by John Wright
Officials in Brussels are beginning to frame the new regulations which will govern the construction industry throughout Europe. These regulations could turn out to be a complicated web of constraint — but they need not. For this is the opportunity to liberate our industry from the legal tyranny which has held it in thrall for so long, and create conditions of fair competition in which UK developers and their professional teams could flourish.
At this pivotal moment it is crucial to grasp what is at stake, how the regulations are already beginning to take shape and how we can influence their final form. To assist this process I have written “Europe: our route for change” for the Association of Consultant Architects and our sister organisation, the Association of Consulting Engineers. It is a comparative analysis of two key reports — British and European — which are at the centre of the official debate.
Specifically, we submit, the fundamental issue dogging the industry is the current chaotic and inequitable UK law on professional liability, which has created a permanent lawyers’ benefit.
In 1988 the Department of Trade and Industry called for a report on professional liability in general and one section of this, produced by Professor Donald Bishop, dealt with the construction industry specifically. Published last year, this report concluded that a comprehensive solution would entail statutory limited professional liability, mandatory insurance, and an agreed basis for risk sharing, but that there was no justification in reforming the construction industry in isolation.
It has become clear that the Government will not introduce legislation on this issue, preferring to await directives from the European Parliament to harmonise the situation throughout Europe. However, it is likely that the Bishop Report will influence the UK Government’s response to any draft regulations produced in Brussels.
In October 1988 the European Parliament adopted a resolution calling for standardisation of contracts and controls in the construction industry. And, in response, the European Commission sponsored a study into the possibility of harmonising liabilities, guarantees and insurance in the construction industry. Emanating as it did from politicians, this initiative to deal with our industry must be taken extremely seriously.
A French civil servant, Claude Mathurin, their engineer-general of roads and bridges, was seconded to the commission to see if a European directive dealing with these issues was realistic, and what detailed areas it should cover. Many observers apparently misunderstood his consultancy status and did not recognise the importance of what was, in effect, a Green Paper prior to legislation. However, the ACA did understand the nature of his study and my committee was able to have an input into his report, which was published this February.
Mathurin’s brief was much wider than that of Bishop, and he identified 14 elements which could be incorporated within a Community system of regulations. These are: construction processes; main functions of the development team; role of the employer; external inspection; tasks of the designers; permanent arbitration; Community acceptance; specific liability; five-year guarantee; housing insurance; project insurance; professional insurance; qualification of contractors; and subcontracting.
Probably this list invokes a feeling of exasperation in many readers, and a resolve to oppose the encroaching tide of red tape. But before resisting Mathurin root and branch, we should remember this represents probably our only chance of creating the construction environment we want.
Consider the arguments. Construction is both the UK’s and Europe’s biggest single industry. It is a unique industry: every building is a prototype, and every product is covered by an individual contract. So it is surely right to tackle the role and responsibilities of its professionals separately from those of, say, lawyers or dentists.
Both Bishop and Mathurin recognise that professional liability rests at the heart of the problem. Here in the UK the situation is particularly ripe for reform. Our professional liability rests on the Latent Damages Act introduced by Lord Hailsham, and on the law of tort with joint and several responsibility.
The latter premise creates a climate of where litigation is common, complex and virtually inevitable. Because he must sue to resolve any disputed claim, the property owner is separated from the professional team who should be his partners. The adversarial nature of any dispute is further exacerbated by the need of those professionals to make counter-claims against each other to protect their individual positions.
Does this really protect the consumer? He may be tied up in litigation for as long as 15 years before receiving his compensation.
Second, we are burdened with a liability period which is at a minimum 15 years — the longest in Europe. In Germany it is just five years. Fifteen years is also inconsistent with the 10-year NHBC guarantee and the similar period imposed by the Product Liability Act.
Third, the disparities and peculiarities between each nation constitute a real obstacle to free trade and a problem for consumers, in that of competition leads to higher costs. The big companies, who can afford teams of legal experts, might be comparatively unaffected. But harmonised regulations would clear the way for many smaller companies to export their skills and entrepreneurial instincts.
So the ACA believes the case for change is unassailable. But what kind of change? Three principles govern any action of the community: its capacity to improve either health and safety or consumer protection, and its ability to improve free trade. Mathurin believes harmonisation in the 14 areas would further these ends.
However, the ACA and ACE assert that he is in danger of going both too far and yet not far enough. Mathurin concentrates on the housing sector, on the basis that domestic consumers require greater protection. We vehemently oppose this. An electronics company building a new component factory for its own use may be just as naive about the development process as any first-time home buyer. Second, those disparities of law would remain to hinder the commercial sector.
Mathurin also seeks to cover too any angles. We submit that most of the benefits could be obtained, with a fraction of the bureaucratic rigmarole, by introducing mandatory full-indemnity single-project insurance for all buildings, with the premiums being shared by the whole team (by developer, contractor, architect, quantity surveyor and engineers). This would be coupled with a capped, 10-year liability period from practical completion; 10 years being an achievable compromise.
This simple solution has many benefits:
It provides a “no quibble” guarantee of compensation, just like mandatory third-party motor insurance. Consumers will have their claims settled more quickly.
It is easy to understand and implement, eventually replacing all other forms of property guarantees and the existing “each and every claim” professional indemnity cover, which would gradually phase out with diminishing premiums.
Costly counter-litigation will be reduced since the entire build team — including the professionals, the general contractor and the client — will share the premium. This would be a collaborative relationship, including the insurance company, rather than a confrontational one, and the proliferation of time-wasting third-party warranty agreements would be ended. It is vital that the client is not solely responsible for the premium, as is the case in France, for there is a temptation for him to claim just to “get his money’s worth”!
Insurance costs would be reduced through competitive tendering. Construction in Europe is a £260bn business. World-wide insurance competition for a piece of this action would cut premiums substantially.
Better build standards would follow. Insurers would have a stake in ensuring this through inspection of drawings and site, sharing the results of risk analysis, and imposing excess premiums on individuals who are bad risks. There would be no need for joint liability.
Development teams could market themselves on the basis of a good insurance record, and to my mind this record of achievement would be a better guide to quality than qualifying for BS5750, which is really only a kind of MOT test for an organisation on a given day.
There are, of course, disadvantages. The cost of inspection would have to be met, but we would see no further need for quasi-governmental inspection through the local authority building control procedure. Insurance costs might be higher on a smaller project, but the consumer might well accept this for the increased peace of mind he should enjoy.
In the transitional phase, firms would need to continue their existing cover for those completed buildings, subject to the 15-year liability.
Architects might see inspection as an interference in their freedom to design unusual or adventurous buildings. But we already accept the involvement of surveyors representing funds or tenants where buildings are prelet or prefunded. A code of practice for the insurers would assist, and no good architect would object to justifying his aesthetics in terms of quality and safety.
To achieve the benefits I have outlined, the construction industry must ensure that the mandatory single project liability regime is adopted. There is a very real danger that the political will to adopt this for commercial buildings is lacking, or that its advantages will be lost in a thicket of directives and regulations.
There are two major opportunities to make your views known. Each of Mathurin’s 14 points will be considered by a separate working party before the European Commission frames a proposal to be put before the Council of Ministers and the European Parliament. Pan-European bodies representing the development industry are likely to be most influential at this level. Bishop’s report, plus any representations from the industry, will be considered by the DOE before responding to the proposal. So we are sending our analysis both to the DOE and all UK MEPs.
UK architects and other building professionals are, in my experience, much more attuned to the business of development than their continental counterparts. So, if this comparatively simple measure allows UK development teams to trade overseas on an equitable basis, we would be well-placed to gain a major market share while also guaranteeing redress for consumers — a basic requirement of the Treaty of Rome.
