Current Industry Trends

May 2011

UK Disputes Resolved Fastest: a recent study on disputes, by EC Harris and reported in the Construction Index,
confirms that the average value of construction disputes is the lowest in all the countries they operate in and
that the resolution of our disputes are quicker than on average globally. This is attributed to the use of
adjudication and collaborative forms of contract. Other popular and effective methods for resolving disputes are
“without prejudice” negotiations and mediation. Unfortunately, construction disputes have increased, reflecting general global trends. So, what can you do to avoid disputes?

• work on improving good administration of your projects,
• spend time at the outset getting things right - thus avoiding ambiguities in the contract documents,
• select the right contract for the project in question that reflects its requirements and working systems;
• properly review and award extensions of time and monies when due.

Bond Claims: Another trend we are noticing, is an increased need to advise on the replacement of an insolvent party,
the mechanics for reconciling the end finances once the works have been completed by the often, replacement contractor,
and consequent calls on bonds. Whilst making a call on a bond is rarely a straightforward process and often does not provide
for funding of the outstanding and remedial works, it can be an invaluable source of funds recovery at the end
(usually up to 10% of the original contract sum). The case law remains complex but we are pleased to report recent successes
on behalf of our clients in this area.

Supermarkets buck the trend: “An increase in the underlying value of project starts over March and April this year took
the index to levels not seen since July,” said Glenigan economist James Abraham.  “However, weakness across the industry,
caused in part by reduced government spending and a faltering housing market, meant that new work was still significantly below last year. " Bucking the trend are supermarket chains which are continuing to invest a significant amount into new premises. This is welcome news given the current trends in government spending and private housing.

Leaders and laggers: Savills has reviewed house price data over the last 15 years to seek to identify those markets that are
leading the recovery in residential house prices. “Leaders” include Central and South West London, Bristol & Bath, Vale of Glamorgan, York, Trafford, Brighton and Windsor & Maidenhead. Whilst the rest of the UK feels the pinch, latest indices show that prices in the predominantly domestic prime SW London are, on average, within just 0.5% of their peak, while family houses in these areas reached new highs this year. Good news for residential property outside London is that “prime regional markets have largely avoided a secondary slip in values and have consistently been more active than their mainstream counterparts since the downturn”. All eyes remain on the coalition government’s planning proposals to kick start this area, recognising that the construction industry is vital to GDP growth.
 

April 2011

400 years of law overturned: Experts are no longer immune from professional negligence or other civil claims (other than in exceptions). The same immunity issues were previously debated for barristers and immunity was lifted, but experts have continued with this protection. The Supreme Court has now decided (5-2) that experts could take the pressure in the same way and would continue to nevertheless act for clients. What was the Court's answer to concerns: they have professional indemnity insurance which provides adequate protection.

Tickets to the rugby still OK: The new Bribery Act comes into force on 1 July 2011. Does this mean the end of watching sporting and other events with clients? Well the good news is - no! The official guidance to the legislation states: "You can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of your good relations, or pay for reasonable travel expenses in order to demonstrate your goods or services to clients if that is reasonable and proportionate for your business." What you cannot do is (in the words of Justice Secretary Kenneth Clarke) is make 'facilitation payments' aimed at winning contract or gaining preference. No change there then.

Court Fees on the Up: The Civil Proceedings Fees (Amendment) Order 2011 comes into force on 4 April 2011 bringing with it an increase in court fees. For example, the court issue fee for claims exceeding £3,000 but below £5,000 (so effectively brought by litigants in person in the small claims court) will now be £120. Exceeding £15,000 but not more than £50,000 shall be £395 and at the other end of the spectrum, claims over £300,000 will incur a court issue fee of £1,670. A practical tip for anyone looking to send in a cheque, the HM Courts Service is combining with the Tribunal Service, so any cheques from 1 April 2011 will need to be marked payable to "HM Courts and Tribunals Service" or "HMCTS" (and not HMCS).

UK Construction News: Has reported that Crest Nicholson is being prepared for a possible return to the stock market by American hedge fund Varde, which has acquired a controlling interest. The house builder was taken over in 2007 for £1.2bn by HBOS and Sir Tom Hunter. Since then, the company has struggled with significant debts and ownership passed to a consortium of banks in March 2009. Varde has acquired Crest Nicholson's debt leading to a position where it owns 80% of the company (according to the Sunday Telegraph).

Not all doom and gloom: Whilst news of savings, cuts, cuts and further cuts continues (be that in relation to the MOD, NHS or the likes of the Highways Agency) predictions continue in relation to the road to recovery. Jon Neale, Residential Research Partner at King Sturge commenting on the Chancellor's budget and report recently picked out the announcement of FirstBuy Direct (effectively a continuation of the previous government's HomeBuy Direct scheme) and considers that this is "extremely welcome to both first-time buyers and housebuilders alike". Any steps in the right direction surely must be welcomed with various sources reporting that the average age of first-time buyers seeking to get on the housing ladder, but without financial assistance, is now well into their late thirties - and who can be surprised with deposit requirements in the region of 15-20% (£30,000+ throughout the UK) and average house prices coming in at 7 times salaries in places. So developers are seen as welcoming the news, with King Sturge citing the fact that in their opinion "Most builders of new homes are disproportionately dependent on first-time buyers and this will help stimulate the development of much-needed homes". By all means let us know your thoughts...

March 2011

Certainly this 2011 is proving to be a time of change and developments.

No sooner were the Lord Justice Jackson proposed reforms on the justice system out than we have now been informed that Parliament intends to implement the proposed reforms "as soon as time allows". In other words, we are moving into a time of reform to "no-win no-fee" arrangements. What does this mean? Following the cut backs on legal aid and move to encourage CFAs the pendulum has swung in the opposite direction. It has been announced that legislation will be put in place so that success fees and insurance premiums will no longer be recoverable and claimants will be awarded only a 10% uplift on general damages. The government hopes that this move will "restore confidence in our system of justice, for both claimants and defendants". The critics are concerned that the changes will undermine a successful system which has been allowing greater access to justice.

Don't write off those more modest debts! Following long overdue calls for reform, there is due to be a consultation on the civil justice system to include increasing the small claims court limit (used, and often effectively so, by litigants in person or companies with limited legal assistance) from £5,000 up to £15,000. This will be a move, if implemented, that will be welcomed by many chasing old debts without the need for the involvement of solicitors or legal fees. So watch this space...

No update is complete without a reference to the recent budget. But what does this mean for construction? Key developments (as identified by PLC) include:

• A further 1% cut in corporation tax from April 2011. (From April 2011, the rate will be 26% and it will drop 1% each year to 23% from April 2014).
• An increase in the rate of income tax relief under the Enterprise Investment Scheme from 20% to 30% from April 2011;
• CGT entrepreneurs' relief lifetime limit has been doubled to £10m from 6 April 2011;
• Stamp Duty Land Tax reduction for bulk purchases of residential property and a number of SDLT anti-avoidance measures;
• The creation of 21 new Enterprise Zones; and
• Tax rises which include increases in the rate of the bank levy and in the tax charge on profits from UK and North Sea oil and gas activities.

On a positive note, the Construction Index has reported an increased number of homes being registered by house builders during February (according to the NHBC) with the highest number of public sector registrations for the last nine months. During February, 8,917 new homes were registered in the UK, compared to 7,788 in January and of those, 3,289 were registered in the public sector (compared with 2,304 in January) - the highest since May 2010. It also reported that the month of February saw construction bounce back from the effects of a heavy winter, with civil engineering growing at its fastest rate in three years. Against this however, the likes of Savills predict "¬Without successful reforms of housebuilding, finance and planning, housing shortfall is likely to reach 1.1 million homes in England by 2016". So whilst we clearly are on the road to recovery, unfortunately it appears the journey may be long and winding.

April 2010

No trend comment would be complete without a mention of the Icelandic volcanic ash cloud. Whilst lawyers, employers and contractors alike began poring over the provisions of their respective delay contract clauses (with discussions as to an "act of God" abounding) it appears that for the most part, businesses are back to operating as usual, leaving the accountants to now assess the cost to UK construction.

On figures, the British Retail Consortium (Quarterly Trend Report) is reporting that the UK economy grew by 0.2% in the first quarter of 2010 (up 0.4% in the fourth quarter of 2009) but that it was weaker than (the 0.4% growth) predicted. Factors that have been attributed as relevant (by the Office for National Statistics) include bad weather at the beginning of the year and the VAT reversal. The report of Savills is more optimistic, noting growth of between 2 - 3.8% in terms of residential property for the first quarter of 2010 and further that values are now 17% higher than 12 months ago and just 10% off their peak in September 2007.

The House of Lords has published a report called "Private Finance Projects and off balance sheet debt", containing recommendations, to include, monitoring and managing Private Finance Projects (PFPs) by public authorities, as well as the impact of the credit crunch, the financial framework of PFPs, and private finance in practice. It finds that PFPs have a better record for delivering on time and on budget when compared with traditionally procured projects and gives a number of recommendations to the government. Whilst all eyes are on the forthcoming election, it will be interesting to see whether and which of the proposals are adopted.

On the matter of the general election, Building Magazine ran an interesting analysis and commentary on Labour and Conservatives' manifestos from a construction context. Whilst this does not extend to the proposals of the Liberal Democrats (its manifesto was apparently being published when Building went to press) it finds that the Conservatives' policies on NI and corporation tax were appealing to construction voters. Whilst conscious that there have been an apparent deluge of polls and voting predictions, it was also interesting to note that Building showed the parties neck and neck. As the voters go to the polls, and the debate continues to blaze, the fact remains that we will not have to wait long for the outcome (and no doubt, the aftermath analysis!)

March 2010

"As the dust Settles on Pre-Election Budget, how will it impact on the construction sector?"

The pre-election budget is now out and we can look forward to what the remainder of 2010 has to offer.

Stamp duty on residential acquisitions over £1m starts next year has been increased to 5% (as from 6th April 2011). However, of particular interest to house builders will be the first time buyer's relief for purchases up to £250,000 (and should be available for 2 years). The main condition is that the buyer must not have acquired a freehold or leasehold residential property (or equivalent in non-UK jurisdictions) anywhere in the world before. Nevertheless this poses a potential boost for first time buyers and indeed that area of the property and construction market.

In addition, the focus on the renewable and sustainable sector continues to grow. As part of the budget Alistair Darling announced a £2bn investment bank to back low-carbon industries such as offshore wind, with the government to provide £1bn through asset sales.

On a review of where we are at and where we are headed, in summary the economy contracted 6% during the recession and predicted growth of 1% to 1.25% in 2010 has been in line with forecasts. Looking forwards, the 2011 growth forecast has been lowered from 3.5% to 3-3.5% but nevertheless continued growth is predicted.

So growth is back on the agenda and at the same time, Savills are reporting that an increasing number of banks are willing to underwrite "big ticket" property loans and that development finance is available for the first time since the downturn began.

In the words of Tom Harper, Director of Constructing Excellence South West: "The cynic in us says nothing will change. The over-optimistic side of us loses heart at the first set back. This is however a tenacious, resourceful industry".

February 2010

• Construction Skills Network forecast a slow return to growth between now and 2014 but 13% contraction during 2009. A small marginal decline was forecast for 2010.
• Contractors for the three months to Nov 2009 were doing the same amount of work but at lower prices.
• Slightly more work for housebuilders in last three months.
• Social Housing had a blip (down 30% on preceding three months).
• Industrial and Commercial are up on previous three months but significantly lower than a year ago.
• Office is 50% up on previous three months but 40% lower than a year ago.
• Retail remains weak.
• Infrastructure is slightly down for last three months but double last years figures.