Design and Build – Fitness for Purpose – English Law and the Design Obligations of Construction Contractors in both Design-Build and Traditional Contracts.

 

In light of Ryan Turner’s Society of Construction Law paper (Turner, Ryan. 210, May 2018, Hanging by a slender thread: Design obligations in construction contracts following MT Højgaard v E.ON) ,[1] and  following the Supreme Court judgment,[2] this article will reflect upon English Law and the design obligations of construction contractors in both design-build and traditional contracts and provide a commentary on Mr Ryan Turner’s paper.

It will cover English law cases concerning contract terms, fitness for purpose, and reasonable skill and care obligations.

The appeal arose from the technical failure of foundations designed and constructed by MT Højgaard A/S (MTH) shortly after the completion of a windfarm project. The dispute concerned which party was to bear the remedial costs.

We will summarise on the various standard form contract clauses concerning design obligations and highlight those that require careful consideration by contractors.

Ryan Turner (RT) who wrote the SCL paper, states that in the first hearing[3] at the TCC,[4] Edwards-Stuart J identified conflicts within key contract clauses between the parties. He determined and defined each party’s design obligations and level of risk allocation for design defects highlighting ‘On the face of the sub-clauses in 8.1, there is a conflict between the standard of care expected in five sub-clauses …the former requires reasonable skill and care by MTH, whereas the latter requires that the works be fit for purpose.’ [5]

As contended for by E.ON, Edwards-Stuart J held that clause 8.1 of the contract was sufficient to include an obligation that the completed works would be fit for purpose. However, RT states that ‘MTH argued that reference to the Technical Requirements document was not sufficient to establish that the contractor had intended to give a warranty as to fitness for purpose.’

In fact, the employer’s Technical Requirements document contained a paragraph stating: ‘The design of the foundations shall ensure a lifetime of twenty years in every aspect without planned replacement.’[6] Edwards-Stuart J held MTH liable for remedial costs, as in his analysis the contractor’s design was not fit for purpose. His analysis was on the basis that clause 8.1 of the contract with reference to the employer’s Technical Requirements (TR) required the foundations to have a design lifetime of 20 years.

The Court of Appeal case[7] disagreed with Edwards-Stuart J analysis regarding fitness for purpose in favour of MTH, stating there was no “fitness for purpose” obligation within the contract. They also stated that paragraphs 3.2.2.2 (2) and 3b.5.1 within the TR specifying the onerous service life of the structural foundations were “too slender a thread” for MTH to be held liable for. The judges also contended that the contractual documentation wording included “ambiguities, infelicities and inconsistencies.”[8] The court held that since MTH agreed to comply with the J101 standard and had, in fact, complied with J101 and exercised reasonable skill and care, MTH was not in breach of its obligations under the Contract.

The Court of Appeal at the time did accept, in principle, that a contract could provide both for compliance with an external set of standards and for the achievement of a particular result. Where a contractor assumes responsibility for designing a structure under a fitness-for-purpose warranty, this will be a more outstanding obligation than exercising reasonable skill and care. It is, in essence, a warranty of performance and is ‘absolute’.[9] Absolute in nature and meaning that the contractor’s design obligation is to produce a result instead of merely exercising reasonable skill and care.

The two obligations can also exist where the law implies a fitness-for-purpose obligation in a contract where the contractor assumes both design and construction obligations.[10]

However in MW High Tech[11] Coulson J held, favourably to contractors that, on the terms used in the contract, the obligation to act with reasonable skill and care was the overriding one and that the requirements to meet the specification and delivery plan were to be treated as being subject to it.[12] In English law, this would not be favourable to an architect or engineer.

The Court of Appeal reversed Stuart J’s decision and held E.ON liable for defects.

At the Supreme Court, the judges unanimously allowed E.ON to appeal. The judges focused on the possibility that TR paragraphs 3.2.2.2 (and para 3b.5.1) were either a foundation lifetime warranty of 20 years or an undertaking that the design was to have a life of 20 years. The Supreme Court also ruled that the natural language of clause 3.2.2.2 of the contract and J101 are part of the same contract.

RT states that ‘E.ON was the beneficiary of fortuitous timing’ as ‘in Arnold v Britton in which the court specifically disavowed significant reliance upon commercial considerations when construing the terms of the agreement.’

Timing-wise, Arnold[13] was beneficial to E.ON as the Supreme Court focused on the natural language of the terms of the agreement of contracts and disavowed commercial considerations, as contended by the Court of Appeal. The Supreme Court judges in their decision underlined the importance of the objective meaning of the contractual language,[14]  whereby they construed the contract through an assessment of what a reasonable businessperson would understand the language to mean, having regard to the contract as a whole and the context in which it was entered into between the parties.

The Supreme Court also stated that the contractor must also bear the risk of technical failure as MTH entered a contract to adhere to the defective J101 design parameters and that the TR expressly prescribed only a minimum standard, and that, responsibility to identify areas (such as the grouted connections) where the works needed to be designed in a more rigorous way were contained in para 3.1. (1). Furthermore, it was contemplated that MTH might go beyond certain standards, including J101 para 3.1.2.

In English law, if an express term is absent from a contract that defines the contractor’s design obligations, an implied term may be evident within the contract stating that the building will be fit for its purpose.[15] If it is not and he is in breach of contract, it will not be a defence for him to show that he took reasonable skill and care in the design of the finished structure.[16] This requires careful consideration by the contractor when entering into Design-Build contracts.

RT discusses the minimum standard in design life to be achieved under the J101 clause 3.2.2.2 and the shift of contractual risk from the employer to the contractor as opposed to employing an architect or engineer to act on behalf of the employer.

The Supreme Court held that para 3.2.2.2 was not a slender thread to contend that MTH were liable to warrant the foundation lifetime or foundation design life for 20 years and by applying the ordinary principles of contractual interpretation, this was not ‘improbable or unbusinesslike.’

The Supreme Court overturned the Court of Appeal’s decision in favour of MTH. It held that MTH was liable to satisfy the fitness-for-purpose obligation about the service life of the foundations (20 years) and that it was a minimum standard.

With respect to minimum standards, this legislative aspect of English law is favourable to construction contractors as the Building Regulations 2010 regulate the quality of building work to be performed to a prescribed minimum standard. With regard to site inspection, when an architect or engineer has approved their design after an on-site inspection, and the contractor’s workmanship was found non-compliant with the building regulations’ minimum standards, the contractor is not absolved from breaching the Regulations.[17]

The quality of workmanship of a contractor is highlighted at this point within this paper regarding contractor defects as an unfavourable aspect for the contractor. A contractor may remain liable to a claim in Equity under the Limitation Act 1980 for contract workmanship defects 6 years after practical completion if the contract was signed underhand, or 12 years after practical completion if the contract was executed as a deed.  It is an implied term in the English construction industry that construction workmanship and materials supplied under a contract must reasonably fit their intended purpose, where the client has made this purpose known.[18]

Favourably for contractors in a design-build contract, an architect is to exercise reasonable skill and care in contract, tort and statute in providing services to the contractor from developing a design to supervising the works of a contractor to ensure that the design is implemented. The architect may be obligated to supervise the works and act as a contract administrator, however, the quality of workmanship to a minimum standard is the contractor’s obligation.

It is favourable to contractors that under English Law, engineers are obligated to check their designs before the implementation of the design by a contractor.[19] This includes a margin of error for safety, owing that the contractor may undertake poor workmanship whilst executing the works and if an error is found within the employer’s technical documents, such as the J101. It is favourable to a contractor that the engineer and architect are under a legal duty to inform the contractor.[20] This will assist the contractor in controlling the risk of design failure as noted by RT.

In a traditional-build design by the employer, foundation design deficiencies leading to buildability issues may arise at the tender stage. In this case, the engineer owes the successful contractor a duty of care in producing the design which has been breached. This is favourable to the contractor as this is a claim for negligent misstatement[21]. Engineers also owe a duty of care for temporary works design to a contractor when implementing an architect’s design. However, where the design is impossible to construct then the Contractor will not be in breach and a change in the design will be required, which can only be done by a variation to the contract that is beneficial to the contractor.[22]

In the case of MTH,[23] the Supreme Court confirmed that a contractor would be bound by the stricter conditions contained in the TR annexed to a Contract and not to the wording on the face of a particular clause in the main body of the contract. In English law, a contractor with responsibility for design assumes the commitment that the design it undertakes will be fit for purpose as one who contracts to design an article for a purpose made known to him undertakes that the design is reasonably fit for the purpose.[24]

RT states that under a design-build contract, contractors assume a ‘special role’, as the contractor warrants that its works will be fit for purpose, whereas an architect or engineer warrants only that he will exercise reasonable skill and care.[25] In a design-build contract, an architect and engineer are under a statutory obligation to liaise with a contractor with reasonable skill and care,[26]  about proposed work methods to ensure that the contractor’s design is carried out safely, along with other factors that influence the design, such as cost, fitness for purpose, aesthetics and environmental impact. [27]

RT highlights in the case of 125[28] that in an employer-design contract, the design obligation of a contractor with regard to service life is limited only to comply with an employer-specified service life of 30 years, thereby reducing the contractor’s risk. This is favourable to contractors as opposed to architects and engineers.

The architect is legally obligated to inform the contractor of design inadequacies of materials,[29] if the design that he produces exceeds the project budget[30] and the architect is also required to exercise reasonable skill and care in making a recommendation to a contractor in the use of certain materials.[31]

By taking on responsibility for the design, the Contractor will unfavourably owe a duty of care to the employer under the contract,[32] and the same liability to the employer, whether under statute or otherwise, as would an architect or structural engineer. Favourably, the JCT DB does not impose a fitness of purpose obligation on the Contractor, but this can be challenged by an employer.[33]

The fitness-for-purpose obligations set out in sub-clause 4.1[34] are in several ways quite different from those set out in the FIDIC Yellow and Silver Books. Sub-clause 4.1 in both the Yellow and Silver Books requires the completed Works to be fit for the purposes for which the Works are intended. Under the Red Book, the design obligation for any part of the Permanent Works which the Contract specifies is designed by the Contractor shall, when completed “be fit for such purposes for which the part is intended as are specified in the Contract”[35].

The NEC family of contracts does not contain a purpose-written design-build or design-and-construct form. The ECC[36] contains clause 21.1 which simply states that the Contractor designs such parts of the works as stated in the Scope. NEC 4 Option X15 is a provision that acts to set reasonable skill and care as the test by which the contractor’s liability for defects due to its own design is measured in the contract. Without this clause, the contractor would effectively be subject to an absolute obligation to design and build a plant that is fit for purpose.[37] This contract is favourable to the contractor.

[1] Turner, Ryan. 210, May 2018, Hanging by a slender thread: Design obligations in construction contracts following MT Højgaard v E.ON

[2] [2017] UKSC 59

[3] [2013] EWHC 967 (TCC).

[4] Technology and Construction Court

[5] Turner, Ryan. 210, May 2018 , Hanging by a slender thread: Design obligations in construction contracts following MT Højgaard v E.ON at Pages 3-4

[6] Offshore Standard DNV-OS-J101 – Design of Offshore Wind Turbine Structures Paragraph 3.2.2.2 (and para 3b5.1)

[7] [2015] EWCA Civ 407 (30 April 2015)

[8] [2010] 1 All ER 571 (para 35)

[9] (1985) 33 BLR 103

[10] Pemble, Stuart Qualifiedly Absolute, The Estates Gazette, Jul 5, 2014. Pg.91

[11] [2015] EWHC 152 (TCC); [2015]

[12] Pemble, Stuart A Lawyers lot is not a happy one, The Estates Gazette, 16 May 2015. Pg.131

[13] [2015] UKSC 36

[14] [2017] UKSC 24

[15] The Meaning of ‘Design Life’ Michael Curtis QC March 2014 – D166

[16] (1986) 33 BLR 103

[17] [2013] EWHC 681 (TCC)

[18] Section 14 (3) Sale of Goods Act 1979

[19] (1983) 25 BLR 99 at 106, per Judge Newey QC

[20] (1984) 30 BLR 95

[21] [1964] AC 465 (HL)

[22] (1981) 660 F.2d 450

[23] [2017] UKSC 59., [2017] Bus LR 1610

[24] (1980) 14 BLR 1 at 48 (HL(E))

[25] [2007] EWHC 918 (TCC)

[26] (1981) 19 BLR 99

[27] Construction (Design and Management) Regulations 2015 (SI 2015/51) (UK) regulations 9(4),11(6)(b) and 11(7)

[28] [2017] EWHC 25 (TCC)

[29] (1988) 42 BLR 66 at 73, per Judge Bowsher QC

[30] [2017] EWHC 2574 (TCC) at [76]-[77],per Fraser J.

[31] (1993) 45 Con LR 141 at 152, per HHJ Rich QC

[32] JCT DB 2016 – Clause 2.17.1

[33] [2016] EWHC 2062 (TCC)

[34] FIDIC Clause 4.1

[35] FIDIC Red Book (Sub-Clause4.1(c))

[36] Engineering and Construction Contract

[37] http://constructionblog.practicallaw.com/the-fine-line-between-design-and-implementation-scope-of-nec-option-x15/