REUTERS | David Mdzinarishvili

Fitness for purpose: the case against

There has been a great deal of debate about fitness for purpose v reasonable skill and care in these columns. This is a look at the topic from a slightly different point of view.

Insurance and the law of large numbers

Insurance policies are typically provided for individual members of large groups. This allows, for example, professional indemnity insurers to calculate premiums using the law of large numbers to predict the likely losses. The “large number” calculation involves an estimate of the regularity that members of a profession will fail to follow generally accepted professional standards. Where legal defence costs are covered, the number of expected allegations (whether or not well-founded) is also important. In addition, the claims experience of a particular insured, and any live claims at policy inception or renewal, will skew the calculations. That’s why disclosure is so important to the insurance business model.

Calculating how often professionals will make mistakes (and what the consequences will be) is difficult, but possible. The medical profession carries out formal research in this area, not primarily to calculate insurance premiums, but to look for ways of improving healthcare. To take a simple example, building hospital corridors with curves rather than right-angled turns reduces the likelihood of collisions with patients on trolleys.

This is the world of the researcher, the actuary and the underwriter.

Engineers, solicitors and accountants

In the old days, engineers, solicitors and accountants would accept an engagement from a client without any formal agreement. And the fees were often by the hour on the basis that “it will take as long as it takes”. Even now, it would seem somewhat out of place for a doctor to send out a letter of engagement for each consultation with a prediction as to the likely fees up to the point of complete recovery. But we live in a different world now, where professionals are expected to set out the terms of their contract with the client in some detail. And that’s where the problem arises.

Once you start introducing detailed contractual terms into the relationship between professional and client you leave the world of the researcher, the actuary and the underwriter. You are introducing the “wild card” of commercial risk, as opposed to the more predictable world of professional risk.

Two scenarios

Take two scenarios:

  • An architect quotes a fixed price of £100,000 for the design work relating to a building project. Due to a number of design errors on the part of the architect, there are problems with the building. The client makes a claim against the architect for negligence in the sum of £50,000 – which is set off against the fees that would otherwise have been paid.
  • An architect quotes a fixed price of £100,000 for the design work relating to a building project. Errors are made by the architect in estimating the amount of time it will take to do the design work. As a result, the cost of the project to the architect is £150,000.

Leaving aside overheads and profit, etc, in both scenarios the architect makes a £50,000 loss because of negligence. In the first scenario, the “negligence” was in performing the work. In the second scenario, the “negligence” was in calculating the price.

The first scenario loss would typically be covered by PI insurance. However, the second scenario is not one where we would expect PI cover. This is because professional indemnity insurance does not cover commercial risk, because professional risk is a completely different animal from commercial risk (think credit default swaps).

Fitness for purpose as a grey area

Those scenarios are easy examples. The reason why “fitness for purpose” is difficult is that it sits in a grey area between professional and commercial risk.

As I have mentioned in previous posts, professionals typically do not (and should not) guarantee the result of their work.

If they do, it is debatable whether a failure to achieve the result is:

  • A professional failure – because negligent mistakes were made in design or because the result was never technically achievable; or
  • A commercial failure – because no result should ever be guaranteed by a professional.

Ivory tower view?

You may well think that it is all very well me saying this whilst sitting in my “ivory tower”. In the “current market” the professional might not have an option. Either sign up to absolute obligations or lose the work. True, but the key word there is “market” and the market is a commercial place.

The fact that some insurers offer a “fitness for purpose” extension shows that they too sometimes have to enter the world of commercial risk, for commercial reasons. Either offer the cover or the professionals go elsewhere. In fact, my experience is that “non-negligent” technical errors leading to defects are not that frequent. But I can’t see PI insurers covering under-tendering any time soon. Especially not in the “current market”.

4 thoughts on “Fitness for purpose: the case against

  1. Hello Ed,

    So this leads to many questions! We know where we are at, and where we want to be also.

    If there is a grey area, then is it no mans land? Or it is an over lap? That seems unlikely. Need to think about this.

    There is the issue of ‘stakeholder engagement’ and the old share the pain model.

    Thanks for giving me more to ponder! Just when I thought I could settle down and watch a movie!!! The new Danish thriller on BBC 4 actually.

    Best Wishes

    Brian

  2. An interesting analogy between lawyers who have been plain negligent or lawyers undertendering for a job by underquoting as we are prone to do what it might cost to complete a job say a piece of litigation. Somehow it’s easier for a lawyer to pass through the eye of a needle than an architect. The failings are both professional and commercial. As with architects the ideal firm is one that not only exhibits and brings to bear technical excellence but also strives to align its commercial interests with those of its clients. Or is that too an ivory tower of different dimensions?

  3. ..all this talk of ivory towers. Surely ivory is clearly unfit for the purposes of tower construction and the specification thereof likely to be negligent. Plus, it’s hellish difficult to get hold it these days..

  4. Going down this route invites consideration of the definition of the ‘purpose’ of the facility or product and also how do you define ‘fitness’ i.e. the standard to be achieved? If these can be adequately defined in the contract against objective measures then this will at least reduce the risks in making commitments to ‘fit for purpose’ conditions. As the designer you will then have to make sure you meet the conditions because it is likely you will be standing alone if you don’t (i.e. without your PI insurers support) and you will need to be confident about the depth of your pockets even if you just want to survive through the process of demonstrating to a tribunal that you did meet the conditions in respect of ‘purpose’ and ‘fitness’.

    Being able to define ‘purpose’ and ‘standard’ to suit a Client and designer’s (and insurers and lawyers and tribunals) understanding will also require the Client having the necessary resource to develop such briefs/conditions with a full understanding of the nature of the facility or product to be provided OR alternatively back-briefing by the designer (with the potential conflicts of interest that this can generate). There may also be an element of crystal ball gazing in respect of civil or building design in considering the potential for the purpose of the building to change over time or the conditions to which the installation/building is subjected to change e.g. due to increased intensity of use etc.

    There will generally also be a requirement for extensive consideration of the criteria under which an installation or facility or product will have to perform. A stark example of this and the catastrophic effects of inadequate consideration of the criteria within which a product is ‘fit for purpose’ was the case of the ‘O’-Rings in the Space Shuttle Columbia and the decision to launch when temperatures were below those where the ‘O’-Rings would perform satisfactorily.

    To conclude – one of the first responses for any design professional (or their representative) in confronting ‘fit for purpose’ conditions is to turn the question around and ask the Client if their enquiry document is ‘fit for purpose’.

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