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Bill passed to extend all construction contract deadlines by 4 months due to Covid-19

Bill passed to extend all construction contract deadlines by 4 months due to Covid-19

Source: TODAY
Article Date: 04 Nov 2020
Author: Ng Jun Sen

Developers may also seek relief for a four-month extension to the delivery dates of their housing, commercial or industrial projects.

All construction deadlines between developers and main contractors will be extended by four months due to the impact of Covid-19 on the construction sector, after legislative amendments were passed in Parliament on Tuesday (Nov 3). 

And if such extensions lead to delays down the line, homebuyers may be able to seek reimbursement from their housing developer because they have had to rent for a longer period in the meantime, for example.

The Covid-19 (Temporary Measures) (Amendment No. 3) Bill, which was tabled in Parliament on Monday under an urgent provision and passed the following day after a debate, included three key changes aimed to give further relief to the construction industry.

National Development Minister Desmond Lee, who announced the proposed changes, said: “The built environment value chain is very much interconnected and the impact to our construction sector has a cascading effect on the entire value chain.

“We need to provide further support to the built environment sector, so that no one segment of the value chain bears a disproportionate portion of the burden.”

Other proposed changes in the Bill were introduced on Monday by Second Minister for Law Edwin Tong, such as a framework to enable small companies to renegotiate contracts, sparing them from costly legal action.

On Tuesday, the Bill was debated and passed into law alongside other amendments to the Insolvency, Restructuring and Dissolution Act, which introduces a simplified insolvency programme for small businesses that require support to restructure their debts or wind up.

WHAT ARE THE CHANGES?

One part of the Bill involves a universal extension of the duration of construction contracts, to take account the work stoppages of two months due to the circuit breaker period, and further delays of at least two months for health authorities to clear Covid-19 from dormitories of migrant workers.

As a result of the four-month extension, eligible housing, commercial and industrial property developers who face construction delays and require relief may also serve a notice to the property buyers to extend the estimated delivery date by up to four months.

This includes the Housing and Development Board (HDB), though TODAY understands that the HDB does not require such a relief at this point.

The Bill spells out how property buyers may seek reimbursement from developers due to increased out-of-pocket costs caused by the delay:

  • For private properties, purchasers can be reimbursed up to 70 per cent of the original liquidated damages that would have been payable as part of the purchase agreement
  • For HDB flats, homebuyers can claim up to 70 per cent of its liquidated damages formula, which is 10 per cent a year of 60 per cent of the new flat price
  • An independent assessor will be able to resolve any disputes on reimbursement claims

“This allows for co-sharing of such costs between the developer and purchaser,” said Mr Lee.

The Bill allows construction contractors and sub-contractors to split the additional costs due to the pandemic, such as the costs incurred because one party needed to rent construction equipment for a longer time.

These added costs will be shared equally by contractors and sub-contractors under certain restrictions:

  • Manpower costs are not included
  • Costs are subject to a monthly cap of 0.2 per cent of the contract sum
  • The total claimable amount is also capped at 1.8 per cent of the contract sum

WHY IT MATTERS

The construction sector has suffered from work suspensions, supply chain disruptions and cash flow issues arising from the outbreak of Covid-19 among foreign workers and the coronavirus’ global economic impact.

Despite past relief given to the sector, on-site safe management measures continue to reduce the operating capacity of builders, while labour costs have increased due to foreign worker supply shortages.

The extension of four months would therefore give these parties more breathing space, and will be applied automatically. Contractors who wish to seek a longer extension beyond the four months can negotiate with developers or rely on their existing contract provisions.

“This universal extension of time will reduce the administrative burden for contractors so that they can focus on restarting and ramping up work quickly and safely and adjusting to the new measures required,” said Mr Lee.

Facing these delays, developers may be caught in between as they also seek to deliver their projects in a timely manner to their purchasers.

Said Mr Lee: “We have been encouraging developers who are unable to meet the date of delivery to first discuss with their purchasers and come to a workable and mutually agreeable arrangement.”

If such an arrangement cannot be reached, the latest relief means developers can be granted a time extension as well.

Copyright 2020 MediaCorp Pte Ltd | All Rights Reserved

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