Greatearth winding-up casts a shadow over recent changes to Singapore’s COVID-19 Act regarding construction industry relief

Singapore’s response to supporting construction industry businesses whose projects have been delayed and disrupted by COVID 19 has continued to evolve. The new Part 10A of the COVID 19 (Temporary Measures) Act (‘COTMA’) came into operation from 6 August 2021, following the passing of Amendment No.3 of 2021 to COTMA back in May 2021. Part 10A adds to the raft of reliefs already available under COTMA in connection with project delay and disruption, many of which we considered previously here. It gives ‘Assessors’ under COTMA extremely broad powers to make binding, ‘just and equitable’ adjustments to contract sums to account for the highly problematic issue of increases in ‘foreign’ manpower costs arising from the pandemic. This is a critical issue in Singapore, given the construction industry’s very heavy reliance on temporary migrant labour, and the major impact the pandemic has had on the availability of that labour.  

Despite the sweeping scope of earlier reliefs available under COTMA, there has been significant uncertainty regarding exactly who will pick up the bill for project delay and disruption caused by the pandemic, and when and how. The new Part 10A is a proactive, and creative attempt to assist parties in resolving the key issue of increased manpower costs.

It is also a significant move given that the 50:50 cost-sharing mechanism between employers and contractors – as introduced by Part 8B of COTMA as recently as November 2020, and presented in some contexts as the final say on the matter of delay related costs arising from the pandemic under COTMA – specifically excluded any recovery by contractors of manpower costs.

While contractors may be cautiously optimistic, employers and developers may be understandably disconcerted by the new Part 10A. However, it is likely to be counterproductive for employers and the industry as a whole if the pain arising from the pandemic is not distributed across the supply chain and smaller players end up bearing the brunt.

COTMA and other measures do appear to have been successful, to date, in holding at bay any surge in construction industry insolvencies and disputes arising from the pandemic. Remarkably, for example, Singapore’s Accounting and Corporate Regulatory Authority (ACRA) figures show that fewer construction sector businesses ceased operations in the first seven months both of 2020 and 2021, after COVID struck, compared to the first seven months of 2019.

However, the recent announcement that three related Greatearth entities are being wound up casts a long shadow. These businesses were acting as main contractor on a number of currently incomplete private and public sector projects in Singapore. This is the first high profile construction industry insolvency in Singapore since the pandemic hit and, significantly, comes at a time when the reliefs under COTMA remain available.

The concern is that while the wolf has been kept from the door to date, many construction industry businesses are under huge pressure and could suffer the same fate as Greatearth, particularly when the reliefs available under COTMA do eventually come to an end and parties who may have taken a ‘wait and see’ approach both in light of COTMA and the inherent uncertainties arising from the pandemic, begin to pursue their entitlements more aggressively.

COTMA and construction project delay and disruption – A brief recap

COTMA has been amended six times in just over a year, reflecting the highly challenging and fluid nature of the pandemic’s impact. Key reliefs of assistance regarding project delay and disruption include:

First, the moratorium on the commencement of legal proceedings and the calling of performance bonds, and protection from liquidated or other damages for delay which are to a material extent caused by a COVID-19 event (Part 2 of COTMA, with the period of protection presently due to end on 30 September 2021, although this could be extended further).

Second, relief to address increases in the cost of renting construction plant or material (Part 8 of COTMA).

Third, a “universal extension of time” of 122 days for all construction contracts covering a specific period of delay between 7 April and 6 August 2020 (Part 8A of COTMA)

Fourth, the sharing of certain qualifying costs between employers and contractors that arise from the contractors’ inability to complete works on time – not including manpower costs - where such inability is to a material extent caused by a COVID-19 event (Part 8B of COTMA, which is also presently due to end on 30 September 2021, although this could be extended further).

Fifth, the new Part 10A, which addresses increases in foreign manpower costs. Manpower can form the bulk of additional costs incurred as a result of delay and disruption caused by the pandemic, with increases typically driven by factors which include border control quotas set by the Singapore Government (i.e. restrictions placed on the inflow of workers) and other countries’ travel restrictions.

The Singapore government has also co-funded part of the monthly wages payable to employees under the Job Support Scheme and provided foreign worker levy rebates. However, this was considered insufficient by some, labour-crunched contractors, who rely heavily on migrant labour and continue to face rising labour costs.

A closer look at the new Part 10A

To be eligible for the relief under the new Part 10A parties must have entered into the construction contract in question before 1 October 2020, and the construction works must not have been certified as complete or terminated as of 10 May 2021. It is also necessary for the party seeking relief to show that it made a reasonable attempt to negotiate regarding the adjustment to the contract sum to account for foreign manpower cost increases, before  resorting to applying for relief under Part 10A.

Part 10A then empowers an Assessor under COTMA to determine if there has been an increase in foreign manpower salary costs as a result of COVID-19 and, if so, to make a binding, ‘just and equitable’ determination which ‘adjusts’ the contract sum to account for such increased costs incurred between 1 October 2020 and 30 September 2021.

The Building and Construction Authority’s guide to Party 10A indicates that Assessors are entitled to take into account a number of ‘matters and principles’ when deciding what is ‘just and equitable’ in the circumstances, including whether in relation to manpower cost increases a party is entitled to or has already obtained relief, the loss suffered or benefit obtained by any party, any adjustment to the contract sum proposed by the respondent during negotiations, and any agreement between the parties.

Interestingly, under the same guide, Assessors “will attempt to ensure that the increase in the amount of the foreign manpower salary costs incurred by the Applicant is co-shared by the Respondent”. However, it is not immediately clear why such ‘co-sharing’ of costs would necessarily be ‘just and equitable’ in all circumstances.

An Assessor’s determination under Part 10A can, with leave of Court, be enforced in the same manner as a judgment or order of the Court, and can also be varied by an Assessor if there is a subsequent, material change in circumstances. A determination is also binding for Security of Payment adjudication purposes and an adjudicator must disregard any payment claim, objection, document or other information provided that is inconsistent with the adjustment to a contract sum made by a determination under Part 10A.

Whether a determination under Part 10A is truly final and binding, or can be overturned by court or arbitration proceedings, is less immediately clear. However, Part 10A indicates that a court or arbitral tribunal can make any orders it considers appropriate – apparently including the power effectively to overturn an Assessor’s determination under Part 10A – although it must do so “having regard” to the determination and any action taken by a party “in reliance” on the determination.

Please contact us should you wish to discuss any of the issues raised in this article or the specific challenges faced by your business.