Amendments to the building and construction industry security of payment

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On 2 October 2018, the Singapore Parliament passed amendments to the Building and Construction Industry Security of Payment Act (the “SOP Act”). The objectives of the amendments to the SOP Act are threefold:

  1. First, to expand and clarify the scope of the application of the SOP Act;
  2. Second, to enhance the handling of payment claims and payment responses; and
  3. Third, to improve the administration of the adjudication process.

These amendments are helpful to both employers and contractors alike. The amendments will come into force on 15 December 2019 and will apply to all payment claims served after that date. This article will list the major changes to the SOP Act and explores some issues raised by the amendments.

A) Expanding and clarifying the scope of the SOP Act

Prefabrication Works: The SOP Act has been amended to expand its scope to overseas production of pre-fabricated components supplied for construction work to be carried out in Singapore as well as prefabricated components in Singapore intended for overseas projects where the contracting parties are entities incorporated / registered in Singapore. The SOP Act will therefore cover a construction supply contract for pre-fabricated components as long as the Claimant can establish that the relevant contract has a nexus to Singapore within the meaning of the SOP Act.

Terminated contracts: The SOP Act was previously silent on whether payment claim disputes can be adjudicated after termination of the underlying contract. In CHL Construction Pte Ltd v Yangguang Group Pte Ltd [2019] SGHC 62 (“CHL”), the High Court held that payment claim disputes can be adjudicated after termination of the relevant construction contract in respect of works carried out before termination. The amended SOP Act (amended prior to CHL in any event) clarifies that “contract” under the SOP ACT includes terminated contracts. However, where terminated contracts contain provisions that permit the respondent to suspend payments to the claimant until a date or occurrence of a specified event, the new SOP Act will give effect to such provisions.

Definition of “patent error”: The SOP Act now defines “patent errors” as “errors that are obvious, manifest or otherwise easily recognisable on the face of the claim”.

Setting Aside: The SOP Act now provides a non-exhaustive list of grounds upon which an adjudication determination can be set aside. The courts also now have the power to do a partial setting aside of an adjudication termination, giving greater flexibility and efficiency to the adjudication process.

Claims for Damage, loss or expense: This is perhaps one of the more controversial amendments. The SOP Act now ostensibly excludes from its scope of application all claims for damages, loss or expense unless an agreement on these claims can be showed or such claims are supported by a certificate or document required to be issued under the construction contract. It appears that these claims will now be precluded by virtue of the amended sections 17(2A) and 19(5A) of the SOP Act.

Sections 17(2A) and 19(5A) of the SOP Act reads as follows:

“17.— (2A) In determining an adjudication application, an adjudicator must disregard any part of a payment claim or a payment response related to damage, loss or expense that is not supported by –

  1. any document showing agreement between the claimant and the respondent on the quantum of that part of the payment claim or payment response; or
  2. any certificate or other document that is required to be issued under the contract.

...

19. — (5A) In determining an adjudication review application, the review adjudicator or the panel of review adjudicators (as the case may be) must disregard any part of a payment claim or a payment response related to damage, loss or expense that is not supported by —

  1. any document showing agreement between the claimant and the respondent on the quantum of that part of the payment claim or the payment response; or
  2. any certificate or other document that is required to be issued under the contract.”

Therefore, it appears that a claimant can no longer claim for prolongation costs or loss and expense claims in its payment claims unless the respondent had previously agreed on the quantum. Conversely, respondents can no longer set-off or counterclaim back-charges and delay damages although it appears that this may still be possible under contracts which provide for certification of delay (for example, the Delay Certificate in the SIA forms of contract).

There is no equivalent or comparable provision in other adjudication regimes in the U.K., Australia and Canada or Malaysia and this provision will likely be a fertile ground for litigation when the new SOP Act comes into force on 15 December 2019.

To quote from the second reading of the SOP Act amendment bill by Minister of State for National Development Mr Zaqy Mohamad on 2 October 2018, “… [the SOP Act amendments] will make clear that adjudicators are to consider claims on damages, losses, and expenses only when the claim is supported by documents showing the parties’ agreement on the quantum of the claim, or a certificate or document that is required to be issued under the contract. Parties that wish to dispute on complex claims should consider other avenues, such as arbitration or litigation.”

Minimum Interest Rate: The SOP Act will now set a minimum interest rate based on the rate specified under the Supreme Court of Judicature Act, which currently stands at 5.33% per annum. A higher interest rate will be used if it is stipulated in the parties’ contract terms. This amendment will encourage respondents to pay claimants on time or face mounting interest payments. Also, this was to deal with the increasing incidence of contract terms stipulating very low late payment interest rates.

B) Changes to Payment Claims / Payment Responses

Limitation Period for Payment Claims: This amendment only applies to construction contracts entered into after 15 December 2019. The SOP Act now amends the limitation period to serve a payment claim to 30 months from the latest of the following dates:-

  1. The work was last carried out;
  2. A document certifying completion of the works has been issued under the contract; or
  3. The issuance of the latest TOP at the time the payment claim is served.

Email service of payment claims and payment responses: Previously, it was far from clear that service of documents by way of email was permissible under the SOP Act and there was some uncertainty created because one needed to show that the document had been brought to the attention of the intended recipient before email service could be deemed compliant with the requirements of the SOP Act (Progressive Builders v Long Rise Pte Ltd [2015] 5 SLR 689). The burden of proof in this regard lies on the person alleging good service. In line with the ubiquitous use of email in the modern age, section 37 of the SOP Act has now been amended to such that service by email is a valid mode of service as long as the email is capable of being retrieved by the addressee. This appears to have reversed the burden of proof – the addressee must now show that the email is not capable of being retrieved by the addressee.

Deeming provisions for payment claims: Presently, payment claims need to be served on a specific date or fixed period as stipulated under the contract. This is a mandatory requirement as decided by the Court of Appeal in Audi Construction Pte Ltd v Kian Hiap Constructions Pte Ltd [2018] 1 SLR 317. However, the new SOP Act now allows claimants to serve payment claims on or before the specified date or fixed period under the contract. The payment claim will then be deemed to have been served only on the contractual date or the last day of the period.

Unpaid payment claims and final payment claims: Under the existing SOP Act, repeat claims are permissible as long as they have not been adjudicated on the merits (Grouteam Pte Ltd v UES Holdings Pte Ltd [2016] 5 SLR 2011). The new SOP Act explicitly allows unpaid payment claims to be included in subsequent payment claims unless the pertinent claim had been adjudicated on the merits. The SOP Act now also clarifies that the term “progress payment” under the SOP Act includes final payment to make clear that final payment claims are covered under the SOP Act – this is a codification of the position in Lee Wee Lick Terence v Chua Say Eng [2013] 1 SLR 401 (“Chua Say Eng”).

Payment Responses: The default period for provision of a payment response (if silent in the relevant construction contract) has now been extended from 7 days to 14 days. Additionally, where respondents previously need not provide a payment response to a supply contract, the new SOP Act now states that the respondent in an adjudication of a supply contract must furnish an objection to the claimant in writing on or before the relevant due date.

C) Improving the administration of the adjudication process

Adjudication Review: Claimants may now apply for adjudication review where the adjudicated amount is lower than the amount claimed by the claimant by at least S$100,000.00. Where the claimant lodges an adjudication review, the respondent is only required to pay the adjudicated amount to the claimant after the adjudication review determination is issued. This is to prevent a situation where the claimant lodges an adjudication review application after receiving the adjudicated amount.

Non-Compliance: The SOP Act now empowers an adjudicator to accept an adjudication application that is not compliant with the Building and Construction Industry Security of Payment Regulations (the “SOPR”) where non-compliance with those regulations does not materially prejudice the respondent. This also appears to be a codification the case law in Chua Say Eng and Australian Timber Products Pte Ltd v A Pacific Construction & Development Pte Ltd [2013] 2 SLR 776 (“Australian Timber”) which held that only material non-compliance will disqualify a non-compliant adjudication application. However, it will be interesting to see whether the test of “legislative importance” as previously embodied in the aforementioned Chua Say Eng and Australian Timber decisions (which themselves find their roots in decisions by the Court of Appeal in New South Wales) will remain relevant moving forward.

Trust Account for Adjudication Amount: Whereas previously a respondent had to pay the adjudicated amount directly to the claimant before lodging an adjudication review, the SOP Act now allows the adjudicated amount to be deposited with a trust account to be established by the ANB pending the outcome of any adjudication review. By allaying concerns regarding the safeguarding of funds pending the outcome of adjudication review, this will hopefully encourage more respondents to make use of the adjudication review procedure to settle payment claim disputes. This amendment responds to industry feedback that respondents often resort to setting aside applications rather than adjudication reviews because adjudication review requires the adjudicated amount to be paid to the claimant (which carries the risk of dissipation) whereas in setting aside applications, the adjudicated amount is paid into Court.

Objections not made in a payment response or adjudication response: The new SOP Act now empowers the adjudicator to consider reasons or objections not raised in a payment or adjudication response where (a) new circumstances had arisen or (b) the respondent could not have reasonably known of such circumstances. However, the SOP Act also now precludes the respondent from raising any fresh objections to the payment claim or adjudication application in any setting aside application before the courts unless new circumstances had arisen or that the respondent could not reasonably have known of these new circumstances. This appears to be a codification of the case law position in Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd [2018] 1 SLR 317 with some slight modifications.

D) Conclusion

The amendments to the SOP Act brings welcome certainty and clarifications in the most part for the adjudication of payment claim disputes in Singapore. By codifying and aligning the statutory position closer to the case law in Singapore, it is hoped that this will make the adjudication process less complicated and more accessible to contractors all around Singapore. In turn, this will also help players in the construction industry to resolve payment claim disputes in a faster and more cost-effective manner.


Dentons Rodyk thanks and acknowledges senior associate Guo Xi Ng for his contributions to this article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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