Defining what is a building – or more specifically a construction operation – is not as easy as you think
Great controversy has recently arisen regarding the definition of a builder on the popular BBC Bake Off series. Can an allegedly well-educated owner operator of a building company be described as a builder as opposed to the stereotype of an individual in a hard hat? Before you turn away through concern that this blog will analyse how many tiers a cake needs before it becomes a building, fear not … But you may ultimately conclude that defining what is a building, or more specifically a construction operation, is not as easy as you think.
The Housing Grants Construction and Regeneration Act 1996 (HGCRA) amongst other things applies payment and adjudication rules to construction contracts. A construction contract is defined in sections 104 and section 105 and addresses what constitutes a construction operation.
The issue of what constitutes a construction operation was recently considered, amongst other issues, in the case of Laker Vent Engineering Ltd vs Jacobs).
The facts related to a paper manufacturing business in Scotland. RWE was contracted to replace an existing power plant on the site with a biomass plant. An area of about 10% of the site was leased to RWE, and as part of the arrangement RWE planned to operate the plant and export spare electricity to the national grid to help Scotland meet its renewable energy targets.
Perhaps it is time to revisit sections 104 and 105 and the surrounding statutory instruments to include rather than exclude what a lay person would consider to be a building project
Jacobs entered into a contract with RWE for the design, manufacture, supply, construction, installation, testing and commissioning of the plant. Laker Vent entered into a subcontract with Jacobs for the supply, fabrication and installation of pipework. The subcontract stated that it was governed by English law but made no reference to adjudication or the statutory adjudication scheme.
Consideration was given to section 105(2) which concerns exceptions to construction operations, which include:
“(c ) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is-
(i)nuclear processing, power generation or water or effluent treatment, or…”
As RWE leased part of the site and owned the plant and electricity that was being exported to the national grid, it appeared that there was a reasonable argument that the subcontract fell into the exceptions category and was not a construction operation as defined by the HGCRA, but Mr Justice Ramsay took a different view.
He felt that in order to consider the position you had to consider the overall impression rather than a detailed examination of particular documents or obligations that would not have been known to the parties when entering the sub contract. As the life of the plant was linked to the operation of the paper mill then the sub contract was not within the exception to a construction operation.
That approach leads to a view that contracts that may have been assumed to fall outside the legislation may be caught and may lead to further legal tests as to what is a construction operation.
This problem can be avoided where there is potential uncertainty by including express provisions including adjudication and other issues that would otherwise be governed by construction legislation within the written contract to avoid uncertainty.
However, the aim of the HGRCA from the outset and as it has evolved is to speed up payment and resolution of disputes, now including oral contracts, so the approach in Laker Vent appears to be a pragmatic and sensible decision in the best interests of the wider construction industry.
Perhaps it is time to revisit sections 104 and 105 and the surrounding statutory instruments to include rather than exclude what a lay person would consider to be a building project.
On a practical level it is always best to agree terms between parties in writing. Whilst we instinctively know that a five tier wedding cake is not a building, other construction operations are less easy to define, and depending on complexity of the project may not be suitable for adjudication and a 28 day dispute resolution process, but there we potentially open another can of worms for another day.
Perhaps scrapping complicated definitions and leaving it to common sense to define what is a building is the answer although there is the residual worry that lawyers may not be best qualified in the eyes of the public to provide a definition of common sense.
Laurence Cobb is head of construction at law firm Taylor Wessing