Design and Construction PI - But I don’t need PI, because I don’t do any design?

Over the last 3 years of the hardening PI market, we have heard on countless occasions particularly recently but my client doesn’t design anything, there is no risk and they don’t even need PI?? It's too expensive so they're going to leave it!

With most firms now paying at least double or triple what they did in 2017, I completely understand your clients frustrations, they have run claim free, worked in higher risk sectors for years and never had a problem but unfortunately this doesn’t mean, the inevitable and unknown couldn’t happen.

We are all human and make mistakes and even if we don’t make mistakes ourselves, we can still be drawn into others, which I'll explain as this article goes on.

So as a contracting firm who do not undertake designs, where are the risks?

Duty to warn

This is an area of PI not many know exist until they read through a terms and conditions document, a PI wording or are hit with a claim.

I have seen this happen to two companies in two different claims and both were hit with large defence costs and settlements. On the face of it, you wouldn’t of expected to be paid by their insurers. I remember reading the initial notifications on my first one 7 years ago and saying 'Ah yeah that wont go anywhere' However, after countless letters, reports the claim then reached adjudication and the latter was shown.

Duty to warn?“contractors owe a duty of care to warn of design defects; and/or a duty to warn should be implied into construction contracts”

In laymen’s terms by law a specialist contractor whether this be a groundwork on a job or piling contractor due to them being a 'specialist professional in their field' have a responsibility to highlight defects in designs they follow or any dangerous aspects of the works they undertake for a client. You wouldn't really think of it like this until you spot an obvious error and ask the engineering consultant/architect etc to amend their drawings, but one of the claims I am referring to above a piling contractor dug their excavation and the drawing they worked from was miscalculated by a few millimetres which resulted in subsidence! This could even apply to a cladding firm fitting panels which are clearly inadequate for the job they are only contracting on, and have no responsibility for the design or materials being used.

Defence costs?

It is very common to see on a construction PI claims lumpy defence costs, particularly the large contracts with the top tiered contractors. It is commonly found as their are various specialist sub-contractors, whilst the proximate cause of the loss is identified, usually all parties on the job will be notified of the notification and while the matter is investigated, each contractor will notify their PI insurers and some will arrange legal representation which of course, comes with a cost.

Contingent Design & Build

Contingent design and build - This is where the contractor takes on the contractual responsibility for the design but sub contracts out such work to others. The design work would be carried out by firms of architects and engineers who should carry their own professional indemnity. As they agree to accept some liability in the contract/terms and conditions, they accept a responsibility for any errors and omissions which are as a result of the design/drawings.

Tweaks, Adjustments and Hidden exposures

Similar to Duty to Warn but I guess you could argue this exposure is more obvious when thought about, than one who should of noticed errors but didn’t and just worked to the spec accordingly....

Frequently contractors who offer no design services at all are being asked to carry professional indemnity. A question they often ask is ‘what risks do I face if I offer no professional services'. The answer to some of the more hidden exposures :

1. Design alterations: any firm involved in building anything will nearly always need to ‘tweak’ the plans a little in order to make them work. You could call this ‘buildability’ and the problem is that a small alteration here could have a larger knock-on effect, on thus causing a real problem later in the job. A real liability can arise if plans are altered.

2. Design checking services: often firms, formally or informally, double check designs to ensure they work. Failure to do so can lead to a claim.

3. Temporary works: scaffolding, access roads, perimeter fencing, storage facilities are often part and parcel of a contract but are not designed and are left to the contractor. Such works can be expensive and can go wrong leading to further expense and consequential loss.

4. Unsuitability of materials: Contractors may erroneously utilise materials that do not meet the specifications and have not been agreed. This can be very expensive if the materials prove not to be fit for the purpose intended.

Hopefully this has helped you understand this better and will assist you when you are asked this question by a client, if anyone wants a copy of this in a brochure format - do let me know - [email protected]