5 things to consider when starting a construction project

If you’re unfamiliar with construction, beginning a new project can be daunting. 

Ross Galbraith, partner, and Pippa Garden, trainee solicitor, both in our construction team, outline 5 key aspects that you should be aware of. 

1. Get initial advice! 

Once you are ready to start your exciting new construction project, it’s vital that you appoint a team of experienced specialists to support and guide you through the process. 

There are various specialist consultants that you may need to initially appoint, such as an architect, civil and structural engineer, project manager, and quantity surveyor. These consultants will be able start designing and pricing the project. 

Generally, it’s best practice to appoint the above specialist consultants under a professional appointment, which clearly sets out the services they are to provide and the obligations they are to comply with. 

Whilst there are standard forms of appointment, specialist construction lawyers can help draft bespoke appointments that reflect your specific requirements. 

2. Make sure to have a written building contract

Once your appointed specialist consultants have started designing and pricing the project, you will then be ready to appoint a building contractor to build your project!

Having a written building contract in place will ensure that the parties understand their obligations and will help improve the overall management of the project. 

The JCT forms of building contract are the most popular standard form of construction contract in the UK and are available as off-the-shelf standard contracts. The standard JCT forms of building contracts offer a balanced approach to risk between the client and the contractor. 

The form of JCT contract you use can depend on the value of the works being carried out, the complexities involved and the procurement route. As a starting point, you may wish to consider: 

• JCT Design and Build Contract 2024 - typically used when the works are reasonably complex and the contract value is above £1 million; 
  
  
• JCT Intermediate Building Contract 2024 - typically used when the works are less complex and contract value is between £250,000 and £1 million; and
  
  
• JCT Minor Works Building Contract 2024 - typically used when the works are quite straight-forward and the contract value is under £250,000. 

The above JCT contracts are the most common, but there are numerous other forms that could be used. We recommend that you seek advice before selecting the appropriate form of JCT contract. 

Your surveyor will be able to help complete the project specifics to be included in the JCT contract selected (such as completion dates, insurances etc.) but we’d always recommend that a specialist construction lawyer  instructed to review from a legal perspective. 

There may also be situations when the client needs to amend the standard form JCT building contract to suit specific project needs and to transfer more risk to the contractor. Again, a specialist construction lawyer can assist and advise on this.  

3. Price and progress

JCT contracts typically operate on a lump sum/fixed price basis. However, it’s important to know that this doesn’t necessarily mean that the price or completion date of the project won’t change. 

JCT contracts allow the completion date to be extended where works are affected by 'relevant events’. Examples include changes to the works, exceptionally adverse weather conditions, strikes by workers and epidemics. 

Similarly, the JCT contracts provide for ‘relevant matters’ that allow the contractor to claim additional costs incurred. Examples include a change to the works or the discovery of fossils, contaminated material and asbestos found in the ground.  

With this in mind, it is important to consider a construction contingency, which involves the setting aside a portion of the project’s budget to cover unforeseen costs, risks, events, or change in scope. 

4. Construction security

It’s also important to consider obtaining some form of security in case,  the contractor becomes insolvent or stops performing its obligations pursuant to the building contract. 

Often, construction security is obtained in the form of retention, performance bonds or parent company guarantees. 

Retention

This involves withholding a specified amount of money from the contractor in respect of each monthly payment, typically 3-5%, until the project is complete. 

The money retained acts as a form of security deposit, from which money can be deducted to fix any defects should they arise. 

Half of the retention is typically released on practical completion of the project with the remaining half being released at the end of the rectification period (which is typically 12 months following practical completion of the project).  

Performance Bond

This serves as a financial guarantee provided by a surety (usually a bank or an insurance company) on behalf of the contractor to the client. 

It protects the client against any potential financial loss or damages incurred due to the contractor's failure to meet the agreed-upon performance standards. The performance bond typically covers 10% of the contract value. They are often quite expensive to obtain. 

Parent company guarantees

This is commonly given in the construction industry by the main contractor’s ultimate parent company. 

They provide that the contractor’s parent company will guarantee the contractor’s obligations pursuant to the building contract and will step in and complete the works should the contractor become insolvent or not fulfil its obligations in the building contract. 

Parent company guarantees are a cheaper alternative to a performance bond. However, their main disadvantage is that if the contractor becomes insolvent, the parent company is likely to become insolvent as well.       

5. Ensure compliance with CDM 2015 and Building Regulations 2010

When most projects are being undertaken, the Construction (Design and Management) Regulations 2015 must be complied with to ensure the health and safety of employees and third parties during a construction project.

The Building Regulations 2010 will also need to be complied with, which provides for minimum standards for design and building works. 

Both the CDM and Building Regulations apply to most construction projects regardless of size and, ultimately, the overall responsibility for compliance rests with the client (who will also be under an obligation to appoint a “principal designer” and “principal contractor”).

Seek advice early!

Construction projects, regardless of value and size, are often complicated. This article sets out a very brief summary of the key main points to consider.

However, we would always recommend that you seek specialist advice as early as possible to ensure you are properly prepared and adequately protected. 

For more information about what to consider when first embarking on a construction project, or if you have any questions about construction law in general, please contact Ross Galbraith using [email protected] or 0191 211 7999.