The Security of Payment Act (SOP Act) facilitates payments for construction work done or for related goods and services supplied in a construction project.
People working within the building and construction industry are aware that the maintenance of a healthy cash-flow is of utmost importance, especially because it concerns the survival of contractors, sub-contractors and suppliers.
Many of these contractors and sub-contractors do not possess the economies of scale to withstand delayed payments while paying for their own sub-contractors or suppliers down the line for work done. Moreover, main contractors might be exposed to liability for substantial liquidated damages (typically calculated on a per day basis) as a result of delays in the completion of the project. In recognising the importance of this, as well as the difficulties faced by contractors in enforcing timely payments, the Building and Construction Security of Payments Act (SOP Act) was enacted in 1 April 2005 to facilitate smoother cash flow in the construction industry.
Security of Payment Act seeks to affirm parties’ entitlement to payment for work done pursuant to a construction contract. Beyond this, the Act also provides claimants with a binding enforcement mechanism to obtain payment for an ongoing or completed project – a process known as adjudication.
What is adjudication for building and construction matters?
The adjudication regime that Singapore Mediation Centre (“SMC”) administers is governed by the prevailing Building and Construction Industry Security of Payment Act, Building and Construction Industry Security of Payment Regulations and SMC Adjudication Rules.
Basically, adjudication is a quick, low-cost dispute resolution procedure for parties to determine the amount payable by the respondent (the party receiving the payment claim) under a particular payment claim.
In an adjudication proceeding, an adjudicator appointed is by the Singapore Mediation Centre (SMC) to determine the amount payable in a disputed payment claim. The adjudication process typically lasts around 21 days, provided that the adjudicator does not require an extension of time to issue their determination. This determination binding on both parties and contains the adjudicated amount, which is what the respondent has to pay within 7 days of receiving service of the determination and the claimant’s invoice. Although the respondent is still entitled to appeal and/or set aside the adjudication determination in Court, they may only do so on a rather specific grounds.
What kind of claims are eligible under the SOP Act?
Security of Payment Act only applies to construction and supply contracts.
It covers both progress and final payment claims issued by the contractor and/or sub-contractor under a construction contract. This means that claims can be made even if a project is still ongoing, regardless of whether the period to issue progress payments have been provided for under in the construction contract.
Process and Time Lines for Adjudication
It must be stressed that time is of the essence for making adjudication claims and the time limits applicable under the SOP Act are incredibly strict. There have been cases where parties’ documents were inadmissible because they were submitted late by mere minutes. You can refer to the Building and Construction Authority’s flowchart here.
Construction contracts
| Description | Stipulated Days |
| Service of payment claim | – |
| Timeframe for payment response | As per contractual terms (limited to a maximum of 21 days ). In the absence of such terms, within 14 days from service of payment claim. |
| Dispute settlement period | 7 days |
| Timeframe for lodging of Adjudication Application;
Notice of Intention to Apply for Adjudication |
Within 7 days from end of dispute settlement period. |
Supply contracts
| Description | Stipulated Days |
| Service of payment claim | – |
| Payment due date | As per contractual terms (limited to a maximum of 60 days). In the absence of such terms, within 30 days from service of invoice. |
| Timeframe for lodging of Adjudication Application;
Notice of Intention to Apply for Adjudication |
Within 7 days after payment due date. |
The tables above illustrate the sequence and timeframe leading to the lodgement of an adjudication application. Once the stipulated maximum number of days for lodging the application lapses, the claimant will no longer be entitled to apply for adjudication under the SOP Act for work done under that particular payment claim. Therefore, it is crucial for parties to follow the time lines closely to ensure the validity and enforceability of payment claims.
To make an adjudication application, the claimant is required to prepare and submit the following to the Singapore Mediation Centre (SMC):
- Adjudication application fee and deposit
- A written form (Form AA-1) stating the details of the claim
- A copy of the notice of intention to apply for adjudication
- A copy of the payment claim
- A copy of the payment response (if any)
- Relevant contract terms and conditions
- Other relevant information
The benefits of adjudication under the SOP Act
Compared to arbitration or court litigation, adjudication has the following benefits:
Efficient Dispute Resolution
Normal court proceedings can take up to months, or even years, for parties to see a finality to their disputes. This is typically because court proceedings might be augmented by actions like interrogatories and appeals, further escalating costs.
On the other hand, in successful adjudication claims, the claimant can typically expect to receive payment for the adjudicated amount in 28 days from the date of application for adjudication.
Less Costly
The adjudicator’s fees are $300 per hour (exclusive of GST). The total fees payable shall not exceed 10% of the claim amount. In contrast, arbitrator and court fees can easily go way above these.
Furthermore, since adjudication requires little involvement of lawyers compared to arbitration/litigation, lawyer’s fees will be kept minimal.
Reliable
Adjudicators are often seasoned and veteran construction lawyers, engineers and/or architects who have a wealth of experience and are extremely familiar when it comes to construction projects, processes and disputes. This is because adjudicators have to possess working experience of at least 10 years in, or relating to, the building and construction industry in Singapore and passed a training course conducted by the authorised nominating body (presently, the SMC).
Parties are therefore be assured that adjudicators can understand detailed drawings, instructions or photographs and come to an accurate assessment on what is due under the payment claim.
Conclusion
In totality, the efficiency and cost savings make adjudication an attractive and economically viable option.
For assistance regarding making a claim or defending one under SOP Act, do contact us to make an appointment.
