Contract and Estimating

1ST EDITION

CONTRACT
AND

ESTIMATING

NOTE

HASLIZA YUSOF
LYNAFIS SHARI
AMIR AHMAD DERNIYAN

Table of Contents

1 The Construction Industry

2 The Tender Procedure

3 The Contract Procedure

4 Standard Form of
Contract(P.W.D Form

203/203A)

5 Preliminary Estimating

Method

6 Preliminary Estimating

Method

7 The Quantity Measurement

Chapter 1 CHAPTER 1

INTRODUCTION OF
CONSTRUCTION

CLO1 : Explain the fundamental concepts of construction industry in
general, tender procedure and contract procedure in Malaysia.

PLO1: Apply knowledge of applied mathematics, applied science,
engineering fundamentals and an engineering specialization as specified
in DK1 to DK4 respectively to wide practical procedures and practices

At the end of this chapter, students should be able to:

Explain the basic concept of construction industries

Page 01

Chapter 1

Introduction

The construction industry is traditionally divided IStage involved in
into two sub-sectors which is construction of contruction
buildings and civil engineering. Construction industries
industry is very important to stabilize the country.
It is an area of business which covers building
work, civil engineering, mechanical, water supply,
electrical, quarries, and development of new
township, telecommunication and others. There
are three types construction of buildings which is
Residential, commercial buildings, and industrial
buildings. Types of Civil engineering construction
are Road construction, Bridge construction, Dam,
and others.

Page 02

Chapter 1

Parties involved in
contruction
industries

Consultant:
Profesional firm- arichitect, civil& structural engineer, mechanical engineer,
electrichal engineer, and quantity surveryor.
Financial Institutions:
Malayan banking, cimb bank, public bank, affin bank and others
superintending officer / project director
Government project, example JKR: Head of director, deputy of director, state
director, district engineer)
Swasta: Representative of client (architect)
local authority :
JKR, JPS, TNB, IWK, District Council, city council and others.
Insurance company:
Kurnia insurances, RHB insurance, Takaful Malysia, takaful ikhlas Malaysia and
others.
Suppliers
Supply all types of material such as brick, cement, sand, tiles and others.
Machinery rental: Machine, lorry, crane and others

Page 03

Chapter 1

Design Team
Members

Project Developer.
The owner of the project / client
Appoints consultants and contractors

Architects
To advice and make suggestion
To prepare a preliminary design and detailed design according to the client’s
need and cost.

Civil & Structural, Electrical & Mechanical Engineers
Same role with architects but within their designated fields
Always communicate with the architects about the project.

Quantity Surveyor
As a cost advisor in early design stage even though detailed drawing is not
completed.
Calculates a preliminary estimation for the owner’s reference.

Land survey
Obtain complete information about project location from land office.
To map out the actual site lot boundary for the purpose of architectural
layout plan.

Page 04

Chapter 1

Construction
Teams Members

Contractor
Build and complete the project to specification based on the contract
documents.
Work efficiently to complete the project by the due date.

Architects
To control and supervise consruction project according to the original
design
Team leader among the consultants.

Civil & Structural, Electrical & Mechanical Engineers
To supervise during consruction
As an advisor on site for their designated fields.

Quantity Surveyor
Evaluate the work at site according to schedule to prepare progress
payment.
Make sure that all the defects have been repaired during the defect liability
period.
Prepare the final account.

Page 05

Chapter 1

Constractor
Registration

Contractors that want to get involved in the building industry should enroll at the
Construction Industry Development Board Malaysia (CIDB), Contractor Service
Center (PKK) and Ministry of Finance. Effective on 15 oktober 2012 to enhance and
improve the service delivery system, the Government has decided the
implementation of a Contractor Registration (SSPK). In this system Contractor Service
Center (PKK) just manage the bumiputera status. the roles of CIDB and PKK are:

Page 06

Chapter 1

TUTORIAL

Answer All Question

QUESTION 1

The construction industry, commercial and infrastructure comprise
various field including architectures, civil engineering and others.
Explain roles of the members below:

i.Developer
ii.Architect
iii.Civil and structural engineer & Mechanical engineer
iv.Quantity surveyors.

QUESTION 2

a. List TWO(2) roles of construction industry development board of
Malaysia(CIDB)
b. Explain the roles of the design team members and builders team
members.

QUESTION 3

Describe the relationship between construction industry and national
economic growth

Page 07

Chapter 1

TUTORIAL

Answer All Question

QUESTION 4

List FOUR(4) types of engineering work in construction

QUESTION 5

Heavy Civil Engineering Work is a specialized civil work in construction
industry. List FOUR (4) examples of Heavy Civil Engineering Work in
construction industry.

Page 08

Chapter 2 CHAPTER 2

TENDER
PROCEDURE

CLO1 : Explain the fundamental concepts of construction industry in
general, tender procedure and contract procedure in Malaysia

PLO1: Apply knowledge of applied mathematics, applied science,
engineering fundamentals and an engineering specialization as specified
in DK1 to DK4 respectively to wide practical procedures and practices

At the end of this chapter, students should be able to:

Describe the tender procedure
Explain the tender procedure

Page 09

Chapter 2

Introduction

There are three types of Government Government
procurement which is acquisition of works, procurement
supplies and services . Government
procurement is to support Government
programmes by obtaining value for money.
work procurement include construction and
engineering activities. The way to obtain the
work procurement through tender, direct
purchase, direct appointment, quotation and
others.

Page 10

Chapter 2

what is tender

Tender
— statement from the client that provides information to the contractor about the
proposed project. The tender can be awarded either by competition or by
negotiation. The main function of a tender is that the client can select the most
qualified contactor to carry out the project.
( financial limit > Rm 500 000.00)

what is Quotation

Quotation
— formal statement of promise by potential supplier to supply the goods or services,
required at specified prices, and within a specified period. A quotation may also
contain terms of sale and payment, and warranties. The quotation only for G1 and
G2 contractor.
( financial limit < Rm 500 000.00)

Page 11

Chapter 2

Types of tender

Open Tender
Open tender are offered to all contractors and normally the contractor with lowest
bid is selected. The client advertises a notice in the mass media to invite
contractors to proposed project.
Limited Tender
Client offered limited tender to the qualified contractor in the specified class
stated in the tender. Registered contractors are qualified to bid government
projects based on their financial limit or qualification class.
Selected Tender
Selected tender is offered only to a few contractors selected by the client.
Competition to bid the tender is only among the selected contractors.
Negotiation Tender
The client will select and give the tender form to the contractor based on
negotiation.
it is a tender offered to the contractors identified by client based on the
contractor’s expertise, experience and good work record.

Pre-qualification Tender

Pre-invited contractors are required to fill the qualification form to get information
on the contactor’s capability, background and work record

Page 12

Chapter 3

Tender Document

A tender document is a document that
contains all information required by the
contractors to estimate the cost of the
offered project.

Document Tender Based on Quantity
Tender notice
Tender form
Instruction to tenderers
Contract form JKR 203 A
Work spesification
Bill of quantity
Summary of tender
General tenderer information
Drawing

Document Tender Based On Drawing and Spesification

Tender notice
Tender form
Instruction to tenderers
Contract form JKR 203 A
Work specification
Schedule of rate
Summary of tender
General tenderer information
Drawing

Page 13

Chapter 2

Content of
Document Tender

Contract form
Contain form that needs to be filling up by the contractor.
Contractor state the bid price and duration to complete the work.

Letter of intent
Form that the client fills and returns the form to the contractor for record.

Working standard specification

Details of the proposed work
Quality of materials required by the client.
Bills of quantities
Contain list of quantities and required work to complete the project.
Working drawing
Contain work descriptions to be carried out by contractor.
Schedule of rate
Contain rate for work executed by the contractor.
Letter of acceptance
A legal document (letter) that the contractors accept the contract.

Page 14

Chapter 2

Tender Process

Tender process is a procedure on how tender is carried out from beginning towards
the end, and involves the following stages:

Tender advertisement

Tender advertisement is a statement produced by the client, inviting contractor
to participate the tender and build the project as planned.
Tender advertisement is advertised in printed or electronic media
In this statement, the name of tendered project, contractor’s class, head, and
other information related to the proposed project are stated here in.

Page 15

Chapter 2

Tender Process

Tender invitation

Tender invitation involves the process of looking through the printed and
electronic advertisements and submission of completed tender document.
Contractors need to obtain tender document at specific time that is required by
the client.
Contractors should complete the document by referring tender table
document.
The completed document should be placed in the tender box provided by the
client before the closing date.

Tender selection

The tender committee meets to open the tender box witness by at least two
officers.
The tender opening committee will list down the contractor’s bids from the
highest to the lowest
The bids list and tender document are submitted to the tender evaluation
committee to evaluate and analyses
After evaluation, the committee prepares a report and suggests the qualified
contractor to be considered
The reports are later submitted to the tender board(Lembaga perolehan) for final
selection

Page 16

Chapter 2

Tender Process

Tender acceptance

After the tender selection process, the qualified contractor will be awarded with
the tender and letter of acceptance will be issued
The letter contains the contract particulars, tender price, date to start work, the
amount of security money and the insurance policies required.
if the contractor reject the tender after extension of tender validation period. The
contarctor will be suspended and blacklist.

Page 17

Chapter 2

Rejecting of Tender

A contractor offers very high tender price, resulting in the client paying more than
the project financial allocation.
A contractor offers very low tender. There is a tendency for the contractor to find
ways to reduce the cost to prevent loss. It results in low quality project.
A contractor is still in the process of completing other project. Therefore, client
assumes that the contractor will not give full commitment to the new contract due
to financial capability, labour, plant and restricted equipment.
A contractor with unsatisfactory work record.
A contractor does not comply to the terms in the tender, such as hiring
unregistered workers to CIDB.
Fail to submit company account, monthly bank statement.
Fail to submit certificate of technical staff.

Retendering

Error in the contract document.
Very high tender price.
Very low tender price.
And others

Page 18

Chapter 2

TUTORIAL

Answer All Question

QUESTION 1

Define :
i. Tender
ii. Tender box
iii. Tender award

QUESTION 2

i. Discuss about limited tender.
ii. Discuss the advantages of open and negotiation tenders.
iii. List the content of tender advertisement

QUESTION 3

i. List six(6) contents of tender document
ii. What is the difference between limited and selected tenders?
iii. Briefly discuss the factors that need to be considered in selecting the
qualified tenderer.

QUESTION 4
One of the requirements in obtaining a government project is the contractor
must register its company with CIDB. What is the purpose of this
requirement?

Page 19

Chapter 3

CHAPTER 3

CONTRACT
PROCEDURE

CLO1 : Explain the fundamental concepts of construction industry in
general, tender procedure and contract procedure in Malaysia

PLO1: Apply knowledge of applied mathematics, applied science,
engineering fundamentals and an engineering specialization as
specified in DK1 to DK4 respectively to wide practical procedures and
practices

At the end of this chapter, students should be able to:

Describe the contract procedure.
Explain the contract procedure

Page 20

Chapter 3

Introduction

Contract is a legally enforceable agreement
between two or more parties with mutual
obligation. A binding agreement between
two or more parties for performing, or
refraining from performing, some specified
act in exchange for lawful consideration. An
agreement sealed when a party agrees to
accept the bid from another party.




Purpose of
contract

The purpose of contract is to bind a relationship between client and contractor
that make clear terms, statement and condition .
Client needs and interests towards the contractor are explained in writing in the
contract document.
In case dispute, the contract document is served as a reference.

Page 21

Chapter 3

Principle Of Contract
In Contract Act 1950
(Amendment 1974)

Page 22

Chapter 3

Types of contract

Lump Sum Contract

Lump sum contract is a contract where the contractor executes the project based
on the work shown in the drawing or the scope of work.
Payment can be lump sum or in stages, depending on the size of work.
The lump sum project is normally adopted for small-scale construction projects
such as the construction of drain, fence and small building.

Page 23

Chapter 3

Types of contract

Measure And Value Contract

Measure and value contract is a contract where the client makes payment
based on the quantity of completed work.
To determine payment, the current work quantity is measured and evaluated.

Cost reimbursement contract

Cost reimbursement contract is a method of payment to the contractor based
on actual work cost and management fees.
Generally this type of contract is carried out through:
1. Prime cost plus fixed fees
2. Prime cost plus percentage fees
3. Prime cost plus targeted fees

Prime cost : Materials, labour, plant and equipment costs.
Fees: An additional percentage is agreed before signing the contract.

(additional management cost)

Turnkey contract

Turnkey contract is carried out when the client assigned complete responsibility
to plan, design and manage the project to the contractor
The method of payment to the contractor is through fixed work, cost
reimbursement or payment through negotiation

Page 24

Chapter 3

Contractor
and

supplier

Main contractor

An individual that signs a contract to perform a part or all of the obligations.
Direct contractual relationship between the client.
Obligation : refer to Standard Form Of Contract Public Work Department (PWD)
203 ( Revision 2007)

Subcontractor

A subcontractor is an individual that signs a contract to perform a part of the
obligations of another's contract.

Nominated Sub-contractor

Direct contractual relationship between the client.
Payment by the owner
Special work- Pile work, electrical work, water supply, air condition work, fire
prevention and others.
Payment by the owner

Nominated Supplier

Appointed by owner to supply material and construction item to main
contractor for the project.
Contract with main contractor
Payment by the main contractor

Page 25

Chapter 3

TUTORIAL

Answer All Question

QUESTION 1
Explain the Contract principles are made according to Contract Act 1950
(Amendments 1974)

QUESTION 2
Explain the Relationship between Contract and Tender

QUESTION 3
Explain briefly the types of contract.

QUESTION 4
State the differences between Domestic Sub contractor and Nominated
Sub Contractor

QUESTION 5
i. State the reason of nominated supplier appointed.
ii. State the purpose of standard forms

Page 26

Chapter 4

CHAPTER 4

THE STANDARD CLO3 : Describe the
FORM OF CONTRACT understanding of the professional
engineering ethics and practice

based on Standard Form of

Contract (P.W.D Form 203/203A)

efficiently.

CLO1 : Explain the fundamental

concepts of construction industry in PLO8: Understand and commit to

general, tender procedure and professional ethics and

contract procedure in Malaysia responsibilities and norms of

technician practice.

PLO1: Apply knowledge of applied

mathematics, applied science,

engineering fundamentals and an

engineering specialization as

specified in DK1 to DK4 respectively

to wide practical procedures and

practices.

.

At the end of this chapter, students should be able to:

Describe the clauses in Standard Form of Contract (P.W.D Form
203/203A with the latest version).

Page 27

Chapter 4

Introduction

Standard form of contract is a document or Standard Forms of
form containing the terms and conditions of contract
the contract. (government/public
sector) JKR form 2003
Purpose:

To provide basic legal framework
The legal relationship between the
parties
.




Two types of standard form of contract which are usually
used for contract works in public work department.

Standard Form Of Contract Public Work Department (PWD) 203 ( Revision
2010) (Based on DRAWING AND SPESIFICATION)
Standard Form of Contract Public Work Department(PWD) 203A ( Revision
2010) (Based on BILLS OF QUANTITIES)

Private sector

PAM(Pertubuhan Arkitek Malaysia)
IEM(Institution of engineers Malaysia)

Page 28

Chapter 4

Purpose of
standard forms

To provide basic legal framework evidencing the legal relationship between
the parties.
To put in place the administrative procedure to effect the legal and
commercial relationship between the parties for achieving the purposes of the
contract
To establish the ambit of the powers and duties of contract administration
under the contract between parties.
To furnish mechanism for regulating the conduct of commercial relationship
between parties.

Clause 1: Definition

Contract Documents:
Means the documents forming the tender including:
i. Form of Tender;
ii. Letter of Acceptance of Tender;
iii. Contract Drawings;
iv. Bill of Quantities and others
"— S.O.“ : The Superintending Officer
— "S.O.'s Representatives“ : Any person or persons delegated in writing by the S.O.
"— Works“ : The works specified in the Contract Documents and shall include
temporary works.
S— ite: ………………………………………………………….
C— ontractor: ………………………………………………...
D— efect liability period:………………………………………. and others

Page 29

Chapter 4

Clause 2.0:
Contract period

Clause 3.0:
S.O. and S.O.'S
Representative

S.O (Superintending officer)
—Responsible for the overall supervision and direction of the Works

S.O.'s Representative
—Responsible to the S.O.
Watch and supervise the Works and to test and examine any materials or goods

S.O.'s Authority to Delegate
F— rom time to time in writing delegate to the S.O.'s Representative
I— f the Contractor is not satisfied with any decision of the S.O.'s Representative, the
Contractor shall refer the matter to the S.O
Page 30

Chapter 4

Clause 5.0:
S.O Instructions

Refer to the drawings, details and/or written instructions in regard to:
Variation refer to clause 24
Any discrepancy in or between the Contract Documents as referred to in clause
8.2(b)
The removal from the Site of any materials or goods
The removal and/or re-execution of any works executed by the Contractor
Opening up for inspection of any work covered up

Instructions
procedure

—All instructions issued by the S.O. shall be in writing.
—If such instruction is given orally, the S.O. shall then issue a written instruction
within seven (7) days from the date of such oral instruction is given.
—If within seven (7) days after receipt of a written notice from the S.O , the
Contractor does not comply, the S.O. without prejudice to :
1.undertake the work
2.pay another Contractor to continue the work
3.The cost will be deduct from any money( performance bond)
4.The Contractor shall be responsible for all costs of work under clause 5.3

Page 31

Chapter 4

Clause 9.0:
Representations, Warranties,
and Undertaking of the
contractor.

The Contractor represents and warrants to the Government that:
1.Corporation validly existing under the laws of Malaysia
2.The Contractor has obtained a valid registration with the Construction Industry
Development Board
3.Perform its obligations under this Contract
4.It has necessary financial and technical capability to undertake the Works
Contractor undertakes :
1.Comply all requirement
2.Pay all taxes
3.Ensure all employees comply with all law

Page 32

Chapter 4

Clause 10.0:
Obligations of the
contractor

The Contractor shall:

—Construct, complete, test and commission the Works in accordance with the
Contract
P— erform the Works with good management practice and to the best advantage
of the Government;
E— nsure that the Works comply with the requirements of this Contract
—Perform the Works by exercising professional judgment and practice, requisite
skill, care and diligence.
—At all times perform the Works in such manner. as will always safeguard and
protect the Government's interest
I— nform the Government immediately in writing of the occurrence of any factor or
event, which is likely to affect the Works.
—Provide and maintain throughout the Contract Period , categories of qualified
and competent personnel necessary to perform the Works;
—Provide and maintain at its own cost and expense all equipment and materials
necessary for the proper and effective performance of the Works;
—instruct and supervise its staffs and sub-contractor in carrying out the Works'
repairs and other works in relation to the Works;
—make good any defect, imperfection, shrinkage or any other fault whatsoever
which may appear during the Defects Liability Period
—carry out any other obligations and responsibilities under this Contract.

Page 33

Chapter 4

TUTORIAL

Answer All Question

QUESTION 1
Discuss clearly responsibility of S.O.'s Representative

QUESTION 2
The…………shall be responsible for the overall supervision and direction of
the works.

QUESTION 3
To perform a good work and protect the Government's interest, what
should contractor do……………………...refer to standard form of contract
P.W.D(Rev.2007)

QUESTION 4
Explain clearly contractor obligation

QUESTION 5
Refer to Clause 1 Standard Form of Contract P.W.D (Rev. 2007), Restate
the terms below;

—Contractor
C— ontract document
S— ite
—S.O Representative
—Work

Page 34

Chapter 5 CHAPTER 5

PRELIMINARY
ESTIMATING
METHODS

CLO2: Estimate the cost of construction project by using preliminary
estimating method, build-up rate method and quantity measurement

PLO2: Identify and analyze well- defined engineering problems
reaching substantiated conclusions using codified method of analysis
specific to their field of activity
.

At the end of this chapter, students should be able to:

Explain the preliminary estimating methods.
Estimate the construction cost by using preliminary estimating
method.

Page 35

Chapter 5

DEFINITION

›Preliminary estimating is to estimate the cost of project.
› An estimate is a calculation of the quantities of various items of work.
T› he estimate is done based on drawings and technical information.
P› reliminary Estimating is usually done after an architect’s drawing is completed.

Purpose Of
Preliminary Estimating

To obtain the clients budget.
Contractors tendering project.
To know the profit rate.
Quotation from subcontractor to general contractor.
To know the percentage and types of building elements.

Page 36

Chapter 5

Method Of
Preliminary Estimating

There are three method of preliminary estimating method:

Page 37

Chapter 5

Formula:
Unit Valuation Method

Standard Units
No of Students
Patients
Beds
Chairs
Table
and others

Cost/Unit
Existing prices



Page 38

Chapter 5

Formula:
Floor Area Method

Area = length X width
Garage or porch = ½ ( length X width)

Page 39

Chapter 5

Formula:
Cubic content method

Volume= length x width x height

However, the height of the
building depends on the types
of roof which is:

Flat roof
Pitched roof

Page 40

Chapter 5

Formula:
Cubic content method

Flat roof

Roof with less than 10 degree pitch is categorized as flat roof
Two types of flat roof which is :

Fully flat roof
Flat roof with parapet walls

flat roof

flat roof

flat roof with parapet

Page 41

Chapter 5

Formula:
Cubic content method

Page 42

Chapter 5

Formula:
Cubic content method

PITCHED ROOF

Roof with more than 10 degree pitch is categorized as pitched roof

Page 43

Chapter 5

TUTORIAL

Answer All Question

QUESTION 1
Calculate the cost of new school building which accommodate 4000
students. Given the factor of cost increment is 15%.

QUESTION 2
Base on diagram below, calculate the cost of the building, assume cost
rate as Rm 350/m2

Page 44

Chapter 5

TUTORIAL

Answer All Question

QUESTION 3
Base on diagram below, calculate the cost of the building, assume cost
rate as Rm 300/m3

Page 45

Chapter 6

CHAPTER 6

BUILD UP CLO4: Perform efficient
RATE METHOD
management of time and resources

through quantity measurement and

build-up rate in accordance with

Public Work Department Practice.

CLO2 : Estimate the cost of PLO11: Demonstrate knowledge and
construction project by using understanding of engineering
preliminary estimating method, management principles and apply
build-up rate method and quantity these to one’s own work, as a
measurement member or leader in a technical
team and to manage projects in
PLO2: Identify and analyze well- multidisciplinary environments

defined engineering problems

reaching substantiated

conclusions using codified

method of analysis specific to

their field of activity

At the end of this chapter, students should be able to:

Explain the build-up rate methods.
Calculate the construction price rate by using build-up rate method.

Page 46

Chapter 6

Requirements for “build
up” the unit rate

If a specific work description is not available(not in the schedule of rates)
Need to “build up” the unit rate by identifying the elementary resources as
components of the analysed rate.

The elementary components or resources for price rate
analysis/calculation are:



Types of built up work:

1. Excavation work(manual & machine)
2. Concreting work(manual & machine)
3. Brick work
4. Reinforcement work

Page 47

Chapter 6

The purposes Of The
Built-Up Rate Methods

Purpose:
Know the financial allocation employer.
Know the suitability design based on limit allocation.
As information and record for reference and estimate projects for the future.

Types Of Cost

Page 48