United Kingdom: Construction

The United Kingdom comprises three jurisdictions: England and Wales, Scotland and Northern Ireland, each with separate legal systems. In this Chapter, we focus predominantly on England and Wales which is a common law jurisdiction. This means that its law is derived from both statutes brought into force by the UK Parliament, such as the Human Rights Act 1998, and decisions made by the courts (case law).

A note on the effect of “Brexit” on English and Welsh law

The UK ceased to be a member of the European Union (EU) at 11pm on 31 January 2020. A transition period then followed which ended at 11pm on 31 December 2020, at which point the UK left the EU single market and customs union. Until 31 December 2020, EU law applied in the UK under the provisions of the European Communities Act 1972.

From 11pm on 31 December 2020, by virtue of the EU (Withdrawal) Act 2018, EU law in force at the end of the transition period was absorbed into UK law. It is referred to as “retained EU law”. Save for some exceptions, the UK Parliament is now free to legislate in its own right on laws in England and Wales.

The Construction Act

The Housing Grants, Construction and Regeneration Act 1996, commonly referred to as the Construction Act, was introduced to improve cash flow in the construction industry. Part 2 of the Construction Act introduced a new payment regime, gave all parties to a construction contract the right to refer disputes arising under that contract to an adjudicator for adjudication (and a speedy decision) at any time and enabled contractors to suspend work if payment was not made. Parties cannot contract out of the Construction Act: if they do not provide for payment and a right to adjudicate, terms compliant with the Construction Act are implied into the parties’ contract (be it oral or written) regardless.

Construction adjudication has been resoundingly successful in enabling parties to resolve construction disputes swiftly. Adjudication decisions can generally be obtained within a matter of a few months and are binding on the parties until taken to court or arbitration. The courts routinely enforce adjudication decisions which has led to the vast majority of unsuccessful parties meeting their liabilities soon after a decision is given.

After operating for more than a decade, the Construction Act was amended by the Local Democracy, Economic Development and Construction Act 2009 (LDEDC). Key changes under the LDEDC included provisions that effectively banned “pay when paid” provisions; replacing withholding notices with “pay less” notices, by which the payer notifies the payee of the payer’s intention to pay less than the notified sum; and enhancing the rights of a contractor/sub-contractor in situations where it is entitled to suspend performance.

Building Safety Bill

At the time of writing, the Building Safety Bill is in the final stages of its progress through Parliament. It aims to improve building safety regulations, clarify the regulatory system and make residents safer in their homes. Key features include:

• substantial changes to the regulatory building safety framework by means of amendments to the Building Act 1984. New measures include the creation of three “gateways” to manage and control risk at key stages in the design, planning and construction of high-risk buildings. (The first gateway has already been launched);
• a new Building Safety Regulator who will sign off works at key stages in the building process;
• new obligations that will apply throughout the life cycle of a building;
• new roles to manage buildings at higher risk including “building safety managers” and “accountable persons”;
• competency requirements for those involved with buildings;
• enforcement processes in the event of a breach;
• a legislative framework to protect buyers of new-build homes, enabling secondary legislation to create a new homes ombudsman scheme;
• changes to the construction products regime;
• a Building Safety Fund to remove dangerous cladding from high-rise buildings (which has already been established);
• improved access to claims under the Defective Premises Act 1972, not least by lengthening the periods within which claims can be brought; and
• new measures to hold the industry accountable for remediation works.

The Defective Premises Act 1972

The Defective Premises Act 1972 (DPA72) requires all those involved in constructing a dwelling to carry out works in a workmanlike manner and ensure the dwelling is fit for habitation on completion of the work. DPA72 applies to all dwellings in England and Wales and enables those who commissioned the work, or who have a legal or equitable interest in the dwelling, to seek compensation for defective work from those responsible within six years of the completion of the works.

The government intends, under the Building Safety Bill, to increase this six-year time period under the DPA72 to 30 years to cover retrospective work, and from six to 15 years to cover future building work. The DPA72’s scope will be increased to include refurbishment or other works to existing dwellings. Note that the DPA imposes “strict liability” on those in default – in other words, claimants do not need to show fault or negligence: if the dwelling is unfit for habitation, liability will follow.

The Building Regulations

The Building Regulations (under Building Regulations 2010 (SI 2010/2214) and Building (Approved Inspectors etc.) Regulations 2010 (SI 2010/2215)) apply to all domestic, commercial and industrial buildings in England and Wales (with limited exceptions) including the erection of/extension to a building, material alterations, installation of cavity insulation, underpinning or work in relation to energy performance.  The government issues technical guidance on the building regulations in the form of Approved Documents and other guidance can be found in the government’s Manual to Building Regulations (see Building Regulations and Approved Documents index – GOV.UK (www.gov.uk), the Planning Portal (Planning Portal) and various other online guidance.

The Construction Industry Scheme (CIS)

Contractors must (and sub-contractors may) sign up for the CIS which is a government framework for deducting tax at source from certain payments relating to construction works. See: Construction Industry Scheme (CIS) – GOV.UK (www.gov.uk).

The Unfair Contract Terms Act 1977

The Unfair Contract Terms Act 1977 (UCTA) restricts parties’ ability to exclude or limit their liability in contract or negligence by providing that such clauses must pass a statutory test of reasonableness.

The Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015 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 statutory fitness for purpose obligations, while a consultant providing services must do so with reasonable skill and care. Such obligations may be limited by contractual limitations or exclusions, subject to UCTA.

(a) Health and Safety

The Health and Safety Executive (HSE) is the UK government agency established by The Health and Safety at Work Act 1974 (HSW Act) with responsibility for regulating and enforcing health, safety and welfare for companies and employees in the workplace. The HSW Act sets out the health and safety duties of a company, its directors, managers and employees, breach of which can lead to criminal liability and fines. Under the Corporate Manslaughter and Corporate Homicide Act 2007, companies can be convicted of corporate manslaughter. Guidance regarding fines for health and safety breaches became more stringent in 2016 – fines can exceed £100,000.

Practical guidance on health and safety (H&S) regulations in the form of Approved Codes of Practice (ACoP) are approved by the HSE and the Secretary of State. ACoPs have special legal status, meaning that failure to comply with an ACoP in place at the time of a breach can lead to a reversal of the criminal burden of proof.

The Construction (Design and Management) Regulations 2015 (CDM 2015) came into force in April 2015 and form part of the H&S regime in the UK. They apply to all construction projects in Great Britain, including domestic projects, with few exceptions. CDM 2015 sets out the main responsibilities related to H&S in construction projects, including identifying and eliminating foreseeable risks and making sure suitable site inductions are provided. They also aim to ensure that appropriately qualified parties are appointed as designers and contractors to enable proper organisation and management of the project. CDM 2015 sets out the key duties of all parties including the designer, client, contractor[s] and workers and the requirement to draw up the construction phase plan and to create and maintain the H&S file. General duties relate to competence, cooperation, reporting danger and providing information and instruction. Generally speaking, the HSE enforces CDM 2015 and has published guidance on the legal requirements for CDM 2015 to help anyone with duties under the Regulations: Managing health and safety in construction.

(b) Environmental Issues

With some exceptions, namely the Climate Change Act 2008, a significant amount of UK environmental law is based on EU legislation. Much of this legislation was retained in UK law (Retained Law) following the UK’s exit from the EU on 31 December 2020 (Brexit). Provisions to secure a level playing field between the EU and the UK were included in the EU/UK Trade Cooperation Agreement (TCA) to cover several environmental areas, including biodiversity, air, land and water pollution, waste management and agriculture. Post Brexit, while new UK environmental laws will emerge, the TCA stipulates a policy of non-regression on Retained Law relating to these environmental areas. In other words, UK law may diverge from EU law but should not lower the environmental standards embodied in Retained Law. Some divergence from EU schemes has already happened in relation to the biocides regime and Emissions Trading Scheme.

The Environment Agency (EA) acts as the government’s regulator and, sponsored by the governmental Department for Environment, Food and Rural Affairs, has primary responsibility for compliance with environmental legislation. Under the Environment Act 1995, the EA has extensive powers of investigation and can prosecute or order civil sanctions against those found guilty of breaches. Natural England and Natural Resources Wales are other public bodies who advise and regulate on environmental issues. The Environment Act 2021 established the Office for Environment Protection and sets out targets and policies for protecting UK environmental standards in various areas including air quality, regulation of chemicals and conservation covenants.

The Building Research Establishment’s Environmental Assessment Method (BREEAM) offers an independent sustainability assessment method to measure an asset’s environmental, social and economic sustainability performance, using standards developed by Building Research Establishment.

(c) Planning

Planning permission is required for the carrying out of any development of land in England and Wales under the Town and Country Planning Act 1990 (TCPA). Under the TCPA, development is defined as the carrying out of “building, engineering, mining or other operations in, on, over or under the land or the making of any material change in the use of any buildings or other land”. Failure to secure permission where required can result in enforcement proceedings and may incur criminal liability or costs penalties. Applications can be made for outline and/or detailed planning permission.

Applications for planning permission are made to the local planning authority or the Secretary of State, depending on the project size. The procedure and time for processing an application can vary depending on the specific development. Conditions may be attached to a permission through a planning agreement. Appeals are permissible where permission has been declined.  Interested third parties may challenge planning permission they believe to have been awarded incorrectly through judicial review.

Listed buildings are protected and developers must first obtain additional listed building consent as well as the regular planning permission. Carrying out works on a listed building without explicit consent carries additional penalties.

The Planning Act 2008 covers planning applications for nationally significant infrastructure projects (NSIPs). Such applications are considered by the Planning Inspectorate who will make a recommendation to the Secretary of State on whether to grant a development consent order.

(d) Employment

UK employment law is governed primarily by the Employment Rights Act 1996 and Employment Relations Act 1999. Key provisions recognise trade union representatives and set out responsibilities regarding parental leave and conditions surrounding unfair dismissal.

The Equality Act 2010, which consolidated into one a number of statutes (such as the Race Relations Act 1976 and the Sex Discrimination Act 1975), protects employees from discrimination, harassment and victimisation in the workplace on the basis of their protected characteristics.

It is important to determine whether personnel involved are defined as an employee, a worker or self-employed/independent contractor, as this status will impact on their responsibilities and the protections owed to them by their employer/the client. Guidance on these definitions is set out in the legislation and provided by the Citizens’ Advice Bureau.

The off-payroll working rules can apply if a worker (or contractor) provides their services through their own limited company or another type of intermediary to the client. The rules make sure that workers, who would have been employees if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees. These rules are sometimes known as IR35.

A sub-contractor is generally regarded to be an independent contractor (i.e. self-employed) rather than an employee of a contractor, and as such is not afforded the same employment obligations from the contractor as would be afforded to the contractor’s employees. Generally, a contractor cannot be held vicariously liable for the sub-contractor’s actions in the course of carrying out their duties, whereas a contractor could be so for its employee’s actions. Workers on temporary contracts or supplied by agencies will be granted some protections, such as breaks and holiday pay, but do not hold the same protections as employees as laid out in the employment legislation above.

Employers must check their employees’ right to work to confirm that their immigration status entitles them to work in the UK. Developers do not have a legal obligation to check an independent contractor’s right to work. Sub-contractors (rather than the contractor) must check the immigration status of their employees. As a matter of good practice, developers should require such checks and may insist on conducting their own identity checks.

In some cases, the Transfer of Undertakings (Protection of Employment) Regulations 2006 may apply (for example, where a developer outsources works).

Other key legislation includes:

• the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 and Agency Workers Regulations 2010 (which aim to prevent discrimination against particular types of worker); and
• the Modern Slavery Act 2015 (which requires businesses with a turnover of £36 million or more that supply goods or services and carry on business in the UK to prepare an annual Slavery and Human Trafficking statement setting out what steps have been taken to ensure that their business and supply chain are free from slavery and human trafficking).

(e) Anti-Corruption and Bribery

Unfortunately, the nature of the construction industry means opportunities can arise for bribery. Such opportunities can materialise in tender processes as well as during contract negotiation and parties must be alive to the risks of accepting facilitation payments and offers of corporate hospitality. UK laws dealing with bribery are contained in the Bribery Act 2010 (Bribery Act). Government guidance is also available and explains procedures which relevant commercial organisations can effect to prevent persons associated with them from bribing (section 9 of the Bribery Act). The guidance promotes commitment from the top levels of an organisation as well as risk assessments, due diligence, communication, monitoring and reviews.

Under the Bribery Act, it is an offence to bribe or attempt to bribe another person or foreign public official, or accept a bribe. Commercial organisations can also be prosecuted under the Bribery Act for failing to prevent persons associated with them from attempting to bribe on their behalf. The Act applies to UK citizens and businesses based in the UK, as well as all parties with a close connection to the UK, whether or not the offence takes place in the jurisdiction.

The Serious Fraud Office investigates and prosecutes serious or complex fraud, bribery and corruption. Individuals found guilty of an offence under the Bribery Act can face imprisonment and/or an unlimited fine while commercial organisations could be subject to an unlimited fine.

Planning permission is required before carrying out any development of land in England and Wales under the Town and Country Planning Act 1990. See Question 3(c).

Listed building approval is required to undertake any work on listed buildings.

Public authorities must follow procurement rules when carrying out tender processes. See Question 9 below.

Those carrying out construction works must comply with the Building Act 1984 and Building Regulations and seek all approvals and licences relevant to the works.

In certain cases, environmental permits are required (for example, for waste management or water discharge).

It may also be necessary to obtain approvals as appropriate from local authorities if construction work is likely to affect adjacent public land and amenities, such as highways.

Where works are being carried out to leasehold premises, tenants may need a licence from the landlord and/or a licence to change permitted use of a building.

Failure to seek the required approvals in most of the above cases can lead to a range of penalties from the removal of construction works to criminal prosecution and fines.

English law recognises a right to bring an action for civil wrongs, or torts, and claims for unjust enrichment. Tort claims are separate from and additional to rights in contract.

In the construction context, the most common tort claims are those made for damages to cover losses suffered through the defendant’s negligence (for example, in carrying out defective design or for negligent workmanship). In such cases, the claimant will normally be seeking damages. The claimant, as the injured party, must prove that the defendant owed a duty of care to the claimant, that on the balance of probabilities the defendant breached that duty of care, and that the breach, legally and factually, caused the damage suffered. The claimant must also show that the loss was a reasonably foreseeable consequence of the defendant’s negligent act.

In practice, it is relatively difficult to establish a cause of action in tort. Unless the parties have a “special relationship”, only those losses consequent on damage to property are recoverable – “pure economic loss” is not and so a contractor will not owe a duty of care in tort for pure economic losses suffered by the building owner. It is relatively easy to defend this type of claim (or at least eliminate most of the heads of claim save for that part of the loss relating to the damage to the property itself).

Parties therefore seek to cover all potential risks relating to the project, including for defective design and poor workmanship, in contract – thereby ensuring contractual remedies are available and avoiding the need for a claim in tort. (See also Question 20 on third party rights.)

There may, however, on occasion be a benefit to claiming in tort rather than contract, the key benefit being in relation to limitation periods. Contract claims arise upon the occurrence of the breach of contract from which date the six-year (or 12-year if the contract was signed as a deed) limitation period starts. A claim in contract may therefore have become time-barred by the time a party is ready to make the claim.

Conversely, the limitation period for claims in tort starts from the date the loss was suffered by the claimant. This often means that the six-year limitation period for tort claims expires later than the corresponding contractual claim. If the contract claim is outside the limitation period, the claim in tort may be the claimant’s only option.

The types of construction parties involved will differ depending on the complexity and size of the project. At their most simple, construction projects involve an employer/developer/client entering into a main contract with a contractor for the carrying out of construction or engineering works. Depending on the nature of those works and the procurement route chosen, the employer and/or the contractor will enter into additional contracts with other parties for the carrying out of the works. Such parties could include:

• designers such as architects, civil & structural engineers, mechanical & electrical engineers who will prepare the design;
• specialist designers who might be engaged to prepare a specific element of the design, such as acoustic consultants;
• professional consultants to provide professional advice and support to the employer and to take on roles such as the employer’s agent/contract administrator, quantity surveyor/cost consultant, principal designer (as required by CDM 2015) and/or project manager; and
• sub-contractors who are specialist contractors, generally engaged by the main contractor, who will undertake specific packages of works relating to, for example, cladding, piling, steelwork or lifts.

The rights and obligations of these parties will be set out in sub-contracts, collateral warranties, professional/consultancy appointments, deeds of assignment and/or deeds of novation.

One or more funders, sureties, future purchasers and tenants may also have interests in the project. Contractual rights and obligations relating to those interests will be covered by contracts such as bonds, parent company guarantees, collateral warranties or schedules of third party rights.

In addition, the key project parties will contract with various suppliers in the wider construction supply chain for the delivery of goods and services as needed for the works to proceed in accordance with the contract programme and the employer’s requirements/specifications.

Design and Build contracting

“Design and Build” procurement (often shortened to “DB” or “D&B”) involves the contractor taking on responsibility for both the design and construction of a project after receiving the employer’s detailed requirements. The contractor will then sub-contract parts of the works out to specialist sub-contractors. Several industry bodies offer standard form contracts for this method of procurement. Parties on more complex projects may draft a bespoke D&B contract tailored specifically for the project.

Many UK domestic projects use the JCT Design and Build. Typically, the employer and the contractor will agree amendments to the standard form which will then be set out in a schedule of amendments. Employers often favour D&B contracting because it places the responsibility on the contractor to finalise the design with the design team and to co-ordinate the design and the works. The D&B arrangement also simplifies project administration for the employer and enables its dealings to be restricted to the contractor alone (establishing a single point of instruction). Contractors often have more specialist experience than the employer and this method of procurement allows the employer to take the fullest advantage of the contractor’s experience.

In cases where the employer has appointed designers to carry out preliminary design work (typically the architect and civil & structural engineer), the employer will normally novate those appointments to the contractor who will then assume control for the project design.

Engineering, Procurement and Construction (EPC) contracts are a form of D&B contract often used on large, complex infrastructure and energy projects. Commonly referred to as turnkey projects, the employer will provide performance specifications which the contractor must meet. The FIDIC EPC/Turnkey Contract 2nd Edition (2017 Silver Book) is an example.

The traditional method

In the “traditional method“, the design and construction of the project are carried out by different parties. Several standard form contracts take this approach, such as the JCT Standard Building Contract either With Quantities, Without Quantities or With Approximate Quantities. The employer will first develop the full or bulk of the design with their design team and then engage the contractor to carry out the works to meet such design. The consultants remain under the employment of the employer. An architect, contract administrator or engineer (as appropriate) will administer the project on the employer’s behalf. Sometimes a contractor may be required to provide an element of design (the contractor’s design portion).

Management procurement

Management contracting involves the employer/client appointing a management contractor to manage the construction of the project. In turn, the management contractor will appoint works contractors to carry out the works and specialist design (if any). Such works contractors enter works contractor agreements with the management contractor directly, but the management contractor is only liable for the works contractors to the extent that it can recover costs and losses from them under the works contracts.

Construction management takes a different approach in which the employer/client appoints the construction manager, the professional consultants and the trade contractors. The construction manager administers the trade contracts and agrees with the employer/client to perform the construction management contract with appropriate skill, care and diligence.

Partnering/alliancing

Collaborative approaches to procurement, called alliancing or partnering, are used where the parties want to collaborate on a project for mutual benefit and to avoid disputes. There are various models available which are chosen because, for example, they can: achieve increased customer and staff satisfaction and project value; protect contractor and supplier profit margins; engender an environment which promotes innovation and understanding; cut out duplication; and better predict time and cost. Project partnering, framework agreements and construction consortia are all examples of partnering models.

Several professional bodies offer suites of standard form construction contracts. Parties to construction projects often amend these forms, sometimes substantially and especially on complex projects. It is increasingly common for employers who commission a particular kind of project frequently to develop their own bespoke standard contracts for regular use on such projects. Very often, the drafting of those contracts is based on or influenced by the popular, standard forms of contract published by contract bodies in the UK such as the JCT, FIDIC, NEC and IChemE.

The Joint Contracts Tribunal (JCT) is a long-term, recognised and respected provider of standard form construction contracts which are a popular choice on UK domestic projects, both commercial and residential. Parties negotiate the terms of these forms of contracts routinely and the terms are often amended heavily, particularly those terms relating to design responsibility (for example, giving the contractor single point design responsibility), site conditions, provision of warranties and copyright.  It is quite standard for a schedule of amendments to be included in the signed version of the contract, bound to the back of the JCT contract booklet.

The NEC suite of contracts was first introduced in the early 1990s and adopted a very different approach. Written in the present tense, it is proffered as a collaborative contract based on project management principles that requires those involved in contract operations to act in a spirit of mutual trust. In the UK, the NEC is largely used by experienced, often public sector clients such as government departments for larger civil engineering and infrastructure projects. Amendments are commonly agreed (and added as “Z” clauses) to tailor the terms of the contract to the specific project.

Parties on complex international projects with substantial engineering features tend to favour contracts from the FIDIC* suite of contracts such as the “Red Book” which covers construction works, the “Yellow Book” for design and build projects and the “Silver Book” for turnkey projects.  English law is often chosen as the governing law for these contracts. The contracts are routinely heavily amended which has led recently to FIDIC publishing its “Golden Principles” to remind parties of the key terms which underpin the FIDIC ethos – particularly in relation to the parties’ rights, obligations and duties, the need for clearly drafted conditions and the balanced allocation of risk.

Institute of Chemical Engineers (IChemE) contracts are used on complex chemical and process engineering projects. UK IChemE forms include the Lump Sum, The Red Book, Fifth Edition, 2013 and the Sub-contract for Civil Engineering Works. The IChemE also produces international contracts such as the Lump Sum, The International Red Book, First Edition, 2007.

Institution of Mechanical Engineers (IMechE) contracts are used on projects with complex mechanical installations. The most commonly used IMechE form is MF/1, a model form of contract for the design, supply and installation of electrical, electronic and mechanical plant, including special conditions for the ancillary development of software.

Public procurement in the UK is governed by procurement rules set out in the Public Contracts Regulations 2015, the Concession Contracts Regulations 2016 (SI 2016/273) and the Utilities Contracts Regulations 2016 (SI 2016/274). These laws have their origins in EU directives which the UK implemented into UK law while still a member of the EU. Following the UK’s departure from the EU on 31 December 2020 (Brexit), these rules remain in force in England, Wales and Northern Ireland but have been adapted by the Public Procurement (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/56) to correct deficiencies (such as removing now redundant references to the EU).

Opportunities to sell services to the public sector are published through the government webpage, https://www.gov.uk/tendering-for-public-sector-contracts, which includes links to the Find a Tender service (for high-value public sector contracts (over £118,000 in the UK) and the Contracts Finder service (for contracts over £10,000 in England and devolved bodies). The Find a Tender service replaced the EU’s Tenders Electronic Daily from 1 January 2021 for high-value contracts in the UK.

Following Brexit, the UK is free to diverge from the EU procurement process. It is, however, still subject to certain international laws. For example, the World Trade Organisation’s (WTO) Government Procurement Agreement (GPA) is a voluntary trade agreement between countries which have elected to be within the WTO framework. It promotes open, fair, transparent conditions of competition. The UK was previously a member as part of the EU but, post Brexit, has negotiated independent membership. As the UK’s public procurement regulations already comply with the GPA, public authorities have to simply comply with domestic procurement law to meet GPA requirements. The UK also entered into the Trade and Co-operation Agreement with the EU which establishes the basis for a broad relationship between them.

The government’s recent activity in relation to public procurement includes:

• The government policy paper, Public Procurement: Provisional Common Framework, first published on 23 March 2021, sets out a “non-legislative framework to ensure continued co-operation between the government and devolved administrations (DAs) in relation to public procurement”. The DAs comprise England, Wales, Scotland and Northern Ireland. The paper sets out a four-nation approach to domestic and international public procurement policy and is intended to guide all four devolved nations to develop public procurement policies after Brexit.
• The government announced it would introduce a Procurement Bill in the Queen’s speech in May 2021, the aim of which is to overhaul and simplify procurement in the public sector. The government’s proposals for procurement reform were set out in Green Paper: Transforming public procurement (last updated on 27 January 2022). The green paper acknowledged the opportunities arising from the UK’s departure from the EU to overhaul outdated procurement policies. A consultation on those proposals ended on 10 March 2021 and the government issued its response to the consultation on 6 December 2021. The Procurement Bill is expected to be published in 2022.
• The Consultancy Playbook (May 2021) sets out how to commission and engage with consultants more effectively, achieve better outcomes, better value for money and improved Civil Service capability through the transfer of knowledge and skills.
• The Construction Playbook (8 December 2020) guides public bodies responsible for public procurement. The playbook recommends JCT contracts as a key standard form for use on public projects as they “can be used to help simplify and speed up procurement procedures”, and recommends that best practice can be achieved by “applying a common approach across the public sector” which will, in turn, create certainty for the supply chain.
• The Outsourcing Playbook (rebranded as the Sourcing Playbook in May 2021) aims to improve government procurement and deliver better public services. It is aimed at commercial, finance and project delivery professionals in central government responsible for planning and delivering outsourcing projects and changes how government allocates risk between itself and its suppliers.

From time to time, the government issues guidance in the form of Procurement Policy Notes (PPN). For example, PPN 02/19, issued in June 2019, provided further information on how the UK’s public procurement regulations would be affected in the event of either an agreed deal with the EU or a no-deal exit from the EU. The National Procurement Policy Statement (1 June 2021) reflected the government’s intention that public sector procurement “must support the delivery of public sector policy priorities, including generating economic growth, helping our communities recover from the Covid-19 pandemic, and supporting the transition to net zero carbon”.  All PPNs can be found on this government website.

PPN 05/19: Tackling Modern Slavery in Government Supply Chains (September 2019) underlines the government’s commitment to keeping government supply chains free from slavery, servitude, forced and compulsory labour, and human trafficking.

On most construction projects, an employer will engage a range of consultants to carry out a variety of roles including planning, design, valuations and project administration, including:

• designers such as architects, civil & structural engineers, mechanical & electrical (M&E) engineers;
• quantity surveyors to value the works, both at the outset and during the project;
• programmers and/or delay experts to programme and monitor the progress of the works and/or analyse any delay in the project;
• specialist designers who may be engaged for a specific element of the design, such as planning, environmental, highways or acoustic;
• dispute resolution specialists who may be appointed as part of a Dispute Advisory Board and appointed on an ad hoc basis to resolve disputes arising during larger projects; and
• other consultants who provide professional advice and support to the employer and act in roles such as the employer’s agent/contract administrator, quantity surveyor/cost consultant, principal designer (as required by CDM 2015) and project manager.

The procurement method chosen for the works will influence the choice of designers for the project, and whether it is the employer or the contractor who will engage these consultants.  For example, in the design and build method of procurement, it is common to see the main designers (such as the architect, structural engineer, M&E engineer) appointed by the employer, and for these main designers to be subsequently novated to the contractor.  This allows the employer to prepare the design in the employer’s requirements, before passing responsibility for this design to the contractor. Whether specialist designers are engaged by the employer or the contractor will depend on when they are engaged on the project.

Bespoke forms of appointment are typically drafted and negotiated for the appointment of consultants. Consulting bodies such as the Royal Institute of British Architects do produce templates but these forms are rarely used in connection with major works in the UK due to being heavily weighted in favour of their members.

Generally, yes: sub-contracting is a common practice in the UK market. An employer might seek to retain some control over sub-contracting of works by inserting appropriate provisions in its “main” contract with the contractor. For example, an employer may require that: the employer is consulted before the contractor engages a sub-contractor; collateral warranties or third party rights are provided by the sub-contractor to the employer (to establish a direct contractual relationship between the sub-contractor and the employer); and/or that responsibility for the works and/or design that is to be sub-contracted is to remain with the contractor regardless of the sub-contracting arrangements.

Many of the standard forms of contracts discussed above include template sub-contracts for the contractor to use.

The financing of UK construction projects will depend on the client and the distinct features of the projects.

At its most basic, householders will fund extensions and new-build projects from a mixture of personal savings and high street bank loans. At the other end of the spectrum, the lending documentation for complex projects will be equally elaborate, involve several interested parties and require considerable negotiation.

Real estate developers of, say, a housing estate or block of flats, will, most commonly, fund projects through a mixture of equity and loans secured on the land or by guarantees.

Project finance is used for projects requiring a large injection of capital and long-term investment (such as hospitals, government facilities and nuclear plants). Project finance was used for the UK Private Finance Initiative (PFI as well as the later PF2) and Public Private Partnership (PPP) projects that were until relatively recently used to fund public projects. Such projects are cash flow based: the revenue from the asset is used to repay the loan and cover operational/maintenance costs. In the case of limited recourse loans, should the lender need to enforce the charge, only a limited amount will be recoverable from the borrower.

Simply speaking, project sponsors (whether private or government owned) will usually carry out the project through a Special Project Vehicle (SPV) or project company. The project sponsor will promote, manage and develop the project. The project company will own or have an interest in the asset and take on a loan to carry out the construction works. Debt funding will be obtained from the government, commercial lenders, multilateral financiers, bond investors or subordinated debt providers, or from a combination of such sources. Given the risk committed to projects by lenders, they often have a significant say in how the work is carried out. For example, they might require the project company to appoint a lead contractor to carry out works rather than have works packages split between several contractors. An operator is appointed to manage and operate the project under an operations and management (O&M) agreement. Insurance provision is crucial and, again, the insurance documentation often requires extensive negotiation to fit the terms to the project’s specific risks.

Complex infrastructure and energy projects can be funded either by loans or through project bonds. Project bonds are normally issued by the project company and secured over the project assets and project company shares. They are limited recourse loans in that their repayment is limited to the project cash flow.

An employer will normally require the contractor to provide security for its performance under the main contract, either through the provision of an on-demand performance bond or a performance guarantee bond. An on-demand bond will require a third party surety to pay the amount demanded under the bond where the employer makes a valid written demand without the employer having to issue proceedings or prove a breach of contract by the contractor. An employer seeking to hold a contractor to its obligation to make payment under a performance guarantee bond will have to prove that the contractor is liable under the main contract for the amount before the surety meets the claim. Such obligations usually expire at practical completion of the project or, alternatively, 12 months after practical completion/issue of the certificate of making good defects (whichever is the later).

Where an employer makes upfront payments to the contractor in the early stages of a contract for buying materials and equipment, the employer may require an advance payment bond or advance payment guarantee. Such security protects the employer in the event of the contractor’s insolvency or default and enables the employer to recover the upfront payment and is normally drafted to expire when the contractor reaches a particular stage of the work.

An employer on a construction contract may require a contractor’s parent company to guarantee the contractor’s performance. Should the contractor default, the parent company will be required by the employer under the parent company guarantee to pay damages or remedy the contractor’s breach. A parent company guarantee will usually run contemporaneously with the contractor’s liability under the building contract, so may run on for a number of years after practical completion of the works.

Part II of the Housing Grants, Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009 (Construction Act) requires construction contracts (as defined by the Construction Act) to include the following statutory payment provisions:

• a term that entitles the contractor to receive payment by instalments, stage payments or other periodic payments;
• an adequate mechanism for determining what payments become due, when, and the final date for payment; and
• a requirement to set out a specified timetable for payment applications and for payment and pay less notices to be given in relation to sums due at each relevant due date.

If a construction contract does not contain any of these provisions, the wording of the Scheme for Construction Contracts 1998 will be implied into the contract (there are separate schemes for England, Wales and Scotland but they do not differ materially in terms of payment). The Scheme has the effect of rendering defective construction contracts (or clauses) compliant with the Construction Act.

If an employer fails to issue a payment or pay less notice in response to a payment application from the contractor within the specified time limits, it becomes statutorily obliged to pay the full amount (referred to as the notified sum) applied for by the contractor. It will still be open to the employer to seek repayment of such sums in a subsequent payment application process or final payment process. An employer who does not make payment by the final date for payment may find itself subject to a claim for payment of the notified sum by the contractor in adjudication proceedings. Adjudicators will normally uphold the payment to the contractor.

Parties must pay attention to the payment process. Minor errors in preparing interim payment applications, payment notices and pay less notices, or delays in serving such documents, can mean that a contractor cannot obtain payment until the next payment cycle. Employers may have to pay the full amount applied for even if they dispute that it is payable.

The Construction Act means that parties must be familiar with the process for serving notices and must diarise key dates to ensure notices are given within the required timescales.

Section 113 of the Construction Act prohibits the operation of pay-when-paid clauses in construction contracts except in circumstances where the employer (as payer) is insolvent. Section 110A of the Construction Act operates to prevent payments being conditional on the performance of obligations under other contracts (thus stopping “pay-when-certified” or other similar clauses).

It is common for parties to a construction contract to include a retention provision in their contracts. Such provisions permit the employer to withhold a small percentage of any payments made to the contractor during the works, normally ranging from 3% to 5%. The timing of the release of the retention will depend on what the parties have agreed. Usually, the employer must pay half the retention at practical completion. The remaining half will then be held until the end of the rectification or defects liability period. A retention provides an employer with security and a fund to draw on if the contractor does not complete the project or does not remedy defects in its works.

It has been successfully argued that the employer holds the retention monies on trust for the contractor and cannot therefore treat them as its own. To avoid arguments such as this, employers sometimes amend retention provisions to expressly avoid a fiduciary duty to the contractor arising in relation to the retention and to ensure no obligation arises to set aside the retention in a separate trust account.

Late or no release of a retention can have a significant impact on the cash flow of small contractors whose operations often produce very small profit margins. Industry concerns about late or no release of retentions by unscrupulous employers have led to various initiatives by members of the UK Parliament to regulate or abolish retentions – so far, without success.

In the usual course of business, a party will contract with another for goods and/or services. If something goes wrong in the supply of those goods or services (for example, the supplier supplies faulty goods), the innocent party will claim damages for breach of contract to put itself in the position in which it would have been had the goods complied with the contract. The innocent party must prove that the breach caused its loss and the court will decide whether it is appropriate to award the level of damages claimed (and adjust appropriately if not). Such damages are called general damages.

In the construction context, there are often multiple parties involved in delivering a construction project. Disputes in the supply chain can quickly disrupt the project. To avoid the cost of resolving what can be complex and involved disputes, construction contracts normally include liquidated damages provisions that set the level of damages to which the employer will be entitled in the event of certain breaches. A common, but not the only such breach, is a party’s delay in completing works by the specified completion date. In the event of a breach, the employer will be entitled to claim liquidated damages at the specified daily/weekly fixed rate until completion without having to prove a loss.

The English courts rarely interfere with a negotiated agreement between two commercial parties and will generally, therefore, uphold a liquidated damages provision provided it is clearly drafted, the breach is covered by the provision and the employer has complied with the correct conditions for deducting/claiming the liquidated damages (for example, by serving the requisite notice). The contractor, however, may argue that the stipulated sum amounts to a penalty. Recent case law has clarified the position on the test for a penalty and, while the old test of assessing whether the liquidated damages were a genuine pre-estimate of loss remains useful, the key considerations now rest on whether the liquidated damages imposed by the contract are out of all proportion to the legitimate interest of the employer in enforcing the contractor’s primary obligation to complete on time.

In considering liquidated damages provisions, the courts will have regard to the prevention principle. In the context of construction delay, this means that an employer cannot require the contractor to comply with a contract completion provision if the employer itself has prevented the contractor’s compliance. If the delaying event was caused by the employer, and the parties have not made provision for the award of extensions of time, the original completion date will fall away, as will the liquidated damages provision, and the contractor’s obligation will be to finish within a reasonable time (i.e. time will be put at large).

Contracting parties are free to include provisions that exclude or limit liability. However, while the English courts are reluctant to interfere in an agreement negotiated between two commercial parties, there are certain limits set out by statute and in common law. Parties must ensure that it was fair and reasonable to include the exclusion clauses given the circumstances which were or ought reasonably to have been in the parties’ contemplation when they made the contract (under The Unfair Contract Terms Act 1977 (UCTA)). Also under UCTA, parties cannot exclude liability for death or personal injury, nor can they exclude liability for fraud (in common law). Provisions which breach UCTA will be unenforceable.

English common law does not give parties to a contract an automatic right to terminate “for convenience”. Parties often include termination clauses in a construction contract to provide a right to determine the contract, or the contractor’s employment under the contract, on the occurrence of a specified event such as a failure to proceed with the works with due diligence. Parties can also include a clause to permit termination at will, subject to providing notice to the contractor, without any reason needed. The exercise of rights under such clauses are usually conditional on service of a notice in prescribed form.

A right to terminate upon the insolvency of the contractor was a common term in construction contracts until the government introduced the Corporate Insolvency and Governance Act 2020. This act was part of the government’s COVID-19 measures to keep businesses trading. Its main effect is to render ineffective contract terms providing for termination on a client’s insolvency.

A serious breach of contract could amount to a repudiatory breach of contract that evidences an intention by the party in breach not to be bound by its contractual obligations. In this case, the innocent party could exercise its common law right to terminate the contract and may be entitled to claim damages for losses suffered as a result of the breach.

There is no definition of force majeure in English Law. A force majeure clause relieves parties of [some of] their contractual obligations if certain events occur. Such a clause must be explicitly set out in the contract and careful attention to its drafting is essential. A party relying on a force majeure clause will generally need to show that: it was impossible for them to perform their obligations under the contract as a direct result of the event; their inability to perform their obligations was as a result of circumstances beyond the control of either party (i.e. neither party was at fault); the event was not anticipated by the parties at the time they entered into the contract; and they took all reasonable steps to avoid or mitigate the consequences of the event. The fact that a contractor finds the works more expensive or time consuming to complete as a result of the event will not, of itself, trigger an ability to rely on a force majeure clause.

Construction projects generally involve multiple parties who engage with each other in a chain of contracts. The defective or late work of one of those parties can cause loss to one or more of the parties in the construction chain. If the party suffering a loss does not have a contract with the party causing the loss, it will generally have limited or no effective means of recovering its loss.

Let us take the example of a traditional form of construction contract where an employer/developer employs a main contractor to build a block of flats. The main contractor employs several sub-contractors, one of whom installs the steelwork based on the design of a separate engineering professional. The project is completed and the employer/developer rents the flats to tenants. After a year, the tenants discover the steelwork is defective. They bring a claim against the employer/developer. Ideally, the employer/developer would like to claim against the steelwork sub-contractor and the engineer but it has no contract with these parties. It is effectively a third party to the steelwork sub-contract and has no rights under it. A claim in tort against these parties will be difficult/impossible to establish as the employer’s losses are likely to be economic in nature. (Such losses are only recoverable in English law if the employer can establish that there is a “special relationship” through which the defendant sub-contractor/engineer had a duty of care to avoid economic loss.)

Lawyers advising on risk management at the start of a project, when contracts are being negotiated, will consider scenarios like the above and advise on how to protect third party positions with formal security. Generally, providing security to third parties in construction projects is done in the following ways.

Parties such as contractors, sub-contractors and professional consultants will provide collateral warranties (to employers, tenants, purchasers, funders) in which they warrant that they have complied with the terms of their contract/sub-contract/appointment.

The Contracts (Rights of Third Parties) Act 1999 creates a statutory basis under which third party rights can arise. This is done by means of adding a clause to the contract between the main parties. So, in the above example, the sub-contract between the contractor and the steelwork contractor and that between the steelwork sub-contractor and the engineer will both contain a clause giving third party rights to the employer (and perhaps others) to enforce certain terms of those sub-contracts.

Funders may require a direct agreement with the main parties (the employer and contractor) to establish a right for the funder to step into the contractual position of either party if financial issues arise on the project (for example, if the contractor is insolvent).

The English common law recognises the freedom of parties to negotiate the terms of their agreement without state interference (with a few exceptions, such as not being able to exclude liability for death and personal injury). Parties are therefore free to include contractual notice procedures which act as conditions precedent to making a claim against another party.

The courts will uphold contractual notice provisions as conditions precedent if that is what the parties have stipulated in clear terms. Parties including such provisions must pay careful attention to their drafting or consider carefully the provision made if using one of the standard forms, as some include notices that are generally regarded as conditions precedent (like the NEC forms) and some do not (like the JCT).

Typically, there is a requirement for the following insurances to be held in a construction project:

“All risks“ insurance can be taken out by the employer or the contractor in the joint names of the parties to cover the risk of damage to the works arising from specified perils, such as fire or flood. Where the works are to an existing building or structure, then the insurance is usually taken out by the employer as an extension of the policy for the existing building so that the contractor is covered in respect of damage to the existing building as well as the works being carried out. All risks insurance is taken out to cover the period from commencement of the works until they achieve practical completion.

Third party or public liability insurance covers the cost of claims made by third parties for incidents that occur during the carrying out of the works or as a consequence of them. In essence, it covers the cost of compensation for personal injury or death and loss of or damage to property, which may include injury caused by the contractor to the employer’s employees and damage to property of the employer not covered by the all risks policy. Such insurance is required for the period from commencement of the works until the end of the defects liability period. The employer, contractor and professional consultants will all maintain their own public liability cover.

Employer’s liability insurance covers the cost of compensating employees who are injured at or become ill through work. This insurance is required to be held by all parties who have employees on an ongoing basis.

Professional indemnity insurance provides cover for negligently performed professional services, including design. It is required to be maintained from commencement of the relevant service until a period of time following completion of the services or the works. This period of time is generally consistent with the liability period of the underlying contract i.e. six years for contracts executed under hand and 12 years for those executed as a deed (in England and Wales).

Statutory Adjudication

Under the Housing Grants Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009 (the Construction Act), parties to a construction contract have a right to refer a dispute to adjudication at any time. Since its introduction, this statutory right to have a construction dispute resolved by an adjudicator within a short timescale has proved popular.

Adjudication decisions are binding on the parties until the decision is considered and resolved in either court or arbitration proceedings. In effect, the parties must comply with the decision in the first instance: if one party does not agree with the basis of the decision, they must still “pay up” but can then take the dispute to court or arbitration for a final resolution. In most cases, a “losing” party will meet the liability set out in the adjudication decision immediately. If it does not, the successful party will normally commence adjudication enforcement proceedings in the Technology and Construction Court (TCC) to enforce the adjudicator’s decision.

The TCC judges are keen supporters of the Construction Act and its aims and prioritise enforcement proceedings. They uphold most adjudication decisions unless the party defending enforcement proceedings can establish one of the limited grounds available, including that the adjudicator exceeded their jurisdiction or was biased. Without being able to establish such grounds, a “losing” party risks the additional liability for the costs of enforcement proceedings as well as the initial liability under the adjudication decision. Consequently, most adjudication decisions are complied with. Adjudication has been largely successful in achieving the Construction Act’s goal of ensuring construction disputes are dealt with quickly and with the least disruption to projects and cash flow.

Technology and Construction Court (TCC) claims

The TCC is a High Court and a division of the Business and Property Courts of England and Wales. It sits in London and most of the larger English and Welsh cities. TCC judges are appointed from the English and Welsh construction bar, from a pool of highly specialised barristers who are experts in construction law and have wide experience of disputes in the construction industry.

The TCC deals with a wide range of construction disputes including small claims, adjudication enforcement proceedings, professional negligence claims and multi-million-pound disputes on huge infrastructure projects. Procedure in the TCC is governed by the Civil Procedure Rules and further guidance on process is set out in the TCC Guide.

The Pre-Action Protocol for Construction and Engineering Disputes (2nd edition) applies to all construction and engineering disputes (with a few exceptions, including adjudication enforcement proceedings and applications for injunctive relief). It requires the parties to exchange information about the dispute to enable each to understand the other’s position broadly and to make informed decisions about settlement options before starting proceedings.

The TCC has always been at the forefront of judicial initiatives to modernise the court system, including the introduction of e-disclosure and e-bundling and, more recently, e-filing, video-conferencing and the new approach to witness statements. The TCC has also shown support for the use of alternative dispute resolution (ADR) as a means of parties settling their disputes earlier and avoiding the costs and commercial disruption inherent in preparing for trial.

Arbitration

Arbitration is an alternative process to litigation and is based on party agreement. It is often specified in construction contracts as the final dispute resolution process to be used in the resolution of construction disputes (for example, should alternatives such as mediation fail). The parties agree the process which is very often similar to litigation in the TCC. Notable differences between litigation and arbitration include the confidential nature of the arbitration process, the use of private premises to host the arbitration and the appointment of specialist, non-lawyer arbitrators.

The parties also choose the rules to govern their arbitration process. The Arbitration Act 1996 applies to all domestic and international arbitrations that have England and Wales or Northern Ireland as their juridical basis (or “seat”) after 31 January 1997. The courts will uphold parties’ agreement to arbitrate. Should a party renege on its agreement to arbitrate and issue court proceedings instead of serving notice to arbitrate, the court will uphold the parties’ agreement and stay the proceedings to arbitration. The parties appoint the arbitrator[s] or can ask one of the arbitration institutes to appoint someone suitable (for example, the Chartered Institute of Arbitrators).

Arbitration awards are binding on the parties and can be appealed on only limited grounds.

Whether to arbitrate is best considered at the outset of a project and will depend on the nature of the project and the parties, their location and their commercial objectives. For example, disputes on a commercially sensitive project would be best dealt with in arbitration in which the parties can agree to keep the details confidential.

Alternative Dispute Resolution (ADR) options

There are various alternative, collaborative approaches to litigation and arbitration which can help the parties to resolve their claims out of court in ways that save costs and help preserve commercial relationships.

Mediation is a voluntary, confidential and flexible form of ADR in which the parties agree to appoint a neutral third party to help facilitate a negotiated settlement of their disputes. The mediation process helps the parties to share information about their positions and the mediator will work with the parties to explore options for a settlement. The process is flexible in that the mediator can mould it to the parties’ needs. Mediations can be conducted in the traditional “in-person” way with parties based in different rooms between which the mediator “shuttles” or virtually using platforms like Zoom or one of the various newly-emerging ADR platforms. Any settlement reached must be recorded in writing to be binding.

Expert determination involves the appointment of an expert to assess and decide on a dispute often with technical issues. The parties can agree whether an expert’s determination is binding.

The Pre-Action Protocol for Construction and Engineering Disputes (2nd edition) requires parties to consider ADR and the courts have penalised parties which have unreasonably refused to mediate in costs. The courts will also encourage parties to try ADR during court proceedings, where appropriate.

The many challenges that COVID-19 presented to businesses increased the risk of disputes. The government responded by encouraging disputing parties to collaborate rather than instigate formal dispute resolution processes and threw a spotlight on ADR processes. There have also been consultations into ADR that have considered compulsory mediation in certain scenarios.

Tiered dispute resolution clauses

Many construction contracts on larger projects include a tiered dispute resolution clause. Such clauses set out a series of dispute resolution processes with which parties are required to engage when a dispute arises, starting with relatively simple and lower cost methods such as structured negotiation, mediation or expert determination and, in the event that settlement is not achieved with those methods, escalating to resolution by court or arbitration.

Dispute Boards

Another provision that is becoming more popular in large, complex projects is the establishment of a Dispute Board (DB) as a means of promoting collaboration and dealing with disputes as soon as possible as they arise during a project. The parties will agree on which rules will apply to the DB, including whether or not the determination will be binding on the parties. Members are impartial, independent and appointed to the DB on a standing or ad hoc basis to consider and address disputes as they arise. Proceedings are confidential. Bespoke DB provisions can be agreed between the parties but several of the standard form contracts provide examples: see the JCT Dispute Adjudication Board Documentation 2021; or the Chartered Institute of Arbitrators’ Dispute Adjudication Board or a Dispute Review Board processes.

Arbitration processes in England, Wales and Northern Ireland are governed by the Arbitration Act 1996 (AA96) (see Question 23). (The Arbitration (Scotland) Act 2010 is very similar to the 1996 Act.)

The Courts of England and Wales are very supportive of domestic arbitration. This support manifests in a number of ways in that the court will:

• stay any proceedings commenced in court contrary to an arbitration agreement (section 9 AA96);
• enforce an arbitration award made by the tribunal pursuant to an arbitration agreement in the same manner as a judgment or order of the court (provided that the tribunal had jurisdiction to make the award); and
• address various procedural issues arising between the parties relating to the arbitration process (for example, if the arbitrator appointment procedure fails).

Court applications in relation to arbitration matters are governed by Civil Procedure Rule 62 (and the relevant provision of the AA96 such as section 9 for stays) and most are dealt with promptly. However, where an award is challenged on the basis of serious irregularity (section 68 AA96) or on a point of law (section 69 AA96) the process can take longer – perhaps up to a year or two.

Arbitration is a confidential process and arbitration awards are therefore rarely published unless an award is appealed.

The courts also recognise and enforce domestic and international awards under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). More than 160 countries are signatories to the New York Convention and enforcing arbitration awards can be much simpler than trying to enforce an English court judgment against parties in other countries. It is for this reason that parties on international projects generally specify arbitration as the mode of dispute resolution.

In the UK, parties have a limited time in which to commence legal proceedings against a defendant. A failure to bring a claim within the statute-prescribed limitation period will mean a claimant is time-barred and will be prevented from commencing proceedings.

The Limitation Act 1980, effective in England and Wales, provides a limitation period of six years for a simple contract claim starting on the date of the breach of contract. Where a contract has been executed as a deed (a common occurrence within the construction industry), the limitation period is usually extended from six to 12 years.

Different rules apply for claims in tort where the limitation period will depend on the particular tort in question. In most cases, the limitation period runs for six years from the date of the damage. In cases of latent damage, where the damage exists but is not discovered until a later date and the claimant could not reasonably have been aware of the damages, a longer limitation period applies. In such cases, the limitation period will be the later of six years from the date of the damage being caused, or three years from the date the claimant ought reasonably to have known of the damages. This is subject to a long-stop date of 15 years.

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

Most standard form and bespoke construction contracts provide for a defects liability period (DLP), typically of 12 months, during which time the contractor has the right/obligation to return to remedy the defects. At the end of the DLP, the contractor remains liable for defects throughout the statutory limitation period but will no longer have the right to remedy the defects. Instead, the client could choose to hire an alternative contractor for the remediation works (and recover the cost of doing so from the contractor).

(Note that in Scotland, currently, the Prescription and Limitation (Scotland) Act 1973 establishes a limitation period of five years from the date when the party’s right of action first arose. This is generally the date the defects occurred. However, if the claiming party was not aware of the loss, and could not reasonably have become aware of it, it is generally accepted that the period would be extended to 20 years. This position is set to change when the Prescription (Scotland) Act 2018 comes into effect. This legislation, which will allow claimants a longer period of time within which to bring a claim, has received Royal Assent but, while some provisions come into force on 22 June 2022, others will not be effective until 2025.)

Most construction projects involve several parties and multi-party disputes are therefore common, particularly in a construction context.

Under the common law principle of joint and several liability, a party who has suffered loss (client A) can bring a claim for 100% of its loss against any one of the parties who have caused that loss (e.g. architect B or engineer C). A can bring the claim for the whole of its loss against one party (say, B) regardless of the extent of the liability of another (say, C). A is not obliged to sue C and there are several reasons why A might choose to bring the claim for the whole of its loss against B: for example, maybe C is insolvent and without financial means to meet a claim.

In this example, B would be able to bring a claim against C for payment of a contribution towards B’s liability to A under the Civil Liability (Contribution) Act 1978. (In Scotland, B would rely on section 3 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940.) However, a contribution claim will not help B if C has no funds to repay.

As a result, many professionals in B and C’s situation negotiate for the inclusion of a net contribution clause in their professional appointments and in the collateral warranties they are generally required to give to clients. A net contribution clause limits the professional’s loss to the innocent party (A) to a fair and reasonable* share of the loss depending on the extent to which the professional is responsible for the loss.

The precise wording of the clause will determine the liability and, should there be a dispute, the court will interpret that wording applying the usual rules of contractual interpretation. Such interpretation is not always straightforward: it is far preferable to ensure the clause is drafted clearly at the outset.

*Net contribution clauses do not always say “fair and reasonable” but will generally use wording of that type. An example is: “the liability of the Consultant, if any, for any loss or damage (the ‘loss and damage’) shall not exceed such sum as it would be just and equitable for the Consultant to pay having regard to the extent of his responsibility for the loss and damage“.

The building safety crisis

The tragic loss of life in the Grenfell Fire on 14 June 2017 threw a sharp spotlight onto safety procedures in the UK construction industry. Following an investigation, Dame Judith Hackitt published her recommendations in the Independent Review of Building Regulation and Fire Safety (the Hackitt Review) which led to the publication of the draft Building Safety Bill (the Bill) on 20 July 2020. The Bill was heralded by the Ministry of Housing, Communities and Local Government Committee (MHCLG) as “the biggest changes to building safety in nearly 40 years”. The Bill is progressing through Parliament and is expected to receive Royal Assent in summer 2022. Key features of the new safety regime include:

• substantial changes to the regulatory building safety framework by means of amendments to the Building Act 1984. New measures include the creation of three “gateways” to manage and control risk at key stages in the design, planning and construction of high-risk buildings. (The first gateway has already been launched);
• a new Building Safety Regulator who will sign off works at key stages in the building process;
• new obligations that will apply throughout the life cycle of a building;
• new roles to manage buildings at higher risk;
• competency requirements for those involved with buildings;
• enforcement processes in the event of a breach;
• a legislative framework to protect buyers of new-build homes enabling secondary legislation to create a new homes ombudsman scheme;
• changes to the construction products regime;
• a Building Safety Fund to remove dangerous cladding from high-rise buildings;
• improved access to claims under the Defective Premises Act 1972, not least by lengthening the periods within which claims can be brought; and
• measures to hold the industry accountable for remediation works including a new Residential Property Developer Tax payable by developers.

Addressing Environmental, Social and Corporate Governance (ESG) issues

ESG generally, but not always, stands for Environmental, Social, Governance. ESG issues impact every market and business model. The issues are wide ranging: from how to monitor and implement increasing regulation (such as the Building Safety Bill (see Questions 2 and 27) and net zero targets) to establishing supply chains that match your ESG values. ESG should be a key agenda item for every business, as a source of both risk and opportunity.

Environmental issues include: contributions a business makes to climate change through emissions and its carbon footprint, and the impact a business has on natural resources, pollution, waste, land contamination, biodiversity, energy use, sustainable resourcing, recycling of resources used etc.

Social factors can include: modern slavery, human rights, labour standards across the supply chain, pay equity and adherence to workplace and industry health and safety standards. Diversity and inclusion also feature strongly, as does contribution and impact on the communities a business faces.

Governance refers to themes surrounding corporate governance and behaviour, including ethics, corruption, transparency, response to sanctions, political contributions, anti-competitive practices, human rights abuses and corporate sustainability.

Climate change and construction’s contribution to achieving net zero targets

The UK Climate Change Act in 2008 sets out the framework for the UK to reduce greenhouse gas (GHG) emissions and adapt to climate change. In 2019, the UK became the first major economy to adopt a legal commitment to achieve net zero carbon emissions by 2050. (Scotland has set a net zero target of 2045).

The statistics show clearly that the construction process emits a significant percentage of the UK’s carbon emissions. Three key challenges face the construction industry in supporting the UK’s efforts to reach net zero targets: (1) how to transition to using carbon-efficient methods of construction and materials; (2) decarbonising the UK’s heat supply; and (3) adapting buildings to withstand increasingly extreme climatic conditions.

The focus is not simply on how to build more energy-efficient housing in the future, but how to retrofit existing buildings to maximise their carbon efficiency and adapt them for future extreme weather events. Construction businesses must prepare for new and stricter legislation and ESG-related policies. They will need to transition to new, “greener” working methods and adopt a sustainable and low carbon business culture. Those which assess their own carbon footprint and adapt early, ahead of new regulations, will be best placed to benefit from the new ways of working.

The role of construction in reaching the UK’s net zero targets is critical and industry bodies are playing a significant role in effecting change. See, for example, the Construction Leadership Council’s CO2nstructZero campaign and the nine priorities set out in the Construction Industry’s Zero Carbon Change Programme.

The campaign to reach net zero will affect not only how the industry operates but also the materials it uses. The Industrial Decarbonisation Strategy paper references the construction sector as being one of the biggest purchasers of industrial products (such as steel and concrete) and provides examples such as a case study on industry initiatives to reduce emissions and the “new tools aimed at influencing procurement decisions away from lowest cost such as the Construction Leadership Council’s Procurement for Value work”.

These commitments are translating rapidly into requirements. See, for example, the Procurement Policy Note 06/21: Taking account of Carbon Reduction Plans in the procurement of major government contracts that “sets out how to take account of suppliers’ Net Zero Carbon Reduction Plans in the procurement of major government contracts”.

Clients and contractors can make a difference by taking a lead, working closely with their supply chains and adapting procurement policies that require GHG net zero projects that can be operated and managed sustainably. Such requirements will incentivise contractors and their supply chain to embed innovation in their businesses and embrace or create new working methods and materials.

The COVID-19 pandemic, the effect of Brexit, the building safety crisis, the growing urgency for sustainable construction and the retrofitting of building stock, as well as the war in Ukraine, have created an extraordinary set of challenges for the current government. It has responded on a number of fronts in an effort to invigorate the economy and reboot projects across all sectors – but with a particular focus on a “Green Industrial Revolution” and its “Levelling Up” campaign to rebalance wealth across the country.

Infrastructure

The government is investing £4.8 billion in the Levelling Up Fund for investment in infrastructure that improves everyday life across the UK, including regenerating town centres and high streets, upgrading local transport, and investing in cultural and heritage assets. This fund will support regeneration projects across the UK, with billions to be invested in UK railways, the rollout of the next generation gigabit broadband, and the relocation of more government functions and civil servants out of London as part of investment across the country.

The latest new investment programmes update on new levelling up and community investments being announced on 24 March 2022 to support communities across the country include: the UK Community Renewal Fund (an additional £220 million); the Levelling Up Fund; the Community Ownership Fund (£150 million) and the UK Shared Prosperity Fund expected later in 2022. An Investment Framework for the UK Shared Prosperity Fund (to replace European Union structural funds) is also scheduled to commence in 2022.

More information can be found here: https://www.gov.uk/government/collections/new-levelling-up-and-community-investments.

The Infrastructure and Projects Authority’s Transforming Infrastructure Performance: Roadmap to 2030 (updated in September 2021) is the IPA’s flagship programme to lead system change in the built environment. It sets out a vision for prioritising societal outcomes, using modern digital approaches and technologies, and developing improved delivery models to achieve them.

The National Infrastructure and Construction Pipeline 2021 “sets out future planned procurements and levels of investment alongside the workforce requirement to deliver the National Infrastructure Strategy … It includes the forecasted future workforce demand based on planned investment on projects and programmes. It provides insights across the wide range of infrastructure the UK is planning to procure in the coming year, in addition to the investments the UK is committed to delivering over the coming years”. The NIC’s Infrastructure Progress Review 2022 was published on 16 March 2022.

The Build Back Better: our plan for growth (March 2021) sets out the government’s plan for £600 billion of gross public sector investment over the next five years “to support economic growth through significant investment in infrastructure, skills and innovation”.

Green/renewables/energy

The 25 Year Environment Plan was first published in January 2018 and sets out the government’s plans for improving the environment within a generation.

The Ten Point Plan for a Green Industrial Revolution envisages a massive scaling-up of the nation’s heat pump sector, enabling buildings to use renewable and other low carbon electricity – and a goal to make the UK a global leader in green technologies. The government plans to invest £12 billion (and three times as much from the private sector) to create and support green jobs with a focus on: advancing offshore wind; driving the growth of low carbon hydrogen; delivering new and advanced nuclear power (eight small modular reactors were announced at the end of March 2022); accelerating the shift to zero emission vehicles; green public transport, cycling and walking; “jet zero” and green ships; greener buildings; investing in carbon capture, usage and storage; protecting our natural environment; and green finance and innovation.

The UK Hydrogen Strategy (August 2021) explains how the UK will scale up production and lay the foundations for a low carbon hydrogen economy by 2030, and how the  government will support innovation and stimulate investment in the 2020s  to scale up low carbon hydrogen. Several policy documents were published at the same time, including a consultation on the design of the £240 million Net Zero Hydrogen Fund to support  new  hydrogen production projects.

The Heat and Buildings Strategy (October 2021) explains how the UK will decarbonise its homes and commercial, industrial and public sector buildings, as well as its broader Net Zero Strategy.

The UK’s net zero Industrial Decarbonisation Strategy policy paper (17 March 2021) sets out “how industry can decarbonise in line with net zero while remaining competitive without pushing emissions abroad”.

The taking charge: the electric vehicle infrastructure strategy sets out the government plan for the rollout of electric vehicle (EV) charging infrastructure.

The government has committed to developing large, small and advanced nuclear projects and has reinforced the importance of nuclear in the UK’s energy mix as we transition to net zero (see the Net Zero Strategy). It has announced an Advanced Nuclear Fund of up to £385 million to invest in the next generation of nuclear technologies (including up to £215 million for Small Modular Reactors (SMRs) to develop a domestic smaller-scale power plant technology design, and up to £170 million for a research and development programme to deliver an Advanced Modular Reactor (AMR) demonstration by the early 2030s). £120 million will be targeted on a new future Nuclear Enabling Fund to address barriers to entry.

Residential Property

The government announced the creation of its Building Safety Fund (BSF) in March 2020 confirming it would provide £1 billion in funding in 2020 to 2021. The BSF was intended to support the remediation of unsafe non-Aluminium Composite Material (ACM) cladding systems on residential buildings 18 metres and above in both the private and social housing sectors.

The government is introducing a levy on developers when they apply for building control approval in respect of higher-risk residential buildings in England. The levy is based on the principle that residential developers, who will gain from restored confidence in the housing market, should help fund the significant costs associated with fixing buildings when they are unsafe.

Housebuilders who are dealing with the effects of the building safety crisis are planning remediation measures and preparing for the introduction of new laws under the Building Safety Bill (expected to come into force in summer 2022). (See Question 2.)

Modern Methods of Construction

Modern Methods of Construction (MMC) are innovative processes of manufacturing building components off-site (such as precast panels and foundations, flat slab construction, twin wall technology and modular buildings) for later assembly on-site. The processes can encompass mass production or factory assembly and can speed up manufacture and reduce labour costs. Increased take-up of MMC will reduce waste and pollution in the supply chain and the precision achievable in MMC could also have ramifications in, for example, achieving A-rated energy efficiency standards in housing.

A number of initiatives have focused on driving the take-up of MMC. For example, Homes England carried out a study into the impact of Modern Methods of Construction (MMC) on home building delivery phases to monitor the performance of various kinds of MMC in the hope of demonstrating the role innovation can play in housebuilding.

Around the same time as the launch of the Construction Playbook and Infrastructure Strategy, the government published its response to industry feedback on its proposal to implement a presumption in favour of off-site construction: Proposal for a New Approach to Building: Call for Evidence – Summary of evidence. This proposal forms part of the government’s commitment to using its position as the single largest construction client to support the adoption of a more productive and sustainable business model within the UK construction sector. The strategy involves the establishment of A Platform approach to Design for Manufacture and Assembly (P-DfMA) which could “leverage the government’s collective buying power to aggregate demand for platforms made up of digitally designed components, that can be used across different built assets, for instance schools, clinics, hospitals or offices”. The aim is to deliver greater efficiency through economies of scale and add value by providing businesses and public services with infrastructure that performs better over its life cycle. The strategy also supports the government’s efforts to meet net zero targets.

Digital technologies, digital twins, smart contracting

The construction industry is fast adapting to digital technologies that are transforming construction operations, the long-term management of buildings and building life cycles. The following are a few examples of increasingly common technology.

Building Information Modelling technology has moved designers on from hand-drawn plans and computer-aided design (CAD) to software that creates a digital model of a building’s design. It promotes collaborative working, underpinned by digital technology, which enables building assets to be designed, created and maintained more efficiently. The government requires those working on government projects to be certified to BIM Level 2.

A digital twin is a digital reproduction of a physical construction site incorporating 3D survey drawings, engineering data, images, measurements, inspection results and so on. A digital twin has benefits both during construction (better, more effective collaboration, data management and decision-making) and throughout a building’s lifespan (for maintenance/repair projects).

Drones are being used to carry out site inspections and security.

Site robots are being employed to work in hazardous zones or on repetitive jobs to reduce the risk of injuries.

Smart contracts are legally binding contracts in which some or all of the contractual obligations are recorded in or performed automatically by a computer program deployed on a “distributed ledger”. Distributed ledger technology is a method of recording and sharing information across a computer network in a way that makes it very difficult to amend.

In the long term, smart contracting could increase business efficiency and certainty, reduce costs and minimise risks of fraud. However, the legal issues involved are wide ranging. When is a smart contract formed and legally binding? What if the smart contract does not perform as the parties intended or the coding is recorded incorrectly? How do judges interpret a smart contract and what if it does not contain a jurisdiction clause?

Concerns that automating legal contracts might give rise to such novel legal issues (which might cause uncertainty and therefore commercial risk) led to the Law Commission addressing these issues. In November 2019, the UK Jurisdiction Taskforce (UKJT) published its legal statement on cryptoassets and smart contracts concluding that “in principle, smart contracts are capable of giving rise to binding legal obligations, enforceable in accordance with their terms”. On 25 November 2021, the Law Commission found that the current legal framework in England and Wales “is clearly able to facilitate and support the use of smart legal contracts”.

The Commission’s work will enable parties to enter smart contracts knowing that their legal rights are clear and protected. Shorter term, expect hybrid (i.e. partially smart) construction contracts, where, for example, only the payment provisions are encoded.

During the COVID-19 pandemic, construction businesses were forced to cope with disruption on an unprecedented scale: projects mothballed, site closures, depleted workforces, late deliveries and supply chain insolvencies to list but a few of the challenges faced on top of the emotional burden placed on staff by lockdowns, family illness and loss. The government issued non-statutory guidance (such as Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency (7 May 2020)) to encourage collaboration and responsible and fair behaviour between contracting parties, particularly in relation to disputes. While COVID-19 restrictions have now ended, the immense pressures put on the supply chain by the pandemic are still working their way through the supply chain. Without continued collaboration and compromise not least in relation to the management of rising costs, disputes for some are inevitable.

While many mothballed projects are restarting, supply chain issues caused by the pandemic (like labour and materials shortages) and the effect of changes to trading rules after the UK’s exit from the EU (leading to delayed delivery) are being exacerbated by the effects on the global supply chain of the war in Ukraine. Labour, haulage, energy and materials prices continue to rise and put pressure on both the supply chain and industry margins. Supply chain insolvency therefore remains a threat and all should be vigilant to ensure that signs of financial struggle in the supply chain are identified early and dealt with collaboratively.

Now that support measures for businesses (like the furlough scheme and stamp duty holidays) have ended, the government is focusing on COVID-19 recovery measures with initiatives such as “Our plan to rebuild”, the UK Government COVID-19 recovery plan, the Build Back Better plan for growth and Levelling Up the United Kingdom which includes a plan for US$4.8 billion of infrastructure investment in towns across the UK via the Levelling Up Fund and £26 billion of public capital investment for the green industrial revolution and transition to net zero.

Businesses should be vigilant when setting up and managing their projects and ensure that: available resources are checked before signing up to a project; contingency plans are put in place to deal with delayed deliveries/staff shortages; contractual obligations are tailored to the particular project; the site team understands the contract and its procedure and takes steps like serving payment notices promptly; regular discussions are held with key players in the supply chain; and issues are dealt with promptly before they have a chance to develop into a dispute.