In a recent blog we highlighted the risks to contractors of ‘fitness for purpose‘ obligations. By accepting a fitness for purpose obligation, the contractor effectively guarantees that the design will meet the employer’s requirements, whatever they may be.
So when pursuing a claim based on a fitness for purpose obligation, the employer will merely need to prove that the completed building does not work. It will not need to show that the designer has been negligent. Add to this the fact professional indemnity insurance policies will not cover fitness for purpose obligations, and it is clear that fitness for purpose obligations are very unattractive propositions as far as contractors are concerned.
The problem is, a fitness for purpose obligation is not always that easy to spot. This is because:
- it may not be in the main body of the contract. For example, they could be buried amongst the employer’s requirements (as was the case in the Court of Appeal case that we featured in our recent blog*);
- it may not actually use the words ‘fit for purpose’ (e.g. it could use wording such as ‘the Works shall comply in all respects with the requirements of the Employer as defined in the Contract’, which would have the same effect); and
- even if there is not an express fitness for purpose obligation (i.e. one which actually appears in the contract), there may be an implied term (i.e. a term that does not actually appear in the contract, but is deemed to be included in it) to that effect.
Given the substantial burden placed on a contractor by a fitness for purpose obligation, and the fact that professional indemnity insurance policies will not cover them, it is essential to do two things when negotiating your contract. Firstly, thoroughly check the contract, including all the accompanying documents, to make sure there are no fitness for purpose obligations, or anything that might amount to one. If in doubt, seek legal assistance.
Secondly, implied terms as to fitness for purpose can be excluded by express provisions in a contract. Indeed, many design and build contracts (e.g. the JCT and ICE contracts) contain express provisions which absolve the contractor from fitness for purpose obligations. Ensure, therefore, that the contract contains such an exclusion.
Of course, the employer may insist on a fitness for purpose obligation. If it does, try and dilute it or negotiate a limit on liability. Alternatively, try and negotiate a higher contract price to reflect the added risk you will be taking on.
For more information, email firstname.lastname@example.org.
* MT Hojgaard v EON Climate Renewables UK Robin Rigg East Ltd and another  EWCA Civ 407,  All ER (D) 08 (May)