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New Year, new contract terms? Navigating the latest developments in the construction sector

January 2025
Andrew Croft and Kayleigh Rhodes

Introduction

2024 saw some key developments in the construction sector, with new industry standard forms of contract and legislation, key case law, technical developments, and broader industry trends emerging. Staying informed of such changes is crucial for companies and professionals aiming to remain competitive and compliant in today’s dynamic environment. New developments should be considered when preparing tenders, standard terms and entering contracts. This update summarises the main developments from 2024 along with suggested steps to help prepare for the future.

The legal and commercial landscape – context

Several high-profile construction cases in 2024 emphasised the need for precise contract drafting. Decisions also addressed notice requirements, conditions precedent, liability limits, interest on late payments, and set-off. Additionally, views from courts and industry reports highlighted the benefits of proactive contract management and clear communication in adapting to commercial or legal change. For details, please see our ‘Construction disputes landscape for 2024’ updates.

What industry standard contracts were new in 2024?

Attention centred on the highly anticipated suite of JCT Contracts 2024 Edition publication. Whilst the changes were not significant, amongst the evolutionary changes introduced (some of which we comment on below), the JCT sought to streamline and modernise processes and ensure compliance with developing regulations. Find our earlier summary of the main updates here.

In other news, RIBA issued a new Building Regulations Principal Designer (PD) Professional Services Contract (PSC) covered here, as well as helpful resources and updates to existing PSCs. In November, RIBA also published non-mandatory guidance for those considering the PD role under Building Regulations and/or CDM Regulations. Further, the updated Association of Building Control Approvers (ABCA) Building Control Approver standard appointment (which Beale & Co helped prepare) was released (referenced here).

In 2024, industry bodies such as the Construction Leadership Council warned against attempts to incorporate substantial and onerous amendments to industry standard contracts. Bespoke amendments which stray further than project or commercial-specific requirements may undermine key contractual processes or mechanisms, increase risk and legal costs, and be challenging to implement in practice or uninsurable.

Liability considerations

  • Clarity and caps on liability: liability caps are an important issue, influenced by market trends and publications like the Construction Playbook and JCT Design & Build Guidance 2024. Recent case law highlights the importance of understanding which contract the parties are working under and the advantages of clear liability caps. For example:
    • The risks of commencing services and relying on a Letter of Intent (LOI) without finalising the main contract were highlighted in the case of CLS Civil Engineering Ltd v WJG Evans and Sons [2024] EWHC 194 (TCC). An agreement was not reached by the parties despite negotiations regarding the main contract’s terms. As a result, liability and recovery were restricted in line with the LOI provisions.
    • In South East Water Ltd v Elster Water Metering Ltd [2024] EWHC 620 (TCC), the court considered the enforceability of an exclusion and reinforced the need for transparency and clear drafting capturing the parties’ intent during contract formation, particularly where a party’s standard terms are proposed.
    • Topalsson GmbH v Rolls-Royce Motor Cars Ltd [2024] EWCA Civ 1330 examined the application of a liability cap and set-off provision. Whilst the decision was fact-specific, it underscores the importance of precise drafting and rigorous testing of the order and operation of caps and associated provisions. This is particularly relevant since courts tend to interpret and apply contractual language based on its ordinary meaning, even if one party later views the outcome as unexpected or unfair.
  • Overriding duty of care: the applicable standard of care is another key point in design appointments and design and build contracts, including the extent to which that duty is “overarching” and applies to other obligations under the contract. In Lendlease Construction (Europe) Ltd v Aecom Ltd (Rev 1) [2023] EWHC 2620 (TCC), an “overarching” duty of reasonable skill and care was held to take precedence over more stringent obligations (including a clause requiring compliance with the main contract). The court’s decision now justifies requests for overarching duties of care to be included in contract documents for clarity.
  • Limitation periods: understanding the defects liability or limitation periods and their application to claims is key. Take care regarding longer limitation periods, such as blanket clauses not simply aimed at addressing the Building Safety Act 2022 (BSA 2022), since this increases risk and insurance requirements. It is also worth checking limitation periods in respect of the recovery of indemnities under the contract.
  • Other protections: net contribution clauses are re-emerging in certain professional appointments as a means to manage risks under the BSA 2022 and potential insolvency impacts on projects. Such clauses should be tailored for each project. An industry standard net contribution clause was not applied in the context of the Defective Premises Act 1972 in Vainker v Marbank Construction Ltd & Ors [2024] EWHC 667 (TCC) (summarised here). Nevertheless, when net contribution clauses are agreed, they can be very valuable in relation to limiting liability in response to certain claims.

BSA-related provisions

The market positions regarding the incorporation of the building safety regime within contracts in England and Wales (noting the differences between these two jurisdictions) are unsettled, and over a year since the duty holder and Higher Risk Building regimes came into force, the industry is still getting up to speed with them.

Some contracts are therefore still silent on these important processes even when they apply, so this is something to look out for and request clarity on.  Nevertheless, in 2024 we saw additional provisions being included in contracts in relation to the BSA 2022 and secondary legislation, ranging from simple acknowledgements of the obligations (in a similar way to the JCT 2024 approach), to detailed and often onerous provisions which go beyond the statutory position.  The latter should be approached with real caution.

Additionally, there is continuing uncertainty in relation to the timescales for completing building control processes and obtaining necessary approvals, particularly within the context of the enhanced building safety gateway regime for higher-risk buildings. The risk allocation therefore needs careful consideration, including in relation to programme, budgets/costs, and entitlements to additional time and/or money. For more information on this important consideration and industry guidance, please refer to our recent awareness update linked here.

The core findings and recommendations from Phase 2 of the Grenfell Tower Public Inquiry highlighted that despite actions taken in the wake of the tragedy, more improvements are needed in the construction industry and building safety practices. The Phase 2 Report and subsequent reviews will likely lead to further legislative and regulatory changes, necessitating continuous reviews of contract terms and risk management approaches. For commentary on the Phase 2 Report and its impact on contractors and consultants (and their insurers), future legislation and regulation, please visit our Digesting the Grenfell Report Hub.

Other commercial considerations

  • Due diligence and insolvency provisions: due to current market conditions, and high-profile insolvencies in 2024, it is advisable to conduct thorough due diligence on parties and include appropriate insolvency protections in contracts.
  • Commercial risks: the impact of commercial risks arising from inflation and changes to Employer National Insurance Contributions need to be considered and agreed. Companies should also be aware of how these risks are allocated, notified, or managed under contracts. For example, our update following the last Budget Speech and the potential impact on live projects or contracts can be located here.

Other decisions in 2024 stressed the need to manage change, understand and comply with notice requirements and conditions precedent in relation to the same, such as in FES Limited v HFD Construction Group Limited [2024] CSOH 20 (considered here).

  • Responsibility and scope: recent case law and market developments following the Grenfell Phase 2 Report emphasise the need for well-defined scopes of work/responsibilities and adequate focus on competency and accountability. Our earlier articles contain further insights on how procurements may be impacted (linked here) and terms and conditions may evolve after the Public Inquiry (linked here).

The scope of services and obligations can give rise to disputes on projects. In Workman Properties Ltd v Adi Building and Refurbishment Ltd [2024] EWHC 2627 (TCC), the court examined the extent and nature of design responsibilities under an amended 2016 JCT Design and Build Contract. Additionally, BNP Paribas Depository Services Ltd & Anor v Briggs & Forrester Engineering Services Ltd [2024] EWHC 2903 (TCC) addressed issues relating to contractual interpretation and liability under an amended 2016 JCT Design and Build Contract in the context of delays caused by the presence of asbestos. These rulings also reinforce the importance for parties to comprehensively review and negotiate contracts holistically, as focusing on a specific provision in isolation may lead to inconsistencies or conflict with the overall commercial intent.

Evolving Environmental, Social, and Governance (ESG) considerations

There is growing emphasis on ESG-related requirements and reporting, further prompting the inclusion of associated provisions in contracts. Additionally, with the rise in environmental scrutiny on corporate actions and decisions, as well as activism regarding certain projects, it is advisable for parties to clearly outline any ESG requirements and performance monitoring processes. The agreed approach and consequences related to such ESG provisions should also be explicitly detailed in the contract. Examples of trends include:

  • Sustainability provisions: parties are incorporating sustainability requirements, data collection and monitoring provisions, and industry standards (such as the UK Net Zero Carbon Buildings Standard – explored here) with the overall objective of meeting ESG goals. The JCT Design and Build Contract 2024 has turned a previously optional sustainability provision into a default clause. Clause 2.1.5 encourages the Contractor to propose cost-effective environmental and sustainability improvements if instructed by the Employer. Although it is relatively light touch in terms of ambition and potentially presents other operational issues, it aligns contracts with broader UK trends and industry initiatives.
  • Equality, Diversity, and Inclusion (EDI) and Wellness: it is becoming increasingly common for parties to include provisions that mandate parties to comply with legal and contractual requirements regarding employment, modern slavery, EDI, and wellness. Additionally, there are a range of clauses addressing social value requirements, adherence to project charters on EDI and site operations, as well as those focusing on behavioural, relationship, and resourcing matters.

In 2024, mandatory biodiversity net gain requirements were gradually introduced for developments in England. As a result, contractors and consultants may be required to increasingly agree or advise on specific biodiversity and ESG-related issues in the future and/or should consider relevant risks when bidding, pricing, and undertaking future works or services on relevant projects.

Digital and Artificial Intelligence (AI) provisions

Previous updates have discussed the growing use of digital tools and solutions on construction projects, including design and construction (here) as well as health and safety (here). With the global rise in the use of digital tools/AI, companies must grapple with appropriate governance and training within their organisations.

Furthermore, terms and conditions and commercial models may need to be reviewed to ensure they reflect digital aspects typically absent in traditional frameworks and contracts. This includes adding appropriate provisions related to AI use, compliance with AI policies, liability for AI use, intellectual property rights, and cybersecurity provisions in their contracts. Depending on the context and deliverables being provided, completely different terms and conditions may also need to be considered which reflect the risks and arrangements with third parties (e.g. a software as a service contract, rather than a construction contract).

Future items to watch for 2025

  1. Prolongation and risk: due to funding and potential delays associated with the Higher Risk Buildings procedures, projects in the current market can often follow a “stop start” pattern. It is therefore very important for parties to include appropriate provisions associated with prevention or force majeure and effectively manage the risks and costs associated with project delays.
  2. Collaboration and good faith: there is a heightened focus on collaboration and good faith on projects and in negotiations, including as part of the enhanced dispute resolution mechanisms included in the JCT Contracts 2024 Edition. This year may usher in more discussions concerning dispute escalation measures and the judiciary’s support for parties’ use of alternative dispute resolution (such as mediation) as part of case management and procedural processes.
  3. Remaining rollout of the JCT Contracts 2024 Edition: based on earlier indications, we expect publication of the remaining contract forms, including the new Target Cost Contract family, by the Summer. We expect these to largely align with the main changes introduced by the JCT to date.
  4. Government’s response to the Grenfell Tower Inquiry’s Phase 2 Report: further legislative and regulatory changes to building safety are likely. Concurrently, construction industry bodies are reviewing the main findings and recommendations, and liaising with the government and other stakeholders on future changes aimed at improving building safety and competency.   This makes change of law clauses very important to properly allocate the risk of such changes.
  5. Procurement Act changes: the implementation of the Procurement Act 2023 is scheduled for late February. It is important to understand the potential impacts this legislation and accompanying guidance may have on public sector tender processes, as well as the need for thorough review and evaluation of key performance indicators (KPIs) in awarded contracts.
  6. Creative mechanisms and collaborative contracting: collaborative contracting is trending on a global scale as the construction industry moves toward cooperative methods to address rising market demands in the face of limited resources and workforce shortages. The JCT has incorporated a collaborative working clause as standard in its 2024 Edition. In addition, FIDIC is reportedly developing a Collaborative Contract tailored for the international market. Given the range of approaches to collaboration in the industry, it is crucial to understand how parties intend to use collaborative models, manage aligned objectives, share risks, and resolve disputes in practice.

Concluding thoughts

There were a range of legal, commercial and technical developments within the construction industry in 2024 which should be considered and appropriately managed when preparing tenders and standard terms, entering contracts and administering them.  Further developments during 2025 should also be monitored closely.

Beale & Co have specialist expertise in practice areas spanning the full lifecycle of projects and contracts. For example, our Contracts and Project Advisory Team has experience in assisting a range of clients in navigating these developments and in taking practical steps to ensure that contracts and appointments remain compliant and effective. For more information, please contact Andrew Croft or your regular Beale & Co lawyer. Please also sign up to our mailing list for more information on many of the themes explored above.

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