Blog: Top construction contract tips
Craig Bradshaw gives his top 10 tips for reviewing design responsibility in construction contracts.
Construction is a fast-paced and competitive business environment. Contractors face a constant need to win business and maintain good customer relations, all while managing time pressure, availability of resources and lengthy multi-authored contracts.
Then along comes the recent Supreme Court decision in MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited and another UKSC 59.
The contractor was held liable for €26.25m of remedial works on the basis that the failed offshore wind turbine foundations were not fit for purpose, even though it was accepted the contractor had used due care and professional skill, adhered to good industry practice and complied with an international design standard.
So what is a busy contractor to do? Here are 10 tips to help manage allocation of design responsibility in construction contracts.
1) Complete copy contract
Construction contracts often contain various documents and documents incorporated by reference.
To properly review the contract, it is important to have a full copy. Carry out a preliminary review to check you have a full copy of the contract, the correct versions of documents and no missing pages. Superfluous documents should be removed.
2) Priority of documents
Check if there is a clause regulating priority among the various documents – if so, then review its suitability for the particular contract; if not, then consider having one included.
3) Discrepancies / inconsistencies
Where construction contracts are made up of various items of documentation there is a real possibility of unintended discrepancies or inconsistencies.
Clauses dealing with such discrepancies or inconsistencies need to be identified and reviewed to assess impact.
4) Responsibility for design
Often a range of parties will contribute towards the overall project design – in that context there are various ways design responsibility might be allocated between the parties to a contract.
Ideally an agreement in principle should be reached regarding design responsibility and then reflected in the contract.
Take into account issues such as: does the contractor have any design responsibility? What is the employer’s design responsibility? Is the contractor responsible for design of the whole or only part of the works? Does responsibility lie in completing the design or assuming responsibility for all existing and future design? What is the legal standard of care to be exercised in relation to design?
5) Legal duty of care
The contract should expressly describe the agreed legal duty of care for design. Make it clear that it takes priority over any higher standard of care that might otherwise apply. Include the clause in a document with suitably high priority under any priority-of-documents clause.
Without an express clause describing the standard of care, the default position for a contractor undertaking design is likely to be a ‘fitness-for-purpose’ obligation.
6) Exclude fitness for purpose
If a ‘reasonable skill and care’ design obligation applies – rather than ‘fitness for purpose’ – then the MT Hojgaard case demonstrates the merits of having a clause excluding a fitness-for-purpose design obligation.
7) Technical documents
Generally, the technical documents should be reviewed – taking into account any priority-of-documents clause – to understand the scope of and uncertainties in the technical design requirements.
Where there is a) a requirement to comply with a prescribed design, and b) also a requirement to comply with prescribed criteria, then this may require the contractor to depart from or improve upon the prescribed design to satisfy the prescribed criteria. A contractor should review technical documents to identify and address any such issues.
Check if there is a design life provision. If so, is it acceptable in the context of the contract and legal rules on prescription and limitation (see ‘duration of liability’ below)?
8) Financial liability in respect of design
In the context of the contract and your insurance arrangements, do you require a financial cap on liability? A financial cap on liability would need to be drafted and included in the contract.
9) Duration of liability
In the context of the contract and applicable legal rules on prescription and limitation, do you require a clause regulating the duration of your liability? Any such clause would need to be drafted and included in the contract.
10) Professional indemnity insurance
A party responsible for design will want its design liabilities to be covered by professional indemnity insurance. Therefore, consultation with insurers should take place.