Automation and advanced manufacturing: Contracting considerations

Insight • 26/02/24

By Alastair Robertson and Catherine Thompson

Construction and engineering is changing. The sector is having to respond to advancements in technological innovation at a pace which the industry has never witnessed before.

Across a range of sectors from food and drink production to house building, traditional construction and manufacturing methods are giving way to innovative approaches that leverage technology, automation, and sustainable practices.

This evolution is not only enhancing efficiency but also revolutionizing the way structures and products are designed, fabricated and assembled.

Over the last decade, we have witnessed a significant rise in instructions relating to projects which are characterised by the technology that is housed within the physical asset rather than the structure itself. These smart building projects come in many different shapes and sizes – certainly too many to adequately cover in this Insight. For current purposes, we’ve therefore focussed on schemes commonly referred to as ‘Factories of the Future’ or ‘Smart Warehouses’. Examples include:

  • A holistic warehouse occupied by an online retailer which houses an automated product stocking and picking system designed to service the growing e-commerce market.
  • A factory facility that produces prefabricated volumetric modules to form residential buildings in the housing sector.
  • A retail operations centre for an airline to stock, manage and distribute via an automated system millions of in-flight retail products for customers to purchase on their flights.

Essentially, a Factory of the Future/Smart Warehouse refers to incorporating Artificial Intelligence, robots, and the Internet of Things (IoT) to automate and digitise various fulfilment activities to make the warehouses fast and efficient. These solutions work with human employees to reduce errors, save time, and improve productivity and warehouse efficiency.

For those looking to invest in, build or occupy one of these smart buildings, at some point it will be necessary to engage the services of a specialist supplier of process automation solutions. Suppliers operating in this sphere are typically world leading providers of robotics and complex automation and control projects. Negotiating with these companies can present unique challenges due to their intricate operations, specialised expertise, and often, complex global footprint. Whilst every project is different (and specific advice will always be required on a project-by-project basis), some common themes which emerge are as follows:

  • The factors referred to above culminate in suppliers having significant bargaining power and a strong preference for operating under their own terms and conditions which are, of course, highly favourable to the supplier in terms of obligations and risk profile.

To achieve a more balanced contractual position, it is key for clients to adopt a strategic approach. Key commercial and technical requirements should be established at the outset and documented. As well as serving to manage expectations at inception stage, this document can then inform the direction of contractual negotiations.

  • Where possible, we’d recommend utilising an industry standard form contract such the MF/1 (for the supply of electrical, electronic or mechanical plant), IChemE (for chemical, process and bioprocess projects) or FIDIC (typically used on international projects) which can offer several advantages in complex automation projects. These standardised contracts provide a well-established framework that helps streamline negotiations and reduce ambiguity in contractual terms. The use of industry specific standard form contracts ensures that key aspects such as intellectual property rights, liability (including liability for defects), project timelines and testing regimes are comprehensively addressed.
  • The design, supply and installation of the new equipment must be considered alongside a multitude of other issues relating to smart buildings, including:
    1. Software – Automation projects typically include the ancillary development of software which is critical to the performance of the overall end product. There may also be a requirement for such software to be integrated with the building’s existing systems.
    2. Data protection – The collection of personal data by a smart building gives rise to issues for stakeholders due to the increasing regulation of privacy and data protection.
    3. Lifecyle support – Automation systems are often of such complexity so as to render the conclusion of an ongoing support/lifecycle contract a necessity for ensuring the system’s functionality in accordance with the end user’s requirements.

Ensuring that these issues are dealt with properly and that they hang together correctly will be key to the project’s success.

In a nutshell, the contractual arrangements require careful consideration. Navigating the legal aspects is not easy and clients operating in this sphere need their advisors to have an expert understanding of the underlying technology, regulation and commercial issues.

How we can support you with automation in the construction sector

Walker Morris’ lawyers are optimally positioned to help clients tackle the challenges brought by the technological revolution in the built environment.

Our lawyers have particular expertise in the contractual issues involved in the implementation and maintenance of large-scale automation projects, advising our clients across multiple sectors including housebuilding, retail, logistics and aviation.

Adopting a sector-focussed approach, our lawyers from across the firm (including construction, technology, commercial and regulatory) frequently adopt a one team approach, working seamlessly to solve problems and navigate clients through the issues as quickly and efficiently as possible.

Please contact Alastair Robertson or Catherine Thompson of the Construction & Engineering Team for tailored advice, assistance or training on the legal issues arising out of large-scale automation and control projects.

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