Construction and Engineering Legal Update

In this month's digest we highlight the following developments of interest:

• Contract formation: Letters of intent, "subject to contract" and waiver by conduct 
• Drafting "pay when paid" clauses which are effective upon upstream insolvency
• The House of Lords Select Committee Report on Private Finance Projects
• Drafting exclusion clauses to exclude liability for statutory interest
• Settling construction disputes - some points to consider
• The Equality Bill: Impact on the construction sector
• HSE crackdown on dangerous construction sites
• New HSE Guidance: "Provision of welfare facilities during construction work"

All links are correct at the time of publication.

Contract formation: Letters of intent, "subject to contract" and waiver by conduct 

Introduction

The Supreme Court ("the Court"), on appeal from the Court of Appeal, has given an important judgment in RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) ("RTS").  This will be of relevance to parties who continue works after the expiry of a letter of intent but before a formal written contract is finalised, and to those who intend to rely on "subject to contract" and "counterparts" clauses in contracts.

We have written an article in which we summarise the facts and issues in the case, and provide some learning points to consider when dealing with these areas in the future.

Click here to read the article.

Drafting "pay when paid" clauses which are effective upon upstream insolvency

The Court of Appeal has handed down a judgment, agreeing with a decision in the Technology and Construction Court, which serves as a reminder that, to be effective, exclusion clauses need to be carefully and very clearly drafted, and that contracts should be reviewed following changes in legislation.

We have written an article in which we summarise the facts and issues in the case, and provide some learning points to consider when dealing with these areas in the future.

Click here to read the article

The House of Lords Select Committee Report on Private Finance Projects

The House of Lords Select Committee ("the Committee") has published a report "Private Finance Projects and off balance sheet debt", following receipt of evidence since July 2009.  The Report , which contains many recommendations, including recommendations in respect of monitoring and managing Private Finance Projects ("PFPs") by public authorities, will be of interest to those in both the public and the private sectors.

Focussing on PFI, the Report looks at the beginnings and expansion of PFPs, the impact of the credit crunch, the financial framework of PFPs, private finance in practice.

The Report recognises that, apart from bearing risks that would otherwise fall to the public sector, private finance can offer other advantages over traditional procurement to offset the higher interest charges required by the private sector. Further, PFPs have a better record on time and on budget delivery than traditionally procured projects.

The Report’s recommendations include that the Government:

• should publish figures for total liabilities for privately-financed public sector procurement as a separate item alongside figures for Public Sector Net Debt
• should take steps to remove institutional bias in favour of private financing so that authorities can select private finance or another procurement method on a case by case basis according to value for money
• should examine what risks now borne by the public sector can sensibly be transferred to the private sector, acknowledge that risks of exceptionally complex, large projects are not suitable for transfer to the public sector, and produce comprehensive revised policy guidelines

A recommendation specifically relating to contract management is:

"Monitoring and managing private finance contracts has long been a weakness in the public sector, although there has been improvement in recent years. We recommend that public authorities should do more to maintain and improve commercial skills of staff dealing with private finance projects, with emphasis on long-term contract management as well as contract negotiation".

We have found that many authorities benefit from contract management, including training on understanding and operating the sometimes complex private finance project contracts, and the performance monitoring regimes and payment mechanisms they contain. This enables the authorities to recognise the resource that is required properly to manage the contracts and to ensure that the value for money negotiated into the contract documents is achieved, and can be demonstrated as having been achieved. Even small changes to contract management can deliver savings quickly and easily, with minimal relative cost.

This has become all the more important in the light of the public sector deficit and the impact this will have on public sector spending, and the need to demonstrate that value for money is being achieved now and in the future.

For more on how Bevan Brittan can help authorities with advice and training on long-term contract management, please contact Duncan Weir, head of the Construction and Engineering Department. (0370 194 1614  email: duncan.weir@bevanbrittan.com)

Drafting exclusion clauses to exclude liability for statutory interest

In Markerstudy Insurance Company Limited and others v Endsleigh Insurance Services Limited [2010] EWCH 281 (Comm) the court had to consider whether an exclusion clause was effective to exclude liability for contractual and/or statutory interest (statutory interest being a liability arising from the exercise of the court's discretion).

The relevant clause read as follows:

"Endsleigh's total liability in contract, tort (including negligence or breach of statutory duty), misrepresentation, restitution or otherwise, arising in connection with the performance or contemplated performance of the Agreement shall be limited to the aggregate amount of fees received pursuant to clause 6.1 above."

The Claimant, Markerstudy, submitted that there were no cases where such a "cap" had been held to include interest; that it would prejudice the Claimant in the event of delay caused by the Defendant, Endsleigh; and that the cap was as to "liability" which as a matter of construction could no more apply to interest than to legal costs.

Endsleigh maintained that the limitation applied to its "total liability in contract" which clearly covered any contractual claim for interest; that the parties cannot have intended to treat statutory interest any differently and that any concern as to delay was misconceived.

The judge held that Endsleigh was correct in its stance on contractual interest - the cap did apply to contractual interest. However, the judge also held that statutory interest was a different matter.  It was not a "liability in contract", but a discrete liability arising from the exercise of the court's discretion, and therefore excluded from the cap.

This case is another example of the need for careful drafting of exclusion clauses if it is intended that statutory interest on amounts awarded by the courts is to be excluded from any overall cap on liability.

Settling construction disputes - some points to consider

There have been several recent cases which impact upon settling construction disputes.  In the light of these we have prepared an article on points to consider when settling such disputes, focussing on the decision in Siemens Building Technologies FE Ltd v Supershield Limited and when, in the context of seeking recovery of a sum paid in settlement from a third party, the settlement will be seen as reasonable.

Click here to read the article

The Equality Bill: Impact on the construction sector

The Equality Bill 2009 -2010, which was published in April 2009, is currently passing through Parliament. The Government has indicated that most of the Bill is due to come into force in October 2010, with Public Sector Equality Duties to come into force in April 2011. There is ongoing consultation on non-statutory guidance and Codes of Practice, and Policy Statements have been published.

The Bill is relevant to both public authorites and contractors.

Click here for a note which highlights the proposed change in the law in respect of “reasonable adjustments”, and draws attention to proposals in relation to procurement by public authorities.

 HSE launches crackdown on dangerous construction sites

Health and Safety Executive (HSE) inspectors are to launch an intensive inspection initiative aimed at stopping dangerous practices on building sites across Great Britain.

The HSE wants to raise awareness of construction site risks and prevent unnecessary injuries and deaths. Construction is one of Britain's most dangerous industries. During 2008/09, 53 workers died and 11,264 were injured, across Great Britain, while working in construction.

The inspection initiative - which started on 1 March - will focus on refurbishment or roofing work. Inspectors will make unannounced visits to ensure that sites are managing work at height safely and are in good order.

Last year inspectors visited 1,759 sites and 2,145 contractors and issued more than 270 prohibition notices to stop dangerous work - much of it relating to working from height.

The HSE has said that during the inspection initiative, HSE inspectors will be looking at whether:

• Jobs that involve working at height have been identified and properly planned to ensure that appropriate precautions are in place
• Equipment is correctly installed / assembled, inspected and maintained and used properly
• Sites are well organised, to avoid trips and falls
• Walkways and stairs are free from obstructions
• Work areas are clear of unnecessary materials and waste

New HSE Guidance: "Provision of welfare facilities during construction work"

The Health and Safety Executive ("HSE") has produced an information sheet for dutyholders involved in construction work. It replaces previous guidance contained in ‘Provision of welfare facilities at transient construction sites’ and in ‘Provision of welfare facilities at fixed construction sites’.

It gives guidance on the minimum welfare facilities that must be provided or made available to workers on construction sites.

In relation to general duties under the Construction (Design and Management) Regulations 2007, it reminds:

• Clients: that they must ensure that their contractors have arrangements to provide adequate welfare facilities for construction workers;
• CDM Coordinators: that they should give suitable and sufficient advice to the client on the measures needed to ensure that suitable welfare is being provided during the construction phase;
• Principal contractors: that they should make sure that suitable welfare facilities are provided from the start and are maintained during the construction phase; and
• Contractors (including the self-employed): that they should ensure that there are adequate welfare facilities for workers under their control.

If you require any further information about any of the items mentioned, or if you have been forwarded this update by a colleague and would like to receive it direct, please contact David Kirkpatrick, Associate Solicitor and Professional Support Lawyer for the Construction & Engineering Department (0870 194 1663. email david.kirkpatrick@bevanbrittan.com).