Are you aware of the Statutory Payment & Adjudication procedures due in 2016?
Construction Contracts Act
Given the benefits that the Northern Ireland construction industry has gained from the Construction Act 1996, it does not come as a surprise that the Republic of Ireland would want and indeed require a similar piece of legislation; this is where the Construction Contracts Act 2013 comes into play. Dr Nael Bunni has been appointed as the Chair to the Minister’s Appointments Panel and some 30 adjudicators from Ireland and the UK have taken the posts in the first panel. Parties to a contract may stipulate the use of an alternative nominating body such as SCS or CIArb who have their own panels. The final draft of the Code of Practice is imminent and once this is in place the Commencement Order will give effect to the legislation.
As a company that has addressed payment issues within the construction industry for a considerable period we believe that although these statutory provisions are not perfect, this legislation should be embraced and will make a difference.
Knowledge is power! We would advise all stakeholders in the construction industry to gain some knowledge of how the changes will affect their business and what additional entitlements and/or obligations they will have under the new Act. The Act is mandatory and therefore parties to a relevant construction contract cannot opt out of these procedures. Set out below are a few of the headline changes that the industry must become accustomed to and have proper awareness of. The Act defines those construction contracts and construction operations before going on to set out the payment regime, right to suspend for non-payment and adjudication.
Construction Contracts and Construction Operations
Although the definition of a Construction Contract and Construction Operation is relatively wide, the two most significant issues that may fall outside the Act are;
- A financial minimum: contracts valued at less than €10,000 will not be a construction contract for the purposes of the Construction Contracts Act 2013.
- Owner-occupied dwellings: the Construction Contracts Act 2013 will not apply where the contract relates to a dwelling and the floor area of the dwelling is not greater than 200 m2 and the employer does or intends to occupy the property.
It is entirely unclear why the legislators decided to deprive those parties whose contract is worth less than €10,000 of its right to a mandatory and structured payment mechanism and right to adjudication. In addition, there may be instances where the financial threshold for defining a construction contract is called into question, for example, if as a result of variations and or loss and expense the final account value exceeds this €10,000 threshold that was originally tendered?
The Act requires that all construction contracts; subject to them fulfilling the requirements both in terms of a construction contract and construction operations as mentioned above, include an adequate payment mechanism. The re-drafting of many standard and government contracts is well underway to capture the changes under this Act. However, where the contract is silent, 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 will be deemed to form part of the contract. This is highly significant and we must stress you should all review your subcontract terms and ensure adequate and compliant payment periods.
From a personal point of view, I note and welcome that the legislation closes the dreaded “pay-when-paid” defence but have failed to address the “pay-when-certified” loophole. This caused many issues in the UK and was addressed as part of recent amendments to its Act.
The headline grabber of the new Act is undoubtedly 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.
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.
We could discuss the benefits of this resolution process at length and have recently developed a handy guide for the process, we will seek to keep you informed at some level but must stress that you should seek competent advice before commencing any action under the new Act. Some commentators on the Act speak of ways to frustrate the process or a lack of preparedness of our courts, I believe that such tactics and talk will only result in those representatives not acting in the best interest of their client in seeking a fast and effective resolution.