Following in the recent trend of security of payment legislation throughout the common law world, Hong Kong introduced its “Construction Industry Security of Payment Ordinance” (CISPO) by gazette on 27 December 2024.

From 28 August 2025, it will enter into force as a law of mandatory application, applying to contracts within its scope signed after that date. The most prominent innovation is the adjudication framework, through which the Ordinance’s various rights and obligations will primarily be given effect.

As parties get to grips with it in the years ahead, Hong Kong’s CISPO will doubtless provide a rich source of commentary and judicial attention. In that time, contractors signing new contracts may find themselves in uncertain positions as this new framework is fine-tuned.
In this article, we highlight some of the most important aspects of Hong Kong’s CISPO to consider, ahead of its imminent effect.

What contracts does it apply to?

For international contractors, CISPO will almost certainly apply, due to the relatively low value-based criteria. Key points to note are that CISPO will apply to contracts:

• For construction work (including services and supplies) carried out in Hong Kong of at least HK$5 million,
• For construction supplies of goods and services carried out in Hong Kong of at least HK$500,000,
• Entered into on or after 28 August 2025, 
• Whether the contract is governed by Hong Kong law or not. 

Subcontracts are also within the scope of CISPO, regardless of value, for construction or supplies for the same works, including where no direct relationship exists between the parties to the main contract and the relevant subcontract. 

Despite not being capitalised in the Ordinance, “construction work” is a defined term and is construed broadly.  It is important to note, for instance, that the examples provided include "painting or decorating external or internal surfaces" or "any electrical and mechanical installation". 

What contracts does it NOT apply to?

The most obvious exceptions are construction works, or supplies for construction works, that are not carried out in Hong Kong.  Section 9(2) states that the Ordinance does not apply “to the extent” that the contract relates to construction work outside Hong Kong. This is clear where the relevant contract only concerns such works but in a mixed contract, it is less clear. It seems implied from the wording “to the extent” that any contract value relating to construction works outside Hong Kong should be deducted for the purposes of calculating relevant contract value under CISPO. However, this is not explicitly stated.

Certain private works related to existing residential buildings are also excluded from CISPO. In contrast to provisions concerning works outside Hong Kong, it is explicitly stated that the value of these works is to be deducted from the wider contract value when determining a private contract’s value for the purposes of CISPO. 

Finally, CISPO will not apply where work is performed under an employment relationship, or to contracts to the extent that the payable consideration is not calculated by reference to the value of the construction works or related supplies. 

Prohibition on “pay when paid” clauses

As is traditional in security of payment legislation, Section 17 targets “conditional payment provisions”. There are many ways that such a provision may arise but the most typical is more commonly known as “pay when paid”, i.e. the subcontractor’s entitlement to payment is not engaged until the contractor is paid under its own upstream contract. 
Alternatively, as was highlighted recently in the Hong Kong Court of Appeal, it may be that the entitlement to payment is not contingent, but the timing of payment is. This kind of conditionality also falls within the definition of a “conditional payment provision” under CISPO. 

The approach to such clauses in CISPO is two-pronged. First, any “conditional payment provision” is unenforceable between the parties. Second, it has “no effect in relation to any payment” for CISPO works or supplies under the relevant contract.  

The distinction between “unenforceable between the parties” and of “no effect in relation to any payment” is likely to be important only in unusual circumstances, potentially such as insolvency.

Progress payments

Entitlement
Section 13 introduces a legal entitlement to progress payments and Section 14(b) provides a method for valuation of the progress payments if the contract does not contain one. However, the structure of Section 14 implies that the norm will be assessment under the contract, as Sub-Section 14(a) provides for “the amount assessed in accordance with the contract” where applicable. 

Timing
A 60 day long-stop payment date is mandated by Section 15. This time runs from service of the payment claim.  It is, though, open to the parties to agree a shorter timescale, which will then be enforceable under the same section. 

While helpful to main contractors, and potentially even subcontractors, the trickle-down impact of this clause depends on sensible implementation. Naturally, main contractors need to receive payment in good time to meet subcontractor payment terms, but subcontractors will also benefit from a maximum 60-day payment period under CISPO. 

If payment terms cannot be arranged to provide reasonable time between payments throughout the contract chain, liquidity pressure will build somewhere. If main contractors are given only 60-day payment terms by the Employer and must also manage 60-day payment terms to their subcontractors, the contractor will bear significant liquidity risk.

Notwithstanding the payment period, parties should note that a response to a payment claim must be made within a maximum of 30 days.  Again, this can be shortened by agreement. A failure to provide a response to the payment claim is regarded as a dispute, which can proceed to adjudication.

Adjudication

Adjudication process
The vast majority of CISPO concerns adjudication, which is the most significant innovation as it provides immediacy to the remainder of the Ordinance. The provisions are detailed, and some deadlines can be adjusted, either by the adjudicator or by agreement of the parties, but the standard flow of basic procedural steps can be summarised as:

1. Within 28 working days of a payment dispute arising under the terms of Section 23, a claiming party may initiate adjudication proceedings by serving notice.
2. The nominating body, determined either by contract or the process specified in the Ordinance, must appoint an adjudicator within seven working days of service to the nominating body.
3. Within one working day of being informed of the appointment, the claiming party must submit an adjudication submission.
4. Within 20 working days, the respondent must submit an adjudication response.
5.  Within two working days, the claimant must submit a reply to the adjudication response.
6. Within 55 working days of appointment, the adjudicator must issue their decision. 

Adjudicator powers
In principle, the adjudicator’s primary purpose is to determine payment disputes. The adjudicator may only determine other matters to the extent necessary to determine a payment dispute. Notably, if determining an EOT or any additional cost in the award, the adjudicator must make an award in terms of days and the sums due, including interest (if any). 

There are also various interesting provisions in CISPO that seem designed to prevent any disruption to the adjudication process. For instance, an adjudicator 'must not consider' any submission that is not made within the specified period, apparently removing any ability for parties to make late submissions.

Although strict if viewed in isolation, it will be interesting to see how this interacts with the adjudicator’s discretions to extend procedural timings. The robust wording of Section 37 implies that once a deadline for submission has passed, there is no discretion to consider a late submission. 

On the other hand, Section 35 gives broad powers to the adjudicator and indicates that the adjudicator may extend certain deadlines: does this include deadlines that have already passed?  

In similarly robust terms, the adjudicator must (if satisfied) ignore material indicated by a party, if:

1. The complaining party was unaware of a submission or evidence on the date of service of the adjudication notice,
2. The material should have been served before the notice, and
3. It cannot be fairly considered and responded to by the complaining party. 

However, the adjudicator’s broad powers allow them to request additional material from the parties,  the results of which might presumably be covered by those criteria. Can a party object to material that was specifically requested by the adjudicator on these grounds?

The right to delay or slow performance

A significant right given to claimants under CISPO is the right to 'delay' the works, meaning suspend or slow,  if certain payments are not made. This right arises if a payment response to a payment claim is issued but the “admitted amount” in the payment response is not paid by the relevant deadline.  In such cases, the claiming party may, by just five working days’ notice, engage its right to suspend or slow the works.

Importantly, if this right is correctly engaged under CISPO, the delaying party is not only protected from being in breach of the contract but is also entitled to EOT and any loss and expense arising from the delay.

Conclusion

Hong Kong’s CISPO joins a growing number of legislative interventions in the construction industry in the common law world. Purists may consider that this kind of law-making represents an unwarranted constraint on the freedom of contract. 

However, the real-world importance of the construction industry to national economies (and politics) seems to beat the, at times, abstract concept of freedom of contract. Such freedom can sometimes seem entirely theoretical in an industry that is unfortunately renowned for imbalanced contracts and abusive practices, enabled by wide disparities in bargaining power through the contracting chain.

In this regard, at least initially, the perceived benefit among industry participants will probably be inversely proportional to a party’s existing commercial bargaining power, with smaller contractors and subcontractors standing to gain the most.

Having said that, welcome changes are likely to be matched by discomfort at the 'legalisation' of contracts management, under the constant threat of adjudication. 

Even if adjudication is not intended to become 'arbitration-lite', it is unfortunately common as internal policies almost always require the involvement of legal and / or risk departments in “disputes”.

Consequently, the prospect of adjudication can cause a legalistic rigidity in relationships that is often unwelcome, particularly to site personnel who rely on relationships, and even more so in Eastern cultures with a concept of 'face'. The importance and effect of these factors are often misunderstood or disregarded.

In the early years of CISPO, it will be important to consider the new rights and obligations under the Ordinance and how these will impact the management of contracts and relationships. With many decades of experience in Asia, Systech can offer a full suite of construction services in an evolving global landscape, placing an emphasis on collaboration and efficiency to ensure the best possible results for the clients we work with. We would encourage any contractors affected by new legislation to reach out to us to see how we can help.