Hong Kong Security of Payment legislation comes into force

On 27 December 2024, the Construction Industry Security of Payment Ordinance (Cap. 652) (the “SOP Ordinance”) was gazetted.  The SOP Ordinance came into operation on 28 August 2025 and applies to construction contracts entered into on or after this date.

As is the case in other jurisdictions which have adopted security of payment regimes in the construction industry, the SOP Ordinance aims to:

1. facilitate the recovery of payments under construction contracts;
    
2. provide a mechanism for the speedy resolution of payment disputes under construction contracts through adjudication; and
    
3. 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 for non-payment.

With the new regime now in force, parties need to ensure they are aware of how their projects will be affected. This Law-Now provides an overview of the SOP Ordinance and its implications for the drafting of construction contracts for work in Hong Kong.

Application of the SOP Ordinance

The SOP Ordinance will apply to public (including certain specified statutory and public organisations/enterprises) and private contracts entered into on or after 28 August 2025, which are either:

1. for the carrying out of construction work where the main contract value is a minimum of HK$5 million, or
    
2. for the supply of related goods and services where the contract value is a minimum of HK$500,000. 

Importantly given the multi-tiered subcontracting chains commonly found on Hong Kong projects, where the above contracts are captured by the SOP Ordinance then subcontracts down the supply chain will also be captured regardless of the subcontract’s value.

As the contract value is calculated as at the date on which the contract is entered into this should be clearly stated or able to be calculated to minimise the risk of disputes about the application of the SOP Ordinance. 

The SOP Ordinance applies regardless of whether the relevant contract or a subcontract is written (or partially written) or oral, and whether or not it is governed by the laws of Hong Kong.

The SOP Ordinance will not, in the private sector, apply to:

1. contracts for works on existing residential buildings;
    
2. contracts for relatively minor works on existing non-residential buildings which do not require approval of the Building Authority.

Drafting considerations for contracts

The SOP Ordinance creates a process for payment claims, payment responses and adjudication to determine the amount payable where not agreed.  Key considerations for parties entering into contracts from 28 August onwards include:

• Conditional payment terms such as “pay when paid” clause are prohibited under the SOP Ordinance and no longer enforceable.  Clauses that link or cross reference payment entitlements to other contracts may require removal.
   
• The SOP Ordinance mandates a 60-day payment deadline period.  However, parties to construction contracts may agree on an earlier specified date. 
   
• The SOP Ordinance permits parties to agree on certain progress payment matters such as the delivery of payment claims and the timeframe for a payment response (subject to a 30-day maximum), which should be considered in drafting contracts. 
   
• If a construction contract has a claim handling procedure for any additional payment (e.g. variations), then this must be followed before a payment dispute arises for the additional payment. Claim procedures in contracts should be reviewed to ensure that it is objectively clear what procedure is to be followed and when that process is exhausted.
   
• The SOP Ordinance provides for different processes for the appointment of an adjudicator depending upon whether one nominating body is specified in the construction contract or no nominating body/more than one nominating body is specified in the construction contract.  In each case, an adjudicator must be appointed by the selected nominating body within seven working days from the service of the adjudication notice on the nominating body. There is a longer timeframe for service of the adjudication notice on the nominating body where there is no nominating body or more than one nominating body is provided for, to allow for selection of the nominating body, potentially giving more time for respondents to  prepare where an adjudication is expected.
   
• The SOP Ordinance entitles a claiming party/ claimant to suspend or slow down work/services where the respondent fails to pay an admitted or an adjudicated amount within the specified time. While the claimant still needs to give a notice of intent, this represents a significant rebalancing from the rights typically granted to contractors in relation to Hong Kong projects to pursue delayed payments from the employer.

Setting aside/enforcement of an adjudication determination

Adjudication determinations are only able to be challenged by employers on limited grounds and they must pay into the court as security the unpaid portion of the adjudicated amount. 

The Security of Payment Rules (Rules) were gazetted 11 July 2025 and will come into operation on 5 September 2025.    Amongst other things, the Rules provide for the practice and procedure of applications to set aside or enforce adjudication determinations.  The rules provide:

• That a set aside application or an enforcement application is to be made to the District Court for determinations less than HKD $3 million (including interest) and to the Court of First Instance for determinations over HKD $3 million (including interest).
   
• A formula to calculate the security that the applicant is to pay into court.
   
• A process to appeal decisions to grant or refuse a set aside application or an enforcement application.

Conclusion

The introduction of the SOP Ordinance represents a significant change to payment rights in the Hong Kong construction industry. It is critical that parties review contract terms to align with the payment framework of the SOP Ordinance; and conduct training for project teams on the requirements of new payment regime including time frames and consequences of non-compliance with the SOP Ordinance and Rules.

Our teams of lawyers across the APAC region have significant experience of similar systems in many jurisdictions including Australia and Singapore. Feel free to reach out to our regional team of experts if you would like to discuss the implications of security of payment for Hong Kong projects. 

References:

Hong Kong Construction Industry Security of Payment Ordinance (Cap. 652)

Hong Kong Construction Industry Security of Payment Rules