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Challenging times for construction professionals and design and build contractors: professional duty of care

Originally published in Construction Law Magazine In these difficult times for the construction industry, it is more important than ever for construction professionals and design and build contractors to understand the scope of their professional Read more...

Tom Pemberton

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Originally published in Construction Law Magazine

In these difficult times for the construction industry, it is more important than ever for construction professionals and design and build contractors to understand the scope of their professional duty of care to their clients and (in the tort of negligence) to others who rely on their designs. On the one hand, the industry is under pressure to make step change improvements in their construction and procurement methodology in order ensure there is no repeat of the Grenfell disaster. With this end, the Building Safety Act, which gained Royal Assent on 28th April 2022, will extend the limitation period for the exercise of statutory rights of action by anyone suffering damage as a result of a breach of the Building Regulations to potentially more than 30 years. On the other hand, the industry is under increasing pressure to deliver the government’s housing and infrastructure targets in the face of widely reported shortages of labour and materials compounded by budgetary constraints at a time of increasing inflationary pressures.

Construction professionals and design and build contractors will inevitably feel the pinch as they are asked to deliver projects which must meet the above challenges while demonstrably contributing to the achievement of net zero, using state of the art modern methods of construction and digital tools to design, manage and deliver projects, in circumstances where the insurance industry has a diminishing appetite to insure the risks arising from these challenges.  The construction industry’s difficulties in procuring professional indemnity insurance was put into stark relief by the survey commissioned by the Construction Leadership Council last year. Of over 1,000 businesses which responded almost 50% had been declined insurance by three insurers or more, and premiums had increased nearly fourfold at the last renewal, having doubled the year before.

This underlines the importance for construction professionals, and also contractors which undertake design or other professional responsibility, to have regard to the scope of their professional duty of care when negotiating their contracts and to ensure that it is covered by their PI insurance wherever possible. Case-law over the past 15 years or so provides important guidance on the scope of this duty. Three of those cases in particular illustrate the pitfalls into which an unwary construction professional or design and build contractor may fall.

In the case of Costain Ltd v Charles Haswell & Partners Ltd [2009] EWHC 2350 (TCC) Costain claimed compensation from Haswell in respect of (among things) the additional cost of procuring piled foundations for a water treatment works project in respect of which Costain had been awarded a design and build construction contract. It had become clear from site investigations carried out after contract award that the conventional foundations which Costain had allowed for in their tender (based on Haswell’s pre-tender design) would not be adequate.  Under the terms of their design appointment, Haswell had agreed a dual obligation both to exercise all reasonable professional skill, care and diligence, and a strict obligation to undertake that the works designed by them would (among other things) meet the requirements described in the main contract specification.

On the facts the Court held that the strict obligation did not apply to the abortive tender design prepared by Haswell (since the permanent works were not constructed in accordance with this design), but that Haswell were in breach of their obligation to use all reasonable professional skill, care and diligence. However, the court also held that Haswell were indeed subject to a parallel strict obligation to ensure that the permanent works constructed in accordance with their design met the requirements described in the main contract specification. This strict obligation would of course almost certainly have been excluded from cover by Haswell’s PI insurance.  The judgment therefore highlights the importance for construction professionals to ensure that any strict obligations in their appointments achieve specified outcomes are expressly qualified by their obligation to use reasonable skill and care.

For design and build contractors, it is doubly important to ensure that their design obligation is so qualified, in view of their implied obligation to ensure that the works are completed so that they are “fit for their intended purpose” in the absence of an express contractual exclusion or qualification (IBA v EMI and BICC [1980] 14 BLR 1, Court of Appeal). Some doubt was cast on this default position by the more recent first instance judgment of Trebor Bassett Holdings & Cadbury UK Partnership v ADT Fire and Security plc [2012] EWCA Civ 1158). However, this can be distinguished from EMI v BICC on its facts, and prudent design and build contractors should continue to assume that they will be subject to an implied fitness for purpose obligation when carrying out design work, unless their design obligation is expressly limited to the use of reasonable skill and care. Clause 2.17.1 of the JCT 2016 Design and Build Contract is a good example of this.

In the case of MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Limited and another [2017] (UKSC 59) the Supreme Court held that there was no need for a fitness for purpose term to be implied since the contract included express obligations to this effect, together with an obligation for the Contractor to carry out the design (among other things) in a professional manner in accordance with modern design principles. It appears to have been accepted that the latter was tantamount to an obligation to use reasonable skill and care. On a similar basis to the judgment in Costain v Charles Haswell, the Supreme Court held that the fitness for purposes obligations were independent of the reasonable skill and care obligation and that while the Contractor may not have been in breach of the latter, it was in breach of the former obligation. Again, this almost certainly would not have been covered by their PI insurance.

Construction professionals and design and build contractors should also be mindful of their concurrent liability in the tort of negligence. The case of BDW Trading Ltd v URS Corporation Ltd and another [2021] EWHC 2796 (TCC) concerned a number of preliminary issues relating to the scope of the tortious liability of URS (as the designer) in relation to defects in a number of high-rise buildings arising from their assumed negligent design, such that the buildings were not structurally safe. At the time the defects were discovered BDW no longer owned the buildings concerned and their current owners had not made any formal claims against them so URS were no doubt preparing to run a “no loss” argument in contending that they had only nominal liability for any loss suffered. However, the Court held that it was not necessary for BDW to prove that they had suffered actual losses as a result of the assumed defects, but that it was reasonable for BDW to take any necessary action to remediate the structural defects in order to make them safe for occupation. An argument to the contrary is highly unlikely to have a sympathetic hearing in the post-Grenfell era. On this basis, unless URS are able to rely on any of a number of defences which were considered by the court, URS would be liable for the substantial costs of rectifying the defects if BDW establish, on the facts, that the tests established by the Supreme Court in the leading case on the tort of negligence of Khan v Meadows [2021] UKSC 21 have been satisfied.

In these challenging times, all construction professionals and design and build contractors would be very well advised to review their processes both in negotiating their contracts and in managing their work, in order to minimise the risk of claims against them based on an alleged breach of their duty of care.

If you would like to discuss any of the topics raised in the above article, please call us on +44 (0)20 7936 8888, email on enquiries@lawstep.co.uk or contact a member of the team below.