Contract Procurement

Type of Contract Procurement and,
Roles and Liabilities of the Parties
By:
Sr Dr. Mohd Suhaimi Mohd Danuri
Introduction
• The final contract entered into by the parties
would eventually incorporate elements of the
procurement method and contractual pricing
arrangement agreed upon by the parties.
• It should be noted that the contractual pricing

mechanism will be influenced by the method of
contract procurement adopted but could be
similar for different type of contract
procurement.
Traditional Contract
• It is also called as “employer design” contract.
Through this type of contract, the contractor
will be responsible for the construction only
inclusive of materials, workmanships and for
the performance of his sub-contractors and
any nominated sub-contractor under him. The
design will be prepared by the employer’s
consultant.
• Traditional Contract is divided into two type of

contracts:
– Lump sum based on bill of quantities
– Lump sum based on drawings and specification
Management Contracts
TYPES OF CONSTRUCTION CONTRACTS
2. Management Contracts
The employer engages the management contractor to
participate in the project at an early stage, contribute
construction expertise to the design and manage the
construction process undertaken by a number of sub-
contractor. The management contractor will be paid a
fee on a fixed lump sum basis or pre-agreed
percentage. The extent of liability of the management
contractor for the default of the work contractor will
depend on the contractual arrangement.
There are to type of contractual arrangements in the

management contracting system:
Client will enter into a principal contract with the
There are two (2) types of contractual

arrangements in the management contracts
procurement system:
1. Management Contracting
Client will enter into a principal contract with
the management contractor who in turn will
secure and enter into a series of sub-contracts
with the sub-contractors
management contracting system:
management contractor who in turn will secure
and enter into a series of sub-contracts with the
• Management Contracting
sub-contractors (Management Contracting); or
Client
Architect, Engineer Management Cont

QS
Sub/Trade Contr Sub/Trade Contr

management contractor who in turn will manage a
2. Construction Management
Client will enter into a principal contract with
the management contractor who in turn will
manage a series of direct contracts entered
into between the client and the sub-contractor
management contractor who in turn will manage a
series ofManagement
• Construction direct contracts entered into between the
client and the sub-contractor (Construction
Management).
Client
Architect Management Cont Sub/Trade Contr Sub/Trade Contr

Engineer
QS
Package Deal Type of Contracts
3. Package Deal Type of Contracts

Al o kno n a T rnke pe of con rac . Thi i a
method of contract procurement where the contractor is
responsible for design and construction (and in some
cases ups to complete the fitting out, machinery,
special equipment, commissioning, etc.)
The common variations names for this type of contracts

are:
Design and Build Contracts (D & B);
Design and Construct Contracts (D & C);
Engineering, Procurement and Construction
Contracts (EPC);
Engineering, Procurement, Installation and
Construction Contracts (EPIC); and
Engineering, Procurement, Construction and
Commissioning Contracts (EPCC).
Engineering, Procurement, Installation and
Construction Contracts (EPIC); and
Package Deal Type of Contractsand
Engineering, Procurement, Construction
Commissioning Contracts (EPCC).
The court held that the turnkey contractor will be

responsible for the default of their sub-contractors,
nominated sub-contractors and design consultants. The
contractor is liable to the employer to ensure that the
work (which is inclusive of design, materials and
workmanships) will be fit for the purpose.
Case: Greaves & Co Ltd v Baynham Meikle & Partners

(1975) 4 BLR 56
In this case the court held that the contractor is obliged
to ensure that the warehouse fit for the purpose. The
floor was cracked due to insufficient design carried out
by the engineer engaged by the contractor.
Build, Operate and Transfer Contracts
(BOT)
4. Build, Operate and Transfer Contracts (BOT)

It is widely used in Malaysia due to the Malaysian
Privatization Policy. Under this contract, the contractor
is responsible for:
Financing the project at all stages;
Undertaking the relevant design and construction;
Operating and maintaining the works over a
stipulated period;
On the end of the agreed period, transfer the
project to the employer/government at no charge.
During the period of operating and maintaining the

works (concession period), the contractor is entitled to
collect any revenue to cover the con ac o initial
Financing the project at all stages;
Undertaking the relevant design and construction;
Operating and maintaining the works over a
(BOT)
stipulated period;
On the end of the agreed period, transfer the
project to the employer/government at no charge.
During the period of operating and maintaining the

works (concession period), the contractor is entitled to
collect any revenue to cover the con ac o initial
financial cost and profit.
Hence, this type of contract is suitable for projects

capable of generating an income such as highways,
ports, etc.
One of the examples of the privatization projects, which

are awarded through BOT, is the North-South
Expressway project (PLUS) project.
financial cost and profit.
Hence, this type of contract is suitable for projects
(BOT)
capable of generating an income such as highways,
ports, etc.
One of the examples of the privatization projects, which

are awarded through BOT, is the North-South
Expressway project (PLUS) project.
Through BOT contract, PLUS is under a 30 years

Concession Agreement to finance, design, construct,
manage, operate and maintain a total of 847.7
kilometer inter-urban toll highways.
Through out the 30 years concession period, PLUS

entitled to collect tolls from the road user.
(BOT)
4. B i d, O e a e a d T a fe C ac (BOT) (C d)
In order to grant the private companies the right to
collect toll on public roads, Federal Roads (Private
Management) Act 1984 was passed by the Parliament.
Subsidiary legislation and subsequent amendments to

the subsidiary legislation have been made to allow the
private sector increased the toll rates.
Example:
Federal Roads (Private Management) (Collection Of

Tolls) (North South Expressway Central Link And KLIA
Expressway) (Amendment) Order 2002 was an
example of amended legislation that allows the
concession company to legally increased the toll rates.
You may search the relevant legislation and subsidiary

legislation through:
http://www.federalgazette.agc.gov.my/index.php

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Type of Contract Procurement and,

Roles and Liabilities of the Parties

• It should be noted that the contractual pricing

• Traditional Contract is divided into two type of

There are to type of contractual arrangements in the

There are two (2) types of contractual

Architect, Engineer Management Cont

Client will enter into a principal contract with the

Architect Management Cont Sub/Trade Contr Sub/Trade Contr

3. Package Deal Type of Contracts

The common variations names for this type of contracts

The court held that the turnkey contractor will be

Case: Greaves & Co Ltd v Baynham Meikle & Partners

4. Build, Operate and Transfer Contracts (BOT)

During the period of operating and maintaining the

During the period of operating and maintaining the

Hence, this type of contract is suitable for projects

One of the examples of the privatization projects, which

One of the examples of the privatization projects, which

Through BOT contract, PLUS is under a 30 years

Through out the 30 years concession period, PLUS

Subsidiary legislation and subsequent amendments to

Federal Roads (Private Management) (Collection Of

You may search the relevant legislation and subsidiary

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