DB LECTURE 7

PART 1: PAYMENT & SOP ACT

Payment
• Payment is part of ‘consideration’ constituting a contract and is therefore a
contractual obligation
to be performed by the Employer vis-à-vis the Contractor’s performance of
obligations to build the
building.

Payment amount is the 'Contract Sum' :

- Lump Sum is 'fixed' (qty & rates) or subject to 'fluctuation' (of rates)
- Measurement / BQ is subject to 're-measurement' (of qty) and maybe also to
'fluctuation' (of rates)
- BOTH May be subject to 'variations' (changes in scope).

Note: Lump Sum v Bill of Quantities ...

- In LS ... 'under-pricing' by Contractor (due to mistake in measuring of the plans)
is the
Contractor's risk to bear.
- BQ = 'quantities' that have been priced for ... thus quantities not priced for need
to be added to the Contract Sum (usually done upon measurement of the as-built
works).

Note: if an item of work is not mentioned & priced in the BQ (but is in, say, the
drawings) ...
... this is equivalent to the BQ stating a 'nil' quantity.
... but it does not mean the item of work is not in the contractual scope
... ie the item of work is allowed for in Contract Period/programming & planning,
preliminaries &
site management, etc.
... it is not a variation, and thus does not give grounds for EOT.

• Payment under building contracts in Singapore is typically subject to:

• The terms of Contract, and
• Singapore’s Building & Construction Industry Security of Payment [SOP] Act
• Payment can be -
• … a one-off payment of the full & final amount (ie once the Contractor has
performed his contractual
obligations for the Works), or
• … made progressively as interim payments as the contractual obligations for the
Works are being performed.

Interim Payment
As with most forms of building contract, the SIA form involves ‘interim
payments’ (aka
‘progress’ payments) - the payment of the Contract Sum in instalments
leading to a final
payment for payment in full.
(contractors need constant cashflow interim payments favourable.)
In general, contract law recognises a full & final (ie 'one-off) payment of a fixed sum upon
full completion of performance (ie completion of the Works).
Interim payments (as with variations) of the Contract Sum are by provision of contract
only.

» Contract Law has not traditionally required interim payment, nor any particular mode
thereof (as it is
essentially a matter for agreement between contracting parties),
» however recent legislation in some jurisdictions has lead to statutory rights to interim/
progress payments;
• eg UK's Housing Grants, Construction and Regeneration Act 1996 legislates that a
Contractor is entitled to payment by instalments, stage payments or periodic payment
unless the contract period is less than 45 days (in which case a single / one-off payment
may be made)
• However, Singapore's SOP Act does not give a minimum length of contract period that
such oneoff
payments must satisfy.

Interim payments assist in contractors’ cashflow.

The actual determination of a contractor’s full & final payment
'entitlement' is not made until
the final payment certificate (ie reflecting the 'final accounts').
Interim payments are therefore sums paid 'on account' (ie the latest
estimates) of the final
sum the contractor will eventually be entitled to recover from the
Employer. (i.e. instalments)

Interim payment (in the SIA form of Building Contract): – 2 forms of progress
payment
Article 2 provides for Interim Payment by either:
» Fixed instalments
- payable upon completion of defined 'milestones/stages' of the Works (to
be stated in Appendix), or
» Periodic valuation of the Works
- ie pay the value of the ‘works done’ (commensurate to the parts of the
Works that are completed) at regular times throughout the period of works
being carried out.

Notes:
• In the SIA forms of Building Contract: The 'mode' of interim payment (ie 'periodic' or
'milestone/stage'*
payment) is to be selected.
• *(There may be 'milestones/stages' for payment within a Phase or similarly a
'milestone/stage' for
payment may be one-and-the-same as a 'Stage'(/Phase) for completion).

Interim payment (in the SOP Act):

Singapore’s SOP Act allows “progress payment” to be:
“(a) a single or one-off payment; or
(b) a payment that is based on an event or date”

Note: ‘Event’ may be a work ‘milestone/ stage’.

‘Date’ may be-- - a fixed date, or a recurring date (ie periodic, eg the last day of each month)

Interim Payment
- the importance of Cashflow:
… because contractors are usually paid retrospectively, ie they pay for the
running expenses of a project up-front.*
Hence, for example, to minimise:
- project financing costs incurred by the Contractor (and passed on to the Employer
through the tendered sum)
- risk of financial default by the Contractor.
The Contractor’s financial capacity / capability and arrangements to meet the needs
of a construction project is reliant on the Employer honouring the contractually-
agreed scheme of progressive / interim payments.

* For example:
1. Site set-up & site-management costs
2. Preliminaries costs (eg insurance, security deposits, etc)
3. Procurement of building materials
4. Down-payments for materials and sub-contractors
5. Lines of credit & financing charges
6. Utilities & services connection fees
7. Permits and licenses applications, including professional fees
8. Business overheads
9. etc
10. [Often needed for 'next project ...]

The SOP Act

In April 2005 the “Building & Construction Industry Security of Payment Act” {Chapter 30B}
came into
effect.

Objectives:
» To assist and improve the realisation of ‘cashflow’ (otherwise hindered by late or non-payment to
construction related
Contractors / Suppliers / Service-providers by Employers or Main Contractors)
[ie to hold Employers / Main Contractors to the contractual ‘promises’ they make to Contractors /
Subcontractors to
provide progressive payment (i) fully & (ii) on time]
» To provide quick and cost-effective resolution of payment related disputes (through ‘Adjudication’)
which can be enforced in the Courts (Adjudication = to find if the contractor is entitled to the payment.
If yes, adjudicator can make an order for the employer to do the payment. If still no payment, can be
taken to the court -> order for payment to be made.)
» The SOP Act seeks to ‘promote’ cashflow throughout the contractual chain (ie
‘all the way
down the line’) …
» HENCE: payment from (applies to contractors, suppliers & consultants)

• Employer → Main Contractor ...

– Main Contractor → Sub-contractor ...

- Sub-contractor → Sub-sub-contractor ...

» ... for both (i) supply and (ii) supply & install.

The SOP Act provides a procedure* based upon:

1. ‘Payment Claim’ served by the [Claimant]
2. ‘Payment Response’ by the [Respondent]
3. Tax Invoice (if Claimant is GST taxable)
4. Payment
And the SOP Act provides for 'adjudication' to deal quickly with payment-related disputes.
*Note: SOPA respects contractual provisions/arrangements for progress payment in the first instance.

ADJUDICATION serves to promote proper respect and treatment of a Payment Claim by

the Respondents:
1. The Claimant may refer a dispute in payment to ‘Adjudication based on
(i) Non-payment, or
(ii) Payment of amount less than claimed.
2. In an Adjudication, the Respondent can generally only submit a defense to paying less than the
amount claimed based on reasons / explanation (justified under contractual or legal rights) as has
been stated in the Payment Response, and
3. Adjudication 'determinations' are enforceable by order of the Courts.

… ie in the Payment Response the Respondent must give reasons for stating a
payment amount less than that claimed in the Payment Claim.
eg if the Respondent thinks that the claimed amount for the ‘works done’ should be valued differently
to that claimed, or
eg if the Respondent wants to make a deduction from the payment

ADJUDICATION -- a fast mechanism to get a response -> to help the cashflow FAST enough.
Has to happen quickly. // 7 days to appoint ADJ. -> 7-14 days -> ADJ make decision.

Application of the SOP Act:

The Act applies to payment under a “construction contract” or “supply
contract”
» to any such contract that is made in writing on or after 1st April 2005, whether or not the
contract is expressed to be governed by the law of Singapore // subject to ……

The Act does not apply to:

Any construction or supply contract;
» To the extent that it deals with construction work or goods or services supplied in
relation to construction
work carried out outside Singapore (but amendment being made recently to cover pre-fab
materials. To check.)
» In relation to any residential property which do not require the approval of the
Commissioner of Building
Control under the Building Control Act (Cap. 29);
» To the extent that a party undertakes to carry out construction work, or supply goods or
services, as an employee of the party for whom the construction work is to be carried out
or the goods or services are to be supplied;

"construction contract" means an agreement under which —

» one party undertakes to carry out construction work, whether including the supply of
goods or services or
otherwise, for one or more other parties; or
» one party undertakes to supply services to one or more other parties;
(incl. consultants, architects, protected by the act)
Note: Definitions of “construction work”, “goods” and “services”
are found in Section 3 of the Act.

"supply contract" means an agreement under which —

» one party undertakes to supply goods to any other party who is engaged in the business
of carrying out construction work or who causes to be carried out construction work;
» the supply is for the purpose of construction work carried out or caused to be carried out
by the second mentioned party; and
» the first-mentioned party is not required to assemble, construct or install the goods at or
on the construction site,

- salient provisions:
Sn 5 - Entitlement to Progress Payment
» Any person who has carried out any construction works or supplied goods or services* is
entitled to a
progress payment.
• This is the basis to promoting good cashflow to contractors.
* Hence Architects and Engineers etc are also covered by the Act.

Sn 6 - Amount of Progress Payment

» Entitled to amount calculated in accordance with terms of contract, or
» if no such terms, calculated on basis of value of work carried out

Sn 7 - Valuation of construction work, goods and services

» ‘work done’ is valued in accordance with terms of contract, or
» if no such terms, as per subsection 7(2).

Sn 8 - Due date for payment

For Construction Contract that does provide for a payment date:
» Date as specified or determined in accordance with terms of contract, but
» no greater than 35 days after tax invoice (if GST taxable) or otherwise the time by which
a ‘payment
response’ is required [see Sn 11].

[Note: differs for • ‘Supply Contract’ that provides for a payment date [60d after ‘payment
claim’],

For Construction Contract that does not provide for a payment date:
» no greater than 14 days * check new revision after tax invoice (if GST taxable) or
otherwise the time by which a ‘payment response’ is required [see Sn 11].
[Note: differs for • ‘Supply Contract’ that does not provide for a payment date [30d after
‘payment claim’]

Sn 10 - Payment Claims [by ‘Claimant’]

» A payment claim shall be served at such time as specified / identified in the terms of
contract, or
» If no such terms, “as may be prescribed”
[see the SOP Regs Sn 5 - “by the last day of each month …”]

Sn 11 - Payment Response [by ‘Respondent’]

For a Construction Contract that provides for a response date :
» A payment response to a payment claim shall be issued by the date as specified in or
determined in
accordance with the terms of contract, or within 21 days after the payment claim,
whichever is earlier.

[Note: differs for Construction Contract that does not provide for a response date [ie 7d
max]

Sn 12 - Entitlement to make adjudication applications

For a Construction Contract:
» A claimant is entitled to make an adjudication application …
1. where;
• he fails to receive payment by the due date of the response amount which he has
accepted, or
2. subject to a ‘dispute settlement period’, where;
• he disputes the payment response
• the respondent fails to provide a payment response within the required time

For a Supply Contract:

» A claimant is entitled to make an adjudication application where;
• he fails to receive payment by the due date of the claimed amount, or
• he disputes the response amount

“dispute settlement period”

in relation to a payment dispute refers to a 7 day period following the date by which a
payment response is required to be provided.
During which;
• clarifications may be sought from the other party
• respondent may issue a payment response where he had previously failed to do so
• respondent may vary the payment response previously provided

[Note: The intent of the SOP Act authors is to encourage parties to resolve and settle their disputes themselves,
without incurring extra
time and expense of formal dispute resolution processes, such as Arbitration and Litigation, and including
Adjudication]

Part IV - Adjudication of Payment Claim Disputes

» Sets out the rights, obligations and procedures for adjudication action
» The adjudicator shall determine an adjudication application within 7 or 14 days
(depending on the
situation).
» The adjudicator shall determine;
• the adjudicated amount to be paid by respondent to claimant
• the date on which the adjudicated amount is payable
• the interest payable on the adjudicated amount
• the proportion of costs of the adjudication payable by each party

Part V - Measures to Enforce Payment of Adjudicated Amount

Part V provides for the following:
» Sn 21 - Effect of adjudication determinations
» Sn 22 - Payment of adjudicated amount
» Sn 23 - Consequences of not paying adjudicated amounts
» Sn 24 - Direct payment from principal
» Sn 25 - Lien on goods supplied
» Sn 26 - Right to suspend work or supply
[note link from SIA Conditions Clause 33(6)]

SOP Act relative to building contracts:

The SOP Act was not intended to restrict the rights & freedoms of parties
to negotiate and
reach a commercial bargain – to agree to terms of an agreement / contract
– except to insist upon basic rights of a Contractor to receive progress
payments so as to promote a healthy and relied-upon cashflow (which, in a
collective sense, is in the interests of the wider industry and economy).

Further to the SOP Act only applying where a ‘Construction Contract’ or ‘Supply Contract’
exists …
… the SOP Act gives opportunity for the particular Contract to make provisions
from which the SOP
Act provisions will operate.*
… and only if these provisions are not expressly made in the terms of
contract, then the SOP
Regulations ‘prescribe’ a default requirement.
*Note: SOPA respects contractual provisions /arrangements for progress payment in the first instance.

Other important points to highlight:

1. SOPA respects contractual provisions/arrangements for progress payment in the first instance.
2. SOPA often falls back on “terms of the contract” (and ‘default’ SOP Act/Reg provisions only kick in if
no contract provision is
made).
3. SOPA is not intended to prevent an ‘independent certifier’ (although not directly addressed), so
accepts the benefits of a
contract administrator (Architect, S.O. etc) in main building contract forms.

SOP Act ties in with contract terms for:

» Sn 6 - Amount of progress payment can be calculated in accordance with the terms of
contract.
» Sn 7 - The works carried out can be valued in accordance with the terms of contract.
» Sn 8 - The due date for payment can be as provided for in the contract.
» Sn 10 - The time for serving a Payment Claim can be as specified in or determined in
accordance with the
terms of contract for this purpose.
» Sn 11 - The time for providing a Payment Response can be as specified in or determined
in accordance
with the terms of contract.

SOP Act and the SIA forms of building contract:

In response to the introduction of the SOP Act, the 7th Edn of the SIA
forms of Main Building
Contract were published in April 2005:
» To avoid any conflict or inconsistency between the Building Contract and the
SOP Act
» To avoid situations either in the contract terms or in operating the contract that
may be construed as ‘contracting out’ of the SOP Act.
The 8th Edn (2008) and 9th Edn (2010) of the Main Building Contracts were released primarily to further
address consistency and operational effectiveness of the form of Building Contract relative to the SOP
Act.

Ways in which the SIA forms (7th – 9th edn) of building contract have changed in light of
the SOP Act included:
» The Contractor’s serving of a ‘payment claim’ (as previously, up to the 6th Edn, the
Architect unilaterally issued an Interim / Final Certificate for payment based on the QS
valuation, without need for a 'claim').
» Payment made on Payment Response of the Employer, no longer the Interim Certificate
(although Summary
Judgment / Interim Award to enforce payment based on certificate is still provided).
» Termination of contract by Contractor now based on failure to pay an adjudicated
amount (rather than the
amount stated in the certificate)
» Introduction of Final Accounts (before the Final Certificate) – to deal with project cost
issues before the Final Claim can be submitted (considering the 21d max to respond to a
payment claim).
» Period following the Maintenance Period upon expiry of which the Architect must make
an allowance (deduction) for any defects remaining unresolved – to ensure the timeframe
by which a Contractor can make a Final Claim is not indeterminate.

Note the difference in approach to SOPA between the SIA A&CBC (7th – 9th edn)** and SIA
MWC:
eg – Interim Payment:
1. Contractor’s “Statement of Work Done” (not a ‘claim’).
2. Architect issues “Interim Certificate” within 14d.
3. Contractor’s Invoice
4. Employer to make payment within 14d
Payment Claims and Payment Responses and other SOPA provisions come under “Dispute
Resolution” in Cl. 25 of the SIA MWC ... eg if the Employer fails to pay at ‘4.’

Note the difference in approach to SOPA between the SIA A&CBC (7th – 9th edn)** and SIA
BC 2016:
STATUTORILY:
1. The SIA BC 2016 splits the 'contractual' provisions for payment from the 'statutory'
provisions:
2. The statutory provisions are in the new clause 40.
3. The contractual provisions are in clause 31.
4. Clause 40 provides timelines for payment claims, payment responses and payment, as
well as the basis
for the amount claimable under the Act.

CONTRACTUALLY:
1. The SIA BC 2016 reverts closer to pre-7th Editions ...
2. Contractor to submit 'adequate vouchers & information' to substantiate the work done
[albeit now in a "progress claim"].
3. Architect issues “Interim Certificate” on prescribed dates.
4. Employer to make payment within the stipulated "Period for Honouring Certificates" as
stated in the Appendix.

** Note: SIA BC 2016 edn has revised the approach to SOP Act ....

Further Notes on SOP Act

- No ‘contracting out’ : -- aka no refusing of the presence of SOP Act.
SOP Act Sn 36. —
» (1) The provisions of [the SOP] Act shall have effect not withstanding any provision to the
contrary in any
contract or agreement.
» (2) The following provisions in any contract or agreement (whether in writing or not) shall
be void
[hence the default provisions of SOP Act / Regs apply]:
• a provision under which the operation of this Act or any part thereof is, or is purported to be,
excluded, modified,
restricted or in any way prejudiced, or that has the effect of excluding, modifying, restricting
or prejudicing the
operation of [the SOP] Act;
• a provision that may reasonably be construed as an attempt to deter a person from taking
action under [the SOP] Act.

Particular points to avoid ‘contracting out:’

» For example, under Clause 30 of the 6th Edition the Contractor was required to pay
NSC/S “within 14 days
of receipt by the Contractor from the Employer of the amounts so due under the [Interim
payment] certificate of the Architect.”
» Such provision is not in compliance with Section 9 of the SOP Act which does not permit
‘pay when paid’
contract provisions.
[“pay when paid provisions” of a contract are unenforceable and of no effect in relation to
payment]

Provisions of the SIA forms of Contract in regard to Payment

Clause 30 - Payment of Nominated Sub- Contractors and Suppliers
Clause 31 - Payment of Contractor and Interim Certificates

Clause 30 - Payment of Nominated Sub- Contractors and Suppliers :

Clause 30 addresses payment of NSC/S (and DSC/S if their pricing is not included
in the Main Contract):
- Interim [Payment] Certificates shall state separately the amounts due to each
individual
Nominated Sub-Contractor or Supplier.
This requirement arises from the amendments to previous editions of the SIA forms (pre-
SOPA) that removed the requirement of the Architect to certify the amounts for payment to
the NSC/S and certify any direct payments if the Main Con failed to pay the NSC/S.

The requirement for separately stating amounts due to NSC/S serves two purposes:
1. NSC/S still want more ‘protection’ from Contractors who may have taken the opportunity
to under-pay them, ie NSC/S want to know what value the QS/Architect has assessed for
their particular work done, so it is not under-valued by the Contractor.
2. NSC/S works are done under utilisation (by substitution) of PC Sums and Provisional
Sums. Having Interim [Payment] Certificates state separately the amounts due to each
individual NSC/S could be argued to be redundant under the current contract provisions as
–
– the Main Contractor is now required to take full responsibility for NSC/S, including for
payment, as if the NSC/S were his own domestic subcontractor/ supplier – ie the NSC/S has no
rights or benefits directly from the Main Contract.
– The SOP Act deals independently with each contractie the Main Contract has no bearing on
the Sub-Contract, except …
– Section 24 of the SOP Act allows all sub-contractors to seek ‘direct payment from principal’.

Also note, that in regard to payment of subcontractors:

‘pay when paid’ clauses are not allowed under the SOP Act;
(even if it is said in the contract, it is deemed null/void, as it tries to contract
down the SOP Act)
Sub-Contractors (engaged under the SIA Conditions of Sub-Contract) may serve payment
claims in accordance with the terms of the sub-contract (ie Clause 14), independent of the
Main Contract arrangements for claiming payment!
The Main Contractor assumes risk of not being paid in full or on time by the Employer – the Main
Contractor must still pay the Sub-Contractor on the terms of payment (including timeline) set-out in
the sub-contract!

With this in mind, it is not unexpected that in many projects the Main Contractor asks the
Sub- Contractor to cooperate by giving a ‘draft’ claim which the Main Contractor can
include in the Payment Claim for the Main Contract - so it can be seen how much of the
Sub-Contractor’s ‘draft claim’ is accepted by the Architect / QS as basis for payment.
But – must be careful that the ‘draft’ is not able to be construed as a formal claim (especially as the
SOP Act does not require a payment claim to be identified / labeled as such).

The SIA Sub-Contract 2016 provides that the Subcontractor shall be paid within 14d of the
Period for Honouring Certificates in the SIA BC 2016 main contract.
The SIA Sub-Contract 2016 also separates 'contractual' from 'statutory' provisions: the
provisions for SOPA are in SIA S-C 2016 clause 17.
... stipulating timelines for payment claim, payment response and payment and stipulating
the basis for the amount payable (ie the interim certificates)

Clause 31 - Payment of Contractor and Interim Certificates

Clause 31

SIA A&CBC 9th Edn – Cl. 31(1) - Interim payments

Introduces the provides for interim payments as installments payable
… on completion of stages (as defined in Appendix) or
… based on periodic valuations.
[ie corresponding to Article 2, and - amplified in Clauses 31(4) & (5) respectively]

SIA A&CBC 9th Edn – Cl. 31(2) - Payment Claim

Sets out the Contractor’s right to serve a payment claim:
(a) For Periodic Payment : on either the last day of each month, or as otherwise stated in
the Appendix)
(b) For Stage Payment : on the completion of the relevant stage of the Works

… for situations of ‘periodic’ payment:

Clause 31(2)(a)(i) requires that, subject to section 10* of the SOP Act, the basis of the
Contractor’s payment
claim shall comply with the valuation rules as set out in Sub-Clause 31(4)
This is in line with Sn 6 of the SOP Act that the entitled progress payment amount be calculated in
accordance with the terms of the contract.

In regard to Payment Claim under Clause 31(2)(a)(i) :

SIA A&CBC 9th Edn – Cl. 31(4) - Interim Valuation
… relates to ‘periodic payment’ :
Sets out the rules for “interim valuation”
- “retrospective valuation of the works carried out under the Contract as claimed by the
Contractor” [ie the ‘terms of contract’ by which the works are valued pursuant to Sn 7 of
the SOP Act.]

SIA A&CBC 9th Edn – Cl. 31(2) – Payment Claim

… for ‘stage’ payment:
For Clause 31(2)(a)(ii) and subject to section 10* of the SOP Act, the basis of the
Contractor’s payment claim
should be in accordance with the requirements set out in Sub-Clause 31(5)
This is in line with Sn 6 of the SOP Act that the entitled progress payment amount be calculated in
accordance with the terms of the contract.

In regard to Payment Claim under Clause 31(2)(a)(ii) :

SIA A&CBC 9th Edn – Cl. 31(5) – Stage Instalments
… relates to ‘stage payment’ :
Sets out the provisions for interim payment by Stage Installments (ie “in accordance with
installments and stages as set out in the Appendix”)
[ie the ‘terms of contract’ by which the works are valued pursuant to Sn 7 of the SOP Act.]

SIA A&CBC 9th Edn – Cl. 31(2) - Payment Claim

Note:
*Sn 10 of the SOP Act requires, inter alia, that a Payment Claim shall;
• state the claimed amount, calculated by reference to the period to which the claim relates [eg either the
periodic or stage mode]
• shall be made in such form and manner, and contain such other information or documents, as may be
prescribed.
Sn 5 of the SOP Regs ‘prescribe’ that a Payment Claim shall;
• be in writing and identify the contract to which the progress payment relates
• contain details of the claimed amount:
– breakdown with description and quantity / quantum of items constituting the claimed amount
– calculations showing how the claimed amount is derived

SIA A&CBC 9th Edn – Cl. 31(3) – Interim Certificate

» The Architect shall issue an Interim Certificate for payment within 14d of the payment
claim.
[Note Clause 31(2)(c) : “if the Contractor submits a payment claim before the time
stipulated ... such early submission shall not require the Architect to issue the
Interim Certificate ... earlier than would have been the case had the Contractor
submitted the payment claim in accordance with the Contract.”]

SIA A&CBC 9th Edn – Cl. 31(15)(a) – Payment Response to Interim Payment
Claim
» The Employer shall respond to the Payment Claim with a Payment Response within 21
days.
» The Contractor shall be entitled to payment of the amount/sum stated in the Payment
Response.
（archi interim cert – as benefit of architect & QS who valuates how much the interim
payment should be.）
» Sn 11 of SOP Act requires that a Payment Response;
• identifies the payment claim to which it relates
• state the response amount
• state any reasons where response amount is less than claimed, or where any payment is
withheld
[Typically done by making reference to such as provided in the QS’ breakdown of
‘valuation’ of work in the schedule to the Interim Certificate]
[Note: Sn 6 of SOP Regs further requires that ‘calculations’ how the differing or withheld amount is derived must be
stated in the Payment Response]

» Sn 11 of SOP Act also requires that a Payment Response;

• “Shall be made in such form and manner, and contain such information or be
accompanied by such documents, as may be prescribed.”
– Hence; Sn 6 of the SOP Regs so prescribes that the Payment Response:
- be in writing and be addressed to the claimant
- state ‘nil’ and give reasons where the Respondent does not propose to pay any any part of the claimed amount
- contain any amount less than claimed with reasons for difference or withholding

SIA A&CBC 9th Edn – Cl. 31(6) - Correcting Earlier Certificates

Provides that the Architect shall have power to issue further Interim Certificates to correct
errors in earlier certificates.

SIA A&CBC 9th Edn – Cl. 31(7) - Sums to be Certified

Introduces the concept of ‘Retention Monies’ where payment is on a periodic valuation
(applies only to periodic payments) basis - ie the default provision (unless otherwise stated
in Appendix) of only
… 90% of value of work done and
… 80% of materials or goods delivered to Site
being stated as sums due in the Interim Certificate.
[Note: The delivery of materials or goods to Site shall not be “premature” **]
** Why shall delivery of materials or goods to Site not be “premature” ?
- Distorts ‘cashflow’? (front-loading?)
- Site not for ‘warehousing’ (storage)
- Belongs to the Employer – Employer’s risk?
- Covered by insurance? (deductables?)
- Protection / kept in good condition?

The Clause also allows the Architect to issue a ‘negative’ certificate , eg where previous
overpayment has occurred.
(Retention monies is unique to SIA form of contract. Whereby $ for security as employer
just in case the contractor does something wrong -> employer isable to hold back some $,
abit like a security deposit, but not a security deposit that is paid upfront.) (retains 10-20%
of the money for own security)

SIA A&CBC 9th Edn – Cl. 31(8) - Retention Monies

With reference to Cl. 31(7) sets a “Limit of Retention” (as “a sum or percentage”).

SIA A&CBC 9th Edn – Cl. 31(9) - First Release of Retention Monies
First half the Retention Monies to be released upon Completion (less a reasonable sum to
cover outstanding works).
The sum withheld shall be released to the Contractor as soon as such outstanding work is
completed.
Note that pursuant to Clause 25; Retention Monies shall apply to Phases/Stages of work “mutatis mutandis as if each
Phase or Stage was the subject of a separate and distinct contract…”

SIA A&CBC 9th Edn – Cl. 31(10) - Second Release of Retention Monies
Second half the Retention Monies to be released upon end of Maintenance Period or upon
issuance of Maintenance Certificate (whichever is later!). (1 year-ish)
[Typically the Maintenance Certificate will not be issued before the end of the Maintenance Period, even if all defects
had been rectified]
The released amount may be subject to deduction for ‘Allowance for Defect’ under Cl.
27(4).
Note that pursuant to Clause 25; Retention Monies shall apply to Phases/Stages of work “mutatis mutandis as if each
Phase or Stage was the subject of a separate and distinct contract…”

Introductory comments on Final Payment:

» In ‘Tiong Hin’ case the Courts decided that the SOP Act (and therefore the 21d to issue a Payment
Response) shall apply
to final payments
» ‘Final Accounts’ scheme added to SIA forms of contract as 21 days is ‘unrealistic’ to process details
of accounts such as :
• Permitted Deduction (eg LD, Other Contractors, etc)
• Large collections of residual payment claims for variations
• Claims for set-offs and reimbursements etc not relating directly to ‘work done’ (eg reimbursements for temporary
water supplied by Employer to Contractor)
» Note that Contractor can still include variations comprising additional ‘work done’ in progress
Payment Claims) – which is subject to 21 days for Payment Response.
SIA A&CBC 9th Edn – Cl. 31(11)(a) – Final Accounts Documents
Requires that the Contractor shall before the end of the Maintenance Period submit
documents showing what he feels is the final value of all Works and such other amounts to
which he considers he is entitled.
» Note that Final Accounts Documents is not a Payment Claim, it is simply a document
giving an overall assessment what the Contractor thinks should be the final and total sum
payable under the Contract.

Further Notes on ‘Final Accounts’ (under the SIA A&CBC 9th Edn):
» Further to the notes above, the submission of Final Accounts Documents is intended to,
eg:
1. give the Architect and QS time to evaluate the potential final claim (typically a ‘bulk’ or
‘consolidated’ account of all items not claimed or settled for interim payment previously),
and
2. Allow for feedback to the Contractor, if necessary (eg if further, clearer or corrected
“supporting documents, vouchers and other documents” are required to facilitate the
assessment - which if missing from a final payment claim may mean that the Contractor
‘misses out’ on some payment for that item, ie where the QS’ assessment of the value of
work done is based only on the information available).

SIA A&CBC 9th Edn – Cl. 31(11)(b) - Statement of Final Account

» The Architect shall issue the Statement of Final Account within 3 months after the later
of:
• Final Account Document from Contractor
• date of issue of Maintenance Certificate
» Statement of Final Account shows:
• Architect’s final valuation & measurement of Works
• any deductions permitted under Contract (including Liquidated Damages) whether made
or pending / entitled and not forgone or postponed.

SIA A&CBC 9th Edn – Cl. 31(11)(c) – Final Payment Claim...

» The Contractor shall submit the Final Payment Claim within 14 days of the later of:
• issuance of the Maintenance Certificate
• receipt of Statement of Final Account from the Architect
[Typically from issuance of the Maintenance Certificate, as the Maintenance Certificate
will not typically be issued before the end of the Maintenance Period, even if all defects
had been rectified]

SIA A&CBC 9th Edn – Cl. 31(12)(a) - Issue of Final Certificate

» The Architect shall issue the Final Certificate for payment within 14 days of receipt of
the Final Payment Claim from the Contractor.
» Note: Where Contractor fails to serve a Final Payment Claim within 21 days of the
issuance of the Statement
of Final Account, the Architect shall proceed to issue the Final Certificate.
[eg, where the Contractor may owe payment to the Employer!]

» The Final Certificate shall show:

• Architect’s final measurement and valuation of the Works
and shall set out and allow for;
• All payments or other expenditure of the Employer [eg interim payments to date]
• Any permitted deductions [eg LD]
and shall state;
• The final balance due from Employer to Contractor (or vice versa).

SIA A&CBC 9th Edn – Cl. 31(15)(b) – Payment Response to Final Payment
Claim
» Employer (the Respondent) shall respond to the Final Payment Claim with a Payment
Response within 21
days.
» The Contractor shall be entitled to payment of the amount/sum stated in the Payment
Response.
» [Note that 31(15)(b) states that the obligation for providing of Payment Response is
subject to the Final Payment Claim being served in accordance with Sub- Clause 31(11)(c) -
ie subject to the procedural requirement for Final Account Documents. Without such
compliance, any claim need not be accepted as the ‘final’ payment claim.]

SIA A&CBC 9th Edn – Cl. 31(16) - Payment of Contractor

» Provision for both Interim and Final payments.

For Contractor who is GST taxable:

Payment shall be paid on (or by) the date immediately upon the expiry of 35 days (or as
otherwise stated in Appendix) after the date the tax invoice is submitted to the Employer.
[Where tax invoice may be submitted at any time after the payment response].
» Provision for both Interim and Final payments.

For Contractor not GST taxable:

Payment shall be paid on (or by) the date immediately upon the expiry of 35 days (or as
otherwise stated in Appendix) after the date the Payment Response is required to be
provided by the Employer.
» 31(16) should be read together with 31(15) …
The "sum" payable as stated in the Payment Response should be:
- The amount due in accordance with 31(4)or(5), [ie relates to amount in the Interim
Certificate] and
- Any deductions (eg set-offs) by the Employer permitted under contract pursuant to 31(4)
(h).

SIA A&CBC 9th Edn ... in regard to Payment

Payment Timeframes:

Summary of Payment:

SIA A&CBC 9th Edn ...

The scheme for interim payment is:
» Payment Claim - by Contractor (Claimant)
» {Interim Certificate - by Architect}
» Payment Response - by Employer (Respondent)
» <tax invoice - by Contractor, if applicable>
» Payment - by Employer
The scheme for final payment is:
» Final Account Document - by Contractor
» Statement of Final Account - by Architect
» Final Payment Claim - by Contractor (Claimant)
» {Final Certificate - by Architect}
» Payment Response - by Employer (Respondent)
» <tax invoice - by Contractor, if applicable>
» Payment - by Employer

SIA BC 2016 ...

The scheme for interim payment is:
» ['Progress Claim' with 'adequate vouchers & info']
» Architect's 'Interim Certificate'
» Employer makes payment.
The scheme for final payment is:
» Contractor's 'Final Account Claim'
» Architect's 'Final Certificate'
» Employer makes payment.
NOTE: Provisions for SOP Act are in new Clause 40.

Salient differences regarding payment between SIA 9th edn and SIA BC
2016:
 'Contractual' provisions (Cl. 31) are separated from 'statutory' provision [SOP Act] (Cl.
40).
 Architect issues Interim/Final Certificate at the prescribed time (ie payment claim does
not trigger the payment process).
 No Final Accounts Documents or Statement [so Arch/QS will need to deal with variations
progressively?*]
 *How do milestone payments work against periodic entitlement to payment claim under Cl. 40?
 Payment is made based on Interim/Final Certificate, no longer the Employer's Payment
Response.

Further Notes on ‘Interim Certificate’

(under the SIA forms of Contract):
Note that up to and including the 6th edition of the SIA Conditions, the Interim Certificate
was the only document relating to interim payment to the Main Contractor; there was no
payment claim and no payment response:
• The Interim Certificate was required to be issued by the Architect upon the stipulated date to issue.
• Practice (despite not required by contract) typically did involve some form of claim document though
- to assist the QS in the comprehensiveness and expediting of the valuation process.
• The Employer did not need to formally ‘respond’ – but effected any deductions (or adjustments to
payment amounts) through the payment process.

Note: under SIA A&CBC 9th Edn Cl. 31(16), payment is made on the Payment
Response.
~ As such, one may question what is the purpose of the Interim Certificate?
Therefore, consider:
1. Provisions for ‘Temporary Finality’ (ie enforcement of certificates by Summary Judgment or Interim Award),
2. Despite an Arbitrator not being ‘bound’ by a certificate of the Architect, it presents an independent assessment of
the ‘amount due for payment’ – as ‘determined / valued in accordance with the terms of the Contract’ (especially as
the Architect certifies ‘completion’ of works when they appear to be complete and comply with the Contract in all
respects – which can be seen to applicable progressively on a periodic or stage basis)
3. Useful reference for Employer to prepare the Payment Response.

Notes on Certifying Payment

- Interim Certificates:
• Interim Certificate certifies the interim progressive payment in regard to work done under
the contract.
• Practice is for QS to prepare a ‘valuation’ that assesses:
• the value of all works done & unfixed materials on Site: including (i) variations (ie increases and decreases in the
contract sum), (ii) reductions in contract sum (ie abatements / reduced value of the work, eg allowance for defects
under 11(3)) and (iii) accounts for withholding & release of retention monies.
• additional payments and compensations (as entitled under contract, but not damages for breach of contract).
• Interim Certificates 'record' (eg footnote) any permitted set-offs or other cross-claims, as
recovered by the Employer via deductions from previously certified amounts for payment:
• deductions (eg liquidated damages, extra cost of other contractors' work, allowance for defects under 27(4)).

Interim & Final Certificates provide an independent certifier (Arch & QS) assessment of payment amounts entitled under the Contract.

• Deductions are not certified per se, they are ‘recorded (usually in a footnote) on the
certificate: Deductions are made from the amounts due for payment, so are not part of the
certified amount itself – but would be indicated in
the Payment Response.
• Thus Interim Certificates (per the SIA specimens) take the form of:
• Completed Work (minus _% retention)
• plus Unfixed Materials on Site (minus _% retention)
• minus Amounts previously certified.

Notes on Certifying Payment

- Final Certificates:
• Final Certificate certifies the final balance of payment.
• Practice is for QS to prepare a valuation through "Final Accounts" that assess:
• the value of all works done: including (i) variations (ie increases and decreases in the contract sum), and reflects a
full release of retention monies.
• deductions and additional payments and compensations.
• Final Certificate is after the Maintenance Certificate so that all cost implications arising
from making good defects under Cl. 27 are taken account of.

Notes on Certifying Payment

- Interim & Final Certificates:
• Architect (as contract administrator) signs the certificate, so should review the QS’
valuation for prima facie correctness. [QS only ‘assists’ the Architect!]
• Architect is responsible to ‘reject’ any non-compliant work (but would usually check with
the respective designers of that work, eg Arch, C&S, M&E, etc) and inform the QS. [QS
would normally only assess the ‘quantity’ of work done, not whether it is compliant].
• For reductions in contract, Architect would give an Architect’s Direction.
• For deductions, Architect would certify (eg under Cl. 1(7))
• Amounts certified are exclusive of GST, but GST would be picked up in the Payment
Response (if any) and the Contractor’s Tax Invoice.
PART 2: CASHFLOW & TEMPORARY FINALITY
SOP Act, SIA forms,
… and the promoting of cashflow

Whereas 'progress payment' seeks to promote cashflow,

... "temporary finality" (SIA contract) and "adjudication" (SOPA) are means
to enforce rights to progress payment!

Temporary Finality:
Clauses 31(11) [fmr 31(13)] and 37(4)(h) [fmr 37(3)(h)] of the SIA form expressly provide in
contract that Architect’s Certificates :
» shall have status of ‘temporary finality’ – i.e.: "full effect [enforcement] by way of
Summary Judgment or Interim Award shall be given to all decisions and certificates of the
Architect"
… ie such that any issues of set-off and cross-claim can only be settled later by the Courts and/or
Arbitrator in final judgement or final award in any dispute between the parties (and not thru
deductions from the interim payments).
… ie ‘pay first, argue later’
(if architect produces interim certificate, & employ or does not honour it
for payment, the contractor can take the interim cert to the courts & get
summoned the payment ; & the employer cannot deny it and is compelled
to pay.
.. adjudication & summary judgement both makes similar provisions,
binding the parties to their obligations for payment.)

In the SOP Act;

» ‘Adjudication’ is similar to the summary judgment / interim award provisions of the SIA
forms of building contract by temporarily binding the parties in obligations for payment
pending formal resolution of a payment-related dispute:
In essence an SOP Act Adjudication determination is binding on the parties until the
dispute is finally determined by a court or other dispute resolution tribunal (such as
arbitration).

In comparing the SOP Act to the SIA form of contract, however:

SOP Act - Section 17(4) provides that:
» [Unlike Summary Judgment / Interim Award]:
“In determining an adjudication application, an adjudicator shall not be bound by any
payment response, or any assessment in relation to the progress payment, that is provided
in the contract to be final or binding on the parties [eg an Interim Certificate]…”
[ie different to the ‘full effect’ (enforcement) given to all decisions and certificates of the
Architect by way of Summary Judgement or Interim Award]

Sn 21 - Effect of adjudication determinations …

» An adjudication determination shall be binding on the parties unless or until;
• permission of the court to enforce the adjudication determination is refused
• the dispute is finally decided by a court or other dispute respolution proceeding [eg
arbitration]
• the dispute is settled by agreement of the parties
Sn 22 - Payment of adjudicated amount
» The respondent shall pay [the adjudicated] amount (a) within 7 days after the
adjudicator’s determination is served, or (b) by the date determined by the adjudicator,
whichever is later.

Interestingly, the objectives of the SIA forms of contract were not totally inconsistent with
the objectives of the SOP Act:

See Guidance Notes:

» Part I, Section 2 recognised that, at the time of the initial editions of the SIA form of
Building Contract, there were payment & cashflow problems:
… where a contract had “no clear scheme to regulate the financial position under the contract until such time as an
arbitrator or the Courts [could] finally dispose of [payment-related] disputes” and … where “Employers on affidavit
evidence [were] able to dispute or avoid the consequences of certificates [eg for payment] granted by the Architect”
…. the result was often that Contractors found themselves “deprived of finance.”

» Such ‘deprivation of finance’ was ‘overcome’ in the earlier SIA forms of Building Contract
by the certificates of the Architect (eg Interim Certificates for payment), which were given
contractual effect to: “bind both the employer and contractor [ie requiring the Employer to
make payment], but only until final judgment or final award in any dispute between them
…
… both parties [could] therefore use the summary procedures* in the Courts (or interim
awards by arbitrators) in order to enforce the certificates [issued by the Architect for
payment]…”

» The contractual provision of 'contractual effect' to “bind both the employer and
contractor [ie requiring the Employer to make payment of the amount certified by the
Architect], but only until final judgment or final award in any dispute between them …” is
referred to as “temporary finality” of the certificates.
» The endeavours to promote ‘cashflow’ often bring up the notion of ‘pay first, argue later.’
» This is supported by the provision giving certification of interim / progress payment a status of ‘temporary finality’
» ie payment certificates ‘bind’ the parties temporarily (pending resolution of a dispute) so as to facilitate and
obligate timely payment.

Notes on Temporary Finality:

» However, status of ‘temporary finality’ is only effective to the intent of promoting
cashflow where:
1. full effect by way of Summary Judgment* or Interim Award can be achieved quickly …
2. The Architect’s interim certificate for payment is issued on time in the first place
… thus the SOP Act looked to introduce measures to avoid these potential limitations.
* Summary Judgment in accordance with Order 14 of the Rules of Court has procedures (and maybe delays due to
applications for stays in proceedings, eg on grounds that such dispute should be referred to arbitration rather than
the Courts)

» Also, it is noted that the contractual scheme of ‘finance regulation’ in the SIA forms of
building contract is in line with the SOP Act objectives to promote ‘cashflow’ - but was
more focused on Employer - Main Contractor contractual relationships rather than the
Main Contractor - Sub-Contractor relationships.
» Note that the provision for ‘summary judgment’ still remains in the SIA form of building
contract – but it’s applicability & status has not been ‘tested’ by the Courts post SOP Act.

In conclusion:
The contractual provision for payment certificates being given full effect by way of
Summary Judgement or Interim Award now ‘supplement’ rights to ‘Adjudication’ of
payment disputes under the provisions of the SOP Act.
1. Summary Judgement of the Court or Interim Award of an Arbitration Tribunal to expeditiously
establish / order a requirement for payment based on the Architect’s payment certificate, and
2. Adjudication to quickly resolve a payment dispute so the correct amount of payment is released
(with interest, to discourage frivolous adjudication applications).

Further Reading:
BCA’s notes on the SOP Act in their website at www.bca.gov.sg (under the “Procurement”
link).
Article: “Security of Payments in the Construction Industry: When is the Claim Triggered?”
at
www.bca.gov.sg/SecurityPayment/security_payment_relevantinfo.html
BCA’s preferred approach to questions such as;
- Whether the issuance of an Interim Certificate constitutes the ‘terms’ of contract that determine;
• when a payment claim can be served (eg is an Interim Certificate a ‘condition precedent’ to a payment claim being
served)?
• the amount that can be claimed? (and if so, whether this constitutes ‘contracting out’? eg - what if the Interim
Certificate is not issued on time or at all?)
PART 3: SECURITY – RETENTION & PERFORMANCE BONDS
Security:
Security for the performance of the Contractor under a building contract typically
take two form in Singapore:
(A) Security by ...
- cash deposit (ie “Security Deposit”)
- performance (surety) Bond
(A) Security by ...
- retention monies

Performance Bonds
see: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commerciallaw/chapter-23
“23.8.1 A performance guarantee or performance bond ... is in essence an unconditional
undertaking by a third party to pay the beneficiary upon demand, independent and
irrespective of the underlying contract between the beneficiary and the principal.”
Performance Bonds are usually “on demand” – ie without conditions.
The Courts only recognize “fraud” or “unconscionability” as basis for injunction on
calling the bond.
(e.g. offer collateral to bank -> bank guarantee as form of security)

Security ... (PSSCOC): security deposit.

Security ... (SIA forms of Contract)

SIA BC 2016 Cl. 31(5)(6)(7)(8) –
Introduces the concept of ‘Retention Monies’ where payment is on a periodic
valuation basis - ie the default provision (unless otherwise stated in Appendix) of
only
… 90% of value of work done and
… 80% of materials or goods delivered to Site
being stated as sums due in the Interim Certificate.

Clause 31(6) - Retention Monies

With reference to Cl. 31(5) sets a “Limit of Retention” (as “a sum or percentage”).

Clause 31(7) - First Release of Retention Monies

First half the Retention Monies to be released upon Completion (less a reasonable sum to
cover outstanding works).
The sum withheld shall be released to the Contractor as soon as such outstanding work is
completed.
Note that pursuant to Clause 25; Retention Monies shall apply to Phases/Stages of work “mutatis mutandis as if each
Phase or Stage was the subject of a separate and distinct contract…”
Clause 31(8) - Second Release of Retention Monies
Second half the Retention Monies to be released upon end of Maintenance Period or upon
issuance of Maintenance Certificate (whichever is later*).
[*Typically the Maintenance Certificate will not be issued before the end of the Maintenance Period, even if all
defects had been rectified]
The released amount may be subject to deduction for ‘Allowance for Defect’ under Cl. 27.
Note that pursuant to Clause 25; Retention Monies shall apply to Phases/Stages of work “mutatis mutandis as if each
Phase or Stage was the subject of a separate and distinct contract…”

... but although the standard Conditions only provide for “retention
moooonies”
... often the Employer will require a Performance Bond too! (kiasu!)
PART 4: COMPENSATION OR ADDITIONAL PAYMENT
(FOR LOSSES & EXPENSES)
losses and expenses ....
The general sentiment in drafting standard form building contracts is to deal with
‘disputes’ within the contract as far as practical / possible...
... ie to avoid ‘litigation’ .... eg provisions for referring disputes to S.O. (or
Architect, in an SIA-MWC context), Mediation, Dispute Adj. Boards, etc, for
resolution;
... hence, also:
Provisions in contract for compensation and additional payment (in lieu of suing
for ‘damages’).

Prolongation Costs and Loss & Expense :

Many building / engineering forms of contract (eg PSSCOC) have a provision for
‘loss & expense’.
... typically entitling the Contractor to additional payment and/or compensation to
cover losses and expenses incurred due to particular circumstances / conditions.

Theoretically, compensation could be for losses & expenses regarding:

(a) additional preliminaries
(b) prolongation of the contract
(c) disruption of the natural progress of work
(d) loss of profit
(e) finance charges
(f) etc
..... but the Contractor would need to sue for damages under Common Law if the
Contract does not provide for such compensation.

Grounds for compensation / additional payment (in lieu of damages) for losses &
expenses are typically:
(A) Where the Employer might be the 'cause' of the loss/expense (eg 'prevention'
or 'breach of contract' or 'variations'); or
(B) To relieve the Contractor of the 'risk' of financial burden, as a commercial
term of contract (eg adverse conditions of the site).

Where forms of contract provide for compensation or additional payment – eg use

a provision of "Loss & Expense" (L&E) – then it is as defined in that form of
contract and applies as expressly provided for.
The PSSCOC has a definition for L&E at Cl 1.1(q) and makes provisions for L&E
throughout the conditions.
The SIA Conditions and SIA-MWC do NOT contain a definition or provisions for
L&E, but provide for
"additional payment", "compensation", "indemnities" and "guarantees".

1.1 of the PSSCOC states:

"(q) 'Loss and Expense' means:
(i) the direct relevant costs of labour, Plant, materials, or goods actually incurred; and
(ii) costs of an overhead nature actually and necessarily incurred on the Site but in either
case only in so far they would not otherwise have been incurred and which were not and
should not have been provided for by the Contractor; and
(iii) 15% of any such costs, such 15% to be inclusive of and in lieu of any profits, head
office or other administrative overheads, financing charges (including foreign exchange
losses) and any other costs, loss or expense of whatsoever nature and howsoever arising."

Examples of Loss & Expense under PSSCOC:

Cl. 22 for "claims" for L&E in regard to matters causing prolongation, disruption or material affect to
the natural progress or completion of the Works.
Cl. 3.6 in regard to SO's delays in issuing further information.
Cl. 4.4 in regard to resolving ambiguity or discrepancy in contractual documents.
Cl. 5.2 in regard to adverse physical conditions.

PSSCOC Cl. 22.1:

"The Contractor shall be entitled to recover as Loss and Expense sustained or
incurred by him and for
which he would not be reimbursed by any other provision of the Contract, all loss,
expense, costs or damages of whatsoever nature and howsoever arising as a
result of the regular progress and/or completion of the Works or any phase or part
of the Works having been disrupted, prolonged or otherwise materially affected
[by specific circumstances listed in (a) to (i)]".

Examples of "additional payment or compensation" under SIA Conditions (9th Edn refers):
Cl. 1(2) & 1(4)(a) & 2(3) & 12(2)&(4), 12(4)(c) – regarding an Instruction ordering a
'variation' to the permanent works (where "additional payment or compensation" can apply
over-and-above any "increase in the Contract Sum").
Cl. 1(2) & 1(4)(b) & 2(2) & 12(2)&(4) – regarding an Instruction ordering a 'variation' to the
temporary works or methods of working (where "additional payment or compensation" can
apply over-and-above any "increase in
the Contract Sum").

Cl. 1(2) & 1(4)(c) & 12(2)&(4) – regarding an Instruction ordering a 'variation' comprising
postponement or suspension of work (where "additional payment or compensation" for
prolongation / disruption would be most applicable, and would apply over-and-above the
"increase in the Contract Sum", if any) .
Cl. 1(2) & 1(4) & 1(8) & 12(2)&(4) – regarding an Instruction for which the Architect has no
power or justification
(where "compensation" can apply).

Examples of "additional payment or compensation" under SIA Conditions:

Cl. 3(3) – regarding " additional payment or compensation " for making good damage to
Works caused by employer.
Cl. 7(2) – regarding "compensation" for fees, charges or other expenditure incurred in
complying with statutory
obligations.
Cl. 11(2) & 1(4) & 1(8) & 12(2) – regarding an Instruction to opening-up or tests and
inspections of the Works, but
where Contractor is not at fault (where "compensation" can apply).
Cl. 26(3) – regarding "additional payment or compensation" relating to re-entry and
occupation of part of the Works before completion without Contractors consent/agreement.
Cl. 36(2) – regarding "additional payment or compensation" relating to taking out and
preserving antiquities, fossils, etc, found at Site..

Note that under Cl. 12(6), "additional payment" and "compensation" is described as:
"equivalent to the increase … in the cost, or the decrease … in the profitability of the
contract work"

Further note that under Cl. 12(6), in regard to "additional payment" and "compensation" :
"Loss of profit on
[i] omitted work or
[ii] on other business or contracts by reason of prolongation of the contract period shall be
[a] recoverable only in accordance with the general law
[b] where the Employer is in breach of contract, or
[c] in cases where … the Employer gives an indemnity ".
ie such 'loss of profit' on omitted work is not permitted by contract to be
recoverable as "additional payment" or "compensation" under contract.

Examples of Employer's "guarantee" under SIA Conditions:

Cl. 29(3)(a)(ii) – in regard to guarantee against loss, damage, claim or expense incurred by
Contractor in relation to his points of objection (standing, solvency, competence or
reliability of the selected sub-contractor/supplier) to a Nominated Instruction.
Examples of Employer's "indemnity" under SIA Conditions:
Cl. 2(3) & 18(3) – in regard to method of work or temporary work ordered by Architect, to
indemnify (and compensate) against accident, loss, liability, claim or damage incurred by
Contractor in complying.

Examples of Employer's "indemnity" under SIA Conditions:

Cl. 7(1) – in regard to a variation required for compliance with law / statutory requirements,
to indemnify against
damage, claim, loss or expenditure incurred by Contractor in complying.
Cl. 29(3)(b)(ii) – in regard to indemnity against damage, loss, expenditure or claim incurred
by Contractor in relation to his points of objection (unsatisfactory terms offered by the
selected sub-contractor/supplier) to a Nominated Instruction.

Note: Under both SIA Conditions and PSSCOC;

(a) EOT itself is not an included 'reason' for entitling claim for recovery of losses
and expenses;
(b) but the Conditions often provide for both EOT and increase the Contract sum +
L&E / Additional
Payment or Compensation in regard to the various circumstances....
(eg, a 'variation' to the contract is a potential ground for both EOT and increase in the Contract Sum
and, in appropriate cases,
to additional payment or compensation / L&E.)

Note on 'variations':
'Variation cost' includes:
(A) The increase in Contract Sum – i.e. labour, materials, etc plus preliminaries ...AND
(B) Any other losses/expenses incurred.

Any 'increase in Contract Sum' would normally be based on contract rates/prices ...
e.g. consider valuing variations under Cl. 5:
(1) S.O.R. or BQ + 'breakdown'/make-up of rates/prices.
(2) Prelims subject to Q. F & T.

Any 'compensation/additional payment' (incl L&E) could be based on:

(A) contract rates, if provided for, else
(B) indemnity basis (ie at actual cost incurred)
... depending on how the contract is drafted!

To illustrate further: Variation cost includes preliminaries (in addition to labour, materials,
etc costs):
• Typically, variations are ordered through instructions, and instructions "will in principle entitle the
Contractor … to additional payment or compensation or to an increase in the Contract Sum" (see SIA
1(2)&(4)) – including an increase equivalent to the value of additional preliminaries arising from the variation
(see Cl. 12(4)).
• This relates to SIA Cl. 5(2) under which prices for preliminaries can be adjusted if indicated with "T" for time
and "Q" for quantity (as
opposed to "F" for fixed).
• Preliminaries' pricing adjusted on basis of "T" (time) is, in effect, payment for prolongation (of the
preliminary item of work) caused by
the variation.

1. Variations are valued based on (i) SOR; (ii) */ Market Rates; (iii) daywork (time-charged) rates [or in
PSSCOC: under ‘Quotation'].
2. Variation cost includes Preliminaries (in addition to labour, materials, etc, costs) – eg see 12(4)(a).
3. Variation costs either ‘increase’ or ‘decrease’ the Contract Sum (ie change the ‘value’ of the Works done by
the Contractor).
Note that there are also other ways the Contract Sum (ie value of Works) is reduced, eg 11(3).
4. Variation cost does not include L&E / Compensation or Additional Payments – see 31(4)(b) v. 31(4)(f) – nor
Set-offs and Compensation Damages (deducted from sums due, or otherwise recovered) from the Contractor
by Employer – see 31(4)(b) v. 31(4)(h).
5. L&E / Compensation or Additional Payments do not ‘increase’ or ‘decrease’ the Contract Sum (ie change
the ‘value’ of the Works).
6. L&E / Compensation or Additional Payments paid by the Employer to Contractor are --vis-à-vis Set-offs and
Compensation Damages (deducted from sums due, or otherwise recovered) from the Contractor by Employer.
7. L&E / Compensation or Additional Payments are usually on an ‘indemnity’ basis; ie based on the actual
cost/losses incurred (although rates/prices captured in contract may be evidence to determining the actual
cost/losses incurred, eg salary rates).

For example: whereas ...

• PSSCOC allows loss & expense for instructions for u variations that cause
delay/disruption to the Works, ie
‘prolongation’ costs, ‘at cost’ (ie on an indemnity basis) ... if any losses/expenses over-&-
above preliminaries.
• SIA does not provide for Compensation or Additional Payment for variations that cause
delay/disruption to the
Works— But only provides for variation costs for Preliminaries that are prolonged, if
marked “T”, based on ‘contract rates’.

Note on “Loss & Expense”

• Of interest in construction law:
• The ‘Value vs Cost’ debate:
- that prolongation costs arising from delay caused by variations …
• (1) should be assessed at Cost, VS
• (2) should be assessed under the valuation provisions of the Contract (based on contract
rates).
• The ‘rates’ argument (ie the SIA approach) considers that substantiating costs of
prolongation can be quite difficult and that Contractors often would not have the
necessary or complete records to properly do this.
• Of interest ...<refer to slide 146-147 for SS>

Prolongation Costs and Loss & Expense :

Commercial Considerations;
Provisions for loss and expense relieves the Contractor of risk of bearing the cost for
dealing with specific circumstances arising during the contract.
Usually contracts will relieve the Contractor from bearing costs arising from
circumstances 'caused' by the
Employer (eg variations), but will only relieve the Contractor for particular / defined
circumstances of a 'neutral' type (eg site conditions).
Note: It is a commercial consideration on whom in a contract (Employer or Contractor) bears the risk: It can directly
affect the bargain of price (Contract Sum).

NOTE
Under Cl. 4,4(3) of PSSCOC:
"Loss and Expense" is distinguished from "any other compensation or remedy whatsoever (whether pursuant to the
Contract or as damages or
otherwise in law)".
Under Cl. 19.3 of PSSCOC:
"Loss and Expense" is distinguished from "any other compensation, damages or other amount".
Under Cl. 4,4(3) of PSSCOC:
"Loss and Expense ... including any loss, expenses, costs or damages".
Hence indicating that L&E in the mode of "damages" (or "compensation") would only include the "damages" (or
"compensation") of the kind described in the definition of L&E under Cl. 1.1(q).

PSSCOC 's 'Loss & Expense' includes "other costs, loss or expense of whatsoever nature
and howsoever arising."
The PSSCOC appears to seek resolution of claims / potential disputes at the contract level
rather than encouraging such matters to go to arbitration or the Courts (eg to seek
damages).

Note also: 22.2 Sufficiency of Loss and Expense

The Contractor shall not be entitled to recover any loss, expense, costs or damage whatsoever
resulting from any disruption,
prolongation or other material effect to the regular progress or completion of the Works or any phase
or part of the Works except in accordance with the express provisions of the Contract.

Comparatively; note that under Cl. 16(6) of the SIA Conditions (limiting the
attempt to avoid litigation):
"Where additional payment or compensation is due to the Contractor for compliance with
an Architect's instruction [eg order for variation] ...
... such [additional] payment or compensation shall be ...
equivalent to the increase ... in cost, or the decrease ... in
profitability [of the work still to be done] ...
... [but] loss of profit
[i] on omitted work, or
[ii] on other business or contracts by reason of prolongation
... shall be recoverable only in accordance with the general law".

In summary,
1. SIA provides for "additional payment" and "compensation", and PSSCOC
provides for "Loss and Expense", for losses and expenses arising from
specific circumstances.
2. Both SIA and PSSCOC provide for recovery of losses and expenses
(particularly preliminaries) arising from prolongation of the contract
period due to variations ordered by, or on behalf, of the Employer.
3. SIA recognises/permits that loss of profit arising from prolongation can be
claimed in legal action under general law under certain conditions.
4. PSSCOC would only allow claims for L&E (including loss of profit) arising
from prolongation if the contractual rates don't already provide for such
costs and damages.
5. Neither SIA nor PSSCOC include EOT as a direct basis for entitlement to
recover losses and expenses (including for preliminaries).

http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-26
26.6.14 Most standard forms of contract provide for loss and
expense to be certified by the architect where the contractor has
been delayed by breaches or acts of prevention by the employer or
his agent. However, none of the SIA forms after 1980 has a loss and
expense clause for prolongation. In fact, Clause 31(14) expressly
provides that the architect has no power to decide or certify any
claim for breach of contract made against the Employer by the
Contractor. However, one might consider that Clause 12(4)
[Valuation of Variations] does provide a limited express entitlement
under the contract to additional `preliminaries´ costs which are
associated with variations, which in themselves do not amount to a
breach of contract.

Note that 'breach of contract' can refer to Cl. 12(6) of

the SIA Conditions, in which it is provided that:
"Loss of profit … shall be recoverable only in
accordance with the general law where the
Employer is in breach of contract, or in cases
where … the Employer gives an indemnity to the
Contractor, and shall not be subject to certification
by the Architect."

What is a breach of contract by the Employer as

referred to in 12(6)?
Note the following grounds of EOT for illustration:
23(1)(p): " any … breach of contract by the Employer ..."
23(1)(i): Failure to afford possession of Site *
23(1)(j): Contractor not getting info in reasonable time - see 3(2). *
23(1)(k)&(p) may also relate to breaches
* expressly mentioned as a 'breach' in 31(14)