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1.0 In this high-tech age, technical and other professional generally uses the ‘Cut and Paste’ methods in the drafting and compilation of tender and other contractual documents. The contents are saved in the computer and appropriate amendments made for subsequent contractual documents that are then issued to the prospective tenderers to be used in the pre-award stage for their bidding purposes. This is a very efficient, cost effective and timesaving method in the contract management process. However, there is a danger in this method if due care is not taken and the format of the documents for the scope of works and the terms & conditions, together with their financial implications of the earlier contracts, are not compatible with the new contract. Thus it needs great care at the outset for the benefits to be derived from the available new high-tech tools.

2.0 The contractual documents are very susceptible to errors whenever the ‘Cut & Paste’ system is used. The main adverse financial impact of the ‘Cut & Paste’ system is that it could create additional opportunities for fraudulent practices. It is extremely difficult to readily identify the weaknesses that may give rise to fraud and thus to institute timely preventive measures. Some of the more common documents that are most susceptible to errors that would create fraudulent opportunities due to this ‘Cut & Paste’ system are listed below.

[a] Letter of Award/Acceptance – Clauses not relevant to the correct condition

[b] Format of a ‘Performance Bond’, ‘Advance payment guarantee’ & other financial safeguards

- Reference made to clause number in the LOA but content of term referred in the Bond/Guarantee document does not tally with the referred clause

[c] Bills of Quantities – ‘Contract sum’ designated as ‘Lump sum’ but ‘subject to remeasurement’ as some of the ‘individual works’ designated as ‘Lump sum’

[d] ‘L & A D Rate’ [of RM100,000.00 per day] as specified to the main contract for a high value project [RM1.5billion]. Same rate also prescribed for several sub-contracts valued at between RM150,000.00 and RM1,500,000.00.

- Fire policy for ‘land clearance’ with scope of works requiring ‘burning’

- Public liability risk limit of RM1.0million in remote areas with ‘nil’ risk with the same limit in a developed area where the risk could be RM10.0m

- Workmen compensation requiring ‘wages value of 20% of contract sum’ for scope of works that requires mechanical plant and operators with total wage bill of less than RM100,000.00.

[f] Negotiation documents that formed the basis of the award of the contract are not referred to in the issued LOA or the ‘formal contract documents’

3.0 It is important for the ‘compilers’ of contract documentation to scrutinize all aspects of contractual documents before they are issued as tender table documents, recommended for approval for the issue of the LOA and the formal contract/agreement documents are signed. The complier should ensure that all the documents are relevant, accurate and comprehensive for the scope of works to which they relate. The scrutiny should include the contents of the individual documents as well as the terminology used in these individual documents. It would be possible to identify at this early stage any weaknesses and shortcomings in the tender table documents and make the necessary corrections. Thus the fraudulent situations could be identified and prevented. It is admitted that this is not an interesting task but a boring one that could send any person to sleep. But this is an important task that needs to be done with full and complete attention.

4.0 The responsible department should have a standard checklist that should include all the relevant documents that would be required and ensure that they are actually included in the contractual documentation for the specific scope of works. A senior officer should verify the checklist before it is finalized for usage. Both the involved persons should then attest to the accuracy of the checklist, as this would provide for accountability of the compiling and verifying persons and Identification in the event of any subsequent problem due to wrong documentation. This will act as an internal control and ensure that possible problems and fraudulent opportunities are prevented immediately and for the future.

5.0 Management should ensure that the assigned compiling and verifying persons have the relevant knowledge and expertise that would enable them to do their job properly. Unfortunately managements normally do not give this aspect the due importance and generally assign very junior and untrained staff. This could be due to the perception that trained manpower assigned for prevention of problems is considered to be unproductive. The basis of this misconception can be attributed to the fact that contractual disputes are seldom referred subject to arbitration or legal litigation except where the amounts are large enough to justify the legal costs involved and the initiating party is reasonably certain of winning the case [as he may be having a good standard of documentation] or that he is not concerned with the possibility that he may not be successful in obtaining other contracts in the future and remaining in the construction industry. Management’s should remember that legal practitioners seldom give the opinion that the case has no merit and thus reject any case. The client is always assured that ‘we will win’ but only one client generally wins. Here the ‘we’ more often than otherwise, represents the two legal firms who will definitely win, as both the legal firms will collect their legal fess irrespective whether their clients win or lose. Feuds should be prevented and if they still arise, the feuding parties should first amicably settle them. The cost of settlement of disputes should take into account the cost of legal action and other direct and indirect costs that should always be translated into monetary terms, where possible, before legal action is decided. It will be necessary for both parties to ‘swallow their pride’ and listen to their inner self and not heed the advise of those with vested interest in prolonging the dispute for self enrichment. Common sense should prevail and not expensive legal sense. Legal action should be last option when everything else has failed.

For effective management of construction projects & prevention of fraud, management and involved professionals should ensure that all contractual documentation is relevant, accurate, comprehensive & timely

This would also minimize fraudulent situations & opportunities that may have financial implications that could translate into losses

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