According to the Department for Business Innovation and Skills, the UK construction sector contributes a whopping £90 billion to the economy, making up 6.7% of our total GDP. It’s one of the fastest growing industries, accounting for 10% of the total employment, with 280,000 businesses creating nearly 3 million jobs nationwide. But that’s enough of government stats for now. At the end of 2016, we did our own research, commissioning a YouGov survey and hiring the brains of the Centre for Economics and Business Research (Cebr) to analyse it. We found that the Construction Sector is losing over £1.4 billion annually through not taking care of their legals, with each business encountering around 8 legal issues annually, at a cost of £13,160 (see full report here). This comes as no surprise for a contract-heavy, dispute-prone industry that has necessarily tough health and safety regulations surrounding it. But! There is hope. Having all your legal ducks in a row, your contracts crystal clear and watertight, knowing your rights during a dispute and how to avoid them and understanding what laws apply to you (and putting safeguards in place to make sure you don’t fall foul!) are sure-fire ways to not becoming another stat - LawBite, government or otherwise... Whether you’re wanting to go solo with your skill, start a residential construction company with your dad or even growing a big commercial enterprise, every business could use a helping hand. With this in mind, welcome to Part 2 of our 3-part ‘LawBite Legal Construction Guide’ series. Keep these useful guides handy and if you’re not sure whether something applies to you or you need legal advice from one of our expert Construction lawyers just ask!
Part II Construction Act 1996 (as amended by the Part 8 of the Local Democracy, Economic Development and Construction Act 2009) and the Scheme for Construction Contracts
If your construction business involves architecture, design, surveying, engineering, building, decorating, laying-out landscape, repairing, altering, maintaining, demolishing or dismantling in England, Wales or Scotland, you are very likely to be conducting construction operations regulated by the Construction Act 1996. If this is the case, when drafting your contracts, you should take into account what this piece of legislation says about payments, suspension of works and dispute resolution.
When it talks about payment, the Act says that where the parties have not agreed payment provisions compatible with the Act, the payment provisions set out in the Scheme for Construction Contracts will apply. It means that you may end up making or receiving payments in a timeframe completely different to what you had in mind – and with potentially undesirable impacts on your cash flow. So make sure you have compliant payment provisions in place.
Still talking about payments, the Act says that conditioning payments to a contractor or subcontractor on receiving payments from a third party – let’s say another contractor – is not allowed. This is good news for contractors who will have grounds to complain if their clients say that they cannot pay because they haven’t received from someone else.
When it comes to the right to suspend works if payments due are not made, the Act sets out that it is a right even if the contract does not include it. It also sets notice periods to allow the defaulting party to make the payments
It also states that disputes related to a construction contract are subject to adjudication, an alternative dispute resolution mechanism – often faster than the Courts – where an adjudicator – usually an expert in the field – decides the issue with binding effects until a final decision is reached in Court or arbitration. The idea is to provide an interim solution for the dispute so that the works can continue without long delays that judicial and arbitration proceeding may cause.
Health, Safety and Environment
Everybody knows that health and safety is essential in construction projects. Construction sites may be a very dangerous place and accidents must be prevented at all times. Construction works can also cause huge – and not always good – impacts to the environment. Such undesirable impacts need to be prevented as well. The law is aware of this and there are several regulations that parties in a construction project have to comply
For health and safety, you should understand your obligations under the Approved Code of Practices that apply to the activities you perform (which for the construction sector is actually the CDM Regulations 2015 discussed below) and be aware that non-compliance with health and safety obligations is so serious that can be an offence. A health and safety policy can be very useful here.
For environment, the applicable regulations will depend on the area where the construction project is located and the environmental impacts it can cause. There are rules and permitting requirements for all of these environmental risks – and the sanctions for non-compliance vary from obligation to remediation, damages, fines and even imprisonment (yes – some environmental violations are criminal offences).
- Land contamination
- Water pollution
- Biodiversity and wildlife
- Hazardous materials and abestos
- Energy efficiency
The Construction (Design and Management) Regulations 2015
These regulations – usually called CDM 2015 – replaced the CDM 2007 and establish a wide range of health and safety obligations that apply to the employers (those who ordered the construction works), designers and contractors. Small and residential projects are also caught by the CDM 2015 – no less strict rules for them.
Several risk areas are covered. If you deal or may deal with any of those, this section of this practice guide is definitely for you:
- Safe work place
- Site security and site order
- Stability of structures
- Demolition and dismantling
- Cofferdams and caissons
- Prevention of drowning
- Energy distribution on site and installations
- Fire, flooding and asphyxiation
- Emergency routes and exits
- Fire detection and fire fighting
- Air quality and fresh air
- Temperature and weather protection
The underlying principle from where the regulatory obligations derive is that the stakeholder involved have to make sure that the construction works are carried out with not health and safety risks to the people eventually affected by the project.
Talking about employers, if there are more than one employer for the same project, they have to agree in writing who will be the “client” for the purposes of CDM 2015. If the construction work will involve more than one contractor and/or designer, before the works begin the client must appoint a principal contractor and/or principal designer. In the CDM 2007 the role of the principal contractor and/or designed was played by the then called CDM Co-ordinator.
If you are the client, it is up to you to make sure that the (principal) contractor prepares the construction phase plan and/designer prepares the health and safety file appropriately.
If the project involves more than 20 workers at the site at the same time and will last more than 30 days, you must inform the Health and Safety Executive about it. The same applies if the works will demand more than 500 person days The good thing is that it can be done online
If you are a contractor working for a residential employer, the CDM 2015 passes most of the client’s obligation to the contractor so the contractor, so they will be the one with the main obligation to run the works without health and safety risks. Definitely an issue to be considered when making proposals to residential constructions works.
If you are a designer (or someone doing drawings, design details, specifications, bills of quantities and calculations – what counts as designer for the CDM 2015) or a contractor, you must do your job with health and safety in mind, foreseeing and mitigating risks in everything you deliver to the project. And if you have been appointed a principal designer or principal contractor, you are also in charge of monitoring compliance by the other designers or contractors. The extra burden for contractors, it is promoting health and safety rules and culture among workers.
All these are ongoing obligations – you must consider health and safety requirements in all stages of the project. It is for you own safety after all!
Now that you have the essentials of health and safety, you can go into the details of health and safety management in construction with the Health and Safety Executive Guidance to the CDM Regulations 2015.
Building Regulations and Planning Permission
No one disputes that it is essential that a construction project is safe and environmental friendly during its construction phase. But what about the safety of people around the project and the people using the building after it is concluded? What about environmental issues when the building is fully functional? You must take them into account too and the local authorities will monitor if you are following the technical requirements about:
- Fire safety.
- Contaminants and toxic substances.
- Passage of sound.
- Sanitation and Water
- Drainage and waste disposal.
- Combustion and fuels
- Protection from falling, collision and impact.
- Energy efficiency
- Access and use
- Glazing opening, cleaning and resistance to impact
What is necessary for compliance in each of these areas can be found in more detail on the collection of Approved Documents by the Department of Communities and Local Government on the compliance with the building regulations.
If your business involves the implementation of developments on land or material changes in the use of an existing building, you may need to obtain planning permissions before you start a project. That are different types of planning permissions – make sure you put your efforts on the most appropriate to your project.
Construction Industry Scheme (CIS)
Unfortunately, the constructions sector – in particular when it involves SMEs – is sometimes known as an industry that does not fully comply with its tax obligations. On the other hand, the government has been for a long time willing to increase the participation of small business in construction. The current Construction Industry Scheme (set out in the Finance Act 2004 (Chapter 3 Part 3 as amended by the Finance Acts 2007 and 2009) and in the Income Tax (Construction Industry Scheme) Regulations 2005 (SI 2005/2045) were developed with that in mind.
The CIS is a tax scheme that make contractors responsible for retaining taxes that otherwise would have to be paid by subcontractors. It is something similar to what employers have to do with income tax on the salaries of their employees. Theoretically, this approach can release the bureaucratic burden on smaller companies (which are usually subcontractors for certain parts of the works awarded to a main contractor) and consequently increase compliance with tax payments.
To accomplish that, the CIS imposes obligations to register your status and file documents before the HMRC. You can find more details on the HMRC guide for contractors and subcontrators about the CIS.
Complying with B2B and B2C Regulations
Who are you selling to?
‘Marketplace’ may not be a word that comes to your mind when you think of construction business. Nevertheless, whether you call it your marketplace or simply your clients, it is key that you know to whom you sell and who are buying your services. The question of whether to sell to Consumers (B2C) or businesses (B2B) is fundamental in terms of what you need to understand with regards to the law. Remember, for all your business transactions, irrespective of whether you’re trading B2B or B2C, it is wise to have contracts that cover all your business’s dealings both internally and externally. Nevertheless, B2C transactions are generally governed by much stricter consumer protection rules than B2B transactions although there are a range of rules that apply to B2B transactions as well which we will explore.
What are you selling them?
If you are selling to consumers (B2C) you must be aware of the The Consumer Rights Act 2015 (CRA), which replaced the Supply of Good Act 1979 for consumers, creates a host of rules and stiff penalties for breaching them. The CRA implies a whole range of terms (most used to be in the old Sale of Goods Act 1979) into your sales terms, for example, goods to be of satisfactory quality and fit for a particular purpose. The CRA sets the standards for supplying services to consumers with reasonable care and skill and can even affect fixing the price and the time in which to perform services. Depending on whether you provide services, material or equipment, there are a host of CRA requirements dealing with things such as returns, cancellations, cooling-off periods, delivery, repair and replacement, that you need to be aware of. Prior to selling any of your B2C products, you must prepare your terms of sale, or review your existing ones to be sure that you are compliant. If you are supplying equipment and materials (goods, broadly speaking), the CRA implies the following terms (most used to be in the old Sale of Goods Act 1979) into your sales terms:
- Goods to be of satisfactory quality
- Goods to be fit for a particular purpose
- Goods to be as described
- Goods to match a sample
The CRA has also added new things such as:
- Duty to provide certain pre-contract information
- Goods must match a model seen or examined by the consumer
- A standard for installed goods which must be installed incorrectly
Services: If you are supplying services to consumers you must perform the service with reasonable care and skill. Unless the method of fixing the price is set out in the contract, the consumer must pay a reasonable price for the services and unless the method of fixing the time it is set out in the contract, you must perform the services within a reasonable time. Anything you say or write (about the trader or about the service) to the consumer, and which the consumer relies upon when deciding to enter the contract or make a decision about the service after the contract, is to be treated as a term of the contract
Laws relevant to B2B trading
Even where your dealings are with another business and you are confident that do not need to adhere to the Consumer Rights Act 2015, your B2B contracts and trading terms are still affected by a wide range of regulations. For instance, the Sale of Goods Act 1979 (SGA) and the Unfair Contract Terms Act 1977 (UCTA) are of particular importance to B2B transactions.
The SGA implies a number of important terms into sale of goods contracts, particularly in relation to title and quality. It also lays down a large number of presumptions, which in the absence of express drafting to the contrary, apply to a sale of goods contract.
The UCTA limits the extent to which you can avoid liability for things such as breach of contract, negligence and other breaches of duty by putting clauses in a contract such as disclaimers, exclusion clauses and limitation of liability clauses.
The Equality Act 2010 deals with discrimination in the provision of goods, services and facilities and, amongst other things, prohibits service providers from doing anything that constitutes discrimination, harassment or victimisation.
The Late Payment of Commercial Debts (Interest) Act 1998 addresses implied terms dealing with interest, fixed sum and costs into business-to-business contracts for the supply of goods and services.
The Bribery Act 2010 not only prohibits obvious bribery practices, but also ensures the need to take care that perceived normal corporate hospitality is not in fact an offence under this Act.
Data Protection Act 1998
The Data Protection Act 1998 (DPA), which came into force in 2000, is of particular importance to businesses that may be dealing with data, in particular, people’s personal data. Whilst it might not be relevant to every construction business, if you do intend on collecting your customer’s or – even more likely – your employee’s data, you do need to read on! The Information Commissioner (Commissioner) is responsible for enforcing and overseeing the DPA and The Office of the Information Commissioner (ICO) has issued a useful Guide to Data Protection which you should be aware of.
The DPA deals with the protection of individuals with regards to the processing of personal data and the free movement of personal data. It is an extensive data protection regime imposing extensive obligations on those who collect personal data, as well as conferring broad rights on individuals about whom data is collected.
The DPA applies to the “processing” of “personal data”. With both terms being very widely defined, it means that practically any business operating in the UK, which holds information about individuals (whether employees, customers or anyone else) is affected by the DPA. Breaches of the DPA can result in criminal as well as civil liability.
All of the obligations under the DPA fall on the data controller which is the person who (either alone, jointly or in common with other persons) determines the purpose and manner in which personal data is processed. A data processor processes personal data on behalf of a data controller. The DPA does not impose obligations directly on the data processor,,,, as it recognises that not everyone is equally accountable but it does require the data controller to pass on obligations to the data processor. The ICO has issued a handy guide on the difference, which you should familiarise yourself with here.
If you deal with any type of data you should consider the DPA and you should be aware that the DPA applies to many different types of data and a wide range of processing activities. The DPA imposes a wide range of obligations on data controllers to ensure that data is processed properly. Depending on how you intend to use personal data, you may also have to register with the ICO. You can check whether you need to register with the ICO here.
Transferring personal data outside of the EEA is also a heavily regulated activity and can happen even if you are not conducting any international business, but simply by having customer details stored on servers overseas. You need to make sure that you have a mechanism in place to allow this transfer to happen legally
Summary of (New EU) General Data Protection Regulation (GDPR)
I know what you’re thinking. This is all way too simple. If only the EU could come up with an even more complicated law on data protection that could really test us. Well, they have, the new ‘General Data Protection Regulation’ (GDPR). ‘Damn’, I hear you say, ‘we’ll will miss out because we are leaving the EU!’ Nope. First of all, the new law comes into effect in the UK in May 2018, before the 2 year period for Brexit ends. In addition, the law is consumer-friendly and is, therefore, unlikely to be unravelled by the Government. Finally, if we want to continue to trade as freely as possible with the EU this will undoubtedly be one of those laws we have to continue to comply with, especially given that our sites will be accessible by EU citizens. So, you are not going to miss any of the fun of complying with GDPR. So here’s what you need to know…
In essence, the new data protection regime moves the dial even further in favour of the User. Among many other changes here are some key elements you need to know before it comes into effect:
- Your business will need to implement technical and organisational measures such as document processing activities and appoint a Data Protection Officer if it is a public authority or if the core activities of the controller or the processor involve “regular and systematic monitoring of data subjects on a large scale” or where the entity conducts large-scale processing of “special categories of personal data”.
- The GDPR applies to “personal data”, but GDPR’s definition of personal data is more detailed than the DPA. The new definition provides for a wide range of information to constitute personal data. This is to reflect the changes in technology and the way organisations can now collect information.
- Under GDPR, you will have an obligation to put in place organisational measures to show how you integrated data protection into your processing activities.
- This means that privacy in a service or product should be taken into account from the start of a product concept.
- Data subjects will have greater access to their data – you can no longer charge them £10 for that purpose.
- Data subjects will have a ‘right to be forgotten’ or a ‘right to erasure’ of their data.
- The regime around giving consent is tougher. Businesses will need to ensure that data subjects can withdraw their consent to their data being processed. Businesses must also ensure that consent is “explicit” for processing sensitive data. The onus will be on the business to show that the consent was given. Where personal data is processed for direct marketing the data subject will have a right to object. The right to object will have to be explicitly brought to their attention.
- Parental consent will be required for the processing of personal data of children under the age of 16. The Individual EU Member States may lower the age requiring parental consent to 13.
- Fines for major breaches of the GDPR could reach up to the higher of 4% of annual worldwide turnover and EUR20 million. Other infringements could attract a fine of up to the higher of 2% of annual worldwide turnover and EUR10m.
As you can see, it’s probably wise to start thinking about how you’ll be taking steps to ensure you’re complying with GDPR now to save yourself the headache later...
When your total turnover reaches the VAT registration threshold (£83,000 for a 12 month period in 2016/17), you need to register for VAT with HMRC by the end of the following month. So although this may not be the first thing you need to worry about when starting out, you need to be mindful to take action when you cross the threshold as you grow.
We hope you’ve enjoyed our brief guide to the main compliance areas that you have to be aware of when running your construction business. We would recommend you seek professional advice if you’re confused about any of the above - don’t get bitten! LawBite can assist with your organisation’s legal queries for around half the price of a standard law firm, with relevant documents and advice. If you’re unsure of what you need, we offer free 15-minute consultation with one of our Construction experts too!!
Lizzie Knight, Head of Marketing
Carla Caroli, Corporate and Construction LawBrief (LawBite lawyer)