The Construction Contracts Act, 2013 was enacted by Dail Eireann on 29 July 2013, over three years since Senator Feargal Quinn initiated the legislation by introducing a private members bill to Seanad Eireann in 2010. The Act will apply to all construction contracts entered into after a date specified by the Minister for Public Expenditure and Reform, which is yet to be announced1.
The term 'construction contract' is defined widely; the Act will apply not only to traditional building contracts and subcontracts, but also to professional appointments for architects and engineers etc. and contracts for landscaping, repair and maintenance.
The key aim of the legislation, which parties cannot contract out of, is to ensure prompt payment practices throughout the construction industry, which has suffered markedly throughout the latest economic recession. The Act seeks to achieve this in three main ways.
Mandatory payment provisions
The Act requires that all construction contracts (subject to limited exceptions, such as contracts with a value less than euro 10,000) include an adequate mechanism for determining the amount to be paid to a contractor; the period for interim payments; and when payments will fall due. Standard forms of construction contract used in Ireland generally set out payment provisions which, by and large, will comply with this requirement. However where a construction contract is silent on minimum payment provisions (or, in the case of subcontracts, includes longer payment periods than those set out in the Schedule to the Act) then the minimum terms included in the Schedule will be deemed to form part of the contract. It is worth noting that main contracts may include payment periods which exceed those periods included in the Schedule.
The Act also provides that where a payment claim notice is submitted and the amount is contested by the employer, the employer (or main contractor, in the case of a sub-contract) has 21 days to respond, setting out the amount that it proposes to pay and the reason/s why it differs from the amount claimed in a 'payment claim notice'. This notice must also set out the basis of the calculations used to arrive at the amount proposed to be paid. Where the parties cannot agree the payment amount by the payment due date, the employer must pay the amount stated in the response or withholding notice. In the meantime, the contractor may dispute the withholding notice by referring the matter to adjudication.
The Act also provides a fundamental protection, particularly relevant to subcontractors, by prohibiting 'pay when paid' clauses in construction contracts. Accordingly, even if a party higher up the contractual chain, such as a main contractor, has not been paid, this cannot be used as the basis for refusing to pay a subcontractor, save where the party further up the contractual chain is insolvent.
Entitlement to stop work for non-payment
The right of suspension for non-payment has now been put on a statutory footing. The Act allows a party which has not been paid by the date the payment falls due to suspend work, provided that a written notice has been delivered to the employer at least seven days before the proposed suspension is to take effect specifying the grounds upon which suspension is proposed. The Act ensures that the period of suspension of work for non-payment will be disregarded for the purpose of the construction programme i.e. the party who has downed tools will not suffer the consequences of delay. The period of suspension will be disregarded for both the suspending party and other contractors involved in the project whose works may be affected by the suspension of the other party. The right to suspend work ends immediately upon payment of the outstanding amount being made by the employer or when a notice of adjudication is served.
Statutory adjudication for payment disputes
Of particular significance is the introduction of a fast-track dispute resolution procedure through a statutory entitlement to refer disputes relating to payment to adjudication. Adjudication provides a speedy and cost-effective means of dispute resolution, with the decision of the adjudicator becoming binding unless and until it is overturned either by the courts or by an arbitrator, depending on the agreed dispute resolution procedure within the particular construction contract. This means that where an adjudicator decides that payment is due, such payment must be made up-front despite a referral to arbitration or the initiation of court proceedings. If the Irish courts follow the approach taken by UK courts, the enforceability of adjudicators' decisions will be strictly upheld, subject to very limited exceptions.
The Act gives a party to a construction contract the right to refer any payment dispute to adjudication 'at any time'. This entitlement cannot be restricted to post practical completion or by having to complete other steps under the contract beforehand. Once a dispute has crystallised, either party may (but is not bound to) refer the dispute to adjudication.
The adjudicator must reach a decision within 28 days of the date that a referral is made. This period can be extended by a further 14 days with the consent of the party referring the dispute or by a longer period by mutual consent. Most adjudications are likely to be over in a matter of weeks, in comparison to the existing situation in which a binding award or decision - whether through arbitration or the courts - can take anywhere between six months to three years or longer.
Conclusion
Whilst some in the industry have complained that the legislation has come too late to save many players, there is no doubt that this Act will be hugely important in providing protection for cashflow in the future and help to give the industry a much-needed boost as it moves toward recovery.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
