From fast-track adjudication to no more pay-when-paid, Hong Kong is serious about keeping cash flowing in construction, but there are pitfalls for contractors.
The Construction Industry Security of Payment Ordinance (CISOP), enacted under Cap. 652, is a game-changer for employers, contractors, subcontractors, and suppliers in Hong Kong.
Effective 28 August 2025, it introduces mandatory payment and dispute resolution provisions for a wide range of construction-related contracts.
Its goal is to streamline cash flow, reduce payment disputes, and ensure timely payments throughout the construction supply chain.
For contractors, CISOP brings new protections but also imposes obligations with financial and operational consequences.
Here are five ways CISOP affects contractors, along with five tips for navigating the changes.
1. Payment timelines are strictly enforced
CISOP mandates strict timelines for payment claims and responses. Contractors must submit payment claims for progress payments, which must be clear, detailed, and in writing. Once a payment claim is served:
- The paying party must respond within 30 calendar days or by the agreed payment response deadline, whichever is shorter.
- If no payment response is served, the paying party is deemed to dispute the claim but it cannot raise set-offs later during adjudication.
For contractors, this means:
- Faster payments: You won’t face indefinite delays in receiving progress payments.
- Tighter deadlines: Missing deadlines for serving payment claims or responses could weaken your payment rights.
Tip: Set up a robust system to track payment timelines. Develop templates for payment claims that clearly state the claimed amount, associated work, and calculations. Train your team to ensure claims are submitted correctly and promptly.
2. Adjudication to resolve disputes quickly
CISOP introduces adjudication as a fast-track method for resolving payment disputes.
If a payment claim is disputed, you can escalate the matter by serving an Adjudication Notice within 28 days of the dispute arising.
The appointed adjudicator must issue a binding decision within 55 working days from their appointment. It can take up to seven working days for the nominating body to appoint the adjudicator after the Adjudication Notice is served.
For contractors, this means:
- Quick remedies: You can recover unpaid amounts faster compared to arbitration or litigation.
- Lower costs: Adjudication is less expensive and time-consuming than traditional dispute resolution methods.
Tip: Keep detailed project records, including contracts, payment claims, payment responses, and correspondence. A well-documented claim strengthens your case during adjudication. Be prepared to submit your adjudication documents within one working day of the adjudicator’s appointment.
3. “Pay when paid” clauses now invalid
CISOP prohibits “pay when paid” clauses, ensuring subcontractors are paid on time regardless of whether the contractor has been paid by the employer. This provision protects subcontractors from cash flow bottlenecks caused by upstream payment delays.
For contractors, this means:
- Increased accountability: You must pay subcontractors on time, even if you haven’t been paid by the employer.
- Greater cash flow pressure: You’ll need to ensure you have sufficient working capital to meet payment obligations.
Tip: Review your contracts and remove “pay when paid” clauses, because they’re no longer enforceable. Build a financial buffer to handle subcontractor payments while waiting for upstream payments. Explore options to renegotiate payment terms with employers to minimise risks.
4. Subcontractors can suspend or reduce progress for non-payment
If contractors fail to pay adjudicated amounts by the deadline, subcontractors have the right under CISOP to suspend works or reduce progress on site. Exercising this right is not to be regarded as a breach of the contract. It could lead to significant delays and jeopardise overall timelines.
To exercise this right, subcontractors must:
- Serve a written Notice of Intention at least five working days before suspending or reducing progress.
- Notify the employer or project owner of their intention.
For contractors, this means:
- Risk of disruption: Non-payment could lead to subcontractors slowing or halting work, causing delays and cost overruns.
- Reputational impact: Your relationships with subcontractors and project owners could be damaged.
Tip: Comply with adjudication decisions and payment deadlines. Avoid disputes escalating to the point where subcontractors exercise suspension rights. Proactively communicate with subcontractors to address payment concerns early.
5. Delay claims require precision and compliance
CISOP ensures that payment disputes include claims for additional payments, such as variations or delay-related costs, provided they adhere to the contractual claim-handling procedure.
However, in the context of private contracts, CISOP excludes time-related disputes (e.g., extensions of time) from adjudication unless the Extension of Time (EOT) has been mutually agreed upon by both parties.
For contractors, this means:
- Strict adherence to procedures: Delay-related claims must comply with both CISOP and the contract’s claim-handling procedure.
- Clear documentation: Unsubstantiated or late claims risk being rejected during adjudication.
Tip: Document delays meticulously, including delay notices, updated programs, and cost calculations. Ensure your delay claims are submitted within the contractually stipulated timelines and align with CISOP requirements.
Practical steps for contractors to stay ahead
As CISOP introduces new rights and responsibilities, contractors must take proactive steps to comply with the ordinance and avoid potential risks:
- Educate your team: Train project managers, contract administrators, and finance staff on CISOP requirements, including timelines for payment claims and adjudication.
- Update contracts: Ensure they’re CISOP-compliant. Remove “pay when paid” clauses and clearly define timelines for payment claims and responses.
- Strengthen cash flow management: Build financial reserves to handle downstream payments, even during upstream delays. Consider financing options, such as invoice factoring, to maintain liquidity.
- Maintain accurate records: Keep comprehensive and organised records of contracts, progress payments, correspondence, and variations. These records will be critical for resolving disputes and strengthening your claims.
- Engage experts: Consult legal advisors or claims consultants to navigate complex disputes, prepare adjudication submissions, and ensure compliance with CISOP.
Conclusion
CISOP transforms how payments and disputes are handled in Hong Kong. While CISOP offers protections like faster payments and streamlined dispute resolution, it also introduces strict compliance requirements and financial pressures.
By understanding CISOP’s provisions and implementing best practices, contractors can protect their cash flow, maintain strong relationships with subcontractors, and avoid project disruptions. Compliance isn’t just about meeting legal obligations—it’s about building a more resilient and competitive business in an evolving industry.
- Anel Idriz is founder of Alternative Logic and an expert advisor in programming, delay analysis, dispute resolution, and claims consulting
