Do you have problems with contracts, disputes with clients or other legal questions you want answered? Our regular legal Q&A can help provide the answers
We are putting together our first ever price on a design and build job and, just days before the tender’s due in, the estimator has
asked if we would include for a warranty. What is a warranty and what should we do?
A warranty is a promise between two parties that would not normally be in a legally enforceable
relationship; the relationship will be between the client and the subcontractor. The agreement runs subsidiary or collateral to the principal agreement (the main contractor to subcontractor contract), which is why it is often referred to as a collateral warranty. A warranty usually imposes extra burdens on the subcontractor; for instance, the promise to provide professional indemnity insurance. If the subcontractor breaches its duties, it is easier and usually more profitable to sue for compensation under a contract. Collateral warranties are usually signed as a deed. Deeds carry a 12-year liability period. The response is to note the request, apply a premium to the tender, advise any consultant designers you employ that they
too may need to provide similar undertakings and to review your insurances. When the warranty arrives, negotiate its terms.
We are almost complete and the client has just gone into a CVA. What does this mean? When will we receive our next payment and
how will we get our retention?
A Company Voluntary Arrangement is a method by which an insolvent company can protect itself against
the demands of its creditors while deciding whether its capacity to trade is damaged beyond repair. In construction, a CVA is usually a forerunner to insolvency. The question of whether there will be any more money depends on whether ‘the client’ is the other contracting party or whether there is an intermediary builder. Subcontracts sometimes contain clauses, allowed by the Construction Act, which state that in the case of ‘a third-party insolvency, payment will only occur when the upstream payment is received’. And of course, it never is. Clauses of this nature rely on the correct definition of insolvency, therefore it is advisable to check the subcontracts terms are satisfactory. If they are not, then salvation may be at hand. However, if the client is the contractor’s employer, then a CVA usually signals the end of any payments to you.
The main contractor has asked us to develop the design, even though all the drawings are complete. His order refers to the JCT Dom 1 and asks that we carry PII insurance. As we are not really designing the works, will we actually need PII?
When contracting to develop a design, irrespective of whether the design is complete, the contractor assumes all the liabilities and risks associated with that design, unless the
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If the client is the contractor’s employer, then a CVA usually signals the end of any payments to you
contract states otherwise. Following an important decision in Co-operative Insurance Society v Henry Boot [Scotland] Ltd 2002 the JCT changed their contracts (in 2005) to include an important limitation. This states ‘the contractor shall not be responsible for the contents of the employer’s requirements or for verifying the adequacy of any design contained within them’. Check the adequacies of all designs supplied precontract and find out what latitude the contract provides for the one-sided change in any aspect of ‘the design’. Contractors can insure themselves against a successful claim for breach of a duty to design to ‘reasonable skill and care’. Where the contract is silent, a ‘fit for purpose’ warranty is implied by law, which is uninsurable. So, asking a contractor to insure themselves against claims for breach of a ‘fit for purpose’ warranty is an unnecessary expense. Dom 1 or Dom 2, are no longer fit for purpose.
The client is negotiating with our preferred main contractor and to get our works moving along he has sent us a letter of intent order.
The order is in writing – we know how important this is – can we go ahead?
Continue if the letter of intent provides a duty to pay, but manage the contract to the letter’s
constraints. For instance, if the letter states, ‘proceed no further than completing the
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