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Skyline view at Mt. Eden in Auckland, New Zealand. Credit: ti1993/Shutterstock

 

 

Do international concerns with the rule against implied warranties of buildability warrant a change in approach for New Zealand?

 

Introduction

Freedom of contract means parties are free to undertake the impossible. So where a contractor agrees to complete a project, they bear the risk of that task proving impossible. Generally, a principal will have no reason or inclination to assume that risk and only an express contractual provision will persuade a court they have done so. In short, principals do not implicitly warrant the buildability of projects.

However, a number of authorities from throughout the Commonwealth (and the governing authority in the United States) challenge the utility of the orthodox approach on the basis that it places an unworkable burden on prospective contractors and fails to effectively pair risk with control.

It is clear, both from practical experience and from the collapse of several large players in the industry over recent years, that risk (including buildability risk) is not always well managed by the New Zealand construction industry.

Nevertheless, this article contends that international challenges to the orthodoxy do not justify a change of approach in New Zealand. The current approach does pair risk with control and the burden it places on contractors (while not light) is not unreasonable. In fact, the most viable response to buildability risk is for contractors to make use of existing tagging processes and to adopt a more conservative approach to tendering (including, when necessary, simply walking away).

In common law, the same principle allocates the risk of both buildability and sub-surface conditions to contractors by default. This article examines authorities relating to both kinds of risk in discussing that underlying principle. However, as a practical matter, standard provisions usually alter the default allocation of risk for sub-surface conditions. Accordingly, the observations in this article apply only to buildability risks (such as inconsistent details that need to be reconciled, often giving rise to delays and additional costs) which are still governed by the common law.

Increasingly, principals are using early contractor input to identify buildability issues

Increasingly, principals are using early contractor input (ECI) to identify buildability issues. While this article does not discuss ECI, contractors should note that it does not affect the allocation of buildability risk (which contractors always shoulder by default); it is simply a practical attempt to ameliorate risks that principals have an interest in avoiding – whether or not buildability is its risk.

Orthodox approach to buildability

The orthodox Commonwealth approach to the impossibility of construction works is that if a contractor warrants that it will perform certain work, the actual impossibility of performing it is no excuse for non-performance.

It is the contractor’s responsibility to carefully inspect the design before agreeing to carry it out.¹ If the contractor then warrants that it will complete the works according to the principal’s design, the fact that the design is not capable of construction will not give the Contractor any right to extra payment or time, unless the principal has expressly warranted the design’s buildability.²

This rule has greater force where the design is prepared by a consultant to the principal. The principal is not responsible for the possibility or practicability of the design unless the principal expressly agrees otherwise.³

Hudson puts it this way:

‘The cardinal principle, in the absence of an express disclaimer, is that an Employer who uses a professional adviser does not warrant that completion according to the adviser’s plans or design is practicable… In consequence, any additional work necessary to achieve completion must be carried out by Contractors at their own expense if they are to discharge their liability under the contract, and will not qualify for additional payment as a variation even if they had been formally instructed to do the work in question.’⁴

As Hudson explains, there are very good reasons for this allocation of responsibility:⁵

‘The expertise of an Employer’s designer is regarded as lying in the design of the final permanent work in place, so as best to meet the amenity and other needs of their client. Those needs may involve greater or lesser elements of durability, quality and post-contract performance, or of ease of maintenance and amenity, for example. In designing to meet those needs, the element of ease of construction or “buildability” is of purely secondary importance […] On the other hand, the expertise of the Contractor and its success in business competition against its rivals depends on skill in the quite different area of “buildability”, that is, on the “how”, not the “what”, of construction.’

Thorn v Mayor and Commonalty of London

The leading Commonwealth authority on buildability is Thorn.⁶ The case concerned the replacement of Blackfriars Bridge in London.

At the time, the conventional method for putting in pier foundations employed coffer dams, but the specification put out for tenders required prospective contractors to use particular iron caissons.

It transpired that the specified iron caissons were inadequate and buckled under pressure. Ultimately, the foundations were put in by working on the sound lower parts of caissons at low tides (which took longer) and the contractor claimed against the principal for the additional time and labour required by the failure of the caissons.

Deciding in favour of the principal, the House of Lords held that:⁷

• when a principal invites tenders for work according to certain specifications, this does not imply a warranty that the work can be carried out according to those specifications;

• before submitting a tender, a tenderer should fully inform itself of all the particulars of the work, especially the viability of doing the work according to the specifications. If necessary, the tenderer should seek advice from an expert in order to properly understand the specifications; and

• if a tenderer relies on a specification provided by a principal, rather than examining it for themselves, that is ‘blind confidence of the most unreasonable description’.⁸

The House of Lords also observed, in the following passage, that the contractor could have protected itself from the risk of the design not being buildable:⁹

‘If the [Contractor] had considered, as he was bound to do, the terms of the specification, he would either have abstained from tendering for the work, or he would have asked the [Principal] to protect him from the loss he was likely to sustain if the […] specification should turn out to be an improper one.’

The specification in Thorn also included a number of disclaimers by the principal in relation to the information provided to tenderers. A common misconception is that those disclaimers played into the decision reached by the House of Lords. For completeness, it should be noted that the lords only referred to those disclaimers in the course of rejecting an argument that they were relevant.¹⁰

Tharsis Sulphur and Copper Co v McElroy & Sons

The following year, the House of Lords was confronted with the issue of buildability again in Tharsis.¹¹

The contractor in that case undertook to build a factory according to a specification that called for unusually light iron girders. During construction, the contractor found that casting girders of the specified weight was difficult (if not impossible). The contractor sought permission, which the engineer to the contract granted, to use additional iron in casting the girders. The use of additional iron increased the cost of completing the works, and the contractor claimed payment for the difference.

The House of Lords held that the principal was not responsible for the specification difficulties and was not liable to pay. The contractor was obliged to complete the work that it had contracted to complete; if the contractor encountered any difficulties in doing so, that was a risk it had taken.

The early English authorities are clear: all things being equal, the contractor’s agreement to undertake specified works means the contractor is responsible for completing those works, even if the specifications are difficult or impossible to comply with.¹²

Wilkins and Davies v Geraldine Borough

Those principles were expressly adopted in New Zealand in Wilkins and Davies v Geraldine Borough.¹³ The court in Wilkins and Davies distinguished the earlier New Zealand authority of Thomas v Amuri County Council, which (with respect, wrongly) concluded that Thorn did not allocate the risk of assumed facts to contractors.¹⁴

The contract in Wilkins and Davies provided for a concrete tank floor to be poured in dry conditions and to that end the specification provided for a 44-gallon drum to act as a well. It transpired that neither a 44-gallon drum, nor even a 400-gallon drum, was sufficient to keep the area dry. The contractor was forced to adopt a different approach.

The contractor brought claims alleging the principal was in breach of implied warranties as to the physical conditions on site and the viability of the specification. The court expressly approved of both Thorn and Tharsis in rejecting those claims, observing that:

‘Any claim that there is a warranty to be implied that the work can be done in the way and under the conditions in the specification was rejected by the House of Lords in Thorn v Mayor and Commonalty of London (1876) 1 App Cas 120.’¹⁵

International challenges to Thorn

Thorn is the orthodoxy in the Commonwealth, but the US has recognised implied warranties of buildability for more than a century and there is a growing body of Commonwealth decisions questioning or quietly challenging Thorn. All of those unorthodox Commonwealth decisions post-date Wilkins and Davies and raise the question of whether or not New Zealand should continue to follow Thorn.

Australia and Canada

Australia

By and large, the Australian authorities adopt reasoning consistent with Thorn.¹⁶ But a number of decisions (even at the highest level) challenge the idea that contractors should be responsible for informing themselves about a project.

In Codelfa Construction Pty Ltd v State Rail Authority, Mason CJ expressed the view that it was good common sense for contractors to educate themselves about all details of a project before tendering, but that the comment in Thorn that contractors ought to do so,

‘cannot be elevated into an absolute rule of law – its value and force necessarily depends on the relationship between the parties and the arrangements which they make’.¹⁷

More pointedly, in Morrison-Knudsen International v The Commonwealth, the High Court read down a principal’s disclaimer of the accuracy of tendering information so that it applied only to ‘inferences or conclusions […] the tenderer might’ draw from that information. The Court reasoned that the contractor’s limited opportunity to gather information for itself effectively forced it to rely on the information provided.¹⁸

Thorn is the orthodoxy in the Commonwealth, but the US has recognised implied warranties of buildability for more than a century

Canada

A number of Canadian authorities have either questioned the approach in Thorn itself¹⁹ or have allowed Contractors to claim against Principals’ engineers for negligent misstatement.²⁰ In both situations, the relevant courts reasoned that in certain circumstances (particularly where tendering processes were condensed) a contractor should not be expected to reach its own conclusions.

The Canadian courts in particular have also taken issue with the fact that principals’ engineers (designers) do not bear the risk of the buildability of their own designs, instead requiring contractors to hire their own engineers and do the work again.

The common concern

The common theme underlying those Australian and Canadian challenges is that Thorn fits awkwardly with the realities of tendering in today’s construction industry, in particular because of:

• the unequal opportunities given to principals and contractors to gather information and examine proposed designs; and

• the apparent duplication of design responsibilities between the principal’s engineer (the designer) and the contractor.

The US

The Spearin doctrine

The US has never followed Thorn. The leading authority for the US approach to buildability is United States v Spearin, which cleanly summarised the position as follows:

‘if the Contractor is bound to build according to plans and specifications prepared by the owner, the Contractor will not be responsible for the consequences of defects in the plans and specifications […] This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work’.²¹

However, while Spearin summarised and affirmed the US approach, the Supreme Court did not unpack its underlying rationale. Rather, that rationale is to be found in the earlier authorities affirmed in Spearin, one of which (Bentley v State) is particularly relevant as it expressly considered and distinguished Thorn.

Bentley v State

Bentley²² concerned the construction of a new wing for the Wisconsin Capitol Building. The project was funded by an act of the state legislature, which passed before tenders were sought. Predictably, even the lowest tender exceeded the authorised budget.

The superintendent amended his specification – by reducing the dimensions of cast-iron structural members²³ – and asked the lowest-priced tenderer to re-price the project on that basis. The re-priced tender was within budget and was accepted. All of this occurred in the course of a single meeting.²⁴

Ultimately, the weight of the structure proved too much for the diminished cast-iron members and it collapsed before construction was complete. The contractor brought a claim for the costs of repairing works damaged by the collapse.

The Supreme Court of Wisconsin accepted that the principal had to be responsible for the collapse of the building because it had chosen to provide an inadequate design, in circumstances where the contractor would only be paid for complying with that design: the principal forced the contractor to build an inferior building and the principal was therefore responsible for the consequences.²⁵

The Court declined the state’s invitation to follow Thorn, reasoning that the principal in Thorn retained very little control over the part of the works that included the defective caissons, while the superintendent for the state retained ‘the right to determine all questions relating to the material and workmanship’.²⁶

The rationale

The logic behind the Spearin doctrine, illustrated clearly in Bentley, is that responsibility for design goes hand-in-hand with control over design. While the Supreme Court in Spearin did not say so directly, that rationale is also completely consistent with the following passage of its reasoning:

‘the insertion of the articles prescribing the character, dimensions and location of the sewer imported a warranty that if the specifications were complied with, the sewer would be adequate. This implied warranty is not overcome by the general clauses requiring the Contractor to examine the site, to check up the plans, and to assume responsibility for the work until completion and acceptance’.²⁷

England

In an apparently sharp departure from Thorn, the English Court of Appeal accepted, in Bacal v Northampton Development Corporation,²⁸ that the principal in a design-and-build housing development project impliedly warranted that ground conditions at the site would be consistent with borehole samples provided to tenderers.

The principal provided prospective tenderers with the results of borehole soil samples, which indicated the soil at the site comprised ‘Northamptonshire sand and upper lias clay’.

Tenderers were required to submit alongside their tenders substructure designs and priced schedules of quantities for six sample blocks, which would then be used to prepare a schedule of quantities for the whole project. Tenderers were also instructed to prepare those documents on the assumption that the borehole soil samples accurately reflected conditions on site.²⁹ In fact, the site contained deposits of a spongey material, which meant that affected foundations had to be redesigned.

After referring to the principal’s direction to assume the borehole samples were accurate, the Court found that the principal impliedly warranted that ground conditions at site would be consistent with those samples. That finding ostensibly accepted the contractor’s argument that it could not price and plan a ‘comprehensive development’ without knowing the ground conditions at site, but it is clear the result also hinged on the fact that the principal instructed tenderers to make an assumption about conditions at site.

Contractors will often simply rely on information provided by the principal to make the timing work

Accordingly, Bacal can be viewed as authority for the proposition that a principal who directs tenderers to make a particular assumption impliedly warrants that assumption to be accurate.³⁰ In turn, that proposition reflects the concern that risk should be paired with control, although (unlike Spearin and Bentley) Bacal focused on control during the tendering process.

Evaluating the concerns: is a departure from Thorn warranted?

The upshot of the preceding discussion is that there appear to be two substantive concerns underlying decisions that challenge (slightly or significantly) the default allocation of risks to contractors under Thorn. Those concerns, against which Thorn is evaluated in the next section, are that:

• Thorn ignores the realities of today’s construction industry; and

• Thorn does not ensure that risk goes with control.

Does Thorn ignore the realities of today’s construction industry?

Principals undeniably have a better opportunity to collect information and review plans. A project may well be in development for a year or more before being put out to tender. By contrast, tenderers will often be given somewhere between one and two months³¹ to review the invitation to tender, liaise with subcontractors, price the works and compile a tender. The timing is tight and it is understandable that contractors will often simply rely on information provided by the principal to make the timing work.³²

Similarly, principals’ engineers will invariably have far more time to prepare a specification than prospective tenderers will have to prepare tenders. Principals’ engineers also have the advantage of being engineers, whereas contractors are experts at building to a design.

The question becomes: why shouldn’t principals – armed with the expertise, access to relevant information and time to prepare an adequate specification – be responsible for errors, inconsistencies, impossibilities and/or omissions in the material they provide to contractors? Or, possibly more importantly, why should contractors be saddled with that risk?

The simple answer is that contractors are still better placed to manage the risk of buildability.

Contractors are still better placed to manage the risk of buildability

Time and expertise

There is a disparity between the time available to principals (and their consultants) in developing a specification and the time allowed to contractors (and their subcontractors) in preparing a tender. It is also true that contractors cannot be expected to possess expertise in engineering. But those disparities will usually be of limited significance because:

• Contractors are not expected to develop the specification for an entire project. They are expected to examine a specification that has already been prepared, to determine whether or not to tender for the works and to work up a price for such a tender.

• That task is simplified by the fact that contractors do not come to each project fresh; they bring their experience with them. If the proffered project entails the same work and details as an earlier project, the contractor will know that it can be done and how much that work can be expected to cost.

• The disparity in expertise between engineers and contractors loses its significance where contractors have previous experience of the kind of works proposed. There is no unfairness in treating a contractor as an expert in relation to the buildability of works it has successfully undertaken in the past.

• Moreover, the task of reviewing and pricing works is not left entirely to prospective tenderers. Instead, general contractors seek bids from subcontractors to undertake specialised packages of works – delegating portions of the task of pricing a project.

• Further, consultation with subcontractors should arm contractors with specialist insights (necessarily focused on buildability) regarding a proposed specification. This will often negate the need for a contractor to engage their own engineering consultant, while providing them with a greater understanding of subcontracted packages than the principal’s engineer would be able to provide.

• Ultimately, the process of preparing a tender should involve either a practically experienced contractor or a specialist subcontractor considering each aspect of a proposed specification and:

– allocating a price to the achievable;

– tagging the unachievable; and

– identifying any unknowns (ie, risks) to be managed by the contractor.

• And, in fact, a review of some of the authorities canvassed here illustrates that this tends to be true. In Thorn, the use of caissons instead of coffer dams was unusual – issues arose because the contractor uncritically accepted that it could do what had not been done before. Similarly, in Bentley, the contractor had to see the risk inherent in a specification that had been amended on the fly in a post-tender meeting. In both cases, the risk was identifiable – it simply was not managed.

• In addition to the fact that contractors and principals have relatively equal opportunities to identify buildability issues, it needs to be borne in mind that contractors and principals have different objectives. As Hudson observes, principals and their engineering consultants care about a design that meets the principals’ needs (ideally as cheaply and as quickly as possible). Only contractors need to worry about actually building to that design.³³

The upshot is that contractors are more likely to identify buildability and design issues. That is because attention is selective. The brain focuses on information relevant to the task it is performing and filters out distractions.³⁴ In a famous experiment, test subjects were asked to count the number of times a basketball was passed between players on a single team. While focusing on that task, a significant majority of the subjects failed to notice a gorilla moonwalking across the basketball court.

The fact of selective attention means that contractors and principals (and their respective advisers) will be looking for and seeing different things in a proposed specification. The fact that contractors’ attention will be directed towards buildability also suggests that they are better placed to manage buildability risk.

In summary, contractors will usually be placed as well as, if not better than, any other party to identify buildability issues in a proposed design owing to their practical experience in construction, access to specialist expertise and particular focus on what is required to complete (and must be included in the price for) works that comply with the proposed specification. This is true notwithstanding time constraints and apparent disparities in specialist expertise.

The race to the bottom

Against that background, the fundamental point underpinning Thorn – that contractors have options for managing risk – remains potent. Where contractors are best placed to identify risk and have options to manage it, those options should be exercised. Specifically, when a contractor is asked to tender for a project that involves unknowns, that contractor will have at least four choices:³⁵

1. walk away;

2. ask for time to investigate those unknowns before submitting a tender;

3. agree to undertake the project, warts and all; and

4. identify those unknowns and

– increase its price to reflect the risk it is assuming; or

– tag and negotiate the allocation of risk for those unknowns.

In fact, the standard procurement process is designed to allow contractors to exercise those options through the use of tags. Tenderers are not typically required to bid for a project on a take-it-or-leave-it basis. Rather, they are entitled to ‘tag’ items that they are not willing to accept without further discussion or amendment. Closing out tags then becomes the objective in post-tender meetings between principals and preferred tenderers.

The over-use of tags is not advisable because heavy tagging often indicates high hidden costs or extensive conditions, both of which tend to deter principals. But the process should certainly be used to identify significant risks and promote an open discussion about risk allocation.

In particular, tenderers should be more willing to use this process to squarely address the allocation of risk for designs or strategies they have not encountered before and have no objective reasons to accept as viable.

Further, to the extent a tag cannot be closed out satisfactorily, tenderers should be prepared to walk away. The results of the recent Russell McVeagh survey on the causes of construction disputes indicate that contractors undervalue the utility of the tagging process (particularly as a defence against inadequate principal-supplied information).³⁶

None of this is to say that it will be easy to implement the culture change proposed above. The construction industry involves large projects with narrow margins. In the recent Mainzeal v Yan decision, the New Zealand High Court accepted that in 2012 ‘it was well known that the industry operated on very small margins’.³⁷ Now, as in 2012, participants in the industry must win work to survive; cashflow is the lifeblood of the construction industry.

The upshot is that neither walking away from a project nor making waves by asking for additional time will typically be an attractive option. The drive to secure work also makes contractors prone to the temptation to bid low and keep tags to a minimum.

Construction is a difficult industry and the pressure to win work is obvious, but simply caving to that pressure and accepting it as a fact of the industry means change will never occur. Taking the steps set out here may well mean losing work. Nevertheless, there needs to be a culture change. The existing ‘race to the bottom’ is not sustainable and has already started claiming casualties.

Pairing risk with control

It is uncontroversial that ‘project risk should be allocated to the party best able to manage it’.³⁸ Both the Spearin doctrine and Bacal attempt to give effect to this first principle by allowing recovery on the basis of an implied warranty from a principal. However, each approach takes a very different view as to what kind of control warrants the implication of such a warranty.

Spearin – control over the works

The US concern, that risk should accompany control, can be dealt with shortly. While risk should be allocated to the party best placed to manage it, the Spearin doctrine does not actually achieve that. Spearin assigns the risk of buildability to the party with control over the works of a project, but by the time the project has been awarded, the opportunity to manage buildability risk has already been lost.

The party usually best placed to manage buildability risk is the prospective tenderer. The allocation of risk under Thorn reflects that fact; the allocation of risk under Spearin does not. Certainly, nothing prevented the contractor in Bentley from requiring an express warranty that the alarmingly revised design in that case would work – it had control at that earlier point, but chose not to exercise it.

It follows that the US authorities (at least to the extent they can be explored within the limits of this article) do not provide a justification for New Zealand to depart from Thorn.

The party usually best placed to manage buildability risk is the prospective tenderer

Bacal – control during tendering

There is a more compelling case for a departure from Thorn where, as in Bacal, the principal directs tenderers to make an assumption during the tendering process. Such directives appear to deprive tenderers of the opportunity to consider the risk inherent in the assumption and adjust their price against it.

But notwithstanding its real appeal, Bacal cannot be treated as an exception to Thorn. Among other considerations:

• as Taz points out, the Court of Appeal omitted a number of critical steps in its implication analysis (including an assessment of whether the parties would have agreed that the warranty ‘went without saying’ at the time of contract), making Bacal a dubious authority on its face;³⁹ and

• it is not clear the principal was actually directing tenderers to accept that borehole samples were accurate. The principal had no special knowledge of ground conditions and it is more likely they were asking all tenders to be made on the same bases to allow for an ‘apples-to-apples’ comparison of proposals. This underscores the difference in priorities (and consequent difference in approach) between principals and contractors during tendering.

The process of implication is only intended to reveal an obvious, albeit unspoken, provision as part of a contractual arrangement. But it is difficult to think of a situation in which a principal would ‘obviously’ warrant buildability; they would have no incentive to do so and any indication of a warranty may be the result of miscommunication (as was likely the case in Bacal).

Taking that observation together with the fact that tenderers will usually be better placed than principals to identify buildability risks (and to assess how they can be reasonably managed), it is difficult to conclude that even a case like Bacal justifies the implication of a warranty from the principal.

The better approach would be for any tenderer that believes their prospective client is (exceptionally) offering a warranty of buildability to ask for express confirmation.

Conclusion and practical guidance

Contractors are usually best placed to identify buildability risks. A combination of practical experience and access to specialist knowledge (in the ordinary course of preparing a tender) means that such risks will typically be identifiable without any duplication of engineering work. Contractors are also best placed to raise and manage such risks by making use of the tagging process. Ultimately, they also have the ability to walk away if the risk profile of a project is unjustifiable. Control of buildability risks therefore lies with prospective tenderers.

It follows that retaining Thorn as a hard rule is for the best. In place of exceptions being allowed, contractors must be prepared to fight their corner (even if that means occasionally suffering the stress of going without new work).

In light of that conclusion, contractors would do well to bear the following in mind when tendering:

• with or without an ECI phase, contractors bear the risk of buildability; but

• that risk is manageable, particularly by:

– drawing on past experience and the advice of specialist subcontractors;

– understanding and pricing for acceptable risks;

– tagging and negotiating the unprecedented; and

– being prepared to walk away from unacceptable risks.

In short: builder, beware.

 

Notes

1 Tharsis Sulphur and Copper Co v McElroy & Sons (1878) 3 App Cas 1040, 1043–1044, 1052–1053; Thorn v Mayor and Commonalty of London (1876) 1 App Cas 120, 128, 132–133, 138.

2 Laws of New Zealand Building and Construction: Performance (online ed, https://tinyurl.com/yc9zpzhq), 169; see n 1 above, Thorn, 131–133; see
n 1 above, Tharsis, 1043–1044, 1053; Wilkins and Davies Construction Co Ltd v Geraldine Borough [1958] NZLR 985 (SC), 994, 996–997.

3 Julian Bailey, Construction Law (2nd ed, Informa Law 2016), Vol 1 para 3.154.

4 Nicholas Dennys and Robert Clay (eds), Hudson’s Building and Engineering Contracts (13th ed, Sweet & Maxwell 2015), para 3-074.

5 Ibid, para 3-075.

6 Thorn v Mayor and Commonalty of London (1876) 1 App Cas 120 (HL).

7 Ibid, 131–132.

8 Ibid, 132.

9 Ibid, 133, per Lord Chelmsford.

10 Ibid, 131.

11 See n 1 above,Tharsis.

12 Ibid, 1043–1044,1051–1052; see n 6 above, 132–133; Jones v President and Scholars of St John’s College (1870) LR 6 QB 115, 127; Hills v Sughrue (1846) 15 M & W 253, 153 ER 844, 847.

13 See n 2 above, Wilkins and Davies, 997–998; see also Slowey v Lodder (1900) 20 NZLR 321 (CA), 366.

14 Thomas v Amuri County Council (1891) 9 NZLR 664; cf John Walton, ‘Unforeseen ground conditions and allocation of risk’ (2007), NZLJ 209, 210, which notes that the default allocation of risk under Thorn applies to both buildability and physical conditions.

15 See n 2 above, Wilkins and Davies, 994, 996.

16 Eg, In Re an Arbitration between Carr and The Shire of Wodonga [1925] VLR 238; George Wimpey & Co Ltd v Territory Enterprises Pty Ltd (1971) 45 ALJR 38; Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2006] QCA 50, para 33.

17 Codelfa Construction Pty Ltd v State Rail Authority (NSW)(1982) 149 CLR 337, 355. It should be noted that Mason CJ nonetheless agreed that the principal in that case had not given an implied warranty of buildability, in particular because the relevant contract was not negotiated – contractors were simply left to take it or leave it.

18 Morrison-Knudsen International v The Commonwealth(1972) 46 ALJR 265, 267.

19 Auto Concrete Curb Ltd v South Nation River Conservation Authority(1992) 89 DLR (4th) 393. While the Supreme Court of Canada ultimately reversed Auto Concrete, both the court of first instance and Court of Appeal held that the risk of the contractor’s unstated assumption (that it could employ the unlawful methodology on which its tender was based) should lie with the principal, because the contractor should not be expected to duplicate the work ostensibly already carried out by the principal’s engineer.

20 Edgeworth Construction Ltd v ND Lea And Associates Ltd (1993) 3 SCR 206 (SCC), see the observations at para 18 in particular.

21 United States v Spearin(1918) 248 US 132, 135–136.

22 Bentley v State 73 Wis 416 (1889) 41 NW 338.

23 In the author’s opinion, this should have set alarm bells ringing.

24 By the end of which, in the author’s opinion, the alarm bells should have been deafening.

25 See n 22 above, 343. Also see the court’s observation, at 344, that ‘the state undertook to furnish suitable plans and specifications, and required the plaintiffs to conform thereto, and assumed control and supervision of the execution thereof, and thereby took the risk of their efficiency’.

26 Ibid, 344. The legitimacy of this distinction is discussed further below.

27 See n 21 above, 137.

28 Bacal Construction (Midlands) Ltd v Northampton Development Corporation[1978] 8 BLR 88 (EWCA).

29 Ibid, 96.

30 See Douglas Jones, ‘Latent Site Conditions’ (1986), 2 BCL 191, 208. The alternative view is that it reflects the concern that risk should go to principals (who are better placed to gather and check information) rather than to contractors (who often, as a practical matter, have to assume information provided is accurate). In that case, the evaluation of the Australian and Canadian concerns, set out in the following section, applies equally to Bacal.

31 Richard Wilkinson, ‘Risky Business: Compiling a Tender Package’ (2008) 24 BCL 377, 377.

32 Ibid; see n 18 above, 267; see n 14 above, John Walton; also see the feedback that 75 per cent of contractor survey respondents in New Zealand considered principal-supplied information to be one of the three main causes of construction disputes, reported in Russell McVeagh, ‘Getting it right from the ground up – A survey on construction disputes: The causes and how to avoid them’, 7, www.russellmcveagh.com/getmedia/d8e8376e-e7ae-42d5-9583-77219f3bc2e3/Russell-McVeagh-Construction-Disputes-Survey-Results.pdf accessed 14 March 2019.

33 See n 4 above, para3-075.

34 Daniel J Simons and Christopher F Chabris, ‘Gorillas in our midst: sustained inattentional blindness for dynamic events’ (1999) Perception 28 1059–1074.

35 Consistent with the options outlined in Lord Chelmsford’s judgment in Thorn, see n 6 above, 133.

36 See n 32 above, Russell McVeagh, 7. In particular, compare principals’ and contractors’ responses in relation to issues with principal-supplied information and issues arising from not closing out tags.

37 Mainzeal v Yan [2019] NZHC 255, para 243.

38 Max Abrahamson, ‘Risk Management’ (1983) ICLR 241.

39 Deniz Taz, ‘Encountering the unforeseen: Difficult ground conditions and the rights of a Contractor’ (2012) 28 BCL 330, 337–339.

 

Thomas Richards is a senior solicitor at Chapman Tripp, Auckland. He can be contacted at thomas.richards@chapmantripp.com.

 

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