Monday, October 12, 2009

Liability Period for Engineering Work

An important consideration for companies seeking to undertake construction or engineering projects in Oman is potential liability for that work. The Law on Engineering Consultancy Offices (Royal Decree 120 of 1994) states that engineering consultancies in Oman shall be jointly responsible with the contractor who executes the work for flaws in the project for ten years from the handover date.

Design defect vs. construction defects
The law does include a limitation on this joint responsibility, stating that if the engineering consultant performs design work only, without supervision or execution, the design office will be responsible only for the design defects.

Oman's Standard Documents for Building and Civil Engineering Works are also useful in clarifying the scope of liability for engineering designers and contractors. The standard construction contracts which are used in government projects, state in Article 62(4), that the entity executing the construction will be liable for 10 years as regards "unsound construction, other than design defects". In other words, the normal standard contract would appear to exclude any liability falling upon the construction entity for design flaws.

For companies planning to complete projects by dividing engineering design and construction work, one option for limiting the liability of the constructing entity to construction flaws only is to procure a back to back indemnity from the designer on the project. The indemnity would state that the designer will indemnify the construction company for any design defects.

What is engineering work?
The law does not define what constitutes engineering work. The law suggests that the design and construction of buildings and structures constitute engineering work, but this should not be narrowly construed as there are many aspects to engineering services in Oman, from feasibility studies through to architectural services and civil works which may be captured by this law.

Insurance issues
It is sometimes not practical to obtain insurance cover for such work for the entire ten years. Some reasons for not obtaining the insurance for ten years are that:

  • It is not always possible to agree to insurance that matches such a long liability period in instances where the work is a non critical item in the project;
  • It is too expensive to maintain insurance for the ten years; and
  • It makes little sense when the reports produced will be superseded by subsequent developments.
In such instances, it ultimately depends on the commercial arrangements between the parties.

Another insurance issue is the type of insurance policy which needs to be obtained. The Insurance Law (Royal Decree 12 of 1979) stipulates that except for life insurance, contracts of insurance shall not be effected with foreign insurance companies which operate outside Oman. Companies taking out insurance policies for their engineering work need to ensure that the insurance company they contract with has a corporate presence in Oman which can receive and respond to any claims.