Built By Design: Part 1 – Design Risks

Design is an innate element to all construction projects, which has a lasting impact on the overall success of a project. Broadly, the design will often include drawings, sketches, plans, relevant specifications, instructions and descriptions of how the project will be constructed.

As a fundamental aspect of construction projects, it is relevant for industry participants to be aware of the general risks associated with the design before entering a contract. Over the next three weeks, this article series will:

1. Provide an overview of who is responsible for design risks, common design risks encountered within the industry, and how Contractors can best manage these risks (Part 1);
2. Discuss the language used in typical Contractor design warranties, specifically the terms “design life”, “service life”, “fit for purpose”, and “due care and skill”, and what this means for Contractors engaged through a design and construct contract (Part 2); and
3. The evolution of design risk for Contractors from developing a design for tender to providing a final design, and briefly discuss ways to minimise the design risks Contractors face (Part 3).

Who is Responsible – Principal or Contractor?

Depending on the contract model, either the Principal or Contractor will be responsible for developing and providing the project design, and therefore taking on the associated design risks.

The Principal’s design risk increases when using a construct only contract, as the Principal is responsible for engaging a design consultant to develop the final designs for the project. As a result, the Contractor is only responsible for the project’s construction and ensuring the completion of works per the final designs provided.

Alternatively, where design and construct (D&C) contracts are used for a project, the Contractor’s risk increases while the Principal’s risk decreases. With these contracts, the Principal typically has preliminary designs developed for the project, and the Contractor is responsible for completing the designs and absorbing the design risks under the contract.

For the purposes of this article series, we will focus on the Contractor’s risks under design and construct contracts.

What this means for you

Under D&C contracts, Contractors are required to warrant the design works, ultimately increasing the overall risk associated with the project. Part 2 of this article series discusses the design warranties often provided by Contractors under D&C contracts in more detail.

Design risk and the provision of warranties by Contractors engaged through D&C contracts can be managed through risk allocation.

As such, when reviewing the allocation of risk for design under a proposed contract, Contractors should consider:

1. The definition of the scope of design works. Ideally, the scope will be clear and unambiguous in terms of the extent of the work to be undertaken (i.e., preliminary design or final design), any intermediary steps (i.e., review for comment and incorporation of said comments), and the applicable quality standards applying to the project.
2. The costs associated with the proposed scope of design works, how changes to the scope will impact the cost (or be dealt with under the contract), and how any defects identified are to be remedied.
3. The time required to complete the design works to the quality required and any necessary allowances for review for comment and incorporation of comments.
4. The exclusion of contractual liabilities that fall outside the design works, which the Contractor has no control over. These liabilities may include taking responsibility for information provided by third parties or providing unfettered PI insurance.
5. The language used in the design warranties provided under the contract and whether the expectations for the project and language used align.

Lamont Project & Construction Lawyers

The Lamont Project & Construction Lawyers team has extensive knowledge regarding various contract models, including standard form and bespoke contracts, and the circumstances that give rise to design risks for both Principals and Contractors. Our team has experience and a comprehensive understanding of the intricate risks related to design and construct contracts for Contractors. With this knowledge and expertise, Lamont Project & Construction Lawyers can provide the required support and advise on major projects with respect to design risks across the life cycle of a project.

If you would like to discuss any matters raised in this article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.

The content of this article is for information purposes only and does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.

Contact: Peter Lamont or Quinn Hironaka

Email: [email protected] or [email protected]

Phone: (07) 3248 8500

Address: Suite 1, Level 1, 349 Coronation Drive, Milton Qld 4064

Postal Address: PO Box 1133, Milton Qld 4064