net contribution clause

A net contribution clause may also be known as a proportional liability clause. Such a clause is a common feature in many standard form contracts used in the construction and engineering industry, such as the appointment of an architect or an engineer.

In the context of construction, if there is a problem with a construction project resulting in a loss, this is often the fault of more than one of the parties designing or constructing the project. The party suffering the loss can sue any of the parties at fault and each will be 100% liable for damages, whatever their share of the blame.

A net contribution clause states that where two or more parties involved in a construction project are each jointly liable for the same loss or damage, the liability of each party will be limited to the amount which would be apportioned to that party by a court. The net contribution clause may include assumptions, which will affect this apportionment.

Without a net contribution clause, if an architect and a contractor are each liable to a developer for the same defective work, the developer could recover 100% of its damages from the architect, despite the joint liability of the contractor. The architect could then seek to recover a share of those damages from the contractor under the Civil Liability (Contribution) Act 1978. The effect of a net contribution clause is that if the court found the architect 60% liable for those damages and the contractor 40% liable, the developer can recover only 60% of its damages from the architect. The developer could bring a claim against the contractor to recover the remaining 40% of its damages.

With a net contribution clause, if the contractor is insolvent when the developer brings a claim against an architect who is 60% liable, the developer may in practice recover only 60% of its damages in total. Without a net contribution clause, the architect could be liable for 100% of the damages.

The professional indemnity insurers of architects and other professional consultants usually request that a net contribution clause is included in a collateral warranty.