Contracts and performance
Standard contract forms
What standard contract forms are used for construction projects in your jurisdiction? To what extent do parties deviate from these standard forms?
There are different standard forms for private sector work and publicly funded works, as well as UK international forms which are frequently used, all with amendments to accord with the requirements of the client and project and the peculiarities of the Irish construction sector and Irish legislation.
In the private sector, a distinction is made between contracts for use for building works and those for engineering works.
For building works, the two principal forms of contract used for the appointment of the main contractor are issued by the Royal Institute of Architects of Ireland (RIAI). Both are in the traditional form, where the employer is responsible for the design of the works. The most recent edition was issued in 2017, although earlier editions of these contracts can still be found in use and it is quite common for bespoke amendments to be made.
The RIAI, in conjunction with the Construction Industry Federation, has also issued a form of subcontract for use with the RIAI standard form of contract. Again, it is quite common for bespoke amendments to be made.
Engineers Ireland, formerly the Institute of Engineers Ireland (IEI), developed standard forms of contract for use on civil engineering works based on the Institute of Civil Engineers forms used in the United Kingdom. There is both a third and fourth edition of this resource in circulation, although the third edition remains most commonly used. There is also a standard form of subcontract for use with the IEI third edition.
An alternative form of contract for use in the public sector, based on the public works contract and supported by the main industry bodies except the RIAI, is also being developed and is likely to be launched in the coming months.
The use of UK and international standard forms of contract is increasing, and is prevalent in certain sectors. The International Federation of Consulting Engineers form is probably the most commonly used international form in Ireland in the energy and water/wastewater sectors, but both the New Engineering Contract and Joint Contracts Tribunal forms are being increasingly used across various sectors.
In the public sector, a suite of standard forms were introduced in 2007 for publicly funded works, covering both civil engineering and building, and including both traditional and design and build forms, as well as forms for smaller projects. These standard form contracts are mandatory for all public works and works receiving up to 50% of their funding from public moneys. Two standard forms of subcontract have been produced for use with the public works forms of contract.
Definition of ‘construction work’
How is ‘construction work’ legally defined?
There is no specific definition of ‘construction work’, although different legislation does provide definitions for the application of the regulations in question. The Construction Contracts Act 2013 and the Safety, Health and Welfare at Work (Construction) Regulations 2013 have adopted similar definitions and define ‘construction work’ as “the carrying out of any building, civil engineering or engineering construction work”, subject to limited exclusions. The act also defines ‘construction contract’.
Are there any rules or restrictions on the governing law of construction contracts?
The parties to a construction contract are not generally subject to any restrictions or rules in relation to choice of governing law (subject to the caveat that local jurisdictional regulatory requirements will always be enforced and observed). It is not possible to contract out of the Construction Contracts Act 2013.
Are construction contracts subject to any formal requirements?
No, although the general rules relating to the execution of documents should be observed.
A construction contract can be executed under hand or as a deed. Where a document is to be executed as a deed by an Irish company it must be executed under seal. Subject to the provisions in a company’s constitution, the signatories need not be present when the seal is affixed.
Are there any mandatory or prohibited provisions in relation to construction contracts?
The Construction Contracts Act 2013 applies to most construction contracts in Ireland and parties are not permitted to contract out of its application. Under the act, any party can refer a payment dispute to adjudication at any time.
The act also requires that construction contracts provide for the amount of interim and final payments or for an adequate mechanism by which to determine when payments become due and in what amount. A payment mechanism must ensure that the parties can ascertain:
- the amount of each payment; and
- the timing of each payment.
Where a construction contract is silent on minimum payment provisions (or, in the case of subcontracts, includes less favourable conditions 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. Main contracts may include payment periods that exceed those periods included in the schedule.
The act prohibits ‘pay when paid’ clauses, except where the party further up the contractual chain is insolvent.
Can any terms be implied in construction contracts?
The general rules governing the implication of terms by the courts also apply to construction contracts. Terms can be implied to give effect to statutory requirements as well as the presumed intentions of the parties.
A number of implied terms specific to construction contracts also exist, many of which relate to design and quality and are closely aligned with the law of sale of goods. The existence or otherwise of specific implied terms within a particular contract will be judged on a case-by-case basis; where there is a comprehensive written contract, there may be very little scope for the implication of any terms.
Two implied terms commonly held to apply to construction contracts are:
- that an employer impliedly agrees to do all that is reasonably required on its part to bring about completion of the contract and not to hinder or impede the contractor in carrying out its obligations; and
- that a contractor will be required to carry out work with all proper skill and care in a good and workmanlike manner.
How are risks typically allocated between parties to construction contracts?
Risk allocation can vary quite widely and will significantly depend on the contractual structure chosen for delivering the project (eg, traditional or design build or other variations). The contractor will be expected to assume greater risk for various matters, including design and ground risk, if appointed under the design and build contract. As in the United Kingdom, fitness-for-purpose obligations and their implication into construction contracts has recently become a hot topic for negotiation.
Limitation of liability
How and to what extent can parties to construction projects contractually limit or exclude their liability?
Contractors sometimes request financial caps on liability or exclusions of certain heads of liability altogether, although many construction contracts have unlimited liability. The parties are generally free to agree whatever they choose in relation to excluding liability, and large construction contracts often contain a separate cap in relation to delay damages.
It is standard for consultants to seek to limit their liability under professional appointments. In addition to caps on liability and specific exclusions, a consultant might also seek to limit the time within which a claim can be brought. Net contribution clauses, often included in collateral warranties, are sometimes resisted by employers.
How are liquidated damages typically calculated and to which liabilities are they usually applied?
The traditional test is whether the amount payable on a breach is a genuine pre-estimate of the loss that the innocent party may incur in the event of a breach. If it is not, the clause is a penalty and will be unenforceable. This follows the principles laid down in Dunlop Pneumatic Tyre v New Garage (1915).
In Sheehan v Breccia (2016) the Irish High Court rejected the more lenient approach of the UK Supreme Court in Cavendish Square Holding BV v Talal El Makdessi (2015).
Liquidated damages are usually applied to delays and performance shortfalls.
How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?
The doctrine of force majeure does not exist in Ireland and force majeure clauses are not generally found in standard forms of contract. However, parties may include such provisions, and they are often found in bespoke or international contracts.
General performance obligations
What are the general performance obligations of contractors and employers?
Contractors must do the work they have been contracted for with all due proper skill and care, and in a good and workmanlike manner. If they must supply materials under the contract, there is generally an implied term that these materials will be reasonably fit for the purpose for which they will be used, and of good quality.
There is an implied warranty that the work as completed will be reasonably fit for purpose if:
- the employer makes the purpose of the works known to the contractor;
- the contractor holds itself out to perform such works; and
- the employer then relies on the contractor’s skill and judgement.
Contractors may also have an obligation to warn of any design defects which they believe to exist and which they should, as ordinarily competent contractors, suspect to exist. This obligation will depend on the nature of the contract and the surrounding circumstances.
The performance obligations of employers include doing all that is necessary to bring about the completion of the contract.
How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?
Extension of time mechanisms are included to allow time for completion to be extended when events occur for which the contractor is not responsible. Delays for which the contractor is responsible are generally linked to liquidated damages, which are normally fixed by the contract at a stipulated rate per day or week. In Ireland, any amount payable by way of liquidated damages must be a genuine pre-estimate of the loss that the innocent party may incur in the event of a delay.
Where the time extension mechanisms cannot be operated or are prevented from operating by the acts of the employer, time may become ‘at large’ and the contractor will be required to complete the works within a reasonable time.
To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?
Construction contracts contain detailed clauses that permit variations to the works (including omissions). Absent such provision, there is no common law right to this effect, and variations will not be permitted. Variations to the terms of the contract will be governed by the express terms of the contract (which may require variations to be in writing, for example).
What are acceptable grounds for the termination of a contract?
Termination rights are generally governed by the terms of the contract, typically for breach of material obligations or insolvency. A party may also have a common law right to terminate a contract, in addition to those stated in the contract, for:
- a repudiatory breach;
- a fundamental breach; or
- a breach of a condition.
Remedies for breach
What remedies are available for the breach of construction contracts?
The principal remedy will be damages; however, other remedies may arise under the express terms of the contract or at common law, including termination. It is usual for certain heads of damage resulting from a breach to be expressly excluded or limited.
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