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Periods of Limitation and Construction Contracts


Contracts typically contain limitation periods agreed by the parties involved. These limitation periods reflect the commercial interests of the contracted parties and can side step the limitation periods available under law. How contractual limitations relate to and interact with insurance and limitation periods under law are important factors. This is especially the case if the parties are to rely on insurance and understand what, if any, liability sits on their balance sheets outside of contract.

Contractually you can sidestep limitation periods under legislation, but only with regard to the contents contained within the contract; anything that is not captured in the contract is open to the limitation periods available under law. Examples include warranties and guarantees, variations of scope, novated risk, and risks not referred to in the contract [such as pollution and regulatory fines & penalties].

Limitation periods accepted under contract may exceed the duration that insurance cover is normally purchased for (standard insurance programmes will be designed with the default limitation periods in mind, taking into account the commercial trade-off between price and duration).

Having a robust internal process to quantify risk that sits on your balance sheet can be an invaluable business tool and helps to address issues such as whether the contract fee / price is worth the exposure? Or whether the duration of the exposure is acceptable given the potential for risks to compound over time?

Contracts and standard terms and conditions largely factor in these points. However, parties should regularly revisit their standard contract terms and conditions to ensure they still operate as intended and reflect changes in law.

Download the attached briefing to learn more.