Introduction
On 8 April 2026, the Building and Construction Authority (“BCA“) issued a circular (“Circular“) to address the impact of increased diesel and bitumen prices on public sector construction contracts in response to the ongoing Middle East conflict.
The Circular introduces an ex-gratia cost sharing scheme for increased diesel and bitumen costs in ongoing critical government projects, where any delays or stoppages would clearly affect public interest. The scheme echoes earlier schemes implemented by BCA to address exceptional increases in cost during the COVID-19 pandemic, though there are some notable differences.
This Update highlights the key features of the cost sharing scheme and what contractors involved in public sector construction projects should be aware of.
Ex-gratia Cost Sharing Scheme
The scheme aims to defray the increased costs of contractors in critical, ongoing public sector construction contracts from the use of bitumen and diesel to carry out (i) earthworks (e.g. tunnelling, excavation, transportation of excavated materials); (i) foundation/piling works (e.g. diaphragm wall); (iii) reclamation works; or (iv) roadworks (“Direct Additional Cost“).
Under the scheme, Government Procuring Entities (“GPEs“) will cover 50% of the Direct Additional Cost incurred by contractors arising from the use of diesel and bitumen from 1 March 2026 to 31 May 2026 on an ex-gratia basis.
BCA’s approach to extending relief mirrors the ex-gratia co-sharing of prolongation costs implemented as part of the Construction Support Package in response to the COVID-19 pandemic. However, it differs in that claims do not appear to be capped to a percentage of the total contract sum.
Main contractors of contracts which are eligible for the scheme will be informed by GPEs.
Procedure for Claims and Payments
Unlike the co-sharing of prolongation costs during the COVID-19 pandemic, main contractors are not required to enter into a supplementary agreement or a separate letter of agreement. Rather, main contractors are to submit claims to GPEs for assessment. Such claims should be accompanied by (i) clear records of the diesel and bitumen usage for all relevant subcontractors and suppliers involved in providing works for the contract for the relevant month; and (ii) a breakdown of how the ex-gratia payment would be distributed among the main contractor, subcontractors and suppliers.
As GPEs will verify and assess the claims and substantiation provided, main contractors should ensure that the relevant subcontractors and suppliers keep proper records and documentation.
Any ex-gratia payment will be included in the subsequent payment response and made to the main contractor. As the Circular expressly states that GPEs’ decisions are final, main contractors should not expect to challenge GPEs’ decisions on the eligibility or extent of the ex-gratia payment.
Main Contractor’s Obligation to Pass on Ex-gratia Payment to Subcontractors and Suppliers
Main contractors who receive the ex-gratia payment should pass on the appropriate portion of the payment to the relevant subcontractors or suppliers. This is similar to the apportionment of the one-off advance payment extended by BCA to public sector construction contracts affected by the COVID-19 circuit breaker period.
GPEs may request main contractors to submit records of their payment responses reflecting such distribution, failing which GPEs may notify and recover any ex-gratia payment in subsequent interim payments.
Errant main contractors may also be liable to claims from their subcontractors and suppliers in adjudication.
Consideration for Stakeholders
In light of the Circular, contractors involved in public sector construction projects may want to consider the following:
Act promptly. The scheme covers Direct Additional Costs incurred from 1 March 2026 to 31 May 2026. Contractors should begin collating records of diesel and bitumen usage immediately, as the window is limited and retrospective record-gathering may prove difficult.
Engage GPEs proactively. While GPEs will inform main contractors of eligible contracts, contractors who believe their projects may qualify should consider proactively engaging the relevant GPE to confirm eligibility and clarify the claims process. Early engagement may help to avoid delays in assessment and payment.
Maintain thorough records. Claims must be supported by (i) clear records of diesel and bitumen usage for all relevant subcontractors and suppliers for the relevant month, and (ii) a breakdown of how the ex-gratia payment would be distributed among the main contractor, subcontractors and suppliers. Contractors should put in place systems to track and document diesel and bitumen consumption across their supply chain now, rather than attempting to reconstruct records after the fact.
Ensure pass-through to subcontractors and suppliers. Main contractors are expected to pass on the appropriate portion of any ex-gratia payment to their subcontractors and suppliers. Main contractors should therefore ensure that their internal payment processes are set up to distribute funds promptly and to document such distributions.
Be aware that GPEs’ decisions are final. The Circular expressly states that GPEs’ decisions on the eligibility and quantum of the ex-gratia payment are final. Contractors should therefore ensure that their claims are as well-substantiated as possible at the point of submission, as there does not appear to be a formal avenue for appeal or review.
Given the ongoing uncertainty in the Middle East, contractors should monitor for any extensions to the scheme period or additional relief measures that may be announced.
For further queries, please feel free to contact our team set out on this page.
For regional Construction, Infrastructure & Projects matters, please see Rajah & Tann Asia’s Regional Construction, Infrastructure & Projects for more information.
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