ISTISNA’ BASED PROTOCOL FOR SHARIAH-COMPLIANT CONTRACT FOR CONSTRUCTION WORKS
Construction is among the key sectors of an economy. Annually, billion ringgits worth of infrastructures were completed and repaired/refurbished and up to a million persons gained employment. Construction works are almost always performed by Contractors via complex contractual arrangements involving Employers and the other key players. In typical construction works, the two parties to a contract are the Employer and the Contractor. Their relationship is defined by the terms and conditions of the contract they signed, which is usually based on any one of the readily available standard forms of contract. Little is known whether these standard forms of contracts have, within their terms and conditions, provisions that comply with the Shariah. Under the Shariah the commonly accepted contract involving a subject matter that is yet to exist is Istisna’. However, Istisna’ is widely used by Islamic Financial Institutions as a Shariah-compliant financing tool instead of it being used as a primary contract between the Employer and the Contractor. In an endeavor to promote Shariah compliance in construction contracts a study, combining intensive desk research and a series of Focus Group Discussions, was carried out; its key objectives were to (i) identify key Istisna’ principles related to the practice of contracting for construction works; (ii) harmonize the key Istisna’ principles with the terms and conditions of the standard forms of contract; and (iii) based on the Istisna’ develop a protocol for a Shariah compliance contract for construction works. The focus of the study is at the formation of a contract between the Employer and the Contractor. The research findings include (i) identification of key principles of the Istisna’ that binds a contract between the Employer and the Contractor: the nature, quality, quantity, and the description of the infrastructure to be built is known, and time is fixed for constructing the infrastructure; (ii) in the current contract practice bills of quantities (BQs), drawings and specifications are used but their use is not always mandatory, and the start and completion dates of the works are expressly defined; (iii) it is considered apt to harmonize the identified key Istisna’ principles with the terms and conditions of the standard forms of contract and therefore, firm contract sum and BQs, complete drawings and specifications are to be made mandatory, and time frame for the contract is fixed at the time of contracting. The harmonizing effort transformed a contract towards Shariah-compliant, and (iv) Istisna’ based protocol for Shariah compliance contract for construction works, at the formation of a contract, is developed. The significance of the research and its findings may be viewed as follows: (i) a pioneering effort and a paradigm shift in the practice of contracting in the construction industry i.e. a move towards Shariah-compliant; (ii) contributing to Maqasidal al-Shariah in the areas of al-Din, nafs, aql’ and mal; and (iii) the protocol serves as guiding principle hence, promoting the application of Shariah compliance construction contract by the construction industry.
- KHAIRUDDIN BIN ABDUL RASHID
