What is a Net Contribution Clause (NCC)?
In this article we explain how NCCs operate, why they matter to insurance markets, and the practical steps available when counterparties resist them. In Ireland, joint‑and‑several liability under the Civil Liability Act 1961 means that a party only 1% at fault may nevertheless face liability for the entire claim if other, more culpable parties cannot pay. An NCC contractually restores proportionate outcomes between commercial parties, helping to manage construction PI risks.
In contractual terms, an NCC caps liability at the level that is just and equitable by reference to the parties’ respective responsibilities for the loss. This is now increasingly adopted in professional appointments and collateral warranties to achieve proportionate outcomes on complex, multi‑party projects.
Example wording of NCC (*Clause upheld in Radius Housing Association Ltd v JNP Architects [2018] NIQB 57.)
“In any action or proceedings brought against the Architect under or in connection with the Agreement … the Architect’s liability for loss or damage … shall be limited to … such sum as it is just and equitable for the Architect to pay having regard to the extent of his responsibility for the loss and/or damage in question when compared with the responsibilities of contractors, sub-contractors, Consultants and other persons for that loss and/or damage.”
Illustrative Examples
- Example 1. Project loss: €1,000,000. The engineer is found 10% responsible; the contractor is 90% responsible but becomes insolvent. Without an NCC, the engineer can be pursued for the entire €1,000,000 under joint and several liability. With a well‑drafted NCC mirrored across the project documents, the engineer’s liability is limited to €100,000, its 10% fair share
- Example 2. A homeowner sues the architect for water ingress after completion and the contractor is in liquidation. The architect’s appointment and warranty both include an NCC that expressly covers the contractor and specialists. Relying on the NCC and expert evidence separating workmanship (contractor) from supervision/design (architect), the defence can steer the matter toward a proportionate settlement for the architect.
Are NCCs enforceable?
The default rule under Irish Law is still joint‑and‑several liability (often referred to as the “1% rule”), meaning that a party found only 1% at fault can face 100% of the claim if the co-defendant is insolvent or cannot otherwise pay up.
Although there is no reported Irish decision directly on the enforceability of NCCs, clearly drafted NCCs agreed between commercial parties are widely used in professional appointments (including Engineers Ireland’s SE 9101). They are generally regarded as likely to be effective and, where applicable, should be relied upon and expressly pleaded in the defence.
Decisions from neighbouring jurisdictions provide helpful guidance. In England & Wales the Court of Appeal in West v Ian Finlay & Associates [2014] EWCA Civ 316 upheld the enforceability of a straightforward NCC limiting an architect’s liability to a fair, proportionate share, (and that it did not offend against Consumer Protection legislation) emphasising the importance of clear wording and unambiguous drafting.
Similarly, in Radius Housing Association Limited v JNP Architects [2018] NIQB 57, the High Court of Northern Ireland applied a NCC after damp ingress followed a change from a fully tanked solution to a workmanship sensitive alternative and, despite criticisms of supervision, limited the architect’s liability to a just and equitable share. This is a persuasive and positive authority for giving effect to clear proportionate NCC liability wording where a contractor has also contributed to the loss.
Extra care is required on consumer projects. Where the client is a consumer, the NCC must be transparent, clearly explained and fair, as unfair‑terms legislation and consumer protections may otherwise render the clause vulnerable.
Why insurers and brokers want policyholders to use NCCs
NCCs help reduce the risk that an insured (and their PI policy) ends up paying the whole claim because a co‑defendant (usually the contractor) is insolvent or uninsured. They also help cut the cost and uncertainty of chasing other parties for contribution after paying out. As such, the clause mitigates the risk of deep-pocket exposure where a contractor or specialist is insolvent and/or cannot be pursued. It also helps to align with coinsured project structures by clarifying how responsibility is apportioned among the project parties.
Advantages for Consultants
Consultants pay for the consequences of their own mistakes, but not for the defaults of others when they can successfully rely on a NCC. The clause reduces the need to chase third parties to recoup overpayment and lowers insolvency risk. Predictable exposure supports sustainable fees and insurance costs. Consultants should push for NCCs on multi‑party builds, particularly where counterparties’ solvency or PI cover looks fragile; it’s a key control measure to help reduce disproportionate exposure.
How the NCC Works in Defending Claims
The NCC can be relied upon as part of the defence tactics to drive a fair split of liability. The defence can plead that any liability is limited to a just and equitable share under the clause, supported by expert evidence setting out, in a simple table, what was caused by workmanship, design, supervision and inspection, so it is clear where responsibility lies. Then those resulting percentages/figures can help to guide settlement discussions, basing offers on the consultant’s apportioned share and aligning any proposals with the agreed split between the parties.
The drafting of the NCC
The clause should be clearly drafted and incorporated before services start and list the project participants whose responsibility will be considered.
It is important that a NCC contains clear, simple wording that: (1) limits liability to the “just and equitable” share; (2) expressly identifies contractors, sub‑contractors, consultants, and specialists (not merely “consultants,” which has defeated NCCs in disputes); and (3) states that it does not limit liability where the law prohibits. The wording should be mirrored in collateral warranties and sub-consultant agreements, aligned with the procurement route and any design responsibility matrix to avoid gaps.
Care should be taken to ensure that joint insurance arrangements or broad exclusions elsewhere do not frustrate contribution across the project team.
Conclusion
A net contribution clause is a practical way to achieve contractual proportionate outcomes on projects with multiple parties and to reduce exposure to the “1% rule” under Irish joint and several liability, where a minor share of fault can otherwise lead to full recovery against a consultant. Where it cannot be used, the same proportionality can be approached through carefully balanced liability caps and precisely drafted loss limiting clauses. Consistent drafting across appointments, warranties and sub-consultant agreements is the key to unlocking these benefits. In practice, consultants (and their professional indemnity insurers) are becoming alive to the benefits and impacts of NCCs and are increasingly calling for their inclusion in appointments and warranties.
