"Fitness For Purpose" and "Reasonable Skill and Care"
"Fitness For Purpose" and "Reasonable Skill and Care"
One of the most important terms in any designer's appointment is the standard to which it must carry out its
services.
In the absence of any express clause, the law implies that a professional consultant must carry out its
services using the reasonable skill and care of a competent professional designer. This is commonly
'amplified' by an express term to make the standard specific to the size and complexity of the project in
question.
In either case, to demonstrate a breach, an employer would need to show that the designer was negligent.
Contrast that with fitness for purpose. This is the standard implied on design and build contractors in the
absence of an express term to the contrary. Here the contractor effectively guarantees the design will meet
the employer's requirements. If the requirements are not achieved, even without negligence, the contractor
will be in breach.
Unsurprisingly, designers are reluctant to agree fitness for purpose obligations and their professional
indemnity cover rarely extends beyond reasonable skill and care. The difference between the standards and
the risk to designers was highlighted in the recent case of MT Hjgaard (MTH) v E.On. [1]
THE CASE
E.On engaged MTH for the design, fabrication and installation of the foundations for 60 wind turbine
generators in the Solway Firth.
The contract contained, in separate parts of the documentation, two material clauses regarding design
liability. The first provided that MTH carry out the design using reasonable skill and care. The second was
an obligation on MTH to ensure a design life of 20 years.
The works were found to be defective. MTH however, was not negligent - they had followed an international
standard referred to in the contract which was subsequently found to contain an error. The question for the
court was whether, having exercised reasonable skill and care, MTH would still be liable because the design
life did not last 20 years.
The court held that MTH was liable. Irrespective of the obligation to exercise reasonable skill and care, the
design life clause was clear. The court reasoned that absolute obligations and obligations to exercise
reasonable skill and care were not necessarily incompatible and in this instance they could co-exist.
Steven Carey, Partner in our Construction, Engineering & Projects team, commented:
"The lesson here for designers is to take care when negotiating terms. Fitness for purpose obligations are
not always obvious and designers must ensure they are identified. An obligation to exercise reasonable skill
and care will not necessarily displace an express absolute obligation."
[1] MT Hjgaard A/s v E.On Climate and Renewables & Others [2014] EWHC 1088 (TCC)
1979 6 which imposes implied terms on any seller acting in the course of business that the goods supplied will be of
satisfactory quality and, where the purchaser makes known any particular purpose, are reasonably fit for their intended
purpose.
In a construction context, this means that a contractor is effectively guaranteeing that the components and the finished
building will be fit for their intended purpose.
Why does it matter?
A reason why the distinction between these two levels of responsibility is so contentious is because most professional
indemnity (PI) policies will cover the holder only in the event of a claim arising out of the holders professional
negligence (i.e. a failure to exercise reasonable skill and care). This leaves the designer uninsured against a contractual
claim for breach of a fitness for purpose obligation. Where a defect arises and no allegations of negligence are made
(when the employer doesnt need to prove negligence, why would he allege it?), the policy is unlikely to respond to the
claim and insurers may refuse to pay costs associated with the defence of the claim. Further, not only do PI policies
generally expressly exclude a fitness for purpose risk (since it is difficult to quantify this risk in respect of both probability
of occurrence and magnitude of loss), some may even be completely invalidated if a consultant has agreed to any
fitness for purpose obligations within an appointment. Whilst the consultant may therefore suffer uninsured losses,
employers need to be careful too as this may seriously limit their potential for financial recovery.
Where the lines become blurred and hackles rise
The dual role of a design and build contractor has presented quite a challenge in determining the level of his
responsibility and it could be said that he is under conflicting obligations in respect of the two distinct functions of design
and construction. Case law has developed over the years supporting the view that, in the absence of an express
contractual rebuttal, a design and build contractor must ensure that the works are completed so that they are fit for their
intended purpose. This was confirmed in IBA v EMI and BICC 7 where the Court of Appeal Judges stated,
We see no good reason for not importing an obligation as to reasonable fitness for purpose into these
contracts or for importing a different obligation in relation to design from the obligation which plainly exists
in relation to materials. 8
It may seem unfair that a consultant and a contractor who carry out effectively the same design function are subject to
different levels of responsibility in relation to that design simply because the contractor also constructs the building.
However, the main rationale for this thinking is that design and build contractors are more akin to sellers of goods
(producing a finished product) rather than professional advisers (just providing a service). It means, though, that an
employer only needs to prove that the design was not fit for the intended purpose upon which he was relying,
irrespective of extraneous factors or whether the contractor exercised reasonable skill and care.
Although some doubt was thrown on the above default position by a judgment relating to the failure of a specialist fire
suppression system in a popcorn factory 9 which appeared to draw a distinction between standard kit (classed as
goods) and bespoke product (classed as a service) it is not easy to reconcile this decision with the rationale of the
previous cases. As this is a developing area of law, it remains sensible for contractors to continue to assume that they
will be subject to an implied fitness for purpose obligation when carrying out design work.
Avoiding fitness for purpose
In light of the potential absence of insurance coverage, it is reassuring that many design and build contracts (for
example, the JCT and ICE contracts) contain express provisions which absolve the contractor from a fitness for purpose
obligation. They limit the contractors liability for design to the standard required of an architect or other appropriate
professional designer, thereby imposing a reasonable skill and care obligation with the intention of overriding any
implied or common law fitness for purpose obligation. The position under the NEC3 contract is different. Whilst the
contract appears to be silent on the matter, the requirement that the contractor provide the works in accordance with the
Works Information, will probably amount to a fitness for purpose obligation. That said, you can expressly impose a
reasonable skill and care duty by selecting secondary option clause X15. However, if the contractor fails to do this, a
fitness for purpose obligation may be implied. Despite the diluting effects of the above, contracts will often include
wording that seeks to either subtly enhance the most basic level of responsibility (of reasonable skill and care) or even
to achieve a fitness for purpose obligation by the back door.
Raising the standard by increments
The standard JCT clause, for example, is often amended by employers to raise the standard of skill and care to that of a
competent consultant with experience of projects of a similar size and scope. Some amend it further to make the
standard of skill and care that of a competent design and build contractor. On the face of it, the latter wording appears
circular, but it could well re-introduce a fitness for purpose obligation with the obvious consequences for PI cover.
Full-blown fitness for purpose in disguise
In light of the above, the very words fitness for purpose will understandably trigger alarm bells in the ears of many
contractors. However, without using this highly identifiable and word-searchable phrase, absolute obligations may still
be imposed. A common way to achieve this is to slip in a requirement for the contractor to warrant that the completed
works shall comply with the employers requirements and/or any performance specification. This type of wording
commonly follows immediately after a reasonable skill and care obligation, which may lull the unsuspecting contractor
into a false sense of security.
For example, we recently came across an amended clause to a standard JCT Without Quantities 2011 which required
the contractor to warrant that the design of the CDP would be carried out using the skill, care and diligence to be
expected of a properly qualified and competent architect or engineer. This was immediately followed by a clause
warranting that the CDP, when completed, shall be suitable for the purpose stated in the Contract Documents and will,
when complete, comply with any performance specification or requirement included or referred to in the Contract
Documents. Regardless of a reasonable skill and care obligation, the effect of the mandatory wording is to add
something different an obligation of strict liability. 10
This type of amended wording has obvious advantages from an employers point of view, as it has the same power and
effect of a fitness for purpose clause but without having to shout about it.
Playing trump
In the recent Robin Rigg case, MTH was contracted to design, construct and install the foundations for sixty offshore
wind turbines. Clause 8.1 of the contract provided that these functions shall be completed with: the due care and
diligence expected of appropriately qualified designers, engineers and constructors; in accordance with Good Industry
Practice; so that each item of plant and the Works as a whole shall be fit for its purpose as determined in accordance
with the Specification using Good Industry Practice; and when completed comply with and be wholly in accordance
with this Agreement and any performance specifications or requirements of the Employer as set out in this
Agreement. The employers requirements referred to a minimum site-specific design life of 20 years and required
that The design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement.
Despite exercising reasonable skill and care and following best industry practice, the foundations were found to be
defective. However, unfortunately, the industry-wide, and universally accepted, independent, international standard
applicable to the design of such foundations turned out to be incorrect. E.ON alleged that MTH was in breach of
overriding fitness for purpose obligations and MTH responded by saying that any fitness for purpose obligation was
qualified by its duty to comply with the standard. The point of disagreement between the parties was whether the terms
of the contract imposed a strict obligation to achieve a service life of 20 years or merely an obligation to design the
foundations on the basis of a 20-year design life in accordance with the standard.
In his judgment, Mr Justice Edwards-Stuart referred to two Canadian cases 11 as authority for the proposition that the
existence of an express warranty of fitness for purpose by the contractor can trump the obligation to comply with the
specification even though that specification may contain an error. He went on to assert that, It is not uncommon for
construction and engineering contracts to contain obligations both to exercise reasonable skill and care and to
achieve a particular result and that the two obligations are not mutually incompatible and therefore can coexist side
by side. He held that MTH did assume full design responsibility and warranted a service life of 20 years upon which
E.ON was entitled to rely, notwithstanding that MTH was required to design in accordance with the standard. Since the
foundations failed within two to three years, MTH was in breach of that strict obligation. MTH was given leave to appeal.
Other points to look out for
Even if an appointment expressly provides for a performance obligation of reasonable skill and care or is silent on this
matter, a consultant should be aware of not entering into a collateral warranty with a fitness for purpose obligation as he
will automatically be increasing his potential liabilities with similar repercussions for his PI cover. These issues also need
to be considered in the now fairly common situation where the employers design team is novated to the contractor.
Questions should be raised not only in relation to the extent of the contractors responsibility for that design but also as
to the potential for there to be differing standards of design responsibility. If the contractor has a fitness for purpose
obligation and, as is likely, the professional designers are merely required to exercise reasonable skill and care, this
potentially creates a mismatch and means that the design liabilities do not flow consistently down the contractual
chain.
Care also still needs to be taken even where a contractor thinks he has no design responsibility at all. For example, it is
not uncommon for a contractor, assuming he is authorised to do so, to delegate particularly complex design work to a
specialist or he may be instructed by the employer to enter into a subcontract with a nominated subcontractor who will
do some design work on behalf of the employer. The contractor will be under a duty to use reasonable skill and care in
selecting the third party and his duty will generally be held to have been satisfied providing he does this. However,
where the third partys work is defective, and a reasonably competent designer ought to have noticed the defect, the
designer will be under a duty to warn the employer.
The infamous case of Walter Lilly v Mackay 12 highlighted the importance, for employers, not only of the presence, but
also of the effectiveness, of any terms relating to design liability. Here, it was a requirement of the contract that the
employer must notify the contractor of any work that was to be the subject of contractor design. Such notification was
not given and a dispute arose concerning defective work. The Judge found for the contractor, emphasising the need for
a clear CDP notification for it to be effective.
Conclusion
What can we learn from recent case law? It is of fundamental importance for both parties to consider the issues relating
to risk and responsibility when negotiating any construction contract, but particularly where design and build are
combined. Absolute obligations for fitness for purpose relating to design (regardless of whether that obligation includes
such express wording) should still be approached with caution and diluted where possible, as a reasonable skill and
care clause may not offer much protection against an absolute obligation to achieve a certain standard of work.
For contractors, the risk of performance to a higher standard must first be identified and, if necessary, counterbalanced
by seeking to limit their overall liability under the contract or else by pricing it into the deal but always with the
awareness of the consequences for PI cover. Employers must balance their desire to ensure that the completed works
fulfil their requirements against the danger of imposing uninsurable obligations.