Company Guarantees, IBGs, and Warranties
Members are well-acquainted with company guarantees, which are typically outlined in construction contracts. These guarantees are formal commitments provided by members, assuring customers that remedial design and material installation meet specified standards of quality and performance. Company guarantees may also apply to new work. If defects or issues arise during the defined guarantee period (usually no longer than 10 years) the company is obligated to rectify them, typically at no cost to the property owner.
Benefits of a Company Guarantee
For the customer, a company guarantee offers:
- Financial Protection: Reduces unexpected repair costs
- Accountability: Encourages builders to maintain high standards
- Peace of Mind: Ensures issues will be addressed promptly and professionally.
An additional layer of confidence, offering enhanced financial protection and long-term security, is provided by an Insurance Backed Guarantee (IBG).
Benefits of an IBG
- Contractor Insolvency: Protects the customer even if the contractor becomes insolvent
- Financial Security: Repair or replacement costs are handled by the insurer
- Peace of Mind: Reassurance that issues will be resolved
- Long-Term Coverage: Typically covers defects for up to 10 years
- Transferability: Can be transferred to new property owners during the guarantee period
- Enhanced Trust in the Contractor: The contractor's competence and reliability are vetted by the insurer.
For audited members of the Property Care Association (PCA), IBGs can be obtained from the UK’s leading provider, QANW.
When a company guarantee is supported by an IBG, it provides customers with protected financial investment for the building work undertaken.
What Happens If a Claim is Made Under the Guarantee?
1. Notification:
The customer should notify the contractor and, if applicable, the insurer under the IBG. The notice should include details about the defect, when it was discovered, and any immediate actions taken to mitigate damage.
2. Inspection and Investigation:
The contractor will assess the defect by visiting the site and determining its cause. They will establish if the defect falls within the terms of the guarantee. Note: A fee for this survey investigation is usually payable.
3. Remedial Repairs:
If the defect is covered under the guarantee, the contractor will carry out the necessary repairs at no financial cost to the customer.
This is the ideal process for resolving claims under a company guarantee. However, disputes may arise when the contractor asserts that the defect is outside the scope of the guarantee. If an IBG is in place, the claimant can request independent clarification of liability.
Handling Disputes
Disputes over liability often require further independent investigations to assess whether the defect arose from negligence, non-compliance with building codes, or material failures. This process can lead to higher repair costs and significant delays in resolving the defect.
Warranty Insurance
Warranty insurance, which often accompanies a company guarantee, provides similar benefits to an IBG. The key difference is that the policyholder does not need to prove negligence or fault on the part of the builder, contractor, or architect. The existence of the defect alone triggers coverage.
This is significant for policyholders, as defects are repaired quickly - either by the contractor or an insurance-appointed contractor - depending on when the defect was reported within the cover period.
Types of Warranties
1. Express Warranties: Explicitly stated in contracts, specifying what is covered and for how long.
2. Implied Warranties: Automatically provided under law, ensuring construction is fit for purpose and meets minimum quality standards.
3. Latent Defect Insurance: Covers structural defects that emerge after construction is complete.
Warranties provided by specialist insurers carry greater risk to the insurer and are not widely available in the market. Exceptions include complete new house builds for developers and self-builders, or full property refurbishments.
Implications for Members
For contractors offering warranty insurance for specific building or remedial works, the benefits include enhanced business protection and financial security for policyholders.
Design-and-build contractor members applying for warranty cover on behalf of clients should be aware of the following requirements:
- Members will be audited and vetted to meet insurer standards
- They must hold Professional Indemnity Insurance (PII)
- Design criteria and build specifications must be approved before work begins
- Installation work will be inspected by an insurance-appointed surveyor
- Increased premium costs may apply for the policyholder.
The PCA considers warranty insurance a valuable product that complements existing business insurance options available to members through partner brokers Astute and QANW. This is especially relevant for high-value or high-risk construction projects, such as basements or heritage buildings.
The PCA is unable to advise on the insurance which may be right for you. To be introduced to our insurance partners Astute or QANW, please contact Hannah Clarke.
The PCA is actively collaborating with insurers and other stakeholders where insurance required by members is not currently available. If you would like to discuss the insurances you are unable to access to support our discussions with potential partners, please contact Andrew Devitt.