Part Two – An Update on the Gateways Process: The Impact on Contracts and Risk Allocation

In Part one of this series, we discussed the significant media and industry attention received by the Gateway processes for higher-risk buildings in England, notably the delays in obtaining approvals under the Gateways process.

While the recent announcements, as discussed here, will hopefully result in improvements to the Gateway processes, parties should continue to take steps to protect themselves.

Based on the construction contracts we are seeing, many contracts tend to be silent on obtaining Gateway approvals and the consequences of the delays in obtaining such approval.

Delays

BSR delays are not only driving up project costs and extending programmes but also placing significant pressure on timelines.

Applications being rejected after the initial review period may also compound further delays on a project. The extensive delays may result in the contractor/consultant being in breach of any contractual requirement to comply with the programme and may also absorb any float in the programme. Where contracts impose liquidated/delay damages on the contractor/consultant for programme slippages/missed key dates and completion dates, the contractor/consultant may find themselves liable for such damages as a result of the delays. Thorough review of the programme and key dates should be carried out with the possible delays in mind.

Clear drafting providing the contractor/consultant with an extension of time, should the Gateway approval be delayed, will help them to manage this risk. Commercial consideration to the programme (and any programme float required) should also be given at outset of the project.

Responsibility for the delays may also be a contentious issue between the various professionals working on the project, particularly as the delays may be outside the control of the professional project team. Provisions dealing with the responsibility for such delays are often, in our experience, not included in contracts. Clear drafting which attributes the responsibility for the delays, managing the delays, and any liability attaching to such delays, may help manage the risks of disputes in this regard. However, such provisions may be difficult to negotiate with clients given the delays currently being faced by clients on their projects.

Costs

The delays in obtaining Gateway approvals could increase the costs incurred by contractors/consultants. The delays may require contractors/consultants to keep resources on projects for a longer duration than initially anticipated for. In addition, the contractor/consultant may be required to carry out additional work. Following the initial cost of reviewing an application, professionals may incur additional expenses if multiple attempts are required to obtain Gateway approvals, particularly in cases where the BSR does not grant approval.

Carefully drafted variations mechanisms in contracts, capturing additional costs incurred due to the Gateways regime and associated delays, will be key in providing relief in the event that additional costs are incurred. If such provisions are not negotiated into contracts, such costs will fall to the contractor/consultant who will be required to absorb such costs which may erode profit margins and affect cashflow.

Scope and fee proposals

In addition to addressing the Gateway approvals regime and the delays that have been occurring in the contract terms, contractors/consultants should give careful consideration to such matters during the proposal stage and at the outset of a project. Clearly defined parameters in fee proposals and scopes of services such as:

• the expected timescales for obtaining Gateway approvals; and
• the number of attempts included in the contractor’s/consultant’s pricing and programme can help manage risks.

This is particularly effective if coupled with robust contract drafting that provides relief if the assumptions or parameters outlined in the fee proposal and scope of services are exceeded.

Change in Law

Given industry calls for reform, the Gateway approvals regime and its associated laws may be subject to further changes in due course. Change in Law provisions should be carefully drafted to account for any future legal amendments and to provide relief if such changes result in additional costs or delays for the contractor/consultant. Grounds for suspension and termination should also be carefully considered.

Comment

Following our discussion in Part One of the series, it is undeniable that the BSR and Gateway approvals process need to improve.

The delays and other issues to date – likely to persist for some time even if recent announcements lead directly to improvements – along with the associated risks highlighted in this article, underscore the importance of parties carefully considering their fee proposals and offerings, as well as thoughtfully drafting contractual provisions to address delays and associated costs. It is key that the risks of delay and additional work arising from the Gateway process is discussed at the outset and the risks appropriately provided for in the contract terms.

For any queries or support regarding the points raised in this update and how these may directly impact your projects or contracts, please contact the authors, or your usual Beale & Co contact.