CONSTRUCTION DISPUTES LANDSCAPE FOR 2024: THE HERE AND NOW AND WHAT TO EXPECT NEXT – THIRD INSTALMENT

November 2024

Ian Masser, Anna Benz and Kayleigh Rhodes

Current Trends in the Market and Construction Claims: Various trends continue to reshape the construction disputes landscape, posing fresh risks and challenges for clients, contractors, consultants, and other industry stakeholders. Legislative changes, recent case law and evolving market dynamics — particularly around contract terms, building safety, professional liability, and claim apportionment are driving these developments.

Record number of contractor insolvencies

Press reports indicate a rise in contractor insolvencies in the construction sector, driven by a continued increase in materials and energy costs, inflation and pandemic-related debt. The war in Ukraine and material shortages worsen the situation, impacting clients and their supply chains. The recent administration of several ISG entities highlights some of the challenges faced within the industry and impacts.^[1]

Contractor insolvencies may disrupt projects or cause wider uncertainty, leading parties to seek to review, suspend or terminate contracts or withhold payments, adding further strain on subcontractors. Parties must carefully consider their positions and understand provisions associated with suspending or terminating services/works since there can be severe consequences to invoking such provisions incorrectly. Understanding the broader contractual and relationship implications, including notice requirements, intellectual property licences and payment provisions is crucial. The rise in insolvencies further underscores the importance of appropriate due diligence and risk management to minimise disruption and ensure business continuity.

Contractual liability caps

Recent cases, including Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) and CLS Civil Engineering Ltd v WJG Evans and Sons [2024] EWHC 194 (TCC), stress the importance of having clear contractual language regarding liability caps.^[2] Tata showed how potentially vague terms may result in a different interpretation (here a single cap on the relevant claims, losses and damages, as opposed to multiple caps), leading to unintended financial consequences. Parties should therefore ensure that liability caps are clearly defined and drafted in line with the agreed position to avoid disputes.

In CLS Civil Engineering, the court upheld a liability cap included in an unsigned letter of intent, warning that informal or incomplete documents can create legally binding obligations. Parties should draft such agreements carefully and limit their scope as necessary.

It is also notable that the JCT Design and Build Contract 2024 footnote and updated guidance also includes commentary and suggested drafting for a limit of liability (expressed as a total aggregate limit for contract, tort, negligence or breach of statutory duty, subject to excluded carve-outs), apparently reflecting the industry trend of caps on liability being agreed. This is likely to encourage discussions on this item. Additionally, regularly reviewing any agreed caps under documents which have been agreed, or are in the process of being negotiated, is essential for governance and risk management during projects.

Standard industry contracts and JCT 2024 revisions

As outlined in Beale & Co’s earlier updates, the JCT Contracts have been updated as part of the 2024 Edition, reflecting ongoing industry trends/modernisation and recent legal developments. Key updates include provisions regarding the email communication of notices and good faith obligations requiring parties to work collaboratively and engage in direct negotiations to resolve disputes.^[3]

However, it is worth noting that the decision in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962 may lead to parties seeking bespoke amendments to address the position in clauses 8.4.2 and 8.9.4 (which remain unchanged from the 2016 Edition).^[4] In Providence, the Court of Appeal clarified that a contractor could terminate the contract under the clause for a repeated “specified default,” even if the earlier notified default was remedied within the relevant cure period. The ruling provides clarity for users of JCT contracts, ensuring consistent interpretation of the standard termination provisions. However, parties may wish to agree alternative drafting if they do not wish for the default position to bite. Additionally, the section of the judgment dealing with “the applicable legal principles” (paragraphs 24-27) considers contractual interpretation points when dealing with industry standard forms, including the extent to which previous versions may be admissible in aiding the Court to construe parties’ intentions and the correct construction of the clause(s) in question.

We have seen the release of 2024 RIBA Standard, Domestic, Concise, and CDM Regulations Principal Designer Professional Services Contracts. Amongst other changes, the recent amendments require consultants to detail their professional indemnity insurance cover for cladding and fire related issues, in addition to material exclusions or restrictions relevant to the project.

Other trends in construction claims

The Department for Levelling-Up, Housing and Communities appears to have taken a more assertive stance, seeking direct reimbursement from contractors for sums advanced under the Building Safety Fund. This is particularly relevant when remediation works have been completed and the Government holds assigned rights in relation to causes of action against those deemed responsible for any alleged issues regarding the original design and construction. The reimbursement drive underlines a trend of increased accountability and focus on contractors and may lead to further disputes in cases where contractors contest liability and/or the scope of any remediation works undertaken

The Cladding Safety Scheme also sparked a surge of applications and potential claims. With many affected buildings now under scrutiny, a key issue is likely to concern how liability will be apportioned amongst parties involved in their design, construction and/or maintenance. Disputes concerning apportionment generally appear to be slowing resolution processes in cladding fire safety claims, especially where responsibility for any alleged defects is directed to contractors, various members of the design team and those responsible for the manufacture of products and materials. We still await the first TCC decision in the UK dealing with how any established liability is to be apportioned.

Another notable trend is the continued rise in large-value, complex professional negligence adjudications. These cases, often involving multiple parties in the wider context, add layers of complexity to this form of dispute resolution. The stakes are usually higher, meaning that adjudications can become resource-consuming, as claimants pursue significant damages linked to defects in design, materials, or construction. However, adjudication was originally intended to provide a mechanism for resolving relatively straightforward payment disputes quickly, and so it will be interesting to see if this trend continues and/or evolves into 2025.

Additionally, a perceived shortage of available, skilled construction mediators is impacting prompt and effective construction dispute resolution. The rising complexity and volume of high-value construction professional negligence claims is leading to some difficulty in finding and appointing suitable mediators. This shortage may lead to prolonged timelines, frustrating all parties: particularly so when viewed against courts enforcing tiered dispute resolution clauses or encouraging parties to attempt alternative dispute resolution (as outlined in our second update – Q2 2024).

In terms of document management, the extended retrospective limitation periods under the Defective Premises Act 1972 (DPA 1972) introduced under the Building Safety Act 2022 (BSA 2022), and the increase in historic claims being pursued, continue to present an ongoing challenge in terms of a lack of comprehensive records. There have been instances where critical contract or project documents are unavailable during claims, hampering the legal process and potentially undermining cases due to incomplete evidence. It seems to us that more and more arguments are going to be run and tested in the Courts in relation to Section 135(5) of the BSA which allows the Courts to dismiss any claim brought in reliance on the extended retrospective limitation periods under the DPA 1972 if the same claim would breach a defendant party’s human rights (most likely a right to a fair trial).

Fire safety remains a key area focus, especially following the Shepherd Construction v Kingspan brought under the BSA 2022. This case has settled but prompted industry and legal discussion on fire safety principles, especially in the context of the manufacture and marketing of insulation products and materials used in cladding systems. A likely consequence of this is more disputes against those responsible for the manufacture of such products and materials.

Other Building Safety Developments:

Grenfell Tower public inquiry’s Phase 2 Report (Phase 2 Report)

The Phase 2 Report, released in early September 2024, analysed the circumstances surrounding the fire.^[5] It identified failures by the Government, local authorities, the Tenant Management Organisation, and the construction industry, amongst others. The report criticises the lack of accountability in building management, procurement, design, construction, and safety compliance; highlights ignored warnings regarding combustible materials on higher-risk buildings; and notes misplaced confidence concerning the effectiveness of the regulatory regime. The Phase 2 Report proposes recommendations to improve fire and building safety and further reform in the construction industry. It recommends reviewing the Higher-Risk Building (HRB) definition, which may impact the projects subject to enhanced safety compliance requirements. Our “Digesting the Grenfell Report” hub contains summaries of the core findings and their implications for the construction industry.^[6]

Construction Leadership Council’s (CLC) activities

The Phase 2 Report followed the CLC’s August 2024 report, “Creating Safe Buildings: Delivering Safety, Competence, and Quality.”^[7] The CLC had stressed the construction industry’s shared responsibility for safety throughout a building’s lifecycle, focussing on leadership, safe design, safe construction, safe products, and safe building occupancy. Both reports recognise progress in improving the sector’s safety culture but call for further reforms
prioritising safety post-Grenfell. Construction professionals, contractors and their insurers would therefore be well advised to remain informed of future developments emerging as the sector adapts.

CLC Golden Thread guidance

The ‘Golden Thread’ concept, a central theme to building safety post-Grenfell and the Hackitt Report, is reflected in a statutory requirement for HRBs under the BSA 2022. This involves creating and maintaining comprehensive building information throughout a project’s lifecycle. The CLC’s recent guidance aims to help dutyholders to implement the requirements effectively.^[8] It indicates the need for accurate, accessible information to ensure safety and compliance, highlighting the importance of regular reviews and updates. Consideration should also be given to how project documentation is created, shared, stored and accessed, both during live projects and in the future. Proper management of documentation can also enhance collaboration, reduce duplication, and increase accountability, contributing to safer building environments.

What is a ‘storey’ for HRB purposes?

The definition of a storey for HRB purposes was considered in the First-Tier Tribunal case, Nicholas Blomfield & Others v Monier Road Limited in the Summer.^[9] The Tribunal scrutinised the Government’s guidance on HRBs when considering this issue, particularly around how to count storeys. While the Government’s guidance states that a storey must be enclosed to be counted, the Tribunal found that there were contradictions with the legal requirements and that a usable rooftop terrace constitutes a “storey”. The decision classified the building in question as seven storeys, qualifying it as an HRB under the BSA 2022. This interpretation could directly impact future building classifications, especially in view of the Phase 2 Report’s recommendation to review the HRB definition. Further government and industry statements on this decision and the application of the guidance are still being announced.

Liability and extended limitation periods

As a reminder, the Supreme Court will hear the appeal in URS Corporation Ltd v BDW Trading Ltd [2023] EWCA Civ 772 later this year. Our earlier article contains more information^[10].

PFI handback

As many Private Finance Initiative (PFI) projects near expiry, handback review processes and issues have become a growing concern. Disputes may arise over contract terms, asset conditions, maintenance, and compliance with contractual handover standards. The recent case of Consort Healthcare v Tameside NHS presents an example of these challenges, where a restructuring plan was proposed under Part 26A of the Companies Act due to disputes over construction flaws, including fire safety defects.^[11] The possibility of disputes at the PFI handback stage underscores the need for proactive management by both public and private parties. Parties will aim to ensure returned assets meet required standards, while private entities should manage contractual obligations early to avoid costly disputes or mitigate any insolvency risks.^[12] As more PFI contracts expire, these discussions and disputes are likely to increase, particularly over asset condition and compliance.

What else to look out for this year:

Increasing use of artificial intelligence (AI) and Digital Technology

The integration of AI and technology in construction continues to grow, bringing with it both opportunities and risks. Construction companies are especially vulnerable to cyber-attacks, which can harm financial margins, project timelines, reputations, and supply chain relationships. This quarter, the National Cyber Security Centre (NCSC) and the Chartered Institute of Building (CIOB) issued guidance to help construction firms defend against such threats.^[13] Both the NCSC and CIOB emphasise a multi-layered cybersecurity approach, recommending regular security assessments, employee training to recognise risks and phishing attempts, and robust access controls. Firms are encouraged to create clean information security and incident response plans tailored to their operations, and to keep software and systems updated to prevent exploitation by cybercriminals. Proactively addressing cybersecurity risks helps protect projects and business sensitive data.

Consultants and contractors should continue to remain vigilant about cybersecurity as they implement new technologies and deliver projects. Compliance with confidentiality, data protection, information security standards and contractual requirements is critical, particularly for infrastructure or asset management projects. Clear contract terms are essential to maintain trust and mitigate the risk of legal or financial repercussions from possible data breaches or issues.

Further, the recent designation of data centres as critical national infrastructure reflects the government’s efforts to bolster cybersecurity for essential services.^[14] This status enables better coordination with the NCSC and emergency services, ensuring the protection of critical data. However, it potentially raises questions about how this may affect the National Security and Investment Act and broader strategies for protecting critical data going forward.

Increasing Awareness of ESG Matters

The construction industry is increasingly focusing on environmental, social, and governance (ESG) issues, driven by growing sustainability and climate change concerns. A key development has been the launch of the UK Net Zero Carbon Buildings Standard in September 2024.^[15] This standard aims to create a uniform framework for reducing the construction industry’s environmental impact and supporting decarbonisation. While voluntary, adopting the standard in contracts enhances compliance and fosters a proactive approach to sustainability in projects. The 2024 Edition of the JCT Design & Build also includes a new clause 2.1.5, dealing with sustainability improvements, as standard.

Another legislative development is the introduction of the Water (Special Measures) Bill 2024-25, presented to Parliament in September 2024.^[16] The Bill seeks to strengthen the powers of water and environmental regulators to improve water quality and address public concerns about the UK water industry, particularly regarding storm overflows and pollution.^[17] Labour had pledged to hold water companies accountable, with plans proposing to block bonuses for executives of polluting firms and to enforce criminal charges against persistent offenders. Contractual provisions and indemnities may soon emerge in response to legal and regulatory changes within the water industry.

The Supreme Court’s ruling in Manchester Ship Canal Company Ltd v United Utilities Water Ltd (No. 2) [2024] UKSC 22 could trigger further litigation, increasing legal risks for water utilities.^[18] The decision upholds rights following unauthorised sewage discharges, pressuring companies to reassess infrastructure and risk management strategies. As environmental groups continue to gain traction, public scrutiny on water companies will likely intensify, demanding greater transparency and compliance.

Concluding remarks:

This quarter saw continued key advancements in construction, with a focus on building safety, wider legal and regulatory changes, digital, and sustainability. Such points are being considered and reflected in industry standard contracts and other guidance issued in Q4. It will be interesting to see what the final quarter brings as we look ahead to 2025. Should you have any questions on the content of this article or its application to your business activities in the meantime, please contact Ian Masser or your Beale & Co contact.

[1] ISG goes into administration | Beale & Co (beale-law.com)

[2] Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024); CLS Civil Engineering Ltd v WJG Evans and Sons [2024] EWHC 194 (TCC) (02 February 2024)

[3] JCT Contracts 2024 – Standard Building Contracts and Intermediate Building Contracts | Beale & Co

[4] Providence v Hexagon

[5] Publication of the Grenfell Tower Inquiry phase 2 report – GOV.UK (www.gov.uk)

[6] DIGESTING THE GRENFELL REPORT | Beale & Co (beale-law.com); GRENFELL TOWER INQUIRY: PHASE 2 REPORT – Summary of main findings | Beale & Co (beale-law.com)

[7] Steps to create a safer culture and future for the construction industry – recent updates and has enough been done? | Beale & Co (beale-law.com)

[8] CLC-Golden-Thread-Guidance.pdf (constructionleadershipcouncil.co.uk); CLC-Golden-Thread-Guidance-Summary.pdf (constructionleadershipcouncil.co.uk)

[9] smoke_house_decision.pdf (publishing.service.gov.uk)

[10] Is Pirelli potentially doomed? The Appeal of URS Corporation Ltd v BDW Trading Ltd | Beale & Co (beale-law.com)

[11] Consort Healthcare (Tameside) Plc -v- Tameside and Glossop Integrated Care NHS Foundation Trust – Courts and Tribunals Judiciary

[12] IPA_Guidance_-_Preparing_for_PFI_Contract_Expiry.pdf (publishing.service.gov.uk)