By DAVID JOHNSTON

PROFESSIONAL consultants are engaged on construction projects to provide specialist advice. The type of consultants appointed can range from architects, mechanical and structural engineers and surveyors to specialist consultants in fields such as safety, planning and traffic management.

Yet the terms of the professional appointments under which each tends to be engaged are very similar, with only the services schedules being truly distinct.

Under a professional appointment, the consultant agrees to provide services to the employer. These services are usually divided into basic services and additional services, with basic services being defined with reference to a list of services in the schedules. Additional services usually cover those that are not contemplated in the appointment but in relation to which instructions are subsequently given by the employer.

Consultants often object to drafting which brings services incidental to the basic services within that definition. They argue that anything not listed in the services schedule should fall under additional services. However, drafting an exhaustive list of basic services would only be appropriate where the employer (and its other advisers) could guarantee that they had listed all of the services which are contemplated. This is unlikely to be the case, and drafting is required to cover services that the parties would consider to be within the intended scope of the basic services but have been unintentionally omitted. A common compromise is to include services which are ‘necessarily incidental’ to the basic services.

Together with the drafting describing the services, the specified degree of skill and care which the consultant is required to exercise is another fundamentally important part of the appointment. Appointments typically establish a standard of care with which the consultant is required to perform the services. Many consultants will attempt to extend the standard of skill and care to all obligations under the appointment. However, employers should not accept this on the basis that, whilst the services should be subject to the required standard of skill and care, it would not be appropriate, for example, for the consultant’s obligations to comply with all required standards and statutory requirements to be anything other than absolute.

Consultants should also be prohibited under the appointment from using, or specifying for use, unsuitable materials on a project. Some consultants may object to its inclusion on the basis that it is not relevant to their role on the project. However, employers should ensure that all consultants responsible for specifying materials should ensure that unsuitable materials are not specified or used. Ultimately, this drafting should give comfort to the employer, and will likely be reflected in the appointments of the wider professional team, and should therefore be retained.

Consultants will often argue against granting an indemnity in favour of the employer for breaches of the intellectual property rights (IPR) of third parties. However, IPR breaches are outside the employer’s control but not the consultant’s. Therefore, these risks should sit with the consultant.

Many appointments do not include limitations of liability. It is common for consultants to try to limit their liability, for example, by seeking a financial cap equal to their level of insurance cover.

As businesses with few assets, it may be difficult for consultants to meet liabilities which extend above their level of cover. If this is agreed, the level of liability should reflect the terms of the insurance, in particular whether the financial cap applies to aggregate liability or to each and every claim. The latter is clearly in the employer’s interest. However, employers should not accept limitations of liability which are connected to the consultant’s obligation to insure or to the amounts recoverable by the consultant from its insurers. Employers should also ensure that the consultant’s liability under its indemnity for breach of third-party IPRs is carved out of the financial cap as the employer would be unable to cap its liability to third parties.

Consultants may also seek to limit their exposure by including a net contribution clause. A net contribution clause provides that if the consultant is sued by the employer for loss caused by breach of contract, the consultant’s liability is limited where another party is also liable to the employer for the same loss. The court will apportion liability accordingly, and the consultant will only be liable to pay that portion of the loss he is found culpable for.

Issues arise where the second liable party has subsequently become insolvent and, therefore, cannot be pursued for its portion of the loss. Consultants argue that in such cases, without a net contribution clause they are effectively taking the risk of the other party’s insolvency. However, employers will counter that the consultant is already in breach of the appointment, and should not be able to take advantage of the fact that another party also happens to be liable to the employer in relation to the same matter. The employer will also be required to commence proceedings against all potentially liable parties, incurring added expense, whereas without a net contribution clause that would be the responsibility of the consultant being sued. For these reasons, net contribution clauses should be resisted by employers.

Market practice in relation to the terms of professional appointments is fairly well established, and the scope for protracted negotiation is accordingly somewhat limited.

These are the key points that employers should keep in mind to ensure the appointment affords adequate contractual protection. Employers on projects where the appointment will subsequently be novated to the design-and-build contractor should also note that the provisions of the appointment will be of particular interest to that contractor, particularly the drafting relating to payment periods and limitations of liability.

 

Gulf Construction

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