Another Brief Update on Construction Law in

Singapore
 

This article provides an update on the effect of the enactment of the Building and Construction Industry Security of Payment Act 2004 on construction law in Singapore.

Introduction

With the enactment of the Building and Construction Industry Security of Payment Act 2004 (‘Act’) and its subsequent coming into operation on 1 April 2005, several standard forms of building contract have incorporated provisions in response to the Act. The Act was enacted to regulate payment and to introduce adjudication as a means of dispute resolution. It appears to allow parties to a contract governed by the Act to agree on certain matters as prescribed by the Act. It also allows the parties to continue the use of existing forms of dispute resolution, be they mediation, arbitration or litigation, in parallel with the use of adjudication. However, by s 36, the Act forbids parties to contract out of the provisions of the Act. The extent of the prohibition is expressly provided in that section.

Therefore, whether existing standard forms are left unamended or are amended in response to the Act, there are two issues with which to contend. The first issue is whether the unamended standard form or, where it is amended, whether the amendments or the new clauses offend the provisions of s 36. The second issue is whether these contractual provisions are able to perform the function as envisaged by the Act. This article examines the amendments made in standard forms issued by the BCA and SCAL in relation to the two issues. The SIA forms are not examined because they have yet to be released.

However, it is not the intention of this article to completely analyse the provisions relating to payment and adjudication. This article hopes to raise the point about the difficulties in drafting of contracts and statute by reference to some examples in the said standard forms mentioned.

Role of the Contract as Envisaged by the Act

The New South Wales (‘NSW’) Act, after which the Singapore Act is followed, and the local Act both envisaged a role for the contract on matters intended to be regulated by legislation. Thus, the main matters regulated by the affected contract are:

1.  the date on which a person is entitled to a progress payment (see s 8(2) of the NSW Act). This and the default position if the contract does not so provide are absent in the Singapore Act. Accordingly, the Act does not provide the answer as to when a person is entitled to payment;

2.  the amount of a progress payment (see s 9(a) of the NSW Act and s 6(a) of the Singapore Act respectively);

3.  the date on which payment becomes due and payable (see s 11(1) of the NSW Act). The Singapore Act also provides for the due date but the due date is applicable only if it is the earlier date as compared to the other date prescribed by the Act (see s 8(1) of the Singapore Act);

4.  the period in which a payment claim may be served and is applicable only if it is the later date as compared to the other date prescribed by the Act (see s 13(4) of the NSW Act). On the other hand, the Singapore Act provides for the contract to name the time for the service of a payment claim (see s 8(1) of the Singapore Act); and

5.  the time within which the payment schedule is provided and is applicable only if this has an earlier expiry date as compared to the other date prescribed by the Act (see s 16(1)(b) of the NSW Act). On the other hand, the Singapore Act provides for payment response instead. It provides for the due date for the service of the payment response and it is applicable only if it is the earlier date as compared to the other date prescribed by the Act (see s 11(1)(a) of the Singapore Act).

In the Singapore Act, it is envisaged that the affected contracts are permitted to retain their own contractual regime of payment. This may be observed from s 17(4) which expressly provides that the adjudicator ‘shall not be bound by ... any assessment in relation to the progress payment, that is provided in the contract to be final or binding on the parties thereto, whether subject to any term or condition or otherwise’.

The respect given by the Act to a contractual arrangement for payment appears to allow it to exist side by side with the statutory arrangement for payment. Therefore, a provision in the contract regulating the contractual payment regime would never offend s 36 as such provisions are allowed to exist. Further, the provisions in the contract regulating the statutory payment regime would similarly not offend s 36 if it is provided as allowed by the Act.

As compared to the NSW Act, the Singapore Act does not provide for the regulation of the date on which a person is entitled to a progress payment. Section 5 of the Singapore Act provides for, ‘any person who has carried out any construction work, or supplied any goods or services, under a contract is entitled to a progress payment [meaning of progress payment is a payment to which a person is entitled]’. Substituting the meaning of progress payment given by s 2, it therefore reads ‘any person ... is entitled to a payment to which a person is entitled’. It does not provide a very important piece of information, that is, when is a person entitled to payment under the statutory regime? In contrast, the NSW Act provides that a person is entitled to a progress payment on and from a reference date. In my previous article (see February 2005 issue), I had suggested that the answer lies in common law since the Act gives no answer. The common law principle in determining entitlement would be found in the terms of the contract, either expressly provided or implied by 
the law.

In addition, the Singapore Act also permits the contract to provide for the use of other forms of dispute resolution besides adjudication. Thus, by s 34(1)(a), it is provided that, ‘Nothing in this Act shall affect any right that a party to a contract may have to submit a dispute relating to or arising from the contract to a court or tribunal, or to any other dispute resolution proceeding ...’. Therefore, any existing provision for mediation, arbitration and summary judgment does not appear to offend s 36. Indeed, it is expressly provided by s 34(3) that: ‘An adjudicator shall terminate the adjudication proceedings on a dispute relating to or arising from the contract if, before the adjudicator determines the dispute, the dispute is determined by a court or tribunal or at any other dispute resolution proceeding.’

Nature of Amendments

All the standard forms under discussion in this article provide for dispute resolution methods other than adjudication. However, as regards the regulation of payment, it appears that three approaches have been taken. First, the statutory right to payment is adopted as the only avenue to payment and this is found in the Standard Conditions of Nominated Sub-contract 2005 issued by the BCA (‘SCONSC’). Second, the statutory right to payment is weaved into the existing contractual right to payment thereby providing an integrated avenue to payment and this is found in the Public Sector Standard Conditions of Contract 2005 issued by the BCA (‘PSSCOC’). Third, the statutory right to payment is kept separate from the contractual right to payment and this is found in the two forms newly issued by SCAL, that is, the SCAL Conditions of Sub-contract for Domestic Sub-Contracts (‘SCAL DSC’) and for the Supply of Goods 
(‘SCAL SOG’).

First Approach: SCONSC — Statutory Right to Payment as the Sole Means

Generally, the SCONSC attempts to take advantage of the statutory provisions that allow the contract to regulate the statutory payment regime without offending s 36.

It is provided by cl 27(1) that: ‘The Sub-Contractor shall submit to the Contractor, ... a claim for payment (hereafter referred to as ‘Payment Claim’). For the purposes of payment claims made under this Clause, the Payment Claim shall have the same meaning ascribed in the Building and Construction Industry Security of Payment Act 2004 (hereafter referred to as the ‘Act’). The Payment Claim shall be made in compliance with the requirements of the Act ....’

It is further provided by cl 27(2) that: ‘The Contractor shall within 14 days of receipt of the Sub-Contractor’s Payment Claim issue a notification to the Sub-Contractor (hereafter referred to as the ‘Payment Response’) notifying the amounts (hereafter referred to as the ‘Response Amount’) to which the Sub-Contractor is in his opinion entitled in respect of the Claimed Amount. ... Such Payment Response issued by the Contractor shall comply fully with the requirements for Payment Response made in contemplation of the Act.’

Both provisions appear to modify the definition of ‘payment claim’ and ‘payment response’ given by the Act.

By s 2 of the Act, ‘”payment claim” means a claim made by a claimant for a progress payment under section 10’ and ‘”progress payment” means a payment to which a person is entitled for the carrying out of construction work ...’. Therefore, by definition as explained in s 2, ‘payment claim’ is not a claim for payment per se as provided by cl 27(1) but is a claim for payment for which the claimant is entitled. Accordingly, the payment claim which is a claim for payment as provided by cl 27(1) does not satisfy the statutory requirement of being a claim for payment for which the claimant is entitled. This effectively means that the contractual provision is an attempt to contract out of the Act and is, therefore, void and unenforceable or is merely a contractual provision which does not affect the sub-contractor’s right as a claimant under the Act.

By s 2 of the Act, ‘”response amount” means in relation to a construction contract, the amount that a respondent proposes to pay to the claimant ...’. It is definitely not the same as ‘the amounts (hereafter referred to as the ‘Response Amount’) to which the Sub-Contractor is in his opinion entitled in respect of the Claimed Amount’ as provided by cl 27(2) since the clause provides for an opinion of what is entitled while the Act prescribes an amount which the respondent proposes to pay. Similarly, this effectively means that the contractual provision is an attempt to contract out of the Act and is, therefore, void and unenforceable or is merely a contractual provision which does not affect the contractor’s obligation as a respondent under the Act.

Second Approach: PSSCOC — ‘Integrated’ Right to Payment

Generally, the PSSCOC attempts to use the existing provisions to satisfy the requirements of the Act thereby retaining the role of the Superintending Officer (SO). It is this attempt at integration that poses the issue as to whether this has been successfully done. A few examples are analysed here.

By cl 32.1(1): ‘The Contractor shall submit ... a claim for payment (hereafter referred to as the ‘Payment Claim’) in such form as the Superintending Officer may from time to time prescribe ...’.

Further, by cl 32.2(1): ‘Within 14 days of receiving a Payment Claim ... the Superintending Officer shall issue a certificate (hereafter referred to as the ‘Payment Certificate’) ... showing the amounts ... (hereafter referred to as the ‘Response Amount’) to which the Contractor is in his opinion entitled in respect of the Claimed Amount ...’; and by cl 32.2(2): ‘The Payment Certificate ... shall be deemed the Payment Response from the Employer, which meaning shall be the same ascribed in the Act if the Employer does not provide any response within 14 days from the Payment 
Claim ...’.

Both provisions appear to modify the statutory provisions regulating ‘payment claim’ and ‘payment response’ under by the Act.

By s 10(3)(b) of the Act: ‘A payment claim shall be made in such form and manner ... as may be prescribed.’ It does not appear to allow the SO to prescribe the form as suggested by cl 32.1(1). This part may be construed as contracting out and, therefore, void in as far as the right to prescribe is given to the SO.

By s 2 of the Act, ‘”response amount” means in relation to a construction contract, the amount that a respondent proposes to pay to the claimant ...’. It is definitely not the same as ‘the amounts ... (hereafter referred to as the ‘Response Amount’) to which the Contractor is in [the SO’s] opinion entitled in respect of the Claimed Amount’ as provided by cl 32.2(1) since the clause provides for an opinion of what is entitled while the Act prescribes for an amount which the respondent proposes to pay. This effectively means that the contractual provision is an attempt to contract out of the Act and is, therefore, void and unenforceable or is merely a contractual provision which does not affect the contractor’s obligation as a respondent under the Act.

The two issues discussed above for the sub-contract are correspondingly applicable to the main contract in as far as the provisions are similar.

Third Approach: SCAL (DSC and SOC) — Separate Statutory and Contractual Rights to Payment

Generally, the two forms provide for a contractual payment regime in one part of the contract as well as respect the statutory payment regime at the end part of the contract.

Under the SCAL DSC, there are five clauses for payment (see cll 16, 17, 18, 19 and 20) and one clause for final accounts (see cl 21) under the contractual payment regime. In addition, there are four clauses (see cll 58, 59, 60 and 61) under the head — Provisions made pursuant to the Building and Construction Industry Security of Payment Act 2004 (‘The Act’) and the Building and Construction Industry Security of Payment Regulation 2005 (‘The Regulations’).

The form has been drafted to regulate on two matters in the statutory payment regime, namely, in compliance with s 10(2)(a), the time when a payment claim is to be served is provided by cl 59, and in compliance with s 11(1)(a), the time to provide a payment response is provided by cl 61.

Under the SCAL SOG, there are two clauses for payment (see cll 4 and 5) under the contractual payment regime and four clauses (see cll 33, 34, 35 and 36) under the head — Provisions made pursuant to the Building and Construction Industry Security of Payment Act 2004 (‘The Act’) and the Building and Construction Industry Security of Payment Regulation 2005 (‘The Regulations’).

The form has been drafted only to regulate payment claims, namely, in compliance with s 10(2)(a), the time when a payment claim is to be served is provided by cl 34.

Concluding Remarks

The importance of knowing the extent to which the contract form is permitted to regulate the statutory payment regime cannot be underestimated. It must be studied with care so as to avoid drafting clauses that may be found to have infringed the contracting out provision of s 36.

In the drafting of the permitted clauses, general provisions for compliance with the Act may not save the clauses that are found to have effectively contracted out in breach of s 36. On the other hand, the contract form may be drafted without threat of being void for contracting out of the Act as regards clauses that only provide for the contractual payment regime. In the event that the form does not provide for a contractual payment regime and the clauses regulating the statutory regime are found to be void because of contracting out, the full force of the default statutory payment regime would take over.

Based on the three approaches discussed above, the third approach would ensure that the parties have the latitude to agree to terms regulating the contractual payment regime while respecting the statutory payment regime. It even allows the parties’ participation in the regulation of the statutory payment regime to the extent allowed. The first and second approaches run the risk of having the clauses declared void and unenforceable if not drafted in strict compliance with s 36. This will activate the default provisions under the statutory payment regime.

Philip Chan

National University of Singapore

Email: bdgccf@nus.edu.sg