What standard should be met when a contract contains both a reasonable skill and care obligation, and an absolute obligation to achieve a certain standard of work?
Will one obligation triumph over the other, or will both requirements have to be met? This was the question to be decided in a recent Court of Appeal decision*.
The contract was for the design, construction and installation of 60 wind turbine bases. Pursuant to the Contract, the contractor was required to complete the works using reasonable skill and care and in accordance with good industry practice. The reference to good industry practice included an international standard for the design of offshore wind turbines, namely J101.
The employer’s requirements included an obligation that the design would ensure a lifetime of 20 years for the foundations in every respect without planned replacement, which was a ‘fitness for purpose’ obligation.
After just three years, the turbines failed owing to an erroneous calculation in the J101 standard, which the contractor had diligently followed. Remedial works cost €26 million. The issue to be determined by the Court of Appeal was whether the contract imposed an obligation on the contractor to both comply with the J101 standard and to guarantee an operational life for the foundations of 20 years.
Whilst the erroneous industry standard document is not the contractor’s responsibility, if the fitness for purpose obligation applied, the contractor would have to guarantee that the foundations would be operational for 20 years irrespective of the error in J101.
The Court considered the wording of the contract and found that the contractor was not under an obligation to guarantee a 20 year operational life for the foundations. The contract conditions took precedence over the employer’s requirements, which only required the works to be completed using reasonable skill and care and in accordance with good industry practice not a fitness for purpose obligation.
The Court of Appeal overturned the earlier ruling of the Technology and Construction Court which held that the two standards – reasonable skill and care, and fitness for purpose – were both required to be met by the contractor.
The decision is encouraging for contractors and designers but it also serves as a useful reminder to ensure that the contract clearly sets out the contractor’s obligations so that both parties know which standard applies without having to go to Court to find out.
Importantly, remember that professional indemnity insurance policies will not cover fitness for purpose obligations, so if you are unable to avoid a term requiring fitness for purpose, at least try to negotiate a cap on liability to minimise exposure.