In a commercialised economy such as Singapore, there are a plenty of large scale construction project opportunities available. The most common method of awarding such projects is through the process of competitive tenders. This generally refers to the process of governmental organisations or other institutions inviting bids for projects within a specified time-limit.
The awarding of projects is generally seen as positive for the successful tenderer. However, one must consider the potential pitfalls in dealing with such contracts.
Tender Offer and Acceptance
For the sake of completeness, it is important to first understand the process leading to the award of a successful contract.
Generally, a request for inviting tenders is no more than an invitation to treat and should not be considered as an offer. The submission of a tender bid in response to the request would typically amount to an offer by the tenderer. A binding contract would thus arise when the tender bid is accepted by the party inviting tenders.
Issue 1: Possible Withdrawal Scenarios
Generally, a party’s failure to follow through on an accepted tender bid would be seen as a breach of contract.
There are various reasons why a party may be unable to follow through with a successful bid. Examples include monetary issues, tenderers losing necessary licences, or the occurrence of negative allegations which causes one party to lose confidence in the other.
However, the most common reason of withdrawals arises from the hastiness of submitting a bid. The limited response period of typical tenders means that there is always a possibility of mistakes, or making early decisions which may lead to negative consequences. For example, a tenderer could make a mistake in the calculation of costs and only realise after submitting their bids that it would not be advantageous to the company to carry out the contract. More often than not, it may already be too late to withdraw the tender bid by that time.
Remedies for Breach of Contract
In the event of a breach, the aggrieved party is generally entitled to damages, with the main objective being monetary compensation for the loss suffered, but not to provide any gain above or beyond such loss. However, the aggrieved party must take reasonable steps in order to minimise its losses in such a breach.
Another important remedy for the aggrieved party is the option to terminate the contract. Termination is available under common law where the breach is fundamental or where it amounts to a repudiatory breach. Additional grounds of termination may be provided for in the contract. Typical grounds for termination include a default or bankruptcy of a party, failure to start, continue or complete the contracted work, and non-compliance with the contract in general.
Issue 2: Obtaining Payment
The most common concern faced in construction contracts is the difficulty in obtaining remuneration for work done and services rendered.
In order to address difficulties surrounding payments, the Building and Construction Industry Security of Payment Act 2004 (“BCISPA”) was introduced by the Parliament of Singapore and came into effect on 1 April 2005. Crucially, the BCISPA provides a right to payment and includes provisions prohibiting the avoidance of payments.
Dispute Resolution: Adjudication
In the event where a right to payment has been breached, the BCISPA also provides a mechanism for parties to obtain payment through adjudication.
Adjudication is a method of dispute resolution which is generally cheaper and quicker, with fixed and tighter deadlines as compared with litigation. For example, after a party receives notice of the adjudication application, there is a 7-day deadline to make a response. A failure to meet the deadlines may result in an adjudication determination against the errant party.
Applicants should note that the fees charged by the adjudicators and the Singapore Mediation Centre will be in accordance with the fee schedule of adjudication under the BCISPA.
In order to be entitled to make a claim under the adjudication process, payment has to become due to a contracting party. These payments may be in the form of progress payment schedules or when a payment claim is served on a party. Where such payment disputes arise, the party seeking payment may be eligible to make an application for adjudication.
One should also note that under Section 36 of the BCISPA, it is clear that parties are unable to insert contractual clauses to ‘opt out’ of the statutory provisions of the Act. Therefore, the option of adjudication will always be open to a party seeking resolution to his or her dispute over payments.
Dispute Resolution: Arbitration
Another option to resolve such disputes is arbitration, which involves a tribunal consisting of one or more arbitrators judging the matter privately. Even though arbitration is slower than the adjudication process, it has advantages over litigation such as privacy and a finality of award arising from a limited scope for appeal.
Consequently, arbitration has also become a popular alternative to resolving disputes.
Solution: “Preventive Lawyering”
The issues discussed above are some common pitfalls which may lead to disputes between parties. The nature of such disputes is similar to healthcare, whereby litigation is akin to an expensive surgical operation to treat a serious disease.
In a tough economic environment, the possibility of litigation increases. Therefore, consulting a solicitor for the preparation and implementation of preventive measures is recommended in order to ensure that your day-to-day processes allow for automatic documentation. Doing so may place you in a better position to emerge victorious in the event of a dispute, or better yet, prevent litigation altogether. As with healthcare, “prevention is better than cure”.
Associate Director, Bernard & Rada Law Corporation
The posts found in this Law Blog are not legal advice, nor are they given for the purpose of providing legal advice.
You should contact your lawyer for legal advice if you need legal assistance.