Many and varied healthcare projects are procured on a design and build basis, but what exactly does this mean in terms of the contractor’s design liability? The positions adopted across standard contracts and common bespoke drafting are far from uniform.
Take the JCT 2011 Design and Build Contract (DB) for example, clause 2.17.1 states:
“The Contractor shall in respect of any inadequacy in such design have the like liability to the Employer .... as would an architect or, as the case may be, other appropriate professional designer....who .....has supplied such design for or in connection with works to be carried out and completed by a building contractor who is not the supplier of the design”.
Bolam v Friern Barnet Hospital Management Committee  is still the starting point for a professional’s duty of care and applies to designers as to doctors requiring at common law that services are carried out with “reasonable skill and care”. Under this JCT clause, whether the contractor is negligent in his design of the works will, therefore, depend on whether he failed to exercise the standard of skill and care expected of a competent architect/professional designer.
Contrast this with clause 10(2) Alternative B of the GC/Works/1 Single Stage Design and Build General Conditions (1998) which states:
“the Contractor warrants to the Employer that the Works will be fit for their purposes, as made known to the Contractor by the Contract”.
Under this clause (or a similar clause warranting the works will be suitable for the purpose for which they are required by the employer), the contractor is warranting that the “Works” (which, in this case, is defined to include design) will, when complete, be fit for their purpose. Unlike a “reasonable skill and care” obligation, breach of a “fitness for purpose” obligation does not require proof of negligence and is a higher standard. Where the required standard is “fitness for purpose”, it is no defence that the contractor conformed to established practice for professionals and was not negligent. The contractor’s design must effectively meet the employer’s stated requirements, whatever they may be.
Now consider a further alternative, not unusual in the context of a bespoke contract:
“Insofar as any design of the Works is required to be carried out by the Contractor, the Contractor shall carry out and complete such design using the reasonable skill and care of a properly qualified and competent design and build contractor.”
So what is the standard of care expected of a design and build contractor?
Commercial Contracts and Implied terms
The Sale of Goods Act 1979 (“SGA”) which applies to goods sold in the course of business implies a term into commercial contracts that the goods will be reasonably fit for any purpose expressly or implicitly made known to the seller. In relation to contracts for the transfer of goods including the provision of services and contracts for the supply of services alone, the Supply of Goods and Services Act 1982 (“SGSA”) implies a similar term to the SGA but also implies a term that the supplier will carry out the services with reasonable care and skill.
From an analysis of these implied terms, determining the standard of care owed by a design and build contractor presents quite a challenge given the dual role of the contractor in both designing (or at least completing the design) the works (i.e. providing a professional service) and building the works (i.e. delivering a finished product). As the courts have struggled to grapple with this question, a body of case law has developed supporting the view that where the contractor is both the designer and the contractor, in absence of an express contractual term to the contrary, the design and build contractor assumes a fitness for purpose obligation in respect of the design of the works. The case law on this point does not provide a single overarching principle on why this should be the case, but commentators have offered the view that because a design and build contractor is responsible for delivering a finished article i.e. the works, a contract for the design and construction of a building is essentially a sale of goods contract subject to the sale of goods law i.e. a contract which implies a warranty that the goods will be reasonably fit for any purpose which is expressly or implicitly made known to the contractor.
Reasonable Skill and Care or Fitness for Purpose?
Having considered the options, which is better from an employer’s perspective; a contract containing a reasonable skill and care clause in relation to design or a contract with a fitness for purpose obligation? On the face of it a contract with a fitness for purpose obligation looks more beneficial from an employer’s perspective. However, professional indemnity insurance policies only cover a contractor or designer for failure to exercise reasonable skill and care. A fitness for purpose obligation may, depending on the insurance terms, void a professional indemnity insurance policy, in which case the employer will not be able to avail itself of the contractor’s professional indemnity insurance.
Whether the contractor should be required to warrant that the design will be fit for purpose is a commercial point for negotiation and there are circumstances where this might be appropriate, such as process plant contracts. However, as we have seen above, there are concerns with this where the contractor is not able to obtain insurance that covers them for a non negligent error. One option for an employer, is to adopt a clause with a higher reasonable skill and care test than that prescribed in the standard form contracts such as:
“The Contractor acknowledges that it has exercised and will continue to exercise in the design of the Works all reasonable skill and care as may be expected of a properly qualified designer of the appropriate discipline(s) for such design, experienced in carrying out works of a similar scope, nature, timescale and complexity and on a similar site or at a similar location to the Works”.
Such a clause can easily be incorporated into a schedule of amendments to a standard form contract or in a bespoke contract. Other amendments can also be made to transfer design risk (including risks to price and time) to the contractor.