infopaksm construction and projects guide: united kingdom

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

InfoPAKSM

Construction and Projects Guide: United Kingdom (England and Wales)

Sponsored by:


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March 2016

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

This InfoPAKSM provides a Q&A that gives a high level overview of the main trends and significant deals; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; employment laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; the main construction organisations; and proposals for reform.

To compare answers across multiple jurisdictions, visit the construction and projects Country Q&A tool at http://uk.practicallaw.com/4-502-1260.

This Q&A is part of the global guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-guide.

This material was developed by Practical Law. For more information about Practical Law, visit their website at http://www.practicallaw.com/.

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks

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Contents

I. Overview of the Construction and Projects Sector ...................................................................... 7

A. What Are the Main Trends in the Local Construction and Projects Market? What Are the Most Significant Deals? .......................................................................................................................................................................................... 7

II. Procurement Arrangements ........................................................................................................... 8

A. Which Are the Most Common Procurement Arrangements If the Main Parties Are Local? Are These Arrangements Different If Some or All of the Main Parties Are International Contractors or Consultants? ... 8

III. Transaction Structures .................................................................................................................... 9

A. What Transaction Structures and Corporate Vehicles Are Most Commonly Used in Both Local and International Projects? ............................................................................................................................................................ 9

IV. Finance ............................................................................................................................................... 9

A. How Are Projects Financed? How Do Arrangements Differ for Major International Projects? .......................... 9

V. Security and Contractual Protections .......................................................................................... 10

A. What Forms of Security and Contractual Protections Do Funders Typically Require to Protect Their Investments? ............................................................................................................................................................................ 10

VI. Standard Forms of Contracts ........................................................................................................ 11

A. What Standard Forms of Contracts Are Used for Both Local and International Projects? Which Organisations Publish Them? .............................................................................................................................................. 11

VII. Contractual Issues .......................................................................................................................... 12

A. Contractors' Risks ................................................................................................................................................................. 12

VIII. Excluding Liability ........................................................................................................................... 12

A. How Can Liability Be Excluded or Restricted under Local Law? ............................................................................... 12

IX. Caps on Liability ............................................................................................................................. 13

A. Do the Parties Usually Agree a Cap on Liability? If Yes, How Is This Usually Fixed? What Liabilities, If Any, Are Typically Not Capped? ................................................................................................................................................. 13

X. Force Majeure ................................................................................................................................. 13

A. Are Force Majeure Exclusions Available and Enforceable? .......................................................................................... 13

XI. Material Delays ............................................................................................................................... 14

A. What Contractual Provisions Are Typically Negotiated to Cover Material Delays to the Project? ................. 14

XII. Material Variations ......................................................................................................................... 14


Copyright © 2016 Practical Law & Association of Corporate Counsel

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A. What Contractual Provisions Are Typically Negotiated to Cover Variations to the Works? ............................ 14

XIII. Other Negotiated Provisions ........................................................................................................ 15

A. What Other Contractual Provisions Are Usually Heavily Negotiated by the Parties? ......................................... 15

XIV. Architects, Engineers and Construction Professionals ............................................................... 15

A. How Are Construction Professionals Usually Selected? Following Selection, How Are They Then Formally Appointed? ............................................................................................................................................................................... 15

B. What Provisions of Construction Professionals' Appointments Are Most Heavily Negotiated? Are Liabilities Routinely Limited or Capped in Construction Professionals' Appointments? ...................................... 16

XV. Payment for Construction Work .................................................................................................. 17

A. What Are the Usual Methods of Payment for Construction Work? Are There Ways for the Contractor and Consultants to Secure Payment or Mitigate Risks of Non-Payment under Local Law? ................................ 17

XVI. Subcontractors ............................................................................................................................... 18

A. How Do the Parties Typically Manage Their Relationships with Subcontractors? ................................................. 18

XVII. Licensing .......................................................................................................................................... 18

A. What Licences and Other Consents Must Contractors and Construction Professionals Have to Carry out Local Construction Work? Are There Any Specific Licensing Requirements for International Contractors and Construction Professionals? ........................................................................................................................................ 18

B. What Licences and Other Consents Must a Project Obtain? ..................................................................................... 19

XVIII. Projects Insurance .......................................................................................................................... 20

A. What Types of Insurance Must Be Maintained by law? Are Other Non-Compulsory Types of Insurance Maintained under Contract? ................................................................................................................................................ 20

XIX. Labour Laws .................................................................................................................................... 21

A. Are There Any Labour Law Requirements for Hiring (Local and Foreign) Workers? ......................................... 21

B. Which Labour Laws Are Relevant to Projects? .............................................................................................................. 22

C. Must an Employer Pay Statutory Redundancy or Other Payments at the End of a Project? Are All Employees Eligible? ................................................................................................................................................................ 23

XX. Health and Safety ........................................................................................................................... 24

A. Which Health and Safety Laws Apply to Projects? ........................................................................................................ 24

XXI. Environmental Issues ..................................................................................................................... 26

A. Which Local Laws Regulate Projects' Effects on the Environment? .......................................................................... 26

XXII. Prohibiting Corrupt Practices ....................................................................................................... 30

A. Are There Any Rules Prohibiting Corrupt Business Practices and Bribery (Particularly Any Rules Targeting the Projects Sector)? What Are the Applicable Civil or Criminal Penalties? .......................................................... 30


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XXIII. Bankruptcy/Insolvency ................................................................................................................... 32

A. What Rights Do the Client and Funder Have on the Contractor's Bankruptcy or Insolvency? ......................... 32

XXIV. PPPs ................................................................................................................................................. 32

A. Are Public Private Partnerships (PPPs) Common in Local Construction Projects? If So, Which Sectors Commonly Use PPPs? ........................................................................................................................................................... 32

B. What Local Laws Apply to PPPs? ....................................................................................................................................... 33

C. What Is the Typical Procurement/Tender Process in a PPP Transaction? Does the Government or Another Body Publish Standard Forms of PPP Project Agreement and Related Contracts? ............................... 33

XXV. Dispute Resolution ......................................................................................................................... 34

A. Which Are the Most Common Formal Dispute Resolution Methods Used? Which Courts and Arbitration Organisations Deal with Construction Disputes? .......................................................................................................... 34

B. What Are the Most Commonly Used Alternative Dispute Resolution (ADR) Methods? ................................... 36

XXVI. Tax ................................................................................................................................................... 37

A. What Are the Main Tax Issues Arising on Projects? ..................................................................................................... 37

B. Are Any Methods Commonly Used to Mitigate Tax Liability on Projects? Are There Any Tax Incentives to Carry out Regeneration Projects? ..................................................................................................................................... 39

XXVII. Other Requirements for International Contractors ................................................................... 40

A. Are There Any Specific Requirements That International Contractors or Construction Professionals Must Comply with? .......................................................................................................................................................................... 40

XXVIII. Reform and Trends ....................................................................................................................... 40

A. Are There Any Proposals to Reform Construction and Projects Law? Are There Any New Legal or Regulatory Trends Affecting Projects? .............................................................................................................................. 40

XXIX. Main Construction Organisations ................................................................................................. 41

A. Joint Contracts Tribunal (JCT) ........................................................................................................................................... 41

B. National Specialists Contractors' Council (NSCC) ....................................................................................................... 41

C. Association for Consulting and Engineering (ACE) ....................................................................................................... 42

D. Institution of Civil Engineers (ICE) ..................................................................................................................................... 42

E. FIDIC (International Federation of Consulting Engineers) ........................................................................................... 42

XXX. Online Resources ............................................................................................................................ 42

A. Her Majesty's Stationery Office (HMSO) ......................................................................................................................... 42

B. British and Irish Legal Information Institute ..................................................................................................................... 43



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XXXI. About the Authors ......................................................................................................................... 43

A. Marcus Harling, Partner and Head of Construction and Engineering Department ................................................ 43

B. William Gard, Partner ........................................................................................................................................................... 44

C. Steven James, Partner ........................................................................................................................................................... 44


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I. Overview of the Construction and Projects Sector

A. What Are the Main Trends in the Local Construction and Projects Market? What Are the Most Significant Deals?

1. Main Trends

Energy and infrastructure projects continue to be the most consistently active areas in the UK. The London commercial development market is busy in the construction stage in contrast to the remainder of the UK, but completed project occupation rates are slowing. This is demonstrated by the most prominent project to complete in the last year, The Shard.

The progress of projects through the pre-construction phases ahead of start on site can be unpredictable as funding approaches change. There are noticeably more housing starts than in recent years. As budget cuts incrementally reduce the ability of the public sector to kick start projects, more innovative approaches are emerging.

Local Enterprise Partnerships (LEPs) which replaced Regional Development Agencies are in many cases beginning to find their feet and adopt a catalyst role.

2. Major Projects

Outside factors dictate the build rate of projects and inward investors are particularly prominent. Commencement of the nuclear new build scheme currently hangs on agreement of the "strike price" with the UK government to underpin the economics of nuclear new build generation.

Crossrail is now in the construction phase.

Round Three of the UK offshore wind projects is starting to become active and is moving into the construction stage.

There is increasing consolidation and change amongst many of the UK large contractor and consultant organisations, only a minority of which are operating at acceptable margins.



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II. Procurement Arrangements

A. Which Are the Most Common Procurement Arrangements If the Main Parties Are Local? Are These Arrangements Different If Some or All of the Main Parties Are International Contractors or Consultants?

The main parties involved in a typical construction project are:

■ Client. The party for whose benefit the works are carried out, for example a developer or landowner. The client is sometimes referred to as the employer/owner.

■ Contractor. The party appointed by the client to construct the works. More than one contractor may be appointed, each for separate works packages. There is significant subcontracting.

■ Professional team. The designers (such as an architect or engineer), as well as the project manager and cost consultant.

■ Funder. The party providing finance for the project to the client.

The most common methods of procurement are:

■ Traditional procurement. Responsibility for the design and construction of the project are kept distinct. The client appoints the design team to carry out the design and, separately, the contractor constructs the works to the required design.

■ Design and build. The client appoints the contractor to complete the design and to construct the works to meet the client's requirements. The contractor may appoint specialist designers to carry out the design, but it will be liable to the client for the design. This approach gives single point responsibility and price certainty. However, it can be limited by the amount of detail in the client's requirement at the outset.

■ Package contracting. Such as construction management (where the construction manager sources and arranges works contractors for the client to directly contract with) or management contracting (where the management contractor enters into separate works contracts but does not take total delivery responsibility).

Similar structures are adopted where the main parties are international contractors or consultants.


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III. Transaction Structures

A. What Transaction Structures and Corporate Vehicles Are Most Commonly Used in Both Local and International Projects?

1. Local Projects

In the largest projects, two or more contractors may join together as a joint venture (JV). This may be contractual or a corporate JV structured as a company limited by shares or a limited liability partnership. Larger projects, for example major rail infrastructure or large energy projects, are likely to have more complex arrangements.

The other common structure is where a special purpose vehicle (SPV) is set up in Public Private Partnerships (PPP). The public body enters into a contract with the SPV to purchase services on a long-term basis and the SPV in turn engages separate subcontractors for the construction, operation and maintenance of the facility.

2. International Projects

Similar transaction structures are adopted for both local and international projects (see Section III.A.1).

IV. Finance

A. How Are Projects Financed? How Do Arrangements Differ for Major International Projects?

How the project is funded depends on who the client is and the nature of the project.

In a straightforward project, for example, the funding may come from a combination of equity investment or debt finance (including in some cases, mezzanine finance) through a single lender or multiple lenders. The European Investment Bank may provide or back



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funding for certain projects and the recently-formed Green Investment Bank may be a source of funding support for renewable energy or waste projects.

In relation to Private Finance Initiative (PFI) projects (recently replaced by PF2), a form of PPP model, the funding has commonly been provided by equity investment and debt finance (typically multiple lender).

Lenders commonly require projects to obtain at least 20% equity funding before they provide debt funding. Terms have reduced and debt terms of five to seven years are not uncommon.

Capital restraints, capital adequacy requirements and regulatory pressures have significantly reduced the availability of bank debt. Whether institutional investors will provide a significant alternative source of funding is not clear. All projects now have a higher level of equity requirement.

V. Security and Contractual Protections

A. What Forms of Security and Contractual Protections Do Funders Typically Require to Protect Their Investments?

1. Security

Depending on the nature of the development and the client, the funder may look to take a charge over the assets, shares and undertakings of the borrower. The funder may also require the benefit of all the construction documentation in relation to the project be assigned to it.

2. Contractual

The funder also usually requires rights to step-in to the place of the borrower so that the funder can complete the project in the event of, for example, insolvency of the borrower.


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VI. Standard Forms of Contracts

A. What Standard Forms of Contracts Are Used for Both Local and International Projects? Which Organisations Publish Them?

1. Local Projects

There are a large number of standard form contracts in use within the UK. The most common forms are:

■ Joint Contracts Tribunal (JCT). The most common are the Standard Building Contract and the Design and Build Contract. These were last updated in 2011 and tend to be used for standard building projects.

■ New Engineering Contracts (NEC3). The use of the NEC suite of contracts has become more widespread in recent years, having been endorsed by the Government (and were used for the Olympics 2012).

■ Institute of Chemical Engineers (IChemE). The most common form is the Red Book, which provides for a lump sum contract. The Red Book is mainly used in process plant/complex engineering projects.

■ International Federation for Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils) (FIDIC). FIDIC is commonly used on UK projects, particularly the EPC/Turnkey Contract (Silver Book) and is often used in process plant/complex engineering projects.

2. International Projects

Construction contracts for international projects tend to be based on similar forms to those relating to local projects, particularly FIDIC (see Section VI.A.1).



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VII. Contractual Issues

A. Contractors' Risks

1. What Risks Are Typically Allocated to the Contractor? How Are These Risks Offset or Managed?

Risks that are typically allocated to the contractor include:

■ Design. In design and build contracts, the contractor usually assumes responsibility for the entire design of the project (including any design that has been provided by the client, which is why the client's design team are often novated to the contractor).

■ Ground conditions. The client will usually attempt to pass all risk for ground conditions and any contamination to the contractor.

■ Weather. The contractor may not be able to claim time and money for adverse weather conditions and may need to include the time risk within its programme and the cost risk within its price.

■ Insolvency of subcontractors. This risk is carried by the contractor and is difficult for the contractor to mitigate.

■ Defects. The contractor bears the risk of defects in the project that arise as a result of the contractor's breach of the contract, for a certain period of time following completion. The length of this period usually depends on the type of project and the nature of the works.

VIII. Excluding Liability

A. How Can Liability Be Excluded or Restricted under Local Law? If the contract is freely negotiated, the contractor can exclude or restrict its liability, usually by way of a cap on liability (see Section IX.A) and/or an exclusion of liability for any indirect loss (which is more common in process plant contracts or complex projects). However, the contractor cannot exclude its liability for death or personal injury (under statute) or for fraud or fraudulent misrepresentation (as a matter of public policy). If the contract is agreed on standard terms, any restrictions on liability must satisfy a statutory test of reasonableness. This takes into account the situation of the contracting parties. Reasonableness in a business-to-business contract differs to reasonableness in a business-to-consumer contract (where the test is stricter).


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IX. Caps on Liability

A. Do the Parties Usually Agree a Cap on Liability? If Yes, How Is This Usually Fixed? What Liabilities, If Any, Are Typically Not Capped?

Caps on liability were not common in UK construction projects but are seen increasingly, particularly in the process plant sector, given that contractors are increasingly reluctant to accept unlimited liability. Caps on liability are often expressed as a total aggregate liability at the contract price or a percentage of the contract price.

Whether such limits will be agreed often depends upon the relative bargaining position of the parties.

X. Force Majeure

A. Are Force Majeure Exclusions Available and Enforceable? Contracts commonly provide for force majeure provisions to be included. The force majeure clause often allows the party who cannot perform the contract to suspend its obligations and then terminate if the force majeure event continues for a certain period of time.

Given the severity of this remedy, force majeure clauses (and particularly the definition of the force majeure events) are often heavily negotiated and there is no standard definition under law. For this reason force majeure clauses should be very carefully drafted so as to clearly set out what events will constitute force majeure and what happens as a result.



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XI. Material Delays

A. What Contractual Provisions Are Typically Negotiated to Cover Material Delays to the Project?

In both UK-based and international projects, the building contract often includes the provision of a liquidated and ascertained damages (LADs) mechanism, whereby the parties agree the level of damages that the contractor will pay to the client in the event of delay caused by the contractor.

To be enforceable, the level of LADs must be a genuine pre-estimate of the loss that the client will incur. If negotiated at arm's-length, LADs are usually enforceable.

Contractors sometimes seek to cap their liability in respect of LADs to mitigate against the risk of a prolonged delay becoming too onerous. Depending on the terms of the contract, contractors often have relief from LADs in circumstances where the delay is not their fault. These are often negotiated so that delay risk is apportioned according to fault, control and the ability to manage risk.

In practice, the cause of a delay may not be easy to determine. There may be concurrent events, both causing delay, one for which the contractor is responsible, the other for which he is entitled to relief from. Ideally the parties will consider how this will be dealt with from both a contractual and practical perspective.

LADs also operate to limit the liability and give cost certainty to the contractor for delay. Therefore, LADs can be of benefit to both parties.

XII. Material Variations

A. What Contractual Provisions Are Typically Negotiated to Cover Variations to the Works?

The client's right to instruct variations to the works are a common feature of construction contracts.

It is usual for the contractor to be entitled to additional time and money if a variation is instructed by the client. Contractors also sometimes try and restrict the extent of a variation (particularly to an omission of a major part of the works).

The contractor is not entitled to additional time or money under the contract if the variation is necessary due to the contractor's own default.


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XIII. Other Negotiated Provisions

A. What Other Contractual Provisions Are Usually Heavily Negotiated by the Parties?

The parties' approach to the contract negotiation will ultimately depend on the parties' objectives and attitude towards commercial risk. However, it is common that the following concepts are heavily negotiated:

■ Security. The client may require the contractor to provide security to guarantee its performance of the contract and/or protect against the contractor's insolvency. Such security is usually in the form of a parent company guarantee or performance bond.

■ Collateral warranties or third party rights. These may be required from the contractor for any funder and any purchaser of the completed development. Similar rights may also be required from subcontractors.

■ Intellectual property rights. The client will usually require a licence to use any intellectual property belonging to the contractor.

XIV. Architects, Engineers and Construction Professionals

A. How Are Construction Professionals Usually Selected? Following Selection, How Are They Then Formally Appointed?

Depending on the value and the importance of the package of services, and the procurement requirements of the client, a formal tender may be held to select the professional consultant. EU directives govern the procurement processes for government and other public bodies.

Framework contracts are increasingly used for which a "call off" or mini-competition is held.



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B. What Provisions of Construction Professionals' Appointments Are Most Heavily Negotiated? Are Liabilities Routinely Limited or Capped in Construction Professionals' Appointments?

The most heavily negotiated provisions of construction professionals' appointments are clauses that seek to limit the consultant's liability, such as a financial cap on the consultant's liability or net contribution clause. The outcome of negotiations on these issues depends on the consultant's insurance policy and the parties' bargaining positions, though under the current market in the UK, it is not uncommon for these limitations to be conceded by clients.

Consultants are usually required by the appointment to carry professional indemnity insurance, which they will need to maintain for the duration of liability (12 years if signed as a deed). UK-based consultancies often seek to cap their liability in line with the level of professional indemnity insurance that they hold. Internationally, consultants may seek even lower caps, closer to the contract price, although this varies according to the market, profession and practice.

Other key provisions often subject to negotiation in a professional appointment are the extent to which their key obligations are made absolute obligations, or are qualified subject to the consultant's obligation to use reasonable skill and care in the performance of these obligations. Typically these include:

■ The consultant's duty to carry out their services in compliance with statutory requirements.

■ Third party agreements.

■ Planning permissions, consents and so on.

■ The consultant's obligations to not use deleterious materials and to ensure others do not use deleterious materials.


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XV. Payment for Construction Work

A. What Are the Usual Methods of Payment for Construction Work? Are There Ways for the Contractor and Consultants to Secure Payment or Mitigate Risks of Non-Payment under Local Law?

1. Methods of Payment

The Local Democracy, Economic Development and Construction Act 2009 (Construction Act) amended the Construction Act 1996 and sets out mandatory minimum requirements in respect of payment under construction contracts (as defined in the Construction Act).

With this statutory framework in mind, the contract sets out the express terms on which the contractor will be paid. Common payment methods include:

■ Lump sum.

■ Measurement, where work is measured and paid for in accordance with a formula in the contract.

■ Prime cost, based on the cost of the labour and materials.

■ Cost plus; that is prime cost plus an added profit percentage.

If the project setup warrants it, a project bank account can be created. Under this arrangement, the client makes payments into a single bank account, then the client and the contractor release funds directly to the supply chain in accordance with the contractor's fee breakdown.

Traditionally, it is clients who ask for bonds to back the obligations of their contractors. However, contractors can also seek to protect their position by asking for a payment bond for cash flow exposure, especially on a riskier venture.

2. Securing Payment

The Construction Act also requires certain payment provisions to be incorporated into construction contracts (as defined in the Construction Act), including:

■ A mechanism for the ascertainment of the due date and final date of payment for any sum due under the contract.

■ Either party being permitted to issue a payment notice confirming the amount they consider is due.



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The issue of a pay less notice should the client want to withhold payment due to the contractor under the contract.

XVI. Subcontractors

A. How Do the Parties Typically Manage Their Relationships with Subcontractors?

The contractor will try to appoint subcontractors so that the terms are back-to-back with its contract with the client.

The client is also likely to require collateral warranties in its favour from the key subcontractors as part of its package of security documents. In general, a collateral warranty is only as robust as the contract to which it relates. Therefore, the client also has an interest in the terms that the contractor negotiates with its supply chain. The collateral warranties may also provide for rights of step in, so that if the contractor becomes insolvent, the client or another interested party can step into the shoes of the contractor in the subcontract to ensure that the project continues.

XVII. Licensing

A. What Licences and Other Consents Must Contractors and Construction Professionals Have to Carry out Local Construction Work? Are There Any Specific Licensing Requirements for International Contractors and Construction Professionals?

The following rules apply:

■ It is an offence to use the title "architect" without being on the Register of Architects maintained by the Architects Registration Board.

■ Contractors working with asbestos require a licence from the Health and Safety Executive (HSE).


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■ Contractors installing or modifying gas appliances must be on the Gas Safe Register.

■ Those producing, transporting or receiving controlled or hazardous waste require a licence from the Environment Agency.

There are no specific licensing requirements for international contractors and construction professionals apart from where it has been set out in this chapter in relation to, for example, employment matters.

B. What Licences and Other Consents Must a Project Obtain?

1. Before

There are various licences and consents that must be obtained before works can commence, including:

■ Planning permission. The client must usually obtain planning permission from the planning authority. Listed building consent may also be needed for work to historic buildings. Following the grant of planning permission, there is a period where a decision can be challenged (the judicial review period). The parties may decide to not commence works until this period has expired.

■ Third party consents. If the works involve a party wall or are within six metres of an adjacent property then the client must usually serve a party wall notice on the adjacent owner. There may also be other third party consents that are required from neighbouring landowners.

■ Building regulations. The building owner should obtain building regulations approval based on plans for the proposed works.

■ Health and safety. The client and parties engaged for the project have various duties under the Construction (Design and Management) Regulations 2007 (CDM) Regulations, such as to inform the HSE about the project. A construction phase plan should be prepared.

■ Local authority. The building owner should obtain a licence from the local authority for any work that may affect public roads and must notify the local authority if demolition is to take place.

■ Environment. Various environmental consents and licences may be required (for example, for the discharge of water into a river).



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2. During

The contractor should obtain confirmation from the local authority (or certain other approved inspectors) that the works comply with building regulations as the project progresses.

The CDM Regulations should be complied with, including preparation by the CDM co-ordinator of a health and safety file.

3. On Completion

The contractor should obtain a completion certificate from the local authority (or approved inspector) confirming that building regulations have been complied with.

The CDM co-ordinator should provide the building owner with the health and safety file.

XVIII. Projects Insurance

A. What Types of Insurance Must Be Maintained by law? Are Other Non-Compulsory Types of Insurance Maintained under Contract?

1. Compulsory Insurance

It is essential that all contractors take out employer's liability insurance that covers loss, damage, injury or disease caused to a company employee. Failure to have this insurance in place is a criminal offence.

2. Non-Compulsory Insurance

It is usual for contractors to also take out the following types of insurance:

■ Public liability insurance. This covers the contractor against any injury to third parties (for example, members of the public) and against damage to third party property.

■ Professional indemnity insurance. A contractor is expected to maintain this insurance if it is undertaking any design, as it provides cover against:


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• damages or compensation arising from professional negligence;

• certain breaches of contract; and

• breach of statutory duty.

■ Works insurance. This covers risks in relation to the works and certain events such as:

• physical loss or damage to the works; and

• loss or damage to materials, plants, equipment and/or temporary structures on site.

XIX. Labour Laws

A. Are There Any Labour Law Requirements for Hiring (Local and Foreign) Workers?

1. Local Workers

When hiring workers (local and foreign) the employer should ensure that it conducts its recruitment practices in a non-discriminatory way.

In the UK, employees have the right not to be discriminated against on the grounds of sex, race, disability, age, religion or belief, sexual orientation, gender reassignment, marital or civil partnership status, pregnancy or maternity, fixed-term or part-time status and trade union membership or activities.

2. Foreign Workers

The employer should ensure that all employees (local and foreign) have the legal right to work in the UK by conducting right to work document checks in accordance with the UK Border Agency's Comprehensive Guidance for Employers on Preventing Illegal Working.

It is a statutory offence in the UK to employ someone who does not have the right to work in the UK. If an employer negligently employs someone without the right to undertake the work for which they are employed, the employer will be liable to a civil penalty fine of up



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to GB£10,000 for each illegal worker. Where the employer knowingly employs an illegal worker, the penalty is a prison sentence of up to two years and/or an unlimited fine.

EU workers with full free movement rights are free to reside and work in other EU states (including the UK) without obtaining immigration permission. Citizens of Romania and Bulgaria (which joined the EU on 1 January 2007) do not currently have an automatic right to work as an employee in the UK and until the end of 2013 must obtain a work permit and an accession worker card before starting employment in the UK. It is currently anticipated they will gain full free movement rights from 2014.

Migrant workers from outside the EU or European Economic Area (EEA) need immigration permission to work in the UK.

B. Which Labour Laws Are Relevant to Projects? All UK employment law applies to individuals who are engaged as employees on projects. The key rights are:

■ The right to a statement setting out the employee's main terms and conditions.

■ The right not to be discriminated against on specific grounds (see Section XIX.A.1).

■ The right to be paid the national minimum wage.

■ Rights under the Working Time Regulations 1998 (Working Time Regulations) to rest breaks, minimum annual leave and not to work more than 48 hours per week on average (unless the individual has signed a valid opt out of the 48 hour week).

■ The right to a minimum period of notice, or pay instead of that notice period, if dismissed.

■ The right not to be unfairly dismissed if the employee has the requisite continuous service (that is, one year if employment commenced before 6 April 2012 or two years if it commenced on or after that date).

■ The right to a redundancy payment if the employee has two or more years' service.

■ Protection under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (Transfer of Undertakings Regulations) where there is a business transfer or service provision change. The UK government is proposing to repeal the regulations relating to service provision changes (see Section XXVIII.A).

Some individuals may be engaged as workers (rather than employees) either by the business directly or through a third party agency. Such individuals are not subject to all of the above rights, but businesses should be aware of the key rights, being:

■ The right not to be discriminated against.


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■ The right to be paid the national minimum wage.

■ The rights under the Working Time Regulations.

■ If the individual is engaged as an agency worker, the right to no less favourable terms and conditions (including pay) when compared to an equivalent individual hired directly by the business. There is generally a 12-week qualifying period.

Self-employed individuals engaged as consultants, and so on, also have the right not to be discriminated against.

C. Must an Employer Pay Statutory Redundancy or Other Payments at the End of a Project? Are All Employees Eligible?

The obligation to make redundancy payments only arises where an employee has two or more years' service and is dismissed by reason of a genuine redundancy situation, being:

■ Where the employer ceases altogether to carry on the business, or intends to do so.

■ Where the employer ceases to carry on the business in the place where the employee is employed, or intends to do so.

■ Where the business no longer needs any, or as many, employees to carry out work of a particular kind, whether in the place where the employee is employed or generally, or expects that to be the case.

The end of a project (or part of it) may give rise to a relevant transfer under the Transfer of Undertakings Regulations if there is a transfer of a business or a service provision change (see above). A common example is if responsibility for providing services moves to a new contractor. In those circumstances, the employees assigned to the business or services that are transferring will automatically transfer to the new provider on their existing terms and conditions (except in respect of some limited pension rights) and with continuity of service. There are also obligations to provide certain information to the new provider and consult with appropriate representatives of the affected employees before the transfer.



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XX. Health and Safety

A. Which Health and Safety Laws Apply to Projects?

1. HSWA

The Health and Safety at Work etc Act 1974 (HSWA) provides the legislative framework for all health and safety law.

The HSWA sets out general duties that place obligations on employers toward both:

■ Their employees.

■ All those who are affected by their activities, including the general public.

The general duties under HSWA set out an obligation for duty holders to identify risk and to reduce that risk to a level as low as reasonably practicable. Duty holders must comply with this obligation at all times.

There are several hundred health and safety related regulations, the most relevant of which to construction projects address issues such as:

■ Hazard identification, risk assessment and risk elimination or reduction.

■ Training and supervision.

■ Working at height.

■ Confined spaces.

■ Lifting operations and equipment.

■ Manual handling.

■ The provision and use of protective clothing and equipment, including plant and machinery equipment.

■ Reporting injuries and near misses.

The Löfstedt report (Reclaiming health and safety for all), published in November 2011, recommended reducing the number of health and safety regulations. In April 2013, a number of legislative measures were revoked, including the Tower Crane Regulations 2010.

2. CDM Regulations

The main specific set of construction regulations are the CDM Regulations. These apply to all non-domestic construction projects and focus on their planning and management.


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For notifiable projects (where construction lasts longer than 30 days or 500-person days), the client must appoint a CDM co-ordinator and a principal contractor. The CDM co-ordinator's role includes:

■ Ensuring co-ordination of health and safety aspects of the design process and the provision of information.

■ The production of the health and safety file at the conclusion of the project.

The principal contractor focuses on planning, managing (including the co-ordination of other contractors) and monitoring construction work so that health and safety risks are reduced to a level as low as reasonably practicable. A written construction phase safety plan is also required for notifiable projects.

The 2013 Löfstedt progress report (Reclaiming health and safety for all: a review of progress on year on) reported that the CDM Regulations were to be simplified. A revised package (including new regulations and ACoP) is likely to come into force in the latter half of 2014.

3. Criminal Liability

Failure to comply with the HSWA or Health and Safety Regulations is a criminal offence. The HSE usually bring prosecutions that can result in a significant fine. Individuals, including company directors, also have specific obligations, and contravention of these may result in:

■ A personal fine.

■ Disqualification as a director.

■ Imprisonment (in the most serious cases).

Criminal liability under health and safety law is separate from any civil liability.

Additionally, an organisation whose gross negligence leads to death may face criminal prosecution for corporate manslaughter. This will lead to a significant fine.



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XXI. Environmental Issues

A. Which Local Laws Regulate Projects' Effects on the Environment?

1. Air

The following apply:

■ Clean Air Act 1993, which prohibits the emission of dark smoke from industrial or trade premises. Breach of the Clean Air Act 1993 is a criminal offence.

■ Environmental Protection Act 1990 (EPA), Part III, which states that dust, fumes, odours, noise emissions and light pollution (among others) may be classified as statutory nuisances.

■ Control of Pollution Act 1974, which contains a system to regulate noise from construction and engineering projects. The Local Authority can serve a notice controlling the way in which the works are to be carried out (section 60) and the contractor can apply for prior consent (section 61).

Environmental Permitting (England and Wales) Regulations 2010 (Environmental Permitting Regulations) regulate discharges to air from specified installations.

2. Water


■ Environmental Permitting Regulations, which regulate discharges to surface waters (such as rivers and streams) or groundwater. It is a criminal offence for a person to cause or knowingly permit a water discharge activity or groundwater activity without an environmental permit. A water discharge activity includes discharging waste matter or noxious or polluting matter into inland freshwaters or coastal waters. If the discharge is made into a watercourse that supports fish then the discharge may also constitute an offence under the Salmon and Freshwater Fisheries Act 1975.

■ Water Industry Act 1991, which in England and Wales provides that discharging water to any foul water sewer may only be undertaken with consent from the local sewerage provider.

■ Control of Pollution (Oil Storage) (England) Regulations 2001, which apply to the storage of 200 litres or more of oil on site. The regulations also contain requirements aimed at minimising the risk of pollution of controlled waters.


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3. Waste


■ Environmental Permitting Regulations, which regulate the storage, deposit, treatment and processing of waste. Certain activities involving waste require either an environmental permit or a registered exemption from the Environment Agency.

■ Site Waste Management Plans Regulations 2008, which require any person intending to carry out a construction project with an estimated cost greater than GB£300,000 to prepare a site waste management plan. These regulations are enforced by the Environment Agency and local authorities.

■ Waste (England and Wales) Regulations 2011 (Waste Regulations), which implement revisions to the Waste Framework Directive in England and Wales. The revised Waste Framework Directive requires that a waste hierarchy is strictly respected. Under the hierarchy, the preferred option is to minimise waste accumulation, followed by:

• preparation of waste for reuse;

• recycling;

• other recovery methods; and

• disposal as a last resort.

■ Waste Regulations and the EPA (Part 9, section 34(5)), which regulates the transfer of waste. Anyone transferring waste must complete a transfer note comprising a description of the waste and has a duty of care to ensure that (EPA, section 34(5)):

• the recipient is authorised to take the waste; and

• the waste will go to an authorised site.

■ Producer Responsibility Obligations (Packaging Waste) Regulations 1997, which set out requirements for companies with a turnover of GB£2 million or above, that handle 50 tonnes or more of packaging per year, to recover and recycle packaging waste.

■ Hazardous Waste (England and Wales) Regulations 2005, which require waste producers to register any premises producing more than 200 kilograms of hazardous waste per year with the Environment Agency.

4. Environmental Impact Assessments (EIAs)

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codifying Council Directive 85/337/EEC (EIA Directive)) provides that an EIA must be carried out to identify and evaluate the risks of environmental



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degradation associated with large infrastructure projects having a potentially significant environmental impact.

The requirements of the EIA Directive apply particularly to the proposed construction of roads, power stations, railway lines, and waste, energy and industrial installations. EIAs are optional for smaller construction projects but may help support a planning application. In the UK, the Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 2011 implement the provisions of the 2011 Directive.

5. Sustainable Development

The BREEAM (Building Research Establishment's Environmental Assessment Method) method is commonly used in the UK to assess the sustainable performance of buildings. This method awards points to buildings according to their environmental impact in ten categories (energy, site management, health and wellbeing, water consumption, transport, construction materials, waste, air and water pollution, land use and ecology).

A building with a low environmental impact scores highly in the BREEAM rating, which ranges from "pass" to "outstanding". Certain construction projects are required to achieve a specified BREEAM rating before they are granted planning permission. For example, all government funded construction projects in the health sector are required by the Department of Health to achieve an "excellent" rating, and the Welsh Government requires that all new non-domestic buildings over 1,000 square metres achieve a "very good" rating. While a specified BREEAM rating is not compulsory in all construction cases, scoring highly in the rating will be favourable to planning applications.

A similar scheme, the Code for Sustainable Homes, applies for the construction of dwellings (www.bsria.co.uk/services/compliance/breeam).

B. Do New Buildings Need to Meet Carbon Emissions or Climate Change Targets?

The UK Government is committed to reduce Kyoto-agreement greenhouse gas emissions by 80% compared to 1990 levels by 2050 (Climate Change Act 2008 (Climate Change Act)). The Climate Change Act provides the Government with powers to take measures to ensure this target is achieved. In 2008, the Government and industry published a joint Strategy for Sustainable Construction setting out how the construction industry can play its part in meeting the target.

Directive 2002/91/EC (recast as Directive 2010/31/EU) on the energy performance of buildings (Energy Performance Directive) (EPBD) seeks to promote the improvement of the energy performance in buildings within the EU. The central requirements of the EPBD are that:

■ Member states implement a methodology for the calculation of the energy performance of buildings.


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■ Regulations are made to set a minimum energy performance target for new buildings, and existing large buildings when they are refurbished.

In addition, the EPBD requires that Energy Performance Certificates (EPCs) are made available when buildings are constructed, sold or rented out, and that boilers and air-conditioning units are inspected.

In the UK, the Building Regulations 2010 were amended to accommodate the requirements of the EPBD. Part 6 of the Building Regulations 2010 translates the obligations set out in the EPBD into UK law. Part 6 lists energy related requirements and should be read in conjunction with guidance found in HM Government Approved Documents L1A and L1B (conservation of fuel and power in new and existing dwellings) and L2A and L2B (conservation of fuel in new and existing buildings other than dwellings).

In practice, the Government's Standard Assessment Procedure for Energy Rating of Dwellings (or SAP) is the methodology used to assess the energy performance of buildings in accordance with the EPBD's specifications. SAP enables a number of factors to be assessed, including:

■ Heating installations and hot water supply.

■ Air-conditioning installation.

■ Ventilation.

■ Lighting installation.

■ Passive solar systems and solar protection of buildings.

The mandatory EPCs are based on SAP evaluation of buildings.



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XXII. Prohibiting Corrupt Practices

A. Are There Any Rules Prohibiting Corrupt Business Practices and Bribery (Particularly Any Rules Targeting the Projects Sector)? What Are the Applicable Civil or Criminal Penalties?

1. Rules

Fraud. The Fraud Act 2006 makes it a criminal offence for an individual to:

■ Dishonestly make a false or misleading representation (section 2).

■ Dishonestly fail to disclose to another person, information which he is under a legal duty to disclose in order to make a personal gain or cause loss, or risk of loss to another (section 3).

■ Dishonestly abuse a position in which he is expected to safeguard, or not to act against, the financial interests of another person, by act or omission, for the purposes of making a gain for himself or another, or to cause a loss to another (section 4).

■ Obtain services dishonestly (section 11).

The following are also issues in the construction industry that would be caught by the Fraud Act 2006:

■ Concealing defects.

■ Making dishonest claims for payment or levying liquidated damages.

■ Dishonestly withholding payment, or obtaining subcontractors/consultants services without any intention or means to pay them.

Bribery. The Bribery Act 2010 came into force on 1 July 2011. Bribery offences are:

■ Offering, promising or giving a bribe to another person (section 1).

■ Requesting, agreeing to receive or accepting a bribe from another person (section 2).

■ Bribing a foreign public official (section 6).

■ A commercial organisation's failure to have adequate procedures to prevent bribery by anyone associated with it (section 7).

The corporate offence in particular means that construction firms can be strictly liable for any employees, agents or other third party representatives who give bribes to obtain or retain business for the firm, unless the firm can demonstrate that it had in place adequate procedures to prevent such bribery. The Ministry of Justice has published guidance on what


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constitutes adequate procedures, which are available on the website (www.justice.gov.uk/legislation/bribery).

■ Money laundering. The Proceeds of Crime Act 2002 sets out a regime of anti-money laundering offences covering an individual who:

■ Conceals, disguises, converts or transfers criminal property (that is, the proceeds of any crime), or removes criminal property from England and Wales or from Scotland or from Northern Ireland (section 327).

■ Enters or becomes concerned in an arrangement, which he knows or suspects, facilitates money laundering (section 328).

■ Acquires, uses or possesses criminal property (section 329).

These offences carry prison terms of up to 14 years and unlimited fines. There are additional offences that relate to the failure to report a suspicion of money laundering to the Serious Organised Crime Agency and also the offence of tipping off the money launderer once suspicion is raised. These offences also come with terms of imprisonment and fines.

The effect of this regime is that construction firms must be very careful to understand and be comfortable with the source of any funds passed to them and in particular do not receive large sums of cash, payments from unidentified parties or payments from bank accounts in unrelated countries.

Competition. Competition law also applies to the construction sector, particularly in relation to tendering activities. This has most notably occurred in relation to cover pricing. Cover pricing is where a company invited to tender does not wish to win a contract but does not want the client to think that it would not be interested in future work. Therefore, the company contacts another company that is tendering for the same contract to request a price which will ensure that it does not win the work but that is not grossly inflated.

2. Penalties

If convicted, the penalties for breaches of the Fraud Act 2006 are a fine not exceeding the statutory maximum, and/or a custodial sentence of up to ten years.

If convicted, the penalties for breaches of the Bribery Act 2006 include unlimited fines and custodial sentences of up to ten years.

The Office of Fair Trading (OFT) fined 103 construction companies a total of GB£129 million in 2009 for their involvement in cover pricing, under competition law (see above, Rules: Competition). However, these fines were reduced by around 90% on appeal in 2011. In general, companies involved in anti-competitive behaviour can face a fine of up to 10% of annual turnover (Competition Act 1998). Moreover, the Enterprise Act 2002 has criminalised participation in hardcore cartel activities such as price fixing and bid-rigging. Individuals found guilty of an offence can face a term of up to five years in prison, as well as an unlimited fine.



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XXIII. Bankruptcy/Insolvency

A. What Rights Do the Client and Funder Have on the Contractor's Bankruptcy or Insolvency?

The express terms of the contract should be considered to determine the rights of clients/funders.

Clients only have a right to terminate the contractor's employment under the construction contract if entitled to do so by the contract terms. Many construction contracts set out what is to happen after termination for insolvency. Typically, no further payment is made to the insolvent contractor until completion of the works by others and the client can recover any additional completion cost from monies that might otherwise be payable to the contractor.

Rights may also be conferred on the client by a parent company guarantee (where the parent company guarantees the performance of a contractor) or performance bond (which can be called upon should the contractor become insolvent, if it covers insolvency).

XXIV. PPPs

A. Are Public Private Partnerships (PPPs) Common in Local Construction Projects? If So, Which Sectors Commonly Use PPPs?

PPPs have been a common part of the UK construction industry for several years, primarily in major or complex projects where the private sector initially delivers a building/facility and/or provides on-going services/operations. PPP projects are utilised across a number of key sectors, including education, healthcare, transport infrastructure, waste management and recycling, social care and leisure.

The PFI model is the most common form of PPP used in the UK. There have been extensive discussions regarding the reform of the PFI model to meet future needs and the UK government announced in December 2012 a new regime, called PF2.


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PF2 is intended to improve the existing PFI structure to make the process quicker and cheaper and to provide more flexibility (see also Section XXVIII.A).

B. What Local Laws Apply to PPPs? The PFI/PPP concept and the particular characteristics of its structure are recognised in a number of key pieces of legislation, including for example:

■ Housing Grants Construction and Regeneration Act 1996 (as amended) (1996 Construction Act). Here, the top-tier contract entered into between the public sector authority and the private sector SPV is excluded from the payment and adjudication requirements. The Secretary of State has the power to exclude further certain contracts from falling within all or part of the 1996 Construction Act. The Secretary of State has exercised this power to exclude first-tier PFI contracts between the SPV and its subcontractors from the prohibition on paid when certified provisions, which applies to other construction contracts under the 1996 Construction Act.

■ Enterprise Act 2002. While generally removing the right of lenders to appoint an administrative receiver, the Enterprise Act includes a carve-out in relation to PPP transactions.

C. What Is the Typical Procurement/Tender Process in a PPP Transaction? Does the Government or Another Body Publish Standard Forms of PPP Project Agreement and Related Contracts?

Procurement for most PPP projects in the UK follows the EU public procurement regime, most commonly by means of competitive dialogue. This works as follows:

■ The public authority advertises the project in the Official Journal of the EU (known as an OJEU notice), inviting any interested bidders to apply and complete a pre-qualification questionnaire.

■ Bidders who successfully pass the pre-qualification stage are then invited to provide their outline solutions.

■ From the outline solutions, the authority creates a shortlist of usually three or four bidders, who are invited to produce detailed solutions.

■ The authority selects the bidders to provide final tenders.

■ The authority then selects its preferred bidder to be appointed. Following appointment, the bidder and authority can only clarify, specify and fine tune the



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bid. Substantial changes are not allowed and changes must not distort competition or cause discrimination.

The documentation used in PFI projects was heavily standardised and managed by the UK Treasury, who publish guidance and drafting. To reflect the change to PF2, a revised draft version of the standard contract was produced in December 2012. Even with the apparent "death" of PFI, bespoke forms of SoPC4 (the pre-curser to PF2) continue to be used on PPP projects in the knowledge that the drafting is tried and tested. Indeed, SoPC4 has been rolled out in many sectors and tailored to that sector's particular needs (for example, the Waste Infrastructure Delivery Programme's (WIDP) residual waste treatment contract, where sector specific legislation and regulations are often cited, requiring compliance from the contractor).

XXV. Dispute Resolution

A. Which Are the Most Common Formal Dispute Resolution Methods Used? Which Courts and Arbitration Organisations Deal with Construction Disputes?

1. Formal Dispute Resolution Methods

The most common methods of settling construction disputes are adjudication, litigation and arbitration.

2. Adjudication

Adjudication was introduced by the Construction Act as a fast method of resolving disputes and improving cash-flow for contractors and subcontractors. It is a very popular method of resolving construction disputes of all complexities and values.

Parties to a construction contract are entitled to refer any disputes that arise to adjudication at any time, with few exceptions.

The adjudication process is significantly shorter than litigation or arbitration. Following receipt of a party's claim (known as its referral), the other party usually only has between


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seven and 14 days to submit its response. The adjudicator will reach his decision within 28 days of receiving the referral, unless the parties agree to an extension.

An adjudicator's decision is binding until the dispute is finally determined by litigation, arbitration or by agreement. The successful party can quickly apply to the court to enforce an adjudicator's decision should the other party not comply. There are very limited grounds for disputing the validity of an adjudicator's decision.

Adjudication applies to all construction contracts, regardless of whether they are in writing or not.

3. Litigation

Construction related litigation is dealt with by the Technology and Construction Court (TCC), a specialist part of the High Court. There are five full-time specialist judges in the main TCC in London and full and part-time TCC judges sitting in various regional TCC centres across the country, with full-time judges available in Birmingham, Manchester and Liverpool.

In West Country Renovations Ltd v McDowell and another [2012] EWHC 307 (TCC), Akenhead J set out some guidelines as to when a claim should be issued in the TCC in the High Court in London. According to these guidelines, a claim should be commenced in the TCC in London if either:

■ The value of the claim is more than GB£250,000.

■ It is complex.

■ It involves novel points of law.

■ It relates to the enforcement of adjudication.

■ It has an international element.

Generally speaking, claims for less than GB£250,000 should be commenced in County Courts or High Courts outside of London, where there is a designated TCC judge available unless the claim satisfies one of the other criteria above (for example, it has an international element or involved a new or difficult point of law). Another, wider exception to this general rule is if it is a public procurement case, which should normally be issued in the High Court in London due to the expertise of the judges in the TCC there.

Following difficulties, the electronic working scheme (under which all cases in the TCC were issued electronically and had an electronic case file) was shut down in April 2012. There is no target date for reintroducing it. According to the TCC's annual report (Judiciary of England and Wales: Annual Report of the Technology and Construction Court (2009-2010)), a significant number of cases being heard in the TCC have an overseas party or relate to an overseas project. On 1 April 2013, new rules for costs management were introduced, which apply to all multi-track cases commenced on or after that



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date. Although claims in the TCC which exceed GB£2 million are exempt, parties in these high value TCC cases will still be invited by the court to submit costs estimates and budgets.

4. Arbitration

Arbitration is a private dispute resolution method governed by the Arbitration Act 1996. An arbitrator's award is binding on the parties and is enforceable at court.

Unlike adjudication and litigation, parties must agree to refer disputes between them to arbitration. The arbitration agreement may be a free-standing agreement or, more commonly, a clause within a wider agreement.

Arbitration is more common in larger, more complex, international disputes.

In 2005, the JCT Standard Forms of Building Contract replaced arbitration with litigation as the default forum for disputes. This, combined with the growing popularity of the TCC for both domestic and overseas disputes, has led to a decline in the appeal of arbitration.

5. Courts and Arbitration Organisations

Construction related litigation is dealt with by the TCC (see Section XXV.A.3).

Parties to arbitration can themselves choose the particular rules for their arbitration, or it can be governed by one of a number of principal organisations, including:

■ International Chamber of Commerce (ICC) (www.iccwbo.org/court).

■ Chartered Institute of Arbitrators (www.ciarb.org).

■ London Court of International Arbitration (LCIA) (www.lcia.org).

■ International Centre for Dispute Resolution (www.adr.org/icdr).

B. What Are the Most Commonly Used Alternative Dispute Resolution (ADR) Methods?

Popular ADR methods include:

■ Mediation, where a neutral third party mediator discusses the dispute and the parties' positions in an attempt to reach agreement between the parties, which is then formalised in a settlement agreement.

■ Early neutral evaluation, where an independent advisor provides an assessment of the merits of the claim, guiding the parties at an early stage on the strengths and weaknesses of their case and identifying the central issues in dispute.


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■ Expert determination, where the parties to a dispute appoint an independent expert and agree that whatever decision he reaches will be binding.

■ Dispute review boards, often appointed by parties to large international construction contracts at the outset of a project. The board's role is to consider and decide any disputes that arise over the course of the project. In doing so, the board becomes familiar with the particular background and issues involved.

Parties must comply with the pre-action protocol for construction and engineering disputes (the Protocol) before commencing disputes in the TCC. Under the Protocol the parties must consider whether some form of ADR would be more suitable than litigation. A failure to follow the Protocol may lead to costs penalties at a later date. Even once proceedings are issued, the TCC still actively encourages the use of ADR. If the TCC considers at any stage that ADR would assist in settling the proceedings before trial, it can make an ADR Order granting a stay of proceedings while the parties engage in some form of ADR.

XXVI. Tax

A. What Are the Main Tax Issues Arising on Projects? Various tax issues are relevant to companies involved in UK construction projects, depending on the nature of the project and how it is structured, including:

■ Corporation tax (if the company is UK tax-resident or trading through a UK permanent establishment).

■ Value added tax (VAT).

■ Stamp duty land tax.

■ Withholding tax.

1. Corporation Tax

The main rate of corporation tax for the year from April 2013 is 23%. Deductions can be applied when computing corporation tax liability, including for certain expenses incurred wholly and exclusively for the purposes of the company's trade. Depending on how the project is funded (and subject to various restrictions), interest costs may be deductible. Transfer pricing rules may need to be considered.



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Whether the development of land as part of a construction project is for resale or investment will, for example, affect whether any gains on disposal are taxed as trading profits or as capital gains.

2. Value Added Tax (VAT)

The VAT treatment of supplies relating to the project depends on various factors, including the nature of the supply and where it is treated as made. Supplies of construction services in connection with UK land are treated as made in the UK.

The construction of a new building and work to an existing building is normally subject to VAT at the standard rate (20%).

In certain cases (often in the context of residential development), VAT is reduced to 5% or 0%. For example:

■ Services relating to the construction of a building designed as one or more dwellings or intended for use for a relevant residential or charitable purpose (other than services of an architect, surveyor, consultant or supervisor): 0%.

■ Certain supplies in connection with certain residential conversions: 5% (or 0% if made to a housing association).

Transfers of interests in UK land are generally exempt from VAT (unless an option to tax has been made). Certain transfers are standard-rated, for example, where there is a transfer of the freehold interest in new (under three years) or incomplete commercial buildings or civil engineering works.

VAT registration and recovery of input VAT should be considered as appropriate.

3. Stamp Duty Land Tax (SDLT)

SDLT is generally payable on the acquisition of an interest in UK land where the consideration exceeds the relevant threshold. If construction works are to be carried out on the land being acquired, care should be taken to ensure that the value of the works is not treated as part of the consideration for SDLT purposes.

4. Withholding Tax on Interest

UK withholding tax (at 20%) may apply to payments of interest, subject to any applicable exception or relief under a double taxation agreement.


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5. Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) applies to contractors and subcontractors in the construction industry. The rules govern registration and compliance, including whether payments to subcontractors are to be made subject to deduction (see www.hmrc.gov.uk/cis/).

6. Other Issues

Other special tax regimes may need to be considered as appropriate, such as in relation to oil and gas exploration and production, or where companies and certain other non-natural persons acquire or hold high-value residential property (reliefs may apply to property developers).

Tax issues may be complex and appropriate independent advice should be sought.

B. Are Any Methods Commonly Used to Mitigate Tax Liability on Projects? Are There Any Tax Incentives to Carry out Regeneration Projects?

1. Mitigating Tax

Careful analysis should be carried out to ensure that any reliefs (such as capital allowances or deductions for funding costs), as well as input VAT recovery, are maximised.

On major UK and international projects, split onshore/offshore contracts may be used to reduce local income or corporation tax liabilities. Offshore contractors, such as contractors supplying offshore equipment or design services, may be taxable in the country where they are based, although VAT may still be chargeable in the UK.

Onshore contractors, dealing with the UK construction itself, will remain subject to UK tax.

If land is to be transferred, an early transfer, while the value is low (before planning permission is obtained or the development is completed) may mitigate SDLT. A transfer to an offshore entity may enable any subsequent gains to be crystallised offshore.

2. Tax Incentives for Regeneration

Examples include:

■ Enhanced (100%) capital allowances for qualifying expenditure in certain enterprise zones until March 2017.



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■ Tax reliefs for costs incurred in relation to cleaning up contaminated or derelict land (including removing Japanese knotweed).

■ Tax relief for donations made to an Urban Regeneration Company (provided there is no benefit from the donation).

Tax issues may be complex and appropriate independent advice should be sought.

XXVII. Other Requirements for International Contractors

A. Are There Any Specific Requirements That International Contractors or Construction Professionals Must Comply with?

There are no rules that apply specifically to non-UK contractors or construction professionals.

XXVIII. Reform and Trends

A. Are There Any Proposals to Reform Construction and Projects Law? Are There Any New Legal or Regulatory Trends Affecting Projects?

There are no imminent proposals that will make significant changes. The new generation of PFI (PF2 (see Sections IV and XXIV) is not showing any great sign of generating activity. Data Protection risks within the sector have been particularly focussed by the use by construction contractors of "blacklisting" data in recruitment of labour.

The UK government is proposing to repeal the Transfer of Undertakings Regulations relating to service provision changes. This would prevent a service provision change automatically triggering the Transfer of Undertakings Regulations. A service provision


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change could still fall under the Transfer of Undertaking Regulations if it meets the definition of a business transfer.

XXIX. Main Construction Organisations

A. Joint Contracts Tribunal (JCT) Main activities. The Joint Contracts Tribunal produces standard forms of construction contract, guidance notes and other standard forms of documentation for use by the construction industry. The organisation is comprised of seven member bodies representing sectors of the industry who are the key participants in the contract process. The members are:

■ British Property Federation.

■ Contractors Legal Group Limited.

■ Local Government Association.

■ National Specialist Contractors Council.

■ Royal Institute of British Architects.

■ Royal Institution of Chartered Surveyors.

■ Scottish Building Contract Committee Limited.

The JCT Council also comprises five "colleges", through which new forms of contracts are produced.

W www.jctltd.co.uk

B. National Specialists Contractors' Council (NSCC) Main activities. The NSCC brings together the common aims of specialist trade organisations within the construction industry, representing businesses engaged in the planning, design, construction, refurbishment, and maintenance of the built environment. It provides advice and support to specialist contractors and enabling them to deliver quality, value and integrated solutions to clients.

W www.nscc.org.uk



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C. Association for Consulting and Engineering (ACE) Main activities. ACE is a trade organisation for the construction and engineering sector, representing the business interests of its members and of the consultancy and engineering industry in the UK.

W www.acenet.co.uk

D. Institution of Civil Engineers (ICE) Main activities. ICE is a registered charity which aims to promote and progress civil engineering. It is also a qualifying body, and aims to provide a centre for the exchange of specialist knowledge worldwide.

W www.ice.org.uk

E. FIDIC (International Federation of Consulting Engineers) Main activities. FIDIC provides global representation for the consulting engineering industry, promoting the business interests of firms which supply technology-based intellectual services for the built and natural environment. FIDIC activities are mainly carried out by volunteers.

W www.fidic.org

XXX. Online Resources

A. Her Majesty's Stationery Office (HMSO) W www.legislation.gov.uk/

Description. Original and revised versions of legislation, maintained by The National Archives on behalf of HM Government. Information is official and generally current (and contains warnings where provisions are not up-to-date).


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B. British and Irish Legal Information Institute W www.bailii.org/databases.html

Description. The most comprehensive set of English cases that are freely available, maintained by a charitable trust. The website provides predominantly recent material but the coverage varies. Both old and new content is regularly added.

XXXI. About the Authors

A. Marcus Harling, Partner and Head of Construction and Engineering Department

Burges Salmon LLP

T +44 11 79 39 2206 F +44 11 73 78 6343 E [email protected] W www.burges-salmon.com

Professional qualifications. England and Wales, 1985

Areas of practice. Infrastructure; procurement; regeneration.

Non-professional qualifications. LLB (Hons), University of Exeter

Recent transactions

■ Infrastructure projects in rail, energy, defence and regeneration sectors throughout the UK.

■ Greater London Authority, the Royal Albert Dock project.

■ Advising a bidder on Crossrail fleet tender.

■ A defence sector project in Saudi Arabia

■ The Crown Estate on the construction of St James's Market project.



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B. William Gard, Partner Burges Salmon LLP


Professional qualifications. England and Wales, 1995; Chartered Civil Engineer, 1991; Adjudicator and Arbitrator.

Areas of practice. Infrastructure; waste; renewable energy; power; dispute resolution.

Non-professional qualifications. BSc (Eng) (London)

Recent transactions

■ Advising the developer (MeyGen) on a major tidal energy project in the Pentland Firth, Scotland.

■ Advising the developer (Helius Energy) on renewable energy biomass power station projects (including its award winning projects in Scotland and England, the 7.2MW CoRDe and 65MW Stallingborough projects, and a number of other 100MW schemes in England).

■ Advising on a number of waste to energy projects, including the design and construction contractor (Costain) on the Greater Manchester Waste PFI project.

Professional associations/memberships. Fellow of the Chartered Institute of Arbitrators; Committee Member of the Technology and Construction Court Solicitors' Association; Chartered Civil Engineer; Member of the Institution of Civil Engineers

Publications. Will regularly writes articles from New Civil Engineer journal.

C. Steven James, Partner Burges Salmon LLP


Professional qualifications. England and Wales, 2002; Charted Quantity Surveyor

Areas of practice. Infrastructure; nuclear; renewable energy; outsourcing; dispute resolution.


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Non-professional qualifications. BSc (Hons) (Staffs); MSc (King's College London).

Recent transactions

■ Acting for a utility in relation to the development of a new nuclear power plant.

■ Advising a power company in connection with the development of nuclear dry fuel store.

■ Advising a utility in connection with the development of an offshore wind farm.

■ Advising the developer of a luxury hotel and spa including all development agreements and a debt facility to part fund the development.

■ Preparing a suite of NEC3-based contracts for use by a charitable trust in connection with its extensive development and maintenance programme.

Professional associations/memberships. Chartered Quantity Surveyor; Member of the Society of Construction Law; Member of the Royal Institution of Chartered Surveyors; Treasurer of the South West and Wales branch of the Adjudication Society; Committee Member of the South West and Wales Chapter of the British Council for Offices.

Publications. Regularly writes articles for sector specific journals in the areas in which he specialises including In-House Lawyer, Nuclear Future and NuclearCONNECT.