1

TABLE OF CONTENT

CONTENT PAGE

1.0 INTRODUCTION 5

2.0 VIABILITY AND FINANCIAL ANALYSIS 6

2.1 GROSS DEVELOPMENT COST (GDC) 6

2.2 GROSS DEVELOPMENT VALUE (GDV) 8

2.2.1 METHODS TO CALCULATE

GROSS DEVELOPMRNT (GDV)

2.3 NET PRESENT VALUE (NPV) 9

2.4 DISCOUNTED CASH FLOW (DCF) 9

2.5 RETURN ON INVESTMENT (ROI) 9

3.1 CONVENTIONAL METHOD 10

3.1.2 PRE-DEVELOPMENT COST 10

3.1.3 CONSTRUCTION COST 13

3.1.4 SUMMARY OF TOTAL 14

ESTIMATED GROSS DEVELOPMENT COST

3.1.5 TOTAL ESTIMATED GROSS DEVELOPMENT 14

VALUE/SALES INCOME

3.1.6 VILBILITY STATEMENT 15

3.1.7 SCHEDULE OF INCOME 16

3.1.8 SCHEDULE OF PAYMENT 16

OPTION A (BUILD THEN SELL)

2
 3.1.9 SCHEDULE OF PAYMENT 16

OPTION B (SELL THEN BUILD)

3.1.10 DISCOUNTED CASHFLOW 17

RETURN ANALYSIS OPTION A (BUILD THEN SELL)

3.1.11 DISCOUNTED CASHFLOW RETURN 18

ANALYSIS OPTION B (SELL THEN BUILD)

3.2 IBS METHOD

3.2.1 PRE-DEVELOPMENT COST 19

3.2.2 CONTSRUCTION COST 22

3.2.3 SUMMARY OF TOTAL ESTIMATED 23

GROSS DEVELOPMENT COST

3.2.4 TOTAL ESTIMATED GROSS 23

DEVELOPMENT VALUE/SALES INCOME

3.2.5 VIABILITY STATEMENT 24

3.2.6 SCHEDULE OF INCOME 25

3.2.7 SCHEDULE OF PAYMENT 25

OPTION A (Build and sell)

3.2.8 SCHEDULE OF PAYMENT 25

OPTION B (Sell then build)

3.2.9 DISCOUNTED CASHFLOW 26

RETURN ANALYSIS

4.0 COMPARISON OF CASHFLOW 28

5.0 PROCUREMENT OF THE PROJECT 29

3
 5.1 INTRODUCTION 29

5.2 PROCUREMENT METHOD 29

5.3 TRADITIONAL ARRANGEMENT

5.3.1 INTRODUCTION 30

5.3.2 ADVANTAGES 31

5.3.3 DISADVANTAGES 32

5.3.4 METHOD OF TENDERING 32

5.3.5 METHOD OF PAYMENT 33

5.4 DESIGN AND BUILD CONTRACTING

5.4.1 INTRODUCTION 36

5.4.2 ADVANTAGES 37

5.4.3 DISADVANTAGES 38

5.4.4 METHOD OF TENDERING 39

5.4.5 METHOD OF PAYMENT 41

5.5 CONDITION OF CONTRACT

5.5.1 TYPES OF CONDITION OF 41

CONTRACT USED IN MALAYSIA

6.0 COMPARISON

6.1 TRADITIONAL VS DESIGN AND BUILD 44

7.0 POTENTIAL CLIENT

7.1 PUBLIC CLIENT 49

7.2 PRIVATE CLIENT 50

8.0 CONCLUSION OF PROCUREMENT 51

9.0 JUSTIFICATION 52

4
1.0 INTRODUCTION

Financial viability is the ability of an entity to continue to achieve its operating objectives
and fulfil its mission from a financial perspective over the long-term. It would be expected that
a financially viable project generate sufficient cash flow to deliver an appropriate risk-adjusted
return on the capital invested. While, financial viability assessment is one of a range of
measures designed to reduce risk. The requirements for financial viability assessment should
be considered when planning the tender. The process for the assessment of financial viability
should be proportionate to the risk of the project. While the information provided for financial
evaluations is a historical snapshot which can only give current or short term future likelihoods
based on current, known issues and situations, an entity must satisfy itself that, based on that
current available information the tenderer it is dealing with is likely to remain financially viable
for the life of the proposed contract or can be readily replaced should they become insolvent.

A tenderer's financial viability can rapidly deteriorate or improve with changes to the
economic and operating environment. As such, it should be recognized that a point in time
assessment of viability can only screen out high risk tenderers, and is not a substitute for sound
project planning and contract management. Tender request documentation should include a
mechanism to allow entities to exclude tenderers that are considered too high risk. The tender
request documentation should also specify the documents that are required to undertake a
financial viability assessment of the preferred tenderer.

Financial statements can be analyzed to provide insight into a tenderer's financial

stability. A range of financial ratios can be used to assess a tenderer's profitability, liquidity and
financial stability. Care should be used in applying the ratios, as standards vary between
industries. If a project is assessed as being moderate or high risk, it may be appropriate to
seek a professional financial assessment of the preferred tenderer. In all cases, entities should
only undertake their own ratio analysis, without professional advice, where they have the
expertise to do so. Financial assessments at the project preparation stage have a number of
aspects, including project costs, revenue estimates, project funding mechanisms, and financial
risks. All of these inputs inform financial modelling, which provides a determination on overall
financial viability and allows different scenarios and assumptions to be tested.

5
2.0 VIABILITY AND FINANCIAL ANALYSIS

This viability and financial analysis is include gross development cost (GDC), gross
development value (GDV), Net Present Value (NPV), Discounted Cash Flow (DCF) and Return
on Investment (ROI).

2.1 GROSS DEVELOPMENT COST (GDC)

Gross Development Cost (GDC) refers to the aggregate costs of a given company project. It
could also be called the sum of all means of finance, which a company employs on a particular
project. This is similar with the total costs, which a firm incurs from the conception of to the
final implementation of a certain project. Any costs that occur after the project’s completion will
be treated as operational expenses. Besides, GDC also is the expenses associated with
developing either improved or new products. The items include in GDC are followed:

A. Pre Development Cost

i. Soil investigation
ii. Surveying fees
iii. Plan and submission fees
iv. Contribution to agencies include JPS, TNB, IWK and SYABAS
v. CIDB (0.125% of construction cost)
vi. Professional fees (6% of construction cost)
vii. Management fees (2.5% of construction cost)
viii. Legal Fees (1.5% of income)
ix. Advertisement fees (1.6% of GDV)

B. Construction Cost
i. Building Cost
ii. Infrastructure cost
iii. Preliminaries
iv. Contingencies

6
2.2 GROSS DEVELOPMENT VALUE (GDV)

The Gross Development Value (GDV) of a development project is an estimate of the

open market capital value or rental value the development is likely to have once it is complete.
It may be calculated as part of an initial development appraisal and may then be continually
assessed to help determine whether the project is likely to be, or has been profitable.

It is calculated based on the market conditions prevailing at the date of the valuation,
and may be based on an analysis of recent property transactions for similar properties in the
area of the development. This can include asking prices, sale prices, information provided by
letting agents or estate agents, or assessments provided by development surveyors.

Gross Development Value may be used as part of a residual valuation, that is, the
process of valuing land with development potential. The sum of money available for the
purchase of land can be calculated from the value of the completed development (GDV) minus
the costs of the development process (including profit). The complexity in such assessments
lies in the calculation of inflation, finance terms, interest and cash flow against a programme
timeframe.

Assessment of Gross Development Value can have a significant impact on the

profitability, form, rate of completion, and even the viability of a development project. For
example, if a high Gross Development Value is needed to generate sufficient profit for the
development to be worth pursuing, it may be necessary to design a high-density use for the
proposed site. Accurate assessment of Gross Development Value can be particularly difficult
on large, complex projects that may take a considerable time to complete.

7
2.2.1 Method to Calculate Gross Development Value (GDV)

Generally, if a near accurate valuation were to be created for a property development project
or purchase, then current property sales prices and recent transactions in the area for similar
properties would be carefully analyzed. This would provide a comparable estimate of what
properties in the same area are selling for and therefore it could expect the property to be
fetch.

a) Residual Method of Appraisal

The method of development appraisal that incorporates the GDV calculation is the
residual method of valuation and you can approach this in a couple of different ways.
The most common and most basic formula to estimate the general value is as follows:

Land = GDV – (Construction + Fees + Profit)

Where:

Land = Purchase price of land/property/site acquisition

GDV = Gross development value

Construction = Building and construction costs

Fees = Fees and transaction costs

Profit = Developers profit required

b) Calculating Property Developers Profit

An alternative form of the residual assessment can be used by reconfiguring the above
formula to calculate the property developer’s profit:

Profit = GDV – (Construction + Fees + Land)

The second form of this formula is a more traditional way of assessing the financial
viability of a property development project as it helps to highlight the developers profit
so an assessment can be made at the outset as to the projects viability.

8
2.3 NET PRESENT VALUE (NPV)

Net Present Value (NPV) is a common financial modelling approach. The NPV formula
calculates the difference between the present value of cash inflows and the present value of
cash outflows over a period. A positive NPV (NPV > 0) indicates that the investment will be
profitable because the projected earnings (in present value) is greater than the anticipated
costs (in present value). Companies to make decisions on investments because it provides an
equivalent method of comparing both internal and external investments of a company where
there are different values and profits over time often use NPV.

2.4 DISCOUNTED CASH FLOW (DCF)

Discounted Cash Flow (DCF) is very similar to NPV, relies on the same formula, and takes
into account calculations of both NPV and IRR. The difference is that DCF looks at how
valuable an investment will be in the future, and therefore the focus of attention is on the
discounted future cash flow. DCF is of high interest to investors because it helps calculate the
returns that would be obtained for the investment and how long it would take to get the returns.

2.5 RETURN ON INVESTMENT (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an

investment or compare the efficiency of a number of different investments. ROI tries to directly
measure the amount of return on a particular investment, relative to the investment’s cost. To
calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment.
The result is expressed as a percentage or a ratio. The return on investment formula is as
follows:

“Current Value of Investment” refers to the proceeds obtained from the sale of the investment
of interest. Because ROI is measured as a percentage, it can be easily compared with returns
from other investments, allowing one to measure a variety of types of investments against one
another.

9
3.1 CONVENTIONAL METHOD

3.1.2 PRE-DEVELOPMENT COST

PROJECT TITLE: PROPOSED CONSTRUCTION AND COMPLETION OF 60 UNITS SINGLE-STOREY HOUSE AT LOT 1884, JALAN
NGAH IBRAHIM, 40470 SHAH ALAM

Total Cost
Item Description Unit Qty Rate Cost (RM)
(RM)
1 SOIL INVESTIGATION (boreholes) No 16
2,500.00 40,000.00 40,000.00
1 acre = 4 boreholes
4 acres = 16 boreholes

2 SURVEYING FEES
a. Boundary, Bench Mark, Contour Survey, etc
i. Detail Survey (flat, 1m) Unit 60
530.00 31,800.00
for every lot @ RM530
ii. Demarcation
1500m @ RM2.00 M 1500
2.00 3,000.00
iii. Connection to Bench Mark
Concrete, accessible:
4 marks @ RM743.00
2,972.00

2,972.00 2,972.00
b. Pre-comp. Plan, Strata Title & Final Title

10
 i. Preparation of pre-comp plan No 60
100.00 6,000.00
ii. Final Title
Up to 100m2 @ RM250
1-storey Terrace house @70m²/unit Unit 48
250.00 12,000.00

55,772.00
1-storey terrace house @ 84m²/unit:
250.00 Unit 4
m²/parcel 250.00 1,000.00

1-storey terrace house @ 93m²/unit Unit 8

250.00 250.00 2,000.00 3,000.00

3 PLAN & SUBMISSION FEES

a. Planning Fee
i. Residential Building , 1 storey terrace house Unit 60 50.00 3,000.00
ii. Infrastructure Acre 4 1,200.00 4,800.00
iii. Landscaping Acre 4 600.00 2,400.00
10,200.00

Carried Forward
108,972.00

11
3.1.2 PRE - DEVELOPMENT COST (cont'd)

Item Description Unit Qty Rate Cost Total Cost

B/F 108,972.00

4 CONTRIBUTION TO AGENCIES
a. JPS Acre 4 5,000.00 20,000.00
b. TNB
horizontal unit Unit 60 450.00 27,000.00
c. IWK (1.00% of GDV) 1% 89,200.00
d. SYABAS (0.25% of GDV) 0.25% 22,300.00 158,500.00
5 CIDB (0.125% of construction cost) 0.125% 7,465.30
6 PROFESSIONAL FEES
(6% of construction cost) 6% 358,334.55
(5% service tax) 5% 17,916.73 376,251.28
7 MANAGEMENT FEES
(2.5% of construction cost) 2.5% 223,000.00
8 LEGAL FEES
(1.5% of income) 1.5% 133,800.00
9 ADVERTISEMENT FEES
(1.6% of GDV) 1.6% 142,720.00

Total Pre-Development Cost 883,236.58

12
3.1.3 CONSTRUCTION COST

A. BUILDING COST
GFA Cost/m² Cost/
Item Description Unit Total Cost
(m²) GFA Unit

1 Corner Unit 93 1,224.0 113,840.3 8

910,722.96
9 7

2 End Unit 84 1,110.4 4

93,274.44 373,097.76
1

Intermediat
3 70 1,141.8 48
e Unit 79,926.00 3,836,448.00
0
Total Building Cost 5,120,268.72

B. INFRASTRUCTURE COST
Item Description Unit Qty Rate Total Cost
1 Site Preparation Acre 4
8,034.90 32,139.60
2 Earthwork Acre 4
15,000.00 60,000.00
3 Road and Carpark Acre 4
3,575.48 14,301.92
4 Surface Water Drainage Acre 4
8,524.20 34,096.80
5 Sewerage System Acre 4
1,042.92 4,171.68
Sewerage Treatment
6 PE 300
Plant 500.00 150,000.00
(connection)
Population, say;
Residential = 5 person
per
house
60 unit @ 5
= 300
persons
7 Electrical Supply & Acre 4
14,325.00 57,300.00
Telephone
8 Water Reticulation Acre 4
796.88 3,187.52
9 Landscaping & Turfing Acre 4
10,000.00 40,000.00
10 TNB Sub-station (Double No 1
172,383.75 172,383.75
Chamber)
Total Infrastructure Cost 567,581.27

13
3.1.4 SUMMARY OF TOTAL ESTIMATED GROSS DEVELOPMENT COST

Cost Total Cost

Description
(RM) (RM)
PRE-DEVELOPMENT COST
883,236.58

CONSTRUCTION COST

1 Building 5,120,268.7
Construction Cost 2

2 Infrastructure Cost 567,581.27

5,687,849.9
9
Preliminarie
3 s 284,392.50
(5% of items
5,972,242.4
1-2)
9

Contingencies & Design Reserve

298,612.12

(5% of items 1-3) 6,270,854.6 6,270,854.6

1 1

Total Estimated Gross Development Cost 7,154,091.1

9

3.1.5 TOTAL ESTIMATED GROSS DEVELOPMENT VALUE/SALES INCOME

(Based on 100% sales)

GFA Selling Total Amount

Item Description Unit Price/Unit
(m²) (RM) (RM)
A RESIDENTIAL BUILDING
Corner Unit 8 93 190,000.00
1,520,000.00
End Unit 4 84 170,000.00
680,000.00
Intermediate Unit 48 70 140,000.00
6,720,000.00

Total Estimated Gross Development Value (Sales Income)

8,920,000.00

14
3.1.6 VIABILITY STATEMENT

Total Estimated Gross Development Value

8,920,000.00
Less
Total Estimated Gross Development Cost
7,154,091.19
Estimated Gross Development Profit
1,765,908.81

Percentage of Total Return on Development

Percentage
Estimated Gross Profit
Return
= x 100
Total Estimated Gross
Development Cost
1,765,908.81
= x 100
7,154,091.19

= 24.6839 %

15
3.1.7 SCHEDULE OF INCOME
8,920,000.00
YEAR % OF INCOME AMOUNT (RM)
1 35% 3,122,000.00
2 30% 2,676,000.00
3 20% 1,784,000.00
4 10% 892,000.00
5 5% 446,000.00

3.1.8 SCHEDULE OF PAYMENT OPTION A (BUILD THEN SELL)

Description Amount % 1st Year % 2nd year

Building Cost 5,120,268.72 50% 2,560,134.36 50% 2,560,134.36

Infrastructure cost
567,581.27 30% 170,274.38 70% 397,306.89
Other pre-development
cost
883,236.58 70% 618,265.61 30% 264,970.97
Preliminaries
284,392.50 50% 142,196.25 50% 142,196.25
Contingencies and
design reserve
298,612.12 50% 149,306.06 50% 149,306.06

3.1.9 SCHEDULE OF PAYMENT OPTION B (SELL THEN BUILD)

Description Amount % 3rd Year % 4th Year

Building Cost 5,120,268.72 50% 2,560,134.36 50% 2,560,134.36

Infrastructure cost 567,581.27 30% 170,274.38 70% 397,306.89

Other pre-development
cost 883,236.58 70% 618,265.61 30% 264,970.97

Preliminaries 284,392.50 50% 142,196.25 50% 142,196.25

Contingencies and
design reserve 298,612.12 50% 149,306.06 50% 149,306.06

16
 3.1.10 DISCOUNTED CASHFLOW RETURN ANALYSIS
A. OPTION A (BUILD THEN SELL)
Year
1 2 3 4 5
Total Cost
35 30 20 10 5
CASH INFLOWS
Sales of building unit 8,920,000.00
Total Cash Inflows 8,920,000.00 3,122,000.00 2,676,000.00 1,784,000.00 892,000.00 446,000

CASH OUTFLOWS

Building cost 5,120,268.72 2,560,134.36 2,560,134.36

Infrastructure cost 567,581.27 170,274.38 397,306.89
Pre-development and
883,236.58
associated cost 618,265.61 264,970.97
Preliminaries 284,392.50 142,196.25 142,196.25
Contingencies and design
298,612.12
reserve 149,306.06 149,306.06
Total Cash Outflows 7,154,091.19 3,640,176.66 3,513,914.53 0.00 0.00
Net cash flow 1,765,908.81 (518,177) (837,915) 1,784,000 892,000 44
Discount factor @ 2% 0.9804 0.9612 0.9423 0.9238 0
Discounted Net Cash Flow 1,595,735.49 (508,016.33) (805,377.29) 1,681,103.04 824,070.12 403,9

The Net Present Value of the Project is: RM1,595,735.49

17
 3.1.11 DISCOUNTED CASHFLOW RETURN
ANALYSIS
B. OPTION B (SELL THEN BUILD)

Year
1 2 3 4 5
Total Cost
35 30 20 10 5
CASH INFLOWS
Sales of building unit 8,920,000.00
Total Cash Inflows
8,920,000.00 3,122,000.00 2,676,000.00 1,784,000.00 892,000.00 446,000.00
CASH OUTFLOWS

Building cost 5,120,268.72 2,560,134.36 2,560,134.36

Infrastructure cost 567,581.27 170,274.38 397,306.89

Pre-development and associated
cost 883,236.58 618,265.61 264,970.97

Preliminaries 284,392.50 142,196.25 142,196.25

Contingencies and design
reserve 298,612.12 149,306.06 149,306.06

Total Cash Outflows 7,154,091.19 0.00 0.00 3,640,176.66 3,513,914.53 0.00

Net cash flow 1,765,908.81 3,122,000.00 2,676,000.00 (1,856,176.66) (2,621,914.53) 446,000.00

Discount factor @ 2% 0.9804 0.9612 0.9423 0.9238 0.9057
Discounted Net Cash Flow 1,865,467.44 3,060,784.31 2,572,087.66 (1,749,116.72) (2,422,243.75) 403,955.94

The Net Present Value of the Project is: RM1,865,467.44

COMMENTS: Above are two options differing in the timing, Option A has an NPV of RM 1,595,735.49 while Option B is RM 1,865,467. Both
options are profitable but Option B is much more promising and worthy. The client may opt for Option B.

18
3.2 IBS METHOD
3.2.1 PRE-DEVELOPMENT COST

Item Description Unit Qty Rate Cost Total Cost

1 SOIL INVESTIGATION (boreholes) No 16 2,500.00 40,000.00

40,000.00
1 acre = 4 boreholes
4 acres = 16 boreholes

2 SURVEYING FEES
Boundary, Bench Mark, Contour Survey,
a.
etc. 15,462.00 15,462.00
Detail Survey (flat & undulating,
i.
1m)
(Basic fee+survey) 3,490.00
ii. Demarcation
1500m @ RM6.00 9,000.00
iii. Connection to Bench Mark
Concrete, accessible:
4 marks @ RM743.00 2,972.00
15,462.00

b. Pre-comp. Plan, Strata Title & Final Title

i. Preparation of pre-comp plan No 60 20.00
1,200.00

c. Final Title
1-storey terrace house:100m²/lot Unit 60 550.00
33,000.00

19
3.2.1 PRE-DEVELOPMENT COST (CONT’D)

Item Description Unit Qty Rate Cost Total Cost

3 PLAN & SUBMISSION FEES
a. Planning Fee
Residential Building 1st 100
i. Unit 60 50.00
units 3,000.00
v. Infrastructure Acre 4 1,200.00
4,800.00
vi. Landscaping Acre 4 600.00
2,400.00 10,200.00

99,862.00

20
3.2.1 PRE-DEVELOPMENT COST (CONT’D)

Item Description Unit Qty Rate Cost Total Cost

4 CONTRIBUTION TO AGENCIES
a. JPS Acre 4 5,000.00
20,000.00
b. TNB
horizontal unit Unit 60 450.00
27,000.00
c. IWK (1.00% of GDV) 1%
89,200.00
d. SYABAS (0.25% of GDV) 0.25%
22,300.00 158,500.00

CIDB (0.125% of construction cost) 0.125%

8,296.60
PROFESSIONAL FEES
(6% of construction cost) 6%
398,237.01
(5% service tax) 5%
19,911.85 418,148.86
MANAGEMENT FEES
(2.5% of construction cost) 2.5%
165,932.09
LEGAL FEES
(1.5% of income) 1.5%
133,800.00
ADVERTISEMENT FEES
(1.6% of GDV) 1.6%
142,720.00

Total Pre-Development Cost

1,127,259.55

21
3.2.2 CONTSRUCTION COST
A. BUILDING COST

GFA Cost/m² Cost/

Item Description Unit Total Cost
(m²) GFA Unit

1 Corner Unit 93 8
1,371.26 127,526.74 1,020,213.92

2 End Unit 84 4
1,260.95 105,919.86 423,679.44

Intermediate
3 70 48
Unit 1,282.66 89,786.41 4,309,747.68

Total Building Cost

5,753,641.04

B. INFRASTRUCTURE COST

Item Description Unit Qty Rate Total Cost

1 Site Preparation Acre 4
8,034.90 32,139.60
2 Earthwork Acre 4
15,000.00 60,000.00
3 Road and Carpark Acre 4
3,575.48 14,301.92
4 Surface Water Drainage Acre 4
8,524.20 34,096.80
5 Sewerage System Acre 4
1,042.92 4,171.68
Sewerage Treatment
6 PE 300
Plant 500.00 150,000.00
(connection)
Population, say;
Residential = 5 person
per
house
60 unit @ 5
= 300
persons
7 Electrical Supply & Acre 4
14,325.00 57,300.00
Telephone
8 Water Reticulation Acre 4
796.88 3,187.52
9 Landscaping & Turfing Acre 4
10,000.00 40,000.00
TNB Sub-station (Double
10 No 1
Chamber) 172,383.75 172,383.75
Total Infrastructure Cost
567,581.27

22
3.2.3 SUMMARY OF TOTAL ESTIMATED GROSS DEVELOPMENT COST

Cost Total Cost

Description
(RM) (RM)
PRE-DEVELOPMENT COST
1,127,259.55

CONSTRUCTION COST
Building Construction
1
Cost 5,753,641.04
Infrastructure
2
Cost 567,581.27

6,321,222.31
3 Preliminaries
316,061.12
(5% of items
1-2) 6,637,283.43

Contingencies & Design Reserve

331,864.17
(5% of items 1-3)
6,969,147.60 6,969,147.60
Total Estimated Gross Development Cost
8,096,407.14

3.2.4 TOTAL ESTIMATED GROSS DEVELOPMENT VALUE/SALES INCOME

(Based on 100% sales)

GFA Selling Total Amount

Item Description Unit Price/Unit
(m²) (RM) (RM)
A RESIDENTIAL BUILDING
Corner Unit 8 93
190,000.00 1,520,000.00
End Unit 4 84
170,000.00 680,000.00
Intermediate Unit 48 70
140,000.00 6,720,000.00

Total Estimated Gross Development Value (Sales Income)

8,920,000.00

23
3.2.5 VIABILITY STATEMENT
1. IBS VIABILITY

Total Estimated Gross Development Value

8,920,000.00
Less
Total Estimated Gross Development Cost
8,096,407.14
Estimated Gross Development Profit
823,592.86

Percentage of Total Return on Development

Percentage
Estimated Gross Profit
Return = x 100
Total Estimated Gross Development Cost
823,592.86
= x 100
8,096,407.14

= 10.1723 %

24
3.2.6 SCHEDULE OF INCOME

8,920,000.00
YEAR % OF INCOME AMOUNT (RM)
1 35% 3,122,000.00
2 30% 2,676,000.00
3 20% 1,784,000.00
4 10% 892,000.00
5 5% 446,000.00

3.2.7 SCHEDULE OF PAYMENT OPTION A (Build and sell)

Description Amount % 1st Year % 2nd year

Building Cost 5,753,641.04 70% 4,027,548.73 30% 1,726,092.31

Infrastructure
cost 567,581.27 30% 170,274.38 70% 397,306.89
Other pre-
development
cost 1,127,259.55 70% 789,081.68 30% 338,177.86
Preliminaries
316,061.12 70% 221,242.78 30% 94,818.33
Contingencies
and design
reserve 331,864.17 70% 232,304.92 30% 99,559.25

3.2.8 SCHEDULE OF PAYMENT OPTION B (Sell then build)

Description Amount % 3rd Year % 4th Year

Building Cost 5,753,641.04 70% 4,027,548.73 30% 1,726,092.31

Infrastructure cost 567,581.27 30% 170,274.38 70% 397,306.89

Other pre-development
cost 1,127,259.55 70% 789,081.68 30% 338,177.86

Preliminaries 316,061.12 70% 221,242.78 30% 94,818.33

Contingencies and
design reserve 331,864.17 70% 232,304.92 30% 99,559.25

25
3.2.9 DISCOUNTED CASHFLOW RETURN ANALYSIS
A. OPTION A (BUILD AND SALE)

Year
1 2 3 4 5
Total Cost
35 30 20 10 5
CASH INFLOWS
Sales of building unit
8,920,000.00
Total Cash Inflows
8,920,000.00 3,122,000.00 2,676,000.00 1,784,000.00 892,000.00 446,000.00

CASH OUTFLOWS

Building cost
5,753,641.04 4,027,548.73 1,726,092.31
Infrastructure cost
567,581.27 170,274.38 397,306.89
Pre-development and
associated cost 1,127,259.55 789,081.68 338,177.86
Preliminaries
316,061.12 221,242.78 94,818.33
Contingencies and design
reserve 331,864.17 232,304.92 99,559.25
Total Cash Outflows 8,096,407.14 5,440,452.49 2,655,954.65 0.00 0.00 0.00
Net cash flow 20,045 446,000
823,592.86 (2,318,452) 1,784,000 892,000
Discount factor @ 2% 0.9804 0.9612 0.9423 0.9238 0.9057
Discounted Net Cash Flow 655,403.43 403,955.94
(2,272,992.64) 19,266.96 1,681,103.04 824,070.12

The Net Present Value of the Project is: RM 655,403.43

26
 B. OPTION B (SALE THEN BUILD)

Year
1 2 3 4 5
Total Cost
35 30 20 10 5
CASH INFLOWS
Sales of building unit
8,920,000.00
Total Cash Inflows
8,920,000.00 3,122,000.00 2,676,000.00 1,784,000.00 892,000.00 446,000.00
CASH OUTFLOWS

Building cost 5,753,641.04 4,027,548.73 1,726,092.31

Infrastructure cost 567,581.27 170,274.38 397,306.89

Pre-development and
associated cost 1,127,259.55 789,081.68 338,177.86

Preliminaries 316,061.12 221,242.78 94,818.33

Contingencies and
design reserve 331,864.17 232,304.92 99,559.25
Total Cash Outflows 8,096,407.14 0.00 0.00 5,440,452.49 2,655,954.65 0.00

Net cash flow 823,592.86 3,122,000.00 2,676,000.00 (3,656,452.49) (1,763,954.65) 446,000.00

Discount factor @ 2% 0.9804 0.9612 0.9423 0.9238 0.9057
Discounted Net Cash
961,649.63
Flow 3,060,784.31 2,572,087.66 (3,445,556.85) (1,629,621.44) 403,955.94

The Net Present Value of the Project is : RM961,649.63

27
4.0 COMPARISON OF CASHFLOW

CONVENTIONAL METHOD
OPTION A OPTION B
(BUILD AND SALE) (SALE THEN BUILD)

The Net Present

Value of the Project RM1,595,735.49 RM1,865,467.44
(NPV)

Above are two options differing in the method of selling, Option A has an NPV of RM
1,595,735.49 meanwhile Option B is RM 1,865,467. Both options are profitable, but Option B
is much more promising and worthy.

IBS METHOD
OPTION A OPTION B
(BUILD AND SALE) (SALE THEN BUILD)

The Net Present

Value of the Project RM655,403.43 RM961,649.63
(NPV)

Above are two options differing in the method of selling, Option A has an NPV of RM
655,403.43 while Option B is RM 961,649.63. Both options are actually quite profitable, but
Option B is much more promising and worthy also did not have many risks. Even though profit
by gain by using IBS is quite earlier than conventional method, the total profit gain by
conventional method is significantly greater than IBS method.

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5.0 PROCUREMENT OF THE PROJECT

5.1 INTRODUCTION

Traditionally, design work has been separated from, and completed before, construction. This
has disadvantages for speed of completion and prevents the expertise of the contractor being
incorporated in the design process. However, it ensures the best possible price from
competitive tendering, provided all the contract information is complete.

Owing to the cyclical nature of interest rates, construction workload and price indices, buildings
are often needed more quickly than a traditional contract will allow and builders cannot always
wait for the design process to be completed before construction starts. There are various ways
in which this problem has been addressed using different contractual arrangements; at what
stages the contractors are appointed and thus their obligations.

5.2 PROCUREMENT METHOD

The main components of a procurement process are finance, design, and management of
project, construction, operation and maintenance. Over the years, different forms of
organization and management have developed. The major systems, based on contractor’s
obligations may be classified as follows:

a) Design separate from construction

 Traditional
 Management method
b) Design combined with construction
 Design and build or turnkey
c) Design, build, finance, operate (and transfer)

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5.3 TRADITIONAL ARRANGEMENT

5.3.1 INTRODUCTION

This common method has been usually used in the construction industry. Traditional
method is a procurement method that the design work will separate from construction.
The developer or client would appoint an architect to complete the design and produce
specifications of the building. The consultant team is appointed to take control of design
and cost. Upon completion of the design, the client will appoint a main contractor to
carry out the works through bidding. The contractor prepares the tender documents
based on the specifications and drawings or the bill. The lowest tenderer will usually
be awarded the contract. The contractor needs to take responsibility for all the
workmanship and materials, which includes all works by the sub-contractors.

The traditional procurement method approach typically has three stages. First, the
design stage. At this stage, the project owner works with an architect or designer to
come up with a design for the building. Second, the bidding stage. At this stage, several
potential contractors will tender bids on the pre-decided design. This means that they
will submit their proposals to the project owner, who will then decide which contractor
he wants to construct the building. Finally, at the construction stage, the actual
construction of the building will take place by the contractor who won the bid, in line
with the original design.

The client is in contract with:

a) A contractor to construct the building.

b) Consultants for design and cost consultancy services.

The traditional contractor is in contract with:

a) Domestic suppliers and subcontractors.

b) Nominated suppliers and subcontractors.

The traditional procurement route can be quite complex. The Figure 2.1 shows the
contractual relationships.

30
 Figure 2.1: The contractual relationships of traditional method

5.3.2 ADVANTAGES
a. Prices certainty at the award of the contract

It is considered by some that one of the main advantages of the traditional method is
the greater certainty. This is because the design is finalized before contractors are
appointed, and so there is clarity about precisely what is required and how much it is
likely to cost.

b. The design is fixed and high quality

The development design will be finalized before contractors offer tenders for the build. This
means the client knows what they are getting. This is not to say that this is an inflexible
approach to design and build. The designs can be adapted, and the instructions changed
post-tender but it is just that there is a clearer vision of the product from the start.

c. More easier to adopt than other procurement method

This form of procurement is suitable for both experienced and inexperienced clients. Fully
developing the design before tender gives the client certainty about design quality and cost,
but it can be slower than other forms of contracting, and as the contractor is appointed only
once the design is complete, they are not able to help improve the buildability and
packaging of proposals as they develop.

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 5.3.3 DISADVANTAGES

a. Project duration may be longer

Traditional method requires a longer period to complete the project. It is time

consuming to produce a full contract documentation because the tender will be
provided after the design is fully completed. If problems occur, the consultant and
contractor may shirk the responsibility to each other. The argument and problems may
need a long time to be settled.

b. Communication barriers between many parties involved

Clients may find it hard to manage the project through traditional methods since
they need to communicate with a few parties at the same time. For example, the
consultant and contractor do not have a contractual relationship, hence, if they need to
communicate with each other, they communicate with the client first, which is very
inconvenient. There may be miscommunication since the client needs to communicate
with so many organizations too.

c. Disputes easily arise

Disputes are common in this procurement because of the nature of separating

construction processes and design. This is because different parties like contractors;
consultants etc. have their own role, so disputes will easily arise from different
opinions.

5.3.4 METHOD OF TENDERING

In order for the client to obtain a constructed project, tenders for this type of
procurement system are invited by one of the three following methods:

a. Open Tendering

Is a procedure that allows practically any contractor to submit a tender

for the work. This procedure involves either the client or consultant (on behalf
of the client) placing a public advertisement giving a brief description of the

32
 work. Normally the client will require a cash deposit when contract documents
are requested.

b. Selective Tendering

It consists of the client drawing up a short-list of contractors that are

known to have the appropriate qualifications to carry out the work satisfactorily.
Those contractors who seek to be listed are then asked for further details
concerning their technical competence, financial standing, resources at their
disposal and relevant experience. Pre-qualifying contractors who are on the list
are invited to tender. The selection of designers (that is architects and
engineers) is usually based on a combination of record of accomplishment,
fees, conceptual design, and previous working relations.

c. Negotiated Tendering

This method is applied in several different contexts, but the essence is

that the client obtains tenders by inviting a single contractor of his/her choice to
submit a tender for a particular project.

5.3.5 METHOD OF PAYMENT

The traditional procurement route can be implemented using several different

methods used to organize payment from the Employer to the Contractor. The
appropriateness of an available payment method to a particular project is determined
by the Employer’s desire to trade-off cost certainty with the Contractor’s flexibility. A
further influence is the Employer’s willingness to pay and wait for a fully developed
design solution before tendering the work. The Employer may be willing to forego the
cost certainty of a fixed, lump sum tender price, for example, in return for a quicker
project in which the Contractor has greater influence over design development. The
three main payment method options are summarized below:

a. Lump sum contracts - where the contract sum is determined before

construction starts, and the amount is entered in the agreement.
b. Measurement contracts – where the contract sum is accurately known
on completion and after re-measurement to some agreed basis.

33
 c. Cost reimbursement – where the contract sum is arrived at on the basis
of the actual costs of labour, plant and materials, to which is added a fee to
cover overheads and profit.

a. Lump sum contracts

The contractor undertakes to carry out a defined amount of work in return for
an agreed sum. This can be a fixed amount not subject to recalculation, in which
case there would be no opportunity for the employer to make variations. The
sum is likely to be subject to limited fluctuations, usually to cover tax etc
changes not foreseeable at the time of tendering. The sum may be subject to
fluctuations in the cost of labour, plant and materials – the so-called fluctuations
provision. Recovery may be through the use of a formula, or by checking
invoices. There are two types of lump sum contract, which are with quantities
and without quantities.

 Lump sum contracts with quantities - priced based on drawings and a

firm bill of quantities. Items, which cannot be accurately quantified, can
be recovered by an approximate quantity or a provisional sum, but these
should be kept to a minimum.
 Lump sum contracts ‘without quantities’ - priced on the basis of drawings
and another document. This may simply be a specification of a
descriptive kind, in which case the lump sum will not be itemized, or one
that is detailed to the extent that the contract sum is the total of the price
able items. The job might be more satisfactory described as a ‘Schedule
of Works’, where the lump sum is the total of the priced items. In the
latter cases, an itemized breakdown of the lump sum will be a useful
basis for valuing additional work. Where only a lump sum is tendered,
then a supporting ‘Schedule of Rates’ or a ‘Contract Sum Analysis’ will
be needed from the tenderer.

b. Measurement contracts
Measurement contracts are also referred to as ‘re-measurement contracts’.
This is where the work, which the contractor undertakes to do, cannot for some
good reason be accurately measured before tendering. The presumption is that
it has been substantially designed, and that reasonably accurate picture of the

34
 amount and quality of what is required is given to the tenderer. Probably the
most effective measurement contracts, involving least risk is to the employer,
are those based on drawings’ with approximate quantities.

Measurement contracts can also be based on drawings and a ‘Schedule of

Rates’ or prices prepared by the employer for the tenderer to compete. This
type of contract might be appropriate where there is not enough time to prepare
even approximate quantities or where the quantity of work is very uncertain.
Obviously, the employer has to accept the risk involved in starting work with no
accurate idea of the total cost, and generally, this type of contract is best
confined to small jobs.

c. Cost reimbursement
These are sometimes referred to as ‘Cost Plus’ contracts. The contractor
undertakes to carry out an indeterminate amount of work on the basis that they
are paid the prime or actual cost of labour, plant, and materials. In addition, the
contractor receives an agreed fee to cover management, overheads and profit.
Hybrids of the cost reimbursement contracts include:

 Cost-plus percentage fee – the fee charged is directly related to the prime cost.
It is usually a flat rate percentage, but it can also be on a sliding scale. However,
the contractor has no real incentive to work at maximum efficiency, and this
variant is only likely to be considered where the requirements are particularly
indeterminate pre-contract.
 Cost-plus fixed fee – The fee to be charged is tendered by the contractor. This
is appropriate provided that the amount and type of work is largely foreseeable.
The contractor has an incentive to work efficiently to remain within the agreed
fee.
 Cost-plus fluctuating fee – The fee varies in proportion to the difference between
the estimated cost and the actual prime cost. The assumption is that as the
latter cost increases, the contractor is supposed inefficiency will result in a fee,
which decreases. This approach depends upon there being a realistic chance
of ascertaining the amount and type of work at tender stage.

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5.4 DESIGN AND BUILD CONTRACTING

5.4.1 INTRODUCTION

In contrast with traditional contract methods, there are two key differences between a
traditional contract and a Design and Build contract. The second stage, i.e. the bidding
stage in the traditional contract becomes the first stage in the Design and Build contract.
The first and third stages in the traditional contract are meshed into one ongoing
process in the Design and Build contract. This means that the project owner will first
select an entity with design and constructions capabilities to undertake the project. This
process of designing and constructing often happens at the same time, and may
overlap with each other.

In general, it can be summarized that D&B provides single point responsibility for the
whole design and construction. Contractors, who are responsible for the
implementation of the project, have power to control all over the projects. This
nonetheless does not deter the involvement of the client. The client’s needs and
requirements are always taken into consideration, which consequently presents
uniqueness of the system.

In D&B procurement, the client is in contract with:

a. A D&B contractor to design (or to develop a design) and construct a building

b. Consultants to advise on the preparation client’s requirements, select tenderers
and evaluate their submissions and also act as the client’s agent

While, D&B contractor is in contract with:

a. Domestic suppliers and subcontractors

b. Consultants for design and cost consultancy services
 These consultant designers will not be directly responsible the client,
and the D&B contractor may be more concerned with convenient forms
of construction and materials that can be purchased cheaply than with
meeting the client’s needs fully

The organization and management structure for a design-build contract is illustrated in

figure below.

36
 Figure 2.1: The contractual relationships of design and build method

5.4.2 ADVANTAGES

There is a significant debate about the advantages of Design and Build Contract. On
one hand, the Design and Build method brings significant benefits to the project
owner compared to Traditional method:

a. Minimizes risk and improves clarity

This method helps to minimize risks for the project owner because it reduces
the number of points of contact. Now that there is only one point of contact –
the design-builder – there is also only one point of responsibility. The project
owner does not take the risk that there are multiple parties he will need to sue,
or that he will not be able to tell which party is at fault for a particular defect or
flaw. As such, it also clarifies the remedies available to the project-owner,
because there is only one party who could be liable.

b. Saves time
It also reduces the delivery schedule by overlapping the design and
construction phases of a project. Thus, the building can be designed in
phases, such as the design evolves as the construction ensues. This is
particularly appropriate when the project owner is faced with a tight schedule.

37
c. Saves money

This method also saves money for the project owner. With only one entity to
hire, there are fewer overhead costs to bear, simpler and fewer legal and
managerial responsibilities, and a decreased possibility of litigation and with
fewer parties.

d. Encourage innovation and a more holistic approach to construction

Lastly, this method also encourages the design-builder to take more innovative
and best-value approaches to designing and constructing the building. This is
only possible because all the members of the project team – the designer, the
contractor – come together early on in the process to address potential issues
that may arise in the future. This also reduces the risk of design errors, which
take more time and money to rectify later on. Moreover, since the contractor is
also the designer, the design can be easily customized to suit the actual site
conditions.

5.4.3 DISADVANTAGES

a. May not produce expected result

It is because the design and construction phase occur simultaneously, there is

no fixed design to refer to at the start of the project. Thus, the ultimate outcome
may differ from what the project owner has in mind, especially if the employer’s
requirements and contractor’s proposal are not sufficiently precise to make sure
that both project owner and design-builder were on the same page. However,
this can be dealt with by slightly modifying the Design and Build method – the
project-owner can develop a more detailed preliminary project design
beforehand, so that the contractor has a clearer idea of what the project-owner
wants.

38
b. Lack of expertise

There is also the possibility that because the entity no longer specializes in
either designing or construction, but has to be proficient at both, this may
compromise the level of expertise of the design-builder. For example, this is
especially concerning if the project requires particularly complex designs. If the
design-builder is primarily a contractor rather than a designer, he may not be
able to achieve designs that are more complex or push himself to the limit of
the project’s design potential. That being said, the design-builder does
sometimes sub-contract out certain tasks. For example, if the design-builder is
primarily a contractor, he may subcontract or hire a designer to assist him in the
work.

c. Project-owner may lose out

Another disadvantage of the Design and Build approach is that the project-
owner may lose out, in terms of quality with ultimate outcome. Typically, the
designer and contractor represent different perspectives in the construction
process, where the designer usually interprets the project owner’s vision
through the design. Where the designer and contractor become the same
person, they no longer operate as counterweights to each other, and the
architect’s vision could appear to favour the contractor. However, this could be
managed by the project-owner hiring an agent or consultant to assist him in
overseeing the project, if the project-owner lacks the technical expertise to
supervise.

5.4.4 METHOD OF TENDERING

There are several methods of inviting tender which are:

A. Negotiation method
 With a single D&B contractor after some evaluation
B. Competitive method
 Consultant prepares conceptual design, then contractors offer designs
in competition, or

39
  Consultant prepares up to a partial stage, then contractors complete
and guarantee design on their own or using the client’s consultant
(novation).

There may be two separate design teams, one employed by the client to develop the
client’s brief and the other employed by the contractor to undertake the detailed design
work. The client would have already appointed a design team, which prepares
feasibility proposals and initial design proposals before tenders are invited. Outline
planning permission and sometimes details permission may have also been obtained
for the scheme before the contractor is appointed.

Tender documents for the D & B project will include the ‘Employer’s Requirements’
which describes the criteria which the employer requires the design to meet. The
requirements can range from a simple accommodation schedule to a fully worked out
scheme design. The contractor offers the ‘Contractor’s Proposals’ which sets out the
ways in which the contractor proposes to meet the requirements. The proposal usually
comes together with an analysis of his tender. Once the employer’s requirements and
the contractor’s proposal match, the contract can be executed and the contractor can
implement the work.

The level of drawings to be provided and specification information will depend on the
nature and complexity of the project and the level of detail the client wishes to control.
The pricing analysis or schedule can be a variety of forms ranging from a simple
schedule to something akin to a bill of quantities.

D&B arrangement relieves the client of the responsibility for designing the project but
means that the tenders received may all be based on different designs and this makes
tenders selection a much more complicated procedure. On the other hand, it gives the
contractor the opportunity to offer an innovative design they could not have been
offered under a traditional contract. He can adopt designs that suit his own resources
and expertise.

40
 5.4.5 METHOD OF PAYMENT

D&B contracts may be either lump sum or cost reimbursable contracts. The contractor
is usually, not always, paid on a fixed price, lump sum basis to provide an incentive for
him to be cost effective and to limit the client is spending. The contractor may prefer
cost contracts because he is unable to estimate exactly the cost of executing a design
that is usually incomplete at the time the contract is made. The client may prefer cost
reimbursement because he would otherwise be exposed to the danger of the contractor
cutting corners.

5.5 CONDITION OF CONTRACT

5.5.1 TYPES OF CONDITION OF CONTRACT USED IN MALAYSIA

In Malaysia, there are several standard forms of contract, namely Pertubuhan Akitek
Malaysia (PAM), Public Works Department (PWD) and International Federation of
Consulting Engineers (FIDIC). The use of each, however subject to type of project, the
nature of a project and financing involved. For instance, identify the choice of
procurement system as having a significant impact on the achievement of time, cost
and quality targets for a project. In the construction industry, the standard form of
contract is one of the key methods of ameliorating a potentially fractions relationship to
achieve a common end. It evidences the legal relationship between the parties in the
contract and provides the administrative procedures necessary for realization of the
legal relationship. Any standard form of contract would need to appreciate and
incorporate all the special requirements and circumstances that a project would call for.

A standard form of construction contract would therefore be useful in expressing the

obligation of the parties and setting out the reasonable clarity of the scope of the
project.

A. FIDIC (International Federation of Consulting Engineers)

FIDIC stands for International Federation of Consulting Engineers, which is

headquartered in Geneva, Switzerland. FIDIC documents are recommended for
building or engineering works designed by the employer, or by his representative, the
engineer. Under the usual arrangements for this type of contract, the contractor
constructs the works in accordance with the design provided by the employer.
However, the works may include some elements of Contractor – designed, civil,

41
mechanical, and electrical and/or construction works. The parties involved in FIDIC
contract documents are contracting authority/employer, contractor that is a contract
between employers, an engineer appointed to administer the FIDIC Contract on behalf
of the employer. The World Bank, Asia Development Bank, African Development Bank
etc have applied FIDIC conditions of contract worldwide, especially in the projects
invested/financed. The FIDIC contract comprises four standard forms of contract, which
is namely, as:

1. FIDIC Conditions of Contract for Construction (Red Book)

2. FIDIC Conditions of Contract for Plant and Design/Build
3. FIDIC Conditions of Contract for EPC Turnkey Projects (Silver)
4. FIDIC Short Form of Contract the Green Book.

The parties involved in the contract are the employer and contractor. The Short Form
permits the employer to nominate his authorized representative and provides no overall
limit on the contractor’s liability. Employer liabilities provided for in the Short Contract
include any operation of the forces of nature affecting the site and/or works, which was
not foreseeable. It also states physical obstructions or physical conditions other than
climatic conditions encountered on the site during the performance of the works, which
obstructions or conditions were not reasonably foreseeable by an experienced
contractor. This contract also explains that the damage cannot be avoided because of
the obligation of the contractor to remedy defects.

The Short Form of Contract makes reference to an appendix in which it is stated

whether the work is to be valued and paid for on the basis of lump sum price, lump sum
price with schedule of rates, lump sum price with bill of quantities, remeasurement with
tender bill of quantities or cost reimbursable. Payments are made on a monthly
assessment submitted by the contractor for the employer to pay the amount he
considers due. A final account is then submitted by the contractor to the employer for
him to ascertain the final contract value. As per clause 1 in any FIDIC standard form,
the engineer and his representatives (assistants and inspectors named under FIDIC
versions to represent the engineer) are two different entities. The engineer’s
representative is appointed by the employer to perform the duties delegated under
another clause (clause 3 under new forms). This clause sets out the duties of the
engineer’s representative, to watch and supervise works, and test and examine
materials to be used and workmanship employed in connection with the works.
However, the engineer’s representative has no authority to relieve the contractor of any
duties or obligations under the contract except as expressly provided in the contract,

42
order any work involving delay or extra payment, and make any variation. The engineer
also cannot amend the contract. In summary, it can be said that FIDIC is a ‘measure
and value’ contract, which is fundamentally derived from the Institute of Civil Engineers
(ICE) condition of a contract for the use of civil engineering works.

B. PWD 203A (Public Works Department)

The Public Works Department of Malaysia (PWD) is a government agency that is

responsible for the forms of contracts PWD203A. These are the traditional forms of
contract based on bills of quantities (203A) produced for the use in the public sector or
government projects in both building and civil engineering contracts. PWD Contract
forms are the home based forms where risks are known to the local industry, whereas
a lump sum contract, it is incorporated with either bills of quantities or schedule of rates
(PWD 203A, 2007). In this type of contract, there is a separation of construction and
design where the designing team is contracted by the client, and they shall provide the
contractor with a complete design (Ashworth, 1991). Generally, it can be said that the
majority of the risks have been transferred to the contractor under these standard forms
of contract and this remains true with the latest 2007 version.

Under Condition of Contract PWD Form 203A, the Superintendent Officer (S.O.’s)
duties involves the overall supervision and directions of the works encompassing the
important decision on the Damages For Non-Completion (Clause 40), Delay and
Extension Of Time (Clause 43), Events and Consequences of Default by the Contractor
(Clause 51), Termination on Corruption (Clause 53), Effect of Force Majeure (Clause
57) or Arbitration (Clause 65), where appropriate, are expressly reserved to the
Appendix (usually a person more senior than the S.O) which are stated in Clause 3.0,
4.0 and 5.0. The important aspect in PWD 203A is bills of quantities where the project
manager controls and monitors the work through the schedule of planning during
construction. Therefore, the contractor has the responsibility to complete the work
according to the requested quantities referred to the contract documents. In PWD
203A, the government is entitled to deduct such costs, expenses and on-cost charges
or any part of any monies due to the contractor or to recover it from a performance
bond as a debt due from the contractor. This drives the popularity of PWD203A
procurement in the public in Malaysia.

43
 C. PAM (Pertubuhan Akitek Malaysia)

The PAM standard form of contract has been widely used by the Malaysia Building
Industry over the last 40 years. PAM undertook a complete revamp of the PAM 1969
Form which was replaced by the PAM 1998 Form. The PAM 1998 Form was
extensively employed in the building industry in Malaysia but was subjected to criticism
by a segment of the said industry. The above necessitated a further review, which
culminated in the drafting and implementation of the latest revised form entitled “The
PAM Contract 2006”. The latter form has been officially launched and intended by PAM
to replace the earlier 1998 PAM. It is estimated that 90 per cent of the building contracts
in the private sector are based on the PAM form (Sundra, 2010). PAM form is home
base form where the risks are known to be local industry and intended to be used as a
building contractor and not as a civil engineering contract (PAM, 2006).

In summary, it seems clear that the selection forms of a contract is a crucial factor in
the performance of a construction project. It shows that the use of contract documents
either FIDIC, PAM and PWD 203A is dependent on the project owner/employer, type
of project as well as the nature of a project and financing involved. The understanding
of the contents of forms of contract can assist the parties involved in managing projects
to be more effective and efficient. In fact, consciousness understanding the problem is
caused by legalese. From this study, it is found that the Standard Form construction
contracts provide a basic legal framework identifying the rights, obligations and duties
of the parties as well as establish the ambit of the powers and duties of the contract
administrator.

6.0 COMPARISON

Selecting the right method of procurement is essential to final results, in order to match our
organisation’s requirements. Before beginning our project that fit with affordable housing
projects, we need to gain a clear understanding of the key differences between design and
build and traditional procurement. This is because our aim as consultants need to consider the
success and great achievement to handle the project. Even though choosing the right route to
a completed project can be a tough but critical decision.

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Selecting the right procurement

The design and build route provides a high-quality finish with an efficient delivery. It is also a
continuously rising competition for space, it has been predicted more and more companies will
choose the design and build route for their fit affordable housing project.

Stimulatingly, the sizeable, more specialist and complex projects would have only been an
option for traditional procurement, where separate consultants and architectural consultancies
are used which is different from the design and build procurement.

6.1 TRADITIONAL VS DESIGN AND BUILD

a. The Traditional Procurement method.

If the option of Traditional Procurement will be directly employing your Quantity Surveyor and
Design Team for the duration of the build. This team will create the design and submit to
planning for approval. Then, generate a package of tender information. The tender process is
about supporting you in selecting a suitable Contractor based on price and experience.

After that, a formal agreement will be created between you and the Contractor. This will lay out
each party’s responsibilities and expectations and will be managed by a Contract
Administrator, or Quantity Surveyor or Architect.

b. The Design & Build method

If the option is for a Design & Build route, the Contractor will be the main driver of the project.
In contrast, this is a one-stop approach. The Contractor will either take your fledgling ideas or
adopt a fully drafted scheme, steering the design from this point through to completion. They
will directly employ the wider design team and surveying services.

In this case, an ‘Employer’s Requirements’ is drawn up, a crucial document which outlines
your requirements and the services to be provided by the Contractor.

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The Traditional Procurement method.

If the option of Traditional Procurement will be directly employing your Quantity Surveyor and
Design Team for the duration of the build. This team will create the design and submit to
planning for approval. Then, generate a package of tender information. The tender process is
about supporting you in selecting a suitable Contractor based on price and experience.

After that, a formal agreement will be created between you and the Contractor. This will lay out
each party’s responsibilities and expectations and will be managed by a Contract
Administrator, or Quantity Surveyor or Architect.

The Design & Build method

If the option is for a Design & Build route, the Contractor will be the main driver of the project.
In contrast, this is a one-stop approach. The Contractor will either take your fledgling ideas or
adopt a fully drafted scheme, steering the design from this point through to completion. They
will directly employ the wider design team and surveying services.

In this case, an ‘Employer’s Requirements’ is drawn up, a crucial document which outlines
your requirements and the services to be provided by the Contractor.

The main difference between both of these procurements is Control. With Traditional
Procurement it will retain overall control of the project and continue to receive impartial support
and advice from their team and Quantity Surveyor. The Contractor is required to build what
has been specified and holds responsibility for workmanship, but all design liability lies with
the Architect/design team. The different parties therefore work together to ensure the project’s
success, checking that each stage of your build is completed satisfactorily and delivering the
finished project you envisaged.

With the Design & Build method, the Contractor retains overall control of the project and is
legally responsible for both the design and the workmanship of your build. They make design
decisions based on their judgement and financial benefit, all of which can affect the project’s
success. The table shows the differences of both procurement.

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 Traditional Design and build

Cost Construction costs initially unknown - Construction cost realised

cost certainty achieved later and fixed from initial design
phase

Control Owner retains control over design and Requires less owner
construction expertise and resources

Time Design and construction are sequential, Construction can overlap

typically resulting in longer schedules design completion reducing
project schedule

Risk Client retains the risk of Diminished risk and liability

consultant/contractor non-performance with single, unified team

Design Equivalent capabilities Equivalent capabilities

Communication Owner acts as arbiter for the design and Single point of contact
construction issues that occur for each throughout project
company

Quality Equivalent capabilities Equivalent capabilities

Value Value engineering occurs when Value engineering occurs at

contractor awarded outset of project

According to (Oktra, 2019)

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Traditional Project Delivery Method

This course breaks down each component into a separate step in which the project owner
hires the architect or designer and the construction contractor separately. Beginning with the
design contract, the owner requests bids from architectural firms for the project’s design (but
there can be multiple contracts with building architects, landscape architects,
structural/mechanical/electrical engineers, and/or interior designers).

Altogether, the project owner and design team create the construction documents, which are
then used to solicit bids from construction contractors who will price the work based on the
drawings. Often, under this method, the project is awarded to the lowest bidder under a general
contractor or construction management delivery who then subcontracts to trades and
suppliers.

Design-Build Project Delivery Method

The design-build project delivery method creates a united, cohesive team, with one entity that
the project owner contracts. Typically, the construction contractor who manages the project in
its entirety and carries full responsibility for the work leads the team. However, while one team
member leads, this delivery method is characterized by collaboration between the design and
construction teams.

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Under this method, the contractor provides valuable insight on the design as far as
constructability and value engineering and together, they can create cost-effective solutions
and variations on the design and materials.

Advantages and Disadvantages of the Traditional Project Delivery

While a traditional design-bid-build delivery can achieve the lowest total construction cost
through competitive bidding, often the contractor is selected based on price, not performance,
which can influence the project’s quality. With this model, as well, the contractor has no input
on the design and must build to spec and come up with change orders on the fly (which can
often become contentious and costly).

Lastly, since the contractor is brought in after the construction documents are completed, there
is often a schedule delay as the designer adjusts the drawings to prep for the start of
construction.

Advantages and Disadvantages of the Design-Build Project Delivery

Labelled the “turnkey approach,” design-build offers a simplified project where the owner only
needs to liaise with one entity rather than managing several or having an in-house project
manager oversee the project.

Because the design-builder assumes complete project responsibility from design to costs to
schedule, this method is the least time-consuming for the owner and minimizes designer-
contractor conflicts since they are on the same team. Additionally, the design-build approach
offers greater cost certainty, an accelerated project schedule, custom design, increased
quality, and greater peace of mind.

7.0 POTENTIAL CLIENT

Procurement practitioners are the principal actors in the public procurement process. They are
responsible for ensuring the goal of public procurement is achieved. They must gain
stakeholder’s trust and ensure they fully understand the procurement process and principles.

Procurement practitioners are directly and indirectly engaged in the procurement process, from
need assessment to contract closeout. Although they are more directly involved in the public

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procurement process, they also provide advice and support during contract execution.
(Leanpub, 2020)

7.1 PUBLIC CLIENT

Government as a public developer has major concerns for all people about housing
development. As the wellbeing of a country is reflected in its people enjoying a certain
standard of living.

Housing which provides shelter as well as being a major potential for expanding the
construction industry, generating jobs and contributing to capital formation.

The government's goal is to provide Malaysians of all income levels, particularly the low-
income groups, accessibility to adequate, affordable and quality shelter. It provides direction
to housing development in the country, which should emphasize human settlement philosophy
through the provision of social services and amenities as well as economic activities necessary
for the attainment of better quality of life, national integration and unity (KPKT, 2012)

Property prices at public housing projects are relatively more affordable, about half or one-
thirds that of units built by private developers. Many government initiatives out there could help
you get the right type of property that meets your requirement. (Kathy, 2019)

7.2 PRIVATE CLIENT

Private developers are property developers within the private sector. They attain buildings or
land to construct or refurbish building projects on the site. Their aim is to generate a profit; the
government focusing more on providing buildings for social and welfare reasons opposes this.

The buildings that they construct are being sold entirely or in part to others, or retained as
assets to produce cash flow via renting them out to occupiers who lease them, as opposed to
owning their own.

This is different from the initiative of affordable as its policy has their own regulation which
affordable houses are not for renting but for selling just to aim that Malaysian citizens can own
property by within the eligible criteria.

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Some developers have their own internal departments for designing and constructing buildings
(more common among larger developers), while others just subcontract these works to third
party specialists such as architects and contractors (typical of small developers).

Due to the cost of construction property, developers need to obtain funding from investors such
as banks. It is needed to proceed with construction. Sometimes developers offer schemes for
undeveloped land in order to increase the value of the site, so that they can sell it on to another
organization.

There are some cases for example if the developer does not have any other assets that can
act as collateral against the loan, then they can enter joint-venture partnerships with other
developers to spread the risk.

More often today, local authorities enter joint venture partnerships with the private sector to
redevelop entire neighborhoods, and direct funding vehicles from the government to assist in
funding the scheme. (Fandom, 2020)

These days, private developers seem to finally be getting to develop affordable housing. For
example, one affordable housing initiative, PR1MA end-financing scheme is now extended to
eligible private developers to help more Malaysians in purchasing their first homes. (Brohier,
2017).

8.0 CONCLUSION OF PROCUREMENT

After, comparing and gathering all of the information needed to select the procurement
method and other process, the summary of the selection as the table below:

No Description Selection
1. Procurement Method Design and Build
2. Condition of Contract PAM2018
3. Method of Tendering Selective
4. Potential of Client Private Sector

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 9.0 JUSTIFICATION

The justification is the overall reasons of choosing the method of construction by the viability
and its return of investment. The method has been chosen by the proof of calculating and
comparing on which one is the best method to conduct the affordable project. It is also based
on the experience of practices who involved in the affordable housing project.

CONVENTIONAL METHOD

The method of construction that has been chosen is Conventional Method. This is because
of the financial reasons, for example based on the calculation of ROI; the conventional
method has more percentage of return than the IBS method. Even though profit by gain by
using IBS is quite earlier than conventional method, the total profit gain by conventional
method is significantly greater than IBS method.

ROI between Conventional and IBS Method

No Method Percentage
1. Conventional 24.6839 %
2. IBS 10.1723 %

Nevertheless, both of the ROI low but the conventional has the highest than IBS method,

For the GDV, we choose the Option B which is Sell then Build method. This is because people
tends to get a long time buy a house. Such as, it get 5 years to get the total income of from the
construction.

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Other than that, the Option B has the highest profit than the Option A. so that we choose the
highest income to get the project more profitable.

CONVENTIONAL METHOD
OPTION A OPTION B
(BUILD AND SALE) (SALE THEN BUILD)

The Net Present

Value of the Project RM1,595,735.49 RM1,865,467.44
(NPV)

Based on our potential developer, we choose private client. Because of that, we need to
choose more methods that can gain more profit as the private client tend to get the project
more profitable.

However, based on the real situation, most of developer make a mix development such as
normal housing and affordable housing in one project. It is to get more profit and return form
the project. The normal housing project will cover and increase their income when dealing the
affordable housing project.

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