SIDP refers to Singapore Infrastructure Dispute-Management Protocol that was launched in 2018. It is a set of procedures that defines the role and authority of Dispute Board (DB) as regards construction projects above $500million in contract sum. This article examines SIDP from the contractor’s perspective and is part one of a two part series. Whilst it is true that contracting parties are free to negotiate terms and conditions, the bargaining power is not exactly equal between the Employer and contractor. Any contractor that rejects SIDP included in tender conditions risks submitting a non compliant tender. Therefore contractor should appreciate the mechanics behind SIDP and try to make it work based on its commercial interest. The principles discussed in this article are applicable to other types of DB under various international standard conditions of contract. The concept of DB was introduced as early as 1999 under FIDIC forms of contract and has since been adopted by other suites of contract form such as JCT, NEC etc. Whilst not all DB are identical, they share some core principles which is the establishment of a board or panel comprising one, two or three members during the inception of the project to assist parties in resolving their disputes as early as possible under various modes namely mediation, adjudication, issuance of opinions etc. 

SIDP is particularly interesting in the context of Singapore, where the local contract forms such as SIA Building Contract, PSSCOC, REDAS Form etc as well as the local legislation of Security of Payment (SOP) Act already offer certain dispute resolution features that can be found in the function of DB under SIDP. However one of the unique features of DB under SIDP is that it is established at the inception of the project usually before any dispute has arisen, with relatively more intimate knowledge of the project as compared to say a third party adjudicator, arbitrator or mediator under alternative dispute resolution. Notwithstanding that, it is incumbent upon the contractor to understand how to navigate the dispute resolution terrain since any adoption of SIDP does not override the existing dispute resolution regimes. Under the preamble of SIDP, it is stated that the SIDP can be easily incorporated into any construction or infrastructure contract using the recommended standard SIDP clause. Therefore, no major or extensive modification is expected to the existing contract forms with any adoption of SIDP. From the contractor’s stand point, it is worth examining how its rights and obligations under existing dispute resolution provisions e.g. arbitration clauses, SOP adjudication regimes, certification by independent certifier etc could exist harmoniously with the roles and functions of an DB under SIDP. By way of example, if a payment dispute is “resolved” by the DB, is the contractor still entitled to refer such payment dispute to an adjudicator under SOP regime if it continues to perceive as being aggrieved? If there is no contracting out of SOP Act due to its mandatory legislative force, what is the purpose of DB? The same question can be asked in respect of other provisions such as arbitration, mediation etc. Finally, if and when a determination is made by the DB under the main contract, does it have the same effect on the corresponding subcontract? By way of example if the DB makes a finding in favour of the Employer’s position that certain curtain wall facade panel was non compliant with the specification, can such finding be similarly imposed on the curtain wall facade nominated subcontractor? Or should the main contractor re-litigate the same issue under its subcontract?

This article attempts to deal with the above mentioned issues from a practical perspective so that contractors can have a better handle of its claims management procedure under SIDP project. Whilst there may be no absolute definitive answers to some of these questions, such discussion can hopefully illuminate the nuances of the pertinent issues.

Back To Back Arrangement With Subcontractors

For large construction or infrastructure projects exceeding $500million in contract sum, it is almost certain that the main contractor will have to outsource part of the works to subcontractors. The choice of subcontractor can be imposed on the main contractor by the Employer in the case of nominated subcontractor or out of the main contractor’s own volition in the case of domestic subcontractor. Therefore if dispute arises in any given trade of works undertaken by certain subcontractor, it materially affects at least three parties namely the Employer, main contractor and the relevant subcontractor. By way of example, if there are issues with certain curtain wall facade panel in a construction project, it directly implicates the main contractor and curtain wall subcontractor. To the extent that such issue is causing delay to the overall main contract completion date, the Employer is implicated as well. Occasionally, the delay in curtain wall facade works may have flow on effect to other subsequent trades of works such as internal wall and floor finishes which are usually carried out after the curtain wall is completely installed to ensure a weatherproof internal building environment. Therefore, those subcontractors carrying out the subsequent trades could be implicated too. In other words, disputes can rarely be ring fenced or compartmentalised in the context of construction projects.

Given the potential ripple effect of any given dispute, how should a main contractor cascade the main contract dispute outcome by the DB to other relevant subcontractor(s)? Framing the same issue differently, how should the main contractor avoid a scenario where it faces different dispute outcomes arising out of the same set of facts? By way of illustration, what if the DB makes a determination in favour of the Employer whereas the arbitrator appointed under the subcontract makes a finding in favour of the subcontractor? To be fair, the issue of ensuring consistency in dispute outcome between main contract and subcontract has been a perennial problem even before the introduction of DB. To this end, subcontract conditions usually include certain clauses whereby the subcontractor shall indemnify the main contractor in so far as the provisions under the main contract relate and apply to the subcontract works. Further, the main contractor and subcontractor ‘shall use their best endeavours’ to secure the appointment of the same arbitrator to decide on dispute under the subcontract if such arbitrator had already been appointed to determine certain disputes under the main contract where some or all of the matters in dispute arise out of the same facts. At present moment, it appears that the jurisdiction of DB under SIDP is confined within main contract. Whilst the usual back to back provisions can be found in the subcontract, those provisions are only applicable if the subcontractor is found to be liable for certain breaches that expose the main contractor to the Employer correspondingly. Those provisions are silent on the extent to which subcontractors are expected to participate in the dispute resolution process of the DB under the main contract. In the absence of reasonable participation and representation by the subcontractor, can the DB’s finding against the main contractor be construed as a corresponding finding against the subcontractor?

Apart from the practical difficulties in enforcing a back to back dispute resolution provision, the DB approach may have an additional challenge in that the mode of dispute resolution are subject to the parties’ agreement. Under Article 6.2 of SIDP there are generally three different modes available namely mediation, determination and opinion. Firstly, the DB can resolve dispute via mediation in which case the parties have to arrive at a unanimous consensus on a mediation settlement agreement which will be facilitated by the DB that acts as mediator. Alternatively, DB can render a determination on disputes much like an adjudicator where parts of such determination that are not challenged by either party is final. The part of determination that is contested may be reviewed under arbitration or litigation as the case may be.  Finally, DB may issue an opinion on the disputes where parts of such opinion that is not objected shall be binding but not final. The parts that are objected are non binding, which means the disputes remain alive. If parties are unable to agree on the mode of dispute resolution, the DB shall proceed to issue direction to the parties as to the mode of resolving the disputes. 

According to Article 6.4, the DB shall decide based on the nature of dispute which would facilitate the performance of the contract or reduce the risk of disruption to the project. Therefore DB is not necessarily deciding exclusively based on substantive merit but rather based on the interest of project continuity. There are a few observations that can be gleaned from the facts set out above. Firstly, it is unclear the extent to which the subcontractor may have a role to play in the decision making process as regards the choice of mode of resolving dispute. If and when dispute arises, it is quite possible that parties are unable to agree on the mode of dispute resolution. This is because, the party which believe that its case is complex and should be dealt with more thoroughly under arbitration or litigation may elect the mode of mediation so as to “buy time”. Therefore one should not be surprise that ultimately the DB may end up making most of the decisions on the mode of dispute resolution. Since DB’s decision making process is based on facilitating performance of the contract and reducing risk of disruption, it will be counter intuitive to impose crushing determination on the main contractor in terms of hefty damages. Since most of the construction works are essentially carried out by the subcontractors, they are one of the key stakeholders in so far as project continuity is concern. It is in the main contractor’s interest to ensure that certain mechanism is included in the subcontract conditions to ensure the subcontractor’s participation in process of DB’s dispute resolution. In the case of nominated subcontract, the Employer similarly has a role to play since the choice of such subcontractor is made exclusively by the Employer. If the DB renders an opinion that is objected by either party under the main contract resulting in such dispute remaining alive, such outcome is of no utility to the subcontractor if its payment continue to be withheld assuming the dispute apply to certain subcontract works. Under such a case, the subcontractor may prefer to rely on its statutory rights for payments under SOP Act. Therefore it is critical to understand how the adjudication regime under SOP Act can function harmoniously with the role of DB under SIDP, which will be examined further in the next section of this article. 

SIDP And Security of Payment Act – Reference of Payment Disputes

As a matter of general comparison, DB’s ‘opinion’ most resemble statutory adjudicator’s ‘determination’. These dispute resolutions are designed as interim outcome that is binding. The associated findings can be reviewed under subsequent arbitration or litigation. Whilst DB also has ‘determination’ as one of the three dispute resolution modes, it is different from the SOP adjudication ‘determination’, in that the former can be final and not be subject to review if such determination is not objected within 28 days of receipt by the parties. Once the parts of determination by DB is final, any future arbitral tribunal or state court shall have the power to enforce such determination summarily or by expedited procedure. 

Pursuant to Article 14 of the SIDP, the parties are not allowed to contract out of SOP Act and that any actions commenced with the DB shall be subject to the provisions of the applicable SOP legislation. However Article 14.1 of SIDP entitles the parties to pursue actions under both SIDP and SOP Act concurrently. If SOP adjudication takes precedence over DB’s dispute outcome, what could be the incentive for referring disputes to the DB? One of the possible incentives could be the fact that SOP’s adjudication is designed to exclusively address disputes over progress payment for work done as opposed to complex claims relating to damages, loss or expense. This is expressly stipulated under Section 17(3) of the SOP Act. In reality disputes over payment for work done is merely a component of the overall scope of dispute that could emanate from the same set of facts. By way of example, if parties dispute over whether curtain wall panels installed on site are compliant with the specifications, such dispute can give rise to claims over multiple fronts. Whilst the contractor may pursue payment for work done which would traditionally fall within the ambit of SOP Act, there may well be other more complex issues such as delay and disruption to the project giving rise to claims for extension of time, liquidated damages, loss and expense etc. Further, expert evidence may be warranted as it relates to the interpretation of the curtain wall specification and any laboratory testing of parts of the facade panels in issue. The quantum of claims of these relatively complex issues could eclipse the quantum of claims for payment for work done. These complex claims are not meant to be adjudicated within the strict timelines of statutory adjudication. As a general rule, statutory adjudicator has 14 days to render a determination from the commencement of the proceedings. Therefore even if the contractor is able to refer its payment claim issue under SOP adjudication, the interim outcome of such determination meant that there could be cross claims in future from the Employer on those very same issues under arbitration or litigation. The contractor may also have related loss and expense and extension of time disputes pending determination. Statutory adjudicator are neutral third party with no prior knowledge of the project and therefore are not expected to delve into the intricacies of complex issues within the procedural time limits. By contrast, the DB is expected to have more intimate knowledge of the project prior to any dispute. This institutional knowledge is built cumulatively through series of DB meetings and site visits scheduled in consultation with the parties at the inception of the project as provided for under Article 4 of the SIDP. Therefore DB should be better equipped to have the issues resolved with the appropriate context and background efficiently. Therefore it is entirely possible for a contractor to refer payment disputes for work done to a statutory adjudicator and to have the remaining complex issues referred to the DB. If the contractor obtains a favourable determination from the DB and faces difficulties in its enforcement, the SOP regime has provisions to assist through its statutory force. This will be further elaborated in the next section of this article. 

SIDP And Security of Payment Act – Complex Damages Related Disputes

As alluded to in the preceding section of this article, under Section 17(3) of the SOP Act the adjudicator must disregard any part of payment claim or payment response that relates to damage, loss or expense. These are the types of complex damages claims that are more appropriately resolved without the constraints of strict timelines under SOP regime. However, there are two exceptions found under the same section of the SOP Act. Adjudicator may consider complex claim if it is supported by (1) any document showing agreement between the parties on the quantum of such claim or (2) any certificate or other document that is required to be issued under the contract. Under the first category of exception, where DB facilitated a mediation settlement agreement and the contractor continue to face issues with respect to payment, the mediation agreement can be included in SOP adjudication for purposes of enforcement. Under the second category of exception, any opinion or determination rendered by the DB which are not objected in a timely manner can also be deemed as ‘document that is required to be issued under the contract’ since the DB is empowered under the contract. Therefore, if a contractor wishes to pursue claims beyond the confines of payment for work done, it can do so through the DB which is arguably more equipped with the background knowledge and efficiency than say a third party adjudicator.  The determination or opinion from the DB can then be channeled through the SOP route for enforcement. 

However some may argue that if the dispute outcome rendered by the DB is not in the Employer’s favour, and the sum implicated under such complex claim is usually large, one should not be surprise if the dispute outcome is objected swiftly by the Employer. Therefore, in practical terms the contractor’s ability to rely on SOP adjudication may be challenging. 

Notwithstanding the limitations arising from practical realities illustrated above, one may appreciate that perhaps the value in having issues and disputes resolved (or at least in attempt) in advance via DB is by inducing parties to dedicate resources to focus on the problematic issues as early as possible. Very often disputes are not appropriately framed or sufficiently crystallised without adequate dedication and attention. SIDP creates a structured environment to enable this to happen. That is perhaps why it is not uncommon to find parties to be in a position to negotiate and settle only after commencement of legal proceedings such as arbitration or litigation. It is through a structured proceedings that are made available under DB that parties are able to refine and distill what would be a discrete list of issues that underpin the scope of dispute. Once the issues are particularised, it allow parties to make reality check on its true position on matters in dispute. Very often rank and file personnel dealing with disputes on a daily basis may lack the executive decision making authority. Having a structured dispute resolution environment enables issues to be crystallised and clarity invariably emerges with the appropriate involvement by senior management. Clarity of thought is often under appreciated in dispute resolution.

Conclusion

This article which is part 1 of reviewing DB of SIDP from the contractor’s perspective raises some interesting observations that could be helpful during tender negotiations. Main contractor ought to be aware that since most of the actual construction works are carried out by its subcontractors, any potential back to back arrangements on SIDP provisions with subcontractors are necessary for project continuity. Therefore it is incumbent upon the main contractor to ensure that its subcontract agreement are drafted accordingly  particularly when it is instructed on nominated subcontract. Secondly the DB’s dispute resolution role could operate in sync with statutory adjudication under the SOP Act with the right level of understanding. In navigating SIDP projects, main contractor should be conscious of the need to administer its contract quite differently from other conventional project. There are further interesting SIDP related issues that will be examined under part 2 of this article series.



Koon Tak Hong Consulting Private Limited