This document discusses statutory and contractual adjudication in Hong Kong. It provides an overview of the development of security of payment legislation in Hong Kong, including reports and public consultations from 2001 to 2021. It outlines the application and requirements of the proposed security of payment legislation, including payment claim processes, maximum payment periods, adjudication procedures, and the adjudicator's jurisdiction. It also discusses recent proposals to implement aspects of security of payment in public works contracts prior to the enactment of legislation.

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UKA Conference 2021
Hong Kong Institute of Construction Adjudicators
Statutory or Contractual Adjudication?
19 August 2021
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Contractual / Statutory Adjudication
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Dispute Resolution Clause
Security of Payment Legislation (SOPL)
SOPL Spirit in Contractual Adjudication 2021

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2001 – Tang’s Report
 2011 – Survey on Payment Practice in the Construction Industry by DevB
 2015 – Consultation Document on Proposed Security of Payment
Legislation for the Construction Industry
 2016 – Report on Public Consultation on Proposed Security of Payment
Legislation for the Construction Industry
 2021 – Proposed SOPL Spirit in Public Works Contracts
Development of SOPL in HK
Oral and partly oral contracts
Oral and Written Contracts

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 Applies to all construction contracts entered into by the
Government and specified public corporations
Application of SOPL
 Only apply to private sector construction contracts where the
ultimate employer is procuring a new building (excluding
maintenance works) with original contract value more than
HK$5M (or HK$0.5M for professional services and supply only
contracts.)
Application of SOPL

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Contracts for construction activities
Services contracts relating to construction activities (e.g.
architectural design, quantity surveying and engineering
design)
Supply contracts for materials, equipment or plant in
connection with the construction activities
For construction activities carried out within Hong Kong
Construction Contracts
Private sector of contract value less than $5M (construction
work)
Private sector of contract value less than $0.5M (professional
services and supply only contracts)
Small Values Contracts Exclusion

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Work done and material costs in Payment Claim
Money claims in Payment Claim
Set-off and deductions against amounts due under Payment
Claim
Time for performance and extension of time (EoT) claim
Inclusion of Disputes
Parties are free to agree to payment term and period
 Such period shall not exceed 60 calendar days for interim
Progress Payments and 120 calendar days for final Progress
Payment
Any longer payment term in construction contract is
ineffective
Maximum Payment Periods

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Parties are entitled to claim a Progress Payment every
calendar month
The value of work is based on any contract rates agreed or
otherwise having regard to market rates
Payment is paid within 60 calendar days for interim Progress
Payments and 120 calendar days for final Progress Payment
Default Payment Intervals and Periods
Payment Claim
Payment Response – 30 calendar days
Notification of Adjudication – 28 calendar days
Appointment of Adjudicator – 5 working days
Adjudication Claim – same day as appointment
Adjudication Response – 20 working days
Adjudication Decision – 20 working days
Statutory Adjudication Procedure

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Statutory Adjudication Procedure
 Unable to raise any set-off against the amounts properly due
against the Payment Claim
Failure to Serve a Payment Response

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Hong Kong International Arbitration Centre
Other professional bodies
Adjudicator Nominating Body
Provisions to make payment conditional on payer receiving
third party payment is ineffective
Conditional payment on the operation of another contract or
agreement is ineffective
Pay-when-paid Provision

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Right to suspend all or part of works or reduce the rate of
progress in the event of non-payment
Right arises either non-payment of an adjudicator’s decision
or amount admitted as due in Payment Response
Rights to additional time to complete contractual obligations
and reasonable costs and expenses in respect of delay and
disruption arising from the suspension
Suspension for Non-payment
Divided views
Resuming Works upon Suspension

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For more information:
Website: www.hkicadj.org
E-mail: secretary@hkicadj.org
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 Proposed DevB TC in 2021 implementation of the spirit of security of
payment legislation in public works contracts
 To facilitate timely processing of contract payments
 Interim mechanism for speedy resolution of payment disputes before the
enactment of the SOPL
 Proposed SOPL applies to contractors, subcontractors, consultants, sub-
consultants and suppliers
 Proposed DevB TC 2021 applies to all public works subcontracts, including
design and build contracts and term contracts with tender invitation on or
after an effective date
Recent Development of Contractual Adjudication

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 Payment response within 30 days. Paying party make payment of admitted
amount within 60 days to the claiming party from the date of payment
claim.
 Conditional payment provisions shall be rendered ineffective and
unenforceable.
 Claiming party 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 appointment. The paying party shall pay the adjudicated
amount as decided by the adjudicator.
 Claimant may exercise his right to suspend or reduce rate of progress the
adjudicated amount is not received by the due date.
Mandatory Requirements of SOPL
 An adjudicator shall have the power and jurisdiction to decide the time-
related costs forming part of the payment disputes.
 The adjudicator, in deciding the amount of time-related costs, shall have
the power and jurisdiction to decide a party’s entitlement to EoT.
 The adjudicator decision on the time-related costs forming part of the
payment disputes is binding and enforceable on an interim basis, but the
EoT so decide 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.
Adjudicator's Jurisdiction

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 Apply to the Court for enforcement of an adjudication decision. This area is
to be reconciled by Employer’s direct payment for settlement of unpaid
adjudicated amount.
 Apply to the Court for setting aside an adjudication decision. Parties’ right
to mediation or arbitration for final resolution of payment dispute is
unaffected.
 Register of Adjudicator Nominating Bodies (ANBs). Specifying ANB in
contracts would allow the quickest nomination and appointment of
adjudicator so as to smoothen the commencement of adjudication
proceedings.
Inapplicable Parts of SOPL
 Only covers construction subcontracts engaged under the main contracts
for construction work and related good and services.
 A subcontractor claimant may request the Employer to make direct
payment for settlement of unpaid adjudicated amount by submitting:
i) certified true copy of the adjudication decision
ii) identifying the work done to which the adjudicated amount relates
iii) a written declaration that the whole or any part of the adjudicated
amount is outstanding
Direct Payment by Employer

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Upon receipt of a request for direct payment, the Main Contractor shall be
asked to:
i) Provide documentary proof of whether the concerned subcontractor
claimant has been satisfied with any payment of the adjudicated
amount; or
ii) Whether the concerned adjudication decision is no longer binding by a
settlement agreement or arbitration award.
iii) Whether any subcontractor at any upper tiers of the concerned
subcontractor claimant has become bankrupt or has a receiving order
made against him or shall present his petition in bankruptcy or shall
make an agreement with or assignment in favor of his creditor or
shall agree to carry out his subcontract under a committee of
inspection of his creditors or shall go into liquidation.
Direct Payment by Employer
If the Contractor submits proof that a subcontractor at any upper tiers of the
concerned subcontractor respondent will be unable to recover the amount
of direct payment by deduction from their payment owed to their
subcontracting parties at next lower tier under their subcontract, the
Contractor shall advise the Employer of the appropriate amount of direct
payment to ensure that the amount can be eventually recovered from the
concerned subcontractor respondent.
After expiry of the 28-day period and in the absence of documentary proofs
of the settlement or financial problems, the Employer shall make direct
payment of the outstanding amount to the subcontractor claimant and
deduct the same amount from any payment owed to the Main Contractor,
and the Main Contractor and the subcontractors are entitled to deduct the
same amount down the supply chain.
Direct Payment by Employer

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 Unenforceable and has no effect
 A provision by whatever name called: -
i) Any payment contingent or conditional on payment by a further party of the whole
or any part of the money.
ii) Makes the due date for payment of contingent or conditional on the date on which
payment of the whole or any part of that money is made by a further party.
iii) Otherwise makes the liability of payment or the due date for payment contingent or
conditional on the operation of any other contract or agreement.
Conditional Payment Provisions
 Contractual claim handling procedures should be gone through before
raising the claim, i.e. contract administrator’s assessment must be notified
to the contracting parties before reference to adjudication.
 The adjudicator’s assessment of EoT claim may be different from the
contract administrator’s assessment. The EoT determined by the
adjudicator would be followed by the contracting parties but the parties’
right for mediation or arbitration at the end of the contract remains
unaffected.
 At the end of the contract, the contract administrator should advise the
Employer whether to pursue dispute resolution mechanism.
Other Matters

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 Appointment of adjudicator by an ANB as agreed by the contracting parties
is intended to be done shortly after the service of the notice of adjudication
through a claimant-proposed-respondent-selected procedure.
 A simplified mechanism is introduced for the nomination and appointment
of adjudicator through an agreed ANB from the Administrative Register of
ANBs as specified in the contracts in order to ensure speedy
commencement of the adjudication proceedings.
 The simplified mechanism is to be adopted prior to further expansion of the
Administrative Register of ANBs as well as mature development of the
procedures of appointing adjudicator by the ANBs.
Administrative Register of ANBs