In a press release published on 21 March 2023, the Minister for Public Expenditure, NDP Delivery and Reform, Paschal Donohoe TD announced the introduction of caps on liability in public works contracts and the standard conditions of engagement for consultants. Although the level of the cap is to be determined by the individual Contracting Authority, the default position has been confirmed as an annual aggregate amount of €1.5M.
Despite several carve-outs, the introduction of liability caps is a significant departure from the inequitable position that has operated previously, with firms having been forced to assume unlimited liability. That approach created a hugely disproportionate level of exposure for construction consultants which threatened the operating model of many firms and sent a very dangerous message about the terms consultants and indeed contractors should be required to accept.
With that in mind, the introduction of liability caps is very welcome news but attention will now turn to the interpretation and implementation of the relevant guidance; both of which will be key to delivering the desired outcomes for all stakeholders.
Background
The introduction of caps on liability was first signalled in February 2022 in revised procurement guidance which can be accessed here.
That guidance followed extensive consultation by the Office of Government Procurement (OGP) but there has been continuous engagement on some of the issues covered in this guidance since the launch of the Government’s standard Conditions of Engagement in 2007. In that sense the caps on liability are the product of work undertaken by several bodies over many years. They send a necessary and strong signal to the insurance market and they evidence a renewed willingness by Government to listen and respond to the challenges we are all facing.
In commenting upon the change, Griffiths & Armour Europe CEO, Graeme Tinney, said:
“We need to acknowledge the collaborative approach adopted by Government. When invited to provide the opening insurance market statement to the stakeholder discussions in November 2020, Griffiths & Armour felt a responsibility to provide a fair and accurate assessment of what was happening in the PI insurance market, the impact of procurement practice, what that meant for consultants, the broader implications for society and what measures might be considered. Throughout the discussions we believed the OGP were sincerely committed to addressing the serious risk/reward imbalance that has existed and I am particularly pleased to see the Minister referencing this point.
To deliver on Ireland’s infrastructural needs, the country requires a sustainable local consultancy market and central to that is the need to ensure a fair allocation of risk. If implemented properly, I believe the Minister’s recommendations will be a significant step on the road to achieving that”.
The road to this point has been a long one, but it’s one Griffiths & Armour have been happy to travel with the OGP and in support of several construction industry bodies, including our long-term partners at ACEI and Engineers Ireland. Collectively, we have only reached this point through the collaborative efforts of all parties and even though a lot has been achieved, it feels like there is still some distance to cover.
Whilst we look forward to seeing the implementation of appropriate caps on liability, we would also encourage further dialogue on what more can be done to address the risk/reward imbalance. To achieve a fair balance of risk across all parties, it seems appropriate to us that consideration should be given to the impact of the Civil Liability Act and a move towards a system of proportionate liability.
In our view, this would complement the progressive measures already announced by Government. It would have a fundamental impact on insurers’ perception of the local market and establish a framework that can deliver a more resilient model into the future.
In the meantime, we would encourage all firms to ensure that the recent guidance is being adhered to and that conditions of engagement for any project contain a liability cap that represents a fair balance of risk and reward. It would also be advisable for firms to maintain a record of the applicable caps and to share this with their PI Insurers as part of their renewal submission.
For more information on this and to understand what more firms can be doing to tackle their professional liability exposure please do not hesitate to get in touch with your usual Account Handler or click below to submit your enquiry.
16th August 2023
