Overview and Key Provisions

In brief

On 27 December 2024, the Construction Industry Security of Payment Ordinance (CISPO) was gazetted, following a nine-year consultation process. This long-anticipated legislation will cover construction contracts entered into on or after 28 August 2025. Similar legislation has been in place for some time in various other jurisdictions, such as Australia, Singapore and the United Kingdom.

CISPO seeks to remedy improper payment practices in the construction industry by improving contractual payment terms and introducing a quick and interim-binding adjudication mechanism for payment disputes. Although it has a similar objective to legislation in other jurisdictions, there are important differences in the way it is drafted and the details of its approach. This means that changes to existing templates will differ from those in other jurisdictions.

In more detail

In this alert, words in italics are defined in CISPO.

Covered contracts and claims

CISPO applies to contracts for construction work and the supply of related goods and services in Hong Kong, whether oral or written, and whether governed by Hong Kong law or not. It covers these types of contracts:

  • Construction work: Contracts with a value exceeding HKD 5 million, including both new build and work on existing buildings or facilities.
  • Related goods and services: Contracts with a value exceeding HKD 500,000, such as materials incorporated into construction work, equipment used, transportation, feasibility studies, consultancy services, and materials testing.
  • Subcontracts: If a contract is covered under any of the above types, all of its subcontracts are also covered. The value thresholds do not apply separately to subcontracts.

CISPO only covers payment claims and related payment disputes. These are claims by a party for a progress payment, which is a payment for carrying out construction work, or supplying related goods and services. The definitions are quite broad and include interim and final payments and additional payments (including time-related claims, subject to a temporary and partial disapplication for private contracts and their subcontracts). However, other claims under a construction contract are not included, for example, claims by the paying party (but not restricting set-off to a progress payment provided that the paying party has served a payment response) or claims for breach of contract. Overall, the scope of claims covered is narrower than in, for example, the United Kingdom.

CISPO does not cover (i) work carried out outside Hong Kong; (ii) contracts related to existing residential buildings (e.g., interior renovation, building maintenance); and (iii) relatively minor works on existing non-residential building that do not require Building Authority approval (e.g., maintenance and repair of building services installation, shop renovation).

Parties cannot contract out of CISPO. Any provision in a contract is void to the extent that it is inconsistent with; has the effect of excluding, modifying or restricting the operation of; or may be construed as an attempt to deter a person from taking action under the legislation.

Effect on contract terms

CISPO affects contractual provisions in different ways:

  • Prohibited provisions: CISPO prohibits conditional payment provisions, such as pay when paid. The latter means that a paying party cannot deny or defer payment to a claiming party on the ground that the paying party has not received payment under its upper-tier contract or any other contract.
  • Mandatory provisions: These apply regardless of what the contract says. For example, a maximum period of 60 days between a payment claim and the payment deadline, and a right for the claiming party to commence adjudication in respect of any disputed or unpaid amount.
  • Default provisions: These apply unless the contract includes alternative provisions dealing with the issue. Examples are provisions specifying the earliest dates on which payment claims can be made (billing dates) and how progress payments are calculated. The objective here is not to control the rate of payment, but to help ensure that payments are made at the agreed times. The payment procedure includes some basic limits on the payment processing time.
  • Optional provisions: Contracts can include additional provisions which effect the implementation of CISPO. For example, parties may adopt a claim handling procedure for claims for additional payment, which may result in a longer period before an adjudication can be commenced.

New adjudication process

CISPO includes a new adjudication regime, which is designed to resolve payment disputes swiftly and cost effectively. Under this regime, the time between a claiming party initiating adjudication and the adjudicator rendering a binding determination (which can be enforced through the courts on an interim basis) is generally a maximum of 62 working days.

The key steps in the adjudication process are as follows:

  • Payment claim: The paying party has at most 30 days to serve a payment response and must pay within 60 days.
  • Initiation of adjudication: If there is a payment dispute (defined as a situation where there is no response from the paying party), or the paying party admits an amount that is lower than the claimed amount or does not pay the admitted amount in full within 60 days, the claiming party may initiate adjudication within 28 days by serving an adjudication notice on the respondent and the selected adjudicator nominating body (ANB). A party may be represented in the proceedings by any other person, whether legally qualified or not.
  • Appointment of adjudicator: The selected ANB must appoint a suitable and independent adjudicator within seven working days of receiving the adjudication notice. The adjudicator is not required to be legally qualified.
  • Submissions and procedures: The parties will exchange adjudication submissions. The adjudicator must follow the requirements under CISPO and any rules of the ANB, but otherwise has the power to establish their own procedures (for example, the adjudicator can decide whether to have a conference with the parties). The process is primarily intended to be document-based, aiming for a shorter timeframe and lower costs.
  • Determination: The adjudicator must make a determination within 55 working days from the date of appointment, unless otherwise agreed by the parties. The adjudicator must also determine the proportion and the amount of the costs of the adjudication proceedings payable by each party. These costs include only the ANB’s fees, the adjudicator’s fees and expenses, and the costs of any independent expert and any site inspections. Apart from these costs, CISPO does not create any right for a party to claim any costs or expenses it incurs as a result of, or in relation to, the adjudication proceedings.
  • Enforcement: If a party fails to make payment in accordance with the adjudicator’s determination, the other party may apply to the Court of First Instance or the District Court for leave to enforce the determination. This application will be determined by the court within 14 days or such longer period as the court considers appropriate. The court will grant leave if the papers are in order, unless a set-aside application is pending or there is no longer any amount outstanding under a binding determination. Once leave is granted, the determination can be enforced in the same way as a judgement of the High Court.
  • Recourse: A party who is dissatisfied with the adjudicator’s determination may apply to the court to have it set aside. The grounds are limited and do not include errors of law or findings of fact. The parties retain the right to refer the payment dispute to litigation or other final dispute resolution proceedings, such as arbitration, as stipulated in their contract. The adjudicator’s determination remains binding on the parties unless set aside or resolved through another dispute resolution mechanism.

Suspending or slowing down

CISPO gives a claiming party the right to suspend or slow down work if the paying party fails to pay an admitted or adjudicated amount within the specified time. The claiming party may exercise this right after giving five working days’ notice. The claiming party must resume the work within five working days after receipt of the payment. If it exercises this right, it is entitled to a reasonable extension of time and payment for any reasonable loss and expenses incurred.

Recommended actions

CISPO marks a transformative change in improving payment security in Hong Kong’s construction industry and significantly alters the dispute resolution landscape for payment claims. Contracting parties should use the time until 28 August 2025 to update their contract templates and contract management procedures to comply with CISPO. It is also recommended to leverage the flexibility offered by CISPO to avoid default provisions under CISPO which do not align with the contracting parties’ commercial objectives and to adopt optional provisions to fully reflect their commercial intent.

Author

Philipp's practice focuses on international commercial arbitration. Before joining the Firm in February 2015, he worked as an associate for a major Hong Kong law firm for 8 years. Prior to that, he worked for a leading Austrian law firm for 7 years. In 2011, he was appointed legal counsel to the Austrian Consulate in Hong Kong. Philipp has represented parties in arbitrations under the rules of Hong Kong International Arbitration Centre (HKIAC), International Chamber of Commerce (ICC), China International Economic Trade Arbitration Commission (CIETAC), Vienna International Arbitral Centre (VIAC), International Center for Dispute Resolution (ICDR), and the UNCITRAL Arbitration Rules. Philipp is on the HKIAC List of Arbitrators and has been repeatedly appointed as arbitrator in ICC and HKIAC arbitrations. He is a regular contributor to Global Arbitration News, the firm's moderated arbitration blog.

Author

Graham has worked on the development of numerous major projects throughout the Asia region for over 20 years, seeing many from the planning stage through to operation. He has a particular specialism in drafting and negotiating construction contracts. Before qualifying as a lawyer in 1999, Graham qualified as a Chartered Civil Engineer in the UK after working in the construction industry for 6 years. Most of this time was spent working for BAA plc in the project and contract management of airport developments. Graham also spent time as a site engineer for a civil engineering contractor, and has thus experienced various perspectives on the construction process and the risks associated with it. Graham also worked as a Contracts Engineer for the Hong Kong Airport Authority, responsible for the management of claims. As a solicitor Graham has specialised in the drafting of all the documents necessary to develop, procure and operate major construction projects. He has worked across a number of sectors, including power, transportation (i.e. rail, airports and roads), theme parks, waste management, commercial property, petrochemical, hospitals, water, factories and distribution centres, and been involved in projects in a number of jurisdictions including: Mainland China, Hong Kong, Korea, England, Philippines, Sri Lanka, Cambodia, Macau, Malaysia and Indonesia. He is experienced in many different approaches to procurement, including lump sum, remeasure, target cost, GMP, DBO, BOT, BOOT and PFI/PPP and also worked with most of the industry standard forms, including FIDIC, NEC, HKIA, ICE and JCT. Graham has been extensively involved in the implementation of projects after transaction closure, including negotiating the variation of contracts and settlement of claims during and after completion, and producing associated documentation. Making use of his detailed knowledge of construction contracts and law, how the industry operates, and extensive experience of implementation issues, Graham has worked on the resolution of a number of disputes in the construction sector, including by way of negotiation, mediation, arbitration and litigation. These disputes range in size and complexity from straight forward unpaid certified amounts, to complex claims for extensions of time and additional payment with multiple causes for delay and disruption, to claims in respect of defects. He has represented both developers and contractors.

Author

Jerald Wong is a senior associate in Baker McKenzie’s Hong Kong office and a member of the Firm’s Dispute Resolution Group. Qualified in Hong Kong, Jerald focuses on complex litigations and arbitrations. Before joining Baker McKenzie, he worked in the projects and construction team of another international law firm. With over ten years of experience in contentious matters, Jerald has advised client on numerous complex and high-stakes cross-border litigations and arbitrations involving commercial, construction, IP, M&A, TMT, JV and shareholders disputes. He has appeared as advocate and counsel in arbitrations under the CIETAC, HKIAC, ICC, SIAC and UNCITRAL Rules, subject to a variety of governing laws.