Performance or Prescriptive Specification? Whose design?

Performance or Prescriptive Specification?
Whose design?

During contract negotiations, it is important for the parties to assess the nature of the specifications they are including into their contracts and the resultant risk allocation. Once a certain specification has been chosen, it is important to include contractual clauses that reinforce and confirm this choice, regardless of the parties’ later behaviour.

Introduction

In a tour de force review of the benefits and risks of adopting either prescriptive or performance based specifications in construction contracts in the August 2025 edition of Construction Law International,[1] Evelien van Espen & Ors concluded with the above statement.  The article is worth reading.

The dichotomy between performance based (design and construct) and prescriptive (owner designed) contracts is often presented as a zero-sum consideration, not helped by many standard form contracts and a desire by many to have a single point responsibilitycontract as a risk shifting mechanism.

I have two further points to add to the van Espen article:

(1)    almost without exception, there is an ideal risk allocation approach for any project which will result in a price, time of delivery and quality of output which is most efficient – ie, best for project; and

(2)    any contract will need to be tailored to the requirements of the project to meet that end.

If either owners or contractors fail to take the time to address these two issues, through thorough pre-pricing investigation and contract negotiation, then there is almost an inevitability of dispute.  Whether the owner adopts a prescriptive or performance based specification, when costs blow out, contract claims will fly like cobblestones in Paris in 1968 with the cry of Aux Barricades!

It really doesn’t need to be that way.

Project time line

For any project, there is an almost uniform chronology, starting with the owners’ original conception, and ultimately ending with the asset being demolished or replaced at the end of its useful life. 

The challenge is when to pass the pricing and performance risk, if at all.

Graphically, the life of a project may be shown as follows, with a simplistic line for design, performance and pricing risk:

Initial proposal, indicative costing & feasibility

Further investigation

Concept design

                                                                  Performance specification

Definitive design and specification – pricing?

Detailed design

                                                                    Prescriptive specification

Pricing & construction

Testing and completion

Operation and maintenance

The “pricing” stage is dependent on when risk passes and the contract is awarded.

The extent to which a performance specification may include some level of owner’s deign, or a prescriptive specification may leave design elements to the contractor is a question of degree.  There is always an element in both.

The decision over whether to adopt an owner’s design contract (bid-built) or a design and build contract will depend on a number of factors.

Contract choice

Technology and process projects

Most design and build, or design and construct – turnkey projects have their origins in high technology risk projects, like electrical and mechanical projects (see the FIDIC Plant & Design - Build Conditions of Contract (Yellow Book) or the Institution of Chemical Engineers IChemE form of contract), where the design and specification of the system and equipment is specific to the contractor’s intellectual property. 

For example, the supplier for a new electricity generating plant or the water filtration supplier for a water treatment plant will drive not only the electrical or chemical design, but those process designs will also drive the civil engineering designs.  In those cases, an owner’s design would pre-empt the supplier’s technology and innovation, so a design and construct form of contract with Employer’s Requirements and Contractor’s Proposal (collectively, a performance specification), driving outputs will be adopted. 

In including the Contractor’s Proposal, care needs to be taken in how this is included in the contract terms and conditions.  On the one hand, the contractor needs to be committed to providing what they’ve offered (with client approval for any substitution).  Conversely, it is the performance specifications in the Employer’s Requirements which must be met, rather than the contractor simply saying that it had provided what it promised in its bid by complying with the Contractor’s Proposal.  That would be a self-fulfilling prophesy.

Those performance specifications will generally cover issues like:

·       regulatory constraints

·       environmental constraints

·       site access

·       design expectations

·       take-over requirements

·       plant life, and operation and maintenance costs and complexity

·       plant performance availability, reliability, output, and efficiency

Acceptance testing and tests after completion, linked to performance damages, would then be set.

In such technology or process based projects, once a decision has been made over the supplier, there is an element of capture.  A Siemens generation plant can realistically only be serviced and upgraded by Siemens in the future; similarly, a choice of network control technology will bind the buyer to that technology for future maintenance and expansion.

Managing intellectual property rights for such future work can also add complication.

The contract should also then provide for extended warranties, future services, plant expansion and upgrade, and best of market pricing. 

Suppliers will also often link competitive project pricing to operation and maintenance agreements.  Care needs to be taken to ensure that pricing of the initial work takes into account the extent of technology capture, and future costs.

Take-over can also come under pressure, where defective work should be rectified by the supplier at its own cost prior to take-over, rather than carried over as a maintenance item charged back to the client under an operation and maintenance agreement.  With many large international companies, the project design and construction is carried out by a different team separated from the frequently local operation and maintenance division.

Design novation

During the 1990s and early 2000s, it was common for owners to engage design consultants on the basis that they would prepare designs to tender stage, and then novate the designer’s engagement across to the contractor on a design and construct basis.  Under such arrangements, the contractor would warrant the entire design, including those instructed and approved by the owner prior to novation.  This then created a single point of responsibility for the project, with the owner getting the design they wanted, but transferring the entire design and construction risk to the contractor.

Typically, these projects were tendered on a competitive basis with a less than definitive design (capable of accurate pricing) and limited ground condition and other site investigation.  The result tended to be “lottery tendering” where risk was priced on limited real information.  If issues then arose during the design phase, or during construction, on what was typically lump sum pricing, contractors had to look elsewhere for claims or cost reduction; often with limited success.

A single point of responsibility has appeal, particularly for owners with limited technical expertise and resources.  However, a contractual right can leave the parties with little more than a piece of paper and a right to sue. 

The best for project outcomes will always result following 

·       thorough pre-tender investigation,

·       design completed to a definitive level that can be accurately priced at tender,

·       a sensible allocation of risk in the form of contract, tailored to the project,

·       competent and thorough monitoring of work as it progresses, and

·       a dispute resolution procedure which identifies disagreement before it hardens.

An approach to avoid is a hands-off attitude to work, relying on the contractor to comply with the terms of the contract.  In that case, a problem will be identified only after it is too late to deal with properly.

Owner’s design – bid – build

The expectation in the traditional lump sum project is as shown above; a concept design is prepared, which the client approves and gets indicatively costed; that design is prepared in further detail, to properly define the project in a way which contractors can price in the tender process, without guesswork risk pricing; the tender design is then developed to a detailed design stage, which will not require further instructed variations to deal with either omissions or errors in the tender design. This last detailed design is what ends up in the contract, and for which the contractor has confirmed pricing.

The reality is considerably less than ideal, with owners pressing for designs to go to tender before they a properly definitive; contractors tagging their tenders for incomplete designs and site investigations; and the contractor then claiming for further payment and time.  Any benefit from the tender process is lost as the project proceeds, much like a ripening banana.

Design risk

The decision over the form of contract can really only commence after a proper consideration of risk, and who is best to manage it (paraphrasing Max Abrahamson).

Once that analysis is done, there will inevitably be design elements which fall outside the anticipated allocation of risk in the printed standards – the contractor will have detailed design and specification risk on shop drawings and equipment specification; and owners will have some design risk in design and construct contracts.  These responsibilities need to be clearly defined in the contract.

The alternatives, going back to Thorn v Mayor of London (1876) 1 App Cas 120, are less than ideal.  In that case, Thorn was engaged to build a bridge over the River Thames.  The construction of the bridge piers required the establishment of caissons to enable work on the river bed.  This work had not been priced or considered by Thorn prior to contracting.  The House of Lords held that Thorn should have satisfied itself as to the work required, thereby establishing the concept of buildability which runs through case law to this day.

The issue has been further considered in the 2017 UK Supreme Court decision of MT Hoejgaard A/S v E.On Climate & Renewables UK [2017] UKSC 59 and more recently by the Privy Council in Uniform Building Contractors Ltd v The Water and Sewerage Authority of Trinidad and Tobago [2026] UKPC 2.

In the first, E.On Energy case cited in the van Espen article quoted above, the owner’s performance specification contained a calculation error in the sheer strength of mounting bolts on the bed of the Irish Sea for the installation of wind turbines.  In that case, their Lordships held that the inclusion of erroneous calculations did not alleviate the contractor of its design obligations.

Similarly, in Uniform Building Contractors, the Privy Council held, among other things, that the allocation of design responsibility in the express wording of the contract a paramount, and are unaffected by an Engineer’s approval of claimed variations (see article Words Matter which discusses this case in greater detail).

Risk transfer

With the best, most carefully drafted and negotiated contracts, there will always be an element of risk transfer, attempted at least.

Following the Supreme Court decision in Bathurst Resources, the law on contract interpretation is well settled.  While extraneous information can be used to assist with adding meaning to the words of a contract, the express words are paramount; further unilateral post award conduct, inconsistent with those wors, cannot be used.

A common strategy when design issues arise, or an unanticipated cost is encountered, is for contractors (in all innocence) to submit a design change to the Engineer for approval.  Once that approval is given, the change is converted into a formal instruction and then a variation claim included in the next payment claim.  This muddying of the waters will often find support in adjudication or arbitration on the basis that it is a fair outcome, as was the case by the Court of Appeal in Uniform Building Contractors.

The reality is that any such claim must be founded on the express wording of the contract, and the onus is on the claimant to establish that entitlement.  The contractor in that case failed to establish that entitlement, or that the claim had been procedurally made, leaving the clear words of the contract.

Conclusion

The decision on whether to proceed with the owner engaging the design consultants, and then getting the contractor to bid for the cost of carrying out the work; or defining the owner’s expectations for the project, leaving the design to the contractor under a single point of responsibility design and build contract, historically rested on the nature of the project and the specific, and often unique, skills the contractor brought to the project.

That has morphed over the years to a risk transfer approach, with owners preferring to make the core decisions, leaving the detail to the contractors to sort out.  This is understandable, given the extent to which design development has been poorly progressed at tender.

That attempt to shift responsibility can have unintended consequences, without achieving the desired outcome of innovation, and price and quality certainty.

From a disputes perspective, too often we read of disputes being determined on balance of probabilities of what has happened, rather than reviewing the actual words of the contract, and then considering whether the claimant has established its entitlement in those terms.  Or not.