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.

For detailed guidance and compliance assistance, please contact our legal team.