Justice Goh Joon Seng, Chairman, Singapore Mediation Centre;

Ladies and gentlemen:

I am honored to be invited to speak at this seminar.

The construction industry is currently going through a difficult phase. Workload has dropped significantly after peaking in 1997 and is not expected to recover till around the middle of next year. With extremely tight cash flow and nominal profit margins, more disputes can be expected to surface between contracting parties. This will, in turn, create greater strain on companies’ cash flow and eat deeper into their profit margins. The construction industry must beware of slipping into this vicious circle. It is to the benefit of all parties concerned to minimise disputes and, where these are unavoidable, to consider more cost-efficient ways of resolving them.

Construction projects can be fertile grounds for breeding disputes. This is because of the chain of numerous contracts -- from the developer to the main contractor to the sub-contractors, who themselves will have their own sub-contractors and suppliers. Obligations and responsibilities are passed back and forth along this chain. Any miscommunication or misunderstanding could result in minor disagreements which, if dragged over time, could easily escalate into full-blown disputes with severe implications on the project.

Disputes will add to the costs of doing business for all parties and delay projects. The parties involved become distracted from their principal tasks, which is to deliver quality projects within both time and budget. When disputes escalate, everyone in the chain suffers, including the customer at the end of the chain. We should therefore strive to be more efficient in administering construction contracts and in handling disputes.

Much has been said about the adversarial nature of the construction industry. Everyone is perpetually on guard against each other. This problem is not unique to Singapore – construction industries in advanced countries also grapple with this issue. We can learn from their experiences and solutions and adapt these to our situation. I would like to suggest 3 areas that we can work on to achieve a less adversarial industry.

The first is to be clear about responsibilities and accountabilities of each party in a construction project. There are various methods of project delivery in the market. For instance, the conventional design-bid-build method is quite well tested. However, the design-and-build method is more recent and therefore new to many in the industry. There are also quite a few variations in the design-and-build method. If terms of engagement and contract are unclear, we have on our hands a potential hot bed for disputes.

There are standard forms of contracts that should be used as much as possible, such as the Public Sector Standard Conditions of Contract and the Singapore Institute of Architects (SIA) form. There is, however, currently no standard form of contract for design-and-build projects. The Building and Construction Authority (BCA) is completing a draft standard form for public sector design-and-build contracts. This form should be available by the second quarter of next year.

Apart from conditions of contract, other approaches to enhance working relationships between parties can be explored. One approach tried in advanced countries such as the UK and Australia is partnering. Partnering is an innovative approach to managing relationships between organisations in construction. Rather than constantly putting out tenders and choosing different contractors, longer-term agreements are entered into with all parties working together to deliver lower costs and improved quality. Reasonable profits then provide the basis for investment in improved processes, and a virtuous circle of continuous improvement is feasible. I gather that the subject of partnering will be discussed this morning.

Secondly, disputes can be minimised if there are clear standards on construction quality. A lot of disputes and unhappiness arise because there is a lack of understanding between buyers and sellers on what to expect of the end product. This is especially so in the property sector when buyers often do not get to see the physical property before the purchase. BCA has been using CONQUAS 21, a construction quality assessment system to measure construction quality for about 10 years now. It has gained wide acceptance in the industry. CONQUAS 21 has recently been improved to better reflect quality in areas that are important to developers and buyers. The quality standards are also more objective. With this improvement, BCA plans to make CONQUAS 21 scoring for individual units in residential developments available to the public early next year. Interested homeowners will then be able to engage such a service for a fee. It will come with a recommended list of defective areas of work in need of rectification.

I am pleased to note that SMC will be introducing at this seminar the concept of neutral evaluation of construction defects. This is an interesting approach that can complement BCA’s CONQUAS 21 system to obtain objective evaluation of construction defects.

Thirdly, where disputes are unavoidable, the industry should seek more cost-efficient means of dispute resolution. The framework and the key infrastructure are already in place. The Singapore Mediation Centre has been set up for this specific purpose. Furthermore, in both the Public Sector Standard Conditions of Contract and the SIA forms of contract, a clause on mediation has been included to require parties to make attempt to resolve their disputes through mediation first, before proceeding to arbitration or litigation.

All these efforts, however, will be wasted if everyone in the industry does not make a conscious effort to avoid court proceedings or arbitration. More efficient ways of resolving disputes, such as informal negotiation and mediation, should be attempted first before contemplating recourse through adversarial means. Since its launch, the SMC had mediated 153 construction-related disputes, with a success rate of 81%. That’s 4 out of every 5 disputes resolved through mediation. This shows that disputes can indeed be amicably resolved through mediation, without relying on costly and time-consuming court or arbitration proceedings.

Ladies and gentlemen, as the construction industry emerges slowly from the downturn, I strongly urge all players to take a decisive step and move forward. For those who are still in disputes, look for a quick exit, take a long-term view and focus on the future. I wish you all a fruitful seminar. Thank you.

______________