Following the judgment in CPB Contractors Pty Ltd v WSP New Zealand Ltd [2024] NZHC 640, there has been considerable chatter in the market about whether the Court’s approach to the quantification of loss was appropriate (i.e. the difference between the actual tender price and the tender price that would have been submitted on a design that met the Principal’s Requirements).

The case generally emphasises the importance of considering allocation of design risk at tender stage, across different contracting parties – and specifically provisions dealing with principal’s requirements, limitations of liability, and insurance. 

We set out a refresher on the facts of the case below, together with some specific discussion explaining the measure and evidence of loss in this case, and the Court’s view of how alternative facts might have affected the cost analysis. 

Key facts

• CPB submitted a successful tender for the construction of NZ Transport Agency Waka Kotahi’s (the Principal) Southern Corridor Improvements project to State Highway 1 (SH1) between Manukau and Papakura.
• WSP provided CPB with pavement design and other information pre-tender, which were incorporated into CPB’s price estimating software in order to generate its tender price, which was finalised and accepted at NZ$192m.
• After the project commenced, various deficiencies were identified with the pavement design. The pavement design was subsequently revised.
• CPB completed the project, but suffered an overall loss (of NZ$42m).
• CPB brought claims against WSP in contract and negligence on the basis that WSP had provided a design that did not meet the Principal’s Requirements, and CPB had suffered loss as a result. The causes of action in contract and negligence were substantially the same.
• The Court found in favour of CPB, including that it was entitled to recover damages calculated as the difference between the tender price, and the price that it would have submitted if the design had met the Principal’s Requirements (applying an “expectation” measure of loss in contract).

Measure of loss

The amount CPB claimed against WSP was the difference between the price that CPB actually tendered (circa NZ$192m) against what it would have tendered if WSP’s design had met the Principal’s Requirements. This measure of damages is commonly referred to as “expectation” damages.

CPB’s claim was not the cost that CPB incurred in reliance on the faulty design as is often the measure of a party’s loss in construction cases. While it was open to CPB to claim that cost, parties are able to choose the measure of loss and prove that loss on the facts of the particular case at hand.

CPB originally framed its claim as reliance damages, but then recast it as expectation damages. If it had proceeded based on reliance losses, its losses would have been measured as the difference between the cost of constructing the original pavement design, and the cost that it actually incurred in relation to the revised design and other consequential losses. This is likely explained by the possible problems CPB would have faced proving its loss was caused by the tender design due multiple contributing causes affecting the cost it actually incurred. Isolating those causes would have been difficult.

Evidence of loss

In order to show its expectation loss, CPB provided expert evidence of the additional cost that would hypothetically have been necessary to meet the Principal’s Requirements, plus the additional time that it would take to complete the project with the revised design, together with the cost of additional traffic management activities.

Discussion – alternative facts

The Court’s analysis of the measure of loss is specific to the particular facts in this case, but the Court provided some discussion of alternative scenarios that might affect its decision on costs:

• What if CPB had made a profit under the contract rather than a loss? The Court says that profit or loss is irrelevant because that would essentially be a redistribution of the arrangements that the parties would have agreed at tender stage.
• What if the alternative tender price was not competitive and the Principal wouldn’t have accepted it? The Court acknowledges that this would have an impact on the ability to recover expectation losses.
• What if the revision to design meant that the project would have been completed faster? This would reduce the claimable costs.
• What if the costs of the redesign could have been passed to the Principal under its contract with CPB? This would also have an impact on the claimable loss.

If you would like to discuss this case further, or other issues concerning contractual breaches, please do not hesitate to contact any of the authors to discuss.  

This article was written with the assistance of Caitlin Hogan, a Solicitor in the Wellington Major Projects and Construction team.