Sector - Finance & Legislation

Construction Predictions for 2021

Amira Khan is a partner at Gateley Legal and handles both contentious and non-contentious matters. In this feature, she takes a look at what 2021 could hold for the UK construction industry.

No one could have predicted the events of 2020, and so predictions for 2021 are filled with some trepidation.  There are of course a number of statutory changes that have been postponed due to COVID-19 and have been waiting in the wings for some time. Nevertheless, there is still likely to be some fluidity in construction due to the market’s recovery from COVID-19, the settlement of the final Brexit negotiations, and the development of new laws particularly arising from the Grenfell enquiry.

The VAT Reverse Charge is finally expected to come into effect, which will shift responsibility for accounting to HMRC for VAT from the supplier to the recipient of VAT chargeable services.  This will affect contracts from 1 March 2021 (regardless of when the contract was entered into) and so many businesses have already been making preparatory steps in anticipation of these changes.  This includes establishing what supplies are affected by this change and whether any exceptions apply in their procurement.  Most contracts should be amended so that it is clear who has responsibility for paying VAT and whether or not the VAT reverse charge will apply to the transaction.

The International Federation of Consulting Engineers (FIDIC) is due to publish new materials on their contract suite during early 2021.  A revised edition of the Green Book (FIDIC’s short form contract) is anticipated, as well as a test edition of a new Bronze Book, which is an ODBO (Operate-Design-Build-Operate) contract intended for use on brownfield sites.  FIDIC does not currently have an ODBO contract and it is suspected that this will be of interest to those involved in upgrading existing facilities.  In addition, FIDIC will be issuing guidance notes for the 2017 editions of their Red, Yellow and Silver books with the intention that this will encourage further use and application.

The draft Building Safety Bill will no doubt continue to gather momentum in 2021. This Bill proposes a new safety regime, particularly for higher risk buildings, which is likely to have the most impact upon multi-occupied residential buildings.  The Bill focuses on the role of the Health and Safety Executive (HSE) as the Building Safety Regulator who will be responsible for overseeing the safety and performance of all buildings.  This will involve raising standards of competency among professionals (most notably architects) and taking enforcement action against non-compliance with Building Regulations, issuing compliance and stop notices, and prosecuting those who fail to obey.  In addition, there is likely to be a new “duty holder” regime in the design and construction of higher risk buildings.  This revolves around two new roles.  Firstly, there will be an Accountable Person who must assess the building safety risks relating to the building and take reasonable steps to prevent their occurrence on an ongoing basis.  Secondly, there will be a Building Safety Manager, appointed by the Accountable Person to support them in the day to day management of fire and structural safety in the building.  These proposals are in consultation with the industry at the moment and there is a great interest in putting these additional safety measures in place following the aftermath of the Grenfell report.

The impact of Bresco Electrical Services (in liquidation) v Michael J Lonsdale [2020] UKSC 25 will continue to be felt throughout 2021 and beyond.  This case permitted an adjudication to be commenced by a company in liquidation.  Since then there have been further cases determining when a                                                  decision in favour of an insolvent company will be enforced.  In Meadowside Buildings Development Ltd v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC), the TCC considered what requirements must be met to permit enforcement, which included if the adjudication determined the final net position between the parties; whether satisfactory security was provided and whether the losing party could recover the sum if it was overturned on final determination.  This was further developed in John Doyle Construction Ltd v Erith Contractors Ltd [2020] EWHC 2451, in which standard principles were developed to determine the circumstances in which summary enforcement for a decision will be permitted.  Due to ongoing demands on cashflow for contractors and sub-contractors, there is likely to be more cases arising in 2021 where such principles will be utilised to facilitate the recovery of payments through adjudication.

2021 may also see an increase in potential claims arising from Brexit and the continuing implications of COVID-19.  These changes are likely to put additional burden on the usual pressures of time and money within construction projects.  It is expected that Brexit may lead to longer lead in times or shortages in acquiring materials, due to the added border checks that are anticipated.  The combination of COVID-19 and Brexit may have already started to lead to labour shortages and difficulties in meeting programmes.  The potential for disputes can be mitigated now, by either negotiating specific remedies within contracts for projects yet to start, or by keeping appropriate record keeping during the works and promptly notifying any difficulties in accordance with the terms of the contract.

Many will be pleased to say goodbye to 2020.  Here’s to the year ahead and let’s hope it will lead to positive news for construction. In preparation for any unexpected events that may arise in the next year, it is always advisable to have a robust contract in place to deal with any risk areas and to adhere to this in your working practices so that you are best placed in the event of any potential claims.

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