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Who is accountable for defects in design?

Martin Collingwood

Hochtief being found liable for a tunnel collapse poses complex questions about the finer points of design and responsibility.

The decision in SSE Generation Ltd v Hochtief Solutions AG & another [2016] CSOH 177 was heard in the Scottish courts and is therefore persuasive in England.

It concerned a decision on a form of construction contract that is used prominently in England and Scotland.

Now in its fourth edition, the NEC Engineering and Construction Contract (ECC) has had little exposure in the courts, so it is helpful when a decision concerning the form of contract – albeit the previous version (NEC2 ECC Option A) – is reviewed by the courts.

Background to the case

The dispute arose following the construction of a hydroelectric power station designed and built under an NEC2 ECC Option A contract.

Part of the project was a 6 km tunnel driven under the Scottish Highlands, which ran from a high-altitude reservoir into Loch Ness. The intention of the contract was that the tunnel would have a design life of 75 years, but four months after handover it collapsed. The cost of rectifying the failure in the works was an eye-watering £130m and it was three years before the plant was up and running again.

Under the contract terms, the contractor’s liability for defects in design was limited by selection of Option M (that reasonable skill and care was taken to ensure that the design complied with the works information).

Option M is now Option X15 in NEC3 and NEC4 with one distinct difference: the burden of proof has been shifted from the contractor under Option M to the client under Option X15.

At first instance, the Outer House had described the clause as “an important break on liability” and held that the contractor had exercised reasonable skill and care in designing the tunnel, and was therefore not liable for the cost of repair.

“While in some cases the distinction between design and implementation is clear, in others there is ambiguity”

That decision was reversed by the Inner House, the court holding that the tunnel collapse was due to a defect in the implementation of the design, rather than the design itself, and therefore the limit of liability did not apply and that a defect had existed at handover.

Hochtief produced four different designs providing for varying levels of structural support in relation to the tunnel, the method selected being dependent upon the geological conditions found. The collapse arose because of a failure by the contractor’s geologist to correctly classify a section of the tunnel, which led to the wrong reinforcement being used. 

But was the classification of the rock part of the design, or part of the implementation? Clearly the classification involved an element of judgement from an engineering point of view and, due to the nature of the tunnel drive, the contractor did not know what it was going to build.

A decision too far?

While in some cases the distinction between design and implementation is clear, in others like SSE there is ambiguity.

Choice is sometimes considered a key feature of design, but in this instance the contractor was not free to build the tunnel as it saw fit. While it had control over its initial designs, it did not have control of the conditions within the tunnel and could only determine this as the work progressed.

So was this a decision too far?

The distinction is tricky and inconsistent with the purpose of Option M (now Option X15), which is to limit liability for design.

There may be other projects in the future where there is a necessity to design progressively as the contract proceeds. It does, however, accord with the recent decision on MT Højgaard v E.On.

The decision may enable professional indemnity insurers to argue that the policy does not respond to a claim because it relates to implementation of design rather than pure design.

Martin Collingwood is head of construction at Andrew Jackson Solicitors 

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