Security of payment: Hong Kong

What legislation or regulations govern security of payment in construction contracts?

The Construction Industry Security of Payment Ordinance (Cap. 652) (SOPO), which came into effect on 28 August 2025, governs security of payment in construction contracts in Hong Kong. It applies to both public and private sector contracts entered into on or after 28 August 2025, with minimum contract values of HKD5 million for construction work or HKD500,000 for related goods and services

What framework is put in place to protect monies intended for progress payments?

Are project bank accounts required?

No. The SOPO does not mandate project bank accounts. Instead, it relies on statutory entitlements and adjudication mechanisms to secure payments for the subcontractors.

Are retention monies quarantined?

There is no statutory provision to quarantine retention monies under SOPO. Whether retention money is held on trust for the contractor is a matter of contract and conduct of the parties. In the judgment of Hip Hing Construction Company Limited v Hong Kong Airlines Limited (HCCT 107/2022), the Court held that for a trust to be established, the retention money must be sufficiently identifiable as a specific asset. In this case, the lack of segregation of the retention money into a separate bank account meant the asset was not sufficiently certain, thus no valid trust was created, despite the fact that the retention money clause in the contract (being the standard form of contract commonly adopted in private projects Hong Kong) provides that retention money is held on trust by the employer. 

Are retention monies regimes prohibited?

Retention monies regimes are not prohibited in any statute in Hong Kong. It is a matter of contract between the project parties.

Can a contractor or subcontractor impose a lien or other form of security over the works or other assets of the developer?

The Ordinance does not provide for statutory liens or similar security interests over the works or assets of the developer/employer/upstream contractor. Instead, it gives the unpaid party the right to suspend or reduce the rate of progress of work if payment is not made after: (i) the paying party admits the amount payable but fails to pay; or (ii) the adjudicator has made a determination on the payment dispute but the respondent fails to pay the claimant the adjudicated amount in full by the deadline specified by the adjudicator.

Subject to fulfilment of the requirements of the SOPO (ie serving a notice of intention on the paying party/respondent and notify the owner at least 5 working days before the intended starting date of exercising the right to suspend or reduce the rate of progress), the unpaid party has the right to suspend or reduce the rate of progress for carrying out the work or supply.

The subcontractor is also entitled to a reasonable extension of time to complete the contract and to recover from the paying party any loss and expenses that have reasonably been incurred.

What impact has the legislation or regulation had on the construction sector and insolvencies?

As the SOPO has only recently been implemented it is therefore quite new, and the actual impacts are yet to be seen. However, it is anticipated that it would:

• Improve cash flow and payment certainty across the supply chain where subcontractors would be less likely to go insolvent due to payments being withheld by upstream contractors.
• Reduce wage arrears and financial stress for subcontractors as the subcontractors will now be paid from time to time.
• Facilitate faster dispute resolution via adjudication compared to previous dispute resolution mechanisms (eg tiered DR clauses or arbitration clauses).
• Lead to greater transparency and accountability in payment practice as the SOPO clearly sets out the payment and adjudication mechanism with explicit deadlines that parties must follow.

However, it might also lead to greater financial stress to main contractors as they now cannot rely on “pay when paid” clauses to reject payment applications.

What, if any, reforms are being considered?  

As the SOPO has only recently been implemented, there are no new reforms in the pipeline that we are aware of.