Candice Klau has more than 20 years of insurance broking experience and specialises in construction insurance for builders, developers and trade businesses across Australia.
Design and Construct contracts are common across larger commercial construction projects in Australia. Taking responsibility for both construction and elements of the design can create exposures that builders may not face under a traditional construct only contract.
One common misconception is that a builder has no professional exposure if architects, engineers and other consultants carry out the actual design work. Depending on the contract, that may not be the case.
A commercial builder can assume responsibility for design coordination, consultant management, specifications, shop drawings, product substitutions and other professional activities, even when the technical design itself is outsourced.
Why Do Design and Construct Contracts Create Additional Risk for Builders?
Under a Design and Construct contract, the builder can assume broader responsibility for delivering a completed project that satisfies both the construction and design obligations contained in the contract.
Depending on the contract and scope of work, this may include:
- Coordinating architects, engineers and other consultants
- Reviewing and managing design documentation
- Shop drawings
- Specifications
- Product and material substitutions
- Performance based solutions
- Technical advice
- Design changes during construction
- Compliance with contractual design requirements
Professional exposure is not limited to physically producing the design. A builder may still carry professional liability because of the responsibilities accepted under the contract.
What Does Professional Indemnity Insurance Cover on a Design and Construct Project?
Professional Indemnity Insurance is designed to respond to certain claims arising from professional services, errors, omissions or breaches of professional duty, subject to the policy’s terms, conditions and exclusions.
Potential professional exposures may include allegations relating to design errors, incorrect specifications, inadequate consultant coordination, documentation errors or omissions, incorrect professional advice, failure to meet specified performance requirements or design management issues.
Do Builders Need Professional Indemnity Insurance if Consultants Do the Design?
Engaging an architect, engineer or other design consultant does not necessarily remove the builder’s professional exposure.
Under a Design and Construct contract, the builder may still have contractual responsibility for coordinating consultants and delivering the completed design.
This is why it is important to review both the professional responsibilities accepted under the head contract and the agreements and insurance arrangements in place with design consultants.
Common Professional Exposures on Design and Construct Projects
Consultant Coordination
If documentation is inconsistent, information is missed or different design disciplines do not integrate correctly, the builder may become involved in a professional liability claim depending on the responsibilities accepted under the contract.
Shop Drawings
Shop drawings can create professional exposure where a builder or subcontractor is responsible for preparing, reviewing, coordinating or approving technical information.
Product and Material Substitutions
Recommending an alternative material, system or product can potentially introduce professional exposure, particularly where the substitute is expected to achieve specific performance, compliance or design outcomes.
Design Changes During Construction
Changes requested by the client, site conditions, availability of materials or coordination issues may require modifications to the original design. Builders should understand who is responsible for approving those changes and whether the contract places additional design responsibility on them.
Professional Indemnity Insurance Requirements in Design and Construct Contracts
- The minimum Professional Indemnity limit required
- Which professional activities need to be covered
- Whether the policy needs to meet specific contractual conditions
- The required retroactive date
- How long the policy must be maintained after project completion
- Whether consultants and subcontractors must carry their own Professional Indemnity Insurance
- Whether Certificates of Currency need to be supplied
- Any contractual requirements relating to design responsibility
Professional Indemnity policies are generally written on a claims made basis, which makes continuity of cover particularly important.
Design and Construct Insurance Checklist for Commercial Builders
- What design responsibilities are you accepting?
- Are you responsible for consultant coordination?
- Will you prepare, review or manage shop drawings?
- Are you making product, material or system recommendations?
- Are there performance based design requirements?
- What Professional Indemnity limit does the contract require?
- Does your policy cover the professional activities you undertake?
- Is the retroactive date appropriate?
- How long must Professional Indemnity Insurance be maintained after project completion?
- Are consultants and design subcontractors required to carry their own Professional Indemnity Insurance?
Frequently Asked Questions
Do commercial builders need Professional Indemnity Insurance for Design and Construct projects?
Professional Indemnity Insurance is commonly required where a commercial builder accepts design or other professional responsibilities under a Design and Construct contract. The exact requirements depend on the project, contract and professional services being undertaken.
Do I need Professional Indemnity Insurance if an architect or engineer does all the design?
Potentially. Engaging external consultants does not necessarily remove the builder’s own professional exposure. A Design and Construct contract may still make the builder responsible for consultant coordination, design management, specifications, documentation or delivery of the completed design.
Can shop drawings create Professional Indemnity exposure?
They can. Depending on who prepares, reviews, coordinates or takes responsibility for the shop drawings, they may form part of a builder’s professional exposure.
Can an insurance broker review the Professional Indemnity requirements in a Design and Construct contract?
Yes. A construction insurance broker can review the insurance requirements contained in the contract against your existing Professional Indemnity and construction insurance program.
Need Help Reviewing Professional Indemnity Requirements on a Design and Construct Contract?
At Be Covered Insurance Brokers, we work with commercial builders, contractors and construction businesses across Australia to review Professional Indemnity and construction insurance requirements for Design and Construct projects.
Taking on a Design and Construct project? Speak with the Be Covered team about your Professional Indemnity Insurance requirements before you sign.
General information only: This article provides general information and does not take into account your specific business, contracts, projects or insurance needs. You should seek advice from a qualified insurance broker and, where appropriate, a legal adviser before making decisions about your insurance or contractual obligations.
