“Business as usual, cash flow is the king.”
This is especially true for the Hong Kong construction industry, when the success of any project counts on a chain of interdependent parties starting from the employers, consultants, to contractors, sub-contractors, sub-subcontractors and suppliers. Cash flow has to be continuously generated from one party to another along the chain. It’s the blood flowing from within that keeps the industry alive and vibrant.
Following the Chief Executive Policy Address 2018, the Hong Kong SAR Government will pilot “Construction 2.0” in public projects to promote industry enhancement. This initiative is supported by three pillars of performance targets, namely “Innovation”, “Professionalisation” and “Revitalisation”, to cope with the imminent challenges in the construction industry including the increasing construction volume in the near future, higher costs, mega-project performance, maintaining steady and satisfactory productivity. It also recognizes the high fragmentation of the industry in terms of high levels of subcontracting, resulting in intermediary organizations intending to maximize their profit margins by influencing the lower supply chain. The need of fair payment practice is prevalent and effective regulations for such practice are a prelude to successful project delivery.
Proposed Statutory Adjudication in Hong Kong
The best payment practices in construction industry have long been recognized and elucidated in in the consultation document of the "Proposed Security of Payment Legislation for the Construction Industry” published in 2015 by the Government. The crux of this legislation is founded on a “Pay first, argue later” method of dispute resolution where the parties must pay an adjudicated amount according to the adjudication decision. The decision can be challenged based on the grounds as set out in the Security of Payment Legislation in the later stage. The parties must act in accordance with a strict timetable and the adjudicator must also deliver a decision within a certain period of time. A default payment scheme in the legislation will be triggered if a construction contract fails to identify a valid payment mechanism. Failure of the respondent to pay the adjudicated amount can result in suspension of works by the unpaid party. Furthermore, the non-paying party can no longer rely on any pay-when-paid provisions to refuse timely payment.
The Role of Construction Adjudicators
Selection of the construction adjudicator is the fundamental right of the parties since the quality of the adjudication depends on the quality of the adjudicator. Hence, the underpinning factors in choosing a suitable construction adjudicator include the expertise, independence, impartiality, personal characters, reputation, construction experience and legal knowledge of the construction adjudicator. The qualified construction adjudicator is responsible for considering the parties’ arguments and properly delivering a decision within the strict timeframe.
Payment in the construction industry is a complex issue involving multiple interlacing factors. HKICAdj considers that timely payment is indeed the invisible pillar of the construction industry beyond all challenges.