Construction Law 2021

The new Construction Law 2021 guide features 18 jurisdictions. The guide provides the latest legal information on the impact of COVID-19 on the construction sector; employers, contractors, subcontractors and financiers; permits; contract prices; liability; risk, insurance and securities; contract administration and claims; remedies and damages; and dispute resolution.

Last Updated: June 11, 2021

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HabrakenRutten is an industry sector boutique law firm focusing on all legal aspects of built and natural assets. The firm’s expertise not only encompasses traditional buildings and infrastructure but also all linear and portable assets such as trains, ships, offshore rigs, networks and related technology. Widely recognised as a market leader, HabrakenRutten has been part of nearly every significant project in the Netherlands in the past ten years. The firm has unparalleled knowledge of best market practice and the distribution of risk in this sector. HabrakenRutten has six partners and 17 lawyers, all specialists in aspects surrounding real estate, who represent clients not only with advice, drafting and negotiation but also in litigation and arbitration. The firm's recent track record includes representing the consortium v the State in the landmark IJmuiden Sea Locks PPP; renegotiating and litigating a D&C contract for the landmark performing arts centre, Amare, in The Hague; advising one of the largest Dutch tank terminal operators on the development and construction of a new mega tank terminal in the port of Rotterdam; and advising on the design and construction of the cutting-edge "Wonderwoods" residential tower, featuring the first "green" façade with tree balconies up to 70 m high, necessitating sophisticated maintenance contracts and construction guarantees.


Overview

For almost all jurisdictions, COVID-19 was obviously a defining event in 2020. For the construction industry, however, the effects seem to have been relatively mild. These effects range from short-term, contractual consequences, eg, supply chain disruption and restrictive measures affecting building progress, to longer-term impact on order pipelines and market developments.

The underlying trends and developments in most jurisdictions seem to crystallise in similar directions. We are witnessing ongoing innovation in building techniques and processes, notably digitalisation and prefabrication. Furthermore, the main market sectors seem to be developing in the same directions: expectation of public investment in infrastructure, fired by a post-COVID-19 spending spree (eg, China and the US) and the climate transition (eg, Denmark and Russia); ongoing urbanisation and the rising demand for (affordable) housing; retail giving way to leisure and logistics developments; and finally, rethinking of the (office) workplace.

From a legal point of view, there are a number of noteworthy legal innovations, both legislative and in (standard) contracting.

COVID-19

Contrary to (early) expectations, the effects of COVID-19 on the construction industry worldwide have so far been relatively mild. After initial supply chain hiccups and as soon as the overall insecurity was overcome, the construction industry as a whole bounced back quickly. In the Netherlands, for example, production levels were restored to 90% of their pre-pandemic levels after only a couple of months. There have been some delays, mainly caused by supply disruptions and travel bans (eg, in Russia), but these proved to be of a temporary nature in most countries. The only exception being countries with severe government-mandated shutdown periods, such as Ireland; in other countries which remained more open, such as Denmark, COVID-19 is reported to have had a limited impact.

Apart from more structural drivers, on which more below, demand appears to be picking up fast, now the end of COVID-19 measures seems to be in sight. This is, in turn, giving rise to shortages of building materials and components, in some cases leading to sharp price increases. Furthermore, the existing shortage of skilled personnel in most developed countries seems to be aggravated post COVID-19, as the construction sector ramps up to full capacity again.

Finally, there seems to be a broad consensus on how to treat COVID-19 issues from a legal and/or contractual point of view. Indeed, in most jurisdictions COVID-19-related issues are not likely to be considered as force majeure by law. This concept more often than not requires the near practical impossibility of performance, which is extraordinary and could not have been foreseen and avoided. Where these claims do qualify as force majeure, remedies are mostly restricted to the extension of time only; compensation of costs is rare. In some countries, government agencies have issued some guidance on how COVID-19-related claims should be dealt with in public works contracts, eg, in Ireland and the Netherlands. The most common remedy, therefore, is to revert to tailor-made contractual provisions.

Market Trends and Developments

It is remarkable to observe that market trends and developments are grosso modo moving in the same directions globally.

Across the board, there is a promising pipeline of work in the infrastructure sector. In China, for instance, "new infrastructure" has recently become a hot topic. New infrastructure is different from traditional infrastructure and is defined as "digital, smart and innovative". It covers, among other things, information infrastructure, such as 5G, IoT, satellite internet, AI, transforming and updating existing infrastructure, and scientific research and technology, all greatly pushed by governments to offset the economic impact of COVID-19. In Denmark, Parliament has taken the first steps towards the construction of an artificial energy island, which will serve as a base for an immense wind park and to store and transmit the harvested energy. Other countries, such as Switzerland, are reporting growth perspectives in the civil engineering sector over the next five to ten years, in particular, in road and tunnel construction; Russia has announced several infrastructure projects as part of a RUB6.3 trillion (USD85 billion) six-year modernisation plan to revamp domestic highways, airports, railways and ports. This will improve the connectivity of Russian regions as well as create new routes in the Europe-Western China transport corridor, including the new Moscow–Nizhny Novgorod–Kazan motorway. In the US, finally, President Biden’s USD2 trillion infrastructure and jobs plan seeks to improve the nation's infrastructure and promote a shift to greener energy over the next eight years.

The same goes for residential and area development projects. Globally, the trends of urbanisation and ageing populations keep fuelling demand for quantitative as well as qualitative housing and residential space, especially in the low to mid-range of the market. Shortage of suitable locations and the energy transition increasingly necessitate innovative solutions, eg, the Danish Lynetteholmen, a whole new island to be constructed in the Copenhagen harbour, serviced by tunnel, bridge and metro access, and to be inhabited by 35,000 residents. Everywhere climate targets make their imprint felt. Not only in CO₂-neutral building, but also in sustainable building materials and "cradle-to-cradle" building processes. Almost all researched jurisdictions show the same picture, from the Netherlands to China, from Russia to Switzerland, and from Singapore to Peru.

In the office and retail sectors we are witnessing a transformation too. Here, the existing trends of online shopping and working from home have received a marked impetus from COVID-19 measures. Almost everywhere, office and retail developers have had to reimagine their rationale. This may lead to the development of smaller satellite offices, sometimes benefiting from rural hub initiatives.

The developments in retail are, on the other hand, greatly promoting the logistics and transport sectors. Logistics was already big, but has ballooned during COVID-19 shutdowns. Across the board, this trend seems here to stay. Changes in mobility will further influence this trend. A pioneering project in Switzerland named Cargo Souterrain features a complete underground logistical system for the flexible transport of small-component goods, with tunnels connecting production and logistics sites with urban centres.

Digitalisation and Automation

Digitalisation is a priority for all market players in the construction industry. Implementation of BIM (Building Information Modelling) methods is becoming increasingly important and ever-more widespread in jurisdictions such as Russia and Peru.

In parallel, we are seeing increasing use of prefabrication methods, especially in the construction of housing. China, for instance, has recently issued the "Guiding Opinions" on "Intelligent Construction and Building Industrialisation". This includes the development of prefabricated buildings, internet platforms for the construction industry, and intelligent production lines for steel structures and precast concrete components. In key areas, these new production methods already account for 20.5% of the total new builds there. These methods not only speed up the building process, but also reduce waste, energy use, materials, and noise and pollution on site. In the Netherlands, assembly of a prefab house now only takes one working day.

In short, the construction industry, across the board, is showing a remarkable "green" ambition and an appetite for innovation.

Legal Trends and Developments

As for global legal trends and developments, the construction industry is showing a growing degree of alignment, both in legislative initiatives and in the use of standard conditions. Here, too, innovation can be seen.

There have been a number of noteworthy legislative developments. In May 2020, China passed the long-awaited new Civil Code of the PRC. A great number of countries have also adopted legislation to help achieve the Paris Climate Agreement goals.

Globally, the implementation and use of internationally accepted standard contract forms continues to gather momentum. A number of countries have recently updated their commonly used standard conditions, including Denmark, the Netherlands, Peru, Singapore and Switzerland.  Furthermore, the use of the FIDIC (International Federation of Consulting Engineers) and NEC (New Engineering Contract) suites is becoming ever-more widespread, not only in the English-speaking world, but also in South America and Africa. At the same time, we are seeing the introduction of new contract models, such as "collaborative contracting" in Singapore. These models seek to align the interests of all project participants in order to achieve the project objectives, through a co-operative management approach, profit and risk sharing, and the development of mutual trust and confidence between stakeholders.

Conclusion and Outlook

The construction industry has weathered COVID-19 fairly well. Structural developments, such as those related to climate transition, as well as an upcoming post-COVID spending spree, seem likely to forge healthy business conditions as well as provide a powerful stimulus for innovation. At the same time, there seems to be momentum for new ways of co-operation between employers and contractors, to reduce time and cost overruns and allow for a more even spread of risk.

Predictions are difficult. Nevertheless, it seems fair to say that market circumstances for the upcoming years look bright for the construction industry. Both the necessary overhaul of public infrastructure and the up-and-coming climate transition, as well as urbanisation and the demand for (affordable and durable) housing, all seem powerful propellants for developers, constructors, financiers and investors in these sectors across the developed and developing world.

Author



HabrakenRutten is an industry sector boutique law firm focusing on all legal aspects of built and natural assets. The firm’s expertise not only encompasses traditional buildings and infrastructure but also all linear and portable assets such as trains, ships, offshore rigs, networks and related technology. Widely recognised as a market leader, HabrakenRutten has been part of nearly every significant project in the Netherlands in the past ten years. The firm has unparalleled knowledge of best market practice and the distribution of risk in this sector. HabrakenRutten has six partners and 17 lawyers, all specialists in aspects surrounding real estate, who represent clients not only with advice, drafting and negotiation but also in litigation and arbitration. The firm's recent track record includes representing the consortium v the State in the landmark IJmuiden Sea Locks PPP; renegotiating and litigating a D&C contract for the landmark performing arts centre, Amare, in The Hague; advising one of the largest Dutch tank terminal operators on the development and construction of a new mega tank terminal in the port of Rotterdam; and advising on the design and construction of the cutting-edge "Wonderwoods" residential tower, featuring the first "green" façade with tree balconies up to 70 m high, necessitating sophisticated maintenance contracts and construction guarantees.