While the construction industry generally is struggling under the pressures of the current economic climate, the market for demolition contractors remains in good shape. Building owners in Scotland currently enjoy considerable reliefs on business rates for unoccupied buildings, yet we are hearing of relatively young buildings being demolished so that building owners can reduce their costs. With proposed legislation in the pipeline that would allow the Scottish government to significantly increase rates liability on empty buildings from 2013-2014 onwards, it is not surprising that building owners may find it more economically attractive to demolish their empty structures.
How do such contracts differ from standard construction contracts? If you are an employer under a demolition contract, what are the key issues you may wish the contract to address?
Choice of contract
When it comes to a demolition project, the choice of contract can be a problematic question for the parties. There is a standard form demolition contract provided by the National Federation of Demolition Contractors, however this is often perceived by clients to be too contractor-friendly (possibly understandably as it is produced by the demolition contractor’s own body). Examples of particularly contractor-friendly provisions are: the employer grants various indemnities to the contractor; the contractor’s liability for damage to the property is limited to the cover obtained in relation to such a risk; and there is not a defined list of events for which the contractor is entitled to an extension of time.
The other options would be to use the NEC form of engineering contract and, in some cases, clients have elected to use the JCT and SBCC standard forms. These latter standard form contracts are, of course, designed for construction rather than destruction, however it is not a big jump to amend them and they often have the advantage of being familiar for the parties entering into and administering the contract.
Some issues to think about when entering into a demolition contract are:
- Ownership of materials - often, contractors will seek to recoup the value of materials from the demolition, including metals such as steel and copper. Contractors may therefore seek a contractual provision that they own all loose materials produced by the execution of the works, which is an incentive for them in carrying out the works. However, the parties will have to consider whether the contractor will be entitled to all the materials, or whether certain materials will be retained by the employer.
- Risk of unforeseen conditions - pollution and contamination is another key issue that should be addressed. The parties will have to decide who takes on the risk of asbestos on the site and who bears the costs associated with removing unforeseen asbestos and other contaminants from the site.
- Risk of other conditions – there may be other relevant site conditions depending on the nature of the property. For example, what happens if cables or other service media are found on the site, especially if they are live? Which party will take on the risk of this?
- Definition of completion – whilst this may sound obvious (i.e. the demolition is completed when there is no building), the employer will need to consider what state the site should be in when it is handed back by the contractor. For example, will the contractor be obliged to achieve certain levels and fill in all holes and voids? Will it be necessary to grub out foundations? What paperwork is required, e.g. air clearance tests for asbestos?
- Non-negligent damage – the employer may wish the contractor to take out non-negligent insurance cover to protect against damage to neighbouring property when such damage occurred through no fault of the contractor.
- Nuisance - depending on the locale and nature of the works, the parties will need to consider nuisance provisions. For example, should the contract include clear definitions of the parameters for noise, dust and vibration and clear consequences if these standards are breached?
- Security - increasingly, employers are finding that contractors are carrying out the demolition works for no charge or are even paying the employer a premium for the privilege. The key point for the employer to consider in these circumstances is what commercial leverage it will have to incentivise the contractor to perform. There is of course a risk that the contractor strips out the valuable materials from the demolition at the outset of the job and then slows down the progress of works. One possible solution in these circumstances will be to procure a performance bond from a surety or bank to the employer prior to the commencement of the works.
Demolition contracts are by nature very tricky, and as such, careful thought has to be given to ensure that they suitably protect employers, particularly given the consequences if demolition operations go awry.