Shari`ah compliance in construction procurement with specific reference to contract formation

Abstract

This study examines the current practice in construction procurement with specific reference to contract formation and appraises the practice in terms of its compliance with the Shari'ah. The scope of the study is to identify and describe the key processes, procedures, requirements, conditions and activities related to the formation of construction contracts – specifically on offer and acceptance – through the conventional way and assess whether the identified activities are Shari'ah compliant or otherwise. The methodology employed comprises: literature review, focus group discussion and semistructured interviews. Experts, in the areas of construction procurement, construction contract, Shari'ah law, Fiqh and Usul Fiqh and Fiqh mu'amalah, are the key resource persons for the study. The findings of this study suggest that most of the aspects in the practice of offer and acceptance in the formation of conventional construction contract are considered to be Shari'ah compliant. There are only two aspects which are considered to be non-Shari'ah compliant, therefore need to be improved i.e. the way site investigation is carried out and taking conventional insurance. The outcome of the study is considered significant in terms of enhancing understanding of the Islamic commercial transactions in the area of construction procurement in relation to contract formation.