Design and Build Contracts: Contractors’ Liability

SSE Generation Ltd v Hochtief Solutions AG and Another

Design and Build Contracts: Contractors’ Liability

Design and Build Contracts: Contractors’ Liability 1399 787 Cocking & Co
This case has significant impacts on contractors. When negotiating a design and build contract, most contractors would try to limit is design liability to reasonable skill and care instead of a “fit for purpose” obligation. However, this is not enough. This case demonstrates that the Contractor would still be held liable if a problem was caused by the implementation of the design instead of the design itself.

This case concerns a contractor’s design liability under a tunnel project. The Contractor undertook to design and build a tunnel as part of a hydro-electric project. The design life of the tunnel was 75 years. However, the tunnel collapsed within a few months after the tunnel was passed to the Employer due to “erosion of erodible rock”.  The defect correction period was 2 years. After the collapse, the Employer instructed the Contractor to carry out repair work but the Contractor refused to do so. The Employer engaged another contractor to carry out the repair work and the cost was GBP137 million. The question is who should bear the costs of repair. Also, there was a dispute as to whether the Employer was entitled to claim against the Contractor when there was a joint insurance to cover the same loss.

The case went through Adjudications, the Court of First Instance and the Court of Appeal. At first, the Contractor won the Adjudications and the proceedings at the Court of First Instance. The commercial judge was of the view that the Contractor had carried out the work in accordance with the contract (NEC) and its design was carried out with reasonable skill and care (Option M). The design work involved a holistic joint process of the Contractor and the Employer whereby the parties agreed the condition of the rock and the necessary measures required to ensure adequate support for the tunnel. There was no evidence to show that the Contractor had failed to carry out its design with reasonable skill and care.

However, the Contractor lost the case at the Court of Appeal although the decision was not unanimous. It was decided that:


The Contractor was required to carry out the repair work during the defect correction period irrespective of whether that loss or damage was caused by the Contractor.


There was a defect because the tunnel did not have a design life of 75 years. This is consistent with the approach taken by the UK Supreme Court in MT Hojgaard v E.ON Climate & Renewables UK Robin Rigg East [2017] UKSC 59.


The Contractor was required to bear the costs of repair because the collapse was caused by a defect existed at the time of handover.


Although the Contractor’s design was approved by the project manager, it does not mean that the design was “acceptable” under the contract. It is the contract which governs the relationship between the parties, irrespective of what was agreed in the tunnel during construction.


Option M does not apply because the defect was caused by the Contractor’s failure to implement the design and not the failure to exercise reasonable skill and care in the design.

Sometimes, it is difficult to determine whether the defect was caused by the design itself or the implementation of the design. Therefore, when entering into a design and build contract, a contractor cannot assume that a standard reasonable skill and care qualification will be sufficient to protect it against any design-related liability. Also, a contractor should not steadfastly refuse to carry out repair work during the defect liability period even though the defect may not be caused by itself.

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