Under Pressure: Struggling Supply Chains

By Matthew Friedlander and Tanya Chadha

In the construction sector solid cash flow throughout the supply chain is the lifeblood of most projects, no matter what size, and is arguably the single most important factor in ensuring that a project reaches its conclusion. However, the cumulative effect of various other factors such as Brexit, escalating global energy prices, the outlawing from 1 April 2022 of the use of the red diesel usage for construction plant, super inflation, higher material and labour costs and the end of government COVID-19 support schemes has led to increased lending costs and smaller profit margins.  As such, the construction supply chain is likely to come under ever increasing pressure in 2022. Continue reading “Under Pressure: Struggling Supply Chains”

Red or white…(Diesel that is)

Limitations on the use of red diesel for the construction and engineering sectors UK.

Glasgow and COP26 resulted in various commitments from global economies to work towards targets in the reduction of greenhouse gas emissions. The UK is to target the reduction of greenhouse emissions to net zero by 2050.

However, even prior to COP26 there were already legislative changes afoot to have cleaner air. The Finance Bill 2021, and the associated secondary legislation, as part of the government’s plans to reduce carbon emissions, has the effect of restricting the usage of red diesel after April 2022.[1]

What is red diesel? In short it is regular (white) diesel that is dyed to make it identifiable. Why? It is taxed at a much lower rate, making it almost 50 pence a litre cheaper than white diesel. That discount will end for those industry sectors that have used it, but are now restricted from its usage post April 2022.

Construction and manufacturing industries cannot use red diesel after April 2022. These are sectors that use the rebated red diesel. In the construction industry, site electricity generators along with heavy plant, machinery and heavy vehicles will all now be forced to run on white diesel to a much higher cost.

There is pressure on all industry sectors to adopt green measures. This is now increasingly becoming the norm, and is affecting virtually all businesses and sectors. By way of illustration, Lloyds Bank has announced that in relation to green homes, when looking at affordability  there will less stringent stress testing.[2]

The governments stated aim is to encourage businesses affected by the red diesel restrictions to use less fuel, or eventually to adopt greener alternatives. However, few in the construction industry would use more fuel than absolutely necessary, so in order to avoid cost inflation, there needs to be alternative options that the construction and engineering sectors must have.

So have we got the alternative technology to give viable options? For example, electric powered plant or cleaner fuels such as hydro treated vegetable oil. Is there scope for future use of Hydrogen power? As we have previously discussed in this blog, significant strides have been made in this area to date and there are a number of construction vehicle suppliers now providing a broad range of electrically-powered construction machinery. However, despite this, diesel power is still dominant in the sector and in some areas there are few, if any, alternatives available.

For the construction, engineering and energy sectors, the following points arise for consideration and debate:

    • Super inflation in the construction, engineering and energy sectors is a massive issue in the UK, and indeed in other parts of the world. Rising supply costs and increased energy prices have dogged the industry in 2021. This loss of rebate is likely to result in yet further increases to site and project costs. In turn this is likely to increase the pressure on the bottom lines of many companies in the sector, and is in turn likely to mean more expensive houses, hospitals, schools, road projects and so on. This is a pertinent issue in the UK in particular, given the shortage of affordable housing and the current issues surrounding the state of disrepair of some of the housing stock in inner cities.
    • Against this, the government is not forecasting significant macroeconomic benefits in terms of increased tax revenue – meaning that a government already short of cash thanks to the Covid-19 pandemic will likely have to pay more for its construction projects, with no substantive additional money coming in against which to offset that cost.
    • Concrete processing plants will be affected by steep cost rises. To state the obvious, concrete is a key ingredient on any construction project, and is the most widely used material in the world!
    • It is being reported that in Northern Ireland the cost to construction businesses could be as much as £25M per year.[3]
    • Plant and machinery that is no longer eligible to use red diesel must be drained, flushed and cleaned. Furthermore, any usage outside the permitted circumstances may result in confiscation of plant and machinery. In practice this may create a significant administrative burden on companies in the short term.
    • Whilst the industry accepts the need to embrace green practices to strive towards net zero carbon emissions by 2050, some argue that the changes being implemented are possibly too soon, and before alternative fuels and/or technologies are in place.
    • Have we actually got readily available alternative green options? At present, is the only viable option arguably to switch to white diesel only, and if so, does that really reduce the carbon emissions from the usage of red diesel? In reality the answer is no, unless a cleaner source of fuel is available. This in turn leads to a need for potential machinery modifications to accommodate such fuels. Additionally, problems may grow for plant hirers when machinery is hired consecutively by unaffected and then effected industries. Plant and machinery in the construction industry, often represent considerable assets of a business. If the idea is that these will become obsolete, this will present further problems for the sector.
    • The government’s thought process, on the other hand, appears to be that necessity is the mother of invention, and increasing fuel costs will drive down emissions created by the construction industry.
    • Those in the industry cannot be expected to absorb these costs, and the inevitable effect will be that these additional costs of running plant machinery, concrete manufacture and quarry operations, to name a few, will need to be passed onto the end users.
    • As with all cost increases there will inevitably be considerable impacts on current projects. For contractors bound into contracts that prohibit price changes or increases for these matters, this change alongside the current price hyperinflation dogging the industry could prove fatal.
    • Equally, increased fuel costs and price hyperinflation will increase the uncertainty around tendering for work. Prospective contractors will need to consider carefully the risks posed by these cost increases and how they are likely to be affected in the long term.

[1] Rail transport, agricultural, fishing and water freight, amateur sports clubs, golf courses, non-commercial power generation, traveling funfairs and circus.

[2] The Sunday Telegraph, 23 January 2022. This on basis that green homes are more efficient to run, and there will be lower outgoings.

[3] BBC News 24/01/2022-Red Diesel loss ‘could cost businesses millions’

Using Technology in Arbitration: Necessity or Choice?

By Vijay Bange and Tanya Chadha

The global pandemic continues to challenge us, with various measures ranging from further lockdowns to restrictions on in-person meetings. The judicial machinery, including that in the arbitration world, has continued to function throughout the pandemic notwithstanding the difficulties of embracing innovative processes and new technology.

In January 2021, Vijay Bange wrote an article examining the challenges of using technology in formal dispute resolution proceedings.  Whilst technology has of course been used in international arbitration and high court litigation (particularly in the Technology & Construction Court) for quite some time, that use has been somewhat limited with parties, their legal counsel, and the tribunal often preferring in-person hearings and hard copy papers.  2021 however saw a dramatic rise in the use of technology in dispute resolution proceedings.  This was almost certainly borne out of necessity as a result of the COVID-19 pandemic, rather than necessarily by choice or organic progression.  If disputes were to continue to be resolved, parties had no option but to get to grips with remote hearings, electronic bundles and virtual breakout rooms.  Whilst some inevitably faced technological and logistical stumbling blocks, the move to virtual hearings and electronic working proved largely successful with many disputes being resolved expeditiously along the way.  In fact, the move towards technology was so successful that many people are now opting to use technology out of choice and not simply out of necessity. Continue reading “Using Technology in Arbitration: Necessity or Choice?”

De-carbonisation of the UK Construction Sector: Are We Ready for the Net-zero Age?

It’s probably too early to deliberate whether COP26 was a success, and if progress has been made since Paris. Glasgow will be remembered for the passionate speech from the Maldives representative, which reminded us (if ever we needed reminding) of the Armageddon-esque effects of climate change to the planet as a whole, and to small island nations in particular. The target remains to aim for net-zero carbon emissions by 2050, and to keep global warming close to 1.5 degrees. Continue reading “De-carbonisation of the UK Construction Sector: Are We Ready for the Net-zero Age?”

Earth, Wind and Fire- Energy and the Green Agenda. The New Industrial Revolution?

By Vijay Bange and Tanya Chadha

Globally, notable incidents of freak weather events giving rise to destruction and death have dominated the news. The increasing frequency of these erratic climate events has undoubtedly raised awareness of global warming and, on a political level, the need for states to move quicker towards green energy and the reduction of carbon emissions. Global warming is an inescapable issue that affects us all and which has forced governments to elevate this to the top of the agenda, filtering down to economic policies that will touch upon most industry sectors.

On 31 October 2021, representatives from over 200 countries are set to descend on the Scottish city of Glasgow for the  United Nations climate change conference; the 26th Conference of the Parties (COP26).  During this global climate summit, world leaders are expected to talk all things climate change.  Commitments have already been made to aggressively tackle global warming and the reduction of carbon emissions.  Energy is therefore likely to be high on the agenda. Continue reading “Earth, Wind and Fire- Energy and the Green Agenda. The New Industrial Revolution?”

Not all Collateral Warranties are Construction Contracts

By Matthew Friedlander and Tanya Chadha

The contractual matrix of commercial construction projects commonly includes collateral warranties.  Collateral warranties typically grant a contractual cause of action to third parties (such as tenants or end-users) with an interest in the project who may not otherwise have a contract in place with parties that are designing, constructing or providing professional advice on the project.   For the beneficiary, a collateral warranty can therefore be invaluable.

Recently, for example, collateral warranties have proven to be extremely useful for long leaseholders and tenants in private residential developments where cladding and fire safety issues have been discovered.  Where such a warranty exists, leaseholders (as the beneficiaries) have been able in some cases to rely upon collateral warranties as a means of recovering losses, or compelling the original contractors or designers to rectify those fire safety defects in circumstances where the leaseholder was not involved in the original construction of the development.

Continue reading “Not all Collateral Warranties are Construction Contracts”

Multiplex v Bathgate: Legal Riddles and Unsolvable Problems

Mr Justice Fraser’s decision in Multiplex Construction Europe Ltd v Bathgate Realisation Civil Engineering Ltd and Others is one of the more curious decisions you will ever read.

Not that I would particularly encourage anyone to read it. The case necessitated some pretty comprehensive and in-depth legal analysis that means the judgment runs to some 206, fairly dense, paragraphs, and an Appendix; I would challenge even the most avid consumer of legal treatises to read the whole thing in one sitting without their eyes glazing over at some point. Helpfully, my colleague Vijay Bange has already produced a very useful summary of the decision and its legal implications here.

However, the density and depth of the judgment does not mean it is without interest; far from it. In fact I suspect this case will prove to be one of the more fascinating legal tangles the Courts will be asked to unravel this year. This article looks at some of the more curious aspects of this dispute, away from the key aspects of the case. Continue reading “Multiplex v Bathgate: Legal Riddles and Unsolvable Problems”

The Digital Age Still Needs Infrastructure

I am an unashamedly massive fan of the Back to the Future film franchise. Yes, even the sequels.

One of my favourite lines from the franchise is spoken at the end of the first film and the beginning of the second. Doc, Marty and Jennifer are about to travel to the distant future (2015, to be precise). When Marty points out there might not be enough road to get up to 88 mph, Doc flips down his brushed aluminium shades and intones: “Roads? Where we’re going we don’t need roads.” And the DeLorean flies off to the future thanks to an early 21st century hover conversion.

Brings a smile to my face every time

Continue reading “The Digital Age Still Needs Infrastructure”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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