Mind the hidden extras

When the courts make a ruling on a controversial point of law, a period follows when we all assimilate the new wisdom and review our standard contracts to see if they need amendment. Contracting parties take the risk that after they have signed their contract, the courts may give a new ruling on the meaning of its standard provisions that upsets their common assumptions.

The design-and-build contractor has suffered particularly from this legal phenomenon in recent times. Readers of these columns will recall the lively debate about the Scottish decision in Blyth & Blyth vs Carillion. There the contractor had entered into novation agreements in common form with the developer's design team when executing an amended JCT With Contractors Design contract. Any risk profile of the project would have presupposed that the contractor would have a right of recourse against any of the novated consultants whose negligence before novation caused the contractor to suffer loss. But that was undermined by the court's decision, denying the contractor any remedy in damages against the engineer who, by failing to get his steel-reinforcement calculations right, put the contractor to considerable expense. Now that case has been settled before getting to the Court of Appeal, it is an authority on novation agreements. Many a design-and-build contractor will face difficulties as a result.

Something similar has now befallen them again.

In Henry Boot vs Co-Op Insurance Society (July 2002, TCC), we have a decision that will have far-reaching repercussions for the standard contracts.

Design-and-build contractors are carrying far-reaching risks they have had no opportunity to price for or to insure against

Henry Boot was a contractor for CIS on an amended version of a JCT80 contract incorporating the Contractor's Designed Portion Supplement. Problems arose during construction as water and soil flooded into sub-basement excavations. Both contractor and structural engineer were sued and preliminary issues were agreed to be tried relating to the contractual position between Henry Boot and CIS. Henry Boot argued that its only duty was to prepare working drawings according to the engineer's conceptual design. The judge took a different view. The contractor had undertaken to complete the design of the contiguous bored pile walls, which involved developing the concept design into one capable of being constructed. That meant examining the design at the point at which it was taken over, assessing the assumptions on which it was based and forming an opinion as to whether they were appropriate. Someone who undertakes an obligation to complete a design begun by someone else agrees that the result will have been prepared with reasonable skill and care, however much of the design was done beforehand.

The effect of the decision is dramatic. Although limited to the CDPS, the clause under the microscope is near identical to the equivalent clause in JCT98 WCD. What the judgment does is to invalidate a common understanding since the JCT first introduced the design-and-build form in 1981, namely that the form was never intended to be a single-point responsibility contract. The contractor was only to be responsible for such design work as it undertook to "complete" – not for the design of the original consultants. And for that reason, successive generations of developers have instructed their lawyers to amend the form to turn it into a single-point responsibility contract.