Variation in the standard form of contract in Malaysia and Indonesia

Abstract

Variation orders is one of the main causes of disputes in Indonesia’s construction industry. The disputes become more complicated when such orders occur in the lump sum contracts where the contractor is contractually obliged to carry out the work according to the design at the specified sum. It appears that, unlike the Indonesian’s Permen PU contract, the Malaysian Public Work Department’s standard form of contract contains clearer variation order provision. The objective of this research is to make a comparison between the variation terms in Malaysia’s, the PWD 203 (1/2010) lump sum contract and Indonesia’s Permen PU No. 07/PRT/M/2011 Book 2A contract. It is hoped that the findings of this research may help to improve the Permen PU’s standard form. The comparison is made based issues that arise in case law in Malaysia which are collected from the online database provided by Lexis Malaysia. From the further careful analysis of the cases, four main issues are identified, those are: one, whether or not there is a variation clause in the contract; two, whether the variation order is within the scope of variation clause; three, whether the variation order is issued according to the procedure set out in the contract; and four, whether the method of the valuation of the variation work used by the employer is the correct method. Based on those issues, the analysis found that there are similarities in the express variation order clauses in both standard forms, mainly they define the scope of work in the contract. However, while in Malaysia the procedures and the methods of valuation are clearly stated in the clauses of PWD Form 203 (Rev 1/2010), in Indonesia they are governed by regulation and not stipulated in the clauses of Permen PU No. 07/PRT/M/2011.