Introduction
Whilst there is some truth still in the adage "if you want to know the way you are going then look at the way you have come" a new government in Westminster, the world order shake-up trumpeted by the incoming United States President, global conflict and ongoing uncertainty as to how new domestic legislation will be implemented and will impact on the construction industry, all combine to make risk assessment particularly speculative at this time. Identification, though, of relevant factors (some familiar and some new) and a discussion as to how these might affect liability is possible, whilst recognising that there are likely to be more of Donald Rumsfeld's "known unknowns" and "unknown unknowns", than concrete certainties.
Domestically, the government's ambitious house building programme will be all the more of a challenge against a backdrop of increased legislation and regulation, particularly in the shadow of publication of the second part of the Grenfell report. The domestic construction industry will also be affected by conditions further afield; nothing unusual in that – save that those conditions are particularly febrile and volatile at present.
Government Construction and Remedial Pledges
The government has undertaken to review the planning approval process and to overhaul the planning system generally, with a view (inter alia) to making it easier to build on the green belt. Its pledge is to build 370,000 new homes annually during the five year life of the present Parliament, in other words 1,850,000 new homes. To meet the ambitious new-build construction targets, construction teams will be looking for ever more time-efficient and cost-effective construction methods.
In December 2024, the government published its Remediation Acceleration Plan in which it commits that by the end of 2029 all high risk buildings (those over 18 metres in height) with unsafe cladding will have been remedied and every building higher than 11 metres with unsafe cladding will either have been remedied or will have a date for completion, failing which landlords will face severe sanctions.
Off-site construction
Amongst the initiatives which are popular with contractors and design consultants are pre-assembled, off-site kits which are then delivered and placed in-situ (a return of sorts to the "Prefabs" which were a major part of the delivery plan to address the United Kingdom's post-World War Two housing shortage). Assembling these items away from site means that design clashes are more likely to be identified earlier and with less disruptive impact; as such, the system may reduce the risk of allegations of defective design. However, if an error does emerge, it is likely to be one that is replicated throughout the project and beyond, so the overall effect, perhaps, is likely to be fewer but potentially larger problems in that regard.
Technological advances: BIM and AI
The wish to identify design clashes earlier and to operate more efficiently generally has led to an increase in the widespread use of digital exchange, represented by Building Information Modelling (‘BIM’) and equivalent systems – allowing an interactive design development amongst all consultants and specialist sub-contractors. Clients, in any event, are now increasingly including in their appointments with consultants an obligation for designs to be supplied in editable, inter-active format in order to afford greater flexibility in deciding ultimately how to procure the project.
As with pre-assembled packs, the risk implications are mixed. With a robust BIM Protocol in place and fed into by the right people, design inconsistencies should be discovered early in the design stage rather than on site during implementation. However, the inter-dependence on which the exchange of editable information is founded means that one party’s default will prejudice everyone else involved, as well as the success of the project. The Building Safety Act (see below) offers some assistance in imposing on each member of the Project Team (including the Client) an obligation to satisfy itself that the project, generally, has been set up properly with the appropriate expertise. However, insurers will wish to know that the entity they have agreed to insure will not become responsible for the default of other parties.
Technological advancements, especially the rise of generative artificial intelligence (AI), also pose challenges for construction professionals and their insurers. AI undoubtedly has the potential to increase efficiencies in the development process and monitoring of compliance with Building Safety Act requirements. However, professionals face the challenge of information being fed in and outputs created without any visibility into the process and the risk of malevolent disruption. They may not know who is using AI or how it is being used it.
The BSA 2022, extended limitation periods and BLOs
The Building Safety Act 2022 (‘BSA’) introduced in the wake of the Grenfell Tragedy seeks to impose more stringent safety standards on construction firms. With competence a central aspect of the building safety regime, a new role of Principal Designer for Building Regulations has been created, which is different from the role with the same name under the CDM Regulations. Suitable qualifications for a Principal Designer are still in their infancy, although courses are now being provided by relevant institutes. Insurance and other issues may arise if the insured practice misrepresents its capabilities or fails to acquire the necessary competence. The current introductory period, with ongoing confusion around the appointment of the Principal Designer at the various project phases, increases the risk of misunderstanding or misrepresentation.
There is also ongoing uncertainty as to how two of the most headline-grabbing regulations will be implemented by the Courts, namely the extended retrospective and future limitation periods for bringing a claim under the Defective Premises Act 1972 (‘DPA’) on the one hand and the introduction of an exception to the privity of contract rule by way of Building Liability Orders (‘BLOs’), on the other.
The impact of these extended limitation periods might be overstated. The 15-year extended period for post-2022 projects is the same period that already exists under the Latent Damage Act. For projects before June 2022, retrospective actions must involve new constructions (not refurbishments) and will only be permitted where the defendant's human rights, such as a right to a "fair trial", are not breached. It is not yet clear how the Courts will exercise that discretion, nor are there guidelines or case law to assist in reaching any assessment.
Certain fire safety claims have clearly been facilitated by the retrospective extended limitation period. The legislation has also, though, served to highlight the possibility of other "uninhabitable" claims. Whereas previously, claims tended to focus on contractual and tortious liability, with (perhaps) a claim under the DPA as a subsidiary addition, such DPA claims are now on the rise. The judgment in Vainker v Marbank & Others [2024] which confirmed that limitation of liability clauses within contracts are not enforceable for DPA liability, and that the scope of damages should not just be the cost of minimum steps to make the property inhabitable, but the cost of restoring it to what should have been provided, is an indication of these claims becoming more "mainstream".
In December 2024, the Supreme Court heard the appeal in URS Corporation Ltd and BDW Trading Ltd [Case ID: UKSC 2023/0110] in which they considered the extent of duties owed by contractors and consultants to the developer under the DPA, the obligation on a developer to carry out remedial works following the sale of the property and the extent to which the longstanding decision in Pirelli remains good law. Judgment is awaited (DWF Insight: Limitation in Tort – Vinci v Eastwood and URS v BDW.
As to the BLO provisions, such an Order can now be issued against a company that is "associated" with a defendant company, whether or not that defendant company is still solvent. Whilst this legislation was introduced primarily to address the common practice of developers forming special purpose vehicle companies for the duration of a project and then closing the company, leaving purchasers without redress, it has also impacted consultants who may, for example, have changed their corporate structure and altered their insurance arrangements accordingly. We saw in Willmott Dixon Construction Ltd v Prater and others [2024] that it is possible to add these "associated" companies to the main claim even where the original defendant company is still in existence and solvent and more recently in 381 Southwark Park Road RTM v Click St Andrews Limited (in Liquidation) & Another [2024]. However, Building Liability Orders will only be awarded if it is just and equitable; once again, this will be a question of judicial interpretation with only limited guidance so far available.
Other Challenges
Projects, both domestically and globally, are under increased scrutiny in relation to environmental, social and governance factors. With record levels of atmospheric CO2, project teams must take their responsibilities in that regard seriously and will be seeking to develop inventive and groundbreaking systems. Such novel intricacies, however, do come with an increased sensitivity and increased risk generally.
Insolvencies continue to bedevil the industry. The Kings College Dickson Poon School of Law Report 2024 shows a slight decrease in the number of construction firms becoming insolvent during the year to October 2024. However, this included a high-profile casualty (ISG), and the number is still some 30% up on pre-pandemic insolvency levels. Greater insolvency tends to lead to greater use of the Third Parties (Rights Against Insurers) Act (‘TPRAI Act’). The recent case of Riedweg v HCC International [2024] is of potential interest to Insurers because it affects their right, when facing a claim under the Act, to issue Contribution Notices against other co-responsible parties. The Court held that the insurer was not liable for the "same damage" as their Insured. The purpose of the TPRAI Act is to transfer the Insured's rights under the insurance policy to the Claimant; Insurers' liability to its Insured is to indemnify it under the policy. The case is going to appeal, so there may be more to come on this.
Political decisions will also continue to affect the health of the construction industry. There are concerns that the October 2024 budget and other fiscal policies have served to discourage the economic growth of which the Governments’ construction programme is a centrepiece. The Covid epidemic and war in Europe has shown the fragility of the supply chain and the erratic effect this can have on materials and construction costs. Whilst prices have presently stabilised, decisions made by the new United State administration on such subjects as increased trade tariffs and reduced contribution to NATO could further complicate an already fragile backdrop.
Alternative dispute resolution
The High Court decision in BDW Trading Limited v Ardmore Construction Limited [2024] confirmed that DPA claims can be determined through statutory adjudication. Even prior to this decision, adjudication continued to grow in popularity with, according to the Dickson Poon Report, record numbers of adjudication referrals being reported in its survey over the past year. The increased use of adjudications is something of double-edged sword for insurers, because the truncated timescale of the process and the varying approaches taken by adjudicators make the outcome of an adjudication particularly uncertain. The decision having been handed down, however, tends significantly to discourage any further challenge and very few decisions are ultimately referred on, even if the Decision is considered suspect. On the other hand, the shortened period for the process means that legal costs are kept relatively low and a resolution can usually be achieved within a sensible time frame.
Mediation also continues to be a popular method of dispute resolution. The recent case of Churchill v Merthyr Tydfil County Borough Council [2023] (‘Churchill’) held that in certain circumstances a Court did have the power to stay proceedings for alternative dispute resolution and to order the parties to engage, if it made sense and is proportional and provided it does not impair the essence of the Claimant's right to produce to a judicial hearing. On 1 October 2024, the Civil Procedure Rules were amended to reflect the decision in Churchill and the court's power to order the parties to take part in a non-court-based dispute resolution process. The Courts have been encouraging mediation for several years and it has very much entered the mainstream of dispute handling. This is generally good news for insurers, provided defending parties are not harried into a mediated negotiation before there has been a proper opportunity to probe the merits of the case and its consequences.
Looking Forward
The second part of the Grenfell report, which was published in September 2024 was critical of everyone in its findings that the principal cause of fire was the use of ACM PE panels and that a secondary cause was the use of combustible insulation. Particularly trenchant criticism was made of the manufacturers and their misrepresentation of the quality of their products. However, all of the parties involved in the project came in for opprobrium and the clear implication was that all parties should participate in undertaking the necessary remediation. The likelihood is that a Court, when hearing opposing expert evidence as to the responsibilities or otherwise of a construction team member in fire safety claims, will follow the same line as the Grenfell panel of experts.
The Government's building programme appears already to be in arrears. However, if the discouraging funding conditions and workforce problems can be overcome there is significant prospect for the industry to expand. Domestic construction personnel continue also to be in demand overseas, particularly in the Middle East. The message therefore appears to be that whilst projects (and Insurers who have an interest in them) face any number of difficulties such as minute scrutiny and regulation, inflation pressure, potential cyber-attack and a widening array of potential claimants, the good news is that there may be many more projects to face these difficulties!
Further Reading:
- Further TCC Guidance – Building Liability Orders and the BSA
- Recent Changes to the Civil Procedure Rules: Churchill v Merthyr Tydfil County Borough Council [2023] Construction Insights | DWF Group
- The Building Safety Act 2022 and Building Liability Orders | DWF Group
- Implications of the Building Safety Act 2022 for insurers | DWF Group
