Covid-19: New relief framework announced to allow adjustment of contract sums due to increased foreign manpower costs

27 May 2021

To address foreign manpower cost increases in respect of work permit holders due to the Covid-19 pandemic, the Covid-19 (Temporary Measures) (Amendment No. 3) Bill (“Bill”) was passed in Parliament on 11 May 2021. The Bill introduces a relief framework allowing parties such as contractors to apply to adjust the contract sum for their projects. Following the passing of the Bill, the Building and Construction Authority (“BCA”) issued a circular on the new relief framework. The commencement date and subsidiary legislation of the relief framework have yet to be announced.

The introduction of the relief framework is further to the Ministry of Manpower (“MOM”) announcement on 8 May 2021 on the increased foreign worker levy (“FWL”) rebate for the construction, marine shipyard and process (“CMP”) sectors. From May to December 2021, the FWL rebate for each work permit holder in the CMP sectors will be increased from S$90 per month to S$250 per month.

A brief overview of the relief framework is set out the below.

New Part 10A under the Covid-19 (Temporary Measures) Act 2020 (“COTMA”)

In view of the increased foreign manpower cost due to foreign manpower shortages caused by the Covid-19 pandemic, the Bill introduces additional legislative relief under a new Part 10A of the COTMA (“Part 10A”) to ensure that all parties along the value chain step up to co-share the increased costs.

Part 10A provides further support by allowing an assessor to adjust the contract sum of a construction contract that satisfies the stipulated criteria to address foreign manpower cost increase if parties to the contract are unable to renegotiate the construction contracts. The Part 10A relief period will apply from 1 October 2020 to 30 September 2021, subject to any extended date being prescribed.

Contractors are encouraged to negotiate in good faith with their customers/clients to reach a mutually agreeable arrangement to address the cost increase in respect of work permit holders performing the project. This applies to every tier of construction contract (for example, main contractors to negotiate with developers, subcontractors to negotiate with main contractors).

Under the relief framework, contractors can seek a determination by an assessor to adjust the contract sum to address the cost increase of the work permit holders should the negotiation be unsuccessful. The assessor will consider the application and render an outcome which is just and equitable in the circumstances of the case. Details in respect of the adjustments that the assessor may make will be set out in subsidiary legislation. The framework provides that the assessor must consider all relevant factual circumstances, such as the loss suffered or benefit obtained by any contractual party, when deciding what is just and equitable.

Reference materials

The following materials are available on the Ministry of National Development website www.mnd.gov.sg, BCA website www1.bca.gov.sg, and MOM website www.mom.gov.sg:

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.