Guide to Using the RIBA Professional Services Contracts 2018 - Other - Page 64
Contract terms
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Cover for pollution, contamination and asbestos should be checked with the insurers
as cover for these may be limited or excluded entirely following changes in legislation.
For each claim the Architect/Consultant will be required to pay an excess as
determined by the insurer. However, the Architect/ Consultant should check what the
excess covers as it may not apply to the costs and expenses incurred in defending a
claim, i.e. nothing would be paid if the claim was successfully defended and nothing
paid to the claimant.
How much insurance is required?
The amount of professional indemnity insurance to be maintained for the Project
should be reasonable in relation to the risks and should pass the reasonableness
test under the Consumer Rights Act 2015. When assessing the amount of cover
required the Architect/Consultant must ask themselves what loss might be incurred
as a result of a mistake on any particular project. Ultimately, it is the responsibility
of the Architect/Consultant to ensure that they have a level of insurance to cover
against such a loss, but it should be noted that there is not necessarily a link
between gross fee income and the potential size of a claim. The ARB state that a
minimum of £250,000 is required. Even on a small £50,000 project, there could be
significant claims in excess of that cover.
On many commercial or public authority contracts with experienced Clients, the
amount of professional indemnity insurance required from the Architect/Consultant
will be generally determined by the standing orders of the company or authority.
Often, this will be out of proportion with the size of project or the risk. An example is
where a Local Authority requires £10 million of insurance for a small single-storey
classroom extension to a school valued at, say, £150,000 where £1 or £2 million of
insurance would be more than adequate. This can put young and small consultant
practices at a disadvantage and, in many cases, preclude them from doing the work,
even though a practice of that size would be more appropriate and, in many cases,
give a better service than a larger practice. In such cases the practice can only try
to negotiate with the Client to bring the figure down to a more suitable level or, as
happens often, they cannot be considered for the project.
For smaller commercial and domestic projects, particularly where there are
inexperienced Clients, the Architect/Consultant is in a better position to be able to
advise on and influence the level of professional indemnity insurance. In assessing
the amount of insurance required to cover the risk, a number of factors should be
considered:
• the amount of cover for the project, appropriate for the risks, may be less than
that carried by the Architect/Consultant’s practice. The cover maintained by an
Architect’s practice should be not less than the amount required by the ARB and
also include cover for legal defence costs
• provision to limit liability to the ‘net contribution’ or an overall cap on all claims
• the provisions of the Unfair Contract Terms Act 1977 mean that in deciding
whether a contractual provision for loss or damage arising from negligence is
reasonable, the resources of the party, limitation or exclusion of liability and the
availability of insurance will be relevant to this. In the case of James Moores v
Yakeley Associates Ltd [1988] addressed above, insurance cover of the Client’s
budget for construction was held to be reasonable provision.
On a small project the Architect/Consultant may consider proposing that their limit
was only a proportion of their overall cover, e.g. £500,000, whereas they have (say) a
total of £1 million of professional indemnity cover. Whilst there is a logic in this, at the
end of the day, the claim will be what it is and the £500,000 may not be sufficient in
which case the Client will still benefit from the £1 million cover.
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