Fitness for purpose under NEC4

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 (2017)

NEC4 core clauses do not expressly set out a design standard. The contractor agrees that it will provide the Works in accordance with the Scope (20.1). As the Scope will set out design standards and technical/performance requirements, and the Works have to meet the purpose requirements set out in the Scope, this becomes a subtle fitness for purpose obligation.

A rather more tenuous quality standard arises from clause 11.2(6). This defines a defect as being a ‘part of the works which is not in accordance with the Scope [matching 20.1] or a part of the works designed by the contractor which is not in accordance with applicable law…’.

Where the applicable law is English law, and the contractor both designs and constructs the works, there is arguably an term implied into the NEC4 contract that the works will be fit for their purpose.

Together this could result in the contractor being liable for defects where the works are not fit for purpose.

Standard of care

Another key element of the NEC4 contract jigsaw is the secondary option 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 clauses which limit the contractor’s liability to reasonable skill and care for services, including design and workmanship. This then leaves the question of the standard of care open for debate… or to be determined by the Scope.

What is the impact of this in practice?

In SSE v Hochtief (2018) the contractor worked under an NEC3 contract with a slightly different version of X15. This provided that 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.’

Faced with a claim for £130m to cover the cost of remedial works following a tunnel collapse, the contractor had to discharge this ‘reverse burden of proof’ by showing that it had used reasonable skill and care to ensure that the design complied with the Works Information (now called Scope under NEC4).

Nonetheless, the contractor was liable for the collapse of the tunnel, which was due to workmanship, not design.

The decision is complex, with many twists and turns and perhaps the glimmer of light for the contractor was that the court decided it had not guaranteed that the tunnel would last 75 years… <phew>!

What does this mean for you?

The Scope in NEC4 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 refers to design taking ‘reasonable skill and care’ as its performance standard. So design is reasonable, but workmanship could be different – this lack of clarity can result in parallel obligations for both fitness for purpose and reasonable skill and care.

If you’re involved in a project, you should consider what you want the quality standards to be for services, design, workmanships, goods and so on. Then ensure the legal terms and the Scope are consistent.

Case: SSE Generation Ltd v Hochtief Solutions AG and Another [2018] ScotCS CSIH_26

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