Covid-19 (Temporary Measures) Act 2020: Statutory extensions of time and cost sharing to provide further support for stakeholders in the built environment sector: Allen & Gledhill

6 November 2020

On 3 November 2020, the Covid-19 (Temporary Measures) (Amendment No. 3) Bill (“Bill”) was passed in Parliament.

Amongst other things, the Bill introduces additional relief measures to support stakeholders in the built environment sector affected by disruptions to construction timelines caused by the Covid-19 pandemic. Part 8A provides for a universal extension of time (“EOT”) of 122 days for eligible construction contracts, and Part 8B provides for cost sharing in construction contracts for non-manpower-related costs between contracting parties due to project delays caused by Covid-19. Part 8C provides relief on the date of delivery of possession in eligible agreements for the sale and purchase of housing, commercial and industrial property, as well as co-sharing of costs incurred by purchasers due to the delay.

The relief measures for construction contracts under Parts 8A and 8B are scheduled to come into effect end November 2020. The Ministry of National Development (“MND”) will separately provide more details on the relief for extension of date of delivery of possession for developers and relief for purchasers under the new Part 8C. Further details of these relief measures, together with the necessary changes in subsidiary legislation, will be announced at a later date.

Rationale for additional relief measures for built environment sector

There is no question that the construction sector has been hit hard by the Covid-19 pandemic, and the Building and Construction Authority (“BCA”) has acknowledged that it is in the interest of all stakeholders for the built environment sector to preserve industry capacity, adjust to the new operating environment, and recover from the impact of the pandemic. The additional relief measures introduced by the Bill are therefore intended to provide more support and ensure that no single stakeholder bears an undue share of the burden imposed by Covid-19.

The Bill has been in the works since it became clear that the industry has been largely unable to commercially resolve issues pertaining to time and costs arising from the Covid-19 pandemic.

We set out below an overview of the additional relief measures under Parts 8A, 8B and 8C of the Bill.

Part 8A: Universal EOT of 122 days

To address delays that arose for the period between 7 April 2020 and 6 August 2020, Part 8A provides for a universal EOT of 122 days to all construction contracts (public and private sector construction projects, including subcontracts):

that were entered into before 25 March 2020;
with construction works that were not certified to be completed under the construction contracts as at 7 April 2020; and
that remained in force on 2 November 2020.

The EOT of 122 days will not apply to construction contracts for which the contractors actually carried out works during the period from 20 April 2020 to 30 June 2020. This relief applies automatically and no application is required from contractors. The 122 days reflects the period of stoppage of construction works over the two months of “Circuit Breaker”, and for a further two months whilst migrant worker dormitories were being cleared.

This universal EOT should come as a relief to many contractors and sub-contractors, as the Bill provides for the length of EOT they are entitled to. From the developer’s viewpoint, the advantage is certainty on the number of days of EOT to be granted, with the scope for disputes being limited to any EOT claimed over and above the 122 days. Insofar as EOT was previously granted or agreed and such EOT includes a period falling between 7 April 2020 and 6 August 2020, the 122 days of EOT will be reduced to reflect this. This eliminates any double recovery of EOT.

Contractors’ claims for EOT beyond the 122 days continues to be determined in accordance with the provisions of their contracts with developers/owners. As such, adherence to these contractual provisions, both procedurally and substantively, will still be vital. In appropriate cases, section 6(5) of the Covid-19 (Temporary Measures) Act 2020 continues to provide contractors with a defence against the imposition of liquidated damages, with the submission of a notification for relief.

Part 8B: Co-sharing of non-manpower-related additional costs between contracting parties

Part 8B provides for the co-sharing of additional costs (e.g. equipment rental, site maintenance, insurance payment and storage of materials) sustained or incurred by the contractor arising from delay of works by the contracting parties. This excludes items which have been supported under existing support schemes, such as manpower and Covid-Safe Restart measures. This approach is similar to the co-sharing of prolongation costs for public sector construction projects under the Construction Support Package announced by BCA on 27 June 2020.

The provisions set the co-sharing percentage at 50% of the qualifying costs, subject to a monthly cap of 0.2% of contract sum per month, and a total not exceeding 1.8% of the contract sum until 31 March 2021. This relief is applicable to construction contracts:

that were entered into before 25 March 2020;
with construction works that were not certified to be completed under the construction contracts as at 7 April 2020; and
that remained in force on 2 November 2020.

This relief is not applicable to construction contracts that involve individual persons (e.g. homeowners) engaging contractors, other than where the individual persons are acting as a sole proprietor in the course of business. Part 8B will apply to both public and private sector construction projects.

Contractors seeking relief will need to make payment claims to the clients that engaged their services, similar to the current payment claim process. In the event of a dispute between the contracting parties regarding the applicable relief, an adjudication application under the Building and Construction Industry Security of Payment Act (“SOPA”) can be submitted. SOPA adjudicators are empowered to determine whether the relief applies and if so, the appropriate co-sharing amount between parties.

With the introduction of co-sharing of costs under Part 8B, parties making payment claims will need to familiarise themselves with the permitted category of claims and the applicable caps. Whilst the permitted costs may not cover the full extent of losses and expenses incurred by contractors, some recovery could ameliorate cash flow issues and avert disputes on entitlement.

Recipients of payment claims should likewise familiarise themselves and be mindful of any attempt to fit into the permitted category of claims other types of losses and expenses.

Part 8C: Extension of date of delivery of possession and co-sharing of costs between developers and purchasers

The new Part 8C provides for the extension of the date of delivery of possession provided in eligible agreements for the sale and purchase of housing, commercial or industrial property.

These amendments will be welcomed by developers who will be able to seek relief on the date of delivery of possession if they are unable to come to a mutually agreeable arrangement with their purchasers. Developers who have faced construction delay due to Covid-19 and require relief may serve a notice for an extension of the delivery date by up to 122 days. Developers may also seek to extend the delivery date beyond 122 days by notifying purchasers of their intention to do so and of the proposed period of extension. This notification triggers a moratorium period that protects the developer from certain actions in relation to the failure to deliver possession, but an assessor’s certification that (i) the developer’s inability to deliver possession of the property by the delivery date is to a material extent caused by a Covid-19 event; and (ii) the developer may only be reasonably expected to deliver possession of the property by the end of the specified period after the delivery dates in question, is required before the delivery date is extended by such period.

Additionally, Part 8C provides for co-sharing of costs between developers and purchasers who have had to incur out-of-pocket costs due to the delay in delivery of the unit (e.g. rent for accommodation/alternative premises during delay period) up to a prescribed amount. According to the Second Reading speech for the Bill by Minister for National Development Desmond Lee, purchasers may seek the developer’s reimbursement for such actual costs, capped at 70% of the original liquidated damages for the delay that would have been payable to the purchaser under the agreement for the purchase of the property. For Housing Development Board (“HDB”) flats, purchasers will similarly be able to claim up to 70% of the prescribed liquidated damages formula, which is aligned with the formula stated in the Housing Developers Rules for private residential properties. Further, applications may be made to an assessor if there are disputes about the amount of qualifying costs that a developer is liable to reimburse a purchaser.

Comment

The proposed Bill is another in the series of measures that have been enacted to cushion the impact of the Covid-19 pandemic on the built environment sector. Whilst it will come as a welcome relief to the industry at large, it is important to note that the measures can only serve to ameliorate, but not completely eliminate the negative effects faced by many today. Ultimately, beyond the statute mandated extensions and cost sharing, it is imperative for parties to continue to examine and seek strategic advice on how their specific contracts have allocated risks and entitlements, in order to take the necessary steps to successfully recover or resist claims for time and cost reliefs.

Reference materials

The following materials are available on the Parliament website www.parliament.gov.sg, BCA website www.bca.gov.sg and MND website www.mnd.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.