Contractual and Legal

 As well as our vocal stance on unfair payment practices, FIS members can access a range of services to support them in managing the complexities of contracting and supplying products into the construction market, this includes template contracts, guidance on standard terms, support in dealing with disputes and a raft of best practice advice.

COVID-19 Contractual Toolkit

The COVID-19 has created a number of challenges for FIS Members balancing social, health and welfare concerns.  It has also caused a number of contractual issues.  Please remember that the reources below are supported by our legal helpline, which can be accessed via 0121 707 0077.

COVID-19 FIS Contract Management Tools

Contract Health Check Tool – members using this tool are entitled to a 20 min free clinic with QS Damian James, this can be booked via info@thefis.org

Detailed Claim Template – Document to support the substantiation of a suspension / delay to work due to the COVID-19 Pandemic

Notice of Claim – Document to support the notification of a suspension / delay to work due to the COVID-19 Pandemic

Covid-19 clause – extensions of time and additional cost
It is sensible for companies to be proactive and try to ensure that there is protection in their contracts against the effects of Covid-19.  ClarksLegal has provided an example clause, for inclusion in tender packages.

Government Backs New Industry Guidance to Avoid Disputes
The Construction Leadership Council COVID-19 Task Force has published practical guidance for all companies involved in the construction supply chain on how to minimise potential disputes.  The document addresses a concern that the construction industry will become embroiled in costly and long-running disputes over the effects of the pandemic on projects if it does not look to engage in collaborative discussions to resolve these issues.  It also includes handy template resources. 

Contractual and Commercial Considerations for the Return to Site
Following the lockdown and suspension of work on sites due to the Covid-19 pandemic there are a number of considerations for Contractors to address as the resumption of works occurs. The following matters are addressed by this paper:

  • Recording the extent of the period of suspension/site closure and requesting the corresponding Extension of Time.
  • Notifying the Main Contractor/Employer of the ongoing effects of restricted working on sites to comply with current Guidance and Main Contractor’s amended site operating procedures.
  • A system of recording changes or restrictions which affect costs to complete, such as the impact on productivity and progress, further delays due to material deliveries etc., working hours, travel and accommodation, partial access etc.
  • The inclusion of a Pandemic clause in new contracts going forward (and qualifications to tenders for new work)
  • New Guidance to support Scottish Contractors from the CICV Forum.

Additional Supporting Resources:

Vesting Certificates and how they can support Cash Flow

Guidance on Contractual Issues Caused by Coronavirus published on behalf of FIS Members via BuildUK

Build UK partner Anderson Strathern has produced an addendum to Build UK’s Guidance on Contractual Issues Caused by Coronavirus, setting out the amendments required for use in Scotland with SBCC contracts.

For information on Dispute Resolution see the main toolkit below, which also includes new COVID-19 related dispute services developed by RICS.

Webinars:

COVID-19: How to manage suspensions
With construction projects and disputes facing suspension due to COVID-19 we look at the practical steps to ensure your contractual entailment to time and money.
Presenter: Damian James, WWL, Delay and Quantum Expert

Contract Management, Avoiding Conflict and Dispute Resolution
Delay and Quantum Expert, Damian James has developed a toolkit to support FIS members in managing contracts, avoiding conflict and resolving disputes.  This webinar looks at how to use these tools to improve your business.
Presenter: Damian James, WWL, Delay and Quantum Expert

Conflict Resolution and COVID-19
This webinar looked at the common sense steps needed to be taken to navigate potential commercial pitfalls associated with delays to construction projects caused by COVID-19. The advice focussed on record keeping, how to communicate effectively and structure your arguments to elicit collaboration and avoid conflict whilst at the same time protecting your business and people.
Presenter: Marc Preston BA(Hons) MRICS MCIOB MBACP

Unreasonable Contractual Clauses
We were joined on this webinar by John Bradley of Reynolds Colman Bradley LLP to support discussions around unreasonable contractual clauses.

Vesting Certificates and how they can support Cash Flow
Many contractors or manufacturers have never considered the concept of vesting materials offsite. If you’ve got a tonne of cash tied up in product and materials that is in a factory and can’t be delivered due to delays to the programme, it could be a life saver.
Presenter: QS Anthony Manson

Leading Construction Lawyer and Board Member of the JCT John Bradley gave his views on the contractual implications of potential delays and site closures (20 March).

Note the template resources below should support application for delay or suspension of contract.

What is a Contract?

A contract is simply an agreement between two parties that is legally enforceable, however, the contractual nature of construction can seem incredibly complex.  FIS provides updates and advice to members including a number of factsheets and guidance notes.  

There are three ways in which a legally binding contract can come into existence:

• Oral
• Written (signed underhand)
• Written (deeds)

The pragmatic difference is that there are further requirements for the execution of a deed. Also an oral contract although perfectly legally binding in theory is notoriously difficult to prove in practice – adducing evidence as to the terms of an oral contract is not only fraught with difficulty but also a costly and timely process.

Download the FIS Guide to Execution of Contract

Contract Terms Recommendation

What Contract Should I Use?

Setting out your contractual arrangements for your projects can be difficult. FIS does not produce an FIS contract, but recommends the use of the JCT contracts, depending on your circumstances.  Since 1931 JCT has produced standard forms of construction contract, guidance notes and other standard forms of documentation for use by the construction industry.  Today JCT provides a larger and more comprehensive range of contract documentation than any other contract-producing body in the UK construction industry.  JCT became a Limited Company in 1998 and the organisation is comprised of seven member bodies. The members of the company represent the sectors of the industry who are the key participants (i.e. signatories) in the contract process.  FIS maintains membership through BuildUK and our helplines and support is primarilly aligned to working with JCT (and the Scottish Equivalent – the Scottish Building Contract Committee (SBBC).

Download the FIS Factsheet:  Which JCT/SBBC Contract Should I Use?

Contractual and Legal Matters

Contract Terms to Avoid

Build UK has published comprehensive guidance to support its recommendation on contract terms. A New Normal in Contractual Practice provides a detailed rationale for why the six contract terms identified within the recommendation should be avoided and how to more effectively manage the underlying issues. The recommendation, which is non‐binding, seeks to form a common ground between clients and the supply chain and ensure a fairer allocation of risk.

A-New-Normal-in-Contractual-Practice-2020

What is a Collateral Warranty?

A collateral warranty gives its beneficiary a direct contractual link to the specialist contractor so that should the specialist contractor be at fault and the beneficiary suffers loss as a direct result of that fault, the beneficiary can sue the specialist contractor directly for breach of the terms of the warranty to recover its loss.  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.

Download the FIS Guidance Note on Collateral Warranties here

What is Design Resposibility and why must a contractor be alert to the Risks?

As a specialist contractor you may increasingly become involved in not only installation, but also design of the work which you are installing. Significant legal obligations arise from your work as a designer. In many instances you may undertake the same legal liability as an architect or other professional designer – possibly an even greater liability. Therefore, if your installation fails to work because of a fault in your design or an error in its concept, you may find that the client looks to you to rectify the failure.

Download the FIS Guidance Note on Design responsibility – When can a specialist contractor be classed as a Designer

Download the FIS Guidance Note on Design Responsiblity – Reasonable Skill and Care or Fitness for Purpose

What is a Parent Company Guarantee (PCG)?

A PCG is an agreement whereby a parent or sibling company guarantees to the employer or main contractor that its subsidiary/sibling will properly perform its contractual obligations.  A PCG is designed to givesthe beneficiary additional security for the specialist contractor’s performance.

Download the FIS Factsheet:  Parent Company Guarantees

When is visiting site a provided under the main contract (i.e. when can I charge)?

Depending on the form of contract being used, attendances may or may not be provided under the main contract. Specialist contractors working as sub-contractors need to be aware of those attendances which will be provided to them free of charge and other attendances which they will need to cost into their contract during the tender stage.  For example, within the accompanying Articles (DSC/A) to the JCT Domestic Sub Contract Conditions with Sectional Completion DSC/C/SC 2002, Article 3 provides (in Clause 3.14) for a number of items of attendances which the contractor shall provide free of charge to the subcontractor.

Download the FIS Site Attendances Check List for Interior Fit-Out Contracts

The Regulatory Backdrop in the Finishes and Interiors Sector

A key role for FIS is to represent and support the members in regulatory matters, through our own in-house team and by virtue of our membership of umbrella bodies such as BuildUK and CPA, the organisation is uniquely placed to advice you on all things legal and regulatory in the sector.  We do this through our specialist helplines listed below and a regular flow of information through our newsletter.

Download our Handy List of Regulations and Standards Relevant to the Finishing and Interiors Sector

Dispute Resolution

Dispute Resolution

From time to time contractual disputes will arise.  These can be solved through legal recourse, or more commonly in construction through Alternative Dispute Resolution (ADR) options such as mediation, adjudication or arbitration.  It is vital before you enter into a dispute that you understand your rights and responsibilities.  The mechanism by which a dispute can be resolved is often determined within a contract, but FIS is onhand to advise members on disputes and to steer you towards the most appropriate option.  We can also offers access to an Independent Advisory Service on problem installations, covering all matters relating to suspended ceilings, partitioning, drylining, plastering and access floors. This covers materials, ancillary equipment, systems, their application and installation.

What is a Smash and Grab Adjudication

A “smash and grab” adjudication is where the contractor typically relies on the employer’s failure to get its paperwork in order to “grab” money quickly through an adjudication. It usually arises when the employer fails to serve a valid pay-less notice in time in accordance with the construction contract.

The Art of Getting Paid (slides from a workshop hosted at FIS Members Conference 2019)

For more details on the FIS Independent Advisory Service click here

To access specialist FIS Dispute Resolution Advice phone the FIS Team on 0121 707 0077 or Email: info@thefis.org 

RICS Disputes Resolutions Service Launches Summary Adjudication – As the economic effect of the Covid-19 impacts severely on the construction industry, there are many contractors in the smaller end of the market who are struggling to access dispute resolution even under the reduced cost of Low Value Adjudication (LVD MAP) process.  For a limited period initially until the end of July, as a specific response to the needs of the industry, RICS are now offering Summary Adjudication for claims below £20 000.

Retentions

FIS continues to call for the abolition of retentions on the basis that they are an out-dated mechanism to manage quality and remain abused by contractors who use retentions to withhold cash and delay or even avoid payment.  In recent years legislation has tried to drive change, for example the Housing Grants Construction Act of 1996 forced the removal of pay when paid clauses . The Construction Act 2011 reinforces this by ensuring that that release of retention to subcontractors could not be linked to an unrelated occurrence within a main contract but must be triggered by something specific to the sub contract.  In truth this has not had a huge impact on the abuse of retentions.

The JCT Standard Contracts allows for retentions with 3% on the main and 5% included in the sub contract.   In terms of management of these retentions half should be released on issue of the certificate of practical completion and the remainder on final completion (the standard form contracts use different expressions to refer to this; expiration of the Defects Liability Period; the Certificate of Completion of Making Good Defects; the Defects Certificate or the end of the Defects Correction Period). The sub contract should mirror this with the first half released on practical completion of the works and the remainder as defined by the Retention Release Date, which should be written into the contract.

FIS is a member of Build UK who have set down a plan to move to zero retentions by no later than 2025. To achieve this, they have set down a Roadmap to Zero Retentions with milestones to show that progress is being made.

Find out more about the BuildUK Zero Retentions Map here

Find out more about consultations in Scotland and the possibility of Retentions held in Trust here

Accounting for Retentions

In their accounts, contractors will generally deal with retentions in one of the following ways:

  • include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment (see BIM42700 onwards), or
  • defer recognition of retentions until their receipt becomes virtually certain.

Each of the above accords with generally accepted accounting practice and should be followed for tax purposes unless an unrealistically conservative view has been taken.

Further details are available here from the HMRC Business Income Manual

Contractual Toolkit - Template Resources

Free model LOSC contract for use between FIS members and their labour only subcontractors.

The contract has been designed to help members who employ labour-only subcontractors to ensure that both parties to any contract fully understand their responsibilities, particularly with regard to heath and safety, quality and payment of national insurance and income tax.

Template Notices (thanks to BESA for producing these and sharing with our Membership)

JCT notices

NEC notice updated

NEC3 early warning notice

Restructuring and Insolvency

Insolvency describes a situation when a company or individual can’t pay what they owe on time, or when the value of their assets is less than the money they owe. The ICAEW guide provides an excellent guide to insolvency and restructuring. The law (mainly the Insolvency Act 1986) sets out formal legal processes for insolvent companies. Not every business with a debt problem ends up needing a formal solution.  Please note that this Guide was published ahead of the changes announced as part of the new procedures to help businesses cope with the impact of COVID-19.  An outline of this is provided below.  More information will be provided here once available.

ICAEW_Guide_to_Insolvency

Government amends insolvency law to help companies keep trading while they explore options for rescue

Under new plans, the UK’s Insolvency Framework will add new restructuring tools that mirror the USA’s Chapter 11 procedure, a well-established model adopted by countries around the world.  This includes:

• A moratorium for companies giving them breathing space for from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;

• Protection of their supplies to enable them to continue trading during the moratorium; and;

• A new restructuring plan, binding creditors to that planThe proposals will also include key safeguards for creditors and suppliers to ensure they are paid, while existing laws against fraudulent trading and the threat of director disqualification will continue to act as an effective deterrent against reckless misuse of these new measures.

The Government will also temporarily suspend the wrongful trading provisions to give company directors greater confidence to use their best endeavours to continue to trade during this pandemic emergency, without the threat of personal liability, should the company ultimately fall into insolvency.

FIS Specialist Contractual and Legal Helplines

FIS members are entitled to free specialist telephone advice, with access to subject experts covering employment issues, contractual and legal, health and safety and tax and business.  To access this service simply call the FIS office on 0121 707 0077.

The Regulatory Backdrop in the Finishes and Interiors Sector

A key role for FIS is to represent and support the members in regulatory matters, through our own in-house team and by virtue of our membership of umbrella bodies such as BuildUK and CPA, the organisation is uniquely placed to advice you on all things legal and regulatory in the sector.  We do this through our specialist helplines listed below and a regular flow of information through our newsletter.

Download our Handy List of Regulations and Standards Relevant to the Finishing and Interiors Sector

SpecFinish Magazine Articles

Final account applications – the importance of the payer notice (page 17)

The setting for the case of Kilker Projects Ltd v Rob Purton t/a Richmond Interiors (Purton) was the Dorchester Hotel in Park Lane.  Purton entered a Word of Mouth Contract with Kilker for specialist joinery works at the hotel.  A dispute emerged between the parties was about the sum due in respect of final accounts.  Prof Rudi Klien Barrister in this article focuses on the legalities of final account applications.

The Forgotten Duty Holder

As we all probably know, contractors – including employers, employees, installers, designers, manufacturers and any construction site worker – have responsibilities under the Health and Safety at Work etc Act 1974 (HSWA) to look after the health and safety of employees and non employees and to ensure that they are taking reasonable care for the health and safety of themselves and others that are affected by their acts or omissions at work.  This article explores the, now very real, installer being prosecuted as a ‘producer’ under the General Product Safety Regulations 2005 (GPSR) for supplying an unsafe product by virtue of its installation.