Net Contribution Clause

This a short blog entry today, but quite important for Contractors and Consultants alike.

When entering into an Agreement, you will want to limit your liability for losses incurred by the Client to the extent of your responsibility for the loss. Therefore if a Client loses, say, £100k following a specific event and you, as the Contractor, are only responsible for 20% of the cause of the loss - you’ll want to ensure that you cap your liability at the proportion equivalent to your responsibility, £20k in our example. That’s where a net-contribution clause comes into play.

An example would be “... The liability of the Contractor shall not exceed such sum as it is just and equitable for the Contractor to pay having regard to the Contractor’s responsibility for the loss and/or damage in question and on the assumptions that all other Contractors, Consultants ... have provided to the Client contractual undertakings on terms no less onerous than those of the Contractor under this Agreement ... and paid to the Client such sums as it would be just and equitable for them to pay having regard to the extent of their responsibility for that loss and/or damage.”

In addition to the above, Contractors should also carefully consider their position on the limitation on overall liability and seek to cap that. Individual circumstances are always different, so it’s important to seek advice on these matters before finalising the agreement. One last point - some liabilities cannot be capped - for example, fraud, fraudulent misrepresentation, and death or personal injury caused by negligence.

Don’t trust a warm and fuzzy relationship with the Client to see you alright - it’s important to have a Contractual Agreement that reflects your risk appetite on liabilities and does not leave you at the mercy of others.