Fitness for purpose is one of those phrases which can appear relatively innocuous in a construction contract but it can materially change the risk being accepted.
A contractor may be perfectly comfortable agreeing to exercise the reasonable skill and care expected of an experienced designer. A requirement that its design or the completed works must be fit for a stated purpose is different. It is concerned with the result that has to be achieved, not simply whether the contractor acted competently in trying to achieve it.
That distinction matters because the exposure can be significant, particularly where the required performance is demanding, depends on other parts of the project, or sits outside the cover available under the contractor’s professional indemnity insurance.
What does fitness for purpose mean?
In broad terms, a fitness-for-purpose obligation requires the relevant design, product or works to achieve the purpose or result required by the contract. Unlike a reasonable skill and care obligation, breach does not depend on showing that the contractor or designer was negligent.
Take a simple example. If a contractor agrees to exercise reasonable skill and care in designing a cooling system, the question is whether it performed to the standard expected of an appropriately competent professional. If, instead, it warrants that the system will maintain a particular temperature under defined operating conditions, failure to achieve that result may amount to a breach even if the design work itself was carried out competently.
Reasonable skill and care is a different standard
Reasonable skill and care is the standard more commonly associated with professional design services. It requires the designer to perform to the standard reasonably expected of a competent professional carrying out comparable work. Liability generally depends on establishing a failure to meet that standard.
A fitness-for-purpose obligation is more onerous because it focuses on the outcome. A contractor can therefore find itself liable for a result which has not been achieved even though it followed accepted practice and was not negligent.
That difference is also important from an insurance perspective. Professional indemnity policies are generally written around professional negligence and commonly contain exclusions or restrictions for contractual liabilities which go beyond the ordinary reasonable skill and care standard. A contractor accepting a fitness-for-purpose obligation should therefore check the position with its broker or insurer rather than assume that the risk is covered.
Where can fitness-for-purpose obligations arise?
The most obvious example is an express clause stating that the design or works must be fit for a particular purpose. In practice, however, the greater risk is often wording which does not use those exact words at all.
Performance specifications can require a contractor to achieve a stated output, capacity, life expectancy, acoustic level, temperature, efficiency or other measurable result. Obligations to ‘ensure’, ‘warrant’ or ‘guarantee’ that a particular result will be achieved may also impose a result-based obligation. Those provisions can sit in the Employer’s Requirements, specification, technical schedules or other documents rather than in the main conditions of contract.
There may also be statutory implied terms concerning the quality and fitness of goods or materials supplied as part of the works. The applicable statutory route depends on the nature of the contract, but the Sale of Goods Act 1979 and Supply of Goods and Services Act 1982 can imply requirements as to satisfactory quality and reasonable fitness for a known purpose in appropriate circumstances. For services, the usual implied standard under the 1982 Act is reasonable care and skill.
The practical point is that design liability cannot safely be assessed by reading one clause in isolation. The contract needs to be reviewed as a whole.
The risk can be hidden in the technical documents
The leading example is in the case MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd [2017] UKSC 59.
The case concerned foundations for offshore wind turbines. The contractor had complied with the relevant international design standard and negligence was not established. However, the technical requirements also contained wording which the Supreme Court construed as requiring the foundations to achieve a 20-year service life. That requirement was given effect, with the contractor liable for the failure to achieve it.
The important lesson is not simply that the words ‘fit for purpose’ are dangerous. It is that a performance obligation elsewhere in the contract documents can materially alter the design risk, even where the headline design clause appears to impose only a reasonable skill and care standard.
This is why Employer’s Requirements, specifications and performance criteria need to be reviewed alongside the main conditions and any schedule of amendments.
What is the position under JCT 2024?
The JCT Design and Build Contract 2024 gives contractors more express protection than the previous edition. The standard form limits the contractor’s design liability to reasonable skill and care and now also expressly excludes, subject to the relevant Statutory Requirements, an obligation requiring the design to be fit for purpose.
That is helpful, but it should not be treated as the end of the review. JCT contracts are frequently amended. Employers may seek to remove or dilute the standard protection, accept broader performance obligations elsewhere in the documents, or transfer responsibility for information and design which originated with others.
The wording of the schedule of amendments and Employer’s Requirements therefore still matters.
Watch for obligations that go beyond your own design
A particular concern is wording which makes a contractor responsible for satisfying a performance criterion where achieving that result depends partly on elements outside its own design scope or control.
For example, a specialist contractor may design one component of a wider system but be asked to warrant the performance of the system as a whole. That creates an obvious risk if the required result is affected by the employer’s design, another contractor’s work, existing building conditions or equipment which the specialist has neither selected nor designed.
Where performance depends on interfaces with others, the contract should make clear the boundaries of responsibility and the assumptions on which the contractor’s design is based. If a result cannot sensibly be guaranteed because key inputs sit outside the contractor’s control, that should be addressed during negotiation rather than left to be argued after a failure occurs.
Do not create a gap in the supply chain
Main contractors also need to consider what they have accepted upstream against what they can pass down.
If the main contract imposes a fitness-for-purpose obligation but the relevant consultant or specialist subcontractor is only liable to exercise reasonable skill and care, the main contractor may be left carrying the difference. The fact that the problem arose from somebody else’s design does not necessarily relieve the main contractor of an obligation it has itself undertaken to the employer.
Back-to-back drafting therefore matters, but it is not always possible simply to impose the same wording downstream. Consultants and specialist designers may be unable or unwilling to accept obligations which fall outside their professional indemnity cover. That insurance position needs to be understood as part of the commercial decision on risk.
What should you look for when reviewing the contract?
A contract does not need to contain a clause headed ‘fitness for purpose’ to create the risk. Particular attention should be given to:
- express fitness-for-purpose wording;
- requirements to guarantee, warrant or ensure a particular result;
- performance specifications and guaranteed outputs;
- design-life or durability requirements;
- obligations to accept responsibility for the accuracy or completeness of Employer’s Requirements or design prepared by others;
- broad obligations to comply with every requirement in technical documents without qualification; and
- provisions which make the contractor responsible for performance affected by components or systems outside its own design scope.
Where those obligations appear, they should be read against the design liability clause, the order of precedence between documents and the available insurance. If the intention is that the contractor’s design liability should not exceed reasonable skill and care, the drafting needs to achieve that consistently across the contract documents.
The key point
Fitness for purpose is ultimately about risk allocation. The question is whether the contractor is agreeing to carry out its design competently or promising that a particular result will be achieved.
Before accepting a contract, identify the standard of design liability, check the Employer’s Requirements and technical documents for result-based obligations, consider whether the required performance depends on matters outside your control and make sure the contractual risk aligns with the insurance that is actually available.
A few words in a specification can materially change the position. They are much easier to deal with before the contract is signed than after the promised result has not been achieved.
How CCC can help
Contract & Construction Consultants (CCC) regularly reviews and negotiates construction contracts for employers, contractors, subcontractors and consultants.
We help to identify design and fitness-for-purpose risks and assist with negotiating wording which reflects the design responsibility the party is actually prepared to accept.
We also assist where design obligations are already in dispute, including questions about responsibility for Employer’s Requirements, performance criteria, design development and back-to-back liability.
