Covid's lessons for the construction industry

HAD the Covid-19 (Temporary Measures) Act 2020 ended on schedule last week on Sept 30, the construction industry would have been roiled by further uncertainty. This is an industry that already has been plagued by delays, a general drop in productivity, and rising manpower and materials costs. Fortunately, it can look forward to further relief, thanks to the extension of aspects of the Covid-19 temporary measures.

The extension till Dec 31, 2021 offers temporary relief for construction contracts affected by the increase in foreign manpower costs, as well as those that cannot be performed because of the pandemic. Temporary measures for cost-sharing in construction contracts will also continue till the end of the year, ensuring that the cost burden is spread fairly across the sector.

These measures do not just offer relief - they also offer the construction industry a glimpse of how it can evolve and thrive in a Covid-resilient Singapore. This means challenging and rethinking long-held practices relating to risk management, contract negotiation and dispute resolution.

Stakeholders in the construction industry range from the developer to the lender. The risk appetite for each party varies greatly, so the entire value chain will need to consider how best to co-share risk without affecting the project. Pushing risks down to subcontractors, who are unable to shoulder them alone, will only lead to costly delays and project failures.

A fairer risk allocation in contracts will also result in far more accurate pricing for construction tenders, preventing overpricing or underbidding due to the lack of certainty around risk factors. Public sector tenders have led the way in this, giving clarity to time and cost compensation, while also avoiding price uncertainty by allowing for provisional sums for pandemic-related expenses. These changes have been reflected in recent amendments to public sector tenders' standard contract conditions, which means that they will become the norm in time to come. Private sector players should consider emulating this direction.

A further step in the right direction would be to rethink the construction industry's reliance on standard form contracts, which are essentially pre-written templates with little room for negotiation or nuance. Currently, these are a staple in the construction industry, because they reduce legal costs and potential gridlocks in negotiations. However, the pandemic has shown the value of moving away from this practice, as active collaboration in the contract drafting and negotiation stages can help achieve fair allocation of risks, particularly for costs in relation to unforeseen and exceptional circumstances.

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For instance, risks related to unforeseen site conditions caused by a lack of geotechnical information could be negotiated as a shared risk between owners and contractors. This is preferable to the current reliance upon deeming provisions in standard form contracts being applied against the contractor by default. However, this will require construction players to actively seek counsel as to what these risk areas are at the contracting stage, rather than at the dispute resolution stage. Adopting such practices would help all players in the construction industry appreciate which party is best placed at managing, as opposed to bearing, such risks.

COLLABORATIVE DISPUTE RESOLUTION

The extension of the temporary measures will do little to deter disputes from arising. Indeed, as some observers have noted, they will only delay the inevitable dispute resolution process - as a recent piece in The Straits Times, "Contractors may face contractual disputes, claims as Covid-19 legal respite ends" noted, contractors are likely to face contract disputes when relief measures end in December.

But if parties adopt the dispute resolution lessons of the pandemic, they might be able to lower the costs associated with settling these disputes. Indeed, Covid-19 has shown that reducing the costs of dispute resolution is not only desirable, but also achievable.

The state has led the way in many of these efforts, promoting the digital transformation of the courts and encouraging disputing parties to negotiate directly through the collaborative dispute resolution mechanism.

Here, the Covid-19 (Temporary Measures) Act provides for a dispute resolution regime where an assessor (rather than a judge) decides on the applicability of the reliefs, allowing parties to do away with legal representation.

But perhaps it's time to go further. The dispute resolution ecosystem is now broader than ever, with the ratification of the Singapore Convention on Mediation and the promotion of the Singapore Infrastructure Dispute-Management Protocol (SIDP), to name a few. But maybe it is time to go a step further and mandate some of these mechanisms, so that their adoption can be quickened. For example, adopting the SIDP will encourage greater collaboration and communication between the parties involved in the construction process and allow them to resolve disagreements through informal negotiation.

Together, these solutions will ensure that the construction industry would have made the most of these difficult two years to evolve, pivot and emerge stronger. Only then can it truly call itself Covid-resilient.

• Kelvin Aw is a director at CMS-Holborn Asia. Sim Chee Siong is a partner at Rajah & Tann. They are both senior accredited specialists in building and construction law, as accredited by the Singapore Academy of Law. The views here are the writers' own and not firms'. They should not be considered legal advice and readers requiring legal assistance should consult professionals.