The Building Safety Act, Gateway Three and Donald Rumsfeld

Without wishing to sound flippant when talking about such a key and important piece of legislation, it strikes me that when analysing the provisions of the Building Safety Act 2022 (BSA), one cannot help but be reminded of Donald Rumsfeld’s infamous notion that there are known knowns, known unknowns and unknown unknowns:

• we know what the BSA says (a known known);
• we do not yet know when all provisions will come into force as many provisions require to be enacted by the Secretary of State (a known unknown);
• however, what we do not know is how the industry will react (an unknown unknown).  

When talking about unknown unknowns, the danger is that you already start to change your behaviour because of an unquantifiable or unknown risk, but the purpose of this article is to simply highlight that by their nature, building contracts are inherently flexible and taking a sensible approach should hopefully encourage parties not to introduce convoluted drafting into contracts that may not necessary. As we hopefully highlight by reference to the more commonly used JCT contracts, these issues are capable of being dealt with now.  

How to contractually deal with Gateway Three is a good example of this. In simple terms, Gateway Three is the final sign-off required in respect of high-risk buildings before they can be occupied. This will be given by the Building Safety Regulator (BSR), although the relevant provisions will need to be brought into force. This was originally targeted for October 2023, but whether this happens may be contingent on the BSR having the necessary resources to deal with demand.

The key issue though is what happens if the BSR do not provide the required sign-off at the relevant time. Will the works reach practical completion, or will practical completion be withheld until such time as HSE sign-off is given? If withheld, will the contractor be on the hook for liquidated damages?

Under the JCT Design and Build Contract 2016 (DB), practical completion is not defined, but it is certainly common to see employer’s introduce criteria that have to be met before practical completion is achieved (if not by amending the JCT conditions, certainly in the technical documents themselves which form part of the contract). Quite often, we will see it being a practical completion condition that residential units are capable of occupation or that the guarantee insurer has signed off the works, so it is not a stretch to imagine that well advised employers will make sign-off under Gateway Three a prerequisite to practical completion.

In the first instance then, this looks like it has the potential to trouble contractors. However, looking at the list of Relevant Events under the JCT DB, the contractor will have a very strong case for relief if practical completion is delayed due to the BSR not issuing the relevant certification when required. Clause 2.26.13 confirms that it is a Relevant Event (which entitles the contractor to an extension of time) where there is a delay in the receipt of any necessary permission or approval of any statutory body which the Contractor has taken all practical steps to reduce or avoid.  This is not mirrored in the definition of Relevant Matter, so the contractor will get time and not money. In other words, if no other relevant bespoke amendments are agreed, it is a shared risk.

This is beneficial for both the employer and the contractor; if it is clear BSR sign-off for Gateway Three is needed for practical completion, the employer is not left without a remedy if the various works need to be completed or re-opened before sign-off can be required, and the contractor is not on the hook for liquidated damages for something that is beyond their control.  

Of course, the parties may wish to clarify that the above Relevant Event specifically includes the BSR being the cause of delay and there may well be scope to try and define what is meant by the contractor taking all practical steps to avoid such delay given than no one will yet know how the BSR will deal with such matters, but what this does highlight that following established mechanisms can help where the parties face an uncertain situation.

The JCT Standard Building Contract does not include such a Relevant Event, but this is presumably because the contractor is not fully responsible for design with the majority of the information needed by statutory bodies likely to be in the hands of the designers but there is nothing to stop a similar condition to achieving practical completion, along with a similar Relevant Event being added, particularly if the contractor will be responsible for a sizable design portion. For the similar reasons as above, we believe that this would be a sensible way forward; the employer does not want to be in a position where it cannot instruct variations to the works to obtain the BSR’s sign-off as practical completion has been issued and the contractor will not want to (or even be able to swallow), the cost of liquidated damages.

Provided the parties engage in conversation at an early stage, even in the face of uncertainly, dealing with issues such as Gateway Three should be capable of being resolved, particularly when this is looked at in the context of analogous events which are already covered in the standard contracts. We would argue that taking this approach will benefit all parties.