Fitness for purpose clauses impose a duty on a contractor to achieve a specific result.
They have come under scrutiny as a result of a series of cases in the English courts which imposed significant damages onto a contractor, in complex factual scenarios [read more].
This post considers the FIDIC 2017 Yellow Book contract.
Clause 4.1 states:
The Contractor shall execute the Works in accordance with the Contract. When completed, the Works (or Section or Part or major item of Plant, if any) shall be fit for the purpose(s) for which they are intended as defined and described in the Employer’s Requirements.
This clarifies that
- purpose is to defined expressly in the Employer’s Requirements (and not presumed from other contract documents);
- the standard applies not just to the works but also other parts, sections and major items of plant.
This is backed by an indemnity under clause 17.4 which requires the contractor to indemnify the employer against ‘acts errors or omissions by the contractor in carrying out the contractor’s design obligations that result in the works (section, part, or major items of plant) when completed not being fit the purposes for which they are intended under clause 4.1.’
This indemnity is restricted to exclude indirect and consequential losses (1.15), and capped with an overall cap on liability (1.15) – which is either the limit stated in Contract Data or the Accepted Contract Amount.
In addition, the insurance required under clause 19.2.3 is to cover the indemnity for failure to achieve fitness for purpose (extensions to PI policies for design and build contractors to cover fitness for purpose warranties are available – read this article).
Fitness for purpose is an express requirement of FIDIC 2017 for specific contracts in the suite.
Fitness for purpose is more common for engineering projects (the genesis of this suite) and where is it backed by testing to ensure fitness (the tests udner FIDIC are those set out in the Employer’s Requirements). Testing ensures that clear remedies apply where plant, design or the works as a whole do not meet the purposes set out in the employer’s requirements.
Contractors should ensure their insurance cover has an extension for fitness for purpose.