It seems that design life and service life are two different things – don’t mix them up
Who should pick up the tab when a contract refers to an international standard which in itself is incorrect? This expensive question has recently been answered by the Court of Appeal in a case about €26m-worth of repair costs to offshore wind turbines. It raises some interesting new distinctions between ‘design life’ and ‘service life’.
The contractor in the case, MT Hojgaard, had entered into a contract to design, fabricate and install foundations for 60 wind turbine generators at the Robin Rigg Offshore Wind Farm, for EON. A key obligation was that the works must comply with international standard DNV-OS-J101, but it was accepted in the case that J101 in fact was defective, and because the contractor had complied with J101, that in itself caused problems with the foundations. Should the contractor be responsible for the €26m repair bill?
Crucially, one detail of the technical requirements for the contract stated that the design of the foundations ‘shall ensure a lifetime of 20 years in every aspect without planned replacements’. This was the only reference to a planned lifetime of 20 years, with various other references throughout the contract talking about a 20 year design life.
As a result of the errors in J101, it would be impossible for the works to fulfil their intended purpose for 20 years as the contract envisaged. Was there a double obligation, first to comply with the required standard but secondly to achieve a particular result (ie the 20 year design life)? If so, the contractor has to ‘as a minimum comply with the relevant specifications and standards. He must also take such further steps are as necessary to ensure he achieves the specified result.’
A design life of 20 years does not mean a structure will inevitably function for that length of time, although it probably will
However, the Court of Appeal decided that the contractor did not have a double obligation of this nature. The contractor had to achieve a design life, rather than a service life, of 20 years. The court pointed out that a design life of 20 years does not mean a structure will inevitably function for that length of time, although it probably will. Contrast that with a service life, which suggests that the structure will function for 20 years.
The court decided this because there was just one reference in the technical specifications to a lifetime of 20 years, all others referring to a design life of that length. In addition, the obligations in the terms and conditions took precedence over the technical requirements, so the sole reference in the technical requirements to a service life of 20 years was overruled by the terms and conditions’ reference to design life.
The key lesson here is that wording in technical documents which is contrary to the wording in the terms and conditions will be overridden. This is crucial if you are in the habit of analysing your technical requirements and the services you are to carry out, but perhaps don’t take a similar analytical approach to the terms and conditions you are being asked to sign up to. Consistency of the contract as a whole is therefore key.
For documents with inconsistencies, this case reinforces that the terms and conditions almost always trump technical requirements.
The court’s distinction between design life and service life is perhaps a new approach by courts to this question. It seems strange that no liability should accrue to the contractor if it has failed to satisfy a design life of 20 years, when failing to satisfy a service life for 20 years would give rise to liability of that nature. This may lead to increased focus on the nature of any lifetime design for contracts in future, to ensure that there is no increased warranty by offering a service life rather than a design life guarantee.
Alistair McGrigor is a partner at Nabarro
IN PLAIN ENGLISH: NOVATION
In a design and build context, the architect’s appointment is often novated to the design and build contractor. Novation is the process by which not just the benefit of a contract but also its obligations are passed from one party to another.
So the original employer (typically a developer client) can pass to the contractor not only the benefit of receiving the architect’s services, but also the obligation to pay it. In this way, the contractor can take on full responsibility for the design because it has the contractual link with the architect who provided the original design.
The original employer is then released from its obligations to the architect, and is no longer the client for that appointment.
Novations are often referred to as ‘ab initio’. This particular type of novation means that all the services performed by the architect from the very start of its design process were deemed to have been carried out for the benefit of the contractor, rather than the developer, from the start. There will usually therefore need to be a warranty back from the architect to the original employer, to give the employer a contractual light to rely on the services carried out by the architect.