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Group Briefing
August 2013
key contacts
For further information on any of the
items discussed, please contact either of
the partners listed below or your usual
Arthur Cox contact.
niav o’higgins
Partner
+353 1 618 0314
[email protected]
tim kinney
Partner
+353 1 618 0300
[email protected]
construction & engineering
The Construction
Contracts Act 2013:
Improved cashflow and
statutory adjudication for the
Irish construction industry
The Construction Contracts Act, 2013
was enacted by Dail Eireann on 29 July
2013, over three years since Senator
Feargal Quinn initiated the legislation
by introducing a private members bill
to Seanad Eireann in 2010. The Act
will apply to all construction contracts
entered into after a date specified by the
Minister for Public Expenditure and
Reform, which is yet to be announced1.
The term ‘construction contract’ is
defined widely; the Act will apply
not only to traditional building
contracts and subcontracts, but also to
professional appointments for architects
and engineers etc. and contracts for
landscaping, repair and maintenance.
The key aim of the legislation, which
parties cannot contract out of, is to
ensure prompt payment practices
throughout the construction industry,
which has suffered markedly
throughout the latest economic
recession. The Act seeks to achieve this
in three main ways.
Mandatory payment provisions
The Act requires that all construction
contracts (subject to limited exceptions,
This document contains a general
summary of developments and is not
a complete or definitive statement of
the law. Specific legal advice should
be obtained where appropriate.
It is not expected that the Minister will publish a
date until the Code of practice governing the conduct
of adjudications required by the Act has been
prepared and a panel of adjudicators established,
which is expected to take upwards of six months.
1
such as contracts with a value less
than euro 10,000) include an adequate
mechanism for determining the
amount to be paid to a contractor;
the period for interim payments; and
when payments will fall due. Standard
forms of construction contract used
in Ireland generally set out payment
provisions which, by and large, will
comply with this requirement. However
where a construction contract is silent
on minimum payment provisions (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 in the
Schedule will be deemed to form part of
the contract. It is worth noting that main
contracts may include payment periods
which exceed those periods included in
the Schedule.
The Act also provides that where a
payment claim notice is submitted
and the amount is contested by the
employer, the employer (or main
contractor, in the case of a sub-contract)
has 21 days to respond, setting out the
amount that it proposes to pay and the
reason/s why it differs from the amount
claimed in a ‘payment claim notice’. This
notice must also set out the basis of the
calculations used to arrive at the amount
proposed to be paid. Where the parties
cannot agree the payment amount by
the payment due date, the employer
construction & engineering
2 | arthur cox
The Construction Contracts Act 2013:
improved cashflow and statutory adjudication
for the Irish construction industry
must pay the amount stated in the
response or withholding notice. In the
meantime, the contractor may dispute
the withholding notice by referring the
matter to adjudication.
The Act also provides a fundamental
protection, particularly relevant to
subcontractors, by prohibiting ‘pay when
paid’ clauses in construction contracts.
Accordingly, even if a party higher up
the contractual chain, such as a main
contractor, has not been paid, this cannot
be used as the basis for refusing to pay a subcontractor, save where the party further up
the contractual chain is insolvent.
Entitlement to stop work for non-payment
The right of suspension for non-payment
has now been put on a statutory footing.
The Act allows a party which has not
been paid by the date the payment falls
due to suspend work, provided that a
written notice has been delivered to the
employer at least seven days before the
proposed suspension is to take effect
specifying the grounds upon which
suspension is proposed. The Act ensures
that the period of suspension of work for
non-payment will be disregarded for the
purpose of the construction programme
i.e. the party who has downed tools will
not suffer the consequences of delay. The
period of suspension will be disregarded
for both the suspending party and other
contractors involved in the project whose
works may be affected by the suspension
of the other party. The right to suspend
work ends immediately upon payment
of the outstanding amount being made
by the employer or when a notice of
adjudication is served.
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Statutory adjudication for payment disputes
Conclusion
Of particular significance is 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.
Whilst some in the industry have
complained that the legislation has come
too late to save many players, there is
no doubt that this Act will be hugely
important in providing protection for
cashflow in the future and help to give
the industry a much-needed boost as it
moves toward recovery.
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.
The adjudicator must reach a decision
within 28 days of the date that a referral
is made. This period can be extended
by a further 14 days with the consent of
the party referring the dispute or by a
longer period by mutual consent. 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.
Dublin
+353 1 618 0000
[email protected]
Silicon Valley
London +44 207 823 0200
+1 650 943 2330
[email protected]
[email protected]
Belfast
+44 28 9023 0007
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New York
+1 212 782 3294
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