Hong Kong security of payment bill is ‘significant step’ for construction sector

Nicholas Turner, construction and procurement law expert at Pinsent Masons, was commenting following the landmark legislation (91 pages/683 KB) which will be gazetted on 27 December 2024 and will come into operation on 28 August 2025. The legislation will provide better protection for stakeholders and improve contractual payment terms across the sector.

“The ordinance will provide more clarity to the industry around payment disputes with a clear and efficient mechanism for resolution, in doing so the ordinance will help enhance the financial stability and operational efficiency of the sector,” said Turner.

The ordinance will do this by prohibiting unfair payment terms such as “pay when paid”. This clause historically allowed main contractors to delay payments to subcontractors until they themselves have been paid, “creating a cascade of financial strain down the supply chain”, said Turner.

One of the important features of the new ordinance is the introduction of an adjudication mechanism. This mechanism is designed to provide a speedy, cost-effective, and binding resolution process for payment disputes. The ordinance applies to main contracts for carrying out construction work with contract values not less than HK$5 million (US$128,700), and main contracts for the supply of goods or services related to construction work with contract values not less than HK$500,000 (US$64,350). It covers both public and private projects, with a broader scope of application for public project.

Ahead of full implementation, stakeholders across the industry will need to undertake a series of preparatory activities. These include reviewing and revising standard contract and subcontract templates in order to comply with this new legislation.  In parallel Adjudicator Nominating Bodies will be appointed and begin the training of and formation of adjudicator panels.