In austere times, clients are trying to transfer more of the risk onto desperate contractors. But to say consultants get off scot-free doesn’t tally with reality
You have to take your hat off to her. In her article of 10 September 2010, Ann Minogue bravely took developer clients and QSs by the scruff of their necks and gave them a good shaking. She chastised those who are taking advantage of the recession to impose unreasonable terms and adopting an “in this market they’ll accept anything” attitude. Fired up and furious, she even took a running charge at those of her fellow lawyers “who think that their clients are best served by trying to use commercial language and clever contract terms to abuse the construction industry”.
No one would describe Ann as a shrinking violet. However, remembering that law firms, too, are suffering in this recession, it takes some guts for any lawyer to stand out from the crowd and express a view likely to be unpalatable to developer clients.
If imposing unreasonable terms on contractors and consultants leads to protracted negotiations and high legal costs, you have to ask for whom such lawyers are really being clever
If only all lawyers were as honest and brave as Ann when advising their clients. We need the construction industry as a whole to get through this recession, because the truth - cliché or not - is that we are all in it together. Unnecessary multi-party bidding, protracted contract negotiation over unfair terms, adversarial attitudes and unquantifiable, unmanageable losses are the costs Ann correctly identifies of an unreasonable approach and are the last thing our industry needs at present.
I would have to disagree with Ann on one point, however. She bemoans the fact that the client, flexing its muscles in the recession, “often does not want to novate the design team but does want to offload the risk of errors in their designs [to] tendering contractors [who] are asked to accept and price the risk of such errors without any redress at all against the consultants”. She therefore concludes that the consultant team unfairly benefits from this.
Certainly, no reputable consultant - or its insurer - should try to encourage such unfair transfer of risk. But I believe the vast majority of consultants would say they never get the chance anyway. The consultant remains on the hook to the client (and to any relevant third parties through warranties) for their work, so they are highly likely to be sued directly in respect of their own fault. The client may like the option of a “one-stop shop” against the contractor, but it likes its belt and braces, too.
The client will almost invariably join the consultant in any action against the contractor if the action actually relates to the consultant’s error, just to be on the safe side. And even if it does not, then in nearly all circumstances, the contractor could claim a contribution from the consultant for its share of fault under the Civil Liability (Contribution) Act 1978. The suggestion that the consultant can walk off scot-free and dump the burden of its error on the contractor is just not a reflection of the reality.
Far from being relieved of their own design responsibility, consultants, too, regularly suffer from unreasonable clients demanding that they check - not just co-ordinate and integrate but actually check - the design of third parties. Where (unusually) this is genuinely the joint intent and a feasible proposition, it can be workable, but in the vast majority of cases the additional time and liability it involves will not be reflected in the consultant’s fees to enable it to perform such a checking role adequately. Moreover, the work it is required to check is very often outside its area of expertise, and its fees would not cover it subcontracting the role to an appropriate third party.
To be fair to clients, they are often being led by their lawyers to make such unjust demands - the “clever contract terms” to which Ann refers. But if imposing unreasonable terms on contractors and consultants can, in the worst cases, risk the consultants falling outside their professional indemnity cover and, almost invariably, lead to protracted negotiations
and so to unnecessarily high legal costs, you have to ask for whom such lawyers are really being clever.
The essential point, as Ann rightly concluded, is that the industry should try to hold tight and resist unreasonably onerous terms. Of course, that is all very easy to say when jobs, so desperately needed in the current market, are waved tantalisingly before bidders’ faces. “Just sign here, my dear Red Riding Limited - it’s really all very safe and fair.”
“Oh my, Mr Solicitor, what a long nose you have!”
This article was originally published under the headline More sinned against than sinning
Melinda Parisotti is an in-house barrister at Wren Managers, which manages a professional indemnity mutual for architects