What employers want - contractors' fitness for purpose obligations

Imagine that you are the proud owner of a newly constructed swimming pool – with peeling paint. Or that you paid for a footbridge which is fine as long as people do not walk on it. Wouldn't you look to the contractor to put the problem right – pronto?

Most employers entering into construction contracts want an undertaking from the contractor that the materials used in the construction will be up to scratch; the roof will not leak, the cladding will not corrode, and so on. Some will go further and say that the Works as a whole should be fit for the employer's intended purpose, whether as an office, a power station or whatever.

Invariably the contractor is obliged to provide materials that are of satisfactory quality. However, materials can be perfectly satisfactory but unsuitable for the part of the Works in which they are used. The paint used on the swimming pool might be fine for any number of surfaces (and therefore of satisfactory quality), but unsuitable when it is exposed to chlorinated water.

The employer wants to require the materials, if not the Works, to be fit for their purpose because the contract might omit to specify a detail or allow for something that later proves to be important. Examples of this include:

• details that are regarded as obvious or minor at the time the design is produced so as not to require a specific mention. For instance, all sorts of technical requirements might be specified about paint for a swimming pool (its colour, chemical composition, etc), but it is unlikely that anywhere someone will have expressly specified: "Must not peel"
• matters omitted because the contractor is to select the materials or complete the design of the Works. The contract for your swimming pool might simply require the contractor to identify, supply and apply the paint
• something that would not have been recognised as important due to the state of knowledge at the time the design is produced. For example, when your bridge was designed it might not have been appreciated that the action of lots of feet might make the bridge an expensive fairground ride.

Thus, fitness for purpose obligations are intended to cater for the risk of the unspecified and the unexpected.

The contractor undertaking the works in question might be the best placed to accept the risk, but that does not mean that he will agree to do so. Where, as often occurs, the contractor uses many sub-contractors and suppliers, he will find it difficult to pass on his fitness for purpose obligations, particularly if he has warranted that the Works as a whole will be fit for their purpose. Also, it is practically impossible for the contractor to obtain insurance at a reasonable premium in respect of fitness for purpose obligations.

If the contractor does accept fitness for purpose obligations, he will invariably only do so at a premium as he is effectively being asked to provide insurance that the employer's expectations will be met.

Where the parties agree that the materials and/or the Works must be fit for their purpose, the obvious thing to do is to provide expressly for this in the contract and to describe the particular purpose. Where, for whatever reason, the parties do not agree that the contractor will owe fitness for purpose obligations, from the contractor's standpoint it is sensible to include a term saying that no such obligations have been agreed. The employer usually has an interest not to include such a term, because in certain circumstances the law will imply fitness for purpose obligations upon the contractor. Then the employer can have the best of both worlds and correspondingly the contractor can have the worst of both worlds - the obligation will exist without the employer having paid for it.

It is worth looking at when terms will be implied into construction contracts requiring contractors to provide materials, or to complete Works, that are fit for their purpose.

The fitness for purpose of materials

Generally a term will be implied into a construction contract that the materials used by the contractor should be fit for their purpose, subject to the following limitations:

• the express terms of the contract exclude the obligation
• the employer did not rely upon the contractor's skill and judgment in selecting the materials. This can be because the materials are specified or effectively specified by nominating a supplier who only supplies certain materials
• the contractor's duty to provide materials that are fit for their intended purpose is limited to the extent that the relevant details of the employer's requirements are made known to the contractor. This was exemplified in a sale of goods case last year (Jewson Limited v Kelly, 28 July 2003). Mr Kelly planned to convert a building into flats. He bought 12 electric boilers from Jewson. The boilers reduced the 'Standard Assessment Procedure' (SAP) rating on the flats. The SAP is the Government's recommended method for home energy rating. The rating aims to inform householders of the overall energy efficiency of a home in a way that is simple to understand. The low SAP rating on the flats affected their marketability prompting Mr Kelly to claim that the boilers were neither of satisfactory quality nor reasonably fit for their purpose. The Court of Appeal held that there had been nothing unsatisfactory about the intrinsic qualities of the boilers. This left the question of whether Jewson were liable because the boilers were unfit for their purpose. Whilst Mr Kelly had made it clear to Jewson that he had wanted to buy the boilers to install them in flats for sale, he had given Jewson no information about the nature of the building being converted. The Court said that Kelly had not relied upon the skill and judgment of Jewson in relation to whether the boilers were suitable for the particular flats, having regard to the SAP ratings. Jewson had not, therefore, been in breach of the term as to fitness for purpose. It did not help Mr Kelly that he had access to advice from an engineer (who, unlike Mr Kelly and Jewson, knew what SAP ratings were). However, it seems clear that the result would have been the same even if Mr Kelly's engineer had not known of the SAP requirements. If the employer does not communicate a purpose to the contractor that later proves to be important, it is irrelevant that the employer was unaware of that purpose or its importance.

• the employer chooses materials that he and the contractor know can only be obtained from a supplier upon terms that remove or substantially limit the contractor's right of recourse against his supplier for defects (Gloucestershire CC v Richardson [1969]). It seems likely that the position would be the same if only the employer knew about the supplier's terms when he specified him.

Often where the contractor is liable to the employer because materials are not fit for their purpose, the contractor will have recourse against his supplier. However, the contractor is at risk of being unable to pass on liability where:

• the supply contract excludes or limits the supplier's liability
• materials are unfit for a purpose communicated to the contractor, but not passed on to the supplier (and the materials are otherwise of satisfactory quality). Contractors can limit their exposure by passing on to suppliers of key materials as much relevant information as possible about given projects for which they are supplying materials.

The fitness for purpose of the Works

Where the employer communicates to the contractor the particular purpose for which the Works are to be done and the employer relies upon the contractor's skill and judgment, there will be an implied term that the Works as completed will be reasonably fit for that particular purpose. The term is subject to the same limitations as implied terms requiring the fitness for purpose of materials.

Therefore:

• where a design is detailed in drawings and specifications or bills of quantities for which the contractor was not responsible it is very unlikely that a term will be implied requiring the Works to be fit for their purpose
• where a contractor agrees to design and construct works, a term requiring the fitness for purpose of the completed works will readily be implied (unless excluded by the express terms of the contract or other circumstances suggesting that the contractor did not accept the risk).

JCT contracts

It is worth looking at the extent to which certain JCT forms specify fitness for purpose obligations.

JCT 98

The JCT Standard Form of Building Contract 1998 edition Private with Quantities (JCT 98) is somewhat coy about the contractor's fitness for purpose obligations. It requires that all goods and materials shall be of the kind and standard described in the Bills. They should also be to the reasonable satisfaction of the Architect/Contract Administrator, if required. This leaves little scope for a fitness for purpose obligation in respect of materials because the employer does not rely upon the contractor's skill and judgment.

However, to the extent that the standards of certain goods and materials are not expressly described, it is possible for the contractor to be obliged to provide certain goods and materials that are fit for their purpose. This is little more than a theoretical possibility, given that under the JCT 98 the employer aims at the outset to specify all the goods and materials that the contractor has to use.

The JCT 98 provides no scope for the implication of a term requiring the Works as a whole to be fit for their purpose. The detailed specification of the Works by the employer demonstrates that the employer does not rely upon the contractor's skill and judgment to produce the Works.

WCD 98

The JCT Standard Form of Building Contract With Contractors Design 1998 edition (WCD 98) provides that all goods and materials shall be of the kind and standards described in the Employer's Requirements and the Contractor's Proposals. Given the limited degree to which the Employer's Requirements usually specify the required kind and standard of the goods and materials, there will often be ample scope for implying a term requiring the contractor to provide goods and materials that are reasonably fit for their purpose. This is because the employer will be taken to rely upon the contractor's skill and judgment to select the goods and materials.

It is generally accepted that under the WCD 98 the contractor is not obliged to produce Works that are reasonably fit for their intended purpose. This is because the WCD 98 provides that insofar as the contractor is responsible for the design of the Works, he will have "like liability to the employer" as would an appropriate professional designer carrying out the design for the employer. This express term excludes the implication of a stricter term requiring the Works to be fit for their purpose.

MPF 03

The Major Projects Form 2003 (MPF 03), contains undertakings by the contractor that the design of the Project will comply with Statutory Requirements, will satisfy any performance specification provided in the contract and will use materials selected in accordance with the Ove Arup publication "Good practice in the selection of construction materials". The contractor also warrants that it shall use materials of the kind and standard described in the contract or, if no kinds or standards are described, materials that are reasonably fit for their intended purpose.

As with the WCD 98, under the MPF 03 the contractor warrants that it will carry out its design obligations with the skill and care to be expected of appropriate professional designers. The MPF 03 expressly provides that the contractor does not warrant that the project, when constructed in accordance with its designs, will be suitable for any particular purpose.

That said, the MPF 03 Guidance Note contains an alternative model clause which if adopted would instead oblige the contractor to complete the Project so that it is suitable for its purpose as described in the contract.

The MPF 03 is welcome for clearly stating whether or not the contractor is obliged to complete Works that are fit for their described purpose.

House builders

Brief mention should be made of the Defective Premises Act 1972.

The Act applies only to dwellings. It obliges house builders to:

"see that the work which he takes on is done in a workmanlike … manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed".

This obligation is owed whoever orders the dwelling and whoever acquires an interest in it.

Conclusion

To contractors the advice must be that when contracts are drafted if you do not agree to a fitness for purpose obligation in respect of materials or the Works, say so in the contract.

To employers the advice is the opposite!

For further information please contact Rupert Choat at [email protected]