Speech by MOS Zaqy Mohamad at the SCAL Contracts and Practice Seminar

Tuesday, 12 March 2019

A very good morning to everyone. I am delighted to be here at the SCAL Contracts and Practice Seminar. 

Let me first begin by congratulating SCAL on the launch of the Singapore Construction Mediation Centre, or SCMC in short. The SCMC is an excellent initiative to encourage mediation as the preferred dispute resolution approach for construction disputes. This is a good example of trade associations taking the lead to support the industry. We look forward to more of such initiatives from the various associations as they implement their action plans for the Construction Industry Transformation Map, or ITM in short. 

Mr Kenneth Loo has spoken about the importance of amicable dispute resolution. This is aligned to our ongoing efforts to forge closer collaboration among project parties, which is a key success factor to achieve our collective vision under the Construction ITM. With greater collaboration, firms can leverage on expertise from each other, pool resources, and even jointly venture overseas.

Updates on Collaborative Contracting

This is why the Government has been working closely with SCAL and other trade associations to strengthen collaboration in the Built Environment sector. One key initiative is the introduction of collaborative contracting.

In gist, collaborative contracting is a re-design of traditional contracts to encourage developers, consultants, and contractors to work towards common project goals. The idea is to incentivise contract parties across the value chain to develop joint solutions to common problems, to reduce disputes, and to better manage risk for the project.

We have made good progress thus far. For instance, in consultation with the industry, BCA has developed a set of collaborative contracting clauses to be used with the standard contracts that are currently adopted by public agencies for construction projects. These clauses are designed to promote mutual trust between contract parties.

For instance, one of the provisions will require contract parties to give early notice on matters that could have an impact on the project delivery or contract sum. This will allow parties to jointly develop solutions to avoid future downstream issues. 

Another feature is the appointment of one professional from the Built Environment sector who will follow through on the project, and conduct regular meetings to proactively manage any issues that may arise along the way. Where necessary, these professionals can also help to resolve any disputes via mediation, expert opinion, or determination. In addition, employers may also opt to provide bonus pay-outs when certain targets, such as early completion of works, are fulfilled. This will incentivise parties to collaborate and work towards achieving cost savings.

I am happy to share that JTC has rolled out a tender in October 2018 to pilot the collaborative contracting model in the Punggol Digital District. Going forward, we plan to identify more projects that could benefit from such an arrangement. We hope that more contractors will participate in collaborative tenders, and also hope to improve on the collaborative contracting model as we pilot this approach on more projects.

Updates on the SOP (Amendment) Act 2018

Next, let me elaborate on the other focus area of this seminar, which is the amendments to the Building and Construction Industry Security of Payment Act, or SOP Act for short. 

As many of you are aware, a typical construction project involves payment from the developer to the main contractor, which in turn pays its sub-contractors or suppliers. Parties further downstream in the construction chain usually fund their work in advance, and collect payments at a later time. Hence, when payments are delayed, downstream parties can be adversely affected. If not managed properly, this can create a domino effect and potentially affect companies along the entire construction value chain. That is why it is critical for all parties to be paid in a timely manner. 

The SOP Act ensures a statutory right to payment for parties in the construction industry, and establishes a fast and low cost adjudication system for parties to resolve payment disputes. Recently, we enhanced the Act by passing the SOP (Amendment) Bill in Parliament in October last year. The amendments will help to promote a more conducive operating environment for all parties in the construction industry.

The recent review was a collective effort, with input from stakeholders across the value chain. I am happy to note that SCAL provided many invaluable suggestions and useful feedback, much of which we incorporated into the amended Act as part of our review. 

One example is the low interest rates for late payments that are commonly stipulated within contracts, which can be as low as 1% per annum. Such a practice goes against the original intent of the interest rate provision, which is to deter late payments. SCAL is one of the associations that highlighted this concern during our consultation process. In response, we took in this feedback, and updated the interest rate provision in the Act to be pegged to the higher of what is stipulated in the contract, and what is stipulated in the Supreme Court of Judicature Act. This effectively sets the minimum interest rate to 5.33% per annum, which is more reasonable to deter late payment. 

Another example is the clarification on whether unpaid payment claims can be repeated under the Act. SCAL advocated that contractors should be allowed to raise repeated claims for payments which have not previously been received in full. We considered this proposal carefully, and incorporated it into the Act. We found that this is a practical approach to facilitate contract parties to resolve disputes using adjudication, instead of relying on arbitration or litigation, which can be costlier and more time consuming. 

We are now working on the necessary changes to the SOP Regulations and will work towards operationalising these amendments in the second half of this year.  

I would like to take this opportunity to thank SCAL for organising this seminar to raise the industry’s awareness on the changes to the SOP Act. It is important for industry stakeholders to understand what these changes entail. In this regard, BCA will also be conducting briefing sessions to engage industry stakeholders before the commencement of the amendments.

Conclusion
 
To conclude, the construction value chain involves many stakeholders with different interests. We recognise that disputes will happen from time to time. However, we should always strive to encourage the early and amicable resolution of potential disputes. Initiatives such as SCAL’s newly launched SCMC, collaborative contracting and the amended SOP Act will be helpful in this regard, and encourage stakeholders in the Built Environment sector to adopt a strong collaborative mindset.
 
I wish everyone a fruitful discussion during today’s seminar. I wish you all the best. Have a wonderful day. Thank you.