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Building Safety Act 2022: Update including October 2023 enforcements

Building Safety Act Update: Impacts on risk and professional indemnity insurance following recent enforcements
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By Andrew Broome , 

Technical Specialist, Marsh Specialty

05/03/2024 · 5 minute read

Ever since the first enactment of the Building Safety Act 2022 (BSA), there has been much talk about how dutyholder/approved person responsibilities will affect construction industry liability; when, and if, the regulator will really “show its teeth”; and the potential effect on insurance claims.

On 1 October 2023, the full higher-risk building regime came into force. With the new regime in place, it is important for those in the construction industry to understand the role of new centralised Building Safety Regulator (BSR), the amended rules related to principal designer and principal contractor roles, and the possible impact on risk and professional indemnity insurance.

Higher-risk buildings and the new centralised Building Safety Regulator

It is worth clarifying in the first instance that “higher-risk buildings” are defined as ones with the following two attributes:

  • They have at least two residential units.
  • They are either a height of at least 18 metres or seven storeys. (Note: The BSA defines the height measurement as ground level to the “finished surface of the floor of the top storey of the building”.)

It is worth also taking a moment to understand the new safety-related gateways that apply to higher-risk buildings. Projects are now “stopped” at gateways to get sign off for design, the health and safety file, fire safety file, and ultimately the completed build. Gateway 1 was already enforced by the initial BSA legislation, but now the October 2023 update details the enforcement of gateway 2 and 3:

  • Gateway 1:  Planning application stage – The developer/client is the dutyholder in providing local building control, or the new BSR, with all the necessary health and safety-related planning documents. However, the developer/client can (will) pass this duty on to the lead designer under the new “principal designer” role discussed later.
  • Gateway 2: After technical designs are complete (RIBA stage 4) and before construction starts (RIBA stage 5), the developer/client must submit the application file for sign off, which includes building designs and a fire and emergency design file that complies with the changes to the Fire Safety Order 2005. Again, the developer/client can (will) pass this duty on to the lead design and build (D&B) contractor under the new “principal contractor” role.
  • Gateway 3: After the project is built, the developer/client, or likely the principal contractor as mentioned above, must apply for a completion certificate with the idea being that they are satisfied that the final building complies with regulations and is safe to occupy.

For higher-risk buildings, the regulatory process at gateways cannot be serviced by local authority building controls anymore, but only through the centralised BSR. Local authority building controls will continue to deal with buildings not in this high-risk category.

In addition, local authority building controls will be under the oversight of the BSR, who will also advise government on the competence of the built environment and set up industry panels of experts to support the rights of residents of higher-risk buildings to improve industry competence and other matters.

New powers of the Building Safety Regulator

The centralised BSR’s new powers extend to the following:

  • Imposing unlimited criminal sanctions and fines on firms and individuals for breach of regulations. For example, it will be a criminal offence to start building work before an initial notice or commencement notice has been given by building control approvers. There could be severe consequences for either not complying with the giving of these notices or not providing correct gateway information during a project.
  • Demanding construction developers/contractors appropriately test any specified materials and designs if they, both the BSR and local authority building controls, deem necessary. This could feasibly include carrying out building safety code style “build up tests” or soil sampling, which could add costs to a project as discussed later. A new National Construction Products Regulator also has the power to inspect and search premises with regards to any products that it believes may be non-compliant.
  • Regulating approved inspectors. A transition period started on 1 October 2023 that lasts until 6 April 2024, where the existing “approved inspector” function within the building control process for higher-risk buildings will be transferred to registered “building control approvers”, who will comprise a graded system of inspectors. Essentially, this will mean that approved inspectors will be registering for this new title. These new building control approvers will be regulated by the BSR and not the existing Approved Inspector code (CICAIR and the CICAIR Code of Conduct). Therefore, those responsible for inspecting and approving construction projects in the UK should be held to greater scrutiny, and possible penalty, for any error.

New principal designer and principal contractor roles and responsibilities

These roles now carry additional duties on top of the Construction Design and Management regulations 2015 (CDM) in the design phase (principal designer) or the construction phase (principal contractor). Under the BSA, these now become a “dual role”.

These new responsibilities could affect professional indemnity insurance (PI) buyers in several ways:

  • Unlike under CDM, now all projects – even small ones – must have a BSA-specific principal designer and principal contractor appointed. SME firms, who may not have been involved in such roles before, may be concerned over what this means with regard to their risk and their professional indemnity cover (see in particular; “Which projects do these roles apply to?” below).
  • Under the BSA, these roles carry a strict legal duty that the finished building complies with building regulations, which could lead to more civil actions against the dutyholders, stimulated by the ease of a concurrent regulatory action.
  • Regarding possible criminal fines, PI policies do not cover criminal or punitive fines, however a good standard policy wording can include an extension that allows insurers to pay investigation costs of such proceedings brought under the new regulation. This extension is not often used, but the rationale is that it mitigates the costs of a future civil claim. It remains to be seen whether these extensions get activated more, but we suggest checking whether your cover contains this.
  • It is important to note that where an architect or contractor is appointed under a traditional style CDM principal designer/principal contractor document, this automatically carries under the law the responsibilities of the new dual role under the BSA.
  • The roles impose a duty to manage the “golden thread” relating to the provision of required documentation at the gateways (see further explanation below). For higher-risk buildings, this involves creating a mandatory occurrence reporting system before construction commences. Mismanagement of this process could be a new area of professional indemnity claim, even without any actual design error.

Possible impacts on your liability and professional indemnity insurance

While the PI market is not writing into cover any conditions or exclusions with regard to the BSA, and it is early days for the new regulatory landscape, there are some questions PI buyers should consider in relation to the current and future state:

What is the strength of this new liability?

The duty of principal designer is to take “all reasonable steps to ensure compliance with building regulations”, which is less of a strict liability than the principal contractor to “ensure the building complies with building regulations”. Therefore, it is plausible that it could be easier for the regulator to bring actions against contractors than designers. However, this is not going to stop civil recovery actions down the contract chain, affecting PI buyers throughout the project cycle.

What about duty to warn liability?

There is a concern that now the principal designer and principal contractor roles carry a wider liability to check the work of all other members of the project than before. In theory, this increases their “duty to warn” liability for all design work in a project, even if not carried out or appointed by them. If this crosses over into civil actions, this could potentially push professional indemnity rates up.

We have no formal appointment, but are we a principal designer? What do we declare on our PI proposal form?

If there is no one formally appointed, and where there is only one contractor or designer on a project, the legal duty for these roles will automatically fall on those entities, or the “lead consultant/contractor”. Where a PI proposal form asks for percentage of fees for principal designer (or principal contractor) work, PI buyers may carry this legal obligation without formal appointment. Therefore, it is another area to check at renewal.

What about the language in our contracts?

All operatives in the construction sector should take care with regard to how the BSA is referenced in their documents. There is currently no industry standard language on the matter, however the 2024 suite of the JCT contracts are due to have some language included.

What we have seen so far generally with regard to BSA-related language is:

  • Reference to the 12-year deed limitation being extended by virtue of the extended limitations enforced by the BSA, but often not written correctly, and widening liability periods more than should be accepted. This is discussed in our prior articles: Building Safety Act 2022 and our Scottish perspective on the BSA.
  • In a few cases, we have seen reference to contractors especially “confirming they have the qualification and experience to carry out their duties under the BSA”.

Other insurances, and potential risk and cost areas in the construction cycle

The BSA could have wider implications for other insurance policies and claims, including:

  • D&O claims: We could see D&O claims due to regulator actions for bad competency processes in relation to checking whether any sub-consultants have the adequate experience as a dutyholder, which could circumvent a D&O professional services exclusion, if your policy has one.
  • Delay damages/losses: We may see increased delays in projects at the gateways outlined above. Unless D&B contractors’ “extension of time” rights under their contracts are written wide enough to allow for these gateway-related delays, they could be hit with claims for LADS/delay damages. These are not normally covered by a PI policy; however, it often stimulates allegations of a breach of professional duty to seek recovery, which could be covered by PI. These delay costs could put more pressure on a contractor’s bottom line, which often correlates with value engineering design issues. Around 60% of gateway 1 document files have been rejected by the BSR or local authority building controls, but the view is hopefully this rejection rate will reduce as the industry gets used to the new processes.
  • Manufacturer of materials: A possible positive aspect for PI buyers is an improved recovery position for their PI insurers due to the enforcements of the National Products Regulator mentioned earlier, and Sections 146-151 of the BSA. This may create a liability route from a manufacturer directly to the owner of a building with regard to their products. If a construction sector PI buyer suffers a claim for materials specification issues in the context of a BSA breach, it may be possible to seek contribution from the manufacturer, improving the PI buyer’s claims record. However, this has yet to be tested under law.
  • Managing the “golden thread”: The golden thread is the term used for the new ongoing documentation process recording, and sharing, all design, safety, and building information as the project progresses. The principal designer and principal contractor roles have a responsibility to contribute to this system of course, as all dutyholders do, but they also are likely to be responsible for managing it, albeit appointed out to specialists. While this is good for PI claims because there will be a shared and thorough information thread that should resolve claims quicker, the maintenance of this golden thread document system, if not done properly, could cause PI claims itself.
  • Resources of local authority building controls: There is some industry concern whether local authority building controls will have the resource and ability to carry out its role in non-higher-risk buildings. Over the last 30 years, it has seen a loss of qualification and experience to the private sector, and now possibly could see loss of resource to the centralised regulator.

There is more legislation to come via the BSR and its wide-ranging powers, including clarity on the ability, size, and nature of corporate and individual criminal fines. It remains to be seen how much civil action is affected by this in PI claims.

We shall provide further updates as this new regulatory landscape develops. If you wish to have further discussions on how this relates to your insurance programme or business in general, please contact your Marsh representative.

RECENT CASE LAW: URS Corporation Ltd vs BDW Trading Ltd (widening liability for architects and engineers under the Defective Premises Act)

Among other legal points that this decision in the High Court has highlighted, the major new one is the change in precedent that has its genesis in the BSA. D&B contractors and all design consultants under them now owe a duty to the developer under the Defective Premises Act (DPA), alongside the normal duty imposed by the construction contract.

In the past, if a property had been sold on after construction, and the developer is informed of structural issues with the building relating to design, they would under their sale agreement have liability under the DPA to rectify the situation for the owners/tenants. However, they could not bring onward actions against the original contractors, or design consultants, under the DPA.

Now, due to the BSA changes, they can bring actions under the DPA against those D&B contractors, or design consultants, alongside their normal route of action under the construction contract. This also means the limitation period is now 30 years from the completion of the project.

Essentially any D&B contractor, or architect, engineer, or surveyor can have actions brought against them from a slightly wider pool. So not only are the extended limitation periods under the BSA having an impact, but they also widen the scope of who such firms owe a duty to under the DPA.

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