P8-Determination of Contractors

Employment by Employer

Ngah Yea Zhe 0323204

Than Lek Mei 0315538
Kiing Kiu Chun 0318727
Determination of Contractors employment by
Employer

Contractor himself is relieved from his contractual obligation to procced

with the work under contract due to termination of his employment due to
his own default. The determination will keep the contract alive in a
modified form.
E.G., the dispute resolution clause will survive the determination whereas
the liquidated damages will not survive the determination, liquidated
damages charged to contractor will be up to the date of determination.
Upon Termination of Contractors Employment

Contract does not come to an end, but it will remain in force in order to
bring it to a closure.
This matter means that both party will have to wait until the project is
finish to get the final revised contract sum, afterwards employer will
claim the excess amount from the contractor.
 Default by Contractor

Under PAM Contract 2006 clause 25.1 (a)-(f), Employer may determine the
employment of the Contractor if the Contractor are found to be default in
any of the following:-
1. Clause 25.1 (a), Contractor fails to commence the work in accordance
with the contract without reasonable reasons.
2. Clause 25.1 (b), Contractor wholly or substantially suspends the
carrying out of work without reasonable reasons.
3. Clause 25.1 (c), when the Contractor fails to proceed regularly and/or
diligently with the works in terms of time and quality.
 Default by Contractor

4. Clause 25.1 (d), Contractor persistently refuses or neglect to comply

with Architect Instruction (AI).
5. Clause 25.1 (e), which stated the Contractors failure to comply with
clause 17.0, which defines when the Contractor assigns his rights,
interest and benefits under the contract to other parties or wholly or
substantially subcontract the works without the written consent of
Employer.
6. Clause 25.1 (f), where Contractor abandons his work with no intention
to continue the work.
 Notice of Determination

Employment of Contractor can be determined under the stated

circumstances, e.g. PAM 2006 clause 25.1 (a)-(f).
The reason for determination must be clearly stated.
The base Employer uses to exercise the determination need to be stated
in the notice as well, e.g. PAM 2006, Common Law and etc.
 Strict Compliance with Procedure for
Determination

According to PAM 2006 clause 25.2, upon any occurrence of default under
Clause 25.1, and if the Employer decides to terminate the employment of
Contractor, Employer or Architect on his behalf shall give Contractor a
written notice by hand or by registered post specifying the default.

If the Contractor continue its default for fourteen (14) Days after the
receipt of such notice, the Employer may, within ten (10) Days from the
expiry of fourteen (14) Days by a further written notice, determine the
employment of Contractor under the contract.
2-Steps Procedure for Determination : Step 1

a. Issue Notice of Default to the Contractor. The notice shall be issued by

Employer or Architect stating the default.

b. Upon the receipt of such notice, Contractor can take the following action:-
I. Dispute the notice;
II. Admit the notice and make good;
III. Ignore the notice and continue with the default.

c. The Contractor is given 14 Days to rectify the default.

2-Steps Procedure for Determination : Step 2

a. If Contractor continue such default after expiry of fourteen (14) Days upon the
receipt of Notice of Default, the Employer can (only) issue the Notice of
Determination within ten (10) Days from the expiry of said fourteen Days.

b. Contractor must vacate the site and return site possession to Employer within
14 Days from Notice of Determination.

c. Architect/Quantity Surveyor shall give written notice to Contractor within 28

Days of determination of the date of inspection on site to jointly record extent
of work done and materials delivered.
2-Steps Procedure for Determination : Step 2
d. Architect/Quantity Surveyor to submit Final Account to Employer/Contractor
within 6 months from the completion of the remaining works.

e. Any disputes from Employer/Contractor must be raised within 3 Months from

receipt of Final Account, otherwise the Final Account will be considered as
conclusive and agreed by both parties.

f. Where either party have disagreement over the Final Account, they shall submit
their disagreement to the Architect/Quantity Surveyor. They will then within 3
Months, go deep into the disagreement to decide whether to amend and notify
the parties. Afterwards, either party is given 3 Months to refer the disagreement
to arbitration, or else the result will be seem as conclusive and agreed by both
parties
 Automatic Determination

Under PAM 2006 clause 25.3, the employment of the Contractor shall be
automatically determined if:-
1. The Contractor has become insolvent;
2. Making a composition or arrangement with his creditors;
3. Have a winding up order made;
4. A resolution for voluntary winding up;
5. Having a liquidator/receiver/manager of his business of undertaking duty
appointed by the court;
6. Having possession taken by or on behalf of the holders of any debentures
secured by a floating charge.
Rights and Duties of Employer/Contractor after
Determination

According to PAM 2006 clause 25.4, if the Contractors employment is

determined under clause 25.1 or 25.3, Employer/Contractor will have
following rights and duties:-
1. If Employer himself is in breach of contract, which he fails to pay
Contractor within the Period of Honouring Certificates, then he will
lose his rights to determine the Contractors employment under
prevention principle.
2. Employer may determine the Contractors employment under the
contractual procedure of Contract. If Employer has default or failed
to comply with the procedure, then he will have to rely on common
law termination.
Duties of Contractor after Determination

After Determination, Contractor shall:-

Under clause 25.4 (a):-
1. Vacate the site peacefully,
2. Return the site possession to the Employer within 14 Days from the receipt of
Notice of Determination.
3. Remove from site any temporary buildings, plant and materials belonging to
him or hired by him, when so instructed by the Architect.
4. If required by Employer, Contractor shall within twenty one (21) Days of the
date of determination, assign to the employer the benefit of any agreement
for the continuation of the hire of construction plant and equipment already
on site.
Duties of Contractor after Determination

Under clause 25.4 (b):-

1. If required by the Employer of Architect, Contractor shall within twenty one
(21) Days of the date of determination, assign to the employer without the
payment the benefit of any agreement for the supply of materials, goods
and/or for the execution of any work.
Under Clause 25.4 (c):-
1. When instructed by the Architect, Contractor shall remove from the works any
temporary buildings, construction plant, tools, equipment, materials and
goods belonging to or hired by him. If Contractor failed to comply with, the
Employer may without liability remove and sell those property belonged to
the Contractor, except for those that are on hire.
Duties of Contractor after Determination

Under clause 25.4 (d):-

1. The Contractor shall allow or pay to the Employer all cost incurred to
complete the work, which includes the lose and/or expense suffered by
the Employer. Until the completion of work, Employer shall no make
any further payment to the Contractor. Upon the completion of work,
an account which will include the value of work carried out by the
Contractor and all lose and/or expense incurred by the Employer will be
taken into Final Account as per clause 25.6.
Rights of Contractor after Determination

1. Under clause 25.7, Contractor has the right to claim for compensation
for damages only if the Determination is later found to be invalid or
beyond contract provision.

2. The right to claim for such compensation is subject to the Contractors

ability to prove his entitlement and quantum he deserves.
 Duties and Rights of Employer after
determination

Under clause 25.4(a) states that the Employer may:

take back site possession from the contractor in a safe condition.
employ and pay another contractor to carry out and complete the works and
to make good any defects.
use all temporary buildings, construction plant, tools, materials and goods on
or adjacent to the site except hired construction plant.
purchase all materials and goods necessary for the carrying out and
completion of the works.
 Duties and Rights of Employer after
determination

require the Contractor to assign without payment the benefit of any agreement
for the supply of materials, goods and for the execution of any work.
instruct the Contractor to remove any temporary buildings, construction plant,
tools, equipment, materials and goods belonging to or hired by him; if not they
may be sold and the proceeds less all costs incurred held to the credit of the
contractor.
the employer is entitled to be paid all cost incurred to complete the works by the
contractor including all loss and/or expense suffered by him.
make no further payment to the contractor until after the completion of the
works when there is a final settling up.
 Employers rights and remedies not
prejudices

1. Under clause 25.8 the provisions of this clause are without prejudice to any
other rights and/or remedies which the Employer may possess.
2. This provision is aimed at preserving the Employers common law rights and
remedies in the event of determination.
3. In practice, the Contractor have parallel rights for determination under
common law, even though it is not so expressed in the contract.
 Employers rights and remedies not
prejudices

4. In the event of any default by the Contractor, the Employer must exercise his
rights to determine either:
- Under the clause 25.2 of the contract for performance default; or -
- Under common law.

5. If the Employer chooses to determine the contract, then he is bound by the

contract provisions and he cannot resort to the common law rights of
determination as an alternative.

6. Common law rights can only be excluded by express term in the contract.
 Completion of remaining works

The Employer shall take immediate steps to arrange for the completion of the
remaining works:
1. Instructs the Contractor to carry out the following:
- Cease all operations on site.
- Demobilize and remove all his workers and staff.
- Leave all temporary building, plants and tools and unfixed
materials and good until they are not required.

2. Make a claim against the bank, i.e. to call on the Performance Bond.
 Completion of remaining works

3. Arrange tender document, including a new BQ to be prepared and

tenders or quotations invited for the remaining works.

4. Employ a replacement contractor to complete the works and make

good any defects.

5. The Employer shall take up separate insurance coverage under fire and
Third Party policy for the completed works.
 Completion of the remaining NSCs works

1. The Architect shall nominate the same NSCs to the replaced contractor
provided they are agreeable to proceed with the same subcontract sum or
price, as if their employment by the first Contractor had not been terminated.

2. The new subcontract sums shall be the original subcontract sum less the
amount previously paid to the NSCs.

3. Where a NSC demands for an increase of the subcontract sum, fresh tenders or
quotations shall be invited to complete the works.
 Determination of NSCs Employment

1. Under clause 27.8, the Contractor can determine the NSCs

employment only with the Architects written consent.

2. The rationale behind this condition is to avoid any wrongful

determination of the NSC, which would disrupt the progress of the
subcontract works and in turn delay the work works.
 Procedure for the determination of NSCs
Employment

1. The contractor shall give a written report stating the NSCs default to
the Architect, with a copy extended to the NSC.

2. The architect may request the NSC to give an explanation in response

to the Contractors allegation of default.

3. This will also give the NSC the opportunity to rebut the Contractors
allegation with cogent evidence.
 How to complete remaining works abandoned
by NSC

1. When the NSC abandoned his work, the Contractor shall determine the
NSCs employment with the Architects consent.

2. The Architect shall re-nominate a replacement NSC to complete the

remaining works within a reasonable time.

3. The Employer has to pay any additional amount to the Contractor if the
replacement MSC charges a higher price than what would have been
payable to the previous NSC.
 How to complete remaining works abandoned
by NSC

4. The Employer is liable to bear time and cost implications unless such cost
are recoverable from the previous NSC.

5. Any such additional expenses recovered by the Contractor from the

previous NSC will have to go towards the cost of completing the remaining
subcontract works.

6. Such recoverable cost cannot be charged back to the Employer.

 In comparison with JKR Form 203A (2007)

J01. JKR Form Clause 51.1 gives the rights to terminate the Contract by the
Government in the event of any of the following Contractors defaults:

i) fails to commence works at site within 2 weeks after Date for Possession
ii) suspends or abandons the works before Date of Completion
iii) fails to proceed regularly and diligently with the performance
iv) fails to execute the Works in accordance with the Contract
v) persistently neglects to carry out his obligations under the Contract
vi) fails to comply with clause 47
vii) fails to comply with any terms and conditions of this Contract
In comparison with JKR Form 203A (2007)

Officer named in the Appendix shall give written notice to Contractor specifying
the default and requiring the Contractor to remedy the default within 14 days of
receipt of the default.

J02. Clause 51.2 gives the rights to terminate the Contract by the Government In
the event that the Contractor becomes bankrupt or insolvent or an order for
winding up or a liquidator has been appointed or execution is levied against a
substantial portion of the Contractors assts.
 In comparison with JKR Form 203A (2007)

J03. In the event of termination of Contract under clause 51.1 & 2, Contractor
[under clause 51.1 (c) (i)] shall:

stop all operations of the Works

carry out any protection works to secure the site against loss or damage
and leave the Site in a clean and tidy condition
remove its staffs and workmen from the Site
vacate the Site within the time stipulated by the S.O., remove all temporary
buildings and equipment and unfixed materials which are not paid.
In comparison with JKR Form 203A (2007)

terminate all third party contracts entered into by the Contractor; or assign
to the Government if so required by the S.O.; or allow such third party to
enter into a contract with the Government to complete the Works.

at no cost to the Government, hand over all plans, designs, relevant

documents.

pay to the Government for any losses and damages as a result of

termination of Contract
Not be released from any of its obligations under the Contract.
 In comparison with JKR Form 203A (2007)

J04. In the event of termination of Contract under clause 51.1 & 2, the
Government, [under clause 51.1 (c) ( ii)], shall:
A) call upon the Performance Bond or forfeit the Performance Guarantee
Sum
B) enter and repossess the Site
C) be entitled to carry out and complete the Works on its own or
employed any other person to carry out and complete the Works
D) be entitled to claim against the Contractor for any losses, cost,
expenses and damages suffered as a result of termination of this
contract.
 In comparison with JKR Form 203A (2007)
J05. Upon termination, Government is not liable for further payments on unpaid
certificates.

J06. Government can terminate the Contract based on national interest under
clause 52 by giving not less than 30 days written notice to Contractor. The
Government is not required to give any reason if the Government considers that
such termination is necessary for national interest, national policy or national
security.

J07. Clause 53 provides for the Government to terminate the Contract on

corruption, Clause 51.1(c)(i) and (ii) shall apply the if Contractor or its agents gives
of offers to give to any person any bribe, gift, gratuity or commission as inducement
or reward for doing or forbearing to do any actions
 Question 1

Discuss the situations where Employer can determine the

Contractors Employment provided for in PAM 2006.
 Question 1 - Answer

Under PAM Contract 2006 clause 25.1 (a)-(f), Employer may determine the
employment of the Contractor if the Contractor are found to be default in
any of the following:-
1. Clause 25.1 (a), Contractor fails to commence the work in accordance
with the contract without reasonable reasons.
2. Clause 25.1 (b), Contractor wholly or substantially suspends the
carrying out of work without reasonable reasons.
3. Clause 25.1 (c), when the Contractor fails to proceed regularly and/or
diligently with the works in terms of time and quality.
4. Clause 25.1 (d), Contractor persistently refuses or neglect to comply
with Architect Instruction (AI).
5. Clause 25.1 (e), which stated the Contractors failure to comply with
clause 17.0, which defines when the Contractor assigns his rights,
interest and benefits under the contract to other parties or wholly or
substantially subcontract the works without the written consent of
Employer.
6. Clause 25.1 (f), where Contractor abandons his work with no intention
to continue the work.
 Question 2

What must the Employer check before determining the

Contractors Employment? What can happen if the Employer
had failed to pay the sum due on Interim Certificate at the time
of determination?
 Question 2-Answer (Part 1)

Employer had to make sure the Contractor had made default in any of the
following under clause 25.1:-
(a). Fails to commence the Works in accordance with the Contract without
reasonable cause;
(b). Wholly or substantially suspends the carrying out of the Works before
completion without reasonable cause;
(c). If he fails to proceed regularly and/or diligently with the Works;
(d). If he persistently refuses or neglects to comply with an AI;
(e). If he fails to comply with the provisions in Clause 17.0;
(f). If he has abandoned the Works.
 Question 2-Answer (Part 2)

If Employer himself is in breach of contract, which he fails to pay

Contractor within the Period of Honoring Certificates stated in clause 26.1
(a), then he will lose his rights to determine the Contractors employment
under prevention principle.
 Question 3

Discuss the essential contents required in the Notice of Default

and Notice of Determination.
 Question 3-Answer

Notice of Default:-
1. The notice must be delivered by hand or by registered post.
2. The reason of default must be specified in the Notice. E.g. clause 25.1 (a) (f).

Notice of Determination:-
1. The notice must be delivered by hand or by registered post.
2. Comply meticulously with the time table stated in contract.
3. Make sure the notice must be clear as what is being notified, stating the
Contractors default and the related clauses of the contract.
4. The notice must be in writing form.
5. Such notice must not be given unreasonably or vexatiously.
 Question 4

When there is determination occur, what action should the

contract parties take in the preparation of Final Account under
PAM 2006? State the related clause and explain.
 Question 4-Answer (Part 1)

1. Clause 25.6, Architect shall within six (6) Months on completion of the works,
submit to Employer and Contractor a final account incurring all cost to
complete works for their agreement. E.g. contractual claims, amount
previously certified, etc.
2. Clause 25.6 (a), if both parties agree with the Final Account within three (3)
Months from the receipt of the F/A from Architect, the F/A shall be conclusive
and deemed to be agreed by both parties. If the revised amount is greater
than the original sum, Employer can then claim from the Performance Bond.
Vice versa, Contractor will be able to claim the amount from the Employer.
 Question 4-Answer (Part 2)

3. Clause 25.6 (b), either party disagree on the F/A, he shall then give a written
notice to another party, setting out any disagreement within three (3) Months
from the receipt of such F/A. Again the Architect within three (3) Months may
or may not amend the F/A. Either party not satisfied with the amended F/A can
refer to arbitration as per clause 34.0 within three (3) Months upon receipt of
amended F/A. Failure to do so will lead to the F/A being conclusive and agreed
by both parties.
4. Any disputes on Liquidated Damages, set-off and interest which the Employer
is entitled to make under the Contract shall be referred to arbitration.
 Question 5

If the NSC is on default, what are the procedure can be taken by

the employer to determine the employment of NSC ?
 Question 5 Answer

1. The contractor shall give a written report stating the NSCs default to
the Architect, with a copy extended to the NSC.

2. The architect may request the NSC to give an explanation in response

to the Contractors allegation of default.

3. This will also give the NSC the opportunity to rebut the Contractors
allegation with cogent evidence.
 Question 6

What steps shall employer takes to arrange the completion of

the remaining works?
 Question6 - Answer

*Instructs the Contractor to carry out the following:

- Stop all operations on site.
- Demobilize and remove all his workers and staff.
- Leave all temporary building, plants and tools and unfixed
materials and good until they are not required.

* Make a claim against the bank, i.e. to call on the Performance Bond.
 Question6 - Answer

*Arrange tender document, including a new BQ to be prepared and

tenders or quotations invited for the remaining works.

*Employ a replacement contractor to complete the works and make good

any defects.

* The Employer shall take up separate insurance coverage under fire and
Third Party policy for the completed works.