Contracts and insurance

Construction contracts

What standard contract forms are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

The most commonly used standard-form construction contracts are as follows:

  • the Conditions of Building Contract issued by the Royal Institute of the Architects of Ireland (RIAI) (together with a subcontract form); and
  • the Engineers Ireland conditions of contract for works of civil engineering construction (together with a form of subcontract).

 

These conditions of contract are, particularly with respect to larger projects, usually heavily amended through a schedule of amendments to reflect risk profiles currently acceptable in the market and to reflect legislative changes. In a design-and-build scenario, a further set of amendments can be incorporated into these conditions to facilitate a design-and-build procurement route.

In the case of more complicated projects – for example, in the pharmaceutical, information technology and energy markets – there are a number of other types of contracts that are commonly used. For example:

  • the International Federation of Consulting Engineers suite of contracts, which includes a build-only form of contract, a design-and-build mechanical and electrical contract and a turnkey or engineering, procurement and construction contract (more commonly known as FIDIC contracts);
  • management contracts (which, in Ireland, are typically based on the RIAI form);
  • the Institution of Engineering and Technology MF/1 form;
  • New Engineering Contract forms; and
  • Joint Contracts Tribunal forms.

 

For public sector works, the Government Construction Contracts Committee (GCCC) has produced a suite of standard documents (including build-only and design-and-build (for both building works and civil engineering works) contracts, a site investigation contract, a framework agreement, a minor works contract, a short-form contract and a contract for early collaboration) for use in public-sector construction procurement.

The most commonly used design-only contracts in Ireland are those contracts that are produced by the regulatory bodies for disciplines such as mechanical and electrical consultancy, civil engineering and architecture, together with bespoke forms. When used, especially in the context of larger projects, these contracts are often heavily amended. In addition, the GCCC has produced a design-only contract for use in public-sector projects.

The language used for standard form construction contracts is English. The choice of law is typically Irish law and the venue for dispute resolution is typically Ireland.

A new private-sector contract, for use in relation to medium to large-scale construction projects and for projects that have been designed by the employer, has recently been introduced in the market. This private-sector contract is in its infancy and so untested to date.

Payment methods

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

The Construction Contracts Act 2013 expressly states that a construction contract (as defined under the Act) should provide for a payment claim date (or an adequate mechanism for determining a payment claim date) for each amount due under the construction contract, and the period between the payment claim date for each amount, and the date on which the amount is due.

Contractors and subcontractors are generally paid monthly and typically by electronic payment. They are usually paid based on the progress of the works. Designers and contractors can be paid monthly or based on the achievement of agreed milestones.

Contractual matrix of international projects

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants?

Projects are typically procured on a build-only or design-and-build model.

In the build-only model, the design and construction elements of the project are separated. In this scenario, the owner engages the contractor to carry out the construction and separately appoints design consultants, who will feed design instructions to the contractor.

In a design-and-build scenario, the construction and design elements are combined so that the owner has a single contract with the main contractor, who then appoints design consultants and sub-consultants.

In both scenarios, if it is a large project the contractor will usually engage subcontractors to carry out works packages (such as waterproofing or lifts).

For more complicated builds or projects that are very time-sensitive, management contracting, construction management, mechanical and electrical and turnkey or engineer, procure and construction (EPC) forms of construction contracts can be used. The key feature of an EPC or turnkey contract is that there is a relatively onerous risk transfer to the contractor of price, time and quality.

PPP and PFI

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

The State Authorities (Public Private Partnership Arrangements) Act 2002 (as amended) provides the legislative basis for PPPs in Ireland. The use of PPPs is subject to an institutional framework and various guidelines at both national and EU level. The National Development Finance Agency (NDFA) and the Department of Public Expenditure and Reform’s Central PPP Unit and PPP Steering Committee play key roles in the PPP process in Ireland. The Central PPP Unit provides guidance, technical notes and the policy and legislative frameworks underpinning the use and procurement of PPPs. The Central PPP Unit also chairs the PPP Steering Committee which is responsible for project selection, establishing milestones and delivery targets and preparing project reports for the Irish government. The NDFA generally acts as financial advisor to the state in respect of PPP projects and public investment projects valued at over €100 million and procures and delivers PPPs in most sectors, albeit that in some sectors the sponsoring state body may not use the NDFA (eg, in relation to certain transport projects, Transport Infrastructure Ireland procures its own PPPs).

In 2006, the NDFA developed a template PPP Project Agreement (based largely on the UK PFI model). This template is not mandatory for use in PPP projects but it generally forms the foundation of Irish PPP project agreements with adaptations for individual projects. To be classified as a PPP contract, a contract must be for a minimum of five years, and there is no upper limit. Generally, PPP contracts tend to be for long periods (typically 20-25 years).

For further information on the Irish government's approach in relation to the evaluation and procurement of PPPs, refer to the Department of Public Expenditure and Reform’s 'Guidelines for the use of Public Private Partnerships (PPP)'.

Joint ventures

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

The liability in a joint venture will depend on the corporate structure used. The members of a consortium may allocate liability and responsibility among themselves as a matter of contract. The apportionment and allocation of liability and responsibility will depend on the structuring of the joint venture and its relevant organisation documents.

Members of a consortium entering into a joint venture arrangement can choose from a variety of structures, including the following:

  • private company limited by shares or a Designated Activity Company;
  • partnership;
  • Investment Limited Partnership (ILP);
  • Irish Collective Asset-management Vehicle (ICAV); and
  • unincorporated joint venture.

 

Private company limited by shares or Designated Activity Company

If the joint venture is structured as a private company limited by shares or a designated activity company, the liability of members is limited to the amount, if any, unpaid on the shares they hold. A shareholders’ agreement, together with guarantees from shareholders, is typically used to further apportion liability and responsibility between the consortiaummembers or joint venture partners.

 

Partnership

If the joint venture is structured as a partnership, each partner is jointly liable for the debts and obligations of the partnership and jointly and severally liable for the wrongful acts and omissions of his or her co-partners. 

A limited partnership is governed by the Limited Partnerships Act 1907. There must be a general partner (GP) and a limited partner (LP). This liability of the limited partner is limited to the amount of its capital contribution under the limited partnership agreement between the GP and LP. The general partner has unlimited liability; as a result, GPs tend to be incorporated as limited liability companies.

 

ILP

In addition, Ireland’s partnership laws have been updated to modernise Ireland’s ILP. The ILP is a regulated fund and is an alternative to vehicles such as the Luxembourg SCSp or the Cayman Islands Exempted Limited Partnership. One of the unique features of an ILP compared to other jurisdictions is its ability to be structured as an umbrella fund with separate sub-funds, with segregated liability between those sub-funds. It is possible to provide for different investment strategies or LPs within each of the sub-funds. In general, an LP’s liability will not exceed the amount of its capital contribution or commitment to the ILP unless the LP participates in the conduct of the business of an ILP.

 

ICAV

Entities could also protect their investment in a joint venture through setting up an ICAV. This form of investment vehicle was created under the Irish Collective Asset-management Vehicles Act 2015. An ICAV is not subject to certain obligations that a limited company would be, such as the requirement to hold an annual general meeting.

Similar to the ILP, an ICAV can be established as an umbrella structure with segregated liability between sub-funds, protecting the investment within each sub-fund. This allows for separate investors, separate pools of assets and differing investment strategies to protect their liability and responsibility.

 

Unincorporated joint ventures

In our experience, joint venture partners may also choose to use an 'unincorporated' joint venture structure, whereby the joint venture partner entities execute the relevant project documentation and enter into a separate joint venture or consortium agreement to apportion liability and responsibility (which is typically dealt with in a shareholders' agreement in an 'incorporated' joint venture).

Tort claims and indemnity

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

Parties are generally free to contract in whatever way they choose, including excluding liability for negligence. However, it is not possible to exclude liability for death or personal injury resulting from negligence. Clauses that seek to exclude liability (exclusion clauses) are interpreted strictly by the courts. This is by virtue of the contra proferentem rule that applies in this jurisdiction, which states that any ambiguity in the meaning of an exclusion clause will be interpreted against the drafter of the contract. Therefore, exclusion clauses must be carefully drafted. Parties should expressly use the term ‘negligence’ as distinct from other forms of liability.

Liability to third parties

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity?

Unlike the regulatory and legal regimes in the United Kingdom and the United States, parties are unable to avail of a benefit of any contractual right if they are not a party to the contract. This is because of the doctrine of privity in this jurisdiction, which prevents a contract from being enforceable in favour of or indeed against someone who is not a party to that contract. For a third party to receive a benefit, the claimed benefit must be independent or collateral to the main contract. This is typically done through collateral warranties with third parties (eg, tenants, purchasers or funders).

Insurance

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards? Does the local law limit contractors’ liability for damages?

Irish statute law does not require specific insurances in relation to construction projects, save for motor vehicle insurance where appropriate. However, construction projects will typically involve some or all of the following insurances:

  • insurance of the project works (typically referred to as ‘all risks’ insurance), taken out by either the contractor or the employer to cover loss or damage to the works or project materials;
  • employer’s liability insurance, taken out by the contractor to cover injury to or the death of its employees during the course of a construction project;
  • public liability insurance, taken out by the contractor to cover third-party claims in relation to personal injury, death or injury to third parties and property damage (other than damage to the works); and
  • professional indemnity insurance, taken out by any party with design responsibility to cover design liability.

 

Environmental liability can also be dealt with by insurance products in this jurisdiction. A contractor’s liability for damages is a matter for commercial negotiation between the parties involved, but note that for liquidated damages for delay to be enforceable they must represent a genuine pre-estimate of the loss (and not be a penalty). The law does not limit contractors’ liability for damages.

More recently, the ability for parties to obtain cover for professional indemnity insurance at the required levels has become very difficult and many contracts now include 'commercially reasonable rates' language to allow for contractors to maintain insurance at the best rate obtainable where the required rate cannot be obtained at commercially reasonable rates.

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The information in this chapter was verified between April and May 2022.