This is Part 1 of an article series comparing two of the more commonly used standard forms of construction contract in Malaysia i.e. Agreement and Conditions of ‘Pertubuhan Akitek Malaysia’ (PAM) 2018 and Standard Form of Contract of ‘Jabatan Kerja Raya’ (JKR) or Public Works Department (PWD). In order to ensure a like for like comparison, the basis of procurement pathway shall be lump sum contract without quantities i.e. PAM (Without Quantities) and PWD/ JKR Form 203 (with drawings and specifications forming part of the contract). It should be noted that contract forms are usually organised based on procurement pathways of choice because it fundamentally affects some of the key clauses e.g. variations, risks allocations, basis of contract sum etc. 

Liquidated damages is one of the more commonly encountered provision in construction contract. It is a genuine pre-estimate of damages that the culpable party is liable for in case of delay in completion. There are a few aspects of liquidated damages that are unique and notable in its use in Malaysia. Firstly, although Malaysia’s legal system is heavily modelled after English common law, its contracts law is codified under Contracts Act 1950. Therefore construction contracts in Malaysia are subject to Contracts Act 1950, of which there are certain parts of this legislation that are applicable to liquidated damages provision in particular its Section 75. The effect of Section 75 is such that the amount stipulated as liquidated damages in construction contract invariably ends up as the maximum cap or ceiling amount that the defaulting party is liable for. Therefore for those who are responsible for calculating the sum for liquidated damages such as consultant quantity surveyors, they ought to be aware of the legal implication of the arithmetical exercise. In reality, most prudent consultant quantity surveyors will estimate liquidated damages based on a few applicable methods e.g. revenue loss approach, cost of capital employed approach etc and thereafter propose a sum based on an average of different methods of calculation. The reason is because whilst the sum ought to accurately reflect the actual loss projected, it should not be so financially overwhelming that it may end up inflating tender sums offered or even outright rejections to participate in tender. In other words, the legal effects of Section 75 of Contracts Act 1950 may not necessarily be in sync with the commercial practice in the industry. This is because the sums indicated as liquidated damages in tender document may not have intended to reflect the maximum amount of loss that may potentially be incurred by the aggrieved party. What will be evident in comparing PAM and JKR contract, is that the wordings used for non completion damages are influenced by Section 75 of Contracts Act, which will be elaborated further in this article.

PAM contracts are generally used for private sector projects whilst JKR contracts are mainly to cater to public sector construction works. Such difference in nature of project funding may have significant impact on how delay could impact the project and associated damages that may be incurred. Whilst private sector projects tend to be profit driven, public sector projects may not necessarily be commercially oriented. There may not be any revenue generating reasons behind constructing a tunnel or bridge or any publicly funded infrastructure. Such difference in financial nature should reasonably have an effect on liquidated damages provision including the application of Section 75 of Contracts Act. Such awareness may be helpful in tender negotiation for both public and private sector projects.

When the relevant certification provisions under PAM and JKR contracts are compared, it is evident that there are quite distinct characteristics. Notwithstanding that, most contractors that are involved in projects using both contract forms tend to adopt an identical method of contract administration despite these distinctions. The next few sections of this article can hopefully raise awareness on the need for bespoke contract administration practices based on the characteristics of the contract form in used.

Section 75 of Contracts Act 1950 

Section 75 of Contracts Act 1950 deals with compensation for breach of contract where penalty is stipulated. In essence this provision states that in case of contract breach where a stipulated sum is payable, the claimant is entitled to a ‘reasonable compensation not exceeding such amount’, regardless of whether actual damage had been proven. In 2019 the Federal Court clarified the legal position on Section 75 via its decision on ‘Cubic Electronics Sdn Bhd v MARS Telecommunication Sdn Bhd’. For the purposes of this article, three legal findings are particularly relevant namely (1) the amount claimable is subject to the maximum amount stated in the contract, (2) there is no legal requirement for the claimant to prove its actual loss in order to demonstrate what is reasonable compensation (3) the burden of proof is on the defendant to show that the sum stipulated is unreasonable. These principles are relevant because all contracts in Malaysia, including PAM and JKR are subject to Contracts Act 1950 including the court’s interpretation of the relevant parts of the Act. Whilst these binding principles are not expressly spelt out under the liquidated damages clauses of PAM and JKR contracts, these continue to be binding on the contracting parties. Therefore any review of any liquidated damages clause under construction contract forms will not be complete without an understanding of Section 75 of Contracts Act 1950.

Clause 40 of JKR contract deals with ‘Damages For Non-Completion’ which essentially refers to liquidated damages. In general both Clauses 40.1 and 40.2 stipulate the certification procedures prior to any recovery of liquidated damages by the Employer. These clauses do not deal with any matters relating to the sum stipulated for liquidated damages including the burden of proving that such amount is reasonable compensation or the basis of pre-estimation for delay damages. Therefore the drafting of Clause 40 of JKR contract steer clear from the application of Section 75 of Contracts Act 1950 for avoidance of contradiction or conflict. On the other hand, the PAM contract takes quite a different approach. Under Clause 22 of PAM contract on Damages For Non Completion, apart from setting out the certification procedures, it also deals with the issue of burden of proof. Clause 22.2 in particular states amongst others that ‘the parties agree that by entering into the contract, the contractor shall pay to the Employer the said amount, if the same becomes due without the need for the Employer to prove his loss and/or damage unless the contrary is proven by the contractor’. There are a few observations arising from Clause 22.2 of PAM. Firstly, by virtue of the application of Section 75 of Contracts Act 1950 including the Federal Court’s findings in 2019, the Employer (being the claimant for liquidated damages) is already not required to prove its actual loss in order to demonstrate what is reasonable compensation. However such relief appear to be waived ‘if the contractor is able to prove that the sum stipulated is not fair and reasonable’. It should be noted that since the version of PAM contract referred to in this article is dated 2018 (prior to the 2019 decision by the Federal Court), the general position back then was that the claimant must prove the actual damage he has suffered unless its case falls under limited situation where it is difficult to assess actual damage or losses. In other words, the conditions in Clause 22.2 was useful prior to Federal Court’s findings in 2019. However in view of the 2019 decision, the burden of proof is shifted to the contractor (respondent) that the sum is unreasonable. Therefore the unintended consequence of Clause 22.2 is such that the Employer may be forced to resume shouldering its original burden of proof as soon as there is any attempt by the contractor to challenge the stipulated sum. In the absence of the relevant wordings in Clause 22.2, the burden of proof remains firmly with the contractor and it is up to the contractor to satisfy the court of its case on the balance of probability. 

For the Employers who are contractually savvy in utilising PAM contract, it is likely that particular conditions may be introduced to amend Clause 22.2 in light of Federal Court’s findings in 2019. On the other hand, the original unamended Clause 22.2 may now be favourable to the contractors’ position. However from a practical perspective, contractors who enter into  construction contract that utilises PAM standard conditions would be deemed to have accepted the proposed liquidated damages. If the contractor took issue with the proposed liquidated damages included in the tender document, its tender offer would invariably contain certain qualifications or exclusions to the relevant liquidated damages. So how is it that a contractor that was deemed to have ‘accepted’ the liquidated damages, perform an inexplicable volte-face on the reasonableness of liquidated damages as soon as culpable delay is in issue? This sudden change in position may not sit well with certain arbitral tribunal in case of legal proceedings. Out of abundant of caution it may be prudent for the contractor to include statements in its tender offer that its position on liquidated damages is ‘without prejudice to Clause 22.2 of the PAM contract’. 

Certification Mechanism Under Clause 22 of PAM And Clause 40 of JKR

Although it may be easy to specify a sum payable as liquidated damages in case of delay, the actual recovery of such compensation may not be as straightforward. There are a few reasons for this. Firstly, liquidated damages are usually expressed as sum payable per calendar day i.e. rate of damages. In order to ascertain the quantum of damages, it is necessary to first determine the extent of delay to project completion. Thereafter one should establish whether the contractor is entitled to any extension of time for the period of project delay. The contractor may not be culpable for the entire period of project delay if the delaying events are ‘excusable’. The contractor’s entitlement to any extension of time in turn is dependent on, amongst others its compliance with condition precedents included in the agreement. In essence, the Employer is only authorised to recover liquidated damages for the period of delay in which the contractor is culpable. Beyond these sequence of steps, there may be added complexities if the contractor’s employment is terminated prior to project completion. Given the variety of delay analysis issues that require assessments, most contract forms including PAM and JKR set out its own unique certification mechanism to regulate the manner in which the quantum for liquidated damages that the contractor may be liable  for could be determined. PAM and JKR contract have fairly different certification mechanism which will be examined in the immediate few paragraphs below.

Clause 40.1 of JKR contract states as follow – ‘If the contractor fails to complete the Works by the Date for Completion or within any extended time granted pursuant to Clause 43, the [Superintending Officer or SO] shall issue a Certificate of Non-Completion to the Contractor. Prior to the issuance of the Certificate of Non-Completion, the SO shall issue a notice to the Contractor informing the Contractor the intention of the Government to impose Liquidated and Ascertained Damages to the Contractor if the Contractor fails to complete the Works by the Date of Completion or within any extended time granted’. The subsequent first half of Clause 40.2 is particularly relevant – ‘Upon issuance of the Certificate of Non-Completion, the Government shall be entitled to recover from the Contractor Liquidated and Ascertained Damages calculated at the rate stated in Appendix from the period of the issuance of the Certificate of Non-Completion to the date of issuance of Certificate of Practical Completion or the date of termination of this Contract’. 

The following hypothetical example may help to illustrate the application of certification mechanism for liquidated damages. Let us assume a project with liquidated damages of $1000/day that commenced on 1 January 2024 and scheduled for practical completion on 31 December 2024. Suppose part of the contractor’s works were rejected on 1 December 2024 resulting in delay due to various ‘remedial works’ which were disputed by the contractor.

Under the Clause 40.2 of JKR’s certification mechanism, the recovery of liquidated damages shall be calculated from the period of the issuance of Certificate of Non-Completion and that such recovery can only be effected ‘upon issuance’ of Certificate of Non-Completion. In other words, the date of issuance of Certificate of Non-Completion shall fall on 31 December 2024 which was the original Practical Completion Date. There are several glaring implications in this regard. Whilst the parties do not dispute that the project is delayed, it may not be immediately clear whether the contractor is culpable on 31 December 2024. The parties may dispute over the wordings in the technical specifications and whether the works in contention were rightly rejected. The contractor may take the position that the ‘remedial works’ were variation works that entitle additional payment and extension of time. These disputes may take time to crystallise, assessed, reviewed and resolved pursuant to Clause 65 of JKR dispute resolution provision. It should also be noted that under Clause 43 of JKR contract, there are no time restrictions imposed for duration taken for any assessment of extension of time. Notwithstanding that there are likely various outstanding matters that are pending resolution such as the establishment of culpability of the contractor, the Employer shall be entitled to commence recovery of liquidated damages on 31 December 2024. In fact, according to Clause 40.1, the Superintending Officer shall inform the contractor via a written notice prior to the issuance of Certificate of Non-Completion. In other words, such written notice shall be issued any time before 31 December 2024 which indicate that the decision to recover liquidated damages shall be made even before the original Practical Completion Date. The date of issuance of Practical Completion Certificate may not be clear immediately after 31 December 2024, although there may be certain projections made based on revised construction programme. It is therefore entirely possible that the recovery of liquidated damages, on a monthly basis of an average of $30,000/month can be effected progressively prior to the ascertainment of the final quantum of liquidated damages. It is perhaps fair to say that most contractors may not be comfortable to have its progress payments be subject to deductions (or possibly to have its performance bond called) when its culpability is not even ascertained even on an interim basis. This is perhaps an area of negotiation during tender as regards potential amendments to the relevant JKR contract clauses.   

Although there may be cause for concern for the contractor based on the JKR’s certification regime described above, it is also fair to say that the contractor is not completely vulnerable. There are provisions within JKR contract that allow the contractor to mitigate its risk. It is important to note that the contractor is usually in a better position (relative to the Employer) in detecting delaying events in advance and producing documentations to supports its case for any extension of time. This is largely due to its responsibility for the overall management and supervision of the works on site. Under Clause 43.1 of JKR, the contractor shall notify the certifier when it becomes apparent of any delay to the progress of works. Further, the certifier may grant extension of time as soon as he is able to estimate the length of delay, which is dependent on information available for his assessment. In this regard there are usually legal requirements for the certifier to act fairly and reasonably. In other words, the contractor could utilise its access to contemporaneous records and be proactive in mitigating risk where possible.  

The certification mechanism for PAM can be found in Clause 22.1 of which the first half of this provision states as follow – ‘If the Contractor fails to complete the Works by the Completion Date, and the Architect is of the opinion that the same ought reasonably to have been completed, the Architect shall issue a Certificate of Non-Completion. Upon issuance of the Certificate of Non-Completion, the Contractor shall pay or allow to the Employer a sum calculated at the rate stated in the Appendix as Liquidated Damages for the period from the Completion Date to the date of Practical Completion.’ It should be noted that the term ‘Completion Date’ is defined as inclusive of both the original practical completion date or any extended date thereof. Whilst this part of Clause 22.1 of PAM appear to resemble the essence of the previously discussed JKR provisions, there are certain subtle but important differences. Firstly, the contractor shall be made liable for liquidated damages upon the occurrence of two events namely (1) if the contractor fails to complete the works by the Completion Date and (2) the Architect is of the opinion that the works ought reasonably to have been completed. The second event is arguably more notable because it is an indication that the certifier had already made an in-principle assessment that the delay is non excusable, i.e. the contractor is culpable and therefore not entitled to any extension of time. This requirement is not expressly provided for under JKR contract, which may be a cause for concern for the contractor for reasons provided above. Secondly, the liquidated damages is not accrued from the date of issuance of Certificate of Non-Completion but rather from Completion Date. Therefore using the hypothetical example above, it is entirely possible for the certifier to exercise some flexibility by issuing the Certificate of Non-Completion after 31 December 2024. The timing of issuance of such certificate is crucial because it ‘triggers’ the contractor’s liability for liquidated damages, which is an identical feature between Clause 40.2 of JKR and Clause 22.1 of PAM. Where the certifier is accorded flexibility to discharge its certification function later, such latitude facilitates a proper assessment for any entitlement to extension of time. Therefore the contractor may not be liable for liquidated damages prior to being determined as culpable for the delay. It is also noteworthy that unlike JKR contract, the PAM contract under its Clause 22.1 does not allow the Architect to take into account the imposition of liquidated damages in its issuance of payment certificates as well as any set off procedures pursuant to Clause 30.4. This provides considerable cashflow relief to the contractors in contention over culpability of project delay.

Liquidated Damages After Termination

Under English common law, the general position is that liquidated damages is not payable beyond termination of the contractor’s employment under the contract unless there is express agreement between the parties. This is because the contractor has no control over the project completion upon its termination and the Employer could enter into a fresh liquidated damages agreement with the replacement contractor. Clause 40.2 in JKR contract appear to affirm this position given that liquidated damages shall be calculated from the period of the issuance of the Certificate of Non-Completion to the date of issuance of Certificate of Practical Completion or ‘the date of termination of this Contract’. Therefore, it is highly likely that if the contractor’s employment is terminated prior to practical completion, the liquidated damages is accruable until the date of termination of the contract. It should be noted that whilst delay related liquidated damages cease to accrue, other termination related costs and damages continue to apply pursuant to Clause 55 of JKR contract. 

PAM contract appears to take a different position in this regard. Clause 22.1 of PAM states amongst others that liquidated damages shall be recoverable from the Completion Date to the date of ‘Practical Completion’. Although there is no reference to the phrase ‘date of termination’ as found in JKR contract, there is a reference to a defined term of ‘Practical Completion’. Under Article 7(aq) of PAM, ‘Practical Completion’ means the state of completion described in Clause 15.1 which refers to the ‘Contractor’ making an undertaking to complete all minor works that do not prevent the Employer from making full use of the Works for its intended purpose. Although such definition is not inclusive of practical completion by replacement contractor or third party contractor, there is no express agreement between parties for the liquidated damages to cease to accrue after termination. Further, Clause 25.4(d) of PAM which deals with determination of contractor’s employment by the Employer states that the contractor shall allow or pay to the Employer all cost incurred to complete the works including all loss and/or expense suffered until completion of the works by replacement contractor under Clause 25.4(a).  This broad definition of loss and/or expense is likely to include delay related losses i.e. liquidated damages.

Conclusion

It is evident that both PAM and JKR contract differ quite significantly on application of liquidated damages provision. These differences relate to, amongst others the certification mechanism and the extent to which the Employer bears the burden of proof of reasonable compensation. These issues are often overlooked as compared to the sum or amount stipulated as liquidated damages which typically draws more attention during tender. An understanding of such differences may be helpful for effective negotiation during procurement as well as providing clarity to the ways in which contracts ought to be administered.




Koon Tak Hong Consulting Private Limited

This is Part 2 of an article series examining acceleration of works for construction project both from a contractual and commercial perspectives. In general acceleration of works refers to bringing forward original practical completion date(s) through a combination of measures such as deployment of additional resources, re-sequencing of works, revision in design to adopt more time efficient specifications etc. In Singapore, most standard conditions of contract do not have provisions that allow the Employer and its agent to issue instruction for acceleration of works, apart from the Public Sector Standard Conditions of Contract (PSSCOC). This article series highlights the advantages of effecting acceleration by way of supplemental agreement, i.e. for parties to vary certain key terms of their existing contract. In Part 1 of this series, some of the key terms that ought to be included in such supplemental agreement were examined. In Part 2 of this article series, other pertinent issues of acceleration of works will be reviewed. Although acceleration of works is generally considered a schedule related matter, it is in reality a multi-faceted issue. When works are accelerated it may cause ripple effects on other contractual and commercial issues including changes to existing unit rates and pricing, logistical/ phasing considerations, contract administration of existing delaying events etc. Parties should consciously address these key issues during negotiation, as existing conditions of contract do not typically provide the required level of clarity on the consequences arising from acceleration of work. This article will address these consequential issues in further detail under subsequent sections of this article. 

For avoidance of doubt, the acceleration of works discussed in this article series refers to an intentional schedule amendment initiated by the Employer for its own benefit where there is an in-principle agreement that the contractor ought to be compensated for these extra over efforts. This is different from other circumstances such as ‘constructive acceleration’ or ‘delay mitigation’ where the contractor decides to expedite programme by its own volition in response to schedule overrun, rightly or wrongly. In such cases, there is generally a dispute over whether additional payment to the contractor is warranted. This is outside the scope of this article series. 

Acceleration Of Works – Implications On Existing Pricing And Unit Rates

As regards works that are subject to acceleration, should there be any adjustments made to its pricing and unit rates? Similarly, should there be any commercial adjustments for the remaining works that are not part of the accelerative measures? Whilst there is a general agreement that the contractor is entitled to additional payment for its accelerative measures, it is often debatable as regards how such amount should be derived. The first method is that the existing unit rates and prices of the accelerated works should be adjusted in order to calculate any increase in contract sum. An alternative method is that the acceleration cost should be calculated exclusively based on the additional resources to support the acceleration effort without any amendment to existing pricing and unit rate. The difference between these two methods is that the former approach involves a permanent change in pricing and unit rates. On the other hand, the prices and unit rates remain unchanged under the latter approach. To better understand the merits of these contrasting methods, one should examine the commercial basis of tender price which forms the original contract sum.

When a contractor submits its tender offer, the unit rates and prices are usually structured based on a defined scope of works to be completed within a specified time for completion. In other words, the productivity of its resources influences the basis of its pricing. A crew of workers working round the clock incurring overtime charges based on an ambitious timeline will clearly be more costly than the same crew of workers working based on an ordinary time frame. Whenever the existing scope of works are varied, the unit rates used to value such variation works may be adjusted if such works are executed under different conditions. Whilst acceleration of works may not necessarily be considered as ‘variation’ depending on the contract form used, there is a compelling argument that the contractor should be entitled to fair allowances to its existing pricing if acceleration changes the site conditions. This is particularly so if the change in site conditions affects not just the accelerated works but also other remaining works. By way of illustration, where accelerative measures involve additional work shifts resulting in logistical and resource congestion on site, the increase in work productivity changes the basis of the original pricing by the contractor. Certain shared site resources such as scaffolding, site storage, usage of shared plant and equipment etc which are typically provided for under preliminaries cost may be scarce during any surge in construction activities. The increase in demand drives up unit rates and prices to the extent that these uptick in construction activities extends throughout the construction duration. If and when there are any variations works instructed above and beyond the accelerative measures, these variations are carried out under an environment where there is a pre-existing surge in construction activities. It follows that the valuation of such variation works should be on the basis of adjusted unit rates and prices to reflect the stretched resources.

On the other hand, the Employer and its consultants may argue that the contractor’s entitlement to acceleration cost should be calculated on the basis of an exclusive lump sum. In other words, if and when there are any additional works instructed during the accelerative efforts, such variations shall be valued based on unamended existing unit rates and prices. The acceleration of works should not be an excuse for the contractor to unravel an existing commercial agreement, particularly in the absence of competitive bid. Any  remuneration arising from acceleration of works should included in the lump sum acceleration cost without any commercial spillover to other part of the works. 

   Whilst there are merits to the two competing reasonings given above, it should be noted the Employer has limited room to manoeuvre particularly if the requirement to accelerate is non negotiable. As mentioned in Part 1 of this article series, any incremental in contract sum should be balanced with omission in preliminaries cost by virtue of reduction in construction period due to acceleration. Further, any increase in unit rates could serve as a double-edged sword in that such enhanced rate shall also be used in case of variation to omit certain works. In this regard, the scope of acceleration should be as narrowly defined as possible in order to ensure that only unit rates and prices that are relevant are affected. Where the works subject to acceleration are loosely defined, it may give rise to unintended commercial implications. In view of these considerations, it is also in the interest of the Employer to consider simplification of design as means of acceleration instead of deployment of additional resources. Under such approach, the commercial effects of accelerative measures can be ring-fenced. 

Acceleration Of Works – Resolving Existing Delaying Events

As acceleration is essentially an initiative to bring forward practical completion date(s), parties should in theory be in complete agreement on the exact revised/ accelerated practical completion date. By way of illustration if the original practical completion date was 1 July 2025 and parties agree to bring forward the completion date by six months through accelerative measures, the revised/ accelerated practical completion date is 1 January 2025. As acceleration of works is invariably initiated after project commencement, the original practical completion date could have possibly been affected by various delaying events – excusable or otherwise, prior to the agreement for acceleration. Contrary to popular belief, during the construction period the Employer and contractor are not always in concurrence on the prevailing completion date for a variety of reasons. The practical completion date is only extended if the certifier determines that there is indeed delay to the construction programme and such delaying event(s) is either an Employer related delaying event or neutral delaying event. Prior to any such determination, the contractor had to notify the certifier in accordance with the requirements set out under condition precedents, including continuous disclosure of the relevant facts, information, records etc. As most extension of time are granted retrospectively, there is invariably a time lag between the emergence of the delaying event to any grant of extension of time. Given that it is fairly common for projects to have multiple delaying events with some overlapping with one another, the determination of whether there should be any revision to the original practical completion date can be complex and time consuming. Therefore, as a matter of expedience most assessment of extension of time are carried out towards the end of the project or even after the original practical completion date. The certifier typically justifies such belated assessment with the need to allow the facts to unfold and be in the position to parse out the material information in order to enable a comprehensive analysis. It is therefore possible that when parties negotiate acceleration of works, there may not be any agreement on the prevailing practical completion date. Using the earlier example, if parties are not in agreement that the prevailing completion date is 1 July 2025, it is challenging to determine the revised/ accelerated completion date even if there is an agreement to accelerate the works by six months. Occasionally, the accelerated period could be influenced by the desired completion date.

In view of the above, it is advisable for parties to utilise the need for acceleration as a reason to ‘resolve’ all existing delaying events. The term ‘resolve’ could either refer to a proper and formal assessment of extension of time as provided for under the contract, or for a commercial settlement of all delaying events. In case of the latter, the merit of the contractor’s case may not exclusively determine any grant of extension of time. The Employer would have to make concessions based on its need for acceleration and to balance any concessions made with the ultimate acceleration cost imposed by the contractor. In doing so, the certifier simultaneously acting as the Employer’s agent had to navigate carefully for the following reasons. Firstly, certain delaying events may have been notified by the contractor but had not been assessed due to the continuing delaying effects. In other words, the schedule impact of such delaying event continue to be felt such that the actual magnitude of delay could not be meaningfully assessed. Secondly, there may be certain delaying event where there is clear merit to the contractor’s entitlement to extension of time but the contractor failed to comply with the condition precedents stipulated. Thirdly, there may be concurrent delaying events with varying level of culpability on the part of the contractor. It may be challenging to objectively determine the dominant cause of delay. Finally, there may be voluminous delaying events where its sheer magnitude is causing delay to full and proper analysis and assessment. 

Based on the scenarios above, the certifier could either (I) perform a proper delay analysis ‘by the books’ and arrive at a global determination purely based on merit of the contractor’s case, or alternatively (II) make a business decision notwithstanding the lack of adequate information or even merit to the contractor’s case. Intuitively, Option II may be the faster method of resolving all existing delaying events which is time sensitive in attempting to accelerate any works. However, the certifier who is simultaneously the Employer’s agent may be playing two distinct roles depending on whether to adopt Option I or Option II. If the Architect/ Superintending Officer/ Employer’s Representative adopts Option I, it is discharging the function of an impartial and neutral certifier. In such a case, the reasoning behind any assessment and the impartiality displayed during its certification function are essential legal requirements. However under Option II, the role played is that of an agent to the Employer. Under this scenario, business consideration may be the overriding determinant. 

So how is the distinction in role between certifier and the Employer’s agent relevant in negotiating supplemental agreement for acceleration of works? Assuming parties are able to agree on the terms to acceleration of works, why does it matter which hat the Architect/ Superintending Officer wore in facilitating such agreement? Such issue matters and relevant to the extent that extension of time certification is intrinsic in deriving the accelerated/ revised practical completion date.  Using the previous example, if parties agree to accelerate the time for completion by six months, the practical completion date is revised from 1 July 2025 to 1 January 2025. However if the original practical completion date of 1 July 2025 should have been extended to 1 August 2025 due to extension of time (prior to agreement to accelerate works), then the six months schedule acceleration should result in revised completion date of 1 February 2025. In other words, any challenge on the extension of time (or the lack thereof) could alter the commencing date from which the six months acceleration period is calculated. Such challenge in extension of time could involve the manner in which the extension of time was administered, which in turn implicates whether the certifier discharged his function appropriately as required under the law. On the other hand, if the parties arrive at an agreement purely based on business decision (i.e. Option II), then the supplemental agreement for acceleration of works should refrain from framing the acceleration period by way of duration. Instead, parties could agree to a new completion date of 1 January 2025 and in doing so irrevocably and unconditionally undertake not to pursue any claim for extension of time or liquidated damages arising from delaying events occurring prior to the date of conclusion of such supplemental agreement.  Under this approach, the stipulation of 1 January 2025 is irrelevant to any grant of extension of time which then relieves the parties from any risk of having the determination of extension of time being challenged. 

Accelerated Scope Of Works To Be Self Sufficient Operationally

Acceleration can refer to either bringing forward an existing overall practical completion date or phase completion date. If the project was under a single overall practical completion date, occasionally there may be a need to ‘carve out’ a geographical portion of the works for purposes of acceleration, whilst leaving the remaining works unchanged in terms of existing practical completion date. In such a case, the carved out part of the works may be a newly created ‘phase of works’ with an advance completion date. It is also possible for a project which is divided into multiple phases of works to have one or few of its phases of works to be subject to acceleration. The common theme in the different scenarios mentioned above is that the practical completion date or phase completion date are subject to acceleration. In other words, the works that are accelerated will have an advance handover to the Employer for its beneficial occupation. Such handover will bring about other consequential contractual effects such as earlier commencement of defects liability period (or maintenance period), associated release of retention sums, cessation of insurance coverage in respective of contractor’s all risk policies as well as liability for liquidated damages, issuance of statutory temporary occupation permit by the authorities for the concerned works etc. What should also be clear is that if a certain programme milestone dates are ‘expedited’ without the usual contractual significance associated with practical completion, such initiatives are not acceleration of works per se.

The different types of permutations for acceleration of works are typically more relevant to large projects with considerably long construction period. Given the contractual significance associated with the accelerated works, any supplemental agreements will need to include details involving inter phasing logistics that will enable the early handover. In essence, the works that are handed over in advance shall be self sufficient operationally. Therefore when parties negotiate the extent of works that shall be accelerated, the actual magnitude of such works could be higher than what was originally anticipated. This happens when parties include other ancillary and supporting services that enable the end user to enjoy beneficial occupation of the space concerned. This can be illustrated using a large mixed development project consisting of hotel, retail and office components. Assuming the retail portion of such development had to be accelerated for advance occupation, the actual magnitude of works that may be implicated is usually beyond the total floor areas of the retail component. These additional parts of works may include certain floors of car parking space, additional mechanical and electrical infrastructure works that supports the retail space, ingress and egress roads for traffic access to the retail areas etc. As much of these inter phasing logistics are unplanned, it is not uncommon to delegate the detail design responsibilities to the contractor for greater efficiency in carrying out the works. Parties ought to make certain that any shift in design liabilities (or amendments to insurance coverage) is included as part of the supplemental agreement for acceleration of works.

Contract Administration Of Accelerated Works

Whilst much of this article series focuses on negotiation leading to parties’ agreement to accelerate works, the post supplemental agreement contract administration is another subject that deserves attention. In theory, the administration of revised/ accelerated practical completion date is no different from the original practical completion date. Any culpable delay beyond such revised contractual date may attract liability for liquidated damages and likewise extension of time may be granted under grounds of excusable delays. 

The devil is in the detail in ensuring that the there is no delay to the accelerated works. Beyond the deal between main contractor and the Employer, any success in accelerating works is dependent on multiple parties such as subcontractors, consultants, statutory authorities etc. By way of illustration, the main contractor should ensure that relevant subcontractors involved in accelerative measures shall enter into a back to back subcontract supplemental agreements in a timely manner. These may involve both domestic subcontractors and nominated subcontractors. As much of the documentation of nominated subcontract are driven by the project consultants representing the Employer, the expectation is for the nominated subcontract negotiation to be coordinated in lock step with the main contract. On the other hand, the main contractor should play the same role as it relates to domestic subcontract. Therefore from a broader perspective, negotiation of supplemental agreements at both main and subcontract level is often a well coordinated multi-party effort. If the accelerated works involve multiple trades of works, the contract administration effort will be intensified given the need to coordinate with various subcontractors within a short span of time. One of the contract administration risks is that main contract supplemental agreement is not accompanied by corresponding subcontract supplemental agreements, under the assumption that the ‘administrative paper work will naturally follow’. This cannot be any further from the truth. The main contractor’s ability to execute against the concluded deal is primarily dependent on the support and commitment from parties actually carrying out the physical works. Any gaps between main contract and subcontract may potentially scupper the accelerative measures. The actual accelerative effort is only as good as the agreement to accelerate.  

Conclusion

Based on Part 1 and Part 2 of this article series, it is quite evident that establishing an agreement to accelerate can be fairly complex and require a thoughtful and meticulous process. Very often these matters are deemed administrative issues that can be sorted out as an after thought, since the main contractor is already on board. The issue of setting out a comprehensive agreement to accelerate can often be more time consuming than establishing the original construction contract that typically adopts a standard form of contract. The pain emanating from the lack of proper agreement will invariably be felt if and when the accelerated completion date is not fulfilled which follow by finger pointing game.



Koon Tak Hong Consulting Private Limited

Acceleration of construction works is an initiative to bring a project to completion ahead of schedule. Project with additional scope of works could also be accelerated to complete on its original schedule so as to avoid time extension. There are various ways to accelerate works including deployment of additional resources, adopting more productive construction sequencing  methodology, implementation of alternative design that reduces construction duration etc. Acceleration could be targeted to either part or whole of the works. Although standard forms of construction contracts in Singapore typically allow changes or variations to be instructed on existing works, there are usually no suitable provisions for acceleration with the exception of the Public Sector Standard Conditions of Contract (also known as ‘PSSCOC’). If and when the Employer requires acceleration, it should be done via supplemental agreement with the contractor. Supplemental agreement essentially varies the existing contract terms. So what is so unique about acceleration such that it could not be accommodated under typical ‘instruction for variations’? What are some of the key terms to be included in this supplemental agreement? An understanding of these key terms explains why acceleration of works may be more complex than typical variation of works under contract. 

This is Part 1 of a two part article series examining accelerating construction works using supplemental agreement. In essence such supplemental agreement attempts to overcome constraints found in certain provisions of construction contracts which could not reasonably accommodate acceleration of works. Contrary to popular belief, commonly found construction provisions such as variation of works, early partial occupation etc are not suitable to effect acceleration of works for reasons that will be examined in this article series. This contract provision examination will be done in the context of contract forms commonly used in Singapore. For avoidance of doubt, apart from PSSCOC there are other international contract forms e.g. JCT 2016, NEC4 and FIDIC Red Book where express provisions are included for accelerating works. Even where contract forms have provisions to instruct acceleration of works, there are other commercial issues e.g. calculating cost of acceleration which may not be adequately addressed as a conventional legal matter. In order to facilitate a comprehensive review of accelerating construction works, some of these commercial issues will also be examined in this article series. By way of example whilst the contractor may be contractually required to submit a quotation for its effort to accelerate its works, what ought to be included in such quotation can be highly specific to the nature of project in hand. Further it is not uncommon for acceleration to involve certain amendments to existing design of works by the contractor in order to expedite schedule. There are residual issues that may not be adequately addressed by conventional contract provisions. 

The need for supplemental agreement arises when both parties agree that the proposed acceleration of works is beyond the contemplation of existing contract. In other words, the Employer in principle agrees to make additional payment to the contractor in exchange for schedule benefit. However there are other situations where there is a primary question over whether acceleration of works entitles additional payment. By way of example, a contractor that is in culpable delay may decide to accelerate its works in order to avoid liquidated damages. There could also be an alternative scenario where a contractor that was wrongfully denied extension of time may decide to carry out ‘constructive acceleration’ in order to meet the original completion date. There may be a case for such contractor to claim for costs incurred due to ‘constructive acceleration’ upon project completion. Under these circumstances, parties are unlikely to negotiate any supplemental agreement since there is dispute over whether such ‘acceleration’ were above and beyond the original agreement. For avoidance of doubt, these circumstances are outside the scope of this article.

Key Terms To Be Included In Supplemental Agreement For Acceleration Of Works

Since supplemental agreement varies the existing contract terms, care should be taken to clearly delineate proposed changes to existing contract terms from other terms that should remain unchanged. It should be noted that ‘variation to contract terms’ is different from ‘variation under the contract’. The former permanently alters the contract terms whilst the latter exercises a right found under an existing contract term. So what are the key terms that should be included in supplemental agreement?

Firstly, the practical completion date for either whole of the works or phase of works (or even stage of works) shall be varied. After all, this is the essential deliverable and the very reason for accelerating works. As the need for acceleration invariably arises after commencement of works, it is imperative to carry out contract administration due diligence on whether the original practical completion date had effectively been extended notwithstanding that any formal extension of time had yet been granted. This very issue will be elaborated further in Part 2 of this article series, but for now suffice to say that it is critical to establish ‘paper trail’ that both parties are in agreement of what should be the existing practical completion date immediately prior to entering into a supplemental agreement. Any potential disagreement over the very contractual date that ought to be accelerated will completely nullify the purpose of such supplemental agreement. This also explains why entering into a supplemental agreement is likely a superior option over exercising any right to acceleration that may be found under the contract. The negotiation between parties allow the establishment of a ‘clean slate’ of completion date. Out of abundance of caution, an expression of specific practical completion date is preferable over stipulation based on ‘time for completion’ duration. This is to avoid dispute over the date from which such duration should be calculated from. It may also be tricky to negotiate the completion dates for purposes of supplemental agreement in parallel with a dynamic site condition of a large and complex project. It is not uncommon for the occurrence of any major contentious delaying event in the midst of negotiation that could disrupt the purported agreement on any completion date. Therefore parties are advised to remain sensitive and vigilant of any material intervening events during the course of negotiation. It should also be noted that acceleration should be referenced to practical completion date given its definitive contractual nature e.g. trigger of maintenance period, objective definition of completion, contractor’s relinquish of control over site etc. Therefore acceleration that are reference to non practical completion date that lacks contract definition such as milestone date of certain construction activities can cause difficulties in contract administration. 

Secondly, there should be a clear agreement to the amount of additional payment (including a reasonable breakdown) that the contractor is entitled to in consideration of the acceleration effort and resources. This is also known as the ‘acceleration cost’. The ways to calculate acceleration costs will be further elaborated in the last section of this article. It should be noted that the derivation of an acceleration cost is in principle quite distinct from an ordinary contract sum for construction works. As regards the latter it represents the amount payable for physical works constructed on site. If the contractor decides to alter the construction methodology by its own volition in the midst of the project, the contract sum is not subject to any adjustment. This is because the original scope of works remain unchanged and the construction methodology is usually not included as part of the contract document. However when it comes to acceleration cost, it is generally to compensate the contractor not for any variation in physical scope of works but rather a change in construction methodology which results in increase in rate of construction (hence acceleration to the works). By way of illustration, although having additional labourers working over extended hours do not necessarily vary the final construction works, it objectively increases the contractor’s cost. These distinctions are important because the parties had to agree on the basis of the acceleration cost so that there is a mutual consent on progress payment arrangement for the purposes of compliance with Security of Payment Act. In this regard, a decision also has to be made on whether the acceleration methodology statement should be included in the supplemental agreement evidencing the underlying basis of acceleration. By way of example, the Employer may take the position that its focus is on the accomplishment of an earlier completion date without wishing to be drawn into exactly how many additional workers or additional work hours will be expended by the contractor. Others may take the opposite position by wanting a clear resource chart and acceleration methodology statement as means of supervising whether the contractor had delivered its end of the bargain. These contrasting school of thoughts are fundamentally a function of commercial judgment call.  

If the Employer is willing to pay acceleration cost, such additional payment is likely to be justified by the avoidance of a potential loss, damages or opportunity cost that may be incurred under the existing practical completion date. By way of illustration, the Employer may be required to provide an earlier handover of several floors of its development to a potential anchor tenant as part of a major lease negotiation. Failure to do so by the Employer may result in damages stipulated in the lease agreement or even potential loss of lucrative rental income. In other words, the existing liquidated damages may not necessarily be sufficient to compensate the Employer for losses arising from a newly emerging event that necessitated acceleration of works. Therefore, it is entirely possible that the liquidated damages may need to be revised as part of the key terms of the supplemental agreement.

It should also be noted that during tender evaluation and assessment, the contractor’s original construction methodology would typically be assessed rigorously. Therefore the actual margin available for acceleration through construction re-sequencing and adoption of a more efficient methodology may be limited. In order to fulfil a more aggressive schedule demand, it often involve revision to the Employer’s design as well as the use of alternative construction material or building system that has a shorter lead time. This often require simplification of design by utilising ‘off the shelf’ product rather than bespoke or proprietary systems. Therefore the supplemental agreement should include any amendments to original design and specifications as well as any implications on interfacing works. Where the contractor is required to provide supplementary interfacing design to accommodate these changes, it should also be made clear on the implications on overall design responsibility. 

Should Acceleration Of Works Be ‘Instructed As Variations’?

It is interesting to note that whilst part of existing scope of works could be omitted by way of ‘instruction for variations’ with an associated valuation method for such omission, there is no corresponding ‘omission’ or reduction to time for completion. This is in stark contrast to extension of time that are usually granted in case of instruction for additional works. Setting aside the issue of acceleration, it appears that the typical construction contract forms do not have a robust provision for time savings in case of omission of works. As evident from the preceding section of this article, whenever works are accelerated there are potential ripple effects caused to other non schedule related matters e.g. additional payment, change in progress payments, possible alteration to design responsibility, revision in liquidated damages etc. Admittedly there is no universal approach by standard forms of contract as regards acceleration works including those commonly used in Singapore’s construction projects. As alluded to earlier, the PSSCOC allows for acceleration of works to be instructed as variations, which can be found under Clause 19.1(f) of the eighth edition dated July 2020. Under this clause, the term ‘variation’ shall include a requirement to complete the works or any phase or part thereof earlier than the relevant stipulated ‘time for completion’. This is applicable for both its ‘design and build’ and ‘traditional construction works’ version of procurement pathways. On the other hand, the two other contract forms commonly used in Singapore namely SIA Building Contract and REDAS Design And Build Conditions of Contract do not have identical express acceleration provision under its respective variation clauses. Under the SIA form, whilst there are provisions for postponement of works under its variation clause, there is no allowance to require for an earlier completion. In general, its variation clause caters to physical change in the construction works rather than schedule of the construction works. Similarly under the REDAS form, the definition of variation as found under its Clause 1.1.33 refers to any alteration and/or modifications to the Employer’s Requirements of which the ‘Employer’s Requirements’ under Clause 1.1.17 refers to description of the ‘Works’ which was intended to be designed and constructed by the contractor. By all accounts, there is a strong suggestion that both the SIA form and REDAS form do not cater to acceleration of works by way of instruction of variations, unlike the PSSCOC. 

It appears that issuance of instruction for variation in order to accelerate the works might be the most administratively expedient method, at least compared to the negotiation of a supplemental agreement. Therefore for those who takes the position that its contract form provides for acceleration by instruction of variation, should this option be exercised in lieu of supplemental agreement? As pointed out in the preceding section of this article there are various critical issues that ought to be included in the supplemental agreement. These issues may not be adequately addressed if acceleration is instructed as a variation. By way of example, there are no provision to vary the liquidated damages if necessary. Parties may also be at odds with the accelerated completion date if there are various outstanding delaying events that are pending assessment of extension of time. There is also very limited guidance on the extent to which the accepted accelerated construction method, should be binding between the parties. Further, the valuation of variation provision in standard conditions of contract are primarily aimed at physical alteration and modification of scope of works. Therefore there are various elements of uncertainty that may complicate the administration of contract if parties are not required to deal with these issues prospectively. The negotiation of supplemental agreement on the other hand requires both parties to address these issues in an upfront manner. In this regard it offers contractual certainty and avoidance of downstream disputes.   

Can Acceleration Of Works Be Administered As Early Partial Occupation?

Early partial occupation is a commonly found provision in contract forms for construction works where there is a requirement for part of the works to be handed back to the Employer earlier than the stipulated practical completion date. This is generally an impromptu arrangement that arises after contract commencement. By way of context, there is a related article published on this website entitled ‘Part 6 of SIA vs PSSCOC – Early Partial Occupation Of The Works’ that is available for reference. Can acceleration of works be administered as early partial occupation? Proponents of this approach may favour the ease with which acceleration could be effected by way of issuance of instruction, thereby avoiding a possible long drawn negotiations that supplemental agreement may entail. Unfortunately, there are certain compromises that parties may need to accept under the administration of early partial occupation. 

Firstly whilst there are provisions to revise liquidated damages for the remaining scope of works by way of proportionate reduction based on contract value, there are no liquidated damages for the accelerated works. In other words, if the contractor fail to achieve the earlier practical completion date, no liquidated damages shall be applicable. Secondly, there are also no express provision to determine how the acceleration costs shall be determined. If the contractor anticipates additional costs to be incurred as a result of the acceleration of works, it is unclear whether such cost could be agreed in advance and if so, how such incremental sum shall be paid progressively throughout the course of acceleration. The lack of commercial and payment agreement as regards early partial occupation could also be attributed by the fact that there is an absence of mutual consent on the means and methods by which the works concerned shall be accelerated. In summary, the expedience afforded to the parties at the initial stage may come at a disproportionally significant costs.

Calculating Incremental Costs For Acceleration Of Works

Although it is generally true that the contractor should be entitled to additional payment for the additional resources and cost incurred in accelerating the works, it should be balanced with the fact that a reduction in construction duration would likely to reduce contractor’s time related preliminaries costs. Therefore the arithmetical exercise involved in calculating acceleration cost is usually a blend of additions and omissions with a likely overall net incremental cost.

Acceleration cost can be calculated in multiple ways, with different level of accuracies and perspectives. The first method is the direct cost method where each additional resource deployed for purposes of acceleration are itemised with the corresponding duration identified. By way of example, if additional 10 workers are deployed with 10 work hours per worker at the rate of $10/hour, the additional labour cost is 100 man-hours x $10/hour = $1,000. The same arithmetical approach can be used for other resources such as plant, machineries, equipment. An overall 15% surcharge could be added to cater to head office overheads and profit where it is not possible to identify resources exclusively dedicated to the accelerative measures. This direct cost method appear to be the most intuitively fair and transparent calculation given that it resembles ‘daywork’ method commonly utilised under valuation of variation. However parties should agree whether or not the contractor will be compensated for acceleration cost based on actual cost incurred subject to site records, or will it be a ‘lump sum’ arrangement where payments will be made strictly based on agreed amount regardless of actual resources deployed.

The second method to calculate acceleration cost is premised on productivity cost. This method is suitable where the works are fairly repetitive and there are good records of works completed so far with corresponding payments incurred. By way of illustration of pipe laying infrastructure works, if the record shows that the contractor expended $300,000 to lay 1,000 metres of pipe over one month duration at Part A of the site and $100,000 to lay 1,000 metres of pipe over two months at Part B of the site, a productivity comparison could be made. If it could be established that Part A was able to achieve higher productivity due to additional resources deployed, it is indicative that the accelerative measure to expedite the same amount of works by one month would cost around the ball park figure of $200,000 (i.e. the difference between $300,000 and $100,000). This productivity cost method requires existence of reliable record for comparable scope of works. It also assumes that a linear comparison is possible in the absence of any delaying events occurring on any selected parts of the project. This calculation avoids the need to identify each and every additional resource that is required to execute the accelerative measures by blending the entire cost into productivity rate. It should be a faster way to derive the acceleration cost but requires parties’ agreement on various variables incorporated into the productivity rate.  

The third method is an incentive method where the Employer offers a lump sum to the contractor based on a percentage of the commercial benefit that the Employer may stand to gain if acceleration is achieved. This departs from the conventional way where the quotation is submitted by the contractor to the Employer and its consultant for assessment and negotiation. The contractor would decide whether it could achieve the advance completion date by utilising the lump sum offered. The drawback to this approach could be that the acceleration cost may not bear any correlation to the actual resources required to effect the accelerative measures. If the accelerated part of the works are subject to any excusable delays after entering into supplemental agreement, the Employer will continue to be liable for the agreed amount without actually accruing its corresponding benefit. The benefit to this approach is that it provides an immediate litmus test on whether the accelerative measures make commercial sense. If the acceleration cost way exceeds that financial benefit that the Employer stand to gain by advance completion, the entire negotiation could be aborted immediately as it will no longer make any sense. 

In reality, the three methods identified above are by no means exhaustive nor mutually exclusive. Parties are free to mix and match any of these methods for purposes of deriving the overall acceleration cost, depending on availability of documentation and basis of calculation. It should also be noted that the calculation of acceleration cost for purposes of supplemental agreement is quite different from advancing acceleration claims in case of dispute. In case of the latter, the claimant has the benefit of hindsight by providing the court/tribunal with the relevant cost of additional resources deployed by comparing the as built programme and as-planned programme. Such benefit of hindsight is not available when parties are looking to negotiate a prospective deal.

Conclusion

It should be clear at least in Part 1 of this article series that the supplemental agreement method should be strongly considered by the parties even if there are existing contract provisions that could accommodate instruction for acceleration. In Part 2 of this article series, there will be further examination on the subject of acceleration including commercial and logistical issues. In summary whilst certain existing contract provisions may be readily available for parties’ use with the advantage of expedience, the short term gain should always be balanced with potential long term costs.




Koon Tak Hong Consulting Private Limited

Most of standard conditions of contract for construction works include an arbitration clause. This clause sets out the scope of arbitration agreement between the parties such as types of disputes that shall be referred to arbitration, any condition precedents prior to commencement of arbitration, arbitration rules applicable to the proceedings, arbitration law governing the relationship between state court and the arbitral tribunal etc. This article compares the arbitration agreement included in Public Sector Standard Conditions of Contract (PSSCOC) published in 2020 and Singapore Institute of Architects (SIA) Building Contract published in 2016. This article is Part 12 of an article series comparing these two contract forms that are widely used in Singapore. As a matter of background and context, there is a related article published in this website entitled ‘Basics Of Arbitration Clause And How Can It Be Reviewed Commercially?’ available for reference. 

As pointed out in Part 11 of this article series relating to comparison of dispute resolution provisions, arbitration is  often deemed as the ‘last resort’ in that its outcome is final and binding between the parties. There are various preceding dispute resolution avenues available to the parties that are either optional or mandatory, each with its advantages and limitations. Parties who are astute in utilising these prior dispute resolution avenues would typically have an inkling of the merit of their claims if and when they decide to proceed with arbitration. By way of example, if a contractor’s application for extension of time was rejected by the independent certifier, the contractor is likely to be aware of the rationale behind such rejection and have an informed opinion on whether it should pursue further legal action. Therefore the utility of an arbitration agreement should always be viewed within the larger dispute resolution landscape.

The differences in the arbitration agreement included in PSSCOC and SIA form are rather significant. These differences involve the timing in which arbitration may commence, how certain breaches of contract conditions could limit future arbitral tribunal’s scope of authority in reviewing relevant disputes, how the arbitral proceedings may be conducted based on the different institutional rules, who may assist in constituting the tribunal in the event of parties’ disagreement etc. The differences in approach between PSSCOC and SIA form is very wide ranging in that these relate to ‘when’, ‘how’, ‘what’ and ‘who’ in respect of the arbitration agreement. It is critical that parties to an arbitration agreement are aware of these differences because one’s ability to secure a favourable arbitral outcome may be impacted by some of these differences. 

One of the reasons behind such significant difference between SIA and PSSCOC could be attributed to the doctrine of ‘party autonomy’ in respect of arbitration. In this regard, whilst parties do not have absolute freedom, they have significant latitude in shaping the features of their arbitration agreement including authority of tribunal, procedural rules governing the conduct of arbitration etc. However it should also be noted that one’s ability to take advantage of such latitude is primarily dictated by its knowledge of arbitration. Such freedom could end up being a burden if there is any disparity in level of knowledge between parties. Therefore this article may be helpful to parties that are interested in forming arbitration agreement that are specific to their needs.

Institutional Arbitration Rules

Under Clause 37(1)(f) of the SIA form, the arbitration proceedings shall be conducted in accordance with the Arbitration Rules of the SIA for the time being in force which rules shall be deemed incorporated by reference of this clause. Arbitral proceedings are managed by the tribunal based on parties’ agreed set of arbitration rules. Most prominent arbitration institutions such as ICC, SIAC, HKIAC, LCIA etc have its own set of rules. When parties adopt a set of arbitration rules from certain arbitration institution, such institution generally administers the parties’ arbitration. By way of illustration prior to the formation of the arbitral tribunal, the arbitration institution may play an important role in assisting to constitute the tribunal as well as hearing on prima facie basis any challenge to reference to arbitration. As SIA is primarily a professional organisation in Singapore that represents the architectural profession rather than an arbitration institution, the SIA arbitration rules are noticeably less prescriptive than other institutional arbitration rules. By way of illustration, the SIA arbitration rules of December 2016 consist of 20 Articles across 27 pages whereas the SIAC rules comprises 65 Rules over 63 pages. Anecdotally the arbitral tribunal has a greater latitude under SIA arbitration rules in defining how the arbitration should be conducted. 

The PSSCOC’s arbitration agreement is fairly unique because it does not have express reference to any specific arbitration rules. Notwithstanding that under Clause 35.2 of the PSSCOC, the Chairman of the Singapore International Arbitration Centre (SIAC) shall nominate the arbitrator, if the parties fail to agree on the arbitrator and either party proceeds with an application to the SIAC for such nomination. In other words, the SIAC plays a limited role as an arbitration institution and that the involvement of the SIAC in nomination of arbitrator does not necessarily mean the adoption of the prevailing SIAC arbitration rules in its entirety. It should also be noted that where the SIAC is involved in nominating the arbitrator, its arbitration rules in so far as it relates to nomination of tribunal should logically apply. By way of example, Section IV of the 7th Edition of SIAC Rules dated 1 January 2025 deals with the ‘Constitution of the Tribunal’. Under this Section IV, Rule 19 – Rules On Appointment stipulates that it is the President of the SIAC that shall appoint any arbitrator, as opposed to the ‘Chairman’. In fact Rule 19 include various sub-rules that are relevant to the nomination of arbitrator that are presumably applicable to the PSSCOC’s arbitration agreement. By way of example, Rule 19.5 of the SIAC requires the President to take into account the qualifications and impartiality in appointing an arbitrator. Rule19.8 requires the Registrar of the SIAC to consider the views of the parties in its decision on whether to extend any timelines for arbitrator appointment. Rule 19.13 states that any decision by the President or the Registrar on appointment shall be final and not be subject to appeal. 

The broader question that parties should consider is exact extent to which these SIAC rules on appointment of arbitrator shall be applicable to the parties under PSSCOC. Also, whether the SIAC’s role is merely to ‘nominate’ the arbitrator or is it to ‘constitute’ the tribunal? As regards the former, the mere nomination of an individual may not be sufficient if one of the parties continues to contest such nomination for various reasons. If it is the latter, then arguably a broader set of arbitration rules under SIAC may be applicable to the parties since the SIAC Court may be required to hear any challenge to the choice of arbitrator and make a prima facie decision. Clearly, under a literal interpretation, the PSSCOC arbitration agreement does not stipulate SIAC’s role in constitution of arbitral tribunal as it merely refers to nomination of arbitrator. However, under purposive interpretation of the PSSCOC arbitration clause, there is no such position as ‘Chairman’ of SIAC and that the nomination of arbitrator instead involves the President and Registrar of SIAC. There is therefore a strong suggestion that for the PSSCOC’s arbitration clause to make sense by fulfilment of its fundamental objective, the SIAC’s role may extend beyond just nomination of arbitrator to that of constituting the tribunal to enable the parties to commence with the proceedings in proper. Parties that prefer clarity and certainty to arbitration agreement under the PSSCOC should take note of the observations above and to negotiate accordingly. Any ambiguity in arbitration clause may eventually be  unnecessarily costly to the parties. 

Arbitration In The Event Of Termination

The SIA form and PSSCOC differs significantly as regards the application of arbitration agreement if there is any event of termination. Under non termination related events, all disputes under PSSCOC shall first be referred to the Superintending Officer as part of the multi-tiered dispute resolution provision found under its Clause 35.1. However, Clause 35.3 of the PSSCOC changes this requirement. If any dispute or difference concerns the termination of the employment of the contractor, or the repudiation or abandonment of the contract by either party, such dispute shall not be referred to the Superintending Officer for decision. Such dispute shall instead be referred to an arbitrator directly. Therefore the reduction in the Superintending Officer’s role as an interim arbiter of dispute corresponds with an increase in the scope of arbitration agreement. On the other hand, since the SIA form does not have any multi-tiered dispute resolution provision, all disputes under SIA can be referred to arbitration directly without any prior conditions pursuant to its Clause 37(1).

Admittedly since termination related disputes can now be directly referred to arbitration due to Clause 35.3 of the PSSCOC much like the SIA form, these two contract forms are more similar for arbitration in the event of termination. This is true if and only if disputes can easily be differentiated between termination related disputes and non termination related disputes. In reality these two categories of disputes may not be easily compartmentalised because the timing of abandonment or point of termination can often be debatable. This is notwithstanding the fact that usually the Employer issues a notice of termination to the contractor to effect the termination of the contractor’s employment under the contract. The reason is because the Employer could either exercise its termination right found under the contract or to exercise common law termination. There are various differences under these two avenues but notice of termination is usually required if the party is exercising its contract termination rights. Under PSSCOC, it is important to clearly identify termination related disputes because the contractor is required to refer any termination related disputes to arbitration within 60 days of the notice of termination or act of repudiation or abandonment. This is required under Clause 35.3 of the PSSCOC. If the contractor fails to do so, it shall be barred from pursuing such dispute in any arbitration or court proceedings as the case may be. Likewise, if the contractor refers a termination dispute directly to the arbitrator only to be determined that the dispute in hand is not termination related and ought to have been referred to the Superintending Officer at the first instance, the arbitral award may be liable for setting aside. Any breach of multi-tiered dispute resolution provision may jeopardise the jurisdiction of the arbitrator as well as scope of arbitration. Therefore the need to clearly identify termination related dispute is not an academic matter but rather an essential part of dispute crystallisation. On the other hand, the arbitration agreement under the SIA form is not confronted by these difficulties.

So why is the distinction of termination disputes from other disputes can be vague and challenging? It is worth noting that the wordings in Clause 35.3 of PSSCOC is quite wide where the difference ‘concerns’ the termination of the employment of the contractor or abandonment of contract by either party. By way of illustration, let us assume a scenario where the contractor’s works were rejected by the Employer for alleged non compliance with specification. The contractor complied with the directions issued by the Employer’s agents to ‘rectify’ the non compliant works under protest and considers these extra over works entitle additional payment and extension of time. Notwithstanding that the Employer continues to be dissatisfied with the remedial works and engaged a replacement third party contractor to carry out the works in issue. The contractor in issue was never paid for the disputed works and was made liable for liquidated damages due to the ensuing schedule overrun. As no notice of termination was ever issued, there is a question of whether the contractor’s employment was ever terminated and if so when did the termination actually take effect. There is also a question of whether the works in dispute is ‘connected’ with the alleged termination and if so whether it should be first referred to the Superintending Officer? Based on the simple yet common hypothetical scenario above, what is clear is that what constitute termination dispute is not quite evident particularly at the outset. The issues in dispute will usually become clearer when parties commence legal action and their respective lawyers decide on the most strategic way to plead their respective cases. By the time the actual issue in contention is precisely framed, the contractor would have exceeded the 60 days time frame stipulated under Clause 35.3 of the PSSCOC, and may be barred from pursuing the dispute. Termination disputes do not necessarily occur after the point of termination, as events leading to the termination may well concern or even caused the termination.  

Arbitration Prior To Substantial Or Practical Completion

According to Clause 35.2 of PSSCOC, any reference to arbitration shall not be initiated by the contractor before the Date of Substantial Completion of the Works (or the latest of any phase completion if applicable) or alleged Date of Substantial Completion of the Works. This restriction may be waived by the Employer in writing. This can be contrasted quite starkly with Clause 37(1)(a) of the SIA form which states that both the Employer and the contractor shall refer any dispute between them to arbitration with a sole arbitrator ‘at any time’ notwithstanding that the Works shall not have been completed. 

As pointed out in Part 11 of this article series relating to comparison of dispute resolution provisions between SIA form and PSSCOC, arbitration is generally a more time consuming mode of dispute resolution since the arbitral outcome is permanent and binding between the parties. The duration of an arbitral proceeding could take many months or even years. Therefore parties may favour a quicker resolution that may provide an interim but binding dispute outcome e.g. adjudication, reference to Superintending Officer etc. Further, arbitration is likely to be irreversibly disruptive to the parties’ working relationship. These factors could possibly explain the rationale behind the PSSCOC’s approach of not allowing the contractor to initiate an arbitration in the midst of construction works. On the other hand, some may prefer the SIA form’s approach by providing flexibility and freedom to both parties to decide on the best course of action for dispute resolution without any restrictions or prior conditions. Those in favour of SIA’s approach may take the position that the party making any claims in the midst of construction is likely to be the contractor. Therefore it is up to the contractor to make an assessment of whether a binding but more time consuming dispute resolution avenue would serve its interest. The Employer should not be in the position of obstructing the contractor’s freedom of choice. 

Apart from the restriction imposed on the contractor to initiate arbitration prior to substantial completion, the other difficulty that may arise under Clause 35.2 of the PSSCOC is that the timing in which the project is substantially completed may not be immediately clear until much later. This is because Clause 35.2 of PSSCOC expressly refers to Date of Substantial Completion or alleged Date of Substantial Completion of the Works as the timeline prior to which arbitration shall not be initiated. What is noticeably absent from this clause is reference to Certificate of Substantial Completion issued by the Superintending Officer pursuant to Clause 17.1(1) of the PSSCOC. As the date included in a Certificate of Substantial Completion is a tangible and factual reference point, one would ordinarily imagine that utilising this document as the basis of establishing arbitration initiation timeline may offer more certainty and clarity. This is particularly so when the Superintending Officer is required under Clause 17.1(1) of PSSCOC to respond within 21 days on whether or not to certify the works as being substantially completed when notified by the contractor for request for works inspection. However referencing to Date of Substantial Completion or alleged Date of Substantial Completion offers certain contractual reprieve to the contractor. This is because the contractor is not unfairly prevented from having access to arbitration where parties are in dispute over delay issues which may complicate identifying the actual date of completion. As soon as the contractor takes a position on the completion date i.e. when the alleged Date of Substantial Completion is established, the contractor could commence arbitration. This flexibility afforded to the contractor would not be available if the arbitration initiation timeline refers to the date included in Certificate of Substantial Completion.

Condition Precedents’ Impact On Arbitrator’s Authority

Apart from the restrictions over timing of commencement of arbitral proceedings examined above, the extent to which the arbitrator is authorised to either review or determine certain issues is bound by the contractor’s compliance with relevant condition precedents. In this regard, the arbitrator’s scope of authority is subject to certain restrictions based on the parties’ agreement. Such restrictions can be found in both SIA form and PSSCOC. In general these condition precedents relate to contractor’s claim for extension of time, additional payment etc where the contractor is required to notify the certifier within certain stipulated time frame of the occurrence of events which give rise to contractual entitlement. Failure to do so shall not only extinguish the contractor’s entitlement but also limiting the arbitrator’s authority to determine the merit of such claim. The rationale behind such consequential notification requirement is to allow the Employer an opportunity to be informed in advance of consequences of certain events which it may have caused or contributed so that it could mitigate it as appropriate.

These condition precedents are distributed across several provisions within the PSSCOC including Clauses 14.3(5) and 23.6 which deal with extension of time as well as loss and expense respectively. Clause 14.3(5) of the PSSCOC refers to restrictions imposed on the arbitrator’s authority in case the contractor fails to fulfil certain condition precedents for extension of time. Such condition precedent for extension of time can be separately found under Clause 14.3(1) which stipulates amongst others the need to inform the Superintending Officer within 60 days of occurrence of delaying event, citing the relevant contract references including reasons for delay, duration of delay and extension of time required. Any failure to fulfil such requirements shall have the arbitrator’s authority restricted in four different ways namely (i) the arbitrator can only determine claims where the requirements of Clause 14.3(1) have been complied, (ii) the arbitrator shall not determine a claim from the contractor that is greater than extension of time notified, (iii) the arbitrator shall not determine a claim from contractor that includes new or additional grounds not previously submitted and (iv) the arbitrator in considering the dispute shall only make a decision based on information previously available to the Superintending Officer. Clause 23.6 deals with condition precedents of loss and expense claims by the contractor, which similarly restricts the arbitrator’s from considering information previously not available to the Superintending Officer in the course of making his decision. 

As regards the condition precedents included in the PSSCOC set out above, some may argue that those restrictions found are imposed on the contractor in not being able to advance certain claims rather than restrictions on the arbitrator’s authority. However where the contractor is barred from making reference of certain claims to the arbitrator, then the immediate and direct consequence is such that those affected claims shall not be included in the scope of arbitration. In other words, these claims are effectively outside the arbitrator’s jurisdiction based on party’s autonomy. 

Under Clause 37(4) of the SIA form, the arbitrator is bound by a fairly significant list of events which limit the scope of issues that can be determined. These events are populated under a single provision for ease of reference as opposed to being distributed across multiple provisions. Apart from Clause 37(4)(f) which deals with condition precedent for the contractor to notify the Architect within 28 days of event entitling extension of time, there are other events in this list that are broader in nature. By way of example, the arbitrator is not authorised under Clause 37(4)(g) to review decision made by the Architect as regards the issuance of Certificate of Partial Re-entry, although the contractor is not prevented from recovering associated damages, if any. The same restriction applies to the arbitrator under Clause 37(4)(a) as regards decision made by the SIA President or Vice President pursuant to Articles 3 and 4 in relation to nomination and appointment of replacement Architect and Quantity Surveyor. Whilst the intention is not for this article to exhaustively review the entire list provided for under Clause 37(4), it is worth pointing out that there may be some challenges in the application of Clause 37(4). Although it may be clear that the arbitrator is not authorised to determine claims where its condition precedents had not been fulfilled, the parties may dispute over whether or not the condition precedents had actually been fulfilled. It may not be entirely clear whether the arbitrator is authorised to make a finding of fact of whether the contractor had indeed violated the stipulated condition precedent. Although most of these conditions precedents are worded in such a way where it is the contractor’s responsibility to notify, the ultimate purpose of such notification is to ensure that the event in issue is within the contemplation of the Employer and its agent, at the material time. Whether or not the Employer and/or its agent had been aware of the event in issue or at least ought to have been aware requires a finding of fact much like the question of whether the contractor had duly complied with the notification requirement. Further, there may be a broader principles of law that should be considered by the arbitrator in determining whether it is fair and equitable for the contractor to be denied from having access to certain contractual relief (e.g. additional payment or extension of time) when it was the Employer who had first breached the contract (e.g. by delay in providing site access). Such breach may have prevented the contractor from performing its obligation. Can the condition precedent act as a vehicle to cure the Employer’s breach? There are no simple answers to these substantive issues but at the very least one ought to consider whether should the parties be denied from having these arguments ventilated before the arbitrator.

Conclusion

It is clear that whilst arbitration agreement is the final and binding dispute resolution avenue available to the parties under both SIA form and PSSCOC, the path of access to arbitration can be tricky. As both contract forms are essentially ‘standard conditions’ available for the parties’ consideration, having a good grasp of the essential principles of arbitration agreement goes a long way in facilitating a negotiation. Much of these arbitration details can be financially consequential, perhaps much more so than the commonly negotiated commercial terms.




Koon Tak Hong Consulting Private Limited

As construction disputes are almost inevitable particularly in large and complex projects, there are dispute resolution clauses included in standard conditions of contract to manage these issues. These dispute resolution provisions involved a delicate balancing act. In general, dispute resolution provisions ought to provide quick resolution to disputes so that the issues do not deteriorate to the point where it becomes disruptive to the progress of works. On the other hand, disputing parties should also be afforded with reasonable time and opportunities to prepare their claims and present their respective cases. In view of these competing priorities, dispute resolution provisions usually allow a speedy, interim but binding decision to be made by a neutral certifier or statutory adjudicator. Therefore the aggrieved party gets its remedy in a timely manner but the dissatisfied party is not barred from having the dispute outcome reviewed sometime later. What if more details relating to the dispute were disclosed after the determination resulting in serious doubts over the substantive merit of the interim decision? Should an appeal be allowed swiftly and if so how soon? To complicate the situation further, what if the dissatisfied party is accused of not timely disclosing those additional material information? Should there be a timeline regulating the manner in which evidence is presented? Additionally, should the interim decision continue to be binding on the parties in spite of these problematic circumstances?

Whilst there is no absolute right or wrong to the queries raised above, parties ought to be aware that they have the ability to shape the structure of their preferred dispute resolution provision. It is important to understand that dispute resolution provisions in and of itself can often be subject to dispute. This is why the design of dispute resolution provisions is often an art rather than science. This article examines how dispute resolution provisions may differ between Public Sector Standard Conditions of Contract (PSSCOC) published in 2020 and Singapore Institute of Architects (SIA) Building Contract published in 2016. This is Part 11 of an article series comparing these two contract forms that are widely used in Singapore. Whilst most commercial and contracts managers for contracting firms may consider dispute resolution provisions as ‘legal matters’ reserved for in-house counsels or external lawyers, it is fundamentally a subject that involves commercial judgment calls. This is because one is often required to make business decisions on the amount of resources that should be expended to pursue certain amount of claim in dispute. 

One of the key considerations to this decision making process is an in-depth understanding of the agreed dispute resolution provisions. How much resources should be expended over a claim at a juncture where the outcome is interim? What type of claims administration system should be put in place to ensure condition precedents are complied with in order to preserve rights to claim at a future date? What are the most cost effective dispute resolution options available under the contract that preserves parties’ working relationship? These questions often require careful assessment of risk versus reward.

Apart from the conventional legal action through state court i.e. litigation, there are alternative dispute resolution options prescribed under the contract such as arbitration, mediation, expert determination, reference to certifier etc. This article examines how various options are structured under the PSSCOC and SIA form. Due to the significance of arbitration as one of the alternative dispute resolution avenues under PSSCOC and SIA form, a separate article will be dedicated in Part 12 of this article series.

Multi-Tiered Dispute Resolution Provision

Multi-tiered dispute resolution provision can commonly be found in standard forms of construction contract, where it stipulates sequences of steps that shall be fulfilled by the parties prior to the final method of dispute resolution, which is typically arbitration or litigation. These prior steps are generally references of dispute to certain dispute resolution alternatives such as mediation, negotiation, expert determination, dispute avoidance board etc in a certain prescribed order or sequence. These prior steps can either be made mandatory or optional. Arbitration or litigation as the final method provides parties with least amount of ‘control’ over their dispute outcome since the determination is made by a neutral judge or arbitral tribunal of which the decision is final and binding. The working relationship between parties is usually irreversibly damaged at this point. The prior steps therefore provide parties with greater degree of control over their dispute outcome whilst preserving their working relationship. 

PSSCOC adopts multi-tiered dispute resolution provision which can be found in its Clause 35 relating to settlement of disputes. On the other hand, the SIA form does not expressly include a multi-tiered dispute resolution provision where parties shall directly refer any dispute between them to a sole arbitrator as stipulated under its Clause 37. Notwithstanding that, there are optional dispute resolution methods available to the parties under SIA form, which they may refer their disputes to at any time on a voluntary basis. These include mediation stipulated under Clause 38 as well as expert determination under Clause 39.

Under Clause 35.1 of the PSSCOC, any contract related dispute shall first be referred to the Superintending Officer of which his decision shall be made within 30 days of receipt of such reference. Such dispute shall only be submitted to arbitration by the dissatisfied party within 90 days of receipt of the Superintending Officer’s decision pursuant to Clause 35.2. Any breach of this multi-tiered dispute resolution provision by premature submission to arbitration without first making reference to Superintending Officer will likely be detrimental to the jurisdiction of the arbitral tribunal. This is because of the PSSCOC’s mandatory approach to the sequence of steps in respect of submission of disputes. In other words reference to Superintending Officer is a condition precedent to commencement of arbitration.

The rationale behind PSSCOC’s approach is likely to be driven by practical consideration because arbitration proceedings can be extensive where the entire duration could take many months or even years. Part of the reasons for such extensive duration is due to the finality of its outcome where parties are rightly afforded reasonable opportunities to be heard. If the time for completion for a typical construction project takes two to three years, arbitration can hardly provide parties with a swift resolution. Therefore reference to Superintending Officer makes practical sense particularly given the legal requirement for such independent certifier to act in an impartial and neutral manner notwithstanding its concurrent role as the Employer’s agent. As Superintending Officer is likely to be intimately involved with the project in hand, there should sufficient level of background knowledge of the issues to enable him to make a reasonable and swift interim decision. This is mostly true apart from certain notable exceptions. 

Whilst the SIA form does not adopt the multi-tiered dispute resolution approach, it offers other voluntary options to the parties such as mediation and expert determination which are relatively more time efficient than arbitration. As the Architect is the independent certifier appointed under the SIA form, it is already discharging its regular certification functions e.g. assessment of extension of time, certification of delay, certification of practical completion etc. These certificates are essentially a manifestation of determinations made by the certifier on various contentious claims. There are also unique requirements under SIA form for the Architect to make his decision or certification in a timely manner such as the in-principle intimation for extension of time as found under Clause 23(3)(d). Additionally, under Clause 37(4)(h) of the SIA form the arbitrator is bound to give temporary effect to most certificates, rulings and decisions of the Architect until such time when the final arbitral award is rendered. Therefore the need for interim and binding decisions under SIA form is mostly addressed notwithstanding the absence of multi-tiered dispute resolution provision. 

Multi Party Arbitration Provision

In large and complex construction projects, most of the scope of works under main contract are outsourced to various subcontractors. If and when there are any disputes pertaining to a specific trade of works, it is likely to implicate multiple parties along the supply chain, beyond just the main contractor and the Employer. Such dispute is also known as multi-party dispute. One of the important features of any dispute resolution provision is consistency in outcome. If the Employer gets a favourable outcome in an arbitration over curtain wall works whilst the curtain wall subcontractor gets a favourable outcome in a separate arbitration, the main contractor will be severely aggrieved. This is because the main contractor will be financially crushed by inconsistent outcomes assuming these collective proceedings are based on the same set of disputes and facts. When certain subcontract works gets rejected by the Employer’s consultants, the dissatisfied subcontractor can only advance its claim against the main contractor due to contract privity. The main contractor had to correspondingly claim against the Employer. The main contractor can sometimes act as a ‘proxy’ between the Employer and its subcontractor which is the essence of multi-party dispute. 

The scenarios described above are unfortunately the unintended consequences of having arbitration agreements included in most if not all standard forms of construction contracts. This multi-party dispute conundrum can quite easily be resolved by way of litigation since the state court typically has the power to order a joinder so as to consolidate overlapping disputes between multiple parties into one proceedings. Arbitral tribunals do not typically have such powers without consent of all parties due to the principle of party autonomy. Therefore the SIA form provides a unique solution as found in its Clauses 37(5) and 37(6), to those with arbitration agreements in their contracts. The enforcement however can be tricky in reality.

Under Clause 37(5)(a) of the SIA form, the Employer and contractor shall use their ‘best endeavours’ to ensure that the same arbitrator shall hear the multi-party dispute or part of such dispute under the contract where it relates to the nominated or designated subcontract or supply contract which was the subject of a Prime Cost Item. Subsequent Clause 37(5)(d) further conceded that if for any reason the same arbitrator cannot be or shall not be appointed to hear such disputes, then this arbitration clause shall lapse and cease to have any effect. Under such case, the authority of any arbitrator already appointed under this clause shall be revoked. It would appear that Clauses 37(5)(a) and 37(5)(d) recognise that whilst the aspiration of consolidation of arbitral proceedings for multiple parties appear sensible in its objective, it is entirely possible for it to fail for various reasons. Some of these reasons will be elaborated shortly. It is also interesting to note that Clause 37(5)(d) seems at odds with the arbitral doctrine of kompetenz-kompetenz which states that arbitral tribunal shall have the jurisdiction to rule on its own jurisdiction. Clause 37(5)(d) could be interpreted as denying such jurisdiction from the arbitral tribunal since the tribunal’s authority could be revoked by the operation of this clause rather than by its self determination. Where the Employer and main contractor are unable to agree on the appointment of the same arbitrator, they could rely on Clause 37(5)(b) by applying either to the President or Vice President of the Singapore Institute of Architect or the state court for the appointment of such an arbitrator for the purposes of enforcing the multi party arbitration. The challenges that may confront the enforcement of Clause 37(5) will be examined in the next few paragraphs. 

Firstly, the two parallel arbitrations under both the main contract and subcontract that are intended to be consolidated by such provision may be complicated by any discrepancy between their timelines. By way of illustration, the subcontract arbitration between main contractor and subcontractor could have progressed to an advance stage in its procedural timetable such as in the midst of their evidentiary hearing whilst the main contract arbitration could have just commenced. If the Employer could not agree to the appointment of subcontract arbitrator due to prior conflicts, it will be difficult to justify any attempt to revoke the authority of the subcontract arbitrator in favour of a fresh consolidated proceedings. Apart from wastage of precious financial and legal resources already expended to the existing proceedings, justice delayed is justice denied. This is perhaps why under Clause 37(6)(a), such multi-party arbitration clause shall lapse if for any reason the same arbitrator cannot be or shall not be appointed in both the main contract and subcontract proceedings. 

Secondly, whilst the issues under the two parallel arbitrations may be largely similar based on identical set of facts, the issues could be framed differently. One of the criteria in consolidation of arbitral proceedings according to Clause 37(5)(a)(ii) is that the dispute or part of a dispute shall arise out of or connected with the same facts. Just because both the proceedings may be connected with the same facts, it does not necessarily mean that the issues under two separate proceedings are identical. By way of illustration, if such construction dispute pertains to rejection of curtain wall facade works, the issues for determination could either be a question of fact or a question of law. Occasionally it could be a blend of both. Under question of fact, the arbitrator may be required to make a factual finding of what was the  parties’ agreement as regards the standard of requirement for the facade? Under the question of law, the arbitrator may be required to make an assessment on proper construction of the relevant terms and conditions, whether the works in issue were compliant? Whilst the issues are framed according to the strategy deployed by the respective legal representatives, it may change the line of enquiry and terms of reference of the proceedings quite significantly. The disposition of one issue does not render the other issue res judicata. 

Thirdly, these provisions relating to consolidation of proceedings are only intended to include nominated subcontract works or nominated supply contracts. The rationale for such limitation is because the Employer is not in the position to dictate the terms under domestic subcontract or whether subcontracting was even carried out for non Prime Cost Items. Any inconsistency in arbitral outcomes are likely to impact the main contractor more than the Employer. Therefore it is incumbent upon the main contractor to do what it considers necessary to protect its own interest including harmonising main contract and subcontract terms. The importance of multi party dispute continues to be very real regardless of whether it is under a domestic or nominated arrangement. However the ability to enforce the terms becomes more elusive under domestic arrangement. Given the above mentioned practical issues, it is no wonder that the PSSCOC does not have an equivalent multi party dispute arbitration clause. 

Mediation Under PSSCOC vs Mediation Under SIA

Both the SIA and PSSCOC have mediation clauses included as part of its dispute resolution provision. These contract forms have a fairly identical substantive approach in their mediation clauses notwithstanding some minor differences in its mediation procedural rules. These mediation provisions can be found in Clause 38 of SIA form and Clause 35.6 of the PSSCOC. In essence mediation is neither a condition precedent for commencement of arbitration nor part of any mandatory sequence of steps in multi-tiered dispute resolution clause. Parties are free to commence mediation at any time subject to the prevailing agreed mediation rules. Under the SIA form, mediation shall be conducted under the Mediation Rules of the SIA whilst the PSSCOC requires parties to state their agreed mediation rules in the Appendix to Conditions. In this regard, the one that is more commonly used is the Singapore Mediation Centre (SMC) procedure rules. 

Mediations conducted wholly or partly in Singapore and/or where Singapore law is the governing law is subject to Mediation Act. Under Singapore Convention on Mediation, parties involved in cross border dispute could seek the relevant state court’s assistance to enforce mediated settlement agreement if those jurisdictions had ratified and signed the international treaty. Therefore whilst mediation is largely a voluntary process where parties have considerable control over its dispute settlement outcome, the enforcement mechanism is fairly robust and not at all inferior compared to other forms of dispute resolution. 

Under both SIA and PSSCOC, neither party can be compelled to participate in mediation due to the voluntary nature of the dispute resolution language. The existence of these mediation clauses does not create an obligation to mediate. In other words the refusal to participate in mediation is not a breach of contract. Given the above mentioned considerations, what is the purpose of having a mediation clause under contract forms? There are perhaps a few practical benefits of having mediation clause. 

Firstly, whilst mediation is a voluntary process, the actual procedure of mediation is quite consequential. Having a mediation clause provides clarity on how the mediation procedures should be conducted through an accepted procedural framework. By way of illustration, parties may disclose areas of concession during mediation on a ‘without prejudice’ basis as part of conciliatory effort led by the mediator. Mediation rules ensure that all these information shall be kept confidential and not to be weaponised to prejudice the counter party under any future arbitration. Such rules are essential for parties to trust the mediation process when the parties’ relationship is likely to be frayed. 

Some have also been hesitant to attempt mediation due to the prospect of delaying any legal action such as commencement of arbitration. As disputing parties may be seeking remedy in order to stay afloat financially, the speed at which issues are resolved can be of paramount importance. Mediation rules typically stipulates that the commencement of mediation shall not preclude any party from commencing legal action. In other words, there is no ‘stay of proceedings’. It is entirely possible for mediation to be in parallel with other dispute resolution alternatives.

Having mediation clause whilst does not guarantee a settlement outcome but at the very least provides certainty and clarity on the rules of engagement. 

Expert Determination Under SIA

The SIA form offers another unique dispute resolution alternative by way of expert determination that can be found under its Clause 39. This is not available under the PSSCOC. Under this provision, parties may refer any ‘technical disputes’ to a sole expert for full and final resolution in accordance with SIA Expert Determination Rules. Much like the mediation provision, parties may refer their technical disputes at any time and such reference shall not be construed as a condition precedent to arbitration. Such expert reference shall not amount to any stay of proceedings as well. Where certain dispute may be technical in nature such as defects rectification, compliance with technical specification and drawings etc, parties may prefer an expert with the relevant experience and in-depth knowledge. Such deep appreciation may result in a faster, cost effective and equitable determination.

One of the unique features of expert determination is that the sole expert shall have the power to act inquisitorially in determining the dispute, as provided for under Rule 18.3 of the SIA Expert Determination Rules. This is a departure from the adversarial nature of most dispute resolution proceedings under common law system which is adopted in Singapore. Under an adversarial system, the contesting parties are responsible for presenting their evidence and arguments, whilst the judge decides based on representations made by the parties. The judge in this regard is ‘passive’. Under an inquisitorial system, the judge plays a more active role where the he conducts investigation by questioning the witnesses and seeks evidence independent of the parties. The reason why inquisitorial approach may be necessary under expert determination is due to the sole expert’s command of technical knowledge. Such expert may have an independent perspective on the cause and effect of the technical issue in dispute, quite different from the way in which it is portrayed by the disputing parties. This is particularly so when the disputing parties may be represented by lawyers who are likely to frame their issues in contention from a legal perspective. The expert may have personally encountered a similar situation as that of the issue before him and therefore he could add more context and colour to the matters in contention. This is also the very reason why parties may prefer an expert who is in ‘control’ of the issues.

Whilst expert determination has undeniable merits as a method of dispute resolution, parties should also be aware of other alternative consideration in order to have a balanced perspective. Whilst Rule 1 of SIA Expert Determination Rules states that parties have agreed to have any technical disputes to be fully and finally resolved by a sole expert, very often the nature of a dispute can be multi-faceted and not solely confined within the ‘technical’ domain. Let us assume a scenario where parties dispute over whether certain construction works were compliant with the agreed technical specifications and decided to refer such issue to expert determination. The party who is dissatisfied with the expert’s decision may resurrect the very same issue by framing it differently e.g. by taking issue with how the technical specification should be interpreted according to certain rules of interpretation. Technical experts are not expected to provide legal interpretation and analysis of how certain conditions ought to be construed. That is why under Rule 2.1, the definition of ‘technical disputes’ is not inclusive of disputes which involve legal issues and interpretation of the conditions of building contract. Consequently under Rule 5, the decision of sole expert shall be final and binding save that in any subsequent arbitration or other proceedings between the parties, such decision may be confirmed, revised or replaced by that of the arbitrator or tribunal concerned. 

Therefore, the dispute outcome under expert determination could be interim by nature, particularly under an inquisitorial system where the expert may depart significantly from the issues submitted by the parties. The complexity with enforcement of sole expert’s decision may be one of the reasons why expert determination is not provided for under PSSCOC.

Conclusion

Navigating dispute resolution terrain can often be so complex that it may be more challenging than the substantive issues in dispute. Any commercial manager should have a good grasp of dispute resolution provision because the way in which one traverse through these terrain involve making business decisions. It is ultimately a key part of choosing the right battles.




Koon Tak Hong Consulting Private Limited

Collaborative contracting is in principle about creating commercial alignment between contracting parties so that they could work together rather than against each other. This article is Part 3 of an article series examining collaborative contracting from a practical commercial perspective. In Singapore, NEC4 and PSSCOC (with bolted on Option Module E) are the two contract forms available for parties seeking to enter into collaborative contracting. One of the key elements in a successful collaborative contracting is finding the right reward system. Parties will naturally work together if the procurement pathway incentivises them to do so. Parties do not change their behaviour from that of adversarial to collaborative simply because of the label of their agreement. Psychological behaviours do not necessarily change by legal framework. By contrast, parties tend to collaborate naturally if the incentive structure is such that they tend to gain more, in an objective and measurable manner if they work together. By way of background and as alluded to in an earlier article of this series, collaborative contracting aims to address some of the shortcomings often found in traditional contracting model that is said to be adversarial in nature where parties operate based on a zero-sum game. Under traditional contracting model, parties’ interests are defined based on how risks are allocated. If certain risks allocated to the contractor materialise, the Employer ‘gains’ to the extent that its financial interest is cushioned by the contractor’s exposure. The reverse is also true. 

By way of illustration, if parties enter into a remeasurement contract, the Employer is financially exposed if the actual quantity of works turns out to be larger than estimated. In fact, the contractor’s profit level typically correlate positively with quantity of work done. This explains why the Employer favours lump sum contract where the situation permits. These scenarios underscore the reason why collaborative contracting does not generally work if the risk in hand predominantly affects only one party. Therefore part of the key considerations in setting up a successful collaborative contracting involve identifying reasons why parties should work together, mainly from a commercial perspective. In this regard, choosing the right procurement pathway that supports collaborative contracting is crucial. This invariably requires one to appreciate the ‘Main Option Clauses’ under NEC4 which consist of a variety of procurement pathways including Option A, B, C, D, E and F. Each option exhibit its distinct risks allocation characteristics, all of which will be examined further in the subsequent sections of this article. By contrast, the PSSCOC offers Option Module E as its bolt on clauses to cater to collaborative contracting. Under this contract form the number of procurement pathways available is relatively limited as compared to NEC4. As regards PSSCOC for construction works, the main procurement pathway is that of lump sum contract with pricing schedules that exclude quantities of works. As an alternative under its Option Module A, bills of quantities is used where such pricing schedule has both quantities of works as well as its associated unit rates. The bills of quantities could operate both as a lump sum contract (with quantities) or remeasurement contract. Under the latter option, the quantities therein are labelled as ‘provisional’. The availability of different procurement options and its potential effects on collaborative contracting will be examined further in this article. 

Ultimately contractors have very limited influence over the choice of contract form used as well as the procurement pathways included therein. The Employer as advised by its project consultants enjoys much of the discretion in these issues. This article hopefully will raise the necessary awareness for contractors to negotiate accordingly during tender. It will be somewhat odd for a collaborative contracting agreement that is not open to “collaborative tendering” where both parties take equal role in shaping the contents of their agreement.

NEC4 Main Option Clause – Option A (Priced Contract With Activity Schedule)

Option A of NEC 4 which refers to ‘priced contract with activity schedule’ resembles most closely with the default lump sum contract under PSSCOC Option Module E. Notwithstanding the resemblance, there remains some significant differences between these two contract forms under this procurement pathway. In essence, lump sum pricing in this regard shifts much of the pricing risks to the contractor whereby the contract sum shall be fixed to complete the construction works and only be adjusted where there are express provisions to do so. This pricing option is adopted when the project design is significantly developed with well defined quantities of work. If the Employer decides to revise any of its project design, the risk shifts back to the Employer in that it is required to compensate the contractor for any costs and/or time implications. Whilst the Employer typically favours lump sum contract due to its price certainty, it leaves very limited room to incentivise collaboration. By way of illustration, the Employer is quite unlikely to stipulate incentive payment under Key Performance Incentives/Indicator (KPI) if the contractor is able to achieve project completion at the existing lump sum price. This is because the Employer already enjoy price certainty under this mode of procurement, regardless of any incentive payment provided to the contractor.

Under Option A of NEC4 the accepted tender price which forms the contract sum (also referred to as ‘tendered total of the Prices’) is linked to the accepted construction programme. Construction programme is generally an aggregate of all construction ‘activities’ necessary to complete the project. The ‘activity schedule’ under Option A therefore refers to the entire list of activities found under an accepted construction programme where each activity is allocated with its cost. In other words, for any given activity parties are able to understand its duration as well as its costs. Therefore the sum of all costs allocated to activity schedule should be equal to the contract sum. The explicit linkage between construction programme and contract sum is not common particularly under standard forms of construction contract, certainly not found in the PSSCOC. This linkage in some ways increases time and cost transparency in relation to the project by allowing both parties almost equal access to contemporaneous project information. Asymmetrical information between parties is often the source of skepticism, which in turn inhibits collaboration. If and when a disruptive or delaying event occurs, both parties are most likely going to arrive at a similar view on its time and/or cost impact. This information alignment enables parties to collaborate on finding mutually agreeable solution by reducing the distractions of having to submit and review the associated claims. The following hypothetical example may assist in illuminating the collaborative effect.

For simplicity let us assume an accepted baseline construction programme that is structured such that the installation of facade panels to each building floor is categorised as a standalone activity, whereby the cost allocated to each activity is $100,000. Each activity duration is one week and all activities are sequenced consecutively. If a potential disruptive event stands to impact the installation activity of all three floors (namely all three consecutive activities) which warrants parties’ collaboration, the following information should not be disputed. (1) the cost of works that is subject to disruption is $300,000 (2) if the contractor is able to complete the works within the original planned duration by expending additional resources amounting to an overall installation costs of $400,000, the disruption cost should be $100,000 i.e. extra over from the original $300,000 (3) if no additional resources are expended to address the disruptive event resulting in completion of works by four weeks, the loss of productivity gave rise to one week delay. As these information was established prior to the occurrence of any disruptive event, it removes the distraction of advancing and assessing claims. Both parties should be able to work together since they operate based on the same set of facts. The information surrounding the hypothetical scenario above facilitates cost-benefit analysis e.g. whether it is sensible to expend $100,000 to avoid time delay of one week. As alluded to earlier, much of the parties’ willingness to collaborate depends on the existing risk allocation under the contract. If the contract is of a lump sum fixed pricing, and the delaying event is a risk shouldered by the contractor, the Employer clearly does not have any incentive to collaborate given the provision of liquidated damages. The reverse is also true if the delaying event results from the Employer’s breach of contract or caused by its act of prevention. Parties’ ability to collaborate (due to information transparency) does not necessarily equate to their willingness to collaborate. Certain contractually savvy party may even be hesitant to commit to any concession if it causes prejudice to its future legal position on the issue in hand.

Notwithstanding the above, the creation of cost loaded construction programme is often described as a fairly elaborate and effort intensive mode of contract administration. Some parties may understandably not favour such contract management approach especially if the project in hand may not have the type of risk profile that justify such methodology. Others may also view that the time and effort that may be expended to arrive at a mutually agreeable programme and activity schedule could involve extensive negotiation that runs counter to the principle of collaborative contracting. Those who subscribe to such views may prefer conventional lump sum contract under PSSCOC Option Module E. 

NEC4 Main Option Clause – Option B (Priced Contract With Bills Of Quantities)

Option B of NEC4 which refers to ‘priced contract with bills of quantities’ resembles PSSCOC with both Option Module A and E bolted on. In essence these procurement pathways are structured on a remeasurement basis where the contractor gets paid based on volume of actual work done on site. Such volume is then multiplied against unit rate included by the contractor in the bills of quantities. Unlike Option A where the contractor measures the quantities of work from tender drawings (therefore assumes the risk of under measurement errors), the bills of quantities are produced by the consultant quantity surveyor for tenderers to rely on for their pricing purposes. The term ‘remeasurement’ suggests that quantities included in bills of quantities are estimated and likely to vary from actual quantities, thus requiring progressive  follow up measurements throughout the project duration. In this regard, the quantity related risks are shifted to the Employer. The contractor on the other hand, assumes certain level of pricing risk by the adequacy of its unit rate which ought to encompass a blend of cost components e.g. plant, equipment, labour and construction materials for the relevant works. Whilst Option B of NEC4 is deemed remeasurement as a whole, Option Module A of PSSCOC is only remeasurement in so far as the relevant scope of works is labelled as ‘provisional’ pursuant to Clause A2.0(2). Therefore in the absence of ‘provisional’ label, the adoption of Option Module A under PSSCOC means ‘lump sum contract with quantities’ where the quantities shall not limit the contractor’s obligation to complete the works in accordance with the contract.

Option B of NEC4 is more likely used for infrastructure projects (e.g. laying of underground pipes, constructing roads and tunnels, foundation works etc) rather than building projects. Where a tender document for a building project includes bills of quantities, the building design should have been well developed to allow for measurements to be carried out. In fact most property developers may favour the use of bills of quantities as way of ‘verifying’ if the tender documents and drawings are sufficiently developed to allow tenderers to price meaningfully. Therefore, projects that utilises Option B under NEC4 are primarily confronted with uncertainties related to quantities rather than under developed design. In other words, much of the project risks are shouldered by the Employer rather than the contractor. This represent the opposite extreme end of the spectrum relative to lump sum contract. Again, any contract that has risks disproportionately allocated to one party does not incentivise collaboration due to the zero sum game nature. 

There are however limited circumstances where both the Employer and contractor may find synergy in collaborating under remeasurement contract. Although most remeasurement contracts are structured under traditional design-bid-build model, there are certain instances where the preamble to the bills of quantities may require that the unit rates provided by the contractor to include ‘all temporary/ permanent lateral support and soil stabilisation including any structural engineering design in compliance with prevailing regulations and codes’. In other words, where the contractor is required to carry out excavation works, it has to provide any proprietary design necessary to prevent soil from collapsing inwards. Therefore, the contractor assumes quasi design responsibility for the project. In this regard, it is in the interest of both the Employer and contractor to collaborate and change the existing engineering design by re-routing of services where necessary to avoid difficult locations which involved time consuming and costly construction works. This scenario presents mutually beneficial opportunity where the Employer stands to avoid schedule delay and the contractor is relieved from expending avoidable construction resources.

NEC4 Main Option Clause – Option C (Target Contract With Activity Schedule) And Option D (Target Contract With Bills Of Quantities)

Option C of NEC4 refers to ‘target contract with activity schedule’ whilst Option D of NEC4 refers to ‘target contract with bills of quantities’. Given that Option C and Option D are substantively very similar, these options will be examined jointly under this section of the article. By way of background, ‘target contract’ refers to the accepted tender offer which include final tender price that formed the parties’ agreement. The general idea is that this final tender price will become the initial basis of calculating pain/gain share mechanism. By way of simple illustration, suppose the parties split the pain/gain share by 50:50 and the final tender price is $1mil. If the final construction cost is $0.9mil, savings (gain) of $100k will be split equally and likewise any cost overrun (pain) beyond the target sum of $1mil will be split equally. The challenge however is administering the construction cost account in a transparent manner where much of the treatment of financial details are agreed upfront. In other words an open book approach is necessary. There is no equivalent provision under the PSSCOC Option Module E possibly due an extraordinary amount of contract administration effort that this option entails. Notwithstanding that having a target contract with pain/gain share mechanism aligns the parties’ financial interest considerably, arguably much more than either the remeasurement contract or lump sum contract. 

The open book approach under this option meant that much of the design to the construction works may not be fully developed at the point when the agreement is formed. This could either due to (1) the nature of the construction works which may involve underground construction with unknown soil conditions and subterranean obstructions, or (2) the contractor is engaged earlier than conventional timeline to assist with pre-construction activities as well as providing constructibility input to design development so as to assist with fast tracking project schedule. Therefore there are usually considerable level of uncertainty in respect of the scope of works at the point when the contractor is engaged. The project design may have been partially developed without the necessary details that are required for the tenderers to provide their lump sum pricing. In order to prevent scope uncertainty to fester into overall commercial uncertainty, parties agree on ‘Defined Cost’ and ‘Disallowed Cost’ in advance. As regards the former, the contractor will provide a discrete list of cost components which broadly represent resources necessary to carry out the works, whilst the latter represents cost that are not justifiably incurred by the contractor, if any which will be subject to deductions. The monthly progress payment will be derived based on the Defined Cost (subject to any deductions of Disallowed Cost) multiplied by Fee. Therefore, the contractor gets paid based on actual costs incurred (per Defined Cost) plus agreed fee (or profit) which are subject to site records and appropriate verification. This is why it is considered an open book approach.

Since Option C and Option D are based on an open book approach, what would be the purpose of establishing Activity Schedule and Bills of Quantities under the respective options? In short these pricing schedules are used to define the initial accepted tender price (i.e. target contract). Going back to the earlier simple illustration, it is used to establish the $1mil which in turn defines the basis of pain/gain share. Under Option C, the pricing schedule used is Activity Schedule (which is explained in detail under Option A) whilst Option D the pricing schedule is Bills of Quantities (which is explained in detail under Option B). However unlike Options A and B, these pricing schedules are not used to administer progress payments due to the open book approach. After all pricing schedules exhibit ‘prices’ rather than ‘costs’. It should be noted that the target contract which tracks the initial accepted tender price is not static. The occurrence of Compensation Events (i.e. delaying and disruptive events that could bring about time and/or cost implications) will be added to (or deducted from) the initial accepted tender price. Therefore the final pain/gain share is administered after considering cumulative financial implications of all Compensation Events. By way of illustration, if Compensation Events amounting to $300k is applied to the $1mil project, any gain share is split if the final construction cost is below $1.3mil. The reverse is true when it exceeds $1.3mil.

In view of the above, it appears that Option C and D seemed conducive for collaborative contracting given the alignment of financial interest between the parties. Perhaps the better way of describing these options is that it is ‘more conducive’ rather than ‘absolutely conducive’. This is because it can be both challenging and contentious to determine the cost and time impact of most Compensation Events when the project design is partially developed and the construction programme is not derived based on firmed scope of works. The basis of measurement can be vague when the benchmark of what constitute original scope of works is not crystallised. It is not straightforward to determine if any design initiative is a natural part of design development or a variation to the existing design. Therefore a successful implementation of Option C and D of NEC4 depends on parties’ ability to have clear delineation of responsibilities even if the design and scope of works are evolving. Some may argue that ‘clarity in ambiguity’ is an oxymoron. 

NEC4 Main Option Clause – Option E (Cost Reimbursable Contract)

Option E of NEC4 refers to cost reimbursable contract. In essence this is also an open book approach that is substantively similar to Option C and D explained above. The application of Defined Costs, Disallowed Costs and Fee are in place under Option E. However, target contract and the associated pain/gain share mechanism found under Options C and D are not applicable under Option E. This notable distinction also explains why Option E is provided for as a separate procurement pathway from that of Options C and D. Whilst reimbursable contract and target contract are adopted when the project design and scope of works are uncertain at the point when the agreement is formed, the extent of design uncertainty or fluidity generally differs between these options. Under target contract approach, the tenderers are able to populate their indicative pricing into the Activity Schedule or Bills of Quantities as the design available is likely to be at the stage of schematic design or concept design. Therefore whilst the tender drawings are not sufficiently developed to commence construction works, it is sufficiently informative to facilitate indicative pricing. Reimbursable contract under Option E on the other hand is likely to be confronted with much less design at the point when the contractor is engaged. This is likely to be the choice of procurement pathway when the project in hand may be prototypical in nature and any pricing provided are unlikely to be commercially meaningful. Therefore, ‘accepted tender price’ is not suitable for administration of pain/gain share mechanism. After all pricing can only be as accurate as the definition of scope of works. 

The parties naturally place more emphasis on Defined Costs, Disallowed Costs and Fee as the basis of making interim progress payments. The great degree of uncertainty in scope of works in turn makes any reliance on the baseline programme to be challenging. Therefore any assessments of Compensation Events are primarily based on unit rates found in Defined Cost or provision of advance quotations by the contractor.

It is therefore fair to say that under Option E of NEC4, the risks allocation is disproportionately placed on the Employer. Some may argue that the contractor will find limited commercial incentive to collaborate (apart from establishing positive working relationship for prospect of future businesses). Productivity and commercial efficiency are unlikely the contractor’s foremost considerations since it will be mostly reimbursed for cost incurred (plus profit). There is no equivalent procurement pathway under PSSCOC Option Module E, although the use of daywork rates as one of the methods to value variations exhibit certain resemblance to Option E of NEC4. Whilst the risk allocation may not be appealing to the Employer, this is a useful procurement pathway if the Employer is embarking on construction of certain highly unique and prototypical facility with an aggressive schedule. It allows a great degree of overlap between preliminary design and construction activities.

NEC4 Main Option Clause – Option F (Management Contract)

Option F of NEC4 refers to management contract where not only the contractor is relieved from most of the commercial risks much like Option E, but the Employer also takes a lead role in identifying specialist contractors and trade contractors to execute the construction works. The term ‘management contractor’ therefore means a contractor that primarily plays a management role in coordinating and supervising these specialist contractors by engaging them directly as subcontractors. The contractor is expected to have very limited responsibility in carrying out any of the works apart from the oversight responsibility. Whilst the Employer does not have any direct contractual relationship with these subcontractors, it is expected to pay the management contractor an agreed fee for its management responsibility and in exchange for the contract privity. Since the contractor is not expected to carry out much of the works, the Defined Cost under Option F is mainly payments due to the subcontractors rather than unit costs and rates submitted by the contractor for the works. Some have described the management contractor as a ‘payment conduit’ to the subcontractors. There is no equivalent procurement option under the PSSCOC Option Module E.

As mentioned earlier, Option F under NEC4 has significant impact on parties’ collaboration since much of the commercial risks rest on the Employer. It is noteworthy that Option F in this case not just affect the contractor’s willingness to collaborate but also its ability to do so given that it has very limited responsibility in carrying out the actual works on site. Much of the specialist subcontractors are likely procured and ‘nominated’ by the Employer to the contractor. Therefore the contractor’s influence on the actual work done on the ground is relatively limited as compared to other procurement pathways previously mentioned. In this regard, the contractor is occasionally viewed as a proxy of risks on behalf of the collective subcontractors.

Conclusion

The choice of procurement pathways can have a significant impact on the success of collaborative contracting perhaps superseding the other of its general features e.g. key performance indicator (KPI), early notification register, partnering workshop etc. The main reason for such overwhelming influence of procurement pathway is due to its underlying premise of risk and reward ratio. Parties are more likely to collaborate not when they are contractually obligated to do so but rather when they are financially motivated to act in mutual interest.

Koon Tak Hong Consulting Private Limited

Collaborative contracting is a contracting model for construction projects that incorporates elements of shared goal and partnership between parties by having alignment in their commercial interests. This article is Part 2 of an article series examining collaborative contracting from a practical commercial perspective. In Singapore, NEC4 and PSSCOC Option Module E are the two contract forms available for parties seeking to enter into collaborative contracting. This novel contracting model is generally considered to be in diametrically opposite direction to traditional contracting of which parties’ contractual relationship is adversarial in nature. In an ideal world, collaborative contracting could convert parties from ‘competing’ to ‘cooperating’. 

In previous Part 1 of this article series, several unique features of collaborative contracting were examined including the use of Key Performance Incentives (KPI), concept of ‘spirit of mutual trust and cooperation’, implementation of partnering workshops etc. These concepts were examined by understanding the general features of NEC4 and PSSCOC Option Module E. By way of context, PSSCOC refers to Public Sector Standard Conditions of Contract for construction works published in 2020. It is commonly used for traditional design-bid-build projects in Singapore. Parties may switch to collaborative contracting by bolting on Option Module E to the PSSCOC. NEC4 on the other hand is an established international engineering and construction contract with its latest edition published in 2017. NEC4’s formal adoption in Singapore was first announced in 2024 through development of ‘Y Clauses’ for localisation purposes. 

In Part 2 of this article series, various notable contract administration matters will be discussed from a commercial perspective including the adoption of Early Notification Register, provisions on revision of construction programme, dispute resolution mechanism etc. Finally, this article will delve into the question on how sharing of design responsibilities between contracting parties may affect opportunities for them to collaborate.  

Early Notification Register/ Early Warning Register

Under Clause E3.0 of PSSCOC Option Module E, Early Notification Register refers to a list of events that may have adverse impact on the project. It is unique to collaborative contracting in that the events listed in this register is based on early warning mutually notified between the representatives of the contracting parties. The events listed in this register provides both parties the opportunities through ad hoc or scheduled meetings to cooperate, propose solutions and jointly implement remedial actions in a timely manner. Under traditional contracting model, the Employer’s representative is usually under no obligation to give early warning to the contractor of any adverse event. The contractor however is required under traditional contracting to provide advance notice of any adverse event in compliance with certain condition precedent obligations so as to preserve its rights to claim for additional payment and/or extension of time. Therefore traditional contracting in this regard lacks reciprocity. A similar register can be found in Clause 15 of NEC4 whereby it is labelled as Early Warning Register. 

It is customary that as a matter of project management practice, large construction projects typically adopt some form of ‘risk register’ that gets regularly updated. In this regard, certain contingency sum is assigned to various identified risk events. So what exactly is novel or unique about early warning/ notification register under collaborative contracting? Firstly, risk register occasionally adopted in traditional contracting is part of the construction management reporting tool devised and implemented mostly by the main contractor through its own volition. Such discretionary tools are not specified under the contract. On the other hand, Early Notification Register is expressly provided for under the collaborative contracting agreement whereby either party may make a formal request for the other party to attend the relevant early notice meeting. Failure to participate is technically a breach of contract, although the exact ramification is subject to debate. The elevated sense of contractual formality may be of assistance in getting the necessary attention from the appropriate senior management whose decision making authority may be required. 

The effectiveness of Early Notification Register is dependent on the types of event that would qualify to be included in such register. It is a balancing act. An indiscriminate over zealous approach to this register may dilute its significance with overwhelming amount of events whilst an overly conservative approach may have the opposite effect. Under Clause E3.0(2) of the PSSCOC Option Module E, the qualifying events include those that (a) may lead to an increase in the contract sum, (b) may result in delay to time for completion(s), (c) may have an adverse impact on the performance of the works and (d) may have an adverse impact on the achievement of KPI. Under  Clause 15.1 of NEC4, the qualifying events are largely similar except that those that may have adverse impact on KPI are excluded. Further, the NEC4 register has an additional type of event namely those that may increase ‘the contractor’s cost’. This is distinct from a separate ground referred to as ‘increase the total of the Prices’ or contract sum. In other words, the Employer’s representative is not excused from his obligation to warn the contractor even if he believes that the event does not increase sum payable under the contract. The Employer’s obligation to warn is effectively extended to those events that may financially affect only the contractor. In reality, whether certain event may result in additional compensation to the contractor (thus increase in contract sum) may not be entirely clear at the outset. The Employer’s representative under PSSCOC Option Module E may be able argue that it did not issue any warning because he believed that the event in hand could not result in additional payment to the contractor. It is fairly difficult to determine if such argument is an afterthought. Therefore the NEC4’s approach is arguably more all encompassing. 

Early Notification Register is contractually significant beyond a mere discretionary construction management tool because it allows the affected party(s) (contractor and/or the Employer) to mitigate the time or cost implications arising from the notified risk event. As a general rule, early mitigation could reduce any ensuing adverse impact quite significantly. This is the reason why even under traditional contracting, the contractor is usually required to comply with certain condition precedent by way of notification if it wishes to claim for additional payment or extension of time. The idea is similarly to afford the Employer an opportunity to mitigate the effects to the extent possible for any compensation event. In fact the condition precedent under traditional contracting is so stringent that any failure to comply with such notification may extinguish the contractor’s entitlement to compensation. The contractor is generally not at liberty to argue that the failure to notify was inconsequential because the impact of the event could not have been mitigated. 

Such condition precedent remains relevant and in force even under collaborative contracting. Naturally one may ask whether the early warning notified under Early Notification Register could simultaneously amount to fulfilment of condition precedents under the contract. The general answer is no. Under Clause E3.0(4) of PSSCOC Option Module E, the contractor’s duty to comply with condition precedent is without prejudice to the implementation of Early Notification Register. Under Clause 61.3 of NEC4 states amongst others that if the contractor fail to notify the Project Manager within eight weeks of becoming aware of a compensation event, the prices, the completion date or a key date are not changed. Further Clause 61.5 of NEC4 states that if the Project Manager decides that the contractor did not give an early warning of the event which an experienced contractor could have given, the Project Manager states this in the instruction to the contractor to submit quotation. Thereafter Clause 63.7 of NEC4 further states that if the Project Manager has stated in the instruction to submit quotations that the contractor did not give an early warning of the event which an experienced contractor could have given, the compensation event is assessed as if the contractor had given the early warning. In other words, the basis of assessment is as if the Employer had the opportunity to mitigate the risk of the event concerned. If the consequences could have been significantly mitigated or even avoided in its entirety if early warning was in place, the contractor’s compensation could be significantly reduced or even be wholly extinguished. 

In view of the observations above, parties should be mindful of not conflating ‘collaborative’ as a form of ‘concession’ or ‘waiver’ of requirements. Whilst the contractor may be paid incentive amounts in accomplishing KPIs under collaborative contracting, there may not be any financial payment to the contractor for elimination or avoidance of risks within the register. Ironically, the contractor is typically entitled to additional payment or extension of time (which in turn may attract prolongation claims) for materialisation of various risk events where there are express grounds for claim. Therefore one should not be overly surprise if there is a financial dilemma on the part of the contractor as regards its participation in early notification register. Consequently the Employer ought to ensure that the KPI stipulated are in sync financially with its early notification register. If the Employer becomes maniacal with the enforcement of condition precedents, it should not be surprising if that affects the contractor’s sincerity in its participation of early notification register. 

Revision Of Programme

One of the more significant amendments included in Option Module E relates to Clause 9.2 of PSSCOC which deals with the subject of revision of programme. Under Clause E7.0 of Option Module E, the original Clause 9.2 of the PSSCOC is replaced by a relatively elaborate mechanism which governs the ways in which parties should deal with any revision to previously accepted programme. In general there are timelines included in this new mechanism for the contractor to comply with the request for a revised programme from the Superintending Officer as well as for the Superintending Officer to respond accordingly. Timelines are also included for the contractor to issue a further revised programme in case the first draft was unacceptable to the Superintending Officer. This is a departure from the original Clause 9.2 under the traditional contracting model with lesser degree of specificity. In reality most of the new timelines found in Clause 9.2 is fairly similar with those timelines prescribed in Clause 9.1 which relates to the submission and acceptance of the very first baseline programme. Therefore E7.0 of Option Module E effectively replicates the timelines found under Clause 9.1 to Clause 9.2.

A similar provision relating to revision of programme can be found in Clause 32 of NEC4. Whilst NEC4 does not include timelines in the manner set out under PSSCOC Option Module E, there are more explicit substantive requirements stipulated especially on the types of particulars that are expected in the revised programme. By way of example, the revised programme shall indicate the actual progress achieved at the point in time of programme revision including the effects on the timing of the remaining works. Therefore, the revised programme is a factual contemporaneous programme that could provide more options in terms of delay analysis. Assessment of extension of time through delay analysis can often be contentious when there are limited number of mutually agreed contemporaneous programme. Such limitation often curtail the methods available for delay analysis. The revised programme is also inclusive of the contractor’s plans on how to deal with any delays and corrective measures on defects. Therefore the time impacts of any delaying event is evident from the revised programme, which in turn is a reflection of the contractor’s very own delay analysis. The Project Manager is naturally induced to provide his own perspective if he disagrees with the analysis exhibited particularly with the veracity of time impact of excusable delay events. In other words, the revision in programmes actually facilitates the assessment of extension of time, on a prospective basis. These details are noticeably absent under PSSCOC Option Module E, leaving considerable latitude to the Superintending Officer to dictate the level of details required from the contractor. The true opportunity of cooperation can be elusive if flexibility or freedom is only afforded to one party.

One of the essence to effective collaborative contracting is the ability for parties to resolve issues quickly by nipping them in the bud. Apart from the obvious mitigating effect, it provides clarity to both parties on the status of their collective disputes. Contrary to popular belief, collaborative contracting is not exclusively about dispute prevention. It is a model that provides a conducive and efficient avenue for dispute resolution in conjunction with dispute prevention. The terms ‘cooperation’ and ‘mutual respect’ may suggest a collaborative partnership in avoidance of conflict. This perception may not be true and shall be elaborated further in the next section of this article. 

Dispute Resolution Under Collaborative Contracting (with Dispute Board/ Dispute Avoidance Board)

Dispute resolution mechanism under collaborative contracting is significantly more extensive than the ones found under traditional contracting. The mechanism does not merely offer more dispute resolution options but also avenues for dissatisfied party to have certain decisions or determinations reviewed within the contractual framework. These observations affirm that collaborative contracting not only focuses on resolution (as opposed to prevention) of disputes, it is also intended for larger scale projects where contracting parties are sophisticated and well-advised large corporations. 

There are two options as regards Option Module E of the PSSCOC, namely (1) with Dispute Board of SIDP and (2) without Dispute Board of SIDP. SIDP refers to Singapore Infrastructure Dispute Management Protocol 2018 which is a set of rules governing the authorities and functions of a Dispute Board. Such Dispute Board usually comprises one, two or three experts to be appointed by the parties who specialises in construction disputes. There was an earlier two part article series published in this website entitled ‘Dispute Board of SIDP – Contractor’s Perspective’ available for reference for further background and context. This discussion is aimed at Option Module E that is inclusive of Dispute Board of SIDP. The relevant provisions under Option Module E can be found in Clause E4.0. A fairly similar provision can be found in Option W3 of NEC4 which deals with Dispute Avoidance Board. Such board comprises one or three experts and is appointed under NEC Dispute Resolution Service Contract. Whilst the intricacies and nuances of Dispute Board is outside the scope of this article, it is fair to say that its concept and application are fairly commonly practised in other suites of international contract forms including FIDIC and JCT.

Under Clause E4.0 of Option Module E the amendments to the original dispute resolution provision of PSSCOC are two fold. Firstly, it introduces Clause 35A which incorporates SIDP by reference as well as an establishment of a one member Dispute Board within 60 days of the commencement of works. This board shall assist parties in preventing, managing and resolving differences or disputes. In doing so, such board is authorised to act as a mediator, to provide an opinion or to render a determination as it relates to disputes between the parties relating to the contract. Secondly, Clause E4.0 also introduce significant amendments to the original Clause 35 of the PSSCOC which deals with its multi-tiered dispute resolution clause. These amendments are to dovetail the functions of Dispute Board with the existing dispute resolution provisions for avoidance of conflicts or ambiguities. By way of example, the Dispute Board is authorised to review any decisions made by the Superintending Officer in his dispute resolution capacity. Therefore Dispute Board does not merely resolve disputes in the first instance of referral but also discharges its appellate responsibilities. It should be noted that any traditional contracting that utilises PSSCOC with SIDP does not have such explicit hierarchy defined as regards Dispute Board relative to Superintending Officer. Under SIDP, the Dispute Board’s functions are akin to a ‘Swiss Army knife’ i.e. it plays different roles depending on the circumstances and the requests from the parties. Dispute Boards could act as a mediator to assist the parties to arrive at a commercial settlement of their disputes. It could also render an opinion on the referred dispute of which it shall be binding on the parties on an interim basis unless objected to in a timely manner by any dissatisfied party. The board could also render a formal determination of which it shall be binding on the parties. Any dissatisfied party that objects to the determination in a timely manner may have such binding determination to be in force only on an interim basis, and be finally referred to arbitration. 

Dispute Avoidance Board under NEC4 is quite different from Dispute Board under SIDP in that it is generally to assist parties to avoid disputes and where necessary provide non binding recommendations on related matters. It does not have any adjudicative powers to make determinations that is binding (whether interim or final) on the disputes. Therefore the term ‘Avoidance’ is instructive. Despite these differences, it shares certain similar characteristics as SIDP Dispute Board in that it is formed at the early stages of the project and conducts site visits periodically. This is to ensure that it has sufficient understanding of the project in hand to facilitate the discharge of its functions.

Based on the illustrations above, it appears that the dispute resolution mechanism is much more elaborate and comprehensive than in traditional contracting. So what exactly in collaborative contracting that warrants such a comprehensive dispute resolution mechanism? Is this an indication that Early Notification Register and partnering workshops may not be adequate as intended? In theory as collaboration and dispute avoidance become more effective, there ought to be a reduction in crystallisation of disputes that require resolution. Some may argue that perhaps the need for Dispute Board under SIDP is diminished given the implementation of collaborative contracting. Those who take this position may view that having mechanism for decisions to be reviewed under the contractual framework (e.g. Dispute Board to review Superintending Officer’s decision) could be counter productive in that the lack of finality allow animosity to fester. Others may take the opposite position that having the presence of a neutral Dispute Board to provide mediation in the midst of the project goes a long way in preserving parties’ relationship which is at the core of collaborative contracting. Which school of thought would prevail is a matter that remains to be seen. In any case it would be useful for parties to be alive to these contrasting views prior to entering into collaborative contracting. 

Partial Design And Build Under Collaborative Contracting

Whilst this article refers to PSSCOC for construction works which is premised on traditional design-bid-build lump sum contract, it should be noted that it is not uncommon for the contractor to simultaneously share certain degree of design responsibility under this traditional procurement route. How should partial design and build be approached under collaborative contracting? For clarity the PSSCOC Design & Build form which is the standard conditions where the contractor holds a complete single point responsibility for both design and construction of the project does not include Option Module E. This is because the Employer’s involvement is limited to the provision of its requirements (or design brief), whilst the contractor is in almost full control of the entire project. It follows that the contractor assumes most if not all of the risks leaving very limited scope for collaboration and partnering. Collaborative contracting is more suitable in an environment where both parties have a fairly equal level of responsibilities in the execution of the construction works, such as traditional design-bid-build. 

On the other hand under partial design and build, the contractor may from time to time offer design alternatives or value engineering proposals. It is also fairly common for the base scope of works under the contract to stipulate that the contractor shall be responsible for design for certain proprietary systems (e.g. facade system), overall layout coordination of mechanical, electrical and plumbing services or even compliance with certain performance based specification provided by the project consultants. These arrangements are typically pursuant to Clause 6 of the PSSCOC as regards ‘Permanent Works Designed By The Contractor’. There is also an equivalent provision under Clause X15 of NEC4 which deals with ‘The Contractor’s Design’. Under such partial design and build, the opportunities for collaborative contracting may be found in respect of the interfacing between the contractor’s design and the Employer’s design (provided through its engineering and design consultants). Interfacing works are areas where it is notoriously complex and difficult to define with absolute specificity on the delineation of design responsibility. By the nature of its ambiguity, parties are likely to be better off spending their efforts to find common grounds and solve joint problems than to take an adversarial approach.

Conclusion

Based on the issues examined above, it is clear that collaborative contracting is not the panacea to all contractual disputes. Likewise it is extremely challenging to alter parties’ mentality and attitude by way of contract conditions. However, if parties decide to take a chance with ‘collaborative contracting’, there are a whole host of advantages that they could benefit from with the appropriate dosage of sincerity and humility. Sometimes it involves saying ‘no’ to short term profit and to go after longer term relationship. That in itself is also a calculated risk.




Koon Tak Hong Consulting Private Limited

Collaborative contracting is a relatively new contracting model used in construction projects that is supposed to signify a cooperative and partnership driven working relationship between the Employer and contractor. This new approach aims to address some of the shortcomings often found in traditional contracting model that is said to be adversarial in nature where parties operate based on a zero-sum game. This article is Part 1 of an article series that reviews collaborative contracting from a commercial perspective. This article series provide a general overview of the unique features of collaborative contracting including examining some practical challenges in its implementation. These articles aim to provide readers with a balanced and nuanced understanding of this relatively new contracting model.

To comprehensively understand collaborative contracting, it is important to both know ‘what it is’ and ‘what it is not’. Firstly, whilst collaborative contracting is rooted in spirit of cooperation and partnership, there are no relaxation to obligations pertaining to time, costs and quality of the project. In other words, collaborative partners are still entitled to take legal actions in case of breach of contract to recover remedy. Cooperation should not be conflated with concessions. Secondly, whilst there are provisions to encourage collaboration, any lack of collaboration amongst participants during the course of the works does not entitle either party to terminate the contract for ‘abandonment’ or to argue that the contract is frustrated. In other words, the spirit of collaboration is a ‘good to have’ as opposed to ‘must have’. Lastly whilst there are provisions under Singapore’s public sector contract form that inculcate a collaborative environment through the implementation of ‘partnering workshops’, the success of such initiative is entirely up to the temperament of the participants. There is a limit to which a contract can regulate one’s ability to genuinely collaborate particularly when the project is under stress.

Notwithstanding the practical issues raised above, collaborative contracting is a worthwhile concept that should be considered seriously. So what are the unique features of collaborative contracting as compared to traditional agreement? In Singapore the details of collaborative contracting can be found in the Public Sector Standard Conditions of Contract (PSSCOC)  published in 2020 that incorporates its Option Module E. Apart from the public sector local contract form, NEC4 Engineering And Construction Contract that incorporates ‘Y Clauses’ is an alternative international contract form that is available for adoption in Singapore. Whilst there are certain differences between these two forms, there are overarching common features for collaborative contracting. The common features for collaborative contracting include amongst others, adoption of key performance incentives, inclusion of express provision for parties to act in a ‘spirit of mutual trust and cooperation’ and adoption of ‘early notification register’. These features will be elaborated further in this article series including other consequential amendments to standard provisions. 

Firstly as regards provisions for key performance incentives/ indicators (KPI), it aims to align the incentive structure for both parties. This is in contrast to traditional contracting where the commercial interests of both the Employer and contractor are usually at odds where the loss of one party could represent gain for the other party. Consequently contracting parties often prioritise looking after their self interest in the absence of common goal. However, it is important to note that the specific details of incentive structure, payments for achievement of goals, objective and quantifiable measurements of incentive scheme are to be negotiated and discussed between the parties. The above mentioned contract forms do not impose any specific requirements  or any proposed mechanism on the parties. 

Secondly as regards express provision for parties to act in a ‘spirit of mutual trust and cooperation’, whilst it provides clarity to the intentions of the parties it remains debatable on how it can be legally enforced. There are occasions where such provision is compared with the doctrine of good faith or fiduciary duty. However there is a lack of concrete legal precedents to suggest that these are of similar or comparable legal doctrines. 

Finally as regards early notification register, it allows both parties to mutually notify one another in case of emergence of events that may adversely affect the project. Upon notification, both parties will have the opportunity to collaborate in mitigating such notified risks. Such notification effort is in addition to the existing notification obligations or condition precedents prior to any claims for extension of time or additional payments.

In order for one to better appreciate the characteristics of collaborative contracting, it is important to have basic understanding of the general features of both the contract forms of PSSCOC with Option Module E and NEC4 mentioned earlier. This will be elaborated in the next section immediately below.

General Features of PSSCOC Option Module E and NEC4 

The eight edition of PSSCOC for construction works published in July 2020 is commonly used for traditional design-bid-build projects. Parties may switch to collaborative contracting by bolting on Option Module E to the PSSCOC. The PSSCOC with Option Module E was first used in Singapore in 2018. This option module essentially provides a list of clauses for additions and amendments to existing provisions included in the said PSSCOC. There are two versions of Option Module E available for selection namely one with SIDP and the other one without SIDP. The SIDP refers to Singapore Infrastructure Dispute-Management Protocol where parties agree to a Dispute Board (DB) comprising a panel of individuals with expertise in construction dispute. This appointed panel has the authority to mediate, render an opinion and/or adjudicate parties’ disputes arising under the contract. 

Whilst the NEC4 was published in 2017, its formal adoption in Singapore was first announced in 2024. The NEC suite of contracts was first developed in 1993 and had been used in various large scale projects across the regions including Hong Kong and London. A set of Y Clauses was developed to harmonise Singapore legislations with the provisions within NEC4 including incorporation of Security of Payment Act, Contracts (Rights Of Third Parties) Act as well as Insolvency, Restructuring And Dissolution Act etc. Relative to the PSSCOC, NEC4 offers more contractual flexibility to the parties by allowing selection of Main Option Clauses (Option A to Option F), Dispute Resolution Clauses (Option W1 to Option W3) and Secondary Option Clauses (Option X1 to X22), amongst others. The variety of contract and commercial permutations meant that parties utilising NEC4 are expected to be ‘sophisticated consumers’ who are well aware of their risk profile and commercial preferences. 

When comparing PSSCOC Option Module E with NEC4, the latter offers more procurement pathways to the contracting parties such as Option A to Option F under Main Option Clauses. NEC4 therefore provides different degrees of commercial alignment between parties beyond the agreed set of KPI. This may be welcomed by parties who favour a higher extent of alignment in financial interests in support of collaborative contracting. The details of Main Option Clauses under NEC4 as regards Option A, B, C, D, E and F will be examined in further detail under Part 3 of this article series. In general, these are types of procurement pathways available under NEC4 which have fairly significant impact on the extent to which parties may be incentivised to collaborate.

Given the variety of procurement pathways available under NEC4 which is quite distinct from PSSCOC Option Module E that includes relatively limited options, which approach is more conducive to collaborative contracting? Some may argue that having additional options may involve more upfront negotiations and extra resources expended to administer a relatively complex contract. These efforts in some way may defeat the very fabric of collaborative contracting. Those who take this position are likely to favour PSSCOC Option Module E. On the other hand, others may view KPI as ‘supplementary bonus’ which may not be sufficient to align the parties’ core interest if there are no pain/gain sharing as regards the contract sum. Those who subscribe to such approach are likely to favour the NEC4. In any case, the availability of both NEC4 and PSSCOC Option Module E provides more collaborative contracting choices to construction industry in Singapore as a whole. 

Spirit Of Mutual Trust And Cooperation vs Good Faith/ Fiduciary Duty

One of the more elusive provisions found under collaborative contracting is the requirement for parties to act in a ‘spirit of mutual trust and cooperation’. Whilst this phrase is found in both PSSCOC Option Module E and NEC4, there are considerable difficulties in determining how can this be legally enforced or what amounts to a breach of such spirit? Some have attempted to draw parallels between ‘mutual trust and cooperation’ with doctrine of good faith and/or fiduciary duty. The reason for such comparison is because the latter doctrine can be found in other areas of law e.g. the responsibility of a director to his company, the relationship between a lawyer with his client etc. Under these circumstances, there are fairly structured principles on how a fiduciary is expected to place the interests of his principal ahead of his own and also avoidance of conflict of interest. However these fiduciary relationships are quite different from that of contracting parties undertaking a business transaction. Where two business entities enter into a commercial agreement, such agreement is fundamentally a business deal that is agreed upon based on profit maximisation and self interest. Good faith doctrine on the other hand is diametrically opposite in direction from such economic view. The court in general is not ready to interpret a term where parties are expected to negotiate based on their self interest but curiously are also expected to place the counter party’s interest ahead of its own. In the case precedent of Walford v Miles, it is said that the duty of good faith is ‘inherently repugnant’ to the adversarial position of the parties involved in negotiation. 

Further it is also worth noting that the partnership and collaborative relationship is without prejudice to compliance with existing obligations under the contract. By way of example, even if the contractor notifies the Employer through early notification register of any delaying event, the contractor’s entitlement to any extension of time and/or loss and expense compensation is subject to its compliance with conditions precedents and other relevant disclosure requirements stipulated under the contract. There is clearly no relaxation of existing obligations just because the contracting parties are ready to work together in a collaborative manner. Therefore, it is challenging to imply fiduciary duty that supersedes self interest when much of the conditions imported from traditional contracting continue to prevail. 

Types Of Key Performance Incentives/Indicators (KPI) And Challenges In Administration

KPI is defined under NEC4 as Key Performance Indicators whilst PSSCOC Option Module E refers to Key Performance Incentives. Notwithstanding the difference in label, these are substantively similar under both contract forms. The use of KPI is one of the key features of collaborative contracting since it is aimed at encouraging positive behaviours or inducing positive outcomes by means of financial rewards. KPI is therefore an application of behavioural economics by combining elements of financial or economic principles with psychology.  

As alluded to earlier, there are no standard KPI or default set of mechanisms imposed on the parties. Parties are free to agree on different types of KPI including associated incentive payments depending on their project specific priorities. KPI can be used on a wide variety of matters including stakeholder management, productivity of resources, schedule/programme reliability, health and safety record etc. The basic rule is that KPI should be objectively measurable or quantifiable whereby incentive amounts will be paid to the contractor upon achievement of the defined goals or targets either throughout the project or upon project completion. Whilst the Employer is primarily responsible for establishing a set of KPIs for the contractor at the outset, additional KPIs could be negotiated and agreed between parties after contract formation for inclusion into the agreement. 

It may be intuitive that most contractors are incentivised to include as many KPIs as possible due to the additional income opportunities. However it should also be noted that generally there are requirements for the contractor to report to the Employer or its agents at agreed intervals on the status of KPIs. In this regard, the report shall include measurement of prevailing status for each KPI including forecast of achievements upon project completion. These KPI reports can be used as ‘project status report’ that provides contemporaneous data on the contractor’s performance under the contract based on a set of objective benchmarks. Where the contractor falls short on certain KPIs in which targets are unlikely to be met, early notification to the Employer as well as recovery plan are expected from the contractor. This KPI report is quite unique compared to the regular report typically provided by the contractor under traditional contracting. The format and content of regular reports are usually shaped by the contractor and may offer view points or perspectives that are sympathetic to the contractor’s position. For every ‘delay’ indicated in the regular report, the contractor may include an ‘exculpatory reason’ which makes it challenging to conclude objectively whether the contractor is performing as required under the contract. The KPI report however include a set of mutually agreed performance benchmark. An accurate and concise KPI report should allow readers to appreciate how the contractor had performed contemporaneously at a glance without delving into every bit of subjective granular detail. Where the contractor simultaneously produces its regular reports in conjunction with the KPI reports, every conflict or discrepancy between these two sets of report may be revealing for purposes of document discovery under any future arbitral proceedings.

As alluded to earlier in this article, the inclusion of KPI does not necessarily alter the procurement pathway for the project. Procurement pathway options such as design and build, traditional design-bid-build, lump sum contract, remeasurement contract etc are fundamental ways to allocate commercial risks between the parties. The general idea is that risk should be allocated to the party that is in the best position to manage it. KPI on the other hand, aligns commercial interest between the parties by offering incentive payments for achievements of certain measurable goals that are prioritised by the Employer. It is important to note that whilst KPI offers supplementary income opportunities to the contractor, there are usually no damages associated with non achievement of any KPI goals. In fact under Option X20.4 of NEC4, the contractor stand to gain incentive payment if there are improvements to any goals that were previously unmet. On the other hand, there are real financial risks shouldered by either party in the adoption of any given procurement pathway. By way of illustration, the contractor may end up expending more costs under lump sum contract than remeasurement contract if the risks undertaken materialised. 

So what are the specific types of KPI can could be considered under collaborative contracting that may induce meaningful outcomes? The considerations are largely shaped by what the Employer considers essential for the project to the extent that it is willing to expend additional monies to motivate the appropriate outcome. These variables in turn are greatly influenced by the characteristics of the project. By way of illustration, if the project involves an occupier of corporate real estate space looking to surrender part of its leased space to its landlord in advance in order to reduce operating expenses, speed of construction is of paramount importance. The sooner the Employer is able to have the designated floors reinstated back to its original condition and terminate its lease, the more it could save in terms of rental avoidance. Therefore, it is conceivable that there may be KPIs that relate to accelerated completion measured in number of days/ weeks ahead of planned completion date with incentive payments available for the contractor. This in essence motivates the contractor to treat programme ‘float’ as the project’s float rather than its own float. The incentive amount could reasonably be derived by taking a percentage of expected rental savings so as to establish ‘gain sharing mechanism’. Such projects are labelled as ‘space optimisation initiative’, where the complexity often involve migrating business units and/or critical infrastructure from the floors that are subject to advance lease termination to other remaining floors. Apart from increase in occupation density of the remaining floors, much of the critical infrastructure e.g. CRAC system, UPS, computing servers had to be migrated, thereby giving rise to risk of business disruptions. In this regard, the need for speed had to be balanced with delicate and careful execution of construction works. Therefore there could be KPIs relating to health and safety as well as adherence to specific approved construction methodology. These ‘balancing KPIs’ are important but may require finesse in its implementation. If the incentive amount for certain KPI is disproportionately larger than other ‘balancing KPIs’, the intended effects may be neutralised. Further, it should also be noted that health and safety is fundamentally the contractor’s baseline contractual obligation. There has to be appropriate language included in the contract to affirm that any KPI that intends to expedite or accelerate project completion shall be without prejudice to the contractor’s responsibility to comply safety rules and regulations.

Partnering Workshops

Clause E5.0 of PSSCOC Option Module E exclusively provides high level guidance on the organisation and participation of partnering workshops by all parties involved in the project. Whilst contract terms can effectively define rights and obligations of the parties, it remains to be seen whether it could similarly govern the parties’ willingness and ability to collaborate. Although there are no universal formulae that foster spirit of collaboration, there are a few pointers that parties should consider. 

Firstly, certain organisations that are hierarchical in its social norms may function differently from firms with ‘flat’ organisational structure. Under the former, the presence of senior leadership may inhibit the rank and file personnels from speaking freely which in turn compromises the ability to collaborate. If a partnering workshop is engaged with excessive formality and nicety, the ability to have frank and honest discussion could well be compromised. 

Secondly, although partnering workshops should not be a source of additional administrative workload by having full fledged minutes of meeting, any agreements forged in these workshops should still be documented. All parties should be clear-eyed whether any compromise or concessions made are ‘without prejudice’. Therefore parties should be judicious about the manner in which the discussions in partnering workshops are documented.

Lastly, parties should consciously determine the difference in functions between regular meetings and partnering workshops. Meetings and workshops that are scheduled back to back may end up being a spillover session with no clear distinction in purpose and significance. Parties may consider whether it is necessary to stipulate different participants between regular meetings and partnering workshops. Whilst there are pros and cons to this separation approach, one’s competence is generally shaped by his/her character and nature as a person. That is why there are task oriented individuals and relationship building individuals.

Conclusion

The issues examined in Part 1 of this article series pertaining to general features of collaborative contracting contract forms, the adoptions of KPI, the implementation of ‘spirit of mutual trust and collaboration’ as well as partnering workshop reveal that having the right conditions alone is insufficient to ensure its success. In fact, it is quite challenging to define in precise terms what ‘success’ under collaborative contracting mean. Under ordinary circumstances, the implementation of any novel idea will usually start with baby steps. However, collaborative contracting is generally meant for mid to large scale projects rather than minor works. Therefore parties who are optimistic of the benefits of collaborative contracting should be mindful that there is still an unavoidable learning process. Further interesting issues will be examined under Part 2 and 3 of this article series that may be helpful in illuminating collaborative contracting from different angles.




Koon Tak Hong Consulting Private Limited

This article examines contract and procurement risks associated with engineered facade in particular curtain wall system and cladding system that are generally used for high rise commercial buildings. Whilst building facade is commonly identified as one of the trades under architectural and builders works, it exhibits certain unique characteristics that elevate its risks profile considerably. Firstly, unlike regular architectural finishes that could be replaced multiple times within the lifecycle of a building, facade system typically last as long as the design lifespan of the building. It is uncommon for the building envelope system to be replaced in its entirety as part of the building maintenance plan. Therefore, most building owners would require the main contractor and its facade nominated subcontractor to jointly provide deed of warranty that could last as along as 12 years. Whilst such duration is much longer than that of conventional architectural products, it is still significantly shorter than the design lifespan of any building. Secondly, in cases where defects are found in the facade system it does not just implicate the owner and the occupants of the building concerned but also third parties such as members of the public in case of falling facade panels. Therefore any design and/or workmanship defect can have a disastrous and enduring effect, beyond pure economic losses. In terms of rectification of fallen facade panels, it goes beyond mere replacement and installation of new panels at affected areas. This is because the failure of selected panels may indicate a systemic problem with the building facade as a whole, therefore could involve a thorough review and inspection to other facade areas leading to rectification and replacement of other parts of the building enclosure. All these rectification works are likely to be carried out under heightened authority and/or media scrutiny, due to the possible public health and safety hazard concerns. This makes any settlement between disputing parties more challenging. Most of these issues are not thoroughly considered at the point when the facade system is first awarded to the contractor concerned. 

Given some of the unique characteristics highlighted above, one would expect that the contract and procurement risks are approached differently both during tender and construction period. However in reality, the subcontract standard conditions for facade system is usually not drafted in a bespoke manner to cater to its unique characteristics. Likewise the tender process leading to the award of facade system is not significantly different from other conventional architectural trades. These anecdotal observations suggest that there could be a dichotomy in risks perception between procurement phase as compared to the maintenance phase. The issues raised in this article hopefully will assist in bridging these risks perception gaps. In the next few sections of this article, several pertinent issues will be examined including the engineering and technical characteristics of facade system that contribute to its risks profile. These in turn raises the question of what would be the appropriate procurement pathway for facade system. The conventional approach of awarding facade system through a nominated subcontract may have inadvertently contributed to the prevailing issues. Ultimately, the Employer’s ability to truly benefit from any warranty beyond the conventional maintenance period is dependent on the contracting arrangement involved. 

Unique Characteristics Of Curtain Wall System And Facade Cladding

A curtain wall system is a form of building enclosure which comprises glass panels and supporting metal frames that is a prominent architectural feature commonly used for skyscraper that has become ubiquitous in city skyline. These glass panels spanning from floor to ceiling level enhances one’s sense of internal volume and space. Engineering wise it is designed to support its own weight as well as to manage any environmental forces that it may be subjected to e.g. wind load, air pressure differential, vibrations from adjacent construction sites, seismic activities etc. Apart from these structural loading considerations, curtain wall system plays a significant role in regulating the overall thermal transfer value which is a measure of a building’s heat gain through its envelope system. Therefore an appropriately designed curtain wall system should ideally allow natural lighting into the building whilst providing heat insulation, so as to reduce the demand for electricity to cool the interior spaces. Interestingly whilst curtain wall system is traditionally an architectural trade, there are various inter disciplinary elements of consideration in its design such as structural engineering as well as mechanical and electrical engineering. Therefore it is not uncommon to find that the Employer may engage a separate facade engineering firm as part of its team of consultants to manage its project. What is worth noting however, is that the facade engineering consultant does not usually provide a prescriptive and all encompassing design drawings to the contractor. The contractor is usually required to demonstrate how it proposes to adhere to certain performance based requirements issued by the facade engineer so as to address various architectural, structural, mechanical and electrical concerns. In this regard, most facade nominated subcontract are procured via design and build or partial design and build. The intricacies and challenges arising from such procurement pathway will be further elaborated in the next section of this article.

As mentioned earlier, there are various competing elements of design and engineering requirements that spans across multiple disciplines in most facade systems. From a structural perspective, the curtain wall system is required to be light weight and yet sturdy so as to reduce the dead load it imposes on the building structural system. Likewise, a thick and bulky glass panel and metal framing curtain wall system is not favoured architecturally due to aesthetic and space utilisation consideration. On the other hand, it is rather challenging to have on one hand a light weight and lean curtain wall system and yet provide a good heat insulation, water tightness and overall thermal properties. Therefore the competitive edge of facade contractors is in their proprietary designs that are capable of addressing some of these competing performance requirements. These proprietary design are usually protected in terms of intellectual property rights. In this regard, the principal role of facade engineers engaged by the Employer is to provide a professional evaluation and validation of engineering proposals offered by these facade contractors. 

Apart from curtain wall system, cladding system that uses metal or natural stone panels as part of the building envelope share some of the issues raised above. As the facade cladding panels used are fairly large in size and its overall dimensions, the weight of each stone panel may easily exceed 100kg per unit. Therefore the proprietary design offered by the facade contractor’s  installation system include fixing mechanism that can securely anchor the panels into the building’s external reinforced concrete wall. Whilst a cladding system is predominantly an aesthetic feature of a facade system, it shares a similar risk profile to that of a curtain wall system. Any defects  in installation that results in falling of heavy panels from high rise building is no less serious in consequences. 

Procurement Pathway – Reasons Behind Design And Build

The detail design of curtain wall system are mostly carried out by the facade contractors due to the increasingly rigorous performance expectations. This explains why the procurement pathway for curtain wall is either design and build or partial design and build, as alluded to earlier. The facade engineering consultants engaged by the Employer is mainly to provide ‘check and balance’ as the facade contractors carries out its detailed design development. The following paragraph provides a brief explanation on how the transition from ‘stick system’ to ‘unitised system’ for curtain wall have resulted in an increasing adoption of design and build procurement pathway for curtain wall system.

The rigorous performance demands on building facade system meant that the modular curtain wall panels had to be manufactured with precision under controlled and automated environment within a factory or plant. These panels are then subject to factory acceptance tests to ensure that it complies with various requirements such as thermal insulation, water tightness, air permeability as well as structural performance. Thereafter these panels are transported to site for assembly and installation. Such off site fabrication method is also known as a ‘unitised system’. Such fabrication method allows better consistency in quality and is superior to the ‘stick system’. 

Stick system is a relatively traditional but cost effective in situ construction method where various individual structural frame members such as transoms and mullions are installed on site and are subject to application of sealants for water tightness upon insertion of glazing panels. Quality consistency can be challenging under this methodology primarily because much of the on site installation are carried out manually by labourers as opposed to off site automated machineries. There are also limits to which tests could be carried out on the curtain wall system manually assembled and installed on site. 

The commercial incentive for facade contractors to transition to unitised system is the competitive edge that it progressively develops over competitors through its proprietary design. By the same token, there is very limited commercial incentive for facade engineering consultants to assume such design responsibility given the risk reward ratio. In general, the consultancy fee payable does not commensurate with the risk that may entail in case of defective facade design. Whilst Employers generally favour design and build approach which offers single point responsibility, facade system are mostly carried out by subcontractors whom they do not directly contract with. This give rise to a unique conundrum as it relates to the main contractor, which will be elaborated further in the next section of this article. 

Design And Build Subcontract Under Design-Bid-Build Main Contract

As facade systems are fairly niche and specialised, these trades are rarely carried out by general contractors or main contractors. With the help from its team of consultants, the Employer typically tender, negotiate and select the facade contractor directly before instructing the main contractor to enter into a nominated subcontract with the selected facade contractor. The gist of this arrangement is to ensure that the main contractor continue to be wholly responsible for all workmanship related issues under the project, but at the same time allow the Employer to negotiate the best possible commercial deal with the facade contractor concerned. However what if the main contractor is engaged under a traditional procurement pathway of design-bid-build? Such main contractor do not have design responsibility since it is only required to construct strictly based on design provided by the Employer’s designers/engineers. Such traditional procurement arrangement is fairly prevalent in construction of commercial buildings that commonly uses curtain wall as its facade system. As regards commercial building, the Employer is more inclined to be in direct control of its aesthetic and design development in an effort to enhance its real estate value. Therefore, whilst the main contractor may not have a design responsibility under the main contract, it is interestingly now required to be jointly responsible with the facade subcontractor for the curtain wall design upon execution of nominated subcontract. The duration of design responsibility may well exceed the period beyond the finalisation of account under the main contract. This is because most nominated subcontractor for facade system and the main contractor are expected to issue a deed of warranty in favour of the Employer for a considerable period e.g. 12 years commencing from practical completion of the project. Such warranty is usually structured under a joint and several liability, where the main contractor remains on the hook even if the facade subcontractor ceases to be in operation within the period of warranty. The intricacies and challenges under such arrangement will be further elaborated in the next section of this article. 

The commercial incentive available to the main contractor in exchange for undertaking a fairly significant facade system design responsibility is rather limited. When the traditionally procured main contract is awarded, the facade system is usually categorised as ‘Prime Cost’ Sum or PC Sum where the main contractor may include its costs for profit and attendance. The profit is usually expressed as a percentage to the nominated subcontract sum, whilst the attendance is a lump sum amount for general supervision and coordination of such trade under the main contract. The total amount for these provisions is generally within the range of 10% of the PC Sum. At the point when the main contractor provides its profit and attendance for the PC Sum concerned, the details of the facade system design are usually not available. Therefore the costing by the main contractor in this regard is done without thorough appreciation of the specific types of risk that such subcontract may entail. In any case, there are provisions available under the main contract where the instruction for nomination may be reasonably objected by the main contractor. Unfortunately as the design for curtain wall system has yet to be completely developed at the point of nomination, there is very limited basis for the main contractor to raise its objection on technical grounds as it relates to the reliability of the design proposed. 

In addition to the above, the scope of design responsibility for the facade system may not be as clear as it should be. If and when defects arise, it is not immediately clear whether such defects emanate from the facade system itself or the building elements that interfaces with the facade system. Such distinction is important because it implicates the extent to which the main contractor may be liable. Whilst the facade system is generally designed by the facade subcontractor, the building structural system is designed by the consultant structural engineer. By way of illustration, curtain wall systems or cladding systems are usually anchored to an underlying structural substrate e.g. external reinforced concrete walls, beams and/or columns. The structural integrity and performance of the facade panels are heavily influenced by the structural elements that it is anchored to. Any lack of clarity in division of responsibility may give rise to finger pointing problem when the facade system fails. 

Defects Rectification Arrangement Under Deed Of Warranty

As alluded to earlier, a deed of warranty is usually executed by the main contractor and the facade subcontractor in favour of the Employer for a considerable period beyond the completion of the project. As such warranty is normally structured under a joint and several liability arrangement, the main contractor may be left solely liable in case the facade subcontractor ceases to be in operation within the warranty period. This should be taken into consideration even if the main contractor may take comfort from the fact that its facade subcontractor shall provide indemnification on a back to back basis.

The rectification effort often involve various contractual matters beyond the physical effort to make good the defective parts of the facade works. There are various intricacies that may not be obvious at the point when the deed of warranty was executed. By way of example, the Employer may require that a complete survey of the facade system as a whole be carried out beyond the mere replacement of the facade panels in issue. This is on the basis that the facade panels that had fallen may be indicative of an underlying systemic issue with the facade system as a whole. This may lead to dispute over the scope of liability and the cost of rectification. The disputing parties may also need to agree on the engagement of a neutral and mutually acceptable expert or consultancy firm that will ‘certify’ that the rectification works are complete. When parties are already embroiled in dispute, it is often very challenging if not impossible to establish agreement on any related matters. If the facade panels involve natural stones e.g. marbles, granite, there is an additional difficulty in finding replacement panels that matches the aesthetic and visual appearances of the existing facade panels. This is because these stones are extracted from natural quarry as opposed to manufactured in a factory. Whether the replacement panels exhibit the same colour tonality and vein like features as the original marble panels can be extremely subjective particularly if the existing facade panels had already been subject to weather elements for a considerable period of time. The time and cost that the main contractor and subcontractor had to expend to make good the defective work can be extremely unpredictable.

Subcontract Practical Completion On Main Contract Critical Path

In Singapore, whilst the certifications of practical completion of buildings are carried out by the certifier appointed under the contract, there are occasions where such certification is predicated on the contractor obtaining the relevant approvals from statutory authority such as Building And Construction Authority (BCA). As regards engineered facade such as cladding and curtain wall system, the BCA requires that the design for framing and fixing of all engineered facades are submitted for its approval. These facade system installation related approvals are necessary for the BCA’s subsequent issuance of Temporary Occupation Permit (TOP) and Certificate of Statutory Completion (CSC) for the building concerned. Any Qualified Person (QP) making application for TOP and CSC on behalf of building owner must list down the relevant structural plan reference numbers of all the engineered facade on an itemised basis. 

In view of the above, complete installation and approval for facade system is a condition precedent prior to any practical completion. It follows that the facade system is highly likely to be on the project schedule’s critical path. Accordingly, any on site testing to installed curtain wall and facade panels had to be completed in advance prior to practical completion. In fact the integrity of the facade system of operational building is so critical that the BCA requires a periodic facade inspection (PFI) to be carried out every seven years for high rise buildings to prevent deterioration and defects. 

The upshot to the above mentioned sequence of procedural approvals and certification for facade system meant that any delay to facade subcontract works may delay the main contract completion as a whole. Whilst the facade subcontract sum may be a fraction of the main contract sum, any liquidated damages under such subcontract may be equal to the main contract liquidated damages. This presents a very tricky risk reward ratio for facade subcontract works. There is very limited incentive for concessions to be made by the main contractor in favour of the facade subcontractor. This is because any concession given may result in its inability to recover a back to back indemnification from its facade subcontractor if the main contractor is found liable for the full main contract liquidated damages to the Employer.

Conclusion

Contrary to popular belief, risks arising under the contract do not commensurate naturally with the expected reward or profit. Facade subcontract works is probably a good testament to this principle. Having the appropriate balance between risks and reward involves deliberate and active intervention during the procurement and negotiation phase of the project. Part of this intervention requires an in-depth understanding of any practical issues that are often contractually elusive.



Koon Tak Hong Consulting Private Limited

A typical construction contract document consists of various components such as specifications, drawings, pricing schedule etc where one may find conflicts, ambiguities and discrepancies amongst these documents. As these inconsistencies and contradicting terms may have cost and schedule implications, standard conditions of contract often include a mechanism on how these issues shall be resolved. This article provides a comparison on how the Public Sector Standard Conditions of Contract (PSSCOC) published in 2020 and Singapore Institute of Architects (SIA) Building Contract published in 2016 deal with such matters. The contractor usually has very limited role in compiling contract document as well as the production of tender document. If there is any discrepancy say between specifications and drawings produced by the project consultants resulting in a claim for additional payment by the contractor, which party should bear the financial or schedule risk? Should the contractor be responsible for its failure to detect the discrepancy in advance and clarify during tender? Or should the Employer be responsible for its consultants’ negligence in the production of their professional deliverables? 

In deciding the contractual philosophy to these questions, it is evident that both these contract forms adopt a very distinct approach. Under the PSSCOC, whilst the contractor may be entitled to compensation, there are certain contractual hurdles that it had to overcome prior to being successful in its claim. The SIA form arguably takes a more subtle approach where it does not have an equivalent claims mechanism as that of PSSCOC but it provides rules on how the contract document shall be construed and interpreted. Whilst some may favour such approach by giving parties more latitude and freedom to manoeuvre, others may frown at its lack of specificity. The details to these contrasting mechanisms will be further elaborated in this article.

It is also important to understand why contradictory terms found in contract document may give rise to claims for additional cost and time. By way of illustration, suppose architectural contract drawings indicate the use of porcelain tiles in respect of bathroom finishes but the interior design schedule of finishes instead reflected certain marble tiles which are more expensive and takes a longer time to source. Apart from the price differences between these different materials, the use of marble tiles potentially give rise to schedule risk. This is because it is more challenging to source for marbles with consistent appearance as regards its colour tonality, veining pattern etc in a natural environment such as a quarry. Assuming the contractor had calculated its contract sum based on porcelain tiles, such discrepancy in basis of pricing is deemed a ‘commercial nature’. This is quite different than discrepancy of a ‘legal nature’ stemming from conflicting choice of words used in drafting of contract conditions resulting in ambiguity in meaning. Whether a discrepancy is of a commercial or legal nature, the effectiveness of contract form in addressing such issue is largely dependent on the resolution mechanism. As a matter of comparison, it appears that the PSSCOC form caters more specifically to discrepancy of a commercial nature recognising the unique procurement process for construction industry.  What are the specific nature of construction procurement process that give rise to conflicting terms and which components within the contract are particularly vulnerable? These will be elaborated in the next section of this article.

Components Of Contract Documents That Are Prone To Conflicts, Ambiguities And Discrepancies

The above mentioned example of conflicting choice of interior finishes is is quite common in reality given the frequent value engineering exercise carried out during design development under a procurement pathway of design-bid-build. In an ideal world all design consultants ought to revise their drawings and specifications in tandem with the latest decision made by the Employer to ensure consistency. However, the frequency with which these design changes occur within a compressed design development timeframe prior to tender is a risky proposition. Consequently, it is a fairly common industry practice for the consultants to issue tender addendum at the late stage of tender or even after tender closing deadline for tenderers to amend their price accordingly. One may find that certain architectural tender drawings that are issued belatedly are not substantively in sync with tender drawings of other disciplines such as structural, mechanical and electrical services. The problem is compounded when specifications included in tender document are not drafted on a bespoke basis for the project in hand but rather ‘standard documents’ that are used repeatedly from project to project. Therefore it is quite common not just for discrepancy to arise amongst different types of tender drawings but also between specifications and drawings. 

As a matter of sequence of work flow, these addendum drawings and specifications will be issued to the consultant quantity surveyor for a corresponding update to its pricing schedule. Depending on the nature of procurement pathway of the project in hand, the quantity and/or descriptions included in the pricing schedule had to be revised accordingly. This information transition from consultant to consultant again becomes a key point of vulnerability. 

Such discrepancies, conflicts and inconsistencies are so prevalent during procurement that the ‘post tender clarifications’ or ‘tender questionnaire’ issued by the consultants to the tenderers are rather revealing. As if in anticipation of the almost inevitable conflicts within the tender document, tenderers are usually asked to confirm that in case of contradictions, the tender price shall be deemed to have included the ‘stricter’ or ‘more costly’ requirement. Such requirement effectively reverses the burden of conflict and inconsistencies on the contractor but often to the financial detriment of the Employer. Therefore as regard discrepancy that are of commercial nature, it is mostly caused by negligence that are avoidable with advance planning. 

Mutually Explanatory Of One Another – PSSCOC Clause 3.1 vs SIA Article 10 

Clause 3.1 of the PSSCOC states that contract document which consists of several sections of documents and drawings are to be taken as mutually explanatory of one another. In case of inconsistencies, the Particular Conditions, if any shall take precedence, followed by Standard Conditions. In the event of any conflict between the drawings, then the order of precedence shall be prescribed in the Appendix. The placeholder for Clause 3.1 in the Appendix relates only to drawings by allowing parties to decide by way of descending order, which drawings shall take precedence. Since architectural drawings typically leads the design development process, it will not be unusual for architectural drawings to take precedence follow either by structural or mechanical and electrical drawings. Notably the specifications, pricing schedules, tender clarifications and contractor’s submissions are not included in this provision. Clause 3.1 recognises that ‘several documents’ and drawings are part of the contract document, of which the former is likely to collectively refer to amongst others specifications, pricing schedules, tender clarifications and contractor’s submissions. However these documents are apparently subordinate to Particular Conditions, Standard Conditions and drawings. The likely rationale for allowing the drawings to take precedence is that the PSSCOC referred to in this article relates to lump sum contract where as a matter of industry practice, the drawings provide the overarching definition of the scope of works. However what is less clear is that the pricing schedules, particularly the section on ‘Preliminaries and General’ typically found under the first section commonly include various particular conditions. These are included in pricing schedule to allow the tenderer to indicate any price implications for compliance with such bespoke requirements. In most cases, these particular requirements may have intended to supersede standard conditions. Therefore parties are advised to be cautious about placement of bespoke requirements or particular conditions within contract document in light of the effects of Clause 3.1 of the PSSCOC. It is also worth noting that documents exchanged during tender such as tender clarifications, pricing breakdowns in schedules, responses to tender questionnaires are produced by the tenderer responsive to its evaluation of tender drawings provided. By way of logic, these documents to the extent that it include details that deviates from the ordinary reading of the said drawing ought to prevail.

Article 10 of the SIA form similarly deals with interpretation and construction of contract document. As with Clause 3.1 of the PSSCOC, Article of the SIA form states that the contract document shall be read and construed as a whole. Unlike the PSSCOC which stipulates the order of precedence of various parts of contract document, Article 10 by contrast states that no special priority other than that accorded by law shall apply to any one document or group of documents. Unlike the PSSCOC, Article 9(1) of the SIA form expressly require that various drawings, specifications, schedule of rates and prices that are included in contract document shall be both identified and signed by the parties. In other words during the compilation of contract document after the issuance of letter of acceptance, parties are expected to sieve through all specifications, drawings and pricing submissions exchanged during tender with the aim of only to include the prevailing versions. Whilst this may be administratively laborious, it is a necessary practice of ensuring that there are no conflicting versions of either drawings or specifications which in turn necessitate stipulation of the order of precedence. Ironically, it is also entirely possible that parties may dispute over which drawings or specifications ought to be included in contract document during its compilation process. Some may argue that such administrative hassle is completely unnecessary as parties had already signed on the letter of acceptance which ordinarily would define the list of contract documents that are binding. In other words, the signed letter of acceptance should take precedence. However it is interesting to note that under Article 9(1)(f) of the SIA form, the letter of acceptance is identified as part of ‘such other letters or documents’ that the parties may agree and attach as contract document. This suggest the letter of acceptance after all may not be accorded any special priority in determining which drawings and/or specification shall be included in the contract document in case of dispute. 

Notwithstanding the contractual mechanism that is in place to stipulate how contract document shall be interpreted and construed, there may be occasions where parties take issues over the application of such mechanism.  Where such discrepancies are of significant commercial nature that underpins the basis of contract sum, the project may grind to a halt if left unresolved. The next section of this article elaborates how PSSCOC allows the contractor to claim for additional payment and/or time, subject to compliance with certain condition precedents.

Claims For Ambiguities And Discrepancies – PSSCOC Clause 4.4

The provision allowing contractor to claim for additional payment and/or extension of time for ambiguities and discrepancies in contract is found  under Clause 4.4 of the PSSCOC. As mentioned earlier, this is unique to PSSCOC as there is no equivalent provision under the SIA form. The advantage of such provision is that it provides the certifier appointed under the contract the authority to grant contractual relief which is interim but binding. In the absence of such provision, parties may only deal with these differences under the dispute resolution clause that may involve legal proceedings. The disadvantage of such claims provision is that it typically include condition precedents that the contractor shall comply, failing which it may lose any entitlement to relief under future legal proceedings. 

Clause 4.4(1) of PSSCOC places the burden of notifying of any ambiguity, discrepancy, conflict, inconsistency or omissions found in the contract document evenly on both parties. If such ambiguity is of commercial nature that underpins the basis of contract sum or time for completion, the Superintending Officer (SO) may issue an instruction to the contractor to provide its explanation to the ambiguity concerned and make the necessary adjustment to the term involved. Referring to the earlier example of discrepancy in specification of marble tiles or porcelain tiles, such instruction shall clarify as to which tiles will be used to the bathrooms in issue. 

Upon receipt of such instruction from the SO, if the contractor is of the view that the instruction will give rise to loss and expense and/or schedule delay, the contractor shall notify the SO in writing pursuant to Clause 4.4(2). The contractor’s entitlement to any additional payment in respect of loss and expense or extension of time, is subject to its compliance with the associated condition precedents found in Clauses 14, 23 and 32. Any compensation for loss and expense will only be allowed if it could not have been reasonably foreseeable by an experienced contractor, assuming a diligent perusal of the documents submitted prior to contract. Whilst loss and expense compensates the contractor for heads of claims that are of overhead cost by nature such as prolongation cost, additional preliminaries and/or disruption cost, what is noticeably absent is the direct cost arising from the SO’s instruction. Assuming the SO’s instruction clarifies that the bathroom finishes shall be marble tiles, the loss and expense merely compensates the contractor for its additional indirect cost for managing the project over an extended period of time. The direct cost is not ordinarily compensated under loss and expense claim. In this regard, the direct cost accounts for increase in contract sum due to extra over cost of marble tiles over porcelain tiles. Interestingly, the subsequent Clause 4.4(3) states that if the SO’s instruction result in reduction in contract sum, such reduction shall be valued in accordance with Clause 20. It appears that the cost claims under PSSCOC caters to two exclusive categories namely (1) additional indirect cost and (2) reduction in direct cost.

In most cases of loss and expense claims, it is quite common for relief to be granted only if the event was unforeseeable even by an experienced contractor, such as adverse ground condition. The presumption is that the contractor is in a better position in terms of execution of construction works and therefore is able to better manage the relevant risks. However in the case of discrepancy and ambiguities in contract document, the Employer and its consultants arguably played a dominant role in preparation of drawings, pricing schedule, choice of standard conditions, specification drafting etc. A strong case could be made that it is the Employer and the Architect who had more responsibility in preparation of the contract term than the contractor. It is therefore unclear whether it made sense to place a unilateral burden on the contractor such that the ambiguities and discrepancies must not have been foreseeable by the contractor before claim is allowed. In the next section of this article, the responsibility of the drafter will be examined as regards rule of interpretation. 

The likely explanation as to why SIA form do not allow for claims in case of contract terms ambiguity can be found in its Article 8. Under this article, prices submitted by the contractor shall be inclusive of all works, including those that either indispensably necessary to carry out and bring to completion the construction works or which may contingently become necessary to overcome difficulties before completion. Such lump sum and all inclusive clause makes it challenging for contractor to successfully raise any claim that its price is not sufficient to bring the works to completion because of difference in interpretation of say specifications and/or drawings.

Contra Proferentem Rule – SIA Article 10(1)(c)

Contra proferentem is a rule of contract interpretation where in case of ambiguity, the term shall be construed against the party who was responsible for the drafting. Although contra proferentem rule works against the party responsible for the draft, it should be noted that the drafting of SIA form is led by the Singapore Institute of Architects (SIA) as opposed to the Employer. Whilst the Architect is not a contracting party, it is engaged by the Employer to act as its agent, amongst others. Therefore where the contra proferentem rule applies, it is reasonable to assume that it shall work against the interest of the Employer. This is because the Employer is usually responsible for the choice of contract form to be used and such SIA form is drafted by its agent’s professional institution.

In Singapore, where there is ambiguity in the contract conditions, the court will look at the surrounding context and the purpose of the agreement i.e. the ‘factual matrix’ to ascertain the true meaning of the term in issue. Therefore if on proper construction of the contract based on the surrounding context the ambiguity can be resolved, the contra proferentem rule need not apply. Article 10(1)(c) of the SIA form states that the contra proferentem rule shall not apply either to the Articles or Conditions of the SIA Building Contract 2016. The aim of this Article 10(1)(c) is to prevent any ambiguity to be construed against the Employer, in case contra proferentem rule is applicable. In this regard, Article 10(1)(c) act as an exclusion clause. However it is curious that such exclusion is only applicable to Articles or Conditions of the SIA form. This presumably excludes all other documents that are commonly included in contract such as specifications, pricing schedule, drawings, letter of acceptance, contractor’s submissions, tender clarifications etc. It is likely that these groups of documents may contain ambiguities that are commercial by nature than the Articles and Conditions of SIA form. Therefore the very documents that are likely to contain commercial ambiguities that underpins the basis of contract sum and time for completion are curiously excluded from the effects of Article 10(1)(c). The likely explanation for this approach is that most of these commercially related documents would contain certain order of precedence based on the dates on which these were issued for negotiation and agreement. In other words any changes or evolution to these documents would exhibit certain paper or digital trail. Therefore it is not difficult for the court to construe the appropriate meaning of the terms in issue by following the chronology of events.

Letter Of Acceptance

Whilst most of the mechanism to resolve inconsistencies and ambiguities in contract document are found in standard forms of contracts, there could be similar provisions included in letter of acceptance. In other words, there may be conflicts within resolution of conflict provisions. As the template letter of acceptance is typically provided by the consultant quantity surveyor appointed by the Employer, these templates could be used from project to project regardless of contract form adopted. These template letter of acceptance may stipulate that the terms included in such letter shall take precedence over any other conditions, articles of agreement, correspondence etc. Depending on positions taken by disputing parties, these competing provisions may give rise to ‘battle of forms’. 

Notably some may take the position that a letter of acceptance represents nothing more than an acceptance of an offer. Such letter should not introduce any new terms, unless it is a counter offer. The terms that is accepted by way of such letter could be found in the offer i.e. the tender submissions made by the contractor. Such submission typically include the standard form of contract including the provisions to resolve ambiguities, conflicts and discrepancies. Therefore, the letter of acceptance should not take precedence over the contract form adopted by the parties. On the other hand, if parties dispute over the conflicting mechanism during the process of compilation of contract document, the only document that was signed by the parties was the letter of acceptance. In this regard pending the formalisation of the complete contract document, the letter of acceptance may carry more weight of evidence from the perspective of a state court or arbitral tribunal. Therefore parties should pay special attention to the letter of acceptance to ensure that it does not create more conflict than it intends to resolve.

Conclusion

Provisions resolving conflicts, ambiguities and discrepancies do not get the necessary attention that it deserves during tender negotiations. For some, these mechanism may be regarded as ‘standard’ provisions. Unfortunately those who do not examined these provisions adequately may find that it could be a costly mistake particularly when it consist of discrepancies with commercial nature. Indeed these provisions should not be contentious during negotiation because both parties have the very same incentive to ensure clarity in contract terms.




Koon Tak Hong Consulting Private Limited