Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) Llp

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The recent decision made by the Court of Appeal in Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) Llp [2022] EWCA Civ 823 (21 June 2022) has overturned the earlier Technology and Construction Court (TCC) decision; now confirming that the significant benefit of adjudication can be available to a wider range of parties involved in a construction project.  From the perspective of our education clients, the decision in this case is likely to have an effect on the procurement process and those who are to benefit from collateral warranties and other construction documents.

What is Adjudication?

Adjudication was introduced by the Housing Grants, Construction and Regeneration Act 1996 (the “act”). It offers a relatively quick dispute resolution procedure by an appointed adjudicator, usually in just 28 days. The adjudicator’s decision is temporarily binding until the dispute is finally determined by court proceedings, arbitration, or settlement; albeit that the decisions are largely followed without the need for such additional enforcement measures to be taken.

Under Section 104(1) of the act, the statutory benefits of adjudication only extend to certain types of agreements – those defined as “construction contracts” for the carrying out of “construction operations”.  This case was therefore of great interest to the construction industry as it shed light on what the courts would interpret as a construction contract which fell within S104.

Background

Abbey Healthcare (“Abbey”) was the tenant operating a care home.  Defects in the works were notified to Simply Construct (“Simply”), but were carried out by another contractor. Following completion of the works, Simply was required to execute a collateral warranty in favour of Abbey. This collateral warranty was executed four years after practical completion of the original works, and some eight months after the completion of remedial works.  Claims were brought by adjudication to recover losses relating to the defects. An adjudicator’s award was made in favour of Abbey, but enforcement was resisted by Simply on the basis that there was no implied right to adjudicate under Abbey’s collateral warranty.

The TCC had found in favour of Simply.  The warranty was to be construed against the factual background and the timing of its execution.  The warranty was executed after the works had been completed and defects remedied by another contractor. It was therefore a warranty only of a state of affairs and could not be construed as an agreement for the carrying out of construction operations.  The TCC therefore concluded that Abbey’s collateral warranty was not a construction contract for the purposes of the Construction Act.  There was no contractual right for Abbey to adjudicate under the Construction Act and so the decision in the Abbey adjudication was not enforced.

Court of Appeal decision

The Court of Appeal, by majority decision, has overturned the decision of the TCC.  It has been held that Abbey’s collateral warranty was a construction contract for the purposes of the act and there was a statutory right to adjudicate.  This was the case, notwithstanding that the warranty was signed years after the works were complete. The timing of its execution was not held to be determinative. Instead, the wording of the warranty was key.

Taking here some of the key parts from Lord Justice Coulson’s decision, he reasoned that:

  • There is no reason to limit the words of s.104(1) to refer only to the primary building contract.  A collateral warranty may, therefore, be capable of being a construction contract for the purposes of s.104(1). What may be critical is whether the warranty is in respect of the ongoing carrying out of construction operations, on the one hand, or is in respect of a past and static state of affairs, on the other.

  • Simply had warranted to Abbey that it "has performed and will continue to perform diligently its obligations under the contract." Therefore the warranty plainly set out the standard to which the construction operations would be carried out. That was by reference to the detailed terms of the building contract. To that extent, the building contract is the marker or standard denoting the level of quality that Simply Construct was required to achieve

  • Simply Construct was warranting that, not only had they carried out the construction operations in accordance with the building contract, but they will continue so to carry out the construction operations in the future. That is an ongoing promise for the future. As a matter of common sense, this is "an agreement for the carrying out of construction operations". It is not a warranty limited to the standard to be achieved; neither is it a warranty limited to a past or fixed situation. It is a warranty as to future performance. It is that which differentiates Abbey’s collateral warranty from a product guarantee.

Although the Abbey collateral warranty was executed after the works had been completed, it was retrospective. It made a promise both as to the standard of past work and to the future carrying out of work to the same standard. It was therefore an agreement for the carrying out of construction operations which had retrospective effect. Once that is accepted, the delay between the completion of the works and the execution of the warranty does not matter. Otherwise arbitrary lines would start to be drawn. For example, in this case, it was inferred by the judge that four years was too long. But what about two years? A year?

As Abbey’s collateral warranty contained future-facing obligations and was retrospective in effect, the date of execution was ultimately irrelevant. The warranty is a construction contract.

To find otherwise, would in Lord Justice Coulson’s judgment, be “wholly unsatisfactory”. It would also encourage contractors not to sign collateral warranties until after they had finished as many of the construction operations as they could. On the basis that, in such circumstances, whatever the wording of the collateral warranty, they could avoid the implication of the act and therefore avoid being the subject of a claim in adjudication.”

The decision has brought welcome clarity to the interpretation of the act and will have far reaching, positive implications for the various stakeholders in any construction project and also confirms the availability of an alternative route to recovery of costs avoiding costly litigation.

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Chloe Fellowes is a proactive Paralegal with a demonstrated history of working in the legal services industry.

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The widespread effects of COVID-19 are set to drastically alter the UK’s construction industry. We understand the sector from our vast technical knowledge and real-world experience of the issues you may be experiencing, from contractors’ responsibilities to delayed contracts and payment support.

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Demand for EV chargepoints means smart charging essential for construction industry

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Demand for EV chargepoints rises in the UK

As the UK continues to phase out petrol vehicles and encourage the mass uptake of electric vehicles, considerations have to be taken on new build homes and offices for EV charge point installers. Speaking in Parliament on 9 September, transport minister Rachel Maclean said the government will publish its response to a two-year-old consultation on mandating EV charge points later this year.

Expected to be included in the response is legislation requiring all new residential and non-residential buildings to have an EV charging station, news that will surely be welcomed by the hundreds of thousands of EV owners in the UK.

If passed, this legislation would make the UK the first country to mandate chargepoints in all new-build developments, and would be the latest in a string of indications that Westminster sees the future of personal transport as electric.

With the government recently confirming it will legislate to require all new-build homes and offices with parking spaces to have electric vehicle (EV) chargepoints, Shakespeare Martineau’s Neil Gosling, partner and head of residential development, and Isaac Murdy, trainee solicitor in the energy team, discuss the possible risks and available solutions.

As retrofitting charging stations is a lot more expensive than implementing the infrastructure during the construction stage of a new development (on average, £2,040 compared to £976 per space), it is positive to see the government looking to introduce legislation to combat one of the major barriers to drivers switching to electric.

However, while this would be a game changer in the shift to net zero transportation, the chargepoints pose huge potential challenges to the electricity distribution networks that will bring power to the points.

There are risks associated with multiple chargepoints being used at once, such as overloading their connections, and currently, the nominal load attributed to a development does not take EV charging stations into account.

With this in mind, it is vital the construction industry – whether developers or builders subcontracting the installation of a chargepoint – is aware of the potential hazards and the solutions currently available to avoid compromising its reputation.

The future of EV charging stations in the UK

The RAC estimates that, as of April 2021, there are around 239,000 zero-emission battery EVs on UK roads – with more than 100,000 registered in 2020 alone – along with 259,000 plug-in hybrids and 629,000 conventional hybrids.

With a plan to phase out petrol and diesel cars by 2030, the National Grid projects an EV stock of more than 11 million in Britain by that point and 30 million a decade later.

While this will help to meet decarbonisation commitments, new ways of thinking are needed to decrease the load demand created by EVs on an energy system that could face a 30% rise in peak electricity consumption in 10 years’ time.

Demand spikes for EV chargepoint installations

Chargepoints on all homes with a parking space would give the most utility to residents. However, it also places the greatest burden on the cables and wires distributing power to the estate – especially if EVs become as common as petrol and diesel vehicles, as they are projected to.

An analogy of why this would be a problem would be to compare the electricity to water. If we think about water pipes and all residents on a housing estate turn on their taps and flush their toilets at the same time, there will be a massive draw of water and either the taps will trickle or the pipes may even implode.

The same issue goes for electricity. Chargepoints can draw a lot of power from the grid and without control, there is the potential for huge spikes in demand, which could lead to brownouts (as insufficient electricity is shared around) or potentially the failure of distribution equipment that cannot handle the currents running through them.

Currently, many distribution network operators (DNOs) discount the possibility that everyone will be charging their cars while running the tumble dryer and boiling the kettle as too unlikely. This means that when calculating the additional reinforcement their networks will need when an estate is connecting in, they do not require any additional capacity to account for EV chargepoints.

This allows the network operator to give a more competitive price, but creates a problem for developers and drivers alike in the long run. We hope that as EVs become more ubiquitous, the real burden on the networks will be realised, and the Distribution Code that guides DNOs’ activities will be updated.

Smart charging shares data via the cloud

The solution is clear – smart charging and good communication with networks, and the government has acknowledged the importance of the former.

Smart charging refers to a system where an EV charging station can share its usage data via the cloud. This should help connect EV charging into the wider energy system, and could allow peak demand to be reduced, which would help prevent them becoming a burden on the power grid.

This is like the smart meter in your house being able to turn down the thermostat though, and will surely require commercial agreements to compensate people who will not get their vehicles charged as fast as they wanted.

We have started to see these put in place between high-profile housebuilders and installers to ensure the chargepoint will be controlled and what technology is needed to be put in place.

These early adopters are already showing how spikes can be smoothed by shutting down chargers when power is at a premium and turning them back on when demand is lessened. This can reduce the need for expensive reinforcement of the electricity network.

The solution is clear – smart charging and good communication with networks, and the government has acknowledged the importance of the former.

Smart charging refers to a system where an EV charging station can share its usage data via the cloud. This should help connect EV charging into the wider energy system, and could allow peak demand to be reduced, which would help prevent them becoming a burden on the power grid.

This is like the smart meter in your house being able to turn down the thermostat though, and will surely require commercial agreements to compensate people who will not get their vehicles charged as fast as they wanted.

We have started to see these put in place between high-profile housebuilders and installers to ensure the chargepoint will be controlled and what technology is needed to be put in place.

These early adopters are already showing how spikes can be smoothed by shutting down chargers when power is at a premium and turning them back on when demand is lessened. This can reduce the need for expensive reinforcement of the electricity network.

Looking ahead

To reach the UK’s ambitious target of becoming net zero by 2050, it is clear that renewables must become an integral part of housebuilding efforts.

And given that tens of millions of EVs could one day be on the UK’s roads as they replace petrol and diesel vehicles in a long-term strategy to decarbonise personal transport, domestic charging could soon become the norm.

To support this ambition, it is vital there is minimal impact on the grid and to deliver this, smart charging, delivered by commercial agreements, should be a priority.

To ensure they do not fall foul of the laws regulating electricity supply, generation and distribution, it is important developers take advice.

So, when specifying chargepoints to be installed on a new housing estate, taking a preventative approach by investing in the right technology and ensuring suitable agreements are in place will bear many benefits for residents and nearby locals, electricity suppliers and our planet in the long-term.

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Neil builds long standing working relationships with our clients by becoming an extension of their business. He is forward thinking and progressive in his approach.

As head of our residential development team, Neil has acted for the majority of the country’s top 10 national housebuilders as well as for significant institutional landowners, private builders and developers.

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Construction disputes – to adjudicate or not to adjudicate?

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Construction disputes

In most construction disputes there is a familiar proposition that when seeking to settle a dispute, adjudication tends to be a preferred route to dispute resolution as it is quicker and cheaper than court proceedings.

However, in a recent case of Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC) the Technology and Construction Court (TCC) has clarified the entitlement to adjudicate according to a collateral warranty.

What is adjudication in construction?

Adjudication in construction is a faster and less formal route of dispute resolution than resorting to relatively slow and expensive court proceedings.

The case and parties involved were Toppan Holdings Ltd and Abbey Healthcare  (Mill Hill) Ltd v Simply Construct (UK) LLP

The collateral warranty in question was to Abbey Healthcare, a tenant who had taken a long lease on a property built by Simply Construct.

It was executed four years after practical completion and eight months after remedial works had been carried out by another contractor.

Following an adjudication, Simply Construct resisted enforcement on the grounds that Abbey’s warranty was not a “construction contract” and therefore the adjudicator had no jurisdiction.  The TCC agreed, although this is the first instance and may be subject to appeal and change.

Critically, the TCC held that whilst the warranty was drafted to state that Simply Construct “has performed and will continue to perform diligently its obligations under the Contract”, the reality was that the works had already been completed and, even latent defects had been remedied by other contractors.

Therefore this particular warranty could not be a construction contract for the purposes of statute; it was not contract for the “carrying out of construction operations”.

This decision by the TCC is perhaps a surprise to many in the sector.  The statutory right to adjudicate is often the preferred route to dispute resolution and without this procedure available, the matter is likely to involve lengthy and costly formal litigation proceedings.

Is there a way to ensure an adjudication is still an option?

The answer is yes, but careful drafting of collateral warranties when disputes arise is therefore important.  It is possible to include an express adjudication clause and so not rely on statute.  Had this been included in the collateral warranty to Abbey Healthcare, then Simply Construct’s jurisdictional challenge would have not had merit. Another point to consider, and whilst not always possible, is that it is prudent to execute collateral warranties as early as possible during a project and whilst the construction works are still being carried out.

This case has helped clarify a point of principle regarding the statutory right to adjudicate.  To avoid potential issues in the future a careful review of relevant construction contracts is recommended and where required, express clauses can be inserted into contracts.

For further information on these or any other issues surrounding contracts or disputes contact Jayne Meakin or another member of the construction team in your local office.

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Jayne is a Legal Director with a particular focus in acting for developer’s using JCT procurement. Jayne leads of a broad range of projects working closely with colleagues in our property and corporate teams.

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Our construction lawyers know what it is to be in your boots – some literally, after previous careers in building surveying – so we don’t sit on the fence.

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Guides & Advice

What do RPs need to know about the Leasehold Reform (Ground Rent) Bill?

The new Leasehold Reform (Ground Rent) Bill means that new long residential leases will be free from ground rent and leaseholders will no longer be subject to unexpectedly high costs payable annually. However, its implementation has the potential to impact on registered providers (RPs) guaranteed income streams.

Who will the Bill affect?

As the Bill currently stands, existing leases with ground rent included in the contract will remain unchanged. However, new leases, including those on existing developments, will have to be sold with a lease that has zero ground rent.

At present, only shared ownership leases are exempt. However, landlords and leaseholders should bear in mind that this could be subject to change as the House of Lords wants to include measures to protect shared ownership leaseholders. This will now be considered at the Committee stage.

Financial considerations

While not all RPs charge ground rent, it can be a vital source of income for those that do and helps to fund future social housing projects. However, once the reforms have been implemented, major changes to the way RPs fund developments may need to be considered. Currently, if an RP has sold off every flat in a building with a ground rent, the freehold land can then be sold onto a third party who can continue to generate an annual return from the rent.

Moving forward, with no ground rent to be included in new leases, the value of the freehold will be substantially reduced, and RPs will receive no ongoing revenue from the land, other than from the delivery of the management services. Once the flats have been sold to the tenants, they will no longer serve a social purpose and may become a drain on the RP’s resources, where these could be focused on their newer social housing stock.

The impact on social housing

The later living sector is also likely to be impacted. Currently, ground rent charges in retirement developments fund communal areas and additional services. Without them, funding will have to be found elsewhere. While the Government initially agreed that retirement homes would be exempt from the Bill, they have only instead chosen to delay implementation until April 2023 for this sector.

However, not all is doom and gloom. RPs that acquired flats in blocks from developers in the future, would most likely have found themselves owning properties with doubling ground rents, which they would have to pass on to their tenants, creating a further barrier to affordable housing. As a result, for RPs buying housing under Section 106 agreements following implementation, the Bill is a positive.

Moving forward

As existing leases aren’t impacted, RPs will still be able to collect ground rent to some extent, but they will need to factor in this loss of revenue with any future housing projects.

The changes mean that it is essential for RPs to review the viability of their current housing models. Purchasing or building flats with a view to selling on the freehold asset for a capital sum may no longer be a practicable option, so further innovation to generate revenue will need considering.

Although a welcome step for leaseholders, these reforms are yet another hurdle to jump for providers of affordable housing, removing an income stream that has historically not been crippling for its residents, but instead has provided a regular income stream to help in the delivery of their affordable housing products..

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Get in touch to find out how our Building Communities team can help.

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Building the future: the benefits and challenges of MMC

In recent years, modern methods of construction (MMC) have become increasingly popular, as it provides a fast and high-quality alternative to traditional house building. However, a lack of knowledge surrounding these methods has meant some developers have been hesitant to embrace it.

Read more about the difference between MMC contracts and standard construction contracts.

To tackle this, the government has assembled a ‘MMC taskforce’, which aims to encourage the industry to use off-site construction methods and accelerate the roll out of much-needed housing. So, what do housebuilders need to know about MMC?

What are modern methods of construction (MMC)?

MMC is an umbrella term given to a range of offsite manufacturing and onsite techniques that provide alternatives to traditional housebuilding. The most common form of MMC is modular housing, where the structures of the homes are built off site in a factory environment, before being delivered to the development site and assembled in-situ.

Although this method of construction is something that has been talked about for many years within the industry, it still only accounts for a small percentage of the total housing delivery in the UK. However, as the need for quick and sustainable construction solutions continues to grow, so does the momentum behind MMC.

What are the benefits of MMC?

Promising a speedy solution to housebuilding, MMC continues to grow in popularity, particularly with registered providers that need to provide high quality housing as quickly as possible. But speed is not the only benefit of these new methods of construction, others include:

  • Reduced construction time on site, resulting in less disruption for existing residents;
  • Fewer housing defects thanks to stricter supervision in factory;
  • Reductions in energy use and waste;
  • Safer construction; and
  • Greater flexibility - modular buildings can be disassembled and the modules relocated or refurbished for new use elsewhere.

However, despite these benefits, MMC still has some way to go before it is favoured over traditional housebuilding, due to limited awareness of the associated risks within the industry.

What are the challenges of MMC?

Like with anything new and innovative, MMC is not without its challenges and in this case, it could be argued that they stem from a lack of confidence in the product.

Unlike traditional housebuilding, MMC is done off site in a factory environment, meaning an element of trust is essential. For many housebuilders who are accustomed to being on site 24/7 and having unlimited access to check on the progress and quality of the build, this could prove to be difficult. Although many professionals continue to doubt the quality of MMC, being built in the controlled environment of a factory allows for rigorous testing of the product and leads to a consistently high-quality result.

There are also still question marks surrounding the long-term maintenance of MMC homes. This shouldn’t be a problem, with precision and energy efficiency built into these homes as standard, but until they have been lived in for an extended period of time, this will remain an unknown.

Further investment

MMC still has a way to go before it becomes part of the mainstream, but developers are starting to take a chance on it. Although more evidence regarding its long-term viability is needed, the MMC taskforce is aiming to accelerate the delivery of offsite homes in the UK, meaning more investment will be coming the sector’s way. Increased investment will continue to have a positive impact on MMC, making it more secure route for those in the industry.

Contact us

If you’re considering using MMC in a future development and would like more information, our construction and residential development teams can provide some guidance and support. For further information please contact Ruth Phillips or Louise Ingram.

Our construction team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

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Guides & Advice

Standard construction contracts vs MMC contracts

As modern methods of construction (MMC) continue to grow in popularity, it is vital that developers are aware of the differences between MMC contracts and standard construction agreements. A lack of understanding could lead to an unsuitable contract and disputes later down the line. So, what do developers need to know?

Understanding standard construction contracts

Standard construction contracts often include monthly payment instalments, with developers able to monitor the process of the build and ensure everything is on track. In the event of a delay, developers can halt payments until problems are resolved, and remain safe in the knowledge that if building work must cease, there is still a structure on site to work with.

Although logistical planning is still required within standard construction contracts, there is no need for additional thought around transportation and security to be outlined. As the houses are built on site, those logistics are already catered for.

‘Ownership of materials’ is a key part of any construction contract. Traditionally, ownership is passed from contractor to developer at the time of delivery. However, the process can be less straightforward with MMC, as the structure is delivered in one go, so the passing over of ownership needs to be carefully discussed.

The difference with MMC contracts

When it comes to an MMC contract, a greater awareness of its unique requirements is essential. Due to the build taking place off site, the developer must take into consideration that payments will have to be made for homes that have yet to reach the site. Therefore, it is better to make flexible stage-by-stage payments rather than set monthly instalments.

For example, deposits can be made as the manufacturing process progresses, and then further payments can come once the houses are delivered and constructed on site. If the offsite manufacturing process halts for any reason, developers could be left with nothing to show for the money they’ve paid, meaning risk-reducing measures such as stage-by-stage payments are vital.

The extra logistical aspects of MMC should also be considered. If a home is delivered to the site and it’s found to be damaged, it may have to be transported back to the factory. This would come at an additional cost and present some logistical issues that would not be covered in a traditional contract.

Read more about the benefits and challenges of MMC contracts.

Insuring the build

Currently, there is no insurance that specifically covers MMC builds. Therefore, developers need to ensure that the insurance they do have covers any delays or defects that could arise. If the MMC provider is part of a larger construction company, then the developer may be able to secure a parent company guarantee, which would offer further security.

Extra consideration

Before agreeing to any construction contract, developers should carefully consider the building method to avoid signing an unsuitable contract. MMC is still in its infancy, so seeking the help of a legal professional can help to ensure all aspects of the build are covered within the contract.

Contact us

Our construction and residential development teams can provide guidance and support with any type of construction contract you may have in place, or land transaction you are dealing with. For further information please contact Ruth Phillips or Louise Ingram.

Our construction team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Your summer guide to recovery and resilience in COVID-19

Your updated summer guide to recovery and resilience

As the UK takes its first steps to ease the current national restrictions and looks forward to an increase in economic activity and recovery it is vital that businesses are prepared in every aspect.

To support businesses and people navigate their way out of the last year and the current national restrictions, unlock their potential and drive for a brighter future, we have updated our guide to recovery and resilience.

From financial considerations, employees, leadership and premises, to supply chain implications, health and safety and protecting your private wealth, our guide highlights what organisations and individuals should consider when moving from survival to recovery to thrive.

Financial considerations

Whether a large corporate with a highly structured board, an SME or an owner-managed business, the financial viability of a business is key to its future success.   However, as the thoughts turn to the roadmap out of lockdown once again, and what the future may look like, businesses that have got through the last year should consider a range of measures to enable them to cope with what is likely be a recession for some industry sectors of the UK. Prudent business owners will be well aware of the predictions and while there will be a bounce back it may take some time for confidence and stability to return from customers and suppliers.

Your employees

Managing a workforce of any size can have its challenges, let alone one that is recovering from a global crisis. Many businesses will have furloughed employees or made the difficult decision to make a number of their workforce redundant. For those businesses that haven’t, it’s highly likely they will still face having to make difficult choices, albeit further down the line.

The knock-on effects of the COVID-19 outbreak have changed the way employers engage with and effectively manage, their employees. The processes, policies and guidelines that worked previously may no longer be fit for purpose for your business, or for your workforce, in the new working landscape. With the rollout of the COVID vaccine facilitating the gradual return of employees back into the physical workplace, this in itself will bring a host of new opportunities and challenges.

Buildings, workspaces and leases

As the world and economy move forward out of lockdown, owners and investors of real estate as well as occupying tenants will have to consider the adjustments they now need to make whilst the restrictions around social distancing continue.
They will need to find new ways of working and inevitably different ways to use their space over the coming months and, at the same time, consider how to manage the cost of premises in these changed circumstances.

Suppliers and supply chain

Many businesses have struggled to comply with their contractual obligations as a result of the COVID-19 pandemic and may have been forced to rethink their supply chains. A focus in recent years on minimising costs, reducing inventories and maximising asset utilisation has often resulted in a reduced ability to cope with disruption. Whilst the impact of the COVID-19 pandemic is unprecedented in modern times, disruption to the global economy is an increasing risk, whether due to political events such as Brexit, US-China trade tensions, or climate change.

Private wealth, family businesses and family

The effects of COVID-19 will undoubtedly have a huge impact on our economy for years to come, with many businesses collapsing under the strain and the level of unemployment set to rise significantly. However, what is less widely reported on is the effect it is having and will continue to have, on families and personal wealth. We’ve already seen that the pandemic has led to an increase in people looking at how they may pass on their wealth to the next generation –and even more so for those that own family businesses.

Compliance – Health and safety

Employers have clear duties under existing health and safety legislation. Obligations to comply with health and safety at work, and to manage and control workplace risks, includes protecting workers and others from the risk of COVID-19 infection in the workplace. That duty is to do everything “reasonably practicable” to manage these risks. The onus of demonstrating that everything reasonably practicable has been done falls to the employer. The best way to demonstrate compliance with the law is usually to follow government and industry-led guidance wherever possible.

Leadership

Strong leadership is a cocktail of authenticity, collaboration, passion, compassion, and a great deal of bravery. We all know the best results occur when we are pushed out of our comfort zones and the ingredients are shaken up, and COVID-19 has done exactly that. With government guidance signalling the UK’s route out of current national restrictions, the time for positive leadership is now. It’s time to take control of what we can and create an environment with enough certainty where people can feel safe enough to flourish centre stage.

We are here to help

The team here at Shakespeare Martineau remain committed to supporting our clients and our communities throughout these challenging times, with

the depth of experience, collaborative ethos and the creative know-how to lead positively to the future.  We are able to offer advice and solutions on a range of subjects for life and business - from employment and general business matters, through to director’s responsibilities, insolvency, restructuring, funding and disputes to issues affecting family businesses, personal wealth planning and family law. Do contact us on 03300 240 333

 

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Guides & Advice

Construction | disputes, document retention policy and limitation periods

Document retention (or record keeping) is a key part of any business, particularly for those operating in the construction industry where claims can be common. Having those relevant documents to hand is vital if a claim needs to be made or defended. 

In our experience, businesses operating in the construction industry tend to retain documents in line with the contractual limitation period for each project, which is understandable given that the vast majority of construction projects are procured based on written contracts which expressly provide for a set limitation period.  

However, it is worth being aware that the contractual limitation period can be only half the story. The limitation period in respect of tort (i.e. negligence) claims is different – and potentially quite a bit longer and as such, it is important that documentation retention policies take this into account. 

Claims in tort 

We have recently seen an increase in the number of claims being pursued in tort, rather than contract. This is often more common in the context of historic construction projects where latent defects have come to light after the contractual limitation period has expired.  

The problem we often find is that relevant documents have been destroyed or deleted shortly after the contractual limitation period has expired, despite the fact that it is still possible for a claim to be pursued for a longer period in tort. Businesses are therefore jeopardising their ability to effectively defend (or pursue) claims due a lack of supporting documentation or evidence being available.   

Put simply, if you have no paperwork to prove your position in a claim brought against you, you are putting your ability to mount an effective defence in jeopardy.  

Limitation periods – what do we mean? 

When we talk about ‘limitation periods’, we mean the time in which a claiming party must bring a claim before it is out of time. Limitation periods vary depending on the basis of the claim i.e. whether it is a claim in contract or tort.  

We provide a summary of the position below. 

Contract  

The general position is that limitation runs from the date on which the cause of action accrues, typically the date of practical completion of the works.  

A simple contract allows a claim to be brought up to six years after practical completion of the works.  A contract executed as a deed (common in construction contracts) allows a claim to be brought up to 12 years after practical completion of the works. 

It is worth noting that the parties to a contract can agree to alter the limitation period i.e. so that it is different to the general six or 12 year position.  

Tort  

The time limit for a claim in the tort of negligence is six years from the date on which the cause of action accrues. Whereas in contract the cause of action accrues at the date of breach, in tort the cause of action does not accrue until the claiming party suffers damage, which might be at a much later date.  

The “damage” necessary for an action in negligence is normally actual physical injury to a person or damage to property, so there is normally no difficulty in determining when “damage” was suffered.  

There is a potential extension to the six year limitation period, if at the time the cause of action accrued, the claiming party didn’t know certain key facts about their claim. When the claiming party has (or should reasonably have acquired) knowledge of the relevant facts, then the 'starting date' occurs and it is from this date that the alternative three year period runs.  

However, a claim in negligence is subject to an overall long-stop date of 15 years. This long-stop runs from the date on which the negligent acts or omissions which caused or contributed to the damage took place.  

So, the 15 year long-stop date runs from the date of the negligent acts, rather than from the date on which the claiming party suffered damage. It is important to note that in the context of a construction project, this does not mean 15 years from the date of practical completion, it means 15 years from the date of the negligent act. This is a key difference between the contractual limitation period and the tort limitation period.  

Retaining documents – defending claims 

We have dealt with a number of claims recently pursued in tort – some approaching a decade and a half after our client was involved which brings a number of challenges.  

The main challenges relate to fact-finding and evidence collating. So long after the fact, memories have often faded and key members of staff may have moved on. What’s key therefore is the ability to retrieve the documentation relating to the matter. That will tend to be the ‘make or break’ as to whether the claim can be effectively defended. 

The problem we’ve come across on a number of occasions is that many businesses are operating on the basis that any potential liability ends when the contractual liability ends (i.e. a backstop of 12 years from practical completion).  

This is where the challenge can arise. Just because the contractual limitation has expired doesn’t mean there is no further liability - there is still the potential for a claim to be brought in tort.  

This is why it is important that relevant documentation is retained well beyond the 12 year contractual limitation period for a minimum of 15 years. That way, if a claim is pursued in tort, it’s possible to fully consider the merits and in turn, decide on how best to defend the claim. It goes without saying that, if there are no documents available, it can be a tricky predicament as to how best to deal with the claim. 

Latent defect claims

These claims can arise in the context of any construction works, however, an ongoing focus area is cladding / fire protection. Opening up works are being carried out across hundreds of sites across the UK and while the primary focus / objective is (and rightly so) to ensure that the cladding / fire protection measures are safe, the secondary focus is often to explore whether there are any latent defects that could be the subject of a claim. Getting document retention right is important for all construction companies but  those involved in cladding / fire protection projects will want to be doubly sure that they are doing all they sensibly can on this front.  

How should your document retention policy work?  

It is sensible to retain relevant documents relating to projects for a period of at least 15 years following practical completion.   

Gone are the days when documents needed to be stored in endless boxes and sent to costly storage facilities. These days, the vast majority of (if not all) documents can be stored electronically, at minimal cost on a: 

  • domestic computer system; 
  • cloud based platform; or 
  • combination of both. 

Ideally, if documents are stored on your own domestic computer systems, there should be a separate back up elsewhere so that if there is a systems failure and documents are destroyed, there is a copy.  

It is best practice to ensure that all staff working on projects adhere to a document retention policy and consistently save documents (of whatever type: emails, letters, memos, drawings etc). However, as a minimum, the documents retained in relation to each project should include: 

  • The building contract; 
  • Any key correspondence (i.e. around the materials used, specifications etc.); 
  • Meeting minutes; 
  • Cost reports; 
  • Survey, inspection and testing documentation; 
  • Material delivery and use; 
  • Insurance certificates and policy documents; 
  • All finalised drawings, plans and specifications; 
  • Invoices/ Time sheets; and 
  • All building contract, planning and practical completion sign-off documents.  

Not every project is the same and the extent of document retention that is required will very much depend on the type of project.  A balance must be maintained between keeping adequate records in preparation for a dispute arising, and attempting to record everything. Developing a document retention policy and ensuring staff are fully on-boarded and adhere to the same is at least half the battle.  

GDPR and document retention policies 

The UK General Data Protection Regulation (UK GDPR) governs the processing of the personal data of people in the UK.  Among the UK GDPR data processing principles is the principle of “data minimisation”, which means (among other things) that personal data should be kept only for so long as is necessary for the purpose for which it was collected.  Keeping personal data for longer than this needs to be justified.  

Given that construction companies can be exposed to claims for up to 15 years, the retention of documents for potential litigation is a justifiable reason to hold onto the relevant documents for the entire 15 year period.  

However, there are important steps that companies must take to minimise the risk of UK GDPR breaches. Because the UK GDPR’s “accountability” principle means companies must not just comply with the UK GDPR, but must also be able to demonstrate how they comply, all construction companies should maintain and enforce a date retention schedule. This means a written record must be kept that lists each relevant category of document retained (i.e. building contract), the time period that it will be retained for (for example 15 years) and an explanation on the reasons why (for example for any potential litigation proceedings).  

How can you limit the risk of a GDPR breach? 

In addition to keeping a written record, there are a number of other crucial ways to limit the risk of UK GDPR breaches, such as:  

  • Where possible, remove any personal data (i.e. phone numbers, email addresses etc.) from the relevant documents; 
  • Store all documents in a secure and safe place; 
  • Ensure controlled access is implemented with access only given to those authorised for the justified reason (such as if required for litigation); and 
  • Ensure there is an effective process for destroying or deleting the documents once the applicable retention period has expired. 

Complying with the UK GDPR is vital; we advise our clients to hold the above listed documents in secure storage for the entire 15 year limitation period which will protect their position for a potential future defects claim. Once the limitation or other stated retention period has expired the documents should be destroyed if they include personal data. 

We’re here to help 

For further information on any aspect of construction contract disputes contact Kate Onions or another member of our construction team for advice and support. 

Our construction team is ranked as a Top Tier Firm in the Legal 500 2021 edition. 

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.   

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Blog

The new JCT Dispute Adjudication Board – What does this mean for you?

The Joint Contracts Tribunal (JCT) and the Chartered Institute of Arbitrators have launched the JCT Dispute Adjudication Board (DAB) as a new potential dispute resolution method.
What is a Dispute Arbitration Board?

JCT describes the aim of the DAB as being “to provide a framework for parties to identify and resolve potential problems and disputes early on to avoid costly litigation and damaging of project relationships”.

A typical DAB will comprise of a panel of either one or three independent experienced construction specialists.  Throughout the duration of a project, a DAB will make decisions on potential problems and disputes which will be binding on the parties until finally determined, if necessary.

The DAB will attend meetings and site visits with the parties throughout the project, therefore intending to develop and nurture a trusting relationship between the parties and to provide the DAB with an opportunity to understand and familiarise itself with the site and the project.  The key emphasis of this procedure is to work together to try to resolve issues without the need to make a formal referral to the DAB for a binding decision.

If a dispute does arise between the parties, either party may give notice of its intention to refer a dispute to the DAB, and the referral must then be served within seven days.  The DAB will then have 28 days to issue its decision.  Sound familiar?  This is because the DAB procedure is aligned with the procedure for statutory adjudication which has been used successfully as a dispute resolution mechanism for over two decades!

When can the Dispute Arbitration Board be used?

The DAB is designed for use with the JCT Design & Build Contract and the JCT Major Project Construction Contract, both of which are generally suitable for larger scale, complex and long-term projects.

It is considered that the nature and scope of projects carried out under these forms of contract will ensure that the costs of the DAB will be proportionate to the size and value of the project.

How is a Dispute Arbitration Board set up?

JCT has produced a document pack which consists of a set of rules and a tripartite agreement between the employer, the contractor and the DAB member(s).

The DAB Rules can be incorporated into the JCT forms of contract, which serves to bind the employer and the contractor to the DAB process.

The parties are free to decide whether the DAB panel will consist of one member or three members.  A panel of three may be preferred to instil a sense of impartiality and to ensure that there is a diverse range of skillset, experience and knowledge amongst the panel.

Can a Dispute Arbitration Board be terminated?

Once the DAB is in place, it can only be terminated by mutual agreement of the parties.  This means that one party cannot simply decide that it no longer wishes to comply with procedure and the DAB’s decision(s).  This highlights the key function and purpose of the DAB – a proactive approach to dispute avoidance and resolution through the duration of a project and beyond completion.

Does the Dispute Arbitration Board impact the parties’ statutory right to adjudicate?

Under the Construction Act, parties have a right to refer a dispute under a construction contract to adjudication at any time.[1]

It raises the question as to whether the industry will welcome the new JCT DAB process with open arms when there is already a statutory right of adjudication.

However, the JCT DAB process can offer more than that offered by the statutory adjudication process.  It is not intended that the DAB will simply decide a dispute.  Instead, there is a primary focus on the DAB, as an independent expert panel, offering guidance throughout the life of a project to assist in avoiding disputes in the first place, saving the parties both significant time and money.

We’re here to help

The uptake of the new DAB process remains to be seen, so for now, watch this space!

In the meantime, if you want to find out more about how you might be able to include the DAB process in your building contract, and the benefits this can bring, contact Laura Taylor in our construction team for advice and support.

Our construction team is ranked as a Top Tier Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your way out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

 

 

[1] S108 Housing Grants, Construction and Regeneration Act 1996 (as amended)

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Deal

98 homes get the go-ahead following land acquisition in Derbyshire

Residential developer Forge New Homes has signed on the dotted line for a seven-acre site in Pilsley, with the help of Midlands law firm Shakespeare Martineau.

Having achieved planning permission to develop a mixture of bungalows, two, three and four bedroom homes for sale and two and three bedroom homes for shared ownership and affordable rent, the developer has now completed the acquisition of the North East Derbyshire site.

This will be the first development for Forge New Homes, which operates in the Sheffield City Region and is backed by five leading housing associations: Great Places Housing Group, Yorkshire Housing, Together Housing Group, South Yorkshire Housing Association and The Guinness Partnership.

Jenny Walker, legal director and land acquisition specialist at Shakespeare Martineau led the deal, she said: “We are delighted to have worked with Forge New Homes on its first land acquisition and look forward to seeing the housing development take shape.

“New build plots are hugely popular and always have been; the stamp duty holiday caused a surge in activity with reservation levels being the same or higher as compared with previous years. We are really pleased to see that there is no indication that the market for new build plots is slowing down despite the combination of the SDLT holiday tapering off and the commencement of the increased restrictions on eligibility to the help to buy scheme. The new build market continues to be a robust market with confidence levels remaining high.

The site that was previously unused farm land and required a tight turn-around on the exchange of contracts to meet planning permission deadlines.

Andy Beattie, project director at Forge New Homes said: “We are thrilled to have reached this stage of our development plans and take positive steps towards building much needed, high-quality family homes in the area.

“It’s been a challenging 12 months and a full team effort to get us to this stage, a huge thanks to our partners, designers and Shakespeare Martineau team.

Tony Stacey, Chief Executive at South Yorkshire Housing Association, said: “We're very pleased to see Forge New Homes starting work on this development, and it's great to be working with our partners to increase the local supply of affordable homes. The 30 homes we're acquiring for affordable rent and shared ownership will be lovely places to live.

Works are expected to commence in May 2021, with properties placed on the market in the Autumn.

Contact us

For further information please contact Jenny Walker or another member of the residential development team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Blog

How can universities implement green goals to reach net zero emissions?

The virtual Times Higher Education's Estates Management Symposium took place in March 2021, with this year’s theme cantering around “building confidence in the future of universities".

Attended by over 300 delegates, including estate directors, university leaders, higher education finance professionals and those involved in setting the strategy and plans for university estates, attendees heard from a number of experts on how to start planning now for the next generation of students.

In a period of economic uncertainty, how can our universities decide where to invest to ensure they are fit for the future? As part of the conference, construction expert Ruth Phillips and energy lawyer Sushma Maharaj delivered a session on the challenges of moving to a clean energy future, collaborating with Andy Nolan, development and sustainability director at the University of Nottingham, and Jeremy Bungey, an independent consultant at Woodlea Projects.

You can view the full recording of this session below or here.

Here we provide a summary of the main points covered during the session.

Net-zero emissions by 2050

Following on from the White Paper and the government’s ten-point plan, which set out the energy-related measures that will be needed to deliver the long term strategic vision consistent with net zero emissions by 2050, universities are under increasing pressure to decarbonise their campuses.

In order to reach their green goals universities need to make a shift towards using more renewable and low-carbon technologies on their campuses (e.g. solar PV, heat pumps etc.).

What challenges will universities likely to face?

The investment needed to do this is likely to be substantial, particularly for those universities that do not qualify for government grants or loan schemes. With funding cuts being made elsewhere, and the impact of COVID-19, where will universities find the money to make the necessary changes?

In addition to high investment costs and potential lack of funding, universities face further uncertainty as they must make decisions against proposed regulatory changes for heat and electricity sectors.

Additionally, they will also need to consider the expectations of their students - with recent reports indicating that students expect universities to be more sustainable and take an active approach in tackling climate change. This means that increasingly, universities need to take a holistic approach when developing sustainability plans and start to transition to low-carbon technologies  as for example, the type of low carbon solution chosen e.g. heat pumps which operate at lower temperatures,  would only work optimally with more energy efficient building fabric to buildings.

With the vast majority of university campus’ already well-established and developed, one other challenge they will face is around retrofits – with the addition of any new technology or features needed to be made or added to older systems.

How can universities work with the local community to drive down emissions?

We're starting to see local authorities and councils progressing large scale distribution schemes across cities and town, providing an opportunity for universities to effectively plug into an existing network to transport heat across a campus and help develop a wider energy system.

As society makes the vital transition to sustainable energy solutions, universities have an opportunity to lead the way.

We’re here to support you

If you need advice on implementing your strategy of achieving net-zero emissions by 2050, or how to overcome any hurdles that may prevent you from doing so, our specialist energy and education teams are here to support you, every step of the way. For guidance and support contact Sushma Maharaj or Ruth Phillips.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

National Design Code: What is ‘beautiful’?

With new priorities for both the government and homeowners triggered by the pandemic, the planning sector has had to adapt. To meet these changes, the government has issued a 10-point plan to improve living standards, named the National Design Code. This forms part of the Planning Practice Guidance. It aims to help developers reach higher liveability standards and create ‘beautiful’ homes in thriving communities.

The Design Guide illustrates how well designed places that are beautiful, greener, enduring and successful can be achieved in practice. However, what does ‘beautiful’ really mean, and what are the advantages and disadvantages of this new code?

What is the National Design Code?

The National Design Code outlines 10 points for developers to follow when designing a home. The two main focuses are quality and sustainable building. However, it also highlights the need to keep properties in tune with local communities as well as create homes that meet peoples’ evolving needs.

Each of the 10 principles shows what the government’s goals are for properties in the coming years. They are:

 

  • Lifespan – Creating homes that are made to last.
  • Context – Enhancing the location and taking advantage of local characteristics.
  • Identity – Making every home attractive and distinctive.
  • Built form – Considering surroundings to create a coherent development.
  • Movement – Making accessibility a key feature.
  • Nature – Enhancing nature and green spaces.
  • Public spaces – Creating a place with the community at its heart, offering a range of social areas.
  • Uses – Mixed use of the land.
  • Homes and building – Building for tomorrow, with functionality and sustainability in mind.
  • Resources – Using resources efficiently to maximise their uses.
Beauty is in the eye of the beholder

The ambitious framework discusses ‘beautiful’ places. Beauty is, of course,  a subjective quality. However, according to the government’s chief architect, a beautiful home will be one that perfectly addresses the 10-points outlined.

Beauty may be subjective, but quality is not. Perhaps using the Code as a base to design on will be the best use of the framework, giving projects direction without forcing designers to lose their flair.

What are the pros and cons?

The major pros of the proposed National Design Code include the emphasis on the role that local authorities and communities play in the design of places, and the clear framework that it provides to house designers.

On the other hand, the emphasis on local culture could be a difficult goal to achieve. Councils will have varying aspects they would like to focus on and different resources available, so it may be a challenge for developers to reach a finalised plan that ticks every box.

There’s also the possibility that the framework could force developers to ‘design by numbers’, creating housing developments with little personality.

Although the National Design Code provides developers with a great foundation, it’s important for designers to bear in mind that ‘beauty’ is subjective. However, by building on the 10 points and working closely with local authorities, developers will be able to achieve the results desired by both the government and homeowners.

Watch our free webinar, with an expert guest panel, on whether the proposed changes will make a positive impact.

Contact us

For any further information contact Richard Cooke or David Pendle in our dedicated planning consultancy team, Marrons Planning.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.  

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Guides & Advice

Managing the risk of insolvency in your supply chain

The increased risk of insolvency

The combined impact of Covid-19 and Brexit means that there are significant financial pressures on companies across the construction industry. As a result, these pressures are likely to lead to an uptick in the number of insolvencies.  Of course, government have put in place measures to assist many companies, including furlough and business loans, but when those measures come to an end the wage bill and loan repayments still need paying.

Add into the melting pot an increase in the cost of materials and labour, and a decrease in productivity over the last 12 to18 months, and arguably what you have is not far off a perfect storm against the backdrop of which further insolvencies in the supply chain are inevitable.

 

Why is this relevant for housebuilders? 

Knowing that there is an increased risk of insolvency means that it is more important than ever for housebuilders to manage and monitor their supply chain.

Monitoring the supply chain can avoid or, at the very least, highlight risks early on enabling housebuilders to take appropriate mitigation measures.  Such measures usually involve keeping the channels of communication open and engaging in early discussions. The aim is to look to agree any workable solution which preserves the housebuilder’s position.

 

How do you know if a company is in financial trouble?

There are a number of warning signs of financial distress to look out for – we’ve produced a checklist of the key signs, below.

Payment-related signs:
  • A sub-contractor not paying its own workers or suppliers.
  • Requests for release of retention when retention is not yet due.
  • Requests for advance payment.
  • Premature applications for payment.
  • Contra-charge claims being made without foundation, to inflate the sums applied for.
  • Inflated applications for payment generally.
Changes in conduct:
  • Underbidding at tender stage, for example, to secure work should raise questions over the underlying reason for low tenders. If it looks too good to be true, it probably is!
  • Radio silence i.e. failures to respond to calls or emails.
  • More aggressive communications, such as the threat of proceedings if payment is not made.
Site-based changes:
  • Suspension of works on site without justification.
  • Reduction in the level of resources on site, for example:
    • A reduced number of staff/workers and/or sub-sub-contractors not turning up without explanation; and/or
    • A reduction in the amount of materials being delivered to site or indeed sub-contractors removing materials or plant equipment from site prematurely before the works are complete.
  • Unexplained or unjustified delays in completing the works by the contractual completion date.
  • A decline in the quality of the works and any associated increase in the number of defects.
Other signs:
  • It is worth keeping an ear to the ground in relation to the ‘unofficial grape vine’. It can often be a case of ‘no smoke without fire’ and it is worth listening to workers / other trades on site as they sometimes have an inside track on what may be happening, which merits further due diligence.
  • Becoming aware of any programme of redundancies or restructuring.
  • Last but not least, late filing of accounts or unsatisfied court judgments can both be clear signs of financial issues.

It is important to ensure that all your key staff (including site staff and those in the commercial and accountancy teams) are aware of what the warning signs are and, subsequently, the need to flag any concerns they have identified as soon as possible.

 

The options for managing and mitigating risks

Generally, there is no right or wrong approach.  However, keeping the channels of communication open often leads to the best outcomes.  Being upfront about whatever a workable solution could be is certainly a good first port of call, such as:

  • Increasing the frequency of payments to improve the sub-contactor’s cash flow to assist them in completing the works; or
  • Omitting elements of the works. However, you need to be careful here as any agreement should be documented so as to ensure that there is no ‘sting in the tail’ (i.e. the sub-contractor seeking to claim for loss of profit on the omitted works).

Can a sub-contract be terminated in the event of insolvency?

Ultimately, in the event of formal insolvency or failure to carry out the works, exercising the right to terminate the sub-contract might be the best option. However, there are a number of considerations before terminating.

Most housebuilders engage their sub-contract supply chain on standard sub-contracts (whether on an individual or framework basis). Therefore the first thing to check is whether the sub-contractor is actually “insolvent” as defined in the sub-contract.

If you terminate when the sub-contractor is not insolvent, as defined in the sub-contract, you can end up in a sticky situation, as this can of itself constitute a repudiatory (serious) breach of contract.

If there is no formal insolvency within the meaning of the sub-contract, it will be necessary to look carefully at the terms of the sub-contract to check if there are any other grounds on which to terminate.

Grounds for termination of sub-contracts

Contractual grounds for termination often include matters such as delay, poor workmanship or even a deterioration in the sub-contractor’s financial standing.

In our experience, sub-contracts will often include a ‘termination at will’ provision.  This means that the housebuilder can terminate the sub-contractor’s employment, even if there is no basis on which to do so.  This can be a useful tool, particularly, where the sub-contractor has not yet entered into any formal insolvency arrangement/process.

However, that said, it is worth being aware that termination at will provisions can (and often do) give rise to arguments about whether there is compensation payable to the sub-contractor as a result of depriving them of the benefit of the sub-contract, namely the carrying out of the sub-contract works for payment. As a result, it can be preferable either to look to reach an agreement to close out the sub-contractor’s involvement, or wait for the formal insolvency to occur to avoid any potential dispute on this front.

Getting termination right

In the event that you do decide to terminate the sub-contract, it is crucial that you follow any requirements in that sub-contract.  For example, such provisions might include requirements as to the form and content of the notice and / or the means by which the notice is to be served.  Strict compliance is necessary, as getting it wrong can mean place you in repudiatory (serious) breach.

We know from experience that, on occasion, sub-contractors are engaged without any formal sub-contract being put in place.  Looking to terminate in this situation is a little trickier, as it might be necessary to have regard to the common law (general) right to terminate the sub-contract.  In conclusion, it will be necessary to be able to establish a repudiatory (serious breach) of the sub-contract.  This is a breach so fundamental in nature it entitles the innocent party to bring the sub-contract to an end.

Often the position can be quite nuanced and, as such, it is worth seeking legal advice around whether a sub-contractor’s apparent breach of the terms of the sub-contract is sufficiently serious to give rise to a common law (general) right to terminate.

Keep a record of evidence

Along the way, it is important that detailed records are maintained, not only recording and evidencing the breaches on the part of the sub-contractor but also any losses arising out of those breaches.

 

Communication is key

Developing and maintaining trusted relationships with your sub-contract supply chain will go a long way to keeping an even keel. However, it isn’t always possible to avoid the risk of insolvency in the supply chain altogether. The key is to keep a close eye on any tell-tale signs and manage the risks which arise as early as possible.

 

We’re here to support you

We regularly act for housebuilders in assisting them in managing insolvency and/or disputes that arise in the sub-contract supply chain.

Read more about how we can help you manage construction disputes effectively.

If you’re concerned about the risk of insolvency in your supply chain then our specialist construction law team can guide you through your options – contact Kate Onions for advice and support.

Our construction team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Guides & Advice

How to handle construction disputes effectively

The delays and disruption caused by both COVID-19 and Brexit have left construction businesses concerned about the disputes that could arise as a result.

With an increase in disputes expected over 2021, companies need to know how best to manage them, including how to avoid unnecessary escalation.

Read more about what the construction sector could look like in 2021.

Keeping delays and disruption to a minimum

New levels of administration have had to be introduced on all construction sites, including the implementation of social distancing and a switch to digital methods of communication.

These changes were inevitably going to cause delay and disruption, and when Brexit was added into the mix, complications only grew. To mitigate any delay and / or disruption, areas for concern should be identified and monitored, with a solution or alternative option ready, if needed.

Common disputes for construction businesses

There are three common types of disputes that are emerging at present, these include:

  • Delay claims – The need for social distancing, and difficulties sourcing materials, has meant some contractors are struggling to finish projects on time. As such, issues surrounding whether employers are entitled to liquidated damages or whether contractors are entitled to extensions of time and loss and expense associated with the delay, are surfacing regularly.
  • Claims for payment – An increasing number of companies are facing financial difficulties. Contractors and sub-contractors in financial distress are more likely to make potentially inflated applications for payment. If the employer does not want to pay the amount applied for, they must issue a valid payment / pay less notice. If they don’t, they leave themselves open to a smash and grab adjudication.
  • Defects claims – Site inspections have been more limited over the past year meaning defects may be more likely. Plus, legacy claims relating to defects in works that were completed many years ago have also begun to emerge. If a construction company hasn’t kept records of these projects, then it will be difficult to deal with these claims.
Stopping disputes from escalating

Early prevention is always better than a late cure, so it is essential to address any issues as soon as possible. Effective communication is key to this, including keeping those upstream (whether employer or main contractor) updated as to any potential delays or disruptions.

Flexibility is also important, with contract renegotiations often being a productive way forward. However, any changes that are agreed must be documented to avoid satellite disputes occurring later on.

What are the types of dispute resolution?

Sometimes, disputes cannot be resolved through communication alone. When this happens, there are a number of routes that can be followed to reach a settlement. Adjudication is the most common form of dispute resolution in the construction industry, but although it is efficient (usually taking little more than a month from start to end), it does come with time and at least some financial cost implications.

If adjudication isn’t the best option for you, there are two alternative options that can be just as effective:

  • Mediation - Issues are discussed with a professional mediator who acts as a neutral voice assisting the parties in reaching a negotiated resolution via a process known as ‘shuttle diplomacy’ (which just means the mediator ‘shuttles’ from a discussion with one party to a further discussion with the other party in trying to bridge the gap). In order to have a productive / meaningful settlement discussion, mediation must be done at the right time, when the rights and wrongs of both parties are clear with all the key issues having been distilled.
  • Early neutral evaluation – A third-party decision maker is appointed who hears each party’s submissions and then offers their view on the likely outcome of the trial. This usually has no binding effect but can be an effective way to start meaningful negotiations (particularly if one party has a misguided view of the merits of its position acting as a ‘sense check’).
We can help you manage, avoid and resolve contractual issues

All aspects of the construction industry have had to face a host of challenges during the pandemic, with delay and disruption being a common theme. However, the disputes that do arise from this don’t have to unduly strain or breakdown working relationships. Keeping clear channels of communication open, following the correct contractual processes and being open to flexibility can help the industry to thrive once more.

If you would like advice on how to handle and resolve a construction dispute then our specialist construction law team can help – contact Kate Onions for guidance and support.

Our construction team is ranked as a Leading Firm in the Legal 500 2021 edition.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.   

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.   

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Guides & Advice

What does 2021 hold? Our sector predictions

In January 2020, no-one could have predicted the level of change that the UK – and the rest of the world – would have to overcome. Will the same be true for 2021?

Now that the new year is in full swing, some of our sector specialists offer their views on what's to come.

Deal-making forecast

The roll-out of COVID-19 vaccines, as well as the level of stability that has returned following the Brexit deal, means 2021 could be a year of recovery for the business landscape. However, this recovery is unlikely to be quick.

Nevertheless, both of the main areas of deal-making – mergers and acquisitions – are looking promising:

  • Mergers – 2020 was very stop-start in its nature, with Q2 seeing a considerable pause in M&A activity. Now that businesses are better prepared to deal with the consequences of the pandemic, 2021 should hold more stability, particularly for the digital and healthcare sectors, which held firm even throughout the turbulence of 2020.
  • Acquisitions – International buyers showed a good interest in UK businesses over the last year, and this is likely to continue. Management buy-outs will also provide options for investors, as well as part of a succession strategy for owner-managers – something that has become of greater importance since the news that CGT may increase in the near future. This increase could also cause a short-term deal rush but might come at the cost of failing to maximise value.

A bounce-back is unlikely to happen any time soon, but that doesn’t mean there aren’t opportunities to be taken. By strategising prudently for the year ahead, businesses can make 2021 the year they thrive.

Read about some of the deals we’ve been involved in over the last few months.

Construction

Construction was one of the sectors hit hardest by the pandemic. Change had to come quickly in order for the industry to survive, but will this flexible approach be needed in 2021 too?

There are five main areas to watch for over the coming year:

  1. The impacts of Brexit – EU labour has been vital to the construction industry for many years, and with EU workers now having to navigate more bureaucracy, a skills gaps is likely to emerge. Supply chain issues could also arise with changes to import tariffs and delays at borders.
  2. Keeping workers safe – Social distancing continues to be a necessity, meaning smaller teams and staggered shifts will remain a part of the industry for some time.
  3. Modern Methods of Construction – Modular has been on the increase over the last year, and the trend will likely grow in 2021. Providing long- and short-term solutions to reducing labour costs and worker density, modular is certainly the way forward.
  4. Cash flow issues – Financial pressure has caused payment to be withheld at times, leading to claims for non-payment being made. This will potentially be the case until the pandemic is over. As such, companies must ensure correct processes are followed to avoid ‘smash and grab’ adjudications, where a party claims the whole amount of the payment applied for because no payment / pay less notice was issued.
  5. Going green – The Government’s 2050 net zero target calls for further innovation in the construction industry. From turning waste into bricks, to carbon imbedding, the sector is becoming more sustainable each day. Read more about the Department for Business, Energy and Industrial Strategy’s (BEIS) White Paper, published on 14 December.

Rapid transformation is still on the cards for the construction sector, but 2020 has proven that it is not afraid of change.

Read Kate and Adam’s predictions in full.

Further and higher education

The education sector has had a bumpy ride over the last 12 months but, although 2021 will still have its challenges, the future is looking bright for the FE and HE sectors.

Positives for the sector

  • FE White Paper – An undeniable boost for FE, the White Paper signals a considerable change in attitudes from the Government. For many years, HE has been the priority, however, with a skills gap looming, creating a more productive relationship between employers and education is going to be vital.
  • Lifetime Skills Guarantee – Another boost for FE, from April 2021, the Government will be funding technical courses for adults. These will be at the equivalent of A-level and will be for those who have not already got equivalent qualifications.

What challenges might they face?

  • Financial difficulties – FE and HE have felt the financial strain of the pandemic, and this will likely continue to be the case during 2021. For institutions that are struggling, it may be time to implement more drastic cost savings and/or staffing restructures in order to cope.
  • HR considerations – An Employment Bill is expected to be published in spring. This is expected to cover carers’ leave, enhanced redundancy protection for pregnant employees, and – perhaps most contentious of all – a new provision which enables zero hours employees to request a stable contract after 26 weeks of service.

It may be a mixed bag, but with the right preparation, FE and HE can look forward to better days.

Read more about what further and higher education institutions can expect during 2021.

Contact us

2021 holds plenty of unknowns, but it also promises a more hopeful future for all sectors.

If you have any questions or concerns about the issues your sector faces this year, get in touch and the relevant team will aim to reply to your query within two hours.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Guides & Advice

What will the construction sector look like in 2021?

As one of the hardest hit sectors of 2020, the construction industry has been forced to adapt to survive, potentially changing the shape of construction in the long run.

However, is there more change on the horizon in 2021? Here are our five predictions for the coming year:

  1. Brexit and beyond

It was clearly very welcome news that a trade deal with EU was agreed prior to the end of the transition period. However, despite this,, the construction sector still faces three major issues:

 

    • The skills gap - EU labour has helped bolster the construction worker pool for years. Post Brexit hiring EU workers will require navigating a lot more bureaucracy, with EU nationals arriving after 31 December 2020 needing a visa or sponsorship to secure employment.
    • Changes to the trade in goods – The deal with the EU provides that trade between the UK and EU will not be subject to tariffs or quotas, providing that the goods originate in either the UK or EU.  Notwithstanding this, there is going to be an increase in regulatory red-tape and border controls which may lead to price inflation from EU suppliers.
    • No more open borders between the EU and UK - With supply chains having to adapt, the construction sector can expect increased delays and longer processing times at the border for any incoming materials or tools.

To help the transition period to go as smoothly as possible, contractors should open effective channels of communication with third parties, so any issues can be resolved quickly. It’s also vital to plan construction work carefully, including a buffer zone (or float) to account for any delays, if possible.

Our Brexit & Beyond hub contains the latest news, articles, briefings, commentary and webinars concerning the legal implications of Brexit, ensuring that you have all the information you need to drive your strategic thinking now and in the future.

  1. Health and safety concerns in construction 

COVID-19 has put safety at the top of the priority list for the construction sector. On 4 January 2021, the prime minister announced another national lockdown in England. The construction sector can remain open for business but to ensure staff safety and mitigate the spread of the virus, the industry has had to implement social distancing, enhance cleaning protocols and improve equipment. This is likely to remain the case until the pandemic is over.

Although it can be hard to ensure proper social distancing is being followed in an industry where close contact working and cooperation is essential, working in smaller teams and staggering shifts can help to keep workers safe.

Although not a new concept for 2021, as the winter months, take hold, freezing temperatures may also cause the working environment itself to be less comfortable for employees – particularly those in the construction sector.  Therefore it’s important that employers know where they stand when it comes to cold weather and their health and safety responsibilities.

  1. Modular construction is the future

The use of Modern Methods of Construction (MMC), such as modular, is on the rise. We’ve seen the uptick in this sector particularly in social housing providers switching on to the benefits of MMC. We consider that 2021 will likely see this trend continue and probably gather even more pace.

MMC promote lower worker density and is often carried out in large airy buildings, keeping people safe and reducing labour costs. Prefabricated building also offer both long and short-term solutions, and being flexible is currently a very attractive option for the sector.

  1. Controlling cash flow

The pandemic has put huge financial pressure on the sector, and as such, some companies may not be in a position to pay. Should that happen, parties may be forced to either bring or defend a claim for non-payment.

If the correct processes are not followed, this could escalate to a ‘smash and grab’ adjudication, where a party claims the whole amount of the payment applied for simply on the basis that no payment/ pay less notice was issued. However, by having the appropriate procedures in place across all projects, businesses can ensure that payment deadlines are met.

Read more about the steps you can take to improve your cash collection.

  1. Becoming greener

To meet the 2050 net-zero target, the UK construction sector needs to continue to innovate and adapt. From turning waste into bricks to carbon embedding, the world of sustainable building is growing.

However, the problem is not diversity but the price tag. To cope with higher prices, fiscal incentives would encourage contractors to go greener. It remains to be seen what the Government might do on this front.

Looking ahead

Like many sectors, construction has had to change its practices and procedures over the last year. However, even putting the pandemic aside, the sector still needs to rapidly transform as both Brexit and the 2050 net-zero target approach. Staying flexible and moving with the trends will ensure that the construction sector thrives in 2021.

Contact us

If you’d like advice or guidance on how the construction and real estate sector may be impacted during 2021, our specialist construction law team can help – contact Kate Onions or Adam Watson for support.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

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Guides & Advice

What do the new insolvency guidelines mean for construction contractors?

On 25 June 2020, the Corporate Insolvency and Governance Act 2020 introduced some of the most transformative changes seen in insolvency since the Insolvency Act 1986.

For the construction industry, the Corporate Insolvency and Governance Act 2020 (‘the Act’) presents hurdles for contractors in terms of their ability to operate contractual termination clauses in the unfortunate event that their employer becomes insolvent.

What are the new changes to insolvency law?

The key points to be aware of are that the new provisions:

  • stop a contractor from exercising a contractual right to terminate where an employer has entered into a formal insolvency procedure (within the meaning of the Act);
  • stop a sub-contractor from exercising a contractual right to terminate a contract where a contractor has entered into a formal insolvency procedure (within the meaning of the Act);
  • prevents contractors and sub-contractors (as suppliers of goods and services) from withholding works on the basis that unpaid invoices for work done made before the start of the insolvency period are paid first. Therefore, contractors/sub-contractors under the Act are obligated to continue works despite non-payment; and
  • prevents the pursuit of unpaid invoices by way of a winding up petition based on:
    • service of a statutory demand between 1 March 2020 and 31 March 2021; or
    • service of a winding up petition based on a statutory demand before 1 March 2020, so long as it can be shown that the pandemic has not had a “financial effect” on the company or that the company would have become insolvent regardless of the pandemic.
The impact on contractors

For contractors, the new provisions can lead to a degree of uncertainty about what they can do if:

  • their employer become insolvent;
  • their ability to serve statutory demands/winding up petitions if employers do not pay their bills;
  • they are experiencing cash flow problems as a result of COVID-19 and receive statutory demands/winding up petitions;
  • they enter into an insolvency procedure themselves and what their continuing contractual obligations are; and
  • they want to use their statutory rights under Housing Grants, Construction and Regeneration Act 1998 to suspend works due to non-payment of goods/services and/or commence adjudication for non-payment and successfully enforcing the decision.
Can the parties reach a mutual agreement to terminate due to an employer’s insolvency?

One key question raised by contractors is likely to be whether parties can still mutually agree to terminate works due to an employer’s insolvency. The answer appears to be yes, but only on the basis that:-

  • The insolvency practitioner agrees; or
  • The insolvent party agrees.

It is likely that consent from an insolvency practitioner or insolvent party will be hard to come by, given the current economic climate, the strong onus and commitment by the UK government to restart the economy and insolvency practitioner’s duties to creditors.

One argument that could be used by a contractor when seeking to reach a mutual agreement to terminate is that it is not commercially viable (for either party) to continue with the works but this will need to be carefully considered and discussed between the parties.

If it is not possible to reach a mutual agreement to terminate, one final option for a contractor is to seek permission from the court on the basis that it should allow termination as continuing with the works by the contractor would cause ‘hardship’. Presently, the new rules do not provide any definition of ‘hardship’. However, on the face of it, larger contractors may have more of a struggle persuading the court that continuing the works will cause ‘hardship’ compared to smaller companies who may be more significantly impacted.

Supplies of goods and services by small suppliers

For a short window, there is a temporary suspension in the application of the new rules to small suppliers until 30 March 2021.

To count as a ‘small supplier’, they’ll need to tick two of the following criteria:

  • A turnover of less than £10.2m;
  • A balance sheet total of less than £5.1m; and
  • Less than 50 employees
What does this mean for the future of the construction industry?

Some of the temporary changes to the insolvency rules brought about as a result of the Act were originally due to expire on 30 September 2020., but these changes were extended until 31 December 2020. 

Unsurprisingly, these changes have now been extended for a second time until 31 March 2021. As a result: 

  • I’s not possible to issue a winding up petition based on a statutory demand served between 1 March 2020 and 31 March 2021; and
  • The prohibition on presenting winding-up petitions or making winding-up orders is extended until 31 March 2021. 

Given the ever changing nature of the restrictions as a result of the COVID-19 pandemic, and the challenges that these restrictions present, it remains to be seen whether these changes extended a third time. 

In the meantime, contractors should remain vigilant as to their employer’s financial position. It also makes sense to ensure that construction contracts entered into going forward include appropriate drafting to ensure that, as far as possible, the consequences of insolvency and the new rules from the Act are addressed and properly covered off.

We’re here to help

If you have concerns around the implications the new insolvency rules may have on your business then our construction disputes team can help – contact Kate Onions or Adam Watson for advice and support.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Collecting monies via adjudication and enforcement proceedings on behalf of insolvent construction companies

In the landmark case of Bresco the courts confirmed that a liquidator of an insolvent company has a right to refer a dispute to adjudication at any time (See our previous blog).

The courts have now provided some welcome guidance for liquidators on how an insolvent construction company can enforce a favourable adjudicator’s decision.

The background

The background facts to the case of John Doyle Construction v Erith Contractors are, in many respects, irrelevant.  What’s important to note is that JDC is an insolvent sub-contractor who has been awarded the sum of £1.2m in an adjudicator’s decision.

JDC sought to enforce the adjudicator’s decision seeking an order from the court for Erith (the main-contractor) to make payment. Erith, resisted this and so the matter came before the specialist construction court.

In reaching its conclusions, the court helpfully set out five principles which should be considered where an insolvent party (such as JDC) seeks enforcement of an adjudicator’s decision:

1. Does the dispute referred to adjudication relate to the whole of the parties’ financial dealings under a construction contract or only a discrete element of it?

2. Are there any dealings between the parties that are outside of the scope of the construction contract to which the adjudicator’s decision relates?

3. Are there any other defences available to the defendant (i.e. the responding party in the adjudication) which were not deployed and used in the adjudication?

4. What security is the IP prepared to offer?

5. Is there a risk that the summary enforcement of the adjudicator’s decision will deprive the paying party (i.e. the responding party in the adjudication) security for its cross-claim?

Applying these principles, the court found in favour of the Erith and, on this occasion, refused to enforce the adjudicator’s decision. The court decided that the key issue was that JDC had offered inadequate security. . For instance:

  • the IPs had not offered to ring-fence the monies of £1.2m that Erith would have to pay;
  • there was no letter of credit obtained from a funder (only a letter of intent to apply for credit on the receipt of funds – clearly not one and the same thing); and
  • the ATE insurance policy (in respect of Erith’s costs of bringing its cross-claims) contained a number of exclusion terms and so was not considered to be adequate security.

In light of these factors, the court decided that there was a real risk that the enforcement of the adjudicator’s decision would deprive Erith of security for its cross-claims and would not put Erith in the position that it would have been had JDC been solvent.

Why is this case important?

It was underlined in the Bresco case that issues surrounding the enforcement of an adjudicator’s decision should properly be dealt with at the enforcement stage and should not hinder the commencement of an adjudication.

This recent case helpfully goes a step further than Bresco and considers the circumstances in which an adjudicator’s decision in favour of an insolvent party may be enforced and what security may be required.

The five principles provided by the court shine a light on the ‘grey area’ of enforcement that was not fully addressed in the decision in Bresco. It provides useful guidance as to what additional steps an insolvent party will have to take before a favourable adjudicator’s decision will be enforced by the courts.

What does this mean for IPs?

This guidance should enable IPs and their legal advisors to better assess the merits of commencing an adjudication on behalf of an insolvent company and the likelihood of recovering monies which can be distributed to the creditors. It helpfully outlines the type and extent of security that IPs will need to be prepared to offer.

This decision reinforces the fact that adjudication remains a useful tool in the armoury available to IPs – especially where the adjudication deals with all of the outstanding matters between the parties (and not simply discrete smaller disputes) and sufficient security can be offered.

A brief side point; the court criticised the time in which it took for the adjudication and the subsequent enforcement proceedings to be commenced (some eight years following the initial insolvency of JDC!). It is key that IPs do not delay in commencing adjudications and any subsequent enforcement proceedings to collect in the monies awarded by an adjudicator.

Ahead of starting an adjudication, it’s important to get specialist advice from experts who understand every step of the process. The team has developed a fixed fee consultation enabling IPs to investigate ways to recover debts owed to insolvent construction companies. For further information, contact Kate Onions or Laura Taylor.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Billions promised to kick start the economy

Billions promised to kick start the economy

Welcome news for housebuilders, registered providers, developers and planning authorities.

Promises to ‘build build build’ and to put infrastructure, planning and skills at the centre of the Government’s plans to kick start the economy were announced today along with a host of others measures totalling billions of pounds.

As part of a "new deal", Mr Johnson also set out plans to "bring forward" £5bn on infrastructure projects, rewrite planning rules and make better use of under-utilised brownfield land in towns and cities.

What are the new announcements?

Home Building

Inline the government’s primary theme of capital investment in infrastructure announced as part of the last budget and in line with the Tory manifesto, there has been a pledge to build "fantastic new homes on brownfield sites and other areas with better transport.  But not just homes – ‘beautiful and low carbon homes.’

The announcements are in addition to the recent package of measures which include:

  • A £12bn affordable homes programme including 180,000 new affordable homes for ownership and rent over the next eight years
  • The affordable homes programme will include 1,500 unit pilot of ‘First Homes’: houses which will be sold to first time buyers at a 30% discount which will remain in perpetuity, keeping them affordable for generations of families to own.
  • Funds from the £400m Brownfield Land Fund have today been allocated to the West Midlands, Greater Manchester, West Yorkshire, Liverpool City Region, Sheffield City Region, and North of Tyne and Tees Valley to support around 24,000 homes.
  • The Home Builders Fund to help smaller developers access finance for new housing developments will receive an additional £450m boost. This is expected to support the delivery of around 7,200 new homes. 

Extended Permitted Developed Rights

A promise to extend permitted development rights to include: a wider range of commercial of buildings that can be changed to residential without a need for planning application and property owners being able to build additional space above their properties via a fast track process with neighbour consultation.

Planning system reform

An acknowledgement that the current system is holding back growth and a promise to overhaul the planning system which will allow the UK to ‘build better, build greener and build faster’ and a commitment to ‘project’ speed’ – cutting red tape and reducing delays.

Home Ownership

The government reiterated its commitment to increasing homeownership opportunities for young people and a promise to help younger people get on the housing ladder.

Skills

A promise to ‘reskill’ to help tackle the consequences of the crisis with an acknowledgement that unfortunately many people will lose their jobs and some businesses will not survive with a pledge to offer every young person a chance of an apprenticeship or in work placement.

Neil Gosling, head of residential development commented, “This announcement is positive news for the housing sector, but the proof will be in the pudding. Acknowledging that facilitating development of new housing will help an economic recovery, is the recognition the sector deserves, however housing has been high on the political agenda in every manifesto with little change. We now need to see quick positive action. If the market is going to have any chance of a quick recovery, funding for first time buyers needs to be high on the agenda, and the extension of Help 2 Buy funding has to be a serious consideration”.

“And of course, this is welcome news for the affordable housing sector too”, comments Lou Drew, head of building communities.  “There was some concern that funding would be withdrawn, which could have impacted on their planned programmes. There is also much talk about energy being the catalyst to reversing the recession, especially when smart and green homes will be high on the agenda following Covid-19. We should also not forget the chatter around retirement living and how the building of more retirement homes will free up much needed family homes to ensure housing chains are there to get everyone moving, whilst at the same time creating more sustainable and better homes for our older generation so they avoid self isolation, health and well being issues for as long as is possible”.

Contact us
For further information please contact Neil Gosling, Louise Drew or another member of the real estate team.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Waking up the market: Deal complete on £5.7m affordable housing scheme

Waking up the market: Deal complete on £5.7m affordable housing scheme

Our real estate team have supported Platform Housing Group on the completion of a £5.7million deal for an affordable housing scheme at Hunts Grove in Gloucester.

The 30-unit scheme will comprise a mix of two and three-bedroom homes for shared ownership, as well as two-bedroom flats for rent to buy. This is the second completion that our team have worked on with Platform Housing Group, following a 50-unit deal at Burleyfields, in Stafford, earlier this year. The Midlands-based housing association has a strong social purpose and works to deliver quality homes and services that bring tangible and positive differences to local homes, lives, and communities.

The group, which owns and manages 47,153 homes across the Midlands and is currently the second largest housing association builder of affordable homes, was advised by us on all legal aspects of the deal.

Joanna Deffley, a partner at the firm and West Midlands’ regional head said:

The completion of this scheme is extremely positive news for affordable housing development in the area and indicates positive movement in the market following a stutter at the start of lockdown. Affordable housing, and the wider real estate market, is a keen focus for the firm. We feel privileged to have worked alongside Platform Housing Group on this scheme and look forward to assisting the group on future projects in the Midlands.”

Simon Vick, development director (West) at Platform Housing Group, said:

“This development is really exciting for us at Platform Housing Group and we are delighted to announce its completion particularly as there continues to be an increase in the need for affordable housing.  Crucially, offering shared ownership helps people who are unable to get on the housing ladder, the chance to part own their home.”

Contact us

Find out what our real estate and planning team can do for you.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Products & Propositions

Helping you recover the debts of insolvent construction companies

Helping you recover the debts of insolvent construction companies

In a highly anticipated ruling, the Supreme Court has announced that adjudication can now be used by insolvency practitioners as a way of recovering debts owed to insolvent construction companies.
Here we look at what adjudication is, what this ruling means for insolvency practitioners, and how it could help improve recovery rates in a sector where it is notoriously difficult to recover debts and maximise funds available for creditors of insolvent companies.

What is adjudication?

In simple terms, it is a fast-paced and efficient form of dispute resolution, with the process generally taking just 28 days from start to finish to secure an adjudicator's decision.

In comparison to more traditional dispute resolution routes such as court proceedings or arbitration that can take a significant amount of time and resources to conclude, adjudication is a far more time and cost effective approach.

What does the Supreme Court ruling say?

Over the past two years, there has been lots of debate about whether adjudication is a viable option for insolvency practitioners seeking to recover debts owed to insolvent construction companies. This was due to potential conflicts between the adjudication process and insolvency rules.

However, this Supreme Court ruling has decided that the adjudication and the insolvency regimes are not incompatible, and that adjudication is a viable option for dispute resolution in these circumstances. In fact, the Court recognised that an adjudicator's decision can actually be really useful to a liquidator in carrying out the insolvency set-off process - in stark contrast to previous perceived conflicts.

Read more about the ruling here.

This means that the door is now open for insolvency practitioners to use adjudication to resolve disputes on behalf of insolvent construction companies.

How can adjudication help insolvency practitioners?

In the past, insolvency practitioners have had limited and often very expensive options for dispute resolution when recovering debts owed to insolvent construction companies. In addition, the industry has always carried a high number of casualties - a trend likely to be temporarily worsened as a result of the Covid-19 pandemic, with rising costs and supply chain delays impacting on projects and cash flows.

Adjudication now provides a quicker and much more cost effective route for insolvency practitioners to recover debts. This is a crucial lifeline to help maximise the funds available for creditors of liquidated construction companies.

How can we help?
Ahead of starting an adjudication, it’s important you get advice from experienced specialists who understand every step of the process, to ensure you get the best possible outcome.

Our team of experts are here to help, offering you a fixed fee consultation session to explore your case and assess whether adjudication is the right way forward for you.

Fill out our enquiry form to set up an initial call.

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Step one:
Free consultation session
In your no-obligation session we undertake a detailed analysis of the dispute, so we can advise you clearly about the merits of an adjudication, the most likely outcomes and the commercial implications of taking action.

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Step two:
Adjudication begins
We guide you through the process, providing strategic advice and representation, while helping to compile the information needed for your submissions as efficiently as possible. This often includes obtaining witness statements and other technical expert evidence to present your case in the best light. This process generally takes only 28 days.

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Step three:
Adjudicator's decision

The adjudicator will then go away to make a decision.

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Step four:
Compliance
Generally parties will comply with an adjudicator's decision. However, if things don't go to plan and the other party fails to comply, we can support you with enforcement actions through the court. If you win, the legal costs you incur for this part of the process will be paid by the other side.

Our adjudication experts work with you every step of the way 

Our strong track record in construction related disputes means we have the specialist knowledge to guide you through the adjudication process, helping you to secure the best possible outcome. We have a proven track record and the key tactics to use to ensure your argument is recognised and represented robustly.

We will be at your side from start to finish, guiding you through the various stages, helping to resolve matters quickly and efficiently.

Meet the team

Fill out the form below to enquire about our fixed fee consultation service