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This is a subject I have debated with him in the recent past, so he will not be expecting me to agree with him.

In relation to collateral warranties he states: 鈥淎t least we know where we stand with them鈥�. Well, the lawyers might 鈥� after all, there is an institutional obsession with them that perpetuates potentially costly 鈥渞isk dumping鈥�. However, speak to many clients and they have very misguided views as to their value.

For a collateral warranty to have any effect whatsoever, it has to be backed by professional indemnity (PI) insurance. A PI policy is not a benefit to the client 鈥� it is a 鈥渄efence mechanism鈥� for a contractor or consultant. Negligence has to be proved 鈥� no wonder 80% of all construction insurance claims consist of legal and forensic costs!

John lists a number of supposed drawbacks with LDI:

• Pure defects, such as M&E failures, that do not result in damage are not usually covered. Component failures are now regularly covered and do not need damage for a claim to be admitted.
• n Consequential losses are usually excluded. Consequential losses such as loss of rent or interest are regularly covered.
• n Claims are generally subject to a large deductible, which can be more than 拢250,000. Policies are frequently arranged with deductibles of 拢50,000 or less.
• n The policy wording is often unclear. He admits many are now in plain English. Make sure a specialist broker negotiates.
• n The requirement for technical inspections is an extra expense for the developer. Likely to cost a hell of a lot more when negligence needs to be proved.
• John states that 鈥淟DI has been over-egged by its promoters鈥�. Well, I am very happy to be one of the 鈥渙ver-eggers鈥�. As he says, 鈥淟DI provides no fault protection鈥�. Give me a robustly created LDI policy over collateral warranties any day!

Graham De Roy, director, Tyser & Co