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OCTOBER 2011 Established 2011 Issue No. 1Powered by BCLIVE.co.uk

Please visit The Builders’ Conference website www.buildersconference.co.uk/newsandevents

We know what you’re thinking: just whatthe beleaguered construction industryneeds right now; another magazine!

Which is why we’re hoping thatInside Construction will be different.We are not interested insensationalist headlines, the engineoutput of the latest excavator, or inwhat the MD of a multiple-nationalcontractor has for breakfast.

We are interested purely indelivering relevant, up-to-date andtimely news and statisticalinformation to help our readers -construction professionals all - makeimportant decisions about theircompanies and to navigate the

Come Inside

The impending closure of theBombardier factory in Derbyshirehas been a political andemployment hot potato since it wasannounced. But, judging by someof the forward statistics for the UKrail industry’s infrastructureupgrade programme, it may alsoprove to be extremely poorlytimed.

Amidst the carnage in virtually everyother sector of the UK constructionbusiness, the forward order book ofthe rail business shines like a beaconof optimism.

According to statistics from TheBuilders’ Conference, the rail sectorhas around £1.5 billion of workplanned for the coming monthsincluding London Bridge Station(£500M), Whitechapple station(£250M) and Edingburgh toGalashiels (£230M).

“The rail business is currently the onlysector demonstrating any real degreeof optimism,” says The Builders’Conference chief executive NeilEdwards. “Of course, forward orderbooks are always subject to changeand there are no guarantees that all

Will the Train Take the Strain?

legislative, technological andenvironmental minefield in which theyoperate.

And all of this is made possible byBCLive, the Industry’s ONLY real-timeleague table of construction activity.

We sincerely hope you will enjoy ourfirst edition and would encourageyou to pass this on to your friends,colleagues and peers in the industry.

or any of this work will come tofruition in the short-term. But, giventhe parlous state of the rest of theindustry, even this small glimmer ofhope is to be welcomed.”

But, for now, come

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Changing

Turn the clock back five years, andthe construction trade press was filledwith headlines announcing the awardof a £300 million contract to onecompany, £400 million to another.Look at the headlines today and,despite the best efforts of the majorcontractors’ PR departments to put arosy tinge on the news, those“major” contract awards are farmore likely to be in the £25 million to£30 million range.

Turn the clock back five years, and theconstruction trade press was filled withheadlines announcing the award of a£300 million contract to one company,£400 million to another. Look at theheadlines today and, despite the bestefforts of the major contractors’ PRdepartments to put a rosy tinge on thenews, those “major” contract awardsare far more likely to be in the £25million to £30 million range.

Such a decline in major contract valuesis indicative of the slump that has besetthis industry; but it is also the tip of a farlarger iceberg that threatens to rewritethe very structure of the UK constructionindustry. Although the boom yearsmeant an increase in workload for the“smaller” contractors and sub-contractors that make up around 85

percent of this business, it also stackedthe cards very much in favour of themajor contractors; the advent offramework agreements all but ring-fencing ongoing and long-termcontracts to the benefit of a small,select few.

Of course, such frameworks largelyoverlooked the fact that there weredozens – if not hundreds – of so-calledmid-sized companies that would havetaken elements of these frameworks intheir stride. But the determination tolump together multiple contracts into asingle, overarching scheme consignedmany perfectly qualified companies tomere sub-contractor basis, living off thecrumbs from the table of the majors.

However, with the – hopefullytemporary – loss of the £200 million+projects, the playing field is fastlevelling off, allowing those mid-sizedcompanies to compete head to headwith the industry elite.

But, once again, that is not the end ofthe story. The boom of the earlynoughties pushed the turnover of anumber of major contractors over the£1 billion mark. Like a crocodilewhich eats just a few times per year, afew £300 million projects were

sufficient to satisfy the annual appetiteof these huge animals. Quite howthey will fare when forced to adopt thelittle and often diet of a training athleteremains to be seen.

And feeding a beast of their ownmaking is only part of the challengefacing the major constructionconglomerates. A £300 millioncontract might have required four orfive project managers and a relativenumber of associated staff. The ten,£30 million contracts required tomaintain the standard of living to whichthese companies have grownaccustomed will require twice as manyproject, site and middle managers, allof which place a financial andadministrative burden upon companies’dwindling resources.

Such a change in the diet of the majorsmarks a paradigm shift for the industry;and many are likely to go hungry as aresult.

the Dietof the MajorsTHE INSIDER

The Insider

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Commentary From Neil Edwards

When we took the decision to launch Inside Construction, our hope was that the first edition would be filled with talk of increasedworkloads, improved margins and a sense that all is right with theworld. Sadly, our first issue arrives at a time when the industry isstanding on a precipice, staring once again into the financial abyss.

Our latest BC Live monthly statistics revealthat contract awards fell by £1.51 billionfrom the £2.5 billion in August 2011 tothe £1.04 billion recorded in September2011. Admittedly, August was arelatively good month, but September2011 also compares extremely poorlywith September 2010 – when theindustry was still held in the grip ofrecession – when we reported £1.4billion worth of contract awards.

Stark Focus

Just to put that into even more stark focus,if it hadn’t been for a last minute flurry ofactivity, these would have been the firstmonths in which the figures failed tobreach the magic £1 billion mark sinceBC Live went “live” some 18 months ago.

And it isn’t difficult to see why. InQuarter 3 of 2010, the industry wasstill basking in the pre-General Electionspending spree that Labour Governmenthad set in place to secure its future.Following last year’s Strategic SpendingReview and with the Conservative/SocialDemocrat Alliance now firmly ensconcedin Numbers 10 and 11 respectively,

these sectors have taken a major hit.The number of tender opportunities inthe schools and education fields isdown by more than half (53%) and thevalue of those remaining contracts isdown a staggering 86% on the sameperiod last year. During the sameperiod, the number of housing tendershas declined by 14% but the value ofthose remaining tenders has more thanhalved (51% down). It is clear that,despite the best efforts of theGovernment, a near 40% increase inprivate sector activity is failing to offsetthe 60% decline in public spending.

Indeed, it is almost impossible to finda single sector that is weathering thestorm or showing any sign of growth.Across the board, the number oftenders recorded by BCLive in Q32011 is down by 19% on the sameperiod in 2010. More worrying isthe fact that the value of those tendersis 35% down on the previous year.

Grim Up North

Previous recessions and downturnshave been categorised by the very

geographic nature of the decline inprospects, allowing the fleet of footcontractor to “follow the sun” andmigrate to an area less badly affected.This latest downturn is different in thatthe decline is virtually universal. Andwhile there are a few pockets ofactivity – still at reduced margins – thisis one occasion when the grass almostcertainly isn’t greener anywhere else.Despite this, the North of England – notably the North East, Cheshire,Lancashire and Merseyside – continueto share the unenviable position ofbeing the country’s worst-hit.

Against such a bleak backdrop, anysuccess in the BC Live league table isrelative. But it is pleasing to note thatBalfour Beatty secured the top slot forSeptember 2011, narrowly pippingMullally on the last day of the month.Similarly pleasing is Lengard’sappearance in the Top 20 with £12.2million worth of new contract awards.

Let’s just hope for some good newsfor the next issue.

in MotionA Car CrashChief Executive - The Builders' Conference Trade Association

If there was any silver lining inAugust’s economic news, it wasburied deep in the small print.Globally and domestically, the datawere unambiguously bad. It wasinconceivable that the MPC wouldconsider responding to the poorinflation figures by raising interestrates. In fact, the members previouslysupporting a tightening of policyhave now changed their stance.Much more likely is an additionalboost to activity, and the only toolavailable to the MPC is to embark onanother round of quantitative easing;but not just yet.

Concerns about inflation are nowfirmly on the back burner and there isa growing body of opinion (includingHSBC) that expects Bank Rate to stayon hold throughout 2012. As yet,the Chancellor has given no hint ofan easing of his tough fiscal stance.The fact that he has spelt out cleartargets has helped preserve the UK’scredit rating and made it appearalmost as a ‘safe haven.’ It fits

Mr. Osborne’s priorities to see anyadditional boost come from monetaryrather than fiscal initiatives, althoughhis forthcoming Autumn Statement isexpected to focus on growth ratherthan government finances. This mayallow him some fiscal flexibility.

All the bad news about the UK,however, does not mean theeconomy is heading back intorecession. HSBC has just revised itsGDP forecasts for 2011 and 2012,and in both years, the number ispositive and above 1% (1.1 and1.3% respectively). These are hardlyrobust - a very disappointing outlookgiven that the recession technicallyended almost two years ago (Q32009) - but they are still positive,and improving (albeit modestly). Just as the recession was deeper, sothe recovery has been weaker, withthe global environment adding to the still unresolved legacy domesticissues of consumer and public sector debt.

On the one hand...

Virtually all the new information from theconsumer sector highlights theincreasingly difficult environment forhouseholds. The latest retail salesfigures reveal that any gains in valuewere cancelled out by price increases,leaving volume growth static. Theannual increase in the CPI edged up inJuly (to 4.4%) after dipping in June, the19th consecutive month it has beenoutside the target range. The 5% markcould well be breached before the endof the year. Since earnings growth(average weekly pay excludingbonuses) is rising at less than half theCPI rate, the squeeze on real earningsand consumer spending powerintensifies.

After GDP growth in Q2 wasconfirmed at 0.2%, came a worryingPMI survey result for the services sector.This is seen as a key lead indicator,although the coverage excludes thepublic sector and retailing. The Augustresult slipped from 55.4 to 51.1, the

Light at the end ofProspects for the UK economy are farfrom rosy, but talk of a return torecession are premature, according toHSBC Bank PLC Chief EconomistDennis Turner.

the tunnel?

biggest monthly fall since April 2001.This came hard on the heels of aneasing of the manufacturing PMI lastmonth, from 49.4 to 49.0. July markedthe first time for two years that themanufacturing PMI had dipped belowthe benchmark 50, which impliescontraction rather than expansion, andmuch of this clearly reflects thedeteriorating international economy.

The problems in the Eurozone and theUS have been sufficiently welldocumented not to need recountinghere. But, since exports are the‘escape route’ from the domesticspending constraints, the impact on theUK could undermine UK growth andthe Chancellor’s fiscal plans. Not onlyare the prospects in the UK’s keymarkets weakening, but the UK hassome commitment to the rescuepackages, both directly and indirectly(through membership of the IMF), whichcould add further strain to publicfinances. The threat of a sovereigndefault in the Eurozone is also a hugerisk to the banking system, which feedsback to growth and confidence rightacross the EU.

...But on the other

The welter of negative data cannotbe brushed aside and the pace ofrecovery is clearly faltering. But theconsensus view is that the slowdownwill stop short of recession that growthwill be positive, above 1% this yearand strengthening next. Diggingdeep into the numbers does revealsome silver linings. Each individuallymay seem relatively small but, whenaggregated, do add up to enough tooffset the cumulative impact of thebad news.

Although the 0.2% GDP increase inQ2 was disappointing, there werespecial factors holding it back withoutwhich a more robust 0.7% rise wouldhave been a fairer reflection of activity,

which the statisticians estimated had a0.4% downward effect on services and0.1% on the production sector. Thedetail in the services PMI, moreover,was not as negative as the overallnumber. The new business index fell byless than half as the overall index(which still remains above the important50 threshold) and there was also aslightly less negative result for businessexpectations. The fact that it is currentbusiness that has slowed so sharplysuggests the riots may have accountedfor a significant proportion of the overalldecline in the PMI.

It should not be forgotten that even ifMr. Osborne hits every fiscal target hehas set himself, the government will stillbe running a deficit out to 2015-16,putting more money into the economythan it is taking out. And it will, at theend of the process, still account for40% of GDP spending. And given thereputation he has built with markets, hemay be allowed some slack on thefiscal front in his budget if the economystill needs a push. It could be explainedaway in terms of a worse-than-expected external environment ratherthan a U-turn on the domestic front.

Although very mixed and subject tomore than one interpretation, there aresome positive aspects to the UK’s recentinternational trade record. Using thethree months on three months measure,exports of goods, excluding oil,increased by 10.2% in the year toJune, and imports by 6.8%. And overthe same period, the total trade(including services) figures show exportsrunning slightly ahead of imports

It is now generally accepted thatinflation will start to fall in 2012, whichwill boost real incomes and giveconsumer spending a lift, with knock-onincentives for business investment.

The persistence of historically lowinterest rates, moreover, will make the

unwinding of the debt issue so muchfaster. Bank Rate has been at 0.5% fortwo and a half years, with thelikelihood that at least another 12-15months will be added to this sequence.

Conclusion

It is beyond a shadow of doubt that thegeneral economic picture is weakernow than was expected 12 monthsago, and weaker than at comparablepoints (two years) after the end ofprevious recessions. But, it is easy tooverdo the gloom and even thecautious Bank of England believes thatthere is only a one-in-ten chance of afurther fully-fledged recession.

It is small comfort to businesses andhouseholds to say that this is not arecession. For many, below-trendgrowth converts into pressure on prices,profits and jobs and will feel like arecession. But, UK policymakers canstill influence events for the good and ifit did not happen this month, itprobably will very soon.

although very mixed andsubject to more

than oneinterpretation,there are some

positive aspects tothe UK’s recent

international traderecord

Looking Back

First, however, you need tounderstand a little about givingnotices. Let’s go back 15 years or so.When the 1996 Construction Act wasbeing prepared, someone told thedrafters that payment in theconstruction world is usually subject toa two-stage procedure, namely:-

Someone goes round to measure andvalue the work, and a certificate isthen issued by an architect/quantitysurveyor

Payment is made about 14 or 21days later.

So the drafters came up with an Act thatalso featured a two-stage procedure,

with two key dates, each with its ownspecial notice. These were:A “due date for payment” – usuallythe date of the certificate, or at leastthe date of valuation. Slightlyconfusingly, this was NOT the datewhen money actually changed hands.

The notice that went with this was sentby the employer or other payer (fromnow on, we will refer to “payer” and“payee” – employers are alwayspayers, but many contractors andsubcontractors are both payers andpayees). This notice had to be givenwithin 5 days of the payment duedate. It told the payee what he wouldget. Let’s call it Notice 1.

A “final date for payment” (FDP). Thiswas usually about 14 or 21 days

ConstructionGets Its Act

The new Construction Act is designedto ensure that contractors and sub-contractors get paid in a moretimely fashion. Ian Yule, partner atconstruction law firm Weightmans,takes a closer look.

Together

If someone said to you “Part 8 ofthe Local Democracy EconomicDevelopment & Construction Act2009 (LDEDC 2009) came intoeffect on 1 October 2011,amending various sections of theHousing Grants, Construction and Regeneration Act 1996”,chances are that your eyes wouldglaze over.

But what if they said these newrules will help you get paid?Well, that is precisely the thinkingbehind the new Construction Actand, what’s more, the new rulesreally do give contractors anopportunity to improve theirposition as to payment.

after the “payment due” date and wasthe date when the payee actually gothis cash. If the payer didn’t want topay the sum that was due in Notice 1– e.g. because he was intending todeduct liquidated damages for delay– he sent a “withholding notice”. Hehad to do this at least seven days (orless, if the contract said so) before theFDP. Let’s call this Notice 2.

So far, so simple. Two dates, twosorts of notice. But after the Act cameinto force, it became clear that therewere problems.

Payers were simply not bothering toserve Notice 1. So the payee oftendid not know what he was supposedto be receiving.

Also, the payer could sometimesignore any need for Notice 2 as well.He often argued that he did not needto serve it, because he was notwithholding anything at all because,he argued, the sum that the payeesaid was due was not in fact due inthe first place. Of course, with noNotice 1 in place, it was difficult forthe payee to counter this.

So payees were still not beingprotected as much as the Act hadintended that they should be.

Act II

This untidy set of circumstances hasprevailed for the past 15 years untilnow. The LDEDC Act 2009 amendsthe original 1996 Act. It applies toany construction contract made aftermidnight on Friday 30 September.Note that the deadline is absolute –so there could be a project with themain contract governed by the oldAct, and subcontract packages,entered into later, governed by the Actas amended.

What are the differences? In short,

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payers will now need to be a bit moreclued up. Under the new rules, if thepayer doesn’t serve his Notice 1 ashe is supposed to, the following rulesapply:-

If the payee has already made anapplication for payment under thecontract, that now counts as thepayment notice, replacing the onethat the payer should have served.The amount in the payee’s applicationautomatically becomes the sum due(now called the “notified sum”)

If the payee hasn’t made any suchapplication, he can now serve hisown payment notice. He just needs tostate the sum he says is due and thebasis for this (which is what he woulddo in an application for paymentanyway). Again, the amount in theapplication will be the sum due or the“notified sum”.

Even better, payees who are good

negotiators can actually write into thecontract that it is they that get to servethe payment notice in all cases e.g.just by virtue of making applicationsfor payment (payers should notgenerally agree to this!).

What Does It Mean?

So, you may ask, does that meanthat, if the payer misses its Notice 1, itmust now automatically pay upwhatever the payee has applied for(or now says is due) in his notice?Not quite. The payer still has one last chance byvirtue of Notice 2. This is now calleda “Notice of intention to pay less”.Most people will call it a “pay lessnotice”. The payer can still save himself, if heis quick enough, by stating hisintention to pay less than the payeehas applied for. As with the oldwithholding notice, he has to do thisat least seven days before the FDP (5

days if you are under JCT). But if hemisses that last opportunity, he willhave to pay up on the application, orpotentially face an immediateadjudication. So it is well worth thepayee putting the payer in the “lastchance saloon”.

Unwary payers not used to theshenanigans of notices may findthemselves in adjudication more oftenthan previously; or else forced to payup on applications for payment.Meanwhile, contractors andsubcontractors should spend a littletime mastering the new rules. Theywill often get the chance to stipulatewhat is due and thus put the employeron the back foot. Getting paid couldjust become a little easier.

Ian Yule is a Partner at Weightmans

www.weightmans.com

What CostThe Health and Safety executive has issued aconsultation paper on its plans to recover investigationcosts from those who fall foul of regulations. But isthere more to the proposed cost recovery scheme thanmeets the eye, asks Mark Anthony.

Recovery?

What Cost Recovery?

The Health and Safety executive hasissued a consultation paper on itsplans to recover investigation costsfrom those who fall foul of regulations.But is there more to the proposed costrecovery scheme than meets the eye,asks Mark Anthony.

With the Government’s coffers asbare as the West Ham United trophyroom, few would argue against theneed to make the Health and SafetyExecutive’s laudable activities self-financing. Even those within theconstruction industry - for whom anHSE inspection is a regularoccurrence – would agree that thehefty bill for policing industrial safetyshould be met, at least in part, bythose that break the rules and put thelives of workers and the public at risk.

So when the Health and SafetyExecutive published a consultationpaper on its proposed Cost Recoveryscheme – a document that openlyespoused a charge of £133 per

hour; a rate more normally associatedwith barristers and Premiershipfootballers – there was barely a rippleacross the nation’s media.

Potential Impact

But now, as more details of thescheme and its likely charges becomepublic, there is growing concernamong UK contractors that thescheme could be yet another stealthtax they’re forced to endure or worse,the first step on the road to theprivatisation of the HSE.

Of course, the headline impact is oneof likely cost. Although the HSE saysthat the cost recovery scheme is stillsubject to consultation, a figure of£133 per hour (payable in 30 days)seems just a little too precise to be anestimate. Likewise, the £750 cost ofan inspection that results in a letterand the £1,500 for an inspection thatresults in an Enforcement Noticesounds less like a consultation andmore like a fait accompli.

If that IS the case, then the cost ofinvestigations - that is expected to range”from approximately £750 through toseveral thousands of pounds to, inextreme cases, tens of thousands ofpounds” – is the stuff of nightmares forany company falling foul of constantlychanging health and safety rules andregulations. And with the memory ofthe escalating and seemingly limitlesscost of the Landfill Tax still fresh in theindustry’s collective mind, it is notable

the stuff of nightmares

for any companyfalling foul of

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that there is no suggestion of any costceiling in the scheme.

Wider Concerns

Of course, the HSE is keen to stress itsbelief that the cost recovery schemewill only impact upon the transgressorswho flout the law and break the rules.

So what does the contractorhave to worry about?

Much the same as the law-abidingcar driver has to fear over speedcameras and paid parking, probably.

Just as soon as regulation switchesfrom a cost to a potential cash cow,inspections and their associated costshave a nasty habit of growingexponentially.

It has been suggested that it might beworth monitoring and comparing thenumber of investigations andsubsequent actions arising before andafter the scheme comes into force inApril next year. But by that time, theHSE’s cash cow could have morphedinto a bolting horse leaving theindustry to belatedly close the stabledoor in its wake.

And before that is dismissed asscaremongering, it is worth noting justwhere some of the funds from the costrecovery scheme could wind up.According to the Impact Assessmentfor the Proposed Replacement of theHealth and Safety (Fees) Regulations2010, “the main justification forimposing health and safetyrequirements on businesses is theexistence of “externalities”. The costsof a health and safety failure (such asa workplace accident, or thedevelopment of a work-related illness)do not only fall on the employer.There are also significant costs on theemployee (notably the pain, grief andsuffering caused by the accident orillness) and costs on the rest of society(including costs to the NHS fortreating the individual and togovernment departments forprocessing benefits).“

Perhaps it is a pessimism too far tosuggest that the cost recovery schemeis a covert step along the road to totalprivatisation of the Health and SafetyExecutive. But the thought of the costrecovery scheme as a means toaccess a previously untapped sourceof funding to shore up the NHS seemssomewhat less far-fetched.

A copy of the CD235 - HSE proposal for

extending cost recovery consultation paper can

be found at: http://tinyurl.com/3wg4ud3

in Close-UpThe Bribery Act came into force on 1 July 2011, bringing with it the newcriminal offence for commercialorganisations of ‘failing to preventbribery’. Business crime expertRichard Sallybanks takes a closer lookat the factors companies should have inmind if they identify that bribery hasoccurred within their organisation.

Bribery ActThe

The Bribery Act creates two generaloffences of bribing another personand being bribed and discreteoffences of bribery of a foreign publicofficial and a failure of commercialorganisations to prevent bribery bypersons associated with them (such asan employee, agent or joint venturepartner). This last offence can only becommitted by a company, not anindividual, but there is a statutorydefence if the company can show ithad ‘adequate procedures’ in place toprevent persons associated with itfrom bribing.

Bribery comes in different formsincluding large corrupt paymentsmade to obtain or retain business,lavish hospitality intended to influencea public official, and small unofficial‘facilitation’ payments to expedite theperformance of a routine or necessaryaction such as the granting of a visa.All are illegal under the new law and,if committed by an agent on behalf ofa company, may give rise to criminalliability for the company (with the riskof an unlimited fine, debarment frompublic procurement contracts, andreputational damage) notwithstandingthat it had implemented anti-briberyprocedures and the directors wereunaware of the conduct. If this happens, what does thecompany do? Should it report thematter to the authorities and, if so,how can it mitigate the risk that aprosecution will follow?

Self-reporting

Joint guidance issued by the Directorof the Serious Fraud Office (SFO) andthe Director of Public Prosecutions(DPP) acknowledges that the Act “isnot intended to penalise ethically runcompanies that encounter a risk ofbribery” and that “a single instance ofbribery does not necessarily mean thata company’s procedures areinadequate.” Consistent with this, theSFO and DPP have also made it clearthat the public interest factors in favour

/ against a criminal prosecution of acompany include whether there hasbeen a history (or lack of history) ofsimilar conduct.

Therefore, a company that hasgenuinely and appropriately tried toprevent bribery but has failed mayavoid prosecution if it can show thatthe conduct was an isolated incident.However, it is clear that the moreprevalent bribery is within theorganisation, the greater the risk ofprosecution. So, what does acompany do if it identifies briberywithin its organisation which has beenongoing or is part of an establishedbusiness practice? Perhaps counter-intuitively, the company’s best interestsmay still lie in reporting the matter tothe authorities.

Companies should note that if they donot self-report and bribery within theirorganisation is subsequently reportedto the SFO by a third party (such as adisgruntled competitor), this will beviewed as a significant aggravatingfactor tending in favour of prosecution.Conversely, self-reporting (when alliedwith a genuinely proactive approachfrom senior management including acomprehensive internal investigation,remedial action and a commitment toeffective corporate compliance goingforward) can result in the possibleresolution of the matter by civil, asopposed to criminal, proceedings. Theavailability of a civil remedy, namelyproceedings to recover moniesobtained in connection with the corruptconduct, is a factor tending againstprosecution but this will only be onoffer if the company self-reports in theway described above.

Money Laundering

In any event, the company may havelittle choice but to self-report as theBribery Act provisions cannot beconsidered in isolation. There is a realrisk that monies obtained by acompany in connection with acorruptly obtained contract would be

considered ‘criminal property’ underthe Proceeds of Crime Act 2002. Thecompany (and its directors onceinformed of the suspicion that thecontract was won through corruption)would be at risk of committing moneylaundering offences unless it disclosedthat fact to the appropriate authority,the Serious Organised Crime Agency(SOCA), as soon as practicable. Adisclosure to SOCA will give rise tothe likelihood of the information beingpassed to the SFO, giving thecompany little choice but to report theunderlying conduct to the SFOsimultaneously.

Companies clearly need to implementa compliance programme to minimisethe risk of bribery being undertaken ontheir behalf. With a programme inplace, a company will be betterpositioned to deal with the fall-out if itdiscovers an instance of bribery and ifit self-reports, it will substantiallymitigate the risk of prosecution.However, companies cannot make adecision on whether to self-reportbribery without regard to the Proceedsof Crime legislation and the possibleneed to make a disclosure to SOCAunder that regime. Any companywhich decides against a disclosure toSOCA because it wants to keep thebribery under wraps runs the risk ofexposing its directors and thecompany itself to criminalinvestigations for both bribery andmoney laundering.

Richard Sallybanks is a partner with BCL Burton

Copeland:

rsallybanks@bcl.com

www.bcl.com

Anti-socialMedia

Until recently, anyone talkingabout the potential hazards ofsocial media use in the workplacewas primarily concerned aboutemployees wasting their timetalking to friends via Facebookand Twitter. But the August riotsin London, Birmingham andManchester gave rise to newconcerns over the use of these stillrelatively new mediums inorganising, inciting and profitingfrom civil unrest. But with somedemolition contractors still comingto terms with the Internet age, theneed for a “social mediacompany policy” is potentially asimportant as a policy foremployee drink and drug abuse.

Key Threats

The main threats to an employer frommisuse of social media are;

• Reputational damage• Breach of confidentiality• Time wasting• Liability to third parties• Liability to other employees and to

prospective employees

Why is a policy necessary?

Employers need to manage theiremployees’ fairly and consistently andthis applies to how they respond totheir employees’ usage of socialmedia as much as to any other areaof managing staff. There is animplied term of trust and confidence in

every employment contract andbreach of it may amount to arepudiatory breach, enabling theemployee to claim constructivedismissal. There is also an impliedterm in every employment contract thatan employer will provide reasonablesupport to ensure that the employeecan carry out his/her duties withoutharassment or disruption by fellowemployees.

One of the most significant objectionsthat employers can face whendisciplining staff is that they actedunfairly or inconsistently. That cangive rise to a claim for unfair dismissaland, potentially in certaincircumstances, a claim fordiscrimination. Compensatoryawards in unfair dismissal claims are

The riots that spread like wildfireacross some of the UK’s major citiesin August cast a light onto the darkside of social media. But with Twitter,Facebook and YouTube now ascommonplace as mobile phones andcomputers, is your company preparedfor the implications, asks employmentlaw specialist Michael Scutt.

currently capped at £68,400,whereas in claims allegingdiscrimination or bullying/harassmenton the basis of a person’s gender,disability, race, sexual orientation,age or religious/ philosophical beliefthere is no such cap, meaning that adiscrimination claim could becatastrophically expensive for anemployer.

When an employer takes disciplinaryaction it needs to follow the ACASCode of Practice on Discipline andGrievances. An unreasonable failureby an employer to follow that processcan lead to the compensation in unfairdismissal cases being increased by upto 25 percent. The burden of proof inthe first instance is upon the employer toprove that what the reason fortermination was (misconduct in thesecases) and that it was reasonable in allthe circumstances for the employer torely upon that as a reason fortermination (s.98 (4) Employment RightsAct 1996). An employer will need toshow that the decision to dismiss waswithin the range of reasonableresponses available in the circumstancesto avoid an adverse finding.

Scope for Controversy

In the area of social media use andabuse, there is plenty of scope forcontroversy. To mitigate the chancesof an employee bringing asuccessful claim in the EmploymentTribunal the employer needs to

set out what is and is notacceptable. If this is made clear to allstaff (and the policy is implementedconsistently and fairly to all staff) it willreduce the chances of a successfulclaim by an aggrieved employee. Arecent case (Stephens v HalfordsRetail plc, unreported) remindedemployers that blind reliance on asocial media policy to dismiss amember of staff will not beenough. The employerwill need to actreasonably in applyingthe policy. In that casethe employee hadposted unfavourablecomments onFacebook about the

company’s restructuring plans but hadshown contrition when he realised thathe had breached the social mediapolicy, removed the commentsstraightaway and promised not torepeat his actions. He was dismissedbut won his claim for unfair dismissal.

So, what should the policy contain?Should it be a detailed set of rules ormerely guidelines? The AustralianBroadcasting Corporation apparentlyhas four elegant and succinctguidelines:

• Do not mix the professional and thepersonal in ways likely to bringABC into disrepute

• Do not undermine youreffectiveness at work

• Do not disclose confidentialinformation obtained at work

• Do not imply ABC endorsement ofyour personal views

They encapsulate the major issues in anutshell. However, for somebusinesses they may be too brief for

disciplinary action will follow

if an employeemisuses socialmedia either

at work or afterhours on work

provided equipment

cybe

rspac

ecomfort. Each policy should be draftedaccording to the needs of eachbusiness and, in my view, should havethe aim of reminding employees thatwhilst their activities on social mediamight take place in a virtual vacuum,the consequences will be felt in the realworld.

Reputational Damage

Probably the most important issue is toavoid reputational damage. Policiesshould make it clear that disciplinaryaction will follow if an employeemisuses social media either at work orafter hours, on work providedequipment (laptops, desktops orsmartphones) or kit belonging to theemployee. Employees should be madeaware that abusive, threatening ordefamatory communications will not beallowed, whenever posted. Privacyarguments are not likely to be successful– putting a status update on Facebook,let alone a blog post or a tweet – issending that message out into thepublic domain, even if the sender thinksit will only get distributed amongst theirFacebook “friends”. It is always difficultfor an employer to impose disciplinarysanctions on an employee for out ofhours incidents, but the nature of socialmedia is such that once the comment ismade or photograph uploaded, thedamage is done. A social media policyneeds to make clear that disciplinarysanctions will be imposed even if theemployee was acting in their own time,on their own equipment.

The policy should fit in with theemployer’s other existing policies, such

as the diversity policy. Most employerswho have got well-drafted employeehandbooks will have a policyconfirming that the business iscommitted to equality of opportunity inthe workplace. If a homophobic orracist comment would not be toleratedon the shop floor, why would it be incyberspace?

If employees are tweeting or bloggingon their own accord about their industryor profession, they should be asked toput a note on their profile to say that theviews expressed are their own anddon’t reflect the business’ own views.This may also be a good reason tohave people tweeting in their ownname even when tweeting on behalf ofthe business instead of on the corporateaccount – to minimise embarrassment if

something goes wrong.

The employee should be educated onthe policy and asked to sign it toconfirm they have read and understoodit. This was what did for Ms Preece inthe recent case of Preece vWetherspoons. She was a pubmanager and suffered some veryunpleasant verbal abuse at the handsof two irate customers. Subsequentlyshe posted some unpleasant remarks ofher own about the customers, neither ofwhich identified the pub or employerdirectly but did identify the customers inquestion. She was dismissed and losther claim at the Employment Tribunalbecause she had signed up to thesocial media policy which stated thatdisciplinary action would be takenwhere comments on Facebook (in this

an employer would be wise to include a clause in the contract ofemployment imposing an express duty onall employees to notify management

instance) were found to lower thereputation of the organisation.

Blanket Ban?

Should an employer ban use of socialmedia in the workplace? Unless there issome very significant reason to do so(such as where confidentiality is of thehighest importance, perhaps in a pricesensitive area in an investment bank) thenit is probably counter-productive to havea blanket ban. Usage might beconfined to lunch-breaks to ensureproductivity and bandwidth is notadversely affected, but any employer thatpurports to be a modern forward thinkingcompany is not going to look like that atall if there is a blanket ban on socialmedia. Alternatively, if thebusiness wants touse social

media to promote itself preventingemployees’ own personal use of thesame tools is not going to look veryforward thinking either.

Another thorny issue is whether line orsenior managers should engage withemployees on social media platforms,such as becoming friends with them onFacebook. Much will depend on theculture of the business but, on balance,it is probably best not to. This doesmean that the employer will miss out on“intelligence” on what is really goingon in the firm but it might be best not tobe privy to that, or for it to be knownthat the employer knows it. Instead anemployer would be wise to include aclause in the contract of employmentimposing an express duty on allemployees to notify management if they

become aware of a breach of thesocial media policy.

Finally, what of LinkedIncontacts?

The law as set out in the case of HaysSpecialist Recruitment Holdings Ltd &anor v Ions & anor [2008] IRLR 904 isthat any contacts made during thecourse of business for the employer willbe confidential information and thusbelong to the business when theemployee leaves. That was a case ondisclosure and Mr Ions was ordered todisclose those contacts on Linked In thathe had generated in his capacity as anemployee. It is a grey area but thebusiness will be in a much strongerposition to obtain disclosure of suchcontacts if the social media policymakes it clear that such contacts belongto the employer.

Michael Scutt is a Partner in Dale Langley & Co

of 60 Lombard Street London EC3V 9EA.

Tel: 0207 464 8433

Web: www.dalelangley.co.uk

The information on BCLive league table comes directlyfrom The Builders’ Conference trade association andcan also be found on the front page of their websitewww.buildersconference.co.uk

BCLive league table is merely a top level display ofwhich companies have won which contracts and theirrelative values during September 2011 however ifyou go to the website www.bclive.co.uk and click onan individual business you can quickly view whatcontracts combine to make the total, which marketsectors the contracts were won in and theirgeographical location.

The Builders’ Conference trade association makesevery effort to ensure BCLive league table for maincontractors is a fair representation of the industryhowever if your company has secured a project orprojects and you believe they have not made the tablethen please telephone 020 8770 0111 or go towww.buildersconference.co.uk press on the tableand in the top left hand of the screen you will find abutton where you will be directed to complete a verysimple form which is automatically forwarded to thisoffice upon submission.

Our address book has your name as a contact andtherefore we would be grateful if you could forwardthis e-mail within your company to persons, who mayalso find this information of interest and value.

Please do not hesitate in contacting this office shouldyou have any queries or require greater in-depthanalysis of the construction industry, alternatively ifyou do not wish to receive this digital informationplease send an email to newsdesk@bclive.co.uk

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