12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
95
REFLECTIONS ON THE SINGAPORE INSTITUTE OF
ARCHITECTS’ CONDITIONS OF SUB CONTRACT
(SECOND EDITION)
1.
The construction industry in Singapore, like that in the United
Kingdom and other commonwealth jurisdictions, is characterised by
subcontracting. Sub-contractors are classified as either domestic or
nominated sub-contractors. A domestic sub-contractor is one where
the employer plays no part in the selection and appointment of the
contractor. On the other hand, nominated sub-contractors are
specially chosen by the owner to carry out certain portions of the
work. This system of nomination allows the owner greater control
over the quality and price of specialist work desired to be carried
out by contractors of the owner’s choice.
2.
For private sector projects in Singapore where the main contract
between the employer and main contractor is based on the standard
form contract published by the Singapore Institute of Architects
(“SIA Main Contract”), the nominated sub-contracts entered into
between the main contractor and nominated or designated subcontractors1 will invariably adopt the SIA Conditions of Sub-Contract
(“SIA Sub-Contract”) for use in conjunction with the SIA Main
Contract. Whilst the current SIA Main Contract has undergone six
revisions todate since its inception in 1980, the First Edition of the
SIA Sub-Contract also published in 1980 had remained intact for
almost 19 years until its recent overhaul in the Second Edition
launched by the SIA in August 1999 in conjunction with the Main
Contract (6th Edition). This article examines the major changes in
the new edition of the SIA Sub-Contract and their implications for
the construction industry.
ROLE OF THE ARCHITECT
3.
One hallmark of the SIA family of contract forms is the role of the
architect 2 in the administration and regulation of the parties’
relationship in both the main contract and nominated sub-contract.
1
The difference between designated sub-contractors/suppliers and nominated subcontractors/suppliers is explained in Clause 28(1) SIA Main Contract. Designated subcontractors/suppliers are specifically identified at time of tender whilst nominated subcontractors/suppliers are appointed in respect of work covered by prime cost item.
The SIA Conditions of Sub-Contract is intended to be used for designated and
nominated sub-contractors/suppliers. For the purpose of this article, the phrase
“nominated sub-contractors” is used to encompass designated sub-contractors and
suppliers as well.
Although the architect is employed by the owner, he is expected in matters of
certification to act fairly and impartially. See Aoki Corporation v Lippoland(Singapore)
Pte Ltd (1995) 2 SLR 609
2
96
Singapore Academy of Law Journal
(2000)
The architect is not concerned with the administration of domestic
sub-contracts. Architect’s certificates and decisions are conferred
“temporary finality” on the matters certified pending final
adjudication at trial or arbitration. Insofar as the nominated subcontract is concerned, although the architect is traditionally employed
by the owner, he is empowered to give directions or instructions to
the nominated sub-contractor on matters affecting the sub-contract
works. For this purpose, the architect is deemed to be an agent of
the main contractor when giving such instructions or directions.3 The
architect also has power on behalf of the main contractor to order
variations to the sub-contract works.4
4.
The new edition of the SIA Sub-Contract has divested the architect
of any role in administration of the nominated sub-contract.
Administration of the sub-contract is now assumed by the main
contractor. Under the new regime, if the architect intends to issue
directions or instructions concerning the sub-contract works, these
would have to be issued to the main contractor who would in turn
issue directions or instructions to the sub-contractor.
EXTENSION OF TIME
5.
In keeping with his enlarged role, the task of evaluating and assessing
extension of time previously undertaken by the architect is now
carried out by the main contractor in the new regime established by
the new edition of the Sub-Contract.
6.
Previously, the procedure for extension of time required the subcontractor to apply either to the main contractor or architect within
28 days of the event, direction or instruction relied upon as the ground
for extension of time.5 The architect, after receiving representations from
the main contractor, would then apply, mutatis mutandis, the main
contract provisions governing extension of time, to assess and grant the
appropriate extension of time to the sub-contractor.6
7.
Under the new regime, all applications for extension of time are
addressed to the main contractor only with the time limit for
applications shortened from the 28 day period to 21 days.7 This
reduction in time limit is intended presumably to allow the main
contractor sufficient time to apply in turn to the architect for
extension of time under the main contract based on the same ground
relied upon by the sub-contractor.
3
4
5
6
7
See Clause 5.1 SIA Conditions of Sub-Contract (First Edition)
See Clause 7 SIA Conditions of Sub-Contract (First Edition)
Clause 11.2 SIA Conditions of Sub-Contract (First Edition)
Clause 11.2 SIA Conditions of Sub-Contract (First Edition)
Clause 11.2 SIA Conditions of Sub-Contract (Second Edition)
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
97
8. Upon receipt of the sub-contractor’s application, the main contractor
is required to apply the provisions of the main contract,8 mutatis
mutandis, in evaluating and assessing extension of time to the subcontractor. In practice, one can foresee difficulties which the main
contractor may have in implementing the provisions relating to
extension of time under the main contract when assessing the subcontractor’s application for extension of time. To appreciate the
nature of these difficulties, it is necessary to understand how the
extension of time mechanism in the SIA Main Contract (6th edition)
operates. Briefly, once the main contractor submits his notice for
extension of time to the architect, the architect is required within
one month of request by the main contractor to inform the main
contractor whether he is in principle entitled to extension of time.9
After the delaying factor has ceased to operate and it is possible to
assess the length of extension of time, the architect is required to
decide the period of extension and notify the contractor accordingly.10
This requirement to assess the period of extension promptly is subject
to the provision of adequate information or materials by the
contractor to enable the architect to assess extension of time where
requested to do so by the architect.11
9. One difficulty which the main contractor may face in operating the
extension of time machinery under the new Sub-Contract is the time
lag between the architect’s in-principle intimation to his request for
extension of time and his own obligation to revert with an in-principle
decision on the sub-contractor’s entitlement to extension of time.
The main contractor is placed in a dilemma. He may be forced to
take a position on the sub-contractor’s application for extension of
time before his own position vis a vis the architect under the main
contract is ascertained. There is a risk of inconsistency in this new
arrangement.
10. Another difficulty lies with the assessment of extension of time to
be granted. The rationale behind requiring assessments of extension
of time to be made promptly is to enable the contractor to have a
target date for completion to work towards and to programme his
work and resources accordingly. Given the way the extension of time
mechanism is now structured, it is likely to engender a practice
amongst main contractors in instances where the Sub-Contract works
lie on the critical path of the Main Contract Works to await the
architect’s assessment of their claims before in turn making an
8
9
10
11
Clause 23 SIA Main Contract (6th Edition)
Clause 23(2) SIA Main Contract (6th Edition)
Clause 23(3) SIA Main Contract (6th Edition)
Clause 23(4) SIA Main Contract (5th and 6 th Edition). This clause did not exist in the
earlier editions
98
Singapore Academy of Law Journal
(2000)
assessment of the sub-contractor’s claim. There would be a natural
tendency for a main contractor to peg assessment of the subcontractor’s application to his own claim to avoid inconsistency in
treatment in such cases.12 It would take a bold main contractor to
grant an extension of time to a sub-contractor whilst his own claim
is in abeyance as he may well find himself shortchanged by the
architect’s assessment. This will no doubt mean that assessment of
the sub-contractor’s claim for extension of time will be held up on
account of any delays in assessment of the main contractor’s claim
by the architect.
11. A greater cause for concern stems from the change brought about
by Clause 15.2 of the new Sub-Contract whereby decisions and
certificates of the main contractor under the sub-contract are devoid
of any temporary binding effect on the nominated sub-contractor.
However, decisions and certificates of the architect under the main
contract continue to have temporary finality as regards the main
contractor. This dichotomy in treatment of decisions on extension
of time can cause disruption problems at site. Consider a typical
situation where the works on site are delayed by a variation order
emanating from the architect which affects both the Main and SubContract Works. If the main contractor assesses and awards an
extension of time to the sub-contractor which is less than the
extension granted to him by the architect, the nominated subcontractor is likely to feel aggrieved and short-changed in having to
complete the Sub-Contract Works within a shorter time frame than
that given to the main contractor by the architect in respect of the
same delaying factor. Conversely, a main contractor who is overgenerous in his assessment of extension of time to the nominated
sub-contractor but who in turn receives less favourable treatment
from the architect may find himself in the invidious position of having
to allow the sub-contractor a longer time to complete his works whilst
held to a shorter time frame vis-a vis the employer. Under the old
regime, the scope for inconsistencies in treatment was considerably
reduced as the architect played a vital role in assessing and granting
of extensions of time to both the main contractor and nominated
sub-contractors. Further, the “temporary finality” conferred on the
architect’s decisions enabled both the main and nominated subcontractors to order their affairs in the course of the construction
project on the basis of the architect’s decisions or certificates without
prejudice to their rights to seek redress in arbitration or litigation.
With temporary finality removed insofar as the main contractor’s
12 Where the sub-contract works are on the critical path of the main contract works, a
qualifying delay will have equal effect to completion dates for the sub-contract works
as well as the main contract works.
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
99
decisions are concerned, disputes are likely to abound over perceived
inadequacies and inconsistencies in assessments of extensions of time
by the architect and main contractor.
DAMAGES FOR DELAY IN COMPLETION
12. Under the first edition of the SIA Sub-Contract, there is a provision
for imposition of liquidated damages for delays in completion of the
sub-contract works. The machinery for liquidated damages in the
sub-contract form follows closely the main contract and the architect
is required to issue a sub-contract delay certificate before the right
to impose liquidated damages on the nominated sub-contractor
accrues. The liquidated damages provision in the sub-contract has
now been abolished in the new edition and the main contractor is
confined to a claim for general damages for delay.
13. It is hard to discern the reasons behind the removal of the liquidated
damages provision in the new SIA Sub-Contract given that liquidated
damages provisions are a well entrenched feature in modern day
construction contract forms. Liquidated damages provisions promote
certainty and obviate the necessity of establishing actual losses. One
possible reason for this change could be linked to the cessation of
the architect’s role in administration of the sub-contract and the lack
of an independent certifier who could fulfil this role. However, it
should be pointed out that liquidated damages clauses do not require
in principle any certification to trigger their operation. The Public
Sector Standard Conditions of Contract now used in public sector
projects in Singapore contains a provision which permits deduction
of liquidated damages for delays which is not preconditioned on the
issuance of any certificate. 1 3 Liquidated damages kicks in
automatically once the date or extended date for completion lapses
and the works remain incomplete.
14. The removal of the liquidated damages provision could also have
been animated by the concern that the power to grant or disallow
applications for extension of time is now vested in the main
contractor and the risk that this power may be exercised capriciously
or abused. If this was the concern of the draftsman, then it is
submitted that the concern is misplaced. The risk of abuse or
arbitrariness exists whether the power to grant extension of time is
vested in the architect or some other person. The position is really
no different from that of the architect under the main contract who
wields the power to grant extensions of time to the main contractor
even though he is employed by the owner. The law guards against
abuse by requiring the architect to exercise such powers in a fair
13 See Clause 16
100
Singapore Academy of Law Journal
(2000)
and impartial manner.14 There is no reason why a similar obligation
to exercise such powers fairly and impartially cannot and should not
be imposed on a main contractor in matters of certification. In any
event, concerns that main contractors would abuse the extension of
time machinery to bolster their claims for damages for delay should
be allayed by the lack of temporary finality in such decisions15 and
the unfettered right of the sub-contractor to challenge the main
contractor’s assessment at any stage.
PAYMENT PROVISIONS
15. The payment machinery under the first edition of the SIA Sub-Contract
was regulated by interim certificates issued by the architect. Under
Clause 30 (1)(a) SIA Main Contract, the payments due to the nominated
sub-contractors are certified and included in the interim certificates for
payment issued by the architect to the main contractor.
16. Clause 13.1 of the old edition requires the main contractor to make
payment within 14 days after the main contractor has been paid by
the employer following certification by the architect in accordance
with Clauses 30(1) and 30(2) and 31 of the Main Contract. Clause
13.1 is essentially a “pay when paid” provision. In certain
circumstances, the main contractor is deemed to have received
payment notwithstanding non-receipt or partial receipt of payment
from the employer. Where there is any dispute as to whether the
main contractor is deemed to have received payment, the architect
is empowered to certify this issue.16
17. The payment machinery under the new SIA Sub-Contract continues
to be governed by interim certificates issued by the architect. The
main contractor is required to make an application to the architect
in respect of progress payments due to the nominated sub-contractor
for works carried out so that the value of the Sub-Contract works
can be evaluated and included in interim certificates for payment.17
In this regard, it should also be pointed out that under the new SubContract, variations in respect of the Sub-Contract Works will no
longer be subject to certification by the architect unless they have
been the subject of corresponding instructions or directions given
by the architect to the main contractor or have been subsequently
sanctioned by the architect. The architect will no longer be concerned
with certifying variation works of a purely domestic nature between
the main contractor and sub-contractor.18
14
15
16
17
18
See
See
See
See
See
Aoki Corporation v Lippoland Singapore Pte Ltd (ibid).
Clause 15.2 SIA Conditions of Sub-Contract (2nd Edition)
Clause 30(2) SIA Main Contract (5 th Edition)
Clause 14.1(a) and (b)
Clause 7.2
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
101
18. The main contractor remains obliged to pay monies certified due to
the nominated sub-contractor under interim certificates issued by
the architect within 14 days from receipt of payment from the
employer.19 The “pay when paid” provision has survived the old
edition. The situations where the main contractor is deemed to have
received payment have also been preserved save that the architect
is no longer empowered to certify deemed payment of the main
contractor by the employer.20 The decision to retain the “pay when
paid” provision in the new edition is controversial. Such clauses have
attracted heavy criticism in other jurisdictions21 and have since been
outlawed in the UK by the Housing Grants, Construction and
Regeneration Act 1996 (“HGCRA”).22
19. One feature of the first edition of the SIA Sub-Contract and SIA
Main Contract (5th edition) which has disappeared from the second
edition of the SIA Sub-Contract and the SIA Main Contract (6th
Edition) is the privilege of securing direct payments from the
employer where there is default in payment by the main contractor.
Under the “direct payment” provisions found in Clause 30(3) and
(4) of the SIA Main Contract (5 th Edition), a nominated subcontractor who has not been paid by the main contractor can apply
to the architect to issue a “certificate of non payment”.23 Upon
issuance of this certificate, the employer has the option of paying
the sums withheld directly to the nominated sub-contractor and
proceeding thereafter to deduct the same from payments due to the
main contractor.24 Such direct payment provisions are said to be for
the benefit of the employer since they encourage sub-contractors to
bid for the work through added assurance of payment. It also enables
the employer to alleviate the cashflows of nominated sub-contractors
which may be held up on account of non-payment or disputes with
the main contractor and thereby ensure that their progress are not
adversely affected.25
19 See Clause 14.2(a)
20 See Clause 14.2(b) and Clause 14.2(c)
21 See Interpro Engineering Pte Ltd v Sin Heng Construction Co Pte Ltd (1998) 1 SLR
700 and authorities considered therein. For fuller treatment of this topic, see Chapter
20 “Construction Contracts : Principles and Policies in tort and contract” by Duncan
Wallace and “Remedying contractual abuse in the building industry”+by Huxtable
PJC (Technical Information Service No 99, Chartered Institute of Building)
22 The HGCRA is the most significant legislation passed in recent years affecting the
construction industry in the UK. It was enacted following the publication of the report
“Constructing the Team” by Sir Michael Latham in July 1994. Among other things,
the Act requires construction contracts to provide for staged payments and regulates
the right of set-off in such contracts. The Act also introduces a new dispute resolution
process called adjudication.
23 Clause 30(3) SIA Main Contract (5th Edition)
24 Clause 30(4) SIA Main Contract (5th Edition)
25 However, the efficacy of such direct payment provisions has been severely undermined
by the decision of Joo Yee Construction Pte Ltd (in liquidation) v Diethlem Industries
102
Singapore Academy of Law Journal
(2000)
20. The second edition of the SIA Sub-Contract also introduces a new
provision26 which requires the main contractor to use all reasonable
endeavours to procure payment by the employer of any amount
certified as due to the sub-contractor. The draftsman appears to have
taken the cue for this amendment from the obiter dicta of Choo
Han Teck JC in Interpro Engineering Pte Ltd v Sin Heng
Construction Co Pte Ltd (1998) 1 SLR at page 700 where the learned
Judicial Commissioner noted:
“..where the employer is not insolvent, but the main contractor
neglects to collect payments due, the court may imply a term in
the contract that he will make reasonable efforts to collect
payment. This is no more than what an officious bystander
would have thought. It may, however, be prudent for the parties
to incorporate such a term in the contract itself rather than to
rely on an implied term....”
21. This new clause is intended to prevent contractual abuse of the “pay
when paid” provision by a main contractor who is dilatory in
recovering payments due from the employer at the expense of the
nominated sub-contractors. However, given that reasonable
endeavours is likely to include the instituting of legal proceedings to
recover payment, it would have been a fairer compromise, as in most
“name borrowing” or similar provisions found in other standard form
contracts27 for the nominated sub-contractors to provide a suitable
indemnity to the main contractor for costs and to render reasonable
cooperation in any such exercise.
SET-OFF PROVISION IN THE NEW EDITION
22. Two significant changes have been made to the right of set-off in
the new edition. Firstly, a new procedure regulating the main
contractor’s right of set-off has been introduced in Clause 11.5.
Secondly, the concept of “temporary finality” which has hitherto been
conferred on architect’s certificates does not apply to certificates and
decisions of the main contractor under the sub-contract.28
Pte Ltd and ors (1990)2 MLJ 66. In that case, the Main Contractor had gone into
liquidation and the Court held that any direct payments made by the Employer to the
nominated sub-contractors would contravene sections 280(1) and 327(2) Companies
Act and be void against the liquidator.
26 See Clause 14.3
27 Eg clause 59B ICE Conditions and clause 29 PWD Conditions of Sub-Contract for
nominated sub-contracts (Form 24M)
28 See Clause 15.2
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
103
23. Under the old edition of the Sub-Contract, 2 9 the architect is
empowered but not obliged to take into account any dispute ,claims,
set-off, defence or counterclaim other than those of a purely domestic
nature between the main contractor and nominated sub-contractor
when certifying payments due to the nominated sub-contractors.
Clause 13.2 of the SIA Sub-Contract (First edition) goes on to
provide that where the architect has decided any defence, set-off or
counter claim as between the parties , such decisions are binding
until final judgment or award in any dispute between the parties to
the sub-contract.
24. The concept of “temporary finality” conferred on the decisions and
certificates of the architect derives from clauses 31(11) and 37(3)(g)
of the SIA Main Contract. The upshot of these provisions is that in
the absence of fraud, improper pressure or interference by either
party on the architect, the court or an arbitrator seized of a dispute
between the parties will give full effect by way of summary judgment
or interim award to decisions and certificates of the architect and
that pending final judgment or award, the decisions or certificates
of the architect would be binding on the employer and main
contractor in relation to any matter which forms the subject matter
of the architect’s decision or certificate. The object of these temporary
finality provisions is to enable either party to obtain summary relief
in the courts on the basis of certificates issued quickly. Thus, in the
absence of a properly certified set-off by the architect, the main
contractor would be entitled to be paid the full value of any sums
certified due by the architect in his interim certificates.30 The
“temporary finality” principle also extends to certificates of the
architect pertaining to the Sub-Contract.31
25. The rationale behind the concept of “temporary finality” was
explained by Duncan Wallace QC , the author of the First Edition
of the SIA standard form published in 1980 as follows32 :
“Under all previous standard forms in the United Kingdom, no
clear scheme has yet emerged to regulate the financial position
under the contract until such time as an arbitrator or the Courts
can finally dispose of disputes between the parties. Employers
on affidavit evidence have been able to dispute or avoid the
consequences of certificates granted by the architect under
th
29 Clause 30(1)(b) Main Contract (5 Edition)
30 This concept of “temporary finality” has received judicial recognition in Lojan
Properties Pte Ltd v Tropicon Contractors Pte Ltd (ibid) and Aoki Corporation v
Lippoland (Singapore) Pte Ltd (1995) 2 SLR 609
31 See Aurum Building Services Pte Ltd v Greatearth Construction Pte Ltd (1994) 3
SLR 330.
32 Paragraph 2 Part 1 of Guidance Notes entitled “Architect’s Powers” issued in
conjunction with the first edition of the SIA Main Contract Form
104
Singapore Academy of Law Journal
(2000)
nearly all modern contracts with the result that contractors have
in many cases found themselves deprived of finance for long
periods until such time as disputes can be finally resolved. These
difficulties have been compounded and the delays increased by
provisions of varying obscurity designed to prevent early
arbitration of disputes before the end of the work. The scheme
of the present contract is to ensure that virtually all areas of
possible financial controversy...are to be regulated for the time
being by the certificates of the architect.”
26. The new edition of the SIA Sub-Contract issued in conjunction with
the SIA Main Contract (6th Edition) has removed the power of the
architect to certify any cross claims or set offs between the main
contractor and sub-contractor. More significantly, Clause 15.2 of the
new Sub-Contract makes it clear that the “temporary finality” effect
of architect certificates pending final judgment or award under Clause
31(11) of the SIA Main Contract shall not extend to the decisions
and certificates issued by the main contractor under the sub-contract.
27. The new set-off clause found in the new SIA Sub-Contract warrants
close scrutiny. Clause 11.5 reads as follows:
“Without prejudice to the Sub-Contractor’s rights under general
law to dispute any set off by the Contractor, it shall be a
condition precedent for such set off by the Contractor that:
(i) the set-off has been quantified in detail with particulars
and with reasonable accuracy
(ii) the Contractor has given to the Sub-Contractor written
notice specifying his intention to set-off the amount so
quantified together with the required details under clause
11.5(i) of this Sub-Contract and the grounds on which such
set-off is made and
(iii) such notice shall be given to the Sub-Contractor not less
than 7 days before the date of issuance of the interim
certificate for payment which includes in the amount stated
as payable, the amount due to the Sub-Contractor from
which the Contractor intends to make the set-off.”
28. Some preliminary observations may be made about the new set-off
provision. Firstly, it applies only to set-offs exercisable by the main
contractor and does not govern any set-offs which the sub-contractor
is entitled to raise in relation to any claims by the main contractor.
Secondly, clause 11.5 is procedural in nature and does not affect the
substantive rights of the parties. Even if the main contractor has
fulfilled the three criteria set out in clause 11.5, the set-off is still
open to dispute by the sub-contractor. Presumably, a main contractor
who does not comply with Clause 11.5 will have no basis for
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
105
withholding any payments due to the nominated sub-contractors as
certified but would have to pursue any cross -claims in arbitration
or exercise the right of set-off against subsequent payments due to
the sub-contractor.
29. The structure of the set-off clause in the new SIA Sub-Contract is
similar to the express set-off provisions found in the current JCT
forms of sub-contract in use in the UK.33 Like its UK counterpart,
the procedural requirements of the set-off clause in the new SIA
Sub-Contract are intended to foster greater transparency in financial
dealings between the parties.34 It is also pertinent to note that set-
33 Both Clause 11.5 of the SIA Sub-Contract and the JCT forms are concerned only
with set-offs and similarly worded procedural requirements which must be satisfied
before a set-off can be exercised. An interesting question arises as to whether such a
clause would encompass the main contractor’s rights to rely on the defence of
abatement. Originally, the common law did not permit a counterclaim to be set off. It
however permitted the defence of abatement which allows a party to seek a diminution
in value on account of defective work. In a number of decisions notably Acsim
(Southern) Ltd v Danish Contracting & Development Co Ltd ,A Cameron Ltd v John
Mowlem & Company Plc and Barrett Steel Building Ltd v Amec Construction Ltd
(1990) 52 BLR 24, it was decided that the express set-off provisions in the contracts
(similar to Clause 11.5 SIA Sub-contract) did not preclude a main contractor from
raising the defence of abatement on account of defective work and consequently, the
notice requirements in the set-off provisions need not be complied with. Whether
there is scope for the defence of abatement under Clause 11.5 of the SIA sub-contract
would depend on the extent to which the main contractor can question the valuation
of work of the sub-contractor comprised in the interim certificate issued by the architect
under the main contract. Whilst Clause 15.2 new edition purports to remove the
“temporary binding” effect insofar as it relates contractor’s certificates and decisions,
the temporary finality effect of architect’s interim payment certificates (as opposed to
main contractor’s certificates and decisions) pertaining to valuation of the sub-contract
works continue to be preserved in nominated sub-contracts. If so, then there would
be very little scope for the defence of abatement by a main contractor.
34 Prior to January 1976, the sub-contract standard forms in use in the UK notably the
“Green Form” for nominated sub-contracts for use with JCT 63 and “Blue Form” for
domestic sub-contracts for use with JCT 63 did not contain any express provisions
dealing with set-offs. Subsequently, the JCT amended their sub-contract contract forms
to provide for express set-offs and machinery to deal with such set-offs. The JCT subcontracts NSC/4 and 4a, their successor NSC/C as well as NAM/SC and IN/SC all
have set-off provisions bearing the following characteristics:
a. An express right is given to the main contractor to set off monies due to the
sub-contractor for losses and/or expense actually incurred by reason of any breach
or failure to observe the provisions of the sub-contract by the sub-contractor;
b. The right of set off was subject to certain conditions notably:
(i) No set-off relating to delay in completion was possible unless an
architect’s certificate certifying default in completion by the sub-contractor
was issued;
(ii) the amount of the set-off had to be quantified in detail and with sufficient
accuracy by the main contractor;
(iii) the main contractor had given notice in writing of his intention to set-off
the amount and the grounds for set-off not less than 20 days before the
money is due and payable to the sub-contractor
106
Singapore Academy of Law Journal
(2000)
off clauses in construction contracts in the UK are now subject to
the HGCRA which imposes similar notice requirements on set-offs.35
30. There is however one salient difference between the SIA SubContract and the current JCT sub-contract forms as regulated by
the HGCRA. In the present UK regime, there exists an adjudication
procedure which enables parties to achieve an interim determination
of the merits of any set-offs or cross-claims pending final judgment
or arbitration. Under this scheme, either party to the contract has a
right to refer disputes for adjudication in accordance with a procedure
which complies with the HGCRA. The Act requires construction
contracts to contain provisions enabling the reference of disputes to
adjudication and to provide for appointment of an adjudicator within
7 days of notice of dispute. The adjudicator is required to reach a
decision within 28 days or with consent of the applicant, to extend
the period by a further 14 days. More significantly, the adjudicator’s
decision is final and binding on both parties until the dispute is finally
determined by arbitration or court proceedings.
31. This statutory scheme of adjudication found in the HGCRA is
grounded on the same concept of “temporary finality” found in the
SIA standard forms .It shares the common objective of enabling swift
The JCT sub-contract forms also contains a provision making it clear that the setoff provision is an exhaustive statement of the parties rights of set-off under the
sub-contract and that no other rights could be implied as terms of the sub-contract.
Once the main contractor has exercised his right of set-off under the sub-contract,
the sub-contractor, if he disagrees with the set-off, has to send to the main contractor
within 14 days a written statement setting out his reasons for disagreeing with the
set-off and concurrently give notice of arbitration to the main contractor and request
for the dispute to be referred to an adjudicator. The sub-contractor has to follow a
prescribed procedure to appoint an adjudicator who is empowered to provide a
binding decision pending final judgment or award in arbitration. If the sub-contractor
does not comply with the adjudication process, the main contractor would be entitled
to retain the sums set off pending arbitration or final judgment. The latest
amendment to the NAM/SC form namely Amendment 11:1998 has since been issued
to comply with the set-off requirements laid down by the HGCRA.
35 The HGCRA now restricts the right to withhold payment in all construction contracts
which includes the main contract and all sub-contracts, domestic or nominated.. Section
111(1) reads:
“(1) A party to a construction contract may not withhold payment after the final
date for payment of a sum due under the contract unless he has given an
effective notice of intention to withhold payment.
The notice mentioned in section 110(2) may suffice as a notice of intention to
withhold payment if it complies with the requirements of this section.
(2) To be effective such a notice must specify:
(a) the amount proposed to be withheld and the grounds for withholding
payment, or
(b) if there is more than one ground, each ground and the amount
attributable to it,
and must be given not later than the prescribed period before the final date for
payment.”
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
107
interim determination of parties’ disputes in the course of the
construction process without prejudice to their eventual rights in
arbitration or litigation.
32. In hailing adjudication as the way forward in dispute resolution for
all construction contracts, Sir Michael Latham had this say in his
landmark report “Constructing the Team”:
“Nevertheless disputes may arise despite everyone’s best efforts to
avoid them. A Contract form with a built in adjudication process
provides a clear route. If a dispute cannot be resolved first by the
parties themselves in good faith, it is referred to the adjudicator for
decision. Such a system must become the key to settling disputes in
the construction industry.”
These observations are equally applicable in our local construction
industry which is notorious for its adversarial attitudes. Progress of
works and cash-flows are often held up in the course of projects by
disputes. If cash flow is to remain the order of the day, it is imperative
that a suitable dispute resolution machinery designed to facilitate
swift interim adjudication of parties’ rights be implemented.
MAINTENANCE PERIOD
33. The new edition of the SIA Sub-Contract has also sought to
rationalise the sub-contractor’s obligations during the defects liability
or maintenance period and bring them in line with the main
contractor’s own obligations under the main contract. To this end, a
new clause dealing with the sub-contractor’s obligations during the
maintenance period has been created.
34. Clause 12 SIA Sub-Contract provides that the sub-contract
maintenance period shall commence upon issuance of the subcontract completion certificate. The maintenance period will
terminate upon issuance of the sub-contract maintenance certificate.
The main contractor is not obliged to issuance the sub-contract
maintenance certificate until he receives the maintenance certificate
from the architect under the main contract.36 In this manner, the
issuance of the sub-contract maintenance certificate is pegged to the
maintenance certificate under the main contract. This arrangement
is sensible. If the sub-contract maintenance period expires before
the main contractor’s own maintenance period lapses, the main
contractor, may be left without similar recourse against a subcontractor in respect of defects in the sub-contractor’s works.
36 See Clause 12.22
108
Singapore Academy of Law Journal
(2000)
CONCLUSION
35. By relieving the architect of his traditional role in administering
nominated sub-contracts, the new SIA Conditions of Sub-Contract
has blurred the distinction between nominated and domestic subcontractors. More importantly, the former measure of interim
protection conferred on both parties whereby claims or deductions
requiring certification of the architect has been removed.
36. The most immediate concern arising from the new Sub-Contract is
its impact on the cashflow of nominated sub-contractors in the
industry. In Ellis Mechanical Services Ltd v Wates Construction Ltd,37
Lawton LJ observed:
“One of the perils of commercial life for sub-contractors in the
building trade is that there may develop between the main
contractor and the building owner a serious dispute which leads
to one or other of them repudiating the main contract. When
that happens the lifeblood of the building trade namely money
stops. It seems to me that the administration of justice in our
courts should do all it can to restore the life blood as quickly as
possible. The courts are aware of what happens in these building
disputes; cases go either to arbitration or before an official
referee; they drag on and on and on; the cash flow is held up.
In the majority of cases because one party or the other cannot
wait any longer for the money, there is some kind of
compromise, very often not based on the justice of the case but
on the financial situation of one of the parties. That sort of
result is to be avoided if possible. In my judgment, it can be
avoided if the courts make a robust approach to the jurisdiction
under O 14.”
37. In our local context, the robust approach by the courts in summary
judgment applications38 has been made largely possible in contracts
adopting the SIA form through the “temporary finality” conferred
on architect’s certificates and decisions affecting cross-claims and setoffs between the parties. The erosion of the “temporary finality”
principle compounded by the absence of a scheme for swift interim
37 1978 1 Lloyd’s Reports 33
38 Applications for summary judgment are often met by a cross-application for stay of
proceedings pending arbitration. The current approach of the courts towards arbitration
clauses as borne out in two recent Court of Appeal decisions in Kwan Imm Tong
Chinese Temple v Fong Choon Hung Construction Pte Ltd (1998) 2 SLR 137 and
JDC Corporation v Lightweight Concrete Pte Ltd (1999)1SLR 615 is that unless the
claim is “undisputed or indisputable”, a stay of proceedings will be ordered in absence
of other sufficient reasons. In the JDC Corporation case, the Court of Appeal noted
that financial hardship in being kept out of funds pending arbitration would not per
se be a sufficient reason for refusing a stay.
12 S.Ac.L.J.
Reflections on the S’pore Institute of Architects’ Conditions
109
adjudication of rights will undermine the ability of the Courts to
take a robust approach in summary judgment applications in subcontracts governed by the new SIA Conditions of Sub-Contract.
Regrettably, the new SIA Conditions of Sub-Contract has overlooked
the lacuna created with the removal of “temporary finality” and it is
hoped that this gap which threatens to drain the lifeblood of the
industry will be plugged in future editions.
Christopher Chuah Chee Kian*
*
Advocate & Solicitor (Singapore).