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In May 2010 the Construction Contracts Bill 2010 was introduced in the Seanad.  It was passed on 8 March 2011 and is now before the Dail for consideration.  The Bill seeks to address the issue of payments between employers, contractors and sub-contractors in construction contracts by the introduction of a statutory mechanism for resolving payment disputes through a fast track adjudication process.    The Bill in its original form was almost identical to the relevant provisions of the UK Housing Grants Regeneration Act, 1996 (the UK Act).

The UK Act introduced a mechanism for adjudication in construction contracts and has been in effect since 1998.  The Act provides for adjudication where a party to a contract withholds payment having failed to serve a notice of intention to withhold payment.  The adjudicator is obliged to render a decision within 28 days (or 42 days with the consent of the referring party).  The decision of the adjudicator is binding notwithstanding a referral to arbitration for final determination of the dispute.  The act is based on a “pay now argue later” philosophy.  The Act has significantly reduced the number of construction claims in the UK and has been enacted in similar form in other countries such as Australia, Singapore, New Zealand and Hong Kong.

The Bill passed by the Seanad and currently before the Dail has been amended from its original form and now differs in a number of respects from the UK Act.  Many of the changes are technical in nature and the Bill broadly maintains the same principles as the UK Act of preventing a party from withholding payment without notifying the other party of its intention to do so and its reasons for doing so.   It provides for a mechanism of adjudication in identical form to the UK model. It also prohibits conditional payment clauses with the exception of insolvency situations. 

The Irish Bill as drafted however contains one amendment which departs significantly from the “pay now argue later” philosophy of the UK Act.  The amendment is contained at Section 6 and provides that the adjudicator’s decision will not be binding where a dispute is referred to arbitration or other proceedings are initiated seeking final determination of the dispute.  If the Bill is passed in its current form the party against whom the decision is made will be able to delay payment by referring the dispute to arbitration thus forcing the other party into a protracted dispute without providing a mechanism for immediate payment.

The amendment to the Irish legislation attempts to address concerns in the Department of Finance regarding public contracts and to avoid a situation where public monies would be paid out which would ultimately be incapable of recovery in the event that an arbitrator overturned a decision of an adjudicator.  A regulatory impact assessment will be carried out prior to enactment of the legislation and there is a commitment to explore alternatives to this amendment.  It is important that an alternative solution is found as the Bill in it’s currently form replaces “pay when paid” with “argue now pay later” as opposed to “pay now argue later” which was the objective of the legislation.

Attribute to Susan Byson, Partner, Mason Hayes & Curran. Susan Byrson is a Partner in the Construction law at Mason Hayes & Curran. For more
information, please contact Susan at sbryson@mhc.ie or + 353 1 614 5000. The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin,
London and New York. © Copyright Mason Hayes & Curran 2011. All rights reserved.