Design Liabilities

Who is a Designer?

• A designer for the purposes of construction is usually thought to be the person preparing and providing the plans or digital models of the structure of a building, or building component, which are relied on to construct the structure. This is commonly thought to be the architect or engineer.
• There is scope however for other work or activities to be considered design work. Designers can also be the parties who provide shop drawings, instructions on the assembly of a product or on-site instructions for assembly of a structure.
• Designing is generally recognised to be a professional responsibility and therefore the designer has a recognised duty of care to provide a design which meets the brief and when constructed is in accordance with acceptable standards of construction.
• Where there has been a breach of the professional’s duty causing loss then that professional is likely to be held responsible for the loss.

 Design Liability for Structural or Performance Failure

• The most recognised design liability is for structural failures.
• Generally, where there is a design failure there is a resultant structural impact on the building or structure for which the design is provided.
• It is possible to have a performance failure rather than a structural failure. This may occur in circumstances where the design does not provide for the performance specified by the client, for instance, where it will not carry the load specified or the openings do not allow for entry of the machinery or equipment it was specified to allow for.
• If the building or structure was constructed in accordance with the design fails, then it will likely be the professional providing the design that will be found liable. The extent of the professional responsibility may be limited by another party’s involvement in the construction, such as where the builder has not constructed the building in accordance with the design or where an onsite instruction has altered the original design causing the resultant failure.
• To address the risk of design failures the designer should have in place quality control systems that provide for verification of the accuracy of the design. To further protect from the impact of design failure the appropriate insurance cover should also be in place.

Design and Insurance

• Unfortunately, as we are only human, there are likely to be structural failures and the best way to cover this risk is with insurance. Typically design liability is covered under a professional indemnity (PI) insurance policy. The PI policy will provide the parameters for the risk that is covered. It is important to know what cover is provided by the insurance policy to ensure there is adequate cover.
• Insurers will often limit their cover to the usual type of activities being undertaken by the insured. The type of activities the insured undertakes is often described in the policy schedule. If a business trades and operates in one area of work, and then operates outside of that area to provide a design resulting in a claim, the insured may not be covered by the policy.
• For instance if you are a engineer who in the normal course of business is providing the structural design for buildings and you provide a design for a bridge then you may not be covered as this was not your normal course of business.
• Builders will often not have PI insurance where they operate with a Construct Only contract. There is however potential for design liabilities to be transferred to the builder in Construct Only contracts through novation of the architect or engineer. It is prudent to obtain advice from your broker on all your contracts to ensure risks are covered by the appropriate insurance.
• In some circumstances the Principal provides insurance cover for all contractors. The sub-contract or head contract will then refer to the insurance cover provided by the Principal. In those circumstances it is prudent to request a copy of the policy and have your broker advise you on whether you are adequately covered under the Principals policy. The terms of the contract should provide that you can request a copy of the insurance policy.
• Where you are relying on others to provide insurance, such as sub-contractors, it is also prudent to obtain a copy of the policy rather than just a certificate of insurance. The policies can then be checked by your broker or a relevant professional to ensure they are in accordance with the contract terms.

Design Liability for WHS

• Under NSW law a designer has a responsibility for the safety of persons at the building or structure not only during construction but also after construction is completed.
• The Work Health and Safety Act 2011 (NSW) (Act) governs safety in NSW and section 4 states that design can not only cover structures but also substance or plant. Substance means any natural or artificial substance, whether in the form of a solid, liquid, gas or vapour. For the purposes of liability for safety of the design the parameters are therefore fairly broad.
• Safework NSW has issued a safety code for the design of structures known as the “NSW Government: Safe Design of Structures Code of Practise – July 2014” (Code). The Code states that a designer must design for safe construction, safe use and safe maintenance.
• Designers under the Code include:

1. architects, building designers, engineers, building surveyors, interior designers, landscape architects, town planners and all other design practitioners contributing to, or having overall responsibility for, any part of the design (for example, drainage engineers designing the drain for a new development);
2. building service designers, engineering firms or others designing services that are part of the structure such as ventilation, electrical systems and permanent fire extinguisher installations;
3. contractors carrying out design work as part of their contribution to a project (for example, an engineering contractor providing design, procurement and construction management services);
4. temporary works engineers, including those designing formwork, falsework, scaffolding and sheet piling;
5. persons who specify how structural alteration, demolition or dismantling work is to be carried out;
6. a person conducting a business or undertaking who alters or modifies a design without consulting the original or subsequent designer will assume the duties of a designer.

• Safety requires the elimination, reduction or management of risk of injury or death and this must be taken into consideration in any design. Where the risk of injury or death is possible or has eventuated, penalties may apply or a party may be prosecuted for a breach of the Act.

Design and Contracts

• There are some contracts that will obviously contain design liability such as D & C Contracts. There are others however that provide for design liabilities to occur as a result of other circumstances.
• Design liabilities can arise from the novation of a party who has a design liability such as an engineer or architect. Usually where a contract is novated the person to whom the party is novated takes on the responsibility and liability for the design in the first instance. Liabilities can also arise from the warranty and indemnity provisions in the contract if they relate to design.
• Liabilities can also arise in indemnities, warranties or releases. Other clauses may also contain design liabilities. For example, clauses relating to the provision of documents by other parties for your use may contain provisions that you are liable for the accuracy of those documents once you accept them for use.
• It is also important how you represent yourself in the contract. If there is representation for the provision of a design, or there is an ambiguity as to liability for design, it may not fall in your favour should the matter be adjudicated or litigated.

Summary

• If you are providing a design, it is not only good to have quality control systems in place but it is important to consider your contract and insurance provisions to ensure you are covered for any eventuality.
• Kreisson can assess your risks and advise on the appropriate contract and insurance provisions applicable to your building business.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.