Welcome to the first edition of Bell and Scott’s Construction Law Update, a quarterly e-publication bringing you the latest news and developments in Construction Law.

This update is edited by the head of our Construction Team, Brandon Malone, a solicitor advocate, accredited by the Law Society of Scotland as a specialist in Construction Law.

For advice, guidance or information on construction law issues contact Brandon Malone on 0131 226 6703 or by email at b.malone@bellscott.co.uk.

News

The Joint Contracts Tribunal has issued new Standard Form Contracts. Usually, when the JCT issues a new suite of contracts, it’s to deal with changes arising from case law or legislation since the last edition. That’s not the case this time. The contracts are complete redrafts. Those familiar with the JCT Major Projects Form, first issued in 2003, will recognise the scheme of that contract in the new forms. Collateral Warranties are now optional; schedules of third party rights can be used instead. The balance of risk has not significantly changed. However, the internal structure of the documents is completely different.

The emphasis of the new forms is on ease of use and understanding. The layout of the contracts is very different and plain language is used wherever possible.

The review also introduces some new documents, such as a Framework Agreement and a Minor Works contract with contractor’s design.

The Scottish Building Contracts Committee (SBCC) will be issuing their own versions of the new contracts (rather than incorporating and amending the JCT form as they have done in the past), and they plan to have these ready for their annual conference in November.

Those using standard amendments to the existing forms will need to consider changes to adopt the new forms.

Collateral Warranties. Don’t you just love them? No, neither do we. They’re a grossly inefficient way of conferring rights on a third party to a contract. Happily, there’s an emerging trend evident from the Major Projects Form 2003, and the recently issued BPF consultant appointment: no collateral warranties.

Instead, these documents make use of a “schedule of third party rights”. In England and Wales, the law was changed to allow third party rights, by the Third Party Rights Act 1999, but there was a great reluctance to abandon the collateral warranty system. In Scotland, the law has always allowed third parties to have rights under a contract, but uncertainty in the application of the law meant that lawyers, and the banks and insurers whom they advised, preferred to use collateral warranties. With the introduction of the new JCT 2005 suite, a third party rights schedule will become an option on all standard form contracts.

It would seem that the initial reluctance to use third party rights schedules is starting to fade. This is bound to reduce costs and delays for developers.

The use of schedules of third party rights gets rid of the collateral warranty paper chase inevitable in any large project. Instead of granting a warranty to every funder, purchaser and tenant, contractors and consultants simply agree to one third party rights schedule. There is therefore considerable potential for savings, but banks and insurers and their advisers will have to come round to the idea before they are universally accepted.


New CDM Regulations Consultation

The Health & Safety Executive have published proposals to merge the Construction (Design and Management) (CDM) Regulations 1994; and the Construction (Health, Safety and Welfare) (CHSW) Regulations 1996.

Influenced by complaints over the high levels of bureaucracy and administration required, the HSE intend to improve the clarity of the Regulations, to make it easier for duty holders to know what is expected of them, to focus on planning and management, and to strengthen the requirements regarding co-ordination and co-operation, particularly between designers and contractors.

The proposed regulations place a heavy (some might say unmanageable) burden upon designers to ensure that in the construction, use, maintenance and demolition of the resulting structures, hazards are removed where possible and any remaining risks are reduced.

A new role of Co-ordinator will be created to replace the role of the Planning Supervisor (“PS”). The HSE’s feedback on the existing Regulations suggested that the PS was not seen as a member of the construction team, and was poorly integrated. The new ‘Co-ordinator’ is intended to be more heavily involved in the construction process, and take a pro-active role in ensuring the process proceeds smoothly. Importantly, designers and architects must be aware that the Co-ordinator is to be appointed before any design work takes place.

The consultation period on the proposals closed at the end of August. The HSE is now reviewing consultation responses and will be reporting on the consultation process late this year or early next year. Their aim is to have the new regulations in place by October 2006.

The health and safety burden being placed upon designers by this proposed legislation is very high. An unintended side effect of the new rules may be the stifling of innovation in design. That’s to say nothing of the effect that this is likely to have on the cost of professional indemnity cover.

Further information including the draft regulations can be found at the HSE website here.

Changes to Construction Industry Scheme

 The Construction Industry Scheme (CIS) is being overhauled from April 2006.

Under the present system, the employer determines whether a worker is employed or self employed; the appropriate certificate is awarded and the tax is deducted accordingly. Under the new system, subcontractors must produce tax certificates and cards for workers when they take on new work from contractors and vouchers must be completed every time tax is deducted from a payment made to a subcontractor

The main changes introduced by the new regime include the following:

For further information, click here.

Whilst subcontractors registered under the existing CIS scheme will have their status carried forward under the new rules, contractors are required to establish the tax status of new subcontractors. New subcontractors will also have to register with HM Revenue and Customs.

Bell & Scott’s tax specialist, James Aitken comments: “Not only do the changes represent a heavy administrative burden on contractors but the software needed to operate the new system is not even ready. Although it is generally agreed that the changes are necessary no-one accepts that the changes should be put in place next April.”

For advice on how the new CIS scheme affects your business, contact our Tax specialist James Aitken.

Forthcoming events

On 10th November 2005, Brandon Malone is chairing and speaking at the Central Law Training Conference “Planning and Building Control: The Major Changes” in Dundee. Click here for further details.

On 24th November 2005, Bell & Scott hosts their second Construction Law Update Seminar of the year. The seminar will cover statutory and case law developments affecting the construction industry, in particular, looking at the new CDM regulations. Click here to be added to our mailing list.

On 31st January Brandon Malone will be chairing and speaking at a major construction law conference in Edinburgh organised by Central Law Training details will be available in the events section of our website shortly.