Civil Engineering Reference
In-Depth Information
Where warranties are provided, particularly to funders of projects, there is often a clause
included which gives a particular party the right to 'step in' and replace one of the parties
to an agreement between the other two parties. For example, an employer may enter into a
standard form building contract with a contractor for the construction of a building. A bank
maybeprovidingfundstotheemployertoenabletheprojecttobebuilt.Thebankwilloften
requirethecontractortoexecuteawarrantyinfavourofthebank.Theessentialclauseinthe
warranty will be the step in clause, which enables the bank to take the place of the employer
in the building contract in certain circumstances. The circumstances, set out in the clause,
are usually when particular occurrences entitle the contractor to terminate the building con-
tract or treat it as repudiated. The contractor is required to notify the bank if it intends to
terminate, and it must take no further action until the bank has decided whether to step in.
The bank has only a specified number of days within which to make its decision.
If the bank does decide to step in, the contractor must accept the bank's instructions as
if it was the employer. The employer is one of the parties to the warranty principally to ac-
knowledge agreement to the step in procedure and to agree that the contractor can treat the
bank as the employer. This is to avoid any danger that the contractor will be in breach of
the building contract. It is likely that there will be specific provisions to safeguard the con-
tractor in the event that the employer has not discharged all payments due. Sometimes, the
stepinprocedureisincludedinwarrantiesgivenbythearchitecttoafunder,orinwarranties
given by the architect to the employer where the architect is employed by the contractor in
a design and build scenario. In the latter instance, the step in rights may be required by the
employer in the event that the contractor goes into liquidation and the employer wishes to
complete the building using the contractor's architect.
