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Contractors at risk from errors in design standards

Tue 08 Aug 2017 by David Foxwell

Contractors at risk from errors in design standards

Last week OWJ reported on the UK Supreme Court’s ruling in the high-profile case of MT Højgaard and Eon Climate & Renewables, in which the court overturned an earlier decision by the Court of Appeal. The dispute centred on failed grouted connections on the foundations at the Robin Rigg offshore windfarm. The Supreme Court held in favour of Eon, a decision that could prove costly for the Danish contractor, which faces remedial costs of €26.25M (US$31.08M), not to mention hefty legal fees.

As Clyde & Co LLP senior associate Mr de la Haye said, the judgment will come as a shock to many. “The Supreme Court determined that the contractor, MT Højgaard, was under an obligation to ensure that the offshore windfarm’s foundations would have a minimum lifetime of 20 years. This effectively placed on the contractor the consequences of an error in the international standard to which they were working.

“The implications of this judgment include that, in the absence of clear wording to the contrary, contractors may unwittingly be obliged to ensure that their work goes above and beyond current international design standards.

“This decision will not simply blow over,” said Mr de la Haye. “It has ramifications beyond the offshore industry. Going forward, contractors should be aware of this decision and the increased risk that it potentially entails. The decision could significantly affect the terms of future contracts, the risk assessment of existing contracts, as well as insurance and finance arrangements in the offshore windfarm sector.”

Other law firms have also commented on the ruling. “This case is a reminder of the adverse cost and publicity consequences for parties who fail to ensure that their contracts are carefully and consistently drafted,” said Richard Booth, a senior associates at HFW, noting that inconsistencies in the contract meant that Eon and MT Højgaard had to go through three tiers of courts to resolve an issue that should be have been dealt with clearly from the outset.

Daniel Wood, a partner at Gowling WLG, who represented Eon in the case, highlighted the fact that the Supreme Court was willing to render MT Højgaard, as contractor, responsible for the failure in a recognised design code, finding that this was a risk that the contractor had agreed to take. “The decision illustrates that parties must be careful to extend their consideration to specifications and documentation that may not historically have attracted the same level of scrutiny,” he said.

Osborne Clarke associate Tom Andrews also focused on the fact that the ruling means the contractor bears the risk – even where international design standards are found to contain errors. He said it was an important reminder to contractors to understand that in fulfilling their obligations they might be required to go beyond the standards referred to in a contract.

Bond Dickinson partner Alex Hirom and associate Helen Pearce said the ruling is a good example of how difficult it can be to determine what a contractor has agreed to, especially in complex projects with bespoke contracts and numerous technical documents which inevitably will contain conflicting provisions.

“Purchasers need to be careful about specifying particular standards if they really expect their contractor to produce a design that achieves specific outputs, or is generally fit for purpose,” they said. “Contractors need to ensure that they understand whether they are responsible for ensuring an outcome, or merely conforming to industry norms.

“As well as determining liability between parties, contract wording is very important in deciding whether a contractor has cover under its professional indemnity policy – policies often exclude cover for fitness for purpose obligations. Clear drafting will always help avoid disputes, although sometimes a muddy compromise reached in negotiation precludes it. Above all, no-one can rely on confusion to override a clearly stated obligation.”