Collateral Warranty, Defects & General Insurances

Question 1

401 What is a collateral warranty

Answer 1

A collateral warranty is contract that sits alongside another formal contract which creates a contractual link between two parties who are not linked by the main contract
Example or where one might be used
If the main contractor is subcontracting out an element of the design works the Client may wish to have a collateral warranty in place that links themselves with the subcontractor, should that design be deficient then the Client will be able to obtain remedy through the collateral warranty.

Question 2

403 Who might want a collateral warranty?

Answer 2

Any third party who has a vested interest in the performance of the main contract. For example, funders, purchasers or tenants or any class of person who will benefit from the contract.
The Client, if the main contractor becomes insolvent and there is no contractual link between the Client and the sub-contractor the Client may not be able to make a claim for defective works of the sub-contractor.

Question 3

404 What this the difference between a bond and a collateral warranty?

Answer 3

A bond is provided by a third party (usually a financial institution) where as collateral warranty infers rights that are not held elsewhere.
A bond sits inside the contract whereas a collateral warranty sits beside the contract.

Question 4

405 Are there any alternatives to collateral warranties

Answer 4

Yes. The Contract Rights of Third Parties Act 1999

Question 5

406 What are the 3 ways rights can be transferred under a building contract?

Answer 5

1. Collateral Warranties – Can be time consuming and costly
2. Contract the rights of third parties act 1999
3. Assignment (never used)

Question 6

407 Collateral Warranty case law?

Answer 6

Parkwood Leisure V Laing O’Rourke
JCT Case where LOR gave the Purchaser a CW that a judge deemed to be a construction contract based on the wording and the intent.
Royal Bank of Scotland v Halcrow
Case where Halcrow designed some structural elements. There was a defect in the floor and the Client wanted to claim against the CW to have it fixed. Halcrow said there was a net contribution clause in the CW and which related to other Consultants. Halcrow stated that the D & B contractor should bare part of the cost. But the court decided that the D & B contractor didn’t fall under the banner of “other Consultants” Halcrow had to pay all the costs.

Question 7

431 What are defects?

Answer 7

A defect is something that is not in accordance with the scope or accepted design. Usually leads to financial harm or loss to the Client.

NEC defines it as
- Something that is not in accordance with the scope
- Something which is not in accordance with applicable law or in accordance with the design as accept by the project manager

Question 8

432 What are patent defects?

Answer 8

A defect that becomes apparent during the works or the defect liability period.

Question 9

446 What is professional negligence?

Answer 9

When someone fails to perform their duties to a reasonable standard and breaches a duty of care.

Question 10

447 How can the Client recover losses from professional negligence?

Answer 10

Through the professionals Professional Indemnity Insurance or PII.

Question 11

448 What is product liability insurance?

Answer 11

A guarantee that a product like a material will act in a certain way or last a certain amount of time. It protects the Client from an unreasonable defect or in extreme cases where defects have injured a third party.

Question 12

449 What is public liability insurance?

Answer 12

Insurance that covers a company against causing damage to property, death or serious injury of a person.

Question 13

450 What is employer liability insurance?

Answer 13

Insurance that a company carries against harming its employees by work related injuries or illnesses.
Contractors design portion CDP

Question 14

451 What is a Contractors design portion?

Answer 14

Is normally used on traditional contracts where the Client wishes the contractor to carry out a specific element of the design. Under NEC the contractor must design the elements that the scope says he must design.

Question 15

452 what is the difference between traditional procurement with CDP and true design and build.

Answer 15

Traditional with CDP the Client is responsible for accepting the design with design and build the risk for the design rests with the contractor