Simplifying Contractual Risks in Construction

On 24th October 2024, the Construction Leadership Council (CLC) issued a timely and important statement addressing the growing challenges within the construction industry concerning contract amendments. These amendments, which often make contracts uninsurable or overly burdensome, have been flagged as a risk to contractors and clients alike. The CLC is advocating for a simplified approach, encouraging stakeholders to use standard, industry-approved forms of contracts with minimal amendments.

Why It Matters Now: The Industry’s Growing Concern

Amendments to industry-standard contracts have long been a pain point in the construction industry. The CLC’s statement comes at a critical moment, as contractors, particularly SMEs, struggle with increasing project risks and the challenges of securing adequate Professional Indemnity Insurance (PII). These changes to standard contract terms create legal liabilities that PII policies often do not cover, making it harder for contractors to operate effectively and putting them at risk of financial instability.

The CLC’s Position: Standard Contracts with Minimal Amendments

The CLC has made it clear that standard forms of building and engineering contracts should remain unamended unless necessary to address specific project risks. When amendments are essential, they must be clearly explained, with reasons provided, ensuring transparency for all parties involved. The CLC believes this approach will reduce unnecessary legal costs, simplify risk allocation, and provide clarity for both contractors and clients regarding their insurance coverage.

Professional Indemnity Insurance and the Importance of Clear Contracts

The availability of Professional Indemnity Insurance (PII) is essential for contractors and consultants. Many PII policies only cover liabilities that would exist in the absence of heavily amended contract terms. As insurance limits become tighter and claims rise, it is vital that contractors can rely on their PII to cover losses. If contracts introduce terms that fall outside the scope of standard insurance coverage, contractors risk financial ruin, and clients may find themselves unable to recover losses.

Supporting a Safer and Fairer Construction Environment

The CLC’s stance also ties in with the findings from The Grenfell Tower Inquiry: Phase 2 Report Overview, particularly regarding fire safety design. By streamlining contracts and clarifying roles and responsibilities, the industry can work towards creating safer buildings and protecting contractors from disproportionate liability claims. This move will also support the wider reforms introduced by the Building Safety Act and Building Regulations, promoting better accountability and competence in the sector.

A More Transparent Contracting Approach for Clients and Lawyers

For clients and their legal teams, the message is clear: over-amending contracts can have serious consequences, including uninsurable risks and unresolved claims. The CLC recommends that any necessary amendments be highlighted and explained in a separate schedule, ensuring all parties fully understand their risk profile and insurance provisions. This will also help contractors, particularly SMEs, who often lack the resources to scrutinise complex legal changes.

What This Means for the Industry

At Contract Group?, we believe the CLC’s guidance is a step in the right direction. By encouraging clients to adopt simpler, clearer contract terms, the construction industry can lower costs, mitigate risks, and foster a more collaborative working environment. Our team is committed to helping contractors navigate these challenges through our comprehensive Estimating and Commercial Support services.

Want to Learn More?

If you’d like to explore how Contract Group? can help you manage your contractual obligations and ensure compliance with best practices, contact us today. We offer tailored solutions through our Contract Management Packages, designed to simplify risk management and deliver project success.