The Construction Contracts Act 2013 (the ‘CCA’), now a part of Irish construction law for some ten months, has presented some interesting challenges in terms of ensuring that contracts and appointments are compliant with the Act, Ms. Alma Kelly, Senior Associate Infrastructure, Construction & Utilities Group, Arthur Cox, discusses the challenges.
To date, there is only one standard form which takes account of the CCA, that being the PWC suite of contracts (and the CIF form of sub-contract). The RIAI standard form of building contract is still under review and will take account of the CCA (amongst other things) but the updated edition has not yet been issued. We have seen a number of different approaches in the treatment of the CCA in bespoke amendments to (principally) the RIAI and FIDIC forms, as well as the JCT form, and in the use of bespoke appointment terms and industry forms of consultant appointments. In our view, there is no absolutely right way to approach the incorporation of the CCA into contracts and appointments, and the approach taken may vary according to clients (for example, payment mechanisms may depend on the practices and practicalities which prevail inside the particular client) or the nature of the project (particularly with regard to the structure of the overall dispute resolution procedures generally, and adjudication in particular). Different considerations will also come into play at the main-contract and sub-contract levels, particularly with regard to payment.
With regard to payment, one approach to ensuring CCA compliance (and that followed by the PWC) is to superimpose the CCA provisions onto the payment mechanism already contained in most construction contracts, whereby monthly applications for payment become ‘payment claim notices’ for the purposes of the CCA, and interim certificates become ‘responses’. Very often in this approach, key requirements of the CCA will be built into the payment provision in the contract. The advantage of this approach is that stages of the payment process and time periods (consistent with the CCA) are clearly set out, and so facilitate the implementation of the contract in accordance with the CCA.
The polar opposite approach, almost, is to do nothing. Construction contracts already include mechanisms for determining how, when and what amounts will be paid to the contractor, which complies with the CCA. However, with such an approach the contract administrators and contractors will need to have an eye to the CCA to ensure that time periods and key dates are understood at the outset and are not missed and that the detail required to be included in payment claim notices and responses is met, where applicable.
Both approaches are probably correct as we do not really know how these mechanisms will be interpreted by the Courts and what relevance, if any, the ‘payment claim notice’ and the ‘response’ will have to “disputes relating to payment”. That said the template forms of notices and guidance on the Construction Contracts Adjudication Service website would suggest that they may have everything to do with payment disputes.
We set out below some frequently asked questions that we have encountered on various projects and from clients seeking to implement the CCA and some guidance in response:
1. Can the invoice be the payment claim notice?
Yes, provided it contains all of the information required by section 4 of the CCA. But, remember that the payment claim notice is the first stage of the payment application process under the CCA so your payment procedures and internal systems will need to allow for the invoice to be contested in the ‘response’ and (unless agreed otherwise) the amount stated in the response will be the amount to be paid (and not the amount on the invoice). It is often preferable (depending on a client’s internal procedures) to have the invoice issued at the end of the payment process in the amount stated in the response.
2. Our payment terms are sixty days after the invoice date. Can we still do this under the CCA?
Yes and no. Under a main contract, you are free to set the payment due date, but the payment period (in this case 60 days) will need to run from the ‘payment claim date’ (i.e the payment application on day 1 of the payment process) and not from the issue of the invoice (unless the invoice and the payment claim notice are one and the same). That gives the payer a shorter payment period than “60 days from invoice” as the payer will need to factor into their payment process the CCA timelines from the payment claim date to the issue of a response (21 days) and the potential for dialogue on the amount proposed to be paid in the response, before an amount is agreed or, if not agreed, becomes due for payment.
Under a sub-contract, the payment period can be no later than 30 days from the payment claim date (which may or may not be the invoice date).
3. What if the contractor issues the payment claim notice after the 5 days from the payment claim date required by the CCA?
Technically, section 4 of the CCA doesn’t apply where the payment claim notice is issued later than 5 days from the payment claim date, and arguably the employer is not obliged to issue a response in such circumstances. In practice, no action by the employer may lead to confusion and uncertainty. Some practical solutions here would be (although the CCA is silent on such actions):
(a) The employer (or contract administrator) could reject the payment claim notice giving reasons (for being issued out of time) and, perhaps, indicate to the contractor that it can submit the payment claim notice at the next payment claim date; or
(b) The employer and contractor could agree to a day for day extension to the time periods for issuing a response and to the payment due date, taking into account the period of delay between when the contractor should have submitted the payment claim notice to when it actually submits the payment claim notice.
4. What if the contractor doesn’t issue a payment claim notice at all?
The Act is silent on this (perhaps unsurprisingly given the unlikelihood of a contractor not seeking payment!). However the guidance on the Construction Contracts Adjudication Service website would suggest that, in the absence of a payment claim notice, there can be no ‘payment dispute’. A practical solution in such circumstances would be for the employer to notify the contractor of the requirement to deliver the payment claim notice, that the notice has not been delivered and is now late and to proceed under either of the options under 3 above (without the need to reject the non-existent payment claim notice).
5. What if the payment claim notice doesn’t contain all of the information required by the CCA?
This is, no doubt, a situation that no one wants to finds themselves in. We have seen efforts to formulise the payment application process to avoid this (and the Construction Contracts Adjudication Service website makes template forms of notices available that can be used voluntarily by parties to a construction contract, whether or not those forms are prescribed by the contract.). In practice, the payment claim notice could be rejected and either of the options set out under 3 above, might be available to the parties.
6. What if the response is delivered after the 21 day period required by the CCA or not at all?
The Act is silent on this. This is different to the UK legislation which permits the contractor to submit a default payment notice. However, whilst we will need to wait to see how the Courts respond to this question, they may find that in the absence of a response, the paying party will be taken to not wish to contest the amount claimed (under section 4(3) of the CCA) and so the view might be taken that the amount set out in the payment claim notice will become due on the payment due date. Non-payment of that amount on the payment due date would trigger the contractor’s suspension rights under the CCA in addition to the right to refer the matter to adjudication.
7. Can the Contract require ‘payment’ disputes’ to be resolved after completion of the Works?
No. The CCA gives a statutory entitlement for a party to refer a ‘dispute relating to payment’ to adjudication ‘at any time’. Whilst the parties can agree to apply different procedures, nothing in the contract will be enforceable where it prevents a party availing of this statutory entitlement without pre-condition.
These are but some of the questions we have encountered on the practical application of the CCA as parties grapple to ensure compliance with it. What is clear is that the devil will be in the detail and parties need to ensure that whatever their contract says they are aware of and give due consideration to the CCA, and its application in practice under their construction contracts.
Alma Kelly, Senior Associate, Infrastructure, Construction & Utilities Group, Arthur Cox
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