Adjudication in Ireland: a new era

Insurers will need to consider the adjudication provisions in the Construction Contracts Act 2013 (the Act) when dealing with construction related claims in Ireland.

It is likely that they will welcome the Act as it may prevent substantive claims against insured architects and engineers in the event disputes are resolved before court proceedings. However, insurers and law firms will have to get to grips with the adjudication process quickly and be aware of its potential disadvantages.

Background

The Act was finally signed on 13 April 2016, and applies to construction contracts entered into on and after 25 July 2016. The Act covers a number of areas in connection with regulating payments under construction contracts but the focus of this article is on the introduction of adjudication.

Although statutory adjudication has been available in the UK for many years by virtue of the Construction Act 1996, it is a new concept in Ireland. It gives parties to a construction contract an alternative method for resolving a dispute. The idea is that it will speed up the procedure and make it cheaper, something that will be welcomed by many throughout the construction industry. However, there are concerns that it will lead to “rough justice”, due to the speed and “pay now, argue later” nature of the process.

The adjudication process under the Act

• Applies to agreements to carry out or procure “construction operations”; the scope of this is set out fully in the definitions section of the Act.
• The Act only applies to “payment disputes”.
• There are a number of exclusions to the Act’s remit, including:
• Contracts with a value of less than €10,000.
• Contracts dealing with a residential dwelling with a floor area no greater than 200 square metres and where one of the parties occupies the property as their residence.
• Employment contracts.
• Contracts between a State Authority and its partner in a public private partnership arrangement.
• Either party can refer the payment dispute to adjudication at any time. The parties can agree to either appoint an adjudicator of their own choice or from the panel appointed by the Minister for Public Expenditure and Reform.
• The party upon which notice was served must refer the dispute to the adjudicator within seven days of the appointment of the adjudicator.
• A decision by the adjudicator is binding until the dispute is resolved through another means i.e. litigation, arbitration or an agreement between the parties. Either party can apply to the High Court to enforce the decision.
• Each party will bear their own legal costs and the costs of the adjudicator will be paid in accordance with the decision made.
• If an adjudicator decides that an amount is due from one of the parties and it is not paid in full before the end of the period of seven days after the decision was made, the other party may suspend work under the construction contract by giving notice in writing.
• A statutory Code of Practice has been published by the Department of Jobs, Enterprise and Innovation which governs the conduct of adjudication and elaborates on the points above.

Perceived advantages of adjudication

The Act should speed up the resolution of construction disputes as parties will have a decision from a qualified construction professional within 28 days of first referral. This may be extended by up to 14 days with the consent of the party by whom the payment dispute was referred.

Looking to the UK, which has had more experience in the area of adjudication than Ireland, other perceived advantages are the flexibility of the procedure and the finality of the result. As the process is so fast, it can improve a contractor’s cash flow. Following the recession in Ireland, this will be particularly welcomed, especially by small construction practices.

Potential criticisms of adjudication

There is a concern in the UK that the speed by which an adjudicator has to make a decision could cause errors of judgement or fact and could lead to “rough justice”. The adjudicator has a very short timescale to get up to speed with the documents and it may not be a suitable method for more complex, technical disputes which are document heavy. There are also concerns that adjudication could be open to “ambush” tactics given the tight deadline, e.g., several sub-contractors could commence adjudications against the same main contractor at the same time.

Furthermore, in the UK, the Technology and Construction Court is known for its speed in enforcing judgements and has to comply with time limits to set a date for the enforcement hearing. However, Irish courts can be much slower, and there is no set time period for enforcement. As such, even though a decision can be made quickly, if a party refuses to comply with the decision, it may not be enforced for some time after. This could potentially defeat the purpose of adjudication.

Conclusion

The introduction of statutory adjudication is long overdue and will be welcomed by many throughout the construction industry, especially as the construction market continues to improve in Ireland. Overall, the procedure has been largely successful in the UK and it will be interesting to chart its success in Ireland. It will also be welcomed by insurers as it may prevent substantive claims against insured architects and engineers in the event the payment dispute is resolved prior to court proceedings. Law firms will need to get up to speed with the process to be able to advise clients on this new procedure and be aware of the potential disadvantages of the process.