Construction Industry Security of Payment Ordinance (Cap 652)

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Note

7/7/2025: Created. 

1/8/2025: Drafting in progress.

Intro

  1. The Construction Industry Security of Payment Ordinance (Cap 652) of Hong Kong was enacted on 27 December 2024.
  2. Some provisions are only operational starting from 28 August 2025.
  3. This webpage tries to list out conversions necessary to the current private standard forms of contract to suit the Ordinance.
  4. Before doing so, this webpage tries to summarise the statutory requirements in short bullet points. Words in [red] inserted towards the end of each simplified note are comments, not parts of the Ordinance.
  5. Alternative words may be used.
  6. The reduction in words and use of other words may distort the intended meanings of the Ordinance.
  7. The Ordinance itself should be read in order to fully understand its contents.

  8. The Ordinance may be read to mean different things by different people. The interpretations are still to be tested at courts.

    (Revised, 38/7/2025)

Sources

  1. Hong Kong e-Legislation for the full updated text: https://www.elegislation.gov.hk/hk/cap652
  2. At the end of the webpage, there is a Download section. The RTF version is more compact than the PDF version reducing to half of the number of pages.
  3. The Development Bureau's website: https://www.devb.gov.hk/en/publications_and_press_releases/Consultation_Papers_Reports/sop/index.html

Purpose

  1. The Ordinance's introductory note says:

An Ordinance to facilitate the recovery of payments under construction contracts; to provide a mechanism for speedy resolution of payment disputes under certain construction contracts through adjudication proceedings; to 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 under the contract; and to provide for related matters.

 

Terms used here

  1. Existing contracts - existing conditions of contract generally used before the Ordinance was enacted.
  2. Applicable contracts - conditions of contracts affected by the Ordinance.

Progress Payment

  1. "progress payment" - a payment for:
    • carrying out construction work; or
    • supplying related goods and services for construction work;
    • both under a construction contract.
  2. It includes:
    • a one-off payment;
    • an interim payment or a final payment; and
    • a payment that is payable on the occurrence of an event or on a date.
  3. It has much wider meaning when the common meaning of progress payment is interim payment.

Entitlement to Progress Payment

  1. A person is entitled to a progress payment if the person has:
    • carried out construction work; or
    • supplied related goods and services for construction work;
    • both under a construction contract.

Amount of Progress Payment

  1. The amount of a progress payment is:
    • the amount assessed in accordance with the contract [this means that the contract parties are free to agree how the amount is to be assessed]; or
    • if no assessing method specified, the value of construction work carried out or related goods and services supplied by the person.
  2. In case of no assessing method specified, the value is to be based on:
    • contract price or rate;
    • any other price or rate specified in the contract [not sure what else specified in the contract are not contract price or rate, possibly this refers to price or rate for optional items not included in the contract sum];
    • any variation agreed to by the contract parties by which 1.2.1 or 1.2.2 is to be adjusted by a specific amount [this refers to price as well, not just rate; this means that when price = quantity x rate, any changes to the quantity are also subject to this item; the word "variation" should mean any changes to the original contract value, not equal to the "variation" which mainly means design changes in the traditional forms of contract; the use of the words "agreed to" in the Ordinance means that variation not yet agreed is not covered by this item]; and
    • in the absence of the matters referred to in 1.2.1, 1.2.2 and 1.2.3 --- a reasonable price or rate at the time the construction work was carried out or at the time the related goods and services were supplied [not sure what "the matters referred to" as used in the Ordinance is all about; a possible meaning is that when i, ii, and iii do not apply, this item applies. A possible case is this: original contract value or variation value not yet agreed is covered by this item]; but
    • excluding work or goods and services being defective or not conforming to the requirements of the contract, unless the paying party accepts them then there should be deduction for:
      1. the estimated cost of rectifying any defect or correcting nay non-conformance; or
      2. the diminution in the value of the work, goods and services;
      3. whichever is more reasonable.   
  3. Note the meanings of "carried out" and "supplied" stated in the Billing Date section below.

Billing Date

  1. "billing date" - defined by Part 2 Division 1 section 12 of the Ordinance.
  2. A date on which a payment claim for the progress payment may be made.
  3. A date as stipulated in the contract.
    • [There are no specific requirements on how the progress payment is to be calculated.]
    • [The date is the date of making the payment claim, not necessarily the date up to which the payment claim amount is to be calculated.]
    • [The progress payment does not have to be restricted to work already carried out or related goods and services already supplied.]
  4. Or, if not stipulated, the last day of each calendar month except the month in which the contract is made.
    • The progress payment may include (i.e. can only include) construction work already carried out and related goods and services already supplied up to the billing date.
  5. "carried out" includes also "undertaken to be carried out", except in the case of item 1.4 above.
  6. "supplied" includes also "undertaken to be carried out", except in the case of item 1.4 above.
  7. Existing contracts:
    • They may specify a payment application date. This may be regarded as the billing date.
    • They may specify that the applied amounts can only be up to a certain date before the payment application date. This is permissible as explained in item 3.
    • If an applicable contract does not specify the billing date, it should specify.
    • The private Standard Forms of Building Contract (SFBC 2005/2006) have not specified the billing date. They only specify that the first Main Contract payment certificate should be issued not later than 42 calendar days after the Commencement Date defined in the contract, and the subsequent payment certificates should be issued at monthly intervals after the first payment certificate. This should be amended.

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