An investigation into the effectiveness of the Construction Contracts Bill and the impact it will have upon cash

flow for sub-contractors

An undergraduate thesis submitted in partial fulfilment of the requirements for the Award of a: Bachelor of Science (Surveying) Honours Degree in Construction Economics and Management

By

Gavin Donovan April 2013

Supervisor: Submitted to:

Mr Tony Cunningham The Faculty of the Built Environment, Dublin Institute of Technology, Bolton Street, Dublin

Abstract

The Construction Contracts Bill has been introduced to improve payment practice within the construction industry. This study investigates the Bills potential effectiveness upon implementation and its ability to improve cash flow for subcontractors. At present, the Bill requires some amendment to ensure that it achieves its objective to improve cash flow within the industry.

The research to achieve the objective above was carried out through ten semi-structured interviews with senior professionals that actively work within the construction industry. It was found that if the legislation is passed it should result in improvements in contracting and payment practice across the board. Whilst improving the overall approach of the industry to payment issues, it should also reduce cash flow pressures on both contractors and sub-contractors alike.

Adjudication is the most crucial element of the Bill to provide sub-contractors with a fast-track procedure to obtain payment and its enactment would mark a significant development in the resolution of construction disputes in Ireland. As a result, it may affect the level of recourse to arbitration and other dispute resolution methods.

Declaration

This dissertation is submitted in part fulfilment of the BSc. Construction Economics and Management (Quantity Surveying) Degree from Dublin Institute of Technology. It is the result of my own independent work and has never been submitted in part or in whole for any other coursework or dissertation.

All secondary sources of information have been acknowledged and a reference of all literature used has been provided.

Signed: Gavin Donovan Date:..

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Table of Contents

Abstract Declaration Acknowledgments Table of Contents List of Figures List of Tables List of Abbreviations

i ii iii iv viii viii ix

Chapter 1 Introduction 1.1 Introduction 1.2 Scope of Research 1.3 Thesis Aims and Objectives 1.4 Outline of Chapters 1 2 2 3

Chapter 2 Literature Review 2.1 Introduction 2.2 Reasoning for the Bills Introduction 2.3 The Irish Construction Industry 2.4 Objectives of the Bill 2.5 Provisions of the Bill 2.6 The Importance of Cash Flow 4 5 8 9 9 10
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2.7 Entitlement to Payment 2.7.1 Payment Arrangements under the Private Subcontract Forms 2.7.2 Interim Payments 2.7.3 How the Bill Improves Payment Practice 2.7.4 Pay-when-paid 2.8 Adjudication 2.9 Legislation Overseas 2.10 Conclusion

14 15 16 18 19 20 26 27

Chapter 3 Research Methodology 3.1 Introduction 3.2 Scope of the Chapter 3.3 Research Aims 3.4 Research Strategy 3.5 Qualitative Research Methods 3.6 Selection of Participants 3.7 Reliability and Validity in Qualitative Research 3.8 Analysis of the Data 28 29 29 29 31 32 32 33

Chapter 4 Research, Findings, Analysis and Discussion 4.1 Introduction 4.2 Findings and Analysis 4.2.1 Cash Flow Difficulties within the Industry 34 34 34
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4.2.2 Improving Cash Flow 4.2.3 Monetary Thresholds 4.2.4 Bespoke Construction Industry Supply Contracts 4.2.5 Right to Suspend Work for Non-payment 4.2.6 Immediate Impact of the Bill 4.2.7 Potential Improvements to the Bill 4.2.8 Pay-when-paid 4.2.9 Improving Payment Practice 4.2.10 Section 6 Binding Nature of Adjudicators Decision 4.2.11 Standard of Adjudication 4.3 Conclusion

36 37 38 39 40 41 42 44 46 47 47

Chapter 5 Conclusions and Recommendations 5.1 Introduction 5.2 Realisation of Objectives 5.3 Limitations of Research 5.4 Conclusions and Recommendations 5.4.1 Further Considerations 49 49 52 54 54

Bibliography

56

Appendix 1 Thesis Programme Appendix 2 Technology and Construction Court Appendix 3 Cash Flow Analysis Appendix 4 Ethics Statement Appendix 5 Participant Profiles Appendix 6 Interview Questions

65 67 72 80 82 86

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List of Figures
Figure 2.3 Interim payments Figure 2.4 Cash requirement Figure 2.5 Number of adjudication referrals Figure 2.7 Monthly variations in adjudication referrals Figure 2.8 Adjudication referrals and UK construction workload Figure 2.9 Quarterly Profile of adjudication referrals Figure A2.1 Specialist judge required Figure A3.1 Cash flow forecast Figure A3.2 Typical saw tooth sub-contract cash flow Figure A5.1 Participant sectors 17 18 23 24 25 25 69 76 78 83

List of Tables
Table 2.1 DPER Options Table 2.2 Contract Cash Flow Example Table 2.6 Subjects of the Disputes Table 5.1 Percentage Breakdown of Dispute Subjects Table A3.1 Typical Cash Flow Statement Table A3.2 Schedule of Payments Table A3.3 Table Indicating Time, Payments and Cost 8 17 23 53 74 75 77

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List of Abbreviations

CCB GCCC CIB CIC CIF CIOB DPER HGCR QS RIA RIAI SCSI SME TCC

Construction Contracts Bill Government Construction Contracts Committee Construction Industry Board Construction Industry Council Construction Industry Federation Chartered Institute of Building Department of Public Expenditure and Reform Housing Grants, Construction and Regeneration Act 1996 Quantity Surveyor Regulatory Impact Analysis Royal Institute of Architects of Ireland Society of Chartered Surveyors in Ireland Small and Medium Enterprise Technology and Construction Court

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The Government has to stop long fingering this legislation and get it enacted as soon as possible. . . This is a piece of legislation that will have huge ramifications for the construction industry in this country; an industry that the Government is all too aware is struggling at present Tom Parlon, CIF Director General (2012)

CHAPTER ONE INTRODUCTION

1.1 Introduction Correct payment practice is not being observed in the construction industry, subcontractors, in particular, have been exposed to late-payment, under-payment and nonpayment by main-contractors. The Construction Contracts Bill (the Bill) was introduced as a Private Members Bill by Senator Feargal Quinn in May 2010 to address poor payment practice in the Industry.

The Bill aims to provide statutory rights to be paid defined amounts at specific stages in a project with a mandatory fast-track dispute resolution procedure of statutory adjudication being available to the parties in contract to enforce such rights. The Bill has been through the consultation process with various industry stakeholders and was referred to the Select Committee on Public Expenditure and Reform in June 2012 following a well-attended debate in Dil Eireann. An amended draft for enactment is due to be brought forward in the near future. This study sets out to investigate whether the Bill will improve payment practice and examines whether this will reduce cash flow difficulties currently being experienced by sub-contractors.

Quantity surveyors are expected to administer contracts in a fair and professional manner by clients, colleagues and contractors. Best practice holds that interim valuations should be carried out promptly and as accurately as possible. This will ensure that contractors and sub-contractors are paid correctly, thereby minimising cash flow difficulties. The surveyor plays a key role in the payment process by recommending how much money is to be paid. It is important for surveyors to be aware of, and understand their contractual duties and possess the necessary skills to administer the
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contract accordingly. Therefore, this study deals with a key issue in effective contract administration which is a core area of the Construction Economics and Management Degree Programme.

1.2 Scope of Research As the Bill has been introduced primarily to address the issue of non-payment to subcontractors, it is considered appropriate to examine the problem from the subcontractors perspective. The study does not address, in depth, the related topic of maincontractor payment which has been recently examined by McCaul (2010). Nor does it examine the various matters which give rise to disputes which may delay payment to subcontractors such as contracharges, below cost tendering, onerous contract conditions, and risk allocation. The study focuses on payment arrangements under standard forms of sub-contract.

1.3 Aim and Objectives This study sets out to investigate whether the Bill will improve the current cash flow difficulties being experienced by subcontractors. The following objectives have been identified in order to achieve this overall aim: To discuss the importance of cash flow for contracting companies To report cash flow difficulties currently being experienced by contractors and sub-contractors To describe the objectives and provisions of the Construction Contracts Bill

To assess whether the Bill will be effective in improving sub-contractor cash flow through the introduction of statutory adjudication

1.4 Outline of Chapters

This study comprises five chapters:

Chapter One introduces and provides the background and rationale for the study. The scope, aims and objectives of the study are defined and explained and an outline of the studys content is presented.

Chapter Two reviews the literature related to the importance of cash flow. The review reports payment difficulties currently being experienced by contractors and subcontractors and discusses the provisions of the Bill. The review appraises whether similar legislation has been effective in the UK and provides a commentary on previous studies related to the potential impact of the Bill.

Chapter Three explains the choice of semi-structured interviews as the method of gathering first-hand information and explains the process involved in selecting the various participants, conducting the interviews and analysing the data.

Chapter Four presents the findings of a series of ten semi-structured interviews. The analysis draws out key statements and develops common themes which emerged from the discussions. The objective is to present a credible description of the opinion of industry participants regarding the effectiveness of the proposed Bill.

Chapter Five draws together the argument set out in Chapters Two and Four and presents the conclusions drawn from the analysis. This discusses whether the aims and objectives of the study have been achieved. Recommendations for industry and practitioners are also set out.

This is a dangerous area. I would be the first to admit that culpability often lies with the main-contractor Deputy Mick Wallace (2012)

CHAPTER TWO LITERATURE REVIEW

2.1 Introduction A literature review summarises and synthesises publications related to the research topic; these include: journals, books, industry reports and articles, analysing previous research and the need for the proposed study (Creswell, 2008). This literature critically reviews and discusses the importance of cash flow within the Irish construction industry and the effectiveness of the Bill to achieve improved cash flow, in addition to an analysis of the introduction of statutory adjudication.

The contractual principles underpinning payments and the various administrative procedures and components of the individual payment clauses contained in the private forms of subcontract will also be discussed. Consideration will also be afforded to the current difficulties that are being experienced in relation to cash flow. The review sets out the key provisions of the Bill and thoroughly scrutinises the expectations of what the Bill may accomplish and the immediate impact it may have upon cash flow. The purpose of the Bill is to protect contractors that have been denied payment from those further up the chain without placing an unnecessary regulatory or cost burden on the parties to the dispute. (Regulatory Impact Analysis (RIA), 2010). When the Bill was first introduced to the Government by the Department of Public Expenditure and Reform (DPER) in 2012 it was said that The purpose of the Bill is to help address the issue of non-payment to construction sector contractors, sub-contractors and sub-subcontractors who have completed work on construction projects. It is essential that we reduce sub-contractors exposure to non-payment and ensure these issues can be dealt with in a more timely manner.

The Department added This Government is committed to protecting small building sub-contractors that have been denied payments from bigger companies. The Governments attitude is positive, however, if the Bill is to protect contractors and subcontractors it must be designed to suit them. The introduction of the proposed amendments that are currently provided for must be implemented for the Bill to be effective.

It has been 1,071 days since the Bill was first introduced to the Oireachtas. The pressure to implement this much needed piece of legislation is more prevalent now than ever before.

2.2 Reasoning for the Bills introduction The RIA was carried out during the consultation phase to ensure that the proposed legislation was balanced in relation to the potential imposition of regulatory or cost burdens on various parties in a dispute, the state or others. (DPER, 2012)

The RIA established that the Bill before the Dil proposes state intervention by creating a new regulatory framework which will provide for minimum contract terms, whether the contract in question is written or oral, it is all encompassing. In addition, it allows for a fast-track process and resolution of a construction contract payment dispute via statutory adjudication which has received an unequivocal welcome in the UK.

Two main aims of the Bill, as outlined by the RIA, are as follows:

1) To ensure prompt cash flow improving efficiency; and 2) To allow swift resolution of disputes by way of adjudication, allowing projects to be completed without wasting time and money in litigation.

This study focuses on the prompt cash flow element of the Bill, and the swift resolution of disputes relating to the process of adjudication will also be addressed.

The Bill achieves the aims above through the provision of the following:

1) By providing statutory arrangements in relation to payments under construction contracts, including providing for interim payments. This will reduce a payees exposure to non-payment; and

2) Introducing a new mechanism for the swift resolution of payment disputes through a process of adjudication. This will provide a route for redress in the event that non-payment occurs. (Department of Finance, 2012)

Correct payment practice is not being adhered to within the industry. In an effort to resolve this situation, the CIF were considering alternatives. Firstly, they looked at the United States construction liens, also commonly referred to as mechanics liens which are defined as A right to keep possession of property belonging to another person until a debt owed by that person is discharged (Oxford Dictionary, 2013). The process of liens works well although there were potential issues with constitutionality and the problem of having a lien over a property that wasnt strictly in the ownership of the contractor.

Following the above, the CIF looked at the Miller Act which is a unique piece of legislation that requires the payment of a bond; however there were a number of issues surrounding this also when they tried to link it into the industry here in Ireland. The Government concluded that an Act containing provisions similar to what the Housing Grants, Construction and Regeneration Act 1996 (HGCR Act 1996) in the UK provides for would be more suitable.

It was a cash flow deficit within the industry that prompted the Bill to begin with and it looked as if it was going to be fast-tracked through a number of promises made by the Government. The first of many promises was that it was going to become legislation by September 2011, following this came promises of late 2011. Of course, none of this came to fruition and indeed it is understandable that the Government have a vast amount of work to get through apart from the Bill. The fact that the Government have managed to find any legislative time to propose such a Bill is significant. They have
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now provided a more realistic date for its introduction although it is yet to be seen if this comes to light; certainly the attitude within the industry is that it is not foreseen for it to be brought in any time soon.

The following amendments have been put forward to the Government for consideration to be included in the revised draft:

1) The proposed monetary thresholds that currently exist will need to be either reduced or removed completely as it currently stands, the Bill only applies to projects in the Private sector that exceed 200,000 and 50,000 in the Public sector respectively. It has been found that the majority of projects in both industries only amount to sums ranging from 10,000 - 50,000. 2) The right to suspend work for non-payment is likely to be increased in excess of the current proposed threshold that stands at two weeks. It is seen to be too generous. 3) One of the main elements of the Bill is the adjudication award, the binding nature of which is to be considered further in more detail. It is more than likely that the Bill will and indeed should follow suit with the UK in that the decision is binding unless it goes to arbitration at a later stage. 4) A final amendment that is being considered is that of bespoke construction industry supply contracts being included in the scope of the legislation.

The current situation is quite bleak in that the longer the legislation takes to become binding law, the more jobs that will be lost and the more sub-contractors we will see going into liquidation.

Passing legislation is of course a challenge in itself to say the least. The complex and burdensome system that Ireland operates does not ease the difficulty of the task of bringing the legislation forward. The situation with regard to the Bill is unique in that there is cross-party support which should help if political patterns are to be considered.

The DPER also outlined that there are three options which the Government could choose from in relation to action on the Bill, the third option being the most desirable for sub-contractors:

Option 1
Option 2 Option 3

Do nothing Legislative intervention to regulate payments between Contractors, Subcontractors and Sub-sub-contractors (Construction Contracts Bill 2010) Consideration of possible amendments to the Bill as passed by Seanad ireann

Table 2.1 DPER Options

2.3 The Irish Construction industry The Irish construction industry is experiencing an unprecedented downturn in activity. A report recently compiled by the Society of Chartered Surveyors in Ireland (SCSI) has spread some light on the situation The Irish economy is gradually emerging from the greatest economic crisis in living memory during which economic growth suffered an unprecedented setback (SCSI, 2012). A common remark related to the Bills introduction is that it may be too late. It needed to be implemented during the boom years. This is true, however it is not necessarily too late. It is legislation that Ireland needs and despite its delayed introduction it is still required now more than ever, taking into account a much reduced workload available. What we may find is that it will contribute towards Irelands recovery and potentially lay the foundation for the next period of growth.

Furthermore, the costs of the current situation in relation to the resolution of disputes that sub-contractors are restricted to are far too high. There is an argument with regard to the cost of adjudication also, however, it is categorically lower than that of arbitration

(if a contract has been signed and it contains an arbitration clause), in addition to litigation where a sub-contractor has agreed their work informally.

2.4 Objectives of the Bill The purpose of the Bill is to help address the issue of non-payment to construction sector contractors, sub-contractors and sub-subcontractors who have completed work on construction projects. The Bill achieves this through: 1) Certainty of time of payment 2) Certainty of the amount to be paid 3) Certainty of enforcement 4) Certainty that there will be cash available to pay (SCSI, 2011)

2.5 Provisions of the Bill The provisions that the Bill is most likely to contain in the final draft can be seen below: 1) A new statutory right to interim, periodic or stage payments, making clear when the payments become due, their amount and a final date for payment; 2) A new statutory right for a payee to suspend performance where a sum due is not paid by the final date for payment; 3) 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); 4) A statutory right for parties to a construction contract to refer payment disputes to adjudication; 5) A new adjudication procedure to deal quickly with disputes involving payments and to result in a binding decision, under which payment, if any, must be made to the party named in the decision; and 6) An adjudicator to be selected on an agreed basis by the parties to a contract, or else to be appointed from a panel to be set up by the Minister (DPER, 2012).

Similarities can be seen in the UK Act which implemented the following provisions on all construction projects: 1) Pay-when-paid clauses are enforceable; 2) Payment by instalment for all contracts over 45 days duration; 3) The contractor is to be informed when payment is due as well as the amount; 4) The contractor is to be informed if the client is to withhold payment; 5) The contractor has the right to withdraw from the site if not paid within a specified period. (Cartlidge, 2013)

2.6 The Importance of Cash Flow Cash flow is the movement of money in and out of the firm. (Cooke & Williams 2010) moreover, the (Oxford Dictionary, 2013) states that it is the total amount of money being transferred into and out of a business, especially as affecting liquidity. Cash flow is more than just a cash-in, cash-out process; it has consequences that stretch far beyond what one may initially consider, it contributes towards the success of the entire project in question.

The construction industry operates regular interim payments as standard practice. It is more common, however, that sub-contractors have to fight to obtain payment for every tranche of work completed. It was only last March that the European Communities (Late Payment in Commercial Transactions) Regulations 2012 (S.I. No. 580 of 2002) were brought in to deal with this issue specifically.

These regulations provide that unless otherwise specified within contract, the interest rate imposed upon the parties in agreement will be the European Central Bank (ECB) main refinancing rate (as at 1st January 2013) plus eight percentage points. Therefore, the current rate is 8.75%, taking into account the standard rate of interest also of 0.75%. It is important to remember that only one rate of interest will apply and it will be under the contractual provision of the rate in force on the payment date.

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The main provisions of the revised legislation are the following: 1) Public authorities must pay for goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days. 2) Enterprises should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor. 3) Enterprises are automatically entitled to claim interest for late payments and can also claim compensation for remaining reasonable recovery costs. 4) As noted above, the statutory interest rate for late payment is increased. 5) Enterprises can challenge grossly unfair terms and practices.

Legislation that falls in line with the above is also that of the 2011/7/EU Combating late payments in commercial transactions which was passed by the European Government on the 16th February 2011. The legislation provides for specific deadlines for the payment of invoices and replaces the current system that sub-contractors in particular find quite burdensome. The then Department of Trade, Enterprise and Employment (now Jobs, Enterprise and Innovation) claimed that the introduction of the Prompt Payments Act, 1997 substantially improved payment times in the public sector and that the average payment time was originally 51 days. Commenting on the effectiveness, ISME Chief Executive, Mark Fielding stated the current legislation is working against small business and the new EU Directive, due to be transposed into Irish law at end of March 2013 will exacerbate the situation, driving more enterprises out of business, due to the vicious cycle created by larger business and government agencies delaying payments to their smaller suppliers. (ISME, 2013) An interesting element of the Prompt Payments Act is that it may also be applied by suppliers of goods and services (including construction workers) in order to be paid interest on any payment amounts outstanding after the payment date. (RIA, 2011) The aforesaid relates to the Bill as it currently stands. The Government are considering bespoke construction industry supply contracts to be included in the scope of the legislation.

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It is important to take note of such legislation; a question is often suggested to industry professionals, whereby the legislation that they are currently trying to implement may not be needed as these Acts currently in place provide for similar legislation. The author is against such an argument and is of the opinion that the Bill provides for a unique situation and is without a doubt needed. The adjudication fast-track process of resolving disputes is notably the most crucial provision and contributes further to payment practice currently adhered to within the industry.

The structure of the industry must not be ignored; it is a credit based industry and it is common for work to be paid for in arrears. It is typical of a contract in construction to necessitate at least a months work to be conducted by the contractor before any m oney is paid over. The practice mentioned relates to the contractual chain that exists throughout the industry, with the sub-contractors habitually located at the bottom of the supply chain. As a result, the contractor generally requests even more favourable credit facilities in relation to payment arrangements under the contract from the said subcontractors. A cash flow deficit is what is trying to be avoided and it is often the case that the sub-sub-contractor takes the true hit when the payment chain is broken down.

An example in the UK is that of Steve Sutherland, Chairman of glazing contractor Dortech. He is ending a long-standing working relationship with one of the UKs largest contractors because, as he stated In some cases, the company has had to wait more than 200 days for bills to be settled, he said, and unfair discounts imposed retrospectively by Balfour Beatty have meant he often ends up losing money. He has had more than 100,000 withheld on recent projects. (The Telegraph, 2012)

Cooke and Williams 2010 state that money held back is effectively capital lock-up and this must in turn be financed, generating interest payments. This adds to the cost of building and is counter-productive from a client-value point of view. Interim certificates are often relied upon from a sub-contractors perspective as it is their only source of income throughout the life of a project. They depend on full and timely payments to operate their business effectively. (Walker and Wilkie, 2002) The often catastrophic consequences of late or in many cases underpayments spread
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throughout all of the stakeholders contained within both the immediate contract and it also effects those externally linked via alternative contracts. The Minister for Justice and Equality recently stated that the Bill entitled an Act to amend the law relating to insolvency, to amend the Bankruptcy Act 1988, to provide for the establishment and functions of a body to be known as Seirbhs Dcmhainneachta na hireann or, in the English language, the Insolvency Service of Ireland, and, in particular, in the interests of the common good (including the stability of the financial system in the State) (Houses of the Oireachtas, 2012) The Latham Report 1994, Constructing the Team, stated It is absolutely fundamental to trust within the construction industry that participants should be paid for the work which they have undertaken. It further urged those that take part in the industry to trade fairly, particularly in relation to payment. The report was carried out following a comprehensive survey. It contained 53 recommendations, a number of which related to payment-related issues that were creating concerns for subcontracts across the industry. The report promoted the advent of the Construction Industry Board (CIB) to overlook the reformation that was taking place. Further to this, the CIB in the UK published an additional report to compliment it; Partnering in the Team which was introduced in 1996 that stressed the importance of partnering within the industry which again recommends coherent and transparent payment practice. Subsequent literature includes a number of industry reports, the most notable of which is the Egan Report 1998, Rethinking construction.

More recently, the focus on collaboration and best practice in relation to payment was accredited by Chief Construction Adviser, Paul Morrell in the UKs Government Construction Strategy in 2011 which strongly considered what both the Latham and Egan Report had to say. A number of the key objectives related to the Bill, the most prominent can be seen in section 6(iii) which states:To speed cash flow through the supply chain to reduce the working capital burden and increase security of payment for lower tiers of the supply chain, particularly SMEs

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In conclusion, cash flow is an inherent problem throughout the construction industry, taking into consideration the Bill, it will always be present. Cash flow is a problem for all of the stakeholders that take part in the industry and most importantly it must be noted that clients run out of money also. It is for this reason sub-contractors need to be as sure as possible that they enter into contracts to which they have full and transparent knowledge of the conditions they have entered into in order to prevent default.

2.7 Entitlement to payment The cardinal of issues contained within the Irish construction industry at present is the pay-when-paid clauses, also commonly referred to as pay-when-certified. They arose out of the supposed need to protect the employer. If the employer fails to make payment, neither the main-contractor nor the sub-contractor will obtain payment as a result. It was noted that The standard forms of sub-contract typically used in Ireland tend to tie the sub-contractors entitlement to be paid to both certification and payment under the main contract. (Arthur Cox, 2012) The consequence of the aforementioned arrangement results in the sub-contractor providing an extended line of credit to both the main-contractor and further up the contractual chain, to the client. The UK currently outlaws pay-when-paid clauses under the HGCR Act. Their reasoning behind this was to shift the risk towards the main-contractor and that it should not be passed onto sub-contractors, except in the case of insolvency of the employer. (Arthur Cox, 2012)

A fundamental change is the prohibition of all conditional payment provisions that will stem the situation whereby the risk of a default by an employer, as is common during recessionary periods, is passed on to the sub-contractor. The wording of the legislation is quite broad which will allow for a number of situations to be concealed within it. It states that A provision in a construction contract is ineffective to the extent that it provides that payment of an amount due under the construction contract, or the timing of such payment, is conditional on an act of a person other than one of the parties to the construction contract. (DPER, 2012)

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Overall, the UK has had a positive experience to-date in relation to the limited prohibition of the pay-when-paid provision. Statutory rules that provoked consternation upon introduction such as the pay-when-paid removal from contract has been widely accepted. When considering this subject, it is perhaps useful to bear in mind that an employers contractual obligation to make regular payments to a contractor is accompanied by a similar obligation of the contractor to make regular payments to his nominated suppliers and sub-contractors. (Hacket et al 2007)

2.7.1 Payment arrangements under the private subcontract forms The RIAI suit of private sector contracts provide for the most commonly used contracts in Ireland in addition to the GCCC contract for public sector projects. Standard subcontracts are also commonly initiated under building agreements in Ireland also, such as: 1) The Construction Industry Federation and the Sub-contractors and Specialist Association Subcontract (SCSA) 1989 2) The Specialist Contract Document 1999 3) The GCCC subcontract Form 4) The Civil Engineering Subcontract Form published by the CIF (which is currently out of print) 5) Other standard forms of contract or imported forms of subcontract such as the Dom 1 and Dom 2 which are prevalent in the UK A question that is often put forward to individuals who are currently involved with the legislation is that the sub-contractors frequently agree to the main-contractors standard terms and conditions. They may impose these under their contract and it may be the case that the provisions provided for in the draft document before the Government may not even be used by the sub-contractors following the Bills implementation.

The above depicts a common situation whereby the sub-contractor is simply unaware of the conditions they are tied to under the main contract and it will subsequently be up to

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them to make sure that they become educated and knowledgeable of what the Bill contains in due course.

2.7.2 Interim Payments Interim payments and their due dates are specified under the legislation as All construction contracts will be required to provide for the amounts of interim and final payments, or for an adequate mechanism for determining those amounts, together with the payment claim dates for each amount due under the contract. Where adequate mechanisms are not included, the provisions of the Schedule to the Bill will apply, which provide for interim payments at intervals of no greater than 30 days. In addition, where a paying party does not agree any part of a payment claim made under the contract, written details of this must be provided to the other party no later than 21 days after the payment claim date, failing which, the amount claimed must be paid in full. (Arthur Cox, 2012) The situation currently provided for in the Bill will allow subcontractors a more transparent payment mechanism which will have the statutory backing to further strengthen it.

Interim Payments under the RIAI 2002 are specified in the following manner: At the period of Interim Certificates named in the Appendix the Contractor shall (subject to Clause 16 (c) of these conditions) on production of a detailed progress statement be entitled to receive in five working days unless otherwise stated in the Appendix a certificate from the Architect of the amount due to him from the employer, which certificate shall include any amounts allowed in respect of sub-contracts and the Architect shall specify and show separately the amount (if any) allowed in respect of each nominated Sub-contractor. Each certificate shall be honoured by the Employer within seven working days of presentation of same to him by the Contractor. If the amount certified differs from the progress statement submitted by the Contractor the Architect, on request, shall give the Contractor an explanation of the difference.

Interim certificates contribute towards the survival of the sub-contractor over the life of a construction project. If a payment from the main-contractor to the sub-contractor is delayed it can bring drastic consequences for them as a result. As it can be seen in Table
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2.2, the application is made in advance of receipt; however the sub-contractor will not receive the payment for some time after this submission. Contract sum Contract period, months, Retention, % No. contract payments Margins 6 10 6 3 10,000,000

First payments details Application Certification Payment received Week 6 Week 7 Week 10

Table 2.2 Contract cash flow example, Source: (Adapted from Ross and Williams 2013)

It is common for a sub-contractors costs to exceed the payments being received from the main-contractor as it can be seen in Figure 2.3. It will not be until the closing stages of the project that the cost starts to drop off somewhat and they will start to see a positive balance in terms of cash on their balance sheets.

Figure 2.3 Interim Payments, Source: Ross and Williams 2013

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Figure 2.4 Cash requirement, Source: Ross and Williams 2013

It is clearly illustrated above in figure 2.4 that the cash required is almost indefinitely strained throughout the life of the project. The Bill aims to stem this process and insure payment on a more consistent basis.

Section 3 of the Bill concerns payment provisions. Contracts that fall under the description of the Bill must:

1) Identify either the amount of each interim payment and the final payment to be made under the contract, or provide an adequate mechanism to establish these sums. 2) Identify either the payment claim dates or an adequate mechanism to determine these and stipulate the maximum period in which these payments must be made.

2.7.3 How the Bill improves payment practice The Bill is specifically aimed at sub-contractors and its introduction is directly linked to the way in which they are paid and the various contractual principles to which they can use to obtain payment in circumstances whereby the main-contractor is withholding payment. A list of the ways in which the Bill will do the above is provided below; it originates from the DPER given in a second stage speech delivered by Minister Brian Hayes. Most importantly, it was the first time the Bill had been introduced in a formal manner to the Government:18

1)

The Bill sets minimum standards for the payment provisions in construction contracts (whether the contracts are written or otherwise).

2)

Under the Bill, construction contracts must include arrangements for interim payment over the period of the contract. This will reduce the non-payment exposure of contractors and sub-contractors.

3)

The parties to the contract may either agree between themselves an interim payment arrangement or otherwise the default arrangement set out in the legislation arrangement will be deemed to apply.

4)

This makes sure that the question of payment amount and timing is addressed by the parties at the outset.

5)

In this way, parties should not unwittingly get themselves into situations where they are fully exposed to non-payment of a large accumulated bill for work carried out over a long period.

6)

The arrangements should greatly reduce the amounts that are subject of dispute. However, if a payment dispute arises, then the Bill also provides for a swift (and cost effective) adjudication process. (DPER, 2013)

2.7.4 Pay-when-paid The bodies whom lobby for the sub-contractors often raise concerns about subcontractors obtaining payment fairly and efficiently. This has manifested itself in the sub-contractors ability to be paid in addition to protecting themselves against insolvency of those in the contractual chain above them. Clauses such as the Paywhen-paid result in a large number of sub-contractors being unable to obtain payment. The current situation is that where the employer fails to make payment to the maincontractor for works that have been completed will ultimately result in the subcontractor not obtaining payment also. Thus reverting back to the contractual chain, payment is conditional. The result of the situation contained within subcontracts at the moment is that a main-contractor should not become liable to pay his sub-contractor for work carried out until after such time as he has received payment from his client (Arthur Cox, 2012).

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The Bill is proposing to outlaw the clauses described above similar to what the UK have done in the HGCR Act 1996. A key change put forward to the Government at present is the prohibition of all conditional payment clauses which can be seen below. A provision in a construction contract is ineffective to the extent that it provides th at payment of an amount due under the construction contract, or the timing of such payment, is conditional on an act of a person other than one of the parties to the construction contracts. (DPER, 2012)

If payment is not made by the due date agreed under contract, a statutory right to suspend work will be available to the sub-contractor. However, there are currently issues with this provision because it is capped at just two weeks. For the clause to be effective the suspension period needs to be indefinite.

2.8 Adjudication The Bill aims to provide a mandatory fast-track dispute resolution procedure of adjudication being available to the parties in contract to enforce such rights.

There is one major difference between the Irish draft legislation and the UK Act which has the potential to destroy the effect of the legislation in Ireland and will certainly prevent the dramatic reduction in the time taken to and cost of litigating construction disputes which was the result of the introduction of adjudication in the UK. The difference is contained in section 6(12): The decision of the adjudicator shall not be binding if the payment dispute is referred to arbitration or proceedings are otherwise initiated in relation to the decision unless the parties agree to accept the decision as finally determining the payment dispute.

(Mason, Hayes and Curran, 2011)

In the UK, adjudication was given statutory effect under the HGCR Act 1996, and as a result cash flow throughout the construction industry has been dramatically improved. In January 2006 the Department of Trade and Industry and the Welsh Assembly
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Government issued their analysis of the responses received to their 2005 consultation on a number of proposals put forward to amend Part II of the HGCR Act and the Scheme for Construction Contracts (England and Wales) Regulations 1998. They also made a number of proposals to amend the legislation. One of the findings noted that disputes rarely progress to arbitration and it has been reported that 90% of disputes are settled at adjudication or shortly thereafter (Specialist Engineering Contractors (SEC) Group, 2006).

When the HGCR Act 1996 was popularized there were concerns about the willingness of weaker contracting parties (mostly sub-contractors) to initiate adjudication proceedings against more powerful parties (Kennedy, Morrison and Milne 1997). The chief concern expressed by sub-contractors was almost entirely limited to adjudication in respect of set-off claims in domestic subcontracts whereby if they referred a dispute to adjudication they might be denied future opportunities to tender for work.

Large contractors would generally contain a greater ability to apply various conditions of contract. Sub-contractors sit further down the contractual chain and it was thought that they would be deterred by the threat of commercial power from utilising this new and powerful form of resolving disputes and allowing vital cash to flow.

This view is supported by Gaitskell (2007) who reported that during the pre-statutory adjudication era, resistance by main-contractors and employers meant that contractual provisions which aided cash flow were not widely used. Gaitskell suggested that the inclusion of such provisions would depend on the negotiating strength of the parties. If the objecting party was strong enough, the contractual provisions were removed. Mason (2010) Reflecting on a report by Huxtable (1983) records the atmosphere between main-contractors and sub-contractors which prevailed at that time. The report by Huxtable was entitled The Corruption of the Commercial Process and it detailed a number of evolving practices, several involving bespoke contracts, which many would consider unfair.

Adjudication is strictly related to the movement of cash, it was introduced for this sole purpose and as a result it provides for a speedy process when a sub-contractor is seeking
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a legitimate payment claim. The Bill provides for a number of implications with relation to adjudication; however it is important to remember that none of these will be instigated unless the parties preventing payment do not comply.

Further to the above, with regard to current forms of dispute resolution available to subcontractors; the majority of standard construction contracts will contain conditions precedent in their dispute resolution provisions. A condition precedent is an Act or event that must occur before a duty to perform something arises; if the condition is not satisfied then performance of the duty is not necessary (Black, 2004). What Ireland may see in years to come following the Bills implementation is a reduction in demand for adjudication services. Paul Darling QC of Keating Chambers recently submitted a comment for an article entitled Slow Build that claimed Paradoxically, the availability of such high-quality dispute resolution has reduced the need for it. It is no coincidence that the court has supported the adjudication process (The Lawyer, 2013). However, this will only arise after the legislation is well exercised here in Ireland.

What the UK found in relation to referrals to adjudication was that there was an initial spike and then it gradually dropped off in terms of demand thereafter, thus creating an arc which can be seen in figure 2.5.

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Figure 2.5 Graph of the number of adjudication referrals each year from 1998, Source: Glasgow Caledonian University 2010

A similar situation is to be expected here in Ireland. What the industry should see is a strong uptake in the legislation and a gradual drop-off in demand. Relating strictly back to the subject of cash flow, it was proven in the UK that the majority of adjudication referrals per year were seen mostly to be with regard to the valuation of the final account and secondly, the valuation of interim payments which is illustrated in table 2.6 below. Thus, payment is an inherent issue contained throughout the industry worldwide and not just here in Ireland.

Table 2.6 Subjects of the disputes, Source: Glasgow Caledonian University 2010

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Figure 2.7 illustrates the number of adjudication referrals per month from 2000 to 2010 in the UK. The purpose of looking at the monthly variation in adjudication referrals overseas is to see if there was any evidence of ambush by parties. There are certainly peaks in November and March with troughs in September and December but the reasons may have more to do with financial year ends than ambush which one might expect near holiday periods. (Glasgow Caledonian University Report, 2010) Adjudication is about tactics and when you submit your information for review to the adjudicator as a result of the process taking place within such a short period of time. The Bill provides for a 28 day adjudication period similar to the HGCR Act in the UK. The main uptake with adjudication is still with contractors seeking to release cash flow on a short-term basis. (The Lawyer, 2013)

Figure 2.7 Monthly variations in adjudication referrals, Source: Glasgow Caledonian University 2010

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Figure 2.8 Adjudication referrals and UK construction workload, Source: Glasgow Caledonian University 2010

Figure 2.9 Quarterly Profile of adjudication referrals and UK construction workload, Source: Glasgow Caledonian University 2010

The graph in figure 2.9 illustrates a more detailed account of construction workload versus adjudication referrals in the UK. Q1 2008 shows a slight decrease in workload whilst at the same time there is an increase in the number of referrals. Moving forward
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to Q4 2008, sub-contractors were still pursuing adjudications which may potentially have been driven by the need to obtain payment in a more prompt and efficient manner. The hypothesis provided for starts to contradict itself moving from Q4 2008 onward in that the decrease in the workload for sub-contractors falls alongside the number of referrals. A sub-contractors workload seems to correspond almost in a mirror like fashion with the number of referrals to the adjudication process. Bringing what has been analysed into the Irish context, given that the sub-contractor workload is somewhat reduced at the moment, we may only be able to conduct such an analysis when the Irish economy experiences moderate growth over the medium to long-term.

Adjudication is the most desirable option for sub-contractors. It is most appropriate in cases in which time is of the essence especially in payment decisions or when work is required to continue while awaiting the decision of a judge or an arbitrator (Layng Ross 2009; Sweet and Schneier 2009).

2.9 Legislation Overseas The question of the Bills effectiveness upon implementation and its impact on cash flow within the industry prompts us to look at legislation that is being used abroad. The most obvious is the HGCR Act which applies to England, Scotland, Wales and Northern Ireland, which is the most relevant. The HGCR Act was promoted by the recommendations of the Latham Report, 1994. The UK have consolidated the Act only last year, 2012 and built upon its strength, identifying loopholes and sifting out inconsistencies. The HGCR Act currently provides for situations containing payment default which will ultimately lead to disastrous consequences in relation to slow and in many cases, sudden insolvencies.

It is up to the Government to recognise the repercussions that exist as a result of consistent payment default. The current issue is that there is no Act preventing it before the situation escalates here in Ireland. Section 112 of the UK Act coherently deals with such a situation if it were to arise.

Thankfully, many other jurisdictions have followed suit. For example, Australia currently provide for such a situation under the Australia (Queensland) Building and
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Construction Industry Payments Act 2004, commonly cited as the Building and Construction Industry Payments Act 2004 in section 20. Malaysia has legislation that deals with similar provisions under the Malaysia Building and Construction Industry Payments and Adjudication Act, although it is pending. Furthermore, Singapore and the Isle of Man under the Singapore Building and Construction Industry Security of Payment Act 2004 and the Isle of Man Construction Contracts Act 2004, respectively. Finally, we must mention the New Zealand Construction Contracts Act 2002. Ireland can relate to New Zealand in that our population size is somewhat similar. The New Zealand Act was formulated to expedite payments and to resolve construction law disputes quickly. The former is precisely what we are trying to impose here in Ireland.

2.10 Conclusion The proposed Bill aims to address a number of issues that are inherent within the Irish construction industry at present. The Government will make it effective at reducing unfair payment practices such as unduly prolonged and inappropriate cash retention in the case of sub-contractors, in addition to encouraging parties to change their dynamic in terms of approach and thought process when it comes to dispute resolution procedures in the contract through statutory adjudication.

If the Bill comes into force, there will be a significant impact on payment practice for sub-contractors and the implementation of adjudication will further contribute towards this. The new Act will be more effective at improving cash flow in construction supply chains across the board and it will encourage parties to resolve disputes more efficiently. The aforementioned does not come without its challenges; it is often the case that integrating proposed changes and provisions into existing dispute resolution processes proves to be a complex task.

Upon implementation, the construction industries employers, main-contractors and subcontractors will need to become increasingly more aware and accustomed to quite drastic changes on adjudication and payment practice, namely the sub-contractors as the Bill is primarily geared towards them.

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Research is to see what everybody else has seen, and to think what nobody else has thought Albert Szent-Gyorgyi

CHAPTER THREE RESEARCH METHODOLOGY

3.1 Introduction Research methods refer to the research approach, culture, techniques for data collection and questions to be answered within the thesis. Hart (2009) suggests: Achieving a methodological logic in your research design involves making coherent and reasoned connections between the choice you have made and which methodological tradition to follow, which approach and which data collection methods you use

This chapter sets out the rationale behind the research method of semi-structured interviews in addition to briefly exploring a number of other research methods. A series of ten interviews were conducted over a period of four months.

The overall tactic was to discuss the general opinion of those that will be affected the most when the Bill is introduced, hence the reason lawyers, contractors and an individual from a representative body were chosen for the interview process, all of whom actively contribute to the daily workings of the industry.

In chapter two, a detailed literature review was undertaken to establish the basis behind the Bill and its effectiveness on cash flow within the industry. Thus, we now have the reasoning behind the legislations advent, in addition to the knowledge that forms the basis of its application. However, now it is important to describe how the research was undertaken with an intention to open up new avenues of thought and indeed potential flaws that may come to light in due course.

As noted by White (2000) the research design process covers a number of separate, but related, issues including the research aims, the methodology, the data collection

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techniques, the methods of data analysis and interpretation, and how all this fits in with the literature.

3.2 Scope of the Chapter In order to achieve the objectives that were set out at the outset of the dissertation it was important to introduce a research strategy. The research strategy contains an analysis of the various methods that are available for conducting such a study which are provided in this chapter. The conclusion will be drawn from the most appropriate method for the Author to employ moving forward when conducting the research.

3.3 Research Aims The aims of the present study are to further supplement the knowledge and information that were accumulated during the process of writing the literature review. This research also aims to further an understanding of difficulties that are inherent within the industry with relation to cash flow and how the Bill may improve the current flawed practice that takes place. It will further establish the Bills effectiveness upon introduction and to explore avenues beyond what the Bill currently provides for which may also contribute towards easing the fluidity of cash down the contractual chain. An unbiased opinion shall be concluded upon with regard to its ability to achieve the above.

3.4 Research Strategy From the outset, when the approach in terms of research was being investigated it was apparent that a choice would have to made between that of qualitative and quantitative research. Thus, a research strategy had to be formulated. Research strategy can be defined as the way in which the research objectives can be questioned (Naoum, S.G 1998) Silverman (2001 p.25) notes that the choice between different research methods depends on what you are trying to find out. Therefore, to address the research topic, a qualitative rather than a quantitative research design was chosen. Creswell (2003) identifies three principle types of research paradigms: quantitative, qualitative and mixed method approaches. It is common for a researcher to select a sequential mixed methodological design (Creswell, 1994) incorporating both qualitative and quantitative
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methods to achieve their aims and objectives, however for the purposes of the study in question it was found that a qualitative approach was more appropriate. There were a number of advantages of using a qualitative approach in that it allowed the participants to speak for themselves in a non-restrictive environment allowing the free-flow of information. Quantitative research on the contrary involves the measurement of data to prove or disprove a theory based on the collation of a standard set of (generally) closed questions from a larger group of respondents.

Several reasons underlie this choice; the most critical is that the qualitative research model will allow the researcher to see the true opinion of those involved in the Irish construction industry. Secondly, qualitative research supports flaccidity in its approach and thus guards against imposing a set of calculated hypothesis about its effectiveness of cash flow within the industry. (Bryman 2001 p. 280) points out if a structured method of data collection is employed certain decisions must have been made about what [the researcher] expects to find out . As a result, he concludes that the researcher is limited in the degree to which he or she can genuinely adopt the world view of the people being studied (Bryman 2001 p.280).

Thirdly, it was concluded that a quantitative research methodology was not a viable option for the fieldwork. Once again, (Bryman 2001 p. 63) points out that it is common for outlines of the main steps of quantitative research to suggest that a hypothesis is deduced from the theory and is tested. As it was noted earlier in the introduction, it was concluded that no hypothesis could be formulated in advance because of the lack of consistent evidence from previous research findings in the case of the Bills ability to free up cash flow.

Finally, it was decided that the qualitative research model was more suitable since purposeful rather than random sampling of the quantitative research model would be much easier to achieve in gaining access to interviewees in the Irish construction sector.

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3.5 Qualitative Research Methods Gerson and Horowitz (2002) note that while qualitative research methods embrace several distinct approaches, the most notable and frequently used are participant observation and in-depth interviewing.

The method chosen to answer the research topic was qualitative interviewing. Bryman (2001) notes that the two main types of interview; unstructured and semi-structured interviews. For the purposes of the Bills analysis it was decided that semi-structured interviews were the most appropriate. In the semi-structured interview schedule, the interviewer has a focused number of issues to be addressed and particular questions to be answered. However, it is not as restricted as one may originally think as Denscombe (2003 p. 167) points out; the semi-structured interview also allows flexibility in that the interviewee is allowed to develop ideas and speak more widely on the issues raised by the research than in the structured interview schedule.

Semi-structured interviewing was conceived to be the best technique for the purposes of this study for several reasons. Firstly, there was a clear focus about the kind of information in relation to cash flow and the Bills effectiveness when brought in and this suited the semi-structured interview technique rather than an unstructured approach which is suited to a more general notion of simply wanting to conduct research on the topic of the Bill itself. To this end, a list of specific interview questions was compiled to be used as an interview guide.

Secondly, despite the focus provided by the formulated questions, the semi-structured interviews would afford the flexibility of the unstructured type as Bryman (2001 p.314) points out, where the participants [listed A K as seen in appendix 7] are granted a great deal of leeway in how to reply. For example, the interview questions did not have to follow a strict order for all of the participants. As a result, unanticipated information came to light. However, the semi-structured interview schedule that was sent to the participants prior to the interviewers arrival further enhanced the quality of the interview by still allowing the opportunity for all the questions to be asked and framed in a similar manner for all participants.

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Thirdly, the semi-structured interview process conducted would allow them to be interactive which as Denscombe (2001 p.167) points out, affords the opportunity for the participants to speak their minds. Thus, the process becomes an in-depth process of discovery rather than checking which is vastly more beneficial.

The fundamental tenet of qualitative research methodology is to view the world through the participants eyes and is further safeguarded as a result.

3.6 Selection of Participants Purposeful sampling was chosen to select informants since Patton (1990 cited in Maxwell 1998) points out that this selection procedure is integral to qualitative research methodology. According to Silverman (2001 p.250), referring to Denzin and Loncoln (1994 p.202), qualitative researchers seek out groups, settings and individuals wherethe processes being studied are most likely to occur. This particular strategy selects participants for the important knowledge they can provide to answer each of the research questions that have been formulated. In this study, the criteria for selecting informants was based primarily on their profession, and secondly on the focus to which their practice and daily work is directed towards.

3.7 Reliability and Validity in Qualitative Research Bryman (2001) observes that while reliability and validity are key concepts in quantitative research in verifying and appraising the quality of research for the researcher, these concepts have been queried in relation to qualitative research. A case in point is that of Johnstone (2000) who points out that the robustness of research methodologies generally can be evaluated on the basis of their validity and reliability. She asserts that a research procedure can be deemed reliable if the same results are obtained every time it is used. Johnstone (2000) also notes that the criteria of reliability and validity are difficult terms to apply.

In order to maintain credibility of the fieldwork findings obtained, Johnstone (2000) claims that there are ways of approximating reliability and validity in qualitative research. With regard to reliability, she maintains that in a single research study, this can be determined using the same procedure repeatedly. Many participants can be asked
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the same questions and in different settings and at different times, which was the case in the researchers study that took place over a period of four months [October January 2013].

3.8 Analysis of the Data Gerson and Horowitz (2002 p.216) describe the analysis of qualitative interviews as the point where it becomes both possible and necessary to take a step back and seek the shape of the forest amid the trees. In other words, the time has come to transform and transpose large volumes of information into a coherent response to the research topic posed. The validity of the fieldwork findings is also supported by rich lengthy interview transcripts offering an abundance of the participants opinions and elaboration of points of view which can be found in Appendix 7.

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Cash flow is not a function of contract, but one of economics Participant E (2013)

CHAPTER FOUR RESEARCH FINDINGS, ANALYSIS and DISCUSSION

4.1 Introduction The findings have been generated from a series of ten semi-structured interviews conducted between October 2012 and January 2013. The participants included five representatives from the legal profession, four quantity surveyors/ contractors and a construction industry spokesperson. The interview participants have extensive experience in the construction industry. A detailed participant profile is attached at Appendix 5.

4.2 Findings and Analysis

4.2.1 Cash flow difficulties There was agreement that cash-flow difficulties were causing major problems within the Industry at present. Participant G, My own experience is that it [cash flow] has always been a problem; I have been dealing with contentious construction in Ireland now since 2004 adding that it has become particularly acute in the past four years. Participant D remarked that cash flow problems are nothing new Yes it is absolutely endemic, it has always been endemic; it has not just been a product of the bust. Participant A commented on the ease with which payment may be delayed The big problem, always, is that it takes a long time to resolve those [cash flow] disputes and if parties want to get payment they have a readily available challenge in terms of quality or quantum by creating a dispute and thats the nub of it really.

The widespread use of the tactic of abnormally low pricing was identified as having caused severe cash flow difficulties within the supply chain. Participant C stated that particular clients may take the view that There is no such thing as an abnormally low
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price, just the market price. He continued there doesnt seem to be, in my view, that connection between abnormally low pricing and the consequence it actually has. So there are huge cash flow difficulties at all levels within the industry.

Disrupted cash flow is a particularly severe for subcontractors. Participant D stated that Sub-contractors were financing the boom, so essentially sub-contractors were being used as a source of finance and that is of course ridiculous...Theyre routinely being roasted and I think everyone is accepting that there is a particular problem in the construction industry. Participant J raised the issue of privity of contract, noting that Payment is always an issue and it is always an issue not simply from the cash flow perspective but in the mechanisms that are built into the contractit is particularly an issue for subcontractors because they dont have visibility of what is happening under the main contract, depending on what type of sub-contractor they are.

Participant H commented on the lack of sophistication of many subcontractors which leaves them at a disadvantage when dealing with more powerful main-contractors. He said that You tend to find that they are not as contractually astute as major contractors or developers.

Participant H made interesting comments regarding cash flow being an industry-wide problem and that it is not solely sub-contractors who are effected To be honest, you see it across the board. It is not just on the sub-contractor or supplier levelcash flow is hitting every level of the construction industry and every tier in the construction project. Participant E commented that well run companies have been able to cope better than others Some businesses have done quite well in managing their cash even after the crash[others] were put into serious precarious positions All of the companies that you have seen going to the wall are the ones that took a gamble. Participant J summed this issue up with or without a Construction Contracts Bill in Ireland, cash flow difficulties will always be there.

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4.2.2 Improving cash flow Participant B was particularly positive with regard to the Bills ability to free up cash flow within the industry Well I think it will free up cash flow, and why will it? Firstly, it is going to bring a far greater level of discipline on sub-contractors and maincontractors on how they agree construction contracts. He added that sub-contractors and main-contractors will benefit So it seems to me it will give both main-contractors and sub-contractors the toolbox for enforcing a prompt payment. If they chose not to use that toolbox, more fool them. Participant G commented on the effect of the UK Act following its enactment, Cash flow, Id imagine, has improved thereI think over there the general consensus was that it made a dramatic difference to cash flow in the construction industry and it also reduced arbitrations in the construction industry. Approximately 80-90% were being resolved in adjudication.

Participant C was more sceptical and felt that a radical shift in the approach to procurement would be necessary in order for the Bill to be effective Unless there is a change of thinking and it goes back to the start of the contract, you dont improve cash flow by forcing people to under-price to get work. If they under-price to get work their cash flow is immediately compromised. Participant D also commented on the link between procurement and cash flow The New Engineering Contract (NEC3) was a radical departure from the sort of contracts that existed in the UKLatham went with the NEC form of contractit is not just a contract it is a management tool and it was designed to encourage partnership within the industry.

A number of participants referred to the submissions made to improve the Bill. Participant D argued that If it is effective in that it is temporarily binding, that they get rid of the threshold nonsense and referring to arbitration nonsense ...if it follows the UK model then absolutely it will free up cash flow. Similarly, Participant F stated that [binding adjudication] is necessary or else the Bill is worthless. Participant G later disclosed If the adjudication element was binding; that would make a huge difference, as long as it is binding, cash flow will improve. Participant E identified the direct link between adjudication and cash adjudication as a concept is about cash, it is not
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mediation, it is not conciliation and it is not arbitration, it was simply brought in as a cash flow mover. Improvement in cash flow will not occur overnight. It will take two or three years. Participant G stated and why do I say that. If we look at something analogous, if we look at the remedies directives in public procurement which are there since March 2010but there is no doubt in my mind that it will improve the cash flow situation, because it will encourage prompt payment of interim payments and final accounts.

Moving cash is precisely the point of what adjudication was brought in to deal with and is discussed in greater detail below. The participants are agreement in that the adjudication provisions in the Bill are crucial to stimulate cash flow within the industry and will thus stifle the poor payment practice that is currently taking place. The respondents were positive about the Bills ability to improve cash flow if the proposed amendments are implemented. However, a bedding period of two to three years should be expected before its effectiveness is maximised.

4.2.3 Monetary thresholds The participants commented that the current thresholds are too high and subcontractors are effectively excluded from the legislation that is supposedly for their benefit. Participant B said that It is not that theyre too high its that they are ridiculousthe Government are selling this in their own mind that it is something that will help subcontractors but the vast majority of subcontracts are less than 200,000. Participant D agrees, observing that If you take your typical school contracta lot of private contracts are generally under that threshold of 200,000. Participant C questioned why the public and private sectors should be separated More logically, why is there a difference? Why are you treating a major contracting entity, such as the State, differently to another developer? Similarly, Participant J said that There should be no distinctionthat is a complete nonsense. There should be no threshold; that is equally a complete nonsense. Participant E claimed that the thresholds were a typing error that was made within the Department of Finance It was a mistakehe meant 20,000

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A number of participants believe that the thresholds should be completely removed. Participant J stated that It doesnt really matter what the numbers areThere is no rationale for having a threshold, there really isnt. Participant B said I will be absolutely amazed if they dont [reduce or remove the thresholds]If the thresholds are not taken out of the Bill, it is useless. However, Participant E felt that the thresholds will probably be retained I personally do not think they are going to change thattry and leave in the fifty thousand for themselves because I think what they do not want is a situation where say . . . maintenance contractors doing small works for them [Local Authorities]every time the maintenance contractor or painter doesnt get paid his money pressing the adjudication button and taking Local Authorities to adjudication every week.

4.2.4 Bespoke construction industry supply contracts All of the participants were of the opinion that bespoke construction industry supply contracts should be included in the scope of the legislation. Participant J stated that There is certainly a sense to that if you are being asked to manufacture something specifically for a project. Why should you be excluded from protection? In the UK they have a situation where if you are carrying out any installation works then you are brought into the Act. Participant B saw little advantage to the State from such an inclusion Materials suppliers should be covered; however I dont see any great advantage to them from that. Participant C questioned the need for a distinction between works and supply contracts I do not see why you would draw a distinction between works contracts and supply contractsyou have, effectively, a preferential position with regards to suppliers and sub-contractors. Participant E, however believes that they are impractical They will never be brought in because to bring in the supply contract side of things means how do you distinguish between those that are supplying to the construction side of the industry from those that are on the other sidea lot of manufacturers are not supplying just to the construction industry solelyyou have two sets of laws and why should the construction industry be different from any otherDont get me wrong, the view would be that you either bring this in to all contracts as an option or you try and restrict itbut as I said I dont think it will work.
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Participant H raised the issue of over-regulation I think other than making specific provisions around what you could class as unfair terms, I think that legislation can do that. I dont think legislation should dictate and control a parties right to contract. Participant J developed this issue It does beg the question why would you not bring all supply only contracts within it. The thing to always bear in mind with this is that there are other pieces of legislation [Late Payment in Commercial Transaction] that do provide protection in terms of payment.

4.2.5 Right to suspend work for non-payment The general opinion regarding this provision was that it will either be increased beyond the current two week limit or else completely removed. All of the participants were confused as to why the limitations were included in the Bill in the first instance; Participant G commented I dont see why you would have to put any particular cap on the suspension period. Participant B added It seems to be counterintuitive and it is likely to go. Participant C felt that the Government was trying to protect their own interests In some way the drafters seem to think that provision is there to protect the public purse. He regarded the limitation to be an unreasonable, disproportionate response Participant B commented on the impact of this provision, If cash doesnt flow from the primary client to the main-contractor it cant flow to the sub-contractors and then to the sub-sub-contractorsBut the fact that Ill be given a statutory entitlement a right to stop work, and if I stop work it might discommode me and it might discommode subcontractors and suppliers but it doesnt put them at risk of doing further work and not being paid for it

Participant D suggested that it may be commercially advantageous for a sub-contractor to terminate a contract, rather than pursue a claim. He observed that the two week period currently provided for will allow such a situation to be administered as normal. Most contracts allow for termination for non-payment after two weeks. So the idea is that the day you start your suspension you give your notice of termination: that is the idea. That is why it is two weeks. If you do that it means you wont have to go back on site but that means you would terminate.
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Participant E expressed a particularly strong opinion with regard to the right to suspend Whoever drafted it didnt contextualise in the overall sense and had he read any of the standard subcontracts he would have realised that when a party does not get paid, in all of the standard contracts he can suspend the work and will continue to suspend the work until he gets paidif you dont pay me my bills you ought to lose your rights.

Two difficulties emerged; overregulation and notice requirements. Participant H suggests that we may be unnecessarily over-regulating the system. [it is]Particularly difficult to legislate for something like that. You are again running the risk of dictating the risks of the parties. Secondly, the parties must give notice otherwise all of their rights are withheld when it comes to termination, Participant J stated You cannot down tools because you havent been paid, you have to give notice and then you can dump tools but people dont get that because that is such a fundamental thingIf youre not paying surely there has to be a fundamental breach but there isnt; it is governed by the contract.

Sub-contractors can, subject to notice, suspend work and walk off site. No doubt, this will make a point, but there is little point if you must return to the site after two weeks, thus the suspension period needs to be indefinite.

4.2.6 Immediate impact of the Bill Perhaps the most immediate impact will be the need to amend standard forms of contract. Participant B commented It will have immediate impacts; first and foremost it will require that all of our standard contracts are changed including the RIAI and the GCCC. Participant G felt that this process would be relatively straightforward It wont be a big deal, with most of them they will put in a line saying without prejudice to the right to adjudicate at any time, the dispute resolution procedure is as follows; so that is all you do and then you can adjudicate. Participant B also felt that the Bill would encourage more formalised contracts Were going to have far more explicit subcontracts and the whole practice of doing work on the shake of a hand without any explicit terms will disappear, that is going to be a result.

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Participant C questioned the Bills ability to deal with reluctant payers What is going to happen will be that they will go to adjudication, they will fight the adjudication and then they will say we want to go to arbitration. It is not going to hugely impact on them in the short-term; they will just have the aggressive position. That is tied in to what happens with an adjudication award where you have a situation where it goes into suspension and then arbitration it will have no impact whatsoever. There is talk that it will come out as a provision. Participant D felt that Bills introduction will lead to a period of confusion Yes the immediate impact will be confusion, uncertainty, bad adjudications and we will all wait with baited breath for the first High Court decision. Participant G speculated that Dispute resolution in the short-term will have a spike and then after the five years it will have settled down and we will know how all of this operates. In terms of a release of cash flow, again if it is binding it is to be assumed that the cash flow will improve and I think it would if you were to bring in a binding adjudication process to sort it out. Participant E suggested that it may completely change dispute resolution practice it could possibly take arbitration out of the equation entirely; as it did in the UK. From a quantity surveyors perspective, Participant D commented that the notice provisions are as important as the adjudication measures in the Bill Notice provisions are equally important and for most quantity surveyors or sub-contractors sitting at their desks doing their monthly paper work, the notice provisions are a lot more important to them than the adjudication, they might adjudicate a couple of times during their career but they will send out notices every month of their working lives. If the Bill is implemented it will no doubt reduce the practice of shake-of-the-hand type contracts in the future. Contractors must also note that valuation submissions and accounts will need to be more accurate otherwise payment withholding notices will be denied. The commencement date will also need to be established.

4.2.7 Potential improvements to the Bill Participant E pointed out the need for security of payment provisions and the ability to guarantee payment The problem is that you can have all of these measures saying I am
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due to be paid and I know the amount that I am due to be paid which is fine and I have an enforcement process in place, but if there is [no] security for payment in the first place, then it is pointless and it is what he missed We believe that that is a fundamental flaw with the entire process. He claimed that it should have been dealt with similarly to the U.S. What is the point of all that unless there is a way or a means in terms of insurance of some form or other or a lien to look after the person that is owed the moneythe United States have the perfect solution to thisIf I am a subcontractor and I am involved in a development whether it is public or private, the developer puts up the bond. When questioned as to whether this would be over-complicated he responded It would be a lot less complicated in fact. There are guys, such as the lawyers, who do not want a situation where people who have done work on your property having a lien on it; of course they dont like that idea. He suggested the Government was against this because They are against it because you have to ask the question, who put us in this position in the first place? The developers. The guys who caused the problems in the first place, in my view, have no right to come up with the view that liens on their property are a bad thing.

Participant J welcomed the Bill but stated that it can only go so far in solving subcontractors problems. The thing that troubles me about the Construction Contracts Bill is overreliance on it; there are other mechanisms of achieving this. You see, it is really getting pushed by sub-contractors and that I think is a mistake because it is not just about sub-contractors.It is of particular significance for them but it isnt going to suddenly fix all of their ills. 4.2.8 Pay-when-paid Regarding the pay-when-paid issue, Participant B, was adamant that sub-contractors must be informed of when and how much they are to be paid. It is quite right in my mind, if I contract with you to do work, I have to know when Im going to get paid and I have to know how much Im going to get paid and I must have a mechanism for vindicating if I havent gotten paid.

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Participant C related the question to the difficulties that arise when and if the adjudicators decision becomes binding The argue-now-pay-later model may depend upon whether or not an adjudicators decision is something that needs to be enforced pending an arbitrationthe more logical position is that if you are going to go this route, that once an adjudicator makes a decision, that decision should be enforcedthat of course brings with it all of the problems you have, say with protecting the employer and bonds

Regarding the concept of the Bill and how the Government have approached it, the model of liens currently operating in the U.S was suggested to Participant C. He responded that the Irish construction industry is rigid in how they operate and bringing through an entirely new system may not sit well in that they are culturally comfortable with itBut I think it is a huge change for those that have put into the building to have some lien on the building, I think that would take a major shift, I dont see it coming because I think it is just so ingrained with the way we do itif it doesnt happen in the UK I dont see it happening here. Participant D argued that the sub-contractors need protection from this risk. The old form of CIF contract is a paid-when-certified contract.they are contriving situations to do their sub-contractors out of money the second thing is the maincontractor enters into a contract with the sub-contractor but he assesses the subcontractor, it is not up to the sub-contractor to assess the solvency or cash flow issues of the employer, or to assess how the main-contractor is going to get on with the architect or engineer. If the architect or engineer falls out with the main-contractor and incorrectly omits to certify the sub-contractors work because of some issue that has nothing to do with the sub-contractor, why should he take the brunt of that? He concluded with On a philosophical level I disagree with it as well, I think the subcontractor takes a solvency risk with the main-contractor and not with the employer. Participant G considered that It is an advantage for contractors but a disadvantage for employersI suppose the disadvantage to contractors is that they will be stuck with the same for all of their employers and again that is one of the concerns the contractors will haveyou cant have pay-when-paid clauses.
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The situation above has ramifications, as Participant G indicated You would be a lot more circumspect to enter into contracts, certainly in the private sphere and I suppose that would probably or it should push prices up because effectively you are pricing in and anyone that isnt completely solid from a financial perspective is going to be pricing in [an] insolvency risk. So I suppose that is one disadvantage to that particular scenario but I think it is a good thing overall. It is an advantage to the contractor to have pay-when-paid clauses. Achieving the most desirable situation pay-now-argue-later will no doubt push prices up somewhat if only to account for a potential insolvency situation. The Bill currently provides for what is effectively rough justice as Participant C described it. Regarding the UK experience of pay-now-argue-later Participant J said it has been particularly positive and effective; therefore we should follow suit.

4.2.9 Improving payment practice There was a divided opinion on the Bills ability to improve payment practice. Participants B, C and G were of the opinion that it would; while Participants E, H, and J felt it would not improve payment practice in any way. Participant D was undecided on the issue. Participant J explained that construction contracts are commercial agreements between business entities or a business entity and a public authority.you have to have a bit of common sense about you in terms of who you contract with. Participant D would warn sub-contractors against contracting into situations they cannot assess The sub-contractor needs to be afforded the opportunity to vet the employers solvency. He cannot be expected to contract into a situation that he cannot assess. It is different if it is in the public sector but if it is in the private sector he needs to be able to assess the situation of the employer himself. Participant H was of the opinion that the current process is adequate I dont think it is really going to improve it a huge amount when it comes down to certificates and payment certificates. When you are dealing with straightforward debt, the summary judgment in the courts isnt that bad.
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Participant C described his experience of the impact of client insolvencies in the private sector The experience in the last few years is that the client has gone broke and that is the trickle-down effect where the client goes bust and then the main-contractor experiences devastation and that in turn causes the same for sub-contractors and that is a factor of the marketSo in the private sector you dont actually have that many projects now outside very solvent employers such as your inward investment employer. So theres not really that issue of clients going broke and it may happen when the market comes back. He then discussed the risk of forced insolvency of a contractor on foot of an adjudication award: I do not think this legislation improves that situation, it changes responsibility but ultimately that is going to have an impact not necessarily on the immediate contract but if you effect the main-contractors cash flow and ultimately if you have a collapse you have multiple victims. There is no point having a right to get paid if you force the maincontractor into insolvency and I think the direction of this legislation is in part to create an earlier insolvency for the main-contractor if you give the sub-contractor the right to get paid at the expense of the main-contractor. I think there needs to be a balance. Participant E commented that the Bill fails to address the key issue of having sufficient funds or guarantees. He suggested there may be potential constitutional issues to be dealt with here, and that Governments have tried to regulate around property and it hasnt worked. Participant J suggested that the parties may also choose to place a stack of money into an escrow account. Regarding disputes in relation to payments, Participant G commented The disputes should not get as big. If a dispute arises, you deal with it there and then; you dont want to be having a large final account dispute or issue at the end of the job...It is a more painful process in that you have to get confrontational throughout the job, but again it makes sense because the dispute is sorted out and you move on. This approach introduces a more efficient process for all stakeholders and is preferable to resolving what could potentially be a very large dispute at the end of the contract which may compromise the solvency of the contractor. However, conservatism by the Government may result in legislation that could have achieved more.
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4.2.10 The binding nature of the adjudicators decision Participant E held that the adjudication element of the Bill is of such importance that the Government should have dealt with it separately An Act on adjudication would have been better dealt with on its own as a process that is open to parties and dealt with properly. Further to this, most participants questioned the need to distinguish between the public and private sector. Regarding the binding nature of the adjudicators decision Participant B stated that I expect that to be changed. I think the adjudication will become binding in both public and private [sectors] but I think the Minister will make some requirement with regard to a bond if the case is referred to arbitration [so] that theres a mechanism in place to get the money back. Participant C stated If you are faced with a situation of; all I have to do is serve a notice of arbitration to avoid the consequence of the adjudicators decision, it almost follows as day follows night that people will do that. It creates a blockage on the effectiveness of the adjudicators decision so if I truly, as the payer, want to avoid payment, it is the immediate thing I will do whether I am right or wrongSo therefore the whole adjudication process becomes a null entity in those circumstances. Now, those who are more legitimate may say we will pay, but for the person who is trying to avoid payment tactically, it is an invitation to them to move the process on to arbitration and cause a delay.

Relating the link between adjudication and improved cash flow Participant D believes that it will, but only if it is binding It will improve cash flow in the real-time and that is what needs to happen, cash flow needs to be improved in the real-time. It also brings certainty, the Glasgow Caledonian University report will have the exact figures on this but something within the region of 97-98% of adjudications settle, they are never sent on to final determination, arbitration or litigation and that is because in twenty eight days in most cases you can get a decision that is roughly right. If you go to arbitration and you spend three or four years you will probably get a decision that is right to the penny. That said most people are happy to take this from a financial and commercial perspective so it will encourage the faster settling of disputes.
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Participant D makes an important point: there is simply no need to go to arbitration when you will receive close to exactly the same result through adjudication, moreover the adjudication will be quicker and cheaper. Ultimately this will accelerate the changeover of money between parties. He explained that if the decision is particularly abnormal, it cannot be adjudicated once again and therefore You have to go back off to arbitration or litigation and that is a downside.

4.2.11 Standard of adjudication The standard of adjudication could potentially prove be an issue also. The participants felt that there are only a small number of competent arbitrators at present. Adjudicators will need to be competent in legal procedure and adhere to proper process otherwise their decisions will not stand. Participant D remarked There is a huge problem with how decision makers are running processes that needs to be looked at in the judiciary and I personally do not think that many arbitrators are going to be up to the twenty eight day process, they are going to make a mess of it. Like in the UK they say they are going to give their decision on day twenty nine or thirty and not realise that this is a big deal as far as adjudication is concerned. At that point they are already functus officio.

4.3 Conclusion To conclude, the Bill will prove to be effective if the proposed amendments that the professions have put forward are implemented. As the Bill currently stands, it is not sufficient to meet the demands of sub-contractors within the industry. Many of the Participants suggested that the Bill can only do so much and it will by no means solve all of the sub-contractors problems. The Bill will certainly improve cash flow and encourage a more rapid distribution through the contractual chain. The legislation has the potential to place sub-contractors on a more level playing field when it comes to seeking payment provided the current thresholds are reviewed.

The implementation of adjudication will change current payment practice and may even promote partnering in the industry. The UK will also provide a valuable source of case law while the Bill takes root in construction jurisprudence. In time, Irish courts will

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develop indigenous case law; perhaps culminating in a special construction list within the High Court with a judge responsible for specialist determinations.

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It is absolutely fundamental to trust within the construction industry that participants should be paid for their work which they have undertaken

Sir Michael Latham (1994)

CHAPTER FIVE CONCLUSIONS and RECOMMENDATIONS

5.1 Introduction This chapter contains the findings of the research undertaken in the previous chapters and how they measure against the objectives of this thesis. It is important to note that the Bill is unique in that it is the first to be brought through the Seanad since 1964. As a result, it has received an increased amount of publicity in recent times.

5.2 Realisation of Objectives The objectives of this thesis are as outlined in Chapter 1:

1. To discuss the importance of cash flow for contracting companies 2. To report cash flow difficulties currently being experienced by contractors and sub-contractors 3. To describe the objectives and provisions of the Construction Contracts Bill 4. To assess whether the Bill will be effective in improving subcontractor cash flow through the introduction of statutory adjudication

Through the extensive research undertaken in the literature review and the semistructured interviews these objectives were sought to be comprehensively fulfilled. There are a number of obvious changes that the Bill will bring such as:

1. It should result in a more transparent final account process whereby the quantity surveyors will be put under increased amounts of pressure in addition to their skills needing to be of a certain standard. 2. There will be a period of uncertainty and in a way a state of flux and confusion. The aforementioned situation would be similar to what Ireland experienced upon the integration of the GCCC forms of contract.
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3. In the private sphere we can expect it to push prices up. Effectively, maincontractors will be pricing in risk and anyone that isnt completely solid from a financial perspective is going to be pricing in insolvency risk. It is no secret that with or without the Bills implementation, cash flow difficulties will always be present. An inherent problem contained within the industry is the ability to delay payment to sub-contractors. When a payment claim is referred to the dispute process it is a drawn out process which thus tightens cash for the sub-contractor.

Furthermore, in terms of options at the moment available in the courts system, they are wholly inefficient. If your dispute is referred to the High Court there are a number of issues that prevent your ability to obtain prompt payment. Firstly, you may appear in front of a judge who, for example, usually deals with family law disputes. As a result, you spend an extensive amount of time explaining various points about specific construction terminology. Secondly, if you manage to get your case into the courts system it is years before it will be resolved; except in the case of the Commercial Court that suggests that your case is worth over a million euro.

The second tier of the supply chain must also be mentioned, such as the sub-subcontractors and the sub-sub-sub-contractors who take the biggest hit in relation to nonpayment and lack of cash flow. Another difficulty in relation to cash flow is that subcontractors are being used as a source of finance for projects, this may be as a result of the increased degree of subcontracting within the industry and it is unacceptable.

The issue of whether or not you can set off against certain certificates is also present. The current situation provides that you cannot set off against an interim certificate in relation to where you may allege anything to constitute as a defect. Sub-contractors are generally not as contractually astute as major contractors or developers. They dont have the resources or the man power to review the contracts sufficiently. As a result, they are signing up to contracts where their rights have been diminished to a huge degree. Payment is also an issue in the mechanisms that are built into the contract and the ability to set up other sums against them. It is particularly an issue for sub-

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contractors because they dont have visibility of what is happening under the main contract, depending on what type of sub-contractor they are. The pay-when-paid clauses have caused huge difficulties for sub-contractors. It is completely unfair for them to sign up to contracts that essentially say in the case of payment that they will not be paid until and unless they [the main-contractor] receive payment from the employer or client.

The author has concluded that upon implementation, the Bill will improve cash flow throughout the industry, particularly in relation to sub-contractors for the following reasons:

1. From the quantity surveyors perspective it is important to direct attention towards the notice provisions. A lot of focus has been on the adjudication element of the Bill, however the notice provisions are equally as important, if these are adhered to correctly the entire process will flow more easily.

2. The thresholds need to be either reduced dramatically or removed entirely so that it is all encompassing. The former will result in a much wider body of subcontractor being able to take advantage of the provisions contained within the legislation.

3. It is also going to bring a far greater level of discipline on sub-contractors and main-contractors on how they agree construction contracts. What the Bill provides for is that you have a right to adjudication and that you have a right to stop work if you havent been paid but it only provides those reliefs in circumstances whereby you have made a legitimate claim for payment and it is important that from the start for sub-contractors to make proper claims for payment and they must describe it and make the calculations with regard to how it leads to such a figure. Thus, it will result in proper reasons for claims and ultimately proper refusals for payment.

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4. It is often forgotten that there are provisions contained within the standard subcontract forms that have provisions that state if you are not paid within a certain time period after the monies are due to be paid you are then entitled to suspend work and further to that, if youre not paid once again down the line you have a right to terminate and it is rarely operated within the industry in Ireland. The point stressed here is that these provisions that we currently obtain may be revised which would ultimately contribute towards a further easement of cash flow.

With regard to dispute resolution procedures, it will take arbitration out of equation almost entirely. There will be angst in relation to the first large case brought forward to the High Court and that decision will prove to be vital in terms of adjudications development as a dispute resolution procedure in Ireland. It is suspected that the first case brought before the High Court will be whether the dispute in question comes within the definition of a payment dispute. Further to this, there will be an increased number of disputes as opposed to a reduction.

The question that one will put forward to the adjudicator will prove to be vital. If the question is in relation to payment it will need to be worded adequately for the adjudicator to encompass all possibilities.

The overall opinion of the industry is that it will improve cash flow mainly and only in the case of the adjudication becoming binding. In such a case it would follow the UK model. It will not happen immediately, it could take up to three years for it to work effectively. The remedies directives in public procurement which are with us since March 2010 provide that the volume of cases that were taken in the early stages in the UK were miniscule as a result of contractors being ignorant of the fact that they cannot use the law to win their work. Furthermore, in the case of adjudication, we may see subcontractors being of the opinion that they cannot use adjudication to obtain payment. Overall, it will encourage the prompt payment of interim payments and final accounts which will potentially provide for a positive increase in the workload for quantity surveyors. It is categorically important for the adjudicators decision to be binding. Glasgow Caledonian University provide that the largest number of disputes exist
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between the main-contractor and domestic sub-contractors, and is up to 47%. With the largest body of cases involving sub-contractors it is they who need it binding the most. It will free up cash as a whole particularly because the cases are in the most part in relation to payment as we can see in table 5.1. The largest numbers of disputes brought to adjudication are primarily related to the final account. Second to that is a failure to comply with payment provisions.

Table 5.1 Percentage breakdown of dispute subject, Source: Glasgow Caledonian University 2010 Report

There is a disadvantage with the adjudicators decision being temporarily binding. There is the possibility of being left with an outrageous decision and that the onus is then on the paying party to bring that to court or arbitration. As mentioned previously in the literature review, every so often there will be a decision similar to that contained within the case of Dahl Jenson [Bouygues UK Ltd v Dahl Jenson UK Ltd [2000] CA] which is absolutely perverse and it may not be adjudicated a second time and so you have to go back to arbitration or litigation which is a downside.

5.3 Limitations of Research While the author undertook extensive research to write this thesis, it was limited in that there was a constant pull towards the element of adjudication and an inherent desire to explore it in more detail. Cash flow is directly linked to adjudication under the Bill if it becomes binding.

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Contained within the interview transcripts is an abundance of material in relation to the topic of adjudication which can be found in Appendix 7. If the reader wishes, he/she can explore the topic of adjudication in more detail. In addition, the bibliography provides a vast amount of reading material which is readily available.

5.4 Conclusions and recommendations The author may conclude in stating that the legislation was demanded more readily back when the financial crisis was at its height in 2009; it should have been prioritized and brought in as emergency legislation. Taking into account what has been said; it is still in demand and is still needed in order to provide a comprehensive method for subcontractors to obtain payment. Without the Bill, sub-contractors will continue to suffer and will be indefinitely stuck in precarious positions under the conditions that are currently imposed upon them.

There are a number of major conclusions to be drawn from the research that was fortunately undertaken:

1. The Bill will improve cash flow only in the case of statutory adjudication becoming binding. 2. The main benefit that sub-contractors will see is it will provide a more reasonable method to resolve their disputes. It will not be cheap, value for money is often associated with adjudication but that will not be the case taking into consideration the amount of work that needs to be conducted in addition to the number of professionals hired within the 28 day process.

5.4.1 Further considerations It is commonly seen as one of the great failings of the Irish construction industry that it does not contain reported judgements in arbitration. Not only does it impact on the development of the law in the construction industry but it also means that parties are going into disputes blind as to what the possible outcome will be and how the arbitrators would find their decision. The quality of the arbitrator that you will receive is also an issue in Ireland. The same situation is to be expected with respect to adjudication.

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What may be introduced or considered could be a structure in terms of pricing and the cost to parties in entering into that dispute. For example, the Stockholm Chamber of Commerce operate a system under the Stockholm arbitration process whereby, if your arbitration is subject to that jurisdiction you may place the value of your dispute online into their programme and they will tell you the cost of the arbitrator and the cost of the process. It would be advantageous for such a system to be put in place for adjudication upon implementation to provide as much clarity as possible.

The Government may also consider construction liens that are currently operated in the United States that were brought about as a result of the Miller Act. Issues with relation to constitutionality may arise however it may be something to consider in the long-term if the Bill proves to be inadequate, depending on the changes in relation to the provisions.

Perhaps a worthy reminder to conclude on is that we must: Expand our moral imaginations (Barack Obama, 2012) The construction industry in Ireland has changed dramatically over the last number of years and now we must change alongside it. The change must come in the form of a more transparent payment system for sub-contractors that will ultimately provide them with a reduced risk and an increase in certainty of obtaining payment. Those introducing the law must see through the eyes of whom the Bill will ultimately bear consequences for.

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Websites Arthur Cox Solicitors. (2012). Goodbye to pay when paid? Improving cash flow in construction [Online] Available at: <http://www.arthurcox.com> [Accessed 19 October 2012]

Construction Procurement. (2012). [Online] Available at: <http://www.constructionprocurement.ie> [Accessed 20 October 2012] Department of Jobs, Enterprise and Innovation. (2013). [online] Available at: http://www.djei.ie/enterprise/smes/latepay.htm [Accessed 25 March 2013]

Independent Newspapers. (2012) [Online] Available at: <http://www.independent.ie> [Accessed 19 October 2012]

Irish Government. (2012). [Online] Available at: <http://www.per.gov.ie> [Accessed 25 October 2012]

Irish Statute Book. (2012). [Online] Available at: <http://www.irishstatutebook.ie/2002/en/si/0388.html> [Accessed 25 October 2012]

Irish Small and Medium Enterprise Association. (2013). Credit Watch Survey. Irish Small and Medium Enterprise Association: Available at: <www.isme.ie> [Accessed 1 April 2013] Joe OReilly. (2012). [Online] Available at: <http://www.joeoreilly.ie> [Accessed 25 October 2012]

Justice. (2013). [online] Available at: <http://www.justice.gov.uk/courts/rcj-rollsbuilding/technology-and-construction-court> [Accessed 25 March 2013] Mason Hayes and Curran Solicitors. (2012) The Construction Contracts Bill 2010 An Update [Online] Available at: <http://www.mhc.ie> [Accessed 20 October 2012]

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Merrion Street. (2012) [Online] Available at: <http://www.merrionstreet.ie> [Accessed 22 October 2012]

Oireachtas Debates. (2012) [Online] Available at: <http://www.debates.oireachtas.ie> [Accessed 20 October 2012] Royal Institute of Chartered Surveyors. (2013). RICS iConsult RICS draft guidance note Forecasting and cash flows. Available at: <http://www.rics.org> [Accessed 1 April 2013]

Reddy Charleton Solicitors. (2012) [Online] Available at: <http://www.reddycharlton.ie> [Accessed 22 October 2012]

Senator Feargal Quinn. (2012) [Online] Available at: <http://www.feargalquinn.ie> [Accessed 19 October 2012]

Sinn Fein. (2012) [Online] Available at: <http://www.sinnfein.ie> [Accessed 22 October 2012]

Science Direct. (2012) [Online] Available at: <http://www.sciencedirect.com.ditlib.dit.ie> [Accessed 25 October 2012]

Society of Chartered Surveyors. (2012) [Online] Available at: <http://www.scsi.ie> [Accessed 25 October 2012]

Society of Chartered Surveyors Ireland. (2012). Construction Contracts Bill 2010. Society of Chartered Surveyors Ireland Comments and Submissions. Available at <http://www.scsi.ie> [Accessed 1 April 2013]

The Irish Courts Service. (2012) [Online] Available at: <http://www.courts.ie> [Accessed 18 October 2012]

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The Telegraph. (2012). Business owner: "Why I won't work with Balfour Beatty". The Telegraph: Available at: <http://www.telegraph.co.uk/finance/yourbusiness/9743947/Business-owner-Why-Iwont-work-with-Balfour-Beatty.html> [Accessed 1 April 2013]

The Lawyer. (2013) Slow Build [online] Available at: <http://www.thelawyer.com/news-and-analysis/market-analysis/analysis/slowbuild/3003399.article> [Accessed 10 April 2013]

William Fry Solicitors. (2012). The Last Hurrah? Seanad passes Construction Contracts Bill 2010 championing prompt payment and adjudication in Ireland [Online] Available at: http://www.williamfry.ie [Accessed 18 October 2012]

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Appendix 1 Thesis Programme

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66

Appendix 2 Commentary on the Technology and Construction Court

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The Technology and Construction Court ("TCC") is a specialist court, which deals principally with technology and construction disputes.

TCC (2013)

COMMENTARY ON THE TECHNOLOGY and CONSTRUCTION COURT

2.1 Background to the Advent of the TCC Upon implementation, the TCC cut the number of arbitrations that took place in the UK dramatically. Participant D was notably in favour of its practice and disclosed that it is a fantastic institution, you have about a half a dozen judges who do not wear wigs and gowns and they sit around what is essentially a conference table, with the judge sitting a little bit higher and nobody stands for example and they agree how disputes are to be run. With the Bills much anticipated implementation the question arises as to whether or not such a court is needed in Ireland. Hutchinson (2010) suggests The privatisation of construction disputes has left a gap in Irish construction law to the extent that there are few precedents interpreting the standard contract provisions. English case law is generally relied upon as persuasive authority in that regard; though that will not be possible with the Public Works Contracts, which have no English analogue. There may yet be a compelling case for the establishment of a Construction Court in Ireland.

The reality is that Ireland does not have sufficient demand to occupy such a system. However, it may be the case that a sub-list of the currently very successful Commercial Court could be created to deal with construction litigation. This would allow a specialised judiciary to develop knowledge of the construction industry, thus increasing the speed and quality of determinations at first instance for an industry which is strangled by cash flow problems.

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2.1.1 Advantages of the TCC A courts system such as the TCC in London brings with it many advantages. Participant D reported that It is very strong on procedure and it is also very strong on the law of adjudication and the law of arbitration. Then, it is very strong on the substantive construction law and I think a distinction needs to be drawn between those three things, so you have your procedure of how particular matters are to be resolved, you have your law of adjudication and arbitration and then you have substantive construction law. There is no reason why a refined version of the construction court system that currently operates in the UK may not bring the same if not further advantages here in Ireland.

On a more practical level, Participant G stated that if we had a TCC structure here in Ireland, or at the very minimum a specialist judge, many of his disputes would be dealt with more swiftly, thus freeing up both time and cash flow Im in an arbitration dispute at the minute that started in 2009 and were the defendant and weve just been trying to delay things and now it is going into its fourth year. We still havent cleared pleadings so if you had the TCC an award would have been issued and dealt with three years ago probably.

2.1.2 Specialist Judge

Specialist Judge Required

25% YES NO

75%

Figure A2.1 Specialist judge required

Participant B contained a similar opinion to Participant D in that a full-scale courts system similar to the UK simply would not be demanded here in Ireland I dont think
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we need a court similar to the TCC in Ireland because Ireland is too small, but I do think we need to see the development of specialist judges. Participant B went on further to say that the Bill, as it is currently, will not work without a sufficient courts system to support it, however that is no reason not to proceed with the Bill, as we have already suggested the appointment of specialist judges from the Commercial Court or one specialist judge may be enough, he stated.

If we had provision to appoint a specialist judge to deal with such disputes it would be difficult to decide who would appropriately fill the position. Participant D opined How many judges at present could adhere to expert engineering or quantity surveyors reports and determine how big a hole is and come to a conclusion and the answer is probably zero. How many judges of the High Court could take a final account that runs to one hundred pages, backed by twelve to fourteen lever arch files and make a decision, and again the answer is zero.

In contrast to the rest of the Participants, Participant E was of a somewhat negative opinion when it came to the question of a specialist judge It wont happen here and it cant happen here because we dont have a body of experienced judges. I mean, we do have some strong judges in the likes of Peter Kelly, but he is there to deal with massive disputes in the High Court over a million euro and in the Commercial CourtPeter Charleton and all these guys have the experience as judges but the problem here of course in the UK was that for a long time a lot of arbitration went to the courts, a lot more in construction were referred to court in the UK than here and over that time a number of judges began to divert the work to themselves. Not deliberately, but that was what the policy was; you guys seem to know a lot more about construction so you guys take it. So eventually what happened was that the Technology and Construction Court came about

2.1.3 Conclusion In conclusion, a specialist judge is the correct option. This is similar to the provision currently contained under the Arbitration Act 2010. Participant D later alluded to this suggestion Yes, the answer I was going to come to was that we should have an adjudication judge, a judge where everything filed in an adjudication case comes
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before. We have provision for an arbitrator judge at the moment. Before even considering such an appointment we must also wait for the construction sector in Ireland to redevelop growth. Participant C confirmed that It is not a huge undertaking.

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Appendix 3 Cash Flow Analysis

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CASH FLOW ANALYSIS

3.1 Cash Flow Profile In the case of Gilbert Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd. [1974] AC 689, Lord Denning, Master of the Rolls, famously stated that there must be cash flow in the building trade it is the very lifeblood of the enterprise. (Cooke and Williams, 2010)

The contractors cash flow is unique in that it relies on interim or stage payments from the client on a regular basis which may be classified as money in, then the contractor is in a situation to pay out money in terms of wages and materials money out. Both contractors and sub-contractors rely on accurate cash flow forecasts and profiles to contribute towards their monthly planning. (Cooke and Williams, 2010 P. 301)

Furthermore, reliance on money flowing in is not enough to maintain business solvency in the long term in order to remain solvent as a business entity. Working capital is required which helps to pay the bills before normal revenues are received and also helps the business to survive when cash dries up (Cooke and Williams, 2010 P. 300) As a result of the above, companies report their cash flow statements in a standard fashion as illustrated below in the case of the Shepherds Building Group which has been adapted. (Ross and Williams, 2013)

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YEAR 4 YEAR 3 YEAR 2 YEAR 1 Net Cash in (out) flow Operating Activity Net Cash in (out) flow Return on Investment Taxation -5000 -1000 -600 -8800 100 -2100 800 1500 70800 44800 14200 8900

Net Cash out (in) flow Investing Activity Capital Expenditure & Finance Investment Acquisition & Disposal Equity Dividends Paid Management of Liquid Resources Net Cash (out) in flow from financing Increase (Decrease) Cash & Equivalent -36500 10600 12100 17400 16800 -300 15000 -45300 -14800 2600 -6600 -6400 500 -6300 -28000 2800 -6300 -37700 -200 -6300

Table A3.1 Typical Cash Flow Statement, Source: (Adapted from Ross and Williams 2013)

A contractors cash flow forecast often tries to accurately anticipate the cash coming in and going out of the business. This leads the contractor to produce a cash flow budget which subsequently devises a methodology to produce income that will ultimately exceed expenditure in most cases.

Cash flow forecasts allow the contractor to see when payments must be made and to what value. In particular, with this element of cash flow, the lead-in times are essential to note in between incurring various expenses on-site and once again relating back to the supply chain, knowing the time lag between receiving payments is also paramount. (Ross and Williams, 2013)

3.1.1 Cash Flow Forecast Limitations 1) Often carried out at the pre-estimate stage and pre-tendering stage, not a precise forecast in reality.

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2) They do not include for the unforeseen circumstances that can occur on a project and the uncertainties and risks that will only come to light once the project is no site. 3) Cash flow forecasts also fall short in that they do not account for time delays for costs and earned values, and they do not account of potential variations and claims. (Ross and Williams, 2013)

3.1.2 Forecasting Models Forecasting models are often used to place the vast and expansive range of figures and dates associated with any given construction project in context. Cash flow forecasting is not easy because the contractor is never sure exactly how much money will be received from his portfolio of contracts. (Cooke and Williams, 2010 P. 301) The author will briefly outline the components of the : 1/3 model and the saw tooth model. The first forecasting method I will briefly discuss is that of the :1/3 model. This method suggests that the first 25% of expenditure is within the first 33% of the programme, the next 50% of expenditure within the next 33% and the remaining 25% of expenditure in the last 1/3 of the programme. (Ross and Williams, 2013)

Month 1 2 3 4 5 6 7 8 9 10 11 12

Value 625000 625000 625000 625000 1250000 1250000 1250000 1250000 625000 625000 625000 625000
Ross and Williams 2013)

Cumulative 625000 1250000 1875000 2500000 3750000 5000000 6250000 7500000 8125000 8750000 9375000 10000000

Table A3.2 Schedule of payment receipts based on the :1/3 model, Source: (Adapted from

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Cash Flow Forecast using the 1/4:1/3 rule

Figure A3.1 Cash flow forecast using the1/4:1/3 Rule

Following the above, we can now convert the data in to a simple chart to see when exactly certain payments need to be made.

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Time (Weeks) Time (Months) Cum. Value App for payment Certificate issued Payment received Margin Cost

4 1

8 2

10

48420

134738

255681

407977

588356

793546 793546

1020275

1265271

1525263

1796980 1796980

4842 43578

13474 121264

25568 230113

40798 367180

58836 529521

79355 714191

102527 1138744

126527 1138744

152526 1372737

179698 1617282

Table A3.3 Indicating time, payments and cost (Adapted from Ross and Williams 2013)

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K.W. Hudson was one of the first authors to develop such a model and it was introduced in 1978 to contribute towards the process of forecasting cash flow in construction projects. He developed the two parameter DHSS expenditure model that is the model most widely used for expenditure today (Ross and Williams, 2013). Secondly, we have a saw tooth cash flow profile which typically results in the subcontractor being in a negative cash flow situation for most, if not all, of the contract. Therefore, the sub-contractor must fund the cost associated with that, be it in terms of borrowing. A typical subcontract cash flow can be seen below in figure 11.

It is not uncommon for the sub-contractor to have completed various works packages before receiving an interim payment. Following from the statement above, a negative cash flow would be experienced throughout the project and typically the sub-contractor would only break even during the defects liability period. When the final account is in question and being totalled by the quantity surveyor, it would be normal for the subcontractor to return to a profit at this stage in the project following the much anticipated release of retention monies. The Bill is going to address the former situation where the sub-contractor has been squeezed between both the main-contractor and the supplier who are awaiting their payments from the client.

Figure A3.2 Typical saw tooth subcontract cash flow

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3.1.3 Conclusion Cash flow is paramount to the success of a contract. Currently, many of the major contractors are still extending their payment terms up to and even beyond the 120 day mark which further impinges upon the sub-contractors ability to obtain payment. The former practice needs to be withdrawn and indeed the Bill should bring about this much needed change within the industry.

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Appendix 4 Ethics Statement

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Ethics Statement

Approval from the ethics committee of the Dublin Institute of Technology is not required in this instance as the research is being carried out under the supervision of a qualified member of staff.

The author is aware of his responsibility to the wider research community. The research will adopt a standard code of professional conduct that does not harm or wrong participants and colleagues or undermine public confidence in the research process. The author is also aware that he is expected to conduct and report the research undertaken over the course of the academic year in an independent, objective and wholly honest manner.

The key ethical issues identified and addressed in this research are the following:

(i)

Confidentiality of the participants and the safeguarding of their identities and places of work; the former shall be achieved through assigning each participant a letter in addition to the avoidance of personal references which may lead to indirect identification.

(ii)

Voluntary participation; from the outset and throughout the participants retain the right to withdraw from the research process, including after the interview has been conducted and the information gathered.

(iii)

Participants will be advised of the extent to which access to the transcripts will be available for view in addition to data and their views being made available to the public. Participants will also be advised that they will not retain the right to censor the final dissertation in the absence of disclosure or breach of agreement.

(iv)

Request for information; each participant shall be provided a full copy of the dissertation through a medium which, at that time, proves to be the most appropriate for the author.

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Appendix 5 Participant Profile

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Participant Profile

Nine structured interviews were conducted inclusive of a wide range of participants representing all aspects of the construction industry in Ireland.

As illustrated below, we can see that the majority (50 per cent) were from the legal industry. The reasoning behind this is that many of the points in the Bill are particularly legalistic in nature and their specialist experience in this aspect of the construction industry was more appropriate. However in order to get a wide body of opinions on the bill, I also consulted quantity surveyors and contractors, as well as a member of a representative body.

Legal Industry
5 4 QS/ Contracting Representative Body

Figure A5.1 Participant sectors

Participant A Is a barrister, chartered quantity surveyor, and arbitrator. He currently works for a large multi-national corporation in Ireland, advising them on the legal aspects to their expansion in the Irish market, and regularly acts as party arbitrator in large construction disputes.

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Participant B Is a director at a large representative body in Ireland for the construction industry. He has both written and spoken extensively in relation to the topic of the Construction Contracts Bill 2012. In addition to the former; he works closely with top tier law firms in Ireland drafting the legislation that is implemented throughout the industry.

Participant C Is a senior partner at a top tier law firm located in Dublin. He has been dealing with the area of construction law for over 35 years. He has a broad range of experience in dealing with authorities, developers, architects, engineers, surveyors and builders on all aspects of construction projects.

Participant D Is a qualified barrister in Ireland and the UK; he has significant experience in both contentious and non-contentious public procurement. He has advised on many contentious public procurement issues. He has particular experience in a number of niche areas, in particular: FIDIC, wind farms, water and waste water plants.

Participant E Is a legal consultant and has been practicing for a number of years. He is a barrister and a chartered quantity surveyor. He has extensive experience in many aspects of the construction industry. He works as a conciliator, mediator and arbitrator on contract disputes within the construction industry.

Participant F He is widely known for his investment capabilities in relation to start-up businesses and his interest within the construction technology sector. He has a proven track record of taking small firms and businesses from their infancy through to being market leaders and powerhouses. He has directed his efforts towards politics in recent years.

Participant G Is a solicitor specialising in: property, construction, insurance, product liability, and professional negligence dispute resolution. He has a considerable amount of experience
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advising on numerous commercial disputes involving mediation, conciliation, adjudication, arbitration and litigation; including disputes before the Supreme Court.

Participant H and Participant J

[Note: The letter I was omitted from the lettering of the Participants to provide for an easier read, therefore J was substituted in its place] Both Participants H and Participant J work for separate top tier law firms in Dublin. They both practice in contentious and non-contentious construction law. They represent state bodies, contractors, developers, engineers, and other construction professionals in all aspects of construction law. They are regularly involved in litigation relating to arbitration both domestic and international.

Participant K Is a director at a major contracting firm that deal with the entire spectrum of construction in Ireland; he has extensive experience in all aspects of the construction industry.

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Appendix 6 Interview Questions

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Interview Questions
Q 1) What are your experiences with cash flow difficulties within the industry?

Q 2) The Bill will have a significant impact on two areas: a) National competitiveness/improved efficiency in the construction market. b) Safeguarding of public monies. Public perspective: It is an objective and from the Private perspective it isnt.

In your opinion will it free up cash flow when it is brought in? Can you provide suggestions as to what might free up the cash flow within the industry?

Q 3) What is your opinion with regards to each of the amendments proposed to be brought to the Committee stage:

a)

The proposed monetary thresholds are likely to be reduced or removed: private sector projects that exceed 200,000 and 50,000 in the public sector respectively.

b)

Bespoke construction industry supply contracts may be included in the scope of the legislation;

c)

The binding nature of the adjudication award is to be considered further, particularly with regard to whether similar rules should apply in public and private contracts; Section 6 (12) of the bill is considered to be the biggest flaw as it is currently drafted. It states that the award of the adjudicator will not be binding if referred to arbitral proceedings or if other proceedings are issued.

d)

The right to suspend work for non-payment is likely to be increased beyond the current proposed threshold of two weeks.

Q4) What do you think the immediate impact the Bill will have on the Construction industry in Ireland?

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Q 5) Senator Quinn set out the four main objectives concerning payment that he wanted to achieve in bringing the legislation forward: a) Timing when will the sub-contractor be paid? b) Amount how much will the sub-contractor be paid? c) Enforcement sub-contractors ability to require payment. d) Security of payment - Ensure that theres enough cash to pay.

In your opinion, do you think that these objectives are sufficient to make sure that correct payment practice is adhered to in the future following the Bills implementation?

Q 6) The Bill provides for a mechanism of adjudication in similar form to the UK model and it also prohibits conditional payment clauses with the exception of insolvency situations would you believe this to be an advantage or disadvantage? The current problem is that the bill replaces pay-when-paid with argue-nowpay-later whereas the most desirable situation and one which we are hoping will arise out of the implementation of the amendments is pay-now-arguelater.

Q 7) Sometimes the client runs out of money and not the Contractor, i.e. the problem can come from both sides. From your experience with regards to certificates and payments, how do you think the legislation will improve this factor? Q 8) The amendment contained in Section (6) of the Bill provides that the adjudicators decision will not be binding where a dispute is referred to arbitration or other proceedings are initiated seeking final determination of the dispute. Can you please outline the potential advantages and disadvantages of such a situation and indeed if the decision becomes binding, as it is in the UK, the potential advantages and disadvantages of that also.

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Q 9) Is the Bill going to be enough? The UK has a specialist Technology and Construction Court to deal with disputes in an efficient manner. Is there a need or relevance for such a system in Ireland, which in turn would go way beyond what the Bill is trying to achieve? Hutchinson (2010) states the following: In the meantime, the privatisation of construction disputes has left a gap in Irish construction law to the extent that there are few precedents interpreting the standard contract provisions. English case law is generally relied upon as persuasive authority in that regard; though that will not be possible with the Public Works Contracts, which have no English analogue. There may yet be a compelling case for the establishment of a Construction Court in Ireland.

89