Sheena Sood previews what 2019 will hold for the construction industry from a legal point of view
At the time of writing, it is far from clear whether the UK is heading for Brexit with or without a deal, at the end of March or later – or indeed no Brexit at all. The skills shortage looks set to worsen this year whether we are in or out of Europe, on whatever terms. The skills gap has been talked about for years so it is unfair to blame it all on Brexit, but it has been suggested in at least one recent survey that one-quarter of contractors have already been prevented from bidding for work because of skilled labour shortages. Brexit could take away access to skilled European migrants completely or result in a period during which skilled migrants can continue to be able to work in the UK for a period.
New rules will come into force to ensure the government only appoints as main contractors on public contracts those firms that pay their supply chain on time
Last year, the government announced a ban of aluminium composite material (ACM) cladding and made funding available to social landlords and owners to have this cladding removed. It has recently announced it is giving local authorities the power to remove ACM cladding from privately owned residential blocks. These local authorities can then reclaim the cost from private landlords. With a reported 289 such buildings across the UK, we can expect these works to quicken in pace now funding is in place. The question is: will property owners seek to recover these costs from those who designed and constructed the buildings? The answer is yes. We have already seen a stream of such claims against construction consultants and contractors, and this trend looks set to continue. Beyond cladding, spandrel panels are being talked about as the next big fire risk, with the government calling for combustibility tests to be undertaken on high-rise buildings.
If manufacturing mistakes are made in modular construction they are likely to be replicated multiple times across a site – proving costly
This year may herald changes in the Building Regulations following the Grenfell Tower tragedy. The government has already introduced regulations that came into effect on 21 December 2018, banning ACM cladding on new high-rises (those over 18m tall). It is likely to take further steps during the course of 2019 to implement Dame Judith Hackitt’s wider recommendations and those made by inquiry chair Sir Martin Moore-Bick in his interim report.
Unsurprisingly, consultants and design and construct contractors are seeing their professional indemnity insurance (PII) premiums rise. Some insurers have already quit the PII market, and those remaining are likely to increase premiums. Those finding themselves in this situation should consider taking a more proactive approach – taking time to identify and provide key information to insurers.
The increase in premiums will add to the industry’s woes, which in 2018 included an increase in construction insolvencies that continue to rise steadily year on year. As we saw with Carillion, there is often a devastating knock-on effect throughout the supply chain when a contractor, especially a giant, goes under.
Legislation to protect retentions continues to sit before parliament. Nearly one-third of all MPs and more than 70 industry bodies have said they back the Construction (Retention Deposit Schemes) Bill, which would require retentions to be held in a third-party trust scheme so that they are not mixed up with general funds. Related to this, new rules will come into force this autumn to ensure that the government only appoints as main contractors on public contracts those firms that pay their supply chain on time. Welcome changes for an industry still plagued by poor and unscrupulous payment practices.
The Court of Appeal’s decision in Grove Developments Ltd vs S&T (UK) Ltd is likely to lead to an uptick in “true value” adjudications. The Court of Appeal found that an employer who fails to provide a valid payment notice or payless notice can subsequently dispute the amount of the interim payment through adjudication – the employer can adjudicate to determine the true, or correct, value of the work done at the time, rather than waiting until the final account stage. This could herald the end of the “smash and grab” adjudication and further distort supply chain payment with money being paid and then recovered.
On a more positive front, modular construction is set to continue at pace, with factories opening across the UK. A £1.2bn modular framework alliance contract has been announced by the government, with bids having closed in December and a contract start date set for early March. The flexibility and speed that modular construction brings can only be a good thing for the industry, but good risk management remains essential. Manufacturing mistakes, likely to be replicated multiple times across a site, could prove costly. Challenges and opportunities ahead – as always!