The Week That Was - 22 July 2022

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

Construction profit warnings at record low

The number of profit warnings issued by FTSE construction and materials companies reached a record-equalling low in the first 6 months of 2022.  This is despite warnings across all industries increasing by 66% compared to the same period in 2021.  

Only 3 such warnings were issued, being the lowest since 2015 and 2016.  Further, despite the well-publicised pressures facing the sector, including increased prices of materials and a shortage of labour, only 8% of UK-listed construction companies issued a warning over the last 12 month period.  EY-Parthenon ascribes the durability of listed companies to the diverse portfolios typically held by larger companies, meaning they can "absorb price increases and leverage their buying power in a tight market". 

For more information, please see here.

Martlet Homes Limited v Mulalley & Co. Limited [2022] EWHC 1813 (TCC) - Contractor ordered to pay for cladding defects

Mulalley has been ordered to pay Martlet Homes, part of Hyde Housing Group, c.£8m for remedial works and associated costs. 

This case is one of the first High Court judgments regarding fire-safety defects in respect of cladding following the Grenfell Tower fire and therefore has the potential to influence the many further cladding claims currently in progress. It is important to note, however, that the case turns on its own facts. In particular, the court found that the Employer's Requirements required Mulalley to conform with the latest edition of various publications at the date of the contract, including the 2003 edition of the Building Research Establishment's document "fire performance of external thermal insulation for walls of multistorey buildings" (BRE 135 (2003)) and the performance criteria for external walls set out within it. The judge placed heavy emphasis on this strict obligation to follow BRE 135 (2003), which went beyond the guidance applicable at the time relating to fire safety found in Approved Document B (2002). 

Mulalley argued that the cause of any necessary replacement works was Martlet's realisation of the risk posed by the external-wall insulation cladding following the Grenfell Tower fire, which did not meet the heightened fire-safety standards introduced following that fire. However, Judge Davies concluded that the insulation cladding panels did not comply with BRE 135 (2003) and therefore found Mulalley liable for the costs of replacing the system.

You can read the full judgment here.

HS2 bidder merger raises competition concerns

The Competition and Markets Authority has raised concerns over the merger of Bouygues and Equans in respect of HS2.  

Bouygues agreed to buy Equans in a £6 billion deal announced in November 2021.  Both companies supply catenary (overhead wire) systems for high speed railways in the UK and are currently competing to supply HS2.  The CMA found that there would be sufficient credible competitors for future contracts.  However, it was concerned that the merger of two bidders at such an advanced stage of the HS2 tender would make the remainder of the tender process less competitive and result in a higher-cost final contract.  

The firms now have until 26 July 2022 to submit proposals to address the CMA's concerns following which the CMA will decide whether to refer the merger for an in-depth investigation.

For more information please see here.
 
Government contract for signatories of Building Safety Pledge 

The government published details of a "building safety pledge" in April this year to which developers were expected to sign showing their commitment to fixing "life-critical fire-safety issues" on all buildings of 11 metres and above in England which they developed or refurbished since 5 April 1992.  48 developers have signed up to the pledge. 

The government has now also published a draft contract which it expects large developers to sign, formalising their commitment to remediating unsafe buildings. The terms of the contract are expected to be finalised by 10 August 2022.  The draft terms give freeholders and leaseholders a direct right of recourse against signatory developers, through the Contracts (Rights of Third Parties) Act 1999, in respect of performance of their services.

You can find out more and view the contract here.

Network Rail set up heat resilience taskforce

Following temperatures reaching an unprecedented 40 degrees Celsius this week, the UK has seen severe rail disruption throughout the country. 

Network Rail has set up a taskforce led by independent experts to recommend measures to keep trains running in hot weather.  It will focus on the performance of track and overhead line equipment as these are the two most common causes of delay and disruption in extreme temperatures.  The taskforce will explore operational standards, policies and practices to enable trains to continue running in extreme heat and will also examine how Network Rail communicates with passengers during service disruptions. 

You can read more here.
 
Thanks to Harry Collins, Paul Smylie and Nina Charalambous for contributing to this week's edition.

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.