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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

The Crucial Conditions and Attributes of Domestic

Subcontract in Malaysian Construction Industry

Nor Marina Rosli1,2, Nur Emma Mustaffa3, Hamizah Liyana Tajul Arifin4
1,3,4
Faculty of Built Environment and Surveying, Universiti Teknologi Malaysia,
Skudai Johor, Malaysia
2
Department of Surveying, Lee Kong Chian Faculty of Engineering and Science,
Universiti Tunku Abdul Rahman, 43000 Kajang, Selangor, Malaysia

corresponding author's e-mail: marinar@utar.edu.my

Abstract. The duties and responsibilities of the parties signing a contract are governed by the
previously agreed terms of the contract. General conditions are a standardized form of pre-
printed contract which specifies the general project rules and relevant commercial terms. The
contracts are developed and published by various associations and professional bodies and are
widely used in the construction industry. In the Malaysian construction industry, there are several
standard forms of main contracts and nominated subcontracts. However, for a domestic
subcontract, the main contractor prefers to use a bespoke contract, which results in contract
disputes. Drafting a complex contract can be time-consuming and expensive. It also requires the
involvement of the legal team to provide legal opinions and advice on its content. Hence, this
study intends to identify domestic subcontract attributes and critical conditions to overcome the
major issue of unclear terms and conditions for the domestic subcontract. A set of attributes and
critical conditions have been established through a detailed review and analysis of twenty-two
(22) bespoke contracts collected from the industry and an extensive literature review from
published articles.Content analysis was done on leading academic journals in construction
engineering and management. Clarity, consistency, parties, risk, language, and format of the
domestic subcontract are some of the attributes. Meanwhile, payment, liquidated damages,
delay, subcontract sum, termination, variation order, practical completion and defect liability
period, commencement and completion, and safety provision are the most crucial conditions
discovered through extensive review and content analysis of the bespoke contracts. The
advantage of establishing these characteristics and critical conditions is that they serve as a
prerequisite for the development of a domestic subcontract framework

1. Introduction
The construction industry is regarded as the backbone of the national economy. It is also a key measure
of economic efficiency and effectiveness. The industry necessitates tight engagement and involves
collaboration between various multinational and multicultural entities with diverse histories and goals,
including the main contractor and subcontractor[1]. These parties are legally bound by a contract that
defines and facilitates various contractual provisions [2]. One of the purposes of the contract is to
provide a framework for the parties to determine who is responsible for specific risks [3] and determine
each party's rights and obligations [4].
The rights and obligations of contractual parties are usually determined by the contractual
requirements [5]. A well-written construction contract specifies the whole description and scope of

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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

work, including project duration, quality standards, and cost. It is sealed through several manners,
whether entirely in writing, entirely verbal, or partly in writing and partly verbal [6]. This entails drafting
contract terms that will allow the contract to be administered and resolve future contract disputes [7].
The terms of the contract are the main content of a standard contract form [8]. This standard form
specifies the number of sections that outline the rights and duties of the contracting parties. All clauses
are offered in a numbered style for easy reference. The conditions include every standard performance
of the parties, contract execution guidelines, resolution in handling disputes, and payment to the
contractor. Writing a specific contract is usually the best plan for a particular project, and certain criteria
are reflected in the detailed specifications. However, constructing a detailed contract can be time-
consuming and costly. In addition, it requires legal opinion provided by a special legal team.
Research on domestic subcontracts in the construction industry has received far less attention than
the nominated subcontract. While several studies have been undertaken to study trust in subcontracting
[9], survival factors during economic crisis among subcontractors [10], critical success factor of
subcontracting [11], and risk in subcontracting [7], there has been little research relating to attributes
and crucial conditions of domestic subcontracts. Therefore, this study sought to fill the gap by
determining the attributes of domestic contracts and crucial conditions for local construction, which can
assist main contractors and domestic subcontractors in preparing a reliable domestic subcontract.

2. Literature Review

2.1. The nature of Domestic Subcontract in the Malaysian Construction Industry

Conventional construction projects have two main agreements, which are prime agreement and
subcontract agreement. A prime agreement is a binding agreement between the owner or design
professional and the main contractor; meanwhile, a subcontract agreement is a binding agreement
between the main contractor and subcontractor [8]. In the Malaysian construction industry, most
domestic subcontracts between the main contractor and the domestic subcontractor are sealed through
informal or non-standard form, either unpublished 'in-house', ad-hoc, bespoke or 'one-off' contracts. The
terms used depending on the country adopting them. Despite the names, these contracts are not entirely
in accordance with any standard forms that are widely used and accepted in the industry [9]. Agrawal et
al. [10] highlighted that the impact of sub-optimal arrangement of contracts potentially leads to conflicts
between the parties, receives less attention than contingency calculation such as bid amount. This
suggests that serious consideration must be given to preparing a proper domestic subcontract document
to eliminate the serious consequent it brings to the contracting parties.

2.2. Bespoke Contract

When bespoke contracts are used, owners frequently prepare documents for new construction contracts
by amending previously written contracts by adding new clauses and/or deleting or modifying the
existing clauses [4]. Wilson [12] contended that "while this cut-and-paste process in preparing the
construction contract may save time, it frequently leads to problems when the documents are not read
and prepared as a whole for a specific contract." It may also result in biased and one-sided contract
terms, which only serve the interests of the drafting party (i.e., the owner) [13]. Such tampering has an
impact on the clarity, fairness, efficiency, and consistency of the contract provisions [14]. Furthermore,
a bespoke contract places a contractor or subcontractor at risk, particularly when it comes to liquidated
damages, performance damages, and defects. For example, a RM 1,000,000.00 main contract may
include a liquidated damage clause for a delay of RM 10,000.00 per week. Expecting the same level of
damages from subcontractor with a RM 50,000 contract would be unreasonable.

2.3. Conditions of Domestic Subcontract

The overall condition of the construction contract terms has a major influence on the probability and
extent of success of a project [13]. Establishing the right contract conditions is one of the most effective
measures to prevent and reduce disputes in the future. The main contractor occasionally uses simple

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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

conditions for domestic subcontract or leaves important conditions unspecified when outlining a
contract. Some of the interpretation clauses in the contract conditions commonly are not the subject of
negotiation between the parties [14]. This will lead to disputes in the future. Figure 1 shows the sample
of simple conditions in subcontract form. The existing contract shown in Figure 1 only stated two
conditions: Payment and Defects Liability Period.

Payment : 60 days Term after delivery

Defect Liability Period: Thirty (30) months commencing from the date of issuance of Certificate
of Practical Completion
Delivery Schedule : To be advised
Figure 1. Sample of Simple Conditions of Subcontract (source: bespoke subcontract)

According to the most recent statistics published by Arcadis [9], failure to comprehend and comply
with contractual obligations is one of the most common causes of conflict among project parties in the
construction business, nationally and internationally. The clauses and provisions of construction
contracts often cover a large part of the risk factors [10]. The general contractors are generally liable for
the completion or implementation of the project. They can transfer a considerable share of the risk to
subcontractors through contracts they use [15]. However, inappropriate risk assignments in
subcontractor contracts are prevalent and usually not in the project's best interest as subcontractor
companies often lack the capabilities to monitor and manage transferred risks[16].

3. Research Methodology
Content analysis is defined as “a systematic, objective, and quantitative way of investigating and
analysing communications to quantify variables” [9]. In order to identify the best approach in achieving
the aim of this study, a review of recently published papers was conducted on those of a similar nature
in identifying the research trends in a particular area. The desktop search was carried out using search
engines to retrieve the papers published between 1988 and 2021, and the results were presented in a
table. In order to conduct a complete desktop search, the following terms were used: subcontracting,
domestic subcontracting, standard form, subcontract, crucial conditions, small contractor, with the
specific addition of construction as a keyword. Papers with these keywords included in the title, abstract,
or keyword were considered to have met the initial requirements.
In this study, thirty (30) attributes have been identified and coded in six significant attributes. These
six attributes include clarity, consistency, parties, risk, language, and format. Meanwhile, twenty (20)
published article and twenty-two (22) samples of the bespoke contract have been analyzed to determine
nine (9) crucial conditions of the domestic subcontract. The sample of the bespoke contract were
gathered from the industry. Nine (9) main clauses have been decided based on Youssef et al.[15]
research, which generates nine (9) clause families for the model framework.

4. Data Analysis and Discussion

To address the critical issues mentioned earlier, establishing the attributes and conditions of the domestic
subcontract is the best way to resolve the domestic subcontract issues. To begin a discussion about the
use of standard forms in the construction industry, it is critical to emphasize that construction contracts
do not have to incorporate standard forms as their general conditions; contracts can be drafted 'from
scratch' (also referred as 'bespoke' contracts). Due to the unique nature of each project, a proliferation
of alternative contract forms, both standard and custom-drafted, has occurred. Based on various
conceptualizations of an 'ideal' standard form of contract, the current six (6) evaluation attributes (as
shown in Table 1) of domestic subcontract are shortlisted and chosen for detailed analysis in this study.
These characteristics are chosen based on additional research and analysis of the literature [17]–[22].
Each attribute and parameter are tabulated in Table 1.
Based on Hairuddin [14], 'clarity' is one of the causes of disputes brought to the court and it can be
defined as simply seen or heard, easily understood, avoid confusion, clear and precise. In Table 1, there

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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

are seven sets of parameters in total for the clarity attribute. Each term and condition in the contract have
clear clarification and is specific in objective and nature. It must clearly define the scope, procedure,
and process of each work with non-ambiguous terms. All parties are bound by the contract and must be
familiar with the terms.
'Consistency' attribute refers to the conflict between the clauses and references and cross-referencing
to other clauses [16], for example, there are clauses such as 'pay when paid' or 'pay if paid' in subcontract
which sometimes left subcontractor in an alarming situation. 'Language' is another important attribute
in the domestic subcontract. Since English is not Malaysian native language, formal language style must
be considered while preparing domestic subcontract [23]. The language used must be concise and
simple. It is encouraged to use business lingo and minimize the use of complicated legal jargon.
Encouraging and indecisive style of language, such as 'shall' must be avoided.
'Format' attribute focuses on the overall content of the subcontract [24], which emphasizes the basic
necessities of the contract, such as it must be in written form, using short sentences, and no repetition of
words. Meanwhile, 'parties’ discusses in detail the roles and obligations of contracting parties, which
need to be fairly and equally distributed. Parameters set for the ‘parties’ involve several parties,
particularly qualified professionals in the contract, induction session before contract to be implemented,
and explainable information to each party. Meanwhile, the last attribute, ‘risk’, focuses on the
transparency of risk allocation among contracting parties [25].

Table 1. Attributes and Parameter for Contract Preparation.

Attributes
Clarity
Clearly defines the scope of work
Non-ambiguous terms and conditions
General condition to be made familiar
Specific in objective and practical
Good explanation on procedure and process,
Clearly explained on regulatory requirement
Clarification of contract terms and agreement
Consistency
Cross-referencing of the terms
Consistent terms and conditions
Certainty
Language
A contract is written in concise, clear and in a business-like language
Written in simple language
Minimize use of the complicated legal phrase
Positive style of language
Active voices, in complexity of phrases, avoid ‘shall’
Clear, concise, unambiguous language
Mechanically sound
Format
The contract is in written form
Good word-formation.
Shorten sentences
No repetition of words
Integrated, well-considered whole
Parties
Involved several Parties in the contract
Induction session before contract to be implemented
Understood and followed at the project level

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IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

Attributes
Prepared by qualified professional
Information should be explainable to parties which may affect
Risk
Fair risk allocation
Dispute resolution mechanism
Anticipates a wide variety of potential problems

Given the number of forms owned by the Malaysian construction industry and the problems
associated with each form, the necessity to produce contract conditions is evidenced in the issuance of
these forms. It is either in modified, amended, or revamped format. The crucial conditions of domestic
subcontract are summarised in Figure 2. The list of crucial conditions is retrieved through documentary
analysis of twenty-two (22) domestic subcontract documents collected from the industry (Table 2). After
a thorough reading and analysis of the documents, similar terms are compiled and the missing terms
from the documents are highlighted. The most important clauses are also extracted from twenty (20)
published articles related to the study area as tabulated in Table 3.

Table 2. Five (5) Main Clauses of Subcontract Based on Bespoke Contract

Main Clauses of Bespoke Contract
Sample of Payments Subcontract Practical Commencement Safety
Bespoke(No) sum Completion and Completion of provisions
& Defect Subcontract works
Liability
period
1 1 1 1 1 1
2 0 0 1 0 1
3 1 1 1 1 0
4 1 1 0 1 1
5 1 1 1 1 1
6 1 1 1 1 1
7 1 1 0 1 0
8 1 1 1 1 0
9 1 1 1 0 0
10 1 1 1 0 0
11 1 1 1 0 0
12 1 1 1 0 0
13 1 1 1 1 1
14 1 1 1 0 1
15 1 1 1 1 1
16 1 1 1 0 1
17 1 1 1 1 1
18 1 1 1 1 1
19 1 1 1 1 0
20 1 1 1 0 1
21 1 0 1 1 1
22 1 1 1 1 1
Frequency 21 20 20 14 14

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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

Based on the intensive analysis of the documents, it can be concluded that the most important clauses
in the construction contract are payment provision, liquidated damages, delay, variation order, and
termination. These five conditions are extracted from twenty (20) published articles from the year 1988
to 2021. However, there are numerous other conditions extracted from the previous research; however,
for this study, only five most discussed terms are taken into consideration. Meanwhile, terms and
conditions from twenty-two (22) bespoke contracts collected from the industry have also been analysed.
From the analysis, the five main clauses that have been concluded as important are payments,
subcontract sum, practical completion and defects liability period, commencement and completion of
subcontract work, and safety provisions. In addition, payment clauses are extracted from both literature
review and bespoke contract.
After combining both results, a total of 9 crucial conditions are selected to be the basis components
of the domestic subcontract framework, which will be discussed further in the future. According to the
research conducted by Youssef et al. [15], nine (9) crucial conditions are sufficient for the subcontract
framework, which nine clauses families are established for the framework component. Five out of nine
of these crucial conditions (Figure 2) fulfill Uher’s [7] suggestion, emphasizing that terms of payment,
times of commencement and completion, variations, delay, and liquidated damages are the important
conditions of the subcontract.

Table 3. Five (5) Crucial Condition of Subcontract Based on Literature Review

Conditions of Subcontract
Authors Payment Liquidated Delay Variation Termination
provisions damages order

Khalef et al. [26] 0 1 1 0 0

Ho [27] 0 0 0 0 0
Assaad et al. [28] 1 0 1 0 1
Abdul-Malak et al. [4] 1 0 0 0 0
Youssef et al. [15] 1 0 1 1 1
El-Hoteiby et al. [29] 1 1 0 1 1
Walsh [30] 0 1 1 0 0
Merwin et al. [31] 1 1 1 0 1
Nee et al. [32] 1 1 1 1 0
Ya-zhuo & Fan [33] 1 1 0 0 0
Soewendo [33] 1 0 1 1 1
Nystén-Haarala et al. [34] 1 1 0 0 0
Chui & Bai [35] 0 0 0 0 0
Podvezko et al. [36] 1 0 0 0 1
Yik et al. [22] 0 1 0 0 0
Fisher et al. [37] 1 1 1 0 1
Zaghloul & Hartman [3] 0 1 1 0 0
Hartman & Snelgrove [38] 0 1 0 1 0
Uher [7] 1 1 1 1 0
Ibbs [39] 0 0 0 1 0
Frequency 12 12 10 7 7

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ICRMBEE 2021 IOP Publishing
IOP Conf. Series: Earth and Environmental Science 1067 (2022) 012054 doi:10.1088/1755-1315/1067/1/012054

Practical
Completion &
Payment Subcontract Sum
Defect Liability
Period

Liquidated Commencement
Termination
Damages and Completion

Delay Variation Order Safety

Figure 2. Nine (9) Main Clauses of Domestic Subcontract

5. Conclusion
After examining the unavoidable legal purposes and contractual principles, contract drafters may use
the attributes as a basic guideline. Drafting a specialized contract that translates specific criteria into
precise terms and conditions is usually the finest template for a certain project. As a result, domestic
subcontract's crucial conditions and attributes are the most significant possibilities to overcome the
major issue of ambiguous terms and conditions. Even though the local construction industry can adopt
subcontracts from other countries, there are risks in applying the existing foreign subcontracting
agreements to the local construction business. These include differences in the legal system, political
factors, linguistic barriers, differences in negotiation techniques, and various other ethical values.
Furthermore, most contracts from other nations may not represent the legal characteristics of a local
organization. The clause of force majeure, for example, is well-known; yet, the contents vary from
country to country and sometimes include political threats. This study was conducted to establish the
attributes and crucial conditions of the domestic subcontract. Clarity, consistency, language, parties,
format, and risk are the attributes that a contract drafter must consider in drafting a contract. Meanwhile,
payment, liquidated damages, delay, subcontract sum, termination, variation order, practical completion
and defect liability period, commencement and completion, and safety provision are the most crucial
conditions that must be included in each domestic subcontract. This paper is part of a research project
that focuses on establishing the framework of the domestic subcontract; therefore, the work discussed
here will advance the discussion on developing a framework of the domestic subcontract. It is
recommended that further studies can be done to explore the feedback from the industry, especially
parties to the contract, regarding the attributes and crucial conditions of the domestic subcontract.

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