Introduction

This article examines the recent High Court of Uganda decision in Fabrication Systems Uganda Limited v Zeus Agro Limited, which addressed liability for defective works under a design-and-build contract. The judgment provides critical guidance on the scope of contractual and statutory obligations relating to quality management in Uganda’s construction industry. The court applied the “fitness for purpose” standard to the contractor, distinguished employer responsibilities, and affirmed that premature occupation in this case constituted takeover for purposes of final payment. The case demonstrates the interaction between contractual risk allocation, statutory implied terms, and judicial scrutiny of industry practice. It provides valuable lessons on the enforcement of quality obligations in construction contracts in Uganda.

Background of the Parties

The plaintiff, Fabrication Systems Uganda Limited, is a private limited company that specialises in turnkey civil fabrication and construction of steel, aluminium, signage, and related pre-fabricated structures. The defendant, Zeus Agro Limited, is also a private limited liability company. Its business involves large-scale, highly mechanised commercial rice farming, encompassing the entire rice value chain from procurement to marketing in Uganda and the East African community. A significant part of its operations is The Bulambuli Rice Project for Youth.

Nature of the Project

On or about 4th December 2018, the defendant entered into a contract with the plaintiff for the construction of six prefabricated structures at its site in Bunambutye sub-county, Bulambuli District. The agreed contract price for this project was US$118,000 (equivalent to  436,600,000 Uganda Shillings) inclusive of VAT. The contractual responsibilities were clearly defined as follows:

a) The defendant was responsible for constructing the foundation slabs upon which the plaintiff would subsequently install the prefabricated superstructures. The defendant was to construct these slabs according to the plaintiff's specifications, which included dimensions and measurements.

b) The plaintiff was tasked with providing drawings and specifications (which were approved by the defendant), purchasing necessary materials, and determining the construction methods for the prefabricated superstructures. For the purpose of this contract, the plaintiff was deemed a design and build contractor, meaning it was responsible for defects in design, materials, and workmanship for the superstructure.

Payment terms stipulated three instalments, namely: a 40% advance payment, 40% when materials were ready for dispatch, and the remaining 20% upon completion of the project. A surcharge of 2% per month would apply to any delayed payments.

The Dispute

The defendant took possession of the completed units and began using them for its operations. However, starting around March 2019, the defendant began to express dissatisfaction with the quality of work. In a letter dated 5th July 2019, the defendant enumerated several defects, including leaking roofs, leaking panels, leaking floors, non-level wall panels, non-level door frames, lopsided construction of all blocks, and the structures not being air and water tight. While the plaintiff undertook some floor screeding as a goodwill gesture, the issues persisted. Differences arose as each party attributed responsibility for the defects to the other. The plaintiff received a total payment of US$93,000, leaving an outstanding balance of US$25,000. The defendant withheld the entire outstanding sum of US$25,000, claiming that the costs required for rectification exceeded this amount.

Subsequently, the defendant filed a counterclaim for breach of contractual obligations, seeking reimbursement for repair costs, general damages, and interest. In its defence, the plaintiff argued that all alleged defects were rectified, even those beyond the agreed scope of work. It blamed the defendant for poor foundation slabs, for ignoring advice regarding their condition, and for allowing its agents to carelessly occupy the structures before handover, which allegedly led to the complained-of damage. The plaintiff maintained that it had substantially performed the contract and was therefore entitled to full payment. Conversely, the defendant contended that the plaintiff, as an expert, should have adhered to industry standards and considered environmental hazards at the site.

Nature of Contract

The court acknowledged that the contract was "sketchy and skeletal," containing minimal narrative and scanty information. Despite its deficiencies, it established the plaintiff as a design and build contractor responsible for the superstructure. This role meant the plaintiff was liable for defects in design, materials, and workmanship.

The plaintiff had a duty to design, execute, and complete the works, remedy defects, and ensure the works were fit for the purposes for which they were intended as defined in the contract. Court noted that the absence of express terms does not absolve the contractor from implied obligations. The nature of the contract not only imposed a duty on the plaintiff carry out the design scope with reasonable skill and care, but also to submit designs that the compliant with current standards and that are “fit for purpose.” The defendant was entitled to rely on the accuracy of the designs provided by the plaintiff. This placed the risk of design deficiencies on the plaintiff.

Court also highlighted that construction contracts allocate risks. In this case, the contract explicitly designated "foundation and flooring works" as the defendant's obligation. Consequently, the defendant assumed all risks related to this part of the project, including issues like soil instability or inadequate drainage. The plaintiff was not liable for defects in the foundation or leaking floors originating from foundation problems. The plaintiff, as the design and build contractor, bore the liability for the design and construction of the superstructure.

Use of Expert’s Report

The court placed substantial reliance on the Engineering Investigation Report presented by the defendant's expert witness. The court found that the defendant’s expert possessed the requisite technical expertise, and that the reasoning and methodology underlying his report were scientifically valid and applicable to the case's facts. Crucially, the plaintiff failed to effectively challenge the expert report through cross-examination or by providing contradictory evidence. Instead, the plaintiff attempted to challenge it during closing submissions, which the court deemed insufficient for a report based on valid principles. This justified the court's reliance on the expert's findings.

The Court’s Decision

The court framed four core issues for its determination:

(i) whether the defendant was indebted to the plaintiff,

(ii) whether the plaintiff was negligent,

(iii) whether there was any breach of contract by the plaintiff (counter-defendant), and

(iv) what remedies were available to the parties

Plaintiff's Negligence and Breach of Contract (First and Second Issues)

The court found the plaintiff negligent in the design of the warehouse roof. The design failed to include the iron sheet layout, did not consider wind speed, terrain, and loading, and omitted clear eaves, violating Regulation 11(1)(d) and 14 of The National Building (Structural Design) Code, 2019. These design flaws led to torn iron sheets and warped purlins due to wind effects.

The court also found the plaintiff negligent for providing short eaves (90mm or 200mm instead of an industry standard minimum of 300mm to 600mm for tropical climates) and for the absence of verandas in the design. This exposed the walls to direct rain, causing the horizontal channels holding the wall panels to rust, leading to lopsided and leaking walls. The court found a breach of contract by the plaintiff for omitting the bar/living area from the canteen, which was provided for in the architectural drawings.

The court found no codified standard or established industry practice for alternative methods proposed by the defendant for joining wall panels or fixing ceiling boards. No evidence was found that materials used by the plaintiff were deficient since iron sheets passed quality tests. As such, deficiencies in materials, if any, did not contribute to any of the defects in contention.

The court determined there were maintenance issues resulting from misuse by the defendant's workers rather than defects caused by the plaintiff's workmanship or materials. Specifically, the missing ceiling panels in the hostels were attributed to the weight applied by workers hanging clothes and mosquito nets, and issues with doors were deemed maintenance-related, possibly due to usage or environmental factors.

The deteriorating foundations and leaking floors were attributed to issues with the foundation slabs, which were the defendant's contractual responsibility and were likely exacerbated by the site's waterlogged condition and insufficient waterproofing during construction. The plaintiff was not liable for these defects.

Defendant's Indebtedness to Plaintiff (Third Issue)

Court found that in principle, the defendant was indebted to the plaintiff to a tune of US$25,000 subject to a set off of sums arising as a result of the plaintiff’s already proven negligence and breach of contract. This was because the defendant took immediate and permanent possession and began using the structures as they were completed. This action led to a deemed "practical completion" and "takeover" of the works, triggering the final payment due under the contract. Court also noted that since the contract in this case had no provision for defects liability provisions, the defendant was not justified in retaining that sum in the absence of a legal or contractual basis.

Remedies Available to the Parties (Fourth Issue)

The court applied the principle of set-off, allowing the defendant to deduct damages for the plaintiff's proven negligence and breach of contract from the outstanding payment. Based on the unchallenged expert report from the defendant and Bills of Quantities (BOQ), the defendant was awarded US$15,408.44 for the value of omitted works (bar/living area, missing steel sections), US$3,362.02 for replacement cost for defective work on roofs and walls (excluding ceiling boards, for which plaintiff was not liable), US$2,000 for associated professional fees. The total set-off amount for the defendant amounted to US$20,770.46.

The outstanding contractual sum of US$25,000 to the plaintiff was reduced by the set-off amount of US$20,770.46. The plaintiff was thus awarded US$4,229.54. The plaintiff was awarded interest at 6% per annum on US$4,229.54 from 31st May 2019 (the date of deemed takeover) until full payment, considering the prolonged litigation.

The court declined to award general damages to the defendant, finding that the defendant contributed to the shortcomings by rushing construction and taking possession while work was ongoing. Given the mixed outcome where the defendant's counterclaim succeeded in offsetting over 80% of the plaintiff's claim, the plaintiff was awarded 20% of the costs of the suit and counterclaim.

Legal and Practical Implications in Design and Build Contracts

Where the contractor is engaged under a traditional contract, a project owner or Employer will engage a designer to prepare the design of a building or other structure and, once that design has been produced, the Employer will engage a contractor to implement the design and produce the desired asset under the supervision of a construction professional who may also be the designer as held in National Coal Board v William Neill & Sons (St Helens) Ltd. As such, the employer’s design team prepares the design and specifications and passes this onto the contractor for construction.

The contractor will be responsible for the provision of workmanship and materials only and ordinarily has no responsibility for the design of the completed works. It also suffices to mention that there is a general recognition given by the law to the notion that “workmanship” is distinct from “design” as held in Sea Containers Ltd v ICT Pty Ltd. Given that the contractor is the supplier of the materials/goods to construct the works, section 15(3) of the Sale of Goods and Supply of Services Act, 2018 (Uganda) implies that the goods supplied must be of satisfactory quality. Section 15(5) elaborates that satisfactory quality refers to goods meeting the standards a reasonable person would expect, considering their description, price, and other relevant circumstances. Therefore, materials used in construction must meet this benchmark.

Section 15(6) further defines quality to include factors such as the state, condition, appearance, finish, fitness for common purposes, safety, and durability of the goods. The contractor is therefore expected to carry out the construction works with skill and care using good quality materials that are reasonably fit for their purpose. No question as to fitness for the design will generally arise for a contractor in a traditional contract.

It should be noted, however, that many standard form contracts allow the parties to agree that the Contractor will have design responsibility for a particular element of works for instance the Contractor’s Designed Portion in Clause 2.2 in JCT SBC and Sub-Clause 4.1 [Contractor’s General Obligations] of FIDIC Red Book 1999 and 2017. With this, the Contractor may also find itself assuming an element of design liability as seen in D R Jones Yeovil Ltd v Drayton Beaumont Services Limited.

The design consultants are therefore generally liable to the Employer for any deficiencies in design in a traditional contract. The standard of care that they must meet is that of “reasonable skill and care”. As such, when the Employer claims that the consultant or designer has been negligent in producing its design, the test will be whether the consultant has met the “standard of the ordinary skilled man exercised and professing to have that special skill” as held in Bolam v Friern Hospital Management Committee. It is only if there is a deficiency in the design itself that such a consultant will be liable.

In a design and build contract, the contractor takes responsibility for both the design and the construction of the relevant structure as held in Turriff Construction Ltd v Regalia Knitting Mills Ltd. One of the primary advantages of “design and build” contract over the “traditional” contract is that it gives the owner the benefit of single-point responsibility for problems arising from design, construction or both, which is not the case under the traditional arrangement. In a design and build contract, the contractor’s obligations are altered.

A fitness for purpose warranty will be implied where a contractor has expressly assumed responsibility for designing and constructing a structure as held in Hawkins v Chrysler (UK) Ltd. In such cases, the obligation of the contractor will be more than simply to exercise reasonable skill and care since the contractor is meant to offer a warranty of performance as held in Viking Grain Storage Ltd v TH White Installations Ltd. As held in Greaves & Company (Contractors) v Baynham Meikle, it is not appropriate for the contractor’s standard of care to be different in respect of the design and supply of materials and therefore, the implied term of fitness of purpose will apply to both. This means that in a design and build contract, the contractor will be liable if the completed project is not fit for its intended purpose, irrespective of whether the unfitness resulted from the quality of the works, or materials or the design.  

The fitness for purpose obligation derives from legislation regarding product liability and the standards that are required to be met where goods, materials and/or services are being supplied. Section 15 of the Sale of Goods and Supply of Services Act, 2018, implies a term that goods shall be reasonably fit for the purpose for which they are supplied, but only where it is clear that the recipient is relying on the skill and judgement of the supplier. Even in the absence of express terms in the contrary, there is also an implied obligation that the design will be fit for the intended purpose. This means that the contractor is obliged to deliver a completed project that is fit for purpose without distinction between its obligations in relation to materials, workmanship or design as held in Independent Broadcasting Authority v EMI Electronics and BICC Construction.

A fitness for purpose warranty may also be implied where it is apparent that the owner is relying upon the contractor to exercise skill and judgment so as to ensure that a particular result is achieved, which may occur where the owner makes known to the contractor the intended purpose of the contractor’s work, and the owner has limited opportunity to guard itself against the risk of the contractor’s work product being inadequate as held in Rotherham MBC v Frank Haslam & Co Ltd. Where it is clearly understood that a design needs to comply with specific standards or regulations, it will be implicit that the design produced will, when implemented, comply with the relevant standards or regulations as held in Lowe v W Machell Joinery Ltd. In the instant facts, given the fact that the contract clearly spelled that the plaintiff was a design and build contractor for this project and given that the defendant was relying on the plaintiff to deliver these six prefab houses, there was an implied fitness for purpose warranty.

However, there is little authority on how achievement of the standard of fitness for purpose can be measured. Despite this, some guidance was provided in Fluor Ltd v Shanghai Zhenhua Heavy Industries Ltd. The judgment in Fluor, raises the possibility that a contractor could be liable to the Employer for a breach of a fitness for purpose obligation if the employer justifiably doubts the fitness of goods or materials provided by the contractor.  It may not be enough for the contractor to prove that the goods or materials were in fact fit for their intended use. Further, the contractor may be liable for the costs of any investigation reasonably carried out by the employer to determine the fitness of the goods (subject to any terms of the contract). In the instant facts, the defendant (who was the Employer) justifiably doubted the fitness of the six prefab houses that were delivered by the plaintiff.

The ruling in Fabrication Systems Uganda Limited v Zeus Agro Limited, therefore, underscores the critical role that both the Sale of Goods and Supply of Services Act, 2018 and established common law principles play in ensuring quality and accountability on construction projects. The case distinguishes between a pure designer’s duty of “reasonable skill and care” and a design and build contractor’s more stringent obligation for “fitness for purpose”. As a design and build contractor, the plaintiff was held to a higher standard. The court found them not only liable for defects in their workmanship but also in their design and choice of materials. The judgment noted that the plaintiff had failed to consider fundamental environmental conditions such as local wind and rainfall thereby leading to a flawed design. 

This echoes the statutory provisions from the Sale of Goods and Supply of Services Act, 2018 (Uganda) which enforce implied terms of quality and fitness for purpose, even when a contract may lack express provisions regarding the same. The court’s findings on the use of substandard materials, specifically the use of binding wire instead of proper hanger wires, further cemented the contractor's liability for failing to meet professional and industry standards. The court thereby established how fitness of purpose could have been achieved in this instant case.

While the plaintiff argued for full payment, the court’s decision to award a significantly reduced sum, reflecting the defendant’s successful counterclaim for repair costs, demonstrates that a contractor cannot claim full payment for a defective project, even if the work is largely complete. The court’s final orders which included awarding the plaintiff only a fraction of their claim and a small portion of the costs serve as a clear legal precedent that the financial burden of rectification falls squarely on the party responsible for the defects.

In conclusion, the Fabrication Systems judgment provides a vital touchstone for the Ugandan construction industry. It clarifies that a "design and build" contract carries an inherent responsibility for the final product's quality, both in design and execution. For all contractors, it is a reminder that adherence to industry best practices, careful consideration of project-specific conditions, and the use of appropriate materials are not merely good practice but are legal obligations that, if neglected, can lead to significant financial and legal repercussions. The case is also a keen reminder to all players in the construction industry about the importance of proper contract drafting. The contract is the cornerstone of all construction projects and therefore a lot of importance should be placed on its drafting so as to delineate the rights, duties and obligations of all involved parties. The case also highlights the importance of expert reports in the dispute resolution process since in the instant case, the court relied heavily on the information provided by the expert. 

 

List of Cases

Bolam v Friern Hospital Management Committee [1957] 2 All ER 118.

D R Jones Yeovil Ltd v Drayton Beaumont Services Limited [2021] EWHC 1971 (TCC).

Fabrication Systems Uganda Limited v Zeus Agro Limited HCCS No. 115 of 2022 (September 9, 2025) Mubiru, J (Commercial Division).

Fluor Ltd v Shanghai Zhenhua Heavy Industries Ltd [2016] EWHC 2062 (TCC).

Greaves & Company (Contractors) v Baynham Meikle [1975] 3 All ER 99.

Hawkins v Chrysler (UK) Ltd (1986) 38 BLR 36.

IBA v EMI Electronics and BICC Construction (1980) 14 BLR 1.

Lowe v W Machell Joinery Ltd [2011] BLR 591.

National Coal Board v William Neill & Sons (St Helens) Ltd [1985] 1 QB 300.

Rotherham MBC v Frank Haslam & Co Ltd (1996) 78 BLR 1.

Sea Containers Ltd v ICT Pty Ltd [2006] NSWSC 134.

Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20.

Viking Grain Storage Ltd v TH White Installations Ltd (1985) 33 BLR 103.

 

List of Statutes

Sale of Goods and Supply of Services Act, 2018 (Uganda)