Security of Payment Legislation in the construction industry: get the cash flowing
24 July 2015
Payment issues have long been recognised as a key problem causing construction disputes in Hong Kong. Employers, contractors, sub-contractors, suppliers and consultants alike are all affected. Following examples in England and Wales, a number of states in Australia, New Zealand, Singapore, Malaysia and Ireland since 1996, Hong Kong has been considering a solution to the problem through legislation to provide for payment security and to regulate payment practices in the construction industry.
In June the Development Bureau published its long expected consultation document on Security of Payment Legislation (SOPL). The consultation period will run until 31 August. The main features of the proposed SOPL and some potential areas of concern are discussed below.
Which construction contracts will be covered by SOPL?
SOPL will apply to both written and oral contracts relating to works in Hong Kong, even where the law of the contract is not Hong Kong law and the contracting parties are not Hong Kong parties. The rationale to include foreign parties is said to be fairness to all. However, it will in a way help foreign parties enforce project payments against Hong Kong parties, which may not be mutual when Hong Kong companies are carrying out construction works in other countries. That seems to go above the purpose of SOPL and is perhaps worth some further consideration and comments in the consultation period.