This article was first published by Lexis®PSL on 10 October 2017.
Construction analysis: A year on from the introduction of adjudication as a way of resolving construction and engineering disputes in Ireland, Sarah Schütte of Schutte Consulting Limited investigates how the legislation is working, the use of adjudication and the barriers to take-up.
What is the background to adjudication in Ireland?
The Construction Contracts Act 2013 (CCA) came into force on 25 July 2016, and applies to contracts for qualifying works in Ireland entered into after this date.
It was introduced to the Irish parliament, the Seanad, six years before it came into force. This is extraordinary, especially given that the CCA is based heavily on the UK’s equivalent legislation, the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996). The experiences of adjudication in the UK, pursuant both to the statutory scheme for adjudication and contractual provisions, were debated at length in the Seanad and have been reflected in places in the CCA.
The CCA’s main purpose is to regulate payments and the timing thereof. A default 30-day payment cycle applies unless the contractual terms are more favourable.
What are the principal similarities and differences between the Irish and the UK legislation?
The key similarities are:
the right to adjudicate applies to all relevant contracts, and cannot be excluded;
the definitions of ‘construction contract’ and ‘construction operations’ are similar (eg PFI contracts are excluded), though not the same—see below;
the adjudication process has a similar timetable;
the statutory minimum payment provisions are very similar, ie they prohibit ‘pay when paid’ and ‘pay when certified’ clauses, and introduce the concept of a pay less notice.
The principal difference is that the right to refer to adjudication is limited—only disputes which concern payment are covered. The difference is an interesting one. Certainly, experience in the UK has been that increasingly complex disputes are referred to adjudication. This has meant that users complain that adjudication has lost its original focus and purpose, and that costs are disproportionate. However, the bulk of adjudications in the UK are not in this category.
Most adjudications boil down to an argument over money. There are many varied underlying reasons which provoke a party to commence an adjudication, but usually money is at the heart of it. So perhaps we will discover that the difference is not so significant after all.
I also think it is going to be difficult for adjudicators to decide where to draw the line—it may be somewhat artificial to carve out a payment dispute from issues over performance or scope of works. The parties may have to take a sensible line and extend the adjudicator’s powers, as is permitted by the CCA. Nonetheless, this could be problematic and make adjudication vulnerable to a strategic player.
Note too that contracts which are valued at €10,000 or less are excluded. This is very surprising, given the purpose and philosophy of adjudication. Perhaps the legislators were concerned that they might open the floodgates, and would not have enough adjudicators to be able to process the disputes. Nonetheless, this seems an anomaly.
Have the Irish legislators done away with the oddities of the definition of ‘construction operations’?
To some extent yes. The CCA includes operations such as:
oil drilling, tunnelling and boring;
activities concerning artistic works;
some residential work (where the intended dwelling measures over 200 square metres)
The HGCRA 1996 maintains these exclusions (for now) but I believe a refreshment and modernisation of the legislation is needed.
How do the parties choose an adjudicator?
The Irish government, via the Construction Contracts Adjudication Service (CCAS), maintains a panel of adjudicators headed by a chairperson. The parties to a dispute can agree a named person, or ask the chairperson to allocate an adjudicator to the dispute. It is notable that there are several experienced UK adjudicators on the current panel (of 30 legal and technical experts). This is presumably to bring some direction, guidance and stability to the panel, as well as confidence to industry, whose members are nervous about a new dispute resolution process.
The Irish government has issued a ‘Code of Practice Governing the Conduct of Adjudicators’. Of most interest, and importance, are the adjudicator’s duties to:
impose on the parties a procedure which is ‘commensurate with the nature and value of the payment dispute’;
use ‘reasonable endeavours to process the payment dispute between the parties in the shortest time and at the lowest cost’;
‘promptly notify the parties of any matter that will slow down or increase the cost of making a determination’.
The Code of Practice is most definitely positive step for industry. Adjudication was brought in to be a simple and quick process, somewhat rough and ready admittedly, but with a clear purpose to facilitate blockages in cashflow, and to prevent otherwise-unnecessary insolvency. Industry professionals are, and should be, the main users of adjudication. These provisions give a clear message that an ‘over-lawyered’ process (one of the main complaints about UK adjudication) will not be tolerated.
The adjudicator’s decision
As in the UK, the decision will be binding on the parties unless and until the issue is finally resolved by court or arbitration proceedings.
Unlike England and Wales, Ireland has no specialist court for construction matters. The Technology and Construction Court (TCC) has been very supportive, on the whole, of adjudication and has taken a pro- enforcement approach. I understand there is frequent discussion between the TCC and Ireland’s Superior Courts on this matter. Whether Ireland will look to create a specialist court remains to be seen, but this frequent communication shows that the Irish judiciary is aware of its desirability. This will be especially so in the coming years when the CCA gets used and industry gets used to it.
The adjudicator must publish his or her reasons for the decision. This is different from the UK where the legislation allows for one Party to request reasons ad hoc. It is also common to see the underlying contract containing or referencing an adjudication procedure, which requires reasons to be given.
Costs and adjudicator fees
Also as in the UK, each party is to bear its own costs, and the adjudicator decides how payment of his or her fees and expenses is to be apportioned. The Code of Practice suggests that, where there has been a breach of conduct by one party (eg not attending a meeting, failing to comply with a direction, or failing to disclose required information including on potential conflicts of interest) the adjudicator may choose to apportion appropriately.
Is the construction and engineering industry in Ireland making use of adjudication?
In short, not really. Not yet, anyway. The Minister requires the chairperson to publish an annual report on the use of adjudication. The first report was published on 31 July 2017 and is only six pages long. According to the report:
one adjudication had taken place, in March 2017. The adjudicator found in favour of the referring party, a main contractor. The process was completed within the 28 day period and the case has not gone up to the court;
an application was made to the CCAS, but the contract was entered into before the legislation came into force, and therefore the matter could not proceed to adjudication
Adjudication has therefore had a slow start in Ireland.
The report indicates that these factors have likely affected the take up of adjudication:
the sector is very busy, so people are not concerned with disputes
sub-contractors do not traditionally use the law to resolve differences, and seem to tolerate to some extent established ‘norms’
lack of awareness (notwithstanding the government’s publicity campaigns)
culture—the sector is small and ‘everyone knows everyone’
fear of cost
What can UK construction and engineering organisations do?
UK construction and engineering organisations, which have business or are looking to increase their volume of business in Ireland, must get to grips with the CCA, because there are some significant differences, and limitations to its use, which they will not be used to due to the extensive ambit of the HGCRA 1996.
Organisations looking to start new business in Ireland will need new contract terms and conditions because, although business practices are similar, they are not exactly the same. Ireland has its own laws, is to remain part of the EU , and is a member of the Eurozone. I have written previously about the effect of Brexit on the construction and engineering industry (Industry insight No. 15: Brexit and the construction industry). Post-Brexit, Ireland will be the only country in the EU which has English as its primary language.
The coming into force of the CCA is positive news for the construction and engineering industry in Ireland, and it is not really surprising that the CCA has not got traction yet, given the current political-socio situation. UK organisations carrying out business in Ireland should learn the differences in the Irish adjudication process. Investment in this activity will be worthwhile because adjudication will make dispute resolution cheaper and faster for users than going to court or arbitration. Time and cost savings will, in term, help organisations to spend time on the matters, which help them to grow their business interests.