Build Magazine December 2015

Build Magazine 33 Inside the Industry • A cap on liability that is contained in a professional consultant’s standard terms and conditions may be subject to the requirement of “reasonableness” under the Unfair Contract Terms Act 1997 (UCTA 1977), and • When dealing with a commercially naïve or inexperienced client, a professional consultant should draw the client’s attention to any cap on liability before entering into the appointment/ warranty. A cap that was somehow hidden or “un-flagged” is unlikely to find the court’s favour. Net Contribution A net contribution clause limits the liability of the professional consultant and limits the ability of the client to recover the losses it suffers on a project. Professional consultants, professional bodies who represent them and insurers of professional consultants favour the use of these clauses (which provide some protection against the effect of ‘joint and several’ liability). In contrast, understandably, clients, funders, buyers and tenants (in other words the ‘beneficiaries’ of projects) ordinarily resist their use. The operation of a net contribution clause is the ‘flip’ side of the situation where a consultant relies on the Act to claim a contribution, towards the client’s loss, from another party responsible for that loss. Simply put, both principles deal with the situation where two (or more) parties are both liable to the client for the same damage and the client or third party suffers losses as a result. The courts’ primary concern (once liability has been established) is to ensure that the client receives compensation; it is a matter for those found to be at fault to sort out (with, possibly, the court’s help) the proportions that they contribute towards that compensation. It is not always clear how a net contribution clause operates in conjunction with other limitations of liability, particularly where liability is also capped. Very clear wording is needed in the professional appointment/ warranty when using both. Ultimate Parent Guarantees (UPG) A guarantee is a promise to ensure that a third party fulfils a contracting party’s obligations. It is often used where one party is concerned about the financial standing of the other. However, rarely do professional consultants require this of their clients. A UPG is the strongest form of parent guaran- tee as the ultimate parent is often the most financially secure company in a group. Any guarantee must be in writing or there must be a memorandum or note of the agreement signed by the guarantor. It can also be contained within an appointment or a standalone agreement. The NEC3 Professional Services Contract is one of the only standard forms of appoint- ment that provides an optional requirement for a UPG within its terms. Performance Bonds Also known as a performance guarantee, the issuer of the bond undertakes to pay to the client a sum of money (usually 10% of the contract value) if a named party (usually the contractor) fails to perform contracted services in accordance with the terms of the contract. Performance bonds provide a form of ‘insurance’ to the client should the contractor be unable to complete its works. Bonds can be payable ‘on demand’, which require the issuer to pay a sum of money simply on the occurrence of a specified event. With an ‘on demand’ bond, in simple terms, the client is entitled to payment simply by submitting that it has suffered a loss even if the issuer disputes the alleged default. Such bonds are rare these days; the more prevalent form is now a ‘conditional’ bond, under which the client must prove default and loss to ‘call’ on the bond. Conclusion Risks and liabilities are limited through use of these clauses in construction contracts. Clear and precise wording should always be used. As demonstrated in the Bloomberg case, not all eventualities are envisaged at the outset, and often circumstances arise that the clauses do not always cover. To limit the risks, the parties’ intentions must be clearly established at the outset, and inconsistencies or conflicts between clauses must be avoided at all costs. As with any process on a construction project, the business of properly constructing terms and contracts requires care and attention to avoid potential- ly hazardous consequences.