2.

6 CONDITION PRECEDENT AT COMMENCEMENT OF WORK

Before a contractor starts work, he has to furnish the employer with the following necessities:
a) Cover notes and receipts for premiums paid for all insurance policies.
b) Registration numbers for SOCSO schemes for workers earning less than RM3,000.00 per month
c) Performance bonds
2.6.1 Cover notes and receipts for premiums paid for all insurance policies
There are numerous risks in any development task. The majority of these risks are almost always
assumed and priced by means of the contractor for the period of the development section, who customarily
covers this exposure with the aid of removing various coverage policies. The most usual forms of insurance
under a construction contracts is All dangers insurance. This insures towards bodily damage to the works.
All risks insurance quite often covers the full reinstatement worth of the works plus a markup for any
ancillary expenditures (equivalent to consultancy and official expenses) which are incurred. As contractors
typically have global all dangers insurance policies that duvet all its tasks, it's commonly extra cost
powerful for contractors to preserve this insurance. Once taken over, the hazard in the works passes to the
organization, who wishes to make sure that the works are correctly insured.
Despite the fact that defects are mainly excluded from all risks coverage policies, wording can also be
bought that presents duvet for damage that a defect reasons to other parts of the works. For this insurance
to be significant, the distinctive add-ons of the works need to be cautiously and evidently delineated. This
coverage is handiest quite often to be had if the works are being undertaken according to well centered (as
an alternative than evolving) building systems.
Professional Indemnity Insurance insures contractors with design accountability (in example under
design and build contracts) towards liability arising out of authentic negligence and can respond if, for
example, designs do not agree to the necessities of the underlying development contract (even though it
isn't exotic for authentic indemnity coverage to exclude duvet for fitness for purpose warranties).
Authentic indemnity insurance is made on a claims made basis (instead than when the breach of authentic
obligation clearly happens). Because of this authentic indemnity coverage is traditionally required to remain
in position until any issue period ends. The quantity of legitimate indemnity coverage quilt the contractor
is required to have in location is most of the time determined on a case via case foundation, relying on the
extent and the complexity of the design works in question. Authentic indemnity insurance can also be the
fundamental protection that design consultants (akin to architects and engineers) are required to have in
situation.
Public Liability Coverage presents quilt for legal responsibility arising out of death or private injury
to third parties (however not the contractors workers, who must be included with the aid of employees
compensation insurance) or injury to property belonging to 3rd events (however now not the works, which
is blanketed by the all risks insurance) prior to the works being taken over.
Staff Compensation Insurance insures the contractor towards liability for the death or individual harm
to its employees (frequently on site) when performing the works.
Decennial Legal Responsibility Coverage are collectively responsible to the supplier for a period of
10 years (from the date the works are taken over) for any defect that threatens the safety or stability of the
building or if the building suffers a total or partial crumple. Decennial liability cannot be contractually
excluded and contractors usually take out coverage in contrast legal responsibility.
Nonetheless, liquidated damages are mainly capped at 10% of the contract cost. Caps of this nature
may mean that the employer isn't entirely compensated for any loss suffered and although caps on extend
damages can many times be put aside (and damages reassessed so that they correspond with the specific
loss suffered), it is a slow, uncertain and pricey system. As a result, employers generally (peculiarly if the
works are assignment financed) take out DSU coverage which provides compensation for losses (including
lack of sales and other consequential losses) bobbing up out of late completion as good as other types of
lengthen (reminiscent of force majeure).
Apart from the elemental requirement to take out and preserve coverage insurance policies, other
important ancillary disorders regarding insurance incorporate Joint Names, detailed coverage insurance
policies (notably public liability insurance) are as a rule taken out within the joint names of the business
enterprise and the contractor (as good as a funder) in order that, for illustration, the organization is insured
against any legal responsibility (vicariously) incurred by way of intent of a breach via the contractor. As a
matter of fine order, co-insured events will have to acquire copies of the coverage that they're insured below
so they recognize precisely what they are covered for. Generally, an occasion named below an insurance
plan can make claims beneath that coverage and it is usually customary for insurers to be required to waive
their rights of subrogation towards co-insured parties. This means that the insurer is of the same opinion
to not seek to get better in opposition to a co-insured celebration (the supplier) even if the insurer paid out
by reason of the actions of the supplier. It is major that, if two or extra parties are insured beneath the same
coverage, the policy provides that no act or omission of a co-insured get together (Misrepresentation, non-
disclosure or failure to notify) will vitiate the policy or in any other case prejudice the duvet of the other
co-insured (and non-breaching) parties underneath the policy.
The drafting of coverage clauses as a rule requires a contractors to warrant (or, in different words,
assurance) that it has satisfied all of the specifications imposed via the construction contract. As such, these
specifications can't be taken calmly and could influence in an inadvertent (and serious) breach of contract
if they aren't adhered to. It is therefore fundamental that, previous to executing a contract, each party must:
a) Ensures that it knows the extent of its insurance obligations
b) Make sure that the insurance specifications are reviewed via its authorized advisor to make sure
that they are constant with the underlying duties underneath the contract and confirm with market
norms
c) Confirms with its coverage guide that the coverage specifications under the contract can be
accommodated through the important coverage policies (and in addition determines any cost
implications)
d) Checks that any fundamental amendments are made to the crucial coverage insurance policies to
make sure that the contractually agreed insurance specifications are competently reflected.
2.6.2 Registration numbers for SOCSO schemes for workers earning less than RM3, 000.00 per month
SOCSO was once incorporated to provide help both medically and financially to staff which have
had their skills lowered or incapacitated as a result of accidents or ailments. Additionally they provide
assistance to the dependants of employees in the event that they die by way of pensions. The benefits below
this scheme is split into the Employment injury Scheme and the Invalidity Pension Scheme.
a) Employment Injury Scheme Benefits
This scheme provides coverage and protection for employees who suffers from employment injury.
Medical benefits
Temporary disablement benefit
Permanent disablement benefits
Constant attendance allowance
Rehabilitation benefit
Return to work programme
Dependent benefit
Funeral benefits
 b) Invalidity Pension Scheme benefits
This scheme covers workers who expertise invalidity and death due to any explanations no longer
regarding their employment. Invalidity implies the incapability of a worker to acquire one-third of
the common earnings of a sound insured man or woman. This incapacity could take form of
permanency or its very unlikely to recuperate. The benefits that could be attained are:
Invalidity pension
Invalidity grant
Survivors pension
Funeral benefit
Facilities for Physical Rehabilitation and Dialysis
Education Benefits
2.6.3 Performance Bond
A performance bond is quite often used within the building industry as a way of insuring a
purchaser against the danger of a contractor failing to fulfill contractual tasks to the consumer. Performance
bonds will also be required from different events to a building contract. Whether or not an efficiency bond
is required will depend, within the most important, on the perceived financial force of the get together
bidding to win a contract, as essentially the most normal concern pertains to a contractor becoming insolvent
before finishing the contract. Where this occurs the bond presents compensation guaranteed with the aid of
a 3rd occasion as much as the quantity of the efficiency bond.
Bonds are as a rule set at 10% of the contract value. This compensation can enable the customer to
beat difficulties that have been caused by non-efficiency of the contractor, such as, for illustration, finding
a new contractor to complete the works. Bonds can also be 'on demand' or 'conditional', with conditional
bonds requiring that the consumer supplies evidence that the contractor has now not carried out their
responsibilities under the contract and that they have got suffered a loss as a final result. The obligation for
the contractor to furnish the consumer with a bond is set out in smooth records. The alternative of bondsman
and phrases in regard to rate falls wholly to the contractor who secures it previous to the beginning of labor.
From a patron point of view it is intelligent to stipulate that the bond stays in location except the top of the
defects liability interval when the final certificates is issued.
Bonds can also be issued either by an insurance organization or by a bank, and the fee of the bond
is almost always borne by the contractor (albeit, that is prone to be mirrored within the contractor's tender
fee). The cost of the bond offers the customer an excellent guide as to the credit worthiness and reputation
of the contractor within the bond market, for you to view every contractor in a different way in appreciate
of its historical past, management and fiscal wellness. Strictly talking the bond is a guarantee and as such
is a contingent legal responsibility in regard to the contractor's stability sheet. A smaller contractor might
face restriction on how many bonds it will possibly take out. The contractor sends the bond report to the
beneficiary which is the client who holds it except the top of the defects liability period.
The bond is concerning the contract conditions and the courts take a view that the bondsman has
little protection against antagonistic chance. So it is sensible to seek the bondsman's consent before acting
outside the contract conditions, for instance by paying the contractors in advance of work undertaken to
ease its cash glide difficulties. Such behavior would jeopardize a subsequent declare on the bond.
2.6.4 Comparison in PAM Contract 2006 and P.W.D Form 203A (Rev. 1/2010)
PAM Contract 2006 P.W.D Form 203A (Rev. 1/2010)
Clause 18.0 Clause 15.0
18.1 The contractor shall be liable for and shall 15.1 (a) Without prejudice to his liability to
indemnify the employer against any damage, indemnify the Government under clause 14 hereof,
expense, liability, loss, claim or proceedings the Contractor shall, as a condition precedent to the
whatsoever whether arising at common law or by
statute in respect of personal injury to or death of
any person arising out of or in the course of or
caused by the carrying out of the Works and
provided always that the same is due to negligence,
omission, default and/or breach of contract by the
Contractor or of any Person whom the Contractor
is responsible.
Explanation: Contractor is liable and must
recompense the employer against anything that can
cause damages to the employer while doing the
project. Anyone who is under the responsibility of
the contractor is also liable to any negligence and
breach of contract.
Clause 19.0
19.2 Without prejudice to his liability to indemnify
the Employer under Clause 18.0, the Contractor
shall register or cause to register all local workmen
employed on the Works and who are subject to
registration under the Employees Social Security
Scheme (hereinafter referred to as SOCSO) in
accordance with the Employees Social Security
Act 1969 and shall cause all sub-contractors to
comply with the same provisions. The Contractor
shall make payment of all contributions and cause
all sub-contractors to make similar payments from
time to time when the same ought to be paid.
Explanation: Contractor shall register all workmen
involved in the works and make sure all his sub-
contractors comply with the same subject.
Clause 37.0
37.1 The Contractor shall before the Date of
Commencement of the Works, submit to the
Employer a Performance Bond for a sum
equivalent to the percentage stated in the Appendix
as a security for the due performance and
observance by the Contractor of his obligations
under the Contract up to Practical Completion of
the Works.
Explanation: Contractor must submit the
performance bond to client for a sum equivalent to
the percentage stated in Appendix. Performance
Bond act as a financial security for the client in
accordance to the performance of the contractor.
commencement of any work under this Contract,
effect and maintain such insurances whether with
or without an excess amount as specified in
Appendix hereto as are necessary to cover the
liability of the Contractor and all sub-contractors,
whether nominated or otherwise.
Explanation: Contractors are required to cover up
his and the liabilities of his employees, whenever
the works are in progress, it is to maintain
insurance and back up the contractor in case
something happens.
Clause 17.0
17.1 Without prejudice to his liability to indemnify
the Government under clause 16, the contractor
shall register or cause to register all local workmen
employed in the execution of the works and who
are subject to registration under the Employees
Social Security Scheme (the SOCSO scheme) in
accordance with the Employees Social Security
Act 1969 or any subsequent modification or re-
enactment of the said Act. For the purpose of this
sub-clause, the term local workmen shall include
workmen who are Malaysian citizens and those
who have permanent resident status.
Explanation: Contractor is obliged to register his
workers under the SOCSO scheme, and whoever
under him who involves during the execution of
works. SOCSO scheme includes both Malaysian
and those who have permanent resident status.
Clause 13.0
13.1 (a) The Contractor shall, on the date of the
possession of site, provide a performance bond or
performance guarantee sum as the case may be
substantially in the form as in Appendix issued by
and approved licensed bank or financial institution
incorporated in Malaysia in favor of the
Government for a sum equivalent to five percent
(5%) of the total Contract Sum as specified in
Appendix to secure the due performance of the
obligations under this Contract by the Contractor.
The Performance Bond shall remain valid and
effective until twelve (12) months after the expiry
of the Defect Liability Period or the issuance of the
Certificate of Completion of Making Good
Defects, whichever is the later.
Explanation: Contractor must issue a Performance
Bond on the date of site possession, as a guarantee
of work completion to the client, with the sum
equivalent to 5% of the total contract sum.
Performance Bond should remain intact until 12
months after the expiry of Defect Liability Period
or after the issuance of the Certificate of
Completion of Making Good Defects, depending
on which one is the latest.