Design life obligations and non-standard maintenance requirements: new TCC guidance

A TCC decision published recently provides updated guidance on design life obligations following the Supreme Court’s decision in the MT Højgaard case. In applying the Supreme Court’s decision, the court has given guidance as to the meaning of the term “design life” and how it might apply to different components of a complex structure. The decision also considers the effect of provisions which prohibit designs requiring non-standard or unusually onerous maintenance regimes.

MT Højgaard: a recap

Contracts often include requirements that the works (or their components) achieve a certain design life. Quite what that means can be a vexed question and lead to disputes if one party alleges premature failure. Such a case was considered in 2017 by the Supreme Court in E.ON vs MT Hojgaard.

E.ON brought a claim against MTH for an alleged breach of the design life obligations in the design and build contract. The Supreme Court held that MTH was in breach of the Technical Requirements requiring design of wind turbine foundations to ensure a lifetime of 20 years. This was despite MTH complying with international standards applicable at the time which had subsequently been shown to contain a calculation error.

The Supreme Court held that complying with the relevant standards was only a minimum requirement and the obligation to provide a design that would allow for a 20-year life, while not necessarily a warranty, was essentially a fitness for purpose obligation. This was despite the obligation being “tucked away” in the technical requirements. Given that the technical schedule in question had been given contractual force by the parties, it was to be taken at face value.

Blackpool Borough Council v Volkerfitzpatrick Limited

Blackpool Borough Council commenced an upgrade of the Blackpool tram system, including the construction of a new tram depot. The depot was procured by a design and build contract between the Council and Volkerfitzpatrick. Construction was completed in 2011.

The contract was a modified NEC3 standard form design and build contract. The Works Information provided that the design life should be 20 years save where specified to the contrary in the Functional Procurement Specification (“FPS”) (included in the Works Information). The FPS itself required that the “building structure” should achieve a 50-year design life.

The depot is located on a coastline meaning it is exposed to the elements and in January 2015 a section of the roof detached during high winds. Upon inspection, the Council discovered that steel components in the roof space had lost galvanized coating and were significantly more corroded than would have been expected after 4 years of service life.

The Council brought TCC proceedings alleging significant parts of the depot did not meet their intended design life of 50 years and were unsuitable for a coastal environment. Volkerfitzpatrick contended that the design life was either 25 or 20 years and that the Council had failed to maintain the depot correctly.

Design life

Although the contract contained a “reasonable care” clause, it also provided that the works were to be provided in accordance with the Works Information, which included the design life requirements. In addition, a specific Z clause had been added to the contract pursuant to which the contractor “warranted and undertook” that the works, when completed, would “satisfy any performance specification or other requirement included or referred to in the contract”. As a result, and relying on Højgaard, the court was satisfied that the clauses in the contract should have the same strict character as the Supreme Court had held the clauses in that case to have, namely that the design of the depot was such that it would last the specified period without replacement. As in Højgaard, it was unnecessary for the court to determine whether the contract went further and provided an absolute warranty that the depot would last that period without replacement (i.e. regardless of whether such a result was feasible as a matter of design).

The court proceeded to consider the meaning of the term “design life”, noting that there was no contractual definition of the phrase. Considering a number of relevant standards, the court held that the structure could not reasonably be expected to be “maintenance free” for the whole of its design life, but that it could be assumed that it “ought not to need major repairs over that period”. The distinction was between anticipated maintenance and major repair.

As noted above, the Works Information provided for a design life of 20 years, save for the “building structure” where it was to be 50 years. The term “building structure” was undefined and Volkerfitzpatrick relied on a “technical design log tender development document” (the “RPS Log”) which referred to a 50 year design life in relation to the “external shell”. Volkerfitzpatrick argued that this could be used to interpret the term “building structure” as being limited to the external shell of the depot. The Council argued for a broader interpretation of “building structure” and relied on a contractual hierarchy clause to overcome the RPS Log. However, the court agreed with Volkerfitpatrick that the RPS Log provided the clearest guidance as to what was intended to be included in the term “building structure”. As a result, the two terms could be read together and there was no conflict or inconsistency to be resolved through the hierarchy clause.

Coatings

A separate issue arose as to how the design life obligation applied to coatings. The Council argued that the design life applied to the component in question as a whole including the coatings, while Volkerfitzpatrick argued that the coatings were to provide protection for the steel structure below and may be consumed or “sacrificed”. On Volkerfitzpatrick’s interpretation, the criterion for breach of the design life obligation would be loss of the coating and sufficient loss of the steel substrate such that it could not perform its function.

The court reached different conclusions on this issue for different components. For double coated external facing components such as wall cladding panels and tram doors, due to the contractual requirements for external facings to withstand harsh environments, and the aesthetic qualities of the design, the coating should have the same design life as the underlying structure. For the cold formed components which were internal, the court held that there was no need to repair or replace these components unless and until they could not perform their structural function. The design life obligation would not be breached for those components merely because the coatings would not last the specified period, provided structural integrity was not compromised.

The maintenance proviso

In defending the Council’s case on design life, Volkerfitzpatrick alleged that the Council should have maintained areas affected by corrosion more frequently than in a non-coastal environment. However, the Council relied on a contractual requirement precluding the design from incorporating any “… ‘non-standard’ or ‘unusually onerous’ operation and/or maintenance requirements in respect of the works having regard to normal construction operations and maintenance requirements which are applicable for works of a similar character as the works” (the “maintenance proviso”).

The court held that if the design required non-standard or unduly onerous operation or maintenance requirements because of the location of the depot, it was Volkerfitzpatrick’s obligation to identify those requirements and to obtain the Council’s consent. In coming to this conclusion, the court considered that the words “normal” maintenance requirements and “similar character” indicated that the comparator was intended only to be structures of the same kind rather than structures of the same kind and in similar locations. Otherwise, in the court’s view, it was difficult to see that the proviso was intended to achieve: “since any maintenance requirements which were reasonably necessary for this particular tram depot at this particular location could never be said to be ‘non-standard’ or ‘unduly onerous’ in such a case”.

Conclusions and implications

This decision provides important guidance as to the use of design life obligations in construction contracts with a design element. In particular:

• The court’s analysis of the meaning of the term “design life” provides a helpful rule of thumb distinguishing between routine maintenance and major repairs.

• The court’s findings as to how design life obligations apply to coatings may potentially apply to other consumable elements of a project and highlights the need for parties to specify how consumables are to be treated as part of any design life obligation, or to exclude them entirely. In the absence of specific wording, the court’s approach suggests that a design life obligation may or may not extend to consumable elements depending on the purpose of the element in question.

• The court’s analysis of the maintenance proviso is also of interest. The suggestion that a location specific interpretation of the proviso would render it meaningless would appear to overlook the fact that alternative designs may exist for a given building which balance the interests of cost or performance with a greater or lesser need for maintenance. It does not seem inconceivable that such a provision might have been intended to have a location specific meaning with a view to avoiding cheaper or unusual designs which require greater maintenance than other more standard designs. This is an important issue, as such provisos are commonplace and link directly to the extent to which a given design can be said to meet the required design life.

• The decision provides yet another example of an informal technical document “tucked away” in a schedule to a contract proving to be of decisive relevance in much the same way as in Højgaard and despite the inclusion of a contractual hierarchy clause.

References:

MT Højgaard v E.ON [2017] UKSC 59.

Blackpool Borough Council v Volkerfitz Patrick Ltd [2020] EWHC 1523 (TCC).