Collateral Warranties In Construction Contracts – The Basics

A collateral warranty is a contract under which a party involved in the works warrants to a third party beneficiary that it has fulfilled its obligations under its underlying building contract, subcontract or professional appointment (referred to as underlying contract in this article).

In this article we explore the purpose and typical content of a collateral warranty in the context of a construction project. We also briefly consider an alternative approach as provided by the Contracts (Rights of Third Parties) Act 1999.

Purpose

In a simple construction project, an employer may contract with a contractor to carry out building works. Those two parties usually have a clear contractual relationship.