Thought leadership from our experts

The construction industry in Ireland

Damien Keogh, Damien Keogh & Associates Solicitors, Ireland Gregory Talbot, Matheson, Ireland

The construction industry and the broader economy in Ireland, following seven years of unprecedented decline, has witnessed growth in the year 2014. IDA Ireland reports a significant boost to foreign direct investment (FDI) with over 100 investments in H1 2014, an increase of over 30 in the same period in 2013. The European Commission, in their autumn update, forecasts a growth in the Irish economy of 4.6% for 2014, highlighting Ireland's valuable trade links with the US and the UK. The Ulster Bank Construction Purchasing Manager's Index shows the construction sector expanded at the fastest rate in a decade for the month of October 2014. Buoyancy is beginning to return to the construction industry, with confidence and optimism permeating prospects for the future.

However, the construction industry has not forgotten the past 7 years. The economy and Ireland remain scarred by the economic recession of 2007, and the legislative developments of recent years have taken advantage of the lessons learned by our bleak experiences. In particular, the Construction Contracts Act 2013 and the new Building Control (Amendment) Regulations 2014 have sought to provide a more secure landscape for the construction industry to operate within and to ensure stable growth.

The Construction Contracts Act was conceived against the backdrop of an industry crippled by unreliable cash flow. The scope of the Act is broad and it is applicable irrespective of parties trying to limit or exclude its remit and / or regardless of the governing law of the construction contract. The Act provides protections for those working in the construction industry by creating a mechanism whereby cash flow is maintained even when the tightest of margins exist. The Act requires all construction contracts to include appropriate mechanisms for payment and to furnish parties with a framework as to the amount and the periods for interim payments. The Act stipulates for a right of suspension for non-payment by the process of delivery of written notice to the paying party no less than 7 days before the proposed suspension is to begin.

Of most importance is the introduction of a statutory dispute resolution mechanism for construction contracts through adjudication. The adjudication process is anticipated as a fast and cost effective method of dispute resolution for the parties to a construction contract which will result in a binding decision by an independent third party. Similar to statutory adjudication already established in the UK, it is expected that adjudication will create a more dynamic industry that will allow parties to a construction contract to react to resolve disputes in an expedient fashion. Despite being enacted by the Irish Government in July 2013, the Act has yet to take effect. The Act has received strong political support and the industry has called for the Government to announce a commencement date. It is hoped the Act will take effect shortly so that the legislation can relieve the problem it has been designed to solve.

The Building Control (Amendment) Regulations 2014 took effect on March 1 2014 and they establish a more intensive control, monitoring and safety system of building works in Ireland. Ireland has seen many issues with the previous Building Control Regulations including the use of defective materials, insolvency impediments and certification complications. The 2014 Regulations affect all new dwellings, extensions to current dwellings exceeding 40 square meters and buildings and works which require a fire safety certificate. The Regulations affect all stages of construction. Pre-construction, a commencement notice must be lodged with the building control authority. Such notice will contain the appointment of the assigned certifier (most likely to be an Architect or Engineer), who will issue a Certificate of Compliance (Design) to the building control authority stating the plans for the building or works adhere to the Regulations. The assigned certifier must undertake to carry out their duties under the construction contract in compliance with the Regulations.

The commencement notice also requires the appointment of the builder who similarly must undertake to complete the building or works in line with the Regulations. Post-construction, a Certificate of Compliance on Completion must be submitted by the assigned certifier and the builder and must certify that the building or works has been constructed in accordance with the Regulations. The notices and certifications required by the Regulations will be available on a public registry maintained by the building control authority. The Regulations may well lead to an increase in professionals' insurance premiums and in the costs associated with construction. However, the Regulations seek to ensure greater accountability and to raise the responsibilities of the professionals working in the construction industry in Ireland. Along with the maintenance of a public registry, the Regulations are hoped to provide a more compliant construction industry.

How the Industry will respond to the Regulations in the medium to longer term is yet to be seen. Of particular interest, is the current trend of the National Asset Management Agency in selling half constructed buildings or works. These distressed properties pose particular difficulty to the assigned certifier and builder under the Regulations. Whilst, the Regulations provide for a notice mechanism regarding the change of ownership of a property and / or a change to the assigned certifier or builder, the extent to which an assigned certifier or builder will take responsibility / liability for building or works partially constructed before their appointment is an issue which will be hotly debated.

In conclusion, 2014 has been a year of growth in the Irish construction industry and economy. The legislative terrain for the construction industry has undergone significant changes which it is hoped will benefit the industry and the wider public. The recovery of the Irish construction industry is acquiring strength through the recuperating Irish economy. Economic forecasts for the coming years are positive for Ireland and continuous growth is expected.