The new Hong Kong Construction Act – a milestone in the construction industry

Published on 02 July 2025

With the Construction Industry Security of Payment Ordinance (the Ordinance) due to come into force in Hong Kong on 28 August 2025, it is essential that parties to a qualifying construction contract are prepared for the changes it will institute. This includes the introduction of mandatory payment terms and a formal adjudication process to resolve payment disputes.

The Ordinance arrives in the wake of historic payment issues that have plagued Hong Kong's construction sector, which in 2024, culminated in over 2,000 Hong Kong construction workers and subcontractors experiencing delayed wages and project fees of over HK$300 million (circa £30 million GBP). Hong Kong construction unions have reported this as the largest total delay in funds for over 40 years[1].

Both England & Wales, pursuant to The Housing Grants, Construction and Regeneration Act 1996, as amended (the Construction Act), and Singapore, following the enactment of The Building and Construction Industry Security of Payment Act 2004 (SOPA) had enacted construction legislation to help alleviate similar payment issues in their respective construction industries. Hong Kong officials hope that the Ordinance will alleviate longstanding payment issues and provide better protection for stakeholders in the supply chain, while also reducing the need to add costly risk premiums in the procurement process to mitigate potential payment issues[2].

SCOPE OF THE ORDINANCE

The Ordinance applies to qualifying public and private construction contracts entered on or after 28 August 2025 and will automatically incorporate into construction contracts mandatory payment and adjudication provisions, provided that the relevant contract(s) meet the following criteria:

It is a main contract for carrying out construction works with a value of at least HK$5 million (circa £500,000 GBP).
It is a main contract for the supply of goods and services that relate to construction works with a value of at least HK$500,000 (circa £50,000 GBP).
Alternatively, it is a sub-contract in the supply chain, of any value, provided that its upstream main contract meets either of the above requirements.
The relevant construction is completed in Hong Kong, albeit, the parties maintain their right to select the applicable law for their contracts.
The Ordinance will not apply to:
Contracts for work on existing private residential buildings - however, the Ordinance will apply to new residential developments, provided that they meet the above contractual requirements, minimum value thresholds, and are not otherwise excluded (i.e. a hotel, guesthouse, student hostel, staff quarter or hospital)[3].
Contracts for minor work on existing non-residential buildings that do not require approval or consent from the Building Authority under the Building Ordinance.

Notably, the Ordinance does not include a blanket residential occupier exclusion which, under the UK regime, provides an exception to the compulsory adjudication provisions if the contracting party intended to occupy the development, and/or did occupy the development[4].

PAYMENT

The payment provisions of qualifying contracts in the Ordinance are intended to increase market confidence for investors, by expediting payments to contractors and subcontractors within the supply chain. It does this in the following ways:

Entitlement to Progress Payments

A person is entitled to a progress payment if the person (i) has carried out construction work or has supplied related goods and services under a construction contract[5]. The Construction Act in the UK[6], and SOPA in Singapore[7], have very similar provisions. While construction contracts can provide for how a progress payment will be assessed[8], if they do not the Ordinance sets out what factors progress payments are to be valued with regards to[9].

Pay when Paid

Consistent with the Construction Act in the UK and SOPA in Singapore, the Ordinance will prohibit "pay when paid" clauses (which means a payment is conditional upon the employer have received payment from the client/project owner) in all qualifying construction contracts entered into from 28 August 2025[10]. It is important that template contracts used as the basis for drafting qualifying contract are now updated to remove any pay when paid provisions.

Mandatory Payment Terms

A person entitled to a progress payment may serve a claim for payment on another person[11]. Once this has been done, the Ordinance requires it to be paid within 60 days, unless the parties agree a different date by which payment must be made[12]. The receiving or paying party must serve a payment response by the earlier of either (i) the payment deadline of the progress payment or (ii) 30 days after the date on which the payment claim is served[13].

This is relatively similar to SOPA in Singapore, in contrast, the UK Construction Act is more flexible and only requires construction contracts to provide an "adequate payment mechanism" (without dictating what those terms must be) for determining what and when payments become due under the contract and the final date for payment[14]. If the contract does not provide an "adequate payment mechanism", back-up legislation will insert compliant payment provisions into the contract on a piecemeal basis[15].

In readiness for the Ordinance, qualifying contracts should be checked to ensure that payment provisions are compliant with these mandatory terms.

Claim Handling Procedure

A unique feature of the Ordinance is the importance given to contractual claims handling procedures.

If a construction contract provides for a "claim handling procedure" for a claim for any "additional payment", which relate to payments for delay or disruption of the construction work, or any variation to the construction work, a payment dispute does not arise, and therefore an adjudication cannot be commenced, unless an assessment of the additional payment has been made in accordance with the claim handling procedure. This is not a feature of UK and Singapore legislation.

This is a procedure to analyse and determine the liability and amount of any additional payment[16]. A claims handing procedure does not have to be carried out for any payment that is not an "additional payment".

Extension of Time

The Ordinance does not allow time-related payment disputes to be referred to adjudication unless the claiming party and paying party agree on the extension of time, but do not agree on the amount payable by the paying party based on the extension of time[17]. This is to ensure that the Ordinance is not used as a back door for complex time related disputes.

No similar qualification is required in UK legislation as any dispute under a qualifying contract can be referred to adjudication.

ADJUDICATION

Pursuant to the Ordinance, an adjudicator will only have jurisdiction if a qualifying dispute has arisen between the parties.

Dispute

In contrast to the Construction Act, which permits the referral of any dispute under a qualifying construction contract, the Ordinance adopts a narrow definition of a dispute, which is limited to a "payment dispute"[18]. This approach is similar to SOPA, which also only applies to qualifying payment disputes[19].

In practice, a payment dispute arises once a party which is entitled to a progress payment under agreed terms of the contract, serves a payment claim upon a potential defaulting party[20] following the elapsing of an agreed payment deadline[21]. After considering the payment claim, the potential defaulting party must then provide a payment response[22] to the claimant party. If any part of the payment claim is not accepted in the payment response, the matter is a payment dispute, and it can be referred to adjudication[23].

Timescale

The Ordinance seeks to expedite the resolution of payment disputes and reduce substantive delays on site, as a result, the procedural deadlines are somewhat demanding:

a party that has received a payment claim, must serve its payment response within 30 days of receipt[24];
if a payment dispute arises, an adjudication must be then commenced within 28 days (there is no equivalent restriction in the UK regime).[25]
once an adjudicator is appointed, the claimant has just one working day to serve its adjudication submission[26] (this is notably shorter than the UK regime, which permits 7 days for preparation of the claim);
the respondent is then granted 20 working days from service of the adjudication submission, to serve its response;
the claimant is then required to reply to the response within two working days[27];
notwithstanding the above, the adjudicator is required to make a determination within 55 days of their appointment[28]; and
finally, once a determination is made, any payment(s) for which a party is liable must be settled by either: i) the deadline set by the adjudicator in the determination; or ii) within 30 days of service of the determination on the parties (if no date is specified)[29].

One key distinction from the Construction Act, is the adjudicator's right to unilaterally extend the period for service of the adjudication submission and/or adjudication response[30], which would require the agreement of the parties under the UK regime. This places the control of the timescale for resolution firmly in the adjudicator's hands.

Binding Decision

Similarly to the Construction Act and SOPA, any determination made in an adjudication pursuant to the Ordinance is binding unless it is set aside by the Court, the parties settle the dispute by written agreement, or the dispute is determined in any Court or other dispute resolution proceedings[31].

Interestingly, the Ordinance goes further, and confirms that any determination of value for works, will bind a subsequently appointed adjudicator, who cannot alter the previous valuation, unless the works have substantially changed[32]. This is in contrast to the UK regime, which permits subsequent adjudicators to reach independent decisions based upon the evidence they are presented[33].

Confidentiality

The Ordinance adopts similar provisions to SOPA by implying a duty of confidentiality on all adjudication proceedings and/or its determination, unless otherwise agreed by the parties[34] (or as otherwise excluded i.e. facts already in public domain). This will be of clear benefit to contractors, who are seeking to resolve matters which are commercially sensitive. The position on confidentiality in UK adjudication is less clear, unless certain adjudication rules apply such as the TECSA rules where the confidentiality provisions[35] closely reflect those in the Ordinance and SOPA.

Costs

As with SOPA and the Construction Act, the Ordinance allows an appointed adjudicator to apportion the costs of the adjudication, including the adjudicator's fees, to any party to the adjudication[36], however, the parties remain jointly and severally liable for any incurred costs[37].

CONCLUSIONS

Main contractors are likely to find themselves as both a "claiming party" and a "paying party" in the context of the same project, as (1) they will be expecting payment from employers for work carried out and (2) will be subject to payment applications from subcontractors. As such, it is crucial these entities are up to speed with the relevant payment deadlines prescribed by the Ordinance so (a) they do not lose the right to commence an adjudication upstream for a "payment dispute" or (b) do not miss deadlines to validly challenge / pay payment applications they receive, and thereby risk having adjudications commenced against them downstream.
While the Ordinance only applies to construction work being carried out in Hong Kong, the private / public contract itself does not have to be governed by the law of Hong Kong. This thereby broadens the scope of potential construction contracts to which the Ordinance could apply and will capture international entities carrying out construction work in Hong Kong, but under contracts subject to the laws of foreign jurisdictions. Please do contact us for more information.