The potential change in Security of Payment legislation, which is set to become law in Hong Kong later this year, will govern payments for construction work done in the public and private sectors, and will set out rules for when and how payment must be made. This is very similar to the UK legislation known as the Housing, Grants, Construction and Regeneration Act 1996, later updated and revised in the Local Democracy, Economic Development and Construction Act 2009.
Was the UK legislation successful?
The straight answer is yes. It promoted the flow of cash, which as we all know is the lifeblood of our industry, and it promoted that through statutory legislation in the 1996 and 2009 Acts.
How will this operate in Hong Kong and whom does it affect?
The objective of the Hong Kong legislation is to make money move freely and to stop unfair payment clauses. This means that ‘’Paid when Paid’’ contracts in which, for example, the subcontractor only gets paid when the contractor gets paid, will be unenforceable in court, arbitration or adjudication. Unreasonable payment periods – such as 90 days for interim payments – will no longer be allowed. All this can only be a good thing.
In the public sector, the legislation will cover all construction contracts, regardless of value. In the private sector, however the legislation will apply where the contract for a new building has an original contract value greater than HK$5m ($644,000). When this applies to the main contract, it will automatically apply to subcontractors, too.
This is a minor drawback, which begs the question of why the authors of this legislation considered public contracts and private contracts separately. Why not have one set of rules that covers public and private contracts the same?
Once an application for payment is received by the client or a contractor, this is referred as a ‘’payment claim.’’ The payer, whether the client or the contractor, then has 30 days to serve a ‘’payment response.’’ That must state what is to be paid, what is disputed and what is being set off.
What happens if a client does not abide by the legislation?
Put simply, the contractor can refer the matter to adjudication. If the adjudicator finds that the client has acted in breach of the law, then the adjudicator can publish a decision that is enforceable in the courts.
This is simply the application of common sense made official. In the short term, rather than reducing disputes, it will more than likely serve to increase them. But on the positive side, these disputes will be managed swiftly, and not allowed to fester or get out of hand.
That will ensure that cash flow continues along the supply chain, all for the good of projects.
Steven Beaumont MRICS
Quantum Asia Regional Director, Steven Beaumont, manages multiple client portfolios on a number of assignments throughout the Far East and Asia. Throughout his career of over 25 years Steven has been involved with disputes and claims with subcontractors, suppliers and clients. This has resulted in gaining extensive experience in quantum analysis and calculation, the preparation of prolongation claims and claims for delay and disruption. Steven holds a BSc (Hons) in Quantity Surveying and has an MSc in Construction Law and Dispute Resolution. Steven is also a Member of the Royal Institute of Chartered Surveyors, the Chartered Institute of Arbitrators, and the Society of Construction Law (UK, Gulf and Hong Kong).