Construction Comparative Guide

• Published date: 24 January 2022
• Subject Matter: Real Estate and Construction, Construction & Planning
• Law Firm: Charles Russell Speechlys LLP
• Author: David Savage and Kevin Forsyth

1 Legal framework

1.1 Which legislative and regulatory provisions govern construction projects in your jurisdiction?

The Building Act 1984 establishes a series of regulations, including the Building Regulations 2010, which apply to all 'building work' (as defined). Approval under the regulations is required for most building work in England; and other consents and licences may be required depending on the project.

The Housing Grants, Construction and Regeneration Act 1996 (as amended) applies to all contracts for 'construction operations' (as defined) and prescribes statutory provisions to be included in most construction contracts and consultants' appointments. The Scheme for Construction Contracts (England and Wales) Regulations 1998 imply the required provisions into the contract if they are absent. The Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 2017 and other planning regulations may also apply.

The Health and Safety at Work, etc Act 1974 and the Construction (Design and Management) Regulations 2015 are key from a health and safety perspective, together with other regulations, including the Control of Substances Hazardous to Health Regulations 2002.

1.2 What other legislative and regulatory provisions have relevance for construction projects in your jurisdiction?

The Building and Fire Safety Bill 2021 is proceeding through Parliament and is likely to come into force in 2023. It establishes:

• a new Building Safety Regulator;
• a more stringent regulatory regime for high-risk residential buildings; and
• three new project 'gateways', the first of which is already in effect at the planning stage.

The Defective Premises Act 1972 imposes liability on landlords and builders for poorly constructed and maintained buildings. The Corporate Manslaughter and Corporate Homicide Act 2007 establishes corporate criminal liability for poor health and safety management. The Modern Slavery Act 2015 requires large businesses to produce and register an annual statement on avoidance of modern slavery risks.

Tax-related legislation includes:

• the Construction Industry Scheme (CIS), which applies to self-employed individuals; and
• the value-added tax 'reverse charge' rules, which apply to certain supplies of construction services.

The Finance Bill 2021-22 anticipates a new residential property developers' tax of 4%, which will come into effect to help fund the removal of unsafe cladding.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

Numerous government departments and local authorities are responsible for different aspects of the construction sector, including the Department for Levelling Up, Housing and Communities. Approved Inspectors can also determine compliance with building regulations. Her Majesty's Revenue and Customs is responsible for administering the CIS and tax issues. The powers of government bodies vary, but they generally include the right to withhold or withdraw approvals, prosecute and impose penalties.

The Health and Safety Executive manages health and safety and has powers to:

• inspect sites;
• withdraw approvals;
• impose monetary sanctions; and
• bring criminal prosecutions.

1.4 What is the general approach in regulating the construction sector?

The construction sector is well regulated and regulations are enforced, with inspections undertaken and sanctions for breaches imposed under both sector-wide and project-specific legislative requirements.

2 Procurement methods

2.1 What procurement methods are most commonly used in your jurisdiction? Do these vary depending on whether international parties are involved?

Commercial projects are generally procured through a one or two-stage competitive tendering process. A lump-sum contract is commonly used, with contract mechanisms to adjust the contract sum. The following are also used:

• guaranteed maximum price (GMP) contracts, where the contract sum will not exceed a specified maximum; and
• target cost contracts, where cost savings and overruns are allocated between the parties using a 'pain/gain share' mechanism.

Until October 2018, the Private Finance Initiative was the United Kingdom's predominant public-private partnership model for major public infrastructure projects, using variations of design-build-finance-operate type contracts. However, the Crown Commercial Service now manages public sector procurement based on a legal framework of free and open competition and value for money, in line with internationally and nationally agreed obligations and regulations.

Framework agreements are often used by government bodies, allowing contracts to be carried out over a period of time on a call-off basis, as and when required. Prime contracting or strategic infrastructure partnerships allow public sector bodies to bundle together smaller projects with a single point of contact. Partnering arrangements are sometimes employed and are generally linked by bi-party contracts which can include the wider supply chain.

Generally, the involvement of an international party does not affect the procurement method, subject to tax considerations and the provision of suitable guarantees.

2.2 What are the advantages and disadvantages of these different methods?

These vary as the appropriate procurement method should be selected depending on the nature of the project and the client. Lump-sum contracts suit a project that is well defined at tender stage, giving greater certainty over costs; although there is little incentive to reduce time or costs. Under a GMP or target cost contract, the contractor should be in a good position to control its costs. Framework agreements and prime contracting can save time and reduce 'learning curves' and other risks. Partnering can be time and cost effective if the project parties are incentivised, but requires commitment and management from the outset.

2.3 What other factors may influence the choice of procurement method?

These include:

• the nature of the project and the client;
• the time for completion;
• design and planning risk;
• specific site issues and location;
• the method of financing;
• the need for operation and maintenance;
• entitlement to the facility's product or revenues; and
• tax considerations.

3 Project structures

3.1 How are construction projects typically structured in your jurisdiction? Does this vary depending on whether international parties are involved?

The traditional project structure has the design team appointed directly by the client. The contractor is typically appointed after a competitive tender process and coordinates the construction team, including all subcontractors. Often the design team is novated to the contractor at a milestone stage - for example, after planning approval. However, many projects adopt design and build procurement, where the contractor engages the design team and all subcontractors from the outset. Collateral warranties or third-party rights, given under the Contracts (Rights of Third Parties) Act 1999, are typically given by contractors and certain consultants and subcontractors to the client and/or other interested parties, such as funders, purchasers and tenants.

Construction management suits experienced developers whose in-house team engages and manages individual trade packages appointed...