As construction projects have become more complex, the roles of consultants and contractors have become less distinct.  Increasingly, consultants are expected to provide undertakings relating to design suitability and Fitness for Purpose (FFP) which have been traditionally regarded as inappropriate for the provision of professional services.

FFP clauses can include any of the following obligations to: produce design documents that are fit for the purpose; specify products and materials that are fit for purpose; specify methods of construction that are fit for purpose; or more generally, produce a design that when constructed will produce a building that is fit for purpose.  These clauses might also be described as ‘suitable and adequate for the purpose’ or ‘appropriate for the purpose’.

Clients often seek to include FFP clauses in consultancy agreements as the the onus of establishing a breach of a FFP clause is less than if they were required to prove a consultant was negligent which can be a lengthy and expensive process.

Significantly, these types of undertakings place a greater obligation on consultants than the common law standard of exercising reasonable skill and care in the performance of services.    We suggest that you be careful about signing consultancy agreements which include any form of FFP obligations as you may be held liable for damages in breach of a FFP clauses even if you have conducted yourself in accordance with your professional standards as was held in the UK decision: MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited & Anor [2017] UKSC 59.

MT Hojgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Limited & Anor [2017] UKSC 59

In this case, MT Hojgaard A/S (MTH) was contracted by two companies in the E. ON Group (E.ON) to design, construct and install the foundations for sixty offshore wind turbines.  The ‘contract’ (derived from various documents) contained the following explicit requirements.

1. The design was to be prepared with due skill and care, in a professional manner and in accordance with good industry practice.
2. The design was to be prepared by the method of integrated analysis in accordance with J101.
3. The Works would be fit for purpose in accordance with the Employer’s Requirements.
4. A minimum site specific “design life” of 20 years.
5. A lifetime of 20 years without planned replacement.

MTH designed and fabricated the foundations in compliance with J101 and without negligence.  J101 was a reference to an international standard for the design of offshore wind turbines published by an independent classification and certification agency.

The works were completed in February 2009 and shortly after, there was a structural failure of the wind turbines caused by an error in the J101 formula which meant that MTH had overestimated the axial capacity of the grouted connection and the foundations did not have a design life of 20 years.  In 2014, a scheme of remedial action commenced which was agreed to by the parties.  However, a dispute arose as to who should pay for the works.

E.ON argued that MTH had been negligent and breached the contract.  MTH’s defence was that it had exercised reasonable skill and care and complied with all its contractual obligations.  The Technology and Construction Court held that MTH, although not negligent in the design of the foundations, had breached the FFP obligation.

MTH appealed this decision. Whilst the Court of Appeal found that the ‘design life’ obligation seemed to be a warranty and that the foundations would function for 20 years, the Court of Appeal held that the warranty was inconsistent with other provisions of the contract. Finding in favour of MTH, the Court of Appeal held that the other provisions should prevail.

E.ON appealed to the UK Supreme Court.  The UK Supreme Court considered that the FFP obligation was not inconsistent with the requirement that the structures be designed in accordance with J101.  The UK Supreme Court explained that where two provisions impose different or inconsistent standards or requirements, rather than concluding they are inconsistent, the correct analysis is that the more rigorous or demanding of the two standards or requirements must prevail, as the less rigorous can be treated as a minimum requirement.

This case demonstrates that complying with standards and specifications may not always be sufficient in circumstances where a FFP clause is also included in a contract. Notwithstanding the fact that the courts here were considering a uniquely worded contract, this decision provides some insight as to how differing standards in contractual provisions may be interpreted.

Fitness for Purpose and your Professional Indemnity Insurance

FFP clauses are likely to infringe the ‘assumed liability’ exclusion under your professional indemnity policy wording.  The ‘assumed liability’ exclusion under your professional indemnity policy wording effectively provides that the policy does not cover liability which is imposed on you by contractual agreements in excess of a consultant’s usual liability.  Therefore, in the event you were found liable for breach of a FFP provision, it unlikely you would be fully covered by your professional indemnity insurance.

 

Kathryn Budd

Risk Manager