Do you have any 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 almost two thirds of the way through a project and it is becoming clear the money is running out. We are not in
dispute, and the client wants us to continue while they arrange new fi nance. What would you advise?
We’re sure they are keen to see you continue on site. However, even if you did provide the service in this
interim period, there is no guarantee that you will receive payment on a full or timely basis. The client is effectively suggesting that you fi nance your own works without any hint of reward for the additional risk you are to assume. What happens if they do not get the fi nance? If you complete your works, then the only benefi ciary could be the person who buys the project from the liquidator. The better course of action is to suspend your work for an agreed period of time, and settle what money is outstanding and the timeframe within which payment should be made. You may consider putting a charge on the property or seeking some other way of obtaining security; your solicitor can advise. You should consider what security will safeguard the building in your absence, and check that the insurances are correct and paid up for this new level of risk. Materials of special interest or value that can be reclaimed will be better in your safe-keeping, but you may need to amend your account accordingly. If the relationship starts to disintegrate,
you must wait until the day after the fi nal date for payment and then, by reference to the Scheme for Construction Contracts, you should suspend your performance for non- payment. We can provide a model letter for you and suggest your next steps (see contact details in box).
I have received a collateral warranty, and I notice that it requires me to have professional indemnity insurance for 12 years.
Do I really need to commit to this for that length of time?
54 ECA Today March 2011
There are a number of different types of insurance policy available to contractors. When the
contractor is employed in the usual fashion, to size cables and conclude the design on ‘incidentals’, then, it is argued, product and public liability insurances should cover the range of risks against which it is sensible to insure.
Contractors who offer design, specifi cation,
supervision or technical information services tend to have to provide professional indeminity insurance cover. Whereas public liability insurance tends to provide protection against liabilities arising from property damage or personal injury, professional indemnity insurance additionally provides cover against the costs associated with the rectifi cation of both a negligently designed installation and the related consequential losses suffered by the contractor’s customer. Losses of this nature can be huge, and it is unrealistic to expect a contractor to have suffi cient resources to meet a claim from its own assets. The level of insurance bears no relation to the contract sum, as even the negligent design and installation of a small item can have consequences outside the imagination of the contractor. Policies for professional indemnity come
in all shapes and sizes and, especially when reviewing a warranty, it is important to know you have the right one. Brokers or the Electrical Contractors’ Insurance Company (ECIC) – the ECA’s insurance business – can advise. Deeds tend to be executed for 12 years, as that is the limitation period. The limitation period is unlike that encountered under a usual building contract. This limitation period refers to the length of time a claim can be made under contract. As the insurance is there to underwrite
the liability period, it would be nonsensical to contract to provide insurance for a lesser period of time. A deed is an agreement. If you do not wish to create a liability for 12 years, then negotiate a lower period.
The NEC (New Engineering Contract) forms of contract are intended to introduce an entirely
different philosophy to managing a contract. Certainly, it is intended that the NEC system of management is radically different to those we traditionally associate with the JCT (Joint Contracts Tribunal). The NEC2 system has been described as a ‘contractor bashing form’, possibly with some justifi cation. However, the contract authors listened to the criticisms and addressed the industry’s concerns with the release of NEC3. We always advise caution when
contracting for the fi rst time on an NEC contract. Limit the contract size to one you can more than manage, and devote an inordinately high management and cost surveying resource to it. Do this for two reasons: fi rst, because there is a signifi cant learning curve; and second, because, as standard, the forms demand it. The NEC contract is designed to be left open on the desk, read and complied with. There are a number of condition precedent clauses. These state the time frames within which, for your rights to be preserved, certain pre- qualifying actions must occur. To this end, the uneducated contractors
Your questions answered:
If you have any legal queries or would like your questions answered in ECA Today, please email us at
mail@ecatoday.co.uk. ECA members can receive free advice on commercial contract and legal issues from the ECA Commercial Contract and Legal department by calling 020 7313 4818.
We are currently in negotiations with a contractor who states: ‘the contract will be “NEC3 Engineering and Construction
Short Subcontract June 2005”’. We are unfamiliar with this contract, and have heard that it may not be too favourable where payments are concerned. Is there any advice you can give us?
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