LAWYERS TO THE
CONSTRUCTION &
ENGINEERING INDUSTRIES
www.klng.com
Spring 2006
In Site
Through the hoops
The London Olympic Games and
Paralympic Games Bill is due to receive
the Royal Assent and once passed, will
bring into existence the Olympic
Delivery Authority (ODA) with
responsibility for coordinating and
delivering the contracts for the
Olympic and Paralympic Games. Word
on the street is that the ODA will let
the venue contracts, such as those for
the construction of the new sailing
facilities at Weymouth and rowing
facilities at Eton, and Transport
Operators (the DLR and TfL) will let
the major transport infrastructure
contracts. The DLR will be extending
its platforms to accept 3-car trains and
procuring new rolling stock. TfL will
be carrying out modifications to the
Northern Line and undertaking the
East London Line, part of which will
be paid for out of Olympic funds.
Other major works will be undertaken
which will help to realise the Olympic
dream, such as the upgrading of
Terminals 1, 2 and 3 at Heathrow.
The ability of the UK construction
industry to meet the challenge is not in
doubt but with so many major projects
being undertaken at the same time in
the South East, it is essential that there
is proper planning to meet the July
2012 deadline and that as far as
possible contracts are standardised.
The ODA has a key role to play in this
process. It will need to decide early on
which standard forms of contract to
promote. The new NEC3 must be a
frontrunner as the Office of
Government Commerce has already
recommended its use on public sector
contracts and in July 2005 Sir Michael
Latham 'commended its adoption by
any private sector client wishing to
procure their construction work on
time, within budget and without
litigation. The procurement race is
about to start - I can think of no other
contract form better suited to winning
it than NEC'. However, NEC3 is not
the only contestant. DLR has its own
bespoke form of procurement contract
and the building sector has a new JCT
standard form of building contract
which may be suitable for the venue
contracts and discrete new builds.
There is also the question of whether
there are sufficient trained project
managers familiar with NEC3 to ensure
that it is applied properly.
Whatever form of contract is promoted
by the ODA, there will need to be
specific Olympic clauses to ensure
standardisation and compliance by the
UK with its obligations to the
International Olympic Committee.
There are strong arguments for using
NEC3. It can be used for building as
well as infrastructure works and the
Welcome to the Spring edition of
In Site.
In this edition we consider the
choice of contracts for large scale
Olympics projects and look briefly at
the outcome of the most recent
round of the DTI Construction Act
consultation process. We also examine recent developments in adjudication case law, Building Regulations
and employment law.
Contents
Olympics
1
Construction Act review
2
Adjudication Update
3
Other recent developments
4
Who to Contact
4
In Site
continued from page 1
NEC suite of contracts already includes
a short form of engineering and
construction contract, a subcontract and
a professional services contract. All of
these contracts are compatible. The
recent changes introduced by NEC3,
such as the risk-reduction and key date
provisions, emphasise the dynamic
approach taken by NEC to dealing
with risk. Unlike under the JCT
Building Contract, claims are not rolled
up and dealt with during final account
negotiations, but are dealt with as the
works proceed through the
compensation event procedure. There
are now time limits under NEC3 for
notifying compensation events and for
dealing with such notifications. The
compensation event assessment
procedure is ideally suited to dealing
with situations where the scope of work
is unclear or likely to change.
Where NEC3 falls down is over
partnering. The timely delivery of the
Olympic contracts will be dependent
upon effective supply chain
management and it is unrealistic to
expect this to be achieved through twoparty partnering agreements as
envisaged by NEC.
If the ODA promotes NEC3 it will
have to find a way of overcoming this
problem. One possible solution is to
require the principal contractor and
core members of his supply chain to
enter into a multi-party Alliancing
Agreement. The ODA could also be a
party to this Agreement and share the
risk. Its principal purpose would be to
incentivise the members of the
Alliance through a gainshare/painshare
mechanism to achieve the project
objectives set by the ODA, such as a
stretch completion date.
Work is currently being undertaken by
the Strategic Forum and other
interested parties in devising a new
type of single project financial loss
insurance policy which supports
integrated team working and therefore,
alliancing. This kind of policy would
respond in the event of a cost overrun,
above an agreed deductible, without
having to apportion blame. The
deductible would either be shared by
the members of the alliance or charged
to the project. In order for
underwriters to take this risk, they
would have to be involved from the
outset in agreeing targets and setting
up systems of technical/cost control to
manage the risk. They might also
require to be represented on the
alliance board.
It is essential for the success of the
Games that the ODA considers these
issues in order to reduce disputes and
increase the chances of projects being
completed on time and within budget.
Any disputes arising between the
members of an alliance could then be
referred to an over-arching Dispute
Review Board promoted and set up by
the ODA. Experience would be shared
across the alliances through the DRB.
The ODA will need to get its spikes
on!
Construction Act review
The Department of Trade and Industry
(the "DTI") published its muchanticipated Analysis of the consultation
on proposals to amend Part II of the
Housing Grants Construction and
Regeneration Act 1996 (the "Act") and
Scheme on 16 January 2006.
The only proposals which the DTI
intends to take forward to propose actual
drafting changes are:
Payment
2
Introducing a requirement that
certification of the sum due becomes
an essential feature of an adequate
payment mechanism;
SPRING 2006
Removing the requirement in
section 110(2) of the Act for a
payment notice (separate to the
section 111 withholding notice);
Introducing a right to apply for
payment where a certificate is not
issued by the due date; and
Enhancing the existing right of
suspension under the Act to allow
the suspending party to claim for loss
and expense.
Adjudication
Providing the right to payment for
adjudicators upon resignation in
response to a challenge to
jurisdiction;
Prohibiting the use of trustee
stakeholder accounts; and
Making "final and conclusive"
clauses unenforceable where they
apply to decisions under the contract
that are of substance to interim
payments only.
We will be considering these proposals,
and those which the DTI is not taking
forward, in greater detail in an
electronic Alert to be published shortly.
www.klng.com
Adjudication update
Adjudication of the same
issue?
The facts in David McLean Contractors
Ltd v The Albany Building Ltd [2005]
were that Albany had issued notices of
non-completion and deducted
liquidated and ascertained damages
under their contract with their
contractor, McLean. McLean
adjudicated, contending that Albany
were not entitled to make such
deductions. The adjudicator agreed,
deciding that Albany's withholding
notice was invalid. The same
adjudicator had conducted a previous
adjudication, also regarding liquidated
and ascertained damages under the
contract, and where he had found that
the withholding notice had been valid.
The primary issues to be decided by the
judge were whether:
the same issue (i.e. Albany's
entitlement to deduct liquidated and
ascertained damages) had been
decided in the previous adjudication
(in which case, under the CIC rules
incorporated into the contract, he had
no jurisdiction to deal with the
second adjudication); and
Albany had the right to refuse
payment on the basis of a cross-claim
that it would be entitled to liquidated
damages (having been successful in
the first adjudication).
were different, so there was no
duplication and the CIC conditions did
not deprive the adjudicator of any
jurisdiction. Secondly, the judge
decided that it was inconsistent with the
policy of the adjudication scheme to
allow an adjudicator's award to be
effectively rendered nugatory by raising
a cross-claim that might or might not
succeed. As such, the adjudicator's
award was upheld and McLean was
granted summary judgment for the total
sum plus interest.
Costs
The judge held that the point actually
decided in the first adjudication was the
narrow issue of the validity of the
withholding notice. In contrast, the
second adjudication dealt with the
broader issue of whether Albany was
entitled to deduct liquidated and
ascertained damages at all, having regard
to the notices. Therefore the two issues
The issue of payment of parties' costs in
the event of a discontinued adjudication
was considered in the TCC case of John
Roberts Architects Ltd v Parkcare
Homes (No2) Ltd. Neither the Act or
Scheme provide for one party to pay the
other party's costs of an adjudication,
but providing adjudicators with the
discretion to award costs is a provision
frequently written into contracts, such as
in the present case. The referring party
(Parkcare) had discontinued the
adjudication (on the basis that the
adjudicator lacked jurisdiction as a
dispute had not yet arisen) and as a
result Roberts claimed its abortive costs
in defending the adjudication. The
Court held that the clear meaning of the
contractual clause giving the adjudicator
the discretion to award costs was that
this discretion only arose in the context
of deciding the substantive issues in an
adjudication. The adjudicator was not
entitled to make a decision regarding
costs where the adjudication had been
abandoned, as he had not in these
circumstances made a decision on the
matters set out in the notice of
adjudication.
SPRING 2006
3
In Site
Other recent developments
Heating and Ventilation
New Building Regulations dealing with
ventilation and conservation of fuel and
power come into force on 6 April.
These new Regulations affect energy
conservation and will help to
countermand climate change by aiming
to save more than 1 million tonnes of
carbon each year.
New buildings will have to be better
insulated and make use of more
efficient heating systems. Neither Part
requires particular technologies to be
used, which it is hoped will give
designers and builders some flexibility
on how to meet the new standards.
The new Part F seeks to be much less
prescriptive than the previous
regulations, and more guidance has
been given for domestic mechanical and
natural ventilation systems and also for
the ventilation of basements in
dwellings.
Employment Issues
Under Part L, new buildings are to be
energy performance-rated by applying a
whole-building calculation formula.
The energy performance of the new
building needs to be demonstrated
before construction. Before hand-over,
all of the parameters as installed and
tested need to be inputted into the
formula. The building must then attain
the required carbon emission target.
The recent employment cases in the
House of Lords, Lawson v Serco,
Botham v Ministry of Defence and
Crofts v Veta Limited are of relevance
to construction and engineering firms
deploying British staff to overseas
locations. These combined cases
decided the important question of
whether employees who spend part of
their time working abroad can bring
unfair dismissal claims in the UK.
The Employment Rights Act 1996
states that the right to claim unfair
dismissal only applies to “employment
in Great Britain”. The House of Lords
overruled previous cases and stressed
that this concept was to be treated as a
general principle rather than an
absolute rule, and identified some cases
where expatriates working abroad
might be able to bring unfair dismissal
claims, which included employees
posted abroad by a British employer for
the purposes of a business carried on in
Great Britain.
As a result of these cases, more
employees are likely to be able to claim
unfair dismissal than was previously the
case.
Who to Contact
Kirkpatrick & Lockhart
For further information contact the following
Nicholson Graham LLP
Christopher Causer
Kevin Greene
James Hudson
Linda Kent
Trevor Nicholls
David Race
ccauser@klng.com
kgreene@klng.com
jhudson@klng.com
lkent@klng.com
tnicholls@klng.com
drace@klng.com
T: +44 (0)20 7360 8147
T: +44 (0)20 7360 8188
T: +44 (0)20 7360 8150
T: +44 (0)20 7360 8151
T: +44 (0)20 7360 8177
T: +44 (0)20 7360 8106
110 Cannon Street
London EC4N 6AR
www.klng.com
T: +44 (0)20 7648 9000
F: +44 (0)20 7648 9001
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SPRING 2006
© 2006 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.