2021 was another hard year for the construction industry, dealing with the impact of COVID-19, Brexit, material shortages and the resulting impact on the time and cost of projects. As we settle into 2022, we have collated our thoughts on what this year may hold and key developments on the horizon.
The dual impact of COVID-19 and Brexit highlighted supply chain constrains in the construction industry, leaving many facing extended delivery dates and price increases.
The pressure on material availability, and the logistics of delivery, is expected to continue into 2022 as the UK (and the worldwide market) invest in the industry to boost economy recovery, leading to further demand and competition for materials.
Parties need to factor this into their costs and programming and consider what protection and remedies existing contracts provide (and new contracts could provide) for material unavailability, supply chain delays and what rights there are to substitute materials.
We also expect there may be an increase in adjudications, as parties seek to increase short term cash flow, to offset the challenges posed by the market.
Whilst 2022 will no doubt see disputes about the impact of the pandemic on projects in 2020/2021; a key focus is also going to be who bears the risk for any similar disruptions going forward, and how this is best dealt with under new contract.
Projects will also need to continue to deal with the day-to-day realities of COVID-19 on their sites and the possible delays and labour shortages caused by mandatory isolation periods.
The long-term impact and changes necessitated by COVID-19 may also present new opportunities in warehousing, logistics and a growing demand for more hybrid working spaces, leading to the repurposing of commercial premises.
As with materials, the impact of COVID- 19 and Brexit has led to labour shortages both in the construction industry and supporting industries, in particular logistics.
These pressures are likely to continue into 2022, with the industry looking to drive up skills and bring new workers into the industry; as well as continue to develop different methods of construction which reduce on site labour.
Further, the Government’s temporary adjusted right to work checks are currently set to end on 5 April 2022, with new guidance to be issued on 6 April 2022. These temporary measures have allowed employers to carry out the necessary checks over video calls and using scanned documents, helping to streamline the process. Employers will therefore need to monitor any developments, the hope being that a long-term digital solution will be implemented.
Modern methods of construction
The last two years have forced an increased investment in modern methods of construction and digitisation. With projects having to consider and invest in operating practices, design solutions and off-site manufacturing to try and meet project deadlines and do so profitably.
This is only set to increase in 2022, with innovation being at the forefront of the industry’s mind. 2022 will see the industry continue to look for solutions to accelerate design and construction processes and adapt to increasing demand, in a changed work environment.
One aspect businesses will need to bear in mind, however, is the data generated by these new technologies. Businesses need to ensure that their data protection and intellectual property procedures keep pace with these developments.
Building Safety Bill
2022 will see the Building Safety Bill continue to make its way through Parliament.
Some of the key points of the Bill in its current form are the intention to:
- Provide leaseholders with a retrospective right to make claims against developers of “unsafe” properties up to 30 years after their completion
- Introduce a new safety regime for all new and existing “higher risk” buildings in England (broadly those over 18m or 7 storeys). These changes will also put in place a duty holder system through the life cycle of a building. For all completed buildings, the building manager will be the “Accountable Person”, who will be responsible for the safety of the building.
- Introduce a new Building Safety Regulator to oversee the new regime and safety and standards in general
- Overhaul the planning process in England, introducing the concept of a “golden thread” of key information.
The Bill looks set to become law later this year, with the provisions coming into force in the following 18 months.
To prepare for the changes, we suggest contractors and developers put in place processes to deal with the increased focus on record keeping; whilst building managers should be considering how to address their new increased responsibility for building management.
Focus on the work environment
The pandemic has placed an increased focus on the working environment and employee experience in the industry.
The growth of remote “off- site” working opportunities, along with increasing employee expectations, will likely lead to more investment by employers in the support offered to their staff. With employers hoping they can attract and retain the workforce they need in a competitive market, for example with increased employee wellbeing initiatives, mental health awareness and support and better on-site welfare.
Phase two of the Grenfell Tower Inquiry will also continue into 2022, with the controversy over who should pay for repairs to buildings with unsafe cladding continuing.
The Government has already confirmed it will be looking to developers in the residential sector in relation to buildings over 18m, to help address these costs and from the 1 April 2022 a new 4% tax will apply to companies, or groups of companies, which have profits arising from UK residential property developments over £25million per year.
However, at the beginning of 2022, the Government signalled an intention to expand the scope of what it is looking for developers to contribute. The Government has confirmed an intention that no leaseholders will require to pay for any cladding remedial works on buildings above 11m (so bringing all buildings between 11 and 18m within the scope of its earlier pledges). The additional cost of this is estimated at £4billion – and the Government have confirmed that it intends that developers will cover this cost, with the threat of legislation if no agreement is reached.
Round table sessions are due to take place early in the year between the Government, developers, and leaseholder bodies to discuss the route forward. The outcome of those meetings will be eagerly awaited by all interested parties.
Red diesel tax reforms
In the 2020 Budget the Government announced that it would be banning most sectors from using rebated diesel (i.e., “red diesel”), leading to increased fuel costs as users of off-highway construction machinery are forced to use unrebated white diesel.
These changes are due to come into effect on 1 April 2022. Parties entering new contract will therefore need to ensure the risks and costs around this are considered and priced; whilst those on existing projects will need consider how their contract deals with the change and who bears the risk – for example is it a change in law under the contract?
Since leaving the EU, the CE mark has been replaced by a the new UKCA mark, which needs to be applied to goods placed into the UK market.
The UKCA marking came into effect on 1 January 2021, with the Government initially allowing the continued use of CE markings until 1 January 2022. However, the Government has now extended the mandatory deadline for use of UKCA marking to 1 January 2023 – meaning in most cases, businesses will be able to continue to use CE markings for another year. 2022 will therefore be a busy year as manufacturers continue to adjust and put in place the necessary procedures to try and meet this new deadline.
COP 26, together with the UK’s increasing energy targets, means environmental consideration will be a key focus for 2022.
The industry will need to consider the changing regulations and requirements both in terms of the final design and performance criteria for projects and the day-to-day practicalities of how those projects are delivered.
2022 will therefore likely see an increased focus by parties on how their contracts deal with environmental considerations, including (1) reviewing existing bespoke drafting, to consider if it needs amending in light of changing requirements; (2) considering how standard forms respond, with many containing optional provisions which deal directly with climate change concerns, or could be used in that context; and (3) considering new bespoke clauses that address the risk around environmental regulations, for example incentives for compliance with sustainable working practices; or clauses which set a carbon budget for the works, with pain gain mechanisms to incentives and/or deal with the costs of any carbon offsetting.
In November 2020, JCT said it hoped to publish a new edition of its contracts in 2022.
Whilst there is no set date for their publication, JCT has expressed a want to cater for recent market developments, in particular modern methods of construction.
Increased Government Spending
Investment in construction will remain a key focus of the Government in 2022, as it looks to boost the economy following Brexit and COVID-19, with infrastructure, health and civils being high on the agenda, together with increased funding to support town centre, high street regeneration, location transport projects, and cultural heritage assets.
2022 will therefore see the industry looking to capitalise on this investment, whilst at the same time having to balance the day-to-day realities of material and labour shortages, building safety and environmental reforms, and changing methods of construction. All of which means 2022 is likely to be another year which will highlight the innovation and determination of the construction industry.