Construction Contracts Act: claims, adjudication, referrals and response documents
14 June 2016
The notice provisions under the Construction Contracts Act, 2013 apply to all construction contracts from 25 July, 2016. Paul Hughes offers guidance on best practice when drafting the notices
The Construction Contracts Act, 2013 (‘the Act’) will introduce into Irish law a new system of notices for claiming and disputing payments under construction contracts. There is also a number of adjudication notice provisions associated with the new adjudication procedure.
The Act and the provisions contained therein will apply to all construction contracts entered into after 25 July, 2016. The notice provisions contained in the Act are the focus of this article. They are very important and must be strictly followed when pursuing or defending a payment claim, otherwise, the claim or defence thereof will fail.
Payment claims notice and response
If a payment is not made by the payment due date, the party seeking payment must deliver a ‘payment claim notice’ to the other party within five days after the payment claim date. The payment claim notice must contain the amount claimed (even if zero), the period, stage of work or activity to which the payment relates, the subject matter of the application claim and the basis of the calculation of the amount claimed.
If the other party is contesting the amount claimed, a ‘response to the payment notice’ must be delivered. This must be done not later than 21 days after the payment claim date. In order to comply with the Act, the response notice must contain the following: the amount proposed to be paid, the reasons for the difference between the amount claimed and the amount proposed to be paid and the basis on which the proposed amount is calculated.
In addition, if the reasons for the difference in the response are for loss or damage arising from an alleged breach of contract by the other party, the response must specify when the loss was incurred, how it arose and the particulars of the loss showing the proportion of the difference connected to each such particular.
These provisions are broadly similar to those found in UK legislation. It is important that the payment claim notice is clear and complies with the Act. If it does not, the party claiming the amount may not be able to rely on the payment claim notice in circumstances where it alleges that the other party did not deliver a proper response to the payment claim notice.
Only a valid payment-claim notice will trigger the 21-day response period. If the party owing the amount does not deliver a response notice, or delivers a notice that does not comply with the Act, then the amount claimed is payable immediately. In these circumstances, the party paying the sum will have to wait for the next payment cycle to contest the next amount claimed. This may result in serious cashflow problems.
Notice of adjudication
To commence an adjudication process, the referring party serves on the responding party a notice of intention to refer a payment dispute for adjudication. This notice is referred to as the ‘notice of adjudication.’ The notice can be issued at any time.
The purposes of the notice of adjudication are to inform the responding party of what the dispute is about; to inform those who may be responsible for appointing the adjudicator about the nature of the dispute, so that a suitable adjudicator can be selected; and to define the dispute, specify the redress sought and set the parameters of the adjudicator’s jurisdiction.
The notice of adjudication is considered the most important documents in the adjudication process. It defines the scope of the dispute which the adjudicator has jurisdiction to decide. The adjudicator’s jurisdiction is derived from the notice and not from other documents in the process. Poorly drafted notices of adjudication can lead to fatal problems if one party is trying to enforce the adjudicator’s decision. Errors in the notice cannot be rectified in subsequent documents. It is extremely important that the notice of adjudication is carefully drafted to properly identify a crystallised dispute which the referring party requires the adjudicator to decide.
The notice of adjudication should relate to only one dispute. However, this one dispute may have a number of elements. For example, a dispute about an interim payment may have a number of elements including variations and loss and expense. If there are multiple disputes, then separate notices of adjudication should be issued for each dispute.
The information to be included in the notice of adjudication is set out in the Code of Practice Governing the Conduct of Adjudications Under the Construction Contracts Act, 2013 (‘the Code’).
It provides that the notice of adjudication shall include: details of how and when the contract, under which the payment dispute has arisen, was formed; a description of the payment dispute and of the parties involved; the name, address and contact details of each party to the payment dispute; the date of service of the notice of adjudication; the redress sought; and copies of relevant payment claim notices and responses to payment notices, if any. The content provisions are mandatory and all of the above information must be included.
Within seven days of the adjudicator’s appointment, the referring party must refer the payment dispute by way of a ‘referral notice’ to the adjudicator. At the same time, the referral notice must be copied to the responding party. In the UK, it has been held that failure to comply with such a timescale, even by one day, renders the adjudicator’s decision to be a nullity.
The referral notice is a very important document in the adjudication process. This may be the only opportunity for the referring party to put forward its position, as most adjudications are dealt with on paper only. Consequently, it is extremely important that the document fully sets out the legal and factual basis of the referring party’s case. The document must be drafted in a clear and persuasive style and cross-referenced to all relevant documents.
The information to be included in the referral notice is set out in the Code. It provides that the notice shall include: the contentions on which the referring party relies in support of its case on the payment dispute and the redress sought; copies of, or relevant extracts from, the construction contract and such documents as the referring party intends to rely on; and a copy of the notice of adjudication.
Only relevant documentation which is well edited should be attached to the referral notice. Large amounts of unreferenced irrelevant material should not be attached. It is a big mistake to assume the material speaks for itself. The adjudicator must be taken through the material in the body of the referral notice. The material attached should be in chronological order. Including a summary of the claim at the outset is a good idea. This will help the adjudicator to keep in mind the overall shape of the claim.
The referral notice and documents must support all the claim’s elements. Relevant legal authorities should be incorporated with an explanation of how these are relevant. It may be necessary to include minutes of meetings, letters, emails, notes, photographs, drawings, invoices, timesheets, site diaries and other contemporaneous documents and explain how they support the referring party’s case. Depending on the circumstances, the referral notice may also need to incorporate witness statements and expert reports.
The adjudicator is allowed to issue directions relating to the conduct of the adjudication. The adjudicator usually sets a time frame by which the responding party has to submit its response document. The response document is the responding party’s key document. The legislation does not set out what must be contained in a response document but, in the UK, the responding party is allowed to raise any point it wishes in order to defend the claim against it.
The response document should be clear and approach points chronologically. It should attached documents which the responding party wishes the adjudicator to consider before reaching a decision. The document should be as user friendly as possible.
It is a good idea, if possible, that the response document sets out on a paragraph-by-paragraph or section-by-section basis the issues raised in the referral notice. In this way, the adjudicator can see, side by side, the referring party’s assertion and the responding party’s response to that assertion.
Where relevant documents have already been included by the referring party in the referral notice, these documents should not be included again. The responding party can refer to the documents contained in the referral notice. This saves time for the adjudicator and avoids a duplication of documents. Like the referral notice, it may be necessary to include relevant documents such as minutes of meetings, letters and the like; showing how they support the responding party’s case. Relevant legal authorities may have to be included. Depending on the circumstances, the response document may also need to incorporate witness statements and expert reports.
The Act sets out a number of notice requirements in relation to payment disputes and adjudication provisions. The requirements are mandatory. Consequently, if they are not strictly followed, this will be fatal to a party’s position.
It is vital when pursuing a claim that the time and content provisions of the notices are complied with. For example, if a payment claim notice is invalid, in a subsequent adjudication, the adjudicator will have no option but to reject the claim as the provisions of the Act were not complied with. Likewise, in contesting an amount claimed, if the response document does not follow the provisions of the Act, the full amount claimed will become due.
It is important to remember that the adjudication process is a swift procedure. Consequently, every effort should be made to facilitate the adjudicator in reaching the decision within the statutory time frame. Documents and legal authorities submitted must be relevant, well referenced with an explanation of how they help a party’s position. I
It is bad practice to submit wades of unreferenced documentation, without any explanation as to its relevance, to the adjudicator in the hope that he/she will decide discover its relevance. In these circumstances, the adjudicator’s task is difficult and the evidential weight of a particular document may be overlooked.
Paul Hughes, MSCSI, MRICS, MCIOB, Barrister-at-Law, PhD
Hughes Construction Claims Resolution (HCCR) provides a comprehensive construction claims service in relation to the conduct and management of claims, adjudications, conciliations, mediations and arbitrations. It offers its services to all involved in the construction industry including contractors, sub-contractors, clients, suppliers and design professionals.http://www.engineersjournal.ie/2016/06/14/construction-contracts-act-payment-claims-adjudication-referrals-response-documents/http://www.engineersjournal.ie/wp-content/uploads/2016/06/Construction-Contracts-Act-2013-1024x680.jpghttp://www.engineersjournal.ie/wp-content/uploads/2016/06/Construction-Contracts-Act-2013-300x300.jpgCivilconstruction,Construction Contracts Act,contracts,legislation