A mid-sized multi-disciplinary consulting engineering practice signs an appointment with a developer for a 120-bed care home in 2014. The appointment is on a bespoke form executed as a deed, with collateral warranties promised to the funder, the operating company and the freehold investor. The engineer signs nine warranties across the project. The care home is sold in 2017 and again in 2021.
Nine years after practical completion, the current freehold investor — a real estate investment trust that was not party to the original transaction but took an assignment of the warranties when it acquired the building — brings a claim for inadequate underfloor heating manifold design that has caused leaks, business interruption and accelerated replacement of finishes. The claim is for £1.9m. The engineer's PI insurer accepts the claim is within the policy but raises questions about the warranty wording — specifically whether the net contribution clause limits liability to a just and equitable proportion or whether the engineer is exposed for the whole loss.
That kind of nine-year-old claim, brought by a party the engineer never spoke to, on a warranty assigned twice, is the consulting engineer's version of a normal Tuesday in 2026. The PI implications of collateral warranties shape what the engineer's policy actually covers when the claim comes. This is a companion cluster to the Engineers PI Insurance UK Guide 2026 and the structural engineer post-Grenfell article.
What a collateral warranty is and why engineers are asked to sign them
A collateral warranty is a direct contract under which the consulting engineer warrants to a third party — typically the developer's funder, the eventual building owner, head tenant, sub-tenant, or facilities-management company — the same duties of professional care owed to the contractual client under the underlying appointment. The point is to give that third party a direct contractual route against the engineer.
The need arose because under privity of contract a third party historically could not sue on a contract they were not party to, and the law of negligence's restrictions on recovery of pure economic loss (after Murphy v Brentwood District Council in 1990) made tort claims by building owners and tenants difficult to bring. The Contracts (Rights of Third Parties) Act 1999 created an alternative — naming beneficiaries directly in the underlying appointment with rights to enforce specified terms. The substantive exposure is similar; the procedural mechanics differ.
Engineering firms are now asked, on a typical commercial development, to sign warranties (or grant third-party rights) to several layers of downstream parties. Four to ten warranties is common on a substantial commercial development; on a residential development with Building Safety Act leaseholder protections, the universe is larger still.
Anatomy of a typical engineering collateral warranty
A standard form engineering warranty (the British Property Federation and the ACE both publish widely-used models) typically contains recitals identifying the parties, underlying appointment, project and the engineer's role; the warranty itself — a statement that the engineer has exercised reasonable skill, care and diligence under the underlying appointment, mirroring the underlying standard of care; a no-greater-liability provision so the engineer's liability under the warranty is no greater than under the underlying appointment with the same defences available; a net contribution clause limiting liability to a just and equitable proportion; step-in rights in funders' warranties; assignment provisions (typically a maximum of two assignments without consent); a limitation period (normally a deed giving 12 years, with the Defective Premises Act overlay at 15 or 30 years per section 135 for dwellings); a PI maintenance covenant subject to market availability at commercially reasonable rates; and copyright and licence provisions for the design documentation. The wording in each is where the PI implications sit — a warranty that looks like a standard form may have material departures buried in the detail.
What expands PI exposure beyond reasonable-skill-and-care
The key principle: the engineer's PI policy covers liability for breach of the duty of reasonable skill and care. Liability assumed in a contract beyond that standard is uninsured. The recurring trouble spots are:
Fitness for purpose — a warranty that the design will be fit for the beneficiary's stated purpose regardless of skill and care. Routinely excluded by PI policies; avoid signing where possible.
Performance or specification-based warranties — a warranty that the building will achieve a specified performance level (energy consumption, structural deflection, service life). Where the warranty is in absolute terms rather than an obligation to exercise reasonable care to design for the performance, it is likely uninsured.
Compliance warranties in absolute terms — a warranty that the design complies with all applicable laws and regulations. The reasonable-skill-and-care framing is "the engineer has exercised reasonable skill and care to ensure the design complies".
Indemnities — these can bypass contractual loss-allocation rules and defeat net contribution clauses by routing the claim through an indemnity rather than through breach. PI policies treat them cautiously; some explicitly exclude liabilities assumed under them.
Absence of net contribution — exposes the engineer to joint and several liability for the whole loss, with the burden of recovering contribution from other parties falling on the engineer (frustrated where those parties are insolvent).
Unrestricted assignment — multiplies the universe of potential claimants and stretches the time horizon. Insurers prefer assignment limited to a defined number (typically two) without consent.
Building Safety Act undertakings — warranties imposing specific obligations under the Act (golden-thread record-keeping, principal designer duties, gateway compliance) should mirror the underlying appointment rather than impose freestanding obligations.
PI maintenance above the firm's actual cover — a covenant to maintain £10m for 12 years where the firm carries £5m is, strictly, a breach from the day signed. The clause should match actual cover with the market-availability qualifier preserved.
The chain of beneficiaries
A consulting engineer on a substantial commercial scheme might sign warranties to the developer's funder (step-in rights typical; sometimes syndicated lenders); the eventual building owner if separate from the developer; the head tenant on a pre-let; individual sub-tenants (less common but appears with substantial sub-tenancies); the facilities-management contractor; and occasionally building insurers. Each warranty is a separate contract creating direct liability. Where the same allegation is brought by multiple beneficiaries arising from the same underlying defect, the engineer's PI policy treats them as one or more claims depending on the wording.
The practical management point: maintain a warranty register. Record each warranty given, the beneficiary, the date, the limitation longstop, the assignment status. When a claim arrives, the register is the document that lets the firm respond quickly. At renewal, underwriters increasingly ask to see it.
Third-party rights — the alternative
The Contracts (Rights of Third Parties) Act 1999 allows a contract to confer enforcement rights on a third party named in the contract where the contract expressly provides for it. Used as a substitute for warranties, third-party rights provisions in the underlying appointment name the prospective beneficiaries (funder, owner, tenant) and grant them rights to enforce specified clauses. The engineer signs one appointment and grants third-party rights through it, rather than signing several separate warranties.
The substantive PI exposure is similar; the mechanics differ. The third-party rights clause should specify which terms can be enforced (the warranty of reasonable skill and care and limitation provisions, but not for example the engineer's right to terminate). Net contribution clauses, no-greater-liability provisions and limitation longstops should apply equally to enforcement by third parties as they do between the contractual parties. Variation of the appointment can in principle affect the rights granted, typically addressed by a variation-with-consent provision. For dwelling-related work the Defective Premises Act 1972 sits over the top either way — its statutory duty applies regardless of contract.
The choice between warranties and third-party rights is usually the client's; what matters is that whichever route is used, the protective clauses are in place.
What to negotiate
The points worth pushing back on in a draft warranty or third-party rights provision: mirror the underlying appointment exactly on the standard of care — reasonable skill and care, not fitness for purpose; include a net contribution clause (the Construction Industry Council and British Property Federation publish standard wording); include a no-greater-liability provision so the engineer's liability and defences are the same against the beneficiary as against the contractual client; limit assignment (two assignments without consent is the common market position); match PI maintenance to actual cover with the market-availability qualifier preserved; match the limitation longstop to actual run-off planning (12 years from practical completion is the deed standard, with the Defective Premises Act overlay for dwellings); beware indemnities — push back or get the wording specifically reviewed; beware Building Safety Act flow-down clauses — check the policy covers what is being imported.
The negotiation needs to happen at appointment, before the engineer is committed. Once the appointment is signed with a warranty obligation, the leverage to renegotiate the warranty is significantly reduced.
What insurers underwrite on
Underwriters increasingly want to see the firm's approach to collateral warranties as part of the renewal submission: what standard form warranties the firm signs (BPF, ACE, bespoke); what it pushes back on and on what points it has walked away; how many warranties signed in the last twelve months; whether the firm maintains a warranty register; the firm's PI maintenance practice; and the firm's approach to Building Safety Act flow-down clauses. A firm with a coherent answer — a policy on what it signs, a register of what it has signed, a clear negotiating practice — generally finds underwriters more constructive than a firm that signs whatever is put in front of it.
How Apex helps
Apex acts as the broker in placing PI for consulting engineering firms. Where collateral warranties or third-party rights are part of the picture we sit alongside the firm in the appointment-review and renewal conversation and bring the insurance perspective: which warranty provisions are insured, which are not, and where the firm is being asked to take on uninsured contractual exposure. We do not draft contracts — that is for the firm's solicitors — and we do not give legal advice. What we do is help the firm see the PI consequences of the wording it is being asked to sign and, where appropriate, negotiate with insurers for endorsements or specific cover provisions to align the policy with the warranty obligations.
The terms on which we act are set out in our Terms of Business, our handling of personal data in our Privacy notice, and the route to raising any concerns on our Complaints page. The engineers sector page is the place to start the renewal conversation, or contact us directly.
Frequently asked questions
Does my standard engineering PI policy cover collateral warranties?
Most standard consulting engineering PI policies cover liability arising under warranties, provided the warranty mirrors the underlying appointment on the standard of care and does not import obligations beyond reasonable skill and care. Some policies sub-limit or exclude warranties with specific features (no net contribution clause, unrestricted assignment, fitness-for-purpose provisions). The schedule should be checked against the firm's actual warranty practice at renewal.
What is a net contribution clause and why is it important?
A net contribution clause limits the engineer's liability under the warranty to the proportion of the loss that is just and equitable having regard to other parties' responsibility. Without one, the engineer can be held jointly and severally liable for the whole loss even where the engineer was only partly responsible, with the burden of recovering contribution from other parties falling on the engineer (and frustrated where those parties are insolvent). Net contribution clauses are key protection for both the firm and the PI insurer.
Should I sign warranties with fitness-for-purpose obligations?
Generally no. PI policies routinely exclude fitness-for-purpose liability, so accepting one creates uninsured exposure. Where the client insists and the commercial decision is to proceed, the firm should price the engagement accordingly. Some insurers will, on negotiation, write back limited fitness-for-purpose cover where the obligation is specifically defined and capped — uncommon and not always available.
How many collateral warranties might I be asked to give on one project?
On a substantial commercial development, four to ten is typical: developer's funder, building owner, head tenant, individual sub-tenants, facilities-management contractor, and sometimes the building's insurer. On a residential development with Building Safety Act leaseholder protection considerations the universe can be larger.
What is the limitation period on a collateral warranty?
Warranties executed as deeds give 12 years for ordinary breach-of-contract claims. For work in connection with the provision of a dwelling, the Defective Premises Act 1972 (as amended by section 135 of the Building Safety Act 2022) overlays at 15 years for work completed on or after 28 June 2022 and 30 years for work completed before. Run-off cover should be considered against the longer of these where dwelling-related work is in the portfolio.
Can I cap my liability under a collateral warranty?
Sometimes. A liability cap (often expressed as a multiple of fees or as an absolute figure) is a recognised negotiation point. Funders and institutional building owners often resist caps; private developers more often accept them. Where a cap is agreed, it needs to interact correctly with the underlying appointment cap, which should generally be the same figure.
What is the difference between collateral warranties and third-party rights?
Warranties are separate contracts between the engineer and each beneficiary. Third-party rights provisions sit within the underlying appointment and grant identified third parties rights to enforce specified terms under the Contracts (Rights of Third Parties) Act 1999. The substantive PI exposure is similar; the mechanics differ. Whichever route is used, the protective clauses need to be in place.
How should I track the warranties my firm has given?
A warranty register, maintained centrally and updated whenever a warranty is signed, is the recognised best practice. It should record the beneficiary, date, underlying project, limitation longstop, assignment provisions, and PI maintenance covenants. At notification or renewal it is the document that lets the firm respond quickly; at eventual closure or sale it is what the run-off underwriter and buyer's diligence team will ask to see.
Related guides
- Engineers PI Insurance UK Guide 2026 (pillar)
- Structural engineer PI cover and the Grenfell-fallout claims environment
- Engineers sector page — speak to a broker
- All Apex PI sectors
About Apex Insurance Brokers
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FCA firm reference 724952. Registered in England and Wales, Companies House 07014570. Trading address QCS, 53 Queen Charlotte Street, Bristol BS1 4HQ; registered office c/o Westcan, 5 Anglo Office Park, Bristol BS15 1NT. Email info@apexinsurancebrokers.co.uk, telephone 0117 325 0027. This article is general information about Professional Indemnity Insurance for UK consulting engineering practices and is not advice tailored to any individual firm's circumstances. Last reviewed: May 2026.
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