Rudi Klein Novation transfers the risk of design liability to those who may have had precious little to do with the design. How smart is that?
There is no greater idiocy than appointing a design team and, once it has completed its work, novating it to a design-and-build contractor. This idiocy is then compounded by requiring the contractor to give a guaranteed maximum price (which is what happened at Wembley). The contractor will then seek to pass all design risk to its subcontractors or, possibly, novate the design team (or members of it) to one or more subcontractor.
At a recent conference organised by the RICS’ building engineering services group, Matthew Garratt of NG Bailey offered the following example of a GMP clause: “The GMP shall be the maximum price paid to the subcontractor for the execution of the works howsoever the costs of the subcontractor may fluctuate, or the timing of the subcontract may vary, subject only to a fair and reasonable proportion (as determined by the main contractor acting reasonably) of additional monies paid or time granted under the main contract.”
All that remains is to bring in the usual requirements for design warranties, performance bonds, parent company guarantees, delay/performance damages, retentions, etc, and the picture of utter idiocy is complete.
What does it all achieve? The full transfer of design liability to parties whose contribution to the design is often minimal compared with the amount of design that they have “inherited”. The result is inefficiency, added costs and the potential for plenty of disputes.
Why am I being so rude about it? Let’s go back to the beginning. Consultants are appointed. They set the design footprint before the design-and-build contractor is appointed. The likelihood is that risk management has not figured too highly in setting the design footprint, even though the design process is the only productive opportunity for dealing with risk management issues. I am not just referring to design risk, here. Risks relating to cost and time should also be addressed in the design process.
Once the design team has been novated, it is up to the contractors to develop their work, which usually includes making the inherited design buildable. They were not given the opportunity to own the design when it mattered, but now they find that they are stuck with it when it doesn’t. They would not have had the opportunity to check the original design assumptions. For example, an M&E contractor is unlikely to see the principles underlying the calculations used by the design team.
The likelihood is that risk management has not figured too highly in setting the design footprint
But a GMP means the contractor’s ability to make the inherited design work is severely reduced. If there are shortcomings in the design, the contractor will not have any recourse against the consultants unless they are novated to it. If they are novated, the contractor may have a claim for breach of contract if the consultants have been negligent – although this is nigh on impossible to prove in practice.
Apart from risk transfer issues, think about the inefficiency in all this. What happens, or doesn’t happen, in the design process has a big impact on the efficiency of the overall delivery. Any additional costs may have to be borne by the client that initiated the process or, more likely, passed on to the next – unsuspecting – client.
Whether the client will have its needs met will be more a matter of luck than judgment. The reality usually involves abortive work, delays, defects and re-work. In fact, most defects are caused by shortcomings in the design.
What is the alternative?
At the outset, appoint a design team that is inclusive. All parties make a significant contribution to the design process, in the sense that their contribution affects the design of other aspects of the structure, and they should be appointed as members of the design team.
Risk management issues can then be fully addressed. Then everybody can own the design and risk management decisions. If something goes wrong they only have themselves to blame. In the meantime the client is more likely to have benefited from cost-effective solutions that are less expensive than those solutions obtained through the idiocy of novating design teams.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors Group
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