Projects & Construction
This is the first insight piece in our APAC Projects & Construction group’s Road to Recovery Series. Over the coming months we will be exploring some key market and legal developments as the infrastructure sector strains to recover from the pandemic and return to ‘normality’ in a heavily disrupted world.
Singapore adopted an unprecedented, highly interventionist approach to trying to protect the construction industry from the impact of the pandemic via its COVID-19 (Temporary Measures) Act 2020, known as COTMA. The primary forms of relief for the construction sector finally came to an end on 28 February 2022 (for Part 2 and Part 8B) and 31 March 2022 (for Part 10A, although an application for an assessor’s determination under Part 10A can still be submitted until 31 May 2022). To recap, key forms of relief included:
COTMA does seem to have played a role in holding at bay any surge in construction industry insolvencies and disputes arising from the pandemic. Singapore’s Accounting and Corporate Regulatory Authority (ACRA) figures show that fewer construction sector businesses ceased operations in 2020 and 2021, after COVID struck, compared to 2019. The Business Times also reported recently that more construction firms were formed than wound up over the past to years.
However, as we previously considered here, the announcement of the winding up of Greatearth – a leading construction firm with a long history in Singapore - in September 2021, despite the protections provided by COTMA, raised some alarm bells, and the pandemic continues to impact the sector in Singapore. In addition to the knock-on effect of China’s ‘zero-COVID’ approach, travel restrictions on the movement of labour, as well as increased health and safety measures, continue to have a significant, albeit more subtle impact, and can in turn be difficult to assess.
It should also not be forgotten that the construction sector suffered from very serious challenges prior to the pandemic. Some of these have been highlighted further by the impact of COVID 19 – the very heavy reliance on manual labour, and transient migrant labour in Singapore, for example. Other issues have been overshadowed by the focus on COVID 19 in recent times but remain, including relatively low productivity, low profit margins, low uptake of technology compared to some other sectors, a relatively poor safety record, and poorly thought though risk allocation in some cases. In turn, it is well recognised that time and cost overruns, and in turn disputes, are far too common.
On top of all of this, the sector is of course having to deal with rising costs and inflation, and the impact of the war in Ukraine.
Uncertainty regarding the impact of the pandemic has obviously abounded but arguably COTMA itself, and the repeated additions to its reliefs and extensions to its periods of protection, has also compounded that uncertainty for some businesses. In turn, some construction firms appear to have taken a ‘wait and see’ approach and have deferred pursuing their entitlements proactively and making other business critical decisions, despite being involved in significantly distressed projects in some cases.
Against this background, and with the protections COTMA offered having recently come to an end, potential trends in Singapore include the following:
Will necessity be the mother of invention?
With the protection offered by COTMA falling away, the onus shifts back to parties’ contracts and relationships when taking steps to get projects back on track and to manage the likely trends considered above.
In some cases, encouraged by COTMA, parties have seen first-hand the benefits of conducting business flexibly and negotiating their way out of tight spots whenever possible, as opposed to shifting as much risk as possible down the supply chain and then strictly enforcing onerous contractual terms, calling bonds or commencing proceedings, for example. We anticipate that this shift in mindset could be a positive, lasting legacy of COTMA.
In other cases, however, the concern is that parties have sat on their hands and suffered from ‘analysis-paralysis’ in the face of extreme uncertainty and the complexity of their challenges, and that the deferring of difficult decisions has actually compounded their projects’ distress. Time will tell.
There is certainly a tremendous opportunity for other positive trends in the construction sector to accelerate in the wake of the pandemic, and in upcoming pieces in our Road to Recovery series we will be exploring some other key market and legal developments in the current climate.
Please do not hesitate to contact us if you would like to discuss any of the issues considered in this article.