In this issue

by Simon Tolson, Partner

It is my great pleasure to introduce our 2022/23 Annual Review, our 26^th edition. We have so much in this Review for you to read. Pace yourself!

The past year – the wider canvass

Given the macroeconomic position, it will come as no surprise that all sectors are struggling with supply chain uncertainty, skilled labour, inflation, availability issues and inflation running at least 10%.1 The late Ronald Reagan memorably described inflation as being "as violent as a mugger, as frightening as an armed robber and as deadly as a hitman". This year, the Russian invasion of Ukraine, post-Covid pandemic, GBP/$ exchange rate, etc., are all leading to some interesting pricing and programming challenges – and emphasising the importance of knowing what you’re signing up to.  

We are seeing much less fixed price contracting on longer term jobs (e.g., more than 50 or so weeks on site and civils in particular). If all the packages cannot be let at the outset (e.g., on a phased project), then there’s a huge risk. So, we have seen some novel pricing and programming arrangements not previously used in the past 20 years. The cost of materials2 we have seen rise across the piece, well above forecasted figures. Steel prices rose 77.4% in 2021 and timber prices rose 80%. This year, things have only got worse and changed quicker. One of the most extreme examples is the price of rebar, which increased by 45.8% from the 2021 average to March 2022. Who has really studied the JCT fluctuation provisions unless they were in practice before 2000? The construction industry has now definitely come out of a period of stability.

Looking ahead, employers are already seeing negotiation around the inclusion of fluctuation provisions. Some contractors will want to mitigate the risks of price increases and may walk away from tenders if they are unable to take the financial risk where an employer refuses the inclusion of any fluctuation provisions. We have seen in two-stagers that, at the second stage, main contractors sit down with clients and, in some cases, renegotiate the price or renegotiate how they deliver projects.

For the UK and most jurisdictions, Covid has also obviously been a defining event over the past two years, as well as Brexit, which has a continuing impact. However, domestically, for large elements (certainly not all) of the construction industry, in hindsight, the effects of Covid have been less than the profound impact on the likes of hotel, catering, entertainment, aviation and travel.

Regrettably, this cannot be said of the repercussions of war in Ukraine.  Just as the industry was sighing with relief over an “end” to Covid, the effects of this war produce a noxious combination of effects for the construction industry worldwide. These range from supply chain disruption to price spikes of almost all building materials – especially energy prices. OPEC has only heaped more pressure on gas. In almost all jurisdictions, lawyers like us are grappling with issues such as sharp price increases and delays caused by supply problems and sanctions.

The underlying trends and developments seem to be crystallised in similar ways the world over. For contractors, it proves difficult to pass on rising prices to employers, although there are always some exceptions; the legal possibilities can be summarised as: "time, but no money". One has to bear in mind that, even before the invasion began, prices of construction materials, particularly steel, timber, and concrete elements, had risen significantly. This process has, of course, been aggravated strongly by the war, but in terms of "unforeseen events", these latter price rises did not easily qualify as such.

The result is that the construction industry is struggling to offer fixed prices, especially for large projects with a long programme. Prices for construction materials often qualify as "daily rates". The war and inflationary trends have produced an unpleasant mix of serious supply chain glitches and unpredictable price developments.

Outlook

More positively, we are regularly seeing ongoing innovation in building techniques and processes on our clients’ projects, most notably digitalisation, voice assistants3, MMC and prefabrication and, for lawyers, yes, smart contracts. Additionally, the main market sectors keep moving in the same directions: the expectation of massive public investment in infrastructure and the government’s ‘Build Back Better’ strategy should see Britain’s historic underinvestment in infrastructure being addressed with £600 billion of public sector investment over the next five years fired by large stimulus packages, e.g., for the overhaul of public infrastructure and climate transition works in the energy sector from hydrocarbon to renewables and nuclear. There is also the ongoing urbanisation4 and the growing demand for affordable housing; retail yielding to leisure and logistics developments; and, finally, rethinking of the office workplace as we move away from the once habitual 9 to 5 office routine.

A combination of the necessary overhaul of public infrastructure like power transmission and generation and the up-and-coming energy and climate transition, as well as demand for efficiency to run housing (sub Passivhaus), all appear prevailing catalysts for developers, constructors, funders, and investors in these sectors.

My aim and hope is that Fenwick Elliott thrive from these areas and help you, our clients, leverage their position.

Fenwick Elliott news

I am pleased to say that Edward Foyle became a partner in April 2022. At 22 partners and nearly 100 staff, Fenwick Elliott is the largest specialist construction and energy law firm in the UK. 

In other excellent news, the results from this year’s Legal 500 and Chambers' UK Guides are Fenwick Elliott’s best overall rankings ever!  To our great delight, we have kept our top spot as a Tier 1 firm in both. Overall, this is a superb set of results, and testament to our output and reputation. We have some great soundbites to quote from what peers and respondents said:

“The practice is unique in its depth and breadth of knowledge of experience of complex construction issues and disputes. The team is always seeking to get the best result for their clients.”

“Very experienced practitioners with excellent knowledge of the construction industry and construction contracts. They are truly dedicated to the case and the client’s needs.”

“The firm's ability to provide out-of-the-box solutions and handle complex situations is stunning. They're extraordinarily responsive and provide a fully-fledged service.”

“A superb firm with a stellar international arbitration practice and excellent strategical thinking.”

“Both the partners and the senior associates at Fenwick Elliott are very able, from a technical legal perspective and also in terms of the provision of strategic dispute advice.”

“Fenwick Elliott are hands-on, have great business understanding, know the law, and have great team spirit.”

“The key with Fenwick Elliott is that they show a real understanding of construction and always show a real determination to understand the project to allow them to advise us accordingly.”

Thank you to those who provided feedback.  

I want to thank all my partners and every single member of staff for their huge contributions to make this happen. This is a Fenwick Elliott team effort.

Training and webinars

In addition to our well know publications such as Dispatch, IQ, Insight, CILL our Blog and things like Huw Wilkins Collection of Construction Law Terms: A to Z, we have put out many webinars on construction law related topics of current topicality.

These webinars, instigated in 2020, have been a runaway success. Our statistics since 2020:

• 53 webinars, to September 2022
• 16,327 registered viewers, 9,735 attended

You can find links to everything at: https://www.fenwickelliott.com/research-insight/articles-papers

Other things done in Fenwick Elliott

Fenwick Elliott remains committed to promoting equality, diversity, and inclusion. We have had an active ED&I group for over 18 months consisting of partners and senior managers. We also have a staff group that meets regularly and undertakes various initiatives – like charities work. The sort of activity we have undertaken in the last year following consultation includes:

• Maternity coaching / paternity buddying
• Transparency policies
• ED&I training sessions
• Trainee buddy scheme
• We are proud to be a part of the 10,000 Black Interns programme for 2022 and will be again in 2023; this initiative aims to transform the horizons and prospects of young black people in the United Kingdom by offering paid work experience across a wide range of industries, including the law and construction
• Charities including Lighthouse, Waste Aid, Construction Youth Trust

We are also looking to put in place mental and physical health support policies in place. We foster an open, challenging, participativeand rewarding environment, for all our employees. We identify employee development expectations and opportunities throughregular reviews and endeavour to ensure that pay and benefits are competitive. This is not just good business; it is people-sense and one that I am proud we invest in.

We see corporate social responsibility is also important to our staff and we take our responsibility to the wider communities seriously. We seek to minimise the impact we have on the world’s resources while seeking to maximise the impact we have on the well-being of those we serve.

We encourage and enable our lawyers and business services staff to play a role in making a positive difference to the lives of others.

We are also committed to taking action on climate change.  It's no longer just related to environmental lawyers. It is already fundamentally impacting all areas of law, business, and society. For solicitors like us, it's beginning to affect how our business is run and how we provide legal services.

We have for the last year now had an active “Green Group”, recognising the importance that the business takes account of green issues both internally and externally (with clients). In the past nine months, this has mainly focussed on:

• FE carbon footprint – working with NetZeroNow on our carbon footprint and with that our involvement in their pilot scheme with the Law Society, to coincide with COP27
• We are signatories to the Greener Litigation Pledge
• We are contributors to the Chancery Lane Project, a collaborative initiative of international legal and industry professionals whose vision is one where every contract enables solutions to climate change

Lastly for now

As a sector-focused law firm, we pride ourselves on our extensive industry expertise. So, rather than talk solely about ourselves, and the work we have been doing for our clients, this Annual Review is instead based on articles which give our take on cases and developments in our market over the past 12 months – and where things are heading. 

If you would like to discuss any of the points raised in these pages in more detail, please do not hesitate to contact any of us. As always, we are here to help.

Next article

• 1. Prices in the construction industry, as estimated by the Construction Output Price Index (OPI), increased to 9.6% in the 12-month period to June 2022.
• 2. Mace, for example, reported on 29 September 2022 material shortages exacerbated by the invasion had led to the cancellation of some projects.
• 3. With well-researched algorithms and a strong artificial intelligence in place, voice assistants can now well understand the user's need and give suitable suggestions. Voice assistants are a humane way to interact with machines!
• 4. Between 2018 and 2030, the urban population is projected to increase in all size classes.