Payment and insurance issues

Contractor's liability - personal injury or death

Clause 5.1 relates to the contractor’s liability for injury or death to persons. The liability under this clause is that of the contractors, however, where the contractor appoints smaller subcontractors it must check that they have their own insurance (clause 5.3), or in the event that they do not that its policy does provide cover.

Contractor's liability - loss, injury or damage to property

Clause 5.2 states that the contractor shall be liable for and shall indemnify the employer against any expense, liability, loss, claim or proceedings in respect of loss, injury or damage whatsoever.

The exclusion is loss, injury or damage to the work and or site materials and the provision applies to the course of or by reason of the carrying out of the works and to the extent that the same is due to negligence, breach of statutory duty, omission or default of the contractor or any contractor's person.

The provisions are qualified in 3 parts in subparagraphs .1, .2, and .3 with respect to the existing structures and their contents. This avoids the conflict with the obligations to insure.

Contractor's insurance of his or her liability

Clause 5.3 requires the contractor to insure, however, the key point is that this does not limit or affect his or her liabilities in clauses 5.1 and 5.2.

The provisions of clause 5.3.1 are in respect of 'employer liability' in other words that of the contractors' employees, and clause 5.3.2 are in respect of other liabilities.

Joint names insurance of the works by contractor

Clause 5.4A: this provision is where the parties agree that the contractor shall effect and maintain (insurance approved by the employer) a joint names policy for 'all risks insurance' for the full reinstatement value of the works plus a percentage for professional fees.

A key point to note is that while the contract makes reference to 'all risks insurance' both parties would need to be made aware that any such insurance will have exclusions and limitations which will override the contract provisions. This insurance does not provide for existing structures.

Joint names insurance of the works and existing structures by employer

Clause 5.4B: this provision covers the existing structures as well as the works in joint names. This is provided for as an insurance by the employer as it is often difficult for a contractor to insure the employers structures.

Insurance of the works and existing structures by other means

This provision allows flexibility in how the parties manage their insurance arrangements. The reason for this is that in some instances the works are instructed by a tenant and the freeholder holds the buildings insurance policy. Notwithstanding there are many situations are far from straight forward and the guidance notes do recommend specialist advice.

Evidence of insurance

This is a procedural provision that requires parties to provide evidence of insurance to each other where applicable and provided for.

Loss or damage - insurance claims and reinstatement

Clause 5.6 provides for procedural matters in the event of any loss or damage. Clause 5.6.1 requires notification and clause 5.6.2 confirms that such matters shall be disregarded in the calculation of amounts payable to the contractor. In practice it is invariably the case that any such event will incur additional works in the form of clearing away, temporary protection and the like and a separate account needs to be maintained.

Clause 5.6.3 is again procedural in that it requires that the contractor to authorise the insurers to make payments to the employer and clause 5.6.4 requires that the insurers shall inspect the works as required by the policy.

Clause 5.6.5 applies here when insurance is under clause 5.4A or 5.4C and where the contractor is responsible for the works insurance policy.

Clauses 5.6.5.1 to 5.6.5.3 are procedural and require that the architect/contract administrator issues separate reinstatement work certificates at the same date as interim certificates under clause 4.3 without the deduction of any retention. The provision of clause 5.6.5.2 is that the employer is limited to deductions for professional fees he or she incurs and clause 5.5.5.3 limits the contractor’s payments to those sums received under the policy. In practice both the parties and the architect/contract administrator need to fully assess the impact of the claim and communicate this to the insurers.

Clause 5.6.6 provides for matters where clause 5.4B and 5.4C apply and where the damage is caused by an 'excepted risk' the reinstatement shall be treated as a variation under clause 3.6. On a practical note the parties need to be aware of the implications on time and any associated loss and expense.

Loss or damage to existing structures - rights of termination

Clause 5.7 provides for termination in the event that there is loss or damage to any existing structure. The procedural aspect of this provision is that a notice must be given to the other party within 28 days of the occurrence. The employer shall be under no obligation to reinstate that structure, however, the contract states that the termination of the contractor’s employment has to be 'just and equitable'. At clause 5.7.1 there is a provision to refer the matter as to whether the termination is 'just and equitable'.

The provisions of clause 6.11 apply to the termination (which in effect is a termination, through a default by employer) save for 6.11.2.3 (the exclusion of the direct loss and/or damage caused to the contractor by the termination).