In the words of Meat Loaf, “Two out of three ain’t bad”. In 2017, however, the Supreme Court unanimously disagreed.
Design responsibility in construction contracts is one of the most litigated issues in construction projects. This is not usually because parties intend to create uncertainty, but because responsibility is assumed rather than examined. At procurement stage, the position can appear straightforward. The employer produces Employer’s Requirements. The contractor produces Contractor’s Proposals. Design consultants are novated and professional indemnity insurance is in place. When defects emerge, however, it becomes critical to understand where construction design risk has actually landed.
The blurred edges of design responsibility
Defect disputes are rarely about whether something has gone wrong. They are about who carries the consequences. By the time experts are appointed and remedial options are being considered, the contract becomes the main lens through which responsibility is assessed.
The difficulty often begins not at the point of failure, but in the contract drafting. Design responsibility may be spread across Employer’s Requirements, Contractor’s Proposals, consultant appointments, collateral warranties and insurance provisions. These documents must be read together to understand how construction contract design obligations interact.
Fitness for purpose in construction
One of the most significant, and frequently underestimated, shifts in design responsibility is the move from a reasonable skill and care obligation to a fitness for purpose obligation. A reasonable skill and care obligation reflects the professional standard normally covered by professional indemnity insurance. The question is whether the designer acted with the competence expected of a reasonably skilled professional.
A fitness for purpose obligation asks something different: did the design achieve the required result? That can amount to strict liability. Fault may be irrelevant and the responsible party may be liable even if it was not negligent. A fitness for purpose obligation can arise through:
- Absolute performance specifications, such as “shall achieve” or “will ensure”
- Output-based requirements without clear qualification
- Amendments to standard forms that remove reasonable skill and care wording
- Collateral warranties containing broader obligations than the underlying appointment
- Technical schedules setting performance criteria beyond what insurance will cover
In design and build projects, this can create significant design and build contractor liability. Contractors may find themselves warranting outcomes based on Employer’s Requirements they did not prepare.
Reasonable skill and care vs fitness for purpose
The Supreme Court’s decision in MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59 shows how this can happen. The contractor was engaged to design, manufacture and install foundations for 60 wind turbines. The contract required it to:
- Ensure the foundations lasted for 20 years without planned replacement
- Comply with the international design standard J101
- Complete the works professionally and in line with recognised standards and good industry practice
The contractor complied with J101 and met its reasonable skill and care obligation. However, J101 contained an error, meaning the foundations would not last for the required 20 years. The Supreme Court held that the contractor was liable. Compliance with the standard and the exercise of reasonable skill and care were not enough. The contractor had warranted an outcome, and that outcome had not been achieved. Two out of three was not enough.
Professional indemnity insurance and design risk
Consultants, particularly after novation, may discover that their appointment contains language extending beyond what their professional indemnity policy covers. The result can be legal exposure without corresponding insurance protection. Insurers increasingly scrutinise fitness for purpose wording, particularly in areas involving complex performance criteria, including energy efficiency, cladding, façade systems and specialist mechanical and electrical installations. If the contractual obligation extends beyond insurable limits, the risk has not disappeared. It has become a balance sheet issue. That may be acceptable if it is understood and priced, but rarely if it has entered the contract through drafting without proper consideration.
Check where the design risk has landed
Before signing, ask:
- Where has the risk actually landed under the drafting?
- Is the party carrying it able to manage and insure it?
- How will the clause operate if the project comes under strain?
A structured review at procurement stage can prevent significant exposure later.
This article forms part of our series examining how risk is allocated across Scottish construction projects. In our introductory article, Construction risk transfer in Scotland. Why construction risk never disappears, we explained why construction risk is transferred rather than removed, and why it is important to understand where that risk has landed.
If you would like us to review how design risk has been allocated in your construction contracts, please contact Jennifer Young or Sarah Stuart.
