Construction Contracts – going green without costing the earth?

COP26 has sparked huge debate across the world on how we treat our planet and how we can better use the resources that we have. The construction industry is coming under increasing pressure to innovate and to reduce its carbon footprint – having been found by one United Nations report to contribute up to 36% of final energy use and 39% of energy and process-related CO2 emissions in 2018.

It is notable that sustainable construction in the private sector is becoming increasingly common and the government last month announced some £440 million of funding for construction projects to kick start the net-zero carbon emission strategy, focussing largely on the production of cleaner energy. So as a funder, developer or contractor, how do you ensure that your project doesn’t harm the planet without costing you the earth? Here are a few ways that we have helped our clients to ‘build green better’.

One way to enhance the green credentials of a project is to start at the beginning – with the procurement process and contract strategy. Whilst the traditional preferred funding mode of single point, design and build remains popular, developers and their funders are increasingly looking at more efficient procurement methods – including the use of off-site and modular construction to reduce material wastage and to reduce over-specification and transportation impacts. That has lead to a revival in more diverse construction procurement methods such as construction management which allows for greater diversity in the sub-contract chain. Tender enquiries can also be used to flush out, at an early stage, how well contractors and their supply chain would fit within a project where a key criteria is to enhance sustainability and reduce environmental adverse impact.

A further way to promote sustainability and environmental considerations in a construction project is in the materials that are specified for use and used within it. It is no longer unusual to come across provisions in a design appointment or construction contract which require the appointee to specify and use sustainably sourced timber, to permit the use of recycled materials where appropriate and to encourage parties wherever possible to source build materials locally to prevent significant transportation.

Finally, and perhaps most obviously, setting out contractual requirements for the performance of the completed works is a great way of ensuring that a project meets its conceptual environmental goals. We have seen examples where, for example the achievement of a certain BREEAM rating is either a condition precedent to practical completion being awarded, or failure to so achieve that or a particular EPC rating is subject to a liquidated damages regime. Parties are increasingly looking also at using key performance indicator regimes to attach to sustainability and waste targets to attach real weight to the importance of these factors to both developers and end users.

At present the standard forms of construction contract contain little more than a ‘nod’ in the direction of environmentally friendly contractual provisions. The JCT, for example as an option in its supplemental provisions allows the parties to encourage the Contractor to “suggest economically viable amendments to the Works, which if instructed as a Variation, may result in an improvement in environmental performance in the carrying out of the Works or of the completed Works”. This is a box often ticked, but then often forgotten – but the idea of producing standard clauses in relation to climate change has been picked up by a group of lawyers called The Chancery Lane Project – who have now produced a set of innovative provisions which can be used by any parties to a construction contract. These clauses include provisions regarding sustainable on-site working practices, a climate duty of care, the reinvention of a waste management plan, energy efficiency requirements, emissions management and material procurement, to name a few.

These are testing times for the construction industry as it adapts both to the policy changes and societal expectations placed on it in respect of environmental responsibility and we expect these issues to only grow in importance as we move towards net-zero CO2.