Under Construction: Legal developments in the UK construction industry | May 2024

General election announced for 4 July 2024

The prime minister, Rishi Sunak, has announced that the next general election will take place on 4 July 2024.

The news of the early election was warmly received by the construction industry in the hopes that it would minimise the damaging impact of political uncertainty in the run-up to polling day. While Rishi Sunak's speech last week announcing the election made little mention of the construction industry, construction, house-building and infrastructure are likely to form key tenets of emerging party policies.

While the detail of the proposals on offer from different political parties will be released over the next five weeks of campaigning and ultimately contained in their respective manifestos, a number of commitments have already been made which provide some indication of impact of the election outcome on the construction industry.

The Labour Party has announced it will "get Britain building again" as one of its five missions for Britain. This includes the following commitments which have been released by Labour within the last year:

• In a Labour Party Conference in October 2023, Keir Starmer pledged to build one and a half million new homes across the country within five years of a Labour government. Shadow housing secretary, Angela Rayner, has also recently stated that local housing targets would be brought back in, and a list of housing projects would be announced within the first 12 months of government.
• To enable homes to be built, Labour has indicated an intention to relax planning laws and build affordable housing on land dubbed "grey belt" to combat the deficit in housing and improve green spaces.
• The Labour Party also plans to combine the government's two main infrastructure delivery bodies: the Infrastructure and Projects Authority and the National Infrastructure Commission, into a single organisation. The decision to create a new amalgamated infrastructure delivery body to better focus on the delivery and growth of UK infrastructure has been broadly welcomed by the industry.

The Conservative Party had made a number of commitments to the housing and the wider construction industry in its 2019 manifesto, although it is not yet clear how this has evolved for the upcoming general election. It currently remains committed to:

• The target of 300,000 new homes a year by the mid-2020s. (Although with fewer than 250,000 homes built across England, Wales and Scotland combined last year, this manifesto pledge has not yet been achieved.)
• The Conservative Party intends to pass the Renters (Reform) Bill with the intention of delivering a fairer private rented sector for landlords and tenants. This bill fell victim however to the pre-prorogation Parliamentary "wash-up" (discussed further in this Insight), so would need to be reinstated should the Conservatives win the upcoming election.

With the general election only five weeks away, it is likely that both the Conservative Party and the Labour Party will be providing much more commentary on their policies in the coming weeks.

JCT publishes Design and Build and Minor Works Contract 2024

The JCT has released the first contracts of the new 2024 contract editions, beginning with the Design and Build (D&B) and the Minor Works Contract documents.

The D&B contract contains a number of updates to the previous 2016 editions, including provisions relating to new legislation. This includes the new principal designer and principal contractor duties under the Building Regulations, and some of the new pre-insolvency procedures introduced during the Covid-19 pandemic. New consequences have also been introduced for epidemics, changes in law and the presence of harmful materials on site.

Some notable absences from the new D&B 2024 edition include any provision relating to the new building control regime for higher-risk buildings and the extended liability periods for certain statutory claims (as amended by the Building Safety Act 2022). The insurance provisions also remain largely unchanged, despite some hopes within the industry that provision may be made to cater for insurance arrangements where works are undertaken to existing structures given the complexities involved with using Option C to cater for such circumstances.

The key changes to the D&B can be broadly summarised as follows:

Building Safety Act

The 2024 edition includes new articles to reflect the new Building Regulations Principal Designer and Principal Contractor roles. Details of the entities performing those roles are to be inserted into the contract (with the Contractor assumed to be performing both roles unless otherwise specified) and the parties also undertake to comply with their respective duties under Part 2A of the Building Regulations.

New consequences for certain events

The following events have new consequences under the contract:

• An epidemic which occurs after the Base Date (or whose effect changes after the Base Date) which affects the execution of the Works by limiting available labour or preventing/delaying the Contractor from securing necessary goods, services or materials.
• A change in law (including new legislation and the exercise of any statutory power) or the publication of guidance by the government or (in the case of guidance) the Construction Leadership Council. This replaces the previous, narrower provisions relating to the exercise of statutory powers.
• Compliance with new obligations concerning the presence of asbestos, contaminated materials and unexploded ordinance to not disturb and follow Employer instructions in relation to such materials (save where such material was brought to the site by the Contractor).

These events allow for an extension of time to the date for completion, and the recovery of additional costs under the contract (though the parties can opt out of this consequence for epidemics and changes in law). 

The parties also have the ability to terminate the contract in certain circumstances as a result of the epidemic and change in law conditions being triggered.

There is also a shortened timeframe for the Employer to respond to completion date adjustment notices – from 12 weeks in the 2016 edition, to eight weeks in the 2024 edition.

Termination and liquidated damages

The liquidated damages provisions have been amended to reflect the approach taken by the Supreme Court in Triple Point v PTT. This means that, where termination of the contract occurs prior to practical completion, liquidated damages will apply up to the time of termination, with the Employer entitled to general damages thereafter for any additional losses suffered.

Design warranties

The design warranties in the contract have been re-phrased, though not substantially changed. There is, however, an express exclusion of a fitness for purpose obligation in respect of design (to the extent permitted by Statutory Requirements).

New insolvency grounds

The grounds for when a company is considered insolvent has been expanded to include the following procedures under the Corporate Governance and Insolvency Act 2020: (1) A moratorium under Part A1 of the Insolvency Act 1986 and (2) The compromise/arrangement procedure under the Companies Act.

Good faith/collaborative working

There is now a Collaborative Working article which applies as standard, with the parties required to work together “in good faith and in a spirit of trust and respect”. In the 2016 edition, this was an optional provision.

Another, more specific good faith provision has been added in relation to the early resolution of disputes. Supplemental Provision 10 (notification and negotiation of disputes) has been moved to clause 9.1 and will apply as standard. This requires senior executives to meet and attempt (in good faith) to resolve any matter which might lead to a dispute.

Environmental/sustainable considerations

The previously optional Supplemental Provision which encourages the Contractor to suggest economically viable amendments that may result in an improvement of environmental performance and sustainability is now included as standard.

The clause also obliges the Contractor to supply the Employer with information regarding the environmental impact of goods and materials selected for the Works.

Government confirms requirement for second staircases in residential buildings over 18 metres in height

The government has confirmed that second staircases will be required for new residential buildings in England that are over 18 metres in height.

The guidance specifically refers to a block of flats and does not use the higher-risk building definition contained in the Building Safety Act 2022. It specifies that flats should be served by more than one common stair if either of the following applies:

• The flat is on a storey that does not meet the criteria for a single escape route or a small single stair building.
• The building has a top storey of 18m or more in height.

This is subject to a 30-month transition period and comes into force on 30 September 2026. Projects that receive building regulations approval prior to this date (without the second staircase) will have to be "sufficiently progressed" by 30 March 2028.

The government stated (in the consultation response to the amendments) that there is no evidence that shows a single staircase to existing tall buildings is unsafe, provided it is designed and maintained correctly. This suggests that legislation related to retrofitting existing higher-risk buildings with a second staircase is unlikely to be on the government's agenda, even before the disruption of the general election is taken into account.

Compliance with the new rules will be reviewed as part of the fire safety review process for any higher-risk building at both gateway one and gateway two under the new building control regime for higher-risk buildings pursuant to the Building Safety Act 2022. For more information on the wider changes to the building control regime for higher-risk buildings, please see our Insight.

Are timely and correct notices from a contractor a pre-condition to recovering loss and expense under building contracts?

In the recent judgment of FES Ltd v HFD Construction Group Ltd, the Scottish Court of Session has provided an important reminder of the need to ensure notices are issued in time and correctly as a precondition to entitlement to recover loss and expense.

The judgment acts as an important reminder to parties that contractual notices must be issued in a timely manner and to ensure notices adhere to any contractual specifications regarding the form and recipients of the notices otherwise entitlement to recover may be lost.

One consequence of this decision is that it is likely to lead to further disputes as to whether compliance with the notices requirements has in fact been met, given the consequence of non-compliance on a party's ability to make a recovery.

Facts

FES Ltd and HFD Construction Group Limited entered into a contract for fit-out works on a property in Glasgow based on the JCT Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot 2016) as amended. A dispute arose between the parties regarding the FES' entitlement to an extension of time and its associated claim for loss and expense under Contract.

The Court of Session was asked to consider (among other things) whether FES was required to give notice pursuant to clauses 4.20.1 and 4.21 of the Contract and whether such notice was a condition precedent to a loss and expense claim.

Clause 4.20.1 stated that:

"If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense ... he shall, subject to … compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense."

Clause 4.21 required FES to:

"notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him".

FES sought a court declaration that the notice provisions were not conditions precedent.

Judgment

Lord Richardson held that compliance with the notice provision in clause 4.21 was a condition precedent and necessary to trigger entitlement to reimbursement for loss and expense.

The reasoning was that the clauses were clear and straightforward and they had been carefully negotiated and drafted by professionals. Further the obligation to comply with clause 4.21 was not "unduly onerous" and on proper construction it should assist with "timely and well administered contract administration".

FES' argument that as clause 4.20.1 does not spell out the consequences of non-compliance with the provisions of clause 4.21, the parties cannot have intended that the clause create a condition precedent did not take into account the drafting of the clause. The contractor's entitlement to reimbursement is "subject to… compliance with clause 4.21" and the court found that to construe the clause as not amounting to a condition precedent would involve having to delete or ignore this critical phrase.

Osborne Clarke comment

Although this is a Scottish judgment, it will be relevant to practitioners more generally in that it provides clarity on the status of Clause 4.20.1 and 4.21 of the JCT and SBCC contracts as conditions precedent.

In the case of the JCT, these clauses have not been amended in the 2024 revisions. It is also clear that the court took a strict and literal approach in interpreting the terms as a condition precedent. The judgment should therefore act as an important reminder to parties that notices must be issued in a timely manner and to ensure notices adhere to any contractual specifications regarding the form and recipients of the notices otherwise entitlement to recover may be lost.