Some Development Issues

Disputes and Breach

Where the contractor’s work is defective, there will usually be a breach of contract.  Generally, the amount of compensation the courts will award will be the cost of repair or the diminution in value, where it would be wholly uneconomic and unreasonable for the employer to insist upon repair.  In recent years, the courts have been more inclined than before to award compensation for physical discomfort and emotional frustration. The employer is obliged to mitigate loss i.e. minimise loss insofar as possible.

The liability of contractors to subsequent owners has proved a difficult area and the Courts have changed their minds on key principles.  The courts have held builders and developers liability to subsequent owners and for certain other foreseeable loss arising. However, the extent of the law is unclear and collateral warranties are often obtained to remove uncertainty.

Alternative Dispute Resolution

There are various mechanisms for resolving disputes about building contracts.  Because of the expense and uncertainty of Court proceedings, alternative disputes resolution (ADR) has become prominent in the construction industry.  The RIAI has introduced an amendment to provide that the parties may seek agreement or resolve any dispute through mediation.  The mediator consults with one party and then the other with a view to negotiating a settlement.  If no settlement results, the mediator will make recommendations to settle based on his findings.   Mediation is not binding.

There is a right to refer any dispute an independent third party for a process called \”adjudication\”.   This is different from arbitration or mediation.   The adjudicator’s decision will be binding unless otherwise specified in the Contract. The adjudicator has wide power to set an agenda and discretion as to take the initiative in ascertaining facts.

The adjudicator acts on the basis of his own knowledge and expertise rather than on the exclusive basis of what the parties present (as would be the case with an arbitrator or judge).   He may visit the site and test the works. He may take technical and legal advice and make enquiries from the parties.  Once the referral to adjudication is made, the non-referring party has a right to reply.  Unless and until that agreement is reached or until the adjudicator’s decision is ratified or reversed in arbitration or litigation, the parties are bound by it.

The person referring to adjudication must give particulars of the dispute, a summary of its contentions, the basis relied on and a statement of what remedy is sought. The adjudicator’s decision is binding unless he has acted outside of his role under the terms of the contracts. An adjudicator will either be named in the contract or there may be a provision for a nomination.  The parties need not be legally represented.

Arbitration

Arbitration is a time honoured assistant for settling disputes.  The two parties who are in dispute between themselves ask an independent third party to settle the matter and agree to abide by his decisions.  Arbitration can be a speedy and more cost-efficient process than legal proceedings.   Another advantage is privacy.

The arbitrator must act fairly and impartially.  He may decide the procedures and the manner in which submissions and evidence are taken.   He may order inspections, photography, custody and sampling of the property.   The arbitrator can make orders for parties to perform their obligations under the Contract.  He can make an award and can cap and determine costs.

The parties seeking arbitration must write to the other giving notice of reference to arbitration.  If they do not agree and mutually appoint an arbitrator within fourteen days, he or she is appointed by an independent person who will often be the President of RIAI or the Institute of Chartered Surveyors.

Where there is an arbitration clause in a Contract either party has an option to require the matter to be determined by arbitration.   The Courts will only interfere with an arbitrator where there are justifiable doubts and impartiality or there are errors of law. An arbitrators award can only be appealed on a point of law.

Collateral Warranties

Collateral Warranties are necessitated by the legal principle which limits the extent to which it is possible to sue for economic loss in a civil claim based on negligence or fault.  The general rule is that it is only possible to make a civil claim for economic loss where there is a breach of contract between one party and another.

A Collateral Warranty is a direct undertaking by agreement between a contractor or service provider with a third party who has a stake in the works concerned to the effect that the contractor or service provider has provided his works and/or services to the contractor or developer in accordance with his obligations under the contract.  The Collateral Warranty allows the beneficiary a right of legal action in the event that the relevant works or services have not been provided to the requisite standard which it would not otherwise have.

In practice, Collateral Warranties will arise in two contexts.  The first is where a sub-contractor is retained under a building contract.  The standard sub-contract documents issued by the RIAI have particular forms of Collateral Warranty which must be provided by sub-contractors to the employer (the developer) in a standard format.  This means that the employer may have rights against the general contractor and/or direct rights against the sub-contractor concerned.

The other context in which Collateral  Warranties arise is for the benefit of certain parties who have a stake in the building, normally a purchaser, lending institution or tenant.  In the case of commercial buildings, there is no equivalent of Home Bond or Premier Guarantee Insurance Warranty cover. Although a purchaser of a new building might have direct rights against the developer or the party from whom it buys, these entities will frequently not have a “deep pocket” or may be a single purpose venture company.

A lender in the development of a substantial commercial property will generally want liability on the part of the developer entity with whom it contracts and also a direct collateral warranty from the full construction and design team in relation to their services and from the principal contractor and significant sub-contractors to cover the full construction and design liability.

The types of collateral warranties used in this type of situation are less standardised than in the case of those used for sub-contractor agreements. The collateral warranties are only as good as the original contract or appointments so the lender will want to see that the construction contract, the letters of appointment of the architect, engineers etc. and that they together carry full responsibility for design and construction.

In the case of designers, their professional indemnity insurers will be concerned with the extent of liability undertaken. They will usually be involved in approving any non-standard collateral warranties. The negotiation of collateral warranties is often time-consuming and complicated.

Health & Safety in Development

The Health and Safety Authority regulates health and safety in the building industry.

The Safety Health and Welfare at Work (Construction) Regulations provide for an all-around broadly based health and safety management system in construction from design to completion. The Regulations are in addition to many other specific and general regulations relating to construction site safety.  Under the Regulations, the contractor is no longer the sole responsible person.  Other parties involved in the process have responsibilities for construction health and safety

The developer must, for every project:

• appoint, in writing before design work starts, a project supervisor for the design process (PSDP) who has adequate training, knowledge, experience and resources;
• appoint, in writing before construction begins, a project supervisor for the construction stage (PSCS) who has adequate training, knowledge, experience and resources;
• be satisfied that each designer and contractor appointed has adequate training, knowledge, experience and resources for the work to be performed;
• co-operate with the project supervisor and supply necessary information;
• retain and make available the Safety File for the completed structure. The Safety File contains information on the completed structure that will be required for future maintenance or renovation;
• provide a copy of the safety and health plan prepared by the PSDP to every person tendering for the project. The Safety Plan documents how health and safety on the project will be managed up to project completion;
• notify the Authority of the appointment of the PSDP where construction is likely to take more than 500 person days or 30 working days.