In New South Wales, the recent amendments – which look like a bad train wreck, passed in a heartbeat. In Queensland, the welcome reforms following the Mitchell Report have been put on hold. The Society of Construction Law Australia’s Report on Security of Payment and Adjudication in Australia has been widely welcomed, but it would require some considerable optimism to believe that the recommended changes will be implemented with any great rapidity.
On the other side of the world, a really well-drafted Act was passed last year in Ireland, but a commencement date has yet to be set. Senator Feargal Quinn, who was responsible for the Act, has set out the case for getting on with it:
Vital need for Construction Contracts Act to enter into force
There is a vital need for the Construction Contracts Act to enter into force as quickly as possible which will bring much needed protection to building contractors writes Feargal Quinn.
Sub-contractors are a vital and often overlooked part of the construction industry. They are those small and medium enterprises (SMEs) in the construction industry providing such services as installing plumbing, tiling, windows or electricity. Since the financial and economic crash of 2008, thousands of sub-contractors working in the construction industry lost their jobs as a result of the actions of certain construction companies who either could not, or would not, pay them. It was distressing to see so many viable SMEs go under because they were left high and dry by property developers and construction companies who simply did not pay them for their work.
One of the difficulties within the construction industry is that when certain items such as plumbing, windows or electricity cables had been installed in a building, they cannot be legally removed even if such services and materials were not paid for. While large contractors or developers could sell off the entire property developments to pay off their debts, the sub-contractor they employed would often not see any payment at all. Cash-flow for SMEs is of course vital and during recent years many smaller construction companies went under simply because larger construction companies/developers did not pay them for their work.
In 2010 I introduced the Construction Contracts Bill in to the Seanad in order to put an end to such unacceptable payment practices and with the wider aim of creating an improved business culture in the industry. Also, my Bill aimed to reduce the need to go to court to resolve these disputes, which has the effect of reducing the pressure on our already over-burdened courts system. In this respect, the legislation aimed to introduce a new adjudication mechanism where disputes can be resolved in a straightforward and less expensive manner. Indeed, I believe this model could have a much wider application in other areas of business in the country, especially in the SME sector.
In designing the legislation, I consulted with legal experts not only in Ireland but also internationally including New Zealand, Australia and the United Kingdom in order to distill their expertise to produce the best law possible. Not only was the law a concrete (no pun intended!) example of the work that the Seanad could do, real credit must also be given to the government for supporting the introduction of the law.
I was delighted to see the Bill enacted by the Government and signed into law by President Higgins over one year ago when it became law or an “Act”. However, the law has yet to have any effect, as while it has been signed and sealed, a “commencement date” needs to be set for it to enter into force. Therefore, the law is still not providing crucial protection to contractors for non-payment of the work that they have carried out. Coming from the private sector, it never fails to surprise me how long it takes to get things done by government – in this case, it is well over four years since the Bill was first introduced in the Seanad.
The Minister for Public Expenditure and Reform Brendan Howlin said this July that there were two steps needed for the Construction Contracts Act to enter into force – the approval of a Code of Practice for the conduct of adjudication and the establishment of a panel of adjudicators. On this last point, there is still no indication of any panel of adjudicators being advertised for or appointed. This fact points to the likelihood that it may well be a long-drawn-out period for the law to actually enter into force. As a matter of urgency, the construction industry needs clarity on when those steps will be finalised.
I believe firmly that the law not coming into force is damaging the construction industry at a vital time of economic recovery. Contractors are again contacting me seeking clarity on the commencement of the Act as they find that payments are still being held up and this continues to have a very negative effect on their business. The delay in bringing the Construction Contracts Act into force is fostering a great deal of uncertainty within the construction industry – something that is very unwelcome in any business. We have a very regrettable situation when a small contractor is unsure of taking on a project. If they take on a project and get paid, all is well and good. However, there is uncertainty in the current climate as if they take on a project and do not get paid, it could mean the end of their business.
In addition, given that banks are not lending enough there is a real need for smaller construction firms to have access to cash. This is something that the Construction Contracts Act ensures as it guarantees that contractors will get paid for their work. Thus it will allow them to provide their much needed services not only to the housing shortage, but to the economy as a whole. The Economic and Social Research Institute says that Ireland needs to build about 12,500 housing units a year up to 2021. One factor that is often forgotten is that this trend is likely to continue well into the future, given that Ireland has the fastest growing population among all 28 EU Member States. That massive demand means future growth in the industry and it is apparent that conditions need to be set to ensure a fairer construction industry. This fact is amplified when we take on board the experience of the recent past when so many contractors were exploited.
Many good ideas have been raised as to how to address the housing shortage, such as a reduction in VAT on new home building or the introduction of an exemption of the property tax for people downsizing and moving to a smaller house. I would argue that having the Construction Contracts Act enter into force is at least equally important to address this issue.
While the government has supported and enacted the Construction Contracts Act, I call upon it to set a firm date for the law to enter into force.
It is very obvious that smaller contractors need to be protected. By having the law finally in place, this will not only provide much-needed protection to those SMEs in the construction industry, but will be a vital cog in helping to address our housing shortage.