A recent decision of the TCC has given detailed consideration to a claim by an employer against a quantity surveying and project management company for cost overruns incurred in the construction of a healthcare centre. The Court’s decision gives helpful guidance as to the difficulties of causation which arise for such claims, the making of global claims in such circumstances, and the ability of an employer to claim an abatement or deduction from professional fees otherwise due.

William Clark Partnership v Dock St PCT

Dock Street retained WCP to provide it with quantity surveying and project management services in relation to the construction of a primary healthcare centre in North Lancashire. Dock Street entered into a separate agreement for the construction of the centre and an agreement for lease with the local Primary Care Trust, who proposed to sub-let the centre to a number of different healthcare professionals (medical practices, dental practices, pharmacies and the like).

Dock Street was dissatisfied with the services provided by WCP in relation to the project and contended that WCP’s failings had led to a cost overrun of £733,394.96 above the original contract sum agreed with the builder. WCP brought proceedings against Dock Street for the recovery of the balance of its professional fees. In response Dock Street (among other things):

  1. Counterclaimed for the amount of the cost overrun, predominantly on a global basis.
  2. Argued that the fees due to WCP should be abated or reduced to account for its poor performance.

Global claims

Dock Street argued that WCP’s performance was so poor that the court could conclude that the whole of the cost overrun had been caused by WCP’s failings without the need to relate specific parts of the overrun to individual failings by WCP. Although not as bad as Dock Street had alleged, the court found that WCP’s performance had been “seriously deficient”, particularly in relation to cost reporting during the construction phase which the court found to be “virtually non-existent”.  Despite these findings, Dock Street failed to show that WCP’s failings had caused the cost overrun:

  • The court noted the difficulties inherent in establishing causation in claims against construction professionals such as quantity surveyors and project managers. Such claims are “notoriously difficult precisely because of the difficulty in showing how things would have turned out differently even if the professional had not acted negligently.”
  • The court found no reason why Dock Street could not have advanced a properly detailed case as to causation relating each aspect of the cost overrun to individual failings on the part of WCP. The court accepted that a failure to do so was not fatal to a global claim (applying the well-known case of Walter Lilly v Mackay), but commented that Dock Street, “having chosen, whether for reasons of time or cost or otherwise, not to conduct the detailed analysis which is required in a case such as the present, … cannot complain if that case is subject to close scrutiny both by the claimant or by the court.”
  • Dock Street had failed to prove on the balance of probabilities that no substantial part of the cost overrun would have been incurred in any event. It was not self-evident that the cost overrun could only have been caused by WCP and there were any number of equally plausible explanations.

Abatement or deduction?

In light of the difficulties with its counter-claim, Dock Street also sought to claim an abatement or deduction from WCP’s fees. A defence of “abatement” operates by reducing the price payable for goods or services on account of defective performance of a contract. It is conceptually distinct from a claim for breach of contract and has the advantage that it does not require proof of loss caused by any breach.

It is generally accepted that abatement does not apply to contracts for professional services. In such cases, where the professional’s fee has been earned, the employer’s right of recourse in respect of defective performance will usually be limited to a claim for breach of contract in respect of losses which can be proved to flow from the professional’s failings. One potential exception to this rule has been said to arise where a distinct part of the professional’s scope of work has not been performed or has been performed so poorly as to be worthless. A deduction may in such cases be made on the basis that the agreed services have simply not been provided.

In the present case, the court noted the unavailability of an abatement defence in professional services contracts and considered Dock Street’s case principally on the basis of the exception for unperformed services (or performance so poor as to be worthless). The court’s decision provides helpful examples of the scope of the exception:

  1. WCP’s failure to provide costs reports on a monthly basis during the construction period, as required by its appointment, was found to fall within the exception. This was a distinct obligation which had not been performed and a pro rata deduction from the fee could be made based on the time which WCP had saved in failing to provide these services (assessed at 200 hours or £25,000).
  2. WCP had failed to agree and settle the final account as required by its appointment. A deduction was not appropriate, however, as some informal advice had been provided by WCP as to the final account, which although “clearly of little value on an objective basis because of the lack of detailed analysis, … was of some, albeit very modest, value.”

Conclusions and implications

The court’s decision provides a poignant reminder of the difficulties in pursuing claims against construction professionals such as quantity surveyors or project managers. Employers will almost always be better off by paying close attention to the performance of their consultants during the course of a project and taking pre-emptive action to manage or replace under-performing consultants before serious problems emerge.

The present decision also provides a helpful illustration of the principles as to global claims set out in Walter Lilly v Mackay being applied in practice. The decision suggests that global claims advanced for reasons of convenience or cost-efficiency, where detailed proof as to specific causal linkages is not impractical, will be subject to close scrutiny by the court.

The court’s application of the principles of abatement and deduction in the context of a professional services contract is also notable and appears to be the first reported decision in which the exception to the rule against abatement has been applied. The difficulties suffered by Dock Street in proving its case as to causation highlight the usefulness of a right to abatement or deduction in such circumstances.

References:

Walter Lilly & Company Ltd v Mackay [2012] EWHC 1773;

William Clark Partnership Ltd v Dock St PCT Ltd [2015] EWHC 2923 (TCC).