Red flags in Singapore construction contracts: what to look for before you sign
Most construction disputes trace back to a contract clause that was signed without fully understanding its effect. This guide identifies the clauses our lawyers flag most often — and explains what each one means for contractors, sub-contractors and suppliers operating under Singapore law.
Tan Joo Seng
Founder & Director. Tyto LLC
Introduction
Construction contracts in Singapore — whether the standard SIA Building Contract, the PSSCOC, the NEC4 (introduced by BCA in April 2024), or a bespoke sub-contract — allocate risk between the parties in ways that are not always obvious on a first read. A contractor or sub-contractor who signs without understanding the full effect of each clause may find themselves legally barred from recovering money they are legitimately owed.
A one-hour contract review before you sign is worth more than ten hours of dispute resolution after. The clauses below are the ones we encounter most frequently in the disputes that reach us — and in most cases, the problem could have been addressed at the contracting stage.
Scope of this guide: This guide focuses on sub-contracts and main contracts for construction works in Singapore. Many of the points apply equally to supply contracts, professional services agreements, and design-and-build contracts, but specific rules may differ. Always seek legal advice on your specific contract.
1
Pay-when-paid clauses and pay-if-paid clauses
A pay-when-paid clause makes a sub-contractor’s right to payment contingent on the main contractor first receiving payment from the employer. A pay-if-paid clause goes further — it makes payment conditional on the main contractor ever being paid, potentially eliminating the sub-contractor’s right to payment entirely if the employer defaults.
Under the Building and Construction Industry Security of Payment Act 2004 (SOP Act), Section 9 renders pay-when-paid provisions broadly unenforceable for progress payments. Importantly, the SOP Act defines pay-when-paid clauses very broadly — any clause that makes “the liability to pay money owing, or the due date for the payment of money owing, contingent or conditional on the operation of any other contract or agreement” falls within Section 9’s prohibition.1
However, a 2021 High Court decision (Frontbuild Engineering & Construction Pte Ltd v JHJ Construction Pte Ltd [2021] SGHC 72) confirmed an important exception: where a contract contains a provision permitting the paying party to suspend payment following termination until a later specified date or event, Section 4(2)(c) of the SOP Act may disapply the SOP Act entirely in respect of that contract — meaning the pay-when-paid protection may not be available after termination.
What to do: Strike out pay-when-paid and pay-if-paid clauses, or replace with a clause providing for payment within a fixed number of days of your payment claim regardless of upstream payment. Review carefully any payment suspension clause that operates on termination — it may have broader consequences than it appears.
2
Short or strict notice obligations
Many contracts require the contractor to give notice of a variation claim, an extension of time (EOT) claim, or a delay event within a very short period — sometimes as few as 7 days of the event occurring. Courts and arbitrators in Singapore have upheld clauses that make timely notice a condition precedent to any entitlement, meaning failure to give notice in time bars the claim entirely, regardless of its merits.
Consequently, a contractor who misses a compensation event notification deadline which is a condition precedent risks losing the right to any adjustment in time or price.
Common traps include: notice periods of fewer than 14 days; requirements to notify a specific person or in a specific form; and notice clauses buried in general conditions that differ from the payment provisions.
What to do: Negotiate for notice periods of at least 28 days. Ensure that failure to give notice does not automatically bar the claim. Establish an internal contract administration system to track and comply with all notice deadlines from day one of the project.
3
Ambiguous or restrictive variation procedures
A variation clause that requires prior written approval before any additional or changed work is carried out sounds reasonable in theory. In practice, instructions from site supervisors are often given verbally, and site conditions sometimes require immediate action. A contractor who carries out work without prior written approval may find the variation claim rejected on the basis that the correct procedure was not followed.
The Singapore courts have generally given effect to contractual variation procedures. In Vim Engineering Pte Ltd v Deluge Fire Protection (SEA) Pte Ltd [2023], the court held that where a contract specifies a procedure for variations, work done outside that procedure may not be recoverable as a variation — even if the work was instructed and carried out in good faith.
Particular risks arise where: the contract requires the contractor to price and submit a variation quotation before proceeding; the employer or supervising officer has sole discretion to value variations; or the contract contains a “no variation without instruction” clause with no mechanism to ratify oral instructions.
What to do: Negotiate for a clause allowing variation work to proceed in emergency situations, with written confirmation to follow within a defined period (e.g. 7 days). Keep a written record of all oral instructions immediately after they are given. Always follow up verbal instructions with written confirmation by email — this creates a contemporaneous record that is difficult to dispute.
4
Liquidated damages clauses — rate and trigger
Liquidated damages (LD) clauses fix the amount payable per day or per week of delay. Under Singapore law, an LD clause is enforceable as a genuine pre-estimate of loss — it is not a penalty provided it was a reasonable pre-estimate at the time of contracting, even if actual losses turn out to be higher or lower (Denka Advantech Pte Ltd v Seraya Energy Pte Ltd [2020] SGCA 119).
Key risks include: an LD rate that is set without reference to any genuine loss calculation; an LD clause that is triggered by any delay, regardless of cause, without any mechanism to extend time for employer-caused delays or force majeure events; and a contract that imposes LD at a daily rate with no cap, meaning unlimited exposure for every day of overrun.
Critically, if the employer prevents the contractor from completing on time (through late access, late variations, or other acts of prevention) and there is no adequate extension of time mechanism, the prevention principle may apply — time becomes “at large” and the LD clause falls away entirely. However, this is a complex area and should not be relied upon as a substitute for a properly drafted EOT clause.
What to do: Review whether the LD rate has any basis in the employer’s actual likely loss. Ensure the contract has a comprehensive extension of time clause covering employer delays, variations, force majeure and relevant events. Negotiate a cap on total LD exposure, typically not more than 10% of the contract sum. Check whether the LD clause is accompanied by a corresponding “bonus for early completion” provision, which may indicate it was genuinely intended as a pre-estimate rather than a deterrent.
5
Back-to-back sub-contracting without carve-outs
A back-to-back sub-contract purports to incorporate the entire terms of the main contract into the sub-contract, passing all the main contractor’s obligations and risks down to the sub-contractor. Used without modification, a back-to-back clause can expose a sub-contractor to risks that are entirely outside its scope of work — for example, obligations relating to sections of the project the sub-contractor has nothing to do with, or liquidated damages provisions calculated by reference to the total project value rather than the sub-contract scope.
What to do: Never accept a back-to-back clause without reviewing the main contract in full. Negotiate carve-outs for provisions that are irrelevant to your scope, and ensure LD rates are re-calculated to reflect your portion of the works only. Confirm that the sub-contract’s payment terms comply with the SOP Act regardless of the main contract’s payment provisions.
A contract review checklist
Before signing any construction contract in Singapore, work through the following questions. If the answer to any of them is “no” or “unsure”, seek legal advice before proceeding.
Does the contract state a fixed date for payment and a fixed period for payment response that complies with the SOP Act (maximum 21 days)?
Are there any pay-when-paid or pay-if-paid clauses? If so, have they been removed or replaced?
Are all notice periods clearly defined, and are they at least 14–28 days for variation and EOT claims?
Is there a mechanism to give written confirmation of oral variation instructions within a reasonable period?
Is your total liability capped, and have consequential and indirect losses been excluded?
Is the liquidated damages rate a reasonable pre-estimate of loss, and is it capped?
Does the EOT clause cover employer-caused delays and acts of prevention?
If the contract is back-to-back, have you read and understood the entire main contract?
Does the termination for convenience clause provide adequate compensation including loss of anticipated profit?
Does the contract contain an arbitration clause? If so, do you know which institution’s rules apply and where the seat of arbitration is?
Concluding note: The clauses described in this guide are not exhaustive. Every construction contract is different, and the risk profile depends heavily on the specific terms, the parties involved, and the nature of the project. This guide is intended to help you identify the questions to ask — not to substitute for a proper legal review. If you are about to sign a construction contract and are uncertain about any of its terms, seek legal advice first.
ABOUT THE AUTHOR
JS
Tan Joo Seng
Founder & Director, Tyto LLC · SMC Senior Adjudicator · Panel Arbitrator: SIAC, SIArb
IN THIS GUIDE
01
Pay-when-paid clauses
02
Notice obligations
03
Variation procedures
04
Liquidated damages
05
Back-to-back subcontracts
06
Contract review checklist
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