by Hardwick Legal | Jan 12, 2017 | Purpose Built (LexisNexis)
What are likely to be the most significant legislative and regulatory developments and why?
Adrian Bell, partner in the energy, projects and construction disputes team at CMS, Hamish Lal, head of construction at Akin Gump Strauss Hauer & Feld, Tim Hillier, senior associate at Trowers & Hamlins and Alan Muse, director of built environment professional groups at RICS consider what lies ahead for construction in 2017.
This is an excerpt from a construction analysis, published on Lexis®PSL, which also takes a look at what are likely to be the most important cases, the impact of Brexit and client and business developments. Sign up for a free trial to access the full analysis on Lexis®PSL Construction.
Apprenticeship levy
From 6 April 2017, all companies with a payroll of over £3m will pay a 0.5% levy against the amount of their payroll, with an annual allowance of £15,000. Once paid, if based in England the company will be able to access funding for apprenticeships through a digital account (with different schemes applying in Scotland, Wales and Northern Ireland). By 2020, the plan is for all companies, not just those required to pay the levy, to have access to funding.
Gender pay gap reporting
The Equality Act 2010 (Gender Pay Information) Regulations 2016 are expected to come into force in early 2017. They will require employers in England, Wales and Scotland with 250 or more employees to publish their gender pay data in respect of their employees. This will include the median and mean calculations, plus the number of men and women within salary quartiles. In the event of any pay gaps, companies will have to provide a narrative to explain the cause and also set out any remedial action they intend to take. The first data snapshot is expected to take place in April 2017, with the results likely to be published later in the year.
The construction industry scheme (CIS)
On 6 April 2017, amendments to the Income Tax (CIS) Regulations 2005 (SI 2005/2045), will come into force. The CIS currently applies to contractors and subcontractors providing construction operations in the UK, with the aim of limiting the amount of tax lost as a result of subcontractors failing to report, or under-reporting, their tax. It works by withholding tax at source, paying the subcontractor with a deduction depending on their CIS status. Currently contractors are required to submit their subcontractor payment returns online. From April, contractors will also be required to verify the tax status of their subcontractors online, with limited exceptions.
Payment reporting
Section 3 of the Small Business, Enterprise and Employment Act 2015 (SBEEA 2015) is expected to come into force on 6 April 2017. This will impose a duty on large companies and LLPs to publish a twice-yearly report on payment practices, including standard payment terms and time taken to pay suppliers. The aim is to make it publicly known when companies are bad payers in order to encourage better payment practices. Failure to file or publish a report imposes criminal sanctions at director level.
Project bank accounts (PBAs)
From 31 October 2016, all building projects procedure by Scottish government bodies with a value of over £4m, or £10m in the case of civil engineering projects, are to incorporate PBAs. This adds to the existing government policy in England supporting the use of PBAs and should help to increase familiarity and confidence as to their use within the industry.
Public procurement
There is a widespread belief that the Public Procurement Rules, namely the Public Contracts Regulations 2015, SI 2015/102, the Utilities Contracts Regulations 2016, SI 2016/274, and Concession Contracts Regulations 2016, SI 2016/273 will, post the UK’s exit from the EU, need to be repealed or amended. However, we do not see this—the UK had a procurement regime before joining the EU. There was no single regulatory framework prior to the EU, but compulsory competitive tendering for local authorities together with public bodies’ own internal rules and policies for procurement were in existence. Further, the UK’s approach to implementing EU procurement law has deliberately exceeded the minimum requirements imposed by the parent directives.
For example, the NHS (Procurement, Patient Choice and Competition) (No 2) Regulations 2013, SI 2013/500 included further regulation to the procurement of NHS healthcare services by NHS England and Clinical Commissioning Groups. The Public Contracts Regulations 2015 included more rules in Part 4 concerning, among other things:
- advertising on Contracts Finder
- use of the Cabinet Office standard pre-qualification questionnaire and rules relating to sub-threshold contracts, and
- SBEEA 2015 imposed greater duties on authorities relating to their procurement processes and to investigate the processes of authorities
Reform of the UK public procurement regime is highly unlikely.
Pre-action protocol
We have a new pre-action protocol for construction disputes, which came into force on 14 November 2016. The key changes in the new protocol are:
- parties may now consent to not use the protocol
- the parties no longer need to provide ‘full’ but only ‘sufficient’ information to allow the parties to understand each other’s position
- only in exceptional circumstances will the parties impose costs consequences for a failure to comply with the protocol
- the detailed requirements as to the content of the letter of claim, letter of response, and any response to counterclaim have been relaxed•there is more emphasis on the pre-action meeting taking place in the form of a mediation
- parties may agree extensions to a step in the protocol, but each step cannot exceed 28 days in aggregate.
(See News Analyses: Exploring the new Pre-Action Protocol for Construction and Engineering Disputes and Introducing the new construction protocol referee.)
The intention of the protocol appears to be to reduce costs of the pre-action process in construction and engineering disputes, and to allow the parties the flexibility to bypass the process and go straight to court. In many instances, the issues have been thrashed out between the parties during the final account process (or before) and therefore the pre-action protocol can be seen as another layer of legal cost before a final decision can be achieved. However, there remains merit in fully investigating a claim before submitting to court (especially given the increased court fees) and the new protocol appears to detract from this. In 2017 we will see the impact of the new protocol, and if it has any substantive effect on parties’ behaviour and investment in claims before issue.
Source: LexisNexis Purpose Built
Construction—looking ahead to 2017
by Hardwick Legal | Dec 21, 2016 | Purpose Built (LexisNexis)
While 2016 has been an eventful year in many respects, we look back at some of the key developments that occurred in the world of construction law and practice.
Lexis®PSL subscribers can enjoy expert guidance by accessing some of the links below. If you are not a subscriber, you can take a free trial of Lexis®PSL Construction here.
New legislation and protocols
This year, we finally saw the coming into force of the long-awaited Third Parties (Rights Against Insurers) Act 2010 in August, which makes it easier for a third party to issue proceedings directly against the insurer of an insolvent company, and modernises and simplifies previous legislation. See Practice Note: Construction insolvency—the Third Parties (Rights Against Insurers) Acts.
The Insurance Act 2015 also came into force in August, making radical changes to insurance law, for example by updating and replacing the existing duty to disclose every material circumstance known to the insurer with a new ‘duty of fair presentation’. See News Analysis: Insurance Act 2015—what does it mean for the construction sector?
In public procurement, the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 came into force in April.
The much-awaited second edition of the Pre-Action Protocol for Construction and Engineering Disputes was launched, and came into force, in November. Alexander Nissen QC, who led the drafting, explored the new protocol (see News Analysis: Exploring the new Pre-Action Protocol for Construction and Engineering Disputes) and also told us about the new referee procedure (see News Analysis: Introducing the new construction protocol referee).
Finally, the Society of Construction Law published the draft second edition of the its Delay and Disruption Protocol for comment. The consultation period lasted 8 weeks, and we now await publication of the second edition in final form.
New standard form contracts
The headline news in relation to standard forms was the publication of the majority of the 2016 editions of the Joint Contracts Tribunal (JCT) suite of contracts. The first family (Minor Works) appeared in June, and this was followed by further contracts throughout the year, including the Design and Build Contract and Standard Building Contract families. See our new JCT contracts 2016 sub-topic to find out more.
We also learnt more about the changes expected in the upcoming new FIDIC forms of contracts, when we attended the annual FIDIC London users’ conference a few weeks ago. See News Analysis: FIDIC—an update on the new contracts and other developments.
Government/Brexit
This year everyone was talking about the result of the UK’s referendum on EU membership. Check out our Brexit sub-topic, which includes an analysis by Adrian Bell of CMS on what Brexit could mean for construction and engineering (News Analysis: The future of the construction industry post-Brexit). The latest Office for National Statistics figures show that construction output increased by 0.7% in October 2016 as compared to October 2015, with new housing providing the biggest upwards contribution.
Also in 2016, building information modelling (BIM) level 2 became mandatory on all government projects in April, and an official BIM level 2 website was launched. We also saw the launch of a new National Infrastructure Delivery Plan (see Practice Note: The National Infrastructure Delivery Plan 2016–2021) and a new Government Construction Strategy (see Practice Note: Government Construction Strategy 2016–2020).
And let’s not forget that the National Infrastructure Commission (NIC) was busy throughout the year, publishing reports on smart energy, London transport, northern connectivity and 5G technology. For more information, see our new Practice Note: National Infrastructure Commission.
Key cases
In this section we look back at key decisions from the last 12 months. As always, for a complete list of cases relevant to construction lawyers, see our Construction case tracker. There is also a 2016 review specifically for adjudication: Adjudication cases—2016 in review.
Payment
There were several cases this years concerning interim and final payment under construction contracts:
Construction arbitration/ADR
In construction arbitration/alternative dispute resolution:
Exclusion clauses
There were a couple of important cases concerning exclusion clauses:
- the court considered the correct construction of an exclusion of liability for ‘consequential or special losses, damages or expenses’ and concluded (on the specific facts of the case) that the exclusion had a broader meaning than indirect loss under the second limb of Hadley v Baxendale (see News Analysis: ‘Consequential loss and special damages’ in exclusion clauses (Star Polaris LLC v HHIC-Phil Inc))
- the Court of Appeal confirmed that the starting point for interpretation of exclusion clauses between parties of equal bargaining power is the natural and ordinary meaning of the language chosen by the parties, and where the wording is clear it is not appropriate for the court to apply interpretive principles such as the ‘contra proferentem’ rule (see News Analysis: Clarifying consequential loss clauses in contracts)
Other cases
2016 also saw the court:
- faced with various issues under a shipbuilding contract, including questions of concurrent delay (see News Analysis: Causation, contributory negligence, third party losses, LADs and concurrent delay (Saga v Fincantieri)). The case reminds us that a contractor can only claim the benefit of a concurrent delay where it actually affects the completion date as then scheduled. See also the blog piece on concurrent delay by Mischa Balen of Atkin Chambers
- consider the interplay between express termination provisions and termination at common law, holding that, in light of the particular wording of the termination provision, it did not apply to common law termination (see News Analysis: How did express provisions impact common law termination? (Vinergy v Richmond))
- look at fitness for purpose in respect of components for an offshore wind farm project, which it held (on the facts) required the goods to be in a condition that any reasonable purchaser could, without further investigation, install them (see News Analysis: Steel components not fit for purpose on wind farm project (Fluor v Shanghai Zhenhua Heavy Industries))
- find that an architect owed a duty of care towards her friend and neighbour in carrying out architectural and project management services, even though there was no contract and she was not paid (see News Analysis: Gratuitous professional services gave rise to duty of care (Burgess v Lejonvarn))
Up next—2017
Watch our for our separate piece in January on what 2017 holds in store, from a panel of industry experts. And remember, you can always check out our Construction future developments tracker throughout the year to see what’s in the pipeline.
Source: LexisNexis Purpose Built
Construction end of year recap—2016
by Hardwick Legal | Dec 20, 2016 | Purpose Built (LexisNexis)
Paul Davies, partner, Michael Green, counsel and Sophie Lamb, partner, at Latham Watkins LLP, examine the recent report by the Environmental Audit Committee (EAC) concerning its investigation into the role of the Treasury in relation to sustainable development and environmental protection, and assess the practical implications for policy decisions going forward.
Lexis®PSL subscribers can enjoy expert guidance, if you are not a subscriber, you can take a free Lexis®PSL Environment trial here.
Why is the Treasury’s approach to sustainability important?
The Treasury’s approach to sustainability is important because the Treasury occupies a pivotal position in government which enables it to promote policy coordination and policy coherence on environmental matters between and across government departments. The Treasury, through its control over government spending, taxation policy and regulation, is able to place sustainability at the forefront of policy consideration and balance the sometimes competing objectives of economic growth and environmental concerns. As the EAC’s report highlights, this is not always positive for the environment. For example, the Treasury was responsible for limiting Department for Environment, Food and Rural Affairs’ planned expansion of clean air zones that formed a key part of the UK’s air quality plan. The final Treasury-approved plan on air quality (including the limited clean air zones), was subsequently struck down by the High Court as non-compliant in a challenge issued by ClientEarth. The Treasury also plays an instrumental role in ensuring carbon budgets are met.
What is the background to the EAC report?
In light of the importance of the Treasury in influencing environmental and sustainability policy, the object of the report is to learn lessons from the past and suggest proposals to help the Treasury improve its future performance regarding sustainable development and environmental matters. The timing of the report is intended to coincide with a period which has been marked by substantial political change (notably Brexit and a change in the Prime Minister and senior cabinet ministers).
What did the report conclude about the Treasury’s performance?
The report concluded that the Treasury had not adequately ensured that departments and their policies appropriately address long-term sustainability. It appears that short-term objectives are consistently prioritised, often leading to greater long-term costs. The report found that the Treasury should factor into its decision-making processes, long-term costs and benefits (which serve as a ‘green-check’) and incorporate new evidence on natural capital into its ‘Green Book’ appraisal process and reporting and accounting mechanisms. Concerns were also raised about the lack of transparency over how and why the Treasury has made certain decisions to change or cancel long-established policies to the confusion of investors and business. For example, in preparing the report, evidence was presented that the abolition of the zero carbon homes policy in 2015 surprised key industry stakeholders. The consequences of these ‘shock decisions’ is to undermine investor confidence, by amplifying concerns over policy risk (in particular, energy policy risk).
What key recommendations were made in the report?
The report made a number of recommendations for the Treasury to consider going forward.
Most notably it was considered that the Treasury should:
- improve the way it captures and takes account of long-term environmental costs and benefits
- outline concrete proposals about how, and by when, it intends to take forward and incorporate new evidence on natural capital into its policy appraisal process
- work with the Department for Business, Energy & Industrial Strategy (BEIS) to ensure that a new strategy for carbon capture and storage is devised and published as part of the carbon reduction plan due at the end of 2016—the Treasury should consider the possibility of using proceeds from the proposed sale of the Green Investment Bank to fund this strategy
- reinstate the zero carbon standard for new homes
- outline concrete actions which demonstrate how it is working with the Office for National Statistics (ONS) and the Natural Capital Committee to integrate natural capital into environmental accounts by 2020, and
- take steps to enhance existing accountability arrangements regarding Treasury decisions through the establishment of an Office of Environmental Responsibility
What case studies were referred to in the report?
The report refers to these particular case studies:
- cancellation of the carbon capture and storage (CCS) competition
- cancellation of the zero carbon homes policy, and
- landfill tax and private finance initiative (PFI) credits
Cancellation of the CCS competition
The Treasury’s decision to cancel the £1bn CCS capital funding triggered an announcement from private competition bidders that they would be unable to supply funding without governmental support. CCS refers to a group of technologies which enables carbon to be captured and transported to a storage site, and is currently the only viable option for decarbonising heavy industry. Lord Deben described CCS as ‘absolutely essential’ to enable the UK to cost-effectively meet climate change targets. In addition, the Committee for Climate Change (CCC) recently reported that complying with the 2050 target, without the reduction of emissions through CCS, would demand the decarbonisation of every building and every vehicle by 2050.
Cancellation of the zero carbon homes policy
The announcement by the Treasury to abolish the zero carbon homes policy was also greeted with trepidation, particularly by the construction industry. The decision is considered to inhibit the development of new markets for innovative energy-saving products, and risks wasting the costs of preparation for the implementation of the policy in the first place. There is also a risk that costs will increase in the long-term, due to new homes needing to be retrofitted to improve their energy efficiency.
Landfill tax and PFI credits
The objective of the landfill tax levied by the Treasury was to enable the government to meet its target to divert waste from landfill. To encourage such decisions towards recycling, PFI credits were developed and implemented. The landfill tax is considered to have played a positive and important role, but is not sufficiently ‘nuanced’ to drive continued increases in recycling rates. This was exacerbated by the removal of PFI credits. The Treasury is called upon to outline its future plans for landfill tax and how it intends to incentivise further investment in the future.
Do you expect the report to have practical implications for policy decisions going forward?
It is hoped that the report will incentivise the Treasury to adopt a more co-ordinated, inclusive and unifying approach to policy decisions. The Financial Secretary to the Treasury, Jane Ellison, stated that the Treasury took its environmental impact very seriously, that she would read the EAC’s final report with great interest, and that it would inform her thinking in the future. However, it cannot be ignored that the Treasury is faced with a challenge to balance the competing demands of ensuring its policies remain consistent with sustainable development on the one hand, and the interests of economic growth on the other hand (in particular, short-term growth). As a result, long-term sustainable development is often subordinated to short-term economic gain. The EAC hoped that the government’s commitment to a reinvigorated revised industrial strategy, would also help shift the policy focus towards long-term sustainable development.
Interviewed by Susan Ghaiwal. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
Green-checking the Treasury’s sustainable development commitments
by Hardwick Legal | Dec 8, 2016 | Purpose Built (LexisNexis)
<p><a data-sf-ec-immutable="" href="http://ln-multi-web.cloudapp.net/images/default-source/purpose-built/48354991_l.jpg"></a></p><p><i><a data-sf-ec-immutable="" href="http://www.atkinchambers.com/people/index.cfm?id=548" target="_blank">Mischa Balen</a>, </i>barrister<i> at Atkin Chambers, explores the court’s approach to concurrent delay in Saga Cruises BDF Ltd v Fincantieri SpA <a data-sf-ec-immutable="" href="http://www.lexisnexis.com/uk/lexispsl/commercial/document/316762/5KCM-1VT1-F0JY-C0T2-00000-00" target="_blank">[2016] EWHC 1875 (Comm)</a>, <a data-sf-ec-immutable="" href="http://www.lexisnexis.com/uk/legal/docview/getDocForCuiReq?lni=5KX9-9XF1-DYBP-T2VK&csi=274714&oc=00240&perma=true&elb=t" target="_blank">167 ConLR 29</a>. In his view, the decision sees the application of the orthodox rules of causation, and there is an important distinction between one-off and continuing events.</i></p><h3><b>Background</b></h3><p>This summer’s decision in Saga adopts a welcome back-to-basics approach to questions of concurrent delay. (The court also made some findings/observations concerning causation, contributory negligence, third party losses and liquidated damages –
for more on those see <a data-sf-ec-immutable="" href="http://www.lexisnexis.com/uk/lexispsl/construction/document/412012/5KDW-DMG1-DYW7-W0BT-00000-00" target="_blank">LexisPSL’s case analysis of 9 August 2016</a>.)<i><br></i></p><p><i>Saga</i> was a case where the court had to consider the ‘concurrent effect of sequential delay events’, to borrow a phrase from the Society of Construction Law’s Delay and Disruption Protocol, in order to determine whether the employer
was entitled to levy liquidated damages. The contractor submitted that because the project had been delayed by two causes, one of which was the employer’s fault and one of which was the contractor’s fault, the employer could not levy liquidated
damages. The employer submitted that the project was already delayed by events which were the contractor’s fault and that the employer’s failings did not therefore actually affect the project’s completion date. As such, it should
be entitled to levy liquidated damages when the contractor missed this date.</p><p>Sara Cockerill QC in the Commercial Court held for the employer, reasoning that: “<i>unless there is a concurrenc</i></p>
Source: LexisNexis Purpose Built
Concurrent delay: a back-to-basics approach
