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We briefly review some notable and significant developments currently impacting the industry. This includes a summary of the new Playbook on AI (artificial intelligence) published by the Chartered Institute of Building, an overview of the draft Planning and Infrastructure Bill and two case summaries of recent significant decisions, one summarising the landmark Supreme Court ruling on whether a collateral warranty is a contract in itself; the other considering whether a contractor was able to serve a Notice of Termination, following several instances of late payment.
The CIOB AI Playbook and its Implications for the Construction Industry
The Chartered Institute of Building (CIOB) has published a new Playbook on Artificial Intelligence (AI) use in the construction industry (the Playbook). The Playbook was formulated to help organisations of all sizes understand and effectively implement AI technology in the built environment sector. It provides advice on evaluating AI's effectiveness, highlighting key considerations such as ethics, cybersecurity, and data protection.
The Playbook maintains that AI will likely enhance rather than replace human capabilities in construction. AI’s implementation requires user expertise, leading many jobs to transition from operational to supervisory roles, where they oversee and validate AI-driven processes. Reports from Goldman Sachs in 2023 and the House of Lords in February 2024 support this, identifying construction and extraction roles as some of the least likely to be threatened by AI. Rather than an enemy, the Playbook encourages adopters to view AI technology as a new team member.
AI is increasingly becoming prevalent in all sectors and no less the construction industry. Indeed, AI can greatly support construction management and engineering throughout the lifecycle of a construction project, namely the preconstruction, construction and the operation phase. The Playbook identified three main categories most AI applications for the industry fall under:
Analytics: The processing and analysis of large datasets.
Example: At the preconstruction phase, AI can be used to determine the viability of a project by analysing financial data, market data, and data on the project's potential impact on the environment. Such data is then presented in a streamlined format accessible to all stakeholders. Additionally, this heavily informs the economics where loss of funds is commonplace.
Generation: The creation of information, innovative designs and data.
Example: During design development, AI enabled parametric design to test multiple design options to ensure suitability and efficiency. This further supports productivity and cost effectiveness.
Automation: Performance of tasks without human intervention.
Example: AI driven robotics like drones with sensors are deployed to complete the inspection of confined spaces or a floor cleaning robot developed to gather site dust in a determined area of the construction site. Considering the mortality/injury rate experience in the industry, such equipment decreases human risk.
All good things do not come without limitations. For example, AI models can generate incorrect or misleading results due to incorrect or inaccurate prompts. Arguably, the Playbook just touches the surface, and its results within the industry remain to be seen.
Contacts: Gbemisola Obolo, Ozkan Ucak
An overview of the draft Planning and Infrastructure Bill
The draft Planning and Infrastructure Bill (the Bill) aims to revolutionise planning with a building target of 1.5 million homes. Whilst full details are yet to be published, the Bill sets out the main ways the Government will seek to “get Britain building again”.
Simplified Consent Process: The Bill intends to simplify the consent process for significant infrastructure projects to expedite its initiation and completion. The National Planning Policy Framework (NPPF) will increase the scope of ‘commercial projects’ to push through planning consents.
Modernised Planning Committees: By modernising planning committees, the Government hopes to increase the efficiency of application processing. This is expected to facilitate quicker decision-making, enabling faster project launches.
Unlocking Development Sites: The Bill focuses on unlocking sites for development by improving land assembly processes. This includes uniting separately owned parcels of land, anticipated to speed up housing construction and improve affordability. The planning process will, in time, facilitate building on less desirable green belt areas, referred to as the “grey belt”. Amendments to the NPPF focusses on a brownfield first approach where proposals for development should now be regarded as acceptable in principle. Under the proposed amendments, where housing, commercial or other identified needs cannot be met, authorities are now required to review their green belt boundaries and must allocate land to meet needs in full unless such alterations would fundamentally undermine the function of that green belt.
The rapid increase in the construction of housing and infrastructure risks further complications and disconnect arising whilst modernisation of the planning system is implemented.
Rapid-scale building runs the risk of increased insurance claims owing to defects arising as a result of contractors attempting to complete projects/developments under shortened timeframes. Whilst supply shortages are less critical than in previous years, a volatile international market could render the sector susceptible to supply shocks and impact on project delivery and in turn, delays to projects and proposed completion timeframes. Whilst the overall impact on the construction market is yet to be seen, the potential downsides to rapid-scale building appear obvious.
Finally, amendments to the consent process risks building on ‘grey belt’ land and brownfield sites to the detriment of biodiversity. Whilst the government has outlined plans to leverage development projects to fund nature recovery initiatives, whether this approach will balance environmental conservation with the need for development, remains to be seen.
Contacts: Dominic Deery, Ozkan Ucak
Is a Collateral Warranty a Construction Contract?
Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [09.07.24]
This question is important as, if a collateral warranty is found to be a construction contract, the beneficiary has certain rights under the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) including the right to adjudicate.
The UK Supreme Court provided clarity for all parties in the construction supply chain regarding collateral warranties.
The Supreme Court unanimously granted the appeal from Simply Construct and held that a collateral warranty is not generally a "construction contract" for the purposes of section 104(1) of the Construction Act, so parties do not have a statutory right to adjudicate any dispute under it "at any time". In doing so, the Supreme Court allowed an appeal against the majority ruling of the Court of Appeal and also overturned the earlier decision of Parkwood v Laing O'Rourke [2013], the first court judgment which found that a collateral warranty could constitute a "construction contract".
Giving the leading judgment, Lord Hamblen held that:
- A collateral warranty is not a contract "for" the carrying out of construction operations under section 104(1) of the Construction Act "if it merely promises to perform obligations owed to someone else under the building contract. There needs to be a separate or distinct obligation to carry out construction operations for the beneficiary; not one which is merely derivative and reflective of obligations owed under the building contract"
- The specific collateral warranty between the parties in this case was not a construction contract because it was "an entirely derivative promise" and the contractor had not promised anything that was not already promised to the employer under the building contract.
Consequently, in the absence of specific drafting, funders, purchasers and tenants will now be unlikely to have the right to issue statutory adjudication proceedings for breaches of obligations under collateral warranties. This is often a far more cost effective and timely way of resolving construction disputes, but no longer available to beneficiaries under a collateral warranty with the likely route being a breach of contract claim in court. Court claims are inevitably longer, more complex and expensive.
Contacts: Amrinder Aulakh, Sarah Mather
Related item: Collateral Warranties – To be or not to be a construction contract? That is the Question…
Late Payment, Termination under JCT Contracts and the Lifeblood of the Construction Industry
Providence Building Services Ltd (Providence) v Hexagon Housing Association Ltd (Hexagon) [30.07.2024]
Here, the Court of Appeal was asked to consider whether a contractor was able to terminate its engagement under Clause 8.9.4 of a standard JCT contract where an employer had failed to pay an application for payment on time, even though in a prior instance of late payment, the employer had paid up on receiving a previous default notice.
In 2019, Hexagon (the employer) and Providence (main contractor) entered into a contract for the construction of a number of buildings in Purley (the Contract). The Contract incorporated the employer default provisions at clause 8.9 of the standard form, with only minor amendments. Following several late payments by Hexagon over the course of two years, in May 2023, Providence issued a Notice of termination under Clause 8.9.4 of the Contract (the Notice of Termination).
Providence gave notice that Hexagon had repeated a specified default and stated that it terminated its employment under the Contract. Providence further said that 19 of the 32 payments Hexagon had been required to pay, had been made late. It further accepted what it characterised as Hexagon's repudiatory breaches of contract so as to rescind the contract and terminate it in accordance with its common law rights. Hexagon disputed the lawfulness of the Notice of Termination and asserted that Providence had repudiated the contract. Hexagon then referred the dispute to adjudication at which the adjudicator found in favour of Hexagon. Providence issued proceedings under CPR Part 8 seeking a declaration from the Technology and Construction Court (TCC). The TCC decided in Hexagon’s favour. Providence then appealed to the Court of Appeal. The Court of Appeal allowed the appeal and held that, where unamended termination provisions of the 2016 JCT D&B contracts apply, despite and in addition to the "battery" of other remedies available to contractors for non-payment, or late payment by employers (such as suspension of Works or adjudication), two late payments by the employer could lead to a valid termination by the contractor.
The Court of Appeal judgment can be seen as encouragement for both employers and main contractors to pay on time because if payment is repeatedly not made on time, there could be a right to terminate the contract. For many in the construction industry suffering from issues arising from persistent late payment, this is welcome news.
Contacts: Amrinder Aulakh, Scott McKinnell
Related item: Late payment, termination under JCT contracts and the lifeblood of the construction industry
Construction and engineering
Insurance and reinsurance
United Kingdom