BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL

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BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL: Order for Second Reading read.

6.08 pm

The Minister of State for National Development (Mr Cedric Foo Chee Keng): Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Background

Sir, the construction industry is going through a difficult time. Annual construction demand has declined from a peak of $24 billion in 1997 to about $10 billion in 2003. However, while the construction pie has shrunk by more than half, the number of contractors has increased by 8.5%. The number of construction firms registered with BCA's Contractors Registry was 5,012 as at September 2004, compared with 4,618 firms in 1997.

With too many firms chasing too few projects, the result is severe price competition, with firms prepared to accept marginal profits or even losses in order to remain in business. There are still too many A2 and B1 contractors.

The financial problems affecting some construction firms have in turn affected sub-contractors and suppliers further downstream along the construction value chain. They face delays or non-payments for work done or materials supplied.

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Sir, whilst the Security of Payment (SOP) Bill will not resolve the structural problem of overcapacity in the construction industry, it will address payment problems. The SOP Bill will create a more conducive operating environment and a level playing field for all parties in the industry. A construction project involves many parties and could take a few years to complete.

Progress payments are made periodically throughout the project's duration. Parties lower down the value chain usually fund their work in advance and collect payments thereafter. These downstream players will therefore be adversely affected if those upstream fail to make prompt payment for work done or materials supplied. Contractual terms also tend to favour those higher up the chain. For example, parties downstream are subject to the "pay when paid" clause, whereby they get paid only when those upstream have been paid. The parties who have not been paid for work done are also not permitted to suspend work. In some instances, they are also required to pay liquidated damages if they suspend work.

The SOP Bill will preserve the rights to payment for work done and goods supplied of all the parties in the construction industry. It also facilitates cash flow by establishing a fast and low cost adjudication system to resolve payment disputes. Affected parties will have the right to suspend work or withhold the supply of goods and services, if the adjudicated amount is not paid in full or not paid at all.

This Bill is modelled after similar legislation in other countries such as Australia, UK and New Zealand. For more than a year, the Building and Construction Authority (BCA) has consulted extensively with various stakeholders in the industry.

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These include the developers, professionals, main contractors, subcontractors, suppliers, and Government procurement agencies. The features of this Bill have been adapted to suit local conditions and have taken the stakeholders' suggestions and views into account.

Sir, let me now elaborate on the key features of this Bill.

Key features of the Bill

First, the scope and the application of the Bill. The Bill will cover all written contracts in Singapore for construction work and related goods and services. These include building and civil engineering work, mechanical and electrical work, and any of their related preparatory or follow-up works. It affects all parties from developers, consultants, contractors, down to sub-contractors and suppliers.

However, it does not apply to construction work on residential properties that do not require the submission of building plans under the Building Control Act. These are mainly home renovation works of small contract value, often carried out without formal contracts.

Framework for progress payment claims, responses and making payments

The Bill sets out the framework for:

(1) Making progress payment claims;

(2) Responding to the claims; and

(3) Making progress payments.

Progress payment claims and responses

Under the Bill, a claimant, ie, the party who is entitled to progress payment for work done or goods supplied, serves the progress payment claims for work done to

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the respondent. The respondent must then respond by stating the amount he will pay. If the respondent does not wish to pay the full amount claimed, he must give reasons in his response. This is similar to the current practice of issuing the Architect's Certificate to main contractors for private sector projects, or the issuing of the Superintending Officer's Certificate for public sector projects. The Bill requires the respondent to issue the payment response within 21 days of receiving the payment claim. If the response period is not specified in a contract, a default period of seven days has been prescribed in the Bill. This will ensure timely response to the claims.

Making progress payments

Following this, the parties agree on a specific period to make payments. This is normally set out in the contracts from the onset. To prevent unreasonably long periods to be set for payment, the Bill has stipulated maximum limits and default periods for payments to be made. For construction contracts, the maximum limit is 35 days and the default is 14 days. For supply of goods contracts, the maximum limit is 60 days and the default is 30 days. These payment periods are within the current industry norms.

Sir, a cap on the maximum payment periods is needed to override unreasonable contractual payment terms. Experiences in other countries have shown that parties with greater bargaining power are likely to impose longer payment periods on the other parties so as to circumvent the rights to payment in the SOP Act that these countries have.

BCA will monitor the situation and will recommend adjustments to the response and payment periods, if necessary, to ensure that they remain aligned to the industry's best practices.

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"Pay when Paid" or "Pay if Paid" clauses

Currently, "Pay when Paid" clauses in sub-contracts stipulate that the sub-contractor will be paid only when the principal has paid the main contractor. One undesirable consequence is that a sub-contractor who has completed work may not get paid for it if the principal withholds payment from the main contractor for reasons unrelated to the sub-contractor's performance. Sometimes, the sub-contractor may not even be aware when payments have been made to the main contractor. Hence, on the pretext that the principal has not paid him, the main contractor can delay payment to the sub-contractor. In the meantime, the sub-contractor has to continue funding the on-going work.

This is tantamount to bottom-up financing by parties lower down the chain and is against the principle that any party should be paid for work done or goods supplied.

Sir, to address this imbalance, the Bill makes it clear that "pay when paid" or "pay if paid" clauses in contracts

are void and unenforceable. The Bill provides for adjudication as a faster and less costly process to resolve payment disputes. In contrast, arbitration or litigation could go on for several months and cost as much as $100,000 per case. Mediation can also be long-drawn (up to three months) and is not binding on the disputing parties.

The claimant will have a valid reason to make an adjudication application under the following situations:

(a) Payment response has not been received from the respondent within the specified period; or

(b) Amount in a payment response is disputed; or

(c) Payment is not received by the due date.

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Adjudication does not require the consent of both parties to proceed. The entire process will be completed within three weeks after application unless the parties agree to a longer period. The adjudicator will determine the amount to be paid by the respondent to the claimant, the pay-by date and the adjudication fees payable by both parties. The adjudicator's decision on the particular progress payment in dispute is binding. The respondent could apply for the decision to be reviewed only if the adjudicated sum differs by more than $100,000 from the amount that he is willing to pay in his response to the claimant.

However, the adjudicated sum must be paid up first prior to the review so that payment to the claimant will not be delayed further. Although the adjudicator's decision is binding, it is not final. Parties may still pursue their right under the contract to challenge the adjudication determination in any court proceedings or arbitration.

The Minister will appoint an Authorised Nominating Body (ANB) to administer the adjudication process. For a start, the Singapore Mediation Centre (SMC) will be appointed as the ANB. SMC is familiar with payment disputes and issues in the construction industry. More ANBs may be considered in future, as and when necessary. Besides administering the adjudication process, the ANB will train, certify and maintain a register of adjudicators, including establishing their fees. The fees will be capped so that adjudication will remain affordable.

Sir, to expedite cashflow, the respondent has up to seven days after the adjudicator's decision to pay the claimant the adjudicated amount. Otherwise, the claimant can suspend work or stop supply. A supplier may also exercise a lien on unfixed goods supplied under the

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contract, if the goods have not been paid. In addition, the claimant can file the adjudicated amount as a judgement debt in court.

To prevent abuse and minimise the negative impact of work suspension on the progress of a project, several safeguards have been incorporated in the Bill. Firstly, the claimant is allowed to suspend work or exercise a lien only when the adjudicated amount is not paid after the adjudicator's decision. Secondly, the claimant must serve a 7-day notice of such intention on the respondent, the owner and the principal before he can do so. This gives ample time for the principal or the owner or developer to assess the consequences and take action if necessary, including making a direct payment to the claimant. Thirdly, the suspension must be lifted within three days if the respondent pays the adjudicated amount. Any other third party affected by the work suspension will also have rights to extension of time in the project. To further avert work suspension, the principal has an option to pay directly to the claimant, in the event that the respondent fails to pay the adjudicated amount. The principal may then recover the amount by deducting it from subsequent payments to the respondent.

If the principal is a licensed housing developer with a Project Account under the Housing Developers Act and has given notice of his intention to pay directly to the claimant, the claimant cannot suspend work or exercise a lien for 21 days. This is to allow the principal sufficient time to make payment from the project account.

Payment disputes involving insolvency are not covered under the Bill. If any one of the parties involved is insolvent, the provisions allowing direct payment and lien on unfixed materials will not be applicable. This is to avoid upsetting creditor priorities under existing insolvency laws. For example, if a

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respondent is unable to pay the adjudicated amount because he is insolvent or under judicial management, the principal, in this case, cannot pay the claimant directly either.

Sir, if approved, this Bill will be implemented from 1st April 2005 and will apply to all contracts signed after this commencement date. This will allow the industry to make necessary adjustments to their business. However, main contractors have highlighted a problem in the transition period. Given the nature and duration of construction projects, some sub-contracts will be signed after the commencement date, which will however be linked to main contracts signed before that. The concern in such a situation is that the sub-contractors can claim against the main contractors, but the main contractors cannot then claim against the developer/principal, as the SOP Act will not cover them.

Sir, we recognise that more time may be required for on-going construction contracts to adjust to the new legislation. Hence, all sub-contracts awarded during the six-month grace period from 1st April 2005 will be exempted if their main contracts are awarded before 1st April 2005. For main contracts awarded after 1st April 2005, the Bill will apply to all the sub-contracts under these main contracts.

To further help the industry to understand the Bill's provisions, I have asked the BCA to organise seminars and to publish an industry guide before the commencement of the Bill.

Sir, this Bill cannot be expected to resolve every payment issue and all the payment woes in the industry. However, by upholding the rights of any party in the industry to seek payment for work done or goods supplied, this Bill will help to deter and weed out the practice of delaying or withholding payment without valid reasons. The speedy and low cost

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adjudication process will expedite the resolution of genuine payment disputes so that cashflow will not be disrupted. It will identify contractors who are facing financial difficulties early, before they cause more problems downstream.

Sir, I wish to reiterate that the Government can only help provide a more equitable operating environment for all parties in the construction industry. Construction firms on their part should re-assess their competitive position, and consider restructuring, consolidating, building niche competencies or forming consortia. This is necessary for them to remain viable in the small domestic market here and to venture successfully into high-growth overseas markets, such as China and India.

Sir, I beg to move.

Question proposed.

Dr Amy Khor Lean Suan: Sir, for some time now, the building and construction industry has been plagued by a series of headline-grabbing debacles. What readily come to mind are high profile fiascos such as falling windows, the Nicoll Highway collapse and Marine Terrace and other incidents where contractors have gone bust, usually in spectacular fashion.

In many ways, the problems stem from the sector's relatively poor performance over a prolonged period. The building and construction industry is the only sector that has continued to shrink despite growth in practically all other sectors. The sector has been so besieged with many problems that industry players have recently even found some cause to rejoice when it was reported that the collective net loss of listed construction firms has been reduced by half to $230 million in the last financial year, compared to a staggering loss of $455 million in the previous period.

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But beyond economics, there are deeper structural problems, one of which is the subject of this Bill pertaining to the rights of eligible parties to seek progress payment for work done. Sir, it would appear that in the construction industry, honest wages for an honest day's work and that people go into business to earn a better living and not to commit suicide, are not dictums.

Sir, it is acknowledged that the Security of Payment (SOP) Bill is the outcome of extensive discussions between MND and stakeholders to help prevent incidents, such as the Marine Terrace fiasco. It is aimed chiefly at addressing the problem of building contractors, particularly sub-contractors not getting paid for work done for months, or sometimes, even for years. It voids, as the Minister just acknowledged, not just the "pay when paid" clause, but also the "pay if paid" practice that allows contractors to pay their sub-contractors only after being paid by project owners. In fact, it is well-known in the industry that many cash-strapped contractors have not been paying their sub-contractors on time even when they themselves are paid. Worse still, some main contractors have gone bust, creating ripples down the chain to sub-contractors and forcing many to eventually also go bust.

Sir, in my view, the SOP Bill is generally well-drafted. It should help resolve some of the major bugbears of the sub-contractors and improve their cashflow. I would now like to comment on some benefits offered by the SOP as well as some concerns that could be taken up in future reviews of the Act. Sir, I have five points.

Firstly, wide scope of the Bill's application. The SOP applies to the entire value chain of the construction industry, not just contractors and sub-contractors,

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but also developers and consultants. It applies not just to construction work done, but also to related goods and services supplied in the industry and to any other related matter. Construction work is given the broadest definition so that virtually all types of construction works fall within the Bill. Even though the SOP applies only to written contracts, unlike that of the New South Wales Act which applies to both written and oral contracts, the definition of what constitutes a written contract under clause 43 is very wide. It even includes contracts which are merely recorded by one of the parties or a third party with the concurrence of the two parties to the contract, as well as contracts which are not wholly made in writing, but of which the matter in dispute is in writing. Hence, most construction and supply contracts would fall under the purview of this Bill. Making the proposed SOP Act applicable throughout the construction value chain will not only facilitate payments and cashflow, but also help streamline industry practices, instill discipline among the various key players and bring about a more orderly industry. This would, in turn, result in some badly needed improvements to the standards of the industry since claim submissions will have to be carefully prepared and contracts between different players in the industry standardised with regard to payment terms and dispute resolution mechanisms.

Secondly, standards of adjudicators and adjudication fees. The Bill provides for a low-cost adjudication system to settle payment disputes in the shortest possible time. It allows a claimant to apply for adjudication of his claims if the respondent fails to respond, pay or dispute the payment claims. The Authorised Nominating Body (ANB) must appoint an adjudicator within seven days of receipt of the adjudication application. Under the Bill, the adjudicator, for most cases, has only 7-14 days to determine the adjudication, depending on the type of

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case and unless the adjudicator himself requests for a longer timeframe and this is agreed by the claimant. Given this short timeframe and the fact that some claims can be highly technical and complicated, adjudicators will need to be well-qualified and experienced professionals. They should be from the cream of the profession and ideally, some training should be provided to the appointed adjudicators so that all will work on a consistent set of principles when determining the value of claims. This is particularly important as the Bill permits respondents to apply for an adjudication review subject to stipulated conditions. Furthermore, in order not to unnecessarily add to the cost of an already beleaguered industry, adjudication fees ought to be kept reasonable.

I would like to ask the Minister who would set the minimum relevant qualifications and experience required of an adjudicator and if any training programme will be developed to train appointed adjudicators.

What assurance could be given that the adjudication fees would be reasonable and would not unnecessarily add to the overall construction cost in the future, even though there is some cap to the limits now? Also, what cost would be included when arriving at the adjudication fees that would be charged? Additionally, it is noted that in New South Wales, there are eight Authorised Nominating Authorities, equivalent to our ANBs, appointed by the government. I would like to ask the Minister if the Ministry would consider eventually appointing more than one ANB as this would help ensure that all adjudication applications are expeditiously and efficiently dealt with. This could also introduce some element of competition to help keep adjudication fees acceptable.

Thirdly, direct payments from owners/developers to subcontractors. The Bill sets clear time-lines for payments to

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be made and gives a subcontractor the right to stop work if he is not paid by the contractor within the stipulated time. Similarly, a supplier could remove his uninstalled materials from the worksite if he is not paid by the fixed time frame. However, the subcontractor and supplier would have to inform the developer and main contractor of their intentions. The developer could then choose to pay the subcontractor direct to deter him from exercising his right to stop work and keep the project going and subsequently deduct this sum from the main contractor. This is to overcome the concern over any potential negative impact, such as delay in the completion of the project, which could lead to penalties being incurred by the developer for late completion. Whilst direct payment from owners/developers to subcontractors would help to avoid suspension of work, I would like to ask the Minister, since the proposed Act would not over-ride the current law on insolvency, how then is the issue of the main contractor becoming insolvent resolved without jeopardising the legitimate interest of the subcontractors?

Fourthly, appeal channels. Clause 18 of the SOP Bill allows a respondent who is aggrieved by the adjudicator's determination to apply for a review of the adjudicated amount. Clause 21 of the Bill states that the adjudication determination is binding on the parties, unless or until the dispute is finally determined by a court or a tribunal. This would imply that parties to the contract could appeal to the court if they are unhappy with the adjudication determination, even after the review. Would not allowing the appeal process defeat the intention of the SOP to facilitate payment for work done and provide for quick and low cost resolution of the payment disputes through adjudication? This means that the adjudication, even after a review, would only have interim finality, which could be overturned on appeal in a court. Under the Bill, the adjudicator already has the power to

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determine the adjudication application and if the respondent is aggrieved, he could apply for a review subject to the conditions stipulated. Why then do we still allow for the appeal process? Moreover, the majority of the disputes that arise would concern monetary or financial matters related to works done or goods and services supplied, which would be technical in nature and best settled by the adjudicators, with the relevant professional competence.

In fact, I understand that there is no provision for appeal via the court for progress payment disputes under the New South Wales SOP Act. Even if it is felt that the appeal process should be provided for, we should only allow this on a point of law and not on facts or quantum. This would be similar to other similar legislation in Singapore that provides for a tribunal to settle disputes such as the Property Tax Act and the Land Titles Strata Act, which have the Valuation Review Board and the Strata Titles Board, respectively. Appeals for cases first heard via these Boards could only be made on points of law.

Fifthly, standard forms of contract. The current standard forms of contract used for public sector projects as well as those used by main contractors for private sector projects, namely, the public sector standard conditions of contract and the SIA conditions of contract, respectively, have terms and conditions which do not conform with the payment timelines prescribed in the Bill and would have to be reviewed. Furthermore, it is noted that there is currently no standard contract between the main contractor and the subcontractor. I would like to ask the Minister if the Ministry would be looking into prescribing the use of a standard domestic contract which would comply with the requirements of the Bill.

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The shortcomings in the building and construction industry pertaining to payment discipline by main contractors in favour of subcontractors have been crying out for attention for some time. I and others in the industry are pleased that the Ministry is now putting in place legislation to ensure that everyone in the industry gets paid honest wages for an honest day's work. This would go some way to help stabilise a declining but, nonetheless, still important sector of our economy. However, I note that the SOP is not an elixir and would not completely prevent the occurrence of payment problems. For instance, even in New South Wales, Australia, which implemented the SOP in 1997, headline news about the collapse of a main contractor owing millions of dollars to a subcontractor still occurs from time to time. The Ministry, in consultation with the key industry players and stakeholders, should continue to monitor and revise the SOP Act, as well as look into redefining other areas which have contributed to the woes of the industry, such as the tender system and the accreditation of contractors.

With this, Sir, I support the Bill.

Mdm Cynthia Phua (Aljunied): Mr Deputy Speaker, Sir, for any legal procedure to work effectively and efficiently, the procedure must be simple to understand, easy to apply and administer. As I see it, the Ministry has tried to simplify the procedure. However, it still takes me, a real estate personnel, some time to understand the Bill, the requirements dictated by the procedure. My concerns are: how do we help the small and medium contractors or subcontractors so that they could understand and make use of this procedure to achieve the objective of this Bill, ie, to improve cash flow by expediting payments in the building and construction industry? I would like to urge the Ministry to reach out to the contractors and subcontractors through

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pamphlets to announce the availability of the adjudication procedure and provide them with a simple step-by-step explanation on the procedure. The Minister of State has already mentioned seminars and talks. Perhaps, a dedicated inquiry centre could be set up for a period of time so that these contractors and subcontractors could turn to, to seek understanding of the procedure.

Secondly, to achieve the objective of expediting payment, the procedure must be administered promptly and effectively. In accordance with the Bill, for an adjudication procedure to kick off there are many steps and adherence to the timeline required. The differentiation between the supplier of goods and services and the construction work contract has to be made. In most of these subcontract works, often it is not a clear-cut differentiation. The question is who is to assist to determine the differentiation as the timeline and procedure are different. It should not be the case where an adjudication application is made and the contractor has to be told to re-apply again to kick off the procedure. The time taken for the procedure is itself very long. When there is no payment, that is already ranging from 40-45 days upon invoicing, then a claimant can apply for adjudication. This application is to be made within 7 days, another 7 days for the Authorised Nominating Body to send out the notices to the relevant persons, and yet another 7 days for respondents to respond before the commencement of the adjudication. It is stated in the Bill that within 7 days, after the commencing of the adjudication, the adjudicator shall determine the application. However, reading further down the line, there are clauses that state, within 14 days, after the commencement of the adjudication application or within such longer period as may have been requested by the adjudicator. By the time an adjudicator makes a judgment or decision, a quick calculation would show that it would be at least 70 days or more.

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If the procedure taken is too long for a decision, the eventual outcome is that this Bill could end up being a white elephant. The point of concern is that the administrator of the procedure, ie, the adjudicator, must be knowledgeable and decisive.

Thirdly, the consequence for not paying the amount is to exercise the lien on the goods supplied or to serve a notice in writing to suspend carrying out construction work. These consequences are disruptive to the overall schedule of the development work and should be avoided. But these are the two stated consequences under the procedure. Since the procedure allows the principal, eg, the developer to make direct payment, the Authorised Nominating Body should allow such direct payment by the principal, and not when the principal is aware and chose to, or may make payment, of the amount outstanding as stated in the Bill, after the choice of the consequences has been made. The concern is that the principal could do direct payment rather than having the work disrupted.

On this note, I support the Bill.

Mr Ang Mong Seng (Hong Kah): (In Mandarin) : Mr Deputy Speaker, in this year's Budget Debate, I raised a point with the Minister for National Development, Mr Mah Bow Tan, that there were many malpractices in the contract procedure in our building and construction industry with the hope that the Government would rectify these irregularities. I am glad that the Government has responded positively to my suggestion by enacting this law to provide for prompt payments by the main contractors within the stipulated time.

This Bill is indeed a piece of good news to subcontractors, purchasers of properties and residents in the HDB upgrading precincts. It also provides for a good financial management system in the

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building and construction industry. This would not only resolve the contractors' payment problems, but also enhance the image of the building and construction industry in Singapore.

This is a Bill that satisfies both sides and I give full support to it. However, I would like to make some observations and suggestions on the contents of this Bill.

First, this new Bill does not cover renovation works. It is indeed a "fly in the ointment". Contracts in the construction of HDB flats do not include renovation works and, therefore, the effect may not be very great. However, for private condominiums and commercial properties, the building contract normally includes general renovation works. In fact, the internal renovation works take up a large part of the building cost. I understand that it would take up as much as 30% of the total building cost. In the event of some financial difficulties on the part of the main contractor resulting in the renovation contractors not being paid, the renovation works would not be completed. This will affect the completion of the whole building project. Although there are not many such instances, I think we should provide for eventualities and not wait until problems arise before we amend the law. The Minister may want to consider including renovation works in the Bill.

Secondly, this Bill has also stipulated that the claimants would have to, first of all, file a claim with the respondent and the respondent would have to respond within 21 days, and then make payment to the claimant within 35 days thereafter. That is to say, the claimants may have to wait as long as 56 days before he could receive the payment. In the event of the respondent delaying until the 21st day before raising disputes over some items of the claim, then the wait for payment would be even longer. In order to avoid

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such an event from happening, I suggest that the developers appoint professional project managers to carry out supervision and audit on the work progress to establish a sound valuation mechanism so that the payment time would not be delayed unnecessarily.

Currently, Town Councils appoint project managers to deal with the claims. Once the claim is endorsed by the project manager, the main contractor would approve the claim within 7 days so that the whole payment period would be shortened to 42 days. I hope that the Minister would consider a similar procedure to shorten the payment date because the subcontractors are always having difficulty getting paid for their work done. I think we should do our best to make sure that payment is expedited so that the building projects could be completed within the stipulated time.

Thirdly, the Bill also provides that if the payment date is not expressly stipulated in the contract, then the respondent would have to respond to the claim within 7 days and make payment within 14 days. This is a double standard. I suggest that with the coming into effect of the Bill, all new contracts signed should stipulate the payment date, failing which the entire contract would be declared null and void. This would avoid unnecessary double standards resulting in disputes, and thereby delaying the progress of the construction work.

Fourthly, from what I understand, the subsidiary company, Surbana, of HDB would normally post the Work Progress Payment Certificate on the notice board at the relevant worksite to inform the contractors and subcontractors of the progress payments made. The contractors and subcontractors would then send their officers down to the worksite, queue up and then copy down the contents of the Work Progress Payment Certificate. I think this is a waste of manpower and time. We

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are now in a high-tech society. We should move with the times. We should use more scientific methods to disseminate such information. I suggest that, apart from posting the certificate at the worksite, the HDB should also email copies of it to the contractors concerned. This would save precious time and manpower resources, so that the contractors could concentrate on their work and hence improve on their efficiency. There is an additional benefit for the email too. Once there is a dispute, the email could become a documentary proof to be produced in court. I think the email could be a very important document to the subcontractors.

Sir, I hope the Minister will consider my suggestions.

Mr Cedric Foo Chee Keng: Mr Deputy Speaker, Sir, I would like to thank all Members for their comments and for their support of the Bill.

This Bill is the outcome of active consultations with the public, the industry, all other stakeholders as well as MND's GPC. Even then, I am sure Members will agree with me that the problems in the industry are more complex than that, and this Bill is not a panacea for all the payment woes in the industry.

Let me now address some of the questions posed by Members. I agree with Dr Amy Khor that the industry is indeed shrinking and the good old days of $24 billion worth of construction contracts in Singapore would not come soon. Therefore, in my speech, I had highlighted that the industry needs to reassess their competitive position and see what needs to be done to improve their productivity and to enhance their competitiveness.

Dr Khor also talked about "pay if paid" contracts. All these contingent payments by whatever name they may be called, will now be disallowed and become

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unenforceable once the Bill comes into force.

She highlighted the wide application scope of the Bill. Yes, because many of the victims of today's situation are smaller contractors, sometimes involving values that are not very large. So formal contracts drafted by lawyers are usually not the norm. So any written form of contract, eg, a fax, a written quotation, would constitute a contract under this Bill.

The New South Wales Act does allow orally agreed to contracts, but we have found that very difficult to enforce because the adjudicator will have no basis to decide what was actually agreed to and not agreed to since it was done orally. So we have decided, in our case, not to accept oral contracts.

As for the qualifications of adjudicators, it is an important point raised by Dr Khor. The adjudicators will first be selected by the ANB and to start with, the Singapore Mediation Centre will be the first ANB. It will be responsible to set the standards as well as the qualifications of the adjudicators and to uphold such standards. It will also conduct training, which is a point Dr Khor made, and will promulgate a code of practice as well as hear complaints as regards the conduct and professionalism of the adjudicators.

The main criteria are a degree or diploma in architecture, building, engineering, environmental studies or law that is recognised by the ANB, and also recognised by the relevant professional bodies. Adjudicators are also expected to have at least 10 years of working experience in the construction industry in Singapore and must have successfully completed pre-qualification assessments and the training courses run by the ANB.

Dr Khor asked whether or not we will increase the number of ANBs. The answer is yes. We will start off with the SMC

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first and we have allowed more time for the Act to take effect principally because we need time to train and prepare a group of competent adjudicators. Therefore, the Act will not take immediate effect but will take effect only in April next year.

Other ANBs that we can consider is the SIAC or the SIArb. These are two bodies which have persons who would be suitably qualified to become adjudicators for this particular Bill.

She also asked why insolvency is not dealt with here, although payment woes in the construction industry are indeed a form of injustice. But in the area of insolvency, there is a higher justice that must be served. There is an established priority of payments that have to be made to different parties who have suffered as a result of a party going insolvent. So this priority should not be upset just because of the payment woes in the construction industry. So we have therefore left insolvent cases alone so as not to disrupt a process which is working well.

As for reviews and appeals, she asked why do we allow them whereas some other laws do not allow them. I want to reiterate that while we allow reviews on the part of a respondent who felt that the adjudication is not in his favour, the payment that the adjudicator has determined has to be paid to the claimant in the first instance, prior to the review process. So the Bill does fulfill its mission and purpose of facilitating smooth and prompt cash flow.

Why do we allow the review? The industry practitioners have told us that sometimes amounts can be very large, and a single arbitrator sitting in determination of the case may not do sufficient justice. In a case where the difference between the adjudicated amount and the response amount is larger

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than $1 million, the Bill will allow three adjudicators to sit and review the original determination. Nonetheless, payments must first be made. The original adjudicated amount must first be paid to the claimant notwithstanding the review.

The last point that Dr Khor made was about standard form of contracts. This is indeed a good practice. It has been done successfully, eg, in the shipping industry where parties that charter ships use a standard ship charter hire agreement. They go through standard clauses and strike out what do not apply for a particular ship charter hire arrangement. I think a form like that would be useful. I have spoken to the 6+6 TA and they have told me that they would like to see such form of contracts as well. I have encouraged them to work with SCAL and both parties are looking into how to come out with a form of standard contract. I believe that was the last point raised by Dr Khor.

As for Mdm Cynthia Phua, she felt that the Bill is complex. Yes, it is complex and can be quite complex for sub-contractors. On top of seminars and training sessions that BCA will do, I take her suggestion that it is useful to set up a hotline, an inquiry centre of sorts, at least for the initial period of the Act, and I will ask BCA to look into it.

She also made a remark on the long process of adjudication. Let me say that the periods that are mentioned in the Bill are mostly maximum allowable periods. For example, the maximum period that a claimant can make an adjudication application is seven days, but it does not mean that the claimant has to take the full seven days. I think it will be in his interest to make the application early.

Similarly, for the appointment of adjudicator by the ANB, the maximum period is seven days, but it does not mean that the ANB will take the full seven days.

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And I think, in most instances, an adjudicator will be appointed before then.

The adjudication response from the respondent is something that only the respondent has control of. The claimant has no control, and that is likely to be seven days. Also, the maximum period for the adjudication is between seven and 14 days, depending on certain conditions, and there is also a maximum stipulated period. I think if all parties move quickly, the period may not be as long as Mdm Cynthia Phua is concerned about.

Sir, Mr Ang Mong Seng suggested that renovation works in private residential and commercial buildings be included in the Bill. Currently, the Bill applies to all construction works including renovation works in commercial buildings. So I would like to make this clarification. Only renovation works in residential buildings engaged by private homeowners - be it interior decoration, re-tiling of floors, replacing a set of windows - will not be included in the Bill as they are normally of small contract value and may not be worth the while for homeowners to take their case to an adjudicator. Such disputes, however, can be resolved through mediation or the Small Claims Tribunal, which will be the proper body to do so. This is also the practice with other SOP legislation in Australia and the UK.

Mr Ang Mong Seng also proposed that the period for responses to payment claims be shortened from 21 days to seven days. It is also suggested that all new contracts must stipulate payment terms. Otherwise, the contract in its entirety should be null and void. Contracts generally contain more than just payment terms. So some parts of the contracts will still be operative and we should not render the entire contract null and void. What we have done in the Bill is to specify a very short default period, for that matter only seven days.

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Therefore, I think most of the respondents will find it worthwhile to have a period specified, rather than to have a default period of seven days.

The other point that Mr Ang Mong Seng mentioned is the HDB's work progress payment certificates. Currently, these certificates serve to inform the construction industry players of a particular project, that a public agency has already made progress payments. Because, as this House has heard, since "pay when paid" terms are used today, sub-contractors down the line are not aware of when or if the public agencies have paid the main contractors. So in order for them to be made aware and as an interim measure to this SOP Bill, HDB has published and put on their notice boards such work progress payment certificates. Now that "pay when paid" terms or whatever name they may be called are unenforceable, there really is no need for HDB to put up such work progress payment certificates any more because the claimants can take their case for adjudication. Whether or not the party above him (which is the respondent) is paid or not paid is really irrelevant with the passage of this new Bill. So I would like to assure Mr Ang that this will no longer be an issue with the passage of this Bill.

Sir, let me once again thank all Members for their support of the Bill.

Dr Amy Khor Lean Suan: Sir, a point of clarification. I would like to note that I am actually in agreement that there ought to be an avenue for adjudication review because some of the sums in dispute could be very, very large. What I would like to urge the Minister to review in the Bill is the right to further appeal in a court of law after an adjudication review. This is because in clause 21 of the Bill where it provides for the right of appeal to a court or tribunal, it does not stipulate any condition under which the respondent or

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the claimant could appeal to the court, unlike the adjudication review which actually stipulates that it must exceed a certain stipulated sum. I am requesting that if you allow an appeal to the court without any pre-condition, it would mean that the adjudication is not final. It is really interim finality. Even though the sub-contractor gets paid, at the end of the day, every progress payment under dispute could theoretically go up to the court for appeal. I am requesting that the Minister consider looking into allowing for the right to appeal to a court only on a point of law and not on quantum or fact, which is in line with other legislation.

Mr Cedric Foo Chee Keng: Sir, there are two situations here. One of which is if the adjudicator rules in favour of the claimant. When the adjudicator rules in favour of the claimant, the claimant is then entitled to the payment by a certain due date. In such a case, the respondent may feel aggrieved and opined that the adjudication determination is unfair. Therefore, we have stipulated that for amounts where the difference is larger than $100,000, a right of review by the respondent is covered in the Bill, and this is really to be fair to all parties.

Beyond the review, I think the right of appeal to a court or to an arbitrator is always available to anyone, and it is not correct for this Bill, while trying to solve one aspect of the problem faced by the

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industry, to deny that right of appeal to a court of law itself. There may be other issues under Tort Law that needs to be addressed. But I would like to assure the Member that the very cost associated with litigation is a deterrent for anyone to bring about frivolous or vexatious appeals to the courts. The costs and the time needed are sufficient to deter people from doing so unless they have a genuine case which they feel strongly about and which they think they will prevail in a court of law.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Cedric Foo Chee Keng].

Bill considered in Committee; reported without amendment; read a Third time and passed.