Round-Up Speech by MOS Zaqy Mohamad on the Building and Construction Industry Security of Payment (Amendment) Bill

Oct 2, 2018

Mr Speaker sir, I thank the Members for their comments and their support for the Bill. Let me address the issues raised.

Replacement of review adjudicators

Mr Louis Ng asked whether it was possible to allow parties to consent to starting the review afresh when a majority of the review adjudicators has been replaced, or in other words, when two out of three adjudicators on the panel has been replaced.   

Presently, the Act does not set out the processes following the replacement of adjudicators. The amendments before the House provide clarity in situations where any of the review adjudicators are replaced. 

The intent is to ensure that the adjudication proceedings are not unduly delayed. In situations where the majority of review adjudicators are replaced, the remaining adjudicator that was involved from the onset can apprise the new adjudicators on the case, and there would be no need to start the adjudication review afresh. 

Should a longer period be needed to make a determination, the review adjudicators may seek an extension of time subject to the consent of both the claimant and respondent, as Mr Ng has rightly pointed out. The review adjudicators are best placed to decide on the period of extension required, depending on the needs of the case. This is in fact more flexible than starting the review afresh, as the extension could be shorter than 14 days, which is the default period should a review be started afresh. This would avoid unduly delaying payment to the claimant. 

I would also like to highlight that the appointment of a panel of review adjudicators is not common. This happens only when the adjudicated amount exceeds the response amount by $1 million or more. As such, we note that there have only been 15 of such appointments since the introduction of the SOP Act in 2005. This is less than 1% of all adjudication cases.

Assessment of damage, loss or expense

Mr Ng also noted that the Small Claims Tribunal has jurisdiction to hear claims on damage, loss and expense that are not supported by written document, and asked why adjudicators must disregard such claims under the SOP Act. 

As mentioned in my earlier speech, this restriction is to reduce delays in the adjudication process. For example, we have seen delays of up to 129 days due to the inclusion of such claims. Allowing such claims to be heard under the SOP Act clearly goes against the intent of the SOP Act to provide speedy dispute resolution and facilitate cash flow. 

There are also several key differences between claims under the Small Claims Tribunal Act and the SOP Act. The quantum and corresponding complexity of the claims under both Acts are quite different.  For instance, the claim limit for disputes brought to the Small Claims Tribunal is $10,000, or $20,000 if all parties agree. When the Small Claims Tribunal (Amendment) Act 2018 comes into operation, the claim limit will be $20,000, or $30,000 if all parties consent. 

But there is no limit on the claim amount under the SOP Act. It is not uncommon for damage, loss and expense in a construction contract to exceed millions of dollars. Adjudicators under the SOP Act are also required to meet statutory timelines and complete their determinations within set timelines. In this regard, it is reasonable for such complex claims to be dealt with outside the ambit of the SOP Act. 

Respondent’s right to object to payment claim if not raised previously

Mr Ng asked to clarify if the objections raised by respondents to a payment claim based on new circumstances must arise out of no fault of the respondents. The policy objective is indeed so. 

The purpose of the amendment is to encourage respondents to raise any objections to payment claims at the earliest opportunity to facilitate the fast resolution of payment disputes between the parties. Thus, belated objections from respondents must not be within the respondent’s knowledge and control. 

For example, if an adjudicator considers a claim for damage, loss or expense that is not supported by any document showing agreement of the parties, the adjudicator has failed to comply with the provisions of the Act in making the adjudication determination. In such an event, it would be considered a new circumstance beyond the respondent’s control, and he could raise this as a valid objection in a review adjudication or an application to court for setting aside. 

Mr Gan Thiam Poh has rightly pointed out that the parties further upstream in the construction value chain typically have more bargaining power in negotiating contracts with their sub-contractors. In this regard, the sub-contractors may prefer more amicable settlement of disputes before resorting to adjudication, arbitration or litigation. 

While the SOP Act cannot change such dynamics entirely, it has been useful in facilitating cash flow in the industry. By upholding the rights of parties in the industry to seek payment for work done or goods supplied, the Act has helped deter parties from delaying or withholding payment without valid reasons. But in order for this to be effective, claimants need to exercise their rights and apply for adjudication when required. 

Advisory to sub-contractors

Mr Gan has also suggested for the Government to extend advisory assistance and to raise awareness amongst sub-contractors on their rights to payment. On this note, BCA will be enhancing the current guide on the SOP Act on its website to make it easier for contractors to understand. BCA will also work closely with the industry associations to provide firms with information on how adjudication can be used as an effective means to settle payment disputes. In addition, BCA will also conduct briefings to familiarise the industry with the amendments that are before the House today.

Project bank account

Mr Gan has also suggested to put in place measures to prevent funds meant for a construction project from being diverted for other uses. We have examined this issue as part of the review. 

One possible approach would have been to require the developer of a project to make payments into a project bank account, which parties can then draw on from for work done or goods supplied for the project. 

One example is Queensland. In October last year, Queensland amended its equivalent of the SOP Act to require head contractors to establish project bank accounts for government building projects worth between $1 million and $10 million.  

As such a move would affect many industry stakeholders, and increase the administrative burden on companies, we will take more time to carefully study this approach, and to monitor the effectiveness of Queensland’s model before deciding on the next steps. We will consult the industry when ready.

CONCLUSION

Sir, let me conclude by thanking Mr Louis Ng and Mr Gan Thiam Poh again for their thoughtful suggestions, and their support for this Bill. By taking on board feedback and views from industry players, the revised SOP Act should help to create a more conducive operating environment for all parties in the construction industry.  

With that, Mr Speaker sir, I beg to move.