The Construction Contracts Act, 2013 in practice

Oct 01, 2019
Three years after its commencement, Construction Contracts Act, 2013 continues to provide a pathway to cash flow in the construction sector.

By Pat Breen TD

This innovative and important legislation for the construction sector, which was commenced in 2016, regulates payments and particularly the timing of payments under construction contracts. While many businesses in the construction sector are aware of this legislation, some businesses may not be fully aware of the detailed statutory protections and obligations set out in the Construction Contracts Act, 2013.

One of the key objectives of the legislation is to provide payment certainty for subcontractors, who were considered vulnerable in the payment cycle in the construction sector.

As the construction sector continues to expand, cash flow is critical and it is cash flow that is at the core of the Construction Contracts Act, 2013. Therefore, construction businesses should ensure that their payment practices comply with the terms of this legislation.

I consider that members of the accountancy profession are uniquely placed to encourage construction businesses across the country to review their payment practices to ensure that they comply with this legislation. I welcome the opportunity provided by Accountancy Ireland to highlight this legislation, and a brief summary of the main provisions of the Act is set out below. Further information on the Act is available on the website of my Department at www.dbei.gov.ie.

Applicability of the Construction Contracts Act, 2013 to construction contracts
The Construction Contracts Act, 2013 applies to certain construction contracts entered into after 25 July 2016, but not to all such contracts. For example, it excludes:

  • Contracts of a value of not more than €10,000; or
  • Contracts that relate only to a dwelling of not greater than 200 square metres where a party to such a contract occupies, or intends to occupy, the dwelling as his/her residence; or
  • Contracts between a State authority and its partner in a public private partnership arrangement.
All other construction contracts must comply with the provisions of the Act and the parties may not seek to exclude a contract from the legislation under any circumstances, whether the contract is an oral contract or a written contract. Construction contracts to which the Act applies must provide for the following contractual terms:

  • The amount of each interim and final payment, or an adequate mechanism for determining those amounts;
  • The payment claim date for each amount due, or an adequate mechanism for determining it; and
  • The period between the payment claim date and the date on which the amount is due.

Main contracts and subcontracts

Main contractors are at liberty to agree their contractual terms with their clients, subject to adhering to the mandatory provisions required by the Act as outlined above. However, if a main contract fails to fully incorporate the mandatory provisions, then the Act imposes the applicable contractual term or terms set out in the Schedule to the Act, terms which are also applicable to subcontracts.
The Act stipulates that all subcontracts must at least provide the following payment claim dates:

  • 30 days after the commencement date of the construction contract;
  • 30 days after the payment claim date referred to above and every 30 days thereafter up to the date of substantial completion; and
  • 30 days after the date of final completion.
The date on which payment is due in relation to an amount claimed under a subcontract shall be no later than 30 days after the payment claim date. The Act permits the parties to a subcontract to make more favourable provision for a subcontractor than the above contractual terms.

Payment claims

An executing party – the party which carries out the work under a construction contract – is required to submit a payment claim notice to the other party no later than five days after the relevant payment claim date. If the other party disputes the amount claimed by the executing party, that party is required to respond to the executing party in writing no later than 21 days after the payment claim date setting out the reason(s) why the amount claimed is disputed and the amount, if any, that it proposes to pay to the executing party.

It may be possible for the parties to reach an agreement on the amount to be paid to the executing party. However, if no such agreement is reached by the payment due date, the other party is legally required to pay the executing party the amount, if any, which the other party proposed to pay in its response to the contested payment claim notice from the executing party. This payment shall be made no later than the payment due date in accordance with Section 4(3)(b) of the Construction Contracts Act, 2013.

Statutory adjudication of payment disputes

The Construction Contracts Act, 2013 also introduced, for the first time in Ireland, a statutory right to refer a payment dispute for adjudication. A ‘notice of intention’ to refer a payment dispute for adjudication must be served by one of the parties to the payment dispute. The parties may then jointly agree to appoint an adjudicator of their own choice, within a five-day period. However, if the parties cannot reach agreement on who to appoint, an application may be made after the five-day period to the Chair of the Construction Contracts Adjudication Panel, Dr Nael Bunni, to request the appointment of an adjudicator to the dispute. The appointed adjudicator, whether appointed by agreement of the parties or by the Chair, is required to reach a decision on the dispute within 28 days. This period may be extended in certain circumstances.
 
Pat Breen TD is Minister of State at the Department of Business, Enterprise and Innovation.