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Limitation of design liability for contractors
International Journal of Project Management Vol. 17, No. 5, pp. 301±308, 1998 # 1999 Published by Elsevier Science Ltd and IPMA. All rights reserved Printed in Great Britain 0263-7863/99 $20.00 + 0.00
PII: S0263-7863(98)00046-5
Limitation of design liability for contractors H K Gaafar and J G Perry
School of Civil Engineering, The University of Birmingham, Edgbaston, Birmingham, B15 2TT, UK
This paper is based on research into the dierent levels of design liability which contractors might be expected to carry. There is a perception within the construction industry that there are two distinct levels of liability: `reasonable skill and care' and `®tness for purpose'. The paper shows that this is an oversimpli®cation, partly caused by the lack of legal de®nition of the term `®tness for purpose'. The paper provides an introduction to the legal background of design liability and considers some of the problems raised by the diculty of obtaining insurance cover for `®tness for purpose' liability. Some commonly used forms of contract are then compared in relation to their treatment of design liability and legal analysis and case law are addressed to demonstrate problems associated with attempts to limit liability to `reasonable skill and care'. The paper then presents the concept of a spectrum of liability rather than two distinct levels and considers the extent to which the novel approach adopted in the relatively new Engineering and Construction Contract is consistent with the concept of a spectrum of liability. The main aim of the paper, whose authors are not legal practitioners, is to provide enlightenment for project managers and other construction industry professionals in an area where diculties of understanding are caused by the interaction of legal elements with contractual provisions. A further aim is to stimulate the industry to move towards the adoption of liability clauses in forms of contract which are robust in the prevailing legal and insurance contexts. # 1999 Published by Elsevier Science Ltd and IPMA. All rights reserved Keywords: liability, design, contractor, skill and care, ®tness for purpose
Introduction The key practical issue concerning design liability for contractors is the question of which level of liability is preferable, or acceptable, to the parties to engineering and construction contracts. The choice is perceived to be between a `®tness for purpose' liability and a `reasonable skill and care' liability. Research conducted at the University of Birmingham has revealed that this choice may not be as straightforward as it seems. The problems identi®ed include: . the interaction of the various legal elements with contractual provisions and the consequent diculties of understanding created for practitioners in the industry; . practical problems relating to the insurability of a `®tness for purpose' liability and of transferring that liability to design subcontractors; . uncertainty over whether some standard forms of contract achieve their desired intent of limiting liability to `reasonable skill and care'; . dierences in both principle and detail between commonly used standard forms of contract; . doubts as to whether the term `®tness for purpose' is precisely de®ned in the English legal system.
The research undertaken for this paper formed part of a broader package of research, funded by EPSRC, into risk allocation in contracts, which was stimulated by the involvement of one of the authors in the development of the New Engineering Contract1 and its second Edition The Engineering and Construction Contract2. Legal advice to the drafters of the NEC/ ECC led to the avoidance of the term `®tness for purpose' and to the eventual adoption of the notion that the Employer would either de®ne the extent of his requirements for performance through the Works Information or would limit the liability through the choice of an optional clause. The lengthy considerations which led to this policy revealed, at least in embryonic form, some of the problems subsequently identi®ed by more rigorous research. The methods used for the research leading to this paper included literature review, a questionnaire survey to contractors and interviews with specialists, including insurers. The authors have no legal expertise beyond that acquired through their professional and academic interest in project management and construction contracts. They have not attempted, within the paper, to interpret or challenge the legal judgements and com301
Limitation of design liability for contractors: H K Gaafar and J G Perry
mentaries but to present what they regard as the salient features of the position. The paper aims to provide enlightenment on the legal aspects of design liability for the bene®t of project managers and other practitioners concerned with engineering and construction contracts. It starts with an introduction to the legal background of design liability and presents a brief discussion of the practical aspects of design liability based on the questionnaire completed by contractors. Some commonly used forms of contract are then compared in relation to their policy towards design liability and legal comment is introduced to show that their policies, as interpreted from the wording of relevant clauses, may not carry a high certainty of being achievable. The paper then presents the concept that, in practice, a spectrum of liability rather than two distinct levels can be deduced from the research. This section of the paper includes an assessment of the extent to which the novel approach adopted by the NEC/ECC ®ts the concept of a spectrum of liability. The two main conclusions of the paper are, ®rstly, that there is a need for deeper understanding within the industry of the problems posed by the assumption that there are two distinct levels of design liability. Secondly, that the industry should move towards the adoption in forms of contract of those models of liability, through appropriately drafted clauses, which are robust in the prevailing legal and insurance contexts.
Legal background The level of liability that design responsibility can give rise to diers between contract and tort for the party holding the responsiblity. It is the same in tort for both professional designers and contractors but it differs in contract. In tort, the nature of the designer's obligation is to exercise `reasonable skill and care' irrespective of the nature of the designer's organisation. In contract, however, the position in law diers to some extent between the professional designer and the contractor designer in respect of implied terms.* A professional designer's liability in contract is to exercise `reasonable skill and care'. He is not taken to warrant that the result will be achieved (`strict liability'{). If the result is not achieved, but he has exercised `reasonable skill and care', he will not be liable. The contractor designer suers risk by reference to statutory implied terms, under the Sale of Goods Act 1972 and the Supply of Goods and Services Act 1982, which will impose certain contractual warranties relating to merchantable quality and ®tness for purpose irrespective of what the contract says. The statutory implied terms give rise to risk for the designer contractor that a contract which is silent on the point will impose on him `strict liability' for all the obligations he has undertaken, including his design obligation. *Terms which the parties have not themselves seen ®t to include expressly, and so as a general rule the courts will only imply terms that they feel the parties must, of necessity, have agreed to if they have thought about it. {Liability generated from actions or inactions which are not necessarily fault-related or negligence-related. {The courts will imply the term.
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Express provisions in the contract (which are subject to the Unfair Contract Terms Act 1977) will aect the nature of the obligation. Such provisions may either seek to limit the liability to `reasonable skill and care' or to make explicit a `®tness for purpose' liability. Examples of these provisions in some commonly used forms of construction contract are given later in the paper. In the absence of express provisions in the contract, Duncan Wallace, 19703 shows that it is submitted by the courts that a contractor undertaking to do work and supply materials impliedly{ undertakes; `a. to do the work undertaken with care and skill or, as sometimes expressed, in a workmanlike manner. b. to use materials of good quality. In the case of materials described expressly this will mean good of their expressed kind. (In the case of goods not described, or not described in sucient detail, it is submitted that there will be reliance on the contractor to that extent, and the warranty in (c) below will apply); c. that both the work and materials will be reasonably ®t for the purpose for which they are required, unless the circumstances of the contract are such as to exclude any such obligation (this obligation is additional to that in (a) and (b), and only becomes relevant, for practical purposes, if the contractor has ful®lled his obligations under (a) and (b)).' Duncan Wallace, 19703 also explains that the ®rst two obligations (a) and (b) correspond to the warranty of merchantability, and that under (c) to the warranty of suitability, under section 14 of the Sale of Goods Act 1873. He explains that the obligation under (c) is here called the `design' obligation and extends to all defects of planning or conception of the building or project in question including, as stated, the selection of all materials and work processes. Jackson and Powell, 19924 sought to explain this position by reference to the case of Midland Bank Trust Co. Ltd. vs. Hett, Stubbs and Kemp (1979) where they state that Oliver J. pointed out the obligation to exercise `reasonable skill and care' is not the only contractual term which ought to be considered in a professional negligence action; `The classical formulation of the claim in this sort of case as ``damages for negligence and breach of professional duty'' tends to be a mesmeric phrase. It concentrates attention on the implied obligation to devote to the client's business that reasonable care and skill to be expected from a normally competent and careful practitioner as if that obligation were not only a compendious, but also an exhaustive, de®nition of all the duties assumed under the contract created by the retainer and its acceptance. But, of course, it is not. A contract gives rise to a complex of rights and duties of which the duty to exercise ``reasonable care and skill'' is but one. If I employ a carpenter to supply and put up a good quality oak shelf for me, the acceptance by him of that employment involves the assumption of a number of contractual duties. He must supply wood of an adequate quality and it must be oak. He must ®x the shelf.
Limitation of design liability for contractors: H K Gaafar and J G Perry And he must carry out the fashioning and ®xing with the reasonable care and skill which I am entitled to expect of a skilled craftsman. If he ®xes the brackets but fails to supply the shelf or if he supplies and ®xes a shelf of unseasoned pine, my complaint against him is not that he has failed to exercise reasonable skill and care in carrying out the work but that he has failed to supply what was contracted for.'
Jackson and Powell, 19924 conclude, therefore, that the particular obligations of a carpenter (or a contractor) to his client are generally of a dierent nature to those owed by a professional man to his client. The above does not state expressly that the contractor's obligations amount to a `®tness for purpose' requirement. However, the statement ``. . . my complaint against him is not that he has failed to exercise `reasonable skill and care' in carrying out the work but that he has failed to supply what was contracted for'' implies a higher level of liability than `reasonable skill and care'. The phrase `what was contracted for', interpreted in the sense of normal usage of the English language, suggests that the precise level of liability is governed by what is stated in the totality of the contract. Case law has sought to de®ne the level of competence and the degree of skill and care required. Whether `reasonable skill and care' has been exercised is judged by reference to the ordinary level of competence of a designer operating in that particular ®eld. The generally accepted expression of the test appears in Bolam vs. Frien Hospital Management Committee (1957): `The test is the standard of the ordinary skilled man exercising and professing to have that special skill.'
Jackson and Powell, 19924 also state that the standard of care was originally expressed over 100 years ago in the case of Lanphier vs Philos (1838), `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 possible degree of skill. There may be persons who have higher education and greater advantage than he has but he undertakes to bring a fair, reasonable and competent degree of skill.'
From this legal background, we ®nd therefore that in both tort and contract the professional designers liability amounts to `reasonable skill and care'. We can also establish that the law has sought to de®ne `reasonable skill and care'. The position diers for contractors in contract where the lack of express provisions in a contract limiting their liability to `reasonable skill and care' will expose them to statutory implied terms. Their liability then becomes more onerous and it may be implied that it is a strict `®tness for purpose' liability. However, the authors have been unable to ®nd a precise de®nition of the term `®tness for purpose' and several lawyers have con®rmed in discussion that one does not exist, at least in the U.K. construction industry, though we sense that the lack of de®nition is also a wider international problem. It has been found that
the interpretation of `®tness for purpose' is highly dependent on the facts and circumstances of each particular case. As will be shown later in the paper, it has also been found that the extrapolation of the interpretation of speci®c cases to a new situation certainly appears complex and uncertain to non-lawyers.
Liability limitation in practice The problems posed by the levels of liability is further ampli®ed by the industry's needs. It might be expected that clients would generally prefer contractors to have a `®tness for purpose' liability. However, research has revealed that this is not necessarily the case. From a research sample that included 32 contractors (inclusive of both interview and survey results where the survey response rate was 55%), it has been found that the majority of clients (about 70%) would prefer to impose a `®tness for purpose' liability. A signi®cant minority of clients (about 30%) may not necessarily have this preference. The most likely reason for this ®nding, as evidenced by the research, seems to be that the latter group probably recognises the practical and commercial problems posed to contractors by a strict `®tness for purpose' liability. As the law does not require professional designers to carry a higher level of liability than `reasonable skill and care' there is usually no insurance market oering a higher level of cover for design liability and so neither they nor contractors are able to obtain it. We understand that occasionally Professional Indemnity insurers may enter into special agreements for a higher level of cover with professional designers, though this outcome may be an uncertain one until the precise details of the work to be covered are known. Consequently both contractors and professional designers are unlikely to be able to obtain protection against a `®tness for purpose' liability. If this level of liability is placed on contractors they may not be able to pass it down to professional designers appointed under a subcontract, thus leaving the contractor carrying a major uninsured risk. Understandably contractors prefer their liability in these circumstances to be limited to `reasonable skill and care' and it appears that some clients recognise that it is expedient to do so. This problem is not restricted to the design and build procurement route though that is the area where the issue and research tended to be focused. In other methods of procurement there is an increasing trend to use specialist subcontractors who are required to provide some design. The same problems arise in these situations though they may be partially obscured as the subcontractors may not necessarily be aware of a higher level of liability in the main contract. The lack of transparency of the requirements for design responsibility of subcontractors has been commented on in a dierent context by U (1991)5 who stated; `The contractor's design responsibility subject has always had something of a Cinderella existence, its true potential and importance being concealed beneath a droll exterior. Thus, under the well-known JCT forms of contract, there was often con¯ict between the Conditions of Contract and actual events, particularly where design work was undertaken by nominated subcontractors.'
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Limitation of design liability for contractors: H K Gaafar and J G Perry
Other writers have questioned the policy of unlimited design liability of contractors undertaking design and build contracts, for example, Goudsmit (1990)6 who stated; `Why should a design and build contractor have a more extensive liability as to his design work than a professional designer? Why should the liabilities resulting from a design and build contract be greater than those accumulating under a traditional contract structure?'
Due to the above reasons and maybe others, some standard forms of contract have introduced clauses which seek to limit the level of design liability carried by contractors. However, an important question arises; do these limitation clauses actually achieve the desired objective of limiting the contractors' liability to `reasonable skill and care'?
Liability limitation clauses within forms of contract The authors have found that liability limitation clauses within some existing standard forms of contract may not necessarily serve their purpose of limiting the contractors' liability to `reasonable skill and care'. As the legal background showed, the strict `®tness for purpose' liability would be implied in contract (by Statute) for contractors' design and workmanship. This would be the case unless it has been expressly limited within the contract to `reasonable skill and care'. Some writers have commented about the legal interpretation of such express provisions. For example, starting with JCT817, Stuart-Ranchev, 19908 shows that Clause 2.5.1 of JCT81 expressly provides that the contractor has the ``like liability as would an architect, or as the case may be, other appropriate designer''. The same wording is also used in Clause 2.7.1 of the Contractor's Design Portion Supplement to JCT809. This may limit the contractor's design to `reasonable skill and care', but this may not necessarily apply to a specialist subcontractor supplying design. StuartRanchev, 19908 comments that, in relation to this Clause, the Architect's standard terms under the RIBA Standard Conditions of Appointment expressly exclude liability in relation to specialist subcontractors' design. If the Contractor's liability is expressed as the ``like liability as an architect would [have]'', then the position may be dierent for specialist subcontractors since the liability is expressly excluded. Within the ICE Conditions of Contract, 6th Edition10, the liability is limited through Clause 8(2) which states, `The Contractor shall exercise all reasonable skill care and diligence in designing any part of the Permanent Works for which he is responsible.'
Whilst the clause states that the contractor is to exercise `reasonable skill and care' it does not specify that the end product does not necessarily have to be ®t for its intended purpose. One interpretation of the clause may be that the contractor has to exercise `reasonable skill and care' and also that the structure may still need to be ®t for its intended purpose. On the same note, U (1991)5 commented that the intention appears to be to limit the contractor's design responsibility to one requiring proof of negligence. But, he also stated that the clauses are not expressed 304
as a limitation of liability. There is apparently nothing to prevent it being ``expressly provided in the contract'' that the contractor shall design some element of the works to achieve a particular result. In commenting about ICE (Design and Construct) Conditions of Contract11, Capper (1996)12 highlighted the same risk arising. He stated, `Whilst it would appear that the intention of the contract craftsman was not to impose the higher standard, there is some risk that on the wording of the ICE (Design and Construct) the higher standard is to be achieved by the Contractor.'
However, Capper (1996)12 went on to explain that the risk stems from other clauses, for example, Clause 6(2)(a) in the ICE (D and C) which reads as follows; `The Contractor shall except as may otherwise be provided in the Contract submit to the Employer's Representative such designs and drawings as are necessary to show the general arrangement of the Works and that the Works will comply with the Employer's Requirements.'
The de®nition of the Employer's Requirements is contained in Clause 1(1)(e) which reads: `the requirements which are identi®ed as such at the date of the award of the Contract and any subsequent variations thereto and which may describe the standards performance and/or objectives that are to be achieved by the Works or part thereof.'
He states that it can readily be seen therefore that not only are the designs and drawings to be prepared so as to show that the Works will comply with the Employer's Requirements but also the Employer's Requirements themselves import standards, performance and/or objectives that are to be achieved by the Works or parts of them. The ICE Conditions of Contract, 5th Edition13 do not have a clause limiting the contractor's liability. The reason presumably was that the contractor was not expected to have any design duties. Also, GC/ Works/114 does not mention limitation of the level of design liability for contractors. Model Form MF/115 does not limit the contractor's liability in relation to the Works. On the contrary, Clause 36.9 states, `The Contractor's liability under this Clause shall be in lieu of any condition or warranty implied by law as to the quality or ®tness for any particular purpose . . .'
Similarly, IChemE Red Book16 has Clause 3.3 that states, `. . . the Plant as completed by the Contractor shall be in every respect suitable for the purposes for which it is intended.'
Bateman (1994)17 commented that the background to the ICE (D & C) and the IChemE Red Book is rather dierent. A civil engineering D & C contractor would probably employ a consulting engineer to do the design work. Such a consultant is unable to accept liability greater than that of `reasonable care and skill'. The craftsmen of the ICE (D & C) form recognised that and chose not to leave the contractor carrying a risk that he could not pass on, and which he was ill-
Limitation of design liability for contractors: H K Gaafar and J G Perry Table 1 Limitation clauses within Standard Forms of Contract Forms with `reasonable skill and care' limitation clauses
Silent forms
Forms with a strict `®tness for purpose' requirement clauses
Forms with optional `reasonable skill and care' clause
JCT81 ICE 6th Edition ICE (Design and Construct) Contractors Design Portion Supplement (JCT80)
ICE 5th Edition GC/Works/1 JCT80
Model Form MF/1 IChemE Red Book
ECC
equipped to carry himself. In contrast, process engineering contractors often develop their processes in a research facility and therefore can test and re®ne the process before marketing it. Such processes are often the subject of patents etc. and details may be subject to restrictions (for commercial reasons). That, together with feed stocks often being of a consistent quality, leads to a strict `®tness for purpose' liability being acceptable to the contractor as well as desirable to the purchaser. The research has not been able to test whether process contractors are able to insure this risk or feel the need to do so. Table 1 summarizes the way in which commonly used standard forms deal with design liability. When we consider the ECC, we ®nd that Clause 20 requires compliance of the contractor's design with the Works Information. The ECC has a level of liability limitation clause through its Optional Clause M which states, `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 it complied with the Works Information.'
If the Optional Clause is not used, then Clause 20 prevails. The contractor's liability may or may not then be interpreted as a strict `®tness for purpose' liability depending on how the Works Information is drafted. The Works Information may contain some text which requires a certain level of performance or function and other information which is in the form of a detailed speci®cation. The following statement from Hudson18 suggests that the performance speci®cation will override in terms of providing the governing level of liability in these circumstances; `Where a contractor undertakes ``to carry out work which will perform a certain duty or function, in conformity with plans and speci®cations, and it turns out that the works constructed in accordance with the plans and speci®cations will not perform that duty or function, it would appear that generally the express obligation to construct a work capable of carrying out the duty in question overrides the obligation to comply with plans and speci®cations, and the contractor will be liable for the failure of the work, notwithstanding that it is carried out in accordance with the plans and speci®cations . . .''.'
If this is correct it has implications for a contractor under any contract which does not limit the liability to `reasonable skill and care'. Where the speci®cations include both performance and detailed speci®cations the contractor should ensure that the latter do not hinder his ability to achieve the former.
Liability spectrum The eects of the ®ndings presented so far in this paper are ®rstly that the precise level of design liability for contractors is in¯uenced by a combination of implied terms (from Statute), the nature of the wording of clauses in contract forms and the manner in which plans and speci®cations are written for a particular contract. Secondly, that whilst the concept of `reasonable skill and care' is amenable to legal de®nition, or at least reasonable description, that of `®tness for purpose' is not. Thirdly, that attempts to limit liability to `reasonable skill and care' may not fully achieve their objective, thereby introducing uncertainty into the apparently clear distinction between `reasonable skill and care' and `®tness for purpose'. Taken together, these ®ndings appear to the authors to produce a reality which can be described as a spectrum of liability rather than two distinctive levels of liability. This can be represented diagrammatricallyÐ see Figure 1. At one end of the spectrum (boundary d), the contractor will be held liable if the works or part of the works are not ®t for their intended purpose. That, however, will be based on the assumption that the client has very clearly communicated his requirements and de®ned his purposes. In this case, the liability may be due to design, defective workmanship or defective materials. At boundary `a', the contractor will only be held liable if it was proved that he was negligent. Legally, these two boundaries may be perceived as easy to de®ne. However, in practice, the particular wording of the contract clauses and design speci®cations may place the actual liability somewhere in the spectrum between the two extremes. For example, i. The case of Greaves (Contractors) Ltd. vs. Baynham Meikle and Partners (1975) was a complex one which went to the Court of Appeal. The original judgement was that Baynham Meikle were liable for providing a design of a warehouse which was not `®t for purpose' in terms of withstanding vibration from fork lift trucks. The Court of Appeal upheld the original judgement but stated that Baynham Meikle had no greater duty than `reasonable skill and care'. However it was also stated that what the original judge meant was that in the circumstances of the case special steps were required to discharge the duty to exercise `reasonable skill and care' and that those steps had not been taken and if they had been the design would have been `®t for purpose'. In eect the case reinforces the view that a professional designer has a liability which is `reasonable skill and care'. However the judgement that special steps were needed to exercise `reasonable skill and 305
Limitation of design liability for contractors: H K Gaafar and J G Perry
Figure 1 Liability spectrum
care' implies that there is a spectrum of such liability between `a' and `b' and that, in such circumstances `reasonable skill and care' may equate to `®tness for purpose'. ii. compliance with the plans and speci®cations may have ensured a `®t for purpose' completed works but in actual fact inadequacy of information supplied by clients caused the problem, for example, the case of Stormont Main Working Men's Club and Institute Ltd. vs. J. Roscoe Milne Partnership (1988). This case signi®es the importance of conveyance of information about the intended purpose to the designer. In this case, the architect, who was particularly experienced in designing working men's clubs (including snooker facilities), was sued by his client when it became apparent that there was insuf®cient space for competition play. The judge found that,
the purpose and adequacy of the plans and speci®cations and they remain of paramount importance. iii. boundary `c' may occur anywhere between `b' and `d' in cases where higher skill and care may be interpreted by some practitioners as `reasonable skill and care', for example the case of George Wimpey & Co Ltd. vs. D.V. Poole and others (1984). In particular reference to this case, an important question was raised by Stuart-Ranchev (1990)8. Does the test dier for someone with greater skills than the ordinary man exercising that particular skill? In answer to this question she states,
`the expectations of the client, so far as the architect can be expected to be aware of them, are relevant when considering the duty of the architect to seek clari®cation of his brief and also that the architect has a duty to exercise due care to ensure that the design should be reasonably eective to achieve the client's purpose, so that if the client has expressed his instructions in terms which leave the architect in doubt as to what the purpose is, the architect has a duty to ascertain what is the purpose he is instructed to achieve.'
`this question was considered in George Wimpey & Co Limited vs. D.V. Poole and others (1984) where the judge held that the basic test is no dierent where the client deliberately selects and pays for someone with particularly high skills. This case concerned the curious scenario of a design and build contractor trying to persuade the Court that it had been negligent on the basis that its special expertise meant it owed a higher duty of care than ordinary competence. The reason was that Wimpey had carried out remedial works and were now claiming under their professional indemnity policy, for which they had to establish they were negligent. The judge however held himself bound to follow the Bolam test which had House of Lords approval (Whitehouse v. Jordan [1981]) and rejected that Wimpey had been negligent.'
The judge however decided that this was not the case here and that it was reasonable for the architect to assume only recreational purposes were required. In this case, a spectrum was produced between `a' and `b' but the liability laid with the client. Again `®tness for purpose' may have been achieved by the architect if adequate information was supplied in the speci®cations or if the architect considered the possibility of competition play and sought clari®cation. Clients, therefore, still have a responsibility towards communication of
It appears that the expected level of skill and care may not be easy to establish. If negligence can easily be established (boundary `a' in Figure 1), then the courts can easily establish that `reasonable skill and care' has not been exercised and therefore the responsible party win be held liable in contract and possibly in tort. However, as the case of Wimpey demonstrates, a `no negligence' case may be established but with the result that a party may be considered, or may consider himself, negligent. Therefore, a spectrum between `b'
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and `c' may be created where there is potential consideration of negligence. However, if `higher skill and care' is exercised then a spectrum between `c' and `d' is created. iv. A case stated by Stuart-Ranchev (1990)8 shows that a contractor's responsibilities may extend to `®tness for purpose' in terms of design, even when the contractor has no direct responsibility for producing the design. In Brunswick Construction Ltd. vs. Nowlan and Others (1974), the contractor entered into a contract with the plainti to build a house in accordance with the drawings and speci®cations. These had been prepared by an architect employed by the plainti, but no architect or engineer was involved beyond the design stage. Due to a design defect, the completed house started to leak. The contractor was held liable to the plainti because a company of its experience should have detected that the design was defective; the house-owner not having an architect or engineer to supervise the works must have been taken to have relied entirely on the skill and attention of the contractor; and knowing of the reliance based upon him, the contractor was under a duty to warn; the contractor's obligation was to carry out work which would perform the intended function and this overrode the obligation to comply with the plans and speci®cations. This is perhaps an extreme case, turning on the lack of professional supervision of construction. However it demonstrates vividly that assumptions about the level of liability are dangerous and that circumstances can move the liability right across the spectrum from `d' to `a'. These cases oer support to the authors' contention that within the construction industry, a spectrum of liability, which is discontinuous, is a better representation of reality than the supposition that there are two distinct levels. For professional designers, architects, contractors and professional indemnity insurers, boundary `a' may be perceived as distinct without the knowledge that it can be established anywhere between `a' and `d'. Through more explicit statements, there may therefore be a need for a more practical understanding by managers and engineers of the notion that `reasonable skill and care' is not distinct. For most existing forms of contract, no attempt is made to take this concept of a spectrum into account or to recognise that it exists. We have seen that most of them attempt to limit the contractor's liability to either boundary `a' or `d'. The exception to this is the ECC. As stated before, the ECC core Clause 20 requires the contractor's design to comply with the Works Information. In essence, this takes into account the existence of a liability spectrum since the Clause is drafted in a way that the liability is dependent only on the particulars of the plans and speci®cations (the Works Information). The main danger for the contractor would be inadequacy of information supplied by clients. However, in this case, the liability would remain with the client unless the contractor, as a designer, did not exercise `reasonable skin and care' in seeking adequacy of information. The other uncertainty is whether Hudson's point, referred to earlier in the paper, is correct.
If the ECC Optional Clause M is used, then the interpretation will probably be dierent from the the interpretation of similar clauses in other contracts in two ways. Firstly, unlike the ICE, Option M of the ECC introduces an explicit limitation through the words ``The Contractor is not liable . . .''. If it is not ®t for its intended purpose and the contractor can demostrate that he exercised `reasonable skill and care' then he will not be liable. Secondly, Option M of the ECC puts the responsibility for proof of negligence on the contractor. He is the party who has to prove that he exercised `reasonable skill and care'. Traditionally, the onus of proof of negligence was on the client to prove that the contractor did not exercise `reasonable skill and care'. Abrahamson (1997)19 has commented that; `Under Option M the employer avoids the diculties of proving from outside that the contractor's design was negligent. The contractor has an incentive to ensure that he (and his subcontractors and sub-consultants) do their designing with provable care.'
Clause M is a secondary option within the structure of the NEC/ECC, which means that clients choose whether to select it or not. This has the advantage of taking into account the diering needs of the industry as not all clients require a strict `®t for purpose' liability from their contractors. If Option M is not used the extent of liability (the position on the spectrum) becomes highly dependent on the way in which the Works Information is drafted.
Conclusions The research has shown that the industry perception of two distinctive levels of design liability is a major oversimpli®cation of the legal position. Perhaps the most notable illustration of this is the lack of legal de®nition of the widely used term `®tness for purpose'. A rather more subtle issue, though of considerable commercial importance, is that legal analysis and case law show that attempts to limit liability in some forms of contract may not achieve the desired purpose and may mislead parties to the contract into a false sense of security. These points are well understood by experts in the legal profession, but it is clear that there is a need for deeper understanding within the industry of the problems posed by the assumption that there are two distinct levels of liability. Perhaps the most evident practical problem encountered is that of the unavailability or near unavailability of insurance for a `®tness for purpose' liability. This aects contractors (especially in design and build contracts), specialist subcontractors and professional designers, especially when the latter are appointed under a subcontract to a design and build contractor. The authors have presented the concept of a spectrum of liability as an aid to understanding the legal position. An analysis of several common forms of contract yields the view that the ECC is the closest to accomodating to this spectrum. It has been argued that through Option M in the ECC, a limitation to liability is clearly established. If Option M is not used, the extent to which the contract moves through the spectrum towards `®tness for purpose' is dependent on 307
Limitation of design liability for contractors: H K Gaafar and J G Perry
the way the Works Information is drafted rather than relying on a legally unde®ned term. Many of the existing forms of contract appear not to be robust, given the prevailing legal and insurance contexts, in the ways in which they deal with design liability. The industry should move towards the adoption in forms of contract of models of liability (in terms of appropriately drafted clauses) which re¯ect these contexts. The authors do not pretend that the research has been exhaustive, for example the particular position of process plant contractors with respect to `®tness for purpose' liability has not been pursued. Nevertheless they hope that the paper has provided some enlightenment on the topic and will stimulate the development of more robust approaches which avoid the problems that have been outlined. Participants from the construction industry, the legal profession and the insurance sector will need to work together to achieve this.
Table of cases . Brunswick Construction Ltd. vs. Nowlan & Others (1974) 21 BLR 127. . Greaves & Co. (Contractors) vs. Baynham Meikle and Partners (1975) Court of Appeal.1.WLR.1095. . Stormont Main Working Men's Club and Institute Ltd. vs. J. Roscoe Milne Partnership (1988) Con.L.R.127. . George Wimpey & Co. Ltd. vs. D.V. Poole and others (1984) 24.BLR.58.
References 1. The Institution of Civil Engineers, The New Engineering Contract. Thomas Telford Ltd., London, 1993. 2. The Institution of Civil Engineers, The Engineering and Construction Contract. Thomas Telford Ltd., London, 1995. 3. Duncan Wallace, I.N., Hudson's Building and Engineering Contracts. Sweet and Maxwell, London, 1970. 4. Jackson and Powell, Professional Negligence, 3rd ed. Sweet and Maxwell, London, 1992. 5. U, J., The ICE Conditions of Contract, 6th ed. New Thoughts on Old Issues. The International Construction Law Review, Volume 8, Part 2, April 1991, Lloyd's of London Press Ltd. 6. Goudsmit, J.J., Exclusion or Limitation of Liability in a Turnkey Contract. The International Construction Law Review, Volume 7, Part 3, July 1990, Lloyd's of London Press Ltd. 7. Joint Contracts Tribunal, Standard Form of Building Contract, 1981 Edition. 8. Stuart-Ranchev, A., Design Responsibility, Construction Disputes-Avoidance and Resolution. Conference Proceedings, Law and Business Forum, September 1990. 9. Joint Contracts Tribunal, Contractor's Design Portion Supplement to Standard Form of Building Contract, 1980 edition, 1981 edition revised July 1994.
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10. The Institution of Civil Engineers, the Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, Standard Conditions of Contract, 6th ed., 1991. 11. The Institution of Civil Engineers, Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, ICE Design and Construct Conditions of Contract, Thomas Telford Services, 1992. 12. Capper, P., Constructing the Team using the New Engineering Contract, Paper to conference on NEC and Construction Law, Pretoria, South Africa, March 1996. 13. The Institution of Civil Engineers, the Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, Standard Conditions of Contract, 5th ed., 1973. 14. Her Majesty's Stationery Oce, General Conditions of Government Contracts for Building and Civil Engineering Works, 2nd ed., September 1977, London. 15. The Institution of Mechanical Engineers, the Institution of Electrical Engineers and the Association of Consulting Engineers, Model Form of General Conditions of Contract for Mechanical and Electrical Works, June 1988. 16. The Institution of Chemical Engineers, Model Form of Conditions of Contract for Process Plants, Suitable for lump-sum contracts in the UK, Oct 1968, revised 1981. 17. Bateman, G., Process Plant Contracts. Paper presented at the Risk, Management and Procurement in Construction Seventh Annual Conference, Centre of Construction Law and Management and CIRIA, September 1994. 18. Duncan Wallace, I.N., Hudson's Building and Engineering Contracts, Volume 1, 11th edition. Sweet and Maxwell, London 1995. 19. Abrahamson, M.W., Private communication to Professor John Perry, 1997. Dr. H. K. Gaafar is a Research Associate at the School of Civil Engineering, the University of Birmingham. He has been in the School for several years during which he gained his BEng degree in civil engineering in 1992 and completed his PhD. in 1997. He has been appointed at his current position since 1995 undertaking as an Associate with Prof. J. G. Perry an EPSRC funded Grant to look into ``Risk Allocations in the New Engineering Contract''.
Professor John Perry is Head of the School of Civil Engineering at the University of Birmingham. He received his PhD from UMIST in 1985. His research interests cover several aspects of project management including contract strategies, risk management and the development of the New Engineering Contract for the Institution of Civil Engineers in the UK.
PII: S0263-7863(98)00046-5
Limitation of design liability for contractors H K Gaafar and J G Perry
School of Civil Engineering, The University of Birmingham, Edgbaston, Birmingham, B15 2TT, UK
This paper is based on research into the dierent levels of design liability which contractors might be expected to carry. There is a perception within the construction industry that there are two distinct levels of liability: `reasonable skill and care' and `®tness for purpose'. The paper shows that this is an oversimpli®cation, partly caused by the lack of legal de®nition of the term `®tness for purpose'. The paper provides an introduction to the legal background of design liability and considers some of the problems raised by the diculty of obtaining insurance cover for `®tness for purpose' liability. Some commonly used forms of contract are then compared in relation to their treatment of design liability and legal analysis and case law are addressed to demonstrate problems associated with attempts to limit liability to `reasonable skill and care'. The paper then presents the concept of a spectrum of liability rather than two distinct levels and considers the extent to which the novel approach adopted in the relatively new Engineering and Construction Contract is consistent with the concept of a spectrum of liability. The main aim of the paper, whose authors are not legal practitioners, is to provide enlightenment for project managers and other construction industry professionals in an area where diculties of understanding are caused by the interaction of legal elements with contractual provisions. A further aim is to stimulate the industry to move towards the adoption of liability clauses in forms of contract which are robust in the prevailing legal and insurance contexts. # 1999 Published by Elsevier Science Ltd and IPMA. All rights reserved Keywords: liability, design, contractor, skill and care, ®tness for purpose
Introduction The key practical issue concerning design liability for contractors is the question of which level of liability is preferable, or acceptable, to the parties to engineering and construction contracts. The choice is perceived to be between a `®tness for purpose' liability and a `reasonable skill and care' liability. Research conducted at the University of Birmingham has revealed that this choice may not be as straightforward as it seems. The problems identi®ed include: . the interaction of the various legal elements with contractual provisions and the consequent diculties of understanding created for practitioners in the industry; . practical problems relating to the insurability of a `®tness for purpose' liability and of transferring that liability to design subcontractors; . uncertainty over whether some standard forms of contract achieve their desired intent of limiting liability to `reasonable skill and care'; . dierences in both principle and detail between commonly used standard forms of contract; . doubts as to whether the term `®tness for purpose' is precisely de®ned in the English legal system.
The research undertaken for this paper formed part of a broader package of research, funded by EPSRC, into risk allocation in contracts, which was stimulated by the involvement of one of the authors in the development of the New Engineering Contract1 and its second Edition The Engineering and Construction Contract2. Legal advice to the drafters of the NEC/ ECC led to the avoidance of the term `®tness for purpose' and to the eventual adoption of the notion that the Employer would either de®ne the extent of his requirements for performance through the Works Information or would limit the liability through the choice of an optional clause. The lengthy considerations which led to this policy revealed, at least in embryonic form, some of the problems subsequently identi®ed by more rigorous research. The methods used for the research leading to this paper included literature review, a questionnaire survey to contractors and interviews with specialists, including insurers. The authors have no legal expertise beyond that acquired through their professional and academic interest in project management and construction contracts. They have not attempted, within the paper, to interpret or challenge the legal judgements and com301
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mentaries but to present what they regard as the salient features of the position. The paper aims to provide enlightenment on the legal aspects of design liability for the bene®t of project managers and other practitioners concerned with engineering and construction contracts. It starts with an introduction to the legal background of design liability and presents a brief discussion of the practical aspects of design liability based on the questionnaire completed by contractors. Some commonly used forms of contract are then compared in relation to their policy towards design liability and legal comment is introduced to show that their policies, as interpreted from the wording of relevant clauses, may not carry a high certainty of being achievable. The paper then presents the concept that, in practice, a spectrum of liability rather than two distinct levels can be deduced from the research. This section of the paper includes an assessment of the extent to which the novel approach adopted by the NEC/ECC ®ts the concept of a spectrum of liability. The two main conclusions of the paper are, ®rstly, that there is a need for deeper understanding within the industry of the problems posed by the assumption that there are two distinct levels of design liability. Secondly, that the industry should move towards the adoption in forms of contract of those models of liability, through appropriately drafted clauses, which are robust in the prevailing legal and insurance contexts.
Legal background The level of liability that design responsibility can give rise to diers between contract and tort for the party holding the responsiblity. It is the same in tort for both professional designers and contractors but it differs in contract. In tort, the nature of the designer's obligation is to exercise `reasonable skill and care' irrespective of the nature of the designer's organisation. In contract, however, the position in law diers to some extent between the professional designer and the contractor designer in respect of implied terms.* A professional designer's liability in contract is to exercise `reasonable skill and care'. He is not taken to warrant that the result will be achieved (`strict liability'{). If the result is not achieved, but he has exercised `reasonable skill and care', he will not be liable. The contractor designer suers risk by reference to statutory implied terms, under the Sale of Goods Act 1972 and the Supply of Goods and Services Act 1982, which will impose certain contractual warranties relating to merchantable quality and ®tness for purpose irrespective of what the contract says. The statutory implied terms give rise to risk for the designer contractor that a contract which is silent on the point will impose on him `strict liability' for all the obligations he has undertaken, including his design obligation. *Terms which the parties have not themselves seen ®t to include expressly, and so as a general rule the courts will only imply terms that they feel the parties must, of necessity, have agreed to if they have thought about it. {Liability generated from actions or inactions which are not necessarily fault-related or negligence-related. {The courts will imply the term.
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Express provisions in the contract (which are subject to the Unfair Contract Terms Act 1977) will aect the nature of the obligation. Such provisions may either seek to limit the liability to `reasonable skill and care' or to make explicit a `®tness for purpose' liability. Examples of these provisions in some commonly used forms of construction contract are given later in the paper. In the absence of express provisions in the contract, Duncan Wallace, 19703 shows that it is submitted by the courts that a contractor undertaking to do work and supply materials impliedly{ undertakes; `a. to do the work undertaken with care and skill or, as sometimes expressed, in a workmanlike manner. b. to use materials of good quality. In the case of materials described expressly this will mean good of their expressed kind. (In the case of goods not described, or not described in sucient detail, it is submitted that there will be reliance on the contractor to that extent, and the warranty in (c) below will apply); c. that both the work and materials will be reasonably ®t for the purpose for which they are required, unless the circumstances of the contract are such as to exclude any such obligation (this obligation is additional to that in (a) and (b), and only becomes relevant, for practical purposes, if the contractor has ful®lled his obligations under (a) and (b)).' Duncan Wallace, 19703 also explains that the ®rst two obligations (a) and (b) correspond to the warranty of merchantability, and that under (c) to the warranty of suitability, under section 14 of the Sale of Goods Act 1873. He explains that the obligation under (c) is here called the `design' obligation and extends to all defects of planning or conception of the building or project in question including, as stated, the selection of all materials and work processes. Jackson and Powell, 19924 sought to explain this position by reference to the case of Midland Bank Trust Co. Ltd. vs. Hett, Stubbs and Kemp (1979) where they state that Oliver J. pointed out the obligation to exercise `reasonable skill and care' is not the only contractual term which ought to be considered in a professional negligence action; `The classical formulation of the claim in this sort of case as ``damages for negligence and breach of professional duty'' tends to be a mesmeric phrase. It concentrates attention on the implied obligation to devote to the client's business that reasonable care and skill to be expected from a normally competent and careful practitioner as if that obligation were not only a compendious, but also an exhaustive, de®nition of all the duties assumed under the contract created by the retainer and its acceptance. But, of course, it is not. A contract gives rise to a complex of rights and duties of which the duty to exercise ``reasonable care and skill'' is but one. If I employ a carpenter to supply and put up a good quality oak shelf for me, the acceptance by him of that employment involves the assumption of a number of contractual duties. He must supply wood of an adequate quality and it must be oak. He must ®x the shelf.
Limitation of design liability for contractors: H K Gaafar and J G Perry And he must carry out the fashioning and ®xing with the reasonable care and skill which I am entitled to expect of a skilled craftsman. If he ®xes the brackets but fails to supply the shelf or if he supplies and ®xes a shelf of unseasoned pine, my complaint against him is not that he has failed to exercise reasonable skill and care in carrying out the work but that he has failed to supply what was contracted for.'
Jackson and Powell, 19924 conclude, therefore, that the particular obligations of a carpenter (or a contractor) to his client are generally of a dierent nature to those owed by a professional man to his client. The above does not state expressly that the contractor's obligations amount to a `®tness for purpose' requirement. However, the statement ``. . . my complaint against him is not that he has failed to exercise `reasonable skill and care' in carrying out the work but that he has failed to supply what was contracted for'' implies a higher level of liability than `reasonable skill and care'. The phrase `what was contracted for', interpreted in the sense of normal usage of the English language, suggests that the precise level of liability is governed by what is stated in the totality of the contract. Case law has sought to de®ne the level of competence and the degree of skill and care required. Whether `reasonable skill and care' has been exercised is judged by reference to the ordinary level of competence of a designer operating in that particular ®eld. The generally accepted expression of the test appears in Bolam vs. Frien Hospital Management Committee (1957): `The test is the standard of the ordinary skilled man exercising and professing to have that special skill.'
Jackson and Powell, 19924 also state that the standard of care was originally expressed over 100 years ago in the case of Lanphier vs Philos (1838), `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 possible degree of skill. There may be persons who have higher education and greater advantage than he has but he undertakes to bring a fair, reasonable and competent degree of skill.'
From this legal background, we ®nd therefore that in both tort and contract the professional designers liability amounts to `reasonable skill and care'. We can also establish that the law has sought to de®ne `reasonable skill and care'. The position diers for contractors in contract where the lack of express provisions in a contract limiting their liability to `reasonable skill and care' will expose them to statutory implied terms. Their liability then becomes more onerous and it may be implied that it is a strict `®tness for purpose' liability. However, the authors have been unable to ®nd a precise de®nition of the term `®tness for purpose' and several lawyers have con®rmed in discussion that one does not exist, at least in the U.K. construction industry, though we sense that the lack of de®nition is also a wider international problem. It has been found that
the interpretation of `®tness for purpose' is highly dependent on the facts and circumstances of each particular case. As will be shown later in the paper, it has also been found that the extrapolation of the interpretation of speci®c cases to a new situation certainly appears complex and uncertain to non-lawyers.
Liability limitation in practice The problems posed by the levels of liability is further ampli®ed by the industry's needs. It might be expected that clients would generally prefer contractors to have a `®tness for purpose' liability. However, research has revealed that this is not necessarily the case. From a research sample that included 32 contractors (inclusive of both interview and survey results where the survey response rate was 55%), it has been found that the majority of clients (about 70%) would prefer to impose a `®tness for purpose' liability. A signi®cant minority of clients (about 30%) may not necessarily have this preference. The most likely reason for this ®nding, as evidenced by the research, seems to be that the latter group probably recognises the practical and commercial problems posed to contractors by a strict `®tness for purpose' liability. As the law does not require professional designers to carry a higher level of liability than `reasonable skill and care' there is usually no insurance market oering a higher level of cover for design liability and so neither they nor contractors are able to obtain it. We understand that occasionally Professional Indemnity insurers may enter into special agreements for a higher level of cover with professional designers, though this outcome may be an uncertain one until the precise details of the work to be covered are known. Consequently both contractors and professional designers are unlikely to be able to obtain protection against a `®tness for purpose' liability. If this level of liability is placed on contractors they may not be able to pass it down to professional designers appointed under a subcontract, thus leaving the contractor carrying a major uninsured risk. Understandably contractors prefer their liability in these circumstances to be limited to `reasonable skill and care' and it appears that some clients recognise that it is expedient to do so. This problem is not restricted to the design and build procurement route though that is the area where the issue and research tended to be focused. In other methods of procurement there is an increasing trend to use specialist subcontractors who are required to provide some design. The same problems arise in these situations though they may be partially obscured as the subcontractors may not necessarily be aware of a higher level of liability in the main contract. The lack of transparency of the requirements for design responsibility of subcontractors has been commented on in a dierent context by U (1991)5 who stated; `The contractor's design responsibility subject has always had something of a Cinderella existence, its true potential and importance being concealed beneath a droll exterior. Thus, under the well-known JCT forms of contract, there was often con¯ict between the Conditions of Contract and actual events, particularly where design work was undertaken by nominated subcontractors.'
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Other writers have questioned the policy of unlimited design liability of contractors undertaking design and build contracts, for example, Goudsmit (1990)6 who stated; `Why should a design and build contractor have a more extensive liability as to his design work than a professional designer? Why should the liabilities resulting from a design and build contract be greater than those accumulating under a traditional contract structure?'
Due to the above reasons and maybe others, some standard forms of contract have introduced clauses which seek to limit the level of design liability carried by contractors. However, an important question arises; do these limitation clauses actually achieve the desired objective of limiting the contractors' liability to `reasonable skill and care'?
Liability limitation clauses within forms of contract The authors have found that liability limitation clauses within some existing standard forms of contract may not necessarily serve their purpose of limiting the contractors' liability to `reasonable skill and care'. As the legal background showed, the strict `®tness for purpose' liability would be implied in contract (by Statute) for contractors' design and workmanship. This would be the case unless it has been expressly limited within the contract to `reasonable skill and care'. Some writers have commented about the legal interpretation of such express provisions. For example, starting with JCT817, Stuart-Ranchev, 19908 shows that Clause 2.5.1 of JCT81 expressly provides that the contractor has the ``like liability as would an architect, or as the case may be, other appropriate designer''. The same wording is also used in Clause 2.7.1 of the Contractor's Design Portion Supplement to JCT809. This may limit the contractor's design to `reasonable skill and care', but this may not necessarily apply to a specialist subcontractor supplying design. StuartRanchev, 19908 comments that, in relation to this Clause, the Architect's standard terms under the RIBA Standard Conditions of Appointment expressly exclude liability in relation to specialist subcontractors' design. If the Contractor's liability is expressed as the ``like liability as an architect would [have]'', then the position may be dierent for specialist subcontractors since the liability is expressly excluded. Within the ICE Conditions of Contract, 6th Edition10, the liability is limited through Clause 8(2) which states, `The Contractor shall exercise all reasonable skill care and diligence in designing any part of the Permanent Works for which he is responsible.'
Whilst the clause states that the contractor is to exercise `reasonable skill and care' it does not specify that the end product does not necessarily have to be ®t for its intended purpose. One interpretation of the clause may be that the contractor has to exercise `reasonable skill and care' and also that the structure may still need to be ®t for its intended purpose. On the same note, U (1991)5 commented that the intention appears to be to limit the contractor's design responsibility to one requiring proof of negligence. But, he also stated that the clauses are not expressed 304
as a limitation of liability. There is apparently nothing to prevent it being ``expressly provided in the contract'' that the contractor shall design some element of the works to achieve a particular result. In commenting about ICE (Design and Construct) Conditions of Contract11, Capper (1996)12 highlighted the same risk arising. He stated, `Whilst it would appear that the intention of the contract craftsman was not to impose the higher standard, there is some risk that on the wording of the ICE (Design and Construct) the higher standard is to be achieved by the Contractor.'
However, Capper (1996)12 went on to explain that the risk stems from other clauses, for example, Clause 6(2)(a) in the ICE (D and C) which reads as follows; `The Contractor shall except as may otherwise be provided in the Contract submit to the Employer's Representative such designs and drawings as are necessary to show the general arrangement of the Works and that the Works will comply with the Employer's Requirements.'
The de®nition of the Employer's Requirements is contained in Clause 1(1)(e) which reads: `the requirements which are identi®ed as such at the date of the award of the Contract and any subsequent variations thereto and which may describe the standards performance and/or objectives that are to be achieved by the Works or part thereof.'
He states that it can readily be seen therefore that not only are the designs and drawings to be prepared so as to show that the Works will comply with the Employer's Requirements but also the Employer's Requirements themselves import standards, performance and/or objectives that are to be achieved by the Works or parts of them. The ICE Conditions of Contract, 5th Edition13 do not have a clause limiting the contractor's liability. The reason presumably was that the contractor was not expected to have any design duties. Also, GC/ Works/114 does not mention limitation of the level of design liability for contractors. Model Form MF/115 does not limit the contractor's liability in relation to the Works. On the contrary, Clause 36.9 states, `The Contractor's liability under this Clause shall be in lieu of any condition or warranty implied by law as to the quality or ®tness for any particular purpose . . .'
Similarly, IChemE Red Book16 has Clause 3.3 that states, `. . . the Plant as completed by the Contractor shall be in every respect suitable for the purposes for which it is intended.'
Bateman (1994)17 commented that the background to the ICE (D & C) and the IChemE Red Book is rather dierent. A civil engineering D & C contractor would probably employ a consulting engineer to do the design work. Such a consultant is unable to accept liability greater than that of `reasonable care and skill'. The craftsmen of the ICE (D & C) form recognised that and chose not to leave the contractor carrying a risk that he could not pass on, and which he was ill-
Limitation of design liability for contractors: H K Gaafar and J G Perry Table 1 Limitation clauses within Standard Forms of Contract Forms with `reasonable skill and care' limitation clauses
Silent forms
Forms with a strict `®tness for purpose' requirement clauses
Forms with optional `reasonable skill and care' clause
JCT81 ICE 6th Edition ICE (Design and Construct) Contractors Design Portion Supplement (JCT80)
ICE 5th Edition GC/Works/1 JCT80
Model Form MF/1 IChemE Red Book
ECC
equipped to carry himself. In contrast, process engineering contractors often develop their processes in a research facility and therefore can test and re®ne the process before marketing it. Such processes are often the subject of patents etc. and details may be subject to restrictions (for commercial reasons). That, together with feed stocks often being of a consistent quality, leads to a strict `®tness for purpose' liability being acceptable to the contractor as well as desirable to the purchaser. The research has not been able to test whether process contractors are able to insure this risk or feel the need to do so. Table 1 summarizes the way in which commonly used standard forms deal with design liability. When we consider the ECC, we ®nd that Clause 20 requires compliance of the contractor's design with the Works Information. The ECC has a level of liability limitation clause through its Optional Clause M which states, `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 it complied with the Works Information.'
If the Optional Clause is not used, then Clause 20 prevails. The contractor's liability may or may not then be interpreted as a strict `®tness for purpose' liability depending on how the Works Information is drafted. The Works Information may contain some text which requires a certain level of performance or function and other information which is in the form of a detailed speci®cation. The following statement from Hudson18 suggests that the performance speci®cation will override in terms of providing the governing level of liability in these circumstances; `Where a contractor undertakes ``to carry out work which will perform a certain duty or function, in conformity with plans and speci®cations, and it turns out that the works constructed in accordance with the plans and speci®cations will not perform that duty or function, it would appear that generally the express obligation to construct a work capable of carrying out the duty in question overrides the obligation to comply with plans and speci®cations, and the contractor will be liable for the failure of the work, notwithstanding that it is carried out in accordance with the plans and speci®cations . . .''.'
If this is correct it has implications for a contractor under any contract which does not limit the liability to `reasonable skill and care'. Where the speci®cations include both performance and detailed speci®cations the contractor should ensure that the latter do not hinder his ability to achieve the former.
Liability spectrum The eects of the ®ndings presented so far in this paper are ®rstly that the precise level of design liability for contractors is in¯uenced by a combination of implied terms (from Statute), the nature of the wording of clauses in contract forms and the manner in which plans and speci®cations are written for a particular contract. Secondly, that whilst the concept of `reasonable skill and care' is amenable to legal de®nition, or at least reasonable description, that of `®tness for purpose' is not. Thirdly, that attempts to limit liability to `reasonable skill and care' may not fully achieve their objective, thereby introducing uncertainty into the apparently clear distinction between `reasonable skill and care' and `®tness for purpose'. Taken together, these ®ndings appear to the authors to produce a reality which can be described as a spectrum of liability rather than two distinctive levels of liability. This can be represented diagrammatricallyÐ see Figure 1. At one end of the spectrum (boundary d), the contractor will be held liable if the works or part of the works are not ®t for their intended purpose. That, however, will be based on the assumption that the client has very clearly communicated his requirements and de®ned his purposes. In this case, the liability may be due to design, defective workmanship or defective materials. At boundary `a', the contractor will only be held liable if it was proved that he was negligent. Legally, these two boundaries may be perceived as easy to de®ne. However, in practice, the particular wording of the contract clauses and design speci®cations may place the actual liability somewhere in the spectrum between the two extremes. For example, i. The case of Greaves (Contractors) Ltd. vs. Baynham Meikle and Partners (1975) was a complex one which went to the Court of Appeal. The original judgement was that Baynham Meikle were liable for providing a design of a warehouse which was not `®t for purpose' in terms of withstanding vibration from fork lift trucks. The Court of Appeal upheld the original judgement but stated that Baynham Meikle had no greater duty than `reasonable skill and care'. However it was also stated that what the original judge meant was that in the circumstances of the case special steps were required to discharge the duty to exercise `reasonable skill and care' and that those steps had not been taken and if they had been the design would have been `®t for purpose'. In eect the case reinforces the view that a professional designer has a liability which is `reasonable skill and care'. However the judgement that special steps were needed to exercise `reasonable skill and 305
Limitation of design liability for contractors: H K Gaafar and J G Perry
Figure 1 Liability spectrum
care' implies that there is a spectrum of such liability between `a' and `b' and that, in such circumstances `reasonable skill and care' may equate to `®tness for purpose'. ii. compliance with the plans and speci®cations may have ensured a `®t for purpose' completed works but in actual fact inadequacy of information supplied by clients caused the problem, for example, the case of Stormont Main Working Men's Club and Institute Ltd. vs. J. Roscoe Milne Partnership (1988). This case signi®es the importance of conveyance of information about the intended purpose to the designer. In this case, the architect, who was particularly experienced in designing working men's clubs (including snooker facilities), was sued by his client when it became apparent that there was insuf®cient space for competition play. The judge found that,
the purpose and adequacy of the plans and speci®cations and they remain of paramount importance. iii. boundary `c' may occur anywhere between `b' and `d' in cases where higher skill and care may be interpreted by some practitioners as `reasonable skill and care', for example the case of George Wimpey & Co Ltd. vs. D.V. Poole and others (1984). In particular reference to this case, an important question was raised by Stuart-Ranchev (1990)8. Does the test dier for someone with greater skills than the ordinary man exercising that particular skill? In answer to this question she states,
`the expectations of the client, so far as the architect can be expected to be aware of them, are relevant when considering the duty of the architect to seek clari®cation of his brief and also that the architect has a duty to exercise due care to ensure that the design should be reasonably eective to achieve the client's purpose, so that if the client has expressed his instructions in terms which leave the architect in doubt as to what the purpose is, the architect has a duty to ascertain what is the purpose he is instructed to achieve.'
`this question was considered in George Wimpey & Co Limited vs. D.V. Poole and others (1984) where the judge held that the basic test is no dierent where the client deliberately selects and pays for someone with particularly high skills. This case concerned the curious scenario of a design and build contractor trying to persuade the Court that it had been negligent on the basis that its special expertise meant it owed a higher duty of care than ordinary competence. The reason was that Wimpey had carried out remedial works and were now claiming under their professional indemnity policy, for which they had to establish they were negligent. The judge however held himself bound to follow the Bolam test which had House of Lords approval (Whitehouse v. Jordan [1981]) and rejected that Wimpey had been negligent.'
The judge however decided that this was not the case here and that it was reasonable for the architect to assume only recreational purposes were required. In this case, a spectrum was produced between `a' and `b' but the liability laid with the client. Again `®tness for purpose' may have been achieved by the architect if adequate information was supplied in the speci®cations or if the architect considered the possibility of competition play and sought clari®cation. Clients, therefore, still have a responsibility towards communication of
It appears that the expected level of skill and care may not be easy to establish. If negligence can easily be established (boundary `a' in Figure 1), then the courts can easily establish that `reasonable skill and care' has not been exercised and therefore the responsible party win be held liable in contract and possibly in tort. However, as the case of Wimpey demonstrates, a `no negligence' case may be established but with the result that a party may be considered, or may consider himself, negligent. Therefore, a spectrum between `b'
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and `c' may be created where there is potential consideration of negligence. However, if `higher skill and care' is exercised then a spectrum between `c' and `d' is created. iv. A case stated by Stuart-Ranchev (1990)8 shows that a contractor's responsibilities may extend to `®tness for purpose' in terms of design, even when the contractor has no direct responsibility for producing the design. In Brunswick Construction Ltd. vs. Nowlan and Others (1974), the contractor entered into a contract with the plainti to build a house in accordance with the drawings and speci®cations. These had been prepared by an architect employed by the plainti, but no architect or engineer was involved beyond the design stage. Due to a design defect, the completed house started to leak. The contractor was held liable to the plainti because a company of its experience should have detected that the design was defective; the house-owner not having an architect or engineer to supervise the works must have been taken to have relied entirely on the skill and attention of the contractor; and knowing of the reliance based upon him, the contractor was under a duty to warn; the contractor's obligation was to carry out work which would perform the intended function and this overrode the obligation to comply with the plans and speci®cations. This is perhaps an extreme case, turning on the lack of professional supervision of construction. However it demonstrates vividly that assumptions about the level of liability are dangerous and that circumstances can move the liability right across the spectrum from `d' to `a'. These cases oer support to the authors' contention that within the construction industry, a spectrum of liability, which is discontinuous, is a better representation of reality than the supposition that there are two distinct levels. For professional designers, architects, contractors and professional indemnity insurers, boundary `a' may be perceived as distinct without the knowledge that it can be established anywhere between `a' and `d'. Through more explicit statements, there may therefore be a need for a more practical understanding by managers and engineers of the notion that `reasonable skill and care' is not distinct. For most existing forms of contract, no attempt is made to take this concept of a spectrum into account or to recognise that it exists. We have seen that most of them attempt to limit the contractor's liability to either boundary `a' or `d'. The exception to this is the ECC. As stated before, the ECC core Clause 20 requires the contractor's design to comply with the Works Information. In essence, this takes into account the existence of a liability spectrum since the Clause is drafted in a way that the liability is dependent only on the particulars of the plans and speci®cations (the Works Information). The main danger for the contractor would be inadequacy of information supplied by clients. However, in this case, the liability would remain with the client unless the contractor, as a designer, did not exercise `reasonable skin and care' in seeking adequacy of information. The other uncertainty is whether Hudson's point, referred to earlier in the paper, is correct.
If the ECC Optional Clause M is used, then the interpretation will probably be dierent from the the interpretation of similar clauses in other contracts in two ways. Firstly, unlike the ICE, Option M of the ECC introduces an explicit limitation through the words ``The Contractor is not liable . . .''. If it is not ®t for its intended purpose and the contractor can demostrate that he exercised `reasonable skill and care' then he will not be liable. Secondly, Option M of the ECC puts the responsibility for proof of negligence on the contractor. He is the party who has to prove that he exercised `reasonable skill and care'. Traditionally, the onus of proof of negligence was on the client to prove that the contractor did not exercise `reasonable skill and care'. Abrahamson (1997)19 has commented that; `Under Option M the employer avoids the diculties of proving from outside that the contractor's design was negligent. The contractor has an incentive to ensure that he (and his subcontractors and sub-consultants) do their designing with provable care.'
Clause M is a secondary option within the structure of the NEC/ECC, which means that clients choose whether to select it or not. This has the advantage of taking into account the diering needs of the industry as not all clients require a strict `®t for purpose' liability from their contractors. If Option M is not used the extent of liability (the position on the spectrum) becomes highly dependent on the way in which the Works Information is drafted.
Conclusions The research has shown that the industry perception of two distinctive levels of design liability is a major oversimpli®cation of the legal position. Perhaps the most notable illustration of this is the lack of legal de®nition of the widely used term `®tness for purpose'. A rather more subtle issue, though of considerable commercial importance, is that legal analysis and case law show that attempts to limit liability in some forms of contract may not achieve the desired purpose and may mislead parties to the contract into a false sense of security. These points are well understood by experts in the legal profession, but it is clear that there is a need for deeper understanding within the industry of the problems posed by the assumption that there are two distinct levels of liability. Perhaps the most evident practical problem encountered is that of the unavailability or near unavailability of insurance for a `®tness for purpose' liability. This aects contractors (especially in design and build contracts), specialist subcontractors and professional designers, especially when the latter are appointed under a subcontract to a design and build contractor. The authors have presented the concept of a spectrum of liability as an aid to understanding the legal position. An analysis of several common forms of contract yields the view that the ECC is the closest to accomodating to this spectrum. It has been argued that through Option M in the ECC, a limitation to liability is clearly established. If Option M is not used, the extent to which the contract moves through the spectrum towards `®tness for purpose' is dependent on 307
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the way the Works Information is drafted rather than relying on a legally unde®ned term. Many of the existing forms of contract appear not to be robust, given the prevailing legal and insurance contexts, in the ways in which they deal with design liability. The industry should move towards the adoption in forms of contract of models of liability (in terms of appropriately drafted clauses) which re¯ect these contexts. The authors do not pretend that the research has been exhaustive, for example the particular position of process plant contractors with respect to `®tness for purpose' liability has not been pursued. Nevertheless they hope that the paper has provided some enlightenment on the topic and will stimulate the development of more robust approaches which avoid the problems that have been outlined. Participants from the construction industry, the legal profession and the insurance sector will need to work together to achieve this.
Table of cases . Brunswick Construction Ltd. vs. Nowlan & Others (1974) 21 BLR 127. . Greaves & Co. (Contractors) vs. Baynham Meikle and Partners (1975) Court of Appeal.1.WLR.1095. . Stormont Main Working Men's Club and Institute Ltd. vs. J. Roscoe Milne Partnership (1988) Con.L.R.127. . George Wimpey & Co. Ltd. vs. D.V. Poole and others (1984) 24.BLR.58.
References 1. The Institution of Civil Engineers, The New Engineering Contract. Thomas Telford Ltd., London, 1993. 2. The Institution of Civil Engineers, The Engineering and Construction Contract. Thomas Telford Ltd., London, 1995. 3. Duncan Wallace, I.N., Hudson's Building and Engineering Contracts. Sweet and Maxwell, London, 1970. 4. Jackson and Powell, Professional Negligence, 3rd ed. Sweet and Maxwell, London, 1992. 5. U, J., The ICE Conditions of Contract, 6th ed. New Thoughts on Old Issues. The International Construction Law Review, Volume 8, Part 2, April 1991, Lloyd's of London Press Ltd. 6. Goudsmit, J.J., Exclusion or Limitation of Liability in a Turnkey Contract. The International Construction Law Review, Volume 7, Part 3, July 1990, Lloyd's of London Press Ltd. 7. Joint Contracts Tribunal, Standard Form of Building Contract, 1981 Edition. 8. Stuart-Ranchev, A., Design Responsibility, Construction Disputes-Avoidance and Resolution. Conference Proceedings, Law and Business Forum, September 1990. 9. Joint Contracts Tribunal, Contractor's Design Portion Supplement to Standard Form of Building Contract, 1980 edition, 1981 edition revised July 1994.
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10. The Institution of Civil Engineers, the Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, Standard Conditions of Contract, 6th ed., 1991. 11. The Institution of Civil Engineers, Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, ICE Design and Construct Conditions of Contract, Thomas Telford Services, 1992. 12. Capper, P., Constructing the Team using the New Engineering Contract, Paper to conference on NEC and Construction Law, Pretoria, South Africa, March 1996. 13. The Institution of Civil Engineers, the Association of Consulting Engineers, and the Federation of Civil Engineering Contractors, Standard Conditions of Contract, 5th ed., 1973. 14. Her Majesty's Stationery Oce, General Conditions of Government Contracts for Building and Civil Engineering Works, 2nd ed., September 1977, London. 15. The Institution of Mechanical Engineers, the Institution of Electrical Engineers and the Association of Consulting Engineers, Model Form of General Conditions of Contract for Mechanical and Electrical Works, June 1988. 16. The Institution of Chemical Engineers, Model Form of Conditions of Contract for Process Plants, Suitable for lump-sum contracts in the UK, Oct 1968, revised 1981. 17. Bateman, G., Process Plant Contracts. Paper presented at the Risk, Management and Procurement in Construction Seventh Annual Conference, Centre of Construction Law and Management and CIRIA, September 1994. 18. Duncan Wallace, I.N., Hudson's Building and Engineering Contracts, Volume 1, 11th edition. Sweet and Maxwell, London 1995. 19. Abrahamson, M.W., Private communication to Professor John Perry, 1997. Dr. H. K. Gaafar is a Research Associate at the School of Civil Engineering, the University of Birmingham. He has been in the School for several years during which he gained his BEng degree in civil engineering in 1992 and completed his PhD. in 1997. He has been appointed at his current position since 1995 undertaking as an Associate with Prof. J. G. Perry an EPSRC funded Grant to look into ``Risk Allocations in the New Engineering Contract''.
Professor John Perry is Head of the School of Civil Engineering at the University of Birmingham. He received his PhD from UMIST in 1985. His research interests cover several aspects of project management including contract strategies, risk management and the development of the New Engineering Contract for the Institution of Civil Engineers in the UK.