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: Mr Tony Cunningham

Submitted to: The Faculty of the Built Environment, Dublin Institute of

Technology, Bolton Street, Dublin

i

Abstract

The Construction Contracts Bill has been introduced to improve payment practice

within the construction industry. This study investigates the Bill’s potential

effectiveness upon implementation and its ability to improve cash flow for sub-

contractors. 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.

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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 i

Declaration ii

Acknowledgments iii

Table of Contents iv

List of Figures viii

List of Tables viii

List of Abbreviations ix

Chapter 1 – Introduction

1.1 Introduction 1

1.2 Scope of Research 2

1.3 Thesis Aims and Objectives 2

1.4 Outline of Chapters 3

Chapter 2 – Literature Review

2.1 Introduction 4

2.2 Reasoning for the Bill’s Introduction 5

2.3 The Irish Construction Industry 8

2.4 Objectives of the Bill 9

2.5 Provisions of the Bill 9

2.6 The Importance of Cash Flow 10

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2.7 Entitlement to Payment 14

2.7.1 Payment Arrangements under the Private Subcontract Forms 15

2.7.2 Interim Payments 16

2.7.3 How the Bill Improves Payment Practice 18

2.7.4 “Pay-when-paid” 19

2.8 Adjudication 20

2.9 Legislation Overseas 26

2.10 Conclusion 27

Chapter 3 – Research Methodology

3.1 Introduction 28

3.2 Scope of the Chapter 29

3.3 Research Aims 29

3.4 Research Strategy 29

3.5 Qualitative Research Methods 31

3.6 Selection of Participants 32

3.7 Reliability and Validity in Qualitative Research 32

3.8 Analysis of the Data 33

Chapter 4 – Research, Findings, Analysis and Discussion

4.1 Introduction 34

4.2 Findings and Analysis 34

4.2.1 Cash Flow Difficulties within the Industry 34

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4.2.2 Improving Cash Flow 36

4.2.3 Monetary Thresholds 37

4.2.4 Bespoke Construction Industry Supply Contracts 38

4.2.5 Right to Suspend Work for Non-payment 39

4.2.6 Immediate Impact of the Bill 40

4.2.7 Potential Improvements to the Bill 41

4.2.8 “Pay-when-paid” 42

4.2.9 Improving Payment Practice 44

4.2.10 Section 6 – Binding Nature of Adjudicator’s Decision 46

4.2.11 Standard of Adjudication 47

4.3 Conclusion 47

Chapter 5 – Conclusions and Recommendations

5.1 Introduction 49

5.2 Realisation of Objectives 49

5.3 Limitations of Research 52

5.4 Conclusions and Recommendations 54

5.4.1 Further Considerations 54

Bibliography 56

vi

Appendix 1 – Thesis Programme 65

Appendix 2 – Technology and Construction Court 67

Appendix 3 – Cash Flow Analysis 72

Appendix 4 – Ethics Statement 80

Appendix 5 – Participant Profiles 82

Appendix 6 – Interview Questions 86

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List of Figures

Figure 2.3 Interim payments 17

Figure 2.4 Cash requirement 18

Figure 2.5 Number of adjudication referrals 23

Figure 2.7 Monthly variations in adjudication referrals 24

Figure 2.8 Adjudication referrals and UK construction workload 25

Figure 2.9 Quarterly Profile of adjudication referrals 25

Figure A2.1 Specialist judge required 69

Figure A3.1 Cash flow forecast 76

Figure A3.2 Typical ‘saw tooth’ sub-contract cash flow 78

Figure A5.1 Participant sectors 83

List of Tables

Table 2.1 DPER Options 8

Table 2.2 Contract Cash Flow Example 17

Table 2.6 Subjects of the Disputes 23

Table 5.1 Percentage Breakdown of Dispute Subjects 53

Table A3.1 Typical Cash Flow Statement 74

Table A3.2 Schedule of Payments 75

Table A3.3 Table Indicating Time, Payments and Cost 77

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List of Abbreviations

CCB - Construction Contracts Bill

GCCC - Government Construction Contracts Committee

CIB - Construction Industry Board

CIC - Construction Industry Council

CIF - Construction Industry Federation

CIOB - Chartered Institute of Building

DPER - Department of Public Expenditure and Reform

HGCR - Housing Grants, Construction and Regeneration Act 1996

QS - Quantity Surveyor

RIA - Regulatory Impact Analysis

RIAI - Royal Institute of Architects of Ireland

SCSI - Society of Chartered Surveyors in Ireland

SME - Small and Medium Enterprise

TCC - 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, sub-

contractors, in particular, have been exposed to late-payment, under-payment and non-

payment 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 Dáil 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 sub-

contractors, it is considered appropriate to examine the problem from the sub-

contractor’s perspective. The study does not address, in depth, the related topic of main-

contractor 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

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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

study’s 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 sub-

contractors 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.

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“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-sub-

contractors 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”.

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The Department added “This Government is committed to protecting small building

sub-contractors that have been denied payments from bigger companies”. The

Government’s attitude is positive, however, if the Bill is to protect contractors and sub-

contractors 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 Bill’s 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 Dáil 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.

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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 payee’s

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 wasn’t 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.

8

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:

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 Bill’s 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 Ireland’s 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

• Do nothing Option 1 • Legislative intervention to regulate

payments between Contractors, Sub-contractors and Sub-sub-contractors (Construction Contracts Bill 2010)

Option 2

• Consideration of possible amendments to the Bill as passed by Seanad Éireann Option 3

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(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).

10

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 month’s work to be conducted by the contractor before any money

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 sub-

contractors. 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 UK’s 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-contractor’s 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 Seirbhís Dócmhainneachta na

hÉireann 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, Re-

thinking construction.

More recently, the focus on collaboration and best practice in relation to payment was

accredited by Chief Construction Adviser, Paul Morrell in the UK’s 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 SME’s”

14

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-contractor’s 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 employer’s

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-contractor’s 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 Bill’s 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

16

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 sub-

contractors 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

17

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 10,000,000

Contract period,

months, 6

Retention, % 3

No. contract

payments 6

Margins 10

First payments details

Application Week 6

Certification Week 7

Payment received Week 10

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

It is common for a sub-contractor’s 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

18

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:-

19

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 sub-

contractors obtaining payment fairly and efficiently. This has manifested itself in the

sub-contractor’s ability to be paid in addition to protecting themselves against

insolvency of those in the contractual chain above them. Clauses such as the “Pay-

when-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 main-

contractor for works that have been completed will ultimately result in the sub-

contractor 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).

20

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 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 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

21

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

22

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 sub-

contractors; 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 Bill’s 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.

23

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

24

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

25

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

26

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-contractor’s 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 Bill’s 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

27

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 sub-

contractors 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.

28

“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

29

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

30

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 Bill’s 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.

31

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 Bill’s 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 Bill’s 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 interviewer’s 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.

32

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

where…the 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

33

the same questions and in different settings and at different times, which was the case in

the researcher’s 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.

34

“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 that’s 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

35

price, just the market price.” He continued “there doesn’t 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...They’re 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 contract…it is particularly an issue for sub-

contractors because they don’t 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 level…cash 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.”

36

4.2.2 Improving cash flow

Participant B was particularly positive with regard to the Bill’s 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 main-

contractors 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, I’d imagine, has improved there…I 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 don’t 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 UK…Latham went with

the NEC form of contract…it 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

37

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

2010…but 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 Bill’s 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 they’re too high it’s that they are ridiculous…the

Government are selling this in their own mind that it is something that will help sub-

contractors but the vast majority of subcontracts are less than €200,000.” Participant D

agrees, observing that “If you take your typical school contract…a 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

distinction…that 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 mistake…he meant €20,000”

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A number of participants believe that the thresholds should be completely removed.

Participant J stated that “It doesn’t really matter what the numbers are…There is no

rationale for having a threshold, there really isn’t.” Participant B said “I will be

absolutely amazed if they don’t [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

that…try 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 doesn’t 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 don’t 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 contracts…you 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 side…a lot of manufacturers are not supplying just to the construction

industry solely…you have two sets of laws and why should the construction industry be

different from any other…Don’t get me wrong, the view would be that you either bring

this in to all contracts as an option or you try and restrict it…but as I said I don’t 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 don’t 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 don’t 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 doesn’t flow from

the primary client to the main-contractor it can’t flow to the sub-contractors and then to

the sub-sub-contractors…But the fact that I’ll be given a statutory entitlement …a right

to stop work, and if I stop work it might discommode me and it might discommode sub-

contractors and suppliers but it doesn’t 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 won’t 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 didn’t 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 paid…if you don’t 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 haven’t been paid, you have to give notice and then you can dump

tools but people don’t get that because that is such a fundamental thing…If you’re not

paying surely there has to be a fundamental breach but there isn’t; 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

won’t 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 “… We’re 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 Bill’s 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 Bill’s 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 surveyor’s 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 money…the United States have the perfect solution to this…If I am a sub-

contractor 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 don’t 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 sub-

contractors 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 isn’t 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 I’m going to get paid and I

have to know how much I’m going to get paid and I must have a mechanism for

vindicating if I haven’t 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 adjudicator’s decision is something that needs to be

enforced pending an arbitration…the more logical position is that if you are going to go

this route, that once an adjudicator makes a decision, that decision should be

enforced…that 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 it…But 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 don’t see it coming

because I think it is just so ingrained with the way we do it…if it doesn’t happen in the

UK I don’t 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 main-

contractor enters into a contract with the sub-contractor but he assesses the sub-

contractor, 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 sub-

contractor 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 employers…I 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 have…you can’t 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 isn’t 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 Bill’s 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 employer’s

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 don’t 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 isn’t 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 market…So in the private sector you don’t actually have that many

projects now outside very solvent employer’s such as your inward investment employer.

So there’s not really that issue of client’s 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 main-

contractor 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 hasn’t 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 don’t

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 adjudicator’s 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 adjudicator’s 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 there’s 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 adjudicator’s decision, it almost

follows as day follows night that people will do that. It creates a blockage on the

effectiveness of the adjudicator’s 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 wrong…So 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 arbitrator’s at present.

Adjudicator’s 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-contractor’s 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

48

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 semi-

structured 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, main-

contractors will be pricing in risk and anyone that isn’t completely solid from a

financial perspective is going to be pricing in insolvency risk.

It is no secret that with or without the Bill’s 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-sub-

contractors and the sub-sub-sub-contractors who take the biggest hit in relation to non-

payment and lack of cash flow. Another difficulty in relation to cash flow is that sub-

contractors 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 don’t

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-

51

contractors because they don’t 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 sub-

contractor 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 haven’t 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 you’re 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 sub-

contractors 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 adjudicator’s decision to be binding.

Glasgow Caledonian University provide that the largest number of disputes exist

53

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 adjudicator’s 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.

54

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 sub-

contractors 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.

55

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.

56

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65

Appendix 1 – Thesis Programme

66

67

Appendix 2 – Commentary on the Technology and Construction Court

68

“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 Bill’s 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.

69

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 “I’m in an arbitration

dispute at the minute that started in 2009 and we’re the defendant and we’ve just been

trying to delay things and now it is going into its fourth year. We still haven’t 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

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 don’t think

75%

25%

Specialist Judge Required

YES NO

70

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 surveyor’s

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 won’t happen here and it

can’t happen here because we don’t 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 Court…Peter

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

71

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”.

72

Appendix 3 – Cash Flow Analysis

73

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)

74

YEAR 4 YEAR 3 YEAR 2 YEAR 1

Net Cash in (out) flow 70800 44800 14200 8900

Operating Activity

Net Cash in (out) flow 100 -2100 800 1500

Return on Investment

Taxation -5000 -1000 -600 -8800

Net Cash out (in) flow

Investing Activity

Capital Expenditure & Finance

Investment -14800 -6400 -28000 -37700

Acquisition & Disposal 2600 500 2800 -200

Equity Dividends Paid -6600 -6300 -6300 -6300

Management of Liquid Resources

Net Cash (out) in flow from financing -36500 12100 16800 15000

Increase (Decrease) Cash & Equivalent 10600 17400 -300 -45300

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

A contractor’s 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.

75

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 ¼: 1/3 model and the ‘saw tooth’ model.

The first forecasting method I will briefly discuss is that of the ¼:1/3 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 Value Cumulative

1 625000 625000

2 625000 1250000

3 625000 1875000

4 625000 2500000

5 1250000 3750000

6 1250000 5000000

7 1250000 6250000

8 1250000 7500000

9 625000 8125000

10 625000 8750000

11 625000 9375000

12 625000 10000000

Table A3.2 Schedule of payment receipts based on the ¼:1/3 model, Source: (Adapted from

Ross and Williams 2013)

76

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.

0

2000000

4000000

6000000

8000000

10000000

12000000

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

Co

ntr

act

Vla

ue

€

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

Value

Cumulative

77

Time (Weeks) 1 2 3 4 5 6 7 8 9 10

Time (Months) 1 2

Cum. Value 48420 134738 255681 407977 588356 793546 1020275 1265271 1525263 1796980

App for payment 793546 1796980

Certificate issued

Payment received

Margin 4842 13474 25568 40798 58836 79355 102527 126527 152526 179698

Cost 43578 121264 230113 367180 529521 714191 1138744 1138744 1372737 1617282

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

78

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 sub-

contractor 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 sub-

contractor 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

79

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-contractor’s 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.

80

Appendix 4 – Ethics Statement

81

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.

82

Appendix 5 – Participant Profile

83

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.

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.

5

4

1

Legal Industry

QS/ Contracting

Representative Body

84

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 Participant’s 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 isn’t.

- 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-contractor’s ability to require payment.

d) Security of payment - Ensure that there’s 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-now-

pay-later” whereas the most desirable situation and one which we are hoping

will arise out of the implementation of the amendments is “pay-now-argue-

later”.

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 adjudicator’s

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”.