Liabilities and warranties, especially in construction contracts depend upon the nature of the project and more importantly, the type of contract. An example of this is the design and build contract. A design and build contract combines the role of a designer and contractor under one entity, making the contractor responsible for both; the design and the construction.
The reverse is more commonplace, where there is a separate design consultant and a contractor who builds the project based on the design provided by the design consultant.
A design and build contract is essentially a one-stop-shop for a client, where the contractor does everything in a project from the design phase to the build phase, and even until the expiry of the defect’s liability period. Therefore, in terms of liability, there is typically only one stop, and that is at the contractor’s doorstep. For clients, liability is quite simple as all disputes are directed solely at the contractor.
Since the contractor handles both the design and construction, they assume full liability. For example, in seeking a time extension due to a design defect. The way this situation transpires in a design and build contract is very different from a traditional construction contract.
In the latter, the contractor can claim time extension and prolongation costs since design is not in their scope; but in design and build contracts, they lose the right to claim delays from defective designs.
Another legal implication is variations. Contractors typically claim variations when they are required to perform work outside their scope. In traditional construction contracts, rectifying a defect in the design may be claimed as a variation. However, in a design and build contract, any additional works on the design will not be viewed as a ‘variation’ as this will arguably still be within a contractor’s scope.
It is important to define the design scope and specify that anything over and above the scope may be claimed as a variation. Any open-ended clauses may be interpreted against a contractor (considering the original liability lies with them).
Another important legal implication is in respect of the duty of skill and care required for the design. A contractor is held to the same standards as a designer, as they assume responsibility for design and any liability regarding defects. This would entail the contractor to carry out the design scope with not only reasonable skill and care but also to submit designs that are compliant with ongoing standards and that are “fit for purpose” (which is a much higher duty of care).
A contractor typically warrants the completion of the project within the time frame specified and according to a particular standard. However, in traditional construction contracts, this warranty is subject to various factors such as correct design, supply of materials, and operation and maintenance, to name a few. Therefore, if the project fails to meet the contractor’s warranties, they may cite external factors to reduce liabilities for breach. In a design and build contract, however, a contractor’s warranty extends to the design as well, i.e. that the design will be as per the standards and fit for purpose and that it would be successfully implemented in the project. This is because the lines between the designer and contractor tend to get blurred.
Further, as the contractor is responsible for most of the project’s phases, it gets difficult to cull out any warranty that would not be applicable to a contractor. This is why it is very important to properly define these lines in the agreement. Certain warranties such as operation and maintenance should be with the client.
The legal implications for contractors in design and build contracts are therefore significant. The contractor, having the dual responsibility of both a designer and constructor, faces more liabilities which is not the case in traditional construction contracts. This single point of accountability can lead to potential disputes, especially when issues like design defects or project delays arise, both of which fall wholly on the contractor’s shoulders in such arrangements.
Risks can be mitigated by clearly and comprehensively defining the scope of work in the contract. By ensuring that the contract clearly defines the exact responsibilities of the contractor, any ambiguity or potential for implied obligations may be eliminated. It is essential that all parties agree on the fact that anything not explicitly included in the contract falls outside the scope of work. Therefore, a contractor cannot be expected to perform tasks or assume liabilities that are not clearly outlined in the contract.
A well-drafted contract is the contractor’s best defence limiting the scope of work and avoiding interpretations that could lead to unforeseen liabilities. What is not expressly stated in the contract cannot be implied, unless there is an established legal basis for the implication. This clarity will help to manage the heavy legal burdens that may come with a design and build contract.
