Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
The Chancellor didn’t tell us much more than we already knew about the new Government’s plans for infrastructure over this Parliament and it seems that the Government isn't entirely sure about how infrastructure investment will be spent over the next five years. A National Infrastructure Delivery Plan is due next Spring and will provide more insight into the key projects that will be delivered during this Parliament.
What is good news is the Government’s support for devolution, private finance, smaller infrastructure projects and housing...
The new Government has reiterated its support for devolution of power from Whitehall with the announcements of the £1.8 billion Growth Deals to Local Enterprise Partnerships and the commitments to the West Midlands Combined Authority, the Greater Manchester Combined Authority and the Greater London Authority. However, the £1.8 billion was announced by Greg Clark in March 2016, so this is not new money.
To encourage private finance the Government has extended the life of the UK Guarantees Scheme, but that probably reflects the fact that they haven’t used the scheme for anything like the £40 billion as they had stated at the start in 2012. Large infrastructure projects do take a long time to come to close. The initial pipeline of infrastructure projects set to benefit from Private Finance 2 (PF2) will not be announced until early 2017. In our experience, that means that any projects announced may take at least a couple of years before there is a “spade in the ground”.
The Chancellor focused on smaller infrastructure projects rather than super-sized infrastructure projects which should mean that every pound has more impact at a local level. The issue with large national projects is that they take decades to happen, their costs seem out of proportion, and they have little positive impact on ordinary people. Therefore, it was good news that he announced that the Northern Powerhouse Investment Fund (NPIF) would invest £1.1 billion by 2020-21 in funding to relieve congestion and deliver long-awaited upgrades on local roads and public transport, with a further investment of £220 million for key pinch-points on strategic roads.
We were expecting a big announcement on housing. The Chancellor did commit to a £2.3 billion Housing Infrastructure Fund which will target new private house building with the aim of delivering up to 100,000 new homes in areas of greatest housing need. Grant funding restrictions will be relaxed to allow providers to build a mix of low-cost ownership and affordable rent properties. The NPIF has committed £1.4 billion to deliver 40,000 houses by 2020-21. Also, £1.7 billion has been invested from NPIF in an accelerated construction scheme with the intention of speeding up construction of new homes.
The elephant(s) in the room…
We still need to address the lack of capacity and skills in the construction industry. If we are to build more houses and more infrastructure to encourage investment in the UK pre and post-Brexit we need to increase this training through apprenticeships and further education. If we don’t, then there is a risk we will miss the new housing targets.
The costs of materials are likely to go up because of the fall in the value of the pound. This may mean that the funds announced will not be enough to build the houses and fund the transport projects to the same extent. We can hope that market forces will at some point reverse the fall but with the growing UK debt mountain and the lack of certainty around the UK’s trading and economic status post-Brexit, this will be a challenge.
On a good note…
At least Birmingham now has £5 million to upgrade its rail service. Get rid of those pesky Autumn leaves on the line!
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