Tag: 2016

Working in Republic of Ireland? Are you ready for the changes?

The construction industry in Ireland is about to go under its biggest change in this generation. Is your business ready for these changes and are your staff equipped to manage these changes? If not the consequences could be dire!

payment

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What is happening?

On the 25th July 2016 The Construction Contracts Act 2013 came into force across Ireland and it will bring significant changes to how you apply for payment and resolve disputes. The impact of the new legislation cannot be understated. This Act will apply to the vast majority of construction contracts regardless of whether they are in writing or not and you cannot contract out of the Statutory Provisions Act.

What changes?

No pay when paid – Pay when paid is no longer permissible. For example payment owing to a subcontractor cannot be made on the condition that the main contractor receives payment from the employer.

New payment mechanism – Construction contracts must contain “adequate mechanisms” for determining how much is due and determining when that amount is due. The Act also imposes maximum periods of payment for subcontractors which are set at 30 days.

Payment Claim Notice – whatever procedures both contractors and subcontracts are using for applying for payment currently should be replaced with a Payment Claim Notice. The legislation provides that a valid Payment Claim Notice must contain;

  • Details of the amount being sought;
  • The period, stage or activity to which the payment relates;
  • The subject matter of the claim; and
  • The basis upon which the amount sought has been calculated.

For this notice to be valid the Payment Claim Notice must be issued within 5 days after the payment claim date.

Withholding Notice – the payer must decide within 21 days whether or not it is going to pay the full amount claimed, if not the payer must issue a withholding notice in accordance with the information detailed within the Act. If this notice is not issued in accordance with the Act the party seeking payment will be entitled to the full amount detailed on the Payment Claim Notice without any right to set-off or abatement.

Dispute Resolution – a party to a construction contract, as defined under the Act, will have a new right to refer a payment dispute relating to payment to adjudication at any time, this is regardless of any other dispute resolution mechanism detailed within the contract. The decision of the adjudicator will be binding on the parties until an arbitrator or a court determine otherwise.

What do you need to do?

  1. Provide training to key staff on the payment provisions of the Act in order that they fully understand the new regime.
  2. Provide training to key staff to gain a better understanding of the adjudication process
  3. Amend terms and conditions to ensure compliance with the Act
  4. Prepare pro forma compliant Payment Claim Notice
  5. Prepare pro forma compliant withholding notices and set up processes and procedures to ensure they are issued when required
  6. Implement an early warning system for disputes

Contact Elemental to arrange a FREE Consultation on the potential impact on your business.

Telephone: 1800 938833

NEC3 – Who is at Risk?

The risk register is a prominent feature of the NEC third edition, and is intended to reinforce the pro-active approach to the management of risk which the contract seeks to encourage. The Contractor should proceed with a degree of caution in relation to the risk register, as the risk register unless expressly incorporated via an additional Z clause is not a contract document, as such the listing of individual risks on the register has no bearing on either party in relation to that individual risk.

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The term risk has numerous meanings depending on which context it is being used, in the terms of the NEC a risk is an uncertainty – “an event or a class of events which might happen”. Uncertainties in a project are things, which if they occur might make the project more difficult or might make the project fail in its objectives such as additional costs or a failure to meet completion.  Each risk is carried by one organisation in the supply chain for the project.  “Carrying” a risk means that, if the event identified as a risk was to occur, the organisation carrying that risk would be responsible for all costs associated with that risk and would also be responsible for dealing with the consequences of any resulting delay.  This sounds good in theory, however Clause 80 lists all the Employers risks and makes reference to any additional Employers risks stated in the Contract Data.  Clause 81.1 states “From the starting date until the Defects Certificate has been issued, the risks which are not carried by the Employer are carried by the Contractor”. So, unless there are additional Employers risks listed in the Contract Data, the Contractor will carry the burden of all risks, other than those listed within clause 80 regardless of any risk allocation identified on the risk register.

As such the Contractor will be responsible for the costs and the consequence of any delay if the risk is not carried by the Employer under clause 80 or is not listed within the Contract Data Part 1 as an additional risk, regardless of whether or not he is the carrier of that risk on the risk register.

It is important to remember that the risk register does not replace the Early Warning system for the early identification of risks. Other than at clause 16 there is no specific provisions elsewhere in the contract in relation to the risk register and no particular contractual consequences flow from a risk being identified in the risk register or indeed the absence of a particular risk in the risk register.  As such the risk register is intended to be a practical aid to the parties in managing risks as they arise during the course of the project and is maintained and amended, following agreement by the Project Manager.

Statutory Payment & Adjudication procedures in 2016?

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.

contruction payment law changes 2016

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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;

  1. 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.
  2. 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?

Payment

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.

Adjudication

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.