Brian Hayes (Dublin South West, Fine Gael)

I move: "That the Bill be now read a Second Time."

As the House is aware, the programme for Government contains a commitment to introduce legislation to protect small building subcontractors who have been denied payments from larger companies. In this regard, I have been working with Senator Feargal Quinn to develop the Construction Contracts Bill as robust legislation.

I regard this legislation as a Private Members' Bill which is unique for two reasons. First, all Stages were passed by the previous Seanad and it has now come before the Dáil. Second, although significantly amended from the original Bill, the legislation is most definitely the product of a bipartisan approach. It would not be where it is were it not for the diligence and initiative of Senator Feargal Quinn. I very much hope the spirit of co-operation the Senator and I have shown on this Bill will be extended in this House.

Construction is a very important sector of the national economy. It is widely acknowledged that well managed and successfully delivered construction projects can improve the delivery of public and private services. However, the economic downturn in the construction sector has highlighted the lack of formal contractual arrangements and bad payment practices in the sector. While there is strong anecdotal evidence of the practice of delayed or non-payment having escalated in recent times, it should be noted that the problem is not new. It is reported that many firms, mainly subcontractors, are experiencing serious difficulty in obtaining payment for work done. It is, therefore, important that, where possible, payment transactions within the sector should be facilitated to ensure prompt payment of the correct amount.

Apart from a small number of formal standard forms of contracts and conditions of engagement, the current arrangements for construction contracts and conditions of engagement are much too imprecise and informal. As a result, they do not offer a cost effective, timely solution for consultants, contractors, subcontractors and suppliers in the supply chain. The Bill before the House seeks to address the issue of non-payment to construction sector contractors, subcontractors and subcontractors of subcontractors who have completed work to the required standard on construction projects. The Bill will address these issues by providing statutory arrangements for payments under construction contracts, including providing for interim payments, thus reducing a payee's exposure to non-payment, and by introducing a new mechanism for the swift resolution of payment disputes through a process of adjudication.

The Bill does not purport to provide a response to all of the causes or manifestations of non-payment in the construction sector. This is a complex area and a comprehensive response to all of the causes of non-payment in the sector will not be provided in a single Bill. In particular, it is important to realise that many of the non-payment difficulties are linked to business failures and this Bill will not cut across the normal rules for company liquidation and receivership or prompt payment regulations.

In setting out the main provisions of the Bill, I am mindful that the Bill that passed the remaining Stages in the Seanad was not as complete as it could have been. In this regard, I sought a regulatory impact assessment of the Bill to give me the opportunity to examine the issue from first principles as the Bill introduces new rights, obligations and systems which will affect contracts and impose new regulatory requirements between clients, contractors and subcontractors across a broad sweep of construction operations in the State. In this regard, I will shortly set out the main findings of the regulatory impact assessment and give an indication as to the areas of the legislation that will be subject to amendment on Committee Stage.

For the information of the House, I propose to set out the main provisions of the Bill. Section 1 deals with interpretations and is standard. Section 2 concerns the scope and application of the Bill. It excludes certain contracts from the definition of "construction contract" and ensures the Bill will not apply to contracts below certain value thresholds. It also ensures that, in the normal course, the Bill will not apply to an ordinary individual who enters a contract for the building, extension or renovation of his or her home. He or she will not be required to comply with the new rules set out in the Bill. However, the section also tries to ensure that contracts concerning so-called "trophy homes" come within the scope of the Bill.

Section 3 sets out the rules to govern payments under construction contracts. All construction contracts will have to provide clearly for the amount and timing of payments. If a contract fails to specify these matters, the terms set out in the Schedule will apply. This section also ensures that "pay when paid" clauses, as they are known, will no longer be acceptable in contracts. This means, for example, that subcontractors or subcontractors of subcontractors will no longer be dependent on a main contractor being paid before they are entitled to receive their payments. This is a significant change.

Section 4 details the arrangements for a party to claim payments under a construction contract. It sets out detailed procedures for making a payment claim. In the event that the amount involved is disputed between the parties, this section works to ensure each of the parties is clear about the amount in dispute and the basis on which the dispute arises. This provides an important clarification which is not readily available to contracting parties. It then forms the basis for seeking a resolution of a payment dispute, through moving on to the adjudication process provided under the Bill.

Section 5 confers a new statutory right for contracting parties. A party who has not been fully paid - in accordance with the contract and the terms of the Bill - will have the right to suspend work under the contract for a period of up to two weeks. The section sets out the rules under which the suspension of work can occur. This provision was developed to help to rebalance the power between contracting parties, without unduly hampering the completion of a project. The existence of the right should help to ensure payments are made on time. Where a payment claim is still unpaid following the period of suspension, the appropriate path is for the parties to move on to an adjudication and seek resolution of the matter through that process.

Sections 6 to 9, inclusive, are related. They provide for a new process for the adjudication of payment disputes and set out arrangements for this new process. This is a critical aspect of the Bill and creates an important mechanism by which unpaid parties to construction contracts can have a relatively quick and cost-effective resolution of their payment disputes. Therefore, these sections deal with the right to refer payment disputes to adjudication; the right to suspend work for failure to comply with an adjudicator's decision; the selection of a panel of adjudicators; and the code of practice for adjudication.

Section 6 makes provision for a new system of adjudication. It gives contracting parties the right to refer a payment dispute to adjudication and sets out the arrangements to be followed. Importantly, it ensures a construction contract cannot be drafted so as to try to negate or reduce this right to adjudication.

Section 7 provides that if an adjudicator's award is not paid in full within seven days of the adjudication decision, the unpaid party has a right to suspend work under the construction contract. It sets out the rules governing this arrangement.

Section 8 sets out arrangements for the creation of a panel from which an adjudicator can be appointed to deal with a payment dispute. Section 9 gives the Minister for Public Expenditure and Reform the power to prepare and publish a code of practice to govern the conduct of adjudications.

Section 10 provides that parties to the contract may agree on a method to deliver notices referred to in the Bill. In the event that they do not agree, the Bill allows for delivery by a postal service provider. This is a common feature of legislation that provides for the delivery of notices.

Section 11 provides for the Short Title and commencement arrangements for the Bill. It provides that it may be cited as the Construction Contracts Act 2012 and that it will come in effect on such day as the Minister may by order appoint.

The Schedule to the Bill works together with section 3. The Schedule sets out default arrangements for contract payment terms. These will be minimum standards for subcontracts. This is a major innovation which should especially help sub-contractors.

In order to address the concerns raised about the current draft of the Bill, Senator Feargal Quinn and I arranged to meet stakeholders in the construction sector on 28 June 2011 to discuss the Bill. I also recognise the very helpful contributions of the main Opposition spokespersons, Deputies Sean Fleming and Mary Lou McDonald, on the regulatory impact assessment that took place on that occasion. I was delighted that they were able to join that discussion with the industry and make observations accordingly. This consultation highlighted a number of matters relating to the Bill that required further consideration. These have been taken into account in the regulatory impact assessment of the Bill, which was completed late last year and is available on my Department's website. It was published once we received it. That is important because we gave a commitment in the programme for Government to publish regulatory impact statements. It was a small part of the programme for Government, but it has now happened and is an important change to how legislation is formed.

The regulatory impact statement examined issues relating to payment practices in the construction sector and assessed the need for legislative intervention. It found that there were problems with construction contracts. The two main issues are as follows. The majority of construction contracts are carried out on an informal basis, with no written contract in place. That is typical, as we all know from experience in our constituencies. There are no minimum standards for payments and their timing. The sector is small, which means that where there is a contract, the bulk of the power rests with the main contractor. In cases where work is carried out on an informal basis, the subcontractor has no way of securing payment where there is a dispute. In the minority of cases where formal contracts are in place, the route to resolving such disputes - arbitration or the courts - is costly and time consuming.

In addition, the regulatory impact assessment examined the main proposals to amend the Bill raised during the Seanad debate and subsequent consultation. It found that there were merits to considering amending the Bill in a number of respects. I would like to go through these ideas and suggest how we might deal with them. On the question of thresholds, private contracts below €200,000 and public contracts below €50,000 do not come within the scope of the Bill as passed by the Seanad. The regulatory impact assessment examined the UK experience of adjudication, where the system has been up and running for some years, which showed that the majority of disputes the parties to which used such processes concerned contracts valued between £10,000 and £50,000. Therefore, it was concluded that these thresholds were too high and should be reviewed or removed.

The Bill provides that an adjudication award is binding, except where either party refers the case to arbitration or the courts. A key consideration in developing proposals is the need to strike a balance between ensuring the efficient operation of the construction sector in Ireland, both in terms of cash flow and the resolution of payment disputes, and the safeguarding of public moneys. The State is one of the biggest purchasers of construction contracts. The regulatory impact assessment found that as the Bill was drafted, the balance would appear to favour the payer. To resolve this issue, officials from the Department of Public Expenditure and Reform are developing a number of options aimed at making adjudication binding for both public and private sector contracts, while at the same time protecting the taxpayer. We have to get the balance right.

The regulatory impact assessment found that the inclusion of all suppliers would significantly broaden the scope of the Bill, as supplies make up a significant proportion of a construction contract; thus the arrangements to include numerous suppliers could create an unduly onerous process, which could create a barrier to entry for smaller enterprises. It concluded that supplies made specifically for a contract - bespoke supplies - could be included in the legislation, but it recognised that it might be difficult to interpret what was or was not bespoke. To summarise, it concluded that the best option was to proceed with the Bill, but to amend it to bring lower value contracts and bespoke supplies within its scope and to make the adjudicator's award binding. In general, it concluded that any such amendments should be formulated in such a manner that would protect the taxpayer.

There was intense interest on both sides of the House to discuss this matter. In fairness to Deputies, there has been correct lobbying to make sure we get the Bill through. I am now asking Members to put it through Second Stage, but I will indicate the matters on which I will be tabling amendments on Committee Stage in the light of the conclusions of the regulatory impact assessment. Since publication of the regulatory impact assessment, I have had the opportunity to develop proposals aimed at resolving these and other issues. While I am not proposing amendments today, I signal to the House my intention to bring forward specific Committee Stage amendments to deal with the following issues. First, in order to ensure the legislation applies to a majority of construction contracts, it is my intention to bring forward amendments to broaden its scope by reducing or removing altogether the current monetary thresholds contained in the Bill. Second, having examined similar legislation in other jurisdictions, I can see the merit of broadening the scope of the legislation to include bespoke construction supply contracts. I stress that it will be difficult to define what is meant by bespoke supplies, but I will attempt to do so on Committee Stage. Third, making adjudication awards binding for both the public and private sectors is complex. We have to get the balance right between giving this legislation the necessary enforcement provisions and ensuring its application is equitable and the taxpayer is safeguarded. Fourth, the two week time limit preventing contractors from withdrawing services in the event of non-payment where work has been carried out to a satisfactory standard seems insufficient and, therefore, will need to be amended.

I am aware of a number of other technical issues raised in relation to the Bill. These are being examined and, where necessary, amendments will be brought forward on Committee Stage. Given Members' substantial interest in the Bill, I will keep an open mind regarding issues they may wish to flag at this stage for consideration on Committee Stage. This is not my Bill; it is Senator Feargal Quinn's and I am strongly of the opinion that we must take a bipartisan approach to it. It is essential that the solution to this issue is balanced so as to avoid imposing unnecessary regulatory or cost burdens on parties in dispute, the State or others. I am very grateful to Senator Feargal Quinn for his commitment to the legislation and look forward to working closely with him to ensure we develop robust legislation to tackle the issue. I will, of course, give consideration to constructive suggestions made on Second and subsequent Stages.

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