16.1.1 The Contractor must comply with all applicable legislation.
Suitable drafting to provide for this is:
16.1 The Contractor shall take all steps necessary to ensure that the Works and Service are performed so as to comply with all Legislation, Guidance and any applicable judgment of a relevant court of law which changes a binding precedent and all Changes in Law.
16.1.2 The cost of complying with legislation which is current or foreseen at the time of the Contract should be built into the price the Contractor bids to provide the Service. Nevertheless, the Contractor may not, for example, be capable of including in the price specific costs arising from changes in law which are not foreseeable prior to contract signature. Accordingly, issues arise concerning who should be responsible for the costs arising from changes in law and how such costs should be funded. Contractors have expressed concern that change of law is a risk which they cannot control, with the result that if the risk, or part of it, is to rest with the Contractor for the duration of the Contract the Contractor will need to set up a committed bank facility or a cash reserve, the cost of which will inevitably increase the unitary charge. This may not offer good value for money.
16.1.3 Under more traditional commercial contracts, the Contractor is usually able to pass on the costs of changes in law to its customers through an increase in price or, in Contracts of relatively short duration, is able to take a view on the prospects of changes in law arising during the term of the Contract. Where prices are agreed on a long-term basis and are not flexible, the Contractor will often not be in a position to price the full cost of prospective changes in law effectively.
16.1.4 In what follows, Change in Law is broken down into Discriminatory, Specific and General Changes in Law. This is explained below and the important points to note are that where the change was foreseeable at the time the Contract was signed the risk will lie with the Contractor save that (a) during the construction phase, whether it was foreseeable or not, the Contractor will bear the risk of a General Change in Law and (b) at all times the Contractor will bear the risk of a General Change in Law which does not involve Capital Expenditure.
16.1.5 This approach recognises that while indexation will take into account General Changes in Law which do not involve Capital Expenditure it will not assist the Contractor as regards Capital Expenditure.