Does 1 + 1 = 2?As promised this is the follow up to my previous article on the issue of having two apparently competing obligations in one contract.

In this second article I discuss the case of Mw High Tech Projects UK Ltd v Haase Environmental Consulting GmbH [2015] EWHC 152 (TCC) – (Contractor vs Consultant).

The Background to the case…

In 2010 West Sussex County Council engaged Biffa Waste to design, build and operate a recycling facility at a site in West Sussex.

Biffa in turn contracted the design and construction of the waste treatment plant at the site to the Contractor (MW) under an EPC contract for just shy of £100million.

Before entering the EPC contract the Contractor appointed the Consultant (HEC) under a Letter of Intent to provide design services relating to process engineering. The Consultant completed a Basic Design Proposal which included the EPC Delivery Plan, which was incorporated into the contracts referred to in the preceding two paragraphs. This Basic Design Proposal formed the basis of the Contractors tender price.

A couple of weeks later the Contractor formally appointed the Consultant, with the works carried out under the Letter of Intent being subsumed into the formal Appointment.

The original dispute…

Initially the dispute concerned an adjudication, which the Contractor lost. It then progressed into Court. The Contractor was arguing that the Consultant had failed to follow the appointment document. Specifically they had developed the Basic Design Proposal to the extent that the Contractor’s originally tendered price was now no longer sufficient. The Contractor argued this was a breach of contract as the Consultant was obliged to:

  • act with reasonable skill and care; and
  • to carry out the works in accordance with both the EPC Output Specification and the associated EPC Delivery Plan.

The Decision…

Based on the evidence & submissions before him, the Judge found that the Consultant’s “developed” design didn’t fulfill the brief. The Judge went on observing that the appointment included the following at Clause 13.7, under the main clause heading “13. Development And Submission Of Design”:

“The Consultant shall not, without the prior consent of the Contractor, develop or change the design so as to knowingly cause the cost of procuring, installing and commissioning the Process Technology pursuant to the EPC Contract to increase.”

There was very little to argue with based on that clause. In simple terms the Consultant had a duty of care obligation to develop the design in such a way so as not to breach Clause 13.7. The value of this breach will ultimately be decided in Adjudication, as I understand.

Implied Terms vs Absolute Obligation…

Whilst the clause above was fairly robust or absolute, often contracts don’t have such a clause, which opens up the questions as to whether such an obligation could be implied?

In my personal experience of working with design consultants, I believe that an implied obligation is there, where the Consultant is aware that the Contractor is tendering Lump Sum. Or to put it another way, the consultant owes the contractor a duty to act in the contractor’s interest and not enhance a design to cause an increase in costs, where a price is Lump Sum.

Contractors would be well advised to interrogate and question the pre-tender design to ensure they are not picking up a design that was done on the cheap. Ensure any assumptions that went into the design have been allowed for as part of the tendered contract risk allowances.

At the end of the day, you might not win the work, but that to me would be better than having to design and build something using your profit margin.

At the end of the day for me, it comes back to the client. If design contracts are novated or simply handed over, the Client cannot expect the Contractor to pick up the slack when the Consultant was engaged to provide as economic a solution as possible.

To Summarise

There is to me a sense of irony here. Often designers will be told they have not achieved a high enough design standard, yet here we have a situation where this enhanced design, although non-negligent did lead to a breach of contract as it increased the costs, which was an express (fit for purpose) obligation in the contract.

As always every contract is different and all parties need to engage suitable advice in relation to what the obligations they are signing up to mean in terms of acting with reasonable skill and care and complying with specific obligations.

Do not simply assume that a separate clause will magically limit an overriding standard of care.

I thank you for taking the time to read this article and I hope you found it useful. Please feel free to connect with me, like, comment or share this article. If you notice any typos please do let me know, I am only human after all!

Wishing you every success in your endeavours.

On Twitter @CPUK

Read the full decision from TCC here

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