This month’s contract clinic question comes from a main contractor worried about a data centre project where the client wants to put in a clause on climate events. Peter Vinden looks at this growing area of risk
We’re building a data centre in a coastal location in Wales under a bespoke contract. The client has insisted in the contract that we must ensure the building is fit for purpose and resistant to climate events for at least 15 years. Is this acceptable and, if so, what risks are we exposing ourselves to, having accepted the clause?
As the need for climate-resilient buildings and infrastructure increases, the construction industry will have to contend with many changes. These will range from regulations and building strategies, to the management of risk. Recent events such as Hurricane Milton and, more locally, Storm Darragh, have thrown a spotlight on the vulnerability of modern infrastructure to our changing climate.
This is not a paywall. Registration allows us to enhance your experience across Construction Management and ensure we deliver you quality editorial content.
Registering also means you can manage your own CPDs, comments, newsletter sign-ups and privacy settings.
Consultants and contractors need to keep in mind that they can face claims long after a project finishes. Uncertainty about how materials respond to climate change and whether they will remain resilient, is another thing to consider.
You can typically negotiate and agree any contractual terms you wish. So, it would be possible to accept an obligation to design and build a new data centre that is fit for its intended purpose. In this scenario, the party accepting that obligation would be expected to guarantee the building’s resilience to climate events for at least the 15 years specified.
There are, however, important legal and insurance issues that need careful consideration before agreeing to this obligation.
Implied terms
In law, a consultant’s implied design obligation is quite different to that of a contractor who is appointed to design and build a new project.
Unless explicitly stated in the contract, consultants are expected to perform their duties, such as design, specification, and inspection, with “reasonable skill and care”. They must also apply a degree of professional competence. This standard of care is implied in all consulting agreements.
The level of competence required is that of a reasonably skilled professional in the relevant field. While consultants are not expected to be the best in their industry, they must meet the average or standard level of expertise. If a consultant performs at this level, they will have fulfilled their obligations. As a result, it would be unlikely that a consultant would be found to have been negligent, even if the project subsequently encounters issues.
On the other hand, contractors responsible for both design and build are held to a much higher standard of care than consultants.
Unless the contract specifies otherwise, contractors must ensure the completed project will be fit for intended purpose. This obligation is a strict liability requirement. The contractor is responsible for achieving a specific outcome regardless of whether it was negligent or not. If the project fails to meet its intended purpose, the client can sue for damages without having to prove negligence.
Most consultant appointments and standard forms of building contract include an express term requiring the consultant and/or contractor to discharge its design obligations with reasonable skill and care.
Insurance
The majority of professional indemnity (PI) policies will only cover the insured in the event of a claim arising out of professional negligence. Insurers will not typically agree to indemnify a party who accepted a contractual obligation to ensure the result is fit for purpose.
If a party was to assume a contractual obligation to ensure that the final product is fit for purpose, a ‘state-of-the-art defence’ would likely fail. Such a defence argues that the design or specification met industry standards at the time. This would be unlikely to work against a claim from a client whose building failed in an unforeseen climate event. Even if you can convince an insurer to provide cover above the bar of reasonable skill and care, the extension is likely to be limited in scope.
Fostering collaboration among stakeholders to address climate resilience is a complex but crucial task. Engaging in meaningful discussions, ahead of entering a contract, can help navigate the changing risk profile through the supply chain.
As a consultant, you should always be careful about entering into any non-standard appointment or collateral warranty. Keep in mind that any design and specification liability beyond the duty to use reasonable skill and care, could create problems with your PI policy cover. You may be left with an uninsured liability.
Written contract
As a contractor, it would be wise to insist on having a written contract in place that restricts your design liability to reasonable skill and care.
Your client is likely to require proof of PI insurance for the duration of your project, and probably for a period after completion. However, many PI policies will void or restrict cover if an insured consultant or contractor enters a contractual arrangement agreeing to guarantee its design or specification services.
It would be wise to decline any appointment that extends your design and specification liability beyond the standard of reasonable skill and care. If in doubt, get any prospective appointment or contract wording checked by your insurer or a suitably qualified professional.
Peter Vinden is non-executive director at Decipher, A DeSimone Company.
Question for contract clinic? Email [email protected]
