Whilst they both achieve the same goal of giving direct recourse, one obvious difference between these two options is that with third party rights, nothing needs to be signed by the warrantor. Provided the contract caters for third party rights sufficiently, the sending of a notice is sufficient to grant the rights. Whilst both are used, collateral warranties are still more common than third party rights due to collateral warranties being a written document which has been signed by the parties.

Ordinarily, only a party to a contract is entitled to enforce said contract. Therefore, if for example a subcontractor were to commit a breach of its subcontract (with the contractor), and that breach adversely impacted on the employer, an employer would be unable to enforce the same. That creates a problem for the employer.

In addition, if the employer identifies defects in the subcontract works, in the absence of a collateral warranty the employer would have no realistic contractual recourse against any party. In the absence of that contractual link, the employer would have to rely on a claim in negligence. This is not desirable as it would require the employer to establish that the subcontractor owed it a duty of care before its claim was even considered.

Even if successful, the employer would also be limited as to what it could recover in negligence. Collateral warranties are therefore used to bridge the contractual gap and create a direct contractual link for the benefit of those parties that may otherwise have no recourse.

You should ensure that the parties involved in your project have contracts or appointments which include an obligation to provide collateral warranties to the third parties that require or may require them. Our expert construction solicitors can help carefully draft contracts to ensure collateral warranties are provided and can provide advice where necessary.

Parties that regularly provide collateral warranties to third parties on a construction project include main contractors, consultants (usually those with responsibility for design including the architect and engineers and also those with no design responsibility, e.g. project manager) and sub-contractors.