Kevin Kelly Government Construction Projects & Capital Spend Conference 2016 Wednesday 11th May 2016 Royal Marine Hotel, Dun Laoghaire, Co. Dublin

Introduction  Application of the Act  Adjudication provisions  Payment provisions  Discussion points

Enactment  Enacted 29 July 2013  Commences on 25 July 2016  Applies to contracts entered into after that date (Section 12(2))

“Construction Contracts”  Where the executing party is engaged for any one or more of: - carrying out construction operations - arranging for the carrying out of construction operations - providing the executing party own labour or the labour of others for the carrying out of construction operations  “Construction operations” is very widely defined  Applies to professional services contract

“Construction Contracts” cont’d  The Act does not apply to manufacture or delivery to a construction site of: - building or engineering components or equipment - materials, plant or machinery - components for systems of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection or for security or communications systems  Act will apply where the above are supplied under a contract which also provides for their installation

“Construction Contracts” cont’d  Other exclusions - contracts below €10,000 - private residential properties less than 200 square metres - contracts of employment - PPP contracts

“Construction Contracts” cont’d  The Act will apply regardless of whether:- - the law of the contract is Irish law - the parties seek to limit or exclude its application

Adjudication  Section 6: The right to refer payment disputes to adjudication  Section 6(1): Right to refer any dispute relating to payment arising under a construction contract  English Act relates to a “dispute” not a “payment dispute”

Section 6(2)  Right to refer the dispute “at any time”  Implications for the other contracting party?

Timelines  Section 6(3): Within 5 days of notice of intention to refer, agree an appointment of adjudicator  Section 6(4): Failing agreement on the appointment, an appointment will be made from the panel selected by the Minister  Section 6(5): Dispute must be referred to the Adjudicator (and at the same time a copy to the other party) within 7 days of the appointment

Timelines  Section 6(6): Adjudicator to reach decision within 28 days of the referral or such longer period as is agreed  Section 6(7): Adjudicator may extend the period of 28 days by 14 days with consent of the referring party  Code of Practice “…or such longer period as is agreed by the parties”

Impartiality  Section 6(8): Adjudicator to act impartially and comply with Code of Practice  Code of Practice requires Adjudicator to –observe the “principles of procedural fairness” –act impartially and independently –act without bias

Taking the Initiative  Section 6(9): Adjudicator may “take the initiative” in ascertaining the facts and the law and may deal with several payment disputes arising under the same or related Construction Contracts  Code of Practice –Request supporting documents, submissions –Meet jointly –Site visits –Give directions as to timetable

A Binding Decision/ “Rough Justice”  Section 6(10):“The decision of the Adjudicator shall be binding until the payment dispute is finally settled by the parties or a different decision is reached on the reference of the payment dispute to Arbitration or in proceedings initiated in court in relation to the adjudicator’s decision”  Carillion Construction Ltd v. Devonport Royal Dockyard Limited [2005] o “The need to have the right answer has been subordinated to the need to have an answer quickly”  Pay now, argue later

Enforcement  Section 6 (11) o “Enforceable either by action or, by leave of the High Court….”  Rules of the Superior Courts due to be amended to deal with the Act

Exclusion of Liability  Section 6(13): Correcting a clerical/typographical error  Section 6(14): Adjudicator not liable for an act or omission unless in bad faith

Costs  Each party bears own costs  Fees, costs and expenses of the Adjudicator: –In accordance with the decision of the Adjudicator –If an Adjudicator resigns, parties are jointly and severally liable –If parties revoke the appointment, parties are jointly and severally liable  Code of Practice: –“Reasonable” adjudicators fees having regard to the amount, complexity and time required

Challenges to Decisions  Jurisdiction - Not a “construction contract” - Not a “payment dispute” - Dispute not crystallised - Dispute determined different to one referred - Decision not reached in time

Challenges to Decisions  Breach of Natural Justice - Consult with both parties - Give party sufficient time to respond - Take submissions into account

Payments under the 2013 Act  Effect of the payment provisions of the Act on contracts between: –Employer/Consultant –Employer/Main Contractor –Main Contractor/Sub-Contractor –Consultant/Sub-Consultant  Special arrangements for sub-contracts and sub- consultancy agreements

Payments – Relevant Sections  Section 3: Payments under Construction Contracts  Section 4: Payment claim notices  Schedule to Act: Provisions to Apply to Matters Regarding Payments  Section 5: Suspension

Construction Contracts Act 2013 Payments  In any of the typical contract relationships how do these Sections and the Schedule fit in with: –Request for evaluation –Evaluation of amount due –Request for payment of the amount evaluated as due –Response to that request

Amount of Interim Payment  Section 3(1)  A construction contract must provide for –the amount of each interim payment, and –the amount of the final payment or for an adequate mechanism for determining those amounts  What is “an adequate mechanism”?  Parties to all tiers free to agree the mechanism - (Schedule has default mechanism if not agreed)

Payment Claim Date and Payment Period  Section 3(2): A construction contract shall provide (for each amount due) –the payment claim date, or an adequate mechanism for determining the payment claim date, and –the period between the payment claim date and the date on which the amount is due.  Parties to a main contract or a consultancy contract free to agree payment claim date and period

Schedule Schedule to the Act provides that in a Sub- Contract (includes a sub-consultancy contract)  First payment claim date 30 days after the commencement date of the contract  Next payment claim date 3o days after that and every 30 days thereafter up to substantial completion  30 days after date of final completion  Payment due 30 days after the payment claim date

Definitions  “payment claim” means a claim to be paid an amount under a construction contract  “payment claim date”, in relation to a construction contract, means the date when a payment claim in relation to an amount due under the construction contract is required to be made

Schedule – Default Position Para 4: Interim payment is difference between a.aggregate of gross value (determined in accordance with the construction contract) of the work done »plus additional amounts in the interim payment, »less deductions provided for (e.g. retention, LADs) and b.payments already made

Payment Claim Notices – Section 4 Section 4  Applies where, not later than 5 days after the payment claim date, an executing party to a construction contract delivers a payment claim notice to other party or another person specified under the contract

Payment Claim Notices – Section 4(2) Section 4(2) - Payment claim notice must contain details of  the amount claimed (even if zero)  the period, stage of work or activity to which the payment claim relates  the subject matter of the payment claim, and  the basis of the calculation of the amount claimed.

Longer than usual payment periods  If an Employer requires a longer payment period e.g 60 days, how can the Main Contractor/Consultant protect own cashflow?  Payment claim notice from Sub-Contractor/Sub- Consultant every 30 days but can be for zero  Include an “adequate mechanism” for initial payments (e.g milestone) so that entitlement to payment under the Sub-Contract/Sub- Consultancy does not arise until later than comparable payment under the main agreement

Response Notices – Section 4(3)  Detailed provisions as to what the response notice should contain  Explain why a lesser or no amount is being paid

Response to Payment Claims Notices  If no response to payment claim notice –summary proceedings? –Suspension –adjudication  If response but not paying (all or part) –“pay when paid” (insolvency?) –suspension –adjudication

Response - “pay when paid”  “pay when paid” –A clause that provides that payment or timing of payment is conditional on the making of a payment by a third party is ineffective –Except after occurrence of an insolvency event of a third party (s.3(6)) –Contractors still have the right to include such a clause in the contract – only effective in limited situations

Non Payment - Suspension  Section 5  Notice with required information to be given  Work may not be suspended –after payment of the amount due, or –after notice of adjudication served by either party relating to payment claimed

Discussion Main Contractors should seek to include a “pay when paid” clause in the sub-contract Main Contracts do not need to be adjusted so as to be made back to back for the 30 day payment period for Sub-Contractors Is the “Payment Claim” in the context of standard forms effectively the invoice submitted with the copy certificate? Traditional payment application/certification process unaffected by the Act?

Discussion  If Main Contractor/Consultant dissatisfied with the amount evaluated as due (e.g amount certified) – right to adjudicate  If Main Contractor/Consultant receives no response to payment claim notice - right to issue summary proceedings?  If Main Contractor/Consultant dissatisfied with the amount proposed to be paid after payment claim - right to adjudicate or suspend

Scope for Amendment of Contracts ?  Limited by specific provision of Act  Define crystallisation of a “dispute”?  Payment/all disputes?  Define “value of the contract”?  Conciliation: - before/after adjudication? - dead?

Practical Issues  Records - Up to date - Accessible quickly  Resources?  Choice of Adjudicator ?  Awareness of time lines

Kevin Kelly Government Construction Projects & Capital Spend Conference 2016 Wednesday 11th May 2016 Royal Marine Hotel, Dun Laoghaire, Co. Dublin