Contractual and Legal Archives - Page 6 of 11

FIS updated resource: Collateral Warranties

by Clair Mooney | 22 Jan, 2025 | Contractual and Legal

FIS has updated its guidance on Collateral Warranties, which members can access for free here..

A collateral warranty is a contract, that is associated with another contract (such as a construction contract, a sub-contract, or design consultant appointment), and is entered into between the person employed under the contract to provide works or services (the contractor, subcontractor or design consultant) and a third party who either has or acquires an interest in the project to which the contract relates.

A collateral warranty is therefore a form of security against the risk that any of the party(ies) between the beneficiary and the specialist contractor becomes insolvent.

FIS Contractual and Legal Toolkit

FIS members can access an extensive range of support services to help manage the complexities of contracting and supplying products into the construction market.

Access the Toolkit here

Identifying risk and recommended negotiation positions

by Clair Mooney | 17 Jan, 2025 | Contractual and Legal

FIS has produced guidance to support members in identifying and responding to onerous contractual terms. Prepared for specialist contractors, it is a summary of the typical risks and industry recommended compromises to look out and negotiate when engaging in a contract with clients or main contractors.

The guidance supports the FIS Responsible No Campaign, which is a targeted approach from FIS to challenge negative behaviours and empower the supply chain to challenge situations where the transfer of risk through contract is not reasonably apportioned or clear.

Whilst FIS continues to recommend members use and work on unamended contracts (rationale set down in our guidance published last week – Using Standard Form Contracts). However, the Responsible No Campaign approach recognises that we have some way to go and attempts to bring more standardisation where amendments are inevitable based on industry compromise position recommended by a relevant authority. This is what this document helps our members do.

FIS Contractual and Legal Toolkit

FIS is continually updating its Contractual and Legal Toolkit to support members in identifying and apportioning risk. Part of this Toolkit is a subsidised Contract Review service. You can find more information on how to access the service here.

Access the Toolkit here

The Responsible No: New guidance – don’t risk it all on an amended contract

by Clair Mooney | 9 Jan, 2025 | Building Safety Act, Contractual and Legal, Insurance

Establishing clear contractual arrangements from the outset of any construction project is critical. This is a core conclusion from virtually every review of the construction sector. As far back as 1866, The General Builders Association put out the following statement:

“It is not right to bring under the builder’s consideration legal conditions, the effect and value of which he cannot rightly estimate without consulting it’s solicitor”.

JCT was established nearly 100 years ago to address concerns and help create a standard set of terms. These contracts address the complexity of multi-tier supply chains, mutually dependent relationships and different parties joining the contractual chain at different times. Other standard form contracts, such as NEC, are now commonplace. Yet recent research from Reading University into Procurement and Contracting Practices in the Finishes and Interiors Sector highlight that 64% of businesses in the supply chain regularly start a project without a contract in hand and the norm is to work on amendments that effectively bespoke relationships and seek to pass down unreasonable amounts of risk.

It is this culture that the Duty Holder Regime (now enshrined in the Building Regulations) seeks to address and puts under additional scrutiny attempts to shift risk through contract. This change to law potentially resets legal precedence for passing down risk. Significantly too, recent advice from the Construction Leadership Council (CLC) should not be dismissed as a token effort to restate the problem. The Grenfell Inquiry made clear the risks in the following finding:

“Studio E (Architect), Rydon (Main Contractor) and Harley (Cladding Specialist) all took a casual approach to contractual relations. They did not properly understand the nature and scope of the obligations they had undertaken, or, if they did, paid scant attention to them.

They failed to identify their own responsibilities for important aspects of the design and in each case assumed that someone else was responsible for matters affecting fire safety. Everyone involved in the choice of the materials to be used in the external wall thought that responsibility for their suitability and safety lay with someone else.”

In a rare open Statement, the CLC highlights another serious concern that all in the supply chain (particularly clients) need to be alert to:

“Many Professional Indemnity Insurance policies only cover claims for contractual liabilities to the extent that those liabilities would exist in the absence of the contract. … Clients have no control over whether contracting parties can secure PII cover that will respond when the client suffers a loss and wants to recover that loss.”

In plain terms CLC has made it clear:

“if a client seeks to claim for loss or damage, it cannot be relied upon that it will be settled by the PII insurers, and the consultant/contractor potentially faces financial ruin, and the client left with a claim that cannot be recovered.”

To help members bring these points together, improve understanding of where and how template contracts can and should be amended, highlight areas of particular concern and support negotiations with clients FIS has produced a new Using Standard Form Contracts. This has been made available to FIS Members through the Contractual and Legal Toolkit and has been designed to support the Responsible No Campaign.

Blog post written by Iain McIlwee to launch new FIS Factsheet: Using Standard Form Contracts.

Using Standard Form Contracts

Members - download your copy here

FIS Contractual and Legal Toolkit

Members - access the toolkit here

FIS Responsible No Campaign

More detail of the FIS Responsible No Campaign is available here

Government launches New Fair Payment Code

by Clair Mooney | 3 Dec, 2024 | Contractual and Legal, Payments

Healthy cash flow is critical for small business’ survival and growth. Late and long payment times disrupt the cash flow cycle and can prevent a business from paying its bills, eventually leading to business failure. In 2023 15% of small businesses and medium sized enterprises cited cash flow and late payments as an obstacle to running their businesses.

The new Fair Payment Code has been launched to encourage businesses across the UK to pay promptly. Businesses may now apply for the Award tier that best suits them: Gold, Sliver or Bronze. The tiered system of Awards is aimed at awarding best practice and driving improvements in payment performance. The three Award tiers are:

Gold Award – for those firms paying at least 95% of all invoices within 30 days
Silver Award – for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days
Bronze Award – for those paying at least 95% of all invoices within 60 days

In addition, every business granted an Award agrees to abide by the Code’s principles of being Clear, Fair, and Collaborative with their suppliers.

The new Fair Payment Code replaces the Prompt Payment Code. It will be more aspirational by supporting businesses that wish to improve payment practices and helping them move up from Bronze to Silver, and to Gold over time.

The Fair Payment Code Awards are for two years, and every business will need to reapply for their Award at the end of each two-year period. There will also be a robust complaint system in place for businesses to highlight to the OSBC those not meeting the requirements of the category of their Award (Gold, Silver, or Bronze) or not following the principles of the Code.

Businesses can now apply of any Award level of the new Fair Payment Code.

Len Bunton, Owner of Bunton Consulting and FIS resident QS said:

“The Fair Payment Code will be welcomed by the construction industry as it focuses on prompt payment. The introduction of measures to reward businesses for adopting fair payment practices with their suppliers is also a major step forward. It is important to highlight the emphasis on establishing clear and fair payment terms in writing before work begins, and further, that suppliers are made aware if payment is likely to be delayed.

“The Code emphasises fairness and collaboration, with transparency being a key factor as well.”

Small Business Minister Gareth Thomas said:

“Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse and today’s measures look to tackle the issue head on.

“This government’s primary ambition is clear: to go for growth. To do that, we must unleash the potential of our entrepreneurs.”

Liz Barclay, Small Business Commissioner added:

“The Fair Payment Code is our response to all those suppliers who begged for a more aspirational, robust and ambitious approach to changing the business to business payment culture in the UK. It also gives a clear signal of intent on the part of Government.

“We want suppliers paid within 30 days with payment beyond the due date a rare event. We want longer contractual payment term to be recognised as potentially detrimental to vital supply chains. We want businesses of all sizes to commit to fair and quick payments and to avoid harmful disputes. This new Code will drive a better payments culture and benefit everyone.”

For any immediate questions, head to the FAQs page at www.smallbusinesscommissioner.gov.uk/fpc Or you contact the Small Busness Commissioner directly via email at fpc@smallbusinesscommissioner.gov.uk.

FIS relaunch Integrated Management Standard to support organisational capability

by Iain McIlwee | 13 Nov, 2024 | Contractual and Legal, Main News Feed, Transformation

New requirements in the Building Regulations identify the need for businesses to demonstrate organisational capability. On a basic level, this means businesses will need to evidence how they check people are competent and ensure they are supported by effective process controls that support consistent delivery. This is not really a significant change as businesses have always had a legal requirement to ensure all reasonably foreseeable risks are effectively managed, but it does mean clients and Building Control officers will be showing more interest in your processes and management systems and will have more tools at their disposal to enforce where a business or individual fails to hit the required standards.

To support our community, the FIS Integrated Management Standard (IMS) has been relaunched as part of a newly developed Organisational Capability Toolkit. This toolkit will help members implement tried and proven methods of streamlining their company for the benefit of their business and its stakeholders. The toolkit will help to link and contextualise the wealth of information that FIS members have available to support compliant business management and how they can use their membership to support claims of organisational capability.

This IMS sits as a central resource to help align and control resources. It provides a framework for implementing risk management systems (supported by the FIS Product, Process, People Quality Framework) that will help organisations to meet statutory and legislative requirements.

On relaunching the standard at the FIS Conference and AGM in November, FIS CEO Iain McIlwee stated:

“This standard was developed originally to support the FIS vetting process, but really comes into its own in this new environment. It is clear in our work with members that many construction firms have great processes in place, but there can be a real disjoin between these processes. Across the sector we see design, procurement, contracts and legal, and construction processes that should complement and support each other, however they often clash, cause confusion and conflict and ultimately undermine delivery. This toolkit is a great opportunity to start to look collectively at how we can not just hit the baseline of compliance, but help to raise standards, promote professional businesses and support the Responsible No”.

The new FIS Organisational Capability Toolkit is available here.

Changes to the Construction Industry Scheme

by Oscar Venus | 18 Oct, 2024 | Contractual and Legal, Payments

Over the last six months, HMRC has made a number of changes to the Construction Industry Scheme (CIS), including:

Compliance with VAT obligations has been added to the Gross Payment Status compliance test which means if businesses do not comply with their VAT requirements, then HMRC can ultimately remove or refuse Gross Payment Status
Most landlord to tenant payments for construction work are no longer within the scope of the CIS
There is now a digital form to register as a Subcontractor and make Gross Payment Status applications.

HMRC has produced a video for CIS Subcontractors to help them understand the scheme, including that accurate material costs must be provided when submitting an invoice.

Source: Build UK