Lawyers across the world have collaborated to create The Chancery Lane Project (TCLP) – a hive mind effort to rework a variety of contracts to address climate change risks and assist in achieving the UK's 2050 net zero target. TCLP publishes template clauses to plug in to a wide variety of contracts, such as Tristan's Clause which was drafted for use in the JCT Design & Build Contract 2016.
Tristan's Clause was born of contractors and developers inclining to procure cheaper materials, rather than sustainable materials, in order to pitch more competitively priced tenders in an increasingly difficult market. Tristan's Clause aims to address procurement of materials in the following ways:
Introduction of a carbon budget
The carbon budget under Tristan's Clause works similarly to, and alongside, the traditional financial budget of a project.
The building contract will set out the total amount of greenhouse gas emissions permitted for carrying out the works (the carbon budget), and liquidated damages are imposed on the contractor if this carbon budget is exceeded. The rate of damages will theoretically be based on the cost of offsetting the excess carbon emissions or remedying the employer's breach of any development agreement further up the contractual chain.
TCLP acknowledges that this form of damages may not be enforceable. As an alternative, they have suggested the use of a target mechanism, with the amounts in an incentive pot increasing the further the contractor goes below the carbon budget. Whether this works to motivate contractors in practice will depend on the size of the incentive and the achievability of the target.
TCLP conducted a case study of the Environment Agency drafting in incentives in supplier contracts to reduce their carbon emissions. It showed that the Environment Agency were able to tailor the drafting and incentives to suit the capacity of each supplier, which in turn led to the suppliers engaging with the sustainability requirements at the start of the process with the aim to agree on the right reduction goal.
Another suggested alternative is to increase the retention amount, with a proportion held against achievement of the carbon budget, and for such retention to be used by the employer to offset the carbon emissions if the carbon budget is still not met by the end of the rectification period. Widening the scope of cash retentions in a building contract will be controversial given the resistance to retentions in the construction industry lately. Change must be driven while treating contractors fairly and avoiding remedies which could dis-incentivise contractors who may already be high sustainability performers.
In terms of the carbon budget itself, the size of it will be crucial to the contractor's compliance with the building contract and the financial return it achieves. It is questionable whether many contractors are technically able to predict carbon budgets for proposed projects and negotiate them on a commercial basis and may require appointing so-called "carbon consultants" for guidance which will only add to project costs.
Prohibited Materials definition
Tristan's Clause also extends the definition of Prohibited Materials to include materials that:
- would unnecessarily cause the carbon budget to be exceeded (either because the emissions cannot be mitigated by carbon offsetting or there is an alternative material that would have met the required standards); and
- are generally considered harmful to the environment within the building profession.
The catch-all in the second addition above is unlikely to sit well with contractors. In this relatively new age of procuring and working with greener materials, there may not yet be an established sense of what might be considered harmful to the environment in the same way as what might be deleterious to structural integrity or health and safety. Equally this may be difficult for an employer to prove until the building profession develops the right consensus of know-how on materials harmful to the environment. Like with most green drafting, this provision will need to strike a balance between having teeth (i.e. free from any sense of greenwashing), and recognising new provisions are being introduced into an industry where climate-transition clauses are not yet common.
Physical proximity of materials
A "best endeavours" obligation is imposed on the contractor to source material as close to the project site as reasonably practical. Whilst an interesting method to reduce the carbon footprint incurred in transport of materials, this may restrict contractors in embracing more innovative materials that may be found further afield which could offset the emissions in transport. This provision may also fall foul of public procurement rules in the UK and is worth a closer look at.
Tristan's Clause is currently being redrafted to widen its effect.
Tristan's Clause is a good starting point to inspire a greener approach to procurement in construction contracts – but it remains a starting point. The carbon budget and overall measurement of emissions could go further to consider the impact of the selected materials throughout the life cycle of the development, rather than just in its procurement and use in the construction process. What may be considered sustainable and in compliance with the carbon budget during construction of the works might appear less so when it comes to any future replacements, refurbishment or operation of the development in time. TCLP's case studies have shown that the clause is flexible enough to, and should, be adapted to contractors' abilities to perform whilst still setting challenging targets.
Next in the series we consider how The Chancery Lane Project drafting for commercial contracts can help clients reduce emissions from their supply chain.
