Contract Administration Level 2 Flashcards
Explain what you understand about Collateral warranties and third party Rights
Construction projects often involve collateral warranties and third party rights so that third parties (such as funders, purchasers, tenants, and so on), can enforce the benefit (or benefits) of a contract they are not a party to.
The aim of collateral warranties and third party rights therefore is to provide some security for third parties to a contract to which they themselves are not party to, but in which they have an interest.
Collateral warranties are agreements which are associated with another ‘primary’ contract. They provide for a duty of care to be extended by one of the contracting parties to a third party who is not party to the original contract.
The Contracts (Rights of Third Parties) Act, 1999 enables third party rights to be created by a contract. This is seen by some to offer an alternative to collateral warranties.
Despite collateral warranties tending to be the preferred option, third party rights are increasing in popularity since they can be incorporated into building contracts, subcontracts, etc., with a simple notice; avoiding the need to produce detailed additional agreements. The administrative exercise of organising collateral warranties can be considerable, sometimes costing more in money and time than their actual value.
However, collateral warranties can be perceived as being more effective since they mirror the responsibilities of the underlying contract. The construction industry is also more used to using them.
