This week FIS attended a meeting of the Construction Products Association to look at feedback from a Round Table Meeting for Product Manufacturers with Secretary of State, Michael Gove, and his team.  The approach (see here) is that the Government expects Industry to fnd a way to meet the financial shortfall in cladding replacement on buildings over 11m.  Their priority is to protect leaseholders.  Similar meetings have also taken place with Developers.

FIS members are, in the main one step removed from this or not directly involved in cladding issues, but our concern remans that this is the tip of the iceberg.  FIS CEO Iain McIlwee commented:

“This is starting to feel like Round One of a boxing match and Governent has come out swinging.  There is alot of threat, but not much weight in the punches at the moment, but they seem to have us on the back foot and up against the ropes. I think the concern for me is I can’t see the barrage ending and it feels like they are trying to bully us into submission. I am also concerned that these haymakers are distracting us from the big knock out punch that could come from the recent vote in the Commons on the Defective Premises Act.  A retrospective impact of 12 years was already difficult to absorb, but can you imagine how hard it will be to pull out records from projects that are 30 years old!”.

The Defective Premises Act was debated in the Commons in January and the ammendment below successfully voted.

“That is why we tabled Government amendment 41, which will retrospectively extend the limitation period for section 1 of the 1972 Act to 30 years, meaning that there will be access to this route of redress for buildings completed from mid-1992 onwards. That represents a substantial extension beyond the current six years. I recognise that changing the law in this way is unusual and that 30 years represents a long limitation period. However, I consider that the exceptionality of the current circumstances in respect of cladding and other serious fire safety defects warrants the longer retrospective limitation period of 30 years.”

It should be noted that this does not mean it will be passed in law and Parliamentary processes will subject it to further scrutiny, but the direction of travel it is not good news for construction.  FIS has again raised concerns through the CLC and our Umbrella lobby groups (CPA and BuildUK) as well as directly with MPs making the points:

• The period of 30 years steps outside any contractual obligation or insurance provision.  Effectively this is a retrospective uncapped liability.
• Proving liability will be diffcult as records are likely to have been destroyed (there was no obligaton to maintain records for this long).
• The behaviours this will drive will echo the PFI, forensic surveyor engaged exclsively to reallocate risk and lead to adversarial relationships.
• The likelihood is a lot of the blame will cascade to the Specialist Contractors who signed unfair contracts and operated under conditions where they were not set up to succeed due to procurement and contractual processes.
• Many will no longer be trading and few in the construction industry will have sufficient resource to carry this, effectively they will be put out of business and the problem will not be solved.
• We already have an insurance crisis, this may make it difficult to secure insurance at a realistic price

One FIS member put it well:

“On the face of it, it will be very hard to impliment and I think it will only really serve to keep lawyers in fees! We priced and designed based upon the applicable laws at the time, move the goalposts afterwards and there is a whole area for debate that goes nowhere near whether the actual installation was compliant with the guidance at the time and the accepted industry practices of that period.”

FS has long advocated an insurance based levy, similar to the Pension Protection Fund that would help share and phase payments fairly over time.

FIS CEO Iain McIlwee has called for a more fair and proportionate approach, raising concerns that new Government announcements regarding cladding issues and retrospective legislation could derail future work.

In an interview with Construction News Iain said it was right to take the remediation burden off leaseholders, but that pushing costs onto developers, contractors and manufacturers would “run the risk of derailing future work”. He warned the policy could lead to years of legal disputes as well suggesting that a levy-based Building Safety Fund culd be a better alternative.

Today Housing secretary Michael Gove has warned developers, contractors and manufacturers they must fork out £4 billion to fix dangerous cladding on low-rise buildings. Whilst this may seem to be good news to some – Government has at last made a stand – our concern is the impact and ripple effect that this will have has been not been fully understood.

FIS predicted this news before Christmas and our firm view remains that the current approach is more about winning the blame game than solving the problem.

In his opening remarks Gove said it wasn’t fair that leaseholder take the financial impact, this is true but it is also true that the construction sector shouldn’t shoulder more than its fair share of the burden.  The current approach will see years of legal wranglings with costs simply being pushed down the supply chain.  The only winners will be the lawyers and the administrators and the real losers will be the small and medium sized contractors and subcontractors, who bound by heavily amended contracts (designed to deflect risk), operating in exceptionally difficult circumstances and could well be left holding the bill when the music stops. New procurement guidance targeted at stopping prioritising cost over value clearly recognises the challenges that the supply chain was under and seeks to change the culture, but this approach was endemic in the past.

Commenting on the letter FIS CEO, Iain McIlwee stated:

“This latest announcement is focussed on cladding, but we know this is not the only issue and when read in context with other correspondence and the retrospective application of changes to the Defective Premises Act it is troubling.  In his opening remarks Gove said it wasn’t fair that leaseholder take the financial impact but it is also true that the construction sector shouldn’t shoulder more than its fair share of the burden. The issue is about being proportionate. By passing the entire responsibility on to the construction sector we run the risk of derailing future work whilst we manage this legacy. It is very difficult for the industry to look forward when there is a shadow that is getting darker with every announcement looming over our shoulder.

We have to accept this is a systemic breakdown, regulation and guidance was not clear and new procurement guidance targeted at stopping prioritising cost, over value, is recognition of the challenges that much of the supply chain have been struggling with.  Unrealistic cost and time pressure have been masked by terms like value engineering and liquidated damages and dumped in “standard contracts” that were amended beyond all recognition to dump risk through the supply chain.  I remain unconvinced that the solution is in the interventions we are seeing and suspect the only winners will be the lawyers and the administrators with cost and blame being pushed through the supply chain.  A better approach is a levy based Building Safety Fund and we have written to Mr Gove and his department to recommend this.”

A better solution has to be found. FIS has long advocated – a similar approach to the Pension Protection Fund. Putting a £4 billion pound threat on to contractors, developers and manufacturer may win headlines now but it will just create an even bigger problem further down the road.

Read the full open letter from Michael Gove here