Commercially managing design risk: extent of design responsibility

Here is some guidance that will help you.

Transferring Design Responsibility

It is often the case that a client will develop the design to a point before asking the contractor to complete the design as part of the construction contract. In turn, the contractor will seek to transfer some, or all, of its design responsibility to its design consultants (architectural, structure, MEP, etc) and specialist subcontractors (e.g. structural elements, façade, MEP, etc).

The key issue to be addressed is whether the client takes responsibility for the design it has issued to the contractor. The answer to that seems obvious; surely the designer who prepared the design should be liable to the client, and the client should be liable to the contractor? Unfortunately, life in construction is not that equitable, and it is often the case that clients will seek to transfer its liability for that risk to the contractor.

You need to be very careful when this is presented to you in a tender. Firstly, it might not always be obvious, and you need to know what you are looking for, but, secondly, and most importantly, you need to invest time and money into doing due diligence on those design documents to understand the risks and ensure appropriate allowances are made within your price and programme.

Sometimes, you will be asked to do this in a time-constrained tender period. Each business will make its own judgements on risk but, for me, you should push back on this attempted risk transfer. It is often a deliberate attempt to get you to agree to something you do not fully understand; be very careful about that pitfall.

Limitations

Your responsibility for design will have limitations – again, they will not always be spelled out for you.

You need to know what these are, and, at tender stage, you should propose limitations where there are gaps. These will often be assumed constraints or criteria about details you do not possess but expect come into your possession after the contract is signed. If you have a stated constraint or criteria and that changes, then, if your variation clauses are reasonable, you will be entitled to additional time and cost.

You need to read the design documents and comb out the assumptions that exist and work with the project team to make sure any gaps are plugged with assumptions (and make sure those assumptions are included in the contract documents).

Check the design documents

When you do that combing exercise, be sure to pick up any sneaky clauses within design documents where responsibility for design goes beyond that stated in the terms and conditions (always do a CTRL+F for “fitness for purpose” for example).

These tend to arise because a designer is seeking to protect its own interests and limit its exposure to PI claims. You should push back and, despite the time and effort required, go through and redline those documents to make sure you do not take responsibility that is beyond that included in your price and programme.

Extent of design responsibility: a practical example

I dealt with an issue where a mechanical sub-contractor was claiming variations for additional scope performed. The contractor’s reason for rejecting the variations was that the mechanical sub-contractor was liable for discrepancies, inconsistencies, inaccuracies, departures, errors, omissions and inadequacies.

The clause did appear, on the face of it, to make the mechanical sub-contractor contractually liable for the changes. However, when we investigated the root cause of the changes and considered this against the relevant clause, it became apparent that the cause of the change was the design of scope that was outside the mechanical subcontractor’s scope.

One example was the introduction of a dry riser. This requirement was necessary to ensure the architect's design complied with fire regulations and standards, and was not caused by a discrepancy, inconsistency, inaccuracy, departure, error, omission, or inadequacy within the mechanical contractor’s scope of work.

That said, an example of a variation which the mechanical subcontractor could not claim was the introduction of radiators in an area where the base design did not meet the heating requirements in the contract.

The lesson here? Don't be put off by an unfavourable clause; always get to the root of the issue and test it.

Final reflections

Many payment disputes find their origin in a difference in view as to design responsibility. There are even cases I have been involved in where the delay impact is identical between the parties and their arguments turn on their interpretation of a series of design related clauses and who was responsible for what.

This can be a complicated issue because of the way responsibility is transferred, often unfairly, in very short tender periods where the contractor has very little time to understand and price the risk. For me, if we really want to avoid conflict, this is an area that needs to be cleaned up and poor practices should be called out more often.

Next week, we will continue this theme with focus on consultant appointments.

Keep an eye out for that and, in the meantime, enjoy the rest of your week

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