Update on the Building and Construction Industry Security of Payment (Amendment) Bill 2018
On 2 October 2018, the Building and Construction Industry Security of Payment (Amendment) Bill 2018 (the “Amendment Bill”) was passed in Parliament. As of April 2019, the Building Control Authority (“BCA”) is still working on the necessary changes to the Security of Payment Regulations (“SOP Regulations”) and is working towards operationalizing the amendments to the Security of Payment Act (“SOPA”) in the second half of 2019.
The objective of the Amendment Bill was to enhance the effectiveness of the statutory adjudication mechanism as a low-cost and speedy dispute resolution mechanism for the construction industry. Thus, steps have been taken to accommodate and strike a balance between the competing interests of the different stakeholders in the industry.
The Scope of Application of the SOPA
1. Greater scope over contracts relating to prefabrication works
One of the amendments made to the SOPA is to allow prefabrication works done overseas for projects in Singapore to be covered under the SOPA. However, prefabrication works that are carried out in Singapore for projects overseas will not be covered when any party to the contract is not incorporated or registered in Singapore.
2. Clarified that claims for work done or goods supplied before contract termination are valid
3. Clarified that adjudicators are to consider claims on damages, losses, and expenses only when the quantum of such claims can be supported by documents
The issue of whether adjudications are appropriate to deal with “complex issues” such as prolongation costs, damages, loss and expenses has been a long-standing problem since the introduction of SOPA. It is apparent from several adjudication determinations that the views held by the various adjudicators are split on this issue.
Now, adjudicators and review adjudicators (or the panel of review adjudicators) will be required to disregard any part of a payment claim or payment response related to damage, loss or expense that is not supported by a document showing the parties’ agreement on the quantum of that part of the payment claim or payment response, or a certificate or document that is required to be issued under the contract.
Handling of Payment Claims and Responses
4. Shorter time limit for service of payment claims
Currently, under s10(2) of the SOPA, payment claims shall be served at such time specified in the contract or, where the contract does not contain such provision, at such time as may be prescribed.
The new amendments to SOPA prescribed that payment claims shall be served not later than such time specified in the contract or, where the contract does not contain such provision, at such time as may be prescribed AND not later than 30 months after the following, whichever is applicable:
i. Date on which goods and services were last supplied;
ii. Date on which construction work was last carried out;
iii. Issuance date of the last document certifying the completion of the construction work under a contract;
iv. Issuance date of the last temporary occupation
5. Clarified a payment claim will be valid even if it is served before the date or period specified in the contract
In the recent few years, there has been some confusion among legal practitioners and industry members as to whether a payment claim will be valid even if it served before the date or period specified in the contract. The new amendments to SOPA clarified that a payment claim will be valid even if it is served before the date, or the last day of a period, specified in the contract.
6. Unpaid payment claims can be repeated under the SOPA
The SOPA is also amended to explicitly allow unpaid payment claims to be included in subsequent payment claims even without additional work done or goods or services supplied. This will preserve claimants’ entitlement to seek payment through adjudication and to reflect the current state of the law as held by the Courts.
7. A longer timeline for payment response
Currently, under s. 11(1)(b) of the SOPA, where contracts are silent on the payment response timeline, the default period for payment response is 7 days. The default period of 7 days will be amended to 14 days. This will allow main contractors to have a reasonable period to issue proper payment responses to all their sub-contractors.
8. Clarified ways by which respondents may respond to a payment claim
Under s. 11(2) of the SOPA, it merely states a respondent may respond by paying to the claimant the claimed amount or such part of the claimed amount as the respondent agrees to pay. With the new amendments, the respondent may also respond by raising objections in writing.
The Adjudication Process
9. Allowed claimants to apply for adjudication review
Currently, only respondents may apply for an adjudication review if they disagree with an adjudication determination. With the new amendments, claimants aggrieved by the determination of an adjudicator may, if the claimed amount exceeds the adjudicated amount by the prescribed amount or more, also apply for adjudication review.
10. Prescribed that adjudicated amounts be paid to authorised nominating body as stakeholder
This new measure is to help avoid respondents going to court to seek a setting aside order for the adjudication determination as most respondents will not be willing to pay the claimant before they can go for the review application.
11. Allowed adjudicators to disregard specific circumstances where claimants have failed to provide certain documents or information in adjudication applications, so long as the respondents were not materially prejudiced
Adjudicators will be empowered to accept an adjudication application that does not comply with the prescribed formalities if the non-compliance does not materially prejudice the respondent. This amendment is to align the SOPA with previous court decisions on SOPA.
12. Clarified that any belated objections by respondents will be disregarded by adjudicators or the Courts, unless respondents can prove that their objections could not have been made known earlier
This amendment is to align the SOPA with recent landmark cases held by the Court of Appeal.
Other Notable Amendments
13. Revised minimum interest rate for late payment
Currently, under section 8(5) of the SOPA, the interest payable on the unpaid amount of a progress payment was previously at the rate specified in the contract or, where the contract does not contain such provision, at the rate prescribed under the Supreme Court of Judicature Act (“SCJA”). Now, s8(5) of the SOPA will be amended such that there will be a minimum interest payment rate at the higher of the rate specified in the contract or the rate prescribed in respect of judgment debts under the SCJA, which is currently 5.33% per annum.
This amendment was in response to the increasing practice of stipulating unrealistically low interest rates in contracts and the concern that such low interest rates (typically where sub-contractors have low bargaining power) are ineffective in deterring late payments.
14. Specified a non-exhaustive list of grounds on which parties can commence proceedings to set aside the adjudication determination
15. Clarified the court’s powers in proceedings to set aside the adjudication determination