FIDIC

Defective Design by the Contractor Under FIDIC — Liability and Remedies

Design-and-build FIDIC contracts place design risk on the contractor. Where design is defective, the contractor is liable — but only where the design fails to meet the standard of reasonable skill and diligence, and only to the extent that design approval has not been obtained.

7 min read · Updated 23/05/2026

In this article

1. When the Contractor Bears Design Liability
2. The Standard of Care — Reasonable Skill and Diligence
3. Design Approval — Process and Effect
4. Novation and the Designer Barrier
5. Back-to-Back Warranties and Consultant Protection
6. Professional Indemnity Insurance

Key takeaway

Under design-and-build contracts, the contractor warrants that its design meets the contract requirements and is fit for the stated purpose. Liability arises where design fails to meet the standard of reasonable skill and diligence, but design approval by the employer provides a shield — it constitutes acceptance of design and may limit the contractor’s continued liability for that design choice.

1. When the Contractor Bears Design Liability

FIDIC Yellow Book (design-and-build) and other FIDIC variants place design risk on the contractor. The contractor is responsible for producing design that complies with the brief, meets all regulatory and statutory requirements, and is fit for purpose.

This is different from traditional contracting, where an independent consultant (architect or engineer) produces the design and the contractor builds it. In design-and-build, the contractor is both designer and builder — the same party bears both obligations.

Design liability can arise from: defects in the engineering design (calculations, specifications, material choices); failure to comply with applicable codes and standards; designs that do not meet the functional requirements; designs that are unsafe or unfit for the stated purpose; or designs that are incompatible with the contractor’s construction methodology.

2. The Standard of Care — Reasonable Skill and Diligence

The contractor’s design obligation is typically framed as a duty of reasonable skill and diligence — the contractor must exercise the skill and care of a competent designer in the relevant discipline.

This is not a guarantee of perfection, nor is it a warranty that the design is the best possible design. It is an obligation to perform at a professional standard — the design must be competent, reasonably careful, and compliant with applicable professional standards (building codes, engineering regulations, best practice in the industry).

However, if the contract includes a fitness-for-purpose warranty (a heightened obligation), the contractor’s duty is strict: the contractor warrants that the design — as implemented — will achieve the specified purposes and functional outcomes. This goes beyond reasonable care and creates liability even where the design process was careful and reasonable, but the outcome fails.

3. Design Approval — Process and Effect

FIDIC Yellow Book, Clause 5.2 contemplates a design approval process: the contractor submits design documents to the engineer (or architect) for approval. The engineer reviews the design and either approves it or requests revisions.

The question is: what does engineer approval mean? Does it discharge the contractor of design liability?

The answer is nuanced: approval confirms that the engineer is satisfied that the design meets the stated requirements at that point in time. However, approval does not typically constitute a warranty by the employer that the design is correct or fit for purpose — the employer’s engineer cannot assume design liability from the contractor.

Where the engineer approves design that is manifestly defective (for example, calculations that are obviously wrong, or specifications that plainly violate codes), the employer may have a claim against the engineer (for negligent approval), but the contractor remains liable to the employer for the defective design — the contractor cannot hide behind approval.

However, where the engineer approves design and the defect was not discoverable by reasonable review (a subtle error in a complex calculation, or a code compliance issue that required specialised knowledge the engineer lacked), the contractor’s liability may be reduced or eliminated — the contractor was entitled to rely on the engineer’s approval.

4. Novation and the Designer Barrier

A critical issue in design-and-build contracts is novation: the contractor typically engages specialist consultants (structural engineers, MEP designers) as subconsultants. If a design defect originates in the consultant’s work, can the employer pursue the contractor only, or can it reach the consultant directly?

Under common law, a consultant engaged by the contractor to provide design services owes no direct duty to the employer — the consultant’s contractual relationship is with the contractor, not the employer. The employer’s only recourse is against the contractor.

However, many modern contracts avoid this by expressly assigning (novating) the consultant’s design warranties to the employer. The consultant warrants directly to the employer that its design meets stated requirements and is fit for purpose. This is a “novation” of the consultant’s obligation from the contractor to the employer.

Novation clauses protect the employer but expose the consultant — the consultant becomes directly liable to a third party (the employer) rather than just to its client (the contractor). Consultants typically require insurance and indemnity protection before accepting novation.

5. Back-to-Back Warranties and Consultant Protection

To protect themselves, contractors should negotiate “back-to-back” warranties: the warranties and obligations imposed on the contractor by the employer are mirrored in the contractor’s contract with its consultant.

Example: If the FIDIC contract requires the contractor to warrant that design is fit for purpose, the contractor’s contract with the structural engineer should also require the engineer to warrant that its design (the structural elements) is fit for purpose. This creates an unbroken chain: the contractor is liable to the employer for design defects, and the consultant is liable to the contractor for the same defects.

Without back-to-back terms, the contractor bears the liability to the employer but has limited recourse against its consultant — the consultant’s contract may include disclaimers or caps that leave the contractor exposed.

6. Professional Indemnity Insurance

Professional indemnity insurance (PI insurance) is essential for contractors undertaking design-and-build work. PI insurance covers liability arising from defects in design — both the contractor’s own design and the design of consultants engaged by the contractor.

FIDIC Yellow Book, Clause 18 requires the contractor to maintain insurance covering professional indemnity. The contractor should verify that the policy covers: design defects; consultants’ errors; design revisions required due to code or regulatory changes; and both latent and patent defects.

A common gap: PI policies often exclude defects arising from the contractor’s non-design functions (construction, project management, procurement). If a design defect is compounded by poor construction, the insurance may disclaim coverage on the basis that the defect was caused by construction, not design.

The contractor should ensure that PI insurance is maintained throughout the project and for an agreed period after completion (typically 12 years from practical completion). The contractor should also name the employer as an additional insured where the contract permits.

Design Defect and Liability Management

We advise on design liability allocation, consultant management, insurance coverage, and the resolution of design disputes. Design-and-build adds complexity — proper risk management is essential.

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