Q&As

What is a direct agreement? Is it different to a collateral warranty?

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Published on LexisPSL on 17/10/2018

The following Construction Q&A provides comprehensive and up to date legal information covering:

  • What is a direct agreement? Is it different to a collateral warranty?
  • What is a direct agreement?
  • Notice of, and consent to, funder’s security
  • Step-in rights in a direct agreement
  • Novation/substitution under a direct agreement
  • Duration of a direct agreement

If a party with an interest in a construction project has directly employed either the building contractor, a professional consultant or a sub-contractor it will be protected against the impact of problems arising out of the design or construction of the works under the terms of the building contract or the relevant appointment or sub-contract to which it is party. However, a third party with an interest in the project who is not party to those agreements, will find itself without the necessary direct contractual relationship that will enable it to rely on, or enforce, the terms of the building contract, appointment or sub-contract in order to protect its interest.

What is a direct agreement?

Direct agreements are, like collateral warranties, agreements that have evolved, and are now commonly put in place, in order to protect the interests of third parties who have an interest in a construction project but who are not, necessarily, party to the key project contracts that could affect their interest/investment. They are principally entered into with funders in project finance transactions and are a standard feature of a funder’s security package. They are also a feature of PFI projects where key parties will usually enter into direct agreements with the funder(s) and the relevant authority.

Like collateral warranties, direct agreements are collateral to the underlying project contract to which they relate and

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