UK: Collateral Warranty Is Held To Be A "Construction Contract"

Last Updated: 11 November 2013
Article by Emma Wilson and Martin Petry

Summary and implications

The Technology and Construction Court (TCC) considered the meaning of a "construction contract" and "construction operations" in sections 104 and 105 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (HGCRA) and held on 29 August 2013 that a deed of collateral warranty was a construction contract under the meaning of the HGCRA.

  • This has various potential implications, claims under collateral warranties may be referred to adjudication under the HGCRA.
  • Not every deed of collateral warranty will automatically be a construction contract, it depends on the specific wording.
  • The implication of HGCRA payment provisions into collateral warranties is an academic issue raising only an entitlement to stage payments of the sum payable under the collateral warranty (nominal if any), not an obligation to pay based on works value.

The Housing Grants, Construction and Regeneration Act 1996

The HGCRA (supported by the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649)) sets out the meaning of a "construction contract" (section 104) and "construction operations" (section 105) and provides that only those contracts that fall within the meaning of a construction contract are subject to the provisions of the HGCRA.

The HGCRA implies a number of provisions into contracts that fall within the definition of a "construction contract" including:

  • the right to refer disputes to adjudication;
  • the right to be paid by instalments;
  • the requirement for an adequate payment mechanism;
  • the right to suspend performance for non-payment; and
  • a prohibition on conditional payment provisions.

The focus in a recent case was the right to adjudicate.

Parkwood Leisure Ltd v LaingO'RourkeWales andWest Ltd [2013] EWHC 2665 (TCC)

In 2006 Orion Land and Leisure (Cardiff) Ltd (Orion) appointed Laing O'Rourke (Laing) to design and build a leisure facility in Cardiff under a standard JCT Design and Build Contract. Cardiff City Council let the facility to Orion on a 25 year lease and Orion sub-let the facility to Parkwood Leisure Ltd (Parkwood) to provide facilities management services. Laing provided a deed of collateral warranty to Parkwood.

a) Facts

A dispute arose concerning the defective design and/or installation of the air handling units at the leisure facility. Parkwood wrote a letter to Laing in accordance with the Pre-Action Protocol for Construction and Engineering Disputes setting out their claim. Laing rejected the claim and Parkwood started court proceedings seeking, amongst other things, a declaration that the deed of collateral warranty was a construction contract for the purposes of Part II of the HGCRA and as such was subject to the statutory adjudication rules.

Akenhead J held that the deed of collateral warranty in favour of Parkwood was a construction contract for the purposes of Part II of the HGCRA.

b) Court's considerations

In deciding that the deed of collateral warranty was a construction contract Akenhead J considered the following:

What is a construction contract?

  • Section 104(1) provides that a construction contract is an "agreement...for the carrying out of construction operations". Akenhead J commented that "it is clear that Parliament intended a wide definition".
  • A construction contract does not have to be wholly or even partly prospective. It is common for construction contracts to be finalised after the works have started.
  • Usually where one party to a contract agrees to carry out and complete construction operations it will be an agreement "for the carrying out of construction operations".

The wording used in the deed of collateral warranty:

  • The recitals of the underlying building contract said that the contract was "for the design, carrying out and completion of the construction of a pool development". There could be no dispute as to whether this was construction contract and that wording was replicated in clause 1 of the deed of collateral warranty.
  • Clause 1 of the deed of collateral warranty also provided that Laing "warrants, acknowledges and undertakes". Akenhead J concluded that these words were not intended to be absolutely synonymous and related to the past as well as the future recognising the fact that works under the building contract were in the course of construction and remained to be completed.

The deed of collateral warranty will give rise to ordinary contractual remedies therefore if Laing completed the works not in accordance with the building contract (i.e. with defects) there would be an entitlement for Parkwood to claim for damages because there would be a breach of contract.

Akenhead J therefore concluded that the deed of collateral warranty is clearly "for the carrying out of construction operations".

c) Effect of the ruling

This is the first time in a reported judgment that the court has considered whether a deed of collateral warranty is a construction contract.

It potentially opens the door to an increase in claims under deeds of collateral warranty being referred to adjudication, which may have advantages for beneficiaries by giving a quicker and cheaper dispute resolution than litigation but is less likely to be welcomed by warrantors, as the incidence of claims under deeds of collateral warranty may increase if a quicker and cheaper dispute procedure is available.

d) Future considerations

Not all collateral warranties will be construed as construction contracts under the HGCRA. Akenhead J said that "one needs primarily to determine in the light of the wording and of the relevant factual background each such warranty to see whether, properly construed, it is such a construction contract for the carrying out of construction operations".

e) Payment issues

If a collateral warranty is construed to be a construction contract and adjudication provisions are implied into it, what then happens to the payment and suspension rights that are also implied by the HGCRA? The judgment leaves this question unanswered.

There has been much subsequent discussion on the potential effect of payment provisions that may be implied into a collateral warranty by the HGCRA if a collateral warranty is a construction contract. The HGCRA provides that in the absence of express HGCRA compliant payment provisions, the Scheme for Construction Contracts will be implied. Contrary to the views expressed by various commentators the Scheme only provides that if the parties have failed to agree periodic payments of the contract price and timing then these will be implied, it does not seek to dictate the contract price. The periodic payments required by the Scheme would only be applied to the contract price ie payment of any amounts explicitly payable under the collateral warranty. It would not be within the contemplation of the parties to the collateral warranty that the beneficiary would be responsible for payment for the works under the underlying building contract or appointment. Discussion on payment provisions is therefore academic. The only payment due that such provisions could apply to is any consideration within the collateral warranty itself, which will be nominal (ie a pound or peppercorn) if it exists at all.

If warrantors wanted beneficiaries to be obliged to pay for the works in circumstances where the employer is no longer in the picture, this would have to be explicitly set out in the collateral warranty. This is done in the context of step in rights, ie an obligation to take over payment obligations if such rights are exercised. Such a position already exists in collateral warranties that include such provisions. Beneficiaries will not accept obligations to pay for works under a building contract or appointment other than in circumstances where they step in.

f) Third party rights

Third party rights schedules are a part of (and usually set out in a schedule to) a building contract or appointment (which are themselves clearly construction contracts). The third party rights schedule to a building contract or appointment often contains wording similar to that seen in the collateral warranty in the Parkwood case, i.e. 'the Contractor ... warrants and undertakes to the Beneficiary ... to comply with all the obligations ... under the Building Contract.'

The question then arises of whether, following the logic in the Parkwood case, the third party rights are themselves a construction contract. One view is that a third party by definition cannot be a party to the building contract or appointment. But following the logic of there being a commitment to carry out construction operations, then by analogy it would appear that the rights may be a construction contract, in which case all the same issues may arise.

g) Other ancillary documents

There are a large number of ancillary documents to a building contract which were not considered by the judgement in Parkwood, such as parent company guarantees. These documents could potentially be considered construction contracts following this case, depending on their wording.

h) Looking forwards...

The Parkwood decision clearly raises issues on how collateral warranties, third party rights and other documents ancillary to building contracts and appointments may be viewed. Many of the implications of the decision appear to result in unintended consequences and it will be interesting to see the impact of the case going forwards. For example, if a collateral warranty is a construction contract (i.e. a commitment to carry out works), can the beneficiary seek specific performance of that obligation, and how does this sit with a potentially only nominal payment obligation. For beneficiaries the right to adjudicate under collateral warranties, i.e. the direct point arising from the Parkwood decision, may have certain attractions, but one can anticipate that the suggestion, however illogical and unintended, of the beneficiary acquiring payment obligations could raise concerns for beneficiaries, and equally that warrantors could be concerned if they might face orders for specific performance without any corresponding right to be paid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.