Introduction of liability caps to the Public Works Standard Conditions of Engagement

The Office of Government Procurement has introduced monetary caps on liability in the Standard Conditions of Engagement for Consultancy Services (Technical) and the Standard Conditions of Engagement for Archaeological Services.

What amendments are being introduced?

Published on 31 March 2023 by the Office of Government Procurement (OGP), the updated Standard Conditions of Engagement for Consultancy Services (Technical) (COE1) and the Standard Conditions of Engagement for Archaeological Services (COE2) (together, the Conditions) now contain a new clause entitled "Limit on Liability".

This new clause introduces a monetary cap on the consultant's liability to the client under the contract for any calendar year (commencing 1 January). The client stipulates the monetary amount of the cap that applies to the contract (Liability Cap) in the Tender and Schedule to the Conditions (Schedule). There are also the following exceptions or "carve outs" to the Liability Cap for any claims, losses, damages, costs, expenses or liabilities in respect of: 

  • death, personal injury or illness;
  • fraud or fraudulent misrepresentation;
  • wilful default
  • gross negligence;
  • third party property;
  • infringement of third party intellectual property rights (in accordance with sub-clause 13.26 of the Conditions); or
  • any liability which the consultant cannot lawfully exclude or limit, (Exceptions).

This means that the consultant's liability for any claim by the client in relation to any Exception is uncapped. The Schedule also allows for a default amount for the Liability Cap in the sum of €1,500,000 (one million, five hundred thousand euro), in the event that an amount is not stated in the Schedule.

 Rationale for the amendments

This is the OGP's latest action arising from their ongoing review of the Capital Works Management Framework. The guidance note 1.6.4 issued by the OGP here (Guidance Note) provides some rationale for the introduction of the Liability Cap:

  • Risk of reduced competition: Contracts that do not contain a cap on liability may reduce competition for the award of the contract. The absence of a cap may eliminate entities who can't accept uncapped risk (due to their size, financial capability to carry higher levels of professional indemnity insurance to help reduce the risk or their corporate governance and restrictions).
  • Risk of increased tender prices: those parties that do participate for the award may charge a premium for accepting the risk of uncapped liability. In particular, increased levels of insurance are also likely to be required to help the tendering party mitigate the exposure of uncapped liability which in turn has a cost implication.
  • Encouraging participation of small/medium entities: the certainty provided by a liability cap is likely to encourage greater participation of such entities.
  • Improving risk/reward balance: capped liability provides greater certainty to the consultant of its exposure for performing the contract and should help the tenderer more accurately assess and price its exposure which should lead to better value for money for the client.

Guidance on calculating the monetary cap

The Guidance Note also provides guidance to the client on how best to determine the appropriate amount to include as the Liability Cap. It includes a risk matrix at Appendix 1 to help the client score the scale and likelihood of the loss occurring. The starting point is an analysis of the potential losses and damage that could be incurred by the client due to breach or negligence by the consultant, taking into consideration the commercial specifics of the project. The client should seek advice on such matters from its technical and commercial advisors and consider the various potential scenarios and implications. When assessing the appropriate level of the Liability Cap, the client should also consider the required minimum level of indemnity for the professional indemnity insurance (PII) to be held by the consultant. The Guidance Note acknowledges that the availability and cost of PII is a commercial factor when considering the monetary cap, noting that PII is the primary mechanism for consultants to cover their liability. In this context, it seems logical that as a minimum, the Liability Cap should align with the required limit of PII.

Monetary caps on liability are a typical feature in consultant appointments in the private sector. The liability cap traditionally aligns with the PII cover required to be held by the consultant in both amount and type of cover (i.e. in the aggregate or each and every claim). Such liability caps are also typically subject to carve outs that are, as a whole, equivalent to the Exceptions listed above. It therefore seems that the public sector is seeking to more closely align the Conditions with quite well-established approaches taken to limit the consultant's liability under consultant appointments in the private sector.

What next?

The OGP have confirmed that Liability Caps will be introduced into Public Works Contracts early in the second quarter of 2023. We suspect that these will follow the same structure as that set out above. For further information in relation to this topic or any related matter, please contact Siobhan Kearney, Senior Associate, or Síomha Connolly, Solicitor or your usual contact on the Construction & Engineering Team.

Date published: 26 April 2023