SCHOOL OF ARCHITECTURE, BUILDING AND

DESIGN

BACHELOR OF QUANTITY SURVEYING

(HONOURS)

CONSTRUCTION LAW (QSB 4414)

Group Assignment

NAME : LEE KIM THIAM (0310710)

LIM CHERN YIE (0315688)

THUN SHAO XUN (0315919)

BO YONG KHONG (0316317)

PARVESH FERAG (0320760)

LECTURER : MR WONG CHONG WEI

SUBMISSION DATE : 22nd NOVEMBER 2017

Analysis Report of Contractual Standing and

Dispute Resolution Based on FIDIC Red Book 1999

Conditions of Contract

Prepared for

MUHIBBAH ENGINEERING (M) BHD.

Prepared by

LCY CONSULTATION SDN.BHD

NAME : LEE KIM THIAM (0310710)

LIM CHERN YIE (0315688)

TUN SHAO XUN (03)

BO YONG KHONG (0316317)

PARVESH FERAG (0320760)

22nd NOVEMBER 2017

TABLE OF CONTENT

NO. Title Page

LIST OF FIGURES 5

LIST OF TABLES 6

1.0 Introduction

1.1 Key Issues & Assumptions 7

1.2 Objectives of Report 8

2.0 General Principles of Main Contractor 9

2.1 Comparison between FIDIC Red 11

Book 1999 and PAM Contracts

2006 with Quantities under General

Principles of Main Contractor’s

Responsibility

3.0 Condition Guiding Payment 12

3.1 Comparison with PAM 2006 13

3.2 Procedure for Payment 14

4.0 Contractual Programme 17

4.1 Introduction 17

4.2 Analysis in FIDIC Red Book 1999 17

conditions of contract

4.3 Comparison between FIDIC Red 18

Book 1999 and PAM Contracts

2006 with Quantities

4.4 Advice for Contractual Programme 19

5.0 Testing and Defect in Construction Contracts 20

5.1 Comparison between FIDIC 1999 21

and PAM form 2006

5.2 Advise for Testing and Defect 21

6.0 Dispute Resolution Method in Red 22

FIDIC Book (1999)

6.1 Dispute Adjudication Board 22

6.2 Arbitration 24

6.3 Comparison between FIDIC Red Book 25

and PAM form Contract 2006 on

Dispute resolution

6.4 Advise for Dispute Resolution

i) FIDIC Red Book 1999 26

ii) PAM Form 2006 27

Appendice – Common Issues 28

Bibliography 29

5

List of Figures

Figure No. Title Page

1.0 Interim Payment Clause under FIDIC Red

Book 1999

1.1 Final Payment Clause under FIDIC Red

Book 1999

1.2 Interim Payment Clause under PAM Form

2006

1.3 Final Payment Clause under PAM Form

2006

1.4 Typical sequence of Dispute Events envisaged

in Clause 20

6

List of Tables

Table No. Title Page

1.0 Comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities under General Principles

of Main Contractor’s Responsibility

1.1 Comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities under Condition Guiding

Payment

1.2 Comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities under the Contractual

Programme

1.3 Comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities under Testing and Defect

in Construction Contracts

1.4 Comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities under Dispute Resolution

Method

7

1.0 Introduction

Development projects have generally been deemed as unpredictable compared to

different enterprises as these development projects usually include various partners and

contracts where every partner has their own distinct commitments and tasks. When

construction projects are in progress of being brought up, parties of the trade are required to

follow the conditions of all the stated clauses depicted within their particular projects. Once

an agreement is made within the conditions of the said contract, any disp ute from either party

will result in the breach of that contract.

For this project, the contract involves the building of a seven-storey hotel with a class

rating of four stars, with the client being the Ministry of Finance. During the construction of

the project there were some disputes that involved the client delaying the handling over of the

site, late payment, contractors pulling workmen off the site, work schedule delay and late

project administrator’s instruction. Due to these disputes, there needs to be a clarification of

disputes and damages rectified between both parties. Therefore, this report will be the

document of advice for the contractor on his terms of disputes.

1.1 Key Issues and Assumptions:

i) Four week delay regarding work on site due to delay in handing over of site.

ii) After 13th month, several problems arose; exchange of accusations, late

agreed payments and workmen being pulled off site by Contractor.

iii) Project was eventually delayed due to late payment, lack of workmen on site,

work behind schedule and late project administrations’ instructions.

iv) Conflict in determining Contractor’s responsibility, specifically under the

Contractor’s design portion and rules regarding subcontracting.

v) Misunderstanding about testing and defects in terms of inspection,

rectification and uncorrected defects.

vi) Assumption where Contractor has suffered cost incurred from this delay of

payment.

vii) Assuming that said disputes are as ongoing and have yet to be resolved.

8

1.2 Objectives of Report

i) To identify general principles governing the main contractor’s

responsibilities.

ii) To propose the conditions guiding payment.

iii) To propose the term of conditions governing the contractual programme.

iv) To identify the principle of testing and defects.

v) To identify the dispute resolution methods that can be used for the problem.

Note: All advice and recommendations are solely for the use of the analysis of this

report only. The decision to admit to these recommendations purely belongs to

the Client himself.

9

2.0 General Principles of Main Contractor

According to sub-clause 4.1 in FIDIC Red Book 1999, it is stated that the Contractor

shall design, execute and complete the Works in accordance with the Contract with the

engineer’s instruction. However, if there is any defect works found, contractor shall remedy

the defect in the Works. Contractor has the obligation to the adequacy, stability and safety of

site operation and the methods of construction exempted from the extent specified in contract.

Contractor shall provide plant and Contractor’ document specified in contract and also all the

necessary item or service required in whether temporary or permanent nature. Contractor

shall provide the details arrangement and adopted methods of construction for the Works to

be executed and submit to engineer. Unless the Engineer is notified previously, alternation to

these documents is not allowed to be made.

Contractor is specified to design in part of permanent work.

Sub-clause 4.1 defines that Contractor shall submit contractor’s documents with

specification and drawing of part of permanent work to engineer with the procedures

initiated in contract and shall be written in language for communications defined in

sub-clause 1.4 and include the additional information required by Engineer into the

Drawing.

Contractor to guarantee the completed works for the part be fit to the contract

specification.

Prior to commencement of test on completion, Contractor shall submit “as-built”

document to engineer together with operation and maintenance manual.

Sub-clause 4.2 states that contractor shall obtain performance security and deliver to

employer within 28 days after received LOA and C.C to Engineer.

10

In the Pam Contract 2006 (With Quantities), the clause 1.1 held that Contractor has

the obligation to carry out and complete the Works in accordance of contract documents.

Contractor is required to provide goods, material, workmanship and other standard specified

in the contract documents or required by Architect. Contractor has the duty to assure the

adequacy, stability and safety of temporary works and methods of construction other than the

designed by Architect under the definition of clause 1.2.

Clause 1.3 states that contractor has the alternative to propose new design that

specified in the Works. However, there is compulsory for Contractor to ensure such proposals

are fit to the purpose with the designs, specifications or selection of materials, goods and

workmanship. Although the Contract obtains the copyright of alternative design, but

Employer is entitled to use the alternative design for the completion, maintenance, repair and

future extension of works. Anyway, the acceptance of design and alternative design by

architect shall not relieve the contractor’s responsibility under contract.

Clause 1.4 in the PAM contract 2006 stated that contractor shall use the contract

document and other subsequent document issued by architect to plan work prior to execution.

If there is discrepancy and divergence found between contract and other subsequent contract

document issued by architect, contractor shall give written notice in sufficient time before the

commencement of construction of affected works. Such discrepancy and divergence shall not

vitiate the contract.

11

2.1 Comparison between FIDIC Red Book 1999 and PAM Contracts 2006 with

Quantities

Contractor FIDIC Red Book Pam Contract 2006

Obligation - To ensure the adequacy, stability and safety of site operation and the

methods of construction exempted from the extent specified in contract

- To assure the adequacy, stability and safety of temporary works and methods

of construction other than the designed by Architect

Instruction - Engineer’ instruction - Architect’ instruction

Designing - Unless specified to design part of work

- Can propose new design to specified work that fit to purpose of contract

Equipment & Service

- To provide plant and Contractor’s document specified in contract and

also all the necessary item or service required in whether temporary or

permanent nature

- To provide goods, material, workmanship and other standard

specified in the contract documents or required by Architect

Work Programme

- Self provide the details arrangement and adopted methods of

construction for the Works to be executed

- To use the contract document and other subsequent document issued by architect

to plan work prior to execution

Table 1.0 : Comparison between FIDIC Red Book 1999 and PAM Contracts 2006 with Quantities

under General Principles of Main Contractor’s Responsibility

12

3.0 Condition Guiding Payment

First and foremost, regarding to issue of non-payment on the 13th month to Contractor,

I will recommend Contractor impose financing charges compounded delay by the Employer

without formal notice or certification because under Sub-Clause 14.8 of FIDIC Red Book

1999, it stated if the Contractor does not receive payment in accordance with Sub-Clause 14.7

(Payment), the Contractor shall be entitled to receive financing charges compounded monthly

on the amount unpaid during the period of delay. Unless otherwise stated in the Particular

Conditions, these financing charges shall be calculated at the annual rate of three percentage

points above the discount rate of the central bank in the country of the currency of payment.

As long as the Contractor is submitted payment application with supporting document on

time to the Engineer, Contractor is entitled to payment review according to Sub-Clause 14.6.

According to the Sub-Clause 16.1, if the Engineer fails to certify in accordance with

Sub-Clause 14.6 or the Employer fails to comply with Sub- Clause 2.4 or Sub-Clause 14.7,

the Contractor may after giving not less than 21 days’ notice to the Employer, suspend work

(or reduce the rate of work) unless and until the Contractor has received the Payment

Certificate. Therefore, I provide my professional advice by suggesting Contractor should not

suspend work immediately but to provide a 21 days’ notice to Employer. After the 21 days

still have not received any payment then only suspend until received such Payment

Certificate then only resume normal working under Sub-Clause 16.1. The advise given will

be following the assumption that the Contractor has suffered cost incurred from this delay of

payment. The Contractor shall give notice to the Engineer and shall be entitled subject to

Sub-Clause 20.1 to an extension of time for any such delay or payment of any such Cost plus

reasonable profit that shall be included in the Contract Price. Contractor can refer to the case

law of Construction Associates Pty. Ltd. v CS Group of Companies Pty. Ltd. (2008).

Lastly, assuming Employer remains with non-payment, I will suggest the Contractor

to terminate the contract by giving 14 days’ notice to the Employer. Under Sub-Clause

16.2(a), where Contractor does not receive the amount due under an Interim Payment

Certificate within 42 days after giving notice under Sub-clause 16.1 in respect of a failure to

13

comply with the Financial Arrangements under Sub-Clause 2.4 and Sub-Clause 16.2(b) the

Engineer fails within 56 days after receiving a Statement and supporting documents to issue

the relevant Payment Certificate. Contractor should give a 14 days’ notice to Employer for

terminate the Contract only in the case Employer becomes bankrupt or insolvent or a

prolonged suspension affects the whole of the Works then contractor are only allow terminate

the Contract immediately.

3.1 Comparison with PAM 2006

Based on PAM Contract 2006, Contractor are not advised to pull off workmen due to

non-payment, as well as not suspend the execution of the works immediately. The Contractor

shall comply with procedures as stated in Clause 26.2, issue a written notice of default to

Employer and Employer shall have 14 days to rectify defaults, provided that Contractor have

submitted the payment application of claim according to procedure stated in Clause 30.1.

According to the contract provision, Employer shall pay Contractor within Period of

Honouring Certificate (normally 21 days if none stated) after issuance of certificate, refers

Clause 30.1. In this case, the agreed payment has not been paid; it can be considered as

breach of contract, refer to case law Kah Seng Construction Sdn. Bhd. v Selsin Development

Sdn. Bhd. (1997). If the Employer continuously does not rectify his defaults within the period

stated in Clause 26.3, then the Contractor have the rights to suspend works until payment is

made by complying with the procedure under Clause 30.7 and/or claim on the unpaid amount

under Clause 30.17, based on bank interest rate.

If Employer keep holding the payment and unable to pay Contractor within 14 days as

stated in Clause 26.1(a), the Contractor may determine the employment in accordance to

Clause 26.2, may within 10 days from the expiry of the said 14 days, provide a further written

notice delivered by hand or by registered post to terminate Contractor’s own employment.

14

3.2 Procedure for Payment

FIDIC Red Book 1999:

Interim Payment

Figure 1.0 : Interim Payment Clause under FIDIC Red Book 1999

Final Payment

Figure 1.1 : Final Payment Clause under FIDIC Red Book 1999

15

PAM 2006:

Interim Payment

Figure 1.2 : Interim Payment Clause under PAM Form 2006

Final Payment

Figure 1.3 : Final Payment Clause under PAM Form 2006

16

FIDIC Red Book 1999

PAM Contract 2006 (with

Quantities)

Engineer

Certifier Architect

Sub-Clause 14.6: within 28 days after

Certifying

Period Clause 30.1: within 21 days from the

receipt Statement and supporting date of receipt of application

documents

Sub-Clause 14.7(a): Advance

Interim Payment

Clause 30.1: within Period of

payment within 42 days after issue of Honouring (21 days) from the date of

LOA or within 21 days after receiving receipt of contractor’s application

the Performance Security

Sub-Clause 14.7(b): Interim Payment

Certificate within 56 days after the

Engineer receives the Statement and

supporting documents

Sub-Clause 14.7(c): Final Payment

Final Certificate

Cluse 30.14(a): within 21 Days after

Certificate within 56 days after the the Period of Honouring Certificate

Employer receives this Payment for the payment of the Penultimate

Certificate. Certificate; or

Clause 30.14(b): within 28 Days after

the CMGD has been issue, in the

event no Penultimate Certificate.

Table 1.1 : Comparison between FIDIC Red Book 1999 and PAM Contracts 2006

with Quantities under Condition Guiding Payment

17

4.0 CONTRACTUAL PROGRAMME

4.1 Introduction

The access to site by the employer was delayed by 4 week due to delay in handling

over the site to contractor. The duration of the project was agreed to be 24 months. The task

pursued into incredible troubles the thirteenth month, allegations were traded, concurred

instalments not made and the labourers were pulled off site by the temporary worker which

prompted to disputes.

4.2 Analysis in FIDIC Red Book 1999 conditions of contract

According to clause 2.1, the Employer shall give the Contractor right of access to, and

possession of, the Site within such times as may be required to enable the Contractor to

proceed in accordance with the programme submitted under Sub-Clause 8.3.

Under clause 4.21, Contractor has to update programme regularly because monthly

progress report shall include the comparison of current programme and actual progress.

Clause 8.3 stated the Contractor shall submit a detailed time programme to the

Engineer within 28 days after receiving the notice under Sub-Clause 8.1. The

Contractor shall submit a reviewed programme whenever the earlier programme is not

consistent with the actual progress. Within 21 days, the Engineer gives notice to the

Contractor if he does not comply with the programme stating the reasons. The Contractor

has to work according to the contract and the Engineer shall be entitled based on the

programme when planning activities. The Contract shall give notice to the Engineer if the

future events may cause delay or inflation in price. The Engineer may require the

Contractor to submit an estimate of the impacts under sub-clause 13.3.

18

In any event, the Engineer shall notify the Contractor that a programme fails to

comply with the contract or to be consistent with actual progress and the Contractor

shall resubmit an updated programme to the Employer’s Personnel under Sub-Clause 8.3.

According to Clause 13.3, if Engineer requested a proposal before instructing any

variation, Contractor has to list down the execution of works and a revised programme of

the proposed work.

4.3 Comparison between FIDIC Red Book 1999 and PAM Contracts 2006 with

Quantities

The table 5.1 shows the comparison between FIDIC Red Book 1999 and PAM

Contracts 2006 with Quantities in contractual Programme.

No. FIDIC Red Book 1999 PAM Contract 2006 with Quantities

1 The Engineer is in charge of the

submission of the programme.

The Architect is in charge of the

submission of the programme.

2

The submission shall be within 28 days

from the receipt of notice of

Commencement Date requested by

Engineer.

The submission shall be within 21 days

from the receipt of Letter of Award and

shall be in writing form requested by

Architect.

3

FIDIC Contract does not state if the

programme is formed part of the

contract.

PAM Form clearly states that the

Works Programme shall not constitute

part of the Contract under clause 3.6

4

The Engineer will ask for revised

programme if the previous programme

is not in line with the actual progress or

a proposal for any modifications to the

programme.

The Architect will ask for revised

Works Programme if any part of the

Work is delayed for whatever reason.

Table 1.2 : Comparison between FIDIC Red Book 1999 and PAM Contracts 2006

with Quantities under the Contractual Programme

19

4.4 Advice

The advice given to the Contractor, as the Employer caused the delay in giving access

to the site to Contractor. First, the Contractor shall give notice to Engineer and shall be

entitled to Contractor’s Claims under sub clause 20.1 to both extension of time for such delay

under sub clause 8.4 and payment of such Cost plus reasonable profit.

The Contractor shall notify the Engineer stating the event giving rise to the claim. The

notice shall be given within 28 days after the Contractor became aware of the event. Failure

by the Contractor to submit particulars within 28 days, the time for completion shall not

extend and Contractor shall not entitled for additional payment suffered. Contractor to keep

contemporaneous records to substantial all its claims for additional expenses.

After been aware of the delay, within 42 days, the Contractor shall submit fully

particulars in order to claim extension of time or additional payment. The particulars shall

include completely detailed claims, further interim claims at monthly intervals and final

claim within 28 days after the end of the effect of the delay. The Engineer shall approve or

disapprove the claims with reasons. The options by the Engineer either to proceed with sub

clause 3.5 which is determinations or extension of time under sub clause 8.4 or additional

payment which the Contractor has the right under the contract.

20

5.0 Testing and Defect in Construction Contracts

According to the sub clause 7.4, contractor has to provide all necessary thing, labour and

experienced staff for testing. The Contractor shall agree, with the Engineer, the time and

place for the specified testing of any Plant, Materials and other parts of the works. The

Contractor shall agree, with the Engineer, the time and p lace for the specified testing of

any Plant, Materials and other parts of the works.

Under clause 9.1, the contractor must carry out the Test on completion in accordance with

this clause and sub clause 7.4. Then the contractor shall give notice to engineer not less

than 21days. Otherwise the test on completion shall be carried out within 14 days, on

such day or days as the engineer shall instruct. If the test is passed, the contractor shall

submit a certified report of the result to the engineer.

Under clause 9.2, if the test is unduly delayed by the employer. Sub clause 7.4 (Testing)

or sub clause 10.3 (Interference with Tests on completion) shall be applicable. Example,

employer delay or interfere during the stage of testing which delay the project. So

contractor can sue employer through clause 9.2 and the sub clause of 10.3 where

contractor eligible to claim extension of time for any such of delay which is under sub

clause of 8.4. If the test on completion is being unduly delayed by the contractor, the

engineer may by notice require the contractor to carry out the tests within 21 days after

receiving the notice. The contractor shall carry out the test on such days or within a

period as the contractor may fix and of which he shall give notice to the engineer. If

contractor fail to pass the test on completion within 21 days, under sub- clause 7.4 shall

apply and the engineer or the contractor may require the failed tests and tests on

completion on any related work to be repeated under the same terms and conditions.

In clause 9.4, if the test on completion still fails, the engineer shall be entitled to order

further repetition of testing under sub clause 9.3. If the failure deprives the employer of

substantially the whole benefit of the works or section, reject the works or section in

which event the employer shall have the same remedies as are provided in sub paragraph

of sub clause 11.4. Employer also can issue a taking over certificate if it delays too much

time.

21

5.1 Comparison between FIDIC 1999 and PAM form 2006

FIDIC 1999 Testing and defects PAM 2006

Engineer Issuance of certificate Architect

21 Days to give written

notice to the engineer

Days to submit written

notice for before testing

7 Days to give written

notice to architect

Contractor may claim

extension of time under

clause 8.4, cost and

reasonable profit if testing

is delayed by the

employer under sub

clause of 7.4 and sub-

clause 10.3 interference

with tests on completion

shall be applicable.

Claim if delay of testing

by employer

Contractor may claim

extension of time under

clause 23.8m if any act of

prevention or breach of

contract by the employer.

Table 1.3 : Comparison between FIDIC Red Book 1999 and PAM Contracts 2006

with Quantities under Testing and Defect in Construction Contracts

5.2 Advice

By follow the principle guide of testing and defect, contractor can minimize the

dispute matter and misunderstanding between the clients. First the contractor shall prepare

necessary stuff for testing purposes. Then, the contractor will have agreement with the

engineer for the time and place for the specified testing of any plant, material and other parts

of the worksIf the contractor suffer delay and incur cost due to employer default, the

contractor can send notice to the engineer and shall be entitled to subject to sub clause 20.1

contractor’s claim for extension of time under sub clause 8.4 and also payment of any such

cost plus reasonable profit, which shall be included in the contract price.

The contractor also needs to forward any necessary report regarding the tests to

engineer. This is to allow the engineer to check and certify the test has been passed. Beside

that if the employer misunderstand about the testing and defect, contractor can bring this up

to employer to minimize the issue. This also allows the project to proceed smoothly and

complete on time.

22

6.0 Dispute Resolution Method in Red FIDIC Book (1999)

Following the assumption that the expressed disputes are as ongoing and have yet to

be resolved, causing a setback in the project due to the likes of late payment, lack of

workmen on-site, existing work behind schedule and late project administrator’s instructions.

Due to these deferrals and coinciding question, the contractor will require guidance on which

premise of clarification of the dispute resolution method ought to be actualized to guarantee

that the contractor does not take the full force of the punishment from the dispute.

6.1 Dispute Adjudication Board

Adjudication is a process which an impartial third party selected by parties to provide

a decision on a dispute (“Adjudication in construction contracts - Designing Buildings Wiki,”

2017). In most cases, adjudication decisions are contract binding unless or if not challenged

by the arbitration or litigation. Under Sub-Clause 20.4, adjudicated by a Dispute Adjudication

Board (D.A.B), the parties shall mutually assign a D.A.B by the date stated in the Appendix

to Tender. Additionally, under Sub-Clause 20.2, the D.A.B shall comprise either one or three

suitably qualified persons. If the D.A.B is to comprise three people, each party shall nominate

one member for the approval of the other Party. The parties then shall consult both these

members and shall agree upon the third member, who shall act as a chairman. According to

Sub-Clause 20.3, if there is failure to agree on the appointment, each party shall be

responsible for paying one-half of the remuneration of the appointing entity or official.

Generally adjudication is suitable for dealing with claims related to:

Interim Payments

Extension of time for completion of works

Delay and destruction of works

The Final Account sum

23

The advantage to this method is that firstly is less in cost compared to court

proceedings. As stated in clause 20.4, if a dispute arises between the parties in relation with

or arising out of the contract, either party may refer the dispute in writing to the D.A.B for its

decision with copies to the other party and the Engineer. Then within 84 days after receiving

such notice the D.A.B shall give its decision. The decision shall be binding on both Parties,

who shall promptly give effect to it unless and until it shall be revised in an amicable

settlement. Amicable Settlement, as stated under Sub-Clause 20.5, if either party has sent a

N.O.D within the 28 days, the parties can commence the arbitration which is subjected to

whether there was an attempt to settle the said dispute amicably or/and the period has

reached 56 days after the N.O.D was provided.

Secondly, where a D.A.B makes a decision the contract provides that both Parties

shall promptly give effect to it, but if a party is aggrieved it may serve on the other a Notice

of Dissatisfaction (NOD) within 28 days. If no such NOD is served, the D.A.B decision

becomes final and binding. In Addition, Sub-Clause 20.7 provides that any failure to comply,

where neither party has not served a valid N.O.D shall itself be referred to the arbitration

tribunal. Furthermore, adjudication is relatively a quick process, to ensure that cash flow is

maintained during the process. The downside to this is adjudicator’s power may be limited,

and disputes needs to be noted between parties before adjudication can commenced.

24

6.2 Arbitration

The arbitration process is governed by the Arbitration Act 2005 and also PAM Arbitration

Rules. Based on the chosen FIDIC form of contract, under Clause 2 D.A.B 0.6, unless settled

amicably, any disputes in respect of which the Dispute Adjudication Boards’ (D.A.B)

decision has not become final and binding shall be finally settled by international arbitration.

The parties are free to agree on rules and procedures, however if they accept the provisions of

Clause 20.6 which are:

Arbitration shall be according to the ICC (International Chamber of Commerce) rules

and procedures.

There will be 3 arbitrators appointed according to ICC Rules

The arbitration will be conducted in the language for communications (Sub-Clause

1.4)

Figure 1.4: Typical sequence of Dispute Events envisaged in Clause 20

25

6.3 Comparison between FIDIC Red Book and PAM form Contract 2006 on Dispute

resolution

FIDIC RED BOOK 1999

PAM Contract 2006

General Summary

Submitted to Engineer

Submitted to Architect

Initiates in accordance to “General of

Dispute Adjudication Agreement” and

“Procedural Rules”

Initiated in accordance to Clause 34.3, to

“PAM Adjudication Rules” or any

modification to such rules.

Failure to agree on appointment after 42

days, the appointing official named in

Appendix to Tender shall be the

member of D.A.B under Clause 20.3

Failure to agree after expiration of 21

days from the date of appointment,

President of PAM shall appoint an

adjudicator under Clause 34.2

Either party can give notice of

dissatisfaction to the other. If no N.O.D

is provided within 28 days, after the day

on which the party receives the

decision, D.A.B shall become final and

binding.

If either party disputes the decision, shall

nevertheless be bound by the

adjudicators’ decision until Practical

Completion but shall give a written notice

to the other party within a given period of

6 weeks

Table 1.4 : Comparison between FIDIC Red Book 1999 and PAM Contracts 2006

with Quantities under Dispute Resolution Method

To further add on, according to Gould (2004), an arbitrator is a private judge that is

chosen between the parties by their mutual consent to determine the disputes between them.

The disputes between parties is settled or resolved on the basis of materials facts, documents

and relevant principles of law. As compared to other dispute resolution method like

mediation, arbitration method is a private and confidential process. Furthermore, comparing

to other formal methods like court proceedings such as litigation, the dispute resolution

process would be comparatively much quicker and the cost would be much cheaper as lesser

process, documents and bindings is involved (“Different methods of dispute resolution in

construction disputes - Lexology,” 2017). It is also highly flexible compared to the mentioned

court proceedings.

26

6.4 ADVICE

i) FIDIC Red Book 1999

With the stated clauses within the FIDIC red book 1999 form of contract, the most

suitable dispute resolution method to be applied would be the appointment of the Dispute

Adjudication Board (D.A.B) and prevent any means of going for arbitration by any cost. The

process of D.A.B is to first become familiar with the ongoing activities of the project and

secondly to resolve efficiently and cost-effectively any disputes arising during that time.

Therefore, with the given in depth knowledge regarding the project scope of work,

disputes such as late payment, lack of workmen on site, work behind schedule and late

project administrator’s instructions can be settled quickly avoiding long delays during which

working relationships between personnel executing the project can deteriorate and worsen the

issues. This is because after the D.A.B has considered the case of both parties, they can

present to both parties a well-organized and reasonable decision showing that all applicable

rules and procedures have been followed. Well-argued decisions with rational explanations

can help speed up the resolution of the claim, thus persuading the contractor that the D.A.B

has considered all aspects and come to sensible conclusion to give the best advice to the

Contractor.

If the Engineer cannot achieve an agreement between said parties within a reasonable

period of time, he/she shall make a just final determination in accordance with the contract.

After the Engineer has made his/her fair final decision, he/she shall advise the Client as

accordingly. If the Client disagrees with the suggested final determination, he/she may refer

to the dispute adjudication board (D.A.B) under Sub-Clause 20.4. If no settlement and

dissatisfaction arises between said parties, then the dispute shall be settled by arbitration

under Sub-clause 20.6 under rules of Arbitration of the International Chamber of Commerce

(ICC).

27

ii) PAM Form 2006

Referring to the said dispute of the Contractor, the payment has been delayed by three

months under the stated claims; No.10, No.11 and No.12. The total of these interim payment

claims sums up to RM21 million in losses incurred. This is also followed by the four week

delay caused by the late site handover from the commencement date. According to the PAM

Contract 2006, dispute resolutions are available in four types; Mediation, Adjudication,

Arbitration and Litigation.

We would strongly advise the Client to go through with Adjudication under Clause

34.0 PAM Contract 2006. While adjudication through PAM Contract 2006 remains a sensible

alternative option, it is very much advisable for the Client to refer to the CIPAA 2012 due to

the jurisdiction it offers over the Contractual Adjudication. To compensate for the stated loss,

the Client is required to abide to the KLRCA Adjudication Rules and Procedure within

Section 32 and Section 33. The Client will automatically be provided security and will be

immune to any proceedings related to any payment disputes as stated or included under

Section 41. Following the claim of the huge sum amounting to RM21 million, the dispute of

the four weeks delay from handover of site can be resolved by submission of Extension of

Time certificate according to Schedule 9, page 82 of CIPAA 2012.

28

Appendix – Common Issues during Construction

Scenario – Delay / Non-payment

After completion of certain work and had undergone interim valuation, the

Contractor submitted his claim for interim payment. Yet the Contractor did not receive any

payment from the Employer despite interim certificate has been issued.

Remedies for the Contractor:

According to Sub-clause 14.6, the Engineer shall within 28 days after receiving a

Statement and supporting documents, issue to the Employer an Interim Payment Certificate

which shall state the amount which the Engineer fairly determines to be d ue, with supporting

particulars. Following that, Sub-clause 14.7 states that the Employer shall pay the Contractor

the amount certified in each Interim Payment Certificate within 56 days after the Engineer

receives the Statement and supporting documents.

In the scenario mentioned above, if the Contractor does not receive the interim

payment within the stated specified period, the Contractor shall be entitled to receive

financing charges (Sub-clause 14.8) compounded monthly on the amount unpaid during the

period of delay. The Contractor shall be entitled to this payment without formal notice or

certification, and without prejudice to any other right or remedy.

29

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Jeremy, G. (n.d.). FIDIC Dispute Adjudication Boards. Retrieved from

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