYORS & PROJECT MANAGEMENT JOB REF. NO. : CNH/327/11/C Figure 2 :
DATE OF ISSUE : 5/09/2014 Progress
VALUATION FOR PROGRESS PAYMENT Payment No.
PROJECT TITLE : PROPOSED REFURBISHMENT AND UPGRADING WORKS FOR SOUTH BLOCK 10
(BLOCK B) FOR “CADANGAN TAMBAHAN DAN PINDAAN SERTA PERUBAHAN FASAD
PADA 2 BANGUNAN INDUSTRI 3 DAN 4 TINGKAT SEDIA ADA, DI ATAS LOT 358 DAN PROPOSED
LOT 20, JALAN 225, SEKSYEN 51A, MUKIM PETALING JAYA, DAERAH PETALING,
SELANGOR DARUL EHSAN UNTUK TETUAN OSK TRUSTEE BERHAD (AXIS REIT
MANAGERS BERHAD)
17/7/2013
DATE OF POSSESSION OF SITE : 7/1/2013 APPROVED EXTENTION OF TIME: 56 days 22/5/2013
56
CONTRACT PERIOD : 4.5 MONTHS REVISED COMPLETION DATE: 17/7/2013
vi) LESS Retention sum (Release 1st Moiety of Retention i.e. 2.5%
as per CPC Ref: HMA/1148/CPC/02 Dated 3/4/14 (506,141.93)
Sub-Total 11,013,635.32
N.B This valuation for Progress Payment No. 10 which amounts to RM 890,529.47
Ringgit Malaysia Eight Hundred Ninety Thousand Five Hundred Twenty Nine and
Cents Forty Seven Only
has been computed from Contract Document and site valuation and is only a recommendation
for Interim Payment. A separate certificate of payment shall be issued by the Employer's
Representative.
26
CNH JURUKUR BAHAN SDN BHD VALUATION NO : 10
QUANTITY SURVEYORS & PROJECT MANAGEMENT JOB REF. NO. : CNH/327/11/C
DATE OF ISSUE : 5/09/2014
VALUATION FOR PROGRESS PAYMENT
PROJECT TITLE : PROPOSED REFURBISHMENT AND UPGRADING WORKS FOR SOUTH BLOCK (BLOCK B) FOR “CADANGAN TAMBAHAN
DAN PINDAAN SERTA PERUBAHAN FASAD PADA 2 BANGUNAN INDUSTRI 3 DAN 4 TINGKAT SEDIA ADA, DI ATAS LOT 358
DAN LOT 20, JALAN 225, SEKSYEN 51A, MUKIM PETALING JAYA, DAERAH PETALING, SELANGOR DARUL EHSAN UNTUK
TETUAN OSK TRUSTEE BERHAD (AXIS REIT MANAGERS BERHAD)
APPENDIX A -
ESTIMATED PRELIMINARIES TO-DATE
CONTRACT INITIAL PROGRESSIVE COMPLETION
ITEM DESCRIPTION UNIT AMOUNT COST COST COST
AMOUNT AMOUNT AMOUNT
AMOUNT
ITEM DESCRIPTION RM
PRELIMINARIES
B PROGRESSIVE EXPENSES
PROJECT TITLE:
PROPOSED REFURBISHMENT AND UPGRADING WORKS FOR SOUTH BLOCK (BLOCK B) FOR
“CADANGAN TAMBAHAN DAN PINDAAN SERTA PERUBAHAN FASAD PADA 2 BANGUNAN INDUSTRI 3
DAN 4 TINGKAT SEDIA ADA, DI ATAS LOT 358 DAN LOT 20, JALAN 225, SEKSYEN 51A, MUKIM
27
Appendix "B" - Summary Of Estimated Gross Value Of Main Contractor's Work Executed To Date
H Infrastructure Works
- Element No. 1 - Road and Driveways 193,681.00 170,681.00
- Element No. 2 - Surface Water Drainage 547,927.20 305,043.85
- Element No. 3 - Sewerage Reticulation 130,793.00 120,977.00
- Element No. 4 - Water Reticulation 253,800.00 177,011.93
- Element No. 5 - RC Retaining Walls 318,274.80 318,508.80
28
QUESTION 3:
THE MATTERS
RELATED TO THE
PREPARATION OF
INTERIM PAYMENT
IN CONSTRUCTION
PROJECT
29
Interim Payment:
Definition:
Interim Payment is a payment made by the client to the contractor in phases based on the
construction performance at the construction site (the value of the work completed). The initial price
of the contract total is subtracted from the interim payment. Payments made by the contractor to
suppliers for materials, construction work, equipment rentals, general overhead, and other
expenses. Interim payments are made depending on the contract amount agreed upon by the
contractor and the customer. Work value is determined by two elements: preliminary work
(preliminaries) and general factors. This Interim Payment is paid in instalments following the
completion of the contractor's job.
The contractor will receive Advance Payment from the client in the first phase, which will serve
as an initial allocation for the contractor to perform the construction work. The following payment is
known as an interim payment, and it is made both during and after the duration of the contract, up
until the last payment. The change works also include the works that are considered for the Interim
Payment. According to the terms of the contract that the client and the contractor have agreed upon,
the first interim payment may be made even if the contract document has not been received for three
months.
There are a few requirements that must be met by the contractor before an Interim Payment
may be made, including that the contractor present a letter of acceptance that has been received
and witnessed. The contractor must also provide all required insurance policies as well as a
performance bond. The contractor must also submit an Interim Certificate and all payment vouchers
must be included with copies of valid documents such as:
i. Acceptance letter
ii. Performance bond
iii. Mandatory Insurance Policy
iv. Tender board approval and treasury approval (if the contract amount
exceeds 10 million)
This interim payment is made in a number of methods such as a monthly payment, and is
based on the quantity of factors, including the quantity of work that has been finished. Furthermore,
interim payments might be given according to how the project is going at the building site; the
contractor wouldn't get paid unless the entire scope of work was completed as agreed upon in the
beginning, prior to the contract being signed. Lum Sum is a term used to describe interim payment
that is suitable for small projects and times because payment is given only after the project is
completed in its entirety.
As a result, this Interim Payment may make the contractor’s job easier as they manage the
project. If the contractor takes into account the benefits of the project management work they have
completed, it may also result in a profit for them. This is evident in situations where the contractor
oversaw the project and considered the full scope of work, materials, and construction items in
addition to profit before putting in a fresh bid. Suppliers and subcontractors can use the Interim
Payment as a self-financing source to guarantee the project's success.
30
PWD203A (ver.2007) Clause 28.0 - INTERIM PAYMENT PROCESS
31
PAM2006 Clause 30.0 - INTERIM PAYMENT PROCESS
32
In the Malaysian construction industry, the standard form of contract for construction contract,
for example, PAM 2006, PWD 203A (Revised 2007) and have the stated elaborate express
conditions governing payment. The obligation is expressed as payment to the contractor through
interim or stage payments certified by designated officers in the contract. These detailed restriction
on contractor payment specify the requirements that must be met in every way by the employer.
Failure to do so may result in the employer being in breach of contract, even to the extent that clause
26(1)(a) of the PAM contract allows the contractor to terminate the agreement or suspend the works.
There are few things that need to be known related to Interim Payment before being able to
explain it such as:
i. Contract sum
ii. The matters related to the preparation of Interim Payment
iii. The works carried out by the main contractor, nominated sub-contractor and
nominated suppliers.
iv. Unfixed materials and goods on site
v. The previous and goods on site
vi. The advance payment and recoupment of advance payment
Contract Sum:
Contract Sum is the amount of money that the client must pay to the contractor as
consideration for the construction works, completing the construction works and repairing any
defects in the construction works according to the method of payment stated in the contract
document. The total Contract Sum is the entire price including Preliminaries Works, Provisional Sum
and Prime Cost Sum taken into account to make a Bill of Quantity.
Since errors are deemed to have been accepted by both parties, the agreed Contract Sum
should be calculated and verified. However, the Contract Sum does not mean that it forms a fixed
price but there may be some changes that the client wants to make to the project. Because of this,
the contractor has taken into consideration a wide range of potential outcomes that could occur
during project execution, including variations, fluctuations, statutory fees, loss and expense, and
others.
33
Example in Contract Sum PWD203:
34
Example in Contract Sum PAM:
35
The matters related to the preparation of Interim Payment:
there are several things that need to be considered in the valuation of the Interim Payment
before it can be paid to the contractor such as the works that have been carried out by the main
contractor including the Preliminaries Works. This aims to ensure that the payment is consistent with
the matters that have been agreed upon by the client and the contractor to ensure that the work
carried out can be completed within the stipulated period. Materials and goods that are not fixed on
the site also need to be considered to implement this Interim Payment such as materials and goods
that are used temporarily such as formwork.
In addition, the works completed by the sub-contractors must also be highlighted in this
Interim evaluation so that the sub-contractors. The supplier’s material may be compensated for use
in the project. For the purpose of paying suppliers, the increase in building material prices should be
taken into account. The purpose of Interim Payment is also to ensure damages and liquidate them.
Recoupment of advance payment through the repayment of performance bonds. Before attempting
to describe the Interim Payment, few issues must be taken into consideration.
Deductions:
36
The works carried out by the main contractor, nominated sub-contractor & nominated
supplier:
The work carried out by the main contractor can be divided into two categories:
i. Initial cost
ii. Progressive costs
iii. Final cost
b) Construction Work - The value of construction work carried out by the main
contractor includes all types of work contained in the scope of work/ contract and includes all
variations of work. Only the value of work performed correctly and in compliance with the
contract requirements should be considered for payment purposes.
The evaluation of the work carried out by the named subcontractor is the same as the evaluation
of the main contractor. In general, the evaluation of the work carried out by the nominated sub-
contractor is done by the Supervising Officer or the consultant responsible for the work. Things
considered in the appraisal include the value of the work done and the building materials.
Evaluation of materials provided by nominated suppliers is simple. As evidence that the required
quantity of material has been given, pertinent records from the delivery procedure are crucial in
this situation. Materials that do not adhere to the contract's specifications are not allowed to be
evaluated. Materials provided by designated suppliers are valued at 100% rather than 90% as
non-fixed materials and on-site goods are valued for main contractors.
37
Unfixed materials and goods on site:
Construction materials that have been on the site, nearby, or in another location agreed upon
by the Superintendent. Assessment are examples of non-fixed materials and items that may be
included. The quantity of each material is measured in order to evaluate the materials and non-fixed
items on the site. This amount can be determined in several ways, including personally counting at
the construction site, estimating based on delivery papers, or using other methods judged
appropriate, reasonable, and roughly accurate. 90% of the value of the materials/ products brought
to or nearby the site is the value of the payment for materials/ goods that are not fixed there.
Among the other conditions stated in relation to materials and goods that are not fixed on the
site are:
i. Construction materials and goods to be considered in the evaluation must be used for
the project.
ii. Construction materials and goods must comply with the requirements of the contract.
iii. Building materials and goods intended to be incorporated into permanent works.
iv. Construction materials and goods that can be recognised are only construction materials/
goods that are stored according to certain rules that have set.
v. Building materials and goods to be paid for are not brought to the construction site too
early.
38
The calculation of value of Unfixed Materials and Goods onsite:
Refer to the amount of an Interim Payment that has already been issued. For example, if
Interim Payment no. 16 is currently being prepared, Interim Payment no. 1 through 15 are the
previous payments. The previous payment is therefore the whole amount paid from Interim Payment
no. 1 to Interim Payment no. 15.
39
Example of Previous Payment PWD203:
Advance Payment:
A sum of money or contractual consideration paid by the employer to the contractor before the work
involved is carried out. It is to help the contractor start and finance the contract without resorting to
unnecessary external loans that can burden him in the early stages of the contract. A practice that
is mainly organized by works involving public works contracts. The Main Contractor is eligible for an
advance payment of up to 25% of the Construction Work with a maximum limit of RM10 million.
Refunds by the contractor to the client made through deduction of amounts shall be paid to the
contractor (through interim payments) gradually using a specific formula until the amount of the
advance payment can be fully recovered.
40
APPENDICES
41
QUESTION 4:
INTERIM PAYMENT
PREPARATION IN
PUBLIC OR PRIVATE
CONSTRUCTION
PROJECT
42
The meaning of interim payment
An interim payment is a stage payment or instalment paid by the main contractor, building
owner or developer to subcontractors under a construction contract. The provision for interim
payments allows subcontractors to receive compensation for work as it is completed in stages rather
than waiting until the job’s conclusion.
.
Purpose of Interim Payment:
The goal is to relieve the contractor from the burden of entirely unexpected cash flows, which
would otherwise be an overhead for interest costs included in the offer. theory is that of all interim
payment systems.
Even if the employer bears the same financial risk by agreeing to provide an Interim Payment
that is not necessary, the employer benefits from the following:
i. May be able to obtain the money at better rates than could the contractor.
ii. Avoids payment of a profit element thereon.
iii. Exposing the contractor to less overall financial risk, the chances of the latter’s default are
reduced.
i. To ensure that the contractor gets paid on a regular basis throughout the duration of the
project.
ii. To assist the contractor in overcoming a cash flow issue.
iii. To create a source of self-financing for their own supplier and subcontractor agreements.
iv. Maintaining the contractor's cash flow and, as a result, reducing any deficit that might
affect the project's smooth functioning.
43
There are several procedures that need to be followed before being able to pay it to the contractor
such as:
1. Preliminary Steps
2. Execution of work
3. Application for payment
4. Valuation of worker cited
5. Certification of Payment
Preliminary Steps:
To start the payment process, it is the responsibility of all parties to resolve the initial issues related
to the same. These issues must be established no later than the date of ownership of the site or
within a reasonable period thereof.
If those things are included in the 'contract' or in the 'project procedure manual', these things should
be reviewed and honed into a form that can be mutually accepted by the parties at the forum. Key
issues include, among others, the following:
44
Execution of Work:
The contractor must do the work as required by the contract in order to be eligible for payment,
which is one of the requirements. It is possible to begin the payment process provided that:
i. The contractor has properly performed the work under the contract, i.e., physical work and
delivery of non-fixed materials/goods to the site; and
ii. The value of the work carried out exceeds the minimum value set in the contract (if
applicable).
The standard form of contract terms is divided into the issue of whether the start of the payment
process is dependent on the contractor making an application for the same or vice versa.
i. Requirements for Contractors to Apply (PAM, Putrajaya, CIDB, PWD DB/T and IEM.ME
Contract Forms require contractors to apply for interim payments by submitting details
and particulars to the Contract Administrator for consideration).
ii. No Requirement for Contractor to Apply (PWD Contract Forms 203, 203A and IEM.CE do
not expressly require contractors to apply for payment but instead impose an obligation
on the Contract Administrator to initiate the payment process).
The contract supervisor is tasked with carrying out the appropriate evaluation once the contractor
starts working and completes enough work in the period leading up to the stipulated period for
certification. Prerequisites for this payment procedure stage typically include:
45
Appraiser:
Although the contract administrator is typically in charge of the evaluation procedure, his authorised
agent typically handles this job instead. These representatives consist of:
Other parties that may attend and take part in the execution of measurements and assessments,
aside from authorised verifiers and/or assessors (QS), include representatives of contractors, named
sub-contractors/ suppliers, employers, independent inspection engineers, and/or other pertinent
third parties. Nevertheless, even if their presence is preferred, it is not required; the appraiser is free
to work alone without their involvement.
i. The appraiser continues the required measurement and evaluation operations on the
planned date in line with the evaluation approach that was previously decided.
ii. The physical work done includes any other work that was carried out, measured if
necessary, or computed and evaluated using a recognised and/or previously established
technique.
iii. Then, after being delivered to the site, materials and/or non-fixed goods are examined
and assessed in accordance with the procedure outlined in the contract. Only supplies or
items that satisfy the requirements are considered.
iv. The determination of the value of the work to be paid always includes 'Start- up' or
'General Matters' - (Start-up fee, progressive fee & Competition fee).
v. Where the contract allows, cost changes are due to the presence of clauses such as:
'Cost Variations, Fluctuations, Price Adjustments, Cost Increases or Escalators' clauses.
vi. The evaluator creates an evaluation report following the evaluation exercise. Such reports
must be formalised by the lead assessor (i.e., if someone is authorised to play such a
position), compiled/ collected, and officially signed by each individual assessor.
46
Certification of Payment:
When an assessment milestone is reached, one stage of the payment cycle is completed, and
frequently the next stage, certification is now started. This is one of the most significant components
of the payment process from legal and procedural standpoint because only when it is successful can
the contractor’s rights be formally accumulated.
The fulfilment of any other specified preconditions may affect the timing of the issue of the first
Interim Certificate, in addition to the minimum value established. The contractor’s submission of the
following documents is a typical illustration:
Certificate Form:
Most certificates are of the 'bespoke' or 'ad hoc' type although the institutional type, e.g., issued
by PAM, IEM, etc. or generated by a particular employer, e.g., JKR/JKR, Putrajaya and others
are not uncommon.
Validator
It is customary for the Contract Administrator to be the validator in most contracts, examples of
which include:
47
Appendix:
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
QUESTION 5:
PROCEDURES OF
VARIATION OF
WORKS IN PUBLIC OR
PRIVATE
CONSTRUCTION
PROJECT
65
WHAT IS VARIATIONS IN CONSTRUCTION?
Valuations of variations are often based on the rates and prices provided by the
contractor in their tender, provided the work is of a similar nature and carried out in similar
conditions. This is true, even if it becomes apparent that the rates provided by the
contractor were higher or lower than otherwise available commercial rates.
66
CAUSE OF VARIATION
CLIENT
CONSULTANT
ü Design change
CONTRACTOR
ü Lack/absence of equipment
OTHER
ü Weather changes
ü economic changes
67
PROCEDURE OF VARIATION
The common areas of contention involving variation can be narrowed down to the
following stages of a typical variation cycle, namely:
a. Instructions for Variations
b. Measurement of Variations
c. Valuation of Variations
d. Payment for the Variations
As each stage proffers its own unique set of pitfalls and areas of concern, these will be
examined in brief hereunder with an aim of highlighting issues that need to be
addressed from the perspective of a practitioner.
Measurement of Variations
Varied work has to be measured as a condition precedent to valuation and
payment. The timing, methodology and the parties responsible are either expressly
stipulated in the applicable express contractual provisions or mutually agreed to by the
contracting parties.
By and large, most if not all the standard forms of conditions of contract contain
express stipulations pertaining to the issue of the measurement of varied works.
The contractual provisions recognize the need to employ recognized methods
for measuring the varied work. For example SMM for building works and CESMM for
civil engineering works.
68
Figure 1 : Variation Order No. 10 PROPOSED REFURBISHMENT AND UPGRADING
WORKS FOR SOUTH BLOCK (BLOCK B) FOR “CADANGAN TAMBAHAN DAN PINDAAN
SERTA PERUBAHAN FASAD PADA 2 BANGUNAN INDUSTRI 3 DAN 4 TINGKAT SEDIA
ADA, DI ATAS LOT 358 DAN LOT 20, JALAN 225, SEKSYEN 51A, MUKIM PETALING JAYA, DAERAH
PETALING, SELANGOR DARUL EHSAN UNTUK TETUAN OSK TRUSTEE BERHAD (AXIS REIT
MANAGERS BERHAD
69
V.O. 29 - Rectification of Existing Fencing A rc h ite c t D ra w in g R e f:H M A -1 1 4 8 -1 1 -A
29 Wall 10,596.50 100% 10,596.50 d a te d o n 2 2 .8 .1 3
E n g in e e r D ra w in g R e f: R D /0 0 1 J d a te d on
32 V.O. 32 - Rectification Damages at Block C 39,967.06 80% 31,973.65 2 1 .8 .1 3
34 V.O. 34 - Service Platform 25,882.81 100% 25,882.81 E.I Ref No: 12.01/DPC/04
35 V.O. 35 - CSR Wall 9,551.47 100% 9,551.47 E.I Ref No: 12.01/DPC/05
E n g in e e r D ra w in g R e f: R D /0 0 1 J d a te d on
38 V.O. 38 - Canopy Roof at Loading Bay 11,212.66 100% 11,212.66 2 1 .8 .1 3
43 V.O. 43 - Spray Tiles to Existing Entry Statem 950.00 100% 950.00 A rch ite ct D ra w in g
Note: DPC agreed that all Variation Order's rates used have to apply the Adjustment Factors.
70
QUESTION 6:
FINAL ACCOUNT
PREPARATION IN
PUBLIC OR PRIVATE
CONSTRUCTION
PROJECT
71
INTRODUCTION
The parties must resolve the remaining consideration owed to the contractor so that it can be paid
to him as soon as possible so that the contract can be closed off after the work has been finished
and turned over and the contractor has complied with all of his contractual obligations.
It should be understood that the Contract Administrator is not the only party involved in concluding
the account; the Contractor must also provide the necessary information, particularly in terms of
supplying the pertinent records, substantiations, etc. Regarding his claims, etc., as well as those
pertaining to his subcontractors.
In practice, the whole issue of the final account is so notorious for procrastination, delays and
altercations that it is a small wonder that only in a handful of cases in the Final Certificate issued in
time; the majority of contracts remaining open for years after the Certificate of Making Good of
Defects has been issued.
a) Final Account
Final Account is a statement that lists the entire final (current) contract value, all payments made
through earlier interim payment certificates, along with any other deductions permitted by the
contract, and the total amount still owed to the client or contractor.
b) Final Account Statement
A provisional declaration of the ultimate contract amount that displays the entire expense of the
finished work.
They were prepared by factoring in all variation order adjustments, re-measurements of
provisional quantities, adjustments to the expenditure PC & Prov. Sum, fluctuations in material
prices, claims for direct loss and expense made by the contractors, and other contract-permitted
adjustments.
c) Final Certificate
In addition to stating that payment will be given to the Contractor or Client in accordance with w
ho is entitled, the Superintending Officer/Architect issued a certificate confirming to the Contrac
tor’s compliance with and performance of its responsibilities in completing projects and repairin
g all defects in accordance with contract requirements.
d) Final Payment
After the job is finished and/or the necessary repairs are finished, the “Client to the Contractor”
or “Contractor to the Client” makes the final payment.
After the last payment is made, no more payments are allowed.
72
PURPOSE OF FINAL ACCOUNT
v To present the total amount of the original contract and the total amount after all adjustments
to the original contract have been made, such as: Re-measurement of provisional quantities;
adjustment for VOP calculations; and resolution of all claims between the contractor and the
client.
v To suggest an overall cost that the client ought to pay after deducting the earlier intermediate
payments.
v To show the Contract Administrator’s satisfaction that the work has been finished and
complies with all applicable requirements and contract conditions.
v To provide the Contract Administrator the chance to repair and modify any inaccuracies.
Preparation of final account and was followed by submission of the final certificate to the
Contractor eligible to get the final payment. With this payment thus ends all financial matters
for the project and the Contractor may close the account in the projects.
The result of this closure the Contractor will be able to know the amount of profit earned or
otherwise.
v CLIENT
The Client can determine the amount of the final payment that has to be made to the
Contractor by using the final account.
Information from the final accounts allows the Client to know the total cost or the amount of
investment made for the project.
Once the final payment to the Contractor and the Consultants made, then the Client can close
the accounts for the project.
v CONSULTANTS
For the Consultants, the entire cost of the real contract that was referenced from the final
accounts is important since it serves as the foundation to determine the professional fees that
each Consultant will be charged. Following the client’s payment, all disputes and accounts
between the consultants and the client were resolved.
73
PREPARING FINAL ACCOUNT
a) PARTICAL COMPLETION
The contract administrator certifles practical completion when all the works described in the
contract have been carried out. This is when, leaving aside minor items and/or snagging, the
works are considered to be complete.
Once the certificate of practical completion has been issued, the client takes possession of the
works for occupation. At this point the contractor no longer has exclusive possession of the site,
and their obligation to insure the works and their liability for liquidated damages for delay comes
to an end.
74
b) Liquidated & Ascertained Damages (LAD)
The Liquidated & Ascertained Damages (LAD) clause is an important part of a construction
contract. It's designed to cover any predicted losses which might occur as a result of a project
overrunning or being delayed.
An important thing to remember is that LAD is not a financial penalty and neither is it implemented
as a punishment for a breach of construction contracts. It's actually a pre-agreed part of the
contract itself between an employer and contractor.
Under the LAD clause, a sum of money is agreed which will be recovered by the employer for
every day of delay beyond the agreed upon completion date.
c) Sectional Completion
75
d) Partial Occupation
The client with the consent of the contractor can take possession of part of a building or site,
even if works are ongoing. This can be programmed within the original contract documents it the
need can be foreseen through a requirement for sectional completion, but in the absence of such
a provision many contracts offer the more open-ended option of partial possession.
The effect of partial possession is that:
• Any part for which partial possession is given is deemed to have achieved practical
completion.
• Half of the retention for that part must be released. The defects ilability period begins for
that part.
• Liquidated damages reduce proportionally.
• The client is responsible for that part and should insure it.
76
e) Delay And Extension Of Time
The client with the consent of the contractor can take possession of part of a building or site,
even if works are ongoing. This can be programmed within the original contract documents it the
need can be foreseen through a requirement for sectional completion, but in the absence of such
a provision many contracts offer the more open-ended option of partial possession.
If the contract administrator accepts that the delay was caused by a relevant event, then they
may grant an extension of time and the completion date is adjusted. Relevant events may
include:
• Variations.
• Exceptionally adverse weather.
• Civil commotion or terrorism. Failure to provide information.
• Delay on the part of a nominated sub-contractor
• Statutory undertaker's work.
• Loss from a specified peril such as flood.
• The supply of materials and goods by the client
• Strikes
• Changes in statutory requirements.
77
f) Termination of Work
Terminating a contract means legally ending the contract before both parties have fulfilled their
obligations under the terms of the contract. There are a variety of reasons why a party can terminate
a contract. When and how the contract is terminated will determine whether either party has any
liability for breach of the contract before it was terminated.
After a contract is terminated, the parties to the contract do not have any future obligations to each
other. However, one or both parties might be liable for breach of the terms of the contract prior to
termination. The terms of the contract might also determine what happens after the contract is
terminated.
As soon as is practicable but not later than three (3) months after the issuance of the Certificate of
Practical Completion, the Contractor shall submit full particulars complete with receipt, vouchers
records that would substantiate the Contractor's claim under clause 44 (Claims for Loss and
Expenses) together with any documents, supporting vouchers and any explanation and calculations
including documents relating to the accounts of Nominated Sub-contractors or Nominated Suppliers,
which may be necessary to enable the Final Account to be prepared by the S.O.
PROVIDED ALWAYS the Contractor had given the notice of claim in writing within the stipulated time
or times in the said provisions.
78
PROCEDURES IN PREPARING THE FINAL ACCOUNT ACCORDING TO PAM
STANDARD FORM OF CONTRACT
Within six (6) Months after Practical Completion of the Works, the Contractor shall send to the
Architect and Quantity Surveyor, all documents necessary for preparing the Final Account, including
all documents relating to the accounts of Nominated Sub-contractors (if these had not been
submitted earlier under the Nominated Sub-contract) and Nominated Suppliers
Such documents shall contain all the latest construction drawings and details (bound together),
details of all quantities, rates and prices and any adjustment of the Contract Sum and additional
payment or compensation claimed by the Contractor under the Contract together with any
explanation and supporting vouchers, documents and calculations, which may be necessary to
enable the Final Account to be prepared by the Architect and Quantity Surveyor.
79
80
ROLE OF THE QUANTITY SUREYOR IN PREPARING THE FINAL ACCOUNT
1. Make sure the amount of ne/ addi2on / omission are taken from the Statement of Adjustments of
Contract Sum (Penyata Pelarasan Harga Kontrak). Make sure the following are complied with prior to
the prepara2on of the Final Cer2ficate is completed.
• All Prime Cost Sums (including a/endance charge and profit) and Provisional Sums have been
adjusted.
• All items for re-measurement works was made.
• All items/work not performed (omission) or reduced from the contract provided APK.
• All APK & PHK have been adjusted.
• Adjustment for compu2ng the VOP.
• All claims (Loss & Expense) between the contractor and the Government has resolved.
2. Make sure the FINAL CONTRACT SUM is the total ORIGINAL CONTRACT SUM aUer the addi2on or
omission from the Statement of Adjustment of Contract Sum. Original Contract Sum is exactly taken
from the le/er of acceptance in the contract document.
3. Make sure that all previous interim payment amount is based on the payment voucher and not based
on an approved interim cer2ficate. This is because the approved cer2ficate does not reflect that
payment has been made to the contractor.
4. Ensure that the sum of Advance Payment, if any that are based on payment vouchers (including
Advance Payment to the NSC/NS).
5. Ensure the other deduc2on is allowed under contract such as repayment of Performance Guarantee
Sum, payment to third party 10% On Cost Charges,
6. Make sure that the FINAL PAYMENT UNDER THE CONTRACT is the FINAL CONTRACT SUM less any
A(a), A(b), Afe) and Afd) (form JKR 66A)
81
APPENDIX
82
83
84
CONCLUSION
In conclusion, a PC Sum is intended to cover the expense of particular things that the client may not
have yet decided to purchase. A common example is the PC Sum allocation for the supply of floor
tiles. This lets your client know that there is money in the budget to cover an acceptable specification
of tiles, but if they choose something more or less expensive than the permitted amount, a variation
will apply. Make sure to calculate labor and attendance on subcontractors on a separate line item
whenever you use them because these are not included in PC amounts.
A provisional sum has more to do with a vague definition or scope of work; pricing earthworks is a
fantastic example of this. It makes more sense to allow a decent provisional sum for this trade, or at
least the excavation component of the deal, due to the potential unknowns because it is common to
just not know what might be hiding beneath the surface.
Preliminaries works are necessary costs to deliver the project, but they form no part of the finished
works. The prelims description should set out the requirements generally as a whole and not be
specific to any type of trade or element of the works. The format should be clear how the
management, resources, establishment and general running costs have been calculated individually
and how the prelims total has been derived.
Interim payments in construction play a crucial role in sustaining project momentum by providing
periodic compensation based on completed stages or milestones. They ensure contractors and
subcontractors receive fair remuneration throughout the project's lifecycle, fostering financial stability
and encouraging timely completion. Effective documentation, transparent assessment criteria, and
adherence to agreed-upon payment schedules are key to a successful interim payment conclusion,
promoting trust and collaboration among all project stakeholders.
Variation orders are an inevitable part of construction projects, representing changes to the original
scope of work. Quantity Surveyors play a crucial role in managing these variations by assessing
their impact, estimating costs, and documenting changes accurately. By implementing best practices
such as effective communication, robust cost estimation, and continuous monitoring, quantity
surveyors can successfully navigate the challenges associated with variation orders.
All relevant items must be shown separately in the final account, and the net amount of each
variation and amounts due to each nominated subcontractor and nominated supplier listed. When
preparing the final account, the employer's quantity surveyor should give the contractor’s quantity
surveyor the opportunity to be present when measurements and details are taken or recorded, so
that the document is prepared in full liaison with the contractor to avoid the possibility of disputes.
85
Reference
Internet:
Issue of Late and Non-Payment in Construction Industry
- https://www.lawteacher.net/free-law-essays/contract-law/issue-of-late-and-non-payment-law-co
ntract-essay.php
- http://jpedia.jkr.gov.my/images/5/56/Chapter_7.pdf
1. STANDARD FORM OF CONTRACT TO BE USED WHERE BILLS OF QUANTITIES FORM PARI OF THE CONTRACT
P. W.D. FORM 203A (Rev. 2007)
https://www.thenbs.com/knowledge/preliminaries-and-general-conditions
https://www.designingbuildings.co.uk/wiki/Preliminaries_in_construction
-Ramus J., Birchall S., Griffiths P. (2006), "Contract Practice for Surveyors", Routledge, Italy, Vol.
4
-SEAMUS COOLEY QUANTITY SURVEYORS ( 4 Jun 2011), Valuation for Contractors from
https://www.scquantitysurveyors.com/services/valuations-for-contractors/
86
APPENDIX
87