Significant changes to security of payment regime in Singapore

The changes contained in the Building and Construction Industry Security of Payment Amendment Bill 2018 are the most extensive changes to the Security of Payment Act (SOP Act) since it became law in 2005. They are due to take effect on a date that the Minister appoints by notification in the Gazette.

Here are some of the most significant changes.

Prefabrication works

Two new provisions have been added that seek to expand and clarify the scope of the SOP Act in relation to prefabrication works.

The new Section 4(2) (d) effects that the SOP Act applies to contracts for prefabrication of components to be used in construction outside Singapore where parties to the contract are Singapore-incorporated companies.

The new Section 4(2A) clarifies that the SOP Act will apply to prefabrication works carried out overseas for construction work in Singapore.

These new provisions are reflective of parliament's sensitivity to the market needs of Singapore-based businesses and the realities of the local construction industry where materials are sourced internationally, and are a welcome development. The extension in scope also presents more businesses the avenue of resolving their payment disputes quickly and at low cost through the adjudication process.

Payment claims

A 30-month limitation period has been introduced for issuing payment claims commencing from:

In relation to supply contracts: the date on which the goods and services to which the payment claim relates were last supplied.

In relation to construction contracts: the latest of the following dates:

• the date on which the construction work indicated in the payment claim was carried out;
• the issuance date of the last document certifying completion of the construction work under a contract; or
• the issuance date of the last temporary occupation permit.

This amendment is a welcome change. The 30-month limitation period encourages the timely submission of payment claims, and affords upstream parties the comfort that they will not be subject to adjudication for payment claims long after the conclusion of the project. However, it remains to be seen how the courts and adjudicators alike will deal with the situation where claimants are prevented by the respondents from bringing their claim within this strict limitation period.

Deeming provision

The current SOP Act provides, in Section 10(2), that a payment claim shall be served "at such time as specified in or determined in accordance with the terms of the contract". However, disputes over validity of the payment claim have arisen where a payment claim was served before the contract stipulated deadline or where the deadline falls on a non-working day. 

The new version seeks to address the issue by providing that payment claims served before a stipulated date for service are deemed to have been served on that stipulated date. In other words, early service of payment claims is permitted and timelines begin to run only from the stipulated date for service. What this also means is that payment claims served after the stipulated date for service may no longer be challenged on the basis that they were served out of time, as they can arguably be deemed to be served in the next payment claim interval.

In practical terms, this amendment may well result in the end of procedural challenges to the time of service of payment claims. However, this must be viewed as a welcome change, as it removes such technical challenges from the respondents' arsenal, and returns the focus to the substantive merits of payment claims served.

Payment responses

Thus far, the experience of many has been that respondents would frequently raise procedural and jurisdictional objections for the first time in adjudication responses or at the adjudication hearing in attempts to resist claims.

The new version codifies and clarifies an early notice requirement by expressly providing that adjudicators can only consider a respondent's objections set out in its payment response. The only exception to this rule is where the circumstances of the objection (a) had not arisen or (b) could not have been reasonably known when the payment response was submitted.

The new Section 15(3) seeks to curtail the scope for ambush by respondents to payment claims, and return the focus of adjudication proceedings to the substantive merits of payment claims served. What this means for respondents, however, is that they must now consider all objections early and comprehensively, and convey them in their payment responses. To this end, it would be essential for employers and contractors alike to equip their teams with the necessary knowledge, awareness and support to prepare payment responses appropriately and robustly.

Codifying limits on claims for damages and loss and expense

The new Section 17(2A) of the SOP Act provides that claims for damages and loss and expense may be included in adjudication proceedings, but are subject to the express limitation that an adjudicator must disregard any claim for damages and loss and expense that is not supported by any document showing agreement between parties on quantum of the claim; or any certificate or other document that is required to be issued under the contract.

The motivation behind the limitations imposed was explained in parliament, citing a previous adjudication which lasted 129 days because a large portion of the claimed amount was prolongation costs. The Minister of State for National Development, Mr Zaqy Mohamad, explained that the new provision is intended to streamline the issues an adjudicator may consider and avoid prolonged adjudications, to ensure that the adjudication process serves its intended purpose – to resolve payment disputes quickly and cost effectively.

In practical terms, this means that while claims for damages and loss and expense can now be included in payment claims, claimants must take care to:

• record all agreements on the quantum of the claim in writing; and
• where the contract provides for such damages or loss and expense to be certified, to apply for and obtain certification of its loss and expense claims timeously and ahead its payment claim submission.

Other changes to the SOP Act

Other notable changes to the SOP Act include:

• Clarification that the SOP Act applies to terminated contracts (new Section 4(2)(c), 4(2A)(b));
• Revision of interest rates for late payment (new Section 8(5));
• Clarification that repeat claims are permitted under the SOP Act (new Section 10(4) and (5));
• Default timeline for submission of payment responses increased from 7 to 14 days if contract does not state otherwise (new Section 11(1)(b));
• Appointment procedures to replace adjudicators and review adjudicators (new Section 14A and 18A);
• Confirmation that parties are allowed to raise objections relating to "patent errors" (new Section 17(4A)(c));
• Adjudicated amount to be paid to Singapore Mediation Centre instead of respondent in adjudication review (new Section 18);
• Review adjudications now open to both claimants and respondents (new Section 18);
• Non-exhaustive grounds for setting aside adjudication determinations codified (new Section 27(8)); and
• List of permitted modes of service under the SOP Act now exhaustive and includes email service (new Section 37).

Chan Yong Neng is a Singapore-based construction expert at Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law.