Enhancing payment practices in the sector

The Building and Construction Industry Security of Payment (Amendment) Bill was passed in Parliament on 2 October 2018.

By BCA

What is the SOP Act?

Introduced in 2005, the Building and Construction Industry Security of Payment (SOP) Act provides a simple, fast and low-cost adjudication mechanism to resolve payment disputes. As an alternative to other lengthy or expensive dispute resolution platforms such as litigation and arbitration, adjudication is now commonly adopted by contractors, suppliers and consultants to facilitate cash flow.

As of end-2018, the SOP Act has eased cash flow in the industry and facilitated payments amounting to almost S$1 billion.

Application of the SOP Act

The SOP Act applies to written contracts for construction work or the supply of goods or services primarily for construction projects carried out in Singapore, except for construction work or the supply of goods or services for residential properties which do not require any Building Plan submission under the Building Control Act. For example, in general, renovation contracts for HDB flats are not covered under the Act.

The adjudication process is administered by the Singapore Mediation Centre.

The extensive review of the SOP Act took in suggestions from several rounds of consultations and focus group discussions involving industry associations and adjudicators as well as relevant past court cases.

Amendments to the SOP Act: Facilitating industry cash flow

To further facilitate cash flow in the industry, the Building and Construction Authority (BCA) conducted an extensive review of the SOP Act, taking in suggestions from several rounds of consultations and focus group discussions involving industry associations and adjudicators. The review also took into account past court cases related to the Act to enhance the effectiveness of the SOP Act and the adjudication process. The Building and Construction Industry Security of Payment (Amendment) Bill was passed in Parliament on 2 October 2018.

The amendments to the SOP Act were made with the following aims:

• To expand and clarify the scope for the application of the Act;

• To enhance requirements on handling of payment claims and responses; and

• To improve the adjudication process and the operation of the Act.

As of end-2018, the SOP Act has eased cash flow in the industry and facilitated payments amounting to almost $1 billion.

What amendments do you need to know?

Below are some examples of the key amendments made to the SOP Act that may be relevant to you.

• Revision of minimum late interest rate for late payment to 5.33% p.a.

  • Currently the interest rate for late payment is based on the interest rate stipulated in contracts, which could be as low as 1% p.a. To further deter late payments, the Act has been amended to revise the minimum interest rate for late payments to be based on the rate specified under the Supreme Court of Judicature Act, which is currently 5.33% p.a., or the interest rate stipulated in the parties’ contract terms, whichever is higher.

• Clarification that claims for work done or goods supplied before contract termination are valid

  • The application scope of the SOP Act has been clarified to include claims for work done or goods supplied before a contract termination. However, claimants that have defaulted on the contract will need to abide by the contract terms before submitting a payment claim under the SOP Act.

• Expansion of the SOP Act to cover more types of contracts relating to fabrication works
  

  • Overseas fabrication for local projects are now covered to support the push for Design for Manufacturing and Assembly (DfMA) under the Construction Industry Transformation Map (ITM). This is an important inclusion as the ITM envisages that by 2020, up to 40% of Singapore projects would incorporate productive construction technologies, some of which may be sourced from overseas suppliers by Singapore contractors. 

Currently the interest rate for late payment is based on the interest rate stipulated in contracts, which could be as low as 1% p.a. To further deter late payments, the Act has been amended to revise the minimum interest rate for late payments to be based on the rate specified under the Supreme Court of Judicature Act, which is currently 5.33% p.a., or the interest rate stipulated in the parties’ contract terms, whichever is higher.

The application scope of the SOP Act has been clarified to include claims for work done or goods supplied before a contract termination. However, claimants that have defaulted on the contract will need to abide by the contract terms before submitting a payment claim under the SOP Act.

Overseas fabrication for local projects are now covered to support the push for Design for Manufacturing and Assembly (DfMA) under the Construction Industry Transformation Map (ITM). This is an important inclusion as the ITM envisages that by 2020, up to 40% of Singapore projects would incorporate productive construction technologies, some of which may be sourced from overseas suppliers by Singapore contractors.

Besides the above amendments, other revisions such as allowing claimants (and not just respondents) to apply for adjudication review will improve the adjudication process for all parties involved.

In the Second Reading Speech on the Building and Construction Industry Security of Payment (Amendment) Bill, Mr Zaqy Mohamad, Minister of State for Manpower and National Development, said, “With these amendments, we believe that the Act will continue to ensure prompt payment practices in our construction industry, and also put our firms in a better position to thrive in both domestic and overseas markets.”

Download the SOP Act Information Kit to find out more about the SOP Act.