The Design Liability Divide That Continues to Shape Major Construction Disputes
Understanding How Design Obligations Influence Risk Allocation, Insurance Exposure, and Project Outcomes
In modern construction projects, few contractual concepts generate more misunderstanding—and more costly disputes—than the distinction between a contractor’s obligation to exercise reasonable skill and care and a fitness for purpose obligation.
At first glance, the difference appears subtle. In reality, it fundamentally alters how design risk is allocated, how liability is assessed, and ultimately how projects are priced and delivered.
Across major EPC, Design-Build, and infrastructure projects, this distinction frequently determines whether a contractor faces a manageable professional liability exposure or assumes a far broader obligation to guarantee operational performance.
For employers, lenders, contractors, and insurers alike, understanding where that line is drawn has become increasingly important, particularly in international projects spanning English law jurisdictions and Middle Eastern markets such as the UAE and Saudi Arabia.
In our experience advising on complex construction disputes and project delivery challenges, unclear drafting around design responsibility remains one of the most common sources of high-value claims.
Two Fundamentally Different Risk Models
Although both obligations relate to design responsibility, they allocate risk in fundamentally different ways.
Reasonable Skill and Care: An Obligation of Professional Competence
Under a reasonable skill and care obligation, the contractor or designer is required to perform its services to the standard expected from a reasonably competent professional operating within the same discipline.
The obligation focuses on how the design was produced, rather than whether the final result ultimately succeeds.
The key question becomes:
Did the designer act competently and in accordance with accepted professional standards at the time the design was prepared?
Under this model:
- Negligence must generally be established.
- Compliance with accepted industry practice becomes highly relevant.
- Failure of the completed asset does not automatically create liability.
This remains the traditional benchmark used within professional consultancy appointments and professional indemnity insurance policies.
Fitness for Purpose: An Obligation to Deliver a Result
A fitness for purpose obligation adopts an entirely different approach.
Rather than assessing professional conduct, it focuses on whether the completed works actually achieve the intended outcome.
The relevant question becomes:
Did the asset achieve the contractual purpose for which it was procured?
Under this approach, liability may arise even where:
- Industry standards were followed;
- No negligence occurred;
- The design was professionally competent;
- The contractor exercised reasonable skill and care throughout.
If the promised performance is not achieved, responsibility may still attach.
This is why fitness for purpose obligations are frequently described as result-oriented obligations.
Infographic 1: Reasonable Skill & Care vs Fitness for Purpose
Why the Difference Matters Commercially
From a project management perspective, the distinction affects far more than legal liability.
It directly influences:
- Tender pricing
- Design risk allocation
- Insurance coverage
- Performance guarantees
- Limitation of liability provisions
- Subcontract strategy
- Claims exposure
Where a contractor assumes a fitness for purpose obligation, the risk profile can increase substantially.
The commercial response is predictable:
Higher risk leads to higher contingency allowances, increased insurance concerns, and often a significantly more conservative pricing strategy.
Consequently, the issue should never be viewed as a purely legal drafting exercise. It is fundamentally a project risk allocation decision.
The English Law Position: The MT Højgaard Lesson
One of the most influential decisions in this area remains the UK Supreme Court decision in MT Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59.
The dispute concerned offshore wind turbine foundations designed in accordance with the prevailing industry standard.
The contractor had:
- Exercised reasonable skill and care;
- Followed the applicable technical standard;
- Acted without negligence.
Nevertheless, the foundations failed to achieve the contractual design life requirement.
The UK Supreme Court ultimately concluded that compliance with industry standards did not excuse the contractor from meeting the separate contractual obligation concerning the required performance outcome.
The decision reinforced a critical principle:
A reasonable skill and care obligation does not automatically override a separate fitness for purpose or performance obligation.
For EPC contractors, this remains one of the most significant design liability lessons of the last decade.
UAE and Saudi Arabia: When Statutory Liability Changes the Equation
The analysis becomes even more complex in the Middle East.
UAE
Under the UAE Civil Code, contractors and supervising designers may face statutory decennial liability for structural failures affecting stability or safety.
This liability can arise regardless of negligence and generally cannot be excluded contractually.
From a practical perspective, this creates a form of mandatory risk exposure that shares several characteristics with fitness for purpose obligations.
The consequence is clear:
Even where a contract attempts to limit liability to reasonable skill and care, statutory liability may continue to apply.
Saudi Arabia
Saudi Arabia has historically approached the issue differently.
However, through evolving legislation, mandatory insurance requirements, and the continued development of construction liability principles, the market has increasingly moved toward enhanced structural accountability.
For international contractors entering the Saudi market, assumptions based solely on English law concepts can create significant misunderstandings regarding actual project exposure.
The lesson is simple:
Contract wording alone does not always define the contractor’s risk profile.
Mandatory local law matters just as much.
FIDIC Contracts and the Hidden Expansion of Design Risk
Many contractors assume that inserting a general reasonable skill and care provision automatically limits design liability.
In practice, this assumption can be dangerous.
Under the Yellow Book and particularly the Silver Book, performance obligations frequently arise through:
- Design life requirements
- Output guarantees
- Throughput guarantees
- Availability criteria
- Employer’s Requirements
- Technical performance specifications
Even where the phrase “fitness for purpose” does not appear explicitly, the practical effect may be very similar.
For this reason, design liability assessments should never focus on a single clause in isolation.
The entire contractual framework must be reviewed as an integrated risk package.
Infographic 2: Sources of Design Liability
As projects become more sophisticated, the contractor’s actual exposure is increasingly determined by the interaction between contractual wording, technical requirements, performance criteria, and mandatory local law.
A Practical Design Liability Checklist
Before signing a design-build or EPC contract, project teams should consider the following questions:
1. Identify Hidden Performance Obligations
Review Employer’s Requirements, technical schedules, and design criteria for language that may create outcome-based obligations.
2. Check Insurance Alignment
Confirm whether assumed contractual liabilities are actually covered by professional indemnity insurance.
3. Review Design Life Commitments
Assess whether design life requirements effectively create a fitness for purpose exposure.
4. Verify Subcontract Back-to-Back Protection
Ensure downstream designers and specialist subcontractors assume equivalent obligations.
5. Assess Applicable Local Law
Determine whether mandatory statutory liabilities apply regardless of contractual wording.
6. Eliminate Conflicting Contract Language
Avoid situations where reasonable skill and care provisions conflict with performance guarantees elsewhere in the contract.
Conclusion: Design Liability Is About Risk Allocation, Not Terminology
The distinction between reasonable skill and care and fitness for purpose is often presented as a legal drafting issue.
In reality, it is a commercial risk allocation decision with significant implications for project delivery, pricing, insurance, and dispute exposure.
For employers, the challenge is securing long-term asset performance without creating unnecessary procurement premiums.
For contractors, the challenge is understanding when an apparently straightforward design obligation has evolved into a far broader performance guarantee.
The most successful projects are rarely those that transfer the greatest amount of risk. They are the projects that allocate risk transparently to the party best positioned to manage it.
In an increasingly complex international construction market, that principle remains as relevant as ever.
References
- Furst, S., Ramsey, V., Vivian Ramsey KC et al. (2021). Keating on Construction Contracts (11th Edition). Sweet & Maxwell.
Available at: https://www.sweetandmaxwell.co.uk/Product/Construction-Law/Keating-on-Construction-Contracts/Hardback/30834534 - Hudson, A. (2024). Hudson’s Building and Engineering Contracts (15th Edition). Sweet & Maxwell.
Available at: https://store.thomsonreuters.co.uk/en-gb/pdp/hudsons-building-and-engineering-contracts-15th-edition/p/106130194 - International Federation of Consulting Engineers (FIDIC). Conditions of Contract for EPC/Turnkey Projects (Silver Book), Second Edition, 2017.
Available at: https://fidic.org/books/silver-book-2017-epcturnkey-contract-second-edition - MT Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59.
Available at: https://www.supremecourt.uk/cases/docs/uksc-2015-0116-judgment.pdf - Murdoch, J. & Hughes, W. (2021). Construction Contracts: Law and Management (6th Edition). Routledge.
Available at: https://www.routledge.com/Construction-Contracts-Law-and-Management/Murdoch-Hughes-Champion/p/book/9781032246462
