Legal aid A main contractor asks an M&E consultant for a warranty. Before complying, the anxious subbie has three questions for our panel. Here’s what they have to say
I am an M&E consultant employed by a main contractor and I have been asked to give the employer a warranty using the JCT05 design-and-build contract. I have three questions:
• There is a paragraph that refers to “reasonably fit for purpose”. How is it possible to ensure that the subcontract works are reasonably fit for purpose, other than by specifying and providing a design in line with good practice, site inspections and so on?
• The terms make no reference to any limitations on time or money. Would I be correct in asking for a time and money limitation? The warranty is worded as a deed, so I assume the 12 year limit applies.
• I have submitted my “duties” to the main contractor as part of my scope of works (meetings, snagging and so so). Does my scope of works now form part of the subcontract works as noted in the warranty?
I have been given a standard set of terms and conditions by the main contractor as part of my duties as a designer, but nothing else.
It would appear that the warranty is for me to “warrant” my duties as per my scope of works.
Reasonably fit – whatever that means
To tackle your first question, fitness for purpose means you are guaranteeing that your design will achieve the specified performance requirements and other stated purposes. Should that not be the case, you would be liable to the client. You would not be able to defend yourself on the basis that your design fully reflected the state of the art at the time you carried out the work.
That sort of defence would be available if your appointment provides, as is usually the case, that you will exercise reasonable skill and care. Sometimes that obligation is, arguably, enhanced by providing that the level of skill and care is that of a reasonably competent designer experienced in the sort of work you are undertaking.
So where does that leave an obligation to ensure that the works are “reasonably fit for purpose”? One thing seems relatively clear: it does not mean the same thing as an unqualified fitness for purpose obligation.
I suspect that if the expression came before the courts (and I am not aware that it ever has), such an obligation would be treated as the same as reasonable skill and care.
In other words, if whatever you are designing does fail to achieve the specified purpose, you would be able to defend yourself if you could demonstrate that your design did, for instance, comply with the state of the art at the appropriate time, or that the amount of supervision that you provided was reasonable.
This obligation might even be covered by your insurance. A full fitness for purpose obligation would almost certainly not be.
Dominic Helps, partner, Shadbolt & Co
Know your limitations
Your second question covers limitations on your liability, which could be linked to your professional indemnity insurance policy.
I suspect if the expression ‘reasonably fit for purpose’
came before the courts, it’d be treated as the same as reasonable skill and care
Let’s deal with monetary limitations first.
The two most popular options are to place a cap on your overall liability or to insert a net contribution clause. You could have a combination of both but this is rather pointless if, in the event of your breach of contract or warranty, you don’t possess the funds to meet the liability.
You should be mindful of the 1977 Unfair Contract Terms Act. It permits limitation of liability for breach of contract in so far as the limitation satisfies a test of reasonableness. The act requires the court to consider:
• The resources available to you for meeting the liability, and
• How far it was open to you to cover yourself by insurance.
It is important that your insurance cover reflects the maximum that would generally be available for you in the marketplace.
Another option is a net contribution clause, which limits your liability for breach of contract or warranty to the extent of your own responsibility for any loss resulting from the breach. Otherwise, you could end up meeting all the liability for breach if those who might have contributed to such liability (because, say, they were involved in the development of your design) were insolvent or uninsured. Such a clause is unlikely to fall foul of the Unfair Contract Terms Act.
Another option for capping liability could be to limit it to the reasonable cost of repair, renewal or reinstatement. This is a fairly common limitation in warranties. However, even the reasonable cost of repair could be enormous, so a cap linked to your insurance would be the better option. Much will, of course, depend on your leeway in negotiation.
You also ask about limitations on time. Since you are about to execute a deed, the limitation period is 12 years, which would commence – at the latest – at the date of practical completion. You could insert a shorter period in your deed. Alternatively, you could have the 12 years start earlier, when your services are signed off as completed.
Rudi Klein, chief executive, the Specialist Engineering Contractors Group
The true scope of works
In answer to your third question, the subcontract works are defined in the warranty by reference to the tender submission that you have given the main contractor. Assuming that your submission includes your scope of works, the subcontract works referred to in the warranty will include your scope of works.
However, the definition of subcontract works in the warranty includes the whole of the tender documents. So the definition of subcontract works may include other provisions of the tender documents over and above your scope of works, depending on the content of the tender documents.
Further, you have been given a standard set of terms and conditions (the “subcontract”) by the main contractor reflecting your duties as a designer and these terms and conditions are also relevant in respect of the warranty. For example, the warranty contains a provision that requires you to “warrant” you have used reasonable skill and care to satisfy all requirements under the subcontract, as well as to execute, complete and maintain the subcontract works in accordance with the provisions of the subcontract.
You need to read the warranty carefully as it is not limited to your warranting your duties as set out in your scope of works.
Julian Holloway, partner, Berwin Leighton Paisner