MANAGEMENT OF CONSTRUCTION
PROJECTS
CODE OF ETHICS FOR CONTRACTORS
[Compliance with the Laws and Regulations]
1.0 Introduction
1.1 The word ‘ETHICS’ originated from the Greek word ‘ETHOS’ meaning ‘CUSTOM or CHARACTER’ [Prof. Robert C. Solomon] and ‘ETHICS’ simply means to ‘DO WHAT IS RIGHT’. Also ‘ETHICS’ refers to study of moral conduct of code of conduct. It concerns individual character including what it means to be a ‘good person and social values on behavior concerning ‘good and evil morality’ which: refers to human conduct values. ‘ETHICS’ and ‘VALUES’ are generally interchangeable in many discussions. It is possible for actions to be in compliance with the laws and regulations but not necessarily ethical as it is more concerned with individual feelings. In this article the word ‘ETHICS’ includes reference to being in compliance with the prescribed Laws and Regulations applicable to the contractors.
1.2 Construction Industry Development Board [‘CIDB’] of Malaysia issued a Code of Ethics [‘ETHICS’] for contractors that became effective on 1 March 2008 and was in line with the National Integrity Plan launched by the Prime Minister of Malaysia on 23 April 2004. The objective was to instill the culture of ‘ETHICS’ in the construction industry especially among the contractors who are the implementers in the industry. The ‘’ETHICS’ is composed of six principles which are as follows:
[a] Principle 1: Honesty in Carrying out Responsibilities
[b] Principle 2: Compliance with he Laws and Regulations
[c] Principle 3: Respect for the Individual and Community
[d] Principle 4: Importance of Quality, Skills and Standards
[e] Principle 5: Importance of Safety and Health
[f] Principle 6: Importance of Environmental Preservation
1.3 The first article on the ‘Principle 1: Honesty in Carrying out Responsibilities’ has been published in the September 2009 issue of Auditnet Newsletter. The scope of this article covers the second Principle listed in the ‘CODE’ that is ‘Compliance with he Laws and Regulations’. Articles related to the other four Principles will be published in the forthcoming issues of Auditnet Newsletter.
1,4 This article is in line with practices in Malaysia but the principles could be substantially applicable in other countries, However the contents should be modified to be in compliance with local practices where the readers are resident.
2.0 Compliance with the Laws and Regulations
2.1 It is the primary responsibility of all contractors to comply with laws and regulations that are prescribed by the relevant Government Agencies and Regulatory Authorities. In addition the main contractors are also mandated to ensure that all appointed sub-contractors also comply with these laws and regulations.
2.2 Federal/State Governments and Local Authorities periodically issues and may amend the Laws and Regulations and other relevant Authorities having jurisdiction over contractors whose business is construction and has employees. The Laws and Regulations listed here may not be comprehensive. Contractors are required to ensure that the applicable Laws and Relations are current with all the amendments that have been approved. The onus to be aware of all the relevant Laws and Regulations is on the contractors as ignorance of Laws and Regulations is not an acceptable reason or excuse in law for non-compliance. The main relevant Laws and Regulations in Malaysia are listed below together with some legal and financial implications.
[a] All construction contractors are mandated to be registered with the ‘CIDB’ under the appropriate category. The main contractors must ensure that their appointed sub-contactors are similarly registered with the ‘CIDB’ under the appropriate category. Further it has been prescribed and made mandatory for contractors in the Grade 7 to have ISO 9001: 2000 certification with effect from 1 January 2009. Failure to register can result in the contractors not being eligible to implement any works contract or suspension of works and prescribed penalties in the event a contractor were to commence any construction works.
[b] Contractors having construction contracts beyond a certain value limit are required to inform ‘CIDB’ of the receipt of the contracts and pay the prescribed amount of levy within the prescribed period.
[c] Contractors including appointed sub-contractors must employ workers who are citizens or foreigners with approved permits issued by the relevant Government Agencies. The illegal workers could be subject to arrest, prison and deportation. It is mandatory for the foreign employees to always keep their relevant permits and documents for inspection by relevant authorities. Failure for non-compliance can result in the contractor also being subject of criminal action that could result in financial penalties [present rate being about USD3,400.00 per worker] or prison terms or both.
[d] All construction workers must have ‘Green Card’ issued by ‘CIDB’. The Green Card signifies that the worker has undergone the mandated training course that covers among others safety aspects. Further the ‘Green Card’ also provides24-hours insurance coverage against any accident for the workers on full time basis. Failure to employing workers without the ‘Green Card’ can result in them being removed from the worksite and exposure to accidents without any compensation and the contractors being subjected to criminal action.
[e] All contractors must register themselves as employers and comply with the Employment Act [‘Act’]. The main requirements of the ‘Act’ to be complied are:
[i] Register with the nearest Labor Department within 90 days of commencement/registration or formation of their business. Failure to do so can is an offence that can result, if found guilty, liable on conviction to prescribed fines;
[ii] Maintain register of employees and made available for inspection for prescribed minimum number of years;
[iii] Provide safe system of work [as provided under the Factory & Machinery Act;
[iv] Terms of employment to be not less favorable than those prescribed in the ‘Act’;
[v] Date of Payment of Wages;
[vi] Statutory Deductions and others as approved but total not to exceed 50%;
[vii] Employment of women is subject to further specific requirements;
[viii] Paid public holidays and annual leave;
[ix] Termination & lay-off benefits;
[x] Reporting of accidents;
[xi] Register with Employees Provident Fund, Social Security Organization and Inland Revenue Department and remit dues as prescribed and within the period prescribed. Also maintain records for the duration prescribed for inspection of relevant authorities.
[f] Contractors must ensure that any technical professionals employed are registered with their professional regulatory authorities. Appointment of technical professionals on partial services must be with the additional requirement of consent of the relevant Local Authority.
[g] Contractors are also required to comply with registration procedures prescribed by other organizations who require contractors wishing to participate in construction contracts to be registered with them. Such organizations include the Malaysian Government Treasury and some of its specialized agencies such as the Works Department, Drainage and Irrigation Department, Local Authorities and some utility services providers such as power, telecommunications, etc.
[h] Construction Site [Safety Management]
[i] Contractors are required to ensure the Safety Management at any construction site.
There are three main Acts that are relevant to this requirement. These are:
- Factories and Machinery Act under which are Regulations relevant to the construction industry. The relevant Regulations include the following:
- Building Operations and Works of Engineering Construction;
- Safety, Health and Welfare;
- Electrical Passenger & Goods Lifts;
- Noise Exposure; and
- Mineral Dust.
- Occupational Safety and Health that provides for the following aspects:
- Responsibilities of employees, Designers and Manufacturer/Suppliers;
- Safety of persons at work and others effected by any hazards;
- Role of OSHA as the legal tool used by the Authority; and
- Emphasis of self-regulations by industries that includes construction contractors.
- Construction Industry Development Board is also required to provide leadership and guidelines, among others, ensure quality and high safety standards.
[The Master Builders Association of Malaysia has recently re-issued a revised and updated version of a comprehensive Manual of Occupational Safety and Health for the Construction Industry [‘Manual’]. This ‘Manual’ was prepared with the collaboration of ‘CIDB’ and Malaysian Government Department of Occupational Safety and Health. The original ‘Manual’ prepared in 2001 was translated in 2003 in the Malay, Chinese, and Tamil languages. However the revised version in these languages is still pending.]
3.0 Abandoned Projects
3.1 The main contributory factors for the delayed/abandoned projects may be attributed to lack of the First Principle of the ‘ETHICS’ i.e. ‘Honesty in Self Evaluation’ and lack of ‘Honesty in Pricing of Contracts’ as the contractors may have over extended their expertise and/or under estimated the required logistical and financial resources. Another cause may be attributed to ‘selling’ in the name of sub-letting the works to other sub-contractors and then over-dependency on others to monitor their implementation.
3.2 Contractors together with owners of delayed or abandoned projects may also be liable to action by relevant authorities and prescribed penalties if certain relevant laws pertaining to safety and health aspects are not complied. Laws and Regulations require contractors who face temporary disruptions of works at any contract site to place appropriate warning signs of any dangers that may arise during the duration of disruption. The dangers could be health hazards like mosquitoes breeding in stagnant water or illegal entry by public that may result in accidents including death due to drowning or other causes such as falling of debris, cranes left on site or other partially constructed works. The abandoned Sri Puteri Apartments in Shah Alam as reported in the media [The Star - Metro dated 31 March 2009] is quoted as an example where all the above referred dangers had been highlighted. Similar abandoned projects dot the skyline throughout the country including the Malaysian capital city of Kuala Lumpur.
4.0 Recommendations and Conclusion
4.1 The primary responsibility for compliance rests with the Contractors and it should not be delegated to their appointed consultants, management and on-site professionals. It is also a wrong presumption on the part of the main Contractor that once a contract has been sub-contacted the main Contractor is exempted from compliance of the Laws and Regulations relevant to the contract works. While the sub-contractors may be penalized the main Contractor can also be held liable for any accidents and health hazards caused by non-compliance of Laws and Regulations and subject to penalties on conviction.
4.2 Contractors should always display dedication, passion and have commitment to excel in their chosen construction business. The basis of success is the implementation of works in an efficient manner and without any accidents or contravention of any prescribed Laws and Regulations. It may be noted that compliance of Laws and Regulations in respect of ‘Safety’ aspects in implementation of works is given very high level of importance by the UK Authorities who have made it mandatory for Contractors who are construction companies to designate a Member of the Board of Directors to be responsible for the safety aspects. A step in this direction has been taken in Malaysia where Contractors are required to separately price in the contract documents the cost of safety measures and provide safety manual and training to all the staff involved in the implementation of any works. In addition Government contracts require all major contractors to have comprehensive Manual of Safety and Health that would include an element of security. The ‘Manual’ is required to be relevant to the core activities that are relevant to implementation of works with regular briefing for all those involved in the administration and implementation of the works.
4.3 Changing the mindset of the Contractors, professionals and site personnel involved in any contract and to give due importance to compliance of relevant Laws and Regulations will require all to play their role. The objective would be to ensure total compliance and ‘Zero’ level of accidents that would then result in implementation of works in a cost-effective and cost-efficient manner and successful completion of works that would provide full satisfaction to owners and end users of the projects. This would then enhance the reputation of Malaysian Contractors which would enable them to successfully compete also in foreign countries.
Compliance of prescribed ‘Laws and Regulations’ should be one of the
Primary Concerns of the Contractors in every Implementation of Works
GSK/Nov 09 Auditnet
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