Works information may infer a fit for purpose obligation in NEC3 contracts when the contractor is providing the design.
A contract has been signed. A project has been delivered. But then defects are discovered. Remedial work is required. Who foots the bill?
It’s a very real scenario with common forms of contracts, particularly the New Engineering Contract (NEC3) forms, where fitness for purpose obligations tends to apply as standard.
Not all contracts are equal
The standard design warranty expressed in the Joint Contacts Tribunal (JCT) suite of contracts is that of reasonable skill and care.
However, this isn’t the case for other common forms of contracts.
In the NEC3 forms, clause 20.1 requires that the contractor must provide “the works in accordance with the works information”.
As a result, for those works where the contractor is providing the design, the content of this works information is critical.
If this works information specifies a purpose for the works, they must be fit for this particular purpose.
Insist on X15 to improve risk profile
The contractors’ best option for mitigating the standard NEC3 language is to insist on the incorporation of option X15.
X15 reduces the design obligation to one of reasonable skill and care, and will present an improved risk profile for both insured and uninsured liabilities.
This risk improvement impacts on the interpretation of clause 43.1, which obliges the contractor to correct or remedy any defects that are discovered.
By including X15, if the contractor can demonstrate it used reasonable skill and care in the design, the remedial works will be deemed to be a compensation event.
It is vitally important to bear in mind the following: in the absence of any reference to fitness for purpose, reasonable skill and care or similar, it should be expected that the contractor will be deemed to have an implied obligation that the works will be designed to be reasonably fit for their purpose.
Ensure sub-consultants are covered
Under the NEC3 PSC contract, there are also some important considerations in relation to engagement of sub-consultants.
The liability position is not replicated in the standard drafting of the PSC contract if a contractor is working under the NEC3 form without the protection of X15.
It is possible, therefore, that a fitness for purpose obligation could be owed to the employer, but with only reasonable skill and care protection available from the consultant.
Contractors wanting full back-to-back protection must include X15 in the contract with the principal.
Alternatively they must amend the PSC form, to include a full fitness for purpose obligation.
For further information, please call Mike Johnson, Contractor Group Leader, on +44 (0)20 7528 4759 or email email@example.com