The Business Times, 12 May 2021, Wed
By Lisa Kriwangko and Rae Wee
THE construction industry has flagged the risks of disputes between longstanding partners, as industry players weigh the relationship costs of tapping latest relief measures made available to them.
Industry players can now seek adjustments for higher foreign manpower costs from their contract partners, easing the impact from recent border restrictions to rein in the spread of Covid-19. The latest relief measures are meant to share more fairly the burden of the pandemic across all stakeholders in the sector.
This has prompted the Real Estate Developers’ Association of Singapore (Redas) to point out too the “heavy burden” that developers have shouldered as a result of the Covid-19 outbreak.
Minister for National Development Desmond Lee on Tuesday said no single stakeholder group in the construction industry should bear an “undue share” of the burden imposed by Covid-19. He said this in Parliament as part of the latest amendment to the Covid-19 (Temporary Measures) Act Bill.
But Mr Lee also encouraged relevant parties to make negotiations “in good faith” before triggering any adjudicatory processes, pointing to the long-term relationships built between developers and contractors in the construction sector.
“Construction projects involve many parties, often in long interlocking contractual value chains, and if one goes down, the entire project may be put at risk,” Mr Lee said in his speech. “Everyone along the value chain will need to step up and share the burden of uncertainty, and help one another get through these challenging times together.”
However, the latest amendment drew mixed responses from industry players in the construction sector. While they said that the move was generally a step in the right direction, concerns remain over the parameters of the amended law, and the impact that it may have on the relationship between the parties involved.
Allan Tan, managing director of United Tec Construction, said that given how such negotiations for contract costs are typically “very sensitive”, this may give rise to disputes.
He added that the process may also be relatively “tricky and complicated” given the lack of clear guidelines, compared with more clear-cut measures such as the co-sharing of prolongation costs arising from project delays due to the pandemic.
Similarly, Thomas Oh, director of Beng Khim Engineering and Construction, said that when an assessor has to be called in, the sense is that there is an air of disagreement, and “that’s not going to be very nice, you’ll definitely spoil the relationship”.
Furthermore, the salaries of construction workers can vary with the number of hours worked, said Mr Oh. Thus, it may be difficult to prove an increase in manpower costs, if their monthly wages remain the same.
Meanwhile, Hooi Yu Koh, chairman and chief executive of Kori Holdings, said that the move would be helpful to subcontractors, given that “in any contract that is ongoing, the majority of workers actually are employed by the subcontractors. It is very heavy at the bottom”.
He, too, raised concerns on whether this may sour relationships between main contractors and subcontractors, adding that this would “require a lot of goodwill” between both parties.
Nonetheless, he said that the move would allow for more discussions on contract negotiations to open up, and encourages players to reach an amicable agreement.
In his speech, Mr Lee also said that anecdotally, there has been a spirit of “give and take” in the sector.
Mr Lee gave examples of some developers giving their contractors an extension of time beyond what has been mandated in the existing Covid-19 (Temporary Measures) Act for the completion of on-going projects. Others have also offered advanced payments, and increased the frequency of progress payments to aid contractors’ cashflow.
In response to BT’s queries, Redas said it appreciates the government’s decision to help the construction sector, is “sympathetic” and “fully understands” the difficulties contractors are facing.
However, while Redas is supportive of such relief measures, many of its members believe that developers “have been bearing the heavy burden of supporting their main contractors and the many value-chain partners in terms of extensions of time and prolongation cost-sharing based on earlier directives”, the Redas spokesperson said.
Developers also grapple with higher costs brought about by delayed project completions, such as additional property taxes and land holding costs, the spokesperson added.
Developers have been badly affected by disruptions to construction timelines and escalating costs as well.
“On top of these, the heavy potential penalty of land ABSD (additional buyer’s stamp duty) and late vacant possession delivery penalty if projects are delayed also weigh heavily on developers’ readiness to bear the cost-sharing burden,” the Redas spokesperson said.
Separately in his speech, Mr Lee noted that the government had earlier provided developers with a 12-month extension of the project completion period and ABSD remission timelines for completion, to account for delays due to Covid-19.
The Covid-19 (Temporary Measures) Act will also allow developers whose projects face construction delays to seek relief on the date of delivery of possession, Mr Lee said.
To Seah Kiin Peng, group chief executive of BRC Asia, “it’s always in the implementation…the devil will be in the details”.
For one thing, there needs to be a “quick and effective educational campaign” to allow players in the industry to be aware of the latest amendment, and for them to understand how it works. The process of seeking relief through this latest framework also needs to be clear, said Mr Seah.
More importantly, bigger players in the industry will also have to lead the way to show their support, and to show that such negotiations need not be “adversarial”, he added.
Migrant workers coming in from India and Bangladesh are among those who have been restricted from entering Singapore, with India seeing a mounting surge in Covid-19 cases. This comes too as Singapore is battling more Covid-19 cases.
Mr Lee noted that compared to pre-Covid levels, the number of construction Work Permit holders have dropped by about 15 per cent, and is expected to continue falling in the months ahead. Manpower costs have risen, with median wages of construction Work Permit holders in March 2021 increasing by 15-30 per cent from pre-Covid times, according to the Ministry of Manpower’s data.
Affected contractors and subcontractors may apply to the authorities for an appointed assessor who will adjust the contract sum to take into account an increase in foreign manpower salary incurred between Oct 1, 2020 and Sept 30, 2021 due to reasons relating to Covid-19.
Mr Lee also noted feedback that contractors have been buffering for risks in their current tender bids, pushing up tender prices for new contracts. Given this, in January this year, the ministry had set up a taskforce studying how to enhance standard construction procurement contracts in both the public and the private sector to mitigate the impact of the current pandemic as well as future pandemics.
The taskforce is led by the Building and Construction Authority and comprises government agencies, consultants, as well as trade and professional associations representing developers, contractors, quantity surveyors and architects.
“This is understandable as they are worried about unanticipated cost increases due to unexpected developments during the pandemic,” said Mr Lee, referring to the risk buffer by contractors. “Our new construction contracts should enable more equitable risk and cost sharing during pandemic events.”
Mr Lee pointed to a more fundamental issue. “The reality is that these are just stop-gap measures to try to staunch some of the bleeding. They are not sustainable in the long run,” he said. “This latest disruption in inflow of migrant workers has shown how vulnerable the construction industry is, because of our over-reliance on low-cost migrant workers. We must build greater resilience in our sector and move decisively away from manpower-intensive construction methods.”