Managing liability for design in construction contracts

Out-Law Analysis | 22 Jun 2020 | 1:34 pm | 2 min. read

Responsibility for design should be clearly allocated between employers and contracts in construction contracts to minimise the potential for disputes. Too often contractors run the risk of being uninsured for the design responsibility they have taken where the standard for assessing their performance under the contract is in excess of 'reasonable skill and care'.

Contractors that contractually agree to complete design will typically be under an obligation to check the existing design. Implementation of a design rather than design itself can also lead to liability. Even when there is no express design obligation in the contract, there may be a duty on the contractor to warn of design issues that become apparent during construction. 

It is possible that the contract will contain different, competing standards of design liability. In addition, obligations contained in the technical documents can have a significant impact on liability.

The different standards can include an obligation to use reasonable skill and care on the one hand, and to achieve fitness for purpose on the other. In the Højgaard case, Højgaard still found itself responsible for design defects even though it had met its obligations around reasonable skill and care and complied with relevant industry codes. The court's findings in large part revolved around a design life requirement, tucked away in the technical documents. Compliance with the relevant codes was a minimum requirement, not the full extent of the obligation. The impact of this decision ran to millions of pounds and involved litigation lasting several years.

A not dissimilar tale unravelled in the case of SSE v Hochtief, where Hochtief, despite being found to have exercised reasonable skill and care in its design, was found responsible for what it considered to be defects in design. Again a design life requirement in the technical documents played a part in the court’s reasoning, coupled with the fact that the activity in question was found to constitute "implementation" of design, rather than design per se.

For contractors, central to minimising risk is ensuring they have a proper and complete understanding of what they are signing up to. This means going beyond reviewing the conditions of contract to also review the schedules and the technical documents.

Contractors should be careful to avoid accepting obligations to meet subjective requirements – terms like 'world class' and 'satisfactory', for instance – as these can be breeding grounds for dispute. Beware too of fitness for purpose type obligations creeping in through the back-door. For example, watch out for clauses that refer to "reasonable skill and care" but link to the standard to be expected of a design and build contractor. Requirements to meet particular performance standards, tests on completion, or – as illustrated by the Højgaard and Hochtief cases – design life requirements, should also be carefully scrutinised. In all of these examples, the contractor might unintentionally end up importing a fitness for purpose type obligation into the contract. 

Making sure that liability is appropriately passed down the contractual chain, whether to sub-contractors or design consultants, is also critical, and contractors should also carefully consider the insurance position. Whatever design obligations and standards are agreed to, it is critical for contractors and employers alike to make sure they have appropriate insurance cover. It is not in anyone’s interests for a gap to exist.

Alexander Grant, Fiona Rossetter and Scott Duncan are experts in infrastructure at Pinsent Masons, the law firm behind Out-Law.