Manufacturing is undergoing a transformation. Businesses are making the most of the opportunities presented by new technology. They’re investing in new equipment, upgrading existing plant and investing in new facilities and tech — creating ‘smart factories’. But to adapt successfully, it’s important to understand and manage the risks. Which is why legal expertise at every stage is a vital component in the process.
It’s time to start planning. Getting the right foundations in place will help you avoid complications later on. These are some of the areas you’ll need to think about. Of course, our expert team is always on hand with help and advice.
What is driving the project? What are your aims?
What timescales are you working towards? What’s the final date for completion?
How will it be financed? What will it cost? What are the returns on investment?
Where will the new factory be located? What planning permissions are needed?
Will you be developing your own equipment and machinery or purchasing it?
What licences or permits are needed?
How are you planning to use and/or develop new smart technology?
What contractual relationships will you need in place for construction and ongoing services and protect yourself from defaults? Are there any third parties such as a landlord or funder who need to be involved in the negotiation of these construction contracts?
How will you staff any new facility? Will you need new recruits or will your existing workforce move/adapt?
Some of the risks you’ll need to address now to keep your plans on track. We can help you here.
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Failure to get advice on the likelihood of planning permission being granted could mean your plans are not achievable. Click for our checklist
Failure to consider environmental (and health and safety) issues from the outset could mean that you miss the opportunity to amend plans to address such problems. Click for our checklist
Failure to consider what funding the business needs to finance the project at the outset could mean that your plans are not viable. Click for our checklist
Your initial concept is taking shape. Now’s the time to get a little more granular. These are some of the areas you should consider next, concurrently.
At every stage, we’re here to offer help and advice.
Will the existing workforce be retained or will you need to hire new people? For example, technology experts, programmers and developers, rather than factory line workers?
If you’re planning on retaining the existing workforce:
Consider what changes will be necessary (roles, duties, location), whether TUPE applies and/or whether any redundancies need to be made. You will need to commence consultations with employees in good time and factor this into the project timeline.
You’ll need to commence consultations with employees in good time and factor this into the project timeline – along with ensuring the commercial agreements reflect the employment position.
Have you considered how you might upskill your workforce to operate your new technology? You may want to invest in training or make use of apprenticeship programmes.
If you’re recruiting new employees:
Have you factored in time for recruitment campaigns? Recruitment processes can take time. Particularly if you’re recruiting from overseas (it can take time to secure a visa) and/or if you’re recruiting highly skilled individuals who have lengthy notice periods and/or restrictive covenants.
If you’re considering recruiting specialist individuals from overseas, do you have a sponsor licence and are you familiar with business immigration processes?
Have you considered the Construction Design and Management Regulations and allocated responsibility? Who will design the build and prepare the specification? Who is going to project manage it day to day and keep things on track? Do you need to access the property whilst construction works are ongoing? What’s the required deadline for completion.
Delays and disputes over payment frequently arise during the course of a construction project. For example with regards to the sum to be paid in each interim valuation. It’s important that the contract documents provide for an adequate mechanism for payment, a clear valuation procedure for changes and additional works, and a dispute resolution mechanism.
Should the worst happen, you may need to participate in formal dispute resolution proceedings such as adjudication or court proceedings. Do your contracts provide adequate protection?
How can your construction contracts protect you? Consider how to appropriately allocate risk between your business and the Building Contractor, for example by way of liquidated damages for delay, a right to augment the Building Contractor’s labour, and/or a right to terminate and appoint a replacement Building Contractor.
What smart-technology are you using? Automated machinery? Artificial intelligence? Augmented realities? Digitised processes? Will the use of new technologies assist you in achieving net-zero? You’ll need to determine whether you’re developing your own smart-technology or procuring it from a third party supplier.
To maintain a market advantage, you’ll need to protect your ideas. The intellectual property created when developing or deploying artificial intelligence or smart machinery must be carefully considered. Design ideas hold value – would you be comfortable freely handing these over to suppliers? You may want to impose strict use restrictions on suppliers or partners, or even take steps to prevent them disclosing the existence of the project altogether using confidentiality agreements.
If the technology for the machinery to be installed already exists, there will be a requirement for an IP licence. If the technology is being designed by you, you’ll need to ensure that you own the rights to that technology.
Consider how the use of smart technology affect your workforce and whether you have the right people with the right skills to develop and/or use the technology.
You’ll need a contract for the construction, supply and installation of the machinery. This may include specialist mechanical and electrical engineering contracts.
Have you chosen your source of funding?
You’ll need to negotiate finance documents (debt or equity). These include property and development funding, asset finance, project finance, subscription arrangements and working capital facilities, amongst others.
You may also need an inter-creditor arrangement, or a deed or priority regulating the priorities and rights of and relationship between different funders.
There may be pre-funding conditions to meet – which may require due diligence reports. A funder will also usually require collateral warranties from the Building Contractor and the consultants who design the build.
What are your existing arrangements with suppliers and service providers? Will you be retaining those relationships, modifying them or terminating them? An examination of existing terms will be required with a view to variation or termination.
What do the employment/TUPE provisions of existing commercial agreements say? You’ll need to consider who is on the hook for litigation risks or employment claims/redundancy costs.
If the business does not have adequate remedies in its contracts procuring underpinning technology, it could find the entire project held up by an IT supplier with no means for recourse or recovering losses.
By not planning properly at the outset for how IT contracts can be transitioned away from, the business may have a long frustrating and expensive experience when later trying to move to a new provider.
Are there any conditions included in new contracts, whereby if they’re not met you’ll be the hook for costs?
Who is responsible for integration between new software and hardware.
Will there be any transitional services agreements in place while transitioning from one service provider to another (or where insourcing is a function)?
Some of the risks you’ll need to address now to keep your plans on track. We can help you here.
If you fail to allow sufficient time to arrange funding or are not able to meet pre-funding conditions, the project could collapse or become unviable.
If there are unexpected site conditions, shortages of labour or materials, or restrictions upon site operations or supply chain challenges then disputes could arise.
Failure to protect and capture your ideas, innovations and designs could result in losing out on valuable intellectual property rights and give rise to unexpected litigation
If you fail to consider the employment position at an early stage (including factoring in time for consultations and recruitment), this could leave you with staff shortages, employee relations issues and inadequate employment provisions in commercial agreements.
Who is managing the integration of new solutions, and who will be liable for delays or problems?
How will the project affect your relationships with existing suppliers? You’ll need to consider whether there is flexibility in your contracts and, if necessary, how they can be terminated without huge costs.
The construction of the smart-factory is now complete and you’re now ready to make the move. What do you need to think about?
Who is going to make the move for you? You’ll likely need to sub-contract this. Have you thought about closing down your previous site, and potentially disposing of or redeveloping it? If redevelopment is an option, take advice at a very early stage to understand prospects of successfully obtaining planning permissions and also whether the redevelopment proposals should be promoted through the Council’s development plan process (this can require a ore medium/long term view). Will there be any overlap of facilities until you’re confident in the new system? How might this impact your employees and your commercial contracts when running in parallel? Do you have all of the necessary permits, licences and insurance products in place to make the move and start running the facility?
Have you received the information you need to operate and maintain the building (e.g. owner’s manual, user’s guide, health and safety file, building log book)? Have all warranties and product guarantees been provided? Has there been a final inspection to ensure there are no defects at the property.
Plan ahead and understand the legal options available for exiting supply contracts that are no longer required and starting new ones to mitigate the associated costs.
Does a permit need to be surrendered? Does the old site need to be remediated or cleaned up? Plan this at an early stage to minimise costs and delays.
Consider whether a permit, and any other licences, are required and factor this into your programme. This issue has the potential to cause delay so it is important to think ahead.
Don’t be passive: actively manage the deployment of new technology and IT systems. Are implementation milestones being hit? Is your business ready to meet any dependencies that the supplier has raised?
There may be a move to a new geographical location, changes in personnel and new working practices/patterns. Ensure you continue to communicate and consult with your employees at this crucial stage – remember your workforce is your key asset.
Some of the risks you’ll need to address now to keep your plans on track.
Has the building been inspected post completion? Do you have any rights in respect of any defects? How was liability for design and workmanship of each part of the Works allocated between the design consultants and the building contractor? How do you recover the costs of remedying the defects?
If the completion date is delayed, how does this impact your contracts, service providers and suppliers? How can delays with one project stream impact others? You could be on the hook for hefty costs.
Organisational change can lead to unhappy employees, resulting in grievances and/or claims for breach of contract. Equally, if you’ve undertaken a redundancy process there may well be unfair dismissal claims to deal with.
Any remaining H&S issues will need to be ironed out prior to the move. Additionally if there were any health and safety issues which arose during construction, you may be facing ongoing litigation, which will not only cost the business, but could cause reputational damage prior to you starting the running of the new facility.
Issues may be encountered at any stage of the project, as identified in each of the first three sections above, which may result in you taking or defending legal action. Some of the following issues may arise during the life cycle of your new factory:
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Does the planning permission contain conditions which prevent you operating the site as you wish? If a condition needs to be varied, look to submit the relevant application at an early stage to minimise any delay to programme and to minimise the risk of a breach of condition. Seek advice and engage with the local planning authority on any alleged breach or any restriction that needs to be amended.
Proactively assess potential for complaints to arise. On receipt of complaint, review operations and seek specialist advice swiftly. Together with advisers, seek to engage with complainant before any issues are escalated.
Implementing new ways of working may result in a heightened risk of employment claims. People may be unsettled, raise grievances, or there may be redundancies. Ensure you carefully manage the consultation process and consider employees’ concerns.
Does your contract provide flexibility? What are the termination/suspension options? Are there force majeure provisions which may excuse performance? How do initial warranties and any ongoing support services work together? Is there any provision for alternative ways of performing and/or mitigating risk including non-contractual solutions.
Check contractual obligations and liabilities in financial hardship/insolvency scenarios. What are the termination/suspension options? Are there guarantees/indemnities/performance bonds or other forms of commercial assistance? Does insurance cover assist?
The construction process is unpredictable. The contractual variations regime therefore requires careful consideration. It determines your ability to change the scope and the extent to which the contractor will be allowed additional time and money for such changes.
Seek specialist advice immediately upon discovering any defects to avoid falling foul of limitation periods. Collate your documentation including photographs, contracts, warranty and insurance. Consider health and safety implications for employees and others on site.
The key to a successful acquisition or disposal is to plan ahead. Make sure advice is sought early to ensure things are structured in a tax efficient way and all consents from funders. for example, are obtained in a good time.
Technology research and development often leads to new Intellectual Property. It’s important to capture this IP and consider who owns it and how will it be licenses between the parties.
Some of the things you’ll need to think about now to keep your plans on track.
Contracts should provide for adequate remedies where builders, suppliers and sub-contractors have made mistakes.
If you need to litigate, you’ll need to consider what the appropriate forum is – for example, arbitration, adjudication, mediation or civil proceedings?
If you’re on the receiving end of claims, how do you appropriately manage the litigation both in terms of costs, prospects and reputational issues?
Once you’ve made the move and are up and running, and have ironed out initial troubleshooting issues — it should be business as usual, right? Any big project or change will result in you re-thinking the way you do business. What should you think about? Is your approach to Environmental, Social and Governance matters up to the mark?
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How can you ensure that you put “people” and “planet” at the heart of everything you do? Consider whether your new technologies can be developed further to assist in achieving net-zero and consider whether you can put green employee benefits in place for staff. Learn more
How do you achieve a diverse and inclusive workforce? There may also be issues with biased or discriminatory artificial intelligence – the law on regulation and accountability has not yet developed to combat this, which could leave you liable.
In addition to considering how the new set-up will affect your ways of working, you may also need to consider how it will impact your customers. For example, will it change how you supply them or the way you deliver? If so, do you need to vary your existing contract terms?
You’ll need to manage ongoing HR issues, particularly if terms have been changed and new ways of working have been implemented. Care should also be taken if you’re using technology to monitor the performance of employees. Ongoing sponsor licence management will be required where you’ve recruited overseas nationals.
You’ll need to maintain the technology and equipment, which may be done by external suppliers. Are service providers meeting required service levels? If not, do remedies under the contact need to be considered? Do you need to consider re-negotiation of contracts with suppliers? Learn more
How quickly will the new technology become out-dated? With ever-increasing developments, you’ll need to keep up-to-speed and continually develop that technology. You’ll want a policy to protect the intellectual property at the facility and capture any arising intellectual property.