UK: Projects And Construction Law Update - April 13, 2016

Please see below Clyde & Co's latest projects and construction law update - a regular review aimed at providing up-to-date information for those in the construction and infrastructure industry.

We look at industry news as well as recent court decisions concerning:

  • who had the risk of obtaining planning consents under a building contract
  • whether a contractor's valuation constituted a payment application in accordance with the contract
  • when deleted words may be used to interpret a contract
  • a claim for LDs under the FIDIC Yellow Book
  • 'reasonable endeavours' and 'good faith' obligations

Industry News

Government BIM mandate and official website from 4 April 2016

The government is mandating building information modelling (BIM) level 2 for all centrally procured government projects from 4 April 2016. This includes an obligation on all government departments to produce a complete set of employer's information requirements (EIRs) for every contract.

The government mandate coincided with the launch of an official BIM level 2 website, hosted by the British Standards Institution (BSI). The website hosts official standards and guidance documents, together with:

  • The Construction Industry Council (CIC) BIM Protocol.
  • Uniclass (the unified classification for the construction industry).
  • The National Building Specification (NBS) toolkit.

Mandating BIM level 2 reflects a long-standing commitment that the government first made in its May 2011 Government Construction Strategy. Government activity after 4 April 2016 is likely to focus on delivering its Digital Built Britain initiative, which aims at achieving BIM level 3. However, one other key date for BIM level 2 is 3 October 2016, by when the government expects all its departments to be capable of electronically validating BIM information received from the supply chain.

Enterprise Bill: Institute for Apprenticeships

The Department for Business, Innovation and Skills (BIS) has published a factsheet outlining the measures that will be included in the Enterprise Bill to establish a new body, the Institute for Apprenticeships (IfA). The aim is to deliver a "genuinely world-class apprentice programme in the context of the apprenticeship levy", which will support employers to uphold the high quality of apprenticeship standards.

The measures will:

  • Establish a statutory body for the IfA.
  • Give the IfA powers to undertake quality and approval functions in relation to apprenticeship standards and assessment plans.
  • Require the IfA to appoint a majority of employers to its board, to ensure that it is an employer-led body.

Concessions Contracts Regulations 2016 and Utilities Contracts Regulations 2016

The Concessions Contracts Regulations (SI 2016/273) and the Utilities Contracts Regulations (SI 2016/274) will come into force on 18 April 2016.

On 17 March 2016, the Crown Commercial Service (CCS) published PPN Information Note 02/16. The note explains that the new rules for utilities and concession contracts will apply to new procurement exercises commenced on or after 18 April, except to the extent set out in the relevant regulations. The CCS will publish further guidance on the changes shortly.

These regulations represent the final part of the implementation of the changes to the public procurement regime.

Public Procurement (Amendments, Repeals and Revocations) Regulations 2016 (SI 2016/275)

The regulations will come into force on 18 April 2016, and make various amendments to Acts of Parliament and statutory instruments that are consequential on the coming into force of the Public Contracts Regulations 2015 (SI 2015/102) (PCR 2015), the Utilities Contracts Regulations 2016 (SI 2016/274) and the Concession Contracts Regulations 2016 (SI 2016/273). Schedule 1 amends the Greater London Authority Act 1999, the Equality Act 2010, the Public Services (Social Value) Act 2012 and the Health and Social Care Act 2012. Schedule 2 amends the Public Contracts Regulations 2015 and the Defence and Security Public Contracts Regulations 2011 (SI 2011/1848) amongst others. Schedule 3 of the Regulations contains consequential revocations and repeals.

Of particular note is one amendment made to the PCR 2015 which is likely to make regulation 72 on modifying contracts less accessible.

Government Construction Strategy 2016-2020

On 23 March the government published its Construction Strategy, setting out a new plan to deliver £1.7 billion efficiencies and 20,000 apprenticeships.

The strategy sets out ambitions for smarter procurement, fairer payment, improving digital skills, reducing carbon emissions, and increasing client capability. These themes are consistent with the wider ambitions for industry in Construction 2025, which is being delivered by industry and government through the Construction Leadership Council.

Increased productivity will support government to deliver the £163 billion of planned projects identified in the spring 2016 Government Construction Pipeline.

National Infrastructure Delivery Plan 2016-2021

In addition to its Construction Strategy, the government also published its National Infrastructure Delivery Plan, which brings together the government's plans for economic infrastructure over the next five years with those to support delivery of housing and social infrastructure.

The NIDP sets out key projects and programmes, and major policy milestones, in each infrastructure sector and includes details of the government's ongoing work to improve the prioritisation, performance and delivery of infrastructure, including building a skilled workforce, reducing costs and encouraging private sector investment.

The NIDP is underpinned by a refreshed National Infrastructure Pipeline, which shows the size and status of planned public and private investment worth over £480 billion to the end of the decade and beyond, including over £290 billion to 2020-21.

Around 50% of the infrastructure pipeline to 2020-21 will be financed and delivered by the private sector. With this in mind, the government will continue to engage with investors and will produce a dedicated infrastructure finance and investments document later in 2016.

Case Law Update

Walter Lilly & Co Ltd v Clin [2016] EWHC 357 (TCC)

Here the claimant building contractor, Lilly, had entered into a JCT SBC 2005 incorporating CDP and bespoke amendments, with Clin, the owner of a substantial property in Palace Gardens Terrace, Kensington in the Royal Borough of Kensington and Chelsea (RKBC) but the parties had made no detailed provisions in relation to planning consent.

Lilly were to carry out demolition, refurbishment and reconstruction works. The contract was entered into in September 2012, but whilst the works were underway in July 2013, RKBC contacted Lilly and Clin's architect to notify them that the scale of the demolition contemplated was substantial and required conservation area consent. Lilly suspended demolition work on receipt of RKBC's letter, and this was not resumed until a year later. Lilly claimed an EOT for the delay caused. Clin meanwhile said that numerous planning permissions had been obtained, and the conservation area consent was only required because Lilly had given RKBC the impression that the demolition works were more extensive than those covered by the existing consents. Clin eventually submitted a revised planning application in December 2013 with reduced demolition work and permission for the revised scheme was granted in June 2014. 

The parties agreed to certain preliminary issues being heard, and in particular whether RBKC's letter required the works to be halted, and whether Clin was responsible for ensuring all necessary consents were obtained. The contract, although heavily amended, did not contain any express references to planning permission or conservation area consent.  The judge concluded that, in spite of the lack of provision in the contract, the parties must have intended that planning permission should be obtained to allow the development to go ahead, and that the party best placed to obtain it was the employer. The central question was whether the employer was obliged to ensure planning permission was obtained.

The judge found that Clin did not assume the risk that planning permission would be given. The judge went on to note that his answers to the preliminary issues were likely to be of only limited use to the parties as the underlying facts had not been established. The judgment highlights the problems where planning permission is not expressly dealt with in a contract, particularly where the works are in a conservation area or other area with specific requirements.  It also illustrates the problems of dealing with preliminary issues where a factual matrix has not been established or agreed.

To read more, please click here.

Jawaby Property Investment Ltd v The Interiors Group Ltd and another [2016] EWHC 557 (TCC)

Here the employer Jawaby sought a declaration concerning payment obligations under the contract it entered into with a contractor, Interiors and a related Escrow Agreement. In particular, the court had to decide whether there had been a default as defined by the Escrow Agreement.  The contract was a JCT D&B 2011 with amendments and related to refurbishment of the Holborn Tower office block. 

Under the terms of the contract, Interiors was to submit an interim application for payment on the 8th of each month.  The first 6 applications proceeded in the same way, with Interiors submitting a valuation which was then the subject of a certificate of payment, which was generally substantially lower than the sum applied for, but which was supported by detailed spreadsheets showing how the works had been valued. 

In relation to valuation no. 7, an 'initial assessment' was submitted in the sum of £2.3m.  This was met with a certificate for a negative value, based on a valuation of the works of £1.6m but minus any breakdown or back up documentation. Jawaby contended that this constituted a valid pay less notice whilst alleging that Interiors had failed to serve a valid payment application. Interiors subsequently issued proceedings.  Jawaby contended that valuation no. 7 did not describe itself as an application and did not apply for anything whilst Interiors asserted that there was no requirement for any particular labelling to make a document an interim application.

The judge noted that the presentation of valuation no 7 was materially different to the pattern adopted on previous occasions, in particular its description as an 'initial' assessment, and found that it did not comply with the requirements of the contract. Accordingly, it was not a valid application and no default event had occurred under the Escrow Agreement. Given the potentially draconian consequences for employers of failing to respond to a payment application, a departure from the accepted procedure which led to uncertainty concerning the status of the contractor's communication could not be accepted

To read more, please click here.

Narandas-Girdhar and another v Bradstock [2016] EWCA Civ 88

Here the Court of Appeal had to decide when deleted words in a contract could be taken into account to resolve an ambiguity in the remaining words.  A debtor had applied to set aside a IVA on the basis that a modification to it failed to incorporate a condition precedent which had existed in the original. 

The court dismissed the appeal, noting that the substituted provision was intended to replace the original clause in its entirety.  In doing so, it considered the circumstances in which it is appropriate to consider deleted words.  The reasoning in Mopani Copper Mines v Millennium Underwriting [2008] was approved, namely that the court should construe the substituted words, and if they are unambiguous reference to deleted text will not be necessary.

However where ambiguity exists in the remaining words then the deletions may be referred to as an aid to construction in determining what it is that the parties agreed they did not agree.  However it also confirmed that care must be taken when referring to deleted text.

To read more, please click here.

J Murphy & Sons Ltd v Beckton Energy Ltd [2016] EWHC 607 (TCC)

Here the court considered a claim for LDs under an amended FIDIC Yellow book.  The contractor Murphy had been appointed to design, construct, test and commission an intelligent power plant at Beckton, East London, under a contract based on the FIDIC 1999 Yellow Book.

Clause 4.2 differed substantially from FIDIC clause 4.2 (which stipulates the circumstances in which the Employer may make a claim under the performance bond), in that it included additional wording requiring the employer Beckton to give notice before making a demand on the performance bond, and it deleted the reference to clause 2.5, meaning the employer could make a call on the bond if the contractor failed to pay any amount due. Ordinarily, clause 2.5 places certain notification obligations on the employer prior to making any claim for payment under the contract, which has to be agreed or determined by the engineer.  The contract also incorporated various milestone dates, and provided that, if the contractor failed to meet these dates it would be liable to pay LDs.  Clause 8.7 (which places an obligation on the contractor to pay delay damages when there is a failure to comply with the time for completion) had also been redrafted to remove the reference to clause 2.5.

From December 2014 onwards Beckton notified Murphy that it was not meeting various contract milestone dates. In January 2016 Beckton notified Murphy that it required payment of all accrued LDs.  Murphy meanwhile claimed it had been delayed and that Beckton did not have an entitlement to LDs as alleged. In February 2016 Beckton gave advance notice that it intended to make a claim under the performance bond as a result of Murphy's failure to pay the LDs. 

In part 8 proceedings (simpler proceedings used where a decision is required on a point of law which does not involve extensive factual evidence) the court was asked to decide whether Beckton was entitled to recover LDs from Murphy in the absence of an engineer's determination of Beckton's entitlement to LDs. Murphy submitted that such a determination was a pre-requisite to Beckton's entitlement.  If Beckton was not entitled to LDs, Murphy sought an injunction preventing Beckton from making a call on the bond for recovery of the LDs. The court decided that Beckton was entitled to the LDs, and that the parties had expressly excluded the reference to clause 2.5 from clause 8.7, which contained an entirely independent regime not subject to clause 2.5.

The court's decision on the LDs meant it did not need to consider the call on the bond, but it did briefly do so and concluded that the call on the bond was not fraudulent because it was a true on demand bond, and there was nothing making the entitlement to LDs conditional on an engineer's determination.  The trigger for making a claim therefore was Beckton's belief that it had an entitlement, not an engineer's determination. The case highlights the need, when amending standard form contracts, for understanding the interplay between the clauses in the original contract and ensuring that this is expressly dealt with in amendments

To read more, please click here.

Bristol Rovers (1883) Ltd v Sainsbury's Supermarkets Ltd [2016] EWCA Civ 160

Here the Court of Appeal has considered reasonable endeavours and good faith obligations in the context of obligations contained in a sale agreement. The dispute arose out of a conditional contract (the Agreement) for sale of Bristol Rovers' current stadium to Sainsbury's who intended to create a mixed-use retail-led development. The Agreement included a number of conditions to be satisfied before it became unconditional, one of which was Sainsbury's obtaining planning permission to allow unrestricted store deliveries.

Sainsbury's was obliged to use "all reasonable endeavours" to obtain acceptable planning permission.  There was also a more general provision obliging the parties to "act in good faith" in relation to their obligations under the Agreement. Sainsbury's sought planning permission allowing for deliveries to be made 24 / 7.  Bristol City Council resolved to grant permission with a restriction on deliveries between the hours of 6am to 11pm on weekdays and 9am to 8pm at weekends.  The parties eventually agreed this was not acceptable planning permission for the purposes of the Agreement, and Sainsbury's agreed to pursue an application which did not restrict delivery hours.  Sainsbury's subsequently sought to terminate the Agreement, and the parties ended up in dispute.

The question arose whether Sainsbury's was in breach of the Agreement; in particular of its obligations to use all reasonable endeavours to procure an acceptable planning permission as soon as reasonably possible, and to act in good faith.  The court did not examine the law on reasonable endeavours and good faith in detail, but rejected Bristol Rovers' arguments, commenting that the all reasonable endeavours and good faith obligations were curtailed by Sainsbury's specific obligations in relation to appeals and in particular given that Sainsbury's itself was not obliged to make a further planning appeal it could not have been the intention of the parties that Sainsbury's should be obliged to consent to such an appeal by Bristol Rovers 

The judgment demonstrates the benefit of detailed drafting in specific clauses, which limits the scope of the endeavours and good faith obligations.

To read more, please click here.

Projects and construction law update - April 13, 2016

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