Subcontractors must beware of contract clause disasters

“The subcontractor shall design… on the basis of the data supplied by the contractor and to his complete satisfaction…”

This clause is a recipe for a disaster. The contractor has only to express dissatisfaction with some minor detail and the subcontractor can be held liable for all costs associated with rectifying the supposed “defect”.

Subcontractors must fully understand their liabilities. Many not only provide work and materials but design elements such as lifts, fire alarms, environmental services, cladding, glazing and structural steelwork.

“The basic defect in the system… is that the specialist subcontractor is a de facto member of the design team but this is not properly (or at all) reflected in the contractual relationships documentation or common terminology,” as CIRIA Special Publication 138 puts it.

There has been increased reliance on the use of provisional sums and performance-oriented specifications. This has brought about more difficulties, mainly at the interface between the work of the client’s design team and that of the specialist subcontractor. Often the latter will only become involved when the architect has completed almost all the design information and co-ordination drawings for the main contractor.

At tender stage there are often few clues as to the parameters in which the specialist design is to be carried out. For example, ductwork subcontractors may lack information about the position of partitioning or suspended ceilings. Often they have to read voluminous documentation carefully to gauge the extent of their design responsibility.

Do not lose sight of the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982. These impose implied contractual warranties (unless the parties agree otherwise) that the goods supplied must:

a) correspond with any description by which they are supplied;

b) be of merchantable quality;

c) be reasonably fit for any particular purpose made known to the supplier where purchasers are relying on the skill and expertise of the supplier. Liability is strict.

A subcontractor may also be liable in tort. In principle, a subcontractor carrying out design can be sued by any person to whom he owes a duty of care, provided that person has suffered a recoverable type of loss. What is often described as pure economic loss (ie the repairing of defects) is not recoverable.

There is one important exception. This is where there has been a “negligent misstatement”. If someone negligently gives bad advice or incorrect information, the recipient may have a remedy, provided he can establish that he had a special relationship with the person who had advised him.

A special relationship may exist where a person is so placed that others can reasonably rely on his skill and judgment or on his ability to make careful enquiries, and that person gives information or advice to someone he knows will place reliance upon it.

Sir Michael Latham, in his 1994 report Constructing the Team, recommended proper design agreements for specialists akin to the terms of appointment for a consultant. The professional team should persuade the employer to engage such specialists on reasonable terms so that the design may be developed at the appropriate time and incorporated into the overall design concept. This could save money and certainly reduce frustration.