The addition of Section 17(2A) to The Building and Construction Industry Security of Payment Act (“SOPA”), which came into effect on 15 December 2019, and the recent Court of Appeal decision in Orion-One Residential Pte Ltd v Dong Cheng Construction Pte Ltd [2020] SGCA 121 (“Orion-One”) highlights the importance of proper drafting in relation to construction contracts.
Section 17(2A) of the SOPA compels an adjudicator to disregard any claim for damage, loss or expense that is not supported by: (a) any document showing agreement between the parties on the quantum of the said claim; or (b) any certificate or other document that is required to be issued under the contract. While exception (a) very much depends on the negotiations between the parties, exception (b) is, to a certain extent, within the control of the party drafting the contract.
Strictly speaking, the Court of Appeal in Orion-One was only concerned with the validity of the payment certificate served by the main contractor some 2 years after the contract was terminated. Notwithstanding, the Court of Appeal took the opportunity to remark that any damages due to the employer as a result of the termination of the main contractor’s employment falls squarely within the scope of Section 17(2A) of the SOPA. On that basis, given that the contract in question (the REDAS conditions), did not contain any mechanism which required the issuance of any certificate or document to support the damages claimed, any adjudicator faced with such a claim is precluded from considering it:
“the scope of the Termination Costs includes damages suffered by the employer as a result of the termination. Furthermore, there is no mechanism under cl 30.3 providing for certification or any other document to support the damages claimed. An adjudicator faced with a payment claim based on cl 30.3 would therefore be precluded from considering such damages claimed by the employer, despite such damages being an integral part of any payment payable under cl 30.3.” (emphasis added)
The above thus highlights the importance of proper drafting in relation to construction contracts. Given the addition of the new Section 17(2A) to the SOPA, it is important that employers and main contractors include in their respective contracts a mechanism for the architect or superintending officer (as the case may be) to issue a certificate to support any claim for damage, loss or expense, whether arising as a result of termination, abandonment of works, prolongation or otherwise. This will then ensure that employers or main contractors are able to fall within the exceptions in Section 17(2A) of the SOPA, thereby preventing a situation where their claims (or more commonly backcharges) are precluded from adjudication under the SOPA.
For More Information
If you have any questions about this Alert, please contact Thomas Ang, any of the attorneys in our Singapore office or the attorney in the firm with whom you are in regular contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.