Patrick O'Donovan (Limerick County, Fine Gael) | Oireachtas source

I thank Deputy Corcoran Kennedy for raising this issue. Unfortunately, the issue has been raised on more than one occasion recently. It is not a new development and reflects poor payment practices in the construction industry generally.

Former Senator Feargal Quinn's Construction Contracts Act was developed in consultation with industry to address these poor payment practices. The Bill was introduced to Seanad Éireann in 2010 and received cross-party support in both Houses. It was enacted in 2013. The Act applies to all construction contracts entered into after 25 July 2016. Responsibility for the administration of the Act lies with my colleague, the Minister for Business, Enterprise and Innovation, whose Department has responsibility for prompt payment legislation. I understand this issue has arisen as a result of the transfer of responsibility within Departments and the movement of responsibilities from one Department to another.

That small and medium-sized enterprises were not in receipt of payments due on a construction project was unacceptable at the time of enactment and the same applies today. It must be acknowledged that the contractor in question had been awarded a number of public works contracts prior to its collapse.

This issue is not unique to public works by any means. It is more galling, however, when it arises under a public works contract since the State pays the contractor what the contractor is due when payment is due. The conditions of most construction contracts between construction clients and building contractors in the public and private sectors require that payments are made at defined intervals and that payment is contingent on work being completed to a predetermined standard. There is usually no contractual obligation on the main contractor to make payments to subcontractors because this is left to individual commercial arrangements that are contained in contracts. That is a fundamental point. The State and the awarding body, whether an education and training board or a board of management, do not have a contract with the subcontractor. It is the contractor that has responsibility to the subcontractor. I realise it is a moot point but it is ultimately one of the most important points.

The issues identified by Senator Quinn during the development of the construction contracts legislation highlighted an absence of formal contracts that set out the necessary commercial terms. In many cases this was exacerbated by sharp payment practices by some, even where a formal contract did exist. This was adverted to by Deputy Corcoran Kennedy.

The Construction Contracts Act imposes minimum terms on all construction contracts, whether written or oral, and provides the tools necessary to enforce payment. The tools include a maximum payment interval of 30 days and a requirement to honour payment requests within 30 days for subcontractors, a right of suspension for non-payment, and a right to refer a payment dispute to adjudication. The legislation also outlaws the practice of pay-when-paid provisions that were prevalent in most forms of subcontract.

While most of the interest from industry surrounding the Act was centred on the introduction of adjudication, it is the discipline that the legislation imposes on payments that would appear to be have been largely ignored. Arguably, the associated provisions are the most important but they require the subcontractor to enforce his entitlements proactively with the contractor in the manner prescribed in the legislation for payments that are due.

The Act does not cut across the normal rules for company liquidation or receivership, and so where this arises, there is no avenue for recovery. The magnitude of the exposure that many subcontractors face upon the insolvency of a contractor would not arise, however, if the provision for payments was insisted upon and the remedies available were exercised where payment is not forthcoming. The non-payment issues associated with the collapse of Sammon would suggest that subcontractors are not exercising the rights provided for in the Act. I know what Deputy Corcoran Kennedy has said. As was said by other Deputies last week, that is not always easy. This inaction is surprising given the welcome it received by all contracting tiers in the construction industry and the support it received from many Members of this House and the other House. I can appreciate a certain reticence to engage in the manner prescribed in the Act. Indeed, I know well why it is not happening. It is for fear of risking business. Subcontractors have to question whether it is worthwhile doing business with someone who is not complying with the law.

The matter was raised with me by two Fianna Fáil Deputies last week. I undertook to look at their specific issues. This discussion is part of a dialogue among people in the Department.

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