23 November 2020
The Singapore government and authorities have implemented a slew of measures to assist contractors and other construction companies whose projects have been delayed by COVID-19. These measures appear to be shrewd and generous, at least at first blush, and clearly designed to support the overriding objective of protecting businesses. However, it may be too early to gauge the success of this interventionist approach. Contractors and others in the supply chain still face challenges, including in securing adequate relief for delay caused by the pandemic. The protective measures available also continue to develop, with the third round of amendments to the COVID-19 (Temporary Measures) Act recently being tabled which address delay to projects, amongst other things.
Weathering the Storm
The impact of COVID-19 on the construction sector in Singapore needs no introduction. After initially being lauded for its containment of the virus, Singapore received criticism in connection with major outbreaks in migrant construction worker dormitories. Although quickly brought under control, the knock-on effect in terms of manpower shortages continues. Various other issues arising from the pandemic have contributed to project delays, or threaten to do so, including widespread disruption to international supply chains and the circuit-breaker, safe-distancing and other preventative measures.
Parties seeking relief for delay to projects in Singapore broadly have two key avenues to explore – relief under their contracts and relief under the COVID-19 (Temporary Measures) Act. Contractors on public sector projects also need carefully to consider the Building and Construction Authority's (BCA) June 2020 circular. To add to the complexity and possible confusion, these various avenues to relief can be inter-related.
Relief under Contract – the Starting Point
Back when the effects of the pandemic first started to be felt the focus was understandably on force majeure and other well established options under contract. While the focus may have shifted, parties' contracts remain the starting point when considering how to address delay.
The standard main contract forms used on projects in Singapore are broadly consistent with other forms used internationally in terms of the types of scenario which may entitle contractors to extensions to the time for completion in connection with the pandemic. For example, the Singapore Institute of Architects (SIA) and the Public Sector Standard Conditions of Contract (PSSCOC) entitle contractors to an extension of time where there is a force majeure event (which may be defined in the Particular Conditions) or where the delay arises from compliance with laws.
However, from a contractor's perspective the Singapore standard contract forms offer extremely slim pickings in terms of entitlements – which are commonly available in some other forms used elsewhere – to delay related costs which correspond with entitlements to additional time. The SIA, PSSCOC, LTA and also REDAS forms, for example, do not entitle a contractor to time related costs in respect of a force majeure event or where delay arises from a change in laws (even where the contractor is entitled to an extension of time for the same reasons).
Interestingly, if Singapore standard form contracts were less onerous on contractors in the first place – particularly in respect of entitlements to delay related costs – some of the protective measures now being pushed through in respect of delay would arguably be unnecessary (and the authorities' current job could be slightly less challenging).
However, although no doubt difficult, there may nevertheless be opportunities for parties to recover time related costs in respect of COVID-19 related delay under the express terms of their Singapore contracts; for example, in respect of an instruction for a variation. As always, this will depend heavily on the factual circumstances and the specific contract wording.
COVID-19 (Temporary Measures) Act – New Extension of Time and Delay Cost Co-sharing Relief Proposed
This is a complex, remarkable piece of legislation, the first incarnation of which we considered here. Focusing on delay, parties are protected under Part 2 of the Act from liquidated or other delay damages for delay caused "to a material extent" by a COVID-19 event during the period of temporary relief (currently 1 February 2020 to 20 November 2020, although the Ministry of Law has announced its intention to extend this period to 31 March 2021). In principle, therefore, a party protected under the Act does not also need an extension of time under contract to secure relief from liquidated damages in this period. In order to access the protection a notice of relief is required to be given under the Act which is not successfully challenged.
On 2 November 2020 the Ministry of Law tabled the COVID-19 (Temporary Measures) (Amendment No. 3) Bill, due to come into effect at the end of November 2020. As regards delay, Part 8A of the Bill proposes what the BCA describes as a "Universal Extension of Time" of 122 days, apparently for all parties to all construction contracts (including subcontracts) in respect of delay in the period between 7 April 2020 and 6 August 2020. The BCA also noted that "No application is required from contractors to enjoy this relief" and that this new relief will be in addition to the existing protection from liquidated damages available under Part 2 of the Act.
Second, under the proposed new Part 8B, if a contractor is delayed and unable the meet the completion date (not factoring in the extension of time under Part 8A) "to a material extent" due to a COVID 19 event, it is entitled to recover from the counter-party 50% of certain delay related costs (including costs of maintaining the construction site and rental of plant and equipment, but not including manpower costs, subject to a monthly cap of 0.2% of the contract sum per month, and a total of 1.8% of the total contract sum). Where the SOP Act applies such costs are to be claimed in a payment claim and questions of whether the relief applies and its amount are to be subject to adjudication under the SOP Act. The proposed adoption of the pre-existing, tried and tested SOP adjudication regime to address entitlements to delay costs under the COVID-19 Act stands out as a particularly sensible move.
BCA's June Circular (Public Sector Projects)
In June 2020 the BCA issued a circular indicating that on public sector projects government agencies would co-share with main contractors on an "ex-gratia" basis, 50% of the "prolongation" costs due to the government's circuit breaker measures (between 7 April 2020, when the circuit breaker period began, until the earlier of 6 September 2020 or when approval was obtained from the BCA to restart work). This also includes the costs of maintaining a construction site and rental of plant and equipment, but not manpower costs, subject to a monthly cap of 0.2% of the contract sum per month, and a total of 1.8% of the total contract sum.
Although on its face this relief is similar to that under the proposed new Part 8B of the COVID-19 Act, the circular is effectively only an indication of government agencies' positions 'subject to contract'. While it says government agencies "shall co-share" such prolongation costs, the circular also clarifies that "To make the ex-gratia payment, government agencies would require main contractors to enter into either a supplementary agreement or a separate letter of agreement. To avoid double funding, government agencies would reserve the right to recover monies from the contractor in the event of any overpayment…"
The circular raises a host of issues, including the question of what form of supplemental agreement could be acceptable to a contractor which leaves open the right for the public body to later claw back the agreed sum paid. It is also somewhat unclear if the intention is for parties to continue to try to address delay costs in accordance with the BCA June circular after the new Part 8B of the COVID-19 Act comes into force.
Final Thoughts
While there is some room for confusion as the authorities react to very challenging circumstances, all of the key pillars in terms of relief for delay appear now to be in place. The new Parts 8A and 8B of the COVID-19 Act regarding extensions of time and delay costs will, if they come into force as anticipated later this month, form a critical part of the jigsaw.
Contractors and others in the supply chain clearly need to weigh up their options under contract versus the COVID-19 Act very carefully in respect of relief for delay. While focus has shifted in the short term to the proposed new Parts 8A and 8B of the COVID-19 Act, parties must not forget about the potential protection from liquidated damages under Part 2 of the same Act if a notice of relief is given, and their options under contract.
Finally, once a strategy is settled on parties must of course take care not to inadvertently waive any rights they may wish to exercise in the future, particularly if entering into any form of settlement or supplemental agreement in accordance with the BCA June circular or otherwise.
Please contact us should you wish to discuss any of the issues raised in this article or the specific challenges faced by your business in respect of relief for delay.
For further information, please contact:
Mark Arden, Commercial Director, Clyde & Co
mark.arden@clydeco.com
