Negotiating the terms of SHDF (Social Housing Decarbonisation Fund) delivery contracts may contain many pitfalls for the unwary. Here are our top tips for speedy and efficient negotiations and how to conclude the best contract for your retrofit projects.
Wave 3 of the SHDF was announced in May this year, and all the indications are that the new government will continue with this important programme to improve energy efficiency and reduce energy costs in the nation's social housing stock. The task ahead remains enormous, with many millions of properties needing improvement work.
We have already discussed the choice of delivery contract in our November article 'Delivering grant funded retrofit works in social housing – why contract choice is important?', and we shall be looking at other issues such as the consultation of leaseholders under Landlord and Tenant Act 1985 in future articles. Also, our energy & sustainability team discussed the funding for Wave 3 in more detail here: How to prepare for SHDF Wave 3.
In this article, we shall focus on preparation and the issues you as a landlord should deal with before instructing lawyers or negotiating the details of the contract with the contractor.
Third party agreements/external obligations
The contract will need to cater for obligations contained in a number of different third party agreements. These documents should be collated immediately.
1. The SHDF funding documents
These are primarily the Grant Funding Agreement and the Data Processing Agreement. These agreements will place obligations on you, as the funded party, to Department for Energy Security and Net Zero (DESNZ) and others. You will need to consider passing those obligations down to the contractor, to ensure that the contractor does not place you in breach of your obligations to DESNZ.
2. Policies
Do you have any policies with which your contractor will need to comply, particularly in respect of working in your tenants' homes? These might include policies on anti-slavery, bribery, safeguarding for vulnerable children and adults, equality and diversity, or a contractor code of conduct. These should be collated and presented to the contractor as soon as possible so that the contractor can factor them in to the works.
3. Framework agreement
Is the delivery contract being procured under an existing framework agreement? Has this been procured in compliance with the public procurement regulations? This may contain provisions which need to be in the delivery contract or may deal with issues such as pricing which affect the contract.
4. Boilerplate/standard clauses
Does the landlord have any standard or template clauses which have to be included in the contract? For example, any standard termination procedures, or dispute resolution?
Commercial issues
We recommend setting out the commercial issues as part of the contract procurement. Getting these issues agreed early will save a huge amount of time, and expense.
1. Limits on liability
What limits on the liability of the contractor are the parties willing to agree? In our experience, the contractor is likely to ask for a financial cap, as well as extensive carve outs for indirect and consequential losses.
2. Security such as parent company guarantee or performance bond
Contractors for SHDF work are sometimes reluctant to provide security, a position which is reinforced by the current issues in the bond market, which mean that obtaining any sort of bond is more difficult than it has been in recent years. This can be a major sticking point in the negotiations.
3. Professional Indemnity Insurance and other insurance
You will need to make your requirements for PI insurance and other insurances clear. Generally, these will be set out in the selection questionnaire. The amounts will depend up on the contract value, but if a tendering contractor does not have the required levels of insurance this should be ascertained before award.
4. Rates and pricing
Is there an agreed schedule of rates? Will fluctuations provisions be needed?
5. Other works
Are other works, which are not SHDF funded, being carried out under the contract? If so, how are they being funded?
6. Other funding
Are any other sources of funding being used to fund works, and how do these works, and the funding arrangements, fit in with the SHDF funded works?
7. Defects
Do you have standard defects rectification procedures, which the contractor will be required to follow?
8. Data protection
This may seem rather technical, but it is very important, as sensitive personal data belonging to tenants may be processed as part of the contract works. Who is the data controller, how is personal data to be administered, what happens if there is a breach of data protection legislation?
9. Collateral warranties
Are these required from subcontractors? Or from the contractor? Are there any requirements under any funding agreements for warranties?
10. Access protocol
This is a key document in the contract and should be agreed and finalised as early as possible. This will deal with issues such as the numbers of attempts to access a property that the contractor must make.
11. The team
Is the team fully assembled and appointed? Does the contractor know which roles it is going to be appointed to perform? Who is doing the following?
- The Building Safety Act Principal Designer and Principal Contractor?
- The CDM Principal Designer and Principal Contractor?
- The Contract Administrator?
- Project Manager?
- PAS 2035 roles:
o Retrofit Coordinator?
o Retrofit Advisor?
o Retrofit Assessor?
o Retrofit Designer?
o Retrofit Installer?
o Retrofit Evaluator? - Data Protection Roles:
o Data Controller?
o Data Processor?
o Data Subjects?
12. Pepper-potting and access
How are the parties dealing with properties which you do not own? For example, flats in a block which are privately owned? Or a house in a terraced row? It is also sensible to include a process for properties to be substituted if access cannot be gained.
Other issues to look out for
Some of the companies undertaking retrofit works are not traditional contractors and lack experience of working in the social housing sector.
If this applies, you should be aware that there may be a lack of understanding of the issues peculiar to working in inhabited social housing properties, for example the need for safeguarding policies, and rapid defects rectification.
The contractor may use an inhouse legal team which may want to include unusual or unacceptable provisions, particularly in limitation clauses: for example, liability by way of legal theory, which is meaningless in UK law.
Also watch out for the addition of amendments which are not market standard, for example on assignment.
Our team has developed unrivalled experience in negotiating SHDF delivery contracts, having dealt with over 27 such contracts to date in Waves 1 and 2, for councils and social housing landlords across the country. Please contact Katie Saunders or Jane Hughes for further advice or assistance.
