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Fixing the design liability and notifying claims

Much has been said on the significant findings in Walter Lilly v Mackay about concurrent delays and global claims. However, the case also has a good deal to tell us about some other issues arising commonly in construction law. In particular, I found the discussion on design liability and notifying claims of interest, not least as they indicate the court’s views in two areas where the employer thought the wording of the contract benefited him.

Design liability

In most cases this issue is so central to determining the parties’ rights and obligations that it is clearly set out and the division between the employer’s and the contractor’s liability is plainly demarcated. This was not so in Walter Lilly.

In Walter Lilly, the contract was on the JCT Standard Form of Building Contract 1998 with Contractor’s designed portion supplement. This form envisages that the parties will enter details of the works where the contractor will complete the design. The contractor will generally put forward proposals to indicate how the design will be carried out, which will be embodied in the contract.

However, here the position was more fluid. Certain aspects of the design (such as windows) were specified in the tender documents, but the arrangement was that the employer would notify the contractor if and when he wanted the contractor to carry out design.

This arrangement is difficult to operate in practice. How can a contractor properly price a tender if he does not know where he stands on the most basic of obligations, namely who is to design the works?

The contract proceeded and the employer gave no such design notifications to the contractor. There was an issue as to whether his architect did so. The court held, however, that the wording of the contract must be strictly interpreted and that, unless the employer himself (or the architect with his specific authority to do so) gave notice, the design liability remained with the employer. On the facts, the employer had given no such notifications and therefore, on the issues central to the employer’s claim, the contractor had no design liability.

Notifying claims

Another area of interest relates to notification of claims.

Arguments frequently arise between employer and contractor as to whether proper notification with sufficient documentary backup has been provided to an architect or contract administrator for the purpose of his considering a claim for loss and expense. Here it appears that the employer expected the contractor to produce exhaustive documentation before accepting that a valid claim had been made.

The court would have none of this. It pointed out robustly that the design team was no stranger to the project and therefore there was no need for the contractor to provide documents duplicating those that the design team already had. The court went so far as to say it would be sufficient for a contractor to refer to material available at his offices, if the design team wished to inspect it.

The job of the architect or contract administrator is to ascertain, not to be “certain” before deciding whether additional money should be awarded. He has to be satisfied that the contractor probably incurred loss and expense by reason of one or more of the events listed in the relevant clauses. Therefore, as soon as reasonably sufficient material is received, the architect or contract administrator should proceed to make his ascertainment.

The moral of this story?

The failure to delineate the areas of design responsibility in the contract at the outset was a recipe for problems later on. In this case (rather surprisingly) at least one sub-contract contained design obligations, but the court considered that these related, at most, to the finer detail with all substantial design decisions having been made earlier on by the employer’s design team.

The court’s findings on the proper notification of claims may also have a far reaching impact in practice. I can anticipate those arguments now!

Although it is some 660 paragraphs long, there is much to be gleaned from the judgment in Walter Lilly and it will no doubt be quoted for many years to come on the above and the other issues that it addressed.

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