Fitness for purpose in construction

1 General
2 Supply of Goods and Services Act
3 Design and build contractors
4 Dwellings
5 Related articles on Designing Buildings Wiki

[edit] General

The article on reasonable skill and care deals in general terms with the legal obligation of professionals, but what is the position of the contractor or sub-contractor, in particular the design and build contractor?

Clearly, if the contract expressly deals with the standard of the contractor's performance then, in the absence of ambiguity, the express terms will determine the extent of the contractor's or sub-contractor's legal obligation.

However, if the contract is silent on these matters it has long been held that a contractor, or sub-contractor, who agrees to carry out construction works impliedly warrants (that is to say there is a term implied by law) that they will carry out their works with reasonable skill and care (often referred to as the obligation to carry out the works in a good and workmanlike manner).

The standard of performance is the same as reasonable skill and care in negligence. The contractor or sub-contractor also warrants that the materials they supply for the purposes of works will be of a merchantable quality, that is to say good of their kind. This warranty is an absolute warranty and extends to latent defects and it will not help the contractor to show that they have exercised reasonable skill and care in the selection of those materials.

In the case of 'Young & Marten Limited v McManus Childs Limited', M were developers of a residential housing estate and Y were a firm of roofing sub-contractors. Y provided an estimate for the supply and laying of certain roof tiles subsequent to which M specified that Y should use a particular roof tile called 'Somerset 13'. These tiles were supplied by only one manufacturer, J. Beale & Co.

The tiles supplied by Beale appeared to be sound; however, 12 months after completion of the roofs a large number of tiles began to disintegrate, a consequence of a latent defect. M was sued by the purchasers of the houses and M sought indemnity against Y. At first instance, the court rejected M's submission that there was an implied term that the Somerset 13 tiles should be reasonably fit for their purpose and should be of merchantable quality.

On appeal the Court of Appeal held:

Unless the circumstances of a particular case suffice to exclude then there will be implied into a contract for the supply of work and materials a term that the materials used will be of merchantable quality and a further term that the materials used will be reasonably fit for the purpose for which they are used; and
In this particular case, the circumstances sufficed to exclude the term that the tiles would be reasonably fit for the purpose for which they were required; and
In this particular case, the circumstances were not sufficient to exclude the term that the tiles were merchantable. The fact that these tiles were obtainable from only one manufacturer was not a circumstance which excluded the implication but, per Lord Reid, if the tiles had been made by only one manufacturer who was willing to sell only on terms which excluded or limited the ordinary liability (under statute) and if that fact was known to the employer and to the contractor when they made the contract, then it would be unreasonable to place upon the contractor a liability for latent defects; and
Y supplied and fixed tiles which were latently defective and thereby breached the implied term (of merchantable quality).

In 'Gloucestershire County Council v Richardson', the House of Lords found that the particular circumstances of the case excluded both the implied warranty of suitability and the implied warranty of merchantable quality. In that case R entered into a contract with G for the construction of an extension to a technical college.

The contract was in the RIBA Form 1939 Edition, 1957 Revision. The bills of quantities provided for a prime cost sum for concrete columns to be supplied by a nominated supplier. R contracted to erect the columns. Clause 22 of the conditions of contract dealing with nominated suppliers, unlike clause 21 which dealt with nominated sub-contractors, did not entitle R to make reasonable objection to a proposed supplier, nor to object on the ground that the supplier would not indemnify them in respect of their main contractor's obligation.

G's architect instructed R to accept a quotation given by C W & Co for the supply of the concrete columns. CW's standard conditions of trade restricted their liability in respect of good supply by them. The columns supplied by CW had latent defects because of faulty manufacture and after erection cracks appeared in them; the columns were unsuitable for use as structural members of the extension. The House of Lords considered that the circumstances set out above indicated an intention on the part of G and R to exclude from the main contract any implied terms that the concrete columns should be of good quality and fit for their required purpose.

The Court of Appeal in 'Rotherham Metropolitan Borough Council v Frank Haslam Milan & Co Ltd' and 'M. J. Gleeson (Northern) Ltd v Taylor Woodrow Construction' has given extremely useful guidance to the operation of the obligations of fitness for purpose and merchantable quality (now satisfactory quality) in the context of a construction project.

The case concerned the use of steel slag as a fill material, which although suitable for some fill purposes, was not fit for the particular purpose of fill in a confined area where the fill had to be inert. Steel slag was not inert. The emphasis of the court was that the matter should be approached not from the test as to whether there should be an implication of an obligation of fitness for purpose, but whether in all the circumstances and the 'matrix’ there was or was not reliance on the contractor's or supplier's skill and judgment.

The judgments identified the types of circumstances that would be relevant to the test. The case also provides a useful comparison of the obligations of fitness for purpose and merchantability.

[edit] Supply of Goods and Services Act

The common law rules have now in part been replaced (in relation to goods) and in part supplemented (in relation to services) by a statutory code, the Supply of Goods and Services Act 1982 (as amended by the Sale and Supply of Goods Act 1994), which governs all contracts made after 4 January 1983.

See Supply of Goods and Services Act for more information.

[edit] Design and build contractors

What is the standard of performance of the contractor who undertakes a design obligation? Is it the same as the professional, that is to say reasonable skill and care, or is it the higher duty of fitness for purpose?

This issue was considered in the Greaves case ('Greaves & Co (Contractors) Lts v Baynham Meikle and Partners'). Lord Denning stated:

'... now, as between the building owners and the contractors, it is plain that the owners made known to the contractors the purpose for which the building was required, so as to show that they relied on the contractors' skill and judgment. It was, therefore, the duty of the contractors to see that the finished work was reasonably fit for the purpose for which they knew it was required. It was not merely an obligation to use reasonable care. The contractors were obliged to ensure that the finished work was reasonably fit for the purpose’

In 'Viking Grain Storage Limited v T. H. White Installations Limited', W were package deal contractors for the design and construction of a grain drying and storage installation. The installation was not fit for its purpose and V contended that there were implied terms of the contract that W would use materials of good quality and reasonably fit for their purpose and that the completed works would be reasonably fit for their purpose, namely that of a grain drying and storage installation.

The court held that there were no terms of the contract or any other relevant circumstances which were inconsistent with the implied terms of quality and fitness for purpose and further that there was no reason to differentiate between W's obligation in relation to the quality of materials and their obligation as to design. V had relied upon W in all aspects, including design, and on the skill and judgment of W, and in the circumstances, the terms contended for should be implied.

By way of contrast the Supreme Court of Ireland in the case of 'Norta Wallpapers (Ireland) v Sisk & Sons (Dublin)', held that where a roof structure, which had been supplied and erected by a specialist sub-contractor, subsequently leaked and was unsuitable for its purpose, the fact that the main contractor was given no choice but to use the specialist sub-contractor, their design and price constituted circumstances which meant that there was no reliance by the employer on the main contractor and, accordingly, there was no fitness for purpose obligation on the main contractor in respect of the specialist sub-contractor's failure.

In the (unreported) case of 'Trolex Products Limited v Merrol Fire Protection Engineers Limited' there was an interesting issue as to whether a design obligation was created by the bringing together of what otherwise would have been standard components. T were the sub-contractors for the supply of an electronic control system which was incorporated into M’s own works comprising the installation of a fire protection system in the Ras Abufontas power and water station in Quatar. In response to the submission by T that there was minimal design obligation in the sub-contract, Potter J stated:

"I should perhaps add that at one stage I had evidence from T which minimised the work of design carried out, suggesting that it was no more than, in effect, a matching of pieces of standard equipment to make up a package to do the job; or as Mr B put it "logic design work created from standard equipment". Even if that was so in fact, I am satisfied from the answers of Mr B that there was a conscious realisation that design work was involved and that T were consulted as experts in their field. Further, it is clear that substantial time was spent on this work. Again, whether or not that was so, it is not suggested that anything was said by T to delimit or belittle the design work involved and the construction of the written contract is clear in my view, namely as one for work of design as well as the supply of goods."

[edit] Dwellings

Where a contractor is involved in the construction of a residential dwelling there is an implied term, implied by law, that the contractor will carry out the work in a good and workmanlike manner, that they will supply good and proper materials and that the dwelling will be reasonably fit for human habitation: 'Hancock v. B. W. Brazier (Anerley) Limited'.

This common law obligation has now been supplemented by a statutory code set out in the Defective Premises Act 1972, which came into force on 1 January 1974. Section 1(1) of the Act provides:

'A person taking on work for or in connection with the provision of a dwelling (whether the dwelling is provided by the erection or by the conversion or enlargement of the building) owes a duty,

A) if the dwelling is provided to the order of any person, to that person; and
B) without prejudice to paragraph A above to every person who acquires an interest (whether legal or equitable) in the dwelling;

to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner with proper materials and so that as regards that work the dwelling will be fit for habitation when completed’

Unlike the Supply of Goods & Services Act, the Defective Premises Act does not operate via the parties’ contract but in fact creates a statutory duty. Accordingly, it has a much wider effect and is akin to tortious liability which is not dependent upon a contract. It follows that future owners are entitled to sue the builder if they are in breach of the statutory duty.

The Act is, however, restricted to the provision of dwellings and does not apply to commercial developments although the term 'dwellings' includes dwellings that are created by conversion or enlargement. There is also a statutory exception: Section 2(1) provides that where the construction of the dwellings is subject to 'an approved scheme' the Act does not apply. The National House Building Council operates a warranty scheme for dwellings that is approved under the Act.

The Act prohibits any attempt to exclude its operation by section 6(3), which makes void any term in a contract that purports to exclude or restrict the operation of the Act.

[edit] Related articles on Designing Buildings Wiki

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Comments

Thanks Sarah for a brilliant article once again. There is indeed a grey area, especially for Contractors, between "reasonable skill" and "fit for purpose". From my experience, most Contractors do not even bother to find out what is in their contract, until something happens and they find themselves liable.... Most of the time nothing happens, but in this industry blighted by "too little trust and too little profit", a thorough understanding of what each clause in the contract means is the most effective risk minimisation strategy.

Let us all keep alive the campaign for simple, short contracts with the ultimate goal to go digital.