The Development Bureau has just issued a draft Technical Circular and a draft booklet of SOP Provisions in subcontracts to stakeholders for consultation. According to the draft documents, Government will introduce SOP Provisions in all new public works contracts for tenders issued from July or August 2021 by revising the Additional Conditions of Contract or Special Conditions of Contract clauses.
It is not clear when there will be legislation. According to the draft Technical Circular, the purpose of the SOP Provisions is to promulgate the implementation of the spirit of the SOPL with a view to eventually facilitating the smooth introduction of SOP legislation based on experience. Nothing is said about whether such SOP legislation will ultimately cover the private sector.
The materials provided so far focus on Subcontracts. The draft booklet of SOP Provisions provides a reference for the implementation of SOP Provisions in different tiers of subcontracts and contains the “Construction Security of Payment Provisions for Relevant Subcontracts”. The draft Technical Circular itself is also largely directed towards the incorporation of mandatory subcontract conditions. Provisions for main contracts and consultancy agreements are under preparation.
Based on the draft documents, the SOP Provisions appear to broadly reflect the proposals set out in the June 2015 SOPL Consultation Document. There are four mandatory requirements:
- Payment response made by the paying party shall be served on the claiming party within 30 days and the paying party shall make payment of an admitted amount within 60 days to the claiming party from the date of payment claim served by the claiming party;
- Conditional payment provisions (such as ‘pay when paid’ clauses etc) shall be rendered ineffective and unenforceable;
- Claiming party (as claimant) may refer a payment dispute to adjudication through which the adjudicator shall decide on the payment dispute within 55 working days from the date of his appointment, and the paying party (as respondent) shall pay the adjudicated amount as decided by the adjudicator; and
- Claiming party / claimant may exercise his right to suspend or reduce rate of progress if admitted amount / adjudicated amount is not received.
Some important proposals to note are:
- An adjudicator shall have the power and jurisdiction to decide the time-related costs forming part of the payment dispute and shall have the power and jurisdiction to decide a party’s entitlement to EOT. The adjudication decision on the time-related costs forming part of the payment disputes is binding and enforceable on an interim basis, but the EOT so decided by the adjudicator is not binding. However, a party shall not be liable for liquidated damages if the works have been completed within the EOT so decided by the adjudicator.
- Contractual claim handling procedures should be gone through before raising the claims, so the contract administrator’s assessment of EOT should have been conducted and notified to the contracting parties before it would be referred to adjudication, but the adjudicator’s EOT decisions should be the ones followed by the contracting parties.
- Application to the court for enforcement of an adjudicators decision and application to the court to set aside an adjudication decision are inapplicable.
- Government will establish an administrative register of Adjudicator Nominating Bodies.
We will provide further updates and analysis to you in due course.
By Ian Cocking, Partner