Build UK, the leading representative organisation for the UK construction industry, has published a non-binding recommendation outlining six key contract terms that should be avoided to ensure a fair allocation of risk and better project outcomes, along with guidance on how best to implement it. As a Professional Services member of Build UK and risk adviser, we offer our thoughts on one of those contract terms, fitness for purpose.
Reasonable skill and care
The law in the UK states that a "professional" has an obligation to perform with "reasonable skill and care" in the absence of any explicit terms and conditions to the contrary. By virtue of the Supply of Products and Services Act 1982, this obligation is implicit in all service contracts. According to a common law criterion for determining negligence, a “professional” is not negligent if they perform their duties to the same calibre as another reasonably competent member of their profession.
According to the "Bolam Test", it is not required for a professional to have the highest level of skill when specific skill and competence are involved, if their views or actions are consistent with those of a responsible body of opinion within that profession. Therefore, a "professional" who can demonstrate that they operated in accordance with the accepted practises and professional standards for their line of work at the time the professional service (e.g. design) was carried out will not be held accountable for professional negligence.
Fitness for purpose
By contrast, a fitness for purpose obligation imposes a stronger duty because it is an absolute duty to achieve a particular end, and a violation of it does not require proof of negligence. The Sale of Goods Act 1979 imposes implied terms on any seller engaging in the course of business that the items supplied will be of satisfactory quality and, where the purchaser makes any specific purpose known, are fairly suited for that purpose. This duty derives from that law.
What is the issue?
The fact that most professional indemnity insurance ("PII") policies will only cover the insured in the event of a claim arising out of the insured's professional negligence is one of the reasons why the distinction between these two degrees of culpability is so problematic. In the absence of negligence, the insured is not typically protected against a contractual claim for failure to meet a fitness for purpose requirement, and the insurance policy is unlikely to respond to a claim where a defect occurs and no charges of wrongdoing are made. Moreover, PII policies will typically exclude claims arising from fitness for purpose or, if some form of cover is extended, it will be very narrow in scope.
Beware the detail!
Whilst many building consultants and contractors will rightly be alarmed by the phrase "fitness for purpose" at first, absolute duties may still be enforced without using these immediately recognisable words. For example, a consultant is sometimes required to warrant that the completed works will comply with the employer's needs and/or any performance standard, which is a popular technique to accomplish this and can be seen as “fitness for purpose in disguise”.
Furthermore, a professional should always be mindful of entering into a collateral warranty with a fitness for purpose obligation, even if a contract term expressly calls for delivery of the services to a standard of reasonable skill and care. Agreeing to a wider duty (beyond reasonable skill and care) will potentially create issues with indemnification under the professional’s PII policy, possibly leaving them uninsured.
If you are unsure whether contract provisions create obligations beyond reasonable skill and care and might affect cover under your PII policy, please get in touch with us to discuss.
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