Pre-Action Protocol for Construction and Engineering Disputes

After several years of discussions and consultations, a revised edition of the Pre-Action Protocol for Construction and Engineering Disputes has been issued. Although there was initially some uncertainty as to its status, it has now been confirmed that it is to be treated as in force from 9 November 2016.

Whilst the earlier Protocol was generally viewed as a valuable tool, there were various criticisms about its effectiveness, including the time taken to respond to claims, the lack of pre-action enforcement mechanism and the costs associated with compliance. The new edition seeks to address these issues.

Changes include:

  • The option to contract out of the Protocol.

  • A greater emphasis on proportionality with the parties only required to provide sufficient information for each party to know the outline nature of the other's case.

  • Shortening of time limits.

  • The introduction of a new Protocol Referee Procedure under which the parties can agree to appoint an independent referee from TECBAR or TeCSA at a fixed cost of £3,500 plus VAT to regulate compliance with the pre-action process.

  • The court is only to impose cost sanctions for non-compliance in exceptional circumstances.

It remains to be seen whether parties will now agree to opt out of the Protocol or whether the new Protocol will meet its aim of encouraging early resolution of disputes without disproportionate costs being incurred.

Enterprise Act 2016

The Enterprise Act 2016 comes into force on 4 May 2017 finally making damages for late payment of insurance claims a reality. The provisions introduce into every contract of insurance an implied term requiring the insurer to pay sums due within a reasonable time (which includes a reasonable time to investigate the claim). What is reasonable will depend upon factors such as the type of insurance, the size and complexity of the claim, compliance with any relevant statutory or regulatory rules or guidance and factors outside the insurer's control. Failure to pay a claim within a reasonable period entitles the insured to remedies including the right to enforce payment, interest on the sums owed and damages.

If an insurer can demonstrate that there were reasonable grounds for disputing the claim (whether as to the amount payable or whether anything at all is payable), mere failure to pay the claim does not constitute a breach of the implied term while the dispute is continuing, although how the claim is handled may be relevant in considering whether the term has been breached.

The Act provides that, in limited circumstances, the implied term as to payment may be excluded in relation to non-consumer insurance.

Insurers should now be reviewing their policy wordings and procedures and ensuring that targeted training is rolled out to all involved. They should also check their reinsurance arrangements for any exclusion clause or positive statement of cover in relation to a cedant’s liability arising from a late payment to an insured.

JCT contracts

The Joint Contracts Tribunal is continuing the process of rolling-out new editions of its suite of contracts. To date we have seen the Minor Works family; the Short Form of Sub-Contract and Sub-subcontract; the Design and Build family; the Standard Building Contract family; the Collateral Warranties; and the Intermediate Building Contract family. The next batch of contracts is expected this Spring.

Changes include:

  • Revision and simplification of the payment provisions.

  • Rationalisation of the insurance provisions and changes to Option C.

  • Performance Bond and Parent Company Guarantee provisions to reflect market practice.

  • Revisions to provisions relating to third party rights and collateral warranties.

  • Incorporation of BIM and CDM changes.

ACE agreements

The Association for Consultancy and Engineering (ACE) is also publishing new editions of its suite of agreements. First to be published are the Professional Services Agreement, Sub-consultancy Agreement and Schedule of Services for civil and structural engineering with options for lead or single/non-lead consultant roles.

The Farmer Review of the UK Construction Labour Model

In response to a government request at the end of 2015 to identify actions to reduce the industry’s structural vulnerability to skills shortages, the Construction Leadership Council published Mark Farmer's report "Modernise or Die – Time to decide the industry's future" in October 2016. The report concludes that "- given workforce attrition exacerbated by an ageing workforce – we simply cannot go on as we are". Although the report focuses in particular on housing, the issue is to be found throughout the construction sector. The report identifies the causes of the problems and makes a number of recommendations.

The report can be viewed here.