Building contracts: Discard everything that does not spark joy
Here are seven top tips for a spring clean of your building contracts and projects. Get out that feather duster and spend some time thinking about how you can become more efficient, save money, head off potential problems and make your contracts work better for you.
Find your contracts at the back of that cupboard, dust them down and check them. Are you following the contract terms?
Payment, and service of notices, are two key areas which often cause issues.
Are you following the correct payment procedures, in particular are you observing the time limits and supplying the required information?
Are you serving notices at the correct addresses and within the required timescales? And have you checked if serving a particular notice is a condition precedent to an entitlement under the contract?
For a warning of what can happen if procedures are not followed properly, take a look at Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd  EWHC 2441 (TCC), where "holding" payment notices for a net payment of £1 were issued within time, followed by substantive payment notices out of time. The notices were invalid.
Have you been working under a letter of intent? Time to get that contract finalised and signed.
While they can be a useful way to get projects started quickly, letters of intent are fertile ground for disputes. Get those contract discussions finalised as a top priority, so that everyone is clear as to the terms on which the work is being carried out. And if you find yourself tempted to sign more than one letter of intent – don't! Finalise the contract!
The case law is littered with disputes over letters of intent, last year's cautionary tale of Balfour Beatty Regional Construction Ltd v Van Elle Ltd  EWHC 794 (TCC) was a salutary reminder. Van Elle carried out a part of piling works for Balfour Beatty without signing the contract, although there was a letter of intent in place. There were alleged defects in that part of the works. Van Elle said that the works were carried out under its own standard terms and conditions, which contained some potential limitations of its liability. It was unsuccessful and the court decided that the contract applied to all of the works, including the part with the alleged defects. This meant it could not rely on the limitations.
Be prepared for changes that are on the way!
The Building Safety Bill is the big one. Do read our Essential Guide and Addendum, we shall be publishing regular guides and articles and running webinars as the bill progresses.
Red diesel is being restricted so that construction businesses will not be able to use it from 1 April for most purposes.
Retentions are back in parliament. Although it is likely to go the way of previous attempts to reform or abolish retentions and fail for lack of support, keep an eye on the Construction (Retentions Abolition) Bill 2021-22, a private member's bill which is seeking to abolish retentions altogether. You can read more about it here.
The JCT is likely to issue new editions of its contracts in 2022, although the timing is not certain.
FIDIC is planning to publish Guidance Notes for, and reprints of, the Red, Yellow and Silver books, a test edition of the Bronze book and Golden Principles for Service Agreements.
Insolvency – do you know what to do, and what you can and can't do, if someone above or below you in the contractual chain goes into insolvency? What steps can you take to recover unpaid debts?
The Corporate Insolvency and Governance Act came into force in June 2020. It contained a mixture of permanent changes to the UK's insolvency regime, and temporary changes, designed to help alleviate the impact of the pandemic on UK businesses and to help stave off insolvency.
It is important to be familiar with the changes to the insolvency regime so that you know what to do if clients or customers become insolvent. Here are links to two articles which discuss the changes brought in by this Act:
- New corporate insolvency legislation and termination of building contracts
- The CIGA: New insolvency procedures & adjudication in the construction industry
The temporary changes that were in force until 30 September 2021 have now been replaced with more limited restrictions for winding up petitions presented between 1 October 2021 and 21 March 2022. In summary, winding up petitions cannot be presented:
- In respect of commercial rent that is unpaid because of covid
- For a debt of less than £10,000
- Unless written notice has first been served seeking proposals for payment of the debt and a satisfactory proposal has not been made within 21 days
If the pandemic continues, further extensions of these restrictions may be put into effect.
Environmental, Social and Governance policies and procedures
Do you have ESG policies in place? Are they up to date? And are you putting them into practice? What active steps are you taking to reduce your company's carbon footprint? Are you looking at your supply chain? Do you know what greenwashing is? Are you guilty of it? Do your building contracts need to be amended to incorporate "green" drafting? In the event of a dispute, are you prepared to use procedures which minimise the environmental impact of that dispute?
Time for an audit of your ESG policies and practices, to discard what is not working, to bring them all up to date and to consider introducing some new ones.
Covid and disputes
While we are all hoping for a better 2022, the future remains uncertain and it is important to remain on top of the latest developments at all times. Build UK and the Construction Leadership Council are good places to monitor the situation. The ongoing impact on the supply of labour and materials is of particular concern.
In a notoriously disputatious industry, it is inevitable that claims and disputes will arise as a consequence of covid. The most sensible way to resolve these is, if possible, by agreement. There are many resources available to assist in this process, here are some of them.
- Cabinet Office Guidance on Responsible Contractual Behaviour
- Construction Leadership Council Contractual Best Practice Guidance
- Construction Leadership Council Covid 19 Cost Assessment Toolkit
- Consider signing up to the RICS's Conflict Avoidance Pledge
If a dispute does arise which cannot be resolved, there are a number of new, low cost or streamlined adjudication procedures available, here are two which are worth considering.
- The Chartered Institute of Arbitrator's Pandemic Business Dispute Resolution
- RICS Summary Adjudication and Low Value Dispute Adjudication Procedures
Review your precedents
Is it time to review your precedent contracts and appointments? When did you last update them? Do your documents reflect the many legislative changes of 2020/2021 and are you prepared for the legislative changes and commercial uncertainties of 2022? What about ESG?
So do not delay, get started on a spring clean!
Deal with the accumulated grime, and get yourself into a sparkling clean state and ready for the challenges of 2022.
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