Build safe, stay safe: The Building Safety Act and dutyholder obligations

In Part 1 of our series of articles 'The Building Safety Act 2022: What about the insurance implications?', we provided an overview of the main challenges arising from the changes introduced by the Building Safety Act 20221 (“BSA 2022”) and the associated insurance implications. We now shift our attention to the obligations imposed on dutyholders and look at the steps various parties involved can take in order to mitigate the risk of claims.

Purpose of the BSA 2022

The BSA 2022 aims to improve the safety of higher risk buildings (i.e. specified buildings at least 18 metres or seven storeys in height) by establishing a framework for the management and oversight of building safety, and assigning specific duties to parties, known as ‘dutyholders’, who are responsible for procuring, designing, managing and undertaking building works on buildings to which the BSA 2022 applies.

This new dutyholder  regime will be implemented through secondary legislation between  April 2023 and October 2023.

The government previously published draft regulations detailing how the dutyholder regime would operate in practice, including the nature of the obligations owed, but have since been removed from the website, suggesting that revised regulations may be forthcoming.

The dutyholders under the BSA 2022 reflect the roles set out under the Construction (Design and Management) Regulations 2015, and include:

• The client
• The principal contractor
• The principal designer
• Any other contractors or designers

In addition,  the BSA 2022 imposes post- construction duties on the accountable person to manage building safety risks, including a duty to explore alternative funding routes before passing costs to leaseholders.

The client

The client, often the developer, must make suitable arrangements for the planning, management and monitoring of a project to ensure the work is in compliance  with the Building Regulations.  They will also need to ensure that those employed are competent to do the work that they are contracted to undertake, in accordance with the British Standards  Institution (BSI) competence requirements. Three new standards were published by BSI on 27 July 2022 and cover competence requirements for (a) individual principal designers; (b) individual principal contractors;  and (c) the management of safety in residential buildings.

The BSA 2022 makes changes to the Building Act 1984 to allow for imprisonment in cases of breach.  If a company commits an offence with the consent, support, or neglect of a director, manager, secretary, or similar officer, then that individual as well as the company can be prosecuted. These provisions are expected to take effect within the next 18 months. The Act also changes the Building Act 1984 to extend the time period for issuing notices to remove or modify work that breaches  Building Regulations from 12 months to 10 years.

Key takeaways for clients

• Review the new BSI standards to ensure compliance with the competence requirements and keep an eye out for any additional standards due to be introduced over the next 12 to 18 months.

• Ensure that those they appoint have the systems in place to monitor and evidence that work has been completed in accordance  with Building Regulations and include contractual provisions to reflect these obligations. Contracts and appointments will need to clearly mention the requirement for dutyholders to comply with the competency requirements.

• Begin consulting with the supply chain to understand what steps they are taking to fulfil their responsibilities under the Act and the requirements of their clients. Examine current internal procedures that evaluate and monitor the competency of the supply chain in order to make sure that those working on projects can show that they have the necessary skills.

• Ensure their document  retention policies are appropriate in nature and scope to cover work carried out during the extended limitation period.

• Consider what insurance is necessary and available to mitigate the risk of this increased liability. Management liability policies  could  potentially provide protection should a director or manager make an erroneous decision about document retention policies. Many policies also provide legal helplines that can provide support and guidance about the appropriate approach to document retention.

• Ensure the proposed programmes are realistic, to avoid a need for review and additional variations further down the line.

• Adopt a new working culture, in line with the requirement of greater transparency between various disciplines, although this might prove a challenge to insurers.
  
  

Designers and contractors

The BSA 2022 also places duties on designers and contractors who are involved in the construction or alteration of buildings.

The BSA 2022  grants the BSI the power to set competence requirements for the main dutyholders identified in the Construction (Design and Management) Regulations (CDM), including the principal designer, principal contractor, designer, and contractor. As mentioned above, three of the new standards have already been published by the BSI and for now only apply to principal designers and principal contractors.

These competency requirements apply to all types  of projects but are stricter for higher risk buildings.

Under the BSA 2022, the government has the authority to impose obligations on dutyholders to review building safety at three different points, known as ‘gateways’, during the design and construction of higher-risk buildings. This system is referred to as the ‘gateway regime’. Throughout the three gateways, dutyholders will be required to cooperate,  share information, and ensure that work complies with the Building Regulations. Whilst the extent of the cooperation is to be defined in upcoming secondary legislation, in order to be effective, it will require a shift to a new culture of collaboration for designers and contractors, as well as their insurers and brokers.

Key takeaways for designers and contractors

• Examine document retention policies so as to ensure they are sufficiently appropriate to maintain robust records and accurate building information line with the ‘golden thread’, and to ensure that documents related to work carried are retained during the extended limitation periods imposed  under the BSA 2022 in the event of a claim.
• Consider the cost of complying with the dutyholder and gateway regimes which may result in an increase of about 3% in the cost of work.
• Consider higher pricing to manage the increased risk of claims in respect of work carried out during the extended limitation periods, as well as potential increase in PI insurance premiums.
• Work with clients to ensure the proposed  programme for the works is realistic—unrealistic programmes often cause errors and result in claims.
• Adopt a new culture of cooperation and transparency between various disciplines—this may pose a challenge to insurers.
• Ensure clarity of the nature of their obligations and whether they are insurable. The issue for insureds as well as insurers will be whether the obligations imposed on dutyholders will be absolute in nature, or subject to reasonable skill and care. This will impact  the nature of the cover that will be required and its availability in the market.
• The protection offered by a typical PI policy is limited. Insurance protection in relation to a formal investigation or prosecution by the Health and Safety Executive  (HSE) will frequently  apply only if there is an associated  civil liability claim (and it is in the interests of the insurers to defend the matter). A modest inner limit is likely to apply and the policy is unlikely to cover fines or the cost of correcting a breach of the gateway requirements.
• A Directors’ & Officers’ policy may be a more relevant source of cover. A good policy wording (without an absolute bodily injury exclusion) should provide protection to the individual director and potentially to the entity in the event of an investigation or pre-investigation.

Summary 

The specifics of the dutyholder regime, which will be implemented through secondary legislation, are currently unknown. In the meantime, dutyholders can prepare and implement changes in order to ensure they mitigate the risk of potential claims arising against them. These changes will be complex and advice should be sought on nature of the obligations owed and nature of the insurance required.

This insight was first published by Gallagher www.ajg.com/uk/news-and-insights/2023/february/building-safety-act-dutyholder-obligations