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Building on up

Building on up

The financial crisis hit construction projects hard, but lawyers haven't stopped working tirelessly in a rapidly changing area. And now, the construction sector is going green, writes Amal Awad…

The financial crisis hit construction projects hard, but lawyers haven't stopped working tirelessly in a rapidly changing area. And now, the construction sector is going green, writes Amal Awad

It's fair to say that lawyers in any sector are subject to evolution. Right now, this is particularly true for those specialising in construction law. While the sector faces uncertainty in volatile market conditions, it must contend with myriad legal developments. New energy efficiency requirements are slated, and the Government is also planning to review security for payment legislation.

Nevertheless, not only are lawyers reporting an uptick in business, they say the global financial crisis (GFC), while affecting projects, merely shifted, rather than lessened, their workloads.

"The GFC certainly affected the number of projects that got off the ground," says Holding Redlich partner Stephen Pyman, "but it also meant an increase in security for payment claims and the major developers and contractors looking at new and innovative ways to proceed with projects, and to differentiate themselves from the market, such as having a Greenstar/NABERS* specialisation." Their workload has increased since the GFC, with the firm adding three more senior lawyers.

Colin Biggers & Paisley recently reported "a marked upsurge in 'front-end' contractual work" as the economy and construction sector bounce back. Partner Avendra Singh has not seen a slowdown in workload.

"The GFC affected different parts of the sector in different ways. For some, activity ceased entirely, especially for those dependant on bank finance."

Anecdotally, he notes, many small to medium developers were "dealt with very shabbily by banks", but this was not across the board.

While things are looking rosier, lawyers are not unrealistic about the road ahead. "Whilst there is definitely an upswing in business, there is still an element of uncertainty because finance is hard to come by and there is always the spectre of the rate rise," Singh notes.

Scott Laycock, partner at Gadens Lawyers, says the GFC's "tangible impact on the sector" was predominantly due to a lack of available funding from financiers "and developers applying far greater scrutiny to the viability of a range of projects in a very volatile market".

The result was that many projects expected to "come on stream" were impacted.

"While we have certainly experienced less predictable ebbs and flows in activity over the last 12 months, there has been a marked increase in dispute resolution and security of payment work," he says.

"However, the types of work and range of issues we have had to deal with has certainly been more diverse than in previous years. I think this is a function of many clients shifting and sharpening their focus to identifying and pre-empting potential risks and exposure."

The "Green" revolution

So why are lawyers in the sector so busy? For starters, construction has joined the "Green" revolution.

"Some people also call this the 'Green ratings war'," says Pyman.

"There is a race on at the moment to lead the field in green sustainable buildings." More specifically, he is referring to the construction of energy efficient buildings with Greenstar and NABERS (energy) ratings. The Brisbane-based partner says both the State and Commonwealth governments have issued policy guidelines requiring a minimum rating prior to their becoming a tenant.

"Moreover, the major superannuation funds, which, in many cases, constitute the purchaser of major commercial buildings, have shown a tendency to purchase those buildings with higher Greenstar/NABERS ratings," Pyman notes.

He says it is a major issue for lawyers in this area to become "Greenstar accredited". They must also deal with numerous problems flowing from developers wanting a warranty from the contractor that a specified rating will be achieved.

Laycock is also involved in the area of Greenstar certification. "The rise and rise of the Green Star certification tool ... and the emerging Federal and State regulatory framework and incentive schemes relating to energy efficiency and sustainable building practices are a critical consideration in many projects, particularly those in the commercial property sector," he says.

Fast tracking outcomes

Another primary issue consuming work hours is what Pyman calls the "security for payment boom".

"It is fair to say that the Building and Construction Industry Payments Act (security for payment) has exceeded everyone's expectations (including the government) in its application in the building and construction industry," says Pyman. His firm has five lawyers working full-time in this area.

The Act is now effective, to varying degrees, in five states. In the financial year ending 2009, $235 million in applications were lodged under the Act, according to Pyman.

The challenge for lawyers is that because there are so many states where the Act is in use, there is a continuing body of new law dealing with the application of the Act. Further, the Act is rapid form adjudication, or to quote one judge, 'a fast track interim payment method'."

Meanwhile, Laycock says proportionate liability regimes are also a major issue for the sector. "The breadth of application of the State and Territory proportionate liability regimes has certainly been brought sharply into focus in recent months," he says. "For example, the question as to whether those regimes apply to arbitrations is a very significant issue and one that needs to be resolved fairly quickly, as the answer will have a fundamental impact on the role the process of arbitration will play as a viable form of dispute resolution in the years to come."

For Singh, infrastructure and housing, and the legal issues they present, are on his radar. "Lawyers often play a significant role in setting up the project delivery methods for major projects. We have seen major projects including the Lane Cove and Cross City tunnels fail spectacularly, begging the question, did the problem lie in the way the delivery of these projects were structured?" he says. "Lawyers can play a major role not only in the risk allocation ... but also on the commercial side of the ledger."

Pyman further points to concerns regarding construction funding, saying financiers, not just developers and builders, took a hit with the GFC. "A number of the major financiers are either now no longer lending or have closed off their books. This means that the major developers and ... builders, many of whom employ thousands of people across Australia, have had to look at new and innovative ways of getting projects off the ground with, sometimes, minimal assistance from financiers."

This has resulted in "innovative solutions" - joint ventures, profit share arrangements and equity participation by contractors.

"This in itself, has allowed those lawyers who have been progressive enough to deal with these changes to develop new practices when acting for contractors or developers who enter into such profit sharing or equity participation arrangements with the corollary of documentation such as loan agreements and profit share agreements to follow."

As for legal changes affecting the sector, they are coming. The push for energy efficiency means the Building Code of Australia will include "significantly higher standards" as of July 2010 for commercial projects and 2011 for residential projects, says Laycock.

Pyman notes "a mandatory disclosure scheme for NABERS rating for sales or leases over a certain size", as well as pilot schemes under both Greenstar and NABERS.

*National Australian Building Environment Rating System

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