A common feature of most construction contracts is the inclusion of a detailed specification, prepared by the owner or the owner’s consultant, describing the requirements for the work to be performed by the contractor. Where performance problems arise in connection with the completed work, there are often disputes with respect to responsibility for the performance failure. Is the owner, as author of the specification, responsible for the non-performance? Or is the contractor responsible for the failure to discover and rectify the source of the non-performance? The answer depends on the terms of the parties’ agreement. When reviewing the terms of a proposed construction contract, it is important to consider and understand the allocation of design risk and responsibility.
When determining the allocation of risk and responsibility for the accuracy of the specifications and for the ultimate performance of the work, it is important to consider the express terms of the agreement as well as the underlying nature and structure of the agreement; including factors such as whether or not the owner is relying on the skill and judgment of the contractor with respect to the suitability of the design.
As a general rule, where a contract is silent with respect to the allocation of risk and responsibility for the performance of completed work, the owner will retain responsibility for the adequacy of the specifications; while the contractor will be responsible for ensuring that the contracted work complies with the specifications. Where the specifications will not permit the desired performance to be achieved, the owner, as the author of the specifications, retains responsibility for the failure.
In a Supreme Court of Canada case, the court was required to determine responsibility for the installation of brick that was found to be unsuitable. In that case, the court concluded that the contractor was not responsible for the performance failure because the owner had specified the kind and quality of brick to be used. There was no indication that the skill and knowledge of the contractor was relied upon and the contractor had ultimately performed the work in accordance with the owner’s specifications.
Despite this general rule, it is important to consider whether there are any contractual provisions that have the effect of transferring some or all of the design or performance risk to the contractor. In another case, in which a dispute arose with respect to responsibility for the cost of correcting damage caused by the failure of a product specified by the owner, the Supreme Court of Canada concluded that the contractor was liable for the cost of correcting the damage because the contractor had guaranteed that “all work above specified will remain weather tight and that all material and workmanship employed are first class and without defect.”
Other common contractual provisions that may transfer some or all of the risk and responsibility for design include: obligations to review and advise of deficiencies in the contract documents; temporary work provisions; and provisions relating to preparation of shop drawings.
Contract Document Review: Pursuant to CCDC—2 (2008), the contractor is obligated to review the contract documents and report errors, inconsistencies and omissions, but without assuming any responsibility for the accuracy of such review.
Temporary Work: Pursuant to CCDC – 2 (2008), the contractor is responsible for the design, erection, operation, maintenance and removal of temporary work, unless the design of such temporary work is specified in the contract documents.
Shop Drawings: Shop drawing provisions often make the contractor responsible for the design of the specific elements of the work depicted in the shop drawings, even though the contractor may not be responsible for the overall design of the project.
When entering into a construction contract, it is vital to carefully review the terms of the agreement to ensure they align with the parties’ understandings regarding the allocation of risk and responsibility, including design and performance risk. The allocation of design risk will generally reside with the party that is responsible for the applicable design; however, both the nature of the agreement and the specific contractual terms of the agreement can transfer design risk, and the obligations that go with it, from one party to the other.
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