Sustainability is here to stay, but have the industry’s standard form contracts caught up? Should they be leading the charge? Are they just hanging on the coat tails of government regulation?
How far have we come?
The good news is that the construction and engineering industry’s awareness of sustainability has increased, and continues to increase. The government, and industry bodies, have reiterated to the industry that the traditional model of development needs to change.
The bad news is that not much seems to have actually changed in practice.
The new government looks set to continue along the same path as the old, recently confirming its commitment to the environment. In April 2010, the CRC Energy Efficiency Scheme (CRC) came in to force, energy performance certificates (EPCs) are here to stay and the revisions to Part L of the Building Regulations are due to come into force in October 2010.
These, and other legal measures, are all likely to influence the way in which buildings are procured in the future. But has the most obvious method of making building more sustainable been ignored? What about the contracts? Should the bodies who produce standard form contracts simply stand by and allow the industry to progress at its own rate on sustainability, given that all contracts require companies to comply with the law and relevant regulations anyway? Or is there a need for contracts to do something more? If so should they use a carrot or a stick?
Maybe the very tough legally-binding targets to reduce carbon emissions under the Climate Change Act will make people think more actively about how to do this. Are contracts the answer and what are the options?
Current contract requirements
At present the JCT contracts are the only standard forms to have reflected this shifting attitude by introducing sustainability provisions. These are designed to provide “a framework under which the contract can encompass sustainability”.
In 2009, the JCT published a guidance note “Building a sustainable future together“. I was on that team that wrote the note, so I saw the process from the inside. However, I ask myself how much notice the industry really pays to these provisions and the guidance? How many people are aware the guidance exists?
Most standard forms contain no sustainability related provisions at all and the JCT’s current provisions lack the bite needed to make them more effective.
As ever, if you want somebody to do something, they usually need a financial incentive, either to reward good practice or to penalise bad practice. If standard form authors are to introduce new sustainability clauses they should be simple to understand, perform and enforce. When the JCT consulted on introducing sustainability provisions into their contracts, 86% of respondents believed that any contract clauses must be legally enforceable, with clear remedies for breach.
So what realistic options are there?
- Bonuses: should there be a bonus for all parties involved to share if the project achieves a certain BREEAM rating? A nice idea to encourage cooperative working, but somewhere along the line someone has to pay for it. Who would that be, and how would you assess achievement, given that a building may not function at its peak of efficiency until a year or two after completion?
- Liquidated damages: how about some kind of payment if you fail to achieve the required performance rating? But isn’t this just part of fulfilling the contract anyway and how would you genuinely pre-estimate the loss?
- Introduce a sustainability co-ordinator: someone who gets involved from the earliest concept stages to ensure coordination of sustainable measures throughout the project? But again, who pays?
Will anything change?
Pie in the sky you might think? Well, I have seen all these contractual options in practice, but they are very much the exception to the rule and the public sector and funding requirements usually drive these requirements.
In an industry where tender processes still focus on initial price and not lifetime performance, the biggest hurdle to contractual development will undoubtedly be who picks up the cost. Any new approach will require everyone in the contractual chain to buy in, not just on big projects, but on those oh-so-many small ones too.
The question whether our standard form bodies, like the JCT, can and should drive change remains to be answered.