This is a incredibly sizeable growth as it involves for the very first time the introduction of the contractual ideal to refer payment disputes to adjudication and the prohibition of “pay if paid” or “pay when paid” provisions. All the contractors operating on long term general public works will want to comply with the new necessary requirements and amend their subcontracts to comply with those people demands.
The routine will acquire outcome in two stages.
From 31 December 2021, the SOP provisions will use to tenders from Group B contractors for contracts of price up to HK$400 million or Team C contractors for contracts of any values exceeding HK$400m on the “List of Authorized Contractors for General public Works”.
From 1 April 2022, the SOP provisions will utilize to tenders from other contractors on the “List of Authorised Contractors for General public Works” or the “List of Approved Suppliers of Products and Expert Contractors for Public Works”.
SOP is acknowledged for guarding the hard cash stream in the construction sector, specially for subcontractors doing the job at the lessen tiers. Even so, in its place of next the footsteps of British isles, Australia and Singapore in enacting a SOP legislation, Hong Kong has ventured into an uncharted territory of employing SOP provisions purely by contractual arrangement.
The timetable for introduction of protection of payment legislation continues to be unclear. It implies that contracting parties to community works contracts in the meantime will have no access to courts in obtaining payment of an adjudicated amount or hard adjudicators’ conclusions which are obviously mistaken or made with out jurisdiction.
Whilst the new routine is at the moment confined to community will work contracts, the new potential to adjudicate payment disputes as they crop up and the elimination of “pay if paid” or “pay when paid” provisions in general public operates contracts are possible to alter the landscape of the construction business in Hong Kong drastically. Principal contractors will no extended be permitted to hold off payment to their subcontractors on the ground that the key contractors have not been paid out by the employer underneath the principal contracts.
The agreement directors of the general public is effective contracts are tasked with policing the compliance with the contractual SOP provisions by the principal contractors. They can give “poor” or “very poor” rankings in the contractor’s performance report in the event of non-compliance with the SOP provisions by the most important contractors. A contractor provided consecutive “adverse” contractor’s functionality stories may be asked for to voluntarily refrain from tendering, and may perhaps be subjected to other regulating actions, this kind of as removing, suspension, downgrading or demotion from the List of Approved Contractors for Public Will work.
Under the new contractual routine, sizeable contractual and administrative burdens are imposed on the principal contractors to, amongst other matters, assure that the SOP provisions are getting incorporated and complied with at subcontracts at all tiers and deal with adjudications. This will increase the operating price tag of the principal contractors and in switch be factored into their tendering price for public is effective contracts.
Given the imminent productive date of the Circular, Group B and Team C contractors must quickly commence reviewing their subcontracts and preparing to integrate the SOP provisions which are contained in Annex D to the Technical Circular into all their pertinent subcontracts. Subcontractors should really also do similarly down the subcontract chain.
Factors of the SOP regime consist of:
- The prohibition of “pay if paid” or “pay when paid” provisions.
- Contractors or subcontractors should really post payment promises at the time specified in the related contract or subcontract.
- The receiver of the payment claim, possibly the employer or main contractor, ought to deliver a response to the payment claim in just 30 times of the contractor’s payment assert or any agreed shorter period of time.
- The admitted amounts should be compensated inside of 60 days of the payment claim.
- If any payment dispute arises in between the contractor or subcontractor and the employer, the contractor or subcontractor can refer the payment dispute to adjudication.
- The adjudicator must difficulty a willpower inside 55 times of the appointment to solve the dispute except if the parties concur usually.
- The spending celebration must shell out the amount of money which is established by the adjudicator within 30 days of the notification of the adjudicator’s final decision. Failure by the major contractor to pay a sum which is admitted or adjudicated to be payable will entitle its subcontractor to suspend operate or implement for immediate payment by the employer.