ACENZ Advisory - Uninsurable Contract Conditions

[Brent George]

Of note - in light of recent media reports regarding the Government and Private Sector enforcement of risk transfer onto Providers - is the following ACENZ Member Advisory:

Dunedin City Council (DCC) Long-Term Technical and Engineering Support Services Panel Agreement

We are writing to inform you that ACENZ has received a series of complaints concerning the subject DCC Panel Agreement that is currently being placed before our member firms. These terms of engagement contain nearly all the uninsurable contract conditions that we and insurers advise our members not to sign or agree to as a commitment - such as:

• Warranties

• Indemnities

• Fit for Purpose – these first three conditions each constitute an unacceptable and uninsurable guarantee.

• Unlimited liability – will not be suitably covered without an acceptable PI cap.


NOTE: We have been advised by the company that insures most of our member firms that the DCC Panel Agreement is mostly uninsurable for the reasons above.


In the past we have had a strong relationship and good commercial understanding with DCC. Unfortunately, at this time when government is making statements about addressing unacceptable forms of public sector contracts, and senior ministers are publicly promoting more realistic sharing of risk, DCC has produced one of the least acceptable ToE’s we have seen this year. You are advised not to sign this Panel Agreement in its present form.


You also should note that the initial DCC release of these contract conditions contained an inclusion in the pricing section that ACENZ ‘Standard Rates’ would be used in evaluation. We do not have such ‘rates’ and our 2004 Fee Guidelines graphs are for member use only; these guides are currently out of date and under review. We understand that this particular Panel Agreement pricing content was withdrawn late last week.


We will keep you advised about the DCC response to our concerns.

Regards,

KRShaw

Kieran Shaw

CHIEF EXECUTIVE

ACENZ

www.acenz.org.nz/

For those of us who regularly partake in government contract agreements, we will be watching this space with interest....

[Brent George]

An update received just now:


To ACENZ Members and contract administrators.

Further to our Member Advisory (20/08/18) concerning the Dunedin City Council (DCC) Long-Term Technical and Engineering Support Services Panel Agreement content, we wish to provide an update of the current status. An ACENZ team met with Dunedin City Council senior managers on Monday 27/08/18. A procurement manager from MBIE and an executive from Aon Insurance also attended the meeting.

There was detailed and constructive discussion covering the concerns of ACENZ Member firms and relevant insurers about the subject DCC Panel Agreement content - the contract currently includes warranties, indemnities and unlimited liability.

A desire by both parties to achieve a positive outcome to the matter resulted in DCC deciding to keep their bespoke contract, but agreeing in principle to capping liability in the order of $2m - $5m depending on the size and risk assessment of specific packages to the same level as insurance required, so $5m for Tier 1 providers and $2m for Tier 2 providers. DCC has also asked ACENZ to propose changes to the wording of the warranties and indemnities content that will maintain the intent of the inclusions but make them acceptable to insurers and providers.

ACENZ is fast-tracking a response on this matter to DCC who will confirm the final Panel Agreement content with their legal advisors. We will then issue another advisory to confirm to members that the agreement is acceptable to insurers and our commercial advisors.

The Long-Term Technical and Engineering Support Services Panel Agreement closes at 4:00pm on 19th September 2018.

Regards,

Kieran Shaw

Chief Executive



ACENZ

www.acenz.org.nz/

[Brent George]

An update from ACENZ:

To ACENZ Members and contract administrators.
This update follows the original advisory sent on 20.8.18 and the first update on 28.8.18. Following a meeting with ACENZ the council (Dunedin CC) have made a positive response response in that they have addressed the following issues:
• Cl 3.7 – the fitness for purpose obligations are removed and the standard of care (Industry Good Practice) is defined more reasonably.
• Cl 11 – the most concerning warranties have been qualified, albeit they remain in the form of express warranties.
• Cl 14.3 – a limitation of the consultant’s liability has been provided ($5m per scope of work for T1 consultants/$2m per scope of work for T2 consultants), along with a 6 year limitation period from the completion of the applicable scope of work services.

However we consider that there remain a number of key concerns for consultants in the DCC response including (but not limited to):
• Cl 14.1 – the non-fault based indemnity for:
• damage to, tangible property (eg including the project works) due to an act or omission remains unchanged,
• IP claims for alleged infringement remains unchanged, with the consultant required to defend/control any such litigation claims against DCC at its cost.
• Cl 14.3 – no proportionate liability clause is included.
• Cl 14.4 – the carve-outs to the consultant’s limitation of liability remain ie wilful misconduct (undefined) and any IP/confidentiality claims.
• Cl 14.5(& 14.1) – Operations, fines and penalties (typically excluded from PI cover) are deemed to be direct losses that the consultant may be liable for, including under the indemnity where Losses is defined to include full indemnity legal costs.
• Cl 14.7 – DCC can at its discretion require higher levels of PI/PL cover .
• Cl 10.5 – Consultant’s rates remain fixed for the 5 year term.

A decision to sign the relevant DCC Panel Agreement has to be based around the commercial risk and in consultation with your insurer.