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Delivering progress through quality

4 ways to limit your liability in a contract


Contractors, consultants and sub-contractors are often can claim 100% of the losses entirely from the architect
required to sign up to onerous contracts that expose even though there are other parties, i.e. the engineer,
them to risks which could result in significant financial that contributed to the loss. This will be a problem for
liability. It is therefore fundamental that at the point of the architect if the engineer has become insolvent or if
negotiation of the contract, the contractor or consultant they no longer maintain adequate insurance to defend
requests the inclusion of clauses that limit their liability. a claim, as the employer is much more likely to bring a
One or more of such clauses could be acceptable to claim against the architect who is more financially viable.
the employer, or if rejected it is likely notification will be RIBA Standard Agreement for an Architect includes such
required to the party’s insurer. a limitation clause (clause 7.3) as does ACE Agreement
1: Design (clause F7.5).
So what can be done to limit liability?
4. Reduce the Limitation Period
1. Insert a cap on liability
Generally if a contract has been signed underhand,
A general cap on liability can be drafted in various it provides a 6 year liability period, or if signed as a
ways, but the key is to limit the total liability under the deed, it provides a 12 year liability period. However
contract to a specified sum. This could be the value contracts often include an express clause dealing with
of the contract, the value of professional indemnity the limitation period. Usually the limitation period for
insurance that must be maintained or an aggregate consultants and contractors is extended to 12 years
amount. Limiting liability to 100% of the value of the from practical completion of the main contract works.
contract, i.e. the price being paid, is usually the best However, if the consultant or sub-contractor will complete
position. But often a compromise is to limit it to the value its services or works a considerable amount of time
of professional indemnity insurance. Contracts such as before PC of the main contract, then the limitation period
NEC4 Engineering and Construction Contract (Option should be amended to 12 years from completion of the
X18.5), RIBA Standard Agreement for an Architect ‘Services’ or ‘Sub-Contract Works’ or termination of their
(clause 7.2) and ACE Agreement 1: Design (clause appointment or contract, if earlier.
F7.1) allow the contractor or consultant to limit liability
to a specified sum. JCT does not however have an If you require any assistance with reviewing a contract
equivalent clause. or negotiating the inclusion of such clauses, then please
contact:
2. Exclude indirect and consequential
losses
Another option is to exclude liability for indirect or Bal Manak
consequential losses. It is important the contract defines Associate
exactly what is excluded, for example, loss of profit, loss 0345 901 0929
of goodwill etc. NEC4 Engineering and Construction bal.manak@watsonburton.com
Contract has option X18.2 to limit liability for indirect
or consequential losses to the amount stated in the
Contract Data. JCT Design and Build 2016 includes a
right for the Contractor to limit its liability for loss of use
etc. (clause 2.17.3).

3. Insert a Net Contribution Clause


This is a key limitation of liability for consultants. If a This material is intended as a guide only, and is not a
court found an architect to be 60% liable for damages substitute for legal advice. Whilst every effort is made to
and an engineer 40% liable for damages, then if a ensure that the information is correct as at 05 July 2017,
net contribution clause is included, the beneficiary is Watson Burton LLP can accept no responsibility for
restricted to claiming 60% from the architect and would actions taken based on this information.
have to bring a separate claim for the 40% against the
engineer. Without a net contribution clause, an employer

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