Construction Law 2021

Last Updated June 11, 2021

Singapore

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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Trends and Developments


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.

Introduction

In 2020, the onset of the COVID-19 pandemic severely crippled the construction industry in many countries (including Singapore), posing severe challenges including delays to projects, manpower shortages due to lockdowns and restrictions on travel, as well as disruptions to global supply chains. 

The severity of the situation was particularly evinced by the earmarking (by the Singapore government) of the construction industry as one of those needing additional support. This included a SGD1.36 billion Construction Support Package and the enactment of the COVID-19 Temporary Measures Act 2020 (No 14 of 2020), which, among other things, granted relief to contractors who were unable to perform their contractual obligations due to COVID-19. 

More than a year on, while the lingering effects of COVID-19 continue to be felt by many participants in the Singapore construction industry, there are encouraging signs of improvement in the sector. As the Singapore construction industry continues its recovery, there are two notable trends and developments which are expected to shape the sector in the coming years, namely, sustainability and collaborative contracting, which this article seeks to explore in further detail. 

Sustainability in the Construction Industry

Singapore Green Building Masterplan (SGBMP)

The concept of sustainability in construction is not novel in Singapore, as the first iteration of the SGBMP was rolled out in 2006 targeting “new buildings, to encourage developers to embed sustainability as part of a building’s life cycle from the onset” as highlighted by the Building and Construction Authority (BCA). 

Serving as the backbone of the SGBMP was the Green Mark certification launched a year prior in 2005. The Green Mark is a green building rating system designed to evaluate a building’s environmental impact and performance. Buildings are classified in various categories (eg, residential, non-residential, infrastructure, data centres, retail) and graded, and this system is updated from time to time by the BCA. For example, buildings in the category of “non-residential buildings” (as enumerated in BCA Green Mark GM NRB: 2015) are assessed based on the following five key aspects:

  • smart and healthy building – smart operations; spatial quality; indoor air quality;
  • resource stewardship – water; materials; waste;
  • climatic responsive design – leadership; urban harmony; tropicality; 
  • building energy performance – energy efficiency; energy effectiveness; renewable energy; and 
  • advanced green efforts – cost-effective design; complementary certifications; social benefits.

In 2016, Singapore became a signatory to the Paris Agreement and committed to reduce its emissions intensity by 36% from 2005 levels by 2030, and stabilise its emissions with the aim of peaking around 2030. In order to achieve its commitments, Singapore introduced a “whole-of-nation movement” to advance its national agenda on sustainable development called the Singapore Green Plan 2030. The SGBMP was updated in 2016 as part of the Singapore Green Plan 2030, setting out three ambitious key targets coined by the BCA as “80-80-80 in 2030”.

  • To accelerate the pace to green 80% of buildings by 2030. To achieve this, the BCA intends to identify all buildings in the building energy performance data that it publishes, which will allow owners of existing buildings to benchmark their building’s energy performance against similar building types and take the necessary steps to improve. The BCA is also looking to raise the minimum energy performance requirements for new buildings and existing buildings that undergo a major retrofit.
  • Eighty per cent of new developments are to be Super Low Energy (SLE) buildings from 2030. SLE buildings feature best-in-class energy efficiency, the use of on-site and off-site renewable energy and other intelligent energy management strategies.
  • To achieve 80% improvement in energy efficiency for best-in-class green buildings by 2030. This will be done through BCA’s integrated research and development programme for which BCA is presently looking into enhancing funding support. 

Developers, building owners, project architects and M&E engineers are encouraged to accelerate the adoption of environmentally friendly building technologies and building design practices through various regulatory requirements and Green Mark Incentive Schemes.

Sustainable construction

Apart from the process of “greening” of new and existing buildings in Singapore, it is also widely accepted that the construction process itself can have a significant impact on the environment, depending on the scale and time taken to complete each project. 

Therefore, sustainable practices in respect of the construction process itself are also presently being looked into to ensure that their environmental impacts are kept to a minimum.

One of the key aspects of sustainable construction and development is the encouraged adoption of processes which reduce the impact on Singapore’s limited landfill capacity and dependence on imported construction materials. The BCA facilitates this process by publishing information on its website on:

  • alternative construction methods such as the use of non-concrete (eg, steel) materials and recycled materials, and the names and contact details of key contractors in the industry who are able to assist with such environmentally friendly alternative construction methods;
  • case studies of projects which demonstrate excellence in sustainable construction to serve as useful benchmarks; and 
  • publications and protocols on specific processes (such as demolition).

Various other sustainable construction methods presently advocated by regulatory bodies and private owners can be adopted in the project life cycle. Most of these practices centre around land use planning, environmentally friendly project design, use of sustainable construction materials, water and resource efficiency, and minimising construction waste.

Challenges to achieving sustainability in construction

Notwithstanding the various initiatives by the Singapore government towards encouraging sustainability in construction, there remain several challenges that the sector will need to navigate in this area. 

Firstly, utilising more sustainable construction practices and complying with stricter building standards may lead to increased overall costs of construction. This has been the experience in some other jurisdictions (such as the United Kingdom) where, for example, the adoption of the BREEAM sustainability assessment method for master planning projects, infrastructure and buildings has been criticised for incurring higher upfront capital and complicating project administration (thereby necessitating the engagement of additional third-party consultants to ensure compliance).

Independent studies of green building projects in Singapore have also indicated that:

  • green cost premiums range from 5% to 10% due to the complexity and special specifications, materials, construction methods and building practices that are applied as compared to traditional buildings; and 
  • project stakeholders are sometimes unfamiliar with the applicable requirements and do not have the requisite expertise in using the technologies, leading to delays and cost overruns. 

Secondly, green projects often require more bespoke construction contracts to be drafted to incorporate these requirements. In some instances, employers may require that sustainable standards and practices, achievement of green certification, etc, be built in as part of the contractor’s obligations. Apart from increasing transaction costs and time taken in negotiating such construction contracts, contractors that are unfamiliar with such requirements or do not have the requisite expertise may be unwilling to execute such contracts.

A third challenge arises in relation to the issue of insurance coverage. While traditional construction all-risk policies typically cover property damage due to construction defects, “defects” in the context of green buildings may often be tied to the failure to adhere to the sustainability standards claimed. It is unclear whether extensions to such construction insurance policies covering the satisfaction of sustainability requirements are readily available in today’s market, and if so, whether the cost of such coverage would be prohibitive. 

Given that many participants in the Singapore construction industry are still recovering from the severe financial impact of the COVID-19 pandemic, the aforementioned risks will likely pose significant challenges in terms of project cost and implementation in the near term. 

It is likely that the Singapore government will need to adopt a calibrated approach through policy and legislation to ensure that the construction industry will be able to navigate such challenges. Nevertheless, the trend towards sustainability is likely here to stay and presents a great opportunity to industry participants who are able and willing to adapt their practices and competencies to meet the evolving needs of the prevailing business environment. 

Collaborative Contracting

Another trend and development which has been gaining traction in the construction industry globally (Singapore included) is collaborative contracting. This may present itself in various forms and one growing trend is the employment of Integrated Project Delivery (IPD) in construction procurement.

Traditional construction contracting models (that are entrenched in the popular standard forms used in the industry) are typically focused on stating, as clearly as possible, the agreed allocation of risk between the parties in relation to various eventualities. As a result of this, the parties typically remain within the scope of responsibilities and risks allocated to them under the contract and often have little incentive to maximise efficiency in the delivery of the project requirements. 

It is also not uncommon for parties in a traditional construction contracting framework to adopt relatively adversarial and litigious postures throughout the process of implementation of the contract. Accordingly, contractors eager to make claims for additional payment and/or extensions of time when any aspect of a project goes wrong are often met with inflexible and unyielding employers who are determined not to grant any concessions. 

Notably, at the time of writing and based on publicly available searches, there have been at least 196 reported building and construction-related court cases since 2010, and 244 reported adjudication cases since the Building and Construction Industry Security of Payment Act (Cap 30B) came into force on 1 April 2005.

Ostensibly, collaborative contracting models intend to address such issues, while striving to meet the needs of an increasingly demanding market. As described by the American Institute of Architects (AIA), IPD is a “project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to optimise project result, increase value to the owner, reduce waste, and maximise efficiency through all phases of design, fabrication, and construction”.

In Singapore, the public sector has taken initial steps to incorporate collaborative contracting principles in the Public Sector Standard Conditions of Contracts (PSSCOC), a standardised contract form used for all public sector construction projects. Such principles are applied in selected pilot public sector projects, and will likely be implemented in the PSSCOC after further refining.

Some key features of the collaborative contracting model are explored in the sections below. 

Key features

One of the most commonly referenced sets of standard forms used in collaborative contracting is the suite of contracts prepared by the AIA. While there are variations in the contracting structures between the various collaborative contracting models, most structures include a multi-party agreement (as opposed to independent contracts between each of the various project participants) with the broad aim of aligning the interests of the project participants towards achieving the project objectives instead of the traditional motivations of commercial self-interest. 

This is sought to be achieved through an incorporation of concepts such as a co-operative management approach, profit and risk sharing, and the development of mutual trust and confidence between the relevant project stakeholders.

Co-operative management approach

The implementation of a co-operative management approach requires the involvement of key stakeholders of a project from the outset. This approach may broadly follow a project life cycle as follows (see Chow Kok Fong, Law and Practice of Construction Contracts: Volume 1, 2.087–2.092).

Initial project concept phase: a team of key stakeholders, including the owner, consultants and contractors, is formed and the participants agree on terms of partnering and the approach to be taken for the project. 

Project schematics phase: project participants review project risks, constraints and design solutions. The participants agree on the design and development approach, which would generally be subject to the owner’s approval of the design documents and cost estimate. 

Detailed design phase: the architect develops the project design to a greater level of detail, while the contractor is involved with the co-ordination of the design and key work trades programmes, which culminate in an agreement on the price, time and completion criteria. 

Execution phase: once the works have been completed, the project is commissioned and the project objectives are jointly assessed by the participants. 

In particular, the indicative project costs are generally determined early on in the detailed design phase. By generating target cost and design proposals at the outset, agreed by the key stakeholders, this should theoretically reduce the risk of future cost overruns as compared to traditional models where participants may seek to incorporate various contractual exclusions and contingencies for their own commercial incentives.

Decision-making and governance structures in collaborative contracting can take an array of forms. It would not be uncommon for project participants to negotiate for greater decision-making powers in a manner which is concomitant with any increase in risk that they assume, or provide for an escalation mechanism whereby the executive team or a third-party neutral becomes the ultimate decision-maker. For example, under AIA contract documents, a responsibility matrix is incorporated to categorise project decisions at various stages of the project life cycle.It also envisages the assignment of staff to either the “Management Team” or “Executive Team” for the administration of the project.

A co-operative management approach differs from the more linear sequence of work under traditional construction contracting models. The advantage of adopting a co-operative management approach is the increase in transparency and co-operation between the participants due to having joint control of the project, which encourages project participants to work cohesively towards the common goal of a satisfactory project outcome. 

Profit and risk sharing

A common distinctive feature of collaborative contracting models is that the participants share financial risks and rewards using a profit/incentive pool. In particular, collaborative contracting structures may provide:

  • for entitlement to profit incentives to be paid out of an incentive pool based on quantifiable macro project goals or objective performance indicators; and/or
  • pain-sharing arrangements for instances of falling short of the project objectives or arrangements to share cost overruns, which may include a risk pool to buffer such cost overruns at the completion of the project.

This is in contrast to traditional construction contracting models, where the party that incurs the relevant loss or cost overrun is determined primarily by the agreed contractual risk allocation between the parties. This can sometimes give rise to disagreements between the parties on issues of contractual interpretation; eg, a common disagreement which arises in the context of construction disputes is whether an instruction given by an employer constitutes a variation to the contract (which justifies an increase in the contract price) or whether it is merely a direction as to how the contractor should carry out its original scope of work. Such disagreements are considered to be counter-productive to the parties’ working relationship and the achievement of the project outcomes.

The goal of risk-sharing mechanisms is to motivate each project participant in a way that encourages candid communication and accountability for overall design and construction, and to avoid the parties’ first reaction to hold one another to their strict contractual obligations and/or to proceed with litigation, instead of working collaboratively to solve any impediments or difficulties faced by the project. 

Developing mutual trust and confidence

In a similar vein, another common feature of collaborative contracting is encouraging the waiver of certain forms of liability to eliminate the self-preserving conduct of participants. To achieve this, indemnity clauses used in traditional contracts are sometimes replaced with liability waivers to restructure the liability and risk of participants by waiving entitlement to certain types of claims (except for wilful default) in the hope of encouraging open participation and contribution to the project. 

Challenges in the implementation of IPD

The key challenge to the implementation of IPD is that it requires a profound shift in mindset. Parties that are used to dealing with counterparties at arm’s length may view concepts such as profit/risk sharing or waivers to strict contractual rights as being at risk of abuse by counterparties. Indeed, successful use of a collaborative contracting model necessitates that all project participants act in good faith and in the best interests of the project. 

Secondly, project participants may find difficulty in enforcing some of the more aspirational obligations commonly found in collaborative contracting models. Commitments to act and co-operate in good faith or mutual trust and confidence are by their nature imprecise. Notably, there is Singapore case law to the effect that the “doctrine of good faith is very much a fledgling doctrine in English and (most certainly) Singapore contract law” and “there are differing views as to what the doctrine of good faith means as well as how it is to be applied” (see Ng Giap Hon v Westcomb Securities Pte Ltd and others [2009] 3 SLR(R) 518 at [47]). It therefore remains to be seen how such duties will be interpreted and enforced in the context of collaborative construction contracts in Singapore. 

Thirdly, collaborative contracting may not necessarily be most suitable for all projects. In particular, project characteristics such as the level of ambition in terms of technical, creative and sustainability goals; stressors such as value to budget and the project schedule; the level of clarity as to the scope development; and the complexity of interaction based on the interdependency of participants will play a role in determining the appropriate contracting model to be utilised. 

Fourthly, in terms of project insurance, a no-blame regime may pose difficulties to participants seeking to make a claim against their insurers under traditional third-party professional indemnity insurance policies, as insurers may be averse to insuring against losses arising out of mistakes, breaches or negligence of a party (such liability being typically excluded from coverage). In such cases, tailored insurance policies may have to be purchased, which would likely increase project costs. 

Closing Remarks

As the Singapore construction industry continues to navigate its way through a post-COVID-19 world, market participants continue to observe its development with great anticipation. Sustainability is expected to continue to play a major role in the sector in the coming years, as Singapore strives to meet its environmental commitments while the international community continues to place more emphasis on the issue of climate change and associated environmental issues. 

As regards collaborative contracting, a shift away from an emphasis on proper contractual allocation of risk to the development of mutual trust and confidence between the project stakeholders will likely bring myriad advantages such as cost savings, better project outcomes and reduced disputes in the long term. It remains to be seen whether participants in the Singapore construction industry will be able to adopt a shift in mindset and embrace collaborative contracting as a viable means of governing the relationship of the stakeholders in each project.

CMS

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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.

Trends and Development

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.

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