EFFECTIVENESS OF THE SECURITY OF PAYMENT ACT 2004 OF SINGAPORE

Abstract

Construction industry constantly involves high level of organizational complexity in drawing together different specialised contributions and managing them towards successful completion of a project. Due to the involvement of parties from different professions; backgrounds and with diverse interests, inevitably problems would surface in many aspects of a construction project. Payment problem is one of the major dilemmas evolved within the industry. “Pay-when-paid” clauses have been at the root of problems relating to payment difficulty which have lead to the downfall of many contractors and suppliers. This is because the use of such clauses involves a high degree of risk of non-payment by parties claiming that they have not been paid by their employers, thus, relying on the pay-when-paid clause to deny payment to those below them in the construction chain. Building and Construction Industry Security of Payment Act 2004 (‘SOP Act’) was introduced in order to deal with such problems. In spite of the Act’s intention in improving the payment disruptions situation, scope and time features of the provisions are yet to be explored to determine its effectiveness in upholding the Act’s objectives. Improvements to the SOP Act were analyzed based on information gathered by conducting surveys with several industry professionals. The research reveals: adequacy of scope and time limit factors of provisions under the Act are approximately 96% and 75% respectively; and no significance difference in views between results from consultants sample’ and contractors’ sample in relation to the issues highlighted in the questionnaire. In overall, about 91% of the scope and time limit stipulated in the provisions under the SOP Act is adequate and in support of the Act’s objectives. Nevertheless, several areas of concern have been discovered that could be taken into consideration to further reinforce the Act’s aims: to provide reference date for entitlement of progress payment; to introduce alternative recourse in circumstances where difference between adjudicated amount and response amount does not exceed prescribed figure; to provide different time pressures for final payment claim and progress payment respectively; and to impose max time limit in relation to when settlement of adjudicated amount should be made after any determination.