Introduction to Law of

Contract and Estimation

 Lecturer’s Profile
Name: Assoc Prof Dr. Doh Shu Ing

Contact number: 019-8129298

Email: [email protected]

Industry Experience: 5 years

Academic Experience: 14 years

 Course outline
• Construction Process
• Tendering
• Delivery methods
• Project Administration (JKR203A, PAM2018)
• Project Estimation
• Taking Off
 Course outcome
C • Describe and analyze the type of construction contracts and
O tender documents.
1
C • Differentiate type of contracts and propose the right type of
O delivery methods to suit the nature of construction
2
C • Manage the construction contracts using relevant contract
O documents
3
C • Describe and apply the method of estimation according to SMM2
O
4
C • Analyze and interpret construction data to estimate construction
O cost.
5
 Marks Breakdown
Week 3
Assignment 1
10%
As per schedule Week 5

Final Exam Assignment 2

40% 10%

Week 8 Week 6
Project Mid Term Exam
20% 20%
 Introduction to Law of
Contract and Estimation
 Learning Outcome
• At the end of class, all of you able to:
– Describe the construction process
– Describe the procurement process
– Analyze the importance of tendering and its
process
– Differentiate types of tender
 What is project?
– An endeavor that is undertaken to produce the
results that are expected from the requesting
party
– In construction a project may be design only,
construction only or a combination of
design and construction

8
 Construction Phases
– Strategic Planning, or conceptualization:
– System Design:
– Detailed Design:
– Development
– Operations and Lifecycle Support

9
 Construction Phases
– Conceptualization/ Initation: The need for a project
is identified, so that specific Objectives are
achieved Alternative projects (including the do-
nothing option) are examined
– System Design: The approach for addressing the
organization’s strategic concerns is established
during systems design The requirements are
translated into specific technical specifications
– Detailed Design: The phase in which the optimal
systems design is translated into a detailed
technical implementation scheme
10
 Construction Phases
– Development refers to the implementation of the
detailed design
– Operations and Lifecycle Support represents the
period during which the project yields benefits to
the organization

11
 Project’s Life Cycle
• A project life cycle acts as a framework that helps a
project manager split a project into manageable phases
and signify the main milestones or decision points
throughout the project lifespan.
• A project life cycle helps a project manager maintain
control over the project. It can also be useful for
recognizing the different level of effort that will be
required from different teams or team members
throughout the project lifespan.
• Consequentially, it might be helpful for organizations
running several projects in parallel to assign resources
across different projects. 12
 Conceptualization
System Design
Detailed Design

Operation and
life cycle
Development

Development
 Project’s Life Cycle
Implementation
Evaluation
& Execution,
Initiation Selection Performance &
&
Termination
Monitoring

•Having two stages:

Question must be •Baseline schedule, •Celebrate project finish
info gathering and
asked whether budget, time and cost •Contract close-out, Team
taking decision
there is any real management feedback etc
• Select a team
need to establish a •Issues, risk, reporting,
members that will
project monitoring, approvals,
answers to: What?
communication etc
How? When?
Where? and What?

Procurement
Preconstruction Construction
Phase (Bidding Closeout Phase
Phase Phase
& Award)

14
 Procurement
• Procurement can be defined as the acquisition
of goods or services.
• It’s a process that involved many parties with
different objectives.

16
 Procurement
Construction management procurement is defined as
being the art and manner of securing necessary goods
and services to
• timeliness
• acceptable quality
• respect of financial parameters (reasonable pricing)
• minimizing and mitigating risk
• effective communication and administration
• ensuring clients’ satisfaction by understanding their
dreams.
17
 Procurement Process

Close
Administer
Conduct

Plan

19
 Procurement Process
• Plan Procurement
– Planning for purchases, acquisitions, specifically the
development of a procurement plan that states what to
procure, when and how.
• Conducting the procurement
– Once the requirements are identified, requisition process will
begin with:
• Evaluating, confirming qualified sources, reviewing
past performance
– In this stage tendering process will carry on and type of
contract and project delivery method should be identified
20
 Procurement
• Administer Procurements
– Main task is make sure the contractor comply the
contractual terms and conditions and the final
product is fit for use.
• Procurements Closure
– Verify that all of the work performed are acceptable.
– Documented, briefing the owner/client the overall
performance, documented the contractor’s
performance, identify any gap that can be improved,
performing a lesson-learned review and identifying
best practice
21
 Tender
• Definition
– A process by which one can seek prices and terms
for a particular project (such as a construction job)
to be carried out under a contract, either for
works, goods and equipments supplies and also
services at a specified cost or rate, called a bid.

22
Requirements of tender documents

• It must form the basis of a valid contract and

must be physically buildable by a contractor;
• It must reflect procurement in accordance
with the employer’s discretion;
• The scope of the work to be carried out must
be clearly defined and specified;
Requirements of tender documents

• The tender document must be easily

understood and avoid ambiguities,
discrepancies, errors and misinterpretations;
• The works must reflect the expressed or
implied requirements of the particular
employer; and
• The works specified in the tender documents
must comply with the current standards of
design, construction and good practice.
Tender document preparation
• Employer’s specific needs;
• The organization and composition of the
professional team members, in particular the
lead consultant;
• The procurement method to be adopted, e.g.,
traditional or non-traditional contracting; and
• The specific standard form of contract to be
used.
 Tender process

Open Bids
Request for (determine
Design bids to Bids low bid
Advertise
Complete interested received with
bidders reasonable
price)

Low Bidder
Notice to Preconstruction Contract submit
Proceed Briefing Award required
documents

26
 Tender Activities
Stage Activities
1. Preparation Prepare tender specifications

2. Advertisement Advertise tender

3. Evaluation Technical evaluation Costing evaluation

(technical evaluation (Costing evaluation
committee) committee)
Compile Evaluation
Tender Report

4. Presentation Present to tender board

(procurement committee)

5. Decision Decision on successful tenderer by tender board

27
Preparation Document Tender
Permission to tender Sell the tender document

Drawings

Preparation of
Tender Document
Types of tender

Conditions of
contract

Determine class of Determine the selection

contractor criteria

28
Class of Contractors (PKK)

A - RM10,000,000.00 & above

B – RM5,000,001.00 to RM10,000,000.00
C – RM2,000,001.00 to RM5,000,000.00
D – RM500,001.00 to RM2,000,000.00
E – RM200,001.00 to RM500,000.00
F – RM200,000.00 and below

29
Scope of work (PKK)

30
Class of Contractor (CIDB)

31
 Condition of Contract
 JKR 203 – Lump sum contract (without quantity)
 JKR 203 A – Contract ( with quantity)
 JKR 203 N – Sub contract
 JKR 203 P – Sub contract (material supply)
 JKR 203 H ( 12/83 ) – Store goods supply
 JKR 203 E ( 10/89 ) – Engineering equipment and machinery
supply
 JKR 203 Q – Quarry supply
 JKR 203 R – Transportation supply within the district
 PWD D&B/T – Design and build contract
 FIDIC (Red Book, Yellow Book & Silver Book)
 CIDB 2000
 IEM 2000
 PAM 2018
32
 Tender Drawing / Estimates
– Prepare the tender drawing and preliminaries
estimates (in Malaysia known - As Tendered Detailed
Abstract (ATDA) @ Preliminaries Details Abstract
(PDA))

33
Tender Drawing / Estimates

BAA3012/SemII0910Z 34
 Tender Notice
– Tender Notice is a brief description of the job
being tendered which is to be published as
• flyers;
• advertisements in newspapers, magazines, etc;
• broadcasting media such as television, radio, etc;
• notices on the internet; or
• use of advertising firms.

BAA3012/SemII0910Z 35
 Tender Notice
– Notice which invites tenders which is a written offer
submitted by the contractors for carrying out the
work at certain rates with terms and conditions laid
down
– The notice inviting tender paper is very important
document on which tenders and subsequent
agreements with the contractors are based.

BAA3012/SemII0910Z 36
Tender Notice

37
Tender Notice Pengiktirafan bumiputera

51% = Bumiputera
49% = Non bumiputera

Board of director, share holder

and workers.

Share own by the bumiputera

exceed those of Non
Bumiputera

The Bumiputera have control

over the finance.

The organization chart and

functions managed by the
Bumiputera.

38
 Definition of Bumiputera
• Peninsular Malaysia
– "If one of the parents is Muslim Malay/Orang Asli as stated in
Article 160 (2) Federal Constitution of Malaysia; thus the child is
considered as a Bumiputra"
• Sabah
– "If the child was born in Sabah or the father was domiciled in
Sabah at the time of birth, and one of the parents is an indigenous
native of Sabah as stated in Article 161A (6)(b) Federal
Constitution of Malaysia, the child is considered as a Bumiputra"
• Sarawak
– "If both of the parents are indigenous natives of Sarawak as stated
in Article 161A (6)(a) Federal Constitution of Malaysia; thus their
child is considered as a Bumiputra"
 Definition of Bumiputera
• Constitution of Malaysia Article 153 recognised
the "special position" of the Malays.
• However, the constitution does not use the
term bumiputra; it defines only "Malay" and
"aboriginal peoples" (Article 160(2)),"natives"
of Sarawak (161A(6)(a)), and "natives" of Sabah
(Article 161A(6) (b))
 Definition of Malay
Article 160 of the Malaysian Constitution defines
Malay as :
1 - a person who practices the religion of Islam, who
speaks Malay, who conforms to Malay customs
AND
2 - who has origins within the Federation of Malaysia
or Singapore before Independence on 31 August
1957, or who is the child of at least one parent born
among the population then belonging to the
Federation of Malaysia.
 Content of Ideal Tender Notice
a. Name of the Project. i. Date and time up to which
b. Name & Address of the tender documents can be
Company floating the obtained.
tender. j. The cost of tender
c. Name of work, materials or documents.
services.
k. The date and time up to
d. Place of work location. which the tenders to be
e. Approximate estimated submitted and are to be
cost of work. opened.
f. Earnest Money.
l. Specification.
g. Period of completion.
m.Eligibility Criterion.
h. Date on which the Tender
Document sale
commences. 42
Tender Notice

43
 Tender Evaluation
• Once tenders have been submitted and
received, they are then evaluated.
• Tender evaluation involves an assessment of
tenders against the criteria referred to in the
Request for Tender or invitation documents,
as well as an analysis of the strengths and
weaknesses of the submitted tenders.

BAA3012/SemII0910Z 44
Criteria Assessment – 1 Stage st

• Complies with any conditions of participation.

• Tender has been lodged on time.
• Documents are signed as required.
• Tender meets all mandatory requirements.
If the tender does not meet this initial check, it
is deemed as non-compliant and will be
excluded from further consideration.
Analysis of Strength and Weaknesses –
2nd Stage
• The technical merit
• The capability of tenderer to fulfil the
requirement including: technical and
management competence, financial viability and
relevant experience,
• The relevant skills, experience and availability of
key personnel,
• Quality assurance requirements, and
• The risks or constraints associated with your offer.
 Tender Evaluation
– Rule of thumb, lower bidder will be considered
but its depends on some criteria:
• Time of completion, bond and certificates of insurance
are examine, previous records and the completeness of
the bid documents

BAA3012/SemII0910Z 47
Others factors of tender evaluation
• Fitness for purpose
• Maintenance and running costs
• Risks
• Warranty
• Quality, Environmental and safety considerations
• Energy conservation
• Disposal Value
• Capacity of the supplier
• Wider benefits to the customer
• Creating strategic partnerships
• Payments terms
 Letter of Intent
• The letter of intent (LOI) is no more than the
name implies, i.e., that the parties hope that at
some time in the future they will enter into a
contract.
• They are designed to have the effect of giving
advance notice, often to main contractor and
subcontractors, that there is work in the pipeline
and that specialist materials will need to be
ordered if they are to be available at the start of
the project.
 Letter of Intent
• By labelling a document an LOI does not by itself become
conclusive that the document is to take effect as an LOI as
intended by its issuer.
• The whole contents of the LOI have to be studied to arrive at a
conclusion.
• Generally, an LOI is a document expressing the present intent of
one party and this is generally not construed as the parties having
agreed on all the essential terms of the contract between them.
• In Kokomewah Sdn Bhd v Desa Hatchery Sdn Bhd (1995), the
court held that as the parties were still negotiating, the LOI issued
remains what it was and the parties had not concluded any
contract.
 Letter of Award
• Upon the completion and the recommendations contained in
the final report and approved by the employer or its
authorized representative, the process of formally accepting
the tender can be started.
• The employer shall issue a formal letter of award or acceptance
(LA) to the successful tenderer.
• A formal contract is formed after the successful tenderer or its
authorized representative signs the letter of award or
acceptance.
• If the tenderer need to acknowledge the acceptant of LA
within a reasonable time which is within the tender validity
period. Else the LA is considered void.
 Contents of LA
• The contract price or sum;
• The site possession date or dates if project is in phases or sections;
• The duration or durations of the phases or sections if sectional
completion is applicable;
• The commencement date or dates if phases or sections are
applicable;
• The amount of liquidated damages of each phase or section;
• Conditions precedent to the commencement of work such as
deposit of performance bond, insurance, organization chart,
working programme and names of subcontractors; and
• The identity of the authorized signatory.
 Tender withdrawal prior to acceptance
• The withdrawal of a tender by a tenderer before tender closing
does not attract serious financial cost but if this is done after
tender closing, it may result in considerable financial
repercussions.
• This is due to the employer requiring the tenderers to submit
tender bond or deposit earnest money at the time of tender
submission. This bond or deposit can be forfeited by the
employer. In addition, the employer may resort to blacklisting the
tenderer concerned or cancelling his registration with his
organisation.
• An offer may be withdrawn at any time before the
communication of its acceptance is complete as against the
offeror/proposer, i.e., the tenderer, but not afterwards. See
Section 5(1) of the Contracts Act 1950.
 Withdrawal of acceptance
• An acceptance may be revoked at any time before
communication of the acceptance is complete as against
the acceptor, but not afterwards. See Section 5(2) of the
Contracts Act 1950.
• An employer may opt not to proceed with the
implementation of the project for whatsoever reason so
long as acceptance is not complete.
• However, once acceptance is completed, that is, when
the tenderer has received the LA by post, a withdrawal
by the employer will not be sustained as the offer and
acceptance for the making of the contract is completed.
55