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Supporting Sustainable Construction through Construction Contracts

It is widely known that the built environment and construction industries are major contributors to global carbon emissions.

With the Government’s ambitious goal of achieving net zero greenhouse gas emissions by 2050, the construction and engineering sectors must proactively work towards reducing the environmental impact of the UK’s built environment.

Environmental, Social, and Governance (ESG) factors are now crucial considerations for developers, funders, building contractors, and investors alike.

As a result, it is unsurprising that parties involved in construction contracts are increasingly incorporating clauses that prioritize sustainability.

The Chancery Lane Project

The Chancery Lane Project is a global organization comprised of legal and industry experts who develop model clauses, provided free of charge, for integration into construction contracts to advance climate change solutions.

In addition to supplying draft model clauses, The Chancery Lane Project also offers informative overviews of the specific climate change issues each clause addresses, along with links to user manuals that provide details on how the clause operates and drafting notes.

Examples of provisions that can be included in construction contracts are as follows:

  • JCT Energy Efficiency and Environmental Obligations (Mary’s clause): This clause is designed for use in JCT Design and Build contracts, with the aim of ensuring that the works meet predetermined energy efficiency targets before certification of completion.
  • Net Zero Aligned Construction Modifications (Luna’s clause): This clause empowers contractors to propose modifications to the works in order to achieve agreed-upon green objectives.
  • Climate Standard of Care (Construction) (Estelle’s clause): This clause seeks to revise the standard of care, requiring contractors and service providers to ensure that the project fulfills its “Net Zero Objectives”.

Option X29 NEC4

As part of efforts to mitigate the impact of construction activities on climate change, the NEC has introduced the “Option X29” clause as an addition to its NEC4 suite of contracts.

Published in July 2022, Clause X29 is available for use in all main contract and sub-contract forms within the NEC4 suite. The key components of this provision are as follows:

  • Climate Change Requirements: These are to be adhered to by the contractor as per the project’s scope. Examples of such requirements could include the use of renewable energy on-site or electric vehicles. Failure to meet these requirements will be categorized as a defect that must be remedied. It is crucial to ensure that the Climate Change Requirements are reasonable and achievable for the contractor during the drafting process.
  • Climate Change Execution Plan: The contractor is responsible for preparing this plan, which must outline how the climate change requirements will be achieved, including tools, key milestones, timescales, and stakeholders. The plan must be approved by the project manager.
  • Non-mandatory Performance Table: This table sets targets to be achieved by the contractor and provides incentives, which may be positive or negative financial rewards, based on performance. The contractor is required to report its progress against these targets at regular intervals.
  • Climate Change Partners: The clause mandates collaboration between the contractor and other Climate Change Partners identified in the Climate Change Requirements.

Option X29 is a pioneering clause, as it is the first to directly address climate change in any of the prominent standard forms of construction contracts.

Although Option X29 is optional, the increasing emphasis on sustainable construction clauses is likely to result in its widespread adoption in contracts.

JCT Suite of Contracts

The JCT suite of contracts includes an option for sustainable development and environmental considerations in supplemental provision 8. Clause 8.1 states that “The Contractor is encouraged to propose economically viable amendments to the Works that, if instructed as a Change, could result in improved environmental performance during the construction or upon completion of the Works.”

Clause 8.2 further specifies that “The Contractor must provide the Employer with all reasonably requested information regarding the environmental impact of materials and goods selected by the Contractor.”

Supplemental provision 8 provides an opportunity for the contractor to enhance the environmental performance of the construction project.

Although parties to the contract may choose to apply this provision, it does not impose any obligation on the contractor, as the use of the words “encouraged” and “may” is vague.

Furthermore, there seems to be a lack of financial incentive for the contractor to propose changes, as any additional work proposed would be compensated, but changes that involve excluding or reducing the contract sum for sustainability purposes may not be attractive to the contractor.

FIDIC Suite of Contracts

The FIDIC contracts’ main forms mandate that the contractor takes all necessary measures to:

• Protect the environment, both on-site and off-site.

• Minimize damage and disturbance to people and property from pollution, noise, and other impacts resulting from the contractor’s operations or activities.

• Comply with any environmental impact statement for the Works (applies to the 2017 Editions only).

Additionally, the contractor must ensure that emissions, surface discharges, effluents, and other pollutants from their activities do not exceed the values specified in the Specification or those prescribed by applicable laws.

This provision allows the client to include their environmental requirements for the project in the Specification from the project’s outset. Failure by the contractor to comply with these requirements would constitute a breach of the contract.

When incorporating sustainability provisions into construction contracts, it is important to carefully consider the allocation of risks between the parties and avoid any ambiguity that may lead to disputes in the future.