Thinking of tendering for a job with Birmingham council? Go ahead – if you don't mind waiting 24 years to clear your liability period, ludicrous responsibilities and crippling handicaps if you go to arbitration.
In my article "Getting even" I revealed that the duty of "best value" had not, as yet, permeated all local authorities (8 September, page 64). Then, the culprit was Westminster council; I have just discovered another – Birmingham city council. The council's "standard form of warranty" for specialist contractors indicates that it has not ditched the old adversarial weaponry.

The document is intended for use when the council acts as an employer on construction works and the specialist is subcontracted to a main contractor. The usual undertakings are required: the specialist is to exercise "all reasonable skill and care" in design of the specialist works, in compliance with the performance requirements and in the selection of materials and goods.

However, one matter is rather more contentious. The specialist is to exercise "all reasonable skill and care in ensuring that the specialist work is fully co-ordinated with adjoining elements of construction". Why is this contentious? The specialist is unlikely to have the authority to compel others to comply with his instructions in order to secure such co-ordination. This must, surely, be a matter for the main contractor that is responsible for managing the construction process.

Now we come to the nasty bit. Under clause 2, the specialist is faced with being constantly recalled to site over a 12-year period where a "relevant defect" has occurred. This is defined as "a defect, shrinkage or other fault appearing in the specialist work". But who decides that there is a relevant defect? Extraordinarily, it seems that three people can have a "reasonable opinion": the employer, the architect/contract administrator or the architect/contract administrator's representative.

The specialist is required to remedy the defect within the 12-year guarantee period "commencing with the date of the practical completion of the order to which the specialist's works relate". It is not clear whether the reference is to practical completion of the main contract works or just that of the specialist works.

The warranty expressly states that the cause of action "accrues" when defects in the specialist work become apparent during the guarantee period and from that moment the employer will have 12 years in which to commence proceedings. So the specialist is at risk of legal action for a further 12 years after the expiry of the guarantee period.

The implication of all this nonsense is that the specialist is faced not with double jeopardy, but with triple jeopardy. Not only can a trio of parties decide that there was a relevant defect, but each can decide whether the remedial works are being executed to their reasonable satisfaction. In addition, the specialist is to indemnify the employer in respect of all loss arising out of the defects, including loss of rent or income. If it decides not to carry out the remedial works, the council – under the warranty – can recover the cost of executing the works from the specialist. The specialist is to make payment within 28 days of demand, otherwise interest will be payable at a daily rate of 2% above the Co-op Bank's base rate.

A crumb of comfort is offered; liability may be reduced pro rata if the council, architect and so on is satisfied the specialist is not wholly responsible for the relevant defects. Thank goodness for small mercies!

  • Specialists can be recalled for 12 years for ‘relevant defects’
  • The employer has a further 12 years to commence proceedings
  • Arbitration awards cut to half the sum claimed

  • Well, what happens if the specialist reasonably opines that the works are not defective or that any defect was not caused by a breach of its contractual obligations? This matters not one jot. But disputes can go to arbitration. The specialist has now to incur substantial expense, and even if it wins, the warranty curtails maximum recoverable costs to one-half of the sum claimed. The claim sum is "the aggregate of the total damages specified in the claimant's points of claim notwithstanding any subsequent amendment of the same".

    The upshot of this warranty is that the specialist is at the beck and call of the council for 12 years. It is like having a maintenance contract for free.

    My advice to any specialist lumbered with this particular document is to kick it into touch. If commercial considerations militate against this, not all is lost. The warranty is subject to the Construction Act and can, therefore, be referred to adjudication at any time.

    More generally, the kind of relationship envisaged by this warranty does not accord with the new best-value regime. According to the DETR's Guidance on Best Value: "Contracts with the private sector should be examined to see if they permit, and provide incentives for, innovation and continuous improvement."

    Perhaps the most fundamental objection to Birmingham's warranty is that it simply ignores the subcontract entered into by the specialist. The likelihood is that it places a greater liability on the specialist. Whereas it is being paid for the risks undertaken in the subcontract, under the warranty it receives no payment.

    This case throws into sharp relief the iniquities associated with warranties. No other industry indulges in the practice to the same extent.