Fitness for Purpose vs Reasonable Skill & Care
In the framework of engineering contracts, there are generally two standards of duty which can be imposed on an engineer: reasonable skill and care and fitness for purpose. This article explores the difference between the two standards of duty in the context of contracts executed by engineering professionals who are engaged in the delivery of works such as engineering design and construction. We will discuss how and when each standard of duty is likely to be imposed in a contract and will identify the implications of each standard from the perspective of both the client and engineer.
Finally, we will look at a pertinent real-world case study which highlights the importance of understanding these terms in a contractual context. The excellent reference resources below have enabled me to present this topic from the perspective of a practicing professional engineer, who is not “a contracts guy”. For what is often considered a dull aspect of engineering, I enjoyed writing this article and I sincerely hope that you find it useful. I am not a contracts engineer by training, therefore any corrections or clarifications are very welcome in the comments section below.
- Design Liability
- Reasonable Skill and Care
- Fit for Purpose
- Common Law Imposition of Design Liability
- The Implications for Insurance
- Case Study – Robin Rigg Offshore Wind Farm
- United Kingdom Supply of Goods and Services Act 1982
- Bolam v Friern Hospital Management Committee  1 WLR 582
- 199 Knightsbridge Development Ltd v WSP UK Ltd.  EWHC 43 (TCC)
- Beale & Company – Publication of ACE Professional Services Agreement 2017
- ACE Professional Services Agreement 2017
- Client/Consultant Model Services Agreement 5th Ed (2017 White Book)
- United Kingdom Sale of Goods Act 1979
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In my opinion, it is important for professional engineers to be able to distinguish between the concepts of reasonable skill and care and fitness for purpose. I believe it is necessary for an engineer to be able to understand the contractual implications of each, even if they are not involved in contractual negotiations on a day-to-day basis. Many engineers will not receive formal contracts training and without adequate training, it is easy to speak out of turn when using legal and contractual language. The misuse of such language can create real contractual issues and can have the effect of discrediting an engineer or their employer.
The term fitness for purpose, in particular, is often used carelessly by engineers when describing the quality or performance outcome of a given piece of work. Fit for purpose seems to have become an attractive, in-vogue soundbite for engineers. As a turn-of-phrase, it sounds professional, it feels all grown-up and contractual and it rolls off the tongue nicely. Unfortunately, it can also serve as an excellent indicator of whether the speaker is contractually and commercially clueless. I once heard the term fit for purpose uttered by a well-meaning, but otherwise unmindful colleague during an important bid meeting with a potential client; only to witness my colleague silenced on the spot and lectured after the meeting by a disembodied manager on the other side of a teleconference device. Bearing witness to my colleague receiving this embarrassing and arguably unfair lecture is what prompted me to research the term myself. Personally, I had never been briefed in the contractual nuances of fitness for purpose and reasonable skill and care before that meeting, and, I suspect, neither had my poor colleague.
It must be said, however, that many parts of industry do not help by propagating the misuse of such terms. For example, I recently completed the abominable PRINCE2 Foundation training course and was surprised to see that the term fit for purpose featured heavily in the description of the Quality Theme of the PRINCE2 framework when describing the outcome of projects. Given such high profile misuse of such terms, it is hardly surprising that they can become catchphrases for the uninitiated.
2. Design Liability
We refer to fitness for purpose and reasonable skill and care in the context of liability. That is, the extent to which the client can claim against the engineer for breach of contract, or the extent to which the engineer can be held liable for breach of contract. An engineer can be held liable for design in three main ways :
- under the express terms of a contract that they have entered into;
- by the imposition of a common law term;
- by the statutory imposition of a term.
In addition to this, there are generally two standards of duty which are imposed upon engineers :
- the obligation to use reasonable skill and care in relation to design;
- the obligation to design a product that is fit for its intended purpose.
Before we explore the two standards of duty in detail, we can make the first major distinctions:
- reasonable skill and care is the basic minimum requirement imposed on an engineer when providing a design, whereas fitness for purpose implies a higher duty and an assurance that the design will meet certain criteria;
- implied design liability under common law can vary depending on an engineering organisation’s role in a project and the services that they provide. In the absence of an express contractual agreement otherwise, the minimum standard of duty imposed on an engineering consultant delivering a design is reasonable skill and care, whereas a contractor providing design and build services is obliged to ensure fitness for purpose. See Section 5 for further details.
3. Reasonable Skill and Care
As a standard of duty, reasonable skill and care is an implied contractual term that confers onto an engineer the obligation to apply their experience, expertise and due diligence in the execution of a contract. It is important to note that applying reasonable skill and care does not necessarily guarantee that the services rendered (e.g. a design) will fulfil any specific performance requirements. In the United Kingdom, the obligation for a service provider to apply reasonable skill and care is a statutory requirement imposed by the Supply of Goods and Services Act (SGSA) 1982 . It is the basic minimum requirement of a service provider. The UK SGSA ensures that in the absence of any written terms and conditions to the contrary, a business delivering a service will have a duty to act with reasonable skill and care. This is carried by Clause 13 of the SGSA, which states the following:
13 Implied term about care and skill.
In a relevant contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.
When delivering a design with reasonable skill and care, a professional engineer will inevitably be required to make a series of judgements based on experience, knowledge and diligence. It is important to note that where there is a judgement to be made, there isn’t necessarily a right answer. In the context of an engineering contract, there may be many possible iterations of design solution available, each with their own strengths and weaknesses. In other words, when relying solely on reasonable skill and care, the result of the work shall not be guaranteed. The engineer’s situation is analogous to that of a doctor, or a lawyer. A doctor cannot guarantee to cure a patient and a lawyer cannot guarantee to win a court case.
The failure of an engineer to apply reasonable skill and care is termed negligence. Negligence is a form of tort. A tort is defined as a civil wrong which causes a claimant to suffer loss or harm, resulting in legal liability for the negligent party. In claiming negligence of an engineer, a client would need to show that the engineer’s design fails to measure up to the standards of a competent professional designer. This is a subjective exercise that must be settled by a judge or arbitrator, taking into account evidence from expert witnesses . Negligence can be very difficult to prove, which is an important consideration for clients, as we will see later in this article.
The common law test for negligence is called the Bolam Test, which takes its name from the case Bolam v Friern Hospital Management Committee . The Bolam Test dictates that a professional person would not be negligent if they carry out their work to the same standard that another reasonably competent member of their profession would have met. The professional person does not have to be the best in their field; they need only be able to exercise the ordinary amount of skill . In other words, until very recently, the general consensus has been that you don’t have to be perfect but you do need to be competent and live up to the standards of your profession. The Judge ruling on the case: Eckersley v Binnie and Partners 1988  expressed his views on reasonable skill and care in a particularly eloquent way:
“…a professional man should command the corpus of knowledge which forms part of the professional equipment of the ordinary member of his profession. He should not lag behind other ordinarily assiduous and intelligent members of his profession in knowledge of new advances, discoveries and developments in his field. He should have such awareness as an ordinarily competent practitioner would have of the deficiencies in his knowledge and the limitations on his skill. He should be alert to the hazards and risks inherent in any professional task he undertakes to the extent that other ordinarily competent members of the profession would be alert. He must bring to any professional task he undertakes no less expertise, skill and care than other ordinarily competent members of his profession would bring, but need bring no more. The standard is that of the reasonable average. The law does not require of a professional man that he be a paragon, combining the qualities of polymath and prophet.”
As we can see from the Bolam Test, proving negligence is generally considered to be difficult for the client in a case where a delivered design does not perform as the client had expected. The Bolam Test and the basic statutory position of reasonable skill and care may sound promising for the engineer, and you could be forgiven for thinking “OK, well, if I live up to the standards of my profession then I only need to do my best!” It certainly seems that may be the case on face value; however recent case law suggests that the benchmark for reasonable skill and care is shifting and that simply following the same design and methods of other engineers in your field does not automatically demonstrate reasonable skill and care. A perfect example judgement on the duty of reasonable skill and care is presented in the case of 199 Knightsbridge Development Ltd vs WSP UK Ltd .
3.2 Knightsbridge Development Ltd vs WSP UK Ltd.
The case of 199 Knightsbridge Development Ltd vs WSP UK Ltd , introduces further nuance into the assessment of reasonable skill and care, and demonstrates that emulating your peers and following industry standard methods is not necessarily a defence against negligence.
3.2.1 Case Summary
The claimant, 199 Knightsbridge Development Ltd, was the developer of a prestigious residential block of flats at 199 Knightsbridge, London. The defendant, WSP UK Ltd, acting as building services engineer, was contracted to provide mechanical and electrical works for the building.
On 15 September 2005, after partial handover of the building, two separate pipework failures in the pressurised cold-water system caused a serious flooding event and resulted in extensive damage to the building. The claimant sued WSP UK Ltd for loss, alleging negligence in the design of the cold-water system and in failing to address the possibility of damage caused by a loss of water.
The duty of care against which WSP UK Ltd were working was set out in the contract as follows:
“[WSP UK Ltd shall] … exercise a reasonable level of care and skill as [was to be] expected of a qualified Consultant in the same profession, experienced and competent in carrying out work of similar size, scope and complexity to the Project”.
3.2.2 Technical Summary
The pressurised cold-water system designed by WSP UK Ltd followed the industry standards prevailing at the time and was commonly employed across the building services industry. To deliver constant and adequate cold-water pressure to all properties in multi-storey, multi-occupancy buildings such as 199 Knightsbridge, cold-water systems rely upon a combination of booster pumps and an accumulator. The booster pumps supplement the ring main pressure and the accumulator acts as a make-up and discharge tank which can limit pressure variations in the system and reduce on-off cycling of the booster pumps. Unfortunately, such systems are inherently susceptible to potentially catastrophic failure due to water hammer in the event of an unscheduled shutdown of the cold-water booster pumps. Following a booster pump failure, the residual pressure from the accumulator will temporarily allow users of the building to continue to use water, thereby partially draining down the system and building risers. The cold-water feed to each property in multi-occupancy buildings is required by statute to be fitted with a non-return valve to prevent back-contamination of the system. Therefore, no air can backfill the partially drained down system and provide a compressible gas buffer. In such a condition, a restart of the pumps effectively forces the cold-water feed into a partial vacuum, resulting in extremely high pressures in the building pipework. This is exactly what happened at 199 Knightsbridge. Pressure in the pipework increased to 250bar, compared with a nominal design pressure of 16bar, resulting in the separation of a 28mm pipe joint and the complete rupture of a 15mm copper pipe.
Unfortunately, prior to 2005 neither WSP UK Ltd, nor any other major provider of building services engineering within the UK industry had foreseen that an unexpected shutdown of booster pumps could have such dramatic and catastrophic consequences. However, on reflection, it was agreed that the solution was obvious. The installation of surge arresting valves on the cold-water risers would have allowed excess pressure to be vented, completely avoiding the pipework failure and subsequent flooding.
3.2.3 The Judgement
The central issue in the case was whether WSP were negligent in failing to appreciate the sequence of events leading to the flood and whether they should have modified the design accordingly.
At the design stage of the project, surge arresting valves were not commonly installed in pressurised cold-water systems by the industry. Therefore, WSP’s defence relied upon their assertion that they could not have been negligent, as they had provided a system no different from that being provided at the time by their peers: apparently competent engineers at other organisations of similar experience and resources.
The judgement on this case eventually found that despite the prevailing industry practice, WSP UK Ltd was not excused of its professional duty of care towards the claimant. The judge deduced that WSP UK Ltd should have considered the possibility of a high-pressure surge in their design of the cold-water system and should have amended the design accordingly, even though they were ‘not alone in their approach’. Had they done so, they would have realised that such a catastrophic event was a possibility and in failing to do so, the defendant was found to be negligent.
Ultimately, however, the claimant’s case was dismissed, even though they could show that WSP UK Ltd had fallen short of the standard of care owed to them. The judge found, through evidence of the claimant’s previous behaviour and practices, that even if WSP had advised 199 Knightsbridge to install the surge arresting devices, there was no evidence that the claimant would have bothered to install them in time to avoid the flood. Therefore, luckily for WSP, no actual loss could be proven.
The conclusion to be drawn from this case is that blindly following the practice of others without consideration of the risks involved in pursuing a particular course of action will not satisfy the Bolam test and is likely to result in a successful negligence claim. A widespread failure within a profession or industry to identify or foresee a particular risk or sequence of events does not meet the standards of the “Bolam defence”.
In other words, a professional person cannot divest themselves of their duty of care by simply relying on the prevailing practice in the industry. Engineers must still look at the faults that might arise as part of the design and adapt the design accordingly. Perhaps, in this case, a comprehensive Failure Modes and Effects Analysis (FMEA) would have proved useful?
3.3 Enhancing Reasonable Skill and Care
Invariably, clients will seek to reduce their own risk in a project by passing increased liability onto the engineer through the contractual terms and conditions. Recently, there has been a clear shift in the engineering industries towards imposing a more “client-friendly”, elevated duty of care onto the engineer . Consequently, there is often an attempt to enhance the statutory and common law duty of reasonable skill and care imposed on engineers by introducing contract terms requiring the consultant to use the level of reasonable skill and care to be expected of an experienced member of his profession. Typical examples of such enhanced clauses are presented below.
3.3.1 ACE Professional Services Agreement 2017
Clause 2.1(i) of the The ACE Professional Services Agreement 2017  provides the following enhanced reasonable skill and care clause for use in contracts:
“…In performing the Services the Consultant shall exercise all the reasonable skill, care and diligence to be expected of an appropriately qualified and competent consultant experienced in carrying out equivalent services for developments of a similar size, scope, complexity, value and purpose to the Development…”
3.3.2 FIDIC White Book 5th Edition
The 5th Edition (2017) of the FIDIC White Book for consultancy service contracts contains the following reasonable skill and care clause, which has been enhanced relative to previous versions :
“… [The Consultant shall exercise] … reasonable skill, care and diligence to be expected from a Consultant experienced in the provision of such services for projects of similar size, nature and complexity…”
3.3.3 Project / Client Confidential
In my own recent work I have seen the following contractual clause, verbatim:
“…All documentation submitted as part of the contract shall be complete so as to justify the design and operation of the full system. It shall be of such a standard (as may be expected by an experienced contractor working in the nuclear handling field) that it may be submitted directly to the nuclear regulator or incorporated in documentation submitted by others…”
All the above clauses are intended to have the effect of raising the bar of the Bolam test. Whether they succeed is not clear. However, the main aspect to be mindful of is that there is intent to pass additional duty onto the engineer.
3.3 Summary of Reasonable Skill and Care
In the absence of any written terms and conditions to the contrary, UK statutory law only requires that a professional execute a contract with reasonable skill and care, whilst meeting the standards of competence prevailing in their field. This is the basic minimum standard of duty; however, we have seen from Knightsbridge Development Ltd vs WSP UK Ltd that this does not mean that engineers can divest themselves of their duty of care by simply relying on the prevailing practice in the industry. In addition, we have seen that industry is moving towards imposing a more “client-friendly”, elevated duty of care onto the engineer, although it is debatable what effect these “enhanced” clauses have.
In any case, proving negligence is still likely to be difficult and relying on reasonable skill and care is risky for the client, even when attempts are made to elevate this to a more onerous duty of care. It is therefore common for a client to insert an express obligation to achieve a specified result into the contractual terms. In this case, any such obligation displaces the basic requirement to apply reasonable skill and care and the engineer will be obligated to meet the specified performance requirements. Perhaps the most common example of an express obligation is one that ensures that the works will be fit for purpose.
4. Fit for Purpose
In contrast to the concept of reasonable skill and care, a fitness for purpose obligation imposes a higher duty, as it confers to the engineer an absolute obligation to achieve a specified result. In the event that an engineer’s design does not meet the purposes expressly agreed, the engineer will be strictly liable under their fitness for purpose warranty, regardless of how much care was taken. The Client need only demonstrate that the design does not meet the intended purpose and it is not necessary for the Client to prove negligence. For this reason, engineers often object to fitness for purpose warranties as they as they place the balance of risk on the side of the Engineer and therefore raise difficulties in obtaining insurance for duties that extend beyond the exercise of reasonable skill and care . We will address the implications of fitness for purpose on insurance in Section 6.
In the UK, fitness for purpose duty can be related back, at least in part, to the Sale of Goods Act 1979 . The Sale of Goods Act 1979 imposes implied terms on any seller, acting in the course of business, that the goods supplied will be of satisfactory quality and, where the purchaser makes known any particular purpose, are reasonably fit for their intended purpose.
This is carried by Clause 13 of the Sale of goods Act 1979, which states the following:
14 Implied terms about quality or fitness.
(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known—
(a) to the seller, or
(b) where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the seller, to that credit-broker,
any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker.
In the context of an engineering design contract, a fitness for purpose is obligation simply means that the engineer agrees that the design will meet the client’s requirements, whatever they may be. The client’s requirements may be set out exhaustively in a detailed specification or the client may seek to protect themselves by ensuring that the requirements are intentionally broad. In addition to a detailed list of requirements, a client may try to include an open-ended fitness for purpose clause, under which the engineer may still have to meet wider purposes of the building or plant, even though those purposes are not necessarily spelled out in the contract’s performance specification, which opens the engineer up to significant risk.
4.1 Risks for the Engineer Pertaining to Fitness for Purpose Clauses
From the engineer’s perspective, there are potentially alarming risks associated with absolute obligations of fitness for purpose. Consider the following oft-cited extreme example: an engineer enters into a contract with a client for the design of some plant, e.g. an air conditioning system. The client’s business at the time of contract signature is that of a hotel and the contract imposes a duty of fitness for purpose upon the engineer, without any specific performance criteria or benchmark. The engineer is therefore bound by that standard of duty. Then, a few years following completion of the work, should the employer change the use of the building to that of a block of flats, the employer may be able to sue the engineer and recover damages if the air conditioning system is not fit for the purpose at that time (a block of flats). This would be a particularly unfortunate state of affairs for the engineer.
It’s not clear to me how often this happens, or if ever this has ever really happened in practice; however, the prospect is certainly unpleasant and it is often cited as a potential outcome if contractual terms are not properly managed.
4.2 The Fitness for Purpose Clause
A duty of fitness for purpose can be conferred onto an engineer in several ways. The specific phrase fit for purpose does not have to be used. Simply, words to that effect are considered sufficient . As an example, the following phrases would be considered effective in imposing a fitness for purpose duty:
- fit for the purpose
- suitable for the purpose
- entirely fit for the purpose.
As described in Section 4.1, the engineer does not, as a rule, want to sign up for a fitness for purpose duty without any benchmark or without knowing what the client’s statement of purpose is. Therefore, attempts are often made by engineering organisations to mitigate the duty by removing the strict terms of the fitness for purpose requirement. For example, the following phrases are intended to lessen the duty but would not reduce it to that of the use of reasonable skill and care:
- reasonably fit for the purpose
- fit for the purposes expressly made known
- reasonably fit for the purposes agreed by the parties and expressly set out within the contract.
If the contract is in the form of a well-recognised pro-forma contract standard such as FIDIC or the ACE Professional Services Agreement then it is likely to contain an express obligation of fitness for purpose in words to the effect of “The works shall be fit for the purposes for which the Works are intended as defined in the Contract”. Such wording dictates that the fitness for purpose obligation is to be matched against the client’s intended purpose stated in the contract, rather than simply a blanket fit for purpose obligation without any benchmark. This is a step in the right direction for the engineer; however, the challenge for the engineer is then to ensure that the statements of purpose are clearly identified in the contract and that they are as specifically and narrowly defined as possible.
4.3 Defining the Purpose
In the likely event that a client is insisting on a fit for purpose duty then it is imperative that the engineer protects themselves by defining exactly what this means before entering into the contract. Questions that should be asked are, for example:
- What are the performance criteria that the client is looking for?
- Are the purposes for which the design will be used clearly defined and limited?
Such questions should be addressed prior to tender or during the tender process and agreed in advance of contract signature.
Finally, it should be noted that if an engineer signs up to any express guarantees of achieving defined outcomes or performance criteria then they are contractually obliged to satisfy these terms. It is therefore debatable whether it is necessary for the client to include a separate, specific “fitness for purpose” obligation in the Contract. If the words fit for purpose or some combination of the above are not included in a Contract, but the engineer has agreed to meet specific criteria, then the engineer is effectively held to the same standard of duty as fitness for purpose.
4.4 How Far Does the Duty Extend?
It is important to note that the terms of any warranty of fitness for purpose will extend to all design work for which an engineer is responsible for under their contract, even if an engineer sub-contracts part of the design. In such circumstances, and unless the engineer is able to reduce their liability under the terms of the warranty or pass the same liability to their subcontractor, the engineer may assume a greater liability for the design than their subcontractor has to them.
4.5 Summary of Fitness for Purpose
In conclusion, a fitness for purpose obligation imposes a higher duty, as it confers to the engineer an absolute obligation to achieve a specified result. In the event that an engineer’s design does not meet the purposes expressly agreed, the engineer will be strictly liable under their fitness for purpose warranty, regardless of how much care was taken. Unlike the duty of reasonable skill and care, a Client suing an engineer against a fitness purpose warranty need only demonstrate that the design does not meet the intended purpose; it is not necessary for the Client to prove negligence. For this reason, engineers often object to fitness for purpose warranties as they as they place the balance of risk on the side of the Engineer and therefore raise difficulties in obtaining insurance for duties that extend beyond the exercise of reasonable skill and care. We will address the implications of fitness for purpose on insurance in Section 6.
When negotiating a contract, an Engineer must first identify any risk of performance to a higher duty and, if necessary, counterbalance this risk by seeking to limit the overall liability under the contract or else by pricing it into the deal. Absolute obligations for fitness for purpose relating to design (regardless of whether that obligation includes such express wording) should be approached with caution and diluted where possible, as a reasonable skill and care clause may not offer the engineer much protection against an absolute obligation to achieve a certain standard of work.
In the event that a higher duty is implied, it is necessary for an engineer to consider whether or not the contract clearly indicates the employer’s purpose or requirements. If ‘the proverbial’ hits the fan, then without a clear statement in the contract, the intended purpose will usually be assessed and determined by a court or arbitrator based on the facts and there is certainly no guarantee that the judgement will fall in favour of the engineer.
Absolute obligations for fitness for purpose relating to design (regardless of whether that obligation includes such express wording) should be approached with caution and diluted where possible, as a reasonable skill and care clause may not offer the engineer much protection against an absolute obligation to achieve a certain standard of work.
Finally, the client must also balance their desire to ensure that the completed works fulfil their requirements against the danger of imposing uninsurable obligations.
5. Common Law Imposition of Design Liability
Implied design liability under common law can vary depending on an engineering organisation’s role in a project and the services that they provide. For example, let’s compare the default common law liability of the following two organisations:
- a professional engineering consultancy, who is responsible for developing a design for their client;
- a design and build contractor who is responsible for developing a design and then executing the manufacture, procurement and/or construction of the completed works.
In this comparison the professional consultant is providing a design service, whereas the design and build contractor is both providing a design service and the supply of a finished product.
5.1 The Professional Engineering Consultancy
By engaging in the Contract, the engineering consultant has implied that they are reasonably competent to carry out the work. Therefore, in the absence of an express contractual agreement of fitness for purpose or an agreement that the design will meet a specific criterion, common law implies that the Consultant will be obliged to use reasonable skill and care and no more. This is broadly in line with the UK statutory requirements laid forth in the United Kingdom Supply of Goods and Services Act 1982.
5.2 The Design and Build Contractor
Conversely, where a contractor is both the designer and the contractor erecting the works, then unless the contract deals expressly with the point, a fitness for purpose obligation will often be implied into the terms of the contract.
5.3 Statutory Obligations do not Trump Imposed Higher Obligations
It should be noted that statutory obligations such as the requirement to apply reasonable skill and care arising under the Supply of Goods and Services Act 1982 do not cancel out or “trump” any other obligations agreed to. In other words, the Supply of Goods and Services Act 1982 does not prejudice any rules of law which impose a higher standard. These two trends run concurrently and the fact that there is a statutory standard does not prevent the imposition of a greater standard at common law. The same applies even if there is an express requirement in the contract to apply reasonable skill and care. If the same contract also contains express requirements to achieve certain performance criteria or fitness for specified purposes, then both requirements must be met, the reasonable skill and care statement does not trump or displace the fitness for purpose obligations. You have to satisfy both or you are in breach of contract.
6. The Implications for Insurance
The primary reason that engineers are concerned about standards of duty is related to their adoption of risk and whether they will be covered under their Professional Indemnity Insurance (PII) for a specific set of contractual terms.
In general, the vast majority of engineering organisations, large and small, will hold PII. In the United Kingdom, PII isn’t compulsory for engineers under the law; however, most clients will demand that an engineer holds PII before engaging them in a contract. In addition, some other professional bodies mandate PII for their practitioners. For example, under the ARB Architects Code, PII is compulsory for practicing architects.
The cost and terms of insurance policies are based on the insurer’s calculation of risk. The minimum amount of risk that an engineering provider can expect to hold is that built up by the simple implied obligation to perform the works with reasonable skill and care and without any fitness for purpose obligation. This risk is relatively easy to quantify for insurers, which is why PII predominantly covers the engineer against negligence, i.e. the failure to exercise reasonable skill and care. On the other hand, PII policies are often unlikely to respond to a claim when the engineer has taken on a fitness for purpose obligation in a set of contractual terms. This is because the risk built up by the probability of occurrence and magnitude of loss is very difficult for an insurer to quantify against fitness for purpose obligations. This is exactly the same reason why employers like to introduce fitness for purpose clauses into the contracts with engineers – it is hard for the employer to quantify the risk that the engineer will not make a non-negligent error, and so they’d rather pass that risk on to the engineer.
As a general rule, it is conservative to assume that PII only covers an engineer against failure to use reasonable skill and care. That is, it will only respond to allegations of negligence. If the professional consultant makes a non-negligent error the insurance won’t usually respond.
6.1 Non-Negligent Errors, what are they and why do they Matter?
What is perhaps most surprising to persons learning the subject for the first time, is that by accepting a fitness for purpose clause, an engineer can be liable to a client in a situation where they have not been negligent. That is, an engineer may be liable even though they have been deemed to have used reasonable skill and care. This is a particularly complex situation and is one that is thankfully very rare.
6.1.1 An Example Scenario
The non-negligent error scenario would manifest as something like this:
An engineer specifies a design solution based on the current state-of-art in the industry. The engineer commits to a clause in their contract, which states that the completed works will fulfil criterion X. The engineer completes their design in accordance with the relevant industry standards, codes and guidelines. The engineer demonstrates reasonable skill and care. Unfortunately, an as-yet unidentified problem exists within the common literature and state-of-the-art industry methods that cannot have been reasonably foreseen (this is distinct from the case of 199 Knightsbridge Development Ltd vs WSP UK Ltd discussed earlier). The unforeseen problem does not reveal itself until after the work is complete and the works are put into service. The fault prevents the works from being able to fulfil criterion X. The client is not happy. Who is liable? Well, in this case, the engineer had guaranteed to the employer that the completed works would be fit for an intended purpose: i.e. the fulfilment of criterion X; therefore, the engineer is liable. The client’s plant needs to be put out of action, productivity takes a hit, the engineer needs to carry out a partial redesign and contractors need to be engaged to carry out the work on site. The cost is significant and the client enters a claim against the engineer. The engineer approaches his insurer and politely asks for the PI policy to respond to the client’s claim with legal defence costs and the possibility of a pay-out if the client wins. The conversation is as follows:
Engineer: Hi, my client is suing me. Can you pay for it all please?
Insurer: What happened?
Engineer: So, everybody in the industry thought that widgets could do Y, but it turns out that they can’t, nobody could have reasonably foreseen this and now the client’s plant isn’t fulfilling criterion X.
Insurer: Is the client alleging negligence?
Insurer: Why not?
Engineer: Because we agreed to a fitness for purpose obligation that the plant would fulfil criterion X.
Insurer: And the fact that it’s not fulfilling criterion X isn’t because you were negligent?
Engineer: No, we’re good engineers, we did everything by the book and in accordance with the state-of-the-art; it just turned out “the book” was wrong.
Insurer: Oooshhhh… I’m sorry, we can’t help. As you know, our policy only responds to negligence claims, so you’re on your own I’m afraid. Anything else?
Engineer: Oh, erm. No…
Insurer: OK. Have a nice day. Bye-bye… Bye now…. Bye… *Click*.
6.2 Proving My Own Negligence?
What is even odder about this situation is that under certain circumstances, it may be necessary for an engineer to sue their insurer in an attempt to prove their own negligence and secure a pay-out, the result of which could mean the difference between staying in business and going under.
Let’s consider a contract in which an engineering organisation has committed to an absolute obligation to achieve a specified result with their design. In the event of a defect that prevents the design from achieving the specified result, the client would have to prove that it was the engineer’s design which caused the defect. That is to say, the client would need to show that the design had been followed during manufacturing and construction and that there were no workmanship or materials errors. However, in the event that the engineer “only” had to use reasonable skill and care, then the client would also have to prove negligence on top of this, which is significantly more difficult.
Therefore, we can see that it presents much less of a risk to the Client to demand that the engineer commits to a fitness for purpose type obligation, or an obligation to meet specific performance criteria. It makes sense from the client’s perspective. The client cannot control the risk of a non-negligent error, so why should the client not remove it as a consideration by using a fitness for purpose obligation?
What happens if, due to negligence of the engineer, there is a problem with the design that prevents the design being fit for its intended purpose? In this case, as the engineer signed up to a higher duty of fitness for purpose, then the client does not need to claim negligence. The client need only prove that it was the engineer’s design that caused the defect. In this situation, as there is no claim of negligence, then the engineer’s PPI is not likely to respond and the insurers may refuse to pay costs associated with the claim.
It should be noted, however; that this approach may be counterproductive for the client, because if the engineer’s insurance won’t pay out, then the scope for recovery of cost by the client may be significantly reduced and could be dependent on the ability of the engineer’s organisation to pay out alone.
7. Case Study – Robin Rigg Offshore Wind Farm
A very pertinent and recent example of the perils of the fitness for purpose obligation is provided by the case of MT Højgaard (MTH) vs E.On Climate & Renewables UK Robin Rigg East Limited , . This case considered the extent to which a design and build contractor should be held responsible for a construction project achieving (or failing to achieve) a particular performance output. The case made its all the way to the UK Supreme Court.
In the first instance, the courts ruled in favour of the employer, E.ON, on the grounds of breach of contract by MTH. Then, in April 2015 the Court of Appeal reversed the decision and ruled in favour of the contractor, MTH, on the basis of inconsistent contractual provisions. Finally, in a third round, the United Kingdom Supreme Court reversed the decision again and approved E.ON’s application to appeal, finding in favour of E.ON to the tune of EUR 26.25 million.
In 2006, E.ON employed MTH to design, fabricate and install 60 wind turbine foundations at the Robin Rigg offshore wind farm on the Solway Firth, UK. It was accepted by the contractor, MTH, that the Technical Requirements (TR) document circulated by E.ON during the tender process was effectively incorporated into the contract. The contract between E.ON and MTH contained various warranties regarding fitness for purpose and provisions regarding the intended lifetime of the turbine foundations. Specifically, Paragraph 220.127.116.11 of the TR contained two important provisions which were referred to as (i) and (ii) by the courts, for ease of reference:
- part (i) provided that the contractor was required to prepare the detailed design of the foundations in accordance with DNV-OS-J101 ; and
- part (ii) stated that “[t]he design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement”.
When designing the foundations, MTH’s designer, Rambøll, relied on the Det Norkse Veritas (DNV) standard, DNV-OS-J101 (2004). This was in accordance with the Client’s requirement 18.104.22.168 (i) and was also in accordance with the state-of-the-art in industry at the time. DNV-OS-J101 was and still is, the international standard commonly used in the industry. However, unbeknown to the industry in 2006, DNV-OS-J101 (2004) contained a fundamental error which resulted in a significant overestimation of the axial load capacity for wind turbines with grouted connections.
In 2009, movement was discovered in the grouted transition piece connections of the turbines at Robin Rigg, following which the error in DNV-OS-J101 came to light. Therefore, as a result of the error in DNV-OS-J101, the turbine foundation design was unable to fulfil its intended purpose for the period of 20 years stated in the employer’s requirement 22.214.171.124 (ii). All of the foundations required remedial work, at an agreed cost of EUR 26.25 million. The subsequent remedial works were performed and the parties commenced legal proceedings. The issue before the court was: which of the parties should bear responsibility for the error in DNV-OS-J101 and, therefore, the cost of the remedial work?
7.2 Technical Detail
Each of the Robin Rigg turbines is supported by a cylindrical steel monopile driven into the sea-bed. Located on top of the monopile is a nominally concentric cylindrical steel transition piece which is grouted into place. Grout is used to transfer the axial load between the pile and the turbine tower whilst simultaneously compensating for imperfection in pile verticality, therefore ensuring that the turbine tower is vertical. The turbine generator tower is mounted on the transition piece.
Figure – Robin-Rigg turbine monopile transition piece
The grouted connection was designed to comply with the international standard for the design of offshore wind turbines, DNV-OS-J101 (2004). As noted, DNV-OS-J101 contained an error: the value attributed to a variable in the parametric equation used for the design of the grouted connection was underestimated by a factor of approximately 10, leading to an overestimation in the axial load capacity of the interface and an inability for the design to fulfil its intended purpose for the full specified life of the structure.
In addition, DNV-OS-J101 indicated a potential method for strengthening the grout connection under axial load involving the use of shear keys or weld beads in the grout interface. However, the standard left the decision to implement this detail to the discretion of the designer. At the time of the Robin Rigg design, there was a tendency for designers in industry to neglect to specify the shear key option, as this was perceived to be a quicker and, cheaper option. Accordingly, MTH followed common practice and did not specify the use of shear keys. Following the grout failures observed in the Robin Rigg case, DNV-OS-J101 has been re-issued (2014) with corrections, and now discourages the use of plain pipe non-keyed transition piece connections. Subsequently, this practice has been effectively discontinued in the offshore industry.
7.3 The Ruling
We can see in this case that MTH could be considered to have applied reasonable skill and care in their design and complied with normal industry practice in the use of DNV-OS-J101. Unfortunately for MTH, this was not a sufficient defence given the contractual terms agreed to, which warranted specific fitness for purpose obligations. The Supreme Court found that contractually, Clause 126.96.36.199(ii) of the TR meant that MTH either warranted that the foundations would have a lifetime of 20 years, or had agreed that the design of the foundations would be such as to give them a lifetime of 20 years. That is to say, MTH assumed full design responsibility and warranted a service life of 20 years upon which E.ON was entitled to rely. Therefore, the Supreme Court found that MTH would be liable for the EUR 26.5 million remedial works.
Lord Mance, in making his judgement (https://www.youtube.com/watch?v=_9dNiI8bhns), made the following statement:
“While each contract must turn on its own terms, the courts will generally give full effect to a requirement that the product, as produced, complies with prescribed performance criteria, even if the customer or employer has specified or approved the design. In other words, generally speaking, a contractor takes the risk if he has agreed to work to a design which has the effect of making the product incapable of meeting the criteria which he has also undertaken to satisfy. Here the TRs were expressly, only a minimum standard, and it was contemplated that MTH might go, and that its responsibilities, if necessary, might go, beyond the specified standard. That was the case under the relevant contractual provisions here. The appeal accordingly succeeds.”