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Long ago the number of parties to a building project could be counted on the fingers of one hand. Today the list covers finance, engineering, construction, acoustics, insurance鈥� It is the job of the legal team to ensure all involved may be properly held to account for their role, so should any problems emerge an innocent party is not left shouldering all difficulties.

This is not easy. The legal principle known as the 鈥渄octrine of privity鈥� dictates that only the direct parties to a contract can rely on the rights it creates. This can cause difficulties when, for instance, a developer is unable to pursue a subcontractor where the contractor has gone into liquidation; or a purchaser is unable to hold a designer responsible where there has been negligent design.

Collateral warranties are the traditional way round the problem. Many consultant engineers will be all too familiar with the tedious process of signing up to such a complex contract. Numerous drafts and amendments may pass between the parties before an agreement is reached. This is costly to warranty providers and beneficiaries alike. Nevertheless, the warranties do create that crucial contractual link between third parties and those engaged to design and construct the project (including engineers, architects, contractors and subcontractors). They provide third parties (typically owners, funders, purchasers and tenants) with specified rights that can be enforced against particular members of the construction team where otherwise they have no such rights.

Hope of a less tortuous solution came in the form of the Contract (Rights of Third Parties) Act 1999. This gives third parties rights within a contract to which they are not party, where:

• the contract expressly provides that the third party can rely on such terms;
• the contract purports to confer a benefit on that third party.

But the optimism soon disappeared because the act doesn鈥檛 apply if parties specifically contract out of it, which is what has tended to happen. In fact, many standard forms of construction contract specifically excluded it, such as the JCT 1998 suite following Amendment 2.

But there are signs that this new approach may slowly be gaining ground. For example, the 2005 edition of the JCT suite now includes a third-party rights schedule and provides for identification of third parties who can rely on the schedule. Third-party schedules aren鈥檛 perfect either. Where beneficiaries are not satisfied with the rights conferred within the standard wording, that can be amended. This potentially leads us back to a situation where protracted negotiations may have to take place to establish the exact wording of the schedules 鈥� pretty much as frustrating as obtaining a collateral warranty in the first place.

The NEC 3 Professional Service Contract allows named third parties to enforce specified contract terms although the provision does not contain the detail of the JCT 2005 suite. Many other professional services standard forms do not mention, or exclude, the act. The problem remains that third-party rights schedules are new and largely untested in the courts, while, despite their limitations, collateral warranties are a familiar, trusted way of operating.

It remains to be seen whether future publications of construction and engineering contract suites and standard forms for the appointment of professional services will contain third-party rights schedules. But we are seeing signs that the scepticism about schedules is starting to thaw. n