MND, BCA introduce measures to support companies, provide price certainty in contracts
COMPANIES in the built-environment sector are set to benefit from an extension of relief periods under the Covid-19 (Temporary Measures) Act.
Announcing the extension on Wednesday, the Ministry of National Development (MND) said that the move aims to ensure no segment of the built-environment value chain bears a disproportionate share of the burden caused by the pandemic.
Parts 2, 8B and 10A of the Act will be extended up to Dec 31, 2021 from their original end date of Sept 30, 2021.
Part 2 provides temporary relief from legal and enforcement actions in relation to the inability to perform certain contractual obligations due to the pandemic. Parties are encouraged to negotiate and resolve their differences amicably and in a mutually beneficial manner.
If there are any disputes whether contracts fall under the notification of relief, either party may submit an application for an assessor's determination up to two months after the end of the relief period.
Part 8B requires co-sharing of additional non-manpower qualifying costs between contracting parties due to delays caused by Covid-19, while part 10A allows for the adjustment of contract sums to address the increase in foreign manpower salary costs.
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The ministry noted that challenges for firms in the built-environment sector remain as labour costs have increased due to restrictions on the inflow of migrant workers, while projects also face delays due to manpower tightness.
Separately, the Building and Construction Authority (BCA) also released a circular on Sept 23 to address the lack of provisions to assess contractors' claims for extensions of time (EOT) and loss and expenses (L&E) due to a pandemic event.
"These factors could result in unnecessary increase in tender prices or contractors under-pricing their risks, leading to potential project failure," BCA said.
The changes to the public sector's contracting practices will take effect from Nov 1, although government agencies that are ready may implement the practices with immediate effect.
Among the changes were those for contracts to include grounds allowing contractors to claim for EOT for delays caused by pandemic events.
Regarding cost-related risks, the developer should provide a provisional sum to cover potential known-cost expenses, such as for mandatory Polymerase Chain Reaction (PCR) tests and Antigen Rapid Tests (ART) arising from the current pandemic.
In the case of costs that both the client and contractor could not foresee at the point of tender, co-sharing principles for L&E arising from a pandemic or measures introduced by the government were also introduced, capped at 5 per cent of the awarded contract sum.
This could take the form of additional labour, plant and equipment, materials or goods and site overhead costs incurred due to the pandemic, after taking into consideration any government or statutory relief or subsidy.
The cap and other considerations may be reviewed by the developer if additional costs have escalated beyond the initial cap.
Since February 2021, the New Contracts Workgroup involving private and public sector stakeholders was convened to create strategies for equitable risk sharing among project parties during pandemics.
BCA also encouraged private-sector contract and subcontract parties to adopt the workgroup's suggested principles to provide more price and risk certainty in new tenders.
Withers KhattarWong partner Spring Tan said that the changes are welcome as they mark a "big step" towards having a more balanced contracting environment, which has been developer-biased for a long time.
Ms Tan also suggested that performance bonds be restricted, reduced or eliminated as rigorous checks are already in place by developers.
"This is a sledgehammer approach by developers to protect themselves from errant contractors, but is an outdated and destructive method that can destroy companies," she said.
"Should developers still choose to appoint less capable contractors, they should bear some risks from doing so." (see Amendment note)
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Amendment note: Quotes from Withers KhattarWong in an earlier version of this article have been edited for clarity.
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