England and Wales is a common law jurisdiction. This means that law is derived from both statute and decisions of the higher courts. It is important to note that the United Kingdom comprises three jurisdictions: England and Wales, Scotland and Northern Ireland. The legal systems of Scotland and Northern Ireland are outside the scope of this Chapter.

The Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), as amended by the Local Democracy Economic Development Act 2009 (the “2009 Act”), is the primary UK legislation affecting construction projects in the United Kingdom and places constraints upon what parties to construction contracts may agree. The Construction Act, which was intended to address a number of cashflow issues in the sector, introduced a right to refer any dispute to adjudication and a method for fast, interim resolution of construction disputes, which parties cannot contract out of. The Construction Act also provides for a regime for interim payments, and for the right for a contractor to suspend work in the event of non-payment.

The 2009 Act amended the Construction Act so as to:

• render ineffective contract clauses which make the due date for payment dependent on the payer giving a payment notice;
• disallow clauses linking payments to performance of obligations under a subcontract;
• make the validity of payment notices conditional on them specifying the sums considered due and the basis on which those sums have been calculated;
• entitle a payee to issue a default payment notice should the payer fail to issue a payment notice;
• replace withholding notices with pay less notices, notifying the payee of the payer’s intention to pay less than the notified sum; and
• enhance the rights of the contractor (or subcontractor) where that party is entitled to suspend performance.

Other important statutes include:

• The Unfair Contract Terms Act 1977 (“UCTA”), which restricts parties’ ability to exclude or limit their liability in contract or negligence by providing that such clauses must pass a statutory ‘reasonableness’ test.
• The Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015, which set out obligations on parties to ensure that goods are fit for purpose and that services are carried out with reasonable skill and care. In the case of a construction project, the contractor will usually provide both goods and services and will therefore generally be under an obligation to perform the works in accordance with such fitness for purpose obligations, while a consultant which is only providing services must do so with reasonable skill and care. Such obligations may be limited by contractual limitations or exclusions, subject to UCTA.
• The Building Regulations 2010 and Defective Premises Act 1972, which set out obligations for building standards and for works to be carried out in a workmanlike manner, so as to ensure that dwellings are fit for habitation.

Health and Safety

The Health and Safety at Work Act 1974 (“1974 Act”) sets out the basic health and safety duties of a company, its directors, managers and employees. The 1974 Act created the Health and Safety Executive (HSE), which is the UK regulator in relation to workplace health, safety and welfare, and occupational risks in Great Britain. Failure to comply with the relevant provisions of the 1974 Act can result in criminal liability for individuals, including directors and company officers. Additionally, companies themselves can be convicted of corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act 2007.

The Construction (Design and Management) Regulations 2015 affect most construction projects in the UK. Their main purpose is to ensure that appropriately qualified parties are appointed as designers and contractors to enable proper organisation and management of the project and identification and management of potential health and safety risks.

Environmental Issues

Historically there has been increasingly strict environmental regulation in the UK, as most UK environmental law is derived from EU law. Environmental regulations primarily concern waste, emissions, contamination and pollution of land and water, protection of habitats and wildlife, nuisance, asbestos and energy efficiency. The Environment Agency is the primary environmental regulator in the UK though there are other public bodies (such as Natural England) which are concerned with the protection and improvement of the UK’s environment.

Following the end of the transition period (31 December 2020), the new body of ‘Retained EU Law’ (as set out in the European Union (Withdrawal) Act 2018) will ensure a certain level of continuity, though there are some notable exceptions. These include:

• EU REACH and new UK chemicals regime;
• Biocides regime; and
• A new UK Emissions Trading Scheme to replace the EU ETS.

While the EU-UK Trade and Co-operation Agreement prevents the environmental standards under Retained EU Law at the end of the transition period from being eroded, there is no ongoing requirement for the UK to continue to align its environmental standards and protections with those in the EU. Thus, concerns have been raised that post-Brexit there will be a gradual weakening of environmental standards and protection in the UK. The UK Government’s Environment Bill is an attempt to address these concerns through (among other things) the establishment of new government watchdog, the Office for Environmental Protection.

The Building Research Establishment’s Environmental Assessment Method (“BREEAM”) establishes best practices for environmental performance of buildings. While BREEAM does not have the force of law, compliance with it may be required by developers and/or local authorities for new or refurbished buildings.

Planning

The primary legislation for planning applications in England and Wales is the Town and Country Planning Act 1990 (“TCPA”). An application under the TCPA must be submitted to the local planning authority or the Secretary of State and will be decided within 8, 13 or 16 weeks depending on the development in question. If the planning permission is refused, the applicant has the right of appeal. If it is granted, it may be given subject to certain conditions or obligations by way of a planning agreement. In some instances, a ‘community infrastructure levy’ (essentially a development tax) may apply. A grant of planning permission cannot be appealed, but a defective decision can be challenged by way of judicial review.

Failure to obtain planning permission for development that requires planning may result in enforcement action, as may a failure to comply with any conditions of a planning permission. Failure to comply with such enforcement action may give rise to criminal liability.

Any works to a listed building will also require listed building consent, in addition to planning permission. It is an offence to carry out works to a listed building without first obtaining consent.

Planning applications for ‘nationally significant infrastructure projects’ (NSIPs) are dealt with under the Planning Act 2008 which is intended to streamline the decision-making process for major infrastructure projects. The Planning Inspectorate considers applications and provides a recommendation to the Secretary of State as to whether a development consent order should be granted.

For significant infrastructure works, Parliament may pass individual pieces of legislation relating to those works, such as the High Speed Rail (London – West Midlands) Act 2017.

Employment

It is common in the UK, particularly in large or complex projects, for contractors to subcontract some or all of the works (see Questions 6 and 7 below). Generally, a subcontractor will not be regarded as an employee of the contractor, but as an independent contractor. This is important because employers owe a wide range of obligations to employees which they do not owe to independent contractors. An employer may also be vicariously liable for the actions of employees carried out in the course of the employee’s work.

From an immigration compliance perspective, employers are under a statutory obligation to check the ‘right to work’ documentation of all employees (regardless of their nationality) on their first day of employment to confirm that they have the appropriate immigration status to undertake the work in question. There is no legal obligation to establish the right to work of an independent contractor or a contractor’s personnel before they start working; the liability sits with the employer. Practically speaking, however, developers should consider including appropriate contractual provisions to protect against reputational risk, delays to work and the possibility of investigation by the Home Office. A developer may also wish to insist on conducting its own ID checks.

If a developer outsources works, transfers work in-house or re-tenders work to another contractor, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) could apply. If so, affected employees would automatically transfer over with the work, and various obligations to give notice and consult would arise, as well as enhanced protection against dismissal. However, TUPE would be unlikely to apply in the case of a subcontractor engaged to work on a discrete project.

Finally, parties should bear in mind the Modern Slavery Act 2015, which requires businesses with a turnover of £36 million or more which supply goods or services and carry on business in the UK to prepare an annual statement setting out what steps have been taken to ensure that their business and supply chain are free from slavery and human trafficking.

Anti-Corruption and Bribery

Under the Bribery Act 2010 (the “Bribery Act”) an individual or commercial organisation with a “close connection to the United Kingdom” can be found guilty of the offence of: (i) bribing another person; (ii) being bribed; and (iii) bribing foreign public officials. The Act applies whether or not the offence takes place in the jurisdiction.

A commercial organisation may be guilty of an offence under the Act if a person associated with it bribes another person intending to obtain or retain business or a business advantage. However, there will be a defence if the commercial organisation can demonstrate that it had “adequate procedures” in place to prevent such conduct.

The Serious Fraud Office is the main body responsible for prosecutions under the Bribery Act. An individual found guilty of an offence can face imprisonment of up to 10 years, an unlimited fine, or both. A commercial organisation found guilty of an offence may receive an unlimited fine.

For leasehold properties, tenants often require licences for alterations (and possibly licences allowing for resultant changes of their permitted use) from their landlords. If a tenant fails to obtain such a licence, it may be forced to restore the property to its previous condition and indemnify the landlord for costs. Alternatively, the landlord may attempt to terminate the lease by way of forfeiture.

Meanwhile a residential landlord that wishes to recoup the cost of works from their tenants may need to observe the stringent consultation requirements in the Landlord and Tenant Act 1985 (and its peripheral regulations). A failure to adhere to these requirements before commencing or entering into agreements for certain works may result in a cap being placed on the amount that can be claimed.

Parties also usually require planning permission, Building Regulations compliance and approvals, and environmental permits (if applicable). If the works will impact on public areas such as roads, pipelines or sewers additional licences and/or approvals may be necessary.

Where a party has contravened any regulation or other provision of the Building Act 1984, penalties can include removal or alteration of the relevant work. Where a party has breached planning controls, penalties may include criminal prosecution punishable by fine and requiring land to be restored to the condition it was in before the unauthorised development occurred.

Furthermore, public bodies (and those exercising public functions, such as utilities) must follow the applicable public procurement rules in carrying out relevant tenders for works (see Question 9 below).

English law recognises a right to bring an action for civil wrongs, known as torts, which are separate from and additional to rights in contract, as well as other rights and remedies such as claims for unjust enrichment. The most commonly pleaded tort is negligence. In a construction context, this may include claims in tort for defective design, for example. To show a complete cause of action, an injured party will need to prove that the ‘tortfeasor’ owed it a duty of care, that it breached that duty of care, causing the injured party loss. It will also be necessary to show that the loss was a foreseeable consequence of the negligent act.

In practice most construction claims are based in contract and the relative difficulty of showing a cause of action in tort or unjust enrichment makes it important to ensure that contractual remedies are available.

While contract claims arise upon the occurrence of the breach of contract, tortious claims arise at the time when the loss is suffered. This may mean that the six-year limitation period for tort claims expires later than any related contractual claim. However, it is generally not possible for a tort claimant to claim damages for pure economic loss, being losses which are not consequent on physical damage.

Construction projects always involve at least an employer, for whom the works are being carried out, and a contractor, which carries out some or all of the works. It is common for a contractor to subcontract some or all of the works to one or more subcontractors. Additionally, projects will often require the input of architects, contract administrators, engineers and employer’s agents. These participants will usually not be parties to the main contract or subcontracts, but may have duties under them.

Design and Build (“D&B”) procurement is used widely in the UK, especially where the contractor has more specialist experience than the employer. D&B comes in several forms but is distinguished by the contractor bearing responsibility for the design as well as for the construction. Usually the main contractor will subcontract elements of the works to specialist subcontractors. The employer provides detailed requirements for the design but will not have direct control over it. Engineering, procurement and construction (“EPC”) contracts, also known as ‘turnkey’ contracts, are a particular type of D&B contract which place most of the responsibility for the project on the contractor. Under an EPC contract, the contractor must deliver a finished project built to the employer’s performance specifications. EPC contracts are common in large and complex projects, such as energy and infrastructure projects.

Another common procurement method is general contracting, also known as the ‘traditional method’, or ‘conventional method’, under which the contractor is appointed to carry out and complete the works in accordance with a design which is provided by the employer. The contractor bears no responsibility for the design.

A third procurement method, sometimes used by very sophisticated employers, is management procurement, in which the employer enters into a series of separate contracts directly with numerous trade contractors and other service providers which the main contractor is responsible for managing.

In addition, project stakeholders are increasingly being encouraged to enter into alliancing regimes, especially on projects with a public procurement element such as large government backed infrastructure projects. Alliancing encourages stakeholders to adopt a contracting structure that allocates risk and reward collaboratively and discourages adversarial behaviour.

The JCT standard form contracts remain the most popular for UK domestic projects overall, accounting for the majority of contracts used for commercial and residential building projects. Contracts prepared on JCT standard forms are often heavily amended, depending on the employer’s bargaining position.

NEC contracts are more often used for larger civil engineering and infrastructure projects, particularly where the parties with to contract on a partnering basis or target cost arrangement. For that reason, they are commonly used for public sector projects. While the options allow for bespoke contracts within the standard wording, NEC contracts are generally not heavily amended.

The FIDIC forms are the most widely used standard form contracts for international construction projects, many of the parties to which will opt to make English law the law of the contract. FIDIC contracts are commonly used for energy projects, process plants and similar complex projects with extensive technical engineering elements. FIDIC contracts are often very heavily amended, though in recent years FIDIC has used its ‘Golden Principles’ to discourage inappropriate amendments to standard form contracts.

IChemE contracts are produced by the Institute of Chemical Engineers and are designed for the more specialist applications of the chemical and process engineering industries. IChemE has published certain approved amendments to the IChemE forms but, since the early editions of the IChemE forms, have included a cautionary note that no other amendments are authorised or approved by IChemE, warning the parties not to introduce provisions which might risk inconsistency or unenforceability.

Historically, the UK’s public procurement regime has been subject to EU procurement rules. These were implemented within the UK by means of the Public Contracts Regulations 2015, Utilities Contracts Regulations 2015 and Concession Contracts Regulations 2016, each of which remains in force following the UK’s departure from the EU and the end of the Brexit transition period, and tenders which commenced prior to 31 December 2020 continue to be governed by EU rules.

In advance of the UK’s withdrawal from the European Union, however, the UK Parliament enacted the Public Procurement (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/56) which implemented a variety of amendments to the procurement regulations necessitated by Brexit, including removing reference to the EU and replacing the requirement that contractors publish notices with the Official Journal of the European Union with a requirement to publish notices through a UK-based ‘Find a Tender’ platform.

Notwithstanding the relative regulatory freedom brought about by Brexit, the UK’s procurement regime is still subject to international sources of law, namely the WTO’s Government Procurement Agreement (“GPA”) and the EU-UK Trade and Cooperation Agreement (“TCA”) and extends the EU-UK commitments beyond those covered by the GPA. Taken together, the TCA and GPA broadly maintain the rights and remedies of UK suppliers in relation to EU-wide tenders and vice versa.

The long-term future of the UK’s public procurement regime is likely to be subject to further UK policy decisions. Following the end of the transition period it is free to diverge from the EU-based rules, subject to the requirements imposed by the terms of the GPA and TCA and the underlying principles of reciprocity and non-discrimination.

Typically, the employer will engage an external project manager, contract administrator and/or employer’s agent who administers the contract and is responsible for managing the project for the employer. Quantity surveyors, in-house or external, are often engaged to value the works. The team responsible for the design will usually comprise engineers, architects, specialist interior designers and any other specialist consultants such as planning and environmental management consultants.

The contractor’s in-house team usually include similar roles, and in the case of larger projects may be supplemented by external consultants.

On larger projects, a party may appoint a delay expert for the life of the project. Delays and disruption are typical in construction projects and a permanent delay expert who is familiar with the progress of the matter will be able to provide a rapid analysis of the cause of any delay in the event of a dispute.

Consultants are usually engaged under written agreements setting out the obligations of the parties and the services that the consultant will be providing. Standard form contracts are available from various professional organisations such as the Royal Institute of British Architects and the Royal Institute of Chartered Surveyors and the publishers of standard form construction contracts, such as the FIDIC White Book. However, many parties will insist on bespoke engagement agreements.

Subcontracting is common in the UK market and the main contractor will often subcontract the majority of its works to subcontractors. The main standard form construction contracts permit subcontracting and standard form subcontracts, which are designed to work with the equivalent standard form main contracts, are available (discussed at Question 8). Where a subcontract has been entered into, the main contractor will remain liable for any default by the subcontractor under the main contract. The employer (and its investors or lenders) and subcontractor may have a direct contractual relationship through collateral warranties, direct agreements or third party rights.

Given the wide array of project types across the UK construction industry, the financing structures for construction projects varies according to the type, size and complexity of the project in question.

Real estate developments are usually financed by a combination of equity and debt finance, including lending secured against the land and/or by guarantees. Traditionally the developer acts as borrower, but the transaction may also involve forward funding structures where a borrower contracts separately with a developer. Other funding structures may be used depending on the identity and circumstances of the parties, for example Sharia-compliant structures.

In the case of large and complex energy and infrastructure projects, financing has traditionally been provided by bank loans. Increasingly, however, financing may also include the use of project bonds. Financing may be provided to a special purpose employer vehicle on a non-recourse or limited recourse basis, whereby the lenders’ primary recourse is against the project cashflows as opposed to the project assets or investors. In such circumstances lenders often enter into direct agreements which allow them (or their security trustee) to take control of the project in the event that it encounters difficulties. Accordingly, lenders will often require a full suite of direct agreements, including but not limited to direct agreements for the main revenue contract (e.g. PPA, concession agreement etc.), supply contracts (if applicable), EPC and O&M contracts.

Performance guarantees or bonds are the most common form of performance security for construction projects, providing security for the employer’s loss in the event that the contractor fails to carry out the works in accordance with the contract. The form of performance bond or guarantee for UK construction projects will vary according to sector, however there is an increasing trend for a guarantee instrument rather than a pure on demand bond (i.e. a bond under which the obligation to pay arises upon receipt of a simple demand and/or presentation of certain documents, rather than requiring proof of liability under the underlying contract). For international projects on demand performance bonds are still the common form of bond.

Advance payment guarantees or bonds provide security to the employer for the up-front payments which the employer may be required to make to the contractor for its preparations for carrying out the works, such as purchasing materials and equipment. Should the contractor fail to carry out the works or enter insolvency, an advance payment bond should allow the employer to recover such sums. Again these take for the form of either a guarantee instrument or an on demand bond. Advance payment guarantees usually expire once the payments due to the contractor for works done equal the value of the bond (usually measured by linking to completion of a defined milestone/stage of the works).

Retention bonds have arisen as an alternative to withholding cash retention from interim payments. Instead of the contractor putting up cash retention, the contractor may provide a retention bond reflecting the amount the employer would otherwise have held in cash retention. Retention bonds usually expire on completion of the works.

A warranty bond, or defects liability bond, provides security to the employer for the contractor’s obligation to return to the project following completion to remedy any defects which might arise during the warranty period or defects liability period. By their nature, warranty bonds or defects liability bonds usually remain in place for the duration of the warranty period or defects liability period.

Parent company guarantees are often requested by employers from a contractor’s parent or ultimate holding company in order to protect the employer against contractor defaults. Should such a default arise, the employer may require the guarantor to remedy the breach or pay damages. Parent company guarantees are usually ‘true’ or ‘traditional’ guarantees, rather than on demand guarantees and the liabilities of the guarantor are co-extensive with the liabilities of the underlying contractor.

The Construction Act contains a statutory payment regime under which a construction contract must:

• entitle the contractor to stage or interval payments;
• provide an adequate mechanism for determining what payments become due, when, and the final date for payment; and
• set out a specified timetable for payment applications and payment and pay less notices to be given concerning sums due at each relevant due date.

If an employer fails to issue a payment or pay less notice in response to a payment application within the specified time limits it will have a statutory obligation to pay the full amount applied for, although it can seek re-payment of such sums at a subsequent payment cycle or final payment. If the employer does not make payment by the final date for payment the contractor may commence an adjudication in respect of the sum (known as a ‘smash and grab’ adjudication).

Particular care is required when preparing interim payment applications, payment notices and pay less notices, as they may be invalidated by minor errors which can have draconian consequences for contractors, who may either be unable to seek payment until the next payment cycle, or for employers unable to refuse payment of less than the full amount applied for.

The Construction Act prohibits the operation of pay-when-paid clauses except in circumstances where the employer (as payer) is insolvent.

Construction contracts usually include retention provisions allowing the employer to withhold a percentage of any payments made to the contractor during the works (usually between 3- 5%). Once the contractor achieves practical completion, the employer is usually required to pay half the retention to the contractor, with the remainder held until the end of the rectification or defects liability period.

In the case of SMEs there has been a push in recent years to abolish retention. For now, however, subject to any change in the law, this will remain a matter for commercial negotiation between the parties and retention will continue to be widely held. See further Question 13 for discussion of retention bonds.

It is very common for construction contracts to provide expressly for liquidated delay damages, particularly if they have been prepared on the basis of one of the usual standard forms (NEC, JCT or FIDIC, for example). The English courts will generally uphold such clauses. However, a liquidated damages clause which is found to levy a sum which is out of all proportion to a legitimate interest of the innocent party will be unenforceable on the basis that it is a penalty.

The English courts will also apply the so-called ‘prevention principle’ (which operates to prevent a party benefiting from its own breach) in deciding whether to enforce a liquidated damages clause. In the context of liquidated delay damages, this means the court will consider whether the contract contains an effective mechanism to extend time in circumstances where the employer has caused the delay. If it does not, then time becomes at large and the liquidated delay damages regime will be unenforceable.

Although under English law parties are generally free exclude or limit liability, particularly in the case of contracts between businesses, some limits are imposed. For example, the Unfair Contract Terms Act 1977 (“UCTA”) prohibits the exclusion of liability for death or personal injury and the common law prohibits exclusion of liability for fraud. Any exclusion clause which purports to exclude these categories of liability will be found to be unenforceable.

In addition, under UCTA, an exclusion clause must have been a fair and reasonable one to include, having regard to the circumstances which were (or ought reasonably to have been) in the parties’ contemplation when making the contract.

Parties negotiating exclusion or limitation clauses should be aware of some common drafting traps, including:

• purported exclusion of liability for ‘gross negligence’, which is not a clearly defined concept under English law; and
• reference to ‘consequential loss’, which can have markedly different meanings depending on the exact wording and context of the relevant clause.

Although there is no automatic right to terminate for convenience at common law, construction contracts may expressly allow the parties to do so. A construction contract may also limit or remove common law rights and remedies, such as the right to terminate for repudiatory breach (i.e. a breach so severe that it demonstrates the intention of the party in breach not to be bound by the terms of the contract).

‘Force majeure’ is not a defined concept as a matter of English law. As such, parties are free to define force majeure and its consequences in construction contracts, and frequently do. The importance of the clear drafting of force majeure clauses has been highlighted in the past year as parties to construction contracts have considered whether Covid-19 constitutes a force majeure event, entitling them to extensions of time or loss and expense.

Insolvency of either party has historically been a standard ground for termination in construction contracts. However, the Corporate Insolvency and Governance Act 2020 now restricts the operation of contractual provisions that allow a contractor to terminate (or impose additional conditions) in the event of the employer’s insolvency, subject to limited exceptions.

As a matter of English contract law, the doctrine of privity of contract means that non-parties generally have no rights under a contract. The Contracts (Rights of Third Parties) Act 1999 can create a statutory basis for third party rights to arise, enabling third parties to enforce particular terms of the contract, though parties may (and commonly do) expressly exclude the operation of the Act under their contracts.

A number of legal mechanisms have also developed which grant separate rights to third parties in English construction projects. One example is collateral warranties, whereby party A contracts with party B to fulfil its contractual obligations to party C. If A breaches its contract with C, the collateral warranty may give B a contractual claim against A in respect of that breach where otherwise none would exist. Such collateral warranties may exist between a subcontractor and an employer or a funder, for example.

Another example, mentioned in relation to Question 12, is direct agreements, whereby a funder (or security trustee) enters into tripartite agreements with the parties to key project documents granting the funder the ability to ‘step in’ in the event that the project enters into difficulties.

Furthermore, rights to alter the property may be granted by a landlord to a tenant by means of a licence for alterations. As a consequence, works carried out beyond the scope of the licence for alterations may give rise to enforcement rights on the part of the landlord (if the alteration is of a nature for which the landlord’s consent is required). Moreover, tenants will need to be alive to the potential risk that, even if a landlord consents, the nature and scope of the proposed works may infringe on other tenant and third-party rights/demises. Additionally, tenants in multi-occupied blocks may benefit from clauses in their leases which enable them to compel the landlord to enforce breaches of covenant committed by other tenants.

One final example is UK planning regulations, which place restrictions on the works which may be carried out on properties in England and Wales, and may give rise to the need for planning consent for the works. If those restrictions are breached, the relevant planning authorities may carry out enforcement action. Particularly stringent planning controls apply to listed buildings.

English contract law gives parties a great deal of latitude to agree the terms of their contract, including making the giving of a contractual notice a condition precedent to bringing a claim. To that extent, English law recognises strict requirements (and time bars) for notifying claims if, on a true construction, the contract provides for them.

The common standard form construction contracts differ in their approach to notifying claims:

• Under the JCT standard forms clauses relating to notices for extensions of time claims are not considered to amount to conditions precedent. The contract administrator will have a duty to decide a fair and reasonable extension of time.
• In the case of the NEC standard forms, notice of a claim for additional time and money must be made within a specified time (usually eight weeks) of becoming aware of the relevant event. This requirement is a condition precedent to such claims and failure to notify within the time limit will defeat such claims.
• FIDIC standard forms provide that notice of a claim for extensions of time (or an additional payment) is required in order to bring a claim. Failure to give notice in accordance with the clause will cause the contractor to lose its entitlement to additional time or money. However, the standard forms do not prescribe precisely when a contractor is required to give notice, and the courts have found that the relevant clause should be construed broadly in favour of the contractor.

The following insurances are the most common required for UK projects:

1. For employers: employers’ liability insurance, all risks insurance and (for owners of some PPP projects) delayed start-up (“DSU”) / advanced loss of profit (“ALOP”) insurance.

• Employers’ liability insurance is a statutory requirement, and must be maintained throughout the period of employment.
• All risks insurance covers physical damage to the works (and the materials on-site) and will often be taken out by the employer for larger projects and for refurbishment works.
• DSU / ALOP insurance covers the owner of a project for the financial consequences of delay to completion. This form of insurance is often used for complex projects such as major public infrastructure works.

2. For contractors: public liability insurance, all risks insurance, non-negligent liability insurance and general annual insurance policies.

• Public liability insurance covers defects in design, so is usually required from consultants and from contractors working on a design and build basis. Where this insurance is required, it will typically be held throughout the period of the relevant party’s liability.
• All risks insurance is typically maintained by the contractor on new buildings until practical completion.
• Non-negligent liability insurance protects the developer against loss, expense, liability and claims arising out of damage to property from the works (e.g. due to subsidence, vibration or lowering of the water table).
• Most contractors also maintain annual insurance policies which cover them across the projects on which they carry out work.

3. For professionals: professional indemnity insurance and public liability insurance (as to the latter, see above)

• Professional indemnity (“PI”) insurance covers a consultant or other professional who makes an error or breach of confidence which causes loss to the client of that professional. PI insurance policies will typically include exclusions for (for example) asbestos and contamination.

Under the Construction Act parties to construction contracts have a statutory right to refer disputes to adjudication at any time, providing a speedy dispute resolution method which has proved extremely successful. Parties cannot exclude or contract out of the right and it does not matter if arbitration or court proceedings are already ongoing when a matter is referred to adjudication. Although adjudicator’s decisions are only binding on an interim basis, until the dispute is finally resolved by court proceedings, arbitration or negotiated settlement, in practice, most construction disputes are not referred for final determination and the adjudicator’s decision stands as the final resolution of the matter.

Where a construction dispute is commenced in the English High Court, it will usually be filed in the Technology and Construction Court (the “TCC”), a specialist division of the Business and Property Courts of England & Wales. TCC judges are specialists who have extensive experience in the resolution of construction disputes and are particularly well-suited to disputes which raise technically complex issues. The TCC has adopted and encouraged modern approaches to working, including electronic filing of court documents, e-disclosure protocols, modern formatting requirements for witness statements and the use of electronic bundling.

While English court jurisdiction clauses remain most common in UK domestic projects, cross-border construction contracts often provide for arbitration (typically under ICC or LCIA rules). See Question 24 in relation to enforcement of arbitration awards.

Expert determination may also be used in cases involving a complex issue of quantum or technical defects. However, statutory adjudication has restricted the prevalence of expert determination in the UK and it tends to be more commonly used for disputes relating to projects that fall outside the scope of the Construction Act, such as energy generating plants.

Construction contracts may also provide for mediation within a ‘waterfall dispute resolution clause’ as a precursor to formal legal proceedings, and mediation may also take place in the course of litigation.

The English courts are highly supportive of arbitration, and will enforce an arbitral award in the same way as a court order or judgment. The United Kingdom is one of over 160 signatories to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which provides for recognition and enforcement of arbitral awards by contracting states and sets out limited grounds for enforcement to be refused.

The Arbitration Act 1996 (the “Arbitration Act”), which applies to all arbitrations (whether international or domestic) which have their seat in England, Wales or Northern Ireland, was enacted with the intention of preserving England’s status as a global centre for commercial arbitration. The Arbitration Act, which is underpinned by principles of fairness, party autonomy and limited court intervention, implements the New York Convention in domestic legislation and also imported many of the principles and provisions of the UNCITRAL Model Law.

In the wake of the UK’s exit from the European Union, English courts may take the opportunity to recommence granting anti-suit injunctions in respect of EU court proceedings brought in breach of arbitration agreements, potentially increasing London’s attractiveness as an arbitral seat. While intra-EU anti-suit injunctions were found to be incompatible with EU law, such considerations no longer bind the English courts.

The length of time which it takes to enforce an arbitral award will depend on whether enforcement is resisted, and if so on what basis. If complex issues are raised, and they are of sufficient importance to be appealed to the Court of Appeal and Supreme Court, enforcement could take as long as two years or more. Typically, however, an award can be enforced quickly and efficiently using a summary procedure.

In addition, the TCC has adopted an expedited summary judgment procedure for enforcing adjudicators’ awards. Only in exceptional cases will the TCC refuse to summarily enforce an adjudicator’s decision and will not consider the underlying reasoning of that decision.

Under the Limitation Act 1980 strict time limits apply to the commencement of claims in England and Wales.

For a simple contract claim the limitation period is six years, starting on the day the breach of contract occurs. It is common within the construction industry for agreements to be executed as deeds. Executing a deed requires additional formalities and has the effect of extending the limitation period from six to twelve years in most circumstances.

The limitation period for tort claims depends on the particular tort in question, but in most cases runs for six years from the date of the damage. Claims in respect of latent damage (i.e. damage which exists but is not noticed/uncovered until a later stage) benefit from special rules, being the later of six years from when the damage was caused, or three years from the date the claimant knew or ought to have known about the damage, subject to a long-stop date of 15 years.

Separate rules apply to personal injury claims and claims involving fraud.

Multi-party disputes are common under English construction contracts.

Where there are multiple potential defendants the default position, under the Civil Liability (Contribution) Act 1978, is that each defaulting party is jointly and severally liable, which means that an innocent party may recover up to 100% of its losses from any of the potential defendants. Following payment to the innocent party, the defendant may seek recourse against another defaulting party to apportion the responsibility.

Net contribution clauses are recognised by English law and allow a defaulting party to limit any damages that it may be required to pay to a ‘fair and reasonable’ proportion of the innocent party’s loss in accordance with the level of blame that may be assigned to it.

Subject to any agreement to the contrary, a contractor is liable to the employer for any default by the subcontractor in carrying out works in accordance with the terms of the main contract. Accordingly, the liability (if any) of the subcontractor to the main contractor is governed by the terms of the subcontract and/or any collateral warranties. See Question 20 for further details.

The end of the transition period on 31 December 2020 brought an end to much uncertainty relating to Brexit. Increased paperwork required to bring goods into the UK may slow supply chains for contractors in the short to medium term and increase administrative costs. However, the new freedom of the UK government to control import tariffs for goods being imported into the UK may reduce costs of some materials used extensively in construction such as steel and concrete. The introduction of a points-based system for immigration may increase the administrative burden on contractors to bring in EU labour but should open up opportunities to recruit labour more easily from outside the EU.

Investigations conducted in the wake of the Grenfell Tower fire have revealed that many thousands of UK homeowners are living in residential developments with potentially dangerous cladding. The scale and urgency of these issues will continue to demand significant attention (and funding) to address them over the coming years.

The challenging economic climate in the UK persists as Covid-19 continues to threaten recessions in the UK and globally. At the time of writing, the UK is cautiously proceeding with a staged reopening following a third national lockdown, but the progress of construction projects continues to be inhibited by the availability of materials and labour.

Amongst the challenges there appears to be opportunity, the largest of which is likely to come from investment (both public and private sector expenditure). The UK government has announced the creation of a national infrastructure bank and £100 billion direct investment in infrastructure, energy and other capital expenditure projects to meet its goal of net zero carbon emissions by 2050. It is anticipated that the two-tier temporary tax deduction on investment on new equipment will unlock a huge amount of capital spending as companies can offset significant capital expenditure against their taxable profits, until the tax relief ends in 2023.

The UK government has also announced several new freeports as designated tax sites where enhanced rate of structures and buildings allowances of 10% on qualifying construction and renovation of new and existing non-residential structures and buildings will be available. In addition, there will be a 100% enhanced capital allowance available to companies investing in qualifying plant and machinery in designated tax sites.

Following a year of restrictions and delays in the construction sector, the Government outlined its National Infrastructure Strategy in November 2020 and has pledged £100 billion in infrastructure spending as part of its 2021 budget.

Energy infrastructure remains a main candidate for investment as part of the UK’s net-zero target for carbon emissions by 2050. The newly established Infrastructure Bank has been endowed with £12 billion to fund projects. The UK’s offshore wind and carbon capture and storage (“CCUS”) capabilities remain key areas of focus, the Government has pledged £20 million to the programme to develop offshore wind technology along with 60,000 jobs in offshore wind and 50,000 in CCUS together with corresponding visa and training program reforms to support the development of these technologies.

Construction of the UK’s first new nuclear reactor for decades at Hinkley Point C has been inhibited by delays and increased costs as a result of Covid-19 and commissioning is now scheduled for the summer of 2026. Discussions in respect of a further facility, Sizewell C, with the proposed design mirroring that of Hinkley Point C, are ongoing and Government approval of the project remains outstanding.

Investment continues in transport infrastructure spending with ongoing expenditure on the Crossrail and HS2 rail projects. The 2021 Budget committed expenditure of £27 billion on the UK’s motorway network between 2020 and 2024. Infrastructure transport funding will be increasingly directed at the regions, with an additional £1.7 billion earmarked for local roads over next 12 months and the Government has signalled renewed interest in a project to connect Northern Ireland and Scotland by rail tunnel.

Residential property development presents a mixed picture as house-builders have suffered from the reduced availability of the Help-to-Buy scheme (which offers additional borrowing to first time buyers) and, once the temporary Covid-19 stamp duty holiday ends, an increase in stamp duty (payable on the purchase of residential property), whereas student property has seen increased investment activity as a reliable source of steady returns.

Building Information and Modelling, including the development of 3D modelling techniques which promote early trouble-shooting and efficient project delivery has become increasingly common in recent years and is compulsory on government projects. It is anticipated that the incorporation of additional artificial intelligence technologies will result in improved trouble-shooting, coordination between mechanical, electrical and plumbing systems, reduce costs and increase the longevity of buildings.

Covid-19 has accelerated the uptake of technologies which minimise the need for personnel to attend the project site. Construction management software will allow real-time data collection and transmission between the site and offsite project managers and facilitate the archiving and review of project data. Modular offsite building practices will continue to develop as de-centralised, cost-effective and time-efficient means of construction. Drone technology may be used internally throughout the life-cycle of a project, assisting with initial surveys and fault detection and also externally to capture images and facilitate virtual public engagement.

The UK’s energy sector is currently the target of significant research and innovation of engineering techniques. For example:

• Floating offshore wind is set to be at the forefront of development of renewable energies as floating turbines can take advantage of stronger and more consistent winds found further offshore and offer a reduced environmental impact.
• The Government has pledged £215 million investment into Rolls Royce’s ‘small modular reactor’ development which aims to develop 16 smaller sites in the UK as part of its ‘Low Cost Nuclear’ challenge. The programme aims to shorten the construction process to four years, including only 500 days on site.

Covid-19 continues to cause problems across the construction sector, however the macroeconomic outlook has improved with the Government’s announcement of a roadmap out of the UK’s third lockdown and the easing of restrictions.

Whilst these developments will be welcomed by the wider economy, contractors will lose an easy excuse for slow progress and employers for slow payment. For developers and contractors who schedule their projects well ahead of time, there will be a backlog of work that needs to be accelerated through.

Continued compliance with HSE guidance in relation to Covid and a roll-out of workplace testing will be key as employers and contractors are required to maintain Covid-secure sites and minimise down-time.

Any optimism about the UK’s construction sector must also be considered in the context of repeated resurgences of the virus internationally as materials and skilled labour shortages linger. This will continue to cause problems in the global supply chain for construction materials and congestion at UK ports. These supply difficulties coupled with increased domestic demand to spend accrued capital before 2023, combined with delayed spending decisions because of Brexit and Covid-19, will contribute to price inflation and make it harder for contractors to accurately price projects for their customers.