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Last edited 21 Sep 2020
Reliance letters in design and construction
Reports are often commissioned by parties involved in the design and construction of built assets that another party (other than the original client) then has to rely on to support or inform their own activities. Under such circumstances, the author of the report might issue a reliance letter, confirming that the third party can rely on the contents of the report, or can rely on a specific part of the report.
For example, an organisation selling a site might commission an assessment of geotechnical or environmental conditions that a purchaser later relies on when deciding whether to buy the site and at what price. Under these circumstances, the author of the report might issue a letter confirming that the purchaser can rely on the contents of the report.
Such a letter might include:
- A description of the report(s) to which the letter relates.
- The reason for the reliance.
- A warrant that the author exercised reasonable skill and care in preparing the report.
- Details of the original appointment agreement, perhaps limiting liability to that under the appointment (this requires that a copy of the appointment is provided).
- Other limitations to liability, such as a limiting period.
- A licence for use of the report.
- Confirmation of professional indemnity insurance.
- Consideration from the beneficiary to the consultant.
- A right to assign the benefit of the letter (for example to funders).
- Execution, perhaps as a deed.
This can be seen as a quicker and easier arrangement than providing a collateral warranty, or relying on the provisions of the Contracts (Rights of Third Parties) Act. However, it is important to ensure that the letter is carefully drafted and that the correct details are entered. Whether the result of a reliance letter is simply a common law duty to use reasonable skill and care, or whether it amounts to a contract between the parties that may introduce a greater duty will depend on the wording of the letter.
There are four essentials of a contract:
- Two or more parties; and
- An intention to create legal relations; and
- An agreement; and
The two essentials that might be disputed are an intention to create legal relations and consideration. This might be demonstrated by a consideration clause and by both parties executing the letter. However, even in the absence of such provisions, it may be apparent from the actions of the parties that the recipient of the letter has relied on it to their detriment, and this may be sufficient to establish ‘consideration’.
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