Government in talks with construction firm over delay in finishing Ng Teng Fong hospital

Ng Teng Fong General Hospital in Jurong became operational in the middle of this year. It was originally due to open its doors at the end of last year. GS Engineering and Construction had blamed the shortage of skilled manpower and disruptions in the
Ng Teng Fong General Hospital in Jurong became operational in the middle of this year. It was originally due to open its doors at the end of last year. GS Engineering and Construction had blamed the shortage of skilled manpower and disruptions in the Thai factory making the panels for the hospital's facade for its inability to complete the project on time.ST FILE PHOTO

Contract stipulates firm must pay $100k a day for delay in finishing Ng Teng Fong hospital

The Government is in negotiations with GS Engineering and Construction over the delay in the completion of the Ng Teng Fong General Hospital.

Under their agreement, the South Korean construction firm has to pay $100,000 a day for any delay in completing the 700-bed hospital, which became operational in the middle of this year.

The hospital in Jurong was originally due to open its doors at the end of last year.

The delay came at a bad time, given the bed crunch faced by the other public hospitals.

Over the past few years, public hospitals have had to add extra beds in their wards, put beds along corridors and house patients in tents. This is on top of renting space from private hospitals to take in their more stable patients.

If the liquidated damages from GS are for the full six months, the amount would top $18 million.

The Ministry of Health (MOH) has refused to reveal the cost of the contract but, historically, hospitals cost roughly $1 million per bed; so in this case, the amount could be about $700 million.

One factor that could influence the amount of liquidated damages is the handover date.

In order to have the hospital opened as early as possible, the team accepted handover of the hospital in stages.

The hospital had 500 of its 700 beds in use, as of October.

Mr Nicholas Mak, executive director of research and consultancy with SLP International Property Consultants, said liquidated damages of $100,000 a day are "very punitive" as "profit margins can be quite thin".

When the delay was announced, GS blamed the shortage of skilled manpower here, as well as disruptions in the Thai factory making the panels for the hospital's facade, for its inability to complete the project on time.

Mr Mak said that a shortage of manpower is very common in the construction industry today, with the tighter control on the influx of foreign workers since 2011. This has caused delays in several projects.

The contractor will argue that some, if not all, of the delay was beyond its control.

"The company may be able to salvage its reputation if it can convince the other party that the delay was unavoidable and not due to negligence on its part," said Mr Mak.

However, construction lawyer Raymond Chan from Chan Neo law firm said that manpower shortage and factory problems are usually not valid reasons for delays in the completion as these events are not allowed in standard forms of building contracts here.

But changes to the design of the hospital and additional works after work has begun would be valid reasons for the contractor's claim for an extension of time, he said.

Mr Chan said the rate of liquidated damages at $100,000 per day is not unusual for huge public sector projects.

For commercial projects, the liquidated damages rate may be based on the loss of rental, but this may be more difficult to determine for projects involving public institutions such as hospitals.

But he added that the liquidated damages rate of $100,000 a day is contractually binding and cannot be changed.

Mr Chan said that for huge commercial projects in Singapore, liquidated damages claims can exceed $30 million.

A version of this article appeared in the print edition of The Straits Times on December 19, 2015, with the headline 'Govt in talks with firm over delay of new hospital'. Print Edition | Subscribe