NEC Engineering and Construction Contract 2013

3408 words (14 pages) Dissertation

13th Dec 2019 Dissertation Reference this

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The NEC Engineering and Construction Contract 2013 permits the contractor to rebut a liability presumption if optional clause ‘Option X15’ is invoked. This clause limits the contractor’s liability for his design to reasonable skill and care, “the Contractor is not liable for defects in the works due to his design so far as he proves that he used reasonable skill and care to ensure that his design complied with the Works Information” (Institution of Civil Engineers, 2013, p.52). The implementation of this clause allows the contractor to prove his non-negligence where there is a fault to escape liability. However, a strict liability will be imposed upon the contractor if this clause is not invoked, to guarantee that the design will be fit for its intended purpose. Without proving he used reasonable skill and care, he will be liable for defects in the works due to his design. The burden of proof is reversed in this case, whereby the contractor is guilty until proven innocent.

In both JCT’s Design and Build Contract 2016 and SBC/Q Standard Building Contract with Quantities 2016, there is a similar clause relating to the completion of design work. Article 1 under the design and build contract states that, “the Contractor shall complete the design for the Works” (The Joint Contracts Tribunal, 2016, p.3) and under the SBC/Q contract, clause 2.2.1 states, where the works include a Contractor’s Designed Portion, the contractor shall, “complete the design for the Contractor’s Designed Portion” (The Joint Contracts Tribunal, 2016, p.33). ‘Complete’notions that the contractor is required, where he is taking on a design, to satisfy himself that the design and/or works are fit for purpose.

Determining the standard of care owed by the contractor in a design and build contract presents a challenge given their dual role. In JCT’s Design and Build Contract 2016, clause 2.17.1 states:

“Insofar as his design of the Works is comprised in the Contractor’s Proposals and in what he is to complete in accordance with the Employer’s Requirements and these Conditions (including any further design that he is required to carry out as a result of a Change), the Contractor shall in respect of any inadequacy in such design have the same liability to the Employer, whether under statute or otherwise, as would an architect or other appropriate professional designer who holds himself out as competent to take on work for such design and who, acting independently under a separate contract with the Employer, 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” (The Joint Contracts Tribunal, 2016, p.35).

Virtually the same clause as above is present in the JCT’s SBC/Q Standard Building Contract with Quantities 2016, clause 2.19.1 p.38, to define design liabilities where there is a Contractor’s Designed Portion. However, “express terms can override the normal default” (Lupton, 2015, p.102).

The standard of care applicable to design and build contractors has been subject to review and analysis since its development in the modern construction industry. Barry Joseph Miller (1982) recommended that a sole fitness for purpose standard of care should be implied when a contractor is engaged in both, “transactions” (p.132) allowing for uniformity.

This could be perceived as unfair, as a lower standard is enforced on a professional designer carrying out only design under a traditional form of contract. They are required to carry out design work with reasonable skill and care, and therefore, if the designer can prove he has done so, and the construction works fail, the contractor will be held accountable for not providing works that are fit for purpose. He cannot shift this culpability back onto the design team if they produced their design work with reasonable skill and care.

However, clause 2.17.1 and clause 2.19.1 (referenced above) seek to address this issue, with a clear demarcation between the design and construction phases. The clause denotes that for the design phase of work, the contractor has the ‘same liability’, as would a professional designer, in contrast to Miller’s beliefs. Therefore, the contractor is only required to carry out their design services with reasonable skill and care. It is only for the construction phase of work that the contractor will have to attain a fitness for purpose standard. Exclusive of this clause, the contractor is obligated to deliver both design and construction works fit for purpose.

These clauses set out to limit culpability, however, they could be amended, as demonstrated by the National Rail 10 Schedule of Amendments (Network Rail, 2016):

“2.17.1 Insofar as the design of the Works is comprised in the Contractor’s Proposals and in what the Contractor is to complete in accordance with the Employer’s Requirements and these Conditions (including any further design which the Contractor is to carry out because of a Change), the Contractor warrants and undertakes to the Employer that: he has exercised and will continue to exercise in the design of the Works all the reasonable skill, care and diligence to be expected of a professionally qualified and competent architect, engineer or other appropriate consultant considering the size, scope, nature, type and complexity of the Works; the Works will, when completed, comply with any performance specification or requirement included or referred to in the Employer’s Requirements or the Contractor’s Proposals”.

Both standards of care co-exist in this clause, which supports Mr. Justice Edwards-Stuart’s remarks in MT Højgaard A/S v EON Climate and Renewables UK Robin Rigg East Ltd[1]. He noted that “it is not uncommon for the two obligations … to exist side by side in construction contracts, as they are not mutually incompatible”. The court deliberated whether the contractor’s obligation was limited to using reasonable skill and care or whether it was under a strict obligation to achieve a service life of 20 years. The scheme of the Technical Requirements (TR) led the judges to believe that the 20-year design life was an intention, not a guarantee, which is dissimilar to a warranty to achieve that design life. Further to this, the TRs made no specific reference to a guarantee of 20 years. If it was a requirement, it should have been made patently obvious not, “tucked within the technical requirements”[2]. Workmanship and Materials

An implied fit for purpose obligation may arise on the part of the contractor, “in relation to goods and materials supplied” (The Joint Contracts Tribunal, 2013). In the case of Young & Marten Ltd v McManus Childs Ltd[3], the Court of Appeal held that:

“There will be implied into a contract for the supply of work and materials a term that the materials used will be of merchantable quality and a further term that the materials used will be reasonably fit for the purpose for which they are used”.

The facts of the case stipulated this implied term as the contract sufficed to exclude it. The contractor installed tiles that were, “latently defective and thereby breached the implied term (of merchantable quality)”[4].

Further to this, a fitness for purpose obligation may arise where the employer makes known the exact intended purpose of the goods, “expressly or by implication” (The Joint Contracts Tribunal, 2013). In Greaves, Lord Denning explained:

“The owners made known to the contractors the purpose for which the building was required … to show that they relied on the contractors’ skill and judgment. It was, therefore, the duty of the contractor to see that the finished work was reasonably fit for the purpose for which they knew it was required. It was not merely an obligation to use reasonable care. The contractors were obliged to ensure that the finished work was reasonably fit for the purpose”[5].

It was Lord Scarman’s obiter remarks in IBA v EMI Electronics Ltd and BICC Construction Ltd[6], which affirmed a further implied term that can arise with regards to the entire completed structure:

“In the absence of a clear, contractual indication to the contrary, I see no reason why one who during his business contracts to design, supply, and erect a television aerial mast is not under an obligation to ensure that is it reasonably fit for the purpose for which he knows it is intended to be used. The critical question of fact is whether he for whom the mast was designed relied upon the skill of the supplier (i.e. his or his subcontractor’s skill) to design and supply a mast fit for the known purpose for which it was required”[7].

If the purpose of a design is made known, in line with the statutory law regulating the sale of goods (Sale of Goods Act, 1979), the designer accepts that the standard of care will be raised to a fit for purpose obligation.

In Viking Grain Storage Ltd v T H White Installations Ltd and Another[8], Judge John Davies QC questioned why the duty in relation to design should be any different than the standard expected for the quality of materials:

“I find it difficult to comprehend why an entire contract to build an installation should need to be broken into so many pieces with differing criteria of liability. The virtue of an implied term of fitness for purpose is that it prescribes a relatively simple and certain standard of liability based on the reasonable fitness of the finished product irrespective of considerations of fault and of whether its unfitness derives from the quality of work or materials or design”[9]. Duty of Care

Construction professionals are legally required to carry out their services with a duty of care. As discussed by Thomas J in RM Turton & Co Ltd (In Liquidation) v Kerslake & Partners[10]:

“It has been generally accepted that duty of care will arise where the relationship between the parties manifests the following criteria:

  1. The maker of the statement possesses a special skill;
  2. He or she voluntarily assumes responsibility for the statement and it is foreseeable that the recipient will rely on it;
  3. It is reasonable for the recipient to rely on the statement and he or she does so, and
  4. The recipient suffers loss as a result” (Adriaanse, 2016, p.278).

Emden stated in Binder VI (cited in Adriaanse, 2016), that:

“It is thought that provided the contractor carries out work strictly in accordance with the contract documents, he is not responsible if the works prove to be unsuitable for the purpose which the employer and architect had in mind” (p.116).

Though, if the contractor finds discrepancies in the design documentation, drawings and between the statuary provisions and the works, they are required to, under the JCT Design and Build Contract 2016, clause 2.13 and 2.17, report to the employer (The Joint Contracts Tribunal, 2016).

In Plant Construction Ltd v Clive Adams Associates and JMH Construction Services Ltd[11], the defendant appealed against an implied duty to warn for defective design, “of which it was aware but for which another party was responsible”. Failure to raise it caused the plaintiff to, “suffer economic loss”. Based on the decision held in Lindenberg v Joe Canning and Others[12], which held that where a contractor fails to raise concerns and proceeds with the contract he, “is in breach of an implied term that it would exercise the standard of care to be expected of an ordinary, competent building contractor”, Clive Adams Associates were held culpable.

2.3.3 Distinctive Levels of Liability

The standard of care for design is either an obligation to use reasonable skill and care or a guarantee that the design will be fit for its intended purpose. If reasonable skill and care are not achieved where required, the party is said to have been negligent (Marshall, 2011). Lupton and Cornes (2013) expand on Marshall’s statement by suggesting that the distinction between the two standards necessitates industries understanding as “in the former case negligence has to be shown whereas in the latter case there is an absolute obligation which is independent of negligence” (p.50).

Gaafar and Perry (1999) acknowledge that these overarching design principles may be due to an oversimplification subject to the lack of legal definition surrounding the two standards of care. Jackson and Powell (1992) sought to explain their position by reference to the case of Lanphier v Phipos[13], which initially expressed the standard of care over 100 years ago:

“Every person who enters into a learned profession undertakes to bring to the exercise of it a reasonable degree of care and skill. He does not undertake if he is an attorney that at all events you shall gain your case, nor does a surgeon undertake that he will perform a cure, nor does he undertake to use the highest degree of skill. There may be persons who have a higher education and greater advantages than he has, but he undertakes to bring a fair, reasonable and competent degree of skill”[14].

Holub’s (2017) study discusses how a professional is to provide a service with the “goal of achieving the desired result, but not a guaranteed result” (p.2). Design and construction professionals lack the control necessary to unequivocally guarantee the outcome of their services. It is unclear as to whether a design that is to be produced with reasonable care and skill should likewise be required to be fit for its purpose. Fitness for purpose is seen to be the greater duty, Adriaanse (2016) endeavoured to define them:

“A product or design may not be fit for its purpose without any allegation of fault. Where a particular purpose is made known by the employer, negligence need not be proven. All that had to be shown is that the particular purpose specified has not been achieved. As far as reasonable skill and care is concerned, it has to be proved that the design was negligent and that the designer did not use reasonable skill and care” (p.293). Liability Spectrum

Gaafar and Perry (1999) state that the interpretation of fitness for purpose is dependent on the facts and circumstances of each case. The authors recommended that the industry develops a further understanding of what each level of design responsibility distinctly means, and expand the levels not only as two principles, but broadened into a scale that can be concisely drafted into contract clauses, as a robust solution in the prevailing legal and insurance contexts.

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Figure 2.1: Liability Spectrum (Gaafar and Perry, 1999, p.306)

Figure 2.1 is a spectrum deduced from Gaafar and Perry’s research. The latter end of the spectrum ‘d’,demonstrates the contractor’s fitness for purpose liability. Here the intended purpose of the works needs to be clearly communicated by the client, as well as the requirements, to ensure this strict obligation is applied. On the opposite end of the spectrum ‘a’, the contractor will only be held liable to have exercised reasonable skill and care through their negligence. Most existing forms of contract, “attempt to limit the contractor’s liability to either boundary a or d” (p.307).

Considering the decisions held in Greaves[15], Gaafar and Perry sought to explain how the determined liability may be placed at a point in-between the spectrum of ‘a and b’. A professional designer is required to provide a design with reasonable skill and care, however, it was held that the contract stipulated that the defendant was required to take specific steps, “to discharge the duty to exercise reasonable skill and care” (p.305) which had not been taken. If they had been, it was said the design would have been fit for purpose. The spectrum between a and b implies that there may be circumstances in which, “reasonable skill and care may equate to fitness for purpose” (p.306), which corresponds to this decision.

Boundary ‘c’ could occur anywhere between ‘b and c’, “in cases where higher skill and care may be interpreted by some practitioners as reasonable skill and care” (p.306), as held in George Wimpey & Co Ltd v DV Poole and Others[16]. George Wimpey aimed to persuade the court that they, “had been negligent on the basis that its special expertise meant it owed a higher duty of care than ordinary competence”. For the plaintiff to claim against his professional indemnity policy, he had to prove his negligence.

A perceived problem is establishing the expected level of skill and care conceptualised by boundary ‘a’. If a party has been negligent, the courts have direct reasoning to hold the culpable party at fault for not exercising reasonable skill and care. Where there is potential consideration of negligence, the spectrum between ‘b and c’ is applied.  And whereby higher skill and care is exercised, the level of liability lies between ‘c and d’.

Brunswick Construction Ltd v Nowlan[17] demonstrates the highly critical nature of assuming a level of design culpability applicable to project stakeholders. In Brunswick, the contractor was held liable for a design defect, owing to his duty to warn, even though he had no direct responsibility for producing any of the design. The case particulars were extreme, as the client relied entirely on the skill and judgement of the contractor, without any consultants to supervise. However, it proves that it is the specific circumstances of each project and contract that controls the liability applicable to a stakeholder, which can range anywhere from ‘a to d’.

Gaafar and Perry’s (1999) notions outline design liability as a combination of factors that are all influenced by implied terms (from statute), clauses that form part of the contract and the manner in which these clauses and specifications have been written.

[1] [2015] BLR 431 (CA).

[2] [2015] BLR 431 (CA).

[3] [1968] 3 WLR 630 (HL).

[4] [1968] 3 WLR 630 (HL).

[5] [1975] 3 ALL ER 99 (CA).

[6] [1980] 14 BLR 1 (HL).

[7] [1980] 14 BLR 1 (HL).

[8] [1985] 33 BLR 103 (QB).

[9] [1985] 33 BLR 103 (QB).

[10] [2000] 3 NZLR 406 (CA).

[11] [2000] BLR 137 (CA).

[12] [1992] 62 BLR 147 (QB).

[13] [1838] 173 ER 581 (CP).

[14] [1838] 173 ER 581 (CP).

[15] [1975] 3 ALL ER 99 (CA).

[16] [1984] 128 SJ 969 (QB).

[17] [1974] 21 BLR 27 (SC).

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