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Understanding your design duty – “reasonable skill and care” vs. “fitness for purpose” – mutually incompatible or comfortably coexistent?
The clearly defined roles and responsibilities of the parties involved in a traditional construction project, where design is carried out by professional consultants and construction by contractors, have become increasingly blurred. Under modern procurement routes contractors assume a dual role as they are responsible for all or part of the design. They are increasingly expected to give undertakings as to design or suitability and to complete the work in accordance with certain standards or specifications. All of this can have serious implications in terms of liability and professional indemnity insurance cover and so it is a key issue for contractors to identify and understand the level of their responsibility at the outset. This involves considering both the terms of the contract and the design obligations which are implied by law. In this article, Sarah Buckingham examines these difficult issues and reviews recent case law, including the case of MT Hojgaard a/s v E.ON Climate Renewables UK Robin Rigg East Ltd1 (the “Robin Rigg case”).
“Reasonable skill and care”
The law provides that in the absence of any written terms and conditions to the contrary, a professional designer will have a duty to act with reasonable skill and care. This duty comes from the Supply of Goods and Services Act 1982,2 which requires the supplier of a service to provide the service with reasonable skill and care, and the common law test for negligence which provides that a professional person is not negligent if he carries out his work to the same standard that another reasonably competent member of his profession would have met. What has become known as the “Bolam Test”3 established that where special skill and competence are involved, the test for negligence is not that of the man on the Clapham omnibus, as he does not possess this special skill. Neither is it necessary for the professional consultant to possess the highest skill. “It is sufficient if he exercises the ordinary skill of an ordinary competent man exercising that particular art.”4 Therefore, if a consultant can show that he acted in accordance with the usual practice and professional standards current at the time the design was carried out he will escape liability.
These statutory and common law duties are usually combined into a single clause requiring the consultant to use the level of reasonable skill and care to be expected of an experienced member of his profession. For example,
“In performing the Services the Consultant shall exercise all the reasonable skill, care and diligence to be expected of an appropriately qualified and competent consultant experienced in carrying out equivalent services for developments of a similar size, scope, complexity, value and purpose to the Development.”
Due to the reliance on skill and judgement, a designer’s duty does not necessarily require him to achieve a particular result as long as he has exercised the requisite level of care. By way of analogy, doctors cannot guarantee to always cure their patients.5
“Fitness for purpose”
By contrast, a fitness for purpose obligation imposes a higher duty, as it is an absolute obligation to achieve a specified result, a breach of which does not require proof of negligence. This duty stems from the Sale of Goods Act 19796 which imposes implied terms on any seller acting in the course of business that the goods supplied will be of satisfactory quality and, where the purchaser makes known any particular purpose, are reasonably fit for their intended purpose.
In a construction context, this means that a contractor is effectively guaranteeing that the components and the finished building will be fit for their intended purpose.
Why does it matter?
A reason why the distinction between these two levels of responsibility is so contentious is because most professional indemnity (“PI”) policies will cover the holder only in the event of a claim arising out of the holder’s professional negligence (i.e. a failure to exercise reasonable skill and care). This leaves the designer uninsured against a contractual claim for breach of a fitness for purpose obligation. Where a defect arises and no allegations of negligence are made (when the employer doesn’t need to prove negligence, why would he allege it?), the policy is unlikely to respond to the claim and insurers may refuse to pay costs associated with the defence of the claim. Further, not only do PI policies generally expressly exclude a fitness for purpose risk (since it is difficult to quantify this risk in respect of both probability of occurrence and magnitude of loss), some may even be completely invalidated if a consultant has agreed to any fitness for purpose obligations within an appointment. Whilst the consultant may therefore suffer uninsured losses, employers need to be careful too as this may seriously limit their potential for financial recovery.
Where the lines become blurred and hackles rise
The dual role of a design and build contractor has presented quite a challenge in determining the level of his responsibility and it could be said that he is under conflicting obligations in respect of the two distinct functions of design and construction. Case law has developed over the years supporting the view that, in the absence of an express contractual rebuttal, a design and build contractor must ensure that the works are completed so that they are “fit for their intended purpose”. This was confirmed in IBA v EMI and BICC7 where the Court of Appeal Judges stated,
“We see no good reason… for not importing an obligation as to reasonable fitness for purpose into these contracts or for importing a different obligation in relation to design from the obligation which plainly exists in relation to materials.”8
It may seem unfair that a consultant and a contractor who carry out effectively the same design function are subject to different levels of responsibility in relation to that design simply because the contractor also constructs the building. However, the main rationale for this thinking is that design and build contractors are more akin to sellers of goods (producing a finished product) rather than professional advisers (just providing a service). It means, though, that an employer only needs to prove that the design was not fit for the intended purpose upon which he was relying, irrespective of extraneous factors or whether the contractor exercised reasonable skill and care.
Although some doubt was thrown on the above default position by a judgment relating to the failure of a specialist fire suppression system in a popcorn factory9 – which appeared to draw a distinction between “standard kit” (classed as goods) and “bespoke product” (classed as a service) – it is not easy to reconcile this decision with the rationale of the previous cases. As this is a developing area of law, it remains sensible for contractors to continue to assume that they will be subject to an implied fitness for purpose obligation when carrying out design work.
Avoiding fitness for purpose
In light of the potential absence of insurance coverage, it is reassuring that many design and build contracts (for example, the JCT and ICE contracts) contain express provisions which absolve the contractor from a fitness for purpose obligation. They limit the contractor’s liability for design to the standard required of an architect or other appropriate professional designer, thereby imposing a reasonable skill and care obligation with the intention of overriding any implied or common law fitness for purpose obligation. The position under the NEC3 contract is different. Whilst the contract appears to be silent on the matter, the requirement that the contractor provide the works in accordance with the Works Information, will probably amount to a fitness for purpose obligation. That said, you can expressly impose a reasonable skill and care duty by selecting secondary option clause X15. However, if the contractor fails to do this, a fitness for purpose obligation may be implied. Despite the diluting effects of the above, contracts will often include wording that seeks to either subtly enhance the most basic level of responsibility (of reasonable skill and care) or even to achieve a fitness for purpose obligation “by the back door”.
Raising the standard by increments
The standard JCT clause, for example, is often amended by employers to raise the standard of skill and care to that of a competent consultant “with experience of projects of a similar size and scope”. Some amend it further to make the standard of skill and care that of a “competent design and build contractor”. On the face of it, the latter wording appears circular, but it could well re-introduce a fitness for purpose obligation with the obvious consequences for PI cover.
Full-blown fitness for purpose “in disguise”
In light of the above, the very words “fitness for purpose” will understandably trigger alarm bells in the ears of many contractors. However, without using this highly identifiable and word-searchable phrase, absolute obligations may still be imposed. A common way to achieve this is to slip in a requirement for the contractor to warrant that the completed works shall comply with the employer’s requirements and/or any performance specification. This type of wording commonly follows immediately after a reasonable skill and care obligation, which may lull the unsuspecting contractor into a false sense of security.
For example, we recently came across an amended clause to a standard JCT Without Quantities 2011 which required the contractor to warrant that the design of the CDP would be carried out using “the skill, care and diligence to be expected of a properly qualified and competent architect or engineer”. This was immediately followed by a clause warranting that the CDP, “when completed, shall be suitable for the purpose stated in the Contract Documents and will, when complete, comply with any performance specification or requirement included or referred to in the Contract Documents.” Regardless of a reasonable skill and care obligation, the effect of the mandatory wording is to add something different – an obligation of strict liability.10
This type of amended wording has obvious advantages from an employer’s point of view, as it has the same power and effect of a fitness for purpose clause but without having to shout about it.
In the recent Robin Rigg case, MTH was contracted to design, construct and install the foundations for sixty offshore wind turbines. Clause 8.1 of the contract provided that these functions “shall” be completed with: the due care and diligence expected of appropriately qualified designers, engineers and constructors; in accordance with Good Industry Practice; so that each item of plant and the Works as a whole “shall be fit for its purpose as determined in accordance with the Specification using Good Industry Practice”; and when completed comply with and “be wholly in accordance with this Agreement and any performance specifications or requirements of the Employer as set out in this Agreement.” The employer’s requirements referred to a minimum site-specific design life of 20 years and required that “The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement”.
Despite exercising reasonable skill and care and following best industry practice, the foundations were found to be defective. However, unfortunately, the industry-wide, and universally accepted, independent, international standard applicable to the design of such foundations turned out to be incorrect. E.ON alleged that MTH was in breach of “overriding fitness for purpose obligations” and MTH responded by saying that any fitness for purpose obligation was qualified by its duty to comply with the standard. The point of disagreement between the parties was whether the terms of the contract imposed a strict obligation to achieve a service life of 20 years or merely an obligation to design the foundations on the basis of a 20-year design life in accordance with the standard.
In his judgment, Mr Justice Edwards-Stuart referred to two Canadian cases11 as authority for the proposition that “the existence of an express warranty of fitness for purpose by the contractor can trump the obligation to comply with the specification even though that specification may contain an error”. He went on to assert that, “It is not uncommon for construction and engineering contracts to contain obligations both to exercise reasonable skill and care… and to achieve a particular result” and that “the two obligations are not mutually incompatible” and therefore can coexist side by side. He held that MTH did assume full design responsibility and warranted a service life of 20 years upon which E.ON was entitled to rely, notwithstanding that MTH was required to design in accordance with the standard. Since the foundations failed within two to three years, MTH was in breach of that strict obligation. MTH was given leave to appeal.
Other points to look out for
Even if an appointment expressly provides for a performance obligation of reasonable skill and care or is silent on this matter, a consultant should be aware of not entering into a collateral warranty with a fitness for purpose obligation as he will automatically be increasing his potential liabilities with similar repercussions for his PI cover. These issues also need to be considered in the now fairly common situation where the employer’s design team is novated to the contractor. Questions should be raised not only in relation to the extent of the contractor’s responsibility for that design but also as to the potential for there to be differing standards of design responsibility. If the contractor has a fitness for purpose obligation and, as is likely, the professional designers are merely required to exercise reasonable skill and care, this potentially creates a “mismatch” and means that the design liabilities do not flow consistently down the contractual chain.
Care also still needs to be taken even where a contractor thinks he has no design responsibility at all. For example, it is not uncommon for a contractor, assuming he is authorised to do so, to delegate particularly complex design work to a specialist or he may be instructed by the employer to enter into a subcontract with a nominated subcontractor who will do some design work on behalf of the employer. The contractor will be under a duty to use reasonable skill and care in selecting the third party and his duty will generally be held to have been satisfied providing he does this. However, where the third party’s work is defective, and a reasonably competent designer ought to have noticed the defect, the designer will be under a duty to warn the employer.
The infamous case of Walter Lilly v Mackay12 highlighted the importance, for employers, not only of the presence, but also of the effectiveness, of any terms relating to design liability. Here, it was a requirement of the contract that the employer must notify the contractor of any work that was to be the subject of contractor design. Such notification was not given and a dispute arose concerning defective work. The Judge found for the contractor, emphasising the need for a clear CDP notification for it to be effective.
What can we learn from recent case law? It is of fundamental importance for both parties to consider the issues relating to risk and responsibility when negotiating any construction contract, but particularly where design and build are combined. Absolute obligations for fitness for purpose relating to design (regardless of whether that obligation includes such express wording) should still be approached with caution and diluted where possible, as a reasonable skill and care clause may not offer much protection against an absolute obligation to achieve a certain standard of work.
For contractors, the risk of performance to a higher standard must first be identified and, if necessary, counterbalanced by seeking to limit their overall liability under the contract or else by pricing it into the deal – but always with the awareness of the consequences for PI cover. Employers must balance their desire to ensure that the completed works fulfil their requirements against the danger of imposing uninsurable obligations.
- 1.  EWHC 1088 (TCC).
- 2. Section 13, Supply of Goods and Services Act 1982.
- 3. Bolam v Friern Hospital Management Committee  2 All ER 118
- 4. McNair J. in his judgment in the case of Bolam v Friern Hospital Management Committee
- 5. Or lawyers to win every case
- 6. As amended by The Sale and Supply of Goods Act 1994.
- 7.  14 BLR 1.
- 8. IBA v EMI and BICC  14 BLR 1.
- 9. Trebor Bassett Holdings & Cadbury UK Partnership v ADT Fire and Security plc  EWCA Civ 1158.
- 10. Costain Ltd v Charles Haswell & Partners Ltd
- 11. The Steel Company of Canada Ltd v Willand Management Ltd  SCR 746 and Greater Vancouver Water District v North American Pipe and Steel Ltd  BCCA 337.
- 12.  EWHC 1773 (TCC).