Hong Kong Construction Newsletter

Transcription

1 Hong Kong Construction Newsletter December 2015 Introduction Welcome to the December edition of Clyde & Co s Construction Newsletter, and we would like to take this opportunity to wish you all a merry Christmas and a joyful New Year. This edition provides insights on: NEC3 in Hong Kong Page 2 Lead Contamination in Hong Kong s Water Supplies Page 3 Partner Profile Ian Cocking Page 4 Contacts Page 5 BD Highlights - Top Tier Ranking Page 3 Security of Payment Legislation for the Construction Industry Page 4 We hope you find this month s newsletter an informative and useful read. Should you have feedback or suggestions for future topics, please contact infrastructure@clydeco.com. Similarly, to hear more from our global projects & construction group, us providing your area(s) and region(s) of interest.

2 2 NEC3 in Hong Kong The Hong Kong construction industry can expect a period of uncertainty and change, as the Government has adopted the use of the NEC3 forms of contract over more traditional forms of construction contracts. Traditional Form of Construction Contract The traditional construction contract serves one principle purpose, and that is to allocate risks between the employer and the contractor. A traditional contract determines the rights and liabilities of the parties when there is a problem. As a result, most people put the contract into the drawer after it is signed, only to be taken out if a dispute arises. NEC3 Contract The NEC3 contract is conceptually very different. The purpose of the contract is to set out procedures for parties to identify risks as early as possible, and to resolve problems together. The fundamental basis of the NEC3 contract is that the parties work together in the spirit of mutual trust and cooperation, and it is envisaged that the contract is used as a project management tool, with parties working collaboratively, in a non-adversarial manner, to mitigate and manage risk, and so enhance efficiency. NEC3 in Hong Kong Considering the widespread use of NEC3 for government contracts in the UK, the Development Bureau decided to trial NEC3 in public work contracts. In 2009 the Drainage Services Department ( DSD ) launched the first Hong Kong pilot project - the HK$50M Fuk Man Road nullah improvement works. This project was a success, and so in 2012 the DSD launched the Government s second pilot, the HK$272M village sewerage project in Sha Tau Kok, New Territories. By 2013 there were 26 pilot NEC3 projects in the pipeline, as well as pilot projects under the CLP and the Jockey Club. The largest of these pilots was awarded in February 2013, the HK$2.97 billion contract for the design and building of Tin Shui Wai Hospital. Impressed with the performance of the NEC3 on these projects, the Development Bureau issued a directive that the Works Departments should adopt the NEC3 form in all public works contracts put out for tender in 2015/16, as far as possible. 2014/2015 should then have seen a significant number of NEC3 projects take off, however, there was a substantial fall in the number of construction projects, due in no small part to filibustering at LegCo. Although the Development Bureau s directive got off to a slow start, as public works begin to come through in 2016, we can expect to see more Government contracts using NEC3, which will begin to answer the question as to whether the Government was correct in deciding to place so much faith in a new and largely untested method of contracting in Hong Kong. Why is this such a radical move? NEC3 is a completely new concept. People in the construction industry will need time to learn how to utilise the contract during the course of the works as a project management tool, and project staff will require training as to how to use the contract; It is important for Contractors and Employers to change their attitude towards contract administration. An adversarial approach will not work under NEC3, but attitudes may take time to change; Sufficient resourcing is one of the keys to NEC3. Because it is a project management tool, it is time intensive, and so requires more people to actively manage the project. However, in the current construction market, there is a serious shortage of staff and workers; NEC3 is written in simple language; it uses the present tense, short and non-legalistic wording and it avoids crossreferences. This is to make it more user-friendly, but may have the effect of creating legal uncertainties; NEC3 calls for more contemporaneous decision making and dispute resolution. In the UK, where adjudication is statutory, most disputes under NEC3 are resolved by way of adjudication. But in the UK adjudication is a tried and tested tool, whereas it is yet to be implemented in Hong Kong, which leaves a question mark over whether parties will be able to resolve disputes effectively during the course of the works; Multi-layer sub-contracting is common in Hong Kong. This means that to some extent the main contractor relies on the performance of the sub-contractors and carries the risk of their failure. Therefore if the sub-contractor does not adopt the same philosophy and regime, the NEC3 mechanism could fall apart Conclusion It will be difficult to measure the success of the NEC3 Government projects over the next two years, because most large infrastructure projects will take longer than that to complete, so we cannot know if a project has been completed within budget and on time. NEC3 may prove to be more suitable to large civil engineering projects where risks are more complicated and uncertain. Proactively managing these risks collaboratively, rather than allocating risk, may aid efficiency of projects, and the Hong Kong Government, and the MTRC as major civil infrastructure projects owners, are the types of organisations that can commit the level of resources that the NEC3 requires.

3 Lead Contamination in Hong Kong s Water Supplies In the summer of 2015 it was discovered that drinking water supplies in Kai Ching House, Kowloon City, contained lead exceeding the WHO guidelines of 10 µg/l. Following this discovery, a number of other housing estates both public and private were found to have lead contamination in their water supplies, as well as some schools and kindergartens. The first concern was for the health and wellbeing of those people who had been exposed to the contaminated water supplies, and to ensure a supply of lead-free drinking water for Hong Kong Residents. A task force lead by the Water Supplies Department came to the conclusion that the lead content of water was the result of lead leaching into water in the inside system, i.e. inside the estates, principally because leaded solders were used to join copper pipes. Lead solders do not satisfy the British Standard of materials which both Hong Kong legislation and most construction contracts require. In the wake of this lead leaching saga, Clyde & Co have given a series of presentations to various industry stakeholders who are concerned as to where legal liabilities may lie, who will be responsible for rectification costs, and whether the government has done enough to protect the citizens. It is also yet to be seen whether the high Blood Lead Level of some Hong Kong residents may have detrimental effects on their health, which could bring with it a host of legal actions. Please get in contact with our team if you have concerns about construction activities you have been involved in where lead contamination has occurred. BD Highlights - Top Tier Ranking Tier 1 Legal 500 Clyde & Co is very pleased to announce that Legal 500 has elevated the Hong Kong Construction team to Tier 1 of their table of construction law practices, in recognition of the depth of experience of the team, which is now one of the largest construction practices in Hong Kong. Legal 500 described the team as follows: Clyde & Co has one of the best construction practices in the region. According to some, Ian Cocking is a standout lawyer, whose arrival in 2011 catapulted the firm s construction practice into the Premier League. Gilbert Kwok also attracts considerable praise, particularly for his knowledge of mainland China issues. Kwok is representing the main contractor in a circa-hk$1bn arbitration concerning alleged wrongful extension of time assessments and variations, and Cocking is acting on one of Hong Kong s highest-value infrastructure disputes. We will be celebrating this success in the New Year, so keep your eyes peeled for the invites which are to follow. Clyde & Co Construction Newsletter December

4 Security of Payment Legislation for the Construction Industry Since its inception in the UK in 1998, Security of Payment Legislation has spread across many common law countries, including Singapore, Malaysia, and Australia. SOPL aims at improving payment practice in the construction industry by establishing: Statutory protection for payment claims made for work done on construction contracts; A system of Adjudication a quick dispute resolution mechanism to resolve disputes, on an interim basis, over contractual payment claims; and The statutory right to suspend works where contractual payment is not satisfied It seems as though such legislation is shortly to be enacted in Hong Kong, and last August Hong Kong s construction industry players made their responses to the Development Bureau s consultation document. The consultation process is not over yet, so the jury is still out, but the proposals as they stood included the following elements: The right to suspend works comes only after a sum admitted as due remains unpaid, or following an adjudicator s decision; Payment Claims can be made under the contract, or under statute - only the latter activates the SOPL mechanism; Supply only contracts for plant and material would be included; Adjudication would last up to 55 days. However, should the parties agree, time can be further extended; After crystallisation of a dispute, the Claimant must issue a notice of adjudication within 28 days; The adjudicator can disregard any evidence or submission that was unknown to the responding party when the adjudication was issued; The adjudicator can resign if they decide it is not possible to determine the matter fairly in the time available. If as expected, this legislation is introduced to Hong Kong by 2017, the legal dynamic of the construction industry will be altered with the introduction of statutory adjudication, and we may expect to see the number of arbitrations fall as payment disputes are dealt with by adjudication. It will be important for all parties to construction contracts to be familiar with the processes of adjudication, and to have developed internal systems to ensure that they can operate within the tight time-frames that have been proposed. Partner Profile Ian Cocking Ian is the head of Clyde & Co s China construction group. He has over 26 years experience of negotiating and managing contracts, project administration and dispute management, and he has a comprehensive understanding of the construction industry in Hong Kong and across the wider APAC region. Ian has taken a key role in a diverse range of major construction and project development matters, regularly advising contractors, proprietors, financiers, consultants and insurers on their ongoing contractual relationships, risk management strategies, and forms of dispute resolution. Ian is considered a leading environmental specialist and has been recognised as one of the world s leading environment lawyers by The International Who s Who of Environment Lawyers Chambers Asia Pacific noted: Ian Cocking of Clyde & Co is noted as one of the most experienced people in town right now, and regarded by market sources as being particularly creative and knowledgeable on contentious construction matters. Ian is also recognised as one of the world s leading construction lawyers by the International Who s Who of Construction Lawyers He is currently a member of the Construction Industry Council task force on the use of NEC3 in Hong Kong, and has also been enrolled on the first round of adjudicator training courses in advance of the enactment of Hong Kong s Security of Payment Legislation. 4

5 Contacts Ian Cocking Partner, Hong Kong T: E: Gilbert Kwok Partner, Beijing & Hong Kong T: E: Phyllis So Counsel, Beijing & Hong Kong T: E: Dennis Wong Counsel, Hong Kong T: E: Clyde & Co Construction Newsletter December

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7 Clyde & Co 58th Floor, Central Plaza 18 Harbour Road Wanchai, Hong Kong T: F: Further advice should be taken before relying on the contents of this Newsletter. The information contained herein is for general guidance only and should not be treated as a substitute for specific advice. If you would like advice on any of the issues raised, please speak to any of the contacts listed. Clyde & Co All rights reserved. Clyde & Co CC December 2015