Building and Construction Industry Security of Payment

Introduction

The Building and Construction Industry Security of Payment Act 2004 (“Act”) was passed in Parliament on 16th November 2004 and will be effective from 1st April 2005. It is modelled after similar legislation in Australia, UK and New Zealand. The Act:-

  1. confers a statutory entitlement to payment on any person who has carried out construction work or supplied goods or services under a written construction contract or supply contract (“contract”), irrespective of whether the contract is expressed to be governed by the laws of Singapore;
  2. provides for the due date for progress payments even where the contract does not provide for one;
  3. renders unenforceable a “pay when paid” or “back-to-back payment” clause in the contract; and
  4. establishes an adjudication framework by which a person may claim payments due under a contract and enforce payment of the adjudicated amount.

Applicability

The Act will apply to any written main contract entered into on or after 1 April 2005 (“œCommencement Date”) and all sub-contracts under these main contracts. However the Building Control Authority recognises that issues may arise with sub-contracts where the main contracts was entered into before the Commencement Date. Hence, such sub-contracts that are entered into during a 6-months grace period from the Commencement Date will be exempted from the Act. However, the Act does not apply to:

  1. Any contract relating to construction works for any residential property which does not require approval the Building Control Act (Cap 29). Thus HDB and most small renovation works are not covered by the Act.
  2. Any contract where a party carries out construction work as an employee;
  3. Any contract relating to construction work carried out outside Singapore; and
  4. Such contract or class of contracts as may be prescribed by the Minister.

A contract is considered as in writing if:

  1. the contract is made in writing, whether or not it is signed by the parties;
  2. the contract is made by an exchange of communications in writing (example by exchange of letters, telefaxes or emails);
  3. the contract made otherwise than in writing is recorded by one of the parties or by a person authorised by the parties (example minutes of meetings where the contract was agreed to); or
  4. the parties to the contract agree that terms terms which are in writing apply to their contract.

The provisions of this Act cannot be excluded from applying to a contract that the Act is intended for. Such clauses will be void and unenforceable.

Payment Provisions Under the Act

Under the Act, any person who has carried out any construction work, or supplied any goods or services, under a contract is entitled to a progress payment. The progress payment can be a single on-off payment or payment based on an event or date. The amount of a progress payment to which a person is entitled under a contract will either be the amount calculated in accordance with the terms of the contract, or, if the contract does not so provide, the amount calculated on the basis of the value of the construction work carried out,or the goods or services supplied. For construction contracts, the Act states that where the contract provides for the date on which a progress payment becomes due and payable, the progress payment becomes due and payable on the earlier of the following dates:

  1. the date as specified in or determined in accordance with the terms of the contract; or
  2. the date immediately upon the expiry of 35 days after:
    1. if the claimant is a taxable person under the Goods and Services Tax Act (“GST Act”), the date the tax invoice is submitted to the respondent; or
    2. in any other case, the date on which or the period within which the payment response is required to be provided under the Act (whether or not a payment response is provided). What is a payment response is explained below.

Where a construction contract does not provide for the date on which a progress payment becomes due and payable, the progress payment becomes due and payable immediately upon the expiry of 14 days after:

  1. if the claimant is a taxable person under the GST Act, the date the tax invoice is submitted to the respondent; or
  2. in any other case, the date on which or the period within which the payment response is required to be provided in accordance with the provisions of the Act (whether or not a payment response is provided).

For supply contracts, where the contract provides for the date on which a progress payment becomes due and payable, the progress payment becomes due and payable on the earlier of the following dates:

  1. the date as specified in or determined in accordance with the terms of the contract; or
  2. the date immediately upon the expiry of 60 days after the relevant payment claim is served in accordance with the provisions of the Act.

Where the supply contract does not provide for the date on which a progress payment becomes due and payable, the progress payment becomes due and payable immediately upon the expiry of 30 days after the relevant payment claim is served in accordance with the provisions of the Act. A “pay when paid” provision of a contract is unenforceable and has no effect in relation to any payment for construction work carried out or undertaken to be carried out, or for goods or services supplied or undertaken to be supplied, under the contract. A “pay when paid provision” refers to a provision of the contract that makes the liability to pay (or the date due for payment) by one party (the “first party”) to another party (the “second party”) contingent or conditional on payment to the first party by a further party (the “third party”) of the whole or any part of that money.

Adjudication Framework

The Act establishes an adjudication framework by which a person may claim payments due under a contract and enforce payment of the adjudicated amount. The Act puts in place a system of payment claims and payment responses and prescribes time frames within which payment claims and payment responses may be made. A claimant under a contract who fails to receive payment by the due date of the claimed amount is entitled to make an adjudication application for the claimed amount. A flowchart of the adjudication process is as follows (click to enlarge):-

SOP flowchart

Briefly:

  1. A claimant has the right to apply for adjudication through the Authorised Nominating Body (ANB) if he does not receive any payment response or full payment or disputes the response amount by the respondent. The ANB is the Singapore Mediation Centre.
  2. The ANB shall appoint an adjudicator whose determination is binding and the adjudicated amount is payable by the due date unless and until the dispute is determined by a court or tribunal or at any other dispute resolution proceeding, or settled by agreement of the parties.
  3. The respondent may apply for the review of the adjudication determination if he is unhappy with the determination, provided the disputed amount is above a prescribed amount.

The Act also provides for measures to enforce payment of the adjudication amount. These include:

  1. enforcement of the adjudicated amount as a judgment debt;
  2. seeking direct payment from the principal of the respondent;
  3. exercising a lien on goods supplied that are unfixed and which have not been paid for; and
  4. the right to suspend work or supply.

Conclusion

While the Act is not expected to resolve every payment issue and all the payment woes in the construction industry, by upholding the rights of any party in the industry to seek payment for work done or goods supplied, this Act will help to deter and weed out the practice of delaying or withholding payment without valid reasons. The speedy adjudication process should expedite the resolution of genuine payment disputes so that cash flow will not be disrupted.