The term ‘claimant’ refers to a contracting party carrying out construction works that serves monthly payment claims for works done. Such claimant could either be a main contractor or subcontractor depending on the tier of contract concerned. Under Singapore’s Security of Payment (SOP) Act, such claimant will have statutory right to receive progress payment and the respondent in receipt of such payment claim must respond accordingly. If the claimant is unsatisfied with the response or fail to receive any response, the claimant shall have the right to apply for adjudication to resolve the dispute quickly. The adjudication determination is temporary but binding on the parties. The ultimate goal is to ensure that deserving claimants will be paid promptly or under the worst case scenario have the statutory right to suspend its works to prevent further cash outflow.

Whilst the statutory tools available to the claimants appear to be beneficial in helping to speed up payment and improve cash flow in the construction industry, the devil is in the detail. This article examines some of the practical issues that a claimant should be aware of in order to better avail itself to the rights for payment and financial remedy embedded within the SOP regime. By way of example, the claimant should be aware that one of the key features of SOP Act is the speedy adjudication of disputes which entails a fairly prescriptive statutory processes and strict timelines. Most dispute resolution processes are designed in a way where the claimant has the full opportunity to provide details beyond its initial claim document including rights to reply to any defences mounted by the respondent. The claimant has a somewhat similar right to do so under the SOP Act but in a significantly limited way. After all, an adjudication determination is effectively an interim outcome of the relevant disputes, where the aggrieved party is at liberty to recover the sums paid in a subsequent arbitration or litigation. 

The claimant’s understanding of the SOP regime is crucial since the payment claim is not merely prepared for the Architect, Superintending Officer, Employer or consultant quantity surveyor who collectively should have an intimate understanding of the project details. By contrast, the claimant ought to prepare its payment claim in a comprehensive and self explanatory manner for any third party such as an adjudicator who may be relatively less familiar with the project background and specifics. This ‘just in case’ mindset is crucial because if the situation escalates before an adjudicator, such adjudicator is expected to make a determination within a compressed time frame without the benefit of supplementary explanations and details. This will be further elaborated in the next section of this article. 

The presentation of payment claim may differ depending on the procurement pathways taken for the project in hand i.e. lump sum contract, remeasurement contract with provisional quantities or design and build contract. The different types of procurement pathways may influence how ‘work done’ is presented that may entitle to payment. Finally, there are various project documentations that are produced on a regular basis as part of an effort to monitor progress of works. These documentations can be utilised by the claimant without the need to expend additional efforts in a bid to enhance the payment claim’s clarity. 

Unfortunately, most payment claims are prepared as a ‘regular paperwork’ without sufficient consideration of its implication down the road under the SOP regime. This article hopefully illuminates certain mechanics behind the SOP Act that are relevant from the claimant’s perspective.

Preparing Payment Claim For An Adjudicator

As mentioned earlier, payment claims are ordinarily submitted to the Employer with a copy issued to the Architect or Superintending Officer appointed under the contract, with the understanding that the consultant quantity surveyor is likely to be carrying out the assessment of such claim. Whilst the format of such payment claim is rather standardised with a breakdown of contract sum agreed upon in advance, the level of supporting details justifying the amount claimed for the period concerned can vary depending on how contentious the claimed amount may be. By way of example if the claimant anticipates resistance from the respondent for certain variation works in dispute, the claimant should provide sufficient details organised in a self explanatory manner, quite possibly for the benefit of an adjudicator. How this can be done is influenced by the timelines prescribed for various procedural steps under the SOP Act. This is because if and when the claimant decides to exercise its adjudication rights under SOP regime, a considerable time would have passed since the submission of payment claim concerned. 

Payment claims are usually arithmetically presented on a cumulative basis. If the payment claim is finally placed before an adjudicator, the amount of work done on site should have progressed quite significantly. Therefore the figures reflected in the corresponding payment claim in dispute may bear little or no resemblance with the actual conditions on site. The claimant have to take cognizance of this reality since the credibility of its claim is largely dependent on the strength of its documentation with very limited physical evidence due to the passage of time. Under a typical scenario where the claimant disputes the payment response, a period of 56 days or close to two months would have lapsed between the day payment claim was submitted to the day adjudication determination is rendered. This 56-day period consists of the following: 21 days for payment response to a submitted payment claim, 7 days of dispute settlement period, 7 days for claimant to issue notice of intention to adjudicate dispute and apply for adjudication, 7 days for adjudicator to be appointed, 14 days for adjudication proceedings. 

In view of the time periods illustrated above, it would be extremely helpful to breakdown the payment claim into the following columns: ‘Amount Allocated in Contract Sum’, ‘Amount Paid To Date’ and ‘Amount Claimed’. This is to ensure that for each line item included in a particular payment claim, its incremental amount claimed for a particular period or month is abundantly clear. This can be derived by taking the difference between amount claimed and amount paid to date. Under Section 17(4)(c) of the SOP Act (2020 Revised Edition), in determining an adjudication application, the adjudicator may only have regard to amongst others, the payment claim to which the adjudication application relates, the adjudication application and the accompanying documents thereto. The adjudicator’s jurisdiction and authority are therefore circumscribed accordingly.

To be clear, the adjudication application by the claimant may include other relevant information such as the expert reports, photographs and related correspondence. These supplementary information may both support the payment claim and refute any reasons previously provided by the respondent for withholding payments. However, the are multiple opportunities available to the respondent to submit or vary its payment response including immediately before the appointment of an adjudicator via the adjudication response. This could leave the claimant with limited amount of time to mount a responsive rebuttal especially if the adjudicator subsequently decide to adopt a document-only procedure. Therefore, the claimant will be well served to operate on the basis that it may have limited amount of time to issue any rebuttal and to anticipate the respondent’s defence during its preparation of payment claim. This again underscores the need to be strategic in preparation of payment claim and not reduce it to a mere administrative document submission. 

Payment Claim Under Lump Sum Contract, Remeasurement Contract And Design & Build Contract

There are multiple types of procurement pathways available in the construction industry but the options commonly adopted include lump sum contract, remeasurement contract as well as design and build contract. In general, there are no strict requirements for the presentation of payment claims to differ in accordance with the types of procurement pathway that the project is under. However certain aspects of the presentation of payment claim should actually differ based on the varying commercial nature of different procurement pathways. 

Under lump sum contract, the contractor is paid based on a fixed price derived in accordance with the quantities measured by the contractor during tender process. Any error in measurement of quantities is the contractor’s risk. Let us consider an example of a project where $100,000 is allocated to all concrete works. Let us further assume that the actual quantity of concrete works is 100m3 but the contractor erroneously measured it at 80m3. In any case the contractor shall be paid progressively based on percentage completion of all concrete works rather than actual quantity of concrete works carried out in a particular month. Therefore, if the contractor carried out 40m3 of concrete works in a particular month which represents 40% of total actual concrete works (40m3/100m3), the contractor is entitled to $40,000 (i.e. 40% x $100,000) as opposed to $50,000. This is notwithstanding the fact that the works done is 50% of its erroneously measured quantity. Therefore in the presentation of payment claim, the actual quantity of works is not relevant in so far as payment entitlements are concerned under lump sum contract. 

The above example can be contrasted with payment entitlements assessed under remeasurement contracts where provisional quantities are included in the contract document as the basis of contract sum. These provisional quantities are estimated by the Employer’s consultants rather than measured by the contractor. The contractor will be paid based on actual works done and such actual quantity may well differ from those provisional quantities. In other words, the payment entitlements are based on actual quantities of works rather than percentage of work done in respect of provisional quantities. This is diametrically opposite to the commercial nature under lump sum contract. Using the very same hypothetical example in the previous paragraph, the $100,000 allowed under the contract as well as the 100m3 of concrete are both provisional figures. The contractor ought to include in its payment claim, the actual quantities of concrete work carried out in a particular month and to multiply it with the prevailing unit rate. The notion of percentage completion based on provisional quantity becomes irrelevant. As a matter of supporting documents for payment claims, the contractor should include the daily site records of concrete works which are counter signed and verified by a Resident Technical Officer.

Under the design and build contract, the concept of completion of works can be quite different as it relates to payment claim. This is because under design and build contract, the contractor produces construction drawings in compliance with the Employer’s requirements based on a design brief. Depending on the choice of contract form used, the contractor’s design drawings may not even be fully completed at the point of contract formation. For further background and context, a separate article entitled ‘Part 1 of PSSCOC D&B vs REDAS D&B – Pre-Contract Design Requirement’ is available for reference in this website. In preparation of payment claims evidencing work done that entitles progress payments, the contractor should be aware that it may not be sufficient to merely include a contract sum breakdown (or pricing schedule) with associated quantities and/or percentage work done.  This is because the drawings produced by the contractor may be subject to dispute resulting in withholding of payments. In this regard, the contractor should include the contractor’s design drawings, approvals of such drawings as well as evidence of work done against those approved drawings (e.g. photographs in progress reports). Evidently, the amount of supporting documents may be more elaborate than traditional design-bid-build procurement pathway. This is particularly crucial if such payment claims are prepared in a way that makes it easier for any third party such as an adjudicator to follow and appreciate the claimant’s position. 

Project Documentations Used in Payment Claims

When selecting the types of supporting documents that may be used to substantiate contractor’s payment claims, one should consider documentations that are produced on a recurring basis throughout the construction period rather than one-off reports. This is because recurring reports enable one to identify the incremental amount of work done for a particular month by comparing the latest report with its preceding version. This is consistent with the typical format of a payment claim. 

There are multiple types of recurring reports that are produced either on a weekly basis, bi-weekly basis or even monthly basis. These include monthly progress reports, S-curve cashflow statements, site diaries, contemporaneous programmes, minutes of meetings, correspondence, non compliance reports, requests for informations, list of variations orders etc. Recurring contemporaneous documents are less likely to be skewed in a self serving way particularly those produced prior to any disputes. Most of these reports are typically circulated to various parties either for their action, attention or purely for information. Therefore, if there are inaccurate information included in any of these documentation, it is likely that concerned parties will respond with any alternative perspective or dissent. By way of example, if a main contractor applies for extension of time under the main contract due to certain Employer related event, it is unlikely that the main contractor can credibly allege that the subcontractor is in culpable delay for the same period of time. Purely based on a prima facie threshold, a subcontractor should have a good adjudication ground in case its payments are withheld by the main contractor by way of set off. Therefore the subcontractor as a claimant under the subcontract ought to appreciate credible project documentation.

The element of neutrality and credibility in the supporting documentation is crucial in increasing the likelihood of a favourable adjudication outcome. This is particularly so where there is limited amount of time for the adjudicator to delve into the intricacies and substantive merit of every issue. As an adjudication determination is designed to be a binding but interim outcome, the claimant should be judicious in allocating expenses pursuing payments. The claimant should as far as possible utilise existing project documentation that are credible in support of its claim rather than expending precious financial resources in creating bespoke submissions where possible. After all, a claimant with its payment withheld is already facing challenging cashflow circumstances.


Loss And Expense Claims

Specific amendments to the SOP Act came into effect on 15 December 2019 that were aimed at addressing the issue of lengthening of adjudication process due to submission of complex claims. This is due to a rise in complicated prolongation costs, damages, losses or expenses that were included in adjudication application that goes beyond the original scope of the SOP Act. These complex claims are more suitably determined via other dispute resolution avenues such as arbitration or litigation where the substance and merit of these issues can be assessed more carefully without the restricted timeframes found in SOP regime. In general, Section 17(3)(a) and 17(3)(b) of the post amendment SOP Act state that the adjudicator must disregard items of claim relating to damage, loss or expense such as prolongation claims unless (i) the quantum has been agreed by the parties or (ii) such items have been certified under the contract. These two exceptions appear to limit the scope of adjudication by permitting such claims only to instances where the respondent has reneged on an agreement on the quantum payable by not making timely payment or paying an incorrect amount. The basis of limiting complicated loss and expense claims from being adjudicated under SOP regime is because the original premise of SOP Act is intended to cover claims for work done or goods and services supplied which are supposed to be straightforward claims. 

There are certain differences between Section 17(3)(a) and 17(3)(b). The former appear to relate to an agreement between the claimant and the respondent (or the Employer and the main contractor in case of a main contract). The latter on the other hand relates to a certification issued by an independent certifier appointed under the contract such as the Architect under the SIA Building Contract and the Superintending Officer under the PSSCOC. Strictly speaking, a certifier is independent of the Employer as it relates to certification functions although such certifier also simultaneously assume the role as the Employer’s agent under the contract. Therefore in practical terms, it will be interesting to see how common it is that the agreement (if any) with the Employer is different with the amount certified for loss and expense by the certifier. From the claimant’s perspective, whether these avenues for loss and expense claims are actually available is a matter that remains to be seen. These provisions are more likely to be relevant to a claimant as an issue of set off against payment claims as a result of liquidated damages that are alleged to be due and payable. In such a case, the adjudicator may have jurisdiction to consider such set off as diminution in value in respect of amounts claimed.

Due to the restrictions imposed on loss and expense claims under the SOP regime, the claimant ought to pay closer attention to other avenues of contractual claims such as additional payment for variations where the valuation principle may allow for additional overheads and expenses. Such overheads and expenses can be claimed in the form of additional preliminaries where there are express provisions for the claimant to do so. Substantively, when a contractor claims for certain heads of loss and expense such as prolongation costs, it is effectively claiming for additional preliminaries. To this end, there are other articles available in this website for reference such as ‘Part 2 of SIA vs PSSCOC – Loss And Expense’ and ‘Part 3 of SIA vs PSSCOC – How To Value Variations?’. These articles provide further detail on certain overlapping elements between loss and expense and valuation of variations under the appropriate provisions. 

Conclusion

Purely from a claimant’s perspective, the SOP regime can be best described as a double edged sword. On one hand it allows swift adjudication of payment disputes in a cost effective manner to facilitate cashflow. On the other hand, certain complex claims such as loss and expense may not be within the jurisdiction of an adjudicator due to SOP timeline restrictions. These very timeline restrictions are also the reason why cost effective and swift resolution of payment disputes are statutory remedies available to a deserving claimant. Whilst a claimant may not adjudicate many complex claims under the SOP regime, it is still worthwhile to prepare these claims during the construction period in case such matter had to be resolved under arbitration or litigation. After all, even the most favourable adjudication determinations are merely temporary outcomes.




Koon Tak Hong Consulting Private Limited