Dealing with the insolvency process

Avoiding insolvency in the construction industry | Webinar

About This Webinar

Wednesday 9 February, 09:30 - 10:15 BST

Dwindling supplies of key building materials alongside soaring prices and labour shortages is having a huge impact on the construction industry – despite it being one of the first sectors to bounce back when pandemic restrictions started easing.

These challenges coupled with tight margins and deliverable dates means the risk of overtrading is increasing. And with the end of furlough and a release of the current restrictions on creditor action, we’re predicting a rise in insolvencies in the construction sector.

In the fifth part of this webinar series specifically designed for the construction industry, we explored the preventative measures firms can take to minimise their risk of insolvency, as well as talking through the process should a business find itself in a vulnerable situation. We also looked at:

  • Administration v liquidation v LPA receivership

  • CVAs

  • A1 moratoriums

  • Schemes of arrangement

Who Should Attend

Managing Directors, Finance Directors, Operations Directors, Commercial Directors and Contract Managers in construction companies.

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Contract breaches and getting paid: What action can you take?

Avoiding insolvency in the construction industry | Webinar

About This Webinar

Wednesday 8 December 2021, 09:30 - 10:15 BST

It was one of the industries that was booming following the relaxation of COVID-19 restrictions, but recently, the construction sector has been hit with multiple challenges – leaving many businesses across the country fearing collapse.

Contributing factors include price rises for materials, as well as labour and material shortages. These, combined with tight margins and deliverable dates, puts the industry at risk of overtrading.

And with the end of furlough and a release of the current restrictions on creditor action, we could start seeing businesses in the construction sector going insolvent.

In the third part of this five-part webinar series specifically designed for the construction industry, we explored the preventative measures businesses can take to minimise their risk of insolvency, as well as talking through the process should a business find itself in a vulnerable situation. We also explored:

  • Ways to pursue a claim

  • Litigation (and how to ensure you’re in good shape)

  • Debt recovery options

  • Timing considerations; removing (or retaining) goods and materials

If you wish to put your questions forward in advance, please email these to events@shma.co.uk

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The warning signs: what to do when they appear and how to minimise risk

Avoiding insolvency in the construction industry | Webinar

About This Webinar

Wednesday 24 November, 9:30 - 10:00 BST

When COVID-19 restrictions started easing, the construction sector experienced its highest volume of new orders since July 2014, with insolvencies in the industry at their lowest level in a decade.

However, it has recently been hit with building materials shortages and price hikes, and decreases in available labour, all against tight margins and deliverable dates – making it vulnerable to overtrading.

Coupled with the end of furlough and a release of the current restrictions on creditor action, we predict there will be a rise in insolvencies in the sector.

We’ve designed a five-part webinar series specifically for the construction industry, which looked at the preventative measures firms can take to minimise their risk of insolvency.

In the second part of this series, we explored:

  • Payment certificates

  • Complying with the terms of your contract

  • When is the right time to terminate?

  • Things to monitor

  • Early action to take

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Key contract and pre-contract considerations

Avoiding insolvency in the construction industry | Webinar

About This Webinar

Thursday 4 November, 09:30 - 10:00 BST

The construction market is supposedly booming since COVID-19 restrictions were lifted, but is suffering shortages of labour and material, and increased prices of materials, against tight margins with tight deliverable dates (and the linked risk of non-payment / claims for contract breaches).  The risk of overtrading is increasing and we predict that this, coupled with the release of the current restrictions on creditor action, will create a rise in insolvencies in the sector.

In this series, we will cover:

  • Pre-contract checks

  • Insolvency/Termination clauses; step in rights, retention of title clauses

  • Different types of contract; interlocking agreements; JVs; making sure everything is tied up

If you wish to put your questions forward in advance, please email these to events@shma.co.uk

Who Should Attend

Managing Directors, Finance Directors, Operations Directors, Commercial Directors and Contract Managers in construction companies.

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What to do if/ when crunch time approaches

Avoiding insolvency in the construction industry | Webinar

About This Webinar

Wednesday 19 January, 09:30 - 10:15 BST

While the COVID-19 pandemic challenged businesses across the UK, the construction industry bounced back at a much faster pace than expected. However, labour shortages and the price of construction materials continuing to soar amid a scarcity of supplies means this trend is beginning to reverse.

As government support winds down – with the end of furlough and a release of the current restrictions on creditor action – we’re likely to see a rise in insolvencies in the construction sector.

We’re delivering a five-part series of webinars designed specifically for the industry looking at the preventative measures to minimise the risk of insolvency and to understand the process should your business find itself in a vulnerable situation.

In the fourth part of this series, we look at:

  • How to get matters in order

  • Potential rights under contracts (including termination for insolvency)

  • Engagement of key stakeholders (or not) and their rights

  • Practical steps; the insolvency processes

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Webinar

Getting your construction site back on track

Getting your construction site back on track

As development sites begin to re-open, significant challenges are rising to the surface causing further disruption to house builders - including major delays on sourcing materials, the spike in prices as the demand increases, and the practical issues with workforces social distancing on site.

In this webinar, we discuss the position with contracts and supply chains, employment contracts and workforces, and a practical look at how you can get your site back up and running with the minimum delay.

You can view past webinars at SHMA®ON DEMAND or read the latest news and views from us.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

 

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Webinar transcript

(Please note this is auto-generated and un-edited)

How can we help?

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Webinar

COVID-19 | Development agreements – protecting against COVID-19

COVID-19 | Development agreements – protecting against COVID-19

The real estate sector has been one of the hardest hit industries as a result of the current business climate. With commercial development facing a multitude of issues, what can developers do to keep their projects moving forward?

This webinar will look at land acquisition and reaching unconditional agreements, highlighting the current issues parties are facing with obtaining signatures to complete property transactions. We’ll also cover planning considerations and how delays in obtaining planning permission could affect the ability for developers to meet their contractual deadlines – all of which increase the risk of incurring additional losses which may not be able to be passed onto contractors.

We hope that this webinar will help developers put things into perspective during these difficult times and offer solutions and practical considerations where they may not have been so apparent.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
Welcome to today's webinar on development agreements protecting against covid-19. I'm Pete Dilks a partner in the real estate team at Shakespeare Martineau with 15 years experience in dealing with development a grievance.
0:14
So today's webinar is aimed at commercial developers. Although it might be the members and professional team or contractors or even invested in commercial property might find this useful something to bear in mind is that we're not really looking at Public Health England guidance or practicality that working on site. We're looking really at the documentation around development transactions such as development agreements agreements police and development bringing agreements see our covid-19 right environment some players Koreans.
0:44
His policies this webinar is going to be to looking at the one conditionality of deals and getting the site acquired any issues that might be faced their second part being with the actual construction side. Once we've got the site leading to practical completion. So reaching them conditionality. The land agreement is like to be conditioned on a few points, maybe sight assembly funding or home owner of things. The one we're going to focus on today is obtaining Planning Commission that's going to problem.
1:14
And be the top of the agenda for most developers at present. The Agreements are likely to have various obligations on the developer is better planning firstly respective submission of the application and ba-zing win landowner by a consultation on the planning strategy or master plan. And the right the good news is that most agreements you've drafted correctness probably K to the any delays experienced by the landowner during this process.
1:42
So if there are delays during the During this period of covid-19 where the laser experience from a landowner perspective. It shouldn't impact on timelines for the developers submission for the check, you know, as all Agreements are different. I should make that point generally throughout these that whilst I'm talking about development agreements in general. Each document is bespoke and is be read carefully depending on the greens contained within it. So other than submission and consultation with the landowner in it, which generally should be okay.
2:14
The covid-19 is obtaining plan commissioned by the long. Stop date. One of the usual greeting development agreement is extensions of time for judicial review challenge resubmission planning appeals up type of thing and that won't be affected usually by the gate to obtain planning. But the difficulty is that the long stop date itself May well be subject to no extensions before seizure. It's not like a construction.
2:44
And contract where you have both of your extensions and land side of the deal might not have any extensions for that and probably won't so there's find out whether or not we do actually think we're going to experience difficulties in the planning process and invited one of my colleagues and Igor who's a partner moans running fine consultant. He's going to give a review on his experience with the planning process itself whether he sees there are any delays life is suffered. What you can do to mitigate those delays.
3:13
Yes, we will Out a shadow of a doubt the covid-19 situation has impacted on planning and the ability to secure planning consent and the best summary I can give really is to say the reaction the planning system is mixed fortunately it patchy.
3:35
There's a isn't a consistent response sun burning authorities are well setup dealing with Vote working and video conferencing and or easy to get hold of other officers are not and it varies on a council by counsel basis. What is fairly consistent is the lack of planning committee meetings that were able to hold so whilst we may be able to push playing.
4:14
Applications along through the system what most authorities are struggling to do is take applications to planning committee most appalling committee that works and doesn't Prejudice the interests of interested parties who aren't set up home about working particular demographics and Society.
4:44
With reliably assured that many authorities are exploring opportunities for communities videoconferencing committee, but it's it's still a way off in my view. I think there's there was a trial done and it was abandoned recently. So didn't really get off the ground government to try to facilitate committee.
5:13
These video conferencing by relaxing legislation around committee procedure vertical so they've made an attempt terms to overcome that.
5:30
The big issue is planning inspectorate. The response has been fairly clear the most recent advice on the website is that all hearings inquiries and site visits office phoned and they're exploring opportunities for holding those remotely as well. But again, no evidence.
5:59
It's that anything is taking place. So there's a there's a complete stop on those sort of gatherings at present which is having a big impact on local plan preparation and the appeal system inevitably will lead to backlogs that that's decision making in respect of the the pre-submission element of the planning system.
6:29
Part of the process where we're all very active is Consultants.
6:37
This is difficult as well because clearly we can't obtain highways data because we can't do traffic counts because there's no cars on the road ecological assessments are often giving verse results because ecology Habits habits of shifted and detective species of moved around on are more prevalent in on some sites and there were six months ago.
7:13
So Actually mapping the the sort of impact the Baseline positions when you're looking at having a planning application. It's very difficult as well. So I think at the moment is much as I would like to be able to provide some certainty around this matter.
7:41
It really is a case of authority by Authority though if you are at an appeal it was the funny inspector and I think you will experience some delay that Okay, thanks very much. And it sounds like it's more of a side-by-side Authority by parity basis. So anyone does want to get in touch with Andy further with details of be published at the end of the webinar. So let's assume that we did manage to get through that and we we got planning we have achieved on conditionality. We now just need to proceed to acquire the land. This would normally be a price rate forward position. One of the issues with land Acquisitions with property is it's going to be by deed.
8:31
And we all know that you'll execution of dudes are two directors director covid secretary or witness witnessing a doctor's signature. Unfortunately with the way the land registry of approach this it's not been straightforward and the things like DocuSign the e-signatures are not being accepted by learning registry for executing on fields and likewise when it comes to witnessing signatures witnessing over FaceTime or Zoom or other media.
9:00
Form not been accepted either down to the street where your legislation is drafted back on 1925. So one way we can look at getting around. This is by way of a power of attorney and it might have been you want to consider authorizing your solicitor to sign a particular document or documents on your behalf. We do have separate materials on it. We can send to you separately if that is of Interest.
9:26
The good news for development transaction is usually they're doing the jail period We have time to get documents signed reminded me so much of a practical issue. However, if we have eaten into our lungs stopped bait through some of the reasons and you mentioned earlier, it could be that we need to we need to acquire the side straight away and wave that period possibly looking insurance policy and which case we won't have time to keep talking to be signed beginning of our attorney. Lionel could really be beneficial.
9:53
So assuming that we now acquired the site we now and in the construction phase we're going to look at those Target dates and are they lead to the great advantages and also long stop dates with the ultimate stick against any better at all simulation. So firstly on the target dates is going to be extendable in each agreement usually for a certain set of criteria, which we expect to see a mobile development agreements. And first one is tenant or good sir variations, which could well be the case given the current covid-19 crisis. You might get one of those parties looking to burn the specification each of those should carry an extension of times Jinping rise.
10:31
Likewise extension permitted under the building contract and expect even agreement mirror and extension method that the developer should be put into a neutral position provided as extensions of grounds of rooms of the building contract. What would be nice to see and your agreements is a provision allowing extensions for any matters beyond the reasonable control their developer doctrine of contested provision for one which would be very helpful and almost certainly Grant you an extension.
10:59
I'm dreaming Covid-19 crisis. I have mentioned here. The employers agent has are going to be critical in certifying any particular extension of time under the development agreement. And usually that would be an uninfected extension of time which they can grant given a purchaser or fun drama certain. You have a warranty from that party over we have seen in recent years and Burgesses off ones wanting further control on extensions of time and certification by employees agent.
11:29
So please review Agreement carefully on that firms. It might be the first consultation has to be had if the quality's before those and before the employee agent can actually search by the extension. So use the touch back on the building contract and that's the most common extension. We think we would see and Link that to extensions of time between development agreement under building contract to introduce Alex Smith doozer construction partner cheeks been wanting to say a few words and how these two agreements might interact and it thanks face.
12:00
He's in our experience to majority of the building contracts entered into pursuant to that agreements. Take it form the JCT 2016 design and build usually with a scheduled amendments as a developer usually wishes to place single point responsibility for the design and construction of the works with the contractor development agreements. Usually provide the target dates for completion and the development may be extended weather extensions of time given under the building contract as just mentioned by piece.
12:29
And the JCT has separate mechanisms for determining whether or not a contractor is entitled to extensions of time to completion dates and lost an expense. In addition to the safety contract price are many really going to look at the extensions of time for the purposes of this webinar. Now in relation to the covid-19 pandemic construction sites in England and Wales can remain open if they meet the conditions set out in the guidance issued by public health England, which align with the construction leadership councils sites operating.
12:59
Just imagine two extensions of time. The JCT uses a long list of relevant events, which Trigger Time extensions, but before being allowed an extension of time, if the delay event fits one of the relevant events, the contractor still has an owner has hurdle to go through this is usually that the contractor has to use his best endeavours to prevent it delays the progress of the works or any section.
13:25
However caused Looking at potential relevant events in the current circumstances. We thought that there would be to force module and intervention by UK government or Public Authority in the circumstances.
13:41
The one that's most likely to be applicable now is that in relation to force majeure as presently the government or other public authorities haven't closed construction sites now for some of y'all is undefined in JCT contracts and hasn't been a subject of extensive do Should comment in those of England and Wales whilst this creates a degree of uncertainty as to how Provisions could be interpreted the cases. We've seen give us a general understanding Force module, which is essentially that force majeure is an event which is beyond the responsibility control of either party the tributes will either two forces of nature or other circumstances, which aren't confined in their effects principally to the parties to employers persons contractors persons the site all the works in these circumstances is rationed.
14:27
To force majeure and covid-19 the effects are applicable to everyone. So you think therefore that it would be relevant and apply.
14:34
The second one as I mentioned is a relation to exercise by UK government or Public Authority of of powers. Now this hasn't been done at all in terms of exercising statute powers to close sites and many ended in the industry is expected this to happen sometime ago, but it hasn't happened and we aren't aware of any enforcement Powers provided by the coronavirus actor 2020 being used in respect of construction sites consequently in some relationship covid-19.
15:04
19 and extensions of time contractors May seek to apply for extensions of time due to force majeure and if they are successful in doing that's then this would apply for the purposes of the developers be entitled to extensions and time under development agreements going forward. We're building contracts that entered into pursuant to development agreements being put together now, then we'd expect those to be specific provision simulation to covid-19 which would entitle contractors to extensions.
15:34
Time but not too lost an expense.
15:37
That's it relations of building contracts and development agreements from my perspective plans you back to peace Thank you very much, Alex. And again, if anybody wants to contact Alex afterwards, we'll put his details up at the end so you can get in touch with him directly. So the finally see that I wanted you to touch upon was was not necessarily the target dates, which would usually allow an extension of time. It's the long stop dates in the agreement, which will usually be there drop dead date for the developer truth finish the transaction the issue with long stop dates.
16:11
I'm only is it they won't be extendable in the I asked Toby date. Will these are there to get the purchaser or fund certainty that science going to be constructed by that date? So this is really where the developer runs the risk of the biggest losses to it largely because the building contract is unlikely to have any type of long stop dating as long as the relevant event exists as Alex just explain contractor will be granted an extension time. Whereas the developer will have a drop headlong. Stop me.
16:44
It's not all complete during going to be available. However, these long stock dates are usually built in with a sufficient period of time to cater for these type of event will not necessarily this event or just delaying events the usually minimum twice bill period however on smaller projects with a smaller long story short along start date and bill period the disproportionate effect of covid-19 might make this more likely to be missed.
17:10
So what we've got to look at is is that long stop dates that are achievable With a Slowdown in construction on site and is possible and practical solution to renegotiate that bait if it's going to be missed in all bodies documented in the deal. No reason why one I shouldn't be the case and step in is really something they know God wants to do they own themselves. However, if the crisis has led to one or more parties wanted to get out of the deal is where it's going to be quite tricky, but I'm renegotiating in place.
17:40
So assuming that we can't renegotiate because remedy for a a tenant for a and 37 would be termination and with that comes problems with a developer in how it gets its cost back from working printed scheme. So if we if the developer has Miss along start date and a party looks to terminate developers got to try and get back its costs from what he's carried out. It will largely from these works on third-party land. I mean transfer disappearance to an end go to Sur and therefore may have carried out the entirety of the build without being paid yet the first week.
18:14
Guys is a developer to being paid for some practical completion. Will it get its market value in the works when it get the cost of the work? I said find by employing agency in their profit element or indeed an element of profit with it get a percentage of either of the above all women looking for each full development V and all costs less the cost the complete to might include purchases margin on the cost of completed. Well either way spider final bullet.
18:44
Point looking more attractive they're probably not going to lead to a huge amount of coffee table to the developer giving them two more additional costs of stepping in finishing off a build. So it's it depends on how an agreement is drafted. But as this is essentially You could argue a no-fault event on the part of the developer do to covid-19 that would have ordinarily granting extension time. But with a long stock date night with it some of these development agreements you allow payment no circumstance.
19:14
Second point on Jan 19 a stage paintings. It's the same greens as a bulldog you be less risk the developer has you will all leave extra its money by the better than stage or in terms of good. So in case of looking at what your documents looking that way final point, I wanted to mention was this point I'm talking here about how the developer might extract its value as of the scheme.
19:36
They're also going to be additional losses to the tenant or the fun and that's not to say that those losses won't our way or being greater than The losses suffered by many better bring not being paid for it works. So it depends on how these clothes are stretching your documents range critical to ensure that those losses payable to attend or to a on and on termination or quantifiable and hopefully we'll still need to remember getting some of the other scheme. So just to summarize here. We spoke about the impact of planning and I only spoke earlier that this is quite an uncertain time and each local Authority might be acting differently also.
20:14
The education of Deeds that could be problematic in the Chrome times not just the development transaction before all property transactions try and get your ducks in a row already complications in the coming up Target dates. Generally I'm going to be what he achieved liquidated damages in the minutes provided. You've got suitable drafting in everyday extensions of time. So these things don't hit long stop dates could be major issue in we've got a relatively short bill period and haven't packed into account any extensions of those long stop beads.
20:44
I can't reiterate in author. Each switch document is different theories different. Please read your agreements or contact if there are still over yours. Look at those agreements for you to see what your position is and these factors should be taken into account in the future drafting or learning agreements. So you want to contact either is details to be appearing on screen now by the time you Alex for myself finally, we've got a free helpline which offers 20 minutes.
21:14
Guidance from a senior member of our team which could help cover any of the issues that we've discussed today, which hopefully you may find useful. Thank you very much.

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COVID-19 | Development and construction | Preparing for the future

COVID-19 | Development and construction | Preparing for the future

It’s anticipated that the government will lock down building and construction sites before long. This is of course the right thing to do to protect workers from the coronavirus, but as self-employed individuals this will be a hard hit on them personally, and an enormous impact on house builders, developers and the construction industry overall.

In this webinar, we will look at what the industry can do to protect themselves and their assets from any further knock-backs. To prepare as much as possible, for a secure future when the disruption is over, now is the time to review all acquisition, sales and planning documentation, supplier agreements etc, as well as looking at new and modern ways of marketing housing sales in the new world.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
Hi, I'm Neil Gosling. A partner here at Shakespeare Master note in the residential development team. Welcome to today's webinar on the development of construction industry preparing for the future. You will see on your screen that you are able to ask questions along the way so please do so and I'll answer as many as I can. We'll also be sharing a summary of those questions with everybody after the webinar.
0:24
I think it's fair to say that the occurrence of the coronavirus epidemic has blindsided everyone the government of had to act quickly setting out guidance as to how our nation will tackle. This unprecedented situation. The strategy has had to be both proactive and reactive to the circumstances. We face on a day-to-day spaces and consequently, the guidance can sometimes be confusing the impact on the housing and construction sectors is huge with the biggest issue.
0:53
Being the uncertainty. We have no clear guidance as to how long the country will be on lockdown how long that lockdown will be for and whether social distancing requirements will be relaxed for certain industries consequently for house builders to continue during this period of uncertainty. They will need to consider new ways of working to ensure that they can hit the ground running when the shackles are undone.
1:17
To give house builders the best chance of success during this turbulent period they should be reviewing their current liabilities and mitigating those risks most considering new ways of securing land and building and selling houses.
1:31
So now we're looking at the land and planning issues that you may encounter during this time. For those of you old enough to remember the recession in 2007 2008 a large proportion of time was spent reviewing historical contracts understanding the obligations that has Builders were legally Bound by and trying to find ways to delay or defer those obligations or in certain circumstances.
2:00
His terminate the contract currently we do not find ourselves in a position whereby termination of contract is at the Forefront of the business decisions being made. However, a full review of the legal documentation that has been entered into in respect of your development sites should be undertaken as a priority to ensure that any obligations relating to construction practicalities or financial payments are clearly identified.
2:30
Fide adhere to all varied as required. So looking at the acquisition contracts and deferred payments together. The first thing I suggest that you do is you dust off the old legal reports that were produced by your acquisition solicitors and give them a good read. Hopefully these reports will have identified all obligations that you are legally Bound By the time frames within which those obligations must be performed and the risk to you.
2:57
Should you fail to perform those obligations I'm specifically He thinking about matters such as construction of infrastructure time scales for submission of planning applications or time frames for payment of deferred payments. If any of these obligations are not adhered to they could be deemed as reasons for termination of the contract consequently. The house Builder will have one of two options being a third to comply with the obligation or to seek A variation of the contract.
3:30
To accommodate delays that arise as a result of the coronavirus outbreak at the same time. You should be asking your legal advisers to review all force majeure Provisions to determine whether the coronavirus epidemic is a ground for extension under the terms of your contract and whether there are any notice Provisions that you have to comply with in order to secure any such extensions in respective.
4:00
Planning permissions and section 106 applications.
4:02
It's pretty much the same process as Builders need a clear idea of the time scales and time frames within which they have to comply with certain planning conditions and make commuted some payments in some circumstances surveys will be required before implementation of the development can commence or occupations on-site can take place if the surveyors have shut Topshop as a result of the coronavirus epidemic this can naturally have an impact on your timeframe for complying with these planning requirements which in turn could add further delays to the house builders build a program and ultimately the anticipated date for completion of the sale of plots.
4:51
Once again, you should liaise with your legal advisers to ensure that they have provided a full review of your obligations under the Running documents to ensure that these are complied with or varied accordingly. So in these strange times what opportunities can as Builders expect to see well, undoubtedly, they'll still be an opportunity for strategic land with long-term promotion potential in these cases. The impact of coronavirus should merely be in relation to the logistics of getting the promotion agreement or option agreement agreed and exchanged submitting.
5:30
Planning applications and undertaking surveys can be accommodated within the legal document immediate land transactions may be a bit more difficult to progress due to the additional level of due diligence required in order to proceed to a point of exchange of contracts and ultimately completion.
5:52
From a practical point of view we are being advised that search providers are taking a significant amount of time to provide search results local authorities are down to skeleton staff and therefore the time scale for responding to inquiries and the planning issues is significantly increased and the ability to secure surveys in respect of sight due diligence is taking longer as a result of the impacts of Coronavirus.
6:22
On the Working Day there may well be opportunity to buy land off other developers who need a cash influx or to create joint venture opportunities with housing associations backed by Government funding. They will undoubtedly be an opportunity for the cash Rich developers if they can move quickly.
6:47
However, we can expect that landowners will hold fire for a few months at least before considering quick sales at lower prices. However, we may see an increase in inner-city manufacturing and Industrial sites becoming available for sale as a result of these businesses struggling in the economic downturn consequently. We may see a rise in land available for PRS schemes high-rise development and regeneration.
7:21
Following announcement is made by the government and subsequent advice given by the housing minister in relation to construction sites. We are expecting further clarification and guidance to be provided current guidance suggests that if you work in an occupation that cannot be continued from home, then you can go to work subject to following the guidance given by public health England in respect of social distancing.
7:45
My interpretation of this is that has Builders working on development sites can continue to do so provided social distancing is adhered to as a result. The problem is one that is more of practicality rather than regulation.
8:00
We are already finding that some contractors are now unable to continue with their works and services as a result of a number of issues surrounding coronavirus and the subsequent government advice and action So now I take the chance to look at contractual obligations and more specifically in relation to JCT contracts.
8:22
However, as a word of warning, I would suggest that a full review of all construction documents is undertaken, especially in relation to the terms of appointment of contractors, the permitted timeframes for suspending work on site and the reasons for such suspensions to ensure that you are Fully compliant with the terms of your legal documents top if you are bound by the terms of a JCT contract.
8:51
It is important to note that if the contractor were to seek an extension of time due to delays associated with coronavirus, whether due to force module or government action that in principle, the contractor would be entitled to an extension of time to complete the works but not to direct loss or expense if suspension of The Works continues for a prolonged period the JCT contract standard period being two months, but this may have been varied.
9:21
And following the issue of a seven-day notice from either the employer or contractor that the suspension is still continuing the notifying party May terminate the contractor's employment under the building contract the consequences of such termination are also set out in the contract. However, the point here is that the contractor wouldn't have a right to terminate their employment before the end of the prescribed period of suspension.
9:49
Consequently, there is no action for the employer to take at the present time stopped and the contractor should continue with the works until such time as they are unable to do. So either through Force measure which would need to be advised by the contractor to the employer through the contractual Provisions or the UK government exercises statutory powers to stop the works which as yet it has not decided to enforce a stop.
10:17
We are hoping that the government will Provide some further guidance in relation to this issue. However, as it currently stands the ability to work on site whilst adhering to social distancing requirement seems to be the underlying factor, which neatly brings us on to issues of health and safety in simplistic terms in addition to all of the usual health and safety requirements. You would expect of a development site has Builders now need to consider.
10:49
Or whether they can continue production whilst also accommodating the public health England social distancing requirements. Some house builders have already decided that to protect the welfare of their staff and employees that it is more suitable to shut down sights and suspend construction rather than try and create a working environment that complies with the social.
11:19
sentencing requirements ultimately until such time as the government provides clear advice as to whether sites that should remain open on not a site should only remain open if the has Builder can ensure that social distancing requirements are adhered to consequently it will be possible for has Builders to remain on site and complete the construction of houses that they have contracted to sell their by allowing them to comply with their tractor obligations without the need to vary the terms of the exchange contract. However, as you will hear in our section regarding sales the Law Society and has Builders seem to be taking a slightly different approach finally and what could be potentially the biggest problem for the has building and construction industry is the availability as a result has Builders are already finding that there is a material shortage.
12:20
And such material shortage could have a prolonged impact on the effect that coronavirus has had on the as building industry when the suspension of trade and Industry is lifted. There will undoubtedly be a lag in the availability of materials and until such times our stockpiles have been re-established not only could this result in a delay in materials being available to has builders.
12:50
But the increased demand could also lead to a spike in material prices in the short term. Although I would hope to see that material prices will rebalance over time. It may well cause some short-term pain to profit margins and the time frames for delivery of development sites. So now we turn to the sales process current Law Society guidance.
13:20
It's no additional contractual provision should be put into a plot contract in an attempt to counteract delays in the construction and sales of housing plots during the coronavirus outbreak. They would rather see the parties to a contract taking a more pragmatic view in light of the unprecedented situation that we find ourselves in.
13:46
However, we all know that In tough times if a party needs to find an angle to terminate a contract.
13:58
They will do all they can to do so consequently. Some PLC has Builders have already started to include coronavirus Clauses within their plot contracts to allow for delays in not only construction, but also the Sales completion process.
14:14
Now I strongly suggest that house builders review their exchanged sales contract in relation to plots in most cases. If a has Builder incurs delays in the build program, they are obliged under the terms of the contract to serve a written notice on the plot purchaser advising them of the delays if these contractual obligations are not complied with then anticipated completion.
14:44
Asian date cannot be adapted to allow for the temporary suspension in the build program consequently. You should be reviewing all contract obligations to ensure that you are not in breach and that you can legally extend the time frames within your contracts.
15:04
So when we find ourselves in a period of lockdown, how can we look at marketing strategies in a slightly different way obviously attendance on site it will be greatly reduced and therefore marketing strategies should be similar to those used when trying to find investment for overseas purchases consequently has Builder should be considering The use of video viewings Drone footage to show the development as a whole and maybe even working closely with the gaming industry to understand how virtual reality tours can give clients a true perspective of the product being sold and it's Dimensions.
15:50
One thing that is abundantly clear is that in order to Market properties remotely people will now need to think outside of the box in an attempt to overcome the underlying problem that purchasers want to see and feel what they are buying before making a very large Financial commitment. So what does the future hold for the hands building industry?
16:21
There will no doubt be a direct impact on developers and house builders who may struggle to keep open sites without critical staff. We have already seen that some of the PLC has Builders have shut down all sites and that plot pouches are reluctant to exchange contracts until there is more certainty around their ability to go about their day to day lives stock market Falls have created volatility and nervousness around investment some mortgage lenders have suspended.
16:51
The issuing of new lending products and the general uncertainty will be weighing on the consumers Minds to the slippage of completions which would inevitably impact on the profitability of the house builders.
17:06
And as a consequence small or indebted has Builders could be at risk the market analysts aren't expecting a shock contraction in sales during this initial period which will depend partly on the longevity of the virus and also the The confidence in the National employment status there will still be needs-based purchases and cash-rich opportunistic purchases, which may include overseas investment who are looking for a good deal. We may also see a rise in bulk sales to housing associations backed by Government funding. So although the initial impact of the coronavirus outbreak.
17:52
Will have a huge effect on the short term delivery of housing stock, but would expect the residential property Market to bounce back in the aftermath of the crisis.
18:02
However, as stated at the beginning of this webinar, the unknown is the timeframe the longer the crisis continues the more likely it'll be for structural changes to the market to occur with house builders having to adapt their product to facilitate working from home, which will Visibly become The New Normal consequently, we may find us at housing design with study facilities or access to Shared business facilities within developments becomes more of selling point as well as access to healthcare facilities and local stores. The impact of coronavirus will inevitably be a challenge for all house builders and contractors Because unless they are.
18:51
Able to quickly deploy resources to reopen and start on new sites. We may find a significant contraction in Supply in 2020. However, any delay in productivity at this stage will only enhance the housing shortage issues that the country faces and consequently, we will see a surge in pent-up demand which could lead to a significant bounce back in property prices.
19:18
There is most definitely an opportunity for house builders and Tractors to re-evaluate the way they go about business to ensure that they are best placed to maximize the opportunities available to them when we get through this period of uncertainty. So thanks for listening to this webinar you hope you found it useful and relevant in the current circumstances.
19:44
Unfortunately, I have run out of time, so I haven't got time to answer any questions now, but if you would like to raise any questions Please do so and I'll make sure to follow up on these after the session and share any answers with you. All in the meantime, if you would like any further advice or guidance on the coronavirus and how it might impact on development. Please feel free to contact our dedicated resource Hub at shma.co.uk and finally if you'd like any further information or would like to discuss any specific inquiry and more detail then please do of course get in touch.
20:21
Touch many thanks for listening. Good luck in these turbulent times and stay safe.

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Webinar

COVID-19 | Construction contracts and the coronavirus disruption

COVID-19 | Construction contracts and the coronavirus disruption

The government’s position that construction sites can remain open subject to complying with Public Health England recommendations, has not made it easy for contractors with a reducing workforce and supply chain constraints, it has made the risks of delay, additional expense and suspension provisions of contracts more difficult for all parties to interpret.

In this webinar, we’ll look at how different standard form contracts (JCT, NEC4) deal with the different types of disruption that might arise from COVID-19, the disruption under design team appointments, what parties should be doing now in respect of projects that are already under contract and considerations for contracts currently under negotiation.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

Our thoughts

All the latest views and insights on coronavirus.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
Ian Griffiths partner in the construction and engineering team here at Shakespeare Martineau. Welcome to today's webinar on construction contracts from the coronavirus disruption. You will see on your screen that you're able to ask questions. So please do ask questions along the way I'll answer as many as I can and we've also share summary of questions with everyone after the webinar.
0:23
Today we'll be looking at the government guidance on construction sites will have a look at standard form contracts and covid-19 and concentrate on two contracts. We were looking at disruption and the Consultants appointments and also looking at issues to consider relation to projects under construction and those that are currently being negotiated.
0:51
The current situation in England and Wales for into construction works on site hasn't changed since the initial government guidance provided on 23rd March here. The government stated that you can leave home for traveling to and from work. But only where this is absolutely necessary and cannot be done from home which suggests the construction works on site could continue. This was subsequently clarified by the housing Minister Robert Generac who tweeted later that evening the advice for the housing Construction.
1:21
Baloo maintenance Industries if you work and work from home do so if you're working on site you can continue to do so but follow Public Health England guidance on social distancing. This is more recently reinforced on Tuesday 31st, March by Alex Sharma the business secretary published an open letter to all of those working in the construction sector stating the government is advice that wherever possible people should work at home. However, we know that for me.
1:51
People working in construction and their job requires them to travel to their place of work and they can continue to do so, this is consistent with the chief medical officer's advice to help ensure that it is safe for you to operate in your workplace. The industry has worked to develop the site operating procedures which were published by the construction Leadership Council.
2:14
These are line with the latest guidance from public health England as this health guidance updates the Sap will reflect any changes. So in essence the construction sites during the whales are to remain open if they meet the conditions set out in the guidelines public published by public health England, which aligns with the clc's site operating procedures.
2:39
This guidance obviously includes the rule that individuals should maintain a distance of two meters from each other where this rule or others cannot be consistently adhere to in the site may be wired to be shut down unless disclosure causes an unsafe or dangerous situation or the project is critical to society's immediate need this position does not make it easy to interpret issues of suspension delay or additional expense in construction contracts.
3:09
So let's look at standard form contracts. The key issues presented by covid-19 relate to who is responsible for delay the impact of additional cost and the potential for suspension or termination of a contract.
3:24
Let's consider the position of the two most popular industry standard form contracts in the UK the engineering and Construction contract published by the NEC. We're looking at the NEC for addition and the JCT designer build contract and we'll be looking at the 2016 Edition comments are obviously on the standard forms without any amendments or modifications. So looking firstly at the NEC ECC contract.
3:54
The NEC must say to begin with has a single contractual approach to these issues through the application of compensation events compensation events determine claims and assessments for both extensions of time and additional expense to all of the potential compensation events under the NEC. So firstly in the current circumstance compensation event, most likely to be applicable to the difficulties posed by Coronavirus.
4:24
Iris is Klaus 60.1 19 this Clause essentially is essentially a force majeure provision and relates to an event which stops the contractor completing the whole as a works by the date planned for completion and which could not be prevented by either party and wood has been unreasonable to expect the contractor to foresee at the formation of the contract and there is not one of the other compensation events.
4:54
The phrase the whole of the works is key in this Clause essentially the delay must be on the critical path and the later a section of the works only or delayed that can be fully mitigated. When not be sufficient. Secondly in terms of conversation events, the NEC encourages a proactive approach from the project manager and if we would not be difficult to imagine a project manager giving an instruction for the work to stop or for a key date.
5:23
Change to allow the client more control of the project particularly, if either the contractor or the project manager had previously given an early warning notice. This would then be a compensation event and a clause 60.1 for thirdly in the event the government decided that sites were too close then if option X2 which is changes in the law was incorporating the contract a restriction due to such change would be a compensation event.
5:53
Be aware than this but this provision only applies to changes in the law in the country in which the site is located. If there were government restrictions affecting an overseas supplier in the contractor supply chain. It would not be a compensation event unless it's satisfied the prevention compensation event. We discussed earlier.
6:16
Two issues are particularly important to bear in mind in relation to compensation events. Firstly the contractor has to notify the client within eight weeks of becoming aware of the event or a where it is to occur. This provision is expressed as a time bomb if the contractor fails to notify the client within this time, it's entitlement to compensation Falls away secondly as indicated earlier the NEC requires the use of early warning.
6:44
This is these are to assist the parties in adopting a heads-up approach to removing all mitigating risk, if the contractor fails to deliver an early warning notice, he does not lose entitlement to compensation event. That is he's assumed that an early warning notice has been given in assessing the compensation.
7:04
Then which means that any amount of would have been safe due to an early warning notice is taken off the compensation event assessment the impact of cost increases under the NEC would also very on which are the main pricing options were chosen such as option C or option + e to Target cost and cost reimbursable. So termination under the NEC for prevention force majeure the client May terminate if a prevention event arises and the works are forecast to be delayed by more than 13 weeks.
7:40
Two key points should be borne in mind in this issue firstly only the client has the termination option and not the contractor. And secondly the delay must only be forecast delay not actual delay. However, it would be a brave project manager or client forecast 13 weeks in advance in this current crisis.
8:03
A brief word on the NEC term service contract where you may have a contract lesser under those terms. It is not the intention to discuss the entire Suite of NEC contrast. But just in terms of this particular one, the terms service contract does not contain a prevention clause or a compensation event for prevention or force majeure. And so the early warning notice system is all you have in that circumstance.
8:33
JC T design and build than unlike the NEC the JCT has separate mechanisms for determining whether the contractor is entitled to extensions of time to the completion date and loss and expense in addition to the stated contract price.
8:53
The JCT utilizes a long list of relevant events that trigger time extensions before being allowed an extension of time. If the delay event fits the description of a relevant event. However, the contractor has an owner has hurdle to clear Clause 2.25 .6 requires the contractor to constantly use his best endeavours to prevent or delay to the progress of the works or any section.
9:20
However caused So what are the potential relevant events?
9:26
As with the NEC and lesson until the government or other Public Authority closes construction sites the most relevant of the relevant events if I can say that would appear to be closed 2.26 point 14, which is force majeure.
9:44
A force majeure is undefined in JCT contracts and has not been the subject of extensive judicial comment the law of England and Wales. So whilst this creates a degree of uncertainty as to how the version would be interpreted the cases we have would seem to give us a general understanding of force majeure, which is not too dissimilar the definition of prevention in the NEC. I an event which is beyond the responsibility control of either party.
10:14
Attributable I did to the force of nature or other circumstances not confined in their effect. Holy are principally to the parties.
10:25
If the government or another Public Authority intervenes with the site operations in England Wales, the appropriate relevant event would be that contained in Clause 2.26 Point 12, which is the exercise of statutory Powers many in the industry had expected this over a week ago but has yet to occur.
10:45
So once we will keep you updated if there are any developments Miss front the only point to raise is that where the whether the This will seek to enforce social distancing following the passing of coronavirus. I 2020 entitlements who lost an expense depends on the event or matter giving rise to the expense being defined in the contract as a relevant matter.
11:13
The list is found in Clause 4.21 of the JCT designer Bill contract, but it does not include equivalent events to force majeure or the exercise of statutory powers and as such there is is no entitlement to lost and expense.
11:31
In the event the parties agreed to the inclusion of the fluctuations provision.
11:37
Contained in schedule 7 the contractor is able to increase their prices and inflation rate Market, which could be of comfort of contracted both where prices increased due to contraction in the supply chain as a result of the regional and Global Effect of coronavirus and potentially where there is an increased demand when normality resumes in practice.
11:58
However, as you may be aware, the fluctuation Provisions are often deleted through schedules of amendments So as to keep the contract some to a fixed price can a party terminated jcd contract due to the force majeure Clause 8.11 is the relevant provision for this question. If the coronavirus is a force majeure event and it leads to a suspension of a project or sites are shut down by the exercise of statutory powers for the continuous period of suspension chosen by the parties in the contract particulars.
12:36
The default period is two months if nothing specified unlike the NEC. Both parties have the right to terminate. The contract is more common for appointments of professional consultants and design teams to a construction project. We drafted on a bespoke basis. This is particularly the case where the project is funded by an Institutional funder who tend to just like consultant friendly limitations on liability and conditionality of copyright.
13:05
Licenses found in standard contrast produced by professional bodies such as the Royal Institute of British Architects the RBA and the association for consultancy and Engineering acte extensions of time there bespoke appointments often include obligations to comply with the program.
13:28
Or work to a service completion date with that rights to any extension of time bespoke appointments often. However have reporting obligations similar to an advancement early warning notice mechanism increasingly found in standard form contracts.
13:46
These mechanisms provided in the event. The consultant is aware that there is a risk of an escalation in the project completion date or the project budget. They should inform the client clearly any such notice is required by the contract should be issued in order for a sensible conversation with the client to commence even if the contract does not expressly require an early warning notice. It is likely the common law or contractual duty of care.
14:16
Are owed by the professional consultant would require it to keep the kind informed of material risk and development. This is likely to be obvious in relation to a project where the construction phase has commenced. But whether the project is an early stage of Design Consultants need to be alive to the potential for the start date to be delayed due to the disruptions caused by Coronavirus.
14:42
In the RAB a Professional Services contract and close 2.3. It states that the consultant is not responsible for delays caused by circumstances outside its control Clause 8.2 of the AC Professional Services agreement provides. The consultant is be paid for additional work to do to disruption on a Time basis.
15:10
Additional fees majority as the spoke appointments provide a written approval of the client is required by means of a variation mechanism for any additional fees to be paid in respect of additional Services.
15:24
We've already seen at the AC allows for additional fees due to disruption as close a point to similarly Clauses 5.5 and 5.6 of the ri be a professional Services contract allows a Going to an additional fee if services are delayed disrupted or prolonged due to circumstances outside the Consultants control.
15:48
So suspicious suspension and termination bespoke appointments usually only include limited rights for the consultant to suspend or terminate and rarely allow the Consultants of spend for anything other than the non payment of fees. The Raba allows the consultant to terminate or suspend services on reasonable grounds. So close 9.2 nodes such an ambiguous provision could allow for suspension due to the impact of Coronavirus.
16:18
Close 13.3 of the AC allows the consultant to suspend Services if prevented or impeded due to circumstances outside the Consultants control. So what issues should we then consider in relation to projects under construction? So firstly as we've seen there should be notification of the problems that are on site and serve me in line with any contractual notification.
16:48
Asians that are there Secondly communication with insert entire supply chain should be a matter to be considered before all all the supply chain to be on the same page as to what's happening in relation to the project.
17:09
This should also be realism in resetting the program. There should be realism in being aware that there's a potential lag in re mobilizing even when issues when the circumstances return to normal the party's depending on who has the obligation in terms of insurance should inform the insurers particularly if work is to cease on site.
17:40
Site security issue should be looked at very carefully particularly where it's not clear how long the disruption is going to last or how long the site is to be closed parties are obviously really need to maintain records. Not only of where the workers got to but also has been notified and issues.
18:09
relation to notification of insurance and also administration of payment continues despite what's happened. So even if the project has stopped there will still be the need to assess what's been done up to the date that the project has stopped. So you need to look at the contractual Provisions for payment closely and keep that site going so where you're negotiating a project.
18:42
The key issue is to get rid of the ambiguity that we have seen in the various force majeure Provisions.
18:52
So a specific covid-19 or coronavirus Clause should be negotiated and the specific events that cause disruption should be defined and obviously we could easily assist with with drafting that for you and again realism is What is needed in setting the program or resetting the program for for projects that have yet to begin and there must be an understanding of the fact that there will be this lag and there will be problems in the supply chain and the purchasing chains in re mobilizing projects. Well, thank you for listening to this webinar. I hope you found it useful and relevant in the current circumstances.
19:42
Um stances, I will answer a couple of questions now and we'll also send a note of all questions and answers along with the recording of the webinar.
19:55
So the first question is what is the position and NEC Professional Services contract?
20:03
So we're an NEC for Professional Services contract is use the same point described above for the NEC for ECC apply as there are prevention force majeure Provisions in it. There's a conversation event for prevention and there is also option x24 changes of law if that is stated to be applicable.
20:33
To the contract. So essentially whatever was said earlier in relation to the ECC still applies for the NEC for Professional Services contract.
20:45
So another question that we've received.
20:49
Is if a contractor wants to continue Andhra, JCT designer Bill contract, but as client we are unable to monitor progress quality control and health and safety due to coronavirus. How do we reduce our contractual risks? And are we able to terminate the contract if we are not happy with the contractor to continue on site. So, okay. That's quite a complex one and two questions there.
21:19
So let's look first at the health and safety obligations. So assuming that the client has appointed a principal contractor and a principal designer the remaining CDM obligation that the contractor has is too is under clause and regulation 4.6. Sorry of the CDM ranks of 2015 and those to take reasonable steps.
21:48
To see that any principal contractor and principal designer comply with the remainder of their duties.
21:57
So in the context of Coronavirus disruption I'm presuming that the point the question is making here is that they are unable to access the site, but it could well be that reasonable steps in this circumstances to ensure that a project manager or even an agent who is able to and qualify to just monitor.
22:24
Your progress is being made and the Ended all the health and safety requirements are being adhered to can be dispatched to the site. So it doesn't it looks as though your obligation here can can be mitigate that can be met.
22:52
The second part of the question is are we able to terminate the contract if we're not happy for the contractor to continue on site? Well, what you could do in this instance is you could obviously postpone the project that would have not only the impact of an extension of time for also playing for love and expense for the contractor termination is not really an option.
23:21
Is the contractor will probably not be in default. We obviously need to keep that and review so it seems to me that the best answer is for you to look at what steps you can take to monitor what's going on even remote monitoring post possibly if I can be done to a reasonable level.
23:50
Well, thanks for all the questions. I will make follow I will do a follow up on all those after session and share these with you. So for further advice and guidance on the coronavirus disruption, please contact our dedicated resource Hub at shma.co.uk. Thanks for listening.

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