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What a year it's been for construction.

Year on year the industry has been beset with challenges - COVID-19, Brexit, the Ukraine war, extreme global adverse weather conditions and natural disasters, the energy and cost of living crises—and 2023 was no different.

So, what were the key themes for construction in 2023, and what can we expect in 2024?

Some key challenges

There has been hugely increased awareness of RAAC (reinforced autoclaved aerated concrete) - including in the public's consciousness – with surveys for its use, review of its maintenance, and plans for remediation. Issues relating to failing RAAC have affected public sector buildings and structures (like schools, hospitals and prisons) and also the private sector (such as offices). The impacts across the construction sector, in its widest sense, are not yet known but will become clearer in 2024. (For more, see here).

There have been enormous changes to building safety, which have forged ahead in 2023 at an unprecedented pace. From early April, everyone needed to identify whether they had a higher risk building (HRB) and these were to be registered with the new Building Safety Regulator before 1 October 2023. Further sweeping changes came into force on 1 October 2023:

And the transitional period, where some HRBs and non-HRBs remain under the old regime, ends on 6 April 2024. For more visit our Building Safety Hub.

Due to struggles with global supply chains and labour shortages, and the energy crisis, costs of construction have risen. The industry has responded well, but businesses are operating with more supply chain uncertainty than they have in decades. There are ways for businesses to mitigate their exposure though – by carrying out good due diligence on suppliers, agreeing robust security packages, and diversifying supply chains. (Read more here).

International projects in particular have felt the impact of these global difficulties, but again there are ways to mitigate risks such as considering at the outset how to manage international supply chains, being aware of how local laws impact contracts, and obtaining local law opinions. (Read here for more insights).

Hard times and financial distress

In light of the challenges mentioned above, it's no surprise that insolvencies are at a high level in the industry – earlier this year, at a rate of 11 companies entering a formal insolvency process each day. As such, it's been crucial for companies to protect their businesses, finish their at-risk projects, and mitigate their losses. Keep an eye out for early warning signs – such as businesses you work with having cash flow issues, making uncommercial and surprising changes to the project by scaling back or omitting works, or revisiting or re-negotiating payment terms.

If you spot a potential early warning sign, you could prepare yourself by keeping an eye on Companies House online, searching the Central Registry of winding up petitions, or obtaining a credit report for the company. (For more, see here).

Disputes and resolution

Inevitably, when things get tough, disputes can arise.

Sometimes, instead of continuing with a dispute, particularly if there is a risk that the other party may become financially distressed, it may be best to resolve the dispute and settle. Things to consider in settlement agreements include making sure the right organisations are party to the agreement to settle the dispute, explaining what exactly is being settled, and being clear on whether fault is being admitted or not. Above all, stay commercial – you reached a commercial agreement, so don't fall out again over the wording of the settlement agreement. (Read more here).

For international projects, giving thought at the outset to the most appropriate forum for dispute resolution is also key – and arbitration may be a good option as you can choose your own arbitrators, the procedure is flexible and confidential, and it can be easier to enforce arbitration awards. It is also important to pay attention to your subcontracts, including carefully considering which jurisdiction's law should apply.

What more in 2024?

More changes are coming. From a legal perspective, these include:

From an industry perspective, ESG (Environmental, Social and Governance) criteria are increasingly forming part of tenders for construction projects and clauses are beginning to make their way into construction contracts.

More widely, the industry is increasingly aware of the need to diversity its workforce - in part due to the years' long labour and skill shortages – including around PPE and facilities for women, new laws around flexible working coming in next year, and taking into account the National Federation of Builders' recent findings that "one in four construction workers consider themselves to have a neurodiverse condition".

Also on the cards is something major that can change the status quo… a 2024 election.

For more from Womble Bond Dickinson's Construction team, visit the page on our website here.

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