Construction analysis: What is the outlook for construction law as the year rolls on? Sarah Schütte, managing director at Schütte Consulting Limited, reviews upcoming changes affecting construction law in the second half of 2015 and offers her insight into new trends.
Are there any cases on the horizon that construction lawyers should be looking out for?
Forward-tracking cases is tricky as so many settle, and this is particularly the case with construction disputes so maintaining an interest in areas with crossover principles is useful. Clients are becoming more litigation-averse so it is not surprising that fewer cases are proceeding. Litigation costs continue to be a huge investment, so the court is really only seeing the biggest cases, or those where a ruling on principle is required. Two to watch during the last quarter of 2015 are: a claim against the law firm Mishcon de Reya, listed for hearing in November, which concerns the extent of the duty of care owed by a solicitor to a third party. This may have wider repercussions for construction industry professional services’ providers, particularly where there are complicated project structures. Secondly, a ‘green energy’ case is listed for hearing in December in which Ecotricity will seek remedy from Tesla Motors for breach of non-disclosure agreements (NDA) concerning an alleged exclusivity contract relating to car-charging stations. This case is a competition law case, but will be of interest given the subject matter and the fact that NDAs are widely used in the construction industry.
In the Technology and Construction Court (TCC), the Pre-Action Protocol for Construction and Engineering Disputes has worked successfully for our industry, enabling parties that would otherwise commence proceedings to spend a little time and money in an almost risk-free environment—exploring the dispute together and trying to settle it. The TCC pilot for mediation in London has also been very successful. Recent cases such as Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd (No 2)  EWHC 3148 (TCC), All ER (D) 66 (Oct) demonstrate that even where you have a very good case, the court will expect you to attempt mediation to resolve the dispute.
Are there any legislative developments expected in the remainder of 2015 that will be of interest or importance for construction lawyers?
For me, there are two key legislative areas that construction and engineering lawyers should be up to speed on this year.
Firstly, the upcoming changes to commercial insurance. The Insurance Act 2015 comes into force on 12 August 2016 and the underwriters are already working on ways to implement the changes, as the annual renewal cycle starts to impact. Practitioners need to be ready to advise on new disclosure rules and what this means for claims management. Professional indemnity is particularly difficult because the policy is usually a ‘claims made’ policy rather than ‘claims occurrence’.
Secondly, the practical application of the Construction (Design and Management) Regulations 2015, which came into force on 6 April 2015, is only just starting to be understood, as new projects get underway. After the rush to commence projects prior to 6 April, the construction industry has to confront the changes. On 6 October 2015, the transition period ends, so all parties need to be up to speed on their roles and responsibilities, and frame contracts accordingly. The changes could also impact the parties’ insurance cover so it is essential that each party understands the scope of its policy and seeks advice on if it is unsure whether it has adequate cover for a particular project.
Gaps in responsibilities must be closed contractually and organisationally.
Those of us advising on corporate risk management in the construction industry will have to tackle both new laws from a wider organisational angle as well.
Any other trends to watch out for this year?
I expect to see more investment in infrastructure as the economy continues to pick up and the new government beds down. For the construction and engineering industries, there will be more market activity and, simultaneously, more selective choice of tendering as organisations weigh up whether to invest time and money in tendering. Although turnover is healthy, profit margins are still quite depressed, so competitive pricing will continue, and firms will join forces in consortia or joint ventures to spread the risk and ‘upskill’ in a cost-effective way.
Specialist legal advice
The use of specialist legal advisory and commercial consultancies will continue as organisations seek top-quality, flexible and cost-efficient support. Clients will continue to face each other, but have their retained specialists sitting behind them. I am seeing this being increasingly attractive, particularly for organisations that do not wish to invest in more permanent employees while the market remains a little jittery—and this is irrespective of their size. In addition, there is a continued trend for resolving disputes and claims out of court. I expect to see more use of mediation and alternative dispute resolution, such as Early Neutral Evaluation. Jackson’s court reforms are now broadly understood and organisations won’t take the risk of being landed with a heavy costs bill. Even construction adjudication is suffering from increasing cost and formality, and this is particularly frustrating for SMEs, so it will be interesting to see whether a backlash is implemented in a practical sense—for example, by agreeing limits on the length of submissions.
Implementing building information modelling (BIM)
The implementation of BIM level two continues. Progress is patchy, but must be made. Efforts will be upped as the deadline of 2016 for public sector projects to be 3D fully collaborative looms. In order to remain competitive, firms will have to invest time to up their game and stress-test their systems and processes.
Cyber security will remain at the top of the risk manager’s agenda, as compliance continues to be a major corporate risk. The UK has the toughest laws in the world and the construction industry needs to improve its image after a rough few years. The implementation of BIM will affect this area, as organisations have to work out ways to simultaneously protect their information and comply with laws on freedom and privacy.
Finally, in terms of market forces, I expect to see two polarised trends. Firstly, there will be more moves towards consolidation, as firms seek to add volume and skills to broaden their service offering and market weight. Whether such moves turn out to be profitable, however, remains to be seen. Secondly, there will be more start-ups offering niche expertise and personal service as an antidote to the big organisations. They will operate profitably and quietly and have a certain attraction. Maybe they will be targets for ‘bolt-ons’ for the big fish but they are tough.
Interviewed by Nicola Laver.
This article was first published on Lexis®PSL Construction on 27 July 2015.