Insurance for design-and-construct contractors

What changes in a design-and-construct contract

In a traditional contract the employer’s designers are responsible for the design, and the contractor is responsible for building it. In design-and-construct (also called design-and-build) arrangements, the contractor takes responsibility for the design, directly or through appointed designers. Some contracts transfer the employer’s designers to the contractor, which is often called novation.

The shift affects insurance in two ways. First, the contractor now has professional liability exposure for design that normally belongs to the employer’s team. Second, the physical-damage and liability policies must be coordinated so that gaps and overlaps around the design are understood.

This page focuses on how the covers fit together on such a contract. The product itself is described on the professional indemnity page.

Who may need to think about it

• Contractors who have won, or are tendering for, design-and-construct or turnkey contracts.
• Civil contractors responsible for the design of drainage, pipelines, roads or earthworks.
• Contractors who inherit designers by novation and need to understand their insurance.
• Contractors who produce temporary works design for complex excavations, shoring or lifting operations.

What the insurance programme may need to address

Professional liability for the design

Usually dealt with through professional indemnity cover, either as a project-specific policy or under an annual arrangement, subject to underwriting.

Design defects and the works

Contract works policies often treat damage resulting from a design defect differently, and may exclude the cost of improving the design. Ask how your policy wording deals with it.

Subcontracted and novated designers

Whether appointed designers carry their own PI cover, in what amount, and whether you can see evidence of it.

Third-party liability

Design-related events can produce third-party claims. Check how the public liability policy and the PI policy fit together.

Contractual insurance requirements

The contract may require a stated PI limit for a stated period after completion. Check whether this can be met and at what cost.

Important limitations and questions to discuss

Fitness for purpose

Standards higher than reasonable skill and care can fall outside PI cover. Ask your adviser to review the clause before you accept it.

Gaps between policies

A design failure may involve physical damage, third-party loss and a professional claim at the same time. Confirm which policy would respond to which element.

Period of cover

PI cover is usually claims-made. The contract may require cover to be maintained for years after completion, which has cost and planning implications.

Design completeness at tender stage

If the design is incomplete when you price, you may be assuming risk that was not obvious. Insurers will ask what stage the design has reached.

Limits and excesses

The limits and excesses required by the contract may be higher than your existing policies provide.

Coordinating the covers on a design-and-construct project

Information we usually need for a quotation

Design-and-construct enquiries benefit from sharing the contract documents early.

You do not need everything on day one. A short description of the work is enough to start, and the quote form only asks for the details relevant to your enquiry.