Engineering watertight terms of engagement

Insight

4 minutes

15 July 2025

Winning a major project is rewarding, but in the excitement of securing a new contract, it is important to agree comprehensive terms of engagement with your client, which protects your firm and ensures a fair and just risk and reward balance. No one goes into a project expecting a future dispute, but if one occurs it will be far easier to resolve if clear contractual terms and responsibilities were set out at the start.

Consulting engineers are critical in the design, construction and maintenance of the built environment, working closely with architects, surveyors, contractors and other building professionals. These close working relationships can, at times, make it unclear who is responsible if something goes wrong. Without clear contractual terms, you may be accepting liabilities which are either uninsured, or beyond your intended scope of services.

At Howden, we offer our clients practical guidance on potential cover issues before signing contracts, alongside continued risk management advice, to ensure they are not accepting unnecessary or onerous liabilities which could impact their professional indemnity insurance (PII).

Assess the risks

With any contract for a major development your firm could be taking on significant liabilities, even if your input and fees are relatively modest. Carefully consider the risk and reward balance of the contract. If it seems unfavourable to your practice, it may be better to walk away, rather than accept unreasonable risks, no matter how attractive or prestigious the work.

Make sure you carry adequate PII to cover any potential liabilities. Some engineering professional bodies, such as the Institution of Mechanical Engineers, require members to hold PII as part of their professional codes of conduct ^[1].

Set clear terms of business

Key issues to consider when setting out your terms of engagement include the exact scope of work you are undertaking, the basis on which your fees will be calculated and any liability cap. Also be aware of the potential for third parties to act on the basis on your work and make it clear that your advice may only be relied on by the named client and no one else.

It is not uncommon for clients to ask you to undertake services based on their terms and conditions and service level agreements. In this case carefully check the conditions you are accepting and make it clear whose terms will prevail in the event of a dispute.

Also, ensure you are contracting as a business entity and stipulate that none of your individual partners or employees can be named personally as defendants in litigation.

Beware third-party liabilities

In some disputes the client may try to claim against your firm alongside other professionals, such as architects, solicitor and surveyors. To avoid facing a large claim, your engagement letter should state that your firm is only liable for the proportion of any loss caused by your work, otherwise you may find yourself liable for the negligence of others (commonly referred to as a net contribution clause).

Critically, make sure your terms of engagement set out in which jurisdiction any dispute should be tried, usually England and Wales, Scotland or Northern Ireland. If the client starts an action in another jurisdiction, the law may be different and the liabilities you face may be greater than anticipated. There is also a risk that any claim could fall outside the scope of your PII. It is not uncommon for PII policies to exclude claims brought within the USA and/or Canada.

Follow the guidance

The Engineering Council has published guidance on risk for the profession and the various engineering professional bodies issue regulations and codes for their members ^[2]. The Association for Consultancy and Engineering ^[3]^, the Institution of Civil Engineers ^[4] and others provide standard terms of engagement for members (which are drafted with PII in mind). We believe robust and reasonable contracts are valuable for all engineering practices and we work with our clients to create practice guidance which will help firms to produce watertight terms of engagement.