Duty to Warn

Duty to Warn describes the obligation of an experienced construction professional to warn others of defects in works – even if the professional isn’t directly responsible for that aspect of the works.

There are a number of well known cases demonstrating the courts attitude to Duty to Warn and demonstrating the cost to construction professionals who either ignored, or were oblivious to the risk.

How can a Duty to Warn be created?

There is no general duty to warn in English and Scottish law however, there are circumstances in which a duty can exist.

In it’s judgement on the case of Plant Construction Plc vs Clive Adams Assoc., the Appeal Court offered the following conclusions:

  • There will usually be an implied (sometimes explicit) contractual term that a contractor shall perform a contract using the skill and care of a reasonably competent contractor
  • The circumstances of a particular contract will establish the scope of that obligation
  • Where an experienced contractor is involved and the design of the works is not only defective, but obviously dangerous there is an “overwhelming case” that the contractor is bound, as part of its obligation, to use appropriate skill and care to warn a client of dangers it perceives 


The court left open the question of circumstances where the defective was not obviously dangerous.

Other considerations could include:

  • Contracts will often place a higher obligation on the contractor than reasonable skill and care, even so, there is an exposure through both the Tort of Negligence and the implied term in the Supply of Goods and Services Act 1982.
  • The more experienced, skilled or specialist the contractor/construction professional is, the higher the obligation may be considered to be.
  • Contractual requirements to inspect, monitor, supervise, etc. create a contractual requirement of, not only a Duty to Warn, but to oversee the rectification/remedy of the defect.
  • New Engineering Contracts (NEC) require both parties to give early warning of anything which may delay the works or increase costs. If the contractor fails to comply with this obligation they will be unable to claim for additional costs/delays following any subsequent compensation event.
  • The Construction (Design and Management) Regulations 2015 require that the principal designer ensures the works are carried out in a way that minimises Health & Safety risks.
  • The Health & Safety at Work Act 1974 creates obligations to warn both employees and third parties about the dangers present in a place of work.

What should you do?

  • Understand your exposure to Duty to Warn, through the mechanisms listed.
  • Educate your staff to reinforce their understanding of their responsibilities, and create a simple process for them to raise concerns promptly with senior management and in turn other contractors and employers.
  • As a minimum, warn of all dangerous or potentially dangerous defects.
  • Make sure that your company’s warnings to clients or other contractors are clear, unambiguous 
and in writing. If your warning isn’t strong enough the courts may still consider you failed in 
your duty!
  • Check that your insurance broker understands Duty to Warn and your potential exposure to 
it.
  • Always seek to buy Professional Indemnity Insurance with a specific Duty to Warn extension.

For further details and advice please contact our construction specialist, Mike Mitchell – mike.mitchell@tldallas.com or call 07496 888411.

 

Alistair Dean, Partner, Anderson Strathern, comments,

‘The concept of a duty to warn is an important one, but in some respects an undeveloped area of the law. The cases, which mainly come from the English courts, demonstrate that it is not easy to succeed in actions which allege that construction professionals breached their duty to warn. There are two legal consequences of failing to discharge a duty to warn. One is in the possibility of a professional indemnity claim. The other is the possibility of a health and safety prosecution under the Health and Safety at Work Act 1974. The ‘rules of the game’ are the same in either case, and I would suggest that the underlying rationale is the application of common sense, and an abundance of caution. If a construction professional, during the course of an inspection/site-visit, is concerned that the works are being carried out in such a way that there is a health and safety risk, that should be immediately flagged up to all of the relevant parties. However, as is demonstrated by the case of Goldswain -v- Beltec Ltd in 2015, a structural engineer (and by extension any designer) is entitled to assume that their drawings will be followed by the appointed contractor, and there is no obligation to supervise the works to ensure such compliance.’

alistair.dean@andersonstrathern.co.uk

 

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Credit Insurance = Strong Foundations

Economically, everything starts and ends with the construction industry and the market itself is a useful barometer of what is happening out there (Guardian Economic Growth).

The association of business recovery professionals, ‘R3’, recently reported that late payments from a customer and the knock on effect from a bad debit is responsible for at least one fifth of UK corporate insolvencies in the last twelve months. The latest research reveals that this trend hasn’t improved since 2014.

Over half (57%) of insolvency practitioners identified construction as the sector with the worst track record for late payment.

Late payment problems and relatively high insolvency rates are not a coincidence. If the sector could diminish the extent of the issue it would see an improvement in its business survival rate.

2016 saw a number of high profile construction insolvencies including, Cardy Construction Ltd, LSC Facades Ltd, HOC (UK) Ltd, UK Construction Ltd and The Dunne Group. The knock on impact of these has been significant to suppliers and contractors, short term cash flow being the immediate concern.

Our market provides specialist construction wordings and bespoke policies that recognise the idiosyncrasies of contracting on JCT or NEC contracts, along with those supplying goods and services into the construction sector. Most insurers will provide coverage relating to applications (as opposed to traditional invoicing) and final account balances but others will provide additional cover for retentions, variations, day works and even pay when paid style clauses covering against upstream third party insolvency.

Choosing an insurance partner is not straightforward in any sector. Where contracting is involved, this is further complicated by the different types of cover on offer, as mentioned above, but also the speed with which insurers typically pay claims.

Leading construction insurer TMHCC recently reported that where some subcontractors were having problems obtaining valuations from The Dunne Group Ltd in administration, TMHCC were able to use their own quantity surveyors to value works removing the payment delay risk and avoiding the possible domino effect and support their clients cash flow.

The good news is that JCT, in recognition of the Construction Supply Chain Payment Charter, is intending to introduce specified payment dates after interim valuations that should lead to greater certainty throughout the supply chain. In short, monthlyI VD’s will be on the same day each month with payment due 7 days from valuation with a final payment date of 14 days. It remains to be seen whether this can be achieved, but certainly a step in the right direction.

Construction companies are often asked to provide some form of bond to the main contractor or the client either as part of a tender or, in agreement with being awarded the contract. Some companies will arrange a ‘bank bond’ for these, however, providing a ‘Surety bond’ instead can be a massive advantage to the firm as it is usually unsecured and off balance sheet, meaning it doesn’t eat into the banking facilities so allows more working capital for the company.

At TL Dallas, our Credit Insurance department supports the client with any trade insurance negotiations, protecting against the impact of a bad debt and arranges Surety bonds for the client to provide to the main employer to secure the contracts.

For further details and advice, please contact the Credit Insurance team in Bradford on 01274 465500 or Falkirk on 01324 717466.

 

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Can Your Insurers Cope With The Heat?

If you use heat in your work, do you understand what your insurance requires you to do?

If you don’t and you breach the conditions, then you effectively have no cover.

The idea seems reasonable, but what are the conditions you need to comply with, and are they reasonable in the first place?

  • Do they require you to connect to a hydrant? How could you do that without advanced permission from the authorities to use the hydrant?
  • Do they require you to have a set number and size of extinguishers, within a set distance from the work?
  • Do they need to have the property owner/occupier (or their representative) present throughout the application of heat?
  • After completing the heat work, do you have to check the area at intervals? 30 minutes, 60 minutes, 90 minutes or all three. Do they have to keep a written record of those checks?

Most critically, does the warranty apply to your direct employees, or anyone (including sub-contractors) working on your behalf?

Most critically, does the warranty apply to your direct employees, or anyone (including sub-contractors) working on your behalf?

  • If the conditions apply to anyone working on your behalf, can and do your sub-contractors comply with your heat conditions
  • If they do comply with your policy heat conditions, is the sub-contractor also complying with their own policy conditions?
  • If not, then there was no point checking that the sub-contractors have insurance – it won’t respond to a claim against them anyway – leaving you financially exposed.

The solutions are relatively simple, but the first thing you need is a broker who has thought about the problem.

To discuss solutions or any other Construction insurance issues please contact Mike Mitchell by email, mike.mitchell@tldallas.com or call 07496 888411.