The Construction Contracts Act 2013 ("the Act") is now in operation, just over three years after its enactment on 29 July 2013.

The Act aims to ensure construction companies have regular cash flow and receive prompt payment, and also introduces an adjudication procedure for payment disputes. The provisions will apply to the majority of construction agreements entered into after 25 July 2016.

Definition of “Construction Contract”

The term “Construction Contract” is quite broadly defined as an agreement (whether or not in writing) where the contractor is appointed to:

  • carry out construction operations (defined as any activity associated with construction including construction, alteration, repair, extension, maintenance demolition or dismantling of buildings or structures forming part of the land);
  • arrange for construction operations to be carried out by one or more other persons, whether under subcontract or otherwise; or
  • provide labour.

The Act will also apply to agreements to provide services that are ancillary to construction contracts such as architectural, design, surveying work, engineering or project management services.

What does the Act do? 

The Act regulates payment arrangements under construction contracts. The key points to note are as follows:

  • Contracts must set out the amount of each interim and final payment, or a procedure to determine the payments, as well as set out the period for payment and the payment claim date.
  • Parties to a contract will no longer be permitted to withhold payment where they are waiting on payment from a third party under a separate arrangement.
  • Contractors must provide payment notices to the employer rather than a simple invoice, which must provide information including the amount due, the subject matter of the payment and the method of calculation of the sum due. The employer has 21 days to dispute the payment notice. 
  • Contractors may suspend works where they have not been paid in full by the payment date provided in the contract by giving 7 days written notice to the employer.

An adjudication procedure to be used in the event of a dispute is also provided for by the Act. The adjudicator’s decision is binding on both parties until the dispute is resolved or settled through another forum of dispute resolution such as arbitration or litigation. If there is a failure to comply with an adjudicator’s decision the Act allows for works to be suspended.

Does the Act apply to all contracts after 25 July 2016?

The Act will apply to most construction contracts including sub-contracts entered into after 25 July 2016 and cannot be contracted out of.  Exceptions will apply for:

  • A contract where the value of the agreement is below €10,000.
  • A contract relating to a dwelling which has a floor area not greater than 200 square metres and one of the parties occupies the property as their residence.
  • Employment contracts.
  • A contract that is between a state authority and its partner in a public private partnership arrangement.
  • A contract relating to the manufacture or delivery to a construction site of building or engineering equipment, materials, plant or machinery or components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security or communications systems save where the contract also provides for their installation.

Conclusions

Due to the broad definition of construction contracts, the Act will have a wide impact. As the market continues to improve in Ireland, it will be important that parties to such contracts understand the implications of the Act and comply with its requirements.