Mon 13 Sep 2021

DIPL Standard Contract Clause 9

[Members Newsletter 2021 Aug]

Members recently contacted me in regard to a standard contract clause (9.4) that they believed could be misinterpreted by DIPL staff or consultants who were managing NTG civil projects. The concern was that design flaws and information errors that were provided as part of tender documentation or provided to contractors at a later stage of project delivery may result in contractors being asked to cover rectification costs, with no ability to seek a variation to the original contract. CCF NT sought legal opinion on this matter and the following comments were provided by our solicitor. We are hopeful that we will have clarification from DIPL on this matter in the next couple of weeks.

  1. I am not aware of any court decisions relating to this subclause, but in my view the whole of Clause 9 only has application if the contract is for design and construction.
  2. Whilst the interpretation clause contains the usual statement that clause headings are for convenience only and are not to be relied upon in the interpretation of the contract, it is clear that the whole of clause 9 is intended to apply only in a design and construct contract.  It must be remembered a court will interpret a provision of a contract having regard to the wider provisions dealing with the same issue and to the contract as a whole.  Courts do not seize on a sentence here or there and try to interpret it devoid of context.
  3. Clause 9.1 begins by stating that, “The Contractor must … design the parts of the Works which the Contract expressly or impliedly requires it to design …”  This sets out the context of the whole of Clause 9.  If the contract requires that the contractor design the whole of the works then Clause 9 applies to the whole of the works.  If the contract requires that the contractor design part of the works then Clause 9 will apply only to those parts.  If the contract is for construction only then Clause 9 has no application.
  4. NPWC is a generic document which attempts to cover a wide range of possible contractual scenarios.  Inevitably, some of its provisions will be inapplicable in any given circumstances.  The question of whether a contract is a design and construct or a construction only contract will be answered by that part of the contract which sets out the scope of works, which would constitute one of the documents making up the suite of documents forming the contract (presumably attached to a formal instrument of agreement).
  5. If a contract is for construction only, plans, drawings or designs (however described) will have been provided with the tender documents.  The same tender documents will have made it clear that the tender was calling for construction only.  The tenderers would put in their tenders based on the designs provided by NTG.
  6. The language of Clause 9 makes it clear that that clause is not intended to operate in such a circumstance, where the contract is for construction only.  I have already pointed out Clause 9.1 which requires the contractor to design the works to the extent the contract expressly or impliedly requires it to design.  Obviously, if the contract does not require it to design at all then Clause 9.1 does not apply.
  7. Clause 9.2 cannot possibly apply where the contract is for construction only because it deals with the superintendent either rejecting or accepting designs which the contractor is obliged to prepare pursuant to the contract.  As Clause 9.1 does not apply, neither can Clause 9.2 apply.
  8. Similarly, Clause 9.3 can have no application.  The contractor cannot warrant the quality of a design which it is not obliged to produce.
  9. Taken in isolation, it might be possible to read Clause 9.4 as if it applies regardless of whether the contract is design and construct or construction only, but that would be to take Clause 9.4 entirely out of context and ignore the balance of Clause 9.  A court will not interpret Clause 9.4 in that manner.  Clause 9.4 makes perfect sense in the context of a design and construct contract.  It is not uncommon for NTG (or any other principal) to have obtained concept plans or even slightly more advanced designs in order to assess the feasibility of a particular project.  That principal would then provide those designs as part of the tender documents for a design and construct contract.  Clause 9.4 is effectively a statement to a contractor in a design and construct contract saying something like: “We have given you some preliminary designs, but we are contracting you to design and construct.  So, if these preliminary designs we are giving you are inadequate or inaccurate, it is part of your design brief to get the design right.  You cannot come back to us to ask for more money if you went ahead to construct on the basis of our preliminary designs and found them to be wrong.  You have got to get the design right and build properly to that correct design.  You must include all the cost you think will be associated in getting the design correct into your tender price.”
  10. Taken in context, surrounded by the other subclauses of Clause 9, Subclause 9.4 can have no other purpose or effect.  What is more, the very words of Subclause 9.4 make it clear that it is only intended to operate in a design and construct contract.  Paragraph 9.4 (d) provides that “the Contractor will add its cost … provide any further details required to enable it to complete the design andconstruction of the Works …” (the emphasis is mine.)  The contractor can only be required to “complete the design” if it had an obligation to design in the first place.
  11. Lastly, Subclause 9.5 adds further to the point I am making.  It specifies that the superintendent owes no duty to the contractor to review the design submitted by the contractor for errors, omissions or compliance with the contract.  That makes it clear that the whole of Clause 9 is about the obligations of a contractor to design where the contract is for design and construct.  Clause 9 does not have the effect of transforming a construction only contract into a design and construct contract.
  12. In a construction only contract the design provided by NTG may be inadequate.  If, for example, the contractor tendered a lump sum on the basis of certain quantities indicated in the defective design, and the NTG then realised the defect and required an increase in the quantities, that would clearly be a variation.  If the NTG attempted to rely on clause 9.4 to say to a contractor, “Even though you did not have the obligation under the contract to design anything, and even though the design we gave you is defective, you now have to engage an engineer to fix the design at your cost and you have to bear the cost of conforming the construction with the correct design,” I cannot see any court accepting that.