Super-Prime Construction Contracts and Risk Mitigation with CMS UK

 

Construction projects, especially within the super-prime property sector are often complex and have various legal implications. The devil is in the detail and it starts with a construction contract and knowing what you can and can’t do and how you can protect yourself.

On Tuesday 21 February 2023 and Thursday 23rd February, LPF Members will be treated to a masterclass double bill, from international law firm CMS UK. In these sessions, they will provide insights into the typical documents required for a construction project, the parties involved, the key terms of those contracts and some pitfalls to avoid along the way. They will also discuss risk mitigation - an essential tool especially in tough times.

If you are an LPF Member and would like to sign up please email us.

Here in the construction team CMS we encounter a wide range of contractual issues when advising on a wide range of construction projects for high profile clients across the globe. While the ideal situation for everyone involved on a construction project is that the signed contracts sit in the drawer without ever needing to be read again, the reality can be quite different especially in today’s challenging market. It is important when an issue arises, that the contract is comprehensive, clearly drafted and accurately reflects the bargain struck between the parties. In our masterclass, we will be exploring the key construction contracts on a typical project and sharing our experience of negotiating these for anything from a super prime apartment, a luxury hotel, the Velodrome to the Royal Festival Hall!

BUILDING CONTRACTS

This is the contract between the employer/developer and a building contractor. Experienced developers and contractors will be looking for robust terms, striking the right balance of risk between the two parties. Aspects of the contracts will often be heavily negotiated. We will take participants through some standard forms in the market and the wide use of ‘schedules of amendments’, which amend the risk profile in the standard forms. We will summarise the typical appendices to building contracts (such as performance security and forms of collateral warranty or third party rights schedules) and explain the division of labour between the legal and technical teams.

CONSULTANT APPOINTMENTS

Depending on the nature of the project, construction projects typically will see engaged anything between one to upwards of 30 consultants (or professional team members) who between them will be responsible for the design and non-design elements of the project. The consultant may then be novated to the building contractor depending on the nature of their role and the procurement route. We will explore the parties to those appointments, the typical forms (standard versus bespoke) and the key terms, which are often hotly negotiated (increasingly with input from the consultant’s insurers). In a hardening PII market, these discussions are becoming more protracted.  

 

COLLATERAL WARRANTIES AND THIRD PARTY RIGHTS

One of the fundamental principles of contract law is the common law doctrine of privity of contract – this prevents a person who is not party to a contract from enforcing its terms, even where it was made for that person’s benefit. This is the reason why parties (such as funders and tenants) will require collateral warranties from those involved on a construction project.

In this masterclass we explore the sea change introduced by the Contracts (Rights of Third Parties) Act 1999, which reformed the privity of contract doctrine and led to the rise of third party rights. A move welcomed by many who had spent years trying to secure signatures of collateral warranties that had long since gone astray (the lawyers) and those that paid for the lawyers to chase them down (clients). We explain what they are and why they are so essential.    

 

EXECUTION

 

A contract can be beautifully drafted and robust, but if it doesn’t bind the parties, it is worthless. We will talk you through what developers typically require in terms of the limitation period and the standard execution blocks that we see in the industry, as required by the Companies Act and similar. Covid-19 revolutionised how we sign contracts – parties are now much more likely to sign electronically than by wet ink. We discuss the associated time and cost savings of this approach.

 

routes of procurement and risk mitigation

Whilst the types of developments CMS are involved with ranges hugely, the fundamentals remain the same in terms of our role. We assist a wide range of high-profile clients on how to manage development risk - from the procurement stage right through to the completion of a development or, in a worst-case scenario, in the event of insolvency.

With an increasingly volatile economy, development risk management is becoming more and more important – and more and more contentious – and it is important that these risks are considered early on and are apportioned between developers and contractors in a way that is both robust and pragmatic. Passing on all risk to one party is neither sensible nor commercially viable and could lead to real problems down the line.

During the masterclass we will look into:

  1. A who’s who on construction projects.

  2. Typical procurement routes for a project and the pros and cons associated with these various routes – including traditional procurement, design and build procurement, construction management and management contracting.

  3. Securing adequate protection for additional stakeholders involved in developments (for example, funders, tenants, purchasers).

  4. What to do in the event of insolvency – whilst no one goes into a project thinking that insolvency may be on the cards it does, unfortunately, happen from time to time. In such cases, it is important that all parties tread carefully and we will be discussing how to look out for insolvency and how to protect against it.  

  5. Answering any questions or concerns that participants may have regarding risk mitigation.


If you are an LPF Member and would like to sign up please email events@theluxurypropertyforum.com. Please note that Masterclasses are for LPF Members only. If you are interested in becoming a member please click the link below:

 

get in touch


CMS Cameron McKenna Nabarro Olswang LLP

Cannon Place, 78 Cannon Street

London EC4N 6AF

cms.law
cms-lawnow.com

 
Priya Rawal