Singapore:

Oral Variations and the Right to Pay on International Construction Contracts: A Strict Approach in Singapore

June 21, 2021

Akin Gump Strauss Hauer & Feld LLP

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FIDIC (“International Federation of Consulting Engineers”) contracts do not exclude a right to time and money if the employer or engineer only verbally instructs a change. For example, the FIDIC Red Book in clause 3.3 allows “instructions” to be given orally, but if such instruction is a variation, the contractor must give notice under clause 20.1 to allow additional time and / or money receive. Tailor-made changes to FIDIC forms of contracts are usually aimed at excluding rights to additional time and money by expressly stating that only changes instructed, communicated or requested by the engineer will allow time and / or money to be reclaimed. The Singapore High Court endorsed this tough approach. Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2021] SGHC 63, is now cited by many in the International Building Arbitration Tribunal to support the thesis that if a contract specifically provides that a change is made “only” on written instructions, the contractor’s claim for payment in relation to the changed work is oral is instructed in inevitably fails.

Vim engineering

The case involved modest sums of money and a relatively common contract matrix: Vim was a subcontractor to Deluge, who in turn was a subcontractor to the main contractor. Clause 16 of the subcontract states:

“[a]ny variation work like [additions] or [omissions] or
[modifications], are entered into on a back-to-back basis with the main contract. Such a change may only be made with written [instructions] of [Deluge’s] Project manager
… [Vim] is entitled to ninety percent (90%) … or grants a 10% discount (Profit & Attendance) for [Deluge], on any approved change request for additional work orders ”
[emphasis added]

The court asked where a construction contract stipulates that modification work can only be carried out with written instructions from a specific person, can a contractor still be paid for their modification claims because they trusted that they would be paid despite the terms of the contract? Vim argued that “a gentleman’s word is his obligation,” and therefore his “employer” should pay Deluge for verbally requested variation work, although the contract between the parties stipulated that variation work should only be done with written instructions from Deluges’ project leader (and such there were no written instructions).

Vim argued that Deluge was prevented from denying their claims because Deluge: (i) waived the requirement of “written instructions”; (ii) Orally instructed Vim to perform the variation work; (iii) assured and / or represented Vim that Deluge would pay for variation work; and / or (iv) accept Vim’s invoices for modification work by signing them. The Singapore Supreme Court dismissed Vim’s claims for two main reasons:

  • The express contractual conditions for a change claim were not met: Evidence shows that there was no written instruction from the Deluge project manager to change the work.
  • According to the evidence, there was no waiver or challenge of the requirement set out in clause 16.

The lack of written instructions

The court sued Mansource Interior Pte Ltd against CSG Group Pte Ltd [2017] 5 SLR 203, where the court had denied the right to payment for changes made after verbal instructions. Simply put, like in Vim, the contract in Mansource had an express clause that excluded right to change unless change work was approved and approved by the prime contractor. The main contractor had not approved or approved any of the modification work for which the subcontractor was requesting payment and therefore concluded that the contractual terms for payment for the differing work had not been met. The court found that the same reasoning applied in this case: Clause 16 (above) was clear and specifically stipulated that change work should only be carried out upon written instructions from Deluge’s project manager. Vim alleged that some of the changes were in writing, having received shop drawings from the prime contractor, but the court found that Clause 16 required written instructions from the “Deluge project manager” rather than the prime contractor.

No waiver or contestation of the requirement for written instructions

Alleged verbal instructions. Vim argued that “a gentleman’s word is his bond” and said that it acted on Deluge’s verbal instructions so that Deluge was discouraged from relying on the request for written instructions. The court took the opposite view, saying that by failing to pay for such work, Deluge was complying with the parties’ agreement in clause 16.

Signature of the named person on invoices. Vim argued that Deluge’s project management team’s signatures on different invoices for different work meant that Deluge had accepted that Vim had done variation work and that they would pay for it. The court found that the evidence only showed that Deluge acknowledged the execution of the work and advised Vim that it would submit Vim’s invoices to the main contractor for approval – Deluge did not confirm acceptance of amendments.

Lack of authority to waive a contractual obligation. The court found that Deluge’s project management team was in any case not authorized to waive the requirement of a written instruction under Clause 16. The court noted that the requirement for written instruction in Clause 16 served two main purposes: (i) to see a written record, thereby avoiding disputes over what was allegedly said; (ii) it has drawn the parties’ attention to agree additional time and / or money. The court found that these objectives would be undermined if the nominated person were able to waive written instructions that the parties had contractually agreed.

Deluge’s alleged promise to pay. Vim also alleged that Deluge had promised payments at several meetings, “after Deluge received payment from [the main contractor]However, the court found that it was not economically viable for Deluge to make such a promise. The evidence actually showed that Vim had sent invoices for the changes, but Deluge did not certify the payment invoices and therefore “it was inconsistent and Deluge is unlikely to have reversed “.

Practical implications

Vim Engineering reiterates that bespoke changes that limit payment for various jobs to circumstances where only written instruction is given are enforceable and can have significant economic consequences for the contractor. There are three important points to consider:

  • In Vim Engineering, there was a “back-to-back” provision linking payment for changes to payment for changes under the main contract, and this “flammable marker” may have significantly influenced the court’s reasoning. The fact that Deluge was not paid by the main contractor for the “varied work” seems to have dispelled the argument of the unjust enrichment of Vim.
  • The Court has noted that if the drawings isolate or identify the various works, drawings can support written instructions. This is of course a factual exercise (similar to waiver and appeal arguments) and may be relevant and material in other cases.
  • The lens through which facts are viewed can vary. Should a court find that a particular contract requires the parties to have good faith or cooperation, it may take a more relaxed view of waiver and challenge (so that a clause such as Clause 16, Facts, above is circumvented). Similarly, the implications and application of civil codes can also be used to circumvent stringent requirements.

The content of this article is intended to provide general guidance on the subject. You should seek expert advice regarding your specific circumstances.

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