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Construction Professional


On April 1, under powers ushered in by the Construction Act 2011, councils are being handed control over their housing assets and finances. Denise Chevin reports


Coming to a town hall near you — cash


A QUIET REVOLUTION is about to take place across 171 local authorities which could usher in much-needed opportunities for the construction sector. From April, councils that still retain their council housing — including those that have set up arm’s length management organisations, or ALMOs — will be granted control over their housing assets and finances for the first time in decades. It means they will be able to keep all the rental income they get from tenants and decide how to spend it. These changes to the so-called Housing


Revenue Account (HRA), coupled with newfound borrowing powers, could be used to build new homes or revamp existing stock. Under the current system some councils have to pay a proportion of their income to the government through an annual settlement, which is then redistributed, meaning that there has been no financial incentive for managing stock efficiently. In effect, the reform of the HRA creates 171 new businesses, which will be run more along housing


association lines. Steve Trusler, director of strategy at


Wates Living Space, says: “The reform of the HRA is one of the few chinks of light out there at the moment in terms of opportunities. “The one area I have concern over is about timing. It’s such a massive change legally and accounting-wise — there’s a big issue around skills. Some local authorities are really on the ball in terms of their business plans, others aren’t.” “No one is really sure how long the new


system will take to get up and running, and if anything, we may see a hiatus in terms of funding and spending.” Ian Doolittle, a partner specialising in public sector housing at legal firm Trowers & Hamlins, agrees: “There is certainly a brave new age dawning on 1 April. But it will take time to exploit the new freedoms.” A study by PricewaterhouseCoopers


last year revealed that councils would be expected to generate more than £300bn of rental income over the next 30 years.


Back to basics: Consequential losses


If a contractor breaches a contract, the general rule is that the employer can recover damages in two ways: either for losses that a reasonable person would expect the relevant breach to produce (direct losses), or for any other losses that the parties, at the time they made the contract, would reasonably expect to result from the breach (consequential losses).


20 | MARCH 2012 | CONSTRUCTION MANAGER If a contractor builds a hotel and


breaches the contract by not completing the works in accordance with the contract, the rectification costs incurred by the employer would be a “direct loss”. If the breach of contract delays the opening of the hotel, the employer is also likely to have a viable loss of profits claim — a “consequential loss”. Contractors often seek to limit their


liability for consequential losses. Many of the standard form building contracts (for example some of the JCT Design and Build and NEC forms) contain provisions that seek to limit liability. But contractors should be wary of the following: n a consequential loss provision can always be challenged, so a court might find that the loss suffered is a “direct


“It’s such a massive change legally and accounting-wise. Some local authorities are really on the ball in terms of their business plans, others aren’t.” Steve Trusler, Wates Living Space


What the top 25 councils can borrow (£m) 1 Lambeth


147.9


2 Southwark 123.7 3 Tower hamlets 111.7 4 Hackney


5 Newham 81.9 6 Camden


7 Wandsworth 67.4 8 Islington 9 Brent


10 Haringey 11 Sandwell


85.4 77.9 60.3


58.9 54.7 53.0


12 Manchester 46.1 13 Ealing


45.8


Trowers & Hamlins emphasizes that because a local authority can borrow to these limits, it does not mean that it will


Source: Trowers & Hamlins


14 Lewisham 43.7 15 Nottingham 43.4 16 Sheffield 17 Barnet 18 Enfield


41.0 38.7 38.4


19 Hillingdon 38.1 20 Hammersmith 37.2 21 Westminster 36.3 22 Portsmouth 36.2 23 Wigan


24 Norwich


35.5 35.2


25 Redbridge 33.9


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