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The Building Safety Bill is intended to respond to long-standing concerns surrounding fire safety, quality and competence, and change.

Some three years after the Grenfell Tower fire, and over two years since the recommendations of Dame Judith Hackitt issued in response to that disaster, the UK Government has published its Building Safety Bill. The Bill is intended to respond to long-standing concerns surrounding fire safety, quality and competence, and to bring about systemic change within the construction industry to ensure that tragedies like Grenfell do not happen again. It has been published to enable scrutiny and consultation whilst it is introduced to Parliament. This note will analyse the key provisions of the Bill, the next steps in its passage into law, and its implications for the insurance market.  

Background

On 28 July 2017, following the Grenfell Tower fire, Communities Secretary, Sajid Javid MP, announced a formal review into building and fire safety. Dame Judith Hackitt, formerly Chair of the Health and Safety Executive, was appointed to conduct the review.

In her Independent Review of Building Regulations and Fire Safety, published in May 2018, Dame Judith concluded that the existing building safety regime was not fit for purpose, with unclear roles and responsibilities, patchy competence and insufficient regulatory oversight. She was particularly concerned that “some of those who construct buildings treat the minimum standards in the Approved Documents [of the Building Regulations] as a high bar to be negotiated down, rather than genuinely owning the principles of a safe building”. She therefore proposed a “radical rethink” of the building safety regime consisting of over 50 recommendations.

The new Bill is the product of several years of implementation strategies, consultations and proposals based upon those recommendations.

Once enacted, it is intended that the Bill should:

  1. Apply to all buildings (new or existing) over 18 metres in height;

  2. Create a more effective regulatory and accountability framework for the construction industry;

  3. Introduce clearer standards and guidance

  4. Put residents at the heart of a new system of building safety;

  5. Create a systemic change in culture and responsibility within the building industry.

What’s new?

  • New Building Safety Regulator with approval, enforcement and prosecutorial powers

  • Mandatory reporting of structural and fire safety occurrences

  • Sanctions of up to two years in prison and unlimited fines

  • Creation of new roles and new general duties on dutyholders

  • Gateway points to manage safety and risk

The Bill introduces a wide range of measures designed to improve standards and encourage a sea-change in the approach of the construction industry towards building safety.

A new regulator

The headline policy in the Bill is the creation of a new Building Safety Regulator, tasked with securing the safety of people “in relation to risks arising from buildings” and improving the standard of buildings. The Regulator’s powers will be wide-ranging, including the ability to publish a new Code of Conduct for building inspectors and carry out misconduct investigations, issue stop notices, levy unlimited civil fines and commence criminal prosecutions which attract prison sentences of up to two years. The Regulator’s prosecutorial powers extend to directors, managers and officers of companies that have committed an offence with their consent or connivance, and will permit the Regulator to extend time limits for prosecution to ten years for certain notices issued under the Building Act 1984. The Regulator will also be empowered to appoint a Special Measures Manager where there are serious failures on the part of Accountable Persons or Building Safety Managers.

Part 3 of the Bill provides that the Building Safety Regulator will be the Building Control authority for higher-risk buildings. This represents a fundamental change in the approach towards responsibility for high-risk buildings, removing them from the scope of approved inspectors and local authority building control teams and centralising control under the Regulator.

A key element of the Bill is the concept of the ‘golden thread’ of information that runs throughout the construction process and ensures safety and compliance at all stages. The Regulator will need to be satisfied that a building meets various regulatory requirements during the planning, design, construction and occupancy phases of the building’s life. Failure to meet any of these requirements will lead to enforcement action.

New Roles

The draft Bill creates a new role of the “Accountable Person”. This may be an individual or a corporate entity such as the building owner or a management company. The Accountable Person will be responsible for assessing building safety risks on an ongoing basis, and taking all reasonable steps to manage those risks by way of a Safety Case Report which must be submitted to the Regulator. The Accountable Person will also be responsible for appointing a Building Safety Manager.

The role of Building Safety Manager is another newly-created role, whose function is to manage the building in accordance with the Safety Case Report and the Building Assurance Certificate and to work with others involved in the management of the building in order to manage building safety risks appropriately. Anyone appointed to this role must have the relevant skills, knowledge, experience and behaviours to carry out the responsibilities associated with it.

Other dutyholders are also defined under section 38, including the Client/Developer, Principal Designer, Principal Contractor, Designer and Contractor. Each dutyholder will face specific duties to reflect their unique role in ensuring building safety. Failure by dutyholders to comply with their duties will constitute an offence.

New duties

The Bill imposes a requirement upon dutyholders for mandatory reporting to the Regulator of fire and structural safety occurrences which could cause a significant risk to life and safety. A voluntary scheme for non-significant risks will also operate.

In addition to the new Code of Conduct for building inspectors, the creation of the new Appointed Person and Building Safety Manager roles will create new professional duties upon persons acting in those capacities. All dutyholders will have to: co-operate and share information with the Regulator; ensure compliance with Building Regulations; comply with specific regulatory requirements; and ensure that they and the people they employ are competent to carry out the work they are undertaking.

The Bill will also extend the existing duties owed by construction professionals even where they are not dutyholders. Breaches of professional duty may arise from failures to obtain the approval or the Regulator, or to share information in a collaborative manner. There is also, the potential for claims for breach of statutory duty.

Under the draft Bill, residents also assume legal duties, including obligations to keep their own relevant items in repair and proper working order, and to comply with requests made by the Accountable Person.

A new regime

In order to preserve the “golden thread” of information and to ensure that safety considerations are in play throughout a construction project, a new system of three Gateway points (also known as stop/go decision points) is set out within the Bill. The new regime will be overseen by the Regulator at all stages.

Gateway One requires information to be submitted to the Local Planning Authority in the form of a Fire Statement, which demonstrates that fire safety requirements have been considered and incorporated into the proposals. The Regulator will act as a statutory consultee for all planning applications relating to a higher-risk building, and will provide specialist fire safety input on the proposals.

Gateway Two occurs prior to commencement of construction, and provides a ‘hard stop’ where construction cannot begin until the Regulator is satisfied that the design meets the functional requirements of the building regulations. Dutyholders will be required to submit information to the Regulator which demonstrates that compliance.

Gateway Three takes place at completion. At this point, all “golden thread” documentation must be provided to the Accountable Person by dutyholders for onward submission to the Regulator. Once the Regulator is satisfied that there has been full safety compliance, they will issue a completion certificate.

At all stages, therefore, collaboration between dutyholders and with the Regulator will be critical to the success of any construction project. The interplay of obligations and the oversight of the Regulator will constitute an entirely new and potentially very powerful safety regime. Both construction and insurance industries will need to adapt quickly to this new world.

Implications for the insurance market

The Bill has the laudable aim of producing a safer building industry. That should mean fewer claims made under construction-related insurance policies, and should lead to lower pay-outs by insurers. However, the Bill also introduces a range of new roles, new responsibilities and new enforcement powers which are likely to have significant impacts for the insurance industry.

Underwriters will need to consider:

  • Their appetite for the risks associated with the various new duties and obligations introduced by the Bill;

  • Whether bespoke exclusions are required to reflect that appetite for risk and, if so, the terms of those exclusions;

  • The need for amendment to proposal/renewal documentation and/or underwriting guides to ensure that insureds possess relevant skills and qualifications, and to mitigate risk;

  • If underwriting property insurance, the impact of the new (separately introduced) External Wall Review process on the assessment and acceptability of real estate;

  • The impact of the new mandatory reporting regime on notification, and the need for amendment of existing policy terms to reflect new notification requirements;

  • The extent to which underwriters will be willing to offer professional indemnity cover in respect of the new roles identified in the Bill. A careful eye will need to be kept on any public policy considerations or decisions in this regard. If PI insurance is not available in the market, then minimum terms or an ARP-equivalent may need to be established to meet demand and underwriter public confidence;

  • New exposures for D&O insurers arising from regulatory action against managers and directors of defaulting parties; and

  • The insurability of civil fines imposed by the Regulator which fall short of criminal sanctions.

Brokers will need to:

  • Pay careful attention to amendments of policy terms and the introduction of new exclusions, and consider their impact on cover;

  • Consider the impact of the introduction of new roles, new reporting obligations and new duties on the availability and cost of professional indemnity and/or D&O insurance in an already difficult market;

  • Be aware that insureds wishing to obtain insurance in respect of the newly-created roles may face new and more stringent qualification checks at proposal and renewal stages;

  • Carefully note and advise insureds of any new notification requirements following the introduction of the mandatory reporting regime;

  • Consider the availability of insurance cover for civil fines imposed by the Regulator, and advise insureds accordingly;

  • Consider the impact on home insurance of the new responsibilities which fall to residents under the Bill.

It is clear, therefore, that there are big shake-ups ahead for the insurance market. The coming months of representations, debate and amendments to the Bill will begin to cast some light on how wide-ranging the market’s response will need to be to these issues.

Who pays for existing problems?

Cladding issues have been vexing the insurance market now for over three years, with the result that many, if not most, newer policies now exclude liability arising from fire safety and external cladding materials to a very significant extent. Insurers may therefore consider that they are adequately protected from the economic ramifications of cladding issues, at least insofar as it comes to recent and new business.

However, there is considerable public and governmental concern as to the situation of the residents of buildings affected by unsafe cladding. Many private leaseholders are finding that they are facing large bills to carry out remedial works, but are unable to re-mortgage or sell because the building is so unsafe as a result of cladding of other fire safety issues that their properties are considered worthless.

In May 2018, the Government announced that it would fully fund the removal and replacement of unsafe cladding on social housing buildings over 18 metres in height. It estimated those costs at around £400 million. In May 2020, further funding in the sum of £1 billion was announced to meet the cost for remediation of buildings over 18 metres in height in both the private and social sector. These schemes will go some way to alleviating public concerns regarding the cost of building safety.

However, it is possible that the Government may seek contributions towards the costs of these schemes from the private sector. While there is yet to be any determination on the issue, and while the market is likely to have the opportunity to provide input into any proposals, any such scheme may have an impact upon insurers.

What next?

The Bill has been published for pre-legislative scrutiny before the final Bill is introduced to Parliament. There is therefore an opportunity for stakeholders and interested parties to consider the terms of the Bill and provide their comments and proposals in relation to it.

At the same time, the Government has initiated a consultation on fire safety and a new External Wall Review process. These separate but related initiatives are likely to have an impact upon the terms and provisions of the Bill, and it is likely that over the coming months significant amendments will be introduced. The final Bill may therefore look quite different to its current form.

Look out for further updates on the Bill’s progress.

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