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GLOSSARY

Net contribution definition

Published by a LexisNexis Construction expert

What does Net contribution mean?

A principle by which the liability of a party is restricted to only the element of the claim for which they were directly responsible

Frequently if a number of different parties input into one work area they will require their contracts to contain "net contribution" clauses. This essentially reverses the common law position that it is for the defendants to ascertain between one another who is responsible for which elements of a claimants' claim. Instead, from the outset the defendant with a net contribution clause will only be responsible for that part of the claim which can be shown to be directly their fault. This is useful in the event of an insolvency event by another team member as it protects those with a net contribution clause from having to pay out for another parties' culpable behaviour.

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Net contribution clauses in construction contracts

This Practice Note examines net contribution clauses (sometimes known as proportional or proportionate liability clauses) and their inclusion in collateral warranties and consultants’ appointments. It looks at why consultants, some contractors, and their professional indemnity insurers frequently request that a net contribution clause be included in collateral warranties and appointments and why employers are reluctant to accept them. It also considers the ability to claim a contribution from others under the Civil Liability (Contribution) Act 1978 in the absence of a net contribution clause and looks at case law regarding the effectiveness and enforceability of net contribution clauses. For suggested written advice to send to clients on net contribution clauses, see also Precedent: Advice to clients—Net Contribution clauses.What is a net contribution clause?In modern construction projects, there are often numerous parties who are engaged to input into the design. In the event that the design is subsequently found to be defective, this can create difficulties in attributing responsibility for defects and to recover the resulting losses. Losses suffered by an...

Limiting liability in construction contracts

This Practice Note provides guidance on limitation clauses and exclusion clauses (sometimes referred to as exemption or exception clauses) in construction contracts, including financial caps, exclusions of consequential loss (also known as indirect loss) and common carve-outs, as well as other ways in which liability may be limited. It also considers restrictions and controls on the ability to limit or exclude liability, including under the Unfair Contract Terms Act 1977 (UCTA 1977), Defective Premises Act 1972 (DPA 1972) and the Consumer Rights Act 2015 (CRA 2015).Construction contracts can range from small residential schemes to large infrastructure or commercial development projects. The potential exposure for contractors (and consultants and sub-contractors) where something goes wrong can be huge, particularly if they are responsible for design.Professional indemnity insurance can help to protect parties in respect of certain claims, but may not be adequate to provide total cover. It is therefore not surprising that parties regularly seek to limit their exposure to a claim for damages by way of clauses which expressly limit, or...

Discover our 1 Practice Notes on Net contribution

Advice to clients—Net Contribution clauses

Advice to clients—Net Contribution clauses Net contribution clauses We want to discuss with you the approach that should be taken in relation to the net contribution clause which [insert name of the Consultant appointed on the project] (the ‘Consultant’) has requested is included in its appointment in relation to [insert name/description of the project]. A net contribution clause is a clause which aims to reduce the extent of a party’s (the Consultant’s in this case) liability where a number of parties have contributed to a construction project and, therefore, allegedly to the defect that occurred in the design or implementation of the works. The clause essentially restricts the claimant (you) from being able to claim for the full 100% amount of its losses from one particular party, which it would otherwise be able to do without the clause being included. Instead, the Consultant’s liability is limited to a proportion of the liability that it would be ‘just and equitable’ for it to pay having regard to the extent of its...

Report on construction documentation

Report on construction documentation [insert name of property] Executive summary [insert a general summary of the construction documents/highlight any key areas of concern] Building contract and related documents Save where otherwise indicated below, the Building contract, consultant’s appointments and collateral warranties are generally in line with what we would expect to see on the market, in particular containing the following: 1) a requirement to carry out the Works/provide the Services using a standard of reasonable skill and care to be expected of a qualified professional or contractor experienced in working on projects similar to the Works; 2) an obligation not to specify or use harmful or deleterious materials when carrying out the Works; 3) an obligation to provide an irrevocable and royalty-free copyright licence for use of any and all documents and materials produced by the Contractor/Consultants during the course of the Works, with such licence also being capable of being assigned or transferred to third parties without restriction; 4) a requirement to maintain professional indemnity insurance to...

Dive into our 5 Precedents related to Net contribution