1. society
2. work
3. contracts

MBAM SECTION
Your Contractual Question Answered
What are Preliminaries and How to Evaluate Them?
By The Entrusty Group
Entrusty Group, a multi-disciplinary group of companies, of which, one of their specialisation is in project,
commercial and contractual management, has been running a regular contractual questions and answers section
for Master Builders member in the Master Builder Journal
In this instalment of this series, Entrusty Group will provide the answer to another frequently asked question:What Are Preliminaries and How to Evaluate Them?
Introduction
In the construction industry, Bill of
Quantities (“BQ”) is a part and
common feature in many tender
and/or contract documents for
construction projects. Traditionally,
BQ is prepared by the consulting
quantity surveyors (“QS”), particularly
under traditional or conventional
building procurement system, usually
following the Standard Method of
Measurement published by the
Institution of Surveyors, Malaysia
(ISM) for building projects. A BQ
typically comprises of preliminaries,
preambles and measured works.
When there is a disruption or delay in
the project, which often leads to
prolongation
period
of
the
construction contract, it is usual for
80
MBJ Volume 1 2009
additional preliminaries to be claimed
over the prolongation period by the
Contractor under prolongation costs,
which essentially is a loss and
expense claim, as provided under the
relevant contract clause/s of he
standard forms of construction
contract in Malaysia.
What are preliminaries ?
The purpose of Preliminaries section
in BQ is to provide information,
particulars, general obligations and
liabilities, etc of the project concern to
tenderers, who should then price for
the various items provided under this
section.
In this article, Entrusty aims to provide
readers with a better understanding of
Preliminaries, by answering the
following:-
The Preliminaries section, which form
part of the BQ is normally priced by
the tenderers separately from trade or
elemental bills , which are integral
parts of the BQ.
•
•
•
•
MASTER BUILDERS JOURNAL
What are preliminaries ? ;
The relevant provisions under
the common standard forms of
building/construction contract in
Malaysia;
Case studies/scenarios;
Methods in assessing additional
costs of Preliminaries .
In the Standard Method of
Measurement 2 in Malaysia, items
under Preliminaries are grouped into
13 listed categories, as follows-
MBAM SECTION
Q&A
1
2
3
4
5
6
7
8
9
10
11
12
13
Project, parties and consultants
- name, nature and location of the project; general description of works; names and addresses of the Employer
and Consultants to be named in the contract.
Description of site
- information to indicate the boundaries of the site, the means of access and the position of the works; any
drainage, water, gas and other mains or power services known to exits on or over the site; any adjancent or
abutting buildings; information to facilitate visiting the site
Drawings and other documents
Form, type and conditions of contract
Contractor's liability
Employer's liability
Obligations and restrictions imposed by the Employer
- access to and possession or use of the site; limitations of working space; limitations of working hours; the
use or disposal of any material found on site; hoardings, fences, screens, temporary roofs, temporary
name/sign boards and advertising rights; the maintenance of existing live drainage, water, gas and other mains
or power services on or over the site; the execution or completion of the work in any specific order or in sections
or phases; maintenance of specific temperature and humidity levels; temporary accommodation and facilities
for the use of the Employer including air-conditioning, lighting, furnishing and attendance; the installation of
telephones for the Employer and the cost of his telephone calls; any other obligation or restriction such as
restriction upon the employment of labour, restriction on the use of radios by employees, restriction on the
felling of trees, car parking arrangements for the employees, etc
Works by Nominated Sub-Contractors
- The name of the firm to be nominated together with a description of the sub-contract work; attendance on
nominated sub-contractor where required shall be described and given as an item in each case for special
scaffolding additional to the Contractor's standing scaffolding, the provision of temporary access roads and
hard standings in connection with structural steelwork, precast concrete components, piling, heavy items of
plant, unloading, distribution, hoisting, placing in position giving in the case of significant items the weight
and/or size, the provision of covered storage and accommodation including lighting and power thereto,
maintenance of specific temperature or humidity levels,etc
Goods and materials from Nominated Suppliers
- The name of the supplier to be nominated; particulars shall be given where the Contractor is required to pay
the costs of conveying goods and materials to the site and/or of any special packing or similar requirements
Works by government or statutory authorities
- works which are to be carried out by a government or statutory authority in accordance with statutory
obligation shall be described, stipulating the scope and timing of the work and its effect on the Contractor's
operations
Works or goods and materials by the Employer
- a description shall be given of works by others directly engage by the Employer; a description shall be given
of good and materials provided by or on behalf of the Employer
Pricing
- Plant, tools, vehicles, scaffolding, site administration and security, transport for workpeople, protection of
work in all sections, water for the works, lighting and power for the works, temporary roads, hard standings,
crossings, temporary accommodation for the use of the Contractor, temporary telephones for the use of the
Contractor, traffic regulations, safety, healthy and welfare for the workpeople, disbursements arising from the
employment of workpeople, maintenance of public and private roads, removing rubbish, protecting casings and
coverings and cleaning the works on completion, drying the works, temporary fencing, hoardings, screens, fans
In monthly progress payment
planked footways, guardrails, gantries, control of noise, pollution, all other statutory obligations, surety or
valuations,
in the
performance bond, shop drawings, co-ordination and record drawings, schedules,
chartsthe
andpriced
the likeitems
showing
Preliminaries section are normally
the progress, organisation of trades, progress photographs, etc
divided into three categories, namely
Contingencies
initial, recurring and final costs by the
MASTER BUILDERS JOURNAL
MBJ Volume 1 2009
81
MBAM SECTION
Q&A
Notwithstanding, the Preliminaries section in most BQs, comprises typically of
the following headed items:1
12
Safety, health and welfare
2
Preliminaries particulars - project and
contract details, works, goods &materials
by others, contractual obligations and
liabilities, etc
Plant, tools and vehicles
13
6
7
8
Protection of work
Water, lighting and power
Temporary telephone
17
18
19
Maintenance of publ and private
roads
Removal of rubbish, debris, etc
Control of noise, pollution, etc
Statutory compliance and
obligations
Surety or performance bond
Insurances
Shop drawings, co-ordination
and record drawings
Progress photographs
and reports
Schedules, charts, etc showing
progress of trades, works,
activities.
Clearing, cleaning and handover
3
4
5
9
Scaffolding
Site administration and security
Transport for work people
14
15
16
Temporary roads, hardstandings,
crossings, etc
10 Temporary accommodation
20
21
11 Traffic regulations
In monthly progress payment
valuations, the priced items in the
Preliminaries section are normally
divided into three categories, namely
initial, recurring and final costs by the
usually by the project consulting QS,
in consultation with the Contractor.
The proportion of initial and final costs
are usually fixed and payable upon
commencement and at completion,
while the recurring costs are then
spread evenly over the project
completion period.
The Relevant Provisions Under The
Common Standard Forms Of
Building/Construction Contract In
Malaysia ?
Many standard forms of construction
contract allow loss and expense to be
claimed by the Contractor and
ascertained by the Superintending
Officer (or the Architect / Engineer
/PD/QS, depending on the form
applicable) for payment by the
Employer.
In the Royal Institution of Chartered
Surveyors (RICS), UK (1987) had
defined Loss as “Any monies that the
contractor should have received,
82
MBJ Volume 1 2009
22
but which he did not receive, because
of one or more of those events listed
in the conditions of the relevant
contract, which entitle him to
reimbursement of direct loss and /or
expense” and Expense as “Any cost
to the contractor which is more than it
would otherwise have been, because
of the events referred to above”
The word “direct” loss and expense,
means “the direct consequence of the
act giving rise to the claim” (A & B
Taxis Ltd v The Secretary of State for
Air – 1922) or “…that which flows
naturally from the breach, without
other
intervening
cause
and
independently
of
special
circumstances” (Saintline Ltd v
Richardsons, Westgarth & Co Ltd –
25 BLR140, 1940). In essence, for
loss and expense to be admissible, it
cannot be costs arising from indirect,
remote, consequential or contributory
causes.
The Contractor is usually entitled to
claim for loss and/or expense suffered
if the work is disrupted/ affected
/delayed due to certain specific
causes or events, which are of no fault
of their own. In addition, he can also
MASTER BUILDERS JOURNAL
claim for loss and/or expense suffered
resulting from the Employer’s own
breach of contract i.e. delay and/or
non-payment, wrongfully termination
of the contract, etc.
The Contractor may choose to claim
under the relevant provisions in the
contract or bring legal action in
arbitration/litigation for damages
resulting from the breach of contract.
In simple terms, loss and expense
items may include the following ;
i.
ii.
iii.
iv.
v.
vi.
vii.
Prolongation costs
Disruption costs
Additional Preliminaries
Overheads
Profit
Finance charges
Other additional costs/expenses
not reimbursable under the
contract.
Under
the
standard
forms
of building / construction contract
commonly used in Malaysia, the
relevant loss and expense clauses
are briefly described and discussed
below.
PAM Forms (1998 & 2006)
Under PAM Form of Building Contract,
there are two provisions that enable
the Contractor to claim for additional
preliminaries. However, such claim
must fall under the specific
circumstances provided under Clause
24 – Loss and Expense for both PAM
98 and 06 and Clause 11.6 – Variation
for PAM 98 and Clause 11.7 –
Variation for PAM 06.
In order to succeed in the claim for
loss
and
expense
(in
this
case, additional preliminaries), the
Contractor must notify the Architect in
writing if the regular progress of
(Continued On Page 84)
MBAM SECTION
Q&A
(Continued from Page 82)
Works has been or is likely to be materially affected, which
he had incurred or is likely to incur direct loss and/or
expense.
Thereafter, the Contractor needs to submit together with
the loss and expense claim, the relevant information and
details to substantiate his claim to the Architect for his
ascertainment, accordingly.
CIDB Form (2000)
Under the CIDB Form of Contract, the contract provisions
concerning loss and expense claim are Clause 1.1 –
Definition, Clause 31 – Claims for Loss and Expense and
Clause 32 – Procedure for Claims.
In Clause 1.1 Definitions, Loss and Expense comprise of
actual costs and percentage of the said costs.
Loss and expense may comprise of:i.
the direct relevant costs of labour, Equipment,
materials, or goods actually incurred on the Site by
the Contractor; and
ii.
costs of an overhead nature actually and necessarily
incurred on the Site by the Contractor; and
i.
the amount equivalent to the percentage named in the
Appendix of such cost referred to in (a) and (b) above,
such amount shall be deemed to be inclusive of any
profits, head office or other administrative overheads,
financing charges (including foreign exchange
losses) and any other costs, loss or expense of
whatsoever nature and howsoever arising. The
percentage shall exclude interest payable pursuant to
sub-clause 42.9(b).
The events which entitle the Contractor to claim for Loss
and Expense are stipul;ated under Sub-Clause 31.1 –
Reasons for Loss and Expense Claim.
Clause 32 of CIDB Form of Contract set out the procedures
to claim for Loss and Expense, as follows;
Clause
Clause
Clause
Clause
32.1
32.2
32.3
32.4
Clause 32.5
84
MBJ Volume 1 2009
Notice of Claim
Contemporary Records
Substantiation of Claims
Access to Contractor’s Books
and Documents
Payment of Claims
MASTER BUILDERS JOURNAL
Clause 32.6
Failure to Comply
Under the CIDB Form, it is a condition precedent that the
Contractor should notify the Superintending Officer within
thirty (30) days, if he intends to claim for Loss and
Expense.
JKR/PWD Form 203A (Rev. 10/83 & Rev. 2007)
Under JKR/PWD Form, the Contractor is entitled to claim
for additional preliminaries under Clause 44 – Loss and
Expense caused by delays, and/or under Clause 5 (d) –
Claims for compliance with the Superintending Officer’s
(‘SO”) instructions a provided in JKR 203 (Rev. 10/83) and
for Loss and Expense claims under Clause 44 of JKR 203
(Rev. 2007).
Similar to other aforesaid forms, the Contractor is required
to notify the SO in writing of his intention to claim if the
regular progress of Works has been materially affected
which he has incurred direct loss and/or expense due to
the following specific reasons:-
JKR 203 (Rev. 10/83)
Clause
44 (c) by reason of directions given by the SO
consequential upon disputes with neighbouring
owners provided the same is not due to any
act, negligence or default of the Contractor or
any sub-contractor, nominated or otherwise, or
44 (f) by reason of the Contract not having received in
due tme necessary instructions, drawings, levels
or instructions in regard to the nomination of subcontractors and/or suppliers provided in this
Contract, from the SO due to any negligence or
default of the SO and for which he shall have
specifically applied n writing on a date which
having regard to the Date for Completion stated
in the Appendix to theseConditions or to any
extension of time then fixed under this
Conditions, was neither unreasonably distant
from nor unreasonably close to the date on which
it was necessary for him to receive the same,
44 (i) by delay on the part of artists, tradesman or
other engaged b the Government in executing
work not forming part of this Contract.
MBAM SECTION
Q&A
JKR 203 (Rev. 2007)
Clause
44 (c) suspension of works under Clause 50;
44 (d) directions given by the SO,
consequential upon d i s p u t e s
with neighbouring owners provided the
same is not due to any act, negligence
or default of the Contractor or any
sub-contractor,nominated or otherwise;
44 (e) SO's instruction issued under Clause 5
hereof, PROVIDED THAT such
instructions are not issued due to any
act, negligence, default or breach of
this Contract by the Contractor or any
sub-contractor, nominated or
otherwise;
JKR 203 (Rev. 2007)
Clause
44 (f)
the Contractor not having received in due time
instructions in regard to the nomination of sub-contractors
and/or suppliers provided in this Contract, necessary
instructions, drawings or levels for the execution of the
Works from the SO due to any negligence or default of
the SO PROVIDED THAT the Contractor shall have
specifically applied in writing on a date which having
regard to the Date for Completion stated in Appendix or
to any extension of time then fixed under this clause, was
neither unreasonably distant from nor unreasonably close
to the date on which it was necessary for him to receive
the same;
44 (h) delay on the part of artists, tradesmen or others engaged
by the Government in execting work not forming part of
this Contract
IEM Form (1989)
Additional preliminaries claim will fall under Clause 43 and 5 (d), which is similar to JKR Clause 44, except in IEM Form,
which provides an additional clause, Clause 43 (g) to cover for reason of delay in giving possession of the Site as provided
under Clause 38 (b) (i).
The following are the grounds for claims under loss and/or expense as provided in the aforesaid PAM 1998/2006, CIDB
2000, JKR 203A and IEM 89.
Grounds for Loss and/or Expense
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Late drawings, information, confirmations and/or instructions
Ditto, in regard to P.C. Sums & Provisional Sums
Failure or delay in giving possession of site
Compliance with the contract administrator’s instructions, eg. to resolve
discrepancies
Variation
Postponement of any work by Contract Administrator
Suspension of works by the Contract Administrator
Delays by artist, tradesmen or others employed by the Employer
Delay or failure supply of goods and materials by the Employer
Test and Inspection
Any acts of prevention or breach of contract by the Employer
Contract Administrator's instruction on antiquities and fossils
Appointment of a replacement Architect/Engineer/QS/Specialist Consultant
Dispute with neighbouring owners
Reason of the execution of work for Provisional Quantity which the Architect is
not a reasonably accurate forecast of the quantity of work required
Failure of the Employer to give access to site in time or any passage to the site
which is in possession or control of the Employer
Suspension of works by the Contractor due to late payment and the withdrawal
of the Architect and/or Consultant
Suspension of works by the Authority but not due to the Contractor's/Nominated
Sub-Contractor's negligence, omission, default and/or breach of contract
Any other ground for Loss and Expense mentioned in the Contract
One or more of the Excepted Risk
PAM
2006
24.3(a)
24.3(a)
24.3(b)
Contract Clasue
PAM
JKR
IEM
1998
203A 1989
24.2(i)
43(f) 43(f)
CIDB
2000
31.1(b)
43(g)
31.1(e)
31.1(c)
5(d)
31.1(h)
43(i)
31.1(g)
31.1 (f)
5(d)
31.1(d)
24.2(iii)
5(d)
24.3(c)
24.3(c)
24.3(d)
24.3(e)
24.3(f)
24.3(g)
24.3(h)
24.3(i)
24.3(j)
24.2(v)
5(d)
5(d)
24.2 (iv) 43(i)
24.2 (vi)
24.2(ii) 5(d)
24.2
31.1(i)
43(c) 43(c)
24.3(k)
24.3 (l)
24.2 (vii)
24.3 (m)
24.3 (n)
Grounds for Loss and/or Expense provided under the various Standard Forms of Constructions Contracts in Malaysia
MASTER BUILDERS JOURNAL
31.1 (j)
31.1 (a)
MBJ Volume 1 2009
85
MBAM SECTION
Q&A
thereupon also be determined and the
Contractor shall be entitled to be paid
(in so far as such amounts or items
have not already been covered by
payments on account made to the
Contractor) as follows:-
Case Studies / Scenarios
Additional preliminaries is actually a
part of loss and expense claim. The
Contractor is entitled to loss and
expense claim under Hadley v
Baxendale (1854) 9 Ex341 first limb,
i.e. ‘may fairly and reasonably be
considered to have arisen naturally,
that is according to the usual course
of things.’. Usually, the Contractor’s
claim for additional preliminaries
should be evaluated based on actual
cost incurred, in the absence of any
expressed method of evaluation.
Notwithstanding, there are cases or
scenarios whereby the evaluation of
the additional preliminaries does not
necessary have to be based on the
actual cost incurred, as it depends on
the provisions of the contract or
project circumstances or conduct of
the contracting parties. In such cases,
the knowledge and skills of a QS to
value the preliminaries is called for.
The following are a few typical
cases/scenarios, whereby additional
preliminaries
have
been
86
MBJ Volume 1 2009
assessed/evaluated
based
on
different methods from the usual
actual cost method.
In a case where the contract is
terminated by the Employer due to the
Contractor’s default or breach, the
Employer had contended that all the
preliminaries items incurred should be
evaluated as loss and expense and
therefore be based upon actual costs
incurred instead of valuing them as
work done.
Was the Employer correct in
evaluating all the additional costs of
Preliminaries incurred based on
actual costs ?
To answer this question, let’s
investigate the provision of this
contract for termination/determination.
The provision states that, inter alia:
“If for any reason the Employer's
employment under the Main Contract
is determined (whether due to any
default of the Employer or otherwise),
then the employment of the
Contractor under this Contract shall
MASTER BUILDERS JOURNAL
(i)
The value of the Contract Works
completed at the date of the
determination, such value to be
calculated according to Clause
17 hereof; or
(ii)
The value of work begun and
being
executed
but
not
completed at the date of such
determination, such value to be
calculated according to Clause
17 hereof; or
(N.B. The Clause 17 referred above is
for Valuation of Variation which
is similar to JKR Clause 25)
From the above provision, the
Contractor is entitled to be paid by the
Employer based on the following
valuation procedure:(i) The value of the Contract Works
completed at the date of the
determination. Such completed
work to be valued based on the
stipulated contract price or rate
and is accordingly to be valued
under the rules for valuation of
variation works.
(ii)
The value of work begun and
being
executed
but
not
completed at the date of
the
determination.
Such
uncompleted work is considered
to fall under the rules for
valuation of variation works.
As mentioned earlier, Preliminaries is
a part of the Bills of Quantities relating
to the contract work. So, it should be
valued as work done for the works
executed up to the date of the
MBAM SECTION
Q&A
termination/determination instead of
based on actual costs. The QS for this
project should undertake this
valuation task, accordingly.
Quoting from Hudson’s Building and
Engineering Contracts, 11th Edition, p
1602 explains the person who is
appointed to undertake this valuation
task;
“It has been held that if a man is,
on account of his skill in such
matters, appointed to make a
valuation, in such manner that in
making it he may, in accordance
with the appointment, decide
solely by the use of his eyes, his
knowledge and his skill, he is not
acting judicially: he is using the
skill of a valuer, not of a judge. In
the same way, if two persons are
appointed for a similar purpose,
they are not arbitrators but only
valuers. They have to determine
the matter by using solely their
own eyes and with knowledge and
skill.”
It is often very difficult to value to what
extent of the preliminaries items or
works that had been executed. In
valuing preliminaries, one would
wonder whether the Contractor had
priced the cost for example a tower
crane spread across the trade rates or
in the preliminaries items. A distinction
has to be made as to the Contractor’s
fixed costs (e.g. mobilisation and
demobilisation); time related costs
(e.g. site management, plant and
equipment, etc.) or quantity related
costs (utilities, protection, etc.).
In the Singapore Institute of Architect
(SIA) form of contract, for example,
the Contractor is required to indicate
in his tender price for preliminaries
items in the form of quantity related,
time related or fixed cost so that any
additional
expenses
for
the
preliminaries items, the indicated
tender price of the preliminaries items
shall be used as the basis for
valuation and adjustment.
Consequently, when evaluating the
Contractor’s preliminaries claim, a
good knowledge and understanding
of the cost structure and pricing of
contract is essential to enable a fair
and reasonable valuation to be made,
accordingly.
Methods In Assessing Additional
Costs Of Preliminaries
In practice, it is common to use
recurring costs based upon estimation
or prorated time basis or formula
method or negotiated basis from the
priced preliminaries in BQ.
Can this practice apply in evaluating
the additional preliminaries? The
following are a few methods
employed in evaluating additional
preliminaries.
On Amended Contract Basis
In the Malaysian construction industry,
the standard form of contract used
are often subject to addendum/
supplementary /modification/
MASTER BUILDERS JOURNAL
MBJ Volume 1 2009
87
MBAM SECTION
Q&A
amplification/special provisions or
conditions to suit the circumstances
prevailing on the project concern.
An example of an Addendum to
PAM98 Clause 24, is as follows:
“The Contractor’s claim for loss and/or
expense (if any) under this Clause
shall be confined only to those
recurring cost of Preliminaries items
which have been priced for this
Contract and only for those
Preliminaries items which are deemed
applicable. The Contractor shall not
be entitled to claim on any other basis
other than the aforesaid basis as he
shall be deemed to have allowed for
all other loss and/or expense
(excluding the recurring Preliminaries
expenses) directly or indirectly
incurred by him caused by
disturbance of regular progress of
Works under this Clause.”
On Formula Basis
Another example is the JKR 203A
Clause 5(d), 44 & 48(d) and JKR
88
MBJ Volume 1 2009
PWD DB/T Clause 45.2 & 46 under
Special Provisions, which is based on
the ‘Special Formula’ for calculation of
compensation for Loss and Expense
claim under Preliminaries and
General Requirement, as follow:
a) Cost of Extension of Insurance
Policies
A x CEP/TDP
= Amount of premium paid for
the whole duration of the
extended insurance period as
provided under the Contract
CEP = Total Claimable Extended
Period
TDP = Total Delayed Period
A
b)
Cost
of
Extension
of
Performance Bond/Performance
Sum Guarantee
5% x OC x CEP x BLR/365
5% = Maximum
amount
of
MASTER BUILDERS JOURNAL
percentage
Performance
Bond/Performance
Sum
Guarantee, of the Contract Value
OC = Original Contract Value
CEP = Total Claimable Extended
Period
BLR = Base Lending Rate per
annum as on Date of Original
Completion of Work
c)
Other Items
(i) For Building Works:
14% x PL x CEP/OP
(ii) For Civil Engineering Works:
20% x PL x CEP/OP
PL = Amount of Preliminaries
Work and General Requirement
in the Contract not inclusive of
Provisional Sum and specific
items for the Contract (e.g.
Design and supervision fees,
Traffic
management
plan,
Environmental
management
plan,
I-Supervision,
Aerial
survey, Digital slope mapping,
Permanent
diversion
of
services, KTMB’s flagging and
inconvenience charges, Road
MBAM SECTION
Q&A
the valuation, certification and
approval process for this
compensation claim, a decision
had been to allow the Special
Formula to be adopted for
valuation and certification of the
claim concern.
maintenance during construction
and
other
similar
items)
subjected to a maximum amount
not exceeding 6% of the value of
Builder’s Work for the Contract
(less the value of Preliminaries
Work & General Requirement)
CEP = Total Claimable Extended
Period
OP = Original Contract Period (in
days) ……………..”
The above formula method was
adopted and practised until February
2006, when JKR had decided to move
away from the above formula method
to revert to documentary evidence
based on actual costs for such claims.
JKR had adopted the aforesaid
formula method for the following
reasons;
i)
In accordance with JKR’s
contract, the Final Account
needs to be prepared not more
than six (6) months after
practical completion of the
Works. However, the preparation
of Final Account is often delayed
for the Contractor who has made
a claim particularly on additional
preliminaries upon issuance of
Certificate
of
Delay
and
Extension of Time for the project
concern.
ii)
In the previous procedure, all
claims
submitted
by
the
Contractor required to be
examined and verified of its
validity and reasonableness. As
such, a longer time may be
required in the valuation and
verification stage prior to JKR’s
Claim Committee certification
and approval.
iii)
Therefore, in order to expedite
On Negotiation/Agreement Basis
In some cases, the contracting parties
settle their claim for additional
preliminaries by negotiation. They
would agree to base on recurring cost
or formula method as the basis to
assess the value preliminaries items
in lieu of actual costs. Such method
would avoid the tedious and time
consuming process, i.e. to collate and
provide the necessary documentary
evidence for evaluation and verifying
the actual costs, which can lead to
MASTER BUILDERS JOURNAL
MBJ Volume 1 2009
89
MBAM SECTION
Q&A
dispute, and may end up in
arbitration/litigation
subsequently,
thereby incurring more costs to the
parties, eventually.
References/Bibliography
1. Wallace, I.N. Duncan, Hudson’s Building & Engineering Contracts,11th Edition,
Sweet & Maxwell, 1995.
2. Ong, H.T., “Should additional Preliminaries be evaluated on recurring costs basis
or actual costs incurred” – One Day Joint Contract Seminar: Extension of Time,
Variations, Loss & Expense and Prolongation Claims” jointly organised by BK
Asia Pacific and Master Builders Association of Malaysia, 27 September 2007
Conclusion/Solution
Whether the additional preliminaries
are evaluated based upon actual cost
incurred or recurring cost or
negotiation/agreed
basis,
the
contracting parties should come to an
agreement at the formation of the
contract or at the outset of the project
on the method of evaluating the
additional preliminaries to be adopted,
when
a
prolongation/disruption
situation arises.
It is often a tedious, costly and time
consuming process in compiling and
assessing the documentary evidence
(usually voluminous) in order to prove
the actual costs incurred, which often
leads to dispute and possibly
arbitration/litigation
rather
than
amicable settlement.
It must be noted that, actual costs for
additional preliminaries need not
necessarily always mean a lower cost
than recurring cost or formula method
as determined or valued by the
Architect / Engineer / SO / PD or QS,
depending on the form of contract
used. In some cases, actual costs are
actually higher than recurring costs or
formula method.
Nevertheless, unless the above
circumstances or conditions as
described apply then the evaluation of
additional preliminaries should be
based on actual reasonable costs
which flow from the claim event.
90
MBJ Volume 1 2009
3. References are also made to several Malaysia standard forms of contract,
namely:i) PAM Forms of Building Contract (1998 & 2006)
ii) JKR/PWD Forms of Contract (203A – Rev 10/83 & Rev. 2007)
iii) JKR PWD/Standard Form of Design & Build / Turnkey Contract (PWD Form
DB/T) (2002 Edition)
iv) IEM Conditions of Contract for Works Mainly of Civil Engineering
Construction (1st Edition – 1989)
v) CIDB Form of Contract for Building Works (2000 Edition)
In the next issue of the MBAM journal the article will answer the question on
“What is Force Majeure and its implications?”
The Entrusty Group includes
Entrusty Consultancy Sdn Bhd
(formerly known as J.D. Kingsfield (M)
Sdn Bhd), BK Burns & Ong Sdn Bhd
(a member of the Asia wide group BK Asia Pacific), Pro-Value Management Sdn
Bhd, Agensi Perkerjaan Proforce Sdn Bhd and International Master Trainers
Sdn Bhd providing project, commercial and contractual management services,
risk, quantity, quality and value management, recruitment services and
corporate training programmes to various industries, particularly in construction
and petrochemical, both locally and internationally.
For further details, please visit website: www.entrusty.com or contact HT Ong
at 22-1 & 2 Jalan 2/109E, Desa Business Park, Taman Desa, 58100 Kuala
Lumpur, Malaysia.
Tel: 6(03)-7982 2123
Fax: 6(03)-7982 3122
Email: [email protected]
Entrusty Group provides 30 minutes of free consultancy (with prior
appointment) to MBAM members on their contractual questions. The Group also
provides both in house and public seminars/workshops in its various areas of
expertise.
Upcoming Public Seminars in 2009
• Certifications and Payments.
• Common Contractual Issues/Problems in Malaysia.
• Determination/Termination of Construction Contracts in Malaysia.
• Pertinent Contractual Provisions in Construction Contracts
MASTER BUILDERS JOURNAL