Land owners or real estate developers routinely carry out feasibility studies on various property development projects to assess their potential profitability. The scope of these feasibility studies may vary according to specific objectives but in general focuses on risk factors impacting costs and revenue. These assessments are often described as ‘upstream development’ activities. Once the proposal is approved, such project proceeds to execution phase which may involve land acquisition, securing fundings and ultimately procuring contractors to carry out construction works. It is uncommon for contractors to intentionally assume risks stemming from upstream development decisions even if the construction contract is procured under ‘design and build’ (D&B) arrangement with single point responsibility. This article examines whether D&B contractor may inadvertently be made liable within the context of development control and planning permission regulatory landscape of Singapore. To better appreciate this matter, it is critical for one to understand principal legislations relevant to planning permissions.
Development Control (DC) submission and Building Plan (BP) submission represent two major upstream development milestones for most building and construction projects in Singapore. In general DC submission is the initial planning permission administered mainly by Urban Redevelopment Authority (URA) to ensure that the proposed development complies with various land use and zoning parameters as defined under the prevailing Master Plan. Upon grant of Written Permission (WP) from the URA, property developer then proceeds with BP submission administered by Building and Construction Authority (BCA) to ensure that the proposed architectural and structural design complies with various safety standards, code of practices, amongst others. The completion and approval of BP submission allow commencement of construction works on site. In general, DC and BP submissions are considered upstream development activities that are part and parcel of regulatory compliance initiatives led by a Qualified Person (QP) who is either a registered Architect or Engineer hired by the property developer. These are upstream development activities that are integral to the property developer’s commercial feasibility study. These regulatory clearance processes reveals land use intensity, zoning classifications etc which influences potential development revenue. It also includes development restrictions due to environmental standards, compatibility with surrounding properties, heritage conservation restrictions, long term urban planning considerations etc all of which may increase development cost and reduce saleable or rentable areas. Therefore successfully navigating these regulatory processes not only fulfils legal requirements, but it also provides a strong indication on financial feasibility of the proposed development project. In other words, these regulatory processes are essential yardsticks on the ‘bankability’ of the development project. In fact, in order to facilitate a quick feasibility study, the URA provides an ‘outline application’ to allow the property developer to carry out a preliminary assessment on its initial development ideas before lodging any formal application.
When a contractor enters into a D&B standard conditions of contract it is not uncommon to find various ‘all-encompassing’ law complying provisions. There are provisions that may require the D&B contractor to comply with ‘statutory requirements, regulations, bye-laws and obtain all necessary permits, licenses or approvals from the relevant authorities for the design, development, construction as well as completion of the works’. Further the D&B contractor may also be required to be fully responsible for the suitability, adequacy, integrity etc of its design proposal. Additionally, the D&B contractor may be required to take a step further by ensuring that its proposal shall rectify any inadequacy, insufficiency, unsuitability of the Employer’s requirements such that the ultimate design from the D&B contractor is fit for its intended purpose. These all-encompassing provisions do not appear to delineate between upstream development activities and execution phase activities. There are also no distinctions made between construction activities and planning permission activities.
Therefore the next few sections of this article will delve into the specifics of DC and BP submissions to examine if the D&B contractor is effectively liable for these requirements. In particular whether the D&B contractor could be made an independent contractor of the developer for purposes of fulfilling design requirements under DC and BP submissions? If and when design changes occur mid stream of construction in order to rectify prior non compliances with DC and BP submissions, is the D&B contractor entitled to additional payment and/or extension of time? These line of queries may be relevant to D&B contractors in Singapore in better understanding their contract and commercial risks.
Development Control (DC) Submissions And Planning Act 1998
Whilst Planning Act had been subject to legislation amendments several times since 1998, it is still widely known and referred to as the Planning Act 1998. This is the principal legislation behind DC submission. Any breaches of requirements under DC submissions may consequently violate parts of Planning Act 1998. The burden of compliance of Planning Act 1998 is mainly placed on the land owner as opposed to the contractor or tenant. By way of example under its Section 12, there shall not be any development works on any land without planning permission. Under Section 12A there is a presumption that the land owner had permitted its contractor to carry out unauthorised work and the land owner could be convicted regardless of whether or not the contractor had been charged and convicted under this Act. Therefore enforcement actions are targeted on the land owner.
Although burden of compliance is mainly placed on the land owner, the nature of DC submissions is highly technical such that the requirements generally exceed the knowledge and competence expected of a lay person. There are various architectural and engineering considerations that may have implications on urban planning visual amenity of the surrounding, vehicular load on impacted roads, fire safety provision for building occupants, pollution and waste management considerations, proposed drainage and sewage interfacing with existing services, provision for public access for development involving waterbodies etc. Therefore most projects have developmental ripple effects beyond its land boundary. In this regard, initial ‘clearances’ ought to be obtained from various competent authorities such as National Parks (NParks), Public Utilities Board (PUB), Land Transport Authority (LTA), National Environmental Agency (NEA), Singapore Civil Defence Force (SCDF) etc prior to formal application with the URA.
In view of multi disciplinary technical complexities, land owner is required to appoint a ‘Qualified Person’ (QP) which as alluded to earlier refers to a registered architect or engineer pursuant to Section 13 of the Act. This is likely to be a direct appointment of the QP by the land owner seeking planning permission, rather than appointing a contractor with a QP as its subcontractor (or rather sub-consultant). In other words, indirect appointment of QP (say through a D&B contractor) is unlikely to satisfy the requirements under Planning Act 1998. Further, any QP that violates his duties set out under Section 24A of the Act may be liable for significant fine and imprisonment or both upon convictions. Pursuant to Section 13(3) of the Act where the QP ceased to be appointed for any reason, the developer shall appoint a replacement QP without delay and notify the competent authority within seven days of vacancy in QP position. Failure to notify as required shall render the developer liable to a fine. These circumstances further suggest that the QP shall be appointed directly by the land owner/ developer since the developer is unlikely to be able to discharge its responsibilities effectively where the QP appointment lacks contract privity. The upshot to the observations above is that there is a limit to which a land owner or developer could outsource and distant itself from these obligations to an independent contractor except where it is expressly provided for under Planning Act 1998. Direct appointment of an QP to facilitate compliances of various DC submission requirements appears critical under this Act.
Under D&B contract, the developer typically provides its design brief or Employer’s requirements in the form of performance based specification along with initial concept design to communicate its development objectives. The development objectives are principally derived from the approved feasibility study leading to the execution of this project. The selected D&B contractor is typically one that is able to best fulfil those objectives via the most cost effective approach. Fully developed design with highly detailed prescriptive specifications are typically absent at the point when the D&B contractor is issued with such design brief. However, there are fairly detail and prescriptive design requirements that had to be satisfied as part of the requirements included in DC submissions. Whilst this article will not be able to fully and exhaustively cover all prescriptive requirements included in DC submissions, the following observations and examples may be instructive. One of the main objectives in DC submission is ensuring that the development’s Gross Floor Area (GFA) does not exceed the maximum allowable guided by Gross Plot Ratio specified in the prevailing Master Plan. On the other hand purely from its commercial interest, the developer is naturally incentivised to build to the maximum allowable GFA. Therefore an accurate and precise computation of GFA is one of the design development focal points for both regulatory and commercial reasons. These computations can be highly specific involving design details that may not necessarily be available at the initial concept design. The GFA for example is measured up to half thickness of glass of the outermost vertical facade element such as curtain wall. Such facade details are not available under initial concept design. By way of further example, service ducts that are slabbed over at every floor is included as GFA. However if a non load bearing fire stop material is used to compartmentalise the service duct in lieu of concrete slab, then such areas of replacement material is excluded from GFA. Again such design details are not available under initial concept design. Therefore the computations of GFA are closely monitored during design development such as selection of construction materials as well as adapting design to cater to any unforeseeable site circumstances. The risks of any deviations beyond maximum allowable GFA could potentially violate DC requirements and give rise to significant delay and costs overrun due to remedial efforts. Consequently one key issue of consideration is how such risks ought to be allocated under D&B contract.
The DC submission concludes with the issuance of WP by the URA which then marks the commencement of BP submissions administered by the BCA.
Building Plan (BP) Submissions And Building Control Act
As alluded to earlier, most design details necessary for an accurate computation of GFA are not available in design brief / Employer’s requirements provided for under D&B contract. BP submission is a process by which these details are progressively developed whereby various types of drawings are produced including site plans, layout plans, elevation views, reflected ceiling plans, cross sectional view drawings etc. These drawings provide different perspectives of what shall be constructed on site whilst maintaining the approved parameters under DC submissions. By way of illustrations, architects and engineers would need to develop detail design within the confines of say floor to floor height of typical storey of 3.6m, set backs of building from prescribed distance from road buffer and common boundary, maximum number of storeys for the building based on Gross Plot Ratio, non encroachment into any established road buffer and drainage buffer within the site area etc. In compliance with these design parameters, the designers are required to also fulfil performance based building codes set out under Building Control Regulations. Just as Planning Act 1998 is the principal legislation behind DC submissions, Building Control Act (Cap 29) is likewise the principal legislation behind BP submissions. In order to assist with architects, an ‘Approved Document’ found in BCA’s website provides examples of acceptable solutions to fulfil performance based building codes. In a nutshell, whilst DC submissions are akin to ‘macro view’ on the project and how it visually blends with its immediate surrounding, BP submissions transitions to ‘micro view’ by focusing on how the initial concept design is further developed to cater to space planning, optimisation of flow of building occupants, structural integrity, energy efficiency etc through choice of materials, layout plans amongst others.
From regulatory clearance perspective, the BCA in particular its Building Plan Department (BPD) administers BP submission. As design development during BP submission are likely to interface with other statutory authorities e.g. Fire Safety And Shelter Department (FSSD) under SCDF, Central Building Plans Unit (CBPU) under NEA, LTA etc, there is a provision for the QP to obtain the relevant clearances from these authorities otherwise known as Technical Departments (TD). There was also a similar process under DC submission except that as regards BP submission, the consultation is more specific based on detail drawings. Once clearances from TD are in place including compliance with Building Control Regulations, the QP is now in the position to make a formal BP submission to BCA for approval, of which the QP is required to self declare that there is no deviation from previously approved DC plan per WP. The approval of BP permits the contractor to commence construction works on site.
The above could be summarised in the following contract and procurement view points. Firstly, BP submission marks the process by which initial concept design is developed to schematic design and subsequently to tender drawings for various subcontract packages. In other words apart from ensuring no deviation from approved DC parameters, the estimated construction costs are closely monitored in this phase to ensure that it does not exceed budgetary sums allocated. Secondly, other non architectural disciplines such as structural engineering, mechanical and electrical engineering, facade engineering, interior design, lighting and acoustic design etc are substantively developed during this phase. Therefore risk of inter-disciplinary design conflicts increases significantly in this phase. In other words, various ‘goals and aspirations’ previously included in feasibility study and subsequently approved in DC submissions are subject to reality test in BP submission as design detail unfolds. Decisions on trade off are made in this phase because certain proposals that may sound ideal on paper may not be feasible due to various realities such as space constrains, budgetary restrictions, long lead delivery schedule, unforeseen site conditions, buildability considerations etc. These issues are traditionally within the scope of expertise of seasoned main contractors or general builders.
One notable difference between DC submission and BP submission can be found in Section 8 of Building Control Act which sets out the duties of developers. Unlike the Planning Act which purportedly require developer to directly appoint the QP, Section 8(1) of Building Control Act allows developer of building works to appoint an appropriate QP to prepare the plans of the building works pursuant to this Act ‘if no such person is appointed by the builder’. Such ‘builder’ in turn is defined based on its licensing requirement under Part 5A of such Act. In other words, the developer may not necessarily need to directly appoint the QP but could instead ‘cause’ an appropriately qualified QP to be appointed. Based on such interpretation, the enforcement action could be on the QP as well as the appointing D&B contractor if it is established that the developer had discharged its duties reasonably and satisfactorily.
DC And BP Submissions Risks Under D&B Contract
Based on the preceding two sections of this article, it would appear that the developer could effectively outsource the fulfilment of the project’s BP requirements to the D&B contractor without much difficulties unlike DC requirements. In an ideal world the approved design parameters under DC requirements could be included in the Employer’s requirements/ design brief as part of D&B tender document. These requirements should therefore be further developed by the selected D&B contractor as part of its design responsibilities and pursuant to BP requirements. These arrangements however will need to first consider and address the following contractual risks.
Firstly, as alluded to earlier even with the grant of WP signifying approval of DC submissions, design development for purposes of BP submissions may potentially deviate from the approved design parameters under DC. This is because the D&B contractor is unlikely to be engaged at the point of DC submissions since the initial concept design was rather fluid to be meaningfully priced by the contractor for the purposes of entering into an agreement. Therefore the design development under BP submissions may be ‘insulated’ from the design intent under DC submissions. In order to address this concern, some may propose that the QP appointed by the developer to facilitate DC submission could be ‘novated’ to the D&B contractor to ensure seamless transfer of design intent and background knowledge to the selected D&B contractor in the interest of single point responsibility. However, pursuant to Section 19A of Planning Act 1998, the developer is also required to appoint a QP to supervise the development works. Such supervision responsibility is distinct from Section 13 of Planning Act 1998 relating to application for planning permission which was mentioned earlier. Most developers understandably favour having the same QP for both planning permission application under Section 13 of the Act and supervision of development under Section 19 of the Act. This ensures a comprehensive check and balance in that the detail execution of the development works conforms with initial concept design. After all such concept design formed the financial basis of the approved feasibility study. In other words any ‘QP novation’ strategy has to be balanced with considerations relating to Section 19A of Planning Act 1998
Secondly, the initial concept design that underpins the DC approval via WP is unlikely to be sufficiently substantive due to potential time pressure on the developer. Upon acquisition of land, the developer has five years to develop and sell all residential units failing which it will face significant financial penalties such as Additional Buyer’s Stamp Duty as well as property tax on unsold units based on its annual value. These are measures aim at discouraging property developers from hoarding land and time their development initiatives exclusively during market upswing. Whilst it could have been contractually prudent for the QP to further develop its initial concept design post DC approval to facilitate a more meaningful pricing by the D&B contract tenderers, time is usually of the essence. Such fast track timeline often contributes to the lack of specificity in the design brief under D&B contract.
In view of the above, a D&B contract tenderer often face difficulties in meaningfully pricing the proposed works due to absence of prescriptive design requirements. By the same token, ambiguities in scope of works will invariably give rise to uncertainty in basis of tender pricing which makes it difficult for the developer to carry out any tender costs comparison. Therefore when parties negotiate through these procurement risks, they are essentially figuring out the optimal way to allocate such risks amongst themselves. Ultimately one should appreciate the anticipated time and costs implications of these risks and determine which party is in the best position to assume such risks. If the developer believes that the aforementioned ‘all-encompassing’ law complying provision should transfer all risks to the D&B contractor including that of DC requirements, this may be at a disproportionate costs even if accepted by the D&B contractor.
Risks Allocation Under D&B Contract
Risk and cost generally have a positive correlation whereby contract sum is typically higher if there are significant uncertainties in scope of works and project schedule. Therefore both the Employer and D&B contractor ought to recognise that they have common interest in ensuring specificity in Employer’s requirement so as to secure competitive pricing. Assuming the intention is to bifurcate DC submission and BP submission whereby the latter is outsourced to the D&B contractor upon completion of the former by the developer, the following risks should be considered and negotiated accordingly.
As a general rule, risks are usually allocated to the party that has the technical advantage of managing and mitigating those risks. As regards BP submission, neither party are objectively in the better position to dictate and control the speed at which various statutory authorities (or TD) could respond and approve the associated design submissions. Apart from the fact that the approvers are third party authorities of which neither party has much influence over, the Building Control Regulations are based on performance based building codes with no prescriptive requirements other than precedent of acceptable solutions for reference. To the extent that design include novel and creative ideas, approvals may not be instantaneous. If design development activities are included in ‘Contract Period’ or within the contractual ‘Time For Completion’ thereby merging both design and construction activities within a singular duration, any delay to BP approvals may give rise to claims for extension of time or liability for liquidated damages. In reality most standard conditions of contract for D&B include provisions that either (1) require the Architect or the Employer’s agent to approve or accept certain design drawings prior to submission to the relevant authorities or (2) that such approval should be sought before commencement of permanent works on site. Therefore there is often a circular argument over whether delay in design approval is partially contributed by the Employer and its agent or wholly due to contractor’s negligence in design development. In a bid to reduce such scope of contention, parties could consider excluding design activities from ‘Time for Completion’ or ‘Contract Period’, and to only instruct the commencement of these contractual durations based on the extent to which BP requirements had either been substantively complied or wholly concluded. In other words, any delay to statutory approval is considered ‘neutral’ event where neither party is liable for damages (either in the form of loss and expense or liquidated damages). After all, any permit to commence works on site is usually issued by the BCA upon approval of BP based on joint application by the QP, builder and the developer.
Admittedly the above ‘bifurcation arrangement’ is a departure from default provisions found under most standard conditions of contract for D&B such as PSSCOC and REDAS form. Therefore this requires particular conditions to the extent that parties agree with such arrangement. The Employer may also view such ‘concession’ to be diluting the merit of D&B where design and construction activities are often overlapped for timeline efficiency. However it should also be noted that even with BP approval, there are continuous and on-going design development activities that are not subject to statutory approval such as production of construction drawings, approval of sample board and coordination of services during construction period. These regular design development activities are under the D&B contractor’s risk and responsibility in case of delay. Again such bifurcation of statutory compliance requirement may be necessary in exchange for a reasonably priced contract sum. In general specificity in Employer’s requirement and equity in administration of contract reduces risk pricing.
Conclusion
Most D&B contract forms are not drafted by expressly considering nuances in prevailing planning permission regime and statutory approval on design development. These issues are generally considered upstream development activities pertinent to financial feasibility study as it intersects with urban planning requirements. In reality most contractual risks are legacy of upstream decisions that are left unmitigated. In fact risks do not automatically dissipate just because one chooses to intellectually structure development activities into so called ‘upstream’ or ‘downstream’. Risks left unmitigated usually trickles down the contractual supply chain.
Koon Tak Hong Consulting Private Limited
