Indemnity clauses case study no.2

In this example a consulting engineer was engaged by a contractor for the design of a mixed-use development incorporating a large music venue on the first floor.

Griffiths & Armour
04 September 2014

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Case study

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The Employer’s Requirements provided that the supports for the first floor of the building “shall restrict natural frequency to not less than 3Hz”. 

At the detailed design stage, the engineer queried with the contractor whether 3Hz was sufficient and suggested that 5Hz would be a more appropriate specification. The contractor duly raised the issue with the employer, although it appears that the strength of the engineer’s recommendation was not properly communicated.

The Employer’s Agent subsequently responded, stating unequivocally that the floor was to be constructed to achieve a natural frequency of 3Hz. 

The engineer repeated his warning, however, the project was proceeding to a strict programme and the contractor steadfastly resisted anything which risked inflating construction costs or incurring delays and was not prepared to pay for any enhancement over the existing specification. 

This left the engineer in an extremely tricky situation. The options available to him appeared to be to:

1. refuse to proceed with the design work and face a claim for delay – failing to meet the designated opening time and be exposed to substantial liquidated damages;
2. design a floor with a natural frequency of 5Hz and then be faced with a claim from the contractor for the additional construction costs; or
3. carry on as instructed and design to 3Hz.

In fact the engineer pursued a fourth option. At his own cost he consulted further with the Steel Construction Institute over the detailed design of the floor and made minor alterations to the steelwork supporting the floor. 

Once the venue was opened it quickly became clear that the floor could be made to vibrate when customers were dancing to certain types of music, although there were not felt to be any safety concerns and the building owner chose not to undertake any remedial works to stiffen the structure. 

A structural inspection undertaken seven years later revealed damage to parts of the steelwork structure (evidently the vibrations had affected some of the bolts in the steelwork and also caused some small cracks in beams caused by fatigue).

At this point, the entire building had to be shut down on grounds of health and safety resulting in a substantial claim for repairs and consequential losses. 

The engineer had originally been instructed by the contractor under a purchase order which referred to a set of standard terms and conditions. These included a widely worded indemnity provision. 

Outcome

The purchase order had been issued in 1996 and the project was complete by the following year. The contract was a simple contract with a 6 year limitation period, so ordinarily any claim for a breach of design obligations would have been time-barred by the time the contractor issued proceedings in 2004.

Unfortunately, as in the first example, the indemnity clause extended the period of the consultant’s liability as the date of contract breach was effectively the date on which the consultant failed to indemnify the contractor for his loss.

The claim eventually settled at mediation with the engineer and his professional indemnity insurers contributing around 35% towards the total settlement.