Adjudication Article Series: How the Construction Contracts Act 2013 can impact contracts

07-10-2019

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So far in this series, we have touched on the nature and scope of the adjudication process introduced by the Construction Contracts Act 2013 (the “Act”). In this article, we take a look at how the Act may impact the terms of your construction contract or appointment, including the implications on your contract of the introduction of statutory adjudication in Ireland.

The Act applies to all “construction contracts” entered into after 25 July 2016. Under section 6 of the Act, a party to a construction contract has “the right to refer for adjudication … any dispute relating to payment under the construction contract”, referred to in the Act as a “payment dispute”. Whether or not a contract expressly provides for adjudication, the parties will still have the entitlement under the Act to refer a “payment dispute” to adjudication. They don’t have to exercise this entitlement but they cannot exclude application of the Act from their contract.(1)

While there is no definitive method of incorporating the Act into construction contracts and professional appointments, and opinions vary as to what, if anything, needs to be expressly included, it is timely to consider how contracts can address the Act.

Payment provisions and payment disputes

Since the Act sets out certain requirements with regard to payment and also provides for the right to refer payment disputes to adjudication, it would be natural to assume that the two would be related in some way. However, this assumption may not be entirely accurate.

There are two sections in the Act which deal with payment.

Section 3 requires that every construction contract must provide for:

  • the amount of each interim payment and of the final payment to be made, or an adequate mechanism for determining the same, and
  • the payment claim date (being the date when an amount due is to be claimed) or an adequate mechanism for determining this, as well as the period between payment claim dates and the dates on which payment is due.

Pay-when-paid provisions are also outlawed.

In reality, every standard form construction contract includes a mechanism for making regular applications for interim payment and for determining what will be paid and when. The same is true of professional appointments. Nothing needs to be done to bring such contracts into compliance with section 3 of the Act. Bespoke payment provisions that provide for milestone payments would also satisfy the requirements of the Act. At sub-contracts level, however, unless the terms of the sub-contract are more favourable, the provisions of the Schedule to the Act will apply, and will require a payment cycle that sees payment applications being made every 30 days, with payment falling due 30 days after the application.

Payment claim notices and payment disputes

Section 4 of the Act tells us that it applies where, not later than 5 days after the payment claim date (see above), an executing party delivers a “payment claim notice” relating to that payment claim. Section 4 then goes on to set out what should be included in a payment claim notice, and what the paying party should do, namely issue a response, within 21 days of the payment claim date, setting out what he/she intends to pay and the basis for any difference in what has been claimed and what will be paid.

As many commentators have remarked, the Act does not tell us what happens if no response is issued. More important, however, is that fact that there is no requirement or indeed necessity to follow the procedure set out in section 4. Furthermore, the Act does not define “payment dispute” by reference to the provisions of section 4.(2) In other words, for a “payment dispute” to arise, there is no requirement for the procedure in section 4 to have been followed and/or breached.

That said, however, someone somewhere clearly considered that the process of submitting a “payment claim notice” and a “response” was related to the “payment dispute” that would later be referred on to adjudication. The website of the Construction Contracts Adjudication Service (“CCAS”) includes template forms for these two notices. (The CCAS is the arm of the Department of Business, Enterprise and Innovation tasked with managing applications to the Chair of the Ministerial Panel of Adjudicators for the appointment of adjudicators.) Furthermore, the CCAS’s template form for Notice of Intention to Refer Payment Dispute for Adjudication(3) requires the payment claim notice and response to be attached to the form. (It should be noted that the CCAS states that it “is providing the template forms below for guidance only”.)

This approach is replicated in the Code of Practice Governing the Conduct of Adjudications which anticipates that a copy of the relevant payment claim notice and any response will be provided with the notice of intention to refer a dispute to adjudication. While this has led to some speculation that there can be no “payment dispute” if a payment claim notice and / or response has not been delivered, in practice the approach in interpreting what constitutes a “payment dispute” has been more liberal and more in line with what the Act in fact does (and does not) say!

Contracts and adjudication

How, if at all, have Irish standard form contracts adapted to take the right to statutory adjudication into account? As noted, it is not required to amend construction contracts to reflect the right to adjudicate under the Act. It exists as a standalone right under statute. However parties should be aware of how their contracts work alongside this right.

In late 2017, the Royal Institute of the Architects of Ireland (“RIAI”) published updated construction contracts. It is arguable that the RIAI contracts are not fully in accordance with the terms of the Act. While the Act provides that parties to a construction contract can refer payment disputes to adjudication “at any time”, the RIAI contracts stipulate that all disputes must first go to conciliation before the parties can have recourse to statutory adjudication or arbitration. However, it is unlikely that a contractual term restricting a right under statute would be capable of being enforced. This is an area that has come before the UK courts. For example, in a case where a contract required a notification of dissatisfaction that had the effect of delaying referral to adjudication for four weeks to facilitate discussion and dispute resolution, the court found that this delayed access to statutory adjudication contrary to the relevant legislation. The court held that the immediate right of the parties under statute to refer a dispute to adjudication at any time had to apply.(4)

By contrast, under the Public Works Contracts issued by the Department of Public Expenditure and Reform, adjudication is mutually exclusive to other dispute mechanisms such as conciliation and/or dispute management procedure (“DMP”) and, indeed, is given precedence. If a conciliation or DMP has commenced and the dispute is then referred to adjudication under the Act, the conciliation or DMP must adjourn until the adjudicator reaches a decision. If a decision is reached by the adjudicator, the conciliation or DMP of that dispute will then be immediately terminated and no further action can be taken. However if no decision is reached by the adjudicator, the parties may re-commence the conciliation or DMP at the point it was adjourned. In addition, if an adjudicator reaches a decision on a dispute referred under the Act, the same dispute cannot be referred to conciliation or DMP. Again, this may or may not be the best course.

Parties should also be aware of section 7 of the Act which provides a right to suspend work under the construction contract due to failure to pay an amount determined by an adjudicator as due.

Know your options

A strong awareness of the payment mechanics and scope of adjudication under the Act should assist in agreeing construction contracts that comply and are consistent with the Act. Some general points to bear in mind are set out below.

  • Parties may wish to consider whether anything needs to be done with regard to the payment terms to comply with the Act. In most cases, probably nothing is required.
  • Awareness of the 30 day payment cycle which may be imposed at sub-contract level may, however, impact what is really practicable or commercial (in terms of longer payment cycles or milestones) at main contract level.
  • Parties may wish to ensure that they have a clear understanding of how their contractual dispute resolution clauses fit with their standalone right to refer a payment dispute to statutory adjudication.
  • Parties may wish in their contract to supplement the provisions of the Act and the Code of Practice Governing the Conduct of Adjudications. For instance, they may wish to set out a process for agreeing the adjudicator to be appointed (for example by naming agreed adjudicators), or they may wish to provide for adjudication of disputes generally (as opposed to “payment disputes” as provided under the Act). Such changes, however, may bring into play new challenges – but that’s another story…..

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(1) Section 2(5) of the Act.

(2) “Payment dispute” is defined at section 6(1) by reference to the right of a party to refer for adjudication a dispute relating to payment.

(3) Under section 6(2) of the Act a party exercises its right under section 6(1) to refer a payment dispute for adjudication by serving on the other party a notice of intention to refer the payment dispute for adjudication.

(4) John Mowlem & Co Plc v Hydra-Tight & Co Plc [2000] 6 WLUK 46

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