‘DESIGN AND BUILD' CONSTRUCTION CONTRACTS: A CONFLICT

BETWEEN LAW AND PRACTICE? [2001] 1 MLJ lxxi

Malayan Law Journal Articles

‘DESIGN AND BUILD' CONSTRUCTION CONTRACTS: A CONFLICT BETWEEN LAW AND PRACTICE?

Dr Syed Alwee Alsagoff

and

Bhag Singh

LLB (Hons)(S'pore), Advocate and Solicitor (Malaya)

Growing popularity of design and build construction

In October 1999, the Malaysian Education Ministry announced that a large share of future school-buildings
contracts will be let by the Ministry via a ‘design and build' package.1 Evidently an upcoming system to construct
building and engineering facilities, it was concluded by Hashim2 in a study of different procurements options
available in Malaysia that ‘design and build':

is forecast to continue to grow within the foreseeable future, at a comparable rate to the growth that it has achieved over
the past ten years.

Examples of the increasing popularity of this system can be found in most other countries as well. A study of over
900 projects by the RICS3 reported that in the UK, 30% of the value of contracts let out in 1995 was based on this
system, having multiplied more than six-fold over the past 10 years.

Evidence from the USA also reflects this trend. In 1996, approximately a third of American contractors' turnover
came from ‘design and build' contracts (data from the Engineering News Record by Kreikemeier).4 In Japan, about
half of the construction projects there are procured through ‘design and build' as well.5

Accordingly, it is hardly surprising that this popularity is also recognized in judicial circles. In one instance, John
Davies QC expressed the view that:

… transactions generally described as ‘package deals' or ‘turnkey contracts', or somewhat more specifically, ‘design and
build' contracts, are becoming an increasingly common feature of the building scene (in Viking Grain Storage Ltd v TH
White Installations Ltd & Anor6 )

Design and build procurement system

Synonymously known as ‘package deal' or ‘turnkey' in France as ‘ cle en mains', ‘ ensemblier' or ‘ product en
mains'; or as ‘ schlusselfertig', ‘ totalunternehemr' or ‘ objektvertrag' in Germany; or simply as ‘EPC' (Engineering-
Procurement-Construction) or ‘EPIC' (Engineering-Procurement-Installation-Construction) in heavy/offshore
engineering projects, these ‘design and build' arrangements are generally characterized by its straightforward and
singular contractual interface — the employer and the contractor.

The arrangement is such that the contractor is responsible for carrying out the design and construction of the
works, as well as the commissioning and repairs during the defects liability period. Its flow of activities is simple.
Once the employer finalises his decision to build, he will prepare his detailed brief (usually termed ‘Employer's
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Requirements'), usually with the assistance of his own designers. These requirements will outline the design
concept and performance specifications of the constructed facility. Bids are then invited from a selected list of
contractors who will produce and price their own outline designs (termed ‘Contractor's Proposals'), typically
consisting of specifications, drawings, design criteria calculations and price breakdown. A contractor will then be
appointed to proceed with producing the detailed design and the following construction works for the project.

There are slight differences between ‘design and build' hybrids though. In ‘EPC' and ‘EPIC' arrangements, there
may be two separate pricing schemes, one in the design phase and another in the construction phase of the work.
In ‘turnkey' or ‘ product en mains' there are instances of wider scopes of work that include technology transfer and
plant equipment supply. There may also be modified ‘design and build' arrangements with several nominated
contractors in the contract. Other conditions may vary from one project to another, for example, payments are often
based on a lump sum (although not exclusively so as there are instances of re-measured contracts) and are
exclusively entitled only upon completion of the works(usually milestones or progress measurements are used as
well).

The perspective of the lawLegal obligations in ‘design and build': The concept of ‘fitness for purpose'

In conventional or traditional construction contract arrangements, design responsibility (usually delegated to a

separate entity other than the contractor) is classed under a responsibility to exercise reasonable care, that is, the
exercise of professional standards of expertise in design. A contractor's obligation in these traditional procurement
systems is restricted to complying with specifications of materials supplied by designers engaged by the employer.
For instance, in Leo Teng Choy v Beetile Construction7 and Hii Soo Chiong v Board of Management of Yee Ting
Primary School8 and a string of decisions from Canada, CCH v Mollenhauer,9 Frontenac Air Systems Ltd v Parmac
Construction Ltd10 and District of Surrey v Carroll-Hatch and Associates11 it was established that the lines of
responsibility are clear — if the specifications were sufficiently detailed, contractors are under no general higher
obligations to produce a better design for their clients so long as they complied faithfully those details and had no
special expertise to be aware of the design shortcomings in advance.

In most conventional construction contracts, in the absence of specifically agreed scopes of work, the employer
dictates the design and detailing of the construction works, even to the extent that he can be said to assume some
parts of these design responsibilities. In Sapiahtoon v Lim Siew Hui,12 an employer failed in his claim for damages
for the use of an inferior-quality wood by the contractor. It was discovered that the employer had instructed the
contractor to build a house that was generally modelled against another completed house nearby. The employer
had mistakenly assumed that a superior-quality wood was to be used, but had not specifically mentioned this type
of wood in his contract. It was held that the contractor was under no obligation to use any superior material other
than that specifically instructed by the employer in the contract.

‘Design and build' construction contracts carry with them a different set of obligations altogether. The design and
build contractor guarantees that the completed facility is to be designed by the contractor, carrying with it an
implication that the design is to be of a standard that is suitable for his employer's intended use. Here, by and large,
the contractor is deemed to carry an obligation to produce a facility that is free of defects, conforming with the
criteria set out and suitable for its purpose designated at the outset. In short, the contractor is under the obligation
of a ‘fit for purpose' facility unless the circumstances of the contract shows the contrary.

Such higher obligations can be traced back as early as a 19th century decision in Francis v Cockerell,13 where it
was clarified that:

… as a general proposition of law, that where one man engages another to supply him with a particular article or thing, to
be applied to a certain use or purpose, in consideration of a pecuniary payment, he enters into an implied contract that the
article or thing shall be reasonably fit for the purpose for which it is to be used and to which it is to be applied.14

In more recent times, in Viking Grain Storage Ltd v TH White Installations Ltd & Anor,15 it was set out that:
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In the case of some contracts of a readily definable and uncomplicated kind, the law has for so long recognized both the
need and the reasonableness of attaching certain incidents to them that it would be unrealistic to presume that the parties
would have intended otherwise … . It has been strongly urged upon me that ‘package deals', of which kind this contact is
one, fall into the first category I have mentioned and are deemed to carry a warranty of fitness for purpose, unless the
contrary is shown. (Judge Davies QC at pp 110–111)

The facts in Viking gives a typical scenario of this contractual genre. A contractor was contracted to carry of the
design and construct a grain storage installation. A variety of defects rendered the facility unfit for its intended
purpose and the plaintiff employer sought recovery from the contractor. The contractor sought to argue that he
warrants to use good quality materials and workmanship like in a traditional construction arrangement, but not to
guarantee that the facility will be fit for its purpose. For the design contents, the contractor argued that his duty was
the same as those of a designer, that is to exercise reasonable care only. It was held that these arguments cannot
be supported supported in a ‘design and build' package. In these contracts, an overall obligation to deliver a facility
suitable for use that the employerstipulated is imposed on the contractor, beyond tahe which can be implied from
separate contracts of design and contracts for work and materials.

Evidence from terms of agreement

Because of the potential for higher liabilities, it is not surprising in construction practice, that most disputes will
centre on the question of whether or not the contractor is deemed to carry these higher obligations towards his
employer.

The assessment of these obligations is not that clear-cut. Examples of how the courts have considered the extent
of liability have brought to light various terms that are claimed to impose ‘fitness for purpose' responsibilities. One
instance is where the contract states that ‘the contractor shall be responsible for the design and construction of the
works' (notwithstanding any previous examination of approval by the employer) and he ‘guarantees the work which
he has designed and when so instructed by the Architect shall make good at his own cost any defective work which
is due to any fault or defect in the design'. This was decided to be sufficiently clear to impose on the contractor an
obligation for ‘fitness of purpose'. Rejecting the contractor's arguments in London Borough of Newham v Taylor
Woodrow-Anglian Ltd,16 O'Conner J explained at p 103:

Design necessarily imports the purpose for the product, in this case blocks of flats, so that the warranty is that the design
will produce blocks of residential flats of the type identified. Insofar as the design fails to produce these results, it is faulty or
defective … . The warranty is absolute and if it is broken, it matters not that the designer has exercised all due care and
skill in making his design.

The courts will also look at supporting documents in ascertaining fitness for purpose obligations. The interpretation
of correspondences was called to question in High-Mark (M) Sdn Bhd v Patco Malaysia.17 In a letter forming the
contract, the employer instructed the plaintiff to ‘proceed with the full working drawings on the project and submit to
the relevant authority for approval'. The court held that this an appointment for the contractor's overall obligation to
undertake the complete package to design and build the facility.

There are other instances where the documents themselves are not consistent with one another. In Bacal
Construction Ltd v Northamptonshire Development Corp,18 the court faced problems of interpreting heavily modified
traditional standard form clauses and various documents forming the contract. At a time when there were no
available standard forms of contract for ‘design and build', the parties in Bacal tried to amend existing traditional
contracts and supplemented these with their own agreements. The results were shambolic. Many discrepancies in
documents (including collateral agreements and the letter of intent) had to be ironed out by the court to determine
the parties' roles and obligations in their ‘design and build' package. This was to such an extent that the editors of
the Building Law Reports specifically commented that (at p 39):
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This case is included principally because it provides an object lesson as to the effect of altering the standard form of
building contract. The first issue con­sidered by the Court of Appeal — the meaning of a letter forming part of the contract
— only illustrates the desirability of trying to record supplementary agreements in readily comprehensible language.19

In another example, conflicting contract terms in ‘design and build' documents can give rise to difficulties in
ascertaining the agreed liabilities for each party. In Basildon District Council v Lesser Ltd,20 the defendant argued
that a term in the contract stating that design drawings had been prepared ‘under the direction of the owner's
engineer or architect' was inconsistent with the obligation for ‘fitness of purpose'. The courts rejected this argument.
It was held that, reading the whole agreement, it was sufficiently clear that unless the design had actually been
prepared by the employer's engineer or architect, the contractor had accepted liability for his design.

Higher obligations by implication

Where the express terms of the contract may be inconclusive to pin-point these obligations and if implied terms are
called to question, the essential element in establishing an implication of a higher responsibility to the contractor will
depend on the degree of reliance placed on his ability to control design.

Specifically, the courts will look at the surrounding circumstances to assess whether the contractor was in a
position to direct:

(a) Design Elements: Spatial design arrangements, structural details, instrumentation and mechanical layouts.
(b) Design Inter-relation: Interface of these different elements to combine into a facility package.
(c) Choice: Selection of the appropriate work processes and materials to meet the indicated or presumed
requirements of the employer.
(d) Suitability: Suitability of work and materials for their required purpose once completed and in place.

These are all factual matters. To assess them properly, the courts view intention of the parties at the time they
contracted as paramount. Such was the reasoning by Lord Denning in Greaves v Baynham Meikle,21 concerning
the failure of defendant engineers to produce design that is ‘fit for purpose' corresponding to the obligations
undertaken by the plaintiff contractor under his ‘package deal' (design and construction of a new factory, warehouse
and offices). He stated that even where it is traditionally stated that engineers, as professionals, are assessed by
the rule of reasonableness, the defendant would be understood to carry a higher liability if it was the common
intention between the parties that his design were to be used in a ‘design and build' package. He explained at p 60:

… it is necessary to distinguish between a term which is implied by law and a term which is implied in fact. A term implied
by law is said to rest on the presumed intention of both parties, whereas a term implied in fact rests on their actual
intention.22

The perspective of construction/engineering practiceA rationale for rejecting ‘fitness of purpose' obligations

Notwithstanding the common law principle that ‘design and build' contracts carry with them higher obligations of
‘fitness for purpose', there is a puzzling array of how this obligation is described under certain design and build
standard forms of contract, both for building and engineering construction works. Consider:

(a) Instances where the obligation is consistent:

International Federation of Consulting Engineers (FIDIC) Design-Build and Turnkey Conditions 1995 cl 4.1

Institute of Chemical Engineers (IchemE) Red Book (Model Form of Conditions of Contract for Process Plants)
1981 cl 3.3
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(b) Where there is an option to exclude ‘fitness for purpose'

Engineering and Construction Contract (ECC) 1995 (Institution of Civil Engineers) cl 20 (Option M)
(c) Lastly, at the other end of the spectrum, there are examples where the standard forms may be expressly
drafted to reduce this obligation into one of ‘reasonable skill and care':

Institute of Mechanical Engineers Model of Contracts for Mechanical and Electrical Works (MF/1) 1988 cl 36.9

Institute of Consulting Engineers (ICE) Design and Construct Conditions of Contract 1992 cl 8(2)

Government of Hong Kong Design and Build Contract (1999) cl 23.1

Joint Contracts Tribunal (JCT) 1998 With Contractor's Design cl 2.5.1

Insofar as the design of the Works is comprised in the Contractor's Proposals and what the Contractor is to
complete … and in accordance with the Employer's Requirements … the Contractor shall have in respect of
any defect or insufficiency in such design the like liability to the Employer, whether under statute or
otherwise, as would an architect or, as the case may be, other appropriate professional designer … acting
independently under a separate contract with the employer, had supplied such design for or in connection
with works to be carried out and completed by a building contractor not being the supplier of the design.

The proliferation of different types of terms relating to design obligations in ‘design and build' contracts suggests
that there are some attempts in practice to put express limitations on the ‘fitness for purpose' responsibilities. Given
these attempts, is there any justification for excluding such strict obligations?

In answering this question, it is useful to consider the practical implications of imposing the higher ‘fitness of
purpose' design liabilities on contractors. There are concerns in these arrangements that:

(a) Contractors will be responsible for defects, even where these defects cannot be due to any fault or
negligence of the contractor in producing the design (for example, the circumstances in London Borough of
Newham v Taylor Woodrow-Anglian Ltd23 ).
(b) Defences that are available to design-only professionals like foreseeability tests ( Bolam v Frien Hospital
Management Committee24 ) and state-of-the-art defences ( Chin Keow v Government of Malaysia25 ) are
not available to the ‘design and build' contractor if he entered into a contract to provide a fully functional
facility. This can be considered to be an unfair burden on the contractor's capabilities.
(c) The contractor has no available insurance to cover for ‘fitness for purpose' risks or, even if available, it may
be prohibitively expensive. There is a gap in the available policies for defects between typical Contractors'
All Risks (CAR) policies which only covers the contractor during construction operations and Professional
Indemnity (PI) policies which covers actions arising out of any failure to exercise reasonable skill and care
in design. The PI policy will usually cover for liabilities arising out of a breach of professional duty
(negligence), but it is not applicable for contractual claims against works that are not negligent or in error or
with omissions, but still fall short of its technical requirements. This is one exception that may work against
the interests of ‘design and build', turnkey or EPC contractors if they intend to claim under this policy for the
said defects.26
(d) Surety protection through bonds and guarantees are seldom available for long term cover for the
constructed facility. Even where there are possibilities to take up other forms of insurance like latent
defects insurance and product liability insurance or the recently introduced BUILD (Building Users
Insurance Against Latent Defects) insurance policies to protect against defects beyond the typical
maintenance period stipulated in the construction contract,27 these may not cover all the implied
guarantees required under the ‘design and build' contract28 .

Keeping ‘fit for purpose' — A matter of law or practice?

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Translating legal concepts into construction engineering practice is not always easy. Consider the practicalities of
terms like ‘fitness for purpose'. It has always been considered to be a convenient term in law, but in practice there
are difficulties to establish how ‘purpose' is set out in the contract and what is meant by ‘reasonably fit'? Without a
full practical understanding of how these terms affect construction practice, employers may find themselves in a
situation where they will not be able to enforce what they believe to be their rights under the ‘design and build'
contract.

Practical interpretation of these terms can be tricky. Even ‘design' has no legal meaning. It is simply taken as the
whole process of assimilating the employer's needs into a blue-print for the construction of a particular facility.
There is little appreciation that there are, in practice, design elements during the whole spectrum of a construction
process, from what is understood in its traditional definition up until the design of temporary supports, methods of
working and design of commissioning systems by the contractor.

Design by employers may take place during the preparation of the Employer's Requirements in ‘design and build'
contracts. Obviously, the concept or degree of the term referred to as ‘purpose' is derived from this document. Its
output provides the yardstick for measuring the contractor's obligation for the constructed facility. The difficulty is
that such yardsticks are decided as matters of fact and not purely matters of law.

For example, it is commented by Lord Wright in Cammel Laird & Co v The Manganese Bronze Co29 when deciding
on a particular situation involving defects in the manufacture of ship's propellers:

It follows, I think, that a reliance partial but substantial and effective will bring the implied condition into play: it would then
be a matter of construction of the particular contract whether the condition that ‘the goods shall be reasonably fit for such
purpose' is to be read without qualification or whether it is to be limited to the matters within the particular province left
entirely to the seller's skill and judgement.

Lord Diplock in Christopher Hill v Ashington Piggeries Ltd30 elaborated that:

The question is … once the goods have been proved to be unfit for the purpose for which they were required, the onus lies
upon the buyer to prove that the defect was due to a characteristic which it lay within the field of expertise of the seller to
detect and avoid; or does it lie upon the seller to prove that the defect was due to a characteristic which lay within the
sphere of expertise of the buyer.

These decisions make it clear that every technical aspect (details, requirements, components, etc) in these
contracts must be clearly marked as parts of ‘Employer's Requirements' or ‘Contractor's Proposals' during the
documentation stages in the contract negotiations. In spite of this, employers are seldom aware that some design
risks are still retained by them. It is no surprise therefore that because employers are not entirely risk-free, field
studies of this contract arrangement were unanimous in their findings that the benefits of ‘design and build' can only
be attained if employers realise their crucial role in providing a clear and unambiguous technical brief to the
contractor at the outset (Ndekugri and Turner;31 CCMI32 ).

Interference: contractor or employer'design?

Another idiosyncrasy in ‘design and build' is that there is practically little design input from the employer, whether or
not this is the situation that the employer wanted in the first place. Where traditionally the employer dictates design
development through his designers, here, almost no design work can be commanded by the employer. In practice,
this may cause some feelings of frustration for the employer, especially where he may perceive, correctly or
incorrectly, that factors like aesthetics may not be fully delivered by the contractor.

Although it is already pointed out that design matters may be handled as efficiently by these contractors, and that
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there are actually improvements in speed,33 costs,34 buildability,35 reduced complexity,36 capacity to benefit from the
use of information technology (IT)37 and product design that are more likely to be easier to maintain,38 it is also a
fact that the employer may often try to re-capture some design control in practice by making amendments to the
design details, or by dictating his own designers to the contractor.

Sometimes, there can be many instances where the employer“s representative attempts, by way of ‘suggestions'
or ‘additional requirements', to incorporate changes to the contractor's design and drawings. In the same token, the
employer may issue adjustments, proposals or modifications claiming rectification of the design due to the
contractor's ‘poor engineering' or to ‘avoid failure by the contractor to achieve compliance of the Contract'.

This is an area where ‘design and build' practice can cause problems for all parties. It is also an area where there
may be difficulties in drafting terms into the ‘design and build' contract. The problem is not only relegated to these
contracts but also evident in some standard forms of contracts where there is a tendency for drafters to include
checking mechanisms in ‘design and build' contracts, like in the ICE (‘Design and Cuild') Contract (1992) in cl 6(b),
where it provides that:

Where any part of the Works has been designed by or on behalf of the employer and that design has been included in the
Employer's Requirements, the contractor shall check the design and accept responsibility therefor having first obtained the
approval of the Employer's Representative for any modification thereto which the contractor considers to be necessary

If terms like the above were agreed to by the employer and the contractor, it is questionable how, in practice, those
‘approvals' are not considered as grounds to reduce the contractor's liability to some extent. There have been some
examples where contractors have sought to use this defence against poorly constructed facilties, for instance in
Shanks and McEwan (Contractors) Ltd v Strathclyde Regional Council.39 Here, the employer insisted that his
approval was to be required during the course of the works. It was held that if these approvals had comments that
must be complied by the contractor, then they had the effect of reducing the contractor's initial design
responsibilities in the contract.

Practical problem: Interference through design nomination

Another way how the employer may attempt to control the design element himself is by adopting a practice of
‘nominating' (or sometimes using archaic ‘novation' arrangements) a particular designer to the contractor. Under
this arrangement, the employer may require the contractor to appoint that designer for the project, either by an
express condition in the contract or by recommendation elsewhere. If the contractor abides by this requirement
without making clear a division as to his own design liability, the contractor may then be left to guarantee the
employer's preferred design, vis-À-vis his chosen designer. What is more onerous is that the contractor must then
warrant that this design is suitable for the facility's intended use. A higher class than that of the initial warranty of the
exercise of skill and care that could otherwise arise initially between the employer and this ‘nominated' designer.

This arrangement has grown rapidly in popularity over the mid to late 1990s. In the USA alone, a survey of design
and build projects by Nunn40 indicated that over a third of these projects had designers who was either novated or
nominated from the employer to the contractor. In Australia, there are various instances where novations have been
used in major projects with mixed outcomes.41 This pracice is also beginning to trickle down to projects in the Asia-
Pacific rim as well.42

Whether such an arrangement imposes on professionals a higher obligation to guarantee the result of their work
must be regarded in each project's own facts (per Geoffrey Lane LJ in Greaves43 ). What is clear though is that the
contractor may have to absorb design defects, even where they had not carried out the design work under such
contracts. In a complex inter-relation of contractual relationships, like those in Independent Broadcasting Authority
(IBA) v EMI44 for instance, the contractor was held to be responsible to ensure that the design produced by
‘nominated' specialist designers under his sub-contract was fit for its intended purpose.

The IBA case concerns the collapse of a 1,250 feet high mast under icy weather conditions. Its design was
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produced by BICC, who were subcontractors to EMI. Specifications in the main contract had instructed EMI to seek
BICC's design and this was then incorporated into EMI's contract for ‘the design, supply and delivery' of the mast.
EMI was held responsible for this design although it was acknowledged that ‘they had no knowledge of mast design
and although IBA knew and did not rely on their skill to any extent for the design'. Lord Fraser explained at pp 44–
45:

I think that in a contract of this nature a condition would have been implied to the effect that the contractor had accepted
some responsibility for the quality of the mast, including its design, and possibly also for its fitness for the purpose for which
it was intended … . It is now well recognized that in a building contract for work and materials a term is normally implied
that the main contractor will accept responsibility to his employer for materials provided by nominated sub-contractors. The
reason for the presumption is the practical convenience of having a chain of contractual liability from the employer to the
main contractor and from the main contractor to the sub-contractor.

Practitioners in the construction industry may find such reasoning implausible. It lacks an understanding of the
possibilities of manoeuvring in these contracts. Consider a critique by Wallace against the universal application of
EMI's decision. He explained at p 538:

This (IBA) case cannot, it is submitted be regarded as finally conclusive in regard to an implied liability of main contractors
to owners for the designs of nominated sub-contractors, however desirable that may be in terms of the chain of liability
principle. In the first place, it is to be noted that the main contractor quoted expressly for the design of the mast. Secondly,
.... it seems strange to require a design responsibility in relation to future unknown designs while rejecting it in relation to a
present known design accepted without protest.45

‘Chains of liability' in design?

What are those ‘chains of liability' or ‘chains of contracts' referred in the IBA case? In theory, the courts assume a
simplistic picture of ‘chains of contract' (ie succession of liability) and accordingly the courts have left it to the
contractor to carry the succession of litigation against the designers like the situation in Greaves. If the courts'
reasoning is typically based on an assumed idealistic legal arrangement between the parties, these can be argued
as inappropriate in ‘design and build' contracts.

Reasoning for this has been derived from cases like Young & Marten Ltd v McManus Childs Ltd,46 where the
contractor was held to warrant a material against latent defect eventhough the supplier was identified by the
employer under ‘a chain of liability from the employer who suffered the damage back to the author of the defect'47 It
was again brought into view in Norta Wallpapers (Ireland) Ltd v John Sisk and Sons (Dublin) Ltd48 concerning the
issue of liability of a contractor for the defective design of roof lights by sub-contractors chosen by the employer.

Figure 3.7 illustrates this rule, where in Norta it is said that (at p 61):

the basis of this rule is that, while the contractor is thus made primarily liable, he will be able, under the subcontract, to
have recourse, by third party procedure or otherwise, against the subcontractor for an indemnity in respect of the
contractor's liability to the employer.49

What about the practicalities of such assumptions? Despite his concerns, Lord Reid in Young demonstrated an
idealistic string of liabilities in construction contracts. He commented (at p 467):

No doubt there will be some cases where, although the contractor had a right of recourse … he cannot in fact operate that
right...But these cases must be relatively few and it would seem better that the contractor should occasionally have to suffer
than that the employer should very seldom have any remedy at all.
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The reality is that design nomination arrangements are seldom idealistic in practice. Inconsistent terms imposed on
contractors usually mean that the employer will have the benefit of a guarantor for his own nominated designer
whilst limiting the contractor's recourse against the nominated designer in cases of proven negligence. Considering
that the employer in obtaining compensation without the difficulties of evidence of proving negligence in court, to
which the contractor will have to go through, this is hardly a ‘back-to-back' arrangement postulated in Young.

Notwithstanding this, it may even be doubted whether or not employers actually gain from such an approach,
bearing in mind that they would have to pay design fees to the nominated designers, in addition to inflated
contingency prices from contractors for their risks. Consequently, it can be argued that there cannot be much
efficiency in these nomination arrangements if the parties were to analyse their positions carefully at the outset.

Law and practice guidelinesA future for design and build?

Given the difficulties to come to terms with the requirements of law and the necessities of construction practice, is
there a future for ‘design and build' in Malaysia? In spite of its growing popularity, it is suggested that there are
inherent problems, not least of which is overzealous employers who misuse the benefits of single point
responsibility by offloading all risks to the contractor. This can be made more difficult by contractors who do not
understand the impact of a ‘product risk' in addition to the ‘construction risk' they normally carry. Consequently, the
failure by the parties to understand the different contractual and management philosophies rule out possible
theoretical benefits for both.

There are also arguments both for and against contractors being responsible to the employer for their design at a
higher level — ‘fitness for purpose'. Invariably, contractors will most likely endorse a limit to these interminable
liabilities by importing limiting terms like those in several standard forms of contracts. However, case evidence
demonstrates the obstacles of drafting clear terms to avoid challenges from employers. In practice though, the
strongest argument against such liabilities may well be the practical difficulties to fully insure the facility at this level,
thus offering little possibility for long term protection to both the contractor and the employer against latent defects
in the constructed facility.

Nevertheless, some problems can be avoided if the parties realize that:

(a) Specifications and drawings, and other technical information provided by the employer and upon which a
contractor bases its bid (‘Employer's Requirements'), is as much binding on the employer as it is on the
contractor.
(b) A proper design review and co-ordination committee should be set up by the contractor to ensure that all
ambiguous matters are properly addressed, recorded and followed up within defined time limits. This is an
area of contract, where there is a significant likelihood of substantial claims and conflict.
(c) The contractor's main obligation is to comply with the provisions of the contract, and no more. Accordingly
where there is, for example, a performance specification, the contractor's obligation is limited to just
achieving that specification (usually by the method cheapest to the contractor). Should the employer
require compliance with the specification by a different method then he can only do so by the issue of a
variation;
(d) Different designers will invariably seek to comply with the Employer's Requirements in different ways. The
method of approach will largely depend upon the experience of previous projects. Objective analysis
almost always will determine that any number of methods will produce a complying standard. The
employer cannot interfere to disapprove these methods simply because it did not follow the chosen path
assumed by his advisors.
(e) If the employer has a preference for any particular method of achieving the specified requirements, then
the contract must expressly oblige the contractor to abide by this. If no particular method is set out in the
contract, then the contractor is entitled to comply with the specified requirements by whatever method it
elects to use, subject of course to the issue by the employer of a variation order.
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(f) As such is stated, any deviations, delay, impediments or obstructions on the employer“s part that causes
the contractor to make deviations from the intended schedule can be actioned. In what undoubtedly will be
a source of many risks leading to claims, the contractor should record all of his assumptions and
clarifications by making use of the contract documents and the proposed co-ordination strategy and
procedure to be implemented into the works.
(g) Despite threats and pressures, it will be extremely important that proper records are kept of the changes
and notices given under the contract. The employer will try to demonstrate that the changes he has
required are necessary to overcome deficiencies in the contractor“s design, and the contractor will argue
that each intervention must justify a compensable variation. Each issue will have to be argued on its merits.

Practitioners are also reminded of the potential problems of inappropriate modifications of conventional
construction contracts to cater for ‘design and build' arrangements. The issues highlighted in Bacal Construction Ltd
v Northamptonshire Development Corporation50 demonstrated that ‘design and build' contracts must be drafted
carefully and consistently. For the moment, there is no Malaysian standard form of design and build construction
contract. This is a problem that has been highlighted to the Malaysian Construction Industry Development Board
(CIDB) and the authors understand that there are plans in the pipeline to produce such a contract. In the meantime,
it is hoped that the industry will benefit from some understanding of the workings of this arrangement, both in law
and in construction practice, to reduce potential problems during its growing popularity here.
1

New Straits Times, 13 October 1999.

2M Hashim (1998), ‘Client's Criteria on the Choice of Procurement Systems: A Malaysian Experience', The Surveyor, 2nd
Quarter, pp 14–21.

3 RICS (1997), ‘Contracts in Use: A Survey of Building Contracts in Use during 1995', Construction Law Journal, 13 Const LJ No
5.

4Kreikemeier, KG (1996), ‘Design-Build: A Concept Whose Time Has Come … Again!', Construction Business Review,
March/April 1996, p 40.

5 Nikkei Architecture (1994), February, pp 207–208, Nikei BP, Tokyo.

6 Supra, at p 113.

7 [1982] 2 MLJ 302.

8 [1973] 2 MLJ 204.

9 (1975) DLR (3d) 638.

10 (1978) 87 DLR (3d) 277.

11 (1979) 101 DLR (3d) 218.

12 [1963] MLJ 305.

13 (1870) LR 5 QB 501; 18 WR 1205.

14 per Kelly LB at p 503, cited in Hudsons at p 556, infra.

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[2001] 1 MLJ lxxi
15 (1985) 33 Build LR 103.

16 (1981) 19 BLR 99 (CA).

17 [1987] 2 MLJ 85.

18 (1975) 8 BLR 38.

19 (1975) 8 BLR 88, at p 89.

20 [1985] 1 All ER 20.

21 (1975) 4 BLR 56.

22 Ibid, at p 60.

23 (1981) 19 BLR 99 (CA).

24 [1957] 1 WLR 582.

25 [1967] 1 WLR 813.

26 There are also difficulties brought about by contrasting decisions in Wimpey Construction (UK) Ltd v Poole (1984) 1 Lloyd's
Rep 499 and Hitchens v Prudential Assurance (1991) 60 BLR 51. In the authors' view, the complex nature of construction
design, supervision and works, and the likelihood of disputes over ambiguous policy exclusions precludes against any definitive
precedence to this question, and therefore each case must be considered in its own circumstances.

27 The authors wish to comment that although BUILD insurance policies have had some success in the UK, its popularity has
not been evident to date in Malaysia and other Asia-Pacific countries. Moreover, some benefits advocated in this policy may
even be theoretical only as insurers will undoubtedly insert various exclusion clauses that may limit the scope of cover of these
policies in practice.

28 Hughes, W and Hillebrandt, P (1998), Financial Protection in the UK Building Industry, E & FN Spon.

29 [1934] AC 402 at p 428.

30 [1972] AC 441 at p 508.

31Ndekugri, I and Turner, A (1994), ‘Building Procurement by Design and Build Approach', Journal of Construction Engineering
and Management, Vol 120 No 2, pp 243–257.

32CCMI (1989), A Report on Design and Build, Centre for Construction Market Information (CCMI), Reading University,
England.

33Walker, A (1997), ‘Construction Time Performance and Traditional Versus Non-Traditional Procurement Methods', Journal of
Construction Procurement, Vol 3 No 1, pp 42–55.

34Pain, J and Bennett, J (1988), ‘JCT with Contractor's Design Form of Contract: A Case Study', Construction Management and
Economics, 6(4), pp 307–337.
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[2001] 1 MLJ lxxi
35Akintoye, A (1994), ‘Design and Build: Survey of Contractor's Views', Construction Management and Economics, Vol 12 No 2,
pp 155–163.

36Nahapiet, H and Nahapiet, J (1985), ‘A Comparison Of Contractual Arrangements for Building Projects', Construction
Management and Economics, Vol 3, pp 217–231.

37Alsagoff, SA (2000), ‘IT Strategies: Oversimplified Elixirs in Want of Proper Implementation', International Journal of
Construction Information Technology, Vol 7 July 2000.

38Akintoye, A. (1995), ‘Design and Build: A Survey of Architect's Views', Engineering, Construction and Architectural
Management, Vol 2 No 1, pp 27–44.

39 (1994) CILL 916.

40 Nunn, D (1995), Design and Build 95, Contract Journal, 27 July 1995, pp 18–25.

41 Chan, APC and Lam, CM (1994), ‘Design and Build Through Novation', CIB W92 Conference Proceedings, Hong Kong.

42Chan, APC (1999), ‘Novation Contract — An Emerging Procurement Practice in Hong Kong', The Australian Institute of
Quantity Surveyors — Refereed Journal, Vol 3 Issue 1, pp 1–14; Mo, JKW and Ng, LY (1997), ‘Design and Build Procurement
Methods in Hong Kong — An Overview', CIB 92 Conference Proceedings, Montreal, pp 453–462.

43 Ibid.

44 (1980) 14 BLR 1.

45 Wallace, ID (1995), Hudsons Building and Engineering Contracts (11th Ed), Sweet and Maxwell.

46 [1969] 1 AC 454 (HL) at p 538.

47 per Lord Reid at p 466 .

48 (1977) 14 Build LR 49

49 Ibid.

50 Infra.

End of Document