Construction Industry Security of Payment Legislation. Development Bureau

Transcription

1 Construction Industry Security of Payment Legislation Development Bureau

2 Construction industry is vulnerable to payment problems Background Action Taken Scope of Application Key Features 2 2

3 Payment Problems Adversarial working relationship - disputes Withheld payments Dispute resolution - lengthy and costly How serious, extensive? DEVB and CIC survey in Background Action Taken Scope of Application Key Features 3

4 Total outstanding payment : over $20 billion Main contractor Subcontractor Consultant Supplier Outstanding payment ($billion) as % of total business receipts 8% 12% 10% 5% 4 Background Action Taken Scope of Application Key Features 4

5 Stakeholder s view Developer Main contractor Subcontractor Consultant Supplier A very serious problem 1% 11% 16% 8% 14% A serious problem 7% 34% 41% 29% 35% Total 8% 45% 57% 37% 49% 5 Background Action Taken Scope of Application Key Features 5

6 Payment problems payments withheld due to pay when paid payments withheld due to disputes continue work/supply goods even when payments were not settled delays in settling final accounts 6 Background Action Taken Scope of Application Key Features 6

7 CIC s Report (August 2012) members of the Task Force agreed that there is indeed a need to put in place a security of payment legislation to work hand in hand with contractual and administrative measures aforesaid It is the Task Force s recommendation that the process of legislation should commence as soon as possible 7 Background Action Taken Scope of Application Key Features 7

8 Overseas SOPL UK (1996, 2009) New Zealand (2002) Ireland (2013) Singapore (2004) Malaysia (2012) Australia New South Wales (1999) Victoria (2002) Western Australia (2004) Queensland (2004) Northern Territory (2004) South Australia (2009) Tasmania (2009) Capital Territory (2009) Background Action Taken Scope of Application Key Features 8 8

9 Common features Exclusion of works related to residential properties Payment Rights Pay when paid Mandatory Adjudication rapid dispute resolution Suspension for Non-payment 9 Background Action Taken Scope of Application Key Features 9

10 DEVB and industry stakeholders formed a working group in Background Action Taken Scope of Application Key Features 10

11 Security of Payment Legislation Improve payment practices in construction industry help contractors, sub-contractors, consultants and suppliers to receive payments timely rapid dispute resolution 11 Background Action Taken Scope of Application Key Features 11

12 Improve cash flow in supply chain Improve operating environment Build up construction capacity and enhance competition 12 Background Action Taken Scope of Application Key Features 12

13 Scope Government and specified and/or public bodies and corporations all contracts for procurement of construction activities consultancy and supply (material and plant) contracts main and sub-contracts in the supply chain oral and written contracts Background Action Taken Scope of Application Key Features 13 13

14 Private Sector contracts for new building > $5 million consultancy and supply (material and plant) contracts > $0.5 million main and sub-contracts in the supply chain oral and written contracts 14 Background Action Taken Scope of Application Key Features 14

15 Exclusion Private Sector contracts for new building $5 million consultancy and supply (material and plant) contracts $0.5 million renovation, maintenance, alteration and addition (RMAA) works 15 Background Action Taken Scope of Application Key Features 15

16 Exclusion Employment, financial services, insurance contracts, etc. Contracts entered into before enactment of SOPL 16 Background Action Taken Scope of Application Key Features 16

17 Payment Provisions Contracting parties free to agree on : number of Progress Payments time to submit Payment Claims (time period or milestones) basis for valuation of work 17 Background Action Taken Scope of Application Key Features Payment Rights 17

18 If not specified in contract, or contract provisions inconsistent with SOPL SOPL default provisions apply 18 Background Action Taken Scope of Application Key Features Payment Rights 18

19 Default Payment Provisions Progress Payment 1 calendar month 30 calendar days Payment Period - 60 calendar days Work starts Payment Claim Payment Response Payment 19 Background Action Taken Scope of Application Key Features Payment Rights 19

20 Pay when Paid clauses will become unenforceable payment conditional on payer receiving payment from a third party payment contingent or conditional on operation of any other contract or agreement other clauses with similar effect 20 Background Action Taken Scope of Application Key Features Pay when paid 20

21 Right to Suspension Non-payment of sums admitted in Payment Response sums decided by adjudicator Suspend or reduce rate of works progress 5 working day written notice to non-paying party and take reasonable steps to notify the site owner 21 Background Action Taken Scope of Application Key Features Suspension 21

22 Suspension Suspending party entitled to additional time to complete their obligations costs and expenses 22 Background Action Taken Scope of Application Key Features Suspension 22

23 Adjudication Mandatory proceed even if other party did not respond Scope of adjudication disputes arising out of Payment Claims disputes relating to extension of time 23 Background Action Taken Scope of Application Key Features Adjudication 23

24 Appointment of adjudicator by agreed adjudicator nominating body (ANB) in contract by agreement after dispute and right to adjudicate has arisen default procedure (a) Hong Kong International Arbitration Centre as default ANB (b) claimant propose-respondent select 24 Background Action Taken Scope of Application Key Features Adjudication 24

25 Costs Adjudication cost adjudicator to decide legal costs each party to bear own legal costs 25 Background Action Taken Scope of Application Key Features Adjudication 25

26 Right to Adjudication Payment Claim Payment Response served on time? Dispute relating to Extension of Time (EOT) Y N All amounts admitted and no set off? Y Paid on time? N N right to adjudication within 28 calendar days of dispute arising right to adjudication within 28 calendar days completion of works 26 Background Action Taken Scope of Application Key Features Adjudication 26

27 Adjudication timeline Notice of Adjudication Appointment of Adjudicator Respondent to serve Response Adjudicator s Decision parties to agree adjudicator or ANB adjudicator nomination by ANB Further submissions if Adjudicator allows 5 working days 5 working days within 20 working days (extendable by Adjudicator) 30 to 35 working days Default procedure 60 working days Background Action Taken Scope of Application Key Features Adjudication 27 27

28 Appeal party not satisfied with adjudicator s decision may go to court or arbitration meanwhile, paying party is obliged to pay the adjudicated amount 28 Background Action Taken Scope of Application Key Features Adjudication 28

29 Safeguard against ambush notification within 28 calendar days of disputes arisen longer adjudication period than other countries adjudicator may disregard submissions that should have been provided before adjudication where an adjudicator considers a dispute too large and complex to be decided fairly, he may resign Background Action Taken Scope of Application Key Features Adjudication 29 29

30 Public consultation from 1 June to 31 August

31 Report on Public Consultation issued in April 2016 Generally supportive to SOPL private sector RMAA works professional services contracts default adjudicator nominating body ( default ANB ) adjudication of EOT disputes Background Action Taken Scope of Application Key Features Adjudication 31 31

32 Private sector RMAA works contractors undertaking private sector RMAA works also face payment problems to protect the interests and rights of general public, including private owners and SMEs SOPL will cover over 75% of construction works by value (private sector RMAA works account for about 20%-25% of total construction expenditure) 32 Background Action Taken Scope of Application Key Features Adjudication 32

33 Professional services contracts extra financial burden to architectural lead consultants in public sector building projects ArchSD s initiatives revised payment schedule trial direct employment of consultants 33 Background Action Taken Scope of Application Key Features Adjudication 33

34 Adjudication of EOT disputes EOT disputes are complicated undermine contract administrator s role EOT disputes admissible to adjudication in overseas jurisdiction if implicit to payment disputes right to adjudication arises after going through contractual procedure, or if contract administrator fails to respond within reasonable time remove 28-day limit for raising adjudication Background Action Taken Scope of Application Key Features Adjudication 34 34

35 THANK YOU 35