Co-authored by Wee Xing Yi, Jasmine
Effective administration of construction contracts is critical for a productive business relationship between the parties involved. The construction process is one that is complex, specific, long-drawn and requires detailed documentation. It is also a project in which so many things can go wrong resulting in serious losses all around. In order to reduce risk and maximise profits, a focus on effective contract administration is important.
A contract administrator is a professional appointed, typically by the employer, to provide contract administration services on the terms of the construction contract. Despite being appointed by the employer, contract administrators must exercise independent and impartial judgement when carrying out their duties. A contract administrator must have the knowledge, skill and expertise to ensure that the parties' obligations are fulfilled in accordance with the terms of the construction contract.
The architect, lead consultant or quantity surveyor is commonly appointed as the contract administrator. In theory, a director or employee of either the employer or contractor may serve as the contract administrator. This may be cost-effective as it avoids the need to hire a professional. However, parties must consider the possibility of bias, or even the perception of bias, which may lead to potential disputes between the parties.
While most roles and responsibilities of a contract administrator are quite standard, some duties will vary depending on the agreed terms of the contract and the type of project undertaken between the parties.
Roles and Responsibilities
Generally, the role of a contract administrator is to oversee the entire project, analyse, prevent or mitigate errors, risks and disputes. Overall, the objective is to ensure that the contract is carried out in the best possible manner. A contract administrator assists with discerning whether a project is progressing according to the terms of the contract in proportion to, amongst others, procurements, supervision and site records, milestone achievements, valuations, payments assessments, submissions of claims for additional payments, variations, extensions of time and rectifications.
Contract administrators occupy a dual-capacity role: they operate as an agent of the employer whilst acting as a decision-maker between the parties, ensuring that any evaluation or decision is carried out or made impartially and objectively. As expert skills are required for these evaluations, professionals are often the first to be considered for this role. It is important for a contract administrator to exercise reasonable standards of care carrying out their responsibilities in administering the project.
The role of a contract administrator may begin from the contract award stage, if not upon execution of the contract, until the expiry of the contract. The commencement of his role may be pre-contractual if the employer requires such pre-contractual services for the project.
Examples of a contract administrator's scope of duties include:
- Ensuring that the works are carried out and are progressing in accordance with the contract terms;
- Liaising with and reporting the progress of the works to the relevant authorities, bodies or departments;
- Managing the commissioning of works;
- Managing the timelines and milestones of the project in view of its targeted completion date;
- Managing the costs of the project, including adjusting the contract sum;
- Supervising and inspecting tasks that are to be, or are already, completed;
- Liaising with and instructing the main contractor of the project;
- Ascertaining variations and determining applications or requests for an extension of time;
- Inspecting and managing the defects and ensuring that such defects are remedied within the stipulated time frame;
- Record keeping such as records of site visits, site inspections, correspondences, invoices and payment slips; and
- Certifying works and issuing the relevant certificates (if applicable).
Contract Administration in Standard Form Contracts
In the construction industry, there are various forms of construction contracts that are widely used in Malaysia, such as the Pertubuhan Arkitek Malaysian (PAM) Contract, Institute of Engineers Malaysia (IEM) Contract, Jabatan Kerja Raya (JKR) Contract, and the International Federation of Consulting Engineers (FIDIC) Contract. The PAM Standard Forms of Contract and IEM Standard Forms of Contract are typically used in the private sector, the JKR Standard Forms of Contract for government or public sector projects and the FIDIC Standard Forms of Contract in international or cross-border construction contracts.
PAM Contract 2018
Pertubuhan Arkitek Malaysia (PAM), or the Malaysian Institute of Architects, introduced the fourth version of their standard forms of contract, known as PAM Contract 2018. The architect is typically appointed as the contract administrator under the PAM Contract 2018. Some of the duties of the architect as the contract administrator include:
- The architect will set out the quality and standard of materials, goods and workmanship (if applicable) in addition to those described in the contract documents.
- The architect will use the works programme to monitor progress and rely on the progress of the works as a basis for the assessment of extension of time and the effect of the delay and/or disturbances to the progress of the works.
- The architect will determine all levels required for the execution of the works and provide the contractor with the relevant information and drawings to carry out the works.
- The architect will inspect any work covered up, or arrange for, or carry out any test on any materials and goods already incorporated in the works.
- The architect can order a variation, or sanction any variation, made by the contractor.
The Jabatan Kerja Raya, otherwise known as the Public Works Department of Malaysia, provides standard forms of contract for involving public agencies, including building and infrastructure works. The JKR Standard Forms of Contract, also referred to as the PWD Standard Forms of Contract, have different forms, such as:
- Form 203: Where drawings and specifications form part of the contract;
- Form 203A: Where bills of quantities form part of the contract;
- Form 203N: Where there is a nominated supplier where the main contract is based on Form 203 or Form 203A;
- Form 203P: Where there is a nominated supplier where bills of quantities form part of the contract in conjunction with Form 203A; and
- Form DB: The standard form of design and build contract.
Under Form 203 and Form 203A, the contract administrators are referred to as superintending officers. Superintending officers can be any person who is a full member of a professional body associated with the construction industry, such as an engineer, architect or quantity surveyor. A superintending officer is tasked with ensuring the successful completion of the project. The roles include:
- Being responsible for the overall supervision and direction of said works.
- Being responsible for finding out the principal authority responsible for monitoring the environmental aspects of construction and ensuring that construction activities align with the laws and regulations meant to protect the environment.
- Assessing the situation and coming up with efficient and effective solutions to ensure the project reaches the completion stage.
Meanwhile, Form 203N is a standard form of contract for a nominated sub-contractor that will comply with the main contract, i.e. either Form 203 or Form 203A. The superintending officer will also be responsible for the subcontracted works rendered and completed by the nominated subcontractor in line with the main contract. On the other hand, the contract administrator in Form DB is referred to as the project director, who will issue all instructions, notifications, consent or approvals to the contractor of the contract, and such instructions, notifications, consent or approvals shall be complied with by the contractor.
The International Federation of Consulting Engineering Contracts (FIDIC Contracts) has been around for 50 years as an international standard for the engineering industry, being recognised globally in many jurisdictions. The key to their long-standing success in the construction industry is attributed to their balanced approach to the roles and responsibilities of the relevant parties and effective allocation and management of risk.
FIDIC Contracts include four standard forms, namely FIDIC Conditions of Contract for Construction (Red Book), Plant and Design/Build (Yellow Book), EPC Turnkey Projects (Silver Book) and FIDIC Short Form of Contract (Green Book). The engineer is typically the contract administrator when it comes to a FIDIC Contract is tasked to:
- Assess projects on a case by case basis as FIDIC acknowledges special conditions may be necessary for specific issues since no two projects are the same.
- Offer assistance on the practice of Particular Conditions and provide examples of areas that require special provisions.
- Inspect all works while carrying out routine testing.
- Issue Notices regarding any errors to be corrected.
- Issue Taking-Over, Performance and Payment Certificates.
- Assess and make a neutral determination.
- Ensure that personnel behave accordingly and remove them from the site if they are not.
The primary responsibility of ensuring a project is completed and executed properly is borne by the contract administrator. Contract administrators add value to a construction project by ensuring that the construction contract will be carried out and administered effectively and impartially, by assisting in the execution of the contract, management of the works, and mitigation or prevention of disputes, all of which contribute significantly to the timely completion and success of the project.
First published by MahWengKwai & Associates (19 September, 2022)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.