A representative body for builders has welcomed a High Court ruling on adjudication of construction contracts, even though lawyers warn it could increase the threat of insolvencies.
Experts say the court’s ruling in a recent case dealing with the Construction Contracts Act 2013 could allow clients to stall payments to builders, possibly affecting cash flows and even threatening solvency.
However, builders “broadly welcome” the ruling in Tenderbids Ltd v Electrical Waste Management Ltd, according to Paul Sheridan, director of main contracting with the Construction Industry Federation (CIF).
Sheridan said the ruling clarified that the act barred so-called “smash-and-grab” claims, where builders are paid when the client fails to respond within 21 days, even if the amount is disputed.
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He added that the industry welcomed this, but acknowledged the ruling could have implications for the operation of clause four of the Act, which sets out payment procedures and notice periods.
Judge Garrett Simons ruled that clients did not have to pay if they failed to respond to a bill from a builder or sub-contractor within 21 days.
Under the act, contractors and sub-contractors must be paid every 30 days for ongoing work, for which they must submit payment notices to their customer.
If the customer disputes the payment, they must respond within 21 days. The judge said the law provided for no default payment where clients do not respond within that time.
The judge’s ruling, along with others by the courts, provides clear parameters around the application of the Construction Contracts Act, Sheridan noted.
The CIF executive noted that parties to building contracts still have a statutory right to adjudication under the Act.
Sheridan said the law maintains the right for sub-contractors to 30-day payment terms and still prohibits “paid-when-paid” clauses, where sub-contractors only receive payment once the main contractor is paid.
“Any breach of the act or clause four may lead to consequences at an adjudication,” Sheridan stressed.
Lawyer Stephen McKenna of HF Construction Ireland argued earlier this week that the ruling could result in clients simply ignoring builders’ bills, ending a good practice that developed as a consequence of the Act.
He maintained that this could force a raft of unnecessary insolvencies, particularly during a downturn, as companies’ cash flows dried up.
McKenna, whose firm specialises in construction and procurement, called on the Oireachtas to amend the 2013 Act to plug the gap in the law.
