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New trends increasing a contractor’s liability – AS4902

Last year we published an article explaining a recent trend concerning the imposition of design liability on contractors through buildability clauses in construct only contracts.

In this article we examine another trend concerning increased design liability exposure to contractors’ in design & construct contracts. This increased risk occurs when a contractor accepts designs from the principal’s architect and/or consultants (and where the architect and/or consultants have not been novated to the contractor).

What we often see is that the designs received from the principal’s architect and/or consultants contravene the NCC or Australian Standards. In that event, the contractor is contractually required to:

  • check the designs received; and
  • amend the designs (with the help of its own consultants).

The problem is that the contractors do not check or amend the designs. They rely on the designs in the belief that the designs are correct or otherwise are valid directions under the contract. Years after practical completion, when defects are found, the contractor under the design & construct contract learns it is responsible for those defective designs and has no recourse against the principal’s architect and/or consultants who prepared the designs.

The principal’s architect is not your architect

It’s a common misconception that an architect or consultant who puts its name on a drawing will accept liability for defects contained in them. However, the principal’s architect or consultant will usually only be liable to the principal (under a contract entered with the principal directly) or to subsequent owners (under the Design and Building Practitioners Act 2020 (DBPA) in NSW).

When using AS4902 (a design & construct contract), the principal normally provides the principal’s project requirements (PPR), comprising the preliminary drawings and project specifications, at the time of execution of the contract. AS4902 presumes the contractor at this point either:

  • engages its own architect and/or consultants; or
  • accepts a novation of the principals’ architect and/or consultants,

to complete the design based on the PPR.

The principal’s architect and/or consultants (prior to novation) have no contractual obligations to the contractor and do not owe to the contractor a duty of care to avoid negligent design. Although a duty of care may potentially exist in some factual circumstances, courts will be reluctant to find a duty of care where the parties have allocated risk by way of detailed contract provisions. This reluctance necessitated the introduction of the DBPA (see Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36) but the DBPA falls short of imposing a duty of care that benefits contractors.

 Principal’s architect continues to issue designs

It is the new trend that the principal’s architect and/or consultants are not novated, but instead remain contracted to the principal. More often than not, after the date of contract the principal’s architect and/or consultants continue to issue designs to the contractor. This could happen in one of two ways:

  • detailed drawings provided for a variation; or
  • detailed drawings expanding (by stealth) or completing the PPR.

Relevantly, these drawings may be marked “For Construction” implying that no further design need be performed by the contractor.

The mistakes made by the contractor in these situations are:

  • the contractor assumes the principal’s architect and/or consultants have completed the designs;
  • the contractor assumes the principal’s architect and/or consultants have checked the designs for compliance with all codes standards and laws; and/or
  • the contractor accepts the drawings and begins constructing them, as if it is bound under a “construct only” contract.

The contractor erroneously believes that it need not fulfill its design obligations as they have been performed by others. This is not the case.

How contractors get stuck

The contractor has unavoidable design obligations under AS4902.

The first obligation is to check the PPR for compliance with codes, standards and laws, see clause 2.2(a)(ii).  Also note the common amendment (deletion) of clause 14.3(f) that makes plain that the principal is not liable for errors in the preliminary drawings.

The second obligation under clause 2.2(a)(iii) is to complete the design in the PPR so that the Works are fit for their stated purpose (and including other express or implied requirements of the contract such as conformity with laws and regulations).

When a principal’s architect and/or consultant issues designs, the contractor must do one of two things in response:

  • engage its own consultant to check and validate the drawings. This way, if there are undetected problems with the design, the contractor can seek indemnity from its own consultant; or
  • (if permitted to do so by the contract) negotiate a “novation” of the principal’s architect or consultant across to the contractor. This means the architect or consultant is now directly accountable to the contractor for its design errors, including errors it made previously under its contract with the principal.

Lulled into a false sense of security by the principal’s architect’s or consultant’s issued drawings, the contractor may neglect to check (or complete) the designs because it presumes the relevant design obligations are being performed competently by the principal and its architect and/or consultants. This presumption is wrong. Design liability under a design & construct contract stays with the contractor regardless of who prepares the drawings.

Act immediately

The danger of hidden design liability is particularly relevant in residential construction sector where the Home Building Act 1989 and the DBPA provide a means for subsequent owners to sue contractors directly.

Whether the contract is marked as “design & construct” or not, contractors should presume they are liable for design defects unless otherwise advised.

Call James Gilronan, Associate, or Brett Vincent, Partner, on (02) 9261 5900 to review your exposure to design risk on a current or future project.