Collateral warranties required?

[timhowes]

Hi all, looking for some advice please.

 

We are soon to be embarking on demolishing and rebuilding our house. Following consultancy with a member of this community we have chosen to build in Nudura ICF. 5-bed house detached house approx 250m² just outside Bristol. Plans and technical drawings undertaken by professional architect. 

 

The PC for the majority of the project will be undertaking demolition, groundwork and structural landscaping, drainage, superstructure and structural roofing. Subcontractors for fenestration and roof coverings. This will all be undertaken on a JCT contract which we have drawn up together (we will get this assessed by a solicitor prior to embarking). From the point at which the scaffolding can come down, my wife and I will take over as PCs for the remaining work as we perceive that we can manage this (understanding the inherent risks).

 

We have been advised to investigate collateral warranties for our work, on the basis that we will be handing over £several-hundred-thousands to contractors. I don't really understand if this is necessary, as the JCT contract covers everything described above. From the point at which we take over as PC, we will be able to manage individual contracts with the contractors.

 

We are in the fortunate position to not need a mortgage, and we plan to live here "forever" (currently in our mid-40s), so not constrained in this regard.

 

My [extremely limited] understanding is that collateral warranties are required for elements where there is no direct contract between ourselves and the contractor.

 

Can anyone offer any guidance, please, as to whether or not this is needed? Hopefully I have divulged enough detail of the project, but will provide more as necessary.

 

I appreciate I am a "noob" but we have had extensive guidance from a very experienced member of this community so it's not quite as crazy as it might sound!

 

Many thanks

[JohnMo]

21 minutes ago, timhowes said:

handing over £several-hundred-thousands to contractors.

Certainly would do that, pay them staged payments based on work completed and approved. Pre paying for to be done is not the way to go. There may be some material costs to pay up front, and how that is handled would be worked out so zero risk to you.

 

If contractors are expecting full up front cost walk away quickly.

 

[JohnMo]

25 minutes ago, timhowes said:

plan to live here "forever"

Plans and reality aren't the same, have sensible budgets, otherwise it will be a money pit.

[saveasteading]

Welcome and good luck.

JCT is a well designed contract that is designed to be 'fair and equitable' to both parties. Avoid making any changes to it. Changes shift risk and deserve additions to the contract sum.

You shouldn't need a solicitor and I worry about what they might think they add to the process. A very experienced QS, Architect or SE yes.

 

The contract does require admin throughout the construction process, for which you should plan. If either party wants any change then it needs recording, with time and cost consequences.

If you use the clause for time damages then be aware that the contractor doesn't want to lose that money per week over-run. So what sum is fair? Some solicitors and surveyors think it's clever to put in a large penalty sum. The contractor will add some allowance to counter this, and you pay this within the process even if it finishes on time. Then they will rightly record every change and major weather event to extend the programme.

 

As to warranties? That would have a value if selling on. I can't see the value to you. Why does your advisor say its worth considering?

 

[Nickfromwales]

I advise this on just a few key items, vs blanketing the entire project. 
 

2. Protecting the Homeowner Against Subcontractor Failures

If you hire a Main Contractor under a standard building contract, your legal relationship is only with them. They, in turn, hire subcontractors (e.g., roofing specialists, timber frame manufacturers). [1]

• The "Go-Bust" Safety Net: If a serious structural defect appears later and your main contractor has gone out of business, you cannot normally sue the subcontractor who actually did the bad work. Having a collateral warranty directly from key subcontractors gives you a direct route to sue them and claim against their Professional Indemnity (PI) Insurance. [1, 2]

 

More specific to a part adopted PC role is:

 

3. Clear Demarcation of Liability for the Handover

By taking over PC duties for the fit-out and completion, you assume responsibility for any damage or defects caused after the superstructure phase. The collateral warranty acts as a legal "timestamp." It binds the initial subcontractors to the quality of their work up to the point of handover, preventing them from falsely blaming your subsequent trade contractors for foundational or structural failures. [1, 2]

 

[saveasteading]

6 minutes ago, Nickfromwales said:

you cannot normally sue the subcontractor

A good point. But how many domestic subcontractors will be worth suing? 

Any warranty or insurance has a cost somewhere.

You might find that Nudura provide a warranty of some sort though, being the main element, but I'd expect it to be limited. Ditto a big window supplier.

[Nickfromwales]

I am no ‘legal eagle’ and I wasn’t aware of these things until my (then) QS advised that I recommend these to the client for the key elements of the build; groundworks, sub & superstructure, roofing, fenestration and the like. I don’t recommend them for anything ‘smaller’ as individual contracts can be formed thereafter with the follow on trades, once the PC has completed, you agree completion and satisfaction, and part ways mid build.

 

My role is primarily to make people aware of what options are ‘out there’, whereas otherwise they may miss an opportunity to adopt some of these mechanisms, and I invite clients to do so independently so they get their own impartial feedback.
 

I prefer that the client(s) and I locate and fill in the potholes in the road to self build, BEFORE heading off, vs driving behind them with a well stocked mobile tire-fitting van ready for each time they fall into one.

[Nickfromwales]

Just now, saveasteading said:

A good point. But how many domestic subcontractors will be worth suing? 

Any warranty or insurance has a cost somewhere.

You might find that Nudura provide a warranty of some sort though, being the main element, but I'd expect it to be limited. Ditto a big window supplier.

My point, as above, is more about robustness and longevity of ‘insurance’, eg maintaining a bridge over the PC in the event that they fall over.

 

For discussion and awareness of risk, where the client wishes to grab the reigns vs keep a PC on through to the finish line. 
 

PC, if still in business, of course remains responsible for defects for (iirc) the 6 years after completion.

 

Standard defects is 12-24 months, but is aside from the core 6 year liability. 

[saveasteading]

Agreed. And we are helping fill these potholes with free reclaimed hardcore.

[saveasteading]

My main point is that some consultants recommend all that stuff and heavy penalties, and that I  as a contractor would regard that as increased risk,  and a legalistic client, and probably increase the tender sum.  I've explained that to some clients, (business people), who were happy to negotiate a happy medium. Also to some consultants who admitted that they hadn't thought of that.

[Nickfromwales]

Just now, saveasteading said:

My main point is that some consultants recommend all that stuff and heavy penalties, and that I  as a contractor would regard that as increased risk,  and a legalistic client, and probably increase the tender sum.  I've explained that to some clients, (business people), who were happy to negotiate a happy medium. Also to some consultants who admitted that they hadn't thought of that.

Indeed, but domestic CW are not ‘mega-money’ and are paid by the client; ergo they are transparent and cannot be garnished. 

[saveasteading]

1 hour ago, Nickfromwales said:

domestic CW are not ‘mega-money'

I don't understand that, perhaps because I've never built domestic buildings as business. 

Surely they detail what level of cover there is whether limited at 10k or 500k?

e.g. at extreme:  If a pile fails and a building becomes worthless isn't a warranty for the whole cost necessary?

 

Or is the client buying limited insurance and it isn't a contractor warranty at all.

What level of cover, and at what cost are these?

[Nickfromwales]

2 hours ago, saveasteading said:

Or is the client buying limited insurance and it isn't a contractor warranty at all.

What level of cover, and at what cost are these?

In a nutshell, yes. The client is buying additional insurance, beyond that of said 3rd parties cover.

 

Prob a few thousand max in individual policies, but the last time I costed these out was early 2023 so no clue about costs nowadays. Bottom line is, I expect these are specific to project / liability levels etc, so will be variable. 
 

These are more relevant where the client(s) is completely hands off, and are not versed in construction or site supervision in any way, shape or form.