The construction sector continues to operate under significant pressure. The temptation to cut corners has arguably never been greater, with a growing urgency to complete projects quickly to reduce overheads, generate timely returns on investment and minimise borrowing costs. Yet the potential impact on businesses, insurers and end-users is significant.
‘Value engineering’ – the review of new or existing products during the design phase to reduce costs – is a legitimate way to increase profit margins when properly designed, approved and documented. Yet it can become a risk when a specified product is a cheaper alternative that lacks quality, certification or durability.
Such corner-cutting can affect projects of all sizes. The New Homes Ombudsman Service received more than 1,800 complaints during 2025/26, a threefold increase on the previous year, while pressure to build new homes more quickly and in greater numbers is likely to increase insurers’ exposure to substandard products.
At the other end of the scale, the recent case of ‘Britain’s most expensive apartment block’ (One Hyde Park Ltd v Laing O’Rourke) illustrates that even prestigious builds can fall foul of corner-cutting. Failures in workmanship and materials, including inadequate insulation, unsealed pipework and unsuitable valves, resulted in a judgment of more than £35m.
Perhaps the largest risk is that concealed defects may not emerge for years, while contractors can remain liable. The Building Safety Act 2022 extended the limitation period for claims under the Defective Premises Act 1972 from six to 30 years retrospectively, significantly increasing insurers’ exposure to long-tail defect claims.
For building owners and managers, the temptation is to defer inspections or maintenance to preserve cashflow in the short term. However, the longer issues go unnoticed, the higher the risk that they become significant.
From the companies’ perspective, there is an increased risk that defects may not be covered by insurance policies, or there will be causation questions should a failure ultimately occur. A suitable risk assessment dealing with the reasonableness of extended inspection and maintenance schedules may assist in mitigating the risk, but cost alone is unlikely to be a reasonable excuse for delay where a failure occurs.
From an insurance perspective, a sudden failure may well be covered, whereas wear or deterioration may not. Where coverage is provided, delay can prejudice potential recovery with complications arising from the policyholder’s failure to mitigate.
Subcontracting can reduce risk by allocating specialist tasks to properly qualified subcontractors, but contractors should ensure suitable controls are in place.
All stages require care, from drafting the initial contract to effective subcontractor due diligence, ensuring competence, qualifications, proper specification of materials, financial resilience and relevant insurance coverage. Corner-cutting could leave contractors and their insurers footing the bill for defects down the line.
Liability does not always flow down the contractual chain straightforwardly. Contractors may be liable to employers and/or customers for subcontractor defaults. Passing on that liability may be impossible where a subcontractor has ceased trading or lacks appropriate insurance.
For ‘contractors’ all risk’ policies, insurers are largely reliant on the contractor’s due diligence. Insurers must therefore, often through brokers, understand the insured’s working practices and properly assess the risk. Equally, contractors should not treat insurance as a substitute for subcontractor due diligence.
The potentially serious consequences of corner-cutting must not be overlooked. Failures in supervision, training, protective equipment or safe systems of work can carry life-changing consequences. Provisional Health and Safety Executive figures for 2025/26 record 25 work-related deaths in the construction industry, the highest for any industry in Britain, with falls from height remaining the biggest contributor.
The Construction (Design and Management) Regulations 2015 impose duties throughout the supply chain, and increased costs or programme pressures do not displace those responsibilities. A serious incident may lead to personal injury claims and criminal prosecutions, but also reputational damage, costly project delays, and higher costs to both the project and insurance policies. Directors and managers may face personal charges where offences have occurred with their consent, connivance or through neglect.
Insurance policies will ordinarily respond to compensation claims, subject to exclusions, and may cover the defence of a criminal prosecution. However, they cannot remove criminal responsibility, cover potentially significant fines or protect individuals against the threat of a custodial sentence.
Amid mounting pressure to build and rising input costs, cutting corners during construction remains a real risk. For contractors and insurers, effective governance, rigorous quality controls and a culture of accountability are required to protect against hidden risks that may not emerge for years or decades.
Insurers must have confidence that day-to-day decision-making and working practices adhere to agreed specifications. Clear processes, controls and contractual agreements should define the scope of work, required materials and expected standards. This should be supported by regular inspections and formalised sign-off.
It is important for insurers to understand the work done by insureds and what exactly is covered. Corner-cutting can impact a variety of policies at different stages of a project’s lifecycle. Insurers should consider the individual risk, ensure coverage is appropriate and that exclusion clauses suitably limit overall exposure, particularly where policies cover subcontractors. This is increasingly important considering the potential long-tail exposure following the Building Safety Act.
Nick Holgate is a member of the construction sector focus team at FOIL and a partner at Forbes Solicitors, London
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