8.1 Managing relationships with the client and the contractor

In most projects, the architect is one of the first parties approached for advice by the client. The architect is often appointed early, and helps to shape the client’s thinking in terms of the overall form of the project, and in particular which procurement route to choose. The architect will have a role in producing the information on which the tenders of bidding contractors are based, and the architect will have a role in assisting the client (best described in the context of a building contract as the ‘employer’) to assess the tenders and select the best contractor for the job. In a design and build project, the architect will lead and co-ordinate the production of the employer’s requirements. So, even before the building contract is placed, the architect is providing services and making decisions that may impact on the contractor.

Once the building contract is in place, the architect’s contract administration role is defined by the terms of the building contract. Their professional appointment may refer simply to an obligation to administer:

and:

but the detail of what their key powers and duties are is all in the building contract itself.

The terms of any two building contracts are likely to differ. This chapter seeks to highlight the generic challenges to the architect of managing their relationship with both the employer and the contractor, before and after the building contract is in place. It also sheds light on the typical duties of a contract administrator and the way in which those duties should be approached in practice, by reviewing the role with specific examples taken from the JCT Standard Building Contract Without Quantities 2016 (SBC/XQ).

8.1.1 The architect's position under a design and build contract

SBC/XQ is a ‘traditional’ building contract; the contractor is engaged to build out the design fully completed by the architect (this is not always the case – there is an option for a contractor’s designed portion of the design work), and the architect acts as an independent contract administrator. Contrast this with the position under a design and build contract, such as JCT’s DB 2016. The contractor is responsible for completing the works and also for the design comprised within the contractor’s proposals. There is no independent certifier; the employer’s agent issues and receives all applications, consents, instructions and statements on the employer’s behalf.

Does the architect have a role under a design and build contract?

It is not common for an architect to act as the employer’s agent in design and build procurement. If an architect is so appointed, they must be given full authority by the employer to act as their agent for all purposes under the building contract. This role should of course be set out in the schedule of services to the architect’s appointment. The role of employer’s agent is very different from that of contract administrator; architects who are more used to traditional procurement should be cautious if approached to carry out this role on a design and build project.

8.2 The architect as contract administrator (CA)

8.2.1 The CA's role

For the purposes of this chapter, ‘CA’ is used as an abbreviation for contract administrator, and refers specifically to the architect as contract administrator.

To a layman, it must be surprising that the architect’s role can be so wide-ranging. The design work, and the architect’s part in shaping the specification for a project, are relatively easy to understand. The role of the architect as CA is that much harder to grasp. Their position is ambiguous. At times the CA is expected to be the employer’s agent, for the purpose of securing the efficient completion of the contract works, such as when they instruct variations to the work. At other times, in their decision-making capacity, they must be entirely independent, such as when assessing extensions of time or loss and expense claims. In applying the terms of the contract, when they are called on to exercise their professional skill and judgment in holding the balance between the employer and the contractor, the architect’s duty is to act independently, honestly, fairly and impartially.

The CA’s role under any contract, bespoke or standard form, is hugely important. It is also, surveys show, one of the leading sources of claims against architects. The RIBA Insurance Agency at one point analysed its claims data over a recent period of years and found that contract administration/project management was the second most common source of claims against architects, representing 33% of claims (the leading source was negligent design, representing 56% of claims, and third was planning, representing 12%).

The duty to act fairly does not confer on an architect the same immunity from being sued that an arbitrator or adjudicator can expect. Some examples of typical claims which may be made against an architect in this area include:

• negligence in respect of the extent of an extension of time award and loss and expense to be allowed to the contractor
• over-certification of the value of works that were defective or incomplete
• failure to advise that default notices should be issued when a contractor is failing to make due progress with the contract works
• wrongly issuing a certificate of practical completion where there remain substantial incomplete or defective works, resulting in the incorrect authorisation of payment of retention money to the contractor and prejudicing the employer’s rights to require further substantial works from the contractor
• wrongly issuing a notice terminating a building contract
• wrongly allowing substantial contract works to proceed before the building contract has been signed.

8.2.2 Can the contractor claim against the architect?

Before the building contract is in place, the architect is unambiguously acting for the employer; in law the architect is the ‘agent’ of the employer when, for example, producing the tender documentation. In contrast (as will be seen) with the prevailing view of the position relating to the architect’s conduct as CA, there is clearly no reason in law why the architect should not be liable to the contractor for their actions and statements during the pre-contract phase. For example, the architect may be vulnerable to a claim from the contractor if any negligent misstatements made by the architect to the contractor during the tender process induced the contractor to tender in circumstances when they would otherwise not have done so.

What if the architect, in performing a function under the building contract such as certifying payment or assessing an extension of time, negligently (or deliberately) fails to exercise their independent professional judgment and strike a fair and impartial balance between the interests of the parties? Is the architect only concerned to avoid opening the way for a claim by the contractor against the employer? Or is it possible, even in the absence of a contractual relationship, for the contractor to claim directly against the architect?

The 1974 case of Sutcliffe v Thackrah made clear that architect CAs are not protected from negligence actions – in contrast to the position of a judge, arbitrator or adjudicator – and so led the way for claims from the employer. In the Sutcliffe case, the CA was liable to the employer for the adverse effects of negligent over-certification in interim certificates.

In the 1990 case of Pacific Associates v Baxter the Court of Appeal appeared to make equally clear that a CA, whether architect, engineer or any other consultant, could not be sued by the contractor for negligence in the certification process. In the Pacific Associates case, the Court was mindful that the contractor had an alternative remedy under the building contract and could have challenged the certificate in question by arbitrating against the employer. The JCT suite of contracts, in common with other standard form building contracts, similarly provides a mechanism through which the contractor may dispute contentious decisions of the CA. As a result the architect will, in most cases under most building contracts, not be vulnerable to a direct claim in negligence from the contractor in relation to their contract administration duties.

This position is not clear-cut, though, and architect CAs should be wary of the continuing possibility of a direct contractor claim. Until the Pacific Associates case it was widely assumed that a CA could be vulnerable to a negligence claim from the contractor, and there may still be circumstances where a court will be willing to find that the architect had a duty of care to the contractor. For example, there may be circumstances where the contractor has no other avenue for recovery against the employer under the building contract, and where an assumption of responsibility by the architect and reliance by the contractor can be clearly established.

It is worth bearing in mind that these comments relate to the architect’s liability in negligence. If, for example, the architect deliberately colludes with the employer to under-certify, there is no doubt that the contractor would be in a position to bring a claim – according to the case of Lubenham Fidelities v South Pembrokeshire DC – against the employer, in contract, and the architect, in tort (not the tort of negligence, but the separate tort of inducing breach of contract). The evidential threshold for proving fraud or collusion is high, but successful claims are not unheard of.

8.2.3 What does it mean in practice to act independently, honestly, fairly and impartially?

When the architect holds the balance between the employer and the contractor and is required to make a decision under the contract which affects them both, how do they discharge their duty to be independent and fair?

Being independent does not require you to make decisions in a vacuum. You can discuss with your client what you consider to be your options in a particular scenario, and how you are minded to act to discharge your duties. You can listen to their opinions as to how you should act. You can listen to the contractor’s views too. You may seek (and pay for) your own legal advice on how to respond to a particular situation. You can share this legal advice with your client, the employer and the contractor if you wish. But the architect will have failed to discharge their duties if they come so much under the influence of one party to the detriment of the other that the architect can no longer be said to be acting independently.

In the real world, it may often be the case that a client struggles with the concept of an architect, whose fees they are obliged to pay, acting in a way that they perceive to be unfavourable to them. The architect must manage their client’s expectations. There may be times when the employer client seeks to encourage the architect, subtly or not, to make a particular decision in a particular way; without this pressure the architect may have done something different. The pressure may take the form of an overt threat to withhold fees or instigate a claim for negligence, or it may involve an appeal to the architect’s desire for the project to be successfully completed and for all parties to maintain good working relationships. The latter is, if anything, harder for most architects to deal with. It seems that a strong sense of wanting to do the right thing by all parties goes with the territory of being a professional architect. This can lead practitioners into dangerous territory. If an architect departs from their legal and contractual obligations out of a misguided sense of needing to keep everybody happy, the party most likely to suffer the consequences is the architect. It may seem counterintuitive, but the only acceptable course is for the architect to be very firm about sticking to the letter of their duties – not trying to interpret how to act in the right ‘spirit’.

If you consider that one or other party has overstepped the mark in trying to influence you, you should send a warning letter or email reminding that party of your obligation to remain fair and independent in your decision-making capacity. If the employer, your client, is making it impossible for you to discharge your duties effectively, tell them. Explain the options. If you are effectively prevented from performing your role, you have to resign. If you act correctly to the letter of your professional appointment and your duties under the building contract, you cannot be criticised; if you choose to act differently, you will be vulnerable to a claim in contract or tort, as well as to accusations of professional misconduct.

8.3 Specific powers and duties of a CA

8.3.1 Assessing extensions of time

The employer’s first job after the execution of the building contract is to give possession of the site to the contractor, if this has not been given already. The CA’s first job after the execution of the building contract is to arrange for the contract and other documents, schedules and information to be released to the contractor. Included among this information is the programme setting out the projected date for completion of the construction works. Without possession of the site and a managed flow of information, the contractor will not be able to properly carry out the works. Failure to provide either would amount to a serious breach of contract on the part of the employer.

What if it becomes apparent to the contractor that the progress of work is being delayed, whether or not they are likely as a result to miss the contractual completion date? SBC/XQ, in common with other standard form building contracts, allows the contractor to claim an extension of time for completion by giving notice under clause 2.27.1 to the CA. In order to claim an extension of time, the cause of delay must be a ‘relevant event’ as defined in SBC/XQ. These relevant events include acts of prevention by the employer and those acting on its behalf, along with a number of other events beyond the reasonable control of the contractor or the employer.

It is vital for the employer to recognise that any act of prevention on their part can be deemed to be a relevant event under the building contract, allowing the contractor to claim an extension of time. This is because of the ‘prevention principle’ of English law; if the employer has prevented the contractor from performing a particular obligation under the contract, such as the obligation to complete the works by the date for completion, the employer cannot insist on the performance of that obligation by the contractor. As a result, the contractual time for completion of the works would fall away, leaving time ‘at large’. This is a favourite phrase used by contractors, which simply means that the contractor in this scenario would have to complete the works within a reasonable time. This would be bad enough for the employer, but the news gets worse. As well as the contractual completion date, most employers will include in their building contracts a requirement that the contractor must pay liquidated and ascertained damages (LADs) to them in the event of a delay in completion. However, the law will not allow the employer to benefit from its own wrong by claiming LADs when the contractor is delayed because of an act of prevention by the employer.

The contractor is obliged to give notice of delay whether or not they are being delayed by a relevant event (so they must give notice even when they know they will not be entitled to an extension of time); the notice must be given ‘forthwith’ to the CA, setting out the cause or causes of delay. Following receipt of the contractor’s notice, the CA must assess whether the delay has been caused by a relevant event, and whether the delay is going to cause the contractor to miss the planned completion date. The CA is required to make their decision as soon as reasonably practicable, and in any event within 12 weeks of receipt of the required particulars of delay, fixing a new completion date if necessary and notifying the contractor in writing.

How should the CA go about assessing the extension of time claim?

The quality of the CA’s assessment will depend largely on the quality of the information available to them; the main source of information will be the contractor’s delay notice, but site meeting minutes, discussions with other professionals involved in the project and the architect’s own observations from site visits may all assist. As with most aspects of the architect’s work, the question of whether the architect as CA has discharged their duty to assess the extension of time claim using reasonable skill and care is not results-based. It is a question of whether the architect’s method was appropriate for the claim in question, based on the information available. In some circumstances an impressionistic assessment will suffice, but in others a calculated, scientific approach will be required.

What if the contractor’s progress has been delayed by two causes acting at the same time, one being the contractor’s fault and the other a relevant event? The Scottish case of City Inn Limited v Shepherd Construction Limited provided guidance. The Inner House of the Court of Session (the Scottish equivalent of the civil Court of Appeal) decided that where two causes are operative, only one of which is a relevant event, and neither can be described as the dominant cause, it will be open to the CA, approaching the issue in a fair and reasonable way, to apportion the delay in completion between the competing causes. How the CA applies this principle is open to question. The City Inn judgment may be indicative of a desire to move away from the mechanical application of critical path analysis, which should be welcomed. Assessing an extension of time remains a question of fact; the CA may consider any factual evidence acceptable to them and has a wide discretion, to be exercised reasonably, to decide what information is important.

8.3.2 The CA's role in relation to liquidated and ascertained damages

It is usual for the employer to wish to include a provision in any building contract entitling them to levy LADs in the event of completion of the works being delayed by the contractor. Fixing the correct level of LADs is crucial; the figure, usually expressed as an amount per week of delay, must be a genuine pre-estimate of the employer’s likely losses assessed at the date the contract was made. If the figure cannot be logically supported and appears excessive there is a possibility that a court will strike the LADs provision out of the contract as an unenforceable penalty. In the absence of an LADs provision, the employer will be able to claim for their actual delay damages, if they can prove that the contractor was responsible for the delay, and that the delay caused their losses.

A sensible LADs provision will benefit both the employer and the contractor. The employer need not take action to prove their losses in the event of a delay, saving both parties legal costs, and the contractor knows what their maximum weekly exposure will be. Sometimes the genuine pre-estimate proves to be an underestimate, which suits the contractor; sometimes the calculation will work in favour of the employer.

In order for the employer to levy liquidated damages under SBC/XQ, the CA must have properly discharged their duties in considering all extension of time claims, and must also have issued a non-completion certificate under clause 2.31, stating that the contractor has failed to complete the works by the contract completion date. The non-completion certificate is a pre-condition to the employer’s ability to levy LADs; the employer must also give the contractor a notice, any time before the date of the final certificate, stating that they may require payment of LADs. It is the architect’s duty to advise the client in relation to the service of such notices and they will in all likelihood be asked by the client to draft the employer’s notice, and the demand for LADs, as well as the certificate of non-completion the architect must give in their capacity as CA.

Where, as in JCT SBC/XQ, a contract stipulates that certain conditions have to be met before LADs may be levied, those conditions must be met in the correct order. The 2018 case of Grove Developments Limited v S&T (UK) Limited addressed the defendant’s argument that sufficient time is required between the warning notice, that the employer may wish to withhold or deduct liquidated damages, and the demand notice. In the Grove case the time between the two notices, sent by email, had been around seven seconds. The court decided that this is not relevant. The only requirement is that the notices are sent sequentially and in the correct order.

The CA must also be alive to the potential problems that may arise if a non-completion certificate is later followed by an extension of time for completion. Under JCT SBC/XQ, granting an extension of time will have the effect of cancelling the previous certificate of non-completion. In the 2016 case of Octoesse LLP v Trak Special Projects Ltd the CA failed to issue a further certificate after a nine and a half week extension of time was given. The court held that it is always necessary to issue a new certificate of non-completion, if the contractor fails to complete by the extended completion date, and Octoesse, in the absence of such a certificate, was not able to deduct liquidated damages.

The employer is able to claim LADs up until the date of practical completion under the building contract. It makes no difference whether the employer has taken possession of the works. For example, in the case of Hall v Van Der Heiden the employer moved back into their house while the (hugely delayed) refurbishment work was still going on. The employer levied LADs when the contractor failed to complete on time; the contractor argued that the LADs figure had become a penalty because once the employer moved back into their house they were no longer incurring any costs as a result of the contractor’s delay. The court refused to accept this argument; if the LADs figure was a genuine pre-estimate of likely losses at the date the contract was made, it cannot subsequently cease to be valid.

8.3.3 The CA's power to give instructions and require variations

Clause 3.10 of SBC/XQ gives the CA sole power to issue instructions to the contractor. The employer has no power to give effective instructions directly to the contractor, although in practice, particularly on smal domestic projects, the employer often finds it impossible to resist directly instructing the contractor. If the contractor acts on a direct instruction (they are not obliged to), a court may subsequently decide that the employer and contractor had decided to amend the building contract. The practical effect is that no directly instructed work should be valued in an architect’s certificate unless it has been included in an architect’s instruction. The architect is placed in a difficult position; project costs can quickly unravel if additional work is being instructed without the architect’s knowledge.

If the architect as CA finds their position undermined in this way they should warn the employer to desist. If the employer ignores the architect’s advice, the architect’s ultimate sanction is to treat this behaviour as a repudiation of their appointment – the employer is preventing the architect from properly carrying out their services – and walk away from the project.

All architect’s instructions must be in writing, but no particular form is prescribed by SBC/XQ. The RIBA produces architect’s instruction templates, sold in pads of 100. If used by the CA, these may eliminate any scope for confusion about the status of a particular communication. The contractor must, with some specified exceptions, comply with every valid architect’s instruction.

Some instructions give guidance, such as advising the contractor in relation to discrepancies between contract documents, but many instructions will require the contractor to vary the works. Variations may be instructed because of unexpected difficulties encountered on site, but equally may result from a unilateral change in the design desired by the employer. Any variation may result in the adjustment of the contract sum; a variation is also a relevant event and so may allow the contractor to claim an extension of time. The CA may be responsible for determining the consequent adjustment to the contract sum, either alone or assisting the quantity surveyor, or facilitating the agreement between the employer and the contractor of the value to be attached to the variation. The CA will certainly be required to assess any extension of time claimed as a result of the variation.

The employer’s power, through the CA, to vary the works is not limitless For example, it is not generally possible to omit work in order to give it to another contractor, or to instruct additional work that bears no relation to the scope of work originally envisaged.

8.3.4 Certifying practical completion and making good

Clause 2.30 of SBC/XQ requires the CA to issue an appropriate certificate when, in their opinion, the works have reached the stage of practical completion. Practical completion is an extremely important stage in the project:

• half of the retention fund is typically returned to the contractor
• the defects rectification period begins, and
• the contractor’s liability for LADs ends.

In the run-up to practical completion, more than at any other time in the life of a project, the CA is likely to come under considerable pressure from both the employer and the contractor as they try to influence the CA’s decision. It is extremely important that the CA’s decision about the state of completion of the works is based on established principles and truly represents the reasonably held opinion of the CA. Although ‘practical completion’ is nowhere defined, the CA should bear in mind the following:

• The contractor must have complied with their obligation to provide as-built drawings and information requested for the health and safety file.
• All the construction work to be done must have been completed.
• The CA does, however, have discretion to certify practical completion where there are very minor items of work left incomplete.
• The works can be practically complete if there are latent (undiscovered) defects.
• The works cannot be practically complete if there are patent (known) defects.

This guidance, from decided cases and the accumulated experience of seasoned commentators, should not be seen as an unattainable counsel of perfection. Exercising caution and acting in accordance with best practice will reduce the scope for claims arising from the issue of the practical completion certificate.

It is almost usual to see CAs issuing a certificate of practical completion accompanied by an extensive list of snagging items, which may include incomplete or defective work. The employer may well be desperate to take possession of the building, but once practical completion is certified, the employer loses a significant amount of leverage, and they may struggle to ever encourage the contractor to finally tie up all the loose ends. Even if the employer applied pressure on the CA to certify practical completion, it is the CA who is in breach of their duty of care if they certified practical completion before they reasonably believed it had been achieved.

The default defects rectification period under SBC/XQ is 6 months, but employers will typically expect a period of 1 year. The defects rectification period is a contractual window during which the contractor has a right to return to site to remedy identified defects; the contractor would otherwise have no such right and would simply be liable to a claim in damages – a defect is suggestive of a breach of contract on the part of the contractor.

The rectification period is intended to allow for the rectification of defects that are not apparent at the date of practical completion; that is why it is bad practice to certify practical completion subject to a schedule of patent defects, however minor. The CA may issue instructions to the contractor, requiring the making good of any defect, shrinkage or other fault, at any time up until 14 days after the expiry of the rectification period. Alternatively, or in addition, the CA may list all outstanding defects appearing during the rectification period in a schedule of defects, with that schedule to be delivered to the contractor no later than 14 days after expiry of the rectification period. In either case it is the contractor’s duty to make good, within a reasonable time, the defects, shrinkages or other faults specified. Alternatively, the CA may instruct that the employer accepts the defective work, in which case an appropriate deduction is made from the contract sum. This may be a viable option in the context of very minor defects, but the CA must advise the employer to proceed with caution if considering this option, as the full extent of the problem may not be apparent.

The architect may need to advise the employer on a course of action if the contractor is showing no signs of being willing to comply with an instruction to rectify defects. This may happen if the contractor decides that the cost of making good exceeds the sum of retention money that is likely to be released when making good is certified. The contractor may have an idea that the employer intends to dispute the sum to be returned, or may consider that particular defects cannot be brought into line with the contract documents, and as a consequence making good will never be certified. Faced with this scenario, the CA may issue a notice requiring compliance with their instructions, allowing the employer (if the contractor has not complied within 7 days) to bring in another contractor to do the work and deduct the resulting costs from the contract sum.

When in the opinion of the CA the contractor has made good all the defects notified to them, the CA must issue the certificate of making good. The final certificate cannot be issued without the CA first having issued the certificate of making good, if there were any defects at all.

8.3.5 Assessing the value of the works carried out

The building contract must, in order to comply with the Construction Acts, set out an adequate mechanism for deciding what amount of payment is due to the contractor and when. SBC/XQ sets out a payment cycle of due dates at one month intervals through to the due date for the ‘final payment’ (the payment due under the final certificate) fixed under clause 4.26.3 of SBC/XQ:

• on the first interim valuation date (as defined in the contract particulars) and subsequently on the same date each month, or the nearest business day, the contractor may make a payment application
• the due date for payment is 7 days after the interim valuation date
• the contractor’s application may be accepted, or more likely the quantity surveyor will be instructed by the CA to calculate the gross valuation of the work carried out by the contractor to date
• not later than 5 days after each due date, the CA must issue an interim certificate stating the sum they consider to be due and the basis on which that sum was calculated
• the final date for payment is 14 days after the due date
• if the employer wishes to pay less than the sum stated as due in the interim certificate, it must issue a pay less notice not later than 5 days before the final date for payment
• the CA will ultimately issue the final certificate.

The architect’s duty to inspect the works is important for their duty as CA to issue certificates for payment. The quantity surveyor generally measures and values the works as they progress; their valuations should exclude the value of incomplete or defective work. But it has been reconfirmed, in the case of Dhamija v Sunningdale Joineries, that the quantity surveyor owes no duty whatsoever to their client, the employer, in relation to issues of quality. The quantity surveyor need only be concerned with getting their sums right; they are reliant on others, in particular the architect, to advise them of the presence of defective or incomplete work that should not be valued. The employer in the Dhamija case had asserted that the quantity surveyor had a positive duty to bring defects to the attention of the architect, and that the quantity surveyor was also under a duty only to value work that was properly executed. The court rejected these suggested duties of care as having no basis in law. The architect cannot rely on the quantity surveyor to point out areas of defective work.

Valuing off-site materials

The status of materials, goods or other items prefabricated for inclusion in the contract works (‘Listed Items’ in the terminology of JCT SBC/XQ) is becoming increasingly important as construction work, particularly in the residential and alternative residential sectors, moves inexorably off-site.

Clause 4.16 of JCT SBC/XQ provides the architect as CA with a framework setting out the conditions for including the value of such items in an interim certificate – the Listed Item must be ‘in accordance with the Contract’; the contractor must have provided reasonable proof to the CA that property in the Listed Item is vested in the contractor, and that the Listed Item is and remains insured against loss or damage for its full value. The Listed Item must also either be uniquely identified as being held to the order of the employer or, if not uniquely identified, the contractor must have provided a bond in relation to the value of that item.

8.3.6 Failure to serve the appropriate payment or pay less notice

In a line of cases starting with ISG v Seevic in 2014, it was held by the courts that an employer who fails to issue a valid payment notice or pay less notice is required to pay in full the sum demanded in the contractor’s payment application. ISG and the cases that followed it suggested that it was not possible for the employer to go to adjudication and ask the adjudicator to open up, review and revise that particular valuation in order for the employer to recover any overpayment. This led to numerous ‘smash and grab’ adjudications, based purely on failure to serve the appropriate notices, against which there was apparently no defence. Aside from the financial implications for the employer, this outcome would also have an impact on the CA who neglected to advise the employer to issue the appropriate pay less notice, who would then be likely to receive a claim from the employer for breach of contract or negligence.

8.3.7 Advising on retention

The position has changed following the 2018 Grove Developments v S&T case in which the court decided that, in such circumstances, the employer is entitled to bring their own adjudication to decide the true value of the contractor’s payment application, despite missing their chance to serve the appropriate pay less notice.

It is generally accepted that the employer should be entitled to deduct a percentage from each interim payment due to the contractor (the default rate is 3% under clause 4.19 of SBC/XQ) to create a fund which the employer may use to remedy any defects which emerge. SBC/XQ creates the right for the employer to deduct the retention money, but it is the duty of the CA to advise the employer of the need to comply with the contractual rules on the treatment of the retention money and to operate the retention mechanism properly during the payment process, and also when certifying practical completion and making good – half of the retention fund is released to the contractor with each event.

At the date of each interim certificate the CA must prepare, or instruct the quantity surveyor to prepare, a statement to be issued to the employer and the contractor specifying the amount of retention deducted in arriving at the interim certificate value. SBC/XQ requires the employer to hold the retention fund in trust for the contractor, to protect the retention money against the employer’s potential insolvency. If the contractor requests that it be done, the employer must arrange for the retention fund to be held in a designated bank account separate from the employer’s normal trading account. It is the architect’s duty to advise the employer on the steps to be taken, most likely by advising the employer to take specialist advice from their solicitors or accountants.

How prescriptive the contractor can be in insisting where the employer opens the account is open to question, but the architect should advise the employer to proceed with caution; the courts have demonstrated a willingness to grant mandatory injunctions to force the employer’s hand if a suitable separate account has not been set up. The architect may also be asked to advise the employer in relation to compliance with the bank’s account-opening procedures; a bank will want to see evidence of the existence of the trust which the account is being set up to satisfy. The trust is established by the building contract itself; a full certified copy should suffice, and the particular trust provisions will need to be brought to the bank’s attention.

8.3.8 Certification for payment

If the architect is asked to advise in relation to the operation of the trust account by the employer, they should in most cases suggest that the employer consults a specialist accountant. Some key principles were established in the Bodill & Sons v Harmail Singh Mattu case, including the need to ensure that the account name is sufficiently clear to enable it to be described as a designated trust account, and the contractor must be given 3 working days’ notice prior to the removal of any sums from the trust account.

What if the employer has a claim against the contractor for a sum equivalent to or greater than the retention fund? Certainly it appears that a court in such circumstances will not require the fund to be set up in a separate trust account.

The employer is also entitled to set off sums they claim against sums that would otherwise be taken as retention under an interim certificate; such sums will never find their way into the retention trust account.

Finally, the architect should caution the employer against including retention provisions in the building contract which may result in the employer having sole control over when and whether retention money is released. In the Scottish case of AMW v Zoom the court had to consider a scheme being constructed in three blocks, with retention for all blocks only being released on practical completion of the final block. The court heard that the first two blocks had been successfully completed before the employer decided not to proceed with the third. As work on the third block would never start, it would never reach practical completion and as a result the retention for all three blocks would never be released. The court decided that this was not an adequate payment mechanism for the purposes of the Construction Acts.

The CA’s duty is to issue interim certificates for payment at monthly intervals, after the work carried out to that date has been valued. The issue of the CA’s certificate is a condition precedent to the contractor’s entitlement to payment. The contractor may refer a dispute to adjudication if the CA’s certificate is late or is not issued at all. The employer then pays the contractor on the basis of the certificate, less any amounts to be deducted or withheld; if the employer considers they have grounds for withholding sums, the architect must advise on timing for the service of the appropriate pay less notice and the information it must contain.

The final date for each interim payment under SBC/XQ is 21 days after the interim valuation date. The architect should advise the employer of the potential consequences of a failure to make payment in accordance with the application or payment certificate if no pay less notice is served; the contractor will have a right to claim interest on the sum not paid (clause 4.11.6) and will be entitled to give notice of their intention to suspend the works (clause 4.13.1) if payment in full is not forthcoming. Adjudication instigated by the contractor is also a real possibility in such circumstances; if the contractor is successful, the employer can expect to have to pay the adjudicator’s award in full before it has the chance to launch its own adjudication to establish the ‘true’ value of the application and recover any overpayment.

The CA will in due course be obliged to issue the final certificate (SBC/XQ clause 4.26.1) following the issue of the certificate of making good (if there are any defects), within the time periods provided for in the contract. The process for calculating the final adjusted contract sum to be included in the final certificate begins with the contractor; they must provide ‘all documents necessary’ to enable the CA, with the quantity surveyor, to make the calculation. In theory, though, if the contract has been operated correctly throughout, the CA and quantity surveyor should already have all the information from the contractor required to finally adjust the contract sum. If the contractor does not provide any further information at the end of the project within the timescale set out in the contract, the quantity surveyor should be instructed to make the calculation on the basis of the information already held and the CA should issue the final certificate accordingly within the period required. The final date for payment – by the employer, or the contractor as appropriate – of the final payment as set out in the final certificate is 14 days after its due date. That date is either the date of the final certificate, or the last day of the period of 2 months after, most likely, the date of issue of the certificate of making good.

The issue of the final certificate is a serious responsibility for the CA They must be certain that they have properly and fully discharged their duties as CA prior to issuing the certificate, and must ensure that the final certificate itself is unambiguous and complies with the requirements of the contract as to form, substance and content. Take legal advice as necessary before issuing. The final certificate is so important because it has a conclusive effect in relation to a number of issues under the contract. It is conclusive that:

• where matters (including the quality of materials or goods or standards of workmanship) have been expressly stated to be for the CA’s approval, they have been approved
• proper adjustment has been made to the contract sum
• extensions of time due under clause 2.28 have been given, and
• reimbursement of all direct loss and/or expense has been made in final settlement of any claims the contractor may have had.

Either the employer or the contractor may, under clause 1.9.2 of SBC/XQ, challenge the final certificate in whole or in part by issuing proceedings within 28 days of its issue; to the extent it is challenged in such proceedings, the certificate ceases to be conclusive.

8.3.9 The CA's role in relation to termination

Termination of the contractor's employment by the employer

It is usual for a building contract to provide both the employer and the contractor with a right to terminate the contractor’s employment in certain circumstances. It is the employment that is terminated; the contract is not terminated, and the parties continue to be bound by it and liable under it after termination.

SBC/XQ allows the employer to terminate following the occurrence, prior to practical completion of the works, of particular breaches of contract by the contractor, set out in clause 8.4. In the event of such a default:

• the CA may give notice to the contractor specifying the default
• if the contractor continues the specified default for 14 days following receipt of the notice then the employer may, on or within 21 days from the expiry of that initial 14-day period, give a further notice terminating the contractor’s employment
• if the employer does not give this notice, the contractor’s employment will continue, but if the contractor repeats the specified default then the employer may without warning give notice terminating the contractor’s employment, within a reasonable time of the repeated default.

The CA's role and advice in relation to the procedures

The notice procedures must be followed strictly; the CA’s warning notice must clearly express the default forming the potential grounds for termination. The CA must be wary of taking part in a termination by the employer that may be construed as unreasonable or vexatious.

It is important for the CA to know and understand the notice mechanism, and the particular contractor defaults which may allow for an initial notice to be given, as well as the rights and obligations of the parties after such a termination.

For example, the employer has extensive rights which they may exercise to facilitate the completion of the works by another contractor, or the employer may instead choose not to complete the works. In these circumstances the architect will be required to advise the employer in relation to the mechanism to be followed for identifying any outstanding payment due to the contractor.

Termination by the contractor, or by either party

The CA will be expected to advise the employer in relation to the contractor’s rights to terminate under the contract for any one of a number of employer defaults specified in clause 8.9. In such circumstances, the contractor may follow the same notice procedure as is available to the employer in the event of a contractor default, the one difference being that the employer cannot do anything without the CA’s initial default notice. The contractor may give the initial 14-day notice, then a termination notice after a further 21 days if the default continues. The contractor may also terminate for employer insolvency.

Either party may terminate, prior to practical completion of the works, if a serious ‘force majeure’ event – i.e. beyond the control of the parties – occurs. The architect must use reasonable skill and care to advise the employer in relation to their rights and obligations in such circumstances, as well as advising in relation to and operating the accounting mechanics to be followed in the event of such a termination, or in the event of termination by the contractor.

The CA's role and advice in applying the principles to the facts

As well as operating the termination mechanisms precisely as required by the contract, the CA must exercise their judgment in borderline cases, particularly in relation to SBC/XQ clause 8.4.1.2, which allows for a default notice to be given if the contractor fails to proceed regularly and diligently with the works. A CA may be sued for negligence by the employer for failing to issue a default notice, but default or termination notices may also be challenged by the contractor in adjudication or litigation. If a notice is found to have been issued negligently, it is the CA who will be in the frame for a subsequent claim by the employer.

As CA, the architect may already have given the default notice, but they will typically also be required to advise (along with the employer’s solicitors) on the correct course of action to be taken subsequently:

• Is the specified default continuing, or has it been remedied?
• Is issuing a termination notice an option?
• Is termination the right option?

Repudiation: termination rights other than those provided for in the contract

The architect should advise the employer in relation to the possibility of repudiation under the contract. If a breach of contract by one party is so serious that it indicates an intention to no longer be bound by the contract, then the other party may treat this as ‘repudiation’; they can accept the repudiation, terminate the contract, and sue for damages incurred as a result of the breach. Repudiation is a common law right, available even if the contract does not provide a right to terminate for the specific breach of contract in question.

Chapter summary

• The contract administrator performs a key role on any non-design and build project.
• The architect, if appointed as contract administrator, must balance the interests of their own client with those of the contractor.
• When holding the balance between the employer and the contractor, an architect must act independently, honestly, fairly and impartially.
• Under JCT SBC/XQ the contract administrator has numerous specified duties including assessing extensions of time, giving instructions, certifying sums for payment and certifying practical completion.