Construction Industry Security of Payment Ordinance (Cap 652)

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Note

30/9/2025: Drafting in progress.

7/7/2025: Created. 

Intro

  1. The Construction Industry Security of Payment Ordinance (Cap 652) (第652章《建造業付款保障條例》) of Hong Kong was enacted on 27 December 2024.
  2. Some provisions are only operational starting on 28 August 2025. The Ordinance is now fully operational.
  3. With the operation of the Ordinance, the standard forms of works contract have to be amended to comply with the Ordinance where applicable.
  4. This webpage tries to present a generic set of special conditions of contract (without specific clause numbers referred to nor specific clauses amended) to suit the Ordinance.
  5. Before doing so, this webpage tries to re-arrange the statutory provisions in a coherent flow to help understand the Ordinance, but only to the extent required for drafting contract terms which affect the regular running of the contracts.
  6. The provisions for adjudication have only been slightly touched upon because adjudication should ideally be rarely encountered, and when adjudication arises, the provisions themselves should be studied in detail for use. Afterall, adjudication for security of payment is new to Hong Kong.
  7. For each different topic, a concluding summary is given first followed by detailed definitions of the terms used in the summary.
  8. Words in [red] inserted are comments, not parts of the Ordinance.
  9. Alternative simplified words or phrases may be used.
  10. The reduction in words and use of other words may distort the intended meanings of the Ordinance.
  11. The Ordinance itself should be read in order to fully understand its contents.
  12. The Ordinance may be read to mean different things by different people. The interpretations are still to be tested at courts.

Sources

  1. Hong Kong e-Legislation for the full updated text: https://www.elegislation.gov.hk/hk/cap652
  2. At the end of the webpage, there is a Download section. The RTF version is more compact than the PDF version reducing to half of the number of pages.
  3. The Development Bureau's website: https://www.devb.gov.hk/en/publications_and_press_releases/Consultation_Papers_Reports/sop/index.html

Purpose

  1. The Ordinance is to:
    • facilitate the recovery of payments under construction contracts;
    • provide a mechanism for speedy resolution of payment disputes under certain construction contracts through adjudication proceedings;
    • give a right to a party to a construction contract, under certain circumstances, to suspend or reduce the rate of progress of the construction work or the supply of related goods and services under the contract; and
    • provide for related matters.
  2. No contracting out of Ordinance:
    • The Ordinance has effect despite anything to the contrary in any provision in a contract or agreement.
    • A provision in a contract or agreement, whether in writing or not, is void to the extent that:
      • it is inconsistent with this Ordinance;
      • it has the effect of excluding, modifying or restricting the operation of the Ordinance; or
      • it may be construed as an attempt to deter a person from taking action under the Ordinance.

Terms used in the Ordinance in Chinese

  1. additional payment = 額外款項
  2. adjudicated amount = 經審裁款額
  3. adjudication notice = 審裁通知
  4. adjudication proceedings = 審裁程序
  5. adjudication response = 審裁回應
  6. adjudication rules =《審裁規則》
  7. adjudication submission = 審裁陳詞
  8. adjudicator = 審裁員
  9. admitted amount = 認付款額
  10. claim handling procedure = 申索處理程序
  11. claimant = 申索人
  12. claimed amount = 申索款額
  13. claiming party = 申索方
  14. conditional payment provision = 有條件付款條文
  15. common parts = 公用部分
  16. construction contract = 建造合約)
  17. construction site = 建造工地
  18. construction work = 建造工作
  19. consultancy services = 顧問服務
  20. Court = 法院
  21. determination = 裁定
  22. dispute resolution proceedings = 解決爭議程序
  23. main private contract = 總私人承包合約
  24. money owing = 欠款
  25. nominating body = 提名團體
  26. occupation permit = 佔用許可證
  27. owner = 擁有人
  28. panel of adjudicators = 審裁員名單
  29. party = 方、一方
  30. paying party = 付款方
  31. payment claim = 付款申索
  32. payment deadline = 付款期限
  33. payment dispute = 付款爭議
  34. payment response = 付款回應
  35. payment response deadline = 付款回應期限
  36. progress payment = 進度款
  37. public contract = 公共合約
  38. related goods and services = 相關貨品及服務
  39. reply to an adjudication response = 審裁答覆
  40. residential unit = 住宅單位
  41. respondent = 答辯人
  42. Secretary = 局長
  43. selected body = 獲選團體
  44. specified entity = 指明實體
  45. specified structure = 指明構築物
  46. subcontract = 分包合約
  47. utilities and services installation = 公用設施及裝備裝置
  48. working day = 工作日

Terms used here

  1. Existing contracts - existing conditions of contract generally used before the Ordinance was enacted.
  2. Sub-contract for subcontract as used in the private standard forms of contract.

Contracts applicable

Intro

  1. The subsections following this subsection:
    • first give an executive summary of the types of contracts governed by the Ordinance; and
    • then give the supporting definitions of the terms (shown in bold when used in the first time) used in the summary.

Applicable to certain public contracts and main private contracts

  1. The Ordinance is applicable to a public contract or a main private contract if it is a construction contract and the contract is entered on or after 28 August 2025, and:
    • If it is to carry out construction work (whether or not the contract is also for the supply of related goods and services), its contract value is not less than $5,000,000.
    • If it is to supply related goods and services, its contract value is not less than $500,000.
    • The contract value is the value at the date on which the contract is entered into. [i.e. irrespective of post contract adjustments]
  2. The "contract value" of the main private contract but not public contract:
    • must only include the value of:
      • the construction, installation or erection of a specified structure; [in simple term: new construction]
      • any replacement, extension, renewal, alteration, repair, restoration, maintenance, dismantling or demolition of, or the addition to, an existing specified structure, that requires the approval and consent of the Building Authority under section 14(1) of the Buildings Ordinance (Cap. 123) for it to commence or be carried out; and [in simple term: work to the existing requiring BA approval and consent]
      • the supply of related goods and services for the construction work specified in the above two bullet points.
    • must not include the value of:
      • the carrying out of construction work, or the supply of related goods and services for construction work, under the main private contract at a construction site that is [in simple term: excluding residential parts]:
        • an existing residential unit; or
        • the common parts of a building (as defined by section 2 of the Building Management Ordinance (Cap. 344)) that contains one or more existing residential units.
  3. For the main private contract but not public contract, once the value of the work to the existing requiring BA approval and consent exceeds the specified minimum, the whole of the contract works is governed, but still excluding the existing residential parts.
  4. If a public contract or a main private contract is governed by the Ordinance, its subcontract [the Ordinance uses "its subcontract" only and has not referred to sub-sub-contracts; based on the discussions leading to the Ordinance, it should mean "subcontracts of any tiers"] which is also to carry out construction work or supply related goods and services is also governed by the Ordinance:
    • irrespective of the time the subcontract is entered into, except when it is entered into after the discharge or termination of the contract employing the subcontract;
    • irrespective of the subcontract value; and
    • whether or not a party to the subcontract is also a party to the contract employing the subcontract.
  5. If the Ordinance is applicable, it applies whether the contract or subcontract is:
    • written or oral, or partly written and partly oral; and
    • governed by the law of Hong Kong or not.
  6. The Ordinance does not apply to:
    • a construction contract to the extent that it contains provisions under which the consideration payable for construction work carried out, or related goods and services supplied, under the contract, is to be calculated otherwise than by reference to the value of the construction work or related goods and services; or
    • a construction contract to the extent that it contains provisions under which a party to the contract undertakes to carry out construction work, or supply related goods and services, as an employee (as defined by section 2(1) of the Employment Ordinance (Cap. 57)) of another party to the contract for whom:
      • the construction work is to be carried out; or
      • the related goods and services are to be supplied; or
    • a construction contract to the extent that it deals with:
      • construction work carried out outside Hong Kong; or
      • related goods and services supplied for construction work carried out outside Hong Kong; or
    • a main private contract or its subcontract but not public contract or its subcontract to the extent that the contract or subcontract deals with the carrying out of construction work, or the supply of related goods and services for construction work, at a construction site that is:
      • an existing residential unit; or
      • the common parts of a building (as defined by section 2 of the Building Management Ordinance (Cap. 344)) that contains one or more existing residential units.
  7. The final different treatment for main private contract but not public contract is about adjudication of time-related disputes.

Disapplication of adjudication of time-related disputes for main private contracts and subcontracts

  1. If a payment dispute concerns a dispute in relation to which the amount is to be determined on the basis of an assessment on a claiming party’s extension of time entitlement under a main private contract or its subcontract but not public contract or its subcontract (time-related dispute):
    1. the claiming party may not initiate adjudication proceedings for the time-related dispute; and
    2. the adjudicator has no jurisdiction to determine the time-related dispute.
  2. However, if the claiming party and the paying party agree on the extension of time in relation to the time-related dispute but do not agree on the amount payable by the paying party based on the extension of time:
    1. the claiming party may initiate adjudication proceedings for the time-related dispute; and
    2. the adjudicator has jurisdiction to determine the time-related dispute.
  3. The above disapplication expires on a day to be appointed by the Secretary for the Development by notice published in the Gazette. [the above disapplication until further notice is to address the private sector's concern that the extension of time entitlement cannot be quickly settled in time for progress payment claims and responses]

Construction contracts

  1. "construction contract" means a legally enforceable agreement [it can be a main contract or a subcontract] under which:
    • a party agrees to carry out construction work for another party, [such as a contractor to an employer / project client, or a subcontractor to a contractor, or a sub-subcontractor to a subcontractor of any tier] or
    • a party agrees to supply related goods and services for construction work to another party. [such as a supplier or consultant to an employer / project client, contractor, or subcontractor of any tier] [a construction contract generally means a contract to construct, therefore, it may be easier to understand if this item is read to mean "supply contracts for construction work or service contracts related to construction work"]
  2. But "construction contract" does not include a development contract under which the whole consideration payable is calculated otherwise than by reference to the value of the construction work or related goods and services. [e.g. the consideration payable is based on the sales or rental values or operational incomes of the completed construction work]

Public contracts and main private contracts

  1. A construction contract is a public contract if a party to the contract consists of one or more owners, and that single one or one of them is a specified entity. [public contracts are not restricted to contracts with the Government; it is therefore important to check whether the owner is a specified entity]
  2. A construction contract is a main private contract if a party to the contract consists of one or more owners, and none of that single one or them is a specified entity.
  3. "owner" means a person who engages another person to perform a construction contract but is not engaged by any other person to perform a construction contract on the same construction site. [an owner is not necessarily owning the construction site or the property to be constructed, he can be an agent; by requiring an owner as a contract party or a part of it]
  4. [Both public contract and main private contract effectively refer to what is commonly called "main contract".]

Specified entities

  1. "specified entity" means any of the following:
    • the Government;
    • a body listed below; and
    • a subsidiary undertaking (within the meaning of section 4 of Schedule 1 to the Companies Ordinance (Cap. 622)) of a body listed below.
  2. Bodies which are a "specified entity" are:
    • Airport Authority
    • China Mobile Hong Kong Company Limited
    • The Chinese University of Hong Kong
    • City University of Hong Kong
    • CLP Power Hong Kong Limited
    • Construction Industry Council
    • The Education University of Hong Kong
    • HGC Global Communications Limited
    • HKBN Enterprise Solutions HK Limited
    • HKBN Enterprise Solutions Limited
    • The Hong Kong Academy for Performing Arts
    • The Hong Kong and China Gas Company Limited
    • Hong Kong Baptist University
    • Hong Kong Broadband Network Limited
    • Hong Kong Cable Television Limited
    • Hong Kong Cyberport Development Holdings Limited
    • The Hongkong Electric Company, Limited
    • Hong Kong Housing Authority
    • Hong Kong Housing Society
    • Hongkong International Theme Parks Limited
    • The Hong Kong Polytechnic University
    • Hong Kong Science and Technology Parks Corporation
    • Hong Kong Sports Institute Limited
    • Hong Kong Telecommunications (HKT) Limited
    • Hong Kong Trade Development Council
    • The Hong Kong University of Science and Technology
    • Hospital Authority
    • Hutchison Telephone Company Limited
    • Kowloon-Canton Railway Corporation
    • Lingnan University
    • MTR Corporation Limited
    • Ocean Park Corporation
    • PCCW-HKT Telephone Limited
    • SmarTone Communications Limited
    • SmarTone Mobile Communications Limited
    • The University of Hong Kong
    • Urban Renewal Authority
    • Vocational Training Council
    • West Kowloon Cultural District Authority

Subsidiary undertaking

  1. The Company Ordinance defines like this:
    • an undertaking is a subsidiary undertaking of another undertaking if that other undertaking is a parent undertaking of it; and
    • an undertaking is also a subsidiary undertaking of another undertaking if a parent undertaking of it is a subsidiary undertaking of that other undertaking.

Construction sites

  1. "construction site":
    • in relation to a construction contract for carrying out construction work — means the place where the construction work is, or is to be, carried out under the contract; or
    • in relation to a construction contract for supplying related goods and services for construction work — means the place where the construction work is, or is to be, carried out. [i.e. not the place of original source or manufacture]

Construction work

  1. "construction work" is:
    • the construction, installation or erection of a specified structure; or
    • the replacement, extension, renewal, alteration, repair, restoration, maintenance, dismantling or demolition of, or the addition to, an existing specified structure.
  2. Without limiting the above, "construction work" includes:
    • work that is carried out to an integral or ancillary part of a specified structure, including:
      • making architectural features;
      • undertaking utilities and services installations, which include any electrical and mechanical installation, building services installation, electronic installation, radio and broadcasting installation, and telecommunication installation
      • landscaping; and
      • painting or decorating external or internal surfaces; and
    • work that is preparatory to, or for rendering complete, any construction work, including:
      • site clearance, site investigation, excavation, filling, tunnelling and boring;
      • provision of access roads and scaffolding;
      • construction and maintenance of site offices; and
      • site restoration.

Specified structures

  1. "specified structure" means any building, structure or works as listed below:
    • Any new land formed by reclamation or site formation, man-made slope, landslide hazard mitigation measures, earth-retaining structure, cavern or underground space, including the access tunnel or shaft of the underground space.
    • Any residential, commercial, industrial, institutional, communal or recreation building (whether it is constructed wholly or partly above or below ground level), including its foundation or support.
    • Any walkway, cycle track, road, highway, railway, tramway, cableway, aerial ropeway or any other works used for the purpose of pedestrian or vehicular commuting (whether they are wholly or partly at-grade, on bridge or viaduct or in tunnel), including the lighting, traffic control facility, cover and noise barrier contained in such works.
    • Any airport, helipad or any other works used for the purpose of air navigation, including the traffic control and logistic facility contained in such works.
    • Any canal, port, container terminal, typhoon shelter, dock, pier, quay, jetty, beacon, lighthouse, landing steps, mooring dolphin, floating pontoon, slipway, tide gauge station or any other works used for the purpose of marine navigation, including the traffic control and logistic facility contained in such works.
    • Any beach, promenade, harbour steps or any other works used for the purpose of any coastal recreational activity.
    • Any seawall, breakwater or any other works used for the purpose of protection of any shore or harbour.
    • Any power generation plant or installation, gas production plant, storage facility, flue gas treatment facility, flue gas discharge facility, pipeline, gas supply pressure regulating installation, power transformation facility, power transmission and distribution line or any other works used for the purpose of supply of electricity, fuel or gas.
    • Any underground telecommunication line, cable landing station or any other works used for the purpose of telecommunication.
    • Any dam, impounding reservoir, treatment facility, disposal or discharge facility, service reservoir, tank, well, pumping facility, aqueduct, channel, culvert, water mains or any other works used for the purpose of water supply, including the monitoring and control facility contained in such works.
    • Any dam, pond, flood lake, tank, treatment facility, disposal or discharge facility, pumping facility, channel, culvert, tunnel, pipeline or any other works used for the purpose of drainage, flood protection, river regulation or revitalization of water bodies, including the monitoring and control facility contained in such works.
    • Any tank, treatment facility, disposal or discharge facility, pumping facility, tunnel and associated drop or riser shaft, sewer, channel, culvert, tunnel, pipeline or any other works used for the purpose of sewage treatment and associated sludge and odour treatment, including the monitoring and control facility contained in such works.
    • Any landfill, incinerator, transfer facility, treatment facility, disposal or discharge facility or any other works used for the purpose of solid waste treatment, including the monitoring and control facility contained in such works.
    • Any storage, processing, treatment, sorting or transfer facility or any other works used for the purpose of management of construction waste or construction inert materials, including the monitoring and control facility contained in such works.
    • Any other building or structure (whether it is constructed wholly or partly above or below ground level), including its foundation or support.

Related goods and services

  1. "related goods and services" in relation to construction work are any of the following:
    • goods of the following kind:
      • materials or components supplied for forming part of a specified structure arising from the construction work;
      • plant, equipment or materials for use in connection with carrying out the construction work;
    • services of the following kind:
      • providing manpower resources for the carrying out of the construction work;
      • transporting the goods specified above;
      • disposing of any materials in connection with the construction work;
      • conducting feasibility or planning studies that may give rise to the construction work;
      • providing consultancy services in connection with the construction work;
      • providing engineering testing services in connection with the construction work.
  2. "consultancy services" means services relating to project planning, project management, design, procurement, contract administration, asset management, asset maintenance, site supervision, surveying or quantity surveying.

Existing residential units

  1. "residential unit" in relation to a building:
    • means a separate unit:
      • contained in the building; and
      • constructed solely or principally for human habitation; but
    • does not include any premises in the building used, or intended to be used, solely or principally for any of the following purposes:
      • a hotel or guesthouse within the meaning of section 2A of the Hotel and Guesthouse Accommodation Ordinance (Cap. 349);
      • a student hostel or staff quarter; and
      • a hospital within the meaning of section 4 of the Private Healthcare Facilities Ordinance (Cap. 633).
  2. A residential unit is an "existing residential unit" if:
    • in the case of a certificate of exemption having been issued under section 5(a) of the Buildings Ordinance (Application to the New Territories) Ordinance (Cap. 121) in respect of building works for the building that contains the residential unit:
      • a letter has been issued by the Director of Lands confirming that the Director of Lands has no objection to the building being occupied; or
      • a certificate of compliance or consent to assign has been issued by the Director of Lands in relation to the land on which the building is situated; or
    • in any other case: an occupation permit has been issued in relation to the building that contains the residential unit.
  3. "occupation permit" means:
    • an occupation permit or temporary occupation permit issued under section 21(2) of the Buildings Ordinance (Cap. 123); or
    • an instrument issued by the Director of Housing (or a person authorized by the Director of Housing) certifying that a building constructed by or on behalf of the Hong Kong Housing Authority is completed.

Payment Processes

Executive summary

  1. A person is entitled to a progress payment if the person is employed under a construction contract by another person and has:
    • carried out construction work; or
    • supplied related goods and services for construction work.
  2. A person who is or who claims to be entitled to a progress payment (claiming party) may serve a claim for the payment (payment claim) on another person who, under the construction contract concerned, is or may be liable to make the payment (paying party).
  3. The Ordinance specifies the following progress payment processes:
    • Serving of a payment claim for a progress payment by the claiming party to the paying party:
      • Claimed amount [net amount due] to be paid stated with supporting calculations.
      • The date of serving the payment claim is called "billing date".
    • Serving of a payment response by the paying party to the claiming party:
      • Admitted amount [net amount due] to be stated with supporting calculations.
      • Not later than 30 calendar days after the billing date.
    • Payment of the admitted amount by the paying party to the claiming party:
      • Not later than 60 calendar days after the billing date.
  4. Other than the above, the parties to a construction contract may [are free to] agree on:
    • the number of progress payments under the contract;
    • the interval between those payments;
    • the amount of each of those payments;
    • the circumstances in which those payments may be claimed;
    • subject to the above time limit, the date by which the payment response for each payment claim for those payments is required to be served; and
    • subject to the above time limit, the date by which those payments are required to be paid.
  5. Conditional payment provisions are unenforceable:
    • A conditional payment provision in a construction contract is unenforceable between the parties to the contract and has no effect in relation to any payment for:
      • construction work carried out under the contract; or
      • related goods and services supplied under the contract.
  6. "Conditional payment provision" in relation to a construction contract, means a provision in the contract by whatever name called [e.g., "back-to-back payment", "pay-when-paid", "paid-if-paid"]:
    • that makes the liability of a party (Party A) to pay money owing to another party (Party B) contingent or conditional on payment of the whole or any part of that money by a further party (Party C) to Party A; [liability conditional on payment by a third party]
    • that makes the date on which money owing by Party A to Party B becomes payable contingent or conditional on the date on which payment of the whole or any part of that money is made by Party C to Party A; or [time conditional on payment by a third party]
    • that otherwise makes the liability to pay money owing, or the date on which money owing becomes payable, contingent or conditional on the operation of any other contract or agreement. [liability and time conditional on operation of any other contract or agreement; this point has been commented by some people as too wide, e.g., excluding the right of the Architect or any third party to carry out inspection and testing to accept the work or goods or services for payment; excluding the application of the specifications included in the main contract to apply to the subcontract]
    • [to avoid being regarded as a conditional payment provision, the subcontract should include the applicable main contract terms, conditions and specifications (including the Architect's authorities, and inspection and testing authorities of third parties contained therein) in the subcontract as if they are part of the subcontract itself not part of the main contract]
  7. money owing (欠款), in relation to a construction contract, means money owing for:
    • construction work carried out under the contract; or
    • related goods and services supplied under the contract.

Progress payments

  1. "progress payment" under a construction contract is a payment for:
    • carrying out construction work; or
    • supplying related goods and services for construction work.
  2. It includes:
    • a one-off payment;
    • an interim payment or a final payment; and
    • a payment that is payable on the occurrence of an event or on a date.
    • [It has much wider meaning when the common meaning of progress payment is interim payment.]

Payment claims

  1. A "payment claim" for a progress payment must:
    • be in writing;
    • identify the construction work or related goods and services to which the payment relates; and
    • state:
      • the amount of the payment that the claiming party claims to be payable (claimed amount); and
      • how the claimed amount is calculated.
  2. A claiming party may serve only 1 [this is not at the claiming party's discretion to serve more than 1, but it does not appear to restrict the paying party from agreeing a different arrangement; if it is written as "must not serve more than 1", it will be restrictive upon both parties] payment claim for a progress payment in a period that:
    • begins on the billing date for the payment; and
    • ends on the date immediately before the billing date for the next progress payment.
  3. If a claiming party serves more than one payment claim in the period specified in item 2 above, the paying party may [so, this is discretionary] disregard any payment claim other than the first such claim. [the whole can therefore be discretionary, and a different arrangement can be specified]
  4. A claiming party must not include in a payment claim any amount that is:
    • the subject of any ongoing adjudication proceedings; or
    • the subject of a determination that is binding and remains binding on the claiming party.
  5. If a claiming party fails to comply with items 1 and 4 above in serving a payment claim, the claiming party is taken not to have served the payment claim.
  6. An application for payment made under a construction contract that meets the requirements of this section is taken to be a payment claim.

Billing date

  1. "billing date" means:
    • A date on which a payment claim for the progress payment may be made.
    • A date as stipulated in the contract.
      • [There are no specific requirements on how the progress payment is to be calculated.]
      • [The date is the date of making the payment claim, not necessarily the date up to which the payment claim amount is to be calculated.]
      • [The progress payment does not have to be restricted to work already carried out or related goods and services already supplied.]
    • Or, if not stipulated, the last day of each calendar month except the month in which the contract is made.
      • The progress payment may include (i.e. can only include) construction work already carried out and related goods and services already supplied up to the billing date.
  2. When a billing date is stipulated in the contract:
    • "carried out" includes also "undertaken to be carried out"; and
    • "supplied" includes also "undertaken to be carried out".
  3. If a payment claim for a progress payment is served before the billing date for the progress payment, the payment claim is taken to be served on the billing date.
  4. If the agreed date (specified date) for payment response or payment is worked out having regard to a billing date for the progress payment and the payment claim for the payment is served on a date later than the billing date:
    • the date on which the payment claim is served is taken to be the billing date for the payment; and
    • the specified date is to be worked out accordingly.
  5. [Existing contracts:
    • They may specify a payment application date. This may be regarded as the billing date.
    • They may specify that the applied amounts can only be up to a certain date before the payment application date.
    • If an applicable contract does not specify the billing date, it should specify, to avoid all unspecified billing dates to occur on the same last day of the month.
    • The private Standard Forms of Building Contract (SFBC 2005/2006) have not specified the billing date. They only specify that the first Main Contract payment certificate should be issued not later than 42 calendar days after the Commencement Date defined in the contract, and the subsequent payment certificates should be issued at monthly intervals after the first payment certificate. This should be amended.]

Amount of progress payment

  1. The amount of a progress payment is:
    • the amount assessed in accordance with the contract [this means that the contract parties are free to agree how the amount is to be assessed]; or
    • if no assessing method specified, the value of construction work carried out or related goods and services supplied by the person based on:
      • contract price or rate;
      • any other price or rate specified in the contract [not sure what else specified in the contract are not contract price or rate, possibly this refers to price or rate for optional items not included in the contract sum];
      • any variation agreed to by the contract parties by which the preceding two cases are to be adjusted by a specific amount [this refers to price as well, not just rate; this means that when price = quantity x rate, any changes to the quantity are also subject to this item; the word "variation" should mean any changes to the original contract value, not equal to the "variation" which mainly means design changes in the traditional forms of contract; the use of the words "agreed to" in the Ordinance means that variation not yet agreed is not covered by this item]; and
      • in the absence of the matters referred to in preceding three cases --- a reasonable price or rate at the time the construction work was carried out or at the time the related goods and services were supplied [not sure what "the matters referred to" as used in the Ordinance is all about; a possible meaning is that when i, ii, and iii do not apply, this item applies. A possible case is this: original contract value or variation value not yet agreed is covered by this item]; but
      • excluding work or goods and services being defective or not conforming to the requirements of the contract, unless the paying party accepts them then there should be deduction for:
        • the estimated cost of rectifying any defect or correcting nay non-conformance; or
        • the diminution in the value of the work, goods and services,
        • whichever is more reasonable.
  2. If a construction contract provides for a claim handling procedure for a claim for any additional payment, a payment dispute does not arise to the extent that it relates to the additional payment unless any of following events occurs before the payment claim for the additional payment is served: [if a claim handling procedure is specified in the contract]
    • an assessment on the additional payment has been made in accordance with the claim handling procedure; [additional payment must have been assessed before inclusion in a payment claim and becoming a matter for dispute]
    • an assessment on the additional payment has not been made in accordance with the claim handling procedure:
      • if the claim handling procedure provides for a period within which the assessment is to be made -- within the period; or [unless not assessed within the period specified in the procedure]
      • otherwise -- within a reasonable period. [or not assessed within a reasonable time if no period specified in the procedure]
      • [otherwise, the additional payment shall be treated as the basic]
  3. "additional payment" means any payment that is provided for in a construction contract in relation to any expenditure or loss that is incurred by a party to the contract because of:
    • the delay or disruption of the construction work or the supply of related goods and services for the construction work; or
    • any variation to the construction work, or the supply of related goods and services for the construction work, that may be made under the contract. [the word "variation" should mean any changes to the original contract value, not equal to the "variation" which mainly means design changes in the traditional forms of contract]
  4. "claim handling procedure", in relation to a claim for any additional payment, means a procedure for:
    1. analyzing and determining the liability for the additional payment; and
    2. assessing the amount of the additional payment.

Payment responses

  1. A paying party served with a payment claim may reply [must reply, in fact] to the payment claim by serving a response (payment response) on the claiming party.
  2. A payment response must:
    • be in writing;
    • identify the payment claim to which it relates; and
    • state (whichever of the following is applicable):
      • the amount that the paying party proposes to pay to the claiming party for the payment claim (admitted amount);
      • any difference between the claimed amount and the admitted amount;
      • how the admitted amount is calculated.
  3. If the paying party fails to comply with the last item [in terms of the contents!] in serving a payment response, the paying party is taken not to have served the payment response.
  4. A paying party may amend a payment response that the paying party has served on a claiming party by serving on the claiming party an amended response by the payment response deadline. [this gives room for adjustment, possibly taking account of reaction after serving a payment response]
  5. For the purposes of the last item, a payment response may be amended more than once by the payment response deadline.
  6. A certificate or assessment issued under a construction contract in response to an application for payment made under the contract that meets the requirements of this section is taken to be a payment response. [this recognises the established practice of issuing payment certificate] 

Consequences of not serving payment responses

  1. If a paying party fails to serve a payment response in reply to a payment claim by the payment response deadline, the paying party:
    • is to be regarded as disputing the claimed amount that has not been paid by the paying party by the payment response deadline; and
    • is not permitted to raise any set off in the adjudication proceedings in relation to the payment claim. 

Payment response deadline

  1. A payment response in reply to a payment claim must be served by the date (specified date) agreed by the parties to the construction contract.
  2. In any case, whether there is any specified date or not, any payment response must be served within 30 days after the date on which the payment claim for that payment is served (or taken to be served) (30-day period), and also not later than "the payment deadline of the progress payment". [the quoted words are from the Ordinance but it is unlikely that the payment response deadline is later than the payment deadline; these words are strange]

Payment deadline for progress payment

  1. A progress payment must be paid by the date (specified date) agreed by the parties to the construction contract.
  2. In any case, whether there is any specified date or not, any progress payment must be paid within 60 days after the date on which the payment claim for that payment is served (or taken to be served) (60-day period).

When does payment dispute arise

  1. A payment dispute arises between a claiming party and a paying party if:
    • the claiming party has served a payment claim on the paying party; and
    • any of the following events occurs:
      • (a) that the paying party serves a payment response on the claiming party in which:
        • the claimed amount is disputed in full; or
        • the admitted amount is less than the claimed amount;
      • (b) that the paying party:
        • serves a payment response on the claiming party in which an admitted amount is stated to be paid; but
        • fails to pay the admitted amount in full by the payment deadline of the progress payment; and
      • (c) that the paying party fails to serve a payment response in reply to the payment claim by the payment response deadline.
  2. A payment dispute arises on the day following:
    • the payment response deadline for events (a) and (c); or
    • the payment deadline of the progress payment for event (b).

Right to initiate adjudication proceedings for payment disputes

  1. A claiming party may, within 28 days beginning on the date on which a payment dispute arises, initiate adjudication proceedings for the payment dispute. [no provision for the paying party to do so]
  2. Read the Ordinance itself for the detailed adjudication proceedings.
  3. The adjudicator is to be nominated and appointed by a nominating body on a register kept by the Secretary for Development.
  4. That nominating body shall be the one specified in the construction contract if only one is specified.
  5. If no nominating body, or more than one nominating body, is specified in the contract, the claiming party must give in his adjudication notice to the paying party the names of 2 nominating bodies for the paying party to select one.
  6. Therefore, the contract should deal with whether any nominating body should be specified.

Payment deadline for adjudicated amounts

  1. If an adjudicator determines that a party is liable to pay an adjudicated amount to another party, the party must pay the amount to that other party:
    • within the period specified by the adjudicator in the determination for the party to pay the amount to that other party, but the period shall not start earlier than the date on which the determination is served on the parties; or
    • if no such period is specified -- within 30 days after the date on which the determination is served on the parties.

Effect of determinations

  1. A determination is binding on the parties unless:
    • it is set aside by the Court;
    • the payment dispute to which the determination relates is settled by written agreement between the parties; or
    • the payment dispute is determined in any court or other dispute resolution proceedings.

Valuation of works etc. in later adjudications

  1. If a previous adjudication has determined the value of any construction work carried out or of any related goods and services supplied under a construction contract:
    • any later adjudication when working out the value of the construction work or related goods and services must give the work, or the goods and services, the same value as that previously determined;
    • unless the claimant or respondent in the later adjudication satisfies the later adjudicator that the value of the construction work or related goods and services has changed since the previous adjudication.
    • [if the value previously determined was based on the quantities of interim partial progress, there should be further progress afterward;
    • the updated total quantities progressed should be used for calculations in subsequent progress payments and later adjudication;
    • it would not be reasonable to freeze the previously determined quantities and calculate the extra quantities progressed after the billing date used in the previous adjudication;
    • because the previously determined quantities might be an approximation only;
    • such that the sum of the previously determined quantities and the extra quantities may not really be equal to the actual updated total quantities progressed, say 100% quantities for 100% progress;
    • furthermore, payment assessments are traditionally done by means of the up-to-date total less the amount previously paid instead of calculating the net extra directly]

Effect of adjudication on other proceedings

  1. The Ordinance does not affect any right of a party to a construction contract to submit a payment dispute relating to or arising from the contract in any court or other dispute resolution proceedings. [it should be considered whether the contract should permit early arbitration to deal with payment dispute instead of waiting until after the completion of the whole works]
  2. If a payment dispute being adjudicated is submitted in any court or other dispute resolution proceedings, the submission does not terminate or otherwise affect the adjudication proceedings.
     

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