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Risk cover alarms firms

Consultants are increasingly turning down work as clients push firms to take on levels of risk that insurers will not cover, risk experts told NCE this week.

By inserting additional conditions into contracts such as “fitness for purpose” and “no-fault” clauses, clients are increasing a consultant’s risk exposure, and professional indemnity (PI) insurers are refusing to play a part.

“Onerous” contracts

“There have been a number of contracts with public sector clients with increasingly onerous contracts pressing risk onto consultants,” said WSP UK head of risk management David West.

“We work to try and resolve issues and sign a contract, but there will always be other companies who are prepared to bet the company on a job. Sometimes we find we are walking away.”

Some firms are agreeing to the clauses despite being left without cover. “Some companies think that they can mitigate the risk with very heavy management of the contracts,” said a risk expert at one of the UK’s top 10 consultants. “I have never heard of a client not getting a consultant to do the work.”

“I have never heard of a client not getting a consultant to do the work.”

Risk expert

Insurers reject fitness for purpose clauses as they give an additional guarantee to the client that a design will be fit for its intended use. Current law only requires consultants to use reasonable skill and care to ensure they meet professional standards of competence.

If a fitness for purpose clause is included, a consultant may face claims against a design problem that was not caused by negligence, such as research - done after a project has been completed - discovering that a particular design solution is faulty.

Similarly, no fault clauses also mean that consultants take on liability for problems that are not caused by their own negligence.

Some believe external pressures are to blame for these extra clauses. “The economic situation is having a huge impact on insurance claims on PI policies,” said Dundas & Wilson head of construction law Lindy Patterson. “As those involved in the project suffer financially so the client and funder are increasingly looking to the consultant’s PI policy as a failsafe.”

Patterson says the effect on the consultant is particularly onerous - as it finds itself caught between a client keen to make claims on the consultants’ policy and the insurance firm attempting to withhold payment.

“This has led to a huge rise in claims and a commensurate hardening of approach by the insurance companies,” said Patterson.

Consequences

Others warn that both client and consultant will suffer consequences of this new form of PI.

“Clients who seek no fault liability are pretty naïve in their risk management,” said Association of Consultancy and Engineering chief executive Nelson Ogunshakin.

“Whoever signs off on such contracts will only be devaluing their company, and ultimately the client will pay for any additional cover to existing PI.”

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