Introduction of liability caps to the public works contracts

The Office of Government Procurement has introduced monetary caps on liability in the forms of public works contracts PW-CF1 to PW-CF8s.

What amendments are being introduced?

In March 2023, the Office of Government Procurement (OGP), introduced monetary caps on liability to the Standard Conditions of Engagement for Consultancy Services (Technical) and the Standard Conditions of Engagement for Archaeological Services (together, Standard Conditions). We looked at these at the time that they were published and you can find our update on these here.

Following this, the OGP announced in July 2023 that liability caps will also be included in the forms of OGP Public Works Contract (PW-CF1 to PWCF8) (Public Works Contracts). The drafting and guidance note in respect of the new liability cap was released earlier this month. Overall, these liability caps follow the same structure as the liability caps introduced to the Standard Conditions but there are some differences to note that will be specific to a Contractor. 

What are the main differences?

For the first time since their introduction, Public Work Contracts will now contain a provision whereby the liability of a Contractor to the Employer will be limited to a monetary amount (Liability Cap) stated in the Form of Tender and Schedule. This monetary amount will be stated by the Employer in the Schedule, or, where there is no amount stated, this amount will be equal to the Contract Sum. Guidance is given in respect of the calculation of a Liability Cap, which we discuss in more detail below.

As with the liability caps in the Standard Conditions, there are certain exceptions or "carve outs" (each an Exception) to the Liability Cap for any claims, losses, damages, costs, expenses or liabilities in respect of: 

  • fraud or fraudulent misrepresentation, wilful default, gross negligence;
  • death, injury or illness of any person;
  • loss of, or damage to, tangible or intangible property (except for the Works as defined in the Public Works Contract);
  • any liability to which insurance for the Works and other Risk Items pursuant to the Public Works Contract, whether before or after Substantial Completion, is intended to respond;
  • liquidated damages (as set out and calculated in accordance with the Public Works Contract);
  • the Contractor’s liability in respect of existing facilities owned or in use by the Employer (in accordance with the Public Works Contract); or
  • any liability which the Contractor cannot lawfully exclude or limit.

The Contractor’s liability for any claim by the Employer in relation to any Exception is uncapped, and the Contractor will be liable in the normal way to the Employer (the breadth of which would be calculated in accordance with well-settled legal principles). The Contractor’s liability to third parties is a separate issue and does not fall under the Liability Cap.

Guidance on calculating the Liability Cap

Guidance Note 2.3.5 (found here) provides guidance to the Employer on how best to determine the appropriate amount to include as a Liability Cap and includes a risk matrix at Appendix 1 to help the Employer score the scale and likelihood of the loss occurring. Where an amount is not stated, the default Liability Cap will be an amount that is not greater than the amount of the Contract Sum. The Guidance Note states however that this is not a recommended or standard norm and that a risk assessment should be carried out to arrive at an appropriate Liability Cap amount.

The Guidance Note recommends that the main consideration in assessing an appropriate Liability Cap amount is that of risk/reward relationship and value for money. It suggests that consideration be given as to whether the estimated risk-based amount represents a commercially acceptable risk for those entities likely to tender for the contract and, in turn, deliver a value-for-money outcome. Employers should strive to arrive at an amount that is derived from a reasoned risk assessment of losses in the event of a breach/negligence that, for an entity taking on the contract, represents a commercially reasonable level of risk in return for the profit margin earned in delivering the asset. In respect of design and build contracts, it is also recommended that the Contractor’s Professional Indemnity Insurance is taken into account. 

For further information in relation to this topic or any related matter, please contact Siobhan Kearney, Senior Associate, or Síomha Connolly, Solicitor or your usual contact on the Construction & Engineering Team.

Date published: 5 September 2023