Question

We are currently in the closing stages of the order process for a couple of large projects and the subject of collateral warranties has reared its head.

Are there any likely pitfalls that you are aware of, and are we obliged to sign up for this in the first place?
Your help is much appreciated as ever.

Replies

1. Collateral Warranties are a necessary evil I’m afraid and form part of the JCT process. You may find that if you do not sign up to these that the contract may be let to a third party.The key thing is to read them carefully and ensure that you have the relevant cover in place for claims that could be made in the years to come.
2. Firstly are they involved in any forms of design for the contracts they are undertaking if yes then CW’s are a norm these days with most builders and clients.My advice is to ensure they get copies of the CW document completed in their company names and details not just a blank version then run it by their own insurers to make sure that the insurance cover request in the CW fall within their own coverage and that their insurer is aware of the contract and duration.In most cases it’s the value of insurance that needs to be clarified only before they can sign, also most builders will accept you amending the insurance value to your limitations.
3. It seems more and more common.I think you will have to sign up to it. You will need professional indemnity if you don’t all ready have it and it is quite costly. It will need to be in place for the term of the warranty often 12 years.For professional indemnity we use Jelf Clarke Roxborough. Contact Darren Cronin – Tel: 01527 405433, Mobile: 07971 065317
4. These are very complicated. I suspect they are there to protect the client from future defects. Your enquirer doesn’t state what the projects are, have they carried out any structural alterations etc. I would suspect there are some very dangerous pitfalls and would get advice from a lawyer who specialises in contractual law.
5. We are regularly asked to complete these where there is a 3rd party involved in the transaction. Mainly main contractor driven and of a fairly standard format.They exist to ensure that the responsibilities and warranties within the project can be legally passed on to the end client.The responsibilities should be no more than what is in place with the client.One thing which I always check and often need to challenge is the professional indemnity level. Often the level in the collateral warranty be higher than the level in the initial contract, just because the parties haven’t “joined up” this bit. It’s important that this is checked as it can have a big implication, not least in cost.
6. If you call Build UK and say that you are a ceda member you can ask for their advice with regards to your enquiry: https://builduk.org/ Tel: 0844 249 5351