Introduction
Exclusions to bill
Minimum payment periods
Payment claim notice and withholding notice
Suspension
Adjudication
Adjudicators
Comment
Introduction
In May 2010 Independent Senator Feargal Quinn introduced the Construction Contracts Bill 2010 to the Seanad (the upper house of the Irish Parliament).(1) Having passed through the committee and remaining stages, the bill was passed by the Seanad on March 8 2011. The bill was given rare priority status and is somewhat exceptional; it is most unusual for either the Dáil (the lower house) or the Seanad to pass a private member's bill.
Having been debated during its passage through the various stages of the Seanad, the bill has undergone a wide range of amendments since its introduction. Some of these amendments are arguably unhelpful in terms of the overall aim of the bill – that is, the improvement of payment practices in the construction industry by providing clarity, transparency and greater certainty in the payment of moneys due under construction contracts. For example, the right to suspend work for non-payment has been amended to provide that such suspension may not continue beyond 14 days, even if the contractor has not been paid (Section 5(3)). The amendments to the bill have prompted comment from industry stakeholders and further amendments will almost certainly be made during the passage of the bill through the Dáil. This update outlines some of the more significant amendments to the bill.
Exclusions to bill
The bill has been amended to exclude further contracts from its application. These include:
- where the value of the contract is less than €50,000 and one party is a state entity;
- where the contract is between a state authority and its private sector partner in a public-private partnership (PPP) arrangement;
- where the value of the contract exceeds €200,000 but relates to a residential dwelling with a floor area not greater than 200 square metres; and
- in any other case where the value of the contract is not more than €200,000.
Particular concerns have been expressed that the exclusion of contracts below a certain value will have the effect of removing a significant number of contractors from the intended scope of protection of the bill. Arguably, those potentially excluded are those most in need of the protection. Further, the rationale for the distinction between public and private sector contracts is unclear.
Minimum payment periods
The bill now provides that the statutory interim and final payment mechanisms specified in the schedule to the bill will apply to all construction contracts insofar as the contract is inconsistent with the bill. While some clarification in the drafting is required, the schedule introduces core provisions that will automatically be implied into a contract if the contract does not contain terms which satisfy the minimum payment requirements within the bill. The schedule will not, however, be implied to the extent that the contract contains more favourable provisions.
'Pay-when-paid' and 'pay-when-certified' provisions are expressly outlawed, except where, in respect of the ultimate paying party, winding-up proceedings have commenced, a receiver has been appointed or a petition has been presented for the appointment of an examiner or comparable insolvency provisions exist.
Payment claim notice and withholding notice
As currently drafted, the bill provides that the claiming party, no later than five days after the payment claim date, must deliver a payment claim notice specifying:
- the amount claimed;
- the period;
- the stage of work or activity to which the claim relates;
- the subject matter of the claim; and
- the basis of the calculation of the amount claimed.
If the paying party contests that the amount is due and payable, a response must be issued no later than 21 days after the payment claim notice specifying the amount proposed to be paid, the reason or reasons for the difference and the basis on which the amount to be paid is calculated. If the differences between the parties are not settled by the due date, any undisputed amount should be paid in any event. Where the reason for the difference arises from a claim by the paying party for loss or damage as a result of breach of a contractual or other obligation, or any other claim, the response should specify:
- when the loss or damage was incurred;
- how the loss occurred;
- the particulars of the loss or damage; and
- the portion of the difference attributable to each particular.
The rights or obligations of the parties under this section are to be additional to any conferred under the construction contract.
Suspension
The right to suspend work for non-payment has been amended to provide that a suspension may not continue after 14 days, even if the contractor has not been paid (Section 5(3)). There has understandably been severe criticism of this amendment as, in effect, it almost entirely undermines the protection which the right of suspension is intended to provide.
The right of suspension also arises by reason of a failure to comply with an adjudicator's decision, again on giving seven days' notice. However, this entitlement arises only if the adjudicator's decision is binding and does not apply if the decision has been referred to arbitration or proceedings otherwise initiated. Similar entitlements in relation to an extension of the time for completion in respect of any rightful suspension also apply.
Adjudication
The bill provides that the adjudicator's decision will be binding until the payment dispute is finally settled. However, the current drafting of the bill is flawed insofar as Section 6(12) provides that the decision of the adjudicator shall not be binding if the payment dispute is referred to arbitration or proceedings are initiated in relation thereto, unless the parties agree to accept the decision as finally binding. Accordingly, a party which is dissatisfied with the decision of the adjudicator will be able to thwart the adjudication process simply by issuing a notice to refer the dispute to arbitration or by issuing proceedings in the courts. As noted by several commentators, this effectively compromises the ability of the bill to ensure that cash flows under the contract, thus vitiating the central objective of the legislation. This problem clearly needs to be addressed as the bill continues its passage though the organs of the state.
Adjudicators
Section 8 of the bill now allows the minister to select persons to form a panel to act as adjudicators. In order to be eligible to be selected for the panel, a person must hold one of the following qualifications:
- an architect, quantity surveyor or building surveyor;
- a chartered member of the Institution of Engineers of Ireland;
- a barrister, solicitor or fellow of the Chartered Institute of Arbitrators; or
- a person with a qualification equivalent to any of those specified above, duly obtained in any other EU member state.
The minister is also given the option to prepare a code of practice governing the conduct of adjudications.
Comment
Since its introduction in May 2010, the Construction Contracts Bill has received widespread support, from both the previous and current governing administrations, and is also backed by the Construction Industry Federation (the Irish contractors' federation). Given the parlous state of the construction industry in Ireland, support for legislation which seeks to ensure greater certainty of payment for the various players within the industry is unsurprising. While there has been no official word as yet, given the support of the government, it is anticipated that the bill will progress to the Dáil in the coming months. Some of the amendments to the bill are significant in terms of their scope and effect, and it is hoped that some of the anomalies which exist in the current drafting will be dealt with during the bill's passage through the Dáil.
For further information on this topic please contact Tristan Conway-Behan at Arthur Cox by telephone (+353 1 618 0000), fax (+353 1 618 0618) or email ([email protected]).
Endnotes
(1) For details of the bill as it was introduced to the Seanad in May 2010 please see "New Construction Contracts Bill introduced".