PROPOSED SECURITY OFPAYMENT LEGISLATION(SOPL) FOR HONG KONG’SCONSTRUCTION INDUSTRYByDr. Paul HK HO

SCOPE OF APPLICATIONPublic and private sectors

Types of construction contracts

Geographical scope

Written or oral contracts

Hong Kong or foreign laws

Exclusions of small contract value

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PUBLIC AND PRIVATE SECTORSThe proposed SOPL will apply to all constructioncontracts entered into by the Government andspecified public corporations.

The SOPL will apply to sub contractors of any tier inrelation to such contracts.

The SOPL will only apply to private sectorconstruction contracts where the ultimate employeris procuring a new building (excluding maintenanceworks).

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TYPES OF CONSTRUCTION CONTRACTSThe construction contracts include the following types:

Contracts for construction activitiesServices contracts relating to construction activities (e.g.architectural design, quantity surveying and engineeringdesign)Supply contracts for materials, equipment or plant inconnection with the construction activities

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UK NSW WA NZ SGP MALApplicable to contracts forprofessional servicesApplicable to contracts forsupply of materials and plant

GEOGRAPHICAL SCOPEThe proposed SOPL will only apply to constructionactivities carried out within Hong Kong.

Contracts for materials made outside Hong Kong willbe covered if the materials are supplied for theconstruction activities in Hong Kong. Se

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UK NSW WA NZ SGP MALOnly applicable to contractsfor works carried out insidethe home jurisdiction

WRITTEN OR ORAL CONTRACTS &HONG KONG OR FOREIGN LAWS

The proposed SOPL will apply to relevant contractsregardless of

whether they are written, oral, partly written and partlyoral, andwhether they are subject to Hong Kong law or anotherlaw.

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UK NSW WA NZ SGP MALWritten contract onlyWritten or oral contractHong Kong or foreign law

EXCLUSIONS OF SMALL CONTRACTVALUE

The proposed SOPL will not apply to private sectorconstruction contracts unless the original maincontract value exceeds $5M (construction works) or$0.5M (professional services and supply onlycontracts).When the main contract is covered by SOPL, then allsub contracts of any tier will be covered by SOPL,regardless of value.When the main contract is not covered by SOPL, thensub contracts will not be covered by SOPL, regardlessof tier or value.

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PAYMENTMaximum payment periods

Default payment intervals and periods

Statutory Payment claims

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MAXIMUM PAYMENT PERIODSParties are free to agree the payment term and period.

However, such period shall not exceed 60 calendar days forinterim Progress Payments or 120 calendar days for finalProgress Payment.

Any provision purporting to impose longer periods shall beineffective.

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UK NSW WA NZ SGP MALMaximum payment periodwhich parties can agree to apply

50days

35days

No maximum payment period

DEFAULT PAYMENT INTERVALS AND PERIODSIf the parties do not have express agreements on payment terms,the following “default provisions” shall apply:

a) Parties (e.g. contractors) are entitled to claim a Progress Paymentevery calendar month.

b) The value of work is based on any contract rates agreed orotherwise having regard to market rates.

c) Payment is paid within 60 calendar days for interim ProgressPayments or 120 calendar days for final Progress Payments.

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UK NSW WA NZ SGP MALDefault payment intervals 28 days monthly Claims as

work is donemonthly monthly monthly

STATUTORY PAYMENT CLAIMSParties are entitled (but not obliged) to make statutoryPayment Claims in respect of Progress Payments.

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UK NSW WA NZ SGP MALNo express exclusion of anyparticular types of claim

UK NSW WA NZ SGP MALDefault response period 24

daysN/A 14

days28

DaysN/A N/A

If failure to respond:1. Paying the whole amount ofpayment claim2. No set off against amounts due

PAYMENT RESPONSESA party (e.g. developer) receiving a Payment Claim is entitledto serve a Payment Response no later than 30 calendar daysafter receipt of a Payment Claim.

The paying party cannot set off any amount due under aPayment Claim unless relevant details are provided in aPayment Response. Se

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PROHIBITION OF CONDITIONALPAYMENT TERMS

Pay when paid clause

Pay when certified clause

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PAY WHEN PAID CLAUSEProvisions making payment conditional on the payerreceiving payment from a third party (e.g. pay whenpaid clause) shall be ineffective.

Even in the special circumstance of insolvency

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UK NSW WA NZ SGP MALProhibition of “pay when paid”clause“Pay when paid” is not effective incases of insolvency

PAY WHEN CERTIFIED CLAUSEProvisions making payment conditional on theoperation of any other contract or agreement (e.g.pay when certified clause) shall be ineffective.

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UK NSW WA NZ SGP MALProhibition of “pay whencertified” clause

ADJUDICATIONAdjudication up and down the contractual chain

Limitation on scope

Time Limit for commencement

Notice of adjudication and appointment of adjudicator

Time limit for response

Time limit for decision

Adjudicator’s power to extend time for defence

Ambush – disregard submission and resign

Legal costs and adjudicator’s fees and expenses

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ADJUDICATION UP AND DOWN THECONTRACTUAL CHAIN

Both parties to a contract will be entitled to referdisputes to adjudication.

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UK NSW WA NZ SGP MALRight to adjudicate is limited toclaims made up the contractualchain for paymentRight to adjudicate applies to anyclaims made or disputes arisingup or down the contractual chain

LIMITATION ON SCOPEAdjudication is limited to the following disputes:a) The valuation of work and materials (i.e. normal works

done) claimed in a Payment Claim; and/orb) Money claims (i.e. direct loss and exposes) claimed in a

Payment Claim; and/orc) Set offs and deductions (e.g. liquated damages) against

amounts due under Payment Claims.d) The time for performance (i.e. completion date) or

entitlement to extension of the time for performance(i.e. extension of time).

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TIME LIMIT FOR COMMENCEMENTThere is a time limit for commencement ofadjudication of 28 calendar days.

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UK NSW WA NZ SGP MALTime limit for commencement ofan adjudication

28days

28days

28days

No time limit on whenadjudication is commenced

NOTICE OF ADJUDICATION ANDAPPOINTMENT OF ADJUDICATOR

The claiming party will commence adjudication byserving a notice of adjudication, setting out thenature of the dispute and the amount claimed.

The adjudicator is appointedby agreement or by nomination from an agreednominating body or(if none) by HKIAC within 5 working days ofcommencement.

within 5 working days of commencement.

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TIME LIMIT FOR RESPONSEThe claiming party must serve their submissions(together with all supporting evidence) on theresponding party on or before the date ofappointment of the adjudicator.

The responding party has 20 working days fromreceipt of the claiming party’s submissions to respondwith their own submissions.

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UK NSW WA NZ SGP MALTime for responding partyto prepare defence

7days

14days

7days

7days

14days

TIME LIMIT FOR DECISIONThe adjudicator shall reach and publish their decision,with reasons, within 20 working days of receipt of theresponding party’s submissions

extendable by the adjudicator up to 55 working days fromthe date of appointment of the adjudicator, andto in excess of 55 working days if both parties agree.

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UK NSW WA NZ SGP MALOverall adjudication time fromservice of claim to decision

28Days

21Days

28Days

35Days

21Days

119Days

ADJUDICATOR’S POWER TO EXTENDTIME FOR DEFENCE

The adjudicator shall have the power to vary the timefor the responding party to provide their responseprovided that the adjudication can be concludedwithin 55 working days from the appointment date orany agreed extended period. Se

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UK NSW WA NZ SGP MALAdjudicator has power toextend time for defence

AMBUSH – DISREGARD SUBMISSIONThe adjudicator is entitled to disregard anysubmission submitted by the claiming party to theextent that the adjudicator considers the samecomprises submissions

which the responding party was unaware of at the timethe notice of adjudication was served andwhich should reasonably have been served with aPayment Claim or in advance of the notice of adjudicationandwhich cannot fairly be responded to by the respondingparty in the adjudication.

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AMBUSH RESIGNThe adjudicator is entitled to resign if it is not possibleto decide the dispute fairly in the time available(being the maximum time available including anyextended periods agreed by the parties).

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LEGAL COSTSEach party will bear its own legal costs of theadjudication.

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UK NSW WA NZ SGP MALAdjudicator has power toorder one party to pay theother’s legal costsAdjudicator has no suchpower

ADJUDICATOR’S FEES AND EXPENSESThe adjudicator may decide which party pays theadjudicator’s fees and expenses or the proportionspaid by the parties.

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UK NSW WA NZ SGP MALAdjudicator has power toorder one party to pay theadjudicator’s costs andexpensesAdjudicator has no suchpower

ENFORCEMENT OF ADJUDICATOR’SDECISIONS

Adjudicator’s decisions can be enforced in the sameway as judgments of the court and without set off ordeduction.

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THANK YOU FOR YOURLISTENING.

I AM VERY PLEASED TOANSWER ANYQUESTIONS.