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Summer 2010 Volume 4: Number 2

SCS

REVIEW Poetic justice

Arbitration: What’s new for surveyors? Future: Where to next for the Chartered Surveyor? Quantity surveying: New public procurement remedies regulations


President’s news

New SCS President welcomes merger It is indeed a great honour to be elected to the esteemed position of President of the Society of Chartered Surveyors. At the time of writing, the decision of the members to endorse the proposal to create a single organisation through a merger of the SCS and the IAVI is fresh. This is a positive step for all Chartered Surveyors in Ireland, who will now be in a position to enhance and advance the interests of property, land and construction professionals by combining the existing strengths of the SCS and the IAVI, as well as providing the opportunity to ensure high and uniform educational standards for members who are employed widely throughout the sector. I am acutely aware of the concerns that have been expressed by some members who have a contrary view to my own in this regard. It is my intention to engage immediately with all of the Divisions, Regions and the general membership to address these concerns and allay any fears that members may have. I can assure you that there is nothing to be feared and everything to be gained. If you wish to convey your views or speak to me in confidence, please do not hesitate to contact me directly at president@scs.ie.

Operational by January As it is the intention to have the SCSI operational by January 1, 2011, both organisations will now proceed to engage with all the necessary legal, financial and management experts to ensure the smooth transition from two distinct and separate organisations into a single professional body that all members can be proud of. Back in 1973, I recall my first visit to the then RICS branch office at 8 Merrion Square, which was run at the time by the late retired army Captain Bill Brewer. It was Captain Brewer who kindly briefed me on the various routes into the profession and who guided me at that time. In 1974 I commenced employment as a trainee surveyor, straight from school, with Lisney and Son, as it was then known, and 30 years later became Managing Director of Lisney. During that time, I was fortunate to have three notable mentors – two of which have been past Presidents of the Society – John Broadhead and Harry Whittaker, and the late Ray Ward, a former Chairman of the GP Division. I have witnessed massive changes in the market and the profession over the last 35 years, a period which has presented a wide variety of challenges to Chartered Surveyors. But these past 24 months have undoubtedly been the most testing in my professional career. As we are all aware, and as confirmed by the SCS/IPD indices, capital values of institutional properties are now back at September 1999 levels. Since 1999, values had risen by a factor of 2.14. It now appears that capital values are bottoming out, while rental values may be somewhat behind. It is important that we reach the bottom of the market quickly, so that confidence is renewed and we see a return to increased activity. There is no doubt that sentiment among Chartered Surveyors has improved over the last six months, helped in no small way by the initiatives taken by the new Financial Regulator. Leases have become considerably shorter, new retailers are appearing, and office enquiries have increased compared to a very quiet second half of 2009. I am also hopeful that the effect of NAMA will start to encourage greater movement in the market as the year progresses. This could well tie in with the ESRI predictions of a return to growth in 2011. This recession has taken a devastating toll on the employment of Chartered Surveyors. However, we now have a somewhat different role to play over the short to medium term in assisting clients, both private and public, in the return to a more

2 SCSREVIEW

sustainable economy, which will be less transaction based but more advisory in nature. The increasing need for what has perhaps been an undervalued expert service is gaining momentum, and it is a credit to the Society that a number of our members have been employed by NAMA.

Improving in-house understanding While there was little recruitment of Chartered Surveyors by the banks when property lending was at its peak, I envisage that a trend will surely develop of an increasing number of our members being recruited by financial institutions who will want to enhance their in-house understanding of property, construction, valuation, and real estate transactions. This requirement for property and construction expertise will increase in time throughout our economy, and we have the capacity for this in all of the areas in which we operate. The SCS has for some time been advocating total transparency in the property market and, accordingly, for the establishment of a national property register to include comprehensive information on all freehold and leasehold transactions and lease variations. We have put it to Government that the State should now seize this recessionary opportunity to set up this register, which could include all pertinent terms attached to a lease, including side arrangements, so that: 1. This information can be properly analysed by agents and valuers, including those involved in arbitrations, where a lack of transparency has led to considerable commercial issues that have been the subject of discussion in the Oireachtas. 2. The information could be used as an efficient base for the collection of a wide range of property taxes where much duplication exists. 3. The functioning of an effective property market would ensue, wherein important commercial and public decisions can be made by all stakeholders with increased confidence for the benefit of the market, the economy and society as a whole. As I commence my term of office as President of the Society, I assure you, the members, of my personal commitment to the office of President and I look forward to playing my part in ensuring that business, government and those who consume professional services have confidence in the profession of Chartered Surveyors. Please feel free to contact me at any time at president@scs.ie.

Peter Stapleton President


Contents

16 The Society of Chartered Surveyors, 5 Wilton Place, Dublin 2. Tel: Fax: Email: Web:

01-676 5500 01-676 1412 info@scs.ie www.scs.ie

EDITORIAL BOARD Chairman:

John Oliver Costello

Board:

Tom Cullen Tom Dunne John Minihane Ciara Murphy Paul O’Grady Gillian Reynolds Derry Scully

PUBLISHERS

New public procurement remedies regulations.

04

Published on behalf of SCS by Think Media Ltd

News

Editorial:

10

Design:

Ann-Marie Hardiman Paul O’Grady Tony Byrne Tom Cullen Ruth O’Sullivan

Advertising: Paul O’Grady

Arbitration

Results of SCS/IAVI merger vote, Diploma award ceremony, SCS/RICS relationship proposal accepted, SCS meets Financial Regulator

What’s new for surveyors? A short guide to the Arbitration Act 2010

12 Education

16 Quantity surveying

New public procurement remedies regulations

18 Valuation

Site value tax

20 Grade inflation in the SRECE

Building and the environment

Poetic justice

www.scs.ie

14 Views expressed by contributors or correspondents are not necessarily those of the Society of Chartered Surveyors or the publisher and neither the Society of Chartered Surveyors nor the publisher accept any responsibility for them.

Future

Where to next for the Chartered Surveyor?

23 Legal

Property case reports

SCS Annual Conference – date for your diary The Society’s Annual Conference will take place on October 15, 2010, at The Convention Centre,

Dublin. Further details will be circulated in due course.

SCSREVIEW 3


Editorial/News

EDITORIAL

Much to commend to readers This is a momentous edition of the SCS Review as it records the votes of both the SCS and the IAVI to merge into SCSI from the start of next year. The President provides comment on this in his President’s News. Suffice to say, these are both challenging and exciting times and members have voted for a very significant change. There is, of course, much else in this edition to commend to you. Sarah Johnson’s article on the implications for Ireland of the new European Directive on procurement advises tenderers to make themselves familiar with their enhanced rights. That is a statement that will be of consequence for many of our members. Tom Dunne explores the idea of site value taxation, which is an excellent contribution to the debate on property tax in general. Members will also be familiar – for the right reasons of course – with the superb new Criminal Courts of Justice building in Dublin. Alan Coakley of PJ Hegarty gives us an insight into the environmental principles used in the design and build of the project. John Oliver Costello Honorary Editor

New Property and Facilities Management degree In partnership with the DIT, the Irish Property & Facility Management Association has developed a new part-time Level 7 BSc (Ordinary) Degree in Property & Facilities Management. The programme will be four years in duration and is intended for those working in property and facility management as well as general property services, allowing them to acquire a formal qualification in their field. For those not wishing to complete four years, there is an exit award of a Higher Certificate after two and a half years. It is intended to recruit the first intake in September 2010. This programme will replace the popular diploma course run by the IPFMA for many years and is timely given the proposal from the National Property Services Regulatory Authority to regulate property service providers, which includes property managers.

On the move New arrival boosts Malcolm Hollis’ Dublin team

Chartered Building Surveyors Land Surveyors Project Managers

ASSESS - ASSURE - PROTECT

Malcolm Hollis, the leading building surveying consultancy, has moved to strengthen its Dublin office with the appointment of Andrew Ramsey as an Associate. Andrew specialises in dilapidations and development monitoring, and will be working with both new instructions and Malcolm Hollis’ existing client base. He arrives from Krystyna Rawicz & Associates. Andrew can be contacted via andrew.ramsey@malcolmhollis.com or through the firm’s Dublin office: 77 Sir John Rogerson’s Quay Dublin 2. Tel: 01-640 1885.

Andrew O’Gorman & Associates is expanding 59 Merrion Square, Dublin 2. Tel: 01-661 0390 email: info@mcgovernsurveyors.ie www.mcgovernsurveyors.ie

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Due to continued growth, Andrew O’Gorman & Associates has opened a new office in Dublin. Andrew O’Gorman & Associates will continue to provide a professional service to both our residential and commercial clients throughout Ireland, from our Cavan Office and now from

our new Dublin Office. Andrew O’Gorman & Associates Chartered Building Surveyors 7 Abbeydale Close, Lucan, Co. Dublin Tel: 01 8410188 Email: surveys@aogorman.com Web: www.aogorman.com


News

SCSI to become reality in January The proposed merger between the Society and the Irish Auctioneers and Valuers Institute (IAVI) was approved at two separate EGMs in Dublin just as we went to press. 88% of IAVI members voted in favour of the merger and 54% of SCS members voted in favour. The organisation, which will be called the Society of Chartered Surveyors Ireland (SCSI), will represent up to 4,000 property and construction professionals. In a joint statement, the Presidents of the two bodies, Kersten Mehl (IAVI) and Peter Stapleton (SCS) described the vote as a landmark decision. “The Society of Chartered Surveyors Ireland (SCSI) will enhance and advance the profession by combining our existing strengths and promoting the highest professional, ethical and educational standards. SCSI will also be in a position to provide quality research, informed market information and expert advice to Government in the public interest,” they said. Both said that the creation of the SCSI would: ■ enhance the brand of Chartered Surveyors in Ireland; ■ ensure high and uniform educational standards for the property and construction sectors; ■ produce a higher and clearer profile for the profession and its members; and, ■ enhance and augment services to members through a pooling of resources.

Stapleton and Mehl also pointed out that in the current economic climate coming together in one body made even greater sense. The joint Presidents said they were delighted to be leading their respective organisations into the SCSI and were looking forward to working together for the remainder of the year to ensure a smooth transition to the SCSI. They also pointed out that the SCSI will maintain its strong relationship with RICS, the leading internationally recognised body for professionals in the construction and property sectors. It is expected that the SCSI will be based in 38 Merrion Square in Dublin when it becomes operational on January 1, 2011.

SCSREVIEW 5


News

IPFMA Annual Members Lunch More than 250 members and guests attended this year’s IPFMA (Irish Property & Facility Management Association) Annual Members Lunch, which took place in the Burlington Hotel in Dublin. Pictured

at the lunch were (from left): Ken Cribbin, outgoing President of the SCS; Tom Dunne, Chairman of the Irish Property & Facility Management Association; and, Aine Myler, President of the IAVI.

Fellowship There has been a notable increase in the numbers applying for Fellowship grade of the Society. Fellowship is a prestigious award that reflects the career achievements of property and construction professionals, and attaining SCS Fellowship is regarded in the industry as a true mark of distinction. In order to be eligible to apply for SCS Fellowship, you must be Chartered for a minimum of five years. In addition, you must be able

to demonstrate successful career progression, a significant contribution to the profession (this could include participation in Society committees/publications/ APC process), and a planned and committed approach to continuing professional development. Anyone interested in learning more about Fellowship – or indeed making an application – should contact the Education Office, Email: education@scs.ie.

Prize giving Ben King, Vice-Chair of the SCS Geomatics Division, presenting Dr Billy Hynes with the Society of Chartered

Surveyors prize for best student in the MSc Spatial Information Management in DIT Bolton Street.

Minister makes appointments to Admissions Board Arising from correspondence and lobbying by the Society of Chartered Surveyors regarding the appointment of the SCS Registration Body boards, the Society has received formal notice from the Minister for the Environment, John Gormley TD, that he has signed the Ministerial order to appoint the Chairperson of the Admissions Board – Ms Emily Gibson, Barrister-at-Law. Ms Gibson has been appointed as Chairperson of the Admissions Boards for both quantity surveyors and building surveyors. The Minister has undertaken to follow this appointment, shortly, with that of the chairperson of the Technical Assessment Board. Once the latter appointment is made it will enable the Society to proceed with the registration of title of quantity and building surveyors as provided for under the Building Control Act, 2007. The absence of a registration body for quantity surveyors and building surveyors had been giving rise to difficulties for the recognition of the profession among public authorities and, indeed, within the industry as a whole. Adding to these difficulties was the fact that the RIAI Registration Body for architects, which has already been established, was perceived to be distorting competition in the market for those services that can be carried out by both professions,

New Chairperson of the Admissions Board, Emily Gibson, Barrister-at-Law.

and as such was prejudicing access to such services by members of the Society. The Society’s working group, charged with the responsibility to oversee the establishment of the Registration Body, has reconvened to consider the next steps in getting the registration process underway at the earliest opportunity. A considerable amount of the background administration has already been completed in anticipation of receiving the Minister’s appointments. Members will be kept apprised of developments over the coming weeks and months. Conor Hogan Chairman, SCS Registration Body Working Group

Members alert! CPD audit The Education Office will conduct an audit of CPD records during summer 2010. A cross-section of Chartered Surveyors will be randomly selected and requested to submit their CPD records in accordance with the

6 SCSREVIEW

requirements of the Society’s bye-laws, which state that Professional Members and Fellows of the Society “must complete 60 hours continuing professional development in every consecutive period of three years”.


News

Diploma award ceremony The 2010 Annual Diploma Award ceremony took place on April 9 at the Pepper Canister Church, Dublin 2. In total, some 120 people received their

diplomas, having successfully completed the Assessment of Professional Competence last year across the quantity surveying,

valuation, building surveying and planning and development routes. The award ceremony was presided over by the President, Mr Ken Cribbin, who

welcomed the new Chartered Surveyors and congratulated them on their success and commitment in the current economic climate.

SCS AGM endorses the SCS/RICS relationship proposal The recent Annual General Meeting (AGM) of the Society of Chartered Surveyors held in May overwhelmingly endorsed the SCS Council’s proposal to enable the establishment of RICS Ireland in co-operation with the SCS through a set of agreed principles informing the relationship between both parties. As such, an RICS Ireland Board will now be established and will operate in parallel and in partnership with the SCS in much the same way that the RICS and SCS currently do. The remit of the RICS Ireland Board will be to:

and award the Charter. The independence and the autonomy of the SCS are not changed in any way because of this new arrangement. The SCS Council had recommended adoption of a special resolution at the AGM, which approved the new ‘Principles Informing the SCS/RICS Ireland Relationship’ as set out in an

agreed document between the parties in February 2010. The members of the RICS Ireland Board, who have been appointed for a period of 18 months, are as follows: ■ Desmond Byrne, Chairman ■ Sean McCormack ■ Felix McKenna ■ Richard Mossop

■ Michael Scollard ■ Ciara Murphy An inaugural meeting of the Board took place in May 2010 and was attended by the new RICS Chief Executive, Sean Tompkins, and outgoing RICS Honorary Secretary, Jim Allan.

1. Award the professional qualification and letters, RICS. 2. Set and promote regulatory standards. 3. Promote professional standards. The SCS will continue doing all it currently does and will provide all of the members’ services to Chartered Surveyors in Ireland. RICS Ireland will contract with the SCS to provide the necessary APC infrastructure to deliver

From left: Felix McKenna; Sean McCormack; Richard Mossop; Ciara Murphy; Jim Allan, Honorary Secretary, RICS; Sean Tompkins, Chief Operations Officer, RICS and, Michael Scollard. Seated: Chairman of the RICS Ireland Shadow Board, Des Byrne.

SCSREVIEW 7


News

SCS meets with the Financial Regulator on the registration of loss assessors Following the publication of a notice in the national media by the Financial Regulator in December 2009 advising the general public that persons who operated as loss assessors would be required to register as an “insurance intermediary”, as defined in the Regulations, with the Financial Regulator, and that it is a criminal offence for any individual or firm offering loss assessing services to the public without being registered as an insurance intermediary in accordance with the European Communities (Insurance Mediation) Regulations 2005, the Society met with the Financial Regulator to consider a draft guidance note that the Society intended to issue to members so that members could make a determination on whether or not they would be required to become registered as an insurance intermediary on the basis of a categorisation of services. The notice published by the Financial Regulator had raised a lot of concern for members of the Society (primarily quantity surveyors and building surveyors), who provide various types of loss assessing services and are already suffering due to the downturn

of the property and construction industries. The meeting with the Regulator has given rise to a categorisation of certain services that do not require registration as an insurance intermediary, and those services that do require registration as an insurance intermediary, as follows:

Category 1 – Advice on building insurance claims The scope and extent of services can depend on the nature and complexity of the project and the client’s requirements. These services include but are not limited to the following: (a) calculations and estimation of reinstatement costs; (b) preparation of schedules of works and/or bills of quantities for issue to contractors for tendering; (c) evaluation of the prices submitted by the tendering contractors; (d) provision of additional information in relation to (a), (b) and/or (c) above; (e) supervision of (re)construction works; and, (f) recommendation of payments to

service providers on behalf of the contracting party. These services fall outside the intended ambit of the regulations and accordingly do not require registration as an insurance intermediary under the regulations.

Category 2 – Services provided to insurance companies This includes members who are instructed by insurance companies and carry on or assist in activities undertaken as part of the management of an insurance company’s claims, such as examining, quantifying and querying reinstatement costs presented to the insurance company as part of a claim and supervising the reinstatement work and/or payment schedule that is part of a claim on the insurance company’s behalf. These services fall outside the intended ambit of the Regulations and accordingly do not require registration as an insurance intermediary under the Regulations.

Category 3 – Insurance claim negotiations If a member directly and expressly, in

return for remuneration: (a) submits and executes claim forms directly as an agent of the insured party; (b) negotiates directly with the insurance company as an agent of the insured party in relation to insurance claims; or, (c) is the principal point of contact in relation to claims handling on behalf of the insured party, such a member would be required to register as an insurance intermediary with the Financial Regulator. The guidance was issued to members in May and is available on the members’ section of the SCS website. It must be stressed that the guidance issued by the Society is not binding and it remains the responsibility of each member to satisfy him or herself whether he or she needs to register, and obtain legal advice if necessary. Further details regarding the insurance intermediary registration process can be found on the Financial Regulator’s website – www.financialregulator.ie. Micheál O’Connor Micheál is Chairman of the SCS QS Division.

Collen Construction goes red for charity More than 20 staff at Collen Construction, including Chairman Neil Collen, Managing Director Leo Crehan and Company Director Declan Lowry, shaved or dyed their hair in the company’s colour of red in support of the ‘Shave or Dye’ fundraising campaign to raise funds for the Irish Cancer Society. The fundraising event was held in the company’s Head Offices on East Wall Road in Dublin in March, and was attended by John McCormack, Chief Executive of the Irish Cancer Society. More than ¤5,000 has already been contributed to the fundraiser, including a generous donation from the company.

8 SCSREVIEW

The decision by almost all of Collen Construction’s Head Office staff and management to participate is motivated by the fact that many families have experienced the devastating effects of cancer, according to Neil Collen. “Any initiative that draws attention to cancer prevention, detection, treatment or related fundraising deserves support and we are happy to be able to make this contribution to the community,” he says. Recent major projects by Collen Construction include 232 social housing units at Tyrrelstown, Dublin 15, a new extension to St Andrew’s College, Blackrock, and Finglas Garda Station.

Collen Construction Managing Director Leo Crehan and Chairman Neil Collen present a cheque to Irish Cancer Society Chief Executive John McCormack (centre) at the company’s ‘Shave or Dye’ event.


News

SCS Quarterly Commercial Property Survey – Q2 2010 In order to better understand changes in the Irish commercial property market, the GP/Valuation Division of the SCS launched a quarterly survey of members at the end of 2009. The results of the survey are analysed, and a quarterly commercial property report is produced and uploaded onto the SCS website. The latest survey indicates increased optimism in the office and retail markets. However, the volume of enquiries from prospective tenants still remains low compared to historic averages. Overall, respondents are seeing a continued decline in the number of new enquiries each quarter, which is resulting in low expectations for the number of lettings and sales during the coming months. Rising vacancy levels for all of the commercial property sectors continue to be a problem and will hinder the pace of recovery. This increased vacancy, plus low levels of interest from potential occupiers and purchasers, is placing continued pressure on rental levels and forcing them lower. Shorter lease lengths are increasingly becoming the market norm and landlords are increasingly agreeable

to conceding to inducements when negotiating new leases. Even though respondents expect the volume of retail lettings to drop further during 2010 they were also more optimistic about the performance of the retail sector than about any other commercial property sector. While the number of retail lettings fell during the first quarter, it did so at a much slower pace than in the last quarter of 2009. Falls in retail rents are expected to decline at the same pace in Q2 2010 as that of Q1 2010, and survey respondents expect a very minor moderation in the increased value of inducements. The volume of retail vacancy present in the market is expected to increase in Q2 2010. The office market is currently showing some signs of improvement, with the number of lettings being completed during the first quarter holding steady following a large decline in the last quarter of 2009. The number of enquiries received from prospective office tenants fell during the last quarter and consequently survey respondents expect a small further decline in the number of lettings to be

Divisional AGMs

SCS AGM

The various Divisions of the SCS held their AGMs throughout the months of April and May. The following Divisional Chairs were elected:

The SCS AGM was held on May 11, 2010. Peter Stapleton was elected President of the Society of Chartered Surveyors. The following Officers of the Society were elected:

Quantity Surveying Division – Micheál O’Connor, McInerney Homes/Contracting Ltd Building Surveying Division – Oliver Held, Watts Consultancy Ltd General Practice/Valuation Division – Clare Eriksson, Jones Lang LeSalle Geomatics Division – Colin Bray, Ordnance Survey Ireland Planning & Development Division – Michael Cleary, Cleary McCabe & Associates Young Chartered Surveyors – Kieran Curtin, GVA Donal O’Buachalla

completed during Q2 2010. There has been a continued marked increase in office vacancy rates, which has followed on from a large increase in vacant office supply towards the end of 2009. As a result, respondents believe that office rents will fall at a faster pace in Q2 2010 than at the beginning of this year and the continued availability of inducements as agreed by landlords is expected to continue. The number of lettings of industrial property fell markedly during the first quarter of 2010 compared to the previous three months, while the vacancy rate for industrial property grew slightly. Survey respondents have reported a drop off in the number of industrial enquiries received during Q1 2010 and as a result they predict that the volume of industrial lettings that will be completed during Q2 2010 will show a sharp decline if compared quarter on quarter. Respondents continue to expect industrial rents to fall, although they also predict a moderate increase in the value of inducements for new leases for the same time period. The volume of Irish investment

turnover continued to fall during Q1 2010. Respondents were much less confident about the number of transactions they expect to see during the coming quarter, reflecting a marked decline in the number of enquiries about investment opportunities. Survey respondents do however expect an increase in the number of investment opportunities being brought to the market in Q2 2010. When asked if NAMA would assist in the recovery of the Irish property market, 52% said it would, 24% said they did not know and another 24% said it would not. Respondents were asked whether they believed the various sectors of the commercial property market had reached the bottom. The overwhelming response was “no” – respondents believed further declines were likely. However, they were slightly more optimistic that office and retail rents have reached the bottom, but believed that industrial property rents and capital values have further to fall. Finally, respondents reported that prime yields continue to soften, with further declines expected in each sector.

President – Peter Stapleton Senior Vice-President – John Curtin Junior Vice-President – Pauline Daly Honorary Treasurer – Richard Mossop Honorary Secretary – Claire Solon

New Officers of the Society (from left): Richard Mossop; Claire Solon; SCS President, Peter Stapleton; Pauline Daly; and John Curtin.

SCSREVIEW 9


Arbitration

What’s new for surveyors? A short guide to the Arbitration Act 2010 JARLETH HENEGHAN and CASSANDRA BYRNE look at some features of the new legislation.

Arbitration as a method of alternative dispute resolution (ADR) is undergoing renewed interest as a result of the Arbitration Act 2010, which is due to come into force on June 8, 2010. In applying the UNCITRAL (United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration, it will align Ireland’s arbitration rules and procedures under the existing Arbitration Acts 1954 to 1998 with commercial international standards. From drafting agreements to taking proceedings, surveyors, parties, practitioners, witnesses and arbitrators alike will need to familiarise themselves with the new powers and entitlements granted under the Act. The Act will apply to all domestic and international arbitration agreements from the date it comes into force. It should nevertheless be noted that arbitration clauses in existing agreements prior to this date will continue to operate within the old framework. Practitioners will need to carefully review existing agreements, particularly for contract provisions that would effectively adopt the new framework, to determine which set of rules is applicable.

Costs One of the more important issues is where costs lie for taking arbitration proceedings under the Act. Under the existing framework, parties cannot make a prior agreement for each party to bear its own costs. Now, under Section 21, parties can preagree allocating costs as they see fit. This harmonises treatment of costs in both domestic and international commercial arbitration. Where the parties cannot agree, the arbitrator can determine how the costs are to be apportioned. Parties can also agree on the arbitrator’s powers to award interest. Allocating costs and interest is always a contentious area and is likely to be subject to discussion during negotiations and possibly subsequent challenge. Care needs to be taken here as one party may seek to take the advantage at any stage in the process.

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Referral to arbitration As part of the overall judicial and legislative trend in encouraging ADR, the courts have the power to refer certain proceedings to arbitration where appropriate. Section 32 of the Act provides that the courts may, at any time before or during a civil trial, adjourn proceedings to allow parties to consider, within a set time period, whether part or all of a dispute could be referred to arbitration. If the parties agree, the court proceedings will be discontinued and an order made as to costs. However, where agreement cannot be reached, the court can make such order “as it thinks fit” for continuance or otherwise of the proceedings. Arguably, Section 32 empowers the parties to choose arbitration as their preferred method of dispute resolution and, where agreed, permits the courts to re-enforce such decisions. The Act allows various claims in relation to the same matter to be joined similar to that in litigation. This right to consolidate proceedings is a positive step, which should save costs and improve efficiency by having one forum deal with related claims. The Act allows this to be driven by the parties, although it cannot be imposed by an arbitrator.

What are the potential implications of the Act on commercial rent reviews? If parties to commercial leases cannot agree rent at the review date, leases usually specify the dispute resolution procedures for resolving the disagreement. If arbitration is the selected option, this typically will involve the appointment of an independent third party, such as a Chartered Surveyor of standing, to determine the rent, acting as arbitrator. If the parties cannot agree this appointment, clauses typically specify a body, such as the President of the SCS, CIArb or the Law Society, who will nominate the arbitrator. In determining the rent the arbitrator must have regard to the provisions of the Act. A robust dispute resolution mechanism as potentially offered by the Act is particularly important now given the ban on upward only rent reviews since


Arbitration

February 28, 2010, under the Land and Conveyancing Law Reform Act 2009. Issues have also been raised regarding the transparency and fairness of commercial rent review provisions, e.g., Kidney v Charlton, High Court, January 22, 2009. Further, the Minister for Justice and Law Reform has set up a task force to consider the transparency of commercial rent review processes, including the operation of arbitration related to them. The task force findings, due to be issued later this year, could have far-reaching implications for drafting and operating commercial rent review provisions.

Model Law The Model Law in the Act is widely accepted throughout the commercial world as providing the preferred procedural framework to govern arbitration disputes. These rules taken together with other procedural rules (if applicable) for the dispute should assist arbitrators in demonstrating the transparency of the process. For example, Article 12 requires an arbitrator to disclose any circumstances likely to give rise to justifiable doubts as to their impartiality or independence during the proceedings. Turning to the merits of an award, arbitrators also have an interest to see that their awards are upheld and are not subject to being either set aside or remitted by the courts. An arbitrator is expected to follow the principles of fairness, e.g., McCarrick v The Gaiety, [2001] 2 IR 266, and public policy requirements, in making such awards. If fair procedures or public policy requirements are not followed the Model Law provides, for example, that an award may be set aside by the courts if it conflicts with the State’s public policy considerations (Article 34 (2) (b)). An award may also, for example, be set aside by the courts if the arbitration process was unfairly conducted for various prescribed reasons (Article 34 (2) (a)), such as if a party was unable to present its case. The Act should therefore assist in demonstrating greater transparency in the arbitration process. No substantial changes are envisaged by the Act to statutory based property arbitrations under compulsory purchase order (CPO), planning or housing legislation.

So what new powers do arbitrators have under the Act? While the Act does not radically overhaul the current system, arbitrators can now order such interim measures as they consider necessary. These measures could include, for example, interim injunctions and securing monies or goods in dispute. The arbitrator can also determine who bears the costs for interim awards and can require security for costs. This expands existing procedures. The arbitrator now has virtually similar powers to the courts in granting interim relief. The courts, however, have additional ability over arbitration to grant interim relief in relation to third parties. We anticipate that interim relief will be an area of much debate and requirement. Arbitrators are now also obliged to give written reasoned awards, although this mirrors what has been happening in practice. Awards cannot be appealed. They can be set aside only on the specific tightly drawn grounds set out in the Act. This is a delicate area and the courts are likely to tread carefully in setting aside arbitrator awards. This would be in keeping with judicial policy of noninterference with the arbitral process. Overall, the Act seeks to harmonise domestic and international commercial arbitration rules with the aim of creating a more streamlined, cost-effective and user-friendly system. This development, together with the growth of other ADR methods such as mediation and conciliation, presents a growing and substantive alternative to litigation, and should be more attractive for domestic and international parties, arbitrators and surveyors alike.

Cassandra Byrne MCIArb, Accredited Mediator Jarleth Heneghan FRICS FSCS FCIArb MCIOB Jarleth is a Partner and Cassandra is an Associate in the Projects and Construction Department at William Fry.

SCSREVIEW 11


Education

Grade inflation in the SRECE DERMOT KEHILY looks at the thorny issue of grade inflation, and asks how the School of Real Estate and Construction Economics at DIT is measuring up.

Table 1: ‘Quality of Graduates/Grade Inflation’, Department of Education and Science, March 2010.

500

Percentage of graduates achieving first-class award level in NFQ level 8.

450

*UCD & NUIG statistics included in 1998 and 2002 columns are for 1997 and 2000. No statistics available for DIT in 1998 and 2002

12 SCSREVIEW

8 /0

7

FIGURE 1: CAO entry points from 1999/’00 to 2009/’10.

20

07

6

/0

06

20

00

/0 99

20

21.9%

19

15.3% 22.6%

5

16.2%13.3% 14.2% 18.0%

/0

16.6%

05

2008

/0

-

20

*11.3% *10.2% 14.3%

4

-

/0

9.5% 10.4%

04

14.2%

20

2002

250

3

-

03

*9.9% *10.4% 9.9%

20

-

300

2

8.3% 8.4%

350

/0

11.2%

CEMD

400

0

1998

PED

02

Eng., Maufact. & Const.

20

CIT

1

NUIG

/0

UCD

01

DIT

20

HEA UK

/0

HETAC

Points

Year/ institution

CAO entry points

/ 20 09 09 /1 0

The paper outlines some of the research into grade inflation and summarises some of the findings suggesting a drift towards grade inflation. The study

08

Department of Education and Science study into grade inflation

investigated grade inflation between 1998 and 2008 in HETAC educational institutions (HETAC is the qualifications awarding body for institutes of technology and private colleges, not including DIT, outside the university sector) and HEA educational institutions (university institutions). The research focuses on grade inflation in the top level classification of awards, i.e., distinctions in level 6 and 7 and first class honours awards in level 8 of the National Framework of Qualifications. Data from the DoES’s research, supplemented by analysis of data in a paper produced by HETAC on the issue, is outlined in the table below. As can be seen, the percentage of HETAC graduates earning first-class honours degree awards in level 8 programmes has increased from 11.2% in 1998 to 16.6% in 2008. The students were in institutes of technology excluding DIT. These figures represent a 48% increase in the number of such degrees over the 10-year observation period. The percentage of university (HEA) graduates who obtained first-class honours degrees over the same period increased from 8.3% to 16.2%, an overall increase of 95% on 1998 awards levels. Although slightly less in percentage terms than HETAC graduates, the increase in HEA first-class awards amounts to a significantly larger increase over the observation period. DIT has

20

Grade inflation has been the subject of considerable media discussion in recent years. Grade inflation is a trend of better grades being awarded in educational qualifications that are not matched by real improvements in learning. A Department of Education & Science (DoES) inquiry published in March 2010 found evidence of significant grade inflation in higher education results in Ireland. The inquiry, and a subsequent paper, were published in response to concerns about the decline in the quality of some graduates raised by a number of influential voices in the employer community. Papers published in recent years by The Network for Irish Educational National Standards also raised the same concerns. From what follows, it will be seen that there has been a slight escalation in the proportion of students achieving 2.1 second-class honours in the School of Real Estate and Construction Economics (SRECE) at Dublin Institute of Technology (DIT). This slight increase could be explained by better CAO entry points, improvements in teaching methods, or even a change within DIT to semesterisation.

Year


Education

included for comparative purposes their available statistics for the 2008 academic year. DIT’s overall percentage of first-class honours awards throughout the institute of 14.2%, is both below those of the HETAC and the HEA but, it should be noted, is significantly lower than the engineering, manufacturing and construction discipline average of 21.86%.

School of Real Estate and Construction Economics

Conclusion

Construction Economics and Management

500 450 400 350 300 250 200

Year

1.1

2.1

2.2

Pass

CAO points at entry to first year

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

19 99 20 /00 00 20 /01 01 20 /02 02 / 20 03 03 20 /04 04 20 /05 05 20 /06 06 20 /07 07 20 /08 08 20 /09 09 20 /10 10 20 /11 11 20 /12 12 /1 3

Grade percentage of total students

In light of the recent attention on grade inflation, the SRECE was keen to find out how its awards compared with the findings outlined in the study above. The courses reviewed were the Construction Economics and Management Degree (CEMD) DT111, and the Property Economics Degree (PED) DT110. The School was also keen to track grade inflation in conjunction with the CAO entry points of our graduates. Figure 1 illustrates the trend of CAO points over the previous decade. CAO entry points on the two courses escalated from 395 points in 1999/’00 to 440 points at its peak in 2007/’08 for CEMD, and from 400 points in 1999/’00 to 410 points in 2007/’08 for PED. Over the last number of years, especially in the last academic intake, points levels have dramatically reduced on both courses. In the period from 1999/’00 to 2008/’09, the proportions of award levels in CEMD and PED in the School have been relatively stable, as illustrated in Figures 2 and 3. The proportion of first-class honours awards in CEMD increased from 4% in 1999/’00 to 7% in 2008/’09. This increase does not indicate an overall trend upwards, as first-class awards accounted for only 2% of graduates in

CAO

500 450 400 350 300 250

99 20 /00 00 20 /01 01 20 /02 02 / 20 03 03 20 /04 04 20 /05 05 20 /06 06 20 /07 07 20 /08 08 20 /09 09 20 /10 10 20 /11 11 20 /12 12 /1 3

200

Year

2.1

2.2

Pass

CAO

CAO points at entry to first year

Property Economics 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 19

Grade percentage of total students

FIGURE 2: Proportion of degree awards in each class relative to entry points.

1.1

2007/’08. There is, however, slight evidence of a creep in 2.1 grades. The proportion of second-class honours awards in both classes 2.1 and 2.2 fluctuates significantly over the observation period and grade inflation is not obvious taken year on year due to the oscillations. On closer examination, it is evident that the proportion of 2.1 awards has increased in the latter half of the decade from an average of 51% from 1999/’00 to 2003/’04, to an average of 56% from 2004/’05 to 2008/’09. A mirrored decrease is evident in 2.2 awards, suggesting that slight grade inflation has occurred in 2.1 awards at the expense of 2.2 awards and pass awards. The proportion of first-class honours awards in PED fluctuates between a high of 14% in 2001/’02 and 16% in 2007/’08, to a low of 2% in 2008/’09 over the 10-year observation period. If anything this suggests grade deflation in first-class awards. Similar to CEMD, both 2.1 and 2.2 awards vary significantly over the observation period, with no obvious evidence of a trend. On closer examination, however, 2.1 awards have increased by 4% over the latter half of the decade, with a consequent decrease evident in 2.2 and pass awards. An interesting feature of the School’s analysis shows that there doesn’t seem to be a correlation between the student’s CAO points entering the courses and the overall grade performance of students in their graduation year. CAO points levels have increased over the observation period, but this does not bring about a corresponding inflation in grades, although it could explain the slight increase in 2.1 awards on both courses. It will, however, be interesting to track performance over the coming years on both courses, as CAO points levels have dramatically dropped with the 2009/’10 academic intake.

The DoES’s recent study into grade inflation indicates significant grade escalation in higher education in Ireland. Although figures for DIT results have not been published in the report for previous years, DIT’s proportion of students achieving first-class awards was below the national average in 2008. The SRECE conducted its own review of grade inflation. The average first-class award over the observation period in CEMD is 5% and in PED is 8%, both significantly lower than the 2008 DIT average of 14.2% and the National HEA average of 16.2%. There has been a slight escalation in the proportion of students achieving 2.1 second-class honours. This slight increase could be explained by better CAO entry points, improvements in teaching methods, or even a change within DIT to semesterisation. The study is limited to the period 1999 to 2009, a period selected to mirror the DoES’s study. Further study is recommended, both nationally and locally in DIT to address the incidence of grade inflation over a longer period. It would also be necessary to carry out a survey within the surveying profession to assess employers’ views on the quality of graduates over the years from the courses in the School, and compare this against the standard of awards.

Dermot Kehily Dermot is a lecturer on quantity surveying at the School of Real Estate and Construction Economics at DIT.

FIGURE 3: Proportion of degree awards in each class relative to entry points.

SCSREVIEW 13


Future

Where to next for the Chartered Surveyor?

MICHAEL CLEARY looks at how we arrived at the current economic situation and makes some suggestions to help surveyors work their way through the current conditions.

The recession in the global economy and in Ireland is in its third full calendar year. Historically, the property market has been the first to feel the recession and the last to see the upturn. It is the first to be affected in a downturn when, for example, house purchasers delay making a decision on purchase due to an uncertain economic future, and last to experience an upturn as the decision to invest large sums of money on property transactions is delayed until investors perceive an upturn in the wider economy. Therefore the property/construction industry reflects the wider real economy and exists because of a derived demand from the real economy. The current recession was brought about by the collapse in confidence in the worldwide financial sector whose trades were secured off the property sector and not the real economy, i.e., financial services employment and property/constructionrelated employment having become the drivers of the real economy over the last five years. This is being borne out by the collapse in property and constructionrelated taxes, which is having a disproportional effect on how the economy is being run.

Too much cheap money The Financial Times published an article on January 28, 2009, which focused on the financial services sector growth in the last 10 years in the US and the UK. The majority of the growth in these economies in the last five years was through the financial services sector (loans for cars, second homes and discretionary expenditure), which was in a large part leveraged off the value of property assets. Also, a substantial amount of real economy business trades (i.e., company mergers or acquisitions) had a significant element of the sale value being added by the perceived future capital appreciation of the underlying property assets (i.e., head offices, production facilities, etc.). Also, banks in the US and UK economies traded in global money and risk transfer using financial instruments backed by mortgages on houses. Too much cheap money was chasing too little real product, so prudent margins for risk were eroded and an artificial bubble occurred on the basis of inflated valuations of property asset classes (industrial/offices/retail/land). The threat of

14 SCSREVIEW

inflation in 2006/2007 forced a number of central banks throughout the world to sharply increase interest rates, and this created additional pressure on already highly borrowed households, particularly in the US. The rise in global rates pushed debt defaults over the edge as debt servicing increased. Inflation in the property market at a reasonable level is a positive influence, in that the expectation of the increase in asset value encourages speculation and enhances wealth. However, when inflation is rampant then it is harmful. In the case of Ireland the price inflation in rents (commercial/retail, etc.) and capital values for buildings in the period 1996 to 2001 was in the main caused by underlying demand in the real economy (this was reflected in double digit percentage growth in the economy year on year in the period from 1997 to 2001). The primary drivers of the economy during that time were exports and foreign direct investment in employment-generating enterprises. This led to a derived demand for infrastructure, buildings, houses and retail. Hence the property inflation during this period was a positive influence. Some sectors were more in demand than others at the outset, particularly housing, offices and then, subsequently, retail to service the new income earners. It appears that after 2001 the real economy sector waned as exports peaked and the derived demand sector (i.e., financial services/property sector) became the drivers of the economy. The cheap credit available initially after 9/11 by the reduction in the US Federal interest rates caused an expansion in financial services that saw employment and demand for office accommodation grow in these areas (US/UK Fund Administration companies’ expansion in the IFSC). In Ireland’s case the increase in our cost base (i.e., salary inflation, etc.) and our subsequent reduction in competitiveness, was disguised thereafter by the rapid increases in the housing and other property/construction/domestic economyrelated employments from 2002 onwards. In effect, the availability of cheap credit to the property/construction sectors encouraged disproportional growth in these areas so that they became the main drivers of the economy. The decoupling of Ireland’s growth from its traditional source of foreign direct investment and a low cost base is critical in terms of where the economy now finds itself.


Future

Looking back So what happened in previous property booms in Ireland? Dr Andrew Maclaran, writing in the Economic & Social Review, Vol 18, No. 4 (an article that was published before the Celtic Tiger years) identified three commercial property booms, in the years 1961-1973, 1978-1983 and 1988-1991. In summary, each of these property booms came about in part because of a focused Government policy to encourage expansion by fiscal intervention through employment schemes or tax incentives to encourage spending. It is interesting to note that in two of these booms (1978-1983 and 1988-1991) fiscal stimulus programmes were introduced in the preceding budgets, i.e., in the 1977 Finance Act by expansion in the public sector employment, and the 1987 Finance Act by legislation for the formation of the International Financial Services Centre. It should be noted that these financial stimuli coincide with resurgence of foreign direct investment as channelled to Ireland by the IDA, i.e., demand from the real economy jobs. Also, both expansionary budgets had been preceded by years of poor growth in the wider real economy in Ireland, which had corrected/eroded any cost inflation that had built up in Ireland, thus making Ireland more attractive as a low-cost location. In summary, each of the pre-Celtic Tiger property booms in Ireland ended in slump due to: 1. A significant increase in the cost of credit caused in some part by demand for funds in Ireland (overdraft rates of 12-14% in 1972). 2. External international events: the 1970s oil crisis, the 1992 Gulf War, the 1993 currency crisis. 3. Retraction in the lending and credit policy of banks in Ireland in part due to the external factors above, thereby causing a risk adverse position to be adopted by the Irish lenders. However, in all previous cases Ireland had control of: 1. Monetary policy and the mechanism for devaluation of currency, which allowed Ireland to regain cost competiveness against other countries. 2. The Irish Central Bank had control of the key interest rate policy and could curtail lending by raising the base interest rate when inflation or a pricing bubble appeared to be manifesting.

Where to now? Therefore, it is important to consider the future for the industry based on the experience of the past and what are now the unique problems associated with the present situation. As part of the Government’s current exercise in achieving savings in the public sector, it is extremely important that the cost base of Ireland is reduced to attract job creation by foreign direct investment. This may take a while to manifest itself in the real economy as the mechanism of devaluation of currency referred to earlier no longer exists for the Irish economy. The correction in the cost input side of the property/construction industry is currently underway. An example is the construction tenders index as reported by the SCS, which indicates a reduction in cost tender price inflation to 1999 levels. In addition, professional fees for transactions are also reduced. It is imperative that public sector costs such as local authority planning fees, levies, etc., also reflect this new reality. The Government must also introduce some form of domestic stimulus package over the next 18-24 months through a combination of: 1. NAMA funding developers’ business projects to allow schemes to be commenced/completed. 2. Expenditure on infrastructural projects being funded through some form of recovery bond (i.e., to encourage the approximately ¤93 billion of savings held in Irish financial institutions to be redirected in part into a bond scheme).

These initiatives over time should have a significant effect in increasing demand in the domestic economy. Of specific interest to Chartered Surveyors should be the work that will come from the refined banking industry, either through NAMA or via financial institutions that are outside NAMA. The property professional’s focus on the traditional guiding principle of property investment, i.e., location and end use demand, will be of benefit to the banking industry/NAMA. It is apparent that many retail, office and industrial schemes can and will make financial sense again in time if the location is right. At the present time there may be no immediate market for some sites or development projects, but with proper planning and a well developed business plan it should be possible to set a course to take a number of property assets from having a hope value to a realisable financial outturn or sale value. The way forward for the property development and investments sector must be to focus on the core skills of basic research with good use of feasibility techniques and sound principals of property investment. The property development professional is working in a service industry and must focus on the client’s requirements, which have now changed. However, it is becoming obvious that many clients require advice and direction on ways of generating and managing cash flow from property assets, as well as setting a vision to deliver returns (on potential developments) that can realistically be achieved (not on the inflated hope value expressed in valuations undertaken in recent years). The focus as to where next for Chartered Surveyors in the Irish property development and investment market must be on: 1. Identifying where global market trends are moving on occupier requirements, the green technology uses and innovative companies. 2. A focus on developer, institutional, local authority, public sector and other clients’ existing land banks or leased property assets and seeking ways to find alternative uses or upgrades of zoning or planning uses, or a physical upgrade of buildings to provide what the market will require in the longer term, i.e., sustainable housing types, low energy usage facilities, and larger apartment sizes for a lifetime occupation. 3. The Irish property development and investment market sector must provide leadership based on partnering with other professions in the property/construction/legal and services sector to apply the best practice in terms of the design and uses to match the future needs of Ireland Inc. 4. Providing a quality and well researched business plan for distressed assets to allow the banks or NAMA to make informed decisions on viability of schemes in an orderly fashion. 5. The clinical professional opinion to advise the banks or NAMA that in some cases enough time has been expended on peripheral and unrealistic plans that are and were not financially viable and that will have no real chance of success.

Michael Cleary

Michael is Chairman of the SCS P&D Division.

SCSREVIEW 15


Quantity surveying

New public procurement remedies regulations SARAH JOHNSON explains the implications of a new European Directive on public procurement in Ireland.

The signing into Irish law on March 25 of the Remedies Regulations (Statutory Instruments 130 and 131 of 2010), implementing the new EC Remedies Directive (EC Directive 2007/66), marks a significant change in the public procurement landscape in Ireland. The purpose of the new Remedies Directive and the remedies regulations is to improve the legal rights of persons who have an interest in obtaining a public contract and who are at risk of being harmed by a breach of the procurement rules. They apply to any contracts that are subject to the classic and public sector procurement directives (i.e., Directives 2004/17 and 2004/18), including public works, supplies and services contracts, framework agreements and public works concessions. The regulations give teeth to the procurement law rules by providing detailed rules in relation to the information unsuccessful tenderers are

16 SCSREVIEW

entitled to and the standstill period that public bodies must observe before entering into contracts, by requiring the suspension of procedures that are challenged, and by imposing significant penalties on public authorities that do not comply with the procurement rules. They also introduce new time limits within which unsuccessful tenderers must apply to challenge a decision of the public body.

Entitlements and the requirement for “standstill� Under the new regulations, a public body must wait 14-16 days (depending on whether communication is by post or electronically) between making its decision on the outcome of the tender procedure, and actually awarding the contract. The standstill period must be communicated to each tenderer in a written notice that specifies:


Quantity surveying

(i) the decision reached concerning the award of the contract; (ii) the exact standstill period applicable; and, (iii) the summary of reasons for rejection of the tender. In the recitals to the new Remedies Directive, it is made clear that, when the award decision is notified to them, tenderers should be given “the relevant information which is essential for them to seek effective review”. The Directive requires that candidates (i.e., firms that have submitted expressions of interest rather than tenders) should be provided with the reasons for the rejection of their applications. Tenderers, on the other hand, are entitled to more information, namely: (i) the reasons for the rejection of their tender (including reasons for a decision of non equivalence or that the requirements of the specification are not met); (ii) the characteristics and relative advantages of the tenderer(s) selected; and, (iii) the name of the successful tenderer(s). The regulations indicate that these information requirements “may” be met by providing the scores of the unsuccessful tenderer/candidate under each criterion, together with the scores of the successful tenderer or the scores of the lowest scoring successful candidate. However, the question should be asked in each individual case whether, by providing the scores of each firm under the criteria, the public body can, in fact, communicate the reasons for rejection of the application/tender and (at award stage) the characteristics and relative advantages of the successful tender(s). It has to be expected that public bodies will err on the side of providing too much rather than too little information, given that, if they are found to have failed to provide the relevant reasons, and to have then awarded a contract before the expiry of the standstill period, they may be exposed to the possibility that the contract will be ruled “ineffective” (discussed further below).

Suspension of the process Once the unsuccessful tenderer makes an application to court, the contracting authority is prevented from concluding the contract, and this suspension continues until the court either determines the case or gives leave for the suspension to be lifted. Put simply, the institution of proceedings by an unsuccessful tenderer will stop the project that is the subject of the procurement in its tracks.

“Ineffectiveness” The regulations introduce a new remedy of ineffectiveness, which will apply in certain circumstances where there is a serious breach of the procurement rules, for example, where a public body has awarded a contract before the expiry of the standstill period and where there was a substantive breach of the procurement rules, or where a contract has been awarded without any advertisement whatsoever. A contract that is ruled ineffective will cease to exist from the date it is declared ineffective by the court; any contractual obligations that are yet to be carried out will be cancelled. In practice, this means that the project that is the subject of the procurement must stop, even where it is half completed. The court may decline to declare a contract ineffective if there are overriding reasons relating to a general interest, but these can never be economic interest directly linked to the contract. If the court does decline to use the remedy of ineffectiveness, it must instead apply alternative penalties, which, under the regulations, may include shortening the duration of the contract or imposing a fine of up to 10% of the value of the contract. Public bodies can take certain steps to protect themselves from the remedy of ineffectiveness, including the publication of new voluntary notices informing the market of the intention to award a contract that has not been advertised and, in respect of contracts under framework agreements, the provision of detailed reasons for the decision to framework participants and the observance of a standstill period. Because of the very serious implications of a contract being rendered ineffective, it is likely these mechanisms will be availed of.

Conclusions The regulations come at a time when, due to economic pressures, the award of public contracts is already the subject of considerable scrutiny. The securing of public work now means more than ever to contractors and suppliers, and competition is fierce. In this environment, if a decision of the public body – whether in relation to a turnover requirement, the specification or the award criteria – has the effect of excluding a firm, that firm is likely to examine all of its options, including its legal options. Tenderers should make themselves familiar with their enhanced rights. Public bodies, on the other hand, should review their procurement practices, in particular their debriefing practices. Moreover, in order to avoid the remedy of ineffectiveness, they should take particular care with contracts – or extensions of contracts – that are not the subject of prior advertisement.

How quickly must the aggrieved tenderer act? The time limit for unsuccessful tenderers to apply to court is now 30 calendar days from the date of notification of the decision, or the date the tenderer knew or ought to have known of the infringement. Prior to this, tenderers had to apply to court “at the earliest opportunity and in any event within three months from the date when grounds for the application first arose.” While the 30-day limit is shorter than the old maximum period available, it does offer more certainty to tenderers, who previously risked their application being thrown out of court even within the three-month limit, because they had not made the application “at the earliest opportunity”. The time limit for applying for an order of ineffectiveness is 30 days in most cases but may be as long as six months, e.g., in the case of an illegal direct award, where no notice whatsoever was published.

A copy of the regulations can be downloaded from http://www.irishstatutebook.ie/2010/en/si/0130.html and http://www.irishstatutebook.ie/2010/en/si/0131.html.

Sarah Johnson

Sarah is a partner in Philip Lee Solicitors.

SCSREVIEW 17


Valuation

Site value tax TOM DUNNE discusses some of the issues surrounding property taxation in Ireland.

Land value taxation (LVT) is a tax on the value of land excluding improvements such as buildings. If applied to urban areas, it is referred to as site value taxation (SVT). SVT rests on the proposition that much of what is spent by local government benefits property and is reflected in relative property values. The theory is that these benefits flow to the site and not to the value of the buildings, which is related to construction costs, which in turn are related to the cost of labour and materials in the wider economy. SVT can be a fair, efficient and effective means of funding local government. With SVT, liability only falls on the value of the site element of the property. This is assessed on the assumption that the site is available for development at its highest and best use, the use that will throw up the highest site value, assuming that development can be carried out as provided for in the local development plan. In most instances this would be the market value of the property less the cost of construction. In the case of a suburban house the site value could be obtained by deducting the reinstatement cost from the market value and the balance would approximate to the value of the site. If SVT was introduced, every property occupier, or owner in default, would be liable to contribute to funding their local authority based on the proportion of the value of the site of their property to the aggregate of all other site values in the local authority’s functional area. Advocates of SVT suggest that it has many advantages, some of which are shared with conventional property taxes such as rates. For example, there can be no avoidance or evasion because property cannot be removed or hidden. Also, as property is fixed in location, the benefit of local government spending and the

18 SCSREVIEW

liability to pay is localised to the recipients of those benefits. In the case of SVT it is held that the tax cannot be passed on to consumers and producers. Moreover, it is argued that such a tax would militate against property speculation and moderate boom and bust cycles, a familiar feature of property markets. A particular advantage is that if an owner improves their property, their tax liability would not increase. Hence SVT would not be a disincentive to property improvement, a flaw of more conventional property taxes. Notwithstanding their advantages, all property taxes are unpopular, particularly in Ireland, and for this and other reasons they appeared to be off the agenda until recently.

Commission on Taxation The Commission on Taxation pointed out that there is a strong economic rationale for LVT but had a reservation. Right now, they said, it would not be a pragmatic approach to restructuring our property taxation system, there being difficult hurdles to be crossed. Significantly, they also pointed out that there would be difficulties in communicating to property-holders the nature of the taxation charge that is involved and the benefits that would accrue from that change. Therefore, they did not recommend SVT, but rather an annual property tax. They did observe, however, that their proposal for recurrent tax on zoned development land was consistent with many of the principles of a land or site value tax. Since the publication of the Renewed Programme for Government agreed by Fianna FĂĄil and the Green party, interest has increased. This is worth quoting: “Starting with the necessary valuation and registration process, we will move to introduce an SVT for non-agricultural land. This system


Valuation

will provide a fair and stable basis for offsetting stamp duty on residential property�. In his budget speech, the Minister for Finance pointed out that the Government accepted the recommendations of the Commission on Taxation on the need for a property tax and added that: “Considerable ground work will need to be done before an SVT can be introduced. Work will shortly begin on the registration of ownership and the valuation of land.� So it appears that we are to have an SVT.

Making it work For an SVT to work it is necessary to provide for the public availability of property transaction prices to allow comparative judgments to be made about site values. A second requirement is the creation of an accessible and publicly available system for defining and identifying individual property interests. This is needed to be able to identify sites with sufficient accuracy to value them and, perhaps even more importantly, to allow taxpayers to determine the fairness of their assessment by comparison with other properties. A third requirement is a need for local authority boundaries that relate to the prevailing spatial dispersion of economic activity and the coherence of settlement patterns in Ireland. It is entirely unlikely that existing local authority boundaries would be suitable as a basis for local government if an SVT was in operation and real fiscal responsibility is to be achieved at local level. From statements by the Minster, it is clear that work has begun on the registration and the valuation of land. Also, increasingly, local authority boundaries are being questioned. So progress is being made.

Problems The difficulties associated with valuation and property identification are substantial and largely practical in nature. Research recently completed in DIT points to this (see http://www.irish-surveyors.ie/images/stories/ news/SVT_The_Information_Implications.pdf). Moreover, restrictions on the use of land and buildings would have to be considered. For example, would it be fair to tax a building owner on the value of the site on which a listed period house stands? Finally, there would be transitional difficulties, particularly for those on low incomes occupying high value properties. In conclusion it must be said that there is considerable merit in SVT and a principled argument in favour of its introduction. Moreover, there is little doubt that in the longer run there would be many beneficial effects on urban form and these would be in sympathy with the principles of sustainable development. But successful implementation requires overcoming the many difficult hurdles mentioned by the Commission on Taxation.

Tom Dunne

Tom is a lecturer on valuation methods in the Dublin Institute of Technology.

SCSREVIEW 19


Buildings and the environment

Poetic justice ALAN COAKLEY of P J Hegarty & Sons explains the influence of environmental principles on the Criminal Courts project.

The new Criminal Courts of Justice in Dublin is one of the most environmentally sustainable buildings in Ireland.

The new 25,000m2 Criminal Courts of Justice (CCJ) at Parkgate Street was completed by P J Hegarty in November 2009, three months ahead of schedule, at a cost of ¤140m. The building comprises over 630 rooms contained in 11 storeys. It was procured using a design, build, finance, operate and maintain (DBFOM) public private partnership (PPP). Commissioned by The Courts Service, P J Hegarty was the design and build contractor within the Amber Infrastructure-led PPP group. P J Hegarty appointed Henry J Lyons as architects, DBFL as structural engineers and J V Tierney as service engineers. G4S is the operations and maintenance (O&M) contractor. The output specification stipulated that the building was to be assessed under the BRE Environmental Assessment Method (BREEAM) scheme. It was a contract requirement that the completed building be certified with a “Very Good” rating. This was achieved under BREEAM assessment for Courts 2006. Initiated at the design stage of a project, BREEAM is the world’s most widely used environmental assessment method for buildings. The assessment process, in place since 2008, is carried out in two stages – design review and postconstruction review. Within Ireland to date there are 20 buildings which have been registered with BREEAM for certification. The BREEAM assessment is a holistic approach, which sets out a series of environmental criteria against which projects can be compared. These criteria are grouped into the following categories: energy; transport; pollution; materials; water; land use and ecology; heath and well-being; and, management. On the CCJ, BREEAM objectives were designed and managed through various methods, a selected number of which are reviewed here:

20 SCSREVIEW

The site The 0.95 hectare site was chosen by the OPW and The Courts Service at the eastern tip of the Phoenix Park. A large section of the site was previously used as a military facility and more recently as a Garda car pound. A smaller section of the site was part of the Department of Defence headquarters. The decision to use a brown field site rather than a green field site had clear environmental benefits. The geographical location close to the city centre also has transportation benefits as users can avail of the various modes of public transport in close proximity, with train, bus and LUAS facilities available nearby.

Design and construction Twin skin facade This was designed using simulation models to minimise energy loads and consumption within the building. The ‘flask effect’ of the thermal flue has the capacity to retain heat during the winter or cool the building in the summer, thereby reducing heating and cooling costs. The perforated nature of the aluminium sheeting within the cavity of the twin skin allows for the passive management of glare within the building. Heat loss from the courtrooms overnight during the winter cold spell was typically less than 1oC demonstrating the thermal performance of the building. For the functionality of the building and for the well-being of the users, the output specification had a very onerous acoustic standard to achieve. The twin skin facade adds considerably to the acoustic requirements being met.


Buildings and the environment

The Great Hall is the centrepiece of the building.

Sections of the listed boundary wall were removed during construction then carefully reconstructed.

The location is well served by public transport.

Natural ventilation

Drainage

The Great Hall, which is the centrepiece of the building, is conditioned using natural ventilation. Return air from the court rooms is discharged into the Great Hall and monitored by the building management system (BMS). Motorised louvres at roof level and at the entrance can be opened and closed by the BMS to support this natural ventilation process as necessary. There is a heat recovery system at high level, which utilises the exhaust air from the Great Hall area. These heat recovery coils assist in heating all areas of the building.

A sustainable urban drainage system is provided within the surface car park. Extensive storm-water attenuation is provided on site and interceptors are in place to minimise water course pollution.

Energy efficient lighting and use of daylight

There are approximately 120 utility meters installed to monitor energy consumption levels throughout the building. Each electrical distribution board is metered individually and further sub metered to quantify lighting independent of general services and power. There are also meters installed to monitor gas consumption, oil consumption, water consumption and heat meters to quantify heat consumption in certain areas, which are billed to third parties. All of the information from the meters is fed to an energy reporting software package, which runs customised reports. This information is reviewed on an ongoing basis by the facilities managers; adjustments can be made to the settings as necessary through the BMS.

Re-use of materials Where the listed boundary walls needed to be removed to enable the building to be constructed the stone was carefully taken down, stored for reuse and reconstructed as previous.

Energy metering The building design was developed with the aim of maximising the use of natural daylight. High frequency lamps are used throughout the building, along with area controllers, PIRs, daylight sensors and time clock controls, all under the control of a lighting management system.

Water consumption A water meter with a pulsed supply to the BMS is installed on the mains supply to the building. This provides the ability to monitor consumption levels on an ongoing basis. WCs are provided with a dual flush cistern with a six-litre main flushing capacity with a reduced flush volume of four litres. Push taps have timed turn offs and urinals are provided with infrared flush controls.

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Buildings and the environment

The Criminal Courts of Justice building has 630 rooms contained in 11 storeys, including courts, jury rooms, meeting rooms and public facilities.

Maximum use is made of natural light and a lighting management system is in place to ensure that lighting usage is energy efficient.

Waste storage

Considerate construction methods

There has been provision allowed for the recycling of materials and dedicated space allocated on site for segregation of waste.

Throughout the construction of the project P J Hegarty as the design build contractors were very conscious of the impact of the site activities on the environment. In line with their ISO14001 accreditation, procedures were in place on site to monitor and manage all potentially hazardous activities. These include storage of fuel and hazardous materials, management of dust, control of noise and control of light pollution. A site waste management plan was put in place to monitor, sort and recycle construction waste throughout the project and energy and water consumption were monitored and reported on continuously.

Ecological considerations During the design process the ecology of the site was taken into consideration. An ecologist was appointed to study the impact of the project. The study concluded that the site was of low ecological value. The principle features of note were three mature non-native trees which were protected during the construction. The recommendations of the ecologist were taken on board in the form of bat boxes in adjacent trees and night scented plants to provide prey for bats. Additional ecological enhancement measures in the form of wildlife friendly trees and shrubs were included in the completed project.

Life cycle costing Life cycle costing analysis was utilised throughout the design and construction of the project. Life cycle costing includes initial capital costs, operating costs and replacement or renewal at stages of the life cycle. All these factors are included in the decision making process. Therefore the design and procurement decision is not only based on the initial purchase cost but on the whole life cost. The building is designed with maintenance and future proofing in mind. Evidence of this is found in design of and access to service routes to enable obsolescent services to be replaced or removed.

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Conclusion The Criminal Courts of Justice is one of the most environmentally sustainable buildings in Ireland as certified by BREEAM. The design minimises the whole life-cycle environmental impact of the project from materials selection, through to energy efficiency, and the maintenance and replacement regime operated by the O&M contractor. The environmentally considered choices made at the design and construction stage are carried through by the O&M contractor. The PPP process compels the O&M contractor to maintain this environmental standard.

Alan Coakley MSCS MRICS MCIOB Dip Proj Man

Alan is Contracts Manager with P J Hegarty.


Legal

Property cases

Moorview Developments Limited, Salthill Properties Limited, Valebrook Developments Limited, Springside Properties Limited, Drake S.C. Limited, Malldro S.C. Limited, The Poppintree Mall Limited and Blondon Properties Limited - and - First Active Plc and Ray Jackson and By Order Bernard Duffy

Wexele-andAn Bord Pleanála-andDun Laoghaire–Rathdown County Council The High Court [2008] 1024 P Judgment delivered February 5, 2010

The High Court [2003] 9018 P Judgment delivered February 5, 2010 This judgment arose out of an application brought on behalf of Mr Jackson, being a receiver appointed by First Active to a number of companies owned and controlled by Mr Brian Cunningham (“the Cunningham Group”). In August 2007 the Cunningham Group registered a lis pendens against Mr Jackson and First Active. Mr Jackson applied for an order vacating the lis pendens as it affects him. The court found that this case set out a key question. The court stated that in the capacity as a receiver to certain other companies within the Cunningham Group, Mr Jackson had, at the level of principle, an entitlement to cause any of those companies to sell any of the properties captured by any relevant mortgage debenture. It was not disputed that the role Mr Jackson had in respect of the properties was either as a receiver appointed to the companies that own the relevant properties, or as an agent appointed by the mortgagee in possession of the properties. Mr Jackson argued that he did not have an interest in the relevant properties so that the proceedings, at least insofar as they relate to him, do not involve a claim as against him relating to any interest in the properties. On that basis he asserted that the lis pendens was improperly registered as against him and should be vacated. The court found good authority in the case of A.S. v G.S. [1994] 1 I.R.407 that a lis pendens is designed to give notice of the fact that proceedings relating to land are pending before the court. The court found that the position of a receiver or agent is not captured, as a receiver does not own any interest in the properties that are properly described as being owned by the company to which the receiver has been appointed. The properties are in the ownership of the company in receivership. In the circumstances, the court granted an order to Mr Jackson vacating the lis pendens registered as against him.

Wexele had been refused planning permission by An Bord Pleanála in respect of a mixed use retail and residential complex. Among the reasons for the refusal, An Bord Pleanála cited the loss of car parking, which would result in an under provision of car parking generally in the area, resulting in further traffic congestion in Dun Laoghaire. The existing use of the property was surface car parking providing upwards of 110 car spaces to St Michael’s Hospital for staff and patients. Wexele sought to have the decision of An Bord Pleanála quashed on the grounds, principally, that issues as to parking and traffic congestion were outside the scope of that to which An Bord Pleanála could properly have regard and were therefore irrelevant and immaterial to the application. In refusing to overturn the decision of An Bord Pleanála, the Judge rejected that An Bord Pleanála took into account nonrelevant considerations such as the effect the proposed development would cause by the change of use of its lands from an existing car park to the proposed development. He also rejected arguments that: as the car park was owned by Wexele and Wexele licensed St Michael’s Hospital to use it free of charge, An Bord Pleanála was not entitled to take into account the effect on the adjoining hospital of the use of this free car parking facility.

John Minihane MSCS MRICS

John is a partner, specialising in real estate, with Mason Hayes+Curran.

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SCS Review Summer 2010