Building a Pandemic-Resilient Construction Sector: Lessons drawn from Covid-19

Singapore
This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

A. Overview

In its circular of 23 September 2021, titled “Adopting Pandemic Resilient Contracting Practices For Public Sector Construction Contracts”, the Building and Construction Authority of Singapore (“BCA”) announced that new Public Sector Construction Contracts would follow in response to the unprecedented disruptions and costs experienced by the Built Environment (“BE”) Sector as a result of the Covid-19 situation.

These new contracting practices were drawn from the suggestions made by the New Contracts Workgroup (“Workgroup”) that was convened by the Government in February 2021, in response to the unprecedented disruptions and costs brought about by the Covid-19 pandemic, and the realisation that current construction contracts (both public and private sector) do not have adequate provisions to deal with, inter alia, contractor claims for Extension of Time (“EOT”) and Loss and Expense (“L&E”).

The Workgroup consisted of both public and private sector stakeholders, who were tasked to determine the appropriate strategies to ensure equitable risk-sharing among contracting parties in construction and consultancy contracts, in relation to pandemic-related events, and to provide concrete suggestions for dealing with new construction contracts.

Upon review of the suggestions, the Government stated that, inter alia, new public sector construction tenders would hereafter incorporate the following changes:

  1. Amending the Public Sector Conditions of Contract (“PSSCOC”) 8th edition to include pandemic-related events as a relevant ground for claiming EOT and L&E; and

  2. Providing provisional sums for cost items that directly result from a pandemic-related event, but where the exact costs/extent are unknown at the point of tender.

B. Background

As highlighted by Minister Indranee Rajah in her speech to the Society of Construction Law at the Annual Construction Law Conference 2021, Covid-19 has created intense strain on the Construction Sector in Singapore. The minister has shared that the Government was actively working to alleviate the situation by, inter alia, conducting a review of Public Sector construction contracts.

Particularly, the Government wanted to deal with the unprecedented disruptions and costs brought about by the Covid-19 pandemic, and the realisation that current construction contracts (both public and private sector) do not have adequate provisions to deal with, inter alia, contractor claims for Extension of Time (“EOT”) and Loss and Expense (“L&E”). This situation might cause parties to unnecessarily increase their tender prices, or under-pricing their risks, leading to potential disputes as to costs and time uncertainties in new construction projects.

In February 2021, the Government convened the New Contracts Workgroup, involving both private and public sector stakeholders, to provide concrete suggestion to deal with pandemic-related events in the future. A key consideration was the creation of a new set of contracting practices for tender contracts, that would eliminate this element of uncertainty in the pricing of tenders bids, and encourage more price certainty in the market.

C. Suggestions made to the Government

The Workgroup identified two key risks:

  1. Time-related Risks

  2. Cost-related Risks

Type of Risk:

Key Suggestions made:

Time-related Risks


(i.e. delays materially caused by pandemic events)

Amending the Standard Conditions of Contracts (“COC”)


The Standard COC for construction contracts should be amended to allow contractors to claim for EOT in relation to delays caused by pandemic-related events.

Cost-related Risks


a. Known-Unknown Costs[1]

(i.e. known costs items that are already anticipated and attributable to the pandemic, but cannot be quantified at the point of tender)

Inclusion of a provisional sum in relation to Known-Unknown Costs


Provisional
sums should be set aside by the developer to deal with such costs.


However, such provisional sums would exclude any costs incurred as a result of any default by the contractor. For example, costs resulting from a failure to observe Safe Management Measures.


b. Unknown-Unknown Costs[2]


(i.e. costs items incurred as a result of pandemic-related events, but is impossible to identify at the point of tender)

Cost-sharing requirement for additional costs incurred


The Standard COC for construction contracts should include a requirement for parties to co-share the additional costs resulting from Covid-related events.


However, to balance the risks between the developer and contractor, it was proposed that the maximum amount shared by the developer would be capped at a percentage of the entire awarded contract sum.

D. The Singapore Government’s Response

In response to the suggestions made by the Workgroup, the Government agreed to:

  1. Amend the PSSCOC 8th edition to include pandemic-related events as a relevant ground for claiming EOT and L&E; and

  2. Provide provisional sums for known-unknown costs that are anticipated during a pandemic.

I. Amending the PSSCOC 8th Edition:

Amendments made to:

Rationale:

14.2 Extension of the time for Completion


Prior to the amendment, EOT was only granted in relation to Epidemics or Pandemics.


The Government amended the EOT clause to include (i) outbreak(s) of infectious diseases over a wide geographical area crossing international boundaries and (ii) any measures that the Government or any other statutory/public authority of Singapore implements in relation to the outbreak(s).

The amendment provides parties with greater clarity on the exact type of pandemic-related event(s) that would qualify for time extensions.


Additionally, EOT would also be provided for Safe Management Measures (or any other measures) implemented by the authorities.

This is particularly important, as a pandemic-related event would necessitate quick, decisive action, such as halting or limiting the number of parties situated on the construction site. Such actions would otherwise unfairly prejudice the contractor.

22.1 Reasons for Loss and Expense


The contractor is now entitled to claim for 50% of L&E resulting from (i) pandemic-related events and/or (ii) any measures that the Government or any other statutory/public authority of Singapore implements in relation to the outbreak(s), provided that the contractor (i) has not received any Government/statutory relief or subsidy, and (2) the maximum amount of L&E claimed does not exceed 5% of the total contract sum.

The amendment provides for developers to co-share up to 50% of the L&E suffered by the contractor resulting from pandemic-related events or from safety measures enacted due to pandemic-related events. This is to ensure fairness and the equal apportionment of risk related to pandemic events between the developer and the contractor.


This is aligned with the Ministry of National Development’s intention that no single segment of the BE value chain bears a disproportionate share of the additional costs arising from the pandemic-related events.


However, the Government has capped the L&E co-sharing claims to a maximum of 5% of the total contract sum, to ensure that the developer is not unfairly prejudiced, and to draw a balance between the interest of the contractor and the developer.

II. Providing provisional sums for known-unknown costs

The Government will also ensure that Public Sector Contracts will include a provisional sum for reimbursing contractors, for the known-unknowns costs related to pandemic events, and that Government Agencies will indicate the scope and process to reimburse contractors when calling for construction tenders.

The contracting practices and measures will take effect for public sector construction tenders called on or after 1 November 2021. However, the Government will also allow ongoing tenders to amend and adopt the abovementioned, by issuing a corrigendum to include the changes into the tender documents.

E. Private Sector Construction Tenders

In dealing with Private Sector construction tenders, the BCA has also suggested that the REDAS Design and Build Conditions of Contract, and the SIA Conditions of Contract, two of the most commonly adopted standard-form conditions, should be amended to align themselves with the new Public Sector COC in regard to EOT and L&E. In the interim, the BCA encourages the BE private sector to include the Workgroup’s suggestions (in part C) into their tender document.

In any case, regardless of whether parties are performing a private or a public sector construction contract, it seems that they will soon receive similar protections under the Standard COCs, a welcome move considering the uncertainty that Covid-19 has brought to private sector contractors. It remains to be seen if these changes will be sufficient to help restore confidence in the private sector, especially with the recent announcement of an extension of the Covid-19 (Temporary Measures) Act (“COTMA”) relief provisions.

F. Commentary

Clearly, the Government’s actions in relation to public sector contracts is a signal to the private sector, and more importantly to the Courts, on the better way to deal with Covid-19 related issues in relation to EOT and L&E moving forward.

Indeed, the government’s not-so-cryptic hint that Private Sector COC’s should soon be aligned to the Public Sector amendments again proves the Government’s commitment towards mitigating the impact of Covid-19, and the damage it has done to the BE sector. It signals to parties that Singapore remains a safe, reliable environment for construction works to continue.

Particularly, it reinforces the Government’s stance that life must go on with or without Covid-19 (and future pandemic events), and that the Covid-19 situation, while dire, cannot cause Singapore to pause indefinitely in fear. The changes to the construction sector COCs are just another example of Singapore’s attempt to live with Covid-19 as an endemic situation. As stated above, it remains to be seen how much, and what, effect it will have on the construction industry in Singapore.



[1] For example, PCR or ART testing costs are known costs, but the exact cost of such tests would fluctuate based on the requirements set by the Government (in relation to the period/regularity of such tests), and whether such costs are subsidised or claimable from the Government.

[2] For example, the costs of implementing new safety measures mandated by the Singapore Government, or changes to such safety measures, which could not be identified at the point of tender.