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The burning issue: liability under a design-and-build contract?

The issue of who is liable under a design-and-build contract is a complex one and recent case law only serves to further complicate the issue, explains Speechly Bircham’s Steven Carey.

Previous case law has indicated that in the absence of any contractual indication to the contrary, a design-and-build contractor will be under an obligation to ensure that its works are reasonably fit for purpose.

The main rationale behind this is that design-and-build contractors should be equated with sellers of goods, not that of professional advisers.

Statute dictates that under a supply of goods contract, goods must be of satisfactory quality and reasonably fit for purpose, whereas under a contract for the supply of services, the services need only be carried out with reasonable skill and care.

Contrasting recent case law

However, this can be contrasted with the recent case of Trebor & Cadbury v ADT. ADT provided a fire suppression system for Cadbury’s popcorn factory.  A fire developed which the system failed to extinguish. 

The High Court found that ADT had failed to exercise reasonable skill and care in designing the system. However, the judge found that Cadbury had contributed to its own loss and reduced the damages by 75 per cent.

Cadbury appealed. It argued that ADT’s system was a supply of goods and therefore subject to the statutory requirements of satisfactory quality and fitness for purpose.

Crucially, as these went further than the duty to exercise reasonable skill and care, this would preclude any defence of contributory negligence so that ADT would be 100 per cent liable. 

Design means system did not equate to goods

The court found that the system was not ‘off-the-shelf’ and rejected the argument that what was being provided equated to goods. The most important thing that ADT did was to decide to use a particular piece of equipment in a particular location – this was design. 

It is difficult to reconcile this decision with the rationale of the House of Lords in IBA in 1980 imposing a fitness-for-purpose obligation on a design-and-build contractor for supplying a completed ‘product’. Both are using design decisions and suitable materials to supply a bespoke product.

This case is unlikely to stop contractors from continuing to seek to exclude expressly fitness-for-purpose obligations, which impose liability without having to prove that the contractor’s design was negligent.

Steven Carey is a partner in the real estate, construction and engineering team at Speechly Bircham

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