Collateral warranties


    Collateral Warranties, when signed, create contractual relationships between members and the end users and funders of developments (and their successors) where otherwise no contractual relationships would exist.

    Clients and higher tier contractors will often try to push the boundary of what members are signing. A collateral warranty which seeks to impose additional guarantees may take the member outside the scope of their professional indemnity cover. The only alternative, however, might be not to accept the work

    Because of the potential implications this is an area where members should contact their professional indemnity insurers for advice. The LI insurers, MFL, for example, are geared up to help. They have produced a general explanatory note which explains some of the basic points regarding adjudication, PI, indemnity, deleterious materials and fitness for purpose. They will also provided limited free advice to members on matters of detail where  collateral warranties seek to include clauses which are not the same as those in either of the standard (and more PII-“friendly”) forms of agreement produced by the CIC or the National Housing Federation.

    There is also some useful discussion of practicalities on the Designing Buildings Wiki. Inevitably, though, there may be times where members may find themselves wondering if they need further legal advice and comprehensive vetting of contract clauses. Adopting an approach based on risk assessment and control may be helpful.