Construction Matters

Construction has been referred to as a building site for fraud and corruption. The unique construct of the work and projects, including political and public pressure on projects, complex supply chains, high-value work, delays and overruns, makes risks of fraud and corruption higher for the sector. Those risks make the sector vulnerable to exposure to the new failure to prevent fraud (“FTPF”) offence, which comes into force in the UK on 1 September 2025. This new offence will make large organisations criminally liable for fraudulent conduct of their associates which is intended to benefit the organisation.

This new corporate offence was introduced by the Economic Crime and Corporate Transparency Act 2023 (“ECCTA”), a hefty piece of legislation designed to increase corporate transparency and combat economic crime. The FTPF offence did not come into effect immediately, requiring UK Government guidance to be published, which came in November 2024. Now, the countdown is on to the offence coming into force. Relevant organisations should have this regulatory change on their radar and included on their risk register for 2025 to ensure that any actions required are taken to best protect corporate interests ahead of this date.

What is the new failure to prevent fraud offence?

The FTPF offence applies to large commercial organisations where they fail to prevent fraud by associated persons, provided the fraud was committed with the intention of benefitting the organisation or those to whom it provides services. Associates include employees, agents and subsidiaries.

A relevant body is a large commercial organisation which meets at least two of the three following criteria:

• More than 250 employees
• More than £36 million turnover
• More than £18 million in total assets.

Despite the threshold for large organisations, it is not just about big corporates. This is because of the potential to capture subsidiaries and supply chain partners who could be below the threshold but end up being caught or required to comply as part of a wider group.

The offence also has an extraterritorial reach. Non-UK corporate bodies or partnerships are caught, regardless of where they are incorporated or formed, providing they fall within the definition of a relevant body. The offence applies to parent companies if the group headed by it (defined as the parent and its subsidiaries) meets, in aggregate, two or more of the criteria above.

This is a strict liability offence, meaning there is no need to prove that the organisation instructed or had knowledge of the fraud. Penalties include unlimited fines for the corporate.

The only defence against the new offence is for relevant organisations to demonstrate that they had in place reasonable procedures to prevent fraud or otherwise show it was not reasonable to have such procedures in place. The Statutory Guidance outlines expectations of reasonable fraud prevention procedures, based around six guiding principles, and should be used by organisations requiring to comply.

What does the new failure to prevent fraud offence mean for the construction sector?

The new offence creates opportunity for a more proactive and preventative approach to be taken to fraud which in turn can produce positive commercial impact, including profits. Even where a company on its own does not meet the large organisation threshold, it is prudent for any construction company forming part of a bigger group that is subject to the offence or where there are ambitious growth plans, to consider the new offence and actions required.

Those involved in the construction sector will have existing fraud control measures across their business. There is no requirement here to start from scratch where it may be more effective to extend existing fraud prevention processes. The key, however, is to understand the extent of any existing processes and review those against an assessment of fraud risks and potential offences that are in scope under ECCTA.

The guidance should be consulted to ensure that risk assessments are suitable and sufficient to identify prevalent risks of associated persons committing fraud for the benefit of the organisation, its group or its clients. The statutory guidance makes it clear that any organisation that does not have a documented risk assessment will be unlikely to have reasonable procedures for fraud prevention in place.

With public sector fraud and error losses alone estimated to be between £33-59 billion annually, the UK Government has a defined strategy to counter fraud. The new FTPF offence will be a powerful tool that can be used, in theory, to make it easier for organisations to be prosecuted and made criminally liable for failing to prevent any fraud taking place. Ultimately, if fraud goes undetected it is not possible to fight it. The FTPF offence requires a change in perspective and a proactive approach to achieve the best outcomes and protect business interests.

We can help with thorough risk assessments to identify relevant fraud risks and advise on what proportionate and appropriate controls should look like to best mitigate the risks. For more information, get in touch with your regular Burness Paull contact or our Corporate Crime team, who would be delighted to assist.

Both the Scottish and UK Governments are progressing with proposals to introduce building safety levies in Scotland and England respectively, with a shared objective of funding their respective cladding remediation programmes. While similar in intent, the approaches from each jurisdiction diverge in scope, structure and implementation.

Below we explore the key features and takeaways from the proposed levies, drawing on the new Building Safety Levy (Scotland) Bill, the Scottish Government’s consultation analysis report and the UK Government's consultation responses here and here, alongside the enabling provisions in Section 58 of the Building Safety Act 2022. We highlight the parallels between the two, as well as the important distinctions — such as how the levies might apply to different types of developments or players in the industry.

Comments

The latest information will be of particular interest to property developers, especially those who operate on both sides of the border, along with construction firms, funders and those within the legal and planning professions.

It is crucial to note that none of these details are final. There are significant aspects of both frameworks which are yet to be confirmed and both remain subject to further legislation. Details of the Scottish building safety levy are based on the Bill recently introduced to the Scottish Parliament and the Scottish Government’s consultation analysis report, while details on the English building safety levy are based on responses to the 2022-2023 and 2024 consultations.

However, whilst the arrangements for both levies are subject to change, given the proposed timescales for the levies to be brought into force, it is likely that their structure will remain broadly as proposed. Therefore, this article considers the current proposals to help stakeholders plan now, with updates to follow as the landscape develops.

In relation to the Scottish building safety levy, the Bill leaves a lot of the critical detail to be set out in future regulations. These details include:

• adjusting the scope of (particularly exemptions from) the levy;
• the rates for the levy and the categorisation of buildings to which different rates will apply;
• the methodology for measuring and verifying floorspace;
• the nature of any reliefs from the levy;
• the provisions for any levy-free allowance; and
• the provisions for making returns and payment of the levy.

With an intended commencement date of 1 April 2027, there may only be a short period between when the details of the regulations and the Scottish building safety levy are clear; and the start of the levy being imposed. This means that for existing contracts the impact of the levy (and the ability to take a prospective levy into account) will remain uncertain for some time. For contacts being put in place now, provision will need to be made on the basis of the information available, but without the final details. This has a potentially significant impact on the development industry (particularly for SMEs) and the required regulations and further details above will be welcome as soon as possible.

In the UK, our ageing population is contributing to significant growth in the care home sector. Current statistics show that demand is outstripping supply and there’s been movement towards larger, more luxurious care homes offering a higher standard of living, where affordable.

Building safety is a hot topic in the construction industry and we are seeing some interesting queries being raised specifically in relation to care homes, particularly because of the importance of building safety for vulnerable residents and the difference in treatment of care homes under different parts of the building safety regime.

Here we look at some key questions we’re being asked about care homes in England under the Building Safety Act 2022 (“the BSA”).

What counts as a care home under the BSA?

A care home is not defined in the BSA itself.

However, associated regulations say it is an establishment that provides accommodation, together with nursing or personal care for persons who are or have: been ill; had a mental disorder; been dependent on alcohol or drugs; or are disabled or infirm. This is under the Higher-Risk Buildings (Descriptions and Supplementary Provisions) Regulations 2023 (“the 2023 Regulations”), which use the meaning of “care home” from the Care Standards Act 2000.

This definition should be considered carefully. UK Government guidance notes there may be supported and sheltered accommodation such as domestic abuse refuges, children’s homes and supported or sheltered homes for older people and those with additional care needs, which do not fall within the definition of a care home.

Can a care home be a Higher-Risk Building?

Yes, in the design and construction phase under the BSA.

A 'Higher-Risk Building’ (“HRB”) is defined for the design and construction phase by t BSA (section 31) and the 2023 Regulations (regulation 2). Together, these provisions tell us that an HRB is a building in England, that is at least 18 metres in height or has at least 7 storeys and which contains at least two residential units (i.e. a dwelling or any other unit of living accommodation) or is a care home or hospital. 

There are also finer details about HRBs to be considered, such as what constitutes a “building” (whether it is attached to any other structure, has independent sections and certain access), how to measure height and what amounts to a “storey”. This means the question of what is or is not an HRB, is partly a technical question and not just a legal one.

However, a care home is not an HRB in the occupation phase under the BSA. Here, buildings that comprise entirely of care homes and hospitals are specifically carved out from being HRBs, by the BSA (section 65) and the 2023 Regulations (regulation 8).

The explanatory memorandum to the 2023 Regulations explains this difference is because the building safety regime is “focused on providing proportionate rigour where most necessary”. Therefore, including care homes and hospitals in the design and construction phase helps to ensure that HRBs which may be occupied by those unable to evacuate quickly or without assistance, are designed and constructed in accordance with the building safety regime. However, care homes and hospitals are not included in the occupation phase, because they are regulated as workplaces through the Regulatory Reform (Fire Safety) Order 2005. Those in control of these buildings already have duties to make sure they are safe, as well as being subject to the inspection regimes managed by local Fire and Rescue Authorities’ and the Care Quality Commission, who will take action if required.

This means a care home of at least 18 metres / 7 storeys (and meeting the finer details of HRBs as noted above), will be subject to the design and construction requirements for HRBs under the BSA, such as the gateway two building control approval. With the supply and demand challenges and a shift towards larger care home developments, it is likely that more care homes will constitute an HRB for these purposes. However, they will not be subject to the in-occupation requirements for HRBs and they do not require to be registered as HRBs.

What about the Responsible Actors Scheme and care homes?

The Responsible Actors Scheme (“RAS”) is about securing building safety and improving standards of buildings, by ensuring that eligible developers remedy, or contribute to the costs of remedying, fire safety defects in certain buildings. It is provided for under sections 126 – 127 of the BSA and the details are in The Building Safety (Responsible Actors Scheme and Prohibitions) Regulations 2023. These tell us that the RAS applies to residential or mixed-use buildings in England of at least 11 metres high, which have been developed or refurbished between 5 April 1992 and 4 April 2022.

However, the eligibility criteria for developers include that their principal business is residential property development. Here, “residential property” excludes buildings constructed or adapted for use primarily as care homes (i.e. homes or other institutions “providing residential accommodation with personal care for persons in need of personal care because of old age, disability, past or present dependence on alcohol or drugs or past or present mental disorder”, per section 37(2) of the Finance Act 2022). This means the RAS will not extend to developers of such care homes on the basis of their principal business being “residential property”.

Does the Building Safety Levy apply to care homes?

It is proposed that care homes are excluded from the Building Safety Levy ("Levy") in England.

The Levy is provided for under the BSA (section 58). Following two consultations, in March 2025 the UK Government confirmed its proposals for taking this forward as a levy on new residential buildings, to raise revenue to be spent on building safety. The proposals set out an exclusion from the levy for care homes, as well as for NHS hospitals, supported housing, children’s homes and domestic abuse shelters. The next steps are for secondary legislation to be made with further details of the Levy before it is intended to come into effect in autumn 2026.

Conclusions

It is clear that the new building safety regime is relevant for care homes and the additional requirements for HRBs are likely to catch more care home projects in their design and construction phase, as the sector adapts to meet demands.

Further, it is important to note that even if a care home is not an HRB, other aspects of the BSA will apply, including the duty of any client to appoint a Principal Designer and a Principal Contractor for the purposes of ensuring compliance with the building regulations.

Other key parts of the regime like the Levy and the RAS are not relevant for care homes and some developers who do purely care home work.

The BSA is only part of the story for care homes. We should not forget about recent changes to wider fire safety requirements, like the requirement for sprinklers in all new care homes and the expectation that new care homes limit compartment sizes to 10 beds from 2 March 2025.

In Chugga Chugg Pty Ltd v Privinvest Holding SARL [2025] EWHC 585 (Comm), the claimant (“Chugga Chugg”) was the beneficiary under a parent company guarantee (“PCG”). The PCG had been given by the defendant (“Privinvest”) in respect of Nobiskrug, a German subsidiary of Privinvest which had contracted to design, build and deliver a yacht for Chugga Chugg. The PCG guaranteed the “due and punctual performance of all of [Nobiskrug’s] obligations under the Contract up to an aggregate maximum amount of €9,955,000 …”. In the case of a “contested” breach or termination of contract by Nobiskrug, Chugga Chugg needed to present the following documents to Privinvest before Privinvest would become obliged to pay under the PCG: (1) “a final unappealable award”; and (2) a written demand.

Disputes arose between Chugga Chugg and Nobiskrug. In April 2020, after a series of phone calls with Chugga Chugg’s representatives, Nobiskrug concluded that Chugga Chugg had renounced the contract (i.e. had shown an intention, by words or conduct, not to perform). On 8 June 2020, Nobiskrug served a notice accepting Chugga Chugg’s alleged renunciation. Nobiskrug brought an arbitration against Chugga Chugg the following day. For its part, Chugga Chugg denied having renounced the contract. Instead, in July 2020, Chugga Chugg served its own termination notice alleging that Nobiskrug was in material breach of contract.

The arbitrator made awards in favour of Chugga Chugg, but Nobiskrug became insolvent before the arbitrator gave the final award. On the strength of the awards, Chugga Chugg demanded payment from Privinvest under the PCG.

It was common ground that if Chugga Chugg had not renounced the contract in April 2020, and if Nobiskrug’s June 2020 termination notice was therefore invalid, then Chugga Chugg’s July 2020 termination notice was valid, with the result that Chugga Chugg’s claim should succeed.

The Commercial Court upheld Chugga Chugg’s claim. En route to that conclusion, the Court decided as follows:

1. The PCG gave rise to secondary, not primary, liability on the part of Privinvest. Before Chugga Chugg could claim payment, it needed to establish a breach of contract by Nobiskrug. In other words, the PCG was not an on-demand bond.
2. However, the distinction between primary and secondary liability made little practical difference. The provision of the PCG required Chugga Chugg, in the case of a “contested” breach or termination by Nobiskrug, to present “a final unappealable award” and a written demand to Privinvest. That procedure was all that Chugga Chugg needed to follow to trigger Privinvest’s liability under the PCG.
3. The calls in April 2020 did not prove that Chugga Chugg had renounced the contract. To succeed on this aspect, Nobiskrug needed to prove that it reasonably understood Chugga Chugg clearly and unequivocally indicated it was unwilling and/or unable to perform the contract, regardless of Chugga Chugg’s subjective intentions. The Court held that Chugga Chugg’s intention was to cancel the contract “if it could be done at an acceptable price”. That, said the Court, was insufficient for renunciation. In other words, it was not enough that Chugga Chugg had said that it “wanted out”. What was needed was an unequivocal refusal by Chugga Chugg to perform.
4. Chugga Chugg had followed the procedure to activate Privinvest’s liability under the PCG. Chugga Chugg had obtained a “final unappealable award” against Nobiskrug in the arbitration and it had made a written demand on Privinvest.

Comment:

This case is a useful reminder of the need to make it clear, when drafting a parent company guarantee, whether the guarantor’s liability is primary (i.e. on demand) or secondary. The decision also reiterates the fact that a renunciation of a contract must be unequivocal – merely exploring the possibility of terminating, provided the price is right, is not enough.

Summary:

The recent case of Destin Trading Inc (“Destin”) v Saipem SA (“Sapiem”) [2025] EWHC 668 (Ch) includes discussion in relation to the drafting of settlement agreements and, in particular, exclusive jurisdiction clauses.

Following a series of disputes between Destin and Siapem, the parties entered into a settlement agreement which provided that (i) the parties’ contract had come to an end and parties were released from any future claims arising out of the agreement; and (ii) the English courts had exclusive jurisdiction over any dispute arising out of the settlement agreement.

In 2024, Destin raised a claim again Saipem alleging that they had been induced into entering into the settlement agreement as a result of misrepresentations by Saipem. Destin sought rescission of the settlement agreement and claimed restitution and damages. Saipem applied to stay Destin’s monetary claims under the Arbitration Act 1996, arguing that the monetary claims arose under the original contract and were therefore subject to arbitration.

The Court refused the stay.

The Court held that the monetary claims were, in substance, claims for deceit and restitution arising from the settlement agreement. The governing dispute resolution clause was therefore that contained in the settlement agreement.

The Court applied the reasoning set out in Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm) by analogy (notwithstanding that the Monde Case involved a termination agreement, as opposed to a settlement agreement). As a result, the Court concluded that when a settlement agreement is intended to bring earlier agreements (and related claims) to an end, and it contains a dispute resolution clause inconsistent with the underlying agreement, it will generally be construed as having a superseding or overriding effect.

Comment:

Jurisdiction clauses are often viewed as simply boiler plate. After spending what is likely to be significant time and expense in preparing a carefully crafted settlement agreement, it’s important that you consider the impact of your jurisdiction clause.

If the project is at a close, you may be content to amend the jurisdiction for any subsequent disputes which have not yet arisen – particularly if the defects period is over and you are at risk of time bar for any future claims.

However, if you resolve an interim dispute at an earlier stage, consider whether you are amending the jurisdiction provisions for only certain claims. You don’t want to end up in a situation where you are arguing about which proceedings apply, or different claims have to be resolved in different forms of proceedings.