Jonathan Bond, Partner – Real Estate – Construction, and Amy Campbell, Associate at DAC Beachcroft LLP, look at the impact of recent case law in light of the growing risk for subcontractors, where design responsibilities are increasingly pushed down the supply chain. They highlight the importance of clear contracts, well-defined responsibilities, and appropriate insurance as key tools for managing this risk.
Design liability
The allocation of responsibility for design is one of the key allocations of risk between the parties involved in a construction project. Professor Stuart Green, Reading University, in his report “Procurement in the finishes, fit-out and interiors sector in 2023”1 said: “The prevailing tendency is for contracting parties to off-load design risk onto others with an inevitable blurring of responsibilities. The result is that nobody is ever completely sure who is responsible for what. The broader reality is that reports such as Latham (1994) make recommendations, but in practice nothing really changes. Indeed, many would argue that procurement practices in respect of design responsibility are getting worse rather than better. Yet in the wake of the Grenfell tragedy the continuous blurring of responsibility cannot be allowed to continue, not least because of the stringent requirements of the Building Safety Act.” Design confusion is one of the leading cause of disputes encountered through the FIS Legal Helpline.
According to FIS CEO, Iain McIlwee: “It is clear, despite attempts by the Regulator to define Duty Holders, for parts of the market, roles and responsibilities have become increasingly blurred when it comes to design and in some cases I fear they are deliberately opaque in the contract”. Problems such as the inadvertent transfer of design liability through embedding co-ordination requirements into a contract are placing unexpected and unclear design obligations on a subcontractor and pushing responsibility beyond the installation obligations that specialists have
traditionally fulfilled.
Design disputes
Disputes linked to design can include variations, incorrect design, timing of design and the co-ordination of and interface of different design packages. These issues typically arise due to design responsibility and scope of works not being clearly understood by the parties at the time a contract is entered into. Several recent cases have dealt with disputes related to the extent of design
responsibility and the interpretation and extent of the scope of the works. Workman Properties Ltd v Adi Building & Refurbishment Ltd [2024] EWHC 2627 (TCC) This case considered a dispute related to design. The parties had entered into a JCT Design and Build Contract 2016 for extension works to an existing dairy. The contract was heavily amended in favour of Workman Properties Ltd (“Workman”) as the employer to create single point contractor responsibility for design and construction of the works.
The dispute centred on provisions within the Employer’s Requirements which included a statement at paragraph 1.4 providing Adi Building & Refurbishment Ltd (“Adi”) would be fully responsible for the complete design, construction, completion, commissioning and defects rectification of the works noting that design had already been developed by Workman to the end of RIBA Stage 4. Paragraph 1.5 of the Employer’s Requirements went on to provide that Adi had to review the design order to ensure that the employer’s requirements were met. Adi complained that the design had not been developed to the end of RIBA Stage 4. A dispute arose as to who was contractually responsible for completing the design up to RIBA Stage 4/BSRIA Stage 4(i). Workman’s position was that the contract put all design responsibility on Adi who in turn argued that the second part of paragraph 1.4 of the Employer’s Requirements if it was for Workman to provide this design.
Following an initial adjudication where the adjudicator found in favour of Adi that Workman had warranted that the design had been completed to the end of RIBA Stage 4 but that in fact
it had not done so Workman issued Part 8 proceedings to seek a declaration from the Court as to the contractual position in relation to design responsibility. The Court concluded that the contract put all design responsibility onto Adi, even though paragraph 1.4 of the Employer’s Requirements did refer to Workman having developed the design to the end of RIBA Stage 4. This was because this provision in isolation was not sufficient to override all of the other provisions of the contract. Adi had sought to argue a very narrow point as the legal risk profile of the contract was very robust and, in the main, the risk profile of the Employer’s Requirements was also aligned with the contract conditions leaving Adi limited room to manoeuvre.
BNP Paribas Depository Services Ltd & Anor v Briggs & Forrester Engineering Services Ltd [2024] EWHC 2903 (TCC)
This is a similar case. BNP Paribas Depository Services Ltd (“BNP”) also entered into a JCT Design and Build Contract 2016 with Briggs & Forrester Engineering Services Ltd (“B&F”) for the design and construction of stair pressurisation works in risers of a 30-storey 1960s office skyscraper. It too was heavily amended in favour of BNP. A dispute arose in relation to the extent of asbestos removal works and whether B&F owed a duty to BNP to carry out further asbestos surveys and then further asbestos removal works as may be required. B&F said that its obligations in
relation to asbestos removal were limited to the asbestos identified in a quotation from its specialist licensed asbestos removal and disposal subcontractor.
This was narrower than that which the Employer’s Requirements provided for. Further asbestos was then discovered outside the scope of this quotation. B&F said that this was not part of its scope
of work and that it would not undertake such works without an instruction from BNP. The parties could not be reconciled. B&F issued a suspension notice and then a termination notice on the basis BNP was preventing it from completing the works by not providing an additional asbestos survey or an instruction for B&F to carry out this activity. There were also additional structural defects which were uncovered which added another layer of complexity to the dispute. The Court concluded that the Employer’s Requirements made it “plain beyond serious argument” that the design and build obligation and the risk in relation to the scope of the works necessary to provide the complete stair pressurisation installation including the carrying out of any additional asbestos survey was “firmly” on B&F. The Court also considered wider termination issues. The risk profile of the JCT Design and Build Contract for this project was consistent with that in the case of Workman Properties Ltd v Adi Building & Refurbishment Ltd and so B&F also took full responsibility for the design and carrying out and the completion of the works.
Critical lessons to take away
Both of these cases relate to design and build projects where the parties had entered into heavily amended contracts which created single point contractor responsibility for design and construction
of the works. Typically subcontracts flow these obligations down to supply chain insofar as they relate to supply chain packages. This can extend to supply chain assuming design co-ordination, design interface and integration with other trades which are not always clearly set-out or necessarily understood by the parties. These are key concerns for FIS. If the works had been procured using a JCT Standard Building Contract then the legal risk profile of the contracts would have been different and these cases may have had a different outcome but the key points for subcontractors to always consider is to ensure your contract is clear in relation to design (if any) and scope of works.
Be clear on Scope and Duty of Care
How a client procures a construction project will inform how design liability is allocated between the parties which in turn will influence how a main contractor then manages and flows design risk down to its supply chain. All recent cases reaffirm that, where a subcontractor has design obligations, clarity around the extent of the subcontractor’s design obligations and a suitable duty of care in relation to design is critical. Typically, a contract will include an express duty of care so that a subcontractor uses “reasonable skill and care” to progress design. Where a contract is installation
only then there is a requirement that the materials are reasonably fit for their intended purpose. Agreeing the legal risk profile of a contract is only part of the process. It is also essential that scope documents are correct, and the technical documents set out the agreed position between the parties.
How can subcontractors manage design liability
Ensure at the outset of a project that the contract is correct. This may extend to ensuring:
• technical and commercial derogations are included to reflect the agreed position at the end of a negotiated tender process;
• technical due diligence is carried out to ensure no fitness for purpose obligations in relation to design are included in any scope documents;
• legal and insurance advisers to any professional indemnity policy will respond to a claim under the contract; and
• there is a suitable duty of care in relation to design included in the contract. Instructions during any construction project are inevitable but it is important to start from the agreed scope of works and agreed risk profile of a contract when it is entered into and wherever possible to not derogate from this. Where any instruction is a variation to the agreed scope of works ensure:
• there is always a paper trail which tells the story behind each instruction and why it was made to ensure that the extended scope is clearly set out and agreed by all parties;
• if the scope of works is installation only ensure no design liability can accrue from commenting on construction issue drawings or providing additional detail which may amount to design
development; and
• it is clear who takes the risk on the performance of any substituted materials with the wider works to avoid any unintended liability for co-ordination or materials approval.
