Amendments to the Payment Practices and Performance Regulations 2017

by Iain McIlwee | Feb 1, 2023 | Transformation

This week Kevin Hollinrake MP, Minister for Enterprise, Markets and Small Business Government opened a consultation into Payment Practices and Performance Regulations 2017.  The consultation is looking primarily at whether the Regulations should be extended beyond their current expiry date of 6 April 2024. It also provides an opportunity to consult on other potential amendments and improvements to the Regulations resulting from the views expressed by those who responded to the recent statutory review.

The consultation sets out proposals on:

• amending the expiry date to extend the Regulations beyond 6 April 2024
• including an additional value reporting metric
• referencing payment reporting in a company’s director’s report
• a clarification of how supply chain finance is reported
• including a new metric on disputed invoices
• retention payments in the construction sector

FIS fed into the initial review via the Small Business Commissioner and will be responding to the consultation on behalf of our membership.

FIS continues to speak out on poor practice witnessed in construction (see recent article in Construction News – FIS CEO calls out Payment Practices).  We will be also be drawing on research recently conducted with the University of Reading that has highlighted “46% of subcontractors reported waiting for 40-59 days in comparison to only 24% of main contractors. Perhaps most strikingly, only 6% of specialist subcontractors reported being paid within 30 days.”

Specifically on retentions the consultation is exploring:

Question 6: Do you agree that the Regulations should be amended so that payment practice and performance reports should include information on the standard retention payment terms in qualifying construction contracts?

Question 7: Do you agree that the Regulations should be amended so that payment practice and performance reports should include statistical information on retention payments?

But, it should open up an opportunity to raise more broadly concerns over retentions and our response will draw on questions raised in the research conducted with the University of Reading.

If you are interested in feeding directly into the consultation, you can access all the information here.  Please do send a copy of any response or thoughts that you would like embraced in the FIS response to iainmcilwee@thefis.org.  Equally if you want to talk through your views, don’t hesitate to call Iain on 0121 707 0077.

You can see the current FIS position on retentions here along with our wider approach to concerns over procurement and payment fairness in the sector.

Drilling into payment issues in Scotland

by Iain McIlwee | Jan 13, 2023 | Transformation

New Case Starts to Give Fresh Insight into Construction Claims

by Iain McIlwee | Jan 11, 2023 | Transformation

The case of LDC (PORTFOLIO ONE) LIMITED vs (1) GEORGE DOWNING CONSTRUCTION LIMITED (GDC) EUROPEAN SHEETING LIMITED (ESL).  Starts to give fresh insights into how claims will be heard in the new compliance landscape.

The case related to external wall works carried out by ESL under a sub contract to GMD Developments Ltd (the main contractor).  Both contractors were retained on a design and build basis and both issued collateral Deeds of Warranty dated 17 October 2008 in favour of the then employer, GMD. Those Deeds of Warranty were subsequently assigned by GMD to LDC (the employer).

The works related to three blocks, each over 18m high, and each with a different configuration of external wall cladding.  In each case, on the inside of the external wall cladding there is a breather membrane and Structural Insulated Panels (“SIPs”). The SIPs were fixed to the structural concrete frame of each block. The case is built on the fact that that following water ingress issues and subsequent investigations into the as-built Property, it was discovered that:

• There are several defects in the external wall construction of the composite cladding elevations which have led to water ingress and deterioration of the SIPs.
• There are fire barrier and fire stopping issues on all elevations; including in relation to the cavity barrier provision between the outer face of the SIPs and the rear face of the cladding panels on the Cor-ten elevations, and between the rear of the SIPs and the concrete slab and between SIPs, on all elevations.

Other material factors were that GMD had already agreed to a settlement of £17,650,000 with LDC, so the judgement being sought was related to LDC’s claim against ESL in the sum of £21,152,198.87 calculated as follows:

• Cost of remedial works: £16,457,825.87; and
• Loss of Income: £4,694,373.00; and
• Downing’s claim for an indemnity and/or contribution against ESL in the sum of£17,650,000 together with Downing’s reasonable costs of defending the claim brought against it by LDC

The Judge found in favour of the Claimant and ESL were required to meet the full costs.  The case raises a number of issues.

The first is that it was heard despite the fact ESL are currently in Liquidation.  This means that any liability is likely to be met via a Professional Indemnity claim against the collateral warranty.   What is not clear is whether cover is commensurate with the claim or whether any subsequent claim could be brought against duty holders associated with ESL to meet any shortfall.  The judgement itself is silent on this, but new legal precedence has been created by the Building Liability Order is yet to be tested.  On this aspect, this may not be the last we hear from this case.

The second is that it was 15 years ago  – remember the Defective Premises Act now allows retrospective claims to go back 30 years (reverting to 15 years on jobs that started after the Building Safety Act was introduced in 2022).

Another important point is that the case rests not on whether the cladding needed to be removed due to the original selection of the SIPS system (it was replaced with SFS), but to address moisture ingress creating structural issues and uncovering fire safety concerns during investigation.  Consequently this judgment makes no reference to initial manufacturer claims.  Worth dwelling on is that whilst, for the purposes of remediation a new cladding system was selected and the judgment made reference to “post-Grenfell enhanced Regulation”, the premise of the case is that the works themselves fell short of the requirements due to moisture ingress creating structural concerns and residual fire safety concerns related to changes to the specification during the construction process. In her findings the Judge, Ms Buehrlen KV, concurred that it was more cost effective to replace the entire system and SFS was a better alternative in the wake of new guidance.  The comments from Technical Witness Mr Fung are interesting in the reference whether the need to replace was proportionate, but the defence seemed to rest on the fact that any remedial encapsulation would not represent a tested solution. The whole case doesn’t really get into the original specification and whether the potential would be a need to replace regardless due to new cladding legislation.  It is what we don’t know here that stands out here.

Another and perhaps the most significant aspect of the case is that a design change was pivotal to the judgement and attempts to caveat changes by ESL were not accepted.  This judgement centred on design detailing (i.e. missing verticle fire breaks and EPSM Membrane based on the original Architectural Specification) and workmanship (i.e. missing fixings and issues with the horizontal fire breaks) associated with the original cladding specification.  Failings and subsequent damage caused by water ingress to the original cladding system meant it was deemed to be structurally unsound and there were concerns about the fire safety raised.

ESL claim that they were instructed to omit the vertical cavity barriers and EPDM included in the Architectural Specification.  We are not party to where, how and why the decision was made around removing fire breaks, but ESL did as a result of the claim that they were “instructed to omit” attempt to exclude the provision of fire breaks from their contractual responsibility.  The judgement refers to emails and ESL in their original defence maintained that they were not responsible for the design of cavity barriers and they were instructed to omit the EPDM which caused or contributed to the water ingress issues.  Much we don’t know, but if there was pressure put on them to value engineer, a buildability issue was uncovered or whether any external advice was provided, it was not recorded and presented in a manner that convinced the judge that ESL were not ultimately responsible.  The Judge determined that these elements were intrinsic to the “design of the cladding and rainscreen” to deliver compliance and so regardless of the attempt to exclude and ESL was left with the liability.  The balance between these elements and workmanship issues was not discussed.

In conclusion the judge references the details from the Mulalley case in so far as “Building Regulation Compliance” falls under “Reasonable Skill and Care” in design and meetiing “All Statutory Requirements” in the case of the D&B Sub Contract.  The judge determined that the attempts to caveat elements of the design doesn’t supersede a contractual obligation to meet “All Statutory Requirements”.   It is unclear to me in the judgement how or why these decisions were reached.

Whilst the full implications of this judgement are yet to be determined, it does throw up some concerns for sub-contractors both in terms of the potential for legacy claims, underpins the need to ensure any change to the specification is appropriately signed off and to exercise caution in terms of the assumption that an express caveat releases a party from their core contractual requirements.

This article was prepared by Iain McIlwee and provided in good faith based on initial reading, FIS Lawyers will be looking in more detail at the full implications of this case and potential precedent set.

This judgement has not, at the time of writing been uploaded to the BAILII website, but will appear here imminently, if you are interested to read the full transcript in the interim email iainmcilwee@thefis.org