The Week That Was - 12 May 2023

Welcome to The Week That Was, a round-up of key events in the construction sector over the last seven days.

Second edition of Low Value Disputes Model Adjudication Procedure (LVD MAP) launched by the Construction Industry Council (CIC)

The CIC has updated the LVD MAP following a review.  The changes to the procedure include:

• Increasing the value of disputes to £100,000.  The LVD MAP may be appropriate for disputes valued above £100,000 where the adjudicator considers the disputed issues to be straightforward and suitable for being decided under the procedure.
• Removing the requirement for both parties to consent to using the LVD MAP.  Where the Scheme applies, the procedure may be implemented at the discretion of the adjudicator or following a request from one of the parties.
• Extending the timetable for the adjudicator to make the Decision by 1 week.
• Changing the fixed fee structure to capped fees of between £2,000 and £5,000 depending on the dispute value and capping hourly rates at £250.

To read more, click here.

Steep decline in housebuilding in April despite overall increase in construction output

The latest S&P Global/CIPS UK Construction PMI figures show that, in April, housebuilding activity decreased for the fifth successive month, suffering its steepest decline since May 2020.  The continued poor performance in the residential sector has been attributed to delays to new projects, soft market conditions, and higher borrowing costs since the September 2022 mini-budget.

The decline in housebuilding activity contrasts with an increase in overall UK construction output, which has been driven by growth in the commercial and civil engineering sectors.  The S&P figures showed new orders rising for the third successive month and an increase in employment due to growing activity and upcoming project starts.

According to Max Jones, director in Lloyds Bank's infrastructure and construction team, construction firms remain broadly optimistic, with many firms benefitting from strong demand and high prices without pressure to compete on costs.

To read more, click here.

Construction industry suffering more insolvencies than any other sector

Data collected by the Government's Insolvency Service has revealed that 4,165 construction firms, being nearly 1 in 5 of the total, became insolvent in the first three months of 2023.

A combination of high energy costs, inflation and repayment of loans obtained during the COVID-19 pandemic has forced record numbers of firms into administration, with several large contractors entering administration.  These collapses have continued into April and May, with Northumberland based Howard Russell Construction, a contractor with £42m in turnover, entering administration in early May 2023.

To read more, click here.

Firms readied for £2.8bn Yorkshire Water framework deals

Yorkshire Water has put contractors on bid alert for two framework deals: a 'Non-Infrastructure Framework' worth £1.5bn; and a framework titled 'Stormwater Alliance' worth £1.3bn.

The two frameworks put forward by Yorkshire Water will look to deliver water and wastewater asset investment over a ten-year period and deliver on the company's drive to make substantial reductions in sewage overflows into watercourses. The 'Non-Infrastructure Framework' is proposed to include two lots, one for projects ranging from £5m to £75m, involving three to six D&B contractors, and one for projects ranging from £250,000 to £5m.  The 'Stormwater Alliance' will consist of at least one design consultant and three contractors who will work with Yorkshire Water from an early concept phase to identify and develop solutions and then provide design and construction work to deliver the outputs required.  

The bidding for the two frameworks is expected to begin on 26 June 2023, with awards planned by July 2024.

For more information, see here.

Subcontractor claims that mandatory arbitration provisions are 'unenforceable'

A subcontractor in Virginia is resisting an attempt by underwriters to force arbitration in a dispute against certain underwriters at Lloyd's of London, on the basis that a state statute renders mandatory arbitration provisions unenforceable in insurance contracts governed by Virginia Law.

Keller North America Inc argued that Va. Code Ann. § 38.2-312 applies to mandatory arbitration provisions, preventing underwriters from compelling Keller to settle the dispute under International Chamber of Commerce arbitration rules in accordance with the provision in the insurance policy.  While the Federal Arbitration Act would ordinarily override state law, the McCarran-Ferguson Act reverses this position for insurance contracts.

Keller argued in the alternative that the mandatory arbitration provision does not apply in any event, because the provision limits arbitration to disputes relating to the amount to be paid under the policy.  Keller claim that, as the underwriters have disputed nearly half of Keller's claimed losses, the dispute does not relate to the amount to be paid, and the arbitration provision cannot be enforced.

Reminder of the limited circumstances when set off may arise in proceedings to enforce an adjudicator's decision

In adjudication enforcement, the court has discretion to permit a set off against an adjudicator's decision where there are two valid and enforceable decisions involving the same parties, the effect of which is that each owe the other money. In the case of FK Construction Ltd v ISG Retail Ltd [2023] EWHC 1042 (TCC),  the parties were engaged on two projects, Barberry and Triathlon. There had been seven adjudications (four on Barberry, three on Triathlon), and the parties had failed to comply with any of the adjudicators' decisions. When FK applied to enforce a decision made by Mr Wood on the Barberry project, ISG resisted, arguing it had a valid set off that arose from a combination of a decision made by Mr Molloy (also on Barberry) and the net sum due to ISG from the three Triathlon decisions. The court agreed and declined to enforce the decision of Mr Wood.

To read more, click here.

Disclaimer: The information in this publication is for guidance purposes only and does not constitute legal advice.  We attempt to ensure that the content is current as at the date of publication, but we do not guarantee that it remains up to date.  You should seek legal or other professional advice before acting or relying on any of the content.