Floor Finishes – Best Protecting the Employer and Main ContractorMay 8, 2014
The focus of this edition on floors and floors finishes provides a good opportunity to consider the impact of the same on any development and the steps which should be taken by the Main Contractor and Employer to best protect their interest.
In certain types of development, especially sport and recreational developments, the floor or floor finishes may represent a substantial percentage of the overall contract sum. The flooring finish may have to be specifically designed or engineered to withstand the nature of the use of the development. The value however appears to be overlooked by the Contractor and the Employer when best protecting their differing interest.
The Contractor will very often have the contractual link with the Specialist Sub-Contractor/Flooring Contractor. The Employer, without further protection, may have no direct contractual link with the Sub-Contractor/Flooring Contractor. Should problems arise, the Contractor will want the Specialist Flooring Contractor to sort out those problems. Without any direct contractual link between the Employer and the Specialist Sub-Contractor the Contractor may find the Employer seeking reimbursement directly from it.
Equally, in a bad market, if the Main Contractor gets into difficulties and the Employer has no direct contractual link with the specialist Sub Contractor, the Employer may be left without proper recourse to have the matter resolved and recover its losses. The most obvious means of resolving this impasse and bridging the contractual gap is for the Employer to insist that the Specialist SubContractor provides a Collateral Warranty in favour of the Employer.
A Collateral Warranty is a contract under which a Professional Consultant, such as the Specialist Flooring Contractor, warrants to a third party, such as the Employer, that it has compiled with its SubContract to provide the works. If something goes wrong in the project, the Employer does not want to be out of pocket. It wants to be able to claim its loses directly from the person who caused that loss. Without the Collateral Warranty the Employer may be unable to make an effective claim.
One other benefit of Collateral Warranties is that they provide certainty for all of the parties in the project. The parties can negotiate the terms of the Collateral Warranty and may, in certain circumstances, agree to limit the level of the losses recoverable.
All is however not lost if you have already entered into a project and you do not have Collateral Warranties. Whilst the old school of thought was that a Sub-Contractor would not be liable to the Employer in the tort of negligence unless the defect which presented caused personal injury to anyone or physical damage to other property, the case law has moved on somewhat since then. In Tesco Stores Limited v Constain Construction Limited  ALL ER (D) 394, the Court held that anyone who undertakes a contract which includes an obligation that contains a service beyond the basic contractual obligation to build there is an implied term that it will be done with reasonable care and skill. This gives rise to ability of the Sub-Contractor to the Employer which includes liability for pure economic loss, i.e. liability for damage to the property itself. In circumstances where Specialist Sub-Contractors involved in the actual design of and construction of the flooring finish they will be caught by the Constain Construction decision and will be liable to the Employer for pure economic loss.
Aaron Moore, Associate, Cleaver Fulton Rankin
Should you require specialist advices in respect of how to best protect yourself in a future projects, please do not hesitate to telephone to Aaron Moore at Cleaver Fulton Rankin, Solicitors.
This item is a brief outline of the legal issues arising and is not intended to provide a comprehensive or details statement of the law. Specific legal advice should be sought on the circumstances of a particular case.