Introduction

This guide to professional indemnity claims against construction consultants has been published by insurance broker and risk management specialist Griffiths & Armour to draw together case studies to help professionals better understand the critical issues surrounding the effect of contractual terms on claims.

Antony Oliver
21 September 2014

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The work focuses not on the underlying causes of claims, such as design errors, communication mistakes etc, which are the subject of earlier publications, but rather considers the effect of contractual terms on claims.

The aim of this publication is to draw attention to some of the more onerous contract terms we commonly see in the many contracts that we review for our consultancy clients and to highlight the consequences that can flow from such terms based on the professional indemnity claims handled by Griffiths and Armour.

Most construction employers now require their consultants to enter into formal consultancy agreements in relation to any construction project, regardless of the project value. When projects go wrong, the contracts with the project team are often the first place that an employer will look to for remedy.

The terms of those contracts and the degree to which they have been properly understood can determine who is pursued most vigorously. 

Contracts can prove useful for both sides of any commercial transaction and help to clarify and record the agreements reached and the undertakings made during pre-contract negotiations. However, more often than not we find that bespoke contracts contain terms that expose consultants to liabilities far in excess of those imposed by common law, the implications of which are not often readily apparent. 

Whilst the Unfair Contract Terms Act and certain common law principles offer some protection to those on the receiving end of an onerous and unreasonable contract, the general principle in most jurisdictions is that two commercial businesses are free to decide between them what contractual liabilities should apply and the courts tend to shy away from deeming terms unenforceable. As a result, there is often little or no remedy available to the consultant who accepts an unfair contract under commercial pressure from a demanding client. In the present economic environment, those at the top of the food chain are often able to impose contracts on their consultants on a “take it or leave it” basis without much meaningful negotiation, so it is all the more important for consultants to develop an awareness of contractual liabilities and the risks they can introduce. 

The aim of this publication is to draw attention to some of the more onerous contract terms we commonly see in the many contracts that we review for our consultancy clients and to highlight the consequences that can flow from such terms based on the professional indemnity claims we have handled.

We hope that it provides food for thought. If you have any queries or questions on the content of this publication then please do not hesitate to contact your Griffiths & Armour broker for advice.

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Introduction
Understanding contractual terms
Indemnity clauses
Strict liabilities
Certification
Net contributions and limits of liability
Novation
Closing remarks