GRENFELL TOWER INQUIRY: PHASE 2 REPORT – WHY YOU SHOULDN’T ADOPT A CASUAL APPROACH TO CONTRACTING

The Grenfell Tower Inquiry’s Phase 2 Report was published in early September 2024 (the “Report”). Beale & Co’s article summarised the core findings and recommendations relevant to the construction and engineering sectors. This update considers the Report’s potential impact on future contracts.

The importance of establishing clear contractual relationships

Beale & Co’s earlier article delved into how the procurement failures of certain contracts may have contributed to the inadequate construction and safety standards during the refurbishment works of Grenfell Tower.

However, the Report also reinforces several important practices when commencing a construction project and entering into contracts[1].  Demonstrating this, it makes several findings emphasising the need for clear contractual relationships and terms, i.e. to avoid “casual” contracting arrangements and help ensure that all parties involved in projects understand their respective roles and responsibilities. The inference is that clearly written contracts help to establish accountability and communication amongst parties on projects. As shown by the events and circumstances surrounding the fire, the lack of contract terms and clarity on roles or responsibilities (see below) can lead to confusion and mismanagement in practice, in turn resulting in serious safety risks. Retaining the signed contracts for future reference is also important.

Industry Standard Contracts

Parties often seek to use standard industry contracts however these may subsequently be amended via lengthy schedules of amendments reflecting the client’s requirements. It is important to ascertain whether the relevant industry contract already reflects the latest legal or regulatory position. It goes without saying that proposed amendments should be carefully considered.

For example, our earlier commentary observed that the 2024 Edition of the JCT contracts adopts a relatively ‘light-touch’ approach to building safety (linked to the Contractor’s general obligation to comply with Statutory Requirements). Parties must therefore refer to the relevant JCT Guidance and legal landscape to determine whether bespoke amendments are in fact required to address any issues: i.e. in the context of the enhanced building safety regime for higher-risk buildings (“HRBs”), gateway approvals, or for the associated golden thread requirements.

Heavy bespoke amendments often affect the standard industry approach to risk allocation between the parties and may directly impact familiar contractual mechanisms (i.e. on entitlements or claims for additional time and/or cost, early warning risk, etc.). Notably, the Construction Leadership Council (“CLC”) recently published a statement indicating that amendments to standard contracts increasingly introduce onerous terms and/or are difficult to insure for contractors and consultants, and effectively go further than required in the context of project-specific risks or relationships. The CLC notes that this approach to drafting reduces competition, makes contracts unviable, increases risk and creates further legal spend. It is prudent to limit any amendments to necessary items – such provisions must be clearly drafted, carefully reviewed in parallel with the remainder of the contract terms and operated accordingly throughout the project.

Scope of services

The Report has also highlighted the importance of competency and having a clear and accurate scope of services.

Combined with a design responsibility matrix (where applicable), a clear scope of services may alleviate risk and increase communications, particularly on larger or more complex projects. The main parties mentioned in the Report were found to have given insufficient regard to fire safety matters or risks, or management of the same. For instance, the principal contractor, architect and cladding subcontractor did not appear to fully understand the nature or scope of their obligations or paid scant attention to these. The principal contractor’s systems for managing work did not ensure that its supply chain properly understood their responsibilities or that design work was coordinated. Additionally, whilst the principal contractor relied upon the cladding subcontractor to flag any design errors, it did not specifically ask it to assess the architect’s work.

Further, as mentioned in our discipline impact note on the fire engineers, the final fire strategy was never completed for the refurbished building. Expert evidence considered by the Inquiry indicated that the failure to provide such advice was a “serious omission” by the fire engineer, with the Panel noting this “represented a fundamental failure… to provide the services for which it had contracted”[2]. This confirms the importance of marking documents and information issued correctly, and confirming the scope of services and deliverables at the end of a project. This principle also applies in the context of outstanding information and documentation requested or expected from other parties too.

The Report describes the role of the lead designer/consultant as including a “duty to advise on the need for, and the scope of services to be provided by, consultants, specialists, sub-contractors or suppliers and to monitor the work of other consultants.”[3] It is therefore possible that industry organisations or parties may attempt to point to this general observation for future negotiations on scopes of services and associated obligations.

We suspect that scopes will come under even greater scrutiny with the underlying intention that the scope must be clear and accurate in light of the services being provided.

Variations and changes in law

As outlined in our recent podcast, the Report makes several recommendations which may ultimately influence the review and amendment of applicable legislation, regulation and/or statutory guidance. References and contractual obligations relating to legislation and terms such as Statutory Requirements (including the definition of this term), will need to be carefully considered in parallel with the changing landscape.

Given the changing landscape and contents of the Report, parties should carefully consider entitlement to a variation as well as the fees associated with any applications, delays (including in obtaining Gateways approvals for HRBs), and additional risks under the legislative regime (particularly for HRBs) together with allocation for the same.

Although the Report uses “higher-risk building” in line with the Building Safety Act 2022, it states that defining a building by reference only to its height is unsatisfactory and arbitrary in nature. Instead, the nature of the building’s use and the likely presence of vulnerable occupants is relevant, and so the Report recommends that the statutory definition of a HRB be urgently reviewed. We may see more buildings caught by the enhanced HRB regime as a result. The Report also indicates that The Building Regulations 2010, Approved Document B requires review, i.e. taking into account expert evidence and continuous review, and should be amended annually or promptly whenever developments in construction materials or methods make it desirable to do so. It is therefore important that parties are clear on the position regarding changes in law (and what this includes) occurring after the date the contract is signed, since future change may significantly impact the overall approach, programme, and budget on live projects.

It also recommends new statutory requirements for a statement (from a senior manager of the principal designer under the Building Safety Act 2022) and personal undertaking (from a director/senior manager of the principal contractor), regarding compliance with Building Regulations, in support of building control applications for the construction or refurbishment of any HRB. Such requirements may make their way into contract documents or scopes of services, and the content of such statements will need to be carefully considered. Any additional scope items or deliverables should be carefully reflected in the scope of services, programme, and fee.

Concluding thoughts

It is possible that the contents of the Report will potentially provide encouragement to parties to seek extensive amendments to standard industry construction contracts, however this is not without risk. The Inquiry’s findings underlie the roles of the client and parties in procuring, creating, and understanding contractual appointments, as well as the need to have a clearly defined scope of services/deliverables, and implementing the same. It also emphasises the importance of having clear change in law or variation provisions.

Our specialist Contracts and Project Advisory lawyers are happy to advise on construction contracts, including from a building safety-related perspective. Please contact the authors, or your Beale & Co lawyer, should you require further support on construction contracts or professional appointments. You can also find detail on other aspects of the Report via our Digesting the Grenfell Report” hub.

[1] Volume 4, Chapter 67

[2] Volume 4, Chapter 54, paragraph 54.114

[3] Volume 4, Chapter 52, paragraph 52.17