The Construction Leadership Council (CLC) has published a hard hitting statement calling a halt on the ongoing practice within the construction sector, of industry-approved forms of contract being amended by clients and their solicitors to introduce terms that are onerous and/or difficult to insure. This statement has been issued and is the conclusion to ongoing work through CLC Professional Indemnity Insurance Working Group.
The Construction Leadership Council (CLC), as part of the Building Safety Workstream, established a Working Group to focus on Professional Indemnity Insurance. The key objective of the group was to understand and look to address concerns over the cost, availability and limitations in insurance cover for all parts of the supply chain, from principal designer and contractor through to consultants and specialist contractors. As part this work the PII Taskforce supported an International Underwriting Association event on 31st January 2024 entitled “Competence in the Construction Sector”. The event reviewed new regulatory requirements in the Building Safety Act. Speakers were drawn from the construction, governmental, regulatory, legal and insurance sectors with particular focus on competence requirements and how they may help to reduce risk in the construction process. Wider inference of the Building Safety Act and what can be learned from recent court cases was also covered.
An open panel debate followed looking at the implications on the insurance process. It was recognised within these discussions that, whilst the work on competence is encouraging and should help to reduce risks moving forwards and hence availability of cover. Concerns were raised over design liability being pushed deeper into the supply chain leading to confusion around accountability for design elements. It was noted in discussion that heavily amended contracts add to confusion around risk and contingent risk, impact insurability and potentially create gaps in insurance cover for specific elements (for example, interface details and fixings).
Following exchange between the Insurance Sector and representatives of the CLC confirmed that there is a need to highlight this risk. The key assertion in the statement is that “standard form building and engineering contracts and professional services contracts issued by contract-producing bodies, should be used by clients with no amendments, except where necessary in the context of project-specific risks and relationships. The CLC believes that onerous amendments make contracts unviable, reduce competition, increase risk and lead to unnecessary legal costs required to review legal liabilities created by the amendments”.
Introducing the statement Samantha Peat, Chair of the CLC PII Working Group said:
“A sensible approach will simplify risk allocation, give clarity to the project team and their PII providers, and address the concerns for which the CLC PII Working Group was originally formed, namely, to address concerns about cost and efficacy of Professional Indemnity Insurance in Construction. It will also support the focus on accountability, competence and the need for better information management called for by Dame Judith Hackitt and enshrined within the Building Safety Act and the wider reform of the Building Regulations.”
FIS CEO Iain McIlwee responded:
“This is a massive statement from the Construction Leadership Council – we have to stop this routine amendment of the standard contracts.
This statement echoes the long held concerns of the FIS Community and I would like to personally thank Samantha Peat and colleagues in this Working Group for the amount of time that has gone in to establishing the forum and drawing the right people together to have the open and pragmatic discussion with the insurance industry that has resulted in this clear an unambiguous statement.
We have a legislative process that focusses on duty and a contractual process that focusses on passing the buck – this is bound to create tension. Boundaries need to be reset or we are left with impossible problems, uninsured elements and ultimately the potential for stranded assets and uninsured buildings. T
his is Leadership and we applaud the CLC and supporting representatives from the Insurance Sector for taking a strong line. The statement in itself will not change the world, but what we do with it can. For me the clear message here empowers the Responsible No by starting to spotlight the Irresponsible Ask. Contract amends are at the heart of the cultural concerns in construction – change is inevitable and has I believe been catalysed today”
The full statement can be read here.
Through the FIS Responsible No Campaign, the organisation is offering subsidised contract reviews and asking members to report (particularly public sector) contracts that are subject to heavy amends and also provide details of Irresponsible Contractual Clauses so that FIS can address behaviours directly with the client. You can find out more about the FIS Responsible No Campaign here.