Professional Practice: Contract Management

1. Clause 11: Variations, Provisional and Prime Cost Sum

1.) Discuss, define and elaborate the above clauses, including an explanation with the
relevant case study.
2.) Compare and contrast the above provisions with P.W.D 203A Form of Contract
(Rev.1/2010).
3.) Identity and illustrate the corresponding provisions in PAM 2018 Nominated Sub-
contract.
Clause 11: Variations, Provisional and Prime Cost Sum
1)
Discussion (11.5, 11.8, 11.9)
The term ‘variation’ is defined as a change, modification, alteration, revision or amendment
to the original intent of the contract and its works in accordance with PAM 2018. The
variations may stem from the changes in Employer’s needs. Changes in local building by-
laws or other laws; original materials or supplies no longer available, design modification,
addition or omission to the scope of works. Based on the Clause 11.2, it stated that the
Architect may issue instruction requiring a variation and he may sanction in writing any
variation made by the Contractor otherwise than pursuant to an instruction of the Architect.
Variation required by the Architect or subsequently sanctioned by him shall not vitiate the
contract. In short, the Architect has the right to issue any variation works to the Contractor as
long as the said variation works are within the scope of work stated in the Contract and
thereon the Contractor shall carry out and complete the works diligently.
A notable point is that there is a restriction for the Architect to issue the variations order
which is that the issuance of variations order shall not been issued after the issuance of
Certificate of Practical Completion to the Contractor. However, according to Clause 11.3, the
Contractor is liable to carry out the variation works when the variation order is required by
any Appropriate Authority and Service Provider such as TNB, SYABAS and so on.
Based on the Clause 11.4, an AI regarding the expenses of provisional and prime cost sums
included in the contract sums and the prime cost sums that arise as a consequence of
instructions issued in regard to the expenses of provisional sums shall issued by the Architect.
PAM 2018 had also provided the valuation rules for the variation works to avoid from any
disputes arise between the Contractor and the Employer. The valuation rules act as a standard
for the parties to evaluate the value of the variation works in monetary form.
After reviewing all the valuation rules from the Clause 11.6 (a) to 11.6 (f), three of the most
easily confused clauses are Clause 11.6 (a), 11.6 (b) and 11.6 (c). These three clauses have
the same terms ‘similar character’ and ‘similar condition’ in their explanation respectively.
Many construction parties are confused by these two terms because the definitions of these
terms are not clearly explained in PAM 2018.
Generally, the term ‘character’ and ‘condition’ are entirely different things for the variation
works. The term ‘similar’ means ‘of a like nature’ and does not mean have to be ‘identical’.
Hence, ‘similar character’ usually refers to similar item of work already described and has a
rate/price in the contract documents, e.g., concrete columns, concrete beams and brick walls,
while the variation work not of similar character will be the installation of floor tiles and roof
tiles. Besides, the term ‘similar condition’ normally refers to physical conditions, timing and
extent of the variation work which is similarly described and allowed in the contract
document, while the variation work not of similar condition may be affected by the said 3
factors such as addition of a concrete beam after completion of all concrete works.
Since the variation works are measured as the provisional quantities which are included in the
provisional sums in the contract document, there is a chance that the amount of the variation
works will exceed the amount priced in the contract documents due to the large number of
variation orders. Thus, PAM 2018 provided the Clause 11.7 to give the Contractor the rights
to claim any additional expenses caused by the variations.

Case Study
The case of ‘Henry Boot Construction Ltd. v Alstom Combined Cycles’ [1999] set a
precedent that contractor’s rates do not become reasonable or unreasonable by the execution
of variations.
The extent to which bill of quantities (BoQ) rates are applicable for valuing variations in the
works, is a common cause of conflict on projects, particularly when there are substantial
changes in quantities. This can be a particular issue if the rate in question is abnormally high
or low due to the fact that an error has been incurred. Contractors argue that abnormally low
rates compound losses, while clients point out that abnormally high rates exaggerate
contractor profits.
In the case of Henry Boot Construction Ltd. v Alstom Combined Cycles, Henry Boot
Construction Ltd. was employed by Alstom to undertake civil engineering works at a power
station. Boot quoted a price for temporary sheet piling and this figure was included in the
contract. As the works proceeded however, variation instructions affecting the sheet piling
were issued.
Boot’s price was found to have been calculated incorrectly, meaning that the additional
quantity required by the variation would have given them a large profit. Boot argued that the
contract rates must be adhered to whereas Alstom argued that a fair valuation should be
made.
At the trial, the judge emphasised the importance of the contract rates, ruling that they were
‘sacrosanct, immutable, and not subject to correction’ on the basis of one party’s
dissatisfaction with them. He referred to Clause 55(2) in the relevant ICE Standard Form (6th
ed.) contract which stipulated that there should be no rectification of errors, omissions or
estimates, and that a mistake in a rate or price bound both parties equally.
The Court of Appeal endorsed the judge’s ruling in 2000, confirming that pricing errors do
not allow the parties to adjust the rates.
The rates may however be adjusted where they are used to value variations:
Where the works are not executed under similar conditions.
Where the rate is rendered inapplicable by a substantial change in the quantities.
2)
The relevant clause in PWD Form 203A of Clause 11, Variations, Provisional and Prime Cost
Sum in PAM Form 2018 are Clause 24, 25 and 34. PWD Form 203A separate the Variations,
Provisional and Prime Cost Sum into three clauses which are Clause 24, Variations, Clause
25, Valuation of Variations and Clause 34, Prime Cost/Provisional Sum.
The main difference between PWD Form 203A and PAM Form 2018 is that the person to
issue the instructions. In PAM Form, the Architect playing the role to issue the instructions to
contractor for variation works, while in PWD 203A, the Superintending Officer (S.O) is
responsible for issuing instructions. Other than that, PWD 203A have no any similar clause
related to Clause 11.1(d) in PAM 2018, the definition of ‘variations’ shall include any
limitation of working hours, working space, access to or utilization of any specific part of the
site and so on.
In the valuation rules part, although the rules are almost similar between two Standard Form,
there are some notable points can be discussed. Clause 11.5 in PAM 2018 mentioned, the
valuation of variation works shall be done by the Quantity Surveyor, while the valuer will be
S.O. under Clause 24.1 in PWD 203A. According to PWD 203A Clause 25.1 (b), the rates in
the Bills of Quantities shall be the basis of rates if the works is not of similar character or
executed under similar condition. However, PAM 2018 purposely separates this clause into
two clauses which is Clause 11.6 (b) and 11.6 (c) as the terms ‘similar character’ and ‘similar
condition’ not necessarily happen at the same time. Clause 25.2 in PWD 203A stated that the
Contractor shall submit vouchers, receipts and wage books to the S.O. within 7 days after the
works have been completed, while in PAM 2018 Clause 11.6 (d) specifying the Contractor
shall submit the said things to Architect or Quantity Surveyor at weekly intervals with the
final records delivered within 14 days after the works have been done.
In PAM 2018 Clause 11.5 clearly stated that the period for the Quantity Surveyor and
Contractor to request and submit the particulars for valuation of the variations works
respectively, and the period for the Quantity Surveyor to complete the valuation works. There
are not any related or similar clauses can be found in PWD 203A.
3)
The corresponding clause of PAM 2018 Clause 11, Variations, Provisional and Prime Cost
Sum in the PAM Sub-Contract 2018 is the Clause 12, Variations.
In fact, most of the provisions in both PAM Contract Form are exactly the same including the
definition of variation, valuation rules, access to contractor’s books and documents, and
variations and additional expenses added to Sub-Contract Sum. A little alteration in above
provision is just change the key word ‘Contractor’ to ‘Sub-Contractor’ in PAM Sub-Contract
2018.
However, both PAM Contract Form are having some minor distinction due to the different
usage of the contract form. One of the notable points is that PAM Sub-Contract 2018 does
not include any provisions about Provisional and Prime Cost Sums. This is due to the
Provisional Sums are provided in construction contracts to allow the employer, at its option,
to select and recommend its preferred subcontractor to the contractor. Following that, the
contractor is responsible for the nominated subcontractor's performance in general. (1) A
prime cost sum is a sum given for work or services to be performed by a nominated
subcontractor, a government or a regulatory authority, materials or products to be procured
from a nominated supplier. (2) Hence, the provisions of Provisional and Prime Cost are not
suitable to be included in PAM Sub-Contract 2018.
Besides, the Clause 11.2 in PAM 2018, ‘No Variations required by Architect shall vitiate the
Contract’ also does not exist in PAM Sub-Contract 2018. The reason is the ordering sequence
of variations will be that the Architect issues an AI to the Contractor, then the Contractor
only deliver variations order to the Sub-Contractor where the Sub-Contractor works are
involved.
According to the Clause 11.7 (a) in PAM 2018, the Contractor shall give a written notice to
the Architect for claiming the additional expenses within 28 days from the date from the date
of AI or CAI, while the Sub-Contractor shall give a notice to the Contractor with a copy
extended to the Architect of his intention to claim for the additional expenses within 21 days
from the date of the AI or CAI in accordance with Clause 12.3 (a) in PAM Sub-Contract
2018. The submission date of written notice for Sub-Contractor is even shorter than the
Contractor.
2. Clause 15: Practical Completion and Defects Liability
1)
Discussion (15.3, 15.4, 15.5, 15.6)
According to the Clause 15.1 in PAM 2018, the works shall be deemed to be practically
completed when in the Architect’s opinion that the Employer can have fully utilise of the
works for their desired purposes, while the Contractor is responsible for making good the
potential defects of a minor nature within a reasonable time frame set by the Architect.
Besides, the works are practically completed where the works have complied with other
requirements as a prerequisite of issuing the Certificate of Practical Completion stated in the
contract documents.
Following that, Clause 15.2 specify that a notice shall be given by the Contractor to the
Architect once the entire works and practically completed. Then, the Architect will make
decision either to accept or reject the works done by the Contractor based on his own opinion.
After the decision is made, a written notice (rejection) or the Certificate of Practical
Completion (acceptance) shall be issued by the Architect to the Contractor within 14 days
from receiving the written notice from the Contractor. One thing worth to be discussed is,
how the Contractor should prove the practically completed works to the Architect? Jon
Williams mentioned that, upon the completion of the works the Contractor shall provide the
documents of contractor’s design and any relevant information stated in the contract
document that shows or describe the work like the as built drawing and the operational and
maintenance manual to the Employer. (3) Other than that, the Approved Inspector or the
Local Authority Building Control must approve on the Practical Completion as a certificate
fit for occupation certificate, as well as a certificate of fire life and safety.  Any services
should be verified and certified, together with all necessary certificates. (3)
Case Study
Pearce and High Ltd v Baxter [1999] CLC 749 (“Pearce”) (English case) In Pearce, the
homeowner in a building contract failed to give notice of the defects to the contractor during
the defects liability period as per cl 2.5 the contract. The first instance judge held that as the
defects were not notified within the defects liability period, the homeowner was not entitled
to rely on the express contract provisions (cl 2.5) to seek payment from the contractor to
remedy the defects. On appeal, the English Court of Appeal held that cl 2.5 did not take away
the right of the homeowner to claim damages for breach of contract, since there were no
express words in the contract to such effect. In other words, the English Court of Appeal
allowed the homeowner to pursue damages for the defects though the contractor was not
notified of the defects.

With regards to the quantum of damages, the English Court of Appeal also recognised that
the cost of employing a third-party repairer was likely to be higher than the cost to the
contractor from doing the work himself. It was held in Pearce that this would be taken into
account in the assessment of damages by reducing the damages awarded to the homewoner to
the costs that would have been incurred by the contractor had it been given an opportunity to
rectify the defects (at paragraph 752 of Pearce):

"… The cost of employing a third party repairer is likely to be higher than the cost to the
contractor of doing the work himself would have been. So the right to return in order to repair
the defect is valuable to him. The question arises whether, if he is denied that right, the
employer is entitled to employ another party and to recover the full cost of doing so as
damages for the contractor’s original breach. In my judgment, the contractor is not liable for
the full cost of repairs in those circumstances. The employer cannot recover more than the
amount which it would have cost the contractor himself to remedy the defects. Thus, the
employer’s failure to comply with cl 2.5 whether by refusing to allow the contractor to carry
out the repairs or by failing to give notice of the defects, limits the amount of damages which
he is entitled to recover. This result is achieved as a matter of legal analysis by permitting the
contractor to set off against the employer’s damages claim the amount by which he, the
contractor, has been disadvantaged by not being able or permitted to carry out the repairs
himself, or more simply, by reference to the employer’s duty to mitigate his loss"
2)
The Clause 15, Practical Completion and Defects Liability in PAM 2018 can be found in
Clause 39 and 48 in PWD 203A which are Completions of Works and Defects after
Completion respectively.
In the terms of Practical Completion, there are no huge difference between PAM 2018 and
PWD 203A, the only different thing is the definition the practical completion. Clause 39.5 in
PWD 203A clearly specifies the requirements to meet the term ‘Practical Completion’, which
includes the works have been done in accordance with the terms and conditions in the
contract, the completed works is available to the Government in a condition fit for using, the
works have been tested with any commissioning tests required in the Contract and so on.
However, Clause 15.1 in PAM 2018 have just simply mention about the requirement to meet
the term ‘Practical Completion’.
Nevertheless, there are a number of significant differences have been found between PAM
2018 and PWD 203A when it comes to Defects Liability. According to Clause 48.1 (b) in
PWD 203A, the Contractor shall make good the defects within 3 months after receipt of the
schedule of defects, while Clause 15.4 in PAM 2018 stated that the defects shall be made
good by the Contractor within 28 days after receipt of the said schedule. Clause 48.1 (b) in
PWD 203A also declare that the S.O. shall not be allowed to issue any further instruction
ordering the Contractor to make good of any defects after the schedule of defects or after 14
days from the expiration of Defects Liability Period, whichever is the later.
Moreover, the Architect shall make decision either to accept or reject the defects made good
by the Contractor within 14 days after receiving the written notice of the completion of
making good defect from the Contractor. There are two sub-clauses under 15.6, which is 15.6
(a) and 15.6 (b), which discussing about the situation how the Architect could accept or reject
the defects made good by the Contractor respectively. Notwithstanding PWD 203A does not
stated the period for the S.O. to make the said acceptance and rejection decisions. In addition,
PWD 203A does not mention how the S.O. can reject the Contractor if the S.O. believes the
defect has not been repaired.
3)
The corresponding clause of PAM 2018 Clause 15, Practical Completion and Defects
Liability will be the Clause 17 in PAM Sub-Contract 2018.
The majority of the provisions between PAM 2018 and PAM Sub-Contract 2018 are similar
including Practical Completion, Certificate of Practical Completion, Contractor’s failure to
comply with undertaking, Schedule of Defects and Certificate of Making Good Defects.
However, there are some changes in the said provisions. For example, the works shall be
deemed as completed when in the opinion of the Architect, the Employer can fully utilize the
works for their intended purpose in accordance with the Clause 15.1 (a) in PAM 2018, while
referring to the Clause 17.1 (a) in PAM Sub-Contract 2018, not only the Architect but also
the Contractor will be one of the appraisers to assess the works completed by the Sub-
Contractor.
Same goes to the Clause 11.7 (a) that have been discussed previously, the Sub-Contractor
shall give a written notice to the Contractor with a copy extended to the Architect when the
Sub-Contract works are practically completed in accordance with Clause 17.2 in PAM Sub-
Contract 2018. If in the opinion of the Architects that the works have been practically
completed by the Sub-Contractor, the Certificate of Practical Completion will be issued to the
Sub-Contractor with the copies extended to the Contractor and Employer.
Furthermore, Clause 17.6 in PAM Sub-Contract 2018 specify that the Contractor may issue
the written instructions to order the Sub-Contractor to make good any defects at the Sub-
Contractor’s own cost at any time during the Defects Liability Period instead of issuing an AI
by the Architect. If the Sub-Contractor failed to attend such defects within the timeframe
given by the Contractor, the Contractor will set-off all the costs incurred under Clause 26.13
as only the Contractor have the contractual relationship with the Sub-Contractor.
Although the provisions are similar between PAM 2018 and PAM Sub-Contract 2018, there
are still some provisions provided by PAM Sub-Contract 2018 that are not existing in PAM
2018 such as Obligation to clear out on completion, Remedial work due to Defects in the
Sub-Contract Works and Remedial work due to Defects in the Main Contract Works.
According to Clause 17.7 in PAM Sub-Contract 2018, the Contractor shall set-off the cost of
executing the remedial works from the Sub-Contractor under Clause 26.13 if the Contractors
executes any remedial works in Sub-Contract Works. In contrast, the Contractor shall pay the
Sub-Contractor the costs of executing the remedial works that are caused by the Main
Contractor in accordance with the Clause 17.8. These provisions are fair to both Main
Contractor and Sub-Contractor as not only one party is suffering the losses.
Lastly, the Sub-Contractor will not be awarded with Certificate of Making Good Defects that
stated in the Clause 15.6 in PAM 2018 but the Sub-Contractor will receive a copy of CMGD
from the Architect that awarded to Main Contractor in accordance with the Clause 15.6 (a) in
PAM 2018.
References
1. https://bspace.buid.ac.ae/bitstream/handle/1234/1014/2014122037.pdf?
sequence=1&isAllowed=y
2. https://www.linkedin.com/pulse/whats-difference-between-prime-cost-provisional-sums-
samuel-hitch/
3. https://c-link.com/blog/practical-completion-when-is-it-achieved-and-how-is-it-managed/