Identifying a contractor's design obligations is one of the most important issues in negotiating a contract. What are the legal considerations affecting a contractor's design obligations?

Identifying the contractor's design obligations

Under a design and build contract it will be obvious that the contractor has design obligations. However, it may also have design obligations under a traditional form of contract.

Under a traditional form of contract, where the design is carried out by a professional for the employer, the specification and drawings will never detail everything that is required in order for the work to be built. The "design" which is then given to the contractor will always be incomplete to one extent or another, it being understood that the contractor will fill in any gaps as part of its obligation to complete the work (we will expand on this obligation in part 6 of our guide).

Design is about choosing the work process or materials with a view to achieving a particular end. In these cases, where the specification is open, the choice of material or the choice of work process will be left to the contractor. A design choice can, for example, include a decision to use a particular type of nail. Consequently, the contractor will always have design obligations to some degree. At one end of the spectrum it may choose the type of nail, and at the other end, the requirements of the employer may be very broadly explained. For example the instructions could be to build a two-storey, five bedroom house with a downstairs toilet. Both contracts require the contractor to do some design, but there is much more to do in the latter example.

What is the "fitness for purpose" design obligation?

In the absence of express provisions to the contrary, if a contractor is carrying out a design, it will be under an implied duty to ensure that the design - and therefore the finished product - is fit for its intended purpose. This is known as the "fitness for purpose" obligation and it is an absolute duty, independent of fault.

One factor determining whether fitness for purpose is implied in a contract is "reliance". If the employer is relying on the contractor for the design, the fitness for purpose obligation will be imposed on the contractor.

If it is plain that, in relation to an aspect of the design, the employer is in fact relying on others then the room for this implied warranty would be small. This might occur, for example, where a fully detailed design was provided with which the contractor was compelled to comply and not question.

Where it can be seen that the employer is relying on the contractor there will be required reliance and the fitness for purpose obligation will apply. For example, this can occur where:

  • the design obligation is given to the contractor (such as in the house example above)
  • the contractor is filling in the blanks in the specification (such as the nail example above)
  • the contractor is asked to validate the existing design, expressly or impliedly.

What is the effect of the "fitness for purpose" obligation?

If the design is not "fit for purpose" an employer can sue the contractor for damages for breach of contract if the building "does not work". The contractor would not be able to pass this obligation onto its consultants and professional indemnity insurance does not usually cover fitness for purpose. This would mean the contractor faces a defects claim that it cannot pass onto another party and for which it has no insurance cover.

Excluding the fitness for purpose obligation

In the standard forms, the fitness for purpose obligation is often sought to be excluded by express wording - by incorporating an obligation to use reasonable skill and care. This means that an employer would have to demonstrate that the design was produced negligently. The test is whether the design meets the standards of a competent professional designer.

Expert evidence is generally needed to determine this issue with the court usually being presented with different views from each party's expert witness as to the competence of the design. The requirement to prove negligence therefore makes it much more difficult for an employer to recover damages under a skill and care obligation than under a fitness for purpose obligation.

Fitness for purpose in disguise - be aware!

Fitness for purpose obligations may not always be spelt out in obvious wording. Contractors therefore need to be wary of a fitness for purpose obligation being included in the contract in disguise. Here are some examples:

Example 1: "Nothing in this contract shall affect or exclude any obligation with respect to the design of the works that may be implied by law"

If a contract is silent on the extent of a contractor's responsibility for design, the law implies a fitness for purpose obligation into the contract. The above sample clause would therefore reinstate the implied position of fitness for purpose and the contractor would usually seek to have such a clause deleted.

Example 2: "The contractor shall exercise in the design of the works all the skill and care to be expected of a competent design and build contractor undertaking works of the nature of the project"

The skill and care expected of a design and build contractor under general law is fitness for purpose. This is why many standard forms refer to the skill and care expected of an architect or other appropriate professional designer, which is one of reasonable skill and care. The above clause should be amended accordingly.