■ MINIMISING RISKS WITH THE CLIENT |
■ MINIMISING RISKS WITH CONTRACTORS AND SUBCONTRACTORS |
■ MINIMISING RISKS WITH SUBCONSULTANTS |
This chapter looks at how an architect may minimise the risk of breaching the duties that he or she owes. It examines how having a clear agreement can reduce misunderstandings and looks at specific methods of sharing risks in certain circumstances, by careful consideration of the content of the contractual agreements that an architect is most likely to enter into (i.e. those between an architect and a client – either the employer or the contractor – or the architect and any subconsultants that he or she is required to employ). It also looks at how the architect may minimise the risks inherent in selecting, administering and advising on contracts that he or she is not party to (i.e. those between the employer and the contractor).
Traditionally, the architect’s client would be the employer in the construction contract. With the rise in popularity of design and build procurement, however, the client is now just as likely to be the contractor – at least at some stage of the project. Whoever the client is, the risks associated with this relationship, and the methods of minimising them, are broadly similar; they are therefore dealt with together in this chapter.
Many disputes arise as a result of a party failing to do something that it promised, or doing something that it agreed not to do. Such disputes may often be resolved simply by reference to the terms of the agreement. More difficult to resolve are those that result from a lack of understanding of what each party has agreed.
The following two case studies involve direct contractual disputes between architect and employer, and clearly illustrate the problems that can arise where the terms of the appointment are unclear and each party has a different understanding of what was agreed. In the first case, the client was a private individual with no previous experience of procuring a construction project. In the second case, the client was a development company who had commissioned a number of commercial developments.
Both of these case studies demonstrate how easy it is for two parties to have very different views about what has been discussed and agreed between them. In the first case, whatever the agreement was between the partner and his friend was entirely oral. This left both parties free to interpret what had been said in the light of their own experience and understanding of the process that was about to be put in hand.
In the second case, a written agreement covered the work that was originally contemplated but when the scope of the work was extended, this agreement was not updated. Although much of what was discussed was recorded or transmitted in writing, it was not incorporated into the written agreement, thus leaving scope for the argument that these discussions were descriptions rather than instructions.
In both cases the likelihood of the misunderstanding, and ultimately the dispute, arising would have been reduced if the agreement, or extension to the agreement, had been properly considered and then put into writing.
In order to be as clear as possible, the appointment agreement should identify not only positive undertakings, but also those which are excluded from the architect’s service.
Positive undertakings may include:
Limitations to the service may include:
This will be especially important where the client has limited experience of construction projects. This is because there are many services that an inexperienced client is likely to assume to be part of the typical scope of an architect’s duties but which an architect may consider to be optional or additional to their standard services and require specific agreement and instruction.
In addition, misunderstandings often arise over the exact scope of the work that is to be carried out within the services that have been agreed. The following items appear to be particularly prone to problems:
Many claims against architects involve misunderstandings about site visits and inspections. These claims typically fall into two main categories:
The Architect’s Job Book, published by the RIBA, gives guidance with respect to site visits: the general principles, the appropriate frequency, and the way in which they should be organised and structured. A more detailed analysis of what should be provided and what may be expected is given in The Good Practice Guide: site inspections, also published by the RIBA.
In order to avoid, or be able to refute, such claims, an architect must:
In addition to minimising the risks through clarity of contract, a specific limitation of liability may be achieved by the incorporation of a net contribution clause into an appointment.
A NET CONTRIBUTION CLAUSE (NCC) is a term in an agreement that limits the liability of a contracting party where the responsibility for loss or damage is shared with another party. Liability is limited to a share that is proportionate to the party’s contribution to the loss or damage. An example of an NCC is clause 7.3 of the RIBA Standard Agreement 2010 (2012 revision). This provides that the architect’s liability shall not exceed '… such sum as it is just and equitable for the Architect to pay having regard to the extent of the Architect’s responsibility for the loss and/ or damage in question …’. The NCC is advantageous to the architect because it protects them, and their PI insurer, from having to pay out in full and then take the risk of trying to recover contributions from anyone else who might have shared responsibility for the loss.
However, NCCs run counter to the principle of JOINT AND SEVERAL LIABILITY that would otherwise prevail. Joint and several liability is advantageous to employers because it allows them to recover their losses in full from only one of the parties who caused the loss. This avoids the time, expense and risk of making two separate claims. For this reason, sophisticated clients may be reluctant to retain clause 7.3 in their appointments.
This conflict of interest means that NCCs may be vulnerable to the principles of the Unfair Contract Terms Act 1977 (UCTA) as applied by the provisions of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCC). The purpose of UCTA is to impose limits on the extent to which civil liability for breach of contract, or other breach of duty, can be avoided by means of contract terms. The purpose of UTCC is to protect unwary CONSUMERS (an individual outside his or her trade/business/profession) from unfair terms in contracts with experienced businesses, including those terms that seek to limit liability for breaches of duty. Under Section 5 of UTCC, a clause will be considered to be unfair if:
If these conditions prevail, then the NCC will be ineffective – the architect could be held liable for the whole of the damages. This vulnerability was considered by the Court of Appeal in West v Ian Finlay Associates.13
Although in this case the inclusion of an NCC was upheld (i.e. it was not found to be unfair), it made clear that in other situations the facts may result in a different outcome. The case provides much clear guidance on this:
In summary, an NCC provides an effective limitation of liability in situations where another party may carry a share of the responsibility for causing a loss. It avoids the situation where the architect must pay damages for the whole loss and then seek to recover an appropriate share from others. It makes sense, therefore, to ensure that an NCC is incorporated into your appointment. This should be done either by using the RIBA Standard Agreement 2010 (2012 revision) or by incorporating a term based on clause 7.3 of that agreement into any bespoke appointment.
In light of West v Ian Finlay, it is essential that the employer is made aware not only of the presence of the NCC but also of its effect in overriding the principle of joint and several liability. It should go without saying that these discussions must be recorded in writing.
The final area where an architect can minimise his risks is with regard to the cooling-off period enjoyed by a consumer client. Failure to provide the right information at the start of a project introduces the risk of the appointment being cancelled at any time up to a year and 14 days, with the client being able either to avoid paying any fees or to seek reimbursement of any fees paid.
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 define a consumer as ‘…an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession’. It is likely, therefore, that the regulations will apply to many of the appointments that an architect will enter into.
Paragraph 29 of these regulations provides a consumer with the right to cancel a contract, such as an appointment agreement, within 14 days of the contract being entered into. Paragraph (l) of Schedule 2 requires a trader – the architect in this case – to provide the consumer with information regarding ‘…the conditions, time limit and procedures for exercising that right’. If this information is not provided at the time the contract is entered into, then, in accordance with paragraph 31, the cancellation period is automatically extended either to 14 days after the information is provided, or to 12 months after the 14 day cancellation period that would have followed the contract being entered into, if the information had been provided at that time.
It is vital, therefore, to provide all consumer clients with clear information about their rights under these regulations to cancel the appointment. This is most easily done as a paragraph in the letter that accompanies the appointment documents.
Tips for success
The simplest way to avoid the pitfalls identified in this section is to discuss the risks with your client at the outset. You should:
All the points discussed in the section above with regard to clarity of the agreement and the importance of having an agreement in writing apply equally to agreements between an architect and a contractor in design and build procurement. Where a design and build form of contract is in place, then the relationship between the architect and the contractor, as the architect’s client, should be clearly set out in the contract documents.
However, difficulties can, and often do, arise in situations where the architect is not a party to any contract with the contractor, such as in a traditional form of construction contract or one with a CONTRACTOR’S DESIGN PORTION (where some part of the design will be done by the contractor). This type of casual relationship can carry with it various risks and responsibility for the design of the CDP elements should be clearly identified.
In traditional procurement, it is not unusual for the contractor to take on an element of design with regard to the construction details. For example, where the construction is standard and the contractor is experienced, the architect may provide only very general information about such things as DPCs and cavity trays or wall ties or dry wall details. When this happens the contractor’s role in the design is rarely acknowledged and standards and requirements are almost never set out. The transfer of responsibility is made on an entirely casual basis.
However, just what details need to be designed by the architect and what, if any, details may be left to the contractor to install by adhering to accepted good practice should be carefully considered and agreed. If they are not, the architect can find themself liable for decisions made by the contractor with disastrous results, as can be seen in Case Study 2.3.
CASE STUDY 2.3: Allocation of detail design responsibility
A private individual commissioned the design and construction, at a cost in excess of £2m, of a new large country house. The contract was traditional rather than design and build. Nevertheless, the architect expected that the contractor, who had much experience of such work, would assume responsibility for the details of the installation of some of the basic, and vital, components of the construction as a matter of good practice.
The contractor, however, made no such assumption and constructed exactly in accordance with the very limited information shown on the contract drawings.
Soon after completion, extensive areas of damp appeared in almost every room in the house, and during the winter it was impossible to keep the interior at a comfortably warm temperature.
Superficial inspection confirmed the presence of damp, mainly around window and external door openings but also at other locations at high level at the ground floor and at random locations elsewhere. Both water penetration and condensation seemed to be likely and the construction was opened up and inspected at various locations around the property, including sections of the roof.
A catalogue of poor design and workmanship was exposed. There was no cavity tray installed in the construction of the parapet wall surrounding the roof. The DPC beneath the coping was unsupported and formed a channel above the cavity. The sections of material forming the DPC were not sealed, leaving gaps where water could enter the cavity below. There were no cavity trays installed above the heads of window and door openings. The cavity width was barely 100 mm, leaving a residual cavity width of only 25 mm after the installation of 75 mm insulation batts. In a number of areas construction tolerances reduced the residual cavity to zero. A number of wall ties were contaminated with mortar and sloped down towards the inner leaf of the wall. Where the parapet gutter was opened up, the top of the ceiling boards, lighting and wiring was exposed. Insulation had not been installed.
Effective remedial works required the complete removal of the external leaf of masonry and its reinstatement incorporating proper waterproofing components and an increased cavity width. The employer sought to recover the entire costs of the remedial work from the original architect.
Casual design relationships can be avoided by selecting a contract that allows for a contractor’s design portion. This will provide a mechanism for a formal transfer of liability. However, just as in an agreement between an architect and the employer, it is vital to set out clearly the design services that are to be provided by the architect to the contractor and not rely on the separate expectations of the parties just because they both have experience of the construction industry. In particular, it is important for both the architect and the contractor to understand the level of design detail that the architect is expected to supply.
It is also important to ensure that:
The final consideration in this section concerns risks arising from contracts to which the architect will not be a party, such as that between the contractor and a SPECIALIST SUBCONTRACTOR, who may have some design responsibility. A specialist subcontractor manufactures, supplies and can also design specialised elements or components. The reason that it is important to consider this type of contract is that the actions of the architect, in administering the construction contract, may have a material impact on whether or not the appropriate design liability is properly passed to the subcontractor. If a dispute arises between the contractor and the subcontractor, or the employer and the contractor, the architect may be involved as a third party if their actions or inactions have caused or contributed to the dispute. Therefore, it behoves the architect to ensure that he or she understands how the construction contract and the subcontract will operate and be clear about what must be done in order for it to operate effectively.
Case Study 2.4 and the case of Walter Lilly v ackay15 illustrate the problems that can arise when these relationships are not properly defined in the manner required by the contract.
15 Walter Lilly & Company Limited v Mackay & Anor [2012] EWHC 1773 (TCC).
COURT CASE 2.2: Walter Lilly v Mackay
This project involved the construction of a new house on a prestigious London square at a cost of several million pounds. The contract was a heavily amended version of a standard JCT form with Contractor’s Design Portion (CPD). It was a requirement of the contract that the employer (or the architects acting on his behalf) had to notify the contractor of any work that was to be the subject of contractor design. Despite repeated requests from the contractor, such notification was not forthcoming.
Post completion, several areas of work exhibited design defects. The employer took action against the contractor and his subcontractors rather than the architect. In doing so he relied on the wording of (a) specification clauses that referred to subcontractor design, (b) the active participation by specialist subcontractors with the architect in the design of certain elements, (c) references in subcontracts to the ‘completion’ of design, and (d) on the production by subcontractors of detail and shop drawings.
However, the judge had no hesitation in finding in favour of the contractor and was unequivocal in his dismissal of the reliance on subsidiary information in the specification clauses, and elsewhere, rather than the notification required by the actual contract: ‘The need for a clear CDP notification should not be considered to be satisfied if one has to try to scrabble around for it in documents issued …’ (paragraph 203[d]).
Additionally, the judge felt that the architect’s ‘… ignoring of a series of letters from [the contractor] seeking clarification as to design responsibility … points strongly by inference to [the architect] taking a conscious decision not to provide any such notification’ (paragraph 203[e]).
In summary, the employer sought to recover damages from the contractor for defective design work carried out by the contractor’s specialist subcontractors, but failed because design responsibility had not been effectively transferred from the architect.
Case Study 2.4 demonstrates the risks involved in proceeding without establishing a clear understanding of where the responsibility for detail design lies. If there is confusion over what the design entails, then coordination of the works on site is likely to be ineffective, resulting in potentially significant, and expensive to correct, defects.
CASE STUDY 2.4: Design by specialist subcontractors
An owner commissioned a new commercial building using a JCT contract with CDP. Discussions and negotiations with respect to what portions of the work would be designed by the contractor were held. These were not fully conclusive, however, and in a number of areas there was no final agreement as to whether the architect or the contractor, or one of his specialist subcontractors, was to be responsible for the design. Nevertheless, work went ahead.
From the time the building was completed, there were extensive leaks in a number of parts of the building.
An inspection was carried out and opening up the construction of a screen wall enclosing an external rooftop space revealed that it did not include an effective waterproof membrane.
A review of the drawings showed that the specialist cladding subcontractor had designed and installed this screen wall as rainscreen cladding. The subcontractor’s drawings showed no waterproofing within the construction of the cladding but indicated a waterproof membrane located at the perimeter of the structure. The architect’s drawings showed a traditional cladding system with waterproofing linked to the waterproof membrane of the roof, but referred to the design of the cladding system as being the responsibility of the contractor’s specialist subcontractor.
The opening up showed that the contractor had constructed the main elements of the structure as they were shown on the architect’s drawings (i.e. without a waterproof membrane at the perimeter of the structure), and that the subcontractor had installed the cladding as indicated on its drawings (i.e. without waterproofing within the construction of the cladding).
The owner is pursuing both the architect and the contractor to recover the cost of remedying these defects.
It would appear, therefore, that if an architect is to be confident of transferring design responsibility to the contractor or a subcontractor, it is essential to:
In order to ensure that ‘design’ liability is properly identified and apportioned, it is essential to select a form of contract that contains formal mechanisms for allocating design responsibility to the contractor. There are a number of suitable contracts to choose from. JCT SBC 16, JCT MP 16, GC/Works/1 (1998) and NEC3 are among those suitable for major works, and JCT ICD 16, JCT MWD 16, RIBA Domestic and RIBA Concise Contracts, the ACA Form of Building Agreement 1982 and NEC3 (Short Contract) are suitable for a range of less complex undertakings. Forms with no option for any design by the contractor, such as CIOB forms, should be avoided for this purpose.
Once a suitable form of contract has been selected, the appropriate contract documentation must be put in place. For example, the commonly used JCT SBC 11, and now 2016, stipulates that employer’s requirements, contractor’s proposals, and a CDP Analysis must be prepared for the relevant portions of the work.
Where a bespoke contract has been developed, or where standard forms have been amended, it is essential that any terms relating to the design liability of the contractor are clear with regard not only to their intent but also the formalities that are required to bring them into operation. When administering such a contract, an architect must familiarise yourself with these formalities and ensure that they are properly operated.
Having set out the extent of the design work required, it is then necessary to set out the standards to be achieved. Failure to do this carefully carries a risk that the contractor will provide a lower standard than the employer requires, as Case Study 2.5 illustrates. Although this was not a design and build contract, the decision of the PROJECT MANAGER to dispense with the services of the architect as soon as work started on site effectively left the detailed design and coordination in the hands of the contractor. A project manager is responsible for planning the procurement.
CASE STUDY 2.5: Set clear standards
A homeowner undertook the substantial refurbishment of a modern movement house and wanted the design, workmanship and materials to be of an appropriate standard. As the work neared completion, it was apparent that the expected standards of workmanship and materials had not been met. In addition, there were a number of specific defects that were the result of flawed design, especially within the M&E systems, and poor coordination. The defects within the plumbing installation resulted in numerous serious leaks. These affected a number of areas and levels in the house and caused extensive damage to finishes and furnishings.
The homeowner withheld payment related to the final certificate. He also wished to recover the additional costs of correcting the defects and the costs of upgrading the general standard of the works to that which he had expected.
A review of the project documentation revealed that: the project manager had dispensed with the services of the architect once the general arrangement drawings and joinery details had been completed; there were no detailed drawings and no specification; levels of workmanship and quality of materials had not been specified; and M&E design and coordination, as well as the architectural and interior design were left entirely to the contractor. Inspection of the M&E systems showed that there were a number of design, defects and a number of instances of very poor workmanship which had led to the leaks and other failures. An inspection of the property generally showed that whilst the standard of workmanship and materials was not high, it could be considered to have reached a reasonable industry standard.
The homeowner initiated an adjudication and was successful in recovering the costs of the repairs and remedial works to the M&E systems and the costs of repairs to finishes and of new furnishings where these had been damaged beyond repair. Because of the lack of any detailed design or specification with respect to the required levels of workmanship and materials, however, it was not possible to make a case for recovery of the cost of upgrading the standard of the works generally.
Because the contractor had been given control over the detailed design without any instruction or agreement as to the standards to be achieved, the employer was left with a design that fell below expectations. Because there were no instructions or agreement as to the required standard, the employer was unable to seek any remedy either in damages or in specific performance, by having the standard improved at the contractor’s expense.
Tips for success
In order to ensure that any design carried out by the contractor is effectively integrated into a project, it is essential that:
We saw in Chapter 2 that when the architect appoints other design professionals as subconsultants, he or she becomes liable to his or her own client for any loss or damage caused by one of those subconsultants. Ideally, the architect will avoid this risk altogether by encouraging the employer to appoint all consultants directly. In this case, if the consultant causes loss or damage as a result of a breach of agreement, then the employer may take direct action against the consultant for breach of contract.
Where the employer is unable or unwilling to appoint the consultants directly, then the architect must consider how best to minimise the risks associated with appointing subconsultants. There are two aspects to this:
The first consideration is the selection of a consultant who is capable of providing the services that are needed. That is, someone who has the necessary skills and qualifications, sufficient experience in the type of work required, and adequate resources, in terms of both personnel and finances.
The simplest way of ensuring this may be for the architect to appoint a consultant with whom he has worked before and found to be satisfactory. However, it is always necessary to check that the skills and experience available are suited for the particular requirements of the job at hand and that the consultant’s resources will be adequate for the period during which the work will actually be carried out.
If new, or competing, consultants need to be selected then care must be taken to ensure that the assessment and selection process that is put in place will provide sufficient reliable information to enable a reasonable choice to be made. Such a process might involve:
Having selected a competent consultant, it is then necessary to ensure that he or she is engaged to carry out all the necessary work. This will require the preparation of a detailed scope of work with the interfaces between the responsibilities of the various design consultants being properly defined and their work properly coordinated.
It is likely to be helpful to have open discussions with the subconsultant about the terms of your own agreement with your client. This will enable the subconsultant to fully understand the duties and risks that you, and therefore they, are taking on together.
But what if, despite all best endeavours, the subconsultant causes a loss which the client seeks to recover from the architect? The architect then needs to have ensured that they are able to recover in turn from their subconsultant. In order to do this, the terms of the subconsultancy agreement must be consistent with those of the architect’s appointment in all important aspects. In particular, the required standards of care and levels of PI insurance should match those that are required in the appointment with the client.
is requirement for consistency between these agreements is of vital importance. Unless the agreements with the client and the subconsultant are fully consistent, or ‘back to back’ with each other, the architect may find themself facing a liability which they are unable to recover from the consultant who caused the problem.