These obligations arise from a branch of the law of equity known as fiduciary law, which governs situations where – because of the nature of the relationship – a party has to act with the utmost honesty and in the best interest of its counterparty or for their mutual interest.
A partnership is one example of such a relationship, but it also covers supply-chain relationships such as those between solicitor and client.
Acting with the utmost honesty and in the best interest of the client might not be recognised as typical characteristics of building contractors by some on the client side of the industry.
Since the early days, partnering contracts have become more sophisticated in their wording of partnering provisions and in other contractual mechanisms, such as payment.
The new draft NEC partnering agreement calls the parties "partners" and requires them to work together to achieve each other's objectives. The Association of Consulting Architects' PPC2000 form of contract for project partnering requires that partnering team members work in the spirit of trust, fairness and mutual co-operation for the benefit of the project, and for objectives such as a dedication to common goals and an understanding of each other's expectations and values. This is a great extension of the basic obligation in the NEC.
A partnering contract commonly entails considerable reliance by the client on the contractor for professional advice, particularly where the contract is a turnkey or design and build. The client may dispense with the services of the traditional range of consultants, as the contractor is assumed to be working for the client's objectives. Partnering contracts usually also include complex financial arrangements, such as a cost-plus or pass-through provision, or a target cost with a pain/gain share. Such arrangements in effect allow the contractor to spend the client's money.
Beware, contractors in circumstances where your client’s reasonable expectations have not been met, as you may be liable where you would not have been in the past
In these circumstances, the conclusion that the partnering contract does not give rise to fiduciary obligations should be reviewed. The relationship between contractor and client is collaborative, contains firm elements of trust and reliance, and is not antagonistic or at arm's length.
If there are fiduciary obligations, they will require the contractor to act in ways that many would say are inconsistent with their commercial practices. Whether developing a design or undertaking work on site, the contractor should be scrupulously honest, incurring project costs only when strictly necessary to meet the client's needs.
If options are offered to the client, they must be presented so as not to favour one that might be advantageous to the contractor in practical or financial terms. There may also be an obligation to disclose all relevant facts; non-disclosure could then have the same effect as a positive statement.
If a contractor breaches a fiduciary obligation, it may be required to indemnify the client for the resulting costs and to forgo payment for all work done, some part of the fee or the gain share.
In addition, the standard of performance required from the contractor to meet its legal obligations under a partnering contract will be higher than ever – even compared with the standard demanded from construction managers.
Postscript
Andrew Hemsley is managing director of consulting at Cyril Sweett, and may be contacted on 0207-242 9777 or by email to ahemsley@cyrilsweett.co.uk. This article was written with the assistance of Richard Honey.
