From securing adequate funding to ensuring you are not left with a half-finished project, Richard Brackenbury and Chris Hawrylak of Nottingham law firm Berryman provide a step-by-step guide to refurbishing or building your practice.
Nearly half of practices need to be refurbished or replaced to meet the increasing demands on GPs and their staff, according to figures from the RCGP, but it can be difficult to ensure the project gets off the ground.
There are many different options and legal snares when hiring a contractor. In this article we hope to show you that although building or refurbishing a practice can be a huge undertaking, common mistakes can be easily avoided if GPs plan carefully and get the right advice.
1. Get advice early
The key considerations in any construction project – as indeed with most things – are costs and funding. It can pay dividends to speak to experts before you embark on any project.
2. Consider the risks
Self-funding the development of a practice, usually with a bank loan, has benefits as well as risks. One benefit is that it ensures a practice can control the construction process directly, as well as realise other commercial opportunities, such as rental income from adding a pharmacist. However, a practice will have to take out a large loan to finance the project, place heavy reliance on professional advisers during the process and, at the end of the day, understand that the value of the asset can go down as well as up.
3. Look at alternative sources of funding
There are several sources of GP-backed funding available through third-party developers and Local Improvement Finance Trusts (LIFTs). LIFT and the recently introduced Express LIFT are public–private finance models to redevelop and replace primary care facilities. Under the LIFT scheme, a LIFT Company is created and becomes the owner of the premises being developed.
4. Check the project is feasible
As with any other commercial construction project, a practice will need to undertake a feasibility study and raise finance before it should consider engaging professionals to design a building or a contractor to build it.
At an early stage, cost consultants can assess a practice’s requirements and constraints in detail to conclude whether the project is achievable. The practice’s bank will appoint its own professional and legal advisors to advise the bank on the specific conditions to be satisfied by the practice and the practice’s professional and legal position before giving the loan.
5. Decide which contract you want
Construction projects are complex and the legal relationships between the parties depend on the method of construction or ‘procurement strategy’.
A key feature of the UK construction industry is the extent it relies on standard form contracts to deliver purpose-built solutions to client needs. These standard forms simplify the process of engaging a contractor by removing the need to negotiate every term of the contract while maintaining a degree of flexibility for each unique project. There are many types of standard form contracts, but they usually fall into one of three categories:
1. ‘Traditional’: a contractor is appointed to build the project in accordance with a design provided by the client.
2. ‘Design and build’ or ‘turnkey’: the client briefly outlines its requirements and the contractor undertakes the design and construction of the project.
3. ‘Management based’: multiple specialist subcontractors carry out the project under the management and supervision of a construction manager.
In deciding what procurement strategy is appropriate for a practice’s needs, consideration should be given not only to the design and construction of the projects, but to where risks, particularly those of delay to the completion of the project, could lie.
Design and build procurement is a common approach in primary care because it offers a single point of responsibility with the contractor. While the contractor may appoint specialist designers or sub-contractors, the practice can ensure the contractor will be ultimately responsible for the successful delivery of all aspects of the project. This is attractive to both the practice and its bank.
6. Employ a project manager or consultant
A practice will also need its own team of consultants, with varied disciplines based upon the size and complexity of the project, to check and monitor the contractor’s progress. The practice should, as a minimum, employ an experienced hands-on project manager to co-ordinate the project.
7. Avoid standard form contracts for consultants
A number of the industry professional bodies produce standard form services and/or terms of engagement for consultants, including the Royal Institute of British Architects and the Association for Consultancy and Engineering . It is fair to assume these would be embraced by the construction industry in a similar manner to the standard form contracts. However, these standard forms should be avoided because they do not adequately balance the interests of a professional consultant and the client. In particular, banks will not accept the use of such standard forms on the basis that these try to limit or ‘cap’ the consultant’s responsibility for defective designs.
8. Include legal protections in the contract
There are many parties involved in the project who will be asked to design or carry out work. Commonly, the request to undertake design or works will come from the contractor to its subcontractors and not directly from the practice. Legally, this causes a problem due to the well-established principle that only a party to a contract can take benefit of that contract. In other words, the practice would not be able to pursue a subcontractor for a breach of contract where it is not a party to that contract.
The construction industry has overcome this problem with the introduction of ‘deeds of collateral warranty’. It is not uncommon for a practice and its bank to receive multiple deeds of collateral warranties – perhaps 10 or more on large projects – in order to receive the benefit of being able to sue companies in the event of a breach of their respective contracts.
However, there is no implied requirement on members of the project team to provide deeds of collateral warranty or indeed standard form warranties that identify the terms of that collateral warranty. If warranties are required, which is usually a condition to funding imposed by banks, it is critical for the practice to ensure that such a requirement is included within the contractors’ contract or consultants’ conditions of appointment and agree the form of the deed of collateral warranty.
Richard Brackenbury is a partner and head of the property and construction team at the Nottingham law firm Berryman and is a construction specialist. Chris Hawrylak is a trainee solicitor at Berryman.
Richard Brackenbury, chairman of Berryman, and head of the firm’s property and construction team