Introduction: Why We Need Standardization?

There are at least 4 standard forms of contract which are commonly used in Malaysia nowadays, namely
PWD (Public Works Department) Standard Form of Contract, PAM (Pertubuhan Arkitek Malaysia) Standard
Form of Contract, CIDB (Construction Industry Development Board) Standard Form of Contract, and IEM
(Institution of Engineers Malaysia) Standard Form of Contract.
These standard forms evolve and develop in particular manners depending on the history and development
of construction industry in the world, especially in Malaysia. Here, the author said that the development of
these standard forms in Malaysia depending on the development of construction industry in the world
because of 2 (two) reasons:
1. Despite of the complexity and the wideness of construction industry, the industry itself is actually inter-
related and inter-connected. Thus we can say that we are working in the specific field of work which is
dynamic but still in one closed system. For instance, new technology or new material used in a project will
become widely known and accepted in such a short time. This transfer of technology and material will have
effect to the standardization of construction industry in here we are particularly discussing the
standardization of contract forms.
The Use of Standard Form of Contract in Construction Industry
The Advantages and Disadvantages
Seng Hansen
Master Student of Construction Contract Management UTM
Email: hansen_zinck@yahoo.co.id
standardization of contract forms.
2. Basically, Malaysia standard forms of contract adopt the international standard forms of contract. For
instance, we can see that PAM Standard Form of Contract is originally based on JCT (Joint Contract Tribunal)
Standard Form of Contract; the same with PWD Standard Form of Contract which is originally modeled from
the English 1931 RIBA (Royal Institute of British Architects) Standard Form of Contract.
Since the dynamic movement of construction industry will give so many interpretations in terms of
methods, costs, scope etc, we need to limit these interpretations since the initial point of a project. This is
materialized in a contract document. Therefore, we can say that with the influence from global construction
industry, Malaysian professionals try to make their own standard form of contract in order to limit the
interpretation of dynamic movement in construction industry. It accords with the sentence below:
The Asean region as a whole must, it is submitted, break free of the fetters imposed by the standard
forms of contract inherited from Europe and evolve forms of its own. Powell-Smith, Professor Vincent.
(1992).
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Table 1. Standard Forms of Contract Commonly Used in Malaysia
Particulars PWD PAM CIDB
Origin RIBA 1931 JCT 1963
Produced by The Government (JKR) PAM CIDB
Application For government projects, usually
for civil engineering works
For private building works For building works for both
government and private
employer
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An ASEAN Region Standard Form of Construction Contract? International Construction Law Review. p. 384.
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According to the authors opinion, the main purpose of using standard form of contract is to give certainty
in executing construction works. But here are some advantages of using standard forms of contract instead
of composing a new fresh contract document for each project:
1. They are made by professionals in construction industry, therefore hopefully it can make a more clear
understanding of contract terms (ambiguities and inconsistencies are reduced to a minimum)
2. They give options to both parties (the employer and contractor) to choose which standard form of
contract will be used according to strategic business plan they may have
3. The rights and obligations of both parties are set out clearly and to the required degree of detail (fair risk
allocation to both parties)
4. Because it is standardized, frequent users are familiar with the provisions in a particular form (easiness of
use). Such familiarity leads to administrative and cost efficiency
5. We can save time and expenses which usually incurred in preparing a new contract document (more
economical)
6. It gives certainty in terms of the compliance with country law
7. All important terms and conditions of contract have been written down in the contract
8. It will give a higher chance in avoiding unwanted disputed for both parties (minimize possible claims and
disputes)
9. In a case of dispute, the Court can make a fair decision based on their interpretation of standard form of
contract (certainty in meaning)
Beside the benefits of using standard form of contract, there are some demerits of using it in construction
industry. There are some significant disadvantages which appear from using the standard form for both
contractors and employers. What are these disadvantages? Let us briefly discuss them one by one.
Disadvantages of Using Standard Form
1. Reduce Competitiveness 1. Reduce Competitiveness
In my opinion, with the use of standard form of contract, in certain level, it will reduce the competitiveness
of contractors to bidding in a tender. Here, I mean it will limit the contractors chances to bid with their own
interpretation of the works and their risk valuation. In every project, there will always be risk and this risk
can be profitable for contractors who do good risk management. Contractors then can compete each other
in the level of risk management. On the other hand, standardization of contract form will limit this risk.
Therefore, contractors cannot compete very well. They will give bid prices with a slight different. Finally as
consequence the employer will lose the chance to get the best bid.
2. Length and Complexity
Almost all standard form of contracts is considered too long and covered too many things in one form. The
purpose of using standard form to ensure everything is covered in the conditions will become a boomerang
since not everyone want to read the standard form due to its length and complexity. Besides, sometime it is
considered too complex for both parties while they just want to do a simple construction work.
3. The Needs to be Up to date
Since the development of construction industry is very dynamic, unique and always changing depending on
the new technologies or relevant law are adopted, then there must be some changes and revisions of
standard form of contract to be made. In other word, the construction industry itself always needs to be up
to date with relevant technologies and law. Each time there is a revision, users must study the new edition
or revisions carefully to see whether it should be used and if changes need to be made. These actions will
cause another cost. Another point is that the previous court decisions may become irrelevant with the new
revisions of standard form. Frequent revisions of standard form can also create distrust in the competence
of the entity that makes the standard contract.
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4. Unfairness to one party
Usually standard form is made by one party, therefore it favors more to one party than the other. We can
see this from PAM standard form of contract which is made by Pertubuhan Arkitek Malaysia. They stand as
employers servants, therefore I find it very hard for contractor doing his job under PAM standard form
because almost all employers risk are distributed to the contractor.
5. Replacing the agreement
Each project is unique. The characteristic is depended on the agreement made by both parties. But
sometime both the employer and the contractor do not pay attention to the conditions of contract in
standard form they used. And the worst, there are some contradictions between conditions of contract and
agreement made by both parties. Therefore, I suggest for both parties to pay attention on the conditions of
standard form they choose before they sign and executing the work. Ask themselves whether this standard
form is contradicting with our agreement or not.
6. Difficulties in practice
From my experience, the conditions of contract which are stated in standard form are very hard to be
executed precisely in the practice.
7. The Use of Legal Language
Standard forms usually use legal language which is not easily understood by practitioners. Wrong
interpretation of this legal language will eventually bring disputes and inefficiency.
From the above explanation about the disadvantages of using standard form, why do we still try to make a
standard form? Why do we still need to use a standard form although we know some standard forms are
unfair to one party?
Well, in my opinion, we still need to make a standard form so that we can limit the dynamic and the wide Well, in my opinion, we still need to make a standard form so that we can limit the dynamic and the wide
range of interpretation in construction industry. And also by doing so, we can track and record any work
events which can be used for the next similar projects. It will be much more useful in terms of familiarity.
While according to Nayagam and Pathmavathy (2005), standard form construction contracts provide a
basic legal framework identifying the rights, obligations and duties of the parties, establish the ambit of the
powers and duties of the contract administrator. It means that we need such a standard form and
condition to ensure each party will fulfil their obligations until the end of the contract.
And why do we still need to use standard form although we know sometime it is unfair? Because we (red.
Contractors) still need to eat, we still need to make an income. And I am sure, that contractor will not easily
give up to these unfair conditions. In many cases, they can survive by any means although the bidding price
and conditions of contract do not favor them at all. In my opinion, what the employer does in the standard
form of contract is distributing their risk to the contractor. If the contractor can implement good risk
management, this risk can be an opportunity for contractor to gain more profit from the work.
Contradicting Clauses in Standard Form
There is one case where a bad standard form can cause conflicts. This is actually about the contradicting
clauses in a standard form.
AJM Packaging Corp. v. Crossland Construction Co., Inc., 962 S.W.2d 906 ( Mo. App. 1998)
The arbitration clause in standard general contract conditions form A.I.A 201, 1987, was unenforceable,
even though it was incorporated by reference into the standard general contract, form A.I.A. 101, because
the contractor seeking to compel arbitration did not put A.I.A. 201 into evidence, and because A.I.A 201
conflicted with another standard contract clause in the project manual providing that all claims and
disputes would be decided in court by the courts of Missouri.
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Why There Are So Many Standard Forms?
There are so many standard form of contract used in construction industry. Malaysia itself has at least 4
commonly used standard form of contract: PWD, PAM, CIDB, and IEM. This appears because there is a
different interest and necessity of both parties. So which one should be followed? How can both parties
enter into a contract under one specific standard form? In my opinion, it will be depended on the type of
works (private or public) and the employers decision.
As a conclusion, there are so many advantages as well as disadvantages of using standard form of contract
in construction industry. This paper discuss both issues so that we as practitioners in construction industry
can clearly understand the weaknesses of standard form of contract so that we can manage how to reduce
these in our real practice. One final word from the Reading Construction Forum remarked that:
Two things are especially striking about the past 800 years of building history. The first is that at no
time has there been widespread use of a single or a standard method of procuring buildings; time and
again people have tried new ways as a result of their dissatisfaction with previous methods. The second
is how little the problems have changed over the years, and how regularly the same ones crop up.
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Flanagan, Roger et al., see n. 18 above, p. 13.
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