Construction payment and adjudication in Republic of Ireland
Introduction
The construction contract payment and adjudication regime in the Republic of Ireland is regulated by the Construction Contracts Act 2013 (the Act), which is broadly inspired by the Housing Grants, Construction and Regeneration Act 1996 in the United Kingdom.
What legislation governs the payment regime in Ireland?
The Act became effective in July 2016, establishing principles relating to payment arrangements under "construction contracts" and introducing a statutory dispute resolution mechanism for construction contract payment disputes through adjudication by an independent third party. The Act is supplemented by the Code of Practice Governing the Conduct of Adjudications, which provides clarity on the mechanics of the adjudication procedure.
The payment regime in the Republic of Ireland is distinct from that of Northern Ireland, which is governed by the Construction Contracts (Northern Ireland) Order 1997 and the Scheme for Construction Contracts in Northern Ireland Regulations (Northern Ireland) 1999 (as amended).
What is the effect of this legislation?
The Act requires that "construction contracts" include terms providing for the amount of each interim payment and amount of final payment (or an adequate method to determine such amounts), the payment claim date (or mechanism to determine it) for each amount due, and the period between payment claim date and payment due date. The Act prescribes a defined payment schedule, which shall apply to a "main contract" to the extent such contract does not expressly make provision for the aforementioned payment terms, and to a subcontract except to the extent that the subcontract provides for more favourable terms to the executing party.
The Act precludes (save in certain limited circumstances) the effectiveness of “paid when paid” clauses, previously a common feature of sub-contracts in the Irish market, and creates a limited statutory right to suspend performance for non-payment.
To what type of contract does the payment regime apply?
The Act applies to contracts under which an executing party is engaged in carrying out, arranging the carrying out, or providing its own or others' labour for the carrying out, of "construction operations". Construction operations are defined as "any activity associated with construction", including (non-exhaustively) temporary and permanent operations ranging from construction, maintenance, and demolition of works to buildings, roadworks, industrial plant and utilities, to non-structural activities such as scaffolding, and painting.
Agreements to provide ancillary services such as architectural, or project management services are captured by the Act, meaning that most professional consultant appointments for a project typically fall within the scope of the Act.
The Act applies to construction contracts in both the private and public sectors (excluding PPP contracts) irrespective of whether the parties thereto intend to limit or exclude its application. Certain agreements, including those with a value not more than EUR10,000 and those relating only to a dwelling, are expressly excluded from the Act.
What types of disputes can be referred to adjudication?
A party to a construction contract may refer "any dispute relating to payment arising under the construction contract" (a payment dispute) to adjudication at any time under the Act.
In practice, most adjudicated disputes tend to relate to final or interim payments, but adjudicators have accepted a broad jurisdiction to hear a variety of disputes including those on questions of interpretation of payment provisions, even where payment was not being sought.
What is the format of adjudication?
To begin the process, a referring party serves notice on the other party of its intention to refer the payment dispute to adjudication, following which the parties have 5 days to agree upon an adjudicator (failing which, one is appointed by the chair of the panel of adjudicators established pursuant to the Act). Upon appointment, the adjudicator informs the parties of the procedures it intends to apply, including directions regarding the timetable and any deadlines to be adhered to by the parties during the adjudication.
The adjudication process itself is mainly adversarial in nature. The adjudicator may adopt an inquisitorial role but is not obligated to do so. For the purpose of proceedings, the adjudicator may appoint experts, assessors or legal advisers, make site visits or carry out tests, invite written submissions from the parties, or, where appropriate, hold an oral hearing. The process concludes with delivery of the adjudicator's written decision within 28 days of the date of referral of the dispute (which may be extended by up to 14 days with consent of the referring party).
How are adjudicator's decisions enforced?
An adjudicator's decision is binding and enforceable upon the parties, until they settle their dispute, or refer the decision to arbitration or court proceedings. Like the enforcement of a court judgment, a party may apply to the High Court for leave to enforce an adjudicator's decision. Relatively few such applications have come before the Irish Courts, but recent case law confirms that the default position is that the party successful in adjudication is entitled to enforcement of the decision in the interim, with the unsuccessful party having a right to reargue the underlying merits of the payment dispute in subsequent arbitral or court proceedings. The Courts have discretion, however, to refuse to enforce a decision, even on a temporary basis, where there has been a blatant or obvious breach of fair procedures.
What impact has the payment regime had on Ireland's construction industry?
Despite a slow start to adjudication participation, as the 10-year anniversary of the Act coming into force approaches, it is now well entrenched in the industry with referrals to adjudication increasingly prevalent; more adjudicators were appointed to hear payment disputes in 2023/2024 than in any previous year. The body of persuasive case law derived from analogous legislation in the UK has provided useful guidance to date but as more adjudicator's decisions come before the Irish Courts, a comprehensive body of domestic decisions is likely to shape the long-term impact of the Act on the sector.
What reforms do you expect to the regime?
No reforms are expected soon. Going forward, the Act could benefit from further clarification of the meaning of a "payment dispute", the definition of which is circular and open to broad interpretation. Since a key objective of the Act was to alleviate cash flow issues in the industry, confining adjudication to instances where a payment claim has been made, might be preferable. The ability to refer to adjudication "at any time" has also been criticised by some commentators as inappropriate and, in some cases, unfair. An amendment prescribing a specific, limited timeline for referrals could be considered in the future. Finally, reform would also be welcome to clarify the consequences of failure to respond, within the prescribed period, to contest a payment claim; the Act is currently silent as to whether, in the absence of such response, the full amount claimed must be paid.
