When variations go wrong

Where a contractor is responsible for the design, supply and installation of a complete system he may well be held accountable for a design defect even when it is the result of simply following the owner's instructions. As the case of Amoco (UK) Exploration Company versus Telephone Cables Ltd, decided in December 2002, shows, it all depends on the facts.

A costly defect
Amoco engaged Telephone Cables Ltd (TCL) to supply and install a fibre optic cable telecommunications system linking Amoco's two drilling platforms under construction at the time in the North Sea. A year after completion the cable parted due to massive hydrodynamic forces generated by a storm.

Luckily for Amoco, the breakage occurred within a two year contractual warranty period which provided that TCL would be responsible for the cost of repairs. Accordingly, Amoco submitted a bill to TCL to the tune of £1.2 million.

Not surprisingly, TCL did not want to pay. As it turned out, the breakage was exactly in an area of the cable that was the subject of a change ordered by Amoco which varied the method of protection for the cable to be installed. On this basis, TCL denied responsibility because, they argued, Amoco had taken the design out of their hands.

Risks and remedies
There are a number of dangers posed to undersea cables (eg dropped objects, dragged objects and hydrodynamic forces) and normally they are buried or covered with rock or concrete to protect them. However, the approaches to drilling platforms cannot be so easily protected without the use of a special remotely operated digging machine called Eureka – which is what TCL had originally planned to use.

Unfortunately, it turned out the machine would not be available in time. This was a concern for Amoco because without Eureka to bury the cable at this critical point, certain temporary flotels (worker's accommodations) anchored in the area would need to be moved (to allow surface vessels into the area). This would cause Amoco a great deal of extra expense and time – something that they were keen to avoid.

So, Amoco called a meeting with TCL and their sub-contractor (who was actually doing the work) to find a way of providing cable protection without the need to move the flotels.

A cheaper alternative
It emerged at the meeting that there was another, cheaper, option: the use of polyurethane cladding (crp) which would protect the cable without the need to move the flotels. In fact, crp cladding was already used by TCL to some degree – but it was not clear whether it would be adequate on its own. Nevertheless, Amoco was keen to explore this option and asked TCL to look into it further.

After procuring tests, TCL reported that the use of crp cladding was a practical means of providing protection against dropped objects – which was the primary concern (Amoco was willing to assume the risk of dragged objects). However, significantly, the danger presented by hydrodynamic forces was never mentioned.

In the end, Amoco instructed TCL to carry out the variation and install the cable with only crp cladding at the relevant spot. The work was completed and signed off in January 1994. On New Year's day the following year the storm hit and the cable parted.

Temporary solution?
Perhaps the turning point in the case was the issue of whether the parties had intended that the crp cladding solution was to be permanent in nature. TCL alleged that it had always been accepted that the crp cladding was merely temporary and that Amoco had agreed that it would later cover the exposed area with rock dumping once the flotels were off site.

However, on the evidence, the court rejected TCL's story and concluded that TCL did not believe further protection was required. The court reasoned that if TCL believed that the form of cable protection was merely a temporary solution it would have warned Amoco more clearly of this.

Rather, TCL remained under an obligation to provide a 'system free from defects and suitable for its purpose' and Amoco's instruction to alter the means of protection did not change this. The cable failed because it became unstable in the storm and the want of protection was a defect. TCL was ordered to pay.

Discussion
It is generally accepted that where an employer requires changes that are likely to lead to an unsatisfactory job, it is the duty of the contractor to tell the employer of the likely outcome of the instructions. If the employer nevertheless insists on the changes then there is an argument that the contractor has discharged his duty.

However, a 'fit for purpose' standard is high and it takes strong evidence to show that it has been met – even where an employer has ordered a variation to the design. If a contractor has any doubts at all they would be well advised to make these known to the employer at the time, preferably recorded in writing.