Industrial and logistics development has proved one of the most resilient segments of the property market, write Mark Macaulay and Tasmyn Brittlebank, construction partners in the Projects practice at law firm Dentons.
Demand for warehouse and distribution space, driven by ecommerce growth, supply chain restructuring and the expansion of last-mile delivery networks, continues to support new logistics parks across the UK. Yet the construction environment behind these developments has become increasingly complicated.
Logistics projects are frequently delivered on brownfield land, rely heavily on steel-intensive construction and often require substantial off-site infrastructure works.
As global supply chains remain volatile, with recent geopolitical tensions, including the conflict in Iran, affecting energy markets and shipping routes, these are contributing to renewed inflationary pressure on the cost of construction materials.
For developers and contractors, the challenge is no longer simply delivering warehouse space, but managing the legal risks associated with ground conditions, supply chain volatility and infrastructure obligations.
Ground risk and contaminated land
Many logistics developments are located on former industrial or manufacturing sites. While brownfield land can offer planning advantages, it often presents complex ground conditions and contamination risks that affect construction delivery.
Under the Environmental Protection Act 1990, local authorities have powers to require remediation of contaminated land where it presents a risk to human health or the environment. Where the original polluter cannot be identified, liability may ultimately fall on current landowners or occupiers.
From a construction law perspective, these risks frequently emerge during early site works. Even where Phase I and Phase II environmental investigations have been undertaken, unknown contamination or unstable ground conditions can still arise once excavation begins. The key legal question is how that risk is allocated under the construction contract.
Under some contracts ground risk generally remains with the employer unless expressly transferred. Alternative NEC Engineering and Construction Contracts address unexpected physical conditions through compensation event mechanisms that allow cost and programme adjustments where conditions differ materially from those anticipated.
English case law also underlines the importance of contractual risk allocation where site conditions are concerned, and the Court of Appeal has confirmed contractors cannot rely on unforeseen ground conditions where the contract places responsibility for investigating site conditions on them.
For large logistics schemes involving extensive earthworks or remediation works, the treatment of ground conditions within the building contract can therefore have a significant impact on both programme certainty and project cost.
Inflation, steel and supply chains
Modern distribution facilities depend heavily on structural steel frames, cladding systems and mechanical installations, meaning logistics developments are particularly sensitive to supply chain volatility.
Recent geopolitical instability has reinforced that exposure. The Iran conflict has raised concerns about disruption to global shipping routes and energy markets, increasing freight costs and placed upward pressure on construction materials such as steel.
For developers procuring logistics schemes, the question quickly becomes one of contractual risk allocation, particularly who carries the risk of inflation. Traditional procurement models rely on fixed-price construction contracts that place cost escalation risk on contractors. However, sustained material price volatility has made contractors increasingly reluctant to absorb open-ended price exposure.
Standard form contracts offer different responses. JCT contracts include optional fluctuation provisions, although these are frequently excluded in commercial developments, while NEC contracts, particularly under target cost arrangements, allow greater flexibility in managing cost change.
Supply chain disruption can also translate directly into programme delay. Shortages of structural components, façade systems or mechanical plant may trigger extension of time claims and threaten completion dates — particularly problematic where logistics developments are pre-let to tenants with fixed operational timelines.
Again, English case law also illustrates the importance of clear contractual drafting in allocating delay risk, and the Court of Appeal has confirmed parties are free to allocate responsibility for delay through their contract, even where doing so alters the traditional operation of the prevention principle (the rule that a party cannot insist on contractual completion dates where its own actions have caused delay).
Highways and infrastructure interfaces
The high traffic volumes generated by distribution facilities, particularly heavy goods vehicle movements, often require mitigation works to surrounding transport infrastructure. These works are commonly delivered through Section 278 agreements under the Highways Act 1980, allowing developers to fund and construct works to the public highway.
Under Section 278 agreements, highway authorities must approve detailed designs and supervise works carried out within the highway network. Where access roads or junction improvements are linked to project completion, delays in highway approvals or construction can affect programme certainty and practical completion.
For large logistics parks, where vehicle access is central to operational viability, misalignment between highways obligations and construction programmes can create significant delivery risk.
