EXECUTIVE SUMMARIES
FOR THE PRACTITIONER
A Langdon & Seah Consultancy Information Sheet
Volume 14 Issue 3: June 2014
Langdon & Seah Singapore Pte Ltd
Global Construction Consultants
Further Updates on the Building and Construction Industry Security of Payment Act
Introduction
In the light of the recent Court cases and adjudication determinations under the SOP Act in
2013, I would like to provide a summary of the key issues so that we are aware of the
vigilance needed.
1) Both contractual obligations & SOP Act requirements need to be considered
The SOP Act sits on the construction contract and is the legislative regime that entitles the
Contractor to payment for work done. The SOP Act will take precedence if the contract is
drafted such that the payment requirements and regime under the Act is not complied with
e.g. where maximum timeframes under the SOP Act are breached, or pay when paid
clauses incorporated in contravention of s. 9 of the SOP Act, as no contracting out is
permitted.
Preliminaries have been carefully drafted to take into account the requirements of the SOP
Act, e.g. under the standard L&S REDAS PCs, Interim Payment Certificates (issued within
14 days under PC cl. 22.3) are §deemed¨ the Payment Response, if the Employer does not
subsequently provide a Payment Response (within 21 days from the date of the Payment
Claim, being the maximum period permitted under s. 11(1)(a) of the SOP Act).
It does not automatically follow that an employer does not need to pay the contractor if the
quantity surveyor did not produce an interim valuation, or the architect an interim payment
certificate. If the contractor makes a payment claim, there must be a payment response,
supported by adequate reasons where there is a difference in amounts or amounts are
withheld (s. 11(3)(c) of the SOP Act).
Also in the event of termination, and even if there is a termination certificate, employers must
still pay the contractor for work done up to termination. If the payment claim is made after
termination, employers must still value the work done, less any deductions e.g. for defects
and LD.
2) Draft payment claims
It is clear from cases like Lee Wee Lick Terence v Chua Say Eng [2012] SGCA 63 that a
payment claim does not have to specify that it was made pursuant to the SOP Act.
In such context, where “draft” payment claims are requested, these must clearly indicate that
it is for discussion only and they do not constitute a payment claim under the SOP Act, to
avoid it being treated as such. If the Contractor subsequently attempts to treat the payment
claim as one under the SOP Act, the Employer can avail themselves of a defence of
estoppel.
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Volume 14 Issue 3: June 2014
MCI (P) 063/06/2014
…@Langdon & Seah Consultancy Executive Summaries for the Practitioner
Page 2
Further Updates on the Building and Construction Industry Security of Payment Act
3) Date of submission of payment claims
Given the uncertainty regarding the treatment of §month¨ arising from cases like Chua Say
Eng and the effect on the date for submission of payment claims, it shall be clarified that the
submission date shall be based on calendar month. For example, under the standard L&S
REDAS PC cl. 22.2.1, the payment claims are to be submitted within 7 days from the end of
the calendar month following the month in which the contract is made.
4) No basis to pay when certified
The fact there is no certification, or SOI, ERI or AI, under the contract is not a reason for not
making payment, given the purposes of the SOP Act and that it entitles the contractor to
payment for work done. Certification is just a contract administration mechanism under the
contract and if work has been done, the contractor must be paid.
We need to ensure that proper assessment of the work done and variations are carried out
timeously and clear the RVO process efficaciously, so that the necessary instructions can be
issued. Unfortunately, the RVO process instituted by our clients is not part of the SOP Act
and if a contractor is claims conscious, he still can make a payment claim and succeed in
adjudication, notwithstanding a proper RVO approval process and absence of SOI, ERI or
AI. Therefore, a good working relationship with the contractor is important due to the
dichotomy of the requirements based on the SOP Act and what is needed for good change
management.
5) Be especially vigilant for no payment response by the M&E Engineers
It has come to our attention that there are many SOP determinations in 2013 against the
Employer because of no reasons given. As valuation is carried out by us and the M&E
Engineer, all should at least have the principle:
i) Valuations must have reasons for the difference in amount;
ii) “Nil”, or “0.00”, or “-“ entry is not acceptable as a reason;
iii) To be sensitive to the timelines.
Essentially, good reasons should be given whenever the response amount is less than the
claimed amount. Section 11 (3)(c) of the SOP Act mandates this, so it is not that we are
imposing unnecessary demands.
Practically, it is still the case that failure to serve a payment response is usually fatal and
likely means full payment will be allowed by adjudicators. The implications of s15 (3) are
draconian.
We must have these instituted, so as to protect our clients and Langdon & Seah in this SOP
process.
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Volume 14 Issue 3: June 2014
MCI (P) 063/06/2014
…@Langdon & Seah Consultancy Executive Summaries for the Practitioner
Page 3
Further Updates on the Building and Construction Industry Security of Payment Act
6) For ¨Nil¨, good reasons must also be given
If there is “Nil” payment e.g. because the contractor has not come to that part of the work yet
and is claiming in advance, we need to clearly state “Nil” Payment and the reasons for this.
Just stating “Nil” payment is not a valid reason at all.
7) No Maintenance Certificate is not a reason
Even if we are using the SIA form, the fact there is no maintenance certificate is not a good
enough reason to withhold monies on claims for release of retention e.g. under clause
31(10) of SIA Lump Sum Conditions of Contract, 9th Ed. This can be challenged by the
contractor again on the basis that he is entitled to payment for work done regardless of
certification process. It is better to explain why the maintenance certificate was not issued,
e.g. works were not completed, defects have not been rectified, indemnities or warranties
were not provided, or no proper as-built drawings submitted.
And if proper as built drawings are not submitted, it is harsh to hold back all the retention
monies just on account of this. There should still be some payment for work done, even if
some drawings are not submitted.
8) Definition of Work Done to include Drawings etc
If shop drawings submissions are to be approved before contractor is entitled to payment, it
has to be clearly worded that these submissions shall be part of the works. If the clauses
are drafted as though they are condition precedents, or that payment will be made only when
these are approved, then there is a chance that non-payment due to non-submission of the
shop drawings, will be subject to challenge under the SOP Act. These documentations,
including the need to submit the conforming documents prior to the release of the retention,
shall be described as part of the works in order for full payment to be released and paid. If
they are not submitted, then it is deemed that the works are not completed and payment
can’t be made in full. We may need to go one more step to say that if all documents are not
submitted, a percentage can be paid. Once approved, the remaining monies can be paid, in
order to show reasonableness of approach.
Eugene Seah
Group Managing Director
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Volume 14 Issue 3: June 2014
MCI (P) 063/06/2014
…@Langdon & Seah Consultancy Executive Summaries for the Practitioner
Page 4
Further Updates on the Building and Construction Industry Security of Payment Act
L&S TPI is a measure of the comparative tender price movements based on the projects handled by Langdon & Seah Singapore Pte Ltd.
The TPI reflects the tender price level of contracts let out over the years. Other than material and labour costs, it takes into account the
elements of competition, risk and profits.
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Source: * Building and Construction Authority as at 19 May 2014
Note: With effect from the 1st Quarter of 2009, BCA has implemented the new TPI series with Base Year 2005 = 100. The TPI chart shown above has been
amended accordingly to reflect the Base Year as Year 2005.
^ L&S TPI is based on 4th Quarter index
Langdon & Seah Singapore Pte Ltd (L&S) in addition to providing traditional quantity surveying has developed a range of specialist integrated management
services for construction projects comprising of cost management, project management, contract advisory & dispute management, cost engineering services,
loan monitoring, insurance valuations and loss adjusters assessment, sustainable construction, construction supervision services and investment appraisals.
L&S Contract Advisory & Dispute Management Services Pte Ltd: Eugene Seah, Amos Teo and Kua Moon Yin
Professionally qualified and experienced construction professionals providing the following within Singapore, the Region and the
International arena:
x
Front End Contract Advisory work including Contract Administration, Procurement Strategy, incorporation of Conditions of Contract
x
Claims Assessment
x
Legal and Litigation Support
x
Expert Technical Advice and Witness
x
Dispute Management towards Avoidance and Resolution
x
Evaluator, Mediator, Arbitrators and Adjudicator
x
Research, Publication, Seminars, Short Courses and In-house Training for Staff, Clients and Consultant Organisations
L&S
x
x
x
x
Consultancy: Eugene Seah and Amos Teo
Construction Innovation
Sustainability and Green Issue
Bank Technical Advisory Management
Facilities Cost Consultancy Capital Allowance
x Technical Due Diligence
x Market Intelligence and Research
x Management Consultancy / Development
Landgon & Seah Consultancy includes the following services through the following departments:
Cost Research Department:
Eugene Seah, Ho Kong Mo, Cheryl Lum and Christine Chan
x
Cost Analysis & Research of tenders and its price indexing
x
Value Management & Engineering exploring schemes,
architectural forms and constructions methods towards
achieving efficiency and buildability
x
Benchmarking – Generic, Competitive, External and Internal
x
Reinstatement Cost Assessment
x
Due Diligence Reporting
Mechanical & Electrical Quantity Surveying Department:
Goh Chok Sin and Lorimer Doig
x
Budget and Detailed Cost Estimating
x
Tender and Contract Documentation
x
Financial Management of Contract
x
Value Engineering
x
Life Cycle Costing
x
Capital Allowances Taxation Assistance
x
Dispute Resolution and Expert Witness Reports
x
Cost Audit
Contact us at our Email: [email protected]; [email protected]; M&[email protected];
Tel: (65) 6222 3888 or Visit our website at www.langdonseah.com
…@Langdon & Seah Consultancy’s Executive Summaries for the Practitioner provides a synopsis of legal and/or professional practice issues in the construction industry and is intended for
information purposes only. While L&S Consultancy endeavours to ensure the accuracy and completeness of the information sheet, specific professional legal advice should be obtained and
L&S Consultancy shall bear no liability whatsoever for any part of its contents. All rights reserved. Copying in any form or by any means (electronic, photocopying or otherwise) is strictly
prohibited without the written permission of L&S Consultancy.
Printed by Kairos Design
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Volume 14 Issue 3: June 2014
MCI (P) 063/06/2014