Construction Contracts Bill 2010

6th June 2012 - Olivia Mitchell TD

Deputy Olivia Mitchell: I wish to share time with Deputy Tom Hayes. I am pleased that this Bill is back before the Houses. I understand it was the last tranche of legislation dealt with by the last Seanad. There is almost unanimous acknowledgement of the need and the urgency to introduce legislation to regulate payments and disputes in the construction industry. We have seen and heard evidence of contractors who have failed to pay their subcontractors. It is not only a matter of the headline cases we hear about in the media; smaller cases arise as well. There are small contractors who, for whatever reason, do not pay their subcontractors, these subcontractors do not pay their subcontractors in turn and so on. It cascades throughout the sector. This is still going on in the current recession. Some people have suggested it is too late for this legislation but this is not the case because it is still occurring. Inevitably in a time of recession people are slow to pay. As a consequence, the subcontractors are forced to continue to supply and carry out work in the hope that they will be paid. They extend more credit as well. Eventually, the are very exposed when the inevitable happens.
We should bear in mind that it is not simply a matter of builders, contractors and subcontractors who fail to pay. Often, the client fails to pay as well, especially nowadays, whether it is a hotelier or other client. The previous speaker referred to people who got into the business during the Celtic tiger years and who knew nothing of building and perhaps knew even less about business. Anyway, they imagined it was the right business to be in. The most reprehensible of cases, some of which have attracted media attention, are those in which the client pays the contractor but the contractor pockets the money or delays payment so that the subcontractors are forced out of business while the contractor declares insolvency or sails off into the sunset.
Although the legislation has been introduced against this background, whether in good times or bad, late payments and constant disputes are characteristic of the building industry. The disputes are time-consuming, costly and often involve going through all the industrial relations procedures of conciliation and arbitration and, finally, the courts. Often, such cases have continued for years. The system that has been in place has not served anyone’s interests, whether the client, the builder, the developer, the subcontractor or the taxpayer. Simply put, the risks of non-payment, late payments and possible litigation was built into the pricing of contracts. Consequently, the price of building in Ireland was extraordinarily high during the Celtic tiger years. This was not the only reason but it was at least part of the reason.
Nowadays, construction activity is only a fraction of what it was. The problem now is not high prices but, perversely, prices are too low. Such is the anxiety of builders and contractors to get work and so intense is the competition that firms are pricing projects at unsustainably low prices. Naturally, this increases the likelihood of their going out of business or the collapse of the business as a result as well as the likelihood that subcontractors will not be paid in turn.
A contract for State payments such as that provided by this legislation as well as a cheap and speedy dispute resolution mechanism will help to normalise prices. This will benefit everyone as well as protecting subcontractors.
The temptation to increase tender prices is not as likely as risky and late payments are now less likely under the new legislation, and the temptation to offer ridiculously low prices in tenders is less likely also as the inability to pay will quickly become obvious due to the stage payments arrangement.
I congratulate Senator Quinn for bringing forward the original legislation. It has been delayed but the consultation period and the impact assessment will produce better and more effective legislation. The original legislation, which had a very high threshold of €200,000 for private contracts and €50,000 for public contracts, removed from the protection of the legislation the very firms that probably need it most, namely, the small businesses which would have only a small number of contracts on hand at any one time. I am glad to see the Minister will amend the Bill accordingly to lower the threshold.
It was also suggested in the original legislation that the adjudication decision will not be binding but it is clear that would be useless because if the parties could agree about a payment there would not be any need for adjudication. The real danger is that the new adjudication process would be used as another time waster before one got to conciliation and so on, postponing court appearances for as long as possible.
The Minister is more than aware of submissions from the interested parties in the course of the consultation and I mention two with which I have particular sympathy. The first refers to a situation where the public contracts go to adjudication and a decision in favour of an award is made. The suggestion is that to safeguard taxpayers in the case of public projects the payee, rather than accept the award, must purchase a bond to guarantee they will be able to repay the money if the court subsequently reverses the decision. That is not a bond such as the one somebody would get at the start of a building contract. In this case the full amount must be lodged. Effectively, that wipes out the value of the legislation for public contracts as the award is cancelled out by the necessity to lodge the bond. In fact, the situation will be worse for contractors doing public work than it is now because their subcontractors will be covered by the legislation, including stage payments, dispute resolution and so on, but they will not be covered.
The suggested alternative coming from the industry, and which is probably a good idea, recognises the need to protect taxpayers’ money but that the payer would go to court when they wish to withhold enforcement of the adjudicator’s decision. However, they must establish that there is a genuine likelihood that the money would not be paid. That is an acceptable and reasonable solution. It does not penalise all public contractors and to do so would only increase the cost of contracts to the public purse and to the taxpayer because the cost of it would be built into tender prices.
The second submission, which many speakers mentioned it, is from the Irish Concrete Federation whose members fear they will not be covered by the term “bespoke supplies”, in respect of which the Minister intends to table an amendment. It is clear that manufactured concrete goods and poured concrete by their very nature are unable to be retrieved, resold or reused in the event of a non-payment and therefore that should be covered.
I welcome the legislation but the need for a review of this area must be built into it. Much of the legislation we are introducing is in the aftermath of a crisis and, inevitably, the type of measures we put in place are influenced by our own mindset in the aftermath of a crisis. It is important, therefore, that we review legislation such as the legislation before the House to ensure it is robust in good and bad times and testing the adequacy and efficacy of the measures is vital. We must include in the legislation some provision that there would be gathering of the type of data necessary to review and analyse the impact of the legislation.
Several speakers mentioned the need for other legislation and an examination of other aspects of this industry, including possible collusion in the concrete industry. I do not know about that but it is something the Competition Authority should be asked to examine to determine if there is evidence of that. Any builder or construction firm one speaks to raises the problems associated with the fixed price contracts introduced in the context of the Celtic tiger where projects ran over by huge amounts in many cases and the response was the fixed price contract which probably went too far in the other direction. That must be examined because from having been in a situation where builders could name any price at one stage they are now not paid for extras or any changes the client may make. There is a need to strike a balance and examine that legislation again. It was introduced in unusual times and we may need to examine it in a calmer time.

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