Introduction of the Construction Industry Security of Payment Bill
In December 2024, the Legislative Council passed the Construction Industry Security of Payment Bill (“Ordinance”), which will come into full operation on the expiry of eight months after it is gazetted.
Late payment and payment disputes are very common phenomenon in the construction industry. With the increasing number of private and public projects, the Government saw the need of a mechanism for recovery of payments. Since 2012, the Government engaged with the stakeholders and conducted rounds of consultation. Finally, in 2024, the Development Bureau presented the Bill to the Legislative Council for review and approval.
The objectives of the Ordinance are to facilitate the recovery of payments under construction contracts, provide a mechanism for speedy resolution of payment disputes through adjudication proceedings and to give a right to a party to the contract to suspend or reduce the rate of progress of construction work or the supply of goods and services under a construction contract.
The Ordinance applies to public and private contracts that are entered into on or after the commencement date of Sections 7 and 8 of the Ordinance. The contract value of the contracts must exceed HK$5,000,000 for carrying out of construction works and HK$500,000 for supply of related goods and services. Contracts related to constructions works for or supply of goods and services to existing residential units or the common parts of a building are specifically excluded from the Ordinance. The Ordinance also does not apply to construction works carried out outside Hong Kong.
A party who claims to be entitled to a progress payment under a construction contract may serve a claim on the other party who is liable to pay. A paying party may reply to a payment claim before the payment deadline of the progress payment or within 30 days from the service of the payment claim, whichever is earlier. If a paying party does not serve a payment response in reply to a payment claim, a payment dispute shall arise. In that case, a claiming party may, within 28 days from the date on which a payment dispute arises, initiate adjudication proceeding. The Court of First Instance is given the right to set aside a determination made by the adjudication proceedings under certain circumstances, such as cases where there has been a material denial of natural justice in the adjudication proceedings.
The Secretary for Development is empowered by the Ordinance to establish and keep a register of nominating bodies of adjudicators. At this stage, it is expected that the nominating bodies will be the various professional bodies of surveyors, architects, engineers and lawyers etc. Fees to be charged by the nominating bodies and adjudicators and Code of Conduct for adjudicators will be prescribed by the Secretary for Development.
Right to delay work or supply of goods is an important remedy under the Ordinance. The claiming party has to serve a notice of intention for the delay to the paying party and the act will not be considered as a breach of contract. The party who delays the works or supply can also be entitled to a reasonable extension of time to complete the contract and any loss and expenses that have reasonably been incurred as a result of delaying the works and supply of goods and services.
The Ordinance sets an important milestone for the construction industry. The contractors and sub-contractors will, after the commencement of the Ordinance, be entitled to better protection. The mechanism under the Ordinance will also speed up the use of adjudication in resolving disputes. As mentioned in the debate of the second reading of the Ordinance, the Government will keep reviewing the implementation of the Ordinance and will include other construction contracts which are now not covered by the Ordinance (such as construction contracts for renovation of common areas of domestic buildings) in the near future.
