Communique November 1997

Design/Build Situations

Reviewed June 2009, incorporating May 2014. Updated Feb 2017Unsurprisingly, members are involved in their own building projects. This may give rise to a doubt about PI cover. If you are designing and building your own home, no issue arises. In a recent case a member who altered the family home a few years before its sale was pursued after defects became apparent some years later: the position was the same as any sale and purchase agreement, despite the purchasers asserting that a special duty of care arose as a result of the previous owner being an architect.But if the designer is effectively becoming the builder/project manager, there is a potential for (or perhaps a perception of) shortcuts to be taken in order to maximize profits, and a high risk of exposure to legal liability if the project is defective in any construction aspect. In such a case you need to seek specific insurance advice. In one case, a member who developed a “duplex” – one for his family and one for sale – was in the unfortunate position of acquiring both an unreasonably vexatious neighbor and claims which were not within the PI cover.Members who involve themselves in design/build situations should carefully note the following.

• In circumstances whereby the practice or any partner, principal or director has a beneficial interest, other than fees as an independent consultant, the NZACS Professional Indemnity Insurance Policy in common with most forms of Professional Indemnity Insurances, does not cover liability arising from the design, tendering and supervision of such construction or the actual construction processes. This includes exclusions relative to any failure to effect insurance, the provision of financial advice, insolvency or any party involved, or any other loss or damage which would normally be the responsibility of a building contractor
• If members require coverage for design/build situations in which they have an interest, then separate insurance outside of the members’ programme should be considered to cater for the construction risks, third party liabilities, and professional liabilities in the name of the entity involved in both the design and construction activities.

The NZACS Insurance Consultants are able to assist members with such arrangements on a “one-off” basis as may be necessary should members require these forms of coverage.