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Heathrow Third Runway: is the UK construction industry ready to take off?

The news that a third runway has been approved for Heathrow has triggered renewed debate about the merits of the scheme and at least one West London by-election.

It also poses interesting questions for construction lawyers. What will be the procurement and contracting strategy for the third runway? What will be the implications for this choice for dispute resolution and health and safety? What will be the implications for construction and property development in the region and across the UK?

Already taxiing to take off

It probably does not come as a surprise to know that the tendering process for the third runway began in October 20151. Cost cutting measures have already been explored to slice up to £3bn off the cost of the project and to speed up delivery2. Programme partners including Arup, CH2M, MACE and Turner & Townsend are already involved. The supply chain has already been identified, with encouraging phrases such as ‘collaborative partner’ being adopted3. Early contractor involvement is now becoming part of the construction law landscape for more significant infrastructure projects: it is unsurprising that Heathrow has already taken active steps to realise the third runway4.

Contracting for success?

Maybe one of the best precedents for the third runway project is the construction of Heathrow Terminal 5. Terminals 5a and 5b at Heathrow Airport, together with many supporting facilities, were constructed between 2002 and 2008. The total cost of the project was £4.3 billion; BAA reported that it was completed on time and on budget.

The T5 agreement departed from then traditional approaches to employer-contractor contracting in that BAA retained most of the financial risk of the project. The intention was to create a ‘no-blame’, collaborative culture, focussing on problem solving by integrated project teams.

This approach also attracted plaudits for its approach to health and safety. The Health and Safety Executive used the project as a case example of best practice5. The project included transport movements, working at height, lifting operations, excavations and confined spaces. Innovative solutions such as pre-fabricating sections of the terminal buildings off site and assembling the roof sections at low level were highlighted: in some sections of the project, up to 70% of construction work was carried out off site. A Safety Committee was established with worker-representatives from major suppliers as well as senior project managers. The HSE report includes an interesting quotation from Martin Quaid, Production Leader for T5B:

‘There is a huge benefit in having the management team colocated and integrated with the client, designers and the workforce. This is a truly collaborative environment. The workforce do raise their concerns and with support from the management team, we deal with their concerns and suggestions.’

The contrast, of course, is with the ill-starred Wembley Project, which spawned a multiplicity of disputes: costs spiralled out of control6.

Furthermore, Terminal 5 was built at a time when the construction industry had a great deal of money. Brexit will provide the economic backdrop to the third runway backdrop, squeezing both capital (especially as many of the materials will be imported) and labour. Already, uncertainty about the precise configuration of the UK’s relationship with the EU with respect to the movement of workers is making it more difficult to engage workers in larger construction projects. Pressure on finances might very well make disputes and claims more attractive up and down the supply chain.

Dispute resolution

Whether or not a collaborative approach will nip disputes in the bud is uncertain at this stage. Dispute resolution in major infrastructure projects has come a long way since Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334. No doubt the employer will hope that dispute boards and other such methods will ensure that the project is not swamped by adjudications or other forms of dispute resolution. Although much has changed in the UK construction industry, collaboration is still a question of working culture as the much careful drafting of the contract7. Given the likely number of contractors, sub-contractors and sub-sub-contractors, experience suggests that construction lawyers will not be left idle.

Development in the surrounding region

We still do not know what the final plans for the runway project will be. At earlier stages of the project development, a Terminal 6 was mooted. There is debate as to whether the new runway will go above or under the M25. It has also been proposed that land will be set aside for commercial developments such as offices and hotels8.

There will be an immediate demand in the local area for services and resources to provide for the workers who will be working on this development, such as for accommodation and catering. At the same time, the project team will no doubt have to consider site access and transport plans just as they did with T5.

A significantly enhanced international air hub in this part of London is likely to have a dramatic effect on the property market in this region. Heathrow has suffered from limited capacity for years: a sudden increase in supply will no doubt stimulate demand for commercial space. In the future, notwithstanding HS2 and Crossrail, it is likely that the question of transport connecting Heathrow to the rest of the United Kingdom will have to be re-visited9.

At the same time, of course, it must be remembered that much of the land around Heathrow is designated Green Belt. The National Planning Policy Framework requires an applicant for planning permission to show ‘very special circumstances’ to obtain permission, potentially choking the value of some land in the area. We must expect that the planning authorities in the region will receive a number of hopeful applications, such will be the potential rewards on offer.

Conclusion – are you ready for take-off?

Looking past the prospects of a legal challenge to the decision itself, the construction industry and construction lawyers are now looking forward to another large-scale infrastructure project to join Hinckley Point and HS2. New procurement methods encouraging collaboration have the potential to reduce the number of disputes, but we need to be alive to the fact that the pressures identified in the Latham Report are still very much present in the UK construction industry10.

At the same time, the promise of this development will not have a straightforward effect on London and UK property development and value. There will undoubtedly be winners, but we should all expect some turbulence ahead.

1Heathrow to start tendering process for its third runway’, The Daily Telegraph, 11th October 2015:  accessed on 26 October 2016

2Heathrow could slash up to £3bn off the cost of its third runway project in a bid to speed up airport expansion by 12 months’, Construction Enquirer: accessed on 26 October 2016

3Suppliers and procurement work on 'sprint start' for Heathrow expansion’, Supply Management, 23rd September 2016:  accessed on 26 October 2016

4 Professor David Mosey, ‘BIM and related revolutions: a review of the Cookham Wood Trial Project’, SCL Paper D171, July 2014

5 HSE, ‘Heathrow Terminal 5 Project: Worker engagement case study 2’,  accessed on 26 October 2016

6 See, for example, the vast costs figures in Brookfield Construction (UK) Ltd (formerly Multiplex Constructions (UK) Ltd) v Mott Macdonald Ltd [2010] EWHC 659 (TCC), where one party estimated that to get to the end of the sub-trial legal costs of £45,695,000 would have to be incurred. Coulson J commented at [31] that ‘In the 25 years that I have been involved in construction cases, I have never seen costs figures at such a level.’

7 Shona Frame, ‘Why collaborate? Collaborative working’, (2013) 24 2 Cons.Law 20

8 Heathrow: Our Proposal, accessed on 26th October 2016

9 Moshe Givoni and David Banister, ‘Adding capacity at Heathrow Airport: response to the DFT consultation’, Transport Studies Unit, University of Oxford, Working paper No 1035, February 2008:  accessed 26th October 2016

10 Sir Michael Latham, Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry Final Report, HMSO, July 1994

 

David Sawtell / 27th Oct 2016


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