Sigh of Relief for the Construction Industry: New Temporary Measures to Tackle COVID-19 Disruptions

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Introduction

8 months on since the outbreak of the COVID-19 pandemic in Singapore, the pandemic continues to pose serious challenges for the building and construction industry in Singapore, not least because thousands of foreign workers in the construction industry had to be quarantined as a result of the outbreak of the virus in the foreign workers’ dormitories.

On 30 September 2020, further reliefs for the construction industry came into force by way of Part 8 of the COVID-19 (Temporary Measures) Act 2020 (the Act). The amendments also attempt to reconcile the mechanism for relief under the Act with other dispute resolution mechanisms, including adjudication proceedings under the Building and Construction Industry Security of Payment Act (SOPA).

The amendments to Part 8 were shortly accompanied by an extension of the relief period by way of amendments to Part 2 of the Act, which came into force on 12 October 2020. This extension of relief complements the amendments made to Part 8, by affording businesses more time and opportunity to seek the reliefs offered by the Act.

On 3 November 2020, Parliament proposed further amendments under the COVID-19 (Temporary Measures) (Amendment No. 3) Bill, which introduces a universal four-month extension of time for construction contracts, and cost-sharing between stakeholders in the built environment value chain.

Extension of relief under Part 2 of the Act

Significantly, the Act previously provided relief against legal and enforcement action for inability to perform contractual obligations under construction contracts or performance bonds until 19 October 2020, but the latest amendments to the Act has extended the period of relief to 31 March 2021.

This is a welcome development - since the commencement of the Act, there has been a gradual and calibrated resumption of economic and social activities, but businesses are not yet out of the woods. In particular, the construction industry continues to face significant delays attributable to work stoppages during the Circuit Breaker, and reduced operating capacity due to the implementation of Safe Management Measures. These Safe Management Measures require employers to put in place systems to ensure a safe working environment on construction sites and minimize any risk of further outbreaks. Players in the construction industry have to obtain the Building and Construction Authority’s (BCA) approval to continue works (see BCA Circular on permission for companies to resume work). As a result, many construction projects remain halted or delayed.

The extension of the relief period under Part 2 addresses these issues by giving businesses and individuals in the construction sector much-needed additional breathing space to better adjust to the current operating context, and consider how they may meet their contractual obligations.

Part 8 of the Act comes into force: Relief for renters of construction equipment

Anecdotally, we hear from numerous contractors that they have had to pay rent for construction equipment even as the equipment sit idle on construction sites. Whilst there may be a few suppliers who may waive or discount rental fees for this period of time, they are few and far between. Indeed, it would be unrealistic to rely on the goodwill of a few, in the face of an issue plaguing the entire construction industry.

In this regard, Part 8 of the Act helps to alleviate the strain on resource management, by affording relief to renters of goods or equipment used for construction works, who may have become liable for additional rental expenses due to such delays in construction works or breaches of contract. This would be particularly relevant to the built environment sector, where contractors often rent e.g., scaffolding materials from suppliers for the purpose of performing construction work.

However, those who wish to take advantage of these reliefs must bear in mind the following time-sensitive criteria for submitting applications under the Act:

  1. The affected contract must be in force at any time between 1 February 2020 and 31 March 2021 (both dates inclusive) (see Section 3(2) of the Part 8 Regulations and Section 36(1)(a)(iii) of the Act). This is consistent with the amendment to Part 2 of the Act, which extends the relief for construction and supply contracts to 31 March 2021.
  2. The affected contract must be entered into before 25 March 2020 (see Section 2 of Part 8 Regulations).
  3. The delay or breach in the construction or supply (or related) contract must occur between 1 February 2020 and 31 March 2021 (both dates inclusive) (see Section 3(2) of the Part 8 Regulations and Section 36(1)(a)(iii) of the Act).
  4. Parties may apply for an Assessor’s determination under Part 8 by submitting an application to the Registrar. Applications must be submitted by 31 May 2021 (see Section 6 of the Part 8 Regulations).

Under Section 38(1)(b) of the Act, the Assessor determining the application has broad powers, and has the discretion to determine whether it is just and equitable in the circumstances for:

  1. A right or obligation under the affected contract to be performed or exercised in a manner other than in accordance with the terms of the said contract; or
  2. For a term in the affected contract to be varied, or for a party to the contract to be released or discharged from that term.

It also bears highlighting that the Assessor’s determination under Part 8 of the Act (as with Part 2 of the Act) is final and binding. In particular, under Section 38(3) of the Act, the Assessor’s determination may be enforced with leave of the court in the same manner as a judgment or an order of court to the same effect. Parties may also rely on the Assessors’ determination in subsequent arbitration or court proceedings, pursuant to Section 38D of the Act. Given the final and binding nature of an Assessor’s determination, employers, contractors, and sub-contractors should certainly undertake a careful consideration before applying for a determination under the Act; it could be hugely advantageous if the determination is in your favour but also disastrously unfavourable if not.

Reconciliation of dispute resolution mechanisms under Part 8

The Part 8 amendments have also been designed to mitigate the risk of parallel proceedings with other available dispute resolution mechanisms, such as court or SOPA proceedings.

The significant provisions under Part 8 which attempt to mitigate the risk of parallel proceedings are as follows:

  1. A party cannot apply for relief under Part 8 of the Act if the subject-matter of the dispute is part of any arbitral, court or SOPA proceedings already commenced (see Section 37(1A) of the Act).
  2. Once an application for relief is filed under the Act, no party to the contract can commence arbitral or court proceedings, or SOPA proceedings, in relation to the subject of the application. This moratorium continues all the way until a determination is made, or if the application is rejected or withdrawn (see Section 37A of the Act).
  3. Where a determination under the Act has been issued by the Assessor, any subsequent application or determination made by a SOPA adjudicator must be based on the adjusted contract terms (see Section 38B of the Act).
  4. SOPA adjudicators have been empowered under the Part 8 amendments to give similar reliefs as an Assessor appointed under Part 8. This is provided that the SOPA adjudication is made prior to the other party seeking relief under the Act (see Section 38C of the Act).

The extension of the period of relief under Part 2 of the Act undoubtedly complements the newly introduced statutory provisions in Part 8, which, in tandem, afford more extensive relief to those affected in the building and construction sector.

COVID-19 (Temporary Measures) (Amendment No. 3) Bill: Extension of Time and Cost-sharing

According to Mr Desmond Lee, Minister for National Development, in his 2nd Reading Speech for the proposed Bill, these amendments aim to give further support to the built environment sector. This is done by spreading the extra costs of project delays proportionately across the value chain, preserving industry capacity.

Construction works halted due to the Circuit Breaker period from 7 April to 1 June 2020, and were further delayed for a further 2 months as dormitories were only cleared in August 2020. In light of these disruptions, the proposed Section 39B in Part 8A of the Bill would give construction projects more time to be completed, with a four-month universal extension of time for contracts. The extension aims to reduce the administrative burden for contractors, so they may focus on restarting and ramping up work quickly and safely.

The proposed Part 8B of the Bill would allow the built environment value chain, meaning builders, contractors, and sub-contractors, to co-share additional costs due to delays to the project caused by the pandemic. For instance, contractors may need to rent machinery such as power cranes for a longer period of time. Part 8B of the Bill allow contractors or subcontractors to claim part of these costs from their clients through progress payment claims.

The amount claimed may be the lesser of the following amounts (see proposed Sections 39D(1)(d) and (e) of the Act):

  1. 50% of the total qualifying costs for anything done for or provided to or enjoyed by the clients specified period; or
  2. 0.2% of the contract sum, whichever is lesser.

However, under the proposed Section 39D(2) of the Act, the total amount claimed cannot exceed 1.8% of the contract sum.

In cases of disputes, under the proposed Section 39E of the Act, contractors can submit an adjudication application under SOPA. The appointed SOPA adjudicator will determine if the relief applies, and if it does, the amount to be co-shared between parties.

As the COVID-19 pandemic continues to disrupt the building and construction industry in unprecedented ways, all contracting parties should be informed of the various legal avenues to reduce their risk and potential liability. Do contact us if you wish to find out more about how you can obtain relief under the Act and/or if there is any other recourse you can avail yourself of in this crisis.

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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