This case study is an anonymised composite based on publicly reported PI claim patterns. It is not actual Apex client data and does not constitute legal or insurance advice. Names, locations and identifying details have been changed. Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, FRN 724952.
A specialist design and construct contractor focused on the social housing and PRS market with annual turnover around £140m, undertaking turnkey new-build housing developments for housing associations and PRS investors. The contractor’s in-house design and technical team is substantial — approximately 25 staff — and the contractor markets explicitly on its design-led approach.
The project was a 96-unit affordable housing scheme for a regional housing association, procured on a JCT Design and Build Contract with Employer’s Requirements that included specific operational energy performance targets. The Employer’s Requirements stated that the development would achieve an in-use annual heating demand below a specific kWh/m² threshold and an EPC rating of B or better across all units. The targets were referenced into the contract as performance obligations.
The contractor’s design team developed the scheme to meet the targets using a combination of fabric performance (improved insulation and air-tightness above building regulations standards), mechanical ventilation with heat recovery (MVHR), and a low-carbon heating system based on air source heat pumps with low-temperature heating distribution. The design was modelled using SAP and the modelled performance met the targets with a small margin.
The development was constructed and handed over. In the first heating season, an in-use monitoring exercise commissioned by the housing association as part of its ongoing portfolio monitoring identified that the actual measured heating demand was approximately 28% above the contractual target across the development. The EPC ratings as assessed were predominantly B, with a small number of C ratings — meeting the EPC obligation but illustrating the gap between modelled and actual performance.
The diagnosis identified multiple contributing factors. First, the fabric performance as built was below the design assumption — air-tightness testing on a sample of units indicated values above the design assumption, and thermal-bridging detailing in certain repeated junctions was less effective in practice than the design had assumed. Second, the heat pump commissioning had not been fully optimised; default settings rather than building-specific settings were in operation. Third, the resident handover process had not adequately briefed residents on the operation of the MVHR and heating systems, leading to suboptimal operation in some units.
The housing association’s claim against the contractor was framed as breach of the contractual performance obligations. The pleaded loss was the cost of remedial works to address the fabric performance (approximately £680,000 across the development), the cost of the heat pump re-commissioning programme (approximately £140,000), the cost of resident re-engagement (approximately £45,000), and an element of consequential loss reflecting the higher actual fuel costs to residents during the period before remediation.
The contractor’s defence engaged a careful analysis of the performance obligations. The “performance specification” in the contract — measured in-use energy demand — sat alongside the standard contractual obligations to design and build in accordance with the standards specified. The defence ran the point that the performance specification was a target rather than an absolute warranty, that the contractor had designed and constructed in good faith against the performance modelling, and that the gap between modelled and actual performance was a known industry-wide phenomenon (the “performance gap”) that was not entirely within the contractor’s control.
The matter resolved through structured negotiation at approximately £540,000 inclusive of contribution to the housing association’s costs.
Section 5 notification was made on receipt of the housing association’s pre-action correspondence. The contractor’s wording responded subject to the firm’s £75,000 excess. The £5m limit was sufficient.
A coverage question arose on the performance guarantee exclusion. The wording in place contained an exclusion for “losses arising from the failure of any product, system or design to achieve a specified or guaranteed performance level where such performance is the subject of a guarantee, warranty or representation”. The exclusion was potentially engaged on the facts — the performance targets in the Employer’s Requirements were arguably “guarantees or warranties” within the meaning of the exclusion.
The careful analysis turned on the construction of the contractual performance obligations. On a careful reading, the contractual targets were performance specifications — obligations to design and build to meet the target — rather than absolute outcome guarantees. The contractor’s PI wording’s exclusion was construed by reference to the Court of Appeal authority on the construction of contractual performance promises, particularly the line of cases following MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59, where the Supreme Court considered the relationship between performance specifications and design responsibility in a construction context. The wording was construed in a way that did not engage the exclusion on the facts.
A second question arose on the rectification treatment. The remedial works to address the fabric performance — air-tightness remediation in occupied units — engaged a particular practical and contractual character. The wording responded to the contractor’s liability to undertake the remedial works as the contractor’s professional liability to its client, not as a betterment or improvement to the development.
The matter resolved at approximately £540,000 inclusive of the housing association’s contribution to costs. The £75,000 excess applied.
The settlement was paid. The contractor undertook a structured review of its performance specification practice. The principal changes were a more rigorous approach to the relationship between modelled and actual performance with explicit margins, a documented commissioning and handover protocol with resident briefing, and a clearer treatment of performance obligations in the contractor’s engagement contracts to ensure the obligations are professionally achievable performance specifications rather than absolute warranties. The contractor’s PI premium rose by approximately 32% at renewal.
Performance specification claims are a growing category as energy performance and sustainability obligations become more central to construction contracts. First, the “performance gap” between modelled and as-built energy performance is a real and well-documented phenomenon; design margins on modelled performance should reflect this. Second, the firm’s PI wording’s treatment of “performance guarantee” exclusions is the most important single point of renewal analysis on D&B contractor wordings; the construction of these exclusions in litigation, against the actual contractual obligations the contractor has taken on, is unpredictable. Third, the contractor’s engagement contract should distinguish carefully between performance specifications (achievable through professional services) and absolute warranties (effectively outcome guarantees with unlimited risk transfer); the wording should align with the engagement contract framework. Fourth, commissioning and handover are the highest-leverage single operational practice in achieving the modelled performance; these should be planned and resourced explicitly. Fifth, the renewal narrative on the contractor’s performance management protocol and the documented commissioning process is the substance of the underwriter’s view in this space.
For D&B contractors the performance specification exclusion is the most consequential single wording point at renewal. We work with contractors on the wording analysis, the engagement contract template alignment, and the renewal pack — including the documented performance management protocol and the commissioning evidence — that earns the underwriter’s confidence. On notification, the framing of a performance shortfall claim around the performance specification (rather than performance guarantee) characterisation requires careful coverage analysis.
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