At a glance: construction contracts and insurance in Singapore

Contracts and insurance

What standard contract forms are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

Most projects in Singapore typically use well-established standard forms. The use of standard forms is not, however, mandatory.

The public sector generally uses the following standard form contracts:

• Public Sector Standard Conditions of Contract (PSSCOC) for Construction Works;
• PSSCOC for Design and Build; and
• Standard Conditions of Nominated Sub-Contract for use in conjunction with the PSSCOC for construction works.

For private sector projects, common standard forms include:

• Singapore Institute of Architects (SIA) Lump-Sum Contract;
• SIA Measurement Contract;
• SIA Minor Works Contract;
• SIA Conditions of Sub-Contract;
• Real Estate Developers’ Association of Singapore (REDAS) Design and Build Conditions of Main Contract; and
• REDAS Conditions of Sub-Contract.

Engineering projects may use standard forms by the International Federation of Consulting Engineers (or FIDIC), such as the Red Book (construction), the Yellow Book (design and build) or the Silver Book (Engineering, Procurement, and Construction/turnkey projects).

There is no restriction on choice of language, choice of law or venue for dispute resolution for contracts in relation to construction and design. Certain mandatory local laws will apply to construction projects in Singapore regardless of the choice of law under the contract.

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

Typical modes of payment are by electronic payment or by cheque.

Frequency of payment will depend on the individual contract’s payment mechanism. Most construction contracts provide for periodic payments based on the progress of the works or on a milestone basis. The works will typically be valued and certified for payment at prescribed intervals throughout the contract.

The frequency of payment for construction and supply contracts will also be subject to statutory timelines under the Building and Construction Industry Security of Payment Act 2004, which provides default and long-stop timelines for the submission of progress payment claims, payment certifications and payment responses, and the period between the payment certificate or response date and the date on which payment is due.

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants?

In the traditional procurement model, the employer commissions an architect and engineers to prepare the design for the project. Generally, the architect and engineers have a duty to ensure that the works as designed have been properly executed by the contractor during the construction phase. The contractor is employed to construct the project based on this design but is generally not liable for problems related to the design.

Under a design-and-build procurement model, the contractor carries out both the design and construction of the works. The contractor is given ‘single point’ accountability for both the design and construction of the project. However, some employers prefer a hybrid version of the design-and-build model to retain some control over the design.

At the construction phase, employers typically engage contractors to carry out and oversee the construction works as a whole, with the contractor responsible to engage and be liable for any defective work or delay or any other default committed by subcontractors or suppliers. The contract between the employer and contractor may provide for the employer to stipulate nominated subcontractors or suppliers to be engaged for designated parcels of work.

Foreign contractors commonly undertake projects by way of a joint venture with a local company.

Generally, a subcontractor contracts as an independent agent of the contractor. In the absence of any express provision to the contrary, the contractor can only hold the subcontractor accountable for the subcontractor’s work. In practice, a contractor will ensure that the subcontract preserves the chain of contractual accountability upstream.

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

There is no formal statutory or regulatory framework for PPPs and PFIs. These would be considered a form of public procurement and would be subject to compliance with the Government Procurement Act and Regulations.

Government procuring entities have the discretion to use PPPs; examples of PPPs include water treatment plants, waste disposal plants, education infrastructure and sports facilities.

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

The liability of consortia members vis-à-vis the employer or other upstream parties will depend on the agreement or agreements between these parties.

The allocation of liability among consortia members will depend on the underlying agreements and business structures adopted by them.

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

Parties are generally free to contractually limit liability. However, a person cannot restrict liability for death or personal injury resulting from negligence under the Unfair Contract Terms Act 1977. In the case of other loss or damage, such exclusion of liability must satisfy the requirement of reasonableness.

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity?

Under the Contracts (Rights of Third Parties) Act 2001, a third party may rely on a term of the contract if the contract expressly provides that the third party may do so, or a contract term purports to confer a benefit on the third party. Whether a contract term purports to confer a benefit on the third party will depend on whether the contracting parties, on a proper construction of the contract, intended the term to be enforceable by the third party. All such third parties must be expressly identified in the contract by name or as a member of a class or answering a particular description.

A contractor may also bear tortious liability for claims by third parties, subject to any duty of care that the contractor is shown to have assumed vis-à-vis the third party. Even if this is shown, policy considerations may militate against the finding of a duty of care.

Certain third-party claims are insurable under contractor’s all-risks policies during the duration of the construction of works and contractual defects liability period.

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards? Does the local law limit contractors’ liability for damages?

The following insurances are normally taken out in construction contracts:

• contractor’s all risks;
• workers’ compensation;
• contractor’s plant and equipment; and
• performance and indemnity bonds.

As the name suggests, contractor’s all risks insurance covers most risks associated with material or property damage in a construction project (subject to exclusions and excess), in particular, physical loss or damage to the works under construction, including temporary and permanent works as well as materials delivered on site. Such policies are usually procured by the employer or main contractor for the whole project.

Typically, workers' compensation insurance, insurance for the plant and equipment, and performance bonds are procured by the contractor or subcontractors for their own workers and equipment.

The law does not generally limit liability for damages. Contractual limitations on liability for damages are generally effective, save as prohibited under the Unfair Contract Terms Act 1977.