From a risk and liability perspective, it is always preferable that your client engages all consultants directly. This establishes a direct contractual relationship between that particular consultant and your client. Perhaps most importantly though, this approach will ensure you avoid any vicarious liability for works or services completed by those consultants.
We understand, however that this is not always possible. In most circumstances the client will only want to deal with one “lead consultant”, often the project manager, architect or engineer, and have the lead consultant engage and manage all the other consultants i.e. sub-consultants on the project.
It’s therefore crucial, to understand the liability and insurance implications of engaging a sub-consultant, as you will be held liable for their work and any errors and omissions flowing from the same.
Engaging sub-consultants requires careful planning and execution to ensure a successful outcome. Key strategies include early engagement, thorough contract negotiation, clear communication and ongoing monitoring for potential issues.
Here we outline the areas which should be carefully considered.
Adequacy of your Professional Indemnity (“PI”) insurance cover
Do you have vicarious liability cover under your PI policy?
Not all PI policies are created equally. Be sure to check your own policy and determine the extent of your vicarious liability cover, if any. If you’re unsure, it is best to contact your insurance advisor.
Many vicarious liability extensions are narrow and will tie the services of the sub-consultant to those profession(s) noted in the schedule only. As you are likely engaging a sub-consultant that is not in the same profession as you, this can be problematic. A good example of this is when an architect engages an engineer, if the extension is narrow, there may be no vicarious liability cover provided to the architect for their engineer’s work.
As a general rule the preferred vicarious liability extension will place no restriction on the profession of any sub-consultant appointed. Another suitable option would be an extension which notes that cover is provided if the work is “in connection to” the professional services listed in the policy schedule.
Understand other exclusions in your PI policy
It’s also important to consider exclusions elsewhere in your policy. For example, we regularly see broad asbestos exclusions which would restrict you from engaging an asbestos or hazmat consultant as any claims brought against you as the lead consultant for their work will be excluded, leaving you exposed to uninsured losses.
Benefits of early engagement
Bring any subconsultants in early to familiarise them with the project requirements and expectations as this will help to foster commitment and collaboration. It’s also preferable to only work within your approved register of sub-consultants.
If you are asked to engage a sub-consultant outside your register, be sure to undertake your own due diligence. If you have any concerns, then ensure you discuss those concerns with your client. If your client insists on the use of their preferred sub-consultant, our suggestion would be to request that they engage that sub-consultant directly.
Back-to-back contracts
Only engage a sub-consultant on your back-to-back consultancy agreement. It is essential to:
- Mirror the terms of the contractual agreement you have signed with your client including all liability and risk transfer clauses.
- Clearly define the scope and non-scope of the works.
- Clearly define the responsibilities and liabilities of each party.
- Set out the dispute resolution procedures.
It’s important to note that in the event of a claim, if you have allowed your sub-consultant to limit their liability, the extent to which your insurer’s position has been affected by this limitation may be uninsured– such limitations may also offend contractually assumed liability exclusions in your policy.
We would suggest obtaining appropriate legal and insurance advice regarding any limitations on liability and how this affects cover.
One of our partner Associations Consult Australia has a bespoke suite of contracts for construction professionals including a sub-consultancy agreement. Bellrock subscribers can access this agreement at a reduced rate. For further information please contact Bellrock Practice Leader Simon Gray.
Your sub-consultant’s insurance cover
Even if you have a sub-consultant/vicarious liability extension in your policy, it is important to note that this only provides cover to you and not directly to the sub-consultant. The sub-consultant will still need the protection of their own insurances. This is because, practically speaking, in the event of a claim, the client will sue the lead consultant, and their insurer will exercise their subrogation rights by bringing the negligent sub-consultant (and their insurers) into the claim.
It is vital to keep an authorised register of all your approved sub-consultants and to actively collect/request their Certificates of Insurance annually. Staff should be aware that they can only use sub-consultants on your approved register, and that they cannot go outside that register without following your formal procedures to add a new authorised sub-consultant to the register.
You should verify that the sub-consultant has adequate professional indemnity and public liability insurance. If you can obtain the Policy Schedule and Policy Wording, this will provide more detail including any exclusions and endorsements to the base policy wording making it easier to establish if the cover is appropriate.
Please note however, that some insurance policies do contain wording which restricts the disclosure of the policy wording without insurer’s consent. As such, it may not always be possible to obtain these documents.
If you are successful, your insurance advisor can support you with any review needed.
Clear communication and monitoring
Implementing effective communication protocols and procedures can help facilitate information sharing and address potential issues promptly. We recommend where possible to hold regularly scheduled meetings and obtain regular progress reports to track performance and identify potential problems.
Don’t wait to address any issues with the sub-consultant, as early intervention can prevent escalation. Ineffective communication protocols or a lack of responsiveness from the subconsultant can lead to delays, misunderstandings, and a breakdown in collaboration.
Coordinating the work of multiple sub-consultants, each with their own schedules, priorities, and communication styles, can be complex and time-consuming, and you are ultimately carrying the risk for their work. This extra time and risk should be factored into your fee proposal.
Sub-consultant checklist
- Have your client engage other consultants directly to avoid any vicarious liability for sub-consultants.
- In instances where you must engage sub-consultants:
- Review your policy to ensure you have appropriate vicarious liability cover in your policy.
- Use a back-to-back contracts.
- Ensure the sub-consultant has the same level of PI cover as you and that this level meets the requirements of your contract with the client.
- Keep an authorised register of all your approved sub-consultants and actively collect their Certificates of Insurance annually.
Take care when making the decision to engage sub-consultants and speak to your Bellrock advisor to ensure you are appropriately covered.
