Infrastructure builds on 2018 success

The latest report from industry analysts Barbour ABI shows the infrastructure sector has continued to build on its successes from 2018, with a large increase in contract awards.

January 2019 saw the value of infrastructure contract awards rise to £1.5Bn – an 18.5% increase on December 2018. For the last two years, the infrastructure sector has been one of the shining lights within the industry – along with housing, helping to keep the industry in growth. Although it is still open to the volatile monthly trends occurring within construction, infrastructure has remained robust over this uncertain period, with contract awards consistently above the £500M threshold.

The latest edition of the Economic & Construction Market Review from industry analysts Barbour ABI highlights levels of construction contract values awarded across Great Britain. The industry as a whole had a bright start to the year, with January’s figures showing the total value of construction contracts awarded was £5.5Bn which is 9.9% higher than December 2018 figures.

Once again, the subsectors of residential, infrastructure, and commercial & retail, were top of the pack with residential boasting a 28% share of contract values. Infrastructure follows with a 21% share and the commercial & retail sector comes in third with a 20% share.

The largest contract awarded in January was the £400M Paddington Cube in Paddington Square, London within the commercial & retail sector. This development covers 49,676sq m of office and retail space and was awarded to Mace Limited.

The second largest contract awarded was within the hotel, leisure & sport sector for the Manchester Town Hall redevelopment valued at £330M.

Infrastructure took the third largest contract award with the £214M Hinkley Point C Connection Project, to Balfour Beatty. The contract will see an overhead power line developed to connect Hinkley with substations in Bridgwater and Avonmouth.

Of the top ten contract awards in January, the infrastructure subsector won five contracts, emphasising the importance of the sector to the industry, and also the wide variety of projects it encompasses. The fourth highest award was the Earls Gate Energy Centre, a 21.5MW facility in Scotland; in fifth is the £196.4M Barking Riverside Railway extension project; while Phase II of the London Stansted Airport Arrivals Terminal is valued at £150M in sixth place, and the £1.2M Great Yarmouth Third River Crossing contract was the seventh highest valued contract.

The news from Barbour follows confirmation by the government of £600Bn worth of contracts for the UK in the National Infrastructure and Construction Pipeline over the next ten years. This builds on 700 projects, programmes and other investments totalling over £400Bn of planned spend.

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Why construction firms are missing out on millions in R&D tax credits

Construction and its partner industries architecture and engineering are hotbeds of innovation with a constant focus on finding more sustainable, efficient and safer ways to build.

More than eight in ten construction, architecture and engineering companies have developed new products, services or business processes in the last two years, according to research from Catax.

This means all these companies could be eligible for valuable research and development (R&D) tax credits, says Mark Tighe who is CEO of specialist tax consultancy Catax.

Yet, more than half of these potentially eligible firms have never made a claim meaning they are missing out on hundreds of thousands that could be reinvested in their businesses.

The average value of an R&D tax relief claim in construction is a massive £105,000 while in engineering it is £62,000 and for architecture it is £42,000.

So, why are so many companies in these sectors failing to claim?

Firstly, because many within construction, architecture and engineering do not realise they are eligible for this tax relief. Many people across all sectors assume that R&D applies only to scientists in white coats playing with test tubes and simply do not associate it with their own work.

But R&D is recognised across multiple sectors and is designed to reward innovation. HMRC defines R&D as work which seeks to resolve a ‘scientific or technological uncertainty’.

This can take the form of a new process, product or service, or simply be an improvement to an existing one. The R&D work does not even have to successful to qualify.

Some of the things that construction firms have successfully claimed R&D tax credits for includes:

• Assisting clients, contractors and design teams in developing new construction techniques and use of materials to suit their design aspirations,
• Providing any testing and calculations required for new construction techniques and materials to satisfy current legislation and ensure they are fit for purpose
• Developing new and job specific methods of installation and safe working procedures to comply with current health and safety regulations
• Development and implementation of 3D design software and modelling systems
• Performing analysis and reviews of proposed structures and finishes to develop suitable techniques to accommodate building movement, thermal requirements and issues, and loadings
• Creating solutions for building on ‘virgin ground’ that has never been built upon before

The second barrier to construction companies claiming R&D tax relief is that they do not know how to go about doing so.

This is understandable as the process of claiming R&D tax credits is complicated. The claim is made up of a calculation of qualifying costs, such as the staff costs and materials you use in the course of the R&D. There are strict rules about what does and does not qualify so without any professional help it is easy to get it wrong.

To ease the process, most companies use a specialist tax consultant to oversee their claims.

Which leads neatly on to the third common reason companies do not claim R&D tax relief – because they fear it will be too expensive and time consuming.

With most reputable tax advisors willing to work on a contingent fee basis, companies do not need to worry about any upfront costs.

If required, these same tax advisors will do most of the leg work for you so there is no need for R&D tax relief claims to soak up your own staff’s time.

Companies working in the construction, architecture and engineering space spent an average of £292,001 on their innovations over the past two years, our research revealed.

This is a major investment so these same companies should start taking a proper look at their tax relief entitlements and make sure they are reaping the full reward of their innovations.

In conclusion, a widespread lack of knowledge about R&D tax credits, who can claim, how and what they are worth is preventing thousands of businesses claiming what is rightfully theirs. For business executives keen to boost their bottom line, this needs to change.

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FTA warns of logistics crisis post-Brexit

The Freight Transport Association (FTA) has warned that the dwindling numbers of workers within the logistics sector is fast reaching crisis point, particularly with Brexit on the horizon.

The FTA has urged the government to urgently review the Apprenticeship Levy to prevent a severe shortage of numbers post-Brexit, as the association has found many businesses are struggling to utilise the funding.

With the anniversary of the Apprenticeship Levy fast approaching (6th April), Sally Gilson, FTA’s Head of Skills commented that the problem is worsening despite the logistics sector contributing more than £100M to the central funding pot, as well as a lack of suitable apprenticeship standards:

“The logistics industry is the lifeblood of the UK economy, employing more than 2.5 million people and contributing £121Bn to the nation’s GVA (gross value added). Yet it is facing a ticking time bomb: the ever-increasing shortage of skilled workers; there are currently 52,000 vacancies for HGVs drivers alone. And with the prospect of losing access to vital EU workers, the shortage could reach catastrophic levels. From HGV drivers to warehouse staff, the UK economy simply cannot operate without the logistics workforce – businesses would come grinding to a halt and Britain would cease trading.”

Since April 2017 businesses with annual payrolls of more than £3M must pay 0.5% of their wage bill to the Apprentice Levy which is effectively an additional tax. Businesses can then use their levy funds for apprenticeship training. However, vital logistics apprenticeships are either still to be approved after over two years in development or are in desperate need of amending to make them fit for purpose.

Gilson continued: “It has been immensely frustrating trying to secure funded training for the logistics sector. These apprenticeships would assist in promoting logistics professions and yet, over two years in, we feel like we’re no closer to gaining the standards we desperately need across the industry. Our members would love to use their levy funds and bring young people into the sector, but this is being thwarted by the Institute for Apprenticeships. The levy also ignores the other quality vocational training that could be utilised by businesses but can’t as all their training budgets are now taken up by paying the levy. Rather than forcing employers to try and make apprenticeships work for all training needs why not recognise that there is no one size fits all and amend this to a Training Levy? Alternatively, the money could be used as an emergency fund to assist employers facing extreme skills shortages due to the government’s restriction on EU workers. Without the reallocation of funds, the UK could not cope with the loss of European workers post-Brexit.”

Efficient logistics is vital to keep Britain trading, directly having an impact on more than seven million people employed in the making, selling and moving of goods.  With Brexit, new technology and other disruptive forces driving change in the way goods move across borders and through the supply chain, logistics has never been more important to UK plc.

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Payment in the construction sector

The Court of Appeal has recently provided clarification around payment in the construction sector.

Grove engaged S&T to design and build a new Premier Inn hotel at Heathrow Terminal 4 for a contract sum of just over £26M. During the course of the project, S&T would issue interim applications for payment to Grove. Interim application 22, which stood at around £14M, greatly exceeded Grove’s valuation of the work. As a result, Grove withheld payment and issued a pay less notice to S & T on 13 April 2017, stating that it considered the sum it considered to be due was £0.

An adjudication ensued in which S&T challenged the validity of the pay less notice. The adjudicator determined that Grove’s pay less notice was invalid based on the interpretation of section 111(4) of the Amended Housing Grants, Construction and Regeneration Act 1996 (HGCRA), which requires that a pay less notice given by the employer “shall specify” both “the sum considered to be due” and “the basis on which that sum is calculated”.

The notice clearly satisfied the first ground by stating that the sum it considered to be due was £0, however the basis on which this sum was calculated was stated to be “set out in the Payment Certificate 22 dated 13 April 2017”. This was a reference to a spreadsheet which accompanied the notice.

The adjudicator held that this did not satisfy the contractual requirement, rendering the notice invalid. This meant that S&T were entitled to be paid the full sum as stated on the notice.

Grove responded by issuing Part 8 proceedings in the TCC seeking declarations that:

1. Its pay less notice dated 13 April 2017 was valid;
2. It was entitled to pursue an adjudication as to the true value of Interim Application 22.

First instance

Coulson J disagreed with the adjudicator’s interpretation and granted the declarations. He considered that the construction of the notice should be approached objectively, and the real question was how a reasonable recipient would have understood the notice. Coulson J found that the spreadsheet containing detailed calculations, which was referred to within the notice, clearly specified the basis on which Grove’s valuation figure had been reached.

Coulson J also determined that Grove was entitled to pursue a separate adjudication to determine the true value of Interim Application 22. His judgment went further by finding that an employer can commence a separate adjudication to seek the true value of the sum due even in circumstances where it has failed to serve a valid pay less notice.

This conclusion indicated a departure from previous authorities on so-called “smash and grab” adjudications, which resulted from an alleged failure by the paying party to issue a valid payment or pay less notice. The consensus had been that in the absence of a valid pay less notice, the employer was deemed to have agreed the sum due. Such case law had distinguished between the ability to adjudicate the true value of an interim application and a final application (Galliford Try Building v Estura Ltd [2015]).

Appeal

S&T appealed the second declaration. The key issue for the Court of Appeal was whether an employer was entitled to commence a separate adjudication to determine the true value of Interim Application 22 if its pay less notice was invalid.

The Court of Appeal upheld the Coulson J’s decision and dismissed the appeal. Crucially, it held that an employer was entitled to commence an adjudication to determine the true value of the interim payment application, even if there was no valid pay less notice. The Court of Appeal’s reasoning was as follows:

1. It is within the powers of the court, and therefore an adjudicator, to determine the true value of work carried out pursuant to a payment application or certificate.
2. The powers of an adjudicator are sufficiently broad to enable them to determine the true value of an interim payment application.
3. There is a distinction between the dispute concerning the validity of the pay less notice and the true value of Interim Application 22. If Grove considered that the notice did not provide a true valuation of the work done, it was entitled to challenge its correctness of the sums due by adjudication.
4. The contract distinguished between the “sum due” as per clause 4.7 of the HGCRA by using the “sums stated as due” with good reason; as this provides the mechanism to review and adjust this figure to achieve the true sum due.
5. A contractor may object to and challenge an employer’s pay less notice by commencing an adjudication to ascertain the correct figure. In the interests of equity and fairness, the employer should have the same right to adjudicate the true value of a contractor’s payment application if it considers it to be too high.
6. The HGCRA applies to both interim and final applications and therefore there is no justification for treating them differently.

In terms of when this right can be exercised, the Court of Appeal confirmed that it may only do so after it has made payment of the notified sum, as required by the prompt payment regime set out in section 111 HGCRA.

Case comment

There are two important points to make following this decision:

1. Employers can issue a free-standing adjudication to determine the true value of work done, even in the absence of a payment or pay less notice. However, this right can only be exercised after the employer has made the required payment under the payment application.
2. The conclusion as to timing of the application may operate harshly on employers, especially where a contractor is heading towards insolvency. The practical consequence is that a large sum may be paid over by an employer which is then seized by secured creditors before any challenge over true value can take place. This shifts the burden of risk of the contractor’s insolvency onto the employer where the value of works is disputed.

Article supplied by Mark James, Partner – Dispute Resolution, Coffin Mew.

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Nearly half a million Help to buy Homes completed

Just under half a million Help to Buy homes have been completed and keys exchanged according to new government figures.

Quarterly statistics have revealed that 494,108 Help to Buy homes have been completed, with new buyers having completed work alongside the £3,0000 government top up to their savings. Buyers have opened up 1.4 million ISAs, with the vast majority outside London.

The figures show that the average price for these homes is £202,815, slightly below the national average of £226,906. The government has cut stamp duty as well as extending the equity loan scheme to March 2023 to encourage more buyers through the initiative.

Minister of State for Housing Kit Malthouse MP said: “This government is committed to helping more people get on the housing ladder as we power through to delivering 300,000 homes a year by the mid-2020s.”

“Our Help to Buy: Equity Loan scheme has supported more than 190,000 households in purchasing their home, helping to make the dream of home ownership a reality for a new generation.”

The majority of ISAs were taken out in Yorkshire and the North West with 194,397 homes completed. Between February 2016 and September 2018 in London 15,056 people purchased homes through the scheme across 33 boroughs.

In London the Help to Buy scheme awards applicants an equity loan of up to 40% with a 5% deposit. Chancellor of the Exchequer Phillip Hammond reiterated the government’s support for getting people on the property ladder and said they aim to support another half a million people in buying homes.

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Script&Go launches a major update to its Site Diary app

Script&Go has unveiled a major overhaul of its Site Diary app with the inclusion of an integrated task/allocations feature which allow user to create tasks and report progress on a task with the diary.

UK Infrastructure Show Sponsor

A common complaint heard in the industry is that information about a task is often repeated in the diary, which leads to duplication of work and a loss of time.

The update is first of its kind to integrate diary and task management, allowing users to create and add information about a task (such as manpower, equipment/plant and materials) and assign it to people involved in the project. When reporting progress on a task, the diary form will be automatically filled with all the task info which will make for quick report and no additional work to fill the entire form.

With legacy Site Diary, users reported time savings of between 45 minutes to two hours per day per user. The 2019 update will even save more time per day for site managers, construction managers, site engineers, project managers and foremen. The key advantage of Site Diary is its simplicity, offline availability, real-time synchronisation, linking photos to diary entry and automatic weather reports.

Site Diary is a powerful app that enables those in the construction industry to keep a record of everything that happens on site while maintaining visibility on the progress of work projects.

Khaldon Evans, Site Diary’s Chief Marketing Officer, says: “People in the construction industry don’t want to spend time filling out diaries day after day because it is a time-consuming activity that could be better spent elsewhere. This major overhaul of our Site Diary software is a real game-changer as it enables site workers to fill their diaries on the go, saving valuable time and effort. Spend less time filing paper and more time building.”

The new features for 2019 edition of Site Diary also include ability to add materials data, improved user experience, more accurate weather reports, taking humidity into account and data hosted in Microsoft Azure Cloud.

Site Diary ensures that a company’s diary records can never be lost, damaged or be tampered with – an essential feature in case of disputes. In addition, firms can share info and collaborate with site workers and office teams, and employees can create, assign and monitor tasks in any location on any device, giving them total flexibility.

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Construction leaders publish plan for the sector post-Brexit

Major construction leaders have published a plan for the sector to continue growth and deal with change after Brexit.

Building after Brexit: An Action Plan for Industry was released by bodies of construction leaders to provide ideas on preventing the sector from declining when Britain leaves the EU. The plan is based on two years of research and was formulated by the Construction Leadership Council, the Civil Engineering Contractors Association, the Construction Products Association, the Federation of Master Builders, the Home Builders Federation, and CITB.

The report particularly focuses on the issue of accessing migrant workers as well as building a domestic workforce after Brexit. It estimates that at the current rate of growth the industry will have to fill over 250,000 jobs by 2025.

The plan proposes that new apprenticeships are started and the number of workers leaving the industry is reduced to replace migrant workers lost after Brexit. It also highlights issues such as the need for the industry to offer mental health support and improving working conditions and stability.

The report encourages the industry to promote itself to prospective employees especially from other sectors, modernise internal systems, and support unemployed people in entering the industry. The overall emphasis is on making the industry more appealing to join and to discourage workers from leaving.

For the government, the report encourages improving and increasing apprenticeship schemes, provide more training options, and creating integration with apprenticeships and T Levels. It also recommends that the CIBT improve funding along with career guidance, and complete the Construction Skills Fund (CSF).

The plan recommends working with the government to implement these changes. As well as worker retention there is a big emphasis in the plan on modernisation, both to improve conditions in the industry for workers and to maintain growth with its current rate despite the changes.

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