Companies Suing IT Contractors More Often – Need Indemnity Insurance

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cleint suing contractors
Clients are suing contractors more - they need the right insurance

Companies Suing IT Contractors

  • More companies suing IT Contractors when projects go wrong
  • Has been natural inclination to keep claims quiet
  • Good PI cover more important than ever

Increased Risk of Clients Suing Contractors

IT contractors may face an increasing risk of clients suing them when their projects fail to meet contractual obligations, says a top contractor umbrella company owner.

He said, in the past client companies have rarely looked to recover costs from IT consultancies and subcontractors when projects develop glitches, face delays or deliver over budget.

He said “client companies may be increasingly prepared to sue for damages when projects fail to meet contractual obligations.”

Law Firm Reports Increasing Litigation Against Contractors

A law firm said that the number of claims brought against limited company contractors is already rising. The number of clients suing IT contractors is going through the roof.

A Partner at one of the UK‘s leading lawyers specialising in professional indemnity claims, says she is currently defending more than a dozen claims against IT contractors at the moment.

She says: “The number of claims against IT contractors I have advised on in recent years has risen markedly. I would expect that trend to continue. The vast majority of claims are settled out of court, so they tend not be widely reported.”

Main Reasons for Companies Suing IT Contractors

She said that claims tend to focus on two areas. In either scenario the client may look to bring a claim for costs.

  • Project does not meet operational specification
  • Project exceeds time restriction

She says that the clients usually claim for business interruption and loss of profits. Whilst IT contractors may have clauses in their contracts to exclude liability for such claims, she warns that they need to carefully draft contracts. She said “clauses limiting IT contractors‘ financial liability may not always be enforceable in the courts.”

Invariably, these claims are settled by the contractor agreeing to repay a percentage of their fees, something that smaller contractors can ill afford to do.

Higher Level of Personal Indemnity Insurance

Contractors can offset the growing risk of claims being brought by clients by ensuring they have a high level of professional indemnity (PI) insurance cover.

Having a high level of PI cover will not stop clients bringing claims against contractors but it should more than cover the cost of any damages resulting from those claims.

What is Correct Level of Personal Indemnity Insurance

According to one umbrella company owner, £2 million worth of cover should be a sensible level at present.

He said “Having good professional indemnity cover is becoming much more important than it used to be. Some clients, and therefore recruitment agencies, will even insist that a certain level of cover is in place before hiring a contractor.

“Nobody wants to broadcast that they are facing a claim so the increase in the number of PI claims has largely gone unnoticed.”

Good insurance cover is a necessity with more companies suing IT Contractors.

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