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 NEC4 contract.
NEC4 core clauses do not expressly set out a design standard – the contractor promises that the works when completed will comply with the Scope. As the Scope will set out design standards and technical/performance requirements, this becomes a covert fitness for purpose clause.
Clause 11.2(5) refers to defects being a ‘part of the works designed by the contractor which is not in accordance with applicable law’. Under English law, where the contractor carries out design and construction, there is an implied legal term that the works will be fit for their purpose. So these two elements – arguably – could result in the contractor being liable for defects where the works are not fit for purpose.
Standard of Care
The key element of the NEC4 contract jigsaw is optional clause X15 which states that:
“the contractor is not liable for a defect which arose from its design unless it failed to carry out that design using the skill and care normally used by professionals designing works similar to the works.“
Unless NEC4 X15 is included, there are no express terms limiting the contractor’s liability to reasonable skill and care for either design or workmanship. So the
Note: NEC3 X15 said the contractor was not liable for defects in the works due to his design “so far as he proves that he used reasonable skill and care to ensure that his design complied with the Works Information.”
In SSE v Hochtief the contractor had to prove every aspect of design and construction of a tunnel requiring £130m remedial works following its collapse. Although contractor discharged the reverse burden of proof under NEC3 X15, and proved that it has used reasonable skill and care to ensure that the design complied with the Works Information. The court aslo decided that it had not given a warranty that the tunnel would last 75 years…
Sadly, it was still liable as the collapse of the tunnel was due to failure of workmanship, not design!
The Scope (or Works Information) in NEC contracts defines not just the express duties of the contractor, but can also result in implied fitness for purpose obligations where it takes on design of the works.
NEC4 Option X15 does not expressly exclude fitness for purpose, but instead replaces it with a reasonable skill and care obligation. However, as we saw in other cases, this can result in parallel obligations for both fitness for purpose and reasonable skill and care.
Be very careful!
Case: SSE Generation Ltd v Hochtief Solutions AG and Another  ScotCS CSIH_26