Construction Law 2023

Overview

The overarching issues for almost all jurisdictions seem to be uncertainty, climate transition and technological developments.

The aftermath of COVID-19 and the Ukraine conflict continue to plague the construction sector across all jurisdictions, in varying degrees. In China, the effects of COVID-19 have proven persistent, causing a downturn of the economy and turmoil in the construction market. Other jurisdictions report the Ukraine crisis as a cause for uncertainty, disruption of supply lines and price volatility. Generally, the effects of inflation, interest rises and downward pressure on yields are being felt across the entire construction industry.

Nevertheless, almost all jurisdictions also report cautiously optimistic outlooks, driven mostly by the climate and energy transition and continuing urbanisation and demand for housing.

Finally, the construction industry as a whole seems to be increasingly embracing new technologies, markedly in the field of information technology, big data, IoT and AI.

Uncertain Outlook

In most jurisdictions, the effects of COVID-19 seem to have more or less petered out. In China, however, the effects of COVID-19 have proven more persistent. Causing a downturn of the economy as a whole, the construction and real estate sector seems to have been particularly affected, with the property market facing an unprecedented heavy setback. This has prompted the government to introduce a reform of the bidding system, as well as a bailout policy for distressed real estate companies.

The war in Ukraine is also mentioned in several jurisdictions, for example, Denmark, as having an impact on the construction industry, mainly in terms of disrupted supply chains; eg, for steel, cement and timber.

A main driver of uncertainty, across all jurisdictions, however, seems to be the rather toxic combination of inflation and rising interest rates on the one hand, and lower yields on the other hand. A number of jurisdictions report a loss of investors’ appetite for new projects, especially in housing and commercial real estate. Both public and private employers seem generally hesitant as they wait for more stability in the market. Many planned projects are presently being postponed because tenders have proven impossible to complete within budget.

Climate Transition

Having said this, what is also clear is that across almost all jurisdictions the so-called climate and energy transition promises to be a strong driver for the construction industry. Ambitions are high: China alone strives to peak carbon dioxide emissions before 2030 and has vowed to achieve carbon neutrality before 2060. Japan has set a goal of achieving a 36–38% share of renewable energy in the power source composition in 2030. The same picture emerges in other jurisdictions; eg, Canada, Denmark, Finland, Japan, the Netherlands and the UEA, to name but a few, not to mention the EU “Green Deal” and the US Inflation Reduction Act.

All these ambitions combined lead to frantic activity in fields such as solar and wind energy, renewed interest in nuclear energy, energy storage, green building techniques and construction materials. Greater dependence on electricity necessitates the renewal and extension of power grids across the globe. Everywhere, the construction industry is gearing up and transforming itself to help achieve these Herculean tasks. The UAE, for example, is realising and planning behemoth projects, including solar power projects such as the AED50 billion Mohammed Bin Rashid Al Maktoum Solar Park, the largest single-site solar power plant in the world. Japan has set a target for 10 million kW offshore wind power generation by 2030.

Technological Innovation

The third trend that surfaces across almost all jurisdictions is technological innovation.

These technical innovations are visible in myriad directions: BIM, big data, use of drones, IoT, IA and modular construction.

Increasingly, construction companies are reinventing themselves as IT companies. In the Netherlands, for example, companies specialising in infrastructure have developed new business models, based on mining data, to reduce emissions and save energy, by connecting data from NOX and CO₂ sensors, via intelligent algorithms, to traffic signs thereby rerouting traffic in big cities. Innovation also takes the form of digitisation of permitting processes – eg, in Finland and the Netherlands.

Apart from IT, prefabrication and (or off-site) modular construction are increasingly used, both in housing and in industrial projects; in the US this has also led to the introduction of a new-form modular construction contract, addressing the legal implications of this building method for traditional EPC contracts.

The use of blockchain and “smart contracts” in the construction industry, however, remains far from common practice and is still virtually unheard of.

Legal Trends and Developments

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

In Canada, the rules regarding production of insurance information as part of the discovery process in litigation seem to be moving in the direction of more transparency. The same goes for the disclosure of settlement agreements.

As already mentioned, China has introduced regulations reforming the bidding system, as well as policy to bailout distressed real estate companies. Furthermore, the practise of “labour subcontracting” has been fully abolished in China, so as to protect workers’ rights.

Finland has seen the adoption, on 1 March 2023, of a new Building Act, which includes digitisation of the permitting process.

In the US, new model contracts have been introduced to regulate modular construction projects, making use of the ConcensusDocs forms.

As for global legal trends and developments, the construction industry continues to show a growing degree of alignment, both in legislative initiatives and in the use of standard conditions. 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

Recent disruptions, such as COVID-19 and the war in Ukraine, causing shock waves for the construction industry, have given way to an uneasy status quo, plagued by much uncertainty. Global developments have led to the rise of inflation, increased interest rates, lower yields and risk aversion.

Simultaneously, the need to confront the effects of climate change and the altered energy landscape, as well as urbanisation and the demand for (affordable and durable) housing remain powerful drivers for the construction industry, further fuelled by technological innovations. It is safe to assume that the construction industry will have to reinvent itself, becoming more durable – both in its products and its processes – and having to embrace innovations.