Introduction The Building and Construction Industry Security of Payment Act (popularly known as “the SOP Act”) first came into operation on 1st April 2005. Its primary objective is to improve the cash flow of all the parties who are involved in the building and construction industry. As such, it is an important piece of legislation for all parties in the construction industry.
However there are many who are still ignorant of the SOP Act and fail to utilise the provisions of the SOP Act to improve their cash flow. This article aimed at such parties. Its purpose is to provide a general overview of the adjudication process under the SOP Act. The information is presented in a question and answer format for ease of understanding and reading.
This article was updated on 2 January 2020 to reflect the substantial amendments to the SOP Act on 15 December 2019.
Who is covered under the SOP Act? The following categories of persons who have carried out construction work or supplied related goods or services in the building and construction industry namely: a) Contractors - main contractors; sub contractors; sub-sub contractor etc. b) Suppliers -. suppliers of materials for use in construction projects. c) Consultants - Architects, Engineers, Quantity Surveyors etc.
What type of contracts does the SOP Act apply to? The SOP Act applies to the following types of contracts: a) construction contracts (i.e. contracts to carry out construction works). b) consultancy contracts (i.e. contracts to provide consultancy works such as contracts for the appointment of architects and consultant engineers). c) supply contracts. (i.e. contracts for the supply of goods and materials used in construction projects such as concrete, reinforcement bars etc). The contracts must be in writing or evidenced in writing and the works or services or goods supplied under the contracts must be in relation to a construction project in Singapore.
What types of contracts are excluded from the SOP Act? The SOP Act does not apply to construction; consultancy; or supply contracts in respect of a construction projects for residential properties where Building Plan submission is not required under the Building Control Act. One example of such contract would be contracts for interior renovation work in a residential apartment which does not involve any building plan approval.
How does the SOP Act help to improve cash flow? a) By disallowing "pay when paid" and other types of provisions in contracts. b) By providing a legal (statutory) entitlement to progress payments. c) By providing a statutory “payment scheme”. d) By providing a speedy and cost efficient process for recovering unpaid progress payments.
What types of contractual clauses are not allowed by the SOP Act? The following contract provisions are not allowed or void under the SOP Act: a) “pay if paid” and “pay when paid” clauses or clauses. b) clauses that attempt to “contract out” of the SOP Act. b) any provisions that are inconsistent with the SOP Act or which would undermine the objective of the SOP Act.
What is the statutory “payment scheme” under the SOP Act The SOP Act provides a comprehensive default payment scheme that will apply to all contracts covered by the SOP Act. The payment scheme sets out statutory timelines for the submissions of progress payment claims; certifications (payment responses); payment and dispute resolution (adjudication) The payment scheme will apply to all contracts covered by the SOP Act. Contractual provisions that are inconsistent with the SOP Act’s payment schemes are considered to be invalid and not enforceable.
Who can make payment claims? Persons covered by the SOP Act and who has carried out construction work or supplied goods or services according to a written contract can make a payment claim. Such persons include: a) Main contractor claiming from project owner; b) Nominated / domestic subcontractors claiming from main contractors; c) Sub-subcontractors claiming from nominated / domestic subcontractors; d) Consultants claiming from project owners or the main contractor, if engaged by the main contractor under a design & build arrangement; and e) Suppliers, plant and equipment hirers or related service-providers claiming from nominated / domestic subcontractors, main contractors or owners.
Must the payment claim comply with any specific requirements? The payment claim must comply with all the requirements set out in the SOP Act, otherwise it may not be a valid payment claim and the claimant may not be entitled to lodge an adjudication application pursuant to the payment claim.
How many claims can be made? A claimant can only make one payment claim for each payment cycle in the contract. Unpaid amounts from previous payment claims may be rolled over into the next payment claim. However, claims for works carried out; services provided or goods delivered more than thirty (30) months ago are time barred and not allowed.
Who should respond to a payment claim? The party who had entered into the contract with the claimant should respond to a payment claim. Another person e.g. Architect, Quantity Surveyor, Engineer, Superintending Officer or equivalent) may issue the response if this is stipulated in the contract.
What is a payment response? A payment response is a written statement stating the proposed amount to be paid to the claimant, in relation to the payment claim. As in the case of a payment claim, a payment response must comply with all the requirements set out in the SOP Act in order to constitute a valid payment response. Payment certificates issued by the project consultants may also be considered to be payment responses if the certificates comply with the requirements for a payment response.
It is important to note that, if the respondent is withholding any amount from the payment claim, he must provide reasons for his withholding in the payment response. If not, the adjudicator will not consider such reasons if the claimant applies for adjudication.
When is a payment response necessary? A payment response is required in all circumstances in a construction contract. This is regardless of whether the respondent intends to pay or not to pay any part or the whole of the claimed amount. If no payment response is provided, the claimant will be entitled to make an adjudication application under the SOP Act.
When must the payment response be made? For construction contracts, the respondent must provide the payment response to the claimant on or before the date according to the terms of the contract, subject to a maximum of 21 days after a payment claim is served. If the contract does not specify a date, the respondent must provide the payment response within 14 days after a payment claim is received.
What happens if the payment response is accepted? If the payment response is accepted and if there is payment due under the response, the respondent must make payment to the claimant of the amount shown in the payment response.
When should the claimant be paid the sum indicated in the payment response? For construction contracts, payment must be made by the payment due date stated in the contract, subject to a maximum of 35 days after the due date for payment response or the date of the tax invoice. If the payment due date is not provided in the contract, payment must be made 14 days after the due date for payment response or the date of the tax invoice.
For pure supply contracts, payment must be made by the payment due date stated in the contract, subject to a maximum of 60 days after the payment claim (e.g. invoice) is served. If the payment due date is not provided in the contract, payment must be made 30 days after the payment claim is served
What happens if the payment response is disputed? Both parties may try to settle such dispute within 7 days after the due date for payment response. This is referred to as the dispute settlement period. If parties are unable to resolve the dispute, the claimant has the right to apply for adjudication after notifying the respondent.
What is Adjudication? Adjudication is a distinct form of dispute resolution mechanism provided by the SOP Act. It is a quick and relatively low-cost process to resolve payment disputes arising out of contracts covered by the SOP Act where an independent adjudicator determines impartially the amount payable for a claim made under the SOP Act.Adjudications are administered by the Singapore Mediation Centre (“SMC”) and the adjudicator is appointed by the SMC from a panel of adjudicators. The decision of the adjudicator is binding on the parties unless or until the dispute is finally determined by a court or tribunal or by agreement of the parties.
When does a claimant have a right to apply for adjudication?
(a) For construction contracts: i) the claimant accepts the payment response provided by the respondent and has provided the tax invoice (if applicable) to the respondent. The respondent fails to pay the claimant the whole or any part of the response amount by the payment due date; ii) the respondent does not respond to the claimant with a payment response by the payment response due date and this dispute remains unresolved at the end of the dispute settlement period; or iii) the claimant disputes the response amount proposed by the respondent in the payment response and this dispute remains unresolved at the end of the dispute settlement period.
(b) For supply contracts: i) the claimant fails to receive payment by the due date of the claimed amount, or ii) the claimant disputes the response amount (being less than the claimed amount) paid on or before the due date.
What is the notice of intention to apply for adjudication? Prior to any adjudication application, the claimant must notify the respondent of his intention to apply for adjudication. This notice must comply with the requirements set out in the SOP Act
How does the claimant commence adjudication proceedings? By lodging an adjudication application with the SMC. The SMC will serve a copy of the application on the respondent and at the same time, notify the principal (if known) and the owner that the application has been made. The SMC will also appoint an adjudicator within 7 days after the application is received.
When must the adjudication application be made? The adjudication application must be made within the timelines set out in the SOP Act otherwise it will be irregular and will be rejected by the adjudicator.
When must the respondent respond to the adjudication application? The respondent must submit an adjudication response to the SMC within 7 days after being served a copy of the claimant’s adjudication application by the SMC. The adjudicator will disregard an adjudication response that is not lodged within the 7 day period.
What happens after the respondent submits the adjudication response? The adjudicator may call for a meeting (conference) with the parties to seek further clarification or to allow parties to present their case. The adjudicator may also issue directions or ask for further information or documents from parties. The adjudicator will consider the payment claim; payment response (if any); all relevant documents and issue his determination setting out reasons for this decision.
What is the effect of an adjudicator’s determination? The respondent must pay the adjudicated amount within 7 days after the adjudicator’s determination is served on the respondent or by such time as may be determined by the adjudicator.
How can the adjudicator’s award be enforced?
a) Enforcement of adjudication determination as judgment debt. An adjudication determination may be enforced as a judgment. This is done by filing an application for leave to enforce an adjudication determination in court together with a supporting affidavit.
b) Direct payment from the principal. A principal of the respondent (i.e. the party responsible for making payment to the respondent) may (but is not obliged to) decide to make payment of the outstanding amount directly to the claimant
c) Lien over goods supplied. The claimant has a lien over goods supplied to the respondent that are unfixed and which have not been paid for and the claimant may seek to exercise its rights under this lien.
d) Right to suspend work or supply. The claimant has the right to suspend construction work, or the supply of goods or services
Is the adjudicator’s decision final? The adjudicator’s decision final and binding on the parties unless and until the disputes between the parties are determined by a court or arbitral tribunal or is settled. Perhaps the easiest way to understand this is to consider payments received under an adjudication determination as payment on account or interim payments. Such payments will have to be accounted for in the final account settlement of the project or in any subsequent arbitration or litigation arising in relation to the contract.
Can a party appeal against the adjudicator’s decision? The SOP Act provides a review mechanism which can be triggered when the adjudicated amount exceeds the claimed amount or response amount by a sum of more than $100,000.00. The review may be initiated by either the claimant or the respondent if they are entitled to do so.
Can a party apply to court to set-aside the adjudicator’s decision? Either the claimant or the respondent in an adjudication may apply to Court to set-aside the adjudicator’s determination. The grounds for setting aside are set out in section 27 (6) of the SOP Act.
At the setting aside application; the Court has the power to: a) set aside adjudication determination in whole or in part. b) remit the whole or any part of the determination to the adjudicator. c) correct the adjudication determination for any clerical mistake or errors arising from an accidental slip or omission, or a defect in form.
Tan Joo Seng E: email@example.com
Disclaimer This article is solely intended for the purposes of providing general information about the Building and Construction Industry Security of Payment Act and is not to be taken or relied on as any form of professional legal advise.