Crossrail is asking framework designers for its tunnels, railways and stations to sign contracts that will makethem liable for at least £25M if work they are involved with on the £16bn project goes wrong.
The move has led to confusion in the insurance industry, as brokers remain unclear about what definition of“event” could trigger such claims.
The 12 designers are all expected to agree to the deal even though it may bust their annual professionalindemnity (PI) limits. The deal could leave them flying blind into unlimited liability territory.Firms ondesign frameworks will be invited to bid for packages of Crossrail work.
However, there is some confusion about the extent of liabilities consultants are being asked to take on.
Crossrail confirmed this week that it was capping liability for designers at £25M per “event” per package of work.
But one of the difficulties facing the framework consultants is knowing what might constitute an event and whether it is a single incident such as a tunnel collapse or whether it is a series of occurrences that could lead to a collapse.
“Event definition alone will be very specific,” said insurance broker Marsh’s managing director for constructionJon Marsh. “But even if it is one event, that could potentially involve different contractors. So is that 10 times £25M or just one £25M?
“If that event is a tunnel collapse, Crossrail will want to know that everyone has £25M to cover that occurrence,” he added.
But the agreement with Crossrail could expose each company to much more than that amount, given that one package could fall victim to any number of events. “But in reality that won’t happen,” said a Crossrail spokesman.
Companies that spoke to NCE said that the £25M limit would eat into their existing annual PI limit or even break through it.
This would require them to spend significant sums increasing their insurance cover or risk being put out of business by a serious incident.
“The issue is the aggregate of claims over a year,” said one chief executive. “Crossrail is silent on total liability which effectively means the liability is uncapped. We are going to have to take a view on which packages we are prepared to take the risk on. There are some we won’t be bidding for.”
“Our PI allows us so much in claims in any one year,” said another consultancy boss. “The thing we all fear is that the cumulativeness of claims will exceed the insurance we carry.”
Typical cover for a major consultant ranges from £20M to £100M a year.
“Most of us carry a heavy excess of up to £1M but that is small beercompared to any claim in excess of the insurance you carry though. You’d hope most major firms would not have more than one claim a year.
“We’ll all submit,” he said, “because Crossrail understands all that and because we believe that Crossrail won’t take any firm down”.
We are going to have to take a view on which packages we are prepared to take the risk on. There are some we won’t be bidding for
A partner at construction disputes adviser CR Management Alan Harris whistled when he heard about the £25M cap. “That is a lot of money,” he said. “It doesn’t take much to bust your PI cover. And the companies could be exposed to massive figures.
“In a recession everyone takes on greater risk than they ought to. It happened in the last recession, it is happening in this one.”
Association for Consultancy & Engineering chairman Geoff French said: “We always encourage clients to set a sensible limit on the size of professional indemnity claims that can be made. It is the aggregate of claims thatcould be made that is important. It is in no one’s interest that a PI claim can put the future of any organisation
Twelve companies have been selected by Crossrail to work on design frameworks.
- Aedas Group
- Capita Symonds
- Hyder Consulting
- Mott MacDonald
- Parsons Brinckerhoff
- Scott Wilson