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Unlimited liability demands put consultants at risk

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CONSULTANTS RISK being put out of business unless clients stop passing on unlimited liability in contracts, insurers have warned.

The high cost of professional indemnity (PI) insurance, they said, meant that consultants often did not earn sufficient fees to pay for sufficient cover.

'In 90-95% of contracts we see there's no cap on liability, ' said Matt Farman, director of insurance broker Howden. 'But competition for work is so fierce that firms rarely go back to clients ask for a cap.' He pointed out that claims in excess of consultants' PI insurance could put them out of business.

The latest warning comes after the Association for Consultancy & Engineering (ACE) appealed to its members to walk away from projects on which they were being told to bear unlimited risk.

Farman said that consultants were increasingly asking insurers to raise their PI insurance to levels out of proportion to the value of work they were undertaking.

'We get calls to increase PI cover to $20M on projects worth only ú100,000, ' he said. 'We point out that the fee earned won't cover the cost of the insurance.' Associate director at insurance broker Griffiths & Armour, Paul Brophy, agreed that only a small proportion of clients were willing to agree a liability cap, but said they would often demand that PI was increased in return.

'If you're increasing your PI insurance your premiums may be substantially higher, and liable to further increases from year to year, ' said Brophy.

'You're contractually obliged to maintain that level of cover for 12 years, so the costs can be significant.' It has also emerged that such risk dumping is being actively encouraged by the Office of Government Commerce (OGC).

A spokesman for the North West Development Agency ? a client highlighted by the ACE as one to avoid ? said that it was only following OGC rules as set out in the document Management of Risk: Guidance for Practitioners 2007.

This states: 'Every organisation must find the right balance between opportunities and threats in managing its risks.' OGC spokesman explained: 'We believe in placing risk with whoever is best placed to manage it. Consultants are responsible for design and specification.

'If they get it wrong, why should the taxpayer carry the can?'

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