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41 Master Builders Journal - 1 Quarter 2012st

CONSTRUCTION CONTRACT & MANAGEMENT ISSUESIn this first quarter issue of Master Builders Journalfor 2012, BK Burns & Ong Sdn Bhd, a subsidiary ofBK Asia Pacific, a regional group providing project,commercial and contractual management servicesjoins with Entrusty Group, a multi-disciplinarygroup, collectively named as BK Entrusty, presentsa new series of contract and management articlesin construction related areas of project, commercial,contracts, risks, quality and value, on “Design andBuild Contracts – Implications and Limitations.”

INTRODUCTION

In the past decade, “Design and Build” (D & B)has become a prominent procurement route inthe construction industry, both public andprivate sectors in Malaysia. This trend wasprimarily driven by employers wish fora building procurement system with singlepoint responsibility, whereby the Contractorundertakes not only the construction but alsothe design aspects. Essentially to transfer thedesign and other associated risks to the partywho is more capable of managing them;the D & B Contractor, who can tap onhis construction experience to incorporate

“buildability / constructability” or simplypracticality in the design, thus improving speedand quality of the design and detailing so as tobenefit the construction process, in terms oftime and costs to the project. In transferringmost of the project risks to the Contractor, thelatter is then contractually responsible and liablefor them under a D & B contract.

D & B contracting has been (and still is)extensively used internationally, with standardforms such as JCT Form with Contractor’sDesign, ICE Design and Construct Conditionsof Contract, FIDIC Yellow Book – Conditionsof Contract for Plant and Design - Build andNew Engineering Construction Engineering andConstruction (NEC) Contract, being well recognised.Regionally, the Singapore Public Sector StandardConditions of Contract for Design and Build (2008)and Hong Kong General Conditions of Contract forDesign and Build (1999) have been used extensivelyin these countries.

In Malaysia, D & B contracting has been adopted,mainly in the public sector as is evident by the launchof the revised PWD Design and Build Contract (2007)by Jabatan Kerja Raya (Public Work Department),superseding the original Standard Form of Designand Build / Turnkey Contract (2002). A new Designand Build form has been commissioned by theConstruction Industry Development Board (CIDB)several years ago and is currently at its advance stageof consultations with the industry players and users,prior to its official launch, likely to be sometime thisyear.

In this article, BK Entrusty aims to provide readerswith a better understanding of D & B procurementsystem and contracting, particularly on the pertinentfeatures, implications and limitations of suchprocurement route and the common contractualprovisions.

42Master Builders Journal - 1 Quarter 2012st

The following are the contents of this article;· Introduction· Type of Building Procurement

System / Method· D & B Structure and Contractual Relationship· D & B Framework and Operation· D & B Pertinent Features,

Implications and Limitationso Single Point

Responsibilityo Better Communication

and Time Savingo Final Price Certaintyo Substantial Tendering

Costo Inaccurate Informationo Statutory Complianceo Practical / Functional

Designo Design Risk Transfer and

Fit for Purposeo Drawing Approvalso Best Practice and

Standards· Conclusion

TYPES OF BUILDINGPROCUREMENTSYSTEM / METHOD

Building Procurement Systemor Method is about themanagement of the building orconstruction process of the project.With the suitable procurementsystem decided, then comesthe contractual arrangement,which is about the legal andcontractual framework for thebuilding or construction process. This in turn leadsto the contract documentation, which establishes thecontractual rights, obligations, responsibilities andliabilities of the contracting parties.

Apart from D & B, the other common BuildingProcurement Systems are:1. Traditional or Conventional2. Management Contracting3. Project Management

4. Package Deal or Turnkey5. Build, Operate and Transfer (BOT)6. Guarantee Maximum Price (GMP)

The following are the pertinent features and criteria ofthe first three procurement systems in comparisonwith D & B.

D & B STRUCTURE ANDCONTRACTUAL RELATIONSHIP

D & B procurement system or method is aboutintegrating and managing the design and constructionteams and processes by the Contractor, who is directlyresponsible and liable to the Employer for meeting theEmployer’s Requirements for the project by his owndesign and construction approach, usually moreeffectively and efficiently.

FEATURES/CRITERIA

DESIGN &BUILD

TRADITIONAL/CONVENTIONAL

MANAGEMENTCONTRACTING

PROJECTMANAGEMENT

Key

Features

D & BContractor -single point

responsibilityand

integration ofdesign and

constructionteams to meetEmployer’s

Requirements

Separation ofdesign and

construction teams,the SO / Architect

develops theEmployer’s Briefand supervises the

project

ManagementContractor

managing thedesign and

procurement ofpackage

contractors andconstruction

process

Employer’sProject Managerdeveloping the

Employer’sRequirements and

managing thedesign and

constructionteams andprocesses

Designresponsibilities

& liabilities

D & BContractor

Design team andspecialists

Design team andspecialists or

packagecontractors

Design team andspecialists

Constructionresponsibilities

& liabilities

D & BContractor

Contractor PackageContractors

Constructionteam

Cost Certain Certain Uncertain Certain

Time Short Lengthy Reasonable Reasonable

Quality Average Average Good Good

Value forMoney

High Low Medium Medium

Contractor’sRisks

High Low Medium Low

Employer’sRisks

Low High Medium Medium

Typical use(project type)

Industrial,IBS buildings,

etc

Commercial,Residential, etc.

Specialisedbuildings &

facilities

Complex, highlyserviced

buildings &facilities

Figure 1 : Common Building Procurement Systems / Methods - Key Features and Criteria


The following diagram shows a typical organizational structure and contractual relationship of the variousparties involved in D & B procurement.

As shown in the above diagram, the D & B Contractor is directly and contractually responsible to theEmployer but the Design Team (Architect, Engineers, Quantity Surveyor and other Specialists) are directlymanaged and engaged by the Contractor.

The Employer also may engage his own professional advisor or representative (often called the Employer’sRepresentative) and preliminary design team to prepare the tender documents for procuring a suitableD & B Contractor for the project. Such procurement route is usually adopted by employers who haveconfidence in D & B contracting, particularly the Contractor who has the suitable experience and capabilityin managing the design and build processes, which involve managing the design team, planning andadministrating the construction activities, as well as handling multiple sub-contractors and suppliers forthe project. D & B contractors are often financially better and more experience in managing various resourcescompared to project consultants and traditional contractors, making them better suited to manage and bearthe additional risks compared to traditional contracting.

D & B FRAMEWORK AND OPERATION

One of the earlier authors of Building Procurement System is Mr. James Frank (1984), who wrote andprovided a concise yet still valid comprehensive handbook on various procurement systems, includingcomparing them and identifying their appropriate use on different types of construction project.

In design and build, he illustrated by using the above diagram to show the D & B framework and operation,which typically operate and comprised of the following steps;

Figure 2: D & B Structure and Contractual Relationship

Figure 3: Design and Build System (Frank, 1984)


1 to 2 - The Employer first identifies his need fora building or facility project.

2 to 3 - The Employer appoints his Representative/ Advisor, often a professional person orfirm, who then formulates the Employer’sRequirements (and / or Needs Statement)documenting his objectives andrequirements, which essentially outlinesand defines the purpose, scope, outline /concept design, performance specificationand / or other pertinent criteria of theproject.

3 to 4 - The Employer’s Requirements documentforms the basis of the tender documentsfor tendering by selected D & Bcontractors.

4 to 7 - The tendering D & B Contractor, basedupon the Employer’s Requirements,and with his own design and constructionteams, develops and preparesp re l imina ry des ign , d rawings ,specifications, time and cost proposalsknown as Contractor’s Proposal as histender submission.

5 to 10 - The submitted Contractor’s Proposals areassessed and evaluated by the EmployerRepresentative / Advisor and theunsuccessful ones (in this case, B and C)are rejected but Contractor A’s proposalis accepted and awarded the project.

10 to 11- The successful Contractor A then proceedto prepare detailed design and mobilizehis own resources to commence andproceed with the construction works withhis own project personnel, sub-contractors,suppliers for all aspects of the project.

The Contractor’s Proposal usually includes ContractSum Analysis which is the cost breakdown of thecontract sum, outlining itemized prices or rates withnotional quantities (instead of the traditional bills ofquantities), to enable the Employer (or hisRepresentative / Advisor) to value any variationschanges in the Employer’s Requirements.

The following list the typical contents or documentscontained within the Employer’s Requirements andthe Contractor’s Proposal.

D & B PERTINENT FEATURES,IMPLICATIONS AND LIMITATIONS

Single Point Responsibility

In D & B, as the Contractor is directly responsiblefor the design and construction to the Employercontractually, it creates a single point responsibilityin most aspects of the project. This form ofprocurement arrangement simplifies the contractualrelationship and responsibility amongst variouscontracting parties of the project, which is asignificant advantage to the Employer.

Unlike traditional contracting, whereby the designteam is responsible for the design and to the Employer,the D & B Contractor, who assumed the designresponsibility is liable for the design, even though thedesign team is appointed by him. The Contractor bearsmost of the risks, particularly in faulty design anddefective works. Although in practice, unless thedesign team is in-house or part of the Contractor’sestablishment, the external design team, whetherprofessional individuals or firms, are oftencontractually responsible and liable to the Contractorvia separate professional agreements with him.

Better Communication and Time Saving

As the design and construction process is integratedunder D & B contracting, the traditional separation ofdesign and construction teams now functions as oneentity and team working creates a faster response timeand smoother communication flow between the designand construction teams by working together almostsimultaneously or in parallel, thus substantiallyreducing the delays in the provision of projectinformation and communication breakdown, oftenexperienced under the traditional contracting.

Employer’s Requirements Contractor’s Proposal· Need Statements· Conceptual Design· Performance Specifications· Codes of Practices and / or Standards· Users Requirements· Other requirements e.g. Green Building Index, environmental impacts, etc.

· Preliminary Design· Design Brief Report· Technical Specifications· Contract Sum Analysis· Method Statements· Programme / Schedule� Sub-contractors / Specialists

Figure 4: Typical List of Contents in Employer’s Requirements and Contractor’s Proposal


Evidently, D & B contracting allows forthe Contractor’s practical construction knowledgeand experience input such as buildability orconstructability analyses, value engineering and “real”pricing by sub-contractors during design stage,thus resulting in design and value optimizations tomeet the Employer’s Requirements, more effectivelyand efficiently. In addition, it also allows the detaileddesign and construction processes to run almostconcurrently or in parallel, thus preventing or reducingunnecessary disruptions and delays during theconstruction period. In short, D & B, if properlyexecuted, can have significant positive impact on thedesign and construction integration, leading to a morespeedy project completion and overall cost savings toboth the Employer and Contractor. The benefit ofintegration of the design and construction processesresulting shorter project period, also has positiveeffects on the Employer’s financial commitments byreducing the project costs, including financing chargesand inflation impact.

Final Price Certainty

Another salient feature of D & B contracting is theproject having a higher certainty in the final contractprice. Most D & B contracts are let on lump sumprice basis, which are inclusive of the design,construction, commissioning and fit-out, if any.Consequently, the Employer is assured of his financialcommitment at early stage of the project. However,such price certainty also means that the D & BContractor has to bear the pricing risk if his costestimates of the actual scope of design andconstruction works are incorrect and / or underpriced.

Changes or variations are often restricted and limitedto only those instructed by the Employer (and / orhis Representative/s), thereby giving rise to morecertainty in final contract price and completion period.Nevertheless, the likelihood of changes is dependenton the accuracy, clarity and sufficiency of theEmployer’s Requirements in order to minimize anymisinterpretation by the Contractor. Unfortunately, inreality, there will always be changes initiated by theEmployer. Apart from the genuine change to optimisethe design or improvement to suit dynamiccommercial requirements; there may be occasions of

“Zero-Sum Game” mentality where the Employer maybe too eager to secure their interest or gain maximumreturn on the project, at the expense of jeopardizing

the project or victimizing the Contractor instead.Consequently, careful and particular attention isneeded to determine whether these changes areinclusive in the Employer’s Requirements or it is anaddition to the said Requirements, which theContractor is entitle to additional recompense, in timeand / or costs.

Substantial Tendering Cost

D & B tendering process is substantially more costly,particularly to the tenderers than other procurementor contracting methods. In traditional contractingwhere the tendering cost is substantially lower,contractors tender based on the design, bills ofquantities (if any), drawings and specifications issuedby the Employer’s consultants. The substantialtendering cost in D & B is due to the fact it is theD & B Contractor who has to prepare the Contractor’sProposal, which usually comprised of the design,specifications, contract sum analysis, etc based on theEmployer’s Requirements. Such Proposal requiresthe Contractor to engage his own professionalteam, specialists, sub-contractors, suppliers, etc toundertake the necessary preliminary design, studies,investigations, documentation, etc in the preparationof the Contractor’s Proposal so as to submit a validand competitive tender.

Where selective tendering is adopted in D & Bcontracting, the contractors who submit theirContractor’s Proposal for tender are often competitive,which is an advantage to the Employer as it ensureseconomical tenders, whereby alternative designconcepts or solutions are presented for the Employerto consider and choose.

As the tendering exercise is a substantial financialcommitment to D & B contractors, it sometimes deterstheir participation in subsequent D & B tenders,particularly if they know that the project is unlikelyto be awarded or to proceed eventually. Suchtendering process may seen to be unfair to thoseunsuccessful tendering contractors as it is theEmployer who gets to consider and choose the bestdesign from the various design submissions, ofteninnovative and varied solutions, at their expense.Furthermore, as an aggregate economic effect for theindustry, such D & B tendering should be limited toa few selected D & B contractors, otherwise, thesubstantial expenses and time incurred can be a waste


of resources, since only one D & B contractor isusually successfully selected in each tender.

Inaccurate Information

Even in D & B contracting, mistakes or errors doexist, especially in the provision and interpretation ofinformation such as inaccurate ground or soilinvestigation and performance specification providedby the Employer. Disputes may arise when theContractor rely on such inaccurate information toprepare his design and may lead to constructionproblems, subsequently. Such problems may lead toarguments and dispute as to who is responsible forthe resulting additional works and costs.

Generally, in common law, the Contractor cannotsolely rely on the information provided by theEmployer or other contracting parties unless there isa warranty that the information is correct or accuratefor reliance. Such warranty could be expressly statedin the contract document or may be implied, if not.

The Contractor may have the rights to claim fordamages provided that he can prove that he has reliedon the information given and it was a contractualterm or condition. Where there is a misrepresentation,Sections 18 and 19 of Contracts Act 1950, provides;

“when consent of an agreement is caused by coercion,fraud, or misrepresentation, the agreement is acontract voidable at the option of the party whoseconsent was so caused and the party whose consentwas caused by the fraud or misrepresentation may, ifhe thinks fit, insist that the contract shall be performedand that he shall be put in the position in which hewould have been if the representation had been true.”

Yet, the Employer may avert liability if he can provethat he had reasonable grounds to believe that theinformation provided is correct or has qualified byinsertion of no-warranty clause on the informationprovided. For example, the latter is adopted by PWDD & B Contract under Clause 7.6, which states,

“The Government gives no warranty in any mannerwhatsoever for any information provided by theGovernment in the Contract as to their accuracy orsufficiency or as to how the same shall be interpretedand the Government shall not liable if suchinformation is inaccurate or insufficient. The

Contractor shall not be relived from its obligationsto ensure that such information is accurate for thepurposes of this Contract.”

Further, PWD D & B Contract, clause 4.10 takes asimilar position as FIDIC Silver Book (for EPC /Turnkey Projects) which states that the Employer isnot responsible for the accuracy, sufficiency orcompleteness of such information. Interestingly,FIDIC Yellow Book (for Plant and Design - Build)allows the Contractor to claim for errors in theEmployer’s Requirements which would not have beendiscovered by an experienced Contractor havingexercised due care. The said form also requiresContractor to be responsible for verifying andinterpreting information or data given by Employer.

A relevant case law is Co-operative Insurance SocietyLimited v. Henry Boot Scotland Limited & Other[2002] EWHC 1270 (TCC), whereby the Contractorwas under an obligation to complete the conceptdesign prepared by the Employer, who has appointeda civil engineering consultant (CHW) to prepare aconcept design for the basement using a contiguouspiled wall system. The Contractor subsequently usedthe concept design and prepared his own drawingsand completed the basement construction works,which unfortunately failed.

The Court found that the basement failure was due tounsuitable piling system and rejected the Contractor’sdefense that his obligation in relation to the designof the piled walls system forming part of the Workswas to prepare working drawings in respect of theconcept designed by CHW. It was held that, theContractor is liable for the failure.

Richard Seymour, Q.C., H, in his judgment stated:

“In my judgment the obligation of Boot under theConditions was to complete the design of thecontiguous bored piled walls, that is to say, to developthe conceptual design of CHW into a completeddesign capable of being constructed. That process ofcompleting the design must, it seems to me, involveexamining the design at the point at whichresponsibility is taken over, assessing the assumptionsupon which it is based and forming an opinionwhether those assumptions are appropriate.Ultimately, in my view, someone who undertakes …an obligation to complete a design begun by someone


else agrees that the result, however much of the designwork was done before the process of completioncommenced, will have been prepared with reasonableskill and care. The concept of “completion” of adesign of necessity, in my judgment, involves a needto understand the principles underlying the work donethus far and to form a view as to its sufficiency.” …..

“I accept the submission … obligation to warn thereset out applied both in the case in which the relevantdesign work had not been undertaken by Boot and inthe case in which it had.”

The above case law decided that the Contractor cannottotally rely on the information or design provided bythe Employer. It is the Contractor’s responsibility tocheck and verify the suitability of the information ordesign provided for the project. Furthermore, theContractor has a duty to warn the Employer of anydesign deficiencies or discrepancies which he / she isor should be aware of.

In Malaysia, some contractors may be required bytheir Employer to undertake novation agreement ortripartite agreement where the Employer’s consultantsare novated to work with the D & B Contractordirectly, thus creating a contractual link between theContractor and them. In such cases, the Contractorconcern may be able to recover damages resulted fromany failure of the Employer’s consultants to performtheir services with reasonable skill and care inpreparing the Employer’s Requirements during theperiod prior to the novation.

Unfortunately, this may not seen to be in sync withthe court decision in a Scottish case, Blyth & BlythLimited v Carillion Construction Limited (2001) CILL1789. The Contractor (defendant) claimed that due tothe inaccuracy and insufficiency of the concept designand specification in the Employer’s Requirementsprepared by the Engineer (claimant) during thepre-novation, the Contractor has submitted highertender price and suffered loss. The Contractor furtherclaimed that such error can be avoided by anycompetent designer who exercises reasonable skilland care.

The court held that the Contractor did not have theright to claim such losses based on the Engineer’sbreach during the pre-novation period, which he isduty bound to the Employer. This is due to the factthat the Employer did not suffer any loss resulting

from such breach. In addition, the court rejectedContractor’s contention that he was required to acceptthe novation agreement as the Engineer is the samedesigner who was employed before and duringnovation period. The Engineer became directly liableto the Contractor for any losses suffered by theContractor due to his deficiencies in the pre-tenderdesign or information.

Further reading on issues relating to inaccurateinformation, especially on ground conditions can befound in BK Entrusty Article on “Ground Conditions

– Mysteries Unravelled?” in MBAM Journal 3rd

Quarter 2011.

As for novated D & B contracting, this specific areawill be discussed in more detail in anotherforthcoming MBAM article by BK Entrusty later on.

Statutory Compliance

Compliance with statutory requirements is anotherpertinent, but often ambiguous contractual obligationwhich the Contractor needs to comply with. MostD & B contracts, both international and local, wouldrequire the Contractor to comply with the provisionfor Statutory Requirements. For example in FIDICYellow Book clause 5.4, states;

“The design, the Contractor’s Documents, theexecution and the completed Works shall complywith the Country’s technical standards, building,construction and environmental Laws, Lawsapplicable to the product being produced from theWorks, and other standards specified in theEmployer’s Requirements, applicable to the Works,or defined by the applicable Laws.”

In PWD D & B Contract, Clause 5.1 states;

“The Contractor shall comply in all respects (includingthe giving of all notices and the paying of all feesrequired) with any law, regulation or by-law, or anyorder or directive issued by any public authority orpublic service company (hereinafter referred to as

"Statutory Requirements"), relating to the Works or,in the case of public authority or public servicecompany, with those systems the same are or will beconnected. The Contractor shall keep the Governmentindemnified against all penalties and liability of everykind for breach of any such Statutory Requirements.The Contractor shall submit to the P.D all


documentation received by the Contractor incomplying with Statutory Requirements.”

However, most provisions for StatutoryRequirements are often not comprehensive nordetailed, as they are usually at best, partially listedin the tender / contract documents. In practice, it isleft to the Contractor to check and liaise with therelevant statutory authorities to identify what are thestatutory requirements to be complied with for theproject. A typical list of local Statutory Requirements,includes;

· Uniform Building By Law (UBBL) 1984· Occupational Safety and Health

(NIOSH) Act 1994· Contracts Act 1950· CIDB Act 520· Sale of Good Act 1957

Practical / Functional Design

In D & B contracting, the Contractor’s other primaryobligations, apart from to complete the project, is tocarry out his Contractor’s Proposal, which includesdesign in accordance with the Employer’sRequirements. An example of such D & B obligationcan be found in PWD D & B Contract under clause3.1: Scope of Contract, as follows:

“The Contractor shall subject to the provisions of theContract and save in so far as it is legally orpractically impossible,-

(a) Plan, design, construct, complete andcommission the Works; and

(b) Provide all design, services, labours,materials, Contractor’s equipment,temporary works, transport to and from andabout the Site and everything whethertemporary or permanent nature requiredin and for such planning, design,construction, completion, testing andcommissioning so far as the necessity forproviding the same in specified in orreasonably inferred from the Contract.”

A Contractor’s Proposal must contain workable orfunctional design unless it is legally or practicallyimpossible. This is in line with the Contracts Act1950, Sections 57 which states that agreement on any

impossibility will render the contract void and theparty who is promised the work which later onbecomes impossible, the other party can claim forlosses and damages arising from such agreement.

The Contractor must ensure that his design is practicalor functional, which is often referred to as beingbuildable or constructible. A design which cannotfulfill such requirement, will almost certainly fail tomeet the Employer’s Requirements for the project.

It is therefore pertinent for a D & B Contractor toensure that the design and methodology adopted inhis Contractor’s Proposal must be able to be legallycarried out practically and functionally, otherwise itmay be voidable and can lead to claim for damagesand / or losses by the Employer.

Design Risk Transfer and Fit for Purpose

When the D & B Contractor is awarded the project,he will further develop the design into detaileddrawings based on his Contractor’s Proposal, whichis supposed to meet the Employer’s Requirements.Not only is he responsible to develop the design incompliance with the Employer’s Requirements,he also must warrant that the design is fit for itsintended purpose.

As the design team is hired and answerable to theContractor directly instead of the Employer, the latterno longer has any control over the designdevelopment and quality, as opposed to traditionalcontracting. This may lead to potential designshortcomings, particularly where the Contractor caninstruct or influence his design team to design downto a price for profit maximization. Consequently,quality of the design may suffer compare to thosedesign produced under traditional contracting wherethe design team is contractually bound andanswerable directly to the Employer.

In overcoming such likely D & B shortcomings, theEmployer often appoint a project or designmanagement professional firm or individual tobecome his representative. It is the Employer’sRepresentative responsibility then to monitor andsupervise the Contractor and his works, to ensure thatthe design meets the Employer’s Requirements andbe fit for its intended purpose.


Fit for purpose can also be an implied warrantyon the party who furnishes the design to ensureadequacy and accuracy of its design. Whether thedesign works are to be undertaken by the Contractor’sin-house design team or outsourced to others, he isstill responsible and liable for the design to ensurethat his design and construction works are not onlypractical and functional, but also fit for its intendedpurpose. Consequently, unless there is an expressterm which overrides this implied term, the Contractoris bound to deliver an end product which is suitableand fit for purpose due to the design and constructionobligations under D & B contracting. An example ofsuch provision can be found in PWD D & B clause14.1(a), which expressly states;

“The Contractor shall be fully responsible for thedesign, execution and maintenance of the Works /portion of the Works for which his design / alternativedesign have been accepted by the Government. TheContractor further guarantees to the Government thatthe design, materials and workmanship of theWorks or portion of the Works complies with theGovernment’s Requirements as well as are suitableand fit for purpose and independent of fault.”

FIDIC Yellow Book also imposes the same obligationon the D & B Contractor, where Clause 4.1, states;

“The Contractor shall design, execute and completethe Works in accordance with the Contract, and shallremedy any defects in the Works. When completed,the Works shall be fit for the purposes for which theWorks are intended as defined in the Contract.”

The duty to prove that the design is fit for its intendedpurpose lies with the D & B Contractor who isobliged to demonstrate that his design not onlycomply with the Employer’s Requirements (includingany Performance Specifications) but also to complywith the Statutory Requirements and relevantStandard Codes of Practice. In the event if theContractor is unable to prove that his design is fit forpurpose, he needs to provide an explanation on suchfailure/s and remedial measure to be taken toovercome such non-compliance.

It is important to note and appreciate that the duty offit for purpose of the design is a greater duty than thenormal duty of “reasonable skill and care” placed onthe Contractor. To prove liability of fit for purpose,

the Employer merely needs to demonstrate that thedesign is not fit for its intended purpose of the project.

.In the case of “reasonable skill and care”, which isthe lesser standard, usually applicable in traditionalcontracting, the Employer only needs to prove that,

· the works are defective and the defects arosedue to the Contractor’s defective, materialsand / or workmanship; and

· the design (if any) was carried out negligentlyor recklessly.

For further reading on fit for purpose, please refer toEntrusty Article on “What is Fit for Purpose and itsimplications ?” in MBAM Journal 2nd Quarter 2010.

Drawing Approvals

Another pertinent aspect in D & B contracting is theContractor’s design obligations in approved drawingsissue. In many D & B contracts, submission ofdrawings, plans, calculations, analyses, etc arerequired for verification, checking, commenting andapproval usually by the Employer’s representative orsometimes independent consultants employed by theEmployer.

Unless the contract concern states otherwise, anyverification, comments and / or approval made by theEmployer’s representatives / consultants do notrelieve the Contractor of any of his contractualobligations and liabilities for design and constructionworks, particularly when they are non compliant ordefective. In FIDIC Yellow Book, clause 5.2 statesthat any review, approval or consent of the submittedContractor’s Documents as required under theEmployer’s Requirements, shall not relieve theContractor from any contractual obligations orresponsibilities. Both the Contractor and hisconsultants can be held jointly and severally liable forany defective design and the Employer may be entitleto claim for his losses or damages from the Contractorand his design team, particularly where collateralwarranties are provided for.

In PWD D & B contract, clause 14.1 places fullresponsibility on the Contractor for the design,execution and maintenance of the Works for whichhis design / alternative design have been accepted bythe Government. Subsequent sub-clauses require theContractor to check and accept responsibility for any


design prepared by the Employer in the Employer’sRequirements, having first obtained the approval ofthe P.D for any modifications which he considers tobe necessary. The Contractor is also fully responsiblefor the safety of the design and for adequacy, stabilityand safety of all site operations and methods ofconstruction.

Best Practice and Standards

In regards to best practice, it is the Contractor’sresponsibility to explore and adopt the best practicewhich is suitable for the project. In the case wherethere exist multiple codes of practice in a specificarea of work, the Contractor will need to evaluatewhich code/s of practice are suitable for the projectand to ensure that the best practice is adopted to fulfillthe Employer’s Requirements and fit for purpose forthe project.

For example, in bridge construction, one of thenecessary requirements is that the bridge mustwithstand a specific number of vibration impacts toavoid resonance from happening which may causethe bridge to collapse. In the industry, two codes ofpractice which are available to be used are BS EN1990:2002 and Eurocode 3 (2010) respectively. Inthis region, consideration on equivalent regionalstandards of similar volume of human dimensionand geographic factors affecting the bridge vibrationand resonance need to be given, accordingly. In orderto make a decision on which code/s to adopt, theContractor needs to collect sufficient relevant dataand information to determine the suitable code/s forthe project. This is also to enable the Contractor tojustify later if the design is not fit for purpose evenafter he has adopted the best practice available underthe circumstances . Even so, the Contractor may stillbe liable for the additional costs as he is stillresponsible to fulfill the fit for purpose commitment,as discussed earlier.

In certain D & B contracts, the Employer may referto or use “the highest international standard” or “firstclass standard” terms in describing the standardand / or quality required to be achieved in the project.Such terms can pose a serious problems to theContractor as they can be vague, often conflicting orin discrepancy with others. Any reference to higheststandard and / or quality requirement usually comes

with higher cost, which someone, often the Contractor,end up bearing for it. Consequently, D & Bcontractors will need to be prudent and negotiate withthe Employer to rephrase the standard and / or qualityrequirement to “reasonable” or “acceptable” or

“suitable” standard rather than to rely on some absurdor subjective practice standard and / or qualityterminology and requirements which can beunreasonable and impractical.

What if the D & B contract requires a higher standardthan local statutory requirements? What is theimplication if the Contractor’s work receivedapproval by the relevant statutory authorities but thedesign or construction work is still below thestandards set by the contract ?

In the case of Sri Kelangkota-Rakan EngineeringJV Sdn Bhd v Arab-Malaysian Prima Realty SdnBhd (2003), the respondent appointed the appellantas the contractor to carry out the remaininginfrastructure works for the land in question for thesum of RM71,372,682 under turnkey project. Theappellant constructed the infrastructure works and allthese works were certified by the relevant localauthority as being in accordance with the approvedplan. However this “approved plans” were not all inaccordance with the plans annexed to the turnkeycontract. The appellants had, without the firstrespondent's knowledge, submitted amendments tothe original plans and had then proceeded to carry outworks in accordance with these new plans.

It is the appellant argument that the respondent is notentitled to argue that the appellants had failed tocarry out the works according to specifications dueto the respondents were wrong in confusing thelayout plan with the infrastructure plans. Theappellants were only obliged to carry out their worksin accordance with the latter and not the former.This, the appellants had done, as evidenced by theapprovals granted to the works by the relevant localauthority.

It was held that, the appellant has breached thecontract. Even if the appellant has constructed thework in accordance to local requirements, but ifthe provision in the contract requires a higherrequirement, the appellant is under obligation tofollow the requirement stated in the contract.


In view of the aforesaid case, it is advisable forD & B contractors not to raise the standard bypromising or representing more than they can do orafford to do just to impress the potential Employer attender stage so as to secure the project. Such actionmay backfire, especially when at the end of the project,such promises or representations on standard orquality are not delivered or fulfilled, accordingly.

Following the foregoing features, implications andlimitations, the Figure below illustrates the pertinentcriteria and profile under the common buildingprocurement and contractual arrangements. Asillustrated, the D & B contracting, involves substantialresponsibilities and risks to the Contractor comparedto other procurement and contracting arrangements.

CONCLUSION

There is no one building procurement system andrelated contractual arrangement which is one size fitsall. Each of the procurement system and contractualarrangement has its own features, implications andlimitations and the D & B contracting, is no exception.Understanding what they are, including thecontractual obligations and liabilities of the partiesare pertinent to achieving successful projectcompletion, without any undue disputes.

D & B contracting gives the D & B contractorsmore responsibilities and flexibilities in termsof controlling and managing both design andconstruction processes simultaneously which often iscommercially beneficial, not only to the Contractor,but also the Employer concern. However, as the D &B Contractor is singly responsible and liable for boththe design and construction, he is also the bearer of

most of the project risks. Therefore, he needs to befully aware and appreciate that the project risks lienot only in the foreseeable and expected, but also inthe unexpected and unforeseeable, which can causedisruptions and delays to the project, which canadverse affect on the project costs and completion.

Equally important is for employers and theirrepresentatives to appreciate and understand that inorder to achieve optimal benefits and value fromthe D & B procurement system and contractualarrangement, D & B contractors must be givensufficient time and accurate information to developand prepare proper and comprehensive Contractor’sProposal to meet the Employer’s Requirements andbe fit for its intended purpose, in order to achievesuccessful project success.

As for D & B contractors, they will need to beproactive and practical, instead of being reactive andsometimes impossible, to recognize and explorebetter designs and effective risk management inthe development and implementation of theirContractor’s Proposal in order to avoid or mitigateany disruptions, delays and / or potential losses ordamages to the project and its contracting parties.

The appreciation of the implications and limitationsin D & B procurement and contracting are just asimportant as merely understanding and complyingwith the provisions contained in the D & B contracts.

In the next issue of the MBAM journal, BK Entrustyarticle will deal with a common commercial andcontractual issue on “Planning and Programmingin Construction”

Figure 5 : Pertinent Criteria And Profile Under The Common Building Procurement And Contractual Arrangements


BIBLIOGRAPHY AND REFERENCE

1. Entrusty Group, ‘What is Fit for Purpose and its implication?’, Master Builders Journal (2nd Quarter2010), MBAM.

2. Franks, James, “Building Procurement Systems”, The Chartered Institute of Building, 1984.3. FIDIC Conditions of Contract for Plant and Design - Build (Yellow Book) (1999);4. FIDIC Conditions of Contract for EPC / Turnkey Projects (Silver Book) (1999).5. Juliana, Charles, Ramirez, Alan, Larkin, Brian, “Construction Management / Design-Build”

Lorman Seminar, 2005.6. Jabatan Kerja Raya, “Standard Form of Design and Build Contract PWD Form DB (Rev. 2007)”,

Malaysia, 2007;7. Knowles, James, “Design and Construct – Getting It Right!” (18 March 2003, Kuala Lumpur).8. May, Anthony, Williamson, Adrian, Uff, John, “Keating on Building Contracts”, 6th Edition,

London Sweet & Maxwell, 1995.9. Ong, Hock Tek, “Practical Construction Contract Administration / Management Module 1 – Type of

Procurement Systems and Contractual Arrangement”, Malaysia, 200410. Robinson, Nigel, Lavers, Anthony, “Construction Law in Singapore and Malaysia”, Butterworths, 1988.11. Wallace, I.N. Duncan, “HUDSON’s Building and Engineering Contracts”, 11th Edition, Sweet and Maxwell,

1995.12. Toler, Timothy, “Design-Build vs. Traditional Construction: Risk and Benefit Analysis.” Extracted from

http://www.tolerlaw.com/files/Design%20Build%20Issues.Final.pdf

BK Asia Pacific is group of companies incorporated in the Asia Pacific Region providing a comprehensive network of projectmanagement, commercial and contract management services to the international construction industry, with offices in Cambodia,China (Hong Kong, Shanghai), Malaysia, Philippines, Singapore, Thailand, Vietnam, United Kingdom and United Arab Emirates.For further details, visit www.bkasiapacific.com

Entrusty Group is a multidisciplinary group of companies which comprises Entrusty Consultancy Sdn Bhd (formerly known asJ.D. Kingsfield (M) Sdn Bhd), BK Burns & Ong Sdn Bhd (a member of BK Asia Pacific Ltd, Hong Kong), Pro-Value ManagementSdn Bhd (in association with Applied Facilitation & Training, Australia) , International Master Trainers Sdn Bhd (in associationwith Master Trainer of New York), Agensi Pekerjaan Proforce Sdn Bhd, Alpha-Omega Matrix and Entrusty International Pte Ltd.The Group provides comprehensive consultancy, advisory and management services in project, commercial, contracts, construction,facilities, risks, quality and value management, cost management, executive search / personnel recruitment and corporatetraining / seminars / workshops to various industries particularly in construction, petrochemical, manufacturing and IT, both locallyand internationally. For further details, visit www.entrusty.com

BK Entrusty provides 30 minutes of free consultancy (with prior appointment) to MBAM members in the areas of project,commercial, contracts, risks, quality and value management. For enquiries, please contact HT Ong at BK Entrusty, 22 - 1 & 2Jalan 2 /109E, Desa Business Park, Taman Desa, 58100 Kuala Lumpur, Malaysia. Tel: 6(03) - 7982 2123 Fax: 6(03) - 7982 3122Email: [email protected] or [email protected]

PUBLIC SEMINARS PUBLIC / IN-HOUSE TRAINING PROGRAMMES1. Claims Preparation and Management2. Certifications and Payments3. Time and Monetary Claims4. Common Contractual Issues / Problems in Malaysia5. Pertinent Contractual Provisions in Construction

Contracts6. Recent Construction Contract case law in Malaysia

1. Effective Project or Contract Administration / Management.2. One Day or Two Days Intensive Seminar (with workshop) on

Practical Construction Claims in Malaysia.3. 10 Half Day or 5 Full Day Modules on Practical Construction

Contract Administration / Management.4. One Day or Two Days Intensive Training (with workshop) on Value Engineering / Management.5. International / Accredited Value Management Programmes.6. ISO 9001:2008 Training.7. One Day Seminar on “Doing The Right Things Right”.8. Motivation, Train-The-Trainer and NLP programmes.