Building for boarders is bothersome without signing on dotted line
The Message: Project Managers owe substantial duties to protect their client's interests.
The Case: The High Court has considered whether a project management company was at fault by proceeding with a building project without ever putting a formal contract in place with the contractors ( The Trustees of Ampleforth Abbey Trust-v- Turner & Townsend Project Management Limited (27 July 2012)).
The Claimants are the trustees of Ampleforth College in North Yorkshire. Between 2000 to 2005, the Defendants, TTPM, acted for the Claimants as project managers on 3 building projects for the provision of new boarding accommodation at the College.
Unfortunately, whilst there was no dispute as to the quality of the works, the third project was substantially delayed and a dispute arose with the contractors, Kier, as to liability for liquidated damages in the sum of £750,000. Kier were able to rely on the fact no building contract had ever been entered into so as to negotiate a drop hands settlement whereby the Claimants and Kier did not pursue each other for any further sums or damages due to the delay.
The Claimants then sought to hold TTPM liable for allowing all of the works to be undertaken by Kier under letters of intent and never ensuring that Kier entered a building contract expressly incorporating liability for liquidated damages for delay. They argued that it was extraordinary and unacceptable to just rely on issuing letters of intent from time to time and that TTPM had failed to exercise reasonable care and skill or comply with the standards and practice of the construction industry.
TTPM argued that there were numerous reasons why it had not been possible to conclude a building contract with Kier during the project and they relied on the fact that it was accepted that, due to the urgency, commencing the works in December 2003 on the basis of just a letter of intent was justified. They said that there would have been a real risk Kier would have walked off site if pushed to complete the contract during 2004.
The Court described a project manager as the representative of the employer for the purpose of co-ordinating the different aspects of the project. As such, a project manager's role involves acting as guardian of the client's interests. This includes dealing properly with the procurement of the building contractor and the building contract and, insofar as the project manager did not have the expertise to deal with legal, insurance, or other issues, he needs to advise the client to take expert advice in this respect from a lawyer or some other professional.
Although the Court recognised the difficulties involved at the time, it held that TTPM failed to appreciate how fundamental a contract is and the need to resolve the obstacles raised by Kier so as to ensure the contract was completed in or about April 2004 after the expiry of the initial letters of intent. By proceeding as they did, TTPM put the Claimants at real risk because there were no detailed provisions covering the works and, in particular, no agreed provision for compensation in the event of delay.
Insofar as legal advice was required to deal with the contract, or the risks of proceeding without one, the Court held that TTPM should have advised the Claimants to obtain such advice and it could not blame the Claimants for failing to do so. It also held that, the longer TTPM allowed works to proceed without any contract, the more difficult it became to make the contractor enter one, as proved to be the case.
The Court then had to consider what would have happened if TTPM had advised the Claimants that Kier should be required to complete the contract? It held that there was a two-thirds chance Kier would have done so and, if it had, that the Claimants would have had a far better negotiating position re liquidated damages as they could have relied on an express provision rather than having to argue there was some implied liability.
The Court concluded that, with the benefit of a contract, Kier could have been held liable for £340,000 by way of damages so, after factoring in the one-third risk that no contract would have been completed, this left damages of £226,667 payable by TTPM.