Construction Industry Update May 2008
The JCT goes green
In a recent consultation paper, the Joint Contracts Tribunal (JCT) sought views on the possibility of ‘sustainability clauses’ being included in standard form JCT contracts. Such clauses, which would apply throughout the supply chain, would place ‘green’ requirements on contracting parties.
The ‘sustainability clause’ consultation period lasted one month. The JCT is currently collating and processing the results, which will give a clearer picture of how stakeholders in the construction industry – the largest industry in the economy – view the sustainability issue.
The paper canvassed opinion on possible areas of inclusion under the sustainability clause, including:
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water use,
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desired energy levels in projects,
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health/safety and training targets, and
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use requirements for sustainable materials such as timber.
The JCT specifically asked respondents for their views on improving sustainability performance through industry-specific documentation, and the contract documents which they feel would be best equipped to regulate sustainability issues.
Responses to the paper will undoubtedly shape the manner in which this hugely important area is contractually dealt in the coming months and years. The JCT is currently preparing a draft guidance note based on responses to the paper, which could lead to model or draft JCT sustainability clauses. When it is considered that 70% of all UK building contracts are in JCT form, the environmental importance of such a step cannot be underestimated.
The results of the consultation paper will be discussed in future Semple Fraser bulletins. In the meantime, for more information go to:
http://www.jctltd.co.uk/stylesheet.asp?file=29012008122025
http://www.london2012.com/news/media-releases/2008-03/sustainable-timber-to-help-build-london-2012-as-green-games-.php
Waste not, want not
The Regulations, which came into force in England and Wales on 6 April, stipulate that a site waste management plan (SWMP) must be prepared by any client who intends to carry out a project with an estimated cost of more than £300,000 (excluding VAT) on any one construction site. The plans apply from the design stage of a project all the way through to completion. Industry professionals should be aware that failure to produce a SWMP on relevant projects is a criminal offence.
A site management plan must:
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describe the type of waste expected to be produced in the course of the project,
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estimate the quantity of each different waste type expected to be produced,
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identify the waste management action proposed for each such waste type (recycling, reusing etc),
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contain a declaration that the client and principal contractor will take all reasonable steps to ensure that materials will be handled efficiently and waste managed appropriately.
Vitally, SWMPs are cost-efficient. By implementing the plans, clients will save money as the on-site minimisation of waste will be encouraged. SWMPs will also increase the longevity of on-site resources by encouraging recycling and re-use. This not only reduces the unnecessary utilisation of new materials on site, but ensures that money and environmental resources are not expended in transporting ‘old’ material to off-site locations.
In this sense, the introduction of SWMPs represents a positive sustainable step. The construction industry generates more than 100 million tonnes of waste annually in the UK, and is the largest user of material resources in the economy. A principal aim of site waste management plans is to assist in reducing this figure by ensuring that sustainable waste management actions are selected wherever possible.
For the full text of the Regulations, see: www.opsi.gov.uk/si/si2008/uksi_20080314_en_1
For an in-depth Briefing Note on Construction Waste and SWMPs, recently produced by Semple Fraser’s Environment Team, please click here.
Kill Bill
For the offence of corporate homicide to apply there are several criteria that must be met:
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the organisation concerned must have owed a “relevant duty of care” to the victim;
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the organisation must be in gross breach of this relevant duty of care;
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the activities of senior management must have been a substantial element of the breach; and
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the breach of duty must have caused the victim’s death.
A “relevant duty of care” will exist where an organisation has an obligation to take reasonable steps to protect a person’s safety, for example in an employer, employee situation. A gross breach is defined as conduct that “falls far below what can reasonably be expected of the organisation in the circumstances.” The offence is intended only to apply in the very worst cases and in considering this factors such as the level of health and safety training and supervision can be considered.
Senior management is defined as those who have significant roles in the making of decisions about how an activity is to be managed or the actual managing of those decisions. It is not necessary to identify failure on the part of a particular individual however a substantial part of the failing must have occurred at senior management level.
The penalty will be either a fine, a publicity order or remedial order or combination. The initial consultation on sentencing guidelines suggested the level of fine should be based on a percentage of a companies turnover, from 2.5% to 10%. This would result in much higher levels of fine than have previously been levied. Network Rail was fined £3.5 million after the Hatfield train derailment in 2000 in which four people were killed. If it had been fined 10% of its latest annual turnover, the fine would have been £600 million.
For a fuller Briefing Note on Corporate Killing please click here.
Just how reasonable are reasonable endeavours?
The obligation to “use reasonable endeavours” is encountered in many contracts. For years arguments have erupted over just how far you have to go to comply with an obligation to use a “reasonable endeavour”. Whether it is to make sure that something happens or that something is delivered, the term has always been subject to certain ambiguities.
The recent English case of Rhodia International Holdings Ltd (“R”) v Huntsman International (“H”) [2007] EWHC 292 (Comm) seems to have clarified just what the term (and other associated terms) mean.
The facts of the case are of little relevance to the moral of the story. An obligation to use reasonable endeavours differs from that of using “all reasonable endeavours” or “best endeavours”. This case suggests that if these terms were to be placed in a spectrum of just how much obligation each imposes then a clear distinction can be drawn between the first of these terms and the latter two. It should be noted that this is an English decision and it is unclear as to whether the same approach will be adopted in Scotland.
The judge makes his own distinction in this case;
"...there may be a number of reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim probably only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all the reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours".
The Cost of Fair Payment
The recently published Guide to best “Fair Payment” Practices (“the Guide”) produced by the Office of Government Commerce seeks to improve payment practices throughout the construction industry.
We would all agree that in an ideal world work would be completed on time and to a certain standard. Payments would, in return, be made of an agreed sum at the agreed time. Unfortunately we do not live in an ideal world and it can be difficult to ensure that the contractor and his supply chain timeously receive monies which are rightfully due through certified interim payments.
The Guide follows on from the Latham and Egan reports in containing several key recommendations such as;
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the implementation of a fair payment charter in all projects;
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payment to the supply chain with 30 days;
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appointment of contractors based on past performance on payment.
The main recommendation proposed by the Guide is the use of project bank accounts. These would;
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be set up in trust for the whole supply chain (thus prohibiting a receiver from seizing the account if one of the parties was to go into receivership);
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act as a medium through which payments are made and this would protect payments to sub-contractors if the principal contractor became insolvent;
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seek to stop contractors from sitting on sums due to those further down the chain whilst they benefit from the interest on those sums.
Interim payments would still be certified in the normal way however each payment would be paid directly into the project bank account as opposed to being made to the contractor.
On the face of it these proposals seem sensible and it is hard to disagree with any of the recommendations in principle. However, the uptake has been slow. But why?
The industry is generally unaware of the existence of the Guide. Those who are in a position to implement these recommendations (employers) simply do not want, or need further regulations being made on payment provisions (given that once money is paid into the account the employer ceases to have any further rights to it). A further problem is that the Guide is not intended to be a legally binding document (and the threat of legal action for failing to comply is accordingly irrelevant unless it is incorporated into a contract). In addition the current Scottish administration do not appear to be in favour of the process and the question of payments constituting unfair preferences in an insolvency situation and how to deal with set-offs do not appear to have been dealt with.
However the project bank account can have advantages for employers. In a situation where the Contractor goes bust an Employer may have to make payment to a sub-contractor in order to keep them on site. However they may already have made this payment to the Contractor and thus are paying twice.
It would seem unlikely that the uptake on the Guide will improve until such time as these recommendations are set down in the law.
On other hand there is talk of project bank accounts being the payment method of choice for the supply chain on the £16billion Crossrail scheme in London, the UK’s largest construction project to date. If the go ahead is given then this would undoubtedly provide a timely boost to the profile of these accounts.
A full copy of the Guide can be downloaded at www.ogc.gov.uk/documents/CP0159FairPaymentPractices.pdf
FOR FURTHER INFORMATION PLEASE CONTACT: KIRSTEEN MILNE