As noted in The Big Picture for Business 2024 | Gowling WLG, 2024 is expected to be a pivotal year for the global economy. At the end of 2023, inflation and interest rates remained high, although the tide looks to be turning. However, there is continuing global uncertainty in light of rising geopolitical tensions in several regions, as well as forthcoming elections in both the US and the UK. These are all key issues for the construction industry both in the UK and globally.
Below, we consider a number of themes that dominated the construction headlines in 2023 and how we anticipate these may evolve in 2024.
Building Safety
In 2023, many of the changes brought about by the Building Safety Act 2022 (BSA) – which received Royal Assent in April 2022 – came into force in England. As transitional arrangements come to an end in April 2024, and as the new Building Safety Regulator (BSR) drives forward with its oversight of the new regimes, we expect 2024 to be another pivotal year for building safety with developments in key areas including:
New building control regime for higher-risk buildings
A new, more stringent building control regime for the design and construction of "higher-risk buildings" (HRBs) in England came into force on 1 October 2023. The new regime is overseen by the Health and Safety Executive as Building Safety Regulator (BSR) and applies to HRBs. During the design and construction phase, this refers to a building that is at least 18m in height or has at least seven storeys and:
- Contains at least two residential units;
- Is a care home; or
- Is a hospital.
Not all live HRB projects will be caught by the new regime: there are detailed transitional provisions under which – depending on the particular circumstances – a modified version of the regime will apply. The transitional provisions are, however, complex, and we recommend speaking to us if you would like detailed advice on which parts of the regime apply.
On 6 April 2024, the transitional period will end. We expect to see a flurry of activity in the first quarter of the year as parties seek to have projects "sufficiently progressed" or "started", depending on whether it is a new build or refurbishment/remediation by the cut-off date, to ensure that they can avail themselves of the transitional arrangements. We also expect the market position to become clearer as to how contracts for HRBs falling within the new regime will allocate risk and responsibility for various elements of the new regime, including Gateways 2 and 3, the 'Golden Thread', the new change control process, etc.
Registration of occupied higher-risk buildings
Also, from 1 October 2023, all existing occupied HRBs in England were required to be registered with the Building Safety Regulator (BSR) following the opening of the registration portal in April 2023. From October 2023 onwards, if an HRB is occupied but not registered, the Principal Accountable Person (PAP) for the building is guilty of an offence under the BSA, with potentially onerous consequences, including an unlimited fine and up to two years imprisonment.
Between April and October 2023, we advised a number of our clients on how to identify the PAP as well as other Accountable Person(s) (AP) for their building. We also advised on preparing for registration and the other duties that are imposed upon the PAP and AP(s) during the occupation phase, which include the preparation of Key Building Information, a safety case report, a Residents' Engagement Strategy and Mandatory Occurrence Reporting. Our recent insight explores the requirement to prepare and maintain building safety case reports, and considers the increasingly critical role that technology will play over time in managing information relating to higher-risk buildings.
The BSR has announced that in Spring 2024, it will publish a national register of HRBs in England. This will, for the first time, create a public, searchable portal of HRBs accessible by all interested parties, including investors, potential purchasers and individual leaseholders. The BSR is also expected to start "calling in" occupied HRBs for review from April 2024 onwards.
New dutyholder and competence regime
The new dutyholder and competence regime heralded by the BSA also came into force on 1 October 2023. Importantly, this applies to all "building work" in England, i.e. to any project that requires building regulations approval, with only limited exceptions for certain "exempt" work and minor works. The dutyholder regime imposes various duties on clients, designers and contractors involved in any relevant project, with the aim of ensuring compliance with building regulations.
Again, there are transitional provisions which mean that, broadly speaking, the regime will apply to works which commence on or after 1 October 2023 unless:
- Plans were deposited with the local authority or a building notice given to the local authority prior to 1 October 2023 (as long as the plans are not subsequently rejected); and
- Works then commence before 6 April 2024.
Therefore, if they haven't already, clients must ensure that they have arrangements in place to comply with their duties under the new regime. This will include adapting procurement processes where necessary to check that designers and contractors are competent for their roles under the new regime and (in most cases) that a (competent) principal designer and principal contractor are appointed under the Building Regulations (a separate duty from that under the Construction (Design and Management) (CDM) Regulations). Designers and contractors will need to put appropriate measures in place to ensure that their organisation and the people that work within it are classed as competent for their particular roles.
Remediation Orders / Remediation Contribution Orders
In 2023, the first few cases involving the new types of orders that may be made under the BSA –Remediation Orders (ROs) and Remediation Contribution Orders (RCOs) – worked their way through the First-tier Tribunal (FTT). These form part of what are collectively referred to as the "leaseholder protections" established by the BSA. They aim to protect leaseholders in multi-occupied residential buildings from the costs associated with remediating historical building safety defects.
In January 2023, the FTT made the first Remediation Contribution Order under the BSA. RCOs allow the FTT to order a company (a landlord, a developer or an "associated" person) to make payments in connection with the remediation of relevant defects if the FTT considers it "just and equitable" to do so. A number of matters concerning interpretation – particularly the meaning of "just and equitable" – were not, however, subject to any legal argument before the Tribunal in that case.
On 19 January 2024, the FTT handed down its decision on the first substantively contested Remediation Contribution Order (RCO) relating to five apartment buildings in the former Olympic Village in Stratford in East London. Gowling WLG acted for the successful applicant, Triathlon Homes LLP, in this case – for more detail on the decision and on the FTT's conclusion that it was "just and equitable" to make an order against the original developer and its well-capitalised parent, click the link above.
Further decisions on RCOs are expected to work through the system in 2024, shedding greater light on the various statutory definitions and assisting in understanding how the BSA will be applied in practice. We also described the first RO that was made by the FTT in September 2023, and another important recent decision of the Upper Tribunal as to how the mechanics of the BSA will be applied in practice.
Building safety in the courts
In July 2023, we reported on URS Corporation Limited v BDW Trading Limited [2023], which was the first case to come before the TCC and, subsequently the Court of Appeal involving claims under the Defective Premises Act 1972 (DPA) since the enactment of the BSA in April 2022. As noted in our previous insight, the extension of the limitation period under the DPA from six to 30 years (as well as the widening of its scope) is one of the most well-documented and controversial changes brought about by the BSA, section 135.
Whilst the Supreme Court has now granted URS permission to appeal (an appeal which is expected to be heard by a panel of seven justices, reflecting its importance), the current position is set out in the Court of Appeal's decision in URS v BDW. This held amongst other things that:
- Developers are owed (as well as themselves owing to subsequent purchasers) a duty under section 1 of the DPA;
- Section 135 of the BSA is retrospective in effect; and
- Whilst there is an exception addressing claims which have been "finally determined by a court" by the date the BSA came into force, there is no exception relating to the rights of parties in ongoing litigation.
We may, therefore, see an uptake in litigants seeking similar amendments to revive previously time-barred defects claims under the DPA.
In 2024, the first cases involving Building Liability Orders are also likely to make their way through the courts. These are orders which may be made by the High Court – again, if it considers it "just and equitable" to do so – which 'pierce' the corporate veil and extend certain types of liability for defective construction work to associated entities such as parent or group companies.
Other building safety issues also continued to dominate the headlines in 2023, including:
Second staircase in residential buildings – where are we now?
In March 2023, we reported on the Government's proposal – set out in a consultation published in December 2022 – to mandate a second staircase in residential buildings in England that are more than 30 metres in height. The Mayor of London implemented this threshold with immediate effect for residential buildings in London.
However, various industry bodies, including the Royal Institute of British Architects (RIBA) Expert Group on Fire Safety and the National Fire Chiefs Council (NFCC) have called for a lower height threshold for the provision of a second staircase.
In July 2023, Michael Gove shifted the goalposts, announcing that the Government intends to lower the proposed threshold to 18 metres. This was followed by a Written Statement in October 2023, which confirmed the 18 metre threshold and indicated that there would be a 30-month transitional period from the date on which Approved Document B is formally changed during which developers may elect to conform to either the old or the new guidance.
As of today's date, and pending publication of the amendments to Approved Document B, there is no further certainty for developers and designers as to the date from which second staircases in buildings over 18 metres will become mandatory. However, the direction of travel is clear.
Insolvency and supply chain uncertainty
In our report a year ago, we described the effects of the "perfect storm" of economic pressures that had hit the construction industry post-Covid and the conflict in Ukraine, including inflation, high energy prices, investor uncertainty and shortages of goods, materials and labour. We have continued to advise our clients throughout 2023 on measures that can be adopted to provide for these pressures and uncertainties in their contracts. We are now seeing a shift to more consideration being given to protections against supplier and employer insolvency, for example, the viability of direct payment mechanisms and tools that can be employed where projects are 'in-flight' to spot and mitigate against the risk of struggling suppliers and employers.
Amongst other things, fluctuation provisions are making a comeback in construction contracts as an effective way of mitigating the risk associated with fixed-price contracts. These allow for adjustment of the contract price in line with the fluctuating cost of certain specified materials and with reference to resource-specific inflation indices. Such clauses can mutually benefit both employers and contractors since they provide for a "rise and fall" mechanism to account for both increases and decreases.
While some falls in inflation and interest rates are forecast in 2024, supply chain risks look set to persist, not least due to ongoing geopolitical tensions in Ukraine and the Middle East, and most recently, attacks on shipping in the Red Sea. These risk exacerbating supply chain fragility with components and materials for many construction products, in particular electronics, being at risk of significant delays and increased shipping costs.
In the UK construction sector, insolvencies remain high. 2023 was, unfortunately, characterised by a number of high-profile contractor insolvencies. The Insolvency Service reported that the construction sector experienced the highest number of insolvencies of any sector in England and Wales in the 12 months ending Q3 2023 (with 4,276 company insolvencies reported). This marks an increase on Q3 2022 (when 3,949 company insolvencies were reported in the sector) and is significantly higher than the number of insolvencies recorded in the sector in 2021 when 2579 insolvencies were reported.
Please get in touch if you would like advice on early warning signs of insolvency in the supply chain, and practical steps that you may take pre-insolvency, on insolvency and post-insolvency.
Net zero, sustainability and environmental, social and governance (ESG)
In the construction and engineering industries, net zero and sustainability remain high on the agenda for 2024. We recently set out our thoughts on the top 10 trends likely to impact the real estate sector in 2024 – with a number of these relating to the construction sector, including increasing use of sustainable construction materials and a focus on construction phase emissions. There are a number of UK-based initiatives supporting the decarbonisation of the built environment, which continue to push for a wider range of net zero objectives to be embedded in construction and supply chain management, design principles and contractual documents.
In September 2023, the Royal Institution of Chartered Surveyors (RICS) published the second edition of its whole life carbon assessment (WLCA) standard (which was then updated in November 2023). This will be effective from 1 July 2024, and allows assessors to estimate the amount of carbon emitted throughout the life cycle of a constructed asset, from the early stages of development through to the end of life. The standard can be used by a range of professionals – for developers and contractors, RICS notes that it can be used for a "consistent reporting approach" to help them deliver against both government and client targets for measurement of embodied carbon, net-zero and infrastructure.
The UK Net Zero Carbon Buildings Standard (UK NZCBS) is expected to be launched in 2024, with a test version due to be published in Spring followed by version one later in the year. This standard will provide a consistent approach to assessing whether a building can be defined as Net Zero Carbon (NZC). The UK NZCBS explains that the standard will be for "anyone who wants to either fund, procure, design, or specify a Net Zero Carbon Building and anyone wanting to demonstrate that their building is 'Net Zero'-aligned with an industry-agreed Standard."
A further collaborative project which made headway in 2023 was the launch of the Built Environment Carbon Database, which is a free-to-access database which aims to become the main source of carbon estimating and benchmarking for the UK construction sector and a practical instrument to support the decarbonisation of the built environment.
Sustainability and achieving net zero greenhouse gas emissions by or ahead of 2050 also form part of the "cross-cutting priorities" / "non-negotiable priorities" listed in the public and private sector 'Construction Playbooks' which we have described in our previous insights.
Increased use of modern methods of construction (MMC) is also key to meeting net zero targets. In March 2023 it was announced that the British Standards Institute (BSI) would commission a new UK-wide standard for homes built using MMC. Both the public and private sector Playbooks recognise that increased use of MMC can help speed up construction times and thus increase productivity as well as delivering better quality and reducing safety risks. It will also be critical to the delivery of sustainable net zero carbon construction – provided, however, that it is planned at the outset of a project, "at the earliest possible stage".
Finally, The Chancery Lane Project (TCLP) (a collaborative initiative of international legal and industry professionals whose vision is a world where every contract enables solutions to climate change) has published a number of climate aligned clauses for use in contracts. These are gaining traction: in November 2023, the International Bar Association (IBA) issued a report recommending the use of TCLP's clauses as ESG clauses and the International Chamber of Commerce (ICC) has also featured TCLP's clauses in a new toolkit on delivering sustainable global value chains.
Changes to public sector procurement rules
Procurement law in England, Wales and Northern Ireland is set for wholesale overhaul from October 2024, when the Procurement Act 2023 comes into force. Four sets of current procurement rules are due to be swept aside and replaced by a new, single procurement rulebook.
The Act marks the UK's biggest shake-up of government contracting rules for decades. Despite the Act not coming into force for another few months, there is so much to gear up for that it is essential to get to grips with the key issues now. All sectors of public procurement – including construction projects – will be affected by the new Act, and procurement processes will soon start to look and feel different.
The new procedures introduced by the Act are designed to provide greater flexibility than at present in how procurement procedures are designed and run. One of the key drivers for this change is the desire to use procurement to drive innovation. A key tool in the innovation box is the Act's "competitive flexible" procurement procedure, which is not prescriptive but instead allows contracting authorities to design their own competitive processes that align with the broader requirements of the Act. The procedure can include whatever phases or components will allow the contracting authority to get the best from the market. It could include (for example) supplier presentations, site visits, R&D, down-selection, negotiation, dialogue, and more. There is no fixed "menu" of options (although more guidance is expected). Contracting authorities will generally be encouraged to engage and collaborate with suppliers to develop their understanding of what is available and thereby reach the best solution. It is possible to refine award criteria as the procurement progresses. All this will be particularly useful for more complex, high-tech or innovative requirements.
You can read Christopher Brennan's article in our "Changing Landscapes" series on the new Act.
NEC
In January 2023, the NEC published its third set of amendments to the NEC4 suite. These followed amendments published in January 2019 and October 2020, and were intended to reflect industry feedback on how the contracts could be further enhanced. We summarised some of the key changes – which include:
- Incorporation of Secondary Option X29 (previously published as a standalone secondary Option in July 2022) into the NEC4 suite – this Option enables clients to set specific climate-change targets in a new "Performance Table" and to include both positive and negative incentives for the contractor to reduce whole-life cost.
- Amendments to Secondary Option X22 – Early Contractor Involvement (ECC) – which are aimed at providing greater flexibility over the development of a project in Stage One, and greater certainty in circumstances where works do not proceed to Stage Two.
- Revisions to Option W2 – the dispute resolution option that is used when adjudication is the selected dispute resolution method and in circumstances where the Housing Grants, Construction and Regeneration Act 1996 (the HGCRA) applies. E.g. Clause W2.3 has been revised to bring it in line with the requirements of the HGCRA, stipulating that the adjudicator decides the procedure and timetable to be followed in the adjudication.
JCT 2024
We also look forward to the publication of the new the Joint Contracts Tribunal (JCT) suite of contracts in 2024. The JCT suite has been undergoing revision to provide for recent market developments including the requirements of the BSA as well as the greater focus on sustainability, net zero, and MMC. Many in the industry are particularly interested in seeing how the JCT addresses the new building control regime for HRBs (described above).
If you have any questions about this article, please contact Sue Ryan, Philip Baker, Gemma Whittaker or Ruth Griffin.