Can an employer get rid of its construction manager and take on the job itself? The answer is no, according to the judge in this recent court case …
Can an employer dismiss its construction manager part way through a project and appoint itself instead? This was the question that the judge had to answer in the case of Scheldebouw BV vs St James Homes (Grosvenor Dock) Ltd. In many respects the decision is of general importance.
St James was the employer, and it had decided to tackle a project using the construction management method. This entailed employing a number of trade contractors and a professional team, which included a construction manager, an architect, a cost consultant and a planning supervisor. Scheldebouw was the cladding trade contractor and Mace was the construction manager. After a substantial amount of work had been done, Scheldebouw received a letter from St James announcing that Mace was no longer to be the construction manager and that it would itself undertake all the responsibilities of the construction manager under Scheldebouw's contracts. Scheldebouw expressed concern. St James replied that there was no reason why it could not do this. It claimed that it was entitled to replace the construction manager and that under construction management - as opposed to management contracting - the construction manager acted as the employer's agent and not as a quasi-judicial certifier. So, the argument went, there was no reason why St James should not step into Mace's shoes.
The judge did not agree. He analysed the role of the construction manager. Under this contract it had two separate and distinct functions. First, it was the agent of the employer and gave effect to the employer's wishes and instructions: as in the case of variations. Its second function was quite different. It had to reach decisions on matters where the contractor and the employer might have opposing interests. The first role the judge called "the agency function", the second "the decision-making function".
There is now a body of law on the duties of certifiers and others with decision-making functions in construction contracts running from Panamena to the recent cases of Amec Civil Engineering vs Secretary of State for Transport and Costain vs Bechtel. The judge drew three central propositions from these cases: first, the precise role of the decision-maker depended on the terms of the contract; second, generally, the decision-maker cannot be regarded as independent of the employer; third, in performing its function it has to act independently, impartially, fairly and honestly.
The contract was built on the premise that the employer and the construction manager were separate entities
The judge found that St James did have the power to dismiss and replace the construction manager but that it could not appoint itself.
He said that it was so unusual for the employer to be the certifier and decision-maker that it would need an express term of the contract to bring this about. Furthermore the whole structure of the contract was built on the premise that the employer and the construction manager were separate entities. In addition, the construction manager had to make decisions in a fair, impartial and honest manner. While not impossible, this would be much more difficult for the employer than for a professional agent. While it was true in one sense that both the employer and the contractor have a common interest in ensuring the construction manager's decisions are correct, anyone who has had experience of the courts will have seen how each is often driven by its own commercial interests.
The judge also pointed out that under most forms of construction contract the contractor has dual protection. Decisions are made by a professional who, though employed by the employer, is separate from it. And that professional has to act fairly, impartially and honestly. If the employer becomes the construction manager, one of those protections is lost. Other professionals might be involved in the decision-making but that was not a sufficient protection. Finally, although there are reported cases where the decision-maker was a direct employee of the employer, the judge's research showed that this had only occurred when the contractor had known of this situation from the outset. That was not so in this case.
Tim Elliott QC is a barrister and arbitrator specialising in construction at Keating Chambers