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Contract Administrators - Impartial As You Like

It is possible of course for an employer to hire a contractor without also engaging professional advisers to guide him. For example, a homeowner may employ a small contractor to build an extension to his house. The employer in this instance will rely solely upon the skill and reputation of the contractor. However, for the vast majority of larger building contracts, the employer will employ a team of professional advisors normally consisting of one or more of the following parties: an architect, engineer, project manager, agent and construction manager. Each of these parties will have distinct roles but one party will normally assume the role of contract administrator.

The role of the contract administrator will vary depending on the chosen procurement method for constructing the works and the profession of the party adopting such role. Broadly, according to the leading case of Sutcliffe v Thackrah (1974), his functions will fall within two distinct camps. Rrst, he is bound to act in accordance with the instructions of the employer whether he agrees with them or not, I.e. such as when issuing variation orders to the contractor or reporting to the employer on the progress of the works. Secondly, he must act in a quasi-judicial role, I.e. such as when making valuations or certifying the date of practical completion. It is this second role, where the contract administrator is required to use his professional skill to form his own opinions, which has been the subject of much comment and debate. The case of Sutcliffe has been followed in subsequent decisions. In Costain v Bechtel (2005) it was held that a project manager, acting as a contract administrator under an amended form of the NEC form of contract, was required to act in an impartial, unbiased and fair manner as between the employer and contractor. Drawing the case law together, we can be fairly certain that this is a general principle of law but, from the point of view of a contract administrator, acting in such a manner is easier said than done.

Take the example of an architect who has been preparing designs for the employer long before a contractor has even been selected to carry out the works. He may have struck up a trustworthy relationship with the employer, may have been paid a substantial sum of money by the employer (with the promise of more to follow) and may be bestowed with the honour of leading the design team and acting as the employer's agent. Is it really possible for the architect, in these circumstances, to act impartially and give a decision that the employer may not like? In Hickman v Roberts (1913), the architect openly admitted to the contractor that the employer would not allow him to issue a certificate - clearly his ability to act impartially had been seriously compromised.

The matter is brought further into doubt when you consider the principle set out in Pacific Associates v Baxter (1990). Notwithstanding possible cases of fraud, dishonesty and collusion, the widely held view is that there is not the degree of contractual proximity between the contractor and the contract administrator that would establish a duty of care to prevent economic loss. Thus, the only party that can sue the contract administrator in this regard is the employer.

This has long-been a bone of contention amongst contractors. It means that a contractor cannot sue a contract administrator if the contract administrator makes a negligent undervaluation that causes the contractor to be out of pocket. Another circumstance where the contractor may be left out of pocket is where the contract administrator negligently fails to grant an appropriate extension of time, which may cause the contractor to incur additional costs due to being forced to accelerate construction to meet the original deadline. The contractor should always ensure that it has sufficient remedies against the employer under the terms of the building contract.

Whilst this position may seem unfair to contractors, the justification often given is that it would be unfair to allow the contract administrator to be shot at from both sides O.e. allowing both the employer and the contractor to claim against him for negligence). If this were the case, the potential liability of contract administrators would rise, leading to the increased cost of maintaining insurance and ultimately to increased fees.

Some commentators, who are no doubt sympathetic to the precarious role faced by contract administrators, have stated that the law should be changed so that contract administrators should be exempt from any liability (except where acting in bad faith) when acting in a quasi-judicial role. In other words, contract administrators should not owe a duty of care to either the contractor or the employer. They liken the position of the contract administrator in this regard to that of an adjudicator, arbitrator or judge and state that they should be free to reach a decision without fearing liability if their decision turns out to be wrong.

Whilst obviously this would be good news for contract administrators (and contractors may be ambivalent seeing as they cannot sue in either case), most employers may be alarmed to hear that they may not have a claim against 'their' contract administrator if, for example, he negligently certifies practical completion. They would argue that contract administrators are employed to act as professionals and, if they fail to act in accordance with the appropriate standard of care expected of such professionals, they should be liable for losses suffered. Contractors may chip in with the argument that, as the threat of litigation does much to focus the mind on the task in hand, contract administrators should also owe them a duty of care.

The role of the contract administrator is not an easy one and has been compared to the old cliche of walking a tightrope. The task of walking a tightrope when you can be shot at from one side may be bad enough, but to be shot at from two sides may be intolerable - or just maybe it may help keep the balance.

Ian Fairclough, Clifford Chance
International Construction Newsletter
Summer 2006

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