The past 12 months have seen a number of regulatory changes and court decisions with significant consequences for the industry.
Here is a rundown of the changes and cases that most affect construction businesses.
The Late Payment of Commercial Debts Regulations 2013 took effect on 16 March.
The regulations attempt to assist cashflow by limiting payment periods for business-to-business contracts to 60 days - unless it can be shown that a longer period would not be “grossly unfair” - and implement an absolute limit of 30 days for contracts with public authorities.
These regulations also allow a supplier to claim reasonable costs of debt recovery in excess of the fixed payments recoverable under the previous legislation.
The Jackson reforms, which came into force on 1 April, will have a significant impact on the costs of litigation.
The changes included introducing costs management procedures that prevent a party recovering more than their budgeted costs without good reason, and allowing only costs that are ‘proportional’ to be recoverable.
The Construction Products Regulation 2011 came into force on 1 July.
This extended the “basic requirements” that all construction products must meet in health and safety performance throughout their lifecycle and energy-efficiency during construction and dismantling (rather than just energy-efficiency in use).
It also included compulsory requirements for CE marking, save for limited exceptions.
Changes to the Building Regulations were laid before Parliament on 8 August, with Parts 1 and 4 coming into force from 30 August 2013 and Parts 2 and 3 in force from 6 April 2014.
Part 3 inserts provisions relating to the target fabric energy-efficiency rates for new dwellings as part of the government’s drive to make homes more energy-efficient.
The obligation to produce Site Waste Management Plans will be abolished from 1 December to help unshackle businesses from regulatory burdens.
It was ruled in Parkwood Leisure v Laing O’Rourke Wales and West that collateral warranties are potentially “construction contracts” within the meaning of the Construction Act 1996.
Parties will therefore have a right to adjudicate under such collateral warranties.
As there is no ability to join third parties into adjudication proceedings, unlike in court, this could lead to difficulties with multiple proceedings and inconsistent decisions in disputes involving multiple parties.
The ruling in Transport for Greater Manchester v Thales Transport and Security had serious ramifications for the ambit of audit clauses.
Such clauses are common in construction contracts with government departments, including both private finance initiative and private finance 2 contracts.
In this case the contractor was obliged to provide significantly more documentation, including that which was commercially sensitive, than it may have otherwise expected.
This decision showed the potential risks of treating such clauses as ‘boilerplate’ to be accepted without consideration of their potential impact.
The Court of Appeal and the Technology and Construction Court demonstrated that the English courts still seem reluctant to find any implied duty of good faith.
The Court of Appeal narrowly construed the ambit of an obligation to act in good faith, while the TCC found that an express good faith clause in a term partnering contract did not fetter a party’s right to operate a termination at will clause.
Most significant cases of 2013
John Grimes Partnership Ltd v Gubbins – 5 Feb
Held that a consulting engineer could be liable for falls in property values caused by a market crash when they had negligently caused delays to a development project.
Transport for Greater Manchester v Thales Transport & Security Ltd – 8 Feb
Demonstrated that audit clauses should not be treated as ‘boilerplate’, as they may oblige contractors to provide much more commercially sensitive information than first thought.
Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) – 15 Mar
Showed that, while good faith clauses are increasingly common in contracts, there is still little clarity on how to interpret them and courts are generally keen to construe such good faith obligations very narrowly.
TSG Building Services plc v South Anglia Housing Ltd – 8 May
Found that an express good faith clause in a term partnering contract did not fetter a party’s right to operate a termination at will clause.
Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd – 29 Aug
Decided that collateral warranties are potentially ‘construction contracts’, so parties can adjudicate under such warranties.
Aspect Contracts (Asbestos) Ltd v Higgins Construction plc – 29 Nov
Held that the limitation period for challenging an adjudicator’s decision ran from the date of payment of the sums due under the decision and not from the date of the underlying breach.
Steven Carey is head of construction and engineering and James Worthington is a senior associate in the construction and engineering team at Speechly Bircham