With climate change dominating the headlines and COP26 commencing in Glasgow, it is inevitable that this will also be edging its way up corporate agendas. The built environment reportedly contributes 43% of the UK's carbon emissions, so the construction industry will likely be put under significant pressure to reduce its carbon footprint. Hopefully, all operating in the industry will be considering what steps they can take to play their part.
One way of doing so is by adapting the terms of construction contracts and consultant appointments and the obligations and liabilities in them.
So why is climate conscious contract drafting important and what are its advantages?
- to enable the enforcement of green/sustainable provisions.
- to push sustainability discussions to the forefront of parties' minds during negotiations.
- to help future-proof against legislation changes which introduce more onerous sustainability requirements.
- being seen to meet sustainability targets may increase the value and marketability of the built asset concerned.
- wider funding opportunities through green loans.
- improvement in green credentials to the benefit of its corporate reputation and brands.
The green provisions which parties may consider including into their contracts will vary widely. Of course much will depend on the type of contract and the nature of the development. However help and precedents are available. The Chancery Lane Project ("TCLP") is a not-for-profit collaboration of lawyers who have been working to develop clauses to address the challenge of climate change. The clauses which TCLP have developed include terms relating to on-site working practices, green procurement of materials and making energy efficiency a requirement of practical completion.
Care is always required when adding to or adapting new clauses in contracts, including standard forms. It is therefore crucial to ensure that the terms are consistent with the rest of the contract. It is also important to consider how the provisions interact with any upstream, downstream or other related documents. Many of these provisions have not been tested in the courts so it may be difficult to know exactly how they would be treated if scrutinised in dispute resolution proceedings but that will change in time.
An inevitable question is who should shoulder the risk and cost of green/sustainability obligations. Considering the tight margins and other well publicised challenges with which the industry is already grappling, it may not be straightforward to reach agreement on this. The lead may need to come from funders and developers so that the rest of the supply chain follow.
It will be important that performance against any green requirements is monitored and measured during construction of a development and enforced as necessary. If that does not happen the inclusion of green clauses will be meaningless and amount to 'greenwashing'- talking the talk but not walking the walk!
Contractual provisions are obviously not a golden bullet to solve the dilemma of climate change. However, not surprisingly we are seeing more interest in them so don’t get left behind.