Workshop 13 Design - Build Workshop 13 Design - Build

Onerous Terms in D&C Agreements in Australasia

Tony Barry, PresidentAssociation of Consulting Engineers Australia

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Onerous TermsOnerous Terms

• High standard of care• Responsibility for client supplied

information• Absolute Fitness for Purpose

warranties• Strict compliance• Open ended Indemnities• Duty of Care to multiple parties• Liability for delays outside control• Disclosing terms of PI Policy

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Standard of CareStandard of Care

• High standards of care should only apply to expert commissions

• Highest – well there is only one and you aren’t it

• Must be sustainable

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Client Supplied InformationClient Supplied Information

• Client takes responsibility• Client requires consultant to

check/verify before use• Client denies liability for it• Client seeks warranty consultant

does not rely on it• Client requires consultant to take

responsibility for it

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Fitness for PurposeFitness for Purpose

• Reasonably suitable for specified purpose given assumptions engineer might reasonably make

• Suitable for purpose specified• Suitable for purpose by reference

to third party documents eg leases

• Absolute fitness for purpose warranty – guaranteeing performance outcome

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Strict ComplianceStrict Compliance

• Professional duty and judgement• Explicit and detailed requirements –

process for reasonable departure• Multiple specified outcomes and

methods – with highest standard applying

• Strict compliance contracts – declare non-conformances

• Strict compliance• Multi-party, multi contract compliance

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IndemnitiesIndemnities

• None – common law professional duty, common law exposure

• Fault based indemnity, common law exposure

• Fault based indemnity, all losses• Open indemnity with “Astley”

reduction for client’s negligence• Open indemnity (“arising out of

or in connection with the provision of the services”)

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Duties to Multiple PartiesDuties to Multiple Parties

• Common law duty to public and third parties

• Contractual duty to client• Implied duty to others in delivery

process• Deeds of covenant creating

obligations to say client’s Principal, Financier, Government – what are their requirements – can you meet them?

• Duties are independent

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Time and DelaysTime and Delays

• No common law right to an extension of time

• Many contracts enable client to independently determine EoT entitlement without giving the consultant an express entitlement

• Obligation for client to act reasonably is helpful but not safe

• Must be explicit entitlement in the contract, otherwise can be held liable

• If no entitlement, get no liability clause for delays beyond reasonable control

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PI Policy TermsPI Policy Terms

• May not be specifically dealt with in policy

• May be regarded as prejudicing rights of subrogation of insurer by allowing client to target claims

• Increasing trend to disclose by those with captives – dangerous

• Captives may act independently as may upper layers or re-insurers

• May have obligation to disclose exclusions relevant to services provided – get advice

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The SolutionThe Solution

• Don’t accept unreasonable terms – walk away

• Negotiate a good contract to maintain a good relationship and a good business

• Use Limits of Liability above which Clients carry the risk

• Adopt commercially sustainable PI Insurance levels and guidelines

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Limits of Liability - the Firms’ Limits of Liability - the Firms’ PerspectivePerspective

• reduces the impact of unreasonable indemnities

• dissuades clients from taking legal action where the prospect of recovery is small (often less than the legal costs involved in mounting and succeeding in a claim)

• assists in maintaining the firm as an attractive risk to insurers

• protects the livelihood of thousands employees

• protects the owners interests in the firm

• assists to maintain the professions as an attractive career

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Limits of Liability - the Clients’ Limits of Liability - the Clients’ PerspectivePerspective

• reflects a realistic allocation of risk between the Consultant and the Client

• forces the Client to properly consider managing (and insuring) the risk which it in reality retains

• protects the Client from the impact of adverse outcome of proceedings against the Consultant which might be taken out by another client

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Limits of Liability - the Clients’ Limits of Liability - the Clients’ PerspectivePerspective

• maintains PI insurance as being available to Consultants generally

• keeps the cost of providing consulting services reasonable

• assists to maintain professional services for the community

• equitable basis for tendering – all required to offer same capacity

• avoid unsustainable risk culture

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Tony BarryConnell Wagner Pty Ltd

on behalf of

Level 12, 75 Miller Street | North Sydney NSW 2059 (02) 99224711 | www.acea.com.au | acea@acea.com.au