The design of risk

The design of PFI projects – and, for present purposes, PFI can be taken to include public/private partnerships – entails risk of litigation and financial loss from first till last.

Design work may be rejected at bid stage and design development may drag on. Also, the finished PFI facility may turn out to suffer from defects or design that impairs its function and performance – and these risks will last for the whole concession period, which could be 30 years or more.

This presents some difficult issues for the private sector's special purpose vehicle, the body that most often contracts with the procuring authority.

In most cases, design risk will be passed by the SPV to the building contractor and thence to the designer. However, the contractor's and designer's liability is extremely unlikely to extend beyond 12 years, leaving the SPV and the facilities management subcontractor (responsible for keeping the facility "open for business") to bear this risk.

Early PFI schemes sought a total transfer of design risk to the private sector, and much government guidance promotes this. In pure PFI terms, the procuring authority stipulates what "outputs" it wants and the private sector designs and builds so as to satisfy those outputs. But, for example, the outputs of an NHS trust for the provision of a new health facility could conceivably be satisfied by the design of a hospital in the shape of a pyramid.

So, particularly for PFI schemes in health or education, the procuring authority has had to get involved in design development – the process that produces "inputs" to meet the authority's outputs. Having set the questions, therefore, the procuring authority helps to write the answer.

The procuring authority's involvement in design development should be recognised in the PFI concession contract, ideally through a qualification to the design risk borne by the private sector. Also, the procuring authority should acknowledge that the SPV's design proposals satisfy its requirements, to the extent of the procuring authority's input in design development.

• Clients must bear responsibility for their design input

• Structural defects are always the fault of the contractor or designer

• “Fitness for purpose” can be a hostage to fortune

More often than not, the procuring authority wants to have its say on the functional design of a PFI facility – in relation to a new hospital, for instance, where the NHS trust's medical staff will be keen to determine which rooms and departments are next to each other. If the hospital is then designed and built on the basis of those "adjacencies", which do not adequately allow for delivery of the clinical services, then that risk should be borne by the NHS trust.

However, the increasing standardisation of PFI contracts makes it more difficult to achieve an express qualification and acknowledgement from the procuring authority in these terms. And the risk of structural design defects will invariably be borne by the private sector.

Another concern will be obligations for reasonable skill and care, and suitability for purpose. From the private sector's viewpoint, a design obligation to use reasonable skill and care will always be preferred to an overt fitness-for-purpose obligation. Most PFI concession contracts will contain the former obligation. However, if anyone thinks this is where liability for design risk ends, they may need to think again.

The SPV will be under an obligation to design and construct a facility so as to meet the procuring authority's requirements. These requirements should make clear, in output terms, the intended use of the new facility.

If this obligation is not qualified by the exercise of reasonable skill and care (and it is unlikely to be), then it may be construed as close to one requiring fitness for purpose.