Man-Year Entitlement (MYE) was a Singapore work permit allocation system for construction projects for certain sources of foreign workers which was eventually aborted in January 2024. Dependency Ratio Ceiling (DRC) is instead used as regulatory quotas for main contractors and subcontractors based on its ratio of foreign workers to its total workforce. These are regulatory tools used to manage construction industry’s reliance on foreign workers which in turn affects the industry’s productivity. Construction industry often exhibit an image of low productivity given its over reliance on low cost labour with limited automation or mechanisation in the execution of works. Whilst MYE and DRC are primarily aimed at limiting reliance on manual foreign labour in carrying out construction projects, these regulatory tools are incidentally useful as regards tender evaluation and administration of contracts. This article will explore these incidental functions in further detail. 

During evaluation of tender proposal or issuance of instruction for the contractor to carry out additional works, it is assumed that the contractor will generally have access to the necessary manpower if compensated fairly. In other words, money is usually able to resolve most construction problems. However contractors do not have unbridled access to all types of foreign workers due to limits in issuance of work permits and also monthly levy payable for permits issued. A good understanding of the mechanics of MYE and DRC provides an insight on the contractor’s ability to implement its proposed construction methodology based on its access to manpower. This in turn verifies contractor’s proposed manpower resource chart, estimated duration of certain construction activities and also its propensity to outsource some of its core functions due to limitation in manpower resources. These perspectives are useful in managing procurement, tender negotiations and contract administration matters. 

Whilst MYE and DRC are specific to Singapore, the overarching principles are applicable to most developed countries with similar laws that aim to manage its significant reliance on foreign workers. Where there are changes in legislations or regulations that affect contractors’ ability to carry out its works within the agreed costs and duration, contractor may be aggrieved. Depending on the type of contract form used, certain contractual relief may be available such as extension of time especially where government actions which could not have been reasonably foreseeable resulted in shortage of labour. Contractors are usually required under the contract to comply with all relevant labour legislation, bye-laws and regulations. To better understand how contractors’ compliance with these laws affects their entitlement under the contract, we will first examine the mechanics of MYE and its gradual transition to DRC.

Man Year Entitlement (MYE)

Although MYE framework was dismantled in January 2024 it is still relevant to understand its operating framework to appreciate how employment laws had evolved and its impact on access to foreign workers. Firstly, man-years is a productivity metric used to determine the number of workers (men) required to complete any given project within a specified duration. By way of illustration, 1 man-year is equivalent to 1-year employment of a worker under work permit. Such worker is generally of lower skill from non-traditional source (NTS) countries who is paid no more than $2000 per month. NTS refers to India, Sri Lanka, Bangladesh, Thailand, Myanmar and Philippines. A main contractor is typically allocated with  certain number of MYE quota upon award of a contract based on the value of project in hand. The main contractor then sub-divides its MYE quota to  various subcontractors based on various factors of consideration including subcontract sum. Prior to the dismantlement of MYE framework, contractors were free to engage foreign workers beyond its allocated MYE quota subject to its compliance with its relevant DRC by paying a higher foreign worker levy. In other words when MYE was in force, the DRC was in effect concurrently. Contractors tend to operate within the allocated MYE quota so as to limit its levy payable. The surplus monthly levy payable for engagement beyond the allocated MYE quota varies according to skill level of workers concerned but could be 100% more. 

When MYE and DRC were in operation concurrently, the DRC was not materially limiting contractors’ access to foreign workers as the MYE quota was generally sufficient to cater to the contractors’ manpower needs. Therefore prior to the dismantlement of MYE, there were limited restrictions on contractors’ access to foreign workers apart from cost considerations e.g. monthly levy payable, workers salaries, accommodation cost and other associated administrative fees. There was no real incentive for contractors to reduce its reliance on foreign workers for several reasons. Most contractors that were competing for construction works face similar level of manpower cost, thus it is hardly a differentiating factor in their tender pricing. Additionally, cost of foreign workers was relatively low in comparison to the overall cost of construction works. Foreign workers’ costs were essentially variable overhead where contractors were only required to pay for such cost as and when projects were secured. This flexibility in cost structure is less financially burdensome.

Given the above, there were no compelling reasons for contractor improve its productivity through automation, mechanisation and improvement of workers’ skill levels. This was at odds with the national drive of improving construction industry’s productivity which subsequently contributed to the pivot from MYE (in parallel to DRC) to exclusive adoption of DRC.

Dependency Ratio Ceiling (DRC)

Upon the dismantlement of MYE, the DRC is reduced from 1:7 to 1:5. Consequently, contractors’ access to foreign workers is tighten whereby for every local worker there can be no more than five foreign workers (from the previous seven foreign workers permitted). It should be noted that the five foreign workers refer to both work permit holders and S-Pass holders. The S-Pass holders are mid-skilled workers that are paid a minimum of $3150/month that usually assume site supervisory equivalent roles. Notably, monthly foreign workers levy is increased to $900/month By way of context, monthly levy for NTS foreign workers with basic skills engaged within the MYE quota was previously $700/month whilst those engaged beyond the MYE quota was $950/month. Therefore the monthly levy payable now is comparable to levy payable for those engaged beyond MYE quota. Therefore even for contractors that are willing to pay a higher monthly levy and to pass on such higher manpower cost through higher tender price can no longer do so due to a reduction in work permits and S-Pass available. 

Contractors looking to incur lower monthly workers levy could either increase their workers competence from basic skilled to high skilled through training and skills certification and/or to hire from alternative country sources e.g. Malaysia and North Asian Sources (i.e. Hong Kong, Macau, South Korea, Taiwan) where workers from these regions are generally higher skilled. However these workers who attract a lower monthly levy commencing from $300/month are also likely to command a higher salary to commensurate with their experience and competence level. In other words, the option of hiring lower skilled foreign workers that results in lower productivity is no longer available.   

MYE and DRC Influence On Tender Assessments

When the DRC was reduced from 1:7 to 1:5, the maximum proportion of foreign workers and S-Pass workers relative to the total workforce is reduced from 87.5% to 83.3%. By way of mathematical illustration, a hypothetical mid to small size contractor with 10 local employees that assumed mostly head office positions would have to reduce its foreign workers from 70 men to 50 men. Such contractor could not maintain the same number of workers by keeping the same operating model even if it is willing to incur a higher monthly worker levy. This is the case even if the revenue from projects could financially cushion the increase in monthly levy. Assuming such contractor will need on average 20 basic to mid skilled workers for every construction project, its operating capacity will be reduced from an average of three projects to two projects. 

The above information including the understanding of foreign worker regulatory policies become useful when one assesses tender proposals. It provides insights into contractor’s manpower capacity which correspond to its ability to undertake any new project and validation on its proposed construction method statement. One will also be able to assess the associated productivity and whether the tender price is reasonable given the availability of resources. If the very same small to mid scale contractor participates in a tender, it will be immediately clear whether it will have the relevant capacity to undertake a new project if it has two on-going projects. Assuming these two existing projects require on average 40 foreign workers in total, it is likely that it will only have 10 foreign workers available for the immediate future. In this regard, the tenderer will have to demonstrate how it will realistically manage such manpower constraint. 

There are a few options available to this tenderer and its decision on how to grapple with these realities as well as limitations can be very revealing. Firstly, the tenderer could outsource a portion of its construction works to its subcontractors. Whilst outsourcing to subcontractors is a fairly common practice, the tenderer should demonstrate that its very own manpower is meaningfully and productively deployed to carry out the initial trades of works until such time it is able to enter into subcontract agreements for subsequent trades based on its proposed construction programme. Depending on the prevailing market conditions and the nature of subcontracted works, the tenderer may need to utilise letter of intent to expedite its engagement of subcontractors. Secondly, the tenderer may re-deploy its own manpower from its existing projects to the project in hand if the manpower requirements of those on-going projects are tapering off due to imminent practical completion. Alternatively, the tenderer may adopt a more productive construction methodology that may involve mechanisation or automation that reduces reliance on foreign workers carrying out in-situ works. 

Depending on tenderer’s approach to address its manpower limitations, it may have varying degree of impact on its tender price. Where the tenderer is able to demonstrate that it is able to re-deploy its manpower from its on-going projects, it should have a minimal impact on its tender price. If the tenderer adopts a more productive construction methodology which reduces its reliance on foreign manpower through automation, mechanisation or off site fabrication it should generally result in a more competitive price. However if the contractor does not have sufficient project scale or workload to justify such capital investments, its pricing could be higher particularly if such automation drive is still at its infancy stage. If the tenderer relies on outsourcing as its primary means of overcoming its manpower constraints, its pricing is likely to be higher due to ‘profit and attendance’ imposed on the actual construction cost. This also raises doubt on the degree to which the tenderer is able to effectively control the quality and workmanship of various subcontracted third parties.

Prior to the abolishment of MYE where the DRC was 1:7, whilst the tenderer is unlikely to face similar manpower constraint there is also very limited impetus for it to seriously adopt mechanisation or automation as a long term strategy. This is because the default choice of hiring lower cost basic skilled foreign worker is always an option on the table. Through adoption of automation and mechanisation in the contractor’s day to day construction activities, this hopefully brings about the need for skilled technicians and engineers. This transition may draw interest from local workers as it will create an environment which values craftsmanship, professional growth and career progression. Whether these policies will yield the intended results remains to be seen.

MYE and DRC Influence On Contract Administration

Apart from providing an insight into the viability a tenderer’s proposal, a good grasp of MYE and DRC should also influence the ways in which one administers its construction contract. This is because an understanding of contractor’s access to foreign workers can materially impact on various decisions e.g. whether to issue instruction to carry out additional works, claims for additional payment, application for extensions of time and assessment of proposed construction programmes. 

Very often the decision to issue instructions to contractor to carry out additional works or to change an existing design is primarily driven by the needs for those varied works. The question of whether the contractor has the capacity to actually execute those additional works is often an after thought that will be considered if the contractor’s progress of works is delayed or if the contractor by its own volition raises its manpower concerns. However it is quite unlikely for contractor to expressly raise these manpower concerns as it may have an indirect adverse impact on its other existing claims for extension of time, amongst others. This is because in any of its application for extension of time, it is in the contractor’s interest to demonstrate that any delay in the progress of works is due to excusable and compensable events rather than arising out of its own culpability. Contractor is usually careful in not shooting itself in the foot. Therefore it is incumbent upon the project consultants or contract administrator to have the awareness of balancing the contractor’s manpower for existing scope of works as well as any potential additional works. Whilst the contractor may have the incentive during tender to hire more local worker to avail itself the incremental capacity to engage more foreign workers, such consideration diminishes during the mid stream of the project duration. It is highly likely that the contractor will have to juggle with its manpower resources within the existing constraints. Where the instructions for additional work effectively stretches the contractor’s manpower capacity, its delaying effect may even be longer than usual. Therefore it will be advisable for the contract administrator to request for quotation for any additional works in advance so as to agree on the cost and time impact of any potential instructions. This in turn will provide a benchmark for any future assessment of extension of time, if necessary.

MYE and DRC – Claims Due to Change In Law/ Regulations

As alluded to earlier in the beginning of this article, the abolishment of MYE and the exclusive adoption of DRC represent a change in foreign workers employment law that could affect certain contractors’ access to manpower in the mid stream of their projects. Since this change in law affects the main contractor as well as all its subcontractors, there is a real prospect of delay to project completion. So what are the contractors’ claims entitlement in view of changes in law and regulations?

To be clear the authority typically makes allowances for transitional arrangement to cushion any manpower disruption to on-going projects. By way of example, contractors that have been awarded with projects or committed to certain tenders prior to 18 February 2022 will be allowed to utilise their MYE quota up to 31 December 2024 or project completion whichever is earlier. This potentially provides a one year cushion to the 1 January 2024 MYE abolishment date. However, there may be larger multi-year projects that may still be adversely implicated where the contractors involved may wish to advance claims for financial compensation. The outcome of such claims will largely depend on the terms of the contract. 

In general, contract sum and duration for the construction works are expressly stipulated under the contract. Whilst the contractor’s ability to fulfil those requirements will in turn depend on its access to foreign manpower, it is uncommon for parties to expressly agree on the number of workers present on site at all material times. Whilst there are objective benchmark and measurements that parties could agree to in order to monitor progress of works such as the use of approved construction programme, there is no equivalent contractual deliverable on manpower resource charts. In other words, the Employer is not able to contractually penalise the contractor if it is of the view that the level of manpower on site is less than what it should be. After all, the contractor is ultimately responsible for its ability to achieve timely project completion and how it intends to do so is largely within its prerogative. Therefore, some may argue that if the contractor finds itself facing difficulties in securing foreign workers, its prospect of making a successful claim for additional payment or time extension is diminished. This is because the contractor may still face difficulties in securing foreign manpower even if there was no change in law due to various reasons such as competition for manpower from neighbouring countries, or better job prospects in their home country etc. The contract administrator’s ability to make a fact based and neutral assessment on such claims is quite limited due to a large degree of subjectivity. Notwithstanding that there are certain exceptions to the above such as the entitlement to extension of time under Clause 23(2)(l) of the SIA Building Contract (2016). Under this clause, there is an optional ground for extension of time if there is an unforeseeable shortage of labour resulting from domestic or foreign government actions, or regulations. However it should be noted that there is no express provision for corresponding additional payment even if time for completion is extended.

Conclusion

Foreign worker employment laws and the relevant legislations are not usually matters that are at the Employer or its consultants’ foremost consideration. In fact most contractors’ quantity surveyors, estimators and commercial managers do not spend a significant amount of time on these matters until and unless it becomes an issue or dispute. In reality having good practical working knowledge on such matters can be helpful for all parties including those representing the Employer for reasons articulated above. Very often the large differentiating factors lie in minute details.




Koon Tak Hong Consulting Private Limited