Design and Build Contractor Insurance

There is one provision that decides whether a design and build contractor is insured for what it has promised, and it hides in plain sight.

Professional indemnity responds to negligence: a failure to exercise the reasonable skill and care expected of a competent designer. A fitness for purpose obligation is different in kind. It promises a result, and it is breached if the result is not achieved even where every decision along the way was reasonable. Most professional indemnity wordings exclude it, so a contractor who signs up to one has accepted an obligation the policy will not answer. The wording is rarely labelled: it appears as a warranty that the works will be fit for their intended purpose, or that they will achieve a stated performance, or as a guarantee of a specified outcome.

So somebody has to read the contract before signature rather than after a problem. Look for fitness for purpose and absolute performance language in the contract conditions, the employer's requirements, collateral warranties and any novation agreement, and get it amended to reasonable skill and care. Where a client will not amend it, that is a priced commercial decision rather than a formality, because the gap sits on the business. This single clause is the most valuable thing a broker can look at on a design and build placement.

The structural feature of design and build is that design liability flows upward to you regardless of who actually did it.

A main contractor rarely designs much itself. The steelwork connections come from the fabricator, the cladding from a facade specialist, the mechanical and electrical from the services subcontractor, the piling from the piling contractor, and the fire strategy from a consultant. Under the main contract all of it is your responsibility. If the cladding fails or the ventilation does not perform, the client sues you, and you then pursue the subcontractor, whose professional indemnity may be lower than your exposure, may exclude the activity, may have lapsed, or may belong to a company that no longer exists.

So the subcontractor's insurance is part of your own risk management. Require evidence of professional indemnity at a level proportionate to the package rather than a token figure, hold the certificates and diarise renewals, require it to be maintained for a stated period after completion rather than only during the works, and check the activity is actually within their cover. Then make sure your own limit is set against the project rather than the fee, because you are carrying the whole chain.

Novation is routine on design and build and it is worth understanding properly, because it transfers more than a contract.

A client appoints an architect and engineers, develops a design to a point, then novates those appointments to the contractor, who becomes the designers' client. The contractor then takes responsibility for design work produced before it was involved, for a brief it did not set, under a relationship that the designers understood differently at the time. If something in that earlier work is wrong, the contractor owns it, and the designers' professional indemnity becomes the recovery route for a decision taken when they were working for somebody else.

So the diligence before accepting a novation is real work rather than a formality. Review the design as it stands, with your own people or a consultant, and record what you found. Get the novation agreement checked for whether it makes you liable for pre-novation work and whether it carries fitness for purpose language. Confirm the designers' professional indemnity levels, retroactive dates and run-off obligations. And where the design has a known problem, raise it before novation rather than inheriting it silently, because afterwards it is yours.

Construction liability and design liability behave differently in time, and design and build mixes the two.

A workmanship defect usually shows up during the works or within the defects period. A design failure shows up when the building is used: a facade that leaks in the third winter, a cooling system that cannot cope with the heat gain in summer, a floor that vibrates under the use it was designed for, or a fire strategy that a later review finds inadequate. By then the project team has dispersed, the site records are in storage, and the people who made the decisions have left. Professional indemnity responds to the policy in force when the claim is made rather than when the work was done, so continuity is what keeps those years covered.

Which has two consequences worth planning for. Keep cover continuous and the retroactive date intact, because a single uninsured year leaves everything designed in it permanently exposed. And treat run-off as part of any wind down, sale or restructure: a contractor that ceases trading without it leaves a decade of completed projects unanswered, and anybody buying the business will ask. Collateral warranties extend the period further still, which is another reason to read them before signing.

One clause decides the placement. We are an FCA regulated broker and will not tell you we are the best choice. These are the questions that decide it.