Over the last three decades, we have seen increasingly widespread use of Alternative Dispute Resolution (ADR), as parties with disputes have sought swifter and less expensive ways of settling claims.

ADR is a generic term that covers various means of resolving disputes other than by litigation or arbitration. Negotiation and mediation are the prime examples of ADR, but other methods have developed in recent years, including adjudication and neutral evaluation.

Nowadays, ADR is commonly used in settling family law issues. This process is called family law mediation wherein separated couples work together to address and resolve their parenting and property issues with the help of an impartial and independent mediator. Under the family mediation process, the mediator will assist you in identifying potential solutions in order for the parties to reach an amicable settlement. Thus, because of ADR’s ability to resolve issues amicably, especially in terms of family issues, many people wonder if they should be a mandatory requirement for parties with conflicting claims.

A question has frequently arisen about whether parties should be compelled to seek ADR before being allowed to ‘have their day’ in court.  A popular theme of seminars as long ago as the 1990s concerned the man with the sandwich-board slogan “mediate don’t litigate”, suggesting that ADR was some sort of panacea or ‘magic bullet’ which could most effectively bring matters to a conclusion. This was always fruitful ground for animated (even heated) discussion.

The courts have, on occasions, been called upon to rule on whether litigants should be forced to engage in some form of ADR as a pre-condition to pursuing legal due process. In most cases, parties have been left in no doubt that they should strain every sinew in exhausting an ‘alternative’ process, with a potential sanction hanging over their heads (in terms of adverse costs orders) should they engage in what the court might view as ‘conduct unbecoming’. Thus, for example, unreasonably refusing to engage properly in dialogue with a view to settling could be considered to be such ‘conduct unbecoming’.

However, in certain circumstances, some parties have been free to pursue their case through the courts without engaging in ADR. For example, in the landmark case of Halsey –v- Milton Keynes General NHS Trust, in 2004, the Court of Appeal ruled that requiring unwilling parties to refer their dispute to mediation “would be to impose an unacceptable obstruction to their right of access to the court”.  The fundamental principle that applied was that ultimately (assuming that the parties were acting reasonably), litigants would have ‘access to justice’.  This is unsurprising given that this is a fundamental principle of the Civil Procedure Rules and is enshrined in Article 6 of the European Convention on Human Rights (the right to a fair trial).

Therefore ‘compulsory’ ADR has remained a topic of hot debate. Last week, the Civil Justice Council (in response to a request made by Sir Geoffrey Vos, the Master of the Rolls) turned up the heat further.  It had been asked to look at the ‘legality and desirability’ of compulsory ADR and, in a report published on 12 July, it concluded that mandatory (alternative) dispute resolution (note the parentheses applied to the word ‘alternative’) would be compatible with Article 6 European Convention on Human Rights.  The Judicial/ADR Liaison Committee chair, Lady Justice Asplin, commented that “(A)DR can be made compulsory, subject to several factors.  More work is necessary to determine the type of claim and the situations in which compulsory (A)DR would be appropriate and most effective”.

Although this is a comment and report, with several qualifications – rarely are there ‘absolutes’ in questions of law – the report is seen as potentially shifting the dial significantly and permanently. It could well be that ADR will be considered a requirement (other than, perhaps, in a very small minority of cases), thus fundamentally changing how disputes are handled.

Whilst most (reasonable) advisers have for many years given serious and considered thought to – and advice upon – the merits of ADR, it was generally viewed as being a key option and, when used correctly and for the right type of dispute, the best way of bringing about the conclusion of the case.  However, the (alternative) option of litigation/arbitration could equally be cited as a powerful incentive to drive parties to take matters into their own hands. There must be a risk that, by removing that element, parties might be forced into more protracted and costly bouts of discussion and mediation without being able to force things along.

There is a distinct possibility of the unintended consequence that, should ADR be made compulsory, it will open the door to more frivolous claims. This could result in the party on the receiving end being ‘bounced’ into settlement discussions due to the dilution of its right to put the matter before a judge to make a decision.  A parallel may exist here with the move towards Conditional Fee Agreements that rose (and then fell) in use when the true impact that such arrangements had on legal costs and process became clear. One thing is sure – this is an area of legal development to watch closely as the debate about the merits of compulsory ADR continues.

Read more:
Could Alternative Dispute Resolution become compulsory?

Rising professional indemnity insurance premiums and restrictions on cover are preventing construction companies from taking on projects, and could delay work to improve the safety of buildings post-Grenfell, an industry survey has revealed.

The issue is creating a “two-tier system” where only those firms prepared to procure appropriate PI cover can undertake higher-risk projects.

The Construction Leadership Council survey results indicate that PI insurance premiums increased almost four-fold at the last renewal, having doubled the year before. Meanwhile, a quarter of respondents reported losing work due to inadequate PI cover. A similar proportion have changed the nature of their work due to strict conditions and limitations placed on them by insurance firms.

Even though high rise residential work makes up less than 5% of the work of two-thirds of firms surveyed, almost one in three could not buy the cover they needed in the wake of the Grenfell Tower fire. In addition, over 60% of survey respondents have some form of restriction on cover relating to cladding or fire safety, while one in three have a total exclusion in place for cladding claims and one in five for fire claims.

The survey results back up issues we are now seeing in practice due to a hardening of the professional indemnity market. The impact of this shift is likely to be disproportionately felt by SMEs, which are less able to shoulder the burden of increased premiums and are often reliant on the ability to accept a variety of work. We are starting to see, in effect, a two-tier system, where only those able and prepared to procure appropriate PI cover can take on work on higher risk projects. The forces of supply and demand then give those contractors and consultants a stronger bargaining position in commercial negotiations.

An interesting point I noted from the survey is that one-third of respondents report that they could not do remedial work to external cladding systems even if they wanted to, due to insurance constraints. This will undoubtedly impact the pace at which remediation can happen, lead to increased costs, and could make out of court settlements on liability more difficult to achieve.

A majority of respondents to the CLC survey said they buy cover for £10M or less, with very few buying over £30M. Almost half said they had been declined insurance by three insurers or more, while two-thirdscarry a claim excess imposed upon them by their insurers.

Difficulties in obtaining PI cover have implications for projects completed during previous insurance periods as well as current schemes because PI insurance operates on a “claims made” basis.

Contractors and consultants are typically obliged to maintain insurance cover at the same level in placewhen they delivered the work. This must be the case for the duration of the limitation period in which claims can be brought. Any failure to do that could be a breach of contract and could mean that a future claim is not backed by adequate insurance. The excess liabilityrequired in these instances might well push smaller contractors or consultants to the wall.

We are already seeing how difficulties arising from PI coverage limitations stifle the construction sector’s ability to react nimbly to new needs and opportunities, which could have a detrimental impact on the Government’s Build Back Better aspirations.

Commenting on the survey findings, the CLC’s PI insurance group chair Samantha Peat of Wren Managers, said she was extremely worried by the extent of the industry’s PI insurance problems and pledged to work with the government and industry to identify solutions:

“The cost increases, exclusions and claim excesses that companies are having to bear – even those that do not even work in high rise residential – could make it unsustainable for them to stay in business,” she warned.

“The survey results suggest firms will not be able to afford premiums and claim excesses, and they face the choice of refusing some work or undertaking projects for clients with inadequate insurance cover.”

There are no obvious solutions, but – given that the dynamics of the PI market are driven by insurers’ appetites for risk – there might be value in encouraging a more nuanced assessment of the business models of insured consultants and contractors, particularly the two thirds for whom less than five per cent of work is high risk. If the current constraints persist, that might lead to more fundamental changes in the way work is allocated, including, for instance, by renewed emphasis on alternative models, such as the integrated project insurance route.

Read more:
Construction companies face insurance cover drying up post-Grenfell – with SMEs the hardest hit

Net-zero carbon buildings have been high on several successive governments’ wish list for at least a decade.

Remember Chris Huhne’s ‘Green Deal’ in the early days of the coalition?

However, with climate change and the growing (unstoppable?) impetus towards net-zero targets, it seems that this issue has never been a greater priority than it is now. The laudable notion of ‘Building Back Better’ strikes a chord with many, particularly in these difficult times when any positive, forward-thinking ambition will get a certain traction.

But what does it mean? In practice, rather than as a concept or notion?

The UK Green Building Council (UKGBC) has examined and reported on several aspects of national infrastructure and how we can reduce the national ‘footprint’. In 2019 it published its ‘flagship’ report on Net Zero Carbon Buildings.

This was supplemented by guidance published in the autumn on how to unlock the delivery of such buildings, which examined how various barriers might be overcome.

That guidance sits alongside UKGBC’s feasibility study (“Building the Case for Net Zero”) on what it described as ‘real world implications’ if such procurement could be achieved. The report looked, in particular, at issues of design, delivery and cost. The latter is particularly important; anyone who was around when the drive for more sustainable procurement suffered in the wake of the financial crisis of 2008 will recall how the need to maintain the bottom line swiftly overpowered altruistic intentions to build sustainably. Indeed, in its report, UKGBC identified the need for further research into the current challenges faced by those striving to deliver net-zero carbon buildings to increase their uptake rapidly.

Of course, we have moved on, and the desire for more environmentally-friendly and sustainable projects is (the odd Cumbrian coal-mine aside) becoming more mainstream. New generations not only ‘get’ it, they demand it. Sensibly, the UKGBC has not only identified the barriers, but it has also sought but to identify, alongside each, a corresponding opportunity.

For example:

• Design – ways to integrate net-zero carbon into the building design or design process. This includes setting net-zero carbon outcomes early in the project’s strategy, inspiring design teams to think innovatively.
• Cost – ways to finance net-zero carbon buildings. This includes accounting for future ‘brown discounts’ and ‘green premiums’ and a shift in perspective to whole-life investment rather than just immediate capital expenditure.
• Stakeholder engagement – ways to integrate net-zero carbon into the decision-making process of all stakeholders. This includes identifying growing investor and occupier net-zero ambitions.
• Innovation – ways of capitalising on new processes, mechanisms, and technologies to achieve net-zero buildings. This includes using new financing mechanisms and alternative building materials.

This guidance comes as the Better Buildings Partnership (BBP) launches NABERS UK, a system for certifying office buildings’ in-use energy performance. This tool recognises the growing appetite for transparency and disclosure from building owners and investors as the market begins to shift towards net zero carbon buildings.

As part of its ‘Advancing Net Zero Programme‘, the UKGBC has gone further. This month it has published further guidance for the property and construction sector on renewable energy procurement and offsetting. This guidance responds to a report in December from the Climate Change Committee, which highlighted that current electricity procurement was having a limited (or, at worst, no) impact on the UK’s plans to meet its carbon reduction targets.

For all the initiatives and column inches, there remains a nagging concern, which is this: how ‘joined up’ is the national plan?

This is a consistent theme in discussions about national infrastructure projects. Concerns linger, in particular, about projects like HS2 and the national ‘grid’ for charging points for electric cars.

The UK’s approach often appears to be to let the ‘market’ find the solution. The problem is, well, the problem itself. The looming crisis is potentially so great that it requires a paradigm shift that can probably only be made from the ‘top down’ (or at least with as much authority as the Government can bestow on bodies with real clout). No-one would argue with the UKGBC’s objectives, but it is only really looking at new projects and, whilst this is part of the challenge, a far more sizeable problem is the state of the current building stock.

In a damning report, released on Monday 22 March, the Environmental Audit Committee of MPs has criticised the Government’s flagship home insulation scheme, which was intended to kickstart a green recovery from the Covid-19 crisis.

Aimed at the 19 million poorly-insulated homes in the UK (responsible for around 20% of emissions), the report describes the scheme as ‘botched’, ‘disastrous’ in its administration and in ‘urgent need of rescue’. The take-up rate has hovered around 10%, and the report highlights the need for any such initiative to be adequately financed with high levels of commitment.

In looking to the future, it seems there is a pressing need to address the many shortfalls of the past.

Read more:
The green ‘key’ to building back better

The introduction of the Corporate Insolvency and Governance Act 2020 (“CIGA“) in June 2020 was one of the many preventative measures taken by the UK Government in an attempt to safeguard the economy in the wake of the global Covid-19 pandemic.

Its primary purpose is to provide breathing space to businesses during the pandemic as well as to support continued trading.

CIGA, which introduced significant changes to contracts for the supply of goods and services, has significant implications for businesses that supply construction and engineering services.

In this column I outline what those implications are, and what construction businesses can do to protect themselves.

What are the changes to contract law introduced by CIGA, and how does it affect construction businesses?

CIGA introduces a new section 233B into the Insolvency Act 1986. This makes two important changes to contracts for the supply of goods and services.

Firstly, suppliers of goods and services are prevented from exercising certain rights of termination against a company that is going through a relevant insolvency procedure. Secondly, suppliers must continue to supply goods and services even if they have not been paid for goods and services already delivered.

In the context of a construction contract, a supplier is likely to the contractor, a sub-contractor, or a consultant under a professional appointment.

In practice, this means that there is no longer an automatic right for a supplier to terminate a contract in the event of a client becoming insolvent. Rather, there is now a legal expectation that suppliers will continue to deliver.

This means that the supplier will need to continue providing goods and services even if it has not been paid for those already provided at the point the company enters into a relevant insolvency procedure. However, in the context of construction and engineering contracts, if the company defaults on payment during the insolvency period, there is protection afforded to the supplier through its statutory right to suspend works (for non-payment) under section 112 of the Construction Act.

How can suppliers protect themselves?

Potentially, CIGA is a piece of legislation that could wreak significant harm on the construction industry supply chain.

On one level, as a piece of emergency legislation, it made sense at a time when robust, reliable supply chains are essential to, for example, the provision of vital supplies to the NHS.

However, whilst it aims to assist ongoing trading (through securing supply chains) during the Covid-19 pandemic, it is difficult to ignore the possible consequences this may have on cash flow and the strain that this may place on suppliers in the construction sector.

For many years now, this sector has had the benefit of the Construction Act.  One of the main objectives of the Act was to improve cash flow (once famously described by Lord Denning as ‘the life blood of the industry’) through the construction supply chain with the aim of reducing the number of insolvencies in the sector.

The Construction Act sought to achieve this by introducing processes such as adjudication, rights to interim payments and the right to suspend works.

It appears that the practical effect of the changes introduced by CIGA are now in direct conflict with the processes provided by the Construction Act, continuing a growing trend of conflict between insolvency and construction legislation. The effect this will have on the construction and engineering sector as a whole remains to be seen but it is clear that suppliers will need to be even more on their guard than ever.

In this context, there are several practical issues that parties to construction and engineering contracts will need to consider carefully.

• Is the definition of Insolvency (whether as set out in the standard contracts or in a bespoke form) suitable – or even correct – in light of CIGA?
• The timing of exercising a right to terminate is even more important than ever. A party must not attempt to exercise a right to terminate before that right has crystallised under the relevant contract. The consequences of doing so incorrectly could be hugely damaging and professional advice should always be sought.
• Suppliers may seek to negotiate shorter payment periods.
• Might this more precarious landscape prompt wider use of mechanisms such as project bank accounts to provide greater levels of comfort for the supply chain?

I would urge construction businesses concerned about the impact of CIGA on their cash flow and financial sustainability to seek immediate legal advice.

Refusing to perform could expose firms to potential claims from liquidators – so it’s certainly worth seeking specialist legal advice to ensure you minimise your risk and exposure to future claims.

Read more:
Construction suppliers beware: New corporate insolvency law requires ongoing performance

Today the UK economy has been officially declared to be in recession, with figures from the Office for National Statistics showing GDP fell 20.4% in the three months to June, the second consecutive quarter of declining growth.

The devastating impact COVID-19 has had on the construction industry, in particular, has been highlighted by two new reports, with a leading cost consultant warning of the return of cut-throat – or so-called “suicide” – bidding. Meanwhile, finance giant EY said 46% of contractors and materials firms listed on the London Stock Exchange issued profit warnings in the first half of this year.

As desperate contractors battle to plug the shortfall in their order books, there is a real and widespread risk that contractors will routinely price jobs at unsustainable levels. This should be a genuine concern for contractors at all levels of the supply chain, as well as clients, as this practice creates a ticking time bomb of potential contractual disputes further down the line.

“Suicide bidding” has the potential to lead to widespread insolvencies, meaning delays to projects and additional costs incurred where subcontractors, bound by unsustainably low prices, go out of business.

It’s easy to understand why in a price-driven market, companies desperate to win work will drop prices to fill their order books and drive turnover. This approach is, of course, driven by short-term needs but the bottom line is that suicide bidding is bad for the entire industry – for contractors, for the supply chain and for successful  project delivery.

There has never been a more critical time for contractors and clients to take responsibility for recognising where bids are unrealistically low and to step back to consider the knock-on impact further down the line of the lowest bids being successful.

There is, of course, a broader debate to be had about the sector’s procurement philosophy, and the benefits of building long-term relationships with quality contractors over a short-term price-driven approach.

But in the immediate term, the entire sector must recognise that if a bid seems too good to be true, it probably is.

Understanding how contracts are structured is vital here. Most construction contracts have detailed and complex mechanisms that deal with price adjustments, and if used sensibly – and ideally, collaboratively – these structures should ensure that clients pay a fair market price for work properly executed.

A headline price that feels too high or low will fall outside the spectrum of what is considered ‘good value’. Therefore there is also a real onus on clients to recognise where bids are too low, and consider the potential legal fallout if things go awry.

The risk to clients of accepting low ball bids is that they become bound to a supplier that may well cut corners to scramble a project over the line just to stay afloat. The ongoing Grenfell inquiry demonstrates the devastating consequences of trying to value engineer contracts to the point where quality – and even human life – is compromised. The industry should be all too aware of the tragic – and avoidable – consequences this can have.

With this in mind, both parties must understand the basis on which bids are submitted. In what circumstances will the contractor be able to adjust prices, for example?

While clients understandably don’t like dealing with a high degree of uncertainty around cost, it’s best to be realistic at the outset. Ideally, clients should structure their procurement in a way that allows for a competitive dialogue to take place to achieve realistic pricing.

It’s also good practice for clients to challenge assumptions at the earliest stage of the process to ensure they aren’t storing up problems further down the line. In practice, this means taking the earliest opportunity to understand where any risks may lie and working through that in partnership.

One way of doing this is to ensure you have a sensibly sized tender list – this affords you the time and resource to rigorously apply cool analysis to submitted tenders and thoroughly interrogate any assumptions made. It also gives you the space to enter into competitive dialogue and extract any necessary information from bidders to ensure the quote submitted represents a fair price for the work being commissioned.

For contractors, it’s important to remember that a bid is a part of a legal process that leads to a signed contract against which all parties will be bound. If you’re going in at a low price, it’s essential to qualify that. In practice, that means being as precise as possible about what is included and what isn’t.

While the short-term desire to drive sales will be increasingly commonplace, it’s critical to be wary of the risks of bidding excessively low unless you know how to put in proper exclusions so that your bid is sufficiently qualified and fairly priced.

If you’re not confident about how best to do that, seeking sound legal advice at the earliest stages will help.

While contractors need to get to grips with the contracting process and ensure they are using all available mechanisms to arrive at sustainable prices, clients need to look after their contractors. This means building long-term relationships with quality contractors and ensuring they are paid fair prices for their work.

The alternative – a price-driven race to the bottom – is bad for business all round.

Read more:
Danger ahead? Construction firms warned against the return of suicide bidding 

Prime Minister Boris Johnson last week promised to “build, build, build” by injecting billions into public projects to ease the UK through the aftermath of the coronavirus pandemic.

He used a keynote speech in the West Midlands to say he wants to follow in the footsteps of American president Franklin D Roosevelt, who led the US out of the Great Depression in the 1930s.

In the speech, he announced the Government intends to spend £5 billion to “accelerate infrastructure projects”. So far, so headline-grabbing. But scratch the surface and an immediate problem presents itself.

In Government spending terms, £5 billion can be considered small change. With some £1.5 billion allocated to hospital maintenance, more than £1 billion to a 10-year school rebuilding programme, and £100 million on road projects, that leaves only £900 million for what the Prime Minister called “shovel-ready” projects in England.

When you consider that the final estimated cost of the rail HS2 project currently amounts to around £106 billion, it’s clear to see that the planned investment, spread across so many infrastructure and maintenance projects, pales into insignificance.

So, to get the biggest bang for the taxpayer’s buck, the Government will need to identify projects with the potential to generate the most economic benefit, pound for pound – no mean feat at a time when there are so many competing priorities to balance in terms of public spending.

One project I believe has the potential to pay significant dividends (and provide a key component of the UK’s infrastructure) is the proposed Western Link Railway to Heathrow (or WLRtH), a new 6.5km link between the Great Western Main Line and London Heathrow Airport.

The proposed rail connection would speed up journeys to Britain’s busiest international airport, by allowing passengers to travel to the airport from the South Coast, South West, South Wales and West Midlands (not to mention the ‘engine room’ of the Oxford-Cambridge ‘innovation arc’) without having to travel to central London and back out again.

The estimated cost of the WLTtH project is around a comparatively modest figure of £1 billion, whereas according to the Network Rail, the immediate economic benefits include 42,000 new jobs at a time when they will be much needed.

Post-Brexit, Britain needs to extend its reach internationally and showcase UK Plc as an attractive place to invest and do business. Improved transport links with international markets will be an essential part of that effort to secure vital trade and investment.

Key sectors that would benefit, for example, are high-end engineering, medical R&D and life sciences, with much of this activity concentrated in the Thames Valley and Oxford-Cambridge arc. These clusters would benefit significantly from an improved rail link to Heathrow, as it would open up new and improved transport options to international markets.

Funding this “shovel ready” project would demonstrate that UK Plc is serious about being open for business, by making it easy for potential trade partners, distributors and investors to fly into London and reach these regions easily by rail.

Of course, at the same time, we also need to keep one eye on our environmental footprint, as we grapple with the seismic challenge presented by climate change. By reducing congestion on roads, including the M4, M3 and M25, the WLTtH project is predicted to result in lower CO2 emissions equivalent to approximately 30 million road miles per year.

Considering the level of the proposed investment announced this week, it is clear that any spending needs to be as targeted and strategic as possible.

If the Government’s legacy is to be anywhere near that of FDR’s ‘new deal’ it will need to focus in on projects that deliver immediate economic impact while ticking other equally important boxes such as sustainability.

As we look towards ‘building back better’ over coming months and years, I believe that the Western Link Railway to Heathrow is one such project.

By building a critical missing link in our transport network, it will produce significant economic benefits, create new jobs, improve our international competitiveness and reduce the number of car journeys across a vast swathe of the country.  At the moment, it is hard to think of another project that would generate as much immediate return at a time when every penny of public investment counts more than ever.

Read more:
New deal, New rail?: Could a proposed direct rail link from the West of Britain to Heathrow help unlock Britain’s economic recovery?