Category: Europe

1
COVID-19: EPC AND EPCM IN LARGE CONSTRUCTION PROJECTS POST COVID-19
2
COVID-19: UK Public Sector Construction – Cabinet Office publishes Guidance Notes for PPN02/20
3
COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20
4
COVID-19: UK Coronavirus Act 2020 – Implications for the Construction Industry
5
COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers
6
‘Fitness for Purpose’ and Conflicting Obligations in Offshore Wind Projects
7
Infrastructure Disputes: What the Future Holds For Us
8
K&L Gates Named a “Go-To Construction Law Firm”
9
What’s in a Name? Recent Case Determines Using a Trading Name Does Not Invalidate a Notice of Adjudication
10
PRACTICAL COMPLETION: CLARIFYING A “TRIFLING” TOPIC

COVID-19: EPC AND EPCM IN LARGE CONSTRUCTION PROJECTS POST COVID-19

Authors: Pawel Piotrowski and Nicola J. Ellis

COVID-19 has highlighted some of the existing problems in the construction market such as fragmentation, low profitability and often low satisfaction for both owners and contractors (due to time and budget overruns and lengthy claims procedures and disputes). In this article, we consider the choice of the procurement method for large construction projects and issues and risks raised by COVID-19.

EPC

Owners often procure major construction projects on a fixed price, lump sum turnkey contract whereby the contractor is responsible for all engineering, procurement and construction (EPC) aspects of the development by a specified date (subject to a limited number of circumstances which will provide the contractor with relief). Under this arrangement, the EPC contractor directly engages the supply chain and takes responsibility for building and delivering the project so that the owner simply has to ‘turn the key’. Any changes or variations that the owner may require to the original scope provided to the EPC contractor will be at the owner’s risk and therefore it is important to have a high degree of certainty and detail as to the scope of works, and often a detailed design provided by the owner to assist the EPC contractor in providing an accurate price.  

The EPC has many advantages for the owner, including that it places lower management burden on them. It provides a single point of responsibility for the project to the owner and gives the owner and any lenders a high degree of certainty as to the time and cost of the development. Since the owner has recourse against a single contractor rather than having to pursue multiple contractors and suppliers, the dispute resolution process is usually less complicated. The EPC contractor should therefore seek to pass down all main obligations from the EPC contract onto its subcontractors to mitigate its liability position.

In return for taking on a high amount of risk as to time and cost, contractors may reflect this in their pricing and may include a substantial risk premium in the contract price. Owners can mitigate this to some degree by procuring EPC contracts in competitive tenders where the lowest price is often the decisive factor. That, in turn, often results in EPC contracts carrying a risk of change orders / variations which can become very costly to the owners if agreed or potentially catastrophic to those contractors who haven’t included a sufficient risk premium when submitting a low price proposal, leading to a focus on cost control by the contractor.

In these unprecedented times, the risk of force majeure events, effects of a change in law, risk of supply chain disruptions and the risk of integrating the performance of the entire supply chain have posed a particular challenge for contractors.  As a result, contractors may become more reluctant to take on some of these risks and may seek to exclude or set parameters around their liability for such risks or owners may see tenders with higher risk premiums. 

EPCM

Where the owner wishes to retain greater control over the project, the owner may opt for an EPCM contracting structure. 

The EPCM or ‘engineering, procurement and construction management’ contract is a construction management agreement whereby the EPCM contractor is responsible for advising the client on the design and procurement of the project but also for overseeing and managing all construction and supply contracts. An EPCM contract can therefore be seen more as a professional services contract in contrast to EPC contracts which are design and construction contracts. The EPCM contractor does not perform construction work. It is the owner who directly enters into numerous contracts with various contractors and suppliers. 

EPCM has many advantages for owners, including greater flexibility allowing projects to be tailored to current conditions as owners can modify the design or procurement plan mid-project and negotiate directly with the relevant contractors or suppliers. This can mean early engagement of certain packages prior to finalising the scope of work which may result in an earlier completion date. 

The overall price of the project under an EPCM arrangement may be lower as most of the risk priced for in EPC contracts sits with the owner and the owner is able to negotiate with the supply chain itself. 

EPCM also has disadvantages. The administrative burden of the owner directly negotiating and contracting with each of the contractors or suppliers is far greater than under EPC and significant demands are placed on the owner’s skills and resources (although the EPCM contractor may be able to ease this burden). Interface risk and coordination between each contractor or supplier needs to be managed and this often sits with the owner.  Where a dispute arises, this is also more complex for the owner due to difficulties in allocating fault and risk amongst multiple contractors, rather than having a single point of responsibility as under EPC contracts.

However, from our experience, most of these disadvantages can be reduced by way of proper implementation strategy, planning, contracting and management. 

Both EPC and EPCM have advantages and disadvantages but can be beneficial when used in the right circumstances. The objectives, scope of work and risk profile should be clearly understood in choosing which method to use as the cost implications of choosing the incorrect form can be substantial for both parties. 

COVID-19: UK Public Sector Construction – Cabinet Office publishes Guidance Notes for PPN02/20

Author: Kiran Giblin

Further to our recent blog alerts “COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers” and “COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20”, the Cabinet Office has published construction sector-specific Guidance Notes to assist contracting authorities implementing PPN02/20 into existing works contracts.

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COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20

Authors: Matthew E. Smith, Inga K. Hall, Kiran Giblin

Further to our recent blog post “COVID-19: UK Public Sector Construction – cash flow relief for suppliers” on 31 March 2020, in which we set out guidance on the Government’s Procurement Policy Note – Supplier relief due to COVID-19 PPN 02/20 (“PPN02/20”), the Cabinet Office has published a FAQs note providing further clarity and guidance regarding implementation of PPN02/20 in practice.

The 17 initial questions addressed in this FAQ note range across providing definitional clarity on terms used, further detail on how to make use of the Model Interim Payment Terms also published, the extent to which suppliers can also make use of other relief, such as via the Coronavirus Job Retention Scheme, and employers’ rights in terms of repayment, continued discharge of obligations, protection from double payments and the preservation of other contractual rights and remedies.

To read the full alert, please click here.

COVID-19: UK Coronavirus Act 2020 – Implications for the Construction Industry

 Authors: Inga K. Hall, Saya Lee

The 359-page emergency Coronavirus Bill received royal assent on 25 March 2020. This newly passed Coronavirus Act 2020 (the “Act”) contains extensive powers and additional measures to equip the UK government and other authorities to better respond to the COVID-19 outbreak in the UK. The new Act is time-limited to two years by a sunset clause (Section 89) and will be subject to six-month parliamentary reviews (Section 98)

The Act is primarily aimed at easing the burden on the frontline staff working for ‘essential services’ including the NHS, schools, police and courts, as well as providing measures for containing and slowing the spread of the virus and supporting businesses and workers. Although there are no sections in the Act specifically addressing the construction industry, the wide-ranging powers that are granted to the authorities to enable such actions and outcomes also have the potential to have an impact on the construction industry as summarised below.

For the full alert, please click here.

COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers

 Authors: Daniel T. Lopez de ArroyabeInga K. HallKevin Greene

The impact of COVID-19 on the construction industry has been the subject of much debate this week, as discussed in our blog article “COVID-19 Construction Industry – Operating in a Pandemic”, with businesses split over whether or not to shut down operations in order to protect the health and safety of those working on construction sites. The division has been exacerbated by the lack of a clear Government directive either way, meaning that it has – for the time being at least – been left in the hands of individual companies to decide whether or not to stop work.

While that issue continues to divide opinion, what is clear is that the pandemic and the fall-out from it will place an unprecedented strain on supply chains, and one of the main challenges currently faced by the industry is how to maintain cash flow so that businesses are able to survive and continue working once we emerge through the other side. In this regard the Government has taken steps to provide further clarity and guidance, with the publication on 20 March of Procurement Policy Note – Supplier relief due to COVID-19 PPN 02/20 (“PPN02/20”).

Taking immediate effect until 30 June 2020, PPN02/20 applies to all contracting authorities (including central government departments, executive agencies, non-departmental public bodies, local authorities and NHS bodies) and covers goods, services and works contracts being delivered in the UK.

To read the full alert, please click here.

‘Fitness for Purpose’ and Conflicting Obligations in Offshore Wind Projects

Authors: Charles Lockwood and Owen Chio

Two recent cases in the UK illustrate the tricky issues Employers and Contractors have to grapple with in defining the responsibilities of contractors involved in the construction of offshore wind projects.

There are no established standard form contracts for offshore wind farm projects. The standard forms that are often adapted for this purpose include traditional offshore forms used in the oil and gas industry such as the LOGIC forms and standard engineering contracts more commonly used for onshore projects such as FIDIC, particularly the FIDIC Yellow Book.

Neither form is ideally suited for use in the offshore wind industry and they are often heavily amended, particularly in relation to design obligations. The cases summarized below illustrate some of the tensions that can arise, particularly in relation to design and fabrication of monopiles and transition pieces and requirements that they should be fit for their intended purpose.

To read the full alert, please click here.

Infrastructure Disputes: What the Future Holds For Us

On 12 September 2019, Matthew Smith and Nita Mistry spoke on a panel at CIArb’s Infrastructure Disputes Conference.

Among the topics covered, Matthew discussed the challenges and opportunities relating to infrastructure mega project management, and Nita concentrated her remarks on arbitration proceedings arising out of mega projects.

Please click here for full coverage of their panel.

K&L Gates Named a “Go-To Construction Law Firm”

K&L Gates is pleased to have been named the “Best Firm to Handle the Construction Project of the Future” by Above the Law.

“The construction industry has been around for centuries, but that doesn’t mean it hasn’t adapted to the changing times. The Construction and Infrastructure Group at K&L Gates draws from vast past experience to focus on ensuring that construction projects are sustainable for the next generation. The firm’s lawyers specialize in niche areas like integrating technology and IP into construction projects and incorporating clean energy and green initiatives. When you’re planning a construction project for a better tomorrow, K&L Gates is thinking ahead.”

For the full article, please click here.

What’s in a Name? Recent Case Determines Using a Trading Name Does Not Invalidate a Notice of Adjudication

By Nita Mistry and Victoire Courtenay

Recently, in the case of MG Scaffolding (Oxford) Ltd v Palmloch Ltd [2019] EWHC 1787 (TCC), the Technology and Construction Court (“TCC”) held that the adjudicator did not lack jurisdiction and the notice of adjudication was valid, in circumstances where the adjudication was commenced and pursued against the responding party’s trading name.

The adjudication was commenced by MG Scaffolding (Oxford) Limited (“MGS”) against “MCR Property Group” (“MCRPG”). This was in fact a trading name for the correct contractual counterparty called Palmloch Ltd (“Palmloch”).

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PRACTICAL COMPLETION: CLARIFYING A “TRIFLING” TOPIC

By: Kevin Greene and Kiran Giblin

In the recent case of Mears v Costplan [2019] EWCA Civ 502, the Court of Appeal provided significant clarity as to how courts should interpret the widely used but seldom defined term, “practical completion” in the context of construction contracts. In essence, it was held that practical completion should only be prevented by patent defects (i.e. those that can be discovered by reasonable inspection) where such defects are considered “more than trifling.”

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