In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
Many LSVT Registered Providers (“RPs”) have come of age – or will soon be coming of age -after delivering their offer document promises. This provides RPs with the perfect platform to start to work towards a more mature, business like, relationship with their transferring council.
A potential hurdle to this fundamental development step is any outstanding financial liability owed to the RP by the councils under the stock transfer agreement. As part of the stock transfer process, councils provide various warranties and/or indemnities in favour of the RP; most notably dangerous substances, including asbestos. What steps can, and should, an RP take when a warranty is found to be inaccurate, or breached, or an indemnity limit reached?
Understandably, many RPs are reluctant to ‘rock the boat’ due to the need for a continued working relationship with their council on issues such as planning consent for planned development. However, can RPs realistically ‘look the other way’ when a potential claim exists with the consequential financial implications for the organisation?
Stepping out of a council’s shadow by bringing such a claim will inevitably cause some friction; however, the appropriate management of claims can ensure that a working relationship with the council is maintained.
With our substantial stock transfer and RPs governance experience we often advise upon, and manage, claims arising out of stock transfer warranties and indemnities. We work with clients to achieve resolution, ideally without having to start Court proceedings. In our experience, the majority of claims are settled by negotiation and/or mediation.
We have successfully negotiated settlements which include both a financial and non-financial element, the latter often seeming to be more valuable to RPs. This could include removing certain council management rights, amending the transfer agreement to enhance the RPs nomination provisions and financial payments in the event of asset sales.
Many stock transfer agreements now include warranties of 30 years duration from the date of transfer and as a result, RPs should actively review their transfer agreements to assess any breaches. Failure to claim for breaches within the standard 12 years limitation period will prevent an RP from successfully pursuing a claim.
For more information
If you wish to discuss your position, or suspect your council may be in breach of a warranty or indemnity please contact Hilary Harrison.
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