UEBQ4724 Professional Practice II LECTURE 1

Contracts and the Surveyor

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INTRO: ROLES OF QS

Quantity Surveyor Basic Services

Pre Contract Roles:
Preliminary cost estimate and cost plans of the development project / Government PDA Advise on cost estimate in relation to design development of project Advise on procurement, tendering and contractual procedures and arrangement Preparation of the BQ or Specification document for tendering Organise calling of tender Evaluation of tender & prepare tender report
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INTRO: ROLES OF QS

Quantity Surveyor Basic Services

Post Contract Roles
Prepare and execution of a formal contract Interim valuation of the works based on progress Preparation of financial statement at regular interval Settlement of project final account

(1) The Nature and Form of Contracts

Cost of Construction Work (new building; civil engineering projects; alteration, extension or refurbishment of existing bldg) Consequential Costs (repairs; redecoration; replacement of component; operating costs of installation e.g. lifts, air-cond. etc)

Cost QSs Duty

Contract

Provide advice and guidance on contractual matters to client / S.O. Contract documentation
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Cost Cost-in-use / life cycle cost

(1) The Nature and Form of Contracts

Contracts
In its simplest form Alternatively Oral agreement Agreement set out in a letter or other brief document Only suitable for the simplest projects

In the case of most building and engineering projects, therefore it is essential that the conditions under which a contract is to be carried out and the obligations, rights and liabilities of the parties should be fully and clearly stated in writing. For most projects, printed standard forms are used as the basis of the contract.
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(1) The Nature and Form of Contracts

Contracts Standard Forms in Malaysia
There are four institutions and organizations in Malaysia that produce standard forms of construction contracts. These are (a) The Institution of Engineers, Malaysia (IEM); IEM standard forms essentially are hybrid forms except for the IEM Conditions of Contract for Mechanical and Electrical Works which essentially follows the corresponding FIDIC standard form. The various forms published by IEM, it needs to be appreciated, are the only ones currently for use in private sector civil engineering works and mechanical and electrical works in Malaysia.
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(1) The Nature and Form of Contracts

Contracts Standard Forms in Malaysia (b) Pertubuhan Arkitek Malaysia (PAM); The current PAM building contract form is PAM 2006 Form which is published in two versions: one with quantities and the other without quantities. PAM 2006, as the Form is popularly referred to, is a revised version of PAM 98 Form which is essentially for most practical purposes a lightly amended version of JCT Form. PAM 2006 aims to update and replace PAM/ISM 98 Form. A PAM 2006 Sub-Contract Form is also produced for use where the sub-contractor is nominated under the PAM 2006 Form (with or without quantities)

(1) The Nature and Form of Contracts

Contracts Standard Forms in Malaysia (c) Construction Industry Development Board (CIDB); and CIDB has to date produced two standard forms; one is CIDB Standard Form of Contract for Building Works (2000 Edition) and the other is CIDB Standard Form of Sub-Contract for Nominated Sub-Contractor. It is planned by CIDB that a standard form of Design and Build Contract and another for Civil Engineering Contract will also be published. It may be of interest to note that CIDB has also produced a booklet on Standard Proforma for Contract (sic) Administration which is expressly stated to be used in conjunction with CIDB Standard Form of Contract for Building Works.
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(1) The Nature and Form of Contracts

Contracts Standard Forms in Malaysia (d) Jabatan Kerja Raya (JKR). JKR has produced a number of standard forms for use in public sector works, both for building works and civil engineering works. However, it is observed that the forms are also commonly used in private sector contracts. However, it is not the case that all public sector works follow the PWD 203 variants of contract forms especially those funded by World Bank or Asian Development Bank (for example) where preference seems to be for the adoption of FIDIC Forms.

(1) The Nature and Form of Contracts

Contracts Other Forms (a) those drawn up by major employers like Putrajaya, TNB and Petronas for their own specialist need and use. (b) those drawn up by international or foreign institutions like the Federation Intenationale des Ingenieurs Conseils (FIDIC) and the Institution of Civil Engineers (ICE), United Kingdom for use in other jurisdictions. This group of standard forms may be relevant in the Malaysian context if one or more of their clauses are borrowed to be included in an ad hoc contract, or if a Malaysian contractor tenders on a project elsewhere for example, in the Middle East or in India.

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(1) The Nature and Form of Contracts

Contracts
The advantages of using standard forms of contract: (a) because they are written by legal experts, ambiguities and inconsistencies are reduced to a minimum; (b) the rights and obligations of both parties are set out clearly and to the required degree of detail; (c) because of standardization, frequent users are familiar with the provisions in a particular Form, resulting in a greater degree of consistency in their application; (d) the time and expense which would otherwise be incurred in preparing a fresh document for each occasion is avoided; (e) over a period of time a history of case law is built up as ambiguities and disputes are settled through litigation, which can provide a good source of knowledge for construction professionals
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(1) The Nature and Form of Contracts

THE PAM STANDARD FORM OF BUILDING CONTRACT - The PAM standard form of building contract falls into the first category of institutional originated. They are used extensively in the Malaysian building industry and are generally considered as the de facto Malaysian Standard Form of Building Contract. - It is estimated that 90 per cent of the building contracts in the private sector are based on the PAM form. - Many of the clauses in the earlier PAM standard form of building contract have their origin in the corresponding United Kingdom forms, some being identical. -There seems, however, in recent times for the forms to diverge, no doubt because of increasing differences between the conditions prevailing in Malaysia.
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(2) The Surveyors Role

- Many of the provisions in standard forms of contract relate to financial matters, and Surveyors need to have a detailed knowledge and understanding of them and be able to apply those provisions properly and in a professional manner. - Many architects look to the surveyors for advice and guidance on contractual matters. - Frequently, it falls to the surveyor to prepare the contract documents, a duty which requires particular care and attention to detail. - In the performance of his duties, the surveyor has the duty to ensure that all actions taken in relation to the financial administration of the contract will be fair to both the parties.
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(2) The Surveyors Role

- The Surveyor must not forget two important facts. (1) fairness is often a subjective matter so that an action or decision may be seen as fair by one person and as very unfair by another. (2) the surveyors authority to act rests ultimately upon the terms of the contract and, consequently, his actions must always be within the scope of those terms. - Should any one of those terms in its practical application become disadvantageous, or even financially disastrous, to either party, the Surveyor has no authority to vary its provisions in order to alleviate those consequences.

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(2) The Surveyors Role

- E.g. 1: - It might seem very unfair that a contractor, having complied with a verbal instruction by the architect to carry out a variation to the design of a building, should be refused payment for the extra cost just because the variation had not been confirmed in writing. - The surveyor cannot do otherwise, however unfair it may seem, if the contract requires that all variations, to be valid, must be in writing.

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(2) The Surveyors Role

- E.g. 2: - if the Surveyor happens to know during the construction period that either party is having cash flow problems, that knowledge must not be allowed to influence the value he puts upon work completed or unfixed materials on site when preparing a valuation for an interim certificate. - the surveyor must not allow his personal feelings to prevail over his judgement as to the proper application of any term of a contract.

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(3) The Surveyors PostPost-Contract Duties

(a) Before work starts on site 1 Arrange for contract documents to be prepared ready for signatures of the parties. 2 Prepare forecast of rate of spend during the construction period and advise client on anticipated liability for payments on account to the contractor, giving dates and amounts 3 Make preliminary arrangements for preparing valuations for payments on account in consultation with the contractors surveyor; analyse preliminaries and calculate amounts of timerelated payments and percentage rate of cost-related payments; prepare schedule for stage payments, if applicable

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(3) The Surveyors PostPost-Contract Duties

(b) During construction period 4 Prepare valuations for payments on account at the intervals stated in the contract and agree with contractors surveyor. 5 Plot payments on account on rate of spend graph and report to architect on any significant divergences 6 Prepare estimates of likely cost of variations on receipt of copies of architects instructions; later measure and value; check and price daywork vouchers 7 Advise architect, if requested, on expenditure of provisional sums; measure and value work carried out by the main contractor against provisional sums (except where lump sum quotations have been accepted) and adjust contract sum accordingly
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(3) The Surveyors PostPost-Contract Duties

(b) During construction period (Contd) 8 Prepare financial reports for architect and client at the time of interim payments. 9 Check the main contractors notifications for changes in levies, contributions and taxes, etc., if applicable; alternatively, apply price adjustment indices to amounts included in interim valuations. 10 Measure projects based on schedules of rates or on bills of approximate quantities as the work proceeds, either on site or from architects drawings, and value at contract rates. 11 Advise architect, if requested, on contractors claims (if any) for loss and expense payments; if accepted, negotiate claims with contractor.
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(3) The Surveyors PostPost-Contract Duties

(c) After construction period) 12 Prepare final account and agree details and total with contractors surveyor.

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(4) Duties of a Contractors Surveyor

- The duties of a Contractors Surveyor can be very varied, a surveyor working for a small company may be responsible for all aspects of a project from inception to completion whereas larger construction firms tend to have specialist departments for various aspects of contract administration. - The tasks that may be carried out by a Contractors Surveyor are as follows: 1 Review tender documentation, especially checking nonstandard forms of contract. 2 Prepare estimates. 3 Prepare ordering schedules. 4 Place orders for materials and sub-contracts. 5 Prepare and organize bonus schemes. 6 Check bills of quantities for errors and carry out remeasures
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(4) Duties of a Contractors Surveyor

- The tasks by a Contractors Surveyor (Contd) 7 Monitor cost control systems. 8 Prepare cost/value reconciliations. 9 Assess work in progress for the financial year. 10 Attend site meetings. 11 Preparation presentation and agreement of claims with Employer. 12 Dealing with extras, claims and contra charges in relation to sub-contract packages 13 Prepare or agree variations, including Schedule 2 Quotations, with clients surveyor and sub-contractors. 14 Prepare applications for interim valuations and agree payments with sub-contractors. 15 Prepare or agree final account with Employers surveyor and agree sub-contractor final payments.
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(5a) The Surveyors Legal Obligations

- The surveyor is normally appointed directly by the client and the two of them enter into a contract of employment - This may be in the form of a letter setting out the essential terms of the contract, such as the services to be provided and the basis of payment, or a standard Form of Agreement for the Appointment of a Quantity Surveyor may be used.

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(5a) The Surveyors Legal Obligations

- CONDITION OF ENGAGEMENT OF QS Conceptual Preliminary cost estimate & Advise on procurement method Design Prepare BQ Tendering Organise Tender & Evaluate For Award Construction Manage Contract / Variation / Claim Commissioning / Completion Final Account

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(5a) The Surveyors Legal Obligations

- CONDITION OF ENGAGEMENT OF QS Govern by Memorandum of Agreement Between Client and The Consulting Quantity Surveyor issued by Board of Quantity Surveyor. Refer Memorandum of agreement Duration of engagement Until issuance of certificate for final payment Postponement /abandonment methodology for fee calculation specified (i.e. fee chargeable till stage completed for postponement)

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

CONDITION OF ENGAGEMENT OF QS

Type of Services & Payment

Categories of project - Building
Category A Detached / SemiSemi-Detach / Terrace / Shop / Flat Category B Flat (over 4 storey) / Condominium / Industrial Building Category C Extension / Renovation

Categories of project Civil Engineering Works

Category A General civil engineering road / drain / earthwork Category B Bridges / Jetty / Ports / RC Structural Works
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(5a) The Surveyors Legal Obligations

CONDITION OF ENGAGEMENT OF QS

Type of Services & Payment Part B Scale of Fees

Percentage rate from Cost of Work based on Building Category (A/B/C). Scale of Fees For Basic Services Scale of Fees For Basic Services Where Contract Are Based On Provisional BQ

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

CONDITION OF ENGAGEMENT OF QS

Type of Services & Payment Part B Scale of Fees

Percentage Breakdown of Fees Stage Payment Estimates / Cost Plan 10% BQ & Tender Document 50% Tender Report / Contract Document 5% PC Sum & Provisional Sum 5% Valuation / Variation 15% Final Account 15% Scale of Fees For Additional Services
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(5a) The Surveyors Legal Obligations

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(5a) The Surveyors Legal Obligations

Knowledge to perform basic/additional services:
Procurement Method Type Of Contract Tendering Procedures Tender Documentation Analysis and Award Other subject that complement: Building Measurement Estimating Construction Law & Contract Administration Project Management & Construction Management
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(5a) The Surveyors Legal Obligations

- The obligations of the surveyor are governed therefore by the terms of the contract of employment. - However, a person who offers professional services has a duty in law to exercise reasonable skill and care in the performance of those services, otherwise he may be liable for damages under the law relating to negligence. His actions are expected to be of an equal standard to those of other qualified persons practising the same profession.

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(5a) The Surveyors Legal Obligations

- Only a few cases regarding surveyors have come before the courts, and the following are of particular interest. 1. London School Board v Northcroft Son & Neighbour (1889). 2. Dudley Corporation v Parsons & Morris (1959). 3. Tyrer v District Auditor of Monmouthshire (1974) 230 EG 973. 4. Sutcliffe v Thackrah (1974) HL 1 Ll Rep 318. 5. John Laing Construction Ltd v County and District Properties Ltd (1982) QB 23 BLR 1.

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(5b) Implied Obligations

- When entering into a contract it is obviously important for a surveyor to be aware of and understand the express terms incorporated into the contract. - However it is also important for the surveyor to be aware that other terms may exist within the contract of which he is totally unaware, i.e., implied terms. - E.g., if a dispute arises in relation to a contract, one of the parties may claim that although a term was not expressly written into the contract its existence is nevertheless implied and if the dispute is taken to the courts a decision will have to be made as to whether such a term was implied in the agreement. E.g. Partridge v Morris (1995) CILL 1095.
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(5c) Obligations to Third Parties

- Through the contract a surveyor will know to whom he is liable, i.e., the other party(s) to the contract. - A surveyor also needs to understand that his liability may not be solely limited to his contractual arrangements. There is always the potential for liability to be incurred through the law of tort, and especially the tort of negligence. - Donoghue v Stephenson (1932) AC 562 HL clearly demonstrated that it was possible to be liable to a third party where they have suffered damage as a result of negligence.

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(5c) Obligations to Third Parties

- By reference to Donoghue v Stephenson (1932) AC 562 HL it is normally accepted that if an action for negligence against a surveyor is to be successful, a number of issues have to be proven: 1 The surveyor owed the other party a duty of care. 2 The surveyor was in breach of the duty of care. 3 Be reasonably foreseeable that injury or damage might arise as a consequence of the breach. 4 That injury, loss or damage has occurred as a result of the breach. E.g. Smith v Bush (1990) 2 WLR 790. E.g. J Jarvis v Castle Wharf Developments (2001) 4 Ll Rep 308.
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(5d) Liability Associated with Management Roles

- Since the 1980s many quantity surveyors have looked to diversify from their traditional role and offer clients other services, such as project management and construction management. - However, these roles are still relatively new within the construction industry and as a result it is not always certain what services are actually to be provided.. - Therefore, when a surveyor takes on a management role it is important to clearly define the scope of service to be provided and also be aware of the standards expected from within the industry and from various professional bodies as this may have an impact on what terms may be implied in an agreement between client and surveyor.
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(5d) Liability Associated with Management Roles

- Pozzolanic Lytag v Bryan Hobson Associates (BHA) (1998) 63 ConLR 81. - Great Eastern Hotel v John Laing Co Ltd (2005) 99 ConLR 45.

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(6) Overview
1 When entering into an agreement it is important to be aware of the express terms as these define the duties and obligations of the parties concerned. 2 It is also important to be aware of the standards of service normally expected through custom and practice, detailed in professional codes of practice or advisory papers and set out in statute or common law as they will have a bearing upon what implied terms may exist within an agreement. 3 there is always a potential of being found liable to third parties through the tort of negligence.

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