Managing environmental risks in construction contracts

How do environmental provisions in construction contracts work in practice? Andrew Waite, environmental law consultant at Ashurst, and Michael Weissman, senior associate in Ashurst’s construction team, comment on the key environmental concerns and risks in building contracts.

What are the key environmental concerns in construction projects?

The key environmental concerns in UK construction projects are:

• contamination—particularly, whose responsibility it is to deal with and pay for historic contamination on the site
• waste—including minimising waste and reusing material onsite as far as possible as well as managing waste arising in accordance with legal requirements
• water pollution—water pollution from construction sites is a major issue
• nuisance claims and noise (these can be the subject of intervention by the local authority—section 60 construction site noise notices—as well as complaints by neighbours)

What environmental provisions are commonly being found in building contracts? How is risk apportioned between the parties?

Environmental provisions in building contracts for relatively sophisticated projects commonly put the responsibility for minimising or avoiding liability relating to environmental issues on the contractor. Although commonly used standard forms of construction contract do not directly refer to specific environmental issues, employers/developers will often introduce provisions through the schedule of amendments.

With regard to contamination, well-advised employers would normally seek to place the risk on the contractor although there is often some negotiation. Contractors will be keener on accepting only ‘known risk’. If, as is usual, a level of risk as to ground conditions is placed on the contractor, there may be some qualification to that position. For example, under the relevant ‘compensation event’ in respect of physical conditions under the NEC contract (clause 60.1(12)), it is assumed that the contractor has taken into account various site information and publicly available information, information obtainable from a visual inspection of the site and other information which an experienced contractor could reasonably be expected to have or to obtain.

By contrast, the unamended JCT contracts (with the exception of the JCT Major Project Construction Contract) are silent on ground conditions and assume that the contractor takes on the responsibility for having to deal with unanticipated conditions. The precise wording will depend on the particular standard form/amendments to it and the relative sophistication of the parties. In some cases, employers/developers are prepared to accept a degree of risk if they have experience of dealing with land contamination. However, the normal approach of employers and developers is that the risk should rest with the contractor because the contractor has the operational responsibility for it.

How about development agreements?

In development agreements, the environmental risks (including contamination) are typically placed on the developer in the expectation that they in turn step them down to the contractor.

Although the standard forms tend to be drawn up by construction industry bodies, ultimately the environmental provisions in the contracts that we frequently see/negotiate tend to be driven by the requirements of the employer or developer as appropriate.

How receptive are contractors to their inclusion?

Usually, contractors are relatively amenable to taking on the environmental liabilities, including those for contamination, but that depends to a large extent on how comfortable they are about the risk, and on the negotiation of price between the contractor and the employer. For example, if the site has been remediated previously by reputable contractors they are much more likely to be prepared to take on the risk—subject to doing investigations and obtaining site reports and other site information that they can rely upon.

How are environmental issues being managed in the supply chain?

Increasingly, suppliers up the chain are being required to provide materials which are sustainably sourced.

How controversial does the wording of the provisions prove in negotiations?

While the standard wording tends to favour contractors, there will inevitably be push back/mark up on behalf of developers and employers. As noted at above, these parties will often seek amendment of the standard forms to make them more favourable to their position. It will no doubt be in both parties’ interests to ensure that environmental liabilities are kept to a minimum.

Interviewed by Nicola Laver.

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