A recent decision by the Supreme Court has highlighted an area where winning tenderers need to be particularly alert once contracts are drawn up.  Although the decision in the case of MT Højgaard A/S (Respondent) v E.ON Climate & Renewables UK Robin Rigg East Limited and another (Appellants) [2017] UKSC 59 related to the design and construction of wind farm turbines, this decision is of broader relevance.

In 2006, the Respondents (MTV) won a tender from energy company EON to design, fabricate and install offshore wind turbines for a wind farm in the Solway Firth.  The detailed tender documents included a comprehensive set of technical requirements which later became part of and were incorporated in the contract for the project.  Amongst those requirements were two particular obligations: one that the work was to be “fit for its purpose” and the other that the foundations for each turbine should comply with an international standard known as J101.  As a matter of interpretation, the court agreed that “fit for purpose” included a requirement that design of the foundations would ensure a lifetime of twenty years in every aspect without any planned replacement.

What nobody appreciated was that J101 included a formula which had a gross error in it.  One element was wrong by a factor of 10 and the upshot was that the foundations of the wind turbines started to fail very soon after they were installed.  The cost of remediation was more than €26 million.

So who was liable for these costs?  MTV had correctly applied the (flawed) international standard J101 in their design – a design which had been agreed by EON.  It was EON who had required that J101 should be applied to the design.  Nobody was aware of the error in the formula and negligence was not alleged, so MTV argued they had complied with their contractual requirements and EON should pick up the bill.

But the Supreme Court found MTV liable.  Citing a number of historical cases, their view was that even if the customer has specified or approved a design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed.  Those criteria in this case included the requirement for a 20 year lifetime and that took precedence over the obligation to comply with J101 which the court said in this case should be treated as a minimum requirement.

Many tenders included detailed specifications provided by the tenderer.  These go beyond design and manufacturing projects to include projects for services such as outsourcing arrangements.  The clear message from this case is that the business responding to a tender must look at all of the requirements and decide which are the overriding ones.  That may not always be clear, but if there is a risk of conflict between any of those requirements then the onus is on the supplier to ensure that it can comply with all of them.  Any assessment of a tender opportunity should start with the most onerous requirement and then work down the list.  And be alert for errors which may have crept in even when you are dealing with established and recognised industry standards.