Adjudication News Flash: SOP Bill Progress

Adjudication News Flash: SOP Bill Progress

Adjudication News Flash: SOP Bill Progress 1401 788 Cocking & Co

In our previous newsflash dated 8 October 2021, we reported that the Development Bureau had issued a Technical Circular (Works) No. 6/2021 on 5 October 2021 introducing security of payment provisions in public works contracts, and that the Development Bureau was preparing the Construction Industry Security of Payment Bill (“Bill”).

On 28 November 2023, a meeting of the Legislative Council’s Panel On Development (“Panel”) was held in relation to the Bill. Mr. David Lam Chi Man, Under Secretary for Development, stated that Government is finalising the legislative proposal of the Bill and addressed various queries raised by members of the Panel. Here are the highlights:

  1. The current HK$250 billion annual total construction volume is forecast to reach over HK$300 billion annually in the next few years. Hence, there is a need to introduce the Bill to help resolve payment disputes in the construction industry as soon as possible.
  1. The key proposals of the Bill are to improve payment terms, e.g. abolish conditional payment provisions, to introduce an adjudication mechanism for speeding up resolution of payment disputes, and to allow an unpaid party to reduce its rate of progress or suspend work under specified conditions.
  1. The time frame anticipated by Government in relation to the proposed legislation is as follows:
    • 1st half of 2024: Introduction of the Bill to the Legislative Counsel
    • 2nd half of 2024: Passage of the Bill in the Legislative Counsel
    • 2nd half of 2025: Bill coming into operation
  1. The scope of the Bill covers works contracts, services, supply of materials and plant in relation to construction works and their sub-contracts of all tiers, whether written or oral, with main contract values of not less than HK$5 million for main contracts and HK$0.5 million for main service/ supply contracts.
  1. The Bill will be introduced to public construction contracts (including specified bodies). It will also cover private construction contracts for new works.
  1. As to private construction contracts for existing buildings/ facilities, they will also be covered by the Bill, but not including (a) construction contracts for existing residential buildings (e.g. interior renovation); and (b) construction contracts for existing non-residential buildings which do not require approval and consent under the Buildings Ordinance (e.g. shop renovation).
  1. Although many lawmakers welcomed the Bill, a few expressed concerns over, inter alia, the long duration (i.e. 55 working days) and the lack of qualified adjudicators. Further, it is proposed that the adjudication of payment disputes in relation to extension of time will be implemented progressively in two phases and the first phase will be limited to the public sector only (“Pilot Scheme”).
  1. With respect to the lengthy adjudication period, Mr. Lam explained that the 55-day includes the period allowed for the preparation and service of adjudication submissions by the parties. Based on Government’s practical experience, most adjudicators require only 1-2 weeks for the determination. For complex cases, parties are at liberty to agree to a longer period if necessary.
  1. With respect to the qualification of adjudicators, Mr. Lam stated that the authorities will work with the adjudicator nominating bodies (i.e. various professional bodies and the Hong Kong International Arbitration Centre) to formulate relevant requirements and a code of conduct for the adjudicators. Mr. Lam stated that there are concerns within the construction industry with respect to adjudicator’s powers and jurisdiction to decide time-related payment disputes. Government foresees that the construction industry will become more familiar with the adjudication process and there will be an expansion of the talent pool for adjudicators. With the experience gained in the Pilot Scheme, Mr. Lam stated that the adjudication of time-related payment disputes will eventually be rolled out to the private sector upon further consultation with the industry.

Based on Government’s existing time frame, it appears that the Construction Industry Security of Payment Legislation will not come into effect for another 2 years. It is also unclear when a decision on time-related payment disputes will cover the private sector. We will keep you appraised of further developments.

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