In large-scale engineering projects, millions of dollars in potential losses hinge on the integrity of each and every constituent part. When a loss event arises from defective design, materials, or workmanship, the design clause determines what is covered and what is not. A clear definition of these clauses is obviously critical, yet the standard wordings found in the marketplace are often confusing and misleading. An analysis of the two industry standard wordings - the London Market Defect Exclusion (DE) and Munich Re wordings - goes a long way toward sorting out the confusion. | Design Clauses in Engineering Contracts Industry Standard Wordings in Comparison In large-scale engineering projects, millions of dollars in potential losses hinge on the integrity of each and every constituent part. When a loss event arises from defective design, materials, or workmanship, the design clause determines what is covered and what is not. A clear definition of these clauses is obviously critical, yet the standard wordings found in the marketplace are often confusing and misleading. An analysis of the two industry standard wordings - the London Market Defect Exclusion (DE) and Munich Re wordings - goes a long way toward sorting out the confusion. The First Standard - London Market Design Clauses The London Market design clauses offer five distinct levels of coverage against defects in design, materials, and workmanship. Taken individually, each level of coverage seems to explain itself, yet each clause differs subtly from the next. The five clauses, in order of increasing coverage, run as follows: DE 1: Outright Defect Exclusion. Excludes any and all damages due to property in a defective condition. DE 2: Extended Defective Condition Exclusion. Excludes damages to (a) property that is in a defective condition, or (b) property that relies on (a) for support. Consequential damage to any other property free of defective conditions, however, is covered. DE 3: Limited Defective Condition Exclusion. Excludes damages to property that is in a defective condition, in whole or in part; covers consequential damage to any other property free of defective conditions. DE 4: Defective Part Exclusion. Excludes damages to only that constituent part of the property that is deemed defective (the "faulty part"); covers consequential damage to any other property free of defective condition. DE 5: Design Improvement Exclusion. Covers all damages excluding only the additional costs of improvements to the original design, materials, etc. For each of .
