Tuesday, June 21, 2005

Construction Claim & Dispute Resolution-5



Largely as consequences of the inefficiencies inherent in the engineering and construction project processes, it is not uncommon for disputes to arise in the course of the operations and administration of the contract.

Disputes and claims can be traced back to failure by one of the parties to the contract to do his work efficiently, to express clearly, or to understand the full implication of the instructions issued to, or received by him.

In the event of a dispute arising, every effort should be made to reach a fair settlement by negotiation. If however, this proves impossible, the dispute would be referred to arbitration in accordance with the contract provision.

Many standard contract forms are found to be defective, as they do not provide grounds for which an extension of time can be granted for certain delaying events such as acts of hindrance or prevention by the owner which causes delay to completion. Some Standard Form of Contracts also do not cover many common delaying events, such as failure of owner to supply materials to the contractor, failure to give agreed access and failure to give possession of the site on the due date.

In this event, the owner who occasioned the delay would not be able to enforce the liquidated damages clause if there is no power to extent time in relation to the breach. The occurrence of such events would have the effect of putting the time for completion ‘at large’ (i.e. the contractor’s obligation is then to complete “within” a reasonable time”), and at such will render the LAD clause as unenforceable.

The certificate of non-completion is a mandatory condition precedent to the owner’s right to deduct liquidated damages. The contractor is not liable for liquidated damages until the S.O. or Architect had issued the certificate of non-completion. Without the said certificate, any deduction by the owner will amount to a repudiation of the contract, which may risk a determination of the contract by the contractor.


Arbitration involves a civil dispute in which the parties have agreed -- sometimes long before there was any dispute, and sometimes after the dispute arose -- to submit the controversy to an impartial third party (one or more arbitrators) instead of a judge or jury in court.

Unless the rules of the arbitration proceeding provide otherwise, in most cases the decision (called an "award") of the arbitrator is binding on the parties and "final."

Traditionally, many construction contracts contained arbitration clauses. Arbitration is the referral of an issue or dispute or difference between the parties to an arbitrator. Arbitration has the advantage of privacy, and the rules are rather less formal than those of a court. It is sometimes necessary for the arbitrator’s award to be submitted to a court of law and "confirmed" for entry as a court judgment. That makes it enforceable as any other order of the court. Non-lawyers sometimes informally –but erroneously -- call the confirmation process an “appeal”.

The party to the contract wishing to refer the matter to arbitration must first ask the other party, in writing, to concur in the appointment of an arbitrator. Arbitration on all matters shall not be commenced until after the practical completion of the works or the determination of the contract, unless both party consent otherwise.

The arbitration shall be deemed to commence on the date that the claimant served written notice on the respondent that dispute or differences had arisen between the parties and the request to refer the matter to an arbitrator to be mutually agreed between them.

The arbitrator upon accepting appointment has a first duty to check that his appointment is valid and he has jurisdiction to act. The party requesting the appointment of an arbitrator will be required to provide security towards costs of the award and is a pre-requisite before an arbitrator is appointed. Upon appointment of an arbitrator, the respondent will be required to provide a security towards costs.

The duties of an arbitrator are basically to conduct the hearing of the reference and to deliver his award. Arbitrators have always been bound to act honestly and in good faith. In addition, misconduct by the arbitrator may be a ground for challenge of the award and any person entrusted with this decision-making task have to be personally liable for any action in bad faith.


Construction Claim & Dispute Resolution-4

Chapter 4: Breach of Contract & General Damages

If any party to a contract fails to stick to its part of the bargain, there is a breach. A breach of contract occurs when:
  1. One party to a contract makes it impossible for the other parties to the contract to perform;
  2. A party to the contract does something against the intent of the contract; or
  3. A party absolutely refuses to perform the contract.

Breach by the contractor

Breaches of contract by the contractor are numerous, and it may broadly be divided into three categories, namely:

  1. Abandonment of project or total failure to complete,
  2. Delay in completion, and
  3. Defective works or incomplete work.

Not all breaches of contract are necessarily "contract killers" which would end up in a lawsuit. Much would depend on whether the breach is "material" or "immaterial" and who the parties are. What makes sense for you will depend on the facts. Where the matter is substantial, the advice of an attorney can help you.

The contract may have its provisions as to the measure of damages in the event of a breach, such as determination of the contract, liquidated damages for delay in completion and the direct loss and/or expenses.

In the event of abandonment of project or a total failure to complete, the employer can elect to determine the contract. In the event of delay in completion due to inexcusable reasons, liquidated damages will be treated as an employer’s pre-estimate of all his damages arising from delay in completion.

In the case of defective works, the measure of damages recoverable by the employer is the difference between the contract price of the work and the cost of making good in conformance to the contract.

Breach by the employer

Section 74 of the Contracts Act 1950 states that, "when a contract has been broken, the party who suffers by the breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him and that such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if the person had contracted to discharge it and had broken his contract."

It is obvious that a contractor works for a profit, and apart from his entitlement to the contract price, the damages to the contractor caused by any breach of contract by the employer will need to be assessed in the light of its impact upon the contractor’s profit. A distinction may need to be made between the employer’s breach which have the effect of bringing the work to an end, or preventing it from starting, in both case which the contract may deprive the contractor of profits on work never actually carried out and on the other hand, which merely reduces his profits on completed work.

Clause 24.2(viii) of the PAM98 Form refers to any act of prevention or breach of contract by the employer and the same matter may also give rise to an extension of time under clause 23.7(xi)

General Damages

Any breach of contract will give the aggrieved party a right to damages at common law, unless expressly agreed (e.g. a liquidated damages clause).

The general rule on recoverability of damages will be what the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it [see: Hadley v. Baxendale 1854 & Victoria Laundry (Windsor) Ltd. V. Newman Industries Ltd. 1949].

In principle, most loss, which flows as a consequence from the breach, is recoverable unless it is not considered to have been within the reasonable contemplation of the parties.

It must be emphasized that the purpose of an award of damages is to put the plaintiff in the position he would have been had the breach of contract or duty not occurred.

So far as money is concerned, the party that sustains a loss by reason of a breach of contract is to be placed in the same situation as if the contract had been performed.

The key factor in an action for general damages is the need to be able to support the claim with evidence of the loss suffered as a result of the breach. Vague allegations of loss suffered are unlikely to be recognized in law [see: Skyt. Tan Kim Beng and Rakan-Rakan v. Pulai Jaya Sdn. Bhd. 1992, Digest 140].

As for the interest charges, in the absence of a contractual agreement to pay interest, it may not be payable [see: Wong Chong Chow v. Pan-Malaysian cement Works 1980 Digest 161].

Financial charges are recoverable under usual contractual provisions (e.g. under Direct Loss and/or Expense claim).


Construction Claim & Dispute Resolution-3

Chapter 3: Liquidated And Ascertained Damages (LAD)

Construction contracts do usually provide for “Liquidated Damages” in an event of a delay by the contractor. The aim of liquidated damages is to provide for a negotiated and fair method of allowing for the possibility of a delay in completion of the project, which provides adequate compensation for the purchaser/owner, while ensuring that the contractor is not too heavily penalized for the delay. The term “liquidated” means that the measure or scale of such damages has been set down in the contract in agreed and mathematically quantifiable terms.

A great deal of confusion still exists as to what is the precise test to distinguish between genuine liquidated damages and the rule of law against penalty imposed in contract. This rule is that where a contract provides for damages to be paid by a party in breach of contract, the amount or scale of damages provided for must be such that it is intended reasonably to compensate the innocent party, and not to punish the party in breach. If the amount is excessive or punitive, then it is a “penalty”.

A penalty is null and void and of no effect to a contract. The true test of the legality of the liquidated damages is what the parties are presumed to have had in mind at the time of the making of the contract. At that time, we must ask whether or not the scale of liquidated damages was genuinely negotiated and agreed as an attempt to pre-estimate, in good faith, the likely loss to the owner. Courts generally do not enforce liquidated damages that are intended to serve as a penalty or are far in excess of the amount of damages the parties may reasonably forecast.

If the agreed sum, whatever is called in the contract, is a penalty it will not be enforced by the courts The onus of showing that the clause is a penalty clause lies upon the party who is sued upon it, and the court should not be astute to descry a “penalty clause”.

The classic form of penalty clause is one which provides that upon breach of a primary obligation under the contract a secondary obligation shall arise on the part of the party in breach which does not represent a genuine pre-estimate of say loss likely to be sustained by him as the result of the breach of primary obligation but is substantially in excess of the sum. "The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimates of damages.” [Selva Kumar v Thiagarajah].

Under Clause 23.0 of the PAM form of contract 1998 (Extension of Time Clause), the architect is duty bound to grant extensions of time not later than practical completion so that the contractor will know his position before the final certificate and the contractor may be entitled to know the amount of extension in respect of any particular matter at the earliest possible moment [Sundra Rajoo, pg. 198, The Malaysian Std. Form Of Building Contract, PAM 1998 Form, 2nd. Edition, MLJ, 1999].

Before the certificate of non-completion is issued, the architect must perform his duties as regards adjudicating upon any outstanding applications for extensions of time under Clauses 23.0 and Clause 32.1(iii). Should the certificate of non-completion been issued and a subsequent cause of delay arises which entitles the contractor to a further time extension, a further certificate of non-completion under Clause 22.1 is required to be issued.

Loss and/or Expense

Given the nature of the construction process which uses costly equipment and highly paid staff arising from the project based employment, it is common for a contractor to suffer, or allege that he suffers, disturbance in the regular progress of the works due to causes within the employer’s or architect’s control. Loss and /or expense claim can usually arise from these reasons: -
  1. Direct loss & expense involved in variations
  2. Direct loss & expense caused by excusable delays (i.e. disturbance of regular progress of work)

In either case, the contractor has to make a written application within a reasonable time having incurred the loss and/or any part of the works have been affected or delayed as a result of the instruction. The broad purpose of the loss and/or expense clause provided in any contract is to reimburse the contractor for any loss and/or expense, which he has suffered or incurred as a direct result of certain specified events in the contract. Contractors can also made a claim under this clause if regular progress of the works or any part thereof has been “materially affected” by one or more of the stated events specified in the clause.


Construction Claim & Dispute Resolution-2


Construction companies and projects in Malaysia have a track record for completing late and over-budget. Too many projects, particularly, in the public sector, had shown overrun in time and many claims and disputes are related to delay and/or disruption.

There seems to be a lack of know-how and knowledge of the method by which delays may be demonstrated to have occurred or by which the time element of such delays could be clearly related to their causes and the financial impact of such delays and/or disruptions. All too often the aggrieved contracting party who are preparing the time analysis do not understand the legal implications and requirements, and they leave it to their lawyers to handle their grievances, in the hope to receive a just compensation and award. Unfortunately, these lawyers may not really understand construction methodology and logical acceptable planning techniques, which are being used.

Typically, these contractors would make a number of complaints of many things, which were purported to have delayed or disrupted his works or programmes, such as the amount of variation works, the timing of instructions, changes to the scope of works, the delay or lack of information necessary for the implementation of the project.

Very little information about the facts of the delays could be produced and little explanation could be offered of how the relationship of the change which were alleged to have occurred were said to have affected the time or cost for performance of the works. The project architect or engineer would then analyze the claims submitted by the contractors and they would often perused them on a global basis without any systematic or logical analysis of time or the effects of the events on costs.

Delay and Acceleration Claim

Delays and acceleration issues in contract disputes are probably the most complex issues in contract claims. The complexity arises mainly due to the factual criteria of assessment of whether an issue is excusable or nonexcusable, whether the issue occurs in isolation or concurrently, or as a serial result of one or a combination of excusable or nonexcusable issues.

In the event of a delay, to establish an entitlement to time extension and delay damages, it must be substantiated that the delay impacted the contract completion date and that loss and expense had been incurred arising therof from the instructions which caused delay. The cause-and-effect relationship must be identified, quantified, and supported by contemporaneous documentation. Having established entitlement, alleged damages must be substantiated and supported by project records.


The rights for entitlement to extension of time and/or for loss and expenses incurred resulting directly or indirectly from the purported delay for reasons beyond the control of the contractor, is usually incorporated in the contract clauses pertaining to time extensions, variation, S.O. Instruction, and Loss and/or Expense. Contract must provide the power to the S.O. to extent time if the cause of the delay is attributable to actions or inactions beyond the control of the contractor. The variation clause also empower the S.O. to instruct changes which the contractor must comply and provides that any lawful instruction for change shall not vitiate the contract. The extension of time clause empower the S.O. to address the time extension by specifying that the contract time are to be adjusted as a result of changed instructions. A direct relationship must be established between the change instruction, the delay, and the contract completion date. If the relationship becomes difficult to establish or is nonexistent, a dispute may arise.

When analyzing delay, it is necessary to determine the cause of the delay, which would require it to be supported by contemporaneous documents. Delay issues are generally classified as follows:

  1. Excusable compensable delay – delay that is within the control of the owner and provides for a contract time extension and compensation to the contractor.

  2. Excusable non-compensable delay – delay that is beyond the control of the owner and the contractor. In this case, the contractor is entitled to time extension but not entitled to compensation (loss and/or expense).

  3. Non-excusable delay – delay that are within the control of the contractor (culpable delay due to the contractor’s own fault). Should the contract completion be exceeded, the owner will then impose the liquidated damages clause as provided in the contract.

Classifying delays are complex and difficult as delay may be such that the owner and contractor are each responsible for delaying different activities during the same or overlapping time periods, and both of these activities may be critical to the completion of the project as a whole.

Complexities in resolving delay entitlement are further increased when the serial effect of a delay is considered. For example, if work has been delayed by an excusable compensable delay and was rescheduled to a time where a strike occurs, the delay resulting from the strike could be argued as compensable. But if the same work was delayed by a non-excusable delay, the argument that the contractor is not entitled to a time extension would exist.

Entitlement analysis is usually based on the identification and quantification of excusable delay issues. But it must also be determined, however, whether a non-excusable delay is concurrent with the excusable delay or by itself impacted the contract completion date. Documenting and proving impacts to the contract completion date are critical to supporting entitlement to time extension and damages claims.

Generally, one of the primary requirements for entitlement is written notice. The notification requirement provides the notified party with the opportunity to review the condition and take action to resolve or mitigate its impact. In the absence of notification, project documentation may be the source to prove knowledge of the issue (that both parties are aware of the issues), thus waiving the written notification requirement.

Loss and/or Expense Claims

Claims for loss and/or expenses for delay and disruptions are often subject of disputes and therefore, it is necessary to understand the theories of damage recovery.

Owner’s damages regarding delay are usually specified and defined as Liquidated Ascertained Damages (LAD) in the contract agreement. It is normal practice in construction contracts that the owner and contractor agree to provisions fixing in advance at the time of contract, what sum will be payable by way of LAD in the event that the contractor could not complete by the stipulated time, and without excusable reasons. When the breach is committed, then the contractor is prima facie liable for the sum stated in the contract (appendix to the contract). The contract must have a completion date inserted to define a definite date to act as a starting point and a definite end date. If the completion date has passed due to the culpabaility of the owner for which no extension of time can be granted, the owner’s right to LAD will be lost.

Generally, if the contract documents stipulate LAD, owners cannot purport to seek recovery of unliquidated or other consequential damages or loss. Liquidated damages are defined as an agreed sum of monies, usually represented as a daily amount. The amount must represents the estimated cost to the owner of not having the contract completed on time. Liquidated damages must be shown to represent a genuine pre-estimate of the owner’s anticipated damages arising as a direct result of the delay in the project completion caused by the contractor’s failure in performance. It is important that the liquidated damages represent a reasonable attempt at estimating the real damages, or these damages may be interpreted as a penalty, which is not enforceable by the court. To be valid and enforceable, the estimate must be prepared at or before the time of contract award and must represent a fair and reasonable compensation. Liquidated damages will not be enforceable if it is proved that the owner did not suffer actual damages because of the delay (see: Selva Kumar v Thiagarajah). The same principle applies to liquidated damages that have been set too high. Clauses providing for actual damages to be paid to the owner require the owner to itemize and substantiate its claim for such damages. The itemization and substantiation includes providing records of the costs that were incurred as a result of the delay.


Contractors seeking recovery for delay damages may include impact costs such as loss of efficiency and extended general conditions. Efficiency losses are the result of work disruptions, rescheduling and stacking of trades, and performing work in unanticipated conditions. General condition costs claimed for the delay period include extended overheads and administrative expenses, site supervision, management, construction equipment, site office and site facilities, monthly operating costs and similar items.

To recover the costs of labor efficiency requires the contractor to establish the progress it expected to achieve with its use of anticipated resources, substantiate the cost required to achieve the actual progress, and prove that the increase in costs is related to a compensable delay issue. An effective approach to establishing the extent of efficiency losses is to show what productivity was realized on the project during periods of no disruptions or other impact. This is then compared with the productivity realized during the period of dispute.

To recover the damages due to extended general conditions, the contractor must substantiate the cost by itemizing the expenses expended during each delay period. If the period cannot be isolated, it may be necessary to determine the costs for general conditions for the project duration and use an average daily rate.

Similarly, the contractor is also entitled to seek recovery for its office overhead and administrative expenses. The theory is that the contractor was required to maintain its overhead expenses while not receiving expected contract revenue during the delay period.


Claims for acceleration costs is another complex issue and is generally classified into two type:
  1. Actual acceleration
  2. Constructive acceleration.

Actual acceleration is experience when the contractor is directed by the owner to complete the work earlier than the contract completion date. Constructive acceleration exists when:
  1. A delay existed that was excusable and warrants a time extension;
  2. The owner refused a time extension request;
  3. The contractor performs in an accelerated method as a result of the owner’s instruction;
  4. The contractor incurs additional costs as a result of accelerating its work.

The entitlement to acceleration costs is dependent upon which party was responsible for the project delay at the time acceleration was required or directed. If it is determined that the contract completion date will not be met, the owner may direct the contractor to accelerate its work and meet the contract completion date.

If the owner is responsible for the delay resulting in the completion date not being met, then the acceleration is viewed as compensable to the contractor. If, on the other hand, the contractor has caused culpable delay to the contract completion date, and the owner then directs the contractor to accelerate its work, the costs associated with the acceleration are against the contractor.

The owner may not order an acceleration of the progress of the works or require the contractor to put in extra or additional resources without the attendant risk of such additional costs, loss and/or expense to the contractor in so obeying the owner’s instruction to be borne by the owner [Sundra Rajoo p.213].

Costs of acceleration may include premium pay such as shift differential and overtime, additional resources applied (labour, material, machinery and equipments), loss of efficiency, additional overheads and administrative expenses. To assess the entitlement, a cause-and-effect analysis needs to be undertaken.

Claims for Delay or Disruption

Contractor ‘s claim for delay and disruption are commonly brought under these heads:
  1. Increased preliminaries
  2. Overheads
  3. Loss of profit
  4. Loss of productivity or uneconomic working
  5. Increase cost from inflation
  6. Interest for non-payment of money

It is not the function of the courts where there is a breach of contract knowingly…to put the plaintiff in a better financial position than if the contract had been properly performed.


Construction Claim & Dispute Resolution


There are usually a large number of parties involved in a construction or engineering project with differing responsibilities. These differing responsibilities will inevitably lead to different priorities. It is in the nature of contracting that the parties to the contract will have conflicting interests. Contractors would normally want to be paid as much as possible and for as little risk as possible. Conversely, owners will want to pay as little and as late as possible and possibly and/or forcibly, transfer all risk, expenses and cost to the contractor.

In most construction and engineering contracts, some things may be overlooked, are wrongly perceived or wrongly interpreted by one party or another. For whatever reason they are overlooked or misinterpreted, the result is that time is taken up and costs are incurred. In the event that the party incurring those costs believes that he is not suppose to bear the cost, he will certainly look for reimbursement from the other parties and dispute then often ensues.

In projects such as building construction or civil engineering works, the contract document consist of a trade-off between the contractor’s price for undertaking the work and his willingness to accept a certain degree of risk. Who bears what risk and at what price is simply a matter of commercial negotiation with the outcome often depending upon the skill, influence and power of negotiation of the parties concerned. The methods by which the risks are distributed between the distributing parties will depend not only upon the procurement method but also the form of agreement under which the works are procured and the duration of the contract under which the risk is assumed.

Construction contract disputes and claims are a reality and every management must be prepared for this eventuality. Project directors must from project initiation develop his project team to include someone who has reasonable competency in the knowledge area of contract law and configuration management.

Therefore, project documentations and project reports must be prepared with an eye to building cases and documentary evidence to support contention. Delays, damages and acceleration are complex issues from an entitlement determination and cost quantification viewpoint.

Contract documents are the basic foundation of construction claims analysis that focuses on establishing entitlement and proving damages. Timely completion of the construction works by the contractor is of great importance because of income and profitability consideration. Given the complexity of proving such damages, it is highly probable that parties will incur expense and be in dispute in proving their loss or defending it.

Construction contracts contain clauses to facilitate the execution of changes to the intended scope of work. These clauses define the responsibilities of the parties, allow for changes to the work, provide evidence to support the reason for extension of time when project is delayed beyond completion date, define the methods for pricing the changes and claims for damages, provide for rescission of contract if necessary, and stipulate the means of for a resolution in the event of dispute.

The contract documents may be the source of major disputes centering on the responsibility of the specifications. Construction changes during the execution of the work often result in claims. These claims may result from contradictory or ambiguous language and specifications, errors or omissions, or work that is impossible to perform according to the documents.

Other issues resulting in claims include disputed change orders, varied site conditions as opposed to the time of tender, apparent authority, and overzealous or improper inspections and instructions.

Construction claims often result from misinterpretation and improper administration of the contract documents during project implementation. Construction claims also occur because of misunderstandings concerning the rights, obligations and responsibilities of parties to the contract. This often leads to the waiving of one’s rights as provided for by the contract.


Tuesday, June 14, 2005



DRB-HICOM Bhd chairman Tan Sri Dr Saleh Sulong said both the Government and the company have mutually agreed to appoint an independent claim consultant (ICC) to resolve the dispute on the variation order of the double-tracking project between Rawang and Ipoh.

The variation order refers to the work ordered by the Government that is not included in the original contract, which reportedly is worth RM700mil.

The ICC or arbitrator will be appointed “which will be acceptable by both parties to address the issue of the variation order,” Tan Sri Salleh told reporters.

“For DRB-HICOM, I hope that this issue could be settled as soon as possible because it involves a lot of money,” he said.

Second Finance Minister Tan Sri Nor Mohamed Yakcop last month said the Government had already paid all normal payments to DRB-HICOM with regard to the project. He, however, said the variation order was a separate issue.

The Government had on May 26, taken over the project and on June 1, given the remainder of the project to UEM Construction Sdn Bhd.

Construction claims and disputes are the result of failure of the owner and/or contractor to recognize contractual entitlement, the rights and obligations of each party to the contract and possibly, caused by a changed condition in the context of contract obligations.

Over the years, construction projects have experienced an increasing numbers of claims, liability exposure and disputes issues along with increasing difficulty in reaching reasonable settlements in an effective, economical, and timely manner.

This is largely due to the fact that many project managers and contract administrators are lacking in ability and skills in handling and managing those contractual issues.

Apart from it, there is also the failure to organize and manage adequate documentations to provide evidence in support of their claims.

Construction claims are a reality and management must be prepared for the eventuality of a claim and disputes. Disputes and claims can be traced back to failure by one or more of the parties to the contract to do the work efficiently, to express clearly, or to understand the full implication of the instructions issued to, or received. Claims for loss and/or expenses and damages are often subject of fierce disputes and bitter battles.

An in depth knowledge of contractual rights and obligations together with the knowledge of contract administration is now a prerequisite to managing a successful and profitable project. Project managers are required to have the relevant knowledge and competencies in the area of contract management and administration of construction projects. They must also have the skills of documentation, managing communication system, and have ability to write and serve notices on contractual matters and managing site instructions.

Saturday, June 11, 2005

Tuesday, June 07, 2005

Project Management Information System

Information is a valuable resource. Every manager has to know that he is acquiring, producing and using information wisely and effectively in support of the organization’s goals and objectives.

Managing information requires the imposition of order, structure and discipline within a strategic direction. Information management is aided by the availability of technologies, methodologies, and development tools.

New forms of structure and technology dictate and make available new requirements for information systems. These new forms may need new types of staffs to develop and support them. This, in turn, will lead to new approaches to the training and development of information systems and information management staffs – staffs who will understand the technology, the information requirements of the business and its component parts and how information is best structured and stored to make it readily and effectively available as it is needed.

The availability of new and modern Technology has vastly increases our ability to access resources, both those we own and control and those outside of our own sphere of influence. As information management becomes more important every day, managers will need to ensure that people within the organization get the information they need to do their job effectively. Competitive advantage of organizations is very much governed by the effectiveness with which we manage these information resources.

Information systems now also extend over most areas of an organization. Once computers were restricted to the accounts department, but nowadays, we expect to see them on the shop-floor, controlling machines, warehouse – everywhere where work takes place. This means that more and more information is moving around the organization and needs to be managed. Once information was easily identified – it took the form of paper documents; today, it comes in a variety of forms. It is too valuable a resource to be allowed to move around unplanned and unchecked – and it is also a danger, in that too much of it clogs up our system.

The project management information system (PMIS) contains the intelligence essential to the effective planning, organizing, directing, and control of the project. All too often projects are characterized by too many data and not enough relevant information on where the project stands relative to its schedule, cost and technical performance objectives as well as the project’s strategic fit in the parent organization’s strategies.

Information is essential to the design and execution of decisions allocating resources in the management of a project. Decisions coming out of the planning and control of the project must be based on timely and relevant information. Project managers and his team members require information by which intelligent decisions can be made and executed effectively. Information flow is a critical consideration in the speed and eloquence with which the efficient and effective use of resources is carried out in meeting the purpose of the enterprise.

Information systems for organization include the formal information that is required to portray the organization’s posture, strategies, and performance, and the informal information which includes verbal communication which are informal and unofficial. This informal information can provide project managers with insight into how people really feel about the project.

The objectives of an information system are to provide the basis to plan, monitor, integrate project evaluation, and to show the interrelationships among cost, schedule, and technical performance for the entire project and for the strategic direction of the organization. In addition, information should provide a prospective view to identify project problems before they occur, so that they can be avoided or their impact minimized. Information is also required by the project team to continuously monitor, evaluate, and control the resources used on the project. There is also a need by senior management to be kept informed of the status of the project. The hardest part of any management job is not having all the necessary relevant information, yet having the responsibility of making the ‘right decision’.

In the construction industry, it is important that project information is shared between the project stakeholders so as to promote trust and to enhance a more mature relationships amongst them. Sharing of project information is one of the more important dimensions of keeping the team members working together cohesively and concurrently in the utilization of the project resources. Such sharing also facilitates the building of networks with the stakeholders through continuous interpersonal contact and dialogue.

It must be remembered that information has no real value and does not automatically lead to an effective management process. Information does not ensure success, but lack of information can contribute to project failures. Information and data is not equal. Data is merely raw material of information. Collected data are structured into meaningful elements and then transformed and refined to meet the needs of management.

Information provides the intelligence for managing the project. Information must be processed so that decisions can be made and executed. Information is essential to promote understanding, to establish project objectives and strategies, and to develop mechanisms for control, and forecast future performance, resources required, and to recognize changes. Information is needed to prepare the project plan, develop budgets, create and use schedules, and to lead the project team to a successful conclusion of the project. The project planning function establishes a structure and a methodology for managing the information resources which encompass defining, structuring, and organizing project information, anticipating its flow, reviewing information quality, controlling its use and source, and providing a focal point for the project’s information policies.

Project Management Softwares

Computers are the backbone of today’s information systems which form an integral part of project management. Computers are in essence data and information processors. If properly applied and managed they can greatly enhance productivity and improve quality, providing company with a competitive advantage.

In many construction companies, most management resides in the hands of those who graduated decades ago with little exposure, if any, to computer technology. Such individuals are faced with the difficulties of understanding the value and use of computers in the daily project life.

At another level, decentralization of information technology boosted productivity of those armed with proper knowledge in their fields and in the field of computing. Proper applications of remote computing make it possible to solve problems hundreds or even thousands of miles away from the project site without any loss of details or input from the project management personnel. Advance data collection techniques provide better control on cost, time, and quality as well as future estimates. Scheduling exercises of CPM or precedence take very little time to process once the schedule is set. Estimating becomes more reliable with proper use of software that facilitates reuse of unit costs and package or work assemblies.

A large number of procedures and methods have been developed to enhance the application of project management to a vast range of industrial and administrative functions. This rapid spreading of project management is largely due to the availability of computer software packages that make it possible to quickly implement project management techniques.

Computer programs for project planning and control have been available for a long time. A software package must be able to meet the needs of a project. There are numerous commercial software packages available. Although most project management software programs can run on the basic PC computer system, users of programs with graphical user interfaces often require a more powerful system.

Some of the project management softwares include: Microsoft Project, Artemis Project, Primavera, Suretrak Project Scheduler, Open Plan, Spreadsheets, Word processing softwares, & Etc, Etc.

Computer- processing applications in construction industry are becoming more and more common as many companies have realized the benefits inherent in such products. In the highly competitive construction field, the need to reduce costs and increase speed of delivery is paramount.

Computer applications, which have been used in the industries, may be broadly classified into four major categories [David Cleland, 1999]:

Administrative softwares
Engineering & design softwares
Project management & control, and
Plant and equipment control.

With the speedy growth and development in technologies and the continuous availability of development tools, this may allow for the creation of modules or building blocks for systems which allow rapid development of individual, functional systems around a common data structure.

The cost of integrated project control system software currently available is relatively high, which preclude most small businesses from acquiring these programmes. Alternatively, small corporations will need to develop their system using spreadsheet and word processors, but the reliability and accuracy may be improper and unrealistic.

Unfortunately, these applications are mainly isolated tools that lack comprehensive computer-aided project management system capable of being integrated with the project management functions within the various functional departments of an organization.

According to the research of Ken Gregson (2001), many organizations face the problem of island-development of information system. Their information system may be individually very good but they have been developed in isolation of one another and thus there is no added value arising from the interaction of the various systems. “People use different information to take different decisions – and then is surprised when the decisions do not relate to one another… individual systems should be components of a wider system. The overall planning activity needs to establish where these sub-systems interact, where they need to overlap, where and how they need to communicate and so on especially where they need to share data”, says Gregson.

The Internet is changing how project team members work together on a project, which usually comprises a complex process of collaboration, co-ordination and communication. The Internet is playing a crucial role in ensuring greater efficiency and productivity. As professor Thomas W. Malone of MIT Sloan School of Management wrote: “The revolution under way today will be driven not by changes in production, but by changes in co-ordination”. The Internet enables project teams to connect to an integrated environment that bridges geographical locations, time zones and project domains. Virtual teams can collaborate productively at any time, from anywhere [IcFox, 2001].

Using the Internet platform for project collaboration will represent a new paradigm for the construction industry in the coming years. According to IcFox (2001), by the year 2004, it is expected that construction companies will spend up to US$1 billion (RM3.8 billion) on hosted and project collaboration softwares. In is imperative for construction companies to enhance efficiency and profitability by improving their tools and methodology to enable quantum leap improvement with lower cost.

Computer should not be used to replace traditional decision-making processes. The computer should be used only as a tool to facilitate the implementation of validated techniques. The primary value of the computer is the speed at which it will perform the quantitative analysis needed in developing schedules and generating a variety of outputs and reports.

Project managers therefore need to be aware of available and emerging technologies. Together, these lead to a development of an information strategy, which itself give rise to the development of integrated and compatible systems.

Construction Project Reporting System

All companies are required to have an integrated information system which includes estimating, job costing, accounting, payroll, and scheduling. A management information system is integrated by means of a cost code of accounts.

The features of a progress reporting system are:

Work breakdown structure
Physical percentage complete
Planned and actual duration
Earned Value and project cost updates
Status report and forecast report
Estimate at completion and Estimate to completion
Manpower availability, utilization and productivity report
Material procurement and distribution
Plant and machinery availability, productivity and usage
Financial summary, Progress payment, and project cashflow
Project technical documents report
Request for further information matrix
Procurement status report
Report Summary

Project accounting system include:

Accounts payable & receivables
Balance sheet
Profit and Loss Statement
Financial Ratios
Purchase & expenditure register
Contract costs
General ledger
Purchase order
Project cost detail and summary
Project Cash flow Statement

Project reporting system must fully integrate the following: a Cost System, Material Tracking System, and the Scheduling System.

A project Cost System must interface with the organizational's Accounting Systems, which shall include, cost of material, labor, equipment and machineries (and project overhead cost). The objective of a Cost System is to track and forecast costs for comparison against budget. Apart from the Accounting System integration, it is necessary to also have a Material Management System which will track the materials from the requisition stage through to surplus disposal stage. The Scheduling System requires several levels of reporting to meet the need of the management hierarchy and therefore should be capable of the “roll-up” techniques. A scheduling system must be capable of scheduling all the activities, identify critical activities, estimate the resources required and include resource leveling, progress updating and tracking, and be produced graphically.

Reporting and feedback must be accurate and timely if it is to be effective for control purpose. Feedback must occur to the project team as well as management level. Management level reporting, that is for owners, contractors and project management teams, must provide statements of accomplishments versus planned cost and schedule objectives, forecast final costs and completion period. It should also review current and potential problems and indicates action taken to overcome the effects of the problems.

Weekly or monthly meetings are held to assess the progress of work. The review meetings are aimed at translating latest work status and critical problems into specific action plan. Weekly or bi-weekly (perhaps monthly) reports with information on the actual and ‘forecast at/to completion’, and the quantities of workdone serve as the agenda for the review meetings. By analyzing the actual manpower, material distribution, and equipment usage, the allocation and availability of resources can be adjusted.

Monday, June 06, 2005


During the 1990s, the Malaysian economy had charted an average growth of 12%, in tandem with the country’s strong economic growth, which at one time exceeded 8% per annum. The economic exuberance was however reversed in 1998 due to a widespread East-Asian economic meltdown. The economic crisis had waned investors’ confidence. Capability had outstripped capacity. Liquidity has become drier and how the industries are able to survive in this uncertain climate is unpredictable.

In those good times, many companies were expanding at such a fast pace. Excessive risks are hastily justified by excessive returns. Poor utilization of resources is camouflaged with higher financial turnover. When business is booming, companies focus on sales achievements and high volumes of trade. In the frenzy mood, people are no longer sensitive to increased operating costs and wastages. Productivity and efficiency drops drastically, but these weaknesses were obscured by higher sales achieved.

In times of boom, CEO’s and their senior managers often have a euphoria regarding their business success. They get carried away and are often obsessed with issues regarding corporate images and their images. They start by diversifying their business beyond their core competencies; splashing massive amount of money on elaborated renovations and many even build new buildings for their corporate headquarters so as to look successful and great. They make financial commitments in fixed assets without much considerations and proper analysis on those investments, which ultimately tied the company in massive financial obligations and thus put the company in high financial distress. Their overhead expenses were growing extensively much faster than their sales performance and capacity. Suddenly, the crisis came, or shall I say, it came at the wrong (right) time.

The East Asian Economic Crisis had served an unforgettable lesson to Corporate Malaysia, particularly on the inconsiderate loading on the market capacity, overstretching the market capacity beyond its means just for quick short-term gains, adding fuel to the already bad situation.

When the economy was thriving, there were increased buying powers, pushing demands above its usual line. Due to the intense competition and the obsession for rapid growth over a short span of time, companies often undercut competitors in pricing to win more business. Many of these companies choose to compete on price alone rather than on quality of product and service. The tragic part about this approach is that some of these companies do not even know their actual costs or have underestimated their costs. The main fault lies in the increased costs due to inefficiencies, lack of knowledge and competencies and the inflationary costs of materials or labor. Many companies do not carry out any proper financial analysis such as the internal rate of return and net present value. The risk of financial exposure is one key element that finally broke those companies. These companies get more businesses, but also make more losses.

The 1998 Economic Crisis had cause an abrupt loss of global demand which compounded the fundamental problem of overcapacity that already exists worldwide. The era of over investment and the economic expansionist policy currently adopted by China had produced far too much capacity than the global base of consumption can possibly absorb. This will be the harsh and inescapable reality the global enterprises will have to face.

There are tremendous pressures for management today to apply their resources efficiently and in an effective way in order to survive in the current competitive business environment. Traditional sources of profitability are drying up, as quality and high productivity are increasingly becoming prerequisites of doing business rather than providers of competitive advantage. Competitive advantage will be the product of innovation in addressing the needs and desires of a demanding customer base notable for its constantly changing preferences. Innovation is a requisite in every industry as the competition to capitalize on shifting profit zones heats up and the traditional cachet accruing to market share evaporates.

Global and even local competition are putting tremendous pressures on organizations to seek cost reduction, asset restructuring, business process reengineering, business refocusing, quality awareness and to use modern & faster technological processes to improve the productivity and efficiencies of workers. Organization thus have to groom or to procure a new breed of managers who are capable to manage employees and at the same time, create corporations that are both risk-taking and innovative.

As globalization intensifies and technology grows by leaps and bounds, competition in the marketplace has also escalates. As a result, there is a pressing need to streamline, restructure and “right size” organizations. One of the worst of all fads and formulas to be implemented by management is the great panacea called “downsizing” or “rightsizing”. Executives desperate to show some actions in the face of poor results have determined that quick and dramatic actions required to save the bottom line (and to save their job). What is obviously amiss is that the bottom line can be renewed through rapid expenses reduction but not real productivity gains. The people that were retrenched were those who were getting things done and those not affected by the downsizing process were management cronies and co-culprits who help suck dry the companies’ coffers. Unless the nature of the work itself is changed, simply removing people does nothing except to worsen productivity.

Management guru Peter Drucker says, “We are seeing way too many amputations before the diagnosis”. The problem is that the productivity of most organizations immediately plummets upon that action. When a downsizing (often massive firing of people) is announced and implementation begun, productivity plummets because no one knows who will be the next person to be chopped. These cutbacks seldom focus on solely poor performers (as they are usually cronies of top management). The best employees will strike quickly and will be seized by competitors but the mediocre will remain. The contract of loyalty has been broken. The company no longer deserves “loyalty, sacrifices and commitment”.

Downsizing has permitted weak management to escape the consequences of its own incompetence at the expense of the blames, hardworking and performing workers. It is important that management understands that any gains to the bottom line made through expenses reductions, which are not accompanied by revenue increases will contribute towards the organizational downfall.

As declared by Peter Drucker, “no century in human history has experienced so much social transformations and such radical changes as the 21st. Century.” ‘CHANGE’ is threatening. There is no right way and there is no learning without mistakes. There are stages to transformation. Although an organization may skip over one, inevitably it realizes it must retrace its steps to cover the missing ground.

Everyone must accept the premise that fundamental change is necessary. The old way of doing business is no longer an alternative. Everyone must be aware of the situation everyone is trying to do something – often anything – for survival.

No society in history has faced these challenges. But equally new are the opportunities of the knowledge society. Access to the acquisition of knowledge is by learning, which will become the tool available to acquire the skills, technologies and knowledge. The knowledge society will inevitably become far more competitive. Knowledge has become the key resources – for a nation’s economic strength as well as its military strength. Knowledge is not tied to any country and it is portable. It can be created everywhere, fast and cheap. But knowledge is constantly changing. Knowledge always makes itself obsolete within a short period of time. For this reason, the acquisition of knowledge through learning can no longer stop at any age. “Life-long learning” will increasingly be a requirement for any knowledge worker.

In a rapidly changing business world, nothing stays constant even a short while. The worlds around us have changed fundamentally and that attitudes to the cost as well as the benefits of industrial activities and economic growth had undergone a profound transformation. The underlying causes which reflect turbulence in the economic, technological, political and social environments, ‘Triggers for Change’. There are so many external factors that can suddenly present themselves and make a company less competitive or drive a firm out of business if they do not adapt and respond to the changes. Companies that are merely focusing on cost cutting without doing anything new or innovative to win new business will achieve their self-fulfilling prophecy of reduction and diminishing into extinction. Abraham Lincoln has this to say about change: “the dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must think anew and act anew. We must disenthrall ourselves”.

In practice, a very severe recession or a collapse in property value may give rise to radical cost-cutting programmes, involving plant closures and redundancies. Top management spends a great deal of time and energy ‘Fire-Fighting’, as they develop tactical response to these short-term shifts. Unfortunately, this distracts them from paying attention to the underlying trends which in the long run may prove a much more serious threat to the organizational existence. The longer-term changes will certainly result in the need to revise the organization’s strategic thinking and in consequence call for more fundamental changes in the organizational policies and practices. During a severe economic downturn, the sheer need to survive a crisis may mean that actions are taken which are inconsistent with the organizational strategy.

Technology and knowledge are now the key factors of production. With increased mobility of information and the global workforce, knowledge and expertise can be transported instantaneously around the world. Any advantage gained by one company can be eliminated by competitive improvements overnight. The only comparative advantage will be the process of innovation where firms combined market and technological know-how with the creative talents of knowledge workers to solve a constant stream of competitive problems, and its ability to derive value from information.

The challenge facing us is how to leverage on technology to gain a competitive advantage. Organizations will need to adopt a mental model to rethink their notions of where value can be created and how they can capture that value. Successful knowledge management applies a set of approaches to organizational knowledge, including its creation, collection, codification, personalization and dissemination, which will lead to achievement of corporate goals and objectives.

The most successful corporations of the 1990’s will be something called the Learning Organization. According to Arie De Geus of the Royal Dutch / Shell, he says that “The ability to learn faster than your competitors may be the only sustainable competitive advantage”.

Businesses that had survived the economic recession in 1998 must view the development of a business and its financial stability as vital issues. Businesses cannot afford to ignore the need to think ahead and make a careful and regular assessment of all aspects of its performance, its ability to be innovative and creative, and its ability to learn and acquire new knowledge, and particularly its competitive strategy and its competitive advantage of their products or services.

Long-term commitment to new learning and new philosophy is required of any organization that seeks transformation. Best efforts and hard work will not suffice, nor new machinery, computers, automation, gadgets. There is no substitute for competencies. It is evident that in this competitive world, organizations and countries as a whole must achieve recognition from customers about their top quality activities at all times in order to conduct business successfully.

Today, Malaysian organizations and industries have to go further up the value added chain, producing more technological advance products and services to meet the new challenges. The focus must always be value-added production chain. Low value-added products after a period of cyclical upturn result in low prices, and low margin of profit. To be able to achieve the desired results, the drive must be market led.

Every country, every individual and every business have to take into serious consideration its competitive standing in the world economy and the competitiveness of its knowledge competencies. In order to sustain the long-term growth, industries have to be innovative, far-sighted, competitive, focused and fast to win in the ever-challenging market.

Industry players should also possess strong business acumen, continually improving their competitive advantage and being able to adapt their business to the ever-changing market needs. They have to ensure that their products would have to meet and possibly exceed the desired quality, delivered on time, and within the cost budgeted and most of all, satisfying the needs of the customers and ultimately bring in the desired profit which is the fundamental of why the business organization exist.