Determining Fitness for Purpose Obligations in Construction Contracts

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A recent Court of Appeal judgment has ruled that a contractor in a multi-million pound contract only had to meet a technical specification referred to in part of the contract although other parts of the contracts potentially set out higher standards in more general terms.

Background

E.ON contracted with MTH to design, fabricate and install the foundations for 60 offshore wind turbines. The written contract between the parties incorporated a number of documents including employer’s requirements, conditions of contract and technical requirements.

A series of problems started to come to light. The parties agreed that E.ON would develop remedial works costing £26 million, although proceedings were also initiated as to who should bear that cost.

MTH’s obligations as contractor in relation to fitness of purpose were specified in the contract as follows:

  • ‘‘design, manufacture, test, deliver and install and complete the Works: with due care and diligence expected of appropriately qualified and experienced designers, engineers and constructors”;

 

  • “that each item of plant and the Works as a whole shall be free form defective workmanship and materials and fit for purpose as determined in accordance with the Specification using Good Industry Practice”; and

 

  • “that the design of the Works and the Works when completed by the Contractors shall be wholly in accordance with this Agreement and shall satisfy any performance specifications or requirements of the Employer as set out in the Agreement”.

The applicable industry standard provided that if service life is not specified, 20 years should be used and included different construction methods one of which MTH used.

However, the Employer’s Requirements located in the Technical Requirements also incorporated into the contract several references to a 20 year lifetime without planned replacement.

Technology and Construction Court

The judge held that MTH was liable for breach of contract because the contractor’s design of the foundations were not fit for purpose, not wholly in accordance with the requirements of the contract, and contrary to its obligations under the Employer’s Requirement, in particular ensuring a lifetime of 20 years.

Court of Appeal Decision

In considering the legal principles Lord Justice Jackson said “it is not unknown for construction contracts to require the contractor to (a) comply with particular specifications and standards and (b) to achieve a particular result”. In his Lordships view, such a contract, if drafted sufficiently clearly would impose a double obligation on the contractor.

In determining whether this construction contract was of that character, the court recognised that it was dealing with a matter consisting of “diffuse documents” by multiple authors and containing “much loose wording”. On the one hand clauses referring to “a life time of 20 years” would indicate that a warranty had been incorporated into the contract that the foundations would function for 20 years. However, on the other hand all other provisions within the Technical Requirements were directed towards “a design life of 20 years” as in the international standard J101.

In the Court’s opinion a reasonable person would know that the standard required in this case was compliance with the J101 standard, which was expected to produce a life of 20 years but not guaranteed. Additionally, while some provisions in relation to a life time of 20 years were present, they were “too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations”.

Impact of the decision

This case highlights how expensive and risky litigation is or a way of clarifying the meaning of a high value contract, especially one assembled from different documents with inconsistent wording. The Court did confirm that a properly worded contract could have done what E.ON wanted. Writing the contract to achieve that would not have cost £26m. Leaving the performance standard unclear did.

If you would like advice on drafting or reviewing construction contracts please contact Daniel Milnes and for advice on construction disputes please contact Robin Stephens.

Nat Avdiu

About Nat Avdiu

Nat Avdiu is a Paralegal in the Contracts and Projects team at Forbes Solicitors. Nat provides updates for clients on a range of issues including: governance, data protection and freedom of information, procurement and charity law.
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