Construction Law 2021 Comparisons

Last Updated June 11, 2021

Contributed By CMS

Law and Practice

Authors



CMS is a Top 10 Global Law Firm, with over 4,800 lawyers in 43 countries worldwide offering business-focused advice tailored to their clients' needs. With Singapore operating as the firm's “hub” in Asia, and alongside the team based in Australia, the lawyers there have worked on some of Asia-Pacific’s most complex and high-profile developments, and on many major international projects in countries such as Malaysia, Indonesia, Thailand, Myanmar, Vietnam, People’s Republic of China, New Zealand and Australia. The team provides both local and international legal services from one platform, via the Formal Law Alliance CMS Holborn Asia in Singapore, and its established network of relationship firms in the region. Through close relationships with its clients and the sectors in which they operate, the firm helps to deliver construction, engineering, infrastructure and energy projects, advising on every aspect from inception and procurement, through funding and building, to commissioning and operating, as well as dispute resolution.

Aside from the applicable statutes and regulations, the principal laws governing the construction market are derived from the common law of contract and tort. Rulings from other common law jurisdictions, such as the United Kingdom and Australia, are persuasive but not binding on the Singapore Courts. 

Applicable Statutes

Most projects in Singapore typically use well-established standard forms. The use of standard forms is not mandatory, however. 

The public sector generally uses the following standard form contracts: 

  • Public Sector Standard Conditions of Contract (PSSCOC) for Construction Works; 
  • PSSCOC for Design and Build; and 
  • Standard Conditions of Nominated Sub-Contract for use in conjunction with the PSSCOC for construction works. 

For private sector projects, common standard forms include: 

  • the Singapore Institute of Architects (SIA) Lump-Sum Contract;
  • SIA Measurement Contract;
  • SIA Minor Works Contract;
  • SIA Conditions of Sub-Contract;
  • Real Estate Developers’ Association of Singapore (REDAS) Design and Build Conditions of Main Contract; and 
  • REDAS Conditions of Sub-Contract.

Engineering projects may use standard forms by the International Federation of Consulting Engineers (FIDIC), such as the red book (construction), the yellow book (design and build) or the silver book (EPC/turnkey projects). 

The COVID-19 pandemic has severely impacted the construction market. 

Preliminary figures indicate that construction demand in 2020 declined 36.5% to SGD21.3 billion. Private sector demand decreased due to market uncertainties amid the economic recession induced by the pandemic. Public sector construction demand also declined as major infrastructure projects were postponed as a result of the need to assess the pandemic’s impact on resource management and project schedules. 

Total construction demand in 2021 is projected to recover to between SGD23–28 billion, with the public sector contributing about 65% of the total demand. 

To mitigate the impact of COVID-19, the Building and Construction Authority released a SGD1.36 billion Construction Support Package which, among other measures, provided for the ex gratia co-sharing of additional costs due to delays caused by COVID-19. Contractors for all construction projects were also granted a default universal 122-day extension in 2020, with public sector projects enjoying a further 49-day extension, as at the time of this publication. 

Apart from Government Procuring Entities (GPEs), employers in construction project are typically large listed corporations (both local and foreign), trustees/managers of real estate investment trusts (REITs) or government-linked companies (GLCs).

Employer’s Rights

Subject to provisions in the contract such as extension of time and variation claims, the employer is generally entitled to receive the completed project within the timeframe specified for the construction works and for the contract sum stipulated.   

Employer’s Obligations

The employer typically: 

  • conceives the business case for the construction project;
  • arranges funding for the project; 
  • sets out the broad requirements for the project; 
  • secures planning permission and the building regulatory permits to enable the works to proceed;
  • is obliged to ensure that the contractor is paid regularly according to the payment schedule set out in the contract; and 
  • undertakes to give the contractor sufficient possession of the site to enable the works to proceed smoothly. 

Relationship with the Contractor

The contractor is responsible for:

  • carrying out the construction work for the project, either based on the project brief or according to the design of the project commissioned by the employer; and
  • for overseeing the construction works as a whole, making the contractor liable for any defective work, delay or any other default committed by the subcontractors. 

If a design-and-build model is adopted, the contractor will also be responsible for the design aspects of the project. However, some employers prefer a hybrid version of the design-and-build model in order to retain some control over the design.

Relationship with Subcontractors

Generally, there is no privity of contract between the subcontractors and the employer. 

Nevertheless, the contract between the employer and contractor will typically: 

  • contain prohibitions against the contractor subcontracting entirely without the approval of the employer; 
  • provide for the employer to insist that the contractor appoints particular subcontractors for designated parcels of work; and
  • require the contractor to procure warranties, whether jointly or severally, for specialist works in favour of the employer. 

Relationship with Financiers

See 2.4 The Financiers

Contractors in a construction project are typically large listed corporations (both local and foreign). Foreign contractors commonly undertake projects by way of a joint venture with a local company. 

The contractor is responsible for carrying out the construction work for the project, either on the basis of the project brief or according to the design of the project commissioned by the employer. If a design-and-build model is adopted, the contractor is also involved with the design aspect of the project. 

Relationship with the Employer

See 2.1 The Employer

Relationship with Subcontractors

Generally, a subcontractor contracts as an independent agent of the contractor. 

In the absence of any express provision to the contrary, the contractor can only hold the subcontractor accountable for the subcontractor’s work. In practice, a contractor will ensure that the subcontract preserves the chain of contractual accountability upstream. 

Relationship with Financiers

See 2.4 The Financiers

Subcontractors in a construction project are typically local companies with expertise in the various subcontracted trades or specialist works. For more about the subcontractors' relationships with others involved in the construction project, see 2.1 The Employer, 2.2 The Contractor and 2.4 The Financiers.

Financiers in a construction project are typically commercial banks, investment banks and institutional investors (both foreign and local). A syndicate of financiers may extend loans for larger projects. 

Rights and Obligations of Financiers

In traditional financing, the financiers take security over substantial assets such as land and buildings, or take security in the form of guarantees from a parent company to secure loans provided to its subsidiaries. Such loan agreements are typically unrelated to the construction contract. 

In project financing, financiers take security over the receivables (ie, the net cash flows arising from the operation of the completed project). The financiers will exercise a very high degree of diligence in assessing and monitoring matters arising from the construction contract. 

Relationship with the Employer

In project financing, the financiers will insist that the project company (ie, the employer) has no business other than the business of the project itself. This is to reduce all external sources of risk to the employer as much as possible. Financiers are usually granted the right to step in and replace the employer in certain situations, notably where the employer has pulled out or is unable to deliver the project. 

Relationship with the Contractor

In traditional financing, there is usually no contractual relationship between the financiers and the contractor. 

In project financing, however, the financiers: 

  • will typically conduct due diligence on the terms of the construction contract, such as safeguards against cost and time overruns as well as defects, and ensure that the drafting and technical specifications are all properly interfaced; and
  • may require the contractor to enter into an agreement which permits the assignment of the construction contract to the financier in certain situations. 

Relationship with Subcontractors

There is usually no contractual relationship between the financiers and subcontractors. 

In project financing, however, the financiers will ensure that the relevant construction risks are passed through to the relevant subcontractor. 

The scope of the works can be derived from the following contract documents. 

Letter of Award

Reference should first be made to the letter of award, which typically sets out a summary of the scope of the works involved and requires the contractor to be in full compliance with the drawings, specifications and other documents. 

Tender and Contract Drawings

The tender and contract drawings make it possible to measure and price the elements making up the project. For instance, architectural drawings show the form of the building, the location and specification of components, finishes and services. Structural drawings will provide details of the structural components. 

Bill of Quantities (BQ)

The BQ comprises a detailed quantification of work items derived from the measurement of the works from the contract drawings and distinguishes the works of different trades. The BQ allows a contractor to estimate and price the works during the tender process. 

Specifications

The specifications usually:

  • contain stipulations on the technical requirements of the contract works;
  • incorporate relevant portions of codes of practice and industrial standards; and
  • address issues brought up by consultants during the preliminary stages of project conceptualisation. 

Scope of Variation

Firstly, the contractor has to show that a valid instruction was issued by the employer, and that the work ordered falls within the definition of variation as intended by the contract. Alternatively, the contractor needs to issue a Request for Instruction (RFI). 

For example, the PSSCOC for Construction Works expressly includes within the definition of a variation a change in quantities, a change in the character and quality of the work, as well as changes in the dimensions of an item of work from that specified in the contract documents. 

Unless the contract provides otherwise, a variation cannot consist of work which is indispensably necessary to give effect to the intention of the parties when they entered the contract. 

Valuation of Variation

Where applicable, the variation will usually be valued based on contract rates or adjusted contract rates. If no exact equivalent items are found in the BQ or schedule of rates, the valuation will, where possible, be based on comparable prices extrapolated from similar works. Allowances may be made for changes in cost or commercial profitability.

For instance, the PSSCOC for Construction Works requires a contractor to submit a quotation for the proposed variation. This enables the superintending officer to assess the financial implication of a variation before issuing the instruction. 

The allocation of design responsibilities depends on the procurement model adopted. 

Traditional Model

Under the traditional model, the employer commissions an architect and engineers to prepare the design for the project. Generally, the architect and engineers have a duty to ensure that the works as designed have been properly executed by the contractor. 

The contractor is employed to construct the project based on this design but is generally not liable for problems related to the design. 

Design-and-Build Model

Under a design-and-build model, the contractor carries out both the design and construction of the works. The contractor is given “single point” accountability for both the design and construction of the project. However, some employers prefer a hybrid version of the design-and-build model in order to retain some control over the design.

Public-Private Partnerships

This arrangement may be used for public sector projects such as infrastructure and utilities. Under such arrangements, GPEs work with firms in the private sector to design, plan, finance, construct and operate the project. 

Employer

Save for obtaining the requisite approvals and giving site access to the contractor, the employer generally affords latitude to the contractor regarding the construction process.

Contractor

Under the traditional model, the contractor is obliged to complete and deliver the works as designed by the consultants. The contractor is typically given autonomy in determining the construction sequence and methods of construction. 

Under a design-and-build model, the contractor must also ensure that the works fulfil the objectives set out in the project brief or the client’s requirements. 

Subcontractor

The subcontractor typically deals with the contractor. The contractor usually has latitude to deal with subcontractors as it deems fit, except where the owner expressly requires certain terms to be incorporated into the subcontracts. 

Other Parties

Under a traditional model, the architect has a duty to co-ordinate the various tasks in the construction process. 

Under a design-and-build model, the owner typically employs a project manager to ensure that the design is properly developed in accordance with the project brief and that the project is executed efficiently and cost effectively. 

The party responsible for the status of the construction site is determined by the contract.

In civil engineering projects, the employer’s consultants will typically issue geotechnical and soil reports as part of the contract documents. However, the contractor is usually required to carry out additional soil investigations to ensure that it has a reasonably reliable picture of the geological profile of the site so as to determine the appropriate construction method and resources required.

Generally, the contractor may be exempted from the risk of adverse physical conditions only to the extent that the risk could not have been reasonably foreseen even by an experienced contractor. 

Approvals and permits are required under the Building Control Act (Cap 29) and related regulations, which aim to ensure that building works comply with the standards for safety, accessibility and environmental sustainability. All building works, except minor and exempted works, require planning approval from the Commissioner of Building Control. 

The party typically responsible for obtaining the approvals is the qualified person, a registered architect or professional engineer appointed by the employer. 

Most standard forms provide for a maintenance period, commencing from completion of the works. 

During the maintenance period, the contractor is responsible for making good defective work at the contractor's own expense if the defective work arises from any breach by the contractor. The contractor’s responsibility typically extends to defects found in the work of designated or nominated subcontractors. 

The provision of a maintenance period is generally agreed in both construction and supply contracts. 

The contractor is generally given autonomy for the construction process and does not take instructions from the employer on these matters. 

Certain engineering projects require the contractor to carry out tests on completion of the works. The contractor will typically give the employer notice of the date after which it is ready for such tests to be carried out. 

The contractor is usually obliged to ensure the works meet certain minimum performance levels during such tests and may be liable for performance liquidated damages upon failure to meet such criteria. 

Completion

Most standard forms provide for the issuance of a certificate of substantial completion to denote the extent to which the works are complete before handover to the employer. Substantial completion also marks the start of the defects liability period or maintenance period. 

Subsequently, a final completion certificate is issued upon the expiry of the defects liability period or maintenance period. 

Takeover/Delivery

The concept of takeover or delivery is more commonly seen in industrial projects, such as power plants and manufacturing plants. 

The employer usually takes over sections of the works after completion and the satisfactory passing of various performance tests. 

Where the contractor has completed all the works, including minor outstanding works and defects, a takeover certificate will be issued. 

The contractor’s liability for defects during and up to the end of the defects liability period or maintenance period is usually contractually agreed. 

For defects after the maintenance period, the contractor is generally still liable up to the end of the limitation period determined by statute. 

Limitation Period

The relevant statute is the Limitation Act (Cap 163) under Singapore Statutes Online (agc.gov.sg). 

An action founded on a breach of contract or tort has a statutory limitation period of six years from the date on which the cause of action occurred. 

Where the damage suffered is a latent defect, the statutory limitation period is three years from the earliest date on which the plaintiff first had both the knowledge required for bringing an action and a right to bring such action. 

Remedies

During the construction process, an employer will typically set-off back charges for rectification of defects to the works in the progress payments to the contractor. 

If the defect occurs during the defects liability period or maintenance period, see 3.7 Maintenance.

If the defect occurs after the defects liability period or maintenance period, the employer is generally entitled to seek damages for the cost of reinstatement or diminution in value for a defect in the works or in the design attributable to the contractor.

The method of establishing the contract price depends on whether the contract is a lump-sum or measurement contract. 

Contract Price

In a lump-sum contract, the contractor undertakes to construct and deliver the works as described in the contract drawings, specifications, and other contract documents for a pre-determined price. In determining the contract price, the contractor prepares its own quantities and estimates based on its interpretation of the works as described in the contract documents. In a lump-sum contract, the contract price is inclusive of everything necessary to bring the works to completion. 

In a measurement contract, the contract price is determined by reference to the BQ following a re-measurement of the works upon completion. A contractor bidding for the work will typically use the BQ to estimate and price the works. 

The contract price excludes price adjustments that may be made for valid variations. 

Milestone Payments

Most construction contracts provide for periodic payments based on the progress of the works or on a milestone basis. The works will typically be valued and certified for payment at prescribed intervals throughout the contract. 

Contractors are usually paid based on interim certificates from the employer and/or contract administrator. The contractor first submits a payment claim. The employer and/or the contract administrator will then assess the claim and issue a payment response typically by way of an interim payment certificate specifying the sum payable. 

Late or Non-payment

It is not uncommon that the sum certified is zero or negative after taking into account set-offs from the employer. 

In the event of late or non-payment, the contractor can resort to adjudication proceedings under the SOPA. The SOPA provides contractors, subcontractors and suppliers with a statutory right to progress payments, with default statutory timelines for the submission of payment claims and payment responses/payment certificates. 

Advance or Delayed Payments

Provisions for advance or delayed payments are not typically found in standard form contracts, although parties are allowed to negotiate for these depending on their cash flow requirements. 

Invoices are typically issued by hand and submitted by the contractor for the amount certified in the payment responses/payment certificates. 

Subject to the express requirements in the contract, the contractor generally has autonomy to determine the construction sequence and methods for the construction of the project. 

Consultants such as the architect are generally obliged to co-ordinate the various specialist disciplines on behalf of the employer. 

Safeguards to Planning

Before commencement of the works, the contractor typically submits to the employer and/or the consultants a programme for the works. The employer and/or the consultants will then approve the proposed order or sequence of the programme. 

For instance, the SIA Lump-Sum Contract provides that a contractor shall not be permitted to commence work until a sufficiently detailed programme has been submitted. In addition, no extensions of time can be granted for the contractor’s inability to submit the programme within the stipulated period. 

Milestone Payments and Certificates

Most construction contracts provide for periodic payments based on progress of the works or on a milestone basis. The works will typically be valued and certified for payment at prescribed intervals throughout the contract. 

In the event of delays, the process as set out in the standard forms is generally as follows: 

  • the contractor serves the contract administrator with a notice of delay pursuant to a time extension clause;
  • the notice is followed by a more detailed submission justifying the case for an extension of time; and
  • the merits of the application are evaluated by the contract administrator, who determines whether the cause of delay may be brought within a list of events prescribed in the clause and if so, whether the event resulted in delay to the completion of the works. 

Obligation of the Parties

The contractor is obliged to give notice of delay promptly and within the time stipulated in the contract. 

The contract administrator is obliged to evaluate the contractor’s requests for an extension of time independently and impartially. 

The employer is entitled to damages for the contractor’s delay. Most standard forms provide for liquidated damages, which is a pre-agreed rate of damages for each day by which the completion has been delayed. 

Should the liquidated damages clause be inapplicable, the employer can seek general damages from the contractor. Parties may contractually agree to limit the contractor’s exposure to delay damages.

See 5.2 Delays

Events of force majeure must be stated in the contract. Most standard forms set out events considered to be beyond the parties’ control and stipulate any modification or cessation of the parties’ contractual obligations upon the occurrence of such events. 

It is possible to contractually limit or exclude certain circumstances from being defined as force majeure, especially if such circumstances have the quality of foreseeability. 

If there are no express contract provisions, the parties may rely on the common law concept of frustration or the Frustrated Contracts Act (Cap 115) under Singapore Statutes Online (agc.gov.sg) to be excused from the performance of their obligations. 

If parties have provided for these circumstances in the contract, see 5.5. Force Majeure

Under the Unfair Contract Terms Act (Cap 396) (UCTA), under Singapore Statutes Online (agc.gov.sg), a person cannot restrict liability for death or personal injury resulting from negligence.

In the case of other loss or damage, such exclusion of liability must satisfy the requirement of “reasonableness”. 

The concepts of wilful misconduct and gross negligence apply in Singapore. For instance, there are contractual clauses: 

  • limiting liability only to cases of gross negligence or wilful misconduct; and 
  • providing that caps on liability will not apply in cases of wilful misconduct or gross negligence. 

The interpretation of such clauses is governed by common law. 

Parties are generally free to contractually limit liability, subject to the restrictions set out in 6.1 Exclusion of Liability. However, standard forms in Singapore rarely adopt limitation of liability provisions, in which case, parties may avail themselves of protection under common law. 

Parties are generally free to negotiate for indemnities that are broad in scope, including agreements to indemnify one party against losses arising from their own negligence, or from damages claimed by third parties. 

Performance Guarantees

Most construction contracts require a contractor to furnish a bond or bank guarantee to secure the performance of the contract and to afford an employer additional means of recourse to meet losses arising from some default from the construction contract. 

Such bonds or bank guarantees are typically “on-demand” or unconditional, in which the obligor/bank pays the sum assured to the employer without proof of default of the contractor. 

The contractor may apply to the Singapore courts for an injunction to restrain the employer from calling on the bond/performance guarantee and to prevent the bank from paying out on the bond/performance guarantee. Under Singapore law, calls on the bond/performance guarantee will only be restrained on grounds of fraud or unconscionability. 

Parent Company Guarantees

When the contractor is a remote subsidiary and/or has few assets, the counterparty may insist that the parent company of the contractor furnishes a parent company guarantee to ensure the performance of the contractor. 

The following insurances are normally taken out in construction contracts: 

  • contractor’s all risks; 
  • workmen's compensation;
  • contractor’s plant and equipment; and 
  • performance/indemnity bonds.

As the name suggests, contractor’s all risks insurance covers most risks associated with material or property damage in a construction project (subject to exclusions and excess), in particular, physical loss or damage to the works under construction, including temporary and permanent works as well as materials delivered on site. Such policies are usually procured by the employer or main contractor for the whole project.

Typically, workmen's compensation insurance, insurance for the plant and equipment, and performance bonds are procured by the contractor/subcontractors for their own workmen and equipment. 

Most standard forms provide for the employer to terminate the contractor’s employment in the event of the contractor’s liquidation. 

The standard forms seek to allocate risk to the party best placed to bear the risk. Generally, construction risks tend to be borne solely by the contractor. 

In the context of an extension of time, there is risk sharing for neutral-risk events that are not the fault of either the employer or contractor, such as:

  • force majeure;
  • exceptionally adverse weather and haze conditions; 
  • industrial actions; 
  • changes in regulations; and 
  • the acts of other contractors on site. 

Under such scenarios, the contractor is entitled to an extension of time to complete the works. 

Standard forms, such as the PSSCOC for Construction generally provide for the following: 

  • restrictions on days and hours of work; and
  • removal of workmen and other personnel that fail to meet the requisite standards of skill and experience.

The contract between the employer and contractor will typically: 

  • contain prohibitions against the contractor subcontracting without the approval of the employer; and
  • provide for the employer to insist that the contractor appoints particular subcontractors for designated parcels of work.

Where applicable, the construction contract will provide for:

  • the employer to retain the intellectual property rights of the various drawings, technical information and specifications contained in the contract documents; and 
  • the contractor to be granted a licence to copy, communicate or use the documents from the employer. 

Employer’s Remedies

  • Claim/set-off for liquidated damages for delay; and
  • claim/set-off for defects or rectification work. 

Contractor’s Remedies against Employer

  • Claim for unpaid work done; 
  • claim for variations;
  • claim for loss and expense; and
  • claim for acceleration costs. 

While it is common for parties to agree on limitation of liability for certain types of claim, such as liquidated damages and other breaches of contract, except for wilful defaults, the standard forms do not provide standard provisions for such limitation of liability. However, parties may avail themselves of protection under common law. 

Sole remedy clauses are rarely used in construction contracts in Singapore. 

Standard forms, such as the PSSCOC for Construction Works, may purport to prohibit the contractor from claiming prolongation costs arising from delay caused by the employer’s act of prevention. 

It is not common to contractually exclude retention and suspension rights in Singapore. 

Retention Sums

Standard forms, such as the SIA forms, provide for a portion of the amount certified as interim payments to be held back as retention sums. 

In practice, the limit of retention is usually set at 5% of the contract sum and split into two tranches. The first tranche is usually released upon completion of the works while the second tranche is released at the end of the defects liability period/maintenance period. 

Suspension Rights

Standard forms, such as the FIDIC forms, have provisions where the employer or engineer is empowered to issue an order suspending the works. 

The FIDIC forms also give contractors the right to suspend work on account of a breach by the employer in relation to the certification and payment terms of the contract. 

Section 26 of the SOPA provides claimants who have not been paid the adjudicated amounts the right to suspend work by serving the requisite notices to the employer and principal. 

Adjudication

The SOPA confers a statutory right for claimants to commence adjudication proceedings against respondents. Adjudication proceedings are heard before an adjudicator appointed by the Singapore Mediation Centre (SMC). 

The adjudication process is meant to be a quick and efficient means to resolve a payment claim dispute, and the adjudicator’s decision is of temporary finality. At a later stage, parties can commence arbitration and litigation proceedings to fully resolve the dispute. 

Mediation

Organisations such as the SMC also provide services for mediation of construction disputes. SMC’s panel of mediators comprises professionals with construction experience and includes construction lawyers, architects, engineers and quantity surveyors. 

Arbitration

Parties to construction disputes often refer their disputes to arbitration instead of litigation. The various standard forms provide for arbitration before institutions such as the SIA or the Singapore International Arbitration Centre (SIAC). 

Litigation

There are three levels of courts in Singapore, namely: 

  • the Court of Appeal;
  • the High Court (General and Appellate Division); and 
  • the state courts.

The Singapore courts are pro-arbitration and will generally stay parallel court proceedings in favour of arbitration and will not interfere with pending arbitrations without good reason. 

See 10.1 Regular Dispute Resolution, in particular on adjudication, arbitration and mediation. 

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Law and Practice in Singapore

Authors



CMS is a Top 10 Global Law Firm, with over 4,800 lawyers in 43 countries worldwide offering business-focused advice tailored to their clients' needs. With Singapore operating as the firm's “hub” in Asia, and alongside the team based in Australia, the lawyers there have worked on some of Asia-Pacific’s most complex and high-profile developments, and on many major international projects in countries such as Malaysia, Indonesia, Thailand, Myanmar, Vietnam, People’s Republic of China, New Zealand and Australia. The team provides both local and international legal services from one platform, via the Formal Law Alliance CMS Holborn Asia in Singapore, and its established network of relationship firms in the region. Through close relationships with its clients and the sectors in which they operate, the firm helps to deliver construction, engineering, infrastructure and energy projects, advising on every aspect from inception and procurement, through funding and building, to commissioning and operating, as well as dispute resolution.