The AGS held it’s first Commercial Risks and How to Manage Them Conference on 3rd July 2019 at the Chartered Accountants Hall in Moorgate Place London, which was sponsored by BAM Ritchies, Bridgeway Consulting, Envirolab, Fugro, Geo Integrity, NHBC, Structural Soils, Socotec and Tensar. The event was a sell out and following a very nice lunch and opportunity to meet some of the sponsors, a tightly packed schedule with expert speakers talking on various pertinent topics was laid on for delegates.
Zita Mansi (Beale & Company) kicked off with detailing what to look for in terms of appointment, such as limiting assignments and 3rd party rights, limiting liability with a financial cap, ideally in the aggregate (noting that this is different to the limit on PI insurance), and excluding indirect/ consequential liabilities. Further advice followed on controlling additional contracts such as Collateral Warranties which multiply liabilities and reassignments, which transfer liabilities. Both should reflect the original contract and avoid extending the scope and duration of liabilities. Such additional risks should be priced appropriately.
Hugh Mallett (BuroHappold and AGS Loss Prevention Working Group Leader) spoke on the importance of defining the scope of works and objectives clearly and where something apparently wrong appears in the scope, this must be clarified and not ignored to avoid potential future disputes. Even, and especially, when the client is well known with a good working relationship. He recommended use of authoritative definitions and report contents where possible, a clear agreed set of terms and conditions and checks / caveats on the quality of 3rd party data. Beware ‘cheap and quick’ reports which impose the same liabilities as a full assessment. AGS LPA 69 provides appropriate advice and guidance.
Stephen Hargreaves (Griffiths and Armour) provided a number of case studies based on insurance claims. He explained that geotechnical works are considered high risk because of the risks of ‘unknowns’ and the associated high value claims. The geotechnical engineer can unwittingly become part of a dispute even when they have discharged their duties under the contract. Reiterating and expanding on Hugh’s message, the advice was to beware Client’s making assumptions on the scope and objectives. Further there is onus on the engineer to reference limitations, qualifications and assumptions relating to advice given to avoid misuse and misinterpretation and an unintended extended duty of care. Generally claims often 0000000 occurred where there was an interface between various non contracted parties and lack of communication. The advice was to maintain an ‘eyes wide open’ policy.
Russell Jones (Golder Associates) brought forward the ‘battle of the forms’, i.e. which form of contract applies when a client offers on form and the consultant/ contractor offers an alternative. The ‘alternative’ is still an offer or counteroffer, until acceptance is in place. In a nutshell, the contract that has ‘acceptance’ will be deemed the relevant document, which is usually the ‘last shot wins ‘approach, i.e. the last counteroffer on the table. However, this can be counteracted by action, such as the works starting which can be deemed as acceptance of the offered contract. The key is negotiation, clarity and …where possible, issue the last offer of terms!
Adam Gombocz (NHBC) moved away from direct contractual issues to talk about how the NHBC ‘Buildmark’ warranty provide insurance for building works, but will ONLY be granted when adequate and appropriate investigation, assessment and design has been completed to the satisfaction of the NHBC technical team. He described a number of shocking (and expensive!) case studies. Problems typically relate to lack of site investigation, soft soils, settlement, raised levels, groundwater and/or deep fill, with most issues arising on site where ground levels are raised and assessment/ design does not take account of this. Guidance on NHBC requirements regarding Land Quality is included in Chapter 4.1 of the NHBC guidance.
Rachel Griffiths (Fugro) explained the ‘duty of care’ required in providing services or goods. Goods fall under a ‘fit for purpose’ requirement of the Sale of Goods Act. Provision of services falls under a requirement for ‘reasonable skill and care’ under the Supply of Goods and Services Act. These are different and consultants giving advice or providing designs should make sure that the contract is specific as to the required duty of care to avoid defaults and misunderstandings. This should also be made clear in reports. Similarly, beware wording in contracts that ‘warrants….guarantees….. ensures….’ which implies a standard of services over and above reasonable skill and care and increases liabilities and may not be covered by PI insurance.
As the final speaker, on a non contractual topic, Jonathan Atkinson (Environment Agency) raised the subject of landfill tax being payable on illegally deposited waste, be that on an unlicensed landfill or unpermitted deposit on a construction site. Non complaint disposed materials attract the higher rates of landfill tax and HMRC who are now working with the EA have the option to add a further penalty of 100% landfill tax. This is in addition to any prosecution and associated fines. It is also retrospective. Those at risk are anyone involved in wrongful deposition of waste, such as advisors, brokers, hauliers, landowners, waste producers, as the liability is ‘joint and several’. The legislation equally applies to construction wastes including incorrect use or abuse of waste exemptions or the CL:AIRE DOWCOP . Therefore, to protect against prosecution evidence is required to show that all reasonable steps have been taken to ensure that disposal at an unauthorised site doesn’t happen. This relates to making sure that material isn’t waste and if it is, that it is handled, disposed or re-used in accordance with the relevant legislation and that records are available as proof, such a checks on material being disposed to the correct site or production of a verification report.
All attendees were given food for thought. For some it was maybe a ‘wake up’ call or reminder that simply ‘doing the job’ is not enough.
Presentations from the Conference with approval from speakers can be viewed on the AGS website.
Article provided by Jo Strange, Technical Director at CGL and Chair of the AGS Commercial Risks Conference.