Construction Insurance Threat To UK’s Future

Construction Insurance Threat To UK’s Future
Construction Insurance has never felt cheap to companies in the sector, although many or most of them never took the sort of risk management measures highlighted in our regular insurance articles, so to a large extent often had only themselves to blame if they were paying higher premiums than they need have.

Now however it turns out that we have been living in some sort of golden age for insurance, when premiums were in fact relatively low, and sometimes falling. The golden age is well and truly over now, and companies of all sizes across the industry are reeling under the scale of increases they are seeing. And there is probably more to come.

Premiums increases that we have already seen could be enough to put adequate cover out of the reach of many. Passing any increased cost on to clients is always difficult in such a competitive market as construction; many clients will be seeing insurance costs soar in their own businesses, but that won’t make them any more sympathetic to pleas for help. Which could be shortsighted, because if contractors and others can’t afford insurance they dare not trade. There is also the problem of a declining number of insurers prepared to take construction risks at all, which raises the threat of being unable to obtain any insurance cover.

The main culprits to blame for rises have been Grenfell and Covid, and both are having a huge and ongoing impact. But as we reported last year, premiums had been low for some years – some said unsustainably low – so this was bound to change sometime. Technical changes in the Lloyd’s insurance market have played a key role in making life harder for companies needing Professional Indemnity cover in particular. The Grenfell Tower tragedy led insurers to become more cautious about the risks they would cover under PI policies. New policies have introduced significant exclusions.

Lloyd’s syndicates had slipped into unprofitability on the PI part of their business, which prompted Lloyd’s to institute what they called Decile 10 reviews, which forced syndicates to identify the worst performing 10% of their businesses. Plans had to be produced to eliminate these loss making activities or the cover would be placed into ‘run-off’, effectively removing cover from the market. PI was revealed to be the second worst performing part of the business for syndicates and had been for some years.

Capacity in the PI market was quickly halved as a result. Premiums soared. The amount of insurance provided under particular policies has been limited and exclusions have been widened. Then Covid hit the industry. Now the insurance issue is threatening to be a barrier to recovery from the pandemic.

The Construction Leadership Council (CLC) has launched a survey on the costs and policy exclusions that the industry is experiencing when renewing their PI insurance cover (see News). CLC reports four fold increases in policy costs, with some companies unable to get cover at all.

The CLC plans to use the findings to approach the UK Government and insurers to find ways to alleviate the problems, which the industry has to support. The government and the insurance industry also have to show their support – without something being done the Prime Minister’s plans to ‘build, build, build’ the UK’s way towards a brighter post Covid and post Brexit future are on very shaky foundations.

The original version of this article was first published in by Nick Barrett

Covid Procurement Highlights Need For Reform

The original version of this article was first published in Construction Law by Nick Barrett

Much, if not all, of 2021 will be spent dealing with the fall out of the Covid-19 pandemic, and hopefully learning from the way the UK mobilised its central government procurement systems to combat it. There is much to learn.

There are hopes that leaving the European Union might mean a more welcoming attitude to the sort of fundamental reform that has long been recognised as essential for more efficient, money saving procurement of all services and products by the public sector. There have been successes. Developing and manufacturing a vaccine in such a short space of time might go down in history as one of the great medical success stories. The construction industry earned well deserved plaudits for making the Nightingale Hospitals available in a timely fashion. But was the way the UK responded to the pandemic a procurement success story?

Most crucial medical supplies like personal protective equipment (PPE) for national health service staff were obtained. But there were some headline grabbing embarrassments for the government along the way. A raft of previously unknown ‘brokers’ popped up promising to deliver supplies that nobody suspected even existed. Sometimes they didn’t, at least not while meeting the required specification. Some of these people or organisations were able to simply ‘flip’ the contracts, creaming off large profits.

Some contracts were awarded retrospectively as normal standards of transparency and procurement process were steamrollered in the understandable rush to combat Covid, which quickly caught the eye of the National Audit Office.

An almost unique part of the UK’s Covid related procurement during 2020 was abandoning the usual practice of subjecting the award of contracts to suppliers with known connections to gatekeepers like Ministers and MPs to greater scrutiny than usual. This abandonment of open competition was achieved through the creation of a high priority channel for some major awards that companies could breeze through if recommended by these gatekeepers, which included health service officials. Entry to this channel reportedly improved chances of being awarded a contract by a factor of ten.

We will probably never know for sure what part of the £15 Billion or so that has been spent on PPE so far could have been saved. On transparency the UK has fallen well behind international standards in its Covid related procurement. Some countries publish all emergency contracts within 24 hours. UK procurement rules demand publication after 30 days; but many were unpublished after three months, or longer.

Other countries have already investigated their procurement during the first year of the pandemic, pointing out where things could be improved. The UK government has yet to undertake such detailed scrutiny of its performance, so the opportunity for learning and improving is so far being passed up, at unknown cost to the public purse.

The pandemic has highlighted weakness in the UK public sector procurement system, in particular its uncoordinated and fragmented nature, which have been appreciated for years. The need may be for appointing someone with an overarching power to reform public sector procurement, to ensure readiness for another pandemic, which we are assured will arrive one day, as well as to generate efficiencies that might leave us in a better position to both respond to and pay for it.



For those participants in the Construction Industry who have been living in a cave for the last 20 years, it may come as a surprise that legislation which took effect in 1998 and 2011 introduced a new payment regime with concepts such as “withholding notices” and “payless notices”.

The regime imposed stringent obligations on paying parties to issue within short periods of time after receipt of invoices a notification setting out any sum which was not to be paid and specifying the reasons why.

Many employers and main contractors have continued to be caught out by this payment regime with main contractors and subcontractors taking advantage of any default by the paying party to issue adjudication notices requiring payment due to the absence of the requisite notifications. The Technology and Construction Court have reviewed this previously and come to the conclusion that failure to issue the correct notice is in effect strict liability to make payment.

His Honour Judge Peter Coulson in the recent case of Grove Developments has taken a different stance. He is unable to support the opinion of previous colleagues and has given binding authority that the absence of a payment notice is not fatal and a paying party will be entitled to commence a counter-adjudication seeking a “true value” of the invoice or account in question.

This is not a time for complacency and employers and main contractors must continue to comply with the payment regime.

However, in the event of default this case does allow a paying party to at least issue a counter-adjudication to nullify the effect of the inevitable decision of any first adjudicator being asked to order payment for failure to comply.

To discuss this or any other construction law issues please contact Blake Turner at or on 020 7952 6214.

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