Outlook for the Construction Industry in 2025 – a legal perspective
2024 was a significant year for the construction industry: with key Court decisions (including the unanimous Supreme Court decision in Abbey Healthcare v Augusta which decided that a collateral warranty will usually not be a construction contract for the purposes of the Construction Act 1996, and the TCC decision in BDW Trading v Ardmore Construction which decided that in some circumstances a party to a construction contract, who can bring an adjudication at any time, may do so after the usual contractual limitation periods expire); the Autumn Budget which introduced ambitious new housing targets nationwide; and increasing labour and materials costs.
2025 is now underway and it looks like it will be another notable year for the construction industry.
Alice Toop, an Associate Solicitor specialising in Construction Disputes, considers what to expect in the year ahead.
Likely supply chain insolvencies
The construction industry remains adversely affected by post-Brexit factors including rising material costs and shortages of skilled labour.
In addition, the effects of the war in Ukraine on the increased costs of supplies will continue as the war enters its third year. The continued ban on Russian and Belarussian steel, and Ukraine’s closures of its steelworks, will continue to inflate the cost of steel on the global market.
This, together with rising domestic inflation and interest rates, has continued to squeeze margins. In this respect, the Construction Leadership Council’s final statement for 2024 indicated construction material price increases of between 3% and 8%. This makes it challenging for contractors and consultants to accurately price projects, and there is likely to be pushback on fixed price projects.
Small and medium-sized businesses, which are vital to many construction projects, are likely to be particularly affected.
All of the above means there is an increased risk of insolvency – which can and will have negative effects on the wider supply chain from sub-contractors to employers. Contractor insolvencies can disrupt projects, create uncertainty and cause contract reviews, withholding of payments due under the contract, suspensions, and terminations.
The rise in smash and grab adjudications?
Adjudication is the compulsory dispute resolution procedure for disputes relating to construction contracts, and is strongly supported by the TCC.
With likely increasing insolvencies, we may see a rise in ‘smash and grab’ adjudications as companies strive to sustain cash flow. A ‘smash and grab’ adjudication involves a contracted party claiming a sum that was applied for but never challenged in any valid payment or pay-less notice. The employing party is obliged to pay the notified sum regardless of any dispute as to the proper value of the payment application.
Remediation Acceleration Plan
The government published its Remediation Acceleration Plan in December 2024, announcing measures to speed up the removal of unsafe cladding. The plan also introduces measures to identify further buildings at risk.
The government has set a 2029 goal for the remediation of all buildings standing at 18m+ with unsafe cladding in a government funded scheme. In addition, by 2029 buildings standing at 11m+ will need to have either been remediated, have a date for completion, or the government has indicated that landlords will be liable for penalties.
This means that 2025 may see further rises in civil claims with regards to liability for unsafe cladding and the apportionment of responsibility for remediation costs.
Also, legislation is expected to implement the Remediation Acceleration Plan, including to strengthen the powers of the Building Safety Regulator and create a comprehensive building register.
Building Safety Levy
One of the key aims of the Building Safety Act 2022 (BSA) is to ensure the real estate industry, rather than leaseholders or the taxpayer, meets building safety expenditure. One way this is to be achieved is by introducing the Building Safety Levy under s58 of the BSA.
The levy is potentially wide in scope because it will apply (apart from a few exceptions) to all new residential buildings in England.
The government intends for the Building Safety Levy to come into effect in Autumn 2025. The government’s aim is to raise around £3.4bn over at least 10 years from the levy. There is currently no indication as to what the levy rate will be - this will be a crucial factor in determining the financial viability of future residential projects.
Supreme Court decision due
Towards the end of 2024, the Supreme Court heard the appeal of the Court of Appeal decision in URS Corporation Ltd v BDW Trading Ltd (Rev1) [2023] EWCA Civ 189.
The Supreme Court decision is awaited. This is expected to consider several points relating to the BSA 2022 and the extended limitation periods for breach of the duties contained in the Defective Premises Act 1972 (DPA).
Section 1 of the DPA applies to the carrying out of work in connection with the provision of a dwelling and imposes a duty:
- to carry out the work in a workmanlike/professional manner
- to use proper materials
- to the effect that when the work is complete, the dwelling must be fit for habitation
The BSA 2022 extends the causes of action under the DPA to include work to an existing dwelling.
Claims under the DPA are subject to a 15-year limitation period applying prospectively for work completed on or after 28 June 2022. Liability under the DPA also has a 30-year retrospective limitation period in relation to work completed before 28 June 2022.
The Supreme Court is considering whether the retrospective extended limitation period provided by the BSA 2022 applies to claims brought before these provisions came into force (28 June 2022), and also whether the DPA applies only to purchasers of properties or whether commercial developers can also make a claim.