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We briefly review some notable and significant developments currently impacting the industry. This includes the latest government policy updates, the introduction of international definitions for low carbon cement and concrete, the appropriateness of the Desing & Build model in light of Grenfell and case reviews on the First Tier Tribunal decision outlining the definition of the word ”storey” and its impact on the classification of “higher-risk buildings” and the interpretation of “conclusive evidence” in the context of adjudication proceedings.
Autumn budget and key legislative updates for the construction industry
The Autumn Budget
On 30 October 2024, Chancellor Rachel Reeves delivered the Autumn Budget announcing a raft of tax rising measures such as increasing Employer National Insurance (NI) contributions and increasing borrowing to finance greater public spending and stimulate economic growth.
The budget outlines a significant rise in capital investment over the next five years, earmarked for infrastructure projects across energy, transport, and housing. This followed a recent announcement to commit to substantially increase the delivery of affordable and social housing, aiming for over 1.5 million homes over its five years in power—a move welcomed by the construction industry.
The government is also focussed on leveraging the construction sector to advance its green agenda and achieve net zero targets through greater investment in the UK energy sector. This will be in the form of Great British Energy which will seek to strengthen supply chains and create more jobs alongside commitments to upgrade home insulation and encourage carbon heating solutions to cut bills.
However, there are concerns about the knock-on effects of increased national insurance contributions as this could impose greater financial pressures on small businesses that are vital to supply chains. Increased NI will also have the potential to drive up future prices.
Key Legislative Updates from the King's Speech
National Wealth Fund: The National Wealth Fund will be pivotal in delivering the Government’s new industrial strategy, and mobilising investment in the UK’s growth and green energy industries. This initiative aims to support the construction sector by funding projects that drive economic and environmental sustainability.
Planning and Infrastructure Bill: This Bill aims to streamline the process of building homes, unlocking more housing and infrastructure projects nationwide. It also seeks to improve the planning system at a local level, modernise planning committees, and strengthen local planning authorities' capacity to deliver enhanced services.
Great British Energy: Having passed all initial stages in the House of Commons, this Bill is currently at Committee stage in the House of Lords. The Bill establishes Great British Energy, a new publicly owned energy production company that will partner with the private sector on various projects to make Britain a clean energy superpower. This initiative is expected to create jobs within the construction industry and support greener construction projects.
COP29
Speaking at COP29 in Baku, UK Prime Minister Keir Starmer announced the UK’s nationally determined contribution with a 2035 target to reduce emissions by 81 percent on 1990 levels. Starmer reiterated his government’s success in laying the foundations to invest in key industries and a commitment to building the infrastructure, wind farms, solar farms and vital grid infrastructure needed to achieve climate change commitments, create jobs and stimulate growth. The green agenda will continue to be seen as a priority for the new government as it continues to lay its legislative agenda.
Whilst these executive policies are welcome and will likely alleviate insolvencies in the industry, there are some hurdles that will need to be overcome, including the deficit in the UK’s labour force and a materials shortage, which could impact attempts to get “Britain building again”. On the flip side, investment opportunities abound for construction companies and insurers alike.
Contact: Giulia Monastera
Should we ditch Design & Build?
A spate of high-profile insolvencies has brought the risk profile of main contracting (back) into sharp focus with extensive commentary, including criticism, of design and build contracting and value engineering particularly in the wake of the Grenfell Tower tragedy.
The design and build model, often imposed on main contractors via a single stage tendering process, regularly sees the employer seek to pass all risks on the project to the main contractor. Such risks include unforeseen ground conditions, uncapped liability and responsibilities for statutory provider delay – some of which are unquantifiable and not possible to de-risk. When contractors’ profit margins are already pitifully low, these risks can easily turn a profitable job to a loss making one. To de-risk its exposure, the main contractor seeks to offload this onto its supply chain, although this will not always be possible due to gaps in insurance and subcontractor required caps on liability.
So, what is the alternative? We briefly comment on the construction management process although note there has also been discussion as to the benefits of collaborative/alliancing contracting on which we have previously shared our views.
Construction management operates on an “as it says on the tin” basis - the contractor manages the supply chain, but individual subcontractors are appointed direct by the client as trade contractors. This model passes the client risk to the various trade contractors, whilst the client has the contractor to coordinate and manage the supply chain. The positives are: lower cost, clearer roles and responsibilities (including design) and redress can be sought direct from the relevant trade contractor without first having to pursue the main contractor. However, there are negatives: price uncertainty for the client, in that a “contract sum” is not agreed as in design and build contracting. Moreover, an experienced client is needed when managing numerous trade contractors, albeit the latter can largely be delegated to the construction manager.
We expect to see a move towards alternative methods of contracting as contractors protect against risks and clients are keen to mitigate against supply chain insolvency.
Contact: Caitlin Gallagher
The Global Cement and Concrete Association (GCCA) has launched its international definitions for low carbon cement and concrete at the 2024 United Nations Climate Change Conference (COP29).
The GCCA officially introduced its international definitions for low carbon cement and concrete at COP29 in Azerbaijan.
Second to water, concrete is the most frequently used material in the world and is an essential element to most types of infrastructure. However, globally, cement accounts for 7% of CO2 emissions. Recognising its indispensable nature, efforts have been focussed on the decarbonisation of cement and concrete materials as opposed to its eradication (unlike single use plastics).
The GCCA have formulated a definition for low carbon cement and concrete using the environmental product declaration (EPD) accounting method which is well established in the construction industry and value chain for products.
The GCCA also determined a global reference threshold for concrete by using the average of what is considered good practice in concrete production in different countries. They further estimated a near zero emissions product threshold by calculating the assumed reduction in clinker content by 2050.
The global definition thus comprises seven bands including the near zero emissions (which sits below A) and global reference thresholds (which sits above E). Bands A to E are low emissions performance categories, and the band for near-zero-emissions is lettered AA.
The international definitions are considered a major step in delivering a greener built environment and ultimately achieving net zero. Through standardised definitions such as this, governments and businesses are afforded with consistency and transparency when looking to purchase green cement and concrete.
The GCCA are a prominent not-for-profit international organisation that act as a voice for the cement and concrete sector across the world. Structured as a CEO-led association, they account for members which hold 80% of the global cement industry volume outside of China including some key Chinese manufacturers such as CNBM, West China, TCC Group Holdings. The GCCA therefore plays a pivotal role in the trajectory of the industry on its transition to sustainable production.
Depending on the rate of its adoption, there will be an increasing expectation for low carbon procurement of projects and products. Manufacturers themselves may find that they are under pressure to provide concrete that falls into a lower band to manage competition.
Insurers could also play a crucial role by using these definitions in their product offerings to further encourage decarbonisation within the industry.
Contacst: Gbemisola Obolo, Louis Foscolo
First-Tier Tribunal sets the ‘storey’ straight on criteria for “higher-risk buildings”.
The First-Tier Tribunal (FtT) has recently provided clarity on what constitutes a ‘storey’ in Blomfield v Monier Road Limited (Smoke House & Curing House) LON/00BG/HYI/2023/0024.
The matter concerned an application by the leaseholders of a block of flats in East London for a remediation order against the freeholder under Section 123 of the Building Safety Act (BSA), requesting the remediation of all combustible materials, including those on the rooftop garden. In deciding the appropriate scope of works to be ordered, the FtT had to consider whether or not the rooftop garden shared with plant and machinery would constitute a ‘storey’, therefore making the premise a “higher-risk building”.
Section 65 of the BSA defines a “higher-risk building” as:
“a building in England that:
- Is at least 18 metres in height or has at least 7 storeys, and
- Contains at least 2 residential units.”
The block of flats in question consisted of a commercial premises on the ground floor, five storeys of residential flats and a roof terrace containing a roof garden as well as plant and machinery.
Noting that the there is no actual definition of ‘storey’, the FtT determined that a usable rooftop was to be considered as a ‘storey’, despite the space also hosting machinery and plant.
The decision is contrary to the government’s guidance published on 21 June 2023, which stated that:
“A storey must be fully enclosed to be considered a storey. The roof of a building should not be counted as a storey. Open rooftops such as rooftop gardens are not considered storeys and should not be counted as such when determining the number of storeys or measuring the height.”
The Ministry of Housing, Communities and Local Government and the Building Safety Regulator are currently considering the FtT’s commentary. While the FtT decision is non-binding, there are concerns that the disparity between the FtT and government guidance will cause some uncertainty over whether or not a building should be classified as a higher-risk building.
Contact: Beth Cownden
A conclusive decision on JCT conclusive evidence clauses?
Battersea Project Phase 2 Development Company Limited v Q.F.S. Scaffolding Limited [15.03.24]
This case considered the interaction between a “conclusive evidence” provision and adjudication proceedings.
A dispute arose between BPS (main contractor) and QFS (subcontractor) under a sub-contract relating to the development of the Battersea Power Station. The relevant clauses were:
- Clause 1.8.1, Annex 8 which provided that a final payment notice was conclusive evidence that the final sub-contact sum had been correctly calculated.
- Clause 1.8.2 which provided that if adjudication proceedings were commenced prior to or within 7 days after date of receipt of the final notice, the notice would not have conclusive effect “in relation to the subject matter of those proceedings pending their conclusion” and on their conclusion, the effect of the notice would be “subject to the terms of any decision award or judgment in or settlement of such proceedings”.
In December 2022, an adjudication notice was issued regarding the dispute over calculation of the final sub-contact sum. The parties agreed to extend the referral deadline and eventually, BPS informed QFS that waiver of its right to receive referral within 7 days would end on 3 February 2023.
BPS contended that QFS’s failure to serve the referral within time caused the adjudication to conclude without a decision and Clause 1.8.2 meant that that the final payment notice would not be subject to any financial adjustment. In May 2023, QFS issued a new notice of intention to refer. The adjudicator reached his decision in September 2023.
The final payment notice was not deemed conclusive evidence in relation to the matters in dispute and summary judgment was awarded in favour of QFS. Under Clause 1.8.2, commencement of proceedings is marked by issue of a notice of adjudication. Once proceedings were started in time, the final payment notice was again, not conclusive evidence in relation to matters in dispute. Abandonment had not been demonstrated.
The judge found that the adjudication initiated in December 2022 became a nullity due to the lack of timely referral, but adjudication concluded with the adjudicator’s decision in September 2023.
This judgment clarifies the interpretation of “conclusive evidence”. Although contractors should follow adjudication deadlines, missing one does not mean that they automatically lose out on payment. The dispute may still proceed, unless they clearly have stopped trying to resolve it.
Contacts: Samantha Conlon, Amrinder Aulakh
Related item: Conclusive evidence clauses under JCT contracts
Construction and engineering
Insurance and reinsurance
United Kingdom