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Singapore Institute of Architects - Updated Standard Contract Revises Terms For Interim Payments
December 2005 | Litigation & Arbitration | Litigation Brief

The Singapore Institute of Architects recently issued the seventh edition of its standard-form lump-sum building contract, also known as the Articles and Conditions of Building Contract (Lump-Sum Contract) (the "Conditions"). The amendments introduced in the latest edition of the contractual conditions appear to take into account the security of payment provisions which came into force with the Building and Construction Industry Security of Payment Act (Act 57 of 2004) (the "Act").

The amendments to the Conditions have changed the procedure and timelines governing interim payments by the employer to the contractor.

By the terms of the previous edition of the Conditions, interim payments were made by the employer to the contractor pursuant to interim certificates issued by the architect on dates or at stages which were agreed between the parties. In the new edition, the contractor begins the process by issuing its payment claim to the employer at the end of every month at the certified completion of each stage. The architect is required to issue an interim certificate for payment to the contractor within 14 days of receiving the claim.

Previously, the employer's role in making interim payments was to a certain extent limited by the architect's interim certification. Disputes would be referred to arbitration or to court. The employer is now required to produce a statement within 21 days of receiving the contractor's payment claim, detailing the amount it proposes to pay the contractor and giving reasons for any difference between this amount and the contractor's claim.

The employer was previously required to pay the contractor within the time limits agreed in the contract, but was often able to withhold payment to the contractor pending a potentially protracted resolution by arbitration or litigation. The new edition of the Conditions requires the employer to pay the contractor no later than 35 days after the contractor has issued its tax invoice or payment claim.

Under the Act, the payment claim and payment response documents will form the main points of reference for dispute resolution by adjudication. Failure on the part of either party to complete the payment claim or payment response in sufficient detail may affect its chances at adjudication. The option of adjudication as a form of fast-track dispute resolution was introduced by the Act. The contractor is entitled to refer all disputes in respect of payment claims or payment responses to an adjudicator. The adjudication is binding on the parties pending final resolution by arbitration or litigation.

Employers may try to circumvent the stringent limits in the Conditions by delaying the contractor's entitlement to submit payment claims. Instead of allowing the contractor to submit its payment claim on the last day of each month, the building contract may restrict the contractor to submitting payment claims on the last day of every second month. Although the Act is silent on this issue, a catch-all provision declares as void any contractual provision which purports to or has the effect of excluding, modifying, restricting or in any way prejudicing the operation of the Act. It might be argued that a provision which delays the contractor's submission of its payment claim restricts the operation of the Act. However, the efficacy of this argument is likely to be considered in the context of the type and extent of works involved, the duration of the contract period and the relative bargaining powers of the parties.

To avoid such complications, employers may need to make extra allowances in terms of manpower and project financing in order to comply with the new procedural requirements and timelines for interim payments.