THE “FIT FOR PURPOSE” STANDARD IN DESIGN-BUILD CONTRACTS
Danielle de Bruyn
21 August 2018
This article attempts to provide both contractors and clients with an executive level overview of their rights, obligations and consequent remedies in relation to the to the “fit for purpose” standard.
Clause 4.1 of the FIDIC Yellow Book (Plant and Design-Build) General Conditions of Contract requires contractors, who undertake so-called Design-Build Contracts (these are contractors who provide not only construction services, but also undertake the design element of the project), to complete and deliver a project (also known as the “works”) in accordance with the so-called “fit for its purpose” standard.
Clause 4.1 specifically states:
“The Contractor shall design, execute and complete the Works in accordance with the Contract, and shall remedy any defects in the Works. When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract.
In a nutshell, the “fit for purpose” standard means that from the date on which the project is undertaken up until the date on which the works are handed over to the client, the contractor must ensure that the works are fit for its intended purpose. In simple terms, the works must be designed and constructed in accordance with what it will be used for, i.e. what it was originally intended for.
An agreement may on occasion not specifically contain the “fit for purpose” standard. “Does this imply that agreements which fail to specifically state that a contractor is to complete and deliver the works to a “fit for purpose” standard may be off the proverbial hook, when it comes to shoddy building work?” you may ask. The answer is “No”. Not only is this standard provided for in the FIDIC Yellow Book, but it is an implied standard when it comes to Design-Build Contracts. This means that if the “fit for purpose” standard is not expressly mentioned in the agreement between the parties (a contractual term of the agreement), the standard is implied.
An important aspect of this standard is that not only is “reasonable care and skill” expected of the contractor, in addition, the end result must also be “fit for purpose”. This entails a higher standard than “reasonable care and skill”, as the risk carried by the contractor subsists for the entire project, i.e. until the works are completed, signed off and handed over. The “fit for purpose” standard is also a higher standard than “reasonable skill and care” because negligence does not have to be proven to establish liability, as is the case with the standard of “reasonable skill and care”. The “fit for purpose” standard is thus an absolute obligation, and breach of this standard does not require proof of negligence.
When the “fit for purpose” standard is scrutinised by our courts, it is important to keep in mind that the courts merely consider the final product and whether the final product is “fit for purpose” as opposed to individual components of the Works, such as the design phase, workmanship or materials used. As a result of this approach the contractor may be held liable for defects (be it in the design, workmanship or materials) where the end product is not “fit for purpose”, regardless of whether or not the individual components meet the applicable criteria.
An aspect, that a contractor might not be aware of, is the fact that most professional indemnity (“PI”) policies cover the holder thereof when it comes to a breach of “reasonable skill and care” (due to negligence), but not a breach of the “fit for purpose” standard. The reason for the aforementioned is occasioned by the fact that the risk associated with the “fit for purpose” standard is fairly difficult to quantify, especially in relation to probability and magnitude considerations. Some PI policies even expressly exclude the risk associated with the “fit for purpose” standard. Contactors would thus do well to properly familiarise themselves of the associated risks. Employers should similarly be aware of the powerful remedies at their disposal.
Lastly, as contractor you must be aware of the fact that the term “fit for purpose” is not always utilised, but that this standard can be “disguised” by using synonyms in the form of warranties. An example of such a “disguise” of the “fit for purpose” standard in an agreement can be construed in the form of a warranty that the works shall adhere to the employer’s requisites as well as any performance specification.
In light of the above, and having been made aware of the consequences and implications of the “fit for purpose” standard, you as contractor must thus assume that this standard always finds application to Design-Build Contracts, whether expressly mentioned or not and whether the standard is “disguised” or patently obvious. The only way to try and balance the implications of the standard is to limit your overall liability in terms of the agreement with the employer/client or to price such a possible liability into the overall works (contract price). On the flip side, you as client/employer can gauge from this article that this standard affords you a measure of protection as a contracting party.