The Building Safety Bill, aims to overhaul the building safety regime within the UK. It includes a gateway regime for the submission of information to a new Building Safety Regulator throughout the planning, design and construction phases of a construction project. The Bill is due to come into force in 2023 following parliamentary scrutiny. We have looked at how the new gateway regime will lead to changes in property development - how a construction project is procured, and how building contracts are drafted.
Following the Grenfell Tower fire in June 2017, and Dame Judith Hackitt’s ‘Review of Building Regulations and Fire Safety’, which contained over 50 recommendations regarding a regulatory system for fire safety, the UK Government first published its draft Building Safety Bill (the “Bill”) in July 2020 and it is due to come into force in 2023. The Bill contains various provisions aimed at overhauling the fire safety regime, and in most part applies to England only (although some sections do apply to Scotland, Wales and Northern Ireland). You can read our article about the key changes in the Bill here.
The Bill introduces a ‘Gateway’ regime requiring risks relating to building safety to be considered throughout the planning, design and construction phases of a project, rather than at the end of the project where a Building Control Certificate is being sought. The three gateways are:
Gateway 1 –Planning phase. Statements will need to be provided to the planning authority which demonstrate that fire safety considerations have been taken into account within the project proposals;
Gateway 2 – Pre-construction stage. This Gateway acts as a hard stop, and a project cannot proceed to construction until the Regulator is satisfied that the building, once built, will comply with the Building Regulations and will not have unrealistic safety management expectations.
Gateway 3 – Completion of construction phase. The Client, Principal Designer and Principal Contractor will have to submit information to the Regulator and the Accountable Person regarding to the as-built building. Once the Regulator is satisfied with this information, it will issue a completion statement accordingly. The supplementary information produced by the Government suggests that partial occupation of a building may be permitted, but that information would have to be submitted through the Gateway process before any partial occupation takes place.
Unlike the proposal contained within the original consultation, the current draft Bill provides that all 3 Gateways will apply to all buildings covered by the scope of the Bill.
How will this impact on construction procurement?
Traditional Contracts vs Design and Build
The Gateway process is likely to impact upon how a project is procured. As Gateway 1 and 2 would require to be completed before a project begins the construction phase, and Gateway 2 acting as a ‘hard stop’, single stage design and build contracts would likely contain their own gateway process, such as the requirement for a notice to proceed before progression to the construction phase. This would allow the project to pause, or even stop, before the construction phase begins, without the requirement for a default termination process, and would provide for a planned exit mechanism to minimise financial exposure for each party
The use of the traditional procurement process may also increase, with the construction phase staring only after Gateway 2 is passed. The Client would be in control of when to let the contract, to ensure that the Contractor did not proceed until Gateway 2 had been fulfilled.
The two-stage design and build method is well suited to the Gateway process. It it allows the initial design to be carried out under a Pre-Construction Services Agreement with no obligation to proceed to the second stage. This provides for more certainty, and would not require the use of notice to proceed or termination drafting. It seems likely that the industry will see an increase in the use of this form of procurement.
How will this impact on building contracts?
Gateway 3 requires the Regulator to issue a completion statement for the works. It is likely that the issuing of this statement will become a pre-requisite to practical completion under a building contract and that having this certificate will be a condition, for example, of a lease coming into effect. If the issue of the completion certificate by the Regulator is a pre-requisite to practical completion this will have knock-on issues.
Where there is a delay in the period between the works being practically complete ,the issue of the Completion Certificate by the Regulator and practical completion actually being certified , the contract will need to provide clear allocation on who bears the risk of such delay addressing
- Cash flow issues for Contractors, as any delay would also delay the release of half of the retention, which is due to be paid to the Contractor upon practical completion;
- Triggering liability for delay damages
- Performance bonds and insurances expiring at Practical Completion;
- Cash flow issues for the Employer, as any delay would delay the Agreement for Lease staring and rental income, etc Implications within Agreements for Lease, providing less certainty to tenants to plan when they can access the property following completion;
- The impact on the Project Managers Practical Completion Certificate if the Regulator does not agree to issue a completion statement; and
- funding arrangements which link loan repayments starting after PC
Extensions of Time
Whether to allow extensions of time due to delays on the part of the Regulator will be a point for negotiation. The Bill, and guidance which has been issued relating to it, does not provide for indicative timings for how long the process for passing through of each gateway is to take. There is a shortage of fire safety experts within the industry with estimates that an additional 1,200 experts will be required in order to fulfil the Regulator’s duties under the Bill. Resourcing to fill these roles is needed before the Bill comes into force.
A delay at a Gateway where a Contractor is under contract, is likely to also lead to additional costs. At Gateway 3, even though the works themselves will be complete, the Contractor will continue to remain responsible for safety and security at the Site. It is therefore likely that, if delays are suffered at the Gateways, Contractors will seek recovery of additional costs relating to these delays. Employers could find themselves having to agree to this within a contract, and with no way of recouping those costs from the Regulator, who has caused the additional delay.
There is no doubt that the new Gateway process envisaged by the Bill will lead to changes in the way that building contracts are procured and drafted. The Bill, and guidance issued relating to it, gives little indication as to the timeframes that the UK Government expects the new process to take. However, without the correct resourcing and training, and an increase in the number of fire experts available to undertake the required reviews of documentation, it is likely that these new Gateways could lead to delays within a construction project at various points throughout the process. These delays, and any costs incurred, are unlikely to be passed back to the Regulator and therefore will have to be absorbed by employers and/or contractors, depending on the negotiating strength of the relative parties. While the Bill is initially intended to apply to higher-risk buildings, the intention is that over time this definition will be reviewed and expanded upon. Therefore, while the Bill is not intended to apply to all construction projects in the beginning, it is likely that any changes will be reflected across the industry, in preparation for the expanding of the ambit of the Bill at a later date following it coming into force.