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

Liquidated damages represent a genuine pre-estimate of delay damages that may be suffered by the aggrieved party in case of project late completion. Such amount is commonly included in construction contracts and expressed as a rate of fixed sum per calendar day that shall be payable if the construction works remained incomplete by the agreed practical completion date. This arrangement offers parties upfront certainty of quantum of delay damages which in turn facilitates risk assessment. Additionally, this also relieves the aggrieved party from the burden of proving delay related losses. Liquidated damages are quite commonly used in construction projects and its application is primarily governed by the parties’ terms of agreement. This article examines and compares the application of liquidated damages under both the Public Sector Standard Conditions of Contract (PSSCOC) published in 2020 and Singapore Institute of Architects (SIA) Building Contract published in 2016. By way of background, this article is Part 9 of an article series that compares various key contract provisions between  SIA and PSSCOC.

As SIA and PSSCOC are commonly used in construction industry of Singapore, this examination and comparison provide readers with a general understanding of how treatment of liquidated damages may differ between public and private sector projects. The key difference in application of liquidated damages between SIA and PSSCOC stemmed from their unique and distinct certification regimes. As regards SIA form, a Delay Certificate needs to be issued by the Architect prior to the Employer’s recovery of liquidated damages from the contractor whereas there is no equivalent certificate under the PSSCOC. It follows that the Employer under PSSCOC is allowed to recover liquidated damages once it is established that the works have not been substantially completed by the original or extended practical completion date. Whilst some may dismiss such difference as merely an administrative formality, this cannot be any further from the truth. In fact there are quite significant reasons and implications behind these different certification approaches all of which will be examined further in the subsequent sections of this article. 

Apart from certification that may precede any recovery of liquidated damages, another interesting issue that is often overlooked during tender and procurement is whether the contractor continues to be liable for liquidated damages if its employment is terminated under the contract. In other words, is the Employer entitled to recover liquidated damages from the terminated contractor until such time the replacement contractor completes the project? Or should the recovery of liquidated damages cease at the point of termination? It appears that both the SIA and PSSCOC takes a similar approach in this regard by having express condition to affirm the Employer’s right to recover liquidated damages from the contractor in issue post termination. The express conditions are necessary because based on case precedents, such recovery would not have been permitted if the relevant conditions had been silent on this matter. So what could be the rationale behind such condition and how should a contractor carry out its risk assessment? These questions will be further elaborated as well in this article as part of the comparison between contract forms. 

Before one delves into the intricacies of application of liquidated damages set out above, it is equally important to appreciate the overarching commercial principles including how to calculate liquidated damages as well as types of liquidated damages. These basic concepts are important before any agreement to liquidated damages as the contractor is usually expected to acknowledge that the liquidated damages are reasonable and not intended to operate as penalty. Any party that does not adequately appreciate the basics of liquidated damages will often find it daunting if not impossible to effectively negotiate the relevant terms.

How To Calculate Liquidated Damages?

There are in general three methods of calculating liquidated damages namely (1) loss of income/ additional rental expenses during schedule overrun (2) extended consultancy and supervision charges and (3) additional financing costs of capital employed. Whilst none of these methods are mutually exclusive, it is customary that only one method is used in calculating liquidated damages to ensure that the ultimate sum derived in commercially acceptable. Standard conditions of contract do not typically dictate how should liquidated damages be calculated nor impose an obligation on the Employer and its consultants to divulge the formula to the contractor. It is also fairly uncommon for disputing parties to unravel the actual calculation of liquidated damages for the Employer to justify that the sum fixed is fair and reasonable to ensure its enforceability. By contrast, one of the principles established under the hallmark case of Dunlop Pneumatic Tyre Co Ltd v New Garage & Co Ltd states that even if the consequences of breach are such as to make precise pre-estimation almost an impossibility, it is no obstacle for the liquidated damages to represent a genuine pre-estimate of damage. In other words parties are free to bargain and agree on the sum of liquidated damages even if it is a mathematical challenge to be precise in pre-estimating the losses. The court is in no position to intervene if parties made a business decision as part of the function of free market. 

Given the above, it is incumbent upon the contractor to not squander perhaps the only opportunity during pre-contract to examine the proposed liquidated damages, ensuring that it is truly satisfied that the sum is fair, reasonable and proportionate. To this end, it is important to understand the basis of calculation of liquidated damages. Liquidated damages that are found to be a penalty may be rendered unenforceable. One of the classic definition of a liquidated damages that is found to be a penalty is when the sum stipulated is so extravagant and unconscionable in amount relative with the greatest loss that could conceivably be proved to have followed from the breach. This is once again one of the principles established under Dunlop Pneumatic Tyre Co Ltd v New Garage & Co Ltd. Therefore in examining the liquidated damages proposed during tender, an understanding of the underlying calculation may be instrumental in determining whether it has elements of being a penalty. Although both the SIA and PSSCOC do not dictate the ways to calculate liquidated damages, the latter form is commonly used for public sector construction works that are not necessarily revenue or income generating. The construction of public infrastructures e.g. flyovers, bridges, pedestrian paths, recreational parks, vehicular tunnels etc are of quite different nature than say private sector projects e.g. commercial buildings, condominiums. Therefore, there is no one size fit all approach when liquidated damages are calculated. 

In essence, the loss of income or additional rental expense approach is more suitable for private sector commercially driven projects. As with most pre-estimation, it is essentially a desktop exercise that includes various arithmetical assumptions. If the project involves construction of a grade A office building in downtown, there is an expected loss of income in the event of delay to project completion. Such income generally refers to rental income that is typically measured in dollar per square foot as it relates to rentable areas as opposed to gross floor areas. It should also be noted, that not all rentable areas are equal, where certain premium ground floor locations with high footfall with retail functions are likely to fetch premium rentals than other less prominent locations within the same building. Therefore if the commercial building is divided into multiple phase completions but ironically with uniform liquidated damages notwithstanding the likely difference in rentability, it is an indication that closer examination of calculations is warranted. On the other hand, if a residential development is completed late, it is not uncommon for liquidated damages to be projected based on damages suffered by prospective occupants or buyers that had to pay rentals for alternative accommodations. At the point when liquidated damages are calculated, one will be hard pressed to accurately estimate how many apartment units may be sold and therefore how many buyers may suffer such damages. Therefore it will be instructive to understand the assumptions used in calculation so as to determine whether the mathematical projection is outrageously extravagant.  

By contrast, the additional consultancy and supervision charges as well as extended financing costs of capital employed are calculations that can be made more accurately because most of these variables could be determined in advance e.g. interest rates, professional fees, extent of borrowings. These are charges already incurred by the Employer at the point when calculations are made. Computation of liquidated damages using these approaches tend to be more accurate but are relatively lower quantum than the other revenue or income driven approaches. 

Types of Liquidated Damages

Clause 25(1) of the SIA form and Clause 16.1(2) of the PSSCOC state that where the works are divided in phases, each phase shall have its own liquidated damages i.e. liquidated damages for phase of works. Where the project is not divided in phases, there shall only be one liquidated damages i.e. liquidated damages for overall works. Each phase of works, if implemented operates like a contract of its own with its own completion date, maintenance period or defects liability period as well as separate administration of extension of time. These separate and distinct mechanism allow the proper function of liquidated damages for phase of works. 

Just as the contract forms do not dictate how should liquidated damages be calculated, there is similarly no requirements imposed on the parties as to how the works should be divided in phases. It is however important to note that since each phase of works has its own liquidated damages, it follows that any delay to a designated phase of works should in principle give rise to delay damages. Where delay to any given phase of works does not in principle cause  damages, the enforcement of liquidated damages may be problematic. That observation should nudge one to reconsider whether it was appropriate to classify certain parts of works as a phase of its own. Whilst liquidated damages relieves the claiming party from the burden of proving its actual losses, it does not excuse that party from recovering losses that could not possibly have existed. Therefore in the conceptualisation of phases of works, these are important contractual considerations. By way of illustration, if a large commercial development is divided into phases, each phase is usually geographically separable and identifiable. It may be problematic if the access roads to such development is categorised a phase of works with its own phase completion date that is much earlier than any other phases of work. The enforceability of such phase liquidated damages could be in issue because even if the access roads are completed late but before the operation of the development, the Employer should not suffer any adverse financial consequences. If it could be objectively established that these roads are not required to be functional prior to the operations of the development, what could possibly justify the need for liquidated damages? Therefore having a proper logistic and operational understanding of the project is extremely crucial in stipulating an enforceable liquidated damages for phase of works.

Certification Process Prior To Recovery of Liquidated Damages

As alluded to earlier at the beginning of this article, one of the key differences between SIA form and PSSCOC relates to the certification process prior to recovery of liquidated damages. Under Clause 24(2)(a) of the SIA form the Employer shall only be entitled to recover liquidated damages from the contractor upon receipt of a Delay Certificate from the Architect. Such certificate shall include the following information: (i) original Completion Date, (ii) any duration of extension of time granted, (iii) any extended Completion Date, (iv) affirmation that the contractor is in culpable delay. As such certificate is not available under the PSSCOC, the Employer may commence recovering liquidated damages as soon as the works are not substantially completed within the stipulated time for completion or any extended thereof in accordance to Clause 16.1(1). Contrary to popular belief, whether or not works are substantially completed can sometimes be grey or subjective. ‘Substantial’ completion suggests that the works had to be ‘mostly’  or ‘significantly’ completed as opposed to ‘absolute and final’ completion. Although what constitute substantial completion is usually defined under the contract, interpreting such contractual definition involves judgment call by the certifier. Therefore in determining whether certain outstanding works are tolerable or acceptable, it is a question of whether such works may be deemed ‘minor’ and could be completed after issuance of practical completion certificate. 

To allow recovery of liquidated damages immediately if the works remain incomplete after practical completion date, could be risky because it may not be clear whether the contractor is entitled to any extension of time. The assessment of such time extensions can be time consuming as there are usually submission details that may influence the outcome of delay analysis. Therefore, if the Employer under PSSCOC commences recovery of liquidated damages unilaterally pursuant to Clause 16.1(1) without any supporting validation or certification from the Superintending Officer, there is clearly an element of risk.

The nature of the initial notification requirement under SIA form in respect of application for extension of time is less onerous than the PSSCOC. This could possibly explain why a Delay Certificate is required before recovery of liquidated damages. Under Clause 23(3) of the SIA form, the contractor is merely required to notify the Architect within 28 days of the occurrence of an event that he considers entitles him to extension of time, including reasons why there shall be delay to completion. The extent of information disclosure expected from the contractor is merely to enable to Architect to decide whether there is an in-principle entitlement to extension of time, rather than to enable to Architect to perform any delay analysis to decide the merit of its application. Therefore it is entirely possible that where the works remain incomplete after the original completion date, both parties are unclear what is the duration of time extension that the contractor is actually entitled to. This will prevent any fair and equitable recovery of liquidated damages. The implementation of Delay Certificate therefore provides a necessary and much needed point of clarity to the administration of extension of time. On the other hand, under Clause 14.3 of the PSSCOC, the notification requirement for extension of time by the contractor is relatively more extensive. The contractor is required to not merely state the delaying event but also why there may be delay, the length of delay, the duration for time extension required as well as the effects on the accepted baseline programme. By implication, when the works remain incomplete after completion date, the Superintending Officer should be in possession of the necessary details to not merely provide an in-principle determination of any entitlement to extension of time but also the actual time extension that could be granted.

Post Termination Liquidated Damages

When project completion is delayed so severely that the Employer terminates the contractor’s employment under the contract so as to engage a replacement contractor to complete the remaining works, can the liquidated damages clause survive such termination? In other words, will the terminated contractor be liable for liquidated damages after the point of termination? Under LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2011] SGHC 163, the court affirmed the well established principle that no claim to liquidated damages can be brought in respect of the period after termination, unless there is express contractual provision. In this regard, SIA form and PSSCOC provide express conditions to allow the Employer to recover liquidated damages beyond the point of termination.  

Under Clause 32(8)(i)(i) of SIA form, which deals with effects of termination of the contractor’s employment, the Employer shall be entitled to the same liquidated damages for delay as those which shall have applied under the terms of the contract if the contractor shall have completed the works on the actual completion date of the replacement contractor. Similarly under Clause 31.3(a) of the PSSCOC which deals with liquidated damages after termination, the Employer shall be entitled to the same liquidated damages for delay as those which would have been payable if the contractor had completed the works on the actual completion date of the replacement contractor. 

In reality most contractors may find it difficult to accept that they shall continue to remain responsible for the construction duration of a project which had been taken out of their hands. Further, it is likely that the replacement contractor would be required under its separate contract to complete the project within a stipulated time for completion, failing which certain liquidated damages should apply. Therefore it is possible that the Employer may be able to have access to two separate sets of liquidated damages namely from the terminated contractor and the replacement contractor for the project in issue. 

In this regard, both the SIA form and PSSCOC included provisions to allow the terminated contractor to have certain relief from the full brunt of liquidated damages in case of delay caused by the replacement contractor. Under Clauses 32(8)(i)(ii) and 32(8)(i)(iv) of the SIA form as well as Clause 31.3(b) of the PSSCOC, the certifier shall in his assessment of delay take into consideration any failure by the replacement contractor to use due expedition and diligence in completing the remaining works as well as any credit for matters post termination that shall entitle the terminated contractor to any extension of time. Whether these provisions could be administered satisfactorily in reality remains to be seen particularly when the terminated contractor would have very limited access to any information on the progress of remaining works. Therefore, the terminated contractor should endeavour to maintain contact with any subcontractors that may continue to carry out works under the replacement contractor so as to gain access to information relating to any post termination activities. These particulars could be helpful for any future legal actions. 

Any objective determination of whether the replacement contractor had carry out the remaining works with reasonable diligence and expedition is dependent on how the completion date is established under its new agreement. If the replacement contractor successfully negotiated a more relaxed and favourable completion date, the likelihood of its culpable delay is reduced significantly. The Employer may not be averse to agreeing to a more relaxed completion date with the replacement contractor if the terminated contractor continues to be liable for liquidated damages for the period concerned. Even if the project is ultimately completed by the replacement contractor, it is extremely likely that the overall construction duration is significantly longer than what was originally planned. This is considering the fact that there are certain additional procurement and negotiation activities that had to be undertaken in consequence of the termination. Much of these additional activities can only be meaningfully carried out post termination. Therefore, the Employer may argue that there is nothing untoward as regards recovering liquidated damages from the terminated contractor for such additional time taken to complete the project.

Conclusion

Based on the issues discussed above, it appears that there are more similarities than differences as regards the application of liquidated damages under both the SIA form and PSSCOC. It is also evident that for one to have a comprehensive understanding of application of liquidated damages provisions, it may not be sufficient for one to only review the relevant clauses included in the contract forms. A great deal of the logistic, operational and financial considerations of the project ought to be considered in establishing a reasonable and enforceable liquidated damages sum. In this regard, liquidated damages is one of the unique features within a construction agreement where its application involves an equal blend of both commercial and contractual principles.




Koon Tak Hong Consulting Private Limited

Minor building works generally refer to simple, basic and low risk construction project that typically involve additions and alterations of existing building space or infrastructure. Although there is no universally accepted definition of what constitute ‘minor works’ there are a variety of standard conditions of contract that cater to such projects such as PSSCOC Lite, SIA Minor Works Contract, JCT Minor Works Building Contract etc. Therefore the contractual significance of such projects is clearly felt across the construction industry, quite contrary to its label of being ‘minor’. Although minor project on its own may be small in dollar value relative to conventional project, these projects are typically of recurring nature, potentially providing a stable source of construction revenue to those who specialise in this very niche market segment. This article is Part 2 of an article series examining minor construction projects and the associated contract form such as the PSSCOC Lite. These articles are meant to provide commercial insights for those involved in minor projects namely representatives of contractors, building owners or project consultants. An examination of the unique and peculiar characteristics of minor projects suggest that one may need to take a different approach as regards the relevant procurement and contract administration matters.

In general most minor works contract forms are not drafted from scratch but originated from its ‘parent’ form e.g. PSSCOC Lite is drafted based on omissions and simplifications of selected provisions from the PSSCOC. The scope of omissions and simplifications are therefore a reflection of the unique characteristics of minor projects relative to conventional projects. These unique features warrant a different contractual approach. By way of illustration minor works are usually carried out over relatively short construction period with simple scope of works. Therefore the likelihood of occurrence of significant variations with disruptive consequences is low. Consequently under PSSCOC Lite, provisions for valuation of variations that cater to such disruptive events such as the application of daywork rates are omitted. Likewise, the provision for revision of construction programme are omitted as well amongst others.

There may be further opportunities for streamlining of contractual provisions beyond the existing amendments e.g. dispute resolution clauses, administration of delaying events etc. Some of these considerations may stemmed from the typical choice of procurement pathways for minor works project. To this end, having a comprehensive understanding of the characteristics of minor works is of assistance in any efforts to streamline and enhance its contract administration. An understanding of these characteristics may be of help to contracting parties when negotiating contract terms when tendering for minor projects.

Types Of Contracts Used For Minor Works

As alluded to earlier, there are a variety of standard conditions of contract that are dedicated to minor projects. The choice of contract form is primarily dictated by source of funding for these projects, at least in the context of Singapore. Public sector initiated and funded minor projects that are estimated between the cost range of $90,000 to $1million are likely to adopt PSSCOC Lite whereas the SIA Minor Works Contract is meant for private sector minor projects. 

Beyond the above mentioned contract forms, it is quite common for minor projects to be executed under Integrated Facility Management (IFM) service agreement. IFM vendors are typically engaged to carry out a variety of services for real estate occupiers or owners including regular office cleaning, reception services, pest control, repair and maintenance of mechanical and electrical systems as well as occasional churn and restack works. Given IFM service provider’s familiarity with the operating environment as well as the existence of a pre-agreed set of unit rates for labour resources, minor works could be carried out by the incumbent IFM vendor. The ease of contracting under IFM service agreement that avoids the administrative burden of carrying out tender, negotiating and awarding of minor works on a project by project basis is one of the key motivations of utilising IFM service agreement. However, IFM service providers are usually not specialised in construction trades which often meant that the actual works are outsourced to third party contractors. The ‘profit and attendance’ payable to IFM vendors are essentially in exchange for avoidance of administrative hassle of tendering and contracting. The terms and conditions included in IFM service agreement are also not suitable for construction works. If and when construction disputes arise, the adverse consequences of relying on IFM service agreement is often the trade off for administrative ease in contracting.

Another common contracting practice in respect of minor works is the use of Purchase Order (PO). Under this methodology, the selected contractor issues a quotation to the Employer based oral briefing during certain organised site visit(s). This quotation includes the contractor’s understanding of the scope of works as well any of its qualifications and exclusions. The Employer’s issuance of PO typically represents its ‘acceptance’ of the contractor’s ‘offer’ which is in essence the said quotation. Occasionally, the PO may include conflicting or contradictory terms and conditions relative to the quotation. If and when construction disputes arise, one of the common source of problem pertains to ‘battle of forms’ where it is unclear which set of terms should be applicable in construing rights and obligations of the parties.

Although the use of construction contract forms for minor works may not be as administratively expedient as the use of PO or IFM services agreement, it offers a more comprehensive protection and contractual clarity to both the contracting parties. It is important to appreciate that what makes construction contract form appropriate to be used for minor works as opposed to generic contract templates is that construction projects are quite different from regular supply of goods or provision of services. Although parties at the inception may have certain expectations of what the minor works may entail, the actual scope of works may differ. This is because it is quite impossible to predict with absolute certainty of what the works may actually entail regardless of the size or scale of the construction project. By way of examples, there may be obstructions discovered when ceiling panels are removed to facilitate installation of internal partition or existing services that need to be re-routed to accommodate the proposed electrical or piping works. In this regard, what makes construction contract forms unique is that it caters to unforeseeable events through the manner in which risks are allocated between the parties. Construction contracts provides clarity on whether these unforeseeable events entitle contractors to additional payments and whether additional time will be granted to the contractor to deal with these unforeseeable circumstances. Such considerations are typically not relevant under the regular supply of goods or provision of services. Therefore generic contract templates are generally inappropriate for construction works. 

Types Of Procurement Pathways For Minor Works

Choice of procurement pathways are largely a refection of the agreed commercial arrangement based on the nature of the construction works. For projects that are likely to be confronted unforeseen circumstances or with unpredictable quantities of work, the procurement pathway of choice is usually remeasurement contract as opposed to lump sum contract. For projects where the Employer prefers to be in control of the design development with emphasis on check and balance, the procurement pathway of choice is traditional design-bid-build as opposed to design and build. These logic and train of thought that typically hold true for conventional project may not always be the case for minor works. 

Much like the consideration of expedience for minor works as pointed in the preceding section of this article, it is uncommon for the Employer to adopt a procurement pathway that may be commercially sensible, but is perceived as being disproportionately burdensome. By way of illustration although minor works may have certain aspects of work that are unforeseeable, it is unlikely for it to be administered under remeasurement contract. This is because the consultancy fee and effort that may be expended may not commensurate with the likely cost that is at stake. Assuming 10% of a $500,000 minor project is subject to element of uncertainty, this amounts to $50,000. The consultancy fee to administer a remeasurement contract may be close to this very amount.

Further, minor works unfortunately do not always attract attention and scrutiny from senior management than conventional project. It is often viewed as ‘necessary evil’ of occupying real estate premises. Consequently, the element of expedience may be the overriding consideration as regards procurement pathway. By way of illustration, a minor works contractor may be awarded a project under design and build not necessarily because of its extraordinary competence in design development but rather to avoid the hassle of undertaking multiple tender and contracting exercise of engaging consultant and contractor separately. Bundling the entire scope of works becomes an administratively convenient approach. Occasionally, the minor works contractor may be directed by the Employer to engage certain design consultant with knowledge of the premises and favoured by the Employer. The contractual risk and burden therefore reside with the contractor.

Given the practical considerations and realities illustrated above, contractors ought to be aware that low contract sum does not necessarily equate to low financial risks. If the proposed minor works involve interfacing with an existing building system e.g. upgrade of power supply infrastructure to an investment bank, any design or workmanship error in the power supply may disrupt the bank’s business operations. The repercussions may amount to tens of millions of dollars in business losses notwithstanding that the contract sum of minor works may be a mere $500,000. Therefore the concentration on legal and financial responsibilities on a single entity with fairly light and fragile balance sheet purely due to administrative expedience, can be a fatal error. Minor projects can therefore be particularly vulnerable where the procurement and contracting efforts may not be executed with the necessary rigour and scrutiny as compared to conventional projects. 

Variations Under Minor Works

As mentioned earlier, as minor works are likely to be simple construction works carried out over a brief period, the likelihood of having a significant and disruptive variation works instructed is considerably low. The valuation of variation provision under PSSCOC Lite is simplified accordingly. It is however noteworthy that under both PSSCOC Lite and SIA Minor Works Contract, the authority for contract administrator to instruct variations to permanent works is preserved. Therefore, parties ought to be alive to the prospect of works being varied under minor project including the contractual ramifications that may follow such as claims for additional payments, extensions of time etc. As minor works which are largely addition and alteration works by nature tend to be unpredictable, there may be a need to instruct additional works from time to time to cater to unforeseen circumstances. By way of example, when a proposed upgrade works to electrical infrastructure interfaces with existing system, it may come to light that certain ad hoc upgrade works are necessary to accommodate new electrical load. This may necessitate variation orders. 

One of the unique aspects of variations under minor works is the application of contract rates and prices for its valuations. In procurement of minor works, it is fair to say that price competitiveness is not the foremost consideration due to lack of economies of scale. Consequently, the unit rates and prices may not necessarily be scrutinised and negotiated unlike that of a conventional project. Further, the breakdown of contract sum may not be distributed in a manner that correspond with the actual cost of works. It is not uncommon for the minor works contractor to have completed all the works by the time it receives its first progress payment. Therefore pricing schedule are often viewed as part of the perfunctory submissions. Addition and alteration works are often a blend of construction trades, where each trade is considerably low in quantity, scale and value. By way of illustration, if a minor project relates to changing of an office layout, it generally involve moving of existing internal partitions, procuring new partitions, reconfiguration of ceiling panels to accommodate new layout, re-wiring of electrical cables based on new workstation orientation plan etc. If a schedule of rate is created based on these piecemeal and ad hoc construction trades, the unit rates are unlikely to commensurate with market rates given the limited volume of works. Very often, unit rates can only make meaningful commercial sense if it is predicated by a sizeable quantity. As a mathematical illustration, a plumber may charge its client $300 to replace a water tap, and the cost remains $300 even if the plumber were to now replace two water taps. This is because bulk of the charges are fixed cost to mobilise the plumber to the site rather than the actual direct works. Therefore the reliance on contract rates and prices for valuation of variation of minor works can be problematic. Blind reliance on unit rate may cause the Employer to pay unreasonably high cost in case of addition of works and the contractor may suffer unreasonably high omission of cost in case of omission of works. Therefore, parties may consider an alternative method of valuing variations by reimbursement of cost reasonably incurred.

Programme And Delay Under Minor Works

As the contract administrator’s authority to instruct variation to permanent works is preserved under most minor works contract form, the extension of time provision is consequently a contractual necessity. This is because the Employer’s right to liquidated damages is preserved when there are mechanisms to allow time for completion to be extended due to excusable delaying events, such as variation works. In the absence of extension of time clauses, time may be ‘at large’. The tricky aspect of delay under minor works is that the regular time extension mechanism assumes that projects are scheduled to be carried out continuously throughout a stipulated duration expressed in calendar days. It is quite common however for minor works which involve additions and alteration to be carried out in a building that is occupied and in operation. Therefore the contractor’s ability to carry out works are restricted to weekends or public holidays to avoid disturbance and disruption to neighbouring tenants or occupiers. In this regard, regular time extension via additional calendar days may not meaningfully compensate the contractor if the additional calendar days granted falls on regular weekdays where the contractor is prohibited from carrying out works. In this regard, the extension of time clause ought to be amended to replace calendar days with operable days. 

Another unique challenge for minor works as it relates to delay and programme management is that since the construction period is relatively brief, the condition precedents commonly found in extension of time clauses may not operate in congruence with its original purpose. Under most contract forms, the contractor is ordinarily required to notify the contract administrator in advance if it intends to make any application for extension of time. These notification could be as long as 60 days of the occurrence of the delaying event. There may be provisions requiring the contract administrator to seek further details of the delaying event within 14 days of such notification. Whilst these notifications and disclosures aim to facilitate any delay analysis, it may not be suitable for projects that are brief, where the time for completion is say 15 to 30 days. This is because the collective durations for various notification requirements and information disclosure may well exceed the original time for completion. Therefore, under certain foreseeable circumstances it may be more productive for parties to agree in advance of any time impact in case of anticipated occurrence of delaying event such as variation orders. 

Dispute Resolution Under Minor Works

The contract sum is never an accurate indication of the maximum financial exposure that a contractor may be liable for in case of dispute. Therefore a contractor should not be under a misconception that it will not be risking more than $500,000 for a project of $500,000 in contract sum. Even if parties agree to impose a maximum amount of liquidated damages to not exceed 10% of contract sum, it is entirely possible for total damages sought under legal action to far exceed $50,000. This is because delay damages are merely part of the total damages that an aggrieved party may pursue. By way of example a minor works contractor may cause physical damage to an existing electrical system of the entire building whilst carrying out certain refurbishment work to an isolated tenanted space. Such event could result in business disruptions to other adjacent tenants including the collective loss of business revenues etc. These consequential financial losses are beyond the scope of delay damages suffered by the Employer that engaged the minor contractor in issue. Therefore any cap in liquidated damages are inconsequential. Whilst the minor works contractor are typically expected to procure insurance policy for the works, the devil is in the detail. There may be certain deductibles, co-payment or exclusions in insurance coverage that the contractor may need to grapple with using its own balance sheet.

In view of the above, parties ought to be aware that legal disputes and claims arising from minor works may not necessarily be minor. Ironically parties undertaking minor projects might be under a false sense of security and do not usually scrutinise terms and conditions particularly those that are deemed more complex with various confusing legalese such as dispute resolution clauses. Most minor works contract forms ‘inherit’ its multi tier dispute resolution clauses from its parent contract forms that were designed for larger projects. Therefore, there may be certain legal requirements to refer differences or disputes firstly to the contract administrator within a defined duration before parties may commence legal action under arbitration. Failure to comply with such strict procedural requirements may adversely affect the jurisdiction of arbitral tribunal as well as the enforceability of the eventual arbitral award. These procedural oversights can be costly and serious which are beyond the traditional contract administration expertise of parties to minor works. On the other hand, due to the possibility of significant damages sought under these legal actions, the prospect of any successful mediation or negotiation settlement can be extremely challenging. In this regard, parties may consider reverting back to traditional litigation before state court. Party autonomy under arbitration are perhaps more suitable for commercially sophisticated entities that have access to adequate legal resources.

Conclusion

The characteristics of minor works highlighted in the preceding sections of this article are by no means exhaustive but it underscore the fact that there ought to be simpler contract forms to cater to its unique requirements. There is clearly no universal consensus on what should be the scope of simplifications to contract provisions in this regard. Indeed it is not simple to define what constitute simple scope of works. In any case, parties undertaking minor works particularly on a recurring basis should take the necessary effort to get familiar with the contract forms available. Simplifications of contract conditions should not be conflated with relaxation of contractual vigilance.   




Koon Tak Hong Consulting Private Limited

PSSCOC Lite refers to Singapore’s public sector standard conditions of contract for construction works estimated at more than $90,000 but not exceeding $1million. The term ‘lite’ therefore suggests that such contract form caters to relatively low cost or minor construction project which require simpler contract conditions due to its reduced risks profile. Its adoption takes effect from 1 May 2025 onwards. PSSCOC Lite is drafted based on omissions and simplification of certain clauses included in the original PSSCOC (8th Edition July 2020) with the aim of reducing compliance cost, balancing risk of contractors and streamline administrative processes. This article is Part 1 of a two part series that focuses on minor scale projects and the associated forms of contract. In Part 1, the focus will be on relevant clauses that were either simplified or omitted altogether from the original PSSCOC in the course of producing PSSCOC Lite. This review will enable users of PSSCOC Lite particularly contractors carrying out smaller scale construction projects for public sector to be more commercially informed. 

PSSCOC Lite can be viewed as the counter part of SIA Articles and Conditions of Contract for Minor Works 2012 of which the latter is similarly a simplified contract form of the original SIA Building Contract meant for private sector projects. Creating an abbreviated contract form for low value low risk project appears sensible given the difference in risk profile. The tricky part however is deciding the actual scope of simplification or abbreviation in the process of deriving a ‘lite’ form. The scope of amendments of PSSCOC for the purposes of producing a ‘lite’ version involves the following provisions: (1) valuation of variations, (2) finalisation of account, (3) programme revisions, (4) liquidated damages and (5) other administrative clauses e.g. appointment of Assistant of Superintending Officers, security deposit, prefabrication clauses, price fluctuation clauses etc. On the other hand, the scope of amendments for SIA Minor Works are quite different.

In deciding what constitute a ‘lite’ form, it is important to have a clear understanding of the general nature of smaller scale project apart from the obvious parameter of having lower contract sum. Firstly, smaller projects are likely to be of additions and alterations to existing space within a building rather than constructing building or infrastructure from scratch on a vacant plot of land. Such additions and alterations initiative often involve repurposing an existing space with the view of changing or enhancing its function. It follows that there may be considerable interfacing works with existing building systems. Examples include converting certain parts of storage space to office, reinstatement of previous leased space to its original condition, repair and replacement of various building systems such as lifts, water tanks, power system etc. Whilst these examples are not meant to be exhaustive, it is clear that low contract sum may not inevitably lead to lower risk. Unfortunately, there is no universal metric for measurement of risk unlike construction cost which is measured in dollar value. Therefore it is challenging to clearly stipulate with precision on what should be the risk level for projects that adopts PSSCOC Lite. Therefore contracting parties are encouraged to stay intellectually nimble by examining risks and costs in parallel. 

Another notable characteristic of smaller scale projects is the shorter construction period, ranging from several weeks to perhaps months. Risks tend to correlate positively with construction duration, in that there is limited amount of construction activities over such brief duration. Such shorter construction period allows one to re-evaluate the typical types of risk that confronts a conventional construction project such as cashflow, delay, price fluctuation in construction costs etc. By way of example, a contractor undertaking smaller project may have fully completed the works by the time it receives its very first progress payment. Therefore various contractual safeguards that are relevant for larger project such as enforcement of performance bond, revision of programme, varying methods of valuation where variation disrupts progress of works etc may not serve its purpose as originally intended. 

In the next few sections of this article, the scope of simplifications of the original PSSCOC to derive PSSCOC Lite (Construction Works) will be examined in greater detail.

Valuation of Variations

There are a few aspects of variations provisions that were either simplified or omitted entirely from the original PSSCOC. It should be noted that whilst the authority and discretion by the Employer and its agent to instruct variations under contract remained largely intact, it is the valuation of variation components that are affected. Firstly, Clause 19.3 of the original PSSCOC which deals with submissions of quotations of variations is omitted. This clause was in essence an opportunity for parties to have an advance agreement on an all inclusive cost of a proposed variation, so as to have upfront certainty on the cost implication of the said variation.  The omission of this clause under PSSCOC Lite perhaps indicates the lower likelihood of variations instructed under a smaller scale project due to possibly a brief construction period. So why are the other parts of variation provisions such as definition of variation (Clause 19.1) and authority to instruct variation (Clause 19.2) remained intact? Some may argue that the advance agreement  on cost of variation is especially important for smaller size contractors. However given the brief construction duration for smaller scale projects, the likelihood of significantly large variations being instructed is considerably lower, therefore reducing the possibility of dispute over the applicability of contract rates and prices. Where variations instructed are significantly large with disruptive effects on the regular progress of works, the prevailing contract rates may not be sufficient to compensate the contractor for the overall financial impact that ensued. Under such circumstance the ability to agree on the cost of variation in advance is particularly helpful. Therefore if a project has its final contract sum being significantly larger than the original contract sum, the choice of PSSCOC Lite may not be appropriate as it indicates considerable variations taking place during the construction period.

By the very same token, Clause 20.4 of the original PSSCOC which deals with valuation of variations using daywork rate method is omitted from PSSCOC Lite. The use of daywork rate is one of the more ‘generous’ valuation method of variation given that the contractor is compensated based on actual cost incurred in accordance with record of resources expended such as labour, plant, equipment, material etc. This daywork method is a significant departure from the application of contract rate which is typically a lump sum composite rate comprising a blend of labour, plant, equipment and material. Similarly, it is reasonable for one to question whether the omission of daywork rate valuation method under PSSCOC Lite is fair for small size contractor that is more financially vulnerable. Assuming that smaller projects are unlikely to have significantly large variations instructed that may warrant the use of daywork rate valuation methodology, this may explain the rationale behind such omission of provision. 

Clause 20.2 which deals with agreement on valuation is amended or simplified considerably under PSSCOC Lite. This provision deals with the mechanism to value and pay any variation works upon progressive completion. There are a few notable amendments in this regard. Under the original Clause 20.2(2)(b), there were elaborate mechanisms under which the contractor is required to notify the Superintending Officer when it is of the view that the variation works are substantially completed. This notification in turn requires the Superintending Officer to either certify such completion or notify the contractor on what works remained incomplete. These mechanisms were omitted in its entirety under PSSCOC Lite. Again, these omissions suggest that under PSSCOC Lite any variations instructed are likely to be minor or moderate in scale within a brief construction period. Therefore the formalities associated with certification of completion of varied works were dispensed with. Consequently, the contractor under PSSCOC Lite is expected to submit its own valuation of the variation works for payment purposes as soon as it considers that the variation work is completed. This departs from the original practice of doing so within 30 days from the Superintending Officer’s certification of completion of the varied works. Such flexibility accorded to the contractor is significant since the contractor is not constrained by the timely certification of completion by the Superintending Officer. On the other hand, the Superintending Officer’s valuation of the varied works is now streamlined. Instead of the original practice of valuing the varied works within 60 days of its own certification of completion of the varied works, he shall now do so within 30 days of his receipt of the contractor’s valuation of the said works. It follows that the Superintending Officer therefore will now, under PSSCOC Lite, certify the completion of the project as a whole, without a separate certification of completion for the varied works. 

Under Clause 20.2(2)(e) of the original PSSCOC, if the contractor disagrees with the Superintending Officer’s valuation of the varied works, it shall provide its notice of disagreement within 30 days, and simultaneously set out details of its own alternative valuation. Failure to do so within the prescribed 30 days shall prevent the contractor from disputing the same in future. In receipt of the notice of disagreement, the Superintending Officer under Clauses 20.2(2)(f) and 20.2(2)(g) of the original PSSCOC may either amend the valuation in the subsequent payment certificate or to do so during the issuance of Interim Final Accounts, to the extent that the Superintending Officer agrees with the contractor’s position. Under the PSSCOC Lite, these provisions are simplified by the removal of the 30 days time frame restrictions imposed on the contractor. The Superintending Officer may amend his valuation in the subsequent payment certificate. Any outstanding dispute over valuation of variations shall be referred to Clause 35.1 which pertains to references of dispute to Superintending Officer, as part of the multi-tiered dispute resolution clause. The application of Clause 35.1 remains in force under both the original PSSCOC as well as the PSSCOC Lite. 

The scope of simplifications of the above mentioned Clauses 20.2(2)(e), 20.2(2)(f) and 20.2(2)(g) from the original PSSCOC serve as a timely reminder on why variations constitute a fertile ground for disputes. The contractor not only is required to carry out additional works to the required standards and potentially be in dispute over scope of compensation, but also to comply with requirements on manner in which valuations are disputed. In this regard, there appears to be considerable contractual relief provided to the contractor under PSSCOC Lite. 

Revised Programme

Clause 9.2 of the original PSSCOC which deals with revision of programme is deleted from PSSCOC Lite. Under this clause, the Superintending Officer may at any time during the construction period instruct the contractor to supply additional particulars of the accepted baseline programme or to submit a revised programme if he is of the view that the works is not progressing in accordance with the agreed baseline programme. The contractor under this clause shall comply with such instruction within seven days to show how it intends to complete the works within the original Time for Completion. Apart from the value of providing schedule remedial measures, it is also an important part of any eventual delay analysis in case of assessment of extension of time or in deciding on issue of liability for liquidated damages. 

Given that clauses for liquidated damages and application for extension of time continues to be in force under PSSCOC Lite, it would appear that Clause 9.2 that enables the provision of revised programme continue to be relevant and necessary. On the other hand, this is balanced by the likelihood of a shorter construction period for projects using PSSCOC Lite which in turn reduces the risks of delay considerably. As the requirement for baseline programme under Clause 9.1 continues to exist under PSSCOC Lite, including the financial implications of failure to submit an adequate baseline programme provided for under Clause 9.4, it is clear that programme remains important for both small and large projects. Therefore even with the absence of Clause 9.2 under PSSCOC Lite, it should not prevent the contractor from taking the initiative of providing a revised programme in the event of schedule overrun, whether due to excusable delaying event or not. This is because the provision of revised programme should not be viewed as an administrative burden but rather a  helpful tool for any future application of extension of time. In other words, the deletion of Clause 9.2 may not be intended to diminish the value of any revised programme since parties are still free to utilise any revised programme in the absence of mandatory conditions.

Liquidated Damages

Under PSSCOC Lite, liquidated damages payable by the contractor pursuant to Clause 16.1 shall not exceed 10% of the contract sum cumulatively. This amendment is reflected in the Appendix of the Conditions of Contract. The wordings in Clause 16.1 remain unchanged. By way of illustration, a project with contract sum of $500,000 will have its liquidated damages capped at $50,000. Assuming the rate of liquidated damages for project of this scale is $5000/day, the contractor’s exposure to liquidated damages for any delay shall not exceed 10 calendar days. This provides a balance of deterring culpable delay whilst at the same time not financially crushing smaller scale contractor over its schedule default. 

It is noteworthy however that Clause 16.3 which deals with the Employer’s common law rights for damages remain unchanged under PSSCOC Lite as well. Under this clause, it is stated amongst others that the contractor’s liability to pay the Employer such loss, expense, costs or damages shall not be limited in any way whatsoever by the amount of liquidated damages for which he might otherwise have been liable for. Does this clause run counter to the cap of liquidated damages at 10% of contract sum? There are clearly two opposing views in this regard. The first interpretation is that since there is an express agreement for 10% of contract sum cap for liquidated damages, this Clause 16.3 should be read accordingly. Therefore Clause 16.3 is only applicable if the Employer is found not to be entitled in law to recover liquidated damages under Clause 16.1 e.g. default in certification procedures. In other words, Clause 16.3 should not be read as a ‘back door’ to the Appendix to the Standard Conditions which serve as particulars to the contract. The opposing view however is that, Clauses 16.1 and 16.3 could be read harmoniously in that only the former relieves the Employer from burden of proof. Liquidated damages are essentially pre-estimated of losses. Where the Employer elects to rely on Clause 16.3 to pursue additional damages above and beyond any liquidated damages cap, it is subject to the usual burden of proof. Therefore, under this alternative interpretation, it appears that the cap only relates to the scope of damages that had to be proven rather than the overall quantum of damages advanced by the Employer. 

In reality the risk of a full blown arbitration dealing with such intricacies of legal issues is rather low in view of the fact that PSSCOC Lite deals with smaller scale project. Parties however are still encourage to negotiate and document any specific clarification on this issue, if necessary. Standard conditions are after all default clauses for parties’ consideration.

Final Accounts

Final account for construction project is usually concluded over the Defects Liability Period that may ordinarily last 12 months after substantial completion (also known as practical completion). There are fairly significant changes in the process of finalisation of account under PSSCOC Lite. Under the original PSSCOC, there was an intermediary step of Interim Final Account where the Superintending Officer makes an interim assessment of the project financials to enable progress payment made to contractor pending final resolution of the project accounts. This was necessary as it was usually time consuming to sort through much of the complex issues that have financial implications such as valuation of variations, delay analysis or remedial of defective works. An interim assessment in this regard, facilitates cash flow. Under the PSSCOC Lite, the Superintending Officer proceeds directly with the Final Account without the need for an Interim Final Account, as smaller projects are expected to have less complexities and issues in dispute in the course of finalisation of account. The following are some of the specific examples.

Firstly, Clause 32.4(1) of the original PSSCOC provides for submission of Final Payment Claim by the contractor within 90 days of the date of substantial completion. Under PSSCOC Lite, the contractor shall do so within 30 days of the expiry of Defects Liability Period. At the first glance it appears that there is a delay in submission of Final Payment Claim under PSSCOC Lite that may run counter to the aim of balancing risks of smaller scale contractors. However, the contractors are free to submit its regular progress payment claim at the point of substantial completion, where necessary pursuant to Clause 32.1(2) of PSSCOC Lite. The delay in submission of Final Payment Claim can therefore be construed as an extension to the duration for submission of regular monthly progress claim.

Upon dispensing with the need for Interim Final Account found under Clause 32.5(1)(a) of the original PSSCOC, the finalisation of account effectively takes place after Defects Liability Period as opposed to during Defects Liability Period. It is expected that the Final Payment Claim under PSSCOC Lite may therefore be inclusive of any additional claims that may arise during Defects Liability Period. Therefore the Final Payment Claim under PSSCOC Lite is anticipated to be more all encompassing. Upon receipt of Final Payment Claim, the Superintending Officer under Clause 32.5(1)(a) of the PSSCOC Lite shall within 21 days provide its assessment and simultaneously issue the Payment Certificate according to such assessment. It should be noted that under Clause 32.5(3) the original PSSCOC, the Superintending Officer shall do the same within 30 days of the end of Defects Liability Period. In other words, there is no appreciable delay to the finalisation of account under PSSCOC Lite notwithstanding the later due date for submission of Final Payment Claim by the contractor. 

What happens if the contractor disagrees with the Superintending Officer’s assessment of final account? Under the original PSSCOC, Clauses 32.5(4), 32.5(5) and 32.5(6) provide a series of steps that allows the contractor to notify the Superintending Officer within 30 days of receipt of such assessment and thereafter for the Superintending Officer to respond within further 30 days either with an amendment or not. Any outstanding dispute or difference shall be subject to Clause 35 of PSSCOC multi-tier dispute resolution provision. The contractor’s failure to respond with its disagreement within the stipulated time frame is deemed to have agreed with the Superintending Officer’s assessment which then becomes final and binding. However the same is streamlined under PSSCOC Lite. In this regard, any disagreement by the contractor in respect of the final account shall be responded within 30 days and be directly subject to Clause 35.1 which is part of the multi-tier dispute resolution provision. Therefore it appears that the new provisions under PSSCOC Lite is less onerous to the smaller scale contractors.

Conclusion

Apart from the provisions elaborated in the preceding sections of this article, there are other omissions from the original PSSCOC for the purposes of creating PSSCOC Lite which are rather self explanatory and made sense intuitively. These include the waiver of security deposit under Clause 4.5, appointment of Superintending Officer’s assistants under Clause 2.4, price fluctuation under Clause 33 and Option Module D pertaining to advance payment for Prefabricated Prefinished Volumetric Construction (PPVC). Collectively, these are contractual mechanism that are less relevant for smaller scale projects. With the introduction of PSSCOC Lite there is a good chance that this will give rise to appreciable difference in tender prices, risks appetite and scope of dispute. It may be worthwhile for construction practitioners and statutory authority to make an objective and constructive assessment in due course of any notable lessons learnt from the adoption of PSSCOC Lite. 



Koon Tak Hong Consulting Private Limited