Business & Finance Business Insurance

Construction Insurance - Dealing With Design And Build

Developments in procurement are reshaping the traditional contractual relationships that exist within construction. In this environment, the challenge for consultants is to develop working practices consistent with the scope and nature of the obligations (and therefore liabilities) they face - particularly when operating for contractor clients.

There is a common perception that consultants thrive best when briefed and retained by an informed end-user whose prime objective is to see a quality project delivered at a reasonable cost. Working for a contractor who has accepted a brief to deliver an end product at a particular cost, by a particular time is a different prospect. In the former relationship, quality and value for money are in most cases paramount whereas for the contractor client, profit is the prime factor.

Professional Indemnity claims are notoriously long tail and it is therefore difficult to draw finite conclusions from the data currently available. What we do know is that there are firms who notify more claims when appointed under design & build contracts than when they are appointed under traditional contract forms. Equally, however, there are consultants who focus on design & build and have an exceptionally good claims experience.

These recent developments pose some far-reaching questions for engineers: Is liability under design & build relationships really that different? What are the major issues facing consultants as a result of procurement changes - particularly contractor client relationships? Do today's contracts represent consultants' areas of influence and the actual performance of the project?

Our experience suggests that there is a distinct change in the nature of risk posed under design and build contracts.

The questions that consultants need to ask themselves in this key area are simple:

a) Do I have absolute control over a particular aspect?
b) Do I have any influence over it?; or,
c) Is it achievable as a result of the exercise of 'reasonable skill and care'?

An increasingly common source of claims involves contractors seeking to recover costs when a project's finances overrun. In these instances the extent of services and contractual obligations that the consultant has assumed have a significant influence on how claims are defended and resolved. It is therefore more important than ever for consultants to carefully consider the contractual risks arising from contractor appointments - and to document their responsibilities carefully.

With the scale and contractual complexity of many projects increasing, informed advice on the basis of the risks faced and the extent of cover required to fund those risks, is increasingly a critical element in any consultant's robust business plan. In turn, this enhanced understanding is leading to a more appropriate allocation and funding of risk.

Add to the mix 'the spectre of novation', where firms can be caught between the differing interests of client and contractor and it is easy to conclude that the risks faced by today's consultants are not for the faint-hearted. However, with a combination of good internal management, controlled innovation and the right risk and insurance advice, it is possible to establish and maintain a positive position.

Our clear message is that consultants should increase their knowledge and understanding of the risks associated with differing procurement routes. The current combination of buoyancy in the construction sector and "soft" insurance market conditions should not lessen the need for effective risk management.

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