DESIGN AND BUILD -CONTRACTORS RESPONSIBILITIES!

It is not just the hazards of construction or the ground conditions that the Design and Build contractor has to be wary of.

The Scottish decision of Blyth & Blyth has highlighted the “liability gap” that arises under a design and build contract.

The gap occurs when the employer makes the contractor responsible for design carried out prior to the contractor's involvement and provides for the novation of the original designer to the contractor.

The contractor then discovers deficiencies in the design. He then seeks to recover his losses from the original designer. But it is then that the liability gap opens. Why should there be a gap? You may ask. Surely the contractor has a right of action against the designer who has now been novated to him. There is a contract. Just sue him. Or so you might have thought.

But there are a number of obstacles:-

(1) The designer may owe a different duty under his appointment to the employer than that which he would owe to the contractor if the contractor had engaged him in the first place.

(2) Even if the designer owed a duty to the contractor commensurate with the duty owed to the employer there may be no loss. The employer suffers no loss because he transferred the risk of poor design to the contractor

The no loss argument is not restricted to this particular area and the courts have on occasions risen to the challenge to provide a third party (in this case the contractor) with a remedy. Indeed The (Contracts Rights of Third Parties) Act 1999 is intended to meet just such difficulties.

But even if the Contractor can surmount the “ no loss” argument he may still have a problem. The courts are reluctant to accept that consultants engaged by a developer owe duties to contractors.

At the heart of the Blyth & Blyth case is the analysis of the construction industry reflected by the legal authorities that there is a fundamental conflict of interest in the consultant trying to serve the interests of both the Employer and the Contractor.

So how does that effect the court's decision in the Blyth & Blyth case?

The consultants had prepared the Employer's Requirements and provided pre-tender information. Inaccuracies in the information suggested a lower quantity of materials (such as steel bar re-inforcement) would be required for the project than was actually the case.

Due to the nature of the design and build process this risk and specifically the adequacy of information including the Employers Requirements were the contractor's risk. The court referred to authorities that have held that the role of the consultant in advising the employer is to look out for the employer's interests and that contractor's interests are not his concern. On this view the consultant was not in breach of its duty to the employer and the court was not convinced that the consultant owed a general duty warranting the accuracy of the information.

In the Blyth case the consultant's appointment was along traditional lines – it was not drafted with clear intention that the consultant would owe duties to the contractor. Indeed the court took the view that although the appointment envisaged potential novation to the contractor the novation was at the employer's discretion and for his benefit. In those circumstances it could not be argued that there was a common intention behind the documents that the consultant owed a duty to the contractor.

So what is the answer. Where the consultant is to owe duties to the contractor it must be clearly stated – if not contractors will just have to go on pricing the risk or checking all information. Pricing the risk or re-checking the information may not be the most cost - effective way of dealing with the information issue. However the law is ripe for development and the courts may have to take a very different approach in multiparty contracts where the contributors owe duties not just to each other but the project.

"The new JCT 2005 suite of contracts seek to limit the design liability of Contractors to responsibility for the design which they carry out and exclude liability for design carried out by others.  Many employers will amend the contracts to provide for a single point of responsibility."

Tim Willis is a construction partner at The Wilkes Partnership acting for contractors and employers in the construction sector.

Tim Willis, Construction Unit, The Wilkes Partnership
41 Church Street
Birmingham
B3 2RT

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For more details about the topics discussed in this Article, please e-mail twillis@wilkes.co.uk