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Blog: Procuring a great career in construction

Manni Ferguson

Manni Ferguson from Kier Construction examines the growing diverse range of roles for women in business.

With International Women’s Day just two days away, there’s never been a better time to consider the growing diverse range of roles for women in business. People are surprised when I tell them I work for a large multinational construction company, and often they assume that I must work in administration. In fact, I head up procurement for Kier Construction in Scotland and north east England, managing everything from building and maintaining relationships with our supplier base to approving terms and conditions for every contract we place.

It’s a role which has opened up exciting opportunities for me in a sector which I believe is just getting started in terms of its innovative potential. That sector is construction.

I didn’t have typical career aspirations as a child – I loved maths at school and grew up wanting to become a maths teacher, people that know me now would find that hysterical. While this put me very much in the minority of my doctor and actress wannabe friends, I didn’t let that influence me, as geeky as maths sounded to them. I’m now lucky enough to work in an industry which offers excellent career opportunities as well as flexible working options.

I discovered while doing my BSc in Mathematics at the University of Glasgow, that while I love figures and particularly checking them – I’m a big fan of using my red pen! – I quickly realised that I simply didn’t have the patience required for teaching. When I graduated I was lucky enough to secure a summer placement in a local construction company’s buying team, and as they say, the rest is history.

It was a challenge entering a male dominated profession, but ultimately that was more about perception than reality. Personally, I found that if I worked hard, I got opportunities and promotions regardless of my gender. I moved companies a couple of times to widen my experience, and after a few years took a role with Kier where I’ve been ever since, 12 years later and I continue to love my job.

Over the years, things have really progressed in procurement and buying with the introduction of better systems and greater use of business information modelling (BIM) technology. As lead for procurement in Scotland and north east England, I spend my days reviewing contracts, overseeing teams, vetting suppliers and assessing the quality of items or workmanship that we’ve procured. I’ve found that I have a particular talent for understanding and reworking terms and conditions for mutual benefit between Kier and its suppliers, which means that I still get to brandish my red pen on occasion!

It’s a busy and varied role which allows me to be involved in both the nitty gritty of contract terms and conditions as well as the big picture of Kier’s overall supply chain. But what often surprises people is how flexible my employers are and how abundant the opportunities for advancement are across the industry.

During my time at Kier, I’ve been encouraged to push myself as far as I want to go.  Equally, it’s a very family friendly company and I was able to drop down to working three days a week when I came back from maternity leave, which I’ve since chosen to increase back up to working full time.

Unfortunately, the perception still exists that if you are a woman in construction, you’re either in a dirty job working on a site or in the office doing admin. Neither is the case for me! While it used to be unusual to see a woman on a construction site, with more diverse roles appearing due to advancing technology, women are much more the norm.

In my opinion, now is the perfect time to join construction, whether you are a man or a woman. There is no doubt that the industry is facing a shortage of skills, so it’s an open door and once you are in, you’re hooked! If you have transferrable experience and are good at problem solving, retaining information and multi-tasking, there is a good chance that someone in the sector will have a place for you.

Even though I never got to live my earlier dream of becoming a maths teacher, I feel I’ve found my place in an industry which appreciates my individual talents and quirks – including my passion for red pens and contract mark-ups. So, while construction isn’t traditionally the most popular career aspiration, perhaps it should be.

  • Manni Ferguson is procurement lead for Kier Construction in Scotland and north east England

To celebrate International Women’s Day on March 8, Scottish Construction Now is dedicating its entire newsletter to highlight the contribution of leading women from across the sector. Sign up to receive our free newsletter here http://eepurl.com/bkCTsT.

Blog: Competition regulator targets construction sector

Charles Livingstone and Adam McCabe from Brodies discuss the Competition and Markets Authority’s plans to tackle anti-competition cartels in the construction sector.

In the past two years the UK Competition and Markets Authority (CMA) has fined businesses over £150 million. With an increase in tip-offs in 2017, an expanded enforcement budget and plans to open a new operational office in Edinburgh, Scottish construction businesses must be alert to the increased risk of cartels being uncovered and punished.

The CMA has now launched a new “Be safe, not sorry” campaign to encourage more whistle-blowing about anti-competitive behaviour. The CMA is specifically targeting the construction and manufacturing sectors, which have “either a history of reported cartel activity or characteristics that make them vulnerable to cartels”.

The penalties for rival businesses that agree to coordinate their behaviour rather than compete with each other include severe fines, imprisonment and director disqualification. The most serious infringements (known as cartels) involve fixing prices, sharing customers or markets, and rigging bids. Sharing commercially sensitive information is also illegal. The impact on customers and competitors can be significant, with prices kept artificially high and choice, quality and innovation all suffering.

The construction sector is a long-standing target for competition regulators. The Organisation for Economic Co-operation and Development (OECD) named it a global “serial offender” for “endemic collusion”, alongside concrete and cement.

In 2009 the Office of Fair Trading (the CMA’s predecessor) famously fined over 100 construction firms a total of £63.6million for widespread bid-rigging spanning some 200 projects. This predominantly took the form of “cover pricing” where bidders ‘took turns’ to win contracts, the designated ‘losing’ bidders submitting inflated prices to ensure the chosen ‘winner’ got the contract. In the same year, six construction-focused recruitment agencies were fined almost £8 million for fixing the prices charged to construction firms and forcing a rival company (an intermediary between the agencies and construction firms) out of the market by agreeing to boycott its services. Construction companies therefore have a history as both perpetrators and victims of cartels.

The CMA’s new campaign encourages businesses to come clean on cartel activity. Under the CMA’s ‘leniency’ policy, the first cartel participant to confess to the CMA will usually get full immunity from fines, imprisonment and disqualification. It is therefore vital to act fast if you think you have been involved in a breach. However, you should also get specialist legal advice and support to ensure your interests are protected and the CMA is approached in the right way.

Proactive competition law compliance is also extremely important. The CMA expects businesses to know the rules and ensure they are followed. Appropriate measures can include written policies and staff training that explain competition law and the steps necessary to mitigate the key risks. This is particularly important for high-risk sectors such as construction.

  • Charles Livingstone and Adam McCabe are partner and senior solicitor at Brodies LLP respectively

Blog: Dilapidations – a question of timing

Kenny McDonald

Chartered surveyor Kenny McDonald outlines the best time for landlords and tenants to get advice on dilapidations claims.

Seeking the right advice at the right time can reap rewards for both landlords and tenants and maximise the ability of the parties involved to seek or defend against damages for alleged breaches.

A lease is used in most instances to formalise the agreement between landlord and tenant, the content of which will have implications for both parties throughout the term of the lease and at lease end. It is therefore of critical importance that the context of the lease is clear and concise and represents the requirements of the parties.

A prospective tenant should therefore seek advice from an experienced building surveyor to assess condition prior to entering into any lease agreement to minimise risk and avert potential claims. This is particularly relevant in the current commercial climate, where the majority of leases are for shorter terms.

The condition of the premises at commencement of the lease can have significant bearing on dilapidations claims. It is a common misconception among tenants that they are not obliged to repair, maintain or replace building components or landlord’s fixtures that were in poor condition at the outset of their tenancy.

Equally, the context of a Full Repair and Insuring lease does not imply a new for old policy and a tenant is not obliged to go beyond the standard of repair identified in the lease.

The wording of lease clauses and their inherent meaning can be complex. An experienced surveyor will be able recognise the merits and deficiencies of a lease and put this in context for their respective clients.

Most commercial leases will prescriptively identify the standard of repair within the repairing covenant of the lease. In most instances, this will place a burden on the tenant to “put the premises into repair or keep in repair”.

Broadly speaking, even if the demised premises are in poor repair at commencement this is not the standard to be maintained. Rather, the tenant is further obliged to maintain to a prescribed standard – often “good and substantial or good and tenantable condition, irrespective of the cause of damage”. The latter removes the landlord’s obligations to repair.

The standard of repair can be varied within the lease by a Schedule of Condition, most often in favour of the tenant, often requiring the tenant to return the premises in “no better or no worse condition” than evidenced in the schedule of condition.

It is therefore equally important where a schedule of condition is annexed that it is accurately reflective of the condition on the date of the inspection and identifies the whole of the demised premises.

Tenants should be aware that where alterations or additions are made to the demised premises these will be subject to the same repairing obligations as that of the existing premises. Alterations are subject in most instances to specific direction at the end of the term to either retain or remove.  Tenant fixtures and landlord fixtures are, in most cases, treated differently at the end of a lease and can have a bearing on the claim.

The expertise of a chartered building surveyor can be invaluable to both landlords and tenants where claims arise, particularly at the end of the lease term.

A landlord’s surveyor should endeavour to identify breaches and take cognisance of alterations to the property and prescribe the remedy required to resolve each breach. An estimate of cost should also be provided in order to establish the value of the claim.

An experienced building surveyor will have the ability to strategically assess the most viable options for the landlord to minimise future risk once the premises reverts, while ensuring the landlord receives “best value” from the outgoing tenant.

By equal measure, a tenant-appointed surveyor will be able to consider the merits of the landlord’s claim and minimise exposure for the client. In some instances, this may go beyond simply negotiating the claim line by line and an element of commercial awareness can go a long way to reaching a favourable settlement.

The best time to appoint a building surveyor? As soon as possible. Once appointed the surveyor will be able to make an assessment of the type of service required and provide strategic advice to the client.

This advice can be invaluable in minimising risk prior to the commencement of a lease for landlord and tenant alike. At lease end, the appointment of a chartered building surveyor can be the difference between a good and bad outcome for the client.

  • Kenny McDonald is an associate in Building Surveying Consultancy in the Glasgow North office of DM Hall Chartered Surveyors.

Blog: Insolvency in a post-Carillion world

Keith Kilburn

Keith Kilburn outlines 10 issues for employers, professionals and the supply chain to consider in the event of the insolvency of a main contractor.

It is fair to say that the insolvency of Carillion has sent shockwaves through the construction industry. While this may be the catalyst for change, insolvency has unfortunately been a risk which has been realised all too often.

Looking at the current position, we set out the top ten issues that employers, professionals and the supply chain should consider in the event of main contractor insolvency.

  1. Payment cycle – check where in the payment cycle you are. Are there interim payments due? There are limited saving provisions under the Construction Act in the event of insolvency;
  2. Security – check the terms of any bonds or guarantees which have been granted. Are they valid? Do they respond to insolvency? Insolvency may not be treated as a default depending on how the bond or guarantee is drafted. What is the process for making a valid call?
  3. Termination provisions – check what the contract says about termination. What is the process? Do notices require to be issued? What is to happen to materials and equipment on site?
  4. Status of the works – accurately record and document the status of the works on the date of insolvency. This will be relevant to calculating what works remain to be carried out and what the entitlement to payment due to or by the main contractor is;
  5. Completing the works – how are the works to be completed? What form will the completion contract or contacts take?
  6. Defects – accurately record and document any defects which are discovered and the costs incurred for making good;
  7. Final account – check what the contract says about preparing a final account. When should this be carried out and what is the process?
  8. Step-in rights – check if the contract makes provision for step-in rights, where a party may have the right under a contract to take the place of the main contractor.
  9. Making a claim in the insolvency – is a claim to be made and what is the process and timing for that?
  10. Insurance – check any insurances which are in place and if they will respond to insolvency.

Insolvency and its consequences can be complicated in any construction project and our specialist team of construction lawyers would be happy to assist you if this is an issue you face.

  • Keith Kilburn is a managing associate at Brodies

This blog originally appeared on the Brodies website.

Blog: Retrospective applications: it simply doesn’t pay any more not to abide by the rules

Alan Jeffrey

Alan Jeffrey outlines the ways in which the Scottish Government is cracking down on retrospective building alteration applications.

Financial incentive is one of the most powerful drivers of change in human activity and the Scottish Government is employing this mechanism quite ruthlessly to bring the use of its building control system into line.

Just last year, it doubled and trebled the fees for dealing with unauthorised alterations to buildings, mostly domestic residences. But that is just part of a cautionary tale about which professionals and the public alike should be aware.

As well as the dramatic hike in fees, people who have not complied with the regulations in force will face substantial costs for professional advice, new drawings, inspections and almost inevitable remedial works.

The costs of not applying for a building warrant up front or obtaining a completion certificate at the right time are now verging on the prohibitive. Non-compliance, not to put too fine a point on it, is a mug’s game.

To be fair, it is understandable why the Scottish Government wants to impose uniformity on a system which currently is undertaken by 32 local authorities in their role as Verifiers, with each authority responsible for verification in its own geographical area.

Prior to May 2005, each authority treated retrospective applications differently, with most demanding plans showing the alterations then issuing letters of comfort or letters with of qualifications.

And there is no doubt that there was a problem to be addressed. When I left Building Control in 1990 to embark on a career in surveying, there were as many people applying for retrospective permissions as there were applying for Building Warrants.

Further, the long-term objective of the government has always been that the fees charged to users of the building standards system should cover the cost to public funds of providing those services. Ideally, the system should be wholly self-funded.

There has been no increase in fees since 2005 and, while the system has washed its face in good times, sharp drops in income caused by external events such as the 2008 recession has resulted in substantial deficits.

The consequences of becoming involved in applying for a Late Building Warrant, where work has been started but not completed, or a Completion Certificate, where the work has been completed but no Warrant has been obtained, can be far-reaching.

Such omissions ping up sharply on the risk radar of lenders and can have major implications for mortgage approval, potentially affecting transactions of several properties involved in a chain.

Home Reports, carried out by qualified professionals, have had the effect of uncovering a greater proportion of uncertificated works and solicitors are seeking more detailed professional advice on whether past alterations have the appropriate warrants.

Surveyors may have to call in expert advice on contentious issues, once again adding to the costs of historic non-compliance.

Each band of submission fees has been increased, with the minimum, for works costing up to £5000, increasing from £100 to £150. The fee for a Late Building Warrant is up to 200% of what appears in the fee scale and a Completion Certificate is up by 300%.

Obtaining permission retrospectively for the most simple warrant applicable alteration will incur a minimum submission fee of £450.

There are exemptions, of course, but the work involved in such exemptions must still comply with the Technical Standards.

In some cases, omitting to apply for the relevant permissions arises from genuine mistakes or misapprehensions about the nature, range and scope of the regulations. But this only illustrates the importance of seeking early, impartial, qualified advice before embarking on projects, however small.

Our Property Services Department provide a full architectural service.

We can help with retrospective permissions and drawings, land registration issues, boundary disputes, Energy Performance Certificates and a range of matters up to and including full SAP Calculations for new build houses.

The rules have changed. It simply doesn’t pay not to abide by them.

  • Alan Jeffrey is an associate in the Property Services department of the Dunfermline office of DM Hall Chartered Surveyors. He is an accredited RICS Mediator and is on the Scottish RICS Panel of Mediators.

Blog: Planning Bill lacks detail and shows modest ambition

Andrew Mickel

With submissions closing on the Planning Bill consultation last Friday, Andrew Mickel calls on politicians, communities, local authorities and housebuilders to work together to provide the change needed to deliver the homes Scotland needs.

Planning may not be the most exciting subject in the world, and most people don’t think about it often unless they are objecting to an application on their doorstep. However, the Scottish planning system has a massive effect on all our lives, not least by determining if, when, where or how much-needed new housing can be built. Whether major new developments are rejected or approved also influences Scotland’s economic growth. Did you know, for example, that every home built supports around four jobs?

In 2007, the current First Minister set out an ambitious target of building 35,000 new homes every year. Sadly we have retreated from this high water mark, despite the fact that with over 150,000 applicants for housing on local authority waiting lists and a growing population, there has never been a stronger case for significantly increasing housing supply in Scotland.

Ask any housebuilder if they could be granted one wish, and I’d bet that most of them would say they would like the planning system to be speeded up. While this is obviously in the best interests of housebuilders, economists would undoubtedly agree that a planning backlog negatively impacts our economy. Efforts to accelerate it, however, have not been particularly successful so far. If anything, it seems to be taking developments longer and longer to get through the approvals process.

A new planning Bill for Scotland, which is part of a wider process of reform, was introduced at the end of last year and is currently making its way through Parliament, with submissions closing last week. This Bill will introduce a series of changes to the current planning system, such as the establishment of an infrastructure levy, and revisions to simplified planning zones and compulsory purchase orders.

The Scottish Government is strong on rhetoric, shouting loudly about tackling the housing crisis, but putting this into practice is another matter. I want to see evidence of long term vision, but to me the planning Bill contains a worrying lack of detail and seems modest in terms of ambition. Perhaps this illustrates that the Scottish Government feels the system does not need fundamental change? Unlike the UK government, who have made their ambitions clear by promoting a housing minister to the cabinet and setting targets upon which they can be judged, the Scottish Government seems unwilling to set such a bar.

I believe we need to explore ways to improve capacity in local authority planning departments, which are under-resourced, with the aim of a quicker service and better quality developments. More ring-fenced resources for planning departments, for example. The new Bill offers little to reduce the complexity of application procedures or provide confidence in faster decision making. However, I am pleased to see compulsory training – and possibly even an exam – for councillors making planning decisions included in the Bill.

A real cultural change needs to be driven forward by the chief executives of every local authority in Scotland so that, instead of simply being reactive, planners are actively encouraging and supporting much-needed investment into their local areas.

I’d also like to see the First Minister publicly challenge members of her government who acknowledge the housing crisis at a governmental level, yet at a constituency level, lend their support to anti-development pressure groups.

In an ideal world, communities and local authorities would be able to plan their own growth, but they must be able to do this strategically. I do feel we need to involve communities at an earlier stage in the decisions that affect them, through more meaningful consultation, and this is something Mactaggart & Mickel strives to achieve. We also try hard to create sensitively designed new communities that complement their existing surroundings. If all housebuilders put a bit more thought into design and into early consultation with local people, perhaps we could reduce the level of objections, which would help streamline the planning process.

Our Airthrey Green development near Stirling, in conjunction with Graham’s Dairy, includes 600-home development and a national dairy centre. We are currently awaiting a decision from the Scottish Government on their application to proceed – and have reinforced the importance of this project in supporting Scotland’s renewed economic vision. As well as hundreds of homes, this will bring a primary school, neighbourhood centre, improved road infrastructure, a public park, 400 new jobs and a 50-person apprenticeship scheme to the area.

Another crucial benefit would be a £20m+ expansion of Graham’s dairy business in the form of a new dairy processing, research and development facility, helping to further support Scottish dairy farmers – and giving the country’s homegrown dairy industry a competitive advantage. This would be the largest single investment in the dairy sector in over 30 years.

Housebuilding is one of our most vital industries, which impacts on such a wide range of policy areas, from job creation and fuel poverty to quite simply putting a roof over everyone’s head. Isn’t it time we took down some of the barriers to making that happen?

  • Andrew Mickel is director of Mactaggart & Mickel Group

Blog: A cautionary tale for the UK construction industry

Peter Webb informs construction industry bosses about their responsibilities when it comes to paying workers/subs – and how to avoid a visit from HMRC.

Over the last twelve months two of my clients involved in the construction industry have suffered joint visits by the HMRC VAT and Construction Industry Team.

With the demise of local HMRC offices, this approach represents a change from previous HMRC practice.

These visits were ostensibly to ensure that the clients had complied with VAT and CIS rules but turned out to be more in depth than was expected. It is beneficial to share some of the main points arising from the visits.

VAT

Both clients were involved in the construction of new build domestic dwellings for large national house building contractors, on a self-billing basis. As such, the supplies were quite correctly zero- rated and both companies were able to make substantial reclaims of input VAT in respect of material and other relevant costs.

However, in both cases, the client was asked to prove that the correct VAT rate had been applied. The self-billing invoice was not deemed sufficient proof and because the HMRC teams had travelled from outside the area (one from Reading), there was no local knowledge of the sites involved.

The clients were asked to produce plans and planning permissions which, in both cases, they were able to do and thus prove their returns.

However, this complication added time and stress to the process.

CONTRUCTION INDUSTRY SCHEME

Here, the checks took a two-pronged approach:

  1. Were payments being made to bona-fide subcontractors or should the recipient be treated as an employee, in which case the liability to PAYE and National Insurance payable by the contractor would be that much greater? Also, this could result in the contractor being liable for Auto-Enrolment pensions, holiday pay, sick pay and paternity/maternity pay; and
  2. Where the sub-contractor was properly classified as such, had the appropriate verification steps been taken and were the correct tax deductions being taken?

In relation to the first area, much has been written in the press in recent times regarding the classification of workers and there have been two high-profile employment tribunal cases involving Pimlico Plumbers and Uber which have found in favour of employed status. It is therefore vitally important that, where self-employed sub-contractors are used, their employment status is reviewed on a regular basis. There is a useful tool for checking status on the HMRC website.

Once status has been determined, the sub-contractor must be confirmed with HMRC before any payment is made in order to ascertain the tax treatment, i.e. whether no tax, 20% or the higher, 30% rate should be used. If the wrong rate is used, it is the contractor that will be liable for any additional tax due together with penalties for non-compliance.

Peter Webb

These steps are easy to overlook in a busy working environment but failure to adhere to the rules can lead to substantial liabilities.

  • Peter Webb is a partner at Thomas Westcott Chartered Accountants

Blog: A recovering housing market means the time is right to ‘go private’

Paul Kelly, MD Briar Homes

Paul Kelly reveals the one change he believes would have a significantly positive effect on helping the Scottish Government reach its 50,000 new homes target.

Despite the shadow of uncertainty caused by all things Brexit, and a snap general election adding to the gloom, Scotland’s residential property market revealed glimpses of sunshine in 2017.

According to figures from estate agent Aberdein Considine, more than 28,000 Scottish homes were sold during the third quarter of 2017, up 4 per cent on July-September 2016 and 2,000 more than Q2.

New-build activity is also on the rise. According to the Scottish Government, almost 7,000 homes for sale were built in the first half of 2017 – an increase of 7.5% on the same period in 2016.

The year ended with good news for the sector, when the Scottish Government emulated their UK counterparts and scrapped LBTT for first time buyers on homes priced up to £175,000.

Indeed, they went further, pledging additional funding for skills bodies, colleges and universities to help address the construction skills gap. All welcome measures, although they don’t address the underlying issue; a widespread shortage of housing across all tenures.

Some industry watchers think that private house building could potentially slow down during 2018 due to the effects of Brexit, but I don’t see any real sign of this yet. Glasgow and Edinburgh in particular are extremely sought-after locations, with new-build homes especially popular. The combination of limited supply, consistent demand, and low interest, all lead me to believe that this will be another good year for most housebuilders.

As the managing director of a small family housebuilding business I have decided to re-introduce private housebuilding into our business again. Prior to 2008, we built a mix of private and social housing, but during that year I took the decision to ride out the tougher economic times by focusing on building social housing for registered social landlords such as Home Scotland Ltd, Wheatley Group and Sanctuary Housing.

This approach worked for us – we survived the recession and began to grow again from 2010.  In the last eight years our headcount has doubled and we now employ 22 members of staff.

With evidence suggesting that the housing market was in steady recovery, in 2016 we decided the time was right to re-enter the private housing market with the launch of a private homes arm that would provide high quality, energy efficient homes. At the tail end of last year, we secured our first planning permission – under our new Briar Homes brand – to build 73 new homes near Baillieston in Glasgow.

We plan to launch the first of these homes for sale in February and have a list of pre-registrations.  This gives me confidence that our timing is right and the development will be a success.

We are also awaiting a decision on a planning application to build 17 private homes in North Lanarkshire, and have land in place for a further programme of building across central Scotland.

On Briar Homes, we are working with the Housing Growth Partnership, a social impact investor backed by Lloyds Bank and the Homes & Communities Agency, who is partnering with small housebuilders to support the sustainable growth of their businesses. This support helps us to increase the number of homes we can build, with the ultimate aim of addressing housing affordability by increasing supply.

While I welcome the Scottish Government’s long term commitment to affordable housing, like most builders I feel that the target of providing 50,000 new homes over the term of the parliament will be very challenging to achieve.

This is due in no small part to the fact that efforts to speed up the planning process and free up more land for house building have not been particularly successful so far. To address this problem I’d like to see a presumption for planning departments to approve plans for affordable homes on non-contentious, zoned sites.

This one change would have a significantly positive effect, helping the government reach its target of course, but more importantly unlocking badly needed housing across Scotland.

  • Paul Kelly is managing director at AS Homes (Scotland) Ltd

Blog: Retentions: has the construction industry had enough following the Carillion disaster?

Jonathan Hyndman

By Jonathan Hyndman, Partner at Rosling King

The use of cash retentions is common place in the construction industry. Some £3 billion of retentions remain outstanding in the UK construction industry at any one time. With the collapse of Carillion, however, has the industry had enough?

By deducting and retaining a percentage of the value of the works from interim payments due to the contractor during the construction phase, developers can be seen to enjoy an element of protection against late completion and defects arising during the rectification period. Similarly, main contractors will deduct and retain a percentage from each interim payment due to their subcontractors again, to be released when the subcontract works have been completed and when the subcontractor has made good any defects.

Widespread and persistent failures to release retentions on time or at all, whether as a result of simple breach of contract or the insolvency of the party holding the retention, has encouraged contractors at all levels of the supply chain to price the risk of their retention not being released into the contract sum.

Reform of retentions in construction contracts has long been called for and The Construction (Retention Deposit Schemes) Bill, introduced as a Private Members’ Bill, received its first reading in the House of Commons on 9 January 2018; the Bill’s second reading is scheduled for 27 April 2018. Carillon’s collapse has brought the importance of the proposed legislation sharply into focus.

The intention behind the Bill is the introduction of secondary legislation requiring cash retentions to be paid into a government approved scheme and so ring fencing them from the other assets of the party holding the retention; the party to whom the retention is due will still be incentivised to complete on time and remedy defects but in the event of the retention holder’s insolvency, the cash retention, held in a government approved scheme, would fall outside the insolvency process and would be available for downstream release before any creditor distribution.

The proposals have met with widespread support through the construction industry with the statutory deposit scheme required in relation to deposits paid by tenants of shorthold tenancies to landlords being cited as a working example.

Reform of retentions is overdue and welcomed. The intended protection of retentions against upstream insolvency in the construction industry will unfortunately come too late for Carillion’s sub-contractors and suppliers.

Blog: Tools to weather an insolvency storm in the construction industry

Shona McCusker

In the wake of Carillion’s collapse, Shona McCusker looks at the contractual protections available to construction parties.

It has been over a week since one of the major players in the UK construction sector announced its insolvency. The news caused widespread panic in the industry and beyond. The effects are wide reaching and continue to unfold however, now that some of the dust has settled this article considers tools that may be available to construction parties, by virtue of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the 1996 Act”), to weather the ensuing storm.

Pay when paid provisions

The 1996 Act recognises the importance of regular cash flow to the contractor in a construction project, particularly downstream. One of the ways in which the 1996 Act aims to achieve this is through its prohibition on conditional payments. S.113 determines that any contractual provision making payment to the payee conditional on the payer receiving payment from a third party, known in the industry as a “pay when paid provision”, is ineffective.

But what happens when a third party upstream becomes insolvent leaving the payer without the means of paying the payee downstream? Does the payer still have to cough up? S.113 of the 1996 Act contains a carve-out for this scenario by permitting a pay when paid clause to operate when the third party has become insolvent. Where such a provision exists, a sub-contractor could potentially avoid having to pay out sums due to a sub-sub-contractor where the main contractor has failed to make payment to it by reason of insolvency. Not all contracts contain such a provision so it is important to check your contract before considering withholding payment.

Suspending the works

Part II of the 1996 Act further recognises that a contractor cannot be expected to perform its obligations under a contract where it is not being remunerated. Practically, this means that if a main contractor has not paid a sub-contractor sums which are due, the sub-contractor is entitled to down tools until payment is forthcoming. In order to exercise this right, the payee must first give at least seven days’ notice to the payer of its intention to suspend performance.

Terminating the Contract

There is no express provision in the 1996 Act, nor is there any common law right, that allows parties to terminate a construction contract by reason of insolvency. Whether or not a party has the right to terminate a construction contract by reason of a party’s insolvency will therefore depend on the contractual provisions.

Tips for using the tools:

  • Read your contract and be clear on what can and cannot be done under the contract. It is the most obvious and common tip, but in an insolvency situation parties can react on instinct and forget what the contractual provisions allow.
  • Exercise caution when withholding payment from a payee downstream by reason of non-payment from an upstream third party payer. Only if the upstream third party payer is insolvent, and the contractual provisions allow, may you consider withholding payment from the downstream payee.
  • Do not work for free! If as a payee, you have not received payment for sums due, consider suspending the works to avoid racking up further potentially irrecoverable costs.

Shona McCusker is a solicitor at MacRoberts