BCA issues circular on public sector approach under new Part 10A of Covid-19 (Temporary Measures) Act 2020 on adjustment of contract sums due to increased foreign manpower costs

30 August 2021

On 6 August 2021, the new Part 10A of the Covid-19 (Temporary Measures) Act 2021 (“Part 10A”) came into operation. Part 10A provides for a relief framework to allow contract parties to adjust the contract sum to address the increase in foreign manpower salary costs from 1 October 2020 to 30 September 2021 in respect of Work Permit Holders due to the Covid-19 pandemic.

The intent of Part 10A is for parties to negotiate and reach a mutually agreeable arrangement to address the increase in foreign manpower salary costs, failing which parties can seek an assessor’s determination to adjust the contract sum of a construction contract that satisfies the stipulated criteria under Part 10A.

On 18 August 2021, the Building and Construction Authority (“BCA”) issued a circular (“Circular”) on the public sector approach to address increased foreign manpower salary costs under Part 10A. A summary of Part 10A eligible contracts, and the approach taken for public and private sector construction contracts as outlined in the BCA Circular is set out below.

Part 10A eligible contracts

Part 10A is applicable to a construction contract that satisfies the following criteria:

The construction contract was entered into before 1 October 2020, including construction contract that was automatically renewed on or after 1 October 2020;
The construction works under the construction contract have not been certified as completed as at 10 May 2021; and
The construction contract has not been terminated before 10 May 2021 (or the notice for the termination of the construction contract has not been given before 10 May 2021).

Part 10A does not cover construction contracts for the carrying out of construction works at or on a residential property (within the meaning of the Residential Property Act) that do not require the approval of the Commissioner
of Building Control under the Building Control Act.

Approach for public sector construction contracts

For public sector contracts, the following common approach is adopted for foreign manpower salary costs increase under eligible construction contracts, so as to minimise the time and resources spent in negotiation:

For the period of 1 October 2020 to 30 April 2021: The public sector will take a proactive stance by offering a base 1.3% of monthly progress payment to address foreign manpower salary costs increase for eligible construction contracts under Part 10A. Contractors that have incurred an increase in foreign manpower salary costs of more than the industry average of 1.3% of monthly progress payment may put up their proposed adjustment to the contract sum to the respective government procuring entity (“GPE”) for negotiation.
For the period of 1 May 2021 to 30 September 2021: The additional S$160 of foreign worker levy rebate provided by the Government to all construction workers for every month from May 2021 to December 2021 will cover more than 50% of the average increase in the wages of construction foreign workers from May 2021 onwards as compared to pre-Covid level. GPEs will not increase the progress payment from 1 May 2021 to 30 September 2021 to address the increase in foreign manpower salary costs for the time being.

Approach for private sector construction contracts

Although the approach outlined in the Circular applies to public sector construction contracts, BCA encourages private sector contract parties (including subcontracts) to adopt a similar method to minimise the potential time and resources spent in negotiation. BCA encourages contract parties to further discuss and mutually agree on how to co-share other additional costs incurred due to Covid-19.

Reference materials

The following materials are available from the Singapore Statutes Online website www.sso.agc.sg and BCA website www1.bca.gov.sg:

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.