Spec Finish

Legal www.thefis.org 21 RESPONSIBILITY FOR DESIGN IN DESIGN AND BUILD SUBCONTRACTS This article examines responsibility for design typically found in design and build subcontracts for steel framing systems (SFS) and, indeed, more generally in the fit-out and interiors sector, the role of collateral warranties and related issues of professional indemnity (PI) insurance cover and limitations on liability. U NDER a design and build project, the main contractor is fully responsible for all aspects of design undertaken by them, including by their supply chain. The extent of all design obligations and responsibilities in turn passed on by the main contractor to a subcontractor will be set out in the specification and all other documents incorporated into the subcontract, as well as terms of the subcontract itself. Manufacturers of products (either with or without design responsibility) also commonly form a further link in this chain. Even if the subcontractor places an order of SFS or other products by way of purchase order only, that purchase amounts to a contract into which, in absence of equivalent express terms agreed, will be implied minimum terms that the goods are of reasonable quality, reasonably fit for purpose and that the manufacturer has used reasonable skill and care in carrying out any design. Any breach of these or other contractually agreed standards will mean that the subcontractor has a claim against the manufacturer to recover any losses ultimately recoverable by the main contractor that can be shown to result from that breach. Fully understand the contract It is therefore vital for subcontractors and manufacturers to fully review, understand and price these obligations, and make sure they are achievable before entering into contract. If the subcontractor is responsible for delayed or defective design, upon the contractor receiving a claim from their end client for recovery of loss incurred in consequence (e.g. liquidated damages for project delay), the contractor will subsequently issue their own claim against the subcontractor/manufacturer for recovery of their loss, including that which they are ultimately responsible to the end client for. As a result, it is of fundamental importance that subcontractors andmanufacturers not only understand their respective design responsibilities but also ensure that they have appropriate PI insurance in place, to helpmeet and cover possible liability for loss caused due to negligent design errors or omissions (e.g. remedial costs, delay damages). Avoid taking on any uninsured liabilities. PI cover does not apply to claims for loss due to defective installation or other poor workmanship. It is common for subcontracts and agreements with manufacturers to incorporate minimum requirements for amount of PI cover to be maintained and for how long. It is essential that the contract requirements are consistent with the actual terms of insurance cover available, particularly in the context of the recent hardening of the PI market, with, for example, consequent reduction in availability of cover on an each and every claim basis in favour of an aggregate claims basis. It is important to avoid taking on any uninsured liabilities. It is worth noting the increasing prevalence of collateral warranties or equivalent grant of what are known as ‘Third Party Rights’ (TPR) being required of SFS and other specialist design subcontractors. These have the effect of extending design and all other obligations, for example, owed by a subcontractor under a subcontract, to an additional third party, typically the end client, a fund or subsequent purchaser or tenant of the property. The purpose of these documents is to reduce risk of intervening insolvency of themain contractor, and which would otherwise prevent the beneficiary under the collateral warranty from recovering loss due to negligent design, by providing a direct contractual relationship where none would otherwise exist. Given therefore the additional obligations owed by these warranties, it is important to try to limit the numbers agreed to be entered into and price for their provision. Agree limits to liability The final important principle to bear in mind when it comes to design liability is to always seek to agree limits to that liability, both in the sub-contract or other agreement and any collateral warranty/TPR agreement. This can be done by any one or more of a combination of: • an overall cap on liability at an agreed level; and/or • a net contribution clause, by which recoverable loss is limited to that element of loss for which a sub-contractor/ manufacturer is solely responsible for, if an amount of loss is caused or contributed to by more than one party; and/or • exclusion of liability for certain categories of loss, commonly indirect or consequential loss. www.hilldickinson.com David Rintoul, Partner at Hill Dickinson LLP WilliamHodges, Associate at Hill Dickinson LLP