A study on the implications of the security of payment legislation on the construction industry in Hong Kong through the experience of technical circular (works) No. 6/2021

Abstract

For over 20 years since the idea of setting up security of payment legislation (SOPL) in relation to the construction industry has been come up, the proposed legislation is still yet to be enacted. While payment problems in the construction industry are prominent (Development Bureau, 2012; Ho, 2013, Hong Kong Construction Association 2010) and the impacts brought by these poor payment practices are well-established (Ansah, 2011; Badrolin et al., 2016; Euginie, 2006; Hasmori et al., 2012; Odeyinka et al., 2008; Peters et al., 2019; Rostiyanti et al., 2020), there is not much work that has been carried out to tackle the long-stemmed problems. The SOPL has been proposed in 2015 and followed by a consultation. Recently in 2021, a Technical Circular has been issued by the Development Bureau on imposing the security of payment provisions into the public works contracts under the Works Department. The Circular is acting as a pilot scheme for the enactment of the SOPL. This study aims to assess the potential impacts brought by the SOPL on the stakeholders of the construction industry through the experience of the Circular. Opinions from the industry are collected through questionnaires and interviews with stakeholders from different levels to achieve the comprehensiveness of the study. Comparisons between the provisions related t the payment aspect of the SOPL from different jurisdictions will also be made to explore the differences and seek to learn if applicable. Results of the questionnaire suggested that the industry generally holds an optimistic attitude to the Circular and believes the Circular is effective in bringing about positive impacts to the industry through mitigating the long-standing payment problems. The impacts include securing cash flows, deterrence to the upper party to conduct payment default, etc. However, concerns have been expressed regarding the implementation and execution of specific provisions. For example, they may be a significant increase in workload and some impediments to the exercising of rights. These concerns may damage the industry’s confidence in utilising the provisions, and thus directly related to the success and effectiveness of the Circular and the SOPL. Therefore, it is recommended that the issues shall be properly addressed to answer the worries of the industry.