What is the SOP Act?
Often, contractors and subcontractors are unable to endure delayed payments and pay their own subcontractors or suppliers for completed work, due to a lack of economies of scale. Moreover, if there are any delays in completing the project, the principal contractors may be held responsible for substantial liquidated damages, typically calculated per day.
As such, the Building and Construction Industry Security of Payment (SOP) Act entered into force on April 1, 2005.
The Act intends to enhance cash flow in the built environment industry by allowing parties to request progress payments for completed construction work and any additional items and services provided during the construction project.
It also offers a low-cost adjudication system for resolving payment issues.
Who benefits from the SOP Act?
The SOP Act is beneficial to the following groups;
- Contractors, including both principal and supporting contractors
- Suppliers who provide materials for a specific construction project in Singapore
- Consultants who offer advice for a particular building project in Singapore
- Homeowners
- Developers
How does the SOP Act help firms in the construction industry?
The SOP Act supports businesses in the built environment industry by providing the following benefits:
- Guaranteeing the right to payment for those who provide goods or services for construction projects in Singapore, excluding any “pay when paid” or “pay if paid” contract clauses.
- Setting up default (statutory) payment arrangements without any contractual payment obligations.
- Claimants can request adjudication if they do not receive a payment response or the full amount they are owed.
- Allowing the claimant to cease work or provision of services if the respondent does not pay the amount determined by adjudication.
- Providing additional options such as the ability to place a lien on goods and to execute an adjudication decision as a judgement debt.
What should I know about the SOP Act?
- The SOP Act applies to written contracts for construction work or the delivery of services or commodities for Singapore construction projects.
- The Act does not apply to contracts for building work or the provision of products or services for residential dwellings that do not require Building Control Act plan approval.
Contracts for the refurbishment of HDB apartments, for example, when no structural work is required, are not covered by the Act.
- The SOP Act has been modified to include a minimal interest rate based on the Supreme Court of Judicature Act. It will be used if the parties’ contract terms stipulate a higher interest rate.
- Claimants can now serve payment claims on or before the contract’s defined date or set time under the modified SOP Act. The payment claim is deemed served on the contractual date or the final day of the period.
What are the proper procedures for a claimant to submit a valid payment claim?
Ensuring that the payment claim adheres to the terms outlined in the contract and the relevant legislation is important.
As per the contract terms, you are entitled to submit a payment claim, which should be served by the final day of the following month after the contract is made or any subsequent month if no terms are specified.
For more guidance on the contents of a payment claim, please consult the Building and Construction Authority website, which provides a sample payment claim.
