CCA captures consultants

THE CONSTRUCTION CONTRACTS Amendment Act 2015 applies to consultants’ contracts entered into or renewed after 1 September 2016 because the broadened definition of ‘construction work’ now includes design, engineering and quantity surveying work (consultants). Consultants carrying out this work are now subject to the payment process and adjudication regime under the Construction Contracts Act (CCA).

Adjudication given more weight

Also, under the new provisions, parties can now enforce adjudication determinations regarding disputes about rights and obligations, including breaches of contract.

This means that claims alleging a consultant had an obligation to exercise reasonable care and skill in carrying out their work pursuant to a term in the contract may be referred to adjudication and then enforced through the Court.

Red flags for your insurance

Adjudications are a quick-fire statutory dispute resolution procedure. By default, parties are given short timeframes to put together their response to a claim – 5 working days with discretion for an extension. Unfortunately, the complexity of contract claims (which have a negligence standard under most standard form consultant contracts) combined with the quick-fire nature of adjudication, raises red flags for consultants’ professional indemnity insurance.

A preliminary question raised by the new provisions is whether a professional indemnity policy will respond to the adjudication process and the subsequent determination. The precise wording in professional indemnity policies varies, but most policies provide cover in the event of legal liability. Therefore, it is arguable that most policies may cover adjudication determinations either expressly or by implication.

Where there may be problems

More troubling, however, is that adjudication submissions and the determinations themselves must be made within short timeframes under the CCA. This makes compliance with the policy conditions, such as appointment of experts, selection of legal counsel and the insured not taking steps that could prejudice the insurer, fairly difficult.

Most professional indemnity policies are claims-made policies, and consultants should have no issues notifying their insurer of the existence of a claim. However, it is unclear how consultants will comply with policy conditions given the tight timeframes for adjudication submissions and the determination release.

As insurers have limited comment on how these issues will be dealt with, consultants should ask what steps can be taken to ensure compliance with policy conditions while the insurer assesses the claim. These could include:

the insurer pre-selecting a panel of solicitors that can be engaged in the event of an adjudication, on the understanding that the consultant will pay the legal fees and defence costs if the claim is not covered by the policy
the insurer pre-selecting a range of experts that can be called upon to prepare evidence
an agreed process around settlement discussions. Usually consultants are unable to independently settle a claim as this can be prejudicial to the insurer’s interests. Consultants will bear the risk of additional cost if the insurer declines the claim after they:

• settle the claim at a point contrary to the policy or insurer’s interests, or

• lose an opportunity to settle the claim.

Insuring your insurance

The CCA gives clients and consultants access to the payment and adjudication regime.

Consultants should consider implementing their own insurance by ensuring their records and information storage is meticulous to help meet the deadlines under the adjudication regime. They should also start a conversation with their insurers now about how their professional indemnity insurance will work going forward.