Case Note: THE FINAL PAYMENT IN A CONSTRUCTION CONTRACT: PRESSURES ON ACCOUNT FINALISATION

• Date: 01 December 2008
• Author: CHOW Kok Fong LLB (Hons), BSc(Bldg) (Hons), MBA, FRICS, FCIArb, FCIS, FSIArb; Chartered Arbitrator, Chartered Quantity Surveyor.
• Published date: 01 December 2008

Tiong Seng Contractors (Pte) Ltd v Chuan Lim Construction Pte Ltd [2007] 4 SLR 364

The security of payment regime introduced by the Building and Construction Industry Security of Payment Act confers on contractors, consultants and suppliers a right to progress payment. Since its enactment, there has been uncertainty as to whether the ambit of the regime is confined to progress payments made during the period within which works are carried out in a construction contract or whether it extends to the final payment of a contract. Recently, the High Court addressed this issue in a decision which is expected to change the pace at which accounts are finalised for construction contracts.

1 The Building and Construction Industry Security of Payment Act 2004 (“the Singapore BCISP Act”)1 was enacted to redress some of the difficulties arising from progress payment delays in construction contracts which had, for many years, affected the financial state of contractors, subcontractors, sub-subcontractors and suppliers. The general framework and central features of the regime have been discussed elsewhere2 but this may be briefly summarised for the purpose of the present note.

2 Section 5 of the Act confers a right to progress payment on a party who undertakes construction work or supplies goods and services in relation to construction work. It thus ensures that the right of a contractor, consultant, subcontractor or supplier (“the claimant”) to be paid progressively could no longer be arbitrarily dismissed by the party who has to pay for the works, supplies or services (“the respondent”).

Once a claim for payment has been served, the new regime expects the sum claimed to be paid in full. In the absence of full payment, the respondent has to furnish a payment response within a prescribed period setting out the reasons why he is only paying part of this amount or nothing at all.3 A claimant who is not satisfied with either the amount paid on the claim or with the respondent’s position as stated in the payment response may refer the difference to be settled by adjudication under the Singapore BCISP Act. This is intended to provide a temporary but binding resolution of a dispute pending arbitration or trial. It is carefully prescribed under the regime so that the determination can be delivered speedily. An adjudicator has basically between seven and 14 days to determine a dispute referred to him in accordance with the provisions of the Singapore BCISP Act.

3 The Singapore BCISP Act borrowed to a large extent the model found in the New South Wales Building and Construction Industry Security of Payment Act 1999 (“the NSW Act”). Both the NSW Act and the Singapore BCISP Act emphasised prompt progress payments — that is, the payments made by a building owner to a contractor during the execution of the works. Under most construction contracts, progress payments are typically made on estimates of the value of the works carried out within a designated period. In industry parlance, a progress payment made during the course of a project is normally distinguished from the final progress payment made at the end of the contract. The latter is typically described simply as the “final payment”. It is determined after a careful valuation of the work done and after the valuation has been adjusted against the contract price for variations, the payments made previously up to that date and other incidents encountered in the carrying out of the works. The final payment has been aptly described as “the final balancing of account between the contracting parties”.4 Unfortunately, both Acts are silent as to whether the respective security of payment regime extends to the final payment of a construction contract.

4 It is arguable that the policy considerations which apply to progress payments do not apply to a final payment of a construction contract. Firstly, the certification of the final payment is expected towards the end of the contract when the risks associated with non-payment are generally less likely to threaten the delivery and...