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