HENRY HATHAWAY writes any party entering into a contract where there is a Design & Build must ask itself whether or not the standard form of contract or bespoke drafting contains sufficient terms to address the scenarios envisaged.
Following on from previous articles in Irish Construction News, which tackled points that commonly arise as disputes and with the central intent being for readers to seek to avoid disputes in construction, this article centres on disputes arising out of Design & Build contracts or even where a contract is not wholly a design and build but will have elements of design.
Design & Build contracts
The ordinary position or common quote that is often heard when a potential issue arises during the course of a Design & Build project is for an employing party to potentially reject any complaints or raising of issues and simply repeat that being a Design & Build contract, the issues rest with the employed party. This is a common response when rejecting variations and/or any usual rights under the contract, such as loss and/or expense or an extension of time. It can be usual for parties to then wryly state that the agreement is nothing more than a “design and dump”.
Other employed parties will think otherwise, given their ingenuity and approach to problem-solving. They consider that these circumstances provide them with a carte-blanche approach to “value engineer” the project and then increase profits and deliver the project.
Another scenario is where there is only one element of the work to be designed, usually by a specialist in that area, but it needs to be incorporated into an overall design. Where both elements meet and integrate, where does the design responsibly commence and end? The question then is, which one is correct, and how are the above scenarios treated?
High stakes
Whichever issue or view is adopted, without a firm understanding, the stakes are rather high, and the risk is inherent. If wrong, a party could find itself in a scenario where it is faced with cross-claims, abatements and or a set off.
Those who have read previous articles or attended any events or training by the author will be reminded that the content and intent of the initial agreement are entirely at the root of the answer. Given the fact that if a dispute arises, the first question will be whether the parties had entered into an agreement. The next question will be what the actual terms were, and this is no different here in the case of Design & Build. In essence, any party who is entering into a contract where there is a Design & Build must ask itself whether or not the standard form of contract or bespoke drafting contains sufficient terms to address the scenarios envisaged.
Understand the employing party’s intentions
In usual terms, as part of the initial invite to tender, the employing party will set out what it intends to have built, and this will be in the form of performance specifications or outline drawings. This can be where the initial problems arise. As the parties are free to contract on very wide terms in this instance, the first point to consider is to what extent the employing party’s designs have progressed. There will be a significant difference in drawings issued at tender to the contractor, which were used for planning only or whether or not the employing party have effectively developed the drawings to a significant extent with detailed specifications for performance to be reached.
These are two very wide and significantly different scenarios, and the proposed designer ought to be very clear as to what extent of design is required or how well-developed the requirements are.
Having been provided with the above, the contracting party would do well to consider at an early point what its proposals will be in order to meet or reach the objectives set out in the requirements and whether or not, at the point of contract, that its proposals have been accepted as meeting the objectives of the design requirements.
A question could arise at this point, what if the contents or the requirements initially provided to the contractor were, in fact, incorrect or wrong in the first place?
An express term incorporated, which directs liability for the contents of the initial employer’s requirements, is an astute provision. This clearly would not affect the obligations placed on the contracting party that a design it undertakes to meet the initial requirements is to be prepared with reasonable care and skill and in accordance with the statutory requirements. However, the point that risk transfers for any previous design undertaken by the employing party does need to be addressed.
Planning requirements
Naturally, any design is required to be undertaken within the confines of any statutory consents and may include various issues or applications under the planning laws. A simple but important question is, who is to be responsible for the gaining of such consents or approvals?
A cursory reminder of not having an express clause to deal with such consents occurred in the case of Walter Lilly v Clin over four separate instances within the courts in the UK. The contract was silent on the responsibility, and, in effect, a term was required to be implied. Had there been an express term, the issue may have been more straightforward, especially in a case where the delays were significant.
Sources of dispute
From the author’s experience, coordination of design and integration of elements or as a whole is often a source of disputes. Well-developed standard form contracts still require a design approval process, and when adopted and implemented, the proposed designs are submitted to the employing team and the approvals are provided. Timelines are set in order to ensure that the contractor does not simply leave it until last or clearly will set out timelines so as not to allow for the employing party not to approve or reject.
When does design development end?
Another question is when does design development end, and, in fact, become an entirely separate and new scope and can there ever be a variation in a design and build, or, neatly, can it always be materially wrapped up in a generic, all-encompassing term of Design & Build and for the contractor to simply proceed? There is a distinct difference between merely carrying out a design that was contracted for and for what clearly is a variation to the original intent at the time of contract. Again, and at the risk of being repetitive, this entire answer will depend on the express terms of the contract. The test will be whether there has been a definable change to the initial requirements of the employing party in terms of scope, quality of any specified materials or increase in the standard of the specifications.
Clearly understand what is agreed
The critical point is to understand if a change does, in fact, arise, and this is not quite as easy to always identify. Moreover, the next question will be, who, in fact, holds the risk of any such issue and how has such risk been captured in the drafting. This is also pertinent in respect of any discrepancies or divergences in any design produced. There is no inherent reason to suggest that just because a Design & Build contract is in place that all risk immediately is assumed on account of such a procurement process. It simply stems and is derived from the common intention of the parties at the time of contract, and, in these circumstances, parties are encouraged to record the agreement in sufficient terms so as to make it clear. In such scenarios, this would amount to the first step to avoid disputes in construction.
Henry Hathaway is a solicitor who practises in Ireland, England and Wales and specialises in construction law. He is a qualified civil engineer and spent 12 years working in the industry. He advises on contract formation and provides practical advice when entering construction contracts, and regularly provides training and seminar days to companies to assist knowledge and application in order to assist them in avoiding disputes in construction. If you require further information in relation to contract formation or would like to discuss training and development in this area, contact henry.hathaway@hathawaysolicitors.ie
This is one in a series of articles by Henry Hathaway for Irish Construction News, Click Here to read other articles
Disclaimer: This content is provided for information purposes only and does not constitute legal advice. It is provided to present information to the broader construction industry and provide awareness. Independent legal advice should always be sought prior to application, and no solicitor/client relationship is formed, and no duty of care nor liability arises from any of the contents of this article.