The impact of Gateway 2 on the industry cannot be understated, but just to be clear from the outset – we are choosing not to focus on the time taken to get approvals (on average 9 months!), the number of applications rejected (69%), the lack of consultation during approval periods or the huge impact these delays are having on housing starts in London…

We continue to progress with hope and optimism that these issues will be rectified in due course! Easy for the author to say but of course, these factors are pertinent for our clients when making decisions on projects in weighing up the risks and the impacts on viability, cashflow and finance. No wonder we have seen the lowest number of housing starts in London since the crash of 2009!

Instead, we are putting on our rose-tinted glasses and imagining a world where the Gateway system had been implemented as it was envisaged……

What implications does the new system have for the industry?

The new system has introduced a stop-go approval before projects can progress to the construction stage; to secure approval, the building needs to be designed generally to a Stage 4 or, in some aspects, Stage 5 level of design.

Previously, the latter design stages typically overlapped with the early construction stages. Whilst piling and frame works progressed on site, construction detailing for packages, which come later in the construction period, were being finished off. This is now not possible and in essence the most obvious impact is longer programme durations – not only is there an approval period to be accounted for in programme terms but that concurrency between design and construction periods has now had to greatly reduce.

As a result, project cashflow and viability have been impacted in terms of programme durations but also the expense of design fees earlier in the project before start on site. It also extends the time periods between gaining Planning approval and starting on site; for many of our clients who drawdown funding when construction commences, this has a further significant impact on cashflow and therefore viability.

Contractors and developers are also having to adjust to the approach; they require input from their supply chain to prepare Gateway 2 submissions but are unlikely to procure works from them until submissions have been made and approval has been granted. Greater trust and stronger relationships with their supply chain members are required to help them manage this difficulty. The conflict between Building Control and Planning requirements is also presenting a “chicken and egg” type challenge as design progression may necessitate further Planning approvals and condition discharge before Gateway 2 submissions can be made – further extending programmes and potentially incorporating Planning delay into the programme to exacerbate the situation.

What does the new system mean for the procurement of HRBs?

The other area impacted by the new system is procurement. As we know, over the years, Single Stage Design and Build had become the most popular form of procurement. This is because clients had been able to pass a high degree of risk through the contract to their constructor partners. Best practice is that the client develops the design to at least a Stage 3+ level but we are all aware that this is not always the case and clients have still looked to procure buildings with just a Planning level of design.

With Gateway 2 in play, the level of risk associated with this procurement strategy increases significantly and the feedback from the contractor market is that they are not willing to accept this level of risk. This aligns with the intentions of the legislation, an objective of which was for clients to take on more understanding and responsibility for the design and construction of their own buildings.

The increased risk level derives from the risk of rejection of details by the BSR at Gateway 2, the impact this may have on programme, the much-publicised delays for approval and the risk of product supply and detailing where products that may have been specified in the Gateway 2 submission become discontinued and may require a variation with the BSR and further delay.

So, with Single Stage Design and Build no longer an option for HRB procurement, what are the other approaches available to clients? The solution the market is veering towards is Two Stage Design and Build which tries to capture the fixed price and derisking elements of Design and Build for clients but does not tie the contractor to a price until Gateway 2 approval is secured.

Two Stage is hugely popular in many sectors of the construction industry but has not always been a big part of residential development due to the comparatively simple nature of the construction and the difficulty it potentially presents to procurement rules for publicly funded clients as the 2nd stage can tend towards a negotiated position. It needs to be carefully managed to ensure successful outcomes.

How is the industry coping with the changes?

The implementation of the new system has been a bigger hindrance to the industry than the new system itself. The delays to approval are not only having a big impact on starts but also on the confidence levels in the industry. The result is that many clients are looking to sites where building heights are lower or even applying for Planning amendments to decrease the height of buildings below the HRB threshold. The lack of guidance in respect of submissions and the absence of consultation during the approval period have made the situation worse.

The Government recognise the difficulties the implementation has caused and there have been announcements in recent weeks about changes at the Regulator and new ideas to improve the system with details of a new fast track route to follow. Industry guidance from the CLC has just been released, recent applications have seen better liaison with the BSR and our collective experience of the system is increasing so the situation is likely to improve.

What we will be left with however is a position where clients and contractors need to adapt to new methods and project viability needs to be recast to take account of longer programme periods. In time we will become used to this but right now the transition is tough!