Industry

17 DEC 2019

SEVEN STEPS TO GETTING YOUR CONTRACT RIGHT

Getting the contract right is crucial to the success of any construction project.  Below, Lockton’s David Isherwood offers seven helpful tips of how to safeguard your firm’s interests.

In any construction project, the contract is key. Getting it right can take months of negotiation and, more often than not, it isn’t until there is a formal claim that the parties find out whether or not the contract protects them! We see numerous claims notifications from a wide variety of causes, and one of the most common is when the contract’s terms are referred to by the claimant's solicitor, in order to make the claim stick against the insured.   

We've come up with seven key recommendations to help you get the contract right at project inception, safeguarding your interests in the future.

1. Get a contract

Although you don't need to have one, it’s wise to have a contract on every project. Without one, you still owe a duty of care once services begin but it is more difficult to prove what you did or didn't agree at the project’s start. Ideally, a contract would be agreed before work has started.

2. Use a pro-forma

Make sure you are fully aware of what your contract says; that way, you already know what you are signing up to. A set of standard terms and conditions on your own company letterhead is advisable for use whenever possible. Failing that, there are various consultant-friendly documents out there, such as those issued by the ACE, CIC, RIBA and others. Bespoke contracts issued by the employer (or requisite solicitor) are common but will of course take time to read and negotiate.

3. Be wary of absolute obligations such as ‘indemnify’, ‘warrant’, ‘guarantee’ and ‘fit for purpose

Terms and phrases such as ‘indemnify’, ‘warrant’, ‘guarantee’ and ‘fit for purpose’ are often warning signs that there is an overarching obligation, but that is dependent upon what follows. Do bear in mind though that the professional’s requirement at law in the UK is to exercise reasonable skill and care, so it would be wise to resist obligations that are going to make it easier for a claimant. It is also important to bear in mind the scope of your PII policy here as, just because it might be covered, it doesn't mean it should be agreed. Do always speak to your insurance advisor about these matters.

4. Back-to-back means added security

If you are appointing sub-consultants, ensure that the contract is on a back-to-back basis with them. This means requiring your sub-consultants to agree to the same terms and conditions that you have agreed with your employer. Ideally, this would include any contract specifics such as the PII limit. This will always help if there is a matter later on, where a sub-consultant might be brought in.

5. Collateral warranties can be a positive

Collateral warranties on any project can often safeguard issues later on and streamline any claims procedure. The mechanism of agreeing a collateral warranty creates a contractual link with a third party. If appointing a sub-consultant, it is wise to enforce the signing of a collateral warranty in favour of the employer and funder. This means you may not be brought into a future claim which may otherwise cause costs, time and stress. That said, it is important to ensure that they are all agreed at appointment stage and that they do indeed sit ‘collateral’ to the appointment, with no more onerous terms.

6. Protect yourself, then protect yourself some more

There are various ways that you can protect yourself further. Where possible, we always recommend adding a financial cap on liability ideally to no more than the limit of indemnity that you are carrying, net contribution and time limitation provision in any contract. For collateral warranties, the addition of an equivalent ‘rights in defence’ clause is also very useful. Our team is always happy to offer further guidance on these specifics.

7. Stick to your scope of services

Although it is nice to be nice, being overly helpful can be damaging later on. Within any appointment, the scope of services will also be agreed. It is imperative that these are adhered to and not varied without written instruction and appropriate additional payment. We frequently see issues where an insured has been guilty of 'scope creep' resulting in a formal letter of claim which has arisen out of a service that they hadn't originally agreed to provide and, in some cases, were not appropriately qualified to do. There is no harm in sticking to what was originally agreed.

Knowing how to draw up contracts and the best way to enter into them is complex. For further advice and to find out how this interacts with your PII cover, please contact your insurance advisor.

David Isherwood is account executive, global professions, at Lockton.

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