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:

  • the Contractor:

  • 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.