Construction Contracts Bill 2010: Second Stage.

I move: "That the Bill be now read a Second Time."

I welcome the Minister of State, Deputy Mansergh. I am pleased to present the Construction Contracts Bill to the House.

This came about from a contact I got last month from Mr. Seán Gallagher, better known from "Dragon's Den" but also from Smarthomes, who drew my attention to a problem of which I had not been quite aware. He explained the difficulty that presented and that is where the Bill has come from.

The main purpose of this Bill is to provide for a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due to contractors must be given. Otherwise, payments must be made in full and-or the payee may suspend the provision of works and-or services under the construction contract until payment is made in full.

The Bill will improve payment practices in the construction industry by providing clarity and transparency in the payment of moneys due in construction contracts. This will improve crucial cash-flow to those subcontractors working in the industry, thus helping companies involved in the construction sector to survive and keep people in employment. It also aims to reform dispute procedures in the construction industry to make them less costly and less time-consuming, and to relieve some pressure on the courts system.

Before moving on to the detail of the Bill, I want to outline briefly some of the background to the Bill. It is estimated that over the past two years 200,000 jobs have been lost in construction and its related sectors. A further 100,000 jobs could be at risk in the future because of the reduced level of both public and private investment. It is a devastating situation for those individuals and families whose lives depend on the construction sector.

To give some indication of the duress that construction workers are now under, it was reported earlier this month that self-employed construction workers have been admitted to psychiatric hospitals due to their despair at having no social welfare payments on which to live. Some of these workers, such as carpenters, tilers, plumbers and electricians, do not qualify automatically for unemployment benefit because they had set up their own companies.

We all have seen how construction work on housing and other developments up and down the country is being halted because of the downturn. For example, it was reported last week that construction at Waterford City Council's €20 million 111 unit project housing scheme on the Carrickphierish Road at Gracedieu was halted due to financial reasons. I was stunned when I got the following figures. Some 500 property and construction companies collapsed during 2009, an average of almost ten industry failures a week or two each working day.

The large developers can rely on NAMA to give them relief when things go wrong, but what about the smaller subcontractors? Subcontractors include those involved in architecture, engineering, plumbing, electrical and mechanical work, kitchen manufacturing, painting, the supply of doors and windows, concrete and timber frame manufacturing, interior design, gardening and ground moving services etc.

The scale of the downturn in the economy and the difficulty in securing credit has left many subcontractors who are involved in the construction industry facing huge cash-flow difficulties that are being compounded by the non-payment of debts. For example, a developer buys a plot of land and gets planning permission to build 200 apartments. He then may set up a separate building company and subcontract the building of the apartments to this company, which will likely have no assets. Alternatively, he may hire a separate building firm to undertake this work. That building firm, in turn, hires subcontractors to carry out the building work on the apartments. In this way, the subcontractors are no longer working for the developer; they are working for the building company.

Customers then buy these apartments and pay the developer rather than the building company. The developer may then spend or invest this money on purchasing another building site elsewhere. However, as he may have spent this money on a new plot of land, he has no money to pay the building company. The building company goes into liquidation and is unable to pay the subcontractors.

The subcontractors and suppliers who supplied the goods and services do not receive payment and because they have already paid their staff and suppliers, they are, in effect, forced out of business. The people who bought the apartments now legally own them through what is known as "right of title", and ownership of everything in them passes to the new owner as of right, even though the people who made, purchased, supplied and installed the goods have never been paid.

As the developer's company and the building company are legally set-up as limited liability companies, their liabilities are limited to the assets of his or her company. As many developers set up new and separate companies for each site, there is no redress to the assets of other companies that the developer owns, even when they may have significant assets. The bottom line is that a subcontractor's livelihood is at risk when a construction contract is halted and they are left in the lurch.

The current legislation offers little or no protection to subcontractors. This Bill addresses this unjust situation because it provides a mechanism where an intention to withhold sums from payments otherwise due must be given. Otherwise, payments must be made in full and/or the payee may suspend the provision of works and-or services under the construction contract until payment is made in full.

This is aimed at achieving a more equal balance in the construction industry. Ideally, this measure would be linked to wider provision in respect of construction contracts including a more rapid and effective means of dispute settlement. However, that aspect could be considered at a later point. The Bill will also reform dispute procedures to make them less costly and less time-consuming. Senator Joe O'Toole will describe the proposal in more detail. It is very evident that disputes about contracts cause delays which have financial and economic costs which hinder opportunities to move forward. Perhaps during an economic downturn there is an even greater shift towards disputes and thus court action, as companies struggle to survive. It is hoped that adjudication will help the many SMEs who cannot afford the costs of going to court which includes the expense of employing legal practitioners.

The Bill contains ten main sections. Section 3 of the Bill defines construction contracts for purposes of the Bill. This also applies to contracts which are written or oral, or partially written and partially oral. There is also provision as to the territorial application of the Bill. Section 4 details certain contracts which are excluded from the Bill and, in particular, a construction contract with a residential occupier. There is provision for the Minister to extend the list of exclusions by order. Section 5 of the Bill sets forth the meaning of "construction operations" which would be governed by a "construction contract" for purposes of the Bill. Section 6 provides that the provisions of the Bill shall apply to all construction contracts, whether oral or in writing. Section 7 provides for notice of intention to withhold payment. This is the heart of the provisions included in the Bill to achieve a fairer balance within the construction sector It requires for a payer to give notice of intention to withhold payment to a payee before any deduction from such payment can be made. Section 8 of the Bill aims to encourage the developers or building companies and subcontractor to resolve disputes through adjudication. Senator O'Toole will talk about this aspect separately. Section 9 provides for the right to suspend performance for non-payment. The provisions in this Bill have been widely welcomed by those in the construction industry who have been in contact, including the Construction Industry Federation which represents and serves over 3,000 members covering businesses in all areas of the Irish construction industry. The Bill, if enacted, will provide real and practical benefit to the construction industry in general and to those working in the sector, especially subcontractors, who are usually small and medium-sized enterprises.

This Bill is not designed to jump on the bandwagon of berating developers or blaming them for the situation we now find ourselves in. They are mostly people of professionalism and integrity. The Bill is designed to protect against the increasing numbers of those who do not act in this way. Allowing the situation to continue as it currently stands will allow developers to walk away from developments, leaving those hard pressed subcontractors without payment. People are losing their jobs because of the lack of protection available. This Bill will afford them this vital protection. Any business may lose some trade, but cash flow is crucial as it allows businesses to be sustained in the longer term. That is because money allows overheads and costs to be paid and people to be kept in employment. Allowing people to remain in employment is crucial in these straitened times. Many subcontractors in the construction sector simply cannot continue in business because of the current situation.

I firmly believe this Bill will play a significant part in updating how construction contracts are made, thus helping to keep people in employment. We need to update our out-dated legislation in this area. While I look forward to a full debate on the Bill, I also look forward and hope for its early enactment. I am sure it is capable of being improved and I am sure other provisions could be added to it on Committee Stage. I urge the Minister of State to recognise the need for this legislation. Many subcontractors and contractors need such a Bill. I urge the Minister of State to accept Second Stage because the Bill is something the country is crying out for.

I congratulate Senator Quinn for developing this legislation. I welcome the Minister of State. This issue was touched on many years ago.

I refer to the system of buying and selling property in France. The matter is dealt with by a notary public who is, effectively, a lawyer for the common interest. The parties may also engage their own solicitors if required.

The job of the notary public, for example, is if Feargal Quinn is selling a property to Joe O'Toole, he has to ensure there are no encumbrances on the property, that all planning permissions or otherwise are correct, and that it is legally in a state in which it can be sold. He must also ensure there are no encumbrances or liens on the seller. He must ensure there is no form of relationship that might have a gain on the property, that nobody has any impact upon it. Having dealt with all these matters, he must consider the buyer, in this example, Joe O'Toole. The buyer must show that he has the money and he must lodge the money with the notary before the sale can go through. This is very similar to the provisions in Senator Quinn's Bill.

I spoke to a plumbing subcontractor recently. About 18 months ago, he finished doing the plumbing work and installation of all the plumbing and heating in ten houses off the South Circular Road. He did an honest and diligent job. However, just as he had completed the work, the money stopped. He does not know who went bust, whether it was the developer or one of the building contractors. All his materials are in the houses which are unsold and which have not been connected to gas or electricity supplies. He wonders if he will be able to access his materials. This story could be replicated across the country 24,000 times.

The system as it stands means that somebody can purchase a piece of land and having put together the money to purchase the land, can be granted planning permission to build X number of units. The individual can then seek tenders from builders and subcontractors to build the houses. With no money whatever, he can hope that the sale of those houses will allow him to pay off the builders and subcontractors, make a profit and pay for the site. If something goes wrong along the way, if the business plan does not stand up, if the houses do not sell, then he does not have the money. He loses nothing — he will still have the site — but all the contractors lose out and they are all small enterprises.

Senator Quinn has made the need for the Bill very clear. It requires some form of commitment. We need to ensure that if somebody invests time, energy, money and labour, they will get fair pay and reward for their efforts. It is a provision to protect all sides. Senator Quinn has explained the legislation in detail. He has asked me to deal with section 9 which deals with adjudication. Adjudication should be efficient, simple to understand and time bound. These are the three crucial issues for any kind of effective adjudication, arbitration or mediation. It must be able to be simply initiated and be concluded within a certain period of time. Both parties can agree either to be bound by the outcome or to leave that until the end to agree or disagree.

Irish people like to have their day in court. Those of us who have been through the system know that a day in court can be the worst day of one's life. People believe that a day in court will somehow solve all their problems but the rest of us know that what one gets in court is the law rather than justice, in many cases, and sometimes they both coincide, if one is very lucky. People are losing all the time. What is needed is a bond or a financial instrument to ensure certainty so people will be paid when they are employed. This works both ways. For instance, a buyer puts a deposit or staged payments on a property but the property is not transferred to him or her and the builder or developer goes bust and people are left with nothing. This is about honesty and putting in place an instrument on which all parties have a lien and can make it happen.

I understand the Government will table an amendment which will not lead to a division tonight. Instead, it will recognise the developments in the area and that within five months the Bill will be read a second time. The Independent Senators ask that this be entered into in an open and generous way by the Government, admitting there is a problem which must be sorted out in everyone's interests. Senator Feargal Quinn has made a commitment to get himself involved and I will help in any way I can.

However, we need to get a clear direction from the Department of the Environment, Heritage and Local Government on what is needed to move on this legislation. I accept the criticism made that the Bill needs more provisions. Identifying the areas that need to be improved would help make the legislation more effective. The UK model has worked well in adjudication and I accept this Bill needs to be more comprehensive in its approach. I accept the Government recognises this as a problem and that it may need several months to go the whole nine yards, so to speak, on the legislation's provisions.

It would be a disaster, however, if nothing were to happen with this legislation. Many people in various areas affected by this legislation have shown much interest in it. We need to harness their energy and experience to get this to work. It would be positive if the Government were to expand the legislation, comparing it to the UK's and other jurisdictions' models. Will the Government indicate tonight that it will follow such a course of action and involve itself in rolling consultation with all parties which can make an input? If this Bill, as drafted, has to be amended before a second reading, I am sure Senator Feargal Quinn will not be averse to having it changed so long as it deals with the objectives he set out.

I compliment Senator Feargal Quinn on putting this legislation together and it has been my privilege to second it. I welcome the Government coming around to supporting this legislation and look forward to its response to it.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

"Seanad Éireann is pleased to note that:—

the Government's substantial Public Capital Programme which continues to support employment and to provide the infrastructure required for Ireland's economic and social development;

the new forms of public sector construction contracts include effective dispute resolution procedures, as well as a fast-track process, which operate in the interest of both the contracting authority and contractors;

there will be consultations between Government departments and the relevant industry and professional bodies to explore ways of addressing the serious cash-flow problems being experienced within the industry under private-sector contracts; and

resolves that the Construction Contracts Bill 2010 be deemed to be read a second time this day 5 months.".

I wish to reserve my right to speak on this until later.

I commend Senator Feargal Quinn for his initiative in introducing the Construction Contracts Bill 2010 and his interesting and informative speech on it. The Government takes this matter seriously. Senator Joe O'Toole will be glad to know that more Departments than the Department of the Environment, Heritage and Local Government are interested in the legislation.

That is good to hear.

The Department of Finance is interested in it, as well as Senator Joe O'Toole's old friends in the Department of the Taoiseach.

I am worried now.

The Bill's main purpose is to provide a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due must be given, or payments must be made in full. In addition, it proposes an adjudication procedure to deal quickly with disputes about payments.

The Bill is described in its explanatory and financial memorandum presented by Senator Feargal Quinn as being "in ease of persons along the chain in the construction sector who may suffer unduly where an entity under a superior contract would find itself withholding payment unilaterally without cause".

The Government is sympathetic to the initiative taken by Senator Feargal Quinn, welcoming the general policy approach underlying the Bill and that it should be taken further as soon as possible.

The Government is conscious of the difficulties encountered by many subcontractors in obtaining payment from main contractors for work undertaken. This is a serious problem affecting all parts of the industry. I know Senators from every part of the House are fully aware of the problem and of the need to take steps to deal with it. Specific cases in a constituency context have also been brought to my attention. I would be surprised to learn of any Senator who has not heard of a contractor or subcontractor not seriously affected by the issue and whose business and livelihood were not put at risk as a result.

We do need to address the issue and draw on many of the ideas contained in the Bill. Before taking its proposals further however, it would be advisable to consult the industry and professional bodies to see what additional legal, procedural and technical measures will allow us to deal with these serious problems.

The Government is fully conscious of the importance of the construction industry in the economy. Substantial efforts are being made by the Government to maintain a strong public capital programme with projects in the pipeline all the time. This underlines the Government's determination not only to maintain and upgrade Ireland's infrastructure but also to provide real opportunities for the construction sector, both main contractors and subcontractors, to tender successfully for contracts.

Ireland continues to face challenging economic circumstances, both nationally and internationally. The Government is meeting these challenges by taking tough decisions to stabilise the budgetary position, repair the banking system, restore Ireland's international competitiveness and invest in the creation of new jobs. Nonetheless, the Government is conscious it must invest in the country's key infrastructure to position ourselves for economic recovery. Our Exchequer capital allocation for 2010 amounts to €6.43 billion. At 5% of GNP, this programme compares favourably with those of other EU member states generally. The main focus of the Government's capital investment programme is to ensure Ireland has the requisite public infrastructure to facilitate a return to growth, which will assist sustainable job creation in the longer term.

In addition, this construction activity helps to maintain much-needed employment in the present difficult circumstances. As well as allocating large moneys for the absolutely essential task of upgrading the national infrastructure, the Government has sought to achieve value for money in the operation of individual public sector contracts. In parallel with the public capital programme, the Government has been advancing its public sector construction procurement reform. The aim of this initiative is to achieve greater cost certainty at tender stage, better value for money and more efficient delivery of projects. Greater cost certainty at tender stage requires that projects are comprehensively designed before going to the market.

For service contracts, output requirements will also have to be fully detailed before tenders are sought. It is acknowledged the preparation of comprehensive designs prior to tender will require a major change of approach by all those involved in a project. However, this will lead to far fewer contractual disputes, particularly in regard to payments, as there will be less ambiguity about the value of the work that has been completed.

As part of the detailed implementation of the construction reform measures, several innovative forms of public works contracts and conditions of engagement for construction consultants have been developed for use by public bodies. These were published in 2007 after a detailed consultation process with the construction industry and the professional bodies which proved invaluable in settling the final form of contracts and conditions of engagement. These now form an integral part of the Government capital works management framework which has been developed to ensure the Government's key objectives for public sector construction procurement reform are achieved, that is to bring greater cost certainty at tender stage, reduce overall costs and help improve budget planning.

The Government is acutely aware of the difficulties being encountered by businesses at present. It is confident the fast-track dispute resolution procedure in the new public works contracts can alleviate problems when disputes arise regarding payment. The Government fully accepts that all businesses must be paid on time for works satisfactorily completed. In the present economic climate, it is vital that payments to all those in the supply chain are not interrupted by long, drawn-out disputes about payment, which may adversely affect the financial position of those concerned, especially small to medium sized construction firms.

As Senators are aware, contract procedures require architects, engineers and quantity surveyors to approve stage payments to contractors when work has been done to the appropriate quantity and quality. The contracting authority must always have the right to ensure that work is done to the required standard. No contracting authority should be required to pay for substandard work. However, the Government fully agrees there is a need for measures to be put in place to ensure firms are paid promptly for work and services satisfactorily delivered. The conditions facing the construction industry are difficult enough without unfair and unnecessary burdens also being placed on companies where payments are properly due but delayed to secure a cash-flow advantage.

While I commend Senator Quinn for preparing the Bill and bringing it before the House, the Government considers that there should be a process of consultation with the key stakeholders to explore the legal, technical and procedural issues in this very complex area. However, there is a need for as quick a response as possible to deal with the cash-flow problems the industry faces. The Government and the professional and industry bodies must work together in the consultation process we propose to determine the nature and scale of the problem and then move on to establish what changes in private sector contract terms should be made and how these can best be implemented. Therefore, I invite the Senator and the industry and professional bodies to contact the Department of Finance to start the consultation process. It is likely that other Departments may have a significant input as well and they will also be invited to take part in the process. This approach will allow us to explore and develop practical measures that can be tailored to meet the problems we face. The fact that they can be discussed and developed with the professional and industry bodies will be a major advantage in helping to ensure the resulting measures will be effective. There is a great deal in Senator Quinn's Bill which will be considered in the discussions I have mentioned as possible changes to contract practice.

As I stated, we must be careful about legislation in this very complex area and there are several proposals in the Bill which must be carefully examined before they could be put into law. My following comments are not intended to take from the Bill which, as I have stated, has a great deal to offer. However, we need to be aware of the pitfalls that could be encountered if we move too quickly without proper consideration. For example, many contract disputes are complex and the tight timeframe in the Bill of 28 days with an extension of a further 14 days by agreement may not be practical for disputes that require much longer periods to resolve. Above all, adjudication may bring about another layer of regulation for an industry already subject to a stringent regulatory regime and the House will agree we must be especially careful before we introduce new statutory requirements affecting contract procedures. The proposed Bill does not set a minimum value below which adjudication would not arise and there may be a danger that disagreements on cost would be referred to adjudication for a decision rather than the parties first trying to reach agreement themselves. This latter course may clearly be preferable in several circumstances and we cannot ignore it. Experience in the UK has shown that practical adjudication procedures must be carefully framed. For example, adjudication costs have become a major issue in that jurisdiction. It has emerged that a major disincentive for the use of adjudication has been the imposition of all costs on the party initiating the action, irrespective of the outcome. I understand this has led to several abuses and has required amending legislation to correct them. The question of adjudication costs is not addressed in Senator Quinn's Bill. This is also a major issue that must be resolved if we are to avoid the problems encountered by SMEs in the UK. Once again, these comments are not intended as criticisms, but serve to illustrate the intricacies of the legal and technical issues which must be examined before we consider legislation.

The new forms of contract introduced for public works in 2007 and made mandatory in 2008 include a dispute resolution procedure which could be of benefit in private sector contracts. This procedure amounts to fast-track conciliation and may have a stronger foundation to that proposed in the Bill, in that a bond is provided to protect payment if it should be overturned in arbitration subsequently. The bond is linked to a binding recommendation made by the conciliator. Furthermore, there seems to be greater flexibility regarding time allowed for a decision on disputes which permits complex disputes to be adequately addressed. This procedure is already operating to the benefit of both contracting authority and contractors and may also be of benefit were it to be applied in the private sector.

The tabling of the Bill provides the Government, the Seanad and the professional and industry bodies with an opportunity to consider what steps can be taken to address these serious issues. The Government is ready and willing to work with the relevant bodies in devising dispute resolution procedures which would be suitable for the private sector. I believe that when the discussions with the Senator and the relevant bodies begin, the proposals included in the legislation will be fully explored as well as other legal, technical and procedural issues, including the fast-track procedures, which are working well in public sector contracts.

To sum up, the Government is well aware of the difficulties being caused by the non-payment of sums due under private sector construction contracts and seeks to work towards a solution with the Senator and the professional and industry bodies. It is essential that we do not allow the resulting cash-flow problems to undermine the financial position of firms large and small and their ability to retain employment. To deal with the problem, the Government proposes that discussions begin with the industry and the professional bodies as quickly as possible and that the Bill be deemed to be read a second time this day five months. Accordingly, I commend the Government's motion to the House.

It is interesting to ask ourselves why this Bill is an issue now and why it has not cropped up in the past. Subcontractors have been telling me horror stories for years. I refer to the case of a subcontractor who informed me he walked off the site of a development where he was working because he was not being paid properly. This was several years ago when things were still relatively good. Next, he found that a former employee, who had initially started working on the same project with him, took up the job of finishing off that project. One wonders whether the former employee believed he would be treated any differently than his former employer by that developer. Such sharp practice has been going on for years.

However, sometimes when it comes to the world of business there are two sides to every story. All too often, one person's sharp practice is another person's practical business solution. I recall hearing a story years ago of a leading retailer which ordered a significant number of dinner sets for a promotion. When the promotion was not going well, the contract was re-examined by the retailer and, on the basis of that re-examination, the retailer was able to get out of the contract following a measurement of the plates provided for the promotion. That retailer is now one of the largest in the country and the company providing the plates went broke. Sometimes, that is the way business unfolds. I recall when my father was involved in business in the 1980s. He had to set a new precedent in retention of title law when a liquidator refused to pay him for products he supplied to a factory. The case went as far as the High Court. The liquidator was at no loss one way or another. However, if we had lost the case my father's business would have gone broke. It has always been very difficult to be involved in business in this country.

We must question why we are discussing such legislation now. Basically, the reason is billions of euro have evaporated from the value of property and property development in the country. I am unsure whether we can do much about the fact that a project has gone bankrupt. I do not believe certain firms will be able to pay anyone. Certain banks will not be paid because properties have gone into NAMA. Certain developers will not get paid and, unfortunately, certain subcontractors will not be paid.

There is a role for such legislation and when we, as legislators, are exposed to it we should take it on board. One cannot legislate for trust. Unfortunately, this is frequently the problem with many such cases; there is a breakdown of trust. One strong point in the legislation is the idea of adjudication and how we can make adjudication work between contractors and subcontractors. The key point is that it is faster and cheaper. The Minister of State appears to dispute this but I believe he is well-informed on legislation in the UK, where they have overcome many of these problems with regard to the costs involved and ways around legislation that would have occurred in other jurisdictions. This could be a very useful process in examining how the adjudication process works. Litigation is not a solution for many subcontractors, even at this time. Many contractors have very loose contracts. The prospect of legal costs means it is often easier for a subcontractor to write off his or her losses than to pursue a solution through the courts. A good and tight adjudication process might allow subcontractors to secure proper payments from principal contractors.

We must also consider matters from the perspective of contractors. During the construction boom the vast majority of contractors were reasonable with their subcontractors. The purpose in using subcontractors is often to avoid the legal obligations involved in employing people in the normal way. A certain amount of sharp practice is always to be expected in this regard. There is no doubt that many smaller subcontractors were abused by bigger contractors who were able to play off smaller firms against each other. One cannot legislate for something like this, as it is simply the way business works. What we need are supports for smaller subcontractors in order that they will not be ripped off in the future. The Minister of State should give a lead in this regard.

This is good and necessary legislation. I understand the Minister of State's opinion that it may run into problems when it is the subject of wider consultation. However, the principle of the legislation is excellent. In particular, adjudication and how it could work in this jurisdiction to resolve conflicts between contractors and subcontractors is something we should examine carefully. We should deal with that issue in five months' time. By that time I hope the Minister of State will have overcome some of the other problems to which he referred.

Some of our difficulties arise from the fact that billions of euro have evaporated from the value of property. There is no way around this problem. Whether in good or recessionary times, it is very hard to legislate for those who play foot-loose and fancy free with their employees or subcontractors.

With the permission of the House, I will share time with Senator Butler.

I welcome the Minister of State and thank Senator Quinn for bringing forward this legislation. I have an interest of sorts to declare. I am involved in the ownership of an auctioneering practice and, as is customary, declare that interest. I also welcome members of the construction industry and its representative organisations who have taken the time to come to listen to the debate in the Visitors Gallery. I congratulate Mr. Seán Gallagher who, as Senator Quinn outlined, made contact with many Members in recent months in order to advance this important issue.

There is nothing with which to disagree in the Bill. The Minister of State has made this clear. We are all in agreement with the main thrust of the Bill. However, some of us would like to make additions to it to give maximum protection. As Senator Twomey said, business is ruthless. It is our responsibility, as legislators, to ensure the necessary, although not the maximum, regulations and guidelines are in place. The fall-out from the construction boom and the downturn has made it clear that the necessary protections of subcontractors are not in place. It is a pity we cannot, with the benefit of hindsight, go back a number of years and put them in place.

The non-payment of subcontractors in the construction sector is a huge issue. It has put many people out of business and we must put measures in place to deal with it. Thousands work in the sector and they are often the last to be paid, if at all. The industry seeks to require contracts to have strict and fair provisions, to ban the use of pay-when-paid clauses and to have enforceable and prompt dispute resolution provisions. That is very reasonable. The Minister of State has mentioned that there will be a consultation process in the next period. Senator Quinn, representatives of the industry and the rest of us can have an input to that process which I hope will be limited to a defined period of time. I hope we will not have a lengthy period of consultation in which report will follow report and action will fall behind. I hope the Minister of State will limit the consultation process to a period of five months and that we will be back here after that time with a wider Bill or an extension to the provisions outlined by Senator Quinn.

The Construction Industry Federation, CIF, is of the opinion that the Bill does not go far enough. The United Kingdom Construction Contracts Act 2002 would form a good template which we might examine before we make the necessary improvements to the Bill. I know the UK legislation allows adjudication to happen very quickly. Some 18,000 cases have gone to adjudication in the United Kingdom and only 300 have ended up in the courts. This proves that the process is a good one.

We all want to see the introduction of a right to payment by instalment, except for projects shorter than one month or thereabouts. We would also like to see the introduction of a statutory requirement for agreement on the days on which payments, including final payments, will fall due, default periods such as five and 17 days, respectively, as well as the prohibition of payment conditions conditional on receipt of payment from others. A wide variety of people, apart from subcontractors, are affected by this. Other service providers such as architects and auctioneers are affected by delayed payments or non-payment.

I worry that some items have been left out of the Bill. What is the position on receiverships and liquidations? Who takes less? One hears of many receiverships and liquidations throughout the country where a financial institution takes control and appoints a receiver. He or she then values the company at today's price level and the bank liquidates it and takes the current market value. In that instance, how can we ensure subcontractors will be paid the maximum amount when the financial institution in question might be recovering less than 40% of their own interest? That area needs further work, perhaps by the Attorney General. As the Minister of State said, quite a few Departments would have to take a view on the Bill.

There is nothing to oppose in the Bill. I salute the initiative of Senator Quinn, Mr. Seán Gallagher and others in the CIF and other representative organisations. I wish we, as legislators, had taken the initiative a few years ago before the current difficulties arose. Notwithstanding that, I commend the efforts of all those involved. I support the Government amendment and hope we, on this side of the House, can be true to our word and be back here within five months.

I will be brief. I support Senator Quinn's proposal. I myself made some proposals as to how we might make additions to the Bill. In my other life as a developer and contractor I have had the best possible relationships with subcontractors. I was a subcontractor myself at one time and, therefore, know the difficulties that can arise when contractors decide not to pay subcontractors. That is very regrettable.

The subcontractor brings great expertise and fast processes to the construction industry. Everyone benefits from having a good subcontractor in place. It is vital that the subcontractor would have a means of resolving disputes promptly. The adjudication system is vital. The Minister of State has decided that there is a larger dimension to this Bill than one might believe. It is important we take five months to do something and that we do it once and do it right. This House has the expertise and knowledge to ensure a good Bill will result from this process.

It is important we set up a bond system in the legislation that would ensure subcontractors would have the security of knowing they would be paid. The stock answer they are given in court is that they will be paid, only to find out that they are not paid, in which case they must return to court. These circumstances are ridiculous and are what we want to prevent. A subcontractor who has taken a case may have paid a fortune to get the client into court only to find he cannot be paid. In this case, he is no longer in a financial position to return to court. That is the problem and it is why subcontractors go out of business. Subcontracting is now a total nightmare.

The Minister of State referred to practising politicians' experience of discussing with subcontractors their difficulties and real dilemmas. We are all very keenly aware of these. We would have to be on another planet not to be aware of the very genuine and serious problems people face. I refer, for example, to people who have abandoned their employment and whatever protections they had as employees to enter business in their own right. They find they are in dreadfully serious circumstances in terms of their not having been paid, not having any protection for themselves, perhaps not having any pension provision and having little or no access to welfare protection. They are caught between many different stools and are in dreadful circumstances. There are very many people in that position. For this reason alone, it is important and useful that Senator Quinn has raised this issue in the Seanad. He has brought forward a practical proposal to address it and I commend him very much on his having done so.

This problem is not confined to the construction industry and it is important we remind ourselves of this. In commercial life generally, there are great difficulties encountered by people who are simply trying to be paid for the work they have done. I am prepared to accept the construction industry has a peculiar configuration in terms of head contractors and subcontractors but it is not entirely peculiar.

There are many areas of commercial life that involve subcontracting, be it from a printer to a printer, from a printer to a graphic designer, or from a graphic designer to another operator. If something goes wrong and it affects the head contractors, the subcontractors encounter difficulty. We must be aware that the difficulty is not nearly confined to the construction industry. I do not make this point to undermine in any sense what Senator Quinn is saying but to highlight that we need a broader perspective on this undoubtedly terribly serious problem.

It occurred to me while listening to Senator Quinn and some of my colleagues that, two years ago, people would have been appalled at the prospect of the Oireachtas being asked to intervene in what is essentially a contractual nexus, an area of agreement or disagreement between parties. The system we have tends to leave those issues, including issues concerning one's being paid or otherwise for doing work, to the parties and to favour little or no intervention on the part of the State. That has been the practice and history of the market. We are now engaged in a turnaround. There have been many turnarounds in our system. We are now saying we need State intervention in what was traditionally an issue to be resolved between the parties concerned through the contract, including where there is very serious conflict.

Section 7(2) states: "A party to a construction contract may not withhold any part of a payment after the relevant payment date of a sum due". A very familiar term of any contract is that a party may not withhold payment under that contract. If one agrees to do work and there is a payment set for it to be paid by a certain date if the work is completed, that is already a requirement. There is a mutual agreement between two parties. One side says it will do the work and the other says it will pay once the work is done. That is a familiar concept that does not require or should not require to be put into statute. This is not a criticism. We ought to take it for granted. Even as a legal proposition it is already in place.

Let me outline my central question on the Bill and the strategy proposed. While Senator MacSharry is correct that there is little in the Bill one could criticise, I am concerned it may be giving the impression it would be achieving something although ultimately it may not do so. That is the problem I have. There are not really robust sanctions at the heart of the Bill. This is one of the matters the Minister of State may wish to consider during the consultation he rightly suggests ought to occur.

There is a provision in the Bill on adjudication but there is no proposal to have compulsory adjudication, nor could there be because it would introduce problems of a constitutional nature. Can one compel people to enter into an adjudication process? Section 8 states a party to a construction contract has the right to refer for adjudication a dispute arising under the contract. While that is perfectly reasonable, what if the offending party does not wish to attend at the adjudication or participate in it? Subsection 8(3) states "The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings". There are very real constitutional doubts as to whether an adjudicator can make a legally binding decision in a case referred to him by one party when the other party does not turn up.

Some of the employment regulation orders that have been challenged in the courts in respect of a slightly different field, the electrical contract area, for example, raise a very similar question. Can one require parties to comply mandatorily with a particular regulation without their agreeing to do so? Is it constitutionally permissible to impose a decision on them when they have not entered freely into the adjudicative process? These are very complex issues pointed out by the Minister of State.

Senator Twomey pointed out one cannot legislate for trust. The idea behind a contract is that it is an idea between two parties. Both sides intend to bind each other and to carry out what is specified in the contract. The law of contract is quite well tested and old. We must not try to reinvent the wheel. Parties agree and if they break an agreement, they have recourse to the law.

With regard to recourse to the law, I agree very much with what Senators have said and with what Senator Quinn implied about the need for speedier and less costly resolution of disputes that arise in this area. The Senators are correct. With regard to the Bill's reference to promoting adjudication, I queried the extent to which adjudication can be made compulsory. That can be dealt with. Promoting alternative dispute resolution, arbitration and mediation mechanisms is a vital objective that I strongly support. I declare an interest in that I have acted as an arbitrator and mediator, including in commercial matters. From my experience as a barrister, I recognise how important and helpful it is to parties to have a resolution mechanism that is quick, accessible and cheap. If this Bill does nothing else, it certainly does us a service in terms of reminding us about and proposing a statutory form for dispute resolution, which I believe strongly ought to be promoted at every opportunity.

I reiterate that the Bill does not provide an ultimate sanction. Perhaps that is because those who drafted it were of the opinion that it was not possible to include such a sanction. If a party does not give notice of intention to withhold payment but, ultimately, does not pay, the Bill does not contain any mechanism which would act as a sanction in such circumstances. That is one of the reasons the Minister of State was correct in stating that there should be a period of reflection in respect of this proposal. Senator Quinn has done the House a service by raising this matter. That said, I do not believe the legislation is as of yet in a format whereby it could be allowed to proceed into law.

I welcome this legislation which, in the context of the constraints that exist with regard to the drafting of Private Members' Bills, especially those relating to matters of finance and the imposition of possible costs on the State, is well put together. In that context, what I am stating may address one of the difficulties outlined by Senator Alex White. The Government amendment makes provision for a five-month period of reflection in order that some of those difficulties might be addressed.

One of the groups which tends not to be discussed in the aftermath of the property boom — or property binge as it has been called — is that which comprises subcontractors who have found themselves well down the food chain in respect of the many developments where work has ceased. Many of those to whom I refer are self-employed, do not operate within company structures, do not pay social insurance and cannot claim unemployment benefit, which places them in a particularly invidious position. This highlights the need for legislation in this area. Senator Quinn must be acknowledged for presenting such legislation to the House.

There was an unacceptable practice whereby many building companies used the companies legislation in an extremely reckless way. These companies regularly went into receivership and liquidation to avoid the payment of debts. I recall, as a then member of Cork City Council, being presented with a monthly list of housing estates across the city which remained unfinished and the contractors who were responsible for these developments. On one occasion, I noted that one such estate development had been undertaken by a developer known as O'Sullivan Builders and that the next such development had been undertaken by Navillus Builders. Of course, the name "Navillus" is "Sullivan" spelled backwards. It was obvious the contractor involved had established one company, put it out of business, established the second and also put it out of business.

There are many victims in this area and legislation has either been entirely absent or far too loose in its interpretation to make provision for subcontracted work — in respect of which local government picks up the tab — and consumers. Certain of the latter who were involved in staged payment arrangements found themselves in limbo as a result of the inadequacies of the legislation. Senator Coghlan introduced Private Members' legislation in respect of such arrangements which were, at one time, extremely prevalent in the Cork-Kerry region. Thankfully, the practice of making staged payments is no longer particularly prevalent. The debate on this Bill has highlighted the position from which we have come and the type of legal constraints which must be put in place to avoid a recurrence of the type of situations to which I refer.

I agree with Senator Alex White that we need to look beyond the confines of the Bill and ask what type of social protection we can provide to people involved in this area. Such protection is not on offer at present. In that context, there is a need for a wider debate on the issue of prompt payments. I may be arguing against the intent behind the Bill but the legislation governing such payments that is already in place is relatively strong. We must consider the fact that the 30-day rule that applies does not appear to be adhered to or enforced and that agencies of the State find it difficult to operate within the confines of the legislation to which I refer. As a result, we are in extremely difficult territory. A level of certainty must be provided in respect of individuals, small-scale contractors and subcontractors. The current environment in the area of construction does not allow for such certainty, nor is it underpinned in the context of the provision of protection by the legislation.

I welcome the debate on the Bill. The Minister of State's response to it was sufficiently guarded, especially in the context of the fact that provisions may have to be added and other areas may have to be considered. There is a commitment on the Government's part that this legislation, which will remain on the Order Paper, should be addressed in the wider context to which I refer, strengthened and eventually placed on the Statute Book.

On those grounds, I warmly welcome the Bill. I am encouraged that the Government amendment will allow us to return to deal with the legislation very soon. I am confident that legislative effect will be given to the principles contemplated in it within the shortest possible period.

I compliment Senator Quinn on the initiative he has shown in introducing this legislation, which is timely and important. In light of current difficulties, everything possible must be done to facilitate the return of the construction industry to a state of good health.

The Bill addresses a specific problem, namely, instances where main contractors or developers are paid but where those who subcontract with them do not receive payment. It provides for notice of intention to withhold payment, a speedy and cost-effective dispute resolution mechanism which would operate on the basis of adjudication, and the right to suspend work for non-payment.

I also welcome the Government amendment. This is one of the occasions on which I am happy to see an amendment from the Government, particularly as it is positive rather than destructive in nature. Too often at Private Members' time we are obliged to engage in ding-dong battles across the floor of the House. On this occasion, the significant element of the amendment is the final phrase which states that Seanad Éireann "resolves that the Construction Contracts Bill 2010 be deemed to be read a second time this day 5 months". This indicates the Government is serious and intends to progress the legislation through the House.

A practical and observable difficulty in respect of this matter arises from the fact that there is a kind of hierarchy of payment which exists. At the top of the pile is the main contractor and then there is a series of tiers within the supply chain. In positive circumstances, there is a trickle-down effect. However, the money does not always reach the most vulnerable people in the lower reaches of the hierarchy to which I refer. The very real problems people encounter include the improper retention of money. Funds are often held back because the main contractor wants to massage its own cashflow. This happens at the expense of those to whom it subcontracted work.

Manufactured, false or spurious reasons are also often offered in respect of the withholding of money. For example, a tiny defect which might not be significant in the context of the overall project might be used as an excuse and a justification for withholding payment. Such behaviour is plainly wrong and unfair. At present there is no provision for the making of proper staged payments and this, as Senator Quinn pointed out, can lead to insolvency and redundancies. These are the last things that are needed in the current climate.

Sections 7 to 9, inclusive, are the three most important in the Bill. I did not rely on my own intuition or intelligence — which, in the context of this matter, could be weak — in identifying this fact. I relied instead on a very good briefing document I received from elements within the construction industry. I am not sure but previous speakers may already have placed on the record that which I am about to say.

Section 7 deals with the notice of intention to withhold payment. It suggests that subcontractors should be placed on notice that the main contractor proposes to withhold payment in order that they might take whatever action they regard as being appropriate. The section states that it should not be possible to withhold money without two key factors first being addressed, namely, that prior notice has been given and that sufficient, specific and justifiable reasons have been provided to the person at the lower end of the chain with regard to why the money is being withheld.

Section 8 provides for adjudication, which is important. It is different from the normal method of arbitration. It is straightforward, simple and quick. It is essential to have speed in deciding the amount that should be paid by one party on an interim basis. This will have the benefit of helping with cash flow difficulties. In most commercial contracts, if there is a dispute over payment, a party can go to the courts to seek enforcement, but most construction contracts provide for alternative methods of dispute resolution, including conciliation, arbitration and so on. They may lead eventually to justice, but they have two cardinal difficulties. They tend to be slow and expensive. For example, payments can be delayed for several years while the matter is in arbitration and the contracts also give an opportunity to the main contractor to manufacture causes of dispute. Once legal advice is sought, the reasons multiply. Following adjudication, the parties can continue to conciliate, arbitrate or litigate the ultimate resolution of a dispute. The adjudication is binding in the interim and enforceable and the parties can then go to the courts to seek enforcement.

I am sure Senator Quinn has examined what happens in other jurisdictions. The nearest is the United Kingdom which provides a good justification for such legislation. It addressed this situation in legislation within the past few years, as a result of which cash flow throughout the entire industry has improved dramatically and 90% of disputes are settled at adjudication or shortly thereafter. Since the enactment of the construction Bill in the United Kingdom, there have been 18,000 adjudications, of which only 300 have ended up in court, a small proportion.

Some provisions could be included in the Bill such as the right to payment by instalment, except for a project of less than 45 calendar days; a statutory requirement for an adequate mechanism for determining sums due, including default provisions where the mechanism is not agreed by the parties; a statutory requirement for agreements on the dates on which payments, including the final payment, will be made and default periods such as five and 17 days, respectively; and the prohibition of payment provisions which are conditional on receipt of payment from others, in other words, where the subcontractor is put in the position where he or she has to collect on behalf of the main contractor. The Bill provides adequate protection. Some Members said the Prompt Payment of Accounts Act 1997 would be useful and could be applicable in this regard, but it is not for the reasons I outlined. The construction industry is different. Work is carried out in advance of payment and, as Senator Quinn mentioned, when the building is erected, it cannot be dismantled to recover the value of the bricks, the plumbing, the ground work and so on.

The introduction of an independent, impartial adjudicator would be positive. The United Kingdom has the Housing Grants, Construction and Regeneration Act 1996; New Zealand, the Construction Contracts Act 2002; Malaysia, the Building and Construction Industry Payments and Adjudication Act, which is pending; Singapore, the Building and Construction Industry Security Act 2004; and five states in Australia have introduced similar legislation. We are moving in a direction in which the rest of the world has seen fit to move and I applaud Senator Quinn for his foresight in producing this valuable Bill. In a week that is almost void of Government legislation, it is remarkable that a Senator from the Independent benches has introduced a Bill that has received a welcome on all sides of the House.

I wish to share time with Senators Brady and Mooney.

I thank Senator Quinn because a suitable construction contracts Bill will be introduced within the term specified and not before time. During the boom times certain subcontractors had to wait or did not receive payments, sometimes for reasons that were not proper. Notwithstanding this, now that we are experiencing more difficult times, there are serious problems. Therefore, it is high time we regulated the industry. It is proper that contractors should be notified if they are not going to be paid. Banks and finance houses need to know the cash flow position of companies and some companies could lose out and not survive. We all need to pay on time in every line of business. Adjudication appears to work well and the system often leads to people agreeing terms before adjudication in the knowledge that it will result in a reasonable proposal and the right to suspend work if not paid.

The Government is still investing more than €6 billion annually to ensure our infrastructure is in good order and that we will be ready for the recovery that is around the corner. It is particularly gratifying that our motorways are being completed. The final leg of the motorway between Cork and Dublin will be completed this month, which is welcome. When a contractor has to get to work and workers have to get to a production facility, for example, or tourists want to travel around the country, the same infrastructure facilitates them. Everybody benefits and that is all down to the construction industry. At a time when there is a great deal of commentary about problems in the construction industry, it is no harm to remind ourselves of the great benefits we have seen and that these will continue to benefit the economy, including through legislation such as this.

I thank Senator Hanafin for sharing time with me.

I welcome to the Visitors Gallery the CIF delegation which includes Mr. Seán Gallagher and Mr. Cathal Lee. When I received notification from Mr. Gallagher about this legislation three weeks ago, it was timely because a week prior to that a neighbour of mine who had a plumbing company employing eight people had rung to tell me he had gone out of business because he had not been paid by major contractors. That meant nine families had been put out of commission because of the non-payment of bills. He said two types of people did not pay — the person who could not pay and the person who could but would not pay. He had applied for social welfare but was entitled to nothing. The community welfare officer gives him a few euro every week. He has fallen into bad health in the meantime, mentally and otherwise, and does not go outside the door. This highlights the knock-on effects of the failure to pay subcontractors. The man to whom I refer was not able to pay his suppliers and so on.

I thank Senator Quinn for introducing the Bill. He makes a good job of anything he tackles. I take on board Deputy Alex White's comment that implementation is the key issue when it comes to legislation. If it cannot be done, passing it is a useless exercise. We should also examine the issue he raised about sanctions. We should not rush the legislation, as there are many other issues which we do not have time to discuss. The Bill is straightforward and I support it because it will make life much easier for the small player and ensure people will be treated in a respectable and decent way.

We should liaise with the CIF, as we could have a good discussion on the construction industry. It would be useful to exchange views on a regular basis. Given the overheads that pertain to the construction industry, these are matters as well that must be looked at to enable people in that business to stay afloat. These are all the issues and I believe we should have a programme to address these in future. We could meet on a regular basis, as I have said, to discuss all these issues.

I thank my friend and colleague, Senator Hanafin, and also Senator Brady for allowing me to participate in this debate in the time allotted. I also echo the welcome to Mr. Sean Gallagher. That was the first time I was made aware of this very serious difficulty, as illustrated by the story told by Senator Brady. I am delighted that Mr. Gallagher is here, along with representatives of the CIF.

I particularly want to acknowledge Senator Quinn coming up to the plate once again. I hope he will be as successful if he decides to introduce a summer time termination Bill into the House, as he will be with this one, which is another example of his expertise.

My main reason in contributing is that the story outlined by Senator Brady is similar to one that was brought to my attention. Currently, the motorway system, as Senator Hanafin has said, has been completed. However, subcontractors have suffered grievouslyvis-à-vis some main contracts. I will not name the motorway in deference to the people involved, but in one particular instance over the last couple of months the main contractor was being paid the money after 30 days but was holding it for 50 days before paying subcontractors. In the recent past, I understand, the subcontractors have renegotiated this time interval down to 40 days with the main contractor, but this still leaves a major gap, and as a result they have had to lay people off. I do not believe that is acceptable and I am glad this Bill is going to address that issue.

Although I know the Minister of State has repeatedly said in his very welcome contribution that the Bill will be read a second time five months from today, I ask him not to allow the permanent Government — I have the greatest admiration for civil servants and draftsmen — to delay this, because it is already causing inordinate difficulties for people. The most extreme illustration of that is what we heard from Senator Brady.

The Minister of State quite rightly highlighted that the Government was spending €6.5 billion under the capital programme, which compares favourably with the rest of the European Union. However, I draw the Minister of State's attention to a map which appeared inThe Irish Times today showing the progress of motorway completions. Once one passes Mullingar going north west there is space, nothing. It is as if it were a desert. Again, I make the plea on the basis of what Speaker Tip O’Neill once said about all politics being local. I hope there will be a revision by the NRA to include the N4 completion. My friend and colleague, Senator MacSharry, will testify there is a section of the road past the Curlew mountains, going into Sligo, that has been lying there since Famine times, without anything being done to it apart from normal routine maintenance. I shall make that plea to the Minister of State to ensure, if he has any influence with the NRA, that the north west is not forgotten. Anyone from overseas who looks at that map today would believe there is nothing but rutted tracks and cow paths up to the north west.

I wish to share time with Senators Jim Walsh and Maria Corrigan, with the permission of the House.

First, I congratulate my good friend, Senator Feargal Quinn, on the presentation of his Bill and his explanatory memorandum, for a job well done. I welcome the Construction Industry Federation representatives and other interested parties in the Gallery, including the former Minister of State, Mr. Tom Parlon.

This Private Members' debate takes place against the background of a clear recognition of the need to address issues relating to payments under construction contracts. This issue and related matters under construction contracts warrant attention, debate and suitable legislation. The proposals contained in the Bill are very welcome, and seek to address some very troublesome issues under such construction contracts. While a great deal is covered in Senator Quinn's Bill, the area is very complex and we all agree the proposals contained in the Bill can be strengthened and improved. Like others in the House I have come across cases where disputes have arisen over the withholding of payments or over the quality of work done between contractors, subcontractors, quantity surveyors, engineers, architects and others involved in construction projects. Some of these disputes are clear and can be easily measured. Others manifest themselves in 100 different ways. Such situations demand appropriate address and when such disputes arise they can cause serious destruction on some projects and can have real implications for others who are not necessarily involved as regards payment or in the actual disputes but who can still suffer from the fall-out.

I welcome the widespread agreement and especially the Minister of State's contribution as regards commencing a consultation process with industry representatives to address the issues with practical measures, as he put it, and to come back to the House within five months. There are just two matters about which I seek a response from the Minister of State. When will the consultation process begin, who will chair and co-ordinate it and how will interested parties be accommodated in making their submissions? Will the statutory authorities be involved in the consultation process such as local authorities, Revenue and so on?

While we approach this matter with a genuine desire to find suitable resolution and return to the House within five months with Government legislation, such legislation should contain the provision that after it is enacted it will accommodate a review and consultation process with interested parties who contributed to it in order to assess its success or otherwise and if necessary to amend it after this review has been carried out.

I join with others who complimented Senator Quinn in relation to the introduction of this Bill. It is a short but nonetheless important Bill, and coming from a county such as Wexford where a large proportion of employment was based in the construction industry, and where there is a considerable number of contractors, large and small, this is obviously a very important topic for us.

I know from speaking to many people involved in the industry that many of the problems which have been elucidated here in the debate reflect the difficulties they are experiencing at local level. To some extent, we must close off the exploitation of legal loopholes. Many people operate their businesses to the letter of the law while others do this while also operating to a high personal ethical standard. That is where we need to get to. We need the legislation to reflect that type of ethical standard as well. The Minister of State indicated that many people here would have been contacted about large main contractors with a group of companies, one of which — effectively a paper company — was allowed to fold, and as a consequence all creditor subcontractors of that company receive nothing for work they have done. This Bill sets out a mechanism for tackling that issue. The experience in Britain is one that we could seek to replicate here. I understand that over the past 15 years there have been strict provisions on payment within the construction industry; it is claimed that this has minimised the effect of the recession on the construction industry in the UK, which is a not unimportant consideration in view of the difficulties we are experiencing here. The idea of an adjudication process in which cases must be decided on within a time limit of six weeks and which would have the force of being temporarily binding is good. The vast majority of cases, apparently, are concluded based on the recommendation of the adjudication process rather than being taken through the lengthier and more costly arbitration system. I urge the Government to address all the issues involved to ensure there is a fair payment system.

One item that is not provided for in the Bill is a requirement for a clause in contracts with subcontractors specifying that payments are to be made when they become due. It should be the right of the subcontractor to withdraw from his obligations under the contract pending payment without any recourse for the main contractor to dismiss him from the works or the site. This would create an imperative for the main contractor to deal with issues of payment.

Senator Alex White made a pertinent point about the application of employment regulation agreements across the board, including to people who were not party to them. This is now an impediment to the restoration of progress within the construction industry and is adding to the problem of unemployment. It should be considered as a matter of urgency.

Senator John Paul Phelan has eight minutes.

I will not need my eight minutes. I missed most of the debate thus far and I am not long in the House, but I wanted to take the opportunity to commend Senator Quinn on his introduction of this Bill and to support it. I remember the Minister of State, Deputy Mansergh, who was then a Senator, was here five or six years ago when we discussed a Private Members' motion in the name of the then Senator Jim Higgins, who is now an MEP. He proposed a similar Bill applying specifically to electrical contractors in the construction sector, although it was voted down by the Government at the time — perhaps not surprisingly, as we were then in the middle of a housing bubble which later proved to be catastrophic and there were many voices on the Government benches who did not want to believe there would ever be a day of reckoning for construction and for the people employed in it. Sadly, however, that day did come to pass, and many people in the construction industry have lost their jobs or are in financial difficulties.

I was struck by the comments of Senator Jim Walsh, with whom I do not often agree but who was perspicacious with regard to the construction industry in the south-eastern region. I spoke recently to a person involved with IDA Ireland who said he regarded the south east as a part of the country that had not seen anything from the Celtic tiger. Construction was a major employer in that area, particularly in Wexford but also in Carlow and Kilkenny and perhaps in the Minister of State's constituency of Tipperary South. Many of those jobs are now gone; some people have left the country to try to gain a livelihood and are not part of the live register figures any more.

I commend the Minister of State's decision to consider the issue for the next five months before returning to the House on Committee Stage. It is quite likely — I read through the Bill before I came in — that some amendments will be necessary to improve the Bill; I hope the Minister of State will be in a position to introduce these.

I wish to note a couple of items of correspondence that Senators received about the proposed Bill. I was struck by the comments of the Construction Industry Federation, which I saw as a group that was more concerned with the interests of larger companies rather than subcontractors; however, it certainly nailed its colours to the mast on this Bill. Don O'Sullivan was the county engineer in Kilkenny County Council when I was elected for the first time 11 years ago. I was a starry-eyed young student and I can say with my hand on my heart that Mr. O'Sullivan was the most exceptional local authority official I have ever dealt with, although I have not dealt with him since he left the employ of the county council. I take great interest in his support for the Bill as expressed in his letter.

I am anxious that whatever sort of mechanism for arbitration is drawn up from the legislation, if it comes to pass, should not be too cumbersome. It will need to be able to react quickly to difficulties that arise between contractors and subcontractors. It is particularly important at this juncture, when so many small businesses, particularly those in construction, are having difficulty in getting their hands on credit from the banks. Many people in my area were employed as carpenters and electricians during the construction boom. Some of those businesses were quite viable and successful and could have continued into the future, but they were pushed to the wall because of difficulties in obtaining money from contractors and credit from our financial institutions. Anything that can be done should be done to ensure a speedy flow of cash for work that has been done by subcontractors. That is why I am supporting this Bill.

Senator Corrigan has eight minutes.

I will be as quick as possible.

I welcome the Minister of State and commend Senator Quinn on his introduction of the Bill, which is much needed at a difficult time for subcontractors, be they small companies or sole traders. As the Minister of State said earlier, we all have experience of being approached by people who are finding it difficult to obtain payment and whose businesses are on the line as a result, as are the livelihoods of any employees who work for them. This has a knock-on effect on our communities and on the economy, and a devastating impact on the families of the employees.

I welcome the announcement by the Minister of State that he intends to start a consultation process with the industry and that he will come back to the House within five months. The inclusion of a process for adjudication within the Bill is of particular value. I ask the Minister of State, in light of instances of which I am aware, to consider some of the following aspects.

One example is a situation in which a subcontractor has undertaken and completed work using materials he has already paid for. This results in an end product from which somebody else derives a benefit, yet the subcontractor himself does not get paid. In such a situation the person in possession of the product can operate it and derive a benefit from it while the subcontractor who has funded it through labour and materials finds himself going out of business. Will the Minister indicate whether it may be possible to consider a mechanism by which the debt that has not been discharged would travel with a finished product, so to speak, and the person deriving a benefit from that product would be liable for it? I would appreciate his consideration of that. The parallel application of it would be in the case of someone buying a house on which there were outstanding debts that were not discharged prior to the purchase of the house. That person would then become liable for any outstanding charges set against that house because they are deriving the benefit of residence in it.

I draw the Minister's attention also to international law in terms of the admiralty law whereby if one owns a boat and takes in supplies of food or fuel without paying for that fuel or food, it is possible for that boat to be held in limbo and not function until those debts are discharged. That is something consideration should be given to in that if someone has a product that can be operational but which has not been paid for, somebody would have the right to look for the function of that product to be halted until their debts are discharged.

There is another point to which I would like the Minister to give consideration. A trend developed in recent years whereby a shelf company would be established to oversee a particular project. When the subcontractors or any other individuals associated with work on the project send in their bills at the end of the project, it would be announced that the shelf company no longer had any money to pay the outstanding amounts. If the shelf company had no assets it would go into liquidation and there would be no recourse for payment, other than through the courts, for the people who had completed the work and paid for the materials. In situations where companies overseeing a project have no permanent assets, will the Minister indicate whether consideration could be given to the establishment of a payment bond that would be set aside by the company? I understand a similar process is followed in the United States in that somebody who is overseeing a project and commissioning out work must set aside a payment bond to ensure that if for some reason costs overrun and somebody cannot be paid, the money has been set aside to ensure no individual who pays for materials or gives their labour is left out of pocket.

In terms of other mechanisms to consider, I am struck by the fact that if all else fails and the Minister must go to the courts, he is in a quandary. The extension of the small claims court to small businesses was welcome but it is only for small amounts of €3,000 or less. If someone is owed €1 million or more they can go to the commercial courts but if they are owed any amount in between, neither of those avenues are open to them and they must go through the regular court system where one can wait approximately two years for the case to be heard.

If a small operator with nine or ten employees has an outstanding bill that he or she must pursue through the courts and it will take up to two years to have that debt discharged, by the time the case comes before the court that operator will be out of business and there will no longer be a debt to be discharged. That is not acceptable. I ask the Minister to give consideration to that because most of the people we are talking about in this debate are subcontractors who will fall within that band. They will not have either of those two fast-track options available to them when it comes to court and will be obliged to endure the two year waiting process.

I want to give an example of a company in my area that I was struck by and which raised questionable moral issues for all of us. The company in question carried out some work in good faith for a hotel refurbishment project. It paid for the materials and the labour. It presented a bill at the end of the project and was told there was no money available. It was a shelf company and the shelf company was going into liquidation. That company has between nine to 11 employees who work for it full-time. It tried to pursue the money but was unable to get it. While the shelf company went into liquidation, the hotel for whom this company had carried out the work continues to operate and is deriving the benefit of this company's materials and labour for which it cannot get paid. Within a few months that company with the nine to 11 employees will go out of operation yet the hotel will continue to operate. In fact, it is operating at a profit as a result of materials and labour paid for by somebody else.

I am not an expert in this field but my interest was piqued while sitting in the Chair earlier and I asked a few people I know to provide me with some information on it.

I congratulate Senator Quinn because he has come forward with a Bill which will be accepted in the fullness of time, perhaps in the form of a more detailed Bill.

I agree with Senator Alex White that the payment difficulties throughout the system are not exclusive to the construction industry. Many people in my constituency are experiencing significant difficulties in that they cannot fill the orders on their books because they cannot get the money for the raw materials as they were not paid for their last job.

That ties in to one of the issues that is pertinent currently, namely, the unwillingness of the banks to put money into the system and allow viable businesses continue in operation. I commend the Minister for Enterprise, Trade and Innovation, Deputy Batt O'Keeffe, for bringing in representatives of the banking industry today and yesterday to question the reason the money that was put into the system has not found its way down to small and medium enterprises. I know that is a slightly different issue but it is strongly related to the one under discussion.

We know that in good and bad times delayed and an acrimonious flow of cash through the construction supply chain is a major difficulty in the industry. It is leading to insolvencies and unemployment down through the supply chain. That is pertinent now with the banking sector in its current state and therefore the cash flow element is significant.

It is important to examine the example in the United Kingdom. This issue was tackled 15 years ago in the UK with the introduction of the strict provisions on payment in the construction industry. I understand that has been a major success and is one of the factors in minimising the effects of the recession in the construction industry in the UK.

In terms of what we do here, we talk about an island economy and all-island viewpoints on certain issues yet we do not have laws that are mutually reciprocal. That is one of the reasons this legislation is important at this time because there are many people in the construction industry here who have built in the North, andvice versa. The construction industry has become a 32 county Ireland industry. I am aware issues have arisen in Belfast with people who have built and others who were committed to buying but who did not buy. All of those issues highlight the importance of more transparency and unity in our approach to legislation, if it is good legislation. If there has been good practice in the UK, and it appears that is the case, it would be sensible in that context to ensure we move on this issue as fast as possible.

I understand the intention is that the Minister will come back to the House in five months with a Bill having had many negotiations in that time. That is important because whatever we do in terms of Government contracts and trying to stimulate the construction market it is important that everybody, down to the subcontractor, gets paid.

I understand the issue is based around getting payment for work done. I am told the solutions are based on banning the most obvious abuse, namely, pay when paid clauses; requiring contracts to have strict and fair payment provisions; and having enforceable prompt dispute resolution provisions, which is the issue of the adjudication. The Construction Contracts Bill addresses the second and third points and partly addresses the first point.

The adjudication aspect has been well tested in the UK in the past 12 years and it is said to be working well. It was introduced in the Housing Grants Construction and Regeneration Act 1996, with a similar Construction Contract Order 1997 extending the same provisions to the North. Recently the UK regime has been revised and strengthened. If that applies in the North and is good practice, it might be sensible to adopt an all-island version of it.

Adjudication provides for a dispute resolution process typically confined to no more than six weeks, in which a neutral construction professional will assess the claimant's claim and hear submissions from both sides. I understand the argument made earlier, that one cannot force both parties to be involved. Therefore, there may be difficulties with the process and it may not be as simple as it sounds. However, we must start somewhere. Usually, the adjudication is done without the need for an oral hearing, which keeps costs down. The adjudicator's decision is then temporarily binding on both parties. If the adjudicator finds that money is due from one party to the other, that money must be paid and is enforceable by way of summary judgment. Either party can then bring the matter to arbitration, which is a much lengthier and more costly process. In Great Britain and Northern Ireland, the majority of cases are settled after the adjudicator's decision.

It is suggested that it is important to keep the statute law that will be introduced in the Republic of Ireland in the same wording and layout as that used in the United Kingdom and Northern Ireland. Some 400 cases have been decided on adjudication in the United Kingdom over the past 15 years. Clearly, there is a great wealth of case law and if the Irish Act were to use the same wording, there would be much more certainty as to how the courts here might interpret it. Senator Quinn's Bill explicitly removes consumers and residential homes from the provisions of the Act. This is a welcome provision. I note the Act does not favour any particular section within construction, but discriminates against those who have shoddy and or unethical payment practices.

It is important debate on this issue is stimulated here. This is the start of an important process. People have asked why we are doing this now and why it is needed, because there is a wider picture. I suggest we need to review the wider picture I mentioned at the start of my contribution. If we are in a situation where bank lending stymies other sectors as well as construction we should, perhaps, look at the generality of people not getting paid for work done, which has a massive trickle down effect. I know from my constituents this has been an issue within the construction industry and this debate should lead to good legislation. We may already have good legislation to which we can refer and we can marry the two together. I wish the Minister and his officials well with bringing this legislation to a positive conclusion and look forward to seeing it before the House.

I thank the Minister of State for his comments. It does not seem like tautology for me to say his contribution and the others we heard have been very constructive — a good word to use on the Construction Contracts Bill. I have been very impressed by the contributions and found them useful. Senator Boyle said there is a need for this Bill and I believe there is.

The Minister of State said his comments were not intended as a criticism and I understand that. He also said he was sympathetic to the aims of the Bill. Everybody who spoke has been sympathetic to it. Senator MacSharry said he did not disagree with any of it, but felt some additions would benefit the Bill and make it more effective. I accept improvements can be made to any legislation and I hope this legislation will be improved. Senator Alex White said the problem was not confined to the construction industry. However, it is pertinent to the construction industry. In any other business, if someone sells somebody something and payment is not made, the person can go and repossess the item. However, that cannot be done if a person has supplied piping or wiring that has already been embedded in the product. Senator White also spoke about the adjudication and dispute resolution and Senator O'Toole mentioned the experience in France. Senators Norris and MacSharry spoke about the British experience of adjudication, where there have been 18,000 cases, only 300 of which ended up in court. What a success that is. We can do more in that regard.

One of the difficulties I had with introducing this Bill was the concern that it would create more red tape for Irish business and industry. More red tape inhibits entrepreneurship, which is something on which we will have to rely to a large extent in the future. Hopefully, this will not happen. I was impressed by Senator Corrigan's contribution. She suggested that when people buy a house, the house should have a clean bill of health and should come with some sort of bond that would guarantee all bills had been paid, including construction bills. We should look at that issue.

I have a concern with regard to the five-month period mentioned by the Minister of State. I have introduced two Bills in the past, one of which was accepted, the passports for sale Bill. The Minister at the time, not unlike today, said he could not vote against it because he could not disagree with anything in it. The Bill was not amended, but the Minister later introduced his own Bill and improved on mine. I would like to think this Bill will be retained and that a new one will not be created. Another concern relates to the second Bill I introduced, which had to do with presumed consent for organ transplants. The Minister said at the time that he thought he agreed with most of it, but would like to consult on it. That was in September 2008, which is the reason for my concern. I have found that the difference between my experience in business and in the public sector is the lack of urgency. I am concerned by the lack of urgency. I am concerned that the period of time between now and 19 October could develop into a talking shop.

I urge the Minister of State to ensure that does not happen. The Bill should not become a discussion issue but become something that will achieve what we set out to do. I understand that Committee Stage for this Bill will take place on Tuesday, 19 October. I want to ensure this House holds to that. I understand that is the case and hope it happens. In the meantime, the Department officials will consult the various bodies. I know that consultation will include the Construction Industry Federation, which has 37 separate association members. The federation has been very helpful to me in drawing up this Bill. Mr. Patrick McGovern of Arthur Cox and company has also helped me a great deal and so too has my assistant Anne O Broin. I mentioned earlier that Seán Gallagher initiated this idea and had the experience to contact us to suggest it should be done.

I appreciate the efforts of all of those who have been involved in this work. I particularly appreciate the involvement and contributions of Members here. I appreciate their input and the thought put into their contributions with the clear aim of improving the Bill. The Bill can and will be improved over the next few months. We need to keep up the sense of urgency because the Bill will not be retrospective. We will not be able to go back and do anything about anything that goes wrong during the next five months waiting period. The Bill will only apply in the future. Therefore, let us ensure we do not delay it. I am happy to accept the amendment and appreciate the work that has been put into the debate.

Amendment put and declared carried.

When is it proposed to sit again?

At 10.30 a.m. tomorrow.