2.

5 Constitute a contract and main type of procurement methods used by clients and different methods of tendering

2.5.1 Constitute a Contract There have been several articles provided in PAM Part 3 Exam Seminar notes on this subject. An extensive definition in Malaysian context is also available in the Contract Act 1950 itself. The key elements can be sourced from Section 10 (1) of the Act as follows: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void Derived from the above section, it can be construed that a legally binding contract must consist of 6 of the following elements:

1) Offer 2) Acceptance 3) Consent 4) Competency 5) Consideration 6) Legality

Offer and Acceptance The word agreement means that there must be an offer by one side and an acceptance of the offer by the person to whom the offer was made. Without both an offer and an acceptance, there can be no consensus ad idem or a meeting of the minds which is essential to form a contract.

Consent Another key element to a contract is consent as described above as.made by the free consent of parties. Section 19 further elaborate on the Void ability of agreements without free consent as follows: When consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

Competency parties competent to contract is further defined in Section 11 of the Act as follows: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. I.e. a person under 15 years and a mentally insane person cannot enter a legal contract. Consideration Consideration as described as for a lawful consideration in the Act is another essential element of any valid contract. Consideration consists of either a benefit to the promisor or a detriment to the promise. It is a present exchange bargained for in return for a promise. It may consist of some right, interest, profit, or benefit that accrues to one party, or alternatively, of some forbearance, loss or responsibility that is undertaken or incurred by the other party. It is not necessary for a contract to be supported by a monetary consideration.

Legality The Act also requires a contract to be of a lawful object, which means that the objective of the contract must be for a legal purpose. For example, a contract for illegal distribution of drugs is not a binding contract because the purpose for which it exists is not legal.

2.5.2 Procurement Methods Traditional method is the first procurement method. In this system, the customer accepts that advisers are appointed to plan, cost control and that contractor is liable for the execution of works. The latter's responsibility extends to all labor and materials, including the work of subcontractors and suppliers. In some cases, the customer will select some of the subcontractors engaged by the contractor. In such cases, the contractor will get complete liable for their activity or the contractor's liability may be confined in some way in which case reasonable security between the client and the subcontractor will be essential. The contractor will normally name after a bidding process or negotiation and sign a contract of works. In this method, the contractor constructed a defined scope of work for a fixed lump sum price.

Design and build method is the second procurement method. Customer also may need to appoint consultants to advice on your design needs and costs, if you have this experience available to him. The contractor is responsible for a larger or smaller size to design and to carry out the job and can appoint their advisors. The arrangement may be for the overall design and construction, or for the design development and production of information on the basis of a scheme design consultants provided by the client. Always, in the design and construction contracting the customer wants to require the contractor to name any of its consultants at the time of design and construction contract is entered into. Design and construction of projects can vary depending on the scope of responsibility of the contractor's design and design the initial amount is included in the employer's requirements. Sufficient time should be allowed to prepare the requirements of the employer (the employer usually provide advisors to facilitate this), and the time for the contractor to prepare your proposal and bid price. It is essential that the proposal is in line with all the requirements of the employer before entering into any contract. Contractor will get liable for construction and design. Also Contractor may be chosen through a bidding process or through negotiation. Designing and building contracting works on the basis that the prime contractor is responsible for carrying out the design and construction of a project, for a total price agreed. We also design and build an option to acquire relatively low risk for the employer, in terms of cost and time. Construction management method is the fourth procurement method. This method also a fast way where the individual elements of the project are allowed before the design of the later work packages has been completed. The client will hire a manager to manage the overall contract in exchange for a management fee as the Contracting Management. In this method, the sub-contractors are employed directly between the client and the sub-contractor. Therefore customer to have a high level of participation in the design and development of the construction stages of project. In this method, the final construction costs can only be known when they have been presented the final work items.

Management contracting method is the third procurement method. This is an accelerated plan for any construction before the design is complete. With the customer management contracts usually starts appointing consultants to prepare project drawings and project specifications. Contract management is a method which has completed construction through a series of separate works or commercial contracts that the main contractor is responsible for managing. Contractor also does not really do the physical work, but you pay a sum for the management of the project through the various work packages. Therefore works contractors are contractually responsible directly and management contractor. Its co-ordinated and potential flexibility results in greater speed and operating efficiency. Completion within the contract is an obligation of the contractor and no time extensions may be granted without the permission of the administrator of the contract. The management contractor is selected through a bidding process and interviews and is paid based on scheduled services, premium costs and management fees. The employer has control over the design of the entire project through its professional team. There is no certainty on the cost from the beginning and work assumes the spending plan. The final cost will not be known until it left the final work package, however, companys professional team will control and examined the costs. Its coordinated and potential flexibility results in greater speed and operating efficiency. It requires a degree of trust and expertise to projects procurement management. 2.5.3 Methods of Tendering Open tendering system is open to every contractor. The tender will be announced throughout the country and initiate competition to select suitable contractor for a construction project. In this case, announced this notice to all contractors through any reputable newspaper and the Government Gazette. They should also provide brief and sufficient information about the proposed construction of the newspapers. When you advertise in the newspaper, there is a legal relationship between the owner and the bidders. Negotiated tenders are obtained by the employer to invite a contractor of your choice to submit prices for a project. Usually this is for skilled labor or special equipment is needed as an extension of existing works, or to continue working after a previous contract. Sometimes it can be used when there is a very short or emergency work necessary. A negotiated deal has a good chance of being successful, because, more often than not, based on joint work between the employer and the contractor prior satisfactory.

When invited to tender the contractor submits their prices, and if there is any doubt these are discussed and usually resolved without difficulty. Thus the pricing errors can be reduced, so that both the engineer advising the employer and the contractor are confident that the work must be completed with the budget if there are no unforeseen problems. However, negotiated bids for public works are rare because the permanent rules by public authorities are not allowed. However, an employer or business is not subject to restrictions as mentioned in the following section private can always negotiate a contract, and many do so, especially for small jobs even when it adopts a negotiated tender usual to prepare complete contract documents for the contract to be on a solid foundation. The production also means that documents are available for open or selective tendering negotiated bidding fails, or if the chosen contractor cannot carry out the work. Selective tendering system has two ways to select contractor. 1st system is advertising the project in newspapers. In this case, owner has to advertise the short and enough data about the project in reputed Medias. For select effective contractor through the well qualified contractors. In this system, owner invites to the contractors and register and who willing to apply to this tender. Because the target is, owner wants to register the contractors in company. Owner can register those qualified contractors for one year or two year by that above advertisement. Also owner can remove the nonqualified contractors from their list and make a list of qualified contractors for the bid or tender. 2nd system is Some specific companies (ICTAD,etc.) are providing the information of construction companies. That types of companies have a construction companies registers. So, if we tell them about our construction project, they prepare the list of constructors and give us to that list. According to this system, owner can get the qualified bidders list from the government institutions and some reputed special construction consultants. Like an ICTAD companies have a various lists according to the condition of the construction project, what is the type and conditions. Also they have checked that all the construction companies under the standard qualities. Therefore, owner can select the best contractor for his project, through the well qualified a number of contractors.