Common Pitfalls for Facilities Managers When Overseeing New Office Fit Outs
By Clare Reddy, Partner at Lewis Silkin
Thanks to Covid-19, many of us have not been into the office on more than a handful of occasions in the past 11 months. The debate rages as to the future of work and whether and to what extent offices will feature. Whether it is taking advantage of a period in which the office is lightly used, or as a result of a review of your business’s real estate portfolio, it seems many are planning to carry out some sort of works to property in the short to medium term.
The cost of fit out works is not simply the capital cost, but also any negative impact on the business if things go wrong. We’ve set out below some practical issues to consider at the outset to reduce this risk.
The Contract
Many fit outs in the UK use one of the JCT suite of building contracts. Liaise with your professional team to check your chosen contract reflects your procurement route and the value and nature of the works. Read the contract carefully and make sure it suits your particular circumstances – your project doesn’t necessarily fit neatly in the scenario envisaged by the contract.
If someone is administering the contract for you, make sure they have read it and understand their role. The consequences of not doing so can be costly.
Consider what other contracts you need, for example collateral warranties, a parent company guarantee or bond.
Landlord’s Consent
Unless you own the freehold of the building, consider whether you need landlord’s consent for the proposed works. This will depend on the wording of your lease, and the nature of the proposed works. Talk to your property solicitor and consider whether you or your contractor are best placed to approach the landlord for consent.
You must comply with any obligations imposed. Relevant obligations in any agreement for lease or licence to alter should ideally flow down to your contractor where possible. For example, are named sub-contractors to be used for works in connection with the BMS and/or fire?
The Building
If the building is under construction, or the landlord is carrying out works, it can be tempting to seek to start work before the landlord’s works are completed. Think about this carefully and seek advice. Multiple contractors working on site can lead to time and money claims from each, and what happens if the landlord’s works are delayed? Their rush to achieve practical completion is likely to impact your works, particularly as your agreement for lease or licence will commonly prioritise the landlord’s works. See below as to practical issues when carrying out works alongside other tenants in a multi-let building, many of which also apply in this scenario.
Who takes the risk of unforeseen problems in the building? The contractor is unlikely to want to take responsibility for the impact of defective work carried out by someone else. Consider requiring a visual survey (or more) and making the contractor responsible for matters it should have been aware of as a result.
The Works
Make sure the contract is clear as to what the contractor is to provide including quality, products and finishes, and that the specification has been signed off by the relevant parts of the business. Variations requested after the contractor is engaged are likely to be expensive, both in time and in money.
Responsibility
Many fit outs are procured on a design and build basis. The Employer may undertake some design itself, with the contractor completing this, or the contractor may design the works, either alone or with input from the Employer/ his team, and present them to the Employer for approval.
It is important for the parties to agree who is responsible for any design provided by the Employer. If the Employer wants the contractor to take responsibility for this, that needs to be addressed in the contract.
Sections
Can the works be carried out with a single start date and completion date? This won’t always be possible. If not, consider using sectional completion. We’re often asked if agreeing to take partial possession on a particular date, or including a requirement for certain works to be completed by a key date, will work. If you’re using a JCT contract this is unlikely to satisfy your needs without additional amendment. Generally you will want a standalone completion date(s) that is subject to the contractual extension of time regime.
Access
If your building contract gives exclusive ‘possession’ of the site to the Contractor, can you provide that? Will you need to occupy all or parts of the property while the Contractor carries out the works?
If the Contractor is to carry out works to various different areas in the property, in a rolling programme, these need to be carefully considered and documented. Careful drafting is needed if the start of works to one area is contingent upon completion of works to another, for example so that staff can be decanted around the building.
Payment
It isn’t uncommon for fit out contractors to seek an up front payment, before work is carried out. You will generally want to align the sums you pay with the value of works carried out and materials delivered to site. Be cautious about agreeing fixed payments against dates, not linked to programme and progress on site.
If you’re paying for materials off-site, consider how you take ownership of them upon payment.
Delay
Most contracts will include a completion date(s) with the contractor entitled to relief for delayed completion due to an agreed list of reasons that are either not its fault or which are the fault of neither party.
Consider the consequences for failing to complete the works on time. Can you stay in existing premises, for example by extending the lease? When will you need to serve any notices required to achieve that? Is alternative accommodation available? Do you need to take part of the works, even through partial possession? You will need to consider the costs of this delay and agree a rate of liquidated damages for delay for which the contractor is responsible.
Liquidated damages are generally an exclusive remedy for delay, so if your losses exceed the specified amount these cannot be claimed from the contractor.
Insurance
Read the insurance obligations in your building contract and check whether you can comply. Many tenants using a JCT contract with Option C, for example, don’t appreciate it requires the Employer to maintain both All Risks Insurance of the works and materials, and insurance of the existing structure against the Specified Perils, in joint names and with a waiver of subrogation rights against the sub-contractors. Commonly tenants struggle to secure the latter.
Finding a solution to the insurance arrangements will generally involve discussions between the Employer, the contractor, the landlord and the insurers of each. While it’s complicated, get it on the table at the outset as it can take time to resolve and you won’t want to delay your works if everything else is agreed.
Other Tenants
If you’re working alongside contractors engaged by other tenants carrying out fit out works or by the landlord, you may be required to agree method statements and comply with site-wide rules in a fit out guide. There may be restrictions around deliveries, whether through use of a booking system or an offsite consolidation centre, and restricted use of the goods lifts. Your contract should require your contractor to comply. If not, your contractor may seek time and money should these requirements impact the works.
These are just some of the issues you will need to consider when planning your fit out works. Above all, make sure all parts of the team to communicate with each other and share relevant information in good time, including in these early stages.
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