Written answers

Wednesday, 24 October 2018

Department of Public Expenditure and Reform

Construction Contracts

Photo of Clare DalyClare Daly (Dublin Fingal, Independent)
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150. To ask the Minister for Public Expenditure and Reform his plans to protect small contractors that engage in State work; and if the final payment in relation to a social housing site (details supplied) is being withheld from a company until the subcontractors have been reimbursed. [44190/18]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The conditions of most construction contracts in use between construction clients and building contractors in both the public and private sectors require that payments are made at defined intervals and that payment is contingent on work being completed to a pre-determined standard.  There is usually no contractual obligation on the main contractor to make payments to sub-contractors because this is left to the commercial arrangements that are contained in their respective contracts.

The public works contract is no different, it imposes a single point of responsibility on the main contractor to deliver a construction project on time and within budget.

Poor payment practices prevalent in the construction industry prompted Senator Feargal Quinn to table a legislative response in the form of the Construction Contracts Bill which was initiated in Seanad Éireann in May 2010 as a Private Member’s Bill.  Analysis undertaken during the development of the Bill highlighted the liberties that were taken by some contractors in the absence of a structure to determine payments down the supply chain. 

The Bill received Government and industry support and was enacted in 2013, it applies to all contracts entered into after 25 July 2016 in accordance with the 'Construction Contracts Act, 2013 (Appointed Day) Order 2016' (Statutory Instrument No 165 of 2016). The imposes minimum payment requirements and provides the necessary tools to enforce those payments between the main contractor and their sub-contractors and so on down the supply chain.  It applies to all construction contracts (as defined in the Act), public or private sector, whether they are written or oral and whether they include payment provisions or not.

The Act provides important statutory protections for subcontractors in the construction industry and includes:

- a maximum payment interval of 30 days and a requirement to honour payment requests within 30 days for sub-contractors;

- a right to suspension for non-payment;

- a right to refer a payment dispute to adjudication; and

- the prohibition of arrangements that make entitlement to payment conditional on certain events, (e.g. ‘pay when paid’ clauses, which delay payments until the payer has, in turn, been paid), which were prevalent in most forms of sub-contract.

The public works contracts were amended prior to the Act's commencement in June 2016 to accommodate its requirements and to facilitate cash flow in accordance with the payment terms imposed on main contractors with respect to their sub-contractors.

Whilst much 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 appears to be largely ignored.  Arguably these are the most important provisions in the Act but sub-contractors must be proactive in enforcing their entitlements with the contractor for payments that are due.

The Act does not cut across the normal rules for company liquidation/receivership and so where this arises the only route for recovery is through the normal insolvency process.  However the magnitude of the exposure that many sub-contractors currently face upon the insolvency of a contractor would not arise if the provision for payments were insisted upon and the remedies available were exercised where payment is not forthcoming.

It is unacceptable that sub-contractors are suffering losses as a result of the insolvency of a contractor on a construction project.  However the issue raised would suggest that sub-contractors are not exercising the rights provided for in the Construction Contracts Act which is surprising given the welcome it received by all contracting tiers in the industry and indeed the support it received from members of both Houses of the Oireachtas. 

The Construction Contracts Adjudication Service in the Department of Business, Enterprise & Innovation has responsibility for matters in relation to the implementation of the Construction Contracts Act, 2013.  The Chairperson of the Ministerial Panel of Adjudicators has submitted an Annual Report on the implementation of the Construction Contracts Act, 2013 to my colleague, the Minister of State with responsibility for the Act, Mr Pat Breen TD.  The second Annual Report covers the period from the 26th July 2017 to the 25th July 2018 and a copy of the report is available at the following link:

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As Minister for Public Expenditure and Reform I have responsibility for the formulation of policy, dissemination of best practice and guidance in public procurement.  The standard conditions of the public works contract contain provisions that determine the value and timing of the interim and final payments that arise during the course of a project's construction.  As you will appreciate I am not in a position to comment on specific payments arising under a particular contract as this is a matter for the contracting authority who awarded the contract.

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