Design and Construct

A contractor that undertakes design and construct duties will traditionally become the single focal point of responsibility to the employer for both the design and the workmanship of the building or project in question. It is usual, particularly when the works to be carried out are of a high value or complex, for the various duties of the contractor to be set out in detail in a written contract.

This ‘design and build’ contract is usually a lengthy and complicated document as its purpose is to establish the respective duties of the contractor and employer in relation to the procurement of the building or project. It will generally stipulate the level of PI cover that the contractor is required to carry and, depending upon the type/size of contract and client, can range between £1 million - £10 million on an ‘each and every claim’ basis. It will also contain many provisions that are of little interest to PI insurers who are only concerned with those particular duties of the contractor that have an impact upon the professional design obligations in respect of which cover is provided.

Typically, a purchaser from, or a tenant of, a developer-employer may require collateral warranties to be given in its favour by the contractor. The purpose of seeking such warranties is to enable the purchaser or tenant to have a contractual right against the contractor in the event that there are defects in the building.

The nature of the obligations assumed under such collateral warranties can vary depending upon the contract, but usually the following principal matters are covered, all of which have a particular significance to the PI policy:

• Fitness for purpose
• Duration of the warranty
• Assignment clause
• Net contribution clause
• Limitation of liability
• Insurance requirements

As the purpose of collateral warranties is to extend the obligations of the parties providing the warranties beyond those that would otherwise exist, it is essential that the PI policy caters for these additional obligations.

For example, most insurers will try and limit cover to ‘aggregate’ which will only be acceptable if the terms and conditions of the warranty can be amended.

Quercus PI offers a comprehensive service from advice on completing proposal form and presenting submission to prospective insurers through to issue of policy documentation. This service will also include a full review of insurance and liability clauses of any collateral warranties that may be presented during the policy period along with claims and ongoing risk management advice.

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