Disruptions to the global supply chain have been widely reported, with extremely high demand for globally traded products resulting in extended lead times and sharp cost rises for some imported products since Autumn 2020, and increased transport costs, partly due to the sharp recovery in UK and global construction.
There also remains a significant shortage of skilled labour in the industry.
When combined with the evidence that at the height of the pandemic, contractors were bidding low for work to ensure turnover, jobs that were already on a razor-edge are now well into the red, whilst even contractors who bid sensibly will be facing price inflation.
The legal issues that arise from this arise impact both new contracts and existing ones.
For new contracts, one way of addressing fluctuating prices is to include so-called rise and fall clauses, setting out the way in which price fluctuations will be dealt with.
We have also seen contractors seeking to include additional relevant events and loss and expense (or compensation events in the NEC form) for delays in obtaining certain materials (e.g., cladding panels or sealed glass units) on the basis that they consider the dates they are being given by suppliers are not likely to hold, and they need to protect against this upstream with the employer.
However, such clauses are - generally - resisted, with employers generally requiring price certainty, but this can in some circumstances lead to negotiations breaking down if the consequences are severe enough and neither party will bear the risk.
For existing contracts, any main contractor who faces a potential significant hit to margins will look first to address this upstream with the employer — using whatever contractual levers are available to it — or if that fails try to pass such costs to firms lower down in the chain. The result of all this is an increase in disputes.
Skilled labour shortages will also create problems. We know from experience that boom times in construction can cause problems, with contractors struggling to put the requisite quality of staff onto jobs, leading to an increase in defective work on projects.
Some defects will be discovered during the project, causing disputes prior to completion as contractors seek to avoid the need for rework (and the LADs that will almost certainly follow), whilst others will not, causing issues years down the line (which may well prove more expensive / problematic given the potential for this to add in claims for business interruption).
Numerous disputes continue as a result of the issues uncovered following the Grenfell tragedy in 2017, with parties still contesting the extent to which the design and / or construction of cladding complies with the Building Regulations in place at the time of practical completion.
However, despite the huge focus on this issue over the past four and a half years, issues remain, not least those highlighted by Jonathan Sakula, a façade expert appointed by the Grenfell Inquiry to answer questions about industry knowledge between 2012 and 2017. In particular:
Whilst, given the publicity, cladding is often the starting point for many investigations, often a wider review uncovers issues with e.g. poor installation of fire barriers and the lack of sealing of penetrations, etc.
The issues sadly seem to exist at many levels, ranging from supply (e.g., 30 minute fire doors not achieving specification), through to errors in design and installation.
Unfortunately, all of this suggests that as new buildings go up, and cladding is replaced on old buildings, there is by no means any guarantee that what is installed will comply with Building Regulations.
Indeed, we are aware of some projects where the original cladding was subject to a dispute about compliance with the Regulations, and where an agreed remedial was then installed, but that the pre-agreed solution is now being challenged also…
Arising out of the above, there has been an abundance of commentary surrounding the new draft Building Safety Bill (the Draft Bill).
The Draft Bill is due to take full effect until 2023 and will introduce new — enhanced — regulatory regimes for building safety in England and Wales, and for construction products throughout the UK.
It will also make related changes to fire safety regulation for all buildings in England and Wales. The government described the reforms as “the biggest changes to building safety regulation in a generation” and says that the Draft Bill “will set out a clear pathway for the future on how residential buildings should be constructed and maintained”.
We comment briefly on some of the key aspects of the Draft Bill.
The Draft Bill introduces a new Building Safety Regulator (BSR), who will implement and oversee a new, more stringent regulatory regime with particular emphasis on “higher-risk buildings” (being either (a) at least 18 metres in height or having at least 7 storeys; or (b) as specified in regulations made by the Secretary of State).
The BSR will in practice operate as a division of the Health and Safety Executive. Notably, for higher risk buildings, only the BSR will be able to act as the building control body, removing the choice that previously existed.
The Draft Bill contains detailed provisions catering for situations where planned or ongoing work is altered so that the regime for higher-risk buildings applies part way through the building control process.
The Draft Bill creates a framework under which the government can introduce a new regime, which will impose more prescriptive and onerous obligations on ‘dutyholders’, being those persons responsible for commissioning, designing and building a construction project.
The government is seeking to do this by introducing a requirement “to create and maintain a golden thread of information”. The golden thread is both:
The government says that the Bill will make clear that the dutyholders are responsible for ensuring that the building is designed and built (or refurbished) to be safe and compliant with building regulations, and that the new duties “will embed standards of competence and behaviours within the project, reinforce individual and collective responsibility, and require the key dutyholders to work together and share information to ensure compliance with building regulations”. The proposed changes will require dutyholders to satisfy specific competency requirements.
Whilst the dutyholders are derived from the existing CDM Regulations, as presently drafted it appears that there will be a greater burden imposed on dutyholders than previously - whilst currently dutyholder obligations are often caveated with the requirement to comply only “so far as is reasonably practicable”, the Draft Bill does not limit obligations in this way.
More generally, the Draft Bill creates various new obligations and requirements:
The Draft Bill is undoubtedly important, and is perhaps the beginning of [much needed] wider reform, not least it is estimated that problematic cladding has left some 700,000 people living in dangerous flats, and some 3 million in homes they cannot sell.
However, there are some elements of the bill causing apprehension both within the construction industry and also insurance, most obviously the proposed extension of the limitation period.
The Draft Bill changes limitation periods by
However, the changes have been criticised as being cosmetic rather than addressing the underlying issues:
The above suggests that the limitation period extension may not open the floodgates in terms of claims as initially feared, but only because the Draft Bill leaves numerous issues unresolved.
Looking at this through the other end of the lens, it seems inevitable that claims brought 15 years after completion of a project - and perhaps in circumstances where limitation periods had previously expired - will mean that personnel involved in a project will have moved on from the construction firm.
This will make it difficult, perhaps impossible, for firms to speak with those involved on the project at the time, or obtain the relevant documents (which may well have been destroyed in accordance with document retention policies), giving rise to potential injustices.
In the meantime, it requires potential defendants to review - urgently - document retention policies.
More recently, Michael Gove has of course signalled that he is ‘coming for developers’, and we don’t yet know what that will mean in practice. Accordingly, as the Draft Bill progresses through Parliament (and perhaps since recent evidence demonstrates that the present government is happy to introduce important changes to legislation at the last minute), it seems that further changes are likely. Watch this space…
Last year’s COP26 summit reminded everyone of the ever increasing need to address climate change. In the UK, this brought the Government’s Net Zero target - due in 2050 - into focus.
In order to achieve this, the construction industry must play its part, given that the built environment and construction sector accounts for almost 40% of global carbon emissions.
This therefore requires focus not only on improving practices on new buildings, but also on refurbishing existing buildings to improve efficiency and carbon footprints, with numerous practical measures already existing to reduce carbon footprint, including, but not limited to:
However, whilst many such measures are often desired by Employers - and are proffered by Contractors/Consultants during tender discussions - it is only with contractual teeth that there will be incentive for them to be consistently implemented.
To date, most environmental adjustments to contracts have been contained in the technical - rather than purely legal - documents. Whilst this makes sense given their function, further thought may now need to be given to the legal terms as a way of incentivising compliance with climate specific targets and requirements. In particular, employers may seek to adjust the legal terms in the following ways, by way of both “carrots” and “sticks”:
In the coming months and years, there may also be a shift towards modular building and other forms of off-site construction.
The benefits being the reduction of (a) construction waste; and (b) over-ordering and over specification of materials; and the associated transport impact.
There could also be an increase in the use of Framework Building Contracts or even Alliancing Frameworks which provide a cross-project view and aspect to the workings of a project team.
The next couple of years will see an increased interest in schemes under the Private Finance initiative with the Infrastructure and Projects Authority (IPA) having issued guidance (e.g., the Risks of PFI Contract Expiry 16/08/21) that plans in readiness for handback at the end of the Project Term should be commenced seven years before handback rather than 12 or 18 months of the detailed plans in the Project Agreements.
There is a “bunching” of scheme end dates in the period 2028 — 2037 which means the plans for the earlier of the schemes should be being prepared in 2022 (if not already prepared).
The good news is that the IPA is offering support to contracting authorities, but unfortunately the lack of resource deployed in managing these contracts in the last couple of years (due to stretched finances, staff absences / unavailability, and the general focus on more urgent issues) means that many of these projects are in need of a complete overhaul before preparations can be made for handback.
This overhaul will often involve updating the Project Agreement to reflect any variations, and the situation that has developed on the ground, paired with a survey of the service being delivered against the service standard and the condition of the assets.
The outcome of these surveys and the document update is likely to uncover many disputes and disagreements which have until now remained hidden, all of which will need to be resolved before clear agreements can be reached between the contracting authority and the PFI Provider as to the programme of works necessary to deliver the assets in the required contractual condition at the handback date.
It must always be remembered that the Project is delivered by a Special Purpose Vehicle (SPV) which will have hopefully repaid the Funder well before Handback and if the work necessary to bring the asset back to the specified condition exceeds the SPV’s financial return it may be tempted to default. This scenario is a compelling reason to sort out any disputes as early as possible and before the SPV’s interest is diminished.
Partner
tim.claremont@brownejacobson.com
+44 (0)20 7871 8507
On 2 November 2022, the Supreme Court handed down its judgment in the much awaiting case of Hillside Parks Ltd v Snowdonia National Park Authority [2022] UKSC 30. The Court’s judgment suggests that the long established practice of using drop-in applications is in fact much more restricted than previously thought. This judgment therefore has significant implications for both the developers and local planning authorities.
National law firm Browne Jacobson has advised long standing retail client, Wilko on the sale and leaseback of its Nottinghamshire distribution centre in Worksop to logistics specialist DHL for £48m.
Logistics company Eddie Stobart has been fined £133,000, after a series of failures which took place whilst excavation work was carried out, exposing its staff to asbestos.
Browne Jacobson has appointed Amy Chapman, the former Group Legal Director of global built environment experts Mace Group, as its first Non-Executive Director (NED) of its Construction & Real Estate sector strategy board.
Across the UK, homelessness is an urgent crisis, and one that is set to grow amid the rising cost of living. Local authorities are at the forefront of responding to this crisis, but with a lack of properties that are suitable for social housing across the UK, vulnerable individuals and families are often housed in temporary accommodation.
Two directors of a construction company were fined after failing to ensure the safe removal of asbestos from a plot of land. On 14 and 15 November 2021, Directors Anthony Sumner and Neil Brown, of Waterbarn Limited were involved in the uncontrolled removal of asbestos material from a plot of land in Grasscroft, Oldham.
An engineering company in Tyne and Wear was fined £20,000 after a worker fractured his pelvis and suffered internal injuries after falling through a petrol station forecourt canopy, whilst he was replacing the guttering.
Since the beginning of the pandemic, landlords and tenants have experienced significant limitations in the way rent arrears could be pursued. We first saw the moratorium on the recovery of Covid related arrears, and more recently we’ve experienced the implementation of the Covid arrears arbitration scheme.
The concept of Legal Project Management (“LPM”) is increasingly relevant to the delivery of legal services, both in-house functions and private practice law. This is unsurprising, LPM is crucial if lawyers are to add value by controlling budgets, communicate pro-actively on risk mitigation and costs, and manage time by resourcing to deal with pinch points in the project.
The focus on the Levelling Up agenda and the availability of grant funding, means there are numerous important regeneration schemes actively being pursued across the country. With ever-escalating project and building costs, in many cases, applications that were made for grant funding were based on costs contingencies that have already been exceeded.
Browne Jacobson’s private equity (PE) dealmakers have advised Palatine Private Equity backed CTS Group (Construction Testing Solutions Limited) on its latest acquisition of Concept Engineering Consultants Limited, a leader in geotechnical, structural and geo-environmental services for an undisclosed amount.
Rolls-Royce has shortlisted six locations for its first factory for small nuclear power stations. We look at the impact on regions & local businesses
By the time PFI really got into its stride in the early 2000s, standard form contracts had pretty much nailed down the terms and anticipated anything that might happen, good or bad, during the course of the 25 years it covered.
Recent reports of flat roofs constructed using RAAC planks collapsing without warning prompted the SCOSS alert.
Conservation Covenants come into force on 30 September 2022. We look at the impact on landowners, developers and responsible bodies.
The Building Safety Act 2022 received Royal Assent on 28 April 2022 (“Act”). The government has described the reforms introduced by the Act as “the biggest changes to building safety regulation in a generation”. For once the hype is justified.
The Federation of Small Businesses (FSB) has released a report setting out the impact of new and changing regulations arising from the pandemic on small businesses across the UK.
We have created a summary of the recommendations and consistent themes which we are now starting to see becoming more embedded in public sector procurement practices.
The climate emergency has reached a point where real and substantial damage is being caused to both the planet and society. There has been a shift from planning and theorising the most effective solutions, to a phase where practical, efficient, and sustainable solutions are required at speed.
As the Grenfell Inquiry continues, how have the Phase 1 recommendations changed the fire safety and building safety landscape?
Browne Jacobson has successfully advised Nottingham based developer Charterpoint on the sale of a 1.2 acre care home development site in Thurnby (Leicestershire) to care home operator Cinnamon.
On 4 May 2022, the Court of Appeal handed down judgment in the joint case of R (Elkundi and others) -v- Birmingham City Council and R (Imam) -v- London Borough of Croydon [2022] EWCA Civ 601.
The Levelling-up and Regeneration Bill was introduced to Parliament on 11 May 2022. In this Bill, and in accordance with earlier reports, the government intends to replace section 106 agreements and the existing Community Infrastructure Levy (CIL) with a new Infrastructure Levy.
In anticipation of the adoption of the Building Safety Bill, our specialist compliance and regulatory team will give an overview of the measures proposed in the Bill.
The new regime introduced by the Act will take shape over the next 18 months, but those who design, build or manage high rise buildings are being urged to get ready for the changes to be introduced through the act.
