Articles - New year renewed focus Construction Professional Indemnity


As we step into a new year, many of us are setting fresh objectives – both personal and professional. For those operating in the Construction Professional Indemnity (PI) space, this is an ideal moment to sharpen your approach to contractual risk management. Why? Because robust risk controls don’t just protect your business – they can also help secure better insurance terms and demonstrate to clients that you’re serious about governance.

By Roberto Felipe,Director, FINEX Global, WTW

Laying the foundations: Risk management at the bidding stage

Effective risk management begins long before a contract is signed. It should be embedded within your commercial strategy, not treated as a standalone exercise. Aligning risk assessment with pricing, resourcing, and delivery timelines ensures that bids are competitive yet realistic.

Key considerations at this stage

Client due diligence: Assess financial stability and reputation–non–negotiable. 
Contract type scrutiny: High-risk projects (demolition, construction management, novation agreements) require extra caution. 
Capability check: Do you have the right skills and resources? Is the margin viable? Can you meet deadlines without compromising quality?
Fire safety and cladding exposure: Even indirect risks via subcontractors should be flagged early.

Establish clear go/no-go criteria and set thresholds for internal approvals. Larger or subcontract-heavy projects warrant deeper review. And don’t forget post-project debriefs – lessons learnt are invaluable for refining future risk strategies.

Contract-level protections: Where the detail matters

Once you’re past the bidding stage, contractual terms become your frontline defence. Here’s what to prioritise:

Stick to standard forms: Tried-and-tested contracts reduce uncertainty. Any deviation should trigger a formal approval process.
Define scope clearly: Specify what you are responsible for – and what you are not. Document all changes meticulously.
Liability caps: Ensure they are reasonable and proportionate. Remember, carrying £X PI cover does not automatically cap your liability at £X.
Net Contribution Clauses: These limit your liability to your share of the loss – a fairer position and one insurers favour.
Material specifications: Tie obligations to standards current at the time of specification, not at later stages.

Watch out for contractual traps

Waivers of contributory negligence – they weaken your defence.Indemnity clauses without a negligence threshold – they can invalidate PI cover.
Liquidated damages and penalties – push back or at least qualify these with “reasonable skill and care” obligations and ensure the level of damage is set at a level that could reasonably have existed in the absence of the contractual damage amount.
Collateral warranties – keep them aligned with your main appointment and limit their number to avoid multiplying liabilities.

Managing subcontractor risk

If you engage sub-consultants, their mistakes can become your problem. Protect yourself by:

Requiring subcontractors to carry comparable PI cover.
Using back-to-back contractual terms.
Preserving rights of recovery – this helps insurers pursue subrogation and improves your claims record.

Absolute no-goes

Push back firmly on:

Undefined “fitness for purpose” obligations.
Unlimited liquidated damages or liability.
Requests to disclose full PI policy details or add clients as additional insured.
Taking on work outside your expertise or inheriting incomplete work without safeguards.

Final thoughts

Contractual risk management isn’t just a compliance exercise – it’s a strategic advantage. It signals professionalism to clients, reassures insurers, and ultimately protects your bottom line. Start the year by tightening your processes, and you’ll be better positioned for success in an increasingly complex market.

New year, smarter contracts, stronger protection.

 

 

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