Security of Payment Act: Claiming Progress Payments for Construction Work Done
Contractors, plumbers, electricians, architects and other construction industry professionals may sometimes face difficulties in collecting payments from their clients. Often, small and medium enterprises may feel that they have no choice but to write off bad debts due to the time and money involved in going to court to enforce their rights.
However, following the enactment of the Building and Construction Industry Security of Payment Act, there is now a simpler, confidential and lower-cost adjudication procedure for contractors and related professionals to recover timely payments both while a project is ongoing and after it has been completed
The Act is supplemented by the Building and Construction Industry Security of Payment Regulations.
Can I Use the Adjudication Process?
The Act covers payments arising from ‘construction work’, and covers any work done on buildings or structures which would form part of the land, any long-term installations within those buildings or structures such as air-conditioning or lighting, and any operation which is closely-linked to work in either of the two categories. Both the provision of goods, such as building materials, and services, such as architectural services, are covered by the Act.
Additionally, the Act only applies to contracts made in writing on or after 1 October 2005 where the project in question is located in Singapore. The writing requirement may be satisfied by an exchange of correspondence via email or even WhatsApp messaging. Minor residential repairs which do not require approval from the Building and Construction Authority (BCA) are excluded from this adjudication process.
What Can I Claim?
Significantly, the Act makes provision for progress payments even when these have not been stipulated in the contract. Progress payments are instalment-like payments for work done to date which can be claimed before a project is completed. Hence, the Act can be used to claim payment while a project is still ongoing. It can also be used to claim one-off full payment at the end of a project too.
Where the contract had a specified progress payment schedule, the claimant will simply be entitled to what he agreed to. However, even where progress payments have not been specified, a company or individual providing construction work may still claim a progress payment. The amount claimable would depend on the total contract price less any costs for rectifying defects. Progress payments may also be calculated according to market norms.
Some may be concerned that they will not be eligible to claim progress payments as their contract has a ‘pay when paid’ clause that stipulates they will only be able to receive payment for construction work if and when the other contracting party has received payment from some third party. The Act makes such clauses unenforceable. Such clauses can therefore be ignored and progress payments can be claimed as if no such clause had ever been part of the contract.
How Do I Make a Claim?
The adjudication process is only available after payment has become due. Where the contract specifies progress payment dates, payment is due according to the contract. Even when there is a payment schedule, a contractor may still ask for progress payments at other points, which would become due 35 days after a tax invoice or payment claim has been sent to the other party. Where the contract was silent on progress payments, this is reduced to 14 days after submitting a tax invoice. Alternatively, payment becomes due if the claimant serves a payment claim on the respondent and the respondent does not either make payment (typically no more than 21 days). Note that only one progress payment claim may be made if there was no contractual requirement of multiple progress payments.
If any of these disputes arise, the party seeking payment would be entitled to make an adjudication application under S12. The claimant can alternatively make an adjudication application where the other party challenges the amount claimed.
In making an adjudication application, BCA provides applicants with a checklist of required documents and some guidelines on making an application.
Once this has been filed, strict timelines apply to the determination of the adjudicator and the handing down of the adjudicator’s judgement. There is no right of appeal but an aggrieved party may apply for review of the decision.
Enforcing the Adjudicator’s Decision
In terms of enforcement, a wide range of measures are available. Section 27 allows for an adjudication decision to be enforced as if it were a court order. However, additional measures are available. For example, some may be concerned that their claim may be good in law but is practically useless, such as when the other party is insolvent. In such cases, Section 24 allows successful claimants to claim the adjudicated amount against the principal, or the party who is ultimately funding the project. This tends to be applicable in larger projects where the builder is contracting with a subsidiary company within a corporate group which has fewer assets than its parent company. Additionally, successful claimants have the right to take back goods supplied until payment has been made. Similarly, successful claimants have a right to suspend work or supply of goods until payment is made.
Finally, claimants should note that claims are subject to a six year limitation period
What are the Costs Involved?
When applying for adjudication, adjudicators appointed by the authorised nominating body (currently the BCA) will charge a fee for their services. The Singapore Mediation Centre (SMC) will charge certain fees too. Applicants should check the current schedule of BCA and SMC fees when considering making an application under the Act.
Note that adjudicators have flexibility to make awards as to costs. Typically, the losing party will bear the costs of the proceedings.
Is the Adjudication Process Suitable for Me?
The adjudication process prescribed by the Act offers certain benefits. It is relatively fast, with short, fixed deadlines for adjudicators to give their judgements for example. In turn, this cuts costs for parties. Additionally, all matters disclosed during adjudication which are not already in the public domain will remain confidential, unlike a hearing in open court. This helps ‘save face’ for both parties as clients may be wary of dealing with a company facing legal issues of any kind.
The Act expressly preserves the rights of parties to a construction work payment dispute to seek other remedies, such as seeking a court order in the form of a judgement debt. For the largest and most complex of cases, a full court hearing may be desirable as the strict timelines for adjudication prescribed by the Act may mean there would not be enough time to fully examine the particulars of the claim.
Another alternative is arbitration. Although arbitration tends to be relatively expensive and can be slower, it preserves the anonymity of the parties. However, parties should note that it is not possible to ‘contract out’ of the Act, meaning that a contractual clause which says something like ‘the Building and Construction Industry Security of Payments Act shall not apply to this agreement’ will be ignored. It would therefore typically always be open to a party seeking payment to seek adjudication under the Act.
Ultimately, this statutory adjudication process can be used by companies providing construction-related goods and services to aid their cash flow and to enforce their contractual rights.
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