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Bearing the Risk in Design and Build Contracts

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Clear plans to ensure safe building quality are not negotiable and contracting parties must be clear as to who is responsible for these.  Recent Irish proceedings have highlighted these facts and this article breaks down how Design and Build contracts should be approached with this in mind.  

Recent Irish Commercial Court proceedings have highlighted two key issues for any construction project:  

  1. The unequivocal need for robust assurance quality plans; and  
  1. The allocation of responsibility in construction contracts.  

The above issues are hardly news to any Employer or Contractor, yet the Irish Minister for Education and Skills and Tyrone-based construction firm Western Building Systems Limited (WBS) are in a serious dispute over where the responsibility for defective work carried out by WBS falls due to an expedited programme being demanded by the Minister for Education.  

The facts 

The Irish Minister for Education and Skills has issued court proceedings against WBS seeking damages relating to serious and extensive defects at Ardgillan Community College, a North Dublin school that WBS constructed in 2009.  These are the first proceedings of what is expected to be many on behalf of the Minister in relation to 40 school buildings constructed by WBS.  Many of these schools were closed temporarily whilst remedial works were carried out.  The cost of the works for all 40 schools reached more than €100 million.  The Minister has claimed that the cost of identifying and correcting structural defects has now reached €11.5 million. 

A variety of serious structural defects were uncovered at the College in 2018; these included defects in the external and internal walls, the steel frame of the building and the doors and windows. The primary reason given for the defects was the fact that the project was delivered at “break neck speed”.  Ardgillan Community College and the other schools constructed by WBS were “rapid-build” modular schools, intended to be constructed quickly in order to mitigate an acute school shortage in Ireland.  WBS was contracted to complete the project in 12 weeks despite the expected timeframe for such a build being 60 weeks.  In actuality, WBS completed the Works in 20 weeks. WBS have submitted to the Commercial Court that the Minister for Education made very clear that a “single overwhelming factor” was driving the project – “the necessity to have the school open” before the coming September.   

The dispute 

WBS constructed the school at a cost of €3.5 million in 2009 under a Design and Build contract.  Western Building Systems argues that €11.5 million is a “vastly exaggerated damages claim”.  WBS submits that it is liable for no more than €2.5 million in damages.  WBS has accepted that many of the defects are due to poor workmanship, for which subcontracting parties are responsible.  However, WBS claim that at least part of the remedial costs should fall on the Minister for Education because any “moral responsibility” to ensure that the school was constructed as safely as possible was dismissed in favour of ensuring a very speedy delivery of the works.  WBS argues that the Minister is liable for significant contributory negligence as he was aware of the risks associated with such a short timeframe. 

WBS claims it acted within the terms of the Design and Build contract.  WBS submits that an agreement existed whereby a third-party company acting on behalf of the Minister for Education, together with a company subcontracted by WBS, would jointly carry out periodic site inspections in order to monitor quality. WBS says that this was their guarantee of quality and that the and that the Minister was aware of this situation.  Despite these period inspections, no defects were recorded in the minutes of any progress meetings. 

No decision has been made on these proceedings as of yet.  However, the dispute highlights issues relating to ensuring proper quality is delivered in buildings.  The remainder of this article aims to address issues of responsibility for build quality in Design and Build contracts.   

The Design and Build route 

The Design and Build route is a procurement route where a main contractor is appointed to design and construct the Works.  The Contractor is responsible for the design, planning, control, organisation and construction of the works – to the Employer’s Requirements.  The Employer provides tenderers the ‘Employer’s Requirements’ and the Contractor responds with the ‘Contractor’s Proposals’.  One of the main issues in the WBS dispute was the fact that the “single overwhelming factor” required by the Minister for Education (the Employer) was “the necessity to have the school open” before the coming September, asking for a Completion Date after only 12 weeks of starting the Works.  So, why are the Employer’s Requirements so important?  

The unamended JCT Design and Build Contract does not place any risk relating to the design verifications in the Employer’s Requirements on the Contractor.  Clause 2.11 states that “the Contractor shall not be responsible for the contents of the Employer’s Requirements or for verifying the adequacy of any design contained within them”.  This standard form likens the liability of the Contractor to that of architect in that a Contractor must use reasonable care and skill when carrying out the Works.  If the Design and Build Contract remains unamended, the allocation of risk and responsibility is clear cut: The Employer is responsible for the design in the Employer’s requirements.  The Contractor is responsible for completing the Works.  The Employer designs and the Contractor constructs.   

But what about the amended form? 

In theory the above is simple and allocates the responsibility for the design to one party.  However, in reality Employers often amend the standard Design and Build form.  An Employer may split or even attempt to cloud their responsibility for the design of the Works by using bespoke amendments in a Design and Build Contract.  Amending the standard form allows the Employer to disperse risk allocation whilst also keeping in control of the project.  Contractors must be very careful to review amended contracts in order to understand the full extent of any liability that falls onto them.  In some very extreme cases, the risk of misunderstanding the extent of liability has led to Contractor insolvency.   

Quigg Golden Commentary  

The WBS proceedings highlight the unequivocal need for robust quality assurance plans, and the above issues relating to the allocation of responsibility in Design and Build contracts demonstrate the need for very clear quality assurance systems.  Employers should seek out very trusted Contractors with solid quality assurance systems in place; or ensure that they put in place such systems alongside Contractors.  Whatever road an Employer takes for quality assurance, it will not be cheap – but legal proceedings such as those in WBS are certainly costlier.   

Employers and Contractors should take care to ensure that the Employer’s Requirements and Contractor’s Proposals documents clearly indicate where different liability is allocated.  Any changes to the Employer’s Requirements that have been accepted by either party in negotiations should be reflected clearly in the Requirements before the Contract is executed.   

Contractors and subcontractors must take extra care to ensure that they fully understand what they are getting themselves into where a standard form includes bespoke amendments.  Contractors must review their Contract in order to assess if any terms are likely to give rise to a claim down the road.  

Quigg Golden offers a Contract Review service which assesses construction contracts and the amended forms in order to flag up any likely risks in contract drafts. Please do not hesitate to contact us for this service or any advice on the above issues.  

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