A bigger better FIDIC 2017 Yellow Book?

by Hardwick Legal | Mar 27, 2017 | Purpose Built (LexisNexis)

Sarah Jane Hudson, consultant at Charles Russell Speechlys, considers the pre-release version of the second edition of the FIDIC Yellow Book, which is currently being unveiled at FIDIC conferences. It was first made available at the FIDIC users’ London conference in December 2016 (see News Analysis: FIDIC—an update on the new contracts and other developments).

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For regular users of the FIDIC Yellow Book, the new edition will offer much more detailed conditions. Here I explain the key differences for practitioners to note.

The most notable change is that the Contract is now 50% longer and for those who enjoyed the relative brevity of the FIDIC conditions, this will be a disappointment.  However, for those drafting Particular Conditions, FIDIC have now incorporated additional requirements which make some Particular Conditions redundant.

What are the key changes?

FIDIC intends to formally publish the second edition of the Yellow Book (new edition) during the course of 2017, at the same time as the second edition of both the Red Book and Silver Book. FIDIC intends that the “new look” Yellow Book provisions will be reflected in the amended Red and Silver Books as well. We have identified six key changes in the new edition, as follows:

1. The Engineer

FIDIC still enshrines the Engineer’s role in making “determinations” under clause 3.7 (previously clause 3.5).  Importantly, the parties may refer many matters to the Engineer without having to make a formal claim under the revised clause 20. The new edition requires the Engineer to:

• Act “neutrally” when determining any matter or claim.
• Consult with the parties either jointly or separately and actively encourage discussion between the parties in an endeavour to reach agreement on a matter or claim.
• Adhere strictly to various time limits in reaching agreement or making a determination. If the Engineer does not give notice of agreement or determination within the relevant time limit, the Engineer shall be deemed to have given a determination rejecting the matter or claim.

The clear intention behind these new provisions is to try and avoid disputes escalating in the first instance, not delay their resolution by the DAB, and ultimately to avoid arbitration.  This could, of course, be unavoidable if the Engineer either can’t or won’t reach agreement or make a determination.

A new ‘Notice of Dissatisfaction’ (NOD) must be given within 28 days of the Engineer’s determination, otherwise the determination will be deemed to have been accepted “finally and conclusively” by the parties.

The requirement that the Engineer must be “a professional engineer having suitable qualification, experience and competence in the main engineering discipline applicable to the works” may cause problems for project managers taking on the role.

A new provision which provides for what happens if the Contractor considers that an instruction constitutes a Variation is helpful and states that the contractor should give a notice to the Engineer “immediately and before commencing any work related to the instruction”. However the clause (new 3.5) does not go on to explain what happens if the contractor fails to give a notice.

2. “Claims” and time bars

As expected, clause 20 of the current new edition is now reciprocal, covering both contractor and employer claims. While perhaps not welcomed by employers, this at least provides certainty following the interpretation of the existing clause 2.5 as an effective condition precedent in NH International (Caribbean Limited) v National Insurance Property Development Company [2015] UKPC 37, 162 ConLR 183.

It also covers “other” claims which are defined as those claims that are not third party claims and do not relate to time and money, for example a party’s failure to assist in obtaining permits. These are all referred directly to the Engineer for agreement or determination (under new clause 3.7) and notice of this type of claim shall be given “as soon as practicable”. Requiring the Engineer to “determine” employer’s claims may cause a few headaches.

Failure to comply with the time bar results in the other party “discharged from any liability in connection with the event or circumstance giving rise to this claim”. This wording is wider than the existing clause 20.1 which excludes claims for additional payment/extension of time “in connection with the claim”.

Clause 20 of the new edition contains not one, but two time bar clauses and various other time limits and notice provisions. The second and important time bar relates to the production of the “fully detailed claim” within 42 days. Ensuring that claims are dealt with as and when they arise in a structured way is entirely consistent with the FIDIC theme of effective project management and dispute avoidance. However, given the current uncertainty as to how strictly time bar provisions will be enforced, both under English law and in civil law jurisdictions, it remains to be seen whether these provisions will have the effect FIDIC intends.

The DAB is able to waive the time limits and effectively over-ride the time bar provisions in certain circumstances. This is a concept borrowed from the Gold Book but it will only operate as intended if there is a standing DAB.

3. Contract price payment

FIDIC has introduced a definition of cost plus profit with a default profit rate of 5%.

New provisions at clause 13.4 amplify the arrangements for agreement of provisional sums by reference to quotations.  Adjustments to the Contract Price by reference to changes in the law (13.6) have been amplified to reference not merely legislative action but also permits, permission licences and approvals.

The contract now references a Schedule of Rates for valuing variations.

4. Interim payment certificates

Clause 14.6 has been amended to indicate that the value will be the amount the Engineer fairly “considers” to be due and that the Engineer may withhold an amount if he considers that there is a “significant error or discrepancy” in the statement.  The Engineer must “detail his calculations” of the amount withheld and state the “reasons for it being withheld”.

Generally, clause 14.6 has been amplified and clarified with reference to interim payment certificates (now called IPCs). The clause now includes an additional provision (clause 14.6.3) for both the Engineer and the contractor to correct and/or modify IPCs.

Clause 14.6.3 says the contractor should highlight “identified amounts” that are disputed in IPCs. These may be referred for determination by the Engineer under clause 3.7 where appropriate where the identified amounts exceed 5% of the accepted contract amount.  .

5. Dispute Avoidance/Adjudication Board (DAB)

The change in name of the DAB is indicative of its more proactive role in dispute avoidance as well as dispute resolution. Disputes now reside in a new, much extended (from the previous clause 20) clause 21, leaving clause 20 for employer and contractor claims under the contract. The new clause:

• Requires the DAB to be a standing DAB rather than an ad hoc one.
• Provides that the parties may jointly refer a matter to the DAB with a request for “assistance” and/or to informally discuss and attempt to resolve any disagreement between them.
• Allows the DAB to invite the parties to make a joint referral if it becomes aware of any issue or disagreement.
• Requires a party to give a notice of dissatisfaction (NOD) with the DAB’s decision within 28 days after receiving it, otherwise the decision will become final and binding on both parties.
• Requires the parties to commence arbitration within 182 days after giving or receiving an NOD with the DAB’s decision. If arbitration is not commenced within this period then the NOD will be deemed to have lapsed and no longer be valid.

Obliging parties to commence arbitral proceedings while the works are still progressing may seem odd. In practice, parties may opt to “commence” arbitral proceedings within the time period but delay progressing the substance of the dispute until after the works are complete. However, this may lead to multiple referrals and some complexity around jurisdiction.

6. Caps on liability

Although FIDIC has promised to revisit this drafting, there is a significant change in the approach of the pre-publication draft contract as regards the clause 17.6 exclusion clause/cap on liability. The contractor’s indemnities (new clause 17.7) now include an indemnity in relation to “the design of the Works and other professional services which result in the Works not being fit for purpose”. This indemnity is “carved out” of the overall cap on liability.

Whilst the drafting is consistent with the approach adopted in the Gold Book and perhaps resolves the potential conflict between the termination provisions which permit the Employer to recover all sums paid, finance charges etc. under clause 11.4(d) of the new Yellow Book, the change of approach will not be welcome amongst contractors. Several groups have already voiced their opinions on this – see News Analysis: Contractor groups express concern regarding new FIDIC contracts.

What else has changed?

The clause regarding errors in the Employer’s Requirements (clause 1.9) has been amplified and rebalanced in favour of the employer (if the contractor fails to give notice within 42 days).

The programme provisions of the contract have been extensively re-written and amplified in a new clause 8.3.  There are deemed notices of no objection within 21 days/14 days of receipt of the contractor’s programme.

There is a new provision in clause 8.4 to supplement the amended programme requirements as regards “advance warning”.  Both parties shall “endeavour” to give advance warning of probable future events that will adversely affect the project.

The extension of time provisions (clause 8.5) now include an amended definition as regards adverse climatic conditions.  The conditions must be unforeseeable by reference to climatic data published in the country for the geographical location of the site.

FIDIC has also introduced a new provision in clause 8.5 as regards concurrent delay.  Unfortunately, the provision, highlighting the possibility that a delay caused by the employer may be concurrent with a delay which is the contractor’s responsibility indicates that the issue will be dealt with in the Particular Conditions (or if not “as appropriate taking due regard of all relevant circumstances”).

The extension of time provisions have also been amended with regard to delays by authorities to include a reference to delay by private utility entities.

Contractors should note that a new clause 8.8 introduces the possibility of delay damages outside the scope of the liquidated sums agreed in the case of fraud, deliberate default or reckless misconduct.

The Insurance provisions of the contract have been extensively re-written although specialist advice from local lawyers and brokers should always be sought and FIDIC assumes that they are only providing “base” requirements with further details in the Particular Conditions.

Conclusions

Contractors will regard the change of approach in relation to caps on liability as a major shift in the balance of this contract which is now more favourable to employers. Employers will be nervous about the mutual and wider notice provisions which will require proper administration and management. These provisions aside, we believe there is much to be commended in the revised editions in relation to the clarity of the drafting of FIDIC forms.

For more information, see subtopic: FIDIC contracts (which includes reference PDF copies of the key contracts). To keep up to date with the release schedule of standard form contracts, and other key upcoming developments relevant to construction lawyers, see the Construction future developments tracker.

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Source: LexisNexis Purpose Built
A bigger better FIDIC 2017 Yellow Book?

New guidance on challenging an adjudicator’s decision during TCC enforcement (Hutton Construction v Wilson Properties)

by Hardwick Legal | Mar 22, 2017 | Purpose Built (LexisNexis)

In Hutton Construction v Wilson Properties, Coulson J issued guidance superseding the guidance found in the TCC Guide concerning when the court will consider a dispute over an adjudicator’s findings in the course of enforcement by way of TCC summary judgment. Matthew Thorne of 4 Pump Court Chambers considers the judgment and its implications.

This article originally appeared on Lexis®PSL on 20 March 2017. Subscribers can enjoy earlier access and a full-range of related guidance. Click here for a free trial.

What are the practical implications of this case?

Unless the parties agree a consensual approach to resolution of the disputed issue:

• a defendant to a TCC adjudication enforcement must issue a prompt Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. The former is the preferred option.
• the defendant must be able to demonstrate that:
  • there is a short, self-contained issue which arose in the adjudication which it continues to contest
  • the issue requires no oral evidence or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement
  • a defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis. Conversely, where a claimant does not agree to deal with the issues on enforcement, but the court finds that it does fall within the exception, also runs the risk of cost penalties

This guidance supersedes that in paragraph 9.4.3 of the TCC Guide.

What were the facts?

The parties entered into a contract dated 12 November 2014 on the JCT Standard Building Contract Without Quantities 2011 form. On 17 August 2016, the claimant served an application for payment. A dispute arose, and the issues in the adjudication were whether there was a valid interim certificate or pay less notice in response. The defendant argued that its pay less notice was an interim certificate, alternatively was a valid and effective pay less notice. The defendant’s case was rejected by the adjudicator.

Following commencement of TCC enforcement proceedings, the defendant raised issues of fact, identified conversations said to be relevant but not raised in the adjudication, and failed to identify what declarations were sought. It subsequently issued a Part 8 Claim Form, but again failed to seek any specific declarations.

The judge permitted the Part 8 claim to continue at a later date, but refused to consider the defendant’s challenge to the adjudicator’s decision during the earlier TCC enforcement proceedings. Coulson J indicated that the Part 8 Claim Form was issued late in the day and was incomplete; new factual matters were being raised; and there was nothing unconscionable in refusing to consider the challenge at this stage. On the contrary, permitting a challenge would mean that, instead of being the de facto dispute resolution regime in the construction industry, adjudication would simply become the first part of a two-stage process, with everything coming back to the court for review prior to enforcement. That is completely the opposite of the principles outlined in Macob Civil Engineering v Morrison Construction , Bouygues (UK) v Dahl-Jensen (UK) and Carillion Construction Limited v Devonport Royal Dockyard and cannot be permitted.

What is the relevant process when seeking to dispute an adjudicator’s findings during TCC enforcement?

The court noted that the starting point is that, if the adjudicator has decided the issue referred to him or her, and has broadly acted in accordance with the rules of natural justice, the decision will be enforced.

There are two narrow exceptions to this rule:

• the first involves admitted error: namely, where the error is collectively admitted, and where there is no arbitration clause, the court has jurisdiction and can correct the error, such as in Geoffrey Osborne v Atkins Rail
• the second concerns the proper timing, categorisation or description of the relevant application for payment, payment notice or pay less notice, following Caledonian Modular Limited v Mar City Developments Limited

Where the claimant has succeeded and seeks to enforce an award, the point in dispute is often straightforward, to the effect that the adjudicator was wrong and that, either with regard to its timing or content, the relevant payment notice was invalid and/or that the pay less notice was valid and prevented payment.

Often, the defendant will issue a Part 8 claim challenging the decision, and the parties will reach agreement that the matter will be put to the court, and the sum paid if the award is upheld. The existence of the Part 8 claim also means that the TCC knows from the outset what is likely to be involved at a subsequent hearing. This process has worked relatively well to date.

In circumstances where the parties do not reach such consensus, on the other hand, the following approach must be adopted:

1. The defendant must issue a prompt CPR Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counterclaim to the enforcement claim what it seeks by way of final declarations. A prompt Part 8 claim is the better option due to the speedy nature of the enforcement proceedings.
2. the defendant must be able to demonstrate that:
   1. there is a short, self-contained issue which arose in the adjudication and which it continues to contest
   2. that issue requires no oral evidence or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement, and
3. the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore

The judge went on to suggest that, in practice, this means that the adjudicator’s construction of the clause should be ‘beyond rational justification’, the calculation of time periods should be obviously wrong, or a document be categorised in a way which, on any view, it could not be described as.

Furthermore, such an issue could only be raised on enforcement if the consequences were clear-cut. If the effect of the issue is disputed as well, it is unlikely that the court would take it into account on enforcement.

Are there any costs implications?

A defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s costs of the entire action on an indemnity basis.

Conversely, a claimant who does not agree to deal with the issues on enforcement, where the court finds that it does fall within the exception and can be considered, also runs the risk of cost penalties.

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Source: LexisNexis Purpose Built
New guidance on challenging an adjudicator’s decision during TCC enforcement (Hutton Construction v Wilson Properties)

Industry insight: Brexit and the construction industry

by Hardwick Legal | Mar 13, 2017 | Purpose Built (LexisNexis)

Sarah Schütte of Schutte Consulting Limited sets out her top ten observations and predictions as to how ‘Project Brexit’ will impact on the construction and engineering industry. Among other things, she looks at market access, labour and skills availability and the effect on small and medium-sized enterprises (SMEs).

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So, Brexit is going to happen. It’s official. The Supreme Court has spoken and Parliament has voted. Our Prime Minister has declared her intention to trigger Article 50 by 31 March 2017. Given that the House of Lords is still to be persuaded, that’s a tall order. Uncertainty continues. But no business can put its operations on hold. So what does all this mean for the construction and engineering industry?

Many of my previous articles have talked about the need for good planning, solid project management support, and consultation with stakeholders (see News Analyses: The future of portfolio, project and programme management—part 1 and part 2 and Stakeholders—managing the challenges and opportunities). Brexit is a ‘project’. A big one, certainly, and a long one (maximum 2 years under Article 50, subject to any agreed extensions of time), and it has lots of moving parts, needs constantly revising and has a requirement for agility. A project like this is a nightmare for the best planners and project managers!

For legal advisers too, Brexit presents a huge challenge. How can we support clients at this time, who feel in limbo? The 10 observations and predictions made in this article follow an unscientific straw poll of my industry clients and contacts. Continuing the project management parallel, they are all ‘project risks’.

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Market access

The EU-UK free trade arrangement is the most important trading bloc, permitting tariff-free import and export. The lack of visibility about possible alternative trade agreements, both with the EU and other major trading partners around the world, is the biggest concern right now. The prospect of the UK negotiating fresh agreements is a major task and will take significant time, unless a swift practical solution can be found.

Guaranteed access to the EU can only now be effected via an EU hub or office—it doesn’t have to be big. Clients are considering establishing such a ‘post box’, or have it in motion already. Ireland is the easiest in many ways, since the countries have a close and long-standing relationship. An association with an EU-centred organisation is an option, but could be more fragile (another risk) depending on the terms of agreement entered into.

Compliance and legal matters

Some clients, particularly heads of legal, are not overly concerned about this risk, insofar as they see an opportunity for taking more control of contractual risk, for example jurisdiction and law clauses.

In addition, compliance is already strong in the UK. For example, something like ‘safe harbours’ would not in my opinion be difficult to agree since the principles are well-established globally and human rights watchers follow closely data protection matters.

Generally, the extent to which any EU legislation is subsumed into UK law will depend on negotiations at EU level. Remember, EU Directives need to be transposed into law through national legislation, in contrast with EU Regulations, which have direct effect and are automatically incorporated. Draft EU laws on the books now can expect to have a rough ride if they do not chime naturally with UK principles or objectives.

Labour skills/shortages

This is the biggest concern for the supply chain, such as my vendor-clients who hire out labourers to the rail and other industries and those in specialist trades.

Already there is competition in this risk and that means uncertainty as to commitment from customers, and leverage on pricing. It is trite but true that several skilled trades are underpinned by highly-experienced, hard-working eastern Europeans.

The risk of skills-shortage is also of concern to the technology sector, where London has the edge. No other country in the world has embraced the internet like the UK has—it contributes a significant wedge to GDP (second only to the construction industry (save the public sector)). It is estimated that around 40% of those working in the tech sector are EU-born (ref: Douglas McWilliams, The Flat White Economy), and the diversity of background, culture and education brought innovation and new ways of problem-solving. One can easily see, hear and feel this in London’s technology hub (known as the ‘East London Tech City’) of Shoreditch and its environs.

Let’s see how the debate over cross-guaranteeing the rights of EU citizens currently in the UK, and vice versa, goes.

Practicalities—materials, plant and office overheads

Tendering and procurement specialists are having a tough time, whatever contracting tier they work at. Typically asked to guarantee prices for 90 days or as long as 6 months, the risk of fluctuation lies with them, traditionally, insofar as employers usually seek to put the risk of price change onto the contractor.

The fear of increased prices in imported materials is very real for those at the forefront of procurement in tier 1 contractors in particular, and currency instability does not help (see ‘Sources of funding’ below). In addition, customs duties are likely to increase.

The costs of data roaming could become a real problem for those who have business in the Eurozone (i.e. the Digital Single Market) if the ‘roam like at home’ rules, which come into force in June 2017 after a decade of negotiation with telecoms operators, are deconstructed for the UK.

Currency and inflation

Linking in with the above item, this is another risk for tendering organisations. The balance is tipping in favour of end users/ promoters. They of course want certainty in budgets (as they always did). NEC3 contracts include X options as to multiple currencies (X3) and inflation (X1), which I think will become more prevalent (i.e. people will actually think about them more actively).

The good news is that goods and services have become cheaper with the devaluation of the GB Pound. So vendors who have clients outside of the UK could benefit (and are benefitting now, in fact).

Intra-UK selling becomes harder, and is vulnerable to inflation. Already we have seen this impact as the weak pound continues to stoke inflation and prices are rising. This puts more pressure on organisations and individuals.

Sources of funding

Without the crutch of the EU for some well-deserving regeneration or development projects, the UK is going to have to find creative ways of attracting investment. The risk is again one of uncertainty. The UK needs to attract new sources of money, and circulate its existing ‘own’ money in order to stimulate development. The need to find non-traditional funding sources is already important, but will become greater. See, for example, the Hinckley Point C Nuclear power station, part funded by the Chinese and with EDF at the helm (see News Analyses: Hinkley Point C nuclear plant deal agreed by UK—the reaction so far and Stakeholders—managing the challenges and opportunities).

Without new sources of funding, the UK risks being unattractive to investment, which will stifle growth, especially in the construction and engineering sectors which often require huge budgets, plenty of foresight and years of planning to deliver large developments and infrastructure.

This is a key risk for everyone at every level. Clients are making contingency plans, putting non-urgent projects on hold and recalibrating projects which are in delivery phase, to try to mitigate the uncertainties ahead.  Some projects are being phased, or divided into more manageable budget-friendly chunks. Although this approach risks being more expensive overall, it is probably sensible in some cases.

The EU as a stakeholder

Public-sector industry clients and contractors are generally happy that the EU will no longer be able to oversee and scrutinise projects. This comes from a place of frustration, which is understandable given the overly-bureaucratic approach to the stakeholder role notwithstanding the importance of ‘value to the taxpayer’ (see News Analysis: Stakeholders—managing the challenges and opportunities). However, this relief comes at a cost and they appreciate this is as a result of the withdrawal of a key source of regeneration funding (see ‘Sources of funding’ above).

SMEs

These clients fear the withdrawal of the free trade arrangements as the biggest risk, along with labour shortages and increased costs. SMEs (defined as organisations with fewer than 250 employees) are the backbone of the UK economy. Look more closely, which is more interesting to my mind, and see that micro-businesses (defined as organisations with fewer than 10 employees) comprise 96% of all businesses. The Federation of Small Businesses estimates that:

• 60% of the UK private sector is employed in SMEs
• 3% of all private sector businesses are ‘small’
• 76% of SMEs employ no-one except the owner
• there has been a huge increase in the number of SMEs in this millennium: 5.5m now, 2m more than in 2000

Most interestingly, perhaps, is that 18% of SMEs (numbering 975,000) operate in the construction industry. This figure is a significant proportion of the SME pie, and the largest representative industry or sector (professional services comes second at 15%).

Whilst this pattern of growth has links to the way that technology has changed work patterns over the past decade, and tax laws, the truth is that SMEs contribute significantly to UK GDP, and to the construction industry. If they struggle to survive, then contract stability is put at risk and the supply chain becomes more fraught and fragile. For wider reading, I recommend the House of Commons Briefing Paper Number 06152 (23 November 2016).

Tendering to the world: selling the UK’s strengths

On a more positive note, the UK has strengths to sell! The UK government and the professional associations have to ramp up their offering to the outside world. The ‘#Londonisopen’ campaign, launched by the Mayor of London in the wake of the Brexit vote, has been a creative and fun opportunity to show off London’s skills with a serious undertone.

Other industry associations are using their strength in member numbers to promote the collective’s skills and value of accreditation. The legal system has a chance to carve out an even better place than it has already on the world scene—independence from the over-reaching Court of Justice of the European Union.

The ‘Northern Powerhouse’ movement too must rise to the challenge if efforts to empower these communities without the future prop of EU regeneration money are to remain strong.

Planning for the worst

All good planners think about what could happen on their projects. They might not show every possible outcome in their plans, but they must anticipate risk and uncertainty, and ‘stress-test’ worst-case scenarios. The UK government must do the same—let’s hope it has great planners on board!

This article originally appeared on Lexis®PSL. Subscribers can enjoy earlier access and a full-range of related guidance. Click here for a free trial.

Sarah Schütte is a solicitor-advocate and runs her own legal and training consultancy, Schutte Consulting Limited. She has more than 15 years’ experience as a construction and engineering solicitor, including ten years in industry. She works with a wide variety of industry clients, law firms, seminar organisers and educational establishments to support their projects, disputes, risk management and insurance strategies and training programmes.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Source: LexisNexis Purpose Built
Industry insight: Brexit and the construction industry

The New Green Deal

by Hardwick Legal | Mar 7, 2017 | Purpose Built (LexisNexis)

Will the new incarnation of the Green Deal fare any better than its predecessor? Richard Wald, barrister at 39 Essex Chambers, examines the issue and questions whether the new initiative will breathe new life into the scheme.

Greenstone Finance and Aurium Capital Markets has announced its acquisition of the business and assets of the Green Deal Finance Company (GDFC), as well as its existing loan book, with a principal value in excess of £40m. The acquisition is being supported by Honeycomb Investment Trust.

This Analysis was originally published on Lexis®PSL Environment. Discover how Lexis®PSL can help you stay on top of the latest developments and find the answers you need fast: click here for a free trial to access.

What events led up to this transaction?

The Green Deal was launched by the government in 2013 to provide consumers with access to finance aimed at making their homes more energy efficient. The scheme effectively enabled customers to borrow money for energy efficiency improvements and then repay the loans using the savings from future energy bills. The loans are tied to the properties, so that payments are made by whoever is benefitting from the energy saving measures. It was axed by ministers 18 months ago, shortly after the General Election due to low take-up and concerns over industry standards. The GDFC assets and remaining loan book were sold for £40m to Greenstone Finance, a renewable energy investment vehicle and Aurium Capital Markets which specialises in financing deals in the energy and real estate sectors. The consortium was one of more than a dozen parties who bid to take over the GDFC.

What is the significance of this transaction for the Green Deal?

It breathes new life into a scheme that was once hailed as the biggest home improvement measure since the Second World War and a revolutionary effort to cut greenhouse gas emissions by fixing Britain’s notoriously draughty houses. The new incarnation of the Green Deal enjoys the advantage of lessons learned from its ill-fated predecessor, including excessive complexity, an unattractive loan interest rate (of 7%) and the concerns of many homeowners about letting installers into their homes.

The New Green Deal will seek to raise awareness of what is described as an attractive ‘pay-as-you-save’ concept that has worked well abroad and is not as expensive as many think. It promises to:

• boost the number of approved installers
• perform spot checks, and
• weed out cowboy operators

If all of this is done and seen to be done, the new scheme has good prospects of succeeding where the old one failed.

Would the New Green Deal need to be put in place from scratch or is it likely that the existing policy and framework be used?

The existing framework will be used. The new owners will continue to service existing Green Deal loans and will begin financing new ones by the end of March.

What are the practical implications for lawyers and their clients?

The restart of the New Green Deal has come at a time when the home energy efficiency market is preparing for an upsurge in demand as the Energy Efficiency Regulations 2015, SI 2015/962 (the 2015 Regulations) come into force in April 2018. After this date, it will be unlawful for landlords to grant a new lease for properties that have an energy performance certificate rating below E.

Landlords who fail to meet this standard (whether by availing themselves of the financing opportunities which exist under the New Green Deal or otherwise) may thereafter face enforcement action from the relevant local authority pursuant to Part 3 of the 2015 Regulations, including the imposition of financial penalties and a ban from the sector.

This Analysis was originally published on Lexis®PSL Environment. Discover how Lexis®PSL can help you stay on top of the latest developments and find the answers you need fast: click here for a free trial to access.

Interviewed by Evelyn Reid. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Source: LexisNexis Purpose Built
The New Green Deal