Design and Build Agreement (Hong Kong)

A Design and Build Agreement in Hong Kong sets out the rights and obligations the parties agree to be bound by.

Design and build procurement is widely used in Hong Kong for both public sector and private sector projects. The Government of the HKSAR has issued its own General Conditions of Contract for Design and Build Contracts for public works projects, based on the principles of single-point responsibility and contractor-led design. Private sector projects in Hong Kong frequently use bespoke Design and Build Agreements, the FIDIC Yellow Book (Conditions of Contract for Plant and Design-Build, 2017 edition), or adapted versions of the Hong Kong Institute of Architects (HKIA) Standard Form of Building Contract modified for D&B procurement.

Under the Buildings Ordinance (Cap. 123), all building works in Hong Kong must be carried out in accordance with approved plans submitted to the Buildings Department by an Authorized Person (AP) — a registered architect, engineer, or surveyor under Cap. 123. In a Design and Build contract, the contractor typically appoints the AP from within its own design team, but the AP’s statutory duties under Cap. 123 are owed directly to the Buildings Department and cannot be overridden or substituted by the contractor’s contractual obligations to the employer. The contractor must confirm that the design produced by its team is developed, submitted, and approved by the Buildings Department before construction commences.

Design liability is a defining feature of D&B contracts in Hong Kong. Under a traditional procurement contract, architects and engineers are subject to the reasonable skill and care standard implied by the Supply of Services (Implied Terms) Ordinance (Cap. 457). Under a D&B contract, the contractor may be required to accept a higher fitness for purpose standard for the design — meaning the design must achieve the specified functional outcome, not merely reflect the work of a competent professional. Whether fitness for purpose applies depends entirely on the express terms of the agreement. D&B contractors should be aware that professional indemnity insurance policies typically cover reasonable skill and care (negligence) but may not cover a strict fitness for purpose obligation, creating a significant insurance gap.

All contract sums and payment amounts under a Hong Kong Design and Build Agreement are denominated in HKD. The Arbitration Ordinance (Cap. 609) governs arbitration proceedings arising from construction disputes in Hong Kong, and the Construction Industry Council (CIC) provides adjudication procedures under the Construction Industry Council Ordinance (Cap. 587). Section 3 of Cap. 609 adopts the UNCITRAL Model Law on International Commercial Arbitration as the basis of Hong Kong arbitration law. Section 20 of Cap. 609 governs the appointment of arbitrators and the constitution of arbitral tribunals for construction disputes. The Environmental Impact Assessment Ordinance (Cap. 499) may apply to large-scale D&B projects requiring environmental permits from the Environmental Protection Department before construction commences. The Fire Services Ordinance (Cap. 95) imposes requirements on building designs approved by the Fire Services Department, which must be satisfied before the Buildings Department issues an Occupation Permit under Section 21 of Cap. 123. Hong Kong imposes no GST or VAT on construction services, which simplifies cash flow calculations and cost reporting. Retention (typically 5-10% of the contract sum) is held by the employer during construction and released in two stages: at practical completion and at the end of the defects liability period.

A Design and Build Agreement in Hong Kong is needed whenever an employer wishes to engage a single contractor to deliver both the design and construction of a project under one contract, providing a lump sum price and a single point of responsibility for the entire built outcome.

Developers and building owners pursuing commercial, residential, industrial, or infrastructure projects in Hong Kong where programme certainty and cost certainty are priorities need a Design and Build Agreement. D&B procurement allows design and construction activities to overlap — a technique known as fast-tracking — which can compress the overall project programme significantly compared to traditional sequential design-then-build procurement.

An employer who lacks in-house technical expertise to manage separate architectural, engineering, and construction contracts benefits from D&B procurement because the contractor assumes responsibility for coordinating all design and construction disciplines. Any conflicts between the architectural design, the structural engineering, and the building services engineering are the contractor’s responsibility to resolve under the D&B contract.

Employers procuring specialised facilities — data centres, cold storage facilities, pharmaceutical manufacturing plants, or high-specification laboratory buildings in Hong Kong’s Science Park or Cyberport — where the contractor’s specialist technical knowledge and design capability are integral to achieving the required performance specifications use Design and Build Agreements to capture the contractor’s technical expertise as part of the contractual obligation.

Infrastructure projects — including highway works, utility installations, sewage treatment plants, and marine structures — under the Development Bureau’s or relevant government departments’ supervision in Hong Kong are commonly procured under the Government’s own D&B General Conditions of Contract, which impose rigorous design submission, review, and approval procedures consistent with Cap. 123 requirements.

Where an employer has appointed a project manager or employer’s agent rather than a traditional architect to administer the contract, a Design and Build Agreement is the appropriate contract form, since the employer’s representative role differs substantially from the traditional architect-as-contract-administrator role under the HKIA Standard Form.

A contractor who has been invited to tender for a design and build project by a Hong Kong developer or government body needs a Design and Build Agreement that clearly defines the scope of the employer’s requirements, the design submission and approval process under Cap. 123, the payment terms, and the performance standards expected.

A Design and Build Agreement in Hong Kong governed by the Buildings Ordinance (Cap. 123) and Hong Kong common law must include the following key elements to be commercially effective and legally enforceable.

Employer’s requirements: A detailed statement of the employer’s functional, performance, spatial, and quality requirements for the completed building or works. The ER should specify the building use and occupancy, floor areas, structural loadings, environmental performance targets, energy efficiency requirements consistent with any Hong Kong Green Building Council certification sought, compliance with Fire Services Department and Buildings Department requirements under Cap. 123, and the required completion date. The ER should be performance-based rather than prescriptive — specifying what the building must achieve rather than dictating how the contractor must achieve it.

Contractor’s proposals: The contractor’s response to the ER, demonstrating how the D&B contractor proposes to satisfy the employer’s requirements through its design approach, construction methodology, programme, and pricing. The CP typically include conceptual design drawings, outline specifications, a construction programme, and the contract sum breakdown. The CP must be assessed by the employer before award to confirm they adequately respond to the ER.

Document hierarchy: A clear statement of the order of precedence of contract documents in the event of inconsistency — typically: contract conditions, then ER, then CP. Where the CP fail to meet the ER, the ER take precedence and the contractor must bring the design into compliance without additional payment.

Design liability standard: An express statement of whether the contractor’s design liability is limited to reasonable skill and care (as implied by the Supply of Services (Implied Terms) Ordinance, Cap. 457) or extends to fitness for purpose. This is one of the most commercially significant provisions in the contract and directly affects the contractor’s insurance requirements and risk pricing.

Buildings Ordinance compliance: Provisions confirming the contractor’s responsibility for preparing and submitting building plans to the Buildings Department through an Authorized Person under Cap. 123, obtaining all statutory approvals including the Occupation Permit from the Buildings Department before handover, and complying with all requirements of the Director of Buildings and the Authorized Person throughout the project.

Contract sum and payment: The lump sum contract price in HKD (no GST/VAT), the payment schedule (typically monthly progress payments certified by the employer’s representative on the basis of the contractor’s progress claim), the retention percentage and release mechanism, and the mechanism for adjusting the contract sum for variations instructed by the employer.

Completion and extensions of time: The date for practical completion, the definition of practical completion (often the date on which the Occupation Permit is issued by the Buildings Department or such earlier date as the employer agrees), liquidated damages for delay (a genuine pre-estimate of the employer’s losses for each week of delay), and the extension of time mechanism for employer-caused delays and qualifying events.

Defects liability period: A 12-month defects liability period from practical completion, during which the contractor must rectify defects at no additional cost. The employer holds 50% of the retention until the Defects Rectification Certificate is issued at the end of the DLP. All rectification costs are in HKD with no GST/VAT.

Safety obligations: The contractor’s obligations under the Factories and Industrial Undertakings Ordinance (Cap. 59), the Construction Sites (Safety) Regulations (Cap. 59I), and the Occupational Safety and Health Ordinance (Cap. 509) to maintain safe working conditions on site throughout the construction period.

Dispute resolution: A tiered dispute resolution mechanism — senior management negotiation, then mediation under the Hong Kong Mediation Accreditation Association Limited (HKMAAL) or the HKIAC Mediation Rules, then arbitration under the HKIAC Administered Arbitration Rules with the seat of arbitration in Hong Kong under the Arbitration Ordinance (Cap. 609). Section 34 of Cap. 609 governs challenges to arbitral awards on grounds of jurisdiction. Section 81 of Cap. 609 sets out the grounds for refusing recognition or enforcement of arbitral awards in Hong Kong. Forms-legal.com provides this template as a starting point; a Hong Kong construction solicitor should be engaged for all significant D&B projects.