While refurbishment projects vary dramatically in scope and size, their risk profile usually differs quite significantly from that of new build projects. Carrying out works to existing buildings brings about particular challenges. Key factors for well prepared clients seeking to instruct refurbishment works to bear in mind in their procurement and contractual processes include:
- Existing property survey – instruct before commencing procurement. This will ascertain any issues with the existing structure which may impact on delivery of the refurbishment and help in determining the appropriate extent of transfer of delivery risk to the contractor.
- Risk transfer – the extent of risk transfer to the contractor will normally depend on the scope of works and the competitiveness of the market at the time of tendering. Of particular concern to most contractors will be the existence of latent defects in the existing structure. Even with a comprehensive property survey, contractors are unlikely to accept the risk of the integrity of the existing structure. Contract terms should be clear as to what risks are being borne by each party.
- Operational considerations –the constraints of the existing structure can pose a challenge to working methods and programme, as will the need to carry out works in part of an otherwise fully functioning building. This requires detailed consideration to be given to access and egress routes, handover arrangements, phased completion, and maintaining “business as usual” for building users.
- Insurance – new works being carried out to existing structures often create interface issues between works and property insurances. In certain cases (usually larger projects), it may be advantageous (in terms of cost and risk mitigation) for the client to effect an owner controlled insurance programme (“OCIP”). This gives the client control of the purchase of the required insurances (usually with the exception of professional indemnity insurance). The OCIP should be in the joint names of the client and the contractor and can also be set up to provide protection for sub-contractors.
- Insurance – standard forms - If working under a JCT or SBCC contract, be aware of the potential limitations of the standard insurance options. The most typically selected option for refurbishment works (Option C) requires the client to be in control of the insurance of the existing structure. This will not always be the case.
- Impact of delay – late completion of a refurbishment project will often mean that a client will continue to incur alternative accommodation costs, which can be substantial. It is difficult to set an appropriate level of liquidated damages balancing the client’s total damages and a level which contractors can price into their bids without too much of a premium. In such circumstances, a bespoke mechanism to deal with alternative accommodation costs arising as a consequence of delay may be more appropriate than traditional standard form liquidated damages provisions.
