Construction and projects in UK (England and Wales): overview

A Q&A guide to construction and projects law in the UK (England and Wales).

The Q&A gives a high level overview of the main trends and significant deals; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; labour laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; and proposals for reform.

To compare answers across multiple jurisdictions, visit the construction and projects Country Q&A tool.

This Q&A is part of the global guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-guide.

Contents

Overview of the construction and projects sector

1. What are the main trends in the local construction and projects market? What are the most significant deals?

Main trends

Infrastructure projects, particularly energy and transport, continue to be a focus for the UK. The National Infrastructure Delivery Plan 2016 to 2021 and recent establishment of the National Infrastructure Commission is seen to give reason for confidence in the buoyancy of these markets for the coming years and some certainty as to deal flow.

It is commonly thought that Brexit has and will continue to cause a slowdown in certain projects, particularly where private investment is required. However, it is also generally thought that the case behind the commitment by the UK Government in this area is reinforced by the general threat to the UK economy by the vote to leave the EU.

Devolution to Scotland and Wales, as well as regional devolution within England (for example, the so-called Northern Powerhouse), continues to be a key factor in the market, particularly for regeneration and transport infrastructure projects.

A significant challenge, recognised by the government, is how the ambitious plans for infrastructure are to be funded. New funding options are being explored to attract long-term private investment, and a good recent example for this is the Thames Water GB£3 billion Thames Tideway Tunnel project.

Commercial development was busy before the Brexit referendum. However, there have been winners and losers since the fall in the UK currency and as uncertainty took effect. Housing still remains firmly on the political agenda but is similarly affected.

There is increasing consolidation and change among many of the UK large contractor and consultant organisations. The European contractors continue to have a large presence in particular, but Brexit may cause hiatus in investment by this group. Frameworks and alliancing are fairly well-established across the infrastructure sector and it is thought these are likely to spread into the commercial property and regeneration markets.

Major projects

Crossrail is seen as a successful project and is coming up to completion. Crossrail 2 feasibility has commenced.

High Speed 2 (HS2) is at the bidding stage and the government's commitment to it appears to be unaffected by Brexit.

Highways England (successor to the Highways Agency) is progressing with a major investment programme and also appears unaffected.

While nuclear new build progresses, there has been a hiatus following Brexit due to the new government's review, notwithstanding the EDF and Chinese funding commitments.

The renewable energy market has seen the significant withdrawal of incentives for green energy. This was inevitable in what is now a fairly sophisticated market in all but the emerging technologies. However, the market still remains reasonably buoyant.

The water utilities continue with significant investment and contracts have been let for the Thames Tideway Tunnel.

A decision as to whether Heathrow or Gatwick airport will be expanded is still yet to be made but it is expected that one of the expansions will be approved in the near future.

 

Procurement arrangements

2. Which are the most common procurement arrangements if the main parties are local? Are these arrangements different if some or all of the main parties are international contractors or consultants?

The main parties involved in a typical construction project are:

  • Client. The party for whose benefit the works are carried out, for example a developer or landowner. The client is sometimes referred to as the employer/owner.

  • Contractor. The party appointed by the client to construct the works. More than one contractor may be appointed, each for separate works packages. There is often extensive subcontracting.

  • Professional team. The designers (such as an architect or engineer), as well as the project manager, cost consultant and other professional advisors.

  • Funder. The party providing finance for the project to the client.

The most common methods of procurement are:

  • Traditional procurement. Responsibility for the design and construction of the project are kept distinct. The client appoints the design team to carry out the design and, separately, the contractor constructs the works to the required design.

  • Design and build. The client appoints the contractor to complete the design and to construct the works to meet the client's requirements. The contractor may appoint (or have novated to them) specialist designers to carry out the design, but it will still be liable to the client for the design. This approach gives single point responsibility and sometimes greater price certainty. However, it can be limited by the amount of detail in the client's requirement at the outset. In the context of a development involving process plant, the design and build contract is often referred to as an "EPC" (engineer, procure and construct) contract. This may also incorporate ongoing operation and maintenance services (referred to as an EPCM contract).

  • Package contracting. Examples of this are construction management (where the construction manager sources and arranges works contractors for the client to directly contract with) and management contracting (where the management contractor enters into separate works contracts but does not take total delivery responsibility).

Similar structures are adopted where the main parties are international contractors or consultants.

 

Transaction structures

3. What transaction structures and corporate vehicles are most commonly used in both local and international projects?

Local projects

In the largest projects, two or more contractors may join together as a joint venture (JV). This may be contractual or a corporate JV structured as a company limited by shares or a limited liability partnership. Larger projects, for example major rail infrastructure or large energy projects, are likely to have more complex arrangements.

The other common structure is where a special purpose vehicle (SPV) is set up in Public Private Partnerships (PPP). The public body enters into a contract with the SPV to purchase services on a long-term basis and the SPV in turn engages separate subcontractors for the construction, operation and maintenance of the facility.

International projects

Similar transaction structures are adopted for both local and international projects (see above, Local projects).

 

Finance

4. How are projects financed? How do arrangements differ for major international projects?

The funding structure for projects depends on the nature of the client and the type of project.

In a straightforward project, for example, the funding may come from a combination of equity investment or debt finance (including in some cases, mezzanine finance) through a single lender or multiple lenders and on a non- or limited recourse basis.

Senior lenders can include Project Finance (PF) banks, export credit agencies, multi-laterals such as the European Investment Bank or IFC and, increasingly commonly in UK renewables projects, the Green Investment Bank.

There are a number of private equity funds providing additional funding ranking senior to pure equity, which can be contributed at a senior or mezzanine level (depending on the particular project).

Increasingly other sources of funding have been available for specific projects, especially in areas where unproven technology means traditional PF funding is difficult to obtain. This includes pots such as the EU NER300 fund, direct grants from the government and, in Scotland, the RIEF fund administered by the Scottish Investment Bank.

In relation to Private Finance Initiative (PFI) projects (recently replaced by PF2, a form of PPP model), the funding has commonly been provided by equity investment and debt finance (typically multiple lender). 

Lenders commonly require projects to obtain at least 20% (and in many cases significantly more) equity/mezzanine funding to access limited recourse debt funding. Over the last two years or so, the contraction in liquidity seen during the financial crisis has eased and more capital is available for longer tenors and at better rates than there has been for some time.

 

Security and contractual protections

5. What forms of security and contractual protections do funders typically require to protect their investments?

Security

Depending on the nature of the development and the client, the funder may take a charge over the assets, shares and undertakings of the borrower. The funder may also require the benefit of all the construction documentation (including performance bonds and parent company guarantees) in relation to the project be assigned to it.

Contractual

The funder usually requires rights to step-in to the place of the borrower so that the funder can complete the project in the event of, for example, insolvency of the borrower. Depending on the nature of the project and the funding structure, this may include a direct agreement or a collateral warranty in favour of the funder.

 

Standard forms of contracts

6. What standard forms of contracts are used for both local and international projects? Which organisations publish them?

Local projects

There are a large number of standard form contracts in use within the UK. The most common forms are:

  • Joint Contracts Tribunal (JCT). The most common are the Standard Building Contract and the Design and Build Contract. These latest suite of contracts were released in 2011 and were supplemented in April 2015 to reflect the changes implemented in the Construction (Design and Management) Regulations 2015. At the time of writing, the JCT is in the process of releasing an updated 2016 edition of its suite of contracts. JCT forms of contract tend to be used for standard building and development projects.

  • New Engineering Contracts (NEC3). The use of the NEC suite of contracts has become more widespread in recent years, having been endorsed by the government (and were used for the Olympics 2012) and can be used for a range of project types, including general building and process plant.

  • Institute of Chemical Engineers (IChemE). The most common form is the Red Book, which provides for a lump sum contract. The Red Book is mainly used in process plant/complex engineering projects.

  • International Federation for Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils) (FIDIC). FIDIC is commonly used on UK projects, particularly the EPC/Turnkey Contract (Silver Book) and is often used in process plant/complex engineering projects.

International projects

Construction contracts for international projects tend to be based on similar forms to those relating to local projects, particularly FIDIC (see above, Local projects). The use of NEC-based forms of contract in international projects is also increasingly popular.

 

Contractual issues

Contractors' risks

7. What risks are typically allocated to the contractor? How are these risks offset or managed?

Risks that are typically allocated to the contractor include:

  • Design. In design and build contracts, the contractor usually assumes responsibility for the entire design of the project (including any design that has been provided by the client, which is why the client's design team are often novated to the contractor). Contractors will usually maintain professional indemnity insurance to cover any claims relating to negligent design (see Question 20).

  • Ground conditions. The client will usually attempt to pass all risk for ground conditions and any contamination to the contractor. These risks can often be managed by carrying out proper due diligence on the site (for example, ground investigation surveys).

  • Weather. The contractor may not be able to claim time and money for adverse weather conditions. In such circumstances, the contractor may need to allow for the risk of delays within its programme and the risk of additional cost within its price.

  • Insolvency of subcontractors. This risk is carried by the contractor and it is therefore important for the contractor to carry out appropriate financial due diligence on its supply chain.

  • Defects. The contractor bears the risk of defects in the project that arise as a result of the contractor's breach of the contract. There will usually be a specified period of time following completion during which the contract provides an express obligation on the contractor to correct defects (often called the "Defects Notification Period"). The length of this period usually depends on the type of project and the nature of the works. To manage this risk, contractors should ensure that they have effective quality controls in place, and that works are properly supervised and resourced.

 

Excluding liability

8. How can liability be excluded or restricted under local law?

If the contract is freely negotiated, the contractor can exclude or restrict its liability, usually by way of a cap on liability (see Question 9) and/or an exclusion of liability for certain types of loss, such as loss of profit or any indirect loss (which is more common in process plant contracts or complex projects). However, the contractor cannot exclude or limit its liability for death or personal injury (under statute) or for fraud or fraudulent misrepresentation (as a matter of public policy).

In most contracts, any restrictions on liability must satisfy a statutory test of reasonableness, otherwise they will not be enforceable. Whether a limitation or exclusion of liability is reasonable will depend on the facts and context of a transaction (for example, the relative bargaining power of the contracting parties). Reasonableness in a business-to-business contract differs to reasonableness in a business-to-consumer contract (where the test is stricter).

 

Caps on liability

9. Do the parties usually agree to a cap on liability? If yes, how is this usually fixed? What liabilities, if any, are typically not capped?

Caps on liability were not common in UK construction projects but are seen increasingly, particularly in the process plant and energy sectors, given that contractors are increasingly reluctant to accept unlimited liability. Caps on liability are often expressed as a total aggregate liability at the contract price or a percentage of the contract price. "Sub-caps" are also increasingly common in respect of matters such as liquidated damages for delay and underperformance. Whether such limits will be agreed often depends upon the relative bargaining position of the parties. Where a cap on liability is agreed, it is common for liability for certain matters to be excluded from the cap. What these excluded matters are will again depend on the relative bargaining position of the parties. However, excluded matters often include:

  • Contractor liabilities under indemnities relating to intellectual property and damage to third party property.

  • Contractor liabilities in respect of fraud or deliberate default.

  • Insured losses.

 

Force majeure

10. Are force majeure exclusions available and enforceable?

Contracts commonly provide for force majeure provisions to be included to cater for the occurrence of exceptional events beyond the parties' control, such as natural disasters or acts of terrorism, which prevent the parties from performing their contractual obligations. The force majeure clause often allows the party who cannot perform the contract to suspend its obligations and then terminate if the force majeure event continues for a certain period of time.

Given the severity of this remedy, force majeure clauses (and particularly the definition of the force majeure events) are often heavily negotiated and there is no standard definition under law. For this reason force majeure clauses should be very carefully drafted so as to clearly set out what events will constitute force majeure and what happens as a result.

 

Material delays

11. What contractual provisions are typically negotiated to cover material delays to the project?

In both UK-based and international projects, building contracts often include the provision of a liquidated and ascertained damages (LADs) mechanism, whereby the parties agree the level of damages that the contractor will pay to the client in the event of delay caused by the contractor.

Contractors sometimes seek to cap their liability in respect of LADs to mitigate against the risk of a prolonged delay becoming too onerous. Depending on the terms of the contract, contractors often have relief from LADs in the form of extensions of time in circumstances where the delay is not their fault, therefore allowing the contractor more time to complete his works. These are often negotiated so that delay risk is apportioned according to fault, control and the ability to manage risk.

In practice, the cause of a delay may not be easy to determine. There may be concurrent events, both causing delay, one for which the contractor is responsible, the other for which he is entitled to relief from. Ideally the parties will consider how this will be dealt with from both a contractual and practical perspective.

In calculating the LADs levels and rates to be included in a contract, parties traditionally apply a "genuine pre-estimate of loss" approach. This involves commercially negotiating LADs rates based on the loss that the employer would suffer in the event of delay. Where a LADs provision is not a genuine pre-estimate, it has previously been at risk to be found unenforceable as a penalty. More recently however, the courts of England and Wales have been more willing to enforce such clauses on grounds of commercial justification.

LADs also operate to limit the liability and give cost certainty to the contractor for delay. Therefore, LADs can be of benefit to both parties.

 

Material variations

12. What contractual provisions are typically negotiated to cover variations to the works?

The client's right to instruct variations to the works are a common feature of construction contracts.

It is usual for the contractor to be entitled to additional time and money if a variation is instructed by the client. It is often negotiated as to what will constitute a variation, the notice requirements and how a variation will be valued.

The contractor is not entitled to additional time or money under the contract if the variation is necessary due to the contractor's own default.

 

Other negotiated provisions

13. What other contractual provisions are usually heavily negotiated by the parties?

The parties' approach to the contract negotiation will ultimately depend on the parties' objectives and attitude towards commercial risk. However, it is common that the following concepts are heavily negotiated:

  • Security. The client may require the contractor to provide security to guarantee its performance of the contract and/or protect against the contractor's insolvency. Such security is usually in the form of a parent company guarantee and/or performance bond.

  • Collateral warranties or third party rights. These may be required from the contractor for any funder, investor, and any purchaser and tenant of the completed development. Similar rights may also be required from subcontractors and the contractor's design team.

  • Intellectual property rights. The client will usually require a licence to use any intellectual property belonging to the contractor.

  • Novation Agreements. In a design and build scenario, the form and terms of novation agreement, which apply if the benefit and burden of a professional appointment is transferred from an employer and a professional consultant to a design and build contractor and the professional consultant, are commonly negotiated as part of the contract negotiations.

 

Architects, engineers and construction professionals

14. How are construction professionals usually selected? Following selection, how are they then formally appointed?

Depending on the value and the importance of the package of services and the procurement requirements of the client, a formal tender may be held to select the professional consultant. EU directives govern the procurement processes for government and other public bodies.

Multiple supplier framework contracts are increasingly used under which a mini-competition is held in respect of individual "call off" contracts.

A client can engage a professional consultant using a standard form of appointment, a bespoke appointment, a letter of appointment or even under a letter of intent. There are numerous "standard" forms of professional appointment available which are drafted by the relevant professional institutions such as Royal Institute of British Architects, Institution of Civil Engineers, Royal Institution of Chartered Surveyors and so on. Where standard forms of appointment are used, they are often amended. Most larger and complex projects tend to favour bespoke appointments as these can be tailored to suit a particular project.

 
15. What provisions of construction professionals' appointments are most heavily negotiated? Are liabilities commonly limited or capped in construction professionals' appointments?

The most heavily negotiated provisions of construction professionals' appointments are clauses that seek to limit the consultant's liability, such as a financial cap on the consultant's liability or a net contribution clause. The outcome of negotiations on these issues often depends on the extent to which the consultant is able to obtain insurance to cover its potential liability and the parties' bargaining positions. In the current market in the UK, it is not uncommon for clients to concede a liability cap.

Consultants are usually required by their appointments to carry professional indemnity insurance, which they will need to maintain for the duration of their liability (which is 12 years if signed as a deed). UK-based consultancies often seek to cap their liability in line with the level of professional indemnity insurance that they hold. Internationally, consultants may seek even lower caps, closer to the contract price, although this varies according to the market, profession and practice.

Another area, often subject to negotiation in a professional appointment, is the extent to which key obligations are made absolute obligations, or are qualified subject to the consultant's obligation to use reasonable skill and care in their performance. Typically these include:

  • The consultant's duty to carry out their services in compliance with statutory requirements.

  • The consultant's duty to carry out their services in accordance with, and not to put the client in breach of, relevant third party agreements.

  • The consultant's duty to carry out their services in accordance with planning permissions, approvals and consents.

  • The consultant's obligations to not use or specify for use deleterious (harmful) materials and to ensure that others do not use deleterious materials.

 

Payment for construction work

16. What are the usual methods of payment for construction work? Are there ways for the contractor and consultants to secure payment or mitigate risks of non-payment under local law?

Methods of payment

The Local Democracy, Economic Development and Construction Act 2009 (Construction Act) amended the Construction Act 1996 and sets out mandatory minimum requirements in respect of payment under construction contracts (as defined in the Construction Act).

With this statutory framework in mind, the contract sets out the express terms on which the contractor will be paid. Common payment methods include:

  • Lump sum.

  • Measurement, where work is measured and paid for in accordance with a formula in the contract.

  • Cost plus, based on the cost of labour and materials plus an added profit percentage.

  • Target cost; that is, the cost plus with an agreed target price for the works. The saving below the target price, or the overrun above the target price, is shared between the client and the contractor in agreed proportions.

If the project setup warrants it, a project bank account can be created. Under this arrangement, the client makes payments into a single bank account, then the client and the contractor release funds directly to the supply chain in accordance with the contractor's fee breakdown.

Securing payment

Traditionally, it is clients who ask for bonds to back the obligations of their contractors. However, contractors can also seek to protect their position by asking for a payment bond for cash flow exposure, especially on a riskier venture.

The Construction Act also requires certain payment provisions to be incorporated into construction contracts (as defined in the Construction Act), including:

  • A mechanism for the ascertainment of the due date and final date of payment for any sum due under the contract.

  • Either party being permitted to issue a payment notice confirming the amount they consider is due.

The issue of a pay less notice should the client want to withhold payment due to the contractor under the contract.

 

Subcontractors

17. How do the parties typically manage their relationships with subcontractors?

The contractor will try to appoint subcontractors so that the terms are back-to-back with its contract with the client.

The client is also likely to require collateral warranties in its favour from the key subcontractors as part of its package of security documents. In general, a collateral warranty is only as robust as the contract to which it relates. Therefore, the client also has an interest in the terms that the contractor negotiates with its supply chain. The collateral warranties may also provide for rights of step in, so that if the contractor becomes insolvent, the client or another interested party can step into the shoes of the contractor in the subcontract to ensure that the project continues.

 

Licensing

18. What licences and other consents must contractors and construction professionals have to carry out local construction work? Are there any specific licensing requirements for international contractors and construction professionals?

The following rules apply:

  • It is an offence to use the title "architect" without being on the Register of Architects maintained by the Architects Registration Board.

  • Contractors working with asbestos require a licence from the Health and Safety Executive (HSE).

  • Contractors installing or modifying gas appliances must be on the Gas Safe Register.

  • Those producing, transporting or receiving controlled or hazardous waste may require a licence from the Environment Agency.

Further details on potentially applicable licences can be found at www.gov.uk/browse/business/licences.

There are no specific licensing requirements for international contractors and construction professionals apart from where it has been set out in this chapter in relation to, for example, employment matters.

 
19. What licences and other consents must a project obtain?

Before

There are various licences and consents that must be obtained before works can commence, including:

  • Planning permission. The client must usually obtain planning permission from the planning authority. Listed building consent may also be needed for work to historic buildings. Following the grant of planning permission, there is a period where a decision can be challenged (the judicial review period). The parties may decide to not commence works until this period has expired.

  • Third party consents. If the works involve a party wall or are within six metres of an adjacent property then the client must usually serve a party wall notice on and obtain the permission of the adjacent owner (a "party wall agreement"). There may also be other third party consents required from neighbouring landowners.

  • Building regulations. The building owner should obtain building regulations approval based on plans for the proposed works.

  • Health and safety. The client and parties engaged on a project have various duties under the Construction (Design and Management) Regulations 2015 (CDM Regulations) aimed at minimising health and safety risks on the project. As part of the CDM Regulations, a construction phase plan and usually a health and safety file should be produced and in certain projects the Health and Safety Executive (HSE) should be informed about the works.

  • Local authority. The building owner should obtain a licence from the local authority for any work that may affect public roads and must notify the local authority if demolition is to take place.

  • Environment. Various environmental consents and licences may be required (for example, for the discharge of water into a river).

During

The contractor should obtain confirmation from the local authority (or certain other approved inspectors) that the works comply with building regulations as the project progresses.

The CDM Regulations should be complied with, including updating the health and safety file.

On completion

The contractor should obtain a completion certificate from the local authority (or approved inspector) confirming that building regulations have been complied with.

The Principal Designer (or the Principal Contractor if the Principal Designer's appointment has concluded before the end of the project and the health and safety file has been passed to the Principal Contractor) should provide the building owner with the health and safety file.

 

Projects insurance

20. What types of insurance must be maintained by law? Are other non-compulsory types of insurance maintained under contract?

Compulsory insurance

All contractors carrying on business in the UK are required to maintain employer's liability insurance against liability for bodily injury or disease sustained by its employees. Failure to have this insurance in place is an offence under the Employers' Liability (Compulsory Insurance) Act 1969.

Non-compulsory insurance

It is usual for contractors to also take out the following types of insurance and many of the standard forms of contract oblige contractors to take out and hold such insurance:

  • Public liability insurance. This covers the contractor against any injury to third parties (for example, members of the public) and against damage to third party property.

  • Professional indemnity insurance. A contractor is expected to maintain this insurance if it is undertaking any design, as it provides cover against:

    • damages or compensation arising from professional negligence;

    • certain breaches of contract; and

    • breach of statutory duty.

  • Works insurance (commonly referred to as contractor's all risks insurance). This covers risks in relation to the works and certain events such as:

    • physical loss or damage to the works; and

    • loss or damage to materials, plants, equipment and/or temporary structures on site.

Other types of insurance that can be taken out on specific projects include:

  • Projects insurance. This is a project or contract specific insurance policy which operates similarly to a works insurance (see above, Works insurance) but often also includes public and product liability and may include non-negligent liability to third parties.

  • Product liability insurance. This provides indemnity cover for accidental death or injury (except to employees) or accidental loss or damage to property caused by a defective proprietary product.

 

 

Employment laws

21. What are the main requirements for hiring local and foreign workers?

Local workers

When hiring workers (local and foreign) the employer should ensure that it conducts its recruitment practices in a non-discriminatory way.

In the UK, employees have the right not to be discriminated against on the grounds of sex, race, disability, age, religion or belief, sexual orientation, gender reassignment, marital or civil partnership status, pregnancy or maternity, fixed-term or part-time status and trade union membership or activities.

The employer must also deal with personal data received from job applicants in compliance with UK data protection laws. In particular, employers must only collect information which is needed for the recruitment process and job applicants must be made aware of how the information they supply will be processed as well as how long it will be held for (data must only be kept for as long as there is a clear business need for it).

Foreign workers

The employer should ensure that all employees (local and foreign) have the legal right to work in the UK by conducting right to work document checks in accordance with the Home Office's "Employer's Guide to Right to Work Checks".

It is a statutory offence in the UK to employ someone who does not have the right to work in the UK. If an employer fails to carry out the appropriate right to work checks and is subsequently found to be employing an illegal worker, it faces a civil penalty of up to GB£20,000 per illegal worker. If an employer knows or has reasonable cause to believe that it is employing someone who does not have the right to work in the UK or to undertake the work for which they are employed, the employer may face a prison sentence of up to five years and/or an unlimited fine.

EU workers with full free movement rights are free to reside and work in other EU states (including the UK) without obtaining immigration permission. Citizens of Croatia do not currently have an automatic right to work as an employee in the UK and will generally need to apply for a registration certificate before starting employment in the UK. The rules regarding EU workers are likely to alter if the UK withdraws from the EU. However, negotiating the terms of Brexit is expected to take at least two years and, until the process is completed, there will be no change to the current arrangements.

Migrant workers from outside the EU or EEA need immigration permission to work in the UK.

 
22. Which employment laws are relevant to projects?

All UK employment law applies to individuals who are engaged as employees on projects. The key rights are:

  • The right to a statement setting out the employee's main terms and conditions (this is normally in the form of an employment contract).

  • The right not to be discriminated against on specific grounds (see Question 21, Local workers).

  • The right to be paid the national minimum wage.

  • Rights under the Working Time Regulations 1998 (Working Time Regulations) to rest breaks, minimum annual leave and not to work more than 48 hours per week on average (unless the individual has signed a valid opt out of the 48 hour week).

  • The right to a minimum period of notice, or pay instead of that notice period, if dismissed.

  • The right not to be unfairly dismissed if the employee has two years' continuous service.

  • The right to gender-equal pay.

  • The right to a redundancy payment if the employee has two or more years' service.

  • Protection under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (Transfer of Undertakings Regulations) where there is a business transfer or service provision change.

Some individuals may be engaged as workers (rather than employees) either by the business directly or through a third party agency. Such individuals are not subject to all of the above rights, but businesses should be aware of the key rights, being:

  • The right not to be discriminated against.

  • The right to be paid the national minimum wage.

  • The rights under the Working Time Regulations.

  • If the individual is engaged as an agency worker, the right to no less favourable terms and conditions (including pay) when compared to an equivalent individual hired directly by the business. There is generally a 12-week qualifying period.

Self-employed individuals engaged as consultants, and so on, also have the right not to be discriminated against.

Most employers are also required to automatically enrol certain workers into a pension scheme and make contributions into that pension scheme on their workers' behalf.

 
23. Must an employer pay statutory redundancy or other payments at the end of a project? Are all employees eligible?

The obligation to make redundancy payments only arises where an employee has two or more years' service and is dismissed by reason of a genuine redundancy situation, being:

  • Where the employer ceases altogether to carry on the business, or intends to do so.

  • Where the employer ceases to carry on the business in the place where the employee is employed, or intends to do so.

  • Where the business no longer needs any, or as many, employees to carry out work of a particular kind, whether in the place where the employee is employed or generally, or expects that to be the case.

In the case of redundancy, employees will also be entitled to notice pay, accrued but untaken holiday pay and (if applicable) any enhanced redundancy or bonus payments for which they qualify.

The end of a project (or part of it) may give rise to a relevant transfer under the Transfer of Undertakings Regulations if there is a transfer of a business or a service provision change (see above). A common example is if responsibility for providing services moves to a new contractor. In those circumstances, the employees assigned to the business or services that are transferring will automatically transfer to the new provider on their existing terms and conditions (except in respect of some limited pension rights) and with continuity of service. There are also obligations to provide certain information to the new provider and consult with appropriate representatives of the affected employees before the transfer.

 

Health and safety

24. Which health and safety laws apply to projects?

HSWA

The Health and Safety at Work etc Act 1974 (HSWA) provides the legislative framework for all health and safety law.

The HSWA sets out general duties that place obligations on employers toward both:

  • Their employees.

  • All those who are affected by their activities, including the general public.

The general duties under HSWA set out an obligation for duty holders to identify risk and to reduce that risk to a level as low as reasonably practicable. Duty holders must comply with this obligation at all times.

There are several hundred health and safety related regulations, the most relevant of which to construction projects address issues such as:

  • Hazard identification, risk assessment and risk elimination or reduction.

  • Training and supervision.

  • Working at height.

  • Confined spaces.

  • Lifting operations and equipment.

  • Manual handling.

  • The provision and use of protective clothing and equipment, including plant and machinery equipment.

  • Reporting injuries and near misses.

Construction (Design & Management) Regulations 2015

The main construction-specific regulations are the Construction (Design & Management) Regulations 2015 (CDM Regulations 2015). These came into force on 6 April 2015, replacing the old CDM Regulations 2007 entirely. CDM regulations apply to all construction projects and focus on project planning and management.

For projects with more than one contractor, including sub-contractors, a principal designer and a principal contractor are required.

The principal designer's role includes planning, managing and monitoring the pre-construction phase of the work and co-ordinating health and safety matters during the pre-construction phase.

The principal contractor focuses on similar duties during the construction phase. A written construction phase safety plan is also required for all construction projects.

Criminal liability

Failure to comply with the HSWA or Health and Safety Regulations is a criminal offence. The HSE usually bring prosecutions that can result in a significant fine. Individuals, including company directors, also have specific obligations, and contravention of these may result in:

  • A personal fine.

  • Disqualification as a director.

  • Imprisonment (in the most serious cases).

New sentencing guidelines for health and safety breaches came into effect on 1 February 2016 and fines are now directly linked to a corporate defendant's turnover. Criminal fines cannot be insured or indemnified.

Additionally, an organisation whose gross negligence leads to death may face criminal prosecution for corporate manslaughter. Under the new sentencing guidelines, the recommended levels of fine for corporate manslaughter will be in the range of GB£3 million to GB£20 million.

Criminal liability under health and safety law is separate from any civil liability.

 

Environmental issues

25. Which local laws regulate projects' effects on the environment?

Air

The following apply:

  • Clean Air Act 1993, which prohibits the emission of dark smoke from industrial or trade premises. Breach of the Clean Air Act 1993 is a criminal offence.

  • Environmental Protection Act 1990 (EPA), Part III, which states that dust, fumes, odours, noise emissions and light pollution (among others) may be classified as statutory nuisances.

  • Control of Pollution Act 1974, which contains a system to regulate noise from construction and engineering projects. The Local Authority can serve a notice controlling the way in which the works are to be carried out (section 60) and the contractor can apply for prior consent (section 61).

  • Environmental Permitting (England and Wales) Regulations 2010 (Environmental Permitting Regulations) regulate discharges to air from specified installations.

Water

The following apply:

  • Environmental Permitting Regulations, which regulate discharges to surface waters (such as rivers and streams) or groundwater. It is a criminal offence for a person to cause or knowingly permit a water discharge activity or groundwater activity without an environmental permit. A water discharge activity includes discharging waste matter or noxious or polluting matter into inland freshwaters or coastal waters. If the discharge is made into a watercourse that supports fish then the discharge may also constitute an offence under the Salmon and Freshwater Fisheries Act 1975.

  • Water Industry Act 1991, which in England and Wales provides that discharging water to any foul water sewer may only be undertaken with consent from the local sewerage provider.

  • Control of Pollution (Oil Storage) (England) Regulations 2001, which apply to the storage of 200 litres or more of oil on site. The regulations also contain requirements aimed at minimising the risk of pollution of controlled waters.

Waste

The following apply:

  • Environmental Permitting Regulations, which regulate the storage, deposit, treatment and processing of waste. Certain activities involving waste require either an environmental permit or a registered exemption from the Environment Agency.

  • Waste (England and Wales) Regulations 2011 (Waste Regulations), which implement revisions to the Waste Framework Directive in England and Wales. The revised Waste Framework Directive requires that a waste hierarchy is strictly respected. Under the hierarchy, the preferred option is to minimise waste accumulation, followed by:

    • preparation of waste for reuse;

    • recycling;

    • other recovery methods; and

    • disposal as a last resort.

  • Waste Regulations and the EPA (Part 9, section 34(5)), which regulates the transfer of waste. Anyone transferring waste must complete a transfer note comprising a description of the waste and have a duty of care over that waste even after transfer (EPA, section 34(5)), including to ensure that:

    • the recipient is authorised to take the waste; and

    • the waste will go to an authorised site.

  • Producer Responsibility Obligations (Packaging Waste) Regulations 2007, which set out requirements for companies with a turnover of GB£2 million or above, that handle 50 tonnes or more of packaging per year, to recover and recycle packaging waste.

  • Hazardous Waste (England and Wales) Regulations 2005, which require waste producers to register any premises producing more than 200 kilograms of hazardous waste per year with the Environment Agency.

Environmental impact assessments (EIAs)

Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment (codifying Council Directive 85/337/EEC (EIA Directive)) provides that an EIA must be carried out to identify and evaluate the risks of environmental degradation associated with large infrastructure projects having a potentially significant environmental impact.

The requirements of the EIA Directive apply particularly to the proposed construction of roads, power stations, railway lines, and waste, energy and industrial installations. EIAs are optional for smaller construction projects but may help support a planning application. In the UK, the Town and Country Planning (Environmental Impact Assessment) (England and Wales) Regulations 2011 implement the provisions of the 2011 Directive.

Sustainable development

The BREEAM (Building Research Establishment's Environmental Assessment Method) method is commonly used in the UK to assess the sustainable performance of buildings. This method awards points to buildings according to their environmental impact in ten categories (energy, site management, health and wellbeing, water consumption, transport, construction materials, waste, air and water pollution, land use and ecology).

A building with a low environmental impact scores highly in the BREEAM rating, which ranges from "pass" to "outstanding". Certain construction projects are required to achieve a specified BREEAM rating before they are granted planning permission. For example, all government funded construction projects in the health sector are required by the Department of Health to achieve an "excellent" rating, and the Welsh Government requires that all new non-domestic buildings over 1,000 square metres achieve a "very good" rating. While a specified BREEAM rating is not compulsory in all construction cases, scoring highly in the rating will be favourable to planning applications.

A similar scheme, the Code for Sustainable Homes, applies for the construction of dwellings (www.breeam.com/uk-new-construction).

 
26. Do new buildings need to meet carbon emissions or climate change targets?

The UK Government is committed to reduce Kyoto-agreement greenhouse gas emissions by 80% compared to 1990 levels by 2050 (Climate Change Act 2008 (Climate Change Act)). The Climate Change Act provides the government with powers to take measures to ensure this target is achieved. In 2008, the government and the industry published a joint Strategy for Sustainable Construction setting out how the construction industry can play its part in meeting the target.

Directive 2002/91/EC (recast as Directive 2010/31/EU) on the energy performance of buildings (Energy Performance Directive) (EPBD) seeks to promote the improvement of the energy performance in buildings within the EU. The central requirements of the EPBD are that:

  • Member states implement a methodology for the calculation of the energy performance of buildings.

  • Regulations are made to set a minimum energy performance target for new buildings, and existing large buildings when they are refurbished.

In addition, the EPBD requires that Energy Performance Certificates (EPCs) are made available when buildings are constructed, sold or rented out, and that boilers and air-conditioning units are inspected.

In the UK, the Building Regulations 2010 were amended to accommodate the requirements of the EPBD. Part 6 of the Building Regulations 2010 translates the obligations set out in the EPBD into UK law. Part 6 lists energy related requirements and should be read in conjunction with guidance found in HM Government Approved Documents L1A and L1B (conservation of fuel and power in new and existing dwellings) and L2A and L2B (conservation of fuel in new and existing buildings other than dwellings).

In practice, the government's Standard Assessment Procedure for Energy Rating of Dwellings (or SAP) is the methodology used to assess the energy performance of buildings in accordance with the EPBD's specifications. SAP enables a number of factors to be assessed, including:

  • Heating installations and hot water supply.

  • Air-conditioning installation.

  • Ventilation.

  • Lighting installation.

  • Passive solar systems and solar protection of buildings.

The mandatory EPCs are based on SAP evaluation of buildings.

 

Prohibiting corrupt practices

27. Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

Rules

Fraud. The Fraud Act 2006 makes it a criminal offence for an individual to:

  • Dishonestly make a false or misleading representation (section 2).

  • Dishonestly fail to disclose to another person, information which he is under a legal duty to disclose in order to make a personal gain or cause loss, or risk of loss to another (section 3).

  • Dishonestly abuse a position in which he is expected to safeguard, or not to act against, the financial interests of another person, by act or omission, for the purposes of making a gain for himself or another, or to cause a loss to another (section 4).

  • Obtain services dishonestly (section 11).

The following are also issues in the construction industry that would be caught by the Fraud Act 2006:

  • Concealing defects.

  • Making dishonest claims for payment or levying liquidated damages.

  • Dishonestly withholding payment, or obtaining subcontractors/consultants services without any intention or means to pay them.

Bribery. The Bribery Act 2010 came into force on 1 July 2011. Bribery offences are:

  • Offering, promising or giving a bribe to another person (section 1).

  • Requesting, agreeing to receive or accepting a bribe from another person (section 2).

  • Bribing a foreign public official (section 6).

  • A commercial organisation's failure to have adequate procedures to prevent bribery by anyone associated with it (section 7).

The corporate offence in particular means that construction firms can be strictly liable for any employees, agents or other third party representatives who give bribes to obtain or retain business for the firm, unless the firm can demonstrate that it had in place adequate procedures to prevent such bribery. The Ministry of Justice has published guidance on what constitutes adequate procedures, which are available on the website (www.justice.gov.uk/legislation/bribery).

Money laundering. The Proceeds of Crime Act 2002 sets out a regime of anti-money laundering offences covering an individual who:

  • Conceals, disguises, converts or transfers criminal property (that is, the proceeds of any crime), or removes criminal property from England and Wales or from Scotland or from Northern Ireland (section 327).

  • Enters or becomes concerned in an arrangement, which he knows or suspects, facilitates money laundering (section 328).

  • Acquires, uses or possesses criminal property (section 329).

The effect of this regime is that construction firms must be very careful to understand and be comfortable with the source of any funds passed to them and in particular do not receive large sums of cash, payments from unidentified parties or payments from bank accounts in unrelated countries.

Competition. Competition law also applies to the construction sector, particularly in relation to tendering activities. This has most notably occurred in relation to cover pricing. Cover pricing is where a company invited to tender does not wish to win a contract but does not want the client to think that it would not be interested in future work. Therefore, the company contacts another company that is tendering for the same contract to request a price which will ensure that it does not win the work but that is not grossly inflated.

Penalties

If convicted, the penalties for breaches of the Fraud Act 2006 are a fine not exceeding the statutory maximum, and/or a custodial sentence of up to ten years.

If convicted, the penalties for breaches of the Bribery Act 2006 include unlimited fines and custodial sentences of up to ten years. In 2015 Sweett Group plc, a major firm of professional consultants, was found guilty of the corporate offence of failing to prevent bribery and fined GB£2.25 million. The corrupt activity related to its conduct in the Middle East. This was the first conviction of a UK company of its kind.

If convicted, the penalties for breaches of the Proceeds of Crime Act 2002 include unlimited fines and a custodial sentence of up to 14 years. There are additional offences that relate to the failure to report a suspicion of money laundering to the Serious Organised Crime Agency and also the offence of tipping off the money launderer once suspicion is raised. These offences also come with terms of imprisonment and fines.

The Office of Fair Trading (OFT) fined 103 construction companies a total of GB£129 million in 2009 for their involvement in cover pricing, under competition law (see above, Rules: Competition). However, these fines were reduced by around 90% on appeal in 2011. In general, companies involved in anti-competitive behaviour can face a fine of up to 10% of annual turnover (Competition Act 1998). Moreover, the Enterprise Act 2002 has criminalised participation in hardcore cartel activities such as price fixing and bid-rigging. Individuals found guilty of an offence can face a term of up to five years in prison, as well as an unlimited fine.

 

Bankruptcy/insolvency

28. What rights do the client and funder have on the contractor's bankruptcy or insolvency?

The express terms of the contract should be considered to determine the rights of clients/funders.

Clients only have a right to terminate the contractor's employment under a construction contract as a result of an insolvency event if entitled to do so by the contract terms. Typically the occurrence of an insolvency event itself will not be considered a breach of contract, but it may lead to a contractor being unable to perform its obligations under the contract which would constitute a breach of contract.

Where there is an express right to terminate a contract for insolvency, many construction contracts set out what is to happen after termination on this basis. Typically, no further payment is made to the insolvent contractor until completion of the works by others and the client can recover any additional completion costs from monies that might otherwise be payable to the contractor.

Rights may also be conferred on the client by a parent company guarantee (where the parent company guarantees the performance of a contractor) or performance bond (which can be called upon should the contractor become insolvent, if it covers insolvency).

 

PPPs

29. Are public private partnerships (PPPs) common in local construction projects? If so, which sectors commonly use PPPs?

PPPs have been a common part of the UK construction industry for several years, primarily in major or complex projects where the private sector initially delivers a building/facility and/or provides on-going services/operations. PPP projects are utilised across a number of key sectors, including education, healthcare, transport infrastructure, waste management and recycling, social care and leisure.

The PFI model is the most common form of PPP used in the UK. There have been extensive discussions regarding the reform of the PFI model to meet future needs and the UK government announced in December 2012 a new regime, called PF2 and a limited number of projects have been procured under PF2, including the government's Priority School Building Programme.

PF2 is intended to improve the existing PFI structure to make the process quicker and cheaper and to provide more flexibility (see also Question 37).

 
30. What local laws apply to PPPs?

The PFI/PPP concept and the particular characteristics of its structure are recognised in a number of key pieces of legislation, including for example:

  • Housing Grants Construction and Regeneration Act 1996 (as amended) (1996 Construction Act). Here, the top-tier contract entered into between the public sector authority and the private sector SPV is excluded from the payment and adjudication requirements. The Secretary of State has the power to exclude further certain contracts from falling within all or part of the 1996 Construction Act. The Secretary of State has exercised this power to exclude first-tier PFI contracts between the SPV and its subcontractors from the prohibition on paid when certified provisions, which applies to other construction contracts under the 1996 Construction Act.

  • Enterprise Act 2002. While generally removing the right of lenders to appoint an administrative receiver, the Enterprise Act includes a carve-out in relation to PPP transactions.

 
31. What is the typical procurement/tender process in a PPP transaction? Does the government or another body publish standard forms of PPP project agreement and related contracts?

Procurement for most PPP projects in the UK follows the EU public procurement regime, most commonly by means of competitive dialogue. This works as follows:

  • The public authority advertises the project in the Official Journal of the EU (known as an OJEU notice), inviting any interested bidders to apply and complete a pre-qualification questionnaire.

  • Bidders who successfully pass the pre-qualification stage are then invited to provide their outline solutions.

  • From the outline solutions, the authority creates a shortlist of usually three or four bidders, who are invited to produce detailed solutions.

  • The authority selects the bidders to provide final tenders.

  • The authority then selects its preferred bidder to be appointed. Following appointment, the bidder and authority can negotiate to confirm the financial commitments and other terms of the contract. However, substantial changes are not allowed and changes must not distort competition or cause discrimination.

PF2 aims to improve the procurement process to make it faster and cheaper.

The documentation used in PFI projects was heavily standardised and managed by the UK Treasury, who publish guidance and drafting. To reflect the change to PF2, a revised draft version of the standard contract was produced in December 2012. Even with the apparent "death" of PFI, bespoke forms of SoPC4 (the pre-curser to PF2) continue to be used on PPP projects in the knowledge that the drafting is tried and tested.

 

Dispute resolution

32. Which are the most common formal dispute resolution methods used? Which courts and arbitration organisations deal with construction disputes?

Formal dispute resolution methods

The most common methods of resolving construction disputes are adjudication, litigation and arbitration.

Adjudication

Adjudication was introduced by the Housing Grants Construction and Regeneration Act 1996 (Construction Act) as a fast method of resolving disputes and improving cash-flow for contractors and subcontractors. It is a very popular method of resolving construction disputes of all complexities and values.

Parties to a "construction contract" (defined in the Construction Act) are entitled to refer any disputes that arise to adjudication at any time, with few exceptions. Adjudication applies to all construction contracts (excluding contracts with residential occupiers), regardless of whether they are in writing or not.

The adjudication process is significantly shorter than litigation or arbitration. Following receipt of a party's claim (known as its referral), the other party usually only has between seven and 14 days to submit its response. The adjudicator will reach his decision within 28 days of receiving the referral, unless the parties agree to an extension.

An adjudicator's decision is binding until the dispute is finally determined by litigation, arbitration or by agreement. The successful party can quickly apply to the court to enforce an adjudicator's decision should the other party not comply. There are very limited grounds for disputing the validity of an adjudicator's decision.

Litigation

Construction related litigation is dealt with by the Technology and Construction Court (TCC), a specialist part of the High Court. There are six specialist judges in the main TCC in London and full and part-time TCC judges sitting in various regional TCC centres across the country, with full-time judges available in Birmingham, Manchester and Leeds.

The TCC has issued guidelines as to when a claim should be issued in the TCC in the High Court in London. According to these guidelines, the TCC in the High Court in London will not usually accept cases with a value of less than GB£250,000 unless there is a good reason to do so, for example if:

  • It is complex or involves novel points of law

  • It relates to the enforcement of an adjudicator's decision.

  • It has an international element.

  • It involves a claim for a declaration or injunction.

  • It is a complex nuisance claim brought by a number of parties.

  • It relates to public procurement.

Generally speaking, claims for less than GB£250,000 should be commenced in County Courts or High Courts outside of London, where there is a designated TCC judge available unless the claim satisfies one of the other criteria above.

Arbitration

Arbitration is a private dispute resolution method governed by the Arbitration Act 1996. An arbitrator's award is binding on the parties and is enforceable at court.

Unlike adjudication and litigation, parties must agree to refer disputes between them to arbitration. The arbitration agreement may be a free-standing agreement or, more commonly, a clause within a wider agreement.

Arbitration is more common in larger, more complex, international disputes.

In 2005, the JCT Standard Forms of Building Contract replaced arbitration with litigation as the default forum for disputes. This, combined with the growing popularity of the TCC for both domestic and overseas disputes, has led to a decline in the appeal of arbitration for domestic disputes.

Courts and arbitration organisations

Construction related litigation is dealt with by the TCC (see above, Litigation).

Parties to arbitration can themselves choose the particular rules for their arbitration, or it can be governed by one of a number of principal organisations, including:

 
33. What are the most commonly used alternative dispute resolution (ADR) methods?

Popular ADR methods include:

  • Mediation, where a neutral third party mediator discusses the dispute and the parties' positions in an attempt to reach agreement between the parties, which is then formalised in a settlement agreement.

  • Early neutral evaluation, where an independent advisor provides an assessment of the merits of the claim, guiding the parties at an early stage on the strengths and weaknesses of their case and identifying the central issues in dispute.

  • Expert determination, where the parties to a dispute appoint an independent expert and agree that whatever decision he reaches will be binding.

  • Dispute review boards, often appointed by parties to large international construction contracts at the outset of a project. The board's role is to consider and decide any disputes that arise over the course of the project. In doing so, the board becomes familiar with the particular background and issues involved.

Parties must comply with the pre-action protocol for construction and engineering disputes (the Protocol) before commencing disputes in the TCC. Under the Protocol the parties must consider whether some form of ADR would be more suitable than litigation. A failure to follow the Protocol may lead to costs penalties at a later date. Even once proceedings are issued, the TCC still actively encourages the use of ADR. If the TCC considers at any stage that ADR would assist in settling the proceedings before trial, it can make an ADR Order granting a stay of proceedings while the parties engage in some form of ADR.

 

Tax

34. What are the main tax issues arising on projects?

Various tax issues are relevant to companies involved in UK construction projects, depending on the nature of the project and how it is structured, including:

  • Corporation tax.

  • Value added tax (VAT).

  • Stamp duty land tax (and similar taxes).

  • Withholding tax.

Corporation Tax

Corporation tax is chargeable where a company is UK tax resident or trading through a UK permanent establishment. From 5 July 2016 (subject to the enactment of the Finance Bill 2016), non-UK companies with a trade of dealing in or developing UK land are charged corporation tax on the profits of that trade, regardless of whether or not they have a UK permanent establishment.

The main rate of corporation tax for the year from April 2016 is 20%. Deductions can be applied when computing corporation tax liability, including for certain expenses incurred wholly and exclusively for the purposes of the company's trade. Depending on how the project is funded (and subject to various restrictions), interest costs may be deductible. Transfer pricing rules may need to be considered.

Whether the development of land as part of a construction project is for resale or investment will, for example, affect whether any gains on disposal are taxed as trading profits or as capital gains.

Value Added Tax (VAT)

The VAT treatment of supplies relating to the project depends on various factors, including the nature of the supply and where it is treated as made. Supplies of construction services in connection with UK land are treated as made in the UK.

The construction of a new building and work to an existing building is normally subject to VAT at the standard rate (20%).

In certain cases (often in the context of residential development), VAT is reduced to 5% or 0%. For example:

  • Services relating to the construction of a building designed as one or more dwellings or intended for use for a relevant residential or charitable purpose (other than services of an architect, surveyor, consultant or supervisor): 0%.

  • Certain supplies in connection with certain residential conversions: 5% (or 0% if made to a housing association).

Transfers of interests in UK land are generally exempt from VAT (unless an option to tax has been made). Certain transfers are standard-rated, for example, transfers of the freehold interest in new (under three years) or incomplete commercial buildings or civil engineering works.

VAT registration and recovery of input VAT should be considered as appropriate.

Stamp Duty Land Tax (SDLT)

SDLT is generally payable on the acquisition of an interest in land in England, Wales and Northern Ireland where the consideration exceeds the relevant threshold (a similar tax applies in Scotland). If construction works are to be carried out on the land being acquired, care should be taken to ensure that the value of the works is not treated as part of the consideration for SDLT purposes.

Withholding tax on interest

UK withholding tax (at 20%) may apply to payments of interest, subject to any applicable exception or relief under a double taxation agreement.

Construction Industry Scheme (CIS)

The Construction Industry Scheme (CIS) applies to contractors and subcontractors in the construction industry. The rules govern registration and compliance, including whether payments to subcontractors are to be made subject to deduction (see www.hmrc.gov.uk/cis/).

Other issues

Other special tax regimes may need to be considered as appropriate, such as in relation to oil and gas exploration and production, or where companies and certain other non-natural persons acquire or hold residential property (in certain cases, reliefs may apply to property developers).

Tax issues may be complex and appropriate independent advice should be sought.

 
35. Are any methods commonly used to mitigate tax liability on projects? Are there any tax incentives to carry out regeneration projects?

Mitigating tax

Careful analysis should be carried out to ensure that any reliefs (such as capital allowances or deductions for funding costs), as well as input VAT recovery, are maximised.

On major UK and international projects, it may be appropriate for split onshore/offshore contracts to be considered, where this would ensure appropriate taxation of profits. Offshore contractors, such as contractors supplying offshore equipment or design services, may be taxable in the country where they are based, although VAT may still be chargeable in the UK. Any structures will need to be reviewed in light of the changes to the taxation of non-UK residents dealing in or developing UK land (see Question 34).

Onshore contractors, dealing with the UK construction itself, will remain subject to UK tax.

If land is to be transferred, an early transfer, while the value is low (before planning permission is obtained or the development is completed) may mitigate SDLT.

Careful consideration should always be given to any applicable anti-avoidance rules.

Tax incentives

Examples include:

  • Enhanced (100%) capital allowances for qualifying expenditure in certain enterprise zones until March 2020.

  • Tax reliefs for costs incurred in relation to cleaning up contaminated or derelict land (including removing Japanese knotweed).

  • Tax relief for donations made to an Urban Regeneration Company (provided there is no benefit from the donation).

Tax issues may be complex and appropriate independent advice should be sought.

 

Other requirements for international contractors

36. Are there any specific requirements that international contractors or construction professionals must comply with?

There are no rules that apply specifically to non-UK contractors or construction professionals.

 

Reform

37. Are there any proposals to reform construction and projects law? Are there any new legal or regulatory trends affecting projects?

There are no imminent proposals that will make significant changes. It is yet to be seen as to the legal and regulatory impact of Brexit but given the government's stance and the likely protracted exit negotiations, the start of this impact on the legal and regulatory landscape is unlikely to be known in the next 12 to 18 months.

There are other practice trends throughout the industry that are worth noting. In particular, BIM LEVEL 2 was introduced as a requirement for all government construction projects as of 4 April 2016. This will undoubtedly impact how contractors interact, share work information and so on.

 

Main construction organisations

Joint Contracts Tribunal (JCT)

Main activities. The Joint Contracts Tribunal produces standard forms of construction contract, guidance notes and other standard forms of documentation for use by the construction industry. The JCT is a limited company, and is comprised of seven member bodies representing sectors of the industry who are key participants in the contract process.

W www.jctltd.co.uk

Infrastructure and Projects Authority

Main activities. Formed at the beginning of 2016, this organisation brings together two government bodies (Infrastructure UK and the Major Projects Authority) to provide expertise at managing and delivering major projects for the government, including Crossrail and the Thames Tideway Tunnel.

W www.gov.uk/government/organisations/infrastructure-and-projects-authority

National Infrastructure Commission (NIC)

Main activities. The NIC was set up in October 2015 on an interim basis to look at the UK's future needs for nationally significant infrastructure, to enable long term strategic decision making in relation to infrastructure in the UK. In May 2016 it was announced that the NIC will be made statutory and independent.

W www.gov.uk/government/organisations/national-infrastructure-commission

National Infrastructure Planning Authority (NIPA)

Main activities. NIPA was established in November 2010 with the aim of bringing together individuals and organisations involved in the planning and authorisation of major infrastructure projects. Its main focus is the planning and authorisation regime for nationally significant infrastructure projects.

W www.nipa-uk.org

Build UK

Main activities. Build UK was created in 2015 as a result of a merger between the National Specialist Contractors' Council and the UK Contractors Group. It aims to bring together the industry's largest main contractors and leading trade associations, focusing on key industry issues.

W www.build.org

Association for Consulting and Engineering (ACE)

Main activities. ACE is an organisation representing the business interests of its members and of the consultancy and engineering industry in the UK.

W www.acenet.co.uk

Institution of Civil Engineers (ICE)

Main activities. ICE is a registered charity which aims to promote and progress civil engineering. It is also a qualifying body, and aims to provide a centre for the exchange of specialist knowledge worldwide.

W www.ice.org.uk

FIDIC (International Federation of Consulting Engineers)

Main activities. FIDIC provides global representation for the consulting engineering industry, promoting and implementing the industry's strategic goals on the industry's behalf. Its members are national associations of consulting engineers. FIDIC produces international standard forms of contract relating to the construction industry.

W www.fidic.org

Royal Institution of Chartered Surveyors (RICS)

Main activities. RICS is a representative body for architects that accredits professionals in the property and construction sectors worldwide. In addition to accreditation, regulation and promotion of the profession, RICS seeks to influence governments and other organisations, providing research and policy on the lads, property and construction sectors.

W www.rics.org

Royal Institute of British Architects (RIBA)

Main activities. RICS is a representative body for architects, providing standards for the profession along with training and support for its members, seeking to promote better buildings, communities and the environment through architecture.

W www.architecture.com



Online resources

Legislation: Her Majesty's Stationery Office (HMSO)

W www.legislation.gov.uk/

Description. Original and revised versions of legislation, maintained by The National Archives on behalf of HM Government. Information is official and generally current (and contains warnings where provisions are not up-to-date).

Case Law: British and Irish Legal Information Institute (Bailii)

W www.bailii.org/databases.html

Description. The most comprehensive set of English cases that are freely available, maintained by a charitable trust. The website provides predominantly recent material but the coverage varies. Both old and new content is regularly added.



Contributor profiles

William Gard, Partner and Head of Construction and Engineering Department

Burges Salmon LLP

T +44 11 79 02 7706
F +44 11 73 78 6486
E william.gard@burges-salmon.com
W www.burges-salmon.com

Professional qualifications. England and Wales, 1995; Chartered Civil Engineer, 1991; Adjudicator and Arbitrator

Areas of practice. Infrastructure; energy; dispute resolution.

Non-professional qualifications. BSc (Eng) (London), CEng

Recent transactions

  • Advising a major supply chain consortium on the Thames Tideway Tunnel project.
  • Advising the developer on a major tidal energy project in the Pentland Firth, Scotland.
  • Advising on a number of waste to energy projects, including the design and construction contractor on the Greater Manchester Waste PFI project.
  • Advising a major investor on its solar and anaerobic digestion renewable energy projects portfolios.
  • Acting for a major UK bank on disputes arising from its investment in a number of biomass projects.
  • Numerous appointments as adjudicator or arbitrator on complex infrastructure project disputes.

Professional associations/memberships. Chairman of the Technology and Construction Court Solicitors' Association; Fellow of the Chartered Institute of Arbitrators; Member of the Institution of Civil Engineers

Publications. Will regularly writes articles for New Civil Engineer journal.

Marcus Harling, Partner

Burges Salmon LLP

T +44 11 79 39 2206
F +44 11 73 78 6343
E marcus.harling@burges-salmon.com
W www.burges-salmon.com

Professional qualifications. England and Wales, 1985

Areas of practice. Infrastructure; procurement; regeneration.

Non-professional qualifications. LLB (Hons), University of Exeter

Recent transactions

  • Advising The Crown Estate as lead adviser on construction and procurement across its development portfolio.
  • Advising London Underground Limited on the construction of the Metropolitan Line Extension.
  • Advising Greater London Authority as lead adviser with responsibility for the design of the procurement strategy to select a development partner for the regeneration of Royal Albert Dock, London.
  • A defence sector project in Saudi Arabia.
  • Project troubleshooting and dispute resolution in construction and engineering projects.

    Professional associations/memberships. Member of the Constructing Excellence Procurement Theme Group and the Editorial Board;

    Publications. Author of "Comparative Procurement Regulation", on behalf of the Royal Institute of British Architects.

Steven James, Partner

Burges Salmon LLP

T +44 11 73 07 6947
F +44 11 73 78 6445
E steven.james@burges-salmon.com
W www.burges-salmon.com

Professional qualifications. England and Wales, 2002; Chartered Quantity Surveyor

Areas of practice. Infrastructure; nuclear; renewable energy; dispute resolution.

Non-professional qualifications. BSc (Hons) (Staffs); MSc (King's College London)

Recent transactions

  • Advising a developer of a new nuclear power plant on the procurement of key plant for the nuclear island.

  • Advising a power company in connection with the development of nuclear dry fuel store.

  • Advising a utility in connection with the development of an offshore wind farm.

  • Advising the developer of a luxury hotel and spa including all development agreements and a debt facility to part fund the development.

  • Advising a water utility on various disputes associated with its capital programme.

Professional associations/memberships. Chartered Quantity Surveyor; Member of the Society of Construction Law; Member of the Royal Institution of Chartered Surveyors; Committee Member of the South West and Wales Chapter of the British Council for Offices.

Publications. Regularly writes articles for sector specific journals in the areas in which he specialises, including In-House Lawyer, Nuclear Future and NuclearCONNECT.

Lloyd James, Partner

Burges Salmon LLP

T +44 11 73 07 6925
F +44 11 73 78 6323
E lloyd.james@burges-salmon.com
W www.burges-salmon.com

Professional qualifications. England and Wales, 2006

Areas of practice. Infrastructure; renewable energy; resource and waste management.

Non-professional qualifications. LLB (Hons) (Cardiff University)

Recent transactions

  • Advising a developer on the procurement of a new nuclear power plant in the UK.

  • Advising on key UK highways projects including the priority A303 Stonehenge scheme and a GB£1 billion project in South Wales.

  • Advising on significant re-financing and acquisition of renewables projects (including advice to RBS in connection with the funding for the Quixwood onshore wind project).

  • Advising developers and funders on the drafting and negotiation of construction documentation for the most innovative renewable energy projects (including CfDs) in the UK (including Round 3 offshore wind, biomass, wave, tidal energy and waste management schemes).

  • Advising on a multi-million pound floating vessel construction project in Brazil for use in the oil and gas sector.

Professional associations/memberships. Member of the Society of Construction Law

Publications. Regularly writes articles for leading specialist journals including Wind and Wave CONNECT and waste management publications. Lloyd is also a regular speaker at conferences including Renewables UK and RegenSW events.


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