Guidance on Navigating Legal and Regulatory Requirements in the UK Construction Industry

1. Introduction

The construction sector has always been seen as a complex one, subject to significant technical and regulatory constraints. In fact, in the past few years, this situation has become even more difficult to handle because the issue of environmental preservation has started to put pressure on companies in the construction sector. In order to accomplish the major task of simplifying the many demands, it is important to understand in detail the various requirements laid down by the law and the related regulations. Current regulation requires measures to be taken to reduce the energy consumption of new buildings and those undergoing major renovations. In addition to the significant technical constraints that apply to the construction sector, it is traditionally considered to be a sector that is subject to numerous regulations in the broader aspects.

This project was undertaken to investigate and document the practices that are in place to comply with the complex legal and regulatory requirements in the field of construction in the UK. It incorporated all types of construction work, from the construction of the smallest subdivision of a building unit to large transportation and civil engineering projects, and the three types of construction execution. Several were identified – having them well written is important as they affect the ability for both surveyor and lay person to understand the text. In Germany, the legislature has offered businesses in the construction industry a precise, complex, and, above all, technically mature legislation and design options for insulating foundations. Again, a good list appears to facilitate reading. Perhaps they were not as well-structured as the other two texts, but they had a feeling of completeness. Several large projects have been undertaken to document the applications of these developments in the field of construction.

2. Contracts

2.2 UK construction contracts tend to adhere to the standard forms. The most well-known forms are the JCT, NEC3, and FIDIC forms. In general terms, the main differences between the UK forms consist of an ad, rom offers of the parties, in the JCT forms. The JCT also has other forms, such as contracts for specialist and subcontractors and those who wish to be involved in design development. History of trade practices and procedures as well as State dominant construction projects. NEC3 is a relative newcomer on the UK construction scene and originated in disputes arising from the interpretation of JCT and ICE forms. The NEC3 is based on the principle that it is a no-frills form and is designed primarily to provide simple predefined time frames for disputes. In this respect, it is similar to the FIDIC forms rather lean to the JCT. However, the NEC forms provide a lot easier to read and understand and operate facility by the addition of ‘Option’ clauses. NEC3 is ideally suited to high-value and very program-oriented contracts. The choice of selecting the contract form lies primarily in the hands of the sub-consultants. Referring to “other standard forms” in NEC guidance notes places these forms firmly as “A” in the NEC’s pecking order.

2.1 Contracts are the lifeblood of the construction industry. They set out the terms upon which clients (in the main) will pay for work to be carried out and the price payable for the work, program, responsibilities of the parties, and how disputes are to be resolved. In other words, contracts set the battleground and scope of operation in any construction project. There are also contracts which govern the relationships between the parties at 3rd and 4th tier level, such as sub-contracts and sub-subcontracts.

2.1. Types of Contracts

There are also various types of subcontracts, including but not limited to, Joint Contracts Tribunal (JCT) subcontracts, New Engineering Contract (NEC3) Engineering and Construction Contract (ECC) subcontracts, NEC4 Domestic subcontracts (main options Y and Y(UK)), and NEC3 sub-subcontracts. The process of selecting a suitable form commences by thoroughly reviewing the contract and is similar to selecting a primary contract. The main consideration that needs to be addressed is whether the subcontract is to be used in a domestic or commercial capacity. Subcontracts used in the supply chain, which include both the upstream (employer – main contractor – subcontractor) and downstream (subcontractor – direct suppliers – back to the main contractor), are divided into upstream (subcontractor to main contractor) and downstream duties (main contractor to subcontractor).

This increased focus on safety standards is reflected in both UK H&S legislation, whereby the Health and Safety at Work etc. Act (HSWA) 1974, the Construction (Design and Management) Regulations (CDM), and the Management of Health and Safety at Work Regulations 1999 (MHSWR) have been created to protect the health, safety, and welfare of those who work in the industry, as well as in the regulation of the industry.

In 2020, the value of all construction work in the United Kingdom was £115,138 million, of which new work accounted for £74,642 million. This increased to £127,590 million in 2021. Being the second-largest industry in the United Kingdom, accounting for 8.6% of total output, and directly providing work for 70,000 people, it is also the most dangerous industry in the United Kingdom, according to the Health and Safety Executive.

There are three main categories of contracts that are most commonly used within the construction industry when reflecting on the standard forms of contract. These are: PFI/PPP, JCT, and NEC contracts. These types of contracts can be used to erect stadiums, build infrastructure such as roads or bridges, redevelop brownfield sites, and residential property developments.

2.2. Contract Negotiation

To be effective, a construction contract must produce legally binding obligations that are enforceable by one party and against the other. A legally binding contract emerges when the parties create an offer, acceptance, consideration, contractual capacity, legality of purpose, mutual consent, contractual intent, and certainty. The creation and negotiation of a contract require that the parties are in a position to fully understand and accept their roles, obligations, and responsibilities within the contract. For instance: The Client must understand its role, duties, and responsibilities that will arise during construction and after the completion of the construction works in respect of Private and Occupational Health & Safety legislation and the Building Regulations, as well as the Payment and Adjudication of Disputes procedures. The Contractor must understand its role, duties, Sub-contractor and Supplier chains, risk & risk sharing, and Health & Safety responsibilities. The Construction contract must be in writing to comply with the Housing Grants, Construction and Regeneration Act 1996 as amended 2011; The Companies Act 2006, the Land and Property (Electronic Communications) (England) Order 2003 Schedule 2 point 9, all of which allege construction contracts formed by correspondence, are to be in writing, as well as the Limitation Act 1980, which states that a legal warranty period claim needs to be filed by the end of year six via a signed written contract.

Contracts should clearly and unambiguously allocate risk and responsibility to each party and set out the arrangements, procedures, and legal responsibilities which serve the key purpose of clarifying and allocating the uncertainties that arise between the parties. Good drafting and clear agreements help prevent disputes arising or, if disputes do arise, they can be resolved more quickly and cost-effectively. Parties should develop and execute contractual relationships from a position of mutual trust and respect and focus on the common purpose of achieving a good, timely, and cost-effective result. There are several categories of general guidance for good practice on the negotiation of contracts in the UK construction industry. Each category features as part of the ongoing early relationships and legal & contractual awareness developments covered by stakeholders.

2.3. Contract Management

Because of the potential appropriation or dissipation of payments from a construction contract between an employer and contractor by various creditors and stakeholders, including construction workers, it is necessary to permit certain deviations from the freedom of contract to protect these creditors. This is achieved by requiring that contractual terms in respect of the allocation of contractual amounts between the parties not only be agreed upon by the parties but also be documented and separately enforceable should there be any dispute. This is achieved by such provisions being evidenced in a contract between the two parties. Moreover, these provisions, which can be enforced by the employer against all creditors, including construction workers, are contained in the Construction Lien Act and are known as trust provisions. These provisions take into account the principle of freedom of contract and the protection of the interests of various beneficiaries of overhead funds resulting from a construction contract.

Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations are clearly realizing the importance of managing legal agreements as well as legal risk like never before. The construction industry, in particular, is awash with risks which can find their genesis in anything from defective workmanship and incomplete works to delays in completion and disruptions to the normal progress of the works. The responsibility for the management of these risks lies, in large part, with two parties: the employer and the contractor. Robust and effective contract management is essential to manage the contractual risk.

3. Permits

According to the Building Act (PBL), a building permit has to be obtained for construction, modification, or demolition work on or around buildings or other facilities. The granting of building permits is, in principle, the responsibility of the municipality. Part of the permit application is a drawing showing the design of the work. The municipality checks whether the design meets the requirements from the Building Decree. If the application is complete and the application meets the requirements, the municipality decides on the application. In doing so, it must be clearly stated which regulations are the basis of the decision. Building permits are to be tested in accordance with the Technical Building Requirements (TBR) in the Building Decree. The TBR can be supported by the European Product Standard (standard NEN-EN, Harmonization Standards EU Construction Products Regulation). Other permits that can be submitted to the municipality are: (i) fire safety permits; (ii) environmental permits governing construction work.

A number of permits may be required on any particular construction project. Failures to obtain permits can be serious in terms of both cost and programme. As the building owner, it is the employer’s responsibility to obtain building permits. The contractor does not have to ensure that the building permits, environmental permits, and other permits are in hand before beginning the construction work. Should the contractor begin without proper permits, it will be liable towards the employer for damages.

3.1. Planning Permits

Furthermore, the Building Regulations stipulate that building work must be carried out in accordance with the approved drawings, from which it follows that there must be approved drawings, i.e. drawings to which the statutory consultees and the planning officer agree. However, the two are not necessarily the same thing as the planning officer might require changes that do not consider the Building Regulation points, for example in relation to access to the development, which would benefit the proposal in terms of the number of parking spaces but would also mean building closer to the main road than previously proposed. It is essential that the developers are aware of the risks of embarking on a contract without the appropriate building and development documents in place. This can lead to fines and may require the building to be dismantled if the local authority requires demolition or does an enforcement notice. A good contract should ensure that the professional team has the appropriate documents and that the licenses and permits are in place before starting work.

In the United Kingdom, national legislation provides that most construction activities are “permitted development,” meaning that they can be carried out without planning permission from the local planning authority. However, planning legislation also stipulates that a development cannot be carried out without first applying to the local planning authority for planning permission where that development “is likely to involve the construction of a building or enclosure, exceed specified limitations or involve carrying out operations within the curtilage of, or to a building within, such land.” The maximum dimensions allowed before an application for planning permission is required, if not building under the PD rights, are specified in the Town and Country Planning (General Permitted Development) (England) Order 2015 as amended, schedule 2, part 1, Classes A-E. It is crucial that developers and contractors are aware of these requirements, as a structure built without an appropriate planning permission may be assessed through a process of regularisation, which can be long and expensive.

3.2. Building Permits

Building permits are permits that are required for the construction of a new building or extending an existing building. These were introduced by changes to the Building Act of 1984 under the Building Regulations 1985 and were designed to address potential problems associated with the construction of new buildings by providing a vehicle to insist that all drawings are produced and checked by competent qualified persons, in addition to proving that specific construction methods are employed in the final dwelling. Building permits impose obligations on applicants for building permits. These require applicants to file documents prepared by an architect or surveyor, encompassing all elements of the construction or a comprehensive assessment of the safety of the structure and the health, safety, and protection of persons in and around the building to the Building Control Authority.

3.2. Building Permits: Before starting a construction project, many different permissions and consents need to be obtained from the local authority or other public bodies. The first thing to do is to find out whether you need planning permission, if your home/business is a listed building, or if it falls within a conservation area. Building permits are only required if planning permission or Building Control consent is required. In broad terms, the requirement to obtain Building Control consent is more widely spread, whereas planning permission is limited mainly to the erection of buildings. Local authorities will also have a statutory duty to comply with requirements under the Regulatory Reform (Fire Safety) Order 2005 and the Civil Contingencies Act 2004.

3.3. Environmental Permits

Through the planning processes, the potential environmental impacts are considered, and the developer must take steps to ensure that the expectations around the development are met. The larger sites or installations and/or others that present a higher environmental risk will be in scope of requiring a specific permit other than via the planning process. The regulations also cover car breakers yards, large poultry farms, and the arms industry as operators of the larger installations in the UK through the requirement to comply with the legislation through the granting of a permit. The current regime has evolved from the Environmental Protection Act (1990), which required the licensing of certain process activities. The regulations now also cover mobile plant and require standard rules permits for operators of small waste oil burners.

A significant consideration with respect to construction is the potential impact on the environment. Construction activities are responsible for a range of significant environmental impacts, particularly as they are energy and resource-intensive processes. Control measures and influencing factors can be managed through conditions in the planning processes or through restrictions and prohibitions arising from Environmental Permitting Regulations, which apply to certain sites and specified activities. Any individual or company seeking to carry out an activity designated as an installation within Schedule 1 to the Environmental Permitting (England and Wales) Regulations must have a permit from the Environment Agency. Further guidance is issued on this topic by Defra, and a separate permit exists for discharges to water and certain types of mobile plant.

4. Licenses

As usual in these articles, this is hugely simplified. The usual tax-related health warnings, for example, apply with serious (exact opposite of LHTs) vengeance, so do take advice rather than proceeding on your own. I similarly need to remind readers that my articles are written simply, without the backing track of music. However, as I type exclusively using my own right hand (to my knowledge, typing with exclusively the left foot is a useful Olympic goal but a qualification in nothing else) to my pieces might have more honesty than many better sound systems.

Article: Basically, construction operations in the UK don’t require licenses or registration to be carried out, provided they are practically done without the involvement of others, and provided the way you structure your business is fully compliant with HMRC’s rules and regulations, and provided you don’t breach any rules, regulations or laws. Furthermore, at the time of writing (mid-March 2018), the UK construction industry is in a quite remarkable franchising loophole. Construction operations carried out for another business are surely caught by the usual rules and regulations, but construction operations carried out by a distribution business involving the sale and distribution of certain franchised goods, and a simple preliminary notification has been made to HMRC, may happily proceed until this amazing franchising loophole is almost closed.

Introduction: While some UK construction operations don’t require licenses or registration (as long as they are fully compliant with HMRC), there are a lot of activities that do. As with most countries, the penalties for non-compliance can be heart-stoppingly catastrophic, and these will also go on, significantly damaging your record.

4.1. Construction Licenses

In England, for all construction in order to be legally approved to build or proved participants must first pass the Construction Skills Certification Scheme (CSCS). It is located in England and it is a test that confirms that the individual does not hold proof of their registration in the construction industry, meeting the United Kingdom National Development Project Management Board’s minimum health and safety training and legal requirements.

(c) the installation of heating, filler, air conditioning, ventilation, power supply, drainage, sanitation, water supply, gas, or fire protection systems in any building or structure, as the installation and electricity is compatible with treating or comes under an improved system within the meaning of the statutory Instruments 1998/2884(E) about the improvement or removal of 13 unsafe part of the United Kingdom’s extension.

(b) the construction, alteration, maintenance, extension, or demolition of any works forming, or to form, part of the land, including walls, roadworks, power-lines, statistical chosen permanent wrappings, and water works;

(a) the construction, alteration, maintenance, extension, demolition, or dismantling of buildings or structures, including offshore installations;

The definition of construction work towards the scheme in England covers a wide variety of construction operations. It does not matter how these construction works are classified as long as they have a connection with the property, and this is interpreted quite widely. The scheme applies not only to building work, including the construction, demolition, alteration, or repair of property of any kind, but also to installation systems, footings, foundations, as well as sanitary and water facility installations. Therefore, construction companies in England have to register and pass the construction licensing requirements. Construction work means:

4.2. Trade Licenses

Nevertheless, there appears to be some confusion about trade licenses, with the requirement to obtain them being unclear or misunderstood: The Misinterpretation 1: “Only companies not registered with the Federation of Master Builders are required to obtain trade licenses”. This is not true. The attitude of some trade authorities in telling builders that they are exempt from the charge is somewhat convenient since builders are not required to be members of the FMB to practice or carry out construction projects. They can breach the National House Building Council regulations without risking criminal records because the NHBRC is a warranty provider, not a compliance authority, and therefore isn’t in a position to enforce compliance on site in real time (documents sent to local planning and building control authorities are inspected months after the project is completed).

Section 4.2. Trade licenses. These are required by some local authorities to prevent rogue construction companies from multiplying and then disappearing when there is a complaint or issues, leaving nothing behind to pay the numerous creditors, which invariably is the local authority for the various statutory fees for planning and building regulation applications. However, the necessity of the trade licenses is inconsistent and, in part, motivated by the additional revenue it generates, given that the charge is not just made to cover the administrative fees of inspecting applications and monitoring complaints but is usually a multiple of the statutory fees levied by the planning and building control departments. Moreover, for companies only doing minor work (limited to a specific threshold), a trade license is not required, since consumer protection laws generally cater for domestic clients and there is always the possibility to make a small claim against a bank guarantee.

4.3. Health and Safety Licenses

Additionally, it should be noted that the contractor must notify the project HS&E if a Principal Designer is not carried out on the project and the client is a domestic customer. To notify your plan, you will have to complete an initial notification for CDM online and print a PDF of the notification form to send to the HSE. Including your email address in your notification will enable the HSE to acknowledge receipt. F10 notification can be received by post notification of the project commencement to the following address: Health and Safety Executive FOD Construction, early guidance and technical advice Customer Services, Flintshire MA2 4RQ, UK. Ensure that your F10 notification is posted at least 30 days before the start of the construction works, and copies of the F10 notification form should be kept on file by the Principal Contractor for the duration of the project in line with inductions given to construction workers who enter the site.

If the project exceeds 500 person days in duration or uses a particular risk technique stage, then the notification must be made 30 days before work commences.

The Construction (Design and Management) Regulations 2015 require contractors to notify the Health and Safety Executive of any project. For this purpose, an F10 notification must be made and sent to HSE at least 30 days before the project starts. Projects expected to last longer than 30 working days and have more than 20 workers working simultaneously at any point in the project, or if the project exceeds 500 person days in duration, require notification to HSE 30 days before work commences. This also applies if the project is expected to exceed 30 days for the notification process, or if appliances or techniques for a particular risk stage are used in the construction works.

5. Regulatory Compliance

Compliance with legal and regulatory requirements is more important than it has ever been, with the UK’s impending withdrawal from the European Union and the increased fines for health and safety breaches. As an example, in April 2015, the Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences: Definitive Guideline implemented a new system of fines which, for flagrant cases, sees unlimited fines awarded. These look set to increase. As the definitive guideline goes on to confirm, the fine must be sufficiently substantial to have a real economic impact. Of the new criteria, when assessing a defendant’s means, where a parent, subsidiary or other associated company can ill afford the imposition of a fine, the court may have to step in and ensure that justice is done, and all entities are treated fairly. Compliance is key to avoid such situations.

Where the contract administrator is not appointed under one of the standard forms of contract, it is essential to set out within the building contract the practical and detailed extent of the services the contract administrator will provide. It should include the methods for handling and approving variations (particularly design variations), avoidance of disputes and solving disputes that arise during the contract. The contract administrator should also provide for defect notification and the correction of defective and protective work. For these provisions, the RIBA standard form of consultants appointment for the role of contract administrator provides a good example.

5.1. Health and Safety Regulations

In October 2013, draft proposals were submitted for more changes to the CDM regulations that might necessitate a review of and response to health and safety procedures. The deregulation bill was introduced at Lords on 23 January 2014 with intentions to streamline the regulatory enforcement processes, thereby providing further protection to SMEs. Health and safety is never far from the headlines and it is important to continually check and review policies and procedures to fulfill health and safety obligations. Public health and safety legislation in the UK must ensure the standards of health and safety are being maintained in the workplace and other relevant environments. Construction health and safety is regulated by the Health and Safety Executive that is funded by the UK government. If a building contractor wants to gain an understanding of safety regulation and what level of responsibility they have towards their employees, the guidelines published by the legislative body can provide good guidance.

Building sites are inherently dangerous places, which is why the UK has some of the most comprehensive health and safety regulations in the world. Approximately 3 percent of site workers sustained an injury in 2011. The level of fatal accidents on site has consistently declined over the last 15 years from an average of 37 throughout 1999-2003 to 23.3 in 2011-2012. These statistics still demonstrate that health and safety must remain the industry’s number one priority. Every contractor must take on full health and safety responsibilities for the duration of the project and deal with the CDM co-ordinator who will advise and liaise in order to discharge the health and safety responsibilities of the client under the Construction (Design and Management) 2007 Regulation. Health and safety is a collective responsibility and anyone working under the direction of the contractor must also adhere to strict health and safety regulations. With such detailed and comprehensive health and safety regulations in place and numerous publications available, it is important to note that health and safety is an evolving and dynamic field.

5.2. Environmental Regulations

The government’s own standards are high, and public sector clients will expect all their projects to be built to BREEAM rating ‘excellent’ (a measure of sustainable balance). This creates a tension when considering construction costs. Even in the private economic sector, with growing investor and tenant demand for sustainable property, the argument to build cheap and hope for a quick sale or tenant without regard to sustainability is considered high risk. In 2014, around a quarter of global carbon emissions were due to the construction and occupation of buildings. There is a public interest for environmentally acceptable buildings. Various codes of construction and building standards or technical guidelines for building matters should be considered, including The Code for Sustainable Homes, British Research Establishment Environmental Assessment Method (BREEAM), and The NHBC Foundation.

In addition to those statutes specifically concerned with the construction industry, construction work is also subject to environmental legal and regulatory requirements. For example, legislation that emanates from the European Union is particularly important in relation to how waste is dealt with. The main law relating to waste originated from the EU and is known as the Waste Framework Directive. This ultimately resulted in an extensive array of legislation concerning waste; for example, the Control of Pollution (Amendment) Act 1989 and its subsequent regulations have placed a duty upon the construction industry to manage and properly treat its waste.

5.3. Building Regulations

Another avenue to approval is to provide a written demonstration showing that the construction has complied with the regulations. An alternative source of changes to work practices are the Private Bodies of Building Control, for example, Local Authority Building Control and the Association of Consultant Approved Inspectors. They can inspect projects in the same way as us with the intention of ensuring that the applicable rules under the national building regulations are met. These changes could indicate that the client does not have to terminate the contract due to a failure in outstanding work. In addition, there could also be disputes from a claimant’s perspective using other factors acting as a barrier such as the Construction Act 1996 or Subcontractor (Design Liability) in regard to negligence.

One of the key areas of UK construction practice that applicants need to understand, in regard to their regulation and statutory requirements, is building control. Building control exists to ensure that building projects are progressed to meet building regulations that ensure the health, safety, and welfare of people in and around buildings, with all matters being reasonably practicable. However, it is important for applicants to understand the options available to them to assess how to get their project to meet building regulations efficiently and also to understand that they do not have to follow the guidance given section by section. There are alternative ways to demonstrate compliance, which are as follows: the modern method of proof, which uses scientific and engineering first principles; and the use of supporting tools such as the Approved Documents, the British Standards, and European Harmonized standards and manufacturer’s guidance.

6. Dispute Resolution

Lamb and Cox note that construction contracts are inherently uncertain and the best way to manage them is by risk allocation. However, it is important to encourage parties to think and to act in advance to safeguard opportunities, under the umbrella of legal propriety and fairness. The project research team also came to the conclusion that more esoteric thinking is needed to create less adversarial contracts. Construction clients are increasingly under the microscope and are expected to manage their operations effectively and efficiently. Given the harsh financial climate over the last few years, together with intense competition and CDM regulatory changes, now more than ever, clients require innovative bespoke contracts, appropriate procurement mechanisms and more effective contract management methods. Solicitors too, who are responsible for drafting contracts effectively, need clear visions from clients to ensure that implications are defined and accepted, and clients also need to receive correct legal advice on how to manage contracts effectively.

Dispute resolution is a critical success factor for any construction project. One of the primary drivers behind the commencement of CIC Research in 2013 was to investigate why the construction industry in the UK is slow to adopt innovative practices in contract mechanisms designed to manage and reduce disputes. The consequence of the adversarial nature of contracts in the construction sector increases the likelihood of disputes and costly dispute resolution procedures. Evidence also suggests that the cost of claims and disputes, whether resolved through win/lose adjudications and court cases or mediated settlements, can be substantial and can negatively impact upon a company’s ability to survive financially in a difficult or competitive market.

6.1. Mediation

“All disputes will eventually end.” That might be true; however, to take a dispute through its natural life cycle has never been as expensive as it is now. Even small disputes can cost many times more than the value of the dispute to take through its full life cycle to a court-based hearing. Therefore, the question is: what other options are there? The very first question to ask oneself when thinking that you require something to be done legally is perhaps, can this be resolved by negotiation? This topic will explain the various ways in which problems can be fixed legally. Right from the outset, talk to your solicitor about the practicalities of a particular route. At the end of the day, the dispute should be managed in such a way that the potential winners’ headings and losing headings monetary values are cost-effective to the reason why a business is involved in a dispute relationship. Without resolution of disputes, these relationships couldn’t possibly proceed effectively.

Topics for discussion: This topic aims at demystifying the reality of legal claims by explaining the various legal forums which are available. Each forum has its own particular protocol, and these protocols are aimed at achieving the most cost-effective solution. By understanding these options, an early resolution to a problem can be achieved.

6.2. Arbitration

Most issues and disputes within the project delivery aspect of construction work arise as a result of the human teams needing to work together effectively to produce the expected results within the budget. During the project negotiations during the procurement and tendering, especially early to market, tend to build an adversarial relationship into the project. Once construction work has commenced, the combatants are set on a course and often fail to identify the potential damages and set legal actions in progress. Most of the test readers prefer to see a resolution of the dispute, but often the cost of continuing usually outweighs the initial costs, and the company feels forced into pursuing the claim. As a result, effort and money are exhausted before any resolution is reached.

Arbitration is more flexible than litigation (if the parties agree). Schedule 3 cases and smaller cases can be conducted in a more informal way. The big disadvantage of the litigation process within the UK construction sector is that it can become more complex and expensive than you calculated, and as mentioned above, specific project-related advice is recommended. Fundamentally, alternative dispute resolution (ADR) for disputes and conflicts often relies on the abilities and personalities of the negotiators. Often, everybody’s positions are so entrenched that coming to a sensible and logical agreement becomes difficult and expensive.

6.3. Litigation

Construction law and its associated practice and processes have evolved to manage the issues presented by the complexity of the sector and the potential disputes inherent in construction projects. The range of bespoke solutions has cumulatively paved the way for a sector that specializes in resolving disputes through litigation. The question to be considered is whether this occupation of the adversarial forums by the construction sector is positive. Even if all other sectors have been able to resolve their disputes, would this be a reason to celebrate the occupation of the courts and tribunals by this part of UK society? It is reasoned that this is a reason to pause and consider whether the dispute resolution mechanisms employed by the construction sector are the most appropriate to ensure the fairness and good administration of justice and, if they are not, then to consider law reform initiatives.

In recent years, the construction sector in the UK has been exposed to a disproportionate level of litigation when compared to other sectors. The emergence of the construction sector as a leader in terms of the number of reported cases has been a feature of this sector for the past 20 years and looks set to continue. The reasons why the construction sector has been associated with high levels of litigation are complex and interrelated, including among other factors: complexity, long duration of projects, technical advances, use of bespoke solutions, higher degrees of specialization, education, and training required of the sector’s professionals, commercial incentives to avoid losses in time and quality, winding down of the adversarial process, availability of alternative dispute resolution mechanisms, as well as related to litigation funding products.

7. Insurance

Businesses providing a service to clients should consider public liability insurance to cover the basic risks associated with being a business owner. Public liability insurance can be subdivided into three different categories, and there are businesses which require higher public liability insurance levels than the standard and most popular £1m, £2m, £5m cover levels. The main source of legal obligations businesses must address are Health & Safety obligations under common law, but also there could be Property Owner’s and Tenant’s Liability, Employers Liability for contractors and subcontractors’ negligence injuries and damages to third parties, and Products Liability. Public liability insurance helps to protect businesses against the risk of causing injury to others, or in rare cases causing damage to someone else’s property. Without public liability insurance, businesses may have to cover the costs of compensation on their own.

3. Public Liability Insurance

Professional indemnity insurance (PII) is insurance that is intended to manage legal costs and compensation payments that may result from legal action if a professional service provided is negligent, causes loss or injury. In respect of architects, the Royal Institute of British Architects (RIBA) requires that Registered Practices maintain professional indemnity insurance at levels recommended by the RIBA. Firms may choose to use the RIBA Insurance Agency for assistance and to obtain competitive terms. The amount required is typically either a percentage of the architectural fee income or a fixed value as may be found within the Employers Requirements. The requirements for an individual practice will depend upon the level of contractual liability arising from the professional services that the practice is providing under each specific commission.

2. Professional Indemnity Insurance

Employers’ liability insurance is compulsory for all businesses in the UK who employ staff and their employees. Companies will need this cover regardless of the size of the workforce, how often the personnel work, where the work is carried out, or the sector they work in. Employers’ liability insurance is needed to protect businesses from the cost of compensating employees who have suffered a work-related illness or injury. Employers’ liability insurance allows companies to meet the cost of compensation for employee illness or injury without facing financial uncertainty. If a business has employees, even if it is voluntary, it is required by law for the company to hold employers’ liability insurance. The minimum level of insurance is £5,000,000.

1. Employers’ Liability Insurance

There are certain types of insurance that are currently required, either by law, or by the standard contract documents used on projects:

7.1. Liability Insurance

7.1.2. Running a range of different risk scenarios and considering how the insurance approach could be adapted to meet or mitigate risk could help deliver a more comprehensive insurance approach as wider adoption of EWI projects is pursued. As the carbon-saving advantages of EWI become more commonly acceptable, its default treatment in the mind of insurers will change; as a component of standard construction, not novel or unique risk. At this point, greater awareness of the approach to liability (in the event of subsidence) and its management and mitigation (including views on redeployment, excess majority claims, and structured loss warranties) will develop, and EWI will be insurable and therefore financeable at the rates required. The challenge is demystifying the approach quickly enough to facilitate a tipping point of use and build that requisite informality of treatment.

7.1.1. Replicating the precise insurance structures always adopted in business-to-business transactions in consumer-facing EWI delivery is not feasible. At its most basic level, EWI providers will need to hold liability insurance in the event that there is subsidence concern. This is particularly important for Party Wall EWI, where homeowners may struggle to find insurers willing to take the risk where, for example, there is a precedent cause of foundation failure.

7.2. Professional Indemnity Insurance

Potential challenges: Be aware that there are some ways to understand that there are some shots that can be defined as a negative aspect of the professional indemnity insurance system. When a customer complaint is made, firms will often find themselves with higher insurance prices and not so well known as before. It is necessary that the professional must show his competence and give quality and confident work. The biggest consequences for those interested in maintaining professional indemnity insurance are the economics and high cost of insurance. Increase of the professional indemnity insurance market, especially on small businesses. In addition, a very important factor for firms is the ability to calculate the insurance reserves allocated to the fund for own retention of risk, and the calculation of such a significant factor in determining the insurance coverage/commercial credit of insurance companies that makes it. The professional does not want problems, clients are looking for guarantees that the project will be perfect. We need to ask the construction engineer that, in order to ensure quality, consumes a significant amount of its own financial resources as insurance companies will further increase in price, according to the principle of guarantees. The need for an insurer to individually adjust the conditions of the insurance companies related to insurance conditions depending on the engine and vulnerability of the insurance conditions. This eventually causes a feeling of uncertainty of not having protection or a waste of time and resources.

Professional indemnity insurance covers negligence, mistakes, and subsequent legal costs. Quite often, contracts require a minimum level of professional indemnity insurance cover to be in place for the consultant. The required minimum level often reflects the size and type of the project but can be a significant issue for smaller practices. Sophisticated clients and insurers request long periods (often 12 years) of run-off cover. Group schemes; recent years have seen the professional indemnity market harden with premiums for some firms increasing, and in some cases, insurers withdrawing from the type of projects they will cover. It is now difficult to obtain suitable and affordable cover for small structural engineering practices operating in building structures. Firms may have to change the scope of their work and may be forced to refuse certain types of projects or selectively engage riskier work. It can be challenging to find suitable professional indemnity (PI) cover for new structural engineering practices. Typically, insurers expect to see a favorable claims record for a number of years. Other than through careful selection of work and consultants, small firms cannot demonstrate their claims history. For risk-averse clients with some design capabilities, this can lead to a marginalization of small practicing consultants and erode their income. Large consultancies with robust financials can alleviate some of these issues by negotiating directly with insurers to create specific cover terms. These issues together can lead to large firms taking on work through subsidiary companies with limited liabilities. Some owners now demand a very low level of retained liability and may hold design practice to a strict kind of accountability.

7.3. Contractor’s All Risks Insurance

A new JCT Minor Works Building Contract, for example, requires the contractor to put appropriate insurance protection in place to protect both the contract works (often shown as part two of the insurance) as well as existing structures (part three of the insurance). The standard JCT form of building contract stipulates an existing structures insurance clause that limits the contractor’s liability to the equivalent cost of that section of works they have started or completed. Subject to the negotiations with the client/editor, either option A or B is commonly inserted to cover the contractor and all nominated subcontractors. This ensures the contractor has some contractual back cover in place to limit their liability on existing structures in accordance with the contract preambles, which can sometimes be overlooked.

Contractor’s all risks insurance is often stipulated in a building contract. It is a means by which clients or contractors protect themselves from claims arising from damage to works under construction or installation at a site until they are handed over. The period covered during the construction phase should also cater for defects liability periods or ongoing installation, e.g. heating contracts. Defects liability periods typically range from 12 to 24 months after practical completion, sometimes longer. The form of this cover is usually 12 months following the date of practical completion or longer as stated within the building contract.

8. Financial Considerations

It’s not just the Construction Industry that has been affected financially by COVID-19, so therefore, ensuring that payment flows promptly without dispute down the contractual chain without deduction and in a timely fashion is, for many small sub-contractors, key to their survival. In the absence of properly maintained liquid resources across the sector, firms will fail. So as this pandemic has brought the competition laws and rules under closer scrutiny, so too should the payment practices. A cautious approach when agreeing payment conditions re-scheduling should therefore always be exercised, especially in the case of low priced contracts.

‘Cash is king’ is a common refrain in any economic conditions, not least those imposed by a global pandemic. The government has recognized the need to maintain the flow of money within the construction industry and has, therefore, introduced RG Retention Payments, coming into force on 1 March 2021. This requires that where Company A has contracted Company B to carry out construction operations and Company B has also entered into a sub-contract with Company C: provisions in the Company B/C contract which withhold cash retentions, or which make existing retention provisions a charge on monies, must cease to have effect.

8.1. Budgeting and Cost Control

The contractor is responsible for controlling the construction costs. Detailed monitoring of the financial performance of the project through regular cash flow modeling is central to effective cost control. Cash flow modeling will be developed and managed by the PM/CM in order to predict the monthly cash inflows and expenditures of the project. Monthly reporting by the contractor is an absolute essential for cost control. The contractor is required to provide written financial statements of amounts paid, due and determined during the contract as well as proposed forecast final figures at the employer’s cost review meetings and/or after completing approximately 50% and 80% of the contract works. As previously explained, the accuracy of the monthly construction cost calculations are drawn up and reported to by the contractor to the project employer. Reviewing the figures allows the project employer to monitor costs and ensure that maximum cost savings are realized.

Budgeting and cost control are key to ensuring that the project company is aware of the financial parameters within which the project has to operate. Responsible for preparing the detailed construction budget and project cash flow are the employer’s QS and CM. It is essential that construction budgets are prepared with all risks duly allocated and quantified within the tender documentation. Contingencies should be set aside for matters that can occur and will require financial input, and would not be expected in the normal construction process.

8.2. Taxation

Furthermore, VAT fraud takes a number of different forms in the construction industry, where two main types include the failure to charge VAT or under-declaring the amount of VAT due. More detail for VAT is also provided in the Anti-Money Laundering section. It is important to ensure that legal entities meet the requirements under the regulatory regime and have adequate governance measures in place, which can be achieved by satisfying Partnership and LLP entities. Regulated sector investment includes businesses such as REITs; limited companies are discussed within the AML section. High-value dealers are used mainly for trading in high-value goods, such as art dealers, antique dealers, or car sales made by LTNs. The Accreting Individual should consider if their activity is caught by the domestic provisions of the MLRs and register on Trust and Company Service or if not, select to apply for the exemption.

Construction businesses are particularly vulnerable to criminal facilitation of tax evasion because of the nature of the work undertaken, combined with the large number of different parties involved in construction projects. A large percentage of illegal working occurs within the construction industry, both for commercial and domestic customers. The commercial customer base is often rogue landlords maximizing profits by avoiding tax on labor and cost, or by unscrupulous firms who have employees undertaking paid work while in receipt of benefits.

8.3. Payment Terms

The Act seeks to foster and promote the use of more constructive and less adversarial means of resolution of disputes arising under construction contracts. The Adjudicator’s Decision must be implemented by the construction parties to allow the project to continue to progress through its process. However, at times, an Adjudicator’s Decision may not be implemented and there are various legal remedies open to the successful party in an Adjudication to recover monies and/or other steps from the losing party. These provisions will cover, among other areas, the appointment of the Adjudicator, the matters in dispute, the obligations of each party, the timetable for the Adjudication to be carried out, the Adjudicator’s remuneration, the withholding notices, etc.

Payment terms: There are special rules in relation to payment terms in various types of contracts within the UK construction sector, with various rules on payments between the construction parties: employer-principal contractor; principal contractor-subcontractor; and employer-subcontractor. These provisions should be considered and incorporated within a construction contract to ensure that appropriate rules and protection are properly included. Failing to do so may result in the application of the statutory scheme for construction contracts, which applies only where the construction contract is not one to which the provisions of the Housing Grants, Construction and Regeneration Act 1996 have been applied and has one of its participants as a relevant party. There are rules under the relevant subcontracts up the contractual chain that will enable the party further down the commercial chain to rely upon the statutory scheme by way of the appropriate payer/payee notice in the event that it is not in receipt of payment.

9. Project Management

The design period generally commences when the Design and Build Contractor (D&B) starts his design work. The length of the design period is relative to the scale of the project and the nature of the works involved and this should be thought carefully. Should the design period end before commencement of works, the Contract might prescribe the requirements of approval of the Contractor’s design by Employer, contents and timescale of advance information. After commencement of works, the Contractor may not be able to suspend without financial risk if he does not receive the above requirements as would have been the case pre-commencement of works.

The effective management of any project requires the establishment of a detailed project plan and regular monitoring to ensure the schedule is being adhered to. This is doubly important in the construction industry given the complexity of the projects and the large financings usually involved. Each of the stages of a construction project needs to be carefully considered from the commercially viable inception of the project to its practical completion. The following notes highlight areas that are frequently difficult. They also identify the parties that may be responsible for certain failures and when liability is likely to occur. They are from the perspective of the party assuming financial risk for the project, be that the owner, an investor or a lender. The same issues are of course relevant to the professional consultant who has a duty of care in all information he conveys under the contract.

9.1. Project Planning

Effective planning is vital at every stage of the project lifecycle to ensure delivery to an agreed time, cost, and quality; and for schemes involving regulatory stakeholders such as local communities, planning authorities, and those related to transport and highway concerns, the engagement and consents necessary to deliver the scheme are sought. This is a significant coordination task. In the very early stages, it is important to understand the statutory framework and the need to reach out and engage with consultees. Mapping out and understanding the consents required is an ongoing task and key to successful delivery. Properly researched initial site assessment and site investigations are also vital inputs into the project planning process and are likely to aid early cost management. Early understanding of the wider area highways and transportation impacts of a scheme is a critical aspect of the project planning process.

Project planning is crucial to the efficient and legally compliant delivery of a construction project. Consideration of various matters in the early stages of projects can help ensure that the correct decisions are made to identify and mitigate potential risks early in the project lifecycle, allowing for a more ‘predictable’ project delivery. Early planning permits the development of a deliverable best value strategy while the project is still relatively uncostly. Developing a robust and integrated plan often means balancing the need to cut costs, optimizing required resources, and implementing the risk response plans. Industry specialists are often used by teams in the early stages in the delivery of complex projects in the absence of sufficient in-house expertise.

9.2. Resource Management

Define specific measures to determine how project activities and associated resources now contribute to the realization of our strategic business objectives. Apply plan engineering management processes to document key relationships between key process elements and product-specific or project-specific objectives. Who in the organization should be made aware of the relationship between business strategies and potential strategic objectives, plan process elements, or products? Refine the communication plan with increased understanding and awareness of business strategies amongst workers. Assist the decision-making process by ensuring access to valid, reliable, objective data, and other criteria. Capture lessons learned and share this information record to subplans where identified as beneficial. Review completed post-mortem reviews for information that will serve as guidance. Show how business season stability and change can influence project processes and therefore impact on product season characteristics. Show how our organizational characteristics assess and permit responsive customer requirements to core product delivery. Show how increased lead time productivity of the delivery process requirements will demonstrate specific activities.

How do you manage the resources available in your organization to optimize the delivery of your products and services to customer specifications? Apply the resource definition to include materials, equipment, finance, property, systems, facilities, worker competence, and core product elements. Develop resource management objectives, writing these in terms of the impact of management action on resource use or depletion. The relevant outcomes should have been defined in scope management objectives and membership. Establish resource management targets that are quantifiable or otherwise measurable and agree on specific, prioritized resource management actions or initiatives that show how and when these targets are to be achieved. Ensure active worker participation in meeting these targets, supporting commitment, implementation, and maintenance of the resource management system. Review how project activities now consider resource management objectives and targets.

9.3. Quality Assurance

While a quality assurance system only provides confidence in work processes being conducted, it does not give any promised quality and safety assurance in the works execution. Yet, as a part of the ISO 9000 standard, it is a requirement that the effectiveness and applicability of the implemented document procedures and quality records should be internally assessed by company-employed assessors or auditors.

Quality management system standards such as BS EN ISO 9001 are designed to enable firms, such as contractors, to plan and control the activities and functions in all of their business areas, making them more economical with their resources whilst ensuring that the company’s products or services meet the level of quality that the requirements of their clients, supported by proper documentation and records, as and when required.

Quality assurance systems such as ISO 9001 can demonstrate a mature approach to business or what has been termed an operational level contract. This includes the ability to accurately cost and plan work, ensure the availability of qualified and competent people at the design stage, gain more ideas about how best to meet the clients’ needs, the ability to deliver the works on time and with quality, the commitment to business improvement, the ability to remain competitive, and to deliver a sustainable result.

In order to differentiate and achieve value in construction, contractors must offer expertise to deliver productivity and longer-term incentives to reward long-term performance. Therefore, it is suggested that to satisfy the requirements of larger, more sophisticated purchasers, it is increasingly important for firms operating in the construction industry to gain a benchmarked quality accreditation that focuses on their entire business operation.

10. Conclusion

The IPED report will signal a key change in how ethical violations in the built environment are dealt with. Although IPED will tackle all sectors, the construction and real estate sector have been in its focus throughout the inquiry. This report will give professionals not only a wake-up call but also a roadmap of how they can and should raise concerns, while at the same time offering protection from victimization. Whether or not an external complaints mechanism will be preferred over the internal mechanisms, or whether independent advice will be sought in other ways, the concerns raised in the several hundreds of written submissions in response to the IPED questions on how professionals are treated when they raise concerns, so far, seem to be well-addressed in the forthcoming final recommendations of the report. The construction industry will experience an additional jolt when the sector-specific recommendations are published, as enterprises will be expected to have implemented the findings within not more than three years of the establishment of IPED in 2023. We hope this book will help you in your understanding of how legal and regulatory requirements come into play during your day-to-day activities, and we wish you an exciting, safe, ethical, and compliant career.

That the publication of this book took place around the time when Brexit was finally happening, the Covid-19 crisis was unfolding, the Grenfell inquiry was nearing its closing stages, and the IPED probe started seems to be quite a coincidence. But all these matters, each in their own way, will have a profound and long-term impact on the construction industry. This, of course, strengthens the case for professionals to understand the rules of the game they have to operate in, to be able to navigate those rules, and to play within their boundaries.