On 13 April 2016, Statutory Instrument no 165 of 2016 was signed, finally appointing the commencement date of the Construction Contracts Act 2013 (the “Act”). The Act will apply to construction contracts entered into after 25 July 2016 and will, for the first time in Ireland, introduce a statutory dispute resolution mechanism for construction contract disputes, through adjudication by an independent third party.
Scope of the Act
The Act applies to agreements to carry out or procure construction operations. Broadly defined, this includes a comprehensive list of works or advices including on construction, alteration, repair, maintenance, extension, demolition or dismantling of works ranging from buildings, road-works and utilities, to scaffolding and landscaping and painting. It excludes manufacture or delivery of building or engineering components or equipment, materials, plant or machinery (except where the contract also provides for their installation). It will also apply to agreements to carry out professional ancillary services including architectural, design, surveying, engineering or project management services.
The Act will apply irrespective of whether parties to a construction contract attempt to limit or exclude its application and/or whether the applicable law is Irish.
Exclusions from the Act
In addition to that noted above, the Act will exclude construction contracts:
- With a value below €10,000
- Between a State Authority and its partner in a PPP arrangement
- Relating to a residential dwelling with a floor area not greater than 200 sqm and where one of the parties will occupy the property as their residence
- Of employment nature
Changes to payment provisions
The Act will also introduce changes to payment provisions, as set out below:
- Interim and final payment mechanisms set out will apply to construction contracts including payment claim notices (unless already specified in the construction contract).
- “Paid when paid” clauses will be prohibited.
- Parties to construction contracts cannot withhold payment of money due unless they have responded in writing within 21 days to a payment claim notice.
- There will be a new limited statutory right to suspend work for non-payment until full payment is made (subject to requirements including serving notice on the defaulting party).
This is of particular relevance to the contractor/sub-contractor agreements.
The Act will introduce a statutory adjudication process for dispute resolution in Ireland. Under the Act:
- Parties can refer payment disputes to adjudication following 7 days notice.
- Adjudicator’s decisions must be reached within 28 days of referral, or 42 days with the referring party’s consent.
- An adjudicator’s decision is binding on both parties until the dispute is resolved through agreement, arbitration or litigation.
- Parties must therefore comply with an adjudicator’s decision, even if they object to it, while continuing to pursue the matter through arbitration or litigation.
- Adjudicators must act in good faith and impartially and can be appointed by agreement of the parties or from a statutorily appointed Panel, which has now been constituted. A statutory code of practice for conducting adjudication will shortly be published.
- Parties bear their own legal and other costs in connection with the adjudication.
The impact of the Act is likely to be far reaching within the projects and construction industry. Now that commencement of the Act is imminent, parties will need to familiarise themselves with the Act and its implications for construction contracts, particularly those relating to payments and dispute resolution.
Contributed by Cassandra Byrne and Jarleth Heneghan