I propose to take Questions Nos. 415 and 416 together.
The conditions of most construction contracts in use between construction clients and building contractors in both the public and private sectors require that payments are made at defined intervals and that payment is contingent on work being completed to a pre-determined standard. There is usually no contractual obligation on the main contractor to make payments to subcontractors because this is left to the commercial arrangements that are contained in their respective contracts.
In order to address poor payment practices by some operators in the industry legislation to regulate payments under construction contracts was proposed by Senator Feargal Quinn. Now enacted and applicable to all contracts entered into since 25 July 2016, the Construction Contracts Act was developed with industry and received cross party support in both the Seanad and the Dáil. The Act imposes minimum terms on all construction contracts, public or private, whether they be written or oral and provides the tools necessary to enforce payment. These include:
- a maximum payment interval of 30 days and a requirement to honour payment requests within 30 days for sub-contractors;
- a right to suspension for non-payment; and
- a right to refer a payment dispute to adjudication.
The legislation also outlaws the practice of ‘pay-when-paid’ provisions which were prevalent in most forms of sub-contract.
While the legislation does not apply to a contract between a State authority and its partner in a PPP arrangement, it does apply to contracts that are subsequently awarded by the partner to a PPP.
In all forms of public procurement, whether through traditional procurement or PPP, contractual arrangements need to protect the public interest. Were provisions to be included in a public works contract to make direct payments to sub-contractors, in order to be enforced, it would require the main contractor disclosing their commercial arrangements with their subcontractors and so on down the supply chain so that the contracting authority can understand the different commercial arrangements in place throughout the supply chain. This in turn suggests that the contracting authority, who usually has no involvement in determining these commercial arrangements, should participate and in many cases manage the procurement process for each of the sub-contract packages which greatly increases the time and resource commitment necessary to procure and administer a project. There is also a considerable risk that the contracting authority would be drawn into contractual disputes between different members of the supply chain.
In PPP projects the Authority enters into a project agreement with the PPP company for the provision of works and services. The PPP company employs the construction and services companies who in turn employ the subcontractors. The Authority has no arrangement with the PPP Company’s works or services companies, nor the underlying subcontractors and is unable to intervene in a payment dispute.
