IEM / PWD Forms

by Mr. Foo Joon Liang ,Partner, Gan Partnership

Introduction

The nation presently faces a widespread shortage of labour. This article addresses the contractual issues which confront the contract in such a situation under the PWD Form 203A (Rev. 1/2010) (PWD Contract) and IEM Form of Contract for Civil Engineering Works, Third Edition, January 2017 (IEM Contract), and the avenues available to the contractors for time and cost.

At the core

The relationship of the contractor with the employer is contractual. The terms of that contract thus governs the rights and obligations of the contractor to progress with its works and, in the event that it is not possible, the rights and consequences of the inability to progress the works accordingly.

Contractual obligations of the Contractor

Typically, contractors may have been required during the course of their tender submissions to outline the number of gangs of workers that will be committed to the project, and their work flow. These will be read in light of the work programme that will be submitted before work commences, and will be a benchmark against which the contractor’s resources and progress are assessed.

To give context to the contractor’s entitlement to time and money, we will look at some contractual provisions which govern the contractor’s key obligations on site relevant to its labour resources.

PWD Contract

PWD Clause 10(g) obliges the contractor to provide and maintain throughout the contract period such number, categories of qualified and compete personnel necessary to perform their works. Understood in the context of the contractor’s continuous obligation to mitigate delays on site, the Clause 10(g) obligation would also extend to providing such necessary additional personnel for catch-up works.

PWD Clause 21.0 requires, broadly speaking, compliance with prevailing laws. This would include changes in law after the work is awarded to the contractor. The COVID pandemic brought to the fore a facet to this requirement not previously experienced. Construction sites were shut down at the height of COVID as part of the protective measures by our government. Then, manpower on site was reduced when sites reopened, but incidents of site shut downs were still experienced where COVID cases occurred. All these events are a result of laws, orders or directives implemented by the authorities. In this connection, PWD Clause 23.0 governs the “workmen” that may be employed by a contractor.

IEM Contract

IEM Clause 8.1(2) obliges the contractor to provide, amongst others, labour to carry out and complete its works. In this connection, IEM Clause 14.1 requires that the contractor submits a general method statement and a forecast of the labour requirements.  The general method statement must indicate the manpower to be employed by the contractor to construct and complete the works (IEM Clause 14.3), whilst the labour forecast must indicate the category and number of the various staff and labour (skilled, semi-skilled and un-skilled) required for the construction and completion of the works (IEM Clause 14.7). These submissions must be revised and updated as the works progress.

With these provisions, the Engineer designated under the IEM Contract would have a view on the manpower requirements of the contractor, and would thus be able to monitor its sufficiency as the project progresses (see also IEM Clause 28.2 in this regard). This also allows for a check and balance of the progress of works against the number of manpower at site.

Liquidated and Ascertained Damages (LAD)?

Both these contracts provide for liquidated and ascertained damages (LAD) where the contractor delays in completing its works under the contract. From a legal standpoint, the obligation is on the contractor to prove that the LAD imposed by the employer is unreasonable. Failing that, the contractor would be obliged to pay.

A Variation?

The PWD Contract does not view an alternation of manpower resources by reason of law or government directive as a Variation (see PWD Clause 24.0). Further, unlike some other often used standard form contracts, the reduction in working hours on site is also not considered a variation. The implications of a variation or an order for a variation, on the contract, is therefore not relevant to the present discussion.

By contrast, under IEM Clause 24.3, any change in written laws, regulations, orders and bylaws which results in a variation of the works, may trigger a variation under IEM Clause 51.

Extension of Time?

The employer’s entitlement to LAD will be displaced if the contractor is entitled to an extension of the contract completion date.

PWD Contract

PWD Clause 43.0 provides for the scenarios which would allow for an entitlement to more time, and the mechanism for the contractor to apply for such additional time.

It is only for the specific events spelt out in PWD Clause 43.0 that an extension to the completion date may be given. An application for an extension of time does not guarantee an entitlement to extension of time. Additionally, it must be understood that the law requires strict compliance with the contractual pre-requisites including notification requirements by this clause before the contractor may be entitled to an extension of time.

Assuming these have been met, there are several avenues to seek an extension of the completion date by reason of a shortage of labour. These are discussed in the following paragraphs.

1. Suspension of works under PWD Clause 50

PWD Clause 43.1(c) allows for an extension of the completion date where a suspension of works by the superintending officer (SO) delays the completion date. PWD Clause 50 sets out the wide powers of the SO to suspend works.

It would be rare that the SO would suspend works by reason of a labour shortage. There are other provisions within the PWD Contract that cater for such a situation.

If such a suspension is nevertheless instructed by the SO, there would be additional monetary implications under PWD Clause 44.0.

2. SO’s Instructions issued under PWD Clause 5

PWD Clause 43.1(e) allows for an extension of the completion date where an instruction issued by the SO under PWD Clause 5 delays the completion date, provided such an instruction is not due to any act, negligence, default or breach by the contractor or its subcontractors.

The powers of the SO to issue instructions under PWD Clause 5 are wide. For example, the SO may issue instructions with regard to any matter which is necessary and incidental to the carrying out and completion of the contractor’s works. There were instances during the height of the COVID pandemic where the SO may have issued instructions with stricter standard operating procedures (SOPs) on health and safety on site.

If similar SOPs are issued by the SO’s instructions today which requires manpower on site to be limited, PWD Clause 43.1(e) would be available to the contractor.

There would additional be monetary implications under PWD Clause 44.0.

3. Delays of persons engaged by the employer with regard to works outside the contractor’s scope

Delays to works of other parties engaged by the employer by reason of labour shortage, would allow a contractor to claim an extension of time under PWD Clause 43.1(h) if an adverse time impact to its own works is established.

There would additional be monetary implications under PWD Clause 44.0.

4. The contractor’s inability for reasons beyond his control which he could not reasonable have foreseen at the date of closing of tender

PWD Clause 43.1(i) allows the contractor an extension of time if its inability to secure, amongst others, services essential to the proper carrying out of its works, could not reasonably have been foreseen at the date of closing of the tender. The situation that immediately comes to mind is the present labour shortage, which could not reasonably have been foreseen at the time of tender or its closing.

This, therefore, is the most direct provision applicable to the present circumstances which may entitle the contactor to an extension of the completion date. There is a huge caveat though. An extension granted pursuant to PWD Clause 43.1(i) does not entitle the contractor to a claim for loss and expense under PWD Clause 44.0. This is also the reason the other PWD Clause 43.1 events above are discussed.

In summary, there are 4 events under PWD Clause 43.1 which may be considered for an extension of the completion date in the present circumstance of a nationwide labour shortage. The contractor should however be mindful when making the application for the extension of time – that not all events entitle the contractor to more money for their additional time on site.

IEM Contract

Likewise, the employer’s entitlement to LAD under the IEM Clause 46 will be displaced if the contractor is entitled to an extension of the contract completion date. IEM Clause 44.1 provides for such entitlement to more time, and the mechanism for the contractor to apply for such additional time.

It is only for the specific events spelt out in IEM Clause 44.1 that an extension to the completion date may be given. As mentioned before, an extension of time application does not guarantee an extension of time. Additionally, it must be understood that the law requires strict compliance with the notification requirements by this clause before the contractor may be entitled to an extension of time.

Assuming these have been met, there are various avenues or options are open to the contractor where there is a shortage of labour. These are discussed in the following paragraphs.

1. A variation under IEM Clause 51

IEM Clause 44.1(1)(a) considers a variation instructed under IEM Clause 51 to be a ground to extend the completion date. It is arguable that the imposition of regulations by the government or its agencies which causes or gives rise to labour shortage laws may trigger a variation under IEM Clause 51.2(1)(f) if the sequence or timing of the construction or any part of the works are changed as a result (see IEM Clause 24.3). This is fact dependent.

2. The occurrence of an “Employer’s Risk”

IEM Clause 44.1(1)(c) provides for an extension of the completion date where there has been an Employer’s Risk event that occurs. An Employer’s Risk is defined as any operation of the forces of nature which an experienced contractor could not have reasonably foreseen or priced for.

Whilst it may be argued that the labour shortage is a culmination of the COVID pandemic, this may be too much of a stretch. To draw a plausible linkage would be difficult.

In summary, the provisions of IEM Clause 44.1 do not clearly contemplate the provision for an extension of time in situations of labour shortage. Contractors will have to bring themselves within either IEM Clause 44.1(a) or (c), provided their factual premise permits.

Loss and Expense?

When seeking the extension of time, a contractor should be mindful that not all grounds for an extension of time will allow the contractor to claim for loss and expense. For example, PWD Clause 44.0 provides for a claim for loss and expense by the contractor only where delays to its works are affected by the specific events stated at PWD Clause 43.1(c), (d), (e), (f) and (h).

In these instances, where the contractor has incurred direct loss and expense beyond that reasonably contemplated and for which the contractor would not be paid elsewhere under his contract, the contractor is required to give written notification to the SO under the provisions of PWD Clauses 44.1 and 44.2.

Strict compliance with these notification requirements is required in law, failing which the contractor’s will not be entitled to its claim for such loss and expense.

Escaping with a Force Majeure clause

Force majeure is a creature of contract. Whether a party may escape its contractual obligations by reason of an occurrence of a force majeure event would depend on what is defined in their contract as a force majeure event. As such, if the event is envisaged in the contract, it is unlikely that a party may rely on the event even though it is arguably a force majeure event.

PWD Clause 58.0 defines six circumstances which are events beyond the control of both parties, none of which allows an escape route for a contractor faced with a shortage of labour due to the COVID pandemic, government regulations around the COVID pandemic, or their after-effects. Put another way, the PWD Contract does not consider these as force majeure events which entitle the contractor to escape its responsibilities under its contract. The contractor cannot therefore rely on PWD Clause 43.1(a) to seek an extension of its completion date by reason of a shortage in labour.

IEM Clause 13.1, on the other hand, provides that the Contractor must construct and complete the works and make good any defects in the works in accordance with the contract unless it is legally or physically impossible to do so. This would include an impossibility that arises after the contract is entered into. In this regard, the IEM Contract’s requirement for a labour forecast, as discussed above, may assist the contractor. Where actual available labour falls substantially short of what has been forecasted, this may provide the contractor a factual premise to contend that there is an impossibility to perform, as contemplated by IEM Clause 13.1.  

Concluding Observations

Whilst the contract may provide for more time and money in instances of labour shortage not attributable to the contractor, it is for the contractor to prove the fact of such labour shortage and its effect on productivity. A bare statement to this effect would be insufficient.

The contractor would have to at least produce an analysis showing the actual available manpower against the projected manpower at the time of tender, and the effect of that shortage on the activities of work as scheduled. The contractor would also have to show that it has made reasonable efforts to mitigate the labour shortage issue.

While the labour shortage predicament is a nationwide situation, the burden of proving its cause and effect remains with the contractor.