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 Chris Hoar |
Changed times
for construction industry
By Chris Hoar, Head of Construction Team, Foot Anstey, Exeter
The challenges facing the construction industry have changed dramatically
over the last 12 months. Now is the time to take stock and plan accordingly.
What a difference a year makes! The current economic uncertainty has dramatically changed the mindset of the property and construction industries.
Things that a year ago were not considered significant are now at the very forefront of everyone's minds during the tendering process, the negotiation of the construction contract and the project itself.
With the collapse of private development work, tendering for projects in the public sector for some contractors is the only survival option. However, this increase in the number of contractors tendering for projects creates challenges for public authorities in managing the process.The high stakes for contractors will inevitably mean a substantial growth in the number of challenges from unsuccessful tenderers.
Recent cases have shown what can go wrong in a tender exercise, including not supplying all selection criteria to the parties and circulating different criteria to different tenderers.
Once projects get underway, tight cashflows and yet tighter margins are going to harden the position taken by contractors when difficulties occur during the course of projects.
Many of these will relate to payment. Payment disputes, which were once left until the final account to resolve, are far more likely to result in interim disputes resolved by way of adjudication or otherwise. Alternatively, the prospect of contractors cutting their losses and walking off site is very real.
With pressure on margins and tighter budgets, negotiating some 'give and take' on the final account may no longer be an option. Many contracts will end with. some form of contractual dispute resolution.
There are obvious areas for
contractors to focus in the current environment.
- Liquidated Damages- are they provided in the contract adequately or
could they be challenged by the contractor as not representing a genuine
pre-estimate of the employer's likely loss? For example, in a declining
market where properties cannot be let or sold, are the financial consequences
of delayed completion of works really going to give rise to the level
of loss predicted in the liquidated damages provision in the contract?
- Collateral Warranties- the onus on obtaining a full set of appropriate
collateral warranties backed by appropriate professional indemnity insurance
is greater than ever.
- Bonds and guarantees- make sure that these are in place and are for
the appropriate amount. Bear in mind that, depending on the wording used
in the bond or guarantee, a call may only be made on "default" or "breach
of contract" by the contractor. If the contractor becomes insolvent, the
bondsman can contend that the act of insolvency is not a breach and in
those circumstances any bond is worthless.
In this changed environment,
those involved in construction works, particularly in the public sector,
need more than ever to be aware of the issues and the potential banana
skins which face the unwary.
 Paul Williams |
Bristol
tenants set to benefit in 2009
By Paul
Williams, Director, Savills, Bristol
Accccording to our latest office bulletin for the Bristol market,
occupiers looking for new space in the city are set to benefit throughout
2009 as landlords recognise the need to work with tenants.
The report notes that while prime rents held at £296 psm (£27.50 psf) in the city and circa £247 psm (£23 psf) out of town during 2008, incentives grew more appealing as landlords worked to entice tenants and secure income retention.
In addition, the research states that rents on refurbished secondary space have begun to decrease and, according to Investment Property Databank (IPD) models for the south west, prime rents are forecast to follow suit with a fall of circa 7% in 2009.
While the relatively constrained amount of new developments coming to the market this year should help minimise potential rental falls, we do expect to see some decrease.
This, combined with increasing incentives, will inevitably create new opportunities for tenants and fuel occupier demand, which became stifled during the final quarter of 2008.
Take-up in Bristol for 2008 stood at 83,145 sq m (895,000 sq ft) according to the report which, while down 32% on the previous year, is just 12% below the long term average of 94,500 sq m (1,017,000 sq ft) and remained above take up figures from previous downturns in 2002/2003.
The city centre continued to
dominate demand accounting for 68% of take up in 2008 with the two largest
deals generated by the public sector at Cabot House where The Environment
Agency signed a 6,503 sq m (70,000 sq ft) pre-let and South Plaza, which
saw the Bristol Primary Care Trust acquire 5,109 sq m (55,000 sq ft).
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Last updated: 26 March 2009