The High Court recently released its decision in CPB Contractors Pty Limited v WSP New Zealand Limited, which provides clarity on the appropriate measure of loss arising from design errors at tender stage.

Simpson Grierson acted for the successful plaintiff, CPB Contractors Pty Limited, (CPB).

This decision will be of particular interest to contractors and technical design consultants for the approach adopted by the Court in assessing loss for deficient design at tender stage, as well as comments relating to the interpretation of contractual exclusion clauses.

In this article, we summarise the background to this claim and look at the key takeaways from the decision.

Background

In 2015 CPB tendered for a Waka Kotahi (New Zealand Transport Agency) project to upgrade SH1 between Manukau and Papakura.

CPB had engaged WSP New Zealand Limited (formerly Opus) (WSP) as a design consultant to assist in preparing its tender bid for the project. 

After CPB won the tender and entered into a fixed price design and construct contract for the project, CPB identified that WSP’s tender design did not comply with Waka Kotahi’s requirements.

CPB claimed some $5.3 million in losses against WSP for breach of contract and negligence for failing to provide a compliant tender design. CPB calculated its loss based on the amount it would have added to its tender price, had WSP provided a compliant tender design. The Court found in favour of CPB and awarded it the full amount claimed as damages, plus costs and interest.

Measure of loss

The key issue in the case centred on the appropriate approach to the calculation of CPB’s loss arising from WSP’s breach of the TSA.

CPB adopted the approach of using its tender pricing model to identify the minimum additional amount it would have added to its tender price, had WSP provided a compliant design. The compliant design was identified from expert evidence describing the minimum changes required for WSP’s tender design to comply fully with Waka Kotahi’s requirements. CPB’s claim included the costs of the additional materials, as well as prolongation costs for the additional time that it would have taken to build a compliant design.

WSP argued that this approach was incorrect. It said that CPB had not provided any evidence of actual additional costs incurred during construction for the purpose of correcting any deficiency in WSP’s tender design and that in the absence of such evidence, CPB could not establish that it had actually suffered any loss.

WSP said further that the design changes proposed by CPB’s expert (to make the tender design compliant) were different to the design which had ultimately been constructed, meaning that CPB’s claimed loss was hypothetical.

Justice Johnstone found in CPB’s favour on this point, and accepted CPB’s approach to calculating damages, based on the tender price it would have submitted had it received a compliant tender design from WSP.

His Honour dismissed any concern with CPB’s losses being hypothetical, saying that the relevant authorities “demonstrate that hypothetical assessment of the expectation measure of loss is frequently the only proper means of assessment”.

Paragraph [191] of the judgment neatly summarises the approach to the calculation of loss taken by His Honour:

CPB was required to estimate its costs based on WSP’s tender designs.  It would in time, prove to be advantaged or disadvantaged if it estimated its costs inaccurately, but that would be a financial outcome for it, not WSP.  In order to measure the quantum of CPB’s loss arising from WSP’s breach of contract, the Court…is required to assess what different tender price CPB would have submitted, based on its then estimates of cost, had WSP not breached its contract.

His Honour also acknowledged that if the likely effect of CPB tendering on a compliant design would have caused its tender bid to no longer be competitive, the Court would need to take into account the possibility that Waka Kotahi would have rejected it. His Honour relied upon the degree of difference between CPB’s tender price and the next lowest tender bid to satisfy himself that CPB tender price would likely still have been accepted by Waka Kotahi, even with the additional amount to reflect a compliant pavement design.

Conclusion

This is a significant decision for the calculation of losses arising from a design error which we consider will provide clarity as to the appropriate time and measure of loss in such circumstances.

If you wish to know more about the judgment or any potential impact it may have on your business, please don’t hesitate to contact us.

Special thanks to Caleb Smith for his assistance in writing this article.