April 2, 2020

Projects & Construction Quarterly Bulletin (April 2020)

1. Termination: You 'Bester' get it right (click here to read more)

Issues such as repudiation, frustration and compensation are always at the forefront of an adviser's mind when the word "termination" is used. Regardless of the motives, if one party wishes to terminate it needs to make sure that it does so properly!

The issue of termination has most recently arisen in the case PBS Energo A.S v Bester Generacion UK Ltd [2020] EWHC 223 (TCC). This case is the latest in a line of judgments on this project. Both parties alleged a valid entitlement to terminate, with both parties serving notices of termination.The Court was concerned as to which notice of termination was effective and valid.

2. The beginning of the end - is your PFI project ready for handback? (click here to read more)

Whilst the financial close celebrations of the 1990s and early 2000s might feel like only yesterday for those involved, an increasing number of UK PFIs are starting to prepare for handback at the end of the project term.  Project companies and service providers are starting to recognise the potential risks and challenges which arise from handback, some of which we outline below.

The general duty on the project company (passed down to the service providers) is to ensure that all assets and equipment forming the project are handed back to the public sector client in accordance with the required standard. Whilst some projects may have a (usually brief) specific handback schedule setting out this standard, in its absence the required standard will likely be a condition consistent with Project Co having complied with any and all maintenance, service and lifecycle obligations under its contract with the public sector client. Preparing for handback therefore requires a detailed understanding of project-specific obligations in relation to the assets being handed back, including any differing requirements for new build facilities versus retained estate facilities.

3. A question of coverage - The impact of restrictions in the professional indemnity insurance market on developers (click here to read more)

Importance of professional indemnity insurance to developers

Most professional consultants do not have sufficient financial capacity to pay for claims brought against them in respect of professional negligence. Subject to the terms of the particular policy, professional indemnity insurance ('PII') provides insurance cover to a consultant where they breach a professional duty that gives rise to financial loss or damage to a third party. Further an obviously related reason, PII is also of vital importance to developers in that it provides a route to financial recourse with regard to any potential design liability of its professional team.

The Grenfell tragedy and Carillion’s collapse has contributed to a recent hardening of the construction PI market. These incidents, combined with the ever growing threat of climate change catastrophes, have resulted in insurers considering ways of limiting their exposure.

4.  FIDIC launches new Yellow Book Subcontract (click here to read more)

At the London FIDIC Users' Conference held in December 2019, the newest edition to the FIDIC standard form suite of contracts was launched  – the Conditions of Subcontract for Plant and Design-Build - also known as the "Yellow Book Subcontract". 

Intended to be used in conjunction with the Conditions of Contract for Plant & Design Build (1999) (the "1999 Yellow Book"), this new form plugs the subcontract gap that existed on FIDIC design-build projects.  Based on the Conditions of Subcontract for Construction released in 2011 (known as the "Red Book Subcontract"), FIDIC have taken a similar approach to flowing down rights and liabilities under the Main Contract to Subcontractors – the difference being that this version is for use where the Subcontractor has both design and build obligations.