Product Liability Provision in Construction Contract

It is typical to ask for Product and Public Liability Insurance in a construction contract. This is to manage the associated risk (e.g., during the construction, if a client’s property was damaged).

Also, getting an indemnity from the contractor for liabilities related to the product is recommended. The advantage of having an indemnity clause is that it provides certainty for who is liable for losses without having to prove fault.

For example, the indemnity clause could state that:

·         The Contractor shall indemnify the Client from and against any liability in respect of:

o    damage to the Company’s property;

o    injury or death of any person;

o    breach of any statutory duty or regulation; and

o infringement of any intellectual property rights.

The law associated with product liability is covered by:

·         Law of tort (Negligence);

·         Contract; and

·         Related consumer protection legislation (Australia - Competition and Consumer Act 2010).

You can recover the loss under the contract if there is an indemnity clause. In the absence of such a provision, you can still recover under the law of tort or under the respective consumer protection legislation.

As the Client QS who is drafting the contract, you must try to get indemnity for all the potential risks/liabilities identified in your risk assessment exercise. On the other hand, as the Contractor QS, you must try to avoid giving indemnities during your contract review exercise (but agree to any fair indemnities). Specifically, you should not agree to indemnify generally or too broadly (e.g., indemnify liability with respect to breach of contract - this is too broad) but agree only for specific losses (e.g., indemnify liability with respect to any negligence - this is narrow).

 

Note: The article was also published on www.aact.lk