Construction Update: Foundations Laid for Continued Success in 2019
12 December 2018
We review construction industry developments from 2018, including publication of the State’s new national planning and capital expenditure plan, the implications of contractor insolvencies on construction projects and the experience of adjudication in Ireland to date.
Project Ireland 2040
In 2018, the State published its new €116 billion national planning and capital expenditure plan, Project Ireland 2040. The plan will see significant investment in infrastructure, including the construction of 500,000 new homes. Implementation of the plan is likely to result in continued activity across the construction sector in the years to come.
Following the launch of the plan in February 2018, a Construction Sector Group chaired by Department of Public Expenditure and Reform was established. The role of the group is to ensure regular and open dialogue between the Irish Government and the construction sector to address issues that may impact on the successful delivery of Project Ireland 2040. Along with establishing the Construction Sector Group, the State has published a capital projects tracker. This tracker will identify a pipeline of 271 projects and programmes, where capital costs exceed €20 million and which are planned for delivery in the medium-term future. The tracker aims to provide full transparency on infrastructure project priorities, costs timelines and performance targets.
We discuss the key features of Project Ireland 2040 in greater detail here.
Despite construction activity progressing at considerable pace in 2018, a number of high profile contractor insolvencies made headlines this year. From the collapse of Carillion in the UK – the effects of which reverberated in Ireland through the appointment of a liquidator to school builder Sammon Contracting – to the examinership of a number of prominent Irish contractors, insolvency has given many in the construction industry cause for concern.
Significant cost inflation in a market where fixed price contracting remains the predominant procurement strategy is frequently identified as a key factor constraining profitability and creating tight margins within the sector. Robust procurement regimes and careful pricing strategies are critical to ensuring that parties can adequately resource their projects.
These recent high profile insolvencies provide a timely reminder that appropriate due diligence and comprehensive financial security are key tools for employers in safeguarding their position and mitigating against possible contractor insolvency events. We examine the steps an employer can take to protect its position, both at the outset of a project and when an insolvency event occurs, in greater detail here.
Adjudication – experiences to Date
Adjudication has been available as a means of resolving payment disputes under construction contracts since 2016. To date however, only a very limited number of adjudications have taken place. There are likely to be a number of factors contributing to this low up-take of adjudication. The current upward cycle in the industry may simply have reduced the volume of disputes. The fact that adjudication remains largely untested in Ireland is also likely to be a material consideration with parties choosing to use more familiar dispute resolution procedures, such as conciliation and arbitration, in preference to adjudication.
We may see an uptake in adjudication as projects delivered under contracts subject to the Construction Contracts Act 2013 near completion, with the possibility of dispute over final accounts or unresolved claims being referred to adjudication. Until then, it remains unclear what impact adjudication will have on construction disputes in Ireland. Much will depend on the industry’s experience of adjudication and its confidence in the process, together with the approach the Irish courts will take towards enforcement when the issue eventually comes before them.
Although there are challenges facing the construction industry, demonstrated by the recent spate of contractor insolvencies, the sentiment and outlook for 2019 remains positive.
Growth in 2018 was focussed predominately in the private sector, including commercial, residential and retail development, along with wind and other renewable energy projects.
Looking towards 2019 and beyond, it seems likely that public private partnerships for the construction of accommodation and key infrastructure will begin to feature more prominently as the State begins to implement its strategic aims set out in the Project Ireland 2040 Plan.
For more information and expert legal advice on matters affecting your projects in 2019, contact a member of our Construction team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.