New Commercial Builds And The Law

By March 27, 2017 Uncategorized No Comments

When undertaking new commercial builds there are various legal matters that need to be carefully considered. Below is an overview of the key areas that construction companies need to be aware of. If you require assistance navigating any of these topics or have construction-related legal questions please contact Regan Solicitors on 01 6874100 or fill out this contact form and someone from our team will be in contact with you shortly.

1. INTRODUCTION 

As the Construction Industry in Ireland continues to recover there is an urgent need to increase construction activity, particularly in the office and residential sectors.

In this article we explore some of the legal considerations impacting new builds.

The past 18 months has seen a number of initiatives introduced by the government with the aim of boosting activity in the Construction industry. Principal among these were the review of the Irish Public Works Contracts, changes to the Building Control (Amendment) Regulations 2014 and the commencement of the Construction Contracts Act 2013.

The review of the Irish Government form of contract is ongoing and the amendments are expected early in the new year.  The Construction Payments legislation is still making its way through the legislative process bringing with it the introduction of Adjudication as a means of resolving construction disputes.  The debate surrounding the new Building Control Regulations intensified with the introduction by the government of an opt out for one off houses and domestic projects.

 

2. CONSTRUCTION CONTRACTS ACT 2013

The long awaited Construction Contracts Act 2013 (the “Act”) aims to provide certainty of payment to Contractors and introduces a statutory dispute resolution mechanism for construction contract disputes as a fast track means of resolving construction payment disputes. The Act will apply to construction contracts entered into after 25 July 2016.

Scope of the Act

The Act will apply irrespective of whether parties to a construction contract attempt to limit or exclude its application and/or where the applicable law is Irish or otherwise.

The Act applies to agreements to carry out or procure construction operations.  Broadly defined, this includes a comprehensive list of works or advices on construction, alteration, repair, maintenance, extension, demolition or dismantling of works ranging from buildings, road-works and utilities, to scaffolding and landscaping and painting.

The Act also applies to agreements to carry out professional services ancillary to construction including architectural, design, surveying, engineering or project management services.

It excludes manufacture or delivery of building or engineering components or equipment, materials, plant or machinery (except where the contract also provides for their installation).

Exclusions from Act

In addition to that noted above, the Act will exclude construction contracts:

  • With a value below €10,000
  • Relating to a residential dwelling with a floor area not greater than 200 sqm and where one of the parties will occupy the property as their residence
  • Of employment nature
  • Between a State Authority and its partner in a PPP arrangement
  • Relating to manufacture or delivery of building or engineering components or equipment, materials, plant or machinery (except where the contract also provides for their installation)

Changes to Payment Provisions

  • Interim and final payment mechanisms set out will apply to construction contracts including payment claim notices (unless already specified in the construction contract).
  • “Paid when paid” clauses will be prohibited.
  • Parties to construction contracts cannot withhold payment of money due unless they have responded in writing within 21 days to a payment claim notice.
  • There will be a new limited statutory right to suspend work for non-payment until full payment is made (subject to requirements including serving notice on the defaulting party).

This is of particular relevance to the contractor/sub-contractor agreements.

Payment Claim Notice

Arguably, the most important provisions of the Act to reflect in our contracts are the payment and suspension provisions.

Section 4 of the Act, however, sets out a new (albeit optional) regime in relation to the delivery of a Payment Claim Notice. The main nuance to be aware of is that this section provides the contractor with the opportunity to issue a separate or (perhaps consolidated) Payment Claim Notice to his usual interim payment application procedure prescribed in the contract, the receipt of which obliges the paying party to set out in very clear terms and within strict timelines, the amount it proposes to pay and reasons for withholding any payment and obliges it to pay the accepted amount by the payment due date.

Importantly, section 4 allows a 5 day window following the payment claim date prescribed in the contract within which the Payment Claim Notice may be served and it must be served on the employer or another person specified under the construction contract. The employer/ specified person then has 21 days to respond but, importantly, time runs from the payment claim date rather than the date of service of the Payment Claim Notice.

Sub-sections 4(2) and 4(3) of the Act respectively set out in broad terms what the Payment Claim Notice and the Response Notice should look like. Template notices have also recently been issued to stakeholders for review but there is no certainty yet as to the weight that will be placed on them.

In circumstances where no Response Notice is issued at all by the employer/ specified person, it is not clear under the Act whether this amounts to admission of the entirety of the claim. This is the position in England and Wales. The Act, however, is silent on this and so it must be presumed that the claim is not fully admitted in such circumstances, until we receive guidance from the courts in some of the first test cases to emanate out of the introduction of the Act.

It should be noted that service of a Payment Claim Notice and/or Response Notice is not a condition to the parties rights to refer a payment dispute to adjudication under the Act and section 4 expressly states that the rights and obligations conferred under it are in addition to any conferred by the terms of the construction contract.

It would seem that contractors will always wish to serve a Payment Claim Notice which triggers the consequent obligation to serve a Response Notice and so employers/paying parties need to be on notice of the same in their contracts together with the timelines for responding. It makes sense to align the parties’ statutory protections with the contract. Therefore it may be prudent to consolidate the Payment Claim Notice and any interim payment application such that the contract provides that both issue within 5 days of the relevant payment claim date.

Best practice is to incorporate into construction contracts precise drafting around the content and timing of issue of the Payment Claim Notice and Response Notice to align with the prescriptive nature of the Act. The Employer’s or specified person’s role in relation to the receipt and issue of Payment Claim Notices and Response Notices respectively should also be expressly identified.

Suspension, Sub-Contracting & Dispute Resolution

Every subcontract must now contain 30 day payment terms or better, and pay when paid is outlawed except in the case of insolvency up the chain.

Parties to construction contracts should be aware of the suspension provisions included at section 5 of the Act which confer a statutory right to suspend works once the payment due date is missed provided that a further 7 days’ notice of intention to suspend is given and provided that a notice of intention to refer the dispute to adjudication has not been served.

Parties also need to be aware that the right to refer a payment dispute to adjudication at any time will exist statutorily irrespective of what their contract says.

Dispute resolution

The extent of amendments required to the dispute resolution provisions of construction contracts may be less significant than those flagged above, save to note that the right to refer a payment dispute to adjudication exists at any time irrespective of the provisions of the contract. Parties may wish to continue to include the traditional forms of dispute resolution in their contracts (particularly since the ambit of adjudication under the Act only extends to “disputes relating to payment”) and there is nothing prohibiting them agreeing to alternate forums so long as the parties are aware that the right to refer a payment dispute to adjudication at any time statutorily exists (including midway through another process). This may also be a reason why some parties may not wish to include an alternative dispute resolution forum to adjudication in their contract other than litigation or arbitration as a final and binding forum.

Adjudication

Once in force from the 24th July 2016, it will introduce statutory adjudication for payment disputes in construction contracts and the right to stop work for non-payment. The adjudication process is intended to enable the parties to avoid protracted disputes which commonly arise during a project in order to ensure that cash flow is improved.

Getting paid for construction work is often not straightforward. Getting paid promptly is even more challenging. The best means of ensuring prompt payment in the construction industry has been a matter of discussion in Ireland for many years and the introduction of adjudication as a dispute resolution mechanism in Ireland is a major step towards improving efficiency of payment and cash flow.

Statutory adjudication will apply to contracts with a value in excess of €10,000, excluding most private residential contracts. Any party in the contractual chain, except suppliers unless also responsible for installation, can refer a claim concerning payment to adjudication.  A decision will be given within 28 days, with an extension of up to 14 days if the parties agree. The decision of the adjudicator will be binding until finally settled by the parties or determined differently either by a court or by arbitration.

Dr Nael Bunni has been appointed as the Chairman of the Panel of Adjudicators. The selection process for the Panel of Adjudicators was carried out over the last couple of months and a panel of adjudicators has been sent to the Government for approval.  It is understood that the Code of Practice is currently being drafted, as are rules of court, to provide for the enforcement of adjudicators decisions.

  • Parties can refer payment disputes to adjudication following 7 days notice.
  • Adjudicator’s decisions must be reached within 28 days of referral, or 42 days with the referring party’s consent.
  • An adjudicator’s decision is binding on both parties until the dispute is resolved through agreement, arbitration or litigation.
  • Parties must therefore comply with an adjudicator’s decision even if they object to it while continuing to pursue the matter through arbitration or litigation.
  • Adjudicators must act in good faith and impartially and can be appointed by agreement of the parties or from a Panel selected by the Minister for Public Expenditure and Reform. A statutory code of practice for conducting adjudication will shortly be published.
  • Parties bear their own legal and other costs in connection with the adjudication.

What Types of Disputes can be Referred?

The 2013 Act provides a statutory entitlement to refer ‘payment disputes’ arising under a construction contract to adjudication. Each party has a right to adjudication but there is no mandatory requirement to use it. Irish law allows multiple disputes to be referred to adjudication under related construction contracts.

What is the Process for Commencing Adjudication?

A party can seek adjudication at any time through issuing a notice of intention, whether at practical completion stage or whilst works are ongoing. The parties can agree on an adjudicator or select one from a panel. The format is flexible in that the process can be based solely on written evidence. This will keeps costs down.

What is the Procedure When Adjudication Commences?

The process intends to ensure swift payment for works and so naturally operates under tight deadlines; an adjudicator must reach a decision within 28 days of referral, or 42 days with the referring party’s consent. The Code of Practice for the 2013 Act states that the adjudicator must give written reasons for their decision.

How Do I Enforce the Decision?

The adjudicator’s award is binding on an interim basis and is enforceable until a court or arbitrator decides otherwise or the parties settle the dispute.

Who Pays for the Costs of the Process?

Each party is responsible for their own costs and the costs of the adjudicator on a joint and several basis. However the adjudicator may direct that one party pays the costs and expenses of the adjudicator.

Summary

Changes have now been introduced to payment, suspension and dispute resolution mechanisms in the construction industry as a result of the Act

Parties will be required to draft their construction contracts in a way that provides for clear an unambiguous clauses.

  1. The Act applies to a wide range of construction contracts including main contracts, subcontracts and professional team appointments entered into after 25 July 2016 in Ireland irrespective of the law of the contract and it cannot be contracted out of.
  2. There are some limited exclusions to the application of the Act including contracts with a value of less than €10,000, PPP contracts or contracts for the construction of an owner occupied dwelling of less than 200 square meters.
  3. While most existing construction contracts already comply with S. 3(1) of the Act. which states that a construction contract must provide for the amount of each interim payment or in the alternative an adequate mechanism for determining the amount of each interim payment. This acknowledges the possibility, for example, of milestone payments under main contracts or consultants’ appointments, but with an explicit exception for subcontracts which must have a strict 30 day payment regime. It is also relatively straightforward to establish extant compliance across industry standard form contracts with section 3(2) of the Act which provides for the inclusion in construction contracts of a payment claim date (or an adequate mechanism for determining same) together with providing for the period for payment of the amount claimed.

Conclusion – Reflecting Change In Your Contract

The impact of the Act is likely to be far reaching within the projects and construction industry. Now that commencement of the Act is imminent, parties will need to familiarise themselves with the Act and its implications for construction contracts, particularly those relating to payments and dispute resolution which are arguably the most important provisions of the Act to reflect in your contracts.

It would seem that contractors will always wish to serve a Payment Claim Notice which triggers the consequent obligation to serve a Response Notice and so employers/paying parties need to be on notice of the same in their contracts together with the timelines for responding. It makes sense to align the parties’ statutory protections with the contract. Therefore it may be prudent to consolidate the Payment Claim Notice and any interim payment application such that the contract provides that both issue within 5 days of the relevant payment claim date. Best practice is to incorporate into construction contracts precise drafting around the content and timing of issue of the Payment Claim Notice and Response Notice to align with the prescriptive nature of the Act. The Employer’s or specified person’s role in relation to the receipt and issue of Payment Claim Notices and Response Notices respectively should also be expressly identified.

Suspension

Many contracts contain bespoke provisions which allow the contractor to suspend works for non payment but the timelines with respect to invoking such a right usually range between a period of 30 – 90 days following the expiry of the payment due date and not within 7 days’ notice of having missed the payment due date, as the Act now provides. This is a provision worth reflecting in the parties’ contractual terms.

Dispute resolution

The extent of amendments required to the dispute resolution provisions of construction contracts may be less significant than those flagged above, save to note that the right to refer a payment dispute to adjudication exists at any time irrespective of the provisions of the contract. Parties may wish to continue to include the traditional forms of dispute resolution in their contracts (particularly since the ambit of adjudication under the Act only extends to “disputes relating to payment”) and there is nothing prohibiting them agreeing to alternate forums so long as the parties are aware that the right to refer a payment dispute to adjudication at any time statutorily exists (including midway through another process). This may also be a reason why some parties may not wish to include an alternative dispute resolution forum to adjudication in their contract other than litigation or arbitration as a final and binding forum.

Playing Catch-Up

There will be a lot of “catching up” to do over the coming months to ensure that industry standard form contracts are aligned with the payment, suspension and dispute resolution provisions that will be statutorily binding in Ireland. Whilst the statutory provisions will apply in any event and override the contractual provisions to the extent they are in conflict, from a practical and good contract management perspective, parties entering construction contracts on or after 25 July 2016 should seek to ensure that their provisions are aligned and compatible with the Act to the extent possible.

 

3. BUILDING CONTROL (AMENDMENT) REGULATIONS 2014

In the post-boom years, defective workmanship in the construction of many properties in Ireland, both residential and commercial, has come to light. Issues such as pyrite damage and fire regulation breaches have dominated headlines, blighted the construction industry and soured consumer sentiment towards the sector.

These matters have not gone unnoticed by the legislature with the new Building Control (Amendment) Regulations 2014 (the “Regulations”) enacted on 1 March 2014.

Which works will the Regulations apply to?

From 1 March 2014, the Regulations will apply to a broad variety of construction projects, including new houses, house extensions over 40m2 and building works that require a Fire Safety Certificate.

New Statutory Roles

Before the works start, the “Design Certifier” must certify that the design of the works complies with the Regulations. The building owner must also appoint a “Builder” and an “Assigned Certifier” at this stage.

Commencement Notice and 7 Day Notice

The Commencement Notice or 7 Day Notice must be filed via the online Building Control Management System (“BCMS”) with outline plans, calculations, specifications and preliminary inspection plan. The Regulations introduce a number of new certifications which must also accompany a Commencement Notice or 7 Day Notice:

  • Certificate of Compliance (Undertaking by Builder);
  • Notice of Assignment of Builder;
  • Certificate of Compliance (Undertaking by Assigned Certifier);
  • Notice of Assignment of Person to Inspect and Certify Works (Assigned Certifier);
  • Certificate of Compliance (Design).

Completion

Once the works are complete, the Assigned Certifier and Builder must sign a Certificate of Compliance on Completion which must be filed before works or a building can be opened, occupied or used.

Offence

Failure to comply with the requirements of the Regulations is an offence punishable by fines and / or imprisonment.

Code of Practice for Inspecting and Certifying Buildings and Works (“The Code”)

The Code was published in February 2014 and provides useful guidance for potential Assigned Certifiers, Builders, Design Certifiers on how best to ensure compliance with the Regulations.

Conclusion

The obligations to inspect and certify a building’s compliance with the Regulations during a build and on completion will go a long way towards addressing the concerns of the main stakeholders in the construction industry. The Regulations impose significant new certification and filing duties on the key players in the construction sector: building owners, builders and designers. While the benefit in these new statutory obligations is clear, it will arguably increase the cost of procuring the completion of construction projects. It is vital that stakeholder groups ensure they are fully informed of their new responsibilities under the Regulations and of the consequences of non-compliance.

The Building Control (Amendment) Regulations 2014 (the “BCAR“) created a new legislative regime of statutory inspection and certification of new buildings and extensions.  BCAR provide for certification of design and materials at commencement, construction and completion and introduce a new professional role of Assigned Certifier with responsibility for co-ordinating inspections throughout construction.

The introduction of the regulations was hotly contested in the industry.  In September 2015, the government responded to the debate by introducing amending regulations focusing on one-off dwellings and domestic extensions.  There is now an opt-out available for people carrying out either one-off dwellings or domestic extensions.  The amendments were greeted with some surprise.  It seems they focused only on the apparent increased professional fees required for compliance with BCAR.  They did not deal with the concerns voiced by the industry concerning increased liability or the lack of an independent form of building inspection.  The changes will result in a two tier system of building control where some projects comply with the new standards while others voluntarily opt out of compliance.

It can only be hoped that the continued improvement in the economy will mean resources will at some point be made available to introduce a proper independent form of building inspection and control.

Comments

The construction industry is continuing to recover, and most stakeholders report significantly increased levels of activity and employment.  Demand far exceeds supply, particularly of office accommodation and housing.  The industry will take its place once again as an important player in the Irish economy.  The industry must ensure that the changes proposed as part of the review of the public works contracts are implemented and that the medium and long-term changes identified are progressed.  The system of open information sessions is to be welcomed and will hopefully continue.   The Construction Contracts Act 2013 must finally be implemented in 2016.  The debate concerning BCAR will continue but for now the new regime appears to have settled despite the unfortunate introduction of a two-tier system and one hopes we will start to move towards independent building control.

 

4. CONSTRUCTION INDUSTRY REGISTER IRELAND

The new Construction Industry Register Ireland (CIRI) was launched in 2014 by the Minister for the Environment, Community and Local Government, providing for the online registration of construction contractors.

The objective of CIRI is to provide an on-line register that procuring authorities, construction professionals and the public can search to find experienced and competent construction contractors that meet certain minimum eligibility requirements.

The launch of CIRI followed significant changes introduced under the Building Control (Amendment) Regulations 2014 (the “2014 Regulations”) and reflects the Government’s commitment to reforming the construction sector in Ireland in the wake of numerous high profile cases concerning defective buildings.

Under the 2014 Regulations, building owners who commission works to which the 2014 Regulations apply, have an obligation to appoint competent builders, designers and assigned certifiers. The launch of CIRI offers a level of comfort for building owners given that only those that pass strict vetting procedures are permitted to enter the register.

CIRI covers 39 distinct categories of activity and can be accessed at www.ciri.ie.

Registration

The register is operated by the Construction Industry Federation (CIF).  Initially registration is on a voluntary basis, but the Government has indicated that CIRI will be placed on a statutory footing in 2015. In order to register on CIRI, a construction contractor must meet the following eligibility criteria:

  • adhere to an industry code of ethics and commitments;
  • demonstrate that they have construction competence and experience generally for a period of no less than 3 years;
  • submit their current tax clearance certificate;
  • have knowledge of building practice, building regulations and regulatory obligations;
  • commit to on-going training and development so that membership can be maintained and renewed;
  • demonstrate that they have the relevant insurance policies in place; and
  • undertake an induction training course.

The application process is overseen by the Construction Industry Registration Board (CIRB), who assess the eligibility of an applicant for listing on CIRI. Crucially, registration is not a once off process and all members of CIRI are required to renew their membership on an annual basis. This is a welcome protective measure that will help ensure that industry standards are being maintained. In relation to timing, we understand that applications for admission to CIRI can take on average between 6-8 weeks to be processed.

Currently, 505 entities have registered with CIRI, including main contractors, sub-contractors and sole traders across a range of disciplines in the sector. Upon being placed on a statutory basis, it is expected that in excess of 2,000 entries will be listed on CIRI. The expectation of the CIF is that “over time, the CIRI website will become the main resource for anyone who is looking to engage a construction company or sole trader for work”. The launch of CIRI marks another significant milestone in the creation of a more robust construction sector and will be an invaluable resource to anyone looking to engage construction contractors.

 

5. IRISH PUBLIC WORKS CONTRACTS

It is over a year since the Government published the Review of the Performance of the Public Works Contracts.  A number of interim changes were proposed aimed at redressing the allocation of risk between the Employer and the Contractor and reducing the level of disputes arising on public works contracts.  The Government Contracts Committee held a series of information sessions in the summer on the proposed amendments and heard from a variety of industry stakeholders.  It is understood that amendments will be published early in the new year. The four key changes proposed at this stage are:

  1. make the bill of quantities the primary reference document for tender purposes;
  2. direct tendering of specialist works packages where the specialist element makes up over 15% of the works;
  3. adopt a “most economically advantageous tender” (“MEAT”) basis for awarding contracts over €2 million which takes into account quality criteria and pricing; and
  4. new dispute resolution procedures including the introduction of management escalation procedures prior to conciliation and the idea of a nominated conciliator.

Do You Have Questions On New Commercial Builds Or Any Other Construction Related Matter?

If you do please contact Regan Solicitors, construction law experts, on 01 6874100 or fill out this contact form and someone from our team will be in contact with you shortly.

 

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