Considering your clauses

The issue of the allocation of design risk in documents is one that arises regularly in both consultants’ appointments and building contracts, and it is often the subject of heated debate when attempting to finalise the agreements. A recurring theme is the question of design obligations, in particular on the standard of skill and care required vs fitness for purpose provisions. Although this is no doubt familiar ground for a lot of readers, it often doesn’t do any harm to have a recap on what we think are basic issues which are sometimes misunderstood.

Dealing with “reasonable skill and care” first. This is a term that all industry participants will be familiar with, and means pretty much what it says on the tin - that the entities will carry out their obligations with a level of skill and care that would be expected on a reasonable, objective basis. Legislation can imply such an obligation without it needing to be set out expressly in a contract. The fact that such an obligation is set out expressly is often because the obligation is set at a higher standard than the one implied by law – for example, by linking the standard required to the type of project (in terms of nature or complexity) as opposed to an “average” level of skill and care to be expected in general. In essence, as long as one has exercised the requisite skill and care the design can fail and still not impose liability on the designer.

In contrast, a “fitness for purpose” obligation means that a project or works will effectively be fit for its intended use once it is completed. By giving such an obligation a party is effectively guaranteeing that its design will be suitable.

The contract also contained a general obligation that the contractor was to exercise reasonable care and skill in designing the foundations in accordance with the relevant industry standard. The works were defective and the contractor denied responsibility

It is unusual for a professional appointment to include a fitness for purpose obligation for commercial reasons as it can, for example, jeopardise an existing (or make it difficult to obtain a new) professional indemnity insurance policy.

So can these two types of obligation co-habit in an agreement? The answer is yes. In the recent case of MT Højgaard a/s vs E.On Climate Renewables the court determined that an absolute obligation and an obligation to carry out design using a required level of skill and care can co-exist in a construction or engineering contract and such obligations were not mutually incompatible.

In the previous authorities, court found that the design and skill obligation was a general provision relating to all the services provided by the consultant. By contrast, the fitness for purpose obligation was limited to one particular part of the consultant’s obligations, namely the design of the permanent works.

In MT Højgaard the court reached a similar conclusion. Alongside a standard reasonable skill and care obligation, the contract for the design, fabrication and installation of turbines in Solway Firth included the following requirement: “The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement…”. So a fitness for purpose type clause. The contract also contained a general obligation that the contractor was to exercise reasonable care and skill in designing the foundations in accordance with the relevant industry standard. The works were defective and the contractor denied responsibility.

The judge decided that a construction and engineering contract may refer to obligations to exercise reasonable skill and care, to do work in a workmanlike manner, and to achieve a particular result (an absolute obligation). He gave the example of a building constructed perfectly well to achieve its design in life, but which had mismatching bricks. Such a building would last its expected lifetime. However, an obligation to perform those works in a workmanlike manner would not allow for the eyesore that may have been built. In this case, the employer had not demonstrated a breach of the contractor’s design obligation but succeeded as a result of the fitness for purpose obligation.

The decision also contains guidance on the court’s approach when an industry standard which is included in the contract is subsequently found to contain an error.

This case demonstrates again the need to give full consideration as to the impact of different design obligations contained in a contract, and how they interact with each other. A contract may impose onerous obligations upon an unsuspecting party which may depend on several factors including the element of the works in question.

Steven Carey is head of construction and engineering at Speechly Bircham LLP