All Things Newz
Law \ Legal

Fitness For Purpose Warranties: Contractor Beware – Construction & Planning



To print this article, all you need is to be registered or login on Mondaq.com.

Modern construction contracts increasingly blur the roles and
responsibilities of the parties. Consistent with this pattern,
‘Fitness for Purpose’ (FFP) warranties
may be used to place the design risk on the contractor (as opposed
to the designer or professional engineer). Contractors should be
aware of express and implied FFP warranties to avoid accepting
excessive design liability.

What is Fitness for Purpose?

FFP warranties are an assurance given by the contactor to the
principal that that the works completed by the contractor will be
capable of use for a particular purpose(s). The purpose(s) may be a
purpose stated in the contract or a purpose intended by the
principal.

FFP warranties increase the design onus on contractors. For
example, at common law a professional must exercise a standard of
reasonable skill and care (the Bolam
Test
).1 That is, the professional is required
to act in a certain way but not required to guarantee the end
result.  In contrast, FFP warranties impose a duty on the
contractor to achieve a particular result.  This increases the
contractor’s exposure to liability.

FFP warranties can be expressly stated in a construction
contract or implied into a construction contract.

Express FFP Warranties

Standard terms

Most Australian design and construction contracts include
express FFP warranties as part of the contract’s standard
terms.

For example, clause 2.2 of Australian Standard contract AS 4902
provides:

2.2 Contractor’s warranties

Without limiting the generality of subclause 2.1, the
Contractor warrants to the Principal that:

  • shall carry out and complete WUC in accordance with the
    design documents so that the Works, when completed,
    shall:

  • be fit for their stated
    purpose
     …

Under the above clause the contractor warrants to the principal
that the works when completed are fit for the purpose(s) disclosed
by the contract (and the documents contained therein).

Common principal-friendly amendments to such clauses substitute
the word ‘stated’ for the word ‘intended’.
These types of amendments place a more onerous burden on the
contractor to achieve a purpose beyond any stated in the contract
documents.

FFP by Disguise

Increasingly principals are shifting the design risk to the
contractor by amendments to the standard terms through
‘buildability’ clauses.

Simply put, buildability clauses generally impose
obligations on the contractor to:

  1. assess designs (provided by the principal or its consultants)
    prior to works commencing; and

  2. identify inadequacies or inconsistencies that may prevent the
    completed works from being used for the principal’s
    stated.

Buildability clauses therefore allow the principal to impose FFP
warranties on the contractor without mentioning the words
‘fitness for purpose’.   This is particularly
an issue for ‘construct only’ contracts because
contractors are generally not involved in the design of the
works.

To read more about buildability clauses, please see our article
on this topic on Vincent Young’s website.

Implied FFP Warranties

FFP warranties may also be implied into construction contracts
by:

  1. common law; and / or

  2. statute.

Implication by common law

Generally, FFP warranties will be readily implied into
‘design and construct’ contracts (e.g. AS 4902) and
less likely to be implied in ‘construct only’ contracts
(i.e. AS 4000 or AS 2124). This is because the principal is more
likely to rely upon the skill and judgment of the contractor in
‘design and construct’ contracts.2

For example, contractors that specialise in constructing
hospitals should be aware of the width of a gurney and the width of
hospital doors. Other common errors include slippery tiles on
nursing home floors. Debates concerning the slip co-efficient of
tiles (despite the tile being selected by the client) has kept many
a construction lawyer well fed.

Implication by statute

Statutes can also impose FFP warranties on contractors.

For example, the Home Building Act 1989 
(NSW) (HBA) implies warranties into every contract
for residential building work. The warranties set out in section
18B of the HBA include:

a warranty that the work and any materials used in doing the
work will be reasonably fit for the specified purpose
or result
, if the person for whom the work is done
expressly makes … the particular purpose for which the work
is required or the result that the owner desires the work to
achieve …

Similarly, the Australian Consumer
Law3 (ACL) implies consumer
guaranties into the provision of goods and services to consumers
(which includes large companies). Building contractors may be
captured by the ACL if:

  1. the purchase value is under $40,000; or

  2. the purchase value is over $40,000 but the goods or services
    are of a kind that are ordinarily acquired for personal, domestic
    or household use (e.g. if a contractor installs carpet).

The guarantees implied by the ACL relevantly include:

  1. that the goods are reasonably fit for the purpose which the
    supplier (i.e. the contractor) represents they are fit for or for
    any purpose disclosed by the consumer to the contractor; and

  2. that all services provided by the contractor and any resulting
    products will be reasonably fit for any particular purpose
    specified.

Conclusion

FFP warranties impose higher standards on contractor.  The
principal only needs to prove that the contractor’s work
failed to produce the warranted result (i.e. the specific purpose).
This test is easier than establishing that the contractor failed to
carry out the works to a reasonable standard.

Given the far-reaching nature of FFP clauses and obligations
contractors should consider FFP warranties carefully before
entering construction contracts.

At a minimum, contractors should:

  1. consider whether a FFP warranty requires the contractor to
    achieve the principal’s stated or intended purpose.;

  2. identify the principal’s stated or intended purpose(s) If
    you do not understand the purpose at the time of contract –
    ask;

  3. take steps to achieve the purpose(s); and

  4. ensure that any FFP warranties imposed on the contractor are
    replicated in any subcontracts the contractor enters into with
    subcontractors.

Footnotes

Bolam v Friern Hospital Management
Committee
 [1957] 2 All ER 118.M

Martin v McNamara  [1951] St R Qd
225; Young & Marten Ltd v McManus Childs
Ltd 
[1969] 1 AC 454; Carrington Constructions
Pty Ltd v Fiore Holdings Pty Ltd 
[1992] NSWCA
36; Rotherham MBC v Frank Haslam Milan & Co
Ltd.
 (1996) 78 BLR 1.M

Competition and Consumer Act 2010 
(Cth), Sch 2.M

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



Source link

Related posts

Builder Beware: Ontario Court Of Appeal Allows Multiple Municipality Infrastructure Charges – Trials & Appeals & Compensation

Central Bank (Individual Accountability Framework) Bill 2022 Published – Financial Services

Antitrust Law In Indonesia: General Legal Overview On Prohibited Pricing Mechanism – Antitrust, EU Competition