I propose to take Questions Nos. 201 and 202 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 sub-contractors because this is left to the commercial arrangements that are contained in their respective contracts.
Poor payment practices prevalent in the construction industry prompted Senator Feargal Quinn to table a legislative response in the form of the Construction Contracts Bill which was initiated in Seanad Éireann in May 2010 as a Private Member’s Bill. Analysis undertaken during the development of the Bill highlighted the liberties that were taken by some in the absence of a structure to determine payments down the supply chain.
The Bill received Government and industry support and was enacted in 2013, it applies to all contracts entered into after 25 July 2016. The Construction Contracts Act imposes minimum payment requirements and provides the necessary tools to enforce those payments between the main contractor and their sub-contractors and so on down the supply chain. It applies to all construction contracts (as defined in the Act), public or private sector, whether they are written or oral and whether they include payment provisions or not.
The provisions of the Act 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;
- a right to refer a payment dispute to adjudication; and
- the prohibition of arrangements that make entitlement to payment conditional on certain events, (e.g. ‘pay when paid’ clauses, which delay payments until the payer has, in turn, been paid), which were prevalent in most forms of sub-contract.
The public works contracts were amended prior to its commencement in June 2016 to accommodate the requirements of the Act and to facilitate cashflow in accordance with the payment terms imposed on main contractors with respect to their sub-contractors.
Whilst much of the interest from industry surrounding the Act was centred on the introduction of adjudication, it is the discipline that the legislation imposes on payments that appears to be largely ignored. Arguably these are the most important provisions in the Act but sub-contractors must be proactive in enforcing their entitlements with the contractor for payments that are due.
The Act does not cut across the normal rules for company liquidation/receivership and so where this arises there is no avenue for recovery from the insolvent party. However the magnitude of the exposure that many sub-contractors currently face upon the insolvency of a contractor would not arise if the provision for payments were insisted upon and the remedies available were exercised where payment is not forthcoming.
It is unacceptable that sub-contractors are suffering losses as a result of the insolvency of a contractor on a construction project. It is all the more galling when it arises on a public works project since the State pays what is owed under its contracts. However the issue raised would suggest that sub-contractors are not exercising the rights provided for in the Act which is surprising given the welcome it received by all contracting tiers in the industry and indeed the support it received from members of both Houses of the Oireachtas.
The Construction Contracts Adjudication Service in the Department of Business, Enterprise & Innovation has responsibility for matters in relation to the implementation of the Construction Contracts Act, 2013. The Chairperson of the Ministerial Panel of Adjudicators submitted the first Annual Report on the implementation of the Construction Contracts Act, 2013 to the Minister of State with responsibility for the Act, Mr Pat Breen TD, which covers the period from the 26th July 2016 to 25th July 2017. A link to the report follows. https://dbei.gov.ie/en/Publications/First-Annual-Report-implementation-Construction-Contracts-Act.html