The article is the second in our series of “Cases your profession needs to know”. Last month we summarised a number of key cases relating to architects, focussing on their responsibilities as designers. Some of the following cases may be relevant to architects when they put their contract administrator hats on.
Whilst the roles and responsibilities of project managers, employer’s agents and contract administrators share a number of similarities and can often be confused, it is important to note that they are essentially different roles.
A project manager is responsible for the day to day management of a project, and will often oversee other consultants, help shape the tender documents and deal with the project as a whole, not just the building contract.
It is important to also remember the role of the Project Manager (this time with capital letters) under NEC3/NEC4 whose primary function is to facilitate the spirit of mutual trust and co-operation by proactively managing the project. This role is very different from the role of the CA/EA in JCT.
“Contract Administrator” and “Employer’s Agent” are defined contractual concepts in the JCT suite of contracts. Whilst their roles and responsibilities are similar (applying the terms of the contract to the situation at hand, e.g., issuing certificates etc), there are critical differences in duties and impartiality.
That said, whatever the precise job title, professionals in these types of roles are required to act honestly and reasonably in respect of the employer and contractor under the building contract. Here, I have taken a look at a few cases that project managers, employer’s agents and contract administrators should be aware of.
Failing to contract - Letters of Intent
Letters of Intent (LOI) are widely used in the construction industry as they allow works to start if there is still some negotiation needed before the contract can be executed. They do, however, offer limited protection. Where parties choose not to instruct solicitors, they may rely on their project manager to guide them through the process of LOIs and formal contracts. What duties does the project manager owe to his client in this regard?
The leading case on this is The Trustees of Ampleforth Abbey Trust v. Turner & Townsend Project Management Ltd  EWHC 2137 (TCC). In this case, the project manager was appointed by the trustees to act on three construction projects. A contract was never finalised between the trust and their contractor and the works were carried out under various LOI’s. The works were completed late. Had the main contract been executed, the trustees would have been entitled to claim liquidated damages of £750,000.00 from their contractor. As they were unable to do so, they turned their attention to a claim against the project manager, accusing T&T of negligently failing to ensure that the main contract was executed.
It was held that:
- the project manager was negligent in its duty to exercise reasonable skill and care in order to procure an executed building contract from the contractor,
- the project manager failed to exert sufficient pressure on the contractor to finalise the contract,
- if an executed contract had been in place, there would have been sufficient provision for liquidated damages; and
- the project manager’s breach caused the trusts’ loss.
This case highlights the importance for project managers to ensure that if the parties decide to start works under an LOI, they do not stop progressing towards executing the main contract. The project manager should be sure to press for the contract to be finalised. If a formal contract is not entered into and the terms of the LOI leave the client at a relative disadvantage, the project manager may find himself liable for the gaps.
Contract administrators – duty not to fetter discretion
Contract administrators acting as decision makers, must act independently, impartially, honestly and fairly. This was set down in Sutcliffe v Thackrah  AC 727) (with reference to an architect fulfilling the role of Contract Administrator) where the contract administrator was found liable to the employer for negligent certification.
In this case, the contract administrator issued interim certificates stating the amount due to the builders in respect of work properly executed. There were delays in the completion of the works and subsequently the employer terminated the contractors’ contract. The contractor later became insolvent.
The employer brought a claim against the contract administrator for negligently issuing certificates for works not done or improperly done by the contractor. It was held that contract administrators would be liable to the employer if they caused a loss by reason of their negligence.
It was held that, notwithstanding the obligation to be impartial, the contract administrator must still exercise reasonable skill and care in issuing certificates.
This case remains of such significance that it is quoted in Keating on Construction Contracts:
“"The employer and the contractor make their contract on the understanding that in all matters where the architect has to apply his professional skill he will act in a fair and unbiased manner in applying the terms of the contract".”
In Hickman v Roberts  AC 229, the architect/contract administrator was found to be so far under the influence of his client when it came to issuing certificates that the Court set those certificates aside.
Contract Administrator’s liability to a Contractor
With the above being said, in the leading case of Pacific Associates v Baxter  1 Q.B. 993 it was held that a contract administrator does not owe a duty of care to a contractor in negligence when certifying payment. The contractor’s redress was against the employer and not the contractor administrator.
In this case, the contractor was appointed for dredging and reclamation works in Dubai. They tendered in the knowledge that the work will be supervised by a contract administrator retained by the employer. The contractor claimed inaccurate information supplied by the contract administrator resulted in work being more difficult than expected and that the tender price was too low, they submitted for additional payments which were rejected. It was held that the contract administrator owed no duty of care to the contractor since there was no direct contractual relationship between the 2 parties, the contractor could not recover its losses from the contract administrator.
Although this is a highly criticised case, it is still being followed, most recently in the case of Galliford Try Infrastructure Ltd (formerly Morrison Construction Ltd) v Mott MacDonald Ltd  EWHC 1570 (TCC).
Substitution of the project manager
We are often asked if an employer can substitute itself into the role of the project manager or contract administrator. This was looked at most recently in the case of Imperial Chemical Industries v Merit Merrell Technology Limited  EWHC 1763 (TCC) which concerned an NEC3 contract and therefore our references to project manager are more properly to the “Project Manager” role under the ECC.
Here, the contractor agreed to supply pipes for the employer’s paint manufacturing plant. During the works, the independent project manager resigned due to the employer limiting its ability to exercise so many of its powers. The employer then appointed its parent company’s employee as a project manager. Following a dispute the employer alleged that widespread defects in the contactor’s welding amounted to repudiatory breach, it also alleged further breaches.
When ruling on the position of the project manager, the notion that an employee of the employer could be used to fulfil the project manager’s role was rejected. It was held that “the situation the employer had sought to impose by appointing its parent's employee as project manager was fundamentally different to that for which the contractor had contracted”.
The contract was built on the understanding that the employer and the decision maker were different entities. It would mean that notices that were required to come from the project manager were coming from the employer but dressed up as though they were from the project manager and therefore notifications would be given by the employer to itself.
It was held that a situation like this is so unusual that an express term would be required in the contract (which was not the case here). The duty of a project manager is one of independence when certifying documents. It would be for the employer and the contractor to agree such express words.