Before signing an engineering contract, check both the insurance requirements and the liability clauses.
Key insurance items can include:
- required Professional Indemnity limit
- whether the limit must apply any one claim or in the aggregate
- required run-off period
- Public Liability requirements
- requirements to note other parties as insureds or interested parties
- waiver of subrogation clauses
- governing law and jurisdiction
The liability provisions are equally important. Engineers should review clauses dealing with:
- indemnities
- liability caps
- fitness-for-purpose obligations
- responsibility for other consultants
- liquidated damages
- consequential or indirect loss
- novation and design-and-construct obligations
Meeting the stated insurance requirement does not mean every contractual liability is covered by the policy.
A contract can create obligations that sit outside normal Professional Indemnity cover, so the contract and the insurance policy should be considered separately before significant engagements are signed.
Consult Australia’s Centre for Contracting & Risk provides further industry guidance on the interaction between consulting contracts, risk and Professional Indemnity Insurance.
Some engineering firms may also be protected by Australia’s unfair contract terms laws when dealing with standard form small business contracts. These laws can apply to certain one-sided contractual provisions, but whether a particular term is unfair depends on the circumstances and should be considered separately from its insurance implications. See the ACCC guidance on contracts and unfair contract terms for current information.
