BRAIN DRAIN, SKILLS, COMPETENCY, ACADEMIC?? WHAT? - by Nik Zafri

Brain Drain seems to be a hot topic in Malaysia. I'm not going into politics or some racial matters but facts and figures.

The Economic Transformation Programme came into the picture with Talent Corp formation to focus on facilitating initiatives to attract, nurture, engage and retain talent to support the human capital.

Disclaimer : I have no qualms against whatever is right for Malaysia to move towards 2020 and I write this article with FULL understanding of Talent Corp. and the need to call for Malaysian talents from outside to return.

However, the questions lingering in my mind have never been properly answered by anyone in charge but whenever I ask the "silent majority"* which being "sampled" from the group of 40 years old and above, ranging from local young CEOs, MDs, Directors to scholars, freelance professionals etc.


*Surprisingly, some are working together in this program and have received 'instructions from above' to participate.

Here are their questions :

a) What about local talents that have nostalgically returned to this country a long time ago? What will happen to them? Are they not good enough to compete with the newbies? (this is not MY question, this is THEIR question)

b) Will there be salary scale difference for the local talents (also with accredited foreign qualifications) who have been working so hard developing the country in their very own way IF the "Malaysian talents outside" are to return to the country to respond to this call?

c) Does this mean that the local talents with local accredited (MQA) universities/institution of higher learning qualifications including local competency training institution (MLVK) and workshops/trainings that have been accredited outside Malaysia are more inferior? That we have to get Malaysians from outside that have "better" qualifications, skills and knowledge?

I sometimes wonder the need for "ranking the local universities to others" (except for acquiring grants for R & D that I do not know about*) when MQA's assessment is more than enough and equivalent to British Accreditation Council.

* Universities set 'mechanisms' via these R & D Grants and NOT 'innovations' according to one dean of a faculty.


d) Has anyone been asking some of the so-called talents outside that the countries that they are so proud residing are also having major problems to even maintain their very own economy?* Do a poll and find out! No names and personal details should be given. Otherwise they won't be telling the truth!

*Quoting General (Retired) Bill Creech in his book "The Five Pillars of Total Quality Management" which goes something like this :

"If the US universities are so good, why is the US economy doing so bad?"


e) Has anyone been asking some of the so-called talents outside what do they REALLY feel about returning to Malaysia - now that they have a GOOD remuneration and unmatchable to what the Government is offering? Do a poll and find out! No names and personal details should be given. Otherwise, they won't be telling the truth!

f) Has anyone been asking some of the so-called talents outside what do they REALLY say about Malaysia to foreigners, how they talk proudly about other nation and not being ungrateful or not even "recalling" where they come from?

Some are even "having amnesia" pathetically attempting their level best NOT to tell where they come from - even using foreign slangs to avoid detection. What a joke! Even worse, some of them are requesting to become foreign citizen.

Then another question should be posed...What about EX-MALAYSIANS who are now official foreign citizens?

These are only some of the questions go unanswered till now.

Before you start to say anything, please be reminded that I am NOT against everyone outside as many of us here now are foreign graduates as well.

And I did saw MANY GOOD Malaysians outside saying this to me :

"Give the local talents another chance, we are fine over here and we will come back eventually"

I've noticed over the years the growing trend of staff especially from the civil service chasing for better qualifications by studying up to MBA and PhD. But again, do qualifications really help nowadays when there is no control imposed over it?

(so many private and government institutions of higher learning are being established with so many academic programmes being offered and with so many people are now madly chasing for higher qualifications thinking of future promotion? Some even dare to "bypass" JPA and using their own expenses to gain a higher qualification. I once asked them (when I was lecturing for a UK-Based program in 1997) :


Q : "Why do you come here?"

A : "This program is accredited by JPA"

Q : "Yes I know, that's the reason why I am standing in front of you now, this program is also accredited by LAN (now MQA)" Forgive me for asking - I like to know if you have been permitted by JPA or your superiors to participate in this course?"

A : "No, but I will give them a copy of the qualification and hope to be promoted - either salary wise or designation wise"

Q : "I'm curious...what if they say this to you "I didn't ask you to do this?"

A : (pause for a while...) "What should I do?"

Q : "Either you ask for their permission now, or your answer should be "I'm looking for another job". And most importantly, I don't want you to start blaming me or this company or this course for not getting you a promotion!

(followed by laughter and the guy nodded his head in agreement...anyway, I followed up with him after he graduated with Honours, he told me that whatever I've predicted DID happened and he's now working as a General Manager for a private company (retired early)

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1) When people come and tell me that we are lacking of English Language Teachers, I noticed that it is the 'senior generation of the English Medium or of Foreign Educated' stood up to answer the call but nobody seems to bother.

2) When people come and tell me "What kind of right approach to teach English for working people" I answered : "Teach them according to their expertise, so you need people from the field itself coupled with adequate fluency in English to teach working people...

for example, Civil Engineers, what do they need really? Take checklist or report writing for example, you need to teach them to understand how to describe words like "workmanship", "supervision" etc. Or you need to ask them question of what do they need from this course and you should be answering "in their lingo" by giving them samples of report which they can immediately use after taking the course. So, killing two birds with one stone - you teach them English and you teach them civil engineering "Report Writing"

3) When people come to me and start underestimating "SKM Level 3 to 5 (MLVK)" (thinking that it is only a 'cert') and started comparing with their Degree.

I told them this :

"Did you know that the "SKM Level 5" is a lot better than your Engineering Degree?

Quoting OSH regulations - phrase "a competent person" let's say "Welding and Fitting" - you should counter refer to any "Welding Codes of Practice" and you will find that he is much more AUTHORIZED to attend to "Welding and Fitting" rather than you M & E Degree.

The M & E graduate got more interested and finally I told him this :

"Bitter it may sound but we have different too many ministries to handle different trades. Academic is MOE's and MHL's turfs but SKILL and COMPETENCY are MHR's "babies"!


Learning to pass exam is DIFFERENT than learning how to work! But passing exam is the foundation and learning how to work is the next level which have not been properly introduced in our country. That's why employers keep giving you excuses "You don't have working experience - so you don't get the job"

I'm telling the universities or any other institution of higher learning be it private or government "Don't give guarantee to students or parents that they will get a good job once they have graduated"

There are few universities been integrating both academic and skills/competencies, take for example Defence University of Malaysia, I've visited them, talked to the ex-deputy vice chancellor and very impressed with the results!"

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I'm also really shocked to learn ISO 9000 has been "legalized" (or rather "politicized") when it is only an international standard (a guide NOT gospel) And every other party started to emerge in the "power play"...I can name few "training authorities" that have proudly instructing me that "you consultants must be registered"

They said to me : "You don't register with us, you will not be recognized"

I asked them back : "Can you give me a project if I am to be registered with you?"

They replied : "No, No, No, we cannot give you warranty that we will award you with any project"

I replied : "So you want my money but you don't want to give yours"

They vetoed : "This is regulations"

I said in my heart : "yeah..you're HIDING behind regulations" and you're telling me that my "foreign chartered membership" is now invalid?

So I took a peek into "their system" that was displayed by a dismayed client and I quickly asked the client :

"Where's the method statement (according to the trades)...say "earthworks, or "piling" etc" These are SOPs and WIs, these are meant for factories and manufacturing, boss - NOT CONSTRUCTION"

"Where's the inspection and test plan, how do customize the manual for construction industry according to the contract mode - "Design & Build, Turnkey etc."? (Permissible Exclusion on Design & Development responsibilities)

"Where's your PQP?" and showed them clauses from the Main Contract (also CLIENT's requirements) requiring sample submission as well.

Where's your sample schedule (they did show but I told them "This is MSP not Primavera..have you been meeting the "construction PMC" lately? or just simply 'copy and paste?'

OHSAS 18000 (Standard for Occupational Safety and Health) has a disclaimer : "Compliance to this standard shall not provide immunity to the law"

Hahaha - and there is not even the word "ISO" in front OHSAS 18000 unlike EMS ISO 14000 and ISO 9000. (Bureaucracy is in progress)

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I also noticed ICT companies with "M*C status" are "closing shop" one after another. Many of them told me that the grant is too low, we have no capital and GOD - we have to through so much levels in order to get "more money".

But ironically, those without the "status" are really "prosperous" (We don't need any status or certifications to be rich)

What's the point of having "pre-seed grants" or "level by level grants" or asking ex-participants to participate in any of related programs or having "incubation" courses in hotels with so many batches around and so-called "consultants" and only 1 - 2 will successfully get the "grant" after going into a 'reality show' kind of "pitching contest"?

I recalled seeing one of the participants who talks SO PROUDLY as if he is "Mr. Know Everything" but his business is doing SO BADLY...hmmm "typical"
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I like to close this article by quoting a Chinese CEO of a 'very large company' saying this to me:

"How many people with "good qualifications" are known being involved in white or blue collar crimes? I think Nik, it's not so much about qualifications...it's the attitude, experience, competency and most important HONESTY"

I would rather look for honest people (I know when I see one) to take care of my money and organization and I'm willing to train such people to understand what I need, I don't like people who are too "smart" as they are the ones who tend to play tricks with figures. Don't quote me for that"

:-) Nik Zafri: Sorry, I have to quote your very good statement but I won't mention your name

Recently, someone asked me about Low Cost Housing and 'how low cost' would it be in terms of construction - which triggers me - that I've not been writing anything on Civil Engineering for quite sometimes.

Here's an article (I do not know who is the original author) from Civil Engineering Portal India which I think would be something worth looking into (I love reading this article for it's directly related to what I've been mentioning all long (you may find quite a number of related articles in my blog) about quality costs in construction):

Low Cost Housing is a new concept which deals with effective budgeting and following of techniques which help in reducing the cost construction through the use of locally available materials along with improved skills and technology without sacrificing the strength, performance and life of the structure.There is huge misconception that low cost housing is suitable for only sub standard works and they are constructed by utilizing cheap building materials of low quality.The fact is that Low cost housing is done by proper management of resources.Economy is also achieved by postponing finishing works or implementing them in phases.

Building Cost

The building construction cost can be divided into two parts namely:

Building material cost : 65 to 70 %
Labour cost : 65 to 70 %

Now in low cost housing, building material cost is less because we make use of the locally available materials and also the labour cost can be reduced by properly making the time schedule of our work. Cost of reduction is achieved by selection of more efficient material or by an improved design.

Areas from where cost can be reduced are:-

1) Reduce plinth area by using thinner wall concept.Ex.15 cms thick solid concrete block wall.

2) Use locally available material in an innovative form like soil cement blocks in place of burnt brick.

3) Use energy efficiency materials which consumes less energy like concrete block in place of burnt brick.

4) Use environmentally friendly materials which are substitute for conventional building components like use R.C.C. Door and window frames in place of wooden frames.

5) Preplan every component of a house and rationalize the design procedure for reducing the size of the component in the building.

6) By planning each and every component of a house the wastage of materials due to demolition of the unplanned component of the house can be avoided.

7) Each component of the house shall be checked whether if it’s necessary, if it is not necessary, then that component should not be used.

Cost reduction through adhoc methods

Foundation

Normally the foundation cost comes to about 10 to 15% of the total building and usually foundation depth of 3 to 4 ft. is adopted for single or double store building and also the concrete bed of 6″(15 Cms.) is used for the foundation which could be avoided.

It is recommended to adopt a foundation depth of 2 ft.(0.6m) for normal soil like gravely soil, red soils etc., and use the uncoursed rubble masonry with the bond stones and good packing. Similarly the foundation width is rationalized to 2 ft.(0.6m).To avoid cracks formation in foundation the masonry shall be thoroughly packed with cement mortar of 1:8 boulders and bond stones at regular intervals.
It is further suggested adopt arch foundation in ordinary soil for effecting reduction in construction cost up to 40%.This kind of foundation will help in bridging the loose pockets of soil which occurs along the foundation.
In the case black cotton and other soft soils it is recommend to use under ream pile foundation which saves about 20 to 25% in cost over the conventional method of construction.

Plinth

It is suggested to adopt 1 ft. height above ground level for the plinth and may be constructed with a cement mortar of 1:6. The plinth slab of 4 to 6″ which is normally adopted can be avoided and in its place brick on edge can be used for reducing the cost. By adopting this procedure the cost of plinth foundation can be reduced by about 35 to 50%.It is necessary to take precaution of providing impervious blanket like concrete slabs or stone slabs all round the building for enabling to reduce erosion of soil and thereby avoiding exposure of foundation surface and crack formation.

Walling

Wall thickness of 6 to 9″ is recommended for adoption in the construction of walls all-round the building and 41/2 ” for inside walls. It is suggested to use burnt bricks which are immersed in water for 24 hours and then shall be used for the walls

Rat – trap bond wall

It is a cavity wall construction with added advantage of thermal comfort and reduction in the quantity of bricks required for masonry work. By adopting this method of bonding of brick masonry compared to traditional English or Flemish bond masonry, it is possible to reduce in the material cost of bricks by 25% and about 10to 15% in the masonry cost. By adopting rat-trap bond method one can create aesthetically pleasing wall surface and plastering can be avoided.

Concrete block walling

In view of high energy consumption by burnt brick it is suggested to use concrete block (block hollow and solid) which consumes about only 1/3 of the energy of the burnt bricks in its production. By using concrete block masonry the wall thickness can be reduced from 20 cms to 15 Cms. Concrete block masonry saves mortar consumption, speedy construction of wall resulting in higher output of labour, plastering can be avoided thereby an overall saving of 10 to 25% can be achieved.

Soil cement block technology

It is an alternative method of construction of walls using soil cement blocks in place of burnt bricks masonry. It is an energy efficient method of construction where soil mixed with 5% and above cement and pressed in hand operated machine and cured well and then used in the masonry. This masonry doesn’t require plastering on both sides of the wall. The overall economy that could be achieved with the soil cement technology is about 15 to 20% compared to conventional method of construction.

Doors and windows

It is suggested not to use wood for doors and windows and in its place concrete or steel section frames shall be used for achieving saving in cost up to 30 to 40%.Similiarly for shutters commercially available block boards, fibre or wooden practical boards etc., shall be used for reducing the cost by about 25%.By adopting brick jelly work and precast components effective ventilation could be provided to the building and also the construction cost could be saved up to 50% over the window components.

Lintals and Chajjas

The traditional R.C.C. lintels which are costly can be replaced by brick arches for small spans and save construction cost up to 30 to 40% over the traditional method of construction. By adopting arches of different shapes a good architectural pleasing appearance can be given to the external wall surfaces of the brick masonry.

Roofing

Normally 5″(12.5 cms) thick R.C.C. slabs is used for roofing of residential buildings. By adopting rationally designed insitu construction practices like filler slab and precast elements the construction cost of roofing can be reduced by about 20 to 25%.

Filler slabs

They are normal RCC slabs where bottom half (tension) concrete portions are replaced by filler materials such as bricks, tiles, cellular concrete blocks, etc.These filler materials are so placed as not to compromise structural strength, result in replacing unwanted and nonfunctional tension concrete, thus resulting in economy. These are safe, sound and provide aesthetically pleasing pattern ceilings and also need no plaster.

Jack arch roof/floor

They are easy to construct, save on cement and steel, are more appropriate in hot climates. These can be constructed using compressed earth blocks also as alternative to bricks for further economy.

Ferrocement channel/shell unit

Provide an economic solution to RCC slab by providing 30 to 40% cost reduction on floor/roof unit over RCC slabs without compromising the strength. These being precast, construction is speedy, economical due to avoidance of shuttering and facilitate quality control.

Finishing Work

The cost of finishing items like sanitary, electricity, painting etc., varies depending upon the type and quality of products used in the building and its cost reduction is left to the individual choice and liking.

Conclusion

The above list of suggestion for reducing construction cost is of general nature and it varies depending upon the nature of the building to be constructed, budget of the owner, geographical location where the house is to be constructed, availability of the building material, good construction management practices etc. However it is necessary that good planning and design methods shall be adopted by utilizing the services of an experienced engineer or an architect for supervising the work, thereby achieving overall cost effectiveness to the extent of 25% in actual practice.

The Star Global Malaysians Forum - Posted: 10 July 2005 at 6:07pm

(In response to another e-mail)

Dear friend

I do hope that the next time, you will try to post your question 'in the open'. You can use pseudonym if you want to. I adopt a 'transparent' concept in networking so that all forum members may benefit from it - it's a learning and teaching environment.

Here's the information that you've asked and lucky you - it's in BM as you wanted. Judging by the your 'questioning techniques', I'm pretty sure that you are from Civil and Building/Structural Engineering Works.

Please be reminded that this model may subject to (generic) minor/major changes if you are involved in highway construction (civil)

There's a lot more where that came from.

I do not have the full answer to your question on 'aggregate and concerete' but I do have something that may help you out. (the following is ONLY a preliminary research (literature review) and not the thesis itself)

Besides British Standards 812, you should also cross reference to BS 882 as well. Please contact BSI or SIRIM Library (I am unsure if they have an equivalent MS Standard..perhaps you can enquire - but I do also know that some BS standards are also available over there)

On your other query of how or where to start, try to make your own assumption first by creating your own target on the interelationship between the following values with the concrete strength and the targetted ages typically 7, 14 & 28 days:

* Aggregate Impact/Crush Values (please specify grade), x% fine values, water absorption Value, LA Abrasion Value, Polished Stone Value

The usual testings are Crush Cube and Flexural tests with respective dimensions of x X y X z mm (e.g. 150 X 150 X 150mm).

Sungai Long Industries (Bina Puri Group - Tan Sri Tee Hock Seng) was one of the quarry (in Hulu Langat) used to be under my direct ISO 9001:2000 consulting supervision. (now certified) Perhaps you can also contact them and refer to my name (find a guy called Baljit - if he's still there) I'm also unsure if they would allow you to take samples from them.

On your question about engaging quality management consultant, I must advise you not to engage QM Consultant having inferior or no knowledge at all in the construction industry - otherwise you'll end up in chaos! I've seen a small number of quality consultants (with the necessary professional affiliations) have spoiled their clients (main contractors) by giving a 'xerox QMS documentation' from a manufacturing industry. A client of mine was very lucky to catch hold of me when THEIR clients are 'shouting' to get the earthworks & piling method statements but instead were being given some work instructions that has no absolute relation to the client's specification, drawing, design brief and even contractual requirements. Even the procedures are text based and NONE of them are flow-chart/process-flow based. Although I have managed to pacify the Client (who was about to terminate the contract of the main contractor), I must admit that I was 'a bit dissapointed' to see this is happening as the scenario may have somehow (to a certain degree) 'spoiled' the reputation of genuine/experienced consultants.

You appear to have the necessary qualifications and experience in Construction both QA/QC, I think with proper guide, you can do it!

Many years ago, somewhere between 1995-1997 when I was the weekly columnist for Utusan Malaysia talking about ISO 9000, TQM, OSH & EMS, there was another columnist for The Star talking about ISO 9000 in the Construction Industry. His name is Tim D. Alcock and we kinda know each other. At that time Tim was working with a consulting firm known as QMI. I will e-mail you his latest e-mail address in UK. Another 'senior' company that has been doing ISO 9000 in the construction industry - LONG before construction ISO became a trend in Malaysia (that time, it was known as BS 5750) is a company called Balfour Beatty (also involved in the country's double track project) where I was in the Engineering Department in one of their projects many years back. You may also wanted to get in touch with them as well if you're in UK.

CONQUAS telah dibangunkan oleh Lembaga Pembangunan Industri Pembinaan - (CIDB) Singapura selaras dengan kehendak agensi sektor awam dan badan-badan professional untuk mengukur tahap kualiti yang dicapai bagi sesuatu projek.


Objektif CONQUAS


Untuk menyelaraskan standard penilaian kualiti bagi projek pembinaan.

Untuk menjalankan objektif penilaian kualiti dengan :-

mengukur kerja-kerja yang telah dibina berbanding dengan standard dan spesifikasi tenaga kerja (workmanship)

menggunakan pendekatan secara persampelan mengikut kesesuaian projek.

Untuk memudahkan penilaian kualiti dijalankan secara sistematik dengan kos
dan masa yang berpatutan.


CONQUAS meletakkan standard keatas aspek-aspek pembinaan pelbagai serta menganugerahkan poin/markah bagi mana-mana kerja yang memenuhi kehendak standard. Markah-markah ini akan dicampur bagi mendapatkan skor/markah kualiti secara menyeluruh yang digelar CONQUAS Score bagi projek bangunan/pembinan.


CONQUAS 21 (Edisi ke-5 CONQUAS) merangkumi kebanyakan aspek dalam kerja-kerja am bangunan. Penilaian ini terdiri daripada 3 komponen utama:


Kerja-Kerja Struktur.
Kerja-Kerja Arkitektur (termasuk kerja-kerja luaran untuk kondominium dan taman perumahan)
Kerja-Kerja Mekanikal & Elektrikal (M&E).

Setiap komponen diperincikan pula kepada sab-komponen untuk penilaian. Contohnya, Komponen Struktur biasanya mempunyai sab-komponen seperti konkrit (tetulang), dll.


Walaubagaimanapun, penilaian ini tidak memasukkan kerja-kerja yang melibatkan kenderaan/loji berat seperti piling, heavy foundation dan kerja-kerja sab-struktur


Bangunan biasanya dinilai dari segi standard workmanship yang dicapai menerusi pemeriksaan. Penilaian Struktur dan M&E dilakukan sepanjang proses pembinaan manakalah Penilaian Arkitektur dijalankan keatas bangunan yang telah siap.


Selain daripada pemeriksaan tapak, penilaian ini juga mengambilkira ujian bahan dan prestasi funsi bagi khidmat dan pemasangan. Ujian ini akan menambahkan pengetahuan, kesedaran keselamatan dan kesihatan pekerjaan dll.


Standard minima telah dihasilkan oleh perbincangan dengan sesetengah sektor , pembangunan hartanah dan kontraktor berdasarkan spesifikasi am yang terbabit dalam projek masing-masing.


Dalam membangunkan CONQUAS 21, banyak pembelajaran dan ujian telah dijalankan bagi mengemaskinikan teknik ujian dan standard penilaian. Sistem Pemarkahan yang dijalankan bersama-sama dengan ujian akan memastikan ketepatan dan keselarasan.


Disesuaikan kembali daripada : CONQUAS 21

The Star Global Malaysians Forum - Posted: 01 August 2005 at 8:47pm

Q

Dear Nik, how do you define 'Customer Communication' in the Construction Industry'? (Civil and Building)

A

It is unfair for me to say that what I am about to say here suffice! I'll try to make it brief (as usual) Basically 'customer communication' is EVERYWHERE in the core processes of the construction industry be it civil and building or mechanical/electrical. Customer communication is not limited to how you contact your client but vice versa

During the Tendering Stage - initial site visit (Q & A), pre-q, review/request for justification of certain tender requirements or conceptual drawings/schematics, initial review/or rather dipute on contractual requirements prior to award or prior to acceptance, tender adjudication and negotiations, finalizing Bill of Quantities etc.

In the contract commencement stage, usually prior to site mobilization, there will be a need for you to prepare a Project Quality Plan together with the lists of Method Statements, ITP, master schedule, drawings/proposals etc. You will definitely need transmittal notes to send all these (or to communicate) to your client

Pre-Construction Stage - Immediately after site office setup/mobilization, you will be doing some sort of a 'kick-off meeting' - usually attended by the client where probably they tend to do some induction and briefing.

Construction Process

During ops, when the client started to get 'a lil bit more serious', they will start issuing 'non-conformances' (also known as customer complaint) followed by your ascertaining of root-causes and correction/corrective actions also constitute customer communication. Same goes to when the customer send in specifications, it is not only limited to 'customer property' that you have to look after but also generically related to customer communication.

When there are some 'deviation in construction works', 'architect/engineer instructions', 'variation orders', 'Project Progress Meeting' (with the client) etc.

Post Construction Stage

CPC and CMGD are at your Client's 'mercy'. For you, during this stage,usually you will start sending/conducting 'Customer Satisfaction Survey'. Thus, CPC, CMGD and your CSS form - constitute 'customer communication'. The complaints/comments issued by the client after CPC and during DLP (defects liability period) prior to CMGD also constitute the same thing - customer communication.

In General - 'Confirmation of Verbal/Telephone Instruction' by the Client, all types of correspondences including telephone/handphone calls, faxes, internet enquiry, e-mails, Intranet etc. are the general elements of customer communication.

so much for the 'brief explanation'.

The Star Global Malaysians Forum - Posted: 24 August 2006 at 11:46pm

Nik Zafri Posted :

Someone has asked me to define what is PFI in the construction industry. I know that this question is very much related to the previous 9MP. So here's what wikipedia says:

The Private Finance Initiative specifies a method, developed initially by the United Kingdom government, to provides financial support for "Public Private Partnerships" (PPPs) between the public and private sectors. This has now been adopted by parts of Canada, France, the Netherlands, Portugal, Ireland, Norway, Finland, Australia, Japan and Singapore amongst others) as part of a wider reform program for the delivery of public services. en.wikipedia.org/wiki/PFI

Besides than PFI, I'm sure you all have heard of these :

a) Design and Build, b) Turnkey, c) EPCC, d) Conventional,

Thus, PFI is an additional to these..
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anonymous wrote:
hi, i juz read your post on PFI. Is there any pros and cons in PFI? From wut i've read, PFI don't really works in UK. the article is as follows:

The Confederation of British Industry (CBI) reported that the PFI procurement

process wastes an average of £2.45m per hospital scheme worth £60m or more since 1994. This represents 1.05% of a project's capital value. Ifthe trend continues, the CBI believes the waste could end up reaching at least £122m on upcoming hospitals. The procurement process was found to typically take 39 months when 18 months is recommended . (Source: Building, 21 April 2006)

What about Malaysia?

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Posted: 24 August 2006 at 11:46pm

Nik Zafri's Response

Good observations. One tiny thing…the PFI definition is not mine..it’s wikipedia’s (of course I reserve my comments..for now) Pros and cons…what doesn’t? If I read the statement you’ve inserted here carefully, there’s something along the line saying about ‘process wastes.’ Now if I’m not far too mistaken, in the thread – construction quality management, I did talk about ‘cost of quality’. And if I read it right again, the statement sounds like it’s taken from some audit report (intergrated financial and process audit – the accenture way)…yeah…they cover ‘cost of quality’ too – defects, system NCRs, logistics, and so on (even has years of projections on 'waste' alone) Well buddy, not only PFI, ‘waste’ issue is happening everywhere – even in Turnkey/Design & Build /EPCC /conventional…But again, this does not mean in any way that I’m with or not with PFI. Let's wait and see first. It's not really fair to pass a judgement in such a short time.
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Posted: 15 November 2006 at 2:14pm

Azlin_Rahim wrote:

hello there.. hurm..finally i can write something here.. im so busy with my examination..heheheyup..still with the PFI.. as far as i concern PFI is one of the extension of privatison..however i am really confused with the PFI accordance with 9MP..its kinda looks like PFI have the similarities with the BOT, i guess..correct me if im wrong..thank you...


azlin_rahim wrote:
Hello back. In theory, I would agree with you that PFI could be the 'upgrade version' of privatisation and even not too wrong to say that PFI has the elements of 'Turnkey' & D & B as well, but according to this link,* there is a difference.


* Excerpt :

Those who say that PFI is privatisation have got it wrong because, while the private sector is rightly helping in public service delivery, the public interest is paramount.

PFI is thus quite distinct from privatisation – where for example in privatised health or education it would be the market and the price mechanism, not the public (sector), that defined and provided the service directly to those customers that can afford it and thus where the public sector can end up sacrificing both fairness and efficiency in the delivery of these core services.

So there should be no principled objection against PFI expanding into new areas where the public sector can procure a defined product adequately and at no risk to its integrity. The private sector may have a core skill the public sector can benefit and learn from, such as in the provision of employment and training services, the renovation of schools and colleges, major projects of urban regeneration and social housing, and the management of prisons. In each of these areas we can show that the use of private contractors is not at the expense of the public interest or need be at the expense of terms and conditions of employees. If we can secure greater efficiency in the provision of the service, it is one means by which the public interest is advanced.
-------------------------
BOT is the mechanism of PFI and they are not independent but rather complementary in a sense that PFI uses BOT method to move. Here's another good link:*

* Excerpt :

The Private Finance Initiative, or PFI hereafter, is a new initiative to construct and operate public facilities by the private sector. It is designed to make high quality and cost effective projects possible through utilizing the strength of the private sector and through business competition. It can use the private sector’s various financing method, good services, technologies, know-how, and marketing capability. In PFI, most popular schemes are BOT and BOO.

In the BOT scheme, a government grants the private sector to finance, build and operate a public facility. The private sector builds and operates the facility mainly at their own risk for certain period (say 10 to 50 years). After a certain concession period, the facility is transferred to the government.

In the BOO scheme, the difference from BOT is that the ownership of the project remains in the private sector.

PFI are used in a rather large projects, such as railways, highways, ports, airports, water supply, waste water treatment, telecommunication, power plants and pipeline gas distribution.

The roles of the governments in a host country and the private sector are as the follow:

-Grant of concession
-Tax incentives
-Appropriate land and space
-Subsidies or any assistance if necessary
-Minimum operating income guarantees
-Support loan and standby financing, and
- Risks which private sector can not bear, such as political
risk, environmental risk and so forth.

The role of the private sector is to do the following:

- High quality and cost effective public service
- Low cost finance arrangements
- Technology and skill transfer
- Contractual schedule control
- Management of four risks, namely
--Facility completion risk
--Operating risk
--Proceeds collecting risk, and
--Investor’s risk
------------------------------
Again, I'm neither saying nor commenting on PFI or RMK 9 in Malaysia due to (again) 'it's too early to tell' and unfair to theorize before seeing end-results...

Good luck in your studies.
------------------------------
Posted: 18 December 2006 at 10:07am

Response by Su_Za

I did my PhD reseach on PFI in the UK. So, just to share with everyone some info on PFI.
...............................................
Types of PFI Projects

Basically, there are three types of projects that the government encourages within the PFI; services sold to the public sector, financially free-standing projects and joint ventures (Treasury Taskforce, 1997a: para. 1.05-1.06; Akintoye et. al, 1998; and Allen, 2003). At present, the major focus of PFI activity has been on the first of these, i.e. services sold to the public sector (Treasury Taskforce, 1997a: para. 1.05)

a. Services sold to the public sector

The provision of public services using assets that are financed, designed, built and operated by a private sector consortium and are paid for by a public body through service charges (Armstrong, 1996 and The Scottish Parliament, 1999). These are normally referred to as Design, Build, Finance and Operate (DBFO) schemes. Under the scheme, the public sector purchaser needs to be assured that services provided will give greater value for money (VFM) than the conventional procurement. Examples of the DBFO projects are:

· the provision of prison places by the private sector through designing, building, financing and operating new prisons

· hospitals where the private sector will meet the costs of the building and take on the responsibility for the provision and management of ancillary services such as cleaning, catering and maintenance (Illidge and Cicmil, 2000)

In other words, at the heart of the DBFO approach the focus is changed away from the procurement of assets to the purchase of services associated with those assets (Dick and Akintoye, 1996).

b. Financially free-standing project

This is where the project is entirely financed and managed by the private sector. The revenues for the services supplied are mainly from payment by the end users. This type of project does not require a VFM test but does require government approval (Owen and Merna, 1997). In other words, public sector involvement is limited to enabling the project to go ahead through assistance with planning, licensing and other statutory procedures. The Second Severn Bridge and the Dartford River Crossing are the examples of projects under this category (Treasury Taskforce, 1997a: para. 1.06).

c. Joint ventures

For this type of project, the public and private sector work as a partnership but the private sector retains control. The public sector investment could be in the form of grant, guarantee or subordinated debt. In return, the public sector will receive a proportional share of any profit (Illidge and Cicmil, 2000). This type of project requires a VFM test and needs to conform to these criteria:

· Private sector partners in a joint venture should be chosen through competition
· Joint venture control held by private sector
· A clear definition of the government’s contribution and its limitations
· Clear agreement of risk and reward allocation, defined and agreed in advance, ensuring that the private sector is genuinely assuming some of the risk.

The Channel Tunnel rail link, Croydon Tramlink, Manchester’s Metrolink and urban regeneration schemes are examples of joint venture projects.

The Star Global Malaysians Forum

preferred-anonymous student by e-mail wrote:
Dear Encik Nik, I like to know in general of the common methods of building insulation and the insulators that is no longer used and why?

Dear student, thank you for your query. Please be be more specific in your question as building insulation methods depend on so many factors e.g. type of building/structure, calculations and types of insulation e.g. blankets, radiant barrier, batts, (even loose fills), cellulose, foams, rigid panels, fiberglass, SIP etc. Please help me to understand.

The insulators you've mentioned - I think - not only no longer be used but have been banned in the market as well eg. asbestos & urea formaldehyede foam.
--------------------------------
Posted: 26 July 2007 at 1:36pm

sam by email wrote:
Mr. Nik, I am joining a newly-operational factory having interest in precast concrete. I did not have much experience in this line - except the basics. Since I'm expected to do some presentations to contractors, I would like to get any useful tips from you on how precast concrete works.


Thanks Sam for the question. I'm glad that I do have a little bit of experience in precast technology. If I may comment, you didn't specifically mentioned what type of precast products that your company are dealing with. The standard ones are beams (upright, rectangular, T-inverted), drains (inlet/trench/cast-in)/manholes/culverts, railings, fences, railway ties/sleepers, core slab (hollow),planks, retaining walls etc.

The other type is the 'customized' precast products using special moulds/forms that can be reused again and again. This type is usually well-oiled and undergo two or more types of curing - i.e. 1. in the form itself, and 2. in the yard : prior to delivery to site.

These types are useful for special constructions like bridges, tunnels, buildings etc. e.g. Tunnel segments (RAPID/PUTRA LRT Tunnel from Ampang Park to Masjid Jamek), precast facade, load bearing walls,columns (single/double tier with corbels-> e.g. highways)
etc.

Precast (especially the modern/special types) is a wonderful discovery indeed - one of my ex-MD used to call it 'Lego Technology' (e.g. Teachers Quarters in Gombak) It's a bit pricy but worth investing - it's fire & sound proof, can stand extreme weather (durability also guaranteed), longer shelf-life, very time saving - imagine this, while you're placing foundations at site, your walls are being manufactured (or cast at a different place) at the same time etc.)

(wow..I'm talking like a salesman)
------------------------------
Posted: 10 February 2007 at 2:33pm

emailquery wrote:
Our consultants have issued NCRs regarding accurate positioning of piles. We have argued with the consultants that positioning of piles depends on the type of work that is being done but failed to convince the C & S consultant (working for the client). As an experienced QA/QC man cum a Consultant, what do you think, Encik Nik?"


First of all, you are almost correct (theoretically speaking as I'm not there at the project site..so it's hard to assume or say) in terms of 'depending on type of work' and piling positioning (it doesn't have to be too accurate) - unless you're talking about bridges (spaced footing clusters), THEN the consultants are right!

I assume you're talking about building and that you've reached the pile driving stage. For example in in a large mat foundation supported on piles at relatively wide centers- of course it is impossible for you to get an exact measurement. Strong templates may also be applied to ensure proper centering if close tolerances apply.

Handle pile with proper care - set plumbs in the lead. Attention is required for precast piles lifting e.g. use of rigging, to avoid cracking the piles. Installed but misaligned/crooked piles cannot be repaired anymore..remember..

The rest are hammering and driving like the weight of hammer vs pile being drived and the use of jetting to facilitate pile-driving.

Anyway, you should honour the clients/consultants NCR as what they really want is the BEST measurement you can come out with. After all they are professional engineers.

The Star Global Malaysians Forum - Posted: 13 September 2006 at 8:36pm

Question by stingray2000

Hi Nik, I'm have a zero knowledge on the construction/building. But I just wonder how to build a house/apartment on the land rising on the sea? Is the any website for the beginner ?
--------------------------
Posted: 13 September 2006 at 8:46pm

Nik Zafri's response

I'm sure you've been to resorts/hotels near the sea? The concept is very much the same. Before I answer to your queries...I'm curious...why would you want to build one when you can easily find lots of finished properties near the sea?
----------------------------
Posted: 13 September 2006 at 8:57pm |

Stingray2000's response

Just for my curiousity, I would like to know more about the concept of raising the land from the sea in malaysia? I heard from rumours that the housing build on the sea will have potential problem(land sinking etc) later on...have you seen this issue before ? It remind me the collapse of condominium case ...

Just for my curiousity, I would like to know more about the concept of raising the land from the sea in malaysia? I heard from rumours that the housing build on the sea will have potential problem(land sinking etc) later on...have you seen this issue before ? It remind me the collapse of condominium case ...
-----------------------------
Posted: 13 September 2006 at 9:48pm

Nik Zafri's Response :

Exactly why I asked. And it's pretty costly as well - in the context of raising the land - dredging expenditures - perhaps may require more sand as well for filling (of course - bays would become deeper/wider increasing erosion - not to mention disturbing inhabitants of marine life around the offshore sand deposits)

Not only houses & condominiums but chalets, hotels etc. using the similar concept are also facing the same risks. (I'm sure they are all well-aware of that)

We can only try our best to prevent such negative effects like planting more big trees - coconut/palm, 'sophisticated' soil treatment (vs shrinkage), drive the concrete foundation piles deeply into the sand, pile caps supporting casting concrete piers, floor slabs supported by masonry shear walls/steel tube columns etc.

But again, the 'force of nature' can be too strong sometimes and I do pity those businesses like hotels, chalets, yacth clubs, marinas because I love these places for good vacations and scenic views but I have also noticed the cost of maintenance and possible migration everytime I visited them - but what to do? What if I'm in their shoes? Tourism business is 'damn' good and it a definite money-generator and the profit will at least 'top up' the maintenance/migration costs. (I'm being positive here actually)

Some of the tips I can give to you are (besides what I've mentioned in the 2nd para) - be 'alert' on certain climate shift, atmospheric conditions (ie temperatures), news/history of disasters, rain pour, possible erosions, researches on greenhouse effects, inundation, type of barriers/dikes/polders used near the seaside, pumping system (sand/sea water) etc. - in short you should start some serious homeworks if you plan to buy or build one.

Good luck.

The Star Global Malaysians Forum - Posted: 20 September 2006 at 5:31pm

The Star News (Courts) - September 20, 2006.

Judge: Firm did not commit offence

KUALA LUMPUR: It was a case of the wrong entity charged. A Sessions Court yesterday discharged and acquitted a subcontractor accused of a negligence that led to the death of corporate consultant Dr Liew Boon-Horng. In delivering his verdict, Judge Akhtar Tahir said he found that MWE Advance Structure Sdn Bhd had not committed any offence as framed against it under Section 20(3) of Occupational Safety and Health Act 1994.

(The section states that the person who erects or installs any plant for use by persons at work must ensure that nothing about the way it is erected or installed makes it unsafe or a risk to health when properly used.)

MWE Advance Structure was charged with failing to ensure the safe installation of a steel formwork by Higro Enterprise on the 20th floor of Block B, Plaza Damas. A representative of the company had on April 20 pleaded not guilty to the charge.

(Formworks are moulds into which concrete or similar materials are poured into at a construction site.)

Akhtar said Section 20(3) of the Act did not mention that the person who allowed the installation of the steel formwork to have committed an offence.

(The company had engaged Higro Enterprise as a specialist formwork contractor for the Plaza Damas condominium project).

Dr Liew, 35, managing consultant of Ethos Consultant, was killed when an iron mould, weighing almost two tonnes, fell onto his BMW as it was being driven into the car park of Plaza Damas last Dec 30. Akhtar said he was of the opinion that it was Higro Enterprise that had committed the offence under Section 20(3) of the Act.

"Based on the charge, the installation of the steel formwork was done by another party, which is Higro.

"It is my opinion that Higro had committed the offence and not MWE Advance Structure.

"Therefore, I have to give an acquittal to MWE Advance Structure because this offence did not exist," he said.

The judge gave his decision after hearing a preliminary objection raised by the company’s lawyer Rosli Dahlan on Sept 4, that the charge framed against MWE Advance Structure was defective. In the same court, supplier Simple Formwork Construction Sdn Bhd had claimed trial to failing to take the necessary steps to ensure that the steel formwork supplied to Higro Enterprise was safe for use.
-------------------------------
It's NOT my intention to question the judge's final ruling and I respect the court's final decision. (unless both Higro/Simple Formwork wish to contest the decision)

Alas, I'm a bit confused on charges especially being made on Simple Formwork and Higro Enterprise. I might be wrong but :

What is the real problem actually?

"Based on the charge, the installation of the steel formwork was done by another party, which is Higro.

"It is my opinion that Higro had committed the offence and not MWE Advance Structure.

"Therefore, I have to give an acquittal to MWE Advance Structure because this offence did not exist," he said.

MWE is the main contractor - (thus, it's a lesson for them that in the future), they should have a system that takes into account :

a) Criterions of selection of sub-contractors (including Higro),

b) Sample submission/inspection and test results (prior to installation) from Higro to MWE (as part/parts of contract requirements),

b) Criterions of annual performance appraisal of the sub-contractors,

c) Monitoring system during installation process.

Remember, failure in sub-contractor's work may also reflect the failure of the main contractor as well.

And where does The Client's (Client to MWE) responsibility fall under?

Excerpts from New Straight Times - 03/01/2006

On Sunday, visiting the Sri Hartamas crime scene — for that is what it may well out turn out to be — Fong had occasion to see red. Seven warnings had been served for various safety violations in the 26 months since work on the office and apartment building began. Residents, as in many other instances, complained of flying debris and noise. The contractor’s delinquency seems to have been evident enough to leave nothing amiss in the Department of Occupational Safety and Health’s inspection procedures, which gave the company a "D" for compliance. "This clearly indicated no commitment on the part of the management to adhere to the regulations and prioritise safety," said Fong.

Another excerpt - NST 02/01/2006

Failed: seven out of nine worksite inspections. That’s the safety record of the construction company in charge of the worksite from which a cement mould fell 20 storeys and crushed a management consultant to death in his car.The company, MWE Advance Structure Sdn Bhd, was served seven stop-work orders in the 26 months since construction work on Block B of the Plaza Damas serviced apartments began. It was allowed to resume work after each breach was rectified, said Human Resources Minister Datuk Seri Dr Fong Chan Onn.

The company is a unit of listed group MWE Holdings Bhd.

"MWE (Advance Structure) did not have a good safety history," said Fong.

The company was given a safety rating of D, E being the lowest rating by the Department of Occupational Safety and Health. Fong did not say what the ranking indicated.The company had also been served three compounds for safety breaches since work started on Oct 28, 2003. The last inspection before Friday’s tragic accident was on Sept 27, 2005. Among the main offences were unsafe scaffolding and the absence of guardrails. Also, load platforms had not been designed by certified engineers, and they had used unregistered heavy machinery.

On Simple Formwork - they were separately being charged for failing to take the *necessary steps* to ensure that the steel formwork supplied to Higro was safe to use.

Questions :

"Who charged Simple Formwork? Higro?", "What's the relationship between Higro and Simple Formwork? - Is Simple Formwork another supplier to Higro?"

The *necessary steps* as I understand them are (not limited to the following) :

method statement, work/manufacturer's instruction, standards and codes of practice, monitoring and follow-up, sample submission, proper inspections, specification adherence etc.

If Simple Formwork seem to have all these, then check again, it may be problems of insufficient/unsuitable installation methods or monitoring/follow-up from them on Higro during installation process.

On Higro, if I read the first news right, it says something like :

(The company had engaged Higro Enterprise as a specialist formwork contractor for the Plaza Damas condominium project).

and

In the same court, supplier Simple Formwork Construction Sdn Bhd had claimed trial to failing to take the necessary steps to ensure that the steel formwork supplied to Higro Enterprise was safe for use.

It's odd that Higro failed to realize during installation that the 'formwork is NO GOOD?" being a specialist?

The charges on Higro is 'fail to ensure steel formwork properly installed'

The charges for Simple Formwork is 'formwork is found not safe to use?'

How do I connect the two?

Actually, nobody thought that the tragedy will happen on the first place - that's why too many parties 'took for granted' on the 'specs' I've mentioned above. When everybody got the 'sudden electrical shock' due to this unexpected fatal accident, I hope it's not the typical 'finger pointing' under the pretext of law that is happening at the moment.
-------------------------------
Posted: 22 September 2006 at 9:37pm

Well, it appears that my last message has drawn so many attention from so many parties. Some were good, some were inquisitive/curious and some simply asked me to 'reconsider' my comments. Please register as GMN members and put your comments here and we can start a whole new 'show' in a more healthier way. The following is one of them (good ones) that appeared in another forum.

Assalaamu'alaikum wbr.

Terlebih dahulu, izinkan saya merakamkan tahniah kepada tuan/puan semua kerana terlibat dalam forum ______. Ini merupakan tanda betapa tingginya keprihatinan/perjuangan tuan/puan semua terhadap keselamatan dan kesihatan pekerjaan di Malaysia.

Walaupun saya tidak pernah terlibat secara aktif dalam forum ini, namun kita semua mempunyai matlamat yang sama demi 'menyelamatkan seberapa banyak nyawa' di tempat kerja menerusi sistem pengurusan keselamatan dan kesihatan pekerjaan yang dipayungi oleh Akta Keselamatan dan Kesihatan Pekerjaan 1994.

Saya ingin menarik perhatian kepada e-mail yang dihantar oleh saudara____ (____) dan pendapat beliau serta lain-lain pendapat bernas dalam forum ini hasil daripada komen saya di Global Malaysian Forum di bawah kelolaan akhbar The Star. (saya sarankan _____ membaca lain-lain komen dalam forum yang sama dan tidaklah hanya melihat kepada komen berkenaan sahaja, kerana saya telah mengikuti kes ini semenjak ianya bermula lagi)

a. Saya tidak mewakili dan tidak pernah terlibat dengan mana-mana pihak dalam Plaza Damas,

b. Pendapat saya adalah pendapat peribadi serta bukanlah ingin mempersoalkan kes yang sedang dibicarakan atau mempersoalkan keputusan mahkamah sepertimana dakwaan ______ (perkara ini juga telah saya jelaskan kepada beberapa pihak tertentu yang memberikan maklumbalas terhadap komen saya dan semuanya saya kira telah diselesaikan) Pendapat saya lebih kepada mengingatkan kontraktor utama supaya menyemak semula sistem untuk ditingkatkan (terutamanya dalam aspek pemantauan dan penilaian yang lebih efektif)

c. Saya tidak pernah mengenali mangsa secara rapat - cuma kebetulan mendiang pernah terlibat dalam pembikinan KPI untuk GLC di mana saya juga terlibat dalam perkara yang sama tetapi menerusi firma perundingan yang berbeza,

d. Saya bersetuju dan telah menyimpulkan dalam pendapat berkenaan bahawa - kemungkinan ada elemen 'tuding-menuding' atau 'tuduh-menuduh' (blaming culture/fingerpointing) sedang berlaku (seperti kebiasaan). Saya harap undang-undang dapat menyelesaikan masalah ini seadil-adilnya supaya tidak ada pihak yang tidak bersalah tiba-tiba dipersalahkan pula.

e. Cuma saya juga mengharapkan agar pihak klien - kontraktor utama - sabkontraktor/vendor/pembekal tidak mengamalkan sikap mengambil mudah terhadap pelaksanaan keselamatan & kesihatan pekerjaan - walaupun telah ada ribuan sijil/persijilan sekalipun atau dokumentasi yang 'canggih' atau pernyataan dasar yang begitu indah dan lain-lain.

Walaubagaimanapun, saya ingin merakamkan ucapan terima kasih sekali lagi kepada tuan/puan semua dan _____ kerana sudi membaca pendapat saya yang tidak seberapa itu.

Wassalaamu'alaikum wbr.

Salam Hormat Seperjuangan
Nik Zafri

The Star Global Malaysians Forum - Posted: 09 January 2007 at 7:33pm
Question on Performance Bond. Here's something you may like :

http://www.attny.com/gci32djd.html

Construction Surety Bonds In Plain English

This article is an abridged version of Federal Publications’ February 1996 CONSTRUCTION BRIEFINGS entitled Surety Bond Basics, copyright 1996 by Federal Publications, Incorporated, written by Messrs. Donohue and Thomas. A complimentary copy of the CONSTRUCTION BRIEFINGS may be obtained by contacting our firm. Subscriptions to CONSTRUCTION BRIEFINGS are available from Federal Publications, Incorporated, 1120 20th Street, N.W., Washington, D.C. 20036. You may call Federal Publications at (202) 337-7000 or (800) 922-4330.

Most construction contractors are familiar with the process of obtaining surety bonds, but they may not be aware of the legal relationships bonds establish the relationships among the principal (the contractor), the obligee (usually the owner) and the surety. Contractors’ lawyers, on the other hand, are aware of the rights and the obligations of the principal, obligee, and surety, but they may lack practical knowledge about the process of obtaining bonds. This article is directed to both contractors and their lawyers. It explains in plain English just when construction surety bonds are required on federal, state, and private projects, and the bonding requirements contained in widely used contract forms, including federal government contracts, AIA contract forms, and the AGC subcontract form.

SOME SURETY BOND BASICS

A surety bond is not an insurance policy. A surety bond is a guarantee, in which the surety guarantees that the contractor, called the “principal” in the bond, will perform the “obligation” stated in the bond. For example, the “obligation” stated in a bid bond is that the principal will honor its bid; the “obligation” in a performance bond is that the principal will complete the project; and the “obligation” in a payment bond is that the principal will properly pay subcontractors and suppliers. Bonds frequently state, as a “condition,” that if the principal fully performs the stated obligation, then the bond is void; otherwise the bond remains in full force and effect.

If the principal fails to perform the obligation stated in the bond, both the principal and the surety are liable on the bond, and their liability is “joint and several.” That is, either the principal or surety or both may be sued on the bond, and the entire liability may be collected from either the principal or the surety. The amount in which a bond is issued is the “penal sum,” or the “penalty amount,” of the bond. Except in a very limited set of circumstances, the penal sum or penalty amount is the upward limit of liability on the bond.

The person or firm to whom the principal and surety owe their obligation is called the “obligee.” On bid bonds, performance bonds, and payment bonds, the obligee is usually the owner. Where a subcontractor furnishes a bond, however, the obligee may be the owner or the general contractor or both. The people or firms who are entitled to sue on a bond, sometimes called “beneficiaries” of the bond, are usually defined in the language of the bond or in those state and federal statutes that require bonds on public projects.

TYPES OF SURETY BONDS

BID BONDS

A bid bond guarantees the owner that the principal will honor its bid and will sign all contract documents if awarded the contract. The owner is the obligee and may sue the principal and the surety to enforce the bond. If the principal refuses to honor its bid, the principal and surety are liable on the bond for any additional costs the owner incurs in reletting the contract. This usually is the difference in dollar amount between the low bid and the second low bid. The penal sum of a bid bond often is ten to twenty percent of the bid amount.

PERFORMANCE BONDS

A performance bond guarantees the owner that the principal will complete the contract according to its terms including price and time. The owner is the obligee of a performance bond, and may sue the principal and the surety on the bond. If the principal defaults, or is terminated for default by the owner, the owner may call upon the surety to complete the contract. Many performance bonds give the surety three choices: completing the contract itself through a completion contractor (taking up the contract); selecting a new contractor to contract directly with the owner; or allowing the owner to complete the work with the surety paying the costs. The penal sum of the performance bond usually is the amount of the prime construction contract, and often is increased when change orders are issued. The penal sum in the bond usually is the upward limit of liability on a performance bond. However, if the surety chooses to complete the work itself through a completing contractor to take up the contract then the penal sum in the bond may not be the limit of its liability. The surety may take the same risk as a contractor in performing the contract.

PAYMENT BONDS

A payment bond guarantees the owner that subcontractors and suppliers will be paid the monies that they are due from the principal. The owner is the obligee; the “beneficiaries” of the bond are the subcontractors and suppliers. Both the obligee and the beneficiaries may sue on the bond. An owner benefits indirectly from a payment bond in that the subcontractors and suppliers are assured of payment and will continue performance. On a private project, the owner may also benefit by providing subcontractors and suppliers a substitute to mechanics’ liens. If the principal fails to pay the subcontractors or suppliers, they may collect from the principal or surety under the payment bond, up to the penal sum of the bond. Payments under the bond will deplete the penal sum. The penal sum in a payment bond is often less than the total amount of the prime contract, and is intended to cover anticipated subcontractor and supplier costs.

JW Surety Bonds offers performance bonds for small to large contractors throughout the country. Get a free quote using our online applications.

Bryant Surety Bonds provides free quotes for performance bonds based on personal credit for small contractors and competitive for medium to large contractors.

SURETY BOND REQUIREMENTS ON FEDERAL PROJECTS MILLER ACT AND FAR REQUIREMENTS

The Miller Act, 40 U.S.C. §§ 270a-270f, provides that all federal construction contracts performed in the United States must require the contractor to furnish a performance bond in an amount satisfactory to the contracting officer; a payment bond in a penal sum of up to $2.5 million, and other surety bonds as well. In the Federal Acquisition Streamlining Act of 1994, Congress made the Miller Act inapplicable to contracts under $100,000, and directed agencies to develop alternatives to surety bonds for contracts between $25,000 and $100,000. These statutory requirements are implemented in FAR part 28, bonds and insurance. You can get a good introduction to the language and purposes of surety bonds simply by reading FAR part 28.

BID BONDS

A bid guarantee is required on federal projects whenever a performance bond and/or a payment bond is mandated. Bid guarantees usually are in the form of bid bonds, but on federal projects they may also be submitted as a postal money order, certified check, cashier’s check or an irrevocable letter of credit. A bid guarantee must be in an amount equal to at least twenty percent of the bid price; the maximum amount is $3 million. The standard solicitation provision requiring bid guarantees says that if the contractor awarded the contract fails or refuses to execute all contractually required documents, the agency may terminate the contract for default. In such a case, the agency will make a demand on the bid bond or bid guarantee to offset the difference in price between that bid and the next lowest bid. Bid bonds and bid guarantees are returned to unsuccessful bidders after bids are opened; bid guarantees are returned to the successful bidder after all contractually required documents and bonds are executed.

PERFORMANCE BONDS

As amended by the FASA, the Miller Act requires payment bonds and performance bonds for all federal contracts over $100,000. The penal amount of the performance bond is generally one hundred percent of the contract amount, and the penal sum is generally increased for each change order. The surety is entitled to receive information from the contracting officer concerning the progress of the work, payments, and estimated percentages of completion whenever it so requests in writing. The form of the Miller Act performance bond is set out at FAR 53.301-25.

PAYMENT BONDS

Payment bonds are now required for all federal construction contracts over $100,000. The penal amount of the payment bond is required to be a maximum of $2.5 million where the contract price is more than $5 million; for contracts less than $5 million, the penal sum of the payment bond is to be forty to fifty percent of the contract price. Each solicitation must state that a payment bond and performance bond are required, the penal amount required for the bonds, and the deadline by which bonds must be submitted after contract award. The form for a Miller Act payment bond is at FAR 53.301-25-A. The bond form does not set out any time limitations for claims against the bond. However, the Miller Act provides that suits against a payment bond must be brought within one year after the date on which the last of the labor was performed or material was supplied. In addition, the Miller Act requires that second-tier subcontractors and others who do not have a direct contract with the prime contractor submit a written notice of their claim to the prime contractor with ninety days of the last date of their work on the project.

REQUIREMENTS FOR QUALIFIED SURETIES

Federal surety bond requirements may be met in three ways: surety bonds issued by an approved corporate surety; surety bonds issued by an individual surety who pledges certain defined types of assets; or by the contractor pledging assets directly. The third option is uncommon.

REQUIREMENTS FOR INDIVIDUAL SURETIES

Individuals may act as sureties to satisfy bonding requirements on federal projects if they have certain acceptable assets in the required amounts to support the bonds. Although federal agencies probably would prefer to deal only with approved corporate sureties, allowance for individual sureties may enhance competition by allowing awards to contractors that might not otherwise qualify to obtain bonds from an approved corporate surety.

To support bonds issued by individual sureties, agencies may only accept cash, readily marketable assets, or irrevocable letters of credit from a federally insured financial institution. Acceptable assets include cash, certificates of deposit or other cash equivalents; U.S. agency securities (valued at current market value); stocks and bonds traded on the New York, American and certain other exchanges, valued at ninety percent of their current 52-week low price; real property owned outright in fee simple, valued at one hundred percent of its current tax assessment value; and irrevocable letters of credit issued by federally insured financial institutions. Examples of unacceptable assets are also listed in the regulations. Unacceptable assets are those that may be difficult to liquidate (e.g., a life estate in real property); are of uncertain or greatly fluctuating value (e.g., jewelry); property commonly exempt from attachment under state laws (e.g., the individual surety’s home); or commonly pledged to others (e.g., plant and equipment). An individual surety is required to submit an affidavit, in which the surety identifies the assets, the market value of the assets, and all encumbrances on the assets. The affidavit must also identify all other bonds issued by the individual surety within the last three years.

TREASURY LIST OF APPROVED CORPORATE SURETIES

By far the most common means of satisfying federal bonding requirements is by a bond issued by a corporate surety. The Department of the Treasury maintains a list of corporate sureties approved to issue bonds for federal projects, Treasury Department Circular 570. Copies may be obtained from the agency. The circular also is posted in the Treasury’s computerized bulletin board at (202) 874-6817, and on Treasury’s Web site at http://www.ustreas.gov/. Whenever a new corporate surety is added to the approved list, a notice is published in the Federal Register. Contracting officers are prohibited from accepting surety bonds issued by corporate sureties not listed in Treasury Circular 570. The circular lists the name and address of each approved surety and all states where each surety is licensed.

When approving corporate sureties, Treasury makes a determination as to the financial strength of the surety, and sets an underwriting limit, commonly called a bonding limit. The bonding limit is also stated in Circular 570. When an approved surety offers a bond on a federal project, the contracting officer checks to make sure that the surety has not exceeded the surety’s bonding limit. Because of these underwriting limits, surety bonds on very large construction projects, valued in the hundreds of millions of dollars, frequently are issued by several different approved surety companies, acting as co-sureties. The name of each co-surety will appear on the bond, along with its individual limit of liability.

Another way surety companies can stay within their approved surety underwriting limit, and spread their risk, is to obtain coinsurance or reinsurance, in which they essentially obtain a contract from another surety company to cover part of their risk on the bond they have issued. When a surety obtains reinsurance for part of its risk under a Miller Act bond, it must submit to the contracting officer a reinsurance agreement for a Miller Act performance bond and a reinsurance agreement for a Miller Act payment bond. The terms of both reinsurance agreements are stipulated in the regulations.

SURETY BOND REQUIREMENTS ON STATE PROJECTS-“LITTLE MILLER ACTS”

Statutes in all fifty states and the District of Columbia require performance and payment bonds for state government construction contracts. These state statutes often are called “Little Miller Acts” because many of them are modeled after the federal Miller Act. Useful information is available from the National Association of Surety Bond Producers. A good discussion of these Little Miller Acts is in Federal Publication’s CONSTRUCTION BRIEFING, Little Miller Acts. A fairly recent summary listing of these state statutes, along with citations, is in Bednar, et al., CONSTRUCTION CONTRACTING, George Washington University (1991), at 1309a-1309r. We will not duplicate these discussions. Each state licenses sureties to issue bonds. The Little Miller Acts each require bonds by licensed sureties. You can identify sureties licensed in particular states by checking Circular 570 on the computer bulletin board and at Treasury’s World Wide Web site.

SURETY BOND REQUIREMENTS IN PRIVATE CONSTRUCTION PROJECTS

There obviously is a great variation among private construction owners and projects throughout the United States. Performance bonds and payment bonds are required by owners for most large construction projects. If the owner elects to require surety bonds, major issues for the owner to decide during project planning are:

WHAT BONDS SHOULD BE REQUIRED?

Performance bonds protect the owner from contractor default and delays, and these are important for commercial properties with fixed tenant availability dates. Payment bonds protect the property from mechanics’ liens, which might otherwise interfere with sale or refinancing of the property. Bid bonds, which generally address only the price-spread between the low and next to lowest bid price, serve a much narrower purpose. However, because of the expectations and requirements of the bid package, corporate sureties generally will issue bid bonds only to contractors who qualify for performance and payments bonds. Thus a requirement for a bid bond may help narrow the field of bidders to only those firms who can actually satisfy performance and payment bond requirements.

WHAT SURETY COMPANIES ARE ACCEPTABLE TO THE OWNER?
Since a surety bond essentially is a guarantee by the surety, the owner has an interest in deciding which sureties are acceptable. One means of identifying responsible sureties is to refer to the list of sureties approved in Circular 570.

WHO PAYS THE BOND PREMIUM?

Of course, the owner eventually pays all costs anticipated in the contractor’s bid, whether the project is fixed-price or is a cost-plus-fee arrangement. A private owner may want to provide separate reimbursement for the contractor’s bond premium cost when the bond is delivered to the owner. This procedure ensures that bonds actually are furnished.

SPECIFYING THE AMOUNT OF BONDS.

Premiums rise along with the penal sum of the bond, and the owner ultimately pays these costs in the contract price. Nonetheless, the owner has an interest in setting the bond penal sum high enough to provide the desired protection to the project. A fairly good guideline for setting penal sums is the FAR requirement discussed hereinabove. The penal sum for the performance bond should be one hundred percent of the original contract price, and the penal sum should be increased for each change order. The payment bond should be fifty percent of the contract price up to some fairly large maximum penal sum.

SURETY BOND PROVISIONS OF STANDARD FORM CONTRACTS

Popular form contracts for private construction projects, those published by the American Institute of Architects (AIA) and the Associated General Contractors of America (AGC), leave bonding requirements to the choice of the parties. Thus these forms do not provide much guidance in deciding the issues we have identified. The current AIA General Conditions merely provide that the owner may require bonds elsewhere in the contract documents and that the contractor must furnish copies of the bonds upon request to any bond beneficiary (e.g., subcontractors or suppliers). AIA Document A-201 also provides that compensation for construction change directives ordered by the owner shall include bond premiums for the extra work. AIA’s current owner-contractor agreement, AIA Document A-101, does not address surety bonds at all. AIA’s contractor-subcontractor agreement, AIA Document A-401, addresses bonding requirements in article 7 by leaving a blank area for the parties to add any bonding requirements.

The current AGC Standard Form for Construction Subcontract, also endorsed by the American Subcontractors Association and the Associated Specialty Contractors, addresses surety bonds in article 5. Paragraph 5.1 provides that copies of the contractor’s payment and performance bonds must be furnished to a subcontractor on request. Paragraph 5.2, “Subcontractor Bonds,” provides that if bonds are required from the subcontractor, the subcontractor shall be reimbursed for surety bond premiums in the first progress payment. Performance and payment bonds must be in the full amount of the subcontract price, unless otherwise stated.

PROVISIONS OF STANDARD AIA BOND FORMS

Private construction contracts rarely require particular bond language. Rather, they usually require bonds in a specified amount with a surety acceptable to the owner, general contractor or other obligee. The AIA’s bond forms, AIA Documents A-311 and A-312, are popular and instructive; thus their provisions merit a brief discussion.

AIA’s performance bond form, AIA Document 311, provides that the surety waives notice of change orders and extensions of time. It says that the owner is the only person who can sue to enforce the performance bond, and that any such suit must be brought within two years from the date final payment is due under the contract. It also provides, if the owner declares the contractor in default, that the surety shall either complete the contract or, if the owner elects, shall obtain bids so that the owner may contract directly with a completion contractor with the surety providing funds sufficient for completion.

AIA’s labor and material payment bond form, AIA Document A-311, is very similar to the Miller Act payment bond required for federal projects. It defines a “claimant” as a person or firm that has a direct contract with either the principal or a subcontractor to the principal. Thus in the typical case where the principal is the general contractor, claimants under AIA payment bonds are limited to subcontractors and suppliers who furnish labor and materials directly to the general contractor or directly to a subcontractor. Claimants are entitled to sue on the bond if they have not been paid within ninety days after the last day of their work on the contract. Claimants that do not have a direct contract with the principal (e.g., second-tier subcontractors) must give a written notice to the owner and the surety within ninety days of the last day of their work advising that the claimant has not been paid. Suits on the payment bond must be brought within one year of the principal’s last day of work on the project. (This is different from bonds under the Miller Act, which requires that suits be filed within one year of the claimant’s last day of work on the project.) Suits must be filed in a state or federal court for the county in which the project was located.

AIA’s combination performance bond and payment bond, AIA Document A-312, is similar to the separate bonds described above, but this one adds some additional provisions. The performance bond contains requirements that the owner give the surety written notice before declaring the contractor in default, and provides for a meeting of the parties within fifteen days of that notice to discuss performance. The performance bond also gives the surety the option of having its principal complete the project, notwithstanding the default, if the owner consents. This probably would be done with financing or other assistance contributed by the surety. The payment bond in AIA Document A-312 requires that claimants that do not have a direct contract with the principal take action in set time frames. Such a claimant must give written notice to the principal that it has not been paid; wait thirty days for the principal’s response, and then notify the surety in writing that it intends to make a claim on the bond. It also requires the surety, within forty-five days of such notice, to pay all undisputed amounts and to respond regarding any disputed amounts.

CONCLUSION

If the terminology of construction surety bonds is confusing at first, you may want to keep this guide as a reference. Surety bonds are required for most large construction projects in the United States and now more frequently they are required in other countries. Our next article will review the process of obtaining surety bonds, the choices contractors have among surety companies, and the agreements typically entered into between contractors and sureties when construction surety bonds are issued.

Questions on a performance bond? Get it answered for free on the Surety Bond Forums.
— Dan Donohue and George Thomas, Assistant Vice-President, Contract Surety Claims, Fireman’s Fund Insurance Company Copyright © 1996 Kilcullen, Wilson & Kilcullen. All rights reserved.

Posted on The Star Global Malaysians Forum: 08 October 2007 at 9:06pm

preferred anonymous by e-mail wrote:
Hi Nik, I saw your comments in Global Malaysians and got quite interested in them. I google and found your name in the internet which has led me to your website and how I got this e-mail address.

I am thinking of expanding my construction business and I thought of seeking funds from the financial institutions. I've done a business plan reflecting all the necessary items to qualify for financial assistance. Some of the important contents are (apart from the opening/executive summary & company background):

Construction Service & Product Description, Target Market & Analysis for both Product & Service, Competition, Marketing Strategy, Financial Projections - P & L, Cashflow & Balance Sheet.

Is there anything more I should add?


Dear Madam

At one glance, I think your business plan has all the necessary elements (in the context of business plan format). If I may say something - I noticed that you didn't really mention in what capacity your construction firm is in. Or what type of financial assistance you're looking for - Loans? Venture Capital? P.O Financing? Factoring?

This is the typical problem when it comes to e-mail query - a bit of limited space.

The reasons I asked:

a) since I saw the word "Product" (or for BOTH Product and Services - you are implying that you have two not one)....you see "Product" can mean many things when it comes to construction...it can mean that you are manufacturing and installing construction materials as well e.g. cement for concreting? Steel for reinforced concrete? (Which also serves to make you a supplier & sub-contractor for concreting works as well...)

b) The construction service is also not clear - Civil & Building Engineering? M & E?

All the two aforesaid examples are categorized within the trade "Construction".

So, I'm assuming you are in both sectors but I'm unsure of the weight between the two (which one your company focus on e.g. 60% - construction services and 40% Product/Construction Materials)

Based on my experience assisting construction companies doing business plan, if a company has something to do with construction materials manufacturing, then it should be a wise move to first separate the financial projections between the two before consolidating them both (or you can have both separated..that wouldn't be a problem).

In the Product Description - if your company is a specialized trade contractor i.e. Cement & Concreting, then you should be including the quality and safety of your products for construction application for various structures such as residential, commercial - hi/low rise building etc.

One of the most difficult part in the 'Target Market and Analysis' section, is finding the statistical figures (I sure hope you have included statistics as well) based on the different category of construction (let's say concreting) e.g. you should estimate the number of establishments in a particular geographical area vs no. of people being employed vs total annual sales.

You should also take into account, your current and past performances - say..a cut off period of 3 years (depending your financial projection) - meaning you will have to include audited accounts alongside with some accounting records for support. (e.g. how much sales you have made for your 'product' in the past 3 years. When you have these intact, you can make a better forecast for 3 years ahead based on the current trends.

Another part that is posing many problems to construction business plan is to include the business ratio (usually immediately after the financial projections) - this is about your industry profile statistics - comparison of industry standards and the key ratios for this business plan.

It's also good if you can include graphs for each projection - where applicable - besides than tabular explanation.

One important point to note, you must be able to convince the 'financiers' that your company and your project venture have the 'viability' and can 'sustain'/'survive' in the market for quite sometime. In order to do this, you need a separate analysis on the current construction trend...which is quite volatile..sorry to tell. (which is why business ratio is recommended to be included)

Overall, in this limited space, I would recommend you to first split between 'construction services' and 'construction product' - in short, make two business plans first then consolidate them together. Otherwise, you may potentially face confusion here and there if you mix both together. (Trust me)

Okay, that would be all for now....I wish you the best in everything you do.

The Star Global Malaysian Forum - 24 October, 2007

corpbabes wrote:

Greetings! I stumbled across this website and thought it's really fantastic that people can discuss and get information here. I'm a newbie and I'm just wondering if anyone can help me. My question is : is there any statutory prescriptions in relation to warranty periods for construction works buildings, designs etc for theme park related works. Also what if personal injury and death, can warranty period and exclusion of liability help reduce liability ? I would be glad if someone can explain these issues to me. Thank you in anticipation.

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Ahvincent's Response

The statutory limit is normally six years. However, it can sometimes be extended to 12 years.

In the construction business some defects are latent i.e. it cannot be readily identified by a competent engineer for example concrete cancer which can take years to become evident.

In such cases the six years may start from the date that circumstances that could lead to a claim was first identified.

Exclusions can sometimes help but remember you cannot contract out of the law. You may exclude certain things but you definitely cannot exclude death or injury due to you negligence, error or omission.

In simple words you can have a sign on the front door to say "Enter at your own risk - no liability accepted." But if I was killed because you did not install the sign properly and it fell down and bang me on the head, you will be liable for damages. Or if your roller coaster ride fell off it's tracks due to poor maintenance or neglect than you can be sued for damages under the law of tort.

But having say all that - Yes, a limitation clause is good to have. It is better than nothing and gives your lawyers something to work with in the event of a claim.

However, the difficult thing in design and construction is "how to get the other party to agree and sign the contract that contains clauses that potentially decreases your liability. Unless that other fellow's lawyer cannot read.
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Nik Zafri's Response

corpbabes wrote:

Greetings! I stumbled across this website and thought it's really fantastic that people can discuss and get information here. I'm a newbie and I'm just wondering if anyone can help me.

Welcome corpbabes...that is why GMN is my first choice!

corpbabes wrote:

My question is : is there any statutory prescriptions in relation to warranty periods for construction works buildings, designs etc .

Depending on which stage that you're referring to - pre-construction, during construction and post construction? You see, different countries may adopt different practices, terminologies and timeframe. (which will affect the contract)

If you care to delve further in this very same topic, you will see that we've been discussing 'heavily' about Defect Liability Period, Warranty Period, Developer's Warranty etc. Try to have a look, probably it would help you and us further to understand the issue. (I'm sure you've heard the Govt is planning to revise and standardize these practices - but I'm unsure when)

corpbabes wrote:

for theme park related works

Or perhaps you may be referring to 'during the theme park already in operation - if so, which target group? 'the theme park workers?'? The theme park visitors? The 'entertainment machines'? (roller coaster, merry-go-round etc.)

corpbabes wrote:

Also what if personal injury and death, can warranty period and exclusion of liability help reduce liability ?

Again, depending on which stage...and as ahvincent said - something like- this case should be mentioned in the contract to avoid future ambiguity and 'conflict'.

corpbabes wrote:

I would be glad if someone can explain these issues to me. Thank you in anticipation.

Don't worry, GMN has a handful of helpful hands (3H)...ahvincent is definitely one of them...
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Response from corpbabes - 26/10/2007

Hello again!

Thanks so much for such prompt reply! Really appreciate it. I know my questions were not really specific and vague, hence Im trying to get more information regarding that before enquiring further.

Sorry for being so ignorant, coz Im really new in this field,Im just a pupil doing a research in this area. So forgive me if I sound so blur!

Im just wondering what happens if the defects occur after the warranty period, who will be liable and is there any legislations regarding this? As for the owner of the building for example, is his liability reduced if anything happens after the warranty period is over?

Also, can I give an anology: Say in a high rise building in genting, a disaster happen due to a design defect ; Contractually we exclude design defects and say construction defects, in death or personal injury, therefore can we say that in this scenario that the project owner be liable? What if we have designer and builder ... To what extent can we pass the buck to them?

Thanks in advance for all the assistance
-----------------------------------

ahvincent wrote:

Your question is many questions in one. Without being specific it is very difficult to answer. Firstly, if you identify a defect after the defects liability period then you don't stand much of a chance of a successful claim. If I bought an apartment from you (the owner) and I identify a defect within the warranty period, of course I will sue you. The contract of sale is between me and you. It has nothing to do with the builder who may have designed and constructed the apartments. I, the buyer do not have a contract with the builder, the owner does. The builder does not owe me a duty. I did not hire him and neither did I pay him, so how can I hold him responsible. I can only sue the owner who sold me the faulty apartment. However, the owner may join the builder as a co-defendent on the basis that as a result of his (the builder's) negligence he is now being sued and the builder should be held responsible. I guess one of your questions is "the owner has stated in the contract that he is not responsible for design and construction faults" thus trying to avoid any liability. I am afraid that attempt will fail. I, as the buyer can expect that the apartment is "fit for it's intended purpose." So, regardless of what you the owner try to do you will still be liable. Remember what I said before "you cannot contract out of the law." The law of tort will be on my side (the buyer). I have every right to enjoy my purchase. If you sold me an apartment and the roof falls down in 6 months and the walls start to crumble and the floor starts to sink, I will ask the court "what did you sell me?" I tell the court that you the owner sold me a faulty product and I want my money back !!!. You did not sell me an apartment that is fit for it's intended purpose i.e. as a place of residence. I will strongly suggest that a good lawyer for the owner will not try to get out of it by simply denying liability because the case is so obvious. He, the owner can quickly run away, change his name and go into hiding or he will quickly join the designer and constructor as co-defendants and seek proportional liability. Anyway, your questions sounds very unethical by trying to pass the buck. Forget it !!! No lawyer worth his salt will let you get away with putting such irresponsible "get-out of jail free" clauses. The text books tell us that the law is fair. Therefore you can try to be smart and put in lots of sneaky clauses but since the law is potentially fair it will rule any unreasonable clauses to be null & void and find you liable. There are plenty of fish in the sea. I always advise my clients if the other party wants everything in their favour - walk away from the deal. You don't want to do business with such unreasonable people. Unless of course he makes you an offer too good to refuse. But again - nobody gives away something for nothing.

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Nik Zafri's response

Good one ahvincent!!

My turn :

corpbabes wrote:

Im just wondering what happens if the defects occur after the warranty period, who will be liable and is there any legislations regarding this? As for the owner of the building for example, is his liability reduced if anything happens after the warranty period is over?

That's why looking into SPA (sales and purchase agreement) is very important before signing them - (that goes to everyone..not only housebuyers but property buyers as well) we don't want to end up in sticky situations like this one. I BET no party (developers, builders, bankers, lawyers) would tell you of your RIGHTS (esp. implied ones) since their interest in ONLY to sell and attempted to their best 'intellectual' knowledge NOT to be accountable.

These parties make you look merely into the 'expressed' terms but somehow they failed or ignore/deny your rights to know the 'implied' ones.

One example - You may or may not know that even during DEFECT LIABILITY PERIOD (DFL), the purchaser/buyer has implied RIGHTS to know what's going on - otherwise, how would we know of the final quality? How 'd heck' CMGD or CF (they keep changing the terms - now they call it "Certificate of Fitness for Occupation (CFO) be issued on the first place and suddenly we buyers found out that we have been 'had' when 'leaks' are discovered in our so-called newly bought houses or buildings?

Here's another 'masterpiece' :

http://www.nst.com.my/Weekly/PropertyTimes/News/Viewpoint/20030305105233/Article/

The waiting game


Many house buyers complain of having to take over of vacant possession (VP) of their new houses when they are not ready for occupation.

One of the reasons for this is that prior to amendment, the Housing Developers Act allowed developers to hand over VP upon application for the Certificates of Fitness for Occupation (CF). Many developers exploited this tenet of the Act by rushing to hand over the properties the minute the architect declared “practical completion”.

Problems for buyers

The hand over of VP without a confirmed date for occupancy has created numerous problems for house buyers. First, the new owners would have to make all outstanding payments as stipulated in the Third Schedule of the Sale and Purchase Agreement (SPA) upon taking VP. Next, the 18-month defect liability period would start to run 14 days from the date of notification of the hand over of VP, and third, the buyers would have to take over the responsibility for the security of their properties.

This state of affairs is grossly unfair to buyers. Imagine not being able to stay in your property after you’ve made all the outstanding payments, including maintenance charges. And if you’re not able to stay in your house, how will you identify and rectify faults that may be caused by the developer? Supposing the CF is issued six months after you receive your keys; this means six months of the defect liability period would have been wasted. Another point is that if you cannot stay in your home, how can you prevent vandalism and theft of your fittings, short of hiring a security guard, which many cannot afford?

Besides these, the house Buyers Association has come across other complaints from buyers who have been shown CFs from other projects that have been presented as theirs or CFs with falsified endorsements! Some buyers have taken VP, only to find that the developers have financial difficulty in fulfilling their obligations to apply for the CF!

Developers’ responsibility

The application for CF is governed by the Building By-laws Act. As the name implies, the CF is an official document issued by the local authority to acknowledge that a building is safe for occupation.

It is the responsibility of the developer through its appointed qualified professionals, chiefly the architect, to make the application according to the Building By-laws and other conditions imposed by the appropriate authorities.

When complaints surface, both developers and the appropriate authorities point fingers at each other. As explained by Ministry of Housing and Local Government legal adviser Shamsulbahri bin Ibrahim, and advocate and solicitor Toong Gek Fong, in an article on the Malaysian Law Journal website (http://www.mlj.com.my/free/index.asp): “The crux of the problems relating to delay in issuance of CFO could be because:

1. The developer’s application for CFO is incomplete or not in compliance with all the requirements necessary for the issuance of CFO, resulting in the application being rejected by the appropriate authority. For instance, some developers fail to submit the Form E together with copies of all letters of clearance or approval (surat sokongan) from the relevant technical agencies, which are required by the appropriate authority for issuance of CFO, or

2. The delay or inefficiency of the appropriate authority issuing the CFO.”
To exonerate the local authorities from blame, the Ministry of Housing has issued directives to the effect that:
• All applications for CF submitted by developer are to be checked and confirmed to be in compliance with all requirements for issuance of CF before such applications shall be accepted by the appropriate authority;
• Upon acceptance of the Form E, the appropriate authority is to issue its written confirmation that the Form E submitted by the developer has been duly checked and accepted by the appropriate authority;
• Once such applications have been duly checked and accepted by the appropriate authority, the CF shall be issued or deemed to be issued within 14 days from the date such applications are accepted by the appropriate authority; and
• The appropriate authority will submit a written report/explanation to the Housing Ministry in respect of such cases where the CF is not issued within 14 days from the date the relevant application is accepted by the appropriate authority and in any other cases of undue delay in the issuance of the CF by the appropriate authority.

By-law 25 of the Uniform Building By-Laws 1984 was amended to provide for the issuance of the CF by the appropriate authority within 14 days from the date of acceptance of Form E, failing which the CF shall be deemed to be issued to the owner of the building.

Under the amended Housing Development Act, developers’ responsibility with regard to VP and the CF has been expanded to include the following:

1. Conditions for delivery of vacant possession
It must submit a supporting certificate signed by its architect certifying that the building has been duly constructed and completed in accordance with all relevant Acts, by-laws and regulations and that all conditions by the appropriate authority in respect of the CF have been duly complied with and a supporting letter of confirmation from the appropriate authority certifying that the Form E (the application form for CF) has been duly submitted by the developer and checked and accepted by the appropriate authority.

• Duties to the Controller of Housing:
It must inform the Controller of the handing over of VP to the buyers and submit a certified true copy of the architect’s completion certificate and that water and electricity supply are ready for connection. It must also inform the Controller if the appropriate authority has refused to accept the submission of any document relating to the issuance of the CF and submit the refusal letter from the appropriate authority.

With the amendments to the Housing Development Act and the Building By-laws, it would seem that when house buyers receive notice of hand over of VP, they can assume safely that the occupancy of the property can be confirmed within 28 days of the notice. If not, the hand over of vacant possession can be considered premature, and the house buyer has every right to challenge the notice and asked the developer to withdraw it.

With the amendments too, the HBA sees no cause for local authorities to issue temporary certificates of fitness as it is not to the house buyers’ advantage to occupy a home based on such a certificate.

We hope the Ministry of Housing is confident enough to implement further amendments of the Act, such as imposing that the delivery of VP comes with the CF. It is only right that a buyer should be able to take vacant possession of a home that is certified fit for occupation.

The National House Buyers Association is a non-profit, non-governmental, non-political organisation manned by volunteers. Our website is www.hba.org.my. E mail: info@hba.org.my

- Property Times 1st March 2003 issue -

Which also may shed the light on your next analogy

Corpbabes : Also, can I give an anology: Say in a high rise building in genting, a disaster happen due to a design defect ; Contractually we exclude design defects and say construction defects, in death or personal injury, therefore can we say that in this scenario that the project owner be liable? What if we have designer and builder ... To what extent can we pass the buck to them?

Perhaps I didn't understand the question. But somehow, I doubt that this clause (design defect) is excluded in the contract - again depending on which stage you're talking about but typically in the 'design and build' mode, it's very irregular if a contract exclude such clause cos' it is regulated in Uniformity Building By-Laws 1984 (+ The Engineers Act as well) Even if there is NO such clause, the law prevails over 'deficiency' of such clause in a contract.

Remember, when a contract doesn't favour the law (where the latter being the former's umbrella), then the law shall prevail - e.g. clause ambiguity, or 'something that should be included but excluded - yet the law states clearly that it should be included'

But alas, despite of my explanation here, you should know that ahvincent is talking about the 'ugly REALITY of the construction industry' (which I must admit..it's TRUE) and you should take his suggestions into account as well.

and corpbabes (what's your real name..or at least a short one) - don't have to apologise profusely or being humble, you should be proud to pose such difficult question amidst a topic that not many want to be participating