Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
The most common standard form construction contracts used in Singapore are:
Clause references and capitalised terms in this section refer to those used in the FIDIC, SIA Conditions, PSSCOC and REDAS standard forms of contract, unless specifically stated otherwise.
The FIDIC form is commonly used for engineering, procurement and construction (EPC) works. The predominant forms of FIDIC contracts (known as the Rainbow Suite) are:
The first edition of the Rainbow Suite were published in 1999 and remains the most commonly used FIDIC construction contracts in Singapore, notwithstanding the publication of the second edition in 2017.
SIA Conditions and REDAS Contract
The SIA Conditions and REDAS Contract are the most commonly used standard forms for construction projects in the private sector in Singapore.
There are three main types of contract that use the SIA Conditions, namely:
There is also a “Conditions of Sub-Contract” that is to be used in conjunction with the Main Contract (Lump Sum / Measurement Contract).
For simplicity, this report will refer only to the force majeure provision in the Lump Sum Contract, as the force majeure provision in the Measurement Contract and the minor works contract are substantively similar to that of the Lump Sum Contract. The Conditions of Sub-Contract refer back to the Lump Sum Contract or Measurement Contract for the relevant grounds under which a sub-contractor may seek an extension of time from the main contractor.
By default, the SIA Conditions and REDAS Contract are governed by Singapore law.
The PSSCOC is a standard form contract developed and published by the Building and Construction Authority, a government body in Singapore. Since 2014, the PSSCOC is the standard contract used for public sector construction projects in Singapore.
By default, the PSSCOC is governed by Singapore law.
The FIDIC Red, Yellow and Silver Books all include provisions on Force Majeure at Clause 19.
Sub-Clause 19.1 defines “Force Majeure” as “an exceptional event or circumstance:
(e)which is beyond a Party's control;
(f)which such Party could not reasonably have provided against before entering into the Contract;
(g)which, having arisen, such Party could not reasonably have avoided or overcome, and
(h)which is not substantially attributable to the other Party.”
The definition of Force Majeure does not require that the event or circumstance be unforeseeable. Accordingly, contracts entered into post the Covid-19 pandemic would not be precluded from citing Covid-19 as being an event of Force Majeure, even though it was existing and known to the parties at the time of entering into the contract.
Sub-Clause 19.1 includes a non-exhaustive list of events (including, among others: (i) war; (ii) rebellion; (iii) riot; (iv) munitions of war; and (v) natural catastrophes) that may constitute Force Majeure, subject to conditions (a)-(d) above being satisfied. Epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1. Notwithstanding, the Covid-19 outbreak could arguably be construed as a “natural catastrophe” and would likely satisfy conditions (a)-(d).
Sub-Clause 19.2 states that if “a Party is or will be prevented from performing any of its obligations” by Force Majeure then it shall give notice “within 14 days after the Party became aware, or should have become aware, of the…Force Majeure”. The Party shall then be excused performance of such obligation, although payment obligations shall not be excused. A party seeking to rely on Force Majeure relief must be able to show that it is actually “prevented” from performing its obligations under the Contract – it is not sufficient for such obligations simply to be disrupted or made more expensive to perform. In the context of the Covid-19 outbreak, prevention could arguably include government measures imposed to limit the spread of Covid-19, including lockdown and quarantine measures and the suspension of issuing certain permits and visas.
Under Sub-Clause 19.3 both Parties have a duty to “use all reasonable endeavours to minimise any delay”. In the context of the Covid-19 outbreak, mitigation could include adjustments to the programme and resource management to minimise delay to the works. Also, the sourcing of alternative suppliers for goods, equipment and materials to mitigate against disruption to the supply chain.
Sub-Clause 19.4 provides that, if Sub-Clauses 19.1-19.3 (above) are satisfied and subject to the Contractor’s claims procedure and notice requirements set out in Sub-Clause 20.1, a Contractor will be entitled to an extension of time and, in certain circumstances, Cost. Cost would only be available in case of events “of the kind” described in sub-paragraphs (i) to (iv) above, where events (ii) to (iv) must occur in the country where the Works are being executed. Natural catastrophe is thus excluded as an event of Force Majeure that entitles a claim for Cost. As mentioned above, even though epidemic, pandemic and/or plague are not included in the non-exhaustive list of Force Majeure events in Sub-Clause 19.1, Covid-19 could arguably be construed as a “natural catastrophe”. In such case, a contractor would be entitled to claim for time but not Cost.
Sub-Clause 19.6 provides that either Party may terminate the Contract if “the execution of substantially all the Works in progress is prevented for a continuous period of 84 days by reason of Force Majeure… or for multiple periods which total more than 140 days due to the same notified Force Majeure.” This entitlement to terminate only arises if the Contractor is prevented from executing substantially all of the Works in progress, which is a high threshold to satisfy.
Clause 23.(1) of the SIA Conditions provide that a Contractor may seek an extension of time to the Contract Period and the Date of Completion by such further periods and until such further dates as may reasonably reflect any delay in completion which, notwithstanding due diligence and the taking of all reasonable steps by the Contractor to avoid or reduce the same, has been caused by:
“(a) Force Majeure;
(b) exceptionally adverse weather conditions;
(c) fire, storm, lightning, high winds, earthquake or aircraft or aerial objects (provided and to the extent that any of the same are not due to any act, negligence, default, omission or breach of contract by the Contractor or any sub-contractor, direct or indirect, whether in failing to take reasonable steps to protect the Works or otherwise);
(d) war, hostilities, insurgency, terrorism, civil commotion, or riots;
(e) industrial action by workmen, strikes, lock-outs or embargoes (whether domestic or foreign) affecting any of the trades employed upon the Works or in preparation, manufacture or transportation of goods or materials required for the Works, and provided the same are not due to any unreasonable act or default of the Contractor, or of any sub-contractor, direct or indirect;
(l) the shortage of labour resulting from domestic or foreign government actions, embargoes or regulations which an employer of labour could not reasonably have foreseen at the date of the Contract, and notwithstanding the Contractor’s readiness by himself or his sub-contractors direct or indirect to afford satisfactory conditions of working and pay adequate wages or other emoluments therefor;
(m) the shortage of goods or materials which could not reasonably have been foreseen at the date of the Contract resulting from domestic or foreign government actions, embargoes or regulations notwithstanding the Contractors readiness by himself or his sub-contractors direct or indirect to pay a reasonable price therefor;
(q) any other grounds for extension of time expressly mentioned in the Contract Documents.”
Under Clause 23.(2) of the SIA Conditions, the Contractor is required to notify the Architect in writing within 28 days of any event or direction or instruction which the Contractor considers entitles him to an extension of time, together with a sufficient explanation of the reasons why delay to completion will result.
“Force majeure” is one of the grounds that, if proved, would entitle the Contractor to an extension of time. However, the term “Force Majeure” is not defined in the SIA Conditions so it is unclear if COVID-19 itself may be a force majeure event.
Clause 16.1.2 provides that the Contractor may apply to the Employer’s Representative for an extension of time if he is or will be delayed before or after the Date of Completion by a force majeure event as defined in the REDAS Contract.
Clause 18.2 defines a “Force Majeure Event” as:
“18.2.1 Exceptionally adverse weather conditions; or
18.2.2 Fire, storm, lightning, high winds, earthquake or aircraft or aerial objects (provided and to the extent that any of the same are not due to any act, negligence, default, omission or breach of contract by the Contractor); or
18.2.3 War, hostilities, insurgency, terrorism, civil commotion or riots; or
18.2.4 Industrial action by workmen, strikes, lockouts or embargoes affecting directly the Works.”
The definition of “Force Majeure Event” in the REDAS Contract does not include an epidemic or pandemic such as COVID-19. The definition also provides an exhaustive list of force majeure events.
Under Singapore law, whether a force majeure event arises depends on what the parties have provided for in the force majeure provision. If “epidemic or pandemic” has not been expressly provided for in the force majeure clause, then it is unlikely that the COVID-19 pandemic is covered by the force majeure provision in the REDAS Contract.
Under Clause 14.2 of the PSSCOC, the Superintending Officer Contractor may extend the time within which the Works or any phase or part of the Works is to be completed, either prospectively or retrospectively, and before or after the Time for Completion by such further period or periods of time as may reasonably reflect delay in completion of the Works which can seek an extension of time either prospectively or retrospectively and before or after the Time for Completion by such further period or periods of time as may reasonably reflect delay in completion of the Works which, notwithstanding due diligence and the taking of all reasonable steps by the Contractor to avoid or reduce such delay, will or might be or has been caused by any of the following events:
“(a) Force majeure.
(b) Exceptionally adverse weather conditions or severe haze conditions the assessment of which shall be in accordance with the relevant provision in the Contract.
(c) Industrial action by workmen, strikes, lock-outs or embargoes affecting any of the trades employed upon the Works or in the preparation, manufacture or transportation of materials or goods required for the Works and provided the same are not due to any unreasonable act or default of the Contractor or of any subcontractor. Provided that this event shall only apply if the industrial action by workmen, strike, lock-out or embargo causing the delay is in Singapore.
(d) One or more of the “excepted risks” referred to in Clause 25.2.
(e) Compliance with the requirements of any law, regulation, by-law or public authority or public service company as stipulated in Clause 7.1.
(f) Fire, storm, lightning, high winds, earthquake or flooding.
Clause 25.2 of the PSSCOC states that:
“The “excepted risks” are:
(a) insofar as they occur in Singapore and directly affect the execution of the Works:
(i) war and hostilities (whether war be declared or not), invasion, act of foreign enemies;
(ii) rebellion, revolution, insurrection or military or usurped power or civil war;
(iii) riot, commotion or disorder, unless solely restricted to employees of the Contractor or of his sub-contractors and arising from the conduct of the Works;
(iv) ionising radiations, or contamination by radio activity from any nuclear fuel, or from any nuclear water from the combustion of nuclear fuel, radioactive, toxic, explosive, or other hazardous properties of any explosive, nuclear assembly or nuclear component;
(v) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds;
(b) the use or occupation of the Employer of any part of the Works, except as may be expressly provided in the Contract;
(c) the design of the Works, other than any part of the design provided by the Contractor or for which the Contractor is responsible under the Contract.”
Only the grounds that may be relevant to COVID-19 or laws, orders, regulations or directions issued by governments or public authorities arising out of or in connection with COVID-19 are reproduced here.
Similar to the SIA Conditions, “Force Majeure” in Clause 14.2(a) of the PSSCOC is not defined.
Clause 14.2 of the PSSCOC has not yet been brought before the Singapore courts, and so it is unclear whether the courts will give a broad interpretation to the words “force majeure” to include an epidemic or pandemic like COVID-19. Additionally the “excepted risks” in Clause 25.2 do not include epidemic or pandemic.
Sub-Clauses 8.4 provides the Contractor is entitled to claim an extension of time, subject to the claims procedure at Clause 20, if completion of the Works is or will be delayed by, among other things, “Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions”. In the context of the Covid-19 outbreak, Contractors, whose supply chains are impacted by the pandemic, could seek to claim time relief under this clause. However, such relief may not be applicable for contracts entered into post-the Covid-19 outbreak, as the shortages must be “Unforeseeable” (i.e. “not reasonably foreseeable by an experienced contractor by the date of submission of the Tender”).
Sub-Clause 8.5 provides that, if the Contractor has “diligently followed” procedures laid down by public authorities and such public authorities cause “Unforeseeable” delay or disruption, the Contractor may claim an extension of time under Sub-Clause 8.4. In the context of the Covid-19 outbreak, the lockdown and quarantine measures and the suspension of issuing certain permits and visas could arguably constitute delay or disruption caused by public authorities. Again, relief is only available if such delay or disruption is “Unforeseeable” (see above).
Sub-Clause 13.7 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to any “change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws)…made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.” “Laws” means “all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority”. Given the relatively wide definition of Laws, the introduction of quarantine and lockdown measures relating to Covid-19 could arguably entitle the Contractor to claim time and Cost. Such change in Laws must occur after the “Base Date”, being “28 days prior to the latest date for submission of the Tender.”
Sub-Clause 17.4 provides the Contractor is entitled to claim an extension of time and Cost, subject to the claims procedure at Clause 20, in relation to Employer’s risks set out in Sub-Clause 17.3. Such risks include, at sub-paragraph (h), “any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions.” If the Covid-19 pandemic is deemed a force of nature, then relief may be available to a contractor that suffers related loss or damage that is “Unforeseeable” (see above) or that could not reasonably have been prevented against. This second limb could allow contractors to claim for foreseeable loss related to Covid-19 (i.e. under contracts entered into after the pandemic outbreak).
Sub-Clause 23.(1)(f) provides that a Contractor may seek an extension of time where the delay is caused by the shortage of labour resulting from domestic or foreign government actions, embargoes or regulations which an employer of labour could not reasonably have foreseen at the date of the Contract, and notwithstanding the Contractor’s readiness by himself or his sub-contractors direct or indirect to afford satisfactory conditions of working and pay adequate wages or other emoluments therefor.
Sub-Clause 23.(1)(m) provides that a Contractor may seek an extension of time where the delay is caused by the shortage of goods or materials which could not reasonably have been foreseen at the date of the Contract resulting from domestic or foreign government actions, embargoes or regulations notwithstanding the Contractors readiness by himself or his sub-contractors direct or indirect to pay a reasonable price therefor.
There are other grounds in Clause 23.(1) of the SIA Conditions which government actions in response to COVID-19 may fall within:
(i)Domestic or foreign government action enforcing travel restrictions to stop the spread of COVID-19 may result in a shortage of foreign labour for construction projects in Singapore either because the labourers cannot travel out from their home jurisdiction or cannot travel to Singapore to work on the construction projects, notwithstanding the Contractor’s readiness to perform the contract (e.g. Clause 23.(1)(l)).
(ii)Domestic or foreign government action may also result in the shortage of goods or materials which could not reasonably have been foreseen at the date of the Contract, because goods or materials could not be supplied owing to government ordered lockdowns to stop the spread of COVID-19 (Clause 23.(1)(m)).
None available under the REDAS Contract.
Sub-clause 14.2(e) of the PSSCOC provides that the Contractor may seek an extension of time for delay that will, might be or has been caused by compliance with the requirements of any law, regulation, by-law or public authority or public service company as stipulated in Clause 7.1.
A Contractor could argue that the compliance with laws and regulations in Singapore arising out of or in connection with COVID-19 falls within the “compliance with the requirements of any law, regulation, by-law” under Clause 14.2(e) of the PSSCOC. So the compliance with travel restrictions, mandatory stay home notices, quarantine orders and the lockdown measures (prescribed under the COVID-19 (Temporary) Measures) (Control Order) Regulations) may fall within Clause 14.2(e) of the PSSCOC.
No, Singapore law looks to what the parties have contractually provided for in relation to force majeure.
The COVID-19 (Temporary Measures) Act 2020 (COVID-19 Act), which was enacted on 7 April 2020, seeks to provide temporary procedural moratoriums for “Scheduled Contracts” under the COVID-19 Act that is entered into or renewed before 25 March 2020 and covers contractual obligations to be performed on or after 1 February 2020. The effect of the COVID-19 Act is to suspend contractual claims for a prescribed period (currently six months) from the date that a notification for relief (described below) is served.
The contractual obligation to be performed must have been impacted by a “COVID-19 event”, defined in the COVID-19 Act as:
“(a) the COVID-19 epidemic or pandemic; or
(b) the operation of or compliance with any law of Singapore or another country or territory, or an order or direction of the Government or any statutory body, or of the government or other public authority of another country or territory, being any law, order or direction that is made by reason of or in connection with COVID-19.”
The Act covers construction contracts defined under Section 2 of the Building and Construction Industry Security of Payment Act (Cap. 30B) and performance bond or equivalent that is granted pursuant to a construction contract or supply contract.
Section 2 of the Building and Construction Industry Security of Payment Act (Cap. 30B) defines “construction contract” as:
“an agreement under which –
(a) one party undertakes to carry out construction work, whether including the supply of goods or services otherwise, for one or more other parties; or
(b) one party undertakes to supply services to one or more other parties.”
To seek relief under the COVID-19 Act, a party must satisfy the following elements:
(i) The party must be a party to a Scheduled Contract entered into or renewed before 25 March 2020.
(ii) The party is unable to perform an obligation in the Scheduled Contract that is an obligation to be performed on or after 1 February 2020.
(iii) The inability to perform the contractual obligation must be caused to a material extent by a COVID-19 event (“Subject Inability”).
(iv) The party must have served a notification for relief in accordance with Section 9(1) of the COVID-19 Act on the other party or parties to the Scheduled Contract, any guarantor or surety for A’s obligation in the Scheduled Contract; and such other person as may be prescribed.
Under Section 9(2) of the COVID-19 Act, the notification for relief can be disputed by the counterparty to the Scheduled Contract. Such a dispute will be decided by an Assessor. The parties are not to be represented by lawyers in respect of any dispute as to the validity of a notification for relief.
Assuming the notification for relief under Section 9(1) is validly served or the Assessor decides that the matter is one which qualifies for relief under the COVID-19 Act, then the counterparty cannot take any of the following actions in respect of a Scheduled Contract:
(a) the commencement or continuation or an action in a court against the party or the party’s guarantor or surety;
(b) the commencement or continuation or arbitral proceedings under the Arbitration Act (Cap. 10) (i.e. domestic arbitrations seated in Singapore) against the party or party’s guarantor or surety;
(c) the enforcement of any security over any immovable property;
(d) the enforcement of any security over any movable property used for the purpose of a trade, business or profession;
(e) the making of any application under section 210(1) of the Companies Act (Cap. 50) for a meeting of creditors to be summoned to approve a compromise or an arrangement in relation to the party or party’s guarantor or surety;
(f) the making of an application for a judicial management order in relation to the party or party’s guarantor or surety;
(g) the making of an application for the winding up of the party or party’s guarantor or surety;
(h) the making of a bankruptcy application against the party or party’s guarantor or surety;
(i) the appointment of a receiver or manager over any property or undertaking of the party or party’s guarantor or surety;
(j) the commencement or levying of execution, distress or other legal process against any property of the party or party’s guarantor or surety, except with the leave of the court and subject to such terms as the court imposes;
(k) the repossession of any goods under any chattels leasing agreement, hire-purchase agreement or retention of title agreement, being goods used for the purpose of a trade, business or profession;
(l) the termination of a Scheduled Contract (being a lease or license of immovable property) where the subject inability is the non-payment of rent or other moneys;
(m) the exercise of a right of re-entry or forfeiture under a Scheduled Contract (being a lease or license of immovable property), or the exercise of any other right that has a similar outcome;
(n) the enforcement against the party or party’s guarantor or surety of a judgment of a court, an award made by an arbitral tribunal in arbitral proceedings conducted under the Arbitration Act, or a determination by an adjudicator under the Building and Construction Industry Security of Payments Act.
Any period of limitation prescribed by any law or in any contract for the taking of an action in relation to the subject inability will be extended by the prescribed period under the COVID-19 Act.
Additionally, where the Scheduled Contract is a construction contract or supply contract (as defined above), despite anything in a performance bond or equivalent given pursuant to the construction contract or supply contract:
(a) the counterparty may not make a call on the performance bond or equivalent in relation to the Subject Inability at any time earlier than 7 days before
(i) the date of the expiry of the performance bond or equivalent as stated in the performance bond or equivalent; or
(ii) where the term of the performance bond or equivalent is extended whether under Section 6(3) of the COVID-19 Act or otherwise, the date of expiry of the performance bond or equivalent following such extension.
(b) The party who has served a notification for relief can make an application to the issuer of the performance bond or equivalent not less than 7 days before the date of expiry of the performance bond or equivalent, to extend the term of the performance bond or equivalent to a date that is 7 days after the end of the prescribed period, or such other date as may be agreed between the party, counterparty and the issuer. The party seeking an extension of the performance bond must also serve its application at the same time to the counterparty.
Section 6(6) of the COVID-19 Act expressly recognizes as a defense to a claim for breach of contract in respect of the Subject Inability the fact that the inability to perform the obligation under a construction contract or supply contract was to a material extent caused by a COVID-19 event.
In that regard, the Subject Inability must be the inability to supply goods or services in accordance with the terms of a construction contract or supply contract and such Subject Inability occurs on or after 1 February 2020 but before the expiry of the prescribed period.
Section 6(7) of the COVID-19 Act clarifies that the defense provided under Section 6(6) does not affect:
(a) any right or obligation under the contract that accrues of arises at any time before or after the period mentioned in subsection (6); or
(b) any judgment, arbitral award, adjudication determination under the Building and Construction Industry Security of Payment Act, compromise or settlement given or made before the service of the notification for relief.
Part 2 of the COVID-19 Act has not yet come into force in Singapore, mainly because the Registrar of Assessors and panels of Assessors are being appointed by the Minister for Law. Regulations and guidance will also need to be issued in relation to the filing of applications to seek an Assessor’s determination as to whether a notification for relief has been validly served.
Under the COVID-19 (Temporary Measures) (Control Order) Regulations 2020, the default position is that an owner or occupier of non-residential premises must ensure that the premises are closed to entry by any individual.
Under Section 10 of the Regulations, essential service providers are permitted to operate at the permitted premises of the essential service provider, and the owner or occupier of the permitted premises may allow any employee, contractor, customer or other individual to enter the premises only for the purposes of working for or dealing with the essential service provider (including procuring the essential service).
Within the construction, facilities management and critical public infrastructure industries, the following have been identified as essential services and are allowed to continue operation in Singapore:
a. Safety critical works. These are works assessed by BCA to be in critical stages of construction, and that cannot be stopped suddenly due to potential public safety risks. However, these projects should be wound down to a state where works may be safely stopped. Examples: deep basement excavation works, deep tunneling works (which could lead to sinkholes/collapses if stopped).
b. Projects that support essential services or are necessary for public safety. These are projects that support the supply of essential services (water, electricity) to the public, or that are essential to maintain public safety. Examples: utility projects that would cause disruptions to the public if stopped (e.g. water, gas, sewerage/drainage, comms, power lines), limited HIP internal works (e.g. completion of toilet), emergency works to ensure structural safety of a building, urgent repairs to public infrastructure to ensure public safety.
a. All firms involved in the provision of maintenance services for lifts and escalators should be allowed to continue working, in order to maintain public safety.
a. Essential landscape sector services critical for maintaining public safety should be allowed to continue. Trees that are not properly maintained can pose a threat to public safety. Other greenery may also need to be maintained to prevent hazards. If public parks are to remain open, there is also a need for a basic level of operations. Examples: tree inspections and pruning, removal of fallen trees/diseased trees, pruning of shrubs that may obstruct traffic, enforcement of safe distancing measures at parks, basic park maintenance to remove hazards/maintain hygiene.
As a practical point, almost all construction projects in Singapore use foreign workers as labour. These foreign workers are housed in dormitories, some of which have been classified as isolation areas by the Minister for Health pursuant to the Infectious Diseases Act (Cap. 137) as some of these dormitories have been identified as clusters for the spread of COVID-19. Foreign workers who are in dormitories that have not yet been affected by the spread of COVID-19 are being moved to other locations to enable social distancing. It is not clear at present the full extent of the spread of COVID-19 among the foreign workers, and how this might impact on construction projects in Singapore.
On May 4, the decree amending the Mexican Hydrocarbons Law was published in the Federal Official Gazette.
© Norton Rose Fulbright LLP 2020