■ Minimising Risks with the Client

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.

Ensuring Clarity of Agreement

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.

What makes a clear agreement?

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:

• aiming to achieve a certain energy performance
• the use of sustainable materials
• advising on procurement methods
• assisting with the selection of a contractor.

Limitations to the service may include:

• the design of mechanical and electrical systems
• the provision of SAP calculations for building control purposes
• the provision of cost estimates and detailed valuations.

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:

• The scope of the technical design that the architect will undertake: an architect will often rely upon the contractor’s subcontractors to carry out the detail design of major components, such as windows and other joinery. A client may believe that the architect will design these elements themself.
• The scope of contract administration duties: an inexperienced client may understand contract administration to encompass project management duties.
• The scope of any project management duties undertaken: an inexperienced client may expect the architect to exert a far greater degree of control over the activities of the contractor than the terms of the construction contract allow.
• The scope of site inspections, especially where contract administration or project management services are being undertaken: a client may consider inspection to be the equivalent of supervision of the contractor’s work.

Clarity over site visits and inspections

Many claims against architects involve misunderstandings about site visits and inspections. These claims typically fall into two main categories:

1. Clients are disappointed with the quality of the finished work. Clients who have little or no experience of procuring building works sometimes expect an architect to supervise the work of the contractor, to monitor all of their activities and to direct and guide their work to ensure that the final product meets the expectations of the client. This may be the case even where those expectations exceed what the contractor can reasonably produce within the constraints of the given brief, budget and timescale.
2. The contractor ceases to exist either during or after completion of the works. Where this happens, the client will be unable to pursue the contractor in the event that there are construction defects in the completed work or where the client is dissatisfied with the quality of workmanship achieved. In these circumstances, the client may seek to recover damages from the architect on the grounds that, even though the defects were caused by the contractor, the architect ought to have noticed them as they occurred instructed the contractor to correct them, and deducted sums from certified payments.

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:

• have a clear and informed idea about what is the appropriate regime of site visits for each project
• ensure that this is clearly communicated to the client
• ensure that it is clearly set out in the appointment
• be prepared to vary the visiting regime should changing circumstances require it
• ensure that the appropriate visiting regime is effectively carried out.

Sharing Liability

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:

• it has not been individually negotiated and it ‘… causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’, and
• where the term has been drafted in advance and the consumer has not been able to influence its substance.

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:

• It appears to endorse the use of a respected standard form of words.
• It demonstrates that the character of the client must be taken into consideration.
• It highlights the necessity for discussions or negotiations about the inclusion of such a clause.

Including an NCC

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.

Being Clear about the Client's Right to Cancel

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.

■ Minimising Risks with Contractors and Subcontractors

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.

Casual Design Relationships

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.

Formalising Design Relationships

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.

Ensuring that Everyone Knows Where Design Liability Lies

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.

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.

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:

• have a contract with an appropriate CDP in place, and
• ensure that the requirements and formalities of that contract are properly adhered to. Reference to peripheral documents and actions might appear to infer liability but, almost certainly, they will not.

Selecting the right form of contract

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.

Agreeing the extent of the design work

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.

Agreeing the standards to be achieved

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.

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.

■ Minimising Risks with Subconsultants

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:

1. Minimising the likelihood that the subconsultant will fail
2. Minimising the effect on the architect if the subconsultant does fail.

Minimising the Likelihood that the Subconsultant will fail to Fulfil Its Obligations

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.

Using a familiar consultant

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.

Finding new consultants

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:

• desktop research
• review of the type, scale and scope of projects previously undertaken
• review of the skills and experience of the key personnel
• assessment of current workload as a proportion of overall capacity
• financial checks and confirmation of suitable PI insurance
• enquiry among the consultant’s clients
• face-to-face meetings with key personnel and with staff to be assigned to the project.

Engaging the consultant

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.

Minimising the Effect on the Architect Should any Such Failure Occur

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.