Singapore approves changes to security of payment rules

The amendment law will, once in force, bring more construction contracts into the scope of the 2005 Building and Construction Industry Security of Payment Act (SOP Act). It will also enhance the way in which payment claims and responses are handled, clarify the status of repeat payment claims, as well as improve the adjudication process.

The changes have been introduced following extensive consultation and review of the SOP Act which, since its introduction, has quadrupled the use of adjudication as a means of resolving payment disputes and facilitated payments to contractors of over $940 million, minister of state Zaqy Mohamad told the Singapore parliament.

"When the SOP Act was first introduced, the intent was to preserve the rights to payment for construction companies. This remains the principle that underpins the amendments ... With these amendments, we believe that the Act will continue to ensure prompt payment practices in our construction industry, and also put our firms in a better position to thrive in both domestic and overseas markets," he said.

The commencement date of the amendments will be announced in due course.

The amendment law will expand the scope of the SOP Act to cover prefabrication works done overseas for projects in Singapore. It will also cover prefabrication works carried out in Singapore for export, provided that both contracting parties are Singapore-registered entities. The amendment law also makes it clear that claims for payment for work done or goods supplied before contract termination are valid, unless the parties have pre-agreed different terms.

The amendment law also prescribes a limitation period for service of payment claims, and clarifies that a payment claim will be valid even if it is served before the date or period specified in the contract. Once the amendment law is in force, claims served early will be treated as if they have been served on the date specified in the contract. The amendment law also clarifies that claimants are allowed to repeat a payment claim even without additional work done or goods or services supplied, so long as this is done within the limitation period and the claim has not yet been adjudicated on.

Changes to the adjudication process introduced by the amendment law include a new entitlement for claimants, in addition to the respondents, to apply for an adjudication review. The amendment law also incorporates various decisions of the Singapore courts into the SOP Act. These include allowing adjudicators to disregard certain administrative requirements provided that the other party was not 'materially prejudiced', and clarifying that belated objections by respondents will be disregarded by adjudicators or the courts unless the respondent can prove the objection could not have been made known earlier.

The amendment law also introduces a minimum interest rate for late payment, rather than relying on the interest rate specified by the parties in the contract which can often be as low as 1%. This change will "encourage respondents to pay claimants on time", Mohamad said. Finally, the amendment law sets out a non-exhaustive list of grounds on which parties can commence proceedings to set aside an adjudication determination, consistent with those that have already been developed by the courts.

"The amendments to the SOP Act come on the heels of extensive consultations with stakeholders over the last five years, and are a welcome development," said construction specialist Joanna Seetoh of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law.com.

"Overall, they enhance the effectiveness of the Act by codifying certain aspects of case law, expanding and clarifying the scope of the Act and clarifying ambiguities in the application of the Act," she said.